As filed with the Securities and Exchange Commission on July 1, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SHELDAHL, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0758073
(State or other jurisdiction of (I.R.S. Employer
incorporated or organization) Identification No.
1150 Sheldahl Road
Northfield, Minnesota 55057
(507) 663-8000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
James E. Donaghy
Chief Executive Officer
Sheldahl, Inc.
1150 Sheldahl Road
Northfield, Minnesota 55057
(507) 663-8000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Robert E. Tunheim, Esq. Kenneth L. Henderson, Esq.
Lindquist & Vennum P.L.L.P. Eric L. Cohen, Esq.
4200 IDS Center Robinson Silverman Pearce
Minneapolis, Minnesota 55402 Aronsohn & Berman LLP
Telephone: (612) 371-3211 1290 Avenue of the Americas
Fax: (612) 371-3207 New York, New York 10104
Telephone: (212) 541-2000
Fax: (212) 541-4630
Approximate date of commencement of proposed sale to public: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box:
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box:
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Title of Each Class Offering Aggregate Amount of
Of Securities to be Amount to be Price Per Offering Registration
Registered Registered(1) Share(2) Price Fee(1)
Common Stock 1,735,000 $8.375 $14,530,625 $2,620
$0.25 par value
(1) Includes 674,851 shares previously registered on Form S-3 (File No. 333-
36153) filed on September 23, 1997. A filing fee of $4,193 was paid
therewith covering such shares. The filing fee paid herewith covers only
the additional 1,060,000 shares being registered.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(c) and based on the average of the high and low sales
prices for the Registrant's Common Stock on June 25, 1998 as reported on
the Nasdaq National Market.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
This Registration Statement includes 674,851 shares previously registered on
Form S-3 (File No. 333-36153) filed with the Securities and Exchange
Commission on September 23, 1997.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 1, 1998
UP TO 1,735,000 SHARES
SHELDAHL, INC.
Common Stock
The up to 1,735,000 shares of Common Stock (including preferred stock
purchase rights) of Sheldahl, Inc., a Minnesota corporation (Sheldahl or the
Company), offered hereby (the Common Stock) may be sold from time to time by
the stockholders identified herein or their transferees, pledgees, donees or
other successors in interest (the Selling Shareholders).
The shares of Common Stock to which this Prospectus relates (the Shares)
may be issued to the Selling Shareholders (i) upon conversion of the Company's
Series B Convertible Preferred Stock held by the Selling Shareholders (the
Series B Preferred Stock), (ii) as accrued dividends on the Series B Preferred
Stock and (iii) upon the exercise of outstanding warrants held by the Selling
Shareholders (the Warrants). The Company will not receive any of the proceeds
from the sale of the Shares offered hereby, but the Company will receive
proceeds from the exercise of the Warrants by the Selling Shareholders. There
can be no assurance, however, that the Warrants will be exercised.
Offers and sales of the Shares by the Selling Shareholders may be made
from time to time during the effectiveness of this registration, on one or
more exchanges, in the over-the-counter market, or otherwise, at prices and on
terms then prevailing, or at prices related to the then-current market price,
or in negotiated transactions or in a combination of any such methods of sale.
See Plan of Distribution. The filing by the Company of this Prospectus in
accordance with the requirements of Form S-3 is not an admission that any
person whose Shares are included herein is an affiliate of the Company.
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol SHEL. On June 25, 1998, the last reported sales price of the
Common Stock as reported on the Nasdaq National Market was $8.375 per share.
- -------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE RISK FACTORS BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
- --------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------
No dealer, salesperson or any other person has been authorized to give
any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to
sell or solicitation of an offer to buy any security other than securities
offered by this Prospectus, or an offer to sell or a solicitation of an offer
to buy any securities by any person in any jurisdiction in which such offer or
solicitation is not authorized or is unlawful. The delivery of this Prospectus
shall not, under any circumstances, create any implication that the
information herein is correct as of any time subsequent to the date of this
Prospectus.
July __, 1998
<PAGE>
TABLE OF CONTENTS
Page
THE COMPANY 3
RECENT DEVELOPMENTS 4
RISK FACTORS 6
USE OF PROCEEDS 10
SELLING SHAREHOLDERS 10
PLAN OF DISTRIBUTION 12
LEGAL MATTERS 12
EXPERTS 13
AVAILABLE INFORMATION 13
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 14
<PAGE>
This Prospectus contains and incorporates by reference certain
forward-looking statements based on current expectations which involve risks
and uncertainties. Actual results and the timing of certain events may differ
materially from those projected in such forward-looking statements due to a
number of risk factors, including those set forth below. The Company has
tried, wherever possible, to identify these forward-looking statements by
using words such as believe, anticipate, estimate, expect and similar
expressions. The Company undertakes no obligation to release publicly the
results of any revisions to any such forward-looking statements that may be
made to reflect events or circumstances after the date of this Prospectus or
to reflect the occurrence of unanticipated events.
THE COMPANY
See Risk Factors for information prospective investors should consider.
Unless the context requires otherwise, all references in this Prospectus to
Sheldahl or the Company refer to Sheldahl, Inc. and its subsidiary. Novaclad
(R), Novaflex(R), ViaArray (R), Flexbase (R) and Z-Link (R) are registered
trademarks of the Company.
Sheldahl is a leading producer of high quality flexible printed
circuitry and flexible laminates, principally for sale to the data
communication and automotive electronics markets. Flexible circuitry is used
to provide electrical connection between components and electronic systems and
also as a substrate to support electronic devices. Flexible circuits consist
of polyester or polyimide film to which copper foil is laminated and processed
through various imaging, etching and plating processes. Flexible circuits can
be further processed by surface mount attachment of electronic components to
produce an interconnect assembly. Flexible circuits provide advantages over
rigid printed circuit boards by accommodating packaging contour and motion and
reducing size and weight.
Over the past three years, the Company has introduced three high
performance products based on proprietary thin film laminate technology:
Novaclad, ViaArray and Via-Thin (TM) (high density substrates). These
Novaclad-based products provide substantial benefits compared to traditional
flexible circuits, including the capability for very fine circuit traces (down
to 1 mil, or .001") as well as greater heat tolerance and dissipation. The
Company has designed these products to enable integrated circuit (IC)
manufacturers to package future generations of ICs economically by attaching
the silicon die to Via-Thin or a high density substrate manufactured by other
circuitry manufacturers using the Company's Novaclad or ViaArray products. As
ICs are becoming increasingly powerful, they produce more heat and require a
greater number of connections to attach the silicon die, placing substantially
greater demands on IC packaging materials.
The Company has invested approximately $60 million in an advanced new
production facility in Longmont, Colorado (the Longmont Facility) to produce
its Novaclad-based products in commercial volumes. As of November 1995, the
Company anticipated investing approximately $38 million in the Longmont
Facility. Changes in the product characteristics of high density substrates
relating to precious metal plating, solder mask overcoat and testing, plus the
installation of assembly equipment not originally anticipated, significantly
increased the original investment to bring the Longmont Facility on line.
Recent purchases of land and equipment needed to increase originally
anticipated capacity also contributed to the total investment in the Longmont
Facility.
The Company originally expected to commence production in the Longmont
Facility in April 1996. However, the realization of full volume production
has been delayed since then due to late delivery of certain production
equipment as a result of financial difficulties of a key supplier, a longer
than anticipated installation and check out period, and a far more rigorous
and lengthy qualification process by the Company's customers and their
customers. As of the date hereof, two of the Company's customers have
qualified Via-Thin (TM) substrates for their operations. Shipments of small
volume production orders have begun and the Company expects that their initial
orders will lead to larger orders.
The Company is a Minnesota corporation and its principal executive
offices are located at 1150 Sheldahl Road, Northfield, Minnesota 55057. Its
telephone number is (507) 663-8000.
RECENT DEVELOPMENTS
Third Quarter Results. The Company's unaudited results for the third
quarter of fiscal 1998, including a pretax charge for restructuring costs and
asset impairment charges as well as further charges relating to a tax asset
allowance and the adoption of a FASB pronouncement on start-up costs, resulted
in a net loss for the nine months and quarter ended May 29, 1998 of $33.1
million or $3.57 per share and $19.0 million or $1.98 per share, respectively.
For the most recent quarter, the Company's core business generated operating
pretax profit of $1.4 million, while its Micro Products business posted a
pretax loss of $4.9 million. The core business, based on increased sales and
reduced costs, improved operating pretax profits by $2.8 million for the third
quarter, as compared to the second quarter. Gross margin in the core business
rose to 19.1 percent compared to 12.7 percent last quarter. Additionally, for
the nine months ended May 29, 1998, the loss was due in part to the following:
The Company's decision to move approximately 240 jobs from its
Northfield, Minnesota and Aberdeen, South Dakota facilities to
Mexico, resulting in a restructuring charge of $4.5 million in the
third quarter of 1998 related to the cost of staff reductions, the
sale of certain assets and the closing of the Company's Aberdeen
assembly facility. The Company expects that 200 of the affected jobs
will move to Mexico by the close of its 1998 fiscal year, with the
balance completed in the third quarter of fiscal 1999. The Company
anticipates that it will realize annual cost savings of approximately
$7.0 million associated with this restructuring of its operations
when fully completed.
The write down of equipment amounting to $3.3 million in the third
quarter of 1998, principally at the Company's Longmont, Colorado
facility, which equipment, based upon analysis by management and
anticipated production processes, is not expected to contribute to
the Company's future cash flows.
The decision and analysis by management, based upon recent
restructurings, write-offs and continued losses at the Company's
Micro Products venture, to provide a valuation allowance for its net
deferred tax assets, resulting in a $7.8 million charge to income
during the third quarter of 1998. As a result, the Company will not
reflect in immediate future periods a tax provision or benefit until
such net operating losses are offset by reported pretax profits or
that the degree of certainty increases as to the future profit
performance of the Company to allow for the reversal of the remaining
value of the allowance.
The adoption by the Company of Statement of Position No. 98-5,
Reporting on the Costs of Start-Up Activities, (SOP 98-5) which
requires the expensing of these items as incurred, versus
capitalizing and expensing them over a period of time. The early
adoption of this statement resulted in a cumulative effect of a
change in accounting method of approximately $5.2 million, related to
costs capitalized by the Company from its Micro Products venture.
The adoption of this statement will be retro-active to the beginning
of fiscal 1998, and the Company's first and second quarters will be
restated to reflect this change in accounting, in accordance with the
provisions of SOP 98-5. The Company's depreciation and amortization
expense is reduced by almost $0.5 million per quarter as a result of
the adoption of reporting for start-up costs and the write down of
certain equipment, which was noted above.
New Credit Facility. On June 9, 1998, the Company entered into a new
financing arrangement in the form of a debt facility with its existing bank
group, Norwest Business Credit, Inc., Harris Trust and Savings Bank and NBD
Bank, as well as a new member, CIT Group. The facility is a three-year
agreement totaling $60 million, consisting of a $25 million capital revolver
and term loan facilities. The term loans are comprised of a $16 million
facility that amortizes over seven years with a balloon payment in May 2001.
Payments are paid monthly commencing January 1999. The second term facility
is a $19 million loan that is amortized over two years with repayments
commencing August 29, 1998. Under the terms of the facility, the Company is
obligated to issue Warrants covering an aggregate of 100,000 shares of the
Company's Common Stock and, subject to certain financial covenants, may be
obligated to issue additional Warrants covering in the aggregate 150,000
shares of the Company's Common Stock. The Company believes the new facility
will strengthen its capital structure and will enable it to further develop
its Micro Products business. The capital liquidity of the Company will remain
tight until the cash flow from operations reflects further improvement and/or
new equity is added to the capital structure of the Company.
Series B Preferred Stock. On August 29, 1997, the Company sold an
aggregate of 15,000 shares of Series B Convertible Preferred Stock (Series B
Preferred Stock), to the Selling Shareholders pursuant to the Convertible
Preferred Stock Purchase Agreement among the Company and the Selling
Shareholders (the Agreement). The Series B Preferred Stock is entitled to
dividends, payable in cash or shares of Common Stock at the election of the
Company. The conversion price for the Series B Preferred Stock is dependent
on the market prices for the Company's Common Stock. In connection with the
issuance of the Series B Preferred Stock, the Company granted to each Selling
Shareholder Warrants to purchase shares of the Company's Common Stock. The
aggregate amount of shares of Common Stock the Company is obligated to issue
under the Warrants is 67,812 shares at an exercise price of $27.65 per share.
The Company also granted to the Selling Shareholders certain registration
rights with respect to the shares of the Company's Common Stock issuable to
the Selling Shareholders upon conversion of the Series B Preferred Stock,
accrued dividends and the Warrants.
Pursuant to the terms of the Agreement, the Company was given the right,
subject to the satisfaction of certain conditions, to require the Selling
Shareholders to purchase shares of Series C Convertible Preferred Stock, par
value $1.00 per share, with terms identical to the Series B Preferred Stock
for an aggregate additional purchase price of up to $15 million. However, one
of the conditions to the Company's exercise of such right has failed to occur,
since the Company's Common Stock has traded below $12.00 for a period of five
consecutive trading days. As a result, the Selling Shareholders can refuse to
purchase such shares of Series C Preferred Stock upon any attempted exercise
by the Company of such right.
During February 1998, the Selling Shareholders collectively converted
7,350 shares of Series B Preferred Stock into 575,149 shares of Common Stock,
including dividends payable in Common Stock. The Agreement requires the
Company to register 150% of the shares of Common Stock issuable upon
conversion of the remaining shares of Series B Preferred Stock. The actual
number to be issued will vary depending on the market price of the Common
Stock prior to conversion. See Selling Shareholders.
This Prospectus relates to the shares of Common Stock issuable to the
Selling Shareholders pursuant to the Agreement. The foregoing description of
the Agreement, the Warrants and the registration rights does not purport to be
complete and is qualified in its entirety by reference to the Company's report
on Form 8-K, filed on September 10, 1997, which includes such agreements as
exhibits and is incorporated herein by reference.
RISK FACTORS
The securities offered hereby involve a high degree of risk.
Accordingly, in analyzing an investment in these securities, prospective
investors should carefully consider the following risk factors, along with
other information referred to herein. No investor should participate in this
offering unless such investor can afford the loss of his or her entire
investment.
Because of the variety and uncertainty of the factors affecting the
Company's operating results, past financial performance and historic trends
may not be a reliable indicator of future performance. These factors, as well
as other factors affecting the Company's operating performance, and the fact
that the Company participates in a highly dynamic and competitive industry,
may result in significant volatility in the Company's Common Stock price.
Utilization of Longmont Facility
The Company has completed construction of, and installation of equipment
to be used in, the Longmont Facility, but has not commenced volume production
of its ViaArray and Via-Thin (TM) products at this facility. The Company had
originally expected to begin volume production at the Longmont Facility in
April 1996, but the Company has suffered delays in delivery and installation
of certain production equipment as a result of financial difficulties of a key
supplier, a longer than anticipated installation and testing period, and a far
more rigorous and lengthy qualification process by the Company's customers and
their customers than the Company anticipated. The Company is producing
Novaclad for sale to the market and internal use and has now begun initial
production of Via-Thin (TM). Via-Thin (TM) is an emerging product still in the
early stages of market acceptance. The Company believes that it has validated
the technical capabilities of its processes and equipment at the Longmont
Facility, although there can be no assurance that validation problems or
difficulties will not materialize once volume production has commenced. The
Company's ability to begin volume production of Via-Thin (TM) is subject to
final qualification by the Company's customers, and in some cases, their
customers, as well as the ability of its production equipment to produce
sufficient quantities of products at acceptable quality levels. Once the
Longmont Facility has commenced volume production of Via-Thin (TM), the
Company still expects that it will not initially produce sufficient sales
volume or profit contribution to offset the depreciation and other expenses
related to its operation. As a result, the Longmont Facility has had a
material adverse effect on the Company's results of operations and will
continue to have such an effect until sales of the Company's Novaclad and Via-
Thin (TM) products increase sufficiently to cover expenses.
Market Acceptance of New Products
A significant portion of the Company's anticipated future success in the
data communication market and a significant portion of future revenue growth
of the Company will depend on market acceptance of its Novaclad, ViaArray and
Via-Thin (TM) products. Although the Company believes that these products
have attractive performance characteristics and utility in a potentially broad
range of products, sales of these Novaclad-based products will depend on the
Company's ability to (i) convince potential customers that the advantages and
applications of these products justify the expense and production changes
necessary to incorporate the Company's products into the customer's
manufacturing process; (ii) work with designers of integrated circuit (IC)
packages and electronics to incorporate these products; (iii) qualify these
products for inclusion in the customer's products within the time requirements
of the customer's design cycle and (iv) produce sufficient quantities of these
products in a timely manner. Moreover, these products will compete with
certain other thin film laminates or alternative materials offered by other
manufacturers and such materials may achieve wider market acceptance than the
Company's products. Failure of the Company's Novaclad, ViaArray and Via-Thin
(TM) products to achieve timely or sufficient market acceptance would have a
material adverse effect on the Company's results of operations.
Dependence on Automotive Market
Sales to the automotive market as a percentage of total sales were
approximately 69.2% in fiscal 1996 and 67.5% in fiscal 1997. The Company's
production of component products for the automotive market fluctuates as
automotive manufacturers begin production of new models and end production of
others. A decrease in the number of the Company's electronic components
included in new models could have a material adverse effect on the Company's
results of operations. A general downturn in the automotive market could have
a material adverse effect on the demand for the electronic components supplied
by the Company to its customers in the automotive market. In addition, as the
automotive industry continues to qualify and reduce the number of suppliers
and demand higher performance products at a lower cost, there can be no
assurance that the Company will be able to maintain its current sales volumes
at existing profit margins to automotive manufacturers and their suppliers.
Capital Intensive Business
The Company's business is capital intensive. In the past four years,
the Company has invested approximately $112 million in total capital
expenditures, including approximately $60 million in the Longmont Facility.
In order to remain competitive, the Company must continue to make significant
expenditures for capital equipment, expansion of operations and research and
development. If the Company is successful in introducing its Novaclad-based
products, it may be required to make additional capital investments to
increase manufacturing capacity before significant revenues and positive cash
flow can be derived from the initial investment in the Longmont Facility. The
Company believes it will be able to fund its near-term anticipated working
capital and capital expenditure requirements from (i) funds generated from
operations and (ii) bank borrowings. The Company is also exploring other
sources of capital, including strategic partners and the issuance of
additional equity. However, there can be no assurance that unanticipated
developments will not create an earlier need for additional capital, that
additional capital will be available when needed by the Company or that such
capital will be available on terms acceptable to the Company.
Customer Concentration
The Company's customer base is concentrated. The Company's ten largest
customers for the 1997 fiscal year accounted for approximately 60.7% of net
sales, and 11.5%, 10.6% and 7.4% of the Company's net sales during fiscal 1997
were to Ford Motor Company, Motorola, Inc. and Molex Incorporated,
respectively. The Company expects that sales to a relatively small number of
customers will continue to account for a significant portion of sales for the
foreseeable future, and the loss of, or a significant decline in orders from,
one of the Company's key customers could have a material adverse effect on the
Company's results of operations.
Variability of Quarterly Results
Historically, the Company's quarterly results of operations have
fluctuated significantly primarily because of the timing of orders from its
larger customers and mix of products manufactured and sold. Due to this and
the inherent uncertainty associated with the development of new products and
production facilities, the Company expects that its quarterly results of
operations will continue to be subject to significant fluctuations.
Customers' Product Obsolescence and Standards
The Company supplies component products primarily to the automotive
electronics and data communication markets. Substantially all of the products
in these markets which incorporate the Company's component products are
subject to technological obsolescence, performance standards and pricing
requirements. The Company's future success in these markets will depend upon
its ability to (i) work closely with manufacturers to design end products or
applications which incorporate the Company's products and achieve market
acceptance, (ii) develop technologies to meet the evolving market requirements
of its customers, (iii) continue to deliver high-performance, cost-effective
products and (iv) expand its sales and marketing efforts domestically and
internationally. There can be no assurance that the Company will continue to
meet the current qualification requirements of its major customers, meet new
qualification requirements imposed by its customers or continue to be selected
as a supplier by new customers.
Dependence on Key Personnel
The Company's business is dependent on the efforts and abilities of its
executive officers and key personnel, especially in the development, marketing
and manufacturing of its Novaclad, ViaArray and Via-Thin (TM) products. The
Company's continued success will also depend on its ability to continue to
attract and retain qualified employees. The loss of services of any key
personnel could have a material adverse effect on the Company. The Company
does not have key-person life insurance on any of its employees.
Intense Competition
The market segments served by the Company are highly competitive. Some
of the Company's competitors have substantially greater financial and
marketing resources than the Company. Although the Company believes
performance and price characteristics of its Novaclad-based products will
provide competitive solutions for its customers' needs, there can be no
assurance that its customers will not choose other technologies due to such
customers' familiarity with the competing technology, the financial resources
of the supplier or the ease of incorporating alternative technology into
customers' manufacturing processes. In addition, there can be no assurance
that other competitors will not enter the markets served by the Company. The
Company's results may be adversely affected by the actions of its competitors,
including the development of new technologies, the introduction of new
products or the reduction of prices. There also can be no assurance that the
Company will be able to take actions necessary to maintain its competitive
position.
Possible Volatility of Stock Price
Factors such as announcements by the Company or its competitors,
fluctuations in the Company's operating results, general conditions in the
automotive and data communication markets or the worldwide economy or changes
in earnings or estimates by analysts could cause the price of the Company's
Common Stock to fluctuate, perhaps substantially. Also, prices for many
technology company stocks, including the Common Stock, may fluctuate widely
for reasons that are not always related to the operating performance of such
companies.
Reliance on Specialized Manufacturing Facilities
The Company has separate manufacturing and assembly facilities, certain
of which perform processes dependent upon products produced at its other
facilities. The Company's flexible laminates are produced at one facility and
further processed into printed circuitry in a separate facility, both located
in Northfield, Minnesota. Further assembly is performed at two facilities in
South Dakota. Delays or disruption at its flexible laminate facility may
result in an insufficient supply of materials for its flexible printed
circuitry facility and its assembly facilities. The Company's Novaclad,
ViaArray and Via-Thin (TM) products will be manufactured primarily at the
Longmont Facility. Each of these facilities contains or will contain
specialized equipment which is not quickly replaceable. While the Company
carries business interruption insurance, any natural or other event affecting
any one of these facilities or the manufacturing equipment could materially
and adversely affect the Company's position in its markets and results of
operations.
Dependence on Certain Suppliers
The Company is dependent upon single source suppliers for certain of the
raw materials used in the Company's manufacturing processes. While the
Company has not experienced significant problems in the delivery of these
materials or services, the Company believes an interruption in the supply of
such materials or services could have a material adverse effect on the
Company's results of operations.
Patents, Trademarks and Proprietary Right
The Company's success depends, to a large extent, on its ability to
maintain a competitive proprietary position in its product areas. The Company
has received certain patents with respect to its products and processes and
has several other patent applications pending. There can be no assurance that
patents will be issued on the basis of the Company's applications, that any
patent issued to the Company will not be challenged, invalidated or
circumvented or that the rights granted under any patent will provide
significant benefits to the Company. The Company is aware of a patent which
may cover certain plated through holes of double-sided circuits made of the
Company's Novaclad material. Although no claims have been made against the
Company under this patent, the owner of the patent may attempt to construe the
patent broadly enough to cover certain Novaclad products manufactured
currently or in the future by the Company. The Company believes that prior
commercial art and conventional technology, including certain patents of the
Company, exist which would allow the Company to prevail in the event any such
claim is made under this patent. Any action commenced by or against the
Company could be time consuming and expensive and could result in requiring
the Company to enter into a license agreement or cease manufacture of any
products ultimately determined to infringe such patent. In addition to patent
protection, the Company also attempts to protect its trademarks through
registration and proper use. The Company also attempts to protect its
proprietary information as trade secrets by taking security precautions at its
facilities. Further, the Company maintains confidentiality through the use of
secrecy or confidentiality agreements and other measures intended to prevent
the public dissemination of trade secret information. There can be no
assurance that these steps will prevent misappropriation of the Company's
proprietary rights or that third parties will not independently develop
functionally equivalent or superior non-infringing technology.
Environmental Matters
The Company's production processes require the use, storage and disposal
of certain substances which are considered hazardous under applicable federal
and state laws. Accordingly, the Company is subject to a variety of
regulatory requirements for the handling of such substances. The Company has
maintained a safety and environmental compliance program for a number of
years. An inadvertent mishandling of materials or similar incident, however,
could adversely affect the operations of the Company and result in costly
administrative or legal proceedings. In addition, future environmental
regulations could add to overall costs of doing business.
Anti-Takeover Provisions
The Company's Articles of Incorporation and the Minnesota Business
Corporation Act include certain anti-takeover provisions. These provisions,
including the power to issue additional stock and to establish separate
classes or series of stock, may, in certain circumstances, deter or discourage
takeover attempts and other changes in control of the Company not approved by
the Board. In addition, in June 1996, the Board of Directors of the Company
adopted a Rights Agreement (the Rights Agreement), commonly called a poison
pill. Pursuant to the terms of the Rights Agreement, one right (a Right) was
issued in respect of each share of the Company's Common Stock outstanding.
Such Rights also attach to each share of Common Stock issued subsequent to the
adoption of the Rights Agreement, including the Shares offered hereby. Each
Right entitles the holder thereof to purchase a fraction of a share of the
Company's Series A Preferred Stock or, in certain instances, Common Stock of
the Company or stock of an Acquiring Person (as defined below) in the event
that (i) a third party or a group (an Acquiring Person) acquires beneficial
ownership of 15% or more of the Common Stock or (ii) a tender offer or
exchange offer that would result in a person or group becoming an Acquiring
Person is commenced. The Rights Agreement will be in effect through June 2006
and could have the effect of discouraging tender offers or other transactions
which could result in shareholders receiving a premium over the market price
of Common Stock.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by
the Selling Shareholders. If the Warrants are exercised in full, the Company
will receive approximately $1,875,000. Such amount is intended to be used by
the Company for working capital purposes. There can be no assurance, however,
that the Warrants will be exercised.
SELLING SHAREHOLDERS
The Shares of Common Stock offered hereby by the Selling Shareholders
are issuable (i) upon conversion of the Series B Preferred Stock held by the
Selling Shareholders, (ii) as accrued dividends on the Series B Preferred
Stock and (iii) upon the exercise of outstanding warrants held by the Selling
Shareholders (the Warrants). A total of 15,000 shares of Series B Preferred
Stock and Warrants to purchase up to 67,812 shares of the Company's Common
Stock at an exercise price of $27.65 per share were issued to the Selling
Shareholders in connection with a private placement in August 1997. Through
June 1, 1998, a total of 7,350 shares of the Series B Preferred Stock have
been converted into 575,149 shares of Common Stock.
The number of Shares registered on the registration statement of which
this Prospectus is a part and the number of Shares offered hereby have been
determined by agreement between the Company and the Selling Shareholders. The
number of Shares of Common Stock that will ultimately be issued to the Selling
Shareholders upon conversion of the Series B Preferred Stock is dependent upon
a conversion formula which relies, in part, on the closing bid price of the
Common Stock preceding the date of conversion and therefore cannot be
determined at this time. The Series B Preferred Stock may be converted into
shares of Common Stock from time to time at a conversion price equal to the
lesser of (i) 110% of the average closing bid price for the five consecutive
trading days immediately preceeding August 29, 1997 and (ii) 101% of the
average of the lowest closing bid prices for five consecutive trading days
during the 30 consecutive trading days immediately preceeding the date of
conversion of the Series B Preferred Stock. The Warrants are exercisable for
an aggregate of 67,812 Shares of Common Stock.
The amount of Common Stock shown in the following table represents
approximately 1.4 times the amount into which the remaining 7,650 shares of
Series B Preferred Stock might have been converted on June 30, 1998 based on
the then conversion price of $7.38. The amount of Common Stock shown in the
table also includes 134,821 shares of Common Stock representing accrued
dividends for three years on the remaining shares of Series B Preferred Stock
based on the conversion price of $7.38, as well as 67,812 shares of Common
Stock issuable to the Selling Shareholders upon exercise of the Warrants:
Common Stock Number of
Beneficially Shares of Owned After
Owned Prior to Common Stock Offering(2)(3)
Selling Shareholder Offering(1) Offered(2) Number Percent
Southbrook International
Investments, Ltd. 400,212 400,212 0 *
Proprietary Convertible
Investment Group, Inc. 356,318 356,318 0 *
HBK Cayman L.P. 235,504 235,504 0 *
HBK Offshore Fund Ltd. 235,504 235,504 0 *
Brown Simpson Strategic
Growth Fund, L.P. (4) 452 452 0 *
Brown Simpson Asset
Management, LLC (4) 11,227 11,227 0 *
* Less than 1%.
(1) The Agreement limits the conversion and exercise rights of a Selling
Shareholder to the extent that the shares of Common Stock held by such
Selling Shareholder after a conversion of Series B Preferred Stock and/or
exercise of the Warrant issued to such Selling Shareholder would exceed
4.999% of the then issued and outstanding shares of Common Stock following
such conversion and/or exercise.
(2) Represents the maximum number of Shares that may be sold by each Selling
Shareholder pursuant to this Prospectus; provided, however, that pursuant
to Rule 416 under the Securities Act of 1933, as amended, the Registration
Statement of which this Prospectus is a part shall also cover any
additional shares of Common Stock which become issuable in connection with
the Shares registered for sale hereby by reason of (i) any stock dividend,
stock split, recapitalization or other transaction effected without the
receipt of consideration which results in an increase in the Company's
number of outstanding shares of Common Stock or (ii) decreases in the
conversion price applicable to the Series B Preferred Stock. In the event
Rule 416 is not available, the Company is obligated to register such
additional shares of Common Stock.
(3) Assumes the sale of all Shares offered hereby to unaffiliated third
parties. The Selling Shareholders may sell all or part of their
respective Shares.
(4) Represents Shares issuable solely upon exercise of Warrants.
PLAN OF DISTRIBUTION
The Shares of Common Stock of the Company offered hereby may be sold by
the Selling Shareholders, or by pledgees, donees, transferees or other
successors in interest thereof.
Offers and sales of the Shares may be made from time to time on one or
more exchanges or in the over-the-counter market, or otherwise, at prices and
on terms then prevailing or at prices related to the then-current market
price, or in negotiated transactions. The methods by which the Shares may
be sold may include, but not be limited to, the following: (a) a block
trade in which the broker or dealer so engaged will attempt to sell the
Shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or
dealer as principal and resale by such broker or dealer for its account
in accordance with any method of sale described herein; (c) an exchange
distribution in accordance with the rules of such exchange; (d) ordinary
brokerage transactions in which the broker solicits purchasers; (e)
privately negotiated transactions; (f) short sales; and (g) a combination
of any such methods of sale. In effecting sales, brokers and dealers
engaged by the Selling Shareholders may arrange for other brokers or dealers to
participate. Brokers or dealers may receive commissions or discounts from the
Selling Shareholders or from the purchasers in amounts to be negotiated prior
to the sale. The Selling Shareholders may also sell such Shares in
accordance with Rule 144 under the Securities Act of 1933, as amended
(the Securities Act), if available.
