NORWEST BANKS
April 30, 1998
Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇
President
Vari-L Company, Inc.
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Dear ▇▇▇▇▇:
This letter agreement (the "Agreement") is made as of April 30, 1998
between NORWEST BANK COLORADO, NATIONAL ASSOCIATION (the "Bank") and VARI-
L COMPANY, INC. (the "Borrower"). The Bank and the Borrower hereby enter
into a Credit Agreement providing for a revolving line of credit in the
amount of $5,000,000 (the "Credit") to expire April 30, 2000. The Bank is
willing to take such action upon and subject to the following terms and
commitments:
Maximum Amount $5,000,000 or the Borrowing Base, if less. The Borrowing
Base shall mean the sum of 75% of Borrower's eligible
accounts receivable and 50% of Borrower's eligible
inventory, provided that eligible inventory may not exceed
50% of the total Borrowing Base, as set forth and
calculated in a monthly Borrowing Base Certificate
delivered to Bank in connection herewith. The form of such
Certificate is attached as Exhibit A. Ineligible account
receivable includes those over 90 days old from invoice
date, disputed accounts, accounts subject to offset,
federal government accounts, foreign accounts unless
insured by the Export-Import Bank of the United States
under a Multi-Buyer Export Credit Insurance Policy or
secured by a letter of credit benefiting Borrower,
affiliate accounts, accounts covering booked but unfilled
orders, contra accounts, credit balances over 90 days,
doubtful accounts, and accounts in which Bank does not have
a perfected first priority security interest. Ineligible
inventory includes inventory which is work in process,
obsolete, damaged, defective, classified by Borrower as
long term inventory, or in which Bank does not have a
perfected first priority security interest.
Purpose: Finance accounts receivable and inventory.
Interest Rate: Base Rate, floating. Base Rate shall mean the "base" or
"prime" rate of interest as announced by Bank as in effect
from time to time.
Fee: $13,000 payable at closing.
Compensation
Balance: None.
Repayment Terms: Accrued interest payable monthly and at Final
Maturity, principal payable at Final Maturity, subject to
acceleration upon default. Principal may be repaid and
reborrowed prior to Final Maturity.
Final Maturity: April 30, 2000.
Guarantors: None.
Security: First priority security interests in all accounts, general
intangibles, and inventory, now owned or hereafter acquired
by Borrower and in all proceeds thereof ("Collateral").
Documentation/
Conditions to
Effectiveness: The commitment of Bank to make any advance under this
Credit is subject to the satisfaction of the following
conditions:
a) Borrower will execute and deliver to Bank a Credit
promissory note ("Note") and the security agreements, UCC
filing forms, and other collateral documents deemed
necessary by Bank ("Collateral Documents"), each on Bank's
forms;
b) Bank will have received (1) a certified corporate
resolution authorizing Borrower to borrow on these terms
and to grant security; (2) a Secretary of State's
certificate of good standing; (3) a current Borrowing Base
Certificate; (4) evidence of Life Insurance as defined
below; and
c) Bank will have received Borrower's payment of the Fee.
Affirmative
Covenants: So long as any indebtedness of Borrower to Bank remains
unpaid or Bank has any commitment to lend hereunder,
Borrower will:
a) deliver to Bank
(1) annually, within 90 days of Borrower's
fiscal year end, annual financial statements
audited by a certified public accountant ("CPA")
approved by Bank, copy of CPA management report,
and copy of Borrower's 10K report;
(2) annually, within 90 days of Borrower's
fiscal year end, accounts payable aging, accounts
receivable aging, and inventory listing;
(3) quarterly, within 45 days of quarter
end, internally prepared financial statements and
compliance certificate in the form of Exhibit B
attached hereto,
(4) monthly, within 45 days of month end,
Borrowing Base Certificate and accounts
receivable aging summary page;
(5) such other information as Bank may
reasonably request;
b) maintain adequate hazard insurance;
c) maintain its properties in good repair and
working order;
d) comply with all applicable statutes, ordinances
and regulations, including, without limit, any
relating to taxation and environmental protection;
e) at all reasonable times permit Bank to examine
books, records, properties of Borrower, including
accounts receivable and inventory collateral audits to
be paid by Borrower;
f) comply with all terms of all Collateral
Documents;
g) maintain present executive management of
Borrower;
h) maintain primary deposit accounts at the Bank;
and
i) maintain Borrower's financial condition so that
it meets the following requirements at all times,
determined in accordance with GAAP;
(1) a minimum tangible net worth ("Minimum
Adjusted TNW") of not less than $25,500,000;
(2) a maximum ratio of debt to tangible net
worth ("Maximum Leverage") of not more than 1.0
to 1.0. The ratio shall be calculated by
dividing Borrower's liabilities, by Borrower's
tangible net worth plus debt subordinated to
Bank;
(3) a minimum ratio of current assets less
officer and employee receivables and prepaid
expenses to current liabilities ("Minimum Current
Ratio") of 1.5 to 1.0;
(4) a minimum ratio ("Minimum Quick Ratio")
of .5 to 1.0.
