EXECUTION VERSION
NINTH AMENDMENT TO CREDIT AGREEMENT
THIS NINTH AMENDMENT TO CREDIT AGREEMENT is dated as of April
26, 2000 ("this Amendment"), by and among NORSTAN, INC., a Minnesota corporation
(the "Borrower"), the banks which are signatories hereto (each individually, a
"Bank," and collectively, the "Banks"), and U.S. BANK NATIONAL ASSOCIATION, a
national banking association, one of the Banks, as agent for the Banks (in such
capacity, the "Agent").
RECITALS
A. The Borrower, the Banks and the Agent are parties to a
Credit Agreement dated as of July 23, 1996, as amended by a First Amendment
dated as of October 11, 1996, a Second Amendment dated as of September 26, 1997,
a Third Amendment dated as of March 20, 1998, a Fourth Amendment dated as of
July 23, 1998, a Fifth Amendment dated as of September 28, 1998, a Sixth
Amendment dated as of October 21, 1998, a Seventh Amendment dated as of May 31,
1999 and an Eighth Amendment dated January 25, 2000 (as so amended, the "Credit
Agreement").
B. The parties hereto desire to amend the Credit Agreement in
certain respects and to waive certain Events of Default.
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
Section 1. DEFINITIONS. Capitalized terms used herein and not
otherwise defined herein, but which are defined in the Credit Agreement, shall
have the meanings ascribed to such terms in the Credit Agreement unless the
context otherwise requires.
Section 2. AMENDMENTS TO CREDIT AGREEMENT. Subject to Section
5 hereof, the Credit Agreement is hereby amended as follows:
(a) AMENDED DEFINITION. Section 1.1 of the Credit Agreement is amended
by deleting the definition of "Applicable Margin" as it appears therein and
substituting in lieu thereof the following definition in the appropriate
alphabetical order:
"APPLICABLE MARGIN": With respect to:
(a) Reference Rate Advances - - 2.00%
(b) CD Rate Advances - - 3.50%
(c) Eurodollar Rate Advances - - 3.50%.
(b) DEFAULT INTEREST. Section 2.5(d) of the Credit Agreement is deleted
in its entirety and the following is substituted in lieu thereof:
2.5(d) Upon the occurrence of any Event of Default, and,
solely with respect to any Event of Default arising due to a violation
of Sections 6.10(k)(ii), 6.10(n), 6.16, 6.17, 6.18, 6.19 or 6.23, the
passage of 30 days following such occurrence, each Advance shall, at
the option of the Majority Banks, bear interest until paid in full (i)
during the balance of any Interest Period applicable to such Advance,
at a rate per annum equal to the sum of the rate applicable to such
Advance during such Interest Period plus 2.0%, and (ii) otherwise, at a
rate per annum equal to the sum of (A) the Reference Rate, plus (B) the
Applicable Margin for Reference Rate Advances, plus (C) 2.0%. The Agent
shall furnish the Borrower with prompt written notice of the exercise
of the option under the foregoing sentence.
(c) UNUSED REVOLVING COMMITMENT FEES. Section 2.13 of the Credit
Agreement is amended by deleting the clause "one-fourth of one percent (0.25%)"
and inserting in lieu thereof the clause "one-half of one percent (0.50%)."
(d) FINANCIAL STATEMENTS AND REPORTS. Section 5.1(k) of the Credit
Agreement is deleted in its entirety and the following is substituted in lieu
thereof:
5.1(k) As soon as available and in any event within 45 days
after the end of each calendar month (commencing with the calendar
month ended February 29, 2000), a consolidated profit and loss
statement for the Borrower and the Subsidiaries for such month and for
the year to date, accompanied by a certificate signed by the chief
financial officer of the Borrower stating that the same has been
prepared in accordance with GAAP.
5.1(l) From time to time, such other information regarding the
business, operation and financial condition of the Borrower and the
Subsidiaries as any Bank may reasonably request.
(e) AFFIRMATIVE COVENANT. The following new Sections 5.12 and 5.13 of
the Credit Agreement is added immediately following Section 5.11 thereof:
Section 5.12 SUBORDINATION AGREEMENTS. At the request of the
Agent, the Borrower shall undertake reasonable efforts to obtain the
execution by Fleet Business Credit Corporation, Sanwa Business Credit
Corporation or Sanwa Bank Canada (each, an "Initial Lease Discounter"),
as applicable, of one or more subordination agreements in form and
substance acceptable to the applicable Initial Lease Discounter and the
Majority Banks whereby, among other things, the applicable Initial
Lease Discounter shall consent to the grant to the Agent for the
benefit of the Banks of a security interest in the collateral claimed
by the applicable Initial Lease Discounter in its financing statements
of record with respect to NFS, Norstan Communications, Inc. and Norstan
Canada, Ltd., provided that the applicable Initial Lease Discounter
shall have a senior security interest in such collateral and the Agent
shall have a junior security interest in such collateral.
