SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 1998
OR
() TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to_________
Commission File No. 0-22384
MICRO COMPONENT TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0985960
- ---------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2340 West County Road C, St. Paul, MN 55113-2528
-------------------------------------------------------------------------------
(Address of principal executive offices)
(612) 697-4000
-------------------------------------------
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days
Yes ______X_______ No ______________
The number of shares outstanding of the Registrant's Common Stock, as of April
24, 1998 was 7,375,642.
Page 1 of 115 pages
Exhibit index on page 14
<PAGE>
MICRO COMPONENT TECHNOLOGY, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED STATEMENTS OF OPERATIONS 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
EXHIBIT INDEX 14
<PAGE>
MICRO COMPONENT TECHNOLOGY, INC.
FORM 10-Q
ITEM 1. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share data)
<TABLE>
<CAPTION>
ASSETS Mar. 28, 1998 June 28, 1997
- ------------------------------------------------------------------- ------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,934 $ 5,360
Short-term investments -- 1,169
Accounts receivable, less allowance for doubtful accounts
of $152 (Mar. 1998) and $109 (June 1997) 3,069 4,028
Inventories
Raw materials 2,343 1,110
Work in process 1,690 1,420
Finished goods 2,010 1,064
Other 206 297
-------- --------
Total current assets 12,252 14,448
-------- --------
Property, plant and equipment 4,134 4,347
Less accumulated depreciation (3,034) (3,103)
-------- --------
Property, plant and equipment, net 1,100 1,244
Other assets 69 100
-------- --------
Total assets $ 13,421 $ 15,792
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------
Current liabilities:
Current obligations under debt facilities and financing
obligations $ 50 $ 300
Accounts payable 983 1,563
Other accrued liabilities 1,330 1,577
-------- --------
Total current liabilities 2,363 3,440
Long-term debt and financing obligations 96 133
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 20,000,000 authorized, 7,375,642
and 7,047,102 issued, respectively 74 70
Redeemable convertible preferred stock, $.01 par value, 1,000,000
authorized, 315,789 issued (liquidation value $4.75 per share) -- 1,500
Additional paid-in capital 43,990 42,474
Cumulative translation adjustment (82) (82)
Accumulated deficit (33,020) (31,743)
-------- --------
Total stockholders' equity 10,962 12,219
-------- --------
Total liabilities and stockholders' equity $ 13,421 $ 15,792
======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
MICRO COMPONENT TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- -------------------------
Mar. 28, Mar. 29, Mar. 28, Mar. 29,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 3,567 $ 4,706 $ 12,539 $ 11,309
Cost of sales 1,783 1,951 5,310 5,065
--------- --------- --------- ---------
Gross profit 1,784 2,755 7,229 6,244
Operating expenses:
Selling, general and administrative 1,700 1,664 5,868 5,202
Research and development 888 1,021 2,868 2,945
--------- --------- --------- ---------
Total operating expenses 2,588 2,685 8,736 8,147
--------- --------- --------- ---------
Loss from operations (804) 70 (1,507) (1,903)
Interest income, net 23 85 95 251
Other 8 (63) 135 (63)
--------- --------- --------- ---------
31 22 230 188
--------- --------- --------- ---------
Income (loss) before income taxes (773) 92 (1,277) (1,715)
Income tax provision -- -- -- --
--------- --------- --------- ---------
Net income (loss) $ (773) 92 $ (1,277) $ (1,715)
========= ========= ========= =========
Net income (loss) per share:
Basic $ (.10) $ .01 $ (.18) $ (.24)
========= ========= ========= =========
Diluted $ (.10) $ .01 $ (.18) $ (.24)
========= ========= ========= =========
Weighted average shares used in
computing earnings (loss) per share:
Basic 7,376 7,031 7,204 7,028
========= ========= ========= =========
Diluted 7,376 7,520 7,204 7,028
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statement
<PAGE>
MICRO COMPONENT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------
Mar. 28, Mar. 29,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,277) $ (1,715)
Adjustments to reconcile net income (loss) to
net cash used by operating activities
Depreciation and amortization 366 339
Changes in assets and liabilities:
Accounts receivable 959 1,021
Inventories (2,449) (41)
Other assets 126 223
Accounts payable (580) 285
Other accrued liabilities (247) (304)
-------- --------
Net cash used in operating activities (3,102) (192)
Cash flows from investing activities:
Maturity of short-term investments 1,169 --
Additions to property, plant and equipment (226) (111)
-------- --------
Net cash provided by (used in) investing activities 943 (111)
Cash flows from financing activities:
Payments of long-term debt (287) (77)
Proceeds from issuance of stock 20 41
-------- --------
Net cash used in financing activities (267) (36)
-------- --------
Net increase (decrease) in cash and cash equivalents (2,426) (339)
Cash and cash equivalents at beginning of period 5,360 7,793
-------- --------
Cash and cash equivalents at end of period $ 2,934 $ 7,454
======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
MICRO COMPONENT TECHNOLOGY, INC.
FORM 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited, condensed, consolidated financial
statements for the three and nine month periods ended March 28, 1998
have been prepared in accordance with the instructions for SEC Form
10-Q and, accordingly, do not include all disclosures required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals considered necessary for a fair
presentation, have been included.
Interim unaudited financial results should be read in conjunction with
the audited financial statements included in the SEC Annual Report,
Form 10-K, for the fiscal year ended June 28, 1997.
The results of operations for the three and nine months ended march 28,
1998 are not necessarily indicative of the operating results to be
expected for the full year.
2. EARNINGS PER SHARE
Earnings per share are computed in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share."
Basic earnings per share are computed using the weighted average number
of common shares outstanding during each period. Diluted earnings per
share include the dilutive effect of common shares potentially issuable
upon the exercise of stock options and warrants outstanding, and the
dilutive effect of the assumed conversion of outstanding Class A
preferred stock to common stock. Earnings per share data for the three
and nine month periods ended March 29, 1997 have been restated to
conform to the provisions of SFAS No. 128. The following table
reconciles the denominators used in computing basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 28 March 29 March 28 March 29
(in thousands) 1998(1) 1997 1998(1) 1997(1)
----------------------------------------------
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding 7,376 7,031 7,204 7,028
Effect of dilutive stock options
and warrants -- 173 -- --
Effect of dilutive redeemable
preferred stock (2) -- 316 -- --
----------------------------------------------
7,376 7,520 7,204 7,028
==============================================
</TABLE>
(1) The Company reported a loss for the period. No adjustment made for
the effect of stock options, warrants or redeemable preferred stock,
as effect is anti-dilutive.
(2) Preferred stock converted to common stock in November, 1997.
<PAGE>
3. CONTINGENCIES
The Securities and Exchange Commission is conducting an investigation
with respect to certain financial reporting discrepancies announced by
the Company in April 1994 dating back to fiscal 1993 and the first two
quarters of fiscal 1994. The Company has submitted documents to the
Commission pursuant to requests from the Commission, and certain former
officers and certain current and former employees of the Company have
been interviewed by the Commission as part of the investigation.
Management is currently not able to predict the financial impact, if
any, that may result from the outcome of the investigation.
4. PREFERRED STOCK
In November 1997, the Company converted 315,789 shares of Class A
preferred stock to common stock on a one-for-one basis. There were no
dividends accrued or paid on the preferred stock. The Company no longer
has shares of preferred stock outstanding. The issuance of the shares
of common stock was exempt from registration pursuant to section
3(a)(9) of the Securities Act of 1933. No commission or other
remuneration was paid to solicit the conversion.
<PAGE>
MICRO COMPONENT TECHNOLOGY, INC.
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 28, 1998
Net sales for the third quarter of fiscal 1998, ended March 28, 1998, were $3.6
million, a decrease of $1.1 million or 24.2% from $4.7 million for the same
period in the prior year. Reduced shipments of the Company's older products,
related spares, and custom product orders in the current year resulted from the
downturn in the semiconductor capital equipment market, while net sales of the
MCT 5100 and MCT 4610 handlers were affected to a lesser degree. Net sales are
expected to continue to be adversely affected while the semiconductor market
remains soft.
Gross margin for the third quarter of fiscal 1998 was 50.0%, compared to 58.5%
for the same period last year. The decrease in gross margin is primarily
attributed to changes in product mix, with changes in sales mix (distributor vs.
sales rep) and unabsorbed overhead on lower production levels in the current
year also contributing to the difference.
Selling, general and administrative expense in the third quarters of fiscal 1998
and 1997 was $1.7 million. As a percentage of net sales, SGA increased as a
result of the lower net sales level in the current year.
Research and development expense for the third quarter of fiscal 1998 decreased
to $0.9 million from $1.0 million in the previous year. As a percentage of net
sales, R&D expenses increased to 24.9% from 21.7% in the prior year, due to the
decreased sales level in the current year. Although the Company expects to
continue to make significant investments in new product development, it expects
fourth quarter R&D expenses to decrease as a percentage of sales from current
quarter levels, based upon the projected needs of current and anticipated
development projects.
The Company generated net interest income during the quarter of $23,000 as
compared to $85,000 for the same period one year ago. The decrease resulted from
lower levels of interest bearing cash equivalents and short-term investments in
the current year.
Net loss for the second quarter of fiscal 1998 was $773,000, or $0.10 per share
as compared to net income of $92,000, or $0.01 per share for the second quarter
of fiscal 1997.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 28, 1998
Net sales for the nine months ended March 28, 1998 were $12.5 million, an
increase of $1.2 million or 10.9% from sales of $11.3 million in the prior year.
The increase is primarily attributed to the MCT 5100 handler, which began
shipping in the middle of the previous fiscal year.
<PAGE>
Gross profit for the nine months ended March 28, 1998 was $7.2 million, an
increase of $1.0 million or 15.8% from $6.2 million last year. Gross margin was
57.7%, compared to 55.2% for the same nine month period a year ago. The
improvement in gross margin resulted from product mix differences and increased
overhead absorption, primarily in the first quarter.
Selling, general and administrative expense for the nine months ended March 28,
1998, was $5.9 million compared to $5.2 million in the prior year. The increase
in spending resulted from direct selling expenses associated with increased
sales and from increased investments in sales and marketing initiated in fiscal
1997.
Research and development expense for the nine months ended March 28, 1998 was
$2.9 million, consistent with the prior year. As a percentage of net sales, R&D
expenses decreased to 22.9% in the current year from 26.0% last year, as a
result of the increased net sales level.
The Company generated net interest income of $95,000 during the first nine
months of fiscal 1998 as compared to $251,000 for the same period one year ago.
The decrease resulted from lower levels of interest bearing cash equivalents and
short-term investments in the current year.
Net loss for the nine months ended March 28, 1998 was $1.3 million, or $0.18 per
share, compared to a net loss of $1.7 million, or $0.24 per share for the first
nine months of fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
At March 28, 1998, the Company had cash and cash equivalents of $2.9 million,
compared to $5.4 million of cash and cash equivalents and short-term investments
of $1.2 million at June 28, 1997.
The Company used $3.1 million of cash in its operating activities during the
nine months ended March 28, 1998 as compared to $0.2 million of cash used in
operations in the same period of the prior year. Increases in inventories
related to new product offerings and operating losses were the primary users of
cash in the current year.
Current assets at March 28, 1998 were $12.3 million, a decrease of $2.1 million
from $14.4 million at June 28, 1997. Decreases in cash and cash equivalents and
accounts receivables were partially offset by an increase in inventory. The
current ratio was 5.2 and working capital was $9.9 million at March 28, 1998,
compared to 4.2 and $11.0 million, respectively, at June 28, 1997.
Capital expenditures for the first nine months were $0.2 million, compared to
$0.1 million for the same period of the previous year.
The Company maintains a $5 million secured line of credit with a bank, which was
unused at March 28, 1998.
Management believes that cash and cash equivalents at March 28, 1998 and funds
available through its bank line of credit will sustain the Company's continuing
operations at their current levels, for the foreseeable future.
<PAGE>
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies will need to be upgraded to
comply with such "Year 2000" requirements. Significant uncertainty exists
concerning the potential effects associated with such compliance. The Company is
currently in the process of assessing and testing the software components of its
products for year 2000 compliance. The Company does not believe that its
products contain undetected errors or defects associated with year 2000 date
functions that may result in material costs to the Company, including repair
costs and costs incurred in litigation due to any such defects; however, there
can be no assurance that such errors or defects do not exist. Many commentators
have stated that a significant amount of litigation will arise out of year 2000
compliance issues. Because of the unprecedented nature of such litigation, there
can be no assurance that the Company will not be materially adversely affected
by claims related to year 2000 compliance. Although the Company is not aware of
any material operational issues or costs associated with preparing its internal
systems for the year 2000, there can be no assurance that the Company will not
experience serious unanticipated negative consequences and/or material costs
caused by undetected errors or defects in the technology used in its internal
operating systems, which are composed predominately of third party software and
hardware technology.
RISK FACTORS
Except for the historical information contained herein, certain of the matters
discussed in this report are "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. These "forward-looking
statements" involve certain risks and uncertainties, including, but not limited
to, the following: (1) fluctuations and periodic downturns in the semiconductor
market, as currently being experienced, which often have had a
disproportionately negative effect on manufacturers of semiconductor capital
equipment; (2) rapid changes in technology and in tester and handler products,
which the Company must respond to successfully in order for its products to
avoid becoming noncompetitive or obsolete; (3) customer acceptance of the
Company's new products, including the MCT 5100 and MCT 7632 handlers, in which
the Company has invested significant amounts of inventory; (4) possible loss of
any of the Company's key customers, who account for a substantial percentage of
the Company's business; (5) the possible adverse impact of competition in
markets which are highly competitive, including increased pressure on pricing
and payment terms which may adversely affect net sales and gross margins and
increase the Company's exposure to credit risk; (6) the possible adverse impact
of economic or political changes in markets the Company serves, including the
uncertain economic situation currently facing Southeast Asia; (7) the possible
adverse impact on the Company's operations or material costs which may be
incurred by the Company due to undetected errors or defects in preparing its
internal operating systems for the year 2000; (8) the possible adverse impact on
the Company's operations or material costs which may be incurred by the Company
arising from year 2000 related repair costs or litigation due to undetected
errors or defects in its products which use software; and, (9) other factors
detailed from time to time in the Company's SEC reports, including but not
limited to the discussion in the Management's Discussion & Analysis included in
the Annual Report on Form 10-K for the year ended June 28,
<PAGE>
1997. All forecasts and projections in this report are "forward-looking
statements," and are based on management's current expectations of the Company's
near-term results, based on current information available pertaining to the
Company, including risk factors discussed above. Actual results could differ
materially.
<PAGE>
MICRO COMPONENT TECHNOLOGY, INC.
FORM 10-Q
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Securities and Exchange Commission is conducting an investigation with
respect to certain financial reporting discrepancies announced by the Company in
April 1994 dating back to fiscal 1993 and the first two quarters of fiscal 1994.
The Company has submitted documents to the Commission pursuant to requests from
the Commission, and certain former officers and certain current and former
employees of the Company have been interviewed by the Commission as part of the
investigation. Management is currently not able to predict the financial impact,
if any, that may result from the outcome of the investigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.M. Credit and Security Agreement, dated February 17, 1998
between Norwest Business Credit, Inc. and Micro Component
Technology, Inc.
Exhibit 10.N Credit and Security Agreement, dated February 17, 1998
between Norwest Bank Minnesota, N.A. and Micro Component
Technology, Inc.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
<PAGE>
MICRO COMPONENT TECHNOLOGY, INC.
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Micro Component Technology, Inc.
Registrant
Dated: May 11, 1998 By: /s/ Roger E. Gower
-------------------------------------
Roger E. Gower
President and Chief Executive Officer
and
Dated: May 11, 1998 By: /s/ Jeffrey S. Mathiesen
-------------------------------------
Jeffrey S. Mathiesen
Chief Financial Officer
Chief Accounting Officer
<PAGE>
MICRO COMPONENT TECHNOLOGY, INC.
FORM 10-Q
EXHIBIT INDEX
Exhibit
Number Page
10.M Credit and Security Agreement, dated February 17, 1998
between Norwest Business Credit, Inc. and Micro Component
Technology, Inc. 15
10.N Credit and Security Agreement, dated February 17, 1998
between Norwest Bank Minnesota, N.A. and Micro Component
Technology, Inc. 78
27 Financial Data Schedule
EXHIBIT 10.M
----------------------------------------------
----------------------------------------------
CREDIT AND SECURITY AGREEMENT
BY AND BETWEEN
MICRO COMPONENT TECHNOLOGY, INC.
AND
NORWEST BUSINESS CREDIT, INC.
Dated as of: FEBRUARY 17, 1998
[LOGO] NORWEST
----------------------------------------------
----------------------------------------------
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Page No.