Negative
Covenants: Without consent of Bank, Borrower will not:
a) incur any debt except debt to Bank, trade debt,
equipment debt to Bank One, debt subordinated to bank,
and debt under existing capital leases;
b) create or permit any lien or encumbrance against
Borrower's property except those created under the
Collateral Documents, equipment liens created under
equipment debt to Bank One, liens for existing capital
leases;
c) guarantee, indorse, or become surety for the
obligations of others;
d) make loans or advances to any person or entity
except temporary advances in the ordinary course of
business;
e) declare or pay any dividends or distributions, or
redeem, acquire, or retire any of its capital stock;
f) distribute any death benefits from Life
Insurance; or
g) merge or consolidate or sell, lease or dispose of
substantially all of Borrower's assets other than
sales of inventory in the ordinary course of business.
Conditions
of Default: Upon the occurrence of any of the following events of
default:
a) Default in any payment of interest or principal
on the Note when due and continuance thereof for 15
days; or
b) Default in the observance or performance of any
agreement of the Borrower herein set forth or in an
other agreement between the Bank and the Borrower and
continuance thereof for 20 days after written notice
by Bank to Borrower; or;
c) Default by the Borrower in the payment of any
other indebtedness for borrowed money or in the
observance or performance of any term, covenant,
agreement of the Borrower in any agreement relating to
any indebtedness of the Borrower; the effect of which
default is to permit the holder of such indebtedness
to declare the same due prior to the date fixed for
its payment under the terms thereof and failure to
cure such default within 30 days after written notice
by Bank to Borrower; or
d) Any representation or warranty made by the
Borrower herein in any statement or certificate
furnished by Borrower is untrue in any material
respect;
e) The occurrence of any litigation or governmental
proceeding which is pending or threatened against the
Borrower, which could have a material adverse effect
on the Borrower's financial condition or business and
which is not remedied within a reasonable period of
time after notice thereof to the Borrower; or
f) The occurrence of any extraordinary situation
which gives the Bank reasonable grounds to believe
that Borrower may not be able to perform under the
Note, the Agreement, or any other documents executed
in connection with the Credit.
then, or at any time thereafter, unless such an event of
default is remedied, the Bank may terminate its commitment
to make advance on the Credit and may, by notice in writing
to the Borrower, declare the Note to be due and payable,
whereupon the Note shall immediately become due and
payable.
Upon the occurrence of the following events of default:
The Borrower becomes insolvent or bankrupt, or makes an
appointment for the benefit of creditors or consents to or
is subject to the appointment of a custodian, trustee, or
receiver for itself, or bankruptcy, reorganization, or
liquidation proceedings are instituted by or against the
Borrower and, if instituted against it, are consented to by
it or remain undismissed for 60 days;
then the Bank's commitment to make advances on the Credit
shall be automatically terminated and the Note shall
automatically become due and payable.
