<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 1, 1996 ("Third Quarter,
Fiscal 1996") or
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from ______________ to _______________
Commission File Number 0-10078
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HEI, INC.
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(Exact name of small business issuer as specified in its charter)
Minnesota 41-0944876
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
PO Box 5000, 1495 Steiger Lake Lane, Victoria, MN 55386
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(Address of principal executive offices) (Zip Code)
Issuer's Telephone number, including area code: (612) 443-2500
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None
----
Former name, former address and former
fiscal year, if changed since last report.
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports); and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No ___
4,030,427 Common Shares, par value $0.05, were outstanding as of June 1, 1996.
This Form 10-QSB consists of 11 pages.
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2
Table of Contents HEI, Inc.
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Part I - Financial Information
Item 1. Financial Statements
Balance Sheet................................... 3
Statement of Operations......................... 4
Statement of Cash Flows......................... 5
Notes to Financial Statements................... 6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations... 8 - 9
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K................ 10
Signatures................................................ 11
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS 3
HEI, INC. BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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June 1, 1996 August 31, 1995
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ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 1,218 $ 1,438
Short-term investments 4,973 3,820
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6,191 5,258
Accounts receivable, net 1,999 2,525
Inventories 2,415 1,851
Other, principally deferred tax assets 388 349
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Total current assets 10,993 9,983
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Property and equipment:
Land 216 184
Building and improvements 3,061 1,398
Fixtures and equipment 7,335 5,475
Accumulated depreciation and amortization (4,802) (4,183)
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Net property and equipment 5,810 2,874
Restricted cash 3,211 -
Deferred financing costs 102 -
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Total assets $20,116 $12,857
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 303 $ -
Accounts payable 484 385
Accrued liabilities 1,198 1,043
Income taxes payable 123 175
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Total current liabilities 2,108 1,603
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Long-term debt 5,322 -
Deferred tax liability 272 272
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Shareholders' equity:
Undesignated stock; 5,000,000 shares authorized,
none issued
Common stock, $.05 par; 10,000,000 shares
authorized; 4,030,427 and 3,791,597 shares
issued and outstanding 202 190
Paid-in capital 6,819 6,183
Retained earnings 5,393 4,609
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Total shareholders' equity 12,414 10,982
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Total liabilities and shareholders' equity $20,116 $12,857
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See accompanying notes to unaudited financial statements.
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<TABLE>
<CAPTION>
HEI, INC. STATEMENT OF OPERATIONS (UNAUDITED) 4
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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Three Months Ended Nine Months Ended
June 1, 1996 May 27, 1995 June 1, 1996 May 27, 1995
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<S> <C> <C> <C> <C>
Net sales $ 4,656 $ 6,134 $ 14,283 $ 18,005
Cost of sales 3,563 4,806 10,885 13,026
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Gross profit 1,093 1,328 3,398 4,979
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Operating expenses:
Selling, general
and administrative 578 608 1,736 1,842
Research, development
and engineering 231 194 629 578
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Operating income 284 526 1,033 2,559
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Other income, net (58) (69) (211) (165)
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Income before income taxes 342 595 1,244 2,724
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Income taxes 124 231 460 998
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Net income $ 218 $ 364 $ 784 $ 1,726
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Net income per common share $ .05 $ .09 $ .19 $ .44
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Weighted average number of
common and common equivalent
shares outstanding 4,149,099 3,904,768 4,073,187 3,891,215
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</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
HEI, INC. STATEMENT OF CASH FLOWS (UNAUDITED) 5
(DOLLARS IN THOUSANDS)
Nine months ended June 1, 1996 May 27, 1995
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CASH FLOW PROVIDED BY OPERATING ACTIVITIES:
Net income $ 784 $1,726
Depreciation and amortization 620 565
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CHANGES IN CURRENT OPERATING ITEMS:
Accounts receivable 526 530
Inventories (564) (207)
Other current assets (39) 13
Accounts payable 99 219
Accrued liabilities 155 117
Income taxes payable (52) (48)
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NET CASH FLOW PROVIDED BY OPERATING
ACTIVITIES 1,529 2,915
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CASH FLOW PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Purchase of short-term investments (4,313) (4,817)
Maturity of short-term investments 3,160 2,296
Additions to property and equipment (3,556) (559)
Increase in restricted cash (3,211) -
Increase in deferred financing costs (102) -
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NET CASH FLOW USED FOR INVESTING ACTIVITIES (8,022) (3,080)
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CASH FLOW PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds from long-term debt 5,625 -
Principal payments for obligations under
capital leases - (42)
Issuance of common shares 648 221
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NET CASH FLOW PROVIDED BY FINANCING
ACTIVITIES 6,273 179
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (220) 14
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,438 1,579
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CASH AND CASH EQUIVALENTS, END OF PERIOD $1,218 $1,593
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See accompanying notes to unaudited financial statements.
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6
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) HEI,INC.
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(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
The unaudited financial statements have been prepared by the Company, under
the rules and regulations of the Securities and Exchange Commission. The
accompanying financial statements contain all normal recurring adjustments
which are, in the opinion of management, necessary for a fair presentation of
such financial statements.
Certain information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted under such rules and regulations although the
Company believes that the disclosures are adequate to make the information
presented not misleading. The year-end balance sheet data were derived from
audited financial statements, but do not include all disclosures required by
generally accepted accounting principles. These unaudited financial
statements should be read in conjunction with the financial statements and
notes included in the Company's Annual Report to Shareholders on Form 10-KSB
for the year ended August 31, 1995. Interim results of operations for the
three and nine month periods ended June 1, 1996 may not necessarily be
indicative of the results to be expected for the full year.
(2) INVENTORIES
Inventories are stated at the lower of cost or market and include materials,
labor and overhead costs. The first-in, first-out cost method is used in
valuing inventories. Inventories consist of the following:
(Dollars in thousands) June 1, 1996 August 31, 1995
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(Unaudited)
Purchased parts $1,897 $1,670
Work in process 1,254 907
Finished goods 219 233
Allowance for excess or obsolete stock (955) (959)
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$2,415 $1,851
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7
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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(3) FINANCING ARRANGEMENTS
In April 1996, the Company received proceeds of $5,625,000 from the issuance
of industrial development revenue bonds. Of these funds, approximately
$1,500,000 will be or has been used for the construction of the new addition
to the Company's manufacturing facility, and the remainder will be used for
equipment purchases. The bonds related to the facility expansion require
annual principal payments of $95,000 on April 1 of each year through 2011.
The bonds related to the equipment require payments over seven years from the
date of purchase of the equipment through April 1, 2006. The bonds bear
interest at a rate which varies weekly, and is limited to a maximum rate of
10%. The interest rate at June 1, 1996 was approximately 4%. A revolving
commitment fee is paid annually to the bank at a rate of 1% of the average
daily unused revolving commitment. The agreement contains certain
restrictive covenants including limitations on other borrowings and
maintenance of specified financial levels and ratios for net income, tangible
net worth, debt to tangible net worth, cash flow and indebtedness. The bonds
are collateralized by two irrevocable letters of credit and property and
equipment. Restricted cash on the balance sheet represents advances under
the bond held by the bond trustee in an interest bearing account and will be
released to the Company over the next three years for construction and
equipment purchases.
Also in April 1996, the Company extended the due date of its $3,000,000
revolving line of credit to April 1998. At June 1, 1996 there were no
borrowings outstanding under the line of credit. Any borrowings under this
agreement would be collateralized by accounts receivable. The agreement
contains certain restrictive covenants including limitations on other
borrowings and maintenance of specified financial levels and ratios for net
income, tangible net worth, debt to tangible net worth and cash flow.
Borrowings are limited to the lesser of $3,000,000 or the borrowing base,
which is 80% of eligible accounts receivable. Interest on the borrowings is,
based at the Company's option, on the lender's prime rate of interest or at
2% above the lender's LIBOR rate. The prime rate of interest was 8.25% at
June 1, 1996.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 8
AND RESULTS OF OPERATIONS HEI, INC.
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FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCESA
The Company's net cash flow provided by operating activities was $1,529,000
for the nine months ended June 1, 1996. This included net income of
$784,000, depreciation and amortization of $620,000, and a net decrease of
$125,000 in current operating items for the first nine months of fiscal 1996.
The decrease in current operating items principally included decreased
accounts receivable of $526,000 and increased accrued liabilities of
$155,000, partially offset by increased inventories of $564,000.
The inventory increase is primarily due to increased purchased parts and work
in process for customer scheduled build requirements.
Accounts receivable average days outstanding was 44 days at June 1, 1996
compared to 43 days a year ago. Inventory turns were 5.6 turns for the third
quarter of fiscal 1996 compared to 9.6 turns for the same period a year ago.
The reduced inventory turns are primarily due to lower shipments and
increased inventory to meet customer scheduled build requirements.
Capital expenditures for the nine months ended June 1, 1996 were $3,556,000,
primarily for the purchase of production equipment and the construction of a
new addition to the Company's facility in Victoria, Minnesota. The new
addition, completed in June 1996, more than doubled the manufacturing floor
space of the Company's microelectronics fabrication facility. In connection
with the construction, the Company has also been acquiring and integrating
sophisticated new process equipment for the disk drive and other high volume
continuous flow programs to be housed in the expanded space. During the
remainder of 1996, the Company intends to spend approximately $800,000 to
complete the expansion, make additional manufacturing facility improvements,
and purchase capital equipment, all of which are intended to increase the
Company's manufacturing capacity in order to meet anticipated requirements
for continued revenue growth.
To finance the Company's expansion and its equipment needs over the next
three years, in April 1996, the Company obtained $5,625,000 from the proceeds
of industrial development revenue bonds issued by the City of Victoria,
Minnesota. Of these funds, approximately $1.5 million dollars will be or has
been used for the construction of the new addition and the remainder will be
used for equipment purchases over the next three years. The portion used for
construction of the new facility will be repaid over 15 years. The portion
used to purchase equipment will be repaid over seven years from the date of
purchase of the related equipment. Repayment of the bonds is collateralized
by two letters of credit and property and equipment of the Company. The
agreement contains certain restrictive covenants including limitations on
other borrowings and maintenance of specified financial levels and ratios for
net income, tangible net worth, debt to tangible net worth, cash flow and
indebtedness. The Company will pay an annual fee of 1% on the principal
balance of the letters of credit. The interest rate on the bonds is variable
weekly, not to exceed 10% per annum. The interest rate at June 1, 1996 was
approximately 4%. Proceeds from the bond issue are being held by a trustee
in an interest bearing account for payment to the Company over the next three
years as funds are used for construction or equipment purchases. As of June
1, 1996, the Company had drawn approximately $2,414,000 of bond proceeds to
cover costs previously incurred in connection with the expansion.
During April 1996, the Company renewed its $3 million dollar revolving line
of credit with a commercial bank. Borrowings under this agreement are
collateralized by accounts receivable. The agreement contains certain
restrictive covenants including limitations on other borrowings and
maintenance of specified financial levels and ratios for net income, tangible
net worth, debt to tangible net worth and cash flow. Borrowings are limited
to the lesser of $3,000,000 or the borrowing base, which is 80% of eligible
accounts receivable. Interest on the borrowings is, based on the Company's
option, at the lender's prime rate of interest or 2% above the lender's LIBOR
rate. This line of credit expires in April 1998. As of June 1, 1996, there
were no borrowings under this line of credit.
<PAGE>
9
REVIEW OF OPERATIONS
NET SALES
1996 vs. 1995: HEI, Inc's net sales for the three and nine month periods
ended June 1, 1996 decreased 24% and 21%, respectively, compared to the same
periods a year ago. Microelectronic sales decreased 24% and 22%,
respectively, from the same three and nine month periods last year as a
result of reduced shipments in the high density disk drive business.
However, the reduction in disk drive business shipments was partially offset
by increased shipments to medical and hearing aid accounts. As previously
reported, shipments to a new disk drive account are expected to increase as
that program enters production volumes. In the fourth quarter of fiscal
1996, the major new disk drive customer is expected to absorb much of the
capacity made available after the previous largest account model phased out.
GROSS PROFIT
1996 vs. 1995: For the three and nine month periods ended June 1, 1996,
gross profit decreased $235,000, or 18%, and $1,581,000, or 32%,
respectively, from the same periods last year. The gross profit rate
increased to 23% from 22% for the three month period and decreased to 24%
from 28% for the nine month period ended June 1, 1996 versus the same periods
last year. The gross profit rate decrease for the nine month period is
primarily due to the effect of reduced volumes on manufacturing fixed costs,
as well as the effect of lower margins on new business as the product mix
evolves to a larger percentage of new programs bid under increasing price
competition.
OPERATING EXPENSES
1996 vs. 1995: Operating expenses for the three and nine month periods ended
June 1, 1996 were flat compared to last year's comparable periods. Operating
expenses were 17% of net sales for the three and nine month periods this year
as compared to 13% for the three and nine month periods last year. The
increase in the percentage of operating expenses to net sales is primarily
due to the effect of reduced volumes on fixed expenses.
INCOME TAXES
During each quarter of fiscal 1996, the Company is recording income tax
expense based on the expected effective rate for the full year. The expected
effective income tax rate for fiscal 1996 is approximately 37%, the same rate
as fiscal 1995. Income tax expense for the three month and nine month
periods of fiscal 1996 was $124,000 and $460,000, respectively, as compared
to $231,000 and $998,000, respectively, for the same periods a year ago.
NET INCOME
1996 vs. 1995: The Company had net income of $218,000 for the third quarter
of fiscal 1996 compared to $364,000 for the same period a year ago. The
Company had net income of $784,000 for the nine months ended June 1, 1996
compared to $1,726,000 for the same period a year ago. The decrease in net
income principally was the result of reduced sales and reduced operating
income.
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10
PART II - OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
4.1a Credit Agreement with Norwest Bank Minnesota, N.A. dated April 1,
1996.
4.1b Current Note and Security Agreement with Norwest Bank Minnesota,
N.A. dated April 1, 1996.
4.2a Reimbursement Agreement by and between HEI, Inc. and Norwest Bank
Minnesota, National Association dated as of April 1, 1996.
4.2b Mortgage Security Agreement Fixture Financing Statement and
Assignment of Leases and Rents by HEI, Inc. as Mortgagor to
Norwest Bank Minnesota, National Association as Mortgagee dated
April 1, 1996.
4.2c Security Agreement by HEI, Inc. in favor of Norwest Bank
Minnesota, National Association dated April 1, 1996.
27 Financial Data Schedule
b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended June 1, 1996.
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11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
HEI, INC.
(Registrant)
Date: JULY 10, 1996 /s/ Jerald H. Mortenson
------------------------- -------------------------
Jerald H. Mortenson
Vice President of Finance and
Administration, Chief Financial Officer
and Treasurer
(a duly authorized officer)
<PAGE>
CREDIT AGREEMENT Exhibit 4.1a
THIS CREDIT AGREEMENT is dated as of the ___ day of April, 1996, and is
by and between HEI, INC., a Minnesota corporation with offices located in
Victoria, Minnesota (the "Borrower"), and NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, a national banking association with offices located in Wayzata,
Minnesota (the "Bank").
RECITALS:
WHEREAS, the Borrower has requested the Lender to extend a revolving
credit line in the principal amount of THREE MILLION AND NO/100 DOLLARS
($3,000,000.00) (the "Credit") for working capital purposes; and,
WHEREAS, the Bank is willing to make the Credit available to the
Borrower subject to the provisions of this Credit Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein, the parties agree as follows:
SECTION 1 DEFINITIONS
1.1 In addition to those terms defined in the above recitals, as used herein:
"Acceptable Accounts Receivable" shall mean Borrower's accounts
receivable which are: (i) less than ninety (90) days in age; (ii) not part of
an account, ten percent (10.0%) or more of which is ninety (90) days past
due; (iii) not subject to offset or dispute; (iv) not due from the U.S.
Government, foreign entities (not supported by letters of credit),
Subsidiaries or affiliates of the Borrower; and (v) not representing booked
but unfilled orders.
NEED TO ADD FOREIGN ACCOUNTS AS REFLECTED ON EXHIBIT A ATTACHED.
"Agreement" shall mean this Credit Agreement and all amendments and
supplements hereto which may from time to time become effective hereafter in
accordance with the terms hereof.
"Banking Day" shall mean a day on which banks are generally open for
business in Wayzata, Minnesota.
"Base Rate" shall mean the "base" or "prime" rate of interest as
announced by Norwest Bank Minnesota, National Association, at its principal
office located in Minneapolis, Minnesota, as in effect from time to time.
"Borrowed Money" shall mean funds obtained by incurring contractual
indebtedness and shall not include trade accounts payable or money borrowed
from the Bank.
<PAGE>
"Borrowing Base" shall mean 80% of Acceptable Accounts Receivable.
NEED TO ADD 65% OF ACCEPTABLE FOREIGN AS PER EXHIBIT A.
"Borrowing Base Certificate" shall mean a schedule of Borrower's
accounts receivable and Acceptable Accounts Receivable, which certificate is
prepared and furnished to Bank pursuant to Sections 2.1 and 3.2(C), and which
is executed by an authorized officer of Borrower.
"Closing Date" shall mean the date on which funds are advanced under the
Credit.
"Credit" shall mean the conditional revolving credit line established
hereby, which shall not in any event exceed the aggregate principal amount of
THREE MILLION AND NO/100 DOLLARS ($3,000,000.00) outstanding at any one time.
"Current Note" shall mean the promissory note of the Borrower
substantially in the form of attached Exhibit B, evidencing borrowings under
Section 2.1 hereof.
"Events of Default" shall mean any and all events of default described
in Section 8 hereof.
"Indebtedness" shall mean, as to the Borrower, or any Subsidiary, all
items of indebtedness, obligation or liability, whether matured or unmatured,
liquidated or unliquidated, direct or contingent, joint or several.
"Interest Period" shall mean, relative to any LIBOR Rate election, the
period which shall begin on (and include) the date on which such election is
effective or continued as and, unless the maturity of the Note is
accelerated, shall end on (but exclude) the day which is 30, 60 or 90 days
thereafter, provided, however, that:
A. If such Interest Period would otherwise end on a day which is not
a Banking Day, such Interest Period shall end on the next following
business day; or
B. The Borrower may not select, and there shall not be applicable,
any Interest Period that would end later than the Maturity Date.
"LIBOR Rate" shall mean the average rate per annum (rounded up to the
nearest one-sixteenth of one percent) of which U.S. Dollar deposits are
offered to Norwest in the London Interbank Market with a term equal to the
applicable Interest Period, in an amount equal to the outstanding principal
balance of the Current Note.
"Maturity Date" shall mean March , 1998.
"Permitted Liens" shall mean:
A. Liens in favor of the Bank;
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<PAGE>
B. Existing liens disclosed to the Bank in writing prior to the date
of this Agreement;
C. Liens for taxes not delinquent or which Borrower is contesting in
good faith; and
D. Purchase money liens.
"Security Agreement" shall mean the security agreement substantially in
the form of attached Exhibit C, pursuant to which, among other things,
Borrower grants Bank a security interest in the accounts receivable of the
Borrower.
"Subsidiary" shall mean any corporation of which more than fifty percent
(50%) of the outstanding voting securities shall, at the time of
determination, be owned directly, or indirectly through one or more
intermediaries, by the Borrower.
"Tangible Net Worth" shall mean the sum of the par or stated value of
all outstanding capital stock, surplus and undivided profits of the Borrower,
less any amounts attributable to treasury stock, good will, patents,
copyrights, mailing lists, catalogues, trademarks, bond discount and
underwriting expenses, organization expenses, leasehold improvements and
loans to officers or employees and other like intangibles (not including
prepaid expenses classified as current assets or intangible assets offset by
equal related liabilities), excluding also Subchapter S earnings unless such
earnings are converted to notes and subordinated to bank debt or the Bank is
given written confirmation, in form acceptable to the Bank, that such
earnings are being retained as equity capital, all as determined in
accordance with generally accepted accounting principles.
1.2 COMPUTATION OF TIME PERIODS. In this Agreement in the computation of
periods of time from a specified date to a later specified date, the word
"from" means "from and including" and the words "to" and "until" each means
"to but excluding."
1.3 ACCOUNTING TERMS. All accounting terms not specifically defined herein
shall be construed in accordance with generally accepted accounting
principles consistent with those applied in the preparation of the financial
statements referred to in Section 5.6.
SECTION 2 THE LOAN
2.1 CREDIT. Subject to the other provisions of this Agreement, the Bank
agrees to lend to the Borrower from time to time from the effective date
hereof until the Maturity Date sums not to exceed the lesser of the Borrowing
Base or THREE MILLION AND NO/100 DOLLARS ($3,000.000) in aggregate principal
amount at any one time outstanding. Each borrowing under this Section 2.1
will be requested in writing or in person by an authorized officer of the
Borrower, or telephonically by any person reasonably believed by the Bank to
be an authorized officer of the Borrower. Each borrowing under this Section
2.1 will be evidenced by a notation on the Bank's records, which shall be
conclusive evidence of such borrowing, and by the Current Note. The officer
making the request must present the Bank with its most current
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<PAGE>
Borrowing Base Certificate. Within the limits of the Credit and subject to
the terms and conditions hereof, the Borrower may borrow, prepay pursuant to
Section 2.6 hereof and reborrow pursuant to this Section 2.1.
2.2 INTEREST RATE: Upon two business days prior notice (before the end of
the applicable Interest Period for a prior LIBOR Rate election) Borrower may
elect or convert all or a portion of its outstanding balance under the Credit
to one of the following interest rates:
A. Base Rate Option. Interest on the unpaid principal of the
Current Note shall be calculated at an annual rate equal to the Base Rate
in effect from time, to time, which rate shall change as and when the Base
Rate changes, on the basis of the actual number of days elapsed in a year
of 360 days, and shall change as and when the Base Rate changes.
B. LIBOR Rate Option. Subject to the terms and conditions of this
Agreement, the Borrower may elect that the principal balance outstanding
under the Current Note in increments of $100,000.00 bear interest at an
annual rate equal to two hundred (200) basis points (2.0%) in excess of the
LIBOR Rate as determined as of approximately 11:00 A. M., London time, two
business days before the beginning of the Interest Period selected by the
Borrower.
If two business days prior to the end of an Interest Period, Borrower does
not elect a new interest rate option, then the Base Rate Option shall apply.
2.3 INTEREST PAYMENT. Interest on the Current Note shall be payable
monthly, commencing March ____, 1996, and continuing on the same day of each
succeeding month until the Current Note is paid; provided, however, if a
LIBOR Rate Option has been selected, then interest shall be due and payable
at the end of each Interest Period.
2.4 PRINCIPAL REPAYMENT. The principal of the Current Note shall be
repayable on the Maturity Date.
2.5 PAYDOWN. Notwithstanding Section 2.4 above, the Borrower shall maintain
a $0.00 outstanding principal balance under the Credit for a period of at
least sixty (60) consecutive days in Borrower's fiscal year ending August 31,
1995 and for a period of thirty (30) consecutive days for Borrower's fiscal
year ending August 31, 1996.
2.6 PREPAYMENT. The Borrower may at any time prepay the Current Note in
whole or from time to time in part without premium or penalty.
2.7 MANDATORY PREPAYMENT. The Borrower shall be required to make
prepayments of amounts due under the Current Note at any time the aggregate
amount of borrowing outstanding is found to exceed the Borrowing Base. Such
required prepayments shall be in an amount equal to the difference between
borrowings outstanding and the Borrower Base.
2.8 SUMS PAYABLE. All sums payable to the Bank hereunder shall be paid
directly to the Bank in immediately available funds. The Bank shall send the
Borrower statements of all
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<PAGE>
amounts due hereunder, which statements shall be considered correct and
conclusively binding on the Borrower unless the Borrower notifies the Bank to
the contrary within thirty days of its receipt of any statement which it
deems to be incorrect. Alternatively, at its sole discretion, the Bank may
charge against any deposit account of the Borrower all or any part of any
amount due hereunder.
