SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission File Number
September 30, 1996 0-8508
NORTHWEST TELEPRODUCTIONS, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Minnesota 41-0641789
(State or other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
4455 West 77th Street
Minneapolis, MN 55435
(Address of Principal (Zip Code)
Executive Offices)
Issuer's telephone number including Area Code: 612-835-4455
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 of Exchange Act during the past twelve months (or for such
shorter period that the issuer was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
1,356,425 shares of $.01 par value common stock were outstanding at October 31,
1996.
Transitional Small Business Disclosure Format (Check One):
Yes [ ] No [X]
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC
AND SUBSIDIARIES
INDEX
FORM 10-QSB
September 30, 1996
PART 1
Page No.
Consolidated Balance Sheets:
September 30, 1996 and March 31, 1996 3
Consolidated Statements of Operations:
Three Months Ended September 30 1996 and 1995
Six Months Ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flow:
Six Months Ended September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Management Discussion and Analysis 7 & 8
Other Information 9 & 10
Exhibit Index 11
<PAGE>
PART 1
NORTHWEST TELEPRODUCTIONS,INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30 MARCH 31
1996 1996
(Unaudited) *
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash $ 245,572 $ 19,188
Trade accounts receivable less doubtful accounts
reserve of $170,945 and $153,000 respectively 2,443,495 2,155,365
Inventory 227,353 214,105
Refundable income taxes 328,482 328,482
Deferred income taxes 216,000 216,000
Current portion of note receivable 103,280 99,831
Other assets 246,998 168,584
----------- -----------
TOTAL CURRENT ASSETS 3,811,180 3,201,555
----------- -----------
PROPERTY,PLANT AND EQUIPMENT:
Land,buildings and improvements 3,655,312 3,645,043
Machinery and equipment 21,736,992 21,625,491
----------- -----------
25,392,304 25,270,534
Less accumulated depreciation 18,773,580 17,813,000
----------- -----------
6,618,724 7,457,534
INFOMERCIALS 177,374
PROPRIETARY PROGRAMMING 187,911 187,911
NOTE RECEIVABLE, less current portion 10,970 76,133
OTHER ASSETS 245,861 142,216
----------- -----------
622,116 406,260
----------- -----------
$11,052,020 $11,065,349
=========== ===========
LIABILITIES AND STOCKHOLDERS'EQUITY:
CURRENT LIABILITIES:
Notes payable $ 1,360,000 $ 1,030,000
Accounts payable 675,198 $ 412,610
Commissions,salaries and withholding 524,739 455,320
Miscellaneous accounts payable and accrued expenses 268,042 185,408
Other liabilities 131,143 268,708
Payments due within one year on term obligations 3,201,030 3,844,659
----------- -----------
TOTAL CURRENT LIABILITIES 6,160,152 6,196,705
DEFERRED INCOME TAXES 409,800 556,000
LONG TERM DEBT AND CAPITAL LEASES, less current portion 502,385 107,751
OTHER LONG TERM LIABILITIES, less current portion 185,105 188,105
STOCKHOLDERS' EQUITY:
Common stock 13,564 13,564
Additional paid-in capital 583,867 577,123
Retained earnings 3,197,147 3,426,101
----------- -----------
3,794,578 4,016,788
----------- -----------
$11,052,020 $11,065,349
=========== ===========
</TABLE>
*The balance sheet at March 31,1996 has been taken from the audited financial
statements at that date.
See notes to condensed consolidated financial statements.
<PAGE>
NORTHWEST TELEPRODUCTIONS,INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
NET SALES $ 3,469,747 $ 3,500,872 $ 6,050,262 $ 6,544,528
COSTS AND EXPENSES:
Costs of products and services sold 2,710,142 2,664,969 5,168,590 5,315,650
Selling,general and administrative 502,323 583,474 1,021,152 1,229,033
Interest 125,783 121,176 240,405 231,816
----------- ----------- ----------- -----------
3,338,248 3,369,619 6,430,147 6,776,499
----------- ----------- ----------- -----------
131,499 131,253 (379,885) (231,971)
OTHER INCOME 8,898 13,371 9,537 32,872
----------- ----------- ----------- -----------
EARNINGS BEFORE TAXES ON INCOME 140,397 144,624 (370,348) (199,099)
TAXES ON INCOME (INCOME TAX CREDIT) (48,139) 55,000 (148,139) (80,000)
----------- ----------- ----------- -----------
NET EARNINGS $ 188,536 $ 89,624 ($ 222,209) ($ 119,099)
=========== =========== =========== ===========
NET EARNINGS PER SHARE (1) $ 0.14 $ 0.07 ($ 0.16) ($ 0.08)
=========== =========== =========== ===========
</TABLE>
(1) Net earnings per share are based on the weighted average number of common
shares outstanding during the periods as follows:
Three months: September 30, 1996 1,356,425
September 30, 1995 1,356,425
Six months: September 30, 1996 1,356,425
September 30, 1995 1,439,926
See notes to condensed consolidated financial statements.
<PAGE>
NORTHWEST TELEPRODUCTIONS,INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30
1996 1995
<S> <C> <C>
CASH FLOW-OPERATING ACTIVITIES:
Net earnings ($ 222,209) ($ 119,099)
Adjustments:
Depreciation 960,580 1,073,559
Amortization of goodwill 0 27,948
Increase in trade receivables (288,130) (309,341)
Other - net (183,091) 102,152
----------- -----------
Net cash provided by operating activities 267,150 775,219
CASH FLOW - INVESTING ACTIVITIES:
Property,plant and equipment additions (121,770) (941,150)
CASH FLOW - FINANCING ACTIVITIES:
Advances on line of credit 330,000 (210,000)
Payments on long term borrowing (661,496) (798,948)
Long term borrowing 412,500 1,450,000
Repurchase common stock (399,950)
----------- -----------
Net cash provided by financing activities 81,004 41,102
----------- -----------
NET INCREASE (DECREASE) IN CASH $ 226,384 ($ 124,829)
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of September 30, 1996, the consolidated
statement of operations for the six month periods ended September 30, 1996 and
1995, and the condensed consolidated statements of cash flow for the six month
periods then ended have been prepared by the Company without audit. In the
opinion of management, all adjustments necessary to present fairly the financial
position, results of operations and changes in financial position at September
30, 1996 and for all periods presented have been made.
Certain information an footnotes normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. It is suggested that these condensed consolidated
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's March 31, 1996 annual report to
shareholders. The results of operations for the period ended September 30, 1996
are not necessarily indicative of the results for the full year.
The Company received proceeds of $412,500 from the issuance of 10 1/2%
subordinated debt with warrants to purchase 165,000 shares of common stock at
$2.50 per share.
During fiscal 1997 the Company began producing Infomercials. Infomercials are a
marketing tool used by the Company's clients to sell products. The Company
produces the Infomercial for a client and in return receives a percent of the
revenue associated with the sale of the client's products. Costs and expenses
relative to such programs are capitalized to be amortized over their useful life
based on the estimated revenue from the direct sale of the products associated
with the Infomercial. Capitalized costs are reviewed quarterly. If it is
determined that they are impaired, based on current estimated future cash flows,
then the capitalized value will be adjusted accordingly.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC.
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis
LIQUIDITY AND CAPITAL REQUIREMENTS
Operating cash requirements for the first six months of fiscal 1997 were met
from cash flow from operations and $330,000 of short term borrowing.
Additionally, the Company received proceeds of $412,500 from the issuance of 10
1/2% subordinated debt with warrants to purchase 165,000 shares of common stock
at $2.50 per share, to certain directors of the Company in July and August,
1996.
In July the Company entered into a new debt agreement with its primarly lender.
Although this agreement requires full payment by October 31, 1996, the Company
is currently in discussions to extend the terms of the agreement.
It is suggested that the Company's annual report to shareholders be read for
more detail as to the Company's overall financial position.
RESULTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH
CORRESPONDING PERIOD OF PRIOR YEAR.
SALES
Sales for the six months ended September 30, 1996 of $6,050,262 compare with
sales of $6,544,528 for the corresponding period of the prior year, a 7.5%
decrease. A significant portion of the decrease results from a decrease in non
contract revenue attributable to general market conditions.
COST OF PRODUCTS AND SERVICES SOLD
Cost of products and services sold for the six months ended September 30, 1996
equaled 85% of sales as compared to a cost of sales rate of 81% in the
corresponding period of the prior year. These unusually high rates reflect the
significant decline in sales in both years with only minimal reductions in fixed
production costs. The Company is exploring ways to reduce fixed overhead
expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the first six months of fiscal
1997 totaled $1,021,152, a decrease of $207,881, or 16.9% over the prior years
first six months. Decreased salary and related expenses, attributable mainly to
the resignation of the Company's Chief Executive Officer at the end of fiscal
1996, along with reduced rent expenses associated with the Chicago operation
account for most all of the decrease.
INTEREST EXPENSE
Interest expense for the first six months ended September 30, 1996 totaled
$240,405 compared with expense of $231,816 in the prior years first six months,
a 3.7% increase resulting from increased rates on variable rate debt.
INCOME TAX CREDIT
The 40% tax benefit rate for the first six months of fiscal 1997 is consistent
with the 40% tax benefit rate for the first six months of fiscal 1996.
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH
CORRESPONDING PERIOD OF PRIOR YEAR.
SALES
Sales for the three months ended September 30, 1996 of $3,469,747 compare with
sales of $3,500,872 for the corresponding period of the prior year, a less than
1% decrease. This is the result of a decrease in non contract revenue
attributable to general market conditions.
COST OF PRODUCTS AND SERVICES SOLD
.
Cost of products and services sold for the three months ended September 30, 1996
equaled 78% of sales as compared to a cost of sales rate of 76% in the
corresponding period of the prior year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended
September 30, 1996, totaled $502,323, a decrease of $81,151 over the prior
year's corresponding period. Decreased salary and related expenses, attributable
mainly to the resignation of the Company's Chief Executive Officer at the end of
fiscal 1996, along with reduced rent expenses associated with the Chicago
operation account for most all of the decrease.
INTEREST EXPENSE
Interest expense for the three months ended September 30, 1996 totaled $125,783
compared with expense of $121,176 in the prior year's corresponding period, a
3.8% increase resulting from increased rates on variable rate debt.
INCOME TAX CREDIT
The income tax credit for the three months ended September 30, 1996 reflects the
recognition of a tax benefit that was previously not expected to be fully
realized. The tax provision for the corresponding three months of the prior year
was recorded at an effective tax rate of 38%.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC.
AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of the Registrant's shareholders was held on
Thursday, September 5, 1996.
(b) At the Annual Meeting a proposal to set the number of directors at
five was adopted by a vote of 1,179,505 shares in favor, with 13,120 shares
against, 3,838 shares abstaining and no shares represented by broker nonvotes.
(c) Proxies for the Annual Meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934, there was no
solicitation in opposition to management's nominees, and the following persons
were elected directors of the Registrant to serve until the next annual meeting
of shareholders and until their successors shall have been duly elected and
qualified:
<TABLE>
<CAPTION>
Nominee Number of Votes For Number of Votes Withheld
<S> <C> <C>
James S. Fish 1,167,871 28,682
C. Dale Haworth 1,168,784 27,769
Ronald V. Kelly 1,168,896 27,657
John G. Lindell 1,170,121 26,432
Gerald W. Simonson 1,169,121 27,432
</TABLE>
(d) At the Annual Meeting the shareholders approved a 120,000 share
increase in the number of shares reserved for issuance under the Company's 1993
Stock Option Plan by a vote of 700,597 shares in favor, with 68,983 shares
against, 3,843 shares abstaining and 423,130 shares represented by broker
non-votes.
(e) At the Annual Meeting the shareholders approved the appointment of
Deloitte & Touche LLP as independent auditors for the current fiscal year by a
vote of 1,184,813 shares in favor, with 6,142 shares against, 5,598 shares
abstaining and no shares represented by broker nonvotes.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
See Exhibit Index on page following signatures.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months
ended September 30, 1996.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
Date: Northwest Teleproductions, Inc.
November 19, 1996
(Registrant)
By /s/ John McGrath
John McGrath
President
By /s/ Phillip A. Staden
Phillip A. Staden
Treasurer
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC.
EXHIBIT INDEX
Form 10-QSB for Quarter Ended
September 30, 1996
Exhibit Number Description
10.1 Credit Agreement dated July 24, 1996 between the Registrant
and Norwest Bank Minnesota, National Association.
10.2 Form and amounts of 10-1/2% Subordinated Notes issued by the
Registrant to certain of its directors.
10.3 Form and amounts of Warrants to Purchase Common Stock issued by
the Registrant to certain directors in connection with issuance
of Subordinated Notes.
27 Financial Data Schedule (filed in electronic format only).
CREDIT AGREEMENT
BETWEEN
NORTHWEST TELEPRODUCTIONS, INC.
AND
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Closing Date: July 24, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE I Definitions.........................................................1
Section 1.1 Definitions............................................1
ARTICLE II Amount and Terms of the Revolving and Term Loans..................10
Section 2.1 Revolving Advances....................................10
Section 2.2 First Replacement Term Note...........................11
Section 2.3 Second Replacement Term Note..........................11
Section 2.4 Interest..............................................11
Section 2.5 Collateral............................................12
Section 2.6 Voluntary Preparyments................................12
Section 2.7 Mandatory Prepayments.................................12
Section 2.8 Computation of Interest and Fees......................12
Section 2.9 Payment...............................................13
Section 2.10 Payment on Nonbusiness Days...........................13
Section 2.11 Use of Proceeds.......................................13
Section 2.12 Application of Payments...............................13
ARTICLE III Conditions Precedent.............................................13
Section 3.1 Initial Conditions Precedent..........................13
ARTICLE IV Representations and Warranties....................................15
Section 4.1 Corporate Existence and Power.........................15
Section 4.2 Authorization of Borrowing; No Conflict
as to Law or Agreements...............................15
Section 4.3 Legal Agreements......................................16
Section 4.4 Subsidiaries..........................................16
Section 4.5 Financial Condition...................................16
Section 4.6 Adverse Change........................................16
Section 4.7 Litigation............................................16
Section 4.8 Hazardous Substances..................................16
Section 4.9 Regulation U..........................................16
Section 4.10 Taxes.................................................17
Section 4.11 Titles and Liens......................................17
Section 4.12 ERISA.................................................17
ARTICLE V Affirmative Covenants..............................................17
Section 5.1 Financial Statements..................................17
i
<PAGE>
Section 5.2 Books and Records; Inspection and Examination.........19
Section 5.3 Compliance with Laws..................................20
Section 5.4 Payment of Taxes and Other Claims.....................20
Section 5.5 Maintenance of Properties.............................20
Section 5.6 Insurance.............................................20
Section 5.7 Preservation of Corporate Existence...................20
Section 5.8 Ratio of Debt to Tangible Net Worth plus
Subordinated Debt.................................... 21
Section 5.9 Current Ratio.........................................21
Section 5.10 Net Profit............................................21
Section 5.11 Tangible Net Worth plus Subordinated Debt.............21
ARTICLE VI Negative Covenants................................................22
Section 6.1 Liens.................................................22
Section 6.2 Indebtedness..........................................23
Section 6.3 Guaranties............................................23
Section 6.4 Investments...........................................24
Section 6.5 Dividends.............................................24
Section 6.6 Sale of Assets........................................25
Section 6.7 Restrictions on Issuance and Sale of Subsidiary
Stock................................................ 25
Section 6.8 Consolidation and Merger..............................25
Section 6.9 Sale and Leaseback....................................25
Section 6.10 Subordinated Debt.....................................26
Section 6.11 Capital Expenditures..................................26
Section 6.12 Restrictions on Nature of Business....................26
Section 6.13 Rental Payments.......................................26
Section 6.14 Hazardous Substances..................................27
ARTICLE VII Events of Default, Rights and Remedies...........................27
Section 7.1 Events of Default.....................................27
Section 7.2 Rights and Remedies...................................29
ARTICLE VIII Miscellaneous...................................................30
Section 8.1 Release...............................................30
Section 8.2 No Waiver; Cumulative Remedies........................30
Section 8.3 Amendments, Etc.......................................30
Section 8.4 Notice................................................31
Section 8.5 Costs and Expenses....................................31
Section 8.6 Indemnification by Borrower...........................31
Section 8.7 Execution in Counterparts.............................32
Section 8.9 Governing Law.........................................32
Section 8.10 Arbitration...........................................32
Section 8.11 Waiver of Jury Trial..................................33
ii
<PAGE>
Section 8.12 Severability of Provisions............................33
Section 8.13 Prior Agreements......................................34
Section 8.14 Headings..............................................34
Section 8.15 Termination and Repayment of Notes....................34
Section 8.16 Restatement of Earlier Agreement......................34
iii
<PAGE>
CREDIT AGREEMENT
Dated as of July 24, 1996
This Agreement is entered into as of the date set forth above by and
between Northwest Teleproductions, Inc., a Minnesota corporation (the
"Borrower"), and Norwest Bank Minnesota, National Association, a national
banking association (the "Bank").