Representations: Borrower represents and warrants that a) the person
signing below is authorized to accept this agreement and
execute the Collateral Documents, which will constitute
obligations valid and enforceable against the Borrower, b)
that all balance sheets, profit and loss statements, and
other information furnished to the Bank are true and
correct and fairly reflect the financial condition of
Borrower on their respective dates, including contingent
liabilities of every type, c) that Borrower's financial
statement has not changed materially and adversely since
those dates, and d) that Borrower maintains a minimum of
$1,000,000 life insurance each on ▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇
▇. ▇▇▇▇▇ with Borrower as beneficiary.
Sincerely,
NORWEST BANK COLORADO, NATIONAL ASSOCIATION
By: /s/▇▇▇▇▇▇ ▇▇▇▇▇▇
Its: Assistant Vice President
Accepted and agreed to this 30th day of April, 1998,
VARI-L COMPANY, INC.
By: /s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Its: President and Chief Executive Officer
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Chairman & Chief Scientific Officer
CONTINUATION
360 Day Promissory Note
NORWEST BANK COLORADO, NATIONAL ASSOCIATION
Bank's Address, City, State & Zip Code
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[Shaded area]
FOR BANK USE ONLY Face Amount Rate (% per year) Note Date
Maturity Date
Customer No. Loan No. $5,000,000 ** %
04/23/1998 04/30/2000
[End shaded area]
Maker Home Phone Residence
Phone
VARI-L COMPANY, INC.
Street Address, City, State, Zip Code
▇▇▇▇▇ ▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Security
ACCOUNTS INVENTORY EQUIPMENT GENERAL INTANGIBLES
CROSS-COLLATERALIZED AND CROSS-DEFAULTED WITH OTHER DEBT
The captions in the boxes above, and the names, dates, amounts and other
information therein, are defined terms and are hereby incorporated in the
note provisions below.
Maker promises to pay to the order of Bank at Bank's address the Face
Amount with interest on the unpaid balance of the Face Amount from the
Note Date at the Rate indicated above (based upon a year of 360 days and
computed for the actual number of days elapsed). Principal and interest
shall be payable as follows:
Interest shall be payable monthly on the 30th day of each month beginning
05/30/1998. The balance of principal plus accrued interest shall be
payable at maturity.
**The interest rate shall be at an annual rate equal to the Norwest Bank
Colorado, National Association Prime Rate effective the same day of its
change. Prime Rate shall mean the interest rate charged by Norwest Bank
Colorado, National Association as announced or published by the Bank form
time to time as its Prime Rate, and may not be the lowest interest rate
charged by the Bank.
THIS NOTE EVIDENCES AN ARRANGEMENT PROVIDING FOR FUTURE ADVANCES THAT IN
AGGREGATE AMOUNT OUTSTANDING SHALL AT NO TIME EXCEED THE FACE AMOUNT.
This note is a continuation and substitution of that promissory note dated
08/13/1997 and represents a continuation of the indebtedness evidenced
thereby.
Overdue principal and (to the extent legally enforceable) overdue
interest, whether caused by acceleration of maturity or otherwise, shall
bear interest at a rate four percentage points above the rate in effect at
the time such principal or interest becomes due.
At the option of the holder of this note (the "holder") the unpaid
balance of this note plus accrued interest and all other obligations of
Maker to the holder, direct or indirect, absolute or contingent, now
existing or hereafter arising, shall become immediately due and payable
without notice or demand if (a) any payment required by this note is not
made when due, or (b) a default or event of default occurs under any loan
or security agreement or instrument executed as security for or in
connection with this note, or (c) the holder at any time in good faith
believes that the prospect of any payment required by this note is
impaired, whether or not such belief is caused by any act or failure to
act of any Maker or of any endorser, guarantor or accommodation party of
or on this note (hereafter collectively referred to as "any other
signer").
Maker and any other signer (1) waive presentment, notice of dishonor
and protest, (2) assent to any extension of time with respect to any
payment due under this note, to any substitution or release of collateral
and to the addition or release of any party, and (3) agree that Bank may
apply, as Bank elects, any payment received after default to any portion
of Maker's obligations hereunder. No waiver of any payment or other right
under this note shall operate as a waiver of any other payment or right.
Make and any other signer shall pay all reasonable costs of collection,
including attorneys' fees, paid or incurred by the holder in enforcing
this note on default.
