SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT
This Second Amendment to Credit and Security Agreement (the
"Second Amendment") is made as of the 10th day of June 1997 by and between
GATEWAY DATA SCIENCES CORPORATION, an Arizona corporation, and GATEWAY CREDIT
CORPORATION, an Arizona corporation (jointly, 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 21, 1997 (the "Credit Agreement"), which
was amended by the First Amendment To Credit and Security Agreement dated as of
April 23, 1997 (the "First Amendment").
The Lender has agreed to make certain loan advances to the
Borrower and to issue or cause to be issued certain letters of credit for the
account of the Borrower pursuant to the terms and conditions set forth in the
Credit Agreement as previously amended.
The loan advances under the Credit Agreement are evidenced by
the Borrower's Revolving Note dated as of February 21, 1997, in the maximum
principal amount of $3,000,000.00 and payable to the order of the Lender (the
"Note"). (Pursuant to the First Amendment, the Revolving Note was replaced,
renewed and amended, but not repaid, by the Temporary Replacement Note. As of
May 1, 1997, the definition of "Note" and all references thereto in the Credit
Agreement were deemed amended to describe the Revolving Note dated as of
February 21, 1997, which Revolving Note replaced, renewed and amended, but did
not repay, the Temporary Replacement Note referred to in the First Amendment.)
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 Second Amendment which are defined in
the Credit Agreement, as previously amended, shall have the same meanings as
defined therein, unless
otherwise defined herein.
2. The Credit Agreement as previously amended is hereby
amended as follows:
(a) In section 1.1 of the Credit Agreement, the
definition of "Floating Rate" is hereby deleted in its entirety and replaced
with the following definition:
"'Floating Rate' means an annual rate equal to the sum of the
Base Rate plus two percent (2%), which Floating Rate shall
change when and as the Base Rate changes."
(b) In section 1.1 of the Credit Agreement, the
following definition is added:
"'Net Loss' has the meaning specified in Section 6.14
hereof.'"
(c) Under section 6.1(a) of the Credit Agreement, the
Borrower failed to deliver to the Lender, within ninety (90) days after the end
of the Borrower's fiscal year ending January 31, 1997, audited financial
statements of the Borrower with the unqualified opinion of independent certified
public accountants, the report signed by such accountants concerning their
investigations and knowledge of any Default or Event of Default and the
certificate of the chief financial officer of the Borrower concerning the
preparation of said financial statements and such officer's knowledge of any
Default or Event of Default, together with the other materials specified in said
section of the Credit Agreement. The Lender hereby waives said default and
extends the deadline for delivery of such materials to July 31, 1997.
(d) Under the Net Income Covenant of section 6.12 of
the Credit Agreement, the Borrower failed to achieve the minimum Net Income
requirement of $500,000 for the fiscal quarter ending April 30, 1997, and
therefore is in default. The Lender hereby waives said default.
(e) Section 6.12 ("Net Income Covenant") of the
Credit Agreement is hereby deleted in its entirety and replaced with the
following:
"Section 6.12 Net Income Covenant. 'Net Income' means after
tax net income of the Borrower from continuing operations
determined on a consolidating and consolidated basis in
accordance with generally accepted accounting principles
consistent with those used in preparing Borrower's most
recent consolidating and consolidated audited financial
statement. So long as this Agreement remains in effect,
Borrower will, as of the last day of each fiscal quarter
beginning with the quarter ending July 31, 1997, achieve a
minimum Net Income as follows:
$ 0 for the fiscal quarter ending July 31, 1997;
$550,000 for each fiscal quarter ending October 31;
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$600,000 for each fiscal quarter ending January 31;
$500,000 for each fiscal quarter ending April 30; and
$550,000 for each fiscal quarter ending July 31."
(f) Under the Net Worth Covenant of section 6.13 of
the Credit Agreement, the Borrower failed to maintain a minimum book Net Worth
of Seven Million Two Hundred Thousand Dollars ($7,200,000) as of the last day of
the following calendar months: February, March, April and May of 1997; and
failed to increase its minimum book Net Worth for the fiscal quarter ending
April 30, 1997 by $500,000 over the previous fiscal quarter's minimum book Net
Worth; and therefore is in default. The Lender hereby waives said defaults.