From time to time the Selling Shareholders may engage in short sales,
short sales against the box, puts and calls and other transactions in
securities of the Company or derivatives thereof, and may sell and deliver
the Shares in connection therewith. From time to time Selling Shareholders
may pledge their Shares pursuant to the margin provisions of their
respective customer agreements with their respective brokers. Upon a
default by a Selling Shareholder, the broker may offer and sell the
pledged Shares of Common Stock from time to time.
The Company has agreed to use its best efforts to maintain the
effectiveness of the registration of the Shares being offered hereunder
for three years from the date of this Prospectus or such earlier date when
all of the Shares being offered hereunder have been sold or may be sold
without volume or other restrictions pursuant to Rule 144 under the
Securities Act, as determined by counsel to the Company pursuant to a
written opinion letter.
The Selling Shareholders and any brokers participating in such sales may
be deemed to be underwriters within the meaning of the Securities Act.
There can be no assurance that the Selling Shareholders will sell any or
all of the Shares of Common Stock offered hereunder.
All proceeds from any such sales will be the property of the Selling
Shareholder who will bear the expense of underwriting discounts and selling
commissions. The Company is required to pay all fees and expenses incident to
the offering and sale of the Shares, including fees and disbursements (not to
exceed $2,000) of counsel to the Selling Shareholders. The Company has
agreed to indemnify the Selling Shareholders against certain losses,
claims, damages and liabilities, including liabilities under the Securities
Act.
LEGAL MATTERS
The validity of the Common Stock offered hereby and certain other legal
matters will be passed upon for the Company by Lindquist & Vennum P.L.L.P.,
Minneapolis, Minnesota. Gerald E. Magnuson, Of Counsel to Lindquist & Vennum
P.L.L.P., is a director, officer and holder of Common Stock of the Company.
EXPERTS
The audited financial statements and schedule incorporated by reference in
this registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are incorporated herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said reports.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the Exchange Act), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the Commission). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and the Commission's regional offices
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material may be obtained at prescribed
rates from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission maintains a Web
site that contains reports, proxy and other information regarding the
Company filed electronically with the Commission at http://www.sec.gov.
The Company's Common Stock is quoted on the Nasdaq National Market of the
National Association of Securities Dealers Automated Quotations system
(Nasdaq), and such reports, proxy statements and other information
regarding the Company can be inspected at the offices of Nasdaq Operations,
1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement
(together with all amendments and exhibits thereto, the Registration
Statement) under the Securities Act of 1933, as amended, with respect to
the Shares offered hereby. This Prospectus does not contain all
information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
Shares offered hereby, reference is made to such Registration Statement,
copies of which may be inspected in the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and copies of which may be obtained from the
Commission upon payment of the prescribed fees.
INCORPORATION OF CONTENTS OF REGISTRATION STATEMENT
BY REFERENCE
A Registration Statement on Form S-3 (File No. 333-36153) was filed with
the Securities and Exchange Commission (SEC) on September 23, 1997 covering
the registration of up to 1,250,000 shares. Pursuant to Rule 429, this
Registration Statement is being filed to register an additional 1,060,149
shares, as authorized by the Company's Board of Directors on April 16, 1998.
This Registration Statement should also be considered a post-effective
amendment to the prior Registration Statement. The contents of the prior
Registration Statement are incorporated herein by reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions of documents heretofore filed by the
Company with the Securities and Exchange Commission (the Commission) under
the Securities Exchange Act of 1934, as amended (the Exchange Act), are
incorporated herein by reference: (1) Annual Report on Form 10-K for the
year ended August 29, 1997; (2) Quarterly Reports on Form 10-Q for the
quarters ended November 28, 1997 and February 27, 1998; (3) Proxy Statement
for Annual Meeting of Shareholders held on January 14, 1998 (except to the
extent portions of such document are not deemed incorporated by reference
into any filing under the Securities Act or the Exchange Act); (4) Current
Report on Form 8-K filed on September 10, 1997; and (5) the description of
the Company's Common Stock contained in the Company's Registration Statement
on Form S-3 filed with the Commission under the Exchange Act on October 12,
1995, declared effective on November 15, 1995 (No. 33-63373), and as such
description is supplemented by Form 8-A, filed with the Commission on June
21, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such reports and documents (except to the extent portions of
such document are not deemed incorporated by reference into any filing under
the Securities Act or the Exchange Act).
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document that also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of any such
person, a copy of any or all of the documents incorporated herein by reference,
other than exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to John V. McManus, Vice President-Finance, Sheldahl, Inc.,
1150 Sheldahl Road, Northfield, Minnesota 55057. Telephone requests may be
directed to John V. McManus at (507) 663-8000.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14: Other Expenses of Issuance and Distribution*
SEC registration fee $2,620
Nasdaq listing fee 17,500**
Accounting fees and expenses 2,000
Legal fees and expenses 2,500
Printing expenses 0
Blue Sky fees and expenses 0
Transfer agent and registrar fees 500
Miscellaneous 430
_______
Total $27,000
=======
*Except for the SEC registration fee and Nasdaq listing fee, all of the
foregoing expenses have been estimated.
**Previously paid in connection with Registration Statement No. 333-36153.
ITEM 15: Indemnification of Directors and Officers
Section 302A.521 of Minnesota Statutes requires the Registrant to indemnify
a person made or threatened to be made a party to a proceeding by reason of
the former or present official capacity of the person with respect to the
Registrant, against judgments, penalties, fines, including reasonable
expenses, if such person (1) has not been indemnified by another
organization or employee benefit plan for the same judgments, penalties,
fines, including, without limitation, excise taxes assessed against the
person with respect to an employee benefit plan, settlements, and
reasonable expenses, including attorneys' fees and disbursements, incurred
by the person in connection with the proceeding with respect to the same
acts or omissions; (2) acted in good faith; (3) received no improper
personal benefit, and statutory procedure has been followed in the case
of any conflict of interest by a director; (4) in the case of a criminal
proceeding, had no reasonable cause to believe the conduct was unlawful;
and (5) in the case of acts or omissions occurring in the person's
performance in the official capacity of director or, for a person not a
director, in the official capacity of officer, committee member or employee,
reasonably believed that the conduct was in the best interests of the
Registrant, or, in the case of performance by a director, officer or
employee of the Registrant as a director, officer, partner, trustee,
employee or agent of another organization or employee benefit plan,
reasonably believed that the conduct was not opposed to the best interests
of the Registrant. In addition, Section 302A.521, subd. 3, requires payment
by the Registrant, upon written request, of reasonable expenses in
advance of final disposition in certain instances. A decision as to required
indemnification is made by a disinterested majority of the Board of Directors
present at a meeting at which a disinterested quorum is present, or by a
designated committee of the Board, by special legal counsel, by the
shareholders or by a court. The Registrant's Bylaws provide for
indemnification of officers, directors and employees to the fullest extent
provided by Section 302A.521.
As permitted by Section 302A.251 of the Minnesota Business Corporation Act,
the Amended and Restated Articles of Incorporation of the Registrant eliminate
the liability of the directors of the Registrant for monetary damages arising
from any breach of fiduciary duties as a member of the Registrant's Board of
Directors (except as expressly prohibited by Minnesota Statutes, Section
302A.251, subd. 4).
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the provisions
referenced in Item 15 of this Registration Statement or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
In addition, the Registration Rights Agreement, filed as an Exhibit hereto,
contains provisions for indemnification by the Selling Shareholders of the
Registrant and its officers, directors, and controlling persons against certain
liabilities under the Securities Act.
Item 16. Exhibits
Exhibit
Number Description
3.1 Amended and Restated Articles of Incorporation, incorporated by
reference from Exhibit 3.1 of the Registrant's Form 10-Q for the
quarter ended December 2, 1994.
3.2 Bylaws, as amended, incorporated by reference from Exhibit 3.2 of
the Registrant's Registration Statement on Form S-2 (File No. 33-
79266).
4.1 Stock Purchase Agreement Relating to Purchase of Sheldahl Stock
dated March 12, 1987 between the Registrant and Sumitomo Bakelite
Co., Ltd., as amended through January 9, 1991, incorporated by
reference from Exhibit C(4) of Registrant's Form 8-K filed
January 22, 1991.
4.2 Amendment No. 4 to Stock Purchase Agreement Relating to Purchase
of Sheldahl Stock dated January 3, 1994, incorporated by
reference from Exhibit 4.2 of the Registrant's Registration
Statement on Form S-2 (File No. 33-79266).
4.3 Convertible Preferred Stock Purchase Agreement among the Company,
Southbrook International Investments, Ltd., HBK Cayman L.P., HBK
Offshore Fund Ltd., HBK Investments L.P., Proprietary Convertible
Investment Group, Inc. and Brown Simpson Strategic Growth Fund,
L.P., incorporated by reference from Exhibit 4.1 of Registrant's
Form 8-K filed September 10, 1997.
4.4 Certificate of Designation, Preferences and Rights of Series B
Convertible Preferred Stock, incorporated by reference from
Exhibit 4.2 of Registrant's Form 8-K filed September 10, 1997.
4.5 Form of Warrant issued to Southbrook International Investments,
Ltd., HBK Cayman L.P., HBK Offshore Fund Ltd., Proprietary
Convertible Investment Group, Inc. and Brown Simpson Strategic
Growth Fund, L.P., incorporated by reference from Exhibit 4.3 of
Registrant's Form 8-K filed September 10, 1997.
4.6 Registration Rights Agreement among the Company, Southbrook
International Investments, Ltd., HBK Cayman L.P., HBK Offshore
Fund Ltd., HBK Investments L.P., Proprietary Convertible
Investment Group, Inc. and Brown Simpson Strategic Growth Fund,
L.P., incorporated by reference from Exhibit 4.4 of Registrant's
Form 8-K filed September 10, 1997.
4.7 Certificate of Designation, Preferences and Rights of Series B
Junior Participating Preferred Stock, incorporated by reference
from Exhibit 1 of Registrant's Form 8-A, filed June 21, 1996.
5.1 Opinion and Consent of Lindquist & Vennum, counsel to the
Company.
10.1 Credit and Security Agreement dated June 19, 1998, among the
Registrant, Norwest Bank Minnesota, N.A., Harris Trust and
Savings Bank, NBD Bank, N.A., and The CIT Group/Equipment
Financing, Inc.
10.2 Form of Warrant issued in connection with Credit and Security
Agreement dated June 19, 1998, among the Registrant, Norwest Bank
Minnesota, N.A., Harris Trust and Savings Bank, NBD Bank, N.A.,
and The CIT Group/Equipment Financing, Inc.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Lindquist & Vennum P.L.L.P. (included in Exhibit 5.1
to the Registration Statement).
24 Power of Attorney (included in the signature page of the
Registration Statement).
Item 17. Undertakings
The undersigned Registrant hereby undertakes, in accordance with Item 512
of Regulation S-K:
(a) (1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(4) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering;
(b) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section 13(a) or
15(d) of the Exchange Act that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof; and
(c) To deliver or cause to be delivered with the Prospectus, to each
person to whom the Prospectus is sent or given, the latest annual report, to
security holders that is incorporated by reference in the Prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 and Rule 14c-3
under the Exchange Act; and, where interim financial information required to be
presented by Article 3 of Regulation S-X is not set forth in the Prospectus, to
deliver, or cause to be delivered to each person to whom the Prospectus is sent
or given, the latest quarterly report that is specifically incorporated by
reference in the Prospectus to provide such interim financial information.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(i) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act of 1933 shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of Prospectus
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Northfield, State of Minnesota, on the 30th day of
June, 1998.
SHELDAHL, INC.
By: /s/ James E. Donaghy
James E. Donaghy
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints James E.
Donaghy and John V. McManus, and each of them (with full power to act alone),
such person's true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for such person and in such person's name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and
to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing necessary or desirable to be done in
and about the premises, as fully to all intents and purposes as such person,
hereby ratifying and confirming all that said attorneys-in-fact and agents,
or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on June 30,
1998 in the capacities indicated.
Signature Title
/s/ James S. Womack Chairman of the Board and Director
James S. Womack
/s/ James E. Donaghy Chief Executive Officer and Director
James E. Donaghy (principal executive officer)
/s/ John V. McManus Vice President Finance
(principal financial and
John V. McManus accounting officer)
/s/ John G. Kassakian Director
John G. Kassakian
/s/ Gerald E. Magnuson Director
Gerald E. Magnuson
/s/ William B. Miller Director
William B. Miller
/s/ Kenneth J. Roering Director
Kenneth J. Roering
/s/ John A. Rollwagen Director
John A. Rollwagen
/s/ Beekman Winthrop Director
Beekman Winthrop
<PAGE>
[LINDQUIST & VENNUM P.L.L.P. LETTERHEAD]
Exhibit 5.1
June 30, 1998
Sheldahl,Inc.
1150 Sheldahl Road
Northfield, MN 55057
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-3 filed by
Sheldahl, Inc. (the Company) with the Securities and Exchange Commission,
relating to a public offering of up to 1,735,000 shares of Common Stock, $.25
par value (Common Stock), to be offered and sold by certain Selling
Shareholders (as defined therein), please be advised that as counsel to the
Company, upon examination of such corporate documents and records as we have
deemed necessary or advisable for the purposes of this opinion, it is our
opinion that:
1. The Company is a validly existing corporation in good standing under
the laws of the State of Minnesota.
2. The shares of Common Stock being offered by the Selling Shareholders
are duly authorized and, when issued to the Selling Shareholders and paid for
as contemplated by the Purchase Agreement and the Warrants, as applicable,
included in the Registration Statement as Exhibits 4.3 and 4.5, respectively,
will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the heading
Legal Matters in the Prospectus comprising a part of the Registration
Statement.
Very truly yours,
/s/ Lindquist & Vennum PLLP
LINDQUIST & VENNUM P.L.L.P.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report and to all references to our firm included in or made a part
of this registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
June 30, 1998
<PAGE>
CREDIT AND SECURITY AGREEMENT
BY AND AMONG
SHELDAHL, INC.
AS BORROWER
VARIOUS FINANCIAL INSTITUTIONS,
AS LENDERS,
AND
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
AS AGENT
Dated as of June 19, 1998
This Agreement is made by and among SHELDAHL, INC., a Minnesota
corporation (the Borrower), NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a
national banking association (Norwest; in its separate capacity as
administrative agent for certain Lenders, the Agent), and each of the
financial institutions appearing on the signature pages hereof, together with
such other financial institutions as may from time to time become a party to
this Agreement pursuant to the terms and conditions of Article IX
(collectively the Lenders and individually each called a Lender).
Recitals
Norwest, NBD Bank, a Michigan banking corporation (NBD), Harris
Trust and Savings Bank, a bank organized and existing under the laws of the
State of Illinois (Harris; and together with Norwest and NBD, the Assigning
Lenders) and the Borrower are parties to the Old Loan Documents (defined
below). Each Assigning Lender desires to sell a portion of its rights and
obligations under the Old Loan Documents to The CIT Group/Equipment Financing,
Inc., a New York corporation (CIT) and CIT desires to purchase such rights.
The Borrower and the Lenders also desire to amend and restate the Old Credit
Agreement and have the Borrower issue new promissory notes to the Lenders to
evidence its obligation to repay the loans made by the Lenders.
ACCORDINGLY, in consideration of the mutual covenants and
agreements herein contained the Parties hereto 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 the Preamble and Recitals above and in
this Article have the meanings assigned to them, 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 GAAP.
Accounts means all of the Borrower's accounts, as such term is
defined in the UCC, including without limitation the aggregate unpaid
obligations of customers and other account debtors to the Borrower
arising out of the sale or lease of goods or rendition of services by
the Borrower on an open account or deferred payment basis.
Additional Warrants has the meaning given in Section 6.16.
Advance means a Revolving Advance, a Term Advance or a Bridge
Advance.
Affiliate or Affiliates means any Person controlled by,
controlling or under common control with the Borrower, including
(without limitation) any Subsidiary of the Borrower. For purposes of
this definition, control, when used with respect to any specified
Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
Agreement means this Amended and Restated Credit and Security
Agreement.
Assignment of Rents means that certain Assignment of Rents and
Leases, dated as of May 15, 1991, from the Borrower to the Agent,
recorded in the office of the County Recorder for Dakota County,
Minnesota, on June 25, 1991, as Document No. 991277 and recorded in the
office of the Registrar of Titles for Rice County, Minnesota, on July 9,
1991, as Document No. 14624, as amended.
Availability means the Borrowing Base less the sum of (A) all
outstanding and unpaid Revolving Advances and (B) the L/C Amount.
Banking Day means a day other than a Saturday, Sunday or other day
on which national banks are generally not open for business in
Minneapolis, Minnesota and Chicago, Illinois.
Base Rate means the rate of interest publicly announced from time
to time by the Agent as its base rate or, if the Agent ceases to
announce a rate so designated, any similar successor rate designated by
the Agent.
Borrowing Base means, at any time, the lesser of:
(a) the aggregate Revolving Facility Amounts of the Lenders, or
(b) subject to change from time to time in the sole discretion
of all the Lenders, the sum of:
(i) eighty percent (85%) of Eligible Accounts, plus
(ii) the lesser of $4,000,000 or sixty percent (60%) of Eligible
Raw Materials Inventory, plus
(iii) the lesser of $4,000,000 or fifty percent (50%) of Eligible
Finished Goods Inventory, plus
(iv) the lesser of $2,000,000 or twenty percent (20%) of Eligible
Other Inventory, less
(v) the Ford Reserve.
Bridge Facility means the credit facility described in Section
2.11.
Bridge Facility Amount means, with respect to each Lender, the
amount designated as such opposite that Lender's name on the signature
page hereof. Bridge Floating Rate means an annual rate equal to the sum
of the Base Rate plus three percent (3%), which rate shall change when
and as the Base Rate changes.
Capital Expenditure means an expenditure by the Borrower for the
lease, purchase or other acquisition of any capital asset, or the lease
of any other asset, whether payable currently or in the future.
Cash Flow Available for Debt Service as of a given date means the
sum of (i) Pre-tax Net Income, (ii) Interest Expense, (iii) depreciation
and amortization, and (iv) operating lease payments, less (v) Capital
Expenditures, for the fiscal year-to-date period ending on such date.
Collateral means all of the Borrower's Equipment, General
Intangibles, Inventory, Receivables, Investment Property, all sums on
deposit in any Collateral Account or other account of the Borrower,
money, and any items in any Lockbox; together with (i) all substitutions
and replacements for and products of any of the foregoing; (ii) proceeds
of any and all of the foregoing; (iii) in the case of all tangible
goods, all accessions; (iv) all accessories, attachments, parts,
equipment and repairs now or hereafter attached or affixed to or used in
connection with any tangible goods; (v) all warehouse receipts, bills of
lading and other documents of title now or hereafter covering such
goods; and (vi) all sums on deposit in the Special Account.
Collateral Account has the meaning given in the Collateral Account
Agreement.
Collateral Account Agreement means the Collateral Account
Agreement of even date herewith, by and between the Borrower, Norwest in
its capacity as collateral account bank and the Agent, as the same may
be further amended, supplemented or restated from time to time.
Collections means any amounts paid by or recovered from (i) the
Borrower pursuant to the Loan Documents, (ii) any guarantor or other
Person liable in respect of any of the Borrower's Obligations, (iii) any
Lender's exercise of any right of setoff against the Borrower or any
guarantor, and (iv) the recovery or realization on any Collateral (or
any property or claim given in substitution therefor).
Commitment means, with respect to each Lender, the Lender's
commitment to make Advances and cause Letters of Credit to be issued (or
share in the risk therein) pursuant to Article II.
Debt of any Person means (i) all items of indebtedness or
liability which in accordance with GAAP would be included in determining
total liabilities as shown on the liabilities side of a balance sheet of
that Person as at the date as of which Debt is to be determined,
(ii) indebtedness secured by any mortgage, pledge, lien or security
interest existing 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.
Debt Service as of a given date means the sum of (i) all
installments of principal on Debt of the Borrower, (ii) Interest
Expense, (iii) operating lease payments and (iv) all installments of
rent under capitalized lease obligations of the Borrower (determined in
accordance with GAAP) incurred during the fiscal year-to-date period
ending on such date.
Debt Service Coverage Ratio means the ratio of (i) Cash Flow
Available for Debt Service to (ii) Debt Service.
Default means an event that, with giving of notice or passage of
time or both, would constitute an Event of Default.
Default Period means any period of time beginning on the first day
of any month during which a Default or Event of Default has occurred and
ending on the date the Agent notifies the Borrower in writing that such
Default or Event of Default has been cured or waived by the Required
Lenders.
Default Rate means, with respect to the Revolving Advances, an
annual rate equal to two percent (2%) over the Revolving Floating Rate,
which rate shall change when and as the Revolving Floating Rate changes,
with respect to the Term Advances, an annual rate equal to two percent
(2%) over the Term Floating Rate, which rate shall change when and as
the Term Floating Rate changes, and with respect to the Bridge Advances,
an annual rate equal to two percent (2%) over the Bridge Floating Rate,
which rate shall change when and as the Bridge Floating Rate changes.
Deferred Interest has the meaning given in Section 2.13.
ERISA means the Employee Retirement Income Security Act of 1974,
as amended.
Eligible Accounts means all unpaid Accounts, net of any credits,
except the following shall not in any event be deemed Eligible Accounts:
(i) that portion of Accounts (other than dated Accounts)
unpaid 60 days or more after the due date, and that portion of
dated Accounts unpaid 30 days or more after the stated due date or
120 days or more after the shipping date;
(ii) that portion of Accounts that is disputed or subject
to a claim of offset or a contra account;
(iii) that portion of Accounts not yet earned by the final
delivery of goods or rendition of services, as applicable, by the
Borrower to the customer;
(iv) Accounts owed by any unit of government, whether
foreign or domestic (provided, however, that there shall be
included in Eligible Accounts that portion of Accounts owed by
such units of government for which the Borrower has provided
evidence satisfactory to the Agent that (A) the Agent has a first
priority perfected security interest and (B) such Accounts may be
enforced by the Agent directly against such unit of government
under all applicable laws);
(v) Accounts owed by an account debtor located outside the
United States which are not backed by a bank letter of credit
assigned to the Agent (if such assignment is required by the
Agent), in the possession of the Agent and acceptable to the Agent
in all respects, in its sole discretion; provided, however, that,
Accounts due and owing from Siemens, Bosch, Delco, Ford, Texas
Instruments, Polaroid, 3M, Hewlett Packard and Motorola which
satisfy all other requirements of this definition (including
without limitation clause (xii)), shall not be deemed ineligible
because of this clause;
(vi) Accounts owed by an account debtor that is insolvent,
the subject of bankruptcy proceedings or has gone out of business;
(vii) Accounts owed by a shareholder, Subsidiary, Affiliate,
officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected
security interest in the Agent's favor or which are subject to any
lien, security interest or claim in favor of any Person other than
the Agent including without limitation any payment or performance
bond;
(ix) that portion of Accounts that has been restructured,
extended, amended or modified;
(x) that portion of Accounts that constitutes advertising,
finance charges, service charges or sales or excise taxes;
(xi) Accounts owed by an account debtor, regardless of
whether otherwise eligible, if 10% or more of the total amount due
under Accounts from such debtor is ineligible under clauses (i),
(ii) or (ix) above, provided, however, that the Agent may from
time to time in its sole discretion exclude from the operation of
this clause (xi) those Accounts that the Agent designates; and;
(xii) Accounts, or portions thereof, otherwise deemed
ineligible by the Agent in its sole discretion.
Eligible Equipment means all Equipment owned by the Borrower free
and clear of any other lien, security interest or encumbrance other than
the Security Interest in favor of the Agent.
Eligible Inventory means all Inventory of the Borrower, at the
lower of cost or market value as determined in accordance with GAAP;
provided, however, that the following shall not in any event be deemed
Eligible Inventory:
(i) Inventory that is: in-transit (provided that goods in
transit in the ordinary course of business between the Borrower's
facilities in Brown and Marshall Counties, South Dakota, its
facilities in Rice and Dakota Counties, Minnesota and Boulder
County, Colorado shall not be excluded by this clause); located at
any warehouse, job site or other premises not approved by the
Agent in writing; located outside of the states, or localities, as
applicable, in which the Agent has filed financing statements to
perfect a first priority security interest in such Inventory;
covered by any negotiable or non-negotiable warehouse receipt,
bill of lading or other document of title not in the Agent's
possession; on consignment from or to any Person or subject to any
bailment;
(ii) Supplies, packaging, maintenance parts or sample
Inventory;
(iii) Inventory that is damaged, obsolete, slow moving or
not currently saleable in the normal course of the Borrower's
operations;
(iv) Inventory that the Borrower has returned, has
attempted to return, is in the process of returning or intends to
return to the vendor thereof;
(v) Inventory that is perishable or live;
(vi) Inventory manufactured by the Borrower pursuant to a
license unless the applicable licensor has agreed in writing to
permit the Agent to exercise its rights and remedies against such
Inventory; provided, however, that all Inventory manufactured
using Sidrabe Technology shall not be deemed ineligible under this
(vi) until the 91st day after the date of this Agreement or such
later date as the Agent may agree to in its sole discretion;
(vii) Inventory that is subject to a security interest in
favor of any Person other than the Agent; and
(viii)Inventory otherwise deemed ineligible by the Agent in
its sole discretion.
Eligible Finished Goods Inventory means that portion of Eligible
Inventory consisting of finished goods ready for immediate sale and
delivery to the Borrower's customers without further modification or
completion.
Eligible Other Inventory means that portion of Eligible Inventory
other than Eligible Raw Materials Inventory and Eligible Finished Goods
Inventory that the Agent may from time to time determine in its sole
discretion to be a component of the Borrowing Base.
Eligible Raw Materials Inventory means that portion of Eligible
Inventory consisting of raw materials of the Borrower that has not been
modified, converted or in any way finished by the Borrower and is in the
same form as originally delivered by the vendor thereof.
Environmental Indemnity means the Environmental Indemnity of the
Borrower, in favor of the Agent, dated as of May 15, 1991, as amended,
which indemnifies the Agent against all environmental liabilities
related to the Premises.
Environmental Laws has the meaning specified in Section 5.16.
Equipment means all of the Borrower's equipment, as such term is
defined in the UCC, whether now owned or hereafter acquired, including
but not limited to all present and future machinery, vehicles,
furniture, fixtures, manufacturing equipment, shop equipment, office and
recordkeeping equipment, parts, tools, supplies, and including
specifically (without limitation) the goods described in any equipment
schedule or list herewith or hereafter furnished to the Agent by the
Borrower.
Existing Revolving Advances has the meaning given in Section 2.1.
Existing Security Documents means the Collateral Account
Agreement, the Environmental Indemnity, the Mortgage and the Assignment
of Rents.
Existing Term Advances has the meaning given in Section 2.8.Event
of Default has the meaning specified in Section 8.1.
Facility means the Revolving Facility, the Term Facility or the
Bridge Facility, and Facilities means two or more of them.
Facility Amount means the Revolving Facility Amount, the Term
Facility Amount or the Bridge Facility Amount.
Federal Funds Rate means the average rate for overnight federal
funds transactions, as determined by the Agent in any reasonable manner.
Ford Reserve means an amount equal to $9,332,000, provided,
however, (i) if the Borrower returns to Ford Motor Company (Ford) the
overpayment made by Ford to the Borrower on or about April 26, 1998 in
the amount of $9,332,000 (the Overpayment), such amount shall equal $-0-
; and (ii) if the Agent receives a copy of specific written instructions
from Ford directing the Borrower to hold the Overpayment and apply it to
existing Accounts and to retain any excess against future Accounts, such
amount shall equal the amount of the Overpayment not yet applied to
Eligible Accounts owed by Ford.
Funding Date has the meaning given in Section 2.2.
GAAP means generally accepted accounting principles, consistent
with those principles applied in the financial statements referred to in
Section 5.8, or as amended from time to time in accordance with
generally accepted accounting principles.
General Intangibles means all of the Borrower's general
intangibles, as such term is defined in the UCC, whether now owned or
hereafter acquired, including (without limitation) all present and
future patents, patent applications, copyrights, trademarks, trade
names, trade secrets, customer or supplier lists and contracts, manuals,
operating instructions, permits, franchises, the right to use the
Borrower's name, and the goodwill of the Borrower's business.
Hazardous Substance has the meaning specified in Section 5.16.
Income Tax Expense means the Borrower's state and federal income
tax liability.
Interest Expense means, for any period, the total gross interest
expense of the Borrower during such period, net of interest capitalized
pursuant to GAAP, and shall in any event include, without limitation,
(i) interest expensed (whether or not paid) on all Debt, (ii) the
amortization of debt discounts, (iii) the amortization of all fees
payable in connection with the incurrence of Debt to the extent included
in interest expense, and (iv) the portion of any capitalized lease
obligation allocable to interest expense.
Inventory means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or
materials, whether acquired, held or furnished for sale, for lease or
under service contracts or for manufacture or processing, and wherever
located.
Investment Property means all of the Borrower's investment
property, as such term is defined in the UCC, whether now owned or
hereafter acquired, including but not limited to all securities,
security entitlements, securities accounts, commodity contracts,
commodity accounts, stocks, bonds, mutual fund shares, money market
shares and U.S. Government securities.
L/C Amount means the sum of (i) the aggregate amount that may be
drawn on all issued and outstanding Letters of Credit, assuming
compliance with all conditions for drawing thereunder and (ii) the
unpaid amount of the Obligation of Reimbursement.
L/C Application means an application and agreement for letters of
credit in a form acceptable to the Agent.
Lessor's Agreement or Lessors' Agreements means the Lessors'
Agreements pursuant to which the Lessors of the Premises in which the
Borrower conducts its businesses, provide certain assurances to the
Agent.
Letter of Credit or Letters of Credit has the meaning specified in
Section 2.4.
Loan Documents means this Agreement, the Notes, the Environmental
Indemnity and the Security Documents.
Lockbox has the meaning given in the Lockbox Agreement.
Lockbox Agreement means the Agreement for Lockbox Services by and
between the Borrower, Norwest in its capacity as lockbox agent and the
Agent of even date herewith, as the same may be amended, supplemented or
restated from time to time.
