FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT is dated as of July 23, 1998
("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
(formerly known as First 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 First Bank National Association, Harris Trust
and Savings Bank, The Sumitomo Bank, Limited, Chicago Branch ("Sumitomo") 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 and a Third Amendment dated as of March 20, 1998
(as so amended, the "Credit Agreement").
B. M&I Marshall & Ilsley Bank ("M&I Bank") is the successor in
interest to Sumitomo, and the parties hereto desire to confirm that M&I Bank is
the successor to Sumitomo as a Bank under the Credit Agreement.
C. The parties hereto desire to amend the Credit Agreement in certain
respects and to amend and restate in its entirety the existing Revolving Note of
Sumitomo, now held by M&I Bank as successor in interest to Sumitomo, so that
said Revolving Note will reflect on its face that it is payable to M&I Bank.
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. CONFIRMATION OF M&I BANK AS SUCCESSOR TO SUMITOMO. M&I
Bank, by executing this Amendment, confirms that is the successor in interest to
Sumitomo, that it has assumed and is bound by all of the rights, powers, duties,
obligations and liabilities of Sumitomo as a Bank under the Credit Agreement and
the other Loan Documents, including, without limitation, the Revolving
Commitment and Revolving Commitment Amount of Sumitomo, and that it does hereby
confirm, ratify and approve the Credit Agreement and each other Loan Document.
The Borrower, U,S. Bank National Association, Harris Trust and Savings
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Association and the Agent hereby acknowledge and consent to the assumption of
Sumitomo's rights, powers, duties, obligations and liabilities under the Credit
Agreement by M&I Bank.
Section 3. AMENDMENTS TO CREDIT AGREEMENT. Subject to Section 6
hereof, the Credit Agreement is hereby amended as follows:
(a) Section 1.1 thereof is amended by adding thereto, in alphabetical
order, the following new defined terms:
"CONNAISSANCE": Connaissance Consulting, LLC, a Minnesota
limited liability company.
"CONNAISSANCE AGREEMENT": The Master Control Agreement of
Connaissance Consulting, LLC dated as of March 25, 1998 among Connaissance
Consulting, Inc. (to be known as Lusenhop & Associates, Inc.) and Norstan
Communications, Inc., pursuant to which Norstan Communications, Inc. agreed
to acquire initially a 75% membership interest in Connaissance for capital
contributions in an aggregate amount of up to $100,000, to make loans to
Connaissance in an aggregate principal amount of up to $2,000,000 and, upon
certain conditions, to acquire the remaining 25% of the membership interest
in Connaissance on May 1, 2001.
"CONNAISSANCE CONTINGENT OBLIGATION": As determined on the last
day of each fiscal quarter, an amount equal to the product of one fourth
(1/4) of the Consulting Revenue of Connaissance for the period of twelve
consecutive calendar months ending on such day multiplied by the applicable
Revenue Multiple based on the EBIT Margin for such twelve-month period in
accordance with the following table:
EBIT Margin Revenue Multiple
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Less than 15% 2x
At least 15% but less than 20% 3x
At least 20% but less than 25% 5x
25% or more 6x
"CONSULTING EBIT": As such term is defined in the Connaissance
Agreement.
"CONSULTING REVENUE": As such term is defined in the
Connaissance Agreement.
"COVENANT CASH FLOW LEVERAGE RATIO": As of the last day of any
fiscal quarter, the ratio of (a) the sum (without duplication) of the
aggregate principal amount of all outstanding Capitalized Lease Obligations
of the Borrower and the Subsidiaries, plus that portion of Total
Indebtedness bearing interest determined as of that date, plus,
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commencing April 30, 1999, the Connaissance Contingent Obligation
determined as of that date to (b) EBITDA for the four consecutive fiscal
quarters ending on that date, all as determined in accordance with GAAP
(but determined using the equity method of accounting with respect to NFS).
"EBIT MARGIN": As of the last day of any fiscal quarter, a
fraction, expressed as a percentage, the numerator of which is the
Consulting EBIT for the period of twelve consecutive calendar months ending
on such day and the denominator is the Consulting Revenue for such
twelve-month period.
"PRICING CASH FLOW LEVERAGE RATIO": As of the last day of any
fiscal quarter, the ratio of (a) the sum (without duplication) of the
aggregate principal amount of all outstanding Capitalized Lease Obligations
of the Borrower and the Subsidiaries, plus that portion of Total
Indebtedness bearing interest determined as of that date, plus, commencing
on either (i) the earliest date on which both Consulting Revenue is at
least $25,000,000 and EBIT Margin is at least 10% or (ii) if the Borrower's
auditors determine that the Connaissance Contingent Obligation is a
liability under GAAP, the date on which such liability is determined by
such auditors to have been incurred, one-half of the Connaissance
Contingent Obligation determined as of that date to (b) EBITDA for the four
consecutive fiscal quarters ending on that date, all as determined in
accordance with GAAP (but determined using the equity method of accounting
with respect to NFS).
