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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Fiscal Year ended October 31, 1997
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from __________ to __________
Commission file number 0-22263
DUNN COMPUTER CORPORATION
(Name of small business issuer as specified in its charter)
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<S> <C>
Delaware 54-1424654
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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1306 Squire Court
Sterling, Virginia 20166
(Address of principal executive offices)
(703) 450-0400
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. { }
Issuer's revenues for its most recent fiscal year: $21,766,465.
Aggregate market value of the voting and non-voting common equity held by
non-affiliates computed at $9 1/2 per share, the closing price of the Common
Stock on January 27, 1998: $48,925,000.
The number of shares of the issuer's Common Stock, $.01 par value,
outstanding as of January 28, 1998 was 5,150,000.
Documents Incorporated by Reference: None
Transitional Small Business Format. Yes____ No X
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DUNN COMPUTER CORPORATION
By: /s/ Thomas P. Dunne
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Thomas P. Dunne
President and Chief Executive Officer
Date: March 31, 1998
Pursuant to and in accordance with the requirements of the Securities
Exchange Act of 1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
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SIGNATURE TITLE DATE
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<S> <C> <C>
/s/ Thomas P. Dunne Chief Executive Officer, President (Principal March 31, 1998
------------------------------------- Executive Officer) and Chairman of the Board
Thomas P. Dunne
/s/ John D. Vazzana Executive Vice President, Chief Financial March 31, 1998
------------------------------------- Officer (Principal Financial and Accounting
John D. Vazzana Officer) and Director
/s/ Claudia N. Dunne Vice President and Director March 31, 1998
-------------------------------------
Claudia N. Dunne
</TABLE>
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Exhibit 4.2
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT, dated as of the 28 day of May, 1996, is
made by and between Dunn Computer Corporation, a Virginia corporation (the
"Borrower") and SIGNET BANK, a Virginia banking corporation (the "Lender").
The Lender has agreed to extend credit to the Borrower, and the Borrower has
agreed to obtain credit from the Lender, on the terms and conditions set forth
in this Agreement. Accordingly, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Lender and the
Borrower agree as follows:
SECTION 1. Definitions. Certain terms used in this Agreement are defined
in this Section 1. These terms, and the additional terms defined above, shall
have the meanings assigned wherever the terms appear in this Agreement. These
meanings are also applicable to the singular and plural forms of the terms
defined.
"Account Receivable" means collectively and includes any of the following,
whether now owned or hereafter acquired by the Borrower; all present and
future rights to payments for goods sold or leased or for services rendered,
whether or not represented by instruments or chattel paper, and whether or
not earned by performance; all present and future rights to payments arising
out of the licensing of computer software and systems; all accounts, contract
rights, chattel paper, instruments and documents; proceeds of any letter of
credit of which the Borrower is a beneficiary; all forms of obligations
whatsoever owed to the Borrower, together with all instruments and documents
of title representing any of the foregoing; all rights in any returned or
repossessed goods; all rights, security and guaranties with respect to any of
the foregoing, including, without limitation, any right of stoppage in
transit; together with all property included within the definitions of
"accounts", "chattel paper", "documents" and "instruments" set forth in the
UCC.
"Act" means the Securities Act of 1933, as amended.
"Administrative Fee" means the fee in the amount of $300.00 for each
calendar month (or partial month) to be paid by the Borrower to the Lender
pursuant to Section 2.4 hereof in consideration of the expenses incurred by
the Lender in connection with administering the Loans and monitoring the
Collateral.
"Affiliate" means, with respect to any specified Person, any other Person
which, directly or indirectly, through one or more intermediaries, controls
or is controlled by, or is under common control with, such specified Person.
The term "control" means the possession, directly or indirectly, of the power
to direct or cause the direction of management and policies of a Person,
whether through ownership of common stock, by contract, or otherwise.
"Agreement" means this Loan and Security Agreement, as the same may be
amended, modified or supplemented from time to time.
"Application" means an Irrevocable Standby Letter of Credit Application
and Agreement which shall be substantially in the form of Exhibit A attached
hereto.
"Bank" means any commercial banking corporation, savings bank or other
financial institution.
"Blue Sky Laws" means the securities laws of one or more states.
"Borrowing Base" means, at the time in question, the sum of (a) 85% of
Eligible Billed Government Receivables and (b) 80% of Eligible Billed
Commercial Receivables as depicted in the Borrowing Base Certificate most
recently received by the Lender pursuant to Section 2.1(e) or Section 5.8(g)
provided, however, that (i) the Borrowing Base shall be reduced by the sum of
the aggregate face amount of Letters of Credit outstanding on the date the
Borrowing Base is being calculated plus the aggregate amount of all drafts
drawn under or purporting to be drawn under the Letters of Credit that have
been paid by the Lender and for which the Lender has not been reimbursed
pursuant hereto, (ii) at all times the Borrowing Base shall remain subject to
verification by the Lender.
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"Borrowing Base Certificate" means a certificate of the Borrower
substantially in the form attached hereto as Exhibit B (or such subsequent
form as the Lender shall require) containing a computation of the Borrowing
Base as of the date depicted therein and a certification that no Default or
Event of Default has occurred and is continuing.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks are authorized or required to close under the laws
of the State.
"Capital Lease" means any lease which has been or should be capitalized on
the books of the lessee in accordance with GAAP.
"Cash Collateral Account" means each of the non-interest bearing bank
accounts which the Lender shall cause to be opened pursuant to Section 3.2
hereof. The current Cash Collateral Account is account number 6520429827.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"Closing" means the date on which the initial disbursement of the Loans is
made.
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time.
Collateral" means collectively and includes all Equipment, General
Intangibles, Inventory, Accounts Receivable and all other property of the
Borrower in which a Lien is granted to the Lender pursuant to this Agreement
or any other Loan Document.
"Commercial Customer" means any Customer other than the Government.
"Commitment Fee" means the quarterly fee to be paid by the Borrower to the
Lender pursuant to Section 2.5 hereof in consideration of the commitment by
the Lender to make Loans hereunder. The Commitment Fee due for each calendar
quarter (or portion thereof) shall equal the product of the Commitment Fee
Rate in effect for such quarter (or portion thereof) multiplied by the
difference between $2,000,000.00 and the sum of the average daily principal
balance of the Loans during such quarter (or applicable portion thereof) plus
the average daily face amount of all Letters of Credit outstanding during
such quarter (or applicable portion thereof).
"Commitment Fee Rate" means the rate, expressed as a percentage,
calculated as by multiplying 3/8% by a fraction the numerator of which is
the number of days in the calendar quarter, or shorter period, for which the
Commitment Fee Rate is being calculated and the denominator of which is 360.
"Corporate Guarantor" means any Guarantor which is a corporation.
"Customer" means any Person obligated on an Account Receivable.
"Debt" means collectively and includes (a) indebtedness or liability for
borrowed money, or for the deferred purchase price of property or services;
(b) obligations as a lessee under a Capital Lease; (c) obligations to
reimburse the issuer of letters of credit or acceptances; (d) all guaranties,
endorsements (other than for collection or deposit in the ordinary course of
business), and other contingent obligations to purchase, to provide funds for
payment, to supply funds to invest in any Person, or otherwise to assure a
creditor against loss; and (e) obligations secured by any Lien on property
owned by the Person, whether or not the obligations have been assumed.
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"Default" means any event which with the giving of notice, the lapse of
time, or both, would constitute an Event of Default.
"Default Rate" means a rate of interest equal to 3% above otherwise
applicable rate.
"Eligible Billed Commercial Receivable" means any Eligible Billed
Receivable which does not arise out of a prime contract between the Borrower
and the Government; provided that, for so long as more than 50% of the
Eligible Receivables due from any Commercial Customer remains unpaid for more
than 90 days following the date of initial invoice to such Commercial Customer
for such Eligible Receivables, then no Accounts Receivable of such Commercial
Customer may be included as Eligible Billed Commercial Receivables.
"Eligible Billed Government Receivable" means any Eligible Billed
Receivable which arises out of a prime contract between the Borrower and the
Government.
"Eligible Billed Receivable" means any Eligible Receivable that has been
billed to the appropriate Customer and is aged less than 90 days from the
date of the initial invoice.
"Eligible Receivable" means any Account Receivable of the Borrower (a)
that represents valid obligations of a Customer to make payment to the
Borrower for goods shipped or delivered or services completed under valid
contracts of sale or service; (b) on which the Customer is not an Affiliate
of the Borrower; (c) with respect to which the Borrower has no knowledge or
notice of any inability of the Customer to make full payment; (d) from the
face amount of which has been deducted all payments, set-offs, contras,
amounts subject to adverse claims made in writing to the Borrower,
contractual allowances, bad debt reserves and other credits applicable
thereto; (e) that is subject to no Liens other than those permitted by this
Agreement; (f) that continues to be in full conformity with the
representations and warranties made by the Borrower to the Lender in this
Agreement with respect thereto; (g) with respect to which the Lender is and
continues to be satisfied with the credit standing of the Customer; (h) on
which the Customer is not a foreign government or an entity organized and
existing under the laws of a country other than the United States; and (i)
which is not an Excluded Government Final Invoice Receivable; provided,
however, and without limiting any other provisions of this Agreement with
respect to the exclusion of Accounts Receivable from the category of Eligible
Receivables and the Borrowing Base, that if the Lender reasonably determines
that the collectibility of any Account Receivable makes it unacceptable for
inclusion in the Borrowing Base and gives written notice to the Borrower
indicating the reasons for such determination, then such Account Receivable
shall thereafter be excluded from the category of Eligible Receivables.
"Employee Benefit Plan" means any employee welfare benefit plan or
employee pension benefit plan, as those terms are defined in Section 3(1) and
3(2) of ERISA, for the benefit of employees of the Borrower or any ERISA
Affiliate.
"Environmental Laws" means all federal, state or local laws, rules,
regulations or orders relating to air, water or noise pollution, employee
health and safety, or the production, storage, labeling, transportation or
disposition of waste or hazardous or toxic substances, including, but not
limited to CERCLA, the Toxic Substances Control Act of 1976, as amended, the
Resource Conservation Recovery Act of 1976, as amended, the Clean Air Act, as
amended, the Federal Water Pollution Control Act, as amended, or the
Occupational Safety and Health Act of 1970, as amended.
"Equipment" means collectively and includes all of the following, whether
now owned or hereafter acquired by the Borrower: equipment and fixtures,
including, without limitation, computer hardware, computer software and
systems, furniture, machinery, vehicles and trade fixtures, together with any
and all accessories,
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accessions, parts and appurtenances thereto, substitutions therefor and
replacements thereof, together with all other such items which are included
within the definitions of "equipment" and "fixtures" as set forth in the UCC.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"ERISA Affiliate" shall mean each trade or business (whether or
not incorporated) which together with the Borrower would be treated as a
"single employer" within the meaning of Code sections 414(b), (c), (m), (n) or
(o).
"Event of Default" means any of the events specified as an "Event
of Default" under this Agreement, provided that any requirement for the
giving of notice, the lapse of time, or both, or any other condition, has
been satisfied.
"Excluded Government Final Invoice Receivable" means any Account
Receivable relating to the last payment due to the Borrower under a prime
contract between the Borrower and the Government unless (a) such contract is
a "Fixed Price Contract" (as defined in Federal Acquisition Regulation Part
16.2, or any successor regulation) which does not include any provision for
progress payments, incentive arrangements, or price redetermination or (b)
the Lender has consented in writing to the exclusion of such Account
Receivable from the category of Excluded Government Final Invoice Receivables.
"Financial Reporting Month" means a calendar month or such other
substantially equivalent financial reporting period adopted by the Borrower
and approved by the Lender.
"GAAP" means generally accepted accounting principles consistently
applied.
"General Intangibles" means collectively and includes all of the
following, whether now owned or hereafter acquired by the Borrower: choses in
action, causes of action and all other intangible property of every kind and
nature, including , without limitation, corporate or other business records,
inventions, designs, patents, patent applications, trademarks, trademark
applications, trade names, trade secrets, goodwill, registrations, copyrights,
licenses, franchises, customer lists, tax refunds, tax refund claims, rights
of claims against carriers and shippers, leases and rights to
indemnification, together with all property which is included within the
definition of "general intangibles" as set forth in the UCC.
"Government" means the United States of America or any agency or
instrumentality thereof.
"Guarantor" means, individually and collectively, Thomas P. Dunn,
Claudia N. Dunn, John D. Vazzana and the Corporate Guarantor, if any.
"Guaranty" means each guaranty agreement, in form and substance
satisfactory to the Lender, to be delivered by a Guarantor under the terms of
this Agreement.
"Indemnitee" shall mean the Lender, its Affiliates, and its and
their respective directors, officers, employees, agents, successors and
assigns.
"Intellectual property" shall mean letters patent, licenses, trade
names, trademarks, copyrights, inventions, service marks, trademark
registrations, service mark registrations and copyright registrations, whether
domestic or foreign and applications for any of the foregoing, and all
proprietary technology, know-how, trade secrets or other intellectual
property rights owned or used by the Borrower or any Subsidiary in the
operation of their respective businesses.
"Interest Payment Date" means the last day of each calendar month.
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"Inventory" means collectively and includes all of the following,
whether now owned or hereafter acquired by the Borrower: all goods held or
intended for sale or lease by the Borrower, or furnished or to be furnished
under contracts or service, all raw materials, work in process, finished
goods, materials and supplies of every nature used or usable in connection
with the manufacture, packing, shipping, advertising or sale of any such
goods, together with all property included within the definition of
"inventory" set forth in the UCC.
"Letter of Credit" means any letter of credit issued for the benefit of
the Borrower hereunder pursuant to an Application submitted by the Borrower
and accepted by the Lender.
"License" shall mean any certificate, license, franchise, permit or
other authorization.
"Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory
or other), or preference, priority, or other security agreement, or
preferential arrangement, charge or encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or other
title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of any financing
statement under the UCC or comparable law of any jurisdiction to evidence any
of the foregoing).
"Loans" means the loans to be made to the Borrower by the Lender
pursuant to this Agreement.
"Loan Documents" means this Agreement, the Note, and any other document
now or hereafter executed or delivered in connection with the Obligations in
evidence thereof or as security therefor, including, without limitation, any
guaranty, life insurance assignment, pledge agreement, security agreement,
deed of trust, mortgage, promissory note or subordination agreement.
"Maximum Amount" means, at any time, the lesser of (a) $2,000,000.00 or
(b) the then applicable Borrowing Base.
"Multiemployer Plan" means a multiemployer plan defined as such in
Section 4001(a) (3) of ERISA.
"Note" means the promissory note in form and substance acceptable to the
Lender in the original principal amount of $2,000,000.00 (as it may be
amended, modified supplemented or replaced from time to time) evidencing the
obligation of the Borrower to pay the principal amount of the Loans together
with interest on the Loans.
"Obligations" means the Loans, the Note, all indebtedness and
obligations of the Borrower under this Agreement and the other Loan
Documents, as well as all other obligations and indebtedness of the Borrower
to the Lender, now existing or hereafter arising, of every kind and
description, whether or not evidenced by notes or other instruments, and
whether such obligations are direct or indirect, fixed or contingent,
liquidated or unliquidated, including, without limitation, any overdrafts in
any deposit account maintained by the Borrower with the Lender and all
obligations of the Borrower with respect to letters of credit issued by the
Lender for the account of the Borrower.
"Operating Account" means the demand deposit account maintained with the
Lender by the Borrower on which the Borrower draws checks to pay its
operating expenses. The initial Operating Account is account number
6520429819.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
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"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
"Prime Rate" means the rate of interest established from time to time by
the Lender and announced by the Lender as its prime rate. The Prime Rate is
not necessarily the lowest or most favorable rate of interest charged by the
Lender on extensions of credit to debtors.
"Proceeding" shall mean any action, suit or proceeding before any
Tribunal.
"Reportable Event" means any of the events described in Section 4043(b)
of ERISA.
"State" means the Commonwealth of Virginia.
"Subsidiary" means a corporation now existing or hereafter formed of
which shares of stock having ordinary voting power to elect a majority of the
board of directors or other managers of such corporation are at the time
owned, or the management of which is otherwise controlled, directly or
indirectly through one or more intermediaries, or both, by the Borrower.
"Tangible Net Worth" means, at any date, all amounts which, in
accordance with GAAP, would be included under stockholders' equity on the
consolidated balance sheet of the Borrower and its Subsidiaries on such date;
provided that, in any event, such amounts are to be net of amounts carried on
the books of the Borrower and its Subsidiaries for (a) any write-up in the
book value of any assets resulting from a revaluation thereof subsequent to
the date of this Agreement; (b) treasury stock; (c) unamortized debt
discount expense; (d) any cost of investments in excess of net assets
acquired at any time of acquisition; (e) loans or advances to any Affiliate
of the Borrower or Subsidiary, or director, officers, employees or
shareholders of the Borrower, any Affiliate of the Borrower, or any
Subsidiary; (f) patents, patent applications, copyrights trademarks, trade
names, good will, research and development costs, organizational expenses,
capitalized software development costs and other like intangibles; and (g)
any investments in securities which are not actively traded on a national
securities exchange.
"Tax Return" shall mean any federal, state and local income, excise,
property and other tax return or report.
"Termination Date" means February 28, 1997 and any extension or
extensions thereof granted by the Lender in its sole discretion.
"Tribunal" means any federal, state, municipal, foreign, territorial,
or other court, arbitration panel or governmental body, subdivision, agency,
department, commission, board, bureau or instrumentality having jurisdiction
over the matter concerned.
"UCC" means the Uniform Commercial Code as adopted in the State and all
amendments thereto.
SECTION 2. Loans
2.1 Amount and Borrowing Procedure.
(a) Subject to the terms and conditions of this Agreement, the
Lender agrees to make Loans to the Borrower from time to time until the
Termination Date in an aggregate principal amount not to exceed at any one
time outstanding the Maximum Amount. Up to the Maximum Amount, the Borrower
may borrow, repay without penalty and re-borrow hereunder from the date
hereof until the Termination Date.
