<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
Commission File No. 0-23635
CONDOR TECHNOLOGY SOLUTIONS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 54-1814931
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
170 Jennifer Road, Suite 325, Annapolis, Maryland 21401
(Address of principal executive offices) (Zip Code)
(410) 266-8700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding as of
Class May 14, 1998
----- -----------------
Common Stock , $.01 par value 10,981,422
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations........................1
Pro Forma Combined Statements of Operations..................2
Consolidated Balance Sheets..................................3
Consolidated Condensed Statements of Cash Flows..............4
Notes to Consolidated Financial Statements.................5-9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.....................10-14
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK..........................................14
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS...........................................15
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ...............15-16
Item 3. DEFAULTS UPON SENIOR SECURITIES.............................16
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS..........16
Item 5. OTHER INFORMATION...........................................16
Item 6. EXHIBITS AND REPORTS ON FORM 8-K............................16
SIGNATURE.....................................................................17
EXHIBIT INDEX.................................................................18
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONDOR TECHNOLOGY SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
Three Months Ended
March 31,
----------------------
(unaudited)
<S> <C> <C>
1997 1998
------ ---------
Revenues $ - $ 25,663
Cost of revenues - 18,437
-------- ----------
Gross profit - 7,226
Selling, general and admininistrative expenses - 4,956
Intangible amortization 520
In process research and development expense - 5,000
-------- ----------
Loss from operations - (3,250)
Interest income, net - 225
Other income - 3
-------- ----------
Loss before income taxes - (3,022)
Income tax benefit - (15)
-------- ----------
Net loss $ - $ (3,007)
-------- ----------
-------- ----------
Net loss per basic
and diluted share $ - $ (0.42)
-------- ----------
-------- ----------
Basic and diluted shares
outstanding $ - 7,117
-------- ----------
-------- ----------
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Three Months Ended
March 31,
--------------------------
<S> <C> <C>
(unaudited)
1997 1998
------------ ---------
Revenues $ 33,926 $ 40,704
Cost of revenues 26,505 30,116
------------ ----------
Gross profit 7,421 10,588
Selling, general and administrative expenses 4,716 7,160
Intangible amortization 579 754
------------ ----------
Income from operations 2,126 2,674
Interest income, net 94 295
Other income 75 62
------------ ----------
Income before income taxes 2,295 3,031
Income tax provision 1,077 1,406
------------ ----------
Net income $ 1,218 $ 1,625
------------ ----------
------------ ----------
Net income per basic
and diluted share $ 0.11 $ 0.15
------------ ----------
------------ ----------
Basic and diluted shares
outstanding 10,972 10,972
------------ ----------
------------ ----------
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Historical
Pro Forma -------------------------------
December 31, December 31, March 31,
1997 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
(unaudited) (unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 35,137 $ 26 $ 11,686
Marketable securities 1,266 - 23,028
Accounts receivable, net 31,206 - 22,812
Inventory, net 1,660 - 1,063
Prepaids and other current assets 1,996 - 1,298
Deferred offering costs - 4,900 -
------------ ------------ ------------
Total current assets 71,265 4,926 59,887
PROPERTY AND EQUIPMENT, NET 1,941 - 1,964
GOODWILL AND OTHER INTANGIBLES, NET 56,558 - 63,035
OTHER ASSETS 440 - 952
------------ ------------ ------------
TOTAL ASSETS $ 130,204 $ 4,926 $ 125,838
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 17,523 $ - $ 11,685
Accrued expenses and other current liabilities 8,172 2,689 9,689
Amounts due to stockholder - 2,492 487
Deferred revenue 4,995 - 5,314
Current portion of long-term obligations 1,248 - 489
------------ ------------ ------------
Total current liabilities 31,938 5,181 27,664
LONG-TERM DEBT 81 - 593
OTHER LONG-TERM OBLIGATIONS 1,769 - 3,967
------------ ------------ ------------
Total liabilities 33,788 5,181 32,224
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized 49,000,000
shares; issued and outstanding, 1,892,307 shares
at December 31, 1997 and 10,971,822 shares at
March 31, 1998 110 19 110
Additional paid-in capital 99,053 2,441 99,487
Accumulated deficit (2,715) (2,715) (5,722)
Cumulative translation adjustment (32) - (67)
Treasury stock, at cost (13,178 shares
at March 31, 1998) - - (194)
------------ ------------ ------------
Total stockholders' equity 96,416 (255) 93,614
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 130,204 $ 4,926 $ 125,838
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
CONDOR TECHNOLOGY SOLUTION, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1997 1998
------------ -----------
<S> <C> <C>
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ - $ (3,007)
Adjustments to reconcile net loss to net cash used in
operating activities:
Research and development charge 5,000
Depreciation and amortization - 746
Deferred income taxes - (1,032)
Changes in assets and liabilities 1,054
------------ ------------
Net cash provided by operating activities - 2,761
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - (219)
Purchase of short term investments (21,822)
Purchase of Founding Companies, net of cash acquired - (40,823)
------------ ------------
Net cash used in investing activities - (62,864)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long term debt - (1,174)
Proceeds from initial public offering - 73,131
Purchase of treasury shares - (194)
------------ ------------
Net cash provided by financing activities - 71,763
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS - 11,660
CASH AND CASH EQUIVALENTS, BEGINNING
PERIOD - 26
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ - $ 11,686
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
---------------------
Condor Technology Solutions, Inc., a Delaware corporation ("Condor" or the
"Company"), was founded in August 1996 to create a leading single-source
Information Technology ("IT") service company to provide strategic IT
business solutions to middle market organizations. In order to become a
single-source provider of a wide range of IT services and solutions, Condor
entered into agreements (the "Mergers") to acquire all of the common stock
of eight established IT service providers (the "Founding Companies") and
concurrently completed an initial public offering (the "Offering") of its
common stock (the "Common Stock"). On February 5, 1998 and February 10,
1998, respectively, the Offering and the Mergers were completed.
For financial statement purposes, Condor has been identified as the
accounting acquiror. Accordingly, the historical financial statements as of
December 31, 1997 represent those of Condor prior to the Offering and the
Mergers. The Mergers were accounted for using the purchase method of
accounting.
The unaudited pro forma financial information for the three months ended
March 31, 1998 and 1997 includes the results of Condor combined with the
Founding Companies as if the Mergers had occurred on January 1 of each
respective period. The pro form presentaion and discussion should be read
in conjunction with the Unaudited Pro Forma Combined Financial Statements
and related Notes thereto appearing in "Item 8. Financial Statements and
Supplementary Data" of the Company's Annual Report on Form 10-K. This pro
forma combined financial information includes the effects of (a) the
Mergers; (b) the Offering; (c) certain reductions in salaries, bonuses and
benefits to the stockholders and managers of the Founding Companies to
which they have agreed prospectively in the amount of approximately $4.0
million; (d) amortization of goodwill and internally developed software
acquired as a result of the Mergers of approximately $193,000;
(e) the incremental provision for federal and state income taxes assuming
all entities were subject to federal and state income taxes, and federal
and state income taxes relating to the other statement of operations'
adjustments in the amount of approximately $1.4 million; (f) the
elimination of a $5.0 million non-recurring charge for purchased research
and development related to the purchase of one of the Founding Companies;
and (g) the elimination of $1.0 million tax benefit in the first quarter
of 1998 related to the reduction of a deferred tax valuation allowance
that had been recorded prior to the Mergers and IPO.
The pro forma financial information may not be comparable to and may not be
indicative of the Company's post-Merger results of operations because the
Founding Companies were not under common control or management and had
different tax and capital structures during the periods presented.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial reporting and Securities and Exchange Commission ("SEC")
regulations. Certain information and footnote disclosures normally included
in the financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. In the opinion of management, the financial statements
reflect all adjustments (of normal and recurring nature) which are
necessary to present fairly the financial position, results of operations
and cash flows for the interim periods. The results for the three months
ended March 31, 1998 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1998.
The financial statements should be read in conjunction with the Company's
audited consolidated financial statements included in the Company's most
recently filed Form 10-K.
5
<PAGE>
(2) Summary of Significant Accounting Policies
------------------------------------------
For a description of the Company's accounting policies, refer to the Notes
to the Financial Statements of the Company and each of the Founding
Companies included in the Company's most recently filed Form 10-K. The
following additions to the accounting policies of the Company during the
periods presented are:
Marketable Securities
Management determines the appropriate classification of its investments in
marketable securities at the time of purchase and reevaluates such
determination at each balance sheet date. The Company has considered all
marketable securities as available for sale and has recorded them at fair
value, with unrealized gains and losses, net of tax, reported as a separate
component of shareholders' equity. Net realized gains and losses are
determined on a specific identification cost basis.
Reclassifications
Certain prior period amounts have been reclassified to conform with the
current year presentation.
(3) Capital Stock
-------------
On February 5, 1998, the Company sold 5,900,000 shares of Common Stock to
the public at $13.00 per share ("the Offering"). The net proceeds to the
Company from the Offering (after deducting underwriting commissions) were
$71.3 million. Of this amount, $47.1 million was used to pay the cash
portion of the purchase prices of the Founding Companies.
In connection with the Offering, the Company granted to the underwriters an
option to purchase an additional 885,000 shares at $13.00 per share. On
March 1, 1998, the underwriters exercised this option. The net proceeds to
the Company from this sale of shares was $10.7 million after deducting
underwriting commissions.
(4) Earnings Per Share
------------------
Historical earnings per share has been calculated and presented in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
128 "Earnings Per Share", which requires the Company to compute and present
basic and diluted earnings per share. Dilutive securities are excluded from
the computation in periods which they have an anti-dilutive effect.
The computation of pro forma net income per share for the three months
ended March 31, 1998 and 1997 is based on 10,971,822 shares of Common Stock
outstanding, which includes all of the shares outstanding at March 31,
1998.
6
<PAGE>
(5) Income Taxes
------------
The tax benefit included in the historical statement of operations includes
a $1.0 million benefit related to the reduction of a deferred tax valuation
allowance that had been recorded prior to the Company's February 1998
Mergers and Offering.
The provision for income taxes included in the pro forma statements of
operations for the three months ended March 31, 1998 and 1997 is an
estimate of the federal and state taxes that would have been applicable to
the Company had the Mergers occurred at the beginning of each respective
period. The tax rates indicated by these provisions differ from statutory
federal and state rates primarily because the majority of the goodwill and
other intangible amortization related to the Mergers is not deductible for
tax purposes.
(6) Commitments and Contingencies
-----------------------------
Lawsuit
In the course of Condor's consolidation efforts, SCM LLC d/b/a The
Commonwealth Group ("Commonwealth"), and Condor negotiated with Emtec,
Inc. ("Emtec"), an IT service company based in Pennsylvania, with a view
to Emtec becoming one of the Founding Companies. As part of the process,
Emtec's investment banker and the promoter of the Offering, Commonwealth,
executed two confidentiality agreements pursuant to which each agreed,
among other things, not to disclose certain confidential information and
Commonwealth agreed that it would not seek to enter into a business
transaction with any companies to be introduced to it by Emtec's
investment banker for a period of two years without such investment
banker's prior written consent. On October 18, 1997, Emtec filed a
Complaint in the United States District Court for the Eastern District of
Pennsylvania against Condor, Commonwealth, J. Marshall Coleman, a
Managing Director of Commonwealth and the former Chairman of the Board of
Condor, and Kennard F. Hill, the Company's Chairman of the Board and
Chief Executive Officer, alleging breach of contract, tortious
interference with Emtec's business relationship with Corporate Access,
Inc. and Computer Hardware Maintenance Company, Inc. ("CHMC"), two of the
Founding Companies, and misappropriation of a trade secret arising out of
the participation of CHMC and Corporate Access in the consolidation and
the Offering without Emtec's written consent. In connection with the
three causes of action, Emtec seeks an injunction restraining Condor and
Commonwealth from engaging in any business transaction with CHMC or
Corporate Access through May 13, 1999, demands that the defendants
disgorge the financial benefits that they have and will obtain as a
result of their breach of contract and seeks compensatory and punitive
damages. On December 31, 1997, the defendants filed an Answer, denying
the allegations and asserting various affirmative defenses. Pre-trial
discovery proceedings have almost concluded, and the case is scheduled to
be ready for trial on or after June 1, 1998. Condor believes that Emtec's
allegations are without merit and that, in any event, the ultimate
resolution of this action will not have a material adverse effect on the
Company's results of operations, financial positions, or cash flows. The
Company has agreed to indemnify CHMC's directors, officers and
stockholders against any liability such persons may incur as a result of
any claims brought by Emtec against any of them that directly related to
CHMC's participation as a Founding Company. Commonwealth has agreed to
indemnify the Company with regard to any final judgment or settlement
arising out of the above action or any similar action. Commonwealth's
obligations under such agreement have been guaranteed by the three
members of Commonwealth.
7
<PAGE>
(7) Comprehensive Income
--------------------
Effective January 1, 1998, Condor adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement establishes the standards for
reporting and displaying comprehensive income and its components in a full
set of general purpose financial statements. The Company will include the
required disclosure of SFAS No. 130 in the Statement of Changes in
Stockholders' Equity (Deficit). Comprehensive income includes net income
and several other items that are recognized directly in reinvested earnings
under current accounting standards.
Comprehensive income for the three months ended March 31, 1998 is detailed
as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Net Loss......................................................$(3,007)
Foreign currency translation adjustments...................... (35)
Unrealized gains on marketable securities..................... 1
--------
Comprehensive Income..........................................$(3,041)
=======
</TABLE>
(8) Supplemental Cash Flow Information
----------------------------------
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------
1997 1998
------ ------
<S> <C> <C>
(in thousands)
Cash Paid during the year for:
Income tax payments $ - $ 347
Interest payments - 29
Supplmental disclosure of non-cash
transactions:
Liability incurred for technology license $ - $ 3,100
Business acquisitions:
Cash paid for business acquisitions $ - $47,100
Less cash acquired - (6,277)
------- ----------
Cash paid for business acquisitions, net - 40,823
Less cash acquired - -
Issuance of common stock for business
acquisition - 24,000
------- ----------
- 64,823
Fair value of net assets acquired, net
of cash - (653)
------- ----------
Excess of fair value over net
assets acquired $ - $65,476
------- ----------
------- ----------
</TABLE>
The excess of fair value over net assets acquired of $65.5 million
includes goodwill, internally developed software and in process research
and development acquired in conjunction with the Mergers.
8
<PAGE>
(9) Subsequent Events
-----------------
Credit Facilities
In April 1998, the Company obtained a $35.0 million revolving credit
facility (the "Revolver") from a major commercial bank. The Revolver
includes a letter of credit facility of up to $15.0 million, of which $6.0
million is currently issued and outstanding to secure a floor planning
facility with a separate bank. Borrowings under the Revolver bear interest
beginning at the London Interbank Offering Rate plus 150 basis points or
Prime Rate, at the option of the Company. The borrower is also required to
pay a commitment fee at the annual percentage rate ranging from .25% to
.50% as defined in the agreement. The Company must comply with various loan
covenants including (i) maintenance of certain financial ratios; (ii)
restrictions on additional indebtedness; (iii) restrictions on liens,
guarantees, advances and dividends; and (iv) restrictions on the type, size
and number of acquisitions. The Revolver, which expires in April 2001, is
intended to be used for acquisitions, working capital and general corporate
purposes
Also in April 1998, the Company obtained a $13.0 million floor planning
facility to support the working capital needs of the companies in its
desktop services division. This facility is secured by a $6.0 million
letter of credit issued under the Revolver and certain of the assets of the
desktop service division. The floor planning facility requires the Company
to comply with various loan covenants identical to those required under the
Revolver. The agreement expires in April 2001.
Indebtedness under both the Revolver and the floor planning facility are
collateralized by substantially all of the assets of Condor and its
subsidiaries.
Sublease Agreement
In May 1998, the Company entered into a five year sublease agreement for
the office space that it vacated in April 1998. Under the terms of the
sublease, the annual rent obligation of the sublessor is equal to the
annual rent obligation of Condor. The sublease is guaranteed by a lease
bond equal to one year's rent.
DST Acquisition
In May 1998, the Company acquired all of the stock of Decision Support
Technology, Inc., a Boston area systems integrator focusing on decision
support and data-warehousing systems. The acquisition is not expected to
have a material effect on the Company's financial position, operations or
cash flows.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion is qualified in its entirety by reference to and
should be read in conjunction the Annual Report on Form 10-K of the
Company for its fiscal year ended December 31, 1997 (the "Form 10-K"). A
number of statements in this Quarterly Report on Form 10-Q address
activities, events or developments which the Company anticipates may occur
in the future, including such matters as the Company's strategy for
internal growth, additional capital expenditures (including the amount and
nature thereof), acquisitions of assets and businesses, industry trends
and other such matters. For a discussion of important factors which could
cause actual results to differ materially from the forward-looking
statements see "Special Note Regarding Forward Looking Statements."
Introduction
Condor was established to create a leading provider of a wide range of IT
services and solutions to middle market organizations. The Company
provides a single source for a broad range of IT services, including
strategic planning and management consulting; strategic marketing
communications; development, integration and installation of IT systems;
contract staffing and recruiting; training and continuing education;
desktop systems maintenance and support; and procurement. Condor was
formed in August 1996 and conducted no operations prior to the Offering.
The Company earns revenues from the provision of consulting services,
system services and desktop services. On a pro forma basis, the Company
has generated a significant portion of its revenues through the resale of
third-party hardware and software as part of its desktop services. The
Company's management believes, however, that consulting and system
services will generate an increasing percentage of its revenues. Revenues
from certain desktop services, such as the procurement and provision of
computer hardware and software, are recognized upon shipment or acceptance
of the equipment. The Company recognizes consulting and system service
revenues using formulas based on time and materials, whereby revenues are
recognized as costs are incurred at agreed-upon billing rates. In certain
instances, the Company undertakes projects billed on a fixed-price basis,
whereby revenues are recognized ratably over the term of the contract. To
date, the use of fixed-price contracts for consulting engagements has not
been significant. Revenues on long-term service contracts are recognized
ratably over the term of the contract. Revenues from license fees are
generated from sales to both end-users and resellers and are recognized
when a non-cancelable license agreement has been signed, the product has
been delivered, collection is probable and all significant obligations
relating to the license have been satisfied. There are no significant
post-sales support obligations related to the Founding Companies revenues.
Advance payments on certain service contracts are recorded as deferred
revenues and are recognized ratably, together with the related costs and
expenses, over the life of the contract.
Cost of revenues includes the provision of services and material directly
related to the revenues, costs of acquisition of hardware and software
resold to clients, subcontracted labor or other outside services and other
direct costs associated with revenues, as well as an allocation of certain
indirect costs.
Selling, general and administrative costs include salaries, benefits,
commissions payable to the Company's sales and marketing personnel,
finance and other general and administrative costs.
10
<PAGE>
Unaudited Pro Forma Combined Results of Operations
The pro forma combined results of operation of the Founding Companies for
the periods presented below do not represent combined results of
operations presented in accordance with generally accepted accounting
principles, but are only a summation of the revenues, operating expenses
and general and administrative expenses of the individual Founding
Companies on a pro forma basis. The pro forma combined results may not be
comparable to, and may not be indicative of, the Company's
post-combination results of operations because (i) the Founding Companies
were not under common control or management during the periods presented;
(ii) the Company will incur incremental costs related to its new corporate
management and the costs of being a public company; and (iii) the combined
data do not reflect potential benefits and cost savings the Company
expects to realize when operating as a combined entity. The following
discussion should be read in conjunction with the Unaudited Pro Forma
Combined Financial Statements and the related Notes thereto and the
Founding Companies' Historical Financial Statements and the related Notes
thereto appearing in "Item 8. Financial Statements and Supplementary Data"
of the Form 10-K.
The following table sets forth the unaudited combined results of
operations of the Founding Companies on a pro forma basis and as a
percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
----------------- ----------------
(in thousands, except percentages)
<S> <C> <C> <C> <C>
Revenues......................................... $40,704 100.0% $33,926 100.0%
Cost of revenues................................. 30,116 74.0 26,505 78.1
------- ------ ------- ------
Gross profit..................................... 10,588 26.0 7,421 21.9
Selling, general and administrative expenses..... 7,160 17.6 4,716 13.9
Intangible amortization.......................... 754 1.9 579 1.7
------- ------ ------- ------
Income from operations........................... $ 2,674 6.6% $ 2,126 6.3%
------- ------ ------- ------
------- ------ ------- ------
</TABLE>
Unaudited Pro Forma Combined Results for the three months ended March 31,
1998 as compared to the three months ended March 31, 1997
Revenues. Pro forma revenue increased $6.8 million or 20.0%, from $33.9
million for the three months ended March 31, 1997 to $40.7 million for the
three months ended March 31, 1998. This increase is attributable to growth
in revenues of approximately $4.6 million from the systems services
division and approximately $2.1 million from the desktop services
division.
The system services revenue growth was primarily attributable to a
significant new contract, an increase in other service revenues within
the Founding Companies, and an increase in sales of the Company's
Safari Infotools software products.
The desktop services division's revenue growth was primarily attributable
to increased service revenues from the Company's help-desk and other
service offerings.
Cost of revenues. Pro forma cost of revenues increased $3.6 million, or
13.6%, from $26.5 million for the three months ended March 31, 1997 to
$30.1 million for the three months ended March 31, 1998. This increase was
primarily attributable to the revenue growth discussed above. Cost of
revenues as a percentage of revenues decreased from 78.1% of revenues for
the three months ended March 31, 1997 to 74.0% of revenues for the three
months ended March 31, 1998. This decrease was primarily attributable to
the shift in revenue mix toward a higher percentage of service revenues as
compared to procurement revenues which decreased from 65% of total
revenues for the three months ended March 31, 1997 to 57% of total
revenues for the three months ended March 31, 1998.
11
<PAGE>
Selling, general and administrative expenses. Pro forma selling, general
and administrative expenses increased $2.5 million, from $4.7 million to
$7.2 million for the three months ended March 31, 1997 and 1998,
respectively. The increase is attributable to the hiring of additional
sales and marketing staff and administrative personnel at each of the
Founding Companies, start up costs associated with a new
contract, the move of the Company's corporate headquarters, and corporate
costs not incurred prior to the Mergers. Selling, general, and
administrative expenses increased from 13.9% of revenues to 17.6% of
revenues for the three months ended March 31, 1997 and March 31, 1998,
respectively. This increase resulted from the additional general and
administrative costs associated with opening a corporate headquarters
while retaining the decentralized operational and administrative
structures at each of the Founding Companies.
Intangible amortization. Intangible amortization increased $175,000 from
$579,000 for the three months ended March 31, 1997 to $754,000 for the
three months ended March 31, 1998. The increase is associated with the
technology license recorded in connection with a new contract during the
first quarter of 1998 and an increase in the goodwill associated with the
acquisition of the Founding Companies due to purchase price adjustments.
Historical Results of Operations
Condor Technology Solutions, Inc. was formed in August 1996 in order to
create a leading single-source IT service company to provide strategic IT
business solutions to middle market organizations. In order to become a
single-source provider of a wide range of IT services and solutions,
Condor acquired all of the common stock of the eight Founding Companies.
During 1996 and 1997, Condor did not conduct any significant operations.
Financial statement audits of the Founding Companies have been completed
through January 31, 1998. As there were no significant transactions from
February 1, 1998 to the February 10, 1998 closing of the Mergers, January
31, 1998 is considered to represent the pre-merger closing balance sheet.
Upon consummation of the Mergers, all of the individual Founding Companies
on a fiscal year financial reporting basis converted to a calendar year
financial reporting basis. In addition, all individual Founding Companies
are now included in the consolidated tax return of Condor and have,
therefore, converted their tax status to be taxed under subchapter C of
the Internal Revenue Code of 1986, as amended.
On February 1, 1998 (the date of post-Merger balance sheet), Condor began
reporting on a consolidated basis. For the year ended December 31, 1998,
Condor will report consolidated operating results of the Founding
Companies for eleven months. Similarly, Condor's consolidated 1998 first
quarter results include only February and March 1998 operations and cash
flows for the Founding Companies.
12
<PAGE>
The following table sets forth certain selected financial data for the
Company on a historical basis and as a percentage of revenues for the
periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998
-----------------------
(in thousands, except percentages)
<S> <C> <C>
Revenues.................................................... $ 25,663 100.0%
Cost of revenues............................................ 18,437 71.8
-------- ------
Gross profit................................................ 7,226 28.2
Selling, general and administrative expenses................ 4,956 19.3
Intangible amortization..................................... 520 2.0
In process research and development......................... 5,000 19.5
-------- ------
Income from operations...................................... $ (3,250) -12.7%
-------- ------
-------- ------
</TABLE>
Revenues. For the three months ended March 31, 1998, the Company's
revenues include the revenues of the Founding Companies for February and
March. Revenues from the Federal government accounted for approximately
25% of total revenues. No single customer accounts for more than 10% of
the Company's consolidated revenues
Cost of Revenues. Cost of revenues was $18.4 million, or 71.8% of
sales for the three months ended March 31, 1998. The Company generates
higher gross margins from its systems and consulting services businesses
while the procurement component of its desktop service business generates
its lowest margins. Revenues from procurement sales for the quarter were
approximately 57% of total revenues.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $5.0 million which consist of salaries,
benefits, commissions payable to the Company's sales and marketing
personnel, finance and other general and administrative costs.
Intangible Amortization. Intangible amortization includes the
amortization of goodwill from the purchase of the Company's subsidiaries,
internally developed software costs, and the technology license recorded
in connection with a new contract.
Liquidity and Capital Resources
Condor is a holding company that conducts its operations through its
subsidiaries. Accordingly, Condor's principal sources of liquidity are
the cash flows of its subsidiaries, cash available from its credit
facilities obtained in April 1998, and the unallocated net proceeds
of the Offering. At March 31, 1998 the Company had $11.7 million
in cash and cash equivalents, $23.0 million in marketable securities, and
$1.1 million of indebtedness outstanding, which consists primarily of
capital lease obligations.
Net cash provided by operating activities was $2.8 million for the three
months ended March 31, 1998 and net cash used in investing activities was
$62.9 million for the three months ended March 31, 1998. Net cash used in
investing activities included $40.8 million, net of cash acquired, for the
acquisition of the Founding Companies and $21.8 million used to purchase
short term investments.
Net cash provided by financing activities was $71.8 million for the three
months ended March 31, 1998 consisting of $73.1 million from the Company's
Offering, offset by the payment of costs associated with the Offering,
repayment of notes payable, and purchase of shares from a stockholder.
13
<PAGE>
The Company intends to continue to pursue acquisition opportunities. The
timing, size or success of any acquisition effort and the associated
potential capital commitments are unpredictable. The Company expects to
fund future acquisitions primarily through a combination of a portion of
the unallocated net proceeds of the Offering, cash flow from operations
and borrowings, including borrowings under the Revolver, as well as
issuances of additional shares of Common Stock.
The Company believes that its cash flow from operations, borrowings under
its credit facilities and the unallocated net proceeds of the Offering
will be sufficient to fund its cash flow requirements for at least the
next 12 months. To the extent that the Company is successful in
consummating acquisitions, it may be necessary to finance such
acquisitions through the issuance of additional equity securities,
incurrence of indebtedness or both.
Year 2000
The Company has assessed the impact of the Year 2000 on its financial
and management information system software, and has determined that any
modification to the software will not have a material impact on the
Company, its results of operations, financial position or cash flows.
Special Note Regarding Forward Looking Statements
Statements in this Form 10-Q based on current expectations that are not
strictly historical statements, such as the Company's or management's
intentions, hopes, beliefs, expectations, strategies, or predictions, are
forward-looking statements. Such statements, or any other variation
thereof regarding the Company's future activities or other future events
or conditions within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934, as amended, are
intended to be covered by the safe harbors for forward -looking statements
created thereby. Investors are cautioned that all forward-looking
statements involve risks and uncertainty, including without limitation,
the sufficiency of the Company's working capital and the ability of the
Company to realize benefits from consolidating certain general and
administrative functions, to pursue strategic acquisitions and alliances,
to retain management and to implement its focused business strategy, to
leverage consulting services, secure full-service contracts, to expand
client relationships, successfully recruit, train and retain personnel,
expand services and geographic reach and successfully defend itself in
ongoing and future litigation. These factors are discussed more fully in
the Form 10-K, including the discussions under "Business-Risk Factors".
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the course of Condor's consolidation efforts, SCM LLC d/b/a The
Commonwealth Group ("Commonwealth"), and Condor negotiated with
Emtec, Inc. ("Emtec"), an IT service company based in
Pennsylvania, with a view to Emtec becoming one of the Founding
Companies. As part of the process, Emtec's investment banker and
the promoter of the Offering, Commonwealth, executed two
confidentiality agreements pursuant to which each agreed, among
other things, not to disclose certain confidential information
and Commonwealth agreed that it would not seek to enter into a
business transaction with any companies to be introduced to it by
Emtec's investment banker for a period of two years without such
investment banker's prior written consent. On October 18, 1997,
Emtec filed a Complaint in the United States District Court for
the Eastern District of Pennsylvania against Condor, Commonwealth,
J. Marshall Coleman, a Managing Director of Commonwealth and the
former Chairman of the Board of Condor, and Kennard F. Hill, the
Company's Chairman of the Board and Chief Executive Officer,
alleging breach of contract, tortious interference with Emtec's
business relationship with Corporate Access, Inc. and Computer
Hardware Maintenance Company, Inc. ("CHMC"), two of the Founding
Companies, and misappropriation of a trade secret arising out of
the participation of CHMC and Corporate Access in the
consolidation and the Offering without Emtec's written consent. In
connection with the three causes of action, Emtec seeks an
injunction restraining Condor and Commonwealth from engaging in
any business transaction with CHMC or Corporate Access through May
13, 1999, demands that the defendants disgorge the financial
benefits that they have and will obtain as a result of their
breach of contract and seeks compensatory and punitive damages. On
December 31, 1997, the defendants filed an Answer, denying the
allegations and asserting various affirmative defenses. Pre-trial
discovery proceedings have almost concluded, and the case is
scheduled to be ready for trial on or after June 1, 1998. Condor
believes that Emtec's allegations are without merit and that, in
any event, the ultimate resolution of this action will not have a
material adverse effect on the Company's results of operations,
financial positions, or cash flows. The Company has agreed to
indemnify CHMC's directors, officers and stockholders against any
liability such persons may incur as a result of any claims brought
by Emtec against any of them that directly related to CHMC's
participation as a Founding Company. Commonwealth has agreed to
indemnify the Company with regard to any final judgment or
settlement arising out of the above action or any similar action.
Commonwealth's obligations under such agreement have been
guaranteed by the three members of Commonwealth.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with the Offering, the Company's Registration
Statement on Form S-1 (Registration No. 333-37179) was declared
effective on February 5, 1998. The managing underwriters were
Volpe Brown Whelan & Company LLC, Furman Selz LLC and Wheat First
Union, a division of Wheat First Securities, Inc. The Offering
commenced on February 5, 1998, all securities offered thereby were
sold and the Offering has terminated. The securities registered
consisted of 6,785,000 shares (the "Offered Shares") of Common
Stock, all of which were sold for the account of the Company.
The Offered Shares were sold at a price to the public of $13.00
per share, for aggregate gross proceeds of approximately $88.2
million. The total expenses incurred in connection with the
Offering, including underwriting discounts and commissions, are
estimated to be approximately $15.1 million, resulting in net
Offering proceeds of approximately $73.1 million. Such expenses
include approximately $2.5 million in funds advanced by a member
of Commonwealth .
