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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-23585
SM&A CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0080929
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
4695 MACARTHUR COURT, 8TH FLOOR, NEWPORT BEACH, CALIFORNIA 92660
(Address of principal executive offices) (Zip Code)
(949) 975-1550
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.[ ]
As of March 29, 1999, 16,539,584 shares of the Registrant's common stock, no par
value ("Common Stock"), were outstanding. The aggregate market value of shares
of Common Stock held by non-affiliates, based upon the closing sale price of the
stock on the Nasdaq National Market on March 29, 1999, was approximately
$46,059,030.(1)
Documents incorporated by reference. List hereunder the following documents if
incorporated by reference, and the part of the Form 10-K (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1933: Portions of the
Registrant's definitive proxy statement to be issued in conjunction with the
Registrant's Annual Meeting of Shareholders to be held on May 18, 1999, which
proxy statement is being filed concurrently with this Form 10-K.
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1 For purposes of this report, in addition to those shareholders which fall
within the definition of "affiliate" under Rule 405 of the Securities Act
of 1933, as amended, holders of ten percent of more of the Registrant's
Common Stock are deemed to be affiliates.
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PART I
ITEM 1 - BUSINESS
INTRODUCTION
This Annual Report on Form 10-K contains certain statements which are
not historical in nature, and are intended to be, and are hereby identified as,
"forward-looking statements" for purposes of the safe harbor provided by Section
21E of the Securities Exchange Act of 1934, as amended by Public Law 104-6. Such
forward-looking statements are principally contained in the sections entitled
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" including, without limitation, statements relating to (i)
the anticipated growth in the proposal management and contract support services
markets; (ii) anticipated trends in the financial condition and results of
operations of SM&A Corporation ("SM&A" or the "Company") (including expected
changes in the Company's gross margin and general, administrative and selling
expenses); (iii) the ability of the Company to finance its working capital
requirements; (iv) the Company's business strategy for expanding its presence in
the proposal management and contract support services markets; and (v) the
Company's ability to distinguish itself from its current and future competitors.
These forward-looking statements are based largely on the Company's current
expectations and are subject to a number of risks and uncertainties. Actual
results could differ materially from these forward-looking statements. In
addition to the other risks described in the "Risk Factors" discussion contained
herein, important factors to consider in evaluating such forward-looking
statements include (i) the shortage of reliable market data regarding the
proposal management and contract support services markets; (ii) changes in
external competitive market factors or in the Company's internal budgeting
process which might impact trends in the Company's results of operations; (iii)
unanticipated working capital or other cash requirements; (iv) changes in the
Company's business strategy or an inability to execute its strategy due to
unanticipated changes in the proposal management and contract support services
markets; and (v) various other factors that may prevent the Company from
competing successfully in the marketplace. In light of these risks and
uncertainties, many of which are described in greater detail in the "Risk
Factors" discussion contained herein, there can be no assurance that the actual
results will not differ materially from such forward-looking statements
contained herein. When used in this report, the words "anticipate," "believe,"
"intends," "estimate," and "expect" and similar expressions as they relate to
the Company or its management are intended to identify such forward-looking
statements. The Company cautions readers that forward-looking statements,
including without limitation, those relating to the Company's future business
prospects, revenues, working capital, liquidity, and income, are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those indicated in the forward-looking statements, due to
several important factors herein identified, among others, and other risks and
factors identified from time to time in the Company's reports with the
Securities and Exchange Commission.
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OVERVIEW
SM&A is the largest provider of proposal management and high-end
contract support services. The Company's proposal management services help its
clients achieve a higher probability of winning government and commercial
contracts while its high-end contract support services enhance its clients'
ability to successfully and efficiently perform on such contracts. The Company's
clients include leading firms in the aerospace, defense and communications
industries.
The Company's proposal management expertise has resulted in a proposal
win rate of 89.6% of all dollars awarded on SM&A engagements since its
incorporation in 1982. The Company has worked on or is currently engaged on 409
major proposals for $158 billion of government and commercial procurements. The
Company leverages its success in winning business for its clients and its
involvement in the project life cycle to extend its services beyond proposal
development to contract support such as systems engineering, information
technology services, and program integration.
In 1998, SM&A acquired (the "Acquisitions") two high-end engineering
and information technology consulting firms: Space Applications Corporation
("SAC") and Decision-Science Applications, Inc. ("DSA"). SAC, founded in 1969,
provides systems engineering, scientific research, program management support
and technical support to military and civilian space programs, the intelligence
community and the armed services. DSA, founded in 1977, provides systems
engineering, information systems development, scientific research and program
management support to the U.S. Government, principally the Department of
Defense. The Acquisitions have increased the scope and depth of the Company's
high-end contract support services, adding more than 400 systems engineering,
information technology and program integration experts and expanding SM&A's
domestic presence with offices in strategic locations near significant market
centers. On December 31, 1998, SAC merged into DSA. In connection with the
merger, the surviving corporation changed its name to SM&A Corporation (East).
MARKET
Companies competing for large government and commercial contracts
often seek the assistance of an outside firm of experts that can manage the
proposal process and maximize the company's prospects of winning the business.
After a company wins a government or commercial contract, it often requires
contract support services including high-level systems engineering and program
integration in order to fulfill the contract. Outside firms that have assisted
in the preparation of the proposal are uniquely qualified to provide such
contract support services.
The Company estimates the annual market for proposal management and
high-end contract support services is approximately $10 billion. In 1998, the
Department of Defense estimated that it alone would award contracts totalling
approximately $80 billion for thousands of military and civilian projects.
Competitions for procurement of parts and subassemblies conducted by private
industry represent another significant portion of the market.
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The Company believes that growth of the market for proposal management
and high-end contract support services is dependent on a number of factors,
including but not limited to:
o CORPORATE OUTSOURCING. There has been a trend among large corporations to
increase efficiencies in the procurement and performance of government and
commercial projects of all sizes. As a result, major companies are
"outsourcing" more services instead of maintaining and expanding internal
groups. Through outsourcing, companies receive the trained expertise needed
without incurring the overhead expenses associated with an in-house team.
o GOVERNMENT OUTSOURCING. In response to a reduced federal budget and demands
for efficiencies in government operations, many projects that were once
performed in-house by the U.S. Government are now being outsourced to
private industry. The increase in the number of these projects creates a
corresponding opportunity to provide proposal management and contract
support services in connection with such projects.
o INCREASE IN THE DEFENSE PROCUREMENT BUDGET. The defense procurement budget
is growing as a result of the need for modernization. Additional funding
for new weapons should originate from additional cost savings in existing
programs. The decrease in operational overhead of the Department of Defense
will create additional opportunity to provide proposal management and
contract support services in connection with such projects.
o INCREASE IN COMMERICIAL PROJECTS. U.S. industry is making major investments
to explore new markets in commercial data and telecommunications systems.
such investment is expected to result in an increae in programs requiring
expertise in proposal management.
o INCREASING IMPORTANCE OF PROPOSAL MANAGEMENT SERVICES. The Company believes
that various factors in the aerospace, communications and defense
industries are contributing to an increased need to win projects. Recent
consolidation activity in these industries has resulted in fewer, larger
firms as well as an increased disparity between the resources of such
larger firms and the remaining "smaller" firms. The large consolidated
firms are more motivated to win programs to support their operations and
the smaller firms have an even greater need to access the resources
necessary to compete with larger firms for programs. The U.S. Government
has also conducted a number of "winner-take-all" competitions in which the
government chose a single winner from two large aerospace suppliers that
had traditionally jointly supplied a product. The winner may receive a
multi-billion dollar contract while the loser may be required to shut down
an existing production facility and re-assign or lay off several thousand
workers. Consequently, proposal management services and a winning outcome
are becoming increasingly crucial to all competitors.
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SERVICES
PROPOSAL MANAGEMENT
Proposal management involves assisting clients with the procurement of
government and commercial programs. The Company manages both large proposals
(more than $100 million) and smaller proposals (less than $100 million). In the
case of smaller proposals, the Company may manage a number of concurrent
proposals in a Proposal Development Center ("PDC") located at the client's site.
For large proposals, the Company is engaged on a project specific basis. The
process whereby SM&A manages a large proposal can be divided into three phases:
organization and strategy, proposal preparation, and post submittal.
ORGANIZATION AND STRATEGY. Once hired to manage a large proposal, SM&A
assembles a team of proposal specialists at the client's site--typically
deploying a proposal manager, volume leaders for each of the major proposal
volumes, specialists well versed in the new management processes required by the
government, and production specialists expert in the new forms of electronic
proposals often required by a government acquisition agency. Each SM&A team
manages a client team, typically 50 to 200 engineers and managers, providing
full time, hands-on execution of the SM&A process from strategy formulation,
through all phases of proposal preparation and review, to the post-submittal
responses to the government's questions. The proposal process typically requires
three to twelve months of intensive activity at the client's site. The SM&A team
assists the client in the creation of a win strategy that leads to selection of
sub-contractors, an investment plan, a technical baseline, and a program
implementation plan.
PROPOSAL PREPARATION. The SM&A team manages a process that starts with
analysis of the government's request for proposal and results in the creation of
a series of proposal documents, each following a proprietary SM&A template .
These templates guide the team in developing the key "facts" that will win,
which typically consist of the most cost-effective technical solution to meet
the government's needs and a low-risk program plan that will deliver the product
on time and within budget. Following SM&A's page-by-page quality review, the
proposal is submitted, and if required, an oral presentation is made. SM&A
creates the materials (charts, videos, models) for the oral presentations, which
are becoming more common. SM&A also trains the presenters to clearly convey the
needed information and to stick rigorously to the presentation plan and
schedule.
POST SUBMITTAL. After the proposal is submitted, the proposal team's
interaction with the U.S. Government is a critical part of the SM&A winning
process. Many teams submit their proposals and then key personnel are reassigned
on other projects. Conversely, in an SM&A-managed proposal, the core competence
is maintained to answer formal questions from the government, and prepare the
Best and Final Offer. Another area of SM&A action during the government's
proposal evaluation period is working with the client's team in preparation for
winning the award. Many proposals include a very aggressive start-up phase that
requires the delivery of significant products within the first 30 to 60 days
after the contract award. SM&A provides management support, program planners and
schedulers and systems engineers to assist the client's team to meet early
post-award commitments.
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PROPOSAL DEVELOPMENT CENTERS ("PDC"). Another innovative SM&A response
to its clients' changing needs is the creation of Proposal Development Centers.
In contrast to the work done for large proposals in which a dedicated team is
specifically created for the proposal, PDCs are established for clients who
expect to produce a number of smaller proposals over a given period of time. The
Company believes installation of a PDC at a client site allows the Company to
realize a recurring annual income stream. Each PDC has an SM&A team permanently
located at a client's facility, managing the resources needed to produce 10 to
50 proposals per year. The number of SM&A employees located at a PDC ranges from
three to ten. As of December 31, 1998, SM&A was managing six PDCs at clients'
sites. Firms lacking the resources to have a dedicated PDC can employ the PDC
maintained at SM&A headquarters to provide an instantly available turnkey
proposal creation resource.
HIGH-END CONTRACT SUPPORT SERVICES
Whether the contract support services are performed in connection with
a proposal won by SM&A or to support an independent project, the Company has
focused on three areas: (i) systems engineering, (ii) program integration, and
(iii) information technology. The systems engineering and program integration
services are provided through the Company's Systems Solutions Group, while
information technology services are provided through the Information Technology
Solutions Group.
SYSTEMS ENGINEERING. The Company's systems engineering work helps its
clients to define the work that must be done to meet the program's objectives.
The first step is to formally define the top level program objectives including
mission requirements, annual and total budget, and the schedule for each major
program milestone and then to communicate them to each engineering and
management department. The systems engineers perform trade studies and analyses
to objectively evaluate the cost, schedule, risk and likely performance of
alternative solutions. The systems engineers then manage the top level program
requirements data base. As the program evolves from design through development,
test and production phases, they constantly evaluate the work of the program's
design and test groups to be certain that these top level requirements are being
met.
PROGRAM INTEGRATION. Concurrent with systems engineering are the
Company's program integration functions. This work is done to ensure that the
program has been meticulously planned and that the program team follows the
plan. In many aerospace procurements, the government insists that (i) the
program plan be submitted with the proposal, (ii) it become a binding
contractual document upon award, and (iii) there be significant financial
incentives for meeting plan milestones on time and financial penalties in case
of failure to adhere to the plan. The SM&A program integration effort is
therefore critical to the financial success of the client. The work has an
initial phase in which the program to be accomplished is defined in detail. This
includes the detailed description of all tasks to be done by all of the
participants over the lifetime of the program (usually involving work by
thousands of individuals in many companies across the nation), the scheduling of
these tasks, the sizing of each task (how many person hours and how much
equipment is needed) and the definition of the inter-relationship among the
tasks (what task depends on what other task). This information is maintained by
the program integration team in an electronic format easily accessible to the
management team. After the definition work is completed, the program integration
staff focuses on the execution of the program, in which the status of each task
is constantly evaluated (and reported to management, including the government
project office), the likely attainment of future milestones is predicted, and
the program risks are constantly re-evaluated to allow proactive management
decisions to mitigate risk.
INFORMATION TECHNOLOGY. The Company's information technology business
is focused on consulting, software development, systems integration and
outsourcing services. The business includes both federal government and
commercial services and commercial software. These efforts include commercial
off-the-shelf solutions to hardware/software needs and development of custom
database applications. A few specific areas of business focus include;
telecommunications, enterprise security solutions, medical informatics, software
engineering, system integration, and PC product solutions.
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CLIENTS
The Company provides its proposal management and contract support
services to the U.S. Government and numerous Fortune 100 clients. The Company
provides contract support services to various branches of the U.S. Government
including the U.S. Air Force, U.S. Navy, U.S. Army, NASA and government
intelligence agencies (collectively "the U.S. Government").
Lockheed Martin Corporation and Raytheon Company accounted for
approximately 16.6% and 15.8%, respectively, of the Company's revenues for the
year ended December 31, 1998 and 22.5% and 10.9%, respectively, of the Company's
revenues in 1997. In addition, for the year ended December 31, 1998, the U.S.
Government accounted for 24.8% of the Company's revenues. On a pro forma basis
giving effect to the Acquisitions, various branches and agencies of the U.S.
Government together would have accounted for an aggregate 37% of the Company's
revenues for the year ended December 31, 1998. These revenues are a result of
various engagements by several business units of these companies. Although such
business units are affiliated with the parent entities, the Company's experience
has indicated that the particular engagements are subject to the discretion of
each individual business unit.
BACKLOG
The Company's backlog represents an estimate of the remaining future
revenues from existing signed contracts and letters of intent concerning
contracts that have been awarded but in some cases not yet signed. The backlog
estimates include revenues expected under the current terms of executed
contracts and revenues from contracts in which the scope and duration of the
services required are not definite but estimable.
At December 31, 1998 the Company's backlog was approximately $139.5
million. The Company's engagements are terminable at will and no assurance can
be given that the Company will receive any of the fees associated with the
backlog described above.
SALES AND MARKETING
The Company markets its services directly to senior executives of major
corporations. The Company employs a variety of business development and
marketing techniques to communicate directly with current and prospective
clients, including making on-site presentations, attending industry seminars
featuring presentations by SM&A personnel, and authoring articles and other
publications about the industry and the Company's methodologies and processes.
A significant portion of new business arises from prior client
engagements. Clients frequently expand the scope of engagements during delivery
to add complementary activities. Also, the Company's on-site presence affords it
the opportunity to become aware of, and to help define, additional project
opportunities as they are identified by the client. The strong client
relationships arising out of many engagements facilitates the Company's ability
to market additional capabilities to its clients in the future. In addition, the
SM&A senior management team is actively involved in meeting with companies that
have not yet engaged SM&A and newly appointed senior managers in current SM&A
clients who might not be thoroughly knowledgeable of SM&A's previous assistance
to the client.
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In the past four years, SM&A has also increased its marketing efforts
through participation in major industrial trade shows and paid advertising. SM&A
regularly runs full page ads in the national trade journals such as AVIATION
WEEK, SPACE NEWS and DEFENSE NEWS.
GOVERNMENT CONTRACTS
In 1998, 24.8% of the Company's revenues resulted from contracts
directly with the U.S. Government. Contracts with the U.S. Government are
subject to termination, reduction or modification as a result of changes in the
U.S. Government's requirements or budgetary restrictions, at the convenience of
the U.S. Government, or when we participate as a subcontractor, if the primary
contractor is in default. Upon termination of a contract at the convenience of
the U.S. Government, the contractor is generally entitled to reimbursement for
allowable costs incurred up to the date of termination and a proportionate
amount of the stipulated profits or fees attributable to the work actually
performed.
COMPETITION
PROPOSAL MANAGEMENT
The market for proposal management services in the procurement of
government and commercial contracts for aerospace and defense is a niche market
with a number of competitors. The Company is the largest provider of such
services and principally competes with numerous smaller proposal management
companies in this highly specialized industry. The Company also competes with
some of its client's internal proposal development resources. A number of SM&A's
clients maintain internal business acquisition teams that are designed to handle
the procurement of government contracts, although the number of such in-house
departments has been decreasing in recent years.
The Company believes that the principal competitive factors in the
market for proposal management include reputation, the level of experience and
skill of staff professionals, industry expertise, quality of service,
responsiveness, and procurement success rate. The need to provide efficient and
cost-effective service is of even greater importance in PDCs where the cost of
proposal development is likely to be a larger percentage of the contract amount
than with a large program.
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HIGH-END CONTRACT SUPPORT SERVICES
The contract support services market is highly competitive and includes
a large number of highly capable contract support services firms in the United
States. For this reason, the focus of SM&A has been on providing contract
support services for programs which it has won together with its clients. This
significantly enhances the competitive position of the Company because the
contract support to be provided by SM&A is often included in the proposal that
was won. Upon the win, SM&A is awarded its contract and work begins thereafter.
Should there be additional opportunities for SM&A to contribute to the team, the
client often adds scope (and funds) to the SM&A contract. This permits the
growth of the SM&A role over the lifetime of the program.
In the case of contract support services for projects in which the
Company did not provide proposal management services, the market is highly
fragmented and competitive. Many of the Company's competitors are larger and
have greater resources than the Company. See "Risk Factors--"The markets in
which we compete are highly competitive." The Company, however, has found
increasing opportunities to work with clients who have previously retained SM&A.
The Company believes that the principal competitive factors in the contract
support services market include program knowledge, rapidly deployable skilled
personnel, responsiveness, reputation and price.
EMPLOYEES
As of December 31, 1998, the Company had approximately 650 employees.
Approximately 90% are proposal and engineering professionals and 10% are
administrative personnel. The Company believes that its success depends
significantly upon attracting, retaining and motivating talented, innovative and
experienced professionals. For this reason, SM&A is comprised of highly
experienced program managers, engineers, skilled technicians, and computer
programmers, tested in some of the largest and most complex military, commercial
and government programs of the past 30 years. The typical SM&A employee has more
than 18 years of applicable experience and a majority of them possess advanced
degrees in science or engineering fields.
The Company has instituted a training and recruitment program to help
acquire and ensure retention of high quality personnel and to enable it to
respond to expanding customer needs. The performance of each SM&A employee is
being constantly evaluated both by the SM&A team with whom the employee is
working and by the client who has engaged SM&A. SM&A executives are always on
call to discuss any and all personnel issues. SM&A has maintained the highest
standards of performance to ensure client satisfaction. The Company also
attracts and motivates its professional and administrative staff by offering
competitive packages of base and incentive compensation and benefits. An
indication of the effectiveness of the recruitment, hiring and training process
to pick the best people and to maintain their skills over the long term is that
the 89.6% win rate for SM&A-managed proposals is being accomplished by a
professional staff that is rapidly growing with only a 4.3% annual employee
turnover rate from January 1, 1995 through December 31, 1998 (exclusive of the
turnover rates experienced by SAC and DSA prior to the Acquisitions).
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The Company's employees are not represented by any labor union and the
Company has never experienced a work stoppage. The Company believes that its
relations with its employees are good.
IN ADDITION TO THE OTHER INFORMATION IN THIS ANNUAL REPORT ON FORM
10-K, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS IN
EVALUATING US AND OUR BUSINESS BEFORE PURCHASING ANY SHARES OF OUR COMMON STOCK.
RISK FACTORS
THERE ARE RISKS ASSOCIATED OUR ACQUISITION STRATEGY
An element of our growth strategy is to expand our operations through
the acquisition of complementary businesses. We cannot be sure that we will be
able to identify suitable acquisition candidates. If identified, we are not sure
we will be able to acquire such companies on suitable terms. Also, other
companies which may have greater resources than us may compete for acquisition
candidates. Such competition could result in an increase in the price of
acquisition targets and a decrease in the number of attractive companies
available for acquisition by us.
There can be no assurance that the anticipated economic, operational
and other benefits of our acquisition of Space Applications Corporation or
Decision-Science Applications, Inc., or any future acquisitions will be
realized. We cannot be sure that we will be able to successfully integrate
acquired businesses in a timely manner without substantial costs, delays or
other operational or financial problems. The difficulties of such integration
may initially be increased by our need to integrate personnel with different
business backgrounds and corporate cultures. In addition, acquisitions may
involve our spending significant funds. Our failure to effectively integrate the
acquired companies may adversely affect our ability to bid successfully on
certain engagements and otherwise grow our business. Client dissatisfaction or
performance problems at a single acquired company could have an adverse effect
on our reputation as a whole, and this could result in increased difficulty in
marketing services or acquiring companies in the future. In addition, we cannot
be certain that the acquired companies will operate profitably or will not
otherwise hurt operating results. There are other risks with acquisitions. These
include diversion of management attention, potential loss of key clients or
personnel, risks associated with unanticipated problems, liabilities or
contingencies and risks of entering markets in which we have limited or no
direct expertise. The occurrence of some or all of the events described in these
risks could have a material adverse effect on our business, operating results
and financial condition. See "Business--Growth Strategy."
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WE MAY FAIL TO MANAGE OUR FUTURE GROWTH EFFECTIVELY
We are currently experiencing significant growth and we intend to
pursue further growth as part of our business strategy. Our ability to manage
the growth of our operations will require us to continue to improve our
operational, financial and other internal systems and to attract, develop,
motivate and retain our employees. Our rapid growth has presented and will
continue to present numerous operational challenges, such as the assimilation of
financial reporting systems and increased pressure on our senior management and
will increase the demands on our systems and internal controls. In addition, our
success depends in large part upon our ability to attract, develop, motivate and
retain highly-skilled professionals and administrative employees. Our growth
strategy will require an increase in our personnel, particularly skilled systems
engineers and program managers. Qualified professionals are currently in great
demand and there is significant competition for employees with the requisite
skills from other major and boutique consulting firms, research firms,
government contractors, proposal management or business acquisition departments
of major corporations and other professional services firms. There can be no
assurance that we will be able to attract and retain the qualified personnel
necessary to pursue our growth strategy. There can be no assurance that we will
be able to maintain or increase our current rate of growth, effectively manage
our expanding operations or achieve planned growth on a timely or profitable
basis. To the extent that we unable to manage our growth effectively and
efficiently, our business, financial condition and results of operations could
be materially and adversely affected. See "Business--Growth Strategy."
OUR BUSINESS DEPENDS SUBSTANTIALLY ON THE DEFENSE INDUSTRY
Approximately 56.3% of our revenues were derived from Proposal
Management Group services related to government procurement contracts for the
fiscal year ended December 31, 1998. In addition, a significant portion of our
revenues are derived from contracts or subcontracts with the U.S. Government.
For the foreseeable future, we expect that the percentage of revenues
attributable to such contracts will continue to be substantial. U.S. Government
expenditures for defense products may decline in the future with such reductions
having an effect our clients, or, indirectly, on us. A number of trends may
contribute to such a decline, including:
o large weapon systems being replaced with smaller, more precise high
technology systems
o multiple procurements for similar weapons being consolidated into joint
service procurements, such as the Joint Strike Fighter
o threat scenarios evolving away from global conflicts to regional conflicts
o the continuing draw down of U.S. military forces in response to the end of
the Cold War
In the event expenditures for products of the type manufactured by our
clients are reduced and not offset by other new programs or products, there will
be a reduction in the volume of contracts or subcontracts to be bid upon by our
clients and, as a result, a reduction in the volume of proposals managed by us.
Unless offset, such reductions could materially and adversely affect our
business, operating results and financial condition.
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THERE ARE RISKS ASSOCIATED WITH GOVERNMENT CONTRACTING
We are subject to risks associated with compliance with governmental
regulations, both directly and through government-contractor clients. The fines
and penalties which could result from noncompliance with appropriate standards
and regulations, or a client's suspension or debarment from the bidding process
for future government contracts could have a material adverse effect on our
business, operating results and financial condition. We rely for the continuance
and expansion of our business on a facility security clearance from the U.S.
Government, and individual security clearances, at various levels, for nearly
all members of staff. There can be no assurance that necessary security
clearances will continue to be made available by the U.S. Government.
In addition, a significant portion of our revenues are derived from
contracts or subcontracts with the U.S. Government. Our services are performed
pursuant to the following types of contracts:
o cost reimbursable
o time-and-materials
o fixed-price contracts and subcontracts
Under fixed-price contracts and time-and-materials contracts, we bear any risk
of increased or unexpected costs that may reduce our profits or cause us to
sustain a loss.
Our U.S. Government contracts and subcontracts are subject to
termination, reduction or modification as a result of changes in the U.S.
Government's requirements or budgetary restrictions, or at the convenience of
the U.S. Government. When we participate as a subcontractor, we are also subject
to the risk that the primary contractor may fail or become unable to perform its
duties and responsibilities as a prime contractor. If a contract were to be
terminated for convenience, we would be reimbursed for allowable costs incurred
up to the date of termination and would be paid a proportionate amount of the
stipulated profits or fees attributable to the work actually performed.
Contracts with the U.S. Government are generally complex in nature, and
require us to comply with numerous U.S. Government regulations regarding
discrimination in the hiring of personnel, fringe benefits for employees,
safety, safeguarding classified information, responsibility for U.S. Government
property, fire prevention, equipment maintenance, record keeping and accounting,
management qualifications, drug free work place and numerous other matters.
Under certain circumstances the U.S. Government can suspend or bar
individuals or firms from obtaining future contracts with the U.S. Government
for specified periods of time. Any such suspension or disbarment of us or of our
major clients could have a material adverse effect upon us. Our books and
records are subject to annual audit by the Defense Contract Audit Agency, which
can result in adjustments to contract costs and fees. If any costs are
improperly allocated to a contract, such costs are not reimbursable and, if
already reimbursed, will require us to refund such amounts to the government. If
improper or illegal activities are discovered in the course of any audits or
investigations, the contractor may also be subject to various civil and criminal
penalties and administrative sanctions, including termination of contracts,
forfeitures of profits, suspension of payments, fines and suspension or
disqualification from doing business with the government. If we become subject
to penalties or sanctions, such penalties or sanctions could have a material
adverse effect on our business, financial condition and results of operations.
<PAGE>
WE RELY ON A RELATIVELY LIMITED NUMBER OF CLIENTS
We derive a significant portion of revenues from a relatively limited
number of clients. For example, our revenues from the ten most significant
clients accounted for approximately 76.0%, 90.3%, 98.0%, 92.9% and 91.2% of our
total revenues for the years ended December 31, 1998, 1997, 1996, 1995 and 1994,
respectively. Three clients, the U.S. Government, Lockheed Martin Corporation,
and Raytheon Company accounted for approximately 57.2% and 33.3% of our total
revenues for the years ended December 31, 1998 and 1997, respectively. Lockheed
Martin Corporation is our single largest commercial client, accounting for
approximately 16.6%, 22.5% and 22.9% of our total revenues for the years ended
December 31, 1998, 1997 and 1996, respectively.
Clients typically retain us for major proposals as needed on an
engagement basis rather than pursuant to long-term contracts, and a client can
usually terminate our engagement at any time without a significant penalty.
Moreover, there can be no assurance that our existing clients will continue to
engage us for additional assignments or do so at the same revenue levels. The
loss of any significant client could materially and adversely affect our
business, financial condition and results of operations. In addition, the level
of our services required by an individual client may diminish over the life of
our relationship with us, and there can be no assurance that we will be
successful in establishing relationships with new clients as this occurs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business--Clients."
THE MARKETS IN WHICH WE COMPETE ARE HIGHLY COMPETITIVE
The market for proposal management services in the procurement of
government and commercial contracts for aerospace and defense is a niche market
with a number of competitors. We are the largest provider of such services and
principally compete with numerous smaller proposal management companies in this
highly specialized industry. We also compete with some of our clients' internal
proposal development resources.
We recently entered and seek to achieve significant growth in the
contract support services market, however, there can be no assurance that we
will be successful in such efforts. The market for services in the contract
support industry is highly competitive, highly fragmented and subject to rapid
change. Such competition is likely to increase in the future. Many of our
competitors have greater personnel, financial, technical and marketing resources
than us. Such competitors include many larger management consulting firms such
as McKinsey & Company, Booz Allen & Hamilton, and Science Applications
International Corp., as well as the consulting arms of major accounting firms.