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(b) Subject to the terms and conditions of this Agreement, the
Application applicable thereto and the other Loan Documents, the Lender
agrees to issue Letters of Credit in an aggregate amount not to exceed the
lesser of $0 or the Maximum Amount then available and with an expiration date
acceptable to the Lender in its sole and absolute discretion.
(c) The Borrower shall immediately prepay the Loans to the extent that
the aggregate unpaid principal balance thereof at any time exceeds the
Maximum Amount.
(d) The proceeds of the Loans shall be used for business or commercial
purposes, including supporting the issuance by the Lender of Letters of
Credit at the request of the Borrower, and for no other purpose.
(e) Any request for a Loan must be received by the Lender not later than
1:00 p.m. (Washington, D.C. time) on the date on which the Loan is to be
made. Each request must specify the amount of the Loan and, at the option of
the Lender, shall be accompanied by a current Borrowing Base Certificate,
which may be transmitted by telecopy to the Lender at (703) 506-9553, or such
other number as the Lender may designate in written notice to the Borrower.
If a Borrowing Base Certificate is transmitted by telecopy, the Borrower
shall maintain the original of such Borrowing Base Certificate as a permanent
record for so long as any of the Obligations remain outstanding and shall
allow the Lender to inspect such Borrowing Base Certificate and shall provide
copies of such original to the Lender upon its request therefor. The proceeds
of the Loans will be credited to the Operating Account. Loans may be
requested by those individuals designated by the Borrower from time to time
in written instruments delivered to the Lender; provided, however, that the
Borrower shall remain liable with respect to any Loan disbursed by the Lender
in good faith hereunder, even if such a Loan is requested by an individual
who has not been so designated. The Borrower agrees to confirm in writing
from time to time, when and as requested by the Lender, the purpose for which
the proceeds of each Loan were used.
(f) Any request for a Letter of Credit to be issued must be made by
delivery to the Lender, not later than five (5) Business Days prior to the
date of issuance of such requested Letter of Credit, of a properly completed
and executed Application. The fee for each Letter of Credit shall be an
amount equal to an opening fee of $500.00 plus a non-refundable commission of
2% per annum of the undrawn portion of the Letter of Credit, payable in
advance upon issuance and thereafter on each anniversary of the date of
issuance of such Letter of Credit. The Lender is authorized to advance on
behalf of Borrower as a Loan all sums required to be paid by Borrower to
Lender in respect of any such Letter of Credit pursuant to the terms of the
Application (including the fee set forth above), provided that the Lender
may, but shall not be obligated to make such Loans if, after the disbursement
thereof, the aggregate principal amount of the Loans then outstanding would
exceed the Maximum Amount. The provisions of the Application are deemed
incorporated in this Agreement by this reference and shall be binding upon
the Lender and Borrower as if fully set forth herein. If a conflict exists
between the terms of the Application and any other Loan Document, the terms
of the Application shall control with respect to any Letter of Credit issued
pursuant to such Application but not as to other matters governed by this
Agreement or such Loan Document.
2.2. Interest. Each Loan shall bear interest on the unpaid principal
balance thereof from time to time outstanding, for each day from the date
such Loan is made until it becomes due, at a per annum rate equal to the
Prime Rate plus 3/4%. Payments of interest on each Loan shall be made on
each Interest Payment Date beginning on the Interest Payment Date next
succeeding the date of disbursement of such Loan. At the option of the
Lender, the Loans shall bear interest at the Default Rate, payable on demand,
for each day during any period of Default hereunder.
2.3. Note. The obligation of the Borrower to repay the Loans, together
with interest thereon, shall be evidenced by the Note. The unpaid principal
balance of the Note shall be payable on the Termination Date, subject to
acceleration, termination or prepayment under the terms of this Agreement.
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2.4. Administrative Fee. The obligation of the Borrower to pay the
Administrative Fee shall commence on the date hereof and shall continue until
the Obligations have been fully and completely paid and discharged.
Commencing on the Interest Payment Date following the date hereof and
continuing on each subsequent Interest Payment Date until the Obligations have
been fully and completely paid and discharged, the Borrower shall pay the
Administrative Fee due for the month (or partial month) ending on such
Interest Payment Date. Any accrued and unpaid portion of this fee shall be
paid on the Termination Date.
2.5 Commitment Fee. The obligation of the Borrower to pay the Commitment
Fee shall commence on the date hereof and shall continue until the
Obligations have been fully and completely paid and discharged. Commencing on
May 31, 1996 and continuing on the last day of each subsequent calendar month
thereafter until the Obligations have been fully and completely paid and
discharged, the Borrower shall pay the Commitment Fee due for the quarter (or
portion thereof) then ending. Any accrued and unpaid portion of this fee
shall be paid on the Termination Date.
2.6 Payments and Computations. All payments hereunder (including any
payment or prepayment of principal, interest, fees and other charges) or with
respect to the Note or the Loans shall be made in lawful money of the United
States of America, in immediately available funds, to the Lender at its
office at 7799 Leesburg Pike, Falls Church, Virginia 22043, or at such other
place as the Lender may in writing designate, and shall be applied, at the
option of the Lender, first to accrued Obligations other than principal and
interest, next to accrued interest and then to principal. If any payment of
principal, interest or fees is not due on a Business Day, then the due date
will be extended to the next succeeding full Business Day and interest and
fees will be payable with respect to the extension. If any payment of
principal, interest or fees is not made within seven days of its due date,
the borrower agrees to pay to the Lender a late charge equal to 5% of the
amount of the payment. The rate at which interest accrues on the unpaid
principal balance of the Loans shall be changed effective as of the date of
any change in the Prime Rate. Except as otherwise specifically provided,
interest and fees shall be computed on the basis of a year of 360 days and
actual days elapsed. The Lender may, but shall not be obligated to, debit
the amount of any payment due under this Agreement to any deposit account or
loan account of the Borrower maintained with the Lender.
2.7 Termination of Credit Facility by Borrower. The Borrower may terminate
the credit facility provided for in this Agreement and discontinue borrowing
hereunder by giving not less than 30 Business Days' prior written notice of
such termination to the Lender. The termination of the credit facility
provided for in this Agreement shall not affect the rights of the Lender with
respect to any Obligations arising prior or subsequent to such termination
and the provisions of this Agreement shall remain in full force and effect
until the Obligations have been fully and completely paid and discharged.
Once the Obligations have been fully and completely paid and discharged and
all obligations of the Lender to make Loans has terminated, the Lender will
release its Liens in the Collateral.
2.8 Extensions of Termination Date. The Lender may from time to time, in
its sole discretion, extend the Termination Date by giving written notice of
such extension to the Borrower. During any such periods of extension, the
remaining terms and conditions of this Agreement shall remain in full force
and effect.
SECTION 3. Covenants Representations and Other Terms Regarding Collateral.
3.1 Security Interest. The Borrower hereby grants to the Lender, its
successors and assigns, a security interest in the Collateral, all additions
and accessions thereto and replacements thereof and all proceeds and products
thereof, all books of account and records, including all computer software
relating thereto, all policies of insurance on any property of the Borrower
and all proceeds of such policies, all of which shall secure the Obligations.
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3.2 Accounts Receivable.
(a) The Borrower represents and warrants as to each and every Account
Receivable, which is an account, now existing or hereafter arising, that: (i)
it is a bona fide existing obligation, valid and enforceable against the
Customer, for goods sold or leased or services rendered in the ordinary
course of business; (ii) it is subject to no dispute, defense or offset
except as disclosed in writing to the Lender; (iii) the supporting documents,
instruments, chattel paper and other evidences of indebtedness, if any,
delivered to the Lender are genuine, complete valid and enforceable in
accordance with their terms; (iv) it is not subject to any discount,
allowance or special terms of payment except as disclosed in writing to the
Lender; and (v) except to the extent the Assignment of Claims Act of 1940 or
similar state law may apply to an Account Receivable from the Government, it
is not and shall not be subject to any prohibition or limitation upon
assignment.
(b) The Borrower shall immediately notify the Lender of: (i) any
dispute with a Customer relating to an Account Receivable due from such
Customer in excess of $50,000.00 and (ii) any bankruptcy, insolvency,
receivership, assignment for the benefit of creditors or suspension of
business of any Customer of which the Borrower has knowledge.
(c) It is intended that the Lender shall receive direct payments in
respect of Accounts Receivable from Customers, and the Lender shall have the
right to notify Customers of its security interest in the Accounts Receivable
and require payments to be made directly to the Lender. The Borrower will
notify each Customer of the Lender's security interest in the Accounts
Receivable and shall direct all Customers to make payments on Accounts
Receivable to the Cash Collateral Account designated by the Lender by
printing such direction on all invoices given to Customers.
(d) To facilitate its receipt of direct payments in respect of Accounts
Receivable from Customers, the Lender has caused one or more Cash Collateral
Accounts to be opened and maintained at the principal office of the Lender.
The Lender may open additional Cash Collateral Accounts as it may deem
necessary or desirable. The Cash Collateral Accounts will contain only cash
proceeds of the Accounts Receivable. Any cash proceeds (as such term is
defined in Section 9-306(I) of the UCC) received by the Lender directly from
Customers obligated to make payments under Accounts Receivable pursuant
clause (c) of this Section 3.2 or from the Borrower pursuant to clause (e) of
this Section 3.2, whether consisting of checks, notes, drafts, bills of
exchange, money orders, commercial paper or other proceeds received on
account of any Collateral, shall be promptly deposited in the Cash Collateral
Accounts, and until so deposited shall be held in trust by the Borrower in
recognition of the Lender's security interest therein and shall not be
commingled with any funds of the Borrower not constituting proceeds of
Collateral. The name in which the Cash Collateral Accounts is carried shall
clearly indicate that the funds deposited therein are the property of the
Borrower, subject to the security interest of the Lender hereunder. Such
proceeds, when deposited, shall continue to be security for the Obligations
and shall not constitute payment thereof until applied as hereinafter
provided. The Lender shall have sole dominion and control over the funds
deposited in the Cash Collateral Accounts, and such funds may be withdrawn
therefrom only by the Lender. Provided that no Default or Event of Default
exists, each Business Day the Lender (after final collection) will apply the
funds in the Cash Collateral Accounts to reduce the outstanding principal
balance of the Loans and will transfer any funds remaining in the Cash
Collateral Accounts after such principal curtailments to the Operating
Accounts.
(e) The Borrower shall cause all payments from Customers in respect of
Accounts Receivable collected by it to be delivered to the Lender forthwith
upon receipt for deposit in the Cash Collateral Accounts, in the original
form in which received (with such endorsements or assignments as may be
necessary to permit collection thereof by the Lender). The Borrower hereby
appoints the Lender and any officer, employee or agent of the Lender as the
Lender may from time to time designate as attorneys-in-fact for the Borrower
to endorse and sign the name of the Borrower on all checks, drafts, money
orders or other media of payment so delivered and to perform all actions
necessary or desirable in the discretion of the Lender to effect the
provisions of this Section
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3.2(e) and to carry out the intent hereof, to do any act which the Borrower
is required to do pursuant to the terms of this Section 3.2(e), and to
exercise such rights and powers as the Borrower might exercise with respect
to the Collateral, all at the cost and expense of the Borrower. Any
endorsements or assignments made pursuant to the foregoing power of attorney
shall, for all purposes, be deemed to have been made by the Borrower prior to
any endorsement or assignment thereof by the Lender. The Lender may use any
convenient or customary means for the purpose of collecting such checks,
drafts, money orders or other media of payment.
(f) To facilitate the direct collection of payments made in respect of
Accounts Receivable, the Lender shall have the right to take over the
Borrower's post office boxes or make other arrangements, with which the
Borrower shall cooperate, to receive the Borrower's mail.
(g) The Borrower shall execute all other agreements, instruments and
documents and shall perform all further acts which the Lender may require
with respect to Accounts Receivable owing by the Government to ensure
compliance with the Assignment of Claims Act of 1940, as amended, and all
applicable regulations issued pursuant thereto.
3.3 INVENTORY AND EQUIPMENT
(a) All of the Inventory and Equipment will be kept only at such
places as the Borrower shall designate from time to time by written notice to
the Lender. The Borrower shall give the Lender prior written notice before
Inventory or Equipment is moved or delivered to a location other than such
designated places of business and the Lender's lien and security interest
will be maintained despite the location of the Inventory or Equipment. In
connection with any such move or change, the Borrower shall execute and
deliver to the Lender such financing statements as Lender shall require, in
form and substance reasonably satisfactory to the Lender, to maintain the
perfection and priority of the Lender's lien in such Equipment or Inventory.
The Borrower shall not, without the prior written consent of the Lender, move
or deliver the Inventory or Equipment to a location outside of the United
States of America.
(b) The Borrower shall keep and maintain the Equipment in good
operating condition and repair. The Borrower shall not permit any of the
Equipment to become a fixture to any real estate unless subordination
agreements satisfactory to the Lender are obtained by any owner or mortgagee
of such real estate. The Borrower shall, immediately on demand therefor by the
Lender, deliver to the Lender any and all evidence of ownership of any of the
Equipment. None of the Equipment shall be sold, transferred, leased or
otherwise disposed of without the prior written consent of the Lender, except
of (i) sales or dispositions of Equipment which the Borrower determines in
good faith to be obsolete, and (ii) sales or dispositions of Equipment which
is contemporaneously replaced with Equipment of comparable value and utility.
(c) The Lender's security interest shall extend and attach to
Inventory which is presently in existence and is owned by the Borrower or in
which the Borrower purchases or acquires an interest at any time and from
time to time in the future, whether such Inventory is in transit or in the
Borrower's constructive, actual or exclusive occupancy or possession or not
and wherever the same may be located, including, without limitation, all
Inventory which may be located at the premises of the Borrower or upon the
premises of any carriers, forwarding agents, truckers, warehousemen, vendors,
selling agents, finishers, convertors or other third parties who may have
possession of the Inventory.
(d) Upon sale, exchange, lease or disposition of the Inventory or
Equipment, the security interest of the Lender shall without break in
continuity and without further formality or act continue in and attach to
all cash and non-cash proceeds of such sale, exchange, lease or disposition,
including Inventory returned or rejected by customers or repossessed by
either the Borrower or the Lender. As to any such sale, exchange, lease or
disposition, the Lender shall have all of the rights of an unpaid seller,
including stoppage in transit, replevin, detinue and reclamation.
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(e) Except for sales or leases made in the ordinary course of business,
the Borrower shall not sell, lease, encumber or dispose of or permit the
sale, lease, encumbrance or disposal of any Inventory without the prior
written consent of the Lender.
3.4 Defense of Collateral. The Borrower, at its expense, will defend the
Collateral against any claims or demands adverse to the Lender's security
interest therein and will promptly pay, when due, all taxes or assessments
levied against the Borrower on the Collateral.
3.5 Information Regarding Collateral. The Borrower shall provide the
Lender such information as the Lender may from time to time reasonably
request with respect to the Collateral, including, without limitation,
statements describing, designating, identifying and evaluating all Collateral
and listing all sales and purchases of Inventory occurring within a
designated time period.
3.6 Insurance of Collateral. The Borrower shall have the Equipment and
Inventory insured against loss or damage by fire, theft, burglary, pilferage,
loss in transportation and such other hazards as the Lender shall specify, by
insurers satisfactory to the Lender, in amounts satisfactory to the Lender
and under policies containing loss payable clauses satisfactory to the
Lender. Each such policy shall, at the option of the Lender, contain a
provision that it may not be canceled or any of its terms amended, modified
or waived, without giving the Lender 30 days' prior written notice. At the
request of the Lender, all of such policies shall be deposited with the
Lender. The Borrower agrees that the Lender shall have a security interest in
such policies and the proceeds thereof, and, if any loss should occur, the
proceeds may be applied to the payment of the Obligations or to the
replacement or restoration of the Inventory or Equipment damaged or
destroyed, as the Lender may elect or direct. After the occurrence of a
Default or an Event of Default, the Lender shall have the right to file
claims under any insurance policies, to receive, receipt and give acquinance
for any payments that may be made thereunder, and to execute any and all
endorsements, receipts, releases, assignments, reassignments or other
documents that may be necessary to effect the collection, compromise or
settlement of any claims under any of the insurance policies.
3.7. Perfection of Security Interest. The Borrower shall perform any and
all steps in all relevant or appropriate jurisdictions as may be necessary or
reasonably requested by the Lender to perfect, maintain and protect the
Lender's security interest in the Collateral. The Borrower shall pay taxes
and costs of, or incidental to, any recording or filing of any financing
statements concerning the Collateral. The Borrower agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement; provided that
this shall not limit the obligations of the Borrower to execute separate or
subsequent financing statements with respect to the Collateral upon the
Lender's request.
3.8. Power of Attorney. The Borrower hereby appoints the Lender and any
officer, employee or agent of the Lender as the Lender may from time to time
designate as attorneys-in-fact for the Borrower to perform all actions
necessary or desirable in the discretion of the Lender to effect the
provisions of this Agreement and to carry out the intent hereof, to do any
act which the Borrower is required to do pursuant to the terms of this
Agreement, and to exercise such rights and powers as the Borrower might
exercise with respect to the Collateral, all at the cost and expense of the
Borrower. The Borrower agrees that neither the Lender nor any other such
attorney-in-fact will be liable for any acts of omission or commission,
unless such acts were willful and malicious, not for any error of judgment or
mistake of law or fact. This power is coupled with an interest and is
irrevocable so long as any Obligations are outstanding. the Lender agrees
that it shall not exercise any rights under this Section prior to the
occurrence of a Default.
