Document:

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EXHIBIT 10(b)

FOURTH AMENDMENT TO

LOAN AND SECURITY AGREEMENT

               THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”) is
entered into as of November 18, 2004, but effective as of October 30, 2004 (the
“Effective Date”), among NORSTAN COMMUNICATIONS INC., a Minnesota corporation
(“Communications (US)”), VIBES TECHNOLOGIES, INC., a Minnesota corporation
(“Vibes”; Communications (US) and Vibes are referred to hereinafter each
individually as “Borrower”, and collectively, as “Borrowers”), NORSTAN, INC., a
Minnesota corporation (“Parent”), NORSTAN FINANCIAL SERVICES INC., a Minnesota
corporation (“Norstan Financial”), NORSTAN CANADA INC., a Minnesota corporation
(“Canada Holdings”), NORSTAN INTERNATIONAL, INC., a Minnesota corporation (“UK
Holdings”) and NORSTAN CANADA LTD., an Ontario corporation (“Communications
(Canada)”; Parent, Norstan Financial, Canada Holdings, Norstan International,
UK Holdings and Communications (Canada) are referred to hereinafter each
individually as a “ Credit Party”, and individually and collectively, jointly
and severally, as the “Credit Parties”) and WELLS FARGO FOOTHILL, INC., a
California corporation, as agent for lenders (“Agent”).

               WHEREAS, Borrowers, Credit Parties (Borrowers and Credit Parties are
referred to hereinafter each individually as “Company”, and collectively, as
“Companies”), Agent and Lenders are parties to a Loan and Security Agreement
dated as of December 10, 2003 (as amended, restated, supplemented or otherwise
modified from time to time, and as amended hereby, the “Loan Agreement”);

               WHEREAS, the Companies have requested that Agent amend the Loan Agreement,
and Agent has agreed to do so subject to the terms and conditions contained
herein.

               NOW THEREFORE, in consideration of the promises and mutual agreements
herein contained, the parties hereto agree as follows:

               1. Defined Terms. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed to such terms in the Loan Agreement.

               2. Amendment to Loan Agreement. Subject to the satisfaction of the
conditions set forth in Section 3 hereof, the Loan Agreement is hereby amended,
as follows:

               (a) The defined term, “Norstan Resale Business Projections”, contained in
Section 1.1 of the Loan Agreement is hereby amended and restated in its
entirety, as follows:

         “Norstan Resale Business Projections” means, with respect to
the fiscal year ending April 30, 2005, the projections of
Communications (US)’s resale revenue of refurbished products,
excluding revenue under the Siemens Agreement and resale revenue
of refurbished products sold by Vibes, attached hereto as
Attachment 1 and, with respect to each fiscal year thereafter,

 

 

Communications (US)’s forecasted resale revenue of
refurbished products, excluding revenue under the Siemens
Agreement and resale revenue of refurbished products sold by
Vibes, all prepared on a consistent basis with the projections for
the fiscal year ending April 30, 2005 attached hereto as
Attachment 1, together with appropriate supporting details and a
statement of underlying assumptions.

               (b) Attachment 1, the Norstan Resale Business Projections for the fiscal
year ending April 30, 2005, is hereby added to the Loan Agreement as attached
hereto.

               3. Conditions Precedent to Amendment. The effectiveness of this Amendment
is subject to the following conditions precedent (unless specifically waived in
writing by Agent), each to be in form and substance satisfactory to Agent, and
upon the satisfaction and/or waiver of such conditions, this Amendment shall be
effective as of the Effective Date:

               (a) Agent shall have received this Amendment, duly executed by each
Company; and

               (b) No Event of Default or event which with the giving of notice or
passage of time would constitute an Event of Default shall have occurred and be
continuing on the date hereof, nor shall result from the consummation of the
transaction contemplated herein.

               4. Miscellaneous.

               (a) Warranties and Absence of Defaults. In order to induce Agent to enter
into this Amendment, each Company hereby warrants to Agent, as of the date
hereof, that:

         (i) The representations and warranties of each Company contained in
the Loan Agreement are true and correct as of the date hereof as if made
on the date hereof; and

         (ii) No Event of Default or event which, with giving of notice or
the passage of time or both, would become an Event of Default, exists as
of the date hereof.

               (b) Expenses. Each Company agrees, on a joint and several basis, to pay
on demand all costs and expenses of Agent (including the fees and expenses of
outside counsel for Agent) in connection with the preparation, negotiation,
execution, delivery and administration of this Amendment and all other
instruments or documents provided for herein or delivered or to be delivered
hereunder or in connection herewith. In addition, each Company agrees, on a
joint and several basis, to pay, and save Agent harmless from all liability
for, any stamp or other taxes which may be payable in connection with the
execution or delivery of this Amendment or the Loan Agreement and the execution
and delivery of any instruments or documents provided for herein or delivered
or to be delivered hereunder or in connection herewith. All obligations

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provided in this Section 4(b) shall survive any termination of this
Amendment and the Loan Agreement.