SECTION 3 CONDITIONS PRECEDENT
3.1 The Borrower shall deliver the following to the Bank on or before the
Closing Date:
A. The Current Note, duly executed by Borrower.
B. The Security Agreement, duly executed by Borrower
3.2 The Bank shall not be obligated to lend hereunder on the occasion for
any borrowing unless:
A. The representations and warranties contained in Section 5 hereof
are true and accurate on and as of such date;
B. No Event of Default, and no event which might become an Event of
Default after the lapse of time or the giving of notice and the lapse of
time, has occurred and is continuing or will exist upon the disbursement of
such loan; and,
C. The Borrower shall have delivered to the Bank a Borrowing Base
Certificate as provided in Section 2.1 hereof, and a certification by an
appropriate officer of the Borrower as to the matters set forth in Sections
3.2(A) and 3.2(B) hereof.
SECTION 4 SECURITY
4.1 SECURITY INTEREST. To secure the Current Note and the performance of
its additional obligations as set forth hereunder, the Borrower has executed
and delivered to the Bank before the Closing Date the financing statements,
in form and substance satisfactory to the Bank, granting to the Bank a first
security interest in accounts receivable, now owned or hereafter acquired.
4.2 DEPOSIT ACCOUNTS. As additional security for the prompt satisfaction of
all obligations of Borrower under the Current Note and Security Agreement,
the Borrower hereby assigns, transfers and sets over to the Bank all of its
right, title and interest in and to, and grants the Bank a lien on and a
security interest in, all amounts that may be owing from time to time by the
Bank to the Borrower in any capacity, including, but without limitation, any
balance or share belonging to the Borrower, of any deposit or other account
with the Bank, which lien and security interest shall be independent of any
right of set-off which the Bank may have.
4.3 COLLATERAL. The property in which a security interest is granted
pursuant to the provisions of Sections 4.1 and 4.2 is herein collectively
called the "Collateral". The Collateral, together with all of the Borrower's
other property of any kind held by the Bank,
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<PAGE>
shall stand as one general, continuing collateral security for all
Indebtedness to the Bank and may be retained by the Bank until all
Indebtedness has been paid in full. ( Needs to be revised. Line of Credit
and Direct Payment Letter of Credit and not cross collateralized. They are
cross defaulted ???).
New agreement calls for a negative on pledge on inventory.
4.4 ADDITIONAL DOCUMENTS. At any time requested by the Bank, the Borrower
shall execute and deliver or cause to be executed and delivered to the Bank
such additional documents as the Bank may consider to be necessary or
desirable to evidence or perfect the security interests referred to in
Section 4.1 hereof.
4.5 LIENS. The foregoing liens shall be first and prior liens except for
Permitted Liens.
SECTION 5 REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement, the Borrower represents
and warrants to the Bank as follows:
5.1 CORPORATE STATUS. The Borrower is a corporation duly organized,
existing and in good standing under the laws of the State of Minnesota.
5.2 AUTHORITY. The execution, delivery and performance of this Agreement,
the Current Note and Security Agreement by the Borrower are within its
corporate powers, have been duly authorized, and are not in contravention of
law, or the terms of Borrower's Articles of Incorporation or By-Laws or of
any undertaking to which the Borrower is a party or by which it is bound.
5.3 CONSENT. No consent, approval or authorization of or declaration or
filing with any governmental authority on the part of the Borrower is
required in connection with the execution and delivery of this Agreement or
the borrowings by the Borrower hereunder or on the part of the Borrower in
connection with the consummation of any transaction contemplated hereby.
5.4 LIENS. The property of the Borrower is not subject to any lien except
Permitted Liens.
5.5 LITIGATION. No litigation or governmental proceeding is pending or, to
the knowledge of the officers of the Borrower, threatened against the
Borrower which could have a material adverse effect on the Borrower's
financial condition or business.
5.6 FINANCIAL STATEMENTS. All financial statements delivered to Bank by or
on behalf of Borrower, including any schedules and notes pertaining thereto,
have been prepared in accordance with generally accepted accounting
principles consistently applied, and fully and fairly present the financial
condition of the Borrower at the dates thereof and the results of operations
for the periods covered thereby, and there have been no material adverse
changes in
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<PAGE>
the consolidated financial condition or business of the Borrower from
November 30, 1995 to the date hereof.
5.7 LICENSES. The Borrower possesses adequate licenses, permits,
franchises, patents, copyrights, trademarks and trade names, or rights
thereto, to conduct its business substantially as now conducted and as
presently proposed to be conducted.
5.8 ERISA. The Borrower does not have any unfunded liabilities in any
pension plan, as such terms is defined in the Employee Retirement Income
Security Act of 1974, as amended, and any successor statute of similar import
("ERISA"), together with the regulations thereunder. As used in this
section, "unfunded liabilities" means with regard to any plan, the excess of
the current value of the plan's benefits guaranteed under ERISA over the
current value of the plan's assets allocable to such benefits.
5.9 ENVIRONMENTAL. The Borrower has obtained all permits, licenses and
other authorizations which are required under federal, state and/or local
laws ("Environmental Laws") relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, hazardous or toxic materials
or wastes into ambient air, surface water, ground water or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants or
hazardous or toxic materials or wastes ("Environmental Matters"). The
Borrower is in compliance in all material respects with all terms and
conditions of such required permits, licenses and authorizations is are also
in full compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the Environmental Laws or contained in any plan, order, decree,
judgment or notice. The Borrower is not aware of, nor has the Borrower
received notice of, any events, conditions, circumstances, activities,
practices, incidents, actions or plans which may interfere with or prevent
continued compliance or which may give rise to any liability under any
Environmental Laws or the common law. The Borrower has not received any
summons, citation, directive, letter or other communication, written or oral,
from any agency or department of any state, federal or local government
relating to any Environmental Matters or any alleged Environmental Matters.
No investigation, administrative order, consent order and agreement,
litigation or settlement with respect to any Environmental Matters or any
alleged Environmental Matters has been received by the Borrower or is
proposed, threatened, anticipated or in existence with respect to the
Borrower.
5.10 VALIDITY. This Agreement is, and the Notes when issued will be, valid
and binding in accordance with their terms.
5.11 GOOD STANDING. The Borrower is duly qualified to do business and is in
good standing in any additional jurisdictions where, on advice of legal
counsel, registration was deemed necessary.
5.12 DEFAULT. The Borrower is not in default of a material provision under
any material agreement, instrument, decree or order to which it is a party or
by which it or its property is bound or affected.
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<PAGE>
SECTION 6 AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that so long as any indebtedness
remains outstanding hereunder, unless the Bank shall otherwise consent in
writing, it will:
6.1 TAXES. Pay, when due, all taxes assessed against it or its property
except to the extent and so long as contested in good faith.
6.2 CORPORATE EXISTENCE. Maintain its corporate existence and comply with
all laws and regulations applicable thereto.
6.3 REPORTS. Furnish to the Bank:
A. Within 90 days after the end of each fiscal year of the Borrower
a detailed report of audit of the Borrower for such fiscal year including
the balance sheet of the Borrower as of the end of such fiscal year and the
statements of profit and loss and surplus of the Borrower for the fiscal
year then ended, prepared by independent certified public accountants
satisfactory to the Bank.
B. Within 30 days after the end of each quarter, or month if there
are outstanding borrowings under the Credit, (i) the balance sheet of the
Borrower as of the end of such month, (ii) the statement of profit and loss
and surplus of the Borrower from the beginning of such fiscal year to the
end of such month, (iii) an aged listing of Borrower's accounts receivable,
and (iv) a Borrowing Base Certificate current through the end of the
previous month, all in a form acceptable to Bank. All of the foregoing
shall be unaudited, but certified as correct (subject to year end
adjustments) by an appropriate officer of the Borrower.
C. No later than 30 days prior to the beginning of each fiscal year,
projected financial statements in form acceptable to the Bank.
D. Promptly upon knowledge thereof, notice to the Bank in writing of
the occurrence of any event which has or might, after the lapse of time or
the giving of notice and the lapse of time, become an Event of Default.
E. Promptly, such other information as the Bank may reasonably
request.
6.4 MAINTENANCE OF PROPERTY. Maintain its inventory, equipment, real estate
and other properties in good condition and repair (normal wear and tear
excepted), and pay and discharge or cause to be paid and discharged when due,
the cost of repairs to or maintenance of the same, and pay or cause to be
paid all rental or mortgage payments due on such real estate.
6.5 INSURANCE. Cause its properties of an insurable nature to be adequately
insured by reputable and solvent insurance companies against loss or damages
customarily insured against
-8-
<PAGE>
by persons operating similar properties, and similarly situated, and carry
such other insurance as usually carried by persons engaged in the same or
similar businesses and similarly situated.
6.6 RECORDS. Keep true, complete and accurate books, records and accounts
in accordance with generally accepted accounting principles consistently
applied.
6.7 INSPECTION. Permit any of Bank's duly authorized employees or agents
the right, at any reasonable time and from time to time, to visit and inspect
the properties of Borrower and to examine and take abstracts from its books
and records.
6.8 COMPLIANCE. Continue to conduct the same general type of business as is
now being carried on in compliance with all applicable statutes, laws, rules
and regulations.
6.9 COLLATERAL AUDITS. Permit the Bank, at its discretion, to conduct
annual collateral audits, the cost for which Borrower shall reimburse the
Bank up to a maximum of $1,000.00 per audit.
6.10 PRIMARY DEPOSITORY. Maintain its primary deposit accounts with the Bank.
SECTION 7 NEGATIVE COVENANTS
Without the Bank's written consent, so long as any indebtedness remains
outstanding under the Credit, the Borrower will not:
7.1 LIENS. Permit any lien including, without limitation, any pledge,
assignment, mortgage, title retaining contract or other type of security
interest to exist on its property, real or personal, except Permitted Liens.
7.2 MERGER. Enter into any transaction of merger or consolidation, or
transfer, sell, assign, lease or otherwise dispose of (other than sales in
the ordinary course of business) all or a substantial part of its properties
or assets, or any of its notes or accounts receivable, or any stock (other
than directors qualifying shares) or any assets or properties necessary or
desirable for the proper conduct of its business, or change the nature of its
business, or wind up, liquidate or dissolve, or agree to do any of the
foregoing.
7.3 BORROWED MONEY. Create, incur, assume or suffer to exist, contingently
or otherwise, indebtedness for Borrowed Money, except indebtedness disclosed
to the Bank in writing as existing at the time of execution of this Agreement.
7.4 GUARANTEE. Become or remain a guarantor or surety, or pledge its credit
or become liable in any manner (except by endorsement for deposit in the
ordinary course of business) on undertakings of another.
7.5 ACQUISITIONS. Purchase or otherwise acquire all or substantially all of
the assets of any person, firm, corporation or other entity.
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<PAGE>
7.6 MINIMUM TANGIBLE NET WORTH. Permit its Tangible Net Worth to be less
than $12,400,000.00 for its fiscal year ending August 31, 1996, and
$13,900,000.00 for its fiscal year ending August 31, 1997.
7.7 DEBT RATIO. Permit its long-term debt to Tangible Net Worth ratio to
exceed 1.0 to 1.0
SHOULD NOW READ "AT ALL TIMES"
as of Borrower's fiscal year ending August 31, 1995, and for fiscal year
ending August 31, 1996 at such revised level as may be established by the
Bank based upon the projections delivered pursuant to Section 6.3(D).
7.8 MINIMUM NET PROFIT. Fail to produce a net profit after taxes quarterly
and of at least $1,000,000.00 as of Borrower's fiscal years ending August 31,
1996 and August 31, 1997.
7.9 ACCOUNTING. Make a material change in its accounting procedures,
whether for tax purposes or otherwise, including, but not limited to, making
a Subchapter S election under the United States Internal Revenue Code.
SECTION 8 EVENTS OF DEFAULT
8.1 Upon the occurrence of any of the following Events of Default:
A. PAYMENT. Default in any payment of interest or of principal on
the Current Note when due, and continuance thereof for 10 calendar days;
B. PERFORMANCE. Default in the observance or performance of any
other agreement of the Borrower set forth herein or in the Security
Agreement and continuance thereof for 30 days;
C. BORROWED MONEY. Default by the Borrower in the payment of any
other indebtedness for Borrowed Money or in the observance or performance
of any term, covenant or agreement of the Borrower in any agreement
relating to any indebtedness of the Borrower, the effect of which default
is to permit the holder of such indebtedness to declare the same due prior
to the date fixed for its payment under the terms thereof;
D. REPRESENTATIONS. Any representation or warranty made by the
Borrower herein, or in any statement or certificate furnished by the
Borrower hereunder, is untrue in any material respect; or
E. LITIGATION. The occurrence of any litigation or governmental
proceeding which is pending or threatened against the Borrower, which could
have a material adverse effect on the Borrower's financial condition or
business, and which is not remedied within a reasonable period of time (a
reasonable period of time not to exceed 30 days) after notice thereof to
the Borrower;
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<PAGE>
then, or at any time thereafter, unless such Event of Default is remedied,
the Bank or the holder of the Current Note may, by notice in writing to the
Borrower, terminate the Credit or declare the Current Note to be due and
payable, or both, whereupon the Credit shall terminate forthwith or the
Current Note shall immediately become due and payable, or both, as the case
may be.
8.2 Upon the occurrence of any of the following Events of Default:
BANKRUPTCY. The Borrower becomes insolvent or bankrupt, or makes an
appointment for the benefit of creditors or consents to the appointment of
a custodian, trustee or receiver for itself or for the greater part of its
properties; or a custodian, trustee or receiver is appointed for the
Borrower, or for the greater part of its properties without its consent and
is not discharged within 60 days; or bankruptcy, reorganization or
liquidation proceedings are instituted by or against the Borrower and, if
instituted against it, are consented to by it or remain undismissed for 60
days;
then the Credit shall automatically terminate and the Current Note shall
automatically become immediately due and payable, without notice.
SECTION 9 MISCELLANEOUS
9.1 OTHER AGREEMENTS. The provisions of this Agreement shall be in addition
to those of any guaranty, pledge or security agreement, note or other
evidence of liability held by the Bank, all of which shall be construed as
complementary to each other. Nothing herein contained shall prevent the Bank
from enforcing any or all other notes, guaranties, pledges or security
agreements in accordance with their respective terms. (??? Should anythng
specific be said about the IDRB Direct Pay LC's ???).
9.2 WAIVER. The Bank shall have the right at all times to enforce the
provisions of this Agreement and the Collateral Documents in strict
accordance with the terms hereof and thereof, notwithstanding any conduct or
custom on the part of the Bank in refraining from so doing at any time or
times. The failure of the Bank at any time or times to enforce its rights
under such provisions, strictly in accordance with the same, shall not be
construed as having created a custom in any way or manner contrary to
specific provisions of this Agreement or as having in any way or manner
modified or waived the same. All rights and remedies of the Bank are
cumulative and concurrent and the exercise of one right or remedy shall not
be deemed a waiver or release of any other right or remedy.
9.3 EXPENSES. The Borrower will pay all expenses, including the reasonable
fees and expenses of legal counsel for the Bank, incurred in connection with
the administration, amendment, modification or enforcement of this Agreement
and the Security Agreement, and the collection or attempted collection of the
Current Note.
9.4 NOTICES. Any notices or consents required or permitted by this
Agreement shall be in writing and shall be deemed delivered if delivered in
person or if sent by certified mail, postage prepaid, return receipt
requested, or telegraph, as follows, unless such address is changed by
written notice hereunder:
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<PAGE>
A. If to the Borrower:
HEI, INC.
1495 Steiger Lake Lane
Victoria, Minnesota 55386
Attention: Jerald H. Mortenson
B. If to the Bank:
Norwest Bank Minnesota, National Association
900 East Wayzata Boulevard
Wayzata, Minnesota 55391
Attention: Judy Wenderoth
9.5 STATE LAW. The substantive Laws of the State of Minnesota shall govern
the construction of this Agreement and the rights and remedies of the parties
hereto.
9.6 SUCCESSORS. This Agreement shall inure to the benefit of, and shall be
binding upon, the respective successors and permitted assigns of the parties
hereto. The Borrower has no right to assign any of its rights or obligations
hereunder without the prior written consent of the Bank. This Agreement, and
the documents executed and delivered pursuant hereto, constitute the entire
agreement between the parties, and may be amended only by a writing signed on
behalf of each party.
9.7 VALIDITY. If any provision of this Agreement shall be held invalid
under any applicable Laws, such invalidity shall not affect any other
provision of this Agreement that can be given effect without the invalid
provision, and, to this end, the provisions hereof are severable.
9.8 BANKING DAY. Whenever any installment of the interest on the Notes
becomes due and payable on a day which is not a Banking Day, the maturity or
due date thereof shall be extended to the next succeeding Banking Day and, in
the case of principal of the Notes, interest shall be payable thereon at the
rate per annum specified in the Notes during such extension.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
HEI, INC.
By: By:
--------------------------------- ---------------------------------
Its: Its:
-------------------------------- ---------------------------------
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<PAGE>
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By:
---------------------------------
Its:
--------------------------------
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<PAGE>
CURRENT NOTE Exhibit 4.1b
$3,000,000.00 , 1996
-----------------
On April __, 1998, for value received, HEI, Inc. (the "Borrower")
promises to pay to the order of Norwest Bank Minnesota, National Association
(the "Bank") at its office in Wayzata, Minnesota or at any other place
designated at any time by the holder hereof, in lawful money of the United
States of America, the principal sum of Three Million and no/100 Dollars
($3,000,000.00), or so much thereof as is disbursed and remains outstanding
thereunder on the due date hereof, as shown by the Bank's liability record,
together with interest (calculated on the basis of actual days elapsed in a 360
day year) on the unpaid balance hereof from the date hereof until this Note is
fully paid, at one of the following rates:
(a) Base Rate Option: A variable rate of interest equal to the Base
Rate in effect from time to time. The interest rate under this
option shall change as and when the Base Rate changes.
(b) LIBOR Rate Option: The "LIBOR Rate" PLUS two percent (2.0%).
The "LIBOR Rate" means the rate per annum (rounded up, if
necessary, to the nearest one-sixteenth of one percent) equal to
the offered quotation to the Bank in the London interbank
Eurodollar market for United States dollar deposits for delivery
on the date specified by the Borrower, in the approximate amount
of the loan and for the period specified by the Borrower (which
period must be 30, 60, or 90 days), determined as of
approximately 11:00 A.M., London time, two business days prior to
the delivery date. If the Borrower selects this LIBOR Rate
Option, it must notify the Bank at least two business days prior
to the date on which it wishes to receive the loan proceeds.
Unless the Borrower shall otherwise notify the Bank at least two
business days prior to the end of an Interest Period, each
advance bearing interest at the LIBOR Rate shall continue to bear
interest at the Base Rate. The LIBOR Rate Option may only be
selected for minimum principal amounts of $100,000 or multiples
thereof.
As used herein, "Base Rate" means the rate of interest established by
the Bank from time to time as its "base" or "prime" rate.
Interest shall by payable monthly, commencing April 30, 1996 and
continuing on the same day of each succeeding month and also at maturity.
<PAGE>
The Borrower may at any time prepay the Current Note in whole or in part
without premium or penalty; except that any prepayment of amounts based on the
LIBOR Rate where such prepayment is made on a day other than the final day of an
Interest Period shall require a prepayment penalty in an amount equal to the
difference between the amount of interest that would have been payable for the
remainder of the Interest Period at the rate then in effect and the yield on a
hypothetical U.S. Treasury Security that could be purchased on the date of
prepayment and maturing on the last day of the Interest Period.
If interest hereon is not paid when due, or if any other indebtedness of
the undersigned to the Bank is not paid when due, or if a garnishment summons or
a writ of attachment is issued against or served upon the Bank for the
attachment of any property of the undersigned in the Bank's possession or any
indebtedness owing to the undersigned, of if the holder hereof shall at any time
in good faith believe that the prospect of due and punctual payment of this Note
is impaired, then, in any such event, the holder hereof may, at its option,
declare this Note to be immediately due and payable and thereupon this Note
shall be immediately due and payable, together with all unpaid interest accrued
hereon, without notice or demand; provided, however, that if this Note is
payable on demand, nothing herein contained shall preclude or limit the holder
hereof from demanding payment of this Note at any time and for any reason,
without notice. If this Note is not paid when due (whether at maturity or upon
acceleration or demand), the Bank shall also have the right to set off the
indebtedness evidenced by this Note against any indebtedness of Bank to the
undersigned. This Note shall also become automatically due and payable
(including unpaid interest accrued thereon) without notice or demand should a
petition be filed by or against the undersigned under the United States
Bankruptcy Code.
Unless prohibited by law, the undersigned agree(s) to pay all costs of
collection, including reasonable attorneys' fees and legal expenses, incurred by
the holder hereof in the event this Note is not duly paid. The holder hereof
may at any time renew this Note or extend its maturity date for any period and
release any security for, or any party to, this Note, all without notice to or
consent of and without releasing any accommodation maker, endorser or guarantor
from liability on this Note. Presentment or other demand for payment, notice of
dishonor and protest are hereby waived by the undersigned and each endorser and
guarantor. This Note shall be governed by the substantive laws of the State
named as part of the Bank's address above.
This Note is issued pursuant to a Credit Agreement dated April ____, 1996,
between the Borrower and the Bank and is subject to the terms and conditions
thereof.
HEI, Inc.
By: By:
--------------------------- -----------------------------------
Its: Its:
-------------------------- ----------------------------------
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<PAGE>
Exhibit 4.2a
REIMBURSEMENT AGREEMENT
BY AND BETWEEN
HEI, INC.
AND
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Dated As Of: April 1, 1996
This Instrument Was Drafted By:
WINTHROP & WEINSTINE, P.A.
3200 Minnesota World Trade Center
30 East Seventh Street
Saint Paul, Minnesota 55101
<PAGE>
TABLE OF CONTENTS
ARTICLE I.
DEFINITIONS . . . . . . . . . . . . . . . 1
Section 1.1 DEFINED TERMS. . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2 OTHER TERMS. . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 1.3 REIMBURSEMENT AGREEMENT CONTROLLING. . . . . . . . . . . . . 7
ARTICLE II.
COMMITMENT TO ISSUE THE LETTERS OF CREDIT
AND APPROVAL OF ADVANCES. . . . . . . . . . . . 8
SECTION 2.1 LETTERS OF CREDIT; ADVANCES. . . . . . . . . . . . . . . . . 8
SECTION 2.2 DRAW REQUESTS - CONSTRUCTION COSTS . . . . . . . . . . . . . 8
SECTION 2.3 ADDITIONAL DEPOSITS. . . . . . . . . . . . . . . . . . . . .10
SECTION 2.4 ADVANCES - EQUIPMENT ACQUISITION COSTS . . . . . . . . . . .10
SECTION 2.5 ADVANCES WITHOUT RECEIPT OF DRAW REQUEST . . . . . . . . . .10
SECTION 2.6 EXPIRATION, RENEWAL OF LETTERS OF CREDIT . . . . . . . . . .10
SECTION 2.7 DRAW UNDER LETTERS OF CREDIT TO REDEEM OR DEFEASE BONDS. . .11
ARTICLE III.
CONDITIONS OF LENDING. . . . . . . . . . . . .11
SECTION 3.1 CONDITIONS PRECEDENT TO ISSUANCE OF LETTERS OF CREDIT AND
APPROVAL OF INITIAL ADVANCE. . . . . . . . . . . . . . . . .11
SECTION 3.2 FURTHER CONDITIONS PRECEDENT TO ANY ADVANCE. . . . . . . . .12
ARTICLE IV.