15
<PAGE>
As of April 30, 1998, the net proceeds have been used as follows:
(a) $47.4 million to pay the cash portion of the purchase price
for the Founding Companies and S corporation distributions, of
which approximately $9.8 million was paid directly to Mr. C.
Lawrence Meador, an officer, director and holder of more than 5%
of the Common Stock of the Company; (b) approximately $1.8 million
for repayment of indebtedness; (c) approximately $20.4 million for
temporary investments; and (d) approximately $3.5 million for
working capital purposes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the first quarter of the year ended December 31, 1998, no
matters were submitted to a vote of the Company's security
holders.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (see index on page 18)
(b) Reports on Form 8-K
Not applicable.
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONDOR TECHNOLOGY SOLUTIONS, INC.
Date /s/ May 15, 1998 By: /s/ Kennard F. Hill
---------------- ----------------------------
Kennard F. Hill
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
Date /s/ May 15, 1998 By: /s/ William J. Caragol, Jr.
---------------- -----------------------------
William J. Caragol, Jr.
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
17
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
10.1 Business Loan and Security Agreement between the Company and First Union Commercial Corporation and
related Stock Purchase Agreeement and Revolving Promissory Note
10.2 Agreement for Wholesale Financing between Deutsche Financial Services Corporation and Computer
Hardware Maintenance Company, Inc., Corporate Access, Inc, and U.S. Communications, Inc. and related
Guaranty and Addendum to Guaranty and Agreement for Wholesale Financing.
11 Statement re: computation of earnings per share
27 Financial Data Schedule for the three months ended March 31, 1998
</TABLE>
18
<PAGE>
Exhibit 10.1
BUSINESS LOAN AND SECURITY AGREEMENT
dated April 15, 1998
by and among
FIRST UNION COMMERCIAL CORPORATION,
a North Carolina corporation, as Lender,
and
CONDOR TECHNOLOGY SOLUTIONS, INC.,
a Delaware corporation, and its subsidiaries, as Borrowers
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C> <C>
CERTAIN DEFINITIONS...............................................................
ARTICLE I - COMMITMENT........................................................
1. Maximum Loan Amount...................................................
2. Use of Proceeds.......................................................
3. Intentionally Omitted.................................................
4. Advances..............................................................
5. Mandatory Payments; Reduction of Commitment...........................
6. Field Audits..........................................................
7. Certain Fees..........................................................
8. Intentionally Omitted.................................................
9. Appointment of the Parent Company.....................................
10. Joinder of New Subsidiaries and Affiliates............................
ARTICLE II - LETTERS OF CREDIT................................................
ARTICLE III - SECURITY........................................................
1. Security Generally....................................................
2. Stock Security Agreement..............................................
3. No Preference or Priority.............................................
ARTICLE IV - CONDITIONS TO THE LENDER'S OBLIGATIONS...........................
1. Satisfaction of Commitment Letter Conditions; Compliance
with Agreements.......................................................
2. Financial Condition...................................................
3. Opinion of Counsel....................................................
4. No Default............................................................
5. Documentation.........................................................
6. Closing Costs and Expenses............................................
ARTICLE V - REPRESENTATIONS AND WARRANTIES....................................
1. Corporate Existence and Qualification.................................
2. Corporate Authority; Noncontravention.................................
3. Financial Position....................................................
4. Payment of Taxes......................................................
5. Accuracy of Submitted Information; Omissions..........................
6. Government Contracts..................................................
i
<PAGE>
7. No Defaults or Liabilities............................................
8. No Violations of Law..................................................
9. Litigation and Proceedings............................................
10. Security Interest in the Collateral...................................
11. Principal Place of Business; Location of Books and Records............
12. Fiscal Year...........................................................
13. Pension Plans.........................................................
14. O.S.H.A. and Environmental Compliance.................................
15. Intellectual Property.................................................
16. Existing or Pending Defaults; Material Contracts......................
17. Leases and Real Property..............................................
18. Labor Relations.......................................................
19. Assignment of Government Contracts....................................
20. Intentionally Omitted.................................................
21. Subsidiaries..........................................................
22. Ownership of the Borrowers............................................
23. Solvency..............................................................
24. Survival of Representations and Warranties............................
ARTICLE VI - AFFIRMATIVE COVENANTS OF THE BORROWER............................
1. Payment of Loan Obligations...........................................
2. Payment of Taxes......................................................
3. Delivery of Financial and Other Statements............................
4. Maintenance of Records; Review by the Lender..........................
5. Maintenance of Insurance Coverage.....................................
6. Maintenance of Property/Collateral; Performance of Contracts..........
7. Maintenance of Corporate Existence....................................
8. Maintenance of Certain Accounts with Lender...........................
9. Maintenance of Management.............................................
10. Disclosure of Defaults, Etc...........................................
11. Security Perfection; Assignment of Claims Act; Payment of Costs.......
12. Defense of Title to Collateral........................................
13. Compliance with Law...................................................
14. Further Assurances; Additional Requested Information..................
15. Financial Covenants of the Borrowers..................................
16. Additional Financial Arrangements.....................................
ii
<PAGE>
17. Landlord Waivers; Subordination.......................................
18. Substitute Notes......................................................
ARTICLE VII - NEGATIVE COVENANTS OF THE BORROWER..............................
1. Change of Control; Disposition of Assets; Acquisition and Merger......
2. Margin Stock..........................................................
3. Change of Operations..................................................
4. Judgments; Attachments................................................
5. Further Assignments; Performance and Modification of Contracts; etc...
6. Affect Rights of the Lender...........................................
7. Indebtedness; Granting of Security Interests..........................
8. Dividends; Loans; Advances; Investments and Similar Events............
9. Lease Obligations.....................................................
10. Intentionally Omitted.................................................
11. Fiscal Year and Accounting Changes....................................
12. Lockbox Deposits......................................................
ARTICLE VIII - COLLATERAL ACCOUNT.............................................
ARTICLE IX - DEFAULT AND REMEDIES.............................................
1. Events of Default.....................................................
2. Remedies..............................................................
ARTICLE X - INTENTIONALLY OMITTED.............................................
ARTICLE XI - CERTAIN ADDITIONAL RIGHTS AND OBLIGATIONS
REGARDING THE COLLATERAL..........................................
1. Power of Attorney.....................................................
2. Lockbox...............................................................
3. Other Agreements......................................................
ARTICLE XII - MISCELLANEOUS...................................................
1. Remedies Cumulative...................................................
2. Waiver................................................................
3. Notices...............................................................
4. Entire Agreement......................................................
5. Relationship of the Parties...........................................
6. Waiver of Jury Trial..................................................
7. Submission to Jurisdiction; Service of Process; Venue.................
8. Changes in Capital Requirements.......................................
9. Captions..............................................................
iii
<PAGE>
10. Modification and Waiver...............................................
11. Transferability.......................................................
12. Governing Law; Binding Effect.........................................
13. Gender; Number........................................................
14. Joint and Several Liability...........................................
15. Materiality...........................................................
16. Confidentiality.......................................................
- ----------------------------------------------------------------------------------
</TABLE>
EXHIBIT 1 - Request for Advance and Certification
EXHIBIT 2 - LIBOR Election Procedure and Requirements
EXHIBIT 3 - LIBOR Election Form and Certification
EXHIBIT 4 - Joinder Agreement
EXHIBIT 5 - Quarterly Covenant Compliance/Non-Default Certificate Form
EXHIBIT 6 - List of Financial Statements
SCHEDULE 1 - Government Contracts
SCHEDULE 2 - Litigation and Proceedings
SCHEDULE 3 - Principal Offices
SCHEDULE 4 - Business Locations
SCHEDULE 5 - Intellectual Property
SCHEDULE 6 - Royalties for Intellectual Property
SCHEDULE 7 - Material Contracts
SCHEDULE 8 - Material Contract Disputes, Litigation and Proceedings
SCHEDULE 9 - Collective Bargaining Agreements, Employment Agreements and
Professional Service Contracts
SCHEDULE 10 - Subsidiaries
SCHEDULE 11 - Existing Liens
* Exhibits and Schedules have been omitted
iv
<PAGE>
BUSINESS LOAN AND SECURITY AGREEMENT
THIS BUSINESS LOAN AND SECURITY AGREEMENT is executed as of
the 15th day of April, 1998 and is by and among (i) FIRST UNION COMMERCIAL
CORPORATION, a North Carolina corporation, having offices at 1970 Chain
Bridge Road, 5th Floor, McLean, Virginia 22102; (ii) CONDOR TECHNOLOGY
SOLUTIONS, INC., a Delaware corporation; MANAGEMENT SUPPORT TECHNOLOGY CORP.,
a Delaware corporation, COMPUTER HARDWARE MAINTENANCE COMPANY, INC., a
Pennsylvania corporation, FEDERAL COMPUTER CORPORATION, a Virginia
corporation, CORPORATE ACCESS, INC., a Massachusetts corporation, INTERACTIVE
SOFTWARE SYSTEMS INCORPORATED, a Colorado corporation, U.S. COMMUNICATIONS,
INC., a Maryland corporation, INVENTURE GROUP, INC., a Pennsylvania
corporation, and MIS TECHNOLOGIES, INC., an Oklahoma corporation, all such
corporations having principal offices at the locations set forth on Schedule
3 hereto; and (iii) each other person or entity hereafter executing a
"Joinder Agreement" pursuant to this Agreement.
W I T N E S S E T H T H A T:
In consideration of the mutual covenants and agreements herein
contained, Ten Dollars ($10.00) and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree, represent and warrant as follows:
CERTAIN DEFINITIONS
For the purposes of this Business Loan and Security Agreement,
the terms set forth below shall have the following definitions:
"Acquired Entities" shall mean the entities to be acquired by the
Parent Company at Closing.
"Agreement" or "Loan Agreement" shall mean this Business Loan and
Security Agreement.
"Applicable Interest Rate" shall mean either (i) LIBOR or (ii)
Base Rate, as set forth in the Note.
"Applicable Laws" shall mean any federal, state or local law,
ordinance, rule or regulation to which any Borrower or the property of any
Borrower is subject, whether domestic or international.
<PAGE>
"Base Rate" shall mean the higher of the (i) Federal Funds Rate
plus one-half of one percent (.50%) or (ii) Prime Rate.
"Borrower" or "Borrowers" shall mean each and all of the
following entities: Condor Technology Solutions, Inc., a Delaware corporation,
Management Support Technology Corp., a Delaware corporation, Computer Hardware
Maintenance Company, Inc., a Pennsylvania corporation, Federal Computer
Corporation, a Virginia corporation, Corporate Access, Inc., a Massachusetts
corporation, Interactive Software Systems Incorporated, a Colorado corporation,
U.S. Communications, Inc., a Maryland corporation, InVenture Group, Inc., a
Pennsylvania corporation, and MIS Technologies, Inc., an Oklahoma corporation,
and each other person or entity hereafter executing a Joinder Agreement pursuant
to Section 10 of Article I of this Agreement, individually or collectively, as
the context may require.
"Business Day" shall mean any day other than a Saturday, Sunday,
or public holiday under the laws of the Commonwealth of Virginia or other day on
which banking institutions are authorized or obligated to close in the city in
which the Lender's office is located.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 9601 et
seq.).
"Closing" shall mean the settlement of the transactions
contemplated hereby.
"Closing Date" shall mean the date on which Closing occurs.
"Collateral" shall have the meaning assigned to such term in
Article III of this Agreement.
"Collateral Account" shall have the meaning assigned to such term
in Article VIII of this Agreement.
"Commercial Contract" shall mean any written contract to which
any Borrower is a party (other than a Government Contract) which gives rise or
may give rise to Receivables.
"Commitment Amount" shall mean Thirty-five Million Dollars
($35,000,000.00), or if the maximum aggregate commitment of the Lender hereunder
is reduced pursuant to the terms of this Agreement (including, without
limitation, the terms of Section 5 of Article I of this Agreement), such lesser
amount.
"Commitment Fee" shall have the meaning assigned to such term in
Section 7 of Article I of this Agreement.
2
<PAGE>
"Commitment Letter" shall mean that certain letter dated November
17, 1997 from the Lender to the Parent Company relating to the Loan.
"Consolidated Company" shall mean the Borrowers on a consolidated
basis.
"Deutsche" shall mean Deutsche Financial Services Corporation, a
Nevada corporation, together with its successors and assigns.
"Deutsche Borrowers" shall mean Corporate Access, Inc., a
Massachusetts corporation, U.S. Communications, Inc., a Maryland corporation,
and Computer Hardware Maintenance Company, Inc., a Pennsylvania corporation.
"Deutsche Financing" shall mean that certain financing provided
by Deutsche to the Deutsche Borrowers from time to time in an amount not to
exceed Fifteen Million Dollars ($15,000,000.00) for the Deutsche Borrowers'
acquisition or purchase of Floor Plan Inventory Collateral, pursuant to the
Deutsche Financing Agreement.
"DFS Financing Agreement" shall mean that certain Agreement for
Wholesale Financing dated April 15, 1998, by and between Deutsche and the
Deutsche Borrowers, pursuant to which Deutsche agreed to provide the Deutsche
Financing to the Deutsche Borrowers.
"Deutsche Floor Plan Inventory Collateral" shall mean Inventory
(as such term is defined in the applicable Uniform Commercial Code) heretofore
or hereafter purchased or acquired by the Deutsche Borrowers with the proceeds
of the Deutsche Financing, together with all cash and insurance proceeds arising
from Inventory (but not accounts receivable, cash proceeds of accounts
receivable or any other proceeds of Inventory), all substitutions,
repossessions, exchanges, replacements and returns of Inventory, .all parts
thereof, attachments, additions, accessories and accessions of Inventory, and
all price protection credits, rebates, discounts and incentive payments relating
to any of the foregoing.
"Deutsche Subordination Agreement" shall mean that certain
Intercreditor and Subordination Agreement dated April 15, 1998, by and between
Deutsche and the Lender, pursuant to which (i) the Lender subordinated its
security interest in and to the Floor Plan Inventory Collateral, to the security
interest in favor of Deutsche, (ii) and Deutsche subordinated its security
interest in and to any and all Collateral (other than Floor Plan Inventory
Collateral), to the security interest in favor of the Lender, in each case for
so long as the Deutsche Financing Agreement remains in full force and effect.
"Event of Default" shall have the meaning assigned to such term
in Section 1 of Article IX of this Agreement.
3
<PAGE>
"Facility" shall mean the revolving credit facility being
extended pursuant to this Agreement in the maximum principal amount of
Thirty-five Million Dollars ($35,000,000.00), with a sub-limit of Fifteen
Million Dollars ($15,000,000.00) for Letters of Credit.
"Federal Funds Rate" for any day shall mean the rate per annum
(rounded upward to the nearest 1/8 of 1%) determined by the Lender to be the
rate (and such rate shall be equal to or as nearly as possible equal to such
rate) per annum announced by the Federal Reserve Bank of New York (or any
successor) on such day as being the weighted average of the rates on overnight
Federal Funds transactions arranged by Federal Funds brokers on the previous
trading day, as computed and announced by such Federal Reserve Bank (or any
successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; provided that if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
"Federal Funds Effective Rate" for such day shall be the Federal Funds Rate for
the last day on which such rate was announced.
"Fixed Charge Coverage Ratio" shall have the meaning assigned to
such term in Section 15(b) of Article VI of this Agreement.
"GAAP" shall mean generally accepted accounting principles.
"Government" shall mean the United States government or any
department, instrumentality or agency thereof, and any state government or any
department, instrumentality or agency thereof.
"Government Contract Assignments" shall have the meaning assigned
to such term in Section 11 of Article VI of this Agreement.
"Government Contracts" shall mean any and all (i) written
contracts between any Borrower and the Government; and (ii) written subcontracts
between any Borrower and a prime contractor who is providing goods or services
to the Government pursuant to a written contract with the Government (the "Prime
Contract"), provided that the subcontract relates only to goods or services
being provided to the Government pursuant to the Prime Contract.
"Hazardous Substance" shall mean, without limitation, any
flammable explosives, radon, radioactive materials, asbestos, urea formaldehyde
foam insulation, polychlorinated biphenyls, petroleum and petroleum products,
methane, hazardous materials, hazardous wastes, hazardous or toxic substances,
pollutants or contaminants as defined in CERCLA, HMTA, RCRA or any other
applicable environmental law, rule, order or regulation.
4
<PAGE>
"Hazardous Wastes" shall mean, without limitation, all waste
materials subject to regulation under CERCLA, RCRA or analogous state law,
and/or any other applicable Federal and/or state law now in force or hereafter
enacted relating to hazardous waste treatment or disposal.
"HMTA" shall mean the Hazardous Materials Transportation Act, as
amended (49 U.S.C. Sections 1801 et seq.).
"IBM" shall mean IBM Credit Corporation, a Delaware corporation,
together with its successors and assigns.
"IBM Borrower" shall mean Corporate Hardware Maintenance Company,
Inc., a Pennsylvania corporation.
"IBM Financing" shall mean that certain financing provided by IBM
to the IBM Borrower from time to time in an amount not to exceed Seven Hundred
Fifty Thousand Dollars ($750,000.00) for the IBM Borrower's acquisition or
purchase of Floor Plan Inventory Collateral, pursuant to the IBM Financing
Agreement.
"IBM Financing Agreement" shall mean the Agreement for Wholesale
Financing to be entered into by and between IBM and the IBM Borrower, in form
and substance acceptable to the Lender, pursuant to which IBM agreed to provide
the IBM Financing to the IBM Borrower.
"IBM Floor Plan Inventory Collateral" shall mean Inventory (as
such term is defined in the Uniform Commercial Code in effect in the
Commonwealth of Virginia) acquired or purchased with the proceeds of the IBM
Financing.
"IBM Subordination Agreement" shall mean that certain
Subordination Agreement dated April 14, 1998, by and between IBM and the Lender,
pursuant to which IBM subordinated its security interest in and to any and all
assets of the IBM Borrower (other than the IBM Floor Plan Inventory Collateral),
whether now owned or hereafter acquired, to the security interest in favor of
the Lender, in each case for so long as the IBM Financing Agreement remains in
full force and effect.
"Interest Period" means as to any Loan proceeds for which LIBOR
based interest has been elected in accordance with this Agreement, the period
commencing on and including the date such LIBOR election is effective (or the
effective date of the election to convert any portion of the Loan to a LIBOR
interest basis in accordance with the provisions of this Agreement) and ending
on and including the day which is 30, 90 or 180 days thereafter, as available,
and as selected in accordance with the provisions of this Agreement; provided,
however, that: (i) the first day of any Interest Period shall be a Business Day;
(ii) if any Interest Period would end on a day that would not be a Business
5
<PAGE>
Day, such Interest Period shall be extended to the next succeeding Business Day;
and (iii) no Interest Period shall extend beyond the Maturity Date.
"Lender" shall mean First Union Commercial Corporation, a North
Carolina corporation.
"Letter of Credit" and "Letters of Credit" shall mean,
respectively, each and all of the standby letters of credit issued pursuant to
this Agreement.
Letter of Credit Application" shall have the meaning assigned to
term in Section 3 of Article II of this Agreement.
"Letter of Credit Fee" shall have the meaning assigned to such
term in Section 3 of Article II of this Agreement.
"LIBOR" shall mean for any Interest Period with respect to any
Loan proceeds for which a LIBOR election has been made, the per annum interest
rate (rounded upward, if necessary, to the nearest next 1/8 of 1%) quoted to the
Lender, on an immediately available funds basis, at or about 11:00 a.m. (London
time) on the date that is two (2) Business Days prior to the first day of such
Interest Period, for the offering by leading banks in the London Interbank
Eurodollar market of Dollar Deposits for a period comparable in time to the
duration of such Interest Period and in amounts comparable to the amounts for
which LIBOR is to be determined, adjusted for reserve requirements, if any. If
the Lender shall be unable or otherwise fails to so obtain the LIBOR quotes,
LIBOR shall be the average of those rates quoted on the REUTERS "LIBO" page for
a period comparable to the applicable Interest Period (rounded upward, if
necessary, to the nearest next 1/8 of 1%).
"Loan" shall mean the loans made by the Lender to the Borrowers
in the aggregate maximum principal amount of Thirty-five Million Dollars
($35,000,000.00), or so much thereof as shall be advanced or readvanced from
time to time, which are represented by the Facility, and which shall be
evidenced by, bear interest and be payable in accordance with the terms and
provisions set forth in the Note.
"Loan Document" and "Loan Documents" shall mean, respectively,
each and all of this Agreement, the Note, the Stock Security Agreement, the
Commitment Letter and each other document, instrument or certificate now or
hereafter executed and/or delivered by any Borrower in connection with the Loan.
"Mandatory Payments" shall mean the mandatory payments required
to be made on the Loan pursuant to Section 5 of Article I of this Agreement.
"Margin" shall have the meaning ascribed to such term in the
Note.
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<PAGE>
"Material Contract" shall mean any and all (i) Government
Contracts and/or (ii) contracts or agreements to which any Borrower is a party
and pursuant to which such Borrower is or may be (a) entitled to receive
payments, in the aggregate, in excess of (i) Five Hundred Thousand and No/100
Dollars ($500,000.00), per annum or (ii) One Million Dollars ($1,000,000),
throughout the term of the applicable contract or agreement and any renewal or
extension thereof, or (b) obligated to make payments or have any other
obligation or liability thereunder (direct or contingent), in the aggregate, in
excess of (i) Five Hundred Thousand and No/100 Dollars ($500,000.00), per annum
or (ii) One Million Dollars ($1,000,000), throughout the term of the applicable
contract or agreement and any renewal or extension thereof.
"Maturity Date" shall mean April 15, 2001.
"Note" shall mean that certain Revolving Promissory Note of even
date herewith made by the Borrowers and payable to the order of the Lender in
the maximum principal amount of Thirty-five Million Dollars ($35,000,000.00),
and/or any other promissory note(s) executed, issued and delivered pursuant to
this Loan Agreement, together with all extensions, renewals, modifications and
substitutions thereof or therefor.
"Obligation" and "Obligations" shall mean, respectively, any and
all obligations or liabilities of any Borrower to the Lender in connection with
the Loan, whether now existing or hereafter created or arising, direct or
indirect, matured or unmatured, and whether absolute or contingent, joint,
several or joint and several, and no matter how the same may be evidenced or
shall arise.
"Parent Company" shall mean Condor Technology Solutions, Inc., a
Delaware corporation, together with its successors and assigns.
"Permitted Liens" shall mean: (a) liens for taxes which are being
contested in good faith and by appropriate proceedings, which (i) the Borrowers
have the financial ability to pay, including penalties and interest, and (ii)
the non-payment thereof will not result in the execution of any such tax lien or
otherwise jeopardize the interests of the Lender in any part of the Collateral;
(b) deposits or pledges to secure obligations under workers' compensation,
social security or similar laws, incurred in the ordinary course of business;
(c) liens securing indebtedness of the Borrowers permitted by Section 7 of
Article VII of this Agreement; (d) cash deposits pledged to secure the
performance of bids, tenders, contracts (other than contracts for the payment of
money), leases, statutory obligations, surety and appeal bonds and other
obligations of like nature made in the ordinary course of business; (e)
mechanics', workmen's, repairmen's, warehousemen's, vendors' or carriers' liens
or other similar liens; provided that such liens arise in the ordinary course of
the Borrowers' business and secure sums which are not past due, or which are
separately secured by cash deposits or pledges in an amount adequate to obtain
the release of such liens; (f) except as otherwise provided in this Agreement,
statutory or contractual landlord's liens on the Borrowers' tangible personal
property located in the
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<PAGE>
demised premises; (g) zoning or other similar and customary land use
restrictions, which do not materially impair the use or value of the subject
property; (h) judgment liens which are not prohibited by Section 4 of Article
VII of this Agreement; (i) other liens expressly permitted by the terms and
provisions of this Agreement; (j) liens in favor of Deutsche granted in
accordance with the terms and provisions of the Deutsche Financing Agreement and
encumbering only the Deutsche Floor Plan Inventory Collateral, and other liens
in favor of Deutsche which have been granted in accordance with the terms and
provisions of the Deutsche Financing Agreement and made expressly subordinate in
all respects to the liens in favor of the Lender pursuant to the Deutsche
Subordination Agreement; (k) liens in favor of IBM granted in accordance with
the terms and provisions of the IBM Financing Agreement and encumbering only the
IBM Floor Plan Inventory Collateral, and other liens in favor of IBM which have
been granted in accordance with the terms and provisions of the IBM Financing
Agreement and made expressly subordinate in all respects to the liens in favor
of the Lender pursuant to the IBM Subordination Agreement; and (l) liens in
favor of the Lender.
"Prime Rate" shall mean the rate of interest from time to time
established and publicly announced by the Lender as its prime rate, in the
Lender's sole discretion, which rate of interest may be greater or less than
other interest rates charged by the Lender to other borrowers and is not solely
based or dependent upon the interest rate which the Lender may charge any
particular borrower or class of borrowers.
"Pro Forma" shall mean financial results calculated in accordance
with SEC Regulation S-X, Article 11, as amended.
"RCRA" shall mean the Resource Conservation and Recovery Act, as
amended (42 U.S.C. Sections 6901 et. seq.).
"Receivables" shall mean all of the Borrowers' respective present
and future accounts, contracts, contract rights, chattel paper, general
intangibles, notes, drafts, acceptances, chattel mortgages, conditional sale
contracts, bailment leases, security agreements, contribution rights and other
forms of obligations now or hereafter arising out of or acquired in the course
of or in connection with any business any Borrower conducts, together with all
liens, guaranties, securities, rights, remedies and privileges pertaining to any
of the foregoing, whether now existing or hereafter created or arising, and all
rights with respect to returned and repossessed items of inventory.
"Request for Advance and Certification" shall mean the form
Request for Advance and Certification attached as Exhibit 1 hereto.
"SEC" shall mean the Securities and Exchange Commission.
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<PAGE>
"Stock Security Agreement" shall mean that certain Stock Security
Agreement of even date herewith, by and between the Lender and the Parent
Company, together with any and all amendments and/or modifications thereof.
"Total Funded Debt to Pro Forma EBITDA Ratio" shall mean the
ratio described in Section 15 of Article VI of this Agreement.
ARTICLE I
COMMITMENT
1. Maximum Loan Amount. Subject to the terms and conditions of
this Agreement, the Lender agrees to make the Loan to the Borrowers. The Loan
shall bear interest and be payable in accordance with the terms and provisions
of the Note. At Closing, the Borrowers shall execute and deliver to the Lender
the Note, which shall be payable to the order of the Lender in the maximum
principal amount of Thirty-five Million Dollars ($35,000,000.00), or so much
thereof as shall be advanced and readvanced.
2. Use of Proceeds. The Loan shall be used by the Borrowers only
for the following purposes: (i) for working capital (including, without
limitation, to support accounts receivable under Government Contracts) and
general corporate needs of the Borrowers; and (ii) subject to the terms and
conditions of this Agreement, to finance (a) certain capital expenditures
incurred by any Borrower, and (b) the acquisition by any Borrower of other
businesses or entities. Each Borrower agrees that it will not use or permit the
Loan proceeds to be used for any other purpose without the Lender's prior
written consent.
3. Intentionally Omitted.
4. Advances.
(a) Agreement to Advance and Readvance; Procedure. So long as
no Event of Default exists, and no act, event or condition shall have occurred
which with notice or the lapse of time, or both, shall constitute an Event of
Default, and subject to the terms and provisions of this Agreement, the Lender
shall advance and readvance the proceeds of the Facility from time to time in
accordance with this Agreement. Requests for advances shall be in the form of
Exhibit 1 hereto. Requests for advances of Loan proceeds may be made via
facsimile on any given Business Day if the Borrowers provide the Lender, in
advance, with a written list of the names of the specific officers authorized to
request disbursements by facsimile. Upon request by the Lender, the Borrowers
shall confirm in an original writing each facsimile request for advance made by
any Borrower. The Lender shall have no obligation to make any advance after the
Maturity Date.
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<PAGE>
(b) Certain Advance Procedures and Limits. Amounts advanced in
connection with the Loan shall bear interest on a Base Rate basis or a LIBOR
basis, as more fully set forth in the Note. Advances bearing interest on a Base
Rate basis shall be in minimum and incremental amounts of One Hundred Thousand
Dollars ($100,000.00), and shall be made available on a same-day basis, if
requested by 12:00 Noon Washington, D.C. time on a Business Day. Advances
bearing interest on a LIBOR basis shall also be in minimum and incremental
amounts of One Hundred Thousand Dollars ($100,000.00), and shall be made
available three (3) Business Days after request therefor. The Borrowers' right
to request LIBOR based interest, as well as certain additional terms, conditions
and requirements relating thereto, are set forth in the Note and Exhibit 2 of
this Agreement, and each Borrower expressly acknowledges and consents to such
additional terms and provisions. The Borrowers' election of LIBOR based interest
for any outstanding amounts shall be in the form of Exhibit 3 of this Agreement.
5. Mandatory Payments; Reduction of Commitment. In addition to
all other sums payable by the Borrowers pursuant to the Note, this Agreement or
any other Loan Document, the Borrowers shall also make mandatory payments on the
Note in the amount of one hundred percent (100%) of the cash proceeds (net of
reasonable and customary costs paid to unrelated and unaffiliated third parties
in connection with the particular transaction) arising from (i) any Substantial
Sale or Substantial Disposition of any of the assets of any Borrower which is
(a) not in the ordinary course of business; or (b) prohibited by the terms of
this Agreement; (ii) the issuance by any Borrower after the Closing Date of debt
securities or other debt obligations (other than in connection with debt
permitted by Section 7 of Article VII of this Agreement); (iii) the receipt by
or on behalf of any Borrower of insurance proceeds (other than recoveries due to
damage to property, which recoveries are promptly applied toward repair or
replacement of the damaged property, or recoveries for business interruption
loss or workers compensation insurance proceeds); and/or (iv) the reversion of
any pension plan assets. Any payment(s) made or required to be made by the
Borrowers pursuant to this Section 5 shall permanently reduce the Commitment
Amount by the amount of such payment(s). For purposes hereof, a Substantial Sale
and/or Substantial Disposition shall mean any sale of assets involving amounts
in excess of Five Hundred Thousand Dollars ($500,000.00).
6. Field Audits. The Lender shall have the right, following the
occurrence of an Event of Default, to conduct field audits with respect to the
Collateral and each Borrower's accounts receivable, inventory, business and
operations. All such field audits shall be at the sole cost and expense of the
Borrowers.
7. Certain Fees. In addition to principal, interest and other
sums payable under the Note, the Borrowers shall pay the following fees:
(a) Commitment Fee. So long as any amounts remain outstanding
in connection with the Facility, or the Lender has any obligation to make any
advance in connection therewith, the Borrowers agree to pay to the Lender, a
quarter-annual
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<PAGE>
commitment fee (the "Commitment Fee"), at the annual percentage rate set forth
below (which is based on the Total Funded Debt to Pro Forma EBITDA Ratio),
calculated on the difference between (i) the Commitment Amount, and (ii) the
average daily outstanding principal balance of the Facility (including the face
amounts of all outstanding Letters of Credit) during the applicable
quarter-annual period, as follows:
<TABLE>
<CAPTION>
Total Funded Debt to Annual
Pro Forma EBITDA Ratio Percentage Rate
---------------------- ---------------
<S> <C>
less than 1.5 .25%
equal to or greater than
1.5 but less than 2.0 .30%
equal to or greater than
2.0 but less than 2.5 .35%
equal to or greater than
2.5 but less than 3.0 .40%
greater than 3.0 .50%
</TABLE>
The Commitment Fee shall be calculated on the basis of the actual number of days
elapsed and a three hundred sixty (360) day year, shall be due for any quarter
during which the Lender has any obligation in connection with the Facility, and
shall be payable in arrears, commencing on June 30, 1998 and continuing on the
last day of every third (3rd) calendar month thereafter so long as this
Agreement remains in effect.