We also compete with our clients' in-house resources. This source of competition
may increase as consolidation of the aerospace and defense industry creates
larger organizations. In addition, there can be no assurance that we will be
successful in such efforts. In addition, significant further expense for sales
and marketing may require us to promote a major expansion of our services in
such area. If we are unsuccessful in our efforts to penetrate further the market
for such services, or our current 89.6% win rate in the proposal management
business drops significantly, our growth prospects could be materially and
adversely affected.
<PAGE>
BECAUSE WE BELIEVE OUR PROPRIETARY RIGHTS ARE MATERIAL TO OUR SUCCESS,
MISAPPROPRIATION OF SUCH RIGHTS OR CLAIMS OF INFRINGEMENT OR LEGAL ACTIONS
RELATED TO INTELLECTUAL PROPERTY COULD ADVERSELY IMPACT OUR FINANCIAL CONDITION
We rely upon a combination of nondisclosure and other contractual
arrangements and trade secret, patent, copyright and trademark laws to protect
our proprietary rights. There can be no assurance that the steps taken by us to
protect our proprietary rights will be adequate to deter misappropriation of
proprietary information or that we will be able to detect unauthorized use and
take appropriate steps to enforce our intellectual property rights.
Although we believe that our services do not infringe on the
intellectual property rights of others and that we have all rights necessary to
utilize the intellectual property employed in our business, we are subject to
the risk of claims alleging infringement of third-party intellectual property
rights. Any such claims could require us to spend significant sums in
litigation, pay damages, develop non-infringing intellectual property or acquire
licenses to the intellectual property which is the subject of asserted
infringement.
WE RELY HEAVILY UPON OUR KEY EMPLOYEES
Our success is highly dependent upon the efforts, abilities, business
generation capabilities and project execution of our executive officers, in
particular those of Steven S. Myers, our Chief Executive Officer and Chairman of
the Board and Michael A. Piraino, our President and Chief Operating Officer. We
entered into a two-year employment agreement with Mr. Myers in November 1997,
and a three-year employment agreement with Mr. Piraino in December 1998. The
loss of the services of either of these individuals for any reason could
materially and adversely affect our business, operating results and financial
condition, including our ability to secure and complete engagements. We
currently maintain a key-man life insurance policy in the amount of $2.0 million
on Mr. Myers and we are in the process of obtaining such a policy on Mr.
Piraino. See "Management."
OUR QUARTERLY RESULTS MAY FLUCTUATE SIGNIFICANTLY
We may experience significant fluctuations in future quarterly
operating results due to a number of factors, including the size, timing and
duration of client engagements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
OUR STOCK PRICE IS SUBJECT TO SIGNIFICANT VOLATILITY
Our common stock was first publicly traded on January 29, 1998 after
our initial public offering at $12.00 per share. Between January 29, 1998 and
March 29, 1999, the closing sale price has ranged from a low of $8.75 per share
to a high of $31.13 per share. The market price of our common stock could
continue to fluctuate substantially due to a variety of factors, including:
o quarterly fluctuations in results of operations
<PAGE>
o adverse circumstances affecting the introduction or market acceptance of
new services offered by us
o announcements of new services by our competitors
o our loss of key employees
o changes in the regulatory environment or market conditions affecting the
defense and aerospace industry
o changes in earnings estimates ratings by analysts
o lack of market liquidity resulting from a relatively small amount of public
stock float
o changes in generally accepted accounting principles
o sales of common stock by existing holders
o the announcement and market acceptance of proposed acquisitions
The market price for our common stock may also be affected by our
ability to meet analysts' expectations, and any failure to meet such
expectations, even if minor, could have a material adverse effect on the market
price of our common stock. In addition, the stock market is subject to extreme
price and volume fluctuations. This volatility has had a significant effect on
the market prices of securities issued by many companies for reasons unrelated
to the operating performance of these companies. In the past, following periods
of volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such a company. Any such
litigation instigated against us could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect on our business, operating results and financial condition.
YEAR 2000 ISSUES COULD AFFECT OUR BUSINESS
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of our
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in major system
failure or miscalculations. We have performed a review of our internal systems
to identify and resolve the effect of Year 2000 software issues on the integrity
and reliability of our financial and operational systems.
<PAGE>
Based on this review, our management believes that our internal systems
are substantially compliant with Year 2000 issues. In addition, we are also
communicating with our principal service providers to ensure Year 2000 issues
will not have an adverse impact on us. If we, and third parties upon which we
rely, are unable to address this issue in a timely manner, it could result in a
material financial risk. In order to assure that this does not occur, we plan to
devote all resources required to resolve any significant Year 2000 issues in a
timely manner.
Additionally, we noted some risk with legacy products marketed and
maintained by us, the vast majority of which have been delivered to the U.S.
Government. Information which we have collected to-date regarding such legacy
products indicates that while some products were designed with date and time
functions, most of our products have been heavily modified by the licensee or by
a third party integrator with whom we have no obligatory agreement.
Consequently, management believes the exposure has been reduced. However, we
will continue to evaluate these products and implement remediation plans, as
deemed appropriate. These products do not affect our internal operations.
OUR PRINCIPAL SHAREHOLDER HAS SIGNIFICANT CONTROL OVER SM&A
Steven S. Myers, our Chief Executive Officer and Chairman of the Board,
beneficially owns approximately 43.4% of our outstanding common stock and will
have the ability to control or significantly influence the election of directors
and the results of other matters submitted to a vote of shareholders. Such
concentration of ownership may have the effect of delaying or preventing a
change in control of SM&A and may adversely affect the voting or other rights of
other holders of common stock. Our board of directors is currently comprised
entirely of individuals supported by Mr. Myers.
IF WE ISSUE PREFERRED STOCK, THE RIGHTS OF HOLDERS OF COMMON STOCK WILL BE
SUBJECT TO THE RIGHTS OF HOLDERS OF PREFERRED STOCK
Our board of directors has the authority to issue up to ten million
shares of preferred stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any vote or action by the shareholders. The rights of the holders of the common
stock will be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future. The issuance of
the preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock. We have no present plan to issue any shares of
preferred stock.
<PAGE>
THE NUMBER OF SHARES AVAILABLE FOR FUTURE SALE COULD ADVERSELY AFFECT THE PRICE
OF OUR PUBLICLY TRADED STOCK
As of March 29, 1999, we had 16,539,584 shares of common stock
outstanding. As of March 29, 1999, we had outstanding options to acquire,
subject to certain vesting requirements, 1,436,293 shares of common stock
pursuant to the 1997 Stock Option Plan. Additionally, in connection with our
acquisition of Space Applications Corporation, options were granted to purchase
an aggregate of 175,906 shares of common stock. In addition, due to certain
price protection provisions relating to the shares of common stock issued in
connection with the acquisition of Space Applications Corporation, we may be
required to issue additional shares of common stock to former shareholders of
Space Applications Corporation depending upon the market price of the common
stock at certain defined "liquidation dates." As of March 29, 1999, we would
have been required to issue 336,817 such additional shares based on the closing
price of common stock on that date and an incremental 72,276 shares for options
converted in the SAC acquisition.
We have registered on a registration statement on Form S-8 all
1,500,000 shares of common stock underlying the options outstanding or issuable
under our 1997 Stock Option Plan. The possibility that substantial amounts of
common stock may be sold in the public market would likely have a material
adverse effect on prevailing market prices of our common stock and could impair
our ability to raise capital through the sale of our equity securities.
We issued 819,743 unregistered shares of common stock in the
acquisition of SAC and 714,839 unregistered share of common stock in the
acquisition of DSA. The common stock has registration demand rights, which were
exercised by the shareholders on February 1, 1999. We expect to file the related
Form S-3 to register such shares in May 1999.
ITEM 2 - PROPERTIES
FACILITIES
The Company occupies its principal executive offices adjacent to the
Orange County (John Wayne) International Airport in Newport Beach, California.
The Company has approximately 19,500 square feet of total office space, divided
into approximately 3,900 square feet for the Company's executive management,
5,800 square feet for administration, 7,800 square feet for the in-house PDC,
and 2,000 square feet is available for growth.
As of March 29, 1999, the Company's other primary offices included an
approximately 59,000 square foot facility in Arlington, Virginia and an
approximately 27,800 square foot facility in Colorado Springs, Colorado. The
lease for the Arlington facility expired on January 31, 1999, and the Company
entered into a new lease for an approximately 96,000 square foot facility in
Vienna, Virginia to replace that office. The Company expects that it will
terminate its month-to-month tenancy of the Arlington office by April 30, 1999.
The Company maintains 4 additional offices, each consisting of 12,000 square
feet or less, throughout the United States, in Albuquerque, New Mexico; Largo,
Maryland; Sierra Vista, Arizona and Rome, New York. The Company is actively
attempting to sublease its excess facility space.
<PAGE>
The Company leases all of its facilities, several of which maintain a
top secret clearance rating.
ITEM 3 - LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
The Company is involved in routine litigation incidental to the conduct
of its business. There are currently no material pending litigation proceedings
to which the Company is a party or to which any of its property is subject.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been traded on the Nasdaq National Market under
the symbol "WINS" since January 29, 1998. The following table sets forth for the
quarters indicated the high and low closing sale prices as reported on the
Nasdaq National Market.
HIGH LOW
-------------- ----------------
FISCAL 1998:
First Quarter (commencing January 29, 1998) $ 17 3/4 $ 10 11/16
Second Quarter 21 17 1/4
Third Quarter 31 1/8 17 1/4
Fourth Quarter 19 8 3/4
At March 17, 1999, there were approximately 1700 holders of the
Company's outstanding shares of Common Stock and on March 29, 1999 the closing
sale price of the Common Stock on the Nasdaq National Market was $9.875 per
share.
<PAGE>
DIVIDENDS
In 1997, the Company paid "S" corporation dividends of $1.2 million,
$1.9 million, $2.5 million and $4.4 million on April 11, July 1, October 1, and
December 29, respectively. On January 27, 1998, immediately prior to
consummating its initial public offering, the Company declared an S corporation
dividend, in the amount of $711,000, to its then-current shareholders,
representing all undistributed earnings of the Company from January 1, 1998
through January 28, 1998 (the "S Corporation Dividend"). Purchasers of Common
Stock in the Company's initial public offering did not receive any portion of
the S Corporation Dividend. The Company does not anticipate paying cash
dividends on its Common Stock in the foreseeable future. The payment of any
future dividends will be at the discretion of the Company's Board of Directors
and will depend upon, among other things, future earnings, capital requirements,
the general financial condition of the Company and restrictions that may be
contained in the Company's financing agreements.
RECENT SALES OF UNREGISTERED SECURITIES
On May 29, 1998, the Company acquired SAC in a stock-for-stock reverse
triangular merger. In connection with such acquisition and in exchange for all
of the issued and outstanding SAC common stock and options, the Company issued
an aggregate of 819,743 shares of its common stock and 175,906 options to
purchase its common stock to the shareholders and option holders of SAC,
respectively, consisting mainly of SAC employees, executives and directors. The
exchange involved 35 or fewer persons not established to the reasonable
satisfaction of the Company as "accredited investors" under Rule 501(a) of the
Securities Act of 1933, as amended (the "Act"), and was consummated in reliance
upon Section 4(2) of the Act, and the rules and regulations thereunder. Pursuant
to Rule 506(b), all investors were either accredited investors, reasonably
believed by the Company to have such knowledge and experience in financial and
business matters that such investor was capable of evaluating the merits and
risks of the investment, or retained a purchaser representative not affiliated
with the Company in connection with the transaction.
On August 20, 1998, the Company acquired DSA in a stock-for-stock and
cash forward triangular merger. In connection with such acquisition and in
exchange for all of the issued and outstanding DSA common stock, the Company
issued an aggregate of 714,839 shares of its common stock and $14,035,419 cash
to the shareholders of DSA, consisting mainly of DSA employees, executives and
directors. The exchange involved 35 or fewer persons not established to the
reasonable satisfaction of the Company as "accredited investors" under Rule
501(a) of the Securities Act of 1933, as amended (the "Act"), and was
consummated in reliance upon Section 4(2) of the Act, and the rules and
regulations thereunder. Pursuant to Rule 506(a), all investors were either
accredited investors, reasonably believed by the Company to have such knowledge
and experience in financial and business matters that such investor was capable
of evaluating the merits and risks of the investment, or retained a purchaser
representative not affiliated with the Company in connection with the
transaction.
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
The statement of operations data for the years ended December 31, 1998,
1997, and 1996, and the balance sheet data as of December 1998 and 1997, have
been derived from the Company's audited Consolidated Financial Statements and
Notes thereto. The balance sheet data as of December 31, 1996, 1995, and 1994
and the statement of operations data for the fiscal years ended December 31,
1995 and 1994 have been derived from the Company's audited financial statements,
which statements are not included herein. The following information should be
read in conjunction with the Consolidated Financial Statements and Notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Form 10-K.
<TABLE>
FISCAL YEARS ENDED DECEMBER 31,
<CAPTION>
1998 (1) 1997 1996 1995 1994 (4)
-------------------------------------------------------------------
STATEMENTS OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenues $ 68,449 $ 36,962 $ 25,699 $ 20,777 $ 15,220
Cost of revenues 40,483 20,529 14,512 12,313 9,449
-------------------------------------------------------------------
Gross margin 27,966 16,433 11,187 8,464 5,771
Selling, general and administrative
expenses (2) 14,887 8,184 8,274 5,851 4,856
-------------------------------------------------------------------
Operating income 13,079 8,249 2,913 2,613 915
Other income (expense) 1,520 (292) 136 7 (1,701)
-------------------------------------------------------------------
Income (loss) before income 14,599 7,957 3,049 2,620 (786)
taxes
Income tax expense (benefit) (3) 6,072 3,183 1,219 1,048 (314)
-------------------------------------------------------------------
Income or pro forma income (loss)
from continuing operations $ 8,527 $ 4,774 $ 1,830 $ 1,572 $ (472)
Loss from operations of
discontinued business, net of
income tax benefit of $137 (5) (208) - - - -
Loss from disposal of
discontinued business, net of
income tax benefit of $390 (5) (607) - - - -
-------------------------------------------------------------------
Net income or pro forma $ 7,712 $ 4,774 $ 1,830 $ 1,572 $ (472)
net income (loss)
===================================================================
Income or pro forma income (loss)
per share from continuing
operations (6):
Basic $ .55 $ .37 $ .12 $ .11 $ (.03)
Diluted $ .53 $ .37 $ .12 $ .11 $ (.03)
===================================================================
<PAGE>
Loss per share from discontinued
operations (6):
Basic $ (.05) - - - -
Diluted $ (.05) - - - -
===================================================================
Net income or pro forma net
income (loss) per share (6):
Basic $ .50 $ .37 $ .12 $ .11 $ (.03)
Diluted $ .48 $ .37 $ .12 $ .11 $ (.03)
===================================================================
Weighted average shares
outstanding (6):
Basic 15,645 12,948 14,893 14,893 14,893
Diluted 15,984 12,948 14,893 14,893 14,893
===================================================================
-------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------------------
BALANCE SHEET DATA:
Cash and cash equivalents $ 454 $ 150 $ 1,927 $ 269 $ 242
Working capital 15,979 101 (279) 794 95
Total assets 66,324 5,331 11,820 3,034 2,320
Long-term Debt, Including - 7,729 6,250 605 541
Current Portion (7) (8)
Shareholders' equity (deficit)(7) 55,329 (6,328) 755 668 114
</TABLE>
(1) The statements of income and balance sheet data include the results of
operations and acquired net assets of the Company and Space Applications
Corporation beginning May 15, 1998 and Decision Science Applications
beginning August 1, 1998.
(2) Selling, general and administrative expenses for fiscal 1997, 1996, 1995,
and 1994 reflect pro forma adjustments for compensation for the principal
executive officers (which have historically been included in SG&A
expenses) who are to be paid a maximum of $2.7 million in salaries and
bonuses for 1998 under the Executive Compensation Program. For additional
pro forma statement of operations data for 1997 and 1996 see "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(3) Amounts reflect pro forma adjustments for provisions for federal and state
income taxes as if the Company had been taxed as a C corporation at an
assumed statutory rate of approximately 40% for years prior to 1998.
(4) In 1994, the Company wrote off $1.7 million of receivables from CKC, an
affiliated entity that was subsequently dissolved.
(5) Loss from operations on discontinued business and loss from disposal of
discontinued business were computed as explained in Note 5 to the
Consolidated Financial Statements.
(6) Net income or pro forma net income (loss) per share was computed as
explained in Note 1 to the Consolidated Financial Statements.
(7) In January 1998, the Company sold 2,100,000 shares of Common Stock in the
IPO for proceeds net of Underwriting fees of approximately $22.4 million
and repaid all of the Company's then existing indebtedness of $7.4 million.
In January 1997, the Company repurchased 1,995,125 shares of Common Stock
from certain of its existing shareholders for approximately $5.9 million
using borrowings under its then existing bank facility.
(8) In April 1996, the Company purchased an aircraft for $5.8 million and
financed the purchase through a bank. In January 1997, the Company sold the
aircraft to a company which is owned by Steven S. Myers, the Company's
principal shareholder. See footnotes to the Consolidated Financial
Statements."
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FACTORS CONCERNING FORWARD-LOOKING STATEMENTS
From time to time, SM&A, through its management, may make
forward-looking public statements, such as statements concerning then expected
future revenues or earnings or concerning projected plans, performance, contract
procurement as well as other estimates relating to future operations.
Forward-looking statements may be in reports filed under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), in press releases or informal
statements made with the approval of an authorized executive officer. The words
or phrases "will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project," or similar expressions are intended to
identify "forward-looking statements" within the meaning of Section 21E of the
Exchange Act and Section 27A of the Securities Act of 1933, as amended, as
enacted by the Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on
these forward-looking statements, which speak only as of the date on which they
are made. In addition, the Company wishes to advise readers that the factors
listed below, as well as other factors not currently identified by management,
could affect the Company's financial or other performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods or events in any
current statement.
The Company will not undertake and specifically declines any obligation
to publicly release any revisions which may be made to any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events which may
cause management to re-evaluate such forward-looking statements.
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company is hereby filing
cautionary statements identifying important factors that could cause the
Company's actual results to differ materially from those projected in
forward-looking statements of the Company made by or on behalf of the Company.
<PAGE>
OVERVIEW
The Company is the largest proposal management company in the United
States. The Company's proprietary proposal management processes and team of
highly experienced professionals help its clients to achieve a higher
probability of winning the government and commercial contracts that are critical
to their success, and also provides systems engineering and program integration
services to aerospace, communications, and engineering companies.
The May 1998 acquisition of SAC and the August 1998 acquisition of DSA,
which collectively added approximately 450 employees to the Company's workforce,
provides for a greater percentage of the Company's revenues derived from
high-end contract support services. The majority of these services are with the
U.S. Government. SAC provides systems engineering, scientific research, program
management support and technical support to military and civilian space
programs, the intelligence community and the armed services. DSA provides
systems engineering, information systems development, scientific research and
program management support to the U.S. Government, principally the Department of
Defense.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table presents unaudited quarterly consolidated financial
information for each of the Company's last eight fiscal quarters. In the opinion
of the Company's management, this quarterly information has been prepared on the
same basis as the audited consolidated financial statements appearing elsewhere
in this Form 10-K and includes all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the unaudited quarterly
results set forth herein. The Company's quarterly results have in the past been
subject to fluctuations, and thus, the operating results for any quarter are not
necessarily indicative of results for any future period.
The quarterly information presented for the fiscal year ended December
31, 1997 sets forth pro forma operating results. Pro forma amounts reflect
adjustments for (a) additional compensation to the principal executive officers
(which have historically been included in SG&A expenses) who are to be paid a
maximum of $2,700,000 ($675,000 per quarter) in salaries and bonuses for 1998
under the Executive Compensation Program, and (b) adjustments for Federal and
state income taxes as if the Company had been taxed as a C corporation at an
assumed effective income tax rate of approximately 40%. The pro forma adjustment
in clause (a) above is made to provide a more meaningful comparison of the
Company's SG&A expenses by recasting historical financials to be consistent with
future levels of executive compensation following termination of the Company's S
corporation status.
<PAGE>
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-----------------------------------------------------------------------------------------------------
1998 1997
12/31 9/30 6/30 3/31 12/31 9/30 6/30 3/31
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $ 24,560 $ 20,546 $ 12,684 $ 10,659 $ 10,323 $ 10,866 $ 8,544 $ 7,229
Cost of revenues 15,458 12,077 6,960 5,988 5,691 6,181 4,792 3,865
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross margin 9,102 8,469 5,724 4,671 4,632 4,685 3,752 3,364
Selling, general and
administrative expenses 4,000 5,343 2,667 1,746 2,383 2,476 1,818 1,507
Amortization of goodwill 382 302 86 - - - - -
Cancelled secondary offering
costs 361 - - - - - - -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income $ 4,359 $ 2,824 $ 2,971 $ 2,925 $ 2,249 $ 2,209 $ 1,934 $ 1,857
========== ========== ========== ========== ========== ========== ========== ==========
Income or pro forma income
from continuing operations $ 2,652 $ 1,699 $ 2,427 $ 1,749 $ 1,263 $ 1,266 $ 1,100 $ 1,145
========= ========== ========== ========== ========== ========== ========== ==========
Discontinued operations:
Income (loss) from operations
of discontinued business, net (151) (86) 29 - - - - -
Loss from disposal of
discontinued business, net (607) - - - - - - -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income or pro forma net
income $ 1,894 $ 1,613 $ 2,456 $ 1,749 $ 1,263 $ 1,266 $ 1,100 $ 1,145
Income or pro forma income per
share from Continuing
Operations:
Basic $ .16 $ .10 $ .16 $ .12 $ .10 $ .10 $ .08 $ .09
Diluted $ .16 $ .10 $ .16 $ .12 $ .10 $ .10 $ .08 $ .09
========= ========== ========== ========== ========== ========== ========== ==========
Loss per share from
discontinued Operations:
Basic $ (.05) $ - $ - $ - $ - $ - $ - $ -
Diluted $ (.05) $ - $ - $ - $ - $ - $ - $ -
========= ========== ========== ========== ========== ========== ========== ==========
Net income or pro forma net
income per share:
Basic $ .11 $ .10 $ .16 $ .12 $ .10 $ .10 $ .08 $ .09
Diluted $ .11 $ .10 $ .16 $ .12 $ .10 $ .10 $ .08 $ .09
========= ========== ========== ========== ========== ========== ========== ==========
Weighted average common
shares outstanding:
Basic 16,535 16,371 15,297 14,347 12,948 12,948 12,948 12,948
Diluted 16,780 16,794 15,630 14,431 12,948 12,948 12,948 12,948
========= ========== ========== ========== ========== ========== ========== ==========
OTHER DATA:
Gross margin percentage 37.1% 41.2% 45.1% 43.8% 44.9% 43.1% 43.9% 46.5%
Operating income percentage 17.7% 13.7% 23.4% 27.4% 21.8% 20.3% 22.6% 25.7%
</TABLE>
Certain amounts in prior quarters have been reclassified to conform to current
presentation.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain historical operating results as
a percentage of net revenues for 1998, and certain supplemental pro forma
operating results as a percentage of net revenues for 1997 and 1996.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0%
Cost of revenues 59.1% 55.5% 56.5%
Gross margin 40.9% 44.5% 43.5%
Selling, general and administrative expenses 21.8% 22.2% 32.2%
Operating income 19.1% 22.3% 11.3%
Income from continuing operations 12.5% 12.9% 7.1%
Loss from discontinued operations (1.2%) - -
Net income 11.3% 12.9% 7.1%
</TABLE>
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1997
NET REVENUES. Net revenues increased $31.5 million, or 85.1% to $68.5
million for fiscal 1998 compared to $37.0 million for fiscal 1997. Net revenues
from the Proposal Management Group were $39.6 million for fiscal 1998 (net
revenues would have been $41.6 million had certain projects not been transferred
to other operating groups) compared to $37.0 million for fiscal 1997, an
increase of $2.6 million. This increase was attributable to an increase in the
Company's customer base and the number of proposals managed as a result of
increased marketing efforts. Net revenues from high-end contract support
services, provided by the Systems Solutions Group and the Information Technology
Solutions Group, were collectively $28.9 million. The Company expanded their
scope of high-end contract support services as a result of the acquisitions of
SAC and DSA in May and August 1998, respectively.
GROSS MARGIN. Gross margin increased $11.6 million, or 70.7%, to $28.0
million, for fiscal 1998 as compared to $16.4 million for fiscal 1997. As a
percentage of net revenues, gross margin decreased to 40.9% compared to 44.5%
for the prior year period. The decrease in gross margin as a percentage of
revenues was primarily attributable to lower gross margin contributions from the
newly acquired entities.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $6.7 million, or 81.7%, to $14.9 million for
fiscal 1998, as compared to $8.2 million for fiscal 1997. As a percentage of
revenues, selling, general and administrative expenses decreased to 21.8% for
fiscal 1998, as compared to 22.2% for the prior year period. This decrease was
the result of lower compensation for the executive group offset by an increase
in administrative costs and facility expenses related to the operations of SAC
and DSA.
<PAGE>
OPERATING INCOME. Operating income was $13.1 million for 1998 compared
to $8.2 million for 1997, an increase of $4.9 million or 59.8%. As a percentage
of net revenues, operating income decreased to 19.1% for 1998 from 22.3% the
prior year.
OTHER INCOME (EXPENSE). Other income, net was $1.5 million for 1998
compared to a net expense of $.3 million for 1997. This decrease in expense was
twofold; lower interest expense in the current year based on lower bank
borrowings and interest income earned in the current year on proceeds from the
initial public offering, which were invested in short-term marketable
securities.
INCOME FROM CONTINUING OPERATIONS. Income from continuing operations
was $8.5 million for 1998 compared to $4.8 million for 1997, an increase of $3.7
million or 77.1%.
NET INCOME. Net income was $7.7 million for 1998 compared to $4.8
million for 1997, an increase of $2.9 million or 60.4%.
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1996
NET REVENUES. Net revenues increased $11.3 million, or 44.0% to $37.0
million for fiscal 1997 compared to $25.7 million for fiscal 1996. Net revenues
from proposal management services were $22.1 million for fiscal 1997 compared to
$14.7 million for fiscal 1996, an increase of $7.4 million or 50.3%. This
increase was attributable to an increase in the Company's customer base and the
number of proposals managed as a result of increased marketing efforts. Net
revenues from PDC's were $7.1 million for 1997, compared to $7.5 million for the
prior year, a decrease of $.4 million or 5.3%. This decrease was attributable to
a transfer of certain proposal development center projects from two major
clients to the proposal management segment, and reduced proposal development
center expenditures by another major client that shifted focus to contract
support services on contracts already won. Net revenues from contract support
services for 1997 were $7.8 million compared to $3.5 million for the prior year,
an increase of $4.3 million or 122.9%. The increase in contract support services
revenue was due primarily to the expanding number of clients utilizing the
Company's contract support services in 1997.
GROSS MARGIN. Gross margin increased $5.2 million, or 46.4%, to $16.4
million, for fiscal 1997 as compared to $11.2 million for fiscal 1996. As a
percentage of net revenues, gross profit increased to 44.5% as compared to 43.5%
for the prior year period. The increase in gross profit as a percentage of
revenues was primarily attributable to more favorable labor margins realized on
average from the new employees hired by the Company throughout 1997, and reduced
travel costs as a percentage of net revenues.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $.1 million, or 1.2%, to $8.2 million for
fiscal 1997, as compared to $8.3 million for fiscal 1996. As a percentage of
revenues, selling, general and administrative expenses also decreased to 22.2%
for fiscal 1997, as compared to 32.2% for the prior year period. This decrease
was primarily attributable to reduced aircraft expenses in 1997 compared to
<PAGE>
1996. The Company purchased a Hawker aircraft in 1996 for use by the Company and
to be chartered to non-affiliated entities. Due to the investment by
non-employee shareholders in 1996 and the limited use by the Company, the
aircraft was sold to an affiliate of the Company's principal shareholder at
market value. This sale resulted in a gain of $137,000.
OPERATING INCOME Operating income was $8.2 million for 1997 compared to
$2.9 million for 1996, an increase of $5.3 million or 182.8%. As a percentage of
net revenues, operating income increased to 22.3% for 1997 from 11.3% the prior
year. The increase in operating income as a percentage of net revenues was due
primarily to increased revenues and the stabilization of fixed operating costs
in 1997.
OTHER INCOME (EXPENSE). Other expense, net was $.3 million in 1997
compared to other income of $.1 million for 1996. The variance was due to
revenues recognized in 1996 from aircraft charter services from the Company's
Hawker aircraft.
NET INCOME. Net income was $4.8 million for 1997 compared to $1.8
million for 1996, an increase of $3.0 million or 166.7%.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1998, the Company's net cash provided
by operating activities was $2.5 million, compared to cash flows provided by
operating activities of $7.2 million for the prior year. This change was mainly
due to lower net earnings during the current period resulting from income taxes,
an increase in accounts receivable and costs and estimated earnings in excess of
billings on contracts, and an increase in accrued compensation and payroll
taxes.
Net cash used in investing activities was $14.5 million for the year
ended December 31, 1998, compared to $.2 million for the prior year. The
Company's primary use of funds on investing activities during 1998 was the
acquisition of DSA wherein the purchase consideration included $14.0 million
cash.