REIMBURSEMENTS AND OTHER PAYMENTS:
LENDER'S RIGHT TO CURE . . . . . . . . . . . .13
SECTION 4.1 OBLIGATION OF REIMBURSEMENT. . . . . . . . . . . . . . . . .13
SECTION 4.2 PAYMENT OF CREDIT ENHANCEMENT FEE. . . . . . . . . . . . . .13
SECTION 4.3 CAPITAL ADEQUACY/CHANGE IN LAW . . . . . . . . . . . . . . .14
SECTION 4.4 COMPUTATION OF CREDIT ENHANCEMENT FEE AND INTEREST . . . . .14
SECTION 4.5 RIGHT OF LENDER TO CURE DEFAULTS UNDER BOND DOCUMENTS. . . .14
SECTION 4.6 PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . .14
SECTION 4.7 COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . .14
SECTION 4.8 FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
SECTION 4.9 REDEMPTIONS UNDER SERIES A BONDS . . . . . . . . . . . . . .15
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ARTICLE V.
WARRANTIES, REPRESENTATIONS
AND COVENANTS. . . . . . . . . . . . . . .16
SECTION 5.1 WARRANTIES AND REPRESENTATIONS . . . . . . . . . . . . . . .16
SECTION 5.2 COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . .19
ARTICLE VI.
EVENTS OF DEFAULT; RIGHTS AND REMEDIES UPON
EVENT OF DEFAULT. . . . . . . . . . . . . .23
SECTION 6.1 EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . .23
SECTION 6.2 RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . .25
ARTICLE VII.
MISCELLANEOUS. . . . . . . . . . . . . . .28
SECTION 7.1 INDEMNIFICATION BY BORROWER. . . . . . . . . . . . . . . . .28
SECTION 7.2 ADDRESSES FOR NOTICE . . . . . . . . . . . . . . . . . . . .29
SECTION 7.3 INSPECTIONS. . . . . . . . . . . . . . . . . . . . . . . . .30
SECTION 7.4 ADDITIONAL SECURITY INTEREST . . . . . . . . . . . . . . . .30
SECTION 7.5 FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
SECTION 7.6 TIME OF ESSENCE. . . . . . . . . . . . . . . . . . . . . . .30
SECTION 7.7 BINDING EFFECT AND ASSIGNMENT. . . . . . . . . . . . . . . .30
SECTION 7.8 WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . . .31
SECTION 7.9 REMEDIES CUMULATIVE. . . . . . . . . . . . . . . . . . . . .31
SECTION 7.10 GOVERNING LAW; CONSTRUCTION. . . . . . . . . . . . . . . . .31
SECTION 7.11 JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . .31
SECTION 7.12 INTEREST RATE. . . . . . . . . . . . . . . . . . . . . . . .31
SECTION 7.13 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . .31
SECTION 7.14 NOT JOINT VENTURERS. . . . . . . . . . . . . . . . . . . . .32
SECTION 7.15 ADEQUACY OF BOND PROCEEDS. . . . . . . . . . . . . . . . . .32
SECTION 7.16 OBLIGATIONS ABSOLUTE . . . . . . . . . . . . . . . . . . . .32
SECTION 7.17 TRANSFER OF LETTERS OF CREDIT. . . . . . . . . . . . . . . .32
SECTION 7.18 LIABILITY OF THE LENDER. . . . . . . . . . . . . . . . . . .32
SECTION 7.19 SECURITY INTEREST IN FUNDS AND BONDS . . . . . . . . . . . .33
SECTION 7.20 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
SECTION 7.21 REDEMPTION OF THE BONDS UNDER CASUALTY OR
CONDEMNATION LAWS. . . . . . . . . . . . . . . . . . . . . .34
SIGNATURES
FORM OF DRAW REQUEST (EXHIBIT A)
FORM OF AUTHORIZATION TO TRUSTEE-CONSTRUCTION COSTS (EXHIBIT B)
FORM OF AUTHORIZATION TO TRUSTEE-EQUIPMENT ACQUISITION COSTS
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(EXHIBIT C)
SCHEDULE OF REQUIRED PRINCIPAL PAYMENTS UNDER SERIES B BONDS
(EXHIBIT D)
JOINDER AGREEMENT
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REIMBURSEMENT AGREEMENT
THIS REIMBURSEMENT AGREEMENT, made as of the 1st day of April, 1996, by and
between HEI, INC., a Minnesota corporation (the "Borrower"), and NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, a national banking association with its banking
house located in Wayzata, Minnesota (the "Lender").
ARTICLE I.
DEFINITIONS
SECTION 1.1 DEFINED TERMS. As used in this Agreement, the following terms shall
have the meanings set out respectively after each except where the context
clearly requires otherwise (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
(a) ADVANCE: the disbursement from the Construction Fund by the Trustee
pursuant to the Bond Documents.
(b) ARCHITECT: C. M. Architecture, P.A.
(c) BOND COUNSEL: Briggs & Morgan, P.A., or such other bond counsel which
is acceptable to the Lender.
(d) BOND DOCUMENTS: individually or collectively, as the context
requires, the Loan Agreement and the Indenture.
(e) BONDS: the $5,625,000 Variable Rate Demand Industrial Development
Revenue Bonds, Series 1996 A and B (HEI, Inc. Project) issued by the
Issuer.
(f) BORROWED MONEY: funds obtained by incurring contractual indebtedness,
exclusive of trade accounts payable or money
borrowed from the Lender.
(g) BORROWER DOCUMENTS: collectively, this Reimbursement Agreement, the
Certificate, the Mortgage, the Security Agreement, the Financing Statements
and any and all other documents and instruments executed by the Borrower
and delivered to the Lender in connection with the financing transaction
contemplated hereby.
(h) CASH COLLATERAL ACCOUNT: shall have the meaning assigned thereto in
Section 6.2(d) hereof.
(i) CASH FLOW: for each fiscal year of the Borrower, the aggregate amount
of the following items properly shown on its year-end income statement,
determined in accordance with generally accepted accounting principles
consistently applied: (i) net
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income after taxes; (ii) amortization expense; (iii) depreciation and
depletion expense; (iv) deferred tax expense; and (v) similar types of
noncash charges against income which the Bank determines, in its reasonable
discretion, to be appropriate "add-backs."
(j) CERTIFICATE: the certificate of no hazardous material of even date
herewith executed by the Borrower and delivered to the Lender.
(k) COLLATERAL SECURITIES: shall have the meaning assigned thereto in
Section 6.2(d)(1) hereof.
(l) COMMITMENT: the commitment of the Lender hereunder to (i) issue the
Letters of Credit, and (ii) approve the Advances to the Borrower in
accordance with the provisions hereof in an aggregate principal amount of
up to and including $5,625,000 plus investment earnings on sums on deposit
in the Construction Fund.
(m) COMMITMENT TERMINATION DATE: April 1, 1998, which date shall
automatically be extended to February 1, 1999, in the event the Letters of
Credit are extended pursuant to Section 2.6 hereof, or the date of
termination of the Commitment pursuant to Section 6.2(a) hereof, whichever
date occurs earlier.
(n) COMPLETION DATE: July 1, 1996 (provided that if the Lender shall
extend such date in writing, then the Completion Date shall be such later
date), being the required date of completion of the Facility.
(o) CREDIT ENHANCEMENT FEE: shall have the meaning assigned thereto in
Section 4.2 hereof.
(p) CONSTRUCTION COSTS: the actual costs of the construction of the
Facility.
(q) CONSTRUCTION DOCUMENTS: collectively, all of the following documents
which shall be in form and substance acceptable to the Lender:
(1) The Plans and Specifications;
(2) Certificates of Builder's Risk, Worker's Compensation, Liability
and Property and Extended Coverage Insurance, as required by Section
5.2(g) hereof and the Mortgage;
(3) a preliminary sworn construction statement duly executed by the
Borrower and the General Contractor showing all costs and expenses of
any kind incurred and to be incurred in constructing and installing
the Facility, together with a certificate signed by the Borrower
otherwise reflecting Construction Costs, and showing that Construction
Costs do not exceed $1,982,738;
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(4) a copy of the contracts with the General Contractor and the
Architect, and of all electrical, heating, masonry, plumbing,
mechanical, and elevator contracts and all other subcontracts
required by the Lender relating to the construction and installation
of the Facility, and assignments thereof to the Lender duly executed
and delivered by the Borrower, the General Contractor, the Architect
and such subcontractors permitting the Lender, upon its election after
the occurrence of an Event of Default, to complete the Facility
pursuant to, and to acquire the interest of the Borrower under, the
foregoing contracts and the Plans and Specifications;
(5) all building permits and such other evidence as the Lender shall
request to establish that all necessary building, zoning and rezoning,
planned unit development, subdivision, platting and environmental
protection and land use permits and approvals have been obtained, and
that the Facility as constructed will comply in all respects with all
applicable restrictions in prior conveyances and all applicable
ordinance, building, zoning and rezoning, planned unit development,
subdivision, platting and environmental protection and land use
requirements;
(6) evidence that no hazardous waste or substances are contained on,
under or in the Project except as may be permitted pursuant to the
terms of the Certificate;
(7) a soil report, duly certified to the Lender (or in lieu thereof,
a letter addressed to the Lender from the soil engineer permitting the
Lender to rely therein), evidencing that satisfactory soil boring
tests have been conducted by an engineering firm acceptable to the
Lender at such locations of the Project as are acceptable to the
Lender, and a certificate signed and delivered by the Architect
certifying to the Lender that the plans and specifications for the
Project implement and take into account the recommendations of the
soil engineer set forth in such report that the foundation designed
for the Project as reflected in the Plans and Specifications for the
Project is adequate giving the existing soil conditions of the Project
Premises; and
(8) an appraisal prepared by an MAI designated appraiser acceptable
to the Lender setting forth the estimated fair market value of the
Project upon completion of the Facility in accordance with the Plans
and Specifications relating to the Project of at least $1,775,000,
together with such documentation as may be necessary to permit the
Lender to rely thereon.
(r) CONTRACTOR: any person who shall be engaged to work on, or to
furnish materials and supplies for the Facility.
(s) CURRENT MATURITIES OF LONG-TERM DEBT: that portion of the Borrower's
"Long-Term Debt" that matures or that is scheduled to be paid during the
current fiscal year of the Borrower. For the purposes of this definition,
"Long-Term Debt" shall mean the following: (i) the aggregate amount of the
Borrower's liabilities properly shown as non-
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current liabilities on its balance sheet, determined in accordance with
generally accepted accounting principles consistently applied, as of the
last day of its preceding fiscal year; and (ii) any new liabilities of the
Borrower incurred during its current fiscal year that, in accordance with
generally accepted accounting principles consistently applied, should be
shown as non-current liabilities on its balance sheet at fiscal year-end.
(t) DRAW REQUEST: the form, substantially in the form of EXHIBIT A
attached hereto, to be submitted to the Lender when an Advance is requested
and which is referred to in Section 2.2 hereof.
(u) ELIGIBLE SECURITIES: shall have the meaning assigned thereto in
Section 6.2(d)(1) hereof.
(v) ESCROW ACCOUNT: the non-interest bearing escrow account to be
established by the Lender in the name of the Borrower into which any and
all amounts required to be deposited by the Borrower pursuant to Section
2.3 hereof shall be deposited.
(w) EQUIPMENT ACQUISITION COSTS: the actual cost of the acquisition of
Project Equipment.
(x) EVENT OF DEFAULT: shall have the meaning assigned thereto in Section
6.1 hereof.
(y) FACILITY: the approximately 22,500 square foot addition to an
existing 23,305 square foot manufacturing facility which will be
constructed on the Project Premises pursuant to the Plans and
Specifications, together with all additions to, replacements of and
substitutions for any of the foregoing which may be made as permitted or
required by the Lender.
(z) FINANCING STATEMENTS: the UCC-1 Financing Statements executed by the
Borrower to be filed of record in the office of the Minnesota Secretary of
State and the Hennepin County Recorder, serving to perfect a valid first
lien on the property subject to the Security Agreement and the personal
property subject to the Mortgage.
(aa) GENERAL CONTRACTOR: Hagman Construction, Inc.
(bb) INDENTURE: the Indenture of Trust of even date herewith by and
between the Issuer and the Trustee relating to the Bonds.
(cc) INSPECTING ARCHITECT: HDR Engineering, Inc.
(dd) INTEREST DRAWING: shall have the meaning assigned thereto in the
Letters of Credit.
(ee) ISSUER: City of Victoria, Minnesota.
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(ff) LETTERS OF CREDIT: collectively, the Series A Letter of Credit and
the Series B Letter of Credit.
(gg) LOAN AGREEMENT: the Loan Agreement of even date herewith by and
between the Issuer and the Borrower.
(hh) MANDATORY REDEMPTION DATE: the date of each scheduled Mandatory
Redemption Drawing pursuant to Section 3.1(4) of the Indenture.
(ii) MANDATORY REDEMPTION DRAWING: shall have the meaning assigned thereto
in the Letters of Credit.
(jj) MORTGAGE: the Mortgage, Security Agreement, Fixture Financing
Statement and Assignment of Leases and Rents of even date herewith executed
by the Borrower for the benefit of the Lender securing payment of all
amounts which may be advanced by the Lender under the Series B Letter of
Credit and constituting a valid first lien on a good and marketable fee
simple title to the Project Premises.
(kk) OBLIGATION OF REIMBURSEMENT: shall have the meaning assigned thereto
in Section 4.1 hereof.
(ll) ORGANIZATIONAL DOCUMENTS: collectively, the following documents each
of which shall be in form and substance acceptable to the Lender;
(1) a copy of the Articles of Incorporation of the Borrower, duly
certified by the Secretary of State of the State of Minnesota;
(2) a copy of the Certificate of Good Standing of the Borrower, duly
issued by the Secretary of State of the State of Minnesota;
(3) a copy of the Bylaws of the Borrower, duly certified by an
officer of the Borrower;
(4) a copy of the resolutions of the Borrower authorizing the
execution, delivery and performance of the Borrower Documents and the
Loan Agreement, duly certified by an officer of the Borrower; and
(5) an opinion of counsel for the Borrower dated as of the date
hereof and acceptable in form and substance to the Lender.
(mm) PLANS AND SPECIFICATIONS: the final plans and specifications for the
Facility as approved by the Lender and the Inspecting Architect.
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(nn) PROJECT: the Project Premises and the Facility, including all
Project Equipment, as the same may from time to time exist.
(oo) PROJECT COSTS: the sum of (i) Construction Costs; (ii) Equipment
Acquisition Costs; and (iii) all commitment fees of the Lender, brokerage
or finder's fees, interest charges, service fees, attorneys' fees,
administrative fees, fiscal consultants' fees, contractors' fees,
developers' fees, title insurance fees and charges, recording fees and
registration taxes, paid or incurred by or on behalf of the Lender in
connection with the Project.
(pp) PROJECT EQUIPMENT: any and all equipment now or hereafter located
within or used in connection with the Project Premises or the Facility
acquired, in whole or in part, from proceeds of Bonds, and any additions
to, replacements of and substitutions for any of the foregoing which may be
permitted or required by the Lender.
(qq) PROJECT PREMISES: the real estate described in Exhibit A attached to
the Mortgage.
(rr) RELATED DOCUMENTS: shall have the meaning assigned thereto in
Section 7.16(a) hereof.
(ss) SECURITY AGREEMENT: the Security Agreement of even date herewith
executed by the Borrower for the benefit of the Lender securing payment
of all amounts payable under this Agreement and constituting a valid
first lien on all equipment now owned or hereafter acquired by the
Borrower.
(tt) SERIES A LETTER OF CREDIT: the Irrevocable Letter of Credit No.
S404271 issued by the Lender to the Trustee for the account of the Borrower
in the original stated amount of $4,388,753.00.
(uu) SERIES B LETTER OF CREDIT: the Irrevocable Letter of Credit No.
S404272 issued by the Lender to the Trustee for the account of the Borrower
in the original stated amount of $1,482,053.00.
(vv) TANGIBLE NET WORTH: the sum of the contributed capital, surplus and
undivided profits of the Borrower, less any amounts attributable to
treasury stock, good will, patents, copyrights, mailing lists, catalogues,
trademarks, bond discount and underwriting expenses, organization expenses,
leasehold improvements and loans to officers or employees and other like
intangibles (not including prepaid expenses classified as current assets or
intangible assets offset by equal related liabilities), all as determined
in accordance with generally accepted accounting principles.
(ww) TITLE COMPANY: Commercial Partners Title, LLC, as agent for Chicago
Title Insurance Company, or such other title company as is acceptable to
the Lender.
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(xx) TITLE DOCUMENTS: collectively, the following documents, each of
which shall be acceptable to the Lender:
(1) a fully paid mortgagee's title insurance policy issued by the
Title Company in an amount equal to $1,482,053 insuring the Mortgage
as a first lien on a good and marketable fee simple title to the
Project Premises, subject only to "Permitted Encumbrances" (as that
term is defined in the Mortgage) and, without limiting the generality
of the foregoing, insuring the Mortgage against claims for mechanics'
liens, rights of parties in possession and matters which would be
disclosed by a comprehensive survey and including special assessment
searches, UCC searches, judgment searches and all other customary
searches, and a long form zoning endorsement and a comprehensive
endorsement;
(2) written evidence of payment of (i) all real estate taxes relating
to the Project Premises presently due and payable, and (ii) all levied
and pending assessments relating to the Project Premises (or, in lieu
thereof, payment in escrow of an amount determined by the Lender); and
(3) a preliminary perimeter land survey of the Project Premises,
prepared at the Borrower's expense, certified to the Lender by a
licensed, registered surveyor acceptable to the Lender, dated within
thirty (30) days of the date hereof and incorporating the legal
description and street address of the Project Premises; showing the
location of all points and lines referred to in the legal description;
identifying the number of square feet and acres contained in the
Project Premises and the number of vehicles which may be parked in
designated parking areas; showing the actual or proposed location of
the Project (including sidewalks, stoops and parking areas) as being
within the exterior boundaries of the Project Premises and in
compliance with all setback requirements of the city in which the
Project is located; identifying the square footage of all existing
structures and the number of stories of all existing structures;
showing the location of all easements and encroachments onto or from
the Project Premises that are visible on the Project Premises, known
to the surveyor preparing the survey or of record and/or making a
positive statement that there are no encroachments; identifying
easements of record by recording data indicating, if possible, the
dimensions of such easement; showing the location of all utilities
serving the Project Premises (and tie-in points with respect hereto);
showing any flood hazard areas; showing all service roads, highways,
bicycle paths, walkways, right-of-way lines, driveways and parking
areas on or serving the Project, including the distance from the
nearest street; and showing any other matters affecting the title to
the Project Premises or the use thereof.
(yy) TOTAL COST OF PROJECT: The sum of all Project Costs.
(zz) TRUSTEE: First Trust National Association, and any co-trustee or
successor trustee
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appointed, qualified and then acting as such under the provisions of the
Indenture.
SECTION I.2 OTHER TERMS. All capitalized terms used herein and not otherwise
defined in this Agreement shall have the respective meanings for purposes of
this Agreement as are assigned to such terms in Section 1.1 of the Indenture or
Section 1.1 of the Loan Agreement, as the case may be, including, without
limitation, the following terms: Prime Rate; Construction Fund; Interest Payment
Date; Business Day; Alternate Letter of Credit; Series A Bonds; and Series B
Bonds.
SECTION I.3 REIMBURSEMENT AGREEMENT CONTROLLING. To the extent there exists
any inconsistencies as between the terms and/or provisions contained in this
Reimbursement Agreement and the Bond Documents, the language in this
Reimbursement Agreement shall control.
ARTICLE II
COMMITMENT TO ISSUE THE LETTERS OF CREDIT
AND APPROVAL OF ADVANCES
SECTION II.1 LETTERS OF CREDIT; ADVANCES. The Lender hereby agrees that, on
the terms and subject to the conditions hereinafter set forth, the Lender will
issue the Letters of Credit to secure payment of the Bonds and approve the
making of the Advances by the Trustee to the Borrower from time to time from the
Construction Fund from and after the date hereof to the Commitment Termination
Date. Notwithstanding anything to the contrary contained herein, the Lender
shall only be obligated to approve the Advances to pay Project Costs in an
amount up to or equal to the amount of the Commitment and such obligation is
further subject to the conditions of Article III hereof.
SECTION II.2 DRAW REQUESTS - CONSTRUCTION COSTS.
(a) Whenever the Borrower desires to obtain an Advance for Construction
Costs, which shall be no more often than monthly, the Borrower shall submit
to the Lender and the Title Company a Draw Request, duly signed by the
General Contractor, the Architect, the Inspecting Architect and the
Borrower, setting forth the information requested therein. Each Draw
Request shall, if so required by the Lender or the Title Company, be
submitted at least ten (10) days before the date the Advance is desired.
Each Draw Request shall constitute a representation and warranty by the
Borrower that all representations and warranties set forth in the Borrower
Documents are true and correct as of the date of such Draw Request. Draw
Requests for Construction Costs may be made only from the proceeds of the
Series B Bonds.
(b) At the time of submission of each Draw Request, the Borrower shall
submit to the Title Company and the Lender the following:
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(1) A written lien waiver from each Contractor for work done and
materials supplied by it which are to be paid for pursuant to all
prior Draw Requests; and
(2) Such other supporting evidence as may be reasonably requested by
the Lender to substantiate all payments which are to be made out of
the relevant Draw Request and/or substantiate all payments then made
with respect to the Facility.
(c) At the time of submission of the final Draw Request following
completion of the Facility, the Borrower shall submit to the Lender
a "as-built" survey with respect to the Project Premises complying with
the requirement set forth in Section 1.1(av)(3) hereof, except that the
actual, as opposed to the proposed, location of the Facility shall be
shown thereon.
(d) At the time of submission of the final Draw Request following
completion of the Facility, which shall not be submitted before completion
of Facility, including all landscape requirements, the Borrower shall
submit to the Lender and to the Title Company the following, unless waived
by the Lender and the Title Company in writing:
(1) a final Sworn Construction Statement, in form and substance
acceptable to the Lender, signed by the General Contractor and the
Borrower, showing all costs and expenses of any kind incurred in
constructing and installing the Facility, and a certificate signed by
the Borrower reflecting all Construction Costs paid by the Borrower;
(2) a written lien waiver from each Contractor for all work done and
for all materials furnished by it for the Facility, which lien waiver
shall conform in form and amount to the Sworn Construction Statement
referred to in (1) above;
(3) a master written lien waiver from the General Contractor in an
amount equal to the total amount of the costs reflected in the Sworn
Construction Statement referred to in (1) above;
(4) such other supporting evidence as may be reasonably requested by
the Lender or the Title Company to substantiate all payments which are
to be made out of the final Draw Request and/or to substantiate all
payments then made with respect to the Facility;
(5) evidence reasonably satisfactory to the Lender that all work
requiring inspection by municipal or other governmental authorities
having jurisdiction has been inspected and approved by such
authorities and by the rating or inspection organization, bureau,
corporation or office having jurisdiction, and that requisite
certificates of occupancy and other approvals have been issued;
(6) an AIA Certificate of Substantial Completion signed by the
Borrower, the
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General Contractor, the Architect and the Inspecting Architect
certifying that the Facility has been constructed and completed
substantially in accordance with the Plans and Specifications; and
(7) a Certificate of Occupancy duly issued by the Issuer.
(e) If on the date an Advance for Construction Costs is desired, the
Borrower has performed all of its agreements and complied with all
requirements theretofore to be performed or complied with hereunder,
the Lender shall (subject to the conditions set forth in Section 3.1
hereof and elsewhere herein) approve and authorize the Trustee to
disburse the amount of the requested Advance for Construction Costs
to the Title Company, first from the Escrow Account and second from
the Construction Fund; provided, however, that the final Advance for
Construction Costs shall be disbursed, first, from the Construction
Fund and second from the Escrow Account, and the Title Company shall
thereafter disburse the amount of the requested Advance within three
(3) business days to or for the benefit of the Borrower. The
request for the final Advance for Construction Costs may also
include a request for reimbursement for any Construction Costs
theretofore paid for using proceeds of the Escrow Account. The form
of the authorization to the Trustee to advance for Construction
Costs is attached hereto as EXHIBIT B.