8. Intentionally Omitted.
9. Appointment of the Parent Company. Each Borrower acknowledges
that (i) the Lender has agreed to extend credit to each of the Borrowers on an
integrated basis for the purposes herein set forth; (ii) it is receiving direct
and/or indirect benefits from each such extension of credit; and (iii) the
obligations of the "Borrower" or "Borrowers" under this Agreement are the joint
and several obligations of each Borrower. To facilitate the administration of
the Loan, each Borrower hereby irrevocably appoints the Parent Company as its
true and lawful agent and attorney-in-fact with full power and authority to
execute, deliver and acknowledge on each such Borrower's behalf, each Request
for Advance and Certification, LIBOR Election Form and Certification,
Non-Default Certificate and all other Loan Documents or other instruments or
materials provided or to be provided to the Lender pursuant to this Agreement or
in connection with the Loan. This power-of-attorney is coupled with an interest
and cannot be revoked, modified or amended without the prior written consent of
the Lender, which consent shall
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<PAGE>
not be unreasonably withheld. Upon request of the Lender, each Borrower shall
execute, acknowledge and deliver to the Lender a Power of Attorney, in form
satisfactory to the Lender, confirming and restating the power-of-attorney
granted herein.
10. Joinder of New Subsidiaries and Affiliates. Any present or
future subsidiary of any Borrower in which any Borrower now or hereafter owns,
directly or indirectly, an ownership interest of greater than fifty percent
(50%) shall, at the Lender's option, execute a Joinder Agreement in the form
attached hereto as Exhibit 4 (a "Joinder Agreement"), pursuant to which such
existing or newly created or acquired subsidiary shall (i) join in and become a
party to this Agreement and the other Loan Documents; (ii) agree to comply with
and be bound by the terms and conditions of this Agreement and all of the other
Loan Documents; and (iii) become a "Borrower" and thereafter be jointly and
severally liable for the performance of all the past, present and future
obligations and liabilities of the Borrowers hereunder and under the Loan
Documents.
ARTICLE II
LETTERS OF CREDIT
1. Issuance. The Borrowers and Lender acknowledge that from time
to time the Borrowers may request that the Lender issue or amend Letter(s) of
Credit. Subject to the terms and conditions of this Agreement, and any other
reasonable requirements for letters of credit normally and customarily imposed
by the Lender, the Lender agrees to issue such requested letters of credit,
provided that no Event of Default has occurred, and no act, event or condition
which with notice or the passage of time, or both, would constitute an Event of
Default has occurred. The Lender shall have no obligation to issue any Letter of
Credit which has an expiration date beyond the Maturity Date, unless the
Borrowers shall have deposited with the Lender, concurrent with the issuance of
any such Letter of Credit, cash security therefor in an amount equal to the face
amount of the Letter of Credit. Any request for a Letter of Credit shall be made
by the Borrowers submitting to the Lender an Application and Letter of Credit
Agreement or Amendment to Letter of Credit (each being herein referred to as a
"Letter of Credit Application") on the Lender's standard form, at least three
(3) Business Days prior to the date on which the issuance or amendment of the
Letter of Credit shall be required, which Letter of Credit Application shall be
executed by an authorized officer of the Borrowers, and be accompanied by such
other supporting documentation and information as the Lender may from time to
time reasonably request. Each Letter of Credit Application shall be deemed to
govern the terms of issuance of the subject Letter of Credit, except to the
extent inconsistent with the terms of this Agreement. It is understood and
agreed that Letters of Credit shall not be issued for durations of longer than
one (1) year. Any outstanding Letter of Credit may be renewed from time to time;
provided that (i) at least thirty (30) days' prior written notice thereof shall
have been given by the Borrowers to the Lender; and (ii) no default or Event of
Default exists under the terms and provisions of the particular Letter of Credit
or this Agreement.
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<PAGE>
2. Amounts Advanced Pursuant to Letters of Credit. Upon the
issuance of any Letter(s) of Credit any amounts drawn under any Letter of Credit
shall be deemed advanced under the Note, shall bear interest and be payable in
accordance with the terms of the Note and shall be secured by the Collateral (in
the same manner as all other sums advanced under the Note). It is expressly
understood and agreed that all obligations and liabilities of the Borrowers to
the Lender in connection with any such Letter(s) of Credit shall be deemed to be
"Obligations," and the Lender shall not be required to release the Lender's
security interest in the Collateral until (i) the Note and all other sums due to
the Lender in connection with the Loan have been paid and satisfied in full,
(ii) all Letters of Credit have been canceled or expired, and (iii) the Lender
has no further obligation or responsibility to make additional Loan advances or
issue additional Letters of Credit. Furthermore, in no event whatsoever shall
the Lender have any obligation to issue any Letter of Credit which would cause
the face amount of all then outstanding Letters of Credit issued for the benefit
of the Borrowers, in the aggregate, to exceed Fifteen Million Dollars
($15,000,000.00).
3. Letter of Credit Fees. The Borrowers shall be liable for the
payment of (i) a per annum fee equal to the applicable Additional LIBOR Interest
Rate Margin set forth in the Note as of the date of such calculation, multiplied
by the face amount of each Letter of Credit issued or amended pursuant to this
Agreement (the "Letter of Credit Fee"), calculated on the basis of the actual
number of days elapsed and a three hundred sixty (360) day year; and (ii)
customary issuance and administrative charges (the "Letter of Credit
Administration Fee"). The Letter of Credit Fee shall be due and payable, in
advance, on the date the Letter of Credit is issued or amended, and on each
anniversary date of such Letter of Credit. The Letter of Credit Administration
Fee shall be due and payable simultaneously with the Lender's issuance or
amendment of the particular Letter of Credit.
ARTICLE III
SECURITY
1. Security Generally. As collateral security for the Loan and
all other Obligations, the Borrowers hereby grant and convey to the Lender a
security interest in all of the following (collectively, the "Collateral"):
Receivables. All of each Borrower's present and
future accounts, contracts, contract rights,
chattel paper, general intangibles, notes,
drafts, acceptances, chattel mortgages,
conditional sale contracts, bailment leases,
security agreements and other forms of
obligations now or hereafter arising out of or
acquired in the course of or in connection with
any business each Borrower conducts, together
with all liens, guaranties, securities, rights,
remedies and privileges
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<PAGE>
pertaining to any of the foregoing, whether now
existing or hereafter created or arising, and
all rights with respect to returned and
repossessed items of inventory;
Inventory. All of each Borrower's inventory and
goods (as defined in the Uniform Commercial Code
in effect in the Commonwealth of Virginia) now
or hereafter owned by each Borrower, whenever
acquired and wherever located, and whether held
for sale or lease or furnished or to be
furnished under contracts of service, and all
raw materials, work in process and materials now
or hereafter owned by each Borrower, wherever
located, and used or consumed in its business,
including all returned and repossessed items;
and all other property now or hereafter
constituting inventory (as defined in the
Uniform Commercial Code in effect in the
Commonwealth of Virginia);
Other Collateral. All of each Borrower's present
and future furniture, fixtures, equipment,
machinery, supplies and other assets and
personal property of every type or nature
whatsoever, including without limitation, all of
each Borrower's present and future instruments,
documents, 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;
Leases. All of each Borrower's present and
future right, title and interest in and to any
and all leases, occupancy agreements, subleases,
contracts, licenses, agreements and other
understandings of or relating to the use,
enjoyment and occupancy of real property or any
improvements thereon;
Stock. All of the Parent Company's right, title
and interest in and to all of the issued and
outstanding capital stock of all of its present
or future subsidiaries, whether common or
preferred, and whether now or hereafter issued
or outstanding and whether now or hereafter
acquired by the Parent Company, together with
all voting or other rights appurtenant thereto,
including, without limitation, the right to
receive all dividends and/or distributions, and
all proceeds thereof, pursuant to the terms of
the Stock Security Agreement;
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<PAGE>
Records. All of each Borrower's records, documents
and files, in whatever form, pertaining to the
Collateral; and
Proceeds, Etc. Any and all cash and non-cash proceeds,
increases, substitutions, replacements and/or additions
to any or all of the foregoing.
Notwithstanding the foregoing, the above described conveyance
shall not be deemed to include the conveyance of any Government Contract or
other contractual agreement, which by its terms or applicable law may not be
conveyed; it being understood, however, that in any such situation(s), the
Lender's security interest shall include (i) the entirety of each Borrower's
right, title and interest in and to all accounts receivable and all other
proceeds directly or indirectly arising from such Government Contract or other
contractual agreement, and (ii) all other rights and interests which any
Borrower may lawfully convey to the Lender.
2. Stock Security Agreement. Each Borrower's full and faithful
performance of its obligations under this Agreement, this Note and all other
Loan Documents is secured by, in addition to the other Collateral, the Stock
Security Agreement, pursuant to which the Parent Company has pledged to the
Lender a first lien security interest in all of the Parent Company's right,
title and interest in and to the stock of each of its subsidiaries.
3. No Preference or Priority. It is expressly understood and
agreed that if there is more than one note secured by this Agreement, all such
notes shall be secured without preference or priority; it being the intention of
the parties that all notes secured by this Agreement shall be co-equal and
coordinate in right of payment of principal, interest, late charges and other
sums due thereunder.
4. Release of Security Interest. At such time as (i) the Note(s)
and all other sums due to the Lenders in connection with the Loan have been paid
and satisfied in full, (ii) all Letters of Credit have been canceled or expired,
and (iii) the Lender has no further obligation or responsibility hereunder to
make additional Loan advances or issue additional Letters of Credit, the Lender
shall, upon request of the Borrowers and at no cost or expense to the Lender,
execute and deliver such documentation as the Borrowers may reasonably request
to release the Collateral from the Lender's lien (including, without limitation,
the execution of UCC termination statements), and the termination of record of
this Agreement.
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<PAGE>
ARTICLE IV
CONDITIONS TO THE LENDER'S OBLIGATIONS
The Lender's obligation to proceed to Closing shall be subject to
the following conditions:
1. Satisfaction of Commitment Letter Conditions; Compliance with
Agreements. The Borrower shall have satisfied all conditions precedent to the
initial advance of the Loan proceeds set forth in the Commitment Letter,
including without limitation, each of the following items:
(i) The Lender's satisfaction with its review of the
business, financial, accounting and legal condition
of the Parent Company and the Acquired Entities.
(ii) The Lender's satisfaction with the structure of the
public equity offering contemplated by the Borrowers
(the "Public Offering") and the structure of the
acquisition of the Acquired Entities.
(iii) The successful completion of the Public Offering,
raising net proceeds equal to or greater than Sixty
Million Dollars ($60,000,000.00), and the acquisition
of the Acquired Entities.
(iv) The Lender's review of and satisfaction with the (a)
organizational structure of each of the Borrowers
after the completion of the Public Offering and the
acquisition of the Acquired Entities, (b) manner in
which Loan proceeds will be made available to the
various Borrowers, and (c) loan structure.
(v) Evidence satisfactory to the Lender of the repayment
in full of all outstanding indebtedness, both direct
or contingent, of the Borrowers, other than trade
payables, operating leases and/or inter-company
indebtedness (including inter-company guarantees)
incurred in the ordinary course of business, and
other indebtedness permitted pursuant to the terms
and provisions of this Agreement.
(vi) The Lender's satisfaction that the Loan shall be in
full compliance with all legal requirements, and that
all regulatory, governmental, shareholder, corporate
and third party consents and approvals shall have
been obtained.
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<PAGE>
(vii) The Lender's satisfaction with the Borrowers'
environmental risk assessment of its properties
(including any potential levels of environmental
liability set forth therein).
(viii) No litigation by any entity (private or governmental)
shall be pending or threatened against any Borrower
at Closing (i) with respect to the Loan, Loan
Documents or transactions contemplated thereby
(except for litigation disclosed to and not objected
to by the Lender prior to Closing); or (ii) which in
the Lender's good faith judgment could reasonably be
expected to have a materially adverse effect on the
business, property, assets, liabilities, condition
(financial or otherwise), results of operations or
prospects of any Borrower going forward.
(ix) No bankruptcy or other proceeding shall be pending or
threatened against any Borrower.
(x) The Lender shall have a perfected first lien security
interest in all collateral described herein, with
such exceptions as shall be satisfactory to the
Lender. The Borrowers shall have obtained landlord
lien waivers for each location leased by a Borrower,
in form and substance satisfactory to the Lender.
Additionally, for each Government Contract the Lender
elects to have specifically assigned to the Lender
pursuant to the Assignment of Claims Act of 1940 as
of the date of Closing, the Borrowers shall have
executed all documents necessary to be executed by
the Borrowers in order to cause compliance with such
act.
(xi) All reasonable costs, fees and expenses (including,
without limitation, reasonable legal fees and
expenses) and other reasonable compensation payable
to the Lender shall have been paid in full, to the
extent due.
(xii) No material adverse change in the business, assets,
properties, condition (financial or otherwise),
liabilities (actual or contingent), operations or
prospects of any Borrower or any subsidiary or
affiliate of any Borrower, or any of the Acquired
Entities, shall have occurred since the issuance of
the Commitment Letter.
(xiii) No material adverse change in the Government
contracting status of any Borrower shall have
occurred.
(xiv) Each Borrower's compliance in all material respects
with all applicable federal, state, local and foreign
laws and
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<PAGE>
regulations, including all applicable labor and
environmental laws and regulations.
(xv) Receipt of appropriate and satisfactory legal
opinions and, if requested by the Lender, evidence of
solvency, after giving effect to the Loan transaction
contemplated hereby.
(xvi) The Lender's satisfaction with the terms, conditions
and existence of insurance coverage appropriate to
the conduct of each Borrower's business.
(xvii) The Lender's satisfaction with the terms and
conditions of all material supply and sale agreements
and management contracts.
(xviii) The Lender's review and satisfaction with the final
terms and conditions of, and all documentation
relating to, the Borrowers, the Loan, the Public
Offering (including all representations, warranties
and indemnities contained therein) and the
acquisition of the Acquired Entities.
Additionally, the Borrowers shall have performed all agreements theretofore to
be performed by the Borrowers, and shall not be in breach of any covenant,
representation or warranty made in this Agreement or any other Loan Document.
2. Financial Condition. There shall have been no material adverse
change in the financial condition of any Borrower between the date of the most
recent financial statement(s) listed in Exhibit 6 hereto and the Closing Date.
3. Opinion of Counsel. The Lender shall have received an opinion
of counsel (the "Opinion of Counsel") for the Borrowers in form and substance
satisfactory to the Lender.
4. No Default. There shall exist no Event of Default, and no act,
event or condition shall have occurred which with notice or the lapse of time,
or both, would constitute an Event of Default.
5. Documentation. The Lender shall have received such
certificates of good standing, corporate resolutions, opinions and
certifications, in such form and content and from such parties, as the Lender
shall require. All documentation relating to the Public Offering, the
acquisition of the Acquired Entities, the Loan and all related transactions must
be satisfactory in all respects to the Lender and its counsel.
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6. Closing Costs and Expenses. Each of the Borrowers shall have
paid all closing costs and expenses incurred by the Lender in connection with
the transactions contemplated hereby, including, without limitation, all
recording costs.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement, each Borrower
jointly and severally represents, warrants, covenants and agrees as follows:
1. Corporate Existence and Qualification. Each Borrower is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation, with all corporate power and authority and
all necessary licenses and permits to own, operate and lease its properties and
carry on its business as now being conducted, and as it may in the future be
conducted. Each Borrower is duly qualified and authorized to do business and is
in good standing in each jurisdiction in which the nature of its activities or
the character of its properties makes qualification necessary or desirable.
2. Corporate Authority; Noncontravention. The execution, delivery
and performance of the obligations of the Borrowers set forth in this Agreement,
the Note and the other Loan Documents (i) have been duly authorized by all
necessary corporate and/or stockholder action; (ii) do not require the consent
of any governmental body, agency or authority; (iii) will not violate or result
in (and with notice or the lapse of time will not violate or result in) the
breach of any provision of the Articles of Incorporation/Certificate of
Incorporation or By-laws of any Borrower, any indenture, instrument, agreement
or other undertaking to which any Borrower is a party or by which any Borrower
is bound, or any order or regulation of any governmental authority or
arbitration board or tribunal; and (iv) except as permitted by the terms and
provisions of this Agreement, result in the creation of a lien, charge or
encumbrance of any nature upon any of the properties or assets of any Borrower.
When the Loan Documents are executed and delivered, they will constitute legal,
valid and binding obligations of each of the Borrowers, enforceable against each
of the Borrowers in accordance with their respective terms.
3. Financial Position. The financial statements listed on Exhibit
6 hereto, copies of which have been delivered to the Lender, present fairly the
financial condition of the Borrowers as of the date thereof and the results of
each Borrower's operations for the periods indicated therein, were prepared in
accordance with GAAP, are true and accurate in all material respects, and are
not misleading in any material respect. All liabilities, fixed or contingent,
are fully shown or provided for on the referenced financial statements or the
notes thereto as of the dates thereof. There has been no material adverse change
in the business, property or condition (financial or otherwise) of any Borrower
since the date of the most recent financial statements listed on Exhibit 6.
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4. Payment of Taxes. Each of the Borrowers has filed all tax
returns and reports required to be filed by it with the United States Government
and/or with all state and local governments, and has paid in full or made
adequate provision on its books for the payment of all taxes, interest,
penalties, assessments or deficiencies shown to be due or claimed to be due on
or in respect of such tax returns and reports, except to the extent that the
validity or amount thereof is being contested in good faith by appropriate
proceedings and the non-payment thereof pending such contest will not result in
the execution of any tax lien or otherwise jeopardize the Lender's interests in
any part of the Collateral.
5. Accuracy of Submitted Information; Omissions. All documents,
certificates, information, materials and financial statements furnished or to be
furnished to the Lender pursuant to this Agreement or otherwise in connection
with the Loan (i) are and will be true and correct in all material respects;
(ii) do not and will not contain any untrue statement of a material fact; and
(iii) do not and will not omit any material fact necessary to make the
statements contained therein or herein not misleading. No Borrower is aware of
any fact which has not been disclosed to the Lender in writing which materially
adversely affects, or so far as any Borrower can now reasonably foresee, could
reasonably be expected to materially adversely affect, the properties, business,
profit or condition (financial or otherwise) of any Borrower or the ability of
any Borrower to perform its obligations under this Agreement or any other Loan
Documents.
6. Government Contracts. No notice of suspension, debarment, cure
notice, show cause notice or notice of termination for default has been issued
by the Government to any Borrower, and none of the Borrowers is a party to any
pending, or to any Borrower's knowledge threatened, suspension, debarment,
termination for default issued by the Government or other adverse Government
action or proceeding in connection with any Government Contract. All Government
contracts which constitute Material Contracts and have a remaining term of six
(6) months or longer are listed on Schedule 1 hereto.
7. No Defaults or Liabilities. No Borrower is in default in the
performance of any obligation, covenant or condition contained in any agreement
to which it is a party. Additionally, none of the Borrowers is aware of any
condition, act, event or occurrence, including, without limitation, any pending
or threatened litigation, legal or administrative proceeding or investigation,
not disclosed to the Lender in writing which could reasonably be expected to
prejudice the Lender's rights under any Loan Document in any respect.
8. No Violations of Law. No Borrower is in violation of any
Applicable Laws; none of the Borrowers has failed to obtain any license, permit,
franchise or other governmental authorization necessary to the ownership of its
properties or to the conduct of its business (unless the failure to obtain the
same would not have a material adverse effect on the condition (financial or
otherwise) or the operations of any Borrower), and each of the Borrowers has
conducted its business and operations in compliance in all material respects
with all Applicable Laws.
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9. Litigation and Proceedings. Except for the matters set forth
on Schedule 2 attached hereto, no action, suit or proceeding against or
affecting any Borrower is presently pending, or to the knowledge of any
Borrower, threatened, in any court, before any governmental agency or
department, or before any arbitration board or tribunal, which involves the
possibility of any judgment or liability not fully covered by insurance and
which could reasonably expected to have a material adverse effect on the
business, property, assets, liabilities or condition (financial or otherwise) of
any Borrower. No Borrower is aware of any existing basis for any such action,
suit or proceeding. No Borrower is in default with respect to any order, writ,
injunction or decree of any court, governmental authority or arbitration board
or tribunal.
10. Security Interest in the Collateral. Each Borrower is the
sole legal and beneficial owner of the Collateral owned or purported to be owned
by it, free and clear of all liens, claims and encumbrances of any nature,
except for the Permitted Liens and other liens permitted by the terms and
provisions of this Agreement. The Borrowers have provided to the Lender written
landlord waivers from each lessor/landlord of any premises at which any
Borrower's assets having a book value in excess of One Hundred Thousand Dollars
($100,000.00) is now or hereafter located. Each such landlord waiver
subordinates any statutory, contractual or other lien the lessor/landlord may
have in any of the Collateral to the lien, operation and effect of the lien
being granted to the Lender pursuant to this Agreement, except to the extent
otherwise expressly set forth in such landlord waiver and approved by the
Lender.
11. Principal Place of Business; Location of Books and Records.
Each Borrower maintains its principal place of business and the office where it
keeps its books and records with respect to accounts and contracts rights at the
locations listed on Schedule 3 hereto. Set forth on Schedule 4 hereto is a list
of each Borrower's business locations as of the Closing Date, and all places
where any of the Collateral is located. Each Borrower agrees to notify the
Lender in writing at least ten (10) days prior to any change in its principal
place of business, or any change in the location of the office where it keeps
its books and records with respect to accounts and contract rights, or any
change of or addition to the locations where any Collateral is located.
12. Fiscal Year. The Borrowers' fiscal year ends on December 31.
13. Pension Plans.
(a) The present value of all benefits vested under all
"employee pension benefit plans", as such term is defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974 ("ERISA"), from time to time
maintained by any Borrower (individually, a "Pension Plan" and collectively, the
"Pension Plans") did not, as of December 31, 1997, exceed the value of the
assets of the Pension Plans allocable to such vested benefits;
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(b) No Pension Plan, trust created thereunder or other person
dealing with any Pension Plan has engaged in a non-exempt transaction proscribed
by Section 406 of ERISA or a non-exempt "prohibited transaction", as such term
is defined in Section 4975 of the Internal Revenue Code;
(c) No Pension Plan or trust created thereunder has been
terminated within the last three (3) years, and there have been no "reportable
events" (as such term is defined in Section 4043 of ERISA and the regulations
thereunder) with respect to any pension plan or trust created thereunder after
the effective date of ERISA; and
(d) No Pension Plan or trust created thereunder has incurred
any "accumulated funding deficiency" (as such term is defined in Section 302 of
ERISA or Section 412 of the Internal Revenue Code) as of the end of any plan
year, whether or not waived, since the effective date of ERISA.
14. O.S.H.A. and Environmental Compliance.
(a) Each Borrower has duly complied with, and its facilities,
business assets, property, leaseholds and equipment are in compliance with, the
provisions of the Federal Occupational Safety and Health Act ("O.S.H.A."), the
Environmental Protection Act, RCRA and all other environmental laws which
non-compliance with could result in a material adverse effect on the business,
condition (financial or otherwise) or results of operations of any Borrower; and
there have been no citations, notices, notifications or orders of any such
non-compliance issued to any Borrower or relating to its business, assets,
property, leaseholds or equipment under any such laws, rules or regulations;
(b) each Borrower has been issued all required federal, state
and local licenses, certificates and permits necessary or appropriate in the
operation of its facilities, businesses, assets, property, leaseholds and
equipment, unless the failure to obtain any such license, certificate or permit
would not have a material adverse effect on the business condition (financial or
otherwise) or results of operations of any Borrower; and
(c) (i) there are no releases, spills, discharges, leaks or
disposal (collectively referred to herein as "Releases") of Hazardous Substances
at, upon, under or within any Real Property owned, or to the knowledge of any
Borrower any premises leased, by any Borrower, except in compliance with
Applicable Law; (ii) there are no underground storage tanks or polychlorinated
biphenyls on any Real Property owned or, to the knowledge of any Borrower, any
premises leased by any Borrower; (iii) no Real Property owned or, to the
knowledge of any Borrower, premises leased by any Borrower have ever been used
by a Borrower (and to the best of each Borrower's knowledge, any other person)
as a treatment, storage or disposal facility for Hazardous Waste, except in
compliance with Applicable Law; and (iv) no Hazardous Substances are present on
any Real Property owned or, to the knowledge of any Borrower, the premises
leased by any Borrower, except for
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such quantities of Hazardous Substances as are handled in accordance with all
applicable manufacturer's instructions and governmental regulations, and as are
necessary or appropriate for the operation of the business of the Borrowers.
Each Borrower, for itself and its successors and assigns, hereby covenants and
agrees to indemnify, defend and hold harmless the Lender from and against any
and all liabilities, losses, claims, damages, suits, penalties, costs and
expenses of every kind or nature, including, without limitation, reasonable
out-of-pocket attorneys' fees arising from or in connection with (i) the
presence or alleged presence of any Hazardous Substance or Hazardous Waste on,
under or about any property of any Borrower (including, without limitation, any
property or premises now or hereafter owned or leased by any Borrower), or which
is caused by or results from, directly or indirectly, any act or omission to act
by any Borrower; and (ii) any Borrower's violation of any environmental statute,
ordinance, order, rule or regulation of any governmental entity or agency
thereof (including, without limitation, any liability arising under CERCLA,
RCRA, HMTA or any Applicable Laws).
15. Intellectual Property. All patents, patent applications,
trademarks, trademark applications, copyrights, copyright applications,
tradenames, trade secrets and licenses necessary for the conduct of the business
of each Borrower are (i) owned or utilized by such Borrower, (ii) valid and,
except with respect to licenses, have been duly registered or filed with all
appropriate governmental authorities, and (iii) listed on Schedule 5 hereto;
there is no objection or pending challenge to the validity of any such patent,
trademark, copyright, tradename, trade secret or license; no Borrower is aware
of any grounds for any such challenge or objection thereto; except as disclosed
in Schedule 6 hereto, no Borrower pays any royalty to anyone in connection with
any patent, trademark, copyright, tradename, trade secret or license; and each
Borrower has the right to bring legal action for the infringement of any such
patent, trademark, copyright, tradename, trade secret or license.
16. Existing or Pending Defaults; Material Contracts. All
Material Contracts are listed on Schedule 7 hereto. Except as set forth on
Schedule 8 attached hereto, no Borrower is aware of any pending or threatened
litigation, or any other legal or administrative proceeding or investigation
pending or threatened, against any Borrower arising from or related to any
Material Contract, or otherwise, which could reasonably be expected to have a
material adverse effect on the Lender's rights in connection with such Material
Contract or on any Borrower's ability to perform its obligations hereunder or
under any of the Loan Documents.
17. Leases and Real Property. All material leases and other
agreements under which any Borrower occupies real property are in full force and
effect and constitute legal, valid and binding obligations of, and are legally
enforceable against, the Borrower party thereto, and, to such Borrower's
knowledge, are the binding obligations of and legally enforceable against, the
other parties thereto. All necessary governmental approvals, if any, have been
obtained for each such material lease or agreement, and there have been
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no threatened cancellations thereof or outstanding material disputes with
respect thereto. No Borrower owns any interest in real property.
18. Labor Relations. There are no strikes, work stoppages,
material grievance proceedings, union organization efforts or other
controversies pending, or to any Borrower's knowledge, threatened or reasonably
anticipated, between any Borrower and (i) any current or former employee of any
Borrower, or (ii) any union or other collective bargaining unit representing any
such employee. Each Borrower has complied and is in compliance in all material
respects with all Applicable Laws relating to employment or the workplace,
including, without limitation, provisions relating to wages, hours, collective
bargaining, safety and health, work authorization, equal employment opportunity,
immigration, withholding, unemployment compensation, employee privacy and right
to know. Except as set forth on Schedule 9 hereto, there are no collective
bargaining agreements, employment agreements between any Borrower and any of its
respective employees, or professional service agreements not terminable at will
relating to the businesses or assets of any Borrower. The consummation of the
transactions contemplated hereby will not cause any Borrower to incur or suffer
any liability relating to, or obligation to pay, severance, termination or other
similar payments to any person or entity.
19. Assignment of Government Contracts. No existing Government
Contract of any Borrower (and no present or future interest of any Borrower, in
whole or in part, in, to or under any such Government Contract) is currently
assigned, pledged, hypothecated or otherwise transferred to any person or
entity.
20. Intentionally Omitted.
21. Subsidiaries. All of the Subsidiaries of any of the Borrowers
are listed on Schedule 10 hereto.
22. Ownership of the Borrowers. All of the issued and outstanding
capital stock of the Borrowers (other than the Parent Company) is owned by the
Parent Company, free and clear of all liens, claims and encumbrances (other than
the security interest in favor of the Lender).
23. Solvency. Both prior to and after giving effect to the
transactions contemplated by the terms and provisions of this Agreement, (i)
each Borrower owned and owns property whose fair salable value is greater than
the amount required to pay all of such Borrower's Indebtedness (including
contingent debts), as applicable, (ii) each Borrower was and is able to pay all
of its Indebtedness as such Indebtedness matures, and (iii) each Borrower had
and has capital sufficient to carry on its business and transactions and all
business and transactions in which it is about to engage. For purpose hereof,
"Indebtedness" means, without duplication (a) all items which in accordance with
GAAP would be included in determining total liabilities as shown on the
liability side of a balance sheet of such Borrower as of the date on which
Indebtedness is to be determined, (b) all
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obligations of any other person or entity which such Borrower has guaranteed,
and (c) the Obligations.
24. Survival of Representations and Warranties. All
representations and warranties made herein shall survive the making of the Loan,
and shall be deemed remade and redated as of the date of each request for an
advance or readvance of any Loan proceeds, unless the Borrower is unable to
remake and/or redate any such representation or warranty, discloses the same to
the Lender in writing, and such inability does not constitute or give rise to an
Event of Default or has been waived by the Lender in writing.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any Obligation remains outstanding or this Agreement
remains in effect, each Borrower jointly and severally covenants and agrees with
the Lender that:
1. Payment of Loan Obligations. Each Borrower will duly and
punctually pay all sums to be paid to the Lender in accordance with the terms
and conditions of the Loan Documents, and will comply with, perform and observe
all of the terms thereof.
2. Payment of Taxes. Each Borrower will promptly pay and
discharge when due all federal, state and other governmental taxes, assessments,
fees and charges imposed upon it, or upon any of its properties or assets,
except to the extent that that validity or amount thereof is being contested in
good faith by appropriate proceedings and the non-payment thereof will not
result in the execution of any tax lien or otherwise jeopardize the Lender's
interest in any part of the Collateral.