Net cash provided by financing activities was $12.3 million for the
year ended December 31, 1998, compared to net cash used of $8.7 million for the
prior year. Financing activities provided funds of $22.4 million to the Company
as a result of the initial public offering. The primary use of cash in 1998 was
for the net repayment of $9.2 million of bank debt as compared to net borrowings
of $7.1 million for 1997. In 1998, distributions to shareholders decreased by
$9.3 million and repurchase of common stock decreased by $5.7 million as
compared to 1997.
The Company believes that funds generated by operations will continue
to provide adequate cash to fund its anticipated operating cash needs for at
least the next twelve months. The Company has a $25.0 million revolving line of
credit facility with a bank. The revolving line of the credit will be used, as
considered necessary, for operating cash and for future acquisitions. As of
December 31, 1998, the Company had no borrowings outstanding under the credit
agreement. The Company is in discussions with its lender to increase the size of
the credit facility to $50.0 million, under similar covenant restrictions and
other terms.
<PAGE>
INFLATION
The Company does not believe that inflation had a significant impact on
the Company's results of operations for the periods presented. On an ongoing
basis, the Company attempts to minimize any effects of inflation on its
operating results by controlling operating costs and, whenever possible, seeking
to insure that billing rates reflect increases in costs due to inflation.
YEAR 2000
The Company is currently working to resolve the potential impact of the
Year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. The Year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year. Among other issues, any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000, which could result in miscalculations or system failures.
The Company is in the process of investigating the impact of Year 2000
Issues on its business, including the Company's operational, information and
financial systems (e.g. general ledger; payroll, accounts receivable and
payable, etc.). Similarly, non informational systems, such as communication
systems and security systems are also being reviewed. As systems are evaluated
and assessed, a detailed work plan is being developed to ensure that each area
requiring modification or replacement is adequately and timely addressed. At
this time, the Company's work plan continues to indicate that most significant
areas have been or are scheduled to be remedied by December 1999. Such work plan
includes adequate time for remediation of the area, as well as testing to ensure
the remediation efforts were complete. Additionally, the Company has established
an Executive Oversight Committee to monitor implementation plans and to
determine whether all areas have been assessed and evaluated, resources
identified and remediation completed on a timely basis.
The Company has initiated communications with significant
suppliers and vendors on which the Company relies in an effort to determine the
extent to which the Company's business is vulnerable to the failure by these
third parties' to remediate their Year 2000 problems. While the Company has not
been informed of any material risks associated with Year 2000 Issues of
these entities, there can be no assurance that the computerized information
systems of these third parties will be Year 2000 compliant on a timely basis.
The inability of these third parties to remediate their Year 2000 problems could
have a material adverse impact on the Company.
Additionally, management noted some risk with legacy products marketed
and maintained by the Company, the vast majority of which have been delivered to
the U.S. Government. Information collected to-date regarding such legacy
products indicates that while some products were designed with date and time
functions, most products have been heavily modified by the licensee or by a
third party integrator with whom the Company has no obligatory agreement.
Consequently, the Company's exposure has been reduced. However, the Company will
continue to evaluate these products and implement remediation plans, as deemed
appropriate. These products do not affect internal operations.
<PAGE>
To date, management estimates that the total cost (including hardware,
software and services) incurred by the Company to evaluate, assess and remedy
Year 2000 Issues, has been approximately $200,000. The expected future cost to
complete evaluation, assessment and remediation of Year 2000 Issues, including
replacement if necessary, is expected to range from $300,000 to $1,500,000. The
Company has expensed all internal costs related to the remediation of Year 2000
Issues.
The cost and the date on which the Company plans to complete the Year 2000
Issue modifications are based on management's best estimates, which were derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties. The
Company's total Year 2000 Issue project cost and estimates to complete exclude
the estimated costs and time associated with the impact of a third party's Year
2000 Issue, which are not yet determinable.
It is difficult to accurately project what the potential risks and
ramifications to the Company may be, in the event timely remediation efforts are
not completed by either the Company or significant third parties. In such an
event, it is possible that the ability to maintain accurate and complete
financial records of the Company's activities and transactions may be impaired.
Such events, should they occur, may significantly impair the Company's ability
to operate as it does today, creating business interruption, potential loss of
business, and earnings and liquidity difficulties. The Company presently
believes that with current and planned modifications to existing software and
conversions to new software, the risk of potential loss associated with the Year
2000 Issue can be mitigated. However, if such modifications and conversions are
not made, or are not completed on a timely basis, the Year 2000 Issue could have
a material impact on the operations of the Company.
Though the Company's preliminary Year 2000 Issue work plan is believed to be
adequate to achieve compliance on a timely basis, there may be circumstances
that could prevent timely implementation. Accordingly, the Company is designing
its work plan to address this potential occurrence. First, the work plan is
being designed to ensure that the most critical systems and areas are addressed
first, and in a manner that provides adequate time to remediate and test.
Second, the Company has secured external expert resources to assist in
evaluation, assessment, prioritization and implementation of the work plan to
further ensure its success. The Company will continue to monitor and adjust its
contingency plan needs in conjunction with the progress made on the primary work
plan.
FUTURE ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all
fiscal quarters or fiscal years beginning after June 15, 1999. SFAS 133
establishes accounting and reporting standards for derivative instruments
embedded in other contracts and for hedging activities. Application of this
accounting standard is not expected to have a material impact on the Company's
consolidated financial position, results of operations or liquidity.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") released Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"). Among other things, SOP 97-2 eliminates the distinction between
significant and insignificant vendor obligations promulgated by SOP 91-1 and
requires each element of a software arrangement to meet certain criteria in
order to recognize revenue allocated to that element. Additionally, SOP 97-2
requires that total fees under an arrangement be allocated to each element in
the arrangement based upon vendor-specific objective evidence, as defined.
As a result of certain issues raised in applying SOP 97-2, in March
1998, the AICPA issued a Statement of Position ("SOP") which will delay for one
year the effective date of certain provisions of SOP 97-2 with respect to what
constitutes vendor-specific objective evidence of fair value of the delivered
software element in certain multiple-element arrangements that include service
elements entered into by entities that never sell the software elements
separately. The Company does not anticipate that the adoption of SOP 97-2 and
the subsequent SOP will have a material effect on the Company's results of
operations. However, the ultimate resolution of the implementation issues
referred to above could change the Company's expectation.
<PAGE>
The American Institute of Certified Public Accountants issued Statement
of Position (SOP) 98-1 in March 1998. SOP 98-1 establishes accounting standards
for costs of internal use software and is effective for financial statements for
fiscal years beginning after December 15, 1998. Management does not anticipate
that the adoption of SOP 98-1 will have a material effect on the company's
results of operations.
ITEM 7A
Not applicable.
ITEM 8 - CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Consolidated Financial Statements of the Company, including
Notes thereto, at December 31, 1998 and 1997 and for the years ended December
31, 1998, 1997, and 1996 follow.
INDEX
Independent Auditors' Report F-1
Consolidated Balance Sheets at
December 31, 1998 and 1997 F-2
Consolidated Statements of Income
for the Years Ended December
31, 1998, 1997 and 1996 F-3
Consolidated Statements of
Shareholders' Equity (Deficiency)
for the Years Ended December
31, 1998, 1997 and 1996 F-4
Consolidated Statements of Cash
Flows for the Years Ended
December 31, 1998, 1997 and 1996 F-5
Notes to Consolidated Financial
Statements F-6 - F-21
Schedule II - Valuation and Qualifying
Accounts for the Years Ended
December 31, 1998, 1997 and 1996 F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
SM&A Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of SM&A Corporation
and subsidiaries (the "Company") as of December 31, 1998 and 1997 and the
related consolidated statements of income, shareholders' equity (deficiency) and
cash flows for each of the years in the three year period ended December 31,
1998. In connection with our audits of the consolidated financial statements, we
also audited the financial statement schedule. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SM&A Corporation and
subsidiaries at December 31, 1998 and 1997 and the results of their operations
and their cash flows for each of the years in the three year period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Also in our opinion, the related financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth herein.
/S/ KPMG LLP
Orange County, California
January 25, 1999, except for
Notes 5 and 13 which are
as of March 12, 1999
F-1
<PAGE>
<TABLE>
SM&A CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
(in thousands, except share data)
<CAPTION>
ASSETS 1998 1997
----------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 454 $ 150
Accounts receivable, net of allowance of $460 and $0, respectively 15,326 4,245
Costs and estimated earnings in excess of billings
on contracts in progress, net of allowance of $183 and $0, respectively 7,545 -
Prepaid income taxes 2,085 -
Prepaid expenses and other assets 559 422
----------------- -----------------
Total current assets 25,969 4,817
Property and equipment, net 2,390 378
Notes receivable - affiliates 2,832 -
Other assets 3,346 136
Goodwill, net 31,787 -
----------------- -----------------
$ 66,324 $ 5,331
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Trade accounts payable $ 2,496 $ 333
Accrued compensation and payroll taxes 6,585 3,310
Deferred income taxes 265 -
Other liabilities 644 287
Current portion of long-term debt - 786
----------------- -----------------
Total current liabilities 9,990 4,716
Deferred income taxes 725 -
Other liabilities 280 -
Long-term debt - 6,943
----------------- -----------------
Total liabilities 10,995 11,659
Commitments and contingencies
Shareholders' equity (deficiency):
Common stock, no par value; Authorized 50,000,000 shares.
Shares issued and outstanding 16,522,000 and 12,900,000,
respectively 165 5
Additional paid-in capital 54,164 316
Due from shareholder - (679)
Retained earnings (accumulated deficit) 1,000 (5,970)
----------------- -----------------
Total shareholders' equity (deficiency) 55,329 (6,328)
----------------- -----------------
$ 66,324 $ 5,331
================= =================
See accompanying notes to consolidated financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
SM&A CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1998, 1997 and 1996
(in thousands, except per share data)
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net revenues $ 68,449 $ 36,962 $ 25,699
Cost of revenues 40,483 20,529 14,512
----------------- ----------------- -----------------
Gross margin 27,966 16,433 11,187
Selling, general and administrative expenses 13,756 7,177 10,749
Amortization of goodwill and other intangibles 770 - -
Cancelled secondary offering costs 361 - -
----------------- ----------------- -----------------
Operating income 13,079 9,256 438
Other income (expense):
Interest expense (148) (505) (420)
Other, net 1,668 213 556
----------------- ----------------- -----------------
Income before income taxes 14,599 8,964 574
Income tax expense 6,072 147 9
----------------- ----------------- -----------------
Income from continuing operations 8,527 8,817 565
Discontinued operations:
Loss from operations of discontinued business, net of
income tax benefit of $137 (208) - -
Loss from disposal of discontinued business, net of
income tax benefit of $390 (607) - -
----------------- ----------------- -----------------
Net income $ 7,712 $ 8,817 $ 565
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Income per share from continuing operations:
Basic $ .55 * *
Diluted $ .53 * *
================= ================= =================
Loss from discontinued operations:
Basic $ (.05) * *
Diluted $ (.05) * *
================= ================= =================
Net income per share:
Basic $ .50 * *
Diluted $ .48 * *
================= ================= =================
Weighted average shares outstanding :
Basic 15,645 * *
Diluted 15,984 * *
================= ================= =================
* See Pro forma Supplemental Data below.
See accompanying notes to consolidated financial statements.
==============================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
<S> <C> <C>
PRO FORMA SUPPLEMENTAL DATA (UNAUDITED):
Historical income before income taxes $ 8,964 $ 574
Pro forma adjustment to selling, general and administrative
expenses (1,007) 2,475
----------------- -----------------
Pro forma income before income taxes 7,957 3,049
Pro forma income tax expense 3,183 1,219
----------------- -----------------
Pro forma net income $ 4,774 $ 1,830
================= =================
</TABLE>
The pro forma adjustments for the years ended December 31, 1997 and 1996 include
the elimination (addition) of compensation for the principal executive officers
(which have historically been included in selling, general, and administrative
expenses) who are to be paid a maximum of $2.7 million in salaries and bonuses
under the 1998 Executive Compensation Program and adjustments for Federal and
state income taxes as if the Company had been taxed as a C corporation rather
than an S corporation.
<TABLE>
<CAPTION>
<S> <C> <C>
Pro forma net income per share:
Basic $ .37 $ .12
Diluted $ .37 $ .12
================= =================
Weighted average shares outstanding :
Basic 12,948 14,893
Diluted 12,948 14,893
================= =================
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
SM&A CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity (Deficiency)
December 31, 1998, 1997 and 1996
(in thousands, except share data)
<CAPTION>
COMMON STOCK RETAINED TOTAL
-------------------- ADDITIONAL STOCK EARNINGS SHAREHOLDERS'
SHARES PAID-IN SUBSCRIPTION DUE FROM (ACCUMULATED EQUITY
OUTSTANDING AMOUNT CAPITAL NOTE RECEIVABLE SHAREHOLDER DEFICIT) (DEFICIENCY)
------------ ------ ---------- --------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 14,895,000 $ 5 $ 316 $ (205) $ -- $ 552 $ 668
Net income -- -- -- -- -- 565 565
Note due from shareholder -- -- -- -- (632) -- (632)
Collection of stock
subscription receivable -- -- -- 154 -- -- 154
------------ ------ ---------- --------------- ----------- ------------ -------------
Balances at December 31, 1996 14,895,000 5 316 (51) (632) 1,117 755
Net income -- -- -- -- -- 8,817 8,817
Collection of stock
subscription receivable -- -- -- 51 -- -- 51
Note due from shareholder -- -- -- -- (47) -- (47)
Dividends declared -- -- -- -- -- (10,041) (10,041)
Repurchase and retirement
of common stock (1,995,000) -- -- -- -- (5,863) (5,863)
------------ ------ ---------- --------------- ----------- ------------ -------------
Balances at December 31, 1997 12,900,000 5 316 -- (679) (5,970) (6,328)
Net income -- -- -- -- -- 7,712 7,712
Collection of shareholder note -- -- -- -- 679 -- 679
Issuance of common shares
in initial public offering 2,100,000 145 22,276 -- -- -- 22,421
Issuance of common shares
in connection with
acquisitions 1,535,000 15 31,717 -- -- -- 31,732
Dividends declared -- -- -- -- -- (711) (711)
Repurchase and retirement
of common stock (13,000) -- (145) -- -- (31) (176)
------------ ------ ---------- --------------- ----------- ------------ -------------
Balances at December 31, 1998 16,522,000 $ 165 $ 54,164 $ -- $ -- $ 1,000 $ 55,329
============ ====== ========== =============== =========== ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
SM&A CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
December 31, 1998, 1997 and 1996
(in thousands)
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,712 $ 8,817 $ 565
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for doubtful accounts 18 (27) 27
Depreciation and amortization 1,432 139 448
Deferred income taxes 588 -- --
Gain on sale of property and equipment (772) (137) --
Changes in assets and liabilities, net of effect of
acquisitions:
Accounts receivable, net (1,249) (581) (1,377)
Costs and estimated earnings in excess of billings (1,873) -- --
Prepaid expenses and other assets 644 (171) (336)
Trade accounts payable (956) (34) 300
Accrued compensation and payroll taxes (1,650) (1,003) 2,619
Income taxes payable (603) -- --
Other liabilities (776) 152 135
--------- --------- ---------
Net cash provided by operating activities 2,515 7,155 2,381
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (12,181) -- --
Payment for stock options in acquisition (2,449) -- --
Payment on note receivable from affiliate 92 -- --
Proceeds from sale of minority interest in investment 200 -- --
Purchases of property and equipment (401) (140) (5,890)
Increase in capitalized software costs (445) -- --
Repayments from shareholder 679 (47) (632)
--------- --------- ---------
Net cash used in investing activities (14,505) (187) (6,522)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 22,421 -- --
Borrowings under long-term credit facility 7,553 27,336 6,025
Repayments under long-term credit facility (16,793) (20,228) (380)
Distributions to shareholders (711) (10,041) --
Repurchase of common stock (176) (5,863) --
Decrease in stock subscription note receivable -- 51 154
--------- --------- ---------
Net cash provided by (used in) financing activities
12,294 (8,745) 5,799
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 304 (1,777) 1,658
Cash and cash equivalents at beginning of year 150 1,927 269
--------- --------- ---------
Cash and cash equivalents at end of year 454 150 1,927
========= ========= =========
SUPPLEMENTAL INFORMATION - CASH PAID FOR:
Interest 232 505 421
Income taxes 5,552 100 --
========= ========= =========
</TABLE>
<PAGE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
In September 1998, the Company sold its approximate 37% ownership interest
in Savant Corporation to an affiliated company. Terms of payment included a
guaranteed note for $1.8 million.
In June 1998, the Company sold an aircraft to an affiliated company. Terms
of payment included a note for $880,000.
In January 1997, the Company sold an aircraft to an affiliated company.
Terms of payment included a note in the amount of $5.630 million.
Detail of businesses acquired in purchase transactions (in thousands):
Total consideration $ 45,767
Less stock consideration issued in acquisitions (31,732)
-------------
Cash consideration paid for acquisitions 14,035
Plus acquisition expenses 1,215
Less cash acquired in acquisitions (3,069)
-------------
Cash paid for acquisitions, net of cash acquired $ 12,181
=============
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
SM&A Corporation (formerly Steven Myers & Associates, Inc.) and Subsidiaries
("the Company") was incorporated in California on January 25, 1985. The
Company's primary business is providing proposal management and contract support
services. In January 1998, the Company completed an initial public offering
("IPO") of Common Stock. Subsequently, in May, 1998 the Company acquired Space
Applications Corporation ("SAC"). SAC provides systems engineering, scientific
research, program management support and technical support to military and
civilian space programs, the intelligence community, and the armed services. In
August 1998, the Company acquired Decision-Science Applications, Inc. ("DSA").
DSA provides system engineering, information systems development, scientific
research and program management support to the U.S. Government, principally the
Department of Defense. SAC and DSA are collectively referred to as "the
Acquisitions." On December 31, 1998, SAC merged into DSA. In connection with the
merger, the surviving corporation changed its name to SM&A Corporation (East).
On December 1, 1998, the Company's Board of Directors adopted a plan to
discontinue the operations of Staminet, Inc., a subsidiary of Space Applications
Corporation (see Note 5).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the SM&A
Corporation and its two wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly-liquid investments with an original maturity of
three months or less to be cash equivalents.
GOODWILL
Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over the expected periods
to be benefited, generally 30 years. The recoverability of goodwill is
determined by comparing the carrying value of intangible assets to the estimated
future operating income of the Company on an undiscounted cash-flow basis.
Should the carrying value of goodwill exceed the estimated operating income for
the expected period of benefit, an impairment for the excess would be recorded
at that time. As of December 31, 1998, no impairment has been recognized.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated using
straight-line and accelerated methods based on the estimated useful lives of the
related assets, generally five to seven years. Amortization of leasehold
improvements is computed using the straight-line method over the shorter of the
lease term or estimated useful life of the asset.
F-6
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 1998, 1997, and 1996
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company capitalizes certain product related software development costs after
technological feasibility has been established. These costs are amortized based
on the greater of the straight-line method over the product's remaining
estimated economic life or the ratio of the product's current gross revenues to
the total of the product's current and anticipated future gross revenues.
Accumulated amortization and amortization expense as of and for the year ended
December 31, 1998 were both $199,000. There were no capitalized software costs
prior to 1998.
REVENUE RECOGNITION
PROPOSAL MANAGEMENT SERVICES - The majority of Proposal Management Service
activities are provided under "time and expenses" billing arrangements, and
revenues are recorded as work is performed. Revenue is directly related to the
total number of hours billed to clients and the associated hourly billing rates.
A limited amount of revenues are also derived from success fees offered to
clients as a pricing option, and recorded as revenue only upon the attainment of
the specified incentive criteria. Success fees are billable by the Company when
a contract is won by the client.
CONTRACT SERVICES - A significant portion of the Company's contract services are
performed for the United States Government under various cost reimbursable, time
and material and fixed-price contracts and subcontracts. The Company records
revenues from cost-reimbursable contracts, including cost-plus-fixed-fee
contracts, on the basis of reimbursable costs plus a pro rata portion of the
fee. Revenue from time and materials contracts are recognized based on the
contractual hourly billing rates as the services are performed. For financial
reporting purposes, the Company records revenue from fixed-price contracts on
the percentage-of-completion method. Accrued income is based on the percentage
of estimated total income that costs incurred to date bear to estimated total
costs after giving effect to the most recent estimates of cost and estimated
contract price at completion. Some contracts contain incentive provisions based
upon performance in relation to established targets to which applicable
recognition has been given in the contract revenue estimates.
As many contracts extend over a long period of time, revisions in cost and price
estimates during the progress of work have the effect of adjusting earnings in
the current period applicable to performance in prior periods. When the contract
estimate indicates a loss, provision is made for the total anticipated loss. In
accordance with these practices, contracts in progress are stated at cost plus
estimated profit, but not in excess of realizable value. Contract costs for
services supplied to the U.S. Government, including indirect expenses, are
subject to audit by the Government's representatives. All contract revenues are
recorded in amounts that are expected to be realized upon final settlement.
SOFTWARE PRODUCTS - The Company has a Master Development and Distribution
Agreement for licensing of several software products to a manufacturer of test
instruments. The Company receives royalties from the instrument manufacturer as
software product units are sold and distributed. The Company recognizes royalty
revenue as payments are received from the instrument manufacturer.
F-7
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 1998, 1997, and 1996
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable, other accounts receivable,
trade accounts payable and other accrued liabilities are measured at cost which
approximates their fair value.
INCOME TAXES
The Company provides for income taxes using an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax consequences, the
Company generally considers all expected future events other than enactments of
changes in the tax laws or rates.
Prior to the initial public offering, the Company and its shareholders elected
to be treated as an S corporation under the Internal Revenue Code of 1986, as
amended (the "Code"). Under the provisions of the Code, the Company's
shareholders included their pro rata share of the Company's income on their
personal tax returns. Accordingly, the Company was not subject to Federal and
most state income taxes.
In January 1998, the Company still operated as an S corporation; thus, the
consolidated income statement presentation for the year ended December 31, 1998
includes only applicable Federal and state income taxes for the period in which
the Company was a C corporation. Upon termination of the S corporation status on
January 28, 1998, the Company recorded income tax expense resulting from the
establishment of net deferred tax liabilities of approximately $510,000, which
was based upon temporary book to tax differences existing at the date of
termination of the Company's S corporation status.
NET INCOME PER SHARE
Basic net income per share is computed by dividing net income available to
common shareholders by the weighted average number of common shares outstanding
during the periods presented. Diluted net income per share is computed by
dividing net income available to common shareholders by the weighted average
number of common and common equivalent shares outstanding during the periods
presented assuming the exercise of all in-the-money stock options. Common
equivalent shares have not been included where inclusion would be anti-dilutive.
The following is a reconciliation between the number of shares used in the basic
and diluted net income per share calculations (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Basic net income per share:
Weighted average number of shares outstanding 15,645 12,948 14,893
Dilutive effect of stock options 339 - -
---------- ---------- ----------
Diluted net income per share:
Weighted average number of shares outstanding 15,984 12,948 14,893
========== ========== ==========
</TABLE>
As of December 31, 1998, there were 114,500 shares considered anti-dilutive.
Such shares were excluded from the reconciliation above.
F-8
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 1998, 1997, and 1996
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
STOCK OPTION PLAN
The Company continues to account for its stock-based awards using the intrinsic
value method in accordance with Accounting Principles Board (APB) Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and its related interpretations.
No compensation expense has been recognized in the financial statements for
employee stock options. The Company provides pro forma net income and pro forma
earnings per share disclosures for employee stock options grants as if the fair
value-based method defined in Statement of Accounting Standards No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, had been applied.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain items in the prior period financial statements have been reclassified to
conform to the current period presentation.
NOTE 2. ACQUISITIONS
In May 1998, the Company issued 819,743 unregistered shares of common stock
valued at approximately $14.7 million and stock options with a fair value of
$2.7 million for all the outstanding common stock of SAC. This transaction was
accounted for as a purchase and, accordingly, the consolidated financial
statements include the financial results of SAC from May 18, 1998, the date the
definitive agreement was approved by all relevant parties, and the date of the
private placement memorandum for SAC. Due to certain price protection provisions
relating to the shares of common stock issued in connection with the acquisition
of SAC, the Company may be required to issue additional shares of common stock
to former shareholders of SAC depending upon the market price of the common
stock at certain defined liquidation dates. Conversely, SAC shareholders may be
required to return shares of common stock under these same conditions.
In August 1998, the Company issued 714,839 unregistered shares of common stock
valued at approximately $14.4 million, and $14.0 million cash for all the
outstanding common stock and options of DSA. This transaction was accounted for
as a purchase and, accordingly, the consolidated financial statements include
the financial results of DSA from August 1, 1998, the beginning of the
accounting period in which the purchase transaction was finalized.
The shareholders of common stock issued in the Acquisitions have demand
registration rights. The shareholders exercised such demand rights on February
1, 1999 and the Company expects to file for registration with the SEC in May
1999.
F-9
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 1998, 1997, and 1996
NOTE 2. ACQUISITIONS (CONTINUED)
The Company recorded goodwill of approximately $32.3 million as a result of
these purchase transactions. The allocation of the purchase prices for both
Acquisitions and other purchase accounting adjustments is as follows (in
thousands):
Total purchase price, net $ 45,767
Net assets acquired (14,661)
Acquisition costs 1,215
-------------
Goodwill 32,321
Less accumulated amortization (534)
-------------
Goodwill, net $ 31,787
=============
Unaudited pro forma combined results of operations for the periods ended
December 31, 1998 and 1997 would have been as follows had each of the
acquisitions occurred as of the beginning of the respective periods (in
thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Pro forma net revenues $ 96,442 96,806
============ ============
Pro forma income from continuing operations 6,601 4,840
Pro forma loss from discontinued operations (598) (93)
------------ ------------
Net income $ 6,003 $ 4,747
============ ============
Pro forma income per share from continuing operations:
Basic $.40 $ .31
Diluted $.39 $ .31
============ ============
Pro forma loss per share from discontinued operations:
Basic $ (.03) $ (.01)
Diluted $ (.03) $ (.01)
============ ============
Pro forma net income per share:
Basic $ .37 $ .30
Diluted $ .36 $ .30
============ ============
Weighted average shares outstanding:
Basic 16,373 15,743
Diluted 16,758 15,861
</TABLE>
Pro forma adjustments have been applied to reflect the purchases and the
addition of amortization related to intangible assets acquired. The pro
forma adjustments also include the presentation of Staminet, Inc. as a
discontinued operation as of January 1, 1997.
F-10
<PAGE>
NOTE 2. ACQUISITIONS (CONTINUED)
For the combined pro forma basic earnings per share figures, it is assumed
that 12,900,000 shares of SM&A common stock were outstanding since January
1, 1997 along with 819,743 shares issued in the SAC acquisition and 714,839
shares issued in the DSA acquisition. The December 31, 1997 combined pro
forma basic earnings per share figures also give effect to 1,261,000 shares
issued in the Company's IPO and factors in the dilutive effect of SM&A
options granted to SAC and DSA employees at acquisition as if such grants
occurred at the beginning of the periods presented. The pro forma results
presented above may not be indicative of future performance.
NOTE 3. PROPERTY AND EQUIPMENT
A summary of property and equipment follows (in thousands):
1998 1997
------------ ------------
Computer equipment $ 2,050 $ 305
Furniture and equipment 586 273
Leasehold improvements 367 19
Aircraft -- 891
------------ ------------
3,003 1,488
Less accumulated depreciation and
amortization (613) (1,110)
------------ ------------
$ 2,390 $ 378
============ ============
NOTE 4. DUE FROM AFFILIATES AND RELATED PARTY TRANSACTIONS
In September 1998, Space Applications Corporation, a subsidiary of SM&A
Corporation, sold its 37% ownership interest in Savant, an equity investment, to
an affiliate of the Company's principal shareholder for its net book value of
$2.0 million. The sales proceeds were $200,000 cash and a promissory note for
$1.8 million. The note bears interest at 9% and is payable in thirty monthly
installments of $30,000 commencing on October 31, 1998 through March 31, 2001.
All remaining principal is due and payable on March 31, 2001. The note is
guaranteed by the principal shareholder of the Company. As of December 31, 1998,
$1.7 million remained outstanding on the promissory note.
In November 1998, Savant engaged the Company to perform certain consulting
services through December 31, 1998. Included in accounts receivable as of
December 31, 1998 is $300,000 due from Savant for this consulting project. Terms
of the agreement were commensurate with market rates for similar consulting
services.
F-11
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 1998, 1997, and 1996
NOTE 4. DUE FROM AFFILIATES AND RELATED PARTY TRANSACTIONS (CONTINUED)
In June 1998, the Company sold an aircraft to an affiliate of the Company's
principal shareholder. Terms included a promissory note for the total sales
price of $880,000. The note bears interest at the prime rate (8.5% as of
December 31, 1998), is payable in full no later than June 25, 1999, and is
secured by a first-priority interest in the aircraft. As the aircraft was nearly
fully depreciated at the time of sale, the majority of the proceeds were
recognized as a gain on sale. As of December 31, 1998, the note balance,
including accrued interest, was $916,000.
At December 31, 1997, the principal shareholder of the Company owed $679,000,
including accrued interest, under the terms of a promissory note bearing
interest at 7.3% per annum. All amounts owed on this promissory note were repaid
in January 1998.