SECTION II.3 ADDITIONAL DEPOSITS. If the Lender or the Title Company shall
at any time in good faith determine that the aggregate undisbursed amounts of
the portion of the Construction Fund allocated for Construction Costs (i.e.,
the proceeds of the Series B Bonds together with accrued interest thereon)
and the Escrow Account is less than the amount required to pay all costs and
expenses of any kind which reasonably may be anticipated in connection with
the completion of the Facility and shall thereupon send written notice
thereof to the Borrower specifying the amount required to be deposited by
Borrower with the Lender to provide sufficient funds to complete the Facility,
the Borrower, shall within ten (10) calendar days of receipt of any such
notice, deposit with the Lender in the Escrow Account the amount of funds
specified in such notice.
SECTION II.4 ADVANCES - EQUIPMENT ACQUISITION COSTS.
(a) Whenever the Borrower desires to obtain an Advance for Equipment
Acquisition Costs, which shall be no more often than monthly, the Borrower
shall submit to the Lender a copy of the invoice for each item of Project
Equipment for which the Borrower is seeking reimbursement, which invoice
must be stamped "paid" by the vendor. Each such request for an Advance
shall, if so required by the Lender, be submitted at least seven (7) days
before the date the Advance is desired. Each such request for an Advance
shall constitute a representation and warranty by the Borrower that all
representations and warranties set forth in the Borrower Documents are true
and correct as of the date of such request for an Advance. Requests for
Advances for Equipment Acquisition Costs may be made only from the proceeds
of the Series A Bonds. The form of the authorization to the
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Trustee to advance for Equipment Acquisition Costs is attached hereto as
EXHIBIT C.
(b) Only new items of Project Equipment shall be subject to
reimbursement pursuant to the terms of this Section 2.4. The Lender
shall have the right, at its option, to inspect all items of Project
Equipment prior to approving an Advance for reimbursement of the cost
of acquisition of such item of Project Equipment.
SECTION II.5 ADVANCES WITHOUT RECEIPT OF DRAW REQUEST. Notwithstanding
anything to the contrary contained herein, the Lender shall have the irrevocable
right at any time and from time to time to direct the Trustee to advance monies
on deposit in the Construction Fund to pay any and all expenses referred to in
Section 7.5 hereof, all without receipt of a Draw Request from or any approval
or consent of the Borrower.
SECTION II.6 EXPIRATION, RENEWAL OF LETTERS OF CREDIT. The Series A Letter of
Credit shall have an initial expiration date of not later than April 1, 1998,
but shall be automatically renewable for successive periods of two years each
(but in no event to a date later than April 1, 2006) unless the Lender
determines not to renew the term of the Series A Letter of Credit and gives
written notice of such non-renewal to the Borrower and the Issuer and the
Trustee at least sixty (60) calendar days prior to the expiration date of the
Series A Letter of Credit. The Series B Letter of Credit shall have an initial
expiration date of not later than April 1, 1998, but shall be automatically
renewable for successive periods of two (2) years each (but in no event to a
date later than April 1, 2011) unless the Lender determines not to renew the
term of the Series B Letter of Credit and gives written notice of such
non-renewal to the Borrower and the Issuer and the Trustee at least sixty (60)
days prior to the expiration date of the Series B Letter of Credit. The
Borrower acknowledges and agrees that the Lender shall have no obligation to
renew either of the Letters of Credit at any time in the future. The Borrower
further acknowledges and understands that the Bonds will be subject to mandatory
redemption if the Lender does not renew the Letters of Credit thereby resulting
in a draw under the Letters of Credit unless an Alternate Letter of Credit is
delivered to the Trustee pursuant to the Indenture or unless the Bonds are
re-marketed pursuant to the terms of the Indenture.
SECTION II.7 DRAW UNDER LETTERS OF CREDIT TO REDEEM OR DEFEASE BONDS. The
Borrower acknowledges and agrees that the consent of the Lender is required in
order for the Trustee to submit a draft under the Letters of Credit for the
purpose of optionally redeeming Bonds or to defease Bonds pursuant to the
Indenture. Such consent shall not be required if the Borrower redeems or
defeases the Bonds using funds from any other source.
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ARTICLE III
CONDITIONS OF LENDING
SECTION III.1 CONDITIONS PRECEDENT TO ISSUANCE OF LETTERS OF CREDIT AND
APPROVAL OF INITIAL ADVANCE. As a condition precedent to the issuance of the
Letters of Credit and approval of the initial Advance hereunder, the following
agreements, documents and other items shall have been executed and/or delivered
to the Lender by the party indicated, each of which documents, agreements and
other items shall be in form and substance acceptable to the Lender (unless
waived in writing by the Lender):
(a) the Borrower Documents, duly executed and delivered by the Borrower;
(b) the Bond Documents, duly executed by the parties thereto;
(c) evidence that the Mortgage has been duly filed of record in the
office of the Hennepin County Recorder (a "marked-up" policy of title
insurance issued by the Title Company shall satisfy this condition);
(d) the Construction Documents;
(e) the Organizational Documents;
(f) the Title Documents;
(g) evidence acceptable to the Lender, including presentation of lien
waivers and other receipts of payment acceptable to the Lender, that the
Borrower has theretofore paid costs and expenses with respect to the
Project in an amount equal to the difference between the Construction
Costs and the proceeds of the Series B Bonds, or, in lieu thereof,
deposited such amount into the Escrow Account, and the Lender shall not be
obligated to approve any Advance to reimburse the Borrower for such costs
and expenses;
(h) an opinion of Bond Counsel issued in connection with the Bonds which
states that the Bonds are validly issued, are not arbitrage bonds, and the
interest on the Bonds is not includable in gross income for federal income
tax purposes either addressed to the Lender or accompanied by a reliance
letter indicating that the Lender is entitled to rely on the opinion;
(i) certified copies of the preliminary and final resolution or
ordinances adopted by the Issuer authorizing the issuance of the Bonds;
(j) the Credit Enhancement Fee in the amount of $58,055.74 for the
Letters of Credit that will accrue from April 9, 1996, through and
including March 31, 1997, as required under Section 4.2 hereof;
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(k) evidence of payment to the Lender of a non-refundable real estate
underwriting fee in the amount of $8,100.00;
(l) evidence of payment to the Trustee of the $750.00 set up fee and the
first semiannual trustee fee in the amount of $750.00;
(m) evidence of payment of all expenses incurred by the Lender which are
payable by the Borrower pursuant to Section 7.5 hereof; and
(n) such other documents and instruments as the Lender may reasonably
request.
SECTION III.2 FURTHER CONDITIONS PRECEDENT TO ANY ADVANCE. The obligation of
the Lender to make or cause to be made each Advance (including the initial
Advance) shall be subject to the further conditions precedent that on the date
of such Advance:
(a) no Event of Default, and no event which with the giving of notice or
the lapse of time or both would constitute an Event of Default, shall have
occurred and be continuing and all representations and warranties made by
the Borrower in Article V hereof shall continue to be true and correct as
of the date of such Advance;
(b) with respect to a request for an Advance for Construction Costs, no
determination shall have been made by the Lender or the Title Company under
the provisions of Section 2.3 hereof that additional funds are to be
deposited with the Trustee, or, if such a determination has been made and
notice thereof sent to the Borrower, the Borrower shall have deposited the
necessary funds with the Trustee in accordance with Section 2.3 hereof;
(c) with respect to a request for an Advance for Construction Costs, if
required by the Lender, the Lender shall have been furnished with a
statement of the Borrower and of any Contractor, in form and substance
acceptable to the Lender setting forth the names, addresses and amounts due
or to become due as well as the amounts previously paid to every
Contractor, subcontractor, person, firm or corporation furnishing materials
or performing labor in connection with the construction of any part of the
Facility;
(d) the Borrower shall have provided to the Lender such evidence of
compliance with all of the provisions of this Agreement as the Lender may
reasonably request; and
(e) no license or permit necessary for the construction and installation
of the Facility shall have been revoked nor the issuance of any such
license or permit or the authority of the Borrower to construct the
Facility shall have been subjected to challenge by or before any court or
other governmental authority having or asserting jurisdiction over the
Project.
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ARTICLE IV
REIMBURSEMENTS AND OTHER PAYMENTS:
LENDER'S RIGHT TO CURE
SECTION IV.1 OBLIGATION OF REIMBURSEMENT. The Borrower hereby agrees to pay
Lender (the "Obligation of Reimbursement") (i) on the day that any amount is
drawn under the Letters of Credit a sum equal to the amount drawn under the
Letters of Credit plus any and all reasonable charges and expenses which the
Lender may pay or incur relative to such draw, (ii) on demand, any amounts
advanced by the Lender in its sole discretion to cure any event of default under
the Bond Documents, and (iii) on demand, interest on all amounts remaining
unpaid by the Borrower to the Lender under this Agreement at any time accruing
from the date such amounts become payable (in the case of an amount payable on
demand, which interest shall accrue from the date the Lender is first entitled
to demand payment, regardless of whether a demand for payment is actually
made), until payment in full, at an annual rate equal to two percent (2%) per
annum in excess of the Prime Rate, as the same changes from time to time;
provided, however, that no interest shall accrue or be payable on any amounts
paid by the Lender pursuant to a draft submitted under the Letters of Credit if
the full amount of such draft is reimbursed by the Borrower to the Lender, by
2:00 o'clock p.m. on the same day such draft is paid by the Lender. A schedule
of the principal payments required under the Series B Bonds is attached hereto
as EXHIBIT D.
SECTION IV.2 PAYMENT OF CREDIT ENHANCEMENT FEE. So long as either of the
Letters of Credit is outstanding, the Borrower agrees to pay the Lender a Credit
Enhancement Fee with respect to the Letters of Credit (the "Credit Enhancement
Fee") for each year commencing on April 1 and ending on March 31 (or portion
thereof) that either of the Letters of Credit is outstanding equal to one
percent (1.0%) per annum of the sum of (a) the maximum amount available to be
drawn under the Letters of Credit on the first day of such year, plus (b) the
amount which is subject to reinstatement (either automatic or optional) on such
day pursuant to the Letters of Credit. The Credit Enhancement Fee shall be due
and payable in advance on or before March 31 of each year. Notwithstanding the
foregoing, if and for so long as an Event of Default has occurred and continues
or exists, then, at the Lender's option, the Credit Enhancement Fee shall
thereafter be increased by an additional two percent (2.0%) per annum. In
addition, in the event the Borrower no longer maintains its line of credit or
primary depository account(s) with the Lender, then, at the Lender's option, the
Credit Enhancement Fee shall thereafter be increased by an additional one
percent (1.0%) per annum.
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SECTION IV.3 CAPITAL ADEQUACY/CHANGE IN LAW. If any change in any law or
regulation or in the interpretation thereof by any court or administrative
governmental authority charged with the administration thereof shall either
(i) impose, modify or deem applicable or modify any capital adequacy, reserve,
special deposit or similar requirement against letters of credit issued by, or
assets held by, or deposits in or for the account of the Lender (including
without limitation, a requirement which affects the Lender's allocation of
capital resources), or (ii) impose on the Lender any other condition regarding
this Agreement or either of the Letters of Credit, and the result of any event
referred to in the preceding clause (i) or (ii) shall be to increase the cost
(including without limitation, reserve or similar cost) to the Lender of issuing
or maintaining the Letters of Credit or reduce the Lender's return hereunder or
all or any of the Lender's capital is reduced (which increase in cost or
reduction in return shall be determined by the Lender's reasonable allocation of
the aggregate of such cost increases or return reductions resulting from such
events), then upon demand by the Lender, the Borrower shall immediately pay to
the Lender, from time to time as specified by the Lender, additional amounts
which shall be sufficient to compensate the Lender for such increased cost,
together with interest on each such amount from the date demanded until payment
in full thereof at the rate provided for in Section 4.1 hereof. A certificate
as to such increased costs incurred by the Lender as a result of any event
mentioned in clause (i) or (ii) above, submitted by the Lender to the Borrower
shall be conclusive, absent manifest error, as to the amount thereof.
SECTION IV.4 COMPUTATION OF CREDIT ENHANCEMENT FEE AND INTEREST. The Credit
Enhancement Fee and interest payable on amounts due under this Agreement shall
be computed on the basis of a 360-day year and charged for actual days elapsed.
SECTION IV.5 RIGHT OF LENDER TO CURE DEFAULTS UNDER BOND DOCUMENTS. If the
Borrower shall fail to make any payments under the Bond Documents on the day
such payment is first due and payable by the Borrower, or shall fail to comply
with any other covenant or agreement of the Borrower under the Bond Documents,
or if any other default or event of default shall occur under the Bond
Documents, the Lender shall have the option, in the Lender's sole discretion,
to cure any such failure by taking action reasonably required to effect such
cure, including, without limitation, making the required payment directly to the
Trustee. Any such payment by the Lender shall constitute an advance repayable
by the Borrower in accordance with Section 4.1 hereof. The Borrower shall be
responsible for any costs and/or expenses incurred by the Lender in curing any
such default or event of default.
SECTION IV.6 PAYMENTS. All payments by the Borrower to the Lender hereunder
shall be made in lawful currency of the United States in immediately available
funds at the Lender's office at 900 East Wayzata Boulevard, Wayzata, Minnesota
55391. In addition, the Lender shall have the right to debit any of the
Borrower's accounts at the Lender without further authorization of the Borrower
to make any such payments.
SECTION IV.7 COLLATERAL. The Borrower hereby acknowledges that the Obligation
of Reimbursement and each and every other liability and indebtedness of the
Borrower hereunder are secured by the security interests and other liens granted
to the Lender by the Borrower
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pursuant to the Security Agreement, and that the Obligation of Reimbursement
with respect to amounts advanced under the Series B Letter of Credit is also
secured pursuant to the Mortgage.
SECTION IV.8 FEES. In addition to the Credit Enhancement Fee, the Borrower
shall pay to the Lender, on demand, such fees as are customarily charged by the
Lender from time to time in connection with the amendment and administration of
letters of credit, as the same change from time to time. In addition to the
foregoing, the Borrower shall pay a customary transfer fee to the Lender (in an
amount not to exceed $500 per transfer) if either or both of the Letters of
Credit is transferred to a successor trustee under the Indenture.
SECTION IV.9 REDEMPTIONS UNDER SERIES A BONDS. The parties hereto acknowledge
that Advances for Equipment Acquisition Costs may be obtained from the
Construction Fund from the date hereof through and including the Commitment
Termination Date, but that the Borrower has not yet determined the timing of
requests for Advances for Equipment Acquisition Costs. As a result, the
Series A Bonds have been structured to require no principal payments on the
Series A Bonds until the April 1, 2006 maturity date thereof. The Borrower
agrees, however, that as of April 1 of each year during the term of the Series A
Bonds commencing as of April 1, 1997, it shall, pursuant to the provisions of
Section 8.2(a) of the Loan Agreement, direct the Trustee to call for redemption
and prepayment of a portion of the Series A Bonds under the provisions of
Section 3.1(1) of the Indenture, in an amount determined in accordance with the
terms set forth in this Section 4.9. The amount of each annual redemption shall
be determined as follows:
(a) The total amount of Advances which have been made hereunder for
Equipment Acquisition Costs from the date hereof through and including
February 1, 1997, shall be divided by seven (7). This amount, when added
to the amounts determined pursuant to subsections (b) and (c) below and
rounded up pursuant to subsection (d) below, shall be applied to redeem a
portion of the Series A Bonds on each April 1 commencing with April 1,
1997, continuing on each April 1 thereafter through and including April 1,
2003.
(b) The total amount of Advances which have been made hereunder for
Equipment Acquisition Costs from February 1, 1997, through and including
January 31, 1998, shall be divided by seven (7). This amount, when added to
the amounts determined pursuant to subsection (a) above and subsection (c)
below and rounded up pursuant to subsection (d) below, shall be applied to
redeem a portion of the Series A Bonds on each April 1 commencing with
April 1, 1998, and continuing on each April 1 thereafter through and
including April 1, 2004.
(c) The total amount of Advances which have been made hereunder for
Equipment Acquisition Costs from February 1, 1998, through and including
February 1, 1999, shall be divided by seven (7). This amount, when added to
the amounts determined pursuant to subsections (a) and (b) above and
rounded up pursuant to subsection (d) below, shall be applied to redeem a
portion of the Series A Bonds on each April 1 commencing with April 1,
1999, and continuing on each April 1 thereafter through and including
April 1, 2005.
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<PAGE>
(d) The amounts payable on each April 1 as determined pursuant to
subsections (a), (b) and (c) above shall be added together and rounded
up to the next $5,000 increment. This amount shall be the amount
applied to redeem the Series A Bonds pursuant to the terms of this
Section 4.9.
By way of illustration, assume that the total Advances for Equipment
Acquisition Costs from the date hereof through February 1, 1997, is
$1,400,000, that the total Advances for Equipment Acquisition Costs from
February 1, 1997, through January 31, 1998, is $1,600,000, and that the
total Advances for Equipment Acquisition Costs from February 1, 1998,
through February 1, 1999, is $1,205,000. The required annual redemptions
for the Series A Bonds shall be determined as follows:
<TABLE>
<CAPTION>
Tranche (a) Tranche (b) Tranche (c)
Date ($1,400,000/7) ($1,600,000/7) ($1,205,000/7) Sum Rounding
- ---- -------------- -------------- -------------- --- --------
<S> <C> <C> <C> <C> <C>
4/1/97 200,000 200,000 200,000
4/1/98 200,000 228,571 428,571 430,000
4/1/99 200,000 228,571 172,143 600,714 605,000
4/1/00 200,000 228,571 172,143 600,714 605,000
4/1/01 200,000 228,571 172,143 600,714 605,000
4/1/02 200,000 228,571 172,143 600,714 605,000
4/1/03 200,000 228,571 172,143 600,714 605,000
4/1/04 228,571 172,143 400,714 405,000
4/1/05 172,143 172,143 145,000
---------
TOTAL REDEMPTIONS: 4,205,000
---------
---------
</TABLE>
ARTICLE V.
WARRANTIES, REPRESENTATIONS
AND COVENANTS
SECTION V.1 WARRANTIES AND REPRESENTATIONS. The Borrower hereby represents
and warrants to the Lender as follows:
(a) the Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of Minnesota, and is under
no legal disability to execute, deliver and perform the Borrower
Documents and the Bond Documents and to own its property and conduct
its business as presently conducted and as proposed to be conducted;
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(b) the Borrower possesses adequate licenses, certificates, permits,
franchises, patents, copyrights, trademarks and trade names, or rights
thereto, to conduct its business substantially as now conducted and as
presently proposed to be conducted;
(c) the execution, delivery and performance of the Borrower Documents
and the Bond Documents will not violate any provision of the
organizational documents of the Borrower or of any law, rule,
regulation or court order or result in the breach of or constitute a
default under any indenture or loan, credit or other agreement or
instrument to which the Borrower is a party or by which it or its
properties may be bound or affected or result in the creation or
imposition or any lien, charge or encumbrance of any nature upon any of
its properties or assets contrary to the terms of any such instrument
or agreement;
(d) the Borrower Documents and the Bond Documents each constitutes the
legal, valid and binding obligation of the Borrower enforceable in
accordance with its respective terms (except, as to enforceability, to
the extent limited by bankruptcy, insolvency and other similar laws
affected creditors' rights generally);
(e) the Project and the intended use thereof for the purpose and in the
manner contemplated by this Agreement are permitted by and will comply
in all material respects with all presently applicable use or other
restrictions and requirements in prior conveyances, zoning ordinances
and all development, pollution control, water conservation and other
laws, regulations, rules and ordinances of the United States and the
State of Minnesota and the respective agencies thereof, and the
political subdivision in which the Project is located;
(f) there is no suit, action or proceeding pending or, to the
knowledge of the Borrower, threatened against or affecting the Borrower
before or by any court, arbitrator, administrative agency or other
governmental authority which, if adversely determined, would materially
and adversely affect its business, properties, operations, assets or
condition (financial or otherwise) or the validity of any of the
transactions contemplated by the Borrower Documents, the Bond Documents
or any of the documents related thereto, or the ability of the
Borrower to perform its obligations hereunder or thereunder or as
contemplated hereby or thereby;
(g) the Borrower has furnished the Lender with financial statements
for the Borrower for its fiscal year ended August 31, 1995, and for its
fiscal quarter ended February 29, 1996, each of which financial
statements fairly presents the financial condition of the Borrower at
and as of the date thereof, and, as of said date, there were no
material liabilities of the Borrower, direct or indirect, fixed or
contingent, which were not reflected in the financial statements or the
notes thereto;
(h) the Borrower has filed all federal and state tax returns and
reports required to be filed, which returns properly reflect the taxes
owed by it for the period covered thereby
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and it has paid or made appropriate provisions for the payment of all
taxes which may become due pursuant to said returns and for the payment
of all present installments of any assessments, fees and other
governmental charges upon it or upon any of its property;
(i) no consent, approval or authorization of or permit or license from
or registration with or notice to any federal or state regulatory
authority or any third party is required in connection with the making
or performance of the Borrower Documents, the Bond Documents or any
document or instrument related hereto or thereto, or, if so required,
such consent, approval, authorization, permit or license has been
requested and obtained or such registration made or notice given or
such other appropriate action taken on or prior to the date hereof;
(j) the Borrower is not in default of a material provision under any
material agreement, instrument, decree or order to which it is a party
or to which it or its property is bound or affected;
(k) to the Borrower's knowledge, and except as permitted by the
Certificate, no pollutants or other toxic or hazardous waste or
substances, including any solid, liquid, gaseous, or thermal irritant
or contaminant, such as smoke, vapor, soot, fumes, acids, alkalis,
chemicals or waste (including materials to be recycled, reconditioned
or reclaimed) (collectively "substances") which is regulated by law,
regulation, ordinance or code have existed in, on or under the Project
Premises or have been discharged, dispersed, released, stored,
treated, generated, disposed of, or allowed to escape (collectively
referred to as an "incident") on the Project Premises. The Borrower
shall not permit third parties to cause an incident, shall take
reasonable steps to ensure that an incident does not occur, and shall
promptly take all appropriate steps to remedy an incident, in
compliance with all local, state and federal laws and regulations
should an incident occur;
(l) no underground storage tanks are located on the Project Premises
or, to the Borrower's knowledge, were located on the Project Premises
and subsequently removed or filled;
(m) no dump, sanitary landfill or gasoline service station are or were
located on Project Premises;
(n) no investigation, administrative order, consent order and
agreement, litigation, or settlement (collectively referred to as the
"action") including, but not limited to, proceedings or actions
commenced by any person (including, but not limited to any federal,
state, or local government or agency or entity before any court or
administrative agency) with respect to substances is proposed,
threatened, anticipated or in existence with respect to Project
Premises;
(o) to the Borrower's knowledge, the Project and the Borrower's
operations at the
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Project always have been and now are in substantial compliance with
all applicable federal, state and local statutes, laws and regulations.
No notice has been served on the Borrower from any entity, governmental
body or individual claiming any violation of any law, regulation,
ordinance or code, or requiring compliance with any law, regulation,
ordinance or code, or demanding payment or contribution for
environmental damage or injury to natural resources, or any injury to
human health; and
(p) each and all of the warranties and representations of the Borrower
set forth and contained in each of the Bond Documents are true and
correct in all material respects as of the date hereof.