3. Delivery of Financial and Other Statements. The Borrowers
shall deliver to the Lender financial and other statements, each of which shall,
unless otherwise expressly provided to the contrary, be prepared in accordance
with GAAP consistently applied, as follows:
(a) on or before the one hundred twentieth (120th) day
following the close of each fiscal year, the
Borrowers will submit to the Lender (i) annual
audited and unqualified consolidated financial
statements of the Consolidated
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Company, which shall be accompanied by consolidated
schedules (if necessary) and management letters (if
issued) and certified by a nationally recognized
independent certified public accountant reasonably
acceptable to the Lender, (ii) internally prepared
annual consolidating balance sheets and income
statements of the Consolidated Company, which shall
be accompanied by consolidating schedules (as
necessary) and management letters (if issued) and
certified by the Parent Company's Chief Financial
Officer or another duly authorized executive officer
of the Parent Company and (iii) an annual budget for
the then current year, in form reasonably
satisfactory to the Lender, certified by the Parent
Company's Chief Financial Officer or another duly
authorized executive officer of the Parent Company;
(b) on or before the thirtieth (30th) day following the
close of each calendar month (except for the close of
any calendar month which coincides with the close of
a calendar quarter), the Borrowers will submit to the
Lender internally prepared financial statements of
the Consolidated Company, including a consolidated
balance sheet and income statement, reporting the
Consolidated Company's current financial position and
the results of its operations for the month then
ended and year-to-date, in form reasonably
satisfactory to the Lender, certified by the Parent
Company's Chief Financial Officer or another duly
authorized executive officer of the Parent Company;
(c) on or before the forty-fifth (45th) day following the
close of each calendar quarter, the Borrowers will
submit to the Lender a consolidating balance sheet,
income statement and a consolidated statement of cash
flows and a Quarterly Covenant Compliance/Non-Default
Certificate in the form of Exhibit 5 hereto, each of
which shall be certified by the Parent Company's
Chief Financial Officer or another duly authorized
executive officer of the Parent Company;
(d) within five (5) days of issuance, distribution,
receipt or filing, as applicable, the Borrowers will
submit to the Lender copies of all public filings,
prospectuses, disclosure statements and/or
registration statements (including, without
limitation, any amendments and supplements thereto,
any regular and periodic reports (i.e., Form 10-K,
Form 10-Q or Form 8-K), any letters of comment or
correspondence to or from the SEC, and any other
material reports) which any Borrower issues to,
distributes to or files with the SEC or any state
agency or department regulating securities (or any
stockholder or other person or entity,
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pursuant to the rules and/or regulations of the SEC
or any state agency or department regulating
securities); and
(e) within five (5) days of Lender's request therefor,
the Borrowers will provide to the Lender such other
information and/or reports relating to any Borrower's
business, operations, properties or prospects as the
Lender may from time to time reasonably request.
4. Maintenance of Records; Review by the Lender. Each Borrower
will maintain at all times proper books of record and account in accordance with
GAAP, consistently applied, and, subject to any confidentiality and secrecy
requirements imposed by any Government agency, will permit the Lender's officers
or any of the Lender's authorized representatives or accountants to visit and
inspect each of the Borrowers' offices and properties, examine its books of
account and other records, and discuss its affairs, finances and accounts with
the officers of any Borrower all at such reasonable times during normal business
hours, and as often as the Lender may deem reasonably necessary or appropriate;
it being understood and agreed that, in the absence of an Event of Default, the
Lender shall provide five (5) days notice to the Borrower prior to any such
visit, inspection, examination or discussion described in this Section above.
5. Maintenance of Insurance Coverage. Each Borrower will maintain
in effect fire and extended coverage insurance, public liability insurance,
workmen's compensation insurance and insurance on the Collateral, with
responsible insurance companies, in such amounts and against such risks as are
customary for similar businesses, required by governmental authorities, if any,
having jurisdiction over all or part of its operations, or otherwise reasonably
required by the Lender, and will furnish to the Lender certificates evidencing
such continuing insurance. The Lender shall be named as loss payee on all hazard
and casualty insurance policies by means of a standard noncontributory mortgagee
clause and as an additional insured on all liability insurance policies. All
insurance policies shall also provide for (i) not less than thirty (30) days
written notice to the Lender prior to expiration, cancellation or material
change; and (ii) waiver of subrogation.
6. Maintenance of Property/Collateral; Performance of Contracts.
Each Borrower will at all times maintain the Collateral and its tangible
property, both real and personal, in good order and repair (subject to ordinary
wear and tear), and will permit the Lender's officers or authorized
representatives to visit and inspect all or any part of the Collateral at such
reasonable times during normal business hours, as and when the Lender deems
reasonably necessary or appropriate; provided, however, that (i) the Lender's
review of any and all "classified contracts" shall be subject to compliance with
Applicable Laws; and (ii) in the absence of an Event of Default, the Lender
shall provide five (5) days notice to the Borrower prior to any such visit or
inspection. Each Borrower shall perform all obligations under all material
contracts to which it is a party (including, without limitation,
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all obligations of the Borrower as a contractor under any Material Contract),
including all exhibits and other attachments to such contracts, all
modifications thereto and all documents and instruments delivered pursuant
thereto, and will comply in all respects with all laws, rules and regulations
governing the execution, delivery and performance thereof. Each Borrower shall,
upon request by the Lender, provide the Lender with a list and description of
all Government Contracts to which such Borrower is a party.
7. Maintenance of Corporate Existence. Each Borrower will
maintain its corporate existence and will provide the Lender with evidence of
the same from time to time upon the Lender's request.
8. Maintenance of Certain Accounts with Lender. Each Borrower
will maintain its primary operating accounts, including all depository accounts
(time and demand), disbursement accounts and collection accounts with the
Lender; it being understood and agreed that the Lender shall provide normal and
customary banking services in connection with such accounts at rates comparable
to and competitive with rates charged by similarly situated banking institutions
for such services.
9. Maintenance of Management. Each Borrower shall notify the
Lender in writing of any change in the board of directors or the senior
management of the Parent Company, or change in the office of the chief executive
officer of Management Support Technology Corp., a Delaware corporation, Federal
Computer Corporation, a Virginia corporation, Computer Hardware Maintenance
Company, Inc., a Pennsylvania corporation, or Interactive Software Systems,
Incorporated, a Colorado corporation, at least ten (10) days prior to the date
of any such change.
10. Disclosure of Defaults, Etc. Promptly upon the occurrence
thereof, the Borrowers will provide the Lender with written notice of any Event
of Default, or any act, event or occurrence that upon the giving of any required
notice or the lapse of time, or both, would constitute an Event of Default. In
addition, each Borrower will promptly advise the Lender in writing of any
condition, act, event or occurrence which comes to such Borrower's attention
that would or could reasonably be expected to prejudice the Lender's rights in
connection with any Material Contract, the Collateral, this Agreement, the Note
or any other Loan Document, including, without limitation, the details of any
pending or threatened suspension, debarment or other governmental action or
proceeding, any material pending or threatened litigation, and any other legal
or administrative proceeding or investigation pending or threatened against any
Borrower, including the entry of any judgment or lien (other than a Permitted
Lien) against any Borrower, its assets or property.
11. Security Perfection; Assignment of Claims Act; Payment of
Costs. The Borrowers will execute and deliver and pay the costs of recording and
filing financing statements, continuation statements, termination statements,
assignments and other documents, as the Lender may from time to time deem
necessary or appropriate for the
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perfection of any liens granted to the Lender pursuant hereto or pursuant to any
other Loan Document, including, without limitation, at the Lender's option, all
documents or materials necessary or appropriate in order to comply with the
Assignment of Claims Act of 1940, as amended, 31 U.S.C. Section 3727 and 41
U.S.C. Section 15 (the "Government Contract Assignments") in connection with
each Government Contract which is a Material Contract and which is required by
the Lender to be assigned to the Lender. All costs and expenses incurred in
connection with the Government Contract Assignments shall be borne solely by the
Borrowers. Additionally, the Borrowers will pay any and all of the Lender's
reasonable out-of-pocket costs incurred in connection with or relating to the
consummation of the transactions contemplated hereby, as well as any and all
taxes (other than the Lender's income and franchise taxes), which may be payable
as a result of the execution of this Agreement or any agreement supplemental
hereto, or as a result of the execution and/or delivery of the Note or other
Loan Document.
12. Defense of Title to Collateral. The Borrowers will at all
times defend the Lender's and each Borrower's rights in the Collateral, subject
to the Permitted Liens, against all persons and all claims and demands
whatsoever, and will, upon request of the Lender (i) furnish such further
assurances of title as may be reasonably required by the Lender, and (ii) do any
other acts necessary to effectuate the purposes and provisions of this
Agreement, or as required by law or otherwise in order to perfect, preserve,
maintain or continue the interests of the Lender in the Collateral.
13. Compliance with Law. Each Borrower will conduct its
businesses and operations in full compliance with (i) all Applicable Laws and
requirements of all federal, state and local regulatory authorities having
jurisdiction, (ii) the provisions of its charter documents and by-laws, (iii)
all agreements and instruments by which it or any of its properties may be
bound, and (iv) all applicable decrees, orders and judgments.
14. Further Assurances; Additional Requested Information. Each
Borrower will provide to the Lender such further assurances and additional
documents regarding the Collateral and the Lender's security interest therein as
the Lender may from time to time reasonably request, and each Borrower will
promptly provide the Lender with such additional information, reports and
statements respecting its business, operations, properties and financial
condition, and respecting its affiliated businesses and investments, as the
Lender may from time to time reasonably request.
15. Financial Covenants of the Borrowers. So long as any
Obligation remains outstanding or this Agreement remains in effect, the
Borrowers will comply with each of the financial covenants set forth below:
(a) NetWorth. The Borrowers will maintain on a
consolidated basis for each quarter commencing with
and including the quarter ending immediately after
the Closing, Net Worth of
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not less than (i) 75% of net income for all fiscal
quarters commencing with and including the fiscal
quarter ending March 31, 1998 (but excluding net
income for any fiscal quarter for which net income is
a negative number), plus (ii) 75% of the net proceeds
from the issuance or sale by the Borrower of any of
its equity securities (excluding the proceeds from
the exercise of employee stock options), plus (iii)
$85,000,000.
For purposes of this Agreement, "Net Worth" shall
mean total assets minus all liabilities, all to be
determined on a consolidated basis in accordance with
GAAP. The Net Worth shall be measured on the last day
of each fiscal quarter throughout the term of the
Loan.
(b) Fixed Charge Coverage Ratio. The Borrowers will
maintain on a consolidated basis for each quarter
commencing with and including the quarter ending
immediately after the Closing, a fixed charge
coverage Ratio of not less than 2.00 to 1.00.
For purposes of the foregoing, "fixed charge coverage
Ratio" shall mean the Borrowers' Pro Forma earnings
before interest, taxes, depreciation and amortization
("EBITDA"), plus rent expense, minus cash taxes paid,
minus cash capital expenditures, minus cash dividends
paid, divided by the Borrowers' rent expense, plus
interest expense, plus required principal payments on
debt and capital leases. The Fixed Charge Coverage
Ratio shall be measured on the last day of each
fiscal quarter throughout the term of the Loan.
(c) Total Funded Debt to EBITDA Ratio. The Borrowers will
maintain on a consolidated basis for each quarter
commencing with and including the quarter ending
immediately after the Closing, a Total Funded Debt to
EBITDA ratio of not more than 3.50 to 1.00.
For purposes of the foregoing, "Total Funded Debt"
shall mean any and all interest-bearing obligations,
including without limitation, the face amount of all
outstanding Letters of Credit. The Total Funded Debt
to EBITDA
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Ratio shall be measured on the last day of each
fiscal quarter throughout the term of the Loan.
(d) Senior Funded Debt to EBITDA Ratio. The Borrowers
will maintain on a consolidated basis for each
quarter commencing with and including the quarter
ending immediately after the Closing, a Senior Funded
Debt to EBITDA ratio of not more than 3.00 to 1.00.
For purposes of the foregoing, "Senior Funded Debt"
shall mean Total Funded Debt less all debt expressly
subordinated to repayment of the Loan in full
pursuant to written subordination agreements
acceptable to the Lender in all respects. The Senior
Funded Debt to EBITDA Ratio shall be measured on the
last day of each fiscal quarter throughout the term
of the Loan.
(e) Ratio of Earnings Before Interest and Taxes ("EBIT")
to Interest Expense. The Borrowers will maintain on a
consolidated basis for each quarter commencing with
and including the quarter ending immediately after
the Closing, an EBIT to Interest Expense ratio of not
less than 3.00 to 1.00.
The Ratio of EBIT to Interest Expense shall be
measured on the last day of each fiscal quarter
throughout the term of the Loan. The financial
covenants set forth above (other than the financial
covenant set forth in subsection (a) above) shall be
calculated and tested on the basis of twelve (12)
month trailing Pro Forma results, except that for the
quarters ending on March 31, 1998, June 30, 1998 and
September 30, 1998, the financial covenants shall be
calculated and tested on an annualized Pro Forma
cumulative basis. Unless otherwise defined, all
financial terms used on this Section 15 shall have
the meanings attributed to such terms in accordance
with GAAP and SEC Regulation S-X, Article 11, as
amended.
16. Additional Financial Arrangements. In the event that any of
the Borrowers or any subsidiary or affiliate of any Borrower seeks to obtain
additional financial arrangements or financial services, including, without
limitation, (i) any interest rate caps, currency swaps or other hedging
transaction, (ii) any cash management, funds transfer, trade, corporate trust or
securities services or (iii) any public or private debt or equity
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instruments or securities to be issued by any Borrower or any subsidiary or
affiliate of any Borrower, such Borrower shall give the Lender and its
affiliates an opportunity to make a bid to provide, arrange, underwrite or
administer such additional financial arrangements or financial services and
such Borrower shall determine whether such bid is in its best interests.
17. Landlord Waivers; Subordination. The Borrowers shall
provide to the Lender written landlord waivers from each lessor/landlord of
any premises at which any Borrower's assets having a book value in excess of
One Hundred Thousand Dollars ($100,000.00) is now or hereafter located. Each
landlord waiver shall subordinate any statutory, contractual or other lien
the lessor/landlord may have in any Collateral to the lien, operation and
effect of the lien granted to the Lender pursuant to this Agreement (except
to the extent otherwise expressly set forth in such landlord waiver and
approved by the Lender), and shall be in form and substance acceptable to the
Lender.
18. Substitute Notes. Upon request of the Lender, each
Borrower shall execute and deliver to the Lender substitute promissory notes,
in form and substance satisfactory to the Lender in all respects, payable to
the order of such person or entity as may be designated by the Lender.
ARTICLE VII
NEGATIVE COVENANTS OF THE BORROWERS
So long as any Obligation remains outstanding or this
Agreement remains in effect, each Borrower jointly and severally covenants
and agrees that, without the prior written consent of the Lender, the
Borrowers will not:
1. Change of Control; Disposition of Assets; Acquisition and
Merger.
(a) Permit majority or effective control of any Borrower to
be sold, assigned or otherwise transferred, legally or equitably, to any
person or entity (other than another Borrower); or
(b) suffer or permit the issuance of any capital stock of
any Borrower (other than the Parent Company); it being understood and agreed
that this negative covenant shall not be deemed violated by the issuance of
capital stock by any Borrower in connection with (i) the purchase or
acquisition of any company or entity pursuant to the terms of this Agreement,
(ii) stock options granted to key employees of any Borrower (including,
without limitation, prospective employees, consultants, directors,
prospective directors or any other persons eligible for stock options
pursuant to the Parent Company's 1997 Long-Term Incentive Plan, as amended in
November 1997), and/or (iii) earn outs included in purchase transactions
described in (i) above and other earn-outs acceptable to the Lender in
writing; or
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(c) sell, assign, loan, deliver, lease, transfer or
otherwise dispose of property or assets, except for the disposition of assets
in the ordinary course of the Borrowers' business, provided that such
dispositions of assets, in the aggregate, do not exceed Five Hundred Thousand
Dollars ($500,000.00) per annum; or
(d) permit any Borrower to merge or consolidate with any
company or enterprise which is not a Borrower party to this Agreement, or
acquire or purchase any company or enterprise which is not a Borrower party
to this Agreement; it being understood and agreed, however, that the Lender
agrees to grant its consent in connection with acquisitions by a Borrower of
other entities so long as:
(i) the aggregate cost/purchase price/total
consideration (i.e., the value of cash paid,
stock exchanged, debt assumed and other
actual consideration paid) for any single
acquisition does not exceed Twenty Million
Dollars ($20,000,000.00) and for all such
acquisitions does not exceed Fifty Million
Dollars ($50,000,000.00) on an annual basis
and One Hundred Twenty Million Dollars
($120,000,000.00) during the term of the
Loan;
(ii) the Pro Forma financials of the Borrowers,
after taking into effect the acquisition(s),
are not projected to cause the Borrowers to
fail to comply with any of the financial
covenants set forth in Section 15 of Article
VI of this Agreement; and
(iii) the following parameters/conditions are
satisfied:
A. the entity to be acquired is a
going concern;
B. the entity to be acquired is in a
line of business similar or
complementary to the Borrowers';
C. the entity to be acquired has
positive EBITDA on a Pro Forma
basis for the preceding twelve (12)
month period;
D. there is no assumption of
indebtedness, other than trade
liabilities in the ordinary course
of business and/or other debt
expressly consented to by the
Lender and expressly subordinated
to the Loan;
E. in the case of a merger, the
Borrower is the surviving,
controlling corporation;
F. the acquisition is not hostile;
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G. the entity to be acquired is not,
in the Lender's judgment, subject
to material pending litigation; and
H. no Event of Default exists, and no
act, event or condition which with
notice or the passage of time, or
both, would constitute an Event of
Default, has occurred under this
Agreement or any other Loan
Document.
In the event a written request for the Lender's consent to a
particular acquisition is made by a Borrower pursuant to this Section, such
Borrower shall submit to the Lender (a) a written certification that the
proposed acquisition meets the criteria described in this Section 1 of
Article VII, (b) the Pro Forma financials described above, together with (i)
a Pro Forma calculation of the financial covenants set forth in Section 15 of
Article VI of this Agreement, after taking into effect such acquisition, and
(ii) the most recent financial statements of the entity to be acquired by a
Borrower (for the preceding twelve (12) month period), and (c) such other
information as may be reasonably required by the Lender. The Borrowers
acknowledge and agree that in preparing the Pro Forma statements required to
be submitted hereunder, actual prior expenses shall not be adjusted except to
reflect changes in owner/executive compensation and other expenses that
qualify as Pro Forma adjustments.
2. Margin Stocks. Use all or any part of the proceeds of any
advance made hereunder to purchase or carry, or to reduce or retire any loan
incurred to purchase or carry, any margin stocks (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System) or to
extend credit to others for the purpose of purchasing or carrying any such
margin stocks.
3. Change of Operations. Change the general character of any
Borrower's business as conducted on the date hereof, or engage in any type of
business not directly related to, complementary to or compatible with such
business as presently and normally conducted.
4. Judgments; Attachments. Suffer or permit any judgment in
excess of Two Hundred Fifty Thousand Dollars ($250,000.00) against any
Borrower or any attachment against any Borrower's property (for an amount not
fully covered by insurance) to remain unpaid, undischarged or undismissed for
a period of ten (10) days, unless enforcement thereof shall be effectively
stayed or bonded;
5. Further Assignments; Performance and Modification of
Contracts; etc. Except as may be expressly permitted by the Loan Documents
(i) make any further assignment, pledge or disposition of the Collateral or
any part thereof; (ii) permit any set-off or reduction, delay the timing of
any payment under, or otherwise modify any Material Contract, if such
set-off, reduction, delay or modification would adversely affect any Borrower
in any material respect; (iii) create, incur or permit to exist any lien or
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encumbrance on any real property now or hereafter owned by any Borrower; or
(iv) do or permit to be done anything to impair the Lender's security in any
Collateral or the payments due to any Borrower thereunder;
6. Affect Rights of the Lender. At any time do or perform any
act or permit any act to be performed which would or reasonably could
materially adversely affect the interests or rights of the Lender under any
Loan Document;
7. Indebtedness; Granting of Security Interests. Suffer or
permit any Borrower to incur any new indebtedness, except for (i) trade debt
and operating leases incurred in the ordinary course of business; (ii)
performance bonds issued on behalf of the Borrowers in the ordinary course of
business; (iii) indebtedness secured by liens listed on Schedule 11 hereto,
or other indebtedness secured by Permitted Liens; (iv) indebtedness incurred
to finance (by purchase or lease) equipment constituting capital
expenditures, provided that all capital leases permitted hereby do not, in
the aggregate, exceed Two Million Dollars ($2,000,000.00) per annum; (v)
indebtedness incurred pursuant to the Deutsche Financing Agreement in an
amount not to exceed, at any time, Fifteen Million Dollars ($15,000,000.00),
in the aggregate; (vi) indebtedness incurred pursuant to the IBM Financing
Agreement in an amount not to exceed, at any time, Seven Hundred Fifty
Thousand Dollars ($750,000.00), in the aggregate; and (vii) indebtedness
subordinated to the Loan and subordinated to the liens in favor of the Lender
on terms and conditions acceptable to the Lender. Except as otherwise
expressly permitted herein, no Borrower shall mortgage, assign, pledge,
hypothecate or otherwise encumber or permit any lien, security interest or
other encumbrance, including purchase money liens, whether under conditional
or installment sales arrangements or otherwise, to affect the Collateral or
any other assets or properties of any Borrower (except for Permitted Liens),
nor shall any Borrower guarantee or otherwise become obligated for any
indebtedness of others or make any optional prepayments or any material
amendments or modifications of any existing indebtedness; it being understood
and agreed that the Parent Company's guaranty of the Deutsche Financing shall
not constitute a violation of this negative covenant. Furthermore, each
Borrower agrees that it will not enter into any agreement or understanding
with any person or entity pursuant to which any Borrower agrees to be bound
by a covenant not to encumber all or any part of the property or assets of
such Borrower, unless such agreement or understanding is entered into in
connection with the granting of purchase money security interests permitted
pursuant to the terms and provisions of this Agreement.
8. Dividends; Loans; Advances; Investments and Similar Events.
(a) Permit the Parent Company to declare or pay any
dividends on its capital stock of any class.
(b) Permit any Borrower to alter or amend any Borrower's
capital structure, purchase, redeem or otherwise retire any shares of any
Borrower's capital stock (other than the Parent Company's capital stock),
voluntarily prepay, acquire or anticipate
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<PAGE>
any sinking fund requirement of any indebtedness, or make any distributions
in cash or assets to any Borrower's shareholders; it being understood and
agreed that none of the transactions described in this subsection (b) shall
violate this negative covenant so long as all of the assets of any Borrower
party to such transaction shall continue to be under the sole and exclusive
control and ownership of a Borrower after giving affect to the applicable
transaction.
(c) Make any loans, salary advances or other payments to
(i) any shareholders of any Borrower; (ii) any corporation or other
enterprise directly or indirectly owned in whole or in part by any
shareholder of a Borrower; or (iii) any other person or entity; it being
understood and agreed that loans, salary advances and other payments between
Borrowers and trade credit extended to customers of a Borrower in the
ordinary course of business shall not be a violation of this covenant.
9. Lease Obligations. Enter into any new lease of real or
personal property, except in the ordinary course of business.
10. Deutsche Financing and IBM Financing.
(a) Permit the aggregate of the outstanding principal
balance of the Deutsche Financing, together with any and all accrued and
unpaid interest thereon and any other sums payable in connection therewith to
exceed, at any time, Fifteen Million Dollars ($15,000,000.00); or
(b) Permit the aggregate of the outstanding principal
balance of the IBM Financing, together with any and all accrued and unpaid
interest thereon and any other sums payable in connection therewith to
exceed, at any time, Seven Hundred Fifty Thousand Dollars ($750,000.00).
11. Fiscal Year and Accounting Changes. Change its fiscal year
from December 31 or make any change (i) in accounting treatment and reporting
practices except as required by GAAP or (ii) in tax reporting treatment
except as required by law.
12. Lockbox Deposits. Permit or cause any and all payments
required to be made directly to the Lender, pursuant to Section 2 of Article
XI of this Agreement, to be made or directed to any other person or entity,
without the prior approval of the Lender.
ARTICLE VIII
COLLATERAL ACCOUNT
From and after the occurrence of an Event of Default, upon the
request of the Lender, the Borrowers will deposit or cause to be deposited
into a collateral account (the
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"Collateral Account") designated by the Lender, all checks, drafts, cash and
other remittances received by the Borrowers, and shall deposit such items for
credit to the Collateral Account within one (1) Business Day of the receipt
thereof and in precisely the form received. Pending such deposit, the Borrowers
will not commingle any such items of payment with any of their other funds or
property, but will hold them separate and apart.
Each of the Borrowers hereby covenants and agrees that the
Collateral Account shall secure the Obligations and hereby grants, assigns
and transfers to the Lender, a continuing security interest in all of the
Borrowers' right, title and interest in and to the Collateral Account.
Notwithstanding anything to the contrary under state law, the Lender may
apply funds in the Collateral Account to any of the Obligations, including,
without limitation, any principal, interest or other payment(s) not made when
due, whether arising under this Loan Agreement and/or any other Loan
Document, or any other Obligation of any Borrower, without notice to the
Borrowers, without regard to the origin of the deposits in the account, the
beneficial ownership of the funds therein or whether such Obligations are
owed jointly with another or severally; the order and method of such
application to be in the sole discretion of the Lender. The Lender's right to
deduct sums due under the Loan Documents from the Borrowers' account(s) shall
not relieve the Borrowers from their obligation to make all payments required
by the Loan Documents as and when required by the Loan Documents, and the
Lender shall not have any obligation to make any such deductions or any
liability whatsoever for any failure to do so.
ARTICLE IX
DEFAULT AND REMEDIES
1. Events of Default. Any one of the following events shall be
considered an "Event of Default":
(a) if any Borrower shall fail to pay any principal,
interest or other sum owing on the Note or any other
Obligation within five (5) days of the date when the
same shall become due and payable, whether by reason
of acceleration or otherwise;
(b) if any Borrower shall fail to pay and satisfy in
full, within ten (10) days of the rendering thereof,
any judgment against such Borrower in excess of Two
Hundred Fifty Thousand Dollars ($250,000.00) which is
not, to the reasonable satisfaction of the Lender,
fully bonded, stayed, covered by insurance or covered
by appropriate reserves;
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<PAGE>
(c) if any warranty or representation set forth herein or
in any other Loan Document made by any Borrower or
any other party to any of the Loan Documents shall be
untrue in any respect as of the date when made,
including, without limitation, any information
contained in any financial statement, application,
schedule, report or other document given by any
Borrower or any other party in connection with any of
the Obligations or Loan Documents, or if any Borrower
or such other party omitted to state any fact
necessary to make such information not misleading in
any material respect;
(d) if there shall be non-compliance with or a breach of
any of the Affirmative Covenants contained in this
Agreement (other than a default in the payment of any
sum due and payable hereunder, which shall be
governed by subsection (a) above, or a breach or
violation of any of the financial covenants set forth
in Section 15 of Article VI hereof, which shall be
governed by subsection (f) below), and such
non-compliance or breach remains uncured for a period
of five (5) days;
(e) if there shall be non-compliance with or a breach of
any affirmative covenants or agreements of any
Borrower or any other person set forth in the Note or
in any other Loan Document (other than (i) the
non-compliance with or breach of any Affirmative
Covenants set forth in this Agreement, which shall be
governed by subsection (d) above, or (ii) a default
in the payment of any sum due and payable pursuant to
the Note or any other Loan Document, which shall be
governed by subsection (a) above), and such
non-compliance or breach remains uncured beyond any
applicable notice/grace period set forth therein;
(f) if there shall be non-compliance with or a breach of
any of the Negative Covenants contained in this
Agreement or if there shall be non-compliance with or
a breach of any of the financial covenants set forth
in Section 15 of Article VI of this Agreement, or if
there shall be non-compliance with or a breach of any
other negative covenants of any Borrower or any other
person set forth herein, in any Note or in any other
Loan Document;
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(g) if (i) without the prior written consent of the
Lender, any Borrower shall be liquidated or dissolved
or shall discontinue its business, and the assets of
such Borrower have not been transferred to another
Borrower; (ii) a trustee or receiver is appointed for
any Borrower or for all or a substantial part of its
assets; (iii) any Borrower makes a general assignment
for the benefit of creditors; (iv) any Borrower files
or is the subject of any insolvency proceeding or
petition in bankruptcy, which in the case of an
involuntary bankruptcy, remains undismissed for sixty
(60) days; (v) any Borrower shall become insolvent or
at any time fail generally to pay its debts as such
debts become due; or (vi) any governmental agency or
bankruptcy court or other court of competent
jurisdiction shall assume custody or control of the
whole or any part of the assets of any Borrower;
(h) if any Borrower's property or assets, including,
without limitation, any deposit accounts, are levied
upon, attached or subject to any other enforcement
proceeding, which is not fully bonded or stayed;
(i) themerger, consolidation or reorganization of any
Borrower not otherwise permitted pursuant to the
terms of this Agreement, without the prior written
consent of the Lender;
(j) ifany obligation of any Borrower for the payment of
borrowed money, which involves amounts in excess of
Two Hundred Fifty Thousand Dollars ($250,000.00),
whether now existing or hereafter created, incurred
or arising, becomes or is declared to be due and
payable prior to the expressed maturity thereof,
whether such obligation is owed to the Lender or any
other person;
(k) if(i) there shall be a default by a Borrower under
any Material Contract; (ii) a notice of termination
shall have been issued to a Borrower under any
Material Contract; or (iii) a cure notice issued to a
Borrower under any Material Contract shall remain
uncured beyond (x) the expiration of the time period
available to any Borrower pursuant to such Material
Contract and/or such cure notice, to cure the noticed
default, or (y) the date on which the other
contracting party is entitled to exercise its rights
and
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remedies under the Material Contract as a consequence
of such default;
(l) if(i) any Borrower is debarred or suspended from
contracting with any part of the Government; (ii) a
notice of debarment or suspension shall have been
issued to any Borrower; (iii) a notice of termination
or the actual termination of any Government Contract
shall have been issued to or received by any Borrower
(other than a termination for convenience approved by
the Lender); or (iv) a Government investigation or
inquiry relating to any Borrower shall have been
commenced in connection with (a) any Borrower's
activities, which investigation could reasonably
result in criminal or civil liability, suspension,
debarment or any other adverse administrative action
arising by reason of alleged fraud, willful
misconduct, neglect, default or other wrongdoing; or
(b) any Government Contract;
(m) if any Letter of Credit issued for the benefit of
Deutsche, IBM or any other beneficiary is drawn upon
and/or presented to the Lender for payment;
(n) if any Borrower shall be in default under the
Deutsche Financing Agreement, the IBM Financing
Agreement or any other agreement, document or
instrument entered into in connection with the
Deutsche Financing or IBM Financing, or if any person
or entity (other than the Lender) shall be in breach
or in violation of the Deutsche Subordination
Agreement or IBM Subordination Agreement; and/or
(o) if any Borrower is in default under any contract or
agreement, financial or otherwise, between such
Borrower, as the case may be, and any other person,
involving amounts in excess of Five Hundred Thousand
Dollars ($500,000.00), and the other party thereto
commences exercise of its rights and remedies under
such contract or agreement as a consequence of such
default.
2. Remedies. Upon the occurrence of any Event of Default, the
Lender may exercise any or all of the following remedies:
(a) Withhold disbursement of all or any part of the Loan
proceeds; it being understood and agreed that
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notwithstanding the foregoing, the Lender shall have
no obligation to make any advance or disbursement
pursuant to the terms of this Agreement or otherwise
if any act, event or condition exists which with
notice or the lapse of time, or both, would
constitute an Event of Default;
(b) Terminate the Lender's obligation to make further
disbursements of the Loan proceeds;
(c) Declare all principal, interest and other sums owing
on the Obligations to be immediately due and payable
without demand, protest, notice of protest, notice of
default, presentment for payment or further notice of
any kind; provided, however, that payments of amounts
hereunder shall not be accelerated by reason of (i) a
default in the payment of any sum due and payable
hereunder or pursuant to any other Loan Document (a
"Payment Default"), unless such Payment Default
remains uncured for five (5) days (with no notice of
default being required); and (ii) a default other
than a Payment Default (a "Non-Payment Default"),
unless such Non-Payment Default remains uncured for
ten (10) days following notice thereof from the
Lender to the Borrowers. Notwithstanding the
foregoing, no notice of a Non-Payment Default shall
be required prior to acceleration or prior to the
Lender exercising any other right or remedy under
this Agreement or any other Loan Document, if (i) the
Lender in good faith believes that any such delay
would jeopardize the Lender's security or the
Lender's lien priority or (ii) the default is a
violation of Section 3(c) of Article VI of this
Agreement;
(d) Without notice, offset and apply against all or any
part of the Obligations then owing by any Borrower to
the Lender, any and all money, credits, stocks, bonds
or other securities or property of any Borrower of
any kind or nature whatsoever on deposit with, held
by or in the possession of the Lender in any capacity
whatsoever, including, without limitation, any
deposits with any Lender or any of its affiliates, to
the credit of or for the account of any Borrower.