(b) The definition of the term "Cash Flow Leverage Ratio" set forth
in Section 1.1 of the Credit Agreement is deleted.
(c) The definition of the term "EBITDA" set forth in Section 1.1
thereof is amended to read as follows:
"EBITDA": For any period of determination, the sum of the
consolidated net income of the Borrower before deductions for income taxes,
Interest Expense, depreciation and amortization plus, for the fiscal
quarter ending April 30, 1998 only, the one-time restructuring charge in
the amount of approximately $14,667,000 recorded by the Borrower on April
30, 1998, all as determined in accordance with GAAP (but determined using
the equity method of accounting with respect to NFS).
(d) The definition of the term "Pricing Level" set forth in Section
1.1 thereof is amended to read as follows:
"PRICING LEVEL": Shall mean that level of pricing in effect for any
fiscal quarter determined in accordance with the following:
Pricing Level IV: Shall be in effect during any fiscal quarter if the
Pricing Cash Flow Leverage Ratio as of the last day of the most recently
completed fiscal quarter was greater than or equal to 2.75 to 1.0.
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Pricing Level III: Shall be in effect during any fiscal quarter if
the Pricing Cash Flow Leverage Ratio as of the last day of the most
recently completed fiscal quarter was no less than 2.0 to 1.0 and no
greater than 2.74 to 1.0.
Pricing Level II: Shall be in effect during any fiscal quarter if the
Pricing Cash Flow Leverage Ratio as of the last day of the most recently
completed fiscal quarter was no less than 1.0 to 1.0 and no greater than
1.99 to 1.0.
Pricing Level I: Shall be in effect during any fiscal quarter if the
Pricing Cash Flow Leverage Ratio as of the last day of the most recently
completed fiscal quarter was less than 1.0 to 1.0.
(c) Section 6.5 of the Credit Agreement is amended in its entirety to
read as follows:
Section 6.5 SUBSIDIARIES. After the date of this Agreement, the
Borrower will not, and will not permit any Subsidiary to, form or acquire
any corporation which would thereby become a Subsidiary, unless (a) 100% of
the issued and outstanding capital stock of such Subsidiary is owned by
Norstan, Inc. or by a 100%-owned Subsidiary of Norstan, Inc., (b) each line
of business of such Subsidiary is within the communications and information
technology industries and (c) the aggregate amount of the Borrower's
Investment or Investments in all such Subsidiaries shall not exceed the
amounts set for in Section 6.10(l); provided, however, that Norstan
Communications, Inc. shall be permitted to acquire the initial 75% of the
membership interest in Connaissance contemplated by the Connaissance
Agreement and on May 1, 2001 to acquire the remaining 25% of the membership
interest in Connaissance in accordance with the Connaissance Agreement; and
provided, further, that the Borrower shall be permitted to acquire 100% of
the issued and outstanding capital stock of Wordlink, Inc. notwithstanding
the Borrower's failure to comply with clauses (iii) and (iv) of Section
6.10(l) at the time of such acquisition.
(d) Section 6.8 of the Credit Agreement is amended in its entirety to
read as follows:
Section 6.8 CAPITAL EXPENDITURES. The Borrower will not, and will
not permit any Subsidiary to, make Capital Expenditures in an amount
exceeding, on a consolidated basis in any fiscal year, an amount equal to
(a) seven percent (7%) of the consolidated revenues of the Borrower and the
Subsidiaries as reported in their consolidated financial statements for the
preceding fiscal year, PLUS (b) for the fiscal year ending April 30, 1998
only, Capital Expenditures attributable to the PRIMA Acquisition, plus (c)
Capital Expenditures attributable to the acquisition of membership
interests in Connaissance pursuant to the Connaissance Agreement.
(e) Section 6.10(k) of the Credit Agreement is amended in its
entirety to read as
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follows:
6.10(k) Loans and advances (i) by the Borrower to Norstan
Communications, Inc., Norstan Network Services, Inc., Connect Computer
Company, PRIMA, Norstan-UK, Norstan International, Connaissance and
Wordlink, Inc. and (for purposes other than to finance lease account
receivables, as specified in 6.10(j) above) to Norstan Canada, and (ii) by
Norstan Communications, Inc. to Connaissance as contemplated by the
Connaissance Agreement, provided that the aggregate amount of such loans
and advances to Connaissance shall not exceed $2,000,000 at any time
outstanding prior to the Borrower's acquisition of the remaining 25%
membership interest in Connaissance pursuant to the Connaissance Agreement.
