<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly Period Ended May 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Transition Period From ____ to ____
Commission file number 0-27928
NICOLLET PROCESS ENGINEERING, INC.
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1528120
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
420 North Fifth Street, Ford Centre, Suite 1040
Minneapolis, MN 55401
-------------------------------------------
(Address of principal executive offices)
(612) 339-7958
-------------------------------
(Issuer's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
The number of shares of common stock, no par value, outstanding as of July 10,
1997 was 3,368,527.
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
NICOLLET PROCESS ENGINEERING, INC.
Balance Sheets
May 31, 1997 (Unaudited) and August 31, 1996
May 31, August 31,
ASSETS 1997 1996
- ------ ----------- -----------
(unaudited) (Note)
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . $ 90,350 $ 1,198,399
Short term investments . . . . . . . . . . . . . . -- 973,224
Net receivables. . . . . . . . . . . . . . . . . . 644,724 284,197
Inventories. . . . . . . . . . . . . . . . . . . . 210,669 332,074
Prepaid expenses and other assets. . . . . . . . . 61,264 23,655
---------- ----------
Total current assets. . . . . . . . . . . . . 1,007,007 2,811,549
Property and equipment:
Computer equipment . . . . . . . . . . . . . . . . 444,106 412,274
Furnishings and equipment. . . . . . . . . . . . . 133,188 121,752
Leasehold improvements . . . . . . . . . . . . . . 70,211 70,211
---------- ----------
647,435 604,237
Less: accumulated depreciation. . . . . . . . . . (354,125) (289,619)
---------- ----------
293,310 314,618
Other assets:
License agreement. . . . . . . . . . . . . . . . . 60,450 94,453
Software development costs . . . . . . . . . . . . 568,626 305,384
Other assets . . . . . . . . . . . . . . . . . . . 16,272 53,131
Capital projects in process. . . . . . . . . . . . 182,150 --
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . $ 2,127,815 $ 3,579,135
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable -- current portion . . . . . . . . . $ 49,655 $ 49,655
Accounts payable . . . . . . . . . . . . . . . . . 348,332 268,332
Accrued payroll liabilities. . . . . . . . . . . . 50,221 29,292
Current portion of capitalized lease obligation. . 1,403 5,343
Accrued liabilities. . . . . . . . . . . . . . . . 5,096 136,778
---------- ----------
Total current liabilities. . . . . . . . . . . . 454,707 489,400
Long term notes. . . . . . . . . . . . . . . . . . . 35,321 73,056
Capitalized lease obligation . . . . . . . . . . . . 7,496 7,802
Deferred rent. . . . . . . . . . . . . . . . . . . . 8,155 12,793
Stockholders' equity (deficit):
Common stock, no par value:
Authorized shares -- 5,000,000; issued and
outstanding shares 3,272,923 at August 31,
1996 and 3,368,527 at May 31, 1997. . . . . . 7,616,667 7,675,841
Accumulated deficit. . . . . . . . . . . . . . . . (5,993,031) (4,675,257)
--------- ----------
1,623,636 3,000,584
Less stock subscriptions receivable. . . . . . . . (1,500) (4,500)
--------- ----------
Total stockholders' equity (deficit) . . . . . . . . 1,622,136 2,996,084
--------- ----------
Total liabilities and stockholders' equity . . . . . $ 2,127,815 $ 3,579,135
---------- ----------
---------- ----------
Note: The balance sheet as of August 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles.
See accompanying notes to financial statements.
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NICOLLET PROCESS ENGINEERING, INC.
Statements of Operations
For the Three Months and Nine Months Ended May 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
May 31, 1997 May 31, 1996 May 31, 1997 May 31, 1996
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . $683,025 $284,239 $1,797,679 $1,757,475
Cost of sales. . . . . . . . . . . . . 396,123 327,141 1,082,752 1,428,497
---------- ---------- ------------ ------------
Gross Margin . . . . . . . . . . . . 286,902 (42,902) 714,927 328,978
Operating expenses:
Selling expenses . . . . . . . . . 299,703 172,644 929,719 548,432
Research and development
expenses . . . . . . . . . . . . 207,034 127,157 427,395 284,228
General and administrative
expenses . . . . . . . . . . . . 281,651 240,022 712,669 555,825
---------- ---------- ------------ ------------
Total operating expenses. . . . 788,388 539,823 2,069,783 1,388,485
---------- ---------- ------------ ------------
Operating loss . . . . . . . . . . . . (501,486) (582,725) (1,354,856) (1,059,507)
Other income/expenses
Interest expense . . . . . . . . . 2,730 43,570 7,011 103,974
Interest income. . . . . . . . . . (4,628) (29,581) (43,329) (30,706)
Total other
income/expenses . . . . . . (759) -- (759) --
---------- ---------- ------------ ------------
(2,657) 13,989 (37,077) 73,268
---------- ---------- ------------ ------------
Net loss . . . . . . . . . . . . . . . ($498,829) ($596,714) ($1,317,779) ($1,132,775)
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
Net loss per share . . . . . . . . . . (0.15) (0.21) (0.40) (0.49)
Weighted average number of
shares outstanding . . . . . . . . 3,324,879 2,899,283 3,317,008 2,329,980
</TABLE>
See accompanying notes to financial statements.
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NICOLLET PROCESS ENGINEERING, INC.
Statements of Cash Flows
For the Nine Months Ended May 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
May 31, 1997 May 31, 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . . . . . ($1,317,779) ($1,132,775)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation/amortization. . . . . . . . . . . . . 208,165 45,900
Accounts receivable . . . . . . . . . . . . . . (360,527) 78,646
Inventories . . . . . . . . . . . . . . . . . . 121,407 12,113
Prepaid expenses. . . . . . . . . . . . . . . . (37,610) (20,454)
Accounts payable. . . . . . . . . . . . . . . . 80,000 (577,907)
Other current liabilities . . . . . . . . . . . 21,789 --
Accrued liabilities . . . . . . . . . . . . . . (82,885) (92,631)
----------- ----------
Net cash used in operating activities. . . . . . . . . (1,367,440) (1,687,108)
CASH FLOWS FROM INVESTING ACTIVITIES
Total fixed assets . . . . . . . . . . . . . . . . . . (43,199) (26,602)
Other assets . . . . . . . . . . . . . . . . . . . . . (367,161) (136,984)
Capital-in-process . . . . . . . . . . . . . . . . . . (151,027) (65,842)
----------- ----------
Net cash used in investing activities. . . . . . . . . (561,387) (229,428)
CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES
Proceeds from:
Common stock . . . . . . . . . . . . . . . . . . . . (59,174) (5,294,644)
Stock subscription received. . . . . . . . . . . . . 3,000 --
Notes payable. . . . . . . . . . . . . . . . . . . . (87,390) (505,760)
Deferred lease obligation. . . . . . . . . . . . . . (4,638) (4,798)
Capitalized lease obligation . . . . . . . . . . . . (4,245) (3,630)
----------- ----------
Net cash (used in)/from financing activities . . . . . (152,447) 4,780,456
----------- ----------
Net increase (decrease) in cash. . . . . . . . . . . . ($2,081,273) $2,863,920
----------- ----------
----------- ----------
Cash at beginning of period. . . . . . . . . . . . . . (2,171,623) (5,274)
Cash at end of period. . . . . . . . . . . . . . . . . 90,350 2,869,194
</TABLE>
See accompanying notes to financial statements.
4
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NICOLLET PROCESS ENGINEERING, INC.
Form 10-QSB
May 31, 1997
Notes to Financial Statements
1. BASIS OF PRESENTATION
The unaudited interim financial statements have been prepared by the
Company in accordance with generally accepted accounting principles,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements have been omitted or condensed
pursuant to such rules and regulations. The information furnished
reflects, in the opinion of the management of the Company, all adjustments
(of only a normally recurring nature) necessary to present a fair statement
of the results for the interim periods presented. Operating results for
the three and nine month periods ended May 31, 1997 are not necessarily
indicative of the results that may be expected for the year ended August
31, 1997. The accompanying unaudited interim financial statements should
be read in conjunction with the financial statements and related notes
included in the Company's Annual Report on Form 10-KSB dated August 31,
1996.
2. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed by dividing the net income (loss)
for the period by the weighted average number of shares of common stock
outstanding during the period.
3. INITIAL PUBLIC OFFERING
On March 19, 1996, the Company completed an initial public offering of
1,000,000 shares of newly issued common stock which raised $3,639,000 net
of expenses. On May 6, 1996, the overallotment was exercised for 171,215
additional shares which raised $688,000. The price per share was $4.625.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
THIS FORM 10-QSB CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. FOR THIS
PURPOSE, ANY STATEMENTS CONTAINED IN THIS FORM 10-QSB THAT ARE NOT STATEMENTS OF
HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT
LIMITING THE FOREGOING, WORDS SUCH AS "MAY," "WILL," "EXPECT," "BELIEVE,"
"ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE OR OTHER VARIATIONS
THEREOF OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND
UNCERTAINTIES, AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY
OF FACTORS, INCLUDING THOSE DESCRIBED UNDER THE CAPTION "IMPORTANT FACTORS TO
CONSIDER" CONTAINED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL
YEAR ENDING AUGUST 31, 1996.
OVERVIEW
Nicollet Process Engineering, Inc.'s ("NPE" or the "Company") mission is to
assist customers in turning factory floor information into a cost-saving tool
for its customers. NPE is focused on the information technology requirements of
manufacturers for better managing production processes and supporting management
decision support systems. NPE designs, manufactures, markets and supports high
speed data acquisition systems that bring a range of solutions to solve process
automation problems, including process visualization, machine and process
control and real-time database management products. The Company currently
focuses on the die casting and plastics industries with industry specific
process monitoring and control systems, client/server software and a machine
diagnostic instrument.
The Company has developed a "turn-key" manufacturing information and
process control system for the die casting industry ("Process Vision") which, on
a real-time basis, monitors, collects and displays machine performance data,
monitors process performance continuously against pre-set values, provides
feedback to the machine's controller to bring out-of-tolerance performance back
into conformance, and aggregates data for real-time presentation of process
reports for use by the machine operator. As part of its product offering to the
die casting industry, the Company has also developed client/server software (the
"Client/Server Software," which together with Process Vision is referred to as
the "Die Casting Products") which provides access to factory floor data stored
in file servers and distributes that data, on a real-time basis, to all levels
of an organization in either preprogrammed report formats or on a user defined
basis.
The Company has developed a line of products for the plastics injection
molding industry that provides process and production monitoring to all levels
of an organization. The Company's plastics monitoring product, like Process
Vision, is also a "turn-key" manufacturing information system (the "Plastics
Monitoring System"). The Plastics Monitoring System, on a real-time basis,
monitors, collects and displays machine performance data, monitors process
performance continuously against pre-set values and provides the information
collected and analyzed to all levels of an organization, on a real-time basis.
The Company's production monitoring and reporting system (the "PMRS"),
introduced in the third quarter of fiscal 1997, collects production information,
such as cycle time and number of parts manufactured, from machines at the
factory floor level and provides specific production reports to the machine
operator or, at the customer's option, to all levels of the organization.
Recently, in conjunction with and at the request of several original equipment
manufacturers, the Company has developed a modified version of the Plastics
Monitoring System, the "Direct Connect," that offers a direct connection to the
controller of the machine, thereby eliminating the need for specialized computer
hardware at the machine. The Direct Connect, together with the Plastics
Monitoring System and PMRS are collectively referred to as the "Plastics
Products."
The Company's third product line, the Machine Capability Analyzer (the
"MCA"), is a portable, troubleshooting instrument that tests the functioning of
a manufacturing machine for inconsistencies in operation. This product, while
sold to companies in the die casting and plastic injection molding industry,
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is not industry specific. The Die Casting Products and the Plastics Products
are collectively referred to herein as the "NPE System," which together with the
MCA is referred to as the "NPE Products."
Since inception, NPE's strategy has been to develop industry-specific
monitoring and control systems to better control the production process and to
provide information access to all levels of management throughout an enterprise.
In 1985, the Company began developing its first product, a process monitoring
and control system for the die casting industry, and ultimately generated its
first sale in 1987. In 1988, the Company introduced an early version of its
networking and client/server level software product. This product, made for the
die casting industry, connected various machines on the factory floor and
provided information from those machines to the client/server. After
introduction of the Company's hardware and software products into the die
casting industry, the Company began exploring expansion into other industries
and began development work for products in the plastic injection molding
industry. In 1994, the Company introduced a Windows-TM- based version of its
product for the plastic injection molding industry. This product provides man
machine interfaces and on-machine process capabilities and plant-wide data
acquisition and dissemination capabilities. During 1995, the Company introduced
Windows-TM- based versions of its products into the die casting industry. In
1995, the Company also developed its client/server software product for the
plastic injection molding industry. The first sale of the die casting
client/server product occurred in late 1995. In the second quarter of the
Company's fiscal year ending August 31, 1997, the Company completed development
of the Windows-TM- 3.0 version for the plastics systems and had its first sale
of the new system in the third quarter of fiscal 1997. During the third quarter
of fiscal 1997, the Company also introduced and sold the first generation of
PMRS.
The MCA was developed in 1994 with the assistance of Minnesota Mining &
Mfg. Co. ("3M") of Saint Paul, Minnesota. NPE developed the specifications of
the MCA and utilized 3M for refinement of the product. 3M also provided
laboratory and testing equipment for refinement and testing of the MCA. The
Company owns all of the rights to the MCA and is under no obligation to pay
royalties or other monies to 3M in connection with the development of the MCA.
Other than its relationship as a customer, 3M has no relationship with the
Company.
RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDING MAY 31, 1997
COMPARED TO THREE MONTHS AND NINE MONTHS ENDING MAY 31, 1996
NET SALES. Net sales increased 140% to approximately $683,000 in the three
months ended May 31, 1997, compared to approximately $284,000 in the three
months ended May 31, 1996. Net sales increased 2% to approximately $1.798
million in the nine months ended May 31, 1997, compared to approximately $1.756
million in the nine months ended May 31, 1996. The increase in the net sales
for the third quarter of fiscal 1997 was due to increased sales for Process
Vision and the MCA. The increase in net sales for the nine month period ending
May 31, 1997 was due to increased sales of Process Vision and MCAs, partially
offset by lower sales of the Plastics Monitoring System attributable to the
delay in launching the new version 3.0 Windows-TM- product.
GROSS MARGINS. The gross margin increased to 42% of revenues in the three
months ending May 31, 1997, compared to 15% of revenues in the prior year
period. The gross margin increased to 40% of revenues in the nine months ending
May 31, 1997, compared to 19% of revenues in the prior year period. The increase
in both the three month and nine month period ending May 31, 1997 was due to
cost reduction programs for the Company's Die Casting Products and a new pricing
structure, initiated in the customer service and support center. The Company
now separately charges for service and support.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased 74% to
approximately $300,000 in the three months ended May 31, 1997, compared to
approximately $173,000 in the prior year
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period. Sales and marketing expenses increased 70% to approximately $930,000 in
the nine months ended May 31, 1997, compared to approximately $548,000 in the
prior year period. This increase in both the three months and nine months
ending May 31, 1997 was due to additions to the sales force during the third and
fourth quarters of fiscal 1996, restructuring of the sales and customer service
divisions and increased trade show expenses, advertising and travel associated
with the June National Plastics Expo. Commission expenses for the nine months
ended May 31, 1997 increased due to the increased sales volume.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 63% to approximately $207,000 in the three months ended May 31, 1997,
compared to approximately $127,000 in the prior year period. Research and
development expenses increased 50% to approximately $427,000 in the nine months
ended May 31, 1997, compared to approximately $284,000 in the prior year period.
This increase, in both the three month and nine month periods ending May 31,
1997, was due to additions to the technical staff during the second quarter of
1997. For the nine months ending May 31, 1997, the Company capitalized
approximately $405,000 in software development costs relating to development of
the Client/Server Software for the die casting industry and certain portions of
version 3.0 of the Plastics Monitoring System.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 17% to approximately $282,000 in the three months ended May 31, 1997,
compared to approximately $240,000 in the prior year. General and
administrative expenses increased 28% to approximately $713,000 in the nine
months ended May 31, 1997, compared to approximately $556,000 in the prior year.
This increase, in both the three month and nine month period ending May 31,
1997, was due to an increase in legal and accounting fees relating to the
Company's public company obligations.
INTEREST INCOME. Interest income was approximately $4,000 in the three
months ended May 31, 1997 and approximately $43,000 for the nine months ended
May 31, 1997, compared to $30,000 for the three and nine months ending May 31,
1996. This increase in the nine months ending May 31, 1997, was due to earnings
from investments on funds from the initial public offering ("IPO") the Company
completed on March 19, 1996. The decrease for the three month period is due to
a reduction in investments.
INTEREST EXPENSE. Interest expense decreased to approximately $3,000 in
the three months ended May 31, 1997, compared to approximately $44,000 in the
prior year period. Interest expense decreased to approximately $7,000 in the
nine months ended May 31, 1997, compared to approximately $104,000 in the prior
year period. This decrease, in both the three months and nine months ending May
31, 1997, was due to a reduction in outstanding debt as a result of the payoff
of all outstanding loans and obligations from the proceeds of the IPO.
NET LOSS. The net loss for the three months ended May 31, 1997 was
approximately $499,000 or $0.15 per share, compared to a net loss of
approximately $597,000 or $0.21 per share for the three months ended May 31,
1996. The net loss for the nine months ended May 31, 1997 was approximately
$1.3 million or $0.40 per share, compared to a net loss of approximately $1.1
million or $0.49 per share for the nine months ended May 31, 1996. The decrease
in the net loss for the three months ending May 31, 1997, is due primarily to an
increase in net sales. The increase in the net loss for the nine months ending
May 31, 1997 is due primarily to increased sales and marketing expenses.
LIQUIDITY AND CAPITAL RESOURCES
In March 1996, the Company completed an initial public offering of
1,000,000 shares of common stock. In May 1996, the underwriter exercised its
overallotment option to purchase an additional 171,215 shares of common stock.
The net proceeds to the Company from the public offering was approximately $4.3
million. The Company's common stock is quoted on the Nasdaq SmallCap Market
under the symbol "NPET."