Maturity Date means (i) May 31, 2001 for the Revolving Facility
and the Term Facility and (ii) May 31, 2000 for the Bridge Facility.
Mortgage means the Combination Mortgage, Security Agreement and
Fixture Financing Statement, dated as of May 15, 1991, from the Borrower
as mortgagor to the Agent as mortgagee, recorded in the office of the
County Recorder for Dakota County, Minnesota, on June 25, 1991, as
Document No. 991276 and recorded in the office of the Registrar of
Titles for Rice County, Minnesota, on July 9, 1991, as Document
No. 14622, as amended.
Mortgaged Property has the meaning given in the Mortgage.
Net Equity Proceeds means the net cash proceeds actually received
by the Borrower from sale of additional common or preferred stock or
convertible instruments in the Borrower on or after the Funding Date.
Net Income of any Person means, with respect to the applicable
period of computation, such Person's after tax net income from
operations, determined in accordance with GAAP.
Net Worth means the aggregate of capital and surplus, as
determined in accordance with GAAP.
Notes means the Revolving Notes, the Term Notes and the Bridge
Notes.
Obligations means each and every debt, liability and obligation of
every type and description which the Borrower may now or at any time
hereafter owe to the Lenders, or any of them, (whether such debt,
liability or obligation now exists or is hereafter created or incurred,
and including specifically, but not limited to, the Obligation of
Reimbursement, the obligation to fund the Special Account, and all
indebtedness of the Borrower evidenced by the Notes, or arising under
any L/C Application completed by the Borrower).
Obligation of Reimbursement has the meaning specified in
Section 2.5(a).
Old Credit Agreement means that certain Amended and Restated
Credit and Security Agreement dated as of November 24, 1993, as amended
before the date hereof.
Old Loan Documents means the Old Credit Agreement and the Old
Revolving Notes.
Old Revolving Notes means (i) that certain Revolving Note dated as
of March 12, 1996 payable to the order of Norwest in the original
principal amount of $11,666,666.67; (ii) that certain Revolving Note
dated as of March 12, 1996 payable to the order of Harris in the
original principal amount of $11,666,666.67; (iii) that certain
Revolving Note dated as of March 12, 1996 payable to the order of NBD in
the original principal amount of $11,666,666.66; (iv) that certain
Revolving Note (Facility B) dated as of April 4, 1997 payable to the
order of Norwest in the original principal amount of $4,000,000;
(v) that certain Revolving Note (Facility B) dated as of April 4, 1997
payable to the order of Harris in the original principal amount of
$4,000,000; and (vi) that certain Revolving Note (Facility B) dated as
of April 4, 1997 payable to the order of NBD in the original principal
amount of $4,000,000.
Old Term Notes means (i) that certain Term Note dated as of
January 24, 1995, payable to the order of Norwest in the original
principal amount $6,666,666.67; (ii) that certain Term Note dated as of
January 24, 1995, payable to the order of Harris in the original
principal amount $6,666,666.67; and (iii) that certain Term Note dated
as of January 24, 1995, payable to the order of NBD in the original
principal amount $6,666,666.66.
Original Warrants means each Warrant issued to each Lender dated
as of the date of this Agreement to purchase not less than 25,000 shares
of the Borrower's common stock, and any warrants issued in exchange or
substitution therefor.
Patent and Trademark Security Agreement means the Patent and
Trademark Security Agreement of even date herewith by and between the
Borrower and the Agent, as the same may be amended, supplemented or
restated from time to time.
Percentage means, with respect to each Lender and for each
Facility, the percentage so designated with such Lender's signature to
this Agreement.
Permitted Liens has the meaning given in Section 7.1.
Person means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
Plan means an employee benefit plan or other plan maintained for
employees of the Borrower or an Affiliate of the Borrower and covered by
Title IV of ERISA.
Premises means all premises where the Borrower conducts its
business and has any rights of possession, including (without
limitation) the premises legally described in Exhibit D.
Pre-tax Net Income as of a given date means fiscal year-to-date
net income from operations inclusive of charges incurred for
restructuring and before Income Tax Expenses.
Real Estate means the real property subject to the Mortgage.
Receivables means each and every right of the Borrower to the
payment of money, whether such right to payment now exists or hereafter
arises, whether such right to payment arises out of a sale, lease or
other disposition of goods or other property, out of a rendering of
services, out of a loan, out of the overpayment of taxes or other
liabilities, or otherwise arises under any contract or agreement,
whether such right to payment is created, generated or earned by the
Borrower or by some other person who subsequently transfers such
person's interest to the Borrower, whether such right to payment is or
is not already earned by performance, and howsoever such right to
payment may be evidenced, together with all other rights and interests
(including all liens and security interests) which the Borrower may at
any time have by law or agreement against any account debtor or other
obligor obligated to make any such payment or against any property of
such account debtor or other obligor; all including but not limited to
all present and future accounts, contract rights, loans and obligations
receivable, chattel papers, bonds, notes and other debt instruments, tax
refunds and rights to payment in the nature of general intangibles.
Reportable Event shall have the meaning assigned to that term in
Title IV of ERISA.
Required Lenders means Lenders holding together at least 75% of
the Obligations, determined as if a Settlement Date had just occurred.
Revolving Advance has the meaning specified in Section 2.2.
Revolving Facility means the revolving credit facility described
in Section 2.2 and the letter of credit facility described in Section
2.4.
Revolving Facility Amount means, with respect to each Lender, the
amount designated as such opposite that Lender's name on the signature
page hereof, unless said amount is reduced pursuant to Section 2.15, in
which event it means the amount to which said amount is reduced.
Revolving Floating Rate means an annual rate equal to (i) from the
Funding Date through the date the Bridge Notes are paid in full, the sum
of the Base Rate plus one percent (1%), and (ii) after the Bridge Notes
are paid in full, the Base Rate, which rate shall change when and as the
Base Rate changes.
Revolving Notes means the Borrower's promissory notes payable to
the order of each of the Lenders in substantially the form attached
hereto as Exhibit A, dated as of the Funding Date.
Securities Act means the Securities Act of 1933, as amended.
Security Documents means this Agreement, the Patent and Trademark
Security Agreement, the Lockbox Agreement, the Collateral Account
Agreement, the Existing Security Documents and any other document
delivered to the Agent from time to time to secure the Obligations, as
the same may hereafter be amended, supplemented or restated from time to
time.
Security Interest has the meaning specified in Section 3.1.
Servicer means Norwest Business Credit, Inc., a Minnesota
corporation, or such other person as the Agent may from time to time
designate.
Settlement Date means (a) every Tuesday hereafter, commencing with
Tuesday, June 30, 1998, or, if such day is not a Banking Day, the next
succeeding Banking Day, and (b) any other Banking Day designated as a
Settlement Date by the Agent in its discretion upon not less than one
(1) Banking Day's notice to each Lender.
Sidrabe has the meaning given in Section 6.13.
Sidrabe Technology has the meaning given in Section 6.13.
Special Account means a specified cash collateral account
maintained by the Agent in connection with outstanding Letters of
Credit, as contemplated by Section 2.6.
Subsidiary means 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.
Term Advance has the meaning specified in Section 2.9.
Term Facility means the credit facility described in Section 2.9.
Term Facility Amount means, with respect to each Lender, the
amount designated as such opposite that Lender's name on the signature
page hereof.
Term Floating Rate means an annual rate equal to (i) from the
Funding Date through the date the Bridge Notes are paid in full, the sum
of the Base Rate plus one percent (1%), and (ii) after the Bridge Notes
are paid in full, the Base Rate, which rate shall change when and as the
Base Rate changes.
Term Notes means the Borrower's promissory notes, payable to the
order of each Lender, in substantially the form attached hereto as
Exhibit B, dated as of the Funding Date.
Termination Date means the earliest of (i) the Maturity Date, (ii)
the date the Borrower terminates the Credit Facility and satisfies all
Obligations pursuant to Section 2.15, or (iii) the date the Agent
demands payment of the Obligations after an Event of Default pursuant to
Section 8.2.
UCC means the Uniform Commercial Code as in effect from time to
time in the state designated in Section 10.17 as the state whose laws
shall govern this Agreement, or in any other state whose laws are held
to govern this Agreement or any portion hereof.
Warrant Stock means the shares of common stock of the Borrower
issuable upon exercise of the Warrants and all shares of common stock of
the Borrower issued in exchange or substitution therefor.
Warrants means the Original Warrants and the Additional Warrants.
Section 1.2 Cross References. All references in this Agreement to
Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
ARTICLE II
Amount and Terms of the Revolving and Term Facilities; Letters of Credit
Section 2.1 Existing Revolving Advances. The Assigning Lenders
have made various advances to the Borrower (the "Existing Revolving
Advances") the Borrower's obligation to pay which is evidenced by the Old
Revolving Notes. As of the date hereof, the outstanding principal balance of
the Existing Revolving Advances and all interest accrued but unpaid thereon
was $37,581,917.49. On the Funding Date, the Existing Revolving Advances shall
be deemed to be Revolving Advances made pursuant to Section 2.2 and repayable
in accordance with the Revolving Notes. To the extent the Revolving Notes
evidence the Existing Revolving Advances, the Revolving Notes shall be issued
in substitution for and replacement of but not in payment of the Old Revolving
Notes.
Section 2.2 Revolving Advances. The Borrower may from time to time
request Revolving Advances under this Section 2.2, and each Lender agrees,
severally and not jointly, to make advances to the Borrower from time to time
during the period from the date all of the conditions set forth in Section 4.1
have been satisfied (the Funding Date) to the Termination Date, on the terms
and subject to the conditions herein set forth (the Revolving Advances). Each
Lender's obligation hereunder to make Revolving Advances to the Borrower shall
be limited to such Lender's Percentage of the Revolving Advance requested by
the Borrower hereunder, provided, however, that (i) the aggregate amount of
outstanding Revolving Advances made by a Lender shall not exceed that Lender's
Revolving Facility Amount less that Lender's Percentage of the L/C Amount,
(ii) the aggregate amount of Revolving Advances made by a Lender and that
Lender's Percentage of the L/C Amount shall not exceed that Lender's
Percentage of the Borrowing Base and (iii) the aggregate amount of all
outstanding Revolving Advances and the L/C Amount shall not exceed the
Borrowing Base. All Revolving Advances shall be secured by the Collateral as
provided in Article III and a portion of the Revolving Advances shall be
secured by the Mortgage as more fully described therein. The Borrower's
obligation to pay each Lender's Percentage of the Revolving Advances shall be
evidenced by a Revolving Note payable to the order of such Lender. Within the
limits set forth in this Section 2.2, the Borrower may obtain Revolving
Advances hereunder, repay Revolving Advances pursuant to Section 2.15 and
reborrow under this Section 2.2.
Section 2.3 Procedures for Requesting Revolving Advances. The
Borrower agrees to comply with the following procedures in requesting
Revolving Advances under this Section 2.2:
(a) The Borrower shall make each request for a Revolving Advance
under Section 2.2 to the Agent before 11:00 a.m. (Minneapolis, Minnesota
time) of the day of the requested Revolving Advance. Each request for a
Revolving Advance may be made in writing or by telephone, specifying the
date of the requested Revolving Advance and the amount thereof, and
shall be by (i) any officer of the Borrower; or (ii) any person
designated as the Borrower's agent by any officer of the Borrower in a
writing delivered to the Agent; or (iii) any person reasonably believed
by the Agent to be an officer of the Borrower or such a designated
agent.
(b) Unless the Agent elects to follow the procedure set forth in
Section 9.3(d), promptly upon receipt of each request for a Revolving
Advance, the Agent shall notify each Lender by telephone or telecopy of
the request and subject to fulfillment of the applicable conditions set
forth in Article IV, each Lender shall make its Percentage of the
requested Revolving Advance available to the Agent in immediately
available funds at the Agent's address specified in Section 10.5, not
later than 2:00 p.m. (Minneapolis, Minnesota time) on the date of such
Revolving Advance; provided that each Lender shall have received funding
notice not later than 12:00 noon (Minneapolis, Minnesota time) on such
day.
(c) Upon fulfillment of the applicable conditions set forth in
Article IV, the Agent shall make the proceeds of each Lender's Revolving
Advance available to the Borrower by crediting the same to the
Borrower's demand deposit account maintained with the Agent unless the
Agent and the Borrower shall agree to another manner of disbursement.
Upon the Agent's request, the Borrower shall promptly confirm each
telephonic request for a Revolving Advance by executing and delivering
an appropriate confirmation certificate to the Agent. The Borrower shall
be obligated to repay all Revolving Advances under this Section 2.2
notwithstanding the Agent's failure to receive such confirmation and
notwithstanding the fact that the person requesting the same was not in
fact authorized to do so. Any request for a Revolving Advance under this
Section 2.2, whether written or telephonic, shall be deemed to be a
representation by the Borrower that the conditions set forth in
Section 4.2 have been satisfied as of the time of the request.
Section 2.4 Letters of Credit. The Borrower may from time to time
on and after the Funding Date request that the Agent issue one or more
irrevocable standby or documentary letters of credit (each, a Letter of
Credit) for the Borrower's account and the Agent agrees, upon the terms and
subject to the conditions set forth in this Agreement, to issue Letters of
Credit at the Borrower's request, provided that the face amount of all Letters
of Credit at any time outstanding shall at no time exceed the lesser of:
(i) $750,000, or (ii) Availability.
(a) At least five days before the issuance of each Letter of
Credit, the Borrower shall execute and deliver to the Agent an L/C
Application in such form as the Agent may require. Upon receipt thereof,
the Agent shall notify each Lender by telephone or telecopy of the
request and of the amount of such Lender's Percentage of risk therein.
The terms and conditions set forth in each such L/C Application shall
supplement the terms and conditions of this Agreement, but if the terms
of any such L/C Application and the terms of this Agreement are
inconsistent, the terms hereof shall control.
(b) No Letter of Credit shall be issued with an expiry date
later than the Termination Date in effect as of the date of issuance.
(c) Any request for the issuance of a Letter of Credit under
this Section 2.4 shall be deemed to be a representation by the Borrower
that the statements set forth in Section 4.2 are correct as of the time
of the request.
Section 2.5 Payment of Obligation of Reimbursement. The Borrower
shall pay to the Agent any and all amounts required to be paid under the
applicable L/C Application, when and as required to be paid thereby, and the
amounts designated below, when and as designated.
(a) Obligation of Reimbursement. The Borrower shall pay the
Agent on the day a drawing is honored under any Letter of Credit a sum
equal to all amounts drawn under such Letter of Credit plus any and all
reasonable charges and expenses that the Agent may pay or incur relative
to such draw, plus interest on all such amounts, charges and expenses as
provided in Section 2.22(d) and (e) (all such amounts are hereinafter
referred to, collectively, as the Obligation of Reimbursement). The
Obligation of Reimbursement shall be secured by the Collateral as
provided in Article III.
(b) Revolving Advance to Pay Obligation of Reimbursement.
Whenever a drawing is submitted under a Letter of Credit, the Agent may
treat such drawing as a request for a Revolving Advance under Section
2.2 and will so notify the Lenders in accordance therewith. Any funding
of a Revolving Advance by the Lenders hereunder shall be applied by the
Agent to payment of any such draft. Any Revolving Advances made under
this Subsection (b) shall be evidenced by Revolving Notes of the Lenders
in their respective Percentage thereof, shall bear interest at the
Revolving Floating Rate, and shall be treated in all respects as a
Revolving Advance hereunder.
(c) Borrower's Obligation if No Revolving Advance Made. If a
drawing is submitted under a Letter of Credit when the Lenders are not
obligated to make Revolving Advances to pay the Obligation of
Reimbursement, the Borrower shall pay to the Agent on demand and in
immediately available funds, the amount of the Obligation of
Reimbursement together with interest accrued from the date of payment of
any such drawing until payment in full at the Revolving Floating Rate.
(d) Lenders' Participations in Obligation of Reimbursement. Each
Lender shall be deemed to hold an undivided participating interest in
the Obligation of Reimbursement equal to that Lender's Percentage
thereof. If the Agent makes any payment pursuant to the terms of a
Letter of Credit and is not promptly reimbursed by a Revolving Advance
under Section 2.2 or otherwise, the Agent may request that each Lender
pay to the Agent such Lender's Percentage of the Obligation of
Reimbursement.
(i) Upon receipt of any such request before 11:00 a.m.
(Minneapolis time) on a Banking Day, each Lender shall be
unconditionally and irrevocably obligated to pay its Percentage of
the Obligation of Reimbursement to the Agent in immediately
available funds before 3:00 p.m. (Minneapolis time) on such date.
Notices received after 11:00 a.m. (Minneapolis time) shall be
deemed to have been received on the following Banking Day.
(ii) If payment is not made by a Lender when due hereunder,
interest on the unpaid amount shall accrue from the date of the
Agent's request through the date of payment at the Federal Funds
Rate.
(iii) After making any payment to the Agent under this
subsection in connection with a particular Obligation of
Reimbursement, a Lender shall be entitled to participate to the
extent of its Percentage in the related reimbursements received by
the Agent, whether in the form of payments by the Borrower,
payments from third parties or proceeds of Collateral. Upon
receiving any such reimbursement, the Agent will distribute to
each Lender its Percentage of such reimbursement. At the Agent's
option, any payment by a Lender hereunder may be deemed a
Revolving Advance in accordance with Section 2.2.
Section 2.6 Special Account. If the Revolving Facility is
terminated for any reason whatsoever while any Letter of Credit is outstanding
the Borrower shall thereupon pay the Agent in immediately available funds for
deposit in the Special Account an amount equal to the L/C Amount. The Special
Account shall be maintained by the Agent in its own name as a special pledged
collateral account. Any interest earned on amounts deposited in the Special
Account shall be credited to the Special Account. Amounts on deposit in the
Special Account may be applied by the Agent at any time or from time to time
to the Obligations in the Agent's sole discretion, and shall not be subject to
withdrawal by the Borrower so long as the Agent maintains a security interest
therein. The Agent agrees to transfer any balance in the Special Account to
the Borrower at such time as the Agent is required to release its security
interest in the Special Account under applicable law.
Section 2.7 Obligations Absolute. The Borrower's Obligation of
Reimbursement arising under this Agreement shall be absolute, unconditional
and irrevocable, and shall be paid strictly in accordance with the terms of
this Agreement, under all circumstances whatsoever, including (without
limitation) the following circumstances:
(a) any lack of validity or enforceability of any Letter of
Credit or any other agreement or instrument relating to any Letter of
Credit (collectively the "Related Documents");
(b) any amendment or waiver of or any consent to departure from
all or any of the Related Documents;
(c) the existence of any claim, setoff, defense or other right
which the Borrower may have at any time, against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom
any such beneficiary or any such transferee may be acting), or other
person or entity, whether in connection with this Agreement, the
transactions contemplated herein or in the Related Documents or any
unrelated transactions;
(d) any statement or any other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever;
(e) payment by or on behalf of the Agent under any Letter of
Credit against presentation of a draft or certificate which does not
strictly comply with the terms of such Letter of Credit; or
(f) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing.
Section 2.8 Old Term Advances. The Assigning Lenders have made
various advances to the Borrower the Borrower's obligation to pay which was
evidenced by the Old Term Notes. The Old Term Notes have been paid in full and
are no longer outstanding.
Section 2.9 Term Facility. Each Lender agrees severally, but not
jointly, to make a single advance to the Borrower (each a "Term Advance"),
on the Funding Date, on the terms and subject to the conditions herein set
forth, in an amount equal to its Term Facility Amount. All Term Advances shall
be secured by the Collateral as provided in Article III. The Borrower's
obligation to repay the Term Advance made by each Lender shall be evidenced by
a Term Note payable to the order of such Lender.
Section 2.10 Payment of Term Notes. The principal of the Term
Notes will be payable in aggregate equal monthly installments of $205,130
beginning January 1, 1999 and on the first day of each month thereafter until
the Termination Date at which time the outstanding principal balance of the
Term Notes and all interest accrued thereon shall be due and payable in full.
Section 2.11 Bridge Facility. Each Lender agrees, severally but
not jointly, to make a single advance (each a "Bridge Advance") on the
Funding Date to the Borrower in the amount of each Lender's Bridge Facility
Amount on the terms and subject to the conditions herein set forth. All Bridge
Advances shall be secured by the Collateral as provided in Article III. The
Borrower's obligation to repay the Bridge Advance made by each Lender shall be
evidenced by a Bridge Note payable to the order of such Lender.
Section 2.12 Payment of Bridge Notes. The principal of the Bridge
Notes will be payable as follows: (a) $5,000,000 on August 31, 1998,
(b) $4,500,000 on November 30, 1998; (c) $3,166,667 on May 31, 1999,
(d) $3,166,667 on November 30, 1999, and (e) all remaining principal on the
earlier of the Maturity Date for the Bridge Facility or the Termination Date
at which time all interest accrued thereon shall be due and payable in full.
In addition to the above described payments, the Borrower shall pay to the
Agent upon receipt 50% of all Net Equity Proceeds, to be applied to the
payments on the Bridge Notes described above in order of maturity.
Section 2.13 Interest; Default Interest; Usury; When Interest Due
and Payable.
(a) Revolving Notes. Except as set forth in Subsections (e) and
(g), the outstanding principal balance of the Revolving Notes shall bear
interest at the Revolving Floating Rate.
(b) Term Notes. Except as set forth in Subsections (e) and (g),
the outstanding principal balance of the Term Notes shall bear interest
at the Term Floating Rate.
(c) Bridge Notes - Regular Interest. The outstanding principal
balance of the Bridge Advances shall bear interest at the Bridge
Floating Rate.
(d) Bridge Notes - Deferred Interest. Beginning July 1, 1998, in
addition to accruing interest at the Bridge Floating Rate, the
outstanding principal balance of the Bridge Advances shall also bear
interest at the rate of thirteen and one half percent (13.5%) per annum
("Deferred Interest").
(e) Default Interest Rate. At any time during any Default
Period, in the Required Lenders' sole discretion and without waiving any
of its other rights and remedies, the principal of the Revolving
Advances, the Term Advances and the Bridge Advances outstanding from
time to time shall bear interest at the Default Rate, effective for any
periods designated by the Required Lenders from time to time during that
Default Period.
(f) Participations. If any Person shall acquire a participation
in the Advances or Obligation of Reimbursement, the Borrower shall be
obligated to the Lender to pay the full amount of all interest
calculated under this Section 2.13 along with all other fees, charges
and other amounts due under this Agreement, regardless if such Person
elects to accept interest with respect to its participation at rates
other than the rates in effect under this Section 2.13, or otherwise
elects to accept less than its prorata share of such fees, charges and
other amounts due under this Agreement.
(g) Usury. In any event no rate change shall be put into effect
which would result in a rate greater than the highest rate permitted by
law.
(h) When Due. Interest accruing pursuant to Subsections (a) and
(b) shall be payable in arrears on the first day of each month and on
the Termination Date. Interest accruing pursuant to Subsection (c) shall
be payable in arrears on the first day of each month, the Termination
Date or earlier prepayment in full. Deferred Interest under Subsection
(d) shall be due and payable on the earliest of the Maturity Date for
the Bridge Facility, the Termination Date or earlier prepayment in full.
Section 2.14 Computation of Interest and Fees. Fees hereunder and
interest accruing on the principal balance of the Advances and the Obligation
of Reimbursement outstanding from time to time shall be computed on the basis
of actual number of days elapsed in a year of 360 days.
Section 2.15 Voluntary Prepayment; Reduction of the Revolving
Facility Amount; Termination of the Credit Facility by the Borrower. Except as
otherwise provided herein, the Borrower may prepay the Revolving Advances in
whole at any time or from time to time in part and may prepay the Term
Advances (other than in accordance with Section 2.10), prepay the Bridge
Advances (other than in accordance with Section 2.12), reduce the Revolving
Facility Amount or terminate the Credit Facility at any time provided:
(a) The Borrower gives the Agent at least 30 days' prior written
notice.
(b) The Borrower pays the prepayment, termination or facility
amount reduction fees in accordance with Section 2.16.
(c) Any reduction of the Revolving Facility Amount or prepayment
of the Term Advances or the Bridge Advances shall be pro rata among the
Lenders in accordance with their respective Percentages.
(d) The Revolving Facility Amount is not reduced to an amount
less than the sum of the L/C Amount and the aggregate outstanding
principal balance of the Revolving Advances owed to all Lenders at the
time of any such reduction and no such reduction shall reduce any
Lender's Revolving Facility Amount to an amount less than the then-
aggregate outstanding balance of the Revolving Advances due and owing to
such Lender plus such Lender's Percentage of the L/C Amount.
(e) No Letter of Credit has been issued and is outstanding with
an expiration date after the date of any such early termination.
(f) Any prepayment of the Term Advances (other than in
accordance with Section 2.10), prepayment of the Bridge Advances (other
than in accordance with Section 2.12) or reduction in the Revolving
Facility Amount must be in an amount not less than $250,000 for each
Lender or an integral multiple thereof.
(g) If the Borrower reduces the Revolving Facility Amount to
zero, all Obligations shall be immediately due and payable.
(h) Any partial prepayments of the Term Advances (other than in
accordance with Section 2.10) or prepayment of the Bridge Advances
(other than in accordance with Section 2.12) shall be applied to
principal payments due and owing in inverse order of their maturities.
Upon termination of the Credit Facility and payment and performance of all
Obligations, the Lender shall release or terminate the Security Interest and
the Security Documents to which the Borrower is entitled by law.
Section 2.16 Termination, Facility Amount Reduction and Prepayment
Fees; Waiver of Termination, Prepayment and Facility Amount Reduction Fees.
(a) Termination and Revolving Facility Amount Reduction Fees. If
the Credit Facility is terminated for any reason as of a date other than
the Maturity Date, or the Borrower reduces the Revolving Facility Amount
of any Lender, the Borrower shall pay the affected Lender(s) a fee in an
amount equal to a percentage of the Revolving Facility Amounts (or the
reduction, as the case may be) as follows: (i) three percent (3%) if the
termination or reduction occurs on or before the first anniversary of
the Funding Date; (ii) two percent (2%) if the termination or reduction
occurs after the first anniversary of the Funding Date but on or before
the second anniversary of the Funding Date; (iii) one percent (1%) if
the termination or reduction occurs after the second anniversary of the
Funding Date but on or before the date six months before the Maturity
Date for the Revolving Facility; and (iv) one half of one percent (0.5%)
if prepayment occurs after the date six months before the Maturity Date
for the Revolving Facility but before the Maturity Date for the
Revolving Facility
(b) Prepayment Fees - Term Facility. If the Term Notes are
prepaid other than in accordance with Section 2.10, the Borrower shall
pay to the Lenders a fee in an amount equal to a percentage of the
amount so prepaid as follows: (i) three percent (3%) if prepayment
occurs on or before the first anniversary of the Funding Date; (ii) two
percent (2%) if prepayment occurs after the first anniversary of the
Funding Date but on or before the second anniversary of the Funding
Date; (iii) one percent (1%) if prepayment occurs after the second
anniversary of the Funding Date but on or before the date six months
before the Maturity Date for the Term Facility; and (iv) one half of one
percent (0.5%) if prepayment occurs after the date six months before the
Maturity Date for the Term Facility but before the Maturity Date for the
Term Facility.
(c) Prepayment Fees - Bridge Facility. If the Bridge Notes are
prepaid other than in accordance with Section 2.12, the Borrower shall
pay to the Lenders a fee in an amount equal to a percentage of the
amount so prepaid as follows: (i) three percent (3%) if prepayment
occurs on or before the first anniversary of the Funding Date; and
(ii) two percent (2%) if prepayment occurs after the first anniversary
of the Funding Date but on or before the second anniversary of the
Funding Date.
(d) Waiver of Fees. The Borrower will not be required to pay any
fees otherwise due under this Section 2.16 if the termination of the
Credit Facility, reduction of the Revolving Facility Amount or
prepayment of the Term Notes or Bridge Notes occurs from increased cash
flow generated from the Borrower's operations or Net Equity Proceeds.
Section 2.17 Mandatory Prepayment: Borrowing Base Deficiencies.
Without notice or demand, if the sum of the outstanding principal balance of
the Revolving Advances plus the L/C Amount shall at any time exceed the
Borrowing Base, the Borrower shall (i) first, immediately prepay the Revolving
Advances to the extent necessary to eliminate such excess; and (ii) if
prepayment in full of the Revolving Advances is insufficient to eliminate such
excess, pay to the Agent in immediately available funds for deposit in the
Special Account an amount equal to the remaining excess. Any payment received
by the Agent under this Section 2.17 may be applied to the Obligations in such
order as the Agent, in its discretion, may from time to time determine.
Section 2.18 Payment. All payments on the Obligations shall be
made to the Agent in immediately available funds and shall be applied to the
Obligations one (1) Banking Day after receipt by the Agent. The Agent may hold
all payments not constituting immediately available funds for three (3)
additional days before applying them to the Obligations. For the avoidance of
doubt, all funds transferred from the Collateral Account shall be deemed to be
immediately available. Notwithstanding anything in Section 2.2 and even if the
conditions set forth in Section 4.2 would not be satisfied, the Borrower
hereby authorizes the Agent, in its discretion at any time or from time to
time and without request by the Borrower, to request Revolving Advances from
the Lenders to the extent necessary to pay the Obligations when and as they
become due and payable.
Section 2.19 Payment on Non-Banking Days. Whenever any payment to
be made hereunder shall be stated to be due on a day which is not a Banking
Day, such payment may be made on the next succeeding Banking Day, and such
extension of time shall in such case be included in the computation of
interest on the Advances or the fees hereunder, as the case may be.
Section 2.20 Use of Proceeds. The Borrower shall use the proceeds
of Revolving Advances for ordinary working capital purposes and use the
proceeds of the Term Advances and the Bridge Advances in accordance with
Schedule 2.20.
Section 2.21 Liability Records. The Agent may maintain from time
to time, at its discretion, liability records as to any and all Obligations
which shall be additional evidence of the Borrower's obligation to pay the
Obligations. All entries made on any such record shall be presumed correct
until the Borrower establishes the contrary. On demand by the Agent, the
Borrower will admit and certify in writing the exact principal balance that
the Borrower then asserts to be outstanding to the Lenders for Advances under
this Agreement and the amount of any Letters of Credit outstanding. Any
billing statement or accounting rendered by the Agent shall be conclusive and
fully binding on the Borrower unless specific written notice of exception is
given to the Agent by the Borrower within 30 days after its receipt by the
Borrower.
Section 2.22 Fees.
(a) Origination Fee. The Borrower shall pay the Agent for the
ratable benefit of the Lenders a fully earned and non-refundable
origination fee with respect to the Credit Facilities of $600,000 due
and payable on the Funding Date.