The Borrower and the Bank are parties to the Old Credit Agreement, as
defined below. The Borrower has asked the Bank to restate the Old Credit
Agreement for the purpose of revising various covenants thereunder, and the Bank
is willing to do so on the terms and subject to the conditions set forth herein,
including the condition that the Borrower's indebtedness to the Bank be paid in
full on or before October 31, 1996.
ACCORDINGLY, in consideration of the mutual covenants set forth herein, the
Borrower and the Bank hereby agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned
to them in this Article, and include the plural as well as the
singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles.
"Accounts" means, as to any Person, the aggregate unpaid obligations
of customers and other account debtors to such Person arising out of the
sale or lease of goods or rendition of services by such Person on an open
account or deferred payment basis.
"Advance" means an advance by the Bank to the Borrower pursuant to
Article II.
"Agreement" means this Credit Agreement.
1
<PAGE>
"Bank Business Day" means a day other than a Saturday, Sunday, United
States national holiday or other day on which banks in Minnesota, New York
or Illinois are permitted or required by law to close.
"Base Rate" means the rate of interest publicly announced from time to
time by the Bank as its "prime" or "base" rate or, if the Bank ceases to
announce a rate so designated, any similar successor rate designated by the
Bank.
"Borrower Reaffirmation" means a Reaffirmation of Security Documents,
in form and substance acceptable to the Bank, amending the Security
Agreement and Pledge Agreement to reflect this Credit Agreement and
confirming the continuing validity of the Security Agreement, Pledge
Agreement and Environmental Indemnity.
"Borrowing Base" means, at any time, the lesser of the Revolving
Facility Amount, or the sum of
(i) 75% of the Eligible Accounts of the Borrower and its Subsidiaries;
and
(ii) 80% of Eligible Government Accounts of the Borrower; and
(iii) the Borrowing Base Adjustment;
in each case as of the date of determination.
"Borrowing Base Adjustment" means
(i) $500,000 from the date hereof through July 15, 1996; or
(ii) $400,000 from July 16, 1996 through July 30, 1996; or
(iii) $200,000 from July 31, 1996 through August 15, 1996; or
(iv) $100,000 from August 16, 1996 through August 30, 1996; or
(v) $0 from August 31, 1996 and thereafter.
"Borrowing Base Certificate" means a certificate in the form of
Exhibit C hereto correctly setting forth the Accounts and Eligible Accounts
of the Borrower and its Subsidiaries, the Government Accounts and Eligible
Government Accounts of the Borrower, and the Borrowing Base, in each case
as of a particular date.
"Capital Expenditure" means any expenditure of money for the purchase
or construction of fixed assets or for the purchase or construction of any
other assets, or for improvements or additions thereto, or for the lease of
capital assets whether payable currently or in the future.
2
<PAGE>
"Cash Flow" means, with respect to any fiscal year of the Borrower,
the consolidated net income of the Borrower and its Subsidiaries for that
fiscal year, plus consolidated depreciation and amortization expense
(including but not limited to amortization of good will, start-up costs and
non-compete and consulting agreement payments) of the Borrower and its
Subsidiaries for such year, in each case excluding intercompany items and
as determined in accordance with generally accepted accounting principles.
Unless otherwise specified, Cash Flow as of any fiscal year-end means the
Cash Flow of the Borrower and its Subsidiaries with respect to the fiscal
year then ending.
"Compliance Certificate" means a certificate in substantially the form
of Exhibit B, or such other form as the Borrower and the Bank may from time
to time agree upon in writing, duly executed by the chief financial officer
of the Borrower, stating (i) that the financial statements delivered
therewith have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with the accounting
practices reflected in the annual financial statements referred to in
Section 4.5, (ii) whether or not he has knowledge of the occurrence of any
Default or Event of Default hereunder not theretofore reported and remedied
and, if so, stating in reasonable detail the facts with respect thereto and
(iii) all relevant facts in reasonable detail to evidence, and the
computations as to, whether or not the Borrower is in compliance with the
requirements set forth in Sections, 5.8, 5.9, 5.10, 5.11 and 6.11.
"Consolidated Current Assets" means the Current Assets of the Borrower
and its Subsidiaries on a consolidated basis, as determined in accordance
with generally accepted accounting principles.
"Consolidated Current Liabilities" means the Current Liabilities of
the Borrower and its Subsidiaries on a consolidated basis, excluding
intercompany items and excluding any guaranties by the Borrower of Current
Liability of a Subsidiary and any guaranties by a Subsidiary of Current
Liabilities of the Borrower or another Subsidiary, and excluding the
Borrower's scheduled Debt under the Notes.
"Consolidated Debt" means all Debt of the Borrower and its
Subsidiaries, on a consolidated basis, excluding intercompany items and
excluding any guaranties by the Borrower of Current Liabilities of a
Subsidiary and guaranties by a Subsidiary of Current Liabilities of the
Borrower or another Subsidiary.
3
<PAGE>
"Consolidated Tangible Net Worth" means the excess of:
(a) the tangible assets of the Borrower and its Subsidiaries
(excluding intercompany items) which, in accordance with generally accepted
accounting principles, are tangible assets, after deducting adequate
reserves in each case where, in accordance with generally accepted
accounting principles, a reserve is proper, over
(b) all Debt of the Borrower and its Subsidiaries (excluding
intercompany items);
provided, however, that (i) inventory shall be taken into account on the basis
of the cost or current market value, whichever is lower, (ii) in no event shall
there be included as such tangible assets patents, trademarks, trade names,
copyrights, licenses, good will, leasehold improvements, loans and advances to
officers and employees, prepaid expenses, deferred charges or treasury stock or
any securities or Debt of the Borrower or a Subsidiary or any other securities
unless the same are readily marketable in the United States of America or
entitled to be used as a credit against federal income tax liabilities, (iii)
securities included as such tangible assets shall be taken into account at their
current market price or cost, whichever is lower, and (iv) any write-up in the
book value of any assets shall not be taken into account.
"Current Assets" of any Person means the aggregate amount of assets of such
Person which in accordance with generally accepted accounting principles may be
properly classified as current assets, after deducting adequate reserves where
proper, but in no event including any real estate.
"Current Liabilities" of any Person means (i) all Debt of such Person due
on demand or within one year from the date of determination thereof, and (ii)
all other items (including taxes accrued as estimated) which, in accordance with
generally accepted accounting principles, may be properly classified as current
liabilities of such Person.
"Current Maturities" means the portion of the long-term Debt of the
Borrower and its Subsidiaries due within one year from the date of determination
thereof, except the Borrower's indebtedness to the Bank under the Revolving
Note.
"Debt" of any Person means (i) all items of indebtedness or liability which
in accordance with generally accepted accounting principles would be included in
determining total liabilities as shown on the liabilities side of a balance
sheet of that Person as at the date as of which Debt is to be determined, and
(ii) indebtedness secured by any Lien on property owned by such Person, whether
or not the indebtedness secured thereby shall have been assumed, and (iii)
guaranties and endorsements (other than for purposes of collection in the
ordinary course of business) by such Person and other contingent obligations of
such Person in respect of, or to purchase or otherwise acquire, indebtedness of
others.
4
<PAGE>
"Default" means an event that, with the giving of notice, the passage of
time or both, would constitute an Event of Default.
"Eligible Accounts" means the dollar value of the Accounts of the Borrower
in which the Bank holds a first perfected security interest reduced by:
(a) the amount of any Account which is more than 89 days past due;
(b) the amount of any Account as to which the account debtor disputes
liability or makes any claim with respect to the Account;
(c) the amount of any Account as to which the Borrower has knowledge
that a petition in bankruptcy or other application for relief under any
insolvency law has been filed with respect to the account debtor owing the
Account or as to which the account debtor on the Account has made an
assignment for the benefit of creditors, or failed, suspended or gone out
of business;
(d) the amount of any Account which is owed by a Person that does not
have its principal place of business in the United States;
(e) the amount of any Account which is owed by any account debtor if
10% or more of such account debtor's Accounts are more than 89 days past
due;
(f) Government Accounts;
(g) the amount of any Account as to which the account debtor is an
affiliate of the Borrower or any Subsidiary;
(h) the amount of any Account as to which the account debtor is a
director, officer or employee of the Borrower or any Subsidiary;
(i) the amount of any Account invoiced for goods or services not
completed or delivered by the Borrower and approved and accepted by the
account debtor; and
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(j) the amount of any contra accounts.
"Eligible Government Accounts" means the dollar value of the
Government Accounts of the Borrower in which the Bank holds a first
perfected security interest reduced by:
(a) the amount of any Government Account which is paid;
(b) the amount of any Government Account which is more than 89 days
past due;
(c) the amount of any Government Account which is disputed, subject to
a claim of setoff or contra accounts or otherwise contingent;
(d) the amount of any Government Account which is owed by any account
debtor if 10% or more of such account debtor's Government Accounts are more
than 89 days past due; and
(e) the amount of any Government Account invoiced for goods or
services not completed or delivered by the Borrower and approved and
accepted by the account debtor.
"Environmental Indemnity" means the Environmental Indemnity dated
January 18, 1990, executed by the Borrower in favor of the Bank,
indemnifying the Bank against certain claims.
"Environmental Law" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss. 9601 et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq., the Hazardous
Materials Transportation Act, 49 U.S.C. ss. 1802 et seq., the Toxic
Substances Control Act, 15 U.S.C. ss. 2601 et seq., the Federal Water
Pollution Control Act, 33 U.S.C. ss. 1252 et seq., the Clean Water Act, 33
U.S.C. ss. 1321 et seq., the Clean Air Act, 42 U.S.C. ss. 7401 et seq., and
any other federal, state, county, municipal, local or other statute, law,
ordinance or regulation which may relate to or deal with human health or
the environment, all as may be from time to time amended.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is, along with the Borrower, a member of a controlled
group of corporations or a controlled group of trades or businesses, as
described in sections 414(b) and 414(c), respectively, of the Internal
Revenue Code of 1986, as amended.
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"Event of Default" has the meaning specified in Section 7.1.
"First Term Note" has the meaning specified in Section 7.2.
"Floating Rate" means an annual rate equal to the sum of the Base Rate
and 1.50%, which rate shall change when and as the Base Rate changes.
"Government Accounts" means Accounts of the Borrower that are due from
the United States of America or an agency or department of the United
States government.
"Guaranty" means the guaranty agreement of each Subsidiary, acceptable
to the Bank in form and substance, guarantying all present and future debt
of the Borrower to the Bank.
"Hazardous Substance" means any asbestos, urea-formaldehyde,
polychlorinated biphenyls ("PCBs"), nuclear fuel or material, chemical
waste, radioactive material, explosives, known carcinogens, petroleum
products and by-products and other dangerous, toxic or hazardous
pollutants, contaminants, chemicals, materials or substances listed or
identified in, or regulated by, any Environmental Law.
"Intercompany Note" means the promissory note of each Subsidiary
payable to the order of the Borrower, each in the face principal amount of
$2,000,000, except that of Northwest/Chicago, which is in the face
principal amount of $3,500,000, in each case evidencing each Subsidiary's
obligation to repay all operating loans and purchase money equipment loans
made or to be made by the Borrower to such Subsidiary, secured by all of
the personal property of such Subsidiary and otherwise in form and
substance acceptable to the Bank.
"Lien" means any mortgage, deed of trust, lien, pledge, security
interest or other charge or encumbrance, of any kind whatsoever, including
but not limited to the interest of the lessor or titleholder under any
capitalized lease, title retention contract or similar agreement.
"Loan Documents" means this Agreement, the Notes and the Security
Agreement.
"Mortgage" means the Borrower's Combination Mortgage, Security
Agreement and Fixture Financing Statement, dated January 18, 1990, granting
the Bank a mortgage lien on certain real property located in Hennepin
County, Minnesota.
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"Mortgage Amendment" means a Second Amendment to Mortgage, in form and
substance satisfactory to the Bank, amending the Mortgage to confirm that
it continues to secure the Revolving Note and the First Term Note.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA.
"Net Profit" means, as of any date, the consolidated net income of the
Borrower and its Subsidiaries during the designated period as determined in
accordance with generally accepted accounting principles.
"Northwest/Chicago" means Northwest Teleproductions/Chicago, Inc., a
Minnesota corporation.
"Notes" means the Revolving Note, the First Term Note and the Second
Term Note, collectively.
"Old Credit Agreement" means that certain Credit Agreement between the
Bank and the Borrower dated January 18, 1990, together with all amendments,
modifications and restatements thereof.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained for
employees of the Borrower or any Subsidiary or ERISA Affiliate and covered
by Title IV of ERISA.
"Pledge Agreement" means the Borrower's Security Agreement (Collateral
Pledge Agreement) in favor of the Bank, dated January 18, 1990, pursuant to
which the Borrower has pledged to the Bank all of the capital stock of the
Subsidiaries, the Intercompany Notes and all collateral securing the
payment thereof, in each case to secure all present and future obligations
of the Borrower to the Bank.
"Reportable Event" means (i) a "reportable event" described in Section
4043 of ERISA and the regulations issued thereunder, (ii) a withdrawal from
any Plan, as described in Section 4063 of ERISA, (iii) an action to
terminate a Plan for which a notice is required to be filed under Section
4041 of ERISA, (iv) any other event or condition that might constitute
grounds for termination of, or the appointment of a trustee to administer,
any Plan, or (v) a complete or partial withdrawal from a Multiemployer Plan
as described in Sections 4203 and 4205 of ERISA.
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"Revolving Facility" means the revolving credit facility established
under Section 2.1.
"Revolving Facility Amount" means $1,360,000, provided, however, that
such amount shall be decreased by the amount of any tax refunds paid to the
Bank pursuant to Section 2.7(b) hereof and which are applied to the
principal of the Revolving Note.
"Revolving Facility Termination Date" means October 31, 1996, or the
earlier date of termination in whole of the Revolving Facility pursuant to
Section 7.2.
"Revolving Note" has the meaning specified in Section 2.1.
"Second Term Note" has the meaning specified in Section 2.3.
"Security Agreement" means the Security Agreement of the Borrower in
favor of the Bank, dated January 18, 1990, granting the Bank a security
interest in property generally described as all of the Borrower's
inventory, accounts, equipment and general intangibles.
"Subordinated Debt" means Debt of the Borrower or any Subsidiary which
is subordinated in right of payment to all indebtedness of the Borrower to
the Bank, on terms that have been approved in writing by the Bank and that
have been noted by appropriate legend on all instruments evidencing the
Subordinated Debt.
"Subsidiary" means (i) any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under
ordinary circumstances to elect a majority of the board of directors of
such corporation, irrespective of whether or not at the time stock of any
other class or classes shall have or might have voting power by reason of
the happening of any contingency, is at the time directly or indirectly
owned by the Borrower, by the Borrower and one or more other Subsidiaries,
or by one or more other Subsidiaries, (ii) any partnership of which 50% or
more of the partnership interests therein are directly or indirectly owned
by the Borrower, by the Borrower and one or more other Subsidiaries, or by
one or more other Subsidiaries, and (iii) any limited liability company or
other form of business organization the effective control of which is held
by the Borrower, the Borrower and one or more other Subsidiaries, or by one
or more other Subsidiaries.
"Subsidiary Documents" means the Subsidiaries' Guaranties and the
Subsidiary Security Agreements.
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"Subsidiary Reaffirmation" means a Reaffirmation of Guaranties and
Security Agreements, in form and substance acceptable to the Bank, amending
the Subsidiary Security Agreements to reflect this Credit Agreement and
confirming the continuing validity of each Subsidiary's Guaranty and
Subsidiary Security Agreement.
"Subsidiary Security Agreements" means the Subsidiaries' Security
Agreements in favor of the Bank, each dated January 18, 1990, granting the
Bank a security interest in property generally described as all of the
Subsidiaries' inventory, accounts, equipment and general intangibles.
"Welfare Plan" means a "welfare plan" as defined in Section 3(1) of
ERISA.