In January 1997, the Company sold an aircraft to an affiliate of the Company's
principal shareholder for a sales price of $5,635,000, of which $5,000 was paid
in cash. Concurrent with the sale, the affiliate assumed $5,630,000 of the
Company's long-term notes payable bearing interest of 7.3% and 10.07% per annum.
The Company charters aircraft from time to time through an air service
chartering company controlled by the Company's principal shareholder. The terms
of use and charter rates paid by the Company are established by the air service
chartering company and are considered by the Company to be competitive with
charter rates and on terms as favorable as those from unaffiliated third parties
for similar aircraft. Charter fees amounted to approximately $300,000, $471,000,
and $0 for the years ended December 31, 1998, 1997, and 1996, respectively.
NOTE 5. DISCONTINUED OPERATIONS
On December 1, 1998, the Company's Board of Directors adopted a plan to
discontinue the operations of Staminet, Inc., a subsidiary of Space Applications
Corporation, which was acquired in a purchase combination in May 1998.
Accordingly, the operating results of Staminet, including provisions for
estimated losses during the phase-out period, severance, facility lease costs
and other shut down expenses expected to be incurred in connection with the
disposal, have been accrued for as of December 31, 1998. Estimated expenses and
operating losses from the measurement date through the anticipated date of
disposal amounted to $997,000. The operations of Staminet are expected to be
fully terminated by March 31, 1999. The net liabilities of Staminet as of
December 31, 1998, which amounted to approximately $239,000, are included in
other current liabilities.
F-12
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 1998, 1997, and 1996
NOTE 6. DEBT
A summary of debt is provided as follows (in thousands):
1997
---------------
Bank debt $ 7,149
Aircraft loans 517
Capital leases 63
---------------
7,729
Less current portion of
long-term debt (786)
---------------
$ 6,943
===============
In September 1998, the Company entered into a credit agreement with a bank which
provides a $25.0 million revolving line of credit. The credit agreement, which
is secured by a first priority interest in substantially all of the assets of
the Company, matures in September 2001 and has two interest rate options; the
Bank's Prime rate or LIBOR plus 1.25% to 2.0%, based on the ratio of total
indebtedness to earnings before interest and taxes. The credit agreement
requires payment of a fee of 0.25% of the average unused portion of the facility
and contains certain covenants. The most restrictive covenant requires the
Company to maintain consolidated net worth, as defined in the credit agreement,
of at least $35.0 million plus 75% of consolidated quarterly net income. As of
December 31, 1998, the Company was in compliance with, or has obtained waivers,
on all covenants. There were no amounts outstanding under the credit agreement
as of December 31, 1998; however, availability of funds was reduced by a standby
letter of credit in the amount of $1.1 million. The Company is currently in
discussions with its lender to increase the size of the credit facility to $50.0
million, with similar covenant restrictions and other terms.
Bank debt and a capital lease outstanding as of December 31, 1997 were repaid by
the Company in February 1998 with the proceeds received from the initial public
offering.
F-13
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 1998, 1997, and 1996
NOTE 7. INCOME TAXES
Income tax expense attributable to income from continuing operations consists of
(in thousands):
CURRENT DEFERRED TOTAL
---------- ---------- ----------
Year ended December 31, 1998:
Federal $ 4,470 $ 484 $ $4,954
State 1,014 104 1,118
---------- ---------- ----------
$ 5,484 $ 588 $ 6,072
========== ========== ==========
For the years ended December 31, 1997 and 1996, the Company has provided for
income taxes at the appropriate California statutory state income tax rate
imposed on S Corporations, as follows (in thousands):
1997 1996
------------ -------------
State $ 147 $ 9
============ =============
A reconciliation of the Company's effective tax rate compared to the statutory
Federal tax rate is as follows:
1998
------------------
Income taxes at statutory Federal rates 34.0%
State taxes, net of federal income tax 5.5
benefit
Amortization of non-deductible goodwill 3.7
Other, net (1.6)
------------------
41.6%
==================
F-14
<PAGE>
NOTE 7. INCOME TAXES (CONTINUED)
The Company provides deferred income taxes for temporary differences between
assets and liabilities recognized for financial reporting and income tax
purposes. The income effects of these temporary differences representing
significant portions of deferred tax assets and deferred tax liabilities are as
follows (in thousands):
<TABLE>
<CAPTION>
1998
-----------------
<S> <C>
Accrued expenses not currently deductible for tax
purposes $ 868
Project reserves 140
Allowance for doubtful accounts 248
Depreciation 52
Change of accounting from cash to accrual method for
acquired subsidiaries (1,023)
Prepaid expenses (164)
Installment sale transaction (439)
Capitalized software (664)
Other (8)
-----------------
Total net deferred income tax liability $ (990)
=================
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not the Company will realize the benefits of these deductible
differences. The amount of deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future taxable income are
reduced.
For the years ended December 31, 1997 and 1996, net deferred tax assets were
considered immaterial and did not have a significant impact on the financial
results of the Company.
NOTE 8. SHAREHOLDERS' EQUITY
The Company completed an initial public offering ("IPO") of common stock during
January 1998. Of the 3,150,000 shares of Common Stock sold in the IPO at an
offering price of $12.00 per share, 1,050,000 were sold by existing shareholders
and 2,100,000 were sold by the Company, generating $22.4 million in net proceeds
to the Company, net of offering expenses of $1.0 million.
The Company made cash payments of S corporation distributions (the "S
Corporation dividend") to shareholders totaling $711,000 which were accrued as
of January 28, 1998 and paid February 5, 1998. The S Corporation dividend
represented the undistributed earnings of the Company taxed or taxable to the
shareholders through the date of the IPO. Cash provided from the operating
activities of the Company prior to the IPO was used to fund the dividend
payment. S corporation distributions for the year ended December 31, 1997
amounted to $10.0 million.
F-15
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 1998, 1997, and 1996
NOTE 8. SHAREHOLDERS' EQUITY (CONTINUED)
In December 1998, the Company repurchased and retired 13,000 shares of common
stock pursuant to a Board authorization to reacquire up to 300,000 shares of
Company stock. Repurchase prices ranged from $13.31 to $14.00 per share.
Included in shareholders' equity as of December 31, 1997, was $679,000 due from
an officer and principal shareholder of the Company. The balance was repaid in
full in January 1998.
NOTE 9. STOCK OPTION PLAN AND EMPLOYEE BENEFIT PLANS
In 1997, the Company adopted the 1997 Stock Option Plan (the "Option Plan")
under which incentive and non-statutory stock options to acquire shares of the
Company's common stock may be granted to officers, employees, and consultants of
the Company. The Option Plan is administered by the Board of Directors and
permits the issuance of up to 1,500,000 shares of the Company's common stock
(see Note 13). Incentive stock options must be issued at an exercise price not
less than the fair market value of the underlying shares on the date of grant.
Options granted under the Plan vest over various terms up to four years and are
exercisable over a period of time, not to exceed ten years, and are subject to
other terms and conditions specified in each individual employee option
agreement. A summary of employee stock options follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE FAIR
WEIGHTED VALUE OF
AVERAGE OPTIONS
NUMBER OF SHARES EXERCISE PRICE GRANTED
---------------- -------------- ------------
<S> <C> <C> <C>
Outstanding as of December 31, 1997 - -
Granted 1,515,700 $ 12.86 $ 7.41
Cancelled (58,500) (13.14)
Options converted in acquisition 175,906 5.67
---------------- -------------
Outstanding as of December 31, 1998 1,633,106 $ 11.52
================ =============
</TABLE>
F-16
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 1998, 1997, and 1996
NOTE 9. STOCK OPTION PLAN AND EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table summarizes information concerning currently outstanding
options:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
NUMBER OF WEIGHED AVERAGE AVERAGE NUMBER OF AVERAGE
RANGE OPTIONS REMAINING EXERCISE OPTIONS EXERCISE
OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISEABLE PRICE
- ------------------ ----------- ---------------- -------- ------------ --------
<S> <C> <C> <C>
$ 3.42-- $7.95 175,906 5.0 $ 5.67 - -
$ 11.75 -- $14.31 1,237,900 9.5 12.07 - -
$ 15.89 -- $19.13 219,300 9.6 17.34 - -
- ------------------ ----------- ---------------- -------- ------------ --------
$ 3.42 -- $19.13 1,633,106 9.5 $ 11.52 - -
================== =========== ================ ======== ============ =========
</TABLE>
As part of the SAC acquisition, SAC's outstanding options were converted into
SM&A options for 175,906 shares of the Company's common stock. These options
have been included in the stock option summary above, but are not part of the
Option Plan. The SFAS No. 123 calculation below does not include the effect of
these converted options as their fair value has been included in the calculation
of goodwill from acquisition.
SFAS No. 123, Accounting for Stock-Based Compensation, requires the disclosure
of pro forma net income and earnings per share as if the Company had adopted the
fair value method as of the beginning of fiscal 1995. Under SFAS No. 123, the
fair value of stock-based awards to employees is calculated through the use of
option-pricing models, even though such models were developed to estimate the
fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
These models also require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated
values. The Company's calculations were made using the Black-Scholes
option-pricing model, with the following weighted average assumptions: expected
life of 6.25 years; stock volatility of 51.76%; risk-free interest rate of
6.00%; and no dividends during the expected term. The Company's calculations are
based on a single option valuation approach and forfeitures are recognized as
they occur. If the computed fair values of the 1998 awards had been amortized to
expense over the vesting period of the awards, pro forma net income would have
been $6.9 million, or $0.44 per basic share and $0.43 per diluted share.
DEFINED CONTRIBUTION PLANS
The Steven Myers & Associates 401(k) Plan and Trust is a defined contribution
plan. The Plan includes a tax-deferred 401(k) provision. The Plan covers all
employees of the heritage entity Steven Myers & Associates. Contributions are
made to the Plan by participants only.
SAC and DSA, the acquired subsidiaries, each maintain 401(k) and profit sharing
plans for their employees (see Note 13). Contributions were made to the Plan by
both the employees and the Company. The Company's expense under these plans was
$479,000 for the year ended December 31, 1998.
F-17
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 1998, 1997, and 1996
NOTE 10. COMMITMENT AND CONTINGENCIES
The Company leases office facilities and certain equipment under lease
agreements classified as operating leases. Future minimum lease payments under
noncancelable operating leases as of December 31, 1998 are summarized as follows
(in thousands):
Year ending December 31:
1999 $ 4,903
2000 5,956
2001 5,675
2002 5,448
2003 5,537
Thereafter 24,845
-------------------
Total Future Minimum Lease Payments $ 52,364
===================
Rent expense amounted to $1,700,000, $392,000 and $184,000 for the years ended
December 31, 1998, 1997 and 1996, respectively, and has been included in
selling, general and administrative expenses in the accompanying consolidated
statements of income.
NOTE 11. SEGMENT REPORTING DATA
SM&A Corporation classifies its operations into three lines of business, each
offering a distinct set of services. These lines of business are summarized as
follows; PROPOSAL MANAGEMENT, which involves assisting clients with the
procurement of government and commercial programs; SYSTEMS SOLUTIONS, which
includes systems engineering, scientific research, program management and
technical support services, and INFORMATION TECHNOLOGY SOLUTIONS, which focuses
on information systems development
The Company evaluates performance based on several factors, of which the primary
financial measure is business segment operating income. The accounting policies
of the business segments are the same as those described in the summary of
significant accounting policies.
F-18
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 1998, 1997, and 1996
NOTE 11. SEGMENT REPORTING DATA (CONTINUED)
Information as to the operations of the lines of business is set forth below.
The information presented for the years ended December 31, 1997 and 1996
represents pro forma supplemental data as described on the statements of income.
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
NET REVENUES:
Proposal Management Group $ 39,594(1) $ 36,962(1) $ 25,699(1)
Systems Solutions Group 20,327(1) - -
Information Technology Solutions Group 8,528 - -
----------- ----------- -----------
Total net revenues $ 68,449 $ 36,962 $ 25,699
=========== =========== ===========
OPERATING INCOME (LOSS):
Proposal Management Group $ 15,730(1) $ 8,249(1) $ 2,913(1)
Systems Solutions Group 6,259(1) - -
Information Technology Solutions Group 3,015 - -
Executive Group (11,925) - -
----------- ----------- -----------
Total operating income $ 13,079 $ 8,249 $ 2,913
=========== =========== ===========
INCOME (LOSS) FROM CONTINUING OPERATIONS:
Proposal Management Group $ 8,990(1) $ 4,774(1) $ 1,830(1)
Systems Solutions Group 3,936(1) - -
Information Technology Solutions Group 1,896 - -
Executive Group (6,295) - -
----------- ----------- -----------
Total income from continuing operations $ 8,527 $ 4,774 $ 1,830
=========== =========== ===========
ASSETS:
Proposal Management Group $ 8,906 $ 5,331 $ 11,820
Systems Solutions Group 8,654 - -
Information Technology Solutions Group 9,492 - -
Executive Group 39,272 - -
----------- ----------- -----------
Total assets $ 66,324 $ 5,331 $ 11,820
=========== =========== ===========
</TABLE>
(1) For the year ended December 31, 1998, net revenues, operating income, and
income from continuing operations of the Proposal Management Group would
have been $41,594,000 $16,346,000 and $9,377,000, respectively, had certain
projects not been transferred to the Systems Solutions Group.
Correspondingly, net revenues, operating income, and income from continuing
operations of the Systems Solutions Group would have been $18,327,000,
$5,643,000 and $3,549,000, respectively. Amounts shown for the years
ended December 31, 1997 and 1996 have not been adjusted for this
presentation.
F-19
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 1998, 1997, and 1996
NOTE 12. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of trade accounts receivable. The majority of the
Company's receivables are from the U.S. Government and large companies in the
aerospace and defense industries. The Company's ten largest customers
represented 74.5% of total revenue for fiscal 1998. The Company controls credit
risk through credit approvals and monitoring procedures. Credit losses have
historically been minimal.
The percentage of the Company's net revenues arising from major customers is
summarized as follows:
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
---------------------------------------
U.S. Government 25% -% -%
Lockheed Martin Corporation 17 22 23
Raytheon Systems Company 16 11 7
The Boeing Company 8 10 10
Motorola Corporation 6 13 18
Litton Systems, Inc. 5 15 6
Hughes Space & Communications Company - 10 19
NOTE 13. SUBSEQUENT EVENTS
In January 1999, the Board of Directors approved the allocation of an additional
1,000,000 shares of common stock for grant under the 1997 Stock Option Plan.
This allocation is subject to shareholder approval at the Annual Shareholders'
meeting in May 1999 (Note 9).
In January 1999, the Board of Directors approved the adoption of an Employee
Stock Purchase Plan (the "ESP Plan") with an initial allocation of 250,000
shares. The ESP Plan allows employees of the Company to purchase common stock,
through bi-weekly payroll deductions, at a 15% discount. Employee contributions
to the ESP are limited to 15% of the employee's annual compensation. The
adoption of the ESP Plan and the related allocation of shares are subject to
shareholder approval at the Annual Shareholders' meeting in May 1999.
In March 1999, the defined contribution pension plans of Steven Myers &
Associates, Space Applications Corporation, and Decision-Science Applications,
Inc. were merged to form a single 401(k) plan. The new plan, the SM&A
Corporation 401(k) Plan and Trust, provides for employee contributions of up to
15 percent of eligible compensation with Company matching and profit sharing
contributions for certain classes of employees (Note 9).
F-20
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 1998, 1997, and 1996
NOTE 13. SUBSEQUENT EVENTS (CONTINUED)
In March 1999, the planned sale of Staminet to its management team was
terminated. Accordingly, Staminet was liquidated. Additional severance, facility
lease termination costs, and other shut down expenses were accrued for as of
December 31, 1998 (Note 5).
F-21
<PAGE>
<TABLE>
SM&A CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
( IN THOUSANDS )
<CAPTION>
ADDITIONS
----------------------
BALANCE AT CHARGES TO RECOVERIES BALANCE AT
THE BEGINNING BAD DEBTS AND DEDUCTIONS/ THE END
OF THE PERIOD EXPENSE OTHER (1) WRITE-OFFS OF THE PERIOD
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
ALLOWANCE FOR DOUBTFUL ACCOUNTS $ - $ 60 $ 625 $ (42) $ 643
===================================================================
1997
ALLOWANCE FOR DOUBTFUL ACCOUNTS $ 27 $ - $ - $ (27) $ -
===================================================================
1996
ALLOWANCE FOR DOUBTFUL ACCOUNTS $ - $ 27 $ - $ - $ 27
===================================================================
</TABLE>
(1) REPRESENTS AMOUNTS ACQUIRED IN ACQUISITIONS.
F-22
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by this reference
to the section entitled "Election of Directors" in the Company's definitive
Proxy Statement prepared pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended, for the Company's 1999 Annual Meeting of
Shareholders involving, among other things, the election of directors. Such
Proxy statement is being filed with the Securities and Exchange Commission
concurrently with this Form 10-K.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by this reference
to the section entitled "Executive Compensation" in the Company's definitive
Proxy Statement prepared pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended, for the Company's 1999 Annual Meeting of
Shareholders involving, among other things, the election of directors. Such
Proxy statement is being filed with the Securities and Exchange Commission
concurrently with this Form 10-K.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by this reference
to the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's definitive Proxy Statement prepared pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended, for the
Company's 1999 Annual Meeting of Shareholders involving, among other things, the
election of directors. Such Proxy statement is being filed with the Securities
and Exchange Commission concurrently with this Form 10-K.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by this reference
to the section entitled "Executive Compensation - Certain Transactions" in the
Company's definitive Proxy Statement prepared pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended, for the Company's 1999 Annual
Meeting of Shareholders involving, among other things, the election of
directors. Such Proxy statement is being filed with the Securities and Exchange
Commission concurrently with this Form 10-K.
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a)(1). Consolidated Financial Statements (included in Part II of this Annual
Report on Form 10-K).
Independent Auditor's Report
Consolidated Balance Sheets at December 31, 1998 and 1997
Consolidated Statements of Income for the Years Ended December 31,
1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity (Deficiency) for the
Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
(a)(2). Financial Statement Schedules (included in Part II of this Annual
Report on Form 10-K).
Schedule II-Valuation and Qualifying Accounts for the Years Ended
December 31, 1998, 1997 and 1996.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
(a)(3). Exhibits (see Exhibit Index)
(b). Reports on Form 8-K.
On October 23, 1998, the Company filed with the Securities and
Exchange Commission, an amended interim report on Form 8-K/A concerning
the Company's acquisition of Decision-Science Applications, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SM&A CORPORATION
By: /s/ Steven S. Myers
-----------------------------------------
Steven S. Myers, Chief Executive Officer
Dated: March 26, 1999
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------- ------------------------------------------- ---------------
<S> <C> <C>
/s/ Steven S. Myers
- -------------------------------------
Steven S. Myers Chairman of the Board and Chief
Executive Officer (Principal Executive
Officer) March 26, 1999
/s/ Michael A. Piraino
- -------------------------------------
Michael A. Piraino President, Chief Operating Officer, and
Director March 26, 1999
/s/ Steven R. Mast
- -------------------------------------
Steven R. Mast Senior Vice President, Chief Financial
Officer and Secretary (Principal Financial
Officer and Principal Accounting Officer) March 29, 1999
/s/ J. Christopher Lewis
- -------------------------------------
J. Christopher Lewis Director March 26, 1999
/s/ James R. Mellor
- -------------------------------------
James R. Mellor Director March 27, 1999
/s/ Malcolm R. Currie
- -------------------------------------
Malcolm R. Currie Director March 27, 1999
</TABLE>
<PAGE>
EXHIBIT INDEX
2.1 Agreement and Plan of Reorganization and Merger dated
May 18, 1998, by and among the Registrant, Space
Applications Corporation, SAC Acquisition, Inc. and
the individual shareholders named therein
(incorporated by reference to Exhibit 2 to the
Registrant's Current Report on Form 8-K filed on June
4, 1998).
2.2 Agreement and Plan of Reorganization and Merger dated
July 22, 1998, by and among the Registrant,
Decision-Science Applications, Inc., DSA Acquisition,
Inc. and the individual shareholders named therein
(incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K filed on
August 21 1998).
2.3 Agreement of Merger dated November 24, 1998 between
Space Applications Corporation and SM&A Corporation
(East), effective date December 31, 1998.*
3.1 Articles of Incorporation, as amended and restated
(filed on January 27, 1998 as Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1
(Registration No. 333-4075) and incorporated herein
by reference).
3.2 Bylaws of the Registrant, as amended and restated
(filed on January 5, 1998 as Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1
(Registration No. 333-4075) and incorporated herein
by reference).
3.3 Certificate of Ownership as filed with the
California Secretary of State on August 6, 1998
(filed on August 19, 1998 as Exhibit 3.1 to the
Registrant's Current Report on Form 8-K and
incorporated herein by reference).
10.1 1997 Stock Option Plan and related form of Stock
Option Agreement (filed on January 5, 1998 as Exhibit
10.1 to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-4075) and incorporated
herein by reference).
10.2 Form of Indemnification Agreement (filed on November
21, 1997 as Exhibit 10.2 to the Registrant's
Registration Statement on Form S-1 (Registration No.
333-4075) and incorporated herein by reference).
10.3 Office Facilities Lease (filed on November 21, 1997
as Exhibit 10.3 to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-4075) and
incorporated herein by reference).
<PAGE>
10.4 Hawker Aircraft Sale Agreement (filed on November 21,
1997 as Exhibit 10.4 to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-4075) and
incorporated herein by reference).
10.5 Employment Agreement with Steven S. Myers (filed on
November 21, 1997 as Exhibit 10.5 to the Registrant's
Registration Statement on Form S-1 (Registration No.
333-4075) and incorporated herein by reference).
10.6 Employment Agreement with Kenneth W. Colbaugh (filed
on November 21, 1997 as Exhibit 10.6 to the
Registrant's Registration Statement on Form S-1
(Registration No. 333-4075) and incorporated herein
by reference).
10.7 Commercial Note dated May 30, 1995 between
NationsBank, N.A. and the Registrant and related
Aircraft Security--Chattel Mortgage, Security
Agreement and Unconditional Guaranty of Payment
(filed on November 21, 1997 as Exhibit 10.8 to the
Registrant's Registration Statement on Form S-1
(Registration No. 333-4075) and incorporated herein
by reference).
10.8 Executive Bonus Plan (filed on November 21, 1997 as
Exhibit 10.11 to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-4075)
and incorporated herein by reference).
10.9 Registration Rights Agreement dated May 29, 1998 by
and among the Registrant and certain shareholders of
Space Applications Corporation identified therein
(filed on June 4, 1998 as Exhibit 2 to the
Registrant's Current Report on Form 8-K and
incorporated herein by reference).
10.10 Employment Agreement dated May 29, 1998 by and
between Space Applications Corporation and Roger
Skinner (filed on June 4, 1998 as Exhibit 2 to the
Registrant's Current Report on Form 8-K and
incorporated herein by reference).
10.11 Employment Agreement dated May 29, 1998 by and
between Space Applications Corporation and Stanley
Hee (filed on June 4, 1998 as Exhibit 2 to the
Registrant's Current Report on Form 8-K and
incorporated herein by reference).
10.12 Registration Rights Agreement dated August 20, 1998
by and among Registrant and certain shareholders of
Decision-Science Applications, Inc. set forth therein
(filed on August 21, 1998 as Exhibit 10.1 to the
Registrant's Current Report on Form 8-K and
incorporated herein by reference).
<PAGE>
10.13 Employment Agreement dated August 20, 1998 by and
between Decision-Science Applications, Inc. and Guy
A. Ackerson (filed on August 21, 1998 as Exhibit 10.2
to the Registrant's Current Report on Form 8-K and
incorporated herein by reference).
10.14 Employment Agreement dated August 20, 1998 by and
between Decision-Science Applications, Inc. and Gary
L. Lucas (filed on August 21, 1998 as Exhibit 10.3 to
the Registrant's Current Report on Form 8-K and
incorporated herein by reference).
10.15 Employment Agreement dated August 20, 1998 by and
between Decision-Science Applications, Inc. and Dana
R. Raucher (filed on August 21, 1998 as Exhibit 10.4
to the Registrant's Current Report on Form 8-K and
incorporated herein by reference).
10.16 Escrow Agreement dated May 29, 1998 by and between
the Registrant, Space Applications Corporation, First
American Trust Company, Stanley Y.H. Hee and certain
shareholders identified therein.*
10.17 Escrow Agreement dated August 20, 1998 by and between
Decision-Science Applications, Inc., First American
Trust Company and certain shareholders identified
therein (filed on August 21, 1998 as Exhibit 10.5 to
the Registrant's Current Report on Form 8-K and
incorporated herein by reference).
10.18 Note dated June 25, 1998 for sale of Turbo Commander
aircraft.*
10.19 Credit and Security Agreement dated September 11,
1998, between the Registrant and the financial
institutions listed thereon, as Lenders and Mellon
Bank, N.A., as Agent, and Amendment Number One
thereto dated December 4, 1998.*
10.20 Promissory Note dated September 11, 1998 executed by
the Registrant in favor of Mellon Bank in the
principal amount of $15,000,000.*
10.21 Promissory Note dated September 11, 1998 executed by
the Registrant in favor of Imperial Bank in the
principal amount of $10,000,000.*
<PAGE>
10.22 General Continuing Guaranty dated September 11, 1998
of Space Applications Corporation securing
obligations of the Registrant under promissory note
in favor of Mellon Bank.*
10.23 General Continuing Guaranty dated September 11, 1998
of Decision-Science Applications, Inc. securing
obligations of the Registrant under promissory note
in favor of Mellon Bank.*
10.24 Security Agreement dated September 11, 1998 between
Mellon Bank, N.A. and Space Applications
Corporation.*
10.25 Security Agreement dated September 11, 1998 between
Mellon Bank, N.A. and Decision-Science Applications,
Inc.*
10.26 Common Stock Purchase Agreement dated September 30,
1998 between Space Applications Corporation and
Summit Aviation.*
10.27 Employment Agreement dated December 10, 1998 between
the Registrant and Michael A. Piraino.*
10.28 Vienna Office Lease; Multitenant Office Deed of Lease
Agreement between Opus East, L.L.C., as Landlord, and
SM&A Corporation, as Tenant.*
21 Subsidiaries of the Registrant*
23 Consent of KPMG LLP*
27 Financial Statement Schedule*
- ---------------------
* Filed herewith.
- --------
<PAGE>
AGREEMENT OF MERGER
OF
SPACE APPLICATIONS CORPORATION
AND
SM&A CORPORATION (EAST)
This Agreement of Merger is dated ________, 1998, by and among SPACE
APPLICATIONS CORPORATION, a California corporation ("SAC") and SM&A CORPORATION
(EAST), a California corporation ("SMAE").
R E C I T A L S
- - - - - - - -
WHEREAS, SAC is a California corporation and has 100 shares of its
common stock outstanding as of the date hereof, all of which are owned by SM&A
Corporation, a California corporation ("SM&A");
WHEREAS, SMAE is a California corporation and has 100 shares of its
common stock outstanding as of the date hereof, all of which are owned by SM&A;
NOW, THEREFORE, for good and valuable consideration, the parties hereto
agree as follows:
1. SAC shall be merged with and into SMAE, and SMAE shall be the
surviving corporation.
2. Upon such merger, all outstanding shares of common stock of SAC
shall be cancelled and no shares of SMAE shall be issued in exchange therefor.
3. Upon such merger, the separate existence of SAC shall cease and SMAE
shall succeed, without other transfer, to all the rights and property of SAC and
shall be subject to all the debts and liabilities thereof in the same manner as
if SMAE had itself incurred them. All rights of creditors and all liens upon the
property of each corporation shall be preserved unimpaired, provided that such
liens upon property of SAC shall be limited to the property affected thereby
immediately prior to the time the merger is effective.
4. After the merger becomes effective, SAC, through the persons who
were its officers immediately prior to the merger, shall execute or cause to be
executed such further assignments, assurances or other documents as may be
necessary or desirable to confirm title to properties, assets and rights in
SMAE.
5. The effective date of the merger is the date upon which a copy of
this Agreement of Merger is filed with the Secretary of State of California.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement of Merger
on the date first set forth above.
SPACE APPLICATIONS CORPORATION,
a California corporation
By: /s/ Thomas Amrhein
-----------------------------------------
Thomas Amrhein, President
By: /s/ Steven Mast
-----------------------------------------
Steven Mast, Secretary
SM&A CORPORATION (EAST),
a California corporation
By: /s/ Calvin Gegner
----------------------------------------
Calvin Gegner, President
By: /s/ Steven Mast
----------------------------------------
Steven Mast, Secretary
-2-
<PAGE>
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Agreement") dated as of May 29, 1998 is
among STEVEN MYERS & ASSOCIATES, INC., a California corporation ("SM&A") SPACE
APPLICATIONS CORPORATION, a California corporation ("SAC"), the shareholders of
SAC as identified on SCHEDULE 1 hereto, STANLEY Y.H. HEE (the "SAC
REPRESENTATIVE"), and FIRST AMERICAN TRUST COMPANY, as escrow agent (the "ESCROW
AGENT").
PRELIMINARY STATEMENT
---------------------
Pursuant to an Agreement and Plan of Reorganization and Merger dated as
of May 29, 1998 (the "MERGER AGREEMENT"), by and among SM&A, SAC, SAC
Acquisition, Inc., a wholly owned subsidiary of SM&A, and Roger H. Skinner, SM&A
is acquiring SAC through the merger of SAC Acquisition, Inc. with and into SAC.