(b) Unused Fee. The Borrower shall pay the Agent for the benefit
of each Lender a commitment fee at the rate of one quarter of one
percent (0.25%) per annum on the average daily Unused Revolving Facility
Amount from the date of this Agreement to and including the Termination
Date, due and payable monthly in arrears on the first day of each month
and on the Termination Date. For the purposes of this Subsection (b),
Unused Revolving Facility Amount means, for each Lender, such Lender's
Revolving Facility Amount reduced by the sum of (i) outstanding
Revolving Advances made by such Lender and (ii) such Lender's Percentage
of the L/C Amount.
(c) Agent Fee. The Borrower shall pay the Agent a fully earned
and non-refundable annual fee of $15,000, due and payable on the date of
this Agreement and on each anniversary thereof until the Termination
Date.
(d) Letter of Credit Fees. The Borrower shall pay the Agent for
the ratable benefit of the Lenders a fee with respect to each
outstanding Letter of Credit, if any, accruing on a daily basis and
computed at the annual rate of two percent (2.00%) of the L/C Amount
from and including the date of issuance of such Letter of Credit until
such date as such Letter of Credit shall terminate by its terms, due and
payable monthly in arrears on the first day of each month and on the
Termination Date.
(e) Letter of Credit Administrative Fees. The Borrower shall pay
the Agent, on written demand, the administrative fees charged by the
Agent in connection with the honoring of drawings under any Letter of
Credit, amendments thereto, transfers thereof and all other activity
with respect to the Letters of Credit at the then-current rates
published by the Agent for such services rendered on behalf of customers
of the Agent generally.
(f) Audit Fees. The Borrower shall pay the Agent, on demand,
audit fees in connection with any audits or inspections conducted by the
Agent of any Collateral or the operations or business of the Borrower at
the standard rate or rates established from time to time by the Agent as
its audit fees (which fees are currently $62.50 per hour per auditor),
together with all actual out-of-pocket costs and expenses incurred in
conducting any such audit or inspection.
Section 2.23 Capital Adequacy. If any Lender determines at any
time that its Return has been reduced as a result of any Capital Adequacy Rule
Change, such Lender may require the Borrower to pay it the amount necessary to
restore its Return to what it would have been had there been no Capital
Adequacy Rule Change. For purposes of this Section 2.23:
(a) Return, for any period, means the percentage determined by
dividing (i) the sum of interest and ongoing fees earned by a Lender
under this Agreement during such period, by (ii) the average capital
such Lender is required to maintain during such period as a result of
its being a party to this Agreement, as determined by such Lender based
upon its total capital requirements and a reasonable attribution formula
that takes account of the Capital Adequacy Rules then in effect. Return
may be calculated for each calendar quarter and for the shorter period
between the end of a calendar quarter and the date of termination in
whole of this Agreement.
(b) Capital Adequacy Rule means any law, rule, regulation or
guideline regarding capital adequacy that applies to any Lender, or the
interpretation thereof by any governmental or regulatory authority.
Capital Adequacy Rules include rules requiring financial institutions to
maintain total capital in amounts based upon percentages of outstanding
loans, binding loan commitments and letters of credit.
(c) Capital Adequacy Rule Change means any change in any Capital
Adequacy Rule occurring after the date of this Agreement, but the term
does not include any changes in applicable requirements that at the
Funding Date are scheduled to take place under the existing Capital
Adequacy Rules or any increases in the capital that any Lender is
required to maintain to the extent that the increases are required due
to a regulatory authority's assessment of that Lender's financial
condition.
(d) Lender includes (but is not limited to) the Agent, the
Lenders, as defined elsewhere in this Agreement, and any assignee of any
interest of any Lender hereunder and any participant in the loans made
hereunder.
The initial notice sent by any Lender shall be sent as promptly as practicable
after such Lender learns that its Return has been reduced, shall include a
demand for payment of the amount necessary to restore such Lender's Return for
the quarter in which the notice is sent, and shall state in reasonable detail
the cause for the reduction in its Return and its calculation of the amount of
such reduction. Thereafter, such Lender may send a new notice during each
calendar quarter setting forth the calculation of the reduced Return for that
quarter and including a demand for payment of the amount necessary to restore
its Return for that quarter. Any Lender's calculation in any such notice shall
be conclusive and binding absent demonstrable error.
ARTICLE III
Security Interest
Section 3.1 Grant of Security Interest. The Borrower hereby
assigns and grants to the Lenders and to the Agent, for and on behalf of the
Lenders, a security interest (collectively referred to as the "Security
Interest") in the Collateral, as security for the payment and performance of
the Obligations.
Section 3.2 Notification of Account Debtors and Other Obligors. In
addition to the rights of the Agent under Section 6.14, with respect to any
and all rights to payment constituting Collateral, the Agent may at any time
during a Default Period notify any account debtor or other person obligated to
pay the amount due that such right to payment has been assigned or transferred
to the Agent for security and shall be paid directly to the Agent. The
Borrower will join in giving such notice if the Agent so requests. At any time
after the Borrower or the Agent gives such notice to an account debtor or
other obligor, the Agent may, but need not, in the Agent's name or in the
Borrower's name, (a) demand, sue for, collect or receive any money or property
at any time payable or receivable on account of, or securing, any such right
to payment, or grant any extension to, make any compromise or settlement with
or otherwise agree to waive, modify, amend or change the obligations
(including collateral obligations) of any such account debtor or other
obligor; and (b) as agent and attorney in fact of the Borrower, notify the
United States Postal Service to change the address for delivery of the
Borrower's mail to any address designated by the Agent, otherwise intercept
the Borrower's mail, and receive, open and dispose of the Borrower's mail,
applying all Collateral as permitted under this Agreement and holding all
other mail for the Borrower's account or forwarding such mail to the
Borrower's last known address.
Section 3.3 Assignment of Insurance. As additional security for
the payment and performance of the Obligations, the Borrower hereby assigns to
the Lenders and to the Agent, for and on behalf of the Lenders, any and all
monies (including, without limitation, proceeds of insurance and refunds of
unearned premiums) due or to become due under, and all other rights of the
Borrower with respect to, any and all policies of insurance now or at any time
hereafter covering the Collateral or any evidence thereof or any business
records or valuable papers pertaining thereto, and the Borrower hereby directs
the issuer of any such policy to pay all such monies directly to the Agent. At
any time, whether or not a Default Period Exists, the Agent may (but need
not), in the Agent's name or in the Borrower's name, execute and deliver proof
of claim, receive all such monies, endorse checks and other instruments
representing payment of such monies, and adjust, litigate, compromise or
release any claim against the issuer of any such policy.
Section 3.4 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lenders and to
the Agent, for and on behalf of the Lenders, the right to take exclusive
possession of the Premises at any time during a Default Period.
(b) The Lenders may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that the
Agent may in good faith deem to be related or incidental purposes.
(c) The Lenders shall not be obligated to pay or account for any
rent or other compensation for the possession, occupancy or use of any
of the Premises; provided, however, if the Lenders do pay or account for
any rent or other compensation for the possession, occupancy or use of
any of the Premises, the Borrower shall reimburse the Agent promptly for
the full amount thereof. In addition, the Borrower will pay, or
reimburse the Lenders for, all taxes, fees, duties, imposts, charges and
expenses at any time incurred by or imposed upon the Lenders by reason
of the execution, delivery, existence, recordation, performance or
enforcement of this Agreement or the provisions of this Section 3.4.
Section 3.5 License. Without limiting any other Security Document
in any way, the Borrower hereby grants to the Lenders and to the Agent, for
and on behalf of the Lenders, a non-exclusive, worldwide and royalty-free
license to use or otherwise exploit all trademarks, franchises, trade names,
copyrights and patents of the Borrower for the purpose of selling, leasing or
otherwise disposing of any or all Collateral during a Default Period.
Section 3.6 Financing Statement. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a
financing statement in any state to perfect the security interests granted
hereby. For this purpose, the following information is set forth:
Name and address of Debtor:
Sheldahl, Inc.
1150 Sheldahl Road
P.O. Box 170
Northfield, Minnesota 55057
Attn: John V. McManus
Federal Tax Identification No. 41 075 8073
Name and address of Secured Party:
Norwest Bank Minnesota, National Association, as Agent
Norwest Center
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0152
Section 3.7 Setoff. The Borrower agrees that each Lender may at
any time during a Default Period, at its sole discretion and without demand,
setoff any liability owed to the Borrower by that Lender, whether or not due,
against any Obligation, whether or not due, provided each applicable Lender
provides prompt notice thereof after any such setoff. In addition, each other
Person holding a participating interest in any Obligations shall have the
right to appropriate or setoff any deposit or other liability then owed by
such Person to the Borrower, whether or not due, and apply the same to the
payment of said participating interest, as fully as if such Person had lent
directly to the Borrower the amount of such participating interest.
ARTICLE IV
Conditions of Lending
Section 4.1 Conditions Precedent to the Initial Advances or
Issuing the Initial Letter of Credit. The Lenders' obligation to make the
initial Advances and issue any Letter of Credit shall be subject to the
condition precedent that the Agent shall have received all of the following,
each in form and substance satisfactory to the Agent:
(a) This Agreement, properly executed on behalf of the Borrower.
(b) The Notes, properly executed on behalf of the Borrower.
(c) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises, together with a landlord's
disclaimer and consent with respect to each such lease, pursuant to
which the Agent shall have the right to use and occupy the leased
Premises for 105 days, to the extent not already received by the Agent.
(d) A true and correct copy of any and all mortgages encumbering
any real estate owned by the Borrower.
(e) The Collateral Account Agreement, duly executed on behalf
of the Borrower.
(f) The Lockbox Agreement, duly executed on behalf of the
Borrower.
(g) Financing statements or amendments thereto for each
jurisdiction in which the Borrower owns Collateral sufficient when filed
to perfect the Security Interests under this Agreement to the extent
such security interests are capable of being perfected by filing.
(h) An Amendment to the Mortgage, Assignment of Rents and
Indemnity, properly executed on behalf of the Borrower and reflecting
the execution and delivery of the Revolving Notes in substitution and
replacement for the Old Revolving Notes, together with an endorsement to
the title insurance policy insuring the lien of the Mortgage.
(i) The Original Warrants, duly executed by the Borrower.
(j) Current searches of appropriate filing offices showing that
(i) no state or federal tax liens have been filed and remain in effect
against the Borrower, (ii) no financing statements have been filed and
remain in effect against the Borrower, except those financing statements
relating to Permitted Liens, and (iii) the Agent has duly filed all
financing statements necessary to perfect the Security Interest granted
to the Lenders hereunder, to the extent the Security Interest is capable
of being perfected by filing.
(k) A certificate of the Secretary or an Assistant Secretary of
the Borrower, certifying as to (i) the resolutions of the directors and,
if required, the shareholders of the Borrower, authorizing the
execution, delivery and performance of this Agreement and the Security
Documents, (ii) the articles of incorporation and bylaws of the
Borrower, and (iii) the signatures of the officers or agents of the
Borrower authorized to execute and deliver this Agreement, the Security
Documents and other instruments, agreements and certificates, including
Advance requests, on behalf of the Borrower.
(l) A current certificate issued by the Secretary of State of
the state of the Borrower's incorporation, certifying that the Borrower
is in compliance with all corporate organizational requirements of such
state.
(m) Evidence that the Borrower is 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 it
makes such licensing or qualification necessary.
(n) An opinion of counsel to the Borrower, addressed to the
Lenders.
(o) Certificates of the insurance required hereunder, with all
hazard insurance containing a lender's loss payable endorsement in favor
of the Agent and with all liability insurance naming the Lenders as
additional insureds, to the extent not already received by the Agent.
(p) Payment of the fees and commissions due through the Funding
Date and all expenses incurred by the Agent through such date and
required to be paid by the Borrower under Section 10.8.
(q) An appraisal prepared by an appraiser acceptable to the
Agent of the orderly and forced liquidation values of the Borrower's
Equipment on the basis of which the Lenders will make the Term Advances.
Section 4.2 Conditions Precedent to All Advances and the Issuance
of Any Letters of Credit. The obligation of the Lenders to make each Advance
and of the Agent to issue any Letter of Credit shall be subject to the further
conditions precedent that on such date:
(a) the representations and warranties contained in Article V
are correct on and as of the date of such Advance or issuance of Letter
of Credit 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 or the issuance of such Letter of Credit, as the case
may be, which constitutes a Default or an Event of Default.
ARTICLE V
Representations and Warranties
To induce the Lenders to enter into this Agreement, the Borrower
hereby represents and warrants to the Lenders and the Agent as follows:
Section 5.1 Corporate Existence and Power; Name; Chief Executive
Office; Inventory and Equipment Locations. The Borrower and each Subsidiary is
a corporation duly incorporated, validly existing and in good standing under
the laws of the state of its jurisdiction, and is 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 it makes such
licensing or qualification necessary. The Borrower has all requisite power and
authority, corporate or otherwise, to conduct its business, to own its
properties, to issue the Warrants and the Warrant Stock, and to execute and
deliver, and to perform all of its obligations under, the Loan Documents and
the Warrants. During its corporate existence, the Borrower has done business
solely under the names set forth in Schedule 5.1. The chief executive office
and principal place of business of the Borrower is located at the address set
forth in Schedule 5.1, and all of the Borrower's records relating to its
business or the Collateral are kept at that location. All Inventory and
Equipment is located at that location or at one of the other locations set
forth in Exhibit Schedule 5.1. The Borrower's tax identification number is
correctly set forth in Section 3.6.
Section 5.2 Authorization of Borrowing; No Conflict as to Law or
Agreements. The execution, delivery and performance by the Borrower of the
Loan Documents, the Warrants and the borrowings from time to time hereunder,
and the issuance of Warrant Stock upon exercise of the Warrants, have been
duly authorized by all necessary corporate action and do not and will not
(a) require any consent or approval of the stockholders of the Borrower, (b)
require any authorization, consent or approval by, or registration,
declaration or filing with, or notice to, any governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, or
any third party, except such authorization, consent, approval, registration,
declaration, filing or notice as has been obtained, accomplished or given
prior to the date hereof, (c) 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 of the
Articles of Incorporation or Bylaws of the Borrower, (d) result in a breach of
or constitute a default under any indenture or loan or credit agreement or any
other material agreement, lease or instrument to which the Borrower is a party
or by which it or its properties may be bound or affected, or (e) result in,
or require, the creation or imposition of any mortgage, deed of trust, pledge,
lien, security interest or other charge or encumbrance of any nature (other
than Permitted Liens) upon or with respect to any of the properties now owned
or hereafter acquired by the Borrower. The Borrower has not, directly or
through an agent, offered the Warrants or the Warrant Stock, or any similar
securities for sale to, or solicited any offers to acquire such securities
from, persons other than the Lenders and other accredited investors. Under the
circumstances contemplated by the Warrants and the Loan Documents, the offer,
issuance and delivery of the Warrants and the offer of the Warrant Stock will
not under current laws and regulations require compliance with the prospectus
delivery or registration requirements of the Securities Act.
Section 5.3 Capital Stock. The authorized capital stock of the
Borrower is correctly set forth on Schedule 5.3. All of the outstanding
shares of capital stock of the Borrower were duly authorized and validly
issued and are fully paid and nonassessable. There are no outstanding
subscriptions, options, warrants, calls, contracts, demands, commitments,
convertible securities or other agreements or arrangements of any character or
nature whatever, except as otherwise disclosed in Schedule 5.3, under which
the Borrower is or may be obligated to issue capital stock or other securities
of any kind representing an ownership interest or contingent ownership
interest in the Borrower. Neither the offer nor the issuance or sale of the
Warrants or the Warrant Stock constitutes an event, under any anti-dilution
provisions of any securities issued or issuable by the Borrower or any
agreements with respect to the issuance of securities by the Borrower, which
will either increase the number of shares issuable pursuant to such provisions
or decrease the consideration per share to be received by the Borrower
pursuant to such provisions. Except as otherwise disclosed in Schedule 5.3, no
holder of any security of the Borrower is entitled to any preemptive or
similar rights to purchase securities from the Borrower, provided, however,
that nothing in this Section 5.3 shall affect, alter or diminish any right
granted to any Lender. All outstanding securities of the Borrower have been
issued in full compliance with an exemption or exemptions from the
registration and prospectus delivery requirements of the Securities Act and
from the registration and qualification requirements of all applicable state
securities laws.
Section 5.4 Warrants and Warrant Stock. The Original Warrants have
been duly authorized, and are validly issued and outstanding, fully paid,
nonassessable and free and clear of all pledges, liens, encumbrances and
restrictions except for restrictions on transfer pursuant to the Securities
Act, and the shares of Warrant Stock issuable upon exercise of the Warrants
have been reserved for issuance based upon the initial purchase price, and the
Additional Warrants and the Warrant Stock when issued and paid for in
accordance with the Warrants will be duly authorized, validly issued and
outstanding, fully paid, nonassessable and free and clear of all pledges,
liens, encumbrances and restrictions, except for restrictions on transfer
pursuant to the Securities Act. The Warrants and the certificates representing
the Warrant Stock to be delivered upon the exercise of the Warrants, will be
genuine, and the Borrower has no knowledge of any fact which would impair the
validity thereof.
Section 5.5 Old Loan Documents; Existing Indebtedness; Release.
(a) The Old Credit Agreement, the Old Revolving Notes and
Existing Security Documents constitute the legal, valid and binding
agreements of the Borrower, subject to no defenses, counterclaims, right
of offset or recoupment and are enforceable in accordance with their
respective terms. The Borrower hereby releases and forever discharges
the Agent and the Lenders and each of their respective former and
present directors, officers, employees, agents and representatives of
and from every and all claims, demands, causes of action (at law or in
equity) and liabilities, of any kind or nature, whether known or
unknown, liquidated or unliquidated, absolute or continent, which the
Borrower ever had, presently has or claims to have against any of them
or any of their directors, officers, employees, agents or
representatives of or relating to events, occurrences, actions,
inactions or any other matter occurring prior to the date of this
Agreement.
(b) The Borrower is justly indebted to the Assigning Lenders
under the Old Revolving Notes in the amount set forth in Section 2.1.
The Old Revolving Notes constitute the legal, valid and binding
obligations of the Borrower, are subject to no defenses, counterclaims,
right of offset or recoupment and are enforceable in accordance with
their terms.
(c) Upon execution and delivery of this Agreement, the Notes and
all other documents to be delivered in connection therewith, the
Security Documents will secure payment and performance of the
Obligations.
Section 5.6 Legal Agreements. This Agreement constitutes and, upon
due execution by the Borrower, the other Loan Documents will constitute the
legal, valid and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their respective terms.
Section 5.7 Subsidiaries and Joint Ventures. Except as set forth
in Schedule 5.7, the Borrower has no Subsidiaries or joint ventures.
Section 5.8 Financial Condition; No Adverse Change. The Borrower
has heretofore furnished to the Lenders audited financial statements of the
Borrower for its fiscal year ended August 28, 1997, the Borrower's form 10-Q
for the period ended February 27, 1998, and unaudited financial statements of
the Borrower for the eighth-month period ended April 30, 1998, and those
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. Except for $20,000,000 of
restructuring charges since April 30, 1998, there has been no material adverse
change in the business, properties or condition (financial or otherwise) of
the Borrower or its Subsidiaries since the date of the most recent financial
statements cited above.
Section 5.9 Litigation. Other than as set forth in Schedule 5.9,
there are no actions, suits or proceedings pending or, to the knowledge of the
Borrower, threatened against or affecting the Borrower or any of its
Subsidiaries or the properties of the Borrower or any of its Subsidiaries
before any court or governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, which, if determined adversely to the
Borrower or any Subsidiary, would have a material adverse effect on the
financial condition, properties or operations of the Borrower or such
Subsidiary.
Section 5.10 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 Advances or draw
under any Letter of Credit 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 5.11 Taxes. The Borrower and its Subsidiaries have paid or
caused to be paid to the proper authorities when due all federal, state and
local taxes required to be withheld by each of them. The Borrower and its
Subsidiaries have filed all federal, state and local tax returns which to the
knowledge of the officers of the Borrower or any Subsidiary, as the case may
be, are required to be filed, and the Borrower and its Subsidiaries have paid
or caused to be paid to the respective taxing authorities all taxes as shown
on said returns or on any assessment received by any of them to the extent
such taxes have become due.
Section 5.12 Titles and Liens. The Borrower has good and absolute
title to all Collateral described in the collateral reports provided to the
Lenders and all other Collateral, properties and assets reflected in the
latest balance sheet referred to in Section 5.8 and all proceeds thereof, free
and clear of all mortgages, security interests, liens and encumbrances, except
for Permitted Liens. No financing statement naming the Borrower as debtor is
on file in any office except to perfect only Permitted Liens.
Section 5.13 Patents and Other Intangible Rights. The Borrower
(a) owns or has the exclusive right to use, free and clear of all material
liens, claims and restrictions, all patents, trademarks, service marks, trade
names, copyrights, licenses and rights with respect to the foregoing, used in
the conduct of its business as now conducted; (b) except with respect to
Sidrabe Technology, is not obligated or under any liability whatsoever to make
any payments of a material nature by way of royalties, fees or otherwise to
any owner of, licensor of, or other claimant to, any patent, trademark, trade
name, copyright or other intangible asset, with respect to the use thereof or
in connection with the conduct of its business or otherwise, (c) except with
respect to Sidrabe Technology, owns or has the unrestricted right to use all
trade secrets, including know-how, inventions, designs, processes, computer
programs and technical data necessary to the development, operation and sale
of all products and services sold or proposed to be sold by it, free and clear
of any rights, liens or claims of others, and (d) is not using any
confidential information or trade secrets of others except to the extent
licensed to do so by Sidrabe. The Borrower is not, nor has it received notice
with respect to, infringing upon or otherwise acting adversely to any known
right or claimed right of any person under or with respect to any patents,
trademarks, service marks, trade names, copyrights, licenses or rights with
respect to the foregoing.
Section 5.14 Plans. Except as disclosed to the Lenders in writing
prior to the date hereof, neither the Borrower nor any Affiliate maintains or
has maintained any Plan. Neither the Borrower nor any Affiliate has received
any notice or has any knowledge to the effect that it is not in full
compliance with any of the requirements of ERISA. No Reportable Event or other
fact or circumstance which may have an adverse effect on the Plan's tax
qualified status exists in connection with any Plan. Neither the Borrower nor
any Affiliate has:
(a) Any accumulated funding deficiency within the meaning of
ERISA; or
(b) Any liability or knows of any fact or circumstances which
could result in any liability to the Pension Benefit Guaranty
Corporation, the Internal Revenue Service, the Department of Labor or
any participant in connection with any Plan (other than accrued benefits
which or which may become payable to participants or beneficiaries of
any such Plan).
Section 5.15 Default. Neither the Borrower nor any Subsidiary is
in default of a material provision under any material agreement, instrument,
decree or order to which it is a party or by which it or its property is bound
or affected.
Section 5.16 Environmental Matters.
(a) As used in this Agreement, the following terms shall have
the following meanings:
(i) Environmental Law means any federal, state, local or
other governmental statute, regulation, law or ordinance dealing
with the protection of human health or the environment.
(ii) Hazardous Substances means pollutants, contaminants,
hazardous substances, hazardous wastes, petroleum and fractions
thereof, and all other chemicals, wastes, substances and materials
listed in or regulated by any Environmental Law.
(b) Other than as expressly set forth and described in Schedule
5.16:
(i) To the best knowledge of Borrower, there are not
present in, on or under the Premises any Hazardous Substances in
such form or quantity as to create any liability or obligation for
either the Borrower, the Agent or the Lenders under common law of
any jurisdiction or under any Environmental Law, and no Hazardous
Substances have ever been stored, buried, spilled, leaked,
discharged, emitted or released in, on or under the Premises in
such a way as to create any such liability.
(ii) To the best knowledge of the Borrower, neither the
Borrower nor any Subsidiary has disposed of Hazardous Substances
in such a manner as to create any liability under any
Environmental Law.
(iii) To the best knowledge of the Borrower, there are not
pending any requests, claims, notices, investigations, demands,
administrative proceedings, hearings or litigation, relating in
any way to the Premises, the Borrower or any Subsidiary, alleging
liability under, violation of, or noncompliance with any
Environmental Law or any license, permit or other authorization
issued pursuant thereto. To the best knowledge of the Borrower, no
such matter is threatened or impending.
(iv) To the best knowledge of the Borrower, the Borrower's
and its Subsidiaries businesses are and have in the past always
been conducted in material compliance with all Environmental Laws.
All licenses, permits and other authorizations required pursuant
to any Environmental Law and necessary for the lawful and
efficient operation of such businesses are in the Borrower's or
its Subsidiaries' possession and are in full force and effect. No
permit required under any Environmental Law is scheduled to expire
within 24 months and to the best knowledge of the Borrower, there
is no threat that any such permit will be withdrawn, terminated,
limited or materially changed.
(v) To the best knowledge of the Borrower, the Premises
are not and never have been listed on the National Priorities
List, the Comprehensive Environmental Response, Compensation and
Liability Information System or any similar federal, state or
local list, schedule, log, inventory or database.
(c) The Borrower has made available to the Lenders all
environmental assessments, audits, reports, permits, licenses and other
documents describing or relating in any way to the environmental
condition or status of the Premises or Borrower's or its Subsidiaries'
businesses.
Section 5.17 Submissions to Lenders. All financial and other
information provided to the Agent or the Lenders by or on behalf of the
Borrower in connection with the Borrower's request for the credit facilities
contemplated hereby is true and correct in all material respects and, as to
projections, valuations or proforma financial statements, present a good faith
opinion as to such projections, valuations and proforma condition and results.
Section 5.18 Financing Statements. The Borrower has provided to
the Agent signed financing statements sufficient when filed to perfect the
Security Interest and the other security interests created by the Security
Documents. When such financing statements are filed in the offices noted
therein, the Agent will have a valid and perfected security interest in all
Collateral and all other collateral described in the Security Documents which
is capable of being perfected by filing financing statements. None of the
Collateral or other collateral covered by the Security Documents is or will
become a fixture on real estate, unless a sufficient fixture filing is in
effect with respect thereto.
Section 5.19 Rights to Payment. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be
when arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
ARTICLE VI
Affirmative Covenants of the Borrower
So long as the Obligations shall remain unpaid, or any Lender's
Commitment or any Letter of Credit shall be outstanding, the Borrower will
comply with the following requirements, unless the Lenders shall otherwise
consent in writing:
Section 6.1 Reporting Requirements. The Borrower will deliver, or
cause to be delivered, each of the following, which shall be in form and
detail acceptable to the Lenders:
(a) to each Lender, as soon as available, and in any event
within 90 days after the end of each fiscal year of the Borrower,
audited financial statements of the Borrower and its Subsidiaries
prepared on a consolidated and consolidating basis with the unqualified
opinion of independent certified public accountants selected by the
Borrower and acceptable to the Agent, which annual financial statements
shall include the consolidated balance sheet of the Borrower and its
Subsidiaries as at the end of such fiscal year and the related
statements of income, retained earnings and cash flows of the Borrower
and its Subsidiaries for the fiscal year then ended, all in reasonable
detail and prepared in accordance with GAAP, together with (i) copies of
all management letters prepared by such accountants, (ii) a report
signed by such accountants stating that in making the investigations
necessary for said opinion they obtained no knowledge, except as
specifically stated, of any Default or Event of Default hereunder and
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 6.17, 6.18, 6.19, 6.20, 6.21 and
Section 7.12; and (iii) a certificate of the Vice President of Finance
or Assistant Corporate Controller of the Borrower stating that such
financial statements have been prepared in accordance with GAAP and
whether or not such officer has knowledge of the occurrence of any
Default or Event of Default hereunder and, if so, stating in reasonable
detail the facts with respect thereto;
(b) to each Lender, as soon as available and in any event within
20 days after the end of each month, a consolidated balance sheet,
income statement and cash flow statement of the Borrower and its
Subsidiaries as at the end of and for such month and for the fiscal
year-to-date period then ended, in reasonable detail and stating in
comparative form the figures for the corresponding date and periods in
the previous fiscal year, all prepared in accordance with GAAP, subject
to fiscal year-end audit adjustments; and accompanied by a certificate
of the Vice President of Finance or Assistant Corporate Controller of
the Borrower, substantially in the form of Exhibit F stating (i) that
such financial statements have been prepared in accordance with GAAP,
subject to fiscal year-end audit adjustments, and fairly represent the
Borrower's financial position and the results of its operations,
(ii) whether or not such officer has knowledge of the occurrence of any
Default or Event of Default 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 6.17, 6.18, 6.19, 6.20, 6.21 and
Section 7.12;
(c) to the Agent, within 20 days after the end of each month or
more frequently if the Agent so requires, agings of the Borrower's
accounts receivable and its accounts payable, certified on the
Borrower's behalf by the Borrower's Vice President of Finance or
Assistant Corporate Controller;;
(d) to each Lender, within 20 days after the end of each month
or more frequently if the Agent so requires, an inventory certification
report, a schedule of all operating lease obligations, a description of
Capital Expenditures scheduled to occur during the next 90 days, a
production backlog report, and a calculation of the Borrower's Accounts,
Eligible Accounts, Inventory, Eligible Raw Materials Inventory, Eligible
Finished Goods Inventory and Eligible Other Inventory as at the end of
such month or shorter time period, which certificates and reports shall
have duly completed and certified on the Borrower's behalf by the
Borrower's Vice President of Finance or Assistant Corporate Controller;
(e) to each Lender, at least thirty (30) days before the end of
each fiscal year, the projected balance sheets and income statements for
each month of the new fiscal year, each in reasonable detail,
representing the Borrower's good faith projections and certified by the
Borrower's Vice President of Finance or Assistant Corporate Controller
as being the most accurate projections available and identical to the
projections used by the Borrower for internal planning purposes,
together with such supporting schedules and information as the Agent may
in its discretion require;
(f) to each Lender, immediately after the commencement thereof,
notice in writing of all litigation and of all proceedings before any
governmental or regulatory agency affecting the Borrower of the type
described in Section 5.9 or which seek a monetary recovery against the
Borrower in excess of $250,000;
(g) to each Lender, as promptly as practicable (but in any event
not later than five business days) after an officer of the Borrower
obtains knowledge of the occurrence of any breach, default or event of
default under any Security Document or any event which constitutes a
Default or Event of Default, notice of such occurrence, together with a
detailed statement by a responsible officer of the Borrower of the steps
being taken by the Borrower to cure the effect of such breach, default
or event;
(h) to each Lender, as soon as possible and in any event within
30 days after the Borrower knows or has reason to know that any
Reportable Event with respect to any Plan has occurred, the statement of
the Vice President of Finance or Assistant Corporate Controller of the
Borrower setting forth details as to such Reportable Event and the
action which the Borrower proposes to take with respect thereto,
together with a copy of the notice of such Reportable Event to the
Pension Benefit Guaranty Corporation;
(i) to each Lender, as soon as possible, and in any event within
10 days after the Borrower or any Affiliate fails to make any quarterly
contribution required with respect to any Plan under Section 412(m) of
the Internal Revenue Code of 1986, as amended, the statement of the
chief financial officer or assistant corporate controller of the
Borrower setting forth details as to such failure and the action which
the Borrower proposes to take with respect thereto, together with a copy
of any notice of such failure required to be provided to the Pension
Benefit Guaranty Corporation;
(j) to the Agent, promptly upon knowledge thereof, notice of
(i) any dispute or claim exceeding $250,000 by any customer of the
Borrower; (ii) any goods returned to or recovered by the Borrower
exceeding $250,000 per single occurrence; and (iii) any change in the
persons constituting the officers and directors of the Borrower;
(k) to the Agent, promptly upon knowledge thereof, notice of any
loss of or material damage to any Collateral or other collateral covered
by the Security Documents or of any substantial adverse change in any
Collateral or such other collateral or the prospect of payment thereof;
(l) to each Lender, 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;
(m) to each Lender, promptly after the sending or filing
thereof, copies of all regular and periodic financial reports which the
Borrower or any Subsidiary shall file with the Securities and Exchange
Commission or any national securities exchange;
(n) to each Lender, promptly upon knowledge thereof, notice of
the violation by the Borrower of any law, rule or regulation, the non-
compliance with which could materially and adversely affect its business
or its financial condition; and
(o) to the Agent, from time to time upon request, with
reasonable promptness, any and all daily sales journals, credit memos,
collection reports, deposit records (including funds on deposit in
foreign accounts), equipment schedules, copies of invoices to account
debtors, shipment documents and delivery receipts for goods sold, and
such other material, reports, records or information the Agent may
request.