Notwithstanding any applicable state law to the
contrary, the Lender is authorized at any time to
charge the Obligations against any Borrower's
account(s) in Lender's possession or in the
possession of any other person or entity for and on
behalf of the Lender, without regard to the
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origin of deposits to the account or beneficial
ownership of the funds;
(e) Exercise all rights, powers and remedies of a secured
party under the Uniform Commercial Code in effect in
the Commonwealth of Virginia, any other jurisdiction
in which the Collateral is located and/or any other
applicable law(s), including, without limitation, the
right to (i) require any Borrower to assemble the
Collateral (to the extent that it is movable) and
make it available to the Lender at a place to be
designated by the Lender, and (ii) enter upon any
Borrower's premises, peaceably by the Lender's own
means or with legal process, and take possession of,
render unusable or dispose of the Collateral on such
premises; each Borrowers hereby agreeing not to
resist or interfere with any such action. The Lender
agrees to give the Borrowers written notice of the
time and place of any public sale of the Collateral
or any part thereof, and the time after which any
private sale or any other intended disposition of the
Collateral is to be made, and such notice will be
mailed, postage prepaid, to the principal place of
business of the Parent Company, at least ten (10)
days before the time of any such sale or disposition.
Each Borrower hereby authorizes and appoints the
Lender and its successors and assigns to (x) sell the
Collateral, and (y) declare that each Borrower
assents to the passage of a decree by a court of
proper jurisdiction for the sale of the Collateral.
Any such sale pursuant to (x) or (y) above is to be
made in accordance with the applicable provisions of
the laws and rules of procedure of the Commonwealth
of Virginia or other applicable law; and/or
(f) Proceed to enforce such other and additional rights
and remedies as the Lender may have hereunder, and/or
under any of the other Loan Documents, or as may be
provided by applicable law.
It is expressly understood and agreed that the Lender may
exercise its rights under this Agreement or under any other Loan Document
without exercising the rights or affecting the security afforded by any other
Loan Document, and it is further understood and agreed that the Lender may
proceed against all or any portion of the Collateral in such order and at
such times as the Lender, in its sole discretion, sees fit; and each Borrower
hereby expressly waives, to the extent permitted by law, all benefit of
valuation, appraisement, marshaling of assets and all exemptions under the
laws of the
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Commonwealth of Virginia and/or any other state, district or territory of the
United States. Furthermore, if any Borrower shall default in the performance
when due of any of the provisions of this Agreement, the Lender, without
notice to or demand upon any Borrower (and without any grace or cure period)
and without waiving or releasing any of the Obligations or any default
hereunder, under the Note or under any other Loan Document, may (but shall be
under no obligation to) perform the same for such Borrower's account, and any
monies expended in so doing shall be chargeable to such Borrower with
interest, at the rate of interest payable under Note, plus three percent
(3%), and added to the indebtedness secured by the Collateral.
All sums paid or advanced by the Lender in connection with the
foregoing or otherwise in connection with the Loan, and all court costs and
expenses of collection, including without limitation, reasonable
out-of-pocket attorneys' fees and expenses (and out-of-pocket fees and
expenses resulting from the taking, holding or disposition of the Collateral)
incurred in connection therewith shall be paid by the Borrowers upon demand
and shall become a part of the Obligations secured by the Collateral. The
Borrowers agree to bear the expense of each lien search, property and
judgment report or other form of Collateral ownership investigation as the
Lender in its discretion, shall deem necessary or desirable to assure or
further assure to the Lender its interests in the Collateral.
ARTICLE X
[INTENTIONALLY OMITTED]
ARTICLE XI
CERTAIN ADDITIONAL RIGHTS AND OBLIGATIONS
REGARDING THE COLLATERAL
1.Power of Attorney. Each Borrower hereby irrevocably appoints
the Lender as its agent and attorney-in-fact, with power of substitution,
having full power and authority, in its own name, in the name of any Borrower
or otherwise (but at the cost and expense of the Borrowers and without notice
to the Borrowers), to (i) notify account debtors obligated on any of the
Receivables to make payments thereon directly to the lockbox referenced in
Section 2 of this Article XI, and to take control of the cash and non-cash
proceeds of any such Receivables and apply the same to the Obligations as and
when due (whether by acceleration or otherwise), which right the Lender may
exercise at any time whether or not the Borrowers are then in default
hereunder or were theretofore making collections thereon; (ii) charge against
any bank account of any Borrower any item of payment credited to the
Collateral Account which is dishonored by the drawee or the Maker thereof;
(iii) compromise, extend or renew any of the Collateral constituting
Receivables or deal with any of the Collateral as the Lender may deem
reasonably necessary or advisable; (iv) release its interest in, make
exchanges or substitutions for and/or
43
<PAGE>
surrender, all or any part of any Borrower's interest in all or any part of
the Collateral; (v) remove from any Borrower's place(s) of business all
books, records, ledger sheets, correspondence, invoices and documents
relating to or evidencing any of the Collateral, or without cost or expense
to the Lender, make such use of any Borrower's place(s) of business as may be
reasonably necessary to administer, control and/or collect the Collateral (it
being understood and agreed, that in the absence of an Event of Default, the
Lender shall provide five (5) days prior notice to the Borrower before taking
any action pursuant to this subsection (v)); (vi) repair, alter or supply
goods, if any, necessary to fulfill in whole or in part the purchase order of
any account debtor; (vii) demand, collect receipt for and give renewals,
extensions, discharges and releases of all or any part of the Collateral;
(viii) institute and prosecute legal and equitable proceedings to enforce
collection of, or realize upon, all or any part of the Collateral; (ix)
settle, renew, extend, compromise, compound, exchange or adjust claims with
respect to all or any part of the Collateral or any legal proceedings brought
with respect thereto; and (x) receive and open all mail addressed to any
Borrower, and if a default exists hereunder, notify the Post Office
authorities to change the address for the delivery of mail to any Borrower to
such address as the Lender may designate; it being understood that the rights
granted to the Lender in this Article XI, which are operative on the
occurrence of an Event of Default, shall not in any way limit or impair the
other rights provided to the Lender in this Agreement or any other Loan
Document, including, without limitation, its rights with respect to the
Collateral Account and the below-referenced lockbox. Furthermore, each
Borrower hereby irrevocably appoints the Lender as its agent and
attorney-in-fact, with power of substitution, having full power and
authority, in its own name, in the name of the Lender, in the name of any
Borrower or otherwise (but at the cost and expense of the Borrowers and
without notice to any Borrower) and regardless of whether an Event of Default
has occurred or any act, event or condition which with notice or the lapse of
time, or both, would constitute an Event of Default has occurred, to (a) file
financing statements and continuation statements covering the Collateral and
execute the same on behalf of any Borrower; (b) charge against any banking
account of any Borrower any item of payment credited to any Borrower's
account which is dishonored by the drawee or maker thereof; and/or (iii)
endorse the name of any Borrower upon any items of payment relating to the
Collateral or upon any proof of claim in bankruptcy against any account
debtor of a Borrower. This power of attorney is coupled with an interest and
cannot be revoked, modified or amended without the prior written consent of
the Lender.
2. Lockbox. Each Borrower hereby authorizes the Lender to
receive and collect any amount or amounts due or to become due on account of
any Receivables and, at its discretion following the occurrence of an Event
of Default, to apply the same to the repayment of the Note, and each Borrower
agrees that, upon Lender's request, it shall establish and shall continually
maintain on terms and conditions satisfactory to the Lender in all respects,
one or more lockboxes (and, if required by the Lender, one or more blocked
accounts) for the collection of Receivables. Except as otherwise may be
approved by the Lender in writing, any checks or other remittances received
by any Borrower in payment of
44
<PAGE>
the Receivables shall be held in trust by such Borrower for the Lender. Each
Borrower shall, within thirty (30) days from the date hereof (or within such
longer period as may be reasonably required by a Borrower), direct all of its
customers (other than certain customers as may be approved by the Lender) to
make payments directly to the Lender, and/or include on all of its invoices, a
direction to its customer to make all payments directly to the Lender, at the
address and account number provided by the Lender to the Borrower in writing.
3. Other Agreements. Except as may otherwise be expressly
permitted by the terms of this Agreement, and without limiting any other
restrictions or provisions of this Agreement, each Borrower will (i) on demand
(during the occurrence of an Event of Default) or within five (5) days of
Lender's request therefor (in the absence of an Event of Default), subject to
any confidentiality and secrecy requirements imposed by any Government agency,
make available in form reasonably acceptable to the Lender, shipping documents
and delivery receipts evidencing the shipment of goods which gave rise to the
sale or lease of inventory or of an account, contract right or chattel paper,
completion certificates or other proof of the satisfactory performance of
services which gave rise to the sale or lease of inventory or of an account,
contract right or chattel paper, and each Borrower's copy of any written
contract or order from which a sale or lease of inventory, an account, contract
right or chattel paper arose; and (ii) when requested, advise the Lender when an
account debtor returns or refuses to retain any goods, the sale or lease of
which gave rise to an account, contract right or chattel paper, and of any delay
in delivery or performance, or claims made in regard to any sale or lease of
inventory, account, contract right or chattel paper. Upon reasonable notice, all
such records will be available for examination by authorized agents of the
Lender.
It is expressly understood and agreed, however, that the Lender
shall not be required or obligated in any manner to make any inquiries as to the
nature or sufficiency of any payment received by it or to present or file any
claims or take any other action to collect or enforce a payment of any amounts
which may have been assigned to it or to which it may be entitled hereunder at
any time or times.
ARTICLE XII
MISCELLANEOUS
1. Remedies Cumulative. Each right, power and remedy of the
Lender provided for in this Agreement or in any other Loan Document or now or
hereafter existing at law or in equity, by statute or otherwise, shall be
cumulative and concurrent and shall be in addition to every other right, power
or remedy provided for in this Agreement or in any other Loan Document, or now
or hereafter existing at law or in equity, by statute or otherwise, and the
exercise or beginning of the exercise by the Lender of any one or
45
<PAGE>
more of such rights, powers or remedies shall not preclude the simultaneous or
later exercise by the Lender of any or all such other rights, powers or
remedies.
2. Waiver. Time is of the essence of this Agreement. No failure
or delay by the Lender to insist upon the strict performance of any term,
condition, covenant or agreement set forth in this Agreement or any other Loan
Document, or to exercise any right, power or remedy consequent upon a breach
thereof, shall constitute a waiver of such term, condition, covenant or
agreement or of any such breach, or preclude the Lender from exercising any such
right, power or remedy at any later time or times. By accepting payment after
the due date of any of the Obligations, the Lender shall not be deemed to have
waived either the right to require prompt payment when due of all other
Obligations, or the right to declare a default for failure to make payment of
any such other Obligations.
3. Notices. Notices to any party shall be in writing and shall be
delivered personally or by first-class mail or nationally-recognized overnight
delivery service addressed to the parties at the addresses set forth below or
otherwise designated in writing:
If to the Borrowers: Condor Technology Solutions, Inc.
Annapolis Office Plaza
170 Jennifer Road, Suite 325
Annapolis, Maryland 21401
Attention: William Caragol
Chief Financial Officer
If to the Lender: First Union Commercial Corporation
1970 Chain Bridge Road
5th Floor
McLean, Virginia 22101
Attention: Chris R. Hetterly
Vice President
with a copy of all notices
to the Lender to: Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
Attention: Matthew S. Bergman, Esq.
with a copy of all notices
to the Borrowers to: Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Attention: Christopher T. Jensen, Esq.
46
<PAGE>
4. Entire Agreement. This Agreement and the other Loan Documents
constitute the entire agreement of the parties with respect to the Loan and
shall continue in full force and effect for so long as any Borrower shall be
indebted hereunder or under the Note, and thereafter until the Lender shall have
actually received written notice of the termination hereof from the Borrowers
and all Obligations incurred or contracted before receipt of such notice shall
have been fully paid. In the event of any inconsistency between the terms and
conditions of this Agreement and the terms and conditions of the Commitment
Letter, the terms and conditions of this Agreement shall control.
5. Relationship of the Parties. This Agreement provides for the
extension of financial accommodations by the Lender, in its capacity as lender,
to the Borrowers, in their capacity as Borrowers, and for the payment of
interest and repayment of the Obligations by the Borrowers. Certain provisions
herein, such as those relating to compliance with the financial covenants,
delivery to the Lender of financial statements, and compliance with other
affirmative and negative covenants are for the benefit of the Lender to protect
the Lender's interests in assuring repayment of the Obligations. Nothing
contained in this Agreement shall be construed as permitting or obligating the
Lender to act as a financial or business advisor or consultant to any Borrower,
as permitting or obligating the Lender to control any Borrower or to conduct any
Borrower's operations, as creating any fiduciary obligation on the part of the
Lender to any Borrower, or as creating any joint venture, agency or other
relationship between the parties other than as explicitly and specifically
stated in this Agreement. Each Borrower acknowledges that it has had the
opportunity to obtain the advice of experienced counsel of its own choosing in
connection with the negotiation and execution of this Agreement and to obtain
the advice of such counsel with respect to all matters contained herein,
including, without limitation, the provision in this Agreement for waiver of
trial by jury. Each Borrower further acknowledges that it is experienced with
respect to financial and credit matters and has made its own independent
decision to request the Obligations and execute and deliver this Agreement.
6. Waiver of Jury Trial. Each Borrower hereby (a) covenants and
agrees not to elect a trial by jury of any issue triable by a jury, and (b)
waives any right to trial by jury fully to the extent that any such right shall
now or hereafter exist. This waiver of right to trial by jury is separately
given by each Borrower, knowingly and voluntarily, and this waiver is intended
to encompass individually each instance and each issue as to which the right to
a jury trial would otherwise accrue. The Lender is hereby authorized and
requested to submit this Agreement to any court having jurisdiction over the
subject matter and the parties hereto, so as to serve as conclusive evidence of
each Borrower's herein contained waiver of the right to jury trial. Further,
each Borrower hereby certifies that no representative or agent of the Lender
(including the Lender's counsel) has represented, expressly or otherwise, to the
undersigned that the Lender will not seek to enforce this provision waiving the
right to a trial by jury.
47
<PAGE>
7. Submission to Jurisdiction; Service of Process; Venue. Any
judicial proceeding brought against any Borrower with respect to this Agreement
or any other Loan Document may be brought in any court of competent jurisdiction
in the Commonwealth of Virginia, and by execution and delivery of this
Agreement, each Borrower accepts for itself and in connection with its
properties, generally and unconditionally, the non-exclusive jurisdiction of the
aforesaid court, and irrevocably agree to be bound by any judgment rendered by
such court in connection with this Agreement. Each Borrower irrevocably
designates and appoints William Caragol whose address is c/o Condor Technology
Solutions, Inc., Annapolis Office Plaza, 170 Jennifer Road, Suite 325,
Annapolis, Maryland 21401, as their agent to receive on its behalf service of
all process in any such proceeding in any court in the Commonwealth of Virginia,
such service being hereby acknowledged by each Borrower to be effective and
binding on each of them in every respect. A copy of any such process so served
shall be mailed by registered or certified mail to the Borrowers at the address
to which notices are to be addressed in accordance with this Agreement, except
that any failure to mail such copy shall not affect the validity of service of
process. The Borrowers shall at all times maintain an agent for service of
process pursuant to this provision. If the Borrowers fail to appoint such an
agent, or if such agent refuses to accept service, each Borrower hereby agrees
that service upon each of them by mail shall constitute sufficient notice.
Nothing herein shall affect the right to serve process in any other manner
permitted by law or shall limit the right of the Lender to bring proceedings
against any Borrower in the courts of any other jurisdiction.
8. Changes in Capital Requirements. If after the date of this
Agreement the Lender shall determine that the adoption of any applicable law,
rule or regulation regarding capital adequacy, or any change therein, or any
change in the interpretation or administration thereof, or compliance by the
Lender with any request or directive regarding capital adequacy of any
authority, central bank or comparable agency, which adoption, change or
compliance is applicable to all banks generally or to banks similar in size, has
or would have the effect of reducing the rate of return on the Lender's capital
as a consequence of the Lender's obligations hereunder to a level below that
which the Lender could have achieved but for such adoption, change or compliance
(taking into consideration the Lender's policies with respect to capital
adequacy), then the interest rate on the Note shall be increased to a rate which
shall retain the Lender's original rate of return on the Lender's capital.
9. Captions. The paragraph headings of this Agreement are for
convenience of reference only, and in no way define, limit or describe the scope
of this Agreement or the intent of any provision hereof.
10. Modification and Waiver. Neither this Agreement nor any term,
condition, covenant or agreement hereof may be changed, waived, discharged or
terminated orally, but that may be accomplished only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought.
48
<PAGE>
11. Transferability.
(a) No Borrower shall assign any of its rights, interests or
Obligations under this Agreement.
(b) The Lender may assign its interest, in the ordinary course
of its commercial banking business, at any time, or sell participations in some
but not all of its rights and obligations under this Agreement and the other
Loan Documents; provided that the Lender and any assignee or purchaser under
such assignment or sale shall have agreed that, except as otherwise expressly
provided below, the right to approve amendments or waivers pursuant to this
Agreement or the other Loan Documents shall require the vote of the such Lender
parties hereto holding, in the aggregate, at least fifty-one percent (51%) of
the Commitment Amount. Notwithstanding the foregoing, if at any time more than
one Lender shall be a party to this Agreement, the consent or approval of all of
the Lender parties hereto shall be required to (i) extend the final maturity of
the Loan or any Note, reduce the interest rate payable on or extend the time of
payment for any installment of principal, interest or fees payable in connection
with the Loan beyond the grace period applicable thereto (if any), or issue
Letters of Credit (A) having an expiration date beyond the Maturity Date, except
as otherwise expressly provided in this Agreement, or (B) causing the aggregate
outstanding amount of all such Letters of Credit issued to exceed Fifteen
Million Dollars ($15,000,000); (ii) change the percentage of the Commitment
Amount of any Lender, (iii) release all or a substantial portion of the
Collateral, except in accordance with the provisions of any applicable Loan
Document, (iv) amend the definition of the Required Lenders (which will be
defined concurrent with the joinder of a Lender party hereto), (v) consent to
the assignment or transfer by any Borrower of any of its rights or obligations
hereunder (other than assignments or transfers expressly permitted by the terms
of this Agreement), (vi) amend, modify or waive any provisions of this Section,
(vii) change the manner of application by the Lender of payments made under the
Loan Documents, or (viii) change the method of calculation used in connection
with the computation of interest, commissions or fees payable to the Lender
parties hereto.
12. Governing Law; Binding Effect. This Agreement shall be
governed by the laws of the Commonwealth of Virginia and be binding upon each
Borrower and inure to the benefit of the parties hereto and their respective
personal representatives, successors and assigns.
13. Gender; Number. As used herein, the singular number shall
include the plural, the plural the singular and the use of the masculine,
feminine or neuter gender shall include all genders, as the context may require.
14. Joint and Several Liability. Each Borrower shall be jointly
and severally liable for the payment and performance of all obligations and
liabilities hereunder.
49
<PAGE>
15. Materiality. Unless the context clearly indicates to the
contrary, determinations regarding the materiality of any act, event, condition
or circumstance shall be in the reasonable judgment of the Lender.
16. Confidentiality. The Lender shall keep confidential, and will
cause its directors, officers, employees, counsel, agents and representatives to
keep confidential, all confidential or proprietary information of any Borrower
(the proprietary nature of which shall be promptly determined by the Borrower
following the Lender's request therefor) and documents obtained by it in
connection with the consummation of the transactions contemplated hereby
(including, without limitation this Agreement and the other Loan Documents) from
all persons, including, without limitation, its affiliates, unless such
information is disclosed following the Lender's receipt of the Parent Company's
consent to such disclosure. Information shall not be deemed to be confidential
or proprietary if (i) it is or becomes generally available in the public domain
(other than as a result of its disclosure after the date of this Agreement by
the Lender or its directors, officers, employees, counsel, agents or
representatives), (ii) it is or has become generally available to the public
without violating the terms of this Section 16, (iii) it is or becomes lawfully
obtainable from other sources, or (iv) it is required to be disclosed to comply
with applicable law, rules or regulations or a court order issued by a court of
competent jurisdiction; it being understood and agreed that (a) any such
disclosure pursuant to this clause (iv) shall be limited to confidential or
proprietary information which the Lender may be legally required to disclose
pursuant to such law, rule, regulation or court order; and (b) unless otherwise
prohibited by court order or applicable law, the Lender shall promptly notify
the Borrower of Lender's receipt of any court order requiring disclosure of
confidential or proprietary information of the Borrower. The Lender acknowledges
and agrees that all confidential and proprietary information in Lender's
possession, custody or control shall be returned to the Parent Company upon
payment in full of all Obligations and termination of this Agreement. The
Lender's obligations under this Section 16 shall survive the payment in full of
the Obligations.
[Remainder of page intentionally left blank]
50
<PAGE>
This Agreement is signed, sealed and delivered this as of the
date and year first above written.
WITNESS: Borrowers:
[Corporate Seal] CONDOR TECHNOLOGY SOLUTIONS,
INC., a Delaware corporation
By: /s/ Matthew S. Bergman By: /s/ William J. Caragol, Jr.
--------------------------- -------------------------------
Name: Matthew S. Bergman Name: William J. Caragol, Jr.
Title: Witness Title: Secretary and Chief Financial Officer
WITNESS: MANAGEMENT SUPPORT
[Corporate Seal] TECHNOLOGY, a Delaware corporation
By: /s/ Matthew S. Bergman By: /s/ William J. Caragol, Jr.
------------------------------ -------------------------------
Name: Matthew S. Bergman Name: William J. Caragol, Jr.
Title: Witness Title: Attorney-in-Fact
[Corporate Seal] COMPUTER HARDWARE
MAINTENANCE COMPANY, INC.,
a Pennsylvania corporation
By: /s/ Matthew S. Bergman By: /s/ William J. Caragol, Jr.
------------------------------ -------------------------------
Name: Matthew S. Bergman Name: William J. Caragol, Jr.
Title: Witness Title: Attorney-in-Fact
[Corporate Seal] FEDERAL COMPUTER
CORPORATION, a Virginia corporation
By: /s/ Matthew S. Bergman By: /s/ William J. Caragol, Jr.
------------------------------ -------------------------------
Name: Matthew S. Bergman Name: William J. Caragol, Jr.
Title: Witness Title: Attorney-in-Fact
[Signatures continue on following page]
51
<PAGE>
[Corporate Seal] CORPORATE ACCESS, INC., a
Massachusetts corporation
a Pennsylvania corporation
By: /s/ Matthew S. Bergman By: /s/ William J. Caragol, Jr.
------------------------------ -------------------------------
Name: Matthew S. Bergman Name: William J. Caragol, Jr.
Title: Witness Title: Attorney-in-Fact
[Corporate Seal] INTERACTIVE SOFTWARE SYSTEMS
INCORPORATED, a Colorado corporation
By: /s/ Matthew S. Bergman By: /s/ William J. Caragol, Jr.
------------------------------ -------------------------------
Name: Matthew S. Bergman Name: William J. Caragol, Jr.
Title: Witness Title: Attorney-in-Fact
[Corporate Seal] U.S. COMMUNICATIONS, INC., a
Maryland corporation
By: /s/ Matthew S. Bergman By: /s/ William J. Caragol, Jr.
------------------------------ -------------------------------
Name: Matthew S. Bergman Name: William J. Caragol, Jr.
Title: Witness Title: Attorney-in-Fact
[Corporate Seal] INVENTURE GROUP, INC., a
Pennsylvania corporation
By: /s/ Matthew S. Bergman By: /s/ William J. Caragol, Jr.
------------------------------ -------------------------------
Name: Matthew S. Bergman Name: William J. Caragol, Jr.
Title: Witness Title: Attorney-in-Fact
[Corporate Seal] MIS TECHNOLOGIES, INC., an
Oklahoma corporation
By: /s/ Matthew S. Bergman By: /s/ William J. Caragol, Jr.
------------------------------ -------------------------------
Name: Matthew S. Bergman Name: William J. Caragol, Jr.
Title: Witness Title: Attorney-in-Fact
[Signatures continue on following page]
52
<PAGE>
LENDER:
FIRST UNION COMMERCIAL
CORPORATION, a North Carolina
corporation
By: /s/ Chris R. Hetterly
------------------------------
Name: Chris R. Hetterly
Title: Vice President
53
<PAGE>
REVOLVING PROMISSORY NOTE
$35,000,000.00 April 15, 1998
FOR VALUE RECEIVED, on or before April 15, 2001, the
undersigned, CONDOR TECHNOLOGY SOLUTIONS, INC., a Delaware corporation,
MANAGEMENT SUPPORT TECHNOLOGY CORP., a Delaware corporation, COMPUTER HARDWARE
MAINTENANCE COMPANY, INC., a Pennsylvania corporation, FEDERAL COMPUTER
CORPORATION, a Virginia corporation, CORPORATE ACCESS, INC., a Massachusetts
corporation, INTERACTIVE SOFTWARE SYSTEMS INCORPORATED, a Colorado corporation,
U.S. COMMUNICATIONS, INC., a Maryland corporation, INVENTURE GROUP, INC., a
Pennsylvania corporation, and MIS TECHNOLOGIES, INC., an Oklahoma corporation
(collectively, the "Maker"), jointly and severally promise to pay to the order
of First Union Commercial Corporation, a North Carolina corporation ("the
Lender"), at 1970 Chain Bridge Road, 5th Floor, McLean, Virginia 22102, or to
such other person or address as the Lender may from time to time designate in
writing, the principal sum of Thirty-five Million and No/100 Dollars
($35,000,000.00), or so much thereof as shall be advanced or readvanced and from
time to time remain unpaid, plus interest on the principal balance thereof from
time to time outstanding from the date of this Note until the date paid, at the
rates set forth below. This Note shall bear interest on either a LIBOR or Base
Rate basis as more fully set forth herein and in the hereinafter defined Loan
Agreement. Unless otherwise defined herein, capitalized terms shall have the
meanings attributed to such terms in the Loan Agreement.
The entire principal balance of this Note, together with all
accrued and unpaid interest thereon and other sums payable hereunder or pursuant
to the Loan Documents shall, unless sooner accelerated in accordance with the
terms of this Note, the Loan
<PAGE>
Agreement or any other Loan Document, be due and payable in full on April 15,
2001 (the "Maturity Date"). Interest on this Note shall be payable in
installments as follows:
(i) Amounts bearing interest on a Base Rate basis shall
be payable in monthly installments of accrued
interest only, commencing on May 1, 1998, and
continuing on the first day of each succeeding
calendar month thereafter until the Maturity Date;
and
(ii) Amounts bearing interest on a LIBOR basis shall be
due and payable on the last day of the applicable
Interest Period (whether such last day shall occur by
reason of acceleration, declaration, extension or
otherwise), and if such applicable Interest Period is
longer than ninety (90) days, also on the ninetieth
(90th) day of each applicable Interest Period.
Base Rate interest shall be calculated on a 365-day year basis
and the actual number of days elapsed. LIBOR interest shall be calculated on a
360-day year basis and the actual number of days elapsed.
In addition to the above-scheduled installments of accrued
interest only, the Maker shall also make the Mandatory Payments required to be
paid in accordance with Section 5 of Article I of the Loan Agreement. Such
Mandatory Payments shall be made simultaneously with the occurrence of the event
giving rise to the Mandatory Payment. All payments hereunder shall be payable in
lawful currency of the United States and in immediately available funds, and
payments shall be applied first to late charges and costs of collection, if any,
then to accrued and unpaid interest, and then to reduce the principal balance
hereof.
Except for amounts bearing interest on a LIBOR basis in
accordance with the terms and provisions of this Note and the Loan Agreement,
amounts outstanding under this Note shall bear interest at a floating rate which
is at all times equal to the Base Rate from time to time in effect, plus the
applicable Additional Base Rate Interest Margin (hereinafter defined). For
purposes of this Note, the term Base Rate shall mean the higher
2
<PAGE>
of (i) the Federal Funds Rate, plus one-half of one percent (.50%), or (ii) the
Prime Rate. The Base Rate of interest payable hereunder shall be adjusted as and
when any change in the Base Rate shall occur.
So long as no Event of Default or any act, event or condition
which with notice or the passage of time, or both, would constitute an Event of
Default, has occurred and is continuing, the Maker shall have the right to elect
that specified amounts advanced under this Note bear interest at LIBOR, plus the
applicable Additional LIBOR Interest Rate Margin (hereinafter defined) in effect
at the commencement of the particular Interest Period. The Maker must elect a
LIBOR based interest rate in accordance with the specific procedures set forth
in the Loan Agreement (including the Exhibits thereto), and any amounts bearing
interest on a LIBOR basis shall be subject to the conditions, requirements and
other terms of the Loan Documents applicable to amounts bearing interest on such
basis, including the prepayment limitations and provisions regarding the payment
of associated costs, as more fully set forth in the Loan Agreement. The Maker
may not revoke any LIBOR election without the Lender's written consent. Upon the
expiration of an applicable Interest Period, unless the Maker is then entitled
to again elect a LIBOR based rate and the Lender has received a notice of LIBOR
election from the Maker in the form of Exhibit 2 to the Loan Agreement (the
"LIBOR Election Notice"), the rate of interest applicable to any amounts for
which a LIBOR based rate is expiring shall from and after the end of the
applicable Interest Period, bear interest at the Base Rate plus the applicable
Additional Base Rate Interest Margin; it being understood and agreed, however,
that such amount may, at any time thereafter, bear interest at the LIBOR based
rate, plus the applicable Additional LIBOR Interest Rate Margin, provided that
(i) the Maker is then entitled to elect a LIBOR based rate, and (ii) the Lender
has received a LIBOR Election Notice from the Maker.
For purposes of this Note, the Additional Base Rate Interest
Margin and the Additional LIBOR Interest Rate Margin shall be determined on the
basis of the Maker's
3
<PAGE>
ratio (the "Pricing Ratio") of Total Funded Debt to Pro Forma EBITDA, calculated
in accordance with Section 15 of Article VI of the Loan Agreement. During the
period from the date of this Note through Setember 30, 1998, the Pricing Ratio
shall be calculated by annualizing the Pro Forma EBITDA for the period which has
elapsed since the date of this Note. Thereafter, the Pricing Ratio shall be
calculated on a four (4) quarter Pro Forma trailing basis. The applicable
Additional Base Rate Interest Margin and Additional LIBOR Interest Rate Margin
(collectively, the "Margin") shall be as follows:
<TABLE>
<CAPTION>
Additional Base Rate Additional LIBOR
Pricing Ratio Interest Margin Interest Rate Margin
- ------------------------------------- ---------------------- ---------------------
<S> <C> <C>
Less than 1.5 to 1.0 .25% 1.50%
Equal to or greater than 1.5 to .50% 1.75%
1.0, but less than 2.0 to 1.0
Equal to or greater than 2.0 to .75% 2.00%
1.0, but less than 2.5 to 1.0
Equal to or greater than 2.5 to 1.00% 2.25%
1.0, but less than 3.0 to 1.0
Greater than 3.0 to 1.0 1.25% 2.50%
</TABLE>
Interest rate adjustments hereunder shall be applicable on a prospective basis.