--------
ARTICLE I DEFINITIONS............................................................................1
Section 1.1 Definitions.....................................................................1
Section 1.2 Cross References................................................................8
ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY...............................................9
Section 2.1 Revolving Advances..............................................................9
Section 2.2 Letters of Credit...............................................................9
Section 2.3 Requests for Advances and Letters of Credit.....................................9
Section 2.4 Payment of Amounts Drawn Under Letters of Credit; Obligation of
Reimbursement...............................................................................11
Section 2.5 Special Account................................................................12
Section 2.6 Obligations Absolute...........................................................12
Section 2.7 Interest; Default Interest; Participations; Usury..............................13
Section 2.8 Fees...........................................................................13
Section 2.9 Computation of Interest and Fees; When Interest Due and Payable................15
Section 2.10 Capital Adequacy; Increased Costs and Reduced Return..........................16
Section 2.11 Discretionary Nature of this Facility; Termination by the Lender; Automatic
Renewal.....................................................................................17
Section 2.12 Voluntary Prepayment; Termination of the Credit Facility by the Borrower......17
Section 2.13 Termination Fees; Waiver of Termination Fees..................................17
Section 2.14 Mandatory Prepayment..........................................................18
Section 2.15 Payment.......................................................................18
Section 2.16 Payment on Non-Banking Days...................................................18
Section 2.17 Use of Proceeds...............................................................18
Section 2.18 Liability Records.............................................................18
ARTICLE III SECURITY INTEREST; OCCUPANCY; SETOFF................................................19
Section 3.1 Grant of Security Interest.....................................................19
Section 3.2 Notification of Account Debtors and Other Obligors.............................19
Section 3.3 Assignment of Insurance........................................................19
Section 3.4 Occupancy......................................................................20
Section 3.5 License........................................................................20
Section 3.6 Financing Statement............................................................20
Section 3.7 Setoff.........................................................................21
<PAGE>
ARTICLE IV CONDITIONS OF WILLINGNESS TO CONSIDER LENDING........................................21
Section 4.1 Conditions Precedent to Lender's Willingness to Consider Making the Initial
Revolving Advance and the Initial Letter of Credit..........................................21
Section 4.2 Conditions Precedent to All Advances and Letters of Credit.....................23
ARTICLE V REPRESENTATIONS AND WARRANTIES........................................................23
Section 5.1 Corporate Existence and Power; Name; Chief Executive Office; Inventory and
Equipment Locations; Tax Identification Number..............................................23
Section 5.2 Authorization of Borrowing; No Conflict as to Law or Agreements................24
Section 5.3 Legal Agreements...............................................................24
Section 5.4 Subsidiaries...................................................................24
Section 5.5 Financial Condition; No Adverse Change.........................................24
Section 5.6 Litigation.....................................................................24
Section 5.7 Regulation U...................................................................25
Section 5.8 Taxes..........................................................................25
Section 5.9 Titles and Liens...............................................................25
Section 5.10 Plans.........................................................................25
Section 5.11 Default.......................................................................26
Section 5.12 Environmental Matters.........................................................26
Section 5.13 Submissions to Lender.........................................................27
Section 5.14 Financing Statements..........................................................27
Section 5.15 Rights to Payment.............................................................27
Section 5.16 Financial Solvency............................................................27
ARTICLE VI BORROWER'S AFFIRMATIVE COVENANTS.....................................................28
Section 6.1 Reporting Requirements.........................................................28
Section 6.2 Books and Records; Inspection and Examination..................................31
Section 6.3 Account Verification...........................................................31
Section 6.4 Compliance with Laws...........................................................31
Section 6.5 Payment of Taxes and Other Claims..............................................32
Section 6.6 Maintenance of Properties......................................................32
Section 6.7 Insurance......................................................................32
Section 6.8 Preservation of Existence......................................................33
Section 6.9 Delivery of Instruments, etc...................................................33
Section 6.10 Collateral Account............................................................33
Section 6.11 Performance by the Lender.....................................................33
Section 6.12 Minimum Tangible Net Worth....................................................34
Section 6.13 Maximum Net Loss..............................................................34
Section 6.14 New Covenants.................................................................34
<PAGE>
ARTICLE VII NEGATIVE COVENANTS..................................................................35
Section 7.1 Liens..........................................................................35
Section 7.2 Indebtedness...................................................................35
Section 7.3 Guaranties.....................................................................36
Section 7.4 Investments and Subsidiaries...................................................36
Section 7.5 Dividends......................................................................36
Section 7.6 Sale or Transfer of Assets; Suspension of Business Operations..................36
Section 7.7 Intellectual Property..........................................................37
Section 7.8 Consolidation and Merger; Asset Acquisitions...................................37
Section 7.9 Sale and Leaseback.............................................................37
Section 7.10 Restrictions on Nature of Business............................................37
Section 7.11 Capital Expenditures..........................................................37
Section 7.12 Accounting....................................................................37
Section 7.13 Discounts, etc................................................................37
Section 7.14 Defined Benefit Pension Plans.................................................37
Section 7.15 Other Defaults................................................................38
Section 7.16 Place of Business; Name.......................................................38
Section 7.17 Organizational Documents......................................................38
Section 7.18 Salaries......................................................................38
ARTICLE VIII EVENTS OF DEFAULT, RIGHTS AND REMEDIES.............................................38
Section 8.1 Events of Default..............................................................38
Section 8.2 Rights and Remedies............................................................41
Section 8.3 Certain Notices................................................................42
ARTICLE IX MISCELLANEOUS........................................................................42
Section 9.1 No Waiver; Cumulative Remedies.................................................42
Section 9.2 Amendments, Etc................................................................42
Section 9.3 Addresses for Notices, Etc.....................................................42
Section 9.4 Further Documents..............................................................43
Section 9.5 Collateral.....................................................................43
Section 9.6 Costs and Expenses.............................................................43
Section 9.7 Indemnity......................................................................44
Section 9.8 Participants...................................................................45
Section 9.9 Execution in Counterparts......................................................45
Section 9.10 Binding Effect; Assignment; Complete Agreement; Exchanging Information........45
Section 9.11 Severability of Provisions....................................................45
Section 9.12 Headings......................................................................45
Section 9.13 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial......................45
</TABLE>
<PAGE>
CREDIT AND SECURITY AGREEMENT
Dated as of February 17, 1998
MICRO COMPONENT TECHNOLOGY, INC., a Minnesota corporation (the
"Borrower"), and NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the
"Lender"), hereby agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. For all purposes of this Agreement, except
as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with 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.
"Advance" means a Revolving Advance.
"Affiliate" or "Affiliates" means MCT International, Inc.; Micro
Component Technology Asia Rte. Ltd; MCT Asia (Penang) Sdn. Bhd.; MCT (HK)
Limited; Beijing Micro Component Technology Co. Ltd.; and any other 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 Credit and Security Agreement, as amended,
supplemented or restated from time to time.
<PAGE>
"Availability" means the difference of (i) the Borrowing Base and
(ii) the sum of (A) the outstanding principal balance of the Revolving
Note and (B) the L/C Amount.
"Banking Day" means a day other than a Saturday, Sunday or other day
on which banks are generally not open for business in Minneapolis,
Minnesota.
"Base Rate" means the rate of interest publicly announced from time
to time by Norwest Bank as its "base rate" or, if such bank ceases to
announce a rate so designated, any similar successor rate designated by
the Lender.
"Borrowing Base" means, at any time and subject to change from time
to time in the Lender's sole discretion, the lesser of:
(a) the Maximum Line less the Norwest Bank Revolving Advances and
the Norwest Bank L/C Amount; or
(b) 80% of Eligible Accounts.
"Capital Expenditures" for a period means any expenditure of money
for the purchase or construction of assets, or for improvements or
additions thereto, which are capitalized on the Borrower's balance sheet
as fixed assets.
"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; and (v) all warehouse receipts, bills of lading and
other documents of title now or hereafter covering such goods.
"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 among the Borrower, Norwest Bank
and the Lender.
"Controlled Disbursement Account" means the Borrower's zero balance
account No. 499 0015 057 maintained with Norwest Bank Montana, National
Association.
<PAGE>
"Credit Facility" means the discretionary credit facility being made
available to the Borrower by the Lender pursuant to Article II.
"Debt" of any Person means 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. For purposes
of determining a Person's aggregate Debt at any time, "Debt" shall also
include the aggregate payments required to be made by such Person at any
time under any lease that is considered a capitalized lease under GAAP.
"Default" means an event that, with giving of notice or passage of
time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the first day
of any month during which a Default or Event of Default has occurred and
ending on the date the Lender notifies the Borrower in writing that such
Default or Event of Default has been cured or waived.
"Default Rate" means an annual rate equal to two percent (2%) over
the Floating Rate, which rate shall change when and as the Floating Rate
changes.
"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 unpaid 90 days or more after the
invoice date;
(ii) That portion of Accounts that is disputed or subject to a
claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the final
delivery of goods or rendition of services, as applicable, by the
Borrower to the customer;
(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 Lender that (A) the Lender has a first priority perfected
security interest and (B) such Accounts may be enforced by the
Lender directly against such unit of government under all applicable
laws);
<PAGE>
(v) Accounts owed by an account debtor located outside the
United States which are not (A) backed by a bank letter of credit
naming the Lender as beneficiary or assigned to the Lender, in the
Lender's possession and acceptable to the Lender in all respects, in
its sole discretion, or (B) covered by a foreign receivables
insurance policy acceptable to the Lender in its sole discretion;
(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 Lender's favor or which are subject to any lien,
security interest or claim in favor of any Person other than the
Lender 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) For any account debtor that has entered into a prepaid
service contract with the Borrower, that portion of Accounts owed by
such account debtor in a amount equal to the value of the prepaid
service contract for future periods under the contract;
(xii) 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; and
(xiii) Accounts, or portions thereof, otherwise deemed
ineligible by the Lender in its sole discretion.
"Environmental Laws" has the meaning specified in Section 5.12.
"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 Lender by the
Borrower.
"Event of Default" has the meaning specified in Section 8.1.
<PAGE>
"Floating Rate" means an annual rate equal to the sum of the Base
Rate plus one-half percent (0.5%), which annual rate shall change when and
as the Base Rate changes.
"Funding Date" has the meaning given in Section 2.1.
"GAAP" means generally accepted accounting principles, applied on a
basis consistent with the accounting practices applied in the financial
statements described in Section 5.5.
"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 given in Section 5.12.
"Inventory" means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or
materials, whether acquired, held or furnished for sale, for lease or
under service contracts or for manufacture or processing, and wherever
located.
"Investment Property" means all of the Borrower's investment
property, as such term is defined in the UCC, whether now owned or
hereafter acquired, including but not limited to all securities, security
entitlements, securities accounts, commodity contracts, commodity
accounts, stocks, bonds, mutual fund shares, money market shares and U.S.
Government securities.
"Issuer" means the issuer of any Letter of Credit.
"L/C Amount" means the sum of (i) the aggregate face amount of any
issued and outstanding Letters of Credit and (ii) the unpaid amount of the
Obligation of Reimbursement.
"L/C Application" means an application and agreement for letters of
credit in a form acceptable to the Issuer and the Lender.
"Letter of Credit" has the meaning specified in Section 2.2.
<PAGE>
"Loan Documents" means this Agreement, the Note and the Security
Documents.
"Lockbox" has the meaning given in the Lockbox Agreement.
"Lockbox Agreement" means the Lockbox Agreement by and among the
Borrower, Norwest Bank and the Lender of even date herewith.
"Maturity Date" has the meaning given in Section 2.11.
"Maximum Line" means $5,000,000.
"Net Loss" means fiscal year-to-date after-tax net loss as
determined in accordance with GAAP.
"Norwest Bank" means Norwest Bank Minnesota, National Association, a
national banking association.
"Norwest Bank Availability" means Availability, as defined in the
Norwest Bank Credit Agreement.
"Norwest Bank Credit Agreement" means that certain Credit and
Security Agreement of even date herewith by and between the Borrower and
Norwest Bank, as the same may hereafter be amended, supplemented or
restated from time to time.
"Norwest Bank Credit Facility" means the credit facility extended to
the Borrower pursuant to the Norwest Bank Credit Agreement.
"Norwest Bank L/C Amount" means the L/C Amount as defined in the
Norwest Bank Credit Agreement.
"Norwest Bank Revolving Advances" means the Revolving Advances as
defined in the Norwest Bank Credit Agreement, or as the context requires,
the outstanding principal balance thereof.
"Note" means the Revolving Note.
"Obligations" means the Note and each and every other debt,
liability and obligation of every type and description which the Borrower
may now or at any time hereafter owe to the Lender, whether such debt,
liability or obligation now exists or is hereafter created or incurred,
whether it arises in a transaction involving the Lender alone or in a
transaction involving other creditors of the Borrower, and whether it is
direct or indirect, due or to become due, absolute or contingent, primary
or secondary,
<PAGE>
liquidated or unliquidated, or sole, joint, several or joint and several,
and including specifically, but not limited to, the Obligation of
Reimbursement and all indebtedness of the Borrower arising under this
Agreement, the Note, any L/C Application completed by the Borrower, or any
other loan or credit agreement or guaranty between the Borrower and the
Lender, whether now in effect or hereafter entered into.
"Obligation of Reimbursement" has the meaning given in Section
2.4(a).
"Operating Account" means the Borrower's account No. 6355 046 814
maintained with Norwest Bank Minnesota, National Association.
"Original Maturity Date" means February 16, 2001.
"Permitted Lien" 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
the Borrower's employees 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 C attached hereto.
"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.
<PAGE>
"Reportable Event" shall have the meaning assigned to that term in
Title IV of ERISA.
"Revolving Advance" has the meaning given in Section 2.1.
"Revolving Note" means the Borrower's revolving promissory note,
payable to the order of the Lender in substantially the form of Exhibit A
hereto and any note or notes issued in substitution therefor, as the same
may hereafter be amended, supplemented or restated from time to time.
"Security Documents" means this Agreement, the Collateral Account
Agreement, the Lockbox Agreement and any other document delivered to the
Lender 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 given in Section 3.1.
"Special Account" means a specified cash collateral account
maintained by a financial institution acceptable to the Lender in
connection with Letters of Credit, as contemplated by Section 2.5.
"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.
"Tangible Net Worth" means the difference between (i) the tangible
assets of the Borrower, which, in accordance with GAAP are tangible
assets, after deducting adequate reserves in each case where, in
accordance with GAAP, a reserve is proper and (ii) all Debt of the
Borrower; provided, however, that notwithstanding the foregoing in no
event shall there be included as such tangible assets patents, trademarks,
trade names, copyrights, licenses, goodwill, receivables from Affiliates,
directors, officers or employees, prepaid expenses, deposits, deferred
charges or treasury stock or any securities or Debt of the Borrower or any
other securities unless the same are readily marketable in the United
States of America or entitled to be used as a credit against federal
income tax liabilities, non-compete agreements and any other assets
designated from time to time by the Lender, in its sole discretion.
<PAGE>
"Termination Date" means the earliest of (i) the Maturity Date, (ii)
the date the Borrower terminates the Credit Facility, or (iii) the date
the Lender demands payment of the Obligations .
"UCC" means the Uniform Commercial Code as in effect from time to
time in the state designated in Section 9.13 as the state whose laws shall
govern this Agreement, or in any other state whose laws are held to govern
this Agreement or any portion hereof.
Section 1. 2 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 Credit Facility
Section 2.1 Revolving Advances. The Lender may, in its sole
discretion, make advances to the Borrower from time to time from the date all of
the conditions set forth in Section 4.1 are satisfied (the "Funding Date") to
the Termination Date, on the terms and subject to the conditions herein set
forth (the "Revolving Advances"). The Lender shall not consider making a
Revolving Advance to the extent that the amount thereof would exceed
Availability. The Borrower's obligation to pay the Revolving Advances shall be
evidenced by the Revolving Note and shall be secured by the Collateral as
provided in Article III. Within the limits set forth in this Section 2.1, the
Borrower may request Revolving Advances, prepay pursuant to Section 2.12 and
request additional Revolving Advances.
Section 2.2 Letters of Credit.
(a) The Lender may, in its sole discretion, cause an Issuer to
issue, from the Funding Date to the Termination Date, one or more
irrevocable standby or documentary letters of credit (each, a "Letter of
Credit") for the Borrower's account. The Lender shall have no obligation
to cause an Issuer to issue any Letter of Credit if the face amount of the
Letter of Credit to be issued, would exceed the lesser of:
(i) $5,000,000 less the L/C Amount, or
(ii) the Borrowing Base less the sum of (A) all outstanding
and unpaid Revolving Advances and (B) the L/C Amount.
Each Letter of Credit, if any, shall be issued pursuant to a separate L/C
Application entered into by the Borrower and the Lender for the benefit of
the Issuer, completed in a manner satisfactory to the Lender and the
Issuer. The terms and conditions set forth
<PAGE>
in each such L/C Application shall supplement the terms and conditions
hereof, but if the terms of any such L/C Application and the terms of this
Agreement are inconsistent, the terms hereof shall control.
(b) No Letter of Credit shall be issued with an expiry date later
than the Termination Date in effect as of the date of issuance.
(c) Any request to cause an Issuer to issue a Letter of Credit under
this Section 2.2 shall be deemed to be a representation by the Borrower
that the conditions set forth in Section 4.2 have been satisfied as of the
date of the request.
Section 2. 3 Requests for Advances and Letters of Credit. The
following procedures shall apply in requesting Revolving Advances and Letters of
Credit:
(a) BORROWER REQUESTED ADVANCES AND LETTERS OF CREDIT.
(i) The Borrower shall make each request for a Revolving
Advance to the Lender before 11:00 a.m. (Minneapolis, Minnesota
time) of the Banking Day of the requested Revolving Advance, and
shall make each request for the issuance of a Letter of Credit
before 11:00 a.m. (Minneapolis, Minnesota time) at least three (3)
Banking Days before the requested Letter of Credit is to be issued.
Requests for Revolving Advances may be made in writing or by
telephone, specifying the date of the requested Revolving Advance
and the amount thereof. Requests for Letters of Credit must be
written and delivered by a means acceptable to the Lender and the
Issuer. Each request 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 Lender; or (iii) any
person whom the Lender reasonably believes to be an officer of the
Borrower or such a designated agent.
(ii) Upon fulfillment of the applicable conditions set forth
in Article IV, the Lender shall disburse the proceeds of the
requested Revolving Advance by crediting the same to the Operating
Account unless the Lender and the Borrower shall agree in writing to
another manner of disbursement. Upon the Lender's request, the
Borrower shall promptly confirm each telephonic request for an
Advance by executing and delivering an appropriate confirmation
certificate to the Lender. The Borrower shall repay all Advances
even if the Lender does not receive such confirmation and even if
the person requesting an Advance was not in fact authorized to do
so. Any request for an Advance, whether written or 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.
<PAGE>
(b) AUTOMATICALLY REQUESTED ADVANCES.
(i) In the Lender's sole discretion, on each Banking Day,
other than during a Default Period, when the sum of Availability and
Norwest Bank Availability is greater than $500,000, the Lender's
loan administrator will strive to determine the debits from the
Controlled Disbursement Account and determine the amount necessary
(the "Necessary Amount") to ensure that the Operating Account
balance is at least $25,000 assuming payment of all items presented
through 11 a.m. of that Banking Day.
(ii) Provided the conditions set forth in Section 4.2 and in
Section 4.2 of the Norwest Bank Credit Agreement are satisfied, the
Borrower shall be deemed to have made a request for a Revolving
Advance and a Norwest Bank Revolving Advance in equal amounts (or as
close thereto as possible Availability and Norwest Bank Availability
permitting) that in the aggregate equal the Necessary Amount (an
"Automatically Requested Advance"). If the Lender, in its sole
discretion, chooses not to make a Revolving Advance, or, in its
capacity as servicer under the Norwest Bank Credit Facility, chooses
not to make a Norwest Bank Revolving Advance, the Lender shall
strive to promptly so notify the Borrower.
(iii) The proceeds of each Automatically Requested Advance
that is made shall be credited to the Operating Account. ANY
DISBURSEMENT OF AN AUTOMATICALLY REQUESTED ADVANCE 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
DISBURSEMENT AND THAT ANY PORTION OF THE AUTOMATICALLY REQUESTED
ADVANCE THAT IS FUNDED UNDER THE NORWEST BANK CREDIT FACILITY SHALL
BE USED IN COMPLIANCE WITH ALL REQUIREMENTS OF THAT FACILITY.
(iv) The Borrower acknowledges that the Lender is offering to
consider making the Automatically Requested Advances as an
accommodation to the Borrower. The Lender shall not be liable under
any circumstances whatsoever for making or failing to make an
Automatically Requested Advance.
Section 2.4 Payment of Amounts Drawn Under Letters of Credit;
Obligation of Reimbursement. The Borrower acknowledges that the Lender will be
liable to the Issuer for reimbursement of any and all draws under Letters of
Credit and for all other amounts required to be paid under the applicable L/C
Application. Accordingly, the Borrower agrees to pay to the Lender any and all
amounts required to be paid under the applicable L/C
<PAGE>
Application, when and as required to be paid thereby, and the amounts designated
below, when and as designated:
(a) The Borrower hereby agrees to pay the Lender on the day a draft
is honored under any Letter of Credit a sum equal to all amounts drawn
under such Letter of Credit plus any and all reasonable charges and
expenses that the Issuer or the Lender may pay or incur relative to such
draw and the applicable L/C Application, plus interest on all such
amounts, charges and expenses as set forth below (the Borrower's
obligation to pay all such amounts is herein referred to as the
"Obligation of Reimbursement").
(b) Whenever a draft is submitted under a Letter of Credit, the
Lender shall make a Revolving Advance in the amount of the Obligation of
Reimbursement and shall apply the proceeds of such Revolving Advance
thereto. Such Revolving Advance shall be repayable in accordance with and
be treated in all other respects as a Revolving Advance hereunder.