Section 6.2 Books and Records; Inspection and Examination. The
Borrower will, and will cause each Subsidiary to, 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, upon request of any Lender, will give any representative of such
Lender 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 such Lender may reasonably request.
Section 6.3 Account Verification. The Agent may at any time and
from time to time send or require the Borrower to send requests for
verification of Accounts or notices of assignment to account debtors and other
obligors. The Lender may also at any time and from time to time telephone
account debtors and other obligors to verify Accounts.
Section 6.4 Compliance with Laws.
(a) The Borrower will, and will cause each Subsidiary to,
(1) comply with the requirements of applicable laws and regulations, the
non-compliance with which would materially and adversely affect its
business or its financial condition, and (2) use and keep the
Collateral, and require that others use and keep the Collateral, only
for lawful purposes, without violation of any federal, state or local
law, statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will, and will cause each Subsidiary to,
comply in all material respects with all applicable Environmental Laws
and obtain and comply in all material respects with all permits,
licenses and similar approvals required by any Environmental Laws, and
will not generate, use, transport, treat, store or dispose of any
Hazardous Substances in such a manner as to create any liability or
obligation under the common law of any jurisdiction or any Environmental
Law.
Section 6.5 Payment of Taxes and Other Claims. The Borrower will,
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, upon any properties belonging to it (including, without
limitation, the Collateral) or upon or against the creation, perfection or
continuance of the Security Interest, 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; provided, that except as required under the Mortgage, the Borrower
shall not 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 adequate reserves have been made.
Section 6.6 Maintenance of Properties. The Borrower will, and will
cause each Subsidiary to, keep and maintain the Collateral, the other
collateral covered by the Security Documents and all of its other properties
necessary or useful in its business in good condition, repair and working
order (normal wear and tear excepted) and will from time to time replace or
repair any worn, defective or broken parts; provided, however, that nothing in
this Section 6.6 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 such Subsidiary, not
disadvantageous in any material respect to any Lender.
Section 6.7 Unauthorized Liens. The Borrower will keep all
Collateral and other collateral covered by the Security Documents free and
clear of all security interests, liens and encumbrances except Permitted Liens
and will defend the Collateral against all claims or demands of all persons
(other than the Lenders and holders of Permitted Liens) claiming the
Collateral or any interest therein.
Section 6.8 Insurance. The Borrower will, and will cause each
Subsidiary to, obtain and at all times maintain insurance with insurers whom
the Borrower and its Subsidiaries believe to be responsible and reputable, in
such amounts and against such risks as the Lenders may from time to time
require, but in all events 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 and its
Subsidiaries operate. Without limiting the generality of the foregoing, the
Borrower will at all times keep all tangible Collateral insured against risks
of fire (including so-called extended coverage), theft, collision (for
Collateral consisting of motor vehicles) and such other risks and in such
amounts as the Lenders may reasonably request, with any loss payable to the
Agent to the extent of the Lenders' interest, and all policies of such
insurance shall contain a lender's loss payable endorsement for the benefit of
the Agent. All policies of liability insurance required hereunder shall name
the Lenders as additional insureds. In addition to the foregoing, the Borrower
shall comply with all insurance requirements under the Mortgage.
Section 6.9 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 necessary or
desirable in the normal conduct of its business and shall conduct its business
in an orderly, efficient and regular manner.
Section 6.10 Delivery of Instruments, etc. Upon request by the
Agent, the Borrower will and will cause each Subsidiary to promptly deliver to
the Agent in pledge all instruments, documents and chattel papers constituting
Collateral, duly endorsed or assigned by the Borrower or such Subsidiary.
Section 6.11 Rule 144A. The Borrower agrees that, upon the
request of any Lender, the Borrower shall promptly provide (but in any case
within 15 days of a request) to such Lender the following information: (a) a
brief statement of the nature of the business of the Borrower and its
Subsidiaries and the products and services they offer; (b) the Borrower's most
recent consolidated balance sheets and profit and loss and retained earnings
statements, and similar financial statements for such part of the two
preceding fiscal years prior to such request as the Borrower has been in
operation (such financial information shall be audited, to the extent
reasonably available); and (c) such other information about the Borrower, its
Subsidiaries and their business, financial condition and results of operations
as the requesting person shall request in order to comply with Rule 144A
promulgated under the Securities Act and the antifraud provisions of the
federal and state securities laws. The Borrower hereby represents and warrants
to any such requesting Lender that the information provided by the Borrower
pursuant to this Section 6.11 will not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading.
Section 6.12 Future Registration Rights. The Borrower will not,
without the prior approval of the Required Lenders, agree with the holders of
any securities issued or to be issued by the Borrower to register such
securities under the Securities Act nor will it grant any incidental
registration rights; provided, however that demand and incidental registration
rights may be granted to holders of convertible preferred stock of the
Borrower issued to raise Net Equity Proceeds without the prior approval of the
Required Lenders.
Section 6.13 Sidrabe License Agreement. The Borrower and Sidrabe,
a Latvian corporation (Sidrabe), are parties to a license agreement (the
Sidrabe License Agreement) pursuant to which Sidrabe has granted the Borrower
certain rights in certain technology (the Sidrabe Technology). The Sidrabe
Technology is used in the production of certain of the Borrower's products. As
of the date of this Agreement, the Sidrabe License Agreement does not permit
the Borrower to sublicense the Sidrabe Technology or to assign any rights in
it any Person other than a Subsidiary of the Borrower. Within 90 days of the
date of this Agreement, the Borrower shall cause Sidrabe to execute and
deliver an acknowledgment and agreement in substantially the form attached
hereto as Exhibit E.
Section 6.14 Lockbox; Collateral Account.
(a) The Borrower will irrevocably direct all present and future
account debtors and other Persons obligated to make payments
constituting Collateral to make such payments directly to the Lockbox.
All of the Borrower's invoices, account statements and other written or
oral communications directing, instructing, demanding or requesting
payment of any Account or any other amount constituting Collateral shall
conspicuously direct that all payments be made to the Lockbox and shall
include the Lockbox address.
(b) All payments received in the Lockbox shall be processed to
the Collateral Account and held therein pursuant to the terms and
conditions of the Collateral Account Agreement.
Section 6.15 Performance by the Agent; Power of Attorney.
(a) If the Borrower at any time fails to perform or observe any
of the foregoing covenants contained in this Article VI or elsewhere
herein relating to the Collateral, and if such failure shall continue
for a period of ten calendar days after the Agent gives the Borrower
written notice thereof (or in the case of the agreements contained in
Sections 6.5, 6.8 and 6.14, immediately upon the occurrence of such
failure, without notice or lapse of time), the Agent may, but need not,
perform or observe such covenant on behalf and in the name, place and
stead of the Borrower (or, at the Agent's option, in the Agent's name)
and may, but need not, take any and all other actions which the Agent
may reasonably deem necessary to cure or correct such failure
(including, without limitation, the payment of taxes, the satisfaction
of security interests, liens or encumbrances, the performance of
obligations owed to account debtors or other obligors, the procurement
and maintenance of insurance, the execution of assignments, security
agreements and financing statements, and the endorsement of
instruments); and the Borrower shall thereupon pay to the Agent on
demand the amount of all monies expended and all costs and expenses
(including reasonable attorneys' fees and legal expenses) incurred by
the Agent in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Agent,
together with interest thereon from the date expended or incurred at the
Default Rate.
(b) To facilitate the performance or observance by the Agent of
such covenants of the Borrower, the Borrower hereby irrevocably appoints
the Agent, or the Agent's delegate, acting alone, as the attorney in
fact of the Borrower (which appointment is coupled with an interest)
with the right (but not the duty) from time to time to create, prepare,
complete, execute, deliver, endorse or file in the name and on behalf of
the Borrower any and all instruments, documents, assignments, security
agreements, financing statements, applications for insurance and other
agreements and writings required to be obtained, executed, delivered or
endorsed by the Borrower under this Section 6.15.
Section 6.16 Additional Warrants. If the Bridge Notes are not
satisfied on or before July 31, 1998, the Borrower shall issue to the Lenders
additional warrants to purchase common stock of the Borrower (together with
any warrants issued in exchange or substitution therefor, the Additional
Warrants) with a warrant exercise price equal to the warrant exercise price of
the Original Warrants at the time the Additional Warrants are issued. The
terms and conditions of the Additional Warrants shall be the same as those
contained in the Original Warrants including, without limitation, the anti-
dilution provisions. Each Lender shall receive an Additional Warrant to
purchase such number of shares of Common Stock of the Borrower as equals the
product of (i) the number of shares issuable upon exercise of the Original
Warrant held by the Lender at the time of issuance of the Additional Warrant
and (ii) one and one half (1.5). At the time of delivery of any Additional
Warrants, the Borrower shall also deliver to each Lender receiving the same
such opinions and certificates concerning the Additional Warrants as the
Lenders may reasonably request consistent with those delivered in conjunction
with the Original Warrants.
Section 6.17 Minimum Net Income. The Borrower will achieve for its
fiscal year ending August 31, 1998, Net Income of not less than $(36,000,000).
Section 6.18 Minimum Cash Flow Available for Debt Service. The
Borrower will achieve Cash Flow Available for Debt Service, determined as at
the end of each fiscal quarter, at not less than the amount set forth opposite
such quarter:
Fiscal Quarter Ending Minimum Cash Flow
Available for Debt
Service
8/31/98 $(3,403,000)
11/30/98 $2,409,000
2/28/99 $5,180,000
5/31/99 $9,671,000
8/31/99 $16,259,000
Section 6.19 Minimum Debt Service Coverage Ratio. The Borrower
will maintain its Debt Service Coverage Ratio, determined as at the end of
each quarter, at not less than the ratio set forth opposite such quarter:
Fiscal Quarter Ending Minimum Debt Service
Coverage Ratio
11/30/98 0.80 to 1.00
2/28/99 0.90 to 1.00
5/31/99 1.25 to 1.00
8/31/99 1.50 to 1.00
Section 6.20 Minimum Pre-tax Net Income. The Borrower will achieve
Pre-tax Net Income, determined as of the end of each fiscal quarter described
below, of not less than the amount set forth opposite such fiscal quarter:
Fiscal Quarter Ending Minimum Pre-Tax Net
Income
11/30/98 $(2,327,000)
2/28/99 $(4,412,000)
5/31/99 $(3,440,000)
8/31/99 $(542,000)
Section 6.21 Minimum Net Worth. The Borrower will maintain its
Net Worth, determined as at the end of each fiscal quarter at an amount not
less than the sum of (i) $46,000,000, (ii) the minimum amount of Pre-tax Net
Income required pursuant to Section 6.20, if any, and (iii) all Net Equity
Proceeds.
ARTICLE VII
Negative Covenants
So long as the Obligations shall remain unpaid, or any Lender's
Commitment or any Letter of Credit shall be outstanding, the Borrower agrees
that, without the prior written consent of the Lenders:
Section 7.1 Liens. The Borrower will not, and will not permit any
Subsidiary to, create, incur or suffer to exist any mortgage, deed of trust,
pledge, lien, security interest, assignment or transfer upon or of any of its
assets, now owned or hereafter acquired, to secure any indebtedness 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 the following (collectively, the "Permitted Liens"):
(a) in the case of any of the Borrower's property which is not
Collateral or other collateral described in the Security Documents,
covenants, restrictions, rights, easements and minor irregularities in
title which do not materially interfere with the Borrower's business or
operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security
interests, leases and assignments in existence on the date hereof and
listed in Schedule 7.1 hereto, securing indebtedness for borrowed money
permitted under Section 7.2;
(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;
(d) the Security Interest and liens and security interests
created by the Security Documents; and
(e) purchase money security interests relating to the
acquisition of machinery and equipment of the Borrower not exceeding the
cost or fair market value thereof and so long as no Default Period is
then in existence and none would exist immediately after such
acquisition.
Section 7.2 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) the Obligations;
(b) indebtedness of the Borrower in existence on the date hereof
and listed in Schedule 7.2, but excluding any extensions or renewals
thereof;
(c) indebtedness in amounts, and relating to liens, permitted in
accordance with Section 7.1(e).
Section 7.3 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:
(a) the endorsement of negotiable instruments by the Borrower
for deposit or collection or similar transactions in the ordinary course
of business; and
(b) 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 7.2.
Section 7.4 Investments and Subsidiaries.
(a) The Borrower will not, and will not permit any Subsidiary
to, purchase or hold beneficially any stock or other securities or
evidences 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, including specifically but without limitation any
partnership or joint venture, except:
(i) 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 rated A-1 or higher by Standard & Poor's Rating
Services or P-1 or higher by Moody's Investors Service, Inc. or
certificates of deposit or bankers' acceptances having a maturity
of one year or less issued by banks rated A-1 or higher by
Standard & Poor's Rating Services or P-1 or higher by Moody's
Investors Service, Inc.;
(ii) travel advances or loans to the Borrower's officers
and employees not exceeding at any one time an aggregate of
$400,000;
(iii) advances in the form of progress payments, prepaid
rent or security deposits;
(iv) existing equity investments in Subsidiaries and joint
ventures;
(v) the Borrower's existing investment in Sidrabe in the
approximate amount of $600,000;
(vi) the Borrower's existing investment in GTS Materials,
Ltd. in the approximate amount of $20,000; and
(vii) stock or securities of other corporations, provided
that the aggregate amount of such investments in any corporation
shall at no time exceed $10,000, and that the aggregate amount of
all such investments in all such corporations shall at no time
exceed $40,000.
(b) The Borrower will not create or permit to exist any
Subsidiary or joint venture, other than any Subsidiary or joint venture
in existence on the date hereof and listed in Schedule 5.7.
Section 7.5 Dividends. The Borrower will not, and will not permit
any Subsidiary to, declare or pay any dividends (other than dividends payable
solely in stock of the Borrower) 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, other than any such payment by a Subsidiary to the Borrower.
Notwithstanding the foregoing, provided no Default Period exists at the time
of payment and none would exist immediately thereafter, the Borrower may pay
dividends on its stock during the first 180 days of each fiscal year in an
aggregate amount not exceeding fifty percent (50%) of the amount by which the
Borrower's Net Income for the prior fiscal year, as shown on its audited
financial statements delivered in accordance with Section 6.1, exceeds
$1,000,000.
Section 7.6 Sale or Transfer of Assets; Suspension of Business
Operations. Except as permitted in Section 7.10, the Borrower will not, and
will not permit any Subsidiary to, sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations.
Section 7.7 Consolidation and Merger; Asset Acquisitions. 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 the assets of any other Person, provided that any
Subsidiary may be merged or consolidated with the Borrower (if the Borrower is
the surviving corporation).
Section 7.8 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 any 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 any Subsidiary
intends to use for substantially the same purpose or purposes as the property
being sold or transferred.
Section 7.9 Subordinated Debt. The Borrower will not, and will not
permit any Subsidiary to, incur any subordinated debt.
Section 7.10 Intellectual Property. The Borrower will not, and
will not permit any Subsidiary to, sell, assign or grant licenses to use, any
of its applications for patents, patents, copyrights, trademarks, trade
secrets, trade names or other intellectual property to any other Person except
in the ordinary course, for fair consideration and so long as doing so does
not cause material harm to the Lenders as holders of the Notes.
Section 7.11 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 and its
Subsidiaries and will not purchase, lease or otherwise acquire assets not
related to its business.
Section 7.12 Capital Expenditures. The Borrower will not, and will
not permit any Subsidiary to, expend or contract to expend for Capital
Expenditures during each fiscal quarter described below, amounts in excess of
the amount set forth opposite such quarter:
Fiscal Quarter Capital Expenditures
Ending
8/31/98 $5,170,000
11/30/98 $2,000,000
2/28/99 $2,000,000
5/31/99 $3,000,000
8/31/99 $3,000,000
provided, however, that amounts not expended during any fiscal quarter listed
above (other than the last) may be carried forward and expended through
August 31, 1999.
Section 7.13 Funds in Foreign Accounts. The Borrower and its
Subsidiaries will not have more than the equivalent of $500,000 in the
aggregate in any and all accounts at any financial institution outside the
United States of America for more than ten (10) consecutive days and shall
transfer all funds in excess of such amount to the Agent for application to
the Obligations pursuant to Section 2.18.
Section 7.14 Accounting. The Borrower will not adopt any material
change in accounting principles other than as required by GAAP. The Borrower
will not adopt, permit or consent to any change in its fiscal year.
Section 7.15 Discounts, etc. During any Default Period and after
notice from the Agent, the Borrower will not, and will not permit any
Subsidiary to, grant any discount, credit or allowance to any customer of the
Borrower or its Subsidiaries or accept any return of goods sold, or at any
time (whether before or after notice from the Agent) modify, amend,
subordinate, cancel or terminate the obligation of any account debtor or other
obligor of the Borrower or its Subsidiaries.
Section 7.16 Defined Benefit Pension Plans. The Borrower will not,
and will not permit any Subsidiary to, adopt, create, assume or become a party
to any defined benefit pension plan, other than as disclosed to the Lenders
pursuant to Section 5.14 or after 30 days prior written notice to the Agent
and the Lenders.
Section 7.17 Other Defaults. The Borrower will not, and will not
permit any Subsidiary to, permit any breach, default or event of default to
occur under any note, loan agreement, indenture, lease, mortgage, contract for
deed, security agreement or other contractual obligation binding upon the
Borrower or its Subsidiaries.
Section 7.18 Place of Business; Name. The Borrower will not
transfer its chief executive office or principal place of business, or move,
relocate, close or sell any business location without prior written notice
thereof to the Agent. The Borrower will not permit any tangible Collateral or
any records pertaining to the Collateral to be located in any state or area in
which, in the event of such location, a financing statement covering such
Collateral would be required to be, but has not in fact been, filed in order
to perfect the Security Interest. The Borrower will not change its name.
Section 7.19 Organizational Documents; S Corporation Status. The
Borrower will not, and will not permit any Subsidiary to, amend its
certificate of incorporation, articles of incorporation or bylaws. The
Borrower will not, and will not permit any Subsidiary to, become an S
Corporation within the meaning of the Internal Revenue Code of 1986, as
amended.
Section 7.20 Salaries. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation to its officers, employees, directors, agents or consultants.
ARTICLE VIII
Events of Default, Rights and Remedies
Section 8.1 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 or principal of
any Note when it becomes due and payable; or
(b) Failure to pay when due any amount specified in Section 2.5
relating to the Borrower's Obligation of Reimbursement, or failure to
pay immediately when due or upon termination of the Commitment any
amounts required to be paid for deposit in the Special Account under
Section 2.6 or 2.17; or
(c) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this Agreement; or
(d) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement; or
(e) The Borrower shall be or become 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 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 the Borrower 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
judgment, writ, warrant of attachment, garnishment or execution or
similar process shall be issued or levied against a substantial part of
the property of the Borrower, and such judgment, writ, or similar
process shall not be released, vacated or fully bonded within 30 days
after its issue or levy; or
(f) A petition shall be filed by or against the Borrower under
the United States Bankruptcy Code naming the Borrower as debtor; or
(g) Any representation or warranty made by the Borrower in this
Agreement, or by the Borrower (or any of its officers) in any agreement,
certificate, instrument or financial statement or other 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 deemed to be effective; or
(h) The rendering against the Borrower of a final judgment,
decree or order for the payment of money in excess of $250,000 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; or
(i) A default under any bond, debenture, note or other evidence
of indebtedness of the Borrower owed to any Person other than the
Lenders, or under any indenture or other instrument under which any such
evidence of indebtedness has been issued or by which it is governed, or
under any lease of any of the Premises, and the expiration of the
applicable period of grace, if any, specified in such evidence of
indebtedness, indenture, other instrument or lease; provided, however,
that if such default under such evidence of indebtedness, indenture or
other instrument shall be cured by the Borrower, or waived by the
holders of such indebtedness, in each case as may be permitted by such
evidence of indebtedness, indenture or other instrument, then the Event
of Default hereunder by reason of such default shall be deemed likewise
to have been thereupon cured or waived; or
(j) Any Reportable Event, which the Agent determines in good
faith might constitute grounds for the termination of any Plan or for
the appointment by the appropriate United States District Court of a
trustee to administer any Plan, shall have occurred and be continuing
30 days after written notice to such effect shall have been given to the
Borrower by the Agent, 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
the Borrower or any Affiliate shall have filed for a distress
termination of any Plan under Title IV of ERISA; or the Borrower or any
Affiliate shall have failed to make any quarterly contribution required
with respect to any Plan under Section 412(m) of the Internal Revenue
Code of 1986, as amended, which the Agent determines in good faith may
by itself, or in combination with any such failures that the Agent may
determine are likely to occur in the future, result in the imposition of
a lien on the assets of the Borrower in favor of the Plan or the Pension
Benefit Guaranty Corporation; or
(k) An event of default shall occur under any Security Document
or under any other security agreement, mortgage, deed of trust,
assignment or other instrument or agreement securing the Obligations; or
(l) The Borrower shall liquidate, dissolve, terminate or suspend
its business operations or otherwise fail to operate its business in the
ordinary course, or sell all or substantially all of its assets, without
the prior written consent of the Lenders; or
(m) The Borrower shall fail to pay, withhold, collect or remit
any tax or tax deficiency when assessed or due (other than any tax
deficiency which is being contested in good faith and by proper
proceedings and for which it shall have set aside on its books adequate
reserves therefor) or notice of any state or federal tax liens shall be
filed or issued; or
(n) Default in the payment of any amount owed by the Borrower to
any Lender other than any indebtedness arising hereunder; or
(o) The receipt by Borrower of any judgment, decree, order or
ruling, or the entry into a consent order or stipulation agreement, from
or with the Minnesota Pollution Control Agency or any other person
requiring remedial action on any portion of the Premises, the costs of
which remedial action are estimated by an independent engineering
consultant to exceed $250,000 during any period of two consecutive
years; or
(p) Any breach, default or event of default by or attributable
to any Subsidiary under any agreement between such Subsidiary and any
Lender.
(q) Failure of the Borrower to receive Net Equity Proceeds of at
least $10,000,000 by August 31, 1998, and at least $30,000,000 by
November 30, 1998.
Section 8.2 Rights and Remedies. During any Default Period, the
Agent, with the concurrence of the Required Lenders, may (and upon written
request of the Required Lenders shall) exercise any or all of the following
rights and remedies:
(a) The Agent may, by notice to the Borrower, declare the
Commitments to be terminated, whereupon the same shall forthwith
terminate;
(b) The Agent may, by notice to the Borrower, declare the
Obligations to be forthwith due and payable and the Obligations shall
become and be forthwith due and payable, without presentment, notice of
dishonor, protest or further notice of any kind, all of which are hereby
expressly waived by the Borrower;
(c) The Agent may make demand upon the Borrower and, forthwith
upon such demand, the Borrower will pay to the Agent in immediately
available funds for deposit in the Special Account pursuant to Section
2.17 an amount equal to the L/C Amount;
(d) The Agent may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC,
including, without limitation, the right to take possession of
Collateral, or any evidence thereof, proceeding without judicial process
or by judicial process (without a prior hearing or notice thereof, which
the Borrower hereby expressly waives) and the right to sell, lease or
otherwise dispose of any or all of the Collateral, and, in connection
therewith, the Borrower will on demand assemble the Collateral and make
it available to the Agent at a place to be designated by the Agent which
is reasonably convenient to both parties;
(e) The Agent may exercise and enforce the rights and remedies
under the Loan Documents; and
(f) The Agent 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 8.1(f), the Obligations shall be immediately due and
payable automatically without presentment, demand, protest or notice of any
kind. In addition to the foregoing, upon the occurrence of an Event of
Default, each Lender, without notice to the Borrower and without further
action, may apply any and all money owing by such Lender to the Borrower
(whether or not then due) to the payment of the Obligations or such Lender's
interest in the Obligations.
Section 8.3 Certain Notices. If notice to the Borrower of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 10.5) at least ten
calendar days prior to the date of intended disposition or other action.
ARTICLE IX
Agency
Section 9.1 Authorization; Powers; Agent for Collateral Purposes.
Each Lender irrevocably appoints the Agent as collateral agent for purposes of
perfecting the Security Interest and otherwise appoints and authorizes the
Agent to act on behalf of such Lender to the extent provided herein or in any
document or instrument delivered hereunder or in connection herewith, and to
take such other actions as may be reasonably incidental thereto. The Agent
agrees to act as administrative agent for each Lender upon the express
conditions contained in this Article IX, but in no event shall the Agent
constitute a fiduciary of any Lender, nor shall it have any fiduciary
responsibilities in respect of any Lender. In furtherance of the foregoing,
and not in limitation thereof, each Lender irrevocably authorizes the Agent to
execute and deliver and perform its obligations under this Agreement and each
of the Loan Documents to which the Agent is a party, and to exercise all
rights, powers, and remedies that the Agent may have hereunder, including
without limitation, the appointment of the Agent as nominal beneficiary or
nominal secured party, as the case may be, under certain of the Loan Documents
and all related financing statements, and authorization of the Agent to act as
agent in the holding and disposition of Collateral under the Loan Documents.
As to any matters not expressly provided for by this Agreement or the Loan
Documents, the Agent shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting (and shall
be fully protected in so acting or refraining from acting) upon the
instructions of the Required Lenders or, if so required pursuant to Section
10.4, upon the instructions of all Lenders; provided, however, that except for
actions expressly required of the Agent hereunder, the Agent shall in all
cases be fully justified in failing or refusing to act hereunder unless it
shall be indemnified to its satisfaction by all Lenders in accordance with
their respective Percentages against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take such action.
Section 9.2 Servicing of Credit Facility.
(a) The Agent has entered into a servicing agreement with the
Servicer for purposes of servicing and enforcing the Loan Documents and
collecting the Obligations on the Agent's behalf. Pursuant to such
servicing agreement, the Agent has authorized the Servicer to take such
action on the Agent's behalf under the provisions of the Loan Documents
and any other instruments and agreements referred to herein and to
exercise such powers and to perform such duties hereunder and thereunder
as are specifically delegated to or required of the Servicer pursuant to
the terms of the servicing agreement.
(b) The Servicer shall have no duties or responsibilities to the
Borrower or the Lenders, but only to the Agent and then only as
expressly set forth in such servicing agreement. Without limiting the
generality of the foregoing, the Servicer shall have no obligation to
make any loans or advances to the Borrower. Neither the Servicer nor any
of its officers, directors, employees or agents shall be liable for any
action taken or omitted by them hereunder or in connection herewith,
unless caused by its or their gross negligence or willful misconduct.
The Servicer's duties shall be mechanical and administrative in nature;
nothing in this Agreement, express or implied, is intended to or shall
be so construed as to impose upon the Servicer any obligations with
respect to the Loan Documents except as expressly set forth herein. The
Agent, however, shall not be relieved of a liability hereunder for
nonperformance of its duties and responsibilities hereunder by virtue of
such delegation of the same to the Servicer. The Borrower shall not in
any way be construed to be a third party beneficiary of any relationship
between the Servicer and the Agent.
(c) The Servicer shall be entitled to rely, and shall be fully
protected in relying, upon any written or oral communication or document
that the Servicer reasonably believes to be genuine and correct and to
have been signed, sent or made by the proper Person, and, with respect
to all legal matters pertaining to this Agreement and its duties
hereunder, upon advice of counsel selected by it.
(d) The Borrower shall be entitled to rely upon any written or
oral communication or document sent or made by the Servicer as if the
same were sent or made by the Agent with respect to all matters
pertaining to the Loan Documents and the Borrower's duties and
obligations hereunder, unless and until the Borrower receives written
notice from the Agent that the Servicer is no longer servicing the
credit facility.
(e) The Servicer shall hold and be the custodian of the Loan
Documents for and on behalf of the Agent for so long as the Servicer is
servicing the credit facilities contemplated herein.
(f) The servicing agreement by and between the Agent and the
Servicer may be terminated at any time without prior notice to or
consent or approval of the Borrower or the Lenders. Upon termination of
such servicing agreement and failure to replace the servicing agreement
with a new servicing agreement, all references herein to the Servicer
shall thereafter mean and refer to the Agent.
Section 9.3 Distribution of Collections; Norwest Advances;
Lenders' Right to Refuse to Fund Advances During Default Periods; Lender
Refuses to Fund.
(a) Distribution of Collections. Each Lender's Percentage of the
Obligations shall be payable solely from Collections received by the
Agent; and the Agent's only liability to the Lenders hereunder shall be
to account for each Lender's Percentage of the Collections in accordance
with this Agreement. The Agent shall collect and receive any and all
Collections and shall apply them to the Obligations as follows:
(i) first, to reimburse the Agent for any and all
unreimbursed costs and expenses incurred by the Agent for which it
is entitled to reimbursement pursuant to Section 9.4, and to the
extent a Lender previously paid a portion of any such costs and
expenses, that Lender shall be ratably reimbursed for its portion;
(ii) second, to pay the Agent's Fee provided in Section
2.22(c) (to the extent then due);
(iii) third, to pay the fees described in Sections 2.22(b),
(d), and (e) and interest, with each Lender receiving a share
based on the portion of the Obligations it holds from time to
time;
(iv) fourth, to pay the Obligations, as follows:
(A) first, to pay any Revolving Advances in which
fewer than all of the Lenders are obligated to fund their
Percentage; and
(B) to pay the remaining Obligations, with each
Lender receiving its Percentage thereof; and
(v) fifth, to pay fees for early termination pursuant to
Section 2.16, if any, with each Lender receiving its Percentage
thereof.