Each of the foregoing representations and warranties shall be deemed to be
repeated and reaffirmed in all material respects on and as of the date any
Advance is made. In addition, the request for each Advance hereunder by the
Borrower shall constitute a representation and warranty by the Lender that the
representations of the Borrower as set forth in Section 3.5(3) of the Loan
Agreement are true and correct with respect to the requested Advance.
SECTION V.2 COVENANTS In addition to the covenants and agreements of the
Borrower set forth and contained in the other Borrower Documents, the
Borrower hereby covenants and agrees to and with the Lender as follows, so
long as either of the Letters of Credit remains outstanding and any amounts
remain due and payable to the Lender by the Borrower pursuant to Article IV
hereof, unless otherwise agreed or consented to by the Lender:
(a) that all Advances shall be used to pay Project Costs; that the
Project does and shall comply with all applicable restrictions,
conditions, ordinances, regulations and laws of governmental departments
and agencies having jurisdiction over the Project, and does not and shall
not violate any private restrictions or covenants or encroach upon or
interfere with easements affecting the Project Premises; and that the
Borrower will commence and carry on continuously, diligently and with
reasonable dispatch, the construction of the Facility in conformance to the
Plans and Specifications, free from all mechanics, labors, and materialmen's
liens, and in good and workmanlike manner, and substantially complete the
Facility on or before the Completion Date;
(b) to keep, perform, enforce and maintain in full force and effect all of
the terms, covenants, conditions and requirements of the Borrower Documents,
the Bond Documents, the Title Documents, the Organizational Documents and
the Construction Documents; not to amend, modify, supplement, terminate,
cancel or waive any of the terms, covenants, conditions or requirements of
any of said documents without the prior written consent of the Lender; and
to execute such amendments, modifications, supplements and extensions of
said documents as may be reasonably requested by the Lender;
(c) upon the demand of the Lender for reasonable cause, from time to time
not more frequently than once every two (2) years during the term hereof, to
deliver to the Lender
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an updated survey showing the Facility to be located within applicable
lot lines of the Project Premises and set back lines and not
encroaching upon any easements, streets or adjoining property, and to
deliver to the Lender from time to time and at any time updated and
recertified copies of the Title Documents, the Organizational
Documents and Construction Documents;
(d) not to create, permit to be created or to allow to exist, any
liens, charges or encumbrances on the Project (other than "Permitted
Encumbrances" as defined in the Mortgage) and the lien of general real
estate taxes pending and special assessments not due and payable
except for such liens, charges and encumbrances which are being
diligently contested in good faith by appropriate proceedings and
provided that, if requested by the Lender, the Borrower shall have
deposited into escrow with the Lender an amount equal to such lien,
charge or encumbrance plus some penalties accrued thereon;
(e) not to assign this Agreement or any interest
herein or all or any part of the Advances to be made hereunder;
(f) to use its best efforts to require each
Contractor to comply with all rules, regulations, ordinances and laws
bearing on its conduct of work on the Facility;
(g) to obtain and maintain at times during the process of
constructing and installing the Facility and at all times thereafter
during the term of the Letters of Credit, if applicable (and, from
time to time at the request of the Lender, furnish the Lender with
proof of payment of premiums on):
(1) builder's risk insurance, written on the so-called "Builder's
Risk Completed Value Basis", in an amount equal to total
construction costs for the Facility, and with coverage available on
the so-called "all risk", non-reporting form of policy, the
Lender's interest to be protected in accordance with a loss payable
clause in form and content satisfactory to the Lender, naming the
Lender as mortgagee and loss payee;
(2) comprehensive general liability insurance (including
operations, contingent liability, operations of subcontractors,
complete operations and contractual liability insurance) in such
amount as the Lender may require from time to time (but with
coverage of not less than $1,000,000/$1,000,000) and naming the
Lender as an additional insured;
(3) worker's compensation insurance, with statutory coverage
covering all persons engaged in the construction or installation of
the Project;
(4) hazard insurance, with respect to completed portions of the
Project, insuring against loss by fire, lightning, vandalism,
malicious mischief and other
21
<PAGE>
risks customarily covered by a standard extended coverage
endorsement, in an amount not less than the face amount of the
Series B Letter of Credit or the full insurable value of the
Project, whichever is greater, and naming the Lender as mortgagee
and loss payee;
(5) flood insurance, if any of the Land is located in a "flood
plain" as defined by the Federal Insurance Administration, in the
maximum obtainable amount up to the face amount of the Series B
Letter of Credit, naming the Lender as loss payee (unless an
appropriate official of the city in which the Project Premises is
located states in writing that all of the Project Premises is not
located in a "flood plain" as defined by the Federal Insurance
Administration);
(6) rent loss or business interruption insurance, with respect to
completed portions of the Project, with respect to the perils set
forth in paragraph (4) above, in an amount sufficient to enable the
Borrower to make the required payments under this Agreement, to pay
taxes and insurance and continue operations during an assumed
reconstruction period of one (1) year, naming the Lender as
mortgagee and loss payee; and
(7) such insurance with respect to the Project Equipment as is
required by the Security Agreement;
Such policies of insurance to be in form and content satisfactory to the
Lender and to be placed with financially sound and reputable insurers
licensed to transact business in the State of Minnesota and to contain an
agreement of the insurer to give not less than thirty (30) days' advance
written notice to the Lender in the event of cancellation, change or non-
renewal of such policy effecting the coverage thereunder; acceptance of
such insurance policies not to bar the Lender from requiring additional
insurance (either in type or amount) at a later date which it reasonably
deems necessary;
(h) to keep accurate books of record and account for itself in which
true and complete entries will be made in accordance with generally
acceptable accounting principles consistently applied and, upon
request of the Lender will give any representative of the Lender
access during normal business hours to, and permit such representative
to examine, copy or make extracts from any and all books, records,
contracts, plans, drawings, permits, bills and statements of account
pertaining to the Project, to inspect any of its properties and to
discuss its affairs, finances and accounts with any of its officers,
all at such times as often as it may reasonably be requested by the
Lender or its officers or representatives;
(i) to hold the Lender harmless, and the Lender shall have no
liability or obligation of any kind to the Borrower, creditors of the
Borrower or any third party, in connection with any defective,
improper or inadequate workmanship performed in or about, or materials
supplied to, the Project Premises and the Facility, or any mechanics,
suppliers
22
<PAGE>
or materialmen's liens arising as a result of such defective, improper
or inadequate workmanship or materials, and upon the Lender's
reasonable request, to replace or cause to be replaced, any such
defective, improper or inadequate workmanship or materials;
(j) to pay all real estate taxes prior to the attachment of
penalties with respect thereto and installments of special assessments
payable therewith, insurance premiums with respect to the insurance
required to be maintained by the Borrower under the terms of any of
the Borrower Documents, and any utility charges incurred by the
Borrower prior to or during the term of this Agreement, except as to
such taxes, assessments, premiums or charges which are being contested
in good faith by appropriate proceedings and provided that, if
requested by the Lender, the Borrower shall have deposited into escrow
with the Lender an amount equal to such taxes, assessments, premiums
or charges plus penalties accrued thereon; provided, however, that the
right of the Borrower to contest such taxes and assessments shall only
constitute an agreement between the Lender and the Borrower and,
without limiting the generality of the foregoing, nothing contained
herein shall constitute an agreement by or the consent of the Issuer
to the nonpayment of any such taxes or assessments, whether or not the
same are being so contested;
(k) to perform each and all of the covenants and agreements set
forth and contained in the Bond Documents;
(l) to cause to be prepared and delivered to the Lender the
following:
(i) as soon as available and in any event within
ninety (90) days after the end of its fiscal year, audited
financial statements of the Borrower (balance sheet, income
statement and statement of cash flow), all in reasonable detail
and prepared in accordance with generally accepted accounting
principles, consistently applied, prepared by independent
certified public accountants acceptable to the Lender; and
(ii) from time to time, with reasonable
promptness, such further information regarding the business,
operations, affairs and financial and other condition of the
Borrower and the Project as the Lender may request;
(m) to promptly give notice in writing to the Lender of any and all
litigation involving the Borrower where the amount in dispute exceeds
$50,000 and is not covered by insurance, and of any and all litigation
if the aggregate amount in dispute in connection with such litigation
exceeds $50,000 and is not covered by insurance, and of any and all
material proceedings commenced against the Borrower by or before any
court or governmental or regulatory agency;
(n) to comply with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority, a breach of
which would materially and adversely affect the business or credit of
the Borrower, except where diligently contested in good
23
<PAGE>
faith and by proper proceedings;
(o) to preserve and maintain all of the Borrower's rights,
privileges and franchises necessary or desirable in the normal conduct
of the Borrower's business; and not to suspend business operations or
convey, transfer, encumber or pledge a substantial portion of its
properties or assets;
(p) to keep all of the assets and properties necessary in the
Borrower's business in good working order and condition, ordinary wear
and tear excepted;
(q) to obtain all necessary and convenient state, federal, local
and private clearances, authorizations, permits and licenses with
respect to the business operations of the Borrower, including, without
limitation, any export and other trade licenses or permits required by
law for the present or future business operations of the Borrower;
(r) not to undertake or permit without prior written approval of
the Lender any other or additional construction on the Project
Premises or on any site or sites adjacent thereto owned by the
Borrower or any parties related thereto;
(s) not to create, incur, assume or suffer to exist, contingently
or otherwise, indebtedness in excess of $500,000.00 for Borrowed Money
in any fiscal year, except indebtedness disclosed to the Lender in
writing as existing at the time of execution of this Agreement;
(t) not to permit its Tangible Net Worth to be less than
$12,400,000.00 for its fiscal year ending August 31, 1996, and
$13,900,000.00 for its fiscal year ending August 31, 1997;
(u) not to permit its long-term debt to Tangible Net Worth ratio to
exceed 1.0 to 1.0 at any time during the term hereof;
(v) to produce a net profit after taxes quarterly, and to produce
an annual net profit of at least $1,500,000 for the Borrower's fiscal
years ending August 31, 1996 and August 31, 1997; and
(w) to maintain a ratio of Cash Flow to Current Maturities of
Long-Term Debt of at least 1.5 to 1.0 for each fiscal year of the
Borrower during the term hereof.
ARTICLE VI
EVENTS OF DEFAULT; RIGHTS AND REMEDIES UPON
EVENT OF DEFAULT
SECTION VI.1 Events of Default. Any one or more of the following events,
conditions or
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circumstances shall constitute an Event of Default:
(a) the Borrower shall fail to pay, within five (5) days after the
due date thereof, any amounts required to be paid by the Borrower
under this Agreement or any other indebtedness of the Borrower to the
Lender or any third party, whether any such indebtedness is now
existing or hereafter arises and whether direct or indirect, due or to
become due, absolute or contingent, primary or secondary or joint or
joint and several;
(b) the Borrower shall fail to observe or perform any of the
covenants, conditions or agreements to be observed or performed by it
under the Borrower Documents, the Bond Documents or any credit or
similar agreement between the Borrower and the Lender for a period of
thirty (30) days after written notice, specifying such default and
requesting that it be remedied, given to such party by the Lender,
unless the Lender shall agree in writing to an extension of such time
prior to its expiration, or for such longer period as may be
reasonably necessary to remedy such default (other than defaults which
can be cured by a money payment) provided that the Borrower is
proceeding with reasonable diligence to remedy the same;
(c) the Borrower shall file a petition in bankruptcy or for
reorganization or for an arrangement pursuant to any present or future
state or federal bankruptcy act or under any similar federal or state
law, or shall be adjudicated a bankrupt or insolvent, or shall make a
general assignment for the benefit of its creditors, or shall be
unable to pay its debts generally as they become due; or if a petition
or answer proposing the adjudication of the Borrower as a bankrupt or
its reorganization under any present or future state or federal
bankruptcy act or any similar federal or state law shall be filed in
any court and such petition or answer shall not be discharged or
denied within sixty (60) days after the filing thereof; or if a
receiver, trustee or liquidator of the Borrower or of all or
substantially all of the assets of the Borrower or of the Project
shall be appointed in any proceeding brought against the Borrower and
shall not be discharged within sixty (60) days of such appointment; or
if the Borrower shall consent to or acquiesce in such appointment; or
if any property of the Borrower (including, without limitation, the
estate or interest of the Borrower in the Project or any part thereof)
shall be levied upon or attached in any proceeding;
(d) final judgment(s) for the payment of money in excess of
$50,000, individually or in the aggregate, shall be rendered against
the Borrower and shall remain undischarged for a period of thirty (30)
days during which execution shall not be effectively stayed;
(e) the Borrower shall be or become insolvent (whether in the
equity or bankruptcy sense);
(f) any representation or warranty made by the Borrower in the
Borrower Documents or the Bond Documents shall prove to be untrue or
misleading in any material respect, or any statement, certificate or
report furnished hereunder or under any of the foregoing
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documents by or on behalf of the Borrower shall prove to be untrue or
misleading in any material respect on the date when the facts set
forth and recited therein are stated or certified;
(g) at the time any Advance is requested by the Borrower hereunder
the title to the Project is not reasonably satisfactory to the Lender,
regardless of whether the lien, encumbrance or other question existed
at the time of any prior Advance, unless such lien, or encumbrance has
been consented to in writing by the Lender;
(h) a survey shows that the Facility encroaches upon any unvacated
street or upon any adjoining property to an extent deemed material by
Lender;
(i) the construction and installation of the Facility is abandoned
or shall be unreasonably delayed or be discontinued for a period of
twenty (20) consecutive calendar days following written notice to the
Borrower by the Lender, in each instance for reasons other than acts
of God, fire, storm, strikes, blackouts, labor difficulties, riots,
inability to obtain materials, equipment or labor, governmental
restrictions or any similar cause over which the Borrower is unable to
exercise control;
(j) the Borrower at any time prior to the completion and
installation of the Facility shall (i) abandon the same, or (ii) delay
construction or suffer construction to be delayed for any period of
time, so that the completion of the construction and installation of
the Facility cannot be accomplished, in the reasonable judgment of the
Lender, by the Completion Date;
(k) the Lender or the Title Company shall, under the provisions of
Section 2.3 hereof, determine in good faith that additional sums are
to be deposited with the Lender pursuant thereto and the Borrower
shall fail to deposit such sums as required by said section; or
(l) the Borrower shall fail to timely effect a prepayment of the
Series A Bonds as required by Section 4.9 hereof.
SECTION VI.2 Rights and Remedies. Upon the occurrence and continuance
of an Event of Default, the Lender may, at its option, exercise any
and all of the following rights and remedies (and any other rights and
remedies available to it):
(a) The Lender may refrain from approving Advances until such Event
of Default is cured but the Lender may approve Advances after the
occurrence of a Event of Default without thereby waiving its rights
and remedies hereunder.
(b) The Lender shall have the right, in addition to any other
rights provided by law, to enforce its rights and remedies under the
Borrower Documents and any other documents related hereto.
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(c) The Lender may instruct the Trustee to accelerate the Bonds and
submit a draft under either of the Letters of Credit pursuant to the
Indenture.
(d) The Lender may make demand upon the Borrower and forthwith upon
such demand the Borrower will pay to the Lender in immediately
available funds for deposit in a special cash collateral account
maintained with the Lender (the "Cash Collateral Account") an amount
equal to the maximum amount then available to be drawn under the
Letters of Credit (assuming compliance with all conditions for drawing
thereunder). The Lender hereby acknowledges the Trustee's security
interest in any and all funds deposited by the Borrower hereunder and
agrees that, so long as either of the Letters of Credit is
outstanding, the Lender's interest in such funds shall be subordinate
to the interest of the Trustee.
Notwithstanding the foregoing, the Lender shall have sole discretion
in administering such funds, including the right to return such funds
to the Borrower if the Lender so elects, until the Obligation of
Reimbursement and the Credit Enhancement Fee then due shall have been
paid in full:
(1) If requested by the Borrower and subject to the right of the
Lender to withdraw funds from the Cash Collateral Account as
provided below and subject to the limitations provided below, the
Lender will from time to time invest funds on deposit in the Cash
Collateral Account, reinvest proceeds and invest interest or other
income received from any such investments, in such Eligible
Securities (as hereinafter defined) as the Borrower may select and
give notice thereof to the Lender. Such proceeds, interest or
income which are not so invested or reinvested in Eligible
Securities shall, except as otherwise provided in this Section
6.2(d), be deposited and held by the Lender in the Cash Collateral
Account. "Eligible Securities" means (A) United States Treasury
bills with a remaining maturity not in excess of 90 days, (B)
negotiable certificates of deposit of the Lender or of any other
bank having combined capital and surplus of at least $10,000,000
with a remaining maturity not in excess of 90 days, and (C) such
other instruments as the Borrower may request and the Lender may
approve in writing. Eligible Securities from time to time
purchased and held pursuant to this subsection (d)(1) shall be
referred to as "Collateral Securities" and shall, for purposes of
this Agreement, constitute part of the funds held in the Cash
Collateral Account in amounts equal to their respective outstanding
principal amounts.
(2) If at any time the Lender determines that any funds held in
the Cash Collateral Account are subject to any right or claim of
any person or entity other than the Lender or that the total amount
of such funds is less than the maximum amount at such time
available to be drawn under the Letters of Credit, the Borrower
will, forthwith upon demand by the Lender, pay to the Lender, as
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additional funds to be deposited and held in the Cash Collateral
Account, an amount equal to the excess of (A) such maximum amount
at such time available to be drawn under the Letters of Credit over
(B) the total amount of funds, if any, then held in the Cash
Collateral Account which the Lender determines to be free and clear
of any such right and claim.
(3) The Borrower hereby pledges and grants to the Lender a
security interest in all funds held in the Cash Collateral Account
(including Collateral Securities) from time to time and all
proceeds thereof, as security for the payment of all amounts due
and to become due from the Borrower to the Lender under this
Agreement.
(4) The Lender may, at any time or from time to time after funds
are deposited in the Cash Collateral Account or invested in
Collateral Securities, after selling (upon ten days' notice to the
Borrower), if necessary, any Collateral Securities, apply funds
then held in the Cash Collateral Account to the payment of any
amounts, in such order as the Lender may elect, as shall have
become or shall become due and payable by the Borrower to the
Lender under this Agreement. The Borrower agrees that, to the
extent notice of sale of any Collateral Securities shall be
required by law, at least ten days' notice to the Borrower of the
time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable
notification. The Lender may adjourn any public or private sale
from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned.
(5) Neither the Borrower nor any person or entity claiming on
behalf of or through the Borrower shall have any right to withdraw
any of the funds held in the Cash Collateral Account, except as
otherwise provided in subsection (6) below, except that after the
expiration of the Letters of Credit in accordance with its terms
and the payment of all amounts payable by the Borrower to the
Lender under this Agreement, any funds remaining in the Cash
Collateral Account shall promptly be returned by the Lender to the
Borrower or paid to whomever may be legally entitled thereto.
(6) The Borrower agrees that it will not (A) sell or otherwise
dispose of any interest in the Cash Collateral Account or any funds
held therein, or (B) create or permit to exist any lien, security
interest or other change or encumbrance upon or with respect to
said account or any funds or Collateral Securities held therein
except as provided in or contemplated by this Agreement.
(7) The Lender shall exercise reasonable care in the custody and
preservation of any funds held in the Cash Collateral Account and
shall be deemed to have exercised such care if such funds are
accorded treatment substantially equivalent
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to that which the Lender accords its own property, it being
understood that the Lender shall not have any responsibility for
taking any necessary steps to preserve rights against any parties
with respect to any such funds.
(8) Any amount deposited in the Cash Collateral
Account pursuant to Section 2.3 of the Mortgage may be utilized in
connection with an Optional Tender Drawing under the terms of the
Indenture.
(e) The Lender, in its sole discretion, may pay any amount owing under
the Bond Documents, including without limitation, principal of,
interest and premium on the Bonds or the Lender may cure any other
event of default under the Bond Documents;
(f) The Lender may, by written notice to the Borrower in accordance
with the terms of such indebtedness declare all indebtedness of
every type or description owed by the Borrower to the Lender to be
immediately due and payable and the same shall be thereupon be
immediately due and payable;
(g) The Lender may offset any deposits of the Borrower held by the
Lender (including those held by the Lender in the Cash Collateral
Account and any unmatured time deposits) against sums due hereunder
or against any other indebtedness then owed by the Borrower to the
Lender, whether or not then due;
(h) The Lender may enter upon the Project and take possession
thereof, and proceed in its own name or in the name of the Borrower
(which authority is coupled with an interest and is irrevocable by
the Borrower but which is not intended to nor shall it exclude the
Borrower from possession thereof) to complete or cause to be
completed the Facility, at the cost and expense of the Borrower.
If the Lender elects to complete or cause to be completed the
Project, it may do so according to the Plans and Specifications or
according to such changes, alterations or modifications in and to
the Plans and Specifications as the Lender may deem appropriate;
and the Lender may enforce or cancel all contracts let by the
Borrower relating to construction and installation of the Facility
and/or let by other Contractors which in the Lender's sole judgment
it may deem advisable; and the Borrower shall forthwith turn over
and duly assign to the Lender, as the Lender may from time to time
require, contracts relating to construction and installation of the
Facility, the Plans and Specifications, blueprints, shop drawings,
bonds, building permits, bills and statements of account pertaining
to the Facility, whether paid or not, and any other instruments or
records in the possession of the Borrower pertaining to the
Facility. The Borrower shall be liable under this Agreement to pay
to the Lender, on demand, any amount or amounts expended by the
Lender in so completing the Facility together with any costs,
charges, or expenses incident thereto or resulting therefrom, all
of which shall be secured by the Mortgage and the Security
Agreement. In the event that a proceeding is instituted against
Borrower for recovery and reimbursement of any monies expended by
the Lender in connection with the completion of the Facility, a
statement of such expenditures, verified by the affidavit of an
officer of the Lender, shall be prima facie evidence of the item so
expended and of the propriety of and necessity for such
expenditure; and the burden of proving to the contrary
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shall be upon the Borrower. The Lender shall have the right to
apply the funds on deposit in the Construction Fund and the Escrow
Account to bring about the completion of the Facility and to pay
the costs thereof; and if such funds are insufficient, in the sole
judgment of the Lender, to pay for the Facility, the Borrower
agrees to promptly deliver and pay to the Lender such sum or sums
of money as the Lender may from time to time demand for the purpose
of completing the Facility or of paying any liability, charge or
expense which may have been incurred or assumed by the Lender under
or in performance of this Agreement, or for the purpose of
completing the Facility. It is expressly understood and agreed
that in no event shall the Lender be obligated or liable in any way
to complete the Facility or to pay for the costs of construction
thereof beyond the amount of the Commitment.
ARTICLE VII.
MISCELLANEOUS
SECTION VII.1 Indemnification by Borrower.
(a) The Borrower agrees to indemnify and hold harmless the Lender,
its officers, agents and employees, against any and all losses,
claims, damages or liability to which the Lender, its officers,
agents and employees, may become subject under any law in
connection with the issuance and sale of the Bonds and the carrying
out of the transactions contemplated by the Borrower Documents and
the Bond Documents, or the conduct of any activity on the
Borrower's premises, other than any such losses, claims, damages or
liability resulting from the gross negligence or willful misconduct
of the Lender or its officers, directors, agents or employees, and
to reimburse the Lender, its officers, agents and employees, for
any reasonable out-of-pocket legal and other expenses (including
reasonable counsel fees) incurred by the Lender, its officers,
agents and employees, in connection with investigating any such
losses, claims, damages or liabilities or in connection with
defending any actions relating thereto. The Lender agrees, at the
request and expense of the Borrower, to cooperate in the making of
any investigation in defense of any such claim and promptly to
assert any or all of the rights and privileges and defenses which
may be available to the Lender. The Borrower further releases and
agrees to hold harmless the Lender, its officers, agents and
employees, from any liability to the Borrower arising out of any
covenant, representation or undertaking contained in the Bond
Documents. The provisions of this Section shall survive the
payment and redemption of the Bonds.