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In May 1997, the Company entered into two bank lines of credit with Norwest
Business Credit, Inc. and Norwest Bank Minnesota, National Association for an
aggregate of up to $800,000 in borrowings (the "Credit Facilities"). The Credit
Facilities are discretionary and have a term of one year. Credit availability
under these facilities are based on accounts receivable of the Company's United
States operations and accounts receivable and inventories of the Company's
international operations. The Credit Facilities are used primarily to finance
working capital. As of June 30, 1997, the Company borrowed approximately
$15,000 under the Credit Facilities.
In the three and nine months ending May 31, 1997, the Company's operating
activities used cash of approximately $343,000 and $1.4 million, respectively.
Increases in accounts receivable were partially offset by increases in accounts
payable and accrued expenses.
Net cash used in operating activities was approximately $1.4 million and
$1.7 million in the nine months ended May 31, 1997 and May 31, 1996,
respectively. The cash used was primarily related to operations.
Net cash used in investing activities was approximately $561,000 and
$229,000 in the nine months ended May 31, 1997 and May 31, 1996, respectively.
Net cash used by financing activities was approximately ($152,000) in the
nine months ended May 31, 1997, and net cash provided by financing activities
was approximately $4.8 million in the nine months ended May 31, 1996. The net
cash used by financing activities in the nine months ended May 31, 1997 was
primarily the result of the exercise of a put option for $60,000 by an
optionholder of the Company.
The Company anticipates capital expenditures of approximately $25,000
through fiscal 1997 for use in purchasing trade show and booth equipment.
The Company believes that sufficient liquidity is available through
operations and the Credit Facilities to satisfy its working capital needs at
least through August 31, 1997.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal, governmental, administrative or other
proceedings to which the Company is a party or of which any of its property is
subject.
ITEM 2. CHANGES IN SECURITIES.
On March 31, 1997, the Company issued an aggregate of 22,222 shares (the
"Shares") of common stock, no par value (the "Common Stock") and options to
purchase an aggregate of 100,000 shares (the "Options") of Common Stock to Tiger
Financial Group, LLC ("Tiger") for services to be performed under a Consulting
Agreement dated March 31, 1997 by and between Tiger and the Company (the
"Consulting Agreement"), a copy of which is filed as Exhibit 10.1 to this Form
10-QSB. The Options were issued pursuant to a Purchase Option dated March 31,
1997 issued by the Company in favor of Tiger, a copy of which is filed as
Exhibit 4.1 to this Form 10-QSB (the "Option Agreement"). The Options are
initially exercisable as to (i) 25,000 shares at an exercise price of $1.25 per
share; (ii) 50,000 shares at an exercise price of $2.00 per share and (iii)
25,000 shares at an exercise price of $2.50 per share. The Options vest in
25,000 increments on each of June 30, 1997, September 30, 1997, December 31,
1997 and March 31, 1997. The Options remain exercisable, to the extent the
Consulting Agreement is still in effect, until March 31, 2007. In the event
that the Consulting Agreement is terminated for any reason, any Option shares
that
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are not exercisable as of the date of termination of the Consulting Agreement
(the "Termination Date") will terminate and be of no further force and effect.
Except as otherwise provided in the Option Agreement, the Option shares that are
exercisable as of the Termination Date will remain exercisable until March 31,
2007. Both the shares of Common Stock issuable upon exercise of the Options and
the Shares have certain demand and piggy back registration rights.
The Shares and the Options were sold in reliance on Section 4(2) of the
Securities Act of 1933, as amended (the "Act") for a transaction not involving a
public offering, and Regulation D of the Rules and Regulation of the Securities
Exchange Commission. With regard to the reliance by the Company upon the
exemption from registration provided under Section 4(2) of the Act and
Regulation D, certain inquiries were made by the Company and certain
representations were obtained from Tiger to establish that such sale was
qualified for such exemption from the registration requirements. In particular,
the Company confirmed that (i) the offer and sale were made by personal contact
from officers or directors of the Company, (ii) Tiger made representations that
it was sophisticated in relation to the investment (and the Company has no
reason to believe such representation is incorrect), (iii) Tiger gave assurance
of investment intent and the certificates for the Shares and the Options bear a
legend accordingly, and (iv) the offer and sale was made only to Tiger. No
underwriter was involved in the offer and sale of the Shares or the Options.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
------ -----------
4.1 Purchase Option for the purchase of 100,000 shares of
Common Stock of the Company dated as of March 31, 1997,
issued to Tiger Financial Group, LLC
10.1 Consulting Agreement dated as of March 31, 1997 by and
between Tiger Financial Group, LLC and the Company
10.2 Credit and Security Agreement dated as of May 28, 1997
by and between Norwest Business Credit, Inc. and the
Company
10.3 Credit and Security Agreement dated as of May 28, 1997
by and between Norwest Bank Minnesota, National
Association and the Company
27.1 Financial Data Schedule
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(b) Reports on Form 8-K.
No reports were filed on Form 8-K during the quarter ending May 31,
1997.
11
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SIGNATURES
In accordance with 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.
NICOLLET PROCESS ENGINEERING, INC.
Dated: July 14, 1997 By: /s/ Robert A. Pitner
----------------------------------------
Robert A. Pitner
President, Chief Executive Officer and Chief
Financial Officer (principal executive
officer and principal financial officer)
By: /s/ John Sandberg
-------------------------------------------
John Sandberg
Controller (principal accounting officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION LOCATION
4.1 Purchase Option for the purchase of 100,000
dated shares of Common Stock of the Company
as of March 31, 1997, issued to Tiger Financial
Group, LLC. . . . . . . . . . . . . . . . . . . Filed electronically
10.1 Consulting Agreement dated as of March 31, 1997
by and between Tiger Financial Group, LLC and
the Company. . . . . . . . . . . . . . . . . . Filed electronically
10.2 Credit and Security Agreement dated as of May
28, 1997 by and between Norwest Business
Credit, Inc. and the Company. . . . . . . . . . Filed electronically
10.3 Credit and Security Agreement dated as of May
28, 1997 by and between Norwest Bank Minnesota,
National Association and the Company. . . . . . Filed electronically
27.1 Financial Data Schedule. . . . . . . . . . . . Filed electronically
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THIS OPTION OR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF MAY NOT
BE RESOLD OR TRANSFERRED UNLESS SUCH RESALE OR TRANSFER IS EXEMPTED FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND ANY APPLICABLE STATE SECURITIES LAWS ("LAWS"), AND THE
COMPANY RECEIVES, PRIOR TO RESALE OR TRANSFER, WRITTEN REPRESENTATIONS OF THE
HOLDER AND PROPOSED TRANSFEREE SATISFACTORY TO THE COMPANY REGARDING SUCH
TRANSFER OR, AT THE ELECTION OF THE COMPANY, AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT THE PROPOSED TRANSFER OF THIS
OPTION OR OF SUCH SHARES MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OR QUALIFICATION UNDER THE LAWS, OR THE RESALE OR TRANSFER OF
THIS OPTION OR OF SUCH SHARES IS REGISTERED UNDER THE SECURITIES ACT AND ANY
APPLICABLE LAWS.
VOID AFTER 5:00 P.M., NEW YORK TIME, MARCH 31, 2007
PURCHASE OPTION
For the purchase of 100,000 shares of common stock
of
NICOLLET PROCESS ENGINEERING, INC.
(a Minnesota Corporation)
1. PURCHASE OPTION. THIS CERTIFIES THAT, for valuable consideration the
receipt of which is hereby acknowledged by NICOLLET PROCESS ENGINEERING, INC.
(the "Company"), Tiger Financial Group, LLC, as registered owner of this
Purchase Option, is entitled, at any time or from time at or after March 31,
1997, and at or before 5:00 p.m., New York, March 31, 2007, but not thereafter,
to subscribe for, purchase and receive, in whole or in part, up to one hundred
thousand (100,000) shares of common stock, $0.01 par value of the Company (the
"Common Stock"). This Purchase Option is initially exercisable as to (i)
twenty-five thousand (25,000) shares at an exercise price of $1.25 per share;
(ii) fifty thousand (50,000) shares at an exercise price of $2.00, and (iii)
twenty-five thousand (25,000) shares at an exercise price of $2.50
(collectively, the "Option Shares") (all 100,000 shares issuable upon exercise
of the options may be exercised on a cashless basis in accordance with Section 2
hereof), PROVIDED, HOWEVER, that upon the occurrence of any of the events
specified in Section 6 hereof, the rights granted by this Purchase Option,
including the exercise price per share and the number of shares of common stock
to be received upon such exercise, shall be adjusted as therein specified. The
<PAGE>
term "Exercise Price" shall mean the initial exercise price or the exercise
price as adjusted pursuant to Section 6 herein.
This Purchase Option was originally issued pursuant to a Consulting
Agreement, dated as of March 21, 1997, between the Company and Tiger Financial
Group, LLC, which provides for the issuance of this Purchase Option (the
"Consulting Agreement"). Capitalized terms not otherwise defined herein have
the meaning assigned in the Consulting Agreement.
The holder(s) of this Purchase Option and any option issued upon the
transfer or assignment of this Purchase Option are referred to hereinafter
collectively as the Holder(s) of the Purchase Options or as the "Holder(s)."
2. EXERCISE.
(a) PERIOD OF EXERCISABILITY. The Option will become exercisable, on
a cumulative basis, with respect to the number of Option Shares at the
times indicated in the following table:
Number of Shares Date First Exercisable
---------------- ----------------------
25,000 June 30, 1997
25,000 September 30, 1997
25,000 December 31, 1997
25,000 March 31, 1997
The foregoing rights to exercise the Option shall be cumulative with
respect to the Option Shares becoming exercisable on each such date, but in
no event shall the Option be exercisable after, and the Option shall become
void and expire as to all unexercised Option Shares at, 5:00 p.m. (New
York, New York time) on March 31, 2007 (the "TIME OF TERMINATION").
(b) TERMINATION OF SERVICE. In the event that the Consulting
Agreement is terminated for any reason, the Option Shares that are not
exercisable as of the date of the termination of the Consulting Agreement
(the "Termination Date") will terminate and be of no further force and
effect. Except as otherwise provided herein, the Option Shares that are
exercisable as of the Termination Date will remain exercisable until the
Time of Termination. Notwithstanding anything in this Agreement or the
Consulting Agreement to the contrary, in the event that the Holder(s)
materially breaches the terms of the Consulting Agreement or this
Agreement, whether such breach occurs before or after termination of such
Holder's service with the Company, the Company in its sole discretion may
immediately terminate all rights of the Holder under this Agreement without
notice of any kind.
(c) EXERCISE FORM. In order to exercise this Purchase Option, the
exercise form attached hereto must be duly executed and completed and
delivered to the Company, together with this Purchase Option and payment of
the Exercise Price in cash, by certified
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check or bank draft for the Common Stock being purchased. In addition, the
Holder may elect to pay the full price by receiving a number of shares of
Common Stock computed using the following formula:
X = Y(A-B)
------
A
Where:
X = the number of shares of Common Stock to be issued to the Holder
Y = the number of shares of Common Stock as to which this Option is
being exercised.
A = the Fair Market Value of one share of Common Stock.
B = Option exercise price
For purposes of this Section 2, "Fair Market Value" means, with
respect to the Company's Common Stock, as of any date:
(1) if the Common Stock is listed or admitted to unlisted trading
privileges on any national securities exchange or is not so listed or
admitted but transactions in the Common Stock are reported on the Nasdaq
National Market, the reported closing price of the Common Stock on such
exchange or by the Nasdaq National Market as of such date (or, if no shares
were traded on such day, as of the next preceding day on which there was
such a trade); or
(2) if the Common Stock is not so listed or admitted to unlisted
trading privileges or reported on the Nasdaq National Market, and the bid
and asked prices therefor in the over-the-counter market are reported by
Nasdaq or National Quotation Bureau, Inc. (or any comparable reported
service), the mean of the closing bid and asked prices as of such date, as
so reported by Nasdaq, or if not so reported thereon, as reported by
National Quotation Bureau, Inc. (or such comparable reporting service); or
(3) if the Common Stock is not so listed or admitted to unlisted
trading privileges, or reported on the Nasdaq National Market, and such bid
and asked prices are not so reported by Nasdaq or National Quotation
Bureau, Inc. (or any comparable reporting service), such price as the
Company's Board of Directors determines in good faith in the exercise of
its reasonable discretion.
The Company agrees that the Option Shares so purchased will be and are
deemed to be issued as of the close of business on the date on which this Option
shall have been
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surrendered and payment made for such Option Shares as aforesaid. This
Purchase Option may be exercised in whole or in part.
(d) LEGEND. Each certificate for Common Stock purchased under this
Purchase Option shall bear a legend as follows unless such Common Stock has
been registered under the Securities Act of 1933, as amended (the
"Securities Act") and the issuance complies with any applicable state
securities laws:
The securities represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of
1933, as amended (the "Securities Act"). The securities may not be
sold, assigned, pledged, hypothecated or otherwise transferred except
pursuant to an effective registration statement under the Securities
Act and in compliance with applicable state securities laws, or the
Company receives an opinion of counsel, satisfactory to the company,
that such registration is not required and that the sale, assignment,
pledge, hypothecation or transfer is in compliance with applicable
state securities laws."
3. TRANSFER.
(a) TRANSFER OF PURCHASE OPTION. The registered Holder of this
Purchase Option, by its acceptance hereof, agrees that it will not sell,
assign, pledge, hypothecate or otherwise transfer this Purchase Option
except pursuant to an effective registration under the Securities Act and
in compliance with applicable state securities laws,, or the Company
receives an opinion of counsel, satisfactory to the Company, that such
registration is not required and that the sale, assignment, pledge,
hypothecation or transfer is in compliance with applicable state securities
laws. In order to make any assignment, the Holder must deliver to the
Company the assignment form attached hereto duly executed and completed,
together with the Purchase Option and payment of all transfer taxes, if
any, payable in connection therewith. Subject to the federal and state
securities laws, the Company shall immediately transfer this Purchase
Option on the books of the Company and shall execute and deliver a new
Purchase Option or Purchase Options of like tenor to the appropriate
assignee(s) expressly evidencing the right to purchase the number of Shares
purchasable hereunder or such portion of such number as shall be
contemplated by any such assignment.
(b) TRANSFER OF COMMON STOCK. The shares of Common Stock underlying
this Purchase Option, shall not be transferred unless (i) the Company has
received the opinion of counsel, satisfactory to the Company, that such
shares may be transferred pursuant to an exemption from registration under
the Securities Act and in compliance with applicable state securities laws,
or (ii) the transfer is made pursuant to an effective registration
statement under the Securities Act in compliance with applicable state
securities laws.
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4. NEW PURCHASE OPTIONS TO BE ISSUED.
(a) PARTIAL EXERCISE OR TRANSFER. Subject to the restrictions in
Sections 2 and 3 hereof, this Purchase Option may be exercised or assigned
in whole or in part. In the event of the exercise or assignment hereof in
part only, upon surrender of this Purchase Option for cancellation,
together with the duly executed exercise or assignment form and funds
sufficient to pay any transfer tax, the Company shall cause to be delivered
to the Holder without charge a new Purchase Option of like tenor to this
Purchase Option in the name of the Holder evidencing the right of the
Holder to purchase the number of shares of Common Stock purchasable
hereunder as to which this Purchase Option has not been exercised or
assigned.
(b) LOST CERTIFICATE. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Purchase Option and of reasonably satisfactory indemnification, the Company
shall execute and deliver a new Purchase Option of like tenor and date.
5. REGISTRATION RIGHTS. The shares of Common Stock underlying this
Purchase Option have the registration rights indicated in Exhibit C to the
Consulting Agreement.
6. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES.
(a) ADJUSTMENTS TO THE EXERCISE PRICE. The Exercise Price will be
subject to adjustment from time to time as hereinafter provided. Upon each
adjustment of the Exercise Price, the holder of this Purchase Option will
thereafter be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of shares obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of
shares purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Exercise Price resulting from such
adjustment.
(b) SUBDIVISION AND COMBINATION. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
(c) MERGER OR CONSOLIDATION. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not
result in any reclassification or change of the outstanding Common Stock),
the corporation formed by such consolidation or merger shall execute and
deliver to the Holder a supplemental Purchase Option providing that the
holder of each Purchase Option then outstanding or to be outstanding shall
have the right thereafter (until the stated expiration of such Purchase
Option) to receive, upon exercise of such Purchase Option, the kind and
amount of shares of stock and other securities and property receivable upon
such consolidation or merger, by a holder of the number of shares of Common
Stock of the Company for which such Purchase Option might have been
exercised immediately prior to such consolidation,
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<PAGE>
merger, sale or transfer. Such supplemental Purchase Option shall provide
for adjustments which shall be identical to the adjustments provided in
this Section 6. The above provision of this Section shall similarly apply
to successive consolidations or mergers.
(d) DIVIDENDS AND OTHER DISTRIBUTIONS. In the event that the Company
shall at any time prior to the exercise of all Purchase Options declare a
dividend (other than a dividend consisting solely of shares of Common
Stock) or otherwise distribute to its stockholders any assets, property,
rights, evidences of indebtedness, securities (other than shares of Common
Stock), whether issued by the Company or by another, or any other thing of
value, the Holder(s) of the unexercised Purchase Options shall thereafter
be entitled, in addition to the shares of Common Stock or other securities
and property receivable upon the exercise thereof, to receive, upon the
exercise of such Purchase Options, the same property, assets, rights,
evidences of indebtedness, securities or any other thing of value that they
would have been entitled to receive at the time of such dividend or
distribution as if the Purchase Options had been exercised immediately
prior to such dividend or distribution.
(e) ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be
required to issue certificates representing fractions of shares of Common
Stock upon the exercise of the Purchase Option, nor shall it be required to
issue scrip or pay cash in lieu of any fractional interests, it being the
intent of the parties that all fractional interests shall be eliminated by
rounding any fraction down to the nearest whole number of shares of Common
Stock or other securities, properties or rights.
7. RESERVATION AND LISTING. The Company shall at all times reserve and
keep available out of its authorized shares of Common Stock, solely for the
purpose of issuance upon exercise of the Purchase Options, such number of shares
of Common Stock or other securities, properties or rights as shall be issuable
upon the exercise thereof. The Company covenants and agrees that, upon exercise
of the Purchase Options any payment of the Exercise Price therefor, all shares
of Common Stock and other securities issuable upon such exercise shall be duly
and validly issued, fully paid and non-assessable and not subject to preemptive
rights of any stockholder.
8. CERTAIN NOTICE REQUIREMENTS.
(a) HOLDER'S RIGHT TO RECEIVE NOTICE. Nothing herein shall be
construed as conferring upon the Holders the right to vote or consent or to
receive notice as a stockholder for the election of directors or any other
matter, or as having any rights whatsoever as a stockholder of the Company.