"Work-in-Process" means the lower of cost or realizable value of the
scripting, production and post-production work being performed by the
Borrower under a Government Contract that has not yet been billed or paid.
ARTICLE II
Amount and Terms of the Revolving and Term Loans
Section 2.1 Revolving Advances
(a) Subject to the other provisions of this Agreement, the Bank may, in its
sole discretion, make Revolving Advances to the Borrower from time to time
during the period from the date hereof to and including the Revolving Facility
Termination Date in an aggregate amount not to exceed at any time outstanding
the Borrowing Base. Each Revolving Advance shall be made or refused at the sole
discretion of the Bank. Within the limits of the Borrowing Base, but subject in
each case to the Bank's absolute right to refuse any requested Revolving
Advance, the Borrower may borrow, prepay pursuant to Section 2.6 and reborrow
under this Section 2.1.
(b) The Revolving Advances shall be evidenced by and repayable with
interest in accordance with a single promissory note of the Borrower (the
"Revolving Note") payable to the order of the Bank, substantially in the form of
Exhibit A-1 hereto. The Bank shall accept the Revolving Note in substitution
for, but not in payment of, the Borrower's Replacement Revolving Note dated
September 28, 1992, payable to the order of the Bank in the face principal
amount of $1,750,000. The Revolving Note shall bear interest on the unpaid
principal amount thereof from the date thereof until paid as set forth in
Section 2.4.
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(c) Each Revolving Advance shall (if the Bank elects to make such Revolving
Advance) be made on written or telephonic request from the Borrower to the Bank
from any person purporting to be authorized to request Advances on behalf of the
Borrower. Each such request shall be received by the Bank no later than 12:00
noon on the date of the requested Advance and shall specify the amount
requested. Upon fulfillment of the applicable conditions set forth in Article
III, the Bank shall, if it elects (in its sole discretion) to make the requested
Revolving Advance, disburse the amount of the requested Advance by crediting the
same to the Borrower's demand deposit account maintained with the Bank or in
such other manner as the Bank and the Borrower may from time to time agree. The
Borrower shall promptly confirm each telephonic request for an Advance by
executing and delivering an appropriate confirmation certificate to the Bank.
The Borrower shall be obligated to repay all Advances notwithstanding the
failure of the Bank to receive such confirmation and notwithstanding the fact
that the person requesting same was not in fact authorized to do so. Any request
for an Advance, whether written or telephonic, shall be deemed to be a
representation that the statements set forth in Section 3.2 are correct.
(d) This Agreement, among other things, outlines the terms and conditions
upon which the Bank presently expects to be willing to make Revolving Advances
pursuant to this Section 2.1. However, nothing herein should be construed as
obligating the Bank to make any Revolving Advance or, having done so, to refrain
from exercising its right to demand payment of the Revolving Note. The decision
to make each Revolving Advance shall be in the sole discretion of the Bank and
its officers, and the Bank need not show that an adverse change has occurred in
the Borrower's condition, financial or otherwise, in order to refuse to make any
requested Revolving Advance or in order to demand payment of the Revolving Note.
Section 2.2 First Replacement Term Note. Concurrent with the execution of
this Agreement, the Borrower shall execute and deliver to the Bank its
promissory note in the form of Exhibit A-2 (the "First Term Note"). The Bank
shall accept the First Term Note in substitution for, but not in payment of, the
Borrower's Replacement First Term Note dated September 28, 1992, payable to the
order of the Bank in the original principal amount of $2,655,000. The First Term
Note shall bear interest on the unpaid principal amount thereof from the date
thereof until paid as set forth in Section 2.4.
Section 2.3 Second Replacement Term Note. Concurrent with the execution of
this Agreement, the Borrower shall execute and deliver to the Bank its
promissory note in the form of Exhibit A-3 (the "Second Term Note"). The Bank
shall accept the Second Term Note in substitution for, but not in payment of,
the Borrower's Fourth Replacement Second Term Note dated August 25, 1995,
payable to the order of the Bank in the original principal amount of $3,675,000.
The Second Term Note shall bear interest on the unpaid principal amount thereof
from the date thereof until paid as set forth in Section 2.4.
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Section 2.4 Interest. The principal balance of each Note shall bear
interest at the Floating Rate.
Section 2.5 Collateral. Payment of the Notes and all other amounts now or
hereafter owing by the Borrower to the Bank shall be secured by the Liens
granted under the Loan Documents, except that the Lien of the Mortgage shall not
secure the Second Term Note. Payment of the Notes and all other amounts now or
hereafter owing by the Borrower to the Bank may also now or hereafter be secured
by one or more other security agreements, mortgages, deeds of trust, assignments
or other instruments or agreements. Each such Lien shall be prior to all other
Liens of any kind whatsoever, subject only to such exceptions as the Bank may
expressly approve in writing.
Section 2.6 Voluntary Preparyments. The Borrower may prepay any Note in
whole or in part, without penalty or premium, at any time and from time to time;
provided that i) any prepayment of the full amount of any Note shall include
accrued interest thereon, ii) any prepayment of the Term Note may be made only
following three bank business days' prior written notice thereof to the Bank,
and iii) no prepayment may be made with respect to the First Term Note so long
as any principal or interest remains outstanding under the Second Term Note. Any
partial prepayment of either Term Note shall be applied either to the next
maturing or to the last maturing principal installments of that Term Note, as
the Borrower may elect.
Section 2.7 Mandatory Prepayments.
(a) Borrowing Base Deficiency. Without limiting the Bank's right to
demand payment of the Revolving Note at any time in its sole discretion, if
the outstanding and unpaid principal balance of the Revolving Note shall on
any date exceed the Borrowing Base, whether due to any automatic decrease
in the Borrowing Base Adjustment, any decrease in the Borrower's Eligible
Accounts or Eligible Government Accounts, or otherwise, the Borrower shall,
without notice or demand, on that date prepay the Revolving Note to the
extent necessary to eliminate such excess.
(b) Income Tax Refunds. Upon receipt by the Borrower of any tax
refund, whether federal, state, local or otherwise, the Borrower shall pay
to the Bank the amount of such refund. All sums paid under this paragraph
(b) shall be applied first to the principal installments of the Term Notes
and second to the principal of the Revolving Note, in such order and manner
as the Bank may determine in its sole and absolute discretion.
Section 2.8 Computation of Interest and Fees. Interest under the Notes and
the fees hereunder shall be computed on the basis of actual number of days
elapsed in a year of 360 days.
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Section 2.9 Payment. All payments of principal and interest under the Notes
and of the fees hereunder shall be made to the Bank in immediately available
funds. The Borrower agrees that the amount shown on the books and records of the
Bank as being the principal balance of the Note then outstanding shall be prima
facie evidence of such principal amount. The Borrower hereby authorizes the Bank
to charge against the Borrower's account with the Bank an amount equal to the
accrued interest and fees from time to time due and payable to the Bank under
the Notes or hereunder, or (at the Bank's option) to make a Revolving Advance in
such amount, all without receipt of any request for such charge or Revolving
Advance.
Section 2.10 Payment on Nonbusiness Days. Whenever any payment to be made
hereunder or under the Notes shall be stated to be due on a day other than a
Bank Business Day, such payment may be made on the next succeeding Bank Business
Day, and such extension of time shall in each case be included in the
computation of payment of interest on such Note or the fees hereunder, as the
case may be.
Section 2.11 Use of Proceeds. The proceeds of each Advance shall be used by
the Borrower for its general corporate purposes.
Section 2.12 Application of Payments. All payments received by the Bank
from the Borrower under the Notes or this Agreement shall be applied by the Bank
to the amounts due in such order as the Bank may, in its sole discretion, elect.
Any such payments in excess of the amounts then due shall be made in accordance
with Section 2.6.
ARTICLE III
Conditions Precedent
Section 3.1 Initial Conditions Precedent. The Bank's willingness to make
any Advance is subject to the condition precedent that the Bank shall have
received on or before the day of the first Advance all of the following, each
dated (unless otherwise indicated) as of the date hereof, in form and substance
satisfactory to the Bank:
(a) The Notes, properly executed on behalf of the Borrower.
(b) The Borrower Reaffirmation, properly executed on behalf of the
Borrower.
(c) The Mortgage Amendment, properly executed on behalf of the
Borrower.
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(d) The Subsidiary Reaffirmation, properly executed on behalf of each
Subsidiary.
(e) A certificate of the secretary of the Borrower and each Subsidiary
(i) certifying that the execution, delivery and performance of the Loan
Documents, Subsidiary Documents and other documents contemplated hereunder
to which such corporation is a party have been duly approved by all
necessary action of the Board of Directors of the Borrower or such
Subsidiary, as the case may be, and attaching true and correct copies of
the applicable resolutions granting such approval, (ii) certifying that
attached to such certificate are true and correct copies of the articles of
incorporation and bylaws of the Borrower or such Subsidiary, as the case
may be, together with such copies, and (iii) certifying the names of the
officers of the Borrower and its Subsidiaries that are authorized to sign
the Loan Documents and other documents contemplated hereunder, including
requests for Advances, together with the true signatures of such officers.
The Bank may conclusively rely on such certificate of the Borrower until it
shall receive a further certificate of the Secretary or Assistant Secretary
of the Borrower canceling or amending the prior certificate and submitting
the signatures of the officers named in such further certificate.
(f) Certificates of good standing of the Borrower and its
Subsidiaries, dated not more than ten days before such date.
(g) A signed copy of an opinion of counsel for the Borrower, addressed
to the Bank as to matters referred to in Sections 4.1, 4.2, 4.3 and 4.7,
and as to such other matters as the Bank may reasonably request, with that
opinion being acceptable to the Bank's counsel. In the case of Section 4.7,
the opinion may be to the best knowledge of such counsel, and, in the case
of Section 4.3, insofar as it relates to enforcement of remedies, it may be
subject to applicable bankruptcy, insolvency, reorganization or similar
laws affecting the rights of creditors generally from time to time, and to
usual equity principles.
(h) An endorsement issued by Old Republic Title Insurance Company,
formerly known as Minnesota Title Insurance Company, providing that (i) the
insured mortgage under that company's Policy of Title Insurance No.
B2905971 shall be the Mortgage as amended by the Mortgage Amendment, (ii)
the effective date of such policy, as amended by the endorsement, shall be
not earlier than the date of the recording of the Mortgage Amendment, and
(iii) that the lien of the Mortgage as amended by the Mortgage Amendment is
subject to no prior encumbrances or other exceptions except as previously
set forth in such policy.
Section 3.2 Conditions Precedent to All Advances. The Bank's willingness to
make any Advance shall be subject to the further conditions precedent that on
the date of such Advance:
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(a) the representations and warranties contained in Article IV are
correct on and as of the date of such Advance as though made on and as of
such date, except to the extent that such representations and warranties
relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from such
Advance, which constitutes a Default or an Event of Default.
ARTICLE IV
Representations and Warranties
The Borrower represents and warrants to the Bank as follows:
Section 4.1 Corporate Existence and Power. The Borrower and its
Subsidiaries are each corporations duly incorporated, validly existing and in
good standing under the laws of their respective jurisdictions of incorporation,
and are each duly licensed or qualified to transact business in all
jurisdictions where the character of the property owned or leased or the nature
of the business transacted by them makes such licensing or qualification
necessary and where the failure to be so licensed or qualified would have a
material adverse effect on the Borrower or the applicable Subsidiary. The
Borrower has all requisite power and authority, corporate or otherwise, to
conduct its business, to own its properties and to execute and deliver, and to
perform all of its obligations under, the Loan Documents. Each Subsidiary has
all requisite power and authority, corporate or otherwise, to conduct its
business, to own its properties and to execute and deliver, and to perform all
of its obligations under, its Subsidiary Documents.
Section 4.2 Authorization of Borrowing; No Conflict as to Law or
Agreements. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder, and the execution,
delivery and performance by each Subsidiary of that Subsidiary's Subsidiary
Documents, have been duly authorized by all necessary corporate action and do
not and will not (i) require any consent or approval of the stockholders of the
Borrower or any Subsidiary, or any authorization, consent or approval by any
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, (ii) violate any provision of any law, rule or regulation
(including, without limitation, Regulation X of the Board of Governors of the
Federal Reserve System) or of any order, writ, injunction or decree presently in
effect having applicability to the Borrower or any Subsidiary or of the Articles
of Incorporation or Bylaws of the Borrower or any Subsidiary, (iii) result in a
breach of or constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which the Borrower or
any Subsidiary is a party or by which it or its properties may bebound or
affected, or (iv) result in, or require, the creation or imposition of any Lien
or other charge or encumbrance of any nature (other than those in favor of the
Bank) upon or with respect to any of the properties now owned or hereafter
acquired by the Borrower or any Subsidiary.
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Section 4.3 Legal Agreements. This Agreement and the other Loan Documents
constitute, the legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their respective terms. The Subsidiary
Documents constitute, the legal, valid and binding obligations of the
Subsidiaries enforceable against the applicable Subsidiaries in accordance with
their respective terms.
Section 4.4 Subsidiaries. Schedule 4.4 hereto is a complete and correct
list of all present Subsidiaries and of the percentage of the ownership of the
Borrower or any other Subsidiary in each as of the date of this Agreement.
Except as otherwise indicated in that Schedule, all shares of each Subsidiary
owned by the Borrower or by any such other Subsidiary are validly issued and
fully paid and nonassessable.
Section 4.5 Financial Condition. The Borrower has heretofore furnished to
the Bank its audited financial statement as of March 31, 1995, its preliminary
audited financial statement as of March 31, 1996, and its unaudited interim
financial statement as of May 31, 1996. Those financial statements fairly
present the financial condition of the Borrower and its Subsidiaries on the
dates thereof and the results of their operations and cash flows for the periods
then ended, and were prepared in accordance with generally accepted accounting
principles.
Section 4.6 Adverse Change. There has been no material adverse change in
the business, properties or condition (financial or otherwise) of the Borrower
or any Subsidiary since the date of the latest financial statement referred to
in Section 4.5.
Section 4.7 Litigation. There are no actions, suits or proceedings pending
or, to the knowledge of the Borrower, threatened against or affecting the
Borrower or any Subsidiary or the properties of the Borrower or any Subsidiary
before any court or governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, which, if determined adversely to the
Borrower or that Subsidiary, would have a material adverse effect on the
financial condition, properties, or operations of the Borrower or any
Subsidiary.
Section 4.8 Hazardous Substances. To the best of the Borrower's knowledge
after reasonable inquiry, neither the Borrower nor any Subsidiary nor any other
Person has ever caused or permitted any Hazardous Substance to be disposed of in
any manner which might result in any material liability to the Borrower or any
Subsidiary on, under or at any real property which is operated by the Borrower
or any Subsidiary or in which the Borroweror any Subsidiary has any interest;
and no such real property has ever been used (either by the Borrower, by any
Subsidiary or by any other Person) as a dump site or permanent or temporary
storage site for any Hazardous Substance.
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Section 4.9 Regulation U. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Advance will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
Section 4.10 Taxes. The Borrower and its Subsidiaries have each paid or
caused to be paid to the proper authorities when due all federal, state and
local taxes required to be withheld by them. The Borrower and its Subsidiaries
have each filed all federal, state and local tax returns which to the knowledge
of the officers of the Borrower are required to be filed, and the Borrower and
its Subsidiaries have each paid or caused to be paid to the respective taxing
authorities all taxes as shown on said returns or on any assessment received by
them to the extent such taxes have become due.
Section 4.11 Titles and Liens. The Borrower or one of its Subsidiaries has
good title to each of the properties and assets reflected in the latest balance
sheet referred to in Section 4.5 (other than any sold, as permitted by Section
6.6), free and clear of all Liens and encumbrances, except for Liens permitted
by Section 6.1 and covenants, restrictions, rights, easements and minor
irregularities in title which do not materially interfere with the business or
operations of the Borrower or such Subsidiary as presently conducted. No
financing statement naming the Borrower or any Subsidiary as debtor is on file
in any office except to perfect only Liens permitted by Section 6.1.
Section 4.12 ERISA. No Plan established or maintained by the Borrower, any
Subsidiary or any ERISA Affiliate that is subject to Part 3 of Subtitle B of
Title I of ERISA had an accumulated funding deficiency (as such term is defined
in Section 302 of ERISA) in excess of $1,000,000 as of the last day of the most
recent fiscal year of such Plan ended prior to the date hereof, and no liability
to the Pension Benefit Guaranty Corporation or the Internal Revenue Service in
excess of such amount has been, or is expected by the Borrower, any Subsidiary
or any ERISA Affiliate to be, incurred with respect to any Plan of the Borrower,
any Subsidiary or any ERISA Affiliate. The Borrower has no contingent liability
with respect to any post-retirement benefit under a Welfare Plan, other than
liability for continuation coverage described in Part 6 of Subtitle B of Title I
of ERISA.