(b) Obligation of Reimbursement. To the extent that this
Agreement requires the application of any Collections to the reduction
of the Obligation of Reimbursement, the Agent and the Lenders agree that
such Collections shall be applied to Revolving Advances before any
portion thereof is applied, as cash collateral, to Obligation or
Reimbursement, and the Lenders authorize the Agent to act as their
collateral agent for purposes of holding any such cash collateral.
(c) Payments by Agent. If the Agent fails to pay the Lenders any
amount required to be paid under this Section 9.3 in a timely manner,
the Agent shall pay such amount on demand, together with interest at the
Federal Funds Rate from the date such payment was required to be made
under this Section 9.3 through the date of such payment. If the Agent is
ever required for any reason to refund any Collections, each Lender will
refund to the Agent, upon demand, its Percentage of such Collections,
together with its Percentage of interest or penalties, if any, payable
by the Agent in connection with such refund. The Agent may, in its sole
discretion, make payment to the Lenders in anticipation of receipt of
Collections. If the Agent fails to receive any such anticipated
Collections, each Lender shall promptly refund to the Agent, upon
demand, any such payment made to it in anticipation of payment
Collections, together with interest for each day on such amount until so
refunded at a rate equal to the Federal Funds Rate for each such date.
(d) Norwest Advances; Settlement. The Agent may, in its sole
discretion, elect to apply Collections, and to fund Advances requested
by the Borrower, for Norwest's account only, and the other Lenders shall
not participate therein, provided that on each Settlement Date:
(i) The Agent shall first apply any Collections received
before the close of business on the preceding Banking Day and not
previously applied to reduction of the Obligations in accordance
with Section 2.18.
(ii) The Agent shall then determine the amount owed by or
to each Lender in order to reconcile each Lender's actual
outstanding Advances with its Percentage of the outstanding
principal balance of the Advances as of such preceding Banking Day
and shall send notice thereof to each Lender by not later than
10:00 a.m. (Minneapolis, Minnesota time). If the amount owed by a
Lender is greater than $25,000, that Lender, subject to Subsection
(e), shall send to the Agent by wire transfer the amount it owes
by not later than 1:00 p.m. (Minneapolis, Minnesota time) on the
Settlement Date. If the amount owed to a Lender is greater than
$25,000, the Agent shall send to that Lender the amount owed by
not later than 2:00 p.m. (Minneapolis, Minnesota time) on the
Settlement Date provided the Agent has received the funds required
to be paid to it by the other Lenders.
(e) Lender's Right to Refuse to Fund Advances During Default
Periods. During Default Periods, no Lender shall be obligated to fund
its portion of any Revolving Advances. Notwithstanding the preceding
sentence, a Lender shall fund its Percentage of any Revolving Advances
made by Norwest pursuant to subsection (d) during a Default Period until
the Agent receives a written notice (an Opt Out Notice) from such Lender
stating that such Lender shall not fund its Percentage of any such
Revolving Advances made after the date of receipt by the Agent of the
Opt Out Notice. Any Opt Out Notice shall remain in effect until the
Agent notifies the Lenders that the Default Period has ended at which
time each Lender shall again be obligated to fund its Percentage of any
Revolving Advances made by Norwest pursuant to subsection (d) until a
new Default Period occurs and the Agent has received the Lender a new
Opt Out Notice.
(f) Lender Refuses to Fund. Notwithstanding the foregoing, if
any Lender has wrongfully refused to fund its Percentage of Advances as
required hereunder, or if the principal balance of any Lender's Notes is
for any reason less than its Percentage of the aggregate principal
balances of the Notes, the Agent may remit all payments received by it
to the other Lenders until such payments have reduced the aggregate
amounts owed by the Borrower to the extent that the aggregate amount
owing to such Lender hereunder is equal to its Percentage of the
aggregate amount owing to the Lenders hereunder. The provisions of this
Section 9.3 are intended only to set forth certain rules for the
application of Collections if a Lender has breached its obligations
hereunder and shall not be deemed to excuse any Lender from such
obligations.
Section 9.4 Expenses. All Collections received or effected by the
Agent may be applied, first, to pay or reimburse the Agent for all costs,
expenses, damages and liabilities at any time incurred by or imposed upon the
Agent in connection with this Agreement or any other Loan Document (including
but not limited to all reasonable attorney's fees, foreclosure expenses and
advances made to protect the security of any collateral, but excluding costs,
expenses, damages and liabilities to the extent such costs, expenses, damages
and liabilities arise from the Agent's gross negligence or willful
misconduct). If the Agent does not receive Collections sufficient to cover any
such costs, expenses, damages or liabilities within 30 days after their
incurrence or imposition, each Lender shall, upon demand, remit to the Agent
its Percentage of the difference between (i) such costs, expenses, damages and
liabilities, and (ii) such Collections.
Section 9.5 Use of the Term Agent. The term Agent is used herein
in reference to the Agent merely as a matter of custom. It is intended to
reflect only an administrative relationship between the Agent and the Lenders,
as independent contracting parties. However, the obligations of the Agent
shall be limited to those expressly set forth herein and in no event shall the
use of such term create or imply any fiduciary relationship or any other
obligation arising under the general law of agency.
Section 9.6 Collections Received Directly by Lenders. If any
Lender shall obtain any Collections other than through distributions made in
accordance with Section 9.3, such Lender shall promptly give notice of such
fact to the Agent and shall purchase from the other Lenders such
participations in the Notes and the Obligation of Reimbursement as shall be
necessary to cause the purchasing Lender to share such Collections ratably
with each of them; provided, however, that if all or any portion of such
Collections is thereafter recovered from such purchasing Lender, the purchase
shall be rescinded and the purchasing Lender restored to the extent of such
recovery (but without interest thereon).
Section 9.7 Indemnification. Each Lender severally (but not
jointly) hereby agrees to indemnify and hold harmless the Agent, as well as
the Agent's agents, employees, officers and directors, ratably according to
its Percentage from and against any and all losses, liabilities (including
liabilities for penalties), actions, suits, judgment, demands, damages, costs,
disbursements, or expenses (including attorneys' fees and expenses) of any
kind or nature whatsoever, which are imposed on, incurred by, or asserted
against the Agent or its agents, employees, officers or directors in any way
relating to or arising out of the Loan Documents, or as a result of any action
taken or omitted to be taken by the Agent; provided, however, that no Lender
shall be liable for any portion of any such losses, liabilities (including
liabilities for penalties), actions, suits, judgments, demands, damages, costs
disbursements, or expenses resulting from the gross negligence or willful
misconduct of the Agent or the Servicer. The Agent shall not be required to
take any action in connection with this Agreement or any other Loan Document
unless indemnified to its satisfaction by the Lenders in accordance with their
respective Percentages against loss, cost, liability and expense. If any
indemnity furnished to the Agent for any purpose shall, in the opinion of the
Agent, be insufficient or become impaired, the Agent may call for additional
indemnity and not commence or cease to do the acts indemnified against until
such additional indemnity is furnished.
Section 9.8 Priority in Collateral. To the extent the Security
Interest secures Obligations which do not arise out of, or are not evidenced
by, the Loan Documents, the Security Interest in such Obligations shall be
subordinate to the prior payment of all Obligations which do arise out of, or
are evidenced by, the Loan Documents. To the extent all Lenders have any such
subordinate Obligations, payment of those subordinate Obligations shall be
shared by the Lenders on a pro rata basis determined in accordance with the
outstanding principal balance of such subordinate Obligations held by each
Lender.
Section 9.9 Exculpation. The Agent shall be entitled to rely upon
advice of counsel concerning legal matters, and upon any writing which it
believes to be genuine or to have been presented by a proper person. Neither
the Agent nor any of its directors, officers, employees or agents shall (i) be
responsible for any recitals, representations or warranties contained in, or
for the execution, validity, genuineness, effectiveness or enforceability of
this Agreement, any Loan Document, or any other instrument or document
delivered hereunder or in connection herewith, (ii) be responsible for the
validity, genuineness, perfection, effectiveness, enforceability, existence,
value or enforcement of any collateral security, (iii) be under any duty to
inquire into or pass upon any of the foregoing matters, or to make any inquiry
concerning the performance by the Borrower or any other obligor of its
obligations, or (iv) in any event, be liable as such for any action taken or
omitted by it or them, except for its or their own gross negligence or willful
misconduct. The agency hereby created shall in no way impair or affect any of
the rights and powers of, or impose any duties or obligations upon, the Agent
in its individual capacity.
Section 9.10 Agent and Affiliates. The Agent shall have the same
rights, powers and obligations hereunder in its individual capacity as any
other Lender, and may exercise or refrain from exercising the same as though
it were not the Agent, and the Agent and its affiliates may accept deposits
from and generally engage in any kind of business with the Borrower as fully
as if the Agent were not the Agent hereunder.
Section 9.11 Credit Investigation. Each Lender acknowledges that
it has made such inquiries and taken such care on its own behalf as would have
been the case had its Commitment been granted and the Advances made directly
by such Lender to the Borrower without the intervention of the Agent or any
other Lender. Each Lender agrees and acknowledges that the Agent makes no
representations or warranties about the creditworthiness of the Borrower or
any other party to this Agreement or with respect to the legality, validity,
sufficiency or enforceability of this Agreement, any Loan Document, or any
other instrument or document delivered hereunder or in connection herewith.
Section 9.12 Defaults. The Agent shall have no duty to inquire
into any performance or failure to perform by the Borrower and shall not be
deemed to have knowledge of the occurrence of a Default or an Event of Default
(other than under Section 8.1(a) or (b) unless the Agent has received notice
from a Lender or the Borrower specifying the occurrence of such Default or
Event of Default. If the Agent receives such a notice of the occurrence of a
Default or an Event of Default, the Agent shall give prompt notice thereof to
the Lenders. Upon learning of the occurrence of a Default, the Agent shall
(subject to Section 9.7) (a) in the case of an Event of Default, not take any
the actions referred to in Section 8.2(b) unless so directed by the Required
Lenders, and (b) in the case of any Default, take such actions with respect to
such Default as shall be directed by the Required Lenders; provided that,
unless and until the Agent shall have received such directions, the Agent may
take any action, or refrain from taking any action, with respect to such
Default as it shall deem advisable in the best interest of the Lenders.
Section 9.13 Resignation. The Agent may resign as such at any time
upon at least 30 days' prior notice to the Borrower and the Lenders. If the
Agent resigns, the Required Lenders shall as promptly as practicable appoint a
successor Agent. If no such successor Agent shall have been so appointed by
the Required Lenders and shall have accepted such appointment within 30 days
after the resigning Agent's giving of notice of resignation, then the
resigning Agent may, on behalf of the Lenders, appoint a successor Agent,
which shall be a commercial bank organized under the laws of the United States
of America or of any State thereof. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon be
entitled to receive from the prior Agent such documents of transfer and
assignment as such successor Agent may reasonably request and the resigning
Agent shall be discharged from its duties and obligations under this
Agreement. After any resignation pursuant to this Section 9.13, the provisions
of this Section 9.13 shall inure to the benefit of the retiring Agent as to
any actions taken or omitted to be taken by it while it was an Agent
hereunder.
Section 9.14 Obligations Several. The obligations of each Lender
hereunder are the several obligations of such Lender, and no Lender or the
Agent shall be responsible for the obligations of any other Lender hereunder,
nor will the failure by the Agent or any Lender to perform any of its
obligations hereunder relieve the Agent or any other Lender from the
performance of its respective obligations hereunder. Nothing contained in this
Agreement, and no action taken by any Lender or the Agent pursuant hereto or
in connection herewith or pursuant to or in connection with the Loan
Documents, shall be deemed to constitute the Lenders, together or with or
without the Agent, a partnership, association, joint venture or other entity.
Section 9.15 Sale or Assignment; Addition of Lenders. Except as
permitted under the terms and conditions of this Section 9.15 or, with respect
to participations, under Section 9.16, no Lender may sell, assign or transfer
its rights or obligations under this Agreement or its interest in any Note.
Any Lender, at any time upon at least ten (10) Business Days' prior written
notice to the Agent and the Borrower (unless the Agent and the Borrower
consent to a shorter period of time), may assign all of such Lender's Notes,
Advances and Facility Amounts, or a portion thereof (so long as any such
portion is not less then $5,000,000 and is in equal percentages of such
assigning Lender's Facility Amounts), to a domestic bank, an insurance company
or other financial institution (an Applicant) on any date (the Adjustment
Date) selected by such Lender, but only so long as the Borrower and the Agent
shall have provided their prior written approval of such proposed Applicant,
which prior written approval will not be unreasonably withheld.
Notwithstanding the foregoing, (i) so long as no Default Period shall exist,
Norwest's Percentage shall not be less than twelve and one half percent
(12.5%), (ii) assignments may be made by a Lender to another Lender already a
party to this Agreement in an amount not less than $5,000,000 and (iii) no
consent of the Borrower shall be required for the sale of an interest to an
affiliate of a Lender or, in any event, if a Default Period shall exist. Upon
receipt of such approval and to confirm the status of each additional Lender
as a party to this Agreement and to evidence the assignment in accordance
herewith:
(a) the Agent, the Borrower, the assigning Lender and such
Applicant shall, on or before the Adjustment Date, execute and deliver
to the Agent an Assignment Certificate in substantially the form of
Exhibit G (an Assignment Certificate);
(b) the Borrower will execute and deliver to the Agent, for
delivery by the Agent in accordance with the terms of the Assignment
Certificate, (i) new Notes payable to the order of the Applicant in
amounts corresponding to the applicable Percentages of the Facilities
acquired by such Applicant and (ii) new Notes payable to the order of
the assigning Lender in amounts corresponding to the retained
Percentages. Such new Notes shall be in an aggregate principal amount
equal to the aggregate principal amount of the Notes to be replaced by
such new Notes, shall be dated the effective date of such assignment and
shall otherwise be in the form of the Notes to be replaced thereby. Such
new Notes shall be issued in substitution for, but not in satisfaction
or payment of, the Notes being replaced thereby and such new Notes shall
be treated as Notes for purposes of this Agreement; and
(c) the assigning Lender shall pay to the Agent an
administrative fee of $2,500.
Upon the execution and delivery of such Assignment Certificate and such new
Notes, and effective as of the effective date thereof (i) this Agreement shall
be deemed to be amended to the extent, and only to the extent, necessary to
reflect the addition of such additional Lender and the resulting adjustment of
the Percentages arising therefrom, (ii) the assigning Lender shall be relieved
of all obligations hereunder to the extent of the reduction of the assigning
Lender's Percentage, and (iii) the Applicant shall become a party hereto and
shall be entitled to all rights, benefits and privileges accorded to a Lender
herein and in each other Loan Document or other document or instrument
executed pursuant hereto and subject to all obligations of a Lender hereunder,
including, without limitation, the right to approve or disapprove actions
which, in accordance with the terms hereof, require the approval of the
Required Lenders or all Lenders. Promptly after the execution of any
Assignment Certificate, a copy thereof shall be delivered by the Agent to each
Lender and to the Borrower. In order to facilitate the addition of additional
Lenders hereto, the Borrower and the Lenders shall cooperate fully with the
Agent in connection therewith and shall provide all reasonable assistance
requested by the Agent relating thereto, including, without limitation, the
furnishing of such written materials and financial information regarding the
Borrower as the Agent may reasonably request, the execution of such documents
as the Agent may reasonably request with respect thereto, and the
participation by officers of the Borrower, and the Lenders in a meeting or
teleconference call with any Applicant upon the request of the Agent.
Section 9.16 Participation. In addition to the rights granted in
Section 9.15, each Lender may grant participations in all or a portion of its
Notes, Advances, and Facility Amounts to any domestic bank, insurance company,
financial institution or an affiliate of such Lender. No holder of any such
participation, however, shall be entitled to require any Lender to take or
omit to take any action hereunder except those actions described in Section
10.4 requiring consent of all Lenders. The Lenders shall not, as among the
Borrower, the Agent and the Lenders, be relieved of any of their respective
obligations hereunder as a result of any such granting of a participation. The
Borrower hereby acknowledges and agrees that any participation described in
this Section 9.16 may rely upon, and possess all rights under, any opinions,
certificates, or other instruments or documents delivered under or in
connection with any Loan Document. Except as set forth in this Section 9.16,
no Lender may grant any participation in the Notes, Advances, Acceptances or
Commitments.
Section 9.17 Borrower not a Beneficiary or Party. Except with
respect to the limitation of liability applicable to the Lenders under Section
9.14 and the Borrower's right to approve additional Lenders in accordance with
Section 9.15, the provisions and agreements in this Article IX are solely
among the Lenders and the Agent and the Borrower shall not be considered a
party thereto or a beneficiary thereof.
ARTICLE X
Miscellaneous
Section 10.1 Representations of Lenders Concerning Warrants.
(a) Investment Intent. The Warrants and the Warrant Stock are
being acquired by each Lender for its own account and not with the view
to, or for resale in connection with, any distribution or public
offering thereof within the meaning of the Securities Act. Each Lender
understands that the Warrants and the Warrant Stock, have not been
registered under the Securities Act or any applicable state laws by
reason of their issuance or contemplated issuance in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act and such laws, and that the reliance of the Borrower and
others upon this exemption is predicated in part upon this
representation and warranty. Each Lender further understands that the
Warrants and the Warrant Stock, may not be transferred or resold without
(i) registration under the Securities Act and any applicable state
securities laws, or (ii) an exemption from the requirements of the
Securities Act and applicable state securities laws. Each Lender
understands that an exemption from such registration is not presently
available pursuant to Rule 144 promulgated under the Securities Act by
the Securities and Exchange Commission (the "Commission") and that in
any event the Lender may not sell any securities pursuant to Rule 144
before the expiration of a two-year period after its has acquired the
securities. Each Lender understands that any sales pursuant to Rule 144
may only be made in full compliance with the provisions of Rule 144.
(b) Location of Principal Office and Qualification as Accredited
Investor. The state in which each Lender's principal office is located
is set forth next to its signature below. Unless otherwise indicated on
the Lender's certification delivered to the Borrower, each Lender
qualifies as an accredited investor within the meaning of Rule 501 under
the Securities Act for the reasons specified on such certification. Each
Lender has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the
investment to be made hereunder. Each Lender has and has had access to
all of the Borrower's material books and records and access to the
Borrower's executive officers has been provided to the Borrower or its
qualified agents.
Section 10.2 No Waiver; Cumulative Remedies. No failure or delay
on the part of the Lenders in exercising any right, power or remedy under the
Loan Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or 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.
Section 10.3 Assignment of Rights and Duties Under Old Loan
Documents to CIT.
(a) Assignment to CIT. Effective on the Funding Date, (i) each
Assigning Lender hereby assigns to CIT, without representation, recourse
or warranty of any kind, one twelfth (1/12) of all of its right, title
and interest in, and its obligations under, the Old Loan Documents and
the Existing Security Documents; (ii) CIT is hereby accorded all rights,
privileges and benefits of a Lender under the Existing Security
Documents (including obtaining the benefit of all Collateral securing
payment of the Notes); (iii) each Assigning Lender is hereby relieved of
all of its obligations under the Old Loan Documents to the extent of
such assignment; and (iv) CIT hereby accepts, and the Borrower hereby
consents to, such assignment.
(b) Acknowledgment by CIT. CIT acknowledges, confirms and agrees
that: (i) it has received a copy of the Existing Security Documents,
together with the exhibits related thereto, and has reviewed and
approved each and every such document; (ii) the assignment described in
Subsection (a) is made without recourse to, or representation or
warranty by, any Assigning Lender or the Agent and that no Assigning
Lender or the Agent has made any representations or warranties, express
or implied, with respect to any aspect of the Old Loan Documents, the
Loan Documents, including, without limitation (A) the existing or future
solvency or financial condition or responsibility of the Borrower, its
partners or any guarantors, (B) the payment or collectibility of the
Obligations, (C) the validity, enforceability or legal effect of the Old
Loan Documents or the Loan Documents, or any other instrument or
document furnished by the Borrower thereunder, or (D) the validity or
effectiveness of the liens and security interests created by any of the
Old Loan Documents or the Loan Documents; (iii) it has made or caused to
be made such independent investigation of the Borrower and its
creditworthiness and all the matters affecting CIT's decision to become
a Lender as it has deemed necessary; and (iv) in making its decision to
accept the assignment described in Subsection (a), it has not relied in
any manner upon any judgment, determination, or statement of any
Assigning Lender or the Agent, whether contained in any materials
delivered by any such Lender or Agent to CIT, or otherwise, in becoming
an additional Lender hereunder.
(c) Allocation of Interest and Fees. The Agent shall collect and
apply all accrued interest and fees under the Old Credit Agreement for
all periods on or before the Funding Date for the sole benefit of and to
the sole account of the Assigning Lenders. CIT shall be entitled to
receive interest and fees under this Agreement beginning on the first
day after the Funding Date.
Section 10.4 Consent of Required Lenders; Amendments, Requested
Waivers, Etc.
(a) Except as provided in Subsection (b), the Lenders' consent
as required by any provision of this Agreement shall be deemed given by
the consent of the Required Lenders.
(b) No amendment, modification, termination or waiver of any
provision of any Loan Document or consent to any departure by the
Borrower therefrom or any release of a Security Interest shall be
effective unless the same shall be in writing and signed by the Required
Lenders and, if the rights or duties of the Agent are affected thereby,
by the Agent; provided, however, that unless in writing and signed by
each Lender affected thereby, no amendment, modification, termination,
waiver or consent shall, do any of the following: (i) increase the
amount of any Lender's Facility Amount (all Lenders shall be deemed
affected by any change to a Lender's Facility Amount); (ii) reduce the
amount of any payment of principal of or interest on a Lender's Advances
or the fees payable to such Lender hereunder; (iii) except as otherwise
provided in Section 9.6, postpone any date fixed for any payment of
principal of or interest on such Lenders' Advances or the fees payable
to such Lender hereunder; (iv) change the definitions of Borrowing Base
or Required Lenders, or any other definitions referred to therein or
necessary to the understanding thereof; (v) release of Collateral in an
amount exceeding $500,000 in the aggregate during any fiscal year; or
(vi) amend this Section 10.4 or any other provision of this Agreement
requiring the consent or other action of all of the Lenders. Any waiver
or consent given hereunder 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;
provided, further, that the Agent may release up to $500,000 in the
aggregate of Collateral in any fiscal year without further consent by
any Lender.
Section 10.5 Addresses for Notices, Etc. Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for under the Loan Documents shall be in writing and
shall be (a) personally delivered, (b) sent by first class United States mail,
(c) sent by overnight courier of national reputation, or (d) transmitted by
telecopy, in each case addressed or transmitted to the party to whom notice is
being given at its address or telecopier number as set forth on the execution
pages of this Agreement or, as to each party, at such other address or
telecopier number as may hereafter be designated by such party in a written
notice to the other party complying as to delivery with the terms of this
Section 10.5. All such notices, requests, demands and other communications
shall be deemed to have been given on (a) the date received if personally
delivered, (b) when deposited in the mail if delivered by mail, (c) the date
sent if sent by overnight courier, or (d) the date of transmission if
delivered by telecopy, except that notices or requests to the Lenders pursuant
to any of the provisions of Article II shall not be effective until received
by the Lenders.
Section 10.6 Further Documents. The Borrower will from time to
time execute and deliver or endorse any and all instruments, documents,
conveyances, assignments, security agreements, financing statements and other
agreements and writings that any Lender may reasonably request in order to
secure, protect, perfect or enforce the Security Interest or the rights of the
Lenders under this Agreement (but any failure to request or assure that the
Borrower executes, delivers or endorses any such item shall not affect or
impair the validity, sufficiency or enforceability of this Agreement and the
Security Interest, regardless of whether any such item was or was not
executed, delivered or endorsed in a similar context or on a prior occasion).
Section 10.7 Collateral. This Agreement does not contemplate a
sale of accounts, contract rights or chattel paper, and, as provided by law,
the Borrower is entitled to any surplus and shall remain liable for any
deficiency. The Agent's duty of care with respect to Collateral in its
possession (as imposed by law) shall be deemed fulfilled if it exercises
reasonable care in physically keeping such Collateral, or in the case of
Collateral in the custody or possession of a bailee or other third person,
exercises reasonable care in the selection of the bailee or other third
person, and the Agent need not otherwise preserve, protect, insure or care for
any Collateral. The Agent shall not be obligated to preserve any rights the
Borrower may have against prior parties, to realize on the Collateral at all
or in any particular manner or order or to apply any Collections in any
particular order of application.
Section 10.8 Costs and Expenses. The Borrower agrees to pay on
demand all costs and expenses, including reasonable attorneys' fees, incurred
by the Lenders or the Agent in connection with the Obligations, this
Agreement, the Loan Documents, any Letters of Credit, and any other document
or agreement related hereto or thereto, and the transactions contemplated
hereby, including without limitation all such costs, expenses and fees
incurred in connection with the negotiation, preparation, execution,
amendment, administration, performance, collection and enforcement of the
Obligations and all such documents and agreements and the creation,
perfection, protection, satisfaction, foreclosure or enforcement of the
Security Interest and the Security Documents.
Section 10.9 Indemnity. In addition to the payment of expenses
pursuant to Section 10.8, the Borrower agrees to indemnify, defend and hold
harmless each Lender, and any of their participants, parent corporations,
subsidiary corporations, affiliated corporations, successor corporations, and
all present and future officers, directors, employees, attorneys and agents of
the foregoing (the Indemnitees) from and against (i) any and all transfer
taxes, documentary taxes, or other assessments or charges of a similar nature
made by any governmental authority by reason of the execution and delivery of
this Agreement and the other Loan Documents or the making of the Advances
(excluding any reserve, capital or other such charges imposed on a Lender),
(ii) any and all liabilities, losses, damages, penalties, judgments, suits,
claims, costs and expenses of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements of counsel) in
connection with any investigative, administrative or judicial proceedings,
whether or not such Indemnitee shall be designated a party thereto, which may
be imposed on, incurred by or asserted against any such Indemnitee, in any
manner related to or arising out of or in connection with the making of the
Advances, this Agreement and the other Loan Documents or the use or intended
use of the proceeds of the Advances, excluding, however, from the foregoing
any such proceedings brought solely as a result of a Lender's own gross
negligence or willful misconduct or in connection with regulatory activities
applicable to a Lender and not based upon any Default by the Borrower
hereunder, and (iii) without limiting the foregoing, any claims, loss or
damage to which any Indemnitee may be subjected if any representation or
warranty contained in Section 5.16 proves to be incorrect in any respect or as
a result of any violation of the covenant contained in Section 6.4(b) (the
Indemnified Liabilities). If any investigative, judicial or administrative
proceeding arising from any of the foregoing is brought against any
Indemnitee, the Borrower, or counsel designated by the Borrower and
satisfactory to the Indemnitee, will resist and defend such action, suit or
proceeding to the extent and in the manner directed by the Indemnitee. Each
Indemnitee will use its best efforts to cooperate in the defense of any such
action, suit or proceeding. If the foregoing undertaking to indemnify, defend
and hold harmless may be held to be unenforceable because it violates any law
or public policy, the Borrower shall nevertheless make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The obligation of the
Borrower under this Section 10.9 shall survive the termination of this
Agreement and the discharge of the Borrower's other obligations hereunder.
Section 10.10 Participants. The Lenders and their participants, if
any, are not partners or joint venturers, and the Lenders shall not have any
liability or responsibility for any obligation, act or omission of any of its
participants. All rights and powers specifically conferred upon the Lenders
may be transferred or delegated to any of the participants, successors or
assigns of the Lenders.
Section 10.11 Execution in Counterparts. This Agreement and 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, taken together, shall constitute but one and the same
instrument.
Section 10.12 Binding Effect; Assignment; Complete Agreement. The
Loan Documents shall be binding upon and inure to the benefit of the Borrower
and the Lenders 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 Lenders. This
Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and
supersedes all prior agreements, written or oral, on the subject matter
hereof.
Section 10.13 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 10.14 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 10.15 Superseding of Old Credit Agreement; Substitution of
Notes. Upon execution and delivery of this Agreement, the Old Credit Agreement
shall be deemed superseded in its entirety by this Agreement and shall have no
further force or effect. From and after the date hereof, each reference in any
Loan Document to the Old Credit Agreement shall be deemed a reference to this
Agreement and to the Security Interest created hereunder. All indebtedness
evidenced by the Old Revolving Notes shall be deemed evidenced by the
Revolving Notes and the Term Notes, as the case may be, issued to the Lenders
in their respective Percentages thereof. Notwithstanding the replacement of
the Old Credit Agreement with this Agreement, the Existing Security Documents,
and all other Loan Documents and Security Documents executed in connection
with or pursuant to the Old Credit Agreement (except those expressly
superceded hereby) shall remain in full force and effect and shall secure all
Notes as if such Notes were executed and delivered on the date thereof.
Section 10.16 Release. The Borrower hereby absolutely and
unconditionally releases and forever discharges the Lenders, the Agent and any
and all parent corporations, subsidiary corporations, affiliated corporations,
insurers, indemnitors, successors and assigns thereof, together with all of
the present and former directors, officers, agents and employees of any of the
foregoing, from any and all claims, demands or causes of action of any kind,
nature or description, whether arising in law or equity or upon contract or
tort or under any state or federal law or otherwise, which the Borrower has
had, now has or has made claim to have against any such person 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 10.17 Governing Law; Jurisdiction, Venue; Waiver of Jury
Trial. The Loan Documents shall be governed by and construed in accordance
with the substantive laws (other than conflict laws) of the State of
Minnesota. Each party consents to the personal jurisdiction of the state and
federal courts located in the State of Minnesota in connection with any
controversy related to this Agreement, waives any argument that venue in any
such forum is not convenient and agrees that any litigation initiated by any
of them in connection with this Agreement shall be venued in either the
District Court of Hennepin County, Minnesota, or the United States District
Court, District of Minnesota, Fourth Division. EACH OF THE BORROWER, THE
LENDERS, AND THE AGENT HEREBY, KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVES
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATING TO ANY LOAN DOCUMENT TO WHICH IT IS A PARTY OR ANY
INSTRUMENT OR DOCUMENT DELIVERED THEREUNDER.
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:
1150 Sheldahl Road
Northfield, Minnesota 55057-9444
Attention: John V. McManus
Telecopier: 507-663-8326
SHELDAHL, INC.