Capitalized terms used herein and not otherwise defined have the meanings
ascribed to them in the Merger Agreement.
The holders of the Company Stock outstanding immediately prior to the
Effective Time (the "SHAREHOLDERS") have agreed to indemnify SM&A as provided in
Article 9 of the Merger Agreement through the deposit of 81,974 shares of SM&A
Stock (the "ESCROW SHARES") pursuant to Section 2.8 of the Merger Agreement. A
list of all Shareholders and their pro rata interest in the Escrow Shares is
attached hereto as SCHEDULE 2.
The parties hereto agree as follows:
1. Establishment of Escrow.
-----------------------
SM&A has delivered to the Escrow Agent and the Escrow Agent
acknowledges receipt of the Escrow Shares in the form of a single stock
certificate. The Escrow Shares shall be held in escrow in the name of the Escrow
Agent or its nominee, subject to the terms and conditions set forth herein.
Unless and until the Escrow Shares are returned to SM&A or delivered to the
Shareholders pursuant to the terms of this Agreement, the Escrow Agent shall
vote the Escrow Shares in accordance with the written instructions of the SAC
Representative.
Escrow Agent shall invest any cash held by it pursuant to this
Agreement in interest bearing accounts or certificates of deposit with such
bank(s) or financial institution(s) as it deems advisable.
2. Amounts Earned on Escrow Shares; Tax Matters.
--------------------------------------------
All amounts earned on the Escrow Shares (dividends or other
distributions, and interest earned thereon) shall be distributed
<PAGE>
pro rata to the Shareholders on a quarterly basis. All interest earned on cash
deposited by Shareholders pursuant to SECTION 3.3, shall be paid to the
Shareholders entitled thereto on a quarterly basis. The parties agree that to
the extent required by applicable law, including Section 468B(g) of the Internal
Revenue Code of 1986, as amended (the "CODE"), the Shareholders will include all
amounts earned on the Escrow Shares and all interest earned on cash deposits in
their gross income for federal, state and local income tax (collectively,
"INCOME TAX") purposes and pay any income tax resulting therefrom. As a
condition to a Shareholder's right to replace Escrow Shares with Escrow Funds as
provided in SECTION 3.3, such Shareholder shall have previously furnished to the
Escrow Agent all information necessary to enable the Escrow Agent to comply with
the reporting and backup withholding obligations of the Code
3. Claims Against Escrow Shares.
----------------------------
3.1 At any time or times prior to the Expiration Date (as defined in
SECTION 5) SM&A may make claims against the Escrow Shares and "Escrow Funds" (as
defined in SECTION 3.3) for amounts due for indemnification under Article 9 of
the Merger Agreement. SM&A shall notify the SAC Representative and the Escrow
Agent in writing of each such claim ("NOTICE OF CLAIM"), including a brief
description of the amount and nature of such claim. If the amount subject to the
claim is unliquidated, SM&A shall make a good faith estimate as to the amount of
the claim for purposes of determining the number of Escrow Shares and/or amount
of Escrow Funds, if any, to be withheld by the Escrow Agent if such claim is not
resolved or otherwise adjudicated by the Expiration Date. Such good faith
estimate shall be included in the Notice of Claim. If the SAC Representative
shall dispute a claim or SM&A's estimate as to the amount of the claim, the SAC
Representative shall give written notice thereof to SM&A and to the Escrow Agent
within 30 days after the date SM&A's Notice of Claim was given to the SAC
Representative, in which case the Escrow Agent shall continue to hold the Escrow
Shares/Escrow Funds in accordance with the terms of this Agreement; otherwise,
such liquidated claim shall be deemed to have been acknowledged to be payable
out of the Escrow Shares/Escrow Funds in the full amount thereof as set forth in
the Notice of Claim and the Escrow Agent shall use its best efforts to pay such
liquidated claim from the Escrow Shares/Escrow Funds to SM&A within three
business days after expiration of said 30-day period. Unliquidated claims shall
not be paid until liquidated. Disputes as to the SM&A's good faith estimate of a
claim shall be resolved as provided in SECTION 4.1. The value of Escrow Shares
and Escrow Funds paid to satisfy a claim under this Agreement shall be allocated
pro rata among the Shareholders based on their proportionate interests in the
aggregate Escrow Shares and Escrow Funds. With respect to each Shareholder, the
amount paid to satisfy a claim under this Agreement shall be deducted first from
the Escrow Funds and then, to the extent necessary, from the Escrow Shares
-2-
<PAGE>
allocable to such Shareholder. If the amount of the claim exceeds the aggregate
value of the Escrow Shares/Escrow Funds subject thereto, the Escrow Agent shall
have no liability or responsibility for any deficiency.
3.2 The Escrow Agent shall effect the payment of Escrow Shares to SM&A
by surrendering such Escrow Shares to SM&A's stock transfer agent (U.S. Stock
Transfer Corporation, 1745 Gardena Avenue, Glendale, CA 91204 ("UST")) for
cancellation upon receipt by the Escrow Agent of a copy of a letter from SM&A to
UST, instructing UST to issue a new certificate to the Escrow Agent for the
remaining Escrow Shares after giving effect to such payment. The value per share
of the Escrow Shares for purposes of this Agreement shall be the Average Closing
Price for the Base Period. All claims paid out of the Escrow Shares shall be
rounded to the nearest whole share. The Escrow Agent shall not be responsible
for and shall have no liability in connection with determining whether the
transfer of any Escrow Shares complies with federal or state securities laws.
3.3 In the event that the Escrow Shares become eligible for sale
pursuant to Rule 144 under the Securities Act or are entitled to be included in
a registration statement filed by SM&A pursuant to the Securities Act ("ELIGIBLE
ESCROW SHARES"), then a Shareholder may sell (pursuant to Rule 144 or an
effective registration statement) all or any portion of his allocation of the
Eligible Escrow Shares; provided that such Shareholder has arranged, to SM&A
satisfaction, for the deposit into escrow of the proceeds from the sale of such
Eligible Escrow Shares. The funds deposited by a Shareholder pursuant to this
SECTION 3.3 ("ESCROW FUNDS") shall be held by the Escrow Agent and subject to
the terms and conditions of this Agreement.
3.4 If the SAC Representative shall give notice to SM&A and the Escrow
Agent pursuant to Section 3.1 disputing an SM&A claim, no distribution of the
Escrow Shares/Escrow Funds shall be made by the Escrow Agent to SM&A or to the
Shareholders of the Set Aside Amount (as defined in Section 4.1) with respect to
such claim until either: (i) such disputed claim has been resolved as evidenced
by a written notice executed by SM&A and the SAC Representative instructing the
Escrow Agent as to the distribution of such Set Aside Amount or a portion
thereof; or (ii) such dispute shall have been adjudicated in accordance with the
arbitration procedures described in Section 4.2.
4. Disputed Claims.
---------------
4.1 If the SAC Representative shall dispute an indemnification claim of
SM&A as provided in SECTION 3, the Escrow Agent shall set aside a portion of the
Escrow Shares/Escrow Funds equal to the amount of the claim as set forth in the
Notice of Claim (the "SET ASIDE AMOUNT"), which amount may subsequently be
modified by arbitration. If the SAC Representative shall dispute the Set Aside
-3-
<PAGE>
Amount as provided in SECTION 3, the Escrow Shares/Escrow Funds constituting the
Set Aside Amount shall be withheld pursuant to the immediately preceding
sentence until otherwise determined by arbitration. The Set Aside Amount shall
be allocated pro rata among the Shareholders based upon their percentage
interests in the aggregate Escrow Shares/Escrow Funds. With respect to each
Shareholder, the amount constituting the Set Aside Amount shall be deducted
first from the Escrow Funds and then, to the extent necessary, from the Escrow
Shares allocable to such shareholder. In the event SM&A notifies the Escrow
Agent in writing that it has made out-of-pocket expenditures or anticipates that
it will incur legal expenses in connection with any such disputed claim with
respect to which it is entitled to be indemnified under the Merger Agreement, a
portion of the Escrow Shares/Escrow Funds equal to such reasonable incurred or
anticipated expenditures shall also be set aside and added to and become a part
of the Set Aside Amount; provided, that in the event that it shall be agreed (as
evidenced by a written notice executed by SM&A and the SAC Representative as
described in SECTION 3.4) or determined through an arbitration proceeding
described in SECTION 4.2 that SM&A is not entitled to indemnification with
respect to such claim or such expenses, SM&A shall not be entitled to the
portion of the Escrow Shares/Escrow Funds set aside for such expenses.
4.2 If, within 60 days after the SAC Representative sends notice of a
dispute, the Escrow Agent has not received written notice executed by SM&A and
the SAC Representative to the effect that the disputed indemnification claim has
been resolved, the indemnification claim shall be referred to an arbitrator
chosen by agreement of the SAC Representative and SM&A. If no agreement is
reached regarding selection of the arbitrator within 30 days after written
request from either party to the other, SM&A or the SAC Representative may
submit the matter in dispute to JAMS, to be settled by arbitration in Orange
County, California in accordance with the commercial arbitration rules of such
association. SM&A and the SAC Representative agree to act in good faith to
select mutually an arbitrator. The fees and expenses of any arbitration shall be
borne equally by the Shareholders as a group and SM&A, unless and until the
arbitrator determines otherwise. Any fees or expenses attributable to the
Shareholders as a group shall be payable only out of the Escrow Shares/Escrow
Funds. In no event shall the Escrow Agent be responsible for any fees or
expenses of any party to any arbitration proceedings. The determination of the
arbitrator as to the amount, if any, of the indemnification claim that is
properly allowable shall be conclusive and binding upon the parties hereto and
judgment may be entered thereon in any court having jurisdiction thereof,
including, without limitation, any Superior Court in the State of California.
The Escrow Agent shall make payments of such claim, as and to the extent
allowed, to SM&A within three business days following its receipt of a copy of
the arbitration award determination.
-4-
<PAGE>
5. Termination and Distribution of Escrow Shares.
---------------------------------------------
5.1 This Agreement shall terminate two (2) years after the Effective
Time (as defined in Section 1.2 of the Merger Agreement) (the "EXPIRATION
DATE"); provided that this Agreement shall continue in effect until the
resolution of all outstanding indemnification claims as to which the Escrow
Agent has received notice pursuant to SECTION 3 hereof on or prior to the
Expiration Date.
5.2 SM&A shall provide the Escrow Agent with reasonable advance notice
of the expected Expiration Date and shall confirm the occurrence of such as soon
as practicable thereafter. On the Expiration Date or as soon thereafter as is
practicable, the Escrow Agent shall distribute the remaining Escrow
Shares/Escrow Funds less (i) the number of Escrow Shares and amount of Escrow
Funds constituting any then existing Set Aside Amounts, and (ii) the number of
Escrow Shares and amount of Escrow Funds equal to the amount specified in any
Notice of Claim delivered to the Escrow Agent prior to the Expiration Date with
respect to which no Set Aside Amount has yet been established and the Escrow
Agent has not otherwise been instructed by SM&A and the SAC Representative. At
such time thereafter as any remaining indemnification claim hereunder has been
resolved and the Escrow Agent has received a written notice executed by SM&A and
the SAC Representative to that effect (or a copy of an arbitration award
pursuant to SECTION 4.2 to that effect) and any amounts to be distributed to
SM&A in connection therewith have been so distributed, the Escrow Agent shall
distribute any portion of the remaining Escrow Shares/Escrow Funds withheld in
respect of such claim to the Shareholders based on their relative percentage
interest in such Escrow Share and/or Escrow Funds. Upon the resolution of all
outstanding indemnification claims hereunder, the Escrow Agent shall distribute
the remaining amount, if any, of the Escrow Shares/Escrow Funds to the
Shareholders based on their relative percentage interest in such Escrow Share
and/or Escrow Funds and this Agreement shall terminate. SM&A shall not be
required to issue certificates for fractional shares in any distribution of
Escrow Shares pursuant to this Agreement, but rather shall pay to the Escrow
Agent for distribution to the Shareholders an amount in cash (without interest)
determined by multiplying each Stockholder's fractional interest by the Average
closing Price for the Base Period. The Escrow Agent shall effect such
distributions of Escrow Shares as it is required to make to the Shareholders
under this Agreement by surrendering such Escrow Shares to UST for cancellation
upon receipt by the Escrow Agent of a copy of a letter from SM&A to UST,
instructing such transfer agent to issue such shares to the Shareholders based
upon their relative interests therein. The combination of Escrow Shares and
Escrow Funds to be withheld under this SECTION 5.3 as Set Aside Amounts or
pursuant to a Notice of Claim (for which no set aside amount has been
established) shall be determined in accordance with SECTION 4.1.
-5-
<PAGE>
6. The Escrow Agent.
----------------
6.1 Notwithstanding anything herein to the contrary, the Escrow Agent
shall promptly dispose of all or any part of the Escrow Shares/Escrow Funds as
directed by a writing jointly signed by the SAC Representative and SM&A. The
reasonable fees and expenses of the Escrow Agent (as set forth on the fee
schedule attached hereto as SCHEDULE 3) in connection with its performance of
this Agreement shall be borne by SM&A. The Escrow Agent shall not be liable for
any act or omission to act under this Agreement, including any and all claims
made against the Escrow Agent as a result of its holding the Escrow
Shares/Escrow Funds in its own name, except for its own gross negligence or
willful misconduct. The Escrow Agent shall not be liable for, and the
Shareholders (only to the extent of their proportionate share of the Escrow
Shares/Escrow Funds) and SM&A shall jointly and severally indemnify the Escrow
Agent against, any losses or claims (including reasonable out-of-pocket
expenses) arising out of, any action taken or omitted in good faith hereunder or
upon the advice of counsel. The Escrow Agent may decline to act and shall not be
liable for failure to act if in doubt as to its duties under this Agreement. The
Escrow Agent may act upon any instrument or signature believed by it to be
genuine and may assume that any person purporting to give any notice or
instruction hereunder, reasonably believed by it to be authorized, has been duly
authorized to do so. The Escrow Agent's duties shall be determined only with
reference to this Agreement and applicable laws, and the Escrow Agent is not
charged with knowledge of or any duties or responsibilities in connection with
any other document or agreement, including, but not limited to, the Merger
Agreement.
6.2 The Escrow Agent shall have the right at any time to resign
hereunder by giving written notice of its resignation to the parties hereto, at
the addresses set forth herein or at such other address as the parties shall
provide, at least 30 days prior to the date specified for such resignation to
take effect. In such event SM&A and the SAC Representative shall by agreement
appoint a successor escrow agent within said 30 days; if SM&A and the SAC
Representative do not agree upon the selection of a successor escrow agent
within such period, the Escrow Agent may appoint a successor escrow agent. Upon
the effective date of such resignation, the Escrow Shares together with all cash
and other property then held by the Escrow Agent hereunder shall be delivered by
it to such successor escrow agent or as otherwise shall be designated in writing
by SM&A and the SAC Representative.
6.3 In the event that the Escrow Agent should at any time be confronted
with inconsistent or conflicting claims or demands by the parties hereto, the
Escrow Agent shall have the right to interplead said parties in any court of
competent jurisdiction and request that such court determine the respective
rights of such parties with respect to this Agreement and, upon doing so, the
Escrow Agent shall be released from any obligations or liability to either party
as a consequence of any such claims or demands. The reasonable fees and costs
-6-
<PAGE>
incurred by the Escrow Agent in interpleading said parties shall be borne
equally by SM&A and the Shareholders as a group.
6.4 The Escrow Agent may execute any of its powers or responsibilities
hereunder and exercise any rights hereunder, either directly or by or through
its agents or attorneys. The Escrow Agent shall not be responsible for and shall
not be under a duty to examine, inquire into or pass upon the validity, binding
effect, execution or sufficiency of this Agreement or of any amendment or
supplement hereto.
7. SAC Representative.
------------------
7.1 The SAC Representative accepts and agrees to discharge diligently
the duties and responsibilities of the SAC Representative set forth in this
Agreement. SM&A and the Escrow Agent shall be entitled to rely upon the
authorization and designation of the SAC Representative under this SECTION 7.
7.2 The SAC Representative is authorized to take any action it deems
appropriate or necessary to carry out the provisions of, and to determine the
rights of the Shareholders under, this Agreement, including without limitation,
taking any action required or permitted under this Agreement to protect or
enforce the Shareholders' rights to the Escrow Shares/Escrow Funds. The SAC
Representative's authority includes but is not limited to:
(a) receiving all notices or other documents given or to be
given pursuant to this Agreement or in connection with the transactions
contemplated hereby;
(b) engaging special counsel, accountants, investment banks or
other advisors and incurring such other expenses in connection with the
Agreement and the transactions contemplated thereby as are required
therein;
(c) prosecuting and settling any dispute in connection with
the Agreement, including without limitation the resolution of any
disputes related to disbursements of the Escrow Shares/Escrow Funds;
and
(d) paying all expenses incurred in connection with the
Agreement and the transactions contemplated thereby out of the Escrow
Shares/Escrow Funds pursuant to SECTIONS 7.5 AND 7.8 below.
7.3 In the event of the death, resignation, discharge or incapacity of
the SAC Representative, Shareholders holding a majority of the Escrow
Shares/Escrow Funds shall appoint a successor SAC Representative. Such successor
SAC Representative shall be appointed by an instrument in writing signed by the
-7-
<PAGE>
requisite Shareholders, and such appointment shall become effective as to any
such successor SAC Representative when such instrument shall have been delivered
to such person, and that person has consented to such appointment.
7.4 The SAC Representative shall keep the Shareholders reasonably
informed of his decisions of a material nature.
7.5 The reasonable expenses (including the reasonable fees and
disbursements of counsel, accountants and advisors in connection with the
arbitration of a disputed claim or otherwise) incurred by the SAC Representative
in connection with his duties hereunder shall be paid for out of the Escrow
Shares/Escrow Funds by the Escrow Agent as provided in SECTION 7.8 below and in
an amount not to exceed $100,000. The SAC Representative shall keep adequate and
reasonable books and records of his expenses. Such payment shall not affect the
rights of either SM&A or the Shareholders under the Merger Agreement or SECTION
11 of this Agreement.
7.6 The SAC Representative shall diligently discharge his duties and
responsibilities under this Agreement. The SAC Representative shall not be
liable to the parties hereto or any Stockholder for any action taken or omitted
by the SAC Representative in good faith, or for any mistake of fact or law,
unless caused by his own gross negligence or willful misconduct. In no event
shall the SAC Representative be responsible or liable for special, indirect or
consequential loss or damages of any kind, regardless of the form of the action.
7.7 The SAC Representative shall be entitled to treat as genuine any
letter or other document furnished to him by SM&A or the Escrow Agent and
reasonably believed by it to be genuine and have been signed and presented by
the proper party or parties.
7.8 The SAC Representative shall not be entitled to any compensation
for services hereunder. To the extent the SAC Representative shall incur
out-of-pocket costs (including the reasonable fees and disbursements of counsel,
accountants and advisors in connection with the arbitration of a disputed claim
or otherwise) in the performance of his duties hereunder, the SAC Representative
shall be authorized to direct the Escrow Agent to reimburse the SAC
Representative for such reasonable expenses out of the Escrow Shares/Escrow
Funds in an amount not to exceed $100,000. The combination of Escrow Shares and
Escrow Funds paid to the SAC Representative hereunder shall be determined in
accordance with SECTION 3.1 hereof.
7.9 SM&A shall be entitled to treat as genuine any letter or other
document furnished to it by the SAC Representative or the Escrow Agent and
reasonably believed by it to be genuine and have been signed and presented by
the proper party or parties.
-8-
<PAGE>
8. Governing Law.
-------------
This Agreement is governed by the laws of the State of California
without regard to its conflict of law provisions, and shall inure to the benefit
of and be binding upon the successors, assigns, heirs and personal
representatives of the parties hereto. Service of process in any proceeding
arising under this Agreement (including service of process for the institution
of such proceeding) may be made by certified mail, return receipt requested,
directed to the respective party in accordance with SECTION 10 below.
9. Counterparts.
------------
This Agreement may be executed in one or more counterparts, all of
which documents shall be considered one and the same document.
10. Notices.
-------
Any notice or other communication required or permitted hereunder shall
be in writing and shall be deemed given when so delivered in person, by
overnight courier, by facsimile transmission (with receipt confirmed by
telephone or by automatic transmission report) or two business days after being
sent by registered or certified mail (postage prepaid, return receipt
requested), as follows:
To SM&A: Steven Myers & Associates, Inc.
4695 MacArthur Boulevard,
Eighth Floor
Newport Beach, California 92660
Attention: Chief Operating Officer
Telephone: 714-975-1550
Fax: 714-975-1624
With a copy to: Rutan & Tucker, LLP
611 Anton Boulevard, 14th Floor
Costa Mesa, California 92626
Attn: Thomas J. Crane, Esq.
Telephone: 714-641-5100
Fax: 714-546-9035
To SAC Representative: Stanley Y.H. Hee
25774 Piuma
Calabasas, California 91302
Telephone: 818-222-8771
Fax: 818-222-8771
-9-
<PAGE>
With a copy to: Rosenfeld, Meyer & Susman, LLP
9601 Wilshire Blvd, 4th Floor
Beverly Hills, CA 90210
Attn: David D. Wexler, Esq.
Telephone: 310-858-7700
Fax: 310-271-6430
To Escrow Agent: First American Trust Company
2161 San Joaquin Hills Road
Newport Beach, California 92660
Attn: Elizabeth A. Markworth
Telephone: (949) 719-4532
Fax: (714) 667-1613
Addresses may be changed by written notice given pursuant to this section. Any
notice given hereunder may be given on behalf of any party by his counsel or
other authorized representative.
11. Attorney's Fees.
---------------
In the event of any litigation among the parties hereto (including,
without limitation, any arbitration proceeding described in SECTION 4.2 above),
the prevailing party in such litigation or proceeding shall be entitled to
recover all costs incurred in connection therewith, including, without
limitation, reasonable attorneys fees, provided that the costs of any
arbitration proceeding shall be allocated in the manner set forth in SECTION
4.2.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement as of the date first stated above.
SM&A: STEVEN MYERS & ASSOCIATES, INC.,
a California corporation
By: /s/ Ken Colbaugh
------------------------------------
Kenneth Colbaugh,
Chief Operating Officer
SAC: SPACE APPLICATIONS CORPORATION,
a California corporation
By: /s/ Roger H. Skinner
------------------------------------
Roger H. Skinner, President
ESCROW AGENT: FIRST AMERICAN TRUST COMPANY
By: /s/ illegible signature
------------------------------------
Its: Trust Officer
-----------------------------------
By: /s/ Forrest West
------------------------------------
Its: Vice President
-----------------------------------
SAC REPRESENTATIVE: /s/ Stanley Y. H. Hee
---------------------------------------
STANLEY Y. H. HEE
SHAREHOLDERS: /s/ Stanley Y. H. Hee
---------------------------------------
STANLEY Y. H. HEE, as attorney-in-
fact for the Shareholders identified
on Schedule 4 hereto
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-11-
<PAGE>
SCHEDULE 1
Shareholders
------------
(attached hereto)
-12-
<PAGE>
SCHEDULE 2
Escrow Interests
----------------
Interest In
Stockholder Escrow Shares
----------- -------------
Allman, Betty B. 73
Bergen, Jodine L. 243
Berry, Debra D. 243
Boeshaar, Glenn V. 4,379
Bruce, Phillip 608
Dai, Dr. Kai K. 49
Dukellis, Peter John 182
Harms, John W. 730
Hee, Stanley 19,500
Hesprich, Glen V. 487
Kaun, Carl F. 730
Kelly, Anne S. 3,041
Knight, Wayne G. 24
Krueger, Dr. Robert W. 1,179
Kuseski, Richard A. 243
Livingston, William A. 487
Love, Glenn E. 243
Lu, Dr. Amos 1,217
Dr. Amos Lu, Trustee of the Amos
Lu Small Fund Living Trust 1,217
Lyle, Alred E. 1,946
Mast, Steven R. 243
Miller, Dr. Robert C. 2,555
Morrell, Robert 122
Murphy, Irene S. 24
Nelson, Patricia D. 243
Newell, John W. 973
Space Applications Corporation 3,768
Employer Stock Trust
Skinner, Roger H. 32,724
Smith, Clarence E. 2,043
Stringfellow, Janice G. 24
Welter, Thelma G. 2,433
Total 81,974
-13-
<PAGE>
SCHEDULE 3
Escrow Agent Fees
-----------------
(attached hereto)
-14-
<PAGE>
SCHEDULE 4
Shareholders For Whom Stanley Y. H. Hee is Attorney-In-Fact
-----------------------------------------------------------
(attached hereto)
-15-
<PAGE>
PROMISSORY NOTE
June 25, 1998
FOR VALUE RECEIVED, the undersigned Summit Aviation, Inc. ("SAI"), a California
corporation ("Debtor") HEREBY PROMISES TO PAY to the order of Steven Myers &
Associates, Inc. ("SM&A" or "Secured Party"), the principal sum of Eight Hundred
Eighty Thousand Dollars and 00/100 ($880,000.00) including interest as set forth
below under the terms and conditions described herein.
1. INTEREST RATE: This Promissory Note will bear a simple interest rate
at the prime rate, based on a 360-day calendar year, calculated and accrued
monthly on the unpaid principal balance. Interest is to accrue beginning June
25, 1998.
2. PAYMENT TERMS: Debtor shall pay the full principal balance and all
accrued interest no later than June 25, 1999.
3. PERIOD OF PROMISSORY NOTE: This Note is in effect and valid until
all accrued principal and interest has been paid to Secured Party.
4. PREPAYMENT OF PROMISSORY NOTE: This Note may be paid in full or in
part at any time without any prepayment penalties incurred by the Debtor.
5. COLLATERAL: This Note is secured by a first-priority security
interest in the 1978 Turbo Commander 690B-10 aircraft, Serial No. 11492, and
bearing FAA No. N691SM. Debtor holds a clear and properly registered title to
such aircraft.
As attested by the signatures below, both parties agree to the terms and
conditions as set forth above.
SUMMIT AVIATION, INC. STEVEN MYERS & ASSOCIATES, INC.
(DEBTOR) (SECURED PARTY)
By: /s/ STEVEN S. MYERS By: /s/ RONALD A. HUNN
------------------------------ ----------------------------
Name: Steven S. Myers Name: Ronald A. Hunn
Title: President Title: Chief Financial Officer
Tax ID#: 33-0727131 Tax ID#: 33-0080929
Date: June 25, 1998 Date: June 25, 1998
<PAGE>
CREDIT AND SECURITY AGREEMENT
SM&A CORPORATION
EACH OF THE FINANCIAL INSTITUTIONS INITIALLY A SIGNATORY
HERETO, TOGETHER WITH THOSE ASSIGNEES
PURSUANT TO SECTION 10.6
HEREOF, AS LENDERS,
AND
MELLON BANK, N.A., AS AGENT
SEPTEMBER 11, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
----
Article I DEFINITIONS..........................................................1
SECTION 1.1 Defined Terms....................................................1
SECTION 1.2 Other Definitional Provisions...................................12
Article II THE CREDIT.........................................................12
SECTION 2.1 The Revolving Loans.............................................12
SECTION 2.2 Making the Revolving Loans......................................13
SECTION 2.3 Repayment.......................................................16
SECTION 2.4 Interest Rate and Payment Dates.................................16
SECTION 2.5 Fees. ........................................................18
Article III GENERAL PROVISIONS CONCERNING THE LOANS...........................18
SECTION 3.1 Use of Proceeds.................................................18
SECTION 3.2 Computation of Interest and Fees................................18
SECTION 3.3 Payments........................................................18
SECTION 3.4 Apportionment, Application, and Reversal of Payments............19
SECTION 3.5 Reduced Return..................................................19
SECTION 3.6 Indemnities and Losses..........................................20
SECTION 3.7 Requirements of Law.............................................21
Article IV CONDITIONS OF LENDING..............................................22
SECTION 4.1 Conditions Precedent to Initial Loans...........................22
SECTION 4.2 Conditions Precedent to Each Borrowing..........................23
Article V REPRESENTATIONS AND WARRANTIES......................................24
i.
