1 EXHIBIT 10.28
SECOND AMENDMENT TO CREDIT AGREEMENT
This Second Amendment to Credit Agreement (the Amendment ) is made
as of the 31st day of October, 1996 by and between RECONDITIONED
SYSTEMS, INC., an Arizona corporation (the Borrower ), and NORWEST
BUSINESS CREDIT, INC., A Minnesota corporation (the Lender ).
Recitals
The Borrower and the Lender have entered into the Credit and
Security Agreement dated as of February 26, 1996, as amended by that
certain First Amendment to Credit Agreement dated as of August 15, 1996
(as so amended, the Credit Agreement ).
The Lender has agreed to make certain loan advances to the Borrower
pursuant to the terms and conditions set forth in the Credit Agreement.
The loan advances under the Credit Agreement are evidenced by the
Borrower s promissory note dated as of February 26, 1996, in the maximum
principal amount of
$ 1,200,00.00 and payable to the order of the Lender (the Note ).
All indebtedness of the Borrower to the Lender is secured pursuant
to the terms of the Credit Agreement and all other Security Documents as
defined therein (collectively, the Security Documents ).
The Borrower has requested that certain amendments be made to the
Credit Agreement, which the Lender is willing to make pursuant to the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, it is agreed as follows:
1. Terms used in this Amendment which are defined in the Credit
Agreement shall have the same meanings as defined therein, unless
otherwise defined herein.
2. The Credit Agreement is hereby amended as follows:
(a) The definition of Floating Rate contained in the Credit
Agreement is hereby deleted in its entirely and replaced as follows:
Floating Rate means an annual rate equal to
the sum of the Base Rate plus four percent (4%),
which Floating Rate shall change when and as the
Base Rate changes.
(b) There is hereby added to the Credit Agreement a new
definition of Incentive Rate which provides as follows:
Incentive Rate means an annual rate equal to
the sum of the Base Rate plus three percent (3%)
which Incentive Rate shall change when and as the
Base Rate changes.
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(c) The definition of Default Rate contained in the Credit
Agreement is hereby deleted in its entirety and replaced as follows:
Default Rate means at any time two percent
(2%) over the Floating Rate or the Incentive Rate,
as applicable, which Default Rate shall change
when and as the Floating Rate or the Incentive
Rate, as applicable, changes.
(d) The definition of Termination Date contained in the
Credit Agreement is hereby deleted in its entirety and replaced as
follows:
Termination Date means February 28, 2000.
(e) Section 2.3(a) of the Credit Agreement is hereby deleted
in its entirety and replaced as follows:
(a) The Principal of the Advances outstanding
from time to time during any month shall bear
interest (computed on the basis of actual days
elapsed in a 360-day year) at the Floating Rate;
PROVIDED,HOWEVER, that in the event that
(i) Borrower s Net Income for the fiscal year
ending March 31, 1997 is $200,000.00 or greater,
and (ii) Borrower s Net Worth as of March 31,
1997, is $1,316,788.00 or greater, each as shown
in audited financial statements delivered to
Lender in accordance with accordance with Section
6.1(a), then from the first day of the month
following Lender s receipt of the audited
financial statements evidencing compliance with
clauses (i)and (ii) above, the principal of the
Advances outstanding from time to time shall bear
interest at the Incentive Rate; Provided,
further, however, that from the first day of any
month during which any Default or Event of
Default occurs or exists at any time, in the
Lender s 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 during the
entire Default Period; and provided, further,
that 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. Interest
accruing on the principal balance of the Advances
outstanding from time to time shall be payable on
the first day of each succeeding month and on the
Termination Date or earlier demand or prepayment
in full. The Borrower agrees that the interest
rate contracted for includes the interest rate
set forth herein plus any other charges or fees
set forth herein and costs and expenses incident
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to this transaction paid by the Borrower to the
extent same are deemed interest under applicable
law.
(f) Section 2.3(b) of the Credit Agreement is hereby deleted
in its entirety and replaced as follows:
(b) Notwithstanding the interest payable pursuant
to Section 2.3(a) hereof, the Borrower shall be
liable to the Lender for interest hereunder of
not less than (i)$4,000.00 per calendar month
during any calendar month in which the interest
on Advances from time to time outstanding is
calculated based upon the Floating Rate, or (ii)
$2,500.00 per calendar month during any calendar
month in which interest on Advances from time to
time outstanding is calculated based upon the
Incentive Rate (the Minimum Interest Charge ),
and the Borrower shall pay any deficiency between
the Minimum Interest Charge and the amount of
interest otherwise calculated under Sections
2.3(a) hereof on the date and in the manner
provided in Section 2.3(a) hereof.
3. Section 7.17 of the Credit Agreement provides, among other
things, that the Borrower will not increase the salaries, bonuses,
commissions, consultant fees or other compensation of any director,
officer or consultant, or any member of their families, by more than 10%
in any one year without the prior written consent of the Lender. The
Board of Directors of Borrower has recommended the following incentive
compensation plan for its fiscal year ending March 31, 1997:
(a) The annual salaries of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇
shall be $105,000.00 and $75,000.00, respectively.
(b) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇ shall each receive a
bonus equal to five percent (5%) of the pre-tax, pre-bonus 1997 fiscal
year s income, payable bi-annually.
(c) 100,000 share stock options granted to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
and ▇▇▇▇ ▇▇▇▇▇▇▇▇ originally priced on August 10, 1995, shall be
repriced at $1.00 per share, which was the closing price on August 16,
1996.