               (c) Governing Law. This Amendment shall be a contract made under and
governed by the internal laws of the State of Illinois.

               (d) Counterparts. This Amendment may be executed in any number of
counterparts, and by the parties hereto on the same or separate counterparts,
and each such counterpart, when executed and delivered, shall be deemed to be
an original, but all such counterparts shall together constitute but one and
the same Amendment.

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               IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized and delivered
as of the date first above written.

	 	 	 
	

	 	NORSTAN COMMUNICATIONS INC.,
	

	 	an Minnesota corporation
	 
	 	 
	

	 	By /s/ Alice S Vazquez
	

	 	Title VP Treasurer
	 
	 	 
	

	 	VIBES TECHNOLOGIES, INC.,
	

	 	an Minnesota corporation
	 
	 	 
	

	 	By /s/ Alice S Vazquez
	

	 	Title VP Treasurer
	 
	 	 
	

	 	NORSTAN, INC.,
	

	 	a Minnesota corporation
	 
	 	 
	

	 	By /s/ Alice S Vazquez
	

	 	Title VP Treasurer
	 
	 	 
	

	 	NORSTAN FINANCIAL SERVICES INC.,
	

	 	a Minnesota corporation
	 
	 	 
	

	 	By /s/ Alice S Vazquez
	

	 	Title VP Treasurer
	 
	 	 
	

	 	NORSTAN CANADA INC.,
	

	 	a Minnesota corporation
	 
	 	 
	

	 	By /s/ Alice S Vazquez
	

	 	Title VP Treasurer

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	 	NORSTAN INTERNATIONAL, INC.,
	

	 	a Minnesota corporation
	 
	 	 
	

	 	By /s/ Alice S Vazquez
	

	 	Title VP Treasurer
	 
	 	 
	

	 	NORSTAN CANADA LTD.,
	

	 	an Ontario corporation
	 
	 	 
	

	 	By /s/ Alice S Vazquez
	

	 	Title VP Treasurer
	 
	 	 
	

	 	WELLS FARGO FOOTHILL, INC.,
	

	 	a California corporation, as Agent
	 
	 	 
	

	 	By /s/ John T. Leonard
	

	 	Title Vice President

-5-<PAGE>

                                                                 EXHIBIT 10.20.1

NOTICE OF GRANT OF STOCK OPTIONS          PHOTON DYNAMICS, INC.
AND OPTION AGREEMENT                      ID: 943007502
                                          5970 Optical Ct.
                                          San Jose, CA 95138-1400

                                                   OPTION NUMBER:
                                                   PLAN:          1995
                                                   ID:

Effective [date], you have been granted a(n) Incentive Stock Option to buy
[number] shares of Photon Dynamics, Inc. (the Company) stock at $[price] per
share pursuant to the Company's Amended and Restated 1995 Stock Option Plan (the
"Plan").

The total option price of the shares granted is $[price].

Shares in each period will become fully vested on the date shown.

<TABLE>
<CAPTION>
Shares        Vest Type       Full Vest       Expiration
------      ------------      ----------      ----------
<S>         <C>               <C>             <C>
</TABLE>

By your signature and the Company's signature below, you and the Company agree
that these options are granted under and governed by the terms and conditions of
the Plan, as amended, and the attached Option Agreement, all of which are
attached and made a part of this document. By your signature below, you
acknowledge receipt of, and understand and agree to, this Notice, the attached
Option Agreement and the Plan. You further acknowledge that as of the Date of
Grant, this Notice, the attached Option Agreement and the Plan set forth the
entire understanding between you and the Company regarding the acquisition of
stock in the Company and supersede all prior oral and written agreements on that
subject with the exception of (i) options previously granted and delivered to
you under the Plan, and (ii) the following agreements only:

        OTHER AGREEMENTS:
                                        ______________________________
                                        ______________________________

__________________________________________            __________________________
Photon Dynamics, Inc.                                 Date

__________________________________________            __________________________
                                                      Date

                                                            Date:
                                                            Time:
<PAGE>

                              PHOTON DYNAMICS, INC.
                   AMENDED AND RESTATED 1995 STOCK OPTION PLAN

                             STOCK OPTION AGREEMENT
              (INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION)

      Pursuant to your Notice of Grant of Stock Options ("Grant Notice") and
this Stock Option Agreement, PHOTON DYNAMICS, INC. (the "Company") has granted
you an option under its AMENDED AND RESTATED 1995 STOCK OPTION PLAN (the "Plan")
to purchase the number of shares of the Company's Common Stock indicated in your
Grant Notice at the exercise price indicated in your Grant Notice. Defined terms
not explicitly defined in this Stock Option Agreement but defined in the Plan
shall have the same definitions as in the Plan.

      The details of your option are as follows:

      1. VESTING. Subject to the limitations contained herein, your option will
vest as provided in your Grant Notice, provided that vesting will cease upon the
termination of your continuous service.

      2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common
Stock subject to your option and your exercise price per share referenced in
your Grant Notice may be adjusted from time to time as provided for in Section
3(b) of the Plan.