If however, at any time prior to the expiration of the Purchase Options and
their exercise, any of the events described in Section 8(b) shall occur,
then, in one or more of said events, the Company shall give written notice
of such event at least ten days prior to the date fixed as a record date or
the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, conversion or
exchange of securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such
6
<PAGE>
notice shall specify such record date or the date of the closing of the
transfer books, as the case may be.
(b) EVENTS REQUIRING NOTICE. The Company shall be required to give
the notice described in this Section 8 upon one or more of the following
events: (i) if the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash dividend
or distribution payable otherwise than out of retained earnings, as
indicated by the accounting treatment of such dividend or distribution on
the books of the Company, or (ii) the Company shall offer to all the
holders of its Common Stock any additional shares of capital stock of the
Company or securities convertible into to exchangeable for shares of
capital stock of the company, or any option, right or warrant to subscribe
therefor, or (iii) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of all
or substantially all of its property, assets and business shall be
proposed.
(c) NOTICE OF CHANGE IN EXERCISE PRICE. The Company shall, promptly
after an event requiring a change in the Exercise Price pursuant to Section
6 hereof, send notice to the Holders of such event and change ("Price
Notice"). The Price Notice shall describe the event causing the change and
the method of calculating same and shall be certified as being true and
accurate by the Company's Chief Financial Officer.
(d) TRANSMITTAL OF NOTICES. All notices, requests, consents and
other communications under this Purchase Option shall be in writing and
shall be deemed to have been duly made when hand delivered, faxed or mailed
by express mail or private courier service: (i) if to the registered
Holder of the Purchase Option, to the address of such Holder as shown on
the books of the Company, or (ii) if to the Company, to following address
or to such other address as the Company may designate by notice to the
Holders: Nicollet Process Engineering, Inc. 420 North Fifth Street, Ford
Centre, Suite 1040, Minneapolis, Minnesota 55401.
9. MISCELLANEOUS.
(a) AMENDMENTS. Any amendment or modification of this Purchase
Option shall require the written consent signed by the party against whom
enforcement of the modification or amendment is sought.
(b) HEADINGS. The headings contained herein are for the sole purpose
of convenience of reference, and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this
Purchase Option.
(c) ENTIRE AGREEMENT. This Purchase Option, together with the
Consulting Agreement, constitutes the entire agreement of the parties
hereto with respect to the subject matter hereof, and supersedes all prior
agreements and understandings of the parties, oral and written, with
respect to the subject matter hereof.
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<PAGE>
(d) BINDING EFFECT. This Purchase Option shall inure solely to the
benefit of and shall be binding upon, the Holder and the Company and their
permitted assignees, respective successors, legal representatives and
assigns, and no other person shall have or be construed to have any legal
or equitable right, remedy or claim under or in respect of or by virtue of
this Purchase Option or any provisions herein contained.
(e) GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE. This Purchase
Option shall be governed by and construed and enforced in accordance with
the laws of the State of Delaware, without giving effect to conflict of
laws principles thereof or the actual domiciles of the parties. The
Company and the Holder hereby agree that any action, proceeding or claim
against either of them arising out of, or relating in any way to this
Purchase Option shall be brought and enforced in any of the courts of the
State of Delaware, and irrevocably submits to such jurisdiction. The
Company and the Holder hereby waive any objection to such jurisdiction and
that such courts represent an inconvenient forum. Any process or summons
to be served upon the Company or the Holder may be served by transmitting a
copy thereof by registered or certified mail, return receipt requested,
postage prepaid addressed to it at the address set forth in Section 8
hereof.
(f) WAIVER, ETC. The failure of the Company or the Holder at any
time to enforce any of the provisions of this Purchase Option shall not be
deemed or construed to be a waiver of any such provision, nor to in any way
affect the validity of this Purchase Option or any provision hereof or the
right of the Company or any Holder to thereafter enforce each and every
provision of this Purchase Option. No waiver of any breach, non-compliance
or non-fulfillment of any of the provisions of this Purchase Option shall
be effective unless set forth in a written instrument executed by the party
or parties against whom or which enforcement of such waiver is sought; and
no waiver of any such breach, non-compliance or non-fulfillment shall be
construed or deemed to be a waiver of any other or subsequent breach, non-
compliance or non-fulfillment.
(g) ABSOLUTE OWNER. The Company may deem and treat the registered
holder of this Purchase Option as the absolute owner of this Purchase
Option (notwithstanding any notations of ownership or writing hereon made
by anyone) for all purposes and shall not be affected by any notice to the
contrary.
IN WITNESS WHEREOF, the Company has caused this Purchase Option to be
signed by its duly authorized officer as of the 31st day of March, 1997.
NICOLLET PROCESS ENGINEERING, INC.
By: /s/ Robert A. Pitner
-------------------------------------
Name: Robert A. Pitner
Title: President and Chief
Executive Officer
8
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Form to be used to exercise Purchase Option:
NICOLLET PROCESS ENGINEERING, INC.
Dated:
----------------------------
The undersigned hereby elects irrevocably to exercise the Purchase Option
and to purchase __________ shares of Common Stock of NICOLLET PROCESS
ENGINEERING INC. and hereby makes payment of $__________ (at the rate of
$____________ per share) in payment of the Exercise Price pursuant thereto.
Please issue the shares of Common Stock as to which this Purchase Option is
exercised in accordance with the instructions given below.
Name:
---------------------------------------------
Address:
-------------------------------------------
-------------------------------------------
Social Security Number:
------------------------------
If such number of shares of Common Stock will not be all the shares of Common
Stock purchasable hereunder, that a new Purchase Option for the balance
remaining of the shares of Common Stock purchasable under this Purchase Option
be registered in the name of, and delivered to, the undersigned at the address
stated above.
----------------------------------------
Signature
----------------------------------------
Signature Guaranteed
Note: The signature must conform in all
respects to the name of the holder as
written on the face of this Purchase
Option without alteration, enlargement
or any change whatsoever.
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Form to be used to assign Purchase Option:
ASSIGNMENT
__________
(To be executed by the registered Holder to effect a transfer of the
Purchase Option):
FOR VALUE RECEIVED, _________________________________ does hereby sell,
assign and transfer unto ____________________________ the right to purchase
___________________ shares of NICOLLET PROCESS ENGINEERING, INC. ("Company")
common stock evidenced by the Purchase Option and does hereby authorize and
appoints ______________ to transfer such right on the books of the Company with
the full substitution in the premises.
Dated:
----------------------------
----------------------------------------
Signature
----------------------------------------
Signature Guaranteed
NOTICE: The signature to this form must
correspond with the name as written upon
the face of the Purchase Option in every
particular without alteration or
enlargement or any change whatsoever,
and must be guaranteed by a bank, other
than a savings bank, or by a trust
company or by a firm having membership
on a registered national securities
exchange.
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CONSULTING AGREEMENT
AGREEMENT effective of the 31st of March 1997, by and between Tiger
Financial Group, LLC, a Delaware corporation, with its principal executive
offices at 299 Broadway, Suite 1602, New York, New York 10007 (the "Consultant")
and Nicollet Process Engineering, Inc., a Minnesota corporation, with its
principal executive offices at 420 North Fifth Street, Ford Centre, Suite 1040,
Minneapolis, Minnesota 55401 (the "Company").
WITNESSETH:
WHEREAS, Consultant is being engaged to assist the Company in investor
relations, strategic planning, public relations, the development of business
plans and in conceiving, arranging, structuring, and negotiating business
combinations.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties hereto hereby agree as follows:
1. TERM. Until this Agreement is terminated in accordance with Section 7
herein, Consultant hereby agrees to act as consultant on behalf of the Company
for a twelve (12) month term commencing on the date hereof ("Effective Date")
and terminating on the twelve (12) month anniversary of the Effective Date, and
as such will provide the consulting services described herein.
2. SERVICES. The consulting services to be provided by Consultant
pursuant to the terms of this Agreement shall include, but shall not be limited
to: assisting the Company in disseminating information concerning it to the
investment banking community as indicated in the
<PAGE>
attached Schedule A, the evaluation and analysis of potential mergers; asset,
business of other acquisitions; and other business combinations (hereinafter
"Business Combinations") that the Company may ask the Consultant to undertake;
review and analysis of documents relating to said Business Combinations; and
introducing and/or arranging for introductions between members of the business
community and the Company. The foregoing are collectively referred to as the
"Consulting Services." The Consultant will not and is not required to perform
any capital raising services for the Company. The Consultant acknowledges that
the Company is entitled to engage any other party(ies) to perform services
similar or identical to the Consulting Services during the term of this
Agreement and thereafter.
Consultant further agrees to devote such time toward the performance of its
duties hereunder as is necessary. Consultant will spend a minimum of 40 hours
per month in performing the Consulting Services under this Agreement. The
Company acknowledges that Consultant and/or its affiliates will provide
consulting advice (of all types contemplated by this Agreement and otherwise) to
others. Nothing herein contained shall be construed to limit or restrict
Consultant in conducting such business with respect to others, or rendering such
advice to others, provided however, that during the term of this Agreement,
neither the Contractor nor the Contractor's employees, officers, directors,
members, affiliates and agents will be engaged by any other business, as an
employee, independent contractor, owner or otherwise, in a managerial,
technical, consulting or other capacity, in a manner competitive with the
Company, and will not, in any way, employ or attempt to employ any of the
Company's then employees on behalf of any other entity competing with the
Company.
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<PAGE>
3. PAYMENT FOR SERVICES.
(a) In consideration for the Consulting Services to be performed
hereunder by Consultant, the Company hereby agrees to pay Consultant: (i)
$50,000 as an initial retainer payable as follows: (1) $25,000 upon
execution of this Agreement, and (2) 22,222 shares of common stock (the
"Shares"), which Shares have a market value as of the date hereof of
$25,000 based upon the $1.125 per share closing bid price of the Company's
common stock as quoted on the Nasdaq Small Cap market on the day prior to
the date hereof; and (i) $4,500 per month for six (6) months and $5,000 per
month for (5) months each such payment being paid on the first day of each
month during the term hereof with the first monthly payment being due
May 1, 1997. The Company agrees to reimburse Consultant for its out-of-
pocket expenses incurred hereunder, provided Consultant delivers to the
Company documentation for all such expenses in accordance with the rules
and regulations of the Internal Revenue Service under the Internal Revenue
Code of 1986, as amended (the "CODE") and in accordance with the standard
policies of the Company relating to reimbursement of business expenses,
PROVIDED FURTHER, that the Consultant obtains prior written consent of the
Company for any expense or group of related expenses in excess of $2,500.
The Company shall reimburse Consultant on a monthly basis at the time other
amounts are payable under this Agreement.
(b) The Consultant acknowledges that (i) the Consultant must bear the
economic risk of an investment in the Shares for an indefinite period of
time because the Shares have not been registered under the Securities Act
of 1933, as amended (the "1933 Act") or any applicable state securities
laws and therefore may not be sold, transferred,
3
<PAGE>
assigned or otherwise disposed of unless such disposition is subsequently
registered under such laws or exemptions from such registrations are
available, and (ii) a legend will be placed on the certificate evidencing
the Shares stating that the Shares have not been registered under the 1933
Act and referencing the restrictions on the transferability of the Shares.
(c) The Consultant acknowledges that it has received copies of all
documents and any other information requested from the Company and has had
an opportunity to ask questions of and receive answers from the management
of the Company and to obtain any additional information desired or has
elected to waive such opportunity. The Consultant confirms that it is
fully informed regarding the financial condition of the Company, the
administration of its business affairs and its prospects for the future,
and that the Company makes no assurance whatsoever concerning the present
and prospective value of the Shares to be acquired. The Consultant
realizes that the Shares, as an investment, are speculative and involve a
high degree of risk. The Consultant believes that an investment in the
Shares is suitable for the Consultant based upon the Consultant's
investment objectives and financial needs, and the Consultant has the
financial means to undertake the risks of an investment in the Shares, to
hold the Shares for an indefinite period of time, and to withstand a
complete loss of the Consultant's investment in the Shares. The Consultant
has such knowledge and experience in financial and business matters that
the Consultant is capable of evaluating the merits and risks of an
investment in the Shares. The Shares are being purchased by the Consultant
for investment purposes in the Consultant's name solely for Consultant's
own beneficial interest and not as
4
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nominee for, or for the beneficial interest of, or with the intention to
transfer to, any other person, trust or organization. The Consultant is an
"accredited investor" within the meaning of Rule 501 under the 1933 Act.
4. EQUITY COMPENSATION.
(a) In consideration for the services to be performed by the
Consultant during the term of this Agreement, Consultant will receive upon
the execution of this Agreement, options to purchase the Company's common
stock, $0.01 par value (the "Common Stock") in the form attached hereto as
Exhibit B (the "Option Agreement") for 100,000 shares of the Company's
common stock exercisable at an exercise price (i) with respect to 25,000
shares at $1.25, (ii) with respect to 50,000 shares at an exercise price of
$2.00 per share, and (iii) with respect to the remaining 25,000 shares at
$2.50 per share (collectively, the "Options"). Such Options will vest and
have a term according to the Option Agreement attached hereto.
(b) The shares of Common Stock underlying the Options and the Shares
(collectively the "Registrable Securities") will have the registration
rights contained in Exhibit C attached hereto.
(c) As soon as is practicable after the filing of a Registration
Statement in accordance with the terms and conditions of Exhibit C attached
hereto, the Company will use its reasonable best efforts to file any
required notification or an additional listing application with the
National Association of Securities Dealers, Inc. Automated
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Quotation Systems ("Nasdaq") or with any exchange upon which the Company's
Common Stock is traded to list or permit the trading of the Registrable
Securities.
5. OVERDUE PAYMENTS. In the event that any payment due Consultant under
this Agreement shall not be made when due, interest shall accrue on the unpaid
balance of such overdue payments at the rate of twelve (12) percent per annum
until paid in full.
6. CONFLICTS. Consultant shall be an independent contractor and shall
have no right or authority to assume or create any obligation or responsibility,
express or implied, on behalf of or in the name of the Company, unless
specifically authorized in writing by the Company. Except as otherwise provided
herein, no provisions of this Agreement shall be construed to preclude
Consultant, or any officer, director, agent, associate, affiliate or employee of
Consultant from engaging in any activity whatsoever, including without
limitation receiving compensation for managing investments, or acting as an
advisor, broker, or dealer, to any person or entity, participating in any
corporation, partnership, trust or other business entity or from receiving
compensation or profit therefore.
7. INDEMNIFICATION.
(a) The Company and its future subsidiaries, jointly and severally,
agree to indemnify and hold harmless Consultant and its present and future
shareholders as well as its and their officers, directors, employees and
shareholders ("Consultant Indemnified Parties" or "Consultant Indemnified
Party") against any and all loss, liability or damage suffered or incurred
by the Consultant by reason of any breach by the Company of this Agreement.
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<PAGE>
(b) Consultant agrees to indemnify and hold harmless the Company as
well as its officers, directors, affiliates, associates, employees,
shareholders, attorneys and agents ("the Company Indemnified Parties" or
"the Company Indemnified Party") against
(1) any and all loss, liability or damage suffered or incurred
by the Company by reason of any untrue representation of, breach of
warranty by, or other breach by the Consultant in this Agreement;
(2) any and all loss, liability or damage to which the Company
or any such Company Indemnified Party may become subject under the
1933 Act or otherwise, insofar as such loss, liability or damages
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact made by Consultant, or arise out of or
are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances
under which they were made, and will reimburse any legal or other
expenses reasonably incurred by the Company or any such Company
Indemnified Party in connection with investigating or defending any
such action or claim as such expenses are incurred;
(3) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, without
limitation, reasonable legal fees and expenses, incident to any of the
foregoing or incurred in investigating or attempting to avoid the same
or to oppose the imposition thereof,
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<PAGE>
or in enforcing the indemnification rights of the Company pursuant to
this Section 7(b).
(c) The parties intend that all indemnification claims be made as
promptly as practicable by the party seeking indemnification (the
"INDEMNIFIED PARTY"). Whenever any claim arises for indemnification
hereunder the Indemnified Party will promptly notify the party from whom
indemnification is sought (the "INDEMNIFYING PARTY") of the claim and, when
known, the facts constituting the basis for such claim. The failure so to
notify the Indemnifying Party will not relieve the Indemnifying Party of
any liability that it may have to the Indemnified Party except to the
extent the Indemnifying Party demonstrates that the defense of such action
is prejudiced thereby.
(d) With respect to claims made by third parties, if the Indemnifying
Party admits to the Indemnified Party and agrees in writing that it will be
liable for the full amount of the claim, the Indemnifying Party will be
entitled to assume control of the defense of such action or claim, at its
sole expense, with counsel reasonably satisfactory to the Indemnified
Party; provided, however, that:
(1) the Indemnified Party will be entitled to participate in the
defense of such claim and to employ counsel at its own expense to
assist in the handling of such claim;
(2) no Indemnifying Party will consent to the entry of any
judgment or enter into any settlement that (A) does not include as an
unconditional term thereof the giving by each claimant or plaintiff to
each Indemnified Party of a
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<PAGE>
release from all liability in respect of such claim or (B) would
result in the imposition against the Indemnified Party of injunctive
or other equitable relief; or (C) could materially interfere with the
business, operations or assets of the Indemnified Party; and,
(3) if the Indemnifying Party does not assume control of the
defense of such claim in accordance with the foregoing provisions
within ten (10) business days after receipt of notice of the claim,
the Indemnified Party will have the right to defend such claim in such
manner as it may deem appropriate at the reasonable cost and expense
of the Indemnifying Party, and the Indemnifying Party will promptly
reimburse the Indemnified Party therefor in accordance with this
Section 7; provided that the Indemnifying Party and the Indemnified
Party will not consent to the entry of any judgment or enter into any
settlement without the written consent of the Indemnifying Party,
which consent will not be unreasonably withheld or delayed, and that
(A) does not include as an unconditional term thereof the giving by
each claimant or plaintiff to each Indemnified Party of a release from
all liability in respect of such claim or (B) would result in the
imposition against the Indemnified Party of injunctive or other
equitable relief; or (C) could materially interfere with the business,
operations or assets of the Indemnified Party.
(e) The remedies provided herein are cumulative and will not preclude
assertion by any party of any rights or the seeking of any other remedies
against any other party.