ARTICLE V
Affirmative Covenants
So long as any Note shall remain unpaid or the Revolving Facility shall be
outstanding, the Borrower will comply with the following requirements, unless
the Bank shall otherwise consent in writing:
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Section 5.1 Financial Statements. The Borrower will deliver to the Bank:
(a) As soon as available and in any event within 30 days after the end
of each calendar month, consolidated and consolidating balance sheets of
the Borrower and its Subsidiaries as at the end of such month and related
consolidated and consolidating statements of earnings and cash flows of the
Borrower and its Subsidiaries for such month and for the year to date, in
reasonable detail and stating in comparative form the figures for the
corresponding date and period in the previous year, all prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with the accounting practices reflected in the annual financial
statements referred to in Section 4.5, and certified by the chief financial
officer of the Borrower, subject to year-end audit adjustments.
(b) Concurrent with the delivery of any financial statements under
paragraph (a), a Compliance Certificate, duly executed by the chief
financial officer of the Borrower.
(c) Not later than Tuesday of each calendar week and within 30 days of
the end of each calendar month, a Borrowing Base Certificate as at the end
of the prior week and the end of such month, properly executed by the chief
financial officer of the Borrower, together with such agings of accounts
receivable and other supporting documentation as the Bank may require.
(d) Promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower or any
Subsidiary shall have sent to its stockholders.
(e) Promptly after the sending or filing thereof, copies of all
reports which the Borrower or any Subsidiary shall file with the Securities
and Exchange Commission or any national securities exchange.
(f) Immediately after the commencement thereof, notice in writing of
all litigation and of all proceedings before any governmental or regulatory
agency affecting the Borrower or any Subsidiary of the type described in
Section 4.7 or which seek a monetary recovery against the Borrower or any
Subsidiary in excess of $50,000.
(g) As promptly as practicable (but in any event not later than three
business days) after an officer of the Borrower or any Subsidiary obtains
knowledge of the occurrence of any Default or Event of Default, notice of
such occurrence, together with a detailed statement by a responsible
officer of the Borrower or the appropriate Subsidiary of the steps being
taken by the Borrower or the appropriate Subsidiary to cure the effect of
such event.
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(h) Promptly upon becoming aware of any Reportable Event or any
prohibited transaction (as defined in Section 4975 of the Internal Revenue
Code or Section 406 of ERISA) in connection with any Plan or any trust
created thereunder, a written notice specifying the nature thereof, what
action the Borrower has taken, is taking or proposes to take with respect
thereto, and, when known, any action taken or threatened by the Internal
Revenue Service, the Pension Benefit Guaranty Corporation or the Department
of Labor with respect thereto.
(i) Promptly upon their receipt or filing, copies of (i) all notices
received by the Borrower, any Subsidiary or any ERISA Affiliate of the
Pension Benefit Guaranty Corporation's intent to terminate any Plan or to
have a trustee appointed to administer any Plan, and (ii) all notices
received by the Borrower, any Subsidiary or any ERISA Affiliate from a
Multiemployer Plan concerning the imposition or amount of withdrawal
liability pursuant to Section 4202 of ERISA.
(j) Upon request of the Bank, copies of the most recent annual report
(Form 5500 Series), including any supporting schedules, filed by the
Borrower, any Subsidiary or any ERISA Affiliate with the Internal Revenue
Service with respect to any Plan.
(k) Not less than once every 14 days, commencing 14 days after the
date hereof, a narrative report, signed by an officer of the Borrower,
describing the progress toward obtaining refinancing, or taking other
action for the purpose of paying the Borrower's indebtedness to the Bank in
full on or before October 31, 1996, which report shall be in such detail as
the Bank may require; and, upon receipt by the Borrower, any equipment
appraisal of the Borrower.
(l) Not later than July 30, 1996, (i) a copy of the audit report of
the Borrower dated as of March 31, 1996 prepared on a consolidated and
consolidating basis with the qualified opinion of independent certified
accountants, in form and substance acceptable to the Bank, and (ii)
certificates of good standing of the Borrower and its Subsidiaries, dated
not more than ten days before July 19, 1996.
(m) Such other information respecting the financial condition and
results of operations of the Borrower or any Subsidiary as the Bank may
from time to time reasonably request.
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Section 5.2 Books and Records; Inspection and Examination. The Borrower
will, and will cause each Subsidiary to, (i) keep accurate books of record and
account for itself in which true and complete entries will be made in accordance
with generally accepted accounting principles consistently applied, and (ii)
upon request of the Bank, give any representative of the Bank access to, and
permit such representative to examine, copy or make extracts from, any and all
books, records and documents in its possession, to inspect any of its properties
and to discuss its affairs, finances and accounts with any of its principal
officers, all at such times during normal business hours and as often as the
Bank may reasonably request. The Borrower shall pay all costs and expenses of
the Bank and its employees, officers and agents, including but not limited to al
travel and lodging expenses reasonably incurred, for the Bank to conduct
semi-annual audits of all collateral securing repayment of the Notes and the
Guaranties.
Section 5.3 Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, comply with the requirements of applicable laws and regulations,
the noncompliance with which would materially and adversely affect its business
or the consolidated financial condition of the Borrower and its Subsidiaries.
Section 5.4 Payment of Taxes and Other Claims. The Borrower will pay or
discharge, and will cause each Subsidiary to pay or discharge, when due, (a) all
taxes, assessments and governmental charges levied or imposed upon it or upon
its income or profits, or upon any properties belonging to it, prior to the date
on which penalties attach thereto, (b) all federal, state and local taxes
required to be withheld by it, and (c) all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a Lien or charge upon any
properties of the Borrower or any Subsidiary; provided, that neither the
Borrower nor any Subsidiary shall be required to pay any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings and for which the Borrower or such
Subsidiary has provided adequate reserves in accordance with generally accepted
accounting principles.
Section 5.5 Maintenance of Properties. The Borrower will keep and maintain,
and will cause each Subsidiary to keep and maintain, all of its properties
necessary or useful in its business in good condition, repair and working order;
provided, however, that nothing in this Section shall prevent the Borrower or
any Subsidiary from discontinuing the operation and maintenance of any of its
properties if such discontinuance is, in the judgment of the Borrower or the
appropriate Subsidiary, desirable in the conduct of its business and not
disadvantageous in any material respect to the Bank as holder of the Notes.
Section 5.6 Insurance. The Borrower will, and will cause each Subsidiary
to, obtain and maintain insurance with insurers believed by the Borrower to be
responsible and reputable, in such amounts and against such risks as is usually
carried by companies engaged in similar business and owning similar properties
in the same general areas in which the Borrower or such Subsidiary operates.
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Section 5.7 Preservation of Corporate Existence. The Borrower will, and
will cause each Subsidiary to, preserve and maintain its corporate existence and
all of its rights, privileges and franchises; provided, however, that neither
the Borrower nor any Subsidiary shall be required to preserve any of its rights,
privileges and franchises if its Board of Directors shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Borrower or the appropriate Subsidiary and that the loss thereof is not
disadvantageous in any material respect to the Bank as a holder of the Notes.
Section 5.8 Ratio of Debt to Tangible Net Worth plus Subordinated Debt. The
Borrower will maintain the ratio of its Consolidated Debt to Consolidated
Tangible Net Worth plus Subordinated Debt, determined as of the end of each
calendar month, at not more than 2.00 to 1.00.
Section 5.9 Current Ratio. The Borrower will maintain the ratio of its
Consolidated Current Assets to Consolidated Current Liabilities (provided,
however, that for purposes of determining the Consolidated Current Liabilities
for this Section, Consolidated Current Liabilities shall exclude that portion of
the aggregate unpaid balance of the First Term Note and Second Term Note which
is greater than $1,740,000), determined as of the end of each calendar month
designated below, at not less than the ratio set forth below opposite such month
end:
Months Ratio
June 30, 1996 0.65 to 1.00
July 31, 1996 0.70 to 1,00
August 31, 1996 and each month thereafter 0.80 to 1.00
Section 5.10 Net Profit. The Borrower will achieve a Net Profit, for the
periods designated below, in an amount not less than the amount set forth below
opposite such date:
Periods Net Profit
June, 1996 Not applicable
July, 1996 and each calendar month
thereafter $50,000
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Section 5.11 Tangible Net Worth plus Subordinated Debt. The Borrower will
maintain its Consolidated Tangible Net Worth plus Subordinated Debt, determined
as of the end of each calendar month designated below, at an amount not less
than the amount set forth below opposite such month-end:
Months Ending During the Period Tangible Net Worth
Plus Subordinated Debt
May 31, 1996 $3,478,000
June 30, 1996 $3,350,000
July 31, 1996 $3,750,000
August 31, 1996 $3,800,000
On and after September 30, 1996 $3,850,000
ARTICLE VI
Negative Covenants
So long as any Note shall remain unpaid or the Revolving Facility shall be
outstanding, the Borrower agrees that, without the prior written consent of the
Bank:
Section 6.1 Liens. The Borrower will not, and will not permit any
Subsidiary to, create, incur, assume or suffer to exist any Lien or other charge
or encumbrance of any nature on any of its assets, now owned or hereafter
acquired, or assign or otherwise convey any right to receive income or give its
consent to the subordination of any right or claim of the Borrower or any
Subsidiary to any right or claim of any other Person; excluding, however, from
the operation of the foregoing:
(a) Liens for taxes or assessments or other governmental charges to
the extent not required to be paid by Section 5.4.
(b) Materialmen's, merchants', carriers' worker's, repairer's, or
other like liens arising in the ordinary course of business to the extent
not required to be paid by Section 5.4.
(c) Pledges or deposits to secure obligations under worker's
compensation laws, unemployment insurance and social security laws, or to
secure the performance of bids, tenders, contracts (other than for the
repayment of borrowed money) or leases or to secure statutory obligations
or surety or appeal bonds, or to secure indemnity, performance or other
similar bonds in the ordinary course of business.
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(d) Zoning restrictions, easements, licenses, restrictions on the use
of real property or minor irregularities in title thereto, which do not
materially impair the use of such property in the operation of the business
of the Borrower or any Subsidiary or the value of such property for the
purpose of such business.
(e) Security interests securing the Intercompany Notes.
(f) Liens on any property of the Borrower or any Subsidiary (other
than those described elsewhere in this Section ref Liens \*mergeformat 6.1)
securing any indebtedness for borrowed money in existence on the date
hereof and listed in Schedule 6.1 herein.
(g) Liens in favor of the Bank
(h) Liens arising out of a judgment against the Borrower or any
Subsidiary for the payment of money not exceeding $50,000 with respect to
which an appeal is being prosecuted and a stay of execution pending such
appeal has been secured.
(i) The lessor's interest in real property under leases permitted
under Section 6.13.
Section 6.2 Indebtedness. The Borrower will not, and will not permit any
Subsidiary to, incur, create, assume or permit to exist any indebtedness or
liability on account of deposits or advances or any indebtedness for borrowed
money, or any other indebtedness or liability evidenced by notes, bonds,
debentures or similar obligations, except:
(a) Indebtedness to the Bank.
(b) Indebtedness of the Borrower or any Subsidiary in existence on the
date hereof and listed in Schedule 6.2 hereto, but not including any
extensions or renewals thereof.
(c) Indebtedness of a Subsidiary to the Borrower or another Subsidiary
on account of borrowings, or indebtedness of the Borrower to a Subsidiary
on account of borrowings from that Subsidiary.
(d) Subordinated Debt, or renewals thereof.
Section 6.3 Guaranties. The Borrower will not, and will not permit any
Subsidiary to, assume, guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligations of any other Person,
except:
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(a) The endorsement of negotiable instruments by the Borrower or any
Subsidiary for deposit or collection or similar transactions in the
ordinary course of business.
(b) Guaranties in favor of the Bank.
(c) Guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons in
existence on the date hereof and listed in Schedule 6.3 hereto.
Section 6.4 Investments. The Borrower will not, and will not permit any
Subsidiary to, purchase or hold beneficially any stock or other securities or
evidence of indebtedness of, make or permit to exist any loans or advances to,
or make any investment or acquire any interest whatsoever in, any other Person,
except:
(a) Investments in direct obligations of the United States of America
or any agency or instrumentality thereof whose obligations constitute full
faith and credit obligations of the United States of America having a
maturity of one year or less, commercial paper issued by U.S. corporations
rated "A-1" or "A-2" by Standard & Poors Corporation or "P-1" or "P-2" by
Moody's Investors Service or certificates of deposit or bankers'
acceptances having a maturity of one year or less issued by members of the
Federal Reserve System having deposits in excess of $100,000,000.
(b) Any existing investment by the Borrower or any other Subsidiary in
the stock of any Subsidiary.
(c) The existing investment by the Borrower in paid-up capital of
Northwest/Chicago.
(d) Loans and advances by the Borrower to any Subsidiary not exceeding
at any one time $3,500,000 as to Northwest/Chicago and $2,000,000 as to
each other Subsidiary, provided that all such loans and advances are
evidenced by the Intercompany Note of the applicable Subsidiary.
(e) Loans to officers and employees of the Borrower or any Subsidiary
not exceeding at any one time an aggregate of $100,000 as to the Borrower
and all Subsidiaries combined.
(f) Travel advances to officers and employees of the Borrower or any
Subsidiary in the ordinary course of business.
(g) Advances in the form of progress payments, prepaid rent or
security deposits.
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(h) Loans and advances by a Subsidiary to the Borrower.
Section 6.5 Dividends. The Borrower will not declare or pay any dividend on
any class of its stock or make any payment on account of the purchase,
redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly.
Section 6.6 Sale of Assets. The Borrower will not, and will not permit any
Subsidiary to, sell, lease, assign, transfer or otherwise dispose of all or a
substantial part of its assets (whether in one transaction or in a series of
transactions) to any other Person other than in the ordinary course of business,
except that a wholly-owned Subsidiary of the Borrower may sell, lease, or
transfer all or a substantial part of its assets to the Borrower or another
wholly-owned Subsidiary of the Borrower, and the Borrower or such other
wholly-owned Subsidiary, as the case may be, may acquire all or substantially
all of the assets of the Subsidiary so to be sold, leased or transferred to it.
Section 6.7 Restrictions on Issuance and Sale of Subsidiary Stock. The
Borrower will not:
(a) permit any Subsidiary to issue or sell any shares of stock of any
class of such Subsidiary to any other Person (other than the Borrower or a
wholly-owned Subsidiary of the Borrower), except for the purpose of
qualifying directors or of satisfying pre-emptive rights or of paying a
common stock dividend on, or splitting, common stock of such Subsidiary; or
(b) sell, transfer or otherwise dispose of any shares of stock of any
class (except to a wholly-owned Subsidiary of the Borrower or for the
purpose of qualifying directors) of any Subsidiary or permit any Subsidiary
to sell, transfer or otherwise dispose of (except to the Borrower or a
wholly-owned Subsidiary of the Borrower or for the purpose of qualifying
directors) any shares of stock of any class of any other Subsidiary.
Section 6.8 Consolidation and Merger. The Borrower will not, and will not
permit any Subsidiary to, consolidate with or merge into any Person, or permit
any other Person to merge into it, or acquire (in a transaction analogous in
purpose or effect to a consolidation or merger) all or substantially all of the
assets of any other Person; provided, however, that the restrictions contained
in this Section shall not apply to or prevent the consolidation or merger of a
Subsidiary with, or a conveyance or transfer of its assets to, the Borrower (if
the Borrower shall be the continuing or surviving corporation) or another
then-existing wholly-owned Subsidiary of the Borrower.
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Section 6.9 Sale and Leaseback. The Borrower will not, and will not permit
any Subsidiary to, enter into any arrangement, directly or indirectly, with any
other Person whereby the Borrower or such Subsidiary shall sell or transfer any
real or personal property, whether now owned or hereafter acquired, and then or
thereafter rent or lease as lessee such property or any part thereof or any
other property which the Borrower or such Subsidiary, as the case may be,
intends to use for substantially the same purpose or purposes as the property
being sold or transferred.