(c) If a draft is submitted under a Letter of Credit when the
Borrower is unable, because a Default Period then exists or for any other
reason, to obtain a Revolving Advance to pay the Obligation of
Reimbursement, the Borrower shall pay to the Lender on demand and in
immediately available funds, the amount of the Obligation of Reimbursement
together with interest, accrued from the date of the draft until payment
in full at the Default Rate. Notwithstanding the Borrower's inability to
obtain a Revolving Advance for any reason, the Lender is irrevocably
authorized, in its sole discretion, to make a Revolving Advance in an
amount sufficient to discharge the Obligation of Reimbursement and all
accrued but unpaid interest thereon.
(d) The Borrower's obligation to pay any Revolving Advance made
under this Section 2.4, shall be evidenced by Revolving Note and shall
bear interest as provided in Section 2.7.
Section 2.5 Special Account. If the Credit Facility is terminated
for any reason whatsoever while any Letter of Credit is outstanding, the
Borrower shall thereupon pay the Lender in immediately available funds for
deposit in the Special Account an amount equal to the L/C Amount. The Special
Account shall be an interest bearing account maintained for the Lender by any
financial institution acceptable to the Lender. Any interest earned on amounts
deposited in the Special Account shall be credited to the Special Account.
Amounts on deposit in the Special Account may be applied by the Lender at any
time or from time to time to the Obligations in the Lender's sole discretion,
and shall not be subject to withdrawal by the Borrower so long as the Lender
maintains a security interest therein. The Lender agrees to transfer any balance
in the Special Account to the Borrower at such
<PAGE>
time as the Lender is required to release its security interest in the Special
Account under applicable law.
Section 2.6 Obligations Absolute. The Borrower's obligations
arising under Section 2.4 shall be absolute, unconditional and irrevocable, and
shall be paid strictly in accordance with the terms of Section 2.4, under all
circumstances whatsoever, including (without limitation) the following
circumstances:
(a) any lack of validity or enforceability of any Letter of Credit
or any other agreement or instrument relating to any Letter of Credit
(collectively the "Related Documents");
(b) any amendment or waiver of or any consent to departure from all
or any of the Related Documents;
(c) the existence of any claim, setoff, defense or other right which
the Borrower may have at any time, against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom
any such beneficiary or any such transferee may be acting), or other
person or entity, whether in connection with this Agreement, the
transactions contemplated herein or in the Related Documents or any
unrelated transactions;
(d) any statement or any other document presented under any Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect
whatsoever;
(e) payment by or on behalf of the Issuer or the Lender 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 2.7 Interest; Default Interest; Participations; Usury.
Interest accruing on the Note shall be due and payable in arrears on the first
day of each month.
(a) REVOLVING NOTE. Except as set forth in Sections 2.7(b) and
2.7(d), the outstanding principal balance of the Revolving Note shall bear
interest at the Floating Rate.
(b) DEFAULT INTEREST RATE. At any time during any Default Period, in
the Lender's sole discretion and without waiving any of its other rights
and remedies, the principal of the Revolving Advances outstanding from
time to time shall bear interest
<PAGE>
at the Default Rate, effective for any periods designated by the Lender
from time to time during that Default Period.
(c) PARTICIPATIONS. If any Person shall acquire a participation in
the Advances under this Agreement, the Borrower shall be obligated to the
Lender to pay the full amount of all interest calculated under Section
2.7(a), along with all other fees, charges and other amounts due under
this Agreement, regardless if such Person elects to accept interest with
respect to its participation at a lower rate than the Floating Rate, or
otherwise elects to accept less than its prorata share of such fees,
charges and other amounts due under this Agreement.
(d) USURY. In any event no rate change shall be put into effect
which would result in a rate greater than the highest rate permitted by
law.
Section 2.8 Fees.
(a) FACILITY FEE. The Borrower shall pay the Lender a fully earned
and non-refundable facility fee of $25,000, due and payable upon the
execution of this Agreement, provided that the sum of this fee and the
facility fee under the Norwest Bank Credit Facility shall not exceed
$25,000. In addition, if the Norwest Bank Credit Facility is renewed, the
Borrower shall pay the Lender the sum of (i) the fee required for renewal
under the Norwest Bank Credit Facility, and (ii) $5000.
(b) UNUSED LINE FEE. For the purposes of this Section 2.8(b),
"Credit Exposure" means the sum of (i) outstanding Revolving Advances,
(ii) the L/C Amount, (iii) outstanding Norwest Bank Revolving Advances and
(iv) the Norwest Bank L/C Amount. The Borrower shall pay to the Lender an
unused line fee based on the average daily Credit Exposure during each
month, due and payable monthly in arrears on the first day of the month
and on the Termination Date, at the following rate:
<PAGE>
Average Daily Credit Exposure Monthly Unused Line Fee
----------------------------- -----------------------
$-0- $2,500
greater than $-0- but less than $2,500 less the average daily Credit
$1,000,000 Exposure multiplied by 0.03, and
divided by 12
$1,000,000 or more $0
(c) LETTER OF CREDIT FEES. The Borrower agrees to pay the Lender a
fee with respect to each Letter of Credit, if any, accruing on a daily
basis and computed at the annual rate of two percent (2%) of the aggregate
amount that may then be drawn on all issued and outstanding Letters of
Credit assuming compliance with all conditions for drawing thereunder (the
"Aggregate Face 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 or be returned to the Lender, due and payable monthly in
arrears on the first day of each month and on the Termination Date;
provided, however that during Default Periods, in the Lender's sole
discretion and without waiving any of its other rights and remedies, such
fee shall increase to four percent (4%) of the Aggregate Face Amount. The
foregoing fee shall be in addition to any and all fees, commissions and
charges of any Issuer of a Letter of Credit with respect to or in
connection with such Letter of Credit.
(d) LETTER OF CREDIT ADMINISTRATIVE FEES. The Borrower agrees to pay
the Lender, on written demand, the administrative fees charged by the
Issuer in connection with the honoring of drafts 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 Issuer for such services rendered on behalf of customers of the Issuer
generally.
(e) AUDIT FEES. The Borrower hereby agrees to pay the Lender, on
demand, audit fees in connection with any audits or inspections conducted
by the Lender of any Collateral or the Borrower's operations or business
at the rates established from time to time by the Lender as its audit fees
(which fees are 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 2.9 Computation of Interest and Fees; When Interest Due and
Payable. Interest accruing on the outstanding principal balance of the Advances
and fees
<PAGE>
hereunder outstanding from time to time shall be computed on the basis of actual
number of days elapsed in a year of 360 days. Interest shall be payable in
arrears on the first day of each month and on the Termination Date.
Section 2.10 Capital Adequacy; Increased Costs and Reduced Return.
If any Related Lender determines at any time that its Return has been reduced as
a result of any Rule Change, such Related 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 Rule Change. For purposes of this Section 2.10:
(a) "Capital Adequacy Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding capital adequacy,
or the interpretation or administration thereof by any governmental or
regulatory authority, central bank or comparable agency, whether or not
having the force of law, that applies to any Related Lender. Such 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.
(b) "L/C Rule" means any law, rule, regulation, guideline,
directive, requirement or request regarding letters of credit, or the
interpretation or administration thereof by any governmental or regulatory
authority, central bank or comparable agency, whether or not having the
force of law, that applies to any Related Lender. Such rules include rules
imposing taxes, duties or other similar charges, or mandating reserves,
special deposits or similar requirements against assets of, deposits with
or for the account of, or credit extended by any Related Lender, on
letters of credit.
(c) "Related Lender" includes (but is not limited to) the Lender,
the Issuer, , any parent corporation of the Lender or the Issuer and any
assignee of any interest of the Lender hereunder and any participant in
the loans made hereunder.
(d) "Return", for any period, means the return as determined by a
Related Lender on the Advances and Letters of Credit based upon its total
capital requirements and a reasonable attribution formula that takes
account of the Capital Adequacy Rules and L/C Rules then in effect, costs
of issuing or maintaining any Letter of Credit and amounts received or
receivable under this Agreement or the Notes with respect to any Advance
or Letter of Credit. Return may be calculated for each calendar quarter
and for the shorter period between the end of a calendar quarter and the
date of termination in whole of this Agreement.
(e) "Rule Change" means any change in any Capital Adequacy Rule or
L/C Rule occurring after the date of this Agreement, but the term does not
include any
<PAGE>
changes in applicable requirements that at the Closing Date are scheduled
to take place under the existing Capital Adequacy Rules or L/C Rules or
any increases in the capital that any Related Lender is required to
maintain to the extent that the increases are required due to a regulatory
authority's assessment of the financial condition of such Related Lender.
The Lender will promptly notify the Borrower of any event of which it has
knowledge, occurring after the date hereof, which will entitle the Lender to
compensation pursuant to this Section 2.10. Certificates of any Related Lender
sent to the Borrower from time to time claiming compensation under this Section
2.10, stating the reason therefor and setting forth in reasonable detail the
calculation of the additional amount or amounts to be paid to the Related Lender
hereunder to restore its Return shall be conclusive absent manifest error. In
determining such amounts, the Related Lender may use any reasonable averaging
and attribution methods.
Section 2.11 Discretionary Nature of this Facility; Termination by
the Lender; Automatic Renewal. This Agreement contains the terms and conditions
upon which the Lender presently expects to make Advances to and to cause the
Issuer to issue Letters of Credit for the account of the Borrower. EACH ADVANCE
BY THE LENDER TO THE BORROWER AND EACH LETTER OF CREDIT ISSUED FOR THE
BORROWER'S ACCOUNT SHALL BE IN THE LENDER'S SOLE DISCRETION, AND THE LENDER NEED
NOT SHOW THAT AN ADVERSE CHANGE HAS OCCURRED IN THE BORROWER'S CONDITION,
FINANCIAL OR OTHERWISE, OR THAT ANY OF THE CONDITIONS OF ARTICLE IV HAVE NOT
BEEN MET, IN ORDER TO REFUSE TO MAKE ANY REQUESTED ADVANCE, CAUSE THE ISSUER TO
ISSUE ANY LETTER OF CREDIT OR TO DEMAND PAYMENT OF THE OBLIGATIONS. THE LENDER
MAY AT ANY TIME TERMINATE THE CREDIT FACILITY WHEREUPON THE LENDER SHALL NO
LONGER CONSIDER REQUESTS FOR ADVANCES UNDER THIS AGREEMENT. Unless terminated by
the Lender at any time or by the Borrower pursuant to Section 2.12, the Credit
Facility shall remain in effect until the Original Maturity Date and,
thereafter, shall automatically renew for successive one year periods (the
Original Maturity Date and each anniversary date thereof which is at the end of
any year for which the Credit Facility has been automatically renewed, is herein
referred to as a "Maturity Date").
Section 2.12 Voluntary Prepayment; 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.
The Borrower may terminate the Credit Facility at any time if it (i) gives the
Lender at least 30 days' prior written notice and (ii) pays the Lender the
prepayment or reduction fees in accordance with Section 2.13. If the Borrower
terminates the revolving Credit Facility, all Obligations shall be immediately
due and payable. Upon termination of the Credit Facility and payment and
performance of all
<PAGE>
Obligations, the Lender shall release or terminate the Security Interest and the
Security Documents to which the Borrower is entitled by law.
Section 2.13 Termination Fees; Waiver of Termination Fees.
(a) TERMINATION FEES. If the Credit Facility is terminated for any
reason as of a date other than the Maturity Date the Borrower shall pay
the Lender a fee in an amount equal to a percentage of the Maximum Line as
follows: (i) two percent (2%) if the termination occurs on or before the
first anniversary of the Funding Date; (ii) one percent (1%) if the
termination or reduction occurs after the first anniversary of the Funding
Date but before the Maturity Date.
(b) WAIVER OF TERMINATION FEES. The Borrower will not be required to
pay the termination fees otherwise due under this Section 2.13 if such
termination is made because of refinancing by an affiliate of the Lender
or if the Norwest Bank Credit Facility is not renewed.
Section 2.14 Mandatory Prepayment. Without notice or demand, if the
sum of the outstanding principal balance of the Revolving Advances plus the L/C
Amount shall at any time exceed the Borrowing Base, the Borrower shall (i)
first, immediately prepay the Revolving Advances to the extent necessary to
eliminate such excess; and (ii) if prepayment in full of the Revolving Advances
is insufficient to eliminate such excess, pay to the Lender in immediately
available funds for deposit in the Special Account an amount equal to the
remaining excess. Any payment received by the Lender under this Section 2.14 or
under Section 2.12 may be applied to the Obligations, in such order and in such
amounts as the Lender, in its discretion, may from time to time determine.
Section 2.15 Payment. All payments to the Lender shall be made in
immediately available funds and shall be applied to the Obligations two (2)
Banking Days after receipt by the Lender. Notwithstanding anything in Section
2.1, the Borrower hereby authorizes the Lender, in its discretion at any time or
from time to time without the Borrower's request and even if the conditions set
forth in Section 4.2 would not be satisfied, to make a Revolving Advance in an
amount equal to the portion of the Obligations from time to time due and
payable.
Section 2.16 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.
<PAGE>
Section 2.17 Use of Proceeds. The Borrower shall use the proceeds of
Advances, and each Letter of Credit, if any, for ordinary working capital
purposes.
Section 2.18 Liability Records. The Lender may maintain from time to
time, at its discretion, liability records as to the Obligations. All entries
made on any such record shall be presumed correct until the Borrower establishes
the contrary. Upon the Lender's demand, the Borrower will admit and certify in
writing the exact principal balance of the Obligations that the Borrower then
asserts to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Borrower unless the Borrower
gives the Lender specific written notice of exception within 30 days after
receipt.
ARTICLE III
Security Interest; Occupancy; Setoff
Section 3.1 Grant of Security Interest. The Borrower hereby pledges,
assigns and grants to the Lender 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. The
Lender may at any time (whether or not a Default Period then exists) 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 Lender for security and shall
be paid directly to the Lender. The Borrower will join in giving such notice if
the Lender so requests. At any time after the Borrower or the Lender gives such
notice to an account debtor or other obligor, the Lender may, but need not, in
the Lender's name or in the Borrower's name, (a) demand, sue for, collect or
receive any money or property at any time payable or receivable on account of,
or securing, any such right to payment, or grant any extension to, make any
compromise or settlement with or otherwise agree to waive, modify, amend or
change the obligations (including collateral obligations) of any such account
debtor or other obligor; and (b) as the Borrower's agent and attorney-in-fact,
notify the United States Postal Service to change the address for delivery of
the Borrower's mail to any address designated by the Lender, otherwise intercept
the Borrower's mail, and receive, open and dispose of the Borrower's mail,
applying all Collateral as permitted under this Agreement and holding all other
mail for the Borrower's account or forwarding such mail to the Borrower's last
known address.
Section 3.3 Assignment of Insurance. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, 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
<PAGE>
evidence thereof or any business records or valuable papers pertaining thereto,
and the Borrower hereby directs the issuer of any such policy to pay all such
monies directly to the Lender. At any time, whether or not a Default Period then
exists, the Lender may (but need not), in the Lender's name or in the Borrower's
name, execute and deliver proof of claim, receive all such monies, endorse
checks and other instruments representing payment of such monies, and adjust,
litigate, compromise or release any claim against the issuer of any such policy.
Section 3.4 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the right
to take possession of the Premises at any time during a Default Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that the
Lender may in good faith deem to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and discharge of all
Obligations, and (ii) final sale or disposition of all goods constituting
Collateral and delivery of all such goods to purchasers.
(d) The Lender shall not be obligated to pay or account for any rent
or other compensation for the possession, occupancy or use of any of the
Premises; provided, however, that if the Lender does pay or account for
any rent or other compensation for the possession, occupancy or use of any
of the Premises, the Borrower shall reimburse the Lender promptly for the
full amount thereof. In addition, the Borrower will pay, or reimburse the
Lender for, all taxes, fees, duties, imposts, charges and expenses at any
time incurred by or imposed upon the Lender by reason of the execution,
delivery, existence, recordation, performance or enforcement of this
Agreement or the provisions of this Section 3.4.
Section 3.5 License. The Borrower hereby grants to the Lender 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 any 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
<PAGE>
perfect the security interests granted hereby. For this purpose, the following
information is set forth:
Name and address of Debtor:
Micro Component Technology, Inc.
2340 West County Road C
St. Paul, MN 55113-2528
Federal Tax Identification No. 41-0985960
Name and address of Secured Party:
Norwest Business Credit, Inc.
Norwest Center
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0152
Federal Tax Identification No. 41-1237652
Section 3.7 Setoff. The Borrower agrees that the Lender may at any
time or from time to time, at its sole discretion and without demand and without
notice to anyone, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any Obligation, whether or not due. In addition,
each other Person holding a participating interest in any Obligations shall have
the right to appropriate or setoff any deposit or other liability then owed by
such Person to the Borrower, whether or not due, and apply the same to the
payment of said participating interest, as fully as if such Person had lent
directly to the Borrower the amount of such participating interest.
ARTICLE IV
Conditions of Willingness to Consider Lending
Section 4.1 Conditions Precedent to Lender's Willingness to Consider
Making the Initial Revolving Advance and the Initial Letter of Credit. The
Lender's willingness to consider making the initial Revolving Advance or to
cause to be issued the initial Letter of Credit hereunder shall be subject to
the condition precedent that the Lender shall have received all of the
following, each in form and substance satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Note, properly executed by the Borrower.
<PAGE>
(c) A true and correct copy of any and all leases pursuant to which
the Borrower is leasing Premises where Collateral is located, together
with a landlord's disclaimer and consent with respect to each such lease.
(d) The Patent Security Agreement executed by the Borrower and duly
filed in the offices necessary to perfect the Security Interest, to the
extent the Security Interest is capable of being perfected by filing.
(e) The Collateral Account Agreement, properly executed by the
Borrower and Norwest Bank.
(f) The Lockbox Agreement, properly executed by the Borrower and
Norwest Bank.
(g) 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 or to liens held by Persons who have agreed in writing
that upon receipt of proceeds of the Advances, they will deliver UCC
releases and/or terminations satisfactory to the Lender, and (iii) the
Lender has duly filed all financing statements necessary to perfect the
Security Interest, to the extent the Security Interest is capable of being
perfected by filing.
(h) A certificate of the Borrower's secretary or assistant secretary
certifying as to (i) the resolutions of the Borrower's directors and if
required, shareholders, authorizing the execution, delivery and
performance of the Loan Documents, (ii) the Borrower's articles of
incorporation and bylaws, and (iii) the signatures of the Borrower's
officers or agents authorized to execute and deliver the Loan Documents
and other instruments, agreements and certificates, including Advance
requests, on the Borrower's behalf.
(i) A current certificate issued by the Secretary of State of
Minnesota, certifying that the Borrower is in compliance with all
applicable organizational requirements of the State of Minnesota.
(j) 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.
(k) An opinion of counsel to the Borrower, addressed to the Lender.
<PAGE>
(l) Certificates of the insurance required hereunder, with all
hazard insurance containing a lender's loss payable endorsement in the
Lender's favor and with all liability insurance naming the Lender as an
additional insured.
(m) Payment of the fees and commissions due through the date of the
initial Advance or Letter of Credit under Section 2.8 and expenses
incurred by the Lender through such date and required to be paid by the
Borrower under Section 9.6, including all legal expenses incurred through
the date of this Agreement.
(n) Evidence that on the date of the initial Revolving Advance or
issuance of the initial Letter of Credit, the Borrower has a minimum of
$300,000 of excess Availability after paying out trade payables older than
60 days from invoice date and any book or bank overdrafts.