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8. TERMINATION. This Agreement may be terminated under the following
circumstances:
(a) By either party if the other party is in material breach of the
terms of this Agreement; provided, however, that the non-breaching party
has given the breaching party written notice of such breach. The breaching
party will have thirty (30) days in which to cure such breach or the non-
breaching party may terminate this Agreement;
(b) By the Consultant, in the event that an order for relief will be
entered in any Federal bankruptcy proceeding in which the Company is the
debtor; or if bankruptcy, reorganization, arrangement, insolvency, or
liquidation proceedings, or other proceedings for relief under any
bankruptcy or similar law or laws for the relief of debtors, are instituted
by or against the Company and, if instituted against the Company, are
consented to or, if contested by the Company, are not dismissed by the
adverse parties or by an order, decree or judgment within 30 days after
such institution;
(c) By the Company immediately, in the event that the Board of
Directors of the Company determines to commence a public or private
offering of its securities; and
(d) By the Company, for any reason, upon 90 days prior written
notice.
9. ENTIRE AGREEMENT; WAIVERS. This Agreement supersedes any and all
agreements, arrangements and understandings relating to the matters provided for
herein, entered into or reached prior to the date hereof. No amendment, waiver
or discharge of any provisions hereof
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<PAGE>
shall be effective unless in writing signed by the parties hereto. This
Agreement may not be assigned by any party hereto without the prior written
consent of the other parties hereto.
10. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given when delivered personally or by
facsimile or three days after being sent by registered or certified mail,
postage prepaid, return receipt requested, to the address set forth on the first
page of this Agreement or such other address as any party may notify the others
pursuant hereto.
11. HEADINGS. The headings in this Agreement are for purpose of reference
only and shall not be considered in construing this Agreement.
12. CONSENT TO SERVICE OF PROCESS; JURISDICTION; VENUE. Each of the
parties hereto hereby consents to the personal jurisdiction of the United States
District of Delaware in any action, suit or proceeding arising under this
Agreement, agrees to bring any such action, suit or proceeding only in such
courts and agrees further that service of process or notice in any such action,
suit or proceeding shall be effective if given in the manner set forth in
Section 10 hereof.
13. CONFIDENTIAL INFORMATION.
(a) "Confidential Information," as used in this Section 13, means
information that is not generally known and that is proprietary to the
Company or that the Company is obligated to treat as proprietary. Any
information that Consultant reasonably considers Confidential Information,
or that the Company treats as Confidential Information, will be
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<PAGE>
presumed to be Confidential Information (whether Consultant or others
originated it and regardless of how Consultant obtained it).
(b) Except as specifically authorized by an authorized officer of the
Company or by written Company policies, Consultant will not, either during
or after providing Consulting Services under this Agreement, use or
disclose Confidential Information to any person who is not an employee of
the Company. Upon termination of this Agreement, Consultant will promptly
deliver to the Company all records and any compositions, articles, devices,
apparatus and other items that disclose, describe or embody Confidential
Information, including all copies, reproductions and specimens of the
Confidential Information in Consultant's possession, regardless of who
prepared them and will promptly deliver any other property of the Company
in Consultant's possession, whether or not Confidential Information.
(c) Consultant understands that if Consultant fails to fulfill
Consultant's obligations under Sections 2 and 13 of this Agreement, the
damages to the Company would be very difficult to determine. Therefore, in
addition to any rights or remedies available to the Company at law, in
equity, or by statute, Consultant hereby consents to the specific
enforcement of Sections 2 and 13 of this Agreement by the Company through
an injunction or restraining order issued by an appropriate court. The
obligations under this Section 13 survive termination of this Agreement.
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<PAGE>
14. GOVERNING LAW. This Agreement shall be governed and interpreted in
accordance with the laws of the State of Delaware, without regard to the
conflict of laws principles thereof or the actual domiciles of the parties
hereto.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed and delivered in its name and on its behalf, effective as of the
date first written above.
TIGER FINANCIAL GROUP, LLC NICOLLET PROCESS ENGINEERING, INC.
By: /s/ Greg H. Laborde By: /s/ Robert A. Pitner
---------------------------- ------------------------------
Name: Greg H. Laborde Name: Robert A. Pitner
Title: Managing Principal Title: President and Chief Executive
Officer
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SCHEDULE A
INVESTOR RELATIONS TIMELINE FOR NICOLLET PROCESS ENGINEERING, INC.
+ Months One and Two
+ Week One
- Announcement to shareholders concerning Tiger
+ Week Two
- Corporate due diligence materials provided by Company
+ Week Three
- Due diligence trip
+ Week Four
- Presentation development
- Corporate profile development
+ Week Five
+ Mailings prepared for
- Analysts
- Brokers
- Portfolio Managers
+ Weeks Six - Eight
- Constant phone solicitation of the investment community begins
+ Months Four - Five
- New York road show
- Local road show
+ Months Six - Eleven
- Second phase mailing begins
- Phone solicitation continues
+ Additional Services
- Management conference calls as needed
- Fielding of investor inquiries
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<PAGE>
EXHIBIT B
See Exhibit 4.1.
<PAGE>
EXHIBIT C
REGISTRATION RIGHTS
REGISTRATION RIGHTS
1. REQUIRED REGISTRATION. If the Company receives a written request
therefor from any record holder or holders of an aggregate of at least a
majority of the shares of Purchased Stock (as hereinafter defined) not
theretofore registered under the 1933 Act and sold, the Company will prepare and
file a registration statement on Form S-3 under the 1933 Act covering the shares
of Purchased Stock which are the subject of such request and shall use its best
efforts to cause such registration statement to become effective. In addition,
upon the receipt of such request, the Company will promptly give written notice
to all other record holders of shares of Purchased Stock not theretofore
registered under the 1933 Act and sold that such registration is to be effected.
The Company will include in such registration statement such shares of Purchased
Stock for which it has received written requests to register by such other
record holders within 30 days after the delivery of the Company's written notice
to such other record holders. The Company will be obligated to prepare, file
and cause to become effective only one registration statement pursuant to this
Section 1, will be obligated only to register such shares of Purchased Stock on
Form S-3 and to pay all costs and expenses associated with such registration
statement. Notwithstanding the foregoing, the record holder or holders of an
aggregate of at least a majority of the shares of Purchased Stock not
theretofore registered under the 1933 Act and sold may require, pursuant to this
Section 1, the Company to prepare, file and cause to become effective any number
of registration statements but such holder or holders will bear their own costs
and expenses and reimburse the company for its costs and expenses associated
with such registration statements and the Company will not be required to comply
with more than two such requests per year. In the event that the holders of a
majority of the Purchased Stock for which registration has been requested
pursuant to this Section 1 determine for any reason not to proceed with a
registration at any time before a registration statement has been declared
effective by the Securities and Exchange Commission (the "Commission"), and such
registration statement, if theretofore filed with the Commission, is withdrawn
with respect to the Purchased Stock covered thereby, and the holders of such
Purchased Stock agree to bear their own expenses incurred in connection
therewith and to reimburse the Company for the expenses incurred by it
attributable to the registration of such Purchased Stock, then the holders of
such Purchased Stock shall not be deemed to have exercised their right to
require the Company to register Purchased Stock pursuant to this Section 1.
Without the written consent of the holders of a majority of the Purchased
Stock for which registration has been requested pursuant to this Section 1,
neither the Company nor any other holder of securities of the Company may
include securities in such registration if in the good faith judgment of the
managing underwriter, if any, of such public offering the inclusion of such
securities would interfere with the successful marketing of the Purchased Stock
or require the exclusion of any portion of the Purchased Stock to be registered.
<PAGE>
The rights granted by this Section 1 may be transferred to and are
exercisable by subsequent transferee of any shares of Purchased Stock, except
with respect to shares of Purchased Stock that have been registered under the
1933 Act and sold.
The holders of the Purchased Stock hereby acknowledge that prior to the
Company proceeding with the actual filing of a registration statement on Form
S-3 for the Purchased Stock, the holders must exercise the Options and tender
the consideration for such exercise to the Company in accordance with the
terms and conditions of the Option Agreement. In addition, the holders of
the Purchased Stock acknowledge that the rights granted hereunder only
obligate the Company to file a Registration Statement on Form S-3, if
available to the Company. The Company is under no obligation to file any
other form of Registration Statement.
2. INCIDENTAL REGISTRATION. Each time the Company determines to proceed
with the actual preparation and filing of a registration statement under the
1933 Act in connection with the proposed offer and sale for cash of any of its
Common Stock by it or any of its security holders (other than a registration
statement on a form that does not permit the inclusion of shares by its security
holders), the Company will give written notice of its determination to all
record holders of Purchased Stock not theretofore registered under the 1933 Act
and sold. Upon the written request of a record holder of any shares of
Purchased Stock given within 30 days after receipt of any such notice from the
Company, the Company will, except as herein provided, cause all such shares of
Purchased Stock, the record holders of which have so requested registration
thereof, to be included in such registration statement, all to the extent
requisite to permit the sale or other disposition by the prospective seller or
sellers of the Purchased Stock to be so registered; provided, however, that
nothing herein shall prevent the Company from, at any time, abandoning or
delaying any registration. Notwithstanding the foregoing, nothing shall require
the Company to cause the Purchased Stock to be included in such Registration
Statement, if the Company determines, after consultation with legal counsel,
that including such shares of Purchased Stock in such Registration Statement
would be a violation of other registration rights granted prior to the date
hereof. If any registration pursuant to this Section 2 shall be underwritten in
whole or in part, the Company may require that the Purchased Stock requested for
inclusion pursuant to this Section 2 be included in the underwriting on the same
terms and conditions as the securities otherwise being sold through the
underwriters. If in the good faith judgment of the Company or the managing
underwriter of such public offering the inclusion of all of the Purchased Stock
originally covered by a request for registration would reduce the number of
shares to be offered by the Company or other security holders having
registration rights superior to the holders of the Purchased Stock or interfere
with the successful marketing of the shares of stock offered by the Company, the
number of shares of Purchased Stock otherwise to be included in the underwritten
public offering may be eliminated.
The rights granted by this Section 2 may be transferred to and are
exercisable by subsequent transferee of any shares of Purchased Stock, except
with respect to shares of Purchased Stock that have been registered under the
1933 Act and sold.
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<PAGE>
3. REGISTRATION PROCEDURES. If and whenever the Company is required by
the provisions of Section 1 or Section 2 hereof to effect the registration of
shares of Purchased Stock under the 1933 Act, the Company will:
(a) prepare and file with the Commission a registration statement
with respect to such securities, and use its best efforts to cause such
registrant statement to become and remain effective for such period as may
be reasonably necessary to effect the sale of such securities, not to
exceed six months;
(b) prepare and file with the Commission such amendments to such
registration statement and supplements to the prospectus contained therein
as may be necessary to keep such registration statement effective for such
period as may be reasonably necessary to effect the sale of such
securities, not to exceed six months;
(c) furnish to the security holders participating in such
registration and to the underwriters of the securities being registered
such reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters
may reasonably request in order to facilitate the public offering of such
securities;
(d) use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or blue
sky laws of such jurisdictions as such participating holders may reasonably
request in writing within 20 days following the original filing of such
registration statement, except that the Company shall not for any purpose
be required to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any jurisdiction wherein
it is not so qualified;
(e) notify the security holders participating in such registration,
promptly after it shall receive notice thereof, of the time when such
registration statement has become effective or a supplement to any
prospectus forming a part of such registration statement has been filed;
(f) notify such holders promptly of any request by the Commission for
the amending or supplementing of such registration statement or prospectus
or for additional information;
(g) prepare and file with the Commission, promptly upon the request
of any such holders, any amendments or supplements to such registration
statement or prospectus which, in the opinion of counsel for such holders
(and concurred in by counsel for the Company), is required under the 1933
Act or the rules and regulations thereunder in connection with the
distribution of the Purchased Stock by such holder;
(h) prepare and promptly file with the Commission and promptly notify
such holders of the filing of such amendment or supplement to such
registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time
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<PAGE>
when a prospectus relating to such securities is required to be delivered
under the 1933 Act, any event shall have occurred as the result of which
any such prospectus or any other prospectus as then in effect would include
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
in which they were made, not misleading;
(i) advise such holders, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement or
the initiation or threatening of any proceeding for that purpose and
promptly use its best efforts to prevent the issuance of any stop order or
to obtain its withdrawal if such stop order should be issued;
(j) not file any amendment or supplement to such registration
statement or prospectus to which a majority in interest of such holders
shall have reasonably objected on the grounds that such amendment or
supplement does not comply in all material respects with the requirements
of the 1933 Act or the rules and regulations thereunder, after having been
furnished with a copy thereof at least five business days prior to the
filing thereof, unless in the opinion of counsel for the Company the filing
of such amendment or supplement is reasonably necessary to protect the
Company from any liabilities under any applicable federal or state law and
such filing will not violate applicable law; and
(k) at the request of any such holder, furnish (i) an opinion, dated
as of the closing date, of the counsel representing the Company for the
purposes of such registration, addressed to the underwriters, if any, and
to the holder or holders making such request, covering such matters as such
underwriters and holder or holders may reasonably request; and (ii) letters
dated as of the effective date of the registration statement and as of the
closing date, from the independent certified public accountants of the
Company, addressed to the underwriters, if any, and to the holder or
holders making such request, covering such matters as such underwriters and
holder or holders may reasonably request.
4. EXPENSES. With respect to Section 1 and Section 2 hereof (except as
otherwise provided in Section 1), the Company shall bear the following fees,
costs and expenses: all registration, filing and NASD fees, printing expenses,
fees and disbursements of counsel and accountants for the Company, fees and
disbursements of counsel for the underwriter or underwriters of such securities
(if the Company and/or selling security holders are required to bear such fees
and disbursements), all internal Company expenses, all legal fees and
disbursements and other expenses of complying with state securities or blue sky
laws of any jurisdictions in which the securities to be offered are to be
registered or qualified, and the premiums and other costs of policies of
insurance against liability (if any) arising out of such public offering. Fees
and disbursements of counsel and accountants for the selling security holders,
underwriting discounts and commissions and transfer taxes relating to the shares
included in the offering by the selling security holders, and any other expenses
incurred by the
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<PAGE>
selling security holders not expressly included above, shall be borne pro rata
by the selling security holders.
5. INDEMNIFICATION.
(a) The Company will indemnify and hold harmless each holder of
shares of Purchased Stock which are included in a registration statement
pursuant to the provisions of Section 1 or 2 hereof, its directors and
officers, and any underwriter (as defined in the 1933 Act) for such holder
and each person, if any, who controls such holder or such underwriter
within the meaning of the 1933 Act, from and against, and will reimburse
such holder and each such underwriter and controlling person with respect
to, any and all loss, damage, liability, cost and expense to which such
holder or any such underwriter or controlling person may become subject
under the 1933 Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or
alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment
or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, however,
that the Company will not be liable in any such case to the extent that any
such loss, damage, liability, cost or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by such holder,
such underwriter or such controlling person in writing specifically for use
in the preparation thereof.
(b) Each holder of shares of Purchased Stock which are included in a
registration pursuant to the provisions of Section 1 or 2 hereof will
indemnify and hold harmless the Company, its directors and officers, any
controlling person and any underwriter from and against, and will reimburse
the Company, its directors and officers, any controlling person and any
underwriter with respect to, any and all loss, damage, liability, cost or
expense to which the Company or any controlling person and/or any
underwriter may become subject under the 1933 Act or otherwise, insofar as
such losses, damages, liabilities, costs or expenses are caused by any
untrue or alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment
or supplement thereto, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was so made in reliance
upon and in strict conformity with written information furnished by such
holder specifically for use in the preparation thereof.
(c) Promptly after receipt by an indemnified party pursuant to the
provisions of paragraph (a) or (b) of this Section 5 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions such indemnified
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<PAGE>
party will, if a claim thereof is to be made against the indemnifying party
pursuant to the provisions of said paragraph (a) or (b), promptly notify
the indemnifying party of the commencement thereof; but the omission to so
notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party otherwise than hereunder. In case
such action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party
shall have the right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel satisfactory to such indemnified
party, provided, however, if the defendants in any action include both the
indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be legal defenses available
to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, or if there is a
conflict of interest which would prevent counsel for the indemnifying party
from also representing the indemnified party, the indemnified party or
parties shall have the right to select separate counsel to participate in
the defense of such action on behalf of such indemnified party or parties.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party pursuant to the provisions of said
paragraph (a) or (b) for any legal or other expense subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless (i) the indemnified party shall
have employed counsel in accordance with the proviso of the preceding
sentence, (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after the notice of the commencement of the
action, or (iii) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party.
6. SPECIAL DEFINITION. "Purchased Stock" shall mean the shares of Common
Stock issuable upon exercise of the Option dated as of March 31, 1997 (the
"Option") to purchase One Hundred Thousand (100,000) shares of Common Stock of
the Company and the Shares.
7. AVAILABILITY OF REGISTRATION RIGHTS. The right to registration
pursuant hereto will commence on the date hereof and will terminate on the fifth
anniversary of the date hereof.
6
<PAGE>
CREDIT AND SECURITY AGREEMENT
Dated as of May 28, 1997
NICOLLET PROCESS ENGINEERING, 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:
"Accounts" means the aggregate unpaid obligations of customers and
other account debtors to the Borrower arising out of the sale, lease or
license of goods or rendition of services by the Borrower on an open
account or deferred payment basis, whether now existing or hereafter
arising.
"Advance" means a Revolving Advance.
"Agreement" means this Credit and Security Agreement, as amended,
supplemented and restated from time to time.
"Base Rate" means the rate of interest publicly announced from time to
time by Norwest Bank Minnesota, National Association as its "base rate" or,
if such bank ceases to announce a rate so designated, any similar successor
rate designated by the Lender.
"Book Net Worth" means the aggregate of (i) the common stockholders'
equity of the Borrower, determined in accordance with GAAP, plus (ii)
Convertible Notes; but excluding any capital stock (including the
conversion of debt to equity except for the Convertible Notes) for which
the Borrower has not received readily available funds on approximately the
same day such capital stock was issued.
"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 Minnesota Revolving
Advances; or
(b) 80% of Eligible Accounts.
"Collateral" has the meaning given in Section 3.1
<PAGE>
"Convertible Notes" means promissory notes issued by the Borrower
after the date hereof which by their terms automatically convert into
equity securities of the Borrower.
"Credit Facility" means the discretionary credit facility being made
available to the Borrower by the Lender pursuant to Article II.