Section 5.13 COLLATERAL ASSIGNMENTS OF INTELLECTUAL PROPERTY.
Within three Business Days after the effective date of the Ninth
Amendment to this Agreement, the Borrower shall furnish to the Agent a
list, in a form reasonably acceptable to the Agent, of all patents,
trademarks and copyrights owned by the Borrower or any Subsidiary and
recorded with the U.S. Office of Patents and Trademarks or U.S. Office
of Copyrights, as applicable. Within 5 Business Days of any request by
the Agent, the Borrower will, or will cause any applicable Subsidiary
to execute and deliver to the Agent collateral assignment documents in
a form reasonably prescribed by the Agent, covering the security
interest granted to the Agent in the applicable Security Agreement in
the patents, trademarks and copyrights referred to in preceding
sentence clause and recordable with the U.S. Office of Patents and
Trademarks or U.S. Office of Copyrights, as applicable.
Section 5.14 CANADIAN PERFECTION. Within 5 Business Days of
any request by the Agent, the Borrower will cause Norstan Canada, Ltd.
to execute and deliver to the Agent such documents reasonably
prescribed by the Agent to perfect the Agent's security interest
granted in the Security Agreement of Norstan Canada, Ltd. with respect
to the personal property of Norstan Canada, Ltd. located or deemed
located in Canada. The provisions of Sections 5.12, 5.13 and 5.14 shall
supplement, but shall not limit, the provisions of any other further
assurances clause set forth in any Loan Document.
(f) PROCEEDS OF LEASE DISCOUNTING BY NORSTAN CANADA. Section 6.2(e) of
the Credit Agreement is amended by deleting the clause "and" immediately prior
to clause (ii) thereof, deleting the period at the end of such section and
substituting in lieu thereof the following:
, and (iii) the entire proceeds of any such permanent financing
consummated after the effectiveness of the Ninth Amendment to this
Agreement are applied to pay outstanding Revolving Loans under this
Agreement.
(g) CONDITIONAL PARTIAL RELEASE OF SECURITY INTERESTS. The following
new paragraph is added immediately following Section 6.2(e) of the Credit
Agreement:
Upon the consummation of any transaction of the type specified
in Sections 6.2(c) and (d) between NFS or Norstan Canada (as
applicable) and a financial institution (other than the Initial Lease
Discounters), the Agent will execute and deliver to such financial
institution UCC-3 financing statements in form and substance reasonably
acceptable to such financial institution to partially release its
security interest in the property subject to such transaction, PROVIDED
that the Agent shall have no obligation to deliver any such release if,
on or prior to such consummation, the Agent and such financial
institution enter into an agreement of the type specified in Section
5.12 with respect to such property. The Borrower will furnish to the
Agent not less than 10 days' written notice prior to the consummation
of any transaction specified in Sections 6.2(c) and 6.2(d) (other than
any such transaction with the Initial Lease Discounters or
any other financial institution which has been previously requested to
execute a subordination agreement in the manner set forth in the
foregoing sentence).
(h) PERMITTED ACQUISITIONS. Section 6.10(l) of the Credit Agreement is
amended to provide as follows:
Section 6.10(l) [Reserved]
(i) PAYMENTS UPON INTERCOMPANY INDEBTEDNESS. The following new Section
6.25 of the Credit Agreement is added immediately following Section 6.24
thereof:
Section 6.24 PAYMENTS ON INTERCOMPANY INDEBTEDNESS.
Notwithstanding anything to the contrary in this Agreement, from and
after the effectiveness of the Ninth Amendment to this Agreement, the
Borrower shall not make any payment upon any Indebtedness of the
Borrower to NFS, except for payments made with respect to customer
contract settlements in the ordinary course of business.
(j) EVENTS OF DEFAULT. Section 7.1(c) of the Credit Agreement is
amended by deleting the clause "Sections 5.2 or 5.3" as it appears therein and
substituting in lieu thereof the clause "Sections 5.2, 5.3, and 5.13".
(k) EXHIBIT 1.1A. Exhibit 1.1A to the Credit Agreement is deleted and
Exhibit A of this Amendment is inserted in its place.