(g) Section 6.13 ("Net Worth Covenant") of the Credit
Agreement is hereby deleted in its entirety and replaced with the following:
"Section 6.13 Net Worth Covenant. 'Net Worth' means the net
worth of the Borrower determined on a consolidating and
consolidated basis, determined in accordance with generally
accepted accounting principles consistent with those used in
preparing Borrower's most recent consolidating and
consolidated audited financial statement. So long as this
Agreement remains in effect, the Borrower's minimum book Net
Worth shall be increased as of the end of each fiscal quarter
over the previous fiscal quarter's minimum book Net Worth, as
follows:
Increase of $0 for the fiscal quarter ending July 31,
1997;
Increase of $550,000 for each fiscal quarter ending
October 31;
Increaseof $600,000 for each fiscal quarter ending
January 31;
Increase of $500,000 for each fiscal quarter ending
April 30; and
Increase of $550,000 for each fiscal quarter ending
July 31."
(h) A new section 6.14 "Net Loss Covenant" is hereby
added as follows:
"Section 6.14 Net Loss Covenant. 'Net Loss' means an after
tax net loss of the Borrower from continuing operations
determined on a consolidating and consolidated basis, to be
determined in accordance with generally accepted accounting
principles consistent with those used in preparing Borrower's
most recent consolidating and consolidated audited financial
statement. For the calendar month of May 1997 and thereafter,
Borrower will not incur in any calendar month a Net Loss
greater than Eight Hundred Fifty Thousand Dollars ($850,000),
and Borrower will not incur in any two consecutive calendar
months a combined Net Loss greater than One Million Two
Hundred Thousand Dollars ($1,200,000)."
(i) Under the Salaries Covenant of section 7.17 of
the Credit Agreement, the Borrower has during the first quarter of the fiscal
year beginning February 1, 1997 increased the salaries of officers ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇ (President), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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(Secretary) and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (Vice President Finance and Treasurer) by more
than twenty per cent (20%) in the aggregate, and the Borrower therefore is in
default. The Lender hereby waives said default.
3. Except as explicitly amended by this Second Amendment, all
of the terms and conditions of the Credit Agreement as previously amended shall
remain in full force and effect and shall apply to any advance or letter of
credit thereunder.
4. The Borrower agrees to pay the Lender a fully earned,
non-refundable fee in the amount of $5,000.00 in consideration of the execution
by the Lender of this Second Amendment. Said amount shall be advanced to
Borrower's account under this Credit Facility with Lender on July 1, 1997.
5. This Second Amendment shall be effective upon 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 each Borrower
certifying as to (i) the resolutions of the board of directors of the Borrower
approving the execution and delivery of this Second Amendment, (ii) the fact
that the Articles of Incorporation and Bylaws of the Borrower, which were
certified and delivered to the Lender pursuant to the Certificate of the
Borrower's Secretary dated as of February 28, 1997 as to Gateway Data Sciences
Corporation and as of February 18, 1997 as to Gateway Credit Corporation, in
connection with the execution and delivery of the 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 and agents of the Borrower who have been certified to the Lender,
pursuant to the Incumbency Certificate of the Borrower's Secretary dated as of
February 18, 1997, as being authorized to sign and to act on behalf of the
Borrower continue to be so authorized or setting forth the sample signatures of
each of the officers and agents of the Borrower authorized to execute and
deliver this Second Amendment and all other documents, agreements and
certificates on behalf of the Borrower; and
(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 Second Amendment and to perform all of its obligations
hereunder, and this Second 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 Second Amendment has been duly authorized by all necessary
corporate action and does 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
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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 by-laws 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.
(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 previously amended and 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 previously
amended and as amended hereby.
8. The execution of this Second Amendment and any documents
related hereto shall not be deemed to be a waiver of any Default or Event of
Default under the Credit Agreement as previously amended 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 Second Amendment, except as expressly set forth herein.
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 Second 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
Second 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
and the fee required under section 4 hereof.
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11. This Second Amendment may be 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.
12. Regarding "Eligible Inventory", Borrower acknowledges and
agrees that its inventory is currently ineligible because Lender has not
received a landlord's subordination, disclaimer and consent with respect to each
lease of the Premises, a condition precedent in section 4.1(c) of the Credit
Agreement.
13. Any breach by Borrower of the terms and conditions in this
Second Amendment shall be an Event of Default under section 8.1 of the Credit
Agreement. Upon the occurrence of an Event of Default or at any time thereafter,
the Lender may exercise any or all of the rights and remedies specified in
section 8.2 of the Credit Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed as of the day and year first above written.
GATEWAY DATA SCIENCES
CORPORATION, an Arizona corporation
By /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------
Printed Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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Its President
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GATEWAY CREDIT CORPORATION,
an Arizona corporation
By /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------
Printed Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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Its President
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NORWEST BUSINESS CREDIT, INC.,
a Minnesota corporation
By /s/ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
--------------------------------
Printed Name: ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
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Its Vice President
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