"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 that such Event of Default has been cured, if possible,
or waived by the Lender.
"Default Rate" means an annual rate equal to three percent (3%) over
the Floating Rate, which rate shall change when and as the Floating Rate
changes.
"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 over 90 days past invoice
date;
(ii) That portion of Accounts that are disputed or subject
to a claim of offset or a contra account, including, without
limitation, down payments received from account debtors;
(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);
(v) Accounts owed by an account debtor located outside the
United States;
(vi) Accounts owed by an account debtor that is 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;
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(viii) 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 Norwest Minnesota;
(ix) That portion of Accounts that have been restructured,
extended, amended or modified;
(x) That portion of Accounts that constitutes finance
charges, service charges or sales or excise taxes;
(xi) Accounts owed by an account debtor, regardless of
whether otherwise eligible, if 10% or more of the total amount due
under Accounts from such debtor is ineligible under clauses (i), (ii)
or (ix) above;
(xii) Accounts which are deposit billings (i.e. those
Accounts generated from the invoicing of a down payment); and
(xiii) Accounts, or portions thereof, otherwise deemed
ineligible by the Lender in its sole discretion.
"Event of Default" has the meaning specified in Section 7.1.
"Floating Rate" means an annual rate equal to the sum of the Base Rate
plus three percent (3%), which annual rate shall change when and as the
Base Rate changes.
"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.
"Inventory" means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired.
"Life Insurance Assignment" means the Assignment of Life Insurance
Policy as Collateral to be executed by the owner and beneficiary thereof,
in form and substance satisfactory to the Lender, granting the Lender and
Norwest Minnesota a lien on the Life Insurance Policy to secure payment of
the Obligations.
"Life Insurance Policy" has the meaning given in Section 6.10 .
"Loan Documents" means this Agreement, the Note, the Security
Documents and the Disclosure by the Borrower in favor of the Lender of even
date herewith.
"Maturity Date" means the one year anniversary of the date of this
Agreement.
"Maximum Line" means $800,000.
"Non-Use Period" has the meaning set forth in Section 2.8 (a) hereof.
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"Norwest Bank Credit Agreement" means that certain Credit Agreement by
and between Norwest Minnesota and the Borrower of even date herewith.
"Norwest Bank Credit Facility" means the credit facility extended to
the Borrower pursuant to the Norwest Bank Credit Agreement.
"Norwest Minnesota" means Norwest Bank Minnesota, National
Association, a national banking association.
"Norwest Minnesota Revolving Advances" means the outstanding principal
balance of the revolving advances as of a given date made by Norwest
Minnesota to the Borrower pursuant to the Norwest Bank Credit Agreement.
"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 all indebtedness arising under this
Agreement, the Note or any other loan or credit agreement or guaranty
between the Borrower and the Lender, whether now in effect or hereafter
entered into.
"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.
"Premises" means all premises where the Borrower conducts its business
and has any rights of possession.
"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, the Life Insurance
Assignment, and the Support Agreement, each of even date herewith and by
and between the Borrower and the Lender and, the Collateral Account
Agreement and the Lockbox Agreement by and among the Borrower, the Lender
and Norwest Bank Minnesota, National Association.
"Security Interest" has the meaning given in Section 3.1.
"Support Agreement" means the Management Support Agreement by Robert
Pitner, of even date herewith.
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"Termination Date" means the Maturity Date or the date the Lender
demands payment pursuant to Section 2.3 or Section 7.2, or the Borrower
terminates the Credit Facility pursuant to Section 2.4, as the case may be.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the State of Minnesota.
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 this
Agreement is signed and delivered to the Termination Date, on the terms and
subject to the conditions herein set forth (each a "Revolving Advance"). The
Lender shall not consider any request for a Revolving Advance if, after giving
effect to such requested Revolving Advance, the sum of the outstanding and
unpaid Revolving Advances would exceed the Borrowing Base. 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 ref RevolvingAdvances \*mergeformat 2.1, the Borrower may request
Revolving Advances, prepay, and request additional Revolving Advances. The
Borrower shall make each request for a Revolving Advance to the Lender before
11:00 a.m. (Minneapolis time) of the day of the requested Revolving Advance.
Requests may be made in writing or by telephone.
Section 2.2 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 (c) and (d),
the outstanding principal balance of the Advances shall bear interest at the
Floating Rate.
(b) MINIMUM INTEREST CHARGE. Notwithstanding the interest payable
pursuant to subsections (a) and (c), beginning on the date the initial
Advance is made and continuing for each twelve month period (each a
"Period") thereafter (prorated for less than full Periods), the Borrower
shall pay to the Lender interest of not less than $65,000 per Period during
the term of this Agreement (prorated to exclude calendar months during a
Non-Use Period in which there are no outstanding, unpaid Advances or
outstanding, unpaid Norwest Minnesota Revolving Advances), and the Borrower
shall pay any deficiency between (i) such minimum interest charge and (ii)
the sum of the amount of interest for such Period otherwise calculated
under Sections (a) and (c) hereof and the amount of interest paid for such
Period under the Norwest Bank Credit Agreement. Such minimum interest
charge deficiency shall be payable in arrears on the last day of such
Period. For example, if on August 1, 1997 the initial Advance is made and
during the Period thereafter (ending on July 31, 1998) there are two months
during a Non-Use Period in which there are no outstanding, unpaid Advances
and no outstanding, unpaid Norwest Minnesota Revolving
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Advances, the Borrower's minimum interest charge for such Period would be
$54,166. If, during such Period, the Borrower has paid interest of $20,000
under Sections (a) and (c) hereof and $10,000 under the Norwest Bank Credit
Facility, the Borrower would be required to pay the Lender $24,166 on July
31, 1998.
(c) 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.
(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 2.3 DISCRETIONARY NATURE OF CREDIT FACILITY; AUTOMATIC
RENEWAL. THE LENDER MAY AT ANY TIME AND FOR ANY REASON REFUSE TO MAKE AN
ADVANCE 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 to
demand payment of the Advances. Unless terminated by the Lender at any time or
by the Borrower pursuant to Section 2.4, this Agreement shall remain in effect
until the Maturity Date.
Section 2.4 TERMINATION BY BORROWER.
(a) TERMINATION BY BORROWER. The Borrower may terminate this
Agreement at any time 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 by: (i) giving at least
30 days' prior written notice to the Lender of the Borrower's intention to
terminate this Agreement, (ii) terminating the Norwest Bank Credit
Agreement pursuant to the terms thereof, and (iii) paying the Lender a
prepayment fee in accordance with subsection (b) if the Borrower terminates
this Agreement effective as of any date other than a Maturity Date.
(b) PREPAYMENT FEE. If the Borrower desires to terminate this
Agreement as of any date other than a Maturity Date, or as of a Maturity
Date but without giving at least 90 days' prior written notice thereof, it
shall (i) give at least 30 days' prior written notice to the Lender of the
Borrower's intention to do so, and (ii) pay to the Lender a prepayment fee
equal to the greater of (A) an amount equal to the minimum interest charge
which would have been paid pursuant to Section 2.2(b) hereof if the Credit
Facility had continued through the Maturity Date and outstanding, unpaid
Advances had existed during each month through the Maturity Date or (B) 2%
of the Maximum Line; PROVIDED, HOWEVER, that such prepayment fee shall be
waived if such
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prepayment is made because of increased cash flow generated from the
Borrower's operations or refinancing by an affiliate of the Lender.
Section 2.5 MANDATORY PREPAYMENT. Without notice or demand, if the
outstanding principal balance of the Revolving Advances shall at any time exceed
the Borrowing Base, the Borrower shall immediately prepay the Revolving Advances
to the extent necessary to eliminate such excess.
Section 2.6 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 2.7 ORIGINATION FEE. The Borrower hereby agrees to pay the
Lender a fully earned and non-refundable origination fee of $8,000, due and
payable upon the execution of this Agreement. The Lender acknowledges receipt of
$10,000 toward payment of this fee and the fees, costs and expenses described in
Section 8.2.
Section 2.8 SUSPENSION OF LINE USE, LINE MAINTENANCE, LINE MAINTENANCE
FEE.
(a) SUSPENSION OF LINE USE. So long as no Default Period exists,
the Borrower may elect to suspend its right to request Advances and Norwest
Minnesota Revolving Advances pursuant to the terms of this Section 2.8. If
the Borrower elects not to request any Advances and Norwest Minnesota
Advances during an upcoming month or months and suspend use of this Credit
Facility and the Norwest Bank Credit Facility (each a "Non-Use Period"),
the Borrower must deliver written notice to the Lender at least ten (10)
days prior to the first day of any such Non-Use Period, which notice must
state (i) that an election hereunder has been made, and (ii) the beginning
date of the Non-Use Period. A Non-Use Period may only begin on the first
day of a calendar month. If on any day during a Non-Use Period there are
any outstanding, unpaid Advances or any outstanding, unpaid Norwest
Minnesota Revolving Advances, the Borrower shall be required to pay the
minimum interest charge for the month or months in which such Advance or
Norwest Minnesota Revolving Advance was outstanding and unpaid.
(b) LINE MAINTENANCE FEE. The Borrower hereby agrees to pay the
Lender a monthly line maintenance fee of $1,000 for each calendar month
during a Non-Use Period in which there are no outstanding, unpaid Advances
and no outstanding, unpaid Norwest Minnesota Revolving Advances. Such line
maintenance fees shall be due and payable on the last day of each Period,
as such term is defined in Section 2.2(b) hereof.
(c) NOTICE PRIOR TO USE OF LINE. After a Non-Use Period has been
initiated, the Lender shall not consider making any Advance hereunder until
thirty (30) days
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after it has received written notice from the Borrower requesting that the
Non-Use Period be terminated and the Credit Facility and the Norwest Bank
Credit Facility be reactivated.
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 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 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, license
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 Borrower or by
some other Person who subsequently transfers such Person's interest to
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 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 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 Borrower;
GENERAL INTANGIBLES: All of 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
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names, trade secrets, customer or supplier lists and contracts, manuals,
operating instructions, permits, franchises, the right to use Borrower's
name, and the goodwill of Borrower's business; and
INVESTMENT PROPERTY: All of 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 all substitutions and replacements for and products of any of
the foregoing property and together with proceeds of any and all of the
foregoing property and, in the case of all tangible property, together
with all accessions and together with (i) all accessories, attachments,
parts, equipment and repairs now or hereafter attached or affixed to or
used in connection with any such goods, and (ii) 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
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 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.
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(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 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, sub-license 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. The foregoing license includes
the right to reproduce, distribute, publicly perform, display and create
derivative works from any and all of the Borrower's copyrights.
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 THE LENDER'S WILLINGNESS TO
CONSIDER MAKING ADVANCES. The Lender's willingness to consider making an
initial Advance 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 Collateral Account Agreement, properly executed by the
Borrower and Norwest Bank Minnesota, National Association.
(d) The Lockbox Agreement, properly executed by the Borrower and
Norwest Bank Minnesota, National Association.
(e) 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 those security interests or liens set forth in Exhibit C hereto
(the "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.
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(f) 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 agents authorized to execute and deliver the Loan Documents
and other instruments, agreements and certificates, including Advance
requests, on the Borrower's behalf.
(g) 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.
(h) 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.
(i) An Officer's Certificate from an officer of the Borrower
confirming, in his personal capacity, the representations and warranties
set forth in Article V and the Disclosure.
(j) The Support Agreement in favor of the Lender, properly executed
by Robert Pitner in his personal capacity.
(k) An opinion of counsel to the Borrower, addressed to the Lender.
(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) The Life Insurance Assignment, properly executed by the
beneficiary and owner thereof, and the Life Insurance Policy, each in form
and substance satisfactory to the Lender, together with such evidence as
the Lender may request that the Life Insurance Policy is subject to no
assignments or encumbrances other than the Life Insurance Assignment.
(n) An Intercreditor Agreement by and between the Lender and Norwest
Minnesota.
(o) Such other loan documents as the Lender may reasonably require,
and such financial records and information as the Lender may require in its
sole discretion.
Section 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The Lender will not
consider any request for an Advance unless on such date:
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(a) the representations and warranties contained in Article V and the
Disclosure are correct on and as of the date of such Advance as though made
on and as of such date, except to the extent that such representations and
warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from
such Advance which constitutes a Default or an Event of Default.
ARTICLE 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 its
audited financial statements for its fiscal year ended August 31, 1996 and its
unaudited financial statements for the fiscal year to date ending April 30,
1997, each certified by the Borrower. Those statements fairly present the
Borrower's financial condition as of the dates indicated therein and the results
of its operations for the periods then ended and were prepared in accordance
with GAAP. 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.
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:
(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; together with (i) copies of
all management letters prepared
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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 Section 6.7 and (iii) 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, 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 in accordance
with GAAP, subject to year-end audit adjustments, PROVIDED, HOWEVER, that
during any month which is the end of a fiscal quarter of the Borrower, the
financial statements submitted within 20 days after the end of the month
shall be considered preliminary and the Borrower shall deliver its final,
completed financial statements, as filed in the Borrower's 10-QSB, within
45 days after the end of such month; 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 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 6.7;
(c) within 15 days after the end of each month, agings of the
Borrower's accounts receivable and accounts payable and an accounts
receivable certification of ineligible Accounts as of the end of such
month;
(d) as soon as available and in any event within 15 days of receipt,
a copy of the checking account statement of the Borrower as of the last day
of each month from each bank with which Borrower maintains a checking
account, such statements to be provided to the Lender directly by each such
bank or by the Borrower with respect to a bank that is unwilling to send
them to the Lender;
(e) as soon as available and in any event prior to the end of each
fiscal year of the Borrower, the projected balance sheets and income
statements for each quarter of the next fiscal year, each in reasonable
detail, representing the Borrower's good faith projections and certified by
the Borrower's chief financial officer as being the
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most accurate projections available at the time of submission 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;
(f) as soon as available and in any event within three (3) days after
they are due, copies of tax payments due and paid and written notice of any
and all taxes due but not paid;
(g) 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.
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 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 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, the Permitted
Liens and other security interests approved by the Lender in writing.
Section 6.5 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 6.6 LOCKBOX; COLLATERAL ACCOUNT. The Borrower has provided
the Lender with agreements regarding a lockbox and a collateral account in
connection with the collection of Accounts. The Lender hereby agrees to waive
any Event of Default which arises solely as a result of the Lender's failure to
apply readily available funds in the Borrower's collateral account to the
Obligations pursuant to the terms of this Agreement or the collateral account
agreement.
Section 6.7 MINIMUM BOOK NET WORTH. The Borrower will maintain its
Book Net Worth, determined as at the end of each month, at an amount not less
than $1,310,000.
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<PAGE>
On or before September 30, 1997, the Lender shall establish acceptable covenant
levels for this Section based upon the Borrower's projections for such periods.
The Lender shall negotiate in good faith with the Borrower to establish such
covenant levels, provided that (i) in no event shall such covenant levels be
less stringent than the present levels and (ii) if for any reason the Borrower
and the Lender do not enter into legally binding documentation establishing such
covenants at levels acceptable to the Lender in its reasonable discretion on or
prior to September 30, 1997 such failure shall constitute an Event of Default
hereunder.
Section 6.8 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 or license of Inventory in
the ordinary course of business.
Section 6.9 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. The Borrower will not permit any
tangible Collateral to be located in any state or area in which, in the event
of such location, a financing statement covering such Collateral would be
required to be, but has not in fact been, filed in order to perfect the
Security Interest. The Borrower will not change its name.
Section 6.10 KEY PERSON LIFE INSURANCE. The Borrower shall maintain
insurance upon the life of Robert Pitner, its chief executive officer, with the
death benefit thereunder in an amount not less than $100,000 (the "Life
Insurance Policy"). The right to receive the proceeds of the Life Insurance
Policy shall be assigned to the Lender by the Life Insurance Assignment.
Section 6.11 AUTHORIZED SIGNERS. The secretary or assistant secretary
of the Borrower shall from time to time, upon a change in the persons duly
elected, qualified and acting as the officers or agents of the Borrower,
immediately certify to the Lender the names and signatures of the persons
authorized to sign or to act. The Lender shall be fully protected in relying on
such certificates and on the obligation of the secretary or assistant secretary
immediately to certify to the Lender any change in any facts so certified. The
Lender shall be indemnified and saved harmless by the Borrower from any claims,
demands, expenses, loss or damage resulting from or growing out of honoring or
relying on the signature or other authority (whether or not properly used) of
any officer or person whose name and signature was so certified, or refusing to
honor any signature or authority not so certified.
Section 6.12 REGISTRATION OF PATENTS, COPYRIGHTS, TRADEMARKS, ETC. At
least five (5) days prior to registering, filing or otherwise recording any of
the Borrower's trademarks, tradenames, copyrights or patents in the United
States Patent and Trademark Office, the United States Copyright Office or any
similar federal or state office, the Borrower shall deliver written notice to
the Lender stating the actions being taken and describing the intellectual
property being so registered, filed or recorded. The Borrower hereby agrees
that
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<PAGE>
it shall promptly execute all security agreements and financing statements as
the Lender may require with respect to any such trademark, tradename, copyright
or patent being so registered, filed or recorded.
ARTICLE VII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 7.1 EVENTS OF DEFAULT. An "Event of Default" as used herein
shall mean any of the following:
(a) Failure to pay the Note when demanded, and in this connection
Borrower hereby waives presentment, notice of dishonor and protest;
(b) A petition shall be filed by or against the Borrower under the
United States Bankruptcy Code naming the Borrower as debtor;
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in any Loan Document;
(d) The Life Insurance Policy shall be terminated, by the Borrower or
otherwise; or the Life Insurance Policy shall be scheduled to terminate
within 30 days and the Borrower shall not have delivered a satisfactory
renewal thereof to the Lender; or the Borrower shall fail to pay any
premium on the Life Insurance Policy when due; or the Borrower shall take
any other action that impairs the value of the Life Insurance Policy;
(e) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in the Norwest Bank Credit Agreement.
Section 7.2 RIGHTS AND REMEDIES. As provided in Section 2.3, the
Lender may, at any time and for any reason, refuse to make any requested Advance
or demand payment of the Obligations. In addition, upon the occurrence of an
Event of Default or at any time thereafter, 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 require the Borrower to, and the Borrower hereby
agrees that it shall register, file or otherwise record any and all of the
Borrower's
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<PAGE>
trademarks, tradenames, copyrights and patents in the United States Patent
and Trademark Office, the United States Copyright Office or any similar
state office as the Lender may require. The Lender may also require the
Borrower to, and the Borrower hereby agrees that it shall, promptly execute
all security agreements and financing statements as the Lender may require
with respect to any such trademark, tradename, copyright or patent being so
registered, filed or recorded.