This note (a) is secured by the Security indicated above, if any, and
(b) shall be construed under and governed by the laws of Colorado. If
there is more than one Maker, all of the provisions of this note shall
apply to each and any of them.
THE ARBITRATION TERMS AND CONDITIONS ON THE BACK OF THIS PAGE ARE A
PART OF AND INCORPORATED INTO THIS NOTE.
VARI-L COMPANY, INC.
By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇ ▇ ▇▇▇▇▇
CHAIRMAN & SCIENTIFIC OFFICER
By: /s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇
PRESIDENT & CHIEF EXECUTIVE OFFICER
ARBITRATION
1. Agreement to Arbitration: Subject to the provisions of the next
paragraph below, Bank and Maker agree to submit to binding arbitration any
and all claims, disputes and controversies between or among them, whether
in tort, contract or otherwise (and their respective employees, officers,
directors, attorneys, and other agents) arising out of or relating to in
any way to the loan and related loan documents which are the subject of
this note and its negotiation, execution, collateralization,
administration, repayment, modification, extension, substitution,
formation, inducement, collection, enforcement, default or termination.
Nothing in the preceding paragraph, nor the exercise of any right to
arbitrate thereunder, shall limit the right of any party hereto (1) to
foreclose against any real or personal property collateral by the exercise
of the power of sale under a deed of trust, mortgage, or other security
agreement, or instrument, or applicable law; (2) to exercise self-help
remedies such as setoff or repossession; or (3) to obtain provisional or
ancillary remedies such as replevin, injunctive relief, attachment, or
appointment of a receiver from a court having jurisdiction before, during
or after the pendency of any arbitration proceeding. The institution and
maintenance of any action for such judicial relief, or pursuit to
provisional or ancillary remedies, or exercise of self-help remedies shall
not constitute a waiver of the right or obligation of any party to submit
any claim or dispute to arbitration, including those claims or disputes
arising from exercise of any such judicial relief, or pursuit of
provisional or ancillary remedies, or exercise of self-help remedies.
2. Selection of Arbitrator: If the amount in dispute is $500,000.00 or
more, arbitration hereunder shall be before a three-person panel of
neutral arbitrators, consisting of one person from each of the following
categories: (1) an attorney who has practiced in the area of commercial
law in the State of Colorado for at least eight (8) years or a retired
judge of the district court or appellate court level from the State of
Colorado; (2) a person with at least eight (8) years experience in
commercial lending; and (3) a person with at least eight (8) years
experience in the DESIGN & MANUF SIGNAL PROC COMPONENTS industry. The
parties to the dispute or their representatives shall obtain from AAA a
list of persons meeting the criteria outlined above and the parties shall
select the person in the manner established by the AAA.
If the amount in dispute is less than $500,000.00, the arbitration
shall be conducted before one arbitrator who shall be an attorney who has
practiced in the area of commercial law for at least eight (8) years or a
retired judge at the District Court or an appellate court level. The
parties to the dispute or their representatives shall obtain from AAA a
list of the persons meeting the criteria outlined above and the parties
shall select the person in the manner established by the AAA.
3. Governing Laws and Rules: Such arbitration shall proceed in the
State of Colorado in the city or county (if the Bank is not located in a
city) wherein the Bank is located, shall be governed by Colorado law,
including all applicable statutes of limitations, and shall be conducted
in accordance with the Commercial Arbitration Rules of the American
Arbitration Association ("AAA"). Judgement upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction.
4. Discovery: In any arbitration hereunder: (1) the arbitrator(s)
shall decide (by documents only or with a hearing, at the arbitrators'
discretion) any pre-hearing motions which are substantially similar to pre-
hearing motions to dismiss for failure to state a claim or motions for
summary adjudication; (2) discovery shall be permitted, but shall be
limited as provided by Rule 26.1 (c) of the Colorado Rules of Civil
Procedure, and shall be subject to the scheduling by the arbitrator(s),
and any discovery disputes shall be subject to final determination by the
arbitrator(s); and (3) the arbitrator(s) shall award costs and expenses of
the arbitration proceeding in accordance with the provisions of the loan
agreement, promissory note and/or other loan documents.