<PAGE>
SECTION 5.1 Representations and Warranties..................................24
Article VI COVENANTS..........................................................27
SECTION 6.1 Affirmative Covenants...........................................27
SECTION 6.2 Negative Covenants..............................................31
Article VII EVENTS OF DEFAULT.................................................34
SECTION 7.1 Events of Default...............................................34
SECTION 7.2 Remedies Cumulative.............................................38
Article VIII CREATION OF SECURITY INTEREST....................................38
SECTION 8.1 Grant of Security Interest......................................38
SECTION 8.2 Negotiable Collateral...........................................38
SECTION 8.3 Collection of Accounts, General Intangibles, and Negotiable
Collateral......................................................38
SECTION 8.4 Delivery of Additional Documentation Required...................38
SECTION 8.5 Power of Attorney...............................................39
SECTION 8.6 Right to Inspect................................................39
SECTION 8.7 Liability for Collateral........................................39
Article IX the AGENT; THE LENDER GROUP........................................40
SECTION 9.1 Appointment and Authorization of Agent..........................40
SECTION 9.2 Delegation of Duties............................................40
SECTION 9.3 Liability of Agent..............................................41
SECTION 9.4 Reliance by Agent...............................................41
SECTION 9.5 Notice of Default or Event of Default...........................41
SECTION 9.6 Credit Decision.................................................42
SECTION 9.7 Costs and Expenses; Indemnification.............................42
SECTION 9.8 Agent in Individual Capacity....................................43
ii
<PAGE>
SECTION 9.9 Successor Agent.................................................43
SECTION 9.10 Withholding Tax.................................................43
SECTION 9.11 Collateral Matters..............................................45
SECTION 9.12 Restrictions on Actions by Lenders; Sharing of Payments.........45
SECTION 9.13 Agency for Perfection...........................................46
SECTION 9.14 Payments by Agent to the Lenders................................46
SECTION 9.15 Concerning the Collateral and Related Loan Documents............46
SECTION 9.16 Several Obligations; No Liability...............................47
SECTION 9.17 Holders of Notes................................................47
SECTION 9.18 Calculations....................................................47
Article X MISCELLANEOUS.......................................................47
SECTION 10.1 Amendments, Etc.................................................47
SECTION 10.2 Notices, Etc....................................................48
SECTION 10.3 Right of Setoff.................................................49
SECTION 10.4 No Waiver; Remedies.............................................49
SECTION 10.5 Costs and Expenses..............................................49
SECTION 10.6 Assignments and Participations..................................49
SECTION 10.7 Effectiveness: Binding Effect...................................52
SECTION 10.8 Governing Law; Choice of Forum; Service of Process; Jury
Trial Waiver....................................................52
SECTION 10.9 Waiver of Notices...............................................53
SECTION 10.10 Destruction of Borrower's Documents.............................53
SECTION 10.11 Entire Agreement................................................53
SECTION 10.12 Severability of Provisions......................................53
SECTION 10.13 Execution in Counterparts.......................................53
iii
<PAGE>
SCHEDULES AND EXHIBITS
Exhibit A-1 Form of Assignment and Acceptance
Exhibit RN-1 Form of Promissory Note
Schedule C-1 Lenders and Commitment Amounts
Schedule 5.1(f) Litigation
Schedule 5.1(i) Environmental Matters
Schedule 6.1(j) Location of Inventory and Equipment
Schedule 6.2(e) Permitted Liens
iv
<PAGE>
CREDIT AND SECURITY AGREEMENT
THIS CREDIT AND SECURITY AGREEMENT dated as of September 11, 1998 is
entered into between SM&A CORPORATION, a California corporation (the
"BORROWER"), the financial institutions listed on the signature pages hereof
(such financial institutions, together with their respective successors and
assigns, are referred to herein each individually as a "LENDER" and collectively
as the "LENDERS"), and MELLON BANK, N.A., as agent for the Lenders (in such
capacity, the "AGENT"). The Borrower , the Lenders, and the Agent agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINED TERMS.
As used in this Agreement, the following terms have the following
meanings:
"ACCOUNT DEBTOR" means any Person who is or who may become obligated
under, with respect to, or on account of, an Account, General Intangible, or
Negotiable Collateral.
"ACCOUNTS" means all currently existing and hereafter arising accounts,
contract rights, and all other forms of obligations owing to the Borrower
arising out of the sale, license, or lease of goods or General Intangibles or
the rendition of services by the Borrower, irrespective of whether earned by
performance, and any and all credit insurance, guaranties, or security therefor.
"ACQUISITION": Any transaction or series of transactions by which the
Borrower acquires, either directly or through an Affiliate or Subsidiary or
otherwise, (a) any or all of the stock or other securities of any class of any
Person or (b) a substantial portion of the assets, or a division or line of
business or any Person.
"ACQUISITION PURCHASE PRICE": The sum of (without duplication) (a) the
outstanding principal of all Indebtedness incurred, (b) all obligations assumed
or incurred (including, without limitation, payments paid or to be paid under
non-competition agreements in connection with the Acquisition, and obligations
with respect to Indebtedness assumed by operation of law pursuant to a merger or
business combination, but excluding contingent indemnity obligations and
obligations related to the breach of representations, warranties or agreements),
and (c) all amounts paid and the fair market value of any securities or other
property transferred or to be transferred or services rendered or to be rendered
in connection with the Acquisition; and in the case of clause (a) the proceeds
of such Indebtedness (whether incurred as debt or a contingent obligation) are
used directly in connection with the Acquisition or indirectly (by way of loans
or advances to a Subsidiary or Affiliate or capital contribution to a Subsidiary
or Affiliate or otherwise) to fund any costs (including without limitation, the
payment of purchase price) incurred in connection therewith; and in the case of
clause (b) such obligations are assumed directly or indirectly with respect to
the Acquisition. The determination of the Acquisition Purchase Price of a
specific transaction shall not include that portion of the consideration paid or
to be paid in connection with the Acquisition in the common stock or common
stock equivalents of the Borrower.
1.
<PAGE>
"AFFILIATE": As applied to any Person, any other Person who, directly
or indirectly, controls, is controlled by, is under common control with, or is a
director or officer of such Person.
"AGENT": As set forth in the introductory paragraph of this Agreement.
"AGENT'S LIENS": The Liens on the Collateral granted by the Borrower to
the Agent for the benefit of the Lender Group under this Agreement pursuant to
SECTION 8.1 and the other Loan Documents.
"AGENT-RELATED PERSONS": The Agent and any successor agent together
with their respective Affiliates, and the officers, directors, employees,
counsel, agents, and attorneys-in-fact of such Persons and their Affiliates.
"AGREEMENT": This Credit Agreement, as amended, supplemented or
modified from time to time.
"APPLICABLE MARGIN": With respect to each Prime Rate Portion, the
Applicable Margin set forth in the applicable table below as in effect from time
to time, and with respect to each Libor Rate Portion, the Applicable Margin set
forth in the applicable table below as in effect on the first day of each Rate
Period for such Libor Rate Portions for such Rate Period; in each case,
determined based on the ratio of Indebtedness to EBIT as of the end of each
fiscal quarter of the Borrower for the period of the four consecutive fiscal
quarters of the Borrower ending on that date:
<TABLE>
<CAPTION>
LEVEL I LEVEL II LEVEL III LEVEL IV
------- -------- --------- --------
<S> <C> <C> <C> <C>
Indebtedness/EBIT less than/equal to greater than greater than greater than
1.00:1.00 1.00:1.00 and 1.50:1.00 and 2.00:1.00
less than/equal to less than/equal to
1.50:1.00 2.00:1.00
Libor Rate Portion 125 bps 150 bps 175 bps 200 bps
Prime Rate Portion 0 bps 0 bps 0 bps 0 bps
</TABLE>
Notwithstanding the foregoing, the Applicable Margin shall not be
adjusted for any quarter until up to five Business Days (as determined by the
Agent in its sole discretion) after receipt by the Agent of the financial
statements and certificates required to be delivered to it under SUBSECTIONS
6.1(a)(ii) and 6.1(a)(iii) for the prior fiscal quarter. If the Borrower has not
furnished the financial statements and certificates required under SUBSECTIONS
6.1(a)(ii) and 6.1(a)(iii) for any fiscal quarter, the Applicable Margin shall
be calculated as if the Indebtedness/EBIT ratio as of the last day of such
fiscal quarter was the same as the Indebtedness/EBIT ratio was for the
immediately preceding fiscal quarter; PROVIDED, that upon delivery to the Agent
of the required financial statements and certificates, the Applicable Margin
shall be adjusted as of the day that it should have been adjusted had the
2.
<PAGE>
Borrower complied with the requirements of SUBSECTIONS 6.1(a)(ii) and
6.1(a)(iii). During the period from the date hereof through the date that is
five Business Days following receipt by the Agent of the first quarterly
financial statements delivered to the Agent after the date hereof in which the
Indebtedness/EBIT ratio is reported the Level I Applicable Margin shall apply
irrespective of the Indebtedness/EBIT ratio. Thereafter, the Applicable Margin
shall be determined as set forth above.
"APPLICABLE UNUSED LINE RATE": As of any date for which the Unused Line
Fee is being determined, the Unused Line Rate set forth in the table below for
the corresponding Indebtedness/EBIT Ratio for the period of four consecutive
fiscal quarters of the Borrower ending as of the last day of the fiscal quarter
immediately preceding such date of determination:
<TABLE>
<CAPTION>
LEVEL I LEVEL II LEVEL III
------- -------- ---------
<S> <C> <C> <C>
Indebtedness/EBIT less than/equal to greater than greater than
Ratio 1.00:1.00 1.00:1.00 and 2.00:1.00
less than/equal to
2.00:1.00
Unused Line Rate 20 bps 25 bps 30 bps
</TABLE>
Notwithstanding the foregoing, the Applicable Unused Line Rate shall not be
adjusted for any quarter until up to five Business Days (as determined by the
Agent in its sole discretion) after receipt by the Agent of the financial
statements and certificates required to be delivered to it under SUBSECTIONS
6.1(a)(ii) and 6.1(a)(iii) for the prior fiscal quarter. If the Borrower has not
furnished the financial statements and certificates required under SUBSECTIONS
6.1(a)(ii) and 6.1(a)(iii) for any fiscal quarter, the Unused Line Rate shall be
calculated as if the Indebtedness/EBIT ratio as of the last day of such fiscal
quarter was the same as the Indebtedness/EBIT ratio was for the immediately
preceding fiscal quarter; PROVIDED, that upon delivery to the Agent of the
required financial statements and certificates, the Applicable Unused Line Rate
shall be adjusted as of the day that it should have been adjusted had the
Borrower complied with the requirements of SUBSECTIONS 6.1(a)(ii) and
6.1(a)(iii). During the period from the date hereof through the date that is
five Business Days following receipt by the Agent of the first quarterly
financial statements delivered to the Agent after the date hereof in which the
Indebtedness/EBIT ratio is reported the Level I Unused Line Rate shall apply
irrespective of the Indebtedness/EBIT ratio. Thereafter, the Applicable Unused
Line Rate shall be determined as set forth above.
"ASSIGNEE": As defined in SECTION 10.6.
"ASSIGNMENT AND ACCEPTANCE": An Assignment and Acceptance in the form
of EXHIBIT A-1 attached hereto.
"BANKRUPTCY CODE" means the United States Bankruptcy Code (11 U.S.C.
ss. 101 et seq.), as amended, and any successor statute.
"BORROWER": As set forth in the introductory paragraph of this
Agreement.
"BORROWER'S BOOKS" means all of the Borrower's books and records
including: ledgers; records indicating, summarizing, or evidencing the
Borrower's properties or assets (including the Collateral) or liabilities; all
information relating to the Borrower's business operations or financial
condition; and all computer programs, disk or tape files, printouts, runs, or
other computer prepared information.
3.
<PAGE>
"BORROWING": As defined in SECTION 2.1.
"BUSINESS DAY": Any day on which the Agent is open for business at the
location where the Note is payable unless otherwise stated.
"CAPITAL EXPENDITURES": As applied to any Person, all expenditures made
and liabilities incurred for the acquisition of any fixed asset or improvement,
replacement, substitution or addition thereto which has a useful life of more
than one year and including, without limitation, those arising in connection
with Capital Leases.
"CAPITAL LEASES": As applied to any Person, any lease of any property
(whether real, personal or mixed) by that Person as lessee which would, in
accordance with GAAP, be required to be accounted for as a capital lease on the
balance sheet of that Person.
"CHANGE OF CONTROL": Shall be deemed to have occurred at such times as:
(a) a "person" or "group" (within the meaning of SECTIONS 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934), becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of more than thirty percent (30%) of the total voting power of all
classes of stock then outstanding of Borrower normally entitled to vote in the
election of directors; or (b) the Borrower shall fail to own directly one
hundred percent (100%) or more of the issued and outstanding common stock of any
Guarantor or shall lose voting control of the issued and outstanding common
stock of any Guarantor.
"CODE": The California Uniform Commercial Code.
"COLLATERAL" means all of Borrower's right, title, and interest in and
to each of the following:
(a) the Accounts,
(b) Borrower's Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Negotiable Collateral,
(g) Investment Property,
(h) any money, or other assets of the Borrower that now or hereafter
come into the possession, custody, or control of any member of the Lender Group,
and
4.
<PAGE>
(i) the proceeds and products, whether tangible or intangible, of
any of the foregoing, including proceeds of insurance covering any or all of the
Collateral, and any and all Accounts, Borrower's Books, Equipment, General
Intangibles, Inventory, Negotiable Collateral, money, deposit accounts, or other
tangible or intangible property resulting from the sale, exchange, collection,
or other disposition of any of the foregoing, or any portion thereof or interest
therein, and the proceeds thereof.
"COLLECTIONS" means all cash, checks, notes, instruments, and other
items of payment (including, insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds).
"COMMITMENT": At any time with respect to a Lender, the principal
amount set forth beside such Lender's name under the heading "Commitment" on
SCHEDULE C-1 attached hereto or on the signature page of the Assignment and
Acceptance pursuant to which such Lender became a Lender hereunder in accordance
with the provisions of SECTION 10.6, and "COMMITMENTS" means, collectively, the
aggregate amount of the commitments of all of the Lenders.
"CONSOLIDATED INTEREST EXPENSE": For any period shall mean total
interest expense (including amounts properly attributable to Capital Leases in
accordance with GAAP) of Borrower and its Subsidiaries on a consolidated basis
for such period determined in conformity with GAAP.
"CONSOLIDATED TANGIBLE NET WORTH": At any date of determination, the
sum of the capital stock, additional paid-in capital and any indebtedness of the
Borrower or its Subsidiaries subordinated as to payment and performance to the
obligations of Borrower to the Lender Group hereunder on terms and conditions
acceptable to the Agent, plus retained earnings (or minus accumulated deficit)
of the Borrower and its consolidated Subsidiaries, MINUS (i) treasury stock,
(ii) intangible assets (including, without limitation, franchises, patents,
patent applications, trademarks, brand names, goodwill, purchased contracts and
deferred charges (including unammortized debt discount and expense and
organization costs) and (iii) receivables, advances, loans and all other amounts
due from employees, officers, shareholders, non-consolidated Subsidiaries and/or
affiliates, on a consolidated basis determined in conformity with GAAP.
"DAILY BALANCE": The amount of Loans owed at the end of a given day.
"DOLLARS AND $": Dollars in lawful currency of the United States of
America.
"EBIT": For any period, the consolidated net income of Borrower and its
Subsidiaries before interest expense and provision for income taxes and without
giving effect to any extraordinary gains and gains from sales of assets (other
than sales of inventory in the ordinary course of business), for such period.
"EQUIPMENT" means all of the Borrower's present and hereafter acquired
machinery, machine tools, motors, equipment, furniture, furnishings, fixtures,
vehicles (including motor vehicles and trailers), tools, parts, goods (other
than consumer goods, farm products, or Inventory), wherever located, including,
(a) any interest of the Borrower in any of the foregoing, and (b) all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing.
5.
<PAGE>
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended to the date hereof and from time to time hereafter and any successor
statute.
"ERISA AFFILIATE": As applied to any Person, any trade or business
(whether or not incorporated) which is a member of a group of which that Person
is a member and which is under common control within the meaning of SECTION
414(b) and (c) of the Internal Revenue Code.
"EVENTS OF DEFAULT": Has the meaning set forth in SECTION 7.1.
"FEDERAL FUNDS RATE": For any day, the rate set forth in the weekly
statistical release designated as H.15(519), or any successor publication,
published by the Federal Reserve Bank of New York (including any such successor,
"H.15(519)") on the preceding Business Day opposite the caption "Federal Funds
(Effective)"; or, if for any relevant day such rate is not so published on any
such preceding Business Day, the rate for such day will be the arithmetic mean
as determined by the Agent of the rates for the last transaction in overnight
Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by
each of three leading brokers of Federal funds transactions in New York City
selected by the Agent.
"FEE LETTER": The letter dated September 11, 1998 between the Borrower
and Mellon providing for the payment of certain fees in connection with this
Agreement.
"FUNDING DATE": The date on which a Borrowing occurs.
"GAAP": Generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession or any public commission having regulatory responsibility over the
Borrower or any Subsidiary.
"GENERAL INTANGIBLES": means all of the Borrower's present and future
general intangibles and other personal property (including contract rights,
rights arising under common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, rights to payment and other rights under any
royalty or licensing agreements, infringement claims, computer programs,
information contained on computer disks or tapes, literature, reports, catalogs,
deposit accounts, insurance premium rebates, tax refunds, and tax refund
claims), other than goods, Accounts, and Negotiable Collateral.
"GUARANTORS": Any Material Subsidiary of the Borrower, as determined by
the Agent, organized under the laws of the United States of America or any
political subdivision thereof.
6.
<PAGE>
"INDEBTEDNESS": With respect to the Borrower, all obligations,
contingent or otherwise, that in accordance with GAAP should be classified upon
the Borrower's balance sheet as liabilities, including in any event and whether
so classified: (a) all obligations for borrowed money, (b) all obligations
evidenced by bonds, debentures, notes, or other similar instruments and all
reimbursement or other obligations in respect of letters of credit, bankers
acceptances, interest rate swaps, or other financial products, (c) all
obligations under capital leases or with respect to the deferred purchase price
for goods and services, (d) all obligations or liabilities of others secured by
a Lien on any property or asset of the Borrower, irrespective of whether such
obligation or liability is assumed, and (e) any obligation of the Borrower
guaranteeing or intended to guarantee (whether guaranteed, endorsed, co-made,
discounted, or sold with recourse to the Borrower) any indebtedness, lease,
dividend, letter of credit, or other obligation of any other Person.
"INDEMNIFIED LIABILITIES": Has the meaning set forth in SECTION 3.6.
"INDEMNIFIED PERSON": Has the meaning set forth in SECTION 3.6.
"INTEREST COVERAGE RATIO": For any period of determination, the ratio
of (a) EBIT, to (b) Interest Expense, in each case determined for said period in
accordance with GAAP.
"INTEREST EXPENSE": For any period of determination, the aggregate
consolidated amount, without duplication, of interest paid, accrued or scheduled
to be paid in respect of any Indebtedness of the Borrower, including (a) all but
the principal component of payments in respect of conditional sale contracts,
Capital Leases and other title retention agreements, (b) commissions, discounts
and other fees and charges with respect to letters of credit and bankers'
acceptance financings and (c) net costs under interest rate protection
agreements, in each case determined in accordance with GAAP.
"INTEREST RATE OPTIONS": Has the meaning set forth in SECTION 2.4(b).
"INTERNAL REVENUE CODE": The Internal Revenue Code of 1986, as amended
to the date hereof and from time to time hereafter and any successor statute.
"INVENTORY" means all present and future inventory in which the
Borrower has any interest, including goods held for sale or lease or to be
furnished under a contract of service, wherever located.
"INVESTMENT PROPERTY" means "investment property" as that term is
defined in Section 9115 of the Code.
"LENDER" and "LENDERS": As set forth in the introductory paragraph of
this Agreement.
"LENDER GROUP": Individually and collectively, each of the Lenders and
the Agent.
"LENDER GROUP EXPENSES": Has the meaning set forth in SECTION 10.5.
7.
<PAGE>
"LIEN": Any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to give
any security interest).
"LIBOR RATE": For any day for any proposed or existing Rate Segment
corresponding to a Rate Period shall mean the rate per annum determined by the
Agent to be the rate per annum obtained by dividing (the resulting quotient to
be rounded upward to the nearest 1/16 of 1%) (A) the rate of interest (which
shall be the same for each day in such Rate Period) estimated in good faith by
the Agent in accordance with its usual procedures (which determination shall be
conclusive) to be the average of the rates per annum for deposits in United
States dollars offered to major money center banks in the London interbank
market at approximately 11:00 a.m., London time, two London Business Days prior
to the first day of such Rate Period for delivery on the first day of such Rate
Period in amounts comparable to such Rate Segment (or, if there are no such
comparable amounts actively traded, the smallest amounts actively traded) and
have maturities comparable to such Rate Period by (B) a number equal to 1.00
minus the Libor Rate Reserve Percentage for such day.
The "LIBOR RATE" may also be expressed by the following formula:
[average of rates offered to major
money banks in the London inter-
Libor Rate = bank market estimated by the Bank]
----------------------------------
[1.00 - Libor Rate Reserve Percentage]
"LIBOR RATE OPTION": Has the meaning set forth in SECTION 2.4(b).
"LIBOR RATE RESERVE PERCENTAGE": For any day shall mean the percentage
(rounded upward to the nearest 1/16 of 1%), as determined in good faith by the
Agent (which determination shall be conclusive) as representing for such day the
maximum effective reserve requirement (including, without limitation,
supplemental, marginal and emergency requirements) for member banks of the
Federal Reserve System with respect to eurocurrency funding (currently referred
to as "EUROCURRENCY LIABILITIES") of any maturity. Each Libor Rate shall be
adjusted automatically as of the effective date of any change in the Libor Rate
Reserve Percentage.
"LOAN ACCOUNT": An account maintained by the Agent on its books in the
name of Borrower on which Borrower will be charged with all advances made by
Agent or the Lenders to Borrower or for Borrower's account, including, accrued
interest, Lender Group Expenses, and any other payment Obligations of Borrower.
"LOANS": Loans made to the Borrower pursuant to SECTION 2.1.
"LOAN DOCUMENTS": This Agreement, the Note(s) and each guarantee,
including, but not limited to, the guaranties of the Guarantors, the Fee Letter,
and other document required by the Lender Group in connection with this
Agreement and/or the credit extended hereunder.
8.
<PAGE>
"LONDON BUSINESS DAY": A day for dealing in deposits in Dollars by and
among banks in the London interbank market.
"MATERIAL SUBSIDIARY": means, (a) Science Applications Corporation, a
California corporation, (b) Decision-Science Applications, Inc., a California
corporation, and (c) any other Subsidiary of the Borrower (i) which has an
individual net worth which equals or exceeds, at the relevant time period, ten
percent (10%) of the net worth of Borrower and all of its Subsidiaries on a
consolidated basis (including such Subsidiary), (ii) which has a pre-tax income
which equals or exceeds, as of the relevant time period, ten percent (10%) of
the pre-tax income of Borrower and all of its Subsidiaries on a consolidated
basis (including such Subsidiary) or (iii) the divestiture of which by Borrower
otherwise could reasonably be expected to have a material adverse effect on the
business, operations, assets or financial condition of the Borrower or of the
Borrower and its Subsidiaries taken as a whole (regardless of its relative net
worth).
"MATURITY DATE": September 10, 2001.
"MELLON": Mellon Bank, N.A., a national banking association.
"NEGOTIABLE COLLATERAL" means all of a Person's present and future
letters of credit, notes, drafts, instruments, Investment Property, documents,
personal property leases (wherein such Person is the lessor), chattel paper, and
books or records relating to any of the foregoing.
"NOTES": The Revolving Notes.
"OBLIGATIONS": All loans, Revolving Loans, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), premiums, liabilities (including all amounts charged to the
Borrower's Loan Account pursuant hereto), obligations, fees, charges, costs, or
Lender Group Expenses (including any fees or expenses that, but for the
provisions of the Bankruptcy Code, would have accrued), lease payments,
guaranties, covenants, and duties owing by the Borrower to the Lender Group of
any kind and description (whether pursuant to or evidenced by the Loan Documents
or pursuant to any other agreement between the Lender Group and the Borrower,
and irrespective of whether for the payment of money), whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including any debt, liability, or obligation owing from
the Borrower to others that the Lender Group may have obtained by assignment or
otherwise, and further including all interest not paid when due and all Lender
Group Expenses that the Borrower is required to pay or reimburse by the Loan
Documents, by law, or otherwise.
"PARTICIPANT": As defined in SECTION 10.6(e).
"PBGC": The Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA.
"PERMITTED ACQUISITIONS": Permitted Acquisitions shall mean (a) an
Acquisition for an Acquisition Purchase Price in an amount not to exceed
$13,000,000 with respect to any specific Acquisition (whether in a single
transaction or in a series of related transactions); PROVIDED, HOWEVER, that the
aggregate Acquisition Purchase Price paid with respect to all Permitted
Acquisitions during any 12 month period shall not exceed $20,000,000; and
PROVIDED FURTHER, HOWEVER, that each Acquisition to be a Permitted Acquisition
shall satisfy the following requirements: (i) no Potential Event of Default or
Event of Default shall be outstanding at the time of the Acquisition or would
occur on the consummation thereof; (ii) the Person which is the subject of the
Acquisition shall have been engaged in a line or lines of business which are the
same, or substantially similar to or complementary with the lines of business
conducted at the time of the Acquisition by the Borrower; (iii) the Borrower
shall have demonstrated to the reasonable satisfaction of the Agent, that the
Borrower, on a consolidated basis going forward and after giving effect to the
Acquisition, will be in compliance on a pro forma basis, with the financial
covenants set forth in SECTION 6.2 hereof; and (iv) the Acquisition shall not
9.
<PAGE>
have been the result of a hostile tender offer or other action contrary to the
decisions of the board of directors or shareholders of the Person that is the
subject of the Acquisition; (b) the Acquisition, effective as of August 20,
1998, by the Borrower of all of the issued and outstanding capital stock of
Decision - Science Applications, Inc., a Virginia corporation, for an aggregate
Acquisition Purchase Price not to exceed $30,900,000; and (c) Acquisitions that
do not satisfy clause (a) or (b) hereof but are approved by the Required
Lenders.
"PERSON": An individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture, governmental authority or other entity of whatever nature.
"PLAN": Any employee pension benefit plan maintained or contributed to
by the Borrower or any ERISA Affiliate of the Borrower and insured by the
Pension Benefit Guaranty Corporation under Title IV of ERISA.
"PORTION": "PRIME RATE PORTION" shall mean at any time, the part,
including the whole, of the unpaid principal amount of the Note bearing interest
at such time under the Prime Rate Option, in accordance with the first sentence
of SECTION 2.4(b) hereof, or in accordance with SECTION 2.f(f) hereof. "LIBOR
RATE PORTION" shall mean at any time, the part, including the whole, of the
unpaid principal amount of the Note bearing interest at such time under the
Libor Rate Option, in accordance with the second sentence of SECTION 2.4(b)
hereof.
"POTENTIAL EVENT OF DEFAULT": A condition or event which, after notice
or lapse of time or both, would constitute an Event of Default if that condition
or event were not cured or removed within any applicable grace or cure period.
"PRIME RATE": The interest rate per annum announced from time to time
by the Agent as its Prime Rate. The Prime Rate may be greater or less than other
interest rates charged by the Agent to other borrowers and is not solely based
or dependent upon the interest rate which the Agent may charge any particular
borrower or class of borrowers. Information concerning the Prime Rate may be
obtained from the Agent.
"PRIME RATE OPTION": Has the meaning set forth in SECTION 2.4(b).
"PRO RATA SHARE" means: the percentage obtained by dividing (i) such
Lender's Commitment to make Revolving Loans, as set forth on SCHEDULE C-1, by
(ii) all such Commitments of all Lenders to make Revolving Loans, as set forth
on SCHEDULE C-1;
"RATE PERIOD": As defined in SECTION 2.4(c).
"RATE SEGMENT": Of the Libor Rate Portion at any time shall mean the
entire principal amount of such Portion to which at such time there is
applicable a particular Rate Period beginning on a particular day and ending on
another particular day. (By definition, each Portion is at all times composed of
an integral number of discrete Rate Segments, each corresponding to a particular
Rate Period, and the sum of the principal amounts of all Rate Segments of a
particular Portion at any time equals the principal amount of such Portion at
such time).
10.
<PAGE>
"REAL PROPERTY" means any estates or interests in real property now
owned or hereafter acquired by Borrower.
"REGULATION T, U AND X": Regulations T, U and X, respectively,
promulgated by the Board of Governors of the Federal Reserve System, as amended
from time to time, and any successors thereto.
"REQUIRED LENDERS" means, at any time, Lenders whose Pro Rata Shares
aggregate 66.67% of the Commitment, or if the Commitments have been terminated
irrevocably, 66.67% of the Obligations then outstanding.
"REVOLVING COMMITMENT": The amount of $25,000,000, as such amount may
be reduced pursuant to SECTION 2.1(b).
"REVOLVING FACILITY USAGE" means, as of any date of determination, the
sum of the aggregate amount of Revolving Loans outstanding.
"REVOLVING LOANS": As defined in SECTION 2.1(a).
"REVOLVING NOTE": As defined in SECTION 2.1(d).
"S.E.C.": The United States Securities and Exchange Commission and any
successor institution or body which performs the functions or substantially all
of the functions thereof.
"SETTLEMENT DATE" has the meaning set forth in SECTION 2.2(c)(ii).
"SOLVENT": When used with respect to any Person, that as of the date as
to which the Person's solvency is to be measured:
(i) the fair saleable value of its assets is in excess of
the total amount of its liabilities (including
contingent liabilities) as they become absolute and
matured;
(ii) it has sufficient capital to conduct its business; and
(iii) it is able to meet its debts as they mature.
"STANDARD NOTICE": An irrevocable notice provided by the Borrower to
the Agent on a Business Day which is:
(i) at least one Business Day in advance in the case of
selection of, conversion to or renewal of the Prime
Rate Option or prepayment of any Prime Rate Portion;
and
(ii) at least three London Business Days in advance in the
case of selection of, conversion to or renewal of the
Libor Rate Option or prepayment of any Libor Rate
Portion.