      3. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price either:

            (a) In cash, personal check, certified check, bank draft, or postal
or express money order payable to the order of the Company; or

            (b) In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in The Wall Street Journal, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds; provided,
however, that in no event will the Company participate in any Regulation T
program if such participation would violate Section 13(k) of the Securities
Exchange Act of 1934 (prohibiting employer loans to officers and directors).

      4. WHOLE SHARES. You may exercise your option only for whole shares of
Common Stock.

      5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of Common
Stock issuable upon such exercise are then registered under the Securities Act
of 1933, as amended (the "Securities Act") or, if such shares of Common Stock
are not then so registered, the Company

                                       1.
<PAGE>

has determined that such exercise and issuance would be exempt from the
registration requirements of the Securities Act. The exercise of your option
also must comply with other applicable laws and regulations governing your
option, and you may not exercise your option if the Company determines that such
exercise would not be in material compliance with such laws and regulations.

      6. TERM. You may not exercise your option before the commencement of its
term or after its term expires. The term of your option commences on the "Date
of Grant" indicated in your Grant Notice and expires upon the earliest of the
following:

            (a) ninety (90) days after the termination of your continuous
service for any reason other than your disability or death, provided that if
during any part of such ninety (90) day period your option is not exercisable
solely because of the condition set forth in Section 5, your option shall not
expire until the earlier of the "Expiration Date" indicated in your Grant Notice
or until it shall have been exercisable for an aggregate period of ninety (90)
days after the termination of your continuous service;

            (b) three hundred sixty-five (365) days after the termination of
your continuous service due to your disability;

            (c) three hundred sixty-five (365) days after your death if you die
either during your continuous service or within ninety (90) days after your
continuous service terminates;

            (d) the Expiration Date indicated in your Grant Notice; or

            (e) the day before the tenth (10th) anniversary of the Date of
Grant.

      If your option is an incentive stock option, note that to obtain the
federal income tax advantages associated with an incentive stock option, the
Code requires that at all times beginning on the date of grant of your option
and ending on the day three (3) months before the date of your option's
exercise, you must be an employee of the Company or an Affiliate, except in the
event of your death or disability. The Company has provided for extended
exercisability of your option under certain circumstances for your benefit but
cannot guarantee that your option will necessarily be treated as an incentive
stock option if you continue to provide services to the Company or an Affiliate
as a consultant or director after your employment terminates or if you otherwise
exercise your option more than three (3) months after the date your employment
with the Company or an Affiliate terminates.

      7. EXERCISE.

            (a) You may exercise the vested portion of your option (and the
unvested portion of your option if your Grant Notice so permits) during its term
by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.

                                       2.
<PAGE>

            (b) By exercising your option you agree that, as a condition to any
exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.

            (c) If your option is an incentive stock option, by exercising your
option you agree that you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of your option that occurs within two (2) years after the
date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option.

      8. TRANSFERABILITY. Your option is not transferable, except by will or by
the laws of descent and distribution, and is exercisable during your life only
by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.

      9. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective shareholders, boards of directors, officers or
employees to continue any relationship that you might have as a director or
consultant for the Company or an Affiliate.

      10. WITHHOLDING OBLIGATIONS.

            (a) At the time you exercise your option, in whole or in part, or at
any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "broker-assisted
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with the exercise of your option.

            (b) Upon your request and subject to approval by the Company, in its
sole discretion, and compliance with any applicable legal conditions or
restrictions, the Company may withhold from fully vested shares of Common Stock
otherwise issuable to you upon the exercise of your option a number of whole
shares of Common Stock having a fair market value, determined by the Company as
of the date of exercise, not in excess of the minimum amount of tax required to
be withheld by law (or such lower amount as may be necessary to avoid variable
award accounting). If the date of determination of any tax withholding
obligation is deferred to a date later than the date of exercise of your option,
share withholding pursuant to the preceding sentence shall not be permitted
unless you make a proper and timely election under Section 83(b) of the Code,
covering the aggregate number of shares of Common Stock acquired upon such

                                       3.
<PAGE>

exercise with respect to which such determination is otherwise deferred, to
accelerate the determination of such tax withholding obligation to the date of
exercise of your option. Notwithstanding the filing of such election, shares of
Common Stock shall be withheld solely from fully vested shares of Common Stock
determined as of the date of exercise of your option that are otherwise issuable
to you upon such exercise. Any adverse consequences to you arising in connection
with such share withholding procedure shall be your sole responsibility.

            (c) You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares of Common Stock or release such shares of Common Stock from any escrow
provided for herein unless such obligations are satisfied.

      11. NOTICES. Any notices provided for in your option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by mail by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.

      12. GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions
of the Plan, the provisions of which are hereby made a part of your option, and
is further subject to all interpretations, amendments, rules and regulations,
which may from time to time be promulgated and adopted pursuant to the Plan. In
the event of any conflict between the provisions of your option and those of the
Plan, the provisions of the Plan shall control.

                                       4.

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