The Additional Base Rate Interest Margin and Additional LIBOR Interest Rate
Margin shall be calculated by and become effective on the fifth (5th) Business
Day after submission by the Maker of the quarterly financial statements required
by the Loan Agreement; it being understood, however, that in the event the
quarterly financial statements are not submitted when due, the Maker shall not
be entitled to any reduction in the interest rate for the ensuing period.
Upon the occurrence of an Event of Default hereunder or under the
Loan Agreement (i) the entire outstanding principal balance of this Note shall
thereafter bear interest at a rate which is three percent (3%) per annum above
the Base Rate or LIBOR, as applicable, plus the highest Margin, regardless of
the Pricing Ratio at such time; and (ii)
4
<PAGE>
subject to Section 2(c) of Article IX of the Loan Agreement, the entire
principal balance of this Note and all accrued and unpaid interest thereon shall
at once become due and payable in full at the option of the holder of this Note.
Failure to exercise the foregoing option to accelerate payment shall not
constitute a waiver of the right to exercise the same at any future point in
time.
Subject to the terms and provisions set forth below in this
paragraph, amounts outstanding hereunder which bear interest on a Base Rate
basis may be prepaid, in whole or in part, without penalty or premium. Amounts
outstanding which bear interest on a LIBOR basis may also be prepaid, in whole
or in part, after two (2) Business Days' prior notice (i) without penalty or
premium, if such prepayment is made on the last day of the applicable Interest
Period, or (ii) provided such prepayment is accompanied by the required
Prepayment Fee (as defined in Exhibit 3 to the Loan Agreement), if such
prepayment is made at any time other than on the last day of the applicable
Interest Period, and provided that all accrued and unpaid interest on the
amounts being prepaid are also paid with such prepayment. Furthermore, each
principal prepayment, whether the amount being prepaid bears interest on a Base
Rate basis or a LIBOR basis, (a) must be in an amount not less than One Hundred
Thousand and No/100 Dollars ($100,000.00) and must be in increments of One
Hundred Thousand and No/100 Dollars ($100,000.00) and (b) shall be subject to
the additional conditions, requirements, terms and provisions of the Loan
Agreement relating to prepayment. Partial prepayments of this Note shall not
relieve the Maker of the obligation to pay periodic installments of principal
and/or interest hereunder as and when the same would otherwise be due hereunder.
Unless otherwise specified by the Maker in writing at the time of payment, all
prepayments (and Mandatory Payments) shall be applied first to amounts
outstanding bearing interest on a Base Rate basis, and then to amounts
outstanding bearing interest on a LIBOR basis.
The Maker hereby acknowledges and agrees that the Lender has the
right (but not the obligation) to deduct from any account(s) of any Maker, any
amounts necessary in
5
<PAGE>
order for the Lender to pay when due any sum payable by the Maker hereunder or
under any other Loan Document. The Lender's right to deduct such sums from any
Maker's account(s) shall not relieve the Maker from its obligation to make all
payments required hereunder or under any other Loan Document as and when
required pursuant to the terms hereof or thereof, and the Lender shall have no
obligation to make any such deductions and no liability whatsoever for any
failure to do so.
Each party liable under this Note in any capacity, whether as
maker, endorser, surety, guarantor or otherwise: (i) waives presentment, demand,
protest and notice of presentment, notice of protest and notice of dishonor of
this debt and each and every other notice of any kind with respect to this Note,
(ii) agrees that the holder of this Note, at any time or times, without notice
to it or its consent, may grant extensions of time, without limit as to the
number or the aggregate period of such extensions, for the payment of any
principal, interest or other sums due hereunder, and (iii) to the extent not
prohibited by law, waives the benefit of any law or rule of law intended for its
advantage or protection as an obligor hereunder or providing for its release or
discharge from liability under this Note, in whole or in part, on account of any
facts or circumstances other than full and complete payment of all amounts due
hereunder.
The Maker promises to pay all costs of collection, including
reasonable out-of-pocket attorneys' fees, upon default in the payment when due
of the principal of this Note, interest or other sums due hereon, whether at
maturity as herein provided, or by reason of acceleration of maturity under the
terms of this Note or any other Loan Document, whether suit be brought or not.
In the event any one or more of the provisions contained in this
Note or any other Loan Document shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Note or such other
Loan Document, but this Note and the other Loan Documents
6
<PAGE>
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein or therein.
This Note may not be changed orally, but only by an agreement in
writing signed by the party against whom any waiver, change, modification or
discharge is sought to be enforced.
This Note is issued pursuant to the terms and conditions of a
certain Business Loan and Security Agreement of even date herewith (the "Loan
Agreement"), by and among the Lender and the Maker, and is secured by, among
other things, a certain Stock Security Agreement of even date herewith made by
Condor Technology Solutions, Inc. for the benefit of the Lender.
All of the terms, covenants, provisions, conditions,
stipulations, promises and agreements contained in the Loan Documents to be
kept, observed and performed by the Maker are hereby made a part of this Note
and incorporated herein by reference to the same extent and with the same force
and effect as if they were fully set forth herein, and the Maker promises and
agrees to keep, observe and perform them, or cause them to be kept, observed and
performed, strictly in accordance with the terms and provisions thereof.
WAIVER OF JURY TRIAL; VENUE; SERVICE OF PROCESS The Maker hereby
(i) covenants and agrees not to elect a trial by jury of any issue triable by a
jury, and (ii) waives any right to trial by jury, to the extent that any such
right shall now or hereafter exist. This waiver of right to trial by jury is
separately given by the Maker, knowingly and voluntarily, and this waiver is
intended to encompass individually each instance and each issue as to which the
right to a jury trial would otherwise accrue. The Lender is hereby authorized
and requested to submit this Note to any court having jurisdiction over the
subject matter of this Note and the parties hereto, so as to serve as conclusive
evidence of the undersigned's herein contained waiver of the right to jury
trial. Further, the Maker hereby certifies that no representative or agent of
the Lender (including its counsel) has
7
<PAGE>
represented to any of the undersigned, expressly or otherwise, that the Lender
will not seek to enforce the waiver of right to jury trial set forth herein. Any
judicial proceeding brought against the Maker with respect to this Note or any
other Loan Document may be brought in any court of competent jurisdiction in the
Commonwealth of Virginia, and by execution and delivery of this Note, the Maker
accepts for itself and in connection with its properties, generally and
unconditionally, the non-exclusive jurisdiction of the aforesaid court, and
irrevocably agrees to be bound by any judgment rendered by such court in
connection with this Note, subject to its right to appeal such judgment pursuant
to applicable law. The Maker irrevocably designates and appoints William
Caragol, whose address is c/o Condor Technology Solutions, Inc., Annapolis
Office Plaza, 170 Jennifer Road, Suite 325, Annapolis, Maryland 21401, as its
agent to receive on its behalf service of all process in any such proceeding in
any court in the Commonwealth of Virginia, such service being hereby
acknowledged by the Maker to be effective and binding on it in every respect. A
copy of any such process so served shall be mailed by registered or certified
mail to the Maker at the address to which notices are to be addressed in
accordance with the Loan Agreement, except that any failure to mail such copy
shall not affect the validity of service of process. The Maker shall at all
times maintain an agent for service of process pursuant to this provision. If
the Maker fails to appoint such an agent, or if such agent refuses to accept
service, the Maker hereby agrees that service upon it by mail shall constitute
sufficient notice. Nothing herein shall affect the right to serve process in any
other manner permitted by law or shall limit the right of the Lender to bring
proceedings against the Maker in the courts of any other jurisdiction.
The relationship between the Lender and the Maker is limited to
that of creditor and secured party, on the one hand, and debtor, on the other
hand. Certain provisions of the Loan Documents, such as those relating to
compliance with the financial covenants, delivery to the Lender of financial
statements, and compliance with other affirmative and negative covenants are for
the benefit of the Lender to protect its interests in assuring payments of
interest and repayment of principal. Nothing contained in this
8
<PAGE>
Note shall be construed as permitting or obligating the Lender to act as a
financial or business advisor or consultant to the Maker, as permitting or
obligating the Lender to control the Maker or to conduct the Maker's operations,
as creating any fiduciary obligation on the part of the Lender to the Maker, or
as creating any joint venture, agency or other relationship between the parties
other than as explicitly and specifically stated in this Note. The Maker
acknowledges that it has had the opportunity to obtain the advice of experienced
counsel of its own choosing in connection with the negotiation and execution of
this Note and to obtain the advice of such counsel with respect to all matters
pertaining hereto, including, without limitation, the provision set forth herein
for waiver of trial by jury. The Maker further acknowledges that it is
experienced with respect to financial and credit matters and has made its own
independent decision to apply for credit and to execute and deliver this Note.
The Maker warrants and represents that the loan evidenced hereby
is being made for business or investment purposes.
[remainder of page intentionally left blank]
9
<PAGE>
This Note shall be governed in all respects by the laws of the
Commonwealth of Virginia and shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
ATTEST: CONDOR TECHNOLOGY
[Corporate Seal] SOLUTIONS, INC., a Delaware
corporation
By: /s/ Matthew S. Bergman By: /s/ William J. Caragol, Jr.
--------------------------- -------------------------------
Name: Matthew S. Bergman Name: William J. Caragol, Jr.
Title: Witness Title: Secretary and Chief Financial Officer
ATTEST: MANAGEMENT SUPPORT
[Corporate Seal] TECHNOLOGY, a Delaware
corporation
By: /s/ Matthew S. Bergman By: /s/ William J. Caragol, Jr.
------------------------------ -------------------------------
Name: Matthew S. Bergman Name: William J. Caragol, Jr.
Title: Witness Title: Attorney-in-Fact
ATTEST: COMPUTER HARDWARE
[Corporate Seal] MAINTENANCE COMPANY, INC.,
a Pennsylvania corporation
By: /s/ Matthew S. Bergman By: /s/ William J. Caragol, Jr.
------------------------------ -------------------------------
Name: Matthew S. Bergman Name: William J. Caragol, Jr.
Title: Witness Title: Attorney-in-Fact
ATTEST: FEDERAL COMPUTER
[Corporate Seal] CORPORATION, a Virginia
corporation
By: /s/ Matthew S. Bergman By: /s/ William J. Caragol, Jr.
------------------------------ -------------------------------
Name: Matthew S. Bergman Name: William J. Caragol, Jr.
Title: Witness Title: Attorney-in-Fact
[Signatures continue on following page]
10
<PAGE>
ATTEST: CORPORATE ACCESS, INC., a
[Corporate Seal] Massachusetts corporation
a Pennsylvania corporation
By: /s/ Matthew S. Bergman By: /s/ William J. Caragol, Jr.
------------------------------ -------------------------------
Name: Matthew S. Bergman Name: William J. Caragol, Jr.
Title: Witness Title: Attorney-in-Fact
ATTEST: INTERACTIVE SOFTWARE SYSTEMS
[Corporate Seal] INCORPORATED, a Colorado
corporation
By: /s/ Matthew S. Bergman By: /s/ William J. Caragol, Jr.
------------------------------ -------------------------------
Name: Matthew S. Bergman Name: William J. Caragol, Jr.
Title: Witness Title: Attorney-in-Fact
ATTEST: U.S. COMMUNICATIONS, INC., a
[Corporate Seal] Maryland corporation
By: /s/ Matthew S. Bergman By: /s/ William J. Caragol, Jr.
------------------------------ -------------------------------
Name: Matthew S. Bergman Name: William J. Caragol, Jr.
Title: Witness Title: Attorney-in-Fact
ATTEST: INVENTURE GROUP, INC., a
[Corporate Seal] Pennsylvania corporation
By: /s/ Matthew S. Bergman By: /s/ William J. Caragol, Jr.
------------------------------ -------------------------------
Name: Matthew S. Bergman Name: William J. Caragol, Jr.
Title: Witness Title: Attorney-in-Fact
ATTEST: MIS TECHNOLOGIES, INC., an
[Corporate Seal] Oklahoma corporation
By: /s/ Matthew S. Bergman By: /s/ William J. Caragol, Jr.
------------------------------ -------------------------------
Name: Matthew S. Bergman Name: William J. Caragol, Jr.
Title: Witness Title: Attorney-in-Fact
11
<PAGE>
STOCK SECURITY AGREEMENT
THIS STOCK SECURITY AGREEMENT ("Security Agreement"), made as of
the ____ day of April, 1998, by and between (i) FIRST UNION COMMERCIAL
CORPORATION, a North Carolina corporation having offices at 1970 Chain Bridge
Road, 5th Floor, McLean, Virginia 22102 ("First Union") and (ii) CONDOR
TECHNOLOGY SOLUTIONS, INC., a Delaware corporation, having its principal place
of business at 170 Jennifer Road, Suite 325, Annapolis, Maryland 21401
("Pledgor").
WITNESSETH:
1. DEFINITIONS. All capitalized terms used but not otherwise defined
herein shall have the meanings attributed to such terms in that certain Business
Loan and Security Agreement of even date herewith (together with any extensions,
renewals and modifications thereof, the "Loan Agreement"), by and between (i)
First Union and any other "Lender" party thereto from time to time
(collectively, the "Lender"), and (ii) Pledgor, certain subsidiaries of Pledgor
and any other entity which becomes a party pursuant to the Loan Agreement
(collectively, the "Borrowers").
2. GRANT OF SECURITY. To secure (i) the payment and performance of the
obligations of Pledgor and the other Borrowers with respect to a certain
Thirty-five Million Dollar ($35,000,000) loan (the "Loan"), made to Pledgor and
the other Borrowers pursuant to the Loan Agreement, including all interest, fees
and other charges payable in connection therewith, which Loan is evidenced by
the Note in the maximum principal amount of Thirty-five Million Dollars
($35,000,000); and (ii) any other indebtedness or liability of Pledgor or the
Borrowers to Lender whether direct or indirect, joint, several or joint and
several, absolute or contingent, due or to become due or now existing or
hereafter created or arising, including without limitation all future advances
or loans which may be made by Lender (all of the foregoing being herein
collectively referred to as the "Obligations"), Pledgor hereby grants and
conveys to Lender a security interest in the property described in Schedule A
hereto, together with all proceeds thereof (the "Collateral").
3. LIEN PRIORITY. As a result of the foregoing grant by Pledgor to
Lender of a security interest in the Collateral, Lender shall have a first lien
security interest in the Collateral, free and clear of any and all liens,
security interests, claims, charges and other encumbrances whatsoever.
4. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and
warrants as follows:
<PAGE>
(a) That Pledgor is the owner and holder of one hundred percent (100%)
of the issued and outstanding common stock of each of the following companies
(collectively, the "Companies"), and there is no other class or type of stock in
the Companies issued and outstanding:
<TABLE>
<CAPTION>
% of Stock
Company # of Shares of Company Certif. #
------- ------------ ----------- ---------
<S> <C> <C> <C>
Management Support Technology Corp., a
Delaware corporation 10 100% 3
Computer Hardware Maintenance Company, Inc.,
a Pennsylvania corporation 10 100% 11
Federal Computer Corporation, a Virginia
corporation 10 100% 32
Corporate Access, Inc., a Massachusetts corporation 10.00 100% 9.00
Interactive Software Systems Incorporated, a Colorado corporation 10 100% CS 001
U.S. Communications, Inc., a Maryland corporation 10 100% 2
InVenture Group, Inc., a Pennsylvania corporation 10.00 100% 3.00
MIS Technologies, Inc., an Oklahoma corporation 10.00 100% 3.00
</TABLE>
(b) That the Collateral is legally and equitably owned by Pledgor free
and clear of any and all liens, security interests, claims, charges and other
encumbrances whatsoever;
(c) That all of the Collateral has been duly authorized and validly
issued and is fully paid and nonassessable;
(d) That this Security Agreement constitutes a valid security interest
in the Collateral, securing the Obligations for the benefit of Lender, that all
of the Collateral has been delivered to Lender, and that Lender's possession of
the Collateral establishes a perfected first lien security interest in the
Collateral; and
(e) That Pledgor has the right to vote, pledge and grant a security
interest in the Collateral as provided by this Security Agreement.
5. COVENANTS. So long as any of the Obligations remain unpaid or the Lender
has any obligation to make advances under the Loan, Pledgor covenants and agrees
that it will:
2
<PAGE>
(a) Pay and perform, and cause the other Borrowers to pay and perform,
all of the Obligations according to their terms;
(b) Defend all right and title to the Collateral against any and all
claims and demands whatsoever;
(c) Upon the request of Lender do the following: furnish further
assurance of title, execute any written agreement and do all other acts
necessary to effectuate the intent, purposes and provisions of this Security
Agreement, execute any instrument or statement required by law or otherwise in
order to perfect, continue or terminate the security interest of Lender in the
Collateral and pay all filing or other costs incurred in connection therewith;
(d) Unless otherwise required by Lender, retain legal and beneficial
ownership of the Collateral and not sell, exchange, assign, loan, deliver,
mortgage or otherwise encumber or dispose of the Collateral or any portion
thereof without the Lender's prior written consent;
(e) Keep the Collateral free and clear of all liens, charges,
encumbrances, taxes and assessments (other than the lien in favor of Lender),
and pay when due all taxes, payments and/or assessments in any way relating to
the Collateral or any part thereof;
(f) Keep and maintain satisfactory, complete and current records of the
Collateral. Upon request of Lender, Pledgor will provide Lender with written
reports of the status of the Collateral, or any part thereof, as of the period
specified, in form and substance reasonably satisfactory to Lender. The Pledgor
shall not change the location of its books and records relating to any of the
Collateral without giving Lender at least thirty (30) days' prior written notice
and
(g) Comply in all material respects with all federal, state and local
laws and regulations applicable to the Collateral, whether now in effect or
hereafter enacted, and upon request of Lender, furnish to Lender evidence of
such compliance therewith.
6. EVENTS OF DEFAULT. For purposes of this Security Agreement, each of the
following shall constitute an "Event of Default" hereunder:
(a) An Event of Default under the Loan Agreement;
(b) If any representation or warranty made or given by Pledgor in
connection with this Security Agreement shall prove to have been incorrect or
misleading or breached in any respect on or as of the date when made;
3
<PAGE>
(c) If Pledgor fails to observe or perform any of the covenants and
agreements set forth in this Security Agreement, and such failure continues
unremedied for a period of five (5) days; or
(d) If all or any part of the Collateral is subject to levy of
execution or other judicial process.
7. REMEDIES UPON DEFAULT. Following the occurrence of an Event of Default
and the lapse of any applicable notice and/or grace period set forth in the Loan
Agreement, the Lender may, at its option, exercise one or more of the following
rights and remedies:
(a) Lender shall have all of the rights, remedies and privileges with
respect to repossession, retention and sale of the Collateral and disposition of
the proceeds thereof as are accorded to Lender by the applicable sections of the
Uniform Commercial Code in effect in the Commonwealth of Virginia (as the same
may be amended from time to time, the "UCC").
(b) Without limiting the scope of the foregoing clause (a), it is
expressly understood and agreed that:
(i) Lender shall have the right to sell, resell, assign, and deliver
all or any of the Collateral at any exchange or broker's board or at public or
private sale. Lender agrees that unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Lender will give Pledgor at least five (5) days' prior
written notice by registered or certified mail (at the address of Pledgor set
forth above) of the time an place of any public sale of the Collateral or the
time after which any private sale or any other intended disposition of the
Collateral is to be made. Any such notice shall be deemed to meet any
requirement hereunder or under any applicable law (including the UCC) that
reasonable notification be given of the time and place of such sale or other
disposition. Such notice may be given without any demand for performance or
other demand, all such demands being hereby expressly waived by Pledgor. All
sales o the Collateral shall be at such price or prices as Lender shall deem
best and either for cash, on credit or for future delivery (without assuming any
responsibility for credit risk);
(ii) At any such sale or sales, Lender may purchase any or all of
the Collateral upon such terms as such purchaser may deem best. The Collateral
so purchased shall be held by the purchaser absolutely free from any and all
claims or rights of Pledgor of every kind and nature whatsoever, including,
without limitation, any equity of redemption or similar rights, all such equity
of redemption and similar rights being hereby expressly waived and released by
Pledgor. The proceeds of the sale of any Collateral, together with any other
additional collateral security at the time received and held
4
<PAGE>
hereunder, shall be received and applied: first, to the payment of all costs and
expenses of sale, including reasonable attorneys' fees; second, to the payment
of the Obligations, in such order of priority as Lender shall determine; and
third, any remaining proceeds shall be paid to Pledgor, unless otherwise
provided by law or directed by a court of competent jurisdiction;
(iii) Pledgor recognizes that Lender may be unable to effect a
public sale of all or any part of the Collateral by reason of certain
prohibitions contained in the Securities Act of 1933, as amended (the
"Securities Act"), or other applicable laws, rules or regulations, but may be
compelled to resort to one or more private sales to a restricted group of
purchasers who will, among other things, be obliged to agree to acquire the
Collateral or any part thereof for their own account, for investment and not
with a view to the distribution or resale thereof. Pledgor agrees that private
sales so made may be at prices and on terms less favorable than if the
Collateral were sold at public sales, and that Lender has no obligation to delay
the sale of any Collateral for the period of time necessary to permit the
Collateral to be registered for public sale under the Securities Act or any
other applicable law, rule or regulation. Pledgor agrees that private sales made
under the foregoing circumstances shall be deemed to have been made in a
commercially reasonable manner; and
(iv) Pledgor and each of the other Borrowers shall remain liable for
any deficiency resulting from any sale of the Collateral, or any part thereof,
and shall pay any such deficiency forthwith on demand.
(c) Without limiting any of the rights granted to Lender elsewhere in
this Security Agreement, Lender shall be entitled to (i) exercise the voting
power appurtenant to the Collateral, (ii) receive and retain as collateral
security for the Obligations any and all dividends or other distributions at any
time or from time to time declared or made upon any of the Collateral (all cash
dividends or other distributions payable in respect of the Collateral which are
receive by Pledgor after the occurrence of an Event of Default (subject to any
applicable notice and/or grace period set forth in the Loan Agreement) shall be
paid directly to Lender and, if received by Pledgor, shall be received in trust
for the benefit of Lender, shall be segregated from other funds of Pledgor and
shall be immediately paid over to Lender as Collateral in the same form as
received, with any necessary endorsements), and (iii) exercise any and all
rights of payment, conversion, exchange, subscription or other rights,
privileges or options appurtenant to the Collateral, as if Lender were the
absolute owner thereof, including without limitation the right to exchange, at
its reasonable discretion, any and all of the Collateral upon the merger,
consolidation, reorganization, recapitalization or other readjustment of
Pledgor. Upon the exercise of any such right, privilege or option pertaining to
the Collateral, and in connection therewith, Lender may deliver and deposit any
or all of the Collateral with any committee, depositary, transfer agent,
registrar or other designated agency upon such terms and conditions as Lender
may determine, all without liability, except to account for property actually
5
<PAGE>
received, but Lender shall have no duty to exercise any of the aforesaid rights,
privileges or options and shall not be responsible for any failure to do so or
delay in so doing.
(d) Subject to the provisions of the UCC, Lender may cause all or
any of the Collateral to be transferred into its name or into the name of its
nominee or nominees; provided, however, that until such time as there occurs
an Event of Default (subject to any applicable notice and/or grace period set
forth in the Loan Agreement), Pledgor shall be entitled to exercise as it
shall think fit, but in a manner not inconsistent with the terms of this
Security Agreement, the Loan Agreement, any other Loan Document or the
Obligations, the voting power appurtenant to the Collateral, and to receive
cash dividends paid to Pledgor (subject to any applicable prohibitions in the
Loan Documents).
8. OTHER RIGHTS OF LENDER.
(a) Notwithstanding anything contained herein to the contrary, if upon
any dissolution, winding up, liquidation or reorganization of Pledgor, whether
in bankruptcy, insolvency or receivership proceedings or upon an assignment for
the benefit of creditors or any other marshaling of the assets and liabilities
of Pledgor, any sum shall be paid or any property shall be distributed upon or
with respect to any of the Collateral, such sum shall be paid or property
distributed over to Lender, to be held by Lender or applied against the
Obligations, as Lender determines in its sole discretion. In case any stock
dividend shall be declared o any of the Collateral, or any share of stock or
fraction thereof shall be issued pursuant to any stock split involving any of
the Collateral, or any distribution of capital shall be made on any of the
Collateral, or any property shall be distributed upon or with respect to the
Collateral pursuant to recapitalization or reclassification of the capital of
Pledgor, or otherwise, the shares or other property so distributed shall
constitute Collateral and be delivered to Lender to be held as collateral
securit for the Obligations.
(b) Upon the occurrence of an Event of Default (subject to any
applicable notice and/or grace period set forth in the Loan Agreement), Lender
shall have the right, for and in the name, place and stead of Pledgor, to
execute endorsements, assignments and other instruments of conveyance or
transfer with respect to all or any of the Collateral (including, without
limitation, the right to fill in the name of the Lender or the name of any
foreclosure purchaser of the Collateral as well as the name of the transfer
attorney, and the date and to fill in any other blanks thereon on the blank
stock power(s) executed in connection with this Agreement).
9. SECURITY INTEREST ABSOLUTE. Except as otherwise provided herein, all
rights of Lender and security interests hereunder, and all obligations of
Pledgor hereunder, shall be absolute and unconditional irrespective of, and
unaffected by:
6
<PAGE>
(a) Any lack of validity or enforceability of the Loan Agreement or any
other Loan Document;
(b) Any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or waiver
of or any consent to any departure from the Loan Agreement and/or any other Loan
Document;
(c) Any exchange, surrender, release or non-perfection of any
Collateral for all or any of the Obligations; or
(d) Any other circumstance which might otherwise constitute a defense
available to, or a discharge of, Pledgor in respect of the Obligations or this
Security Agreement.
10. GENERAL PROVISIONS.
(a) Except as otherwise provided herein, Lender may exercise its
rights with repect to the Collateral held hereunder without first or
simultaneously resorting to any other collateral or sources of repayment or
reimbursement, and without being obligated to consider or take notice of any
right of contribution, reimbursement, subrogation or marshaling of assets
which Pledgor may have or claim to have against any person or persons or with
respect to any other collateral. Lender may release any and all other
collateral it may now or hereafter have to secure repayment of the
Obligations, all without affecting or impairing its right with respect to the
Collateral. No delay or omission on the part of Lender in exercising any
right hereunder shall operate as a waiver of such right or any other right
under this Security Agreement. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right and/or remedy on any future
occasion.
(b) If Pledgor shall default in the performance of any provision of
this Security Agreement on Pledgor's part to be performed, Lender may perform
the same for Pledgor's account and any monies expended in so doing shall be
chargeable with interest and added to the indebtedness secured hereby.
(c) If in connection with the exercise by Lender of any power,
right, provision or remedy granted pursuant to this Security Agreement, or in
order to effectuate the purposes and intent of this Security Agreement, any
consent, approval, registration, filing, qualification or authorization of
any governmental authority is required, Pledgor will execute and deliver all
applications, certificates, instruments and other documents and papers that
Lender may be required to obtain for such governmental consent, approval,
registration, filing, qualification or authorization.
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(d) The rights and powers granted to Lender hereunder are being
granted in order to preserve and protect Lender's security interest in and to
the Collateral granted hereby and shall not be interpreted to, and shall not,
impose any duties on Lender in connection therewith.
(e) Lender shall have no duty as to the collection or protection of
the Collateral held hereunder or of any income thereon, or as to the
preservation of any rights pertaining thereto, beyond the safe custody of the
Collateral. Lender shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral if it complies with Pledgor's
requests in such regard made to Lender in writing, but failure to comply with
any such request shall no in and of itself be deemed a failure to exercise
reasonable care in such custody and preservation of the Collateral.
(f) Upon enforcement of Lender's rights hereunder, Lender's
reasonable attorneys' fees and the legal and other expenses of pursuing,
searching for, receiving, taking, keeping, storing, advertising and selling
the Collateral shall be chargeable to Pledgor.
(g) Lender may assign its interests in this Security Agreement and,
if assigned, the assignee shall be entitled (to the same extent as Lender) to
performance of all of Pledgor's obligations and agreements hereunder, and the
assignee shall also be entitled (to the same extent as Lender) to all of the
rights and remedies of Lender hereunder. Pledgor will not assert a claim or
defense against the assignee which Pledgor may have against Lender.
(h) WAIVER OF JURY TRIAL. Each party hereby (a) covenants and agrees
not to elect a trial by juryof any issue triable by a jury, and (b) waives
any right to trial by jury fully to the extent that any such right shall now
or hereafter exist. This waiver of right to trial by jury is separately given
by each party, knowingly and voluntarily, and this waiver is intended to
encompass individually each instance and each issue as to which the right to
a jury trial would otherwise accrue. Each party is hereby authorized and
requested to submit this Security Agreement to any court having jurisdiction
over the subject matter and the parties hereto, so as to serve as conclusive
evidence of each of the parties' herein contained waiver of the right to jury
trial. Further, each party hereby certifies that no representative or agent
of the other parties (including their legal counsel) has represented,
expressly or otherwise, to such party that the other parties will not seek to
enforce this provision waiving the right to a trial by jury.
(i) VENUE; SERVICE OF PROCESS. Any judicial proceeding brought
against Pledgor with respect to this Security Agreement or any other Loan
Document may be brought in any court of competent jurisdiction in the
Commonwealth of Virginia, and by execution and delivery of this Security
Agreement, Pledgor accepts for
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itself and in connection with its properties, generally and unconditionally,
the non-exclusive jurisdiction of the aforesaid court, and irrevocably agrees
t be bound by any judgment rendered by such court in connection with this
Agreement. A copy of any process served shall be mailed by registered or
certified mail to Pledgor at the address to which notices are to be addressed
in accordance with this Security Agreement, such service being hereby
acknowledged by Pledgor to be effective and binding on it in every respect.
Pledgor hereby agrees that service upon it by mail shall constitute
sufficient notice. Nothing herein shall affect the right to serve process in
any other manner permitted by law or shall limit the right of the Lender to
bring proceedings against Pledgor in the courts of any other jurisdiction.
(j) The terms, warranties and agreements contained in this Security
Agreement shall bind and inure to the benefit of the parties hereto, and
their respective successors and assigns.
(k) This Security Agreement may not be changed orally, but may be
changed only by an agreement in writing signed by the parties against whom
enforcement of any waiver, change, modification or discharge is sought.
(l) Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this Security
Agreement or the intent of any provision hereof. The gender and number used
in this Security Agreement are used as reference terms only and shall apply
with the same effect whether the parties are of the masculine or feminine
gender, corporate or other form, and the singular shall likewise include the
plural. If there shall be more than one Pledgor, their liability shall be
joint and several.
(m) Any provision in this Security Agreement declared invalid under any
law shall not invalidate any other provision of this Security Agreement. This
Security Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Virginia.
(n) This Security Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which taken
together shall be deemed one and the same instrument.
(o) Notices to either party shall be in writing and shall be delivered
personally or by mail addressed to the party at the address and in the manner
set forth in the Loan Agreement or as otherwise designated in writing.
[remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties have respectively signed and
sealed these presents on the day and year first above written.
PLEDGOR:
WITNESS/ATTEST: CONDOR TECHNOLOGY SOLUTIONS,
INC., a Delaware corporation
By: /s/ Matthew S. Bergman By: /s/ William J. Caragol, Jr.