(d) ▇▇▇▇▇ ▇▇▇▇ shall receive a $5,000.00 director s fee
payable bi-annually, and receive a one-time grant of a 15,000 share
stock option, at an exercise price of $1.00 per share and a one-time
grant of an 85,000 share stock option at an exercise price of $1.00 per
share.
The Borrower has requested that the Lender consent to the implementation
of said incentive compensation plan provisions. Subject to the
effectiveness of this Amendment, the Lender hereby consents to the
implementation of the incentive compensation plan provisions set forth
in Sections 3(a) through 3(d) above. This consent shall not be deemed
to waive Lender s right to withhold its consent to any future waiver or
exception regarding the covenent contained in Section 7.17 of the Credit
Agreement. -3-
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4. Except as explicitly amended by this Amendment, all of the
terms and conditions of the Credit Agreement shall remain in full force
and effect and shall apply to any Advance thereunder.
5. This Amendment shall be effective upon the later of (i)November
1, 1996, or (ii)receipt by the Lender of an executed original hereof,
together with each of the following, each in substance and form
acceptable to the Lender in its sole discretion:
(a) Certificate of the Secretary of the Borrower certifying
as to(i)the resolutions of the board of directors of the Borrower
approving the execution and delivery of this Amendment, (ii)the fact
that the Fourth Amended and Restated Articles of Incorporation and
Restated Bylaws of the Borrower, which were certified and delivered to
the Lender pursuant to the Certificate of the Borrower s Secretary dated
as of August 15, 1996, in connection with the execution and delivery of
the First Amendment to Credit Agreement continue in full force and
effect and have not been amended or otherwise modified except as set
forth in the Certificate to be delivered, and (iii)certifying that the
officers of the Borrower who have been certified to the Lender, pursuant
to the Certificate of the Borrower s Secretary dated as of February 26,
1996, as being authorized to sign an to act on behalf of the Borrower
continue to be so authorized or setting forth the sample signatures of
each of the officers of the Borrower authorized to execute and deliver this
Amendment and all other documents, agreements and certificates on behalf
of the Borrower.
(b) Opinion of the Borrower s counsel as to the matters set
forth in paragraphs 6(a) and (b) hereof and as to such other matters as
the Lender shall require.
6. The Borrower hereby represents and warrants to the Lender as
follows:
(a) The Borrower has all requisite power and authority to
execute this Amendment and to perform all of its obligations hereunder,
and this Amendment has been duly executed and delivered by the Borrower
and constitutes the legal, valid and binding obligation of the Borrower,
enforceable in accordance with its terms.
(b) The execution, delivery and performance by the Borrower
of this Amendment have been duly authorized by all necessary corporate
action and do not (i)require any authorization, consent or approval by
any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) violate any provision of any
law, rule or regulation or of any order, writ, injunction or decree
presently in effect, having applicability to the Borrower, or the
articles of incorporation or bylaws of the Borrower, or (iii) result in
a breach of or constitute a default under any indenture or loan or
credit agreement or any other agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected.
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(c) All of the representations and warranties contained in
Article V of the Credit Agreement are correct on and as of the date
hereof as though made on and as of such date, except to the extent that
such representations and warranties relate solely to an earlier date.
7. All references in the Credit Agreement to this Agreement
shall be deemed to refer to the Credit Agreement as amended hereby; and
any and all references in the Security Documents to the Credit Agreement
shall be deemed to refer to the Credit Agreement as amended hereby.
8. The execution of this Amendment and acceptance of any documents
related hereto shall not be deemed to be a waiver of any Default or
Event of Default under the Credit Agreement or breach, default or event
of default under any Security Document or other document held by the
Lender, whether or not known to the Lender and whether or not existing
on the date of this Amendment.
9. The Borrower hereby absolutely and unconditionally releases and
forever discharges the Lender, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations,
insurers, indemnitors, successors and assigns thereof, together with all
of the present and former directors, officers, agents and employees of
any of the foregoing , from any and all claims, demands or causes of
action of any kind, nature or description, whether arising in law or
equity or upon contract or tort or under any state or federal law or
otherwise, which the Borrower has had, now has or has made claim to have
against any such person for or by reason of any act, omission, matter,
cause or thing whatsoever arising from the beginning of time to and
including the date of this Amendment, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.
10. The Borrower hereby reaffirms its agreement under the Credit
Agreement to pay or reimburse the Lender on demand for all costs and
expenses incurred by the Lender in connection with the Credit Agreement,
the Security Documents and all other documents contemplated thereby,
including without limitation all reasonable fees and disbursements of
legal counsel. Without limiting the generality of the foregoing, the
Borrower specifically agrees to pay all fees and disbursements of
counsel to the Lender for the services performed by such counsel in
connection with the preparation of this Amendment and the documents and
instruments incidental hereto. The Borrower hereby agrees that the
Lender may, at any time or from time to time in its sole discretion and
without further authorization by the Borrower, make a loan to the
Borrower under the Credit Agreement, or apply the proceeds of any loan,
for the purpose of paying any such fees, disbursements, costs and
expenses.
11. This Amendment may by executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original
and all of which counterparts, taken together, shall constitute one and
the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed as of the day and year first above written.
RECONDITIONED, SYSTEMS, INC.,an
Arizona corporation
By /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Its Chief Financial Officer
NORWEST BUSINESS CREDIT, INC.,
a Minnesota corporation
By /s/ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
Its Vice President
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