(b) The Borrower hereby indemnifies and holds harmless the
Lender from and against any and all claims, damages, losses,
liabilities, costs or expenses whatsoever which the Lender may
incur (or which may be claimed against the Lender by any person or
entity whatsoever) (i) by reason of any untrue statement or alleged
untrue statement of any material fact contained in any official
statement or other offering document relating to the offer or sale
of the Bonds or the omission or alleged omission to state therein a
material
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fact necessary to make such statements, in light of the circumstances
under which they are made, not misleading (except any statement or
omission relating to the Lender contained in any written materials
supplied or approved by the Lender), or (ii) by reason of or in
connection with the execution and delivery or transfer of, or payment or
failure to pay under the Letters of Credit; provided, however, that the
Borrower shall not be required to indemnify the Lender for any claims,
damages, losses, liabilities, costs or expenses to the extent, but only
to the extent, caused by the willful misconduct or gross negligence of
the Lender or its officers, directors, agents or employees, in
connection with paying or wrongfully dishonoring a draft presented under
the Letters of Credit. Nothing in this Section 7.1 is intended to limit
the Borrower's Obligation of Reimbursement.
SECTION VII.2 ADDRESSES FOR NOTICE. All notices, consents, requests,
demands and other communications hereunder shall be given to or made upon the
respective parties hereto at their respective addresses specified below or,
as to any party, at such other address as may be designated by it in a
written notice to the other party. All notices, requests, consents and
demands hereunder shall be effective when personally delivered or duly
deposited in the United States mails, certified or registered, postage
prepaid, sent via facsimile or delivered to the telegraph company addressed
as aforesaid:
If to the Lender:
Norwest Bank Minnesota, National Association
Wayzata Office
900 East Wayzata Boulevard
Wayzata, MN 55391-2410
Attention: Commercial Banking
Facsimile No: (612) 476-3382
If to the Borrower:
HEI, Inc.
1495 Steiger Lake Lane
P.O. Box 5000
Victoria, MN 55386
Facsimile No.: (612) 443-2668
SECTION VII.3 INSPECTIONS. The Borrower and the Architect shall be
responsible for making inspections of the Project during the course of
construction and shall determine to their own satisfaction that the work done
or materials supplied by the Contractors to whom payment is to be made out of
each Advance has been properly done or supplied in accordance with the
applicable contracts with such Contractors. If any work done or materials
supplied by a Contractor are not satisfactory to the Borrower or the
Architect, the Borrower will immediately notify the Lender in writing of such
fact. It is expressly understood and agreed that the Lender
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or its authorized representative (including, without limitation, the
Inspecting Architect) may conduct such inspections of the Project as it may
deem necessary for the protection of the Lender's interest, and specifically,
an architectural firm acceptable to the Lender (including, without
limitation, the Inspecting Architect) may, at the option of the Lender, and
at the expense of the Borrower, conduct such periodic inspections of the
Project, prepare such written progress reports during the period of
construction and prepare such written reports upon completion of the Project,
as the Lender may request. Any inspections which may be made of the Project
by the Lender or its representative (including without limitation, the
Inspecting Architect) will be made, and all certificates issued by the
Lender's representative (including without limitation, the Inspecting
Architect) will be issued, solely for the benefit and protection of the
Lender, and the Borrower will not rely thereon.
SECTION VII.4 ADDITIONAL SECURITY INTEREST. In the event any Advance is to
be made for materials then being fabricated or stored, or both, for later use
in the completion of the Facility but which have not been stored upon the
Project Premises or installed or incorporated into the Project, then such
Advance shall be made only after the Borrower has given to the Lender such
security instruments and insurance on such materials as the Lender may
reasonably request.
SECTION VII.5 FEES. The Borrower will reimburse the Lender upon demand for
all reasonable costs and expenses, including without limitation, attorney's
fees, appraisal fees, survey fees, closing charges, inspection fees,
documentary or tax stamps, recording and filing fees, mortgage registration
tax, insurance premiums and service charges, paid or incurred by the Lender
in connection with (i) the preparation, negotiation, approval, execution and
delivery of the Bonds, this Agreement, the Mortgage, the Security Agreement
and any other documents and instruments related hereto or thereto; (ii) the
negotiation of any amendments or modifications to any of the foregoing
documents, instruments or agreements in the preparation of any and all
documents necessary to effect such amendments or modifications; (iii) the
servicing of the Letters of Credit; (iv) the review of any document submitted
to the Lender pursuant to Article II or III hereof; and (v) the enforcement
by the Lender during the term hereof or thereafter of any of the rights or
remedies of the Lender hereunder or under any of the foregoing documents,
instruments or agreements, including without limitation, costs and expenses
of collection in the Event of Default, whether or not suit is filed with
respect thereto.
SECTION VII.6 TIME OF ESSENCE. Time is of the essence in the performance of
this Agreement.
SECTION VII.7 BINDING EFFECT AND ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Borrower and its successors and
permitted assigns, except that Borrower may not transfer or assign its rights
hereunder without the prior written consent of the Lender. This Agreement
shall inure to the benefit of the Lender and its participants, successors and
assigns. All rights and powers specifically conferred upon the Lender may be
transferred or delegated by the Lender to any of its participants, successors
or assigns.
SECTION VII.8 WAIVERS. No waiver by the Lender of any right, remedy or Event
of Default
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hereunder shall operate as a waiver of any other right, remedy, or Event of
Default or of the same right, remedy or Event of Default on a future
occasion. No delay on the part of the Lender in exercising any right or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right or remedy preclude other or future exercise
thereof or the exercise of any other right or remedy.
SECTION VII.9 REMEDIES CUMULATIVE. The rights and remedies herein
specified of the Lender are cumulative and not exclusive of any rights or
remedies which the Lender would otherwise have at law or in equity or by
statute.
SECTION VII.10 GOVERNING LAW; CONSTRUCTION. This Agreement shall be
governed by and construed in accordance with the internal law, and not the
law of conflict, of the State of Minnesota. Whenever possible, each
provision of this Agreement and/or any of the other Borrower Documents, and
any other statement, instrument or transaction contemplated hereby or thereby
or relating hereto or thereto shall be interpreted in such manner as to be
effective and valid under such applicable law, but, if any provision of this
Agreement and/or any of the other Borrower Documents or any other statement,
instrument or transaction contemplated hereby or thereby or relating hereto
or thereto should be held to be prohibited or invalid under such applicable
law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement and/or any of the
Borrower Documents, or any other statement, instrument or transaction
contemplated hereby or thereby or relating hereto or thereto. In the event
of any conflict within, between or among the provisions of this Agreement,
the other Borrower Documents, or any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto,
those provisions giving the Lender the greater right shall govern.
SECTION VII.11 JURISDICTION. THE BORROWER HEREBY SUBMITS ITSELF TO THE
JURISDICTION OF THE STATE OF MINNESOTA AND THE FEDERAL COURTS OF THE UNITED
STATES LOCATED IN SUCH STATE IN RESPECT OF ALL ACTIONS ARISING OUT OF OR IN
CONNECTION WITH THE INTERPRETATION OR ENFORCEMENT OF THIS AGREEMENT AND THE
DOCUMENTS RELATED HERETO.
SECTION VII.12 INTEREST RATE. Anything herein to the contrary
notwithstanding, the obligations of the Borrower under this Agreement shall
be subject to the limitation that payments of interest shall not be required
to the extent that contracting for or receipt thereof would be contrary to
the provisions of law applicable to the Lender limiting the highest rate of
interest which may be lawfully contracted for, charged or received by the
Lender.
SECTION VII.13 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be an
original, but such counterparts shall together constitute one and the same
instrument.
SECTION VII.14 NOT JOINT VENTURERS. The Lender is not, and shall not by
reason of any
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provision of any of the Borrower Documents be deemed to be, a joint venturer
with or partner or agent of the Borrower.
SECTION VII.15 ADEQUACY OF BOND PROCEEDS. The Lender has not made, nor
shall it be deemed to have made, any representation or warranty that the
funds to be advanced to the Borrower as contemplated hereby are or will be
sufficient for the purposes intended by the Borrower.
SECTION VII.16 OBLIGATIONS ABSOLUTE. Subject to Section 7.18 hereof, the
obligations of the Borrower under this Agreement shall be absolute,
unconditional and irrevocable, and shall be paid and performed strictly in
accordance with the terms of this Agreement, under all circumstances
whatsoever, including, the following circumstances:
(a) any lack of validity or enforceability of the Letters of Credit,
the Bonds, any of the Bond Documents, or any other agreement or
instrument relating thereto (collectively the "Related Documents");
(b) any amendment or any waiver of or any consent to departure from
all or any of the Related Documents;
(c) the existence of any claim, set-off, defense or other right
which the Borrower may have at any time against the Issuer, the Trustee,
any beneficiary or any transferee of the Letters of Credit (or any
person or entity for whom the Issuer, the Trustee, any such beneficiary
or any such transferee may be acting), or any 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 the Letters
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; or
(e) payment by the Lender under the Letters of Credit against
presentation of a draft or certificate which does not comply with the
terms of the Letters of Credit.
SECTION VII.17 TRANSFER OF LETTERS OF CREDIT. The Letters of Credit may
only be transferred in accordance with the terms thereof.
SECTION VII.18 LIABILITY OF THE LENDER. The Borrower assumes all risks of
the acts or omissions of the Issuer, the Trustee or any beneficiary or
transferee of the Letters of Credit with respect to its use of the Letters of
Credit. Neither the Lender nor any of its employees, officers or directors,
in its or their capacity as issuer of the Letters of Credit shall be liable
or responsible for:
(a) the use which may be made of the Letters of Credit or for any
acts or omissions
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of the Issuer, the Trustee or any beneficiary or transferee in
connection therewith;
(b) the validity, sufficiency or genuineness of documents, or of
any endorsement thereon, even if such documents should in fact prove
to be in any or all respects invalid, insufficient, fraudulent
or forged; or
(c) payment by the Lender against presentation of documents which
do not comply with the terms of the Letters of Credit, including failure
of any documents to bear any reference or adequate reference to the Letters
of Credit;
except that the Borrower shall have a claim against the Lender, and the
Lender shall be liable to the Borrower, to the extent, but only to the
extent, of any direct, as opposed to consequential, damages (including
reasonable attorneys fees, costs and expenses) suffered by the Borrower which
were caused by:
(1) the willful misconduct or gross negligence of the Lender or
its officers, directors, agents or employees in determining whether
documents presented under the Letters of Credit comply with the terms
of the Letters of Credit; or
(2) the willful failure or gross negligence of the Lender or its
officers, directors, agents or employees to pay under the Letters of
Credit after the presentation to it by the Trustee or an approved
successor trustee of a draft and certificate strictly complying with
the terms and conditions of the Letters of Credit.
SECTION VII.19 SECURITY INTEREST IN FUNDS AND BONDS. As additional security
for payment of its obligations under this Agreement, the Borrower hereby
grants a security interest to the Lender in all securities, assets, deposits
in and rights to payment from all funds now or hereafter on deposit in or
otherwise a part of any fund created by the Trustee under the Indenture or
any and all other accounts created under the Indenture, including Bonds and
Bond proceeds held pursuant to the Indenture, and in the proceeds realized
from the investment of any such items, and in any and all Bonds and
substitutions of such Bonds at any time held by the Trustee; and the Borrower
hereby consents to the Lender's appointment of the Trustee as the Lender's
agent to perfect the Lender's security interest in such funds and other
assets. The security interest granted hereunder shall be subordinate to the
Trustee's right to apply such funds in accordance with the Indenture and
subordinate to the rights of holders of the Bonds in and to such funds. All
payments on Bonds or funds held by the Trustee as agent for the Lender under
this Section 7.19, including (without limitation) any payment of principal or
interest or proceeds of sale, shall be paid directly to the Lender. All such
payments received by the Lender shall be credited against the Borrower's
Obligation of Reimbursement. The Lender shall be entitled to exercise all of
the rights of an owner of the Bonds held by the Trustee as agent for the
Lender with respect to voting, consenting and directing the Trustee as if the
Lender were the owner of such Bonds, and the Borrower hereby grants and
assigns to the Lender all such rights.
35
<PAGE>
SECTION VII.20 TERM. This Agreement shall automatically terminate upon the
later of (i) expiration of the Letters of Credit, or (ii) payment in full of
the Obligation of Reimbursement and all other amounts due and payable by the
Borrower to the Lender hereunder or under the documents related hereto.
SECTION VII.21 REDEMPTION OF THE BONDS UNDER CASUALTY OR CONDEMNATION LAWS.
To the extent that the Borrower has the right to direct the Issuer to call
for redemption of the Bonds under Section 3of the Indenture, the Borrower
shall promptly give such direction to the Issuer if (i) the Lender has the
right and shall have elected to apply proceeds of insurance or condemnation
to redemption of the Bonds pursuant to the Mortgage; and (ii) the Borrower
has been instructed in writing by the Lender to give such direction. A copy
of any such written direction to the Issuer shall be given by the Borrower to
the Lender. If the Borrower shall fail to give such direction to the Issuer
within seven (7) calendar days after being instructed to do so by the Lender,
the Lender shall have the authority to give such direction to the Issuer on
behalf of the Borrower, and if the Borrower fails to deposit with the Trustee
the amount required to redeem the Bonds, the Lender may direct the Trustee to
submit a draft under the Letters of Credit, in which case the Borrower shall
be obligated to repay the same pursuant to Section 4hereof, less the amount
of any insurance or condemnation proceeds paid to the Lender pursuant to the
Mortgage and available to the Lender for redemption of the Bonds. To
facilitate such authority, the Borrower hereby irrevocably appoints (which
appointment is coupled with an interest) the Lender or its delegate as the
attorney-in-fact to the Borrower with the right to give such direction to the
Issuer in the name of and on behalf of the Borrower. If the Lender elects to
give such direction to the Issuer, the Lender will give the Borrower a copy
of such direction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By:
--------------------------
Its:
----------------------
36
<PAGE>
HEI, INC.
By:
--------------------------------
Its:
-------------------------------
By:
--------------------------------
Its:
-------------------------------
37
<PAGE>
EXHIBIT A
[FORM OF DRAW REQUEST]
<PAGE>
EXHIBIT B
[FORM OF AUTHORIZATION TO TRUSTEE - CONSTRUCTION COSTS]
To: First Trust National Association
180 E. Fifth Street
St. Paul, Minnesota 55101
Attn: Corporate Trust Department
RE: Letters of Credit Nos. S404271 and S404272 in favor of First Trust
National Association, as trustee, issued by Norwest Bank Minnesota, National
Association, to secure payment of the City of Victoria, Minnesota, $5,625,000
Variable Rate Demand Industrial Development Revenue Bonds, Series 1996 A and
B (HEI, Inc. Project)
You are hereby authorized to advance $____________ to Commercial Partners Title,
LLC, in connection with the above-referenced financing.
Dated:____________________ NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By:_________________________________
Its:__________________________
<PAGE>
EXHIBIT C
[FORM OF AUTHORIZATION TO TRUSTEE - EQUIPMENT ACQUISITION COSTS]
To: First Trust National Association
180 E. Fifth Street
St. Paul, Minnesota 55101
Attn: Corporate Trust Department
RE: Letters of Credit Nos. S404271 and S404272 in favor of First Trust
National Association, as trustee, issued by Norwest Bank Minnesota, National
Association, to secure payment of the City of Victoria, Minnesota, $5,625,000
Variable Rate Demand Industrial Development Revenue Bonds, Series 1996 A and
B (HEI, Inc. Project)
You are hereby authorized to advance $____________ to Norwest Bank Minnesota,
National Association, in connection with the above-referenced financing.
Dated:____________________ NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By:_________________________________
Its:__________________________
<PAGE>
EXHIBIT D
(Schedule of Principal Payments Required Under Series B Bonds)
<PAGE>
JOINDER AGREEMENT
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned, Commercial Partners Title, LLC, as agent
for Chicago Title Insurance Company ("Title"), hereby assumes and agrees to
perform all of the duties and responsibilities of Title as specified in the
within Reimbursement Agreement by and between Norwest Bank Minnesota, National
Association (the "Lender"), and HEI, Inc. (the "Borrower") dated as of April 1,
1996 (the "Reimbursement Loan Agreement"), subject to the following conditions:
(i) The responsibilities and duties assumed by Title shall include only
those described in the Reimbursement Agreement, and Title shall not be
obligated to act except in accordance with the terms and conditions of the
Reimbursement Agreement.
(ii) By executing this Agreement, Title does not thereby insure that (a)
the Project will be completed, (b) the Project, when completed, will be in
accordance with the Plans and Specifications, or (c) sufficient funds will
be available for completion of the Project.
(iii) By executing this Agreement, Title does not thereby make any
certifications of the type required to be given by the inspectors,
architects or engineers, nor does it assume any liability for the same
other than procurement of such certifications as one of the conditions
precedent to each disbursement.
(iv) At any time prior to commencement of disbursement of funds hereunder,
Title reserves the right to decline any risk offered for insurance
hereunder, whereupon it shall return to the Lender any documents in its
possession relating to such loan and the funds received by it.
Commencement of disbursement makes this Agreement effective as to all funds
received and disbursed. Where, after the first disbursement, a further
title search reveals a subsequently recorded exception over which Title is
unwilling to insure, it will notify the Lender and may discontinue
disbursement, until the exception has been disposed of to its satisfaction.
A mechanic's lien claim or other filing or title defect over which Title is
required to insure hereunder does not warrant a discontinuance of
disbursement.
Title further agrees to deliver the mortgagee's policy of title insurance
referred to in the Reimbursement Agreement and all recorded documents, when
available, to the Lender, and bill all Title's charges to the Borrower.
IN WITNESS WHEREOF, Title has executed and delivered this Joinder Agreement as
of the 1st day April, 1996.
TITLE:
COMMERCIAL PARTNERS TITLE, LLC,
as agent for Chicago Title Insurance Company
By:
-------------------------------------
Its:
-------------------------------
<PAGE>
EXHIBIT 4.2b
MORTGAGE, SECURITY AGREEMENT,
FIXTURE FINANCING STATEMENT
ASSIGNMENT OF LEASES AND RENTS
BY
HEI, INC.
AS MORTGAGOR,
TO
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
AS MORTGAGEE,
TO SECURE
$1,482,053 LETTER OF CREDIT
Dated: April 1, 1996
Tax statements for the real The instrument was drafted by:
property described in this
instrument should be sent WINTHROP & WEINSTINE, P.A.
to: 3200 Minnesota World Trade Center
30 East Seventh Street
Saint Paul, Minnesota 55101
HEI, Inc.
1495 Steiger Lake Lane THE MAXIMUM PRINCIPAL
P.O. Box 5000 AMOUNTS OF THE OBLIGATIONS
Victoria, Minnesota 55386 SECURED BY THIS MORTGAGE
IS $1,482,053.
<PAGE>
MORTGAGE, SECURITY AGREEMENT,
FIXTURE FINANCING STATEMENT AND
ASSIGNMENT OF LEASES AND RENTS
THIS MORTGAGE, SECURITY AGREEMENT, FIXTURE FINANCING STATEMENT AND ASSIGNMENT
OF LEASES AND RENTS (the "Mortgage"), is made as of the 1st day of April,
1996, by HEI, INC., a Minnesota corporation (the "Mortgagor"), in favor of
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association
(the "Mortgagee").
W I T N E S S E T H:
WHEREAS, the City of Victoria, Minnesota (the "Issuer") will issue those
certain Variable Rate Demand Industrial Development Revenue Bonds, Series
1996B (HEI, Inc., Project) (the "Bonds"), pursuant to that certain Indenture
of Trust of even date herewith (the "Indenture"), by and between the Issuer
and First Trust National Association, as trustee (the "Trustee"); and
WHEREAS, the Issuer will loan the proceeds of the Bonds to the Mortgagor
pursuant to that certain Loan Agreement of even date herewith by and between
the Issuer and the Mortgagor (the "Loan Agreement"), for the purpose of
funding the loan to be made by the Issuer to the Mortgagor to finance the
construction and installation of the project described therein (the
"Project"); and
WHEREAS, in order to provide credit and liquidity enhancement with respect to
the Bonds, the Mortgagor has requested that the Mortgagee issue its
Irrevocable Letter of Credit No. S404272 for the Mortgagor's account in the
amount of $1,482,053 for the benefit of the trustee under the terms of the
indenture (the "Credit"), which shall expire no later than April 1, 2011; and
WHEREAS, as a condition to the issuance of the Credit, the Mortgagee has
required that the Mortgagor execute that certain Reimbursement Agreement of
even date herewith for the benefit of the Mortgagee (the "Reimbursement
Agreement"), which requires, among other things, that the Mortgagor reimburse
the Mortgagee for any and all draws made under the Credit; and
WHEREAS, the Mortgagee is required as an express condition to issuing the
Credit pursuant to the Reimbursement Agreement that the Mortgagor secure the
obligations of the Mortgagor under the Reimbursement Agreement by this
Mortgage.
NOW THEREFORE, THIS MORTGAGE FURTHER WITNESSETH, that in consideration of the
Mortgagee issuing the Credit on behalf of the Mortgagor pursuant to the
Reimbursement Agreement in the original face amount of One Million Four
Hundred Eighty-Two Thousand Fifty-Three and 00/100 Dollars ($1,482,053.00)
(the "Mortgage Amount") and other good and lawful consideration, the receipt
and sufficiency of which are hereby acknowledged, and to secure, and as
security for, the payment of principal and interest and other premiums,
penalties and charges on the Reimbursement Agreement and the performance and
observance by the
<PAGE>
Mortgagor of all of the covenants, agreements, representations, warranties
and conditions contained herein, the Mortgagor does hereby grant, bargain,
sell, convey, assign, transfer, pledge, set over and confirm unto the
Mortgagee, its successors and assigns, forever, and does hereby grant a
mortgage lien and security interest to the Mortgagee, its successors and
assigns, forever, in and to the tract of land legally described in EXHIBIT A
attached hereto and made a part hereof (hereinafter referred to as the
"Land");
Together with (a) all of the buildings, structures and other improvements now
standing or at any time hereafter constructed or placed upon the Land; (b)
all heating, plumbing and lighting apparatus, elevators and motors, engines
and machinery, electrical equipment, incinerator apparatus, air-conditioning
apparatus, water and gas apparatus, pipes, water heaters, refrigerating plant
and refrigerators, water softeners, carpets, carpeting, storm windows and
doors, window screens, screen doors, storm sash, window shades or blinds,
awnings, locks, fences, trees, shrubs, and all other furniture, fixtures,
machinery, equipment, appliances and personal property of every kind and
nature whatsoever now or hereafter owned by the Mortgagor and attached or
affixed to the Land and any improvements located thereon, including all
extensions, additions, improvements, betterments, renewals and replacements
of any of the foregoing; (c) all hereditaments, easements, rights, privileges
and appurtenances now or hereafter belonging, attached or in any way
pertaining to the Land or to any building, structure or improvement now or
hereafter located thereon; (d) the immediate and continuing right to receive
and collect all rents, income, issues and profits now due and which may
hereafter become due under or by virtue of any lease or agreement (oral or
written) for the leasing, subleasing, use or occupancy of all or part of the
Land now, heretofore or hereafter made or agreed to by the Mortgagor; (e) all
of the leases and agreements described in (d) above, together with all
guarantees therefor and any renewals or extensions thereof; and (f) all
insurance and other proceeds of, and all condemnation awards with respect to,
the foregoing (all of the foregoing is hereinafter collectively referred to
as the "Mortgaged Property").
The filing of this Mortgage shall constitute a fixture filing in the office
where it is filed and a carbon, photographic or other reproduction of this
document may also be filed as a financing statement:
Name and Address of HEI, Inc.