--------------------------- -------------------------------
Name: Matthew S. Bergman Name: William J. Caragol, Jr.
Title: Witness Title: Secretary and Chief Financial Officer
LENDER:
FIRST UNION COMMERCIAL
CORPORATION, a North Carolina
corporation
By: /s/ Chris R. Hetterly
------------------------------
Name: Chris R. Hetterly
Title: Vice President
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SCHEDULE A TO STOCK SECURITY AGREEMENT
All of the right, title and interest of Condor Technology
Solutions, Inc. ("Pledgor") in and to all of the capital stock of the companies
listed below (collectively, the "Companies"), whether common and/or preferred,
and whether now or hereafter issued or outstanding, and whether now or hereafter
acquired by Pledgor, together with all voting or other rights appurtenant
thereto, including, but not limited to, the right to receive all dividends
and/or other distributions payable to Pledgor by virtue of Pledgor's ownership
of such capital stock, and all proceeds thereof, additions thereto and
substitutions thereof.
For the purposes hereof, the Companies shall mean the following:
(i) Management Support Technology Corp., a Delaware
corporation;
(ii) Computer Hardware Maintenance Company, Inc., a
Pennsylvania corporation;
(iii) Federal Computer Corporation, a Virginia corporation;
(iv) Corporate Access, Inc., a Massachusetts corporation;
(v) Interactive Software Systems Incorporated, a Colorado
corporation;
(vi) U.S. Communications, Inc., a Maryland corporation;
(vii) InVenture Group, Inc., a Pennsylvania corporation;
(viii) MIS Technologies, Inc., an Oklahoma corporation; and
(ix) Any future wholly-owned subsidiary of Pledgor.
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AGREEMENT FOR WHOLESALE FINANCING
This Agreement for Wholesale Financing ("Agreement") is made as of April 15,
1998 among Deutsche Financial Services Corporation ("DFS"), Computer Hardware
Maintenance Company, Inc. ("CHMC"), Corporate Access, Inc. ("Access"), and U.S.
Communications, Inc. ("USC") (CHMC, Access and USC are sometimes hereinafter
referred to individually and/or collectively as "Dealer"), each having a
principal place of business located at the address indicated on the signature
pages hereto.
RECITALS
Dealer has requested that DFS provide Dealer with a credit facility for
inventory acquisition purposes. CHMC, Access, and USC are each a wholly-owned
subsidiary of Condor Technology Solutions, Inc., all of which Dealers do
business among each other and with third parties substantially as an integrated
family of companies, and accordingly, each Dealer desires to have the
availability of one common credit facility instead of separate credit
facilities. Each Dealer has requested that DFS extend such a common credit
facility. Each Dealer acknowledges that DFS will be lending against, and relying
on a lien upon, substantially all of Dealer's assets even though the proceeds of
any particular advance made hereunder may not be advanced directly to such
Dealer, and that such Dealer will nevertheless benefit by the making of all such
advances by DFS and the availability of a single credit facility of a size
greater than each might independently warrant.
1. Extension of Credit.
(a) Subject to the terms of this Agreement, DFS may extend
credit to Dealer from time to time to purchase inventory from DFS
approved vendors ("Vendors") and for other purposes. Each Dealer hereby
further confirms its understanding that the funds availability to it
hereunder will be reduced by the then aggregate outstanding amount of
advances to all Dealers collectively. If DFS advances funds to Dealer
following Dealer's execution of this Agreement, DFS will be deemed to
have entered into this Agreement with Dealer, whether or not executed by
DFS. DFS' decision to advance funds will not be binding until the funds
are actually advanced. DFS may combine all of DFS' advances to Dealer or
on Dealer's behalf, whether under this Agreement or any other agreement,
and whether provided by one or more of DFS' branch offices, together
with all finance charges, fees and expenses related thereto, to make one
debt owed by Dealer. DFS may, at any time and without notice to Dealer,
elect not to finance any inventory sold by particular Vendors who are in
default of their obligations to DFS, or with respect to which DFS
reasonably feels insecure. This is an agreement regarding the extension
of credit, and not the provision of goods or services.
(b) Appointment of Condor Technology Solutions, Inc. as Agent.
Each of CHMC, Access and USC hereby appoints Condor Technology
Solutions. Inc. as its agent and attorney-in-fact to take any action or
execute any document or instrument necessary or appropriate for the
administration of the Collateral and the credit facilities hereunder and
under any other agreements related hereto. DFS shall be entitled to rely
absolutely and without duty of inquiry or investigation upon any
agreement, request, communication or other notice given and/or executed
by Condor Technology Solutions. Inc. Upon DFS' request, each Dealer
shall execute and deliver to DFS a Power of Attorney, in form acceptable
to DFS, confirming and restating the power of attorney granted herein.
2. Financing Terms and Statements of Transaction. Dealer and DFS agree
that certain financial terms of any advance made by DFS under this
Agreement, whether regarding finance charges, other fees, maturities,
curtailments or other financial terms, are not set forth herein because
such terms depend, in part, upon the availability of Vendor discounts,
payment terms or other incentives, prevailing economic conditions, DFS'
floorplanning volume with Dealer and with Dealer's Vendors, and other
economic factors which may vary over time. Dealer and DFS further agree
that it is
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therefore in their mutual best interest to set forth in this Agreement
only the general terms of Dealer's financing arrangement with DFS. Upon
agreeing to finance a particular item of inventory for Dealer, DFS will
send Dealer a Statement of Transaction identifying such inventory and
the applicable financial terms. Unless Dealer notifies DFS in writing
of any objection within fifteen (15) days after a Statement of
Transaction is mailed to Dealer: (a) the amount shown on such Statement
of Transaction will be an account stated; (b) Dealer will have agreed
to all rates, charges and other terms shown on such Statement of
Transaction; (c) Dealer will have agreed that DFS is financing the
items of inventory referenced in such Statement of Transaction at
Dealer's request; and (d) such Statement of Transaction will be
incorporated herein by reference, will be made a part hereof as if
originally set forth herein, and will constitute an addendum hereto. If
Dealer objects to the terms of any Statement of Transaction, Dealer
agrees to pay DFS for such inventory in accordance with the most recent
terms for similar inventory to which Dealer has not objected (or, if
there are no prior terms, at the lesser of 16% per annum or at the
maximum lawful contract rate of interest permitted under applicable
law), but Dealer acknowledges that DFS may then elect to terminate
Dealer's financing program pursuant to Section 17, and cease making
additional advances to Dealer. However, such termination will not
accelerate the maturities of advances previously made, unless Dealer
shall otherwise be in default of this Agreement.
3. Grant of Security Interest. To secure payment of all of Dealer's
current and future debts to DFS, whether under this Agreement or any
current or future guaranty or other agreement, Dealer grants DFS a
security interest in all of Dealer's inventory, equipment, fixtures,
accounts, contract rights, chattel paper, security agreements,
instruments, deposit accounts, reserves, documents, and general
intangibles; and all judgments, claims, insurance policies, and
payments owed or made to Dealer thereon; all whether now owned or
hereafter acquired, all attachments, accessories, accessions, returns,
repossessions, exchanges, substitutions and replacements thereto, and
all proceeds thereof. All such assets are collectively referred to
herein as the "Collateral." All of such terms for which meanings are
provided in the Uniform Commercial Code of the applicable state are
used herein with such meanings. All Collateral financed by DFS, and all
proceeds thereof, will be held in trust by Dealer for DFS, with such
proceeds being payable in accordance with Section ------- 9.
Notwithstanding the foregoing, the above described conveyance shall not
be deemed to include the conveyance of any government contract or other
contractual agreement, which by its terms or applicable law may not be
conveyed; it being understood, however, that in any such situation(s),
DFS' security interest shall include (i) the entirety of the Dealer's
right, title and interest in and to all accounts receivable and all
other proceeds directly or indirectly arising from such government
contract or other contractual agreement and (ii) all other rights and
interests which the Dealer may lawfully convey to DFS.
4. Affirmative Warranties and Representations. Dealer warrants and
represents to DFS that: (a) Dealer has good title to all Collateral;
(b) DFS' security interest in the Collateral is not now and will not
become subordinate to the security interest, lien, encumbrance or claim
of any person other than as provided in that certain Intercreditor and
Subordination Agreement between DFS and First Union Commercial
Corporation ("First Union") and that certain Intercreditor
Subordination Agreement between DFS and IBM Credit Corporation ("IBM
Credit") regarding such parties' respective interests in and to certain
of Dealer's assets; (c) Dealer will execute all documents DFS requests
to perfect and maintain DFS' security interest in the Collateral; (d)
Dealer will deliver to DFS immediately upon each request, and DFS may
retain, each Certificate of Title or Statement of Origin issued for
Collateral financed by DFS; (e) Dealer will at all times be duly
organized, existing, in good standing, qualified and licensed to do
business in each state, county, or parish, in which the nature of its
business or property so requires; (f) Dealer has the right and is duly
authorized to enter into this Agreement; (g) Dealer's execution of this
Agreement does not constitute a breach of any agreement to which Dealer
is now or hereafter becomes bound; (h) there are and will be no actions
or proceedings pending or threatened against Dealer not fully covered
by insurance which might
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result in any material adverse change in Dealer's financial or business
condition or which might in any way materially adversely affect any of
Dealer's assets; (i) Dealer will maintain the Collateral in good
condition and repair; (j) Dealer has duly filed and will duly file all
tax returns required by law; (k) Dealer has paid and will pay when due
all taxes, levies, assessments and governmental charges of any nature
except for such taxes, etc. which are being contested by Dealer in good
faith and for which reasonable reserves have been established in
accordance with generally accepted accounting principles, consistently
applied; (l) Dealer will keep and maintain all of its books and records
pertaining to the Collateral at its principal place of business
designated in this Agreement; (m) Dealer will promptly supply DFS with
such information concerning it or any guarantor as DFS hereafter may
reasonably request; (n) all Collateral will be kept at Dealer's
principal place of business listed above, and such other locations, if
any, of which Dealer has notified DFS in writing or as listed on any
current or future Exhibit "A" attached hereto which written notice(s)
to DFS and Exhibit A(s) are incorporated herein by reference; (o)
Dealer will give DFS thirty (30) days prior written notice of any
change in Dealer's identity, name, form of business organization,
ownership, management, principal place of business, Collateral
locations or other business locations, and before moving any books and
records to any other location; (p) Dealer will observe and perform all
matters required by any lease, license, concession or franchise forming
part of the Collateral in order to maintain all the rights of DFS
thereunder; (q) Dealer will advise DFS of the commencement of material
legal proceedings against Dealer or any guarantor; and (r) Dealer will
comply with all applicable laws and will conduct its business in a
manner which preserves and protects the Collateral and the earnings and
incomes thereof.
5. Negative Covenants. Dealer will not at any time (without DFS' prior
written consent): (a) other than distributions in the ordinary course of
its business which in the aggregate as to all Dealers do not exceed Five
Hundred Thousand Dollars ($500,000) per annum, sell, lease or otherwise
dispose of or transfer any of its assets; (b) rent, lease, demonstrate,
consign, or use any Collateral except for pledges thereof under Dealer's
agreements with First Union and with IBM Credit, as such parties' rights
are limited, however, by certain intercreditor agreements by each of
First Union and IBM Credit with DFS; or (c) merge or consolidate with
another entity in a transaction pursuant to which a Dealer is not the
survivor.
6. Insurance. Dealer will promptly notify DFS of any loss, theft or damage
to any Collateral. Dealer will keep the Collateral insured for its full
insurable value under an "all risk" property insurance policy with a
company acceptable to DFS, naming DFS as a lender loss-payee and
containing standard lender's loss payable and termination provisions.
Dealer will provide DFS with written evidence of such property insurance
coverage and lender's loss-payee endorsement.
7. Financial Statements. Dealer will deliver to DFS: (a) within one
hundred twenty (120) days after the end of each of Dealer's fiscal
years, a reasonably detailed balance sheet as of the last day of such
fiscal year and a reasonably detailed income statement covering
Dealer's operations for such fiscal year, in a form reasonably
satisfactory to DFS; (b) within forty-five (45) days after the end of
each of Dealer's fiscal quarters, a reasonably detailed balance sheet
as of the last day of such quarter and an income statement covering
Dealer's operations for such quarter, in a form reasonably satisfactory
to DFS; and (c) within ten (10) days after reasonable request therefor
by DFS, any other report requested by DFS relating to the Collateral or
the financial condition of Dealer. Dealer warrants and represents to
DFS that all financial statements and information relating to Dealer or
any guarantor which have been or may hereafter be delivered by Dealer
or any guarantor are true and correct in all material respects and have
been and will be prepared in accordance with generally accepted
accounting principles consistently applied and, with respect to such
previously delivered statements or information, there has been no
material adverse change in the financial or business condition of
Dealer or any guarantor since the submission to DFS, either as of the
date of delivery, or, if different, the date specified therein, and
Dealer acknowledges DFS' reliance thereon.
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8. Reviews. Dealer grants DFS an irrevocable license to enter Dealer's
business locations during normal business hours with twenty-four (24)
hours notice to Dealer (no such notice being required however, if Dealer
is in default) to: (a) account for and inspect all Collateral; (b)
verify Dealer's compliance with this Agreement; and (c) examine and copy
Dealer's books and records related to the Collateral.
9. Payment Terms. Dealer will immediately pay DFS the principal
indebtedness owed DFS on each item of Collateral financed by DFS (as
shown on the Statement of Transaction identifying such Collateral) on
the earliest occurrence of any of the following events: (a) when such
Collateral is lost, stolen or damaged; (b) for Collateral financed
under Pay-As-Sold ("PAS") terms (as shown on the Statement of
Transaction identifying such Collateral), when such Collateral is sold,
transferred, rented, leased, otherwise disposed of or matured; (c) in
strict accordance with any curtailment schedule for such Collateral (as
shown on the Statement of Transaction identifying such Collateral); (d)
for Collateral financed under Scheduled Payment Program ("SPP") terms
(as shown on the Statement of Transaction identifying such Collateral),
in strict accordance with the installment payment schedule; and (e)
when otherwise required under the terms of any financing program agreed
to in writing by the parties. Regardless of the SPP terms pertaining to
any Collateral financed by DFS, if DFS determines that the current
outstanding debt which Dealer owes to DFS exceeds the aggregate
wholesale invoice price of such Collateral in Dealer's possession,
Dealer will immediately upon demand pay DFS the difference between such
outstanding debt and the aggregate wholesale invoice price of such
Collateral. If Dealer from time to time is required to make immediate
payment to DFS of any past due obligation discovered during any
Collateral review, or at any other time, Dealer agrees that acceptance
of such payment by DFS shall not be construed to have waived or amended
the terms of its financing program. The proceeds of any Collateral
received by Dealer will be held by Dealer in trust for DFS' benefit,
for application as provided in this Agreement. Dealer will send all
payments to DFS' branch office(s) responsible for Dealer's account. DFS
may apply: (i) payments to reduce finance charges first and then
principal, regardless of Dealer's instructions; and (ii) principal
payments to the oldest (earliest) invoice for Collateral financed by
DFS, but, in any event, all principal payments will first be applied to
such Collateral which is sold, lost, stolen, damaged, rented, leased,
or otherwise disposed of or unaccounted for. Any third party discount,
rebate, bonus or credit granted to Dealer for any Collateral will not
reduce the debt Dealer owes DFS until DFS has received payment therefor
in cash. Dealer will: (1) pay DFS even if any Collateral is defective
or fails to conform to any warranties extended by any third party; (2)
not assert against DFS any claim or defense Dealer has against any
third party; and (3) indemnify and hold DFS harmless against all claims
and defenses asserted by any buyer of the Collateral relating to the
condition of, or any representations regarding, any of the Collateral.
Dealer waives all rights of offset and counterclaims Dealer may have
against DFS.
10. Calculation of Charges. Dealer will pay finance charges to DFS on the
outstanding principal debt which Dealer owes DFS for each item of
Collateral financed by DFS at the rate(s) shown on the Statement of
Transaction identifying such Collateral, unless Dealer objects thereto
as provided in Section 2. The finance charges attributable to the rate
shown on the Statement of Transaction will: (a) be computed based on a
360 day year; (b) be calculated by multiplying the Daily Charge (as
defined below) by the actual number of days in the applicable billing
period; and (c) accrue from the invoice date of the Collateral
identified on such Statement of Transaction until DFS receives full
payment in good funds of the principal debt Dealer owes DFS for each
item of such Collateral in accordance with DFS' payment recognition
policy and DFS applies such payment to Dealer's principal debt in
accordance with the terms of this Agreement. The "Daily Charge" is the
product of the Daily Rate (as defined below) multiplied by the Average
Daily Balance (as defined below). The "Daily Rate" is the quotient of
the annual rate shown on the Statement of Transaction divided by 360,
or the monthly rate shown on the Statement of Transaction divided by
30. The "Average Daily Balance" is the quotient of (i) the sum of the
outstanding principal debt owed DFS on each day of a billing period for
each item of Collateral identified on a Statement of Transaction,
divided by (ii)
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the actual number of days in such billing period. Dealer will also pay
DFS $100 for each check returned unpaid for insufficient funds (an "NSF
check") (such $100 payment repays DFS' estimated administrative costs;
it does not waive the default caused by the NSF check). The annual
percentage rate of the finance charges relating to any item of
Collateral financed by DFS will be calculated from the invoice date of
such Collateral, regardless of any period during which any finance
charge subsidy shall be paid or payable by any third party. Dealer
acknowledges that DFS intends to strictly conform to the applicable
usury laws governing this Agreement. Regardless of any provision
contained herein or in any other document executed or delivered in
connection herewith or therewith, DFS shall never be deemed to have
contracted for, charged or be entitled to receive, collect or apply as
interest on this Agreement (whether termed interest herein or deemed to
be interest by judicial determination or operation of law), any amount
in excess of the maximum amount allowed by applicable law, and, if DFS
ever receives, collects or applies as interest any such excess, such
amount which would be excessive interest will be applied first to the
reduction of the unpaid principal balances of advances under this
Agreement, and, second, any remaining excess will be paid to Dealer. In
determining whether or not the interest paid or payable under any
specific contingency exceeds the highest lawful rate, Dealer and DFS
shall, to the maximum extent permitted under applicable law: (A)
characterize any non-principal payment (other than payments which are
expressly designated as interest payments hereunder) as an expense or
fee rather than as interest; (B) exclude voluntary pre-payments and the
effect thereof; and (C) spread the total amount of interest throughout
the entire term of this Agreement so that the interest rate is uniform
throughout such term.
11. Billing Statement. DFS will send Dealer a monthly billing statement
identifying all charges due on Dealer's account with DFS. The charges
specified on each billing statement will be: (a) due and payable in
full immediately on receipt; and (b) an account stated, unless DFS
receives Dealer's written objection thereto within 15 days after it is
mailed to Dealer. If DFS does not receive, by the 25th day of any given
month, payment of all charges accrued to Dealer's account with DFS
during the immediately preceding month, Dealer will (to the extent
allowed by law) pay DFS a late fee ("Late Fee") equal to the greater of
$5 or 5% of the amount of such finance charges (payment of the Late Fee
does not waive the default caused by the late payment). DFS may adjust
the billing statement at any time to conform to applicable law and this
Agreement.
12. Default. Dealer will be in default under this Agreement if: (a) Except
for a breach described in subsection 12(d) below, Dealer breaches any
terms, warranties or representations contained herein, in any Statement
of Transaction to which Dealer has not objected as provided in Section
2, or in any other agreement between DFS and Dealer and such breach is
not cured within ten (10) days of Dealer's receipt of written notice of
such breach; (b) any guarantor of Dealer's debts to DFS breaches any
terms, covenants, warranties or representations contained in any
guaranty or other agreement between such guarantor and DFS, revokes or
attempts to revoke any such guaranty agreement, or repudiates such
guarantor's liability thereunder; (c) any representation, statement,
report or certificate made or delivered by Dealer or any guarantor to
DFS is not accurate when made; (d) Dealer fails to pay any portion of
Dealer's debts to DFS within five (5) days of when due and payable
hereunder or under any other agreement between DFS and Dealer; (e)
Dealer abandons any Collateral; (f) Dealer or any guarantor is or
becomes in default in the payment of any debt owed to any third party;
(g) money judgment(s) issue against Dealer or any guarantor which
exceed in the aggregate as to all Dealers and any guarantor, at any
time $1,000,000; (h) an attachment, sale or seizure issues or is
executed against any assets of Dealer or of any guarantor which is not
satisfied or released within fifteen (15) days; (i) the undersigned
dies while Dealer's business is operated as a sole proprietorship, any
general partner dies while Dealer's business is operated as a general
or limited partnership, or any member dies while Dealer's business is
operated as a limited liability company, as applicable; (j) any
guarantor dies; (k) Dealer or any guarantor shall cease existence as a
corporation, partnership, limited liability company or trust, as
applicable; (l) Dealer or any guarantor ceases or suspends business;
(m) Dealer,
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any guarantor or any member while Dealer's business is
operated as a limited liability company, as applicable, makes a general
assignment for the benefit of creditors; (n) Dealer, any guarantor or
any member while Dealer's business is operated as a limited liability
company, as applicable, becomes insolvent or voluntarily or
involuntarily becomes subject to the Federal Bankruptcy Code, any state
insolvency law or any similar law (which, with respect to an
involuntary proceeding, remains undismissed for more than thirty (30)
days, provided, however, if at any time an order for relief is entered,
then notwithstanding the foregoing, such event shall constitute an
immediate default hereunder); (o) any receiver is appointed for any
assets of Dealer, any guarantor or any member while Dealer's business
is operated as a limited liability company, as applicable; (p) any
guaranty of Dealer's debts to DFS is terminated; (q) Dealer loses any
franchise, permission, license or right to sell or deal in any
Collateral which DFS finances; or (r) Dealer or any guarantor
misrepresents Dealer's or such guarantor's financial condition or
organizational structure.
13. Rights of DFS Upon Default. In the event of a default:
(a) DFS may at any time at DFS' election, without notice or demand
to Dealer, do any one or more of the following: declare all or
any part of the debt Dealer owes DFS immediately due and
payable, together with all costs and expenses of DFS'
collection activity, including, without limitation, all
reasonable attorneys' fees; exercise any or all rights under
applicable law (including, without limitation, the right to
possess, transfer and dispose of the Collateral); and/or cease
extending any additional credit to Dealer (DFS' right to cease
extending credit shall not be construed to limit the
discretionary nature of this credit facility).
(b) Dealer will segregate and keep the Collateral in trust for
DFS, and in good order and repair, and will not sell, rent,
lease, consign, otherwise dispose of or use any Collateral,
nor further encumber any Collateral.
(c) Upon DFS' oral or written demand, Dealer will immediately
deliver the Collateral to DFS, in good order and repair, at a
place specified by DFS, together with all related documents;
or DFS may, in DFS' sole discretion and without notice or
demand to Dealer, take immediate possession of the Collateral
together with all related documents.
(d) DFS may, without notice, apply a default finance charge to
Dealer's outstanding principal indebtedness equal to the
default rate specified in Dealer's financing program with DFS,
if any, or if there is none so specified, at the lesser of 3%
per annum above the rate in effect immediately prior to the
default, or the highest lawful contract rate of interest
permitted under applicable law.
All of DFS' rights and remedies are cumulative. DFS' failure
to exercise any of DFS' rights or remedies hereunder will not
waive any of DFS' rights or remedies as to any past, current
or future default.
14. Sale of Collateral. Dealer agrees that if DFS conducts a private sale
of any Collateral by requesting bids from 10 or more dealers or
distributors in that type of Collateral, any sale by DFS of such
Collateral in bulk or in parcels within 120 days of: (a) DFS' taking
possession and control of such Collateral; or (b) when DFS is otherwise
authorized to sell such Collateral; whichever occurs last, to the
bidder submitting the highest cash bid therefor, is a commercially
reasonable sale of such Collateral under the Uniform Commercial Code.
Dealer agrees that the purchase of any Collateral by a Vendor, as
provided in any agreement between DFS and the Vendor, is a commercially
reasonable disposition and private sale of such Collateral under the
Uniform Commercial Code, and no request for bids shall be required.
Dealer further agrees that 7 or more days prior written notice will be
commercially reasonable notice of any public or private sale (including
any sale to a Vendor). Dealer irrevocably waives any requirement that
DFS retain possession and not dispose of any Collateral until after an
arbitration hearing, arbitration award, confirmation, trial or final
judgment. If DFS disposes of any such Collateral other than as herein
contemplated, the commercial reasonableness of such disposition will be
determined in accordance with the laws of the state governing this
Agreement.
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15. Power of Attorney. Dealer grants DFS an irrevocable power of attorney
to: execute or endorse on Dealer's behalf any checks, financing
statements, instruments, Certificates of Title and Statements of Origin
pertaining to the Collateral; supply any omitted information and correct
errors in any documents between DFS and Dealer; initiate and settle any
insurance claim pertaining to the Collateral; and do anything to
preserve and protect the Collateral and DFS' rights and interest
therein.
16. Information. DFS may provide to any third party any credit, financial or
other information on Dealer that DFS may from time to time possess. DFS
may obtain from any Vendor any credit, financial or other information
regarding Dealer that such Vendor may from time to time possess.
17. Termination. Either party may terminate this Agreement at any time by
written notice received by the other party. If DFS terminates this
Agreement, Dealer agrees that if Dealer: (a) is not in default
hereunder, 30 days prior notice of termination is reasonable and
sufficient (although this provision shall not be construed to mean that
shorter periods may not, in particular circumstances, also be
reasonable and sufficient); or (b) is in default hereunder, no prior
notice of termination is required. Dealer will not be relieved from any
obligation to DFS arising out of DFS' advances or commitments made
before the effective termination date of this Agreement. DFS will
retain all of its rights, interests and remedies hereunder until Dealer
has paid all of Dealer's debts to DFS. All waivers set forth within
this Agreement will survive any termination of this Agreement.
18. Binding Effect. Dealer cannot assign its interest in this Agreement
without DFS' prior written consent, although DFS may assign or
participate DFS' interest, in whole or in part, without Dealer's
consent. This Agreement will protect and bind DFS' and Dealer's
respective heirs, representatives, successors and assigns.
19. Notices. Except as otherwise stated herein, all notices, arbitration
claims, responses, requests and documents will be sufficiently given or
served if mailed or delivered: (a) to Dealer at Dealer's principal place
of business specified above; and (b) to DFS at 655 Maryville Centre
Drive, St. Louis, Missouri 63141-5832, Attention: General Counsel, or
such other address as the parties may hereafter specify in writing.
20. NO ORAL AGREEMENTS. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND
CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING
PROMISES TO EXTEND OR RENEW SUCH DEBTS ARE NOT ENFORCEABLE. TO PROTECT
DEALER AND DFS FROM MISUNDERSTANDING OR DISAPPOINTMENT, ALL AGREEMENTS
COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE
COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES,
EXCEPT AS SPECIFICALLY PROVIDED HEREIN OR AS THE PARTIES MAY LATER AGREE
IN WRITING TO MODIFY IT. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE
PARTIES.
21. Other Waivers. Dealer irrevocably waives notice of: DFS' acceptance
of this Agreement, presentment, demand, protest, nonpayment,
nonperformance, and dishonor. Dealer and DFS irrevocably waive all
rights to claim any punitive and/or exemplary damages.
22. Severability. If any provision of this Agreement or its application is
invalid or unenforceable, the remainder of this Agreement will not be
impaired or affected and will remain binding and enforceable.
23. Supplement. If Dealer and DFS have heretofore executed other agreements
in connection with all or any part of the Collateral, this Agreement
shall supplement each and every other agreement previously executed by
and between Dealer and DFS, and in that event this Agreement shall
neither be deemed a novation nor a termination of such previously
executed agreement nor shall execution of this Agreement be deemed a
satisfaction of any obligation secured by such previously executed
agreement. Notwithstanding any of the foregoing, this Agreement replaces
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in its entirety and renders null and void each and every separate
Agreement for Wholesale Financing previously entered into from time to
time between a Dealer and DFS, and any amendments and addenda thereto.
24. Receipt of Agreement. Dealer acknowledges that it has received a true
and complete copy of this Agreement. Dealer acknowledges that it has
read and understood this Agreement. Notwithstanding anything herein to
the contrary: (a) DFS may rely on any facsimile copy, electronic data
transmission or electronic data storage of this Agreement, any Statement
of Transaction, billing statement, invoice from a Vendor, financial
statements or other reports, and (b) such facsimile copy, electronic
data transmission or electronic data storage will be deemed an original,
and the best evidence thereof for all purposes, including, without
limitation, under this Agreement or any other agreement between DFS and
Dealer, and for all evidentiary purposes before any arbitrator, court or
other adjudicatory authority.
25. Miscellaneous. Time is of the essence regarding Dealer's performance of
its obligations to DFS notwithstanding any course of dealing or custom
on DFS' part to grant extensions of time. Dealer's liability under this
Agreement is direct and unconditional and will not be affected by the
release or nonperfection of any security interest granted hereunder.
DFS will have the right to refrain from or postpone enforcement of this
Agreement or any other agreements between DFS and Dealer without
prejudice and the failure to strictly enforce these agreements will not
be construed as having created a course of dealing between DFS and
Dealer contrary to the specific terms of the agreements or as having
modified, released or waived the same. The express terms of this
Agreement will not be modified by any course of dealing, usage of
trade, or custom of trade which may deviate from the terms hereof. If
Dealer fails to pay any taxes, fees or other obligations which may
impair DFS' interest in the Collateral, or fails to keep the Collateral
insured, DFS may, but shall not be required to, pay such taxes, fees or
obligations and pay the cost to insure the Collateral, and the amounts
paid will be: (a) an additional debt owed by Dealer to DFS, which shall
be subject to finance charges as provided herein; and (b) due and
payable immediately in full. Dealer agrees to pay all of DFS'
reasonable attorneys' fees and expenses incurred by DFS in enforcing
DFS' rights hereunder. The Section titles used in this Agreement are
for convenience only and do not define or limit the contents of any
Section.
26. BINDING ARBITRATION.
26.1 Arbitrable Claims. Except as otherwise specified below, all
actions, disputes, claims and controversies under common law,
statutory law or in equity of any type or nature whatsoever
(including, without limitation, all torts, whether regarding
negligence, breach of fiduciary duty, restraint of trade,
fraud, conversion, duress, interference, wrongful replevin,
wrongful sequestration, fraud in the inducement, usury or any
other tort, all contract actions, whether regarding express or
implied terms, such as implied covenants of good faith, fair
dealing, and the commercial reasonableness of any Collateral
disposition, or any other contract claim, all claims of
deceptive trade practices or lender liability, and all claims
questioning the reasonableness or lawfulness of any act),
whether arising before or after the date of this Agreement,
and whether directly or indirectly relating to: (a) this
Agreement and/or any amendments and addenda hereto, or the
breach, invalidity or termination hereof; (b) any previous or
subsequent agreement between DFS and Dealer; (c) any act
committed by DFS or by any parent company, subsidiary or
affiliated company of DFS (the "DFS Companies"), or by any
employee, agent, officer or director of a DFS Company whether
or not arising within the scope and course of employment or
other contractual representation of the DFS Companies provided
that such act arises under a relationship, transaction or
dealing between DFS and Dealer; and/or (d) any other
relationship, transaction or dealing between DFS and Dealer
(collectively the "Disputes"), will be subject to and resolved
by binding arbitration.