3.9. Limitations on Obligations. It is expressly agreed by the Borrower
that anything herein to the contrary notwithstanding, the Borrower shall
remain liable under each Account Receivable and contract giving rise to each
Account Receivable to observe and perform all the conditions and obligations
to be observed and
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performed by the Borrow thereunder, all in accordance with and pursuant to
the terms and provisions of each such Account Receivable and contract. The
Lender shall not have any obligation or liability under any Account
Receivable or contract by reason of or arising out of this Agreement or the
assignment of such Account Receivable or contract to the Lender or the receipt
by the Lender of any payment relating to the Account Receivable pursuant
hereto, nor shall the Lender be required or obligated in any manner to
perform or fulfill any of the obligations of the Borrower under or pursuant
to any Account Receivable or contract, or to make any payment, or to make any
inquiry as to the nature or the sufficiency of any payment received by it or
the sufficiency of any performance by any party under any Account Receivable,
or to present or file any claim, or to take any action to collect or enforce
any performance of the payment of any amounts which may have been assigned to
it or to which it may be entitled at any time or times.
3.10 Indemnification. In any suit, proceeding or action brought by or
against the Lender relating to the Collateral, the Borrower will save,
indemnify and keep the Lender harmless from and against all expense, loss or
damage suffered by reason of any defense, set-off, counterclaim, recoupment
or reduction of liability whatsoever of any obligor thereunder, arising own
of a breach by the Borrower of any obligation thereunder or arising out of
any other agreement, indebtedness or liability at any time owing to or in
favor of such obligor or its successors from the Borrower, and all such
obligations of the Borrower shall be and remain enforceable against and only
against the Borrower and shall not be enforceable against the Lender. The
foregoing obligation of the Borrower to indemnify the Lender shall survive
the payment of the Obligations and the termination of this Agreement but
shall not extend to any suit, proceeding or action arising out of the
Lender's gross negligence or willful misconduct.
SECTION 4. Representations and Warranties. As of the date hereof and
as of each date a Loan is requested hereunder, the Borrower represents and
warrants to the Lender:
4.1 Incorporation Good Standing and Due Qualification. Each of the
Borrower, its Subsidiaries and the Corporate Guarantor is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation; has the corporate power and authority to
own its assets and to transact the business in which it is now engaged or in
which it is proposed to be engaged; and is duly qualified as a foreign
corporation and in good standing under the laws of each other jurisdiction in
which such qualification is required.
4.2 Corporate Power and Authority. The execution, delivery and
performance by the Borrower and the Corporate Guarantor of the Loan Documents
to which each is a party have been duly authorized by all necessary corporate
action and do not and will not (a) require any consent or approval of the
stockholders of such corporation; (b) contravene such corporation's charter
or bylaws; (c) result in a material breach of or constitute a default under
any material agreement or instruments to which such corporation is a party or
by which it or its properties may be bound or affected; (d) result in, or
require, the creation or imposition of any Lieu, upon or with respect to any
of the properties now owned or hereafter acquired by such corporation except
as specifically created by or permitted under the Loan Documents; and (e) to
Borrower's best knowledge cause such corporation to be in default under any
law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award applicable to such corporation.
4.3 Legally Enforceable Agreement. This Agreement is, and each of the
other Loan Documents when delivered under this Agreement will be, legal,
valid and binding obligations of the Borrower, the Guarantor and the
Corporate Guarantor, enforceable against the Borrower, the Guarantor or the
Corporate Guarantor, as the case may be, in accordance with their respective
terms, except as such enforceability may be limited by bankruptcy,
insolvency, receivership or by general principles of equity.
4.4 Financial Statements. The financial statements of the Borrower
and each Guarantor which have been furnished to the Lender in connection with
this Agreement are complete and correct in all material respects in accordance
with GAAP and fairly present the financial condition of such Borrower or
Guarantor, and, since, the
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date of each such statement, there has been no material adverse change in the
condition (financial or otherwise), business or operations of the Borrower or
any Guarantor.
4.5 Litigation. There is no pending or, to the Borrower's best knowledge,
threatened action or proceeding against or affecting the Borrower, any
Subsidiary or a Guarantor before any Tribunal, which may, in any one case or
in the aggregate, materially adversely affect the financial condition,
operations, properties or business of the Borrower, any Subsidiary or any
Guarantor.
4.6 Ownership and Liens. The Borrower and each Subsidiary has title to all
of its assets, including the Collateral and none of the Collateral or such
assets, to the best of the Borrower's knowledge, is subject to any Lien,
except Liens permitted by this Agreement.
4.7 ERISA.
(a) Prohibited Transactions. No transactions has occurred in
connection with which the Borrower or any Subsidiary would be subject to a
liability for either a civil penalty assessed pursuant to Section 502(i) of
ERISA or a tax imposed by Code Section 4975.
(b) Plan Termination. There has been no termination of an
Employee Benefit Plan or trust created under any Employee Benefit Plan that
has or will give rise to liability to the PBGC on the part of the Borrower or
an ERISA Affiliate. No withdrawal or other liability has been incurred under
Title IV of ERISA with respect to any Employee Benefit Plan by the Borrower
or an ERISa Affiliate. The PBGC has not instituted proceedings to terminate
any Employee Benefit Plan.
(c) Accumulated Funding Deficiency. Full payment has been made of
all amounts which are required under the terms of each Employee Benefit Plan
to have been paid as contributions to such Employee Benefit Plan as of the
last day of the most recent fiscal year of such Employee Benefit Plan ended
on or before the date of this Agreement, and no accumulated funding
deficiency (as defined in Section 302 of ERISA and Code Section 412), whether
or not waived, exists with respect to any Employee Benefit Plan. The Borrower
and each ERISA Affiliate are current with all required installments under
Code Section 412.
(d) Relationship of Benefits to Pension Plan Assets. The current
value of the benefit liabilities (as defined in Section 4001(a)(16) of ERISA)
of each Employee Benefit Plan does not exceed the fair market value of the
assets of such Employee Benefit Plan. Neither the Borrower nor any ERISA
Affiliate is required to provide security to an Employee Benefit Plan under
Code Section 401(a)(29). No lien under Code Section 412(n) or Sections 312(f)
or 4068 of ERISA has been or is reasonably expected by the Borrower to be
imposed on the assets of the Borrower or any ERISA Affiliate.
(e) Multiemployer Plan. Neither the Borrower nor any ERISA
Affiliate participates in or contributes to or, since September 26, 1980 has
participated in or contributed to, any Multiemployer Plan.
(f) Compliance with ERISA. The Borrower and the ERISA Affiliate
are in compliance in all material respects with those provisions of ERISA
which are applicable to them. Any Employee Benefit Plan which is intended to
be "qualified" under Code Section 401(a) is so qualified. No Reportable Event
has occurred with respect to any Employee Benefit Plan. Each Employee Benefit
Plan has been administered in compliance with ERISA and the applicable
provisions of the Code, and in accordance with its terms and any related
agreements or documents. The Borrower may terminate its contributions to any
other Employee Benefit Plan maintained by it without incurring any liability
to any person interested therein. There is no pending or, to the best
knowledge of the Borrower, threatened assessment, complaint, proceeding or
investigation of any kind before any Tribunal, including, but not limited to,
the Internal Revenue Service, the Department of Labor, the PBGC or any court
of competent jurisdiction, related to an Employee Benefit Plan, nor is there
any basis therefor. The Borrower and
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each ERISA Affiliate have complied with the continuation coverage
requirements of Code Section 4980B and Part 6 of Title 1 of ERISA and any
predecessor provisions thereto.
4.8 Taxes. The Borrower and each Subsidiary have (a) timely filed or
caused to be filed all Tax Returns required to be filed for all periods up to
and including the date hereof in each jurisdiction in which they are or have
been subject to taxation and such returns and reports are true and correct,
have timely filed all claims for refunds to which they are entitled and have
timely paid or caused to be paid in full all taxes which are due and payable
to any taxing authorities for such periods. (b) fully paid or accrued on
their respective books an amount sufficient to pay all taxes to the extent of
known liabilities therefor in respect of the period from 10/31/95 to and
including the date hereof which are not yet due and payable, (c) made or
caused to be made all withholdings of taxes required to be made, and such
withholdings have either been paid to the appropriate governmental authority
or set aside in separate accounts for such purposes and (d) otherwise
satisfied, in all material respects, all legal requirements applicable to
them with respect to all aforementioned obligations of all taxing
jurisdictions, and neither the Internal Revenue Service nor any other taxing
authority is now asserting or, to the best knowledge of the Borrower,
threatened to assert against the Borrower or any Subsidiary any deficiency or
claim for additional taxes or any interest thereon or penalties in connection
therewith.
4.9 Debt. The Borrower is not in any manner directly or contingently
obligated with respect to any Debt which is not permitted by this Agreement.
The Borrower is not in default with respect to any such Debt.
4.10 Corporate Name: Chief Executive Office. During the five years
immediately preceding the date of this Agreement, neither the Borrower nor
any predecessor of the Borrower has used any corporate or fictitious name
other than its current corporate name. The chief executive office of the
Borrower, within the meaning of Section 9.103(3)(d) of the UCC is 1306 Squire
Court, Sterling, Virginia 20166.
4.11. Environmental and Safety Matter. The operation of the business of
the Borrower and all Subsidiaries does not violate any applicable
Environmental Laws. The Borrower and all Subsidiaries have timely obtained
all licenses and permits and timely filed all reports required to be filed
under any applicable Environmental Laws. Neither the Borrower nor any
Subsidiary has, and, to the best knowledge of the Borrower, no other Person
has, stored any chemicals or hazardous substances, including any "Hazardous
Substances," "Pollutants" or "Contaminants" (as such terms are defined
in CERCLA), asbestos, petroleum products, or polychlorinated biphenyls on,
beneath or about any of the owned or leased properties of the Borrower or any
Subsidiary in violation of any applicable legal requirements, including any
Environmental Laws. Except as otherwise disclosed to the Lender in writing
prior to the date hereof, to the best of knowledge of the Borrower, there is
no condition relating to or resulting from the release or discharge into the
soil, surface waters, groundwaters, drinking water supplies, navigable
waters, land, surface or subsurface strata, ambient air or any other
environmental medium which has resulted or could result in any damage, loss,
cost, expense, claim, demand, order or liability to or against the Borrower
or any Subsidiary by any Tribunal or other third party relating to or
resulting from the operation of its business or otherwise related to any real
property owned or leased of the Borrower or any Subsidiary, irrespective of
the cause of such condition. Neither the Borrower nor any Subsidiary has
received notice from any Tribunal or private or public entity advising the
Borrower of any Subsidiary that it is potentially responsible for response
costs with respect to a release or threatened release of any Hazardous
Substances. Neither the Borrower nor any Subsidiary has and, to the best
knowledge of the Borrower, no other Person has, buried, dumped or otherwise
disposed of any Hazardous Substances on, beneath or about any property of the
Borrower or any Subsidiary or on, beneath or about any property in violation
of any applicable legal requirements, including any Environmental Laws.
Neither the Borrower nor any Subsidiary has received notice of violation of
any Environmental Law or zoning or land use ordinance, law or regulation
relating to the operation of the business of the Borrower or any Subsidiary,
nor is the Borrower aware of any such violation.
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4.12. Licenses. The Borrower and all Subsidiaries possess all Licenses
from federal, state and local governmental or regulatory authorities that are
necessary for the ownership, maintenance and operation of its business as
now conducted or as proposed to be conducted and the ownership or leasing of
its property where the failure to possess such Licenses would have a material
adverse effect on the condition (financial or otherwise), operations,
business or property of such Borrower or such Subsidiary. The Licenses are in
full force and effect, and the Borrower and each Subsidiary, as the case may
be, are in compliance in all material respects with all of such Licenses.
4.13. Intellectual Property. The Borrower and all Subsidiaries own all
right, title and interest in and to all Intellectual Property used in and
material to the operation of its business or, for such Intellectual Property
that is not owned, possesses adequate licenses or other legally enforceable
rights to use the same. The Borrower has no reason to believe that any valid
basis exists upon which a claim adversely affecting any such Intellectual
Property may be asserted against the Borrower or any Subsidiary. To the best
knowledge of the Borrower, no Person is infringing upon the Intellectual
Property used by the Borrower or any Subsidiary material to the operation of
their respective businesses. The Borrower has taken appropriate steps to
protect the secrecy, confidentiality and value of its and all Subsidiaries'
rights in and to such Intellectual Property and to prevent others from using
such Intellectual Property without consent.
4.14. Absence of Payments. None of the Borrower, any Subsidiary, any of
their respective directors, officers, agents or employees, or, to the best
knowledge of the Borrower, any other Person acting on behalf of any such
Person has made any unlawful contributions, payments, gifts or entertainment,
or made any unlawful expenditures relating to political activity, to
government officials or others.
4.15. Related Party Transactions. No present or former officer, director,
stockholder or Affiliate of the Borrower is a party to any transaction or
series of transactions with the Borrower which requires payments by the
Borrower to such officer, director, stockholder or Affiliate other than
normal and customary employment compensation and benefits.
4.16. Disclosure. All facts material to the financial condition, results
of operations, business, prospects and property of the Borrower and each
Subsidiary have heretofore been disclosed to the Lender. No representation or
warranty made by the Borrower in this Agreement or in any of the other Loan
Documents, or in any statement, certificate, exhibit or schedule furnished or
to be furnished to the Lender pursuant to this Agreement or any of the other
Loan Documents or in connection with the transactions contemplated herein and
therein, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained herein and therein not misleading.
SECTION 5. Affirmative Covenants. The Borrower covenants and agrees with
the Lender that it will:
5.1. Maintenance of Existence. Preserve and maintain, and cause each
Subsidiary and each Corporate Guarantor to preserve and maintain, its
corporate existence and good standing in the jurisdiction of its
incorporation, and qualify and remain qualified, and cause each Subsidiary
and each Corporate Guarantor to qualify and remain qualified, as a foreign
corporation in each jurisdiction in which to the best of Borrower's knowledge
such qualification is required.
5.2. Maintenance of Records. Keep, and cause each Subsidiary and each
Corporate Guarantor to keep, adequate records and books of account, in which
complete entries will be made in accordance with GAAP, reflecting all
financial transactions of the Borrower, each Subsidiary and each Corporate
Guarantor, and maintain the principal records and books of account of the
Borrower and each Subsidiary, including those concerning the Collateral, as
the chief executive office of the Borrower.
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5.3. Maintenance of Properties. Maintain, keep and preserve, and cause
each Subsidiary and each Corporate Guarantor to maintain, keep and preserve,
all of its properties (tangible and intangible) necessary or useful in the
proper conduct of its business in good working order and condition, ordinary
wear and tear excepted.
5.4. Conduct of Business. Continue, and cause each Subsidiary and each
Corporate Guarantor to continue, to engage in an efficient and economical
manner in a business of the same general type as conducted by it on the date
of this Agreement.
5.5. Maintenance of Insurance. Maintain, and cause each Subsidiary and
each Corporate Guarantor to maintain, insurance with financially sound and
reputable insurance companies or associations in such amounts and covering
such risks as are usually carried by companies engaged in the same or a
similar business and similarly situated, including, without limitation,
insurance covering the Inventory and Equipment as required hereby.
5.6. Compliance with Laws. Comply, and cause each Subsidiary and each
Corporate Guarantor to comply, in all material respects with all applicable
laws, rules, regulations and orders (including, without limitation, ERISA),
such compliance to include, without limitation, paying before the same become
delinquent all taxes, assessments and governmental charges imposed upon it or
upon its property, except as contested in good faith and through appropriate
proceedings deemed reasonably acceptable to the Lender.
5.7 Right of Inspection. At any reasonable time and from time to time,
permit the Lender or any agent or representative thereof to audit and verify
the Collateral, examine and make copies of and abstracts from the records and
books of account of, and visit the properties of, the Borrower and any
Subsidiary, and to discuss the affairs, finances and accounts of the Borrower
and any Subsidiary with any of their respective officers, directors or
shareholders and the Borrower's independent accountants; and in connection
with any such inspection, pay to the Lender upon demand its then current fee
for such inspections to compensate the Lender for the cost incurred and the
commitment of resources required for conducting such inspection.