Debtor and Record 1495 Steiger Lake Lane
Owner of Real Estate: P. O. Box 5000
Victoria, Minnesota 55386
Federal Tax Identification Number: 41-0944876
Name and Address of Norwest Bank Minnesota, National Association
Secured Party: Wayzata Office
900 East Wayzata Boulevard
Wayzata, Minnesota 55391-2410
-2-
<PAGE>
Description of the Types See above
(or items) of property
covered by this
financing statement:
Description of real estate See EXHIBIT A attached
to which all or a part hereto.
of the collateral is
attached or upon which
it is located:
Some of the above described collateral is or is to become fixtures upon or
minerals and mineral rights located upon the real estate described on EXHIBIT
A, and this financing statement is to be filed for record in the public real
estate records.
AND THE MORTGAGOR, for itself, its successors and assigns, does covenant with
the Mortgagee, its successors and assigns, that it is lawfully seized of the
Mortgaged Property and has good right to sell and convey the same; that the
Mortgaged Property is free from all encumbrances except as may be further
stated in this Mortgage; that the Mortgagee, its successors and assigns,
shall quietly enjoy and possess the Mortgaged Property; and that the
Mortgagor will WARRANT AND DEFEND the title to the same against all lawful
claims not specifically excepted in this Mortgage.
PROVIDED, NEVERTHELESS, that if the Mortgagor shall pay any and all amounts
advanced under the Reimbursement Agreement with respect to the Credit, plus
interest at the rate set forth in the Reimbursement Agreement, as the same
changes from time to time and is adjusted in the manner set forth in the
Reimbursement Agreement, on the unpaid principal balance, as computed in
accordance with the terms and conditions of the Reimbursement Agreement, and
any other sums due and owing under the Reimbursement Agreement and shall also
pay or cause to be paid all other sums, with interest thereon, as may be
advanced by the Mortgagee in accordance with this Mortgage to protect the
lien of this Mortgage, and shall also keep and perform all and singular the
covenants herein, required on the part of the Mortgagor to be kept and
performed (the obligations of the Mortgagor under the Reimbursement
Agreement, including any and all renewals, amendments, extensions and
modifications thereof, and all such sums, together with interest thereon, and
such covenants herein collectively referred to as the "Indebtedness Secured
Hereby"), and provided the Credit shall either expire or be returned to the
Mortgagee without a draw being made thereunder, then this Mortgage shall be
null and void, in which event the Mortgagee will execute and deliver to the
Mortgagor in form suitable for recording a full satisfaction of this
Mortgage; otherwise this Mortgage shall remain in full force and effect.
ARTICLE I.
GENERAL COVENANTS, AGREEMENTS, WARRANTIES
-3-
<PAGE>
SECTION I.1. PAYMENT OF INDEBTEDNESS; OBSERVANCE OF COVENANTS. The
Mortgagor shall duly and punctually pay each and every payment of principal,
interest and all prepayment premiums and late charges, if any, required by
the Reimbursement Agreement due to amounts advanced under the Credit, and all
other Indebtedness Secured Hereby, as and when the same shall become due, and
shall duly and punctually perform and observe all of the covenants,
agreements and provisions contained herein, in the Reimbursement Agreement or
in any other instrument given as security for the payment of the
Reimbursement Agreement.
SECTION I.2. MAINTENANCE; REPAIRS. Subject to the provisions of Section 2.3
hereof, the Mortgagor shall keep and maintain the Mortgaged Property in good
condition, repair and operating condition free from any waste or misuse, and
will comply with all material requirements of law, municipal ordinances and
regulations, restrictions and covenants affecting the Mortgaged Property and
its use, and will promptly repair or restore any building, improvements or
structures now or hereafter located on the Land which may become damaged or
destroyed to their condition prior to any such damage or destruction. The
Mortgagor shall not acquiesce in any material rezoning classification,
modification or restriction affecting the Land, without the prior written
consent of the Mortgagee, which consent shall not be unreasonably withheld.
The Mortgagor shall not vacate or abandon the Mortgaged Property.
SECTION I.3. PAYMENT OF UTILITY CHARGES, TAXES AND ASSESSMENTS. The
Mortgagor shall, before any penalty attaches thereto, pay or cause to be paid
all charges made for electricity, gas, heat, water, sewer and other utilities
furnished or used in connection with the Mortgaged Property, and all taxes,
assessments and levies of every nature heretofore or hereafter assessed
against the Mortgaged Property and upon demand will furnish the Mortgagee
receipted bills evidencing such payment.
Nothing in this Section 1.3 shall require the payment or discharge of any
obligations imposed upon the Mortgagor by this Section so long as the
Mortgagor shall diligently and in good faith and at its own expense contest
the same or the validity thereof by appropriate legal proceeding which shall
operate to prevent the collection thereof or other realization thereon and
the sale or forfeiture of the Mortgaged Property or any part thereof to
satisfy the same; provided, however, that during such contest the Mortgagor
shall, at the reasonable request of the Mortgagee, provide security
satisfactory to the Mortgagee, assuring the discharge of the Mortgagor's
obligation under this Section and of any additional charge, penalty or
expense arising from or incurred as a result of such contest; and provided
further, however, that if at any time payment of any obligation imposed upon
the Mortgagor by this Section shall become necessary to prevent the delivery
of a tax deed conveying the Land or any portion thereof because of
nonpayment, then the Mortgagor shall pay the same in sufficient time to
prevent the delivery of such tax deed.
SECTION I.4. LIENS. Except for liens and encumbrances, if any, listed on
EXHIBIT B attached hereto or consented to in writing by or granted to the
Mortgagee ("Permitted Encumbrances"), the Mortgagor will keep the Mortgaged
Property free from all liens (other than liens for taxes, assessments and
mechanics' liens not yet due and payable) and encumbrances of every nature
whatsoever heretofore or hereafter arising and, upon written demand of the
Mortgagee, the
-4-
<PAGE>
Mortgagor will pay and procure the release of any such lien or encumbrances.
SECTION I.5. COMPLIANCE WITH LAW. The Mortgagor will promptly comply in all
material respects with all present and future laws, ordinances, rules and
regulations of any governmental authority affecting the Mortgaged Property
unless the same is being diligently contested by the Mortgagor in good faith
and by proper proceedings.
SECTION I.6. RIGHT OF THE MORTGAGEE TO ENTER. The Mortgagor will permit the
Mortgagee and its agents to enter, and to authorize others to enter, upon any
or all of the Land, at any time and from time to time, during normal business
hours, to inspect the Mortgaged Property to perform or observe any covenants,
conditions or terms hereunder which the Mortgagor shall fail to perform, meet
or comply with, or for any other purpose in connection with the protection or
preservation of the Mortgagee's security, without thereby becoming liable to
the Mortgagor or any person in possession under the Mortgage.
SECTION I.7. RIGHT OF THE MORTGAGEE TO PERFORM. If the Mortgagor fails to
pay all and singular any taxes, assessments, levies or other similar charges
or encumbrances heretofore or hereafter assessed against the Mortgaged
Property or fails to obtain the release of any lien or encumbrance (other
than a Permitted Encumbrance) of any nature heretofore or hereafter arising
upon the Mortgaged Property or fails to perform any other covenants and
agreements contained in this Mortgage or if any action or proceeding is
commenced which adversely affects or questions the title to or possession of
the Mortgaged Property or the interest of the Mortgagor or the Mortgagee
therein, then the Mortgagee, at the Mortgagee's option, without notice to the
Mortgagor, may perform such covenants and agreements, investigate and defend
against such action or proceeding, and take such other action as the
Mortgagee deems necessary to protect the Mortgagee's interest. Any amounts
disbursed by the Mortgagee pursuant to this Section 1.7, including without
limitation court costs and expenses and attorneys' fees, with interest
thereon, shall become additional indebtedness of the Mortgagor and shall be
secured by this Mortgage. Such amount shall be payable upon written notice
from the Mortgagee to the Mortgagor requesting payment thereof, and shall
bear interest from the date of disbursement at the rate set forth in Section
4.1 of the Reimbursement Agreement or, if such rate is illegal or usurious,
at the maximum rate then permitted by law. Nothing contained in this Section
1.7 shall require the Mortgagee to incur any expense or to do any act or
thing hereunder.
SECTION I.8. ASSUMPTION. The Mortgagor shall not sell, assign, lease,
convey, mortgage or otherwise encumber or dispose of either the legal or
equitable title or both to all or any portion of the Mortgaged Property or
any other interest therein without the prior written consent of the
Mortgagee.
SECTION I.9. ASSIGNMENT OF RENTS. The Mortgagor does hereby sell, assign
and transfer unto the Mortgagee (i) the immediate and continuing right to
receive and collect all rents, income, issues and profits now due and which
may hereafter become due under or by virtue of any lease or agreement (oral
or written) for the leasing, subleasing, use or occupancy of all or any part
of the Mortgaged Property now, heretofore or hereafter made or agreed to by
the
-5-
<PAGE>
Mortgagor, and (ii) all of such leases and agreements, together with all
guarantees therefor and any renewals or extensions thereof, for the purpose
of securing payment of the indebtedness of the Mortgagor under the
Reimbursement Agreement and the documents related thereto.
The Mortgagor does hereby irrevocably appoint the Mortgagee its true and
lawful attorney in its name, place and stead, with or without taking
possession of the Mortgaged Property, to rent, lease, sublease, let or sublet
all or any portion of the Mortgaged Property to any party or parties at such
rental and upon such terms, as it in its discretion may determine, and to
collect all of said avails, rents, income, issues and profits arising from or
accruing at any time hereafter under each and all of such leases and
agreements, with the same rights and powers and subject to the same
immunities, exoneration of liability and rights of recourse and indemnity as
the Mortgagee would have upon taking possession of the Mortgaged Property.
The Mortgagor represents and agrees that no rent has been or will be paid in
advance by any persons in possession of all or any portion of the Mortgaged
Property for a period of more than one month and that the payment of none of
the rents to accrue for all or any portion of the Mortgaged Property has or
will be waived, released, reduced or discounted, or otherwise discharged or
compromised, by the Mortgagor. The Mortgagor waives any right of setoff
against any person in possession of all or any portion of the Mortgaged
Property. The Mortgagor represents that it has not assigned any of said
rents or profits to any third party and agrees that it will not so assign any
of said rents or profits without the prior written consent of the Mortgagee.
Nothing contained herein shall be construed as constituting the Mortgagee "a
mortgagee in possession" in the absence of the taking of actual possession of
the Mortgaged Property by the Mortgagee. In the exercise of the powers
herein granted to the Mortgagee, no liability shall be asserted or enforced
against the Mortgagee, all such liability being expressly waived and released
by the Mortgagor.
The Mortgagor further agrees to assign and transfer to the Mortgagee all
rents from future leases or subleases upon all or any part of the Mortgaged
Property and to execute and deliver, immediately upon request of the
Mortgagee, as such further assurances and assignments in the Mortgaged
Property as the Mortgagee from time to time shall require.
Although it is the intention of the parties that this assignment of leases
and rents shall be a present assignment, it is expressly understood and
agreed that, anything herein contained to the contrary notwithstanding, the
Mortgagee shall not exercise any of the rights and powers conferred upon it
herein unless and until an Event of Default shall occur and nothing herein
contained shall be deemed to affect or impair any rights which the Mortgagee
may have under the Reimbursement Agreement, this Mortgage or any other
document or agreement related hereto or thereto.
The Mortgagor acknowledges and agrees that this assignment of leases of
rents, and the Mortgagee's rights and remedies hereunder, may be enforced by
the Mortgagee throughout the
-6-
<PAGE>
entire redemption period provided by applicable law following any foreclosure
sale of all or any portion of the Mortgaged Property.
At any time after the occurrence of an Event of Default, the Mortgagee,
without in any way waiving such default, may:
I. at the Mortgagee's option without notice to the Mortgagor and without
regard to the adequacy of the security for the obligations of the
Mortgagor under the Reimbursement Agreement, either in person or by
agent, with or without any action or proceeding, or by a receiver
appointed by a court of competent jurisdiction pursuant to Minnesota
Statutes, Section 559.17, Subd. 2, peaceably take possession of the
Mortgaged Property and have, hold, manage, lease, sublease and operate
the same as a mortgagee in possession; or
II. the Mortgagee, without taking possession of the Mortgaged Property,
may sue for or otherwise collect and receive all rents, income and
profits from the Mortgaged Property to which the Mortgagor would
otherwise be entitled, including those past due and unpaid with full
power to make from time to time all adjustments thereto, as may seem
proper to the Mortgagee.
The Mortgagee shall not be obligated to perform or discharge, nor does it
hereby undertake to perform or discharge, any obligation, duty or liability
under any leases, sublease or rental agreements relating to the Mortgaged
Property, and the Mortgagor shall and does hereby agree to indemnify and hold
the Mortgagee harmless from and against any and all liability, loss or damage
which it may or might incur under any such lease, sublease or agreement or
under or by reason of the assignment of the rents thereof and from and
against any and all claims and demands whatsoever which may be asserted
against it by reason of any alleged obligations or undertakings on its part
to perform or discharge any of the terms, covenants or agreements contained
in any of such leases, provided that the Mortgagor shall not indemnify and
hold harmless the Mortgagee from any liability loss or damage resulting from
acts or omissions of the Mortgagee which occur on or after the date the
Mortgagee takes possession of the Mortgaged Property. Should the Mortgagee
incur any liability, loss or damage by reason of this assignment of leases
and rents, or in the defense of any claim or demand, except where such
liability, loss, damage, claim or demand results from actions or omissions of
the Mortgagee, the Mortgagor agrees to reimburse the Mortgagee for the amount
thereof, including costs, expenses and attorney's fees, immediately upon
demand.
The Mortgagee, or such agent or receiver, in the exercise of the rights and
powers conferred upon it by this assignment of leases and rents shall have
the full power to use and apply the avails, rents, issues, income and profits
of the Mortgaged Property to which the Mortgagor would otherwise be entitled
to the payment of or on account of the following in the order listed below:
I. Reasonable receiver's fees;
-7-
<PAGE>
II. Application of tenant security deposits as required by Minnesota
Statutes, Section 504.20;
III. Payment, when due, of prior or current real estate taxes or special
assessments with respect to the Mortgaged Property, or the periodic
escrow for the payment of the taxes or special assessments;
IV. Payment, when due, of premiums for insurance of the type required by
this Mortgage, or the periodic escrow for the payment of the premiums;
and
V. All expenses for normal maintenance of the Mortgaged Property;
provided, however, that nothing herein shall prohibit the right to reinstate
pursuant to Minnesota Statutes, Section 580.30, or the right to redeem granted
pursuant to Minnesota Statutes, Sections 580.23 and 581.10.
Any excess cash remaining after paying the expenses listed in clauses (I)
through (V) above shall be applied to the payment of the obligations of the
Mortgagor under the Reimbursement Agreement and shall be deemed to be credited
to the amount required to be paid to effect a reinstatement or redemption or, if
the period of redemption ends without redemption, such remaining amounts shall
be paid to the purchaser at the foreclosure sale, its successors or assigns.
The Mortgagor does further specifically authorize and instruct each and every
present and future lessee, sublessee, tenant or subtenant of the whole or any
part of the Mortgaged Property to pay all unpaid rental agreed upon in any lease
or sublease to the Mortgagee upon receipt of demand from the Mortgagee so to pay
the same.
Any tenants, subtenants or other occupants of all or any part of the Mortgaged
Property are hereby authorized to recognize the claims of the Mortgagee
hereunder without investigating the reason for any action taken by the
Mortgagee, or the validity or the amount of indebtedness owing to the Mortgagee,
or the occurrence or existence of any Event of Default, or the application to be
made by the Mortgagee of any amounts to be paid to the Mortgagee. The sole
signature of any officer or attorney of the Mortgagee shall be sufficient for
the exercise of any rights under this assignment of leases and rents and the
sole receipt of the Mortgagee for any sums received by such tenants, subtenants
or other occupants shall be a full discharge and release therefor. Checks for
all or any part of the rentals collected under this Assignment of Leases and
Rents shall be drawn to the exclusive order of the Mortgagee.
SECTION I.10. FURTHER ASSURANCES. At any time and from time to time, upon
request by the Mortgagee, the Mortgagor will make, execute and deliver or cause
to be made, executed and delivered, to the Mortgagee, any and all other further
instruments, certificates and other documents as may, in the reasonable opinion
of the Mortgagee, be necessary or desirable in
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<PAGE>
order to effectuate, complete or perfect, or to continue and preserve, the
obligations of the Mortgagor hereunder and under the Reimbursement Agreement
and the mortgage and security interest granted by this Mortgage. Upon any
failure by the Mortgagor so to do, the Mortgagee may make, execute and record
any and all such instruments, certificates and documents for and in the name
of the Mortgagor and the Mortgagor hereby irrevocably appoints the Mortgagee
its agent and attorney in fact of the Mortgagor so to do.
SECTION I.11. EXPENSES. The Mortgagor will pay or reimburse the Mortgagee for
all attorney's fees, costs and expenses incurred by the Mortgagee in any legal
proceeding or dispute of any kind in which the Mortgagee is made a party, or
appears as party plaintiff or defendant, affecting the Indebtedness Secured
Hereby, this Mortgage, the interest created herein or the Mortgaged Property,
including but not limited to the exercise of the power of sale set forth in this
Mortgage, any condemnation action involving the Mortgaged Property or any action
to protect the security hereof and any such amounts paid by the Mortgagee shall
be added to the indebtedness secured by this Mortgage.
SECTION I.12. BOOKS AND RECORDS; FINANCIAL STATEMENTS. The Mortgagor will keep
and maintain full, true and accurate books of account adequate to reflect
correctly the results of the operation of the Mortgaged Property, all of which
books and records relating thereto shall be open to inspection by the Mortgagee
or its representative during normal business hours.
SECTION I.13. HAZARDOUS SUBSTANCES. The Mortgagor warrants, covenants and
represents that there does not exist in or under the Mortgaged Property any
pollutant, toxic or hazardous waste or substance, or any other material the
release or disposal of which is regulated by any law, regulation, ordinance or
code related to pollution or environmental contamination, and, that no part of
the Mortgaged Property was ever used for any industrial or manufacturing purpose
or as a dump, sanitary landfill, or gasoline service station, and that there
exists on the Mortgaged Property no storage tanks, electrical transformers or
other equipment containing PCBs or material amounts of asbestos. The Mortgagor
represents that it has received no summons, citations, directives, letters or
other communications, written or oral, from any federal, state or local agency
or department concerning the storing, releasing, pumping, pouring, emitting,
emptying or dumping of any pollutant, toxic or hazardous waste or substance on
the Mortgaged Property. Notwithstanding anything to the contrary contained
herein, the Mortgagor shall be entitled to utilize hazardous substances at the
Mortgaged Property in the ordinary course of its business provided the Mortgagor
stores, uses and disposes of such hazardous substances in accordance with all
applicable local, state and federal laws, rules and regulations.
The Mortgagor covenants and agrees that it shall not, nor shall it permit others
to, use the Mortgaged Property for the business of generating, transporting,
storing, treating or disposing of any pollutant, toxic or hazardous waste or
substance, nor shall it either take or fail to take any action which may result
in a release of any hazardous substance from or onto the Mortgaged Property. In
addition to all rights of access granted the Mortgagee pursuant to Section 1.6
hereof, during the term of the loan contemplated hereby, the Mortgagee, or any
authorized
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<PAGE>
agent, contractor or representative of the Mortgagee, is hereby irrevocably
authorized to enter upon the Mortgaged Property at any time and from time to
time for the purpose of performing inspections, taking soil borings or other
borings, or conducting any other tests or procedures on, in or about the
Mortgaged Property as the Mortgagee deems necessary or appropriate to
determine whether any hazardous or toxic substances, including without
limitation asbestos or PCBs, are present on, under or about the Mortgaged
Property.
The Mortgagor agrees to indemnify and to hold the Mortgagee harmless from any
and all claims, causes of action, damages, penalties, and costs (including, but
not limited to, attorneys' fees, consultants' fees and related expenses) which
may be asserted against, or incurred by, the Mortgagee resulting from or due to
release of any hazardous substance or waste on the Mortgaged Property or arising
out of any injury to human health or the environment by reason of the condition
of or past activity upon the Mortgaged Property. The Mortgagor's duty to
indemnify and hold harmless includes, but is not limited to, proceedings or
actions commenced by any person (including, but not limited to, any federal,
state, or local governmental agency or entity) before any court or
administrative agency. The Mortgagor further agrees that pursuant to its duty
to indemnify under this section, the Mortgagor shall indemnify the Mortgagee
against all expenses incurred by the Mortgagee as they become due and not
waiting for the ultimate outcome of the litigation or administrative proceeding.
The Mortgagor's obligations to indemnify and hold the Mortgagee harmless
hereunder shall survive repayment of the Mortgage Amount and satisfaction or
foreclosure of this Mortgage.
SECTION 1.14. TAX ESCROW. Upon request by the Mortgagee at any time after the
occurrence of an Event of Default, the Mortgagor shall pay to the Mortgagee, on
the day monthly installments of principal and/or interest are payable under the
Reimbursement Agreement, a sum equal to one-twelfth (1/12th) of the annual taxes
and assessments payable with respect to the Mortgaged Property, all as estimated
initially and from time to time determined by the Mortgagee, to be applied by
the Mortgagee to pay said taxes and assessments (such amounts being hereinafter
referred to as the "Funds"). The Mortgagee shall apply the Funds to pay said
taxes and assessments prior to the date that penalty attaches for non-payment.
The Funds are hereby pledged as additional security for the Indebtedness Secured
Hereby. No interest shall accrue on the Funds.
If the amount of the Funds held by the Mortgagee shall exceed at any time the
amount deemed necessary by the Mortgagee to provide for the payment of taxes and
assessments, such excess shall, at the option of the Mortgagee, either be
promptly repaid to the Mortgagor or be credited to the Mortgagor on the next
monthly installment of Funds due. If at any time the Funds are less than the
amount deemed necessary by the Mortgagee to pay taxes and assessments as they
fall due, the Mortgagor shall promptly pay to the Mortgagee any amount necessary
to make up the deficiency upon written notice from the Mortgagee to the
Mortgagor requesting payment thereof.
Upon the occurrence of an Event of Default, the Mortgagee may apply in any order
as the Mortgagee shall determine in its sole discretion, any Funds held by the
Mortgagee at the time of application to pay taxes and assessments which are then
or will thereafter become due or as a
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<PAGE>
credit against the Indebtedness Secured Hereby. Upon payment in full of all
Indebtedness Secured Hereby, the Mortgagee shall promptly refund to the
Mortgagor any Funds held by the Mortgagee.
ARTICLE II.
INSURANCE, CONDEMNATION AND USE OF PROCEEDS
SECTION II.1. INSURANCE. Until the Indebtedness Secured Hereby has been paid
in full, the Mortgagor shall obtain and maintain the following:
(1) The Mortgagor shall keep the buildings, structures, fixtures and other
improvements now existing or hereafter erected on the Land insured against
loss by fire, vandalism, and malicious mischief, perils of extended
coverage, and such other hazards, casualties and contingencies as may be
specified by the Mortgagee, in an amount not less than the greater of (a)
the full replacement cost thereof and (b) the full insurable value thereof,
which in no event shall be less than the amount of Indebtedness Secured
Hereby, and naming the Mortgagee as mortgagee and loss payee. The
Mortgagor shall also maintain rent loss or business interruption insurance
with respect to such exposures and perils in an amount sufficient to enable
the Mortgagor to make the required monthly payments under the Reimbursement
Agreement, to pay taxes and insurance and to continue operations during an
assumed reconstruction period of one (1) year, naming the Mortgagee as
mortgagee and loss payee. The Mortgagor shall also maintain comprehensive
general public liability insurance providing for limits of coverage of not
less than $1,000,000 combined single limit coverage, and naming the
Mortgagee as an additional insured. The Mortgagor shall also maintain such
insurance as is required by the Reimbursement Agreement.