By _____________________________
John V. McManus
Its Vice President of Finance
Address:
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-0152
Attn: Vice President
Telecopier: (612) 341-2472
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Agent
By _____________________________
Terry S. Jackson
Its Vice President
Address:
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-0152
Attn: Vice President
Telecopier: (612) 341-2472
Revolving Facility Amount: $6,250,000
Revolving Facility Percentage: 25.0%
Term Facility Amount: $4,000,000
Term Facility Percentage: 25.0%
Bridge Facility Amount: $4,750,000
Bridge Facility Percentage: 25.0%
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION
By _____________________________
Terry S. Jackson
Its Vice President
Address:
111 West Monroe Street
Chicago, IL 60603
Attn: Cathy Ciolek
Telecopier: (312) 461-2591
Revolving Facility Amount: $6,250,000
Revolving Facility Percentage: 25.0%
Term Facility Amount: $4,000,000
Term Facility Percentage: 25.0%
Bridge Facility Amount: $4,750,000
Bridge Facility Percentage: 25.0%
HARRIS TRUST AND SAVINGS BANK
By _____________________________
Cathy Ciolek
Its Vice President
Address:
611 Woodward Avenue, Suite 8074
Detroit, Michigan 48226
Attn: Marguerite C. Gordy
Telecopier: 313-225-1212
Revolving Facility Amount: $6,250,000
Revolving Facility Percentage: 25.0%
Term Facility Amount: $4,000,000
Term Facility Percentage: 25.0%
Bridge Facility Amount: $4,750,000
Bridge Facility Percentage: 25.0%
NBD BANK
By _____________________________
Marguerite C. Gordy
Its Vice President
Address:
900 Ashwood Parkway, 6th floor
Atlanta, Georgia 30338
Attn: Scott Hopkins
Telephone: 770-677-3467
Telecopier: 770-551-7867
Revolving Facility Amount: $6,250,000
Revolving Facility Percentage: 25.0%
Term Facility Amount: $4,000,000
Term Facility Percentage: 25.0%
Bridge Facility Amount: $4,750,000
Bridge Facility Percentage: 25.0%
THE CIT GROUP/EQUIPMENT
FINANCING, INC.
By _____________________________
Richard Doherty
Its Senior Vice President
<PAGE>
Table of Exhibits and Schedules
Exhibit A Form of Revolving Note
Exhibit B Form of Term Note
Exhibit C Form of Bridge Note
Exhibit D Premises
Exhibit E Acknowledgment and Agreement re Sidrabe Technology
Exhibit F Compliance Certificate
Exhibit G Assignment Certificate
Schedule 5.1 Trade Names, Chief Executive Office,
Principal Place of Business, and Locations
of Collateral
Schedule 5.3 Capital Stock
Schedule 5.7 Subsidiaries and Joint Ventures
Schedule 5.9 Litigation and Environmental Issues
Schedule 5.16 Environmental Matters
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
<PAGE>
Exhibit A to Credit and Security Agreement
REVOLVING NOTE
$6,250,000 Minneapolis, Minnesota
June 19, 1998
For value received, the undersigned, SHELDAHL, INC., a Minnesota
corporation (the Borrower), hereby promises to pay on the Termination Date as
defined in the Credit Agreement (defined below), to the order of
____________________________________________, a ________________ ___________
(the Lender), at the main office of Norwest Bank Minnesota, National
Association, as agent (the Agent) in Minneapolis, Minnesota, or at any other
place designated at any time in accordance with the Credit Agreement, in
lawful money of the United States of America and in immediately available
funds, the principal sum of Six Million Two Hundred and Fifty Thousand Dollars
($6,250,000) or, if less, the aggregate unpaid principal amount of all
Revolving Advances made by the Lender to the Borrower under the Credit
Agreement together with interest on the principal amount hereunder remaining
unpaid from time to time (the Principal Balance), computed on the basis of the
actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully paid at the rate applicable to Revolving Advances from time
to time under the Credit and Security Agreement of even date herewith (as
amended, supplemented or restated from time to time, the Credit Agreement) by
and among the Borrower, various financial institutions and Norwest Bank
Minnesota, National Association, as Agent. Interest accruing on the Principal
Balance shall be due and payable as provided in the Credit Agreement. This
Note may be prepaid only in accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit
Agreement, which provides, among other things, for acceleration hereof. This
Note is a Revolving Note referred to in the Credit Agreement. To the extent
this Note evidences the Borrower's Obligation to pay Existing Revolving
Advances (as defined in the Credit Agreement), this Note is issued in partial
substitution for and replacement of but not in payment of the Old Revolving
Notes.
This Note is secured, among other things, pursuant to the Credit
Agreement and all Security Documents as therein defined, and may now or
hereafter be secured by one or more other security agreements, mortgages,
deeds of trust, assignments or other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection,
including attorneys' fees and legal expenses in the event 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.
SHELDAHL, INC.
By ____________________________
John V. McManus
Its Vice President of Finance
<PAGE>
Exhibit B to Credit and Security Agreement
TERM NOTE
$4,000,000 Minneapolis, Minnesota
June 19, 1998
For value received, the undersigned, SHELDAHL, INC., a Minnesota
corporation (the Borrower), hereby promises to pay on the Termination Date as
defined in the Credit Agreement (defined below), to the order of
____________________________________________, a ________________ ___________
(the Lender), at the main office of Norwest Bank Minnesota, National
Association, as agent (the Agent) in Minneapolis, Minnesota, or at any other
place designated at any time in accordance with the Credit Agreement, in
lawful money of the United States of America and in immediately available
funds, the principal sum of Four Million Dollars ($4,000,000) or, if less, the
unpaid principal amount of the Term Advance made by the Lender to the Borrower
under the Credit Agreement (defined below) together with interest on the
principal amount hereunder remaining unpaid from time to time (the Principal
Balance), computed on the basis of the actual number of days elapsed and a
360-day year, from the date hereof until this Note is fully paid at the rate
from time to time in effect under the Credit and Security Agreement of even
date herewith (as amended, supplemented or restated from time to time, the
Credit Agreement) by and among the Borrower, various financial institutions
and Norwest Bank Minnesota, National Association, as Agent.
Principal of this Note and interest accruing thereon shall be due
and payable in installments in amounts determined in accordance with the
Credit Agreement. This Note may be prepaid only in accordance with the Credit
Agreement. This Note is issued pursuant, and is subject, to the Credit
Agreement. This Note is a Term Note referred to in the Credit Agreement.
This Note is secured, among other things, pursuant to the Credit
Agreement and the Security Documents as therein defined, and may now or
hereafter be secured by one or more other security agreements, mortgages,
deeds of trust, assignments or other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection,
including attorneys' fees and legal expenses in the event 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.
SHELDAHL, INC.
By ____________________________
John V. McManus
Its Vice President of Finance
<PAGE>
Exhibit C to Credit and Security Agreement
BRIDGE NOTE
$4,750,000 Minneapolis, Minnesota
June 19, 1998
For value received, the undersigned, SHELDAHL, INC., a Minnesota
corporation (the Borrower), hereby promises to pay on the Termination Date as
defined in the Credit Agreement (defined below), to the order of
____________________________________________, a ________________ ___________
(the Lender), at the main office of Norwest Bank Minnesota, National
Association, as agent (the Agent) in Minneapolis, Minnesota, or at any other
place designated at any time in accordance with the Credit Agreement, in
lawful money of the United States of America and in immediately available
funds, the principal sum of Four Million Seven Hundred Fifty Thousand Dollars
($4,750,000) or, if less, the unpaid principal amount of the Bridge Advance
made by the Lender to the Borrower under the Credit Agreement (defined below)
together with interest on the principal amount hereunder remaining unpaid from
time to time (the Principal Balance), computed on the basis of the actual
number of days elapsed and a 360-day year, from the date hereof until this
Note is fully paid at the rate from time to time in effect under the Credit
and Security Agreement of even date herewith (as amended, supplemented or
restated from time to time, the Credit Agreement) by and among the Borrower,
various financial institutions and Norwest Bank Minnesota, National
Association, as Agent.
Principal of this Note and interest accruing thereon shall be due
and payable in installments in amounts determined in accordance with the
Credit Agreement. This Note may be prepaid only in accordance with the Credit
Agreement. This Note is issued pursuant, and is subject, to the Credit
Agreement. This Note is a Bridge Note referred to in the Credit Agreement.
This Note is secured, among other things, pursuant to the Credit
Agreement and the Security Documents as therein defined, and may now or
hereafter be secured by one or more other security agreements, mortgages,
deeds of trust, assignments or other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection,
including attorneys' fees and legal expenses in the event 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.
SHELDAHL, INC.
By ____________________________
John V. McManus
Its Vice President of Finance
<PAGE>
Exhibit D to Credit and Security Agreement
Premises
The Premises referred to in the Amended and Restated Credit and
Security Agreement are described as follows:
[to be completed by Borrower]
<PAGE>
Exhibit F to Credit and Security Agreement
Compliance Certificate
TO: Terry S. Jackson
Norwest Bank Minnesota, National Association
DATE: ____________________, 199__
SUBJECT: Financial Statements
Dear Mr. Jackson:
I am the duly qualified and acting [Vice President of
Finance][assistant corporate controller] of Sheldahl, Inc. (the Borrower) and
I am familiar with the financial statements and financial affairs of the
Borrower. I am authorized to execute this Compliance Certificate on behalf of
the Borrower.
Pursuant to Section 6.1 of the Credit and Security Agreement dated
as of June 19, 1998, by and among the Borrower, Norwest Bank Minnesota,
National Association, as agent (Norwest; herein in such capacity, together
with any party which may become the successor Agent under such Credit and
Security Agreement, the Agent), and each of the financial institutions which
are now or may hereafter become parties to such Credit and Security Agreement
(as the same may be amended, supplemented or restated from time to time, the
Credit Agreement), enclosed are an unaudited balance sheet and statements of
income and retained earnings of the Borrower, as of ___________, 199__ (the
Reporting Date), and for the year-to-date period ending on the Reporting Date.
All terms used in this Compliance Certificate shall have the meanings given in
the Credit Agreement.
The balance sheet and statements of income and retained earnings
fairly present the financial condition of the Borrower as of the date thereof.
They have been prepared in accordance with GAAP.
I hereby certify to the Lenders as follows:
The undersigned does not have knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement.
The undersigned has knowledge of the occurrence of a Default or
Event of Default under the Credit Agreement and attached hereto is
a statement of the facts with respect to thereto.
I further certify to the Lenders as follows:
1. Minimum Net Income. Pursuant to Section 6.17, the Borrower's
Net Income as of August 30, 1998 was $____________ which satisfies
or does not satisfy the requirement that such amount be no less than
$(36,000,000) on such date.
2. Minimum Cash Flow Available for Debt Service. Pursuant to
Section 6.18, as of the Reporting Date, the Borrower's Cash Flow
Available for Debt Service was $_____________, which satisfies or does
not satisfy the requirement that such amount be no less than
$_____________________ as set forth in the table below:
Fiscal Quarter Ending Minimum Cash Flow
Available for Debt
Service
8/31/98 $(3,403,000)
11/30/98 $2,409,000
2/28/99 $5,180,000
5/31/99 $9,671,000
8/31/99 $16,259,000
3. Minimum Debt Service Coverage Ratio. Pursuant to Section
6.19 of the Credit Agreement, as of the Reporting Date, the Borrower's
Debt Service Coverage Ratio was _____ to 1.00 which satisfies or does
not satisfy the requirement that such ratio be no less than ______ to
1.00 on the Reporting Date as set forth in table below:
Fiscal Quarter Ending Minimum Debt Service
Coverage Ratio
11/30/98 0.80 to 1.00
2/28/99 0.90 to 1.00
5/31/99 1.25 to 1.00
8/31/99 1.50 to 1.00
4. Minimum Pre-tax Net Income. Pursuant to Section 6.20 of the
Credit Agreement, the Borrower's Pre-tax Net Income as of the Reporting
Date, was $____________, which satisfies or does not satisfy the
requirement that such amount be not less than $_____________ during such
period as set forth in table below:
Fiscal Quarter Ending Minimum Pretax Net
11/30/98 $(2,327,000)
2/28/99 $(4,412,000)
5/31/99 $(3,440,000)
8/31/99 $(542,000)
5. Minimum Book Net Worth. Pursuant to Section 6.21 of the
Credit Agreement, as of the Reporting Date, Net Equity Proceeds equal
$________________, and the Borrower's Book Net Worth was $____________,
which satisfies or does not satisfy the requirement that the Borrower's
Book Net Worth be not less than the sum of (i) $46,000,000, (ii) the
minimum amount of Pre-tax Net Income required pursuant to Section 6.21,
if any, and (iii) all Net Equity Proceeds.
6. Capital Expenditures. Pursuant to Section 7.12 of the Credit
Agreement, for the fiscal quarter ending on the Reporting Date, the Borrower
and its Subsidiaries have expended or contracted to expend for Capital
Expenditures, $__________________ in the aggregate, which satisfies or does
not satisfy the requirement that such expenditures not exceed $__________ in
the aggregate during such fiscal quarter as set forth below plus
$_________________ which was carried forward from prior fiscal quarters in
accordance with Section 7.12.
Fiscal Quarter Capital Expenditures
Ending
8/31/98 $5,170,000
11/30/98 $2,000,000
2/28/99 $2,000,000
5/31/99 $3,000,000
8/31/99 $3,000,000
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
SHELDAHL, INC.
By ________________________________
Its [Vice President of Finance]
[Assistant Corporate Controller]
<PAGE>
Exhibit G to Credit and Security Agreement
ASSIGNMENT CERTIFICATE
THIS CERTIFICATE (the Certificate) is delivered pursuant to
Section 9.15(a) of that certain Credit and Security Agreement dated as of June
19, 1998 (as amended or modified to date, the Credit Agreement) among
Sheldahl, Inc., Norwest Bank Minnesota, National Association, as agent
(Norwest; herein in such capacity, together with any party which may become
the successor Agent under the Credit Agreement, the Agent), and each of the
financial institutions which are now or may hereafter become parties to the
Credit Agreement (the Lenders).
The undersigned hereby agree as follows:
1. The Applicant listed below under the caption Applicant has
indicated its desire to become a Lender pursuant to Section 9.15 of the Credit
Agreement.
2. The Adjustment Date on which such Applicant shall become a
Lender is ______________, _____, subject to compliance with the terms and
conditions of the Credit Agreement.
3. The Facility Amount, Percentage and outstanding principal
balance of Advances being assigned by the assigning Lender (the Assigning
Lender) and being assumed by the Applicant on the Adjustment Date are set
forth on the signature page hereof below such Applicant's name under the
captions Facility, Facility Amount, Percentage, and Assigned Advances.
4. After giving effect to the assigning and transferring of the
specified Facility Amount, Percentage and Advances of each Facility to the
Applicant on the Adjustment Date as set forth above, the Assigning Lender's
Facility Amount , Percentage, and outstanding Advances of each Facility shall
be as set forth below the Assigning Lender's name under the caption Adjusted
Facility Amount, Adjusted Percentage and Adjusted Advances (and the Assigning
Lender shall be relieved of all obligations under the Credit Agreement to the
extent of the reduction effected to its Facility Amounts and Percentages in
accordance herewith).
5. The Facility Amounts, Percentages and Advances are being
assigned pro rata.
6. From and after the date this Certificate becomes effective,
the Agent shall collect and apply all accrued interest and fees under the
Credit Agreement for all periods prior to the Adjustment Date for the sole
benefit of and for the sole account of the Assigning Lender. The Applicant
shall be entitled to receive interest and fees from and after the Adjustment
Date.
7. This Certificate will become effective upon the receipt by
the Agent of counterparts of this Certificate duly executed and delivered by
the Borrower, the Assigning Lender and the Applicant (or other evidence of
such execution satisfactory to the Agent).
8. Concurrently with the execution and delivery hereof, the
Borrower shall issue and deliver to the Agent substitute or replacement Notes
payable to the Assigning Lender and to the Applicant. The Agent agrees to
deliver such substitute or replacement Notes to the Applicant and to the
Assigning Lender promptly after the Adjustment Date or (if later) the receipt
by the Agent thereof. The Assigning Lender agrees to deliver to the Borrower,
promptly after the Adjustment Date, the Note payable to the Assigning Lender
delivered prior to the Adjustment Date, such Notes to be marked Replaced.
9. Upon the effectiveness of this Certificate as specified in
Section 7 above, the Applicant shall become a party to the Credit Agreement
and a Lender thereunder and (a) shall be entitled to all rights, benefits and
privileges accorded to a Lender in the Credit Agreement, (b) shall be subject
to all obligations of a Lender thereunder (including without limitation the
obligation to fund its Percentage of Advances thereafter requested and the
Obligation of Reimbursement) and (c) shall be deemed to have specifically
ratified and confirmed, and by executing this Certificate the Applicant hereby
specifically ratifies and confirms, all of the provisions of the Credit
Agreement.
10. Each of the undersigned shall, at any time and from time to
time upon the written request of any other of the undersigned, execute and
deliver such further documents and do such further acts and things as such
party may reasonably request in order to effect the purpose of this
Certificate.
11. This Certificate may be executed in any number of
counterparts by the parties hereto, each of which counterparts shall be deemed
to be an original and all of which shall together constitute one and the same
certificate. Matters relating to this Certificate shall be governed by, and
construed in accordance with, the internal laws of the State of Minnesota,
without regard to conflicts of laws principles.
12. The Applicant acknowledges and confirms that it has received
a copy of the Credit Agreement and the exhibits related thereto. The Applicant
further confirms and agrees that (i) in becoming a Lender and in undertaking
its Commitment and making Advances under the Credit Agreement, such actions
have and will be made without recourse to, or representation or warranty by,
the Assigning Lender or the Agent, and (ii) the address shown below its
signature hereto shall be its notice address for purposes of Section 10.5 of
the Credit Agreement unless and until it shall designate, in accordance with
Section 10.5, another address for such purposes.
IN WITNESS WHEREOF, the undersigned have executed this Certificate
as of the Adjustment Date set forth above.
SHELDAHL, INC.
By_________________________________
Its_______________________________
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Agent
By_________________________________
Its______________________________
Applicant
______________________________
______________________________
______________________________
Attn: _________________________
Phone: ________________________
Fax: __________________________
[APPLICANT], as Lender
By ________________________________
Its _____________________________
Facility
Facility Amount
Percentage
Assigned Advances
Revolving
$____________
_____%
$_______________
Term
$_____________
_____%
$_______________
Bridge
$____________
_____%
$_______________
Assigning Lender
[ASSIGNING LENDER], as Lender
By ________________________________
Its _____________________________
Facility
Adjusted Amount
Adjusted
Percentage
Adjusted Advances
Revolving
$____________
_____%
$_______________
Term
$_____________
_____%
$_______________
Bridge
$____________
_____%
$_______________
<PAGE>
Schedule 2.20 to Credit and Security Agreement
Sources and Uses of Funds
Sources
Uses
Term Advance $16,000,000
Revolving Advance 6/19/98 $26,104.65
Bridge Advance $19,000,000
Pay Facility A $34,450,000
Revolving Advance $ 2,581,917.49
Pay Facility B $2,931,012.58
Interest $174,800.26
<PAGE>
Schedule 5.1to Credit and Security Agreement
Trade Names, Chief Executive Office, Principal Place of Business, and
Locations of Collateral
Trade Names
[To be completed by Borrower]
Chief Executive Office/Principal Place of Business
Sheldahl, Inc.
1150 Sheldahl Road
P.O. Box 170
Northfield, Minnesota 55057
Other Inventory and Equipment Locations
[To be completed by Borrower]
<PAGE>
Schedule 5.3 to Credit and Security Agreement
Capital Stock
Type/Class/Series of Stock
Number of authorized shares
Number of issued and outstanding share
Common
Preferred
Describe any outstanding subscriptions, options, warrants, calls, contracts,
demands, commitments, or convertible securities
[To be completed by Borrower]
<PAGE>
Schedule 5.7 to Credit and Security Agreement
Subsidiaries and Joint Ventures
List legal name, principal place of business and chief executive office,
jurisdiction of organization, all owners and percentage of ownership
interest
[To be completed by Borrower]
<PAGE>
Schedule 5.16 to Credit and Security Agreement
Environmental Matters
[To be completed by Borrower]
<PAGE>
Schedule 5.9 to Credit and Security Agreement
Litigation and Environmental Issues
<PAGE>
Schedule 7.1 to Credit and Security Agreement
Permitted Liens
Creditor
Collateral
Jurisdiction
Filing
Date
Filing No.
[to be completed by Borrower]
<PAGE>
Schedule 7.2 to Credit and Security Agreement
Permitted Indebtedness and Guaranties
Indebtedness
Creditor
Principal
Amount
Maturity
Date
Monthly
Payment
Collateral
[to be completed by Borrower]
Guaranties
Primary Obligor
Amount and Description
of Obligation Guaranteed
Beneficiary of Guaranty
[To be completed by Borrower]
<PAGE>
WARRANT
To Subscribe for and Purchase Common Stock of
SHELDAHL, INC.
THIS CERTIFIES THAT, for value received, _______________ or registered
assigns is entitled to subscribe for and purchase from Sheldahl, Inc. (herein
called the Company), a corporation organized and existing under the laws of
the State of Minnesota, at the price specified below (subject to adjustment as
noted below) at any time from and after the date the initial warrant purchase
price has been established in accordance with the terms hereof to and
including the fifth annual anniversary of the Original Issue Date (as defined
below) __________________________________________ fully paid and nonassessable
shares of the Company's Common Stock (subject to adjustment as noted below).
This Warrant has been issued in connection with the purchase from the Company
of promissory notes of the Company pursuant to a Credit and Security Agreement
dated June 19, 1998 (the Original Issue Date) among the Company, the Agent
named therein and the Lenders referred to therein (the Credit Agreement).
The warrant purchase price (subject to adjustment as noted below) shall
be (i) 112.5% of the Preferred Share Conversion Price in the event the Company
completes the Qualified Preferred Stock Placement, or (ii) the Market Price in
the event the Company does not complete a Qualified Preferred Stock Placement.
For purposes of this Warrant, the following capitalized terms shall have the
following meanings:
Market Price shall mean the average of the closing bid prices for the
Common Stock of the Company on the over-the-counter market as reported by
NASDAQ for the 30 consecutive business days immediately following the Original
Issue Date or, if the Common Stock is then traded on a national securities
exchange or on the NASDAQ National Market System, the average of the closing
prices on such exchange or on the NASDAQ National Market System for such 30
consecutive business days.
Preferred Share Conversion Price shall mean the conversion price of the
convertible preferred stock of the Company issued in the Qualified Preferred
Stock Placement on the date such convertible preferred stock is issued.
Qualified Preferred Stock Placement shall mean an issuance of
convertible preferred stock of the Company that (i) yields net proceeds to the
Company of at least $20 million, and (ii) occurs on or prior to November 30,
1998; provided, however, that if more than one such issuance occurs, the first
such issuance shall be the Qualified Preferred Stock Placement.
This Warrant is subject to the following provisions, terms and
conditions:
1. The rights represented by this Warrant may be exercised by the
holder hereof, in whole or in part, by written notice of exercise delivered to
the Company and by the surrender of this Warrant (properly endorsed if
required) at the principal office of the Company and upon payment to it by
check of the purchase price for such shares. The Company agrees that the
shares so purchased shall be and are deemed to be issued to the holder hereof
as the record owner of such shares as of the close of business on the date on
which this Warrant shall have been surrendered and payment made for such
shares as aforesaid. Subject to the provisions of the next succeeding
paragraph, certificates for the shares of stock so purchased shall be
delivered to the holder hereof within a reasonable time, not exceeding 5 days,
after the rights represented by this Warrant shall have been so exercised,
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.
2. Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of this
Warrant except in accordance with the provisions, and subject to the
limitations, of paragraph 8 hereof and the restrictive legend under the
heading Restriction on Transfer below.
3. 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 and nonassessable. 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 the purpose of issue or transfer 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.
4. The above provisions are, however, subject to the following:
(a) The warrant purchase price shall, from and after the Original
Issue Date, be subject to adjustment from time to time as hereinafter
provided. Upon each adjustment of the warrant purchase price, the holder of
this Warrant shall thereafter be entitled to purchase, at the warrant purchase
price resulting from such adjustment, the number of shares obtained by
multiplying the warrant purchase price in effect immediately prior to such
adjustment by the number of shares purchasable pursuant hereto immediately
prior to such adjustment and dividing the product thereof by the warrant
purchase price resulting from such adjustment.
(b) Except for (i) options to purchase shares of Common Stock and the
issuance of awards of Common Stock pursuant to employee and consultant benefit
plans adopted by the Company and except for shares of Common Stock issued upon
the exercise of such options granted pursuant to such plans (provided that the
aggregate number of shares thus awarded and covered by unexercised options and
thus issued pursuant to such options shall not be in excess of 2,000,000
(appropriately adjusted to reflect stock splits, stock dividends,
reorganizations, consolidations and similar changes)), (ii) shares of Common
Stock issued upon conversion of the 15,000 shares of Series B Convertible
Preferred Stock of the Company and upon exercise of the warrants dated August
27, 1997 issued in connection with such Series B Convertible Preferred Stock,
(iii) shares of preferred stock, common stock or rights of the Company issued
pursuant to the Company's Rights Agreement dated June 16, 1996 with Norwest
Bank Minnesota, N.A., and (iv) shares of convertible preferred stock of the
Company issued prior to November 30, 1998 and shares of Common Stock issued
upon conversion thereof, if and whenever the Company shall issue or sell any
shares of its Common Stock after the Original Issue Date for a consideration
per share less than the warrant purchase price in effect immediately prior to
the time of such issue or sale, then, forthwith upon such issue or sale, the
warrant purchase price shall be reduced to the price (calculated to the
nearest cent) determined by dividing (A) an amount equal to the sum of (1) the
number of shares of Common Stock outstanding immediately prior to such issue
or sale multiplied by the then existing warrant purchase price, and (2) the
consideration, if any, received by the Company upon such issue or sale, by
(B) an amount equal to the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such issue or sale and (2) the number of
shares of Common Stock thus issued or sold.
No adjustment of the warrant purchase price, however, shall be
made in an amount less than 2% of the warrant purchase price in effect on the
date of such adjustment, but any such lesser adjustment shall be carried
forward and shall be made at the earlier of (i) the time and together with the
next subsequent adjustment which, together with any such adjustment so carried
forward, shall be an amount equal to or greater than 4% of the warrant
purchase price then in effect and (ii) exercise of this Warrant or any of the
rights represented hereby.
(c) For the purposes of paragraph (b), and subject to the exceptions
set forth therein, the following provisions (i) to (v), inclusive, shall also
be applicable:
(i) In case at any time the Company shall grant (whether
directly or by assumption in a merger or otherwise) any rights to
subscribe for or to purchase, or any options for the purchase of,
(aa) Common Stock or (bb) any obligations or any shares of stock
of the Company which are convertible into or exchangeable for
Common Stock (any of such obligations or shares of stock being
hereinafter called Convertible Securities) whether or not such
rights or options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and the price
per share for which Common Stock is issuable upon the exercise of
such rights or options or upon conversion or exchange of such
Convertible Securities (determined by dividing (aa) the total
amount, if any, received or receivable by the Company (or
predecessor company by merger or otherwise) as consideration for
the granting of such rights or options, plus the minimum aggregate
amount of additional consideration paid or payable to the Company
upon the exercise of such rights or options, plus, in the case of
such rights or options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, paid
or payable upon the issue or sale of such Convertible Securities
and upon the conversion or exchange thereof, by (bb) the total
maximum number of shares of Common Stock issuable upon the
exercise of such rights or options or upon the conversion or
exchange of all such Convertible Securities issuable upon the
exercise of such rights or options) shall be less than the warrant
purchase price in effect immediately prior to the time of the
granting of such rights or options, then the total maximum number
of shares of Common Stock issuable upon the exercise of such
rights or options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the
exercise of such rights or options shall (as of the date of
granting of such rights or options) be deemed to have been issued
for such price per share. Except as provided in paragraph (f)
below, no further adjustments of the warrant purchase price shall
be made upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such rights or options or
upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.
(ii) In case the Company shall issue or sell (whether
directly or by assumption in a merger or otherwise) any
Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (aa) the total amount received or
receivable by the Company (or predecessor company by merger or
otherwise) as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (bb) the total maximum number
of shares of Common Stock issuable upon the conversion or exchange
of all such Convertible Securities) shall be less than the warrant
purchase price in effect immediately prior to the time of such
issue or sale, then the total maximum number of shares of Common
Stock issuable upon conversion or exchange of all such Convertible
Securities shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and to have
been issued for such price per share, provided that (x) except as
provided in paragraph (f) below, no further adjustments of the
warrant purchase price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible
Securities, and (y) if any such issue or sale of such Convertible
Securities is made upon exercise of any rights to subscribe for or
to purchase or any option to purchase any such Convertible
Securities for which adjustments of the warrant purchase price
have been or are to be made pursuant to other provisions of this
paragraph (c), no further adjustment of the warrant purchase price
shall be made by reason of such issue or sale.
(iii) In case any shares of Common Stock or Convertible
Securities or any rights or options to purchase any such Common
Stock or Convertible Securities shall be issued or sold for cash,
the consideration received therefor shall be deemed to be the
amount received by the Company therefor, without deduction
therefrom of any expenses incurred or any underwriting
commissions, discounts or concessions paid or allowed by the
Company in connection therewith. In case any shares of Common
Stock or Convertible Securities or any rights or options to
purchase any such Common Stock or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount of
the consideration other than cash received by the Company shall be
deemed to be the fair value of such consideration as determined by
the Board of Directors of the Company, without deducting therefrom
of any expenses incurred or any underwriting commissions,
discounts or concessions paid or allowed by the Company in
connection therewith. In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase such
Common Stock or Convertible Securities shall be issued in
connection with any merger or consolidation in which the Company
is the surviving corporation, the amount of consideration therefor
shall be deemed to be the fair value as determined by the Board of
Directors of the Company of such portion of the assets and
business of the non-surviving corporation or corporations as such
Board shall determine to be attributable to such Common Stock,
Convertible Securities, rights or options, as the case may be. In
the event of any consolidation or merger of the Company in which
the Company is not the surviving corporation or in the event of
any sale of all or substantially all of the assets of the Company
for stock or other securities of any other corporation, the
Company shall be deemed to have issued a number of shares of its
Common Stock for stock or securities of the other corporation
computed on the basis of the actual exchange ratio on which the
transaction was predicated and for a consideration equal to the
fair market value on the date of such transaction of such stock or
securities of the other corporation, and if any such calculation
results in adjustment of the warrant purchase price, the
determination of the number of shares of Common Stock issuable
upon exercise of this Warrant immediately prior to such merger,
conversion or sale, for purposes of paragraph (g) below, shall be
made after giving effect to such adjustment of the warrant
purchase price.