5.8 Reporting Requirements. Furnish to the Lender:
(a) Quarterly Financial Statements. As soon as available and in any
event within forty-five (45) days after the end of each of the quarters of
each fiscal year of the Borrower, unaudited financial statements consisting
of consolidated and consolidating balance sheets of the Borrower and
Subsidiaries as of the end of such quarter and consolidated and consolidating
statements of income and retained earnings of the Borrower and Subsidiaries
for the period commencing at the end of the previous fiscal year and ending
with the end of such quarter, all in reasonable detail and stating in
comparative form the respective consolidated and consolidating figures for
the corresponding date and period in the previous fiscal year and all
prepared in accordance with GAAP. Such financial statements shall be
certified by the chief financial officer of the Borrower, the Treasurer of
the Borrower or such other financial officer of the Borrower as is acceptable
to the Lender, to present fairly the financial condition of the Borrower
(subject to year-end adjustment):
(b) Annual Financial Statements. As soon as available and in any
event within ninety (90) days after the end of each fiscal year of the
Borrower, audited financial statements consisting of consolidated and
consolidating balance sheets of the Borrower and Subsidiaries as of the end
of such fiscal year, consolidated and consolidating statements of income and
retained earnings of the Borrower and Subsidiaries for such fiscal year, and
consolidated and consolidating statement of cash flows of the Borrower and
Subsidiaries for such fiscal year, all in reasonable detail and stating in
comparative form the respective consolidated and consolidating figures for
the corresponding date and period in the prior fiscal year and all prepared
in accordance with GAAP. The consolidated statements shall be accompanied by
an opinion thereon acceptable to the Lender of an independent certified
public accountant firm selected by the Borrower and acceptable to the Lender:
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(c) Management Letters. Promptly upon receipt thereof, copies of any
reports submitted to the Borrower or any Subsidiary by independent certified
public accountants in connection with examination of the financial statements
of the Borrower or any Subsidiary made by such accountants;
(d) Notice of Litigation. Promptly after the commencement thereof, notice
of all actions, suits and proceedings before any Tribunal affecting the
Borrower or an Subsidiary, which, in the reasonable opinion of the Borrower,
if determined adversely, could have a material adverse effect on the
financial condition, properties or operations of the Borrower or such
Subsidiary;
(e) Notice of Defaults and Events of Default. As soon as possible and in
any event within five (5) Business Days after the occurrence of each Default
and Event of Default, a written notice setting forth the details of such
Default or Event of Default and the action which is proposed to be taken by
the Borrower with respect thereto;
(f) Proxy Statements, Etc. Promptly after the sending or filing thereof,
copies of all proxy statements, financial statements and reports which the
Borrower or any Subsidiary sends to its stockholders, and copies of all
regular, periodic and special reports, and all registration statements which
the Borrower or any Subsidiary files with the Securities and Exchange
Commission or any governmental authority which may be substituted therefor,
or with any national securities exchange;
(g) Borrowing Base Certificate and Accounts Receivable Detail. On or
before the tenth (10th) day of each Financial Reporting Month, a Borrowing
Base Certificate appropriately completed and executed by the chief financial
officer of the Borrower, the Treasurer of the Borrower or such other financial
officer of the Borrower as is acceptable to the Lender and including a
computation of the Borrowing Base as of the last day of the previous
Financial Reporting Month, accompanied by (i) schedules of all outstanding
Accounts Receivable of the Borrower as of the last day of the previous
Financial Reporting Month showing the age of such Accounts Receivable in
intervals of not more than thirty (30) days, (ii) reports relating to the
Accounts Receivable setting forth a description of contracts giving rise to
Accounts Receivable, the percentage of completion of the work to be performed
with respect to such contracts, the amounts billed under such contracts and
the amounts remaining to be billed, in form and detail satisfactory to the
Lender, (iii) such other supporting documents to the schedules as Lender may
from time to time reasonably request, and (iv) such invoices, instruments,
chattel paper and other evidences of indebtedness representing any Accounts
Receivable, duly endorsed in blank or to the Lender, as the Lender may
request;
(h) Government Contract Audits. Promptly after the Borrower's receipt
thereof, notice of any final decision of a contracting officer disallowing
costs aggregating more than Fifty Thousand and 00/100 Dollars ($50,000.00)
which disallowed costs arise out of any audit of the Borrower's contracts
with the Government;
(i) Notice of Claimed Defaults. Immediately upon becoming aware that the
holder of any Debt or Lien has given notice or taken any action with respect
to a claimed breach, default or event of default, a written notice specifying
the notice given or action taken by such holder and the nature of the claimed
breach, default or event of default by the Borrower thereunder, and the
action being taken or proposed to be taken with respect thereto; and
(j) General Information. Such other information respecting the condition
or operations, financial or otherwise, of the Borrower or any Subsidiary or
Corporate Guarantor as the Lender may from time to time reasonably request.
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5.9. Licenses. Keep, and cause each Subsidiary to keep, all Licenses and
all other agreements necessary to operate the business of such Borrower or
such Subsidiary in full force and effect and free from burdensome
restrictions and comply in all material respects with all terms and
conditions thereof.
5.10. ERISA. (a) Make, and cause each Subsidiary to make, prompt
payments of contributions required by the terms of each Employee Benefit Plan
and meet the minimum funding standards set forth under ERISA and the Code
with respect to each Employee Benefit Plan to which such standards apply; (b)
notify the Lender immediately of any fact, including, without limitation, any
Reportable Event, arising in connection with any Employee Benefit Plan which,
more likely than not, would constitute grounds for the termination thereof by
the PBGC or for the appointment by the appropriate United States district
court of a trustee to administer the Employee Benefit Plan; (c) notify the
Lender immediately of the intent by the Borrower to terminate any Employee
Benefit Plan; (d) notify the Lender immediately of the adoption of an
amendment to any Employee Benefit Plan (or of any other event) which causes
any Employee Benefit Plan to fail to have sufficient assets to qualify for a
standard termination under Section 4041 of ERISA or to require providing
security under Code Section 401(a)(29); (e) promptly after receipt thereof,
furnish to the Lender a copy of any notice received by the Borrower or any
Subsidiary from the PBGC relating to the intention of the PBGC to terminate
any Employee Benefit Plan or to appoint a trustee to administer any Employee
Benefit Plan; (f) promptly after receipt thereof, furnish to the Lender a
copy of any notice received by the Borrower or any Subsidiary from the
Internal Revenue Service relating to the intention of the Internal Revenue
Service to disqualify any Employee Benefit Plan or to refuse to grant a
favorable determination letter with regard to any Employee Benefit Plan; (g)
notify the Lender immediately of any lawsuit, claim for damages or
administrative proceeding in which an Employee Benefit Plan or a fiduciary
with respect thereto is a defendant; and (h) furnish to the Lender, promptly
upon its request therefor, such additional information concerning each and
every Employee Benefit Plan as may be reasonably requested, including, but
not limited to, the annual report required to be filed under ERISA and any
notices filed or proposed to be filed in connection with any of the foregoing.
5.11. Environmental Matters. Notify the Lender immediately of the receipt
by the Borrower or any Subsidiary of any notice from any Tribunal that there
has been a violation by the Borrower or any Subsidiary of any Environmental
Law and that remediation of such violation is necessary and assume
responsibility for, and control the process of, any response action,
penalties or correction associated with such violation.
Section 5.12. Financial Covenants.
(a) Minimum Tangible Net Worth. The Borrower covenants
that as of the ending date of the financial period depicted in each balance
sheet required to be delivered to the Lender under the terms of this
Agreement, the Tangible Net Worth of the Borrower shall be not less than
$1,250,000.00.
SECTION 6. Negative Covenants. The Borrower agrees that it will not:
6.1 Liens. Create, incur, assume or permit to exist, or permit any
Subsidiary to create, incur, assume or permit to exist, any Lien upon or with
respect to any of its properties, now owned or hereafter acquired, except:
(a) Liens in favor of the Lender; (b) Liens which are incidental to the
conduct of the business of the Borrower or any Subsidiary arising in
connection with operating lease obligations evidencing the rights of the
lessors under such leases or are created in connection with Debt of the
Borrower permitted by Section 6.2 (c) below; (c) Liens on Equipment in
existence on the date of this Agreement and disclosed in Schedule 6.1(c)
attached hereto; (d) Liens securing obligations of a Subsidiary to the
Borrower or another Subsidiary; and (e) purchase-money Liens on any fixed
assets provided that (i) any property subject to any such purchase-money Lien
is acquired by the Borrower or any Subsidiary in the ordinary course of its
respective business and the purchase-money Lien on any such property is
created contemporaneously with such acquisition; (ii) each such purchase-money
Lien shall attach only to the property so acquired; and (iii) the Debt
secured by all such purchase-money Liens shall not exceed Fifty Thousand
Dollars ($50,000.00) at any time outstanding in the aggregate.
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6.2. Debt. Create, incur, assume or permit to exist, or permit any
Subsidiary to create, incur, assume or permit to exist, any Debt, except (a)
the Obligations; (b) Debt in existence on the date of this Agreement and
depicted in Schedule 6.2 attached hereto; (c) Debt of the Borrower
subordinated to the Obligations on terms satisfactory to the Lender; (d)
subject to the limitations specified in Section 6.8 and 6.11 hereof, Debt of
any Subsidiary to the Borrower or another Subsidiary; (e) ordinary trade
accounts payable; and (f) Debt of the Borrower or any Subsidiary secured by
purchase-money Liens permitted by this Agreement.
6.3. Mergers, Etc. Merge or consolidate with a person, or permit any
Subsidiary to do so, except that (a) any Subsidiary may merge into or
transfer assets to the Borrower and (b) any Subsidiary may merge into or
consolidate with or transfer assets to any other Subsidiary.
6.4. Leases. Create, incur, assume, or permit to exist, or permit any
Subsidiary to create, incur, assume or permit to exist, any obligation as
lessee for the rental or hire or any real or personal property, except as is
necessary in connection with such party's normal and customary business
activities.
6.5. Sale and Leaseback. Sell, transfer or otherwise dispose of, or
permit any Subsidiary to sell, transfer or otherwise dispose of, any real or
personal property to any Person and thereafter directly or indirectly lease
back the same or similar property.
6.6. Dividends. Declare or pay any dividends; purchase, redeem,
retire, or otherwise acquire for value any of its capital stock now or
hereafter outstanding; make any distribution of assets to its stockholders
whether in cash, assets or obligations of the Borrower; allocate or otherwise
set apart any sum for the payment of any dividend or distribution on, or for
the purchase, redemption, or retirement of, any shares of its capital stock;
make any other distribution by reduction of capital or otherwise in respect
of any shares of its capital stock; or permit any Subsidiary to purchase or
otherwise acquire for value any stock of the Borrower or another Subsidiary,
except that if there is no Default at such time (a) the Borrower may declare
and deliver dividends and make distributions payable solely in common stock
of the Borrower, (b) the Borrower may purchase or otherwise acquire shares of
its capital stock by exchange for or out of the proceeds received from a
substantially concurrent issue of new shares of its capital stock, and (c)
while an "S corporation" election remains effective for the Borrower, it may
declare and pay dividends to its stockholders equal to the actual Federal,
state and local income tax liability incurred by such stockholders as a
result of the activities of the Borrower, after application of all
deductions, credits, loss carry-forwards and other items reducing the income
tax obligations of such stockholders, it being intended that any dividend
permitted under this clause (e) shall be in an amount not exceeding the
currently due and payable net income tax liability of the stockholder
receiving such dividend, except that to the extent necessary to comply with
applicable Code provisions and regulations governing S corporations, the
stockholders shall receive pro-rata distributions in accordance with the
largest distribution required to be made to pay the tax liability described
above; provided that the Borrower shall not declare or pay any dividends
permitted under this Section 6.6 until the Lender has received written notice
from the Borrower at least five (5) Business Days in advance of declaring or
paying any such dividend and has also received such other information as the
Lender may have requested in order to verify the amount of the proposed
dividends and to determine that the conditions precedent to the making of the
requested dividends have been satisfied.
6.7. Sale of Assets. Sell, lease, assign, transfer or otherwise dispose
of or permit any Subsidiary to sell, lease, assign, transfer or otherwise
dispose of, any of its now owned or hereafter acquired assets (including,
without limitation, shares of stock and indebtedness of Subsidiaries,
Accounts Receivable and leasehold interests), except: (a) the sale of
Inventory in the ordinary course of business; (b) the sale or other
disposition of Equipment which the Borrower determines in good faith to be
obsolete; and (c) the sale, lease, assignment, or other transfer by any
Subsidiary of its assets to the Borrower.
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6.8. Loans. Make, or permit any Subsidiary to make, any loan or advance
to any Person except for loans or advances to employees, officers or
directors of the Borrower or any Subsidiary not exceeding at any time
outstanding the aggregate principal sum of (i) Fifty Thousand Dollars
($50,000.00) plus (ii) reasonable advances for anticipated business expenses
of employees that would be reimbursable to such employees under the
Borrower's expense reimbursement policy.
6.9. Guaranties, Etc. Assume, guarantee, endorse or otherwise be or
become directly or contingently responsible or liable (including, but not
limited to, an agreement to purchase any obligation, stock, assets, goods or
services, or to supply or advance any funds, assets, goods or services, or to
maintain or cause such Person to maintain a minimum working capital or net
worth, or otherwise to assure the creditors of any Person against loss) for
obligations of any Person, except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business.
6.10. Acquisitions. Purchase or acquire, or permit any Subsidiary to
purchase or acquire, (a) all or substantially all of the assets of any
Person, or (b) any capital stock of or ownership interest in any other Person.
6.11. Transaction with Affiliate. Except as specifically permitted by the
terms of this Agreement, (including, without limitation, Section 6.8 hereof),
enter into any transaction, including without limitation, the purchase, sale
or exchange of property or the rendering of any service, with any Affiliate,
or permit any subsidiary to enter into any transaction, including, without
limitation, the purchase, sale or exchange of property or the rendering of
any service, with any Affiliate, except in the ordinary course of and
pursuant to the reasonable requirements of the Borrower's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Borrower or such Subsidiary than would be applicable in a comparable
arm's-length transaction with a Person not an Affiliate.
6.12. Change of Chief Executive Office and Corporate Name. Move the
principal records and books of account of the Borrower and each Subsidiary,
including those concerning the collateral from its chief executive office or
change its chief executive office or the name under which it does business
without (a) giving the Lender at least thirty (30) days prior written notice,
and (b) executing and delivering financing statements reasonably satisfactory
to the Lender prior to such move or change.
SECTION 7. Conditions of Lending. The making of the Loans shall be subject
to the following conditions:
7.1. Conditions Precedent to Closing. The initial disbursement of the
Loans shall be subject to the following conditions precedent:
(a) The Loan Documents shall have been appropriately completed, duly
executed by the parties thereto, recorded and or filed where necessary and
delivered to the Lender, and all taxes and fees with respect to such
recording and filing shall have been paid by the Borrower.
(b) No Default or Event of Default shall have occurred and be continuing.
(c) All representations and warranties contained herein shall be true
and correct at the date of the Closing.
(d) All legal matters incident to the Loans shall be satisfactory to
counsel for the Lender, and the Borrower agrees to execute and deliver to the
Lender such additional documents and certificates relating to the Loans as
the Lender may reasonably request.
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(e) If required by the Lender, the Lender shall have received an
opinion of counsel to the Borrower as to such matters as the Lender may
request, in form and substance satisfactory to the Lender and its counsel.
(f) Financing statements in form and substance satisfactory to the
Lender shall have been properly filed in each office where necessary to
perfect the Lender's security interest in the Collateral, termination
statements shall have been filed with respect to any other financing
statements covering all or any portion of the Collateral (except with respect
to Liens permitted by this Agreement), and all taxes and fees with respect to
such recording and filing shall have been paid by the Borrower; provided that
the Lender may choose to waive this condition with respect to the filing of
certain financing statements or termination statements prior to Closing.
(g) If requested by the Lender, the Borrower shall have delivered to
the Lender (i) certified copies of evidence of all corporate actions taken by
the Borrower and each Corporate Guarantor to authorize the execution and
delivery of this Agreement, the Note and the other Loan Documents, (ii) a
certificate of incumbency for the officers of the Borrower and each Corporate
Guarantor executing the Loan Documents required herein, (iii) a good standing
certificate dated not more than 30 days prior to the date of the Closing from
the appropriate state official of any state in which the Borrower or any
Corporate Guarantor is incorporated or qualified to do business, and (iv)
such additional supporting documents as the Lender or counsel for the Lender
may reasonably request.
(h) The Lender shall have received a Borrowing Base Certificate, a
listing and aging of Accounts Receivable, a listing of accounts payable of
the Borrower, a report setting forth the status of all contracts, all of
which shall be of a current date, shall be appropriately completed and duly
executed by the chief financial officer of the Borrower, the Treasurer of the
Borrower or such other financial officer of the Borrower as is acceptable to
the Lender and generally shall be in form and substance satisfactory to the
Lender.
(i) The Lender shall have received and approved a current financial
statement of any Guarantor.
(j) The Lender shall have received evidence satisfactory to it that
the Borrower has obtained the insurance required by this Agreement.
(k) The Lender shall have received such landlord and mortgage waivers
as it shall request with respect to any landlord or mortgagee which may
claim or have an interest in any of the Collateral.
7.2. CONDITIONS PRECEDENT TO SUBSEQUENT DISBURSEMENTS. The disbursement
of subsequent Loans shall be subject to the following conditions precedent:
(a) No Default or Event of Default shall have occurred and be
continuing.
(b) No material adverse change shall have occurred in the financial
condition of the Borrower or any Guarantor.
(c) All representations and warranties contained herein shall be true
and correct at the date of such disbursement.
(d) No change shall have occurred in any law or regulations thereunder
or interpretations thereof which in the opinion of counsel for the Lender
would make it illegal for the Lender to make Loans hereunder.
(e) If required by the Lender, the Borrower shall have delivered to the
Lender a current Borrowing Base Certificate, a listing and aging of Accounts
Receivable, a listing of accounts payable of the Borrower, a report setting
forth the status of all contracts, all of which shall be of a current date,
shall be appropriately completed and duly executed by the chief financial
officer of the Borrower, the Treasurer of the Borrower or such
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other financial officer of the Borrower as is acceptable to the Lender and
generally shall be in form and substance satisfactory to the Lender.
(f) If previously waived by the Lender as a condition to Closing,
financing statements and/or termination statements shall have been filed in
each location where the Lender deems such filing necessary to perfect its
security interest in the Collateral or terminate a previously perfected
security interest in the Collateral.
SECTION 8. Default.