Section 3. EVENTS OF DEFAULT AND TEMPORARY FORBEARANCE. The
Borrower has informed the Banks as follows:
(a) that it was not in compliance with its covenant under
Section 6.10(k)(ii) of the Credit Agreement as of January 29, 2000, in
that the aggregate outstanding principal of loans and advances as of
such date from Norstan Communications, Inc. to Connaissance was in
excess of $4,000,000;
(b) that it was not in compliance with its covenant under
Section 6.10(n) of the Credit Agreement as of January 29, 2000, in that
the aggregate outstanding principal of loans to its officers and
employees as of such date exceeded $500,000;
(c) that it was not in compliance with its covenant under
Section 6.16 of the Credit Agreement for the period ended January 29,
2000, in that its actual EBITDA for the period of four consecutive
fiscal quarters ended on that date was less than $35,000,000;
(d) that it was not in compliance with its covenant under
Section 6.17 of the Credit Agreement for the period ended January 29,
2000, in that the Covenant Cash Flow Leverage Ratio as of that date was
more than 3.00 to 1.00;
(e) that it was not in compliance with its covenant under
Section 6.18 of the Credit Agreement for the period ended January 29,
2000, in that the Adjusted Leverage Ratio as of that date was more than
3.0;
(f) that it was not in compliance with its covenant under
Section 6.19 of the Credit Agreement for the period ended January 29,
2000, in that the Interest Coverage Ratio as of that date was less than
6.0 to 1.0; and,
(g) that it would not be in compliance with its covenant under
Section 6.23 of the Credit Agreement for the fiscal year ending April
30, 2000 in that certain Subsidiary would incur net losses in excess of
$1,000,000 for such fiscal year.
Each such instance of noncompliance constitutes a Default or Event of Default
under the Credit Agreement (collectively, the "Existing Defaults"). Upon the
satisfaction of the conditions set forth in Section 5 below, each Bank and the
Agent shall, until the Forbearance Termination Date (defined below), forbear
from exercising its remedies under the Loan Documents arising from the Existing
Defaults. For purposes of this letter, the "Forbearance Termination Date" shall
mean the earlier to occur of May 12, 2000 or the date on which any additional
Event of Default occurs. The Banks' and the Agent's agreement to forbear is
limited to the express terms thereof, and nothing herein shall be deemed a
waiver or forbearance by the Banks or the Agent of any other term, condition,
representation or covenant applicable to the Borrower or any Guarantor under the
Loan Documents (including but not limited to any future occurrence similar to
the Existing Defaults). The forbearance by the Banks and the Agent set forth
herein shall not constitute a waiver or forbearance by the Banks or the Agent of
any other Default or Event of Default, if any, under any Loan Document, and
shall not be, and shall not be deemed to be, a course of action with respect
thereto upon which the Borrower may rely in the future, and the Borrower hereby
expressly waives any claim to such effect.
Section 4. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. To
induce the Banks and the Agent to execute and deliver this Amendment (which
representations and warranties shall survive the execution and delivery of this
Amendment), the Borrower represents and warrants to the Agent and the Banks
that:
(a) this Amendment has been duly authorized, executed and
delivered by it and this Amendment constitutes the legal, valid and
binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms, subject to limitations as to enforceability
which might result from bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles relating to or
limiting creditors' rights generally;
(b) the Credit Agreement, as amended by this Amendment,
constitutes the legal, valid and binding obligation of the Borrower
enforceable against the Borrower in accordance with its terms, subject
to limitations as to enforceability which might result from bankruptcy,
insolvency, reorganization, moratorium or similar laws or equitable
principles relating to or limiting creditors' rights generally;
(c) the execution, delivery and performance by the Borrower of
the Amendment (i) have been duly authorized by all requisite corporate
action and, if required, shareholder action, (ii) do not require the
consent or approval of any governmental or regulatory body or agency,
and (iii) will not (A) violate (1) any provision of law, statute, rule
or regulation or its certificate of incorporation or bylaws, (2) any
order of any court or any rule, regulation or order of any other agency
or government binding upon it, or (3) any provision of any material
indenture, agreement or other instrument to which it is a party or by
which any of its properties or assets are or may be bound, or (B)
result in a breach of or constitute (alone or with due notice or lapse
of time or both) a default under any indenture, agreement or other
instrument referred to in clause (iii)(A)(3) of this Section 4(c);
(d) as of the date hereof, no Default or Event of Default has
occurred which either (a) is continuing or (b) pursuant to which the
Agent and the Banks have not agreed to temporarily forbear from
exercising their remedies as set forth in Section 3 of this Amendment;
and
(e) all the representations and warranties contained in
Article IV of the Credit Agreement are true and correct in all material
respects with the same force and effect as if made by the Borrower on
and as of the date hereof.