11.
<PAGE>
Standard Notice must be provided no later than 12:00 p.m., Los Angeles time, on
the last day permitted for such notice.
"SUBSIDIARY": A corporation, partnership, limited liability company or
other entity of which shares of stock, or any other "equity security", having
ordinary voting power (other than stock having such power only by reason of the
happening of a contingency) to elect a majority of the board of directors or
other managers of such entity are at the time owned, directly, or indirectly
through one or more intermediaries, or both, by the Borrower.
"UNUSED LINE FEE": As defined in SECTION 2.5(b).
"YEAR 2000 COMPLIANT": With regard to any Person, that all software in
goods produced or sold by, or utilized by and material to the business
operations or financial condition of, such entity are able to interpret and
manipulate data on and involving all calendar dates correctly and without
causing any abnormal ending scenario, including in relation to dates in and
after the Year 2000.
SECTION 1.2 OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Agreement shall have the defined meanings
when used in the Notes or any certificate or other document made or delivered
pursuant hereto.
(b) As used herein and in the Notes, and any certificate or other
document made or delivered pursuant hereto, accounting terms not defined in
SUBSECTION 1.1, and accounting terms partly defined in SUBSECTION 1.1 to the
extent not defined, shall have the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section, subsection,
schedule and exhibit references are to this Agreement unless otherwise
specified.
ARTICLE II
THE CREDIT
SECTION 2.1 THE REVOLVING LOANS.
(a) THE REVOLVING COMMITMENT. Each Lender agrees, severally and not
jointly, on the terms and conditions hereinafter set forth, to make loans
("REVOLVING LOANS") to the Borrower from time to time during the period from the
date hereof to and including the Maturity Date in an aggregate amount not to
exceed such Lender's Pro Rata Share of the Revolving Commitment, as such amount
may be reduced pursuant to SECTION 2.1(b). Each borrowing under this SECTION
2.1(a) shall be in a minimum amount of $1.00; provided that every selection of,
conversion to or renewal of the Libor Rate Option shall be in a minimum
principal amount of $500,000 or an integral multiple of $100,000 above such
amount. Within the limits of the Revolving Commitment and prior to the Maturity
Date, the Borrower may borrow, repay pursuant to SECTION 2.2(b) and reborrow
under this Section.
12.
<PAGE>
(b) REDUCTION OF THE REVOLVING COMMITMENT. The Borrower shall have the
right, upon at least two Business Days' notice to the Agent, to terminate in
whole or reduce permanently in part the unused portion of the Revolving
Commitment, without premium or penalty, provided that each partial reduction
shall be in the aggregate amount of $100,000 or an integral multiple thereof and
that such reduction shall not reduce the Revolving Commitment to an amount less
than the amount outstanding hereunder on the effective date of the reduction.
Such notice shall be irrevocable and such reduction shall not be reinstated.
Upon the effectiveness of such reduction in the Revolving Commitment, each
Lender's Commitment shall be reduced ratably.
(c) REVOLVING NOTES. The Loans made by the Lender Group pursuant hereto
shall be evidenced by one or more promissory notes of the Borrower,
substantially in the form of EXHIBIT RN-1, with any appropriate insertions (the
"REVOLVING NOTES"), payable to the order of each Lender and representing the
obligation of the Borrower to pay the aggregate unpaid principal amount of all
Revolving Loans made by such Lender, with interest thereon as prescribed in
SECTION 2.4. Each Lender is hereby authorized to record in its books and records
and on any schedule annexed to the Revolving Notes, the date and amount of each
Revolving Loan made by such Lender, and the date and amount of each payment of
principal thereof, and in the case of Libor Rate Option Loans, the Libor Rate,
the Libor Rate Portion, and the Rate Period with respect thereto, and any such
recordation shall constitute PRIMA FACIE evidence of the accuracy of the
information so recorded; provided that failure by such Lender to effect such
recordation shall not affect the Borrower's obligations hereunder.
(d) LIMITATION ON REVOLVING LOANS. The Lenders shall have no obligation
to make Revolving Loans hereunder to the extent they would cause the outstanding
amount of Revolving Loans to exceed the Revolving Commitment.
SECTION 2.2 MAKING THE REVOLVING LOANS.
(a) NOTICE TO AGENT. The Borrower may borrow under the Revolving
Commitment on any Business Day, provided that the Borrower shall give the Agent
Standard Notice specifying (i) the amount of the proposed Borrowing and (ii) the
requested date of the Borrowing. The Standard Notice may be given in writing
(including facsimile transmission) signed by one (1) authorized officer of the
Borrower or orally, but if the Standard Notice is provided orally, the Standard
Notice shall be given by 11:00 a.m. and the Borrower shall confirm the oral
Standard Notice on the same day in writing (including facsimile transmission) no
later than 12:00 noon, Los Angeles time, and any conflict regarding a written or
oral notice and the Agent's books and records applicable to the same Borrowing
shall be conclusively determined by the Agent's books and records. Neither the
Agent nor the Lenders shall incur any liability to the Borrower in acting upon
any oral or written notice of Borrowing which the Agent believes in good faith
to have been given by a Person duly authorized to borrow on behalf of the
Borrower.
(b) DISBURSEMENT OF FUNDS. The Agent may, on behalf of the Lenders,
disburse funds to the Borrower for Loans requested. Each Lender shall reimburse
the Agent on demand for all funds disbursed on its behalf by the Agent, or if
the Agent so requests, each Lender will remit to the Agent its Pro Rata Share of
any Loan before the Agent disburses same to Borrower. If the Agent elects to
require that each Lender make funds available to the Agent, prior to a
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disbursement by the Agent to Borrower, the Agent shall advise each Lender by
telephone or telecopy of the amount of such Lender's Pro Rata Share of the Loan
requested by Borrower no later than 1:00 p.m. (Los Angeles time) on the Business
Day immediately preceding the requested Funding Date applicable thereto, and
each such Lender shall pay the Agent such Lender's Pro Rata Share of such
requested Loan, in same day funds, by wire transfer to the Agent's account on
such Funding Date. If any Lender fails to pay the amount of its Pro Rata Share
within 1 Business Day after the Agent's demand, the Agent shall promptly notify
the Borrower, and the Borrower shall immediately repay such amount to the Agent.
Any repayment required pursuant to this SECTION 2.2(b) shall be without premium
or penalty. Nothing in this SECTION 2.2(b) or elsewhere in this Agreement or the
other Loan Documents, including the provisions of SECTION 2.2(c), shall be
deemed to require the Agent to advance funds on behalf of any Lender or to
relieve any Lender from its obligation to fulfill its Commitments hereunder or
to prejudice any rights that the Agent or the Borrower may have against any
Lender as a result of any default by such Lender hereunder.
(c) SETTLEMENTS.
(i) The Revolving Facility Usage may fluctuate from day to day
through the Agent's disbursement of funds to, and receipt of funds from, the
Borrower. In order to minimize the frequency of transfers of funds between the
Agent and each Lender notwithstanding terms to the contrary set forth herein,
Revolving Loans and payments will be settled among the Agent and the Lenders
according to the procedures described in this SECTION 2.2(c). These procedures
notwithstanding, each Lender's obligation to fund its portion of any Revolving
Loans made by the Agent to the Borrower will commence on the date such Revolving
Loans are made by the Agent. Such payments will be made by such Lender without
set-off, counterclaim or reduction of any kind.
(ii) On the first Business Day of each week, or more frequently
(including daily), either at the discretion of Agent or in the event that funds
disbursed by the Agent to the Borrower for Loans equals or exceeds $100,000
(each such day being a "SETTLEMENT DATE"), the Agent will advise each Lender by
telephone or telecopy of the amount of each such Lender's Pro Rata Share of the
Revolving Facility Usage as of the close of business of the second Business Day
immediately preceding the Settlement Date. In the event that payments are
necessary to adjust such Lender's actual Pro Rata Share of the Revolving
Facility Usage as of any Settlement Date to equal the amount of such Lender's
required Pro Rata Share of the Revolving Facility Usage, the party from which
such payment is due will pay the other, in same day funds, by wire transfer to
the other's account not later than 12:00 noon. (Los Angeles time) on the
Business Day immediately following the Settlement Date.
(d) AVAILABILITY OF LENDER'S PRO RATA SHARE.
(i) Unless the Agent shall have received notice from a Lender prior
to a Funding Date that such Lender will not make available its Pro Rata Share of
a Loan requested by the Borrower, the Agent may assume that such Lender has made
such amount available to the Agent on the Business Day following the next
Settlement Date. If a Lender has not in fact made its Pro Rata Share available
to the Agent on such date, then such Lender and the Borrower severally agree to
pay to the Agent forthwith on demand such amount without set-off, counterclaim
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or deduction of any kind, together with interest thereon, for each day from and
including the date such amount was to have been made available to the Agent by
such Lender to, but excluding, the date of payment to the Agent, at (a) in the
case of such Lender, the Federal Funds Rate, or (b) in the case of the Borrower,
the interest rate applicable under this Agreement with respect to such Loan.
Until any such amount is paid to the Agent, the Agent shall not be obligated to
submit to such Lender any payment made by the Borrower to the Agent with respect
to any Loan or any fees or other payments with respect thereto.
(ii) Nothing contained in this SECTION 2.2(d) will be deemed to
relieve a Lender of its obligation to fulfill its Commitments or to prejudice
any rights the Agent or the Borrower may have against such Lender as a result of
any such default by such Lender under this Agreement.
(e) RETURN OF PAYMENTS.
(i) If the Agent pays an amount to a Lender under this Agreement in
the belief or expectation that a related payment has been or will be received by
the Agent from the Borrower and such related payment is not received by the
Agent, then the Agent will be entitled to recover such amount from such Lender
without set-off, counterclaim or deduction of any kind together with interest
thereon, for each day from and including the date such amount is made available
by the Agent to such Lender to, but excluding, the date of repayment to the
Agent, at the Federal Funds Rate, and such payment to such Lender shall be
deemed to not have been made.
(ii) If the Agent determines at any time that any amount received
by the Agent under this Agreement must be returned to the Borrower or paid to
any other person pursuant to any requirement at law, court order or otherwise,
then, notwithstanding any other term or condition of this Agreement, the Agent
will not be required to distribute any portion thereof to any Lender. In
addition, each Lender will repay to the Agent on demand any portion of such
amount that the Agent has distributed to such Lender, together with interest at
such rate, if any, as the Agent is required to pay to the Borrower or such other
Person, without set-off, counterclaim or deduction of any kind.
(f) LENDERS' FAILURE TO PERFORM. It is understood that (i) no Lender
shall be responsible for any failure by any other Lender to perform its
obligation to make any Revolving Loans hereunder, nor shall any Commitment of
any Lender be increased or decreased as a result of any failure by any other
Lender to perform its obligation to make any Revolving Loans hereunder, and (ii)
no failure by any Lender to perform its obligation to make any Revolving Loans
hereunder shall excuse any other Lender from its obligation to make any
Revolving Loans hereunder.
(g) EFFECT OF BANKRUPTCY. If a case is commenced by or against the
Borrower under the Bankruptcy Code, or other statute providing for debtor
relief, then, unless otherwise agreed by all the Lenders, the Lender Group shall
not make additional loans or provide additional financial accommodations under
the Loan Documents to the Borrower as debtor or debtor-in-possession, or to any
trustee for the Borrower, nor consent to the use of cash collateral (provided
that the Loan Account shall continue to be charged, to the fullest extent
permitted by law, for accruing interest, fees, and Lender Group Expenses).
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SECTION 2.3 REPAYMENT.
(a) MANDATORY REPAYMENTS. The aggregate principal amount of the
Revolving Loans outstanding on the Maturity Date, together with accrued interest
thereon, shall be due and payable in full on the Maturity Date. If at any time
the Aggregate outstanding Borrowings exceed the Revolving Commitment then in
effect, the Borrower shall immediately repay the excess to the Agent for the
ratable benefit of the Lender Group.
(b) OPTIONAL PAYMENT. The Borrower shall have the right at its option
from time to time to prepay the Prime Rate Portion in whole or in part without
premium or penalty. The Borrower shall have the right at its option from time to
time to prepay the Libor Rate Portion in whole or in part subject to Borrower's
reimbursement of the Lender Group's funding losses, if any, resulting from such
prepayment pursuant to SECTION 3.6(b) hereof. Prepayments shall be made by
giving the Agent Standard Notice thereof (which shall be irrevocable),
specifying the date, and amount and type of prepayment, and upon such date the
amount so specified, accrued interest thereon, and any amounts payable under
SECTION 3.6(b) hereof shall be due and payable.
SECTION 2.4 INTEREST RATE AND PAYMENT DATES.
(a) PAYMENT. The principal balance of the Notes shall be paid in
accordance with the terms set forth in the Notes. Accrued interest on the Prime
Rate Portion shall be due and payable on the last Business Day of each month
commencing on September 30, 1998. Interest on each Rate Segment of the Libor
Rate Portion shall be due and payable on the last day of the corresponding Rate
Period. Interest on each Rate Segment of the Libor Rate Portion which has a Rate
Period equal to or less than three months shall be due and payable on the last
day of the corresponding Rate Period. Interest on each Rate Segment of the Libor
Rate Portion which has a Rate Period greater than three months shall be due and
payable on the third and sixth month anniversary date of the first day of the
corresponding Rate Period, if any, and on the last day of the corresponding Rate
Period. After maturity of any part of a Note (by acceleration or otherwise),
interest on such part of such Note shall be due and payable ON DEMAND.
(b) INTEREST RATE. The unpaid principal amount of the Note shall bear
interest for each day until due on one or more bases selected by the Borrower
from among the interest rate options (the "INTEREST RATE OPTIONS") set forth
below. The Borrower understands and agrees that, subject to the provisions
hereof, the Borrower may select any number of Interest Rate Options to apply
simultaneously to different parts of the unpaid principal amount of the Notes
and may select any number of Rate Segments to apply simultaneously to different
parts of the Libor Rate Portion.
Available Interest Rate Options
PRIME RATE OPTION: A rate per annum for each day equal to the Prime Rate for
such day PLUS the Applicable Margin.
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LIBOR RATE OPTION: A rate per annum for each day equal to the Libor Rate for
such day PLUS the Applicable Margin.
(c) RATE PERIODS. At any time the Borrower selects, converts to or
renews the Libor Rate Option, the Borrower shall fix a period (the "RATE
PERIOD") which shall be one, two, three or six months, which shall be acceptable
to the Agent in the Agent's commercially reasonable judgment, during which the
Libor Rate Option shall apply to the corresponding Rate Segment; PROVIDED, that
the Borrower may not elect a Rate Period which will end after the Maturity Date.
Each Lender's right to payment of principal and interest under the Notes shall
in no way be affected by the fact that one or more Rate Periods may be in
effect.
(d) DEFAULT RATE OF INTEREST. All Loans hereunder with accrued interest
thereon, regardless of the Rate Option, and all other amounts owing under the
Loan Documents shall bear interest at a rate equal to 2% above the Prime Rate
from and after the occurrence and during the continuance of an Event of Default.
(e) SELECTION, CONVERSION OR RENEWAL OF RATE OPTIONS. Subject to the
other provisions hereof, the Borrower may select any Interest Rate Option to
apply to the borrowings evidenced by the Notes. Subject to the other provisions
hereof, the Borrower may convert any part of the unpaid principal amount of the
Notes from any Interest Rate Option to the other Interest Rate Option: (a) at
any time with respect to the conversion from the Prime Rate Option to the Libor
Rate Option and (b) at the expiration of any Rate Period with respect to
conversion from or renewals of the Libor Rate Option as to the Rate Segment
corresponding to such expiring Rate Period. Whenever the Borrower desires to
select, convert or renew the Libor Rate Option, the Borrower shall give the
Agent Standard Notice thereof (which shall be irrevocable), specifying the date,
amount and type of the proposed new Rate Option. If such notice has been duly
given, and if the Agent in its commercially reasonable judgment approves the
proposed selection, conversion or renewal, on and after the date specified in
such notice, interest shall be calculated upon the unpaid principal amount of
the Notes taking into account such selection, conversion or renewal.
(f) PRIME RATE FALLBACK. If any Rate Period expires, any part of the
Rate Segment corresponding to such Rate Period which has not been converted or
renewed in accordance with SECTION 2.4(e) hereof automatically shall be
converted to the Prime Rate Option. If the Borrower fails to select, or if the
Agent fails to approve an Interest Rate Option to apply to the borrowings
evidenced by the Notes, such borrowings shall be deemed to be at the Prime Rate
Option. If at any time the Agent shall have determined in good faith (which
determination shall be conclusive) that the accrual of interest at the Libor
Rate Option has been made unascertainable, impractical or unlawful by compliance
by the Lender Group in good faith with any law (including common law),
constitution, statute, treaty, regulation, rule, ordinance, order, injunction,
writ, decree or award of any government or political subdivision or any agency,
authority, bureau, central bank, commission, department or instrumentality of
either, or any court, tribunal, grand jury or arbitrator, in each case whether
foreign or domestic, or administration thereof by any official body charged with
the interpretation or administration thereof or with any request or directive of
any such event, the outstanding principal amount of the Notes subject to the
Libor Rate Option shall accrue interest at the Prime Rate Option and the
Borrower shall not have the right to select the Libor Rate Option.
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SECTION 2.5 FEES. Borrower shall pay to Agent for the ratable
benefit of the Lender Group (except as otherwise indicated) the following:
(a) LOAN FEE. Upon the execution of this Agreement, a loan fee (the
"Loan Fee") of $50,000, such Loan Fee to be earned in full upon payment;
(b) UNUSED LINE FEE. The Borrower shall pay to the Agent for the
ratable benefit of the Lender Group, a fee (the "Unused Line Fee").in an amount
equal to the Applicable Unused Line Rate times the daily unused amount of the
Revolving Commitment. The Unused Line Fee shall be payable in arrears,
commencing on the first Business Day of January 1, 1999, and thereafter (i) on
the first Business Day of each three-month period during the term of this
Agreement, (ii) on the date of any reduction of the Revolving Commitment (to the
extent accrued and unpaid on the amount of such reduction), and (iii) on the
Maturity Date; and
(c) ANNUAL ADMINISTRATION FEE. As set forth in the Fee Letter.
ARTICLE III
GENERAL PROVISIONS CONCERNING THE LOANS
SECTION 3.1 USE OF PROCEEDS. The proceeds of the Loans hereunder
shall be used by the Borrower for general corporate purposes, working capital,
Permitted Acquisitions, and to repay existing indebtedness.
SECTION 3.2 COMPUTATION OF INTEREST AND FEES.
(a) CALCULATIONS. Interest in respect of the Prime Rate Option Loans
shall be calculated on the basis of a 360 day year for the actual days elapsed.
Any change in the interest rate on a Prime Rate Loan resulting from a change in
the Prime Rate shall become effective as of the opening of business on the day
on which such change in the Prime Rate shall become effective. Interest in
respect of the Libor Rate Option Loans, and any fees payable hereunder, shall be
calculated on the basis of a 360 day year for the actual days elapsed.
(b) DETERMINATION BY AGENT. Each determination of an interest rate or
fee by the Agent pursuant to any provision of this Agreement shall be conclusive
and binding on the Borrower in the absence of manifest error.
SECTION 3.3 PAYMENTS. The Borrower shall make each payment of
principal, interest and fees hereunder and under the Notes, without setoff or
counterclaim, not later than 12:00 p.m. (Los Angeles time) on the day when due
in lawful money of the United States of America to the Agent for the account of
the Lenders at the office of the Agent designated in writing in immediately
available funds. Any interest not paid when due shall be compounded and shall
thereafter accrue interest at the rate then applicable to the Prime Rate Portion
of Borrowings hereunder (and if no Prime Rate Portion of Borrowings is
outstanding, then at the rate applicable to such Borrowings as if outstanding
under the Prime Rate Option).
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(b) Whenever any payment to be made hereunder or under the Notes shall
be stated to be due on a day which is not a Business Day, such payment may be
made on the next succeeding Business Day, and with respect to payments of
principal, interest thereon shall be payable at the then applicable rate during
such extension.
(c) Unless the Agent receives notice from the Borrower prior to the
date on which any payment is due to the Lenders that the Borrower will not make
such payment in full as and when required, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date in immediately
available funds and the Agent may (but shall not be so required), in reliance
upon such assumption, distribute to each Lender on such due date an amount equal
to the amount then due such Lender. If and to the extent the Borrower has not
made such payment in full to the Agent, each Lender shall repay to the Agent on
demand such amount distributed to such Lender, together with interest thereon at
the rate then applicable to the Prime Rate Portion of Borrowings hereunder (and
if no Prime Rate Portion of Borrowings is outstanding, then at the rate
applicable to such Borrowings as if outstanding under the Prime Rate Option) for
each day from the date such amount is distributed to such Lender until the date
repaid.
SECTION 3.4 APPORTIONMENT, APPLICATION, AND REVERSAL OF PAYMENTS.
Except as otherwise provided with respect to defaulting Lenders, aggregate
principal and interest payments shall be apportioned ratably among the Lenders
(according to the unpaid principal balance of the Revolving Loans to which such
payments relate held by each Lender) and payments of the fees (other than fees
designated for the Agent's sole and separate account) shall, as applicable, be
apportioned ratably among the Lenders. All payments shall be remitted to the
Agent and all such payments not relating to principal or interest of specific
Revolving Loans, or not constituting payment of specific fees, and all proceeds
of Accounts or other Collateral received by the Agent, shall be applied as in
the following order:
(i) to pay any fees, or expense reimbursements then due to the
Agent from the Borrower;
(ii) to pay any fees or expense reimbursements then due to the
Lenders from the Borrower;
(iii) to pay interest due in respect of all outstanding Revolving
Loans;
(iv) ratably to pay principal of all outstanding Revolving Loans;
(v) ratably to pay any other obligations due to the Agent or any
Lender by the Borrower.
SECTION 3.5 REDUCED RETURN. If the Agent shall have determined that
any applicable law, regulation, rule or regulatory requirement generally
applicable to banks located in California, Pennsylvania, or such other state as
any Lender shall be located (collectively in this SECTION 3.5, "REQUIREMENT")
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any United States federal or state
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender with any
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request or directive regarding capital adequacy (whether or not having the force
of law) of any such authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on such Lender's capital as a
consequence of its Commitments and obligations hereunder to a level below that
which would have been achieved but for such Requirement, change or compliance
(taking into consideration such Lender's policies with respect to capital
adequacy) by an amount deemed by such Lender to be material (which amount shall
be determined by such Lender's reasonable allocation of the aggregate of such
reductions resulting from such events), then from time to time, within five (5)
Business Days after demand by the Agent on behalf of such Lender, the Borrower
shall pay to the Agent for the benefit of such Lender such additional amount or
amounts as will compensate such Lender for such reduction. Neither the Agent nor
any Lender presently has knowledge of any new Requirement or any pending change
in any existing Requirement which would result in such additional amounts being
owed. Notwithstanding any other provision of this SECTION 3.5, no Lender shall
demand compensation for any increased cost or reduction referred to in this
SECTION 3.5 if it shall not at the time be the general policy of such Lender to
demand such compensation in similar circumstances under comparable provisions of
other credit agreements, and such Lender shall in good faith endeavor to
allocate increased costs or reductions fairly among all of its affected
commitments and credit extensions (whether or not it seeks compensation from all
affected borrowers).
SECTION 3.6 INDEMNITIES AND LOSSES.
(a) INDEMNITIES. Whether or not the transactions contemplated hereby
shall be consummated, the Borrower agrees to indemnify, pay and hold the Lender
Group, and the shareholders, officers, directors, employees and agents of the
Lender Group (each, an "INDEMNIFIED PERSON"), harmless from and against any and
all claims, liabilities, losses, damages, costs and expenses (whether or not any
of the foregoing Indemnified Persons is a party to any litigation), including,
without limitation, reasonable attorneys' fees and costs (including, without
limitation, the reasonable estimate of the allocated cost of in-house legal
counsel and staff) and costs of investigation, document production, attendance
at a deposition, or other discovery, prior to the assumption of defense by the
Borrower, with respect to or arising out of any proposed acquisition by the
Borrower or any of its Subsidiaries of any Person or any securities (including a
self-tender), this Agreement or any use of proceeds hereunder, or any claim,
demand, action or cause of action being asserted against the Borrower or any of
its Subsidiaries (collectively, the "INDEMNIFIED LIABILITIES"), provided that
the Borrower shall have no obligation hereunder with respect to Indemnified
Liabilities arising from the gross negligence or willful misconduct of any such
Indemnified Persons. If any claim is made, or any action, suit or proceeding is
brought, against any Indemnified Person pursuant to this Section, such
Indemnified Person shall notify the Borrower within thirty (30) days of such
Indemnified Person's being notified in writing of the commencement of such
action, suit or proceeding, and the Borrower will assume the defense of such
action, suit or proceeding, employing counsel selected by the Borrower and
reasonably satisfactory to such Indemnified Person, and pay the fees and
expenses of such counsel. This covenant shall survive termination of this
Agreement and payment of the outstanding Notes for a period of six (6) years.
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(b) FUNDING LOSSES. The Borrower agrees to indemnify the Lender Group
and to hold the Lender Group harmless from any loss or expense, including, but
not limited to, any such loss or expense arising from interest or fees payable
by the Lender Group to lenders of funds obtained by it in order to maintain its
Libor Rate Option Loans hereunder, which the Lender Group may sustain or incur
as a consequence of (i) payment, prepayment or conversion of any part of any
Rate Segment of the Libor Rate Portion on a day other than the last day of the
corresponding Rate Period (whether or not any such payment is pursuant to demand
by the Lender Group under the Notes and whether or not any such payment,
prepayment or conversion is consented to by the Lender Group, unless the Lender
Group shall have expressly waived such indemnity in writing); (ii) default by
the Borrower in making a conversion or continuation after the Borrower has given
a notice thereof, (iii) default by the Borrower in making any payment after the
Borrower has given a notice of payment, (iv) attempt by Borrower to revoke in
whole or part any irrevocable notice given pursuant to SECTION 2.4(e) hereof; or
(v) breach of or default by any obligor in the performance or observance of any
covenant or condition in the Notes, any separate security, guarantee or
suretyship agreement between the Lender Group and any obligor, or any other
document executed and delivered to the Lender Group by any obligor in connection
with the indebtedness evidenced by the Notes. If the Lender Group sustains any
such loss or expense, the Agent shall from time to time notify the Borrower of
the amount determined in good faith by the Lender Group (which determination
shall be conclusive) to be necessary to indemnify the Lender Group for such loss
or expense. Such amount shall be due and payable by the Borrower ON DEMAND. This
covenant shall survive termination of this Agreement and payment of the
outstanding Notes.
SECTION 3.7 REQUIREMENTS OF LAW. In the event that any law,
regulation or directive generally applicable to financial institutions located
in California, Pennsylvania, or such other state as a Lender shall be located or
any change therein or in the interpretation or application thereof or compliance
by any Lender with any request or directive (whether or not having the force of
law) from any United States federal or state central bank or other governmental
authority, agency or instrumentality:
(a) does or shall impose, modify or hold applicable any reserve,
assessment rate, special deposit, compulsory loan or other requirement
(collectively in this SECTION 3.7 "REQUIREMENTS") against assets held by, or
deposits or other liabilities in or for the account of, advances or loans by, or
other credit extended by, or any other acquisition of funds by, any office of a
Lender which are not otherwise included in the determination of any Libor Rate
at the last Borrowing, conversion or continuation date of a Loan;
(b) does or shall impose, modify or hold applicable any of the
Requirements against Commitments to extend credit;
(c) does or shall impose on any Lender any other condition;
and the result of any of the foregoing is to increase the cost to any Lender of
making, renewing or maintaining its Revolving Commitment, or the Libor Rate
Option Loans or to reduce any amount receivable thereunder (which increase or
reduction shall be determined by such Lender's reasonable allocation of the
aggregate of such cost increases or reduced amounts receivable resulting from
such events), then, in any such case, the Borrower shall pay to the Agent for
the benefit of such Lender, within five (5) Business Days of the Agent's demand
on behalf of such Lender, any additional amounts necessary to compensate such
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Lender for such additional cost or reduced amount receivable as determined by
such Lender with respect to SECTIONS 3.5 and 3.7 of this Agreement. If any
Lender becomes entitled to claim any additional amounts pursuant to this
subsection, the Agent on behalf of such Lender shall notify the Borrower of the
event by reason of which it has become so entitled. Such notice shall contain a
statement incorporating the calculation as to any additional amounts payable
pursuant to the foregoing sentence, and such statement submitted by the Agent to
the Borrower shall be conclusive in the absence of manifest error. Neither the
Agent nor any Lender presently has knowledge of any new Requirement or any
pending change in any existing Requirement which would result in such additional
amounts being owed. Notwithstanding any other provision of this SECTION 3.7, no
Lender shall demand compensation for any increased cost or reduction referred to
in this SECTION 3.7 if it shall not at the time be the general policy of such
Lender to demand such compensation in similar circumstances under comparable
provisions of other credit agreements, and such Lender shall in good faith
endeavor to allocate increased costs or reductions fairly among all of its
affected commitments and credit extensions (whether or not it seeks compensation
from all affected borrowers).