8.1. Events of Default. Each of the following shall constitute an Event
of Default under this Agreement:
(a) The failure of the Borrower to pay any Obligation to the Lender
including, without limitation, the principal of or interest on the Note or
any of the Loans, when the same shall become due and payable, whether at
maturity, as a result of the Lender's demand for payment or otherwise, and
such failure shall continue for a period of ten (10) days after the date when
the Lender's notice of such failure (which notice may be a computer generated
late payment notice) is deemed effective pursuant to Section 9.3 hereof; or
(b) The refusal by the Borrower to permit the Lender to inspect,
examine, verify or audit the Collateral in accordance with the provisions of
this Agreement; or
(c) The failure of the Borrower to perform or observe any covenant set
forth herein (except any such failure resulting in the occurrence of another
Event of Default described in this Section) or to perform or observe any
other term, condition, covenant, warranty, agreement or other provision
contained in this Agreement or any of the other Loan Documents within ten
(10) days after the date when a notice from the Lender specifying such
failure is deemed effective pursuant to Section 9.3 hereof; or
(d) The existence of any material inaccuracy in any representation or
warranty made by the Borrower or any statement or representation made in any
certificate, report or opinion delivered pursuant hereto or in connection
with any borrowing hereunder or the occurrence of any material breach
thereof; or
(e) The occurrence of a default under and the acceleration of any other
obligation of the Borrower, any Subsidiary, or any Guarantor for the payment
of any Debt in excess of Twenty Five Thousand Dollars ($25,000.00), unless
and to the extent that the declaration of default and acceleration is being
contested in good faith in a court of appropriate jurisdiction; or
(f) The making by the Borrower of an assignment for the benefit of
creditors, the filing by the Borrower of a petition in bankruptcy or a
petition or application to any Tribunal for the appointment of any receiver
or trustee for the Borrower or any substantial part of its property, or the
commencement by the Borrower of any proceeding relating to the Borrower under
any reorganization, arrangement, readjustments of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect; or
(g) The failure within 30 days after the filing of a bankruptcy petition
or the commencement of any proceeding against the Borrower seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, to have such proceeding dismissed, or the failure within 30 days
after the appointment, without the consent or acquiescence of the Borrower,
of any trustee, receiver or liquidator of the Borrower or of all or any
substantial part of the properties of the Borrower to have such appointment
vacated; or
(h) The occurrence of any of the events described in the two immediately
preceding clauses with respect to a Subsidiary or a Guarantor, or any
property of a Subsidiary or a Guarantor; or
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(i) The entry of any judgment against the Borrower, any Subsidiary or
any Guarantor in excess of Twenty Five Thousand Dollars ($25,000.00) or the
attachment of any property of the Borrower, any Subsidiary or any Guarantor
having a value in excess of Dollars ($25,000.00) and the failure
by the affected Person to pay, discharge, bond-off or cause to be dismissed
such judgement or attachment within 30 days, unless and to the extent that
the judgment or attachment is appealed in good faith to a court of higher
jurisdiction and the appeal remains pending; or
(j) The occurrence of a material adverse change in the financial or
business condition of the Borrower, a Subsidiary or a Guarantor; or
(k) The giving of notice to the Lender by any Guarantor purporting to
terminate or withdraw such Guarantor's liability with respect to all or any
part of the Obligations; or
(l) The death, disability or termination of legal existence of any
Guarantor; or
(m) The failure of Thomas P. Dunn and John D. Vazzana to remain active
in the management of the Borrower; or
(n) The failure of Thomas P. Dunn to own at least 51% of the
outstanding capital stock of the Borrower; or
(o) The issuance to the Borrower or any Subsidiary of any cure notice,
show-cause notice, or notice of whole or partial termination, for default or
alleged default, under any contract which is either a contract with the
Government or is a subcontract (at any tier) which is related to a contract
between a third party and the Government; or
(p) With respect to the Borrower or any Subsidiary, the occurrence of
any debarment or suspension from contracting or subcontracting with the
Government; or
(q) The occurrence of any of the following events: (i) the termination
of any Employee Benefit Plan in a distress termination under Section 4041(c)
of ERISA or an involuntary termination under Section 4042 of ERISA; (ii) the
failure to maintain, or the filing of a request for a waiver of, the minimum
funding standard with respect to any Employee Benefit Plan; (iii) the
occurrence of any event which causes any Employee Benefit Plan to cease to
have sufficient assets at all times so as to qualify for a standard
termination under Section 4041 of ERISA; (iv) the occurrence of any event
which causes the unfunded liability with regard to all such Employee Benefit
Plans in the aggregate to become an amount in excess of $1,000; (v) the
appointment of a trustee by an appropriate United States district court to
administer any Employee Benefit Plan; or (vi) the institution of any
proceedings by the PBGC to terminate any such Employee Benefit Plan or to
appoint a trustee to administer any such Employee Benefit Plan; or
(r) The occurrence of an event of default under any other Loan Document.
8.2. Remedies upon Default. Upon the occurrence of an Event of Default,
the following provisions shall be applicable:
(a) The Lender may, at its option, declare all Obligations, whether
incurred prior to, contemporaneous with, or subsequent to the date of this
Agreement, and whether represented in writing or otherwise, immediately due
and payable without presentment, demand, protest, notice of non-payment or
any other notice required by law relative thereto, all of which are hereby
expressly waived by the Borrower and terminate the Lender's obligation to
make Loans hereunder; provided, however, that upon the occurrence of an
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Event of Default specified in Sections 8.1(f) or (g), all Obligations
automatically will be due and payable and the Lender's obligations to make
Loans hereunder will automatically terminate without further action by the
Lender. If any of the Obligations, including, without limitation, the Loans,
shall be evidenced by a demand instrument, the right of the Lender to declare
any and all Obligations to be immediately due and payable, as well as the
recitation of the above events permitting the Lender to declare all
Obligations due and payable, shall not constitute an election by the Lender
to waive its rights to demand payment under a demand instrument at any time
and in any event, as the Lender, in its discretion, may deem appropriate. In
addition, the Lender may exercise all of its rights and remedies against the
Borrower and any Collateral.
(b) The Lender may foreclose its lien and security interest in the
Collateral in any way permitted by law and shall have without limitation, the
remedies of a secured party under the UCC. The Lender may notify the account
debtors obligated on any of the Collateral to make payments thereon directly
to the Lender, take control of the cash and non-cash proceeds of any such
Collateral and may enter the Borrower's premises without legal process and
without incurring liability to the Borrower and remove the Collateral to such
place or places as the Lender may deem advisable, or the Lender may require
the Borrower to assemble the Collateral and make the Collateral available to
the Lender at a convenient place and, with or without having the collateral
at the time or place of sale, the Lender may sell or otherwise dispose of all
or any part of the Collateral whether in its then condition or after further
preparation or processing, either at public or private sale or at any
broker's board, in lots or in bulk, for cash or for credit, at any time or
place, in one or more sales, and upon such terms and conditions as the Lender
may elect. The Lender shall give not less than five (5) Business Days prior
written notice to the Borrower of the time and place of any sale of the
Collateral, which the Borrower hereby agrees constitutes commercially
reasonable notice. At any such sale the Lender may be the purchaser.
(c) The Borrower recognizes that the Lender may be unable to effect a
public sale of all or a part of the Collateral by reason of certain
prohibitions contained in the Act and/or the Blue Sky Laws, but may be
compelled to resort to one or more private sales to a restricted group of
purchasers who will be obliged to agree, among other things, to acquire the
Collateral for their own account, for investment and without a view to the
distribution or resale thereof. The Borrower understands that private sales
so made may be at prices and on other terms less favorable than if the
Collateral were sold at public sales, and agrees that the Lender has no
obligation to delay the sale of any of the Collateral for the period of time
necessary to permit the issuer of the Collateral (even if the issuer agrees)
to register the Collateral for sale under the Act or the Blue Sky Laws. The
Borrower agrees that private sales made under the foregoing circumstances
shall be deemed to have been made in a commercially reasonable manner.
(d) The proceeds from any sale of the Collateral by the Lender shall
first be applied to any costs and expenses in securing possession of the
Collateral, and to any expenses in connection with the sale. The net proceeds
will be applied toward the payment of the Obligations. Application of the net
proceeds as to particular Obligations or as to principal or interest shall be
in the Lender's absolute discretion. Any deficiency will be paid to the
Lender forthwith upon demand, and any surplus will be paid to the Borrower or
in accordance with law if the Borrower is not otherwise indebted to the
Lender.
(e) To the extent that the Obligations are now or hereafter secured by
property other than the Collateral described herein or by the guarantee,
endorsement or property of any other Person, then the Lender shall have the
right to proceed against such other property, guarantee or endorsement upon
the occurrence of Event of Default, and the Lender shall have the right in
its sole discretion to determine which rights, security, liens, security
interests or remedies the Lender shall at any time pursue, relinquish,
subordinate, modify or take any other action with respect thereto, without in
any way modifying or affecting any of them or any of the Lender's rights
hereunder.
(f) The Lender is hereby authorized at any time or from time to time,
without notice to the Borrower (any such notice being expressly
waived by the Borrower) to set-off and apply any and all deposits
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<PAGE>
(general or special, time or demand, provisional or final) at any time held,
including any certificate of deposit, and other indebtedness at any time
owned by the Lender to or for the credit of account of the Borrower against
any and all of the Obligations.
(g) THE BORROWER, HAVING KNOWLEDGE THAT IT MAY BE ENTITLED TO NOTICE AND
A HEARING PRIOR TO REPOSSESSION OF THE COLLATERAL, HEREBY WAIVES ANY RIGHT
THAT IT MAY HAVE UNDER EXISTING OR FUTURE LAW TO NOTICE OF FORECLOSURE AND
ANY OTHER ACT DESCRIBED HEREIN, TO ANY HEARING THAT MAY BE HELD RELATING TO
FORECLOSURE OR ANY OTHER SUCH ACTS, AND TO ANY NOTICE THAT MAY BE REQUIRED TO
BE GIVEN BY THE LENDER PRIOR TO SUCH HEARING. THE BORROWER HEREBY EXPRESSLY
RELEASES THE LENDER AND ITS AGENTS FROM ANY AND ALL LIABILITY RELATING TO
SUCH FORECLOSURE AND ANY OTHER ACTS DESCRIBED HEREIN.
(h) The Lender may itself perform or comply, or otherwise cause
performance or compliance with the obligations of the Borrower contained in
this Agreement, including, without limitation, the obligations of the
Borrower to defend and insure the Collateral. The expenses of the Lender
incurred in connection with such performance or compliance, together with
interest thereon at the Default Rate, shall be payable by the Borrower to the
Lender on demand and shall constitute Obligations.
SECTION 9. Miscellaneous.
9.1 Collection Costs. The Borrower shall pay all of the reasonable costs
and expenses incurred by the Lender in connection with the enforcement of
this Agreement and the other Loan Documents, including, without limitation,
reasonable attorneys' fees and expenses.
9.2 Modification and Waiver. Except for the other documents expressly
referred to herein, this Agreement contains the entire agreement between the
parties, and no modification or waiver of any provision of this Agreement or
the Note and no consent by the Lender to any departure therefrom by the
Borrower shall be effective unless such modification or waiver shall be in
writing and signed by an officer of the Lender with a title of assistant vice
president or any higher office, and the same shall then be effective only for
the period and on the conditions and for the specific instances and purposes
specified in such writing. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances. No failure or delay by the Lender in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof: nor shall any single or partial exercise thereof preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies otherwise provided by law.
9.3 Notices. All notices, requests, demands or other communications
required or permitted by or in connection with this Agreement or any other
Loan Document, without implying the obligation to provide any such notice,
request, demand or other communication, shall be in writing addressed to the
appropriate address set forth below or to such other address as may be
hereafter specified by written notice by the Lender or the Borrower, as
applicable, forwarded in like manner. Any such notice, request, demand or
other communication shall be deemed to be effective one (1) day after
dispatch if sent by telegram, mailgram, Purolator Delivery, express mail,
Federal Express or any other commercially recognized overnight delivery
service or two (2) days after dispatch if sent by registered or certified
mail, return receipt requested. Notwithstanding the foregoing, all notices,
requests, demands or other communications shall be considered to be effective
upon receipt if accomplished by hand delivery.
To the Lender: Signet Bank
c/o Government Contracting Lending Unit
7799 Leesburg Pike
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<PAGE>
Falls Church, Virginia 22043
Attention: R. Mark Swaak
To the Borrower: Dunn Computer Corporation
1306 Squire Court
Sterling, VA 20166
Attention: Thomas P. Dunn
9.4. Counterparts. This Agreement may be executed by the parties hereto
individually or in any combination, in one or more counterparts, each of
which shall be an original and all of which together constitute one and the
same agreement.
9.5. Captions. The captions of the various sections and paragraphs of
this Agreement have been inserted only for the purpose of convenience; such
captions are not a part of this Agreement and shall not be deemed in any
manner to modify, explain, enlarge or restrict any of the provisions of this
Agreement.
9.6. Survival of Agreements. All agreements, representations and
warranties made herein shall survive the delivery of this Agreement and the
making and renewal of the Loans hereunder.
9.7. Fees and Expenses. Whether or not any Loans are made hereunder, the
Borrower shall pay on demand all costs and expenses incurred by the Lender in
connection with the preparation, negotiation, execution, delivery, filing,
recording and administration of this Agreement and any of the documents
executed or delivered in connection herewith, including, without limitation,
the reasonable fees and expenses of counsel to the Lender, including in-house
counsel for the Lender and local counsel who may be retained by the Lender,
with respect to this Agreement and such documents and any amendments thereof
and with respect to advising the Lender as to its rights and responsibilities
thereunder.
9.8. Use of Defined Terms. All terms defined in this Agreement shall have
the defined meanings when used in certificates, reports or other documents
made or delivered pursuant to this Agreement, unless the context shall
otherwise require.
9.9. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and bind the respective
parties hereto and their successors and assigns; provided, however, that the
Borrower may not assign its rights hereunder without the prior written
consent of the Lender.
(b) At any time and from time to time, the Lender may grant to one or
more Banks participating interests in the Lender's commitment to make Loans
hereunder or in any or all of the Loans or the Note. In the event of any such
grant by the Lender of a participating interest to a Bank, whether or not
upon notice to the Borrower, the Lender shall remain responsible for the
performance of its obligations hereunder, and the Lender shall continue to
deal solely and directly with the Borrower in connection with the Lender's
rights and obligations under this Agreement. Any agreement pursuant to which
the Lender may grant such a participation interest shall provide that the
Lender shall remain the sole right and responsibility to enforce the
obligations of the Borrower hereunder including, without limitation, the
right to approve any amendment, modification or waiver of any provision of
this Agreement; provided that such participation agreement may provide that
the Lender will not agree to any modification, amendment or waiver of this
Agreement which would have the effect increasing or decreasing the Maximum
Amount, extending the Termination Date, subjecting the Lender to any
additional obligation, reducing the principal of or rate of interest on any
Loan, or postponing the date fixed for any payment of principal of or
interest on any Loan or fees hereunder or under the Note without the consent
of such Bank. An assignment or other transfer which is not permitted by
subsection (c) or (d) below shall be given effect for
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<PAGE>
purposes of this Agreement only to the extent of a participating interest
grant in accordance with this subsection (b).
(c) At any time, the Lender may assign to one or more Banks all, or a
proportionate part of all, of the Lender's rights and obligations under this
Agreement and the Note, and such Bank shall assume such rights and
obligations, pursuant to an instrument executed by such Bank and the Lender,
with (and subject to) the consent of the Borrower; provided that if such Bank
is an affiliate of the Lender, the Borrower's consent shall not be required.
Upon execution and delivery of such an instrument and payment by such Bank to
the Lender of an amount equal to the purchase price agreed between the Lender
and such Bank, such Bank shall become a party to this Agreement and shall
have all the rights and obligations of the Lender to the extent of such
Bank's commitment to make Loans as set forth in such Bank's instrument of
assumption, and the Lender shall be released from its obligations hereunder
to a corresponding extent, and no further consent or action by any party
shall be required. Upon the consummation of any assignment pursuant to this
subsection (c), the Lender and the Borrower shall make appropriate
arrangements so that, if required, a new Note is issued to the Bank. If the
Bank is not incorporated under the laws of the United States of America or a
state thereof, it shall, prior to the first date on which interest or fees
are payable hereunder for its account deliver to the Borrower certification
as to exemption from deduction or withholding of any United States federal
income taxes.
(d) The Lender may at any time assign all or any portion of its rights
under this Agreement and the Note to a Federal Reserve Bank. No such
assignment shall release the Lender from its obligations hereunder.
(e) The Lender may furnish any information concerning the Borrower in its
possession from time to time to any Bank which is or may become a participant
or assignee under this Section 9.9 and may furnish such information in
response to credit inquiries consistent with general banking practice.
9.10. Accounting Terms. All accounting terms used herein which are not
otherwise expressly defined in this Agreement shall have the meanings
respectively given to them in accordance with GAAP in effect on the date of
this Agreement. Except as otherwise provided herein, all financial
computations made pursuant to this Agreement shall be made in accordance with
GAAP and all balance sheets and other financial statements shall be prepared
in accordance with GAAP. Except as otherwise provided herein, whenever
reference is made in any provision of this Agreement to a balance sheet or
other financial statement or the information depicted therein for performing
a financial computation, such terms shall mean the most recent consolidated
balance sheet or other financial statement received by the Lender pursuant to
the terms hereof.
9.11. Consent to Jurisdiction. The Borrower irrevocably submits to the
jurisdiction of any Virginia State court sitting in the County of Fairfax or
the United States District Court for the Eastern District of Virginia,
sitting in Alexandria, Virginia over any suit, action or proceeding arising
out of or relating to this Agreement. To the fullest extent it may
effectively do so under applicable law, the Borrower irrevocably waives and
agrees not to assert, by way of motion, as a defense or otherwise, any claim
that it is not subject to the jurisdiction of any such court, any objection
that it may now or hereafter have to the laying of the venue of any such
suit, action or proceeding brought in any such court and any claim that any
such suit, action or proceeding brought in any such court has been brought in
an inconvenient forum.
9.12. Enforcement of Judgments. The Borrower agrees, to the fullest extent
it may effectively do so under applicable law, that a judgment in any suit,
action or proceeding of the nature referred to in Section 9.11 brought in any
such court shall be conclusive and binding upon the Borrower and may be
enforced in the courts of the United States of America or the Commonwealth of
Virginia (or any other courts to the jurisdiction of which the Borrower is or
may be subject) by a suit upon such judgment.
9.13. Waiver of Jury Trial. AS A SPECIFICALLY INDUCED BARGAIN FOR THE
LENDER TO ENDER INTO THIS AGREEMENT AND TO EXTEND CREDIT TO THE BORROWER, THE
BORROWER
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<PAGE>
AND THE LENDER EACH HEREBY WAIVES TRIAL BY JURY WITH RESPECT TO ANY ACTION,
CLAIM, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS AGREEMENT
AND/OR THE CONDUCT OF THE RELATIONSHIP BETWEEN THE LENDER AND THE BORROWER.
9.14. Service of Process. The Borrower consents to process being served
in any suit, action or proceeding of the nature referred to in Section 9.11
by mailing a copy thereof by registered or certified mail postage prepaid,
return receipt requested, to the Borrower's address specified in or
designated pursuant to Section 9.3. The Borrower agrees that such service (i)
shall be deemed in every respect effective service of process upon the
Borrower in any such suit, action or proceeding and (ii) shall, to the
fullest extent permitted by law, be taken and held to be valid personal
service upon and personal delivery to the Borrower.