(o) Evidence that not later than simultaneously with the initial
Advance, all conditions precedent to the initial Norwest Bank Revolving
Advance shall be satisfied.
(p) A list of all Collateral locations in the US, provided within 10
days before the date of the initial Advance.
(q) Such other documents as the Lender in its sole discretion may
require.
Section 4.2 Conditions Precedent to All Advances and Letters of
Credit. The Lender will not consider any request for an Advance or to cause the
Issuer to issue any Letter of Credit unless 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.
<PAGE>
ARTICLE V
Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
Section 5.1 Corporate Existence and Power; Name; Chief Executive
Office; Inventory and Equipment Locations; Tax Identification Number. The
Borrower is a corporation , duly organized, validly existing and in good
standing under the laws of the State of Minnesota 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. No dissolution or termination of the
Borrower has occurred, and no notice of dissolution or articles of termination
have been filed with respect to the Borrower. The Borrower has all requisite
power and authority, corporate or otherwise, to conduct its business, to own its
properties and to execute and deliver, and to perform all of its obligations
under, the Loan Documents. During the five years prior to the Closing Date, the
Borrower has done business solely under the names set forth in Schedule 5.1
hereto. The Borrower's chief executive office and principal place of business is
located at the address set forth in Schedule 5.1 hereto, 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 Schedule 5.1 hereto. The Borrower's tax
identification number is correctly set forth in Section 3.6 hereto.
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 and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's shareholders; (ii) 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; (iii) 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 Borrower's articles of incorporation and bylaws; (iv)
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 (v) 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 the Security
<PAGE>
Interest) upon or with respect to any of the properties now owned or hereafter
acquired by the Borrower.
Section 5.3 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 5.4 Subsidiaries. Except as set forth in Schedule 5.4
hereto, the Borrower has no Subsidiaries.
Section 5.5 Financial Condition; No Adverse Change. The Borrower has
heretofore furnished to the Lender its audited financial statements for its
fiscal year ended June 30, 1997 and its unaudited financial statements for the
fiscal year-to-date period ended September 30, 1997 and those statements fairly
present the Borrower's financial condition on the dates thereof and the results
of its operations and cash flows for the periods then ended and were prepared in
accordance with generally accepted accounting principles. Since the date of the
most recent financial statements, there has been no material adverse change in
the Borrower's business, properties or condition (financial or otherwise).
Section 5.6 Litigation. Except as disclosed in the Disclosure
submitted by the Borrower in connection with the Norwest Credit Agreement, there
are no actions, suits or proceedings pending or, to the Borrower's knowledge,
threatened against or affecting the Borrower or any of its Affiliates or the
properties of the Borrower or any of its Affiliates before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which, if determined adversely to the Borrower or any of
its Affiliates, would have a material adverse effect on the financial condition,
properties or operations of the Borrower or any of its Affiliates.
Section 5.7 Regulation U. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any Advance will be used
to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.
Section 5.8 Taxes. The Borrower and its Affiliates 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
Affiliates have filed all federal, state and local tax returns which to the
knowledge of the officers of the Borrower or any Affiliate, as the case may be,
are required to be filed, and the Borrower and its Affiliates 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.
<PAGE>
Section 5.9 Titles and Liens. The Borrower has good and absolute
title to all Collateral described in the collateral reports provided to the
Lender and all other Collateral, properties and assets reflected in the latest
financial statements referred to in Section 5.5 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 5.10 Plans. Except as disclosed to the Lender in writing
prior to the date hereof, neither the Borrower nor any of its Affiliates
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 of its Affiliates 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 5.11 Default. The Borrower is in compliance with all
provisions of all agreements, instruments, decrees and orders to which it is a
party or by which it or its property is bound or affected, the breach or default
of which could have a material adverse effect on the Borrower's financial
condition, properties or operations.
Section 5.12 Environmental Matters.
(a) Definitions. 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 and 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, regulated by or identified in any Environmental Law.
<PAGE>
(b) To the Borrower's best knowledge, 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 or the
Lender 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, except as previously disclosed
to the Lender.
(c) To the Borrower's best knowledge, the Borrower has not disposed
of Hazardous Substances in such a manner as to create any liability under
any Environmental Law.
(d) Except as previously disclosed to the Lender, there are not and
there never have been any requests, claims, notices, investigations,
demands, administrative proceedings, hearings or litigation, relating in
any way to the Premises or the Borrower, alleging liability under,
violation of, or noncompliance with any Environmental Law or any license,
permit or other authorization issued pursuant thereto. To the Borrower's
best knowledge, no such matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's businesses are
and have in the past always been conducted in accordance with all
Environmental Laws and 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
possession and are in full force and effect. No permit required under any
Environmental Law is scheduled to expire within 12 months and there is no
threat that any such permit will be withdrawn, terminated, limited or
materially changed.
(f) To the Borrower's best knowledge, 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.
(g) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other documents
describing or relating in any way to the Premises or Borrower's
businesses.
Section 5.13 Submissions to Lender. All financial and other
information provided to the Lender 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
<PAGE>
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 5.14 Financing Statements. The Borrower has provided to the
Lender 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
Lender 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 5.15 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.
Section 5.16 Financial Solvency. Both before and after giving effect
to all of the transactions contemplated in the Loan Documents, none of the
Borrower or its Affiliates:
(a) was or will be insolvent, as that term is used and defined in
Section 101(32) of the United States Bankruptcy Code and Section 2 of the
Uniform Fraudulent Transfer Act;
(b) has unreasonably small capital or is engaged or about to engage
in a business or a transaction for which any remaining assets of the
Borrower or such Affiliate are unreasonably small;
(c) by executing, delivering or performing its obligations under the
Loan Documents or other documents to which it is a party or by taking any
action with respect thereto, intends to, nor believes that it will, incur
debts beyond its ability to pay them as they mature;
(d) by executing, delivering or performing its obligations under the
Loan Documents or other documents to which it is a party or by taking any
action with respect thereto, intends to hinder, delay or defraud either
its present or future creditors; and
<PAGE>
(e) at this time contemplates filing a petition in bankruptcy or for
an arrangement or reorganization or similar proceeding under any law any
jurisdiction, nor, to the best knowledge of the Borrower, is the subject
of any actual, pending or threatened bankruptcy, insolvency or similar
proceedings under any law of any jurisdiction.
ARTICLE VI
Borrower's Affirmative Covenants
So long as the Obligations shall remain unpaid, or the Credit
Facility shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6.1 Reporting Requirements. The Borrower will deliver, or
cause to be delivered, to the Lender each of the following, which shall be in
form and detail acceptable to the Lender:
(a) as soon as available, and in any event within 90 days after the
end of each fiscal year of the Borrower, the Borrower's audited financial
statements with the unqualified opinion of independent certified public
accountants selected by the Borrower and acceptable to the Lender, which
annual financial statements shall include the Borrower's balance sheet as
at the end of such fiscal year and the related statements of the
Borrower's income, retained earnings and cash flows for the fiscal year
then ended, prepared, if the Lender so requests, on a consolidating and
consolidated basis to include any Affiliates, 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
6.12, 6.13, 7.11 and 7.18; and (iii) a certificate of the Borrower's chief
financial officer stating that such financial statements have been
prepared in accordance with GAAP, fairly represent the Borrower's
financial position and the results of its operations, 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) as soon as available and in any event within 20 days after the
end of each month, and within 45 after the end of each quarter, an
unaudited/internal balance sheet and statement of income and retained
earnings of the Borrower as at the end of
<PAGE>
and for such month and for the year to date period then ended, prepared
consistently with the Borrower's usual accounting practices, and each such
balance sheet and statement of income and retained earnings for a fiscal
quarter of the Borrower then ended, prepared in accordance with GAAP,
subject to year-end audit adjustments; and accompanied by a certificate of
the Borrower's chief financial officer, substantially in the form of
Exhibit B hereto stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to 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 hereunder not theretofore
reported and remedied and, if so, stating in reasonable detail the facts
with respect thereto, and (iii) all relevant facts in reasonable detail to
evidence, and the computations as to, whether or not the Borrower is in
compliance with the requirements set forth in Sections 6.12, 6.13, 7.11
and 7.18;
(c) within 15 days after the end of each month or more frequently if
the Lender so requires, agings of the Borrower's accounts receivable and
its accounts payable, an inventory certification report, and a calculation
of the Borrower's Accounts, Eligible Accounts, Inventory and Eligible
Inventory as at the end of such month or shorter time period;
(d) at least 30 days before the beginning of each fiscal year of the
Borrower, the projected balance sheets and income statements for each
month of such year, each in reasonable detail, representing the Borrower's
good faith projections and certified by the Borrower's chief financial
officer 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 Lender may
in its discretion require;
(e) 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
5.12 or which seek a monetary recovery against the Borrower in excess of
$100,000;
(f) 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
hereunder, 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;
(g) 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
<PAGE>
occurred, the statement of the Borrower's chief financial officer 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;
(h) as soon as possible, and in any event within 10 days after the
Borrower 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 Borrower's chief financial officer 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;
(i) promptly upon knowledge thereof, notice of (i) any disputes or
claims by the Borrower's customers, which the Borrower reasonably believes
will not be resolved through service or warranty means and that exceed
$50,000 individually or $100,000 in the aggregate during any fiscal year;
(ii) credit memos; (iii) any goods returned to or recovered by the
Borrower; and (iv) any change in the persons constituting the Borrower's
executive officers and directors;
(j) 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;
(k) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have
sent to its stockholders;
(l) promptly after the sending or filing thereof, copies of all
regular and periodic reports which the Borrower shall file with the
Securities and Exchange Commission or any national securities exchange;
(m) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which
could materially and adversely affect the Borrower's business or its
financial condition; and
(n) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents,
sales journals, credit memo journals and delivery receipts for goods sold,
and such other material, reports, records or information as the Lender may
request.
<PAGE>
Section 6.2 Books and Records; Inspection and Examination. The
Borrower will keep accurate books of record and account for itself pertaining to
the Collateral and pertaining to the Borrower's business and financial condition
and such other matters as the Lender may from time to time request in which true
and complete entries will be made in accordance with GAAP and, upon the Lender's
request, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all corporate and
financial books and records of the Borrower at all times during ordinary
business hours, to send and discuss with account debtors and other obligors
requests for verification of amounts owed to the Borrower, and to discuss the
Borrower's affairs with any of its directors, officers, employees or agents. The
Borrower will permit the Lender, or its employees, accountants, attorneys or
agents, to examine and inspect any Collateral, other collateral covered by the
Security Documents or any other property of the Borrower at any time during
ordinary business hours.
Section 6.3 Account Verification. The Lender 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 (i) 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 (ii) 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 comply with all applicable Environmental
Laws and obtain and comply 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 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 the Borrower shall not be
required to pay any such tax, assessment,
<PAGE>
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings and for which proper reserves have been
made.
Section 6.6 Maintenance of Properties.
(a) The Borrower will 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 from
discontinuing the operation and maintenance of any of its properties if
such discontinuance is, in the Lender's judgment, desirable in the conduct
of the Borrower's business and not disadvantageous in any material respect
to the Lender.
(b) The Borrower will defend the Collateral against all claims or
demands of all persons (other than the Lender) claiming the Collateral or
any interest therein.
(c) 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.
Section 6.7 Insurance. The Borrower will obtain and at all times
maintain insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, 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 operates.
Without limiting the generality of the foregoing, the Borrower will at all times
maintain business interruption insurance including coverage for force majeure
and 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 Lender may
reasonably request, with any loss payable to the Lender to the extent of its
interest, and all policies of such insurance shall contain a lender's loss
payable endorsement for the Lender's benefit acceptable to the Lender. All
policies of liability insurance required hereunder shall name the Lender as an
additional insured.
Section 6.8 Preservation of Existence. The Borrower will preserve
and maintain its 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.
<PAGE>
Section 6.9 Delivery of Instruments, etc. Upon request by the
Lender, the Borrower will promptly deliver to the Lender in pledge all
instruments, documents and chattel papers constituting Collateral, duly endorsed
or assigned by the Borrower.
Section 6.10 Collateral Account.
(a) If, notwithstanding the instructions to debtors to make payments
to the Lockbox, the Borrower receives any payments on Receivables, the
Borrower shall deposit such payments into the Collateral Account. Until so
deposited, the Borrower shall hold all such payments in trust for and as
the property of the Lender and shall not commingle such payments with any
of its other funds or property.
(b) All deposits in the Collateral Account shall constitute proceeds
of Collateral and shall not constitute payment of the Obligations. The
Lender from time to time at its discretion may, after allowing two (2)
Banking Days, apply deposited funds in the Collateral Account to the
payment of the Obligations, in any order or manner of application
satisfactory to the Lender, by transferring such funds to the Lender's
general account.
(c) All items deposited in the Collateral Account shall be subject
to final payment. If any such item is returned uncollected, the Borrower
will immediately pay the Lender, or, for items deposited in the Collateral
Account, the bank maintaining such account, the amount of that item, or
such bank at its discretion may charge any uncollected item to the
Borrower's commercial account or other account. The Borrower shall be
liable as an endorser on all items deposited in the Collateral Account,
whether or not in fact endorsed by the Borrower.
Section 6.11 Performance by the Lender. If the Borrower at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a period
of ten calendar days after the Lender gives the Borrower written notice thereof
(or in the case of the agreements contained in Sections 6.5, 6.7 and 6.10
immediately upon the occurrence of such failure, without notice or lapse of
time), the Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of the Borrower (or, at the Lender's option, in
the Lender's name) and may, but need not, take any and all other actions which
the Lender 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 Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or
<PAGE>
as a result of the performance or observance of such agreements or the taking of
such action by the Lender, together with interest thereon from the date expended
or incurred at the Floating Rate. To facilitate the Lender's performance or
observance of such covenants of the Borrower, the Borrower hereby irrevocably
appoints the Lender, or the Lender's delegate, acting alone, as the Borrower's
attorney in fact (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
6.11.
Section 6.12 Minimum Tangible Net Worth. The Borrower will maintain
its Tangible Net Worth determined as at the end of each fiscal quarter, at an
amount not less than the amount set forth opposite such fiscal quarter:
fiscal quarter ending Minimum Tangible
--------------------- ----------------
Net Worth
---------
December 31, 1997 $10,700,000
March 31, 1998 $10,500,000
June 30, 1998 $10,500,000
September 30, 1998 $11,000,000
December 31, 1998 and thereafter $11,000,000
Section 6.13 Maximum Net Loss. The Borrower will achieve Net Loss
determined as at the end of each month, of not more than $3,000,000.
Section 6.14 New Covenants. On or before November 30, 1998, the
Borrower and the Lender shall agree on new covenant levels for Sections 6.12,
6.13 and 7.11 for periods after such date. The new covenant levels will be based
on the Borrower's projections for such periods and shall be no less stringent
than the present levels.
ARTICLE VII
Negative Covenants
So long as the Obligations shall remain unpaid, or the Credit
Facility shall remain outstanding, the Borrower agrees that, without the
Lender's prior written consent:
Section 7.1 Liens. The Borrower will not 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; excluding,
<PAGE>
however, from the operation of the foregoing, the following (collectively,
"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
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) the Security Interest and liens and security interests created
by the Security Documents; and
(d) purchase money security interests relating to the acquisition of
machinery and equipment of the Borrower not exceeding the lesser of 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 incur, create,
assume or permit to exist any indebtedness or liability on account of deposits
or advances or any indebtedness for borrowed money or letters of credit issued
on the Borrower's behalf, or any other indebtedness or liability evidenced by
notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date hereof and
listed in Schedule 7.2 hereto; and
(c) indebtedness relating to liens permitted in accordance with
Section 7.1.
Section 7.3 Guaranties. The Borrower will not 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 hereto.
<PAGE>
Section 7.4 Investments and Subsidiaries.
(a) The Borrower will not 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 $20,000; and
(iii) advances in the form of progress payments, prepaid rent
not exceeding three (3) months or security deposits.
(b) The Borrower will not create or permit to exist any Subsidiary,
other than the Subsidiaries in existence on the date hereof and listed in
Schedule 5.4.
Section 7.5 Dividends. Without prior written notice to the Lender,
the Borrower will not 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.
Section 7.6 Sale or Transfer of Assets; Suspension of Business
Operations. The Borrower will not 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. The Borrower will not in any manner
transfer any property without prior or present receipt of full and adequate
consideration.
Section 7.7 Intellectual Property. The Borrower shall not sell or
grant licenses to use any of its applications for patents, patents, copyrights,
trademarks, trade secrets, or trade names to any other Person, other than
licenses granted in the ordinary course in connection with the sale of
inventory, without the prior written consent of the Lender.
<PAGE>
Section 7.8 Consolidation and Merger; Asset Acquisitions. The
Borrower will not 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.
Section 7.9 Sale and Leaseback. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
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 intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.10 Restrictions on Nature of Business. The Borrower will
not engage in any line of business materially different from that presently
engaged in by the Borrower and will not purchase, lease or otherwise acquire
assets not related to its business.
Section 7.11 Capital Expenditures. The Borrower will not incur or
contract to incur Capital Expenditures of more than $500,000 in the aggregate
during any fiscal year.
Section 7.12 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 7.13 Discounts, etc. The Borrower will not, after notice
from the Lender, grant any discount, credit or allowance to any customer of the
Borrower or accept any return of goods sold, or at any time (whether before or
after notice from the Lender) modify, amend, subordinate, cancel or terminate
the obligation of any account debtor or other obligor of the Borrower.
Section 7.14 Defined Benefit Pension Plans. The Borrower will not
adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.
Section 7.15 Other Defaults. The Borrower will not 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.
Section 7.16 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. After the initial Advance and thereafter,
before permitting any tangible Collateral to be located in any state or area in
which a financing statement covering such
<PAGE>
Collateral would be required to be, but has not in fact been, filed in order to
perfect the Security Interest, the Borrower shall notify the Lender. If the
Lender requests that the Borrower sign a financing statement for such location,
the Borrower shall sign a financing statement, and will not permit any tangible
Collateral to be located in such state or area until the Lender has received and
filed a signed financing statement. The Borrower will not change its name.
Section 7.17 Organizational Documents. The Borrower will not amend
its articles of incorporation and bylaws without previous notification to the
Lender. The Borrower will not become an S Corporation within the meaning of the
Internal Revenue Code of 1986, as amended.
Section 7.18 Salaries. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or increase the salary, bonus, commissions, consultant fees or
other compensation of any directors, shareholders or consultant, or any member
of their families, by more than 15% in any one year, either individually or for
all such persons in the aggregate, or pay any such increase from any source
other than profits earned in the year of payment.
ARTICLE VIII
Events of Default, Rights and Remedies
Section 8.1 Events of Default. Notwithstanding that the Lender may
demand immediate payment of the Obligations at any time, whether or not a
Default Period then exists, and without waiving or limiting in any respect the
Lender's right to so demand payment of the Obligations at any time, this
Agreement sets forth a non-exclusive list of certain critical events after the
occurrence of which the Lender expects that it would demand immediate payment of
the Obligations and exercise its remedies. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of the Obligations on demand or on any
portion of the Obligations that otherwise becomes due and payable;
(b) Failure to pay when due any amount specified in Section 2.4
relating to the Borrower's Obligation of Reimbursement, or failure to pay
immediately when due or upon termination of the Credit Facility any
amounts required to be paid for deposit in the Special Account under
Section 2.5 or;
(c) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this Agreement;
<PAGE>
(d) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement;
(e) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in the Norwest Bank Credit Agreement.