(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 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 United States 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 COSTS AND EXPENSES. The Borrower agrees to pay on demand
all reasonable costs and expenses (including reasonable legal fees) incurred by
the Lender in connection with the Loan Documents 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 (at the rate established from time to time by the Lender
as its audit fees, which fees are currently $62.50 per hour per auditor, plus
out of pocket expenses), and fees and expenses in enforcing this Agreement.
Section 8.3 INDEMNITY. In addition to the payment of expenses
pursuant to Section 8.2, 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
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<PAGE>
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 Liabilities which is permissible
under applicable law. The Borrower's obligation under this Section 8.3 shall
survive the termination of this Agreement and the discharge of the Borrower's
other obligations hereunder.
Section 8.4 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.
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<PAGE>
Section 8.5 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.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the date first above written.
NORWEST BUSINESS CREDIT, INC. NICOLLET PROCESS ENGINEERING, INC
By /s/ Warren G. Lindman By /s/ Robert A. Pitner
-------------------------------- --------------------------------
Warren G. Lindman Robert A. Pitner
Its Assistant Vice President Its President and
Chief Executive Officer
Address: Address:
Norwest Center 420 North Fifth Street
Sixth Street and Marquette Avenue Suite 1040 Ford Centre
Minneapolis, Minnesota 55479-0152 Minneapolis, Minnesota 55401
Telecopy No. 612/341-2472 Telecopy No. (612)339-6027
Federal Tax ID No. 41-1712687 Federal Tax I.D. No. 41-1528120
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<PAGE>
Exhibit A to Credit and Security
Agreement
REVOLVING NOTE
$800,000 Minneapolis, Minnesota
May 28, 1997
For value received, the undersigned, NICOLLET PROCESS ENGINEERING,
INC., a Minnesota corporation (the "Borrower"), hereby promises to pay ON DEMAND
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 Eight
Hundred Thousand Dollars ($800,000) 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.
NICOLLET PROCESS ENGINEERING, INC.
By /s/ Robert A. Pitner
--------------------
Robert A. Pitner
Its President and Chief Executive
Officer
A-1
<PAGE>
Exhibit B to Credit and Security
Agreement
COMPLIANCE CERTIFICATE
To: Warren Lindman
Norwest Business Credit, Inc.
Date: , 199
------------------ ---
Subject: Nicollet Process Engineering, Inc.
Financial Statements
In accordance with our Credit and Security Agreement dated as of May
28, 1997 (the "Credit Agreement"), attached are the financial statements of
Nicollet Process Engineering, 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 BOOK NET WORTH. Pursuant to Section 6.7 of the Credit
Agreement, as of the Reporting Date, the Borrower's Book Net Worth was
$ which / / satisfies / / does not satisfy the requirement that
------------
such amount be not less than $1,310,000 on the Reporting Date.
B-1
<PAGE>
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.
NICOLLET PROCESS ENGINEERING, INC.
By
----------------------------
Its Chief Financial Officer
B-2
<PAGE>
Exhibit C to Credit and Security
Agreement
PERMITTED LIENS
Creditor Collateral Jurisdiction Filing Date Filing No.
- -------- ---------- ------------ ----------- ----------
Larry D. Windows based die Hennepin 01/26/96 1115197
Glendening, casting process County
dba LDG monitoring Software
Software commonly called
Solution Process Vision
Larry D. Windows based die State of 01/25/96 1820120
Glendening, casting process Minnesota
dba LDG monitoring Software
Software commonly called
Solution Process Vision
M&I First Telrad Digital KeyBX Hennepin 07/11/94 1102543
National 128 Telephone System County
Leasing Corp. more particularly
described on Schedule
A [of the UCC-1] and
made a part [t]hereof.
M&I First Telrad Digital KeyBX State of 07/11/94 1687425
National 128 Telephone System Minnesota
Leasing Corp. more particularly
described on Schedule
A [of the UCC-1] and
made a part [t]hereof.
C-1
<PAGE>
CREDIT AND SECURITY AGREEMENT
(Eximbank Guaranteed Loan No. _____________)
Dated as of May 28, 1997
NICOLLET PROCESS ENGINEERING, 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, lease or
license of goods or rendition of services by the Borrower on an open
account or deferred payment basis, whether now existing or hereafter
arising.
"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 Borrowing Base less the outstanding
principal balance of the Revolving Advances.
"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:
<PAGE>
(a) the Maximum Line; or
(b) the difference of $800,000 and 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.
"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 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.
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<PAGE>
"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 that such Default or Event of Default has been cured,
if possible, or waived by the Lender.
"Default Rate" means an annual rate equal to three percent (3%) 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;
(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 NBCI;
(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;
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<PAGE>
(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";
(xiv) Inventory which is subject to the license agreement
set forth in that certain Settlement Agreement by and between the
Borrower and John R. Mickowski dated as of October 1, 1995; and
(xv) 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;
(iii) That portion of Accounts over 60 days past the
original due date or 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 or that portion of Accounts which is over 180
days past invoice date;
(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;
(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 NBCI;
(vii) That portion of Accounts that constitutes finance
charges, service charges or sales or excise taxes;
(viii) That portion of Accounts that are 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;
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<PAGE>
(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) 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 three percent (3%), 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.
"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 or licensed by the
Borrower to customers located outside the US pursuant to Export Orders.
"Life Insurance Assignment" means the Assignment of Life Insurance
Policy as Collateral to be executed by the owner and beneficiary thereof,
in form and substance satisfactory to the Lender, granting the Lender and
NBCI a lien on the Life Insurance Policy to secure payment of the
Obligations.
"Life Insurance Policy" has the meaning given in Section 6.8.
"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.
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<PAGE>
"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 May 27, 1998.
"Maximum Line" means $400,000.
"NBCI" means Norwest Business Credit, Inc., a Minnesota corporation.
"NBCI Credit Agreement" means that certain Credit and Security
Agreement by and between NBCI and the Borrower of even date herewith.
"NBCI Credit Facility" means the credit facility extended to the
Borrower pursuant to the NBCI Credit Agreement.
"NBCI Revolving Advances" means the outstanding principal balance of
the revolving advances as of a given date made by NBCI to the Borrower
pursuant to the NBCI Credit Agreement.
"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 all indebtedness arising under
this Agreement, the Note or any other loan or credit agreement or guaranty
between the Borrower and the Lender, whether now in effect or hereafter
entered into.
"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.
"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.
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<PAGE>
"Security Documents" means this Agreement, the Collateral Account
Agreement, the Life Insurance Assignment and the Support Agreement, each
of even date herewith.
"Security Interest" means the security interests granted under the
Security Documents.
"Servicer" means NBCI.
"Support Agreement" means the Management Support Agreement by Robert
Pitner, of even date herewith.
"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. Notwithstanding the foregoing, in no event shall the tangible
assets referred to in (i) above include 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, 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 will not consider any
request for a Revolving Advance if, after giving effect to such requested
Revolving Advance
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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.
Section 2.2 REQUESTS FOR ADVANCES. The Borrower shall make each
request for a Revolving Advance to the Lender before 11:00 a.m. (Minneapolis
time) of the day of the requested Revolving Advance. Requests may be made in
writing or by telephone. The Lender will not consider any request for a
Revolving Advance 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 and copies of the Export
Orders (or a summary thereof) against which the Borrower is requesting such
Advance. Whenever the Borrower makes a request for an Advance 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 and shall no longer be
considered Eligible Inventory under the NBCI Credit Facility. Any request for
an 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 date of the
request.
Section 2.3 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 2.4 DISCRETIONARY NATURE OF FACILITY. THE LENDER MAY AT ANY
TIME AND FOR ANY REASON REFUSE TO MAKE AN ADVANCE 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 to demand payment of the Advances.
Unless terminated by the Lender at any time or by the Borrower pursuant to
Section 2.6, this Agreement shall remain in effect until the Maturity Date.
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Section 2.5 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 (at the
rate established from time to time by the Lender or the Servicer 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 2.6 TERMINATION BY BORROWER. The Borrower may terminate this
Agreement at any time 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 by: (i) giving at least 30
days' prior written notice to the Lender of the Borrower's intention to
terminate this Agreement, and (ii) terminating the NBCI Credit Agreement
pursuant to the terms thereof (including, without limitation, payment to NBCI
of the prepayment fee required thereunder).
Section 2.7 MANDATORY PREPAYMENT. Without notice or demand, if the
outstanding principal balance of the Revolving Advances shall at any time
exceed the Borrowing Base, the Borrower shall immediately prepay the Revolving
Advances to the extent necessary to eliminate such excess.
Section 2.8 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 2.9 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. 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 2.10 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.
Section 2.11 SUSPENSION OF LINE USE, LINE MAINTENANCE.
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(a) SUSPENSION OF LINE USE. So long as no Default Period exists,
the Borrower may elect to suspend its right to request Advances and NBCI
Revolving Advances pursuant to the terms of this Section 2.11. If the
Borrower elects not to request any Advances and NBCI Advances during an
upcoming month or months and suspend use of this Credit Facility and the
NBCI Credit Facility (each a "Non-Use Period"), the Borrower must deliver
written notice to the Lender at least ten (10) days prior to the first day
of any such Non-Use Period, which notice must state (i) that an election
hereunder has been made, and (ii) the beginning date of the Non-Use
Period. A Non-Use Period may only begin on the first day of a calendar
month.
(b) NOTICE PRIOR TO USE OF LINE. After a Non-Use Period has been
initiated, the Lender shall not consider making any Advance hereunder
until thirty (30) days after it has received written notice from the
Borrower requesting that the Non-Use Period be terminated and this Credit
Facility and the NBCI Credit Facility be reactivated.
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 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 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, license 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 Borrower
or by some other Person who subsequently transfers such Person's interest
to 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 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 Borrower's rights to payment in the form of
all present and future accounts, contract rights, loans and obligations
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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 Borrower;
GENERAL INTANGIBLES: All of 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 Borrower's name, and the goodwill of Borrower's business;
and
INVESTMENT PROPERTY: All of 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 all substitutions and replacements for and products of any
of the foregoing property and together with proceeds of any and all of the
foregoing property and, in the case of all tangible property, together
with all accessions and together with (i) all accessories, attachments,
parts, equipment and repairs now or hereafter attached or affixed to or
used in connection with any such goods, and (ii) 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 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.
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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 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, sub-license 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. The foregoing license includes
the right to reproduce, distribute, publicly perform, display and create
derivative works from any and all of the Borrower's copyrights.
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 THE LENDER'S WILLINGNESS TO
CONSIDER MAKING THE INITIAL REVOLVING ADVANCE. The Lender's willingness to
consider making an initial Advance 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.
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(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) A participation and servicing agreement, properly signed by the
Servicer.
(g) Copies of the Borrower's audited financial statements with full
disclosure for the last three (3) fiscal years.
(h) Copies of the Borrower's federal tax returns for the last year
together with all schedules thereto.
(i) The Life Insurance Assignment, properly executed by the
beneficiary and owner thereof, and the Life Insurance Policy, each in form
and substance satisfactory to the Lender, together with such evidence as
the Lender may request that the Life Insurance Policy is subject to no
assignments or encumbrances other than the Life Insurance Assignment.
(j) The Collateral Account Agreement, properly executed by the
Borrower.
(k) 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 those security interests or liens set forth in Exhibit E
hereto (the "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.
(l) 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
agents authorized to execute and deliver the Loan Documents and other
instruments, agreements and certificates, including Advance requests, on
the Borrower's behalf.
(m) 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.
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(n) 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.
(o) An Officer's certificate from an officer of the Borrower
confirming, in his personal capacity, the representations and warranties
set forth in Article V and the Disclosure.
(p) The Support Agreement in favor of the Lender, properly executed
by Robert Pitner in his personal capacity.
(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.
(s) An Intercreditor Agreement by and between the Lender and NBCI.
(t) Such other loan documents as the Lender may reasonably require,
and such financial records and information as the Lender may require in
its sole discretion.
Section 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES. Advance on such
date:
(a) the representations and warranties contained in Article V are
correct on and as of the date of such Advance as though made on and as of
such date, except to the extent that such representations and warranties
relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from
such Advance which constitutes a Default or an Event of Default.
ARTICLE 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
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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 its
audited financial statements for its fiscal year ended August 31, 1996 and its
unaudited financial statements for the fiscal year to date ending April 30,
1997, each certified by the Borrower. Those statements fairly present the
Borrower's financial condition as of the dates indicated therein and the
results of its operations for the periods then ended and were prepared in
accordance with GAAP. 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
skill 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
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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:
(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; 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 Section 6.9 and (iii) a certificate of the Borrower's chief
financial officer, substantially in the form of Exhibit C hereto, 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, 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 in accordance
with GAAP, subject to year-end audit adjustments, PROVIDED, HOWEVER, that
during any month which is the end of a fiscal quarter of the Borrower, the
financial statements submitted within 20 days after the end of the month
shall be considered preliminary and the Borrower shall deliver its final,
completed financial statements, as filed in the Borrower's 10-QSB, within
45 days after the end of such month; 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 6.9;
(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;
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(d) within five (5) Business 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;
(e) as soon as available and in any event prior to the end of each
fiscal year of the Borrower, the projected balance sheets and income
statements for each quarter of the next fiscal 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;
(f) as soon as available and in any event within three (3) days
after they are due, copies of tax payments due and paid and written notice
of any and all taxes due but not paid;
(g) 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;
(h) 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);
(i) immediately after a proceeding in bankruptcy or an action for
debtor's relief is filed by, against, or on behalf of the Borrower;
(j) 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 (i) above; and
(k) immediately after the Borrower begins any procedure for its
dissolution or liquidation, or a procedure therefor has been commenced
against it.
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.
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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 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, the
Permitted Liens, 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 an agreement regarding a Collateral Account in connection with the
collection of Accounts. The Lender hereby agrees to waive any Event of Default
which arises solely as a result of the Lender's failure to apply readily
available funds in the Borrower's Collateral Account to the Obligations
pursuant to the terms of this Agreement or the Collateral Account Agreement.
Section 6.8 KEY PERSON LIFE INSURANCE. The Borrower shall maintain
insurance upon the life of Robert Pitner, its chief executive officer, with the
death benefit thereunder in an amount not less than $100,000 (the "Life
Insurance Policy"). The right to receive the proceeds of the Life Insurance
Policy shall be assigned to the Lender by the Life Insurance Assignment.
Section 6.9 MINIMUM TANGIBLE NET WORTH. The Borrower will maintain,
at all times, its Tangible Net Worth, determined as at the end of each month,
at an amount not less than $250,000.
Section 6.10 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 or license of Inventory
in the ordinary course of business.
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Section 6.11 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 6.12 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. The Borrower will not permit any
tangible Collateral to be located in any state or area in which, in the event
of such location, a financing statement covering such Collateral would be
required to be, but has not in fact been, filed in order to perfect the
Security Interest. The Borrower will not change its name.
Section 6.13 AUTHORIZED SIGNERS. The secretary or assistant
secretary of the Borrower shall from time to time, upon a change in the persons
duly elected, qualified and acting as the officers or agents of the Borrower,
immediately certify to the Lender the names and signatures of the persons
authorized to sign or to act. The Lender shall be fully protected in relying on
such certificates and on the obligation of the secretary or assistant secretary
immediately to certify to the Lender any change in any facts so certified. The
Lender shall be indemnified and saved harmless by the Borrower from any claims,
demands, expenses, loss or damage resulting from or growing out of honoring or
relying on the signature or other authority (whether or not properly used) of
any officer or person whose name and signature was so certified, or refusing to
honor any signature or authority not so certified.
Section 6.14 REGISTRATION OF PATENTS, COPYRIGHTS, TRADEMARKS, ETC.
At least five (5) days prior to registering, filing or otherwise recording any
of the Borrower's trademarks, tradenames, copyrights or patents in the United
States Patent and Trademark Office, the United States Copyright Office or any
similar federal or state office, the Borrower shall deliver written notice to
the Lender stating the actions being taken and describing the intellectual
property being so registered, filed or recorded. The Borrower hereby agrees
that it shall promptly execute all security agreements and financing statements
as the Lender may require with respect to any such trademark, tradename,
copyright or patent being so registered, filed or recorded.
ARTICLE VII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 7.1 EVENTS OF DEFAULT. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of the Obligations when they become due
and payable;
(b) Any payment default shall occur under any agreement (other than
this Agreement) between the Borrower and the Lender, or the Lender shall
accelerate or
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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;
(c) 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;
(d) Eximbank shall repudiate, purport to revoke or fail to perform
its obligations under the Master Guaranty;
(e) Any material litigation is commenced against the Borrower and is
not withdrawn within thirty (30) calendar days of filing;
(f) A petition shall be filed by or against the Borrower under the
United States Bankruptcy Code naming the Borrower as debtor;
(g) The Life Insurance Policy shall be terminated, by the Borrower
or otherwise; or the Life Insurance Policy shall be scheduled to terminate
within 30 days and the Borrower shall not have delivered a satisfactory
renewal thereof to the Lender; or the Borrower shall fail to pay any
premium on the Life Insurance Policy when due; or the Borrower shall take
any other action that impairs the value of the Life Insurance Policy;
(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 2.4, the
Lender may, at any time and for any reason, refuse to make any requested
Advance or demand payment of the Obligations. 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.
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(b) The Lender may require the Borrower to, and the Borrower hereby
agrees that it shall register, file or otherwise record any and all of the
Borrower's trademarks, tradenames, copyrights and patents in the United
States Patent and Trademark Office, the United States Copyright Office or
any similar state office as the Lender may require. The Lender may also
require the Borrower to, and the Borrower hereby agrees that it shall,
promptly execute all security agreements and financing statements as the
Lender may require with respect to any such trademark, tradename,
copyright or patent being so registered, filed or recorded.
(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 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 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 gross negligence or willful misconduct. The
Servicer's duties shall be mechanical and administrative in nature;
nothing in this Agreement, express or implied, is intended to or shall be
so construed as to impose upon the Servicer any obligations with respect
to the Loan
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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.
(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 reasonable costs and expenses (including reasonable legal fees) incurred by
the Lender in connection with the Loan Documents 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
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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 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 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 , 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.
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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.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the date first above written.
NORWEST BANK MINNESOTA, NATIONAL NICOLLET PROCESS ENGINEERING, INC.