Section 6.10 Subordinated Debt. The Borrower will not, and will not permit
any Subsidiary to, (i) make any payment of, or acquire, any Subordinated Debt
except as expressly permitted by the subordination provision thereof; (ii) give
security for all or any part of such Subordinated Debt; (iii) amend or cancel
the subordination provisions of such Subordinated Debt; (iv) take or omit to
take any action whereby the subordination of such Subordinated Debt or any part
thereof to the Notes might be terminated, impaired or adversely affected; or (v)
omit to give the Bank prompt written notice of any default under any agreement
or instrument relating to such Subordinated Debt by reason whereof such
Subordinated Debt might become or be declared to be immediately due and payable.
Section 6.11 Capital Expenditures. The Borrower will not, and will not
permit any Subsidiary to, make any Capital Expenditure (excluding existing
scheduled monthly lease payments to Duetsch Credit of not more than $9,700 and
to CIT of not more than $6,300), if, after giving effect to such expenditure,
the aggregate amount of Capital Expenditures made by the Borrower and its
Subsidiaries in any calendar month will exceed $10,000.
Section 6.12 Restrictions on Nature of Business. The Borrower will not, and
will not permit any Subsidiary to, engage in any line of business materially
different from that presently engaged in by the Borrower or such Subsidiary.
Section 6.13 Rental Payments. The Borrower will not, and will not permit
any Subsidiary to, become or be a party as lessee to any lease with respect to
real or personal property having a total term (including renewals at the option
of the lessee) of more than one month, except that the foregoing shall not
prohibit any of the following:
(a) Any lease of real property having a total term (including renewals
at the option of the lessee) of no more than 5 years if the total amount of
rent payable under such lease during any fiscal year of the Borrower does
not and will not exceed $50,000.
(b) The lease of real property dated as of June 17, 1991 between Y-Q
Associates Limited Partnership as lessor and the Borrower as lessee, but
not any extension, renewal or amendment thereof.
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(c) Leases of equipment entered into on or before November 1, 1991,
having a total term (including renewals at the option of the lessee) of no
more than 5 years and having total lease payments over the life of all such
leases not exceeding $2,300,000 in aggregate.
Section 6.14 Hazardous Substances. The Borrower will not, and will not
permit any Subsidiary to, cause or permit any Hazardous Substance to be disposed
of, in any manner which might result in any material liability to the Borrower
or any Subsidiary, on, under or at any real property which is operated by the
Borrower or any Subsidiary or in which the Borrower or any Subsidiary has any
interest.
ARTICLE VII
Events of Default, Rights and Remedies
Section 7.1 Events of Default. "Event of Default", wherever used herein,
means any one of the following events:
(a) Default in the payment of any interest on any Note when it becomes
due and payable and the continuance of such default for a period of 10
days; or the failure to pay any principal of any Note when it becomes due
and payable or, if payable on demand, on demand.
(b) Default in the performance, or breach, of any covenant or
agreement on the part of the Borrower contained in Section 2.7, 5.1(c),
5.8, 5.9, 5.10 or 5.11 hereof.
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower in this Agreement (other than a covenant or
agreement a default in whose performance or whose breach is elsewhere in
this Section specifically dealt with), and the continuance of such default
or breach for a period of 30 days after the Bank has given notice to the
Borrower specifying such default or breach and requiring it to be remedied.
(d) The Borrower or any Subsidiary shall be adjudicated a bankrupt or
insolvent, or admit in writing its inability to pay its debts as they
mature, or make an assignment for the benefit of creditors; or the Borrower
or any Subsidiary shall apply for or consent to the appointment of any
receiver, trustee, or similar officer for it or for all or any substantial
part of its property; or such receiver, trustee or similar officer shall be
appointed without the application or consent of the Borrower or such
Subsidiary, as the case may be, and such appointment shall continue
undischarged for a period of 30 days; or the Borrower or any Subsidiary
shall institute (by petition,application, answer, consent or otherwise) any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it under the
laws of any jurisdiction; or any such proceeding shall be instituted (by
petition, application or otherwise) against the Borrower or any Subsidiary;
or any judgment, writ, warrant of attachment or execution or similar
process shall be issued or levied against a substantial part of the
property of the Borrower or any Subsidiary and such judgment, writ, or
similar process shall not be released, vacated or fully bonded within 30
days after its issue or levy.
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(e) A petition shall be filed by or against the Borrower or any
Subsidiary under the United States Bankruptcy Code naming the Borrower or
that Subsidiary as debtor.
(f) Any representation or warranty made by the Borrower in this
Agreement or by the Borrower (or any of its officers) in any certificate,
instrument, or statement contemplated by or made or delivered pursuant to
or in connection with this Agreement, shall prove to have been incorrect in
any material respect when made.
(g) The rendering against the Borrower of a final judgment, decree or
order for the payment of money in excess of $50,000 and the continuance of
such judgment, decree or order unsatisfied and in effect for any period of
30 consecutive days without a stay of execution.
(h) A default under any bond, debenture, note or other evidence of
indebtedness of the Borrower (other than to the Bank) or under any
indenture or other instrument under which any such evidence of indebtedness
has been issued or by which it is governed and the expiration of the
applicable period of grace, if any, specified in such evidence of
indebtedness, indenture or other instrument;
(i) Any Plan shall have been terminated, or a trustee shall have been
appointed by an appropriate United States District Court to administer any
Plan, or the Pension Benefit Guaranty Corporation shall have instituted
proceedings to terminate any Plan or to appoint a trustee to administer any
Plan, or withdrawal liability shall have been asserted against the
Borrower, any Subsidiary or any ERISA Affiliate by a Multiemployer Plan; or
the Borrower, any Subsidiary or any ERISA Affiliate shall have incurred
liability to the Pension Benefit Guaranty Corporation, the Internal Revenue
Service, the Department of Labor or Plan participants in excess of
$1,000,000 with respect to any Plan; or any Reportable Event that the Bank
may determine in good faith might constitute grounds for the termination of
any Plan, for the appointment by the appropriate United States District
Court of a trustee to administer any Plan or for the imposition of
withdrawal liability with respect to a Multiemployer Plan, shall have
occurred and be continuing 30 days after written notice to such effect
shall have been given to the Borrower by the Bank.
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(j) An event of default shall occur under the Security Agreement or
the Mortgage, or under any other security agreement, mortgage, deed of
trust, assignment or other instrument or agreement directly or indirectly
securing any obligations of the Borrower hereunder or under any Note or any
guaranty of such obligations.
(k) Any Subsidiary shall repudiate, purport to revoke, or fail to
perform any of that Subsidiary's obligations under its Guaranty.
(l) Default in the payment of any amount owed by the Borrower to the
Bank other than hereunder or under the Notes and the continuance of such
default for a period of 10 days.
(m) A writ of attachment, garnishment, levy or similar process shall
be issued against or served upon the Bank with respect to (i) any property
of the Borrower or any Subsidiary in the possession of the Bank, or (ii)
any indebtedness of the Bank to the Borrower or any Subsidiary.
(n) The Borrower fails to obtain at least $300,000 in proceeds from
Subordinated Debt on or after June 1, 1996 and before July 31, 1996, and at
least $112,000 in proceeds from Subordinated Debt on or after August 1,
1996 and before August 31, 1996.
Section 7.2 Rights and Remedies. The Bank presently intends to refuse to
make Revolving Advances and to demand payment of all indebtedness outstanding
under the Revolving Note upon the occurrence of an Event of Default. The
Borrower acknowledges and understands, however, that the Bank has the absolute
right to refuse to make any Revolving Advance and to demand payment of the
Revolving Note whether or not (a) an Event of Default has occurred, (b) the
Borrower's financial or other condition has changed, (c) the Bank has, at the
time or in connection with any previous demand, given notice of its intention to
make demand, or (d) such demand shall cause any loss or damage to the Borrower.
Without limiting the foregoing, upon the occurrence of an Event of Default or at
any time thereafter until such Event of Default is cured to the written
satisfaction of the Bank, the Bank may exercise any or all of the following
rights and remedies:
(a) The Bank may, by notice to the Borrower, declare the Revolving
Facility to be terminated, whereupon the same shall forthwith terminate.
(b) The Bank may, by notice to the Borrower, declare the entire unpaid
principal amount of the Notes then outstanding, all interest accrued and
unpaid thereon, and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon such Note, all such accrued interest
and all such amounts shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower.
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(c) The Bank may, without notice to the Borrower and without further
action, apply any and all money owing by the Bank to the Borrower to the
payment of the Notes then outstanding, including interest accrued thereon,
and of all other sums then owing by the Borrower hereunder.
(d) The Bank may exercise and enforce its rights and remedies under
the Security Agreement and/or the Mortgage.
(e) The Bank may exercise any other rights and remedies available to
it by law or agreement
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 7.1(e) or 7.1(m) hereof, the entire unpaid principal amount
of the Notes then outstanding, all interest accrued and unpaid thereon, and all
other amounts payable under this Agreement shall be immediately due and payable
without presentment, demand, protest or notice of any kind.
ARTICLE VIII
Miscellaneous
Section 8.1 Release. The Borrower hereby absolutely and unconditionally
releases and forever discharges the Bank (and any and all of its parent
corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns, together with all of its present and former
directors, officers, agents and employees) from any and all claims, demands or
causes of action of any kind, nature or description, whether arising in law or
equity or upon contract or tort or under any state or federal law or otherwise,
which any such party has had, now has or has made claim to have against any such
party for or by reason of any act, omission, matter, cause or thing whatsoever
arising from the beginning of time to and including the date of this Agreement,
whether such claims, demands and causes of action are matured or unmatured or
known or unknown.
Section 8.2 No Waiver; Cumulative Remedies. No failure or delay on the part
of the Bank in exercising any right, power or remedy under the Loan Documents
shall operate as a waiver thereof; nor shall the Bank's acceptance of payments
while any Default or Event of Default is outstanding operate as a waiver of such
Default or Event of Default, or any right, power or remedy under the Loan
Documents; nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereo for the exercise of any
other right, power or remedy under the Loan Documents. The remedies provided in
the Loan Documents are cumulative and not exclusive of any remedies provided by
law.
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Section 8.3 Amendments, Etc. No amendment, modification, termination or
waiver of any provision of any Loan Document or consent to any departure by the
Borrower therefrom shall be effective unless the same shall be in writing and
signed by the Bank and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given. No notice to
or demand on the Borrower in any case shall entitle the Borrower to any other or
further notice or demand in similar or other circumstances.
Section 8.4 Notice. Except as otherwise expressly provided herein, all
notices and other communications hereunder shall be in writing and shall be (i)
personally delivered, (ii) transmitted by registered mail, postage prepaid,
(iii) sent by Federal Express or similar expedited delivery service, or (iv)
transmitted by telecopy, in each case addressed to the party to whom notice is
being given at its address as set forth by its signature below, if telecopied,
transmitted to that party at its telecopier number set forth by its signature
below; or, as to each party, at such other address or telecopier number as may
hereafter be designated in a notice by that party to the other party complying
with the terms of this Section. All such notices or other communications shall
be deemed to have been given on (i) the date received if delivered personally or
by mail, (ii) the date of receipt, if delivered by Federal Express or similar
expedited delivery service, or (iii) the date of transmission if delivered by
telecopy, except that notices or requests to the Bank pursuant to any of the
provisions of Article II shall not be effective until received.
Section 8.5 Costs and Expenses. The Borrower agrees to pay on demand all
costs and expenses incurred by the Bank in connection with the negotiation,
preparation, execution, administration, amendment or enforcement of the Loan
Documents and the other instruments and documents to be delivered hereunder and
thereunder, including the reasonable fees and out-of-pocket expenses of counsel
for the Bank with respect thereto, whether paid to outside counsel or allocated
to the Bank by in-house counsel. The Borrower also agrees to pay and reimburse
the Bank for all of its out-of-pocket and allocated costs incurred in connection
with each audit or examination conducted by the Bank, its employees or agents,
which audits and examinations shall be for the sole benefit of the Bank.
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<PAGE>
Section 8.6 Indemnification by Borrower. The Borrower hereby agrees to
indemnify the Bank and each officer, director, employee and agent thereof
(herein individually each called an "Indemnitee" and collectively called the
"Indemnitees") from and against any and all losses, claims, damages, reasonable
expenses (including, without limitation, reasonable attorneys' fees) and
liabilities (all of the foregoing being herein called the "Indemnified
Liabilities") incurred by an Indemnitee in connection with or arising out of the
execution or delivery of this Agreement or any agreement or instrument
contemplated hereby, the performance by the parties hereto of their respective
obligations hereunder or the use of the proceeds of any Advance (including but
not limited to any such loss, claim, damage, expense or liability arising out of
any claim in which it is alleged that any Environmental Law has been breached
with respect to any activity or property of the Borrower), except for any
portion of such losses, claims, damages, expenses or liabilities incurred solely
as a result of the gross negligence or willful misconduct of the applicable
Indemnitee. If and to the extent that the foregoing indemnity may be
unenforceable for any reason, the Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. All obligations provided
for in this Section shall survive any termination of this Agreement.
Section 8.7 Execution in Counterparts. This Agreement and the other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts of this Agreement or such other Loan Document, as the case may be,
taken together, shall constitute but one and the same instrument.
Section 8.8 Binding Effect, Assignment. The Loan Documents shall be binding
upon and inure to the benefit of the Borrower and the Bank and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights thereunder or any interest therein without the prior written
consent of the Bank.
Section 8.9 Governing Law. The Loan Documents shall be governed by, and
construed in accordance with, the laws of the State of Minnesota.
Section 8.10 Arbitration.
a) Agreement to Arbitrate. Except for "core proceedings" under the
United States Bankruptcy Code, the Bank and the Borrower agree to submit to
binding arbitration all claims, disputes and controversies between or among
them, whether in tort, contract or otherwise, and their respective
employees, officers, directors, attorneys and other agents, that arise out
of or relate in any way to (i) this Agreement or the other Loan Documents,
and any other agreements delivered by the Borrower and its Subsidiaries to
the Bank in connection herewith (the "Documents"), (ii) the negotiation,
execution, collateralization, administration, repayment, modification,
extension, substitution, formation, inducement, enforcement, default or
termination of the Documents, or (iii) requests for additional credit.
(b) Rules Governing Arbitration and Selection of Arbitrator. Any
arbitration proceeding will (i) proceed in Minneapolis, Minnesota; (ii) be
governed by the Federal Arbitration Act (Title 9 of the United States
Code); and (iii) be conducted in accordance with the commercial arbitration
rules of the American Arbitration Association ("AAA"). Any arbitration
proceeding will be before a single neutral arbitrator who must be selected
according to the AAA Rule and who has practiced law as a commercial
attorney for at least ten years.
32
<PAGE>
(c) Statutes of Limitation and Procedural Issues. The arbitrator will
determine whether or not an issue is arbitratable and will give effect to
applicable statutes of limitation in determining any claim. Judgment upon
the award rendered by the arbitrator will decide (by documents only or with
a hearing at the arbitrator's discretion) any pre-hearing motions which are
similar to motions to dismiss for failure to state a claim or motions for
summary judgment. In any arbitration proceeding discovery will be permitted
and will be governed by the Minnesota Rules of Civil Procedure. All
discovery must be completed no later than 20 days before the hearing date
and within 180 days of the commencement of arbitration proceedings. Any
requests for an extension of the discovery periods, or any discovery
disputes, will be subject to final determination by the arbitrator upon a
showing that the request for discovery is essential for the party's
presentation and that no alternative means for obtaining information is
available.
(d) Exceptions to Arbitration. This agreement to arbitrate does not
limit the right of either party to (i) foreclose against real or personal
property collateral; (ii) exercise self-help remedies relating to
collateral or proceeds of collateral such as setoff or repossession; or
(iii) obtain provisional ancillary remedies such as replevin, injunctive
relief, attachment or the appointment of a receiver, before during or after
the pendency of any arbitration proceeding. These exceptions do not,
however, constitute a waiver of the right or obligation of either party to
submit any dispute to arbitration, including those arising from the
exercise of the remedies detailed in this paragraph.
(e) Arbitration Costs and Fees. The arbitrator shall award costs and
expenses of the arbitration proceeding in accordance with the provisions of
this Agreement.
Section 8.11 Waiver of Jury Trial. THE BORROWER AND THE BANK HEREBY WAIVE
TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT
OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT AND THE NOTES OR THE
RELATIONSHIPS ESTABLISHED HEREUNDER. The foregoing waiver is not intended to
limit the arbitration requirement of Section 8.10 in any way, and is set forth
only in the event that a given dispute is for any reason not required to be
submitted to arbitration as contemplated by Section 8.10.