(f) The Norwest Bank Credit Agreement shall be terminated for any
reason.
(g) 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 or
execution or similar process shall be issued or levied against a
substantial part of the property of the Borrower;
(h) A petition shall be filed by or against the Borrower under the
United States Bankruptcy Code naming the Borrower as debtor;
(i) Any representation or warranty made by the Borrower in this
Agreement or by the Borrower (or by 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;
(j) The rendering against the Borrower of a final judgment, decree
or order for the payment of money in excess of $100,000 which continues
unsatisfied and in effect for any period of 30 consecutive days without a
stay of execution;
(k) A material default under any bond, debenture, note or other
evidence of indebtedness of the Borrower owed to any Person other than the
Lender with a total balance owing of $100,000 or more, 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 or any other material lease, and the
expiration of the applicable period of grace, if any, specified in such
evidence of indebtedness, indenture, other instrument or lease;
<PAGE>
(l) Any Reportable Event, which the Lender 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 Lender; 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 shall have filed for a distress termination of any Plan under
Title IV of ERISA; or the Borrower 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 Lender determines in
good faith may by itself, or in combination with any such failures that
the Lender may determine are likely to occur in the future, result in the
imposition of a lien on the Borrower's assets in favor of the Plan;
(m) 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 any obligations of the Borrower
hereunder or under any note;
(n) 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 Lender's prior written consent;
(o) 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;
(p) Default in the payment of any amount owed by the Borrower to the
Lender other than any indebtedness arising hereunder;
(q) Any event or circumstance with respect to the Borrower shall
occur such that the Lender shall believe in good faith that the prospect
of payment of all or any part of the Obligations or the performance by the
Borrower under the Loan Documents is impaired or any material adverse
change in the business or financial condition of the Borrower shall occur;
or
(r) Any breach, default or event of default by or attributable to
any Affiliate under any agreement between such Affiliate and the Lender.
<PAGE>
Section 8.2 Rights and Remedies. As provided in Section 2.11, the
Lender may, at any time, refuse to make any requested Advance, demand payment of
the Advances or terminate the Credit Facility, whether or not a Default Period
then exists. In addition, during any Default Period, the Lender may exercise any
or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrower, declare the
Obligations to be forthwith due and payable, whereupon all Obligations
shall become and be forthwith due and payable, without presentment, notice
of dishonor, protest or further notice of any kind, all of which the
Borrower hereby expressly waives;
(b) the Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender to the
Borrower to the payment of the Obligations;
(c) the Lender may make demand upon the Borrower and, forthwith upon
such demand, the Borrower will pay to the Lender in immediately available
funds for deposit in the Special Account pursuant to Section 2.14 an
amount equal to the aggregate maximum amount available to be drawn under
all Letters of Credit then outstanding, assuming compliance with all
conditions for drawing thereunder;
(d) the Lender 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 Lender at a place to be designated by the Lender which is
reasonably convenient to both parties;
(e) the Lender may exercise and enforce its rights and remedies
under the Loan Documents; and
(f) the Lender 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 subsections (g) or (h) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.
<PAGE>
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 9.3) at least ten
calendar days before the date of intended disposition or other action.
ARTICLE IX
Miscellaneous
Section 9.1 No Waiver; Cumulative Remedies. No failure or delay by
the Lender 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 9.2 Amendments, Etc. 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 Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
Section 9.3 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 telecopied to the party to whom notice is
being given at its address or telecopier number as set forth below:
If to the Borrower:
Micro Component Technology, Inc.
2340 West County Road C
St. Paul, MN 55113-2528
Telecopier: 612\697-4200
Attention: Roger E. Gower
<PAGE>
If to the Lender:
Norwest Business Credit, Inc.
Norwest Center
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0152
Telecopier: 612/341-2472
Attention: Kate F. Wahlberg
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. 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 Lender pursuant to any of the provisions of Article II shall not be
effective until received by the Lender.
Section 9.4 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 the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interest or the Lender's rights under the Loan
Documents (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 the Loan Documents 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 9.5 Collateral. This Agreement does not contemplate a sale
of accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender 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 cash proceeds of the Collateral in any particular order of
application.
Section 9.6 Costs and Expenses. The Borrower agrees to pay on demand
all costs and expenses, including (without limitation) attorneys' fees, incurred
by the Lender in
<PAGE>
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.
Section 9.7 Indemnity. In addition to the payment of expenses
pursuant to Section 9.6, the Borrower agrees to indemnify, defend and hold
harmless the Lender, and any of its 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 any of the following
(collectively, "Indemnified Liabilities"):
(i) any and all transfer taxes, documentary taxes, assessments
or charges made by any governmental authority by reason of the
execution and delivery of the Loan Documents or the making of the
Advances;
(ii) any claims, loss or damage to which any Indemnitee may be
subjected if any representation or warranty contained in Section
5.12 proves to be incorrect in any respect or as a result of any
violation of the covenant contained in Section 6.4(b); and
(iii) any and all other 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 the foregoing
and any other 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 and the Loan Documents or
the use or intended use of the proceeds of the Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
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, at the Borrower's sole costs and
expense. 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
<PAGE>
applicable law. The Borrower's obligation under this Section 9.7 shall survive
the termination of this Agreement and the discharge of the Borrower's other
obligations hereunder.
Section 9.8 Participants. The Lender and its participants, if any,
are not partners or joint venturers, and the Lender 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 Lender may
be transferred or delegated to any of the Lender's participants, successors or
assigns.
Section 9.9 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 9.10 Binding Effect; Assignment; Complete Agreement;
Exchanging Information. The Loan Documents shall be binding upon and inure to
the benefit of the Borrower and the Lender 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 Lender's prior written consent.
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. Without
limiting the Lender's right to share information regarding the Borrower and its
Affiliates with the Lender's participants, accountants, lawyers and other
advisors, the Lender, Norwest Corporation, and all direct and indirect
subsidiaries of Norwest Corporation, may exchange any and all information they
may have in their possession regarding the Borrower and its Affiliates, and the
Borrower waives any right of confidentiality it may have with respect to such
exchange of such information.
Section 9.11 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 9.12 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 9.13 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. The
parties hereto hereby (i) consent 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; (ii) waive any argument that
<PAGE>
venue in any such forum is not convenient, (iii) agree that any litigation
initiated by the Lender or the Borrower in connection with this Agreement or the
other Loan Documents shall be venued in either the District Court of Hennepin
County, Minnesota, or the United States District Court, District of Minnesota,
Fourth Division; and (iv) agree that a final judgment in any such suit, action
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. THE PARTIES WAIVE
ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO
THIS AGREEMENT.
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.
NORWEST BUSINESS CREDIT, INC. MICRO COMPONENT TECHNOLOGY, INC.
By _________________________________ By _________________________________
Ron E. Gockowski Jeffrey S. Mathiesen
Its Vice President Its Chief Financial Officer
<PAGE>
Table of Exhibits and Schedules
Exhibit A Form of Revolving Note
Exhibit B Compliance Certificate
Exhibit C Premises
Schedule 5.1 Trade Names, Chief Executive Office,
Principal Place of Business, and Locations
of Collateral
Schedule 5.4 Subsidiaries
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
<PAGE>
Exhibit A to Credit and Security
Agreement
REVOLVING NOTE
$5,000,000 Minneapolis, Minnesota
February 17, 1998
For value received, the undersigned, MICRO COMPONENT TECHNOLOGY,
INC., a Minnesota corporation (the "Borrower"), hereby promises to pay ON
DEMAND, and if demand is not sooner made, then as provided in the Credit
Agreement (defined below), to the order of NORWEST BUSINESS CREDIT, INC., a
Minnesota corporation (the "Lender"), at its main office in Minneapolis,
Minnesota, or at any other place designated at any time by the holder hereof, in
lawful money of the United States of America and in immediately available funds,
the principal sum of Five Million Dollars ($5,000,000) or, if less, the
aggregate unpaid principal amount of all Revolving Advances 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,
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 the
same may hereafter be amended, supplemented or restated from time to time, the
"Credit Agreement") by and between the Lender and the Borrower. The principal
hereof and interest accruing thereon 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 the Revolving 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.
<PAGE>
Presentment or other demand for payment, notice of dishonor and
protest are expressly waived.
MICRO COMPONENT TECHNOLOGY,
INC.
By __________________________________
Jeffrey S. Mathiesen
Its Chief Financial Officer
<PAGE>
Exhibit B to Credit and Security
Agreement
COMPLIANCE CERTIFICATE
To: Kate F. Wahlberg
Norwest Business Credit, Inc.
Date: ______________________, 199___
Subject: Micro Component Technology, Inc.
Financial Statements
In accordance with our Credit and Security Agreement dated as of
February 17, 1998 (the "Credit Agreement"), attached are the financial
statements of Micro Component Technology, Inc. (the "Borrower") as of and for
________________, 19___ (the "Reporting Date") and the year-to-date period then
ended (the "Current Financials"). All terms used in this certificate have the
meanings given in the Credit Agreement.
I certify that the Current Financials have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and fairly present
the Borrower's financial condition and the results of its operations as of the
date thereof.
Events of Default. (Check one):
[ ] 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 thereto.
Financial Covenants. I further hereby certify as follows:
1. Minimum Tangible Net Worth. Pursuant to Section 6.12 of the
Credit Agreement, as of the Reporting Date the Borrower's Tangible Net
Worth was $____________ which [ ] satisfies [ ] does not satisfy the
requirement that such amount be not less than $_____________ on the
Reporting Date as set forth in table below:
<PAGE>
fiscal quarter ending Minimum Tangible Net Worth
--------------------- --------------------------
December 31, 1997 $10,700,000
March 31, 1998 $10,500,000
June 30, 1998 $10,500,000
September 30, 1998 $11,000,000
December 31, 1998 and $11,000,000
thereafter
2. Maximum Net Loss. Pursuant to Section 6.13 of the Credit
Agreement, the Borrower's Net Loss on the Reporting Date, was
$____________, which [ ] satisfies [ ] does not satisfy the requirement
that such amount be not more than $3,000,000 during such period.
3. Capital Expenditures. Pursuant to Section 7.11 of the Credit
Agreement, for the year-to-date period ending on the Reporting Date, the
Borrower has expended or contracted to expend during the _____________
year ended ______________, 199___, for Capital Expenditures,
$__________________ in the aggregate and at most $______________ in any
one transaction, which [ ] satisfies [ ] does not satisfy the requirement
that such expenditures not exceed $__________ in the aggregate and
$___________ for any one transaction during such year.
4. Salaries. As of the Reporting Date, the Borrower [ ] is [ ] is
not in compliance with Section 7.18 of the Credit Agreement concerning
salaries.
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.
MICRO COMPONENT TECHNOLOGY, INC.
By ____________________________
Jeffrey S. Mathiesen
Its Chief Financial Officer
<PAGE>
Exhibit C to Credit and Security
Agreement
PREMISES
The Premises referred to in the Credit and Security Agreement are
legally described as follows:
Lot 3, Block 1, Gateway West Business Center, Roseville 2nd
Addition, Ramsey County, Minnesota.
<PAGE>
Schedule 5.1 to Credit and Security
Agreement
Trade Names, Chief Executive Office, Principal Place of Business, and Locations
of Collateral
TRADE NAMES
MCT, MCT Asia, [Inter Scientific]
[To be completed by Borrower]
CHIEF EXECUTIVE OFFICE/PRINCIPAL PLACE OF BUSINESS
Micro Component Technology, Inc.
2340 West County Road C
St. Paul, MN 55113-2528
OTHER INVENTORY AND EQUIPMENT LOCATIONS
MCT Arizona
Phoenix Tech Center
9831 South 51st Street
Suite D129
Phoenix, AZ 85044
MCT West
324 Martin Avenue
Santa Clara, CA 95050
MCT East
14 Monument Square
Suite 001
Leominster, MA 01453
<PAGE>
MCT Asia
6 New Industrial Road
#5-01/02
Hoe Huat Industrial Building
Singapore, 536199
MCT Asia Penang
Lot 155A, Free Trade Zone 1
Bayan Lepas
11900, Penang
Malaysia
<PAGE>
Schedule 5.4 to Credit and Security
Agreement
SUBSIDIARIES
MCT International, Inc.
Micro Component Technology Asia Pte. Ltd.
MCT Asia (Penang) Sdn. Bhd.
MCT (HK) Limited
Beijing Micro Component Technology Co. Ltd.
<PAGE>
Schedule 7.1 to Credit and Security
Agreement
PERMITTED LIENS
<TABLE>
<CAPTION>
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
Creditor Collateral Jurisdiction Filing Date Filing No.
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
<S> <C> <C> <C> <C>
St. Paul Progress Corporation MCT 1149 Tester MN Secretary of State 3/23/93 1573720
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
City of Shoreview MCT 1149.X Tester MN Secretary of State 3/26/93 1574676
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
Advance Acceptance Corporation CFR 3330 System with Accessories MN Secretary of State 4/5/93 1576624
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
Madic-Compufact Corporation HP G40 computer and peripherals MN Secretary of State 4/18/94 1666703
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
Sun Microsystems Finance, Inc. Specific Equipment MN Secretary of State 10/28/94 1712667
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
NBD Equipment Finance, Inc. 1 Fadal machining center MN Secretary of State 12/11/95 1809502
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
NBD Equipment Finance, Inc. 1 Fadal vertical machining center MN Secretary of State 4/15/96 1840028
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
NBD Equipment Finance, Inc. Machine tool equipment MN Secretary of State 9/16/97 1972923
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
Norwest Bank Minnesota, N.A. Blanket MN Secretary of State 12/23/97 1998712
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
Norwest Bank Minnesota, N.A. Blanket MN Secretary of State 12/23/97 1998713
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
Copy Duplicating Products, Inc. Manufacturer Pax Model 755 MN Secretary of State (filed 5/18/94 1675050
under MCT)
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
City of Shoreview MCT 1149.X Tester Ramsey County, MN 3/26/93 93-000707
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
<PAGE>
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
Norwest Bank Minnesota, N.A. Blanket AZ Secretary of State 12/23/97 998193
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
Norwest Bank Minnesota, N.A. Blanket AZ Secretary of State 12/23/97 998195
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
Eaton Financial Corporation Specific Equipment CA Secretary of State 6/2/93 93112530
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
Norwest Bank Minnesota, N.A. Blanket CA Secretary of State 12/23/97 9736460013
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
Norwest Bank Minnesota, N.A. Blanket CA Secretary of State 12/23/97 9736460014
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
Norwest Bank Minnesota, N.A. Blanket MA Secretary of Commonwealth 12/23/97 518585
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
Norwest Bank Minnesota, N.A. Blanket MA Secretary of Commonwealth 12/23/97 518588
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
Norwest Bank Minnesota, N.A. Blanket Leominster Town, MA 12/24/97 292-97-98
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
Norwest Bank Minnesota, N.A. Blanket Leominster Town, MA 12/24/97 293-97-98
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
Commissioner of Taxation and Tax Lien - $10,000 Albany County, NY 7/19/95 W95-6462
Finance
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
Commissioner of Taxation and Tax Lien - $4,151.92 Albany County, NY 7/19/95 W95-6463
Finance
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
Norwest Bank Minnesota, N.A. Blanket TX Secretary of State 12/31/97 9700264744
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
Norwest Bank Minnesota, N.A. Blanket TX Secretary of State 12/31/97 9700264747
- --------------------------------- ---------------------------------- ------------------------------ --------------- ---------------
</TABLE>
<PAGE>
Schedule 7.2 to Credit and Security
Agreement
PERMITTED INDEBTEDNESS AND GUARANTIES
-------------------------------------
Indebtedness
Creditor Principal Maturity Monthly Collateral
-------- --------- -------- ------- ----------
Amount Date Payment
------ ---- -------
St. Paul Progress $200,000 March 22, $1166.67 1149 Tester, Serial
Corporation 1998 # 1149-1001
Guaranties
----------
None.
EXHIBIT 10.N
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE NO.
--------
ARTICLE I DEFINITIONS.....................................................................1
SECTION 1.1 DEFINITIONS..............................................................1
ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY........................................8
SECTION 2.1 REVOLVING ADVANCES.......................................................8
SECTION 2.2 LETTERS OF CREDIT........................................................9
SECTION 2.3 REQUESTS FOR ADVANCES AND LETTERS OF CREDIT..............................9
SECTION 2.4 PAYMENT OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT; OBLIGATION OF
REIMBURSEMENT........................................................................10
SECTION 2.5 SPECIAL ACCOUNT.........................................................11
SECTION 2.6 OBLIGATIONS ABSOLUTE....................................................11
SECTION 2.7 INTEREST; DEFAULT INTEREST..............................................12
SECTION 2.8 FEES....................................................................12
SECTION 2.9 CAPITAL ADEQUACY; INCREASED COSTS AND REDUCED RETURN....................14
SECTION 2.10 DISCRETIONARY NATURE OF CREDIT FACILITY................................15
SECTION 2.11 TERMINATION BY BORROWER................................................15
SECTION 2.12 TERMINATION FEES; WAIVER OF TERMINATION FEES...........................15
SECTION 2.13 MANDATORY PREPAYMENT...................................................16
SECTION 2.14 ADVANCES WITHOUT REQUEST...............................................16
SECTION 2.15 USE OF PROCEEDS........................................................16
SECTION 2.16 FACILITY SUBJECT TO EXIMBANK RULES.....................................16
ARTICLE III SECURITY INTEREST............................................................17
SECTION 3.1 GRANT OF SECURITY INTEREST..............................................17
SECTION 3.2 NOTIFICATION OF ACCOUNT DEBTORS AND OTHER OBLIGORS......................18
SECTION 3.3 OCCUPANCY...............................................................18
SECTION 3.4 LICENSE.................................................................19
SECTION 3.5 FILING A COPY...........................................................19
ARTICLE IV CONDITIONS OF LENDING.........................................................19
SECTION 4.1 CONDITIONS PRECEDENT TO LENDER'S WILLINGNESS TO CONSIDER MAKING
THE INITIAL REVOLVING ADVANCE AND ISSUING THE INITIAL LETTER OF CREDIT...............19
SECTION 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES AND LETTERS OF CREDIT..............21
ARTICLE V REPRESENTATIONS AND WARRANTIES.................................................21
SECTION 5.1 NAME; LOCATIONS; TAX ID NO.; SUBSIDIARIES...............................21
SECTION 5.2 FINANCIAL CONDITION; NO ADVERSE CHANGE..................................21
SECTION 5.3 SUSPENSION AND DEBARMENT, ETC...........................................22
<PAGE>
ARTICLE VI COVENANTS OF THE BORROWER.....................................................22
SECTION 6.1 REPORTING REQUIREMENTS..................................................22
SECTION 6.2 INSPECTION..............................................................24
SECTION 6.3 ACCOUNT VERIFICATION....................................................24
SECTION 6.4 ACCOUNT DEBTORS TO PAY TO DESIGNATED ACCOUNT; PLEDGE OF
ACCOUNT..............................................................................25
SECTION 6.5 NO OTHER LIENS..........................................................25
SECTION 6.6 INSURANCE...............................................................25
SECTION 6.7 COLLATERAL ACCOUNT......................................................25
SECTION 6.8 MINIMUM TANGIBLE NET WORTH..............................................25
SECTION 6.9 NO SALE OR TRANSFER OF COLLATERAL AND OTHER ASSETS......................25
SECTION 6.10 CONSOLIDATION AND MERGER; ASSET ACQUISITIONS...........................25
SECTION 6.11 PLACE OF BUSINESS; NAME................................................26
ARTICLE VII EVENTS OF DEFAULT, RIGHTS AND REMEDIES.......................................26
SECTION 7.1 EVENTS OF DEFAULT.......................................................26
SECTION 7.2 RIGHTS AND REMEDIES.....................................................27
SECTION 7.3 CERTAIN NOTICES.........................................................27
ARTICLE VIII MISCELLANEOUS...............................................................28
SECTION 8.1 ADDRESSES FOR NOTICES, ETC..............................................28
SECTION 8.2 SERVICING OF CREDIT FACILITY............................................28
SECTION 8.3 COSTS AND EXPENSES......................................................29
SECTION 8.4 INDEMNITY...............................................................29
SECTION 8.5 BINDING EFFECT; ASSIGNMENT; COUNTERPARTS; EXCHANGING
INFORMATION..........................................................................30
SECTION 8.6 GOVERNING LAW; JURISDICTION, VENUE; WAIVER OF JURY TRIAL................30
</TABLE>
<PAGE>
CREDIT AND SECURITY AGREEMENT
(Eximbank Guaranteed Loan No. AP073233XX)
Dated as of February 17, 1998
MICRO COMPONENT TECHNOLOGY, INC., a Minnesota corporation (the
"Borrower"), and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national
banking association (the "Lender"), 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:
"Accounts" means 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, whether now existing or hereafter arising.