9.15. No Limitation on Service or Suit. Nothing in this Section 9 shall
affect the right of the Lender to serve process in any manner permitted by
law, or limit any right that the Lender may have to bring proceedings against
the Borrower in the courts of any jurisdiction or to enforce in any lawful
manner a judgment obtained in any other jurisdiction.
9.16. Indemnification. At all times prior to and after the consummation
of the transactions contemplated by this Agreement, the Borrower will
indemnify and hold each Indemnitee harmless from and against all losses,
damages, claims, fines, costs and expenses (including, without limitation,
reasonable attorneys' fees, costs and expenses) incurred by any such
Indemnitee, whether direct or indirect, as a result of or arising from or
relating to any Proceedings by any Person, whether threatened or initiated,
asserting a claim for any legal or equitable remedy against any Indemnitee
arising from or in connection with this Agreement, the Note or any of the
other Loan Documents, and any of the transactions contemplated herein or
therein, except to the extent such losses, damages, claims, fines, costs or
expenses are due to the willful misconduct or gross negligence of the Lender;
provided that in connection with such indemnification obligations, the
Borrower shall not be liable for any settlement effected by any Indemnitee
without the Borrower's prior consent (which the Borrower shall not
unreasonably withhold, delay or condition) and the Borrower shall have the
right to participate at its sole cost and expense in the defense of any
proceeding for which such indemnification may be sought. In the event of any
Proceeding, the Lender shall promptly and as soon as is practicable notify
the Borrower of the existence of such Proceeding, provided that the Lender's
failure to do so shall not preclude any Indemnitee from seeking
Indemnification hereunder. At the request of the Lender, the Borrower will
indemnify any Person to whom the Lender transfers or sells all or any portion
of its interest in the Loans or participations therein on the terms set forth
above. The obligations of the Borrower under this Section 9.16 shall survive
the termination of this Agreement and payment of the Obligations.
9.17. No Partnership, Joint Venture or Agency. Neither this Agreement
nor any of the Loan Documents shall in any respect be interpreted, deemed or
construed as making the Lender a partner or joint venturer with the Borrower,
nor shall they be interpreted, deemed or construed as making the Lender the
agent of representative of the Borrower, and the Borrower agrees not to make
any contrary assertion, contention, claim or counterclaim in any action, suit
or other legal proceeding involving the Lender.
9.18. Interpretation.
(a) This Agreement and the rights and obligations of the parties
hereunder shall be construed and interpreted in accordance with the laws of
the Commonwealth of Virginia, excluding principles of conflict of laws.
(b) The Lender hereby acknowledges and agrees that this Agreement shall
be subject to and interpreted in accordance with all applicable legal,
regulatory and contractual obligations of the Borrower with respect to the
security, privacy or nondisclosure of certain information regarding the
business of the Borrower. By way of example and not limitation, the Lender
acknowledges and agrees that the Borrower may be prohibited
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<PAGE>
from (i) disclosing the location of certain information with respect to
certain Accounts Receivable, (ii) providing access to certain books and
records and (iii) permitting the Lender to inspect certain Collateral. The
Lender hereby agrees that the compliance of the Borrower with such legal,
regulatory and contractual obligations shall not give rise to an Event of
Default hereunder, even if such compliance conflicts with the
representations, warranties, covenants, agreements and conditions set forth
herein.
IN WITNESS WHEREOF, the Borrower and the Lender have caused this Agreement
to be signed by their duly authorized representatives all as of the day and
year first above written, with the specific intention that this Agreement
constitute a document under seal.
Dunn Computer Corporation
a Virginia corporation
ATTEST: /s/ Claudia Dunn By: /s/ Thomas P. Dunn
-------------------------- --------------------------
(Asst.) Secretary Thomas P. Dunn
President
[corporate seal]
SIGNET BANK,
a Virginia banking corporation
By: /s/ John O. Sateri
--------------------------
John O. Sateri
Assistant Vice President
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<PAGE>
SCHEDULE 6.1(c)
SCHEDULE OF PERMITTED EQUIPMENT LIENS
Name of Lender Amount Collateral
- -------------- ------ ----------
Ford Credit
JT A105 7337 $1406.19 92 Ford Van
Mercedes-Benz
500-2242-89228-0 9360.54 90 BMW 4DR SDN
<PAGE>
SCHEDULE 6.2(b)
SCHEDULE OF PERMITTED DEBT
Other than the liens on the vehicles, Dunn Computer has no other debts.
<PAGE>
Exhibit A
To: / / SIGNET BANK/MARYLAND / / SIGNET BANK/VIRGINIA / /
International Division International Division
P. O. Box 1077 P. O. Box 25339
Baltimore, Maryland 21203 Richmond, Virginia 23260
IRREVOCABLE STANDBY LETTER OF CREDIT
APPLICATION AND AGREEMENT
Date: _______________, 19 _________ No. ____________
The undersigned Applicant hereby requests you, the Bank indicated above
(the "Bank"), to establish an Irrevocable Letter of Credit (which, inclusive
of any increase, extension, amendment, renewal or partial renewal thereof,
is referred to as the "Credit"), substantially as follows:
1. Beneficiary's name ________________________________________________________
___________________________________________________________________________
2. Beneficiary's address _____________________________________________________
3. Amount ___________________________________________ ($____________________)
(WORDS) (FIGURES)
4. Expiring at your address shown above on ___________________________________
(DATE)
5. Available by drafts at sight drawn on the Bank by the Beneficiary when
accompanied by the following documents (do not complete if #6 is checked):
( ) The Beneficiary's signed written statement to the effect that the
amount of the draft drawn hereunder represents funds due and payable
because of the following reason:
( ) The Applicant has been awarded the successful bid under an offer
to bid (describe) _________________________________________________
___________________________________________________________________
and has failed to become a party to the contract related thereto.
( ) The Applicant has failed to comply with the terms and conditions
of a contract (describe) __________________________________________
___________________________________________________________________
___________________________________________________________________
( ) The Applicant has failed to make a payment due on the Applicant's
promissory note dated __________ in the amount of _________________
payable to the order of the Beneficiary.
( ) Other: ____________________________________________________________
___________________________________________________________________
( ) The Applicant's promissory note dated _______________________ in the
amount of ___________________________, payable to the order of the
Beneficiary and endorsed ( ) in blank ( ) to the order of the Bank.
Note: Application must be prepared and signed by Applicant before the Credit
will be issued.
<PAGE>
( ) Other Documents: ________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
( ) 6. Issue per sample attached which forms an integral part of this
Agreement.
7. Partial drawings ( ) are ( ) are not permitted.
8. Reason for issuance of the Credit: _________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
9. Opening fee of $ ________ plus a nonrefundable commission of ____%
per annum, in advance, on the unused portion of the face amount of
the Credit, and interest on any amounts drawn and unpaid at the
annual rate of ___________________________________. If this rate of
interest is tied to the Bank's announced Prime Rate, said rate shall
be changed when and as the Prime Rate changes.
10. Collateral: The obligations of the Applicant and Guarantors shall be
secured by the property described in Paragraph 2 of the Terms and
Conditions set forth herein, and by the following property:
_________________________________________________________________________
_________________________________________________________________________
11. Other Instructions: ________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
<PAGE>
TERMS AND CONDITIONS
In consideration of the Bank's opening the Credit, the terms of which
appear on the face hereof, the Obligor(s) hereby jointly and severally
agree(s) as follows:
1. To pay on demand in United States currency to the Bank at its office
indicated on the top of the first page hereof, or at such other place as the
Bank may designate in writing, a sum equal to each amount which shall have
been withdrawn or shall purport to have been withdrawn under the Credit at
any time(s) (whether evidenced by any one or more drafts, receipts,
cablegrams or otherwise), plus (a) any and all charges and expenses
(including attorneys' fees and expenses) which the Bank may pay or incur
relative to the Credit, whether directly or indirectly, and the collection of
any sum due hereunder, and (b) the commissions, fees and interest shown on
the face hereof.
2. To pledge and do(es) hereby pledge to the Bank, and grant to the Bank a
security interest in, as security for any and all obligations hereunder, any
and all Property of the Obligor(s), or any one or more of them, now or at any
time hereafter in the Bank's possession or control (inclusive of such
Property as may be in transit by mail or carrier to or from the Bank),
whether for the express purpose of being used by the Bank as collateral or
for safekeeping or any other or different purpose. The Bank is hereby
authorized, at its option, to transfer to and register in the name(s) of its
nominee(s) all or any part of the Property which may be held by it as
collateral security at any time(s) hereunder with or without notice to the
Obligor(s). The Obligor(s) hereby authorize(s) the Bank, acting in its
discretion at any time(s) and whether or not any Property then held by the
Bank as collateral security is deemed by the Bank to be adequate, to hold as
additional collateral security any and all monies now or hereafter with the
Bank on deposit or otherwise to the credit of or belonging to the Obligor(s)
(or any one or more of them). Should the aggregate market value of any such
Property at any time(s) suffer any decline, or should any such Property be
unavailable at any time for any reason to the Bank at its main office or fail
to conform to legal requirements, the Obligor(s), and each of them, will upon
demand make such payment(s) on account of the aforesaid obligations as the
Bank may request, or, as additional collateral therefor, will deposit and
pledge with the Bank additional Property satisfactory to the Bank. The
Obligor(s), and each of them, grant to the Bank a security interest in and
give to the Bank a continuing lien and right of set-off for the amount of the
Credit and all other obligations hereunder upon or with respect to any and all
deposits (general or special) and credits of the Obligor(s), or any of them
with, and any and all claims of the Obligor(s), or any of them, against the
Bank at any time existing; and the Bank is hereby authorized at any time,
without prior notice, to apply such deposits or credits, or any part thereof,
to such obligations and in such amount as the Bank may select, although
contingent and although unmatured. The word "Property" as used herein
includes goods and merchandise (as well as any and all documents relative
thereto), securities, funds, monies (whether United States currency or
otherwise), chooses in action and any and all other forms of Property, whether
real, personal or mixed, and any right or interest of the Obligor(s), or any
one or more of them, therein or thereto. The Bank is authorized to file
financing statement(s) without the signature of the Obligor(s) with respect
to any of the Property and the Obligor(s) jointly and severally agree to pay
the cost of any such filing and to sign upon request any instruments,
documents or other papers which the Bank may require to perfect its security
interest in the Property. Any collateral which secures any other indebtedness
of the Obligor(s), or any one or more of them, whether such indebtedness is
now existing or hereafter arising, direct or indirect, fixed or contingent,
shall also secure any and all obligations hereunder. The Bank shall have the
rights of a Secured Party under the Uniform Commercial Code.
3. In the event of any default hereunder, or in the event of any default
in any other agreement between Obligor(s), or any of them, and the Bank, or
in the event of the death, failure in business, insolvency, dissolution or
termination of existence of the Obligor(s), or any of them, or in case any
petition in bankruptcy should be filed by or against the Obligor(s), or any
of them, or any proceeding in bankruptcy or under any Acts of Congress
relating to the relief of debtors should be commenced for the relief or
readjustment of any indebtedness of the Obligor(s), or any of them, or if the
Obligor(s), or any of them, should make an assignment for the benefit of
creditors or take advantage of any insolvency law, or if a receiver of any
Property of the Obligor(s), or any of them, should be appointed at any time,
or if any Property of the Obligor(s), or any them, which may be in, or come
into, the possession or control of the Bank or any third party acting for the
Bank should be attached or distrained, or should be or become subject at any
time to any mandatory order of court or other legal process, or upon the good
faith determination by the Bank that it deems itself insecure or that a
material adverse change in the financial condition of the Obligor(s), or any
of them, has occurred since the date hereof or that the Bank's prospect of
payment hereunder has been impaired, then, or at any time after the happening
of any such event, the amount of the Credit, as well as any and all other
amounts payable hereunder to the Bank shall, at the option of the Bank,
become immediately due and payable without demand or notice, and full power
and authority are hereby given to the Bank to sell, assign and deliver all or
any part of the Property, or any substitution(s) thereof or additions thereto,
at any broker's board, or at public or private sale, at the option of the
Bank, either for cash or on credit or for the future delivery, without
assumption of any credit risk, and without demand, advertisement or notice of
any kind, all of which are hereby waived. At any sale hereunder the Bank may
itself purchase the whole or
<PAGE>
rights being also hereby waived and released, in event of any sale or other
disposition of any of the Property, after deducting all costs and expenses of
every kind for care, safekeeping, collection, sale, delivery or otherwise,
the Bank may apply the residue of the proceeds of the sale or other
disposition thereof to the payment or reduction, either in whole or in part,
of all or any of the obligations hereunder, whether then due or not due, and
may return any surplus to the Obligor(s), or any of them, all without
prejudice to the rights of the Bank as against the Obligor(s) with respect to
any obligations which may be or remain unpaid hereunder at any time(s).
4. No delay on the part of the Bank in exercising any power of sale,
option or other right hereunder shall constitute a waiver thereof, to limit
or impair the right of the Bank to take any action or to exercise any power
of sale, option or any other right hereunder, without demand or notice, or
prejudice the rights of the Bank as against the Obligor(s) in any respect.
Any and all rights, liens and security interests of the Bank hereunder shall
continue unimpaired, and the Obligor(s), and each of them, shall be and
remain obligated in accordance with the terms and provisions hereof
notwithstanding the release or substitution of any Property, or any delay,
extension of time, renewal, compromise or other indulgence granted by the
Bank, the Obligor(s), and each of them, hereby waiving notice of any such
delay, extension, release, substitution, renewal, compromise or other
indulgence.
5. The Bank, and its branches, affiliates and correspondents, shall not be
liable or responsible in any respect for any: (a) error, omission,
interruption or delay in transmission, dispatch or delivery of any one or
more messages or advice in connection with the Credit, whether transmitted
by cable, radio, telex, telegraph, or other telecommunication device, mail or
otherwise and despite any cipher or code which may be employed, or (b)
action, inaction or omission, which may be taken or suffered, or not taken,
by it or them in good faith or through inadvertence in identifying or failing
to identify any beneficiary or otherwise in connection with the Credit.
6. The Credit may be amended, modified or revoked only upon the receipt
all the main office of the Bank from the Obligor(s), or any of them, with or
without notification to the others, of a written request therefor, and then
only upon such terms and conditions as the Bank may prescribe.
7. This Agreement shall become effective upon its receipt by the Bank,
shall be governed by the laws of the jurisdiction in which the Bank was
organized, in all respects, including (without limitation) matters of title,
construction, validity, performance and discharge, and shall be binding upon
the Obligor(s) and its, his or her (or their respective) successors, assigns,
heirs and legal representatives, and shall not be waived, altered, modified
or amended as to any of its terms or provisions, except as the Bank may
consent thereto in writing. No assignment or other transfer of all or any of
the rights or obligations of the Obligor(s) hereunder may be made without the
prior consent in writing of the Bank.
8. The Credit shall, except as otherwise provided therein, be governed by
and subject to the Uniform Customs and Practice for Documentary Credits, 1993
Revision, ICC Publication No. 500 and, to the extent not inconsistent
therewith, the laws of the jurisdiction in which the Bank was organized.
9. In addition to commissions, fee and amounts otherwise payable with
respect to the issuance of the Credit, the Obligor(s) shall pay to the Bank
on demand such amounts as the Bank in its sole discretion determines is
necessary to compensate it for any reduction in the rate of return on the
Bank's capital as a consequence of its obligations under the Credit and for
any costs attributable to its issuing, maintaining or having outstanding or
making payment under the Credit resulting from the application of or
compliance with any domestic or foreign law, rule or regulation or the
interpretation or administration thereof applicable to the Bank regarding any
reserve, assessment, capitalization (including the cost of maintaining
capital sufficient to permit issuance or maintenance of the Credit), provided
the cost attributed to the Credit is determined in good faith by any
reasonable or similar method, whether existing at the time of issuance of the
Credit or adopted thereafter.
To induce the establishment of the Credit, the undersigned (jointly and
severally if more than one) agree(s) to the terms and conditions set forth
herein, it being understood that the word "Obligor", wherever appearing
herein, shall refer to each of the undersigned Applicant and Guarantors.
_________________________________ Applicant_________________________
Guarantor
By________________________________
_________________________________
Guarantor
Title_____________________________
_________________________________ Address___________________________
SIGNATURE VERIFIED/ __________________________________
OKAY TO PROCESS
__________________________________
BY_____________________________
<PAGE>
EXHIBIT B
BORROWING BASE CERTIFICATE
Part-A: CERTIFICATE OF NON-DEFAULT
Re: $________ evolving credit pursuant to a Loan and Security Agreement (the
"Agreement") dated_______. between Dunn Computer Corporation and Signet Bank
(the "Lender"). Capitalized terms used in this Borrowing Base Certificate
and not defined herein are defined in the Agreement.
I,________. do hereby certify to the Lender that:
1. I am the _______ to the Borrower, and the Borrower is a corporation duly
organized and in good standing under the laws of________ and is qualified to
transact business in the commonwealth of Virginia and in each other
jurisdiction where such qualification is necessary.
2. I am familiar with the terms of the Agreement, Either I or individuals
under my immediate supervision who are familiar with the terms of the
Agreement have made a current review if the activities of the Borrower to
determine compliance by the Borrower with its obligations under the Agreement
and the continuing validity of the representations and warranties of the
Borrower contained in the Agreement. This review has included, if necessary,
interviews with officers and employers of the Borrower whose duties require
them to have personal knowledge to the certifications made herein.
3. To the best of my knowledge, information and belief, there exists no
Defaults of Events of Default.
Part B. REQUEST FOR ADVANCE
The borrower hereby requests an advance in the amount of $______ pursuant
the revolving line of credit. Such advance shall be made by depositing
such funds into account number________ on________(date).