Section 5. CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT. This
Amendment shall not become effective until, and shall become effective as of May
1, 2000 when, each and every one of the following conditions shall have been
satisfied:
(a) The Agent shall have received executed counterparts of
this Amendment, duly executed by the Borrower and each of the Banks.
(b) The Agent shall have received from the Guarantors a
Consent and Agreement of Guarantors in the form of Exhibit B hereto
(the "Guarantor Agreements") duly completed and executed by each
Guarantor.
(c) The Agent shall have received an Amended and Restated
Security Agreement for Norstan Communications, Inc. and a UCC-3
financing statement recordable with the Secretary of State of Minnesota
covering the collateral description set forth therein, each duly
executed by such entity.
(d) The Agent shall have received Security Agreements granting
to the Agent for the benefit of the Banks, a security interest in
substantially all of the personal property of NFS and Norstan Canada
(except, unless such entities shall have consented to such grant,
personal property covered by any financing statements existing on the
date hereof and naming Sanwa Business Credit Corporation, Sanwa Bank
Canada or Fleet Business Credit Corporation as
secured party), duly executed by NFS and Norstan Canada Ltd., together
with proper financing statements (Form UCC-1) executed and suitable for
filing under the Uniform Commercial Code and recordable with the
Minnesota Secretary of State.
(e) The Agent shall have received UCC financing statements in
form and substance acceptable to the Agent executed by the Borrower and
the Guarantors (other than NFS and Norstan Canada, Ltd.) covering the
collateral granted to the Agent by such entity in its Security
Agreement and recordable in each jurisdiction (other than Minnesota) in
which such entity maintains a material amount of inventory or
equipment.
(f) The Agent shall have received the favorable opinion of
counsel, which opinion shall be in form and substance satisfactory to
the Agent.
Upon receipt of all of the foregoing, the Agent shall notify the Borrower and
the Banks that this Amendment has become effective (but the failure of the Agent
to give such notice shall not affect the validity of this Amendment or prevent
it from becoming effective), whereupon this Amendment shall become effective as
of May 1, 2000. Without limiting the generality of the forgoing, upon the
effectiveness of this Amendment, the modifications to the "Applicable Margin"
effected by the amendments contained in Section 2(a) of this Amendment shall be
applicable to all Advances outstanding on May 1, 2000 and to all Advances made
on or after May 1, 2000.
Section 6. AFFIRMATION; REAFFIRMATION. Each party hereto
affirms and acknowledges that (a) the Credit Agreement as amended by this
Amendment remains in full force and effect in accordance with its terms and (b)
all references to the "Credit Agreement" or any similar term contained in any
other Loan Document shall be deemed to be references to the Credit Agreement as
amended hereby. The Borrower hereby confirms, ratifies, approves and reaffirms
each of the Loan Documents and agrees that each of the Loan Documents, as
amended hereby, remains in full force and effect.
Section 7. GENERAL.
(a) The Borrower agrees to reimburse the Agent upon demand for
all reasonable expenses (including reasonable attorneys fees and legal
expenses) incurred by the Agent in the preparation, negotiation and
execution of this Amendment and any other document required to be
furnished herewith, and to pay and save the Agent harmless from all
liability for any stamp or other taxes which may be payable with
respect to the execution or delivery of this Amendment, which
obligations of the Borrower shall survive any termination of the Credit
Agreement.
(b) This Amendment may be executed in as many counterparts as
may be deemed necessary or convenient, and by the different parties
hereto on separate counterparts, each of which, when so executed, shall
be deemed an original but all such counterparts shall constitute but
one and the same instrument.
(c) Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining portions hereof or affecting the
validity or enforceability of such provisions in any other
jurisdiction.
(d) This Amendment shall be governed by, and construed in
accordance with, the internal law, and not the law of conflicts, of the
State of Minnesota, but giving effect to federal laws applicable to
national banks.
(e) This Amendment shall be binding upon the Borrower, the
Agent and the Banks and their respective successors and assigns, and
shall inure to the benefit of the Borrower, the Agent and the Banks and
the successors and assigns of the Agent and the Banks.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of the day and year first above written.
NORSTAN, INC.
By /s/ Robert J. Vold
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Its Treasurer
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U.S. BANK NATIONAL ASSOCIATION,
as a Bank and as Agent
By /s/ David Shapiro
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Its Vice President
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HARRIS TRUST AND SAVINGS BANK
By /s/ Andrew K. Peterson
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Its Managing Director
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M&I MARSHALL & ILSLEY BANK
By /s/ John W. Howard
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Its Vice President
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By /s/ Robert A. Nielsen
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Its Vice President
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NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By /s/ R.E. Trembley
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Its Vice President
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