"Adjusted L/C Amount" means the sum of (i) twenty-five percent (25%)
of the aggregate face amount of any issued and outstanding Letters of
Credit and (ii) the unpaid amount of the Obligation of Reimbursement.
"Advance" means a Revolving 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 Credit and Security Agreement, as amended,
supplemented and restated from time to time.
"Availability" means the lesser of:
(a) the difference of (i) the Borrowing Base and (ii) the sum of
(A) the outstanding principal balance of the Revolving
Advances and (B) the Adjusted L/C Amount; or
<PAGE>
(b) the difference of (i) the Maximum Line and (ii) the sum of (A)
the outstanding principal balance of the Revolving Advances
and (B) the L/C Amount.
"Base Rate" means the rate of interest publicly announced from time
to time by the Lender as its "base rate" or, if such bank ceases to
announce a rate so designated, any similar successor rate designated by
the Lender.
"Borrower Agreement" means the Borrower Agreement of even date
herewith by and between the Borrower and the Lender in the form attached
hereto as Exhibit B.
"Borrowing Base" means, at any time and subject to change from time
to time in the Lender's sole discretion, the least of:
(a) the Maximum Line;
(b) the difference of $5,000,000 and the outstanding principal
balance of the NBCI Revolving Advances; or
(c) the sum of:
(i) 90% of Eligible Foreign Accounts; and
(ii) 75% of Eligible Export Inventory.
"Borrowing Base Certificate" means a certificate, substantially in
the form attached hereto as Exhibit D, executed by the Borrower and
accepted by the Lender.
"Business Day" means any day on which the Federal Reserve Bank of
New York is open for business.
"Closing Date" means the date of this Agreement.
"Collateral" has the meaning given in Section 3.1.
"Collateral Account" has the meaning given in the Collateral Account
Agreement.
"Collateral Account Agreement" means the Collateral Account
Agreement by and among the Borrower, Norwest Bank International, New York
Branch and the Lender of even date herewith, as the same may hereafter be
amended, supplemented or restated from time to time.
"Controlled Disbursement Account" means the Borrower's zero balance
account No. 499 0015 057 maintained with Norwest Bank Montana, National
Association.
<PAGE>
"Country Limitation Schedule" shall mean the most recent schedule
published by Eximbank and provided to the Borrower by the Lender which
sets forth on a country by country basis whether and under what conditions
Eximbank will provide coverage for the financing of export transactions to
countries listed therein.
"Credit Facility" means the discretionary credit facility made
available to the Borrower pursuant to Article II.
"Debt" of any Person means 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. For purposes
of determining a Person's aggregate Debt at any time, "Debt" shall also
include the aggregate payments required to be made by such Person at any
time under any lease that is considered a capitalized lease under GAAP.
"Default" means an event that, with giving of notice or passage of
time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the first day
of any month during which a Default or Event of Default has occurred and
ending on the date the Lender notifies the Borrower in writing that such
Default or Event of Default has been cured or waived.
"Default Rate" means an annual rate equal to two percent (2%) over
the Floating Rate, which rate shall change when and as the Floating Rate
changes.
"Eligible Export Inventory" means all Inventory consisting of Items,
raw materials and components to be used to manufacture or assemble Items,
and work-in-process relating to Items, and raw materials and components
the Borrower must purchase to manufacture or assemble Items, 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
Export Inventory:
(i) Inventory that is: in-transit; located at any warehouse or
other premises not approved by the Lender in writing; located
outside of the states, or localities, as applicable, in which the
Lender has filed financing statements to perfect a first priority
security interest in such Inventory; covered by any negotiable or
non-negotiable warehouse receipt, bill of lading or other document
of title; on consignment from any Person; on consignment to any
Person or subject to any bailment;
(ii) Inventory consisting of proprietary software;
(iii) Inventory that is damaged, slow moving, obsolete,
returned, defective, recalled or unfit for further processing or not
currently saleable in the normal course of the Borrower's
operations;
<PAGE>
(iv) Inventory that is perishable or live;
(v) Inventory that the Borrower has returned, has attempted to
return, is in the process of returning or intends to return to the
vendor thereof;
(vi) Inventory that is subject to a security interest in favor
of any Person other than the Lender or the Servicer;
(vii) Sample or demonstration Inventory;
(viii) Inventory which has been previously exported from the
US;
(ix) Inventory which constitutes defense articles or defense
services;
(x) Inventory consisting of or to be incorporated into Items
destined for shipment to a Prohibited Country;
(xi) The Foreign Content portion of Items containing less than
fifty percent (50%) US Content;
(xii) For Items containing at least fifty percent (50%) US
Content, any Foreign Content not incorporated into such Items in the
US;
(xiii) That portion of Inventory consisting of or to be
incorporated into Items whose sale would result in an Account deemed
ineligible under clauses (ii), (viii), (x), or (xi) of the
definition of "Eligible Foreign Accounts"; and
(xiv) Inventory otherwise deemed ineligible by the Lender in
its discretion.
"Eligible Foreign Accounts" means all Accounts owed by Account
debtors located outside the US for the sale or provision of Items, except
the following shall not in any event be deemed Eligible Foreign Accounts:
(i) 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;
(ii) That portion of Accounts not providing for payment in
full within 180 days of shipment date or invoice date (whichever is
earlier);
(iii) That portion of Accounts (A) over 60 days past the
original due date or (B) over 90 days past the original due date if
insured through Eximbank export credit insurance for comprehensive
commercial and political risk or through an Eximbank approved
private insurer for comparable coverage;
(iv) Accounts owed by a shareholder, Affiliate, officer or
employee of the Borrower;
(v) Accounts owed by an account debtor that is insolvent, the
subject of bankruptcy proceedings or has gone out of business;
<PAGE>
(vi) Accounts not subject to a duly perfected security
interest in favor of the Lender or which are subject to any lien,
security interest or claim in favor of any Person other than the
Lender or the Servicer;
(vii) That portion of Accounts that constitutes finance
charges, service charges or sales or excise taxes;
(viii) That portion of Accounts that is payable in a currency
other than US Dollars unless prior written approval has been
received from Eximbank;
(ix) That portion of Accounts owed by military buyers or for
defense articles or services, except as may be approved in writing
by the Lender and Eximbank;
(x) That portion of Accounts due and collectible outside the
US;
(xi) That portion of Accounts owed by Account debtors located
in, or arising from sales of Items delivered to, a Prohibited
Country;
(xii) For any account debtor that has entered into a prepaid
service contract with the Borrower, that portion of Accounts owed by
such account debtor equal to the value of the prepaid service
contract for future periods under the contract; and
(xiii) That portion of Accounts, or portions thereof,
otherwise deemed uncollectible for any reason by the Lender or
Eximbank in its discretion.
"Event of Default" has the meaning specified in Section 7.1.
"Eximbank" means the Export-Import Bank of the United States.
"Export Order" means a bona fide written export order or contract to
purchase Items from the Borrower from a customer outside the US.
"Floating Rate" means an annual rate equal to the sum of the Base
Rate plus one-half percent (0.5%), which annual rate shall change when and
as the Base Rate changes.
"Foreign Content" means that portion of the cost of an Item arising
from materials which are not of US origin or from labor and services not
performed in the US.
"Funding Date" has the meaning given in Section 2.1.
"GAAP" means generally accepted accounting principles, applied on a
basis consistent with the accounting practices applied in the financial
statements described in Section 5.2.
<PAGE>
"Inventory" means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired.
"Items" means the goods and services to be sold by the Borrower to
customers located outside the US pursuant to Export Orders.
"L/C Amount" means the sum of (i) the aggregate face amount of any
issued and outstanding Letters of Credit and (ii) the unpaid amount of the
Obligation of Reimbursement.
"L/C Application" means an application and agreement for letters of
credit in the Lender's then-current standard form.
"Letter of Credit" has the meaning specified in Section 2.2.
"Loan Documents" means this Agreement, the Note, the Borrower
Agreement, the Security Documents and the Disclosure by the Borrower in
favor of the Lender of even date herewith.
"Master Guaranty" means that certain Master Guaranty Agreement No.
MN-MGA-96-001, dated as of November 13, 1996, by and between the Lender
and Eximbank.
"Maturity Date" means February 16, 1999.
"Maximum Line" means $4,000,000.
"Net Income" means fiscal year-to-date after-tax net income, as
determined in accordance with GAAP.
"NBCI" means Norwest Business Credit, Inc., a Minnesota corporation.
"NBCI Availability" means Availability as defined in the NBCI Credit
Agreement.
"NBCI Credit Agreement" means that certain Credit and Security
Agreement of even date herewith by and between the Borrower and NBCI, as
the same may hereafter be amended, supplemented or restated from time to
time.
"NBCI Credit Facility" means the credit facility extended to the
Borrower pursuant to the NBCI Credit Agreement.
"NBCI L/C Amount" means the L/C Amount as defined in the NBCI Credit
Agreement.
<PAGE>
"NBCI Revolving Advances" means the Revolving Advances as defined in
the NBCI Credit Agreement, or as the context requires, the outstanding
principal balance thereof.
"Note" means the Revolving Note.
"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 Lender, including the Obligation of Reimbursement and
all other indebtedness arising under this Agreement, the Note, any L/C
Application completed by the Borrower, or any other loan or credit
agreement or guaranty between the Borrower and the Lender, whether now in
effect or hereafter entered into.
"Obligation of Reimbursement" has the meaning given in Section
2.4(a).
"Operating Account" means the Borrower's account No. 6355 046 814
maintained with Norwest Bank Minnesota, National Association.
"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.
"Permitted Liens" means security interests, liens and encumbrances
acceptable to the Lender in its sole discretion.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession.
"Prohibited Country" means any country in which Eximbank coverage is
not available for commercial reasons or in which Eximbank is legally
prohibited from doing business, as designated in the Country Limitation
Schedule.
"Revolving Advance" has the meaning given in Section 2.1.
"Revolving Note" means the Borrower's revolving promissory note,
payable to the order of the Lender in substantially the form of Exhibit A
hereto.
"Security Documents" means this Agreement and the Collateral Account
Agreement, each of even date herewith and by and among the Borrower and
the Lender.
"Security Interest" has the meaning given in Section 3.1.
"Servicer" means NBCI.
<PAGE>
"Special Account" means a specified cash collateral account
maintained by the Lender in connection with Letters of Credit, as
contemplated by Section 2.5.
"Tangible Net Worth" means the difference between (i) the tangible
assets of the Borrower, which, in accordance with GAAP are tangible
assets, after deducting adequate reserves in each case where, in
accordance with GAAP, a reserve is proper and (ii) all Debt of the
Borrower; provided, however, that notwithstanding the foregoing in no
event shall there be included as such tangible assets patents, trademarks,
trade names, copyrights, licenses, goodwill, receivables from Affiliates,
directors, officers or employees, prepaid expenses, deposits, deferred
charges or treasury stock or any securities or Debt of the Borrower or any
other securities unless the same are readily marketable in the US or
entitled to be used as a credit against federal income tax liabilities,
non-compete agreements and any other assets designated from time to time
by the Lender, in its sole discretion.
"Termination Date" means the earliest of (i) the Maturity Date, (ii)
the date the Borrower terminates the Credit Facility, or (iii) the date
the Lender demands payment of the Obligations .
"UCC" means the Uniform Commercial Code as in effect from time to
time in the State of Minnesota.
"US" means the United States of America.
"US Content" means that portion of the cost of an Item arising from
materials which are of US origin or from labor and services performed in
the US.
ARTICLE II
Amount and Terms of the Credit Facility
Section 2.1 Revolving Advances. The Lender may, in its sole
discretion, make advances (each a "Revolving Advance") to the Borrower from time
to time from the date all of the conditions set forth in Section 4.1 are
satisfied (the "Funding Date") to the Termination Date, on the terms and subject
to the conditions herein set forth, to provide the Borrower with working capital
to fulfill Export Orders. The Lender shall not consider any request for a
Revolving Advance to the extent that the amount of the requested Revolving
Advance exceeds Availability. The Borrower's obligation to pay the Revolving
Advances shall be evidenced by the Revolving Note and shall be secured by the
Collateral. Within the limits set forth in this Section 2.1, the Borrower may
request Revolving Advances, prepay, and request additional Revolving Advances.
<PAGE>
Section 2.2 Letters of Credit.
(a) The Lender may, in its sole discretion, issue for the Borrower's
account, from the Funding Date to the Termination Date, one or more
irrevocable standby letters of credit subject to UCP 500 (each, a "Letter
of Credit") to be used (i) as bid bonds to obtain new Export Orders, (ii)
as performance bonds or payment guaranties in connection with fulfilling
Export Orders, or (iii) to secure payment to US supplier(s) by the
Borrower in connection with the Borrower's purchase of goods or services
from the supplier to fulfill Export Orders. The Lender shall not consider
any request for the issuance of a Letter of Credit to the extent its face
amount would exceed Availability. Each Letter of Credit, if any, shall be
issued pursuant to a separate L/C Application entered into between the
Borrower and the Lender, completed in a manner satisfactory to the Lender.
The terms and conditions set forth in each such L/C Application shall
supplement the terms and conditions hereof, but if the terms of any such
L/C Application and the terms of this Agreement are inconsistent, the
terms hereof shall control.
(b) No Letter of Credit shall be issued with an expiry date later
than the Termination Date in effect as of the date of issuance.
Section 2.3 Requests for Advances and Letters of Credit.
(a) BORROWER REQUESTED ADVANCES AND LETTERS OF CREDIT. The Borrower
shall make each request for a Revolving Advance to the Lender before 11:00
a.m. (Minneapolis, Minnesota time) of the day of the requested Revolving
Advance, and shall make each request for the issuance of a Letter of
Credit before 11:00 a.m. (Minneapolis, Minnesota time) at least three (3)
Business Days before the requested Letter of Credit is to be issued.
Requests for Revolving Advances may be made in writing or by telephone.
Requests for Letters of Credit must be written and delivered by a means
acceptable to the Lender. The Lender will not consider any request for a
Revolving Advance or the issuance of a Letter of Credit unless the Lender
has received from the Borrower, among other things, a Borrowing Base
Certificate as of a date not more than five (5) Business Days before the
date of the requested Advance or Letter of Credit and copies of the Export
Orders (or a summary thereof) against which the Borrower is requesting
such Advance or Letter of Credit. Whenever the Borrower makes a request
for an Advance or the issuance of a Letter of Credit based on Eligible
Export Inventory, it shall also indicate in its books and records that
such Inventory has been designated to fulfill an Export Order. Any request
for an Advance or the issuance of a Letter of Credit shall be deemed to be
a representation by the Borrower that the conditions set forth in Section
4.2 have been satisfied as of the date of the request.
<PAGE>
(b) AUTOMATICALLY REQUESTED ADVANCES.
(i) In the Lender's sole discretion, on each Business Day,
other than during a Default Period, when the sum of Availability and
NBCI Availability is greater than $500,000 and provided the Lender
has received a Borrowing Base Certificate as of a date not more than
five Business Days before that Business Day, the Lender's loan
administrator will strive to determine the debits from the
Controlled Disbursement Account and determine the amount necessary
(the "Necessary Amount") to ensure that the Operating Account
balance is at least $25,000 assuming payment of all items presented
through 11 a.m. of that Business Day.
(ii) Provided the conditions set forth in Section 4.1 and in
Section 4.2 of the NBCI Credit Agreement are satisfied, the Borrower
shall be deemed to have made a request for a Revolving Advance and a
NBCI Revolving Advance in equal amounts (or as close thereto as
possible Availability and NBCI Availability permitting) that in the
aggregate equal the Necessary Amount (an "Automatically Requested
Advance"). If the Servicer, in its sole discretion, chooses not to
make a Revolving Advance, or, in its capacity as lender under the
NBCI Credit Facility, chooses not to make a NBCI Revolving Advance,
the Servicer shall strive to promptly so notify the Borrower.
(iii) The proceeds of each Automatically Requested Advance
that is made shall be credited to the Operating Account. ANY
DISBURSEMENT OF AN AUTOMATICALLY REQUESTED ADVANCE SHALL BE DEEMED
TO BE A REPRESENTATION BY THE BORROWER THAT THE CONDITIONS SET FORTH
IN SECTION 4.1 AND IN SECTION 4.2 OF THE NBCI CREDIT AGREEMENT HAVE
BEEN SATISFIED AS OF THE TIME OF THE DISBURSEMENT AND THAT ANY
PORTION OF THE AUTOMATICALLY REQUESTED ADVANCE THAT IS FUNDED UNDER
THE NBCI CREDIT FACILITY SHALL BE USED IN COMPLIANCE WITH ALL
REQUIREMENTS OF THAT FACILITY.
(iv) The Borrower acknowledges that the Lender is offering to
consider making the Automatically Requested Advances as an
accommodation to the Borrower. The Lender shall not be liable under
any circumstances whatsoever for making or failing to make an
Automatically Requested Advance.
Section 2.4 Payment of Amounts Drawn Under Letters of Credit;
Obligation of Reimbursement. The Borrower shall reimburse the Lender for all
draws under any Letter of Credit in accordance with the applicable L/C
Application and as follows:
(a) The Borrower shall pay the Lender on the day a draft is honored
under any Letter of Credit a sum equal to all amounts drawn under such
Letter of Credit plus
<PAGE>
any and all reasonable charges and expenses that the Lender may pay or
incur relative to such draw and the applicable L/C Application, plus
interest on all such amounts, charges and expenses as set forth below (the
Borrower's obligation to pay all such amounts is herein referred to as the
"Obligation of Reimbursement").
(b) Whenever a draft is submitted under a Letter of Credit, the
Lender shall make a Revolving Advance in the amount of the Obligation of
Reimbursement and shall apply the proceeds of such Revolving Advance
thereto. Such Revolving Advance shall be repayable in accordance with and
be treated in all other respects as a Revolving Advance hereunder.