(iv) In case the Company shall take a record of the holders
of its Common Stock for the purpose of entitling them (aa) to
receive a dividend or other distribution payable in Common Stock
or in Convertible Securities, or in any rights or options to
purchase any Common Stock or Convertible Securities, or (bb) to
subscribe for or purchase Common Stock or Convertible Securities,
then such record date shall be deemed to be the date of the issue
or sale of the shares of Common Stock deemed to have been issued
or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such rights
of subscription or purchase, as the case may be.
(v) The number of shares of Common Stock outstanding at
any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares
shall be considered an issue or sale of Common Stock for the
purposes of this paragraph (c).
(d) In case the Company shall after the Original Issue Date
(i) declare a dividend upon the Common Stock payable in Common Stock (other
than a dividend declared to effect a subdivision of the outstanding shares of
Common Stock, as described in paragraph (e) below) or Convertible Securities,
or in any rights or options to purchase Common Stock or Convertible
Securities, or (ii) declare any other dividend or make any other distribution
upon the Common Stock payable otherwise than out of earnings or earned
surplus, then thereafter the holder of this Warrant upon the exercise hereof
will be entitled to receive the number of shares of Common Stock to which such
holder shall be entitled upon such exercise, and, in addition and without
further payment therefor, each dividend described in clause (i) above and each
dividend or distribution described in clause (ii) above which such holder
would have received by way of dividends or distributions if continuously since
the Original Issue Date such holder (i) had been the record holder of the
number of shares of Common Stock then received, and (ii) had retained all
dividends or distributions in stock or securities (including Common Stock or
Convertible Securities, and any rights or options to purchase any Common Stock
or Convertible Securities) payable in respect of such Common Stock or in
respect of any stock or securities paid as dividends or distributions and
originating directly or indirectly from such Common Stock. For the purposes
of the foregoing, a dividend or distribution other than in cash shall be
considered payable out of earnings or earned surplus only to the extent that
such earnings or earned surplus are charged an amount equal to the fair value
of such dividend or distribution as determined by the Board of Directors of
the Company.
(e) In case the Company shall at any time after the Original Issue
Date subdivide its outstanding shares of Common Stock into a greater number of
shares, the warrant purchase price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the warrant purchase price in effect immediately
prior to such combination shall be proportionately increased.
(f) If (i) the purchase price provided for in any right or option
referred to in clause (i) of paragraph (c), or (ii) the additional
consideration, if any, payable upon the conversion or exchange of Convertible
Securities referred to in clause (i) or clause (ii) of paragraph (c), or
(iii) the rate at which any Convertible Securities referred to in clause (i)
or clause (ii) of paragraph (c) are convertible into or exchangeable for
Common Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution), the warrant purchase price
then in effect shall forthwith be increased or decreased to such warrant
purchase price which would have obtained had the adjustments made upon the
issuance of such rights, options or Convertible Securities been made upon the
basis of (i) the issuance of the number of shares of Common Stock theretofore
actually delivered upon the exercise of such options or rights or upon the
conversion or exchange of such Convertible Securities, and the total
consideration received therefor, and (ii) the issuance at the time of such
change of any such options, rights or Convertible Securities then still
outstanding for the consideration, if any, received by the Company therefor
and to be received on the basis of such changed price; and on the expiration
of any such option or right or the termination of any such right to convert or
exchange such Convertible Securities, the warrant purchase price then in
effect hereunder shall forthwith be increased to such warrant purchase price
which would have obtained had the adjustments made upon the issuance of such
rights or options or Convertible Securities been made upon the basis of the
issuance of the shares of Common Stock theretofore actually delivered (and the
total consideration received therefor) upon the exercise of such rights or
options or upon the conversion or exchange of such Convertible Securities. If
the purchase price provided for in any such right or option referred to in
clause (i) of paragraph (c) or the rate at which any Convertible Securities
referred to in clause (i) or clause (ii) of paragraph (c) are convertible into
or exchangeable for Common Stock shall decrease at any time under or by reason
of provisions with respect thereto designed to protect against dilution, then
in case of the delivery of Common Stock upon the exercise of any such right or
option or upon conversion or exchange of any such Convertible Security, the
warrant purchase price then in effect hereunder shall forthwith be decreased
to such warrant purchase price as would have obtained had the adjustments made
upon the issuance of such right, option or Convertible Securities been made
upon the basis of the issuance of (and the total consideration received for)
the shares of Common Stock delivered as aforesaid.
(g) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
entity, or the sale of all or substantially all of its assets to another
entity shall be effected in such a way that 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 or sale, lawful and adequate provision
shall be made whereby the holder hereof 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 of the
Company immediately theretofore purchasable and receivable upon the exercise
of the rights represented hereby, such shares of stock, securities or assets
as may be issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares of such
stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case
appropriate provision shall be made with respect to the rights and interests
of the holder of this Warrant to the end that the provisions hereof (including
without limitation provisions for adjustments of the warrant purchase price
and of the number of shares purchasable upon the exercise of this Warrant)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise
hereof. The Company shall not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor entity (if other than
the Company) resulting from such consolidation or merger or the entity
purchasing such assets shall assume, by written instrument executed and mailed
to the registered holder hereof at the last address of such holder appearing
on the books of the Company, the obligation to deliver to such holder such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to purchase.
(h) Upon the establishment of the warrant exercise price and any
adjustment of the warrant purchase price, then and in each such case the
Company shall give written notice thereof, by first-class mail, postage
prepaid, addressed to the registered holder of this Warrant at the address of
such holder as shown on the books of the Company, which notice shall state the
warrant purchase price as originally established or resulting from such
adjustment and the increase or decrease, if any, in the number of shares
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.
(i) In case any time:
(1) the Company shall declare any cash dividend on its
Common Stock at a rate in excess of the rate of the last cash
dividend theretofore paid;
(2) the Company shall pay any dividend payable in stock
upon its Common Stock or make any distribution (other than regular
cash dividends) to the holders of its Common Stock;
(3) the Company shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of
any class or other rights;
(4) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or
consolidation or merger of the Company with, or sale of all or
substantially all of its assets to, another corporation (other
than a merger of a wholly-owned subsidiary of the Company into the
Company or another wholly-owned subsidiary of the Company);
(5) a tender offer shall be made for the capital stock of
the Company; or
(6) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written notice,
by first-class mail, postage prepaid, addressed to the registered holder of
this Warrant at the address of such holder as shown on the books of the
Company, of the date on which (aa) the books of the Company shall close or a
record shall be taken for such dividend, distribution or subscription rights,
or (bb) such reorganization, reclassification, consolidation, merger, sale,
tender offer, dissolution, liquidation or winding up shall take place, as the
case may be. Such notice shall also specify the date as of which the holders
of Common Stock of record shall participate in such dividend, distribution or
subscription rights, or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, tender offer, dissolution,
liquidation or winding up, as the case may be. Such written notice shall be
given at least 20 days prior to the action in question and not less than 20
days prior to the record date or the date on which the Company's transfer
books are closed in respect thereto. Failure to provide the notice required
by this paragraph 4(i) shall not affect the validity of the corporate action
at issue.
(j) If any event occurs as to which in the opinion of the Board of
Directors of the Company the other provisions of this paragraph 4 are not
strictly applicable or if strictly applicable would not fairly protect the
purchase rights of the holder of this Warrant or of Common Stock in accordance
with the essential intent and principles of such provisions, then the Board of
Directors shall make an adjustment in the application of such provisions, in
accordance with such essential intent and principles, so as to protect such
purchase rights as aforesaid.
(k) No fractional shares of Common Stock shall be issued upon the
exercise of this Warrant, but, instead of any fraction of a share which would
otherwise be issuable, the Company shall pay a cash adjustment (which may be
effected as a reduction of the amount to be paid by the holder hereof upon
such exercise) in respect of such fraction in an amount equal to the same
fraction of the market price per share of Common Stock as of the close of
business on the date of the notice required by paragraph 1 above. Market
price for purposes of this paragraph 4(k) and for purposes of paragraph 12(d)
hereof shall mean, if the Common Stock is traded on a securities exchange or
on the Nasdaq National Market, the closing price of the Common Stock on such
exchange or the Nasdaq National Market, or, if the Common Stock is otherwise
traded in the over-the-counter market, the closing bid price, in each case
averaged over a period of 20 consecutive business days prior to the date as of
which market price is being determined. If at any time the Common Stock is
not traded on an exchange or the Nasdaq National Market, or otherwise traded
in the over-the-counter market, the market price shall be deemed to be the
higher of (i) the book value thereof as determined by any firm of independent
public accountants of recognized standing selected by the Board of Directors
of the Company as of the last day of any month ending within 60 days preceding
the date as of which the determination is to be made, or (ii) the fair value
thereof determined in good faith by the Board of Directors of the Company as
of a date which is within l5 days of the date as of which the determination is
to be made.
5. As used herein, the term Common Stock shall mean and include the
Company's presently authorized Common Stock and shall also include any capital
stock of any class of the Company hereafter authorized which shall not be
limited to a fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Company; provided that the shares purchasable pursuant to this Warrant shall
include shares designated as Common Stock of the Company on the Original Issue
Date or, in the case of any reclassification of the outstanding shares
thereof, the stock, securities or assets provided for in paragraph 4(g) above.
6. So long as this Warrant remains outstanding, the Company will not
issue any additional capital stock of any class preferred as to dividends or
as to the distribution of assets upon voluntary or involuntary liquidation,
dissolution or winding up, unless the rights of the holders thereof shall be
limited to a fixed sum or percentage of par, liquidation or redemption value
in respect of participation in dividends and in the distribution of such
assets.
7. This Warrant shall not entitle the holder hereof to any voting
rights or other rights as a stockholder of the Company.
8. The holder of this Warrant, by acceptance hereof, agrees to give
written notice to the Company before transferring this Warrant or transferring
any Common Stock issuable or issued upon the exercise hereof of such holder's
intention to do so, describing briefly the manner of any proposed transfer of
this Warrant or such holder's intention as to the disposition to be made of
shares of Common Stock issuable or issued upon the exercise hereof. If
requested by the Company, such holder shall also provide the Company with an
opinion of counsel (who may be an employee of such holder or an affiliate
thereof) satisfactory to the Company to the effect that the proposed transfer
of this Warrant or disposition of shares may be effected without registration
or qualification (under any Federal or State law) of this Warrant or the
shares of Common Stock issuable or issued upon the exercise hereof. Upon
receipt of such written notice and, if requested, opinion by the Company, such
holder shall be entitled to transfer this Warrant, or to exercise this Warrant
in accordance with its terms and dispose of the shares received upon such
exercise or to dispose of shares of Common Stock received upon the previous
exercise of this Warrant, all in accordance with the terms of the notice
delivered by such holder to the Company, provided that an appropriate legend
respecting the aforesaid restrictions on transfer and disposition may be
endorsed on this Warrant or the certificates for such shares. Any legends
evidencing the restrictions on transfer contained herein shall be removed
(i) with respect to securities held for at least two years (including with
respect to any Common Stock issued upon the exercise of the Conversion Right
described in paragraph 12 hereof the period during which this Warrant had been
held) by a person who has not been an affiliate of the Company (as defined in
Rule 144 under the Securities Act of 1933, as amended (the Securities Act))
during the three months preceding the request for removal of such legend,
(ii) if such security is being disposed of pursuant to registration under the
Securities Act and any applicable state acts or pursuant to Rule 144 or any
similar rule then in effect, or (iii) if such holder provides the Company with
an opinion of counsel (who may be an employee of such holder or an affiliate
thereof) satisfactory to the Company to the effect that a sale, transfer,
assignment, offer, pledge or distribution for value of such security may be
made without registration and that such legend is not required to satisfy the
applicable exemption from registration. Clause (i) of the foregoing legend
removal requirement is based on Rule 144(k) under the Securities Act as
currently in force, and assumes that such Rule (or a successor thereto) in
substantially its current form shall be in effect at the time of such request
for legend removal.
9. Subject to the provisions of paragraph 8 hereof, this Warrant and
all rights hereunder are transferable, in whole or in part, at the principal
office of the Company by the holder hereof in person or by duly authorized
attorney, upon surrender of this Warrant properly endorsed. Each taker and
holder of this Warrant, by taking or holding the same, consents and agrees
that the bearer of this Warrant, when endorsed, may be treated by the Company
and all other persons dealing with this Warrant as the absolute owner hereof
for any purpose and as the person entitled to exercise the rights represented
by this Warrant, or to the transfer hereof on the books of the Company, any
notice to the contrary notwithstanding; but until such transfer on such books,
the Company may treat the registered holder hereof as the owner for all
purposes.
10. This Warrant is exchangeable, upon the surrender hereof by the
holder hereof at the principal office of the Company, for new Warrants of like
tenor representing in the aggregate the right to subscribe for and purchase
the number of shares which may be subscribed for and purchased hereunder, each
of such new Warrants to represent the right to subscribe for and purchase such
number of shares as shall be designated by said holder hereof at the time of
such surrender.
11. The holder of this Warrant and of the Common Stock issuable or
issued upon the exercise hereof shall be entitled to the registration rights
set forth in Annex A hereto.
12. (a) In addition to and without limiting the rights of the holder
of this Warrant under the terms of this Warrant, the holder of this Warrant
shall have the right (the Conversion Right) to convert this Warrant or any
portion thereof into shares of Common Stock as provided in this paragraph 12
at any time or from time to time prior to its expiration, subject to the
restrictions set forth in paragraph (c) below. Upon exercise of the
Conversion Right with respect to a particular number of shares subject to this
Warrant (the Converted Warrant Shares), the Company shall deliver to the
holder of this Warrant, without payment by the holder of any exercise price or
any cash or other consideration, that number of shares of Common Stock equal
to the quotient obtained by dividing the Net Value (as hereinafter defined) of
the Converted Warrant Shares by the fair market value (as defined in
paragraph (d) below) of a single share of Common Stock, determined in each
case as of the close of business on the Conversion Date (as hereinafter
defined). The Net Value of the Converted Warrant Shares shall be determined
by subtracting the aggregate warrant purchase price of the Converted Warrant
Shares from the aggregate fair market value of the Converted Warrant Shares.
Notwithstanding anything in this paragraph 12 to the contrary, the Conversion
Right cannot be exercised with respect to a number of Converted Warrant Shares
having a Net Value below $100. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued in
accordance with the foregoing formula is other than a whole number, the
Company shall pay to the holder of this Warrant an amount in cash equal to the
fair market value of the resulting fractional share.
(b) The Conversion Right may be exercised by the holder of this
Warrant by the surrender of this Warrant at the principal office of the
Company together with a written statement specifying that the holder thereby
intends to exercise the Conversion Right and indicating the number of shares
subject to this Warrant which are being surrendered (referred to in
paragraph (a) above as the Converted Warrant Shares) in exercise of the
Conversion Right. Such conversion shall be effective upon receipt by the
Company of this Warrant together with the aforesaid written statement, or on
such later date as is specified therein (the Conversion Date), but not later
than the expiration date of this Warrant. Certificates for the shares of
Common Stock issuable upon exercise of the Conversion Right, together with a
check in payment of any fractional share and, in the case of a partial
exercise, a new warrant evidencing the shares remaining subject to this
Warrant, shall be issued as of the Conversion Date and shall be delivered to
the holder of this Warrant within 15 days following the Conversion Date.
(c) In the event the Conversion Right would, at any time this Warrant
remains outstanding, be deemed by the Company's independent certified public
accountants to give rise to a charge to the Company's earnings for financial
reporting purposes, then the Conversion Right shall automatically terminate
upon the Company's written notice to the holder of this Warrant of such
adverse accounting treatment.
(d) For purposes of this paragraph 12, the fair market value of a
share of Common Stock as of a particular date shall be its market price,
calculated as described in paragraph 4(k) hereof.
(e) Notwithstanding anything to the contrary contained in this
paragraph 12, in the event the holder of this Warrant notifies the Company of
its intention to exercise this Warrant in whole or in part and the Company
determines it would be in the Company's best interests for the holder to
exercise the Conversion Right in whole or in part as opposed to exercising
this Warrant in whole or in part, the holder of this Warrant agrees to
exercise the Conversion Right in lieu of exercising this Warrant to the extent
that the holder has a continued interest in exercising this Warrant.
14. All questions concerning this Warrant will be governed and
interpreted and enforced in accordance with the internal law of the State of
Minnesota. This Warrant (including Annex A hereto) may be amended only in a
writing executed by the holder of this Warrant and the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer and this Warrant to be dated as of
____________________.
SHELDAHL, INC.
By
Its
RESTRICTION ON TRANSFER
The securities evidenced hereby may not be transferred without (i) the
opinion of counsel satisfactory to the Company that such transfer may be
lawfully made without registration under the Federal Securities Act of 1933
and all applicable state securities laws or (ii) such registration.
<PAGE>
FORM OF ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto this Warrant, and appoints to transfer this Warrant on the books of the
Company with the full power of substitution in the premises.
Dated:
In the presence of:
___________________________________
(Signature must conform in all
respects to the name of the holder
as specified on the face of this
Warrant without alteration,
enlargement or any change
whatsoever, and the signature must
be guaranteed in the usual manner)
<PAGE>
SUBSCRIPTION FORM
To be Executed by the Holder of this Warrant if such Holder
Desires to Exercise this Warrant in Whole or in Part:
To: Sheldahl, Inc. (the Company)
The undersigned _________________________
Please insert Social Security or other
identifying number of Subscriber:
_________________________
hereby irrevocably elects to exercise the right of purchase represented by
this Warrant for, and to purchase thereunder, ________ shares of the Common
Stock provided for therein and tenders payment herewith to the order of the
Company in the amount of $_______, such payment being made as provided on the
face of this Warrant.
The undersigned requests that certificates for such shares of
Common Stock be issued as follows:
Name:
Address:
Deliver To:
Address:
and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance
remaining of the shares of Common Stock purchasable under this Warrant be
registered in the name of, and delivered to, the undersigned at the address
stated above.
Dated:
Signature __________________________________
Note: The signature on this
Subscription Form must correspond
with the name as written upon the
face of this Warrant in every
particular, without alteration or
enlargement or any change whatever.
<PAGE>
REGISTRATION RIGHTS PROVISIONS
1.1 Definitions.
Commission shall mean the Securities and Exchange Commission.
Registrable Securities shall mean (i) the 100,000 shares of Common
Stock issued or issuable upon exercise of the warrants originally represented
by the warrants issued pursuant to the Credit Agreement, and (ii) any
additional securities issued in a stock split or reclassification of, or stock
dividend or other distribution on or in substitution or exchange for, or
otherwise in connection with, any of the foregoing securities, or in a merger
or consolidation involving the Company or a sale of all or substantially all
of the Company's assets.
All other capitalized terms used in this Annex A and not defined
herein shall have the meanings specified in the Warrant to which this Annex A
is attached.
1.2 Required Registration. If the Company shall receive a
written request therefor from any record holder or holders of an aggregate of
at least a majority of the Registrable Securities not theretofore registered
under the Securities Act and sold, the Company shall prepare and file a
registration statement under the Securities Act covering the Registrable
Securities which are the subject of such request and shall use its best
efforts to cause such registration statement to become effective. In
addition, upon the receipt of such request, the Company shall promptly give
written notice to all other record holders of Registrable Securities not
theretofore registered under the Securities Act and sold that such
registration is to be effected. The Company shall include in such
registration statement such Registrable Securities for which it has received
written requests to register by such other record holders within 30 days after
the delivery of the Company's written notice to such other record holders.
The Company shall be obligated to prepare, file and cause to become effective
any number of registration statements on Form S-3 or any successor form
promulgated by the Commission (Form S-3) (if such form is then available for
use by the Company and the holders of Registrable Securities) pursuant to this
Section 1.2, and to pay the expenses associated with such registration
statements.
If, at the time any written request for registration is received by the
Company pursuant to this Section 1.2, the Company has determined to proceed
with the actual preparation and filing of a registration statement under the
Securities Act in connection with the proposed offer and sale for cash of any
of its securities by it or any of its security holders, such written request
shall be deemed to have been given pursuant to Section 1.3 hereof rather than
this Section 1.2, and the rights of the holders of Registrable Securities
covered by such written request shall be governed by Section 1.3 hereof.
Without the written consent of the holders of a majority of the
Registrable Securities for which registration has been requested pursuant to
this Section 1.2, neither the Company nor any other holder of securities of
the Company may include securities in such registration if in the good faith
judgment of the managing underwriter of such public offering the inclusion of
such securities would interfere with the successful marketing of the
Registrable Securities or require the exclusion of any portion of the
Registrable Securities to be registered.
1.3 Incidental Registration. Each time the Company shall
determine to proceed with the actual preparation and filing of a registration
statement under the Securities Act in connection with the proposed offer and
sale for cash of any of its securities by it or any of its security holders
(other than a registration statement on a form that does not permit the
inclusion of shares by its security holders), the Company will give written
notice of its determination to all record holders of Registrable Securities
not theretofore registered under the Securities Act and sold. Upon the
written request of a record holder of any shares of Registrable Securities
given within 30 days after receipt of any such notice from the Company, the
Company will, except as herein provided, cause all such shares of Registrable
Securities, the record holders of which have so requested registration
thereof, to be included in such registration statement, all to the extent
requisite to permit the sale or other disposition by the prospective seller or
sellers of the Registrable Securities to be so registered; provided, however,
that nothing herein shall prevent the Company from, at any time, abandoning or
delaying any such registration initiated by it; provided further, however,
that if the Company determines not to proceed with a registration after the
registration statement has been filed with the Commission and the Company's
decision not to proceed is primarily based upon the anticipated public
offering price of the securities to be sold by the Company, the Company shall
promptly complete the registration for the benefit of those selling security
holders who wish to proceed with a public offering of their securities and who
bear all expenses in excess of $25,000 incurred by the Company as the result
of such registration after the Company has decided not to proceed. If any
registration pursuant to this Section 1.3 shall be underwritten in whole or in
part, the Company may require that the Registrable Securities requested for
inclusion pursuant to this Section 1.3 be included in the underwriting on the
same terms and conditions as the securities otherwise being sold through the
underwriters. In the event that the Registrable Securities requested for
inclusion pursuant to this Section 1.3 would constitute more than 25% of the
total number of shares to be included in a proposed underwritten public
offering, and if in the good faith judgment of the managing underwriter of
such public offering the inclusion of all of the Registrable Securities
originally covered by a request for registration would reduce the number of
shares to be offered by the Company or interfere with the successful marketing
of the shares of stock offered by the Company, the number of shares of
Registrable Securities otherwise to be included in the underwritten public
offering may be reduced pro rata (by number of shares) among the holders
thereof requesting such registration, provided, however, that after any such
required reduction the Registrable Securities to be included in such offering
shall constitute at least 25% of the total number of shares to be included in
such offering. Those shares of Registrable Securities which are thus excluded
from the underwritten public offering shall be withheld from the market by the
holders thereof for a period, not to exceed 90 days, which the managing
underwriter reasonably determines is necessary in order to effect the
underwritten public offering. Notwithstanding anything to the contrary
contained in this Section 1.3, the holders of Registrable Securities shall
have no incidental registration rights in connection with registration
statements filed by the Company pursuant to that certain Registration Rights
Agreement dated August 27, 1997 among the Company and the Purchasers named
therein or pursuant to any agreement with holders of convertible preferred
stock of the Company issued by the Company to raise Net Equity Proceeds (as
defined in the Credit Agreement).
1.4 Registration Procedures. If and whenever the Company is
required by the provisions of Section 1.2 or 1.3 hereof to effect the
registration of shares of Registrable Securities under the Securities Act, the
Company will:
(a) prepare and file with the Commission a registration
statement with respect to such securities, and use its best
efforts to cause such registration statement to become and remain
effective for such period as may be reasonably necessary to effect
the sale of such securities, not to exceed nine months;
(b) prepare and file with the Commission such amendments
to such registration statement and supplements to the prospectus
contained therein as may be necessary to keep such registration
statement effective for such period as may be reasonably necessary
to effect the sale of such securities, not to exceed nine months;
(c) furnish to the security holders participating in such
registration and to the underwriters of the securities being
registered such reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus and such other
documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities;
(d) use its best efforts to register or qualify the
securities covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as such
participating holders may reasonably request in writing within 20
days following the original filing of such registration statement,
except that the Company shall not for any purpose be required to
execute a general consent to service of process or to qualify to
do business as a foreign corporation in any jurisdiction wherein
it is not so qualified;
(e) notify the security holders participating in such
registration, promptly after it shall receive notice thereof, of
the time when such registration statement has become effective or
a supplement to any prospectus forming a part of such registration
statement has been filed;
(f) notify such holders promptly of any request by the
Commission for the amending or supplementing of such registration
statement or prospectus or for additional information;
(g) prepare and file with the Commission, promptly upon
the request of any such holders, any amendments or supplements to
such registration statement or prospectus which, in the opinion of
counsel for such holders (and concurred in by counsel for the
Company), is required under the Securities Act or the rules and
regulations thereunder in connection with the distribution of the
Registrable Securities by such holder;
(h) prepare and promptly file with the Commission and
promptly notify such holders of the filing of such amendment or
supplement to such registration statement or prospectus as may be
necessary to correct any statements or omissions if, at the time
when a prospectus relating to such securities is required to be
delivered under the Securities Act, any event shall have occurred
as the result of which any such prospectus or any other prospectus
as then in effect would include an untrue statement of a material
fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances in which
they were made, not misleading;
(i) advise such holders, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop
order by the Commission suspending the effectiveness of such
registration statement or the initiation or threatening of any
proceeding for that purpose and promptly use its best efforts to
prevent the issuance of any stop order or to obtain its withdrawal
if such stop order should be issued;
(j) not file any amendment or supplement to such
registration statement or prospectus to which a majority in
interest of such holders shall have reasonably objected on the
grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or
the rules and regulations thereunder, after having been furnished
with a copy thereof at least five business days prior to the
filing thereof, unless in the opinion of counsel for the Company
the filing of such amendment or supplement is reasonably necessary
to protect the Company from any liabilities under any applicable
federal or state law and such filing will not violate applicable
law; and
(k) at the request of any such holder, furnish: (i) an
opinion, dated as of the closing date, of the counsel representing
the Company for the purposes of such registration, addressed to
the underwriters, if any, and to the holder or holders making such
request, covering such matters as such underwriters and holder or
holders may reasonably request; and (ii) letters dated as of the
effective date of the registration statement and as of the closing
date, from the independent certified public accountants of the
Company, addressed to the underwriters, if any, and to the holder
or holders making such request, covering such matters as such
underwriters and holder or holders may reasonably request.
1.5 Expenses. With respect to each registration requested
pursuant to Section 1.2 hereof and with respect to each inclusion of shares of
Registrable Securities in a registration statement pursuant to Section 1.3
hereof (except as otherwise provided in Section 1.3 with respect to
registrations initiated by the Company but with respect to which the Company
has determined not to proceed), the Company shall bear the following fees,
costs and expenses: all registration, filing and NASD fees, printing
expenses, fees and disbursements of counsel and accountants for the Company,
fees and disbursements of counsel for the underwriter or underwriters of such
securities (if the Company and/or selling security holders are required to
bear such fees and disbursements), all internal Company expenses, all legal
fees and disbursements and other expenses of complying with state securities
or blue sky laws of any jurisdictions in which the securities to be offered
are to be registered or qualified, and the premiums and other costs of
policies of insurance against liability (if any) arising out of such public
offering. Fees and disbursements of counsel and accountants for the selling
security holders, underwriting discounts and commissions and transfer taxes
relating to the shares included in the offering by the selling security
holders, and any other expenses incurred by the selling security holders not
expressly included above, shall be borne by the selling security holders.
12.6 Indemnification. In the event that any Registrable
Securities are included in a registration statement under Section 1.2 or 1.3
hereof:
(a) The Company will indemnify and hold harmless each
holder of shares of Registrable Securities which are included in a
registration statement pursuant to the provisions of this Annex A,
its directors and officers, and any underwriter (as defined in the
Securities Act) for such holder and each person, if any, who
controls such holder or such underwriter within the meaning of the
Securities Act, from and against, and will reimburse such holder
and each such underwriter and controlling person with respect to,
any and all loss, damage, liability, cost and expense to which
such holder or any such underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as
such losses, damages, liabilities, costs or expenses are caused by
any untrue statement or alleged untrue statement of any material
fact contained in such registration statement, any prospectus
contained therein or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances in
which they were made, not misleading; provided, however, that the
Company will not be liable in any such case to the extent that any
such loss, damage, liability, cost or expense arises out of or is
based upon an untrue statement or alleged untrue statement or
omission or alleged omission so made in conformity with
information furnished by such holder, such underwriter or such
controlling person in writing specifically for use in the
preparation thereof.
(b) Each holder of shares of Registrable Securities which
are included in a registration pursuant to the provisions of this
Annex A will indemnify and hold harmless the Company, its
directors and officers, any controlling person and any underwriter
from and against, and will reimburse the Company, its directors
and officers, any controlling person and any underwriter with
respect to, any and all loss, damage, liability, cost or expense
to which the Company or any controlling person and/or any
underwriter may become subject under the Securities Act or
otherwise, insofar as such losses, damages, liabilities, costs or
expenses are caused by any untrue or alleged untrue statement of
any material fact contained in such registration statement, any
prospectus contained therein or any amendment or supplement
thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not
misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission
or alleged omission was so made in reliance upon and in strict
conformity with written information furnished by such holder
specifically for use in the preparation thereof.
(c) Promptly after receipt by an indemnified party
pursuant to the provisions of paragraph (a) or (b) of this
Section 1.6 of notice of the commencement of any action involving
the subject matter of the foregoing indemnity provisions such
indemnified party will, if a claim thereof is to be made against
the indemnifying party pursuant to the provisions of said
paragraph (a) or (b), promptly notify the indemnifying party of
the commencement thereof; but the omission to so notify the
indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than hereunder. In
case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in, and, to
the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party, provided, however,
if the defendants in any action include both the indemnified party
and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses available to
it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, or if
there is a conflict of interest which would prevent counsel for
the indemnifying party from also representing the indemnified
party, the indemnified party or parties shall have the right to
select separate counsel to participate in the defense of such
action on behalf of such indemnified party or parties. After
notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party pursuant to the
provisions of said paragraph (a) or (b) for any legal or other
expense subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation, unless (i) the indemnified party shall have
employed counsel in accordance with the proviso of the preceding
sentence, (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the notice of the
commencement of the action, or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at
the expense of the indemnifying party.
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