26.2 Administrative Body. All arbitration hereunder will be
conducted in accordance with the Commercial Arbitration Rules
of The American Arbitration Association ("AAA"). If the AAA is
dissolved, disbanded or becomes subject
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to any state or federal bankruptcy or insolvency proceeding,
the parties will remain subject to binding arbitration which
will be conducted by a mutually agreeable arbitral forum. The
parties agree that all arbitrator(s) selected will be
attorneys with at least five (5) years secured transactions
experience. The arbitrator(s) will decide if any inconsistency
exists between the rules of any applicable arbitral forum and
the arbitration provisions contained herein. If such
inconsistency exists, the arbitration provisions contained
herein will control and supersede such rules. The site of all
arbitration proceedings will be in the Division of the Federal
Judicial District in which AAA maintains a regional office
that is closest to Dealer.
26.3 Discovery. Discovery permitted in any arbitration proceeding
commenced hereunder is limited as follows. No later than
thirty (30) days after the filing of a claim for arbitration,
the parties will exchange detailed statements setting forth
the facts supporting the claim(s) and all defenses to be
raised during the arbitration, and a list of all exhibits and
witnesses. No later than twenty-one (21) days prior to the
arbitration hearing, the parties will exchange a final list of
all exhibits and all witnesses, including any designation of
any expert witness(es) together with a summary of their
testimony; a copy of all documents and a detailed description
of any property to be introduced at the hearing. Under no
circumstances will the use of interrogatories, requests for
admission, requests for the production of documents or the
taking of depositions be permitted. However, in the event of
the designation of any expert witness(es), the following will
occur: (a) all information and documents relied upon by the
expert witness(es) will be delivered to the opposing party,
(b) the opposing party will be permitted to depose the expert
witness(es), (c) the opposing party will be permitted to
designate rebuttal expert witness(es), and (d) the arbitration
hearing will be continued to the earliest possible date that
enables the foregoing limited discovery to be accomplished.
26.4 Exemplary or Punitive Damages. The Arbitrator(s) will not have
the authority to award exemplary or punitive damages.
26.5 Confidentiality of Awards. All arbitration proceedings,
including testimony or evidence at hearings, will be kept
confidential, although any award or order rendered by the
arbitrator(s) pursuant to the terms of this Agreement may be
entered as a judgment or order in any state or federal court
and may be confirmed within the federal judicial district
which includes the residence of the party against whom such
award or order was entered. This Agreement concerns
transactions involving commerce among the several states. The
Federal Arbitration Act, Title 9 U.S.C. Sections 1 et seq., as
amended ("FAA") will govern all arbitration(s) and
confirmation proceedings hereunder.
26.6 Prejudgment and Provisional Remedies. Nothing herein will be
construed to prevent DFS' or Dealer's use of bankruptcy,
receivership, injunction, repossession, replevin, claim and
delivery, sequestration, seizure, attachment, foreclosure,
dation and/or any other prejudgment or provisional action or
remedy relating to any Collateral for any current or future
debt owed by either party to the other. Any such action or
remedy will not waive DFS' or Dealer's right to compel
arbitration of any Dispute.
26.7 Attorneys' Fees. If either Dealer or DFS brings any other
action for judicial relief with respect to any Dispute (other
than those set forth in Section 26.6), the party bringing such
action will be liable for and immediately pay all of the other
party's costs and expenses (including attorneys' fees)
incurred to stay or dismiss such action and remove or refer
such Dispute to arbitration. If either Dealer or DFS brings or
appeals an action to vacate or modify an arbitration award and
such party does not prevail, such party will pay all costs and
expenses, including attorneys' fees, incurred by the other
party in defending such action. Additionally, if Dealer sues
DFS or institutes any arbitration claim or counterclaim
against DFS in which DFS is the prevailing party, Dealer will
pay all costs and expenses (including attorneys' fees)
incurred by DFS in the course of
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defending such action or proceeding.
26.8 Limitations. Any arbitration proceeding must be instituted:
(a) with respect to any Dispute for the collection of any debt
owed by either party to the other, within two (2) years after
the date the last payment was received by the instituting
party; and (b) with respect to any other Dispute, within two
(2) years after the date the incident giving rise thereto
occurred, whether or not any damage was sustained or capable
of ascertainment or either party knew of such incident.
Failure to institute an arbitration proceeding within such
period will constitute an absolute bar and waiver to the
institution of any proceeding, whether arbitration or a court
proceeding, with respect to such Dispute.
26.9 Survival After Termination. The agreement to arbitrate will
survive the termination of this Agreement.
27. INVALIDITY/UNENFORCEABILITY OF BINDING ARBITRATION. IF THIS AGREEMENT IS
FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY LEGAL PROCEEDING WITH
RESPECT TO ANY DISPUTE WILL BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE WITHOUT A JURY. DEALER AND DFS WAIVE ANY RIGHT
TO A JURY TRIAL IN ANY SUCH PROCEEDING.
28. Governing Law. Dealer acknowledges and agrees that this and all other
agreements between Dealer and DFS have been substantially negotiated,
and will be substantially performed, in the state of New Jersey.
Accordingly, Dealer agrees that all Disputes will be governed by, and
construed in accordance with, the laws of such state, except to the
extent inconsistent with the provisions of the FAA which shall control
and govern all arbitration proceedings hereunder.
29. Joint and Several Liability. Notwithstanding anything herein to the
contrary, each Dealer is primarily and jointly and severally liable for
all debts to DFS hereunder or under any other agreement between DFS and
Dealer. If and to the extent a Dealer shall be deemed a guarantor of the
other Dealer hereunder, such Dealer's joint liability for any such
obligations of such other Dealer shall be deemed to be a guaranty of
payment and performance, and not of collection. A default by one Dealer
shall be deemed a default by all Dealers.
30. Confidentiality. DFS shall keep confidential, and will cause its
directors, officers, employees, counsel, agents and representatives to
keep confidential, all confidential or proprietary information of any
Dealer (the proprietary nature of which shall be promptly determined by
the Dealer following DFS' request therefor) and documents obtained by
it in connection with the consummation of the transactions contemplated
hereby (including, without limitation, this Agreement) from all persons
(other than DFS and its directors, officers, employees, counsel, agents
and representatives), unless such information is disclosed following
DFS' receipt of Condor Technology Solutions, Inc.'s consent to such
disclosure. Information shall not be deemed to be confidential or
proprietary if (i) it is or becomes generally available in the public
domain (other than as a result of its disclosure after the date of this
Agreement by DFS or its directors, officers, employees, counsel, agents
or representatives), (ii) it is or has become generally available to
the public without violating the terms of this section, (iii) it is or
becomes lawfully obtainable from other sources or (iv) it is required
to be disclosed to comply with applicable law, rules or regulations or
a court order issued by a court of competent jurisdiction; it being
understood and agreed that (a) any such disclosure pursuant to this
clause (iv) shall be limited to confidential or proprietary information
which DFS may be legally required to disclose pursuant to such law,
rule, regulation or court order and (b) unless otherwise prohibited by
court order or applicable law, DFS shall promptly notify Condor
Technology Solutions, Inc. of DFS' receipt of any court order requiring
disclosure of confidential or proprietary information of the Dealer.
DFS acknowledges and agrees that all confidential and proprietary
information in DFS' possession, custody or control shall be returned to
Condor Technology Solutions, Inc. upon payment in full of all
obligations and termination of this Agreement. DFS' obligations under
this section shall survive the payment in full of the obligations
hereunder.
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IN WITNESS WHEREOF, Dealer and DFS have executed this Agreement as of
the date first set forth hereinabove.
THIS CONTRACT CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGE
WAIVER PROVISIONS.
COMPUTER HARDWARE MAINTENANCE COMPANY, INC.
Attest:
By: /s/William J. Caragol, Jr.
--------------------------
Print Name: William J. Caragol, Jr.
Title: Attorney-In-Fact
(Assistant) Secretary Address: 2010 Cabot Boulevard West
Langhorne, PA 19047-1811
CORPORATE ACCESS, INC.
Attest:
By: /s/William J. Caragol, Jr.
--------------------------
Print Name: William J. Caragol, Jr.
Title: Attorney-In-Fact
(Assistant) Secretary Address: 100 School Street
Andover, MA 01810
U.S. COMMUNICATIONS, INC.
Attest:
By: /s/William J. Caragol, Jr.
--------------------------
Print Name: William J. Caragol, Jr.
Title: Attorney-In-Fact
(Assistant) Secretary Address: 801 Compass Way, Suite 205
Annapolis, MD 21401
DEUTSCHE FINANCIAL SERVICES CORPORATION
By: /s/ Michael Marcolina
---------------------
Print Name: Michael Marcolina
Title: Regional Marketing Manager
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GUARANTY
TO: DEUTSCHE FINANCIAL SERVICES CORPORATION
In consideration of financing provided or to be provided by you to
Computer Hardware Maintenance Company Inc., Corporate Access Inc. and U.S.
Communications Inc. ("Dealers"), and for other good and valuable consideration
received, we jointly, severally, unconditionally and absolutely guaranty to you,
from property held separately, jointly or in community, the immediate payment
when due of all current and future liabilities owed by Dealers to you, whether
such liabilities are direct, indirect or owed by Dealers to a third party and
acquired by you ("Liabilities"). We will pay you on demand the full amount of
all sums owed by Dealers to you, together with all costs and expenses
(including, without limitation, reasonable attorneys' fees). We also indemnify
and hold you harmless from and against all (a) losses, costs and expenses you
incur and/or are liable for (including, without limitation, reasonable
attorneys' fees) and (b) claims, actions and demands made by Dealers or any
third party against you, which in any way relate to any relationship or
transaction between you and Dealers.
Our guaranty will not be released, discharged or affected by, and we
hereby irrevocably consent to, any: (a) change in the manner, place, interest
rate, finance or other charges, or terms of payment or performance in any
current or future agreement between you and Dealers, the release, settlement or
compromise of or with any party liable for the payment or performance thereof or
the substitution, release, non-perfection, impairment, sale or other disposition
of any collateral thereunder; (b) change in Dealer's financial condition; (c)
interruption of relations between Dealers and you or us; (d) claim or action by
Dealers against you; and/or (e) increases or decreases in any credit you may
provide to Dealers. We will pay you even if you have not: (i) notified Dealers
that it is in default of the Liabilities, and/or that you intend to accelerate
or have accelerated the payment of all or any part of the Liabilities, or (ii)
exercised any of your rights or remedies against Dealers, any other person or
any current or future collateral. This Guaranty is assignable by you and will
inure to the benefit of your assignee. If Dealers hereafter undergo any change
in ownership, identity or organizational structure, this Guaranty will extend to
all current and future obligations which such new or changed legal entity owes
to you.
We irrevocably waive: notice of your acceptance of this Guaranty,
presentment, demand, protest, nonpayment, nonperformance, notice of breach or
default, notice of intent to accelerate and notice of acceleration of any
indebtedness of Dealers, any right of contribution from other guarantors,
dishonor, the amount of indebtedness of Dealers outstanding at any time, the
number and amount of advances made by you to Dealers in reliance on this
Guaranty and any claim or action against Dealers; all other demands and notices
required by law; all rights of offset and counterclaims against you or Dealers;
all defenses to the enforceability of this Guaranty (including, without
limitation, fraudulent inducement). We further waive all defenses based on
suretyship or impairment of collateral, and defenses which the Dealers may
assert on the underlying debt, including but not limited to, failure of
consideration, breach of warranty, fraud, payment, statute of frauds,
bankruptcy, lack of legal capacity, statute of limitations, lender liability,
deceptive trade practices, accord and satisfaction and usury. We also waive all
rights to claim, arbitrate for or sue for any punitive or exemplary damages. In
addition, we hereby irrevocably subordinate to you any and all of our present
and future rights and remedies: (a) of subrogation against Dealer to any of your
rights or remedies against Dealer, (b) of contribution, reimbursement,
indemnification and restoration from Dealer; and (c) to assert any other claim
or action against Dealer directly or indirectly relating to this Guaranty, such
subordinations to last until you have been paid in full for all Liabilities. All
of our waivers and subordinations herein will survive any termination of this
Guaranty.
We have made an independent investigation of the financial condition of
Dealer and give this Guaranty based on that investigation and not upon any
representation made by you. We have access to current and future Dealer
financial information which enables us
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to remain continuously informed of Dealer's financial condition. We represent
and warrant to you that we have received and will receive substantial direct or
indirect benefit by making this Guaranty and incurring the Liabilities. We will
provide you with financial statements on us each year within ninety (90) days
after the end of Dealer's fiscal year end. We warrant and represent to you that
all financial statements and information relating to us or Dealer which have
been or may hereafter be delivered by us or Dealer to you are true and correct
and have been and will be prepared in accordance with generally accepted
accounting principles consistently applied and, with respect to previously
delivered statements and information, there has been no material adverse change
in the financial or business condition of us or Dealer since the submission to
you, either as of the date of delivery, or if different, the date specified
therein, and we acknowledge your reliance thereon. This Guaranty will survive
any federal and/or state bankruptcy or insolvency action involving Dealer. We
are solvent and our execution of this Guaranty will not make us insolvent. If
you are required in any action involving Dealer to return or rescind any payment
made to or value received by you from or for the account of Dealer, this
Guaranty will remain in full force and effect and will be automatically
reinstated without any further action by you and notwithstanding any termination
of this Guaranty or your release of us. Any delay or failure by you, or your
successors or assigns, in exercising any of your rights or remedies hereunder
will not waive any such rights or remedies. Oral agreements or commitments to
loan money, extend credit or to forbear from enforcing repayment of a debt
including promises to extend or renew such debt are not enforceable. To protect
us and you from misunderstanding or disappointment, any agreements we reach
covering such matters are contained in this writing, which is the complete and
exclusive statement of the agreement between us, except as specifically provided
herein or as we may later agree in writing to modify it. Notwithstanding
anything herein to the contrary: (a) you may rely on any facsimile copy,
electronic data transmission or electronic data storage of this Guaranty, any
agreement between you and Dealer, any Statement of Transaction, billing
statement, invoice from a vendor, financial statements or other report, and (b)
such facsimile copy, electronic data transmission or electronic data storage
will be deemed an original, and the best evidence thereof for all purposes,
including, without limitation, under this Guaranty or any other agreement
between you and us, and for all evidentiary purposes before any arbitrator,
court or other adjudicatory authority. We may terminate this Guaranty by a
written notice to you, the termination to be effective sixty (60) days after you
receive and acknowledge it, but the termination will not terminate our
obligations hereunder for Liabilities arising prior to the effective termination
date. We have read and understood all terms and provisions of this Guaranty. We
acknowledge receipt of a true copy of this Guaranty and of all agreements
between you and Dealer. The meanings of all terms herein are equally applicable
to both the singular and plural forms of such terms.
BINDING ARBITRATION. Except as otherwise specified below, all actions,
disputes, claims and controversies under common law, statutory law or in equity
of any type or nature whatsoever (including, without limitation, all torts,
whether regarding negligence, breach of fiduciary duty, restraint of trade,
fraud, conversion, duress, interference, wrongful replevin, wrongful
sequestration, fraud in the inducement, usury or any other tort, all contract
actions, whether regarding express or implied terms, such as implied covenants
of good faith, fair dealing, and the commercial reasonableness of any collateral
disposition, or any other contract claim, all claims of deceptive trade
practices or lender liability, and all claims questioning the reasonableness or
lawfulness of any act), whether arising before or after the date of this
Guaranty, and whether directly or indirectly relating to: (a) this Guaranty
and/or any amendments and addenda hereto, or the breach, invalidity or
termination hereof; (b) any previous or subsequent agreement between you and us;
(c) any act committed by you or by any parent company, subsidiary or affiliated
company of you (the "DFS Companies"), or by an employee, agent, officer or
director of a DFS Company, whether or not arising within the scope and course of
employment or other contractual representation of the DFS Companies provided
that such act arises under a relationship, transaction or dealing between you
and Dealer or you and us; and/or (d) any other relationship, transaction,
dealing or agreement between you and Dealer or you and us (collectively the
"Disputes"), will be
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subject to and resolved by binding arbitration.
All arbitration hereunder will be conducted in accordance with The
Commercial Arbitration Rules of The American Arbitration Association ("AAA"). If
the AAA is dissolved, disbanded or becomes subject to any state or federal
bankruptcy or insolvency proceeding, the parties will remain subject to binding
arbitration which will be conducted by a mutually agreeable arbitral forum. The
parties agree that all arbitrator(s) selected will be attorneys with at least
five (5) years secured transactions experience. The arbitrator(s) will decide if
any inconsistency exists between the rules of any applicable arbitral forum and
the arbitration provisions contained herein. If such inconsistency exists, the
arbitration provisions contained herein will control and supersede such rules.
The site of all arbitrations will be in the Division of the Federal Judicial
District in which AAA maintains a regional office that is closest to Dealer.
Discovery permitted in any arbitration proceeding commenced hereunder is
limited as follows: No later than thirty (30) days after the filing of a claim
for arbitration, the parties will exchange detailed statements setting forth the
facts supporting the claim(s) and all defenses to be raised during the
arbitration, and a list of all exhibits and witnesses. No later than twenty-one
(21) days prior to the arbitration hearing, the parties will exchange a final
list of all exhibits and all witnesses, including any designation of any expert
witness(es) together with a summary of their testimony; a copy of all documents
and a detailed description of any property to be introduced at the hearing.
Under no circumstances will the use of interrogatories, requests for admission,
requests for the production of documents or the taking of depositions be
permitted. However, in the event of the designation of any expert witness(es),
the following will occur: (a) all information and documents relied upon by the
expert witness(es) will be delivered to the opposing party, (b) the opposing
party will be permitted to depose the expert witness(es), (c) the opposing party
will be permitted to designate rebuttal expert witness(es), and (d) the
arbitration hearing will be continued to the earliest possible date that enables
the foregoing limited discovery to be accomplished.
The Arbitrator(s) will not have the authority to award exemplary or
punitive damages.
All arbitration proceedings, including testimony or evidence at
hearings, will be kept confidential, although any award or order rendered by the
arbitrator(s) pursuant to the terms of this Guaranty may be entered as a
judgment or order in any state or federal court and may be entered as a judgment
or order within the federal judicial district which includes the residence of
the party against whom such award or order was entered. This Guaranty concerns
transactions involving commerce among the several states. The Federal
Arbitration Act ("FAA") will govern all arbitration(s) and confirmation
proceedings hereunder.
Nothing herein will be construed to prevent your or our use of
bankruptcy, receivership, injunction, repossession, replevin, claim and
delivery, sequestration, seizure, attachment, foreclosure, dation and/or any
other prejudgment or provisional action or remedy relating to any collateral for
any current or future debt owed by either party to the other. Any such action or
remedy will not waive your or our right to compel arbitration of any Dispute.
If either we or you bring any other action for judicial relief with
respect to any Dispute (other than those set forth in the immediately preceding
paragraph), the party bringing such action will be liable for and immediately
pay all of the other party's costs and expenses (including attorneys' fees)
incurred to stay or dismiss such action and remove or refer such Dispute to
arbitration. If either we or you bring or appeal an action to vacate or modify
an arbitration award and such party does not prevail, such party will pay all
costs and expenses, including attorneys' fees, incurred by the other party in
defending such action. Additionally, if we sue you or institute any arbitration
claim or counterclaim against you in which you are the prevailing party, we
3
<PAGE>
will pay all costs and expenses (including attorneys' fees) incurred by you in
the course of defending such action or proceeding.
Any arbitration proceeding must be instituted: (a) with respect to any
Dispute for the collection of any debt owed by either party to the other, within
two (2) years after the date the last payment was received by the instituting
party; and (b) with respect to any other Dispute, within two (2) years after the
date the incident giving rise thereto occurred, whether or not any damage was
sustained or capable of ascertainment or either party knew of such incident.
Failure to institute an arbitration proceeding within such period will
constitute an absolute bar and waiver to the institution of any proceeding with
respect to such Dispute. Except as otherwise stated herein, all notices,
arbitration claims, responses, requests and documents will be sufficiently given
or served if mailed or delivered: (i) to us at our address below; (ii) to you at
655 Maryville Centre Drive, St. Louis, Missouri 63141-5832, Attention: General
Counsel; or such other address as the parties may specify from time to time in
writing.
The agreement to arbitrate will survive the termination of this
Guaranty.
IF THIS GUARANTY IS FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY LEGAL
PROCEEDING WITH RESPECT TO ANY DISPUTE WILL BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE WITHOUT A JURY. WE WAIVE ANY RIGHT TO A JURY TRIAL IN
ANY SUCH PROCEEDING.
We acknowledge and agree that this Guaranty and all agreements between
Dealer and you have been substantially negotiated, and will be performed, in the
state of New Jersey. Accordingly, we agree that all Disputes will be governed
by, and construed in accordance with, the laws of such state, except to the
extent inconsistent with the provisions of the FAA which will control and govern
all arbitration proceedings hereunder.
THIS GUARANTY CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGES
WAIVER PROVISIONS.
Date: April 15, 1998
Condor Technology Solutions Inc.
Attest:
By: /s/ Kennard F. Hill
-------------------
/s/ William J. Caragol, Jr.
---------------------------
Print Name: Kennard F. Hill
Print Name: William J. Caragol, Jr.
Title: Chief Executive Officer
Title: Secretary
4
<PAGE>
ADDENDUM TO GUARANTY
AND AGREEMENT FOR WHOLESALE FINANCING
This Addendum is hereby made to (i) that certain Agreement for Wholesale
Financing dated as of April 15, 1998 executed by Computer Hardware Maintenance
Company, Inc., Corporate Access, Inc., and U.S. Communications, Inc.
(individually and/or collectively, "Dealer") and Deutsche Financial Services
Corporation ("DFS"), as amended, ("AWF"), and (ii) that certain Guaranty given
by Condor Technology Solutions, Inc. ("Guarantor") to DFS dated as of
April 15, 1998, as amended ("Guaranty"), unconditionally guaranteeing the
obligations of Dealer to DFS. All capitalized terms shall have the same
meaning used in the AWF unless otherwise defined herein.
FOR VALUE RECEIVED, DFS, Guarantor and Dealer agree as follows:
1. The following paragraphs are hereby incorporated into the Guaranty
and the AWF, where applicable, as if fully set forth therein:
Guarantor hereby agrees to cause an institution acceptable to DFS
to issue in favor of DFS one or more Irrevocable Letters of Credit,
in a total amount, form, substance and with expiration dates
satisfactory to DFS. Such Irrevocable Letter(s) of Credit shall,
among other things, be for the account of Guarantor, but provide
support both for the obligations of Guarantor under its Guaranty
and of the Dealer under its AWF and other agreements with DFS.
Guarantor hereby agrees that if at least sixty (60) days prior to
the expiration of the above referenced Irrevocable Letter(s) of
Credit or any subsequent Letter(s) of Credit issued in favor of DFS
as provided herein, any such Irrevocable Letter of Credit is not
extended for a term of twelve (12) months or longer, or a new
Irrevocable Letter of Credit in an amount, form and from an
institution acceptable to DFS and for a term of twelve (12) months
or longer, is not provided to DFS, an event of default shall have
occurred under the Guaranty and under the AWF, and DFS may declare
all sums owed by Dealer to DFS and/or by Guarantor to DFS to be
immediately due and payable. Upon such default, DFS may: (i)
exercise any and all of its rights under the AWF, Guaranty and at
law, including, but not limited to, the right to repossess the
Collateral from Dealer; and (ii) exercise any and all of its rights
to draw upon any such Irrevocable Letter of Credit. DFS agrees,
accordingly, that it will not draw upon or present any such
Irrevocable Letter of Credit unless a default has occurred.
2. The AWF shall be amended to provide as follows, and, to the extent
applicable, the following provision shall also amend the Guaranty:
Dealer will forward to DFS by the tenth (10th) day of each month a
Collateral Report (as defined below) dated as of the last day of
the prior month. Regardless of the SPP terms pertaining to any
Collateral financed by DFS, and notwithstanding any scheduled
payments made by Dealer after the Determination Date (as defined
below) or anything contained in the Agreement to the contrary, if
DFS determines, after reviewing the Collateral Report, after
conducting an inspection of the Collateral or otherwise, that (i)
the total current outstanding indebtedness owed by Dealer to DFS as
of the date of the Collateral Report, inspection or any other date
on which a paydown is otherwise required hereunder, as applicable
(the "Determination Date"), exceeds (ii) the Collateral Liquidation
Value (as defined below) as of the Determination Date, Dealer will
immediately upon demand pay DFS the difference between (i) Dealer's
total current outstanding indebtedness owed to DFS as of the
Determination Date, and (ii) the Collateral Liquidation Value as of
the Determination Date.
1
<PAGE>
The term "Collateral Report" is defined herein to mean a report
compiled by Dealer specifying the total aggregate wholesale invoice
price of all of Dealer's inventory financed by DFS that is unsold
and in Dealer's possession and control as of the date of such
Report and to the extent DFS has a first priority, fully perfected
security interest therein.
The term "Collateral Liquidation Value" is defined herein to mean:
(i) one hundred percent (100%) of the total aggregate wholesale
invoice price of all of Dealer's inventory financed by DFS that is
unsold and in Dealer's possession and control and to the extent DFS
has a first priority, fully perfected security interest therein;
and (ii) the amount of any Irrevocable Letter of Credit issued by
an institution acceptable to DFS, and in a form, amount and upon
such other terms as are acceptable to DFS, in its sole discretion:
in each case as of the date of the Collateral Report.
If Dealer from time to time is required to make immediate payment
to DFS of any past due obligation discovered during any Collateral
review, upon review of a Collateral Report or at any other time,
Dealer agrees that acceptance of such payment by DFS shall not be
construed to have waived or amended the terms of its financing
program.
3. The following provisions shall amend the AWF and, to the extent
applicable, the Guaranty:
Financial Covenants. So long as any obligation of Dealer and/or
Guarantor to DFS remains outstanding and/or the Guaranty and/or the
AWF remain in effect, the Dealer and the Guarantor will comply with
each of the financial covenants set forth below, all computed on a
consolidated basis at the Guarantor's level (the Guarantor and all
of its subsidiaries, including but not limited to each Dealer,
being the "Consolidated Group"):
(a) Net Worth. The Consolidated Group will maintain on a
consolidated basis for each quarter commencing with and including
the quarter ending immediately after the date hereof, Net Worth of
not less than (i) 75% of net income for all fiscal quarters
commencing with and including the fiscal quarter ending March 31,
1998 (but excluding net income for any fiscal quarter for which net
income is a negative number), plus (ii) 75% of the net proceeds
from the issuance or sale by any member of the Consolidated Group
of any of its equity securities (excluding the proceeds from the
exercise of employee stock options), plus (iii) $85,000,000.
For purposes hereof, "Net Worth" shall mean total assets minus
all liabilities, all to be determined on a consolidated basis
in accordance with generally accepted accounting principles,
consistently applied. The Net Worth shall be measured on the
last day of each fiscal quarter.
(b) Fixed Charge Coverage Ratio. The Consolidated Group will
maintain on a consolidated basis for each quarter commencing with
and including the quarter ending immediately after the date hereof,
a Fixed Charge Coverage Ratio of not less than 2.00 to 1.00.
For purposes of the foregoing, "Fixed Charge Coverage Ratio" shall
mean the Consolidated Group's pro forma earnings before interest,
taxes, depreciation and amortization ("EBITDA"), plus rent expense,
minus cash taxes paid, minus cash capital expenditures, minus cash
dividends paid, divided by the Consolidated Group's rent expense,
plus interest expense, plus required principal payments on debt and
capital leases. The Fixed Charge Coverage Ratio shall be measured
on the last day of each fiscal quarter.
2
<PAGE>
Each and every covenant compliance certificate, report, statement,
or other notice delivered under the Business Loan and Security
Agreement among First Union Commercial Corporation, Dealer,
Guarantor, and certain other of Guarantor's subsidiaries (as
amended from time to time, the "Credit Agreement"), pursuant to
Article VI, Section 3 of the Credit Agreement, shall also be
delivered to DFS, along with all supporting data.
4. The AWF and the Guaranty shall each be amended to provide that the
occurrence of a default under the terms of the Credit Agreement
shall also constitute a default under the AWF and the Guaranty (the
"Cross Default"). DFS shall not exercise its remedies based on a
Cross Default until after the expiration of the applicable grace
period which First Union Commercial Corporation ("First Union") has
granted to the Dealer or Guarantor for the curing of such default
to First Union, as presently stated in the Credit Agreement.
Each Dealer and Guarantor hereby waives notice of DFS' acceptance of this
Addendum. All other terms and conditions of the Guaranty and the AWF shall
remain unchanged and in full force and effect.
IN WITNESS WHEREOF, Guarantor, each Dealer and DFS have read this
Addendum, understand all the terms and provisions hereof and agree to be bound
thereby and subject thereto as of the 15th day of April, 1998.
CONDOR TECHNOLOGY SOLUTIONS, INC.
Attest:
By: /s/ Kennard F. Hill
/s/ Frank Patrinicola --------------------
- ------------------------- Print Name: Kennard F. Hill
Frank Patrinicola
Title: Chief Executive Officer
Business Development
Manager
COMPUTER HARDWARE MAINTENANCE COMPANY, INC.
Attest:
By: /s/William J. Caragol, Jr.
/s/ Frank Patrinicola --------------------------
- ------------------------- Print Name: William J. Caragol, Jr.
Frank Patrinicola
Title: Attorney-In-Fact
Business Development
Manager
CORPORATE ACCESS, INC.
Attest:
By: s/William J. Caragol, Jr."Attorney in Fact"
/s/ Frank Patrinicola -------------------------------------------
- ------------------------- Print Name: William J. Caragol, Jr.
Frank Patrinicola
Title: Attorney-In-Fact
Business Development
Manager
U.S. COMMUNICATIONS, INC.
Attest:
By: s/William J. Caragol, Jr."Attorney in Fact"
/s/ Frank Patrinicola -------------------------------------------
- ------------------------- Print Name: William J. Caragol, Jr.
Frank Patrinicola
Title: Attorney-In-Fact
Business Development
Manager
DEUTSCHE FINANCIAL SERVICES CORPORATION
By: /s/ Michael Marcolina
---------------------
Print Name: Michael Marcolina
Title: Regional Marketing Manager
3
<PAGE>
Exhibit 11
CONDOR TECHNOLOGY SOLUTION, INC.
COMPUTATIONS OF EARNINGS PER SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1998 1997
---- ----
Weighted average common shares
outstanding:
<S> <C> <C>
Average shares outstanding during period 7,117 -
------- -------
Total basic weighted average
common shares 7,117 -
------- -------
------- -------
Total diluted weighted average
common shares 7,117 -
------- -------
------- -------
Net loss applicable to common shares:
Net loss $(3,007) $ -
------- -------
------- -------
Loss per basic common share $(0.42) $ -
------- -------
------- -------
Loss per diluted common share $(0.42) $ -
------- -------
------- -------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH
31, 1998 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 11,686
<SECURITIES> 23,028
<RECEIVABLES> 23,118
<ALLOWANCES> (306)
<INVENTORY> 1,063
<CURRENT-ASSETS> 59,887
<PP&E> 5,490
<DEPRECIATION> (3,526)
<TOTAL-ASSETS> 125,838
<CURRENT-LIABILITIES> 27,664
<BONDS> 1,082
0
0
<COMMON> 110
<OTHER-SE> 93,504
<TOTAL-LIABILITY-AND-EQUITY> 125,838
<SALES> 12,678
<TOTAL-REVENUES> 25,663
<CGS> 11,531
<TOTAL-COSTS> 18,437
<OTHER-EXPENSES> 10,476
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (225)
<INCOME-PRETAX> 0
<INCOME-TAX> (15)
<INCOME-CONTINUING> (3,007)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,007)
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