(f) Clause (a) of Section 6.13 thereof is amended to read as follows:
(a) Contingent Obligations existing on the date of this
Agreement and described on Exhibit 6.13 and the Connaissance
Contingent Obligation;
(g) Section 6.17 thereof is amended to read as follows:
Section 6.17 COVENANT CASH FLOW LEVERAGE RATIO. The Borrower will
not permit the Covenant Cash Flow Leverage Ratio, as of the last day of any
fiscal quarter, to be more than 3.00 to 1.0.
Section 4. WAIVER. The Borrower has informed the Banks that it
failed to satisfy its covenant under Section 6.16 of the Credit Agreement for
the period ended April 30, 1998 and, for that reason, it also failed to satisfy
the requirements of clauses (iii) and (iv) of Section 6.10(l) when it acquired
the stock of Wordlink, Inc. Each such instance of noncompliance constitutes an
Event of Default under the Credit Agreement. Upon satisfaction of the
conditions set forth in Section 6 of this Amendment, the Banks hereby waive the
Events of Default under the Credit Agreement described in the immediately
preceding sentence for the period ended April 30, 1998. This waiver is limited
to the express terms hereof and shall not extend to any other Default, Event of
Default or any other period. This waiver shall not be and shall not be deemed
to be a course of dealing upon which the Borrower may rely with respect to any
other Default, Event of Default or request for a waiver and the Borrower hereby
expressly waives any such claim.
Section 5. 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 and the Amended M&I Revolving Note (as defined in
Section 5 hereof) have been duly authorized, executed and delivered by it
and this Amendment and the Amended M&I Revolving Note constitute the legal,
valid and binding obligation of the Borrower enforceable against the
Borrower in accordance with
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their respective 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 and the Amended M&I Revolving Note (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 unwaived Default or Event of Default
has occurred which is continuing; and
(e) all the representations and warranties contained in Section 4 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 6. CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT. This
Amendment shall not become effective until, and shall become effective 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 each of the Guarantors a
Consent and Agreement of Guarantor in the form of Attachment 1 hereto (the
"Guarantor Agreements") duly completed and executed by such Guarantor;
(c) the Agent shall have received a copy of the resolutions of the
Board of Directors of the Borrower authorizing the execution, delivery and
performance by the Borrower of this Amendment, certified by its Secretary
or an Assistant Secretary, together with a certificate of the Secretary or
an Assistant Secretary of the Borrower
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certifying as to the incumbency and the true signatures of the officers
authorized to execute this Amendment on behalf of the Borrower;
(d) the Agent shall have received from the Borrower a Revolving Note
substantially in the form of Exhibit 1.1C to the Credit Agreement (the
"Amended M&I Revolving Note"), made payable to M&I Bank in the amount of
M&I Bank's (formerly Sumitomo's) Revolving Commitment Amount and executed
by the Borrower, which Amended M&I Note shall constitute an amendment and
restatement of the existing Revolving Note of Sumitomo referred to in
recital C to this Amendment; and
(e) the Agent shall have received the favorable opinion of counsel to
the Borrower covering the matters set forth in Exhibit B hereto, which
opinion shall be in form and substance satisfactory to the Agent.
Upon receipt of all of the foregoing, the Agent shall (i) 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) and (ii) deliver the Amended M&I Revolving
Note to M&I Bank, whereupon the unpaid principal and accrued but unpaid interest
outstanding under said existing Revolving Note of Sumitomo shall be outstanding
and unpaid under the Amended M&I Revolving Note. Upon receipt of the Amended
M&I Revolving Note, M&I Bank shall return to the Borrower said existing
Revolving Note of Sumitomo marked "renewed but not paid" or words to similar
effect. The execution and delivery of this Amendment is not intended as a
novation or as a discharge of the Borrower's existing obligations under the Loan
Documents, which obligations shall continue in full force and effect.
Section 7. AFFIRMATION. 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, (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, (c) all
references to the "Banks" contained in the Loan Documents shall be deemed to
include M&I Bank, and (d) all references to the "Revolving Notes" or "Notes"
contained in the Loan Documents shall be deemed to include the Amended M&I
Revolving Note.
Section 8. 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.
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(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.
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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
Its Treasurer
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U.S. BANK NATIONAL ASSOCIATION,
as a Bank and as Agent
By /s/ David Shapiro
Its Assistant Vice President
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HARRIS TRUST AND SAVINGS BANK
By /s/ Catherine C. Ciolek
Its Vice President
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M&I MARSHALL & ILSLEY BANK
By /s/ Doug Nelson & Mark Hogen
Its Vice Presidents
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[Signature Page to Fourth Amendment to Credit Agreement]
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