(c) If a draft is submitted under a Letter of Credit when the
Borrower is unable, because a Default Period then exists or for any other
reason, to obtain a Revolving Advance to pay the Obligation of
Reimbursement, the Borrower shall pay to the Lender on demand and in
immediately available funds, the amount of the Obligation of Reimbursement
together with interest, accrued from the date of the draft until payment
in full at the Default Rate. Notwithstanding the Borrower's inability to
obtain a Revolving Advance for any reason, the Lender is irrevocably
authorized, in its sole discretion, to make a Revolving Advance in an
amount sufficient to discharge the Obligation of Reimbursement and all
accrued but unpaid interest thereon.
(d) The Borrower's obligation to pay any Revolving Advance made
under this Section 2.4, shall be evidenced by Revolving Note and shall
bear interest as provided in Section 2.7.
Section 2.5 Special Account. If the Credit Facility is terminated
for any reason whatsoever, while any Letter of Credit is outstanding, the
Borrower shall thereupon pay the Lender in immediately available funds for
deposit in the Special Account an amount equal to the L/C Amount. The Special
Account shall be an interest bearing account maintained for the Lender by any
financial institution acceptable to the Lender. Any interest earned on amounts
deposited in the Special Account shall be credited to the Special Account.
Amounts on deposit in the Special Account may be applied by the Lender at any
time or from time to time to the Obligations in the Lender's sole discretion,
and shall not be subject to withdrawal by the Borrower so long as the Lender
maintains a security interest therein. The Lender agrees to transfer any balance
in the Special Account to the Borrower at such time as the Lender is required to
release its security interest in the Special Account under applicable law.
Section 2.6 Obligations Absolute. The Borrower's obligations
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:
<PAGE>
(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 Lender 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 2.7 Interest; Default Interest. All interest shall be
payable monthly in arrears on the first day of the month and on demand.
(a) REVOLVING NOTE. Except as set forth in subsection (b) and (c),
the outstanding principal balance of the Advances shall bear interest at
the Floating Rate.
(b) DEFAULT INTEREST RATE. At any time during any Default Period, in
the Lender's sole discretion and without waiving any of its other rights
and remedies, the principal of the Advances outstanding from time to time
shall bear interest at the Default Rate, effective for any periods
designated by the Lender from time to time during that Default Period.
(c) USURY. In any event no rate change shall be put into effect
which would result in a rate greater than the highest rate permitted by
law.
Section 2.8 Fees.
(a) APPLICATION FEE. The Borrower shall pay the $100 application fee
payable to Eximbank in connection with the Master Guaranty.
<PAGE>
(b) FACILITY FEE. The Borrower shall pay the Lender a fully earned
and non-refundable facility fee of $20,000, due and payable upon the
execution of this Agreement, provided that the sum of this fee and the
facility fee under the NBCI Credit Facility shall not exceed $25,000. In
addition, if the Credit Facility is renewed the Borrower shall pay the
Lender a fee equal to the amount then charged by the Lender for similar
credit facilities, due and payable 60 days in advance of the Maturity
Date.
(c) UNUSED LINE FEE. For the purposes of this Section 2.8(c),
"Credit Exposure" means the sum of (i) outstanding Revolving Advances,
(ii) the L/C Amount, (iii) outstanding NBCI Revolving Advances and (iv)
the NBCI L/C Amount. The Borrower shall pay to the Lender an unused line
fee based on the average daily Credit Exposure during each month, due and
payable monthly in arrears on the first day of the month and on the
Termination Date, at the following rate:
Average Daily Credit Exposure Monthly Unused Line Fee
----------------------------- -----------------------
$-0- $2,500
greater than $-0- but less than $2,500 less the average daily Credit
$1,000,000 Exposure multiplied by 0.03, and
divided by 12
$1,000,000 or more $0
provided however, that the sum of this fee and the unused line fee under
the NBCI Credit Facility shall not exceed the unused line fee under the
NBCI Credit Facility.
(d) LETTER OF CREDIT FEES. The Borrower agrees to pay the Lender a
fee with respect to each Letter of Credit, if any, accruing on a daily
basis and computed at the annual rate of one percent (1.0%) of the
aggregate amount that may then be drawn on all issued and outstanding
Letters of Credit assuming compliance with all conditions for drawing
thereunder (the "Aggregate Face 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 or be returned to the Lender, due and payable
monthly in arrears on the first day of each month and on the Termination
Date; provided, however that during Default Periods, in the Lender's sole
discretion and without waiving any of its other rights and remedies, such
fee shall increase to three percent (3.0%) of the Aggregate Face Amount.
The foregoing fee shall be in addition to any and all fees, commissions
and charges of any Issuer of a Letter of Credit with respect to or in
connection with such Letter of Credit.
(e) LETTER OF CREDIT ADMINISTRATIVE FEES. The Borrower shall pay the
Lender, on written demand, the administrative fees charged by the Lender
in
<PAGE>
connection with the honoring of drafts 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 Lender
for such services rendered on behalf of customers of the Lender generally.
(f) AUDIT FEES. The Borrower shall pay the Lender, on demand, audit
fees in connection with any audits or inspections conducted by the Lender
of any Collateral or the Borrower's operations or business at the rates
established from time to time by the Lender as its audit fees (which fees
are 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, provided that so long as NBCI is the Servicer the Borrower
shall not have to reimburse such costs and expenses to the extent it has
already done so pursuant to the NBCI Credit Facility.
Section 2.9 Capital Adequacy; Increased Costs and Reduced Return. If
any Related Lender determines at any time that its Return has been reduced as a
result of any Rule Change, such Related 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 Rule Change. For purposes of this Section 2.9:
(a) "Capital Adequacy Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding capital adequacy,
or the interpretation or administration thereof by any governmental or
regulatory authority, central bank or comparable agency, whether or not
having the force of law, that applies to any Related Lender. Such 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.
(b) "L/C Rule" means any law, rule, regulation, guideline,
directive, requirement or request regarding letters of credit, or the
interpretation or administration thereof by any governmental or regulatory
authority, central bank or comparable agency, whether or not having the
force of law, that applies to any Related Lender. Such rules include rules
imposing taxes, duties or other similar charges, or mandating reserves,
special deposits or similar requirements against assets of, deposits with
or for the account of, or credit extended by any Related Lender, on
letters of credit.
(c) "Return", for any period, means the return as determined by such
Related Lender on the Advances and Letters of Credit based upon its total
capital requirements and a reasonable attribution formula that takes
account of the Capital Adequacy Rules then in effect and costs of issuing
or maintaining any Letter of Credit. Return may be calculated for each
calendar quarter and for the shorter period between the end of a calendar
quarter and the date of termination in whole of this Agreement.
<PAGE>
(d) "Rule Change" means any change in any Capital Adequacy Rule or
L/C Rule occurring after the Closing Date, but the term does not include
any changes in applicable requirements that on the Closing Date are
scheduled to take place under the existing Capital Adequacy Rules or L/C
Rules or any increases in the capital that any Related Lender is required
to maintain to the extent that the increases are required due to a
regulatory authority's assessment of the financial condition of such
Related Lender.
(e) "Related Lender" includes (but is not limited to) the Lender,
any parent corporation of the Lender and any assignee of any interest of
the Lender hereunder and any participant in the loans made hereunder.
Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.9, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.
Section 2.10 Discretionary Nature of Credit Facility. THE LENDER MAY
AT ANY TIME AND FOR ANY REASON REFUSE TO MAKE AN ADVANCE OR TO ISSUE LETTERS OF
CREDIT FOR THE BORROWER'S ACCOUNT AND/OR DEMAND PAYMENT OF THE ADVANCES AND
TERMINATE THIS AGREEMENT WHETHER BORROWER IS OR IS NOT IN COMPLIANCE WITH THIS
AGREEMENT. The Lender need not show that an adverse change has occurred in the
Borrower's condition, financial or otherwise, in order to refuse to make any
requested Advance or issue any requested Letter of Credit or to demand payment
of the Advances. Unless terminated by the Lender at any time or by the Borrower
pursuant to Section 2.11, this Agreement shall remain in effect until the
Maturity Date.
Section 2.11 Termination by Borrower. The Borrower may terminate
this Agreement at any time upon 30 days' prior written notice to the Lender so
long as no Letter of Credit has been issued and is outstanding with an
expiration date after such date, and, subject to payment and performance of all
Obligations, may obtain any release or termination of the Security Interest to
which the Borrower is otherwise entitled by law.
Section 2.12 Termination Fees; Waiver of Termination Fees.
(a) TERMINATION FEES. If the Credit Facility is terminated for any
reason as of a date other than the Maturity Date the Borrower shall pay
the Lender a fee in an amount equal to two percent (2%) of the Maximum
Line; provided however, that the sum of this fee and any termination fee
under the NBCI Credit Facility shall not exceed the termination fee under
the NBCI Credit Facility.
<PAGE>
(b) WAIVER OF TERMINATION FEES. The Borrower will not be required to
pay the termination fees otherwise due under this Section 2.12 if such
termination is made because of refinancing by an affiliate of the Lender.
Section 2.13 Mandatory Prepayment. Without notice or demand, if the
sum of the outstanding principal balance of the Revolving Advances and the L/C
Amount shall at any time exceed the Borrowing Base, the Borrower shall (i)
first, immediately prepay the Revolving Advances to the extent necessary to
eliminate such excess; and (ii) if prepayment in full of the Revolving Advances
is insufficient to eliminate such excess, pay to the Lender in immediately
available funds for deposit in the Special Account an amount equal to the
remaining excess.
Section 2.14 Advances Without Request. The Borrower hereby
authorizes the Lender, in its discretion, at any time or from time to time
without the Borrower's request, to make Revolving Advances to pay accrued
interest, fees, uncollected items that have been applied to the Obligations, and
other Obligations due and payable from time to time.
Section 2.15 Use of Proceeds. The Borrower shall use the proceeds of
Advances for working capital to finance the manufacture, assembly, production or
purchase and subsequent sale of Items only and shall use Letters of Credit only
in connection with bids bonds to obtain new Export Orders, or performance bonds
or payment guaranties in connection with fulfilling Export Orders. Without
limiting the generality of the foregoing, the Borrower shall not use any
proceeds of Advances for any purpose prohibited by the Borrower Agreement or (i)
to acquire fixed assets or capital goods for use in the Borrower's business;
(ii) to acquire, equip or rent commercial space overseas; (iii) to employ non-US
residents in offices outside the US; (iv) to serve as a retainage or warranty
bond; or (v) to repay pre-existing Debt or future indebtedness of the Borrower
unrelated to the Advances.
Section 2.16 Facility Subject to Eximbank Rules. The Borrower
acknowledges that the Lender is willing to make the Credit Facility available to
the Borrower because the Eximbank is willing to guaranty payment of a
significant portion of the Obligations pursuant to the Master Guaranty.
Accordingly, in the event of any inconsistency among the Loan Documents and the
Master Guaranty or related documents, the provision that is the more stringent
on the Borrower shall control.
<PAGE>
ARTICLE III
Security Interest
Section 3.1 Grant of Security Interest. The Borrower hereby grants
to the Lender a security interest (the "Security Interest") in the following
collateral (the "Collateral"), as security for the payment and performance of
the Obligations:
INVENTORY: All inventory of the Borrower, 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;
ACCOUNTS AND OTHER RIGHTS TO PAYMENT: 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 all of the Borrower's
rights to payment in the form of 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;
EQUIPMENT: All of the Borrower's equipment, as such term is defined
in the UCC whether now or hereafter owned, including all present and
future machinery, vehicles, furniture, fixtures, manufacturing
equipment, shop equipment, office and recordkeeping equipment,
parts, tools, supplies, and including specifically the goods
described in any equipment schedule or list herewith or hereafter
furnished to the Lender by the Borrower;
GENERAL INTANGIBLES: All of the Borrower's general intangibles, as
such term is defined in the UCC, whether now owned or hereafter
acquired, including all present and future contract rights, 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; and
<PAGE>
INVESTMENT PROPERTY: 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;
TOGETHER WITH: (i) all substitutions and replacements for and
products of any of the foregoing property, (ii) all sums on deposit
in the Special Account, (iii) proceeds of any and all of the
foregoing property and (iv) in the case of all tangible property,
together with all accessions and together with (A) all accessories,
attachments, parts, equipment and repairs now or hereafter attached
or affixed to or used in connection with any such goods, and (B)
all warehouse receipts, bills of lading and other documents of title
now or hereafter covering such goods.
Section 3.2 Notification of Account Debtors and Other Obligors. The
Lender may at any time (either before or after the occurrence of an Event of
Default) 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 Lender
for security and shall be paid directly to the Lender. The Borrower will join in
giving such notice if the Lender so requests. At any time after the Borrower or
the Lender gives such notice to an account debtor or other obligor, the Lender
may, but need not, as the Borrower's agent and attorney-in-fact, notify the US
Postal Service to change the address for delivery of the Borrower's mail to any
address designated by the Lender, otherwise intercept the Borrower's mail, and
receive, open and dispose of the Borrower's mail, applying all Collateral as
permitted under this Agreement and holding all other mail for the Borrower's
account or forwarding such mail to the Borrower's last known address.
Section 3.3 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the right
to take possession of each premises where Borrower conducts its business
and has any rights of possession (the "Premises") at any time during any
Default Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that the
Lender in good faith considers related.
(c) The Lender's right to hold the Premises shall terminate upon the
earlier of payment in full of all Obligations, or final sale or
disposition of all goods constituting Collateral and delivery of all such
goods to purchasers.
(d) The Lender shall not be obligated to pay or account for any rent
or other compensation for the possession or use of any of the Premises;
provided, however, that if the Lender does pay or account for any rent or
other compensation for
<PAGE>
the possession or use of any of the Premises, the Borrower shall reimburse
the Lender promptly for the full amount thereof.
Section 3.4 License. The Borrower hereby grants to the Lender 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 following an Event of Default.
Section 3.5 Filing a Copy. A carbon, photographic, or other
reproduction of this Agreement or of a financing statement signed by Borrower is
sufficient as a financing statement.
ARTICLE IV
Conditions of Lending
Section 4.1 Conditions Precedent to Lender's Willingness to Consider
Making the Initial Revolving Advance and Issuing the Initial Letter of Credit.
The Lender's willingness to consider making the initial Revolving Advance or to
issue the initial Letter of Credit hereunder shall be subject to the condition
precedent that the Lender shall have received all of the following, each in form
and substance satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Note, properly executed by the Borrower.
(c) The SBA/Eximbank Joint Application, properly completed and
executed by the Borrower.
(d) The Borrower Agreement, properly executed by the Borrower.
(e) A properly completed and executed Borrowing Base Certificate as
of a date not more than five (5) Business Days before the date of this
Agreement.
(f) An Exceptions Approval Letter, properly signed by Eximbank.
(g) A participation and servicing agreement, properly signed by the
Servicer.
(h) Copies of the Borrower's audited financial statements with full
disclosure.
(i) Copies of the Borrower's federal tax returns for the last year
together with all schedules thereto.
<PAGE>
(j) A true and correct copy of any and all leases pursuant to which
the Borrower is leasing Premises in any state where inventory included in
the Borrowing Base is located, together with a landlord's disclaimer and
consent with respect to each such lease in favor of the Lender and NBCI.
(k) The Patent Security Agreement executed by the Borrower and duly
filed in the offices necessary to perfect the Security Interest, to the
extent the Security Interest is capable of being perfected by filing.
(l) The Collateral Account Agreement, properly executed by the
Borrower and Norwest Bank International, New York Branch.
(m) 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, except as previously disclosed to the Lender, (ii) no
financing statements have been filed and remain in effect against the
Borrower except those financing statements relating to Permitted Liens or
to liens held by Persons who have agreed in writing that upon receipt of
proceeds of the Advances, they will deliver UCC releases and/or
terminations satisfactory to the Lender, and (iii) the Lender has duly
filed all financing statements necessary to perfect the Security Interest,
to the extent the Security Interest is capable of being perfected by
filing.
(n) A certificate of the Borrower's secretary or assistant secretary
certifying as to (i) the resolutions of the Borrower's directors and, if
required, shareholders, authorizing the execution, delivery and
performance of the Loan Documents, (ii) the Borrower's articles of
incorporation and bylaws, and (iii) the signatures of the Borrower's
officers or agents authorized to execute and deliver the Loan Documents
and other instruments, agreements and certificates, including Advance
requests, on the Borrower's behalf.
(o) A current certificate issued by the Secretary of State of
Minnesota, certifying that the Borrower is in compliance with all
applicable organizational requirements of the State of Minnesota.
(p) Evidence that (i) 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, (ii) it has obtained and maintains
all necessary export licenses.
(q) An opinion of counsel to the Borrower, addressed to the Lender.
(r) Certificates of the insurance required hereunder, with all
hazard insurance containing a lender's loss payable endorsement in the
Lender's favor and with all liability insurance naming the Lender as an
additional insured.
<PAGE>
(s) Payment of the fees and commissions due through the date of the
initial Advance or Letter of Credit and expenses incurred by the Lender
through such date and required to be paid by the Borrower under Section
2.8(a), including all legal expenses incurred through the Closing Date.
(t) Evidence that not later than simultaneously with the initial
Advance, all conditions precedent to the initial NBCI Revolving Advance
shall be satisfied.
(u) A list of all Collateral locations in the US, provided within 10
days before the date of the initial Advance.
(v) Such other documents as the Lender in its sole discretion may
require.
Section 4.2 Conditions Precedent to All Advances and Letters of
Credit. The Lender will not consider any request for an Advance or the issuance
of a Letter of Credit unless on such date:
(a) the representations and warranties contained in Article V are
correct on and as of the date of such Advance or the issuance of such
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 Letter of Credit which constitutes a Default or an Event
of Default.
ARTICLE V
Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
Section 5.1 Name; Locations; Tax ID No.; Subsidiaries. During its
existence, the Borrower has done business solely under its corporate name as set
forth herein and under such trade names and such other corporate names as
disclosed to Lender in writing before this Agreement is signed and delivered.
The address of Borrower's chief executive office and principal place of business
and its federal tax identification number are set forth below its signature to
this Agreement. All Inventory is located at that location or at one of the other
locations disclosed to Lender in writing before this Agreement is signed and
delivered. The Borrower has no subsidiaries except as disclosed to Lender in
writing before this Agreement is signed and delivered.
Section 5.2 Financial Condition; No Adverse Change. Before this
Agreement was signed and delivered, the Borrower furnished the Lender certain of
its unaudited financial statements certified by the Borrower. Those statements
fairly present the Borrower's financial condition as of the dates indicated
therein and the results of its
<PAGE>
operations for the periods then ended and were prepared in accordance with
generally accepted accounting principles. Since the date of the most recent
financial statements, there has been no material adverse change in the business,
properties or condition (financial or otherwise) of the Borrower.