ASSOCIATION
By /s/ Christopher A. Cudak By /s/ Robert A. Pitner
------------------------ --------------------
Christopher A. Cudak Robert A. Pitner
Its Vice President Its President and Chief Executive
Officer
Address: Address:
Norwest Center 420 North 5th Street
Sixth Street and Marquette Avenue Suite 1040 Ford Centre
Minneapolis, Minnesota 55479-0085 Minneapolis, Minnesota 55401
Telecopy No. 612/667-2269 Telecopy No. 612/339-6027
Federal Tax ID No. 41-1592157 Federal Tax I.D. No. 41-1528120
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Exhibit A to Credit and Security
Agreement
REVOLVING NOTE
$400,000 Minneapolis, Minnesota
May 28, 1997
For value received, the undersigned, NICOLLET PROCESS ENGINEERING, INC., a
Minnesota corporation (the "Borrower"), hereby promises to pay on the
Termination Date under 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 Hundred Thousand Dollars ($400,000) 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.
NICOLLET PROCESS ENGINEERING, INC.
By /s/ Robert A. Pitner
--------------------
Robert A. Pitner
Its President and Chief Executive
Officer
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Exhibit B to Credit and Security
Agreement
EXPORT-IMPORT BANK OF THE UNITED STATES
WORKING CAPITAL GUARANTEE PROGRAM
BORROWER AGREEMENT
THIS BORROWER AGREEMENT (this "Agreement") is made and entered into by
NICOLLET PROCESS ENGINEERING, INC., a Minnesota corporation (the "Borrower"),
and is acknowledged by NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national
banking association (the "Lender").
RECITALS
A. The Lender shall make a loan (the "Loan") to the Borrower for the
purpose of providing the Borrower with pre-export working capital to finance
the manufacture, production or purchase and subsequent export sale of the Items
(as hereinafter defined).
B. The Loan shall be in a principal amount (the "Loan Amount") not to
exceed at any time outstanding the amount specified in Section (5)(A) of the
Loan Authorization Agreement between the Lender and the Export-Import Bank of
the United States ("Eximbank") which is attached hereto as Exhibit A and
incorporated herein as a part of this Agreement. If the Loan is being made
pursuant to the Lender's Delegated Authority from Eximbank, all references
herein to the Loan Authorization Agreement shall be deemed to be to the Loan
Authorization Notice provided to Eximbank and the Borrower by the Lender.
C. The Loan shall be evidenced by a valid and enforceable promissory
note payable by the Borrower to the order of the Lender (the "Note") and shall
be made pursuant to a written agreement related solely thereto between the
Borrower and the Lender (the "Loan Agreement").
D. A condition precedent to the making of the Loan by the Lender is that
Eximbank guarantee the payment of ninety percent (90%) of the Loan Amount and
all interest accrued thereon, subject to the terms and conditions of a master
guarantee agreement (the "Master Guarantee Agreement") between Eximbank and the
Lender.
E. In consideration for and as a condition precedent to the Lender's
making the Loan and Eximbank's entering into the Master Guarantee Agreement,
the Borrower shall execute this Agreement for the benefit of the Lender and
Eximbank.
NOW, THEREFORE, the Borrower hereby agrees as follows:
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ARTICLE I
DEFINITIONS
"Accounts Receivable" shall mean those trade accounts from the sale of the
Items due and payable to the Borrower in the United States and any notes,
drafts, letters of credit or insurance proceeds supporting payment thereof.
"Availability Date" shall mean the last date on which the Lender may make
a Disbursement as set forth in Section (10) of the Loan Authorization Agreement
or, if such date is not a Business Day, the next Business Day thereafter.
"Borrowing Base" shall mean the Collateral Value as discounted by the
applicable Disbursement Rate(s).
"Borrowing Base Certificate" shall mean the certificate in form provided
by the Lender and executed by the Borrower setting forth the Borrowing Base
supporting one or more Disbursements.
"Business Day" shall mean any day on which the Federal Reserve Bank of New
York is open for business.
"Buyer" shall mean an entity which has entered into one or more Export
Orders with the Borrower.
"Closing Date" shall mean the date on which the Loan Documents are
executed by the Borrower.
"Collateral" shall mean the property of the Borrower in which the Borrower
has granted to the Lender a valid and enforceable security interest as security
for the payment of all principal and interest due under the Loan, and which is
identified in Section (6) of the Loan Authorization Agreement, including all
proceeds (cash and non-cash) thereof.
"Collateral Value" shall mean at any given time the value of all
Collateral against which Disbursements may be made as set forth in Section
(5)(C) of the Loan Authorization Agreement, valued according to GAAP.
"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.
"Debarment Regulations" shall have the meaning set forth in Section 2.16.
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"Disbursed Amount" shall mean the aggregate outstanding amount of the
Disbursements.
"Disbursement" shall mean an advance of the Loan from the Lender to the
Borrower under the Loan Agreement.
"Disbursement Rate" shall mean the rate specified in Section (5)(C) of the
Loan Authorization Agreement for each category of Collateral.
"Dollars" or "$" shall mean the lawful money of the United States of
America.
"Export Order" shall mean a written export order or contract for the
purchase by the Buyer from the Borrower of any of the Items.
"GAAP" shall mean the generally accepted accounting principles issued by
the American Institute of Certified Public Accountants.
"Guarantor" shall mean each person or entity, if any, identified in
Section (3) of the Loan Authorization Agreement who shall guarantee (jointly
and severally if more than one) the Borrower's obligation to repay all amounts
outstanding under the Note.
"Inventory" shall mean the raw materials, work-in-process and finished
goods purchased or manufactured by the Borrower for resale and located in the
United States.
"Items" shall mean the finished goods or services which are intended for
export, as specified in Section (4)(A) of the Loan Authorization Agreement.
"Letter of Credit" shall mean an irrevocable letter of credit subject to
[UCP 500], payable in the United States or at the issuing bank and issued for
the benefit of the Borrower on behalf of a Buyer in connection with the
purchase of the Items.
"Loan Documents" shall mean the Note, the Loan Agreement, this Agreement
and any other instrument, agreement or document previously, simultaneously or
hereafter executed by the Borrower or any Guarantors evidencing, securing,
guaranteeing or in connection with the Loan.
"Principals" shall have the meaning set forth in Section 2.16.
"Revolving Loan" shall mean a Loan under which amounts disbursed and
repaid may be disbursed on a continuous basis during the term of the Loan.
"Transaction Specific Loan" shall mean a Loan under which amounts
disbursed and repaid may not be disbursed again.
"U.S." or "United States" shall mean the United States of America and its
territorial possessions.
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"U.S. Content" shall mean with respect to any Item all the labor,
materials and services which are of U.S. origin or manufacture, and which are
incorporated into an Item in the United States
ARTICLE II
OBLIGATIONS OF THE BORROWER
Until payment in full of the Loan, the Borrower agrees to the following:
Section 2.1 USE OF DISBURSEMENTS. The Borrower shall use Disbursements
only for the purpose of enabling the Borrower to finance the cost of
manufacturing, producing, purchasing or selling the Items. The Borrower may not
use Disbursements for the purpose of: (a) servicing any of the Borrower's
pre-existing or future indebtedness unrelated to the Loan; (b) acquiring fixed
assets or capital goods for use in the Borrower's business; (c) acquiring,
equipping or renting commercial space outside of the United States; (d) paying
the salaries of non-U.S. citizens or non-U.S. permanent residents who are
located in offices outside the United States; or (e) serving as a retainage or
warranty bond.
In addition, Disbursements may not be used to finance the manufacture,
purchase or sale of any of the following:
(a) Items to be sold to a Buyer located in a country in which Eximbank is
legally prohibited from doing business as designated in the Country Limitation
Schedule;
(b) that part of the cost of the Items which is not U.S. Content unless
such part is not greater than fifty percent (50%) of the cost of the Items and
is incorporated into the Items in the United States;
(c) defense articles or defense services; or
(d) without Eximbank's prior written consent, any Items to be used in the
construction, alteration, operation or maintenance of nuclear power,
enrichment, reprocessing, research or heavy water Production facilities.
Section 2.2 BORROWING BASE CERTIFICATES AND EXPORT ORDERS. In order to
receive a Disbursement under the Loan, the Borrower shall deliver to the Lender
a Borrowing Base Certificate current within the past five (5) Business Days and
a copy of the Export Order(s) (or, for Revolving Loans, if permitted by the
Lender, a written summary of the Export Orders) against which the Borrower is
requesting a Disbursement. If the Lender permits summaries of Export Orders,
the Borrower shall also deliver promptly to the Lender copies of any Export
Orders requested by the Lender. Additionally, the Borrower shall deliver to the
Lender at least once every thirty (30) calendar days a Borrowing Base
Certificate current within the past five (5) Business Days, which requirement
may be satisfied by submission of a Borrowing Base Certificate when requesting
a Disbursement.
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Section 2.3 EXCLUSIONS FROM THE BORROWING BASE. In determining the
amount of a requested Disbursement, the Borrower shall exclude from the
Borrowing Base the following:
(a) any Inventory which is not located in the United States;
(b) any demonstration Inventory or Inventory sold on consignment;
(c) any Inventory consisting of proprietary software;
(d) any Inventory which is damaged, obsolete, returned, defective,
recalled or unfit for further processing;
(e) any Inventory which has been previously exported from the United
States;
(f) any Inventory which constitutes defense articles or defense services
or any Accounts Receivable generated by sales of such Inventory;
(g) any Inventory which is to be incorporated into Items destined for
shipment to, and any Account Receivable in the name of a Buyer located in, a
country in which Eximbank is legally prohibited from doing business as
designated in the Country Limitation Schedule;
(h) any Inventory which is to be incorporated into Items destined for
shipment to, and any Account Receivable in the name of a Buyer located in, a
country in which Eximbank coverage is not available for commercial reasons as
designated in the Country Limitation Schedule, unless and only to the extent
that such Items are to be sold to such country on terms of a Letter of Credit
confirmed by a bank acceptable to Eximbank:
(i) any Inventory which is to be incorporated into Items whose sale would
result in an ineligible Account Receivable;
(j) any Account Receivable with a term in excess of net one hundred
eighty (180) days;
(k) any Account Receivable which is more than sixty (60) calendar days
past the original due date, unless it is insured through Eximbank export credit
insurance for comprehensive commercial and political risk, or through Eximbank
approved private insurers for comparable coverage, in which case ninety (90)
calendar days shall apply;
(l) any intra-company Account Receivable or any Account Receivable from a
subsidiary of the Borrower, from a person or entity with a controlling interest
in the Borrower or from an entity which shares common controlling ownership
with the Borrower;
(m) any Account Receivable evidenced by a Letter of Credit, until the
date of shipment of the Items covered by the subject Letter of Credit;
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(n) any Account Receivable which the Lender or Eximbank, in its
reasonable judgment, deems uncollectible for any reason;
(o) any Account Receivable payable in a currency other than Dollars,
except as may be approved in writing by Eximbank;
(p) any Account Receivable from a military Buyer, except as may be
approved in writing by Eximbank; and
(q) any Account Receivable due and collectible outside the United States,
except as may be approved in writing by Eximbank.
Section 2.4 SCHEDULES, REPORTS AND OTHER STATEMENTS. The Borrower shall
submit to the Lender in writing each month (a) an Inventory schedule for the
preceding month and (b) an Accounts Receivable aging report for the preceding
month detailing, the terms of the amounts due from each Buyer. The Borrower
shall also furnish to the Lender promptly upon request such information,
reports, contracts, invoices and other data concerning the Collateral as the
Lender may from time to time specify.
Section 2.5 ADDITIONAL SECURITY OR PAYMENT. The Borrower shall at all
times ensure that the Borrowing Base exceeds the Disbursed Amount. If informed
by the Lender or if the Borrower otherwise has actual knowledge that the
Borrowing Base is at any time less than the Disbursed Amount, the Borrower
shall, within five (5) Business Days, either (a) furnish additional security to
the Lender, in form and amount satisfactory to the Lender and Eximbank, or (b)
pay to the Lender an amount equal to the difference between the Disbursed
Amount and the Borrowing Base.
Section 2.6 CONTINUED SECURITY INTEREST. The Borrower shall notify the
Lender in writing within five (5) Business Days if (a) the Borrower changes its
name or identity in any manner, (b) the Borrower changes the location of its
principal place of business, (c) the nature of any of the Collateral is changed
or any of the Collateral is transferred to another location or (d) any of the
books or records related to the Collateral are transferred to another location.
The Borrower shall execute such additional financing statements or other
documents as the Lender may reasonably request in order to maintain its
perfected security interest in the Collateral.
Section 2.7 INSPECTION OF COLLATERAL. The Borrower shall permit the
representatives of the Lender and Eximbank to make at any time during normal
business hours reasonable inspections of the Collateral and of the Borrower's
facilities, activities, and books and records, and shall cause its officers and
employees to give full cooperation and assistance in connection therewith.
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Section 2.8 NOTICE OF DEBTOR'S RELIEF, DISSOLUTION AND LITIGATION. The
Borrower shall notify the Lender in writing within five (5) Business Days of
the occurrence of any of the following:
(a) a proceeding in bankruptcy or an action for debtor's relief is filed
by, against, or on behalf of the Borrower;
(b) 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 (a) above;
(c) the Borrower begins any procedure for its dissolution or liquidation,
or a procedure therefore has been commenced against it; or
(d) any material litigation is filed against the Borrower.
Section 2.9 INSURANCE. The Borrower shall maintain insurance coverage
in the manner and to the extent customary in businesses of similar character.
Section 2.10 MERGER OR CONSOLIDATION. Without the prior written consent
of Eximbank and the Lender, the Borrower shall not (a) merge or consolidate
with any other entity, (b) sell, lease, transfer or otherwise dispose of any
substantial part of its assets, or any part of its assets which are essential
to the conduct of its business or operations, (c) make any material change in
its organizational structure or identity, or (d) enter into any agreement to do
any of the foregoing.
Section 2.11 REBORROWINGS AND REPAYMENT TERMS. (a) If the Loan is a
Revolving Loan, provided that the Borrower is not in default under any of the
Loan Documents, the Borrower may borrow, repay and reborrow amounts under the
Loan until the close of business on the Availability Date. Unless the Revolving
Loan is renewed or extended by the Lender, the Borrower shall pay in full the
outstanding Loan Amount and all accrued and unpaid interest thereon no later
than the first Business Day after the Availability Date.
(b) If the Loan is a Transaction Specific Loan, the Borrower shall,
within two (2) Business Days of the receipt thereof, pay to the Lender (for
application against the outstanding Loan Amount and accrued and unpaid interest
thereon) all checks, drafts, cash and other remittances it may receive in
payment or on account of the Accounts Receivable or any other Collateral, in
precisely the form received (except for the endorsement of the Borrower where
necessary). Pending such deposit, the Borrower shall not commingle any such
items of payment with any of its other funds or property, but will hold them
separate and apart.
Section 2.12 CROSS DEFAULT. The Borrower shall be deemed in default under
the Loan if the Borrower fails to pay when due any amount payable to the Lender
under any loan to the Borrower not guaranteed by Eximbank.
-7-
<PAGE>
Section 2.13 FINANCIAL STATEMENTS. The Borrower shall provide quarterly
financial statements to the Lender no later than forty-five (45) days after the
end of each quarter. This is in addition to any other financial statements that
may be required by the Lender under the Loan Agreement.
Section 2.14 TAXES, JUDGMENTS AND LIENS. The Borrower shall remain
current on all of its federal, state and local tax obligations. In addition, the
Borrower shall notify the Lender in the event (i) any judgment is rendered
against the Borrower, or (ii) any lien is filed against any of the assets of the
Borrower.
Section 2.15 MUNITIONS LIST. If any of the Items 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), the Borrower shall
send a written notice promptly to the Lender describing the Item(s) and the
corresponding invoice amount.
Section 2.16 SUSPENSION AND DEBARMENT, ETC. On the date of this Agreement
neither the Borrower nor its Principals (as defined below) are (A) debarred,
suspended, proposed for debarment with a final determination skill 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 United States 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 United States 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
2.16 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 Governmentwide 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
Governmentwide Debarment and Suspension (Nonprocurement) regulations (Common
Rule), 60 Fed. Reg. 33037 (June 26, 1995).
Section 2.17 SPECIAL CONDITIONS. The Borrower shall comply with all
Special Conditions, if any, referenced in Section (11) of the Loan Authorization
Agreement or the Loan Authorization Notice.
-8-
<PAGE>
ARTICLE III
RIGHTS AND REMEDIES
Section 3.1 INDEMNIFICATION. Upon Eximbank's payment of a claim to the
Lender in connection with the Loan pursuant to the Master Guarantee Agreement,
Eximbank shall assume all rights and remedies of the Lender under the Loan
Documents and may enforce any such rights or remedies against the Borrower, the
Collateral and any Guarantors. Additionally, the Borrower shall hold Eximbank
and the Lender harmless from and indemnify them against any and all liabilities,
damages, claims, costs and losses incurred or suffered by either of them
resulting from (a) any materially incorrect certification or statement knowingly
made by the Borrower or its agent to Eximbank or the Lender in connection with
the Loan, this Agreement or any of the other Loan Documents or (b) any material
breach by the Borrower of the terms and conditions of this Agreement or any of
the other Loan Documents. The Borrower also acknowledges that any statement,
certification or representation made by the Borrower in connection with the Loan
is subject to the penalties provided in Article 18 U.S.C. Section 1001.
ARTICLE IV
MISCELLANEOUS
Section 4.1 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York, United States of
America.
Section 4.2 NOTIFICATION. All notifications required by this Agreement
shall be given in the manner provided in the Loan Agreement.
Section 4.3 PARTIAL INVALIDITY. If at any time any of the provisions of
this Agreement becomes illegal, invalid or unenforceable in any respect under
the law of any jurisdiction, neither the legality, the validity nor the
enforceability of the remaining provisions hereof shall in any way be affected
or impaired.
-9-
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Agreement to be duly
executed as of the 28th day of May, 1997.
NICOLLET PROCESS ENGINEERING, INC.
By: /s/ Robert A. Pitner
-------------------------------
Robert A. Pitner
Its President and Chief Executive Officer
ACKNOWLEDGED:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By: /s/ Christopher A. Cudak
---------------------------------
Christopher A. Cudak
Its Vice President
Guaranteed Loan No.