For purposes of computing the Borrowing Base as defined in the Agreement, I
certify that as of_____(date), my analysis of the books and records reveals
the following information, upon which you are authorized to rely:
Borrowing Base for Eligible Billed Government Receivables:
Billed receivables (Government) per last certificate dated_____________ $
add: government receivables billed since last certificate $
less: government receivables collected since last certificate $
plus (minus) adjustments $
Billed Government receivables to date:_____ $
less: a) billed government receivables aged over 90 days $
b) other ineligible government receivables $
_______________________________________________ $
_______________________________________________ $
Eligible Billed Government Receivables
times:advance rate of 85% $
<PAGE>
Borrowing Base for Eligible Billed Commercial Receivables:
<TABLE>
<S> <C> <C>
Billed commercial receivables per last certificate dated ________ $__________
add: commercial receivables billed since last certificate $__________
less: commercial receivables collected since last certificate $__________
plus (minus) adjustments $__________
Billed commercial receivables as of this date: _________ $__________
less: a) billed commercial receivables aged over 90 days $__________
b) other ineligible commercial receivables $__________
______________________________________________ $__________
______________________________________________ $__________
Eligible Billed Commercial Receivables $__________
times - advances rate 80%
COMMERCIAL BORROWING BASE $__________
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
TOTAL BORROWING BASE BEFORE RESERVES: $__________
Reserves under Borrowing Base
Letters of Credit $__________
Other $__________
Total reserves $__________
TOTAL BORROWING BASE AVAILABLE: $__________
PART C: LOAN RECONCILIATION
Loan Balances per last certificate $__________
Payments since last certificate $__________
Balance after payments applied $__________
Total Loans since last certificate $__________
(including requested Loan)
Loan Balance after requested Loan $__________
Dunn Computer Corporation
By: ________________________
Name: __________________
Title: _______________
Date: _____________________
</TABLE>
<PAGE>
AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT (this "Amendment"),
dated as of the 28th day of February, 1997, is made by and between Dunn
Computer Corporation, a virginia corporation (the "Borrower"), and SIGNET
BANK, a Virginia banking corporation (the "Lender").
RECITALS
A. The Lender and the Borrower entered into a Loan and Security Agreement
dated as of May 28, 1996 (as amended through the date hereof, the
"Agreement") pursuant to which the Lender has agreed to extend credit to the
Borrower, and the Borrower has agreed to obtain credit from the Lender, on
the terms and conditions set forth in such Agreement.
B. The Borrower has requested that the Lender make certain modifications to
the Agreement, including an extension of the Termination Date, a reduction in
Interest, and implementation of Target Balance Management, and the Lender has
consented to such request subject to the execution of this Amendment and the
satisfaction of the conditions specified herein.
C. The Borrower and the Lender now desire to execute this Amendment to set
forth their agreements with respect to the modifications to the Agreement.
D. The indebtedness and other obligations of the Borrower under the
Agreement are guaranteed by Thomas P. Dunn, Claudia N. Dunn, and John D.
Vazzana (the "Guarantor") pursuant to Guaranty Agreements dated May 28, 1996
(the "Guaranty") made by the Guarantor for the benefit of the Lender.
E. The Guarantor has consented to the modifications set forth herein and
expressly agrees that such modifications shall not affect the Guarantor's
obligations under the Guaranty.
Accordingly, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Lender and the Borrower
agree as follows:
SECTION 1. Definitions. Capitalized terms used in this Amendment and
not defined herein are defined in the Agreement.
SECTION 2. Amendments to Agreement. The Agreement is hereby amended as
follows:
2.1 Amendments to Section 1. Section 1 of the Agreement is amended as
follows:
2.1(a) Termination Date. The definition of the term Termination
Date is replace in its entirety with the following definition:
"Termination Date" means February 28, 1998, and any extension or
extensions thereof granted by the Lender in its sole discretion.
2.1(b) Account. The definition of the term Account is hereby
inserted in its correct alphabetical order.
"Account" means the deposit account of the Borrower specified in the
Target Balance Management Loan Rider as the "Account".
2.1(c) Operating Account is hereby deleted in its entirety.
2.1(d) Target Balance Management Loan Rider. The definition of
the term Target Balance Management Loan Rider is hereby added in its
entirety:
<PAGE>
"Target Balance Management Loan Rider" means the Target Balance
Management Loan Rider of even date herewith between the Borrower and the
Lender in the form of Exhibit D attached hereto, as such rider may be
amended, modified or supplemented from time to time.
2.1(e) Eligible Receivable. The definition of the term Eligible
Receivable is deleted and replaced in its entirety with the following
definition:
"Eligible Receivable" means any Account Receivable of the Borrower (a)
that represents valid obligations of a Customer to make payment to the
Borrower for goods shipped or delivered or services completed under valid,
written contracts of sale or service entered into by Borrower in the ordinary
course of its business; (b) on which the Customer is not an Affiliate,
shareholder, employee, director, or officer of the Borrower or a family
member of any such Person; (c) with respect to which the Borrower has no
knowledge or notice of any inability of the Customer to make full payment;
(d) from the face amount of which has been deducted all payments, set-offs,
contras, amounts subject to adverse claims made in writing to the Borrower,
contractual allowances, bad debt reserves, prompt payment discounts and other
credits applicable thereto; (e) that is subject to no Liens other than those
permitted by this Agreement; (f) that continues to be in full conformity with
the representations and warranties made by the Borrower to the Lender in this
Agreement with respect thereto; (g) with respect to which the Lender is and
continues to be satisfied with the credit standing of the Customer; (h) on
which the Customer is not a foreign government or an entity organized and
existing under the laws of a country other than the United States; (i) which
is not an Excluded Government Final Invoice Receivable; (j) which is not a
Account Receivable the payment for which flows through an escrow account from
which any Person other than the Borrower is entitled to payment; (k) which
does not arise from a contract on which the Borrower's performance is assured
by a performance, completion or other bond; (l) which is payable in U.S.
Dollars (or if not is backed by a letter of credit acceptable to the Lender);
(m) which is not subject to repurchase or return such as bill and hold, sale
or return, sale on approval, consignment, guaranteed sale, etc.; (n) which is
not evidenced by chattel paper or an instrument; and (o) which is not subject
to any funding contingency or could otherwise be classified as "at-risk"
work; provided, however, and without limiting any other provisions of this
Agreement with respect to the exclusion of Accounts Receivable from the
category of Eligible Receivables and the Borrowing Base, that if the Lender
reasonably determines that the collectability of any Account Receivable makes
it unacceptable for inclusion in the Borrowing Base and gives written notice
to the Borrower indicating the reasons for such determination, then such
Account Receivable shall thereafter be excluded from the category of Eligible
Receivables. The following are examples of Accounts Receivable (or portions
thereof) that the Lender does not normally find acceptable for inclusion in
the Borrowing Base, and no such Account Receivable (or the specified portion
thereof) shall be includable in the Borrowing Base without the advance
written approval of the Lender: (i) Accounts Receivable that the Lender does
not consider to be trade Accounts Receivable (such as lease payments or notes
receivable from account debtors given in satisfaction of prior Account
Receivable obligations); (ii) Accounts Receivable which the Borrower should
not reasonably expect to collect within 90 days from the date of original
invoice; (iii) that portion of any Account Receivable constituting retainage
that has been withheld by the account debtor pending completion of the
contract; and (iv) that portion of any Account Receivable constituting a
service charge or similar charge imposed by the Borrower for the extension of
credit to the account debtor.
2.2 Amendments to Section 2
2.2(a) Section 2.2. Section 2.2 is deleted in its entirety and
replaced with the following:
Interest. Each Loan shall bear interest on the unpaid
principal balance thereof from time to time outstanding, for each day from
the date such Loan is made until it becomes due, at a per annum rate equal to
the Prime Rate plus 1/4%. Payments of interest on each Loan shall be made on
each Interest Payment Date beginning on the Interest Payment Date next
succeeding the date of disbursement of such Loan. At
2
<PAGE>
the option of the Lender, the Loans shall bear interest at the Default Rate,
payable on demand, for each day during any period of Default hereunder.
2.2(b) Section 2.1(e). Section 2.1(e) is deleted in its entirety
and replaced with the following:
(e) Loans shall be made automatically in accordance with the
provisions of the Target Balance Management Loan Rider, provided, however,
that the lender shall have no obligation to make such Loans if, after the
disbursement thereof, the aggregate principal amount of the Loans then
outstanding would exceed the Maximum Amount. In addition, the Borrower may
request that a Loan be made. Any request for a Loan must be received by the
Lender not later than 1:00 p.m. (Washington, D.C. time) on the date on which
the Loan is to be made. Each request must specify the amount of the Loan and,
at the option of the Lender, shall be accompanied by a current Borrowing Base
Certificate, which may be transmitted by telecopy to the Lender at (703)
506-9553, or such other number as the Lender may designate in written notice
to the Borrower. If a Borrowing Base Certificate is transmitted by telecopy,
the Borrower shall maintain the original of such Borrowing Base Certificate
as a permanent record for so long as any of the Obligations remain
outstanding and shall allow the Lender to inspect such Borrowing Base
Certificate and shall provide copies of such original to the Lender upon its
request therefor. The proceeds of the Loans will be credited to the Account.
Loans may be requested by those individuals designated by the Borrower from
time to time in written instruments delivered to the Lender; provided,
however, that the Borrower shall remain liable with respect to any Loan
disbursed by the Lender in good faith hereunder, even if such a Loan is
requested by an individual who has not been so designated. The Borrower
agrees to confirm in writing from time to time, when and as requested by the
Lender, the purpose for which the proceeds of each Loan were used.
2.3 Amendments to Section 3.
2.3(a) Section 3.2(d). Section 3.2(d) is deleted in its entirety
and replaced with the following:
(d) To facilitate its receipt of direct payments in respect of
Accounts Receivable from Customers, the Lender has caused one or more Cash
Collateral Accounts to be opened and maintained at the principal office of
the Lender. The Lender may open additional Cash Collateral Accounts as it may
deem necessary or desirable. The Cash Collateral Accounts will contain only
cash proceeds of the Accounts Receivable. Any cash proceeds (as such term is
defined in Section 9-306(I) of the UCC) received by the Lender directly from
Customers obligated to make payments under Accounts Receivable pursuant
clause (c) of this Section 3.2 or from the Borrower pursuant to clause (e) of
this Section 3.2, whether consisting of checks, notes, drafts, bills of
exchange, money orders, commercial paper or other proceeds received on
account of any Collateral, shall be promptly deposited in the Cash Collateral
Accounts, and until so deposited shall be held in trust by the Borrower in
recognition of the Lender's security interest therein and shall not be
commingled with any funds of the Borrower not constituting proceeds of
Collateral. The name in which the Cash Collateral Accounts is carried shall
clearly indicate that the funds deposited therein are the property of the
Borrower, subject to the security interest of the Lender hereunder. Such
proceeds, when deposited, shall continue to be security for the Obligations
and shall not constitute payment thereof until applied as hereinafter
provided. The Lender shall have sole dominion and control over the funds
deposited in the Cash Collateral Accounts, and such funds may be withdrawn
therefrom only by the Lender. Provided there is no Default or Event of
Default, each Business Day the Lender (after final collection) will transfer
the funds in the Cash Collateral Accounts to the Account and such funds will
be applied in accordance with the terms of the Target Balance Management Loan
Rider and the TBM Agreement (defined in the Target Balance Management Loan
Rider).
2.4 Amendments to Section 5.
3
<PAGE>
2.4(a) Section 5.12(a). Section 5.12 (a) is deleted in its
entirety and replaced with the following:
(a) Minimum Tangible Net Worth. The Borrow covenants that
as of the ending date of the financial period depicted in each balance sheet
required to be delivered to the Lender under the terms of this Agreement, the
Tangible Net Worth of the Borrower shall be not less than $1,750,000.00.
2.4(b) Section 5.8(a). Section 5.8(a) is deleted in its entirety
and replaced with the following:
(a) Quarterly Financial Statements. As soon as available
and in any event within forty-five (45) days after the end of each of the
quarters of each fiscal year of the Borrower, unaudited financial statements
consisting of consolidated and consolidating balance sheets of the Borrower
and Subsidiaries as of the end of such quarter and consolidated and
consolidating statements of income and retained earnings of the Borrower and
Subsidiaries for the period commencing at the end of the previous fiscal year
and ending with the end of such quarter, all in reasonable detail and stating
in comparative form the respective consolidated and consolidating figures for
the corresponding date and period in the previous fiscal year and all
prepared in accordance with GAAP. Such financial statements shall be
certified by the chief financial officer of the Borrower, the Treasurer of
the Borrower or such other financial officer of the Borrower as is acceptable
to the Lender, to present fairly the financial condition of the Borrower
(subject to year-end adjustment) and shall be accompanied by a calculation of
the financial covenants which are applicable to such financial statements
pursuant to Section 5.12 hereof;
2.4(c) Section 5.8(b). Section 5.8(b) is deleted in its entirety
and replaced with the following:
(b) Annual Financial Statements. As soon as available and
in any event within ninety (90) days after the end of each fiscal year of the
Borrower, audited financial statements consisting of consolidated and
consolidating balance sheets of the Borrower and Subsidiaries as of the end
of such fiscal year, consolidated and consolidating statements of income and
retained earnings of the Borrower and Subsidiaries for such fiscal year, and
consolidated and consolidating statement of cash flows of the Borrower and
Subsidiaries for such fiscal year, all in reasonable detail and stating in
comparative form the respective consolidated and consolidating figures for
the corresponding date and period in the prior fiscal year and all prepared
in accordance with GAAP. The consolidated statements shall be accompanied by
an opinion thereon acceptable to the Lender of an independent certified
public accountant firm selected by the Borrower and acceptable to the Lender;
and shall also be accompanied by a calculation of the financial covenants
certified by the chief financial officer of the Borrower, the Treasurer of
the Borrower or such other financial officer of the Borrower as is acceptable
to the Lender, which are applicant to such financial statements pursuant to
Section 5.12 hereof.
2.5 Amendments Section 8.
2.5(a) Section 8.1(n). Section 8.1(n) is deleted in its entirety
and replaced with the following:
(n) The failure of Thomas P. Dunn and Claudia N. Dunn to own
at least 51% of the outstanding capital stock of the Borrower, or
SECTION 3. Representations and Warranties of Borrower. The Borrower
represents and warrants to the Lender that:
(a) It has the power and authority to enter into and to perform this
Amendment, to execute and deliver all documents relating to this Amendment,
and to incur the obligations provided for in this Amendment, all of which
have been duly authorized and approved in accordance with the Borrower's
corporate documents;
4
<PAGE>
(b) This Amendment, together with all documents executed pursuant
hereto, shall constitute when executed the valid and legally binding
obligations of the Borrower in accordance with their respective terms;
(c) Except with respect to events or circumstances occurring
subsequent to the date thereof and known to the Lender, all representations
and warranties made in the Agreement are true and correct as of the date
hereof, with the same force and effects as if all representations and
warranties were fully set forth herein;
(d) The Borrower's obligations under the Loan Documents remain valid
and enforceable obligations, and the execution and delivery of this Amendment
and the other documents executed in connection herewith shall not be
construed as a novation of the Agreement or any of the other Loan Documents;
and
(e) As of the date hereof, the Borrower has no offsets or defenses
against the payment of any of the Obligations.
SECTION 4. Waiver of Claims. As a specific inducement to the Lender
without which the Borrower acknowledges the Lender would not enter into this
Amendment and the other documents executed in connection herewith, the
Borrower hereby waives any and all claims that it may have against the
Lender, as of the due date hereof, arising out of or relating to the
Agreement or any other Loan Document whether sounding in contract, tort or
any other basis.
SECTION 5. Conditions of Effectiveness. This Amendment shall become
effective when, and only when, the Lender shall have received this Amendment,
all executed and completed by the Borrower.
SECTION 6. Miscellaneous.
6.1 Reference To Agreement. Upon the effectiveness of this
Amendment, each reference in the Agreement to "this Agreement" and each
reference in the other Loan Documents to the Agreement shall mean and be a
reference to the Agreement as amended hereby.
6.2 Effect on Loan Documents. Except as specifically amended above,
the Agreement and all other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed. Without limiting the
generality of the foregoing, all Collateral given to secure the Obligations
of the Borrower under the Agreement and the other Loan Documents prior to the
date hereof does and shall continue to secure all Obligations of the Borrower
under the Agreement, as amended hereby and the other Loan Documents, and,
except as provided in the Agreement and the other Loan Documents, no such
Collateral shall be released until all Obligations are satisfied and
completely discharged.
6.3 No Waiver. The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of the
Lender under any of the Loan Documents, nor constitute a waiver of any
provision of any of the Loan Documents.
6.4 Costs, Expenses and Taxes. The Borrower agrees to pay on demand
all costs and expenses of the Lender in connection with the preparation,
reproduction, execution and delivery of this Amendment and the other
instruments and documents to be delivered hereunder, including the reasonable
fees and out-of-pocket expenses of counsel for the Lender with respect
thereto.
6.5 Governing Law. This Amendment shall be governed by and construed
in accordance with the laws of the Commonwealth of Virginia, without giving
effect to conflict of law provisions.
5
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lender have caused this Amendment
to be signed by their duly authorized representatives under seal all as of
the day and year first above written.
Dunn Computer Corporation,
a Virginia corporation
ATTEST: By:/s/ Thomas P. Dunn
---------------------------------
/s/ Claudia N. Dunne Name: Thomas P. Dunn
- -------------------------- Title: President
(Asst.) Secretary
[corporate seal]
SIGNET BANK, a
Virginia banking corporation
By: /s/ R. Mark Swaal
---------------------------------
R. Mark Swaal
Assistant Vice President
CONSENT OF GUARANTOR(S)
The undersigned, jointly and severally if more than one, hereby consents
to the foregoing modifications and waiver of claims as set forth in the
Amendment and confirms and agrees that the Guaranty executed by the
undersigned, dated May 28, 1996, and the obligations of the undersigned
thereunder, remain in full force and effect with respect to the Loans.
/s/ Thomas P. Dunne
-------------------------------[SEAL]
Name: Thomas P. Dunne
/s/ Claudia N. Dunne
-------------------------------[SEAL]
Name: Claudia N. Dunne
/s/ John D. Vazzana
-------------------------------[SEAL]
Name: John D. Vazzana
6
<PAGE>
EXHIBIT D
FORM OF TARGET BALANCE MANAGEMENT LOAN RIDER
THIS TARGET BALANCE MANAGEMENT LOAN RIDER is made by and between
SIGNET BANK (the "Lender") and _________________ (the "Borrower"), in
connection with the Loan and Security Agreement between the Borrower and the
Lender of even date herewith (as amended, modified or supplemented from time
to time, the "Loan Agreement").
