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[US BANK LETTERHEAD]
April 19, 1999
KE Acquisition Corp.
2945 Wilderness Place
Boulder, CO 80301
Attention: Mr. Philip W, Shires, President
Gentlemen:
U.S. Bank National Association (the "Bank") is pleased to advise KE
Acquisition Corp. (the "Borrower") that the Bank has agreed to extend credit to
the Borrower in the aggregate amount of up to $6,000,000 upon the terms and
subject to the conditions set forth below.
The Bank's commitment is subject to the negotiation and execution of
definitive Credit, Security and related loan documents (the "Credit Documents")
satisfactory to the Bank. The Credit Documents will embody the structure,
pricing and other terms described in the Summary of Term and Conditions below.
They will also include provisions viewed by the Bank and its counsel as
appropriate for these transactions and for transactions of this type.
Accordingly, it should be recognized that this letter and the Summary of Terms
and Conditions are indicative, but not exhaustive, as to the terms and
conditions which shall govern these facilities:
The two facilities outlined below are being made available in connection
with Borrower's proposed merger ("Merger") with Kentek Information Systems, Inc.
("KISI") and any disbursement will be conditioned upon the final Merger
Agreement being satisfactory to Bank and the "Closing" as defined therein having
occurred and Bank having received confirmation of the "Effective Time" of the
Merger. At the "Effective Time" Bank's existing credits and commitments to KISI
shall terminate and only the following described commitments will be available.
The Bank's commitment is also subject to a satisfactory collateral audit by Bank
of KISI's accounts, inventory and general intangibles.
SUMMARY OF TERMS AND CONDITIONS
BORROWER: KE Acquisition Corp., a Delaware Corporation, ("Borrower")
TYPE OF FACILITY: 1. Revolving Line of Credit
2. Term Loan
PURPOSE: 1. Working Capital, including letters of credit.
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2. Finance the purchase of shares of KISI in connection
with the Merger.
MAXIMUM AMOUNT: 1. $2,000,000
2. $4,000,000
The aggregate available is limited to and subject to
a Borrowing Base. Borrowing Base means an amount equal
to the sum of 80% of Borrower's eligible accounts
receivable and 50% of Borrower's eligible inventory,
as set forth and calculated in monthly Borrowing Base
Certificates delivered to Bank. The form of such
Certificate will be specified by Bank.
INTEREST RATE: 1 and 2. Reference Rate, floating, 360-day year basis.
"Reference Rate" means the rate of interest per
annum announced publicly from time to time as Bank's
reference rate which may be a rate at, above or below
the rate or rates at which Bank lends to other
borrowers and it is not necessarily the lowest rate
charged by Bank on commercial loans.
REPAYMENT TERMS: 1. Accrued interest payable monthly and at Final
Maturity with principal payable at Final Maturity,
subject to acceleration upon default. Principal may be
repaid and re-borrowed prior to Final Maturity.
2. 24 equal monthly payments of principal, plus accrued
interest payable monthly.
FINAL MATURITY: 1. November 30, 2000
2. 24 months from closing date.
COMMITMENT FEE: 1. 0.25% on the unused portion, payable quarterly, in
arrears.
2. 0.25% ($10,000) payable upon closing.
COLLATERAL
SECURITY: 1 and 2. First priority perfected security interests in all
accounts, inventory and general intangibles now owned
or hereafter acquired by Borrower and in all proceeds
thereof
GUARANTORS: 1 and 2. Philip W. Shires - unlimited
Don Shires - limited to an amount TBD
Renee Bond - limited to an amount TBD.
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FINANCIAL REPORTING
COVENANTS: Until Final Maturity, Borrower will deliver to Bank (1) within
90 days after each fiscal year end, Borrower's CPA-audited
annual financial statements; (2) within 30 days after each
quarter end, a Compliance Certificate; (3) within 30 days
after each month end, monthly financial statements of Borrower
with supporting schedules or reports detailing printer base
status, A/R aging inventory listings and Borrowing Base
Certificate; (4) within 90 days prior to each fiscal year end,
monthly projections for the next fiscal year; (5) annual
personal financial statements of each Guarantor; (6) promptly
after filing, personal tax returns of each Guarantor; and (7)
and such, other information as Bank may require.
FINANCIAL CONDITION
COVENANTS: 1. A minimum annual Cash Flow Coverage Ratio of 1.5 to 1
to be measured quarterly on a rolling four quarter
basis, with Cash Flow Coverage Ratio defined as:
Borrower's ratio of (a) earnings before interest,
taxes, depreciation and amortization to (b) the sum
of current debt service obligations, including
interest expenses.
2. A maximum Debt to Tangible Net Worth Ratio (also
measured quarterly on a rolling four quarter basis)
of 2.0 to 1 at closing, of 1.5:1 at 9/30/99 and of
1.01:1 at 12/31/99 and at all times thereafter.
3. Borrower will be profitable at each fiscal year end.
REPRESENTATIONS, OTHER
AFFIRMATIVE AND
NEGATIVE COVENANTS,
EVENTS OF DEFAULT,
REMEDIES, ETC: Customary and appropriate terms and provisions for this
transaction, including but not limited to: maintaining deposit
accounts with Bank; restrictions on other indebtedness and
liens; investments; sale of assets; mergers; guarantees;
distributions; and change of control or ownership or
management (other than the Merger),
The Bank's commitment is further subject to the condition that there
shall not have occurred: (i) any material adverse change in the business,
operations or financial condition of the Borrower or of KISI or any of its
subsidiaries; or (ii) any material diminution of value of the collateral
proposed for the loans, in each case determined by the Bank in comparison to the
date of the most recent financial statements and the date of the Bank's most
recent analysis of such collateral,
By acknowledging and agreeing to the terms of this letter, the Borrower
agrees to be responsible for all reasonable costs and expenses incurred by
the Bank. (including fees and
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expenses of counsel and other professionals, if any) in connection with the
negotiation and preparation of the Credit Documents and the transactions
contemplated hereby, whether or not the Credit Documents are executed and
whether or not loans are made available under the Credit Documents. This
obligation survives the termination or expiration of the commitment.
The Credit Documents shall be entered into not later than August 15,
1999, after which date the commitment of the Bank hereunder shall expire. If the
foregoing is acceptable, please indicate your agreement and acceptance by
signing and returning the enclosed copy of this letter. If the commitment
hereunder is not accepted by the Borrower on or before April 30,1999, it will be
deemed to have been terminated.
The Bank looks forward to this opportunity to work with you on this
transaction.
Very truly yours,
U.S. BANK NATIONAL ASSOCIATION
By: /s/ LESTER L. HAWLEY
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Lester L. Hawley
Vice President
Accepted:
KE ACQUISITION CORP.
By: /s/ PHILIP W. SHIRES
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Its: President
Date: April 19, 1999
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