(2) All insurance shall be carried in companies licensed to do business in
the State of Minnesota and approved by the Mortgagee and the policies and
renewals thereof shall (i) contain a waiver of defense based on
coinsurance, (ii) be constantly assigned and pledged to and held by the
Mortgagee as additional security for the Indebtedness Secured Hereby, (iii)
have attached thereto loss-payable clauses in favor of and in form
acceptable to the Mortgagee, and (iv) provide that the Mortgagee shall
receive at least thirty (30) days' prior written notice of cancellation or
any substantial modification of the policy. In default thereof, the
Mortgagee may effect any insurance required to be maintained by the
Mortgagor pursuant to this Section 2.1 and the amount paid therefor shall
become immediately due and payable with interest at the rate set forth in
Section 4.1 of the Reimbursement Agreement, or, if such rate is illegal or
usurious, at the maximum rate permitted by law, and shall be secured by
this Mortgage. In the event of loss or damage to the Mortgaged Property,
the Mortgagor will give immediate written notice thereof to the Mortgagee,
who may make proof of loss or damage if not made promptly by the Mortgagor.
The Mortgagor hereby authorizes the Mortgagee to settle and compromise all
claims on such policies and hereby authorizes and directs each insurance
company
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<PAGE>
concerned to make payment for any such loss to the Mortgagor and the
Mortgagee jointly. In the event of foreclosure of this Mortgage, all
right, title and interest of the Mortgagor in and to any property insurance
policies then in force shall pass to the purchaser at the foreclosure sale.
SECTION II.2. CONDEMNATION. The Mortgagor shall give the Mortgagee immediate
written notice of the actual or threatened commencement of any proceedings under
condemnation or eminent domain affecting all or any part of the Mortgaged
Property or any easement therein or appurtenance thereof. If all or any part of
the Mortgaged Property is damaged, taken or acquired, either temporarily or
permanently, in any condemnation proceeding, or by exercise of the right of
eminent domain, the amount of any award or other payment for such taking,
acquisition or damages made in consideration thereof, to the extent of the full
amount of the remaining unpaid indebtedness secured by this instrument, is
hereby assigned to the Mortgagee, who is empowered to collect and receive the
same and to give proper receipts therefor in the name of the Mortgagor and the
same shall be paid forthwith to the Mortgagee, to be applied to the Indebtedness
Secured Hereby, and any excess shall be paid to the Mortgagor. Provided no
Event of Default has occurred and is then continuing, the Mortgagor shall be
entitled to settle and compromise all claims for condemnation awards (to be
applied in accordance with the terms of the immediately preceding sentence)
where the amount claimed is less than $50,000.
SECTION II.3. THE MORTGAGOR TO REPAIR, REPLACE, REBUILD OR RESTORE. If any
Indebtedness Secured Hereby is outstanding when all or any part of the Mortgaged
Property is destroyed or damaged, unless the Mortgagee elects, at its option,
which option is hereby irrevocably granted by the Mortgagor to the Mortgagee, to
deposit such proceeds in the cash collateral account established pursuant to the
terms of the Reimbursement Agreement, to be applied pursuant to the terms of the
Reimbursement Agreement:
(1) the Mortgagor shall either deposit such proceeds in the cash
collateral account established pursuant to the terms of the Reimbursement
Agreement, to be applied pursuant to the terms of the Reimbursement
Agreement, or proceed promptly, subject to the provisions of subsection (2)
of this Section 2.3, to replace, repair, rebuild and restore the Mortgaged
Property to substantially the same condition as existed before the taking
or event causing the damage or destruction;
(2) all proceeds of any insurance claim shall be paid directly to the
Mortgagee. The Mortgagee shall apply the proceeds, less such sum, if any,
required for payment of all expenses incurred in collecting the same (the
"Net Proceeds"), to payment of the costs of repair, replacement, rebuilding
or restoration of the Mortgaged Property upon compliance with such
construction and disbursement terms as the Mortgagee may deem reasonably
necessary, including deposit by the Mortgagor with the Mortgagee of such
funds of the Mortgagor as may be required to insure payment of all costs
of rebuilding, restoration, repair or replacement. If such deposit is not
made when requested by the Mortgagee, or if an Event of Default occurs
while the Mortgagee is retaining the Net Proceeds, the Mortgagee may apply
the Net Proceeds to the Indebtedness Secured
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<PAGE>
Hereby. The balance of the Net Proceeds remaining after payment of all
costs of any repair, rebuilding, replacement or restoration of the
Mortgaged Property shall be applied as a prepayment of the Indebtedness
Secured Hereby, and any excess shall be paid to the Mortgagor; and
(3) the Mortgagor shall not, by reason of the payment of any costs of
repair, rebuilding, replacement or restoration, be entitled to any
reimbursement from the Mortgagee or any abatement or diminution of the
amounts payable under the Reimbursement Agreement or on any other
Indebtedness Secured Hereby.
Notwithstanding the foregoing, and provided no Event of Default has occurred and
is then continuing, the Mortgagor shall be entitled to directly apply insurance
proceeds to the repair, replacement, rebuilding or restoration of the Mortgaged
Property as long as such damage or destruction is in an amount of less than
$50,000.
ARTICLE III.
REMEDIES
SECTION III.1. REMEDIES. Upon the occurrence of an Event of Default or at any
time thereafter, the Mortgagee may, at its option, exercise any and all of the
following rights and remedies (and any other rights and remedies available to it
under applicable law or any document related hereto):
(1) the Mortgagee shall be entitled to seek immediate appointment of a
receiver for the Mortgaged Property; and
(2) the Mortgagee may foreclose this Mortgage by action or advertisement
upon written notice thereof to the Mortgagor, and the Mortgagor hereby
authorizes the Mortgagee to do so, power being herein expressly granted to
sell the Mortgaged Property at public auction without any prior hearing
thereof and to convey the same to the purchaser, in fee simple, pursuant to
the statutes of Minnesota in such case made and provided and, out of the
proceeds arising from such sale, to pay all Indebtedness Secured Hereby
with interest, and all legal costs and charges of such foreclosure and the
maximum attorney's fees permitted by law, which costs, charges and fees the
Mortgagor herein agrees to pay, and to pay the surplus, if any, to the
Mortgagor, its successors or assigns; and
(3) the Mortgagee may exercise any of the remedies made available to a
secured party under the Uniform Commercial Code in effect in the State of
Minnesota, or other applicable law, with respect to any of the Mortgaged
Property which constitutes personal property, including without limitation
the right to take possession thereof, proceeding without judicial process
or by judicial process (without a prior hearing or notice thereof, which
the Mortgagor hereby waives), and the right to sell, lease or otherwise
dispose of
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<PAGE>
or use any or all of such personal property. The Mortgagee may
require the Mortgagor to assemble such personal property and make it
available to the Mortgagee at a place designated by the Mortgagee which is
reasonably convenient to both the Mortgagor and the Mortgagee. If notice
to the Mortgagor of any intended disposition of any of the Mortgaged
Property constituting personal property or any other intended action is
required by law in a particular instance, such notice shall be deemed
commercially reasonable if given (in the manner specified in Section 4.2
hereof) at least ten (10) calendar days prior to the date of intended
disposition or other action.
In the event of a sale under this Mortgage, whether by virtue of judicial
proceedings or otherwise, the Mortgaged Property may, at the option of the
Mortgagee, be sold as one parcel and as an entirety or in such parcels, manner
and order as the Mortgagee in its sole discretion may elect.
SECTION III.2. PURCHASE OF MORTGAGED PROPERTY. In case of any sale of the
Mortgaged Property pursuant to any judgment or decree of any court or otherwise
in connection with the enforcement of any of the terms of this Mortgage, the
Mortgagee, its successors and assigns, may become the purchaser, and for the
purpose of making settlement for or payment of the purchase price, shall be
entitled to turn in and use the Reimbursement Agreement and any claims for
interest, late charges and prepayment premiums matured and unpaid thereon,
together with any other Indebtedness Secured Hereby, if any, in order that there
may be credited as paid on the purchase price the sum, or any part thereof, then
due under the Reimbursement Agreement, including principal thereof and interest,
late charges and prepayment premiums, if any, thereon, and any other
Indebtedness Secured Hereby.
ARTICLE IV.
MISCELLANEOUS
SECTION IV.1. SUCCESSORS AND ASSIGNS. The covenants and agreements contained
herein, including, without limitation, the provision of Section 1.8 hereof,
shall bind, and the rights hereunder shall inure to, the respective heirs,
successors and assigns of the Mortgagor and the Mortgagee, including among the
Mortgagor's assigns any purchasers or transferees of the Mortgaged Property.
SECTION IV.2. NOTICES. Any notice, request, demand or other communication
permitted or required hereunder shall be deemed duly given if delivered or
mailed postage prepaid, certified or registered, addressed to the address of
such party on page 2 of this Mortgage.
SECTION IV.3. HEADINGS. The headings of the sections contained herein are for
convenience only and are not to be construed to be a part of or limit or affect
the terms hereof.
SECTION IV.4. EXPENSES. The Mortgagor shall reimburse the Mortgagee and any
participant, upon demand, for all reasonable costs and expenses, including
without limitation
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attorneys' fees, appraisal fees, survey fees, closing charges, documentary or
tax stamps, recording and filing fees, insurance premiums and service
charges, paid or incurred by the Mortgagee in connection with (i) the
preparation, negotiation, approval, execution and delivery of the
Reimbursement Agreement, this Mortgage and any other documents and
instruments related hereto or thereto; (ii) the servicing of the loan
contemplated by the Reimbursement Agreement; (iii) the negotiation of any
amendments or modifications to any of the foregoing documents, instruments or
agreements and the preparation of any and all documents necessary or
desirable to effect such amendments or modifications; and (iv) the
enforcement by the Mortgagee during the term hereof or thereafter of any of
the rights or remedies of the Mortgagee or any participant hereunder or under
any of the foregoing documents, instruments or agreements, including without
limitation costs and expenses of collection, whether or not suit is filed
with respect thereto and whether such costs are paid or incurred, or to be
paid or incurred, prior to or after entry of judgment.
SECTION IV.5. DEFINITIONS. As used herein, the term "Event of Default" shall
have the meaning assigned to such term in the Reimbursement Agreement.
IN WITNESS WHEREOF, the Mortgagor has caused this Mortgage to be duly executed
and delivered to the Mortgagee as of the day and year first above written.
HEI, INC.
By:
-------------------------------------
Its:
---------------------------------
By:
-------------------------------------
Its:
------------------------------------
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<PAGE>
STATE OF MINNESOTA )
) ss
COUNTY OF )
The foregoing instrument was acknowledged before me this ____ day of March,
1996, by _________________________, the ________________, and by
_________________________, the _____________________, of HEI, Inc., a Minnesota
corporation, for and on behalf of said corporation.
-----------------------------------------
Notary Public
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<PAGE>
EXHIBIT A
(Legal Description)
Lot 2, Block 1, Point Victoria, according to the recorded plat thereof,
Carver County, Minnesota.
<PAGE>
EXHIBIT B
(Permitted Encumbrances)
1. Easement for utilities and drainage as shown on the recorded plat.
2. The former County Highway No. 113 adjacent to subject property has been
revoked as a county highway and is now under the jurisdiction of the City
of Victoria, a shown by Resolution Revoking County Highway dated April 25,
1989, filed May 23, 1989 as Document No. T61038.
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, is made as of this 1st day of April, 1996, by HEI,
INC., a Minnesota corporation ("Debtor"), in favor of NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, a national banking association ("Secured Party").
In order to secure the payment and performance of Debtor of all of its
obligations under and pursuant to that certain Reimbursement Agreement of
even date herewith (the "Reimbursement Agreement") by and between Debtor and
Secured Party (such obligations are herein collectively referred to as the
"Secured Obligations"), Debtor hereby agrees as follows:
1. SECURITY INTEREST AND COLLATERAL. In order to secure the payment and
performance of the Secured Obligations, Debtor hereby grants to Secured Party
a security interest (herein called the "Security Interest") in and to the
following property (hereinafter collectively referred to as the "Collateral"):
any and all equipment now owned or hereafter acquired by the
Debtor and wherever located,
together with all substitutions and replacements for and products and
proceeds of any of the foregoing property and all accessories, attachments,
parts, accessions and repairs now or hereafter attached or affixed to or used
in connection with any such equipment.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Debtor hereby represents
and warrants to, and covenants and agrees with, Secured Party as follows:
(a) The Collateral will be used primarily for business purposes. The
Collateral shall be located within the State of Minnesota.
Debtor's chief executive office is located at 1495 Steiger Lake Lane,
Victoria, Minnesota, and it keeps and will keep all of its books and
records with respect to all of its accounts at such address.
(b) If any part or all of the Collateral will become so related to
particular real estate as to become a fixture, the Debtor will promptly
advise the Secured Party as to real estate concerned and the record owner
thereof and execute and deliver any and all instruments necessary to
perfect the Security Interest therein and to assure that such Security
Interest will be prior to the interest therein of the owner of the real
estate.
(c) During the preceding one (1) year Debtor has not changed its name or
operated or conducted business under any trade name or "d/b/a" which is
different from its corporate name. Debtor shall promptly notify Secured
Party of any change in such name or if it operates or conducts business
under any trade name or "d/b/a" which is different from such name.
<PAGE>
(d) Debtor has (or will have at the time Debtor acquires rights in
Collateral hereafter acquired or arising) and will maintain absolute title
to each item of Collateral free and clear of all security interests, liens
and encumbrances, except the Security Interest, liens granted to secure the
acquisition of items of Collateral (other than items of Collateral acquired
through proceeds of the Reimbursement Agreement), capitalized leases, and
such other liens and encumbrances as are consented to in writing by Secured
Party (the Security Interest and such other liens and encumbrances are
hereinafter collectively referred to as the "Permitted Interests"), and
will defend the Collateral against all claims or demands of all persons
other than Secured Party and those holding Permitted Interests. Debtor
will not sell or otherwise dispose of the Collateral or any interest
therein where the book value of such Collateral is greater than $5,000
without the prior written consent of Secured Party.
(e) Debtor will not permit any Collateral to be located in any state (and,
if a county filing is required, in any county) in which a financing
statement covering such Collateral is required to be, but has not in fact
been, filed.
(f) Debtor will (i) promptly pay all taxes and other governmental charges
levied or assessed upon or against any Collateral or upon or against the
creation, perfection or continuance of the Security Interest; (ii) keep all
Collateral free and clear of all security interests, liens and encumbrances
except the Permitted Interests; (iii) at all reasonable times, permit
Secured Party or its representatives to examine or inspect any Collateral,
wherever located, and to examine, inspect and copy Debtor's books and
records pertaining to the Collateral and its business and financial
condition; (iv) keep accurate and complete records pertaining to the
Collateral and pertaining to Debtor's business and financial condition and
will submit to Secured Party such periodic reports concerning the
Collateral and Debtor's business and financial condition as Secured Party
may from time to time reasonably request; (v) promptly notify Secured Party
of any loss or material damage to any Collateral; (vi) at all times keep
all Collateral insured against risks of fire (including so called extended
coverage), theft and such other risks and in such amounts as Secured Party
may reasonably request, with any loss payable to Secured Party to the
extent of its interest and notify the Secured Party in writing of any loss
or damage to the Collateral or any part; (vii) from time to time execute
such financing statements as Secured Party may reasonably deem required to
be filed in order to perfect the Security Interest and, if any Collateral
is covered by a certificate of title, execute such documents as may be
required to have the Security Interest properly noted on a certificate of
title; (viii) pay when due or reimburse Secured Party on demand for all
costs of collection of any of the Secured Obligations and all other
out-of-pocket expenses (including in each case all attorneys' fees)
incurred by Secured Party in connection with the creation, perfection,
satisfaction or enforcement of the Security Interest or the execution or
creation, continuance or enforcement of this Agreement or any or all of the
Secured Obligations including expenses incurred in any litigation or
bankruptcy or insolvency proceedings; (ix) execute, deliver or endorse any
and all instruments, documents,
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<PAGE>
assignments, security agreements and other agreements and writings which
Secured Party may at any time reasonably request in order to secure,
protect, perfect or enforce the Security Interest and Secured Party's
rights under this Agreement; (x) not use or keep any Collateral, or permit
it to be used or kept, for any unlawful purpose or in violation of any
federal, state or local law, statute or ordinance; and (xi) not permit any
Collateral to become part of or to be affixed to any real property, without
first assuring to the reasonable satisfaction of Secured Party that the
Security Interest will be prior and senior to any interest or lien then
held or thereafter acquired by any mortgagee of such real property or the
owner or purchaser of any interest therein. If Debtor at any time fails
to perform or observe any agreement contained in this Section 2(f), and if
such failure shall continue for a period of ten (10) calendar days after
Secured Party gives Debtor written notice thereof (or, in the case of the
agreements contained in clauses (vi) and (vii) of this Section 2(f),
immediately upon the occurrence of such failure, without notice or lapse
of time) Secured Party may (but need not) perform or observe such agreement
on behalf and in the name, place and stead of Debtor (or, at Secured
Party's option, in Secured Party's own name) and may (but need not) take
any and all other actions which Secured Party may reasonably deem necessary
to cure or correct such failure (including, without limitation, the payment
of taxes, the satisfaction of security interests, liens or encumbrances
(other than Permitted Interests), the procurement and maintenance of
insurance, the execution of financing statements, the endorsement of
instruments, and the procurement of repairs, transportation or insurance);
and, except to the extent that the effect of such payment would be to
render any loan or forbearance of money usurious or otherwise illegal under
any applicable law, Debtor shall thereupon pay Secured Party on demand the
amount of all moneys expended and all costs and expenses (including
attorneys' fees) incurred by Secured Party in connection with or as a
result of Secured Party's performing or observing such agreements or
taking such actions, together with interest thereon from the date expended
or incurred by Secured Party at the rate set forth in Section 4.1 of the
Reimbursement Agreement or, if such rate is illegal or usurious, at the
maximum rates permitted by law. To facilitate the performance or
observance by Secured Party of such agreements of Debtor, Debtor hereby
irrevocably appoints (which appointment is coupled with an interest)
Secured Party, or its delegate, as the attorney-in-fact of Debtor
with the right (but not the duty) from time to time to create, prepare,
complete, execute, deliver, endorse or file, in the name and on behalf of
Debtor, any and all instruments, documents, financing statements,
applications for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by Debtor under this Section 2.
3. ASSIGNMENT OF INSURANCE. Debtor hereby assigns to Secured Party, as
additional security for the payment of the Secured Obligations, any and all
moneys (including but not limited to proceeds of insurance and refunds of
unearned premiums) due or to become due under, and all other rights of Debtor
under or with respect to, any and all policies of insurance covering the
Collateral, and Debtor hereby directs the issuer of any such policy to pay
any such moneys to the Secured Party. Before and upon the occurrence of an
Event of Default (as that term is defined in the Reimbursement Agreement),
and at any time thereafter, Secured Party may
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<PAGE>
(but need not) in its own name or in Debtor's name, execute and deliver
proofs of claim, receive all such moneys (subject to Debtor's rights),
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. Notwithstanding the foregoing, and provided no Event of Default
has occurred and is then continuing, Debtor shall be entitled to directly
settle and compromise claims where the amount of the claim is less than
$10,000 without the consent of Secured Party.
4. REMEDIES. Upon the occurrence and during the continuance of an Event of
Default, Secured Party may exercise any one or more of the following rights
or remedies if any or all of the Secured Obligations are not paid when due:
(i) exercise and enforce any or all rights and remedies available after
default to a secured party under the Uniform Commercial Code, including but
not limited to the right to take possession of any Collateral, proceeding
without judicial process or by judicial process (without a prior hearing or
notice thereof, which Debtor hereby expressly waives), and the right to sell,
lease or otherwise dispose of or use any or all of the Collateral; (ii)
Secured Party may require Debtor to assemble the Collateral and make it
available to Secured Party at a place to be designated by Secured Party which
is reasonably convenient to both parties; and (iii) exercise or enforce any
or all other rights or remedies available to Secured Party by law or
agreement against the Collateral, against Debtor or against any other person
or property. If notice to Debtor of any intended disposition of Collateral
or any other intended action is required by law in a particular instance,
such notice shall be deemed commercially reasonable if given (in the manner
specified in Section 5 hereof) at least ten (10) calendar days prior to the
date of intended disposition or other action.
5. MISCELLANEOUS. This Agreement can be waived, modified, amended,
terminated or discharged, and the Security Interest can be released, only
explicitly in a writing signed by Secured Party. A waiver signed by Secured
Party shall be effective only in the specific instance and for the purpose
given. Mere delay or failure to act shall not preclude the exercise or
enforcement of any of Secured Party's rights or remedies. All rights and
remedies of Secured Party shall be cumulative and may be exercised singularly
or concurrently, at Secured Party's option, and the exercise or enforcement
of any one such right or remedy shall neither be a condition to nor bar the
exercise or enforcement of any other. All notices to be given to Debtor shall
be deemed sufficiently given if deposited in the United States mails,
registered or certified, postage prepaid, or personally delivered to Debtor
at its address set forth in Section 2(a) hereof. Secured Party's duty of
care with respect to Collateral in its possession (as imposed by law) shall
be deemed fulfilled if Secured Party exercises reasonable care in physically
safe 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 Secured Party need not
otherwise preserve, protect, insure or care for any Collateral. Secured Party
shall not be obligated to preserve any rights Debtor may have against any
other party, to realize on the Collateral at all or in any particular manner
or order, or to apply any cash proceeds of Collateral in any particular order
of application. This Agreement shall be binding upon and inure to the
benefit of Debtor and Secured Party and their respective heirs,
representatives, successors and assigns and shall take effect when signed by
Debtor and delivered to Secured Party, and Debtor waives notice of Secured
Party's acceptance hereof. Secured Party may execute this Agreement
-4-
<PAGE>
if appropriate for the purpose of filing, but the failure of Secured Party to
execute this Agreement shall not affect or impair the validity or
effectiveness of this Agreement. Except to the extent otherwise required by
law, this Agreement shall be governed by the laws of the State of Minnesota
and, unless the context otherwise requires, all terms used herein which are
defined in Articles 1 and 9 of the Uniform Commercial Code, as in effect in
said state, shall have the meanings therein stated. If any provision or
application of this Agreement is held unlawful or unenforceable in any
respect, such illegality or unenforceability shall not affect other
provisions or applications which can be given effect, and this Agreement
shall be construed as if the unlawful or unenforceable provision or
application had never been contained herein or prescribed hereby. All
representations and warranties contained in this Agreement shall survive the
execution, delivery and performance of this Agreement and the creation and
payment of the Secured Obligations.
IN WITNESS WHEREOF, Debtor has executed and delivered to Secured Party this
Security Agreement as of the day and year first above written.
HEI, INC.
By:
--------------------------
Its:
----------------------
By:
--------------------------
Its:
----------------------
-5-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> JUN-01-1996
<CASH> 1,218
<SECURITIES> 0
<RECEIVABLES> 1,999
<ALLOWANCES> 0
<INVENTORY> 2,415
<CURRENT-ASSETS> 10,993
<PP&E> 10,612
<DEPRECIATION> 4,802
<TOTAL-ASSETS> 20,116
<CURRENT-LIABILITIES> 2,108
<BONDS> 5,322
0
0
<COMMON> 202
<OTHER-SE> 12,212
<TOTAL-LIABILITY-AND-EQUITY> 20,116
<SALES> 14,283
<TOTAL-REVENUES> 14,283
<CGS> 10,885
<TOTAL-COSTS> 10,885
<OTHER-EXPENSES> 2,154
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,244
<INCOME-TAX> 460
<INCOME-CONTINUING> 784
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 784
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