SECTION 1. DEFINITIONS
In addition to the terms defined in the Loan Agreement, all of which
are incorporated herein, the following terms shall have the following meanings:
1.1 "Account" shall mean the Borrower's deposit account number
__________ at the Lender.
1.2 "Available Funds" shall mean, at any time, the gross balance
in the Account less Instruments presented for payment and less the aggregate
amount of all deposited items which the Lender has not credited to the
Account or otherwise made available.
1.3 "Excess Funds" shall mean, at any time, the amount by which
Available Funds exceed the Target Balance.
1.4 "Instrument" shall mean any check, draft or other item for
the payment of money drawn upon, or any other charge or debit against, the
Account.
1.5 "Target Balance" shall mean the deposit balance in the Account
in Available Funds established by the Borrower and the Lender pursuant to the
TBM Agreement, which balance is subject to change in accordance with the TBM
Agreement.
1.6 "TBM Agreement" shall mean the Target Balance Management
Agreement between the Borrower and the Lender dated the date hereof (as
amended, modified, supplemented or replaced from time to time hereafter).
SECTION 2. LOAN ADVANCES
2.1 On each Business Day the Lender will monitor the Account to
determine the amount of Available Funds, if any. If the Lender determines on
any Business Day that the amount of Available Funds is less than the Target
Balance for any reason (including, without limitation, the Lender's
determination to honor, in its sole discretion, any Instrument presented for
payment against the Account at a time when Excess Funds are not sufficient to
cover such Instrument, thus creating an overdraft), the Borrower authorizes
the Lender to make a Loan to the Borrower in the amount necessary to cause
Available Funds to equal or exceed the Target Balance; provided, however,
that such Loans shall be made by the Lender in increments of $1,000 unless
otherwise determined by the Lender. The Lender shall not be obligated to make
a Loan if (a) a Default shall have occurred and be continuing, (b) such Loan
would cause the Loans outstanding under the Loan Agreement to exceed the
Maximum Amount, or (c) any other condition precedent to the disbursement of a
Loan has not been satisfied in accordance with the provisions of the Loan
Agreement. Even if the aggregate principal amount of Loans outstanding at any
time and for any reason shall exceed the Maximum Amount, the Borrower shall
be liable for the entire principal amount outstanding with interest thereon
in accordance with the Loan Agreement, and the Borrower shall be liable and
responsible for the observance and performance of all covenants, warranties
and duties on its part to be observed or performed under the Loan Agreement.
If the aggregate amount of Loans made and outstanding at any time shall
exceed the Maximum Amount, the Borrower shall pay the amount of such excess
to the Lender upon demand.
7
<PAGE>
2.2 If the Lender determines on any Business Day that there are
Excess Funds, the Borrower authorized the Lender to transfer from the Account
all or any part of such Excess Funds and apply such transferred portion to
reduce any principal amounts then outstanding under the Note, provided that
such reductions shall only be made in increments of $1,000 unless otherwise
determined by the Lender.
SECTION 3. FEES
The Borrower shall pay the Lender a monthly service charge for the
services to be performed by the Lender under this Target Balance Management
Loan Rider. The amount of the service charge shall be determined according
to the Lender's schedule of cash management and investment fees as
established from time to time pursuant to the TBM Agreement. The monthly
service charge may be adjusted by the Lender in accordance with the TBM
Agreement.
SECTION 4. MISCELLANEOUS
4.1 The Borrower agrees that the services to be performed by the
Lender for the Borrower hereunder are provided as a service accommodation to
the Borrower and do not constitute conditions to or consideration for the
Borrower's obligations under the Loan Agreement. Accordingly, the Borrower
agrees that the Lender shall have no liability to the Borrower and the
Borrower shall not be entitled to any reduction in interest charged to the
Borrower under the Loan Agreement on account of any failure of the Lender to
cause any reductions to be made in any principal amounts outstanding under
the Note.
4.2 As security for the Borrower's obligation to repay the Loans,
the Borrower hereby pledges to Lender and grants Lender a security interest
in any investment now or hereafter made by Lender for Borrower pursuant to
the TBM Agreement and in the proceeds thereof.
4.3 Nothing contained herein shall be construed to limit, diminish
or in any way impair any security interest, lien or right to set-off of the
Lender.
4.4 In connection with the termination of the TBM Agreement, either
party hereto may terminate this Target Balance Management Loan Rider upon the
giving of ten (10) Business Day's prior written notice to the other party.
The termination hereof shall in no way affect the obligations of the Borrower
under the Loan Agreement or any other agreement between the Borrower and the
Lender or the guaranties of any guarantors.
4.5 All notices given hereunder shall be given in the manner
provided in the Loan Agreement.
4.6 The headings contained herein are intended to be used for
convenience only and do not constitute part of this Target Balance Management
Loan Rider or the Loan Agreement or a basis for the interpretation or
construction thereof.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Target Balance
Management Loan Rider under seal on this __ day of _______________, 199_.
_________________________________
ATTEST: By:______________________________
Name:____________________________
______________________ Title:______________________
(Asst.) Secretary
[corporate seal]
SIGNET BANK
By:______________________________
Name:____________________________
Title:___________________________
9
<PAGE>
AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT (this "Amendment"),
dated as of the 16th day of June, 1997, is made by and between DUNN COMPUTER
CORPORATION & Virginia corporation (the "Borrower"), and SIGNET BANK, a
Virginia banking corporation (the "Lender").
RECITALS
A. The Lender and the Borrower entered into a Loan and Security Agreement
dated as of May 28, 1996 (as amended through the date hereof, the
"Agreement") pursuant to which the Lender has agreed to extend credit to the
Borrower; and the Borrower has agreed to obtain credit from the Lender, on
the terms and conditions set forth in such Agreement.
B. The Borrower has requested that the Lender make certain modifications to
the Agreement, including the elimination of the guaranties and a reduction in
the interest rate, and the Lender has consented to such request subject to
the execution of this Amendment and the satisfaction of the conditions
specified therein.
C. The Borrower and the Lender now desire to execute this Amendment to set
forth their agreements with respect to the modifications to the Agreement.
Accordingly, for good and valuable consideration, the receipt and
efficiency of which are hereby acknowledged, the Lender and the Borrower
agree as follows:
SECTION 1. Definitions. Capitalized terms used in this Amendment and not
defined herein are defined in the Agreement.
SECTION 2. Amendments to Agreement. The Agreement is hereby amended as
follows:
2.1 Amendments to Section 1. Section 1 of the Agreement is amended
as follows:
Guarantor. The definition of the term guarantor is hereby deleted in
its entirety.
2.2 Amendment to Section 2. Section 2 of the Agreement is amended as
follows:
Section 2.2 Section 2.2 is deleted in its entirety and replaced with
the following:
Interest. Each Loan shall bear interest on the unpaid
principal balance thereof from time to time outstanding, for each day from
the date such Loan is made until it becomes due, at a per annum rate equal to
the Prime Rate plus 0%. Payments of Interest on each Loan shall be made on
each Interest Payment Date beginning on the Interest Payment Date next
succeeding the date of disbursement of such Loan. At the option of the
Lender, the Loans shall bear interest at the Default Rate, payable on demand,
for each day during any period of Default hereunder.
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SECTION 3. Representations and Warranties of Borrower. The Borrower
represents and warrants to the Lender that:
(a) It has the power and authority to enter into and to perform
this Amendment, to execute and deliver all documents relating to this
Amendment, and to incur the obligations provided for in this Amendment, all of
which have been duly authorized and approved in accordance with the
Borrower's corporate documents;
(b) This Amendment, together with all documents executed pursuant
hereto, shall constitute when executed the valid and legally binding
obligations of the Borrower in accordance with their respective terms;
(c) Except with respect to events or circumstances occurring
subsequent to the date thereof and known to the Lender, all representations
and warranties made in the Agreement are true and correct as of the date
hereof, with the same force and effect as if all representations and
warranties were fully set forth herein;
(d) The Borrower's obligations under the Loan Documents remain
valid and enforceable obligations, and the execution and delivery of this
Amendment and the other documents executed in connection herewith shall not
be construed as a novation of the Agreement or any of the other Loan Documents;
and
(e) As of the date hereof, the Borrower has no effects or
deficiencies against the payment of any of the Obligations.
SECTION 4. Waiver of Claims. As a specific Inducement to the Lender
without which the Borrower acknowledges the Lender would not enter into this
Amendment and the other documents executed in connection herewith, the
Borrower hereby waives any and all claims that it may have against the
Lender, as of the date hereof, arising out of or relating to the Agreement or
any other Loan Document whether sounding in contract, tort or any other basis.
SECTION 5. Conditions of Effectiveness. This Amendment shall become
effective when, and only when, the Lender shall have received this Amendment,
all executed and completed by the Borrower.
SECTION 6. Miscellaneous
6.1 Reference To Agreement. Upon the effectiveness of this
Amendment, each reference in the Agreement to "this Agreement" and each
reference in the other Loan Documents to the Agreement shall and be a
reference to the Agreement as amended hereby.
6.2 Effect on Loan Documents. Except as specifically amended
above, the Agreement and all other Loan Documents shall remain in full force
and effect and are hereby ratified and confirmed. Without limiting the
generality of the foregoing, all Collateral given to secure the Obligations
of the Borrower under the Agreement and the other Loan Documents prior to the
date hereof does and shall continue to secure all Obligations of the Borrower
under the Agreement, as amended hereby and the other Loan Documents, and,
except as provided in the Agreement and the other Loan Documents, no such
Collateral shall be released once all Obligations are satisfied and
completely discharged.
6.3 No Waiver. The execution, delivery and effectiveness of
this Amendment shall not operate as a waiver of any right, power or remedy
of the Lender under any of the Loan Documents, nor constitute a waiver of
any provision of any of the Loan Documents.
6.4 Costs, Expenses and Taxes. The Borrower agrees to pay on
demand all costs and expenses of the Lender in connection with the
preparation, reproduction, execution and delivery of this Amendment and the
other
2
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instruments and documents to be delivered hereunder, including the
reasonable fees and out-of-pocket expenses of counsel for the Lender with
respect thereto.
6.5 Governing Law. This Amendment shall be governed by and construed
in accordance with the laws of the Commonwealth of Virginia, without giving
effect to conflict of Law provisions.
IN WITNESS WHEREOF, the Borrower and the Lender have caused this
Amendment to be signed by their duly authorized representatives under seal
all as of the day and year first above written.
DUNN COMPUTER CORPORATION
a Virginia corporation
ATTEST By: /s/ Thomas P. Dunn
-----------------------
/s/ Claudia N. Dunn Name: Thomas P. Dunn
--------------------------- Title: President
(Asst.) Secretary
(corporate seal)
SIGNET BANK, a
Virginia banking corporation
By: /s/ R. Mark Swaal
-----------------------
R. Mark Swaal
Assistant Vice President
3
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AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO.3 TO LOAN AND SECURITY AGREEMENT (this "Amendment"),
dated as of the 10th day of December, 1997 is made by and between DUNN
COMPUTER CORPORATION, a Virginia corporation (the "Borrower"), and SIGNET
BANK, a Virginia banking corporation (the "Lender").
RECITALS
A. The Lender and the Borrower entered into a Loan and Security Agreement
dated as of May 28, 1997 (as amended through the date hereof, the
"Agreement") pursuant to which the Lender has agreed to extend credit to the
Borrower, and the Borrower has agreed to obtain credit from the Lender, on
the terms and conditions set forth in such Agreement.
B. The Borrower has requested that the Lender make certain modifications to
the Agreement, including increasing the Maximum Amount, and the Lender has
consented to such request subject to the execution of this Amendment and the
satisfaction of the conditions specified herein.
C. The Borrower and the Lender now desire to execute this Amendment to set
forth their agreements with respect to the modifications to the Agreement.
Accordingly, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Lender and the Borrower
agree as follows:
SECTION 1. Definitions. Capitalized terms used in this Amendment and not
defined herein are defined in the Agreement.
SECTION 2. Amendments to Agreement. The Agreement is hereby amended as
follows:
2.1 Amendments to Section 1. Section 1 of the Agreement is amended as
follows:
2.1(a) Commitment Fee. The definition of the term Commitment Fee
is replaced in its entirety with the following definition:
"Commitment Fee" means the quarterly fee to be paid by the
Borrower to the Lender pursuant to Section 2.5 hereof in
consideration of the commitment by the Lender to make Loans
hereunder. The Commitment Fee due for each calendar quarter (or
portion thereof) shall equal the product of the Commitment Fee
Rate in effect for such quarter (or portion thereof) multiplied by
the difference between $4,000,000.00 and the sum of the average
daily principal balance of the Loans during such quarter (or
applicable portion thereof) plus the average daily face amount of
all Letters of Credit outstanding during such quarter (or
applicable portion thereof).
2.1(b) Maximum Amount. The definition of the term Maximum Amount
is replaced in its entirety with the following definition:
"Maximum Amount" means, at any time, the lesser of (a)
$4,000,000.00 or (b) the then applicable Borrowing Base.
2.1(c) Note. The definition of the term Note is replaced in its
entirety with the following definition:
"Note" means the promissory note in form and substance
acceptable to the Lender in the original principal amount of
$4,000,000.00 (as it may be amended, modified supplemented or
replaced from time to time) evidencing the obligation of the
Borrower to pay the principal amount of the Loans together with
interest on the Loans.
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SECTION 3. Representations and Warranties of Borrower. The Borrower
represents and warrants to the Lender that:
(a) It has the power and authority to enter into and to perform this
Amendment, to execute and deliver all documents relating to this Amendment,
and to incur the obligations provided for in this Amendment, all of which
have been duly authorized and approved in accordance with the Borrower's
corporate documents;
(b) This Amendment, together with all documents executed pursuant
hereto, shall constitute when executed the valid and legally binding
obligations of the Borrower in accordance with their respective terms;
(c) Except with respect to events or circumstances occurring subsequent
to the date thereof and known to the Lender, all representations and
warranties made in the Agreement are true and correct as of the date hereof,
with the same force and effect as if all representations and warranties were
fully set forth herein;
(d) The Borrower's obligations under the Loan Documents remain valid
and enforceable obligations, and the execution and delivery of this Amendment
and the other documents executed in connection herewith shall not be
construed as a novation of the Agreement or any of the other Loan Documents;
and
(e) As of the date hereof, the Borrower has no offsets or defenses
against the payment of any of the Obligations.
SECTION 4. Waiver of Claims. As a specific inducement to the Lender
without which the Borrower acknowledges the Lender would not enter into this
Amendments and the other documents executed in connection herewith, the
Borrower hereby waives any and all claims that it may have against the
Lender, as of the date hereof, arising out of or relating to the Agreement or
any other Loan Document whether sounding in contract, tort or any other basis.
SECTION 5. Conditions of Effectiveness. This Amendment shall become
effective when, and only when, the Lender shall have received this Amendment
and new Note, all executed and completed by the Borrower.
SECTION 6. Waiver of Default. Upon the Lender's execution of this
Amendment and the occurrence of the conditions to the effectiveness of this
Amendment set forth in Section 5 hereof, the Lender agrees to waive the
Default under the Agreement resulting from the acquisition of STMS in
violation of Section 6.10; provided, however, that this waiver shall not
constitute a waiver of any right, power or privilege to which the Lender is
entitled under this Amendment, the Agreement or any of the other Loan
Documents as a result of any other Default or upon the occurrence of a
subsequent Default, including a Default occurring because of the continuation
of conduct by the Borrower as to which the Lender is waiving its rights as of
the date hereof.
SECTION 7. Miscellaneous.
7.1 Reference To Agreement and Note. Upon the effectiveness of this
Amendment, each reference in the Agreement to "this Agreement" and each
reference in the other Loan Documents to the Agreement, shall mean and
be a reference to the Agreement as amended hereby and each reference in
the Agreement and the other Loan Documents to the "Note" shall mean and
be a reference to the Note executed by the Borrower and delivered to
the Lender pursuant to Section 5 hereof.
7.2 Effect on Loan Documents. Except as specifically amended above,
the Agreement and all other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed. Without limiting the generality
of the foregoing, all Collateral given to secure the Obligations of the
Borrower under the Agreement and the other Loan Documents prior to the
date hereof does and shall continue to secure all Obligations of the
Borrower under the Agreement, as amended hereby and the other Loan
Documents, and, except as provided in the Agreement and the other Loan
Documents, no such Collateral shall be released until all Obligations are
satisfied and completely discharged.
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7.3 No Waiver. Except as specifically provided in Section 7 hereof,
the execution, delivery and effectiveness of this Amendment shall not
operate as a waiver of any right, power or remedy of the Lender under any
of the Loan Documents. nor constitute a waiver of any provision of any of
the Loan Documents.
7.4 Cost, Expenses and Taxes. The Borrower agrees to pay on demand all
costs and expenses of the Lender in connection with the preparation,
reproduction, execution and delivery of this Amendment and the other
instruments and documents to be delivered hereunder, including the
reasonable fees and out-of-pocket expenses of counsel for the Lender with
respect thereto.
7.5 Governing Law. This Amendment shall be governed by and construed
in accordance with the laws of the Commonwealth of Virginia, without
giving effect to conflict of law provisions.
IN WITNESS WHEREOF, the Borrower and the Lender have caused this Amendment
to be signed by their duly authorized representatives under seal all as of
the day and year first above written.
DUNN COMPUTER CORPORATION, a
Virginia corporation
By: /s/ Thomas P. Dunn
-----------------------------
Thomas P. Dunn, President
ATTEST:
/s/ Claudia N. Dunn
- -----------------------------
(Asst. Secretary)
[corporate seal]
SIGNET BANK, a Virginia banking
corporation
By:
------------------------------------
Robert L. Reed, Asst. Vice President