Section 5.3 Suspension and Debarment, etc. On the date of this
Agreement neither the Borrower nor any of its Principals (as defined below) are
(A) debarred, suspended, proposed for debarment with a final determination still
pending, declared ineligible or voluntarily excluded (as such terms are defined
under any of the Debarment Regulations referred to below) from participating in
procurement or nonprocurement transactions with any US federal government
department or agency pursuant to any of the Debarment Regulations (as defined
below) or (B) indicted, convicted or had a civil judgment rendered against the
Borrower or any of its Principals for any of the offenses listed in any of the
Debarment Regulations. Unless authorized by Eximbank, the Borrower will not
knowingly enter into any transactions in connection with the Items with any
person who is debarred, suspended, declared ineligible or voluntarily excluded
from participation in procurement or nonprocurement transactions with any US
federal government department or agency pursuant to any of the Debarment
Regulations. The Borrower will provide immediate written notice to the Lender if
at any time it learns that the certification set forth in this Section 5.3 was
erroneous when made or has become erroneous by reason of changed circumstances.
For the purposes hereof, (1) "Principals" shall mean any officer, director,
owner, partner, key employee, or other person with primary management or
supervisory responsibilities with respect to the Borrower; or any other person
(whether or not an employee) who has critical influence on or substantive
control over the transaction covered by this Agreement and (2) the Debarment
Regulations shall mean (x) the Government wide Debarment and Suspension
(Nonprocurement) regulations (Common Rule), 53 Fed. Reg. 19204 (May 26, 1988),
(y) Subpart 9.4 (Debarment, Suspension and Ineligibility) of the Federal
Acquisition Regulations, 48 C.F.R. 9.400-9.409 and (z) the revised Government
wide Debarment and Suspension (Nonprocurement) regulations (Common Rule), 60
Fed. Reg. 33037 (June 26, 1995). The Borrower acknowledges that any statement,
certification or representation made by it in connection with the Credit
Facility is subject to the penalties provided in Article 18 U.S.C. Section 1001.
ARTICLE VI
Covenants of the Borrower
So long as the Advances or any amount owing to Lender hereunder
shall remain unpaid, the Borrower will comply with the requirements in this
Article, unless the Lender shall otherwise consent in writing.
Section 6.1 Reporting Requirements. The Borrower will deliver to the
Lender each of the following in form and detail acceptable to the Lender:
<PAGE>
(a) as soon as available, and in any event within 90 days after the
end of each fiscal year of the Borrower, the Borrower's audited financial
statements prepared in accordance with GAAP; (i) a report signed by such
accountants stating that in making the investigations necessary for said
audit 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 Section 6.8
and ( ii) a certificate of the Borrower's chief financial officer stating
that such financial statements have been prepared in accordance with GAAP,
that they fairly present the Borrower's financial condition and the
results of its operations, 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) as soon as available and in any event within 20 days after the
end of each month, and within 45 after the end of each quarter, an
unaudited/internal balance sheet and statement of income and retained
earnings of the Borrower as at the end of and for such month and for the
year to date period then ended, prepared consistently with the Borrower's
usual accounting practices, and each such balance sheet and statement of
income and retained earnings for a fiscal quarter of the Borrower then
ended, prepared in accordance with GAAP, subject to year-end audit
adjustments; and accompanied by a certificate of the Borrower's chief
financial officer, substantially in the form of Exhibit C hereto stating
(i) that such financial statements have been prepared in accordance with
GAAP subject to year-end audit adjustments, and fairly represent the
Borrower's financial condition and the results of its operations, ( ii)
whether or not such officer has knowledge of the occurrence of any Default
or Event of Default hereunder not theretofore reported and remedied and,
if so, stating in reasonable detail the facts with respect thereto, and
(iii) all relevant facts in reasonable detail to evidence, and the
computations as to, whether or not the Borrower is in compliance with the
requirements set forth in Section 6.8;
(c) as soon as available and in any event within five (5) Business
Days after the end of each month, a properly completed Borrowing Base
Certificate as at the end of such month, signed by the Borrower's chief
financial officer;
(d) as soon as available and in any event within five (5) Business
Days after the end of each month inventory certifications as at the end of
such month;
(e) within 10 days after the end of each month, agings of the
Borrower's accounts receivable and accounts payable and an accounts
receivable certification as of the end of such month;
(f) at least 30 days before the beginning of each fiscal year of the
Borrower, the projected balance sheets and income statements for each
month of such year, each in reasonable detail, representing the Borrower's
good faith projections and
<PAGE>
certified by the Borrower's chief financial officer as being the most
reasonable projections available and identical to the projections used by
the Borrower for internal planning purposes, together with such supporting
schedules and information as the Lender may in its discretion require;
(g) as soon as available and in any event within three (3) days
after they are due, written notice of any and all taxes due but not paid;
(h) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents and
delivery receipts for goods sold, and such other material, reports,
records or information as the Lender may request;
(i) promptly upon knowledge thereof, notice of any Items (and the
corresponding invoice amount) which are articles, services, or related
technical data that are listed on the United States Munitions List (part
121 of title 22 of the Code of Federal Regulations);
(j) immediately after a proceeding in bankruptcy or an action for
debtor's relief is filed by, against, or on behalf of the Borrower, notice
of such proceeding;
(k) immediately after the Borrower fails to obtain the dismissal or
termination within thirty (30) calendar days of the commencement of any
proceeding or action referred to in (j) above, notice of such failure;
(l) immediately after material litigation is commenced against the
Borrower, notice of such litigation; and
(m) immediately after the Borrower begins any procedure for its
dissolution or liquidation, or a procedure therefor has been commenced
against it, notice of such procedure.
So long as the Servicer is actively servicing the Loan Documents on behalf of
the Lender as described in Section 8.2, the Borrower shall provide to the
Servicer all reports required under this Section 6.1.
Section 6.2 Inspection. Upon the Lender's request, the Borrower will
permit any officer, employee, attorney, agent or accountant for the Lender to
audit, review, make extracts from or copy any and all records of the Borrower
and to inspect the Collateral at all times during ordinary business hours.
Section 6.3 Account Verification. The Lender may at any time and
from time to time send, or request the Borrower to send, requests for
verification of Accounts or notices of assignment to account debtors and other
obligors. The Borrower authorizes the Lender to
<PAGE>
verify Accounts as frequently as daily and the Borrower understands the Lender
intends to do so by telephone and/or in writing.
Section 6.4 Account Debtors to Pay to Designated Account; Pledge of
Account. The Borrower shall instruct all of its Account debtors located outside
the US to make all payments for Items directly to the Collateral Account.
Section 6.5 No Other Liens. The Borrower will keep all Collateral
free and clear of all security interests, liens and encumbrances except the
Security Interest, purchase money security interests in equipment, and other
security interests approved by the Lender in writing.
Section 6.6 Insurance. 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 Lender may reasonably request, with
a lender's loss payable clause in favor of Lender to the extent of its interest.
Section 6.7 Collateral Account. The Borrower has provided the Lender
with agreements regarding a collateral account in connection with the collection
of Accounts.
Section 6.8 Minimum Tangible Net Worth. The Borrower will maintain
its Tangible Net Worth determined as at the end of each fiscal quarter, at an
amount not less than the amount set forth opposite such fiscal quarter:
Fiscal Quarter Ending Minimum Tangible
--------------------- ----------------
Net Worth
---------
December 31, 1997 $10,700,000
March 31, 1998 $10,500,000
June 30, 1998 $10,500,000
September 30, 1998 $11,000,000
December 31, 1998 and thereafter $11,000,000
Section 6.9 No Sale or Transfer of Collateral and Other Assets. The
Borrower will not 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 anyone, other than the sale of excess Equipment not
to exceed $25,000 in any one transaction or $100,000 in the aggregate during any
fiscal year or other than the sale of Inventory in the ordinary course of
business.
Section 6.10 Consolidation and Merger; Asset Acquisitions. The
Borrower will not consolidate with or merge into any Person, or permit any other
Person to merge into
<PAGE>
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.
Section 6.11 Place of Business; Name. The Borrower will not change
the location of its chief executive office or principal place of business from
that disclosed pursuant to Section 5.1. After the initial Advance and
thereafter, before permitting any tangible Collateral to be located in any state
or area in which 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 shall notify the Lender. If the Lender requests that the
Borrower sign a financing statement for such location, the Borrower shall sign a
financing statement, and will not permit any tangible Collateral to be located
in such state or area until the Lender has received and filed a signed financing
statement. The Borrower will not change its name.
ARTICLE VII
Events of Default, Rights and Remedies
Section 7.1 Events of Default. Notwithstanding that the Lender may
demand immediate payment of the Obligations at any time, whether or not a
Default Period then exists, and without waiving or limiting in any respect the
Lender's right to so demand payment of the Obligations at any time, this
Agreement sets forth a non-exclusive list of certain critical events after the
occurrence of which the Lender expects that it would demand immediate payment of
the Obligations and exercise its remedies. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of the Obligations on demand or on any
portion of the Obligations that otherwise becomes due and payable;
(b) Failure to pay when due any amount specified in Section 2.4
relating to the Borrower's Obligation of Reimbursement, or failure to pay
immediately when due or upon termination of the Credit Facility any
amounts required to be paid for deposit in the Special Account under
Section 2.5;
(c) Any payment default shall occur under any agreement (other than
this Agreement) between the Borrower and the Lender, or the Lender shall
accelerate or demand payment of any obligations (other than arising under
this Agreement) owed to it by the Borrower, or the Lender shall begin
exercising its remedies against the Borrower;
(d) Any payment default shall occur under any agreement between the
Borrower and the Servicer, or the Servicer shall accelerate or demand
payment of any obligations owed to it by the Borrower, or the Servicer
shall begin exercising its remedies against the Borrower;
<PAGE>
(e) Eximbank shall repudiate, purport to revoke or fail to perform
its obligations under the Master Guaranty;
(f) The rendering against the Borrower of a final judgment, decree
or order for the payment of money in excess of $100,000 which continues
unsatisfied and in effect for any period of 30 consecutive days without a
stay of execution;
(g) A petition shall be filed by or against the Borrower under the
United States Bankruptcy Code naming the Borrower as debtor;
(h) The Borrower begins any procedure for its liquidation or
dissolution or any such procedure is commenced against it; or
(i) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in any Loan Document not specifically
addressed in this Section 7.1, which shall remain uncured for 30 days
after notice from the Lender.
Section 7.2 Rights and Remedies. As provided in Section 2.10, the
Lender may, at any time, refuse to make any requested Advance, demand payment of
the Advances or terminate the Credit Facility, whether or not a Default Period
then exists. In addition, during any Default Period, the Lender may exercise any
or all of the following rights and remedies:
(a) The Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC,
including 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 Lender at a
place to be designated by the Lender which is reasonably convenient to
both parties;
(b) the Lender may make demand upon the Borrower and, forthwith upon
such demand, the Borrower will pay to the Lender in immediately available
funds for deposit in the Special Account pursuant to Section 2.5 an amount
equal to the maximum aggregate amount available to be drawn under all
Letters of Credit then outstanding, assuming compliance with all
conditions for drawing thereunder; and
(c) The Lender may exercise any other rights and remedies available
to it by law or agreement.
The remedies provided hereunder are cumulative.
Section 7.3 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
<PAGE>
instance, such notice shall be deemed commercially reasonable if given (in the
manner specified in Section 8.1) at least 10 calendar days before the date of
intended disposition or other action.
ARTICLE VIII
Miscellaneous
Section 8.1 Addresses for Notices, Etc. Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for hereunder shall be in writing and shall be (i)
personally delivered, (ii) sent by first class US mail, (iii) sent by overnight
courier of national reputation, or (iv) transmitted by telecopy, in each case
addressed or telecopied to the party to whom notice is being given at its
address or telecopy number as set forth below its signature to this Agreement.
Section 8.2 Servicing of Credit Facility.
(a) The Lender has requested that the Servicer service and enforce
the Loan Documents, make all Advances, cause all Letters of Credit to be
issued, and collect all Obligations on the Lender's behalf and the
Servicer has agreed to do so. The Borrower acknowledges and accepts the
Servicer's appointment as such.
(b) The Servicer shall have no duties or responsibilities to the
Borrower hereunder, but only to the Lender. 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 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 Borrower shall not in
any way be construed to be a third party beneficiary of any relationship
between the Servicer and the Lender.
(c) The Servicer shall be entitled to rely, and shall be fully
protected in relying, upon any communication whether written or oral
believed by it 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 communication
whether written or oral sent or made by the Servicer for and on behalf of
the Lender 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 Lender that the Servicer is no
longer servicing this credit facility.
<PAGE>
(e) The Servicer shall hold and be the custodian of the Loan
Documents on the Lender's behalf for so long as the Servicer is servicing
the Credit Facility.
Section 8.3 Costs and Expenses. The Borrower agrees to pay on demand
all costs and expenses (including legal fees) incurred by the Lender in
connection with the Loan Documents, any Letters of Credit, and any other
document or agreement related thereto, and the transactions contemplated hereby,
including wire transfer and ACH charges, the cost of credit reports, overadvance
fees, the expense of any auditors and fees and expenses in enforcing this
Agreement.
Section 8.4 Indemnity. In addition to the payment of expenses
pursuant to Section 8.3, the Borrower agrees to indemnify, defend and hold
harmless the Lender, and any of its 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 any of the following
(collectively, "Indemnified Liabilities"):
(i) any and all transfer taxes, documentary taxes, assessments
or charges 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;
(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; and
(iii) any claim, loss or damage to which any Indemnitee may be
subjected as a result of any violation of any federal, state, local
or other governmental statute, regulation, law, or ordinance dealing
with the protection of human health and the environment.
If any investigative, judicial or administrative proceeding arising
from any of the foregoing is brought against any Indemnitee, then 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
<PAGE>
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 8.4 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder. If Eximbank makes
payment of a claim to the Lender under the Master Guaranty in connection with
the Credit Facility, Eximbank shall be assigned all the Lender's rights and
remedies under the Loan Documents and may enforce any such rights or remedies
against the Borrower and the Collateral. Additionally, the Borrower shall hold
Eximbank harmless from and agrees to indemnify it against any and all
liabilities, damages, claims, costs and losses incurred or suffered by it
resulting from (a) any materially incorrect certification or statement knowingly
made by or on behalf of the Borrower to Eximbank or the Lender in connection
with an Advance or a Letter of Credit, this Agreement or any of the other Loan
Documents or (b) any breach by the Borrower of the terms and conditions of this
Agreement or any of the other Loan Documents.
Section 8.5 Binding Effect; Assignment; Counterparts; Exchanging
Information. The Loan Documents shall be binding upon and inure to the benefit
of the Borrower and the Lender 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
Lender. 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. Without limiting the Lender's right to share
information regarding the Borrower and its Affiliates with the Lender's
participants, accountants, lawyers and other advisors, the Lender, Norwest
Corporation, and all direct and indirect subsidiaries of Norwest Corporation,
may exchange any and all information they may have in their possession regarding
the Borrower and its Affiliates, and the Borrower waives any right of
confidentiality it may have with respect to such exchange of such information.
Section 8.6 Governing Law; Jurisdiction, Venue; Waiver of Jury
Trial. This Agreement and the Note shall be governed by and construed in
accordance with the 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 located in Minneapolis, Minnesota, or the United States
District Court, District of Minnesota, Fourth Division. THE PARTIES WAIVE ANY
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO
THIS AGREEMENT.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the date first above written.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION MICRO COMPONENT
TECHNOLOGY, INC.
By _____________________________ By _______________________________
Christopher A. Cudak Jeffrey S. Mathiesen
Its Vice President Its Chief Financial Officer
Address: Address:
Norwest Center 2340 West County Road C
Sixth Street and Marquette Avenue St. Paul, Minnesota 55113-2528
Minneapolis, Minnesota 55479-0095 Telecopy No. (612) 697-4200
Telecopy No. 612/667-2269
Federal Tax I.D. No. 41-0985960
Federal Tax ID No. 41-1592157
<PAGE>
Exhibit A to Credit and Security
Agreement
REVOLVING NOTE
$4,000,000 Minneapolis, Minnesota
February 17, 1998
For value received, the undersigned, MICRO COMPONENT TECHNOLOGY,
INC., a Minnesota corporation (the "Borrower"), hereby promises to pay ON
DEMAND, and if demand is not sooner made, then as provided in the Credit
Agreement (defined below) to the order of NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, a national banking association (the "Lender"), at its main office
in Minneapolis, Minnesota, or at any other place designated at any time by the
holder hereof, 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 aggregate unpaid principal amount of all Advances
made by the Lender to the Borrower under the Credit and Security Agreement of
even date herewith by and between the Lender and the Borrower (as the same may
hereafter be amended, supplemented or restated from time to time, the "Credit
Agreement") together with interest on the principal amount hereunder remaining
unpaid from time to time (computed on the basis of actual days elapsed in a
360-day year) from the date of the initial Advance until this Note is fully paid
at the rate from time to time in effect under the Credit Agreement.
This Note is the Revolving Note as defined in the Credit Agreement
and is subject to the Credit Agreement.
MICRO COMPONENT TECHNOLOGY,
INC.
By____________________________________
Jeffrey S. Mathiesen
Its Chief Financial Officer
<PAGE>
Exhibit B to Credit and Security
Agreement
FORM OF BORROWER AGREEMENT
<PAGE>
Exhibit C to Credit and Security
Agreement
COMPLIANCE CERTIFICATE
To: Kate Wahlberg
Norwest Business Credit, Inc.
Christopher A. Cudak
Norwest Bank Minnesota, National Association
Date: __________________, 199___
Subject: Micro Component Technology, Inc.
Financial Statements
In accordance with our Credit and Security Agreement dated as of
February 17, 1998 (the "Credit Agreement"), attached are the financial
statements of Micro Component Technology, Inc. (the "Borrower") as of and for
________________, 19___ (the "Reporting Date") and the year-to-date period then
ended (the "Current Financials"). All terms used in this certificate have the
meanings given in the Credit Agreement.
I certify that the Current Financials have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and fairly present
the Borrower's financial condition as of the date thereof.
Events of Default. (Check one):
[ ] 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.
Financial Covenants. I further hereby certify as follows:
1. Minimum Tangible Net Worth. Pursuant to Section 6.8 of the Credit
Agreement, as of the Reporting Date the Borrower's Tangible Net Worth was
$____________ which [ ] satisfies [ ] does not satisfy the requirement
that such amount be not less than $_____________ on the Reporting Date as
set forth in table below:
<PAGE>
Fiscal Quarter Ending Minimum Tangible Net Worth
--------------------- --------------------------
December 31, 1997 $10,700,000
March 31, 1998 $10,500,000
June 30, 1998 $10,500,000
September 30, 1998 $11,000,000
December 31, 1998 and $11,000,000
thereafter
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.
MICRO COMPONENT TECHNOLOGY, INC.
By ____________________________
Its Chief Financial Officer
<PAGE>
Exhibit D to Credit and Security
Agreement
FORM OF BORROWING BASE CERTIFICATE
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-END> MAR-28-1998
<CASH> 2,934
<SECURITIES> 0
<RECEIVABLES> 3,069
<ALLOWANCES> (152)
<INVENTORY> 6,043
<CURRENT-ASSETS> 12,252
<PP&E> 4,134
<DEPRECIATION> (3,034)
<TOTAL-ASSETS> 13,421
<CURRENT-LIABILITIES> 2,363
<BONDS> 0
0
0
<COMMON> 74
<OTHER-SE> 10,888
<TOTAL-LIABILITY-AND-EQUITY> 13,421
<SALES> 12,539
<TOTAL-REVENUES> 12,539
<CGS> 5,310
<TOTAL-COSTS> 5,310
<OTHER-EXPENSES> 8,736
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (95)
<INCOME-PRETAX> (1,277)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,277)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,277)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