--------------------
-10-
<PAGE>
Exhibit A
Loan Authorization Agreement
[Two originals to be provided to Eximbank]
To: Export-Import Bank of the United States
811 Vermont Avenue, N.W.
Washington, D.C. 20571
Attention: Vice President - United States Division
LOAN AUTHORIZATION NOTICE
We hereby notify the Export-Import Bank of the United States ("Eximbank")
that, pursuant to the delegated authority granted by Eximbank to the
undersigned institution (the "Lender") under the Delegated Authority Letter
Agreement referred to below between the Leader and Eximbank, we have issued an
Eximbank Guarantee under the Master Guarantee Agreement between Eximbank and
the Lender, of the loan identified below from the Lender to the Borrower (the
"Loans"). The Loan is subject to the specific terms and conditions set forth
below. Unless otherwise defined, the capitalized terms used herein shall have
the meanings set forth in the Master Guarantee Agreement.
(1) DOCUMENTATION AND LOCATION OF LOAN DOCUMENTS:
Name of Lender: Norwest Bank Minnesota, National Association
----------------------------------------------------------
Delegated Authority Letter Agreement Number: MN -DA- 96-A-001
------ ---------------
Master Guarantee Agreement Number: MN -MGA- 96 -001
----- ------------------------
<PAGE>
Borrower Agreement Date: May 28, 1997
--------------------------------------------------
Location of Loan Documents: NORWEST BUSINESS CREDIT, INC., NORWEST CENTER,
SIXTH STREET AND MARQUETTE AVENUE, MINNEAPOLIS, MINNESOTA 55479-0152
If the Borrower was assisted by a city/state export agency, please provide
the name of the agency, contact person, and telephone number.
No
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(2) BORROWER'S NAME AND ADDRESS: The full name, address, contact person,
telephone and telefax numbers of the Borrower are as follows:
Nicollet Process Engineering, Inc. Tel: (612) 339-7958
420 North 5th Street, Suite 1040 Ford Centre
Minneapolis, Minnesota 55401 Fax: (612) 339-6027
Attention: Robert A. Pitner
IS THE BORROWER A SMALL BUSINESS AS STIPULATED BY SBA GUIDELINES ?
X YES NO
------- -------
-2
<PAGE>
(3) GUARANTOR'S NAME AND ADDRESS: The full name, address, telephone and
telefax numbers of each Guarantor are as follows:
NONE
[If there are no guarantors, the word "None" must be inserted above in
order for this Notice to be considered complete.]
(4) THE ITEMS TO BE FINANCED:
A. The Items: (Complete description of goods and services to be
exported, e.g. machine tools, electronic components, logs, etc.)
Process Monitoring and Control Systems
Client/Server Software at the Host Level
Machine Diagnostic Tools for the Die Casting and Plastic Injection
Molding Industries
SIC Code(s) 3823
--------
B. Are Performance Guarantees (e.g. bid bonds, performance bonds,
advance payment guarantees in the form of stand-by letters of credit)
to be issued under this Loan?
/ / Yes If yes, approximately what percentage of the Loan
will be utilized for performance guarantees? _______
-3
<PAGE>
/X/ No
(5) LOAN AMOUNT, DISBURSEMENT TERMS AND CONDITIONS AND DISBURSEMENT RATES:
A. Loan Amount: $400,000
B. Disbursement Terms and Conditions:
/X/ Disbursements will be made against multiple Export Orders.
/ / Disbursements will be made against a specific contract.
C. Disbursement Rates by Categories of Collateral:
1. Inventory: The Disbursement Rate for Collateral categorized as
Inventory shall be as follows:
75% percent
------
2. Accounts Receivable: The Disbursement Rate for Collateral
categorized as Accounts Receivable shall be as follows:
90% percent
------
3. Other (specify) None
---------
-4
<PAGE>
_____ percent
D. Type of Loan:
/X/ The Loan is a Revolving Loan.
For Revolving Loans identify the top three countries of export:
England (UK) (100%)
-----------------------------------
-----------------------------------
-----------------------------------
Estimated Total Export Sales to be supported by this Loan: $1,000,000
----------
/ / The Loan is a Transaction Specific Loan.
For Transaction Specific Loans identify contract or purchase order:
Country of Export:
----------------------------
Contract Price: $
---------------------------
Contract Number:
----------------------------
-5
<PAGE>
Contract Date:
----------------------------
Parties:
----------------------------
----------------------------
(6) SECURITY INTERESTS IN THE LOAD COLLATERAL:
Valid and enforceable, perfected security interests in the following
Collateral, and the proceeds thereof:
A. FIRST PRIORITY IN THE FOLLOWING;
/ / All Inventory.
/X/ All Export-related Inventory.
/ / Contract-related Inventory.
/ / All Accounts Receivable.
/X/ All Export-related Accounts Receivable.
/ / Contract-related Accounts Receivable.
-6
<PAGE>
/X/ Other collateral, please specify.
JUNIOR SECURITY INTEREST IN ALL EQUIPMENT, ALL GENERAL
INTANGIBLES, ALL DOMESTIC ACCOUNTS RECEIVABLE AND ALL DOMESTIC
INVENTORY
B. ADDITIONAL COLLATERAL:
/ / Other, please specify.
---------------------------------------
----------------------------------------------------------------------
To the extent applicable, "Export-related Inventory" shall mean all
of the Borrower's Inventory which is intended to be sold pursuant to
Export Orders. Unless the Export-related Inventory can be
effectively segregated, for purposes of claim recoveries under the
Master Guarantee Agreement, the Export-related Inventory will be
determined on a PRO-RATA basis comparing as of the date of default
the amount outstanding under the Loan with the aggregate amount
outstanding under all other short term inventory financing of the
Borrower. IF THE LENDER ELECTS TO SEPARATELY COLLATERALIZE THE TEN
PERCENT (10%) PORTION OF THE LOAN NOT GUARANTEED BY EXIMBANK, THE
LENDER SHALL FULLY DESCRIBE SUCH SEPARATE COLLATERAL IN SECTION 8 OF
THIS NOTICE IN ORDER FOR THIS NOTICE TO BE CONSIDERED COMPLETE.
(7) TERMS OF SALE (not to exceed 180 days; check all that apply; at least one
must be checked in order for this Notice to be considered complete):
/X/ Confirmed irrevocable letters of credit.
/X/ Irrevocable letters of credit.
-7
<PAGE>
/ / Open account insured through Eximbank export credit insurance for
comprehensive and political risk.
/ / Open account insured through non-Eximbank export credit insurance
for comprehensive commercial and political risk.
/X/ Cash payment received prior to shipment.
/X/ Open account UNinsured.
/X/ Sight drafts documents against payment (also known as "documentary
collections").
/ / Other terms. [If checked, any such terms of sale must be fully
described on an attached addendum in order for this Notice to be
considered complete.]
(8) LENDER'S INTEREST RATE: Norwest Base Rate + 3%
----------------------------
Other Fees: NONE
Are you separately collateralizing the 10% portion of this Loan? No x
---
_____ Yes If yes, please specify separate collateral.
--------------------
---------------------------------------------------------------------------
Note: The Lender cannot collateralize its retained 10% risk with cash,
cash equivalents or marketable securities from either the Borrower, any
Guarantor, or any
-8
<PAGE>
of the Exporter's Affiliates (as defined in Section 7(b)
of the Delegated Authority Letter Agreement) or any third party
guarantors.
(9) FACILITY FEE:
/X/ Loan Amount is less than or equal to $2,000,000: In connection with
the commitment of the Guarantee, the Lender shall charge the
Borrower a Facility Fee equal to 75 basis points of the total Loan
Amount for a term of up to six (6) months or less, or 150 basis
points of the total Loan Amount for a term of greater than six (6)
and up to twelve (12) months. In all cases, the Lender shall remit
25 basis points of the total Loan Amount to Eximbank within
five (5) Business Days after the Closing Date.
Facility Fee remitted: $1,000.00
---------
/ / Loan amount is for more than $2,000,000: In connection with the
commitment of the Guarantee, the Lender shall charge the Borrower a
Facility Fee as shown in the chart below:
- --------------------------------------------------------------------------------
EXIMBANK
TERM OF LOAN LOAN AMOUNT: FACILITY FEE = RECEIVES + LENDER RETAINS
Up to six months
First $2,000,000 75 b.p. 25 b.p. 50 b.p.
Portion over $2,000,000 75 b.p. 37.5 b.p. 37.5 b.p.
Greater than 6
months, up to 12
months
First
Portion over $2,000,000 150 b.p. 25 b.p. 125 b.p.
- --------------------------------------------------------------------------------
-9
<PAGE>
- --------------------------------------------------------------------------------
$2,000,000 150 b.p. 75 b.p. 75 b.p.
b.p. = basis point
For a Guarantee with a term exceeding 12 months, the Facility Fee will be pro-
rated accordingly.
- --------------------------------------------------------------------------------
Facility Fee on first $2,000,000 $
----------------------
Facility Fee on portion over $2,000,000 +
----------------------
Total Facility Fee remitted: $
----------------------
(10) AVAILABILITY DATE: May 27, 1998 .
---------------------
(11) COUNTRY LIMITATION SCHEDULE: [From time to time, Eximbank will provide
updated Country Limitation Schedules to all Lenders active in the Working
Capital Guarantee Program, and to all Delegated Authority Lenders. It is
the Lender's responsibility to provide a copy to the Exporter within seven
(7) Business Days of receipt. The updated Country Limitation Schedule
will supersede the previous Country Limitation Schedule.]
-10
<PAGE>
IN WITNESS WHEREOF, the Lender has caused this instrument to be sealed
this 28th day of May, 1997.
Name of Lender: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By:
------------------------
(Signature)
Name: Christopher A. Cudak
------------------------
(Print or Type)
Title: Vice President
------------------------
(Print or Type)
Address: Telephone: (612) 667-3504
-----------------------
Norwest Center, Sixth St. & Marquette Ave.
- ------------------------------------------
Minneapolis, Minnesota 55479-0085 Telefax: (612) 667-2269
- ------------------------------------------ -------------------------
Receipt acknowledged by:
EXPORT-IMPORT BANK OF THE UNITED STATES
-11
<PAGE>
By:
-----------------------------
(Signature)
Name:
---------------------------
(Print or Type)
Title:
--------------------------
(Print or Type)
Date:
---------------------------
Eximbank hereby designates the Loan referred to in this Loan Authorization
Notice as Guaranteed Loan No. ____________________.
(Revised April 1, 1996)
Reminders:
1) Did you include the completed application, signed by Exporter and
Lender?
2) Did you include the $100 Application Fee?
3) Did you include the appropriate Facility Fee?
4) Have you completed the Loan Authorization Notice and submitted TWO
originals?
-12
<PAGE>
If you need assistance in completing this document, please do not hesitate to
contact the U.S. Division directly at 202/565-3780.
-13
<PAGE>
Exhibit C to Credit and
Security Agreement
COMPLIANCE CERTIFICATE
To: Christopher A. Cudak
Norwest Bank Minnesota, National Association
c/o Warren Lindman
Norwest Business Credit, Inc., as Servicer
Date: __________________, 199___
Subject: Nicollet Process Engineering, Inc.
Financial Statements
In accordance with our Credit and Security Agreement dated as of
May 28, 1997 (the "Credit Agreement"), attached are the financial statements of
Nicollet Process Engineering, 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 6.9 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 $250,000 on the Reporting
Date.
C-1
<PAGE>
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.
NICOLLET PROCESS ENGINEERING, INC.
By
---------------------------
Its Chief Financial Officer
-2
<PAGE>
Exhibit D to Credit and Security
Agreement
FORM OF BORROWING BASE CERTIFICATE
TO: Christopher A. Cudak
Norwest Bank Minnesota, National Association
Warren Lindman
Norwest Business Credit, Inc.
DATE: ____________________, 199__
SUBJECT: Nicollet Process Engineering, Inc. (the "Borrower")
Borrowing Base Certificate
In accordance with our Credit and Security Agreement dated as of
May 28, 1997 (the "Credit Agreement"), set forth below is the calculation of
the Borrowing Base and Availability as of ______________, 199__ (the "Reporting
Date"). All terms used in this certificate have the meanings given to them in
the Credit Agreement. Unless otherwise indicated, all amounts are as of the
Reporting Date.
A. ELIGIBLE FOREIGN ACCOUNTS.
1. Total Accounts (net of any and all rights of
offset or counterclaim) $
-----------------
2. Ineligible Foreign Accounts
(a) That portion of Accounts not yet earned
by the final delivery of goods or rendition of
services $
-----------------
(b) Eligible Accounts not providing for
payment in full within 180 days of shipment
date $
-----------------
(c) Eligible Accounts over 60 days past
the original due date (90 days past due if
properly insured) or 180 days past original
invoice date $
-----------------
(d) Accounts owed by a shareholder,
subsidiary, Affiliate, officer or employee
of the Borrower $
-----------------
(e) Accounts owed by an account debtor that
is insolvent, the subject of bankruptcy
proceedings or has gone out of business $
-----------------
D-1
<PAGE>
(f) 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 NBCI $
-----------------
(g) That portion of Accounts that constitutes
finance charges, service charges or sales or
excise taxes $
-----------------
(h) That portion of Accounts payable in a
currency other than US Dollars unless prior
written approval has been received from
Eximbank $
-----------------
(i) 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 $
-----------------
(j) That portion of Accounts due and
collectible outside the US $
-----------------
(k) That portion of Accounts owed by
Account debtors located in, or arising from
sales of Items delivered to a Prohibited
Country $
-----------------
(l) That portion of Accounts, or portions
thereof, otherwise deemed uncollectible for
any reason by the Lender or Eximbank in its
discretion $
-----------------
(m) Total ineligibles $
-----------------
3. Total Eligible Foreign Accounts (line 1
less line 2(m)) $
-----------------
B. ELIGIBLE EXPORT INVENTORY
4. Total export Inventory (all Inventory
consisting of Items, raw materials and components to be
used to manufacture Items, and work-in-process relating
to Items, and raw materials and components the Borrower
must purchase to manufacture Items at the lower of cost
or market value as determined in accordance with GAAP) $
-----------------
5. Ineligible Export Inventory.
-2-
<PAGE>
(a) in-transit; not at an approved site;
not in Minnesota; covered by any document
of title; on consignment or subject to any
bailment $
-----------------
(b) proprietary software $
-----------------
(c) 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 $
-----------------
(d) perishable or live $
-----------------
(e) returned, has attempted to return, is
in the process of returning or intends to
return to the vendor thereof $
-----------------
(f) subject to a security interest in
favor of any Person other than the Lender
or NBCI $
-----------------
(g) Sample or demonstration Inventory $
-----------------
(h) previously exported from the US $
-----------------
(i) defense articles or defense services $
-----------------
(j) to be incorporated into Items
destined for shipment to a Prohibited Country $
-----------------
(k) Foreign Content portion of Items
containing less than fifty percent
(50%) US Content $
-----------------
(l) For Items containing at least fifty
percent (50%) US Content, any Foreign Content
not incorporated into such Items in the US $
-----------------
(m) consisting of or to be incorporated
into Items whose sale would result in an
Account deemed ineligible under
clauses 2(b), (h), (j), or (k) $
-----------------
(n) subject to the license agreement
set forth in that certain Settlement Agreement
by and between the Borrower and John R.
Mickowski dated as of October 1, 1995 $
-----------------
-3-
<PAGE>
(o) otherwise deemed ineligible by the
Lender in its discretion $
-----------------
(p) Total ineligibles $
-----------------
6. Total Eligible Export Inventory
(line 4 less line 5(o)) $
-----------------
C. BORROWING BASE
7. The sum of:
(a) 90% of Eligible Foreign Accounts
(from line 3) $
-----------------
(b) 75% of Eligible Export Inventory
(from line 6) $
-----------------
Total $
-----------------
$
-----------------
8. BORROWING BASE: the least of:
(a) $400,000; or
(b) the difference of $800,000 and the
outstanding principal balance of the NBCI
Revolving Advances $
-----------------
(c) line 7 $
-----------------
D. AVAILABILITY.
9. The outstanding principal balance of the
Revolving Note $
-----------------
10. AVAILABILITY. The Borrowing Base (line 8)
less the outstanding principal balance of the
Revolving Note (line 9) $
-----------------
-4-
<PAGE>
The Borrower represents and warrants that this Borrowing Base
Certificate is a true and correct statement regarding the status of the matters
set forth herein. The Borrower further represents and warrants that no Default
or Event of Default has occurred and is continuing. The Borrower acknowledges
that any Advances made to the Borrower and Letters of Credit issued for its
account under the Credit Agreement will be based upon the Lender's reliance on
the information contained herein.
NICOLLET PROCESS ENGINEERING, INC.
By
---------------------------------
Robert A. Pitner
Its President and Chief Executive
Officer
-5-
<PAGE>
Exhibit E to Credit and Security
Agreement
PERMITTED LIENS
<TABLE>
<CAPTION>
CREDITOR COLLATERAL JURISDICTION FILING DATE FILING NO.
- -------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Larry D. Windows based die Hennepin 01/26/96 1115197
Glendening, dba casting process County
LDG Software monitoring Software,
Solution commonly called Process
Vision.
Larry D. Windows based die State of 01/25/96 1820120
Glendening, dba casting process Minnesota
LDG Software monitoring Software,
Solution commonly called Process
Vision.
M&I First National Telrad Digital KeyBX Hennepin 07/11/94 1102543
Leasing Corp. 128 Telephone System County
more particularly
described on Schedule A
[of the UCC-1] and made
a part [t]hereof.
M&I First National Telrad Digital KeyBX State of 07/11/94 1687425
Leasing Corp. 128 Telephone System Minnesota
more particularly
described on Schedule A
[of the UCC-1] and made
a part [t]hereof.
</TABLE>
E-1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF OPERATIONS AND THE BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> MAY-31-1997
<CASH> 61,547
<SECURITIES> 28,803
<RECEIVABLES> 678,796
<ALLOWANCES> 37,490
<INVENTORY> 210,669
<CURRENT-ASSETS> 1,007,007
<PP&E> 662,391
<DEPRECIATION> 354,125
<TOTAL-ASSETS> 2,127,815
<CURRENT-LIABILITIES> 453,304
<BONDS> 0
0
0
<COMMON> 7,616,667
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,127,815
<SALES> 1,797,679
<TOTAL-REVENUES> 1,797,679
<CGS> 1,082,752
<TOTAL-COSTS> 1,082,752
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,011
<INCOME-PRETAX> (1,317,779)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,317,779)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)
</TABLE>