33
<PAGE>
Section 8.12 Severability of Provisions. Any provision of this Agreement
which is prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof.
Section 8.13 Prior Agreements. This Agreement and the other Loan Documents
and related documents described herein restate and supersede in their entirety
any and all prior agreements and understandings, oral or written, between the
Bank and the Borrower.
Section 8.14 Headings. Article and Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
Section 8.15 Termination and Repayment of Notes. As stated in this
Agreement and in the Notes, the Notes, any fees and any other outstanding
obligations of the Borrower to the Bank shall be due and payable in full on
October 31, 1996. Failure to pay the Notes (including interest thereon), fees
and other outstanding obligations in full on or before October 31, 1996 shall
constitute an Event of Default. The Borrower acknowledges that upon the
occurrence of any Event of Default, the Bank has the immediate right (without
limitation) to commence action against the Borrower and Subsidiaries to enforce
payment of the Notes and Guaranties and to commence foreclosure proceedings
under the Security Agreement, the Mortgage, and the other documents securing
payment of the Notes.
Section 8.16 Restatement of Earlier Agreement. This Agreement is executed
for the purpose of replacing and restating the Old Credit Agreement. Upon
execution of this Agreement by the Bank and the Borrower, neither the Bank nor
the Borrower shall have any obligation to the other under the Old Credit
Agreement, except that the Borrower shall continue to have the obligation to pay
any fees remaining unpaid under the Old Credit Agreement that had accrued
through the effective date of this Agreement and to pay principal of and
interest on the promissory notes issued pursuant to the Old Credit Agreement
through the date such notes are replaced by the Notes issued hereunder.
[SIGNATURE PAGE FOLLOWS]
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
Address: NORTHWEST TELEPRODUCTION, INC.
4455 West 77th Street
Minneapolis, Minnesota 55435
Attention: James Steffen
Telecopier 612-835-0971 By /s/ James N. Steffen
James N. Steffen
Its Vice President
Address: NORWEST BANK MINNESOTA,
Loan Support Team NATIONAL ASSOCIATION
Suite 500
730 Second Avenue South
Minneapolis, Minnesota 55479-1069
Attention: John G. Diehl
Telecopier: 612-667-1054 By /s/ John G. Diehl
John G. Diehl
Its Vice President
Signature Page to Credit Agreement
35
<PAGE>
EXHIBITS AND SCHEDULES
Exhibit A-1 Revolving Note
Exhibit A-2 First Term Note
Exhibit A-3 Second Term Note
Exhibit B Form of Compliance Certificate
Exhibit C Borrowing Base Certificate
----------------------------
Schedule 4.4 Subsidiaries
Schedule 6.1 Permitted Liens
Schedule 6.2 Permitted Indebtedness
Schedule 6.3 Permitted Guaranties
36
<PAGE>
Exhibit A-1
REVOLVING NOTE
$1,360,000 Minneapolis, Minnesota
Dated as of July 1, 1996
For value received, Northwest Teleproductions, Inc., a Minnesota
corporation (the "Borrower"), promises to pay to the order of Norwest Bank
Minnesota, National Association, a national banking association (the "Bank"), at
the Bank's office at Suite 500, 730 Second Avenue South, Minneapolis, Minnesota
55479-1069, ON DEMAND, the principal sum of One Million Three Hundred Sixty
Thousand Dollars ($1,360,000), or, if less, the aggregate unpaid principal
amount of all advances made by the Bank to the Borrower pursuant to Section 2.1
of the Credit Agreement dated as of July 24, 1996 between the Borrower and the
Bank (together with all amendments, modifications and restatements thereof, the
"Credit Agreement"), and to pay interest on the principal balance of this Note
outstanding from time to time at the rate or rates determined pursuant to the
Credit Agreement.
Interest accruing on the principal balance of this Note shall be due and
payable on demand, but until demand is made, interest accruing on the principal
balance of this Note each month shall be due and payable on the first day of the
following month.
This Note is issued pursuant to, and is subject to, the Credit Agreement.
This Note is issued in substitution for, but not in payment of, the
Borrower's Replacement Revolving Note dated September 28, 1992, payable to the
order of the Bank in the face principal amount of $1,750,000.
The Borrower shall pay all costs of collection, including reasonable
attorneys' fees and legal expenses, if this Note is not paid when due, whether
or not legal proceedings are commenced.
37
<PAGE>
Presentment or other demand for payment, notice of dishonor and protest are
expressly waived.
NORTHWEST TELEPRODUCTIONS, INC.
By /s/ James N. Steffen
James N. Steffen
Its Vice President
38
<PAGE>
Exhibit A-2
FIRST TERM NOTE
$1,160,000 Minneapolis, Minnesota
Dated as of July 1, 1996
For value received, Northwest Teleproductions, Inc., a Minnesota
corporation (the "Borrower"), promises to pay to the order of Norwest Bank
Minnesota, National Association, a national banking association (the "Bank"), at
the Bank's office at Suite 500, 730 Second Avenue South, Minneapolis, Minnesota
55479-1069, the principal sum of One Million One Hundred Sixty Thousand Dollars
($1,160,000), and to pay interest on the principal balance of this Note
outstanding from time to time at the rate or rates determined pursuant to the
Credit Agreement dated as of July 24, 1996 between the Borrower and the Bank
(together with all amendments, modifications and restatements thereof, the
"Credit Agreement"). Interest accruing on the principal balance of this Note
each month shall be due and payable on the first day of the following month.
In addition to the payments of interest required above, the principal
balance of this Note shall be due and payable in 3 equal monthly installments of
$5,000 each, due and payable on the first day of each month, commencing August
1, 1996, and in one final installment due on October 31, 1996, which installment
shall be in an amount equal to the entire principal balance of this Note then
unpaid.
This Note is issued pursuant to, and is subject to, the Credit Agreement.
This Note is issued in substitution for, but not in payment of, the
Borrower's Replacement First Term Note dated September 28, 1992, payable to the
order of the Bank in the original principal amount of $2,655,000.
The Borrower shall pay all costs of collection, including reasonable
attorneys' fees and legal expenses, if this Note is not paid when due, whether
or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest are
expressly waived.
NORTHWEST TELEPRODUCTIONS, INC.
By /s/ James N. Steffen
James N. Steffen
Its Vice President
39
<PAGE>
Exhibit A-3
SECOND TERM NOTE
$2,095,000 Minneapolis, Minnesota
Dated as of July 1, 1996
For value received, Northwest Teleproductions, Inc., a Minnesota
corporation (the "Borrower"), promises to pay to the order of Norwest Bank
Minnesota, National Association, a national banking association (the "Bank"), at
the Bank's office at Suite 500, 730 Second Avenue South, Minneapolis, Minnesota
55479-1069, the principal sum of Two Million Ninety-Five Thousand Dollars
($2,095,000), and to pay interest on the principal balance of this Note
outstanding from time to time at the rate or rates determined pursuant to the
Credit Agreement dated as of July 24, 1996 between the Borrower and the Bank
(together with all amendments, modifications and restatements thereof, the
"Credit Agreement").
Interest accruing on the principal balance of this Note each month shall be
due and payable on the first day of the following month.
In addition to the payments of interest required above, the principal
balance of this Note shall be due and payable in 3 regular monthly installments
due and payable on the first day of each month, commencing August 1, 1996, and
in one final installment due and payable on October 31, 1996. The amount of each
installment prior to the final installment shall be the amount set forth below
opposite the applicable due date:
Installments Due During the Period Installment Amount
August 1, 1996 $70,000
September 1, 1996 and October 1, 1996 $140,000
The final installment due on October 31, 1996 shall be in an amount equal to the
entire principal balance of this Note then unpaid.
This Note is issued pursuant to, and is subject to, the Credit Agreement.
This Note is issued in substitution for, but not in payment of, the
Borrower's Fourth Replacement Second Term Note dated August 25, 1995, payable to
the order of the Bank in the original principal amount of $3,675,000.
The Borrower shall pay all costs of collection, including reasonable
attorneys' fees and legal expenses, if this Note is not paid when due, whether
or not legal proceedings are commenced.
40
<PAGE>
Presentment or other demand for payment, notice of dishonor and protest are
expressly waived.
NORTHWEST TELEPRODUCTIONS, INC.
By /s/ James N. Steffen
James N. Steffen
Its Vice President
41
<PAGE>
Exhibit B
COMPLIANCE CERTIFICATE
______________________, 1996
Norwest Bank Minnesota, National Association
Suite 500
730 Second Avenue South
Minneapolis, Minnesota 55479-1069
Compliance Certificate
Ladies and Gentlemen:
Reference is made to the Credit Agreement dated July 24, 1996 among
Northwest Teleproductions, Inc. (the "Borrower") and Norwest Bank Minnesota,
National Association (the "Credit Agreement").
All terms defined in the Credit Agreement and not otherwise defined herein
shall have the meanings given them in the Credit Agreement.
This is a Compliance Certificate submitted in connection with the
Borrower's financial statements (the "Statements") as of _____________________,
1996 (the "Effective Date").
I hereby certify to you as follows:
1. I am the chief financial officer of the Borrower, and I am familiar
with the financial statements and financial affairs of the Borrower.
2. The Statements have been prepared in accordance with generally
accepted accounting principles applied on a basis that is consistent
in all material respects with the accounting practices reflected in
the annual financial statements referred to in Section 4.5.
42
<PAGE>
3. The following computations set forth the Borrower's compliance or
non-compliance with the requirements set forth in Sections, 5.8, 5.9,
5.10 and 5.11 as of the Effective Date:
Requirement
5.9 Consolidated Debt to Consolidated Tangible
Net Worth plus Subordinated Debt
Consolidated $___________
Debt
Consolidated $___________
Tangible Net
Worth
Subordinated $___________
Debt
Ratio __________:1 2.00:1
5.10 Current Ratio
Consolidated $___________
Current Assets
Consolidated $___________
Current
Liabilities
Ratio __________:1 Through
6/30/96: 0.65:1
From 7/1/96
through 7/31/96:
0.70
From 8/1/96 and
thereafter:
0.80:1
5.11 Net Profit $___________ From 7/31/96
and thereafter:
$50,000
43
<PAGE>
5.12 $___________ Through
Consolidated 5/31/96:
Tangible Net $3,478,000
Worth From 6/1/96
plus through 6/30/96:
Subordinated $3,350,000
Debt From 7/1/96
through 7/31/96:
$3,750,000
From 8/1/96
through 8/31/96:
3,800,000
Thereafter:
$3,850,000
Attached hereto are all relevant facts in reasonable detail to evidence,
and the computations of, the financial covenants referred to above.
4. I have no knowledge of the occurrence of any Default or Event of
Default, except as set forth in the attachments, if any, hereto.
Very truly yours,
NORTHWEST TELEPRODUCTIONS, INC.
By
Its
44
<PAGE>
Exhibit C
1 of 2
Borrowing Base Certificate
Northwest Teleproductions, Inc.
as of ______________, 19___
To: Norwest Bank Minnesota, National Association
As an inducement to you to continue presently existing loans and other
accommodations and make additional loans in such amount and for such length of
time as you may elect in reliance upon the security given to you, we hereby
certify that the following computation of the Borrowing Base is true and correct
pursuant to the terms of the Credit Agreement dated as of July 24, 1996 by and
between Northwest Teleproductions, Inc. and Norwest Bank Minnesota, N.A.
1. NON-GOVERNMENT ACCOUNTS RECEIVABLE
A. Northwest Teleproduction, Inc. (NWT and NPAT)
Gross Receivables __________
Less: Ineligibles:
a) Amounts over 89 days old __________
b) Amounts 89 days or less with
more than 10% of
the total account more than 89
days old __________
c) Other ineligibles *
(attach detail) __________
Total Ineligibles (__________)
Total Eligible Accounts NWT and NPAT __________
B. Southwest Teleproductions, Inc. (SWT)
Gross Receivables __________
Less: Ineligibles:
a) Amounts over 89 days old ___________
b) Amounts 89 days or less with
more than 10% of the total
account more than 89 days old ___________
c) Other ineligibles *(attach detail)_________
Total Ineligibles (__________)
Total Eligible Accounts SWT __________
45
<PAGE>
C. Northwest Teleproductions/Chicago, Inc. (Chicago)
Gross Receivables __________
Less: Ineligibles:
a) Amounts over 89 days old __________
b) Amounts 89 days or less with
more than 10% of the total __________
account more than 89 days old
c) Other ineligibles *(attach detail) __________
Total Ineligibles (_________)
Total Eligible Accounts Chicago _________
D. Combined Non-Government Accounts (A+B+C)
Gross Receivables _________
Less: Ineligibles:
a) Amounts over 89 days old __________
b) Amounts 89 days or less with __________
more than 10% of the total account
more than 89 days old
c) Other ineligibles *(attach detail) __________
Total Ineligibles (_________)
Total Eligible Accounts _________
Advance Rate 75%
Total Non-Government Accounts Receivable Availability _________
2. GOVERNMENT ACCOUNTS RECEIVABLE
Northwest Teleproductions, Inc. (NWT)
Gross Receivables _________
Less: Ineligibles:
a) Amounts over 89 days old __________
b) Amounts 89 days or less with __________
more than 10% of the total account
more than 89 days old
c) Other ineligibles * __________
Total Ineligibles (_________)
Total Eligible Government Accounts NWT _________
Advance Rate 80%
Government Accounts Receivable Availability _________
3. SUMMARY
Total Non-Government Accounts Receivable Availability _________
Government Accounts Receivable Availability _________
Total Accounts Receivable Availability _________
Less: Revolving Note Balance (_________)
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<PAGE>
Subtotal margin (deficiency) _________
Borrowing Base Adjustment** _________
Borrowing Base Margin (Deficiency) _________
Date Northwest Teleproductions, Inc.
By:
Its:
* "Other Ineligibles" includes amounts subject to dispute, bankruptcy,
insolvency, assignment to another creditor, setoff or contra accounts; or
amounts for goods or services not completed, delivered approved and accepted by
the account debtor; or amounts owing from account debtors not based in the
United States, affiliates, subsidiaries, officers, directors or employees of
Northwest Teleproductions, Inc. or its Subsidiaries.
** "Borrowing Base Adjustment:"
through July 30, 1996 $400,000 August 16-30, 1996 $100,000
July 31-August 15, 1996 $200,000 August 31, 1996 and thereafter $0
47
<PAGE>
Exhibit C
2 of 2
Interim Borrowing Base Certificate
Northwest Teleproductions, Inc.
as of _______________, 19___
To: Norwest Bank Minnesota, National Association
As an inducement to you to continue presently existing loans an debtor
accommodations and make additional loans in such amount and for such length of
time as you may elect in reliance upon the security given to you, we hereby
certify that the following computation of the Borrowing Base is true and correct
pursuant to the terms of the Credit Agreement dated as of July 24, 1996 by and
between Northwest Teleproductions, Inc. and Norwest Bank Minnesota, N.A.
1. NON-GOVERNMENT ACCOUNTS RECEIVABLE
A. Northwest Teleproduction, Inc. (NWT and NPAT)
Total Eligible Accounts for month
ending _________* _________
Adjustments since last month-end certificate:
Add: Sales _________
Reductions to ineligibles _________
over 89 days or 10% rule
Less: Receipts (_________)
Credits (_________)
Additions to trade ineligibles (_________)
Changes to other ineligibles** +/(-) _________
Net Adjustments +/(-)_________
Total Eligible Accounts NWT and NPAT _________
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<PAGE>
B. Southwest Teleproductions, Inc. (SWT)
Total Eligible Accounts for month _________
ending _____________*
Adjustments since last month-end certificate:
Add: Sales _________
Reductions to ineligibles
over 89 days or 10% rule _________
Less: Receipts (_________)
Credits (_________)
Additions to trade ineligibles (_________)
Changes to other ineligibles** +/(-) _________
Net Adjustments +/(-) _________
Total Eligible Accounts SWT _________
C. Northwest Teleproductions/Chicago, Inc. (Chicago)
Total Eligible Accounts for month _________
ending _____________*
Adjustments since last month-end certificate:
Add: Sales _________
Reductions to ineligibles _________
over 89 days or 10% rule
Less: Receipts (_________)
Credits (_________)
Additions to trade ineligibles (_________)
Changes to other ineligibles** +/(-) _________
Net Adjustments +/(-) _________
Total Eligible Accounts Chicago _________
D. Combined Non-Government Accounts (A+B+C)
Combined Total Eligible Accounts for _________
month ending _____________*
Combined adjustments since last month-end
certificate:
Add: Sales _________
Reductions to ineligibles _________
over 89 days or 10% rule
Less: Receipts (_________)
Credits (_________)
Additions to trade ineligibles (_________)
Changes to other ineligibles** +/(-) _________
Net Adjustments +/(-) _________
Combined Total Eligible Accounts _________
Advance Rate 75%
Combined Total Non-Government Accounts Receivable _________
Availability
49
<PAGE>
2. GOVERNMENT ACCOUNTS RECEIVABLE
Northwest Teleproductions, Inc. (NWT)
Total Eligible Accounts for month _________
ending _____________*
Adjustments since last month-end certificate:
Add: Sales _________
Reductions to ineligibles _________
over 89 days or 10% rule
Less: Receipts (_________)
Credits (_________)
Additions to trade ineligibles (_________)
Changes to other ineligibles** +/(-) _________
Net Adjustments +/(-)_________
Adjusted Total Eligible Accounts _________
Advance Rate 80%
Government Accounts Receivable Availability _________
3. SUMMARY
Total Non-Government Accounts Receivable Availability _________
Government Accounts Receivable Availability _________
Total Accounts Receivable Availability _________
Less: Revolving Note Balance (_________)
Subtotal margin (deficiency) _________
Borrowing Base Adjustment *** _________
Borrowing Base Margin (Deficiency) _________
Date Northwest Teleproductions, Inc.
By:
Its:
* Total Eligible Accounts from most recent Borrowing Base Certificate for month
ended as noted.
** "Other Ineligibles" includes amounts subject to dispute, bankruptcy,
insolvency, assignment to another creditor, setoff or contra accounts; or
amounts for goods or services not completed, delivered, approved and accepted by
the accounts debtor; or amounts owing from account debtors not based in the
United States, or affiliates, subsidiaries, officers, directors or employees of
Northwest Teleproductions, Inc. or its Subsidiaries.
*** "Borrowing Base Adjustment:"
through July 30, 1996 $400,000 August 16-30, 1996 $100,000
July 31-August 15, 1996 $200,000 August 31, 1996 and thereafter $0
50
<PAGE>
Schedule 4.4
Subsidiaries
Subsidiary % Owned by Borrower
Northwest Teleproductions/Chicago, Inc. 100%
Northwest Teleproductions/Kansas City, Inc.* 100%
Southwest Teleproductions, Inc. 100%
*Has no assets; is not currently doing business.
51
<PAGE>
Schedule 6.1
Permitted Liens
Against Northwest Teleproductions, Inc.
A lien in favor of Deutsche Credit Corporation as evidenced by
financing statement number 1426071 filed with the Minnesota Secretary
of State on June 26, 1991.
A lien in favor of Deutsche Credit Corporation as evidenced by
financing statement number 1426072 filed with the Minnesota Secretary
of State on June 26, 1991.
A lien in favor of Deutsche Credit Corporation as evidenced by
financing statement number 1438533 filed with the Minnesota Secretary
of State on August 20, 1991.
A lien in favor of the CIT Group/Equip. Financing as evidenced by
financing statement number 1455930 filed with the Minnesota Secretary
of State on November 8, 1991.
A lien in favor of Deutsche Credit Corporation as evidenced by
financing statement number 2885734 filed with the Illinois Secretary of
State on August 20, 1991.
A mortgage lien and assignment of rents in favor of Lutheran
Brotherhood securing indebtedness described on Schedule 6.2.
Against Southwest Teleproductions, Inc.
A lien in favor of Deutsche Credit corporation as evidenced by financing
statement number 91-128257 filed with the Texas Secretary of State on July 1,
1991.
A deed of trust lien and an assignment of rentals in favor of First Texas
Savings Association of Dallas securing indebtedness described on Schedule 6.2.
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Schedule 6.2
Permitted Indebtedness
Indebtedness payable to Lutheran Brotherhood relating to a $450,000 mortgage,
dated December 30, 1971, between Expressway Properties, Inc., a Minnesota
corporation, as Mortgagor, and Lutheran Brotherhood, a Minnesota corporation, as
Mortgagee, with an outstanding principal balance of approximately $30,000; and
an assignment of rents, dated December 30, 1971, by Expressway Properties, Inc.,
a Minnesota corporation, to Lutheran Brotherhood, a Minnesota corporation.
Indebtedness payable to First Texas Savings Association of Dallas relating to a
Deed of Trust, dated July 14, 1977, to secure $250,000 promissory note executed
by Vantage Properties, Inc. to Frank E. McLain, trustee, for the benefit of
First Texas Savings Association of Dallas, with an outstanding principal balance
of approximately $120,000; and an Assignment of Rentals, dated July 14, 1977,
executed by Vantage Properties, Inc. to First Texas Savings Association of
Dallas.
Indebtedness relating to that certain Lease, dated April, 1980, between DISC-GO,
INC., a Missouri corporation, as tenant, and John M. Boyd and Marlene K. Boyd,
as landlords, as amended by Amendment of Lease, dated May 7, 1984, between said
Landlords, Northwest Teleproductions, Inc., a Minnesota corporation, and
Northwest Teleproductions/Kansas City, Inc.
Indebtedness payable to Deutsche Credit Corporation relating to leased equipment
as described in the filings listed on Schedule 6.1.
Indebtedness payable to the CIT Group/Equipment Financing relating to leased
equipment as described in the filings listed on Schedule 6.1.
53
<PAGE>
Schedule 6.3
Permitted Guaranties
None.
54
THIS NOTE HAS NOT BEEN REGISTERED UNDER EITHER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR APPLICABLE BLUE SKY LAWS, AND IS SUBJECT TO
CERTAIN INVESTMENT REPRESENTATIONS. THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE
OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE ACT, AND
THE APPLICABLE BLUE SKY LAWS, OR AN OPINION OF COUNSEL SATISFACTORY IN FORM AND
SUBSTANCE TO COUNSEL FOR THE COMPANY THAT SUCH TRANSACTION WILL NOT RESULT IN A
PROHIBITED TRANSACTION UNDER THE ACT OR APPLICABLE BLUE SKY LAWS.
NORTHWEST TELEPRODUCTIONS, INC.
10-1/2% Subordinated Note
$_________________ ______________, 1996
(Principal Amount) (Date of Issue)
FOR VALUE RECEIVED, Northwest Teleproductions, Inc., a Minnesota
corporation (the "Company"), promises to pay, subject to Sections 1, 2 and 3
hereof, to _________________, or its registered assigns, the principal amount of
______________________ ($______), upon presentation and surrender of this Note
at the principal business office of the Company, and to pay interest thereon at
such office from the date hereof at the rate of 102 percent (102%) per annum as
provided below. Interest shall be computed on the basis of a 365-day year. The
Company shall pay unpaid accrued interest to the holder annually on July 31 of
each year until the principal has been paid in full or applied to the exercise
of Warrants as described in Section 1. Notwithstanding the maturity or other
provisions hereof, the Company may prepay this Note in whole or in part, without
any premium or penalty, at any time. Any partial prepayments shall be applied
against principal payments in the order in which they come due. This Note is one
of a duly authorized issue of unsecured notes of the Company, issued to the
holders thereof, in the aggregate principal amount of Four Hundred Twelve
Thousand Five Hundred Dollars ($412,500.00) (collectively, the "1996
Subordinated Notes"). Subject to Sections 1, 2 and 3 hereof, the original
principal amount of this Note stated above shall be paid as follows: (i)
one-third on July 31, 1998, (ii) one-third on July 31, 1999, and (iii) one-third
on July 31, 2000.
1. Application to Warrant Exercise. Prior to payment of this Note by the
Company, the holder of this Note may apply any portion of any unpaid accrued
interest or unpaid principal toward the exercise price of the Warrants issued to
the holder in connection with the issuance of this Note. If some but less than
all of the outstanding principal amount of this Note is applied by the holder
toward the exercise price of the Warrants, such principal so applied (the
"Applied Principal") shall reduce by the full amount of the Applied Principal
the next principal payment to come due as described above, and if the Applied
Principal is greater than the next principal payment to come due it shall fully
satisfy such next principal payment and shall also reduce or fully satisfy,
depending on the amount of the Applied Principal remaining, subsequent principal
payments in the order in which they come due.
1
<PAGE>
2. Subordination. This Note is unsecured in all respects. The Company
covenants and agrees, and the holder of this Note by acceptance thereof
covenants and agrees, that this Note is subordinate to all indebtedness of the
Company outstanding on the date hereof or hereafter created, incurred, assumed
or guaranteed by the Company with banks, finance companies, trust companies,
pension trusts, insurance companies, other financial institutions or other
similar third-party lenders designated by the Company (collectively, "Senior
Debt"). Upon any distribution of the assets of the Company in a dissolution,
winding up, liquidation, bankruptcy, receivership, reorganization or similar
proceeding relating to the Company, the holders of such Senior Debt are entitled
to receive payment in full before the holder of this Note is entitled to receive
any payment in such distribution. If in any of such situations referred to in
the preceding sentence, a payment is made to the holder of this Note before all
applicable Senior Debt has been paid in full or provision has been made for such
payment, the payment made to the holder of this Note must be paid over to the
holders of such Senior Debt.
3. Notes Rank Equally. This Note and all other 1996 Subordinated Notes
shall be pari passu ranking equally and ratably without priority over one
another. In this regard, any payment to be made by the Company on this Note or
any other 1996 Subordinated Note shall be paid pro rata to all 1996 Subordinated
Notes. If any holder of this Note or any other 1996 Subordinated Note receives a
payment thereon from the Company in excess of the pro rata portion to which he
is entitled, the holder shall pay over to holders of the other 1996 Subordinated
Notes their pro rata portion of such excess.
4. Transferability. This Note may be transferred, or divided into two or
more Notes of smaller principal amount, subject to applicable law and the
following conditions. The holder of this Note, by acceptance hereof, agrees to
give written notice to the Company before transferring this Note of such
holder's intention to do so, describing briefly the manner of the proposed
transfer. If, in the opinion of counsel satisfactory in form and substance to
the Company and its counsel, the proposed transfer may be effected without
constituting a violation of the applicable federal and state securities laws,
then the holder shall be entitled to transfer this Note in the manner
contemplated in the transfer notice to the Company, provided that an appropriate
legend may be endorsed on this Note respecting restrictions upon transfer
thereof necessary or advisable in the opinion of counsel satisfactory to the
Company to prevent further transfers which would be in violation of the
securities laws or adversely affect the exemptions relied upon by the Company.
To such effect, the Company may request that the intended transferee execute an
investment letter satisfactory to the Company and its counsel.
A register of the issuance and transfer of this Note and other 1996
Subordinated Notes of this issue shall be kept at the office of the Company, and
this Note may be transferred only on the books of the Company maintained at its
office. Each transfer shall be in writing signed by the then registered holder
hereof or the holder's legal representatives or successors, and no transfer
hereof shall be binding upon the Company unless in writing and duly registered
on the register maintained at the Company's office. Upon transfer of this Note,
the transferee, by accepting the Note, agrees to be bound by the provisions,
terms, conditions and limitations of this Note and the investment letter, if
any, required by the Company.
If (i) no opinion of counsel referred to in this Section has been provided
to the Company or (ii) in the opinion of counsel, the proposed transfer or
disposition of this Note described in the holder's written transfer notice given
pursuant to this Section may not be effected without registration or without
adversely affecting the exemptions relied upon by the Company, the holder will
limit its activities and restrict its transfer accordingly.
2
<PAGE>
5. Replacement of Note. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Note and in the
case of any such loss, theft or destruction, upon delivery of a bond of
indemnity satisfactory to the Company if requested by the Company, or in the
case of any such mutilation, upon surrender and cancellation of such Note, the
Company shall issue a new Note identical in form to the lost, stolen, destroyed
or mutilated Note.
6. Events of Default. Each of the following events shall be an Event of
Default ("Event of Default") for purposes of this Note:
(a) Note Terms. The Company defaults in the due and punctual
performance or observance of any material terms contained in this Note, and
such default continues for a period of thirty (30) consecutive days after
written notice thereof to the Company by the holder of this Note, except
that any such default by the Company will not result in an Event of Default
if such default is waived by the holder(s) of a majority of the total
principal amount then outstanding of the 1996 Subordinated Notes of the
Company; or
(b) Insolvency Matters. The Company makes an assignment for the
benefit of creditors, or admits in writing its inability to pay its debts
as they become due, or files a voluntary petition in bankruptcy, or is
adjudicated a bankrupt or insolvent, or files any petition or answer
seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present
or future statute, law or regulation, or files any answer admitting the
material allegations of a petition filed against the Company for any such
relief, or seeks or consents to or acquiesces in the appointment of any
trustee, receiver or liquidator of the Company or all or any substantial
part of the properties of the Company.
7. Remedies on Default. Upon the occurrence of an Event of Default as
described under Section 6 hereof, the holder hereof shall have the option to
declare the principal amount hereof and all accrued but unpaid interest thereon
through the date of the Company's full payment hereof, to be immediately due and
payable upon written notice from the holder to the Company.
8. Modification and Waiver. No purported amendment, modification or waiver
of any provision hereof shall be binding unless set forth in a written document
signed by the Company and the holder of this Note (in the case of amendments or
modifications) or by the party to be charged thereby (in the case of waivers).
Any waiver shall be limited to the provision hereof in the circumstances or
events specifically made subject thereto, and shall not be deemed a waiver of
any other term hereof or of the same circumstance or event upon any reoccurrence
thereof.
3
<PAGE>
9. Notices. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been given, when received, if personally delivered or delivered by telex,
telegram or telecopy, or five (5) days after depositing in the U.S. Mails for
delivery by first class mail, postage prepaid and addressed as follows: (i) if
to any holder of this Note, addressed to such holder at the holder's address as
shown on the books of the Company, or at such other address as such holder may
specify by written notice to the Company, or (ii) if to the Company, at 4455
West 77th Street, Minneapolis, MN 55435, Attention: President, or at such other
address as the Company may specify by written notice to the holder of this Note.
10. Successors and Assigns. All the terms and provisions of this Note shall
be binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the Company and each holder of this Note.
11. Applicable Law. The laws of the State of Minnesota shall govern the
validity of this Note, the construction of its terms and the interpretation of
the rights and duties of the Company and each holder of this Note, without
giving effect to principles of conflict of laws.
12. Corporate Obligation. No recourse under or upon any obligation,
covenant or agreement contained in this Note, or for any claim based hereon or
otherwise in respect hereof, shall be had against any promoter, subscriber to
shares, incorporator, shareholder, officer, or director, as such, past, present
or future, of the Company or of any successor corporation, either directly or
through the Company or any successor or corporation or through any trustee,
receiver, or any other person, whether by virtue of any constitution, statute,
or rule of law, or by the enforcement of any assessment or penalty or otherwise,
except as expressly agreed to by the party charged.
13. Payment. Upon payment in full, together with payment of any accrued but
yet unpaid interest hereon, this Note will terminate and be of no further force
or effect.
IN WITNESS WHEREOF, the Company has caused this Note to be signed by its
duly authorized officer.
NORTHWEST TELEPRODUCTIONS, INC.
By
Its
4
<PAGE>
DATES AND PRINCIPAL AMOUNTS OF
10-1/2% SUBORDINARD NOTES ISSUED TO REGISTRANT'S DIRECTORS
Director Date of Issue Amount
James S. Fish July 30, 1996 $ 37,500
Gerald W. Simonson August 30, 1996 $ 37,500
John G. Lindell August 30, 1996 $300,000
Ronald V. Kelly August 30, 1996 $ 37,500
--------
$412,500
THE SECUTITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER EITHER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE BLUE SKY LAWS, AND
ARE SUBJECT TO CERTAIN INVESTMENT REPRESENTATIONS. THE SECURITIES MAY NOT BE
SOLD, OFFERED FOR SALE OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION UNDER THE ACT, AND THE APPLICABLE BLUE SKY LAWS, OR AN OPINION OF
COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO COUNSEL FOR THE COMPANY THAT SUCH
TRANSACTION WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER THE ACT OR
APPLICABLE BLUE SKY LAWS.
Warrant No. _________
WARRANT
To Purchase ______ Shares of Common Stock
of
NORTHWEST TELEPRODUCTIONS, INC.
THIS CERTIFIES THAT, ________________________ or its registered assigns, is
entitled to subscribe for and purchase from Northwest Teleproductions, Inc. (the
"Company"), subject to the following provisions, terms, conditions and
limitations, at any time on or before the Expiration Date (as defined below),
__________________ fully paid and nonassessable shares (the "Shares") of the
Company's Common Stock at a price equal to $2.50 per Share (the "Warrant
Exercise Price"). This Warrant or the originally issued predecessor Warrant from
which this Warrant originates was issued in connection with the issuance of a
1996 Subordinated Note of the Company to the holder of this Warrant or the
originally issued predecessor Warrant, as the case may be. The "Expiration Date"
for this Warrant shall be the one-year anniversary of the date on which such
1996 Subordinated Note to which this Warrant relates has been paid in full.
1. Exercise. The rights represented by this Warrant may be exercised by the
registered holder hereof, in whole or in part (but not as to a fractional share
of Common Stock), by written notice of exercise delivered to the Company ten
calendar days prior to the intended date of exercise and by the surrender of
this Warrant (properly endorsed if required) at the principal office of the
Company, prior to or on the intended date of the exercise, together with payment
to the Company by either (i) check of the purchase price for the number of
Shares being purchased or (ii) by application of principal and interest due to
holder on a 1996 Subordinated Note for the number of Shares being purchased.
As a condition to the issuance by the Company of the Shares pursuant to
this Warrant, the holder, if requested by the Company, shall provide a letter in
which the holder (a) represents that the Shares are being acquired for
investment and not resale, that the holder is an "accredited investor," as
defined in Regulation D of the Securities Act of 1993, as amended (the "Act")
and make such other representations as may be necessary or appropriate to
qualify the issuance of the Shares as exempt from the Act and any other
applicable securities laws, and (b) represents that the holder shall not dispose
of the Shares in violation of the Act or any other applicable securities laws.
The Company reserves the right to place a legend on any stock certificate issued
pursuant to the exercise of this Warrant to assure compliance with the
foregoing.
<PAGE>
The holder is aware that the Company is relying, and presently intends to
continue relying upon, exemptions from the securities registration requirements
of federal and state securities laws in the issuance of this Warrant and in the
issuance of the Shares. If, when this Warrant is exercised, appropriate
exemptions from registration are not available under federal and state
securities laws, the exercise shall not be consummated on the intended date of
exercise specified in the holder's written notice of exercise and no Shares
shall be issued to the holder unless and until such exemptions are available. If
registrations are not made and if exemptions are not available when the holder
seeks to exercise the Warrant, the Warrant exercise period will be extended, if
need be to prevent the Warrant from expiring, until such time as either
registrations are filed or until exemptions are available, and shall then remain
exercisable for a period of 30 calendar days from the date the Company mails a
notice to the holder at the last address of the holder appearing on the
Company's books informing the holder of such registrations or available
exemptions. The holder agrees to execute such documents and make such
representations, warranties and agreements as may be required in order to comply
with the exemption(s) relied upon by the Company, or the registrations made, for
the issuance of the Shares. The Company shall, however, have no obligation to
effect any registration for the exercise of this Warrant.
2. Transferability. This Warrant may be transferred, or divided into two or
more Warrants of smaller denomination, subject to applicable law and the
following conditions. The holder of this Warrant, by acceptance hereof, agrees
to give written notice to the Company before transferring this Warrant, or
transferring any Shares, of such holder's intention to do so, describing briefly
the manner of the proposed transfer. If, in the opinion of counsel satisfactory
in form and substance to the Company and its counsel, the proposed transfer may
be effected without constituting a violation of the applicable federal and state
securities laws, then the holder shall be entitled to transfer this Warrant or
to dispose of any of the Shares received upon the previous exercise of the
Warrant in the manner contemplated in the transfer notice to the Company,
provided that an appropriate legend may be endorsed on this Warrant or the
certificates for any of the Shares respecting restrictions upon transfer thereof
necessary or advisable in the opinion of counsel satisfactory to the Company to
prevent further transfers which would be in violation of the securities laws or
adversely affect the exemptions relied upon by the Company. To such effect, the
Company may request that the intended transferee execute an investment letter
satisfactory to the Company and its counsel.
A register of the issuance and transfer of this Warrant and other Warrants
of this issue shall be kept at the office of the Company, and this Warrant may
be transferred only on the books of the Company maintained at its office. Each
transfer shall be in writing signed by the then registered holder hereof or the
holder's legal representatives or successors, and no transfer hereof shall be
binding upon the Company unless in writing and duly registered on the register
maintained at the Company's office. Upon transfer of this Warrant, the
transferee, by accepting the Warrant, agrees to be bound by the provisions,
terms, conditions and limitations of this Warrant and the investment letter, if
any, required by the Company.
- 2 -
<PAGE>
If (i) no opinion of counsel referred to in this Section has been provided
to the Company or (ii) in the opinion of counsel, the proposed transfer or
disposition of the Warrant or the Shares described in the holder's written
transfer notice given pursuant to this Section may not be effected without
registration or without adversely affecting the exemptions relied upon by the
Company, the holder will limit its activities and restrict its transfer
accordingly.
3. Issuance of Shares. The Company agrees that the Shares purchased hereby
shall be and are deemed to be issued to the record holder hereof as of the close
of business on the date on which this Warrant shall have been surrendered and
the payment made for such Shares as aforesaid. Subject to the provisions of
Section 4, certificates for the Shares so purchased shall be delivered to the
holder hereof within a reasonable time, not exceeding ten business days after
the exercise of this Warrant has been so consummated, and, unless this Warrant
has expired, a new Warrant representing the number of Shares, if any, with
respect to which this Warrant shall not then have been exercised shall also be
delivered to the holder hereof within such time.
Notwithstanding the foregoing, however, the Company shall not be required
to deliver any certificate for the Shares upon exercise of this Warrant, except
in accordance with the provisions, and subject to the limitations, of Section 1
hereof.
4. Covenants of Company. The Company covenants and agrees that all Shares
which may be issued upon the exercise of the rights represented by this Warrant
will, upon issuance, be duly authorized and issued, fully paid, nonassessable
and free from all taxes, liens and charges with respect to the issue thereof,
and without limiting the generality of the foregoing, the Company covenants and
agrees that it will from time to time take all such action as may be required to
assure that the par value per share of the Common Stock is at all times equal to
or less than the then effective purchase price per share of the Common Stock
issuable pursuant to this Warrant. The Company further covenants and agrees that
during the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized, and reserved for
issuance upon exercise of the subscription rights evidenced by this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights represented by this Warrant.
5. Antidilution Adjustments. The provisions of this Warrant are subject to
adjustment as provided in this Section 5.
(a) In case the Company shall hereafter:
(i) pay dividends on its Common Stock payable in Common Stock;
(ii) subdivide its then outstanding shares of Common Stock into a
greater number of shares; or
- 3 -
<PAGE>
(iii) combine outstanding shares of Common Stock into a smaller number
of shares;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event, and the resulting quotient shall be the adjusted
Warrant Exercise Price per share. An adjustment made pursuant to this Subsection
shall become effective immediately after the record date in the case of a
dividend and shall become effective immediately after the effective date in the
case of a subdivision or combination.
(b) Upon each adjustment of the Warrant Exercise Price pursuant to Section
5(a) above, the holder of this Warrant shall thereafter (until another such
adjustment) be entitled to purchase at the adjusted Warrant Exercise Price the
number of shares, calculated to the nearest full share, obtained by multiplying
the number of shares specified in this Warrant (as adjusted as a result of all
adjustments in the Warrant Exercise Price in effect prior to such adjustment) by
the Warrant Exercise Price in effect prior to such adjustment and dividing the
product so obtained by the adjusted Warrant Exercise Price.
(c) If any capital reorganization or reclassification of the capital stock
of the Company, or any consolidation, merger or statutory exchange to which the
Company is a party or any sale of all or substantially all of the assets of the
Company shall be effected in such a way that the holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger, exchange or sale, lawful and adequate
provision shall be made whereby the holder of this Warrant shall thereafter have
the right to purchase and receive upon the basis and upon the terms and
conditions specified in this Warrant and in lieu of the shares of the Common
Stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented by this Warrant, the kind and amount of shares of stock
and other securities and property which such holder would have owned or have
been entitled to receive immediately after such reorganization,
reclassification, consolidation, merger, exchange or sale, had this Warrant been
exercised immediately prior to the effective date of such reorganization,
reclassification, consolidation, merger, exchange or sale and in any such case,
if necessary, appropriate adjustment shall be made in the application of the
provisions set forth in this Section with respect to the rights and interests
thereafter of any holder of this Warrant, to the end that the provisions set
forth in this Section shall thereafter correspondingly be made applicable, as
nearly as may reasonably be, in relation to any shares of stock and other
securities and property thereafter deliverable on the exercise of the Warrant.
If, as a result of an adjustment made pursuant to this Subsection, the holder of
this Warrant shall be entitled to receive more than one type of security or
property upon exercise of this Warrant, then the Board of Directors (whose
determination shall be conclusive) shall determine the allocation of the
adjusted Warrant Exercise Price between and among the various securities and
property receivable upon exercise of this Warrant and thereafter the Warrant
Exercise Price of each such security or property so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions set forth in this
Section. The provisions of this Subsection shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, exchanges or sales.
- 4 -
<PAGE>
(d) If the Company distributes to all holders of Common Stock any assets
(excluding ordinary cash dividends) or debt securities or any rights or warrants
to purchase debt securities, assets or other securities (including Common
Stock), other than pursuant to the adjustments set forth in Subsection (c)
above, then the Warrant Exercise Price shall be adjusted in accordance with the
following formula:
C(1) = C x (O x M) - F
----------------------
O x M
where:
C(1) = the adjusted Warrant Exercise Price.
C = the current Warrant Exercise Price immediately prior to the event.
M = the Fair Market Value per share of Common Stock on the record date
mentioned below.
O = the numer of shares of Common Stock outstanding on the record date
mentioned below.
F = the fair market value on the record date of the aggregate of all
assets, securities, rights or warrants distributed. The Company's
Board of Directors shall determine the fair market value in the
exercise of its reasonable judgment.
The adjustment shall be made successfully whenever any such distribution is made
and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution. In this
Subsection the Fair Market Value per share of Common Stock on the particular
date shall be as defined in Section 10 (d) of this Warrant.
(e) Upon any adjustment of the Warrant Exercise Price, then and in each
such case, the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the holder as shown on the books of the Company,
which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares of
Common Stock or other securities or property purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
6. Common Stock. As used herein, the term "Common Stock" shall mean and
include the Company's presently authorized shares of Common Stock and shall also
include any capital stock of any class of the Company hereafter authorized which
shall not be limited to fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution, dissolution
or winding up of the Company.
- 5 -
<PAGE>
7. No Voting Rights. This Warrant shall not entitle the holder hereof to
any voting rights or other rights as a stockholder of the Company.
8. Amendments, Waivers or Termination. Neither this Warrant nor any term
hereof may be changed, waived, discharged or terminated orally but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
9. Governing Law. The laws of the State of Minnesota shall govern the
validity of this Warrant, the construction of its terms and the interpretation
of the rights and duties of the Company and each holder of this Warrant, without
giving effect to principles of conflict of laws.
10. Additional Right to Convert Warrant.
(a) The holder of this Warrant shall have the right to require the Company
to convert this Warrant (the "Conversion Right") at any time prior to its
expiration into shares of Company Common Stock as provided for in this Section
10. Upon exercise of the Conversion Right, the Company shall deliver to the
holder (without payment by the holder of any Warrant Exercise Price) that number
of shares of Company Common Stock equal to the quotient obtained by dividing (x)
the value of the Warrant at the time the Conversion Right is exercised
(determined by subtracting the aggregate Warrant Exercise Price for the Warrant
Shares in effect immediately prior to the exercise of the Conversion Right from
the aggregate Fair Market Value for the Warrant Shares immediately prior to the
exercise of the Conversion Right) by (y) the Fair Market Value of one share of
Company Common Stock immediately prior to the exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the holder, at any time or
from time to time, prior to its expiration, on any business day by delivering a
written notice in the form attached hereto (the "Conversion Notice") to the
Company at the offices of the Company exercising the Conversion Right and
specifying (i) the total number of shares of Stock the holder will purchase
pursuant to such conversion and (ii) a place and date not less than one or more
than 20 business days from the date of the Conversion Notice for the closing of
such purchase.
(c) Subject to the provisions of the second and third paragraphs of Section
1, at any closing under Section 10(b) hereof (i) the holder will surrender the
Warrant and (ii) the Company will deliver to the holder a certificate or
certificates for the number of shares of Company Common stock issuable upon such
conversion, together with cash, in lieu of any fraction of a share, and (iii)
the Company will deliver to the holder a new warrant representing the number of
shares, if any, with respect to which the warrant shall not have been exercised.
(d) Fair Market Value of a share of Common Stock as of a particular date
(the "Determination Date") shall mean:
- 6 -
<PAGE>
(i) If the Company's Common Stock is traded on an exchange or is
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System, then the average of the
closing sale prices reported for the ten (10) business days immediately
preceding the Determination Date, and
(ii) If the Company's Common Stock is not traded on an exchange or on
the NASDAQ National Market System but is traded on the over-the-counter
market, then the average of the closing bid and asked prices reported for
the ten (10) business days immediately preceding the Determination Date.
IN WITNESS WHEREOF, Northwestern Teleproductions, Inc. has caused this
Warrant to be signed by its duly authorized officer.
Northwest Teleproductions, Inc.
By
Its
Date: __________, 1996
- 7 -
<PAGE>
To: NORTHWEST TELEPRODUCTIONS, INC.
NOTICE OF EXERCISE OF WARRANT -- To Be Executed by the Registered
Holder in Order to Exercise the
Warrant
The undersigned hereby irrevocably elects to exercise the attached Warrant to
purchase for cash, _________________ of the shares issuable upon the exercise of
such Warrant, and requests that certificates for such shares (together with a
new Warrant to purchase the number of shares, if any, with respect to which this
Warrant is not exercised) shall be issued in the name of
_________________________________
(Print Name)
Please insert social security Address:
or other identifying number
of registered holder of _________________________________
certificate (______________)
_________________________________
Date: ___________, 19_____ _________________________________
Signature*
*The signature on the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
- 8 -
<PAGE>
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrants.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _____________________________ the right to purchase the securities of
Northwest Teleproductions, Inc. to which the within Warrant relates and appoints
___________________ attorney to transfer said right on the books of Northwest
Teleproductions, Inc. with full power of substitution in the premises.
Date: ___________, 19_____ _____________________________
(Signature)
Address:
_____________________________
_____________________________
- 9 -
<PAGE>
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 10)
The undersigned hereby irrevocably elects a cashless exercise of the right
of purchase represented by the within Warrant Certificate for, and to purchase
thereunder, ______________ shares of Common Stock, as provided for in Section 10
therein.
Please issue a certificate or certificates for such Common Stock in the
name of, and pay any cash for any fractional share to:
Name___________________________________
(Please print Name)
Address:
________________________________
________________________________
Social Security No.____________________
Signature_______________________
NOTE: The above signature should correspond exactly with the name on the
first page of this Warrant Certificate or with the name of the assignee
appearing in the assignment form below.
And if said number of shares shall not be all the shares purchasable under
the within Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder rounded up to the next higher number of shares.
- 10 -
<PAGE>
DATES AND AMOUNTS OF
WARRANTS ISSUED TO REGISTRANT'S DIRECTORS
Director Date of Issue Number of Shares
James S. Fish July 30, 1996 15,000
Gerald W. Simonson August 30, 1996 15,000
John G. Lindell August 30, 1996 120,000
Ronald V. Kelly August 30, 1996 15,000
-------
165,000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from Financial Statements
from the Registrant's Form 10-QSB for the quarter
ended 9/30/96 and is qualified in its entirety
by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 245,572
<SECURITIES> 0
<RECEIVABLES> 2,614,440
<ALLOWANCES> 170,945
<INVENTORY> 227,353
<CURRENT-ASSETS> 3,811,180
<PP&E> 25,392,304
<DEPRECIATION> 18,773,580
<TOTAL-ASSETS> 11,052,020
<CURRENT-LIABILITIES> 6,160,152
<BONDS> 502,385
0
0
<COMMON> 13,564
<OTHER-SE> 577,123
<TOTAL-LIABILITY-AND-EQUITY> 11,052,020
<SALES> 6,050,262
<TOTAL-REVENUES> 6,050,262
<CGS> 5,168,590
<TOTAL-COSTS> 6,189,742
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 21,200
<INTEREST-EXPENSE> 240,405
<INCOME-PRETAX> (370,348)
<INCOME-TAX> (148,139)
<INCOME-CONTINUING> (222,209)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (222,209)
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