ARTICLE IV
CONDITIONS OF LENDING
SECTION 4.1 CONDITIONS PRECEDENT TO INITIAL LOANS. The obligation of
the Lender Group (or any member thereof) to make the initial Loan is subject to
the conditions precedent that:
(a) The Agent shall have received on or before the day of the initial
Borrowing the following, each dated prior to or as of such day, in form and
substance satisfactory to the Agent:
(i) The Notes issued by the Borrower to the order of each Lender;
(ii) Copies of the Articles of Incorporation, partnership agreement
or other organizational document of the Borrower, certified as of a recent date
by the Secretary of State of its state of formation or incorporation;
(iii) Copies of the Bylaws, if any, of the Borrower, certified by
the Secretary or an Assistant Secretary of the Borrower;
(iv) Copies of resolutions of the Board of Directors or other
authorizing documents of the Borrower, in form and substance satisfactory to the
Lender, approving the Loan Documents and the Borrowings hereunder;
(v) An incumbency certificate executed by the Secretary or an
Assistant Secretary of the Borrower, or equivalent document, certifying the
names and signatures of the officers of the Borrower or other Persons authorized
to sign the Loan Documents and the other documents to be delivered hereunder;
(vi) An executed original of all Loan Documents;
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(vii) General Continuing Guaranties of the Guarantors, if any, in
form and substance satisfactory to the Agent and its counsel;
(b) All fees required to be paid at closing shall have been paid;
(c) The Agent shall have received an opinion of counsel to the Borrower
and the Guarantors in form and substance acceptable to the Agent and its
counsel;
(d) No material adverse change shall have occurred since March 31, 1998
in the business, assets, operations, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries, taken as a whole, or in the
facts and information regarding such entities represented by the Borrower to the
Agent as of such date;
(e) No action, suit, investigation or proceeding shall have been
pending or threatened in any court or before any arbitration or governmental
authority that purports to affect the Borrower, any of its Subsidiaries or the
Loans contemplated hereby, or that could have a material adverse effect on the
Borrower or any of its Subsidiaries or the Loans contemplated hereby, or on the
ability of the Borrower and its Subsidiaries to perform their obligations under
the Loan Documents;
(f) The Borrower and its Subsidiaries shall have been in compliance
with all of their existing material financial obligations;
(g) All information previously furnished by the Borrower to the Lender
Group shall be true and correct in all material respects;
(h) The Agent shall have reviewed and found satisfactory Borrower's
financial statements for its quarter ending March 31, 1998; and
(i) All corporate and legal proceedings and all instruments and
documents in connection with the transactions contemplated by this Agreement
shall be reasonably satisfactory in content, form and substance to the Agent and
its counsel, and the Agent and such counsel shall have received any and all
further information and documents which the Agent or such counsel may reasonably
have requested in connection therewith, such documents where appropriate to be
certified by proper corporate or governmental authorities.
SECTION 4.2 CONDITIONS PRECEDENT TO EACH BORROWING. The obligation
of the Lender Group (or any member thereof) to make a Loan on the occasion of
each Borrowing (including the initial Borrowing) shall be subject to the further
conditions precedent that on the date of such Borrowing (a) the following
statements shall be true and the Agent shall have received the notice required
by SECTION 2.1(b), which notice shall be deemed to be a certification by the
Borrower that:
(i) The representations and warranties contained in SECTION 5.1 are
correct on and as of the date of such Borrowing as though made on
and as of such date;
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(ii) No event has occurred and is continuing, or would result from
such Borrowing, which constitutes an Event of Default or Potential
Event of Default;
(iii) Nothing shall have occurred and the Agent shall not have
become aware of any fact or condition not previously known, which
the Agent shall determine has, or could reasonably be expected to
have, a material adverse effect on the rights or remedies of the
Lender Group, or on the ability of the Borrower to perform its
obligations to the Lender Group or which has, or could reasonably
be expected to have, a materially adverse effect on the
performance, business, property, assets, condition (financial or
otherwise) or prospects of the Borrower and its Subsidiaries taken
as a whole; and
(iv) The security interests and liens in favor of the Lender Group
are valid, enforceable, and prior to all others' rights and
interests, except those the Agent consents to in writing; and
(v) All Loan Documents are in full force and effect;
and (b) the Agent shall have received such other approvals, opinions or
documents as the Agent may reasonably request.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.1 REPRESENTATIONS AND WARRANTIES. The Borrower represents
and warrants as follows:
(a) ORGANIZATION. The Borrower and each of its Material Subsidiaries is
duly organized, validly existing and in good standing under the laws of the
state of its incorporation. The Borrower and each of its Material Subsidiaries
is also duly authorized, qualified and licensed in all applicable jurisdictions,
and under all applicable laws, regulations, ordinances or orders of public
authorities, to carry on its business in the locations and in the manner
presently conducted in which the failure to be so authorized, qualified or
licensed would have a materially adverse effect on the Borrower and its Material
Subsidiaries taken as a whole.
(b) AUTHORIZATION. The execution, delivery and performance by the
Borrower of the Loan Documents, and the making of Borrowings hereunder, are
within the Borrower's corporate powers, have been duly authorized by all
necessary corporate action, do not contravene (i) the Borrower's charter,
by-laws or other organizational document or (ii) any law or regulation
(including Regulations T, U and X) binding on or affecting the Borrower or its
properties, and will not constitute an event of default under any material
agreement to which the Borrower is a party or by which its assets or properties
may be bound.
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(c) GOVERNMENTAL CONSENTS. No authorization or approval or other action
by, and no notice to or filing with, any governmental authority or regulatory
body (except routine reports required pursuant to the Securities Exchange Act of
1934, as amended (if such act is applicable to the Borrower), which reports will
be made in the ordinary course of business) is required for the due execution,
delivery and performance by the Borrower of the Loan Documents.
(d) VALIDITY. The Loan Documents are the binding obligations of the
Borrower or other executing Person, if any, enforceable in accordance with their
respective terms.
(e) FINANCIAL CONDITION. The balance sheets of the Borrower and its
consolidated Subsidiaries as of March 31, 1998, and the related statements of
income and retained earnings of the Borrower and its consolidated Subsidiaries
for the fiscal quarter then ended, copies of which have been furnished to the
Agent, fairly present the financial condition of the Borrower and its
consolidated Subsidiaries as at such date and the results of the operations of
the Borrower and its consolidated Subsidiaries for the periods ended on such
date, all in accordance with GAAP, consistently applied, and since March 31,
1998, there has been no material adverse change in the business, operations,
properties, assets or condition (financial or otherwise) of the Borrower and its
Subsidiaries, taken as a whole.
(f) LITIGATION. Except as set forth on SCHEDULE 5.1(f) hereto, there is
no known pending or threatened action or proceeding affecting the Borrower or
any of its Subsidiaries before any court, governmental agency or arbitrator,
which may materially and adversely affect the consolidated financial condition
or operations of the Borrower or which may have a material adverse effect on the
Borrower's ability to perform its obligations under the Loan Documents, having
regard for its other financial obligations.
(g) EMPLOYEE BENEFIT PLANS. The Borrower and each of its ERISA
Affiliates has fulfilled its obligations, if any, under the minimum funding
standards of ERISA and the Internal Revenue Code with respect to each Plan and
is in compliance in all material respects with the applicable provisions of
ERISA and the Internal Revenue Code, and has not incurred any liability with
respect to any Plan under Title IV of ERISA. No reportable event has occurred
under Section 4043(b) of ERISA for which the PBGC requires 30 day notice. No
action by the Borrower or of any ERISA Affiliate of the Borrower to terminate or
withdraw from any Plan has been taken and no notice of intent to terminate a
Plan has been filed under Section 4041 of ERISA. No proceeding has been
commenced with respect to a Plan under Section 4042 of ERISA, and no event has
occurred or condition exists which might constitute grounds for the commencement
of such a proceeding.
(h) DISCLOSURE. No representation or warranty of the Borrower contained
in this Agreement or any other document, certificate or written statement
furnished to the Agent or any Lender by or on behalf of the Borrower for use in
connection with the transactions contemplated by this Agreement contains any
known untrue statement of a material fact or omits to state a known material
fact (known to the Borrower in the case of any document not furnished by it)
necessary in order to make the statements contained herein or therein not
misleading. There is no fact known to the Borrower (other than matters of a
general economic nature) which materially and adversely affects the business,
operations, property, assets or condition (financial or otherwise) of the
Borrower and its Subsidiaries, taken as a whole, which has not been disclosed
herein or in such other documents, certificates and statements furnished to the
Agent for use in connection with the transactions contemplated hereby.
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(i) ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 5.1(i)
hereto, neither the Borrower nor any Subsidiary, nor any of their respective
officers, employees, representatives or agents, nor, to the best of their
knowledge, any other person, has treated, stored, processed, discharged,
spilled, or otherwise disposed of any substance defined as hazardous or toxic by
any applicable federal, state or local law, rule, regulation, order or
directive, or any waste or by-product thereof, at any real property or any other
facility owned, leased or used by the Borrower or any Subsidiary, in violation
of any applicable statutes, regulations, ordinances or directives of any
governmental authority or court, which violations may result in liability to the
Borrower or any Subsidiary or any of their respective officers, employees,
representatives, agents or shareholders in an amount exceeding $100,000 for all
such violations; and the unresolved violations set forth in said SCHEDULE 5.1(i)
will not result in liability to the Borrower or any Subsidiary or any of their
respective officers, employees, representatives, agents or shareholders in an
amount exceeding $100,000 for all such unresolved violations. Except as set
forth in said SCHEDULE 5.1(i), no employee or other person has made a claim or
demand against the Borrower or any Subsidiary based on alleged damage to health
caused by any such hazardous or toxic substance or by any waste or by-product
thereof; and the unsatisfied claims or demands against the Borrower or any
Subsidiary set forth in said SCHEDULE 5.1(i) will not result in uninsured
liability to the Borrower or any Subsidiary or any of their respective officers,
employees, representatives, agents or shareholders in an amount exceeding
$100,000 in excess of reserves on the books of the Borrower for all such
unsatisfied claims or demands. Except as set forth in said SCHEDULE 5.1(i),
neither the Borrower nor any Subsidiary has been charged by any governmental
authority with improperly using, handling, storing, discharging or disposing of
any such hazardous or toxic substance or waste or by-product thereof or with
causing or permitting any pollution of any body of water; and the outstanding
related charges set forth in said SCHEDULE 5.1(i) will not result in liability
to the Borrower or any Subsidiary or any of their respective officers,
employees, representatives, agents or shareholders in an amount exceeding
$100,000 for all such outstanding charges.
(j) EMPLOYEE MATTERS. There is no known strike or work stoppage in
existence or threatened involving the Borrower or its Subsidiaries that may
materially and adversely affect the consolidated financial condition or
operations of the Borrower or that may have a material adverse effect on the
Borrower's ability to perform its obligations under the Loan Documents, having
regard for its other financial obligations.
(k) SOLVENCY. The Borrower and each of its Subsidiaries is Solvent.
(l) TITLE TO PROPERTIES. The Borrower and each of its Subsidiaries has
good and marketable title to all of its properties and assets subject to no
liens, mortgages, pledges, security interests, encumbrances or charges of any
kind except those permitted under SECTION 6.2(f) hereof.
(m) TAX RETURNS. The Borrower and each of its Subsidiaries has filed,
or caused to be filed, in a timely manner all tax returns, reports and
declarations which are required to be filed by it (without requests for
extension except as previously disclosed in writing to the Agent). All
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information in such tax returns, reports and declarations is complete and
accurate in all material respects. The Borrower and each of its Subsidiaries has
paid or caused to be paid all taxes due and payable or claimed due and payable
in any assessment received by it, except taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to the Borrower or its Subsidiary and with respect to which adequate
reserves have been set aside on its books. Adequate provision has been made for
the payment of all accrued and unpaid Federal, State, county, local, foreign and
other taxes whether or not yet due and payable and whether or not disputed.
(n) COMPLIANCE WITH OTHER AGREEMENTS AND APPLICABLE LAWS. Neither
Borrower nor any of its Subsidiaries is in default in any material respect
under, or in violation in any material respect of any of the terms of, any
agreement, contract, instrument, lease or other commitment to which it is a
party or by which it or any of its assets are bound and Borrower and each of its
Subsidiaries is in compliance in all material respects with all applicable
provisions of laws, rules, regulations, licenses, permits, approvals and orders
of any foreign, Federal, state or local governmental authority.
(o) YEAR 2000 COMPLIANCE. On the basis of a comprehensive inventory,
review and assessment currently being undertaken by Borrower of Borrower's
computer applications utilized by Borrower or contained in products produced or
sold by Borrower, and upon inquiry made of Borrower's material suppliers and
vendors, Borrower's management is of the considered view that Borrower, its
products, and all such suppliers and vendors will be Year 2000 Compliant on a
timely basis.
ARTICLE VI
COVENANTS
SECTION 6.1 AFFIRMATIVE COVENANTS. So long as any Note shall remain
unpaid or the Lender Group shall have any Commitment hereunder, the Borrower
will, unless the Agent shall otherwise consent in writing:
(a) FINANCIAL INFORMATION. Furnish to the Agent:
(i) as soon as available, but in any event within 90 days after the
end of each fiscal year of the Borrower, (A) a copy of the Borrower's audited
consolidated balance sheet of itself and its consolidated Subsidiaries as at the
end of each fiscal year and the related audited consolidated statements of
income and retained earnings (or comparable statement) employed in the business
and changes in financial position and cash flow for such year, setting forth in
each case in comparative form the figures for the previous year, accompanied by
an unqualified report and opinion thereon of independent certified public
accountants acceptable to the Agent, and, if prepared, such accountants' letter
to management, and (B) a copy of the Borrower-prepared consolidating balance
sheet and income statements prepared in connection with the statement provided
in subpart (A) above;
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(ii) as soon as available, but in any event within 45 days after
the end of each fiscal quarter, the Borrower's unaudited consolidated balance
sheet of itself and its consolidated Subsidiaries as at the end of such period
and the related unaudited consolidated statement of income and retained earnings
(or comparable statement) and changes in financial position and cash flow for
such period and year to date, setting forth in each case in comparative form, if
available, the figures as at the end of the previous fiscal year as to the
balance sheet and the figures for the previous corresponding period as to the
other statements, certified by the Chief Financial Officer of the Borrower as
being fairly stated in all material respects subject to year end adjustments;
all such financial statements to be complete and correct in all material
respects and to be prepared in reasonable detail acceptable to the Agent and in
accordance with GAAP applied consistently throughout the periods reflected
therein (except as approved by such accountants and disclosed therein);
(iii) (a) together with each delivery of financial statements of
Borrower and its Subsidiaries pursuant to subdivision (i) and (ii) above, a
certificate, executed by the Chief Financial Officer of the Borrower stating
that such officer has reviewed the terms of this Agreement and has made, or
caused to be made under his supervision, a review in reasonable detail of the
transactions and condition of the Borrower and its Subsidiaries during the
accounting period covered by such financial statements and that such review has
not disclosed the existence during or at the end of such accounting period, and
that such officer does not have knowledge of the existence as at the date of
such certificate, of any condition or event that constitutes an Event of Default
or Potential Event of Default, or, if any such condition or event existed or
exists, specifying the nature and period of existence thereof and what action
the Borrower has taken, is taking and proposes to take with respect thereto; and
(b) together with each delivery of financial statements of the Borrower and its
Subsidiaries pursuant to subdivision (i) and (ii) above, a certificate
demonstrating in reasonable detail compliance during and at the end of the
applicable accounting periods with the restrictions contained in SECTION 6.2
hereof; and
(iv) any other report as Agent may reasonably request from time to
time.
(b) NOTICES AND INFORMATION. Deliver to the Agent:
(i) promptly upon any officer of the Borrower obtaining knowledge
(a) of any condition or event which constitutes an Event of Default or Potential
Event of Default, (b) that any Person has given any notice to the Borrower or
any Subsidiary of the Borrower or taken any other action with respect to a
claimed default or event or condition of the type referred to in SECTION 7.1(e),
(c) of the institution of any litigation involving an alleged liability
(including possible forfeiture of property) of the Borrower or any of its
Subsidiaries equal to or greater than $1,000,000 or any adverse determination in
any litigation involving a potential liability of the Borrower or any of its
Subsidiaries equal to or greater than $1,000,000, or (d) of a material adverse
change in the business, operations, properties, assets or condition (financial
or otherwise) of the Borrower and its Subsidiaries, taken as a whole, an
officer's certificate specifying the nature and period of existence of any such
condition or event, or specifying the notice given or action taken by such
holder or Person and the nature of such claimed default, Event of Default,
Potential Event of Default, event or condition, and what action the Borrower has
taken, is taking and proposes to take with respect thereto;
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(ii) promptly upon becoming aware of the occurrence of or
forthcoming occurrence of (a) any reportable event under Section 4043(b) of
ERISA for which the PBGC requires 30 day notice, (b) any action by the Borrower
or any ERISA Affiliate of the Borrower to terminate or withdraw from a Plan or
the filing of any notice of intent to terminate under Section 4041 of ERISA, (c)
any notice of noncompliance made with respect to a Plan under Section 4041(b) of
ERISA, and (d) the commencement of any proceeding with respect to a Plan under
Section 4042 of ERISA;
(iii) promptly, and in any event within 30 days after receipt
thereof, a copy of any notice, summons, citation, directive, letter or other
form of communication from any governmental authority or court in any way
concerning any action or omission on the part of the Borrower or any of its
Subsidiaries in connection with any substance defined as toxic or hazardous by
any applicable federal, state or local law, rule, regulation, order or directive
or any waste or byproduct thereof, or concerning the filing of a lien upon,
against or in connection with the Borrower, its Subsidiaries, or any of their
leased or owned real or personal property, in connection with a Hazardous
Substance Superfund or a Post-Closure Liability Fund as maintained pursuant to
ss. 9507 of the Internal Revenue Code;
(iv) promptly upon becoming aware of the occurrence of or
forthcoming occurrence of a Change of Control, an officer's certificate
describing, in reasonable detail, the specifics of the Change of Control; and
(v) promptly upon the Agent's request, such other statements, lists
of property and accounts, budgets, forecasts or reports as to the Borrower and
its Subsidiaries as the Agent may reasonably request.
(c) CORPORATE EXISTENCE, ETC. At all times preserve and keep in full
force and effect its and its Material Subsidiaries' corporate existence and
rights and franchises material to its business as a whole and those of each of
its Material Subsidiaries.
(d) PAYMENT OF TAXES AND CLAIMS. Pay, and cause each of its
Subsidiaries to pay, all taxes, assessments and other governmental charges
imposed upon it or any of its properties or assets or in respect of any of its
franchises, business, income or property before any penalty or interest accrues
thereon, and all claims (including, without limitation, claims for labor,
services, materials and supplies) for sums which have become due and payable and
which by law have or may become a lien upon any of its properties or assets,
prior to the time when any penalty or fine shall be incurred with respect
thereto; provided that no such charge or claim need be paid if being contested
in good faith by appropriate proceedings promptly instituted and diligently
conducted and if such reserve or other appropriate provision, if any, as shall
be required in conformity with GAAP shall have been made therefor.
(e) MAINTENANCE OF PROPERTIES; INSURANCE. Maintain or cause to be
maintained in good repair, working order and condition all material properties
used or useful in the business of the Borrower and its Subsidiaries and from
time to time will make or cause to be made all appropriate repairs, renewals and
replacements thereof. The Borrower will maintain or cause to be maintained, with
financially sound and reputable insurers, insurance with respect to its
properties and business and the properties and business of its Subsidiaries
against loss or damage of the kinds customarily insured against by corporations
of established reputation engaged in the same or similar businesses and
similarly situated, of such types and in such amounts as are customarily carried
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under similar circumstances by such other corporations. All hazard insurance and
such other insurance as Agent shall specify, shall contain a Form 438BFU (NS)
mortgagee endorsement, or an equivalent endorsement satisfactory to Agent,
showing Agent as the loss payee thereof, as its interests may appear, and shall
contain a waiver of warranties. Every policy of insurance referred to in this
SECTION 6.1(e) shall contain an agreement by the insurer that it will not cancel
such policy except after 30 days prior written notice to Agent and that any loss
payable thereunder shall be payable notwithstanding any act or negligence of the
Borrower which might, absent such agreement, result in a forfeiture of all or a
part of such insurance payment. The Borrower will, upon the request of the
Agent, deliver to the Agent a copy of each insurance policy, or, if permitted by
the Agent, a certificate of insurance listing all insurance in force.
(f) INSPECTION. Permit any authorized representatives designated by the
Agent to visit and inspect any of the properties of the Borrower or any of its
Subsidiaries, including its and their financial and accounting records, and to
make copies and take extracts therefrom, and to discuss its and their affairs,
finances and accounts with its and their officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested. Agent's access to Borrower's Books shall
not include access to matters which are classified or deemed secretly
appropriate governmental authority.
(g) COMPLIANCE WITH LAWS ETC. Exercise, and cause each of its
Subsidiaries to exercise, all due diligence in order to comply with the
requirements of all applicable laws, rules, regulations and orders of any
governmental authority, including, without limitation, all rules and regulations
of public utility commissions or similar regulatory authorities, and all
environmental laws, rules, regulations and orders, noncompliance with which
would materially and adversely affect the business, properties, assets,
operations or condition (financial or otherwise) of the Borrower and its
Subsidiaries, taken as a whole.
(h) HAZARDOUS WASTE STUDIES. Promptly, and in any event within thirty
(30) days after submission, provide the Agent with copies of all such
investigations, studies, samplings and testings as may be requested by any
governmental or regulatory authority relative to any substance defined as
hazardous or toxic by any applicable federal, state or local law, rule,
regulation, order or directive, or any waste or by-product thereof, at or
affecting any real property or any facility owned, leased or used by the
Borrower or any Subsidiary.
(i) ACCOUNTING SYSTEM. Maintain a standard and modern system of
accounting that enables Borrower to produce financial statements in accordance
with GAAP, and maintain records pertaining to the Collateral that contain
information as from time to time may be requested by the Lender Group.
(j) LOCATION OF INVENTORY AND EQUIPMENT. Keep its Inventory and
Equipment only at the locations identified on Schedule 6.1(j); provided,
however, that Borrower may amend Schedule 6.1(j) so long as such amendment
occurs by written notice to Agent not less than 30 days prior to the date on
which the Inventory or Equipment is moved to such new location, so long as such
new location is within the continental United States, and so long as, at the
time of such written notification, Borrower provides any financing statements or
fixture filings necessary or advisable to perfect and continue perfected Agent's
Liens and also provide to Agent a collateral access agreement in form and
substance satisfactory to Agent.
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(k) YEAR 2000 COMPLIANCE. Borrower will be Year 2000 Compliant on a
timely basis.
SECTION 6.2 NEGATIVE COVENANTS. So long as any Note shall remain
unpaid or the Lender Group shall have any Commitment hereunder, the Borrower
will not, without the written consent of the Agent:
(a) CONSOLIDATED TANGIBLE NET WORTH. At any time, permit Consolidated
Tangible Net Worth to be less than $35,000,000; which such minimum amount of
Consolidated Tangible Net Worth shall be increased (i) at the end of each fiscal
quarter of the Borrower, commencing with Borrower's fiscal quarter ending June
30, 1998, by an amount equal to 75% of the consolidated net income of Borrower
for such fiscal quarter, determined in accordance with GAAP, PROVIDED, HOWEVER,
that if Borrower's net income for any fiscal quarter, determined in accordance
with GAAP, shall be less than zero, then no adjustment to such minimum amount of
Consolidate Tangible Net Worth shall be made; and (ii) at such time Borrower
shall issue equity securities, by an amount equal to 100% of the issuance
proceeds (net of ordinary and customary underwriters' discounts and commissions,
and costs, fees, and expenses incurred in connection with such issuance).
(b) INDEBTEDNESS. The Borrower will not permit the Indebtedness/EBIT
ratio, as of the last day of any fiscal quarter, for the four consecutive fiscal
quarters ending on that date to be greater than 2.50:1.00.
(c) INTEREST COVERAGE RATIO. The Borrower will not permit the Interest
Coverage Ratio, as of the last day of any fiscal quarter, for the four
consecutive fiscal quarters ending on that date to be less than 5.00:1.00.
(d) NET PROFITABILITY. At the end of any fiscal quarter of the
Borrower, commencing with the Borrower's fiscal quarter ending September 30,
1998, permit the net income of the Borrower and its Subsidiaries on a
consolidated basis, for such fiscal quarter to be less than $1.00.
(e) LIENS ETC. Create or suffer to exist, or permit any of its
Subsidiaries to create or suffer to exist, any Lien upon or with respect to any
of its properties, whether now owned or hereafter acquired, or assign, or permit
any of its Subsidiaries to assign, any right to receive income, in each case to
secure any indebtedness of any Person other than (i) Liens reflected on SCHEDULE
6.2(e) hereto; (ii) purchase money Liens upon or in any property acquired or
held by the Borrower or any Subsidiary in the ordinary course of business to
secure the purchase price of such property or to secure indebtedness incurred
solely for the purpose of financing the acquisition of such property as
permitted by SECTION 6.2(h)(v) hereof; (iii) Liens for taxes not yet due; and
(iv) Liens associated with any operating leases.
(f) DEBT. Create, incur, assume or permit to exist, or permit any
Subsidiary, to create, incur, assume or permit to exist, any direct or
contingent indebtedness, liabilities or lease obligations (other than those to
the Lender Group), or become liable for the debts of others without the Agent's
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written consent, except for (i) acquiring goods, supplies or merchandise on
normal trade credit; (ii) endorsing negotiable instruments received in the usual
course of business; (iii) obtaining surety bonds in the usual course of
business, (iv) the indebtedness of the Borrower and its Subsidiaries existing as
of, and disclosed to the Agent prior to the date of this Agreement; (v) secured
indebtedness, in the aggregate, for purchase money financing of equipment which
is permitted under SECTION 6.2(e)(ii) hereof and obligations under Capital
Leases not to exceed $1,000,000 outstanding at any time; and (vi) operating
leases.
(g) CONSOLIDATION, MERGER OR DISSOLUTION. Except for Permitted
Acquisitions, consolidate with or merge into any other corporation or entity;
PROVIDED, HOWEVER, any Solvent Subsidiary may be merged with or liquidated into
the Borrower or any wholly-owned Subsidiary (if the Borrower or such
wholly-owned Subsidiary is the surviving corporation).
(h) LOANS, INVESTMENTS, SECONDARY LIABILITIES. With the exception of
Permitted Acquisitions, make or permit to remain outstanding, or permit any
Subsidiary to make or permit to remain outstanding, any loan or advance to, or
guarantee, induce or otherwise become contingently liable, directly or
indirectly, in connection with the obligations, stock or dividends of, or own,
purchase or acquire any stock, obligations or securities of or any other
interest in, or make any capital contribution to, any other Person, in an
aggregate amount at any time, collectively among the Borrower and its
Subsidiaries, in excess of $1,000,000 except that the Borrower and its
Subsidiaries may, without limitation as to the dollar amount of any such
transactions (except as expressly provided below):
(i) own, purchase or acquire certificates of deposit issued by the
Agent, commercial paper rated Moody's P-1, municipal bonds rated Moody's AA or
better, direct obligations of the United States of America or its agencies, and
obligations guaranteed by the United States of America;
(ii) continue to own the existing capital stock of the Borrower's
Subsidiaries;
(iii) endorse negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business;
(iv) allow the Borrower's Subsidiaries to make or permit to remain
outstanding advances from the Borrower's Subsidiaries to the Borrower;
(v) make or permit to remain outstanding loans or advances to any
of Borrower's Subsidiaries not guaranteeing the repayment of the Loans or the
performance of Borrower hereunder (a "NON-GUARANTEEING Subsidiary") or enter
into or permit to remain outstanding guarantees in connection with the
obligations of the Borrower's Non-guaranteeing Subsidiaries, provided that such
loans and advances shall be limited to those arising in the ordinary course of
Borrower's business and the aggregate amount of such loans or guarantees by the
Borrower outstanding at any time shall not exceed $500,000; and
(vi) make or permit to remain outstanding loans and advances to any
of its officers, directors and shareholders or enter into or permit to remain
outstanding guarantees in connection with the obligations of any of its
officers, directors and shareholders, in an aggregate amount for all such loans,
advances and guarantees not exceeding $500,000 outstanding at any one time.
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(i) ASSET SALES. Convey, sell, lease, transfer or otherwise dispose of,
or permit any Subsidiary to convey, sell, lease, transfer or otherwise dispose
of, during any fiscal year of the Borrower, in one transaction or a series of
transactions, outside the ordinary course of business, assets of the Borrower or
of any of its Subsidiaries, whether now owned or hereafter acquired, having an
aggregate value in excess of $500,000.
(j) DIVIDENDS. Authorize, declare or pay any dividends, except that for
so long as no Event of Default or Potential Event of Default has occurred and is
continuing or would result from any such payment, the Borrower may declare and
pay dividends on its equity securities during any fiscal year or an amount not
to exceed twenty-five percent (25%) of Borrower's consolidated net income for
the immediately preceding fiscal year.
(k) LIMITATION ON GRANTING OF LIENS AND ON RESTRICTIONS ON SUBSIDIARY
DIVIDENDS AND OTHER TRANSFERS. Borrower will not, and it will not permit any of
its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any encumbrance or restriction on the ability of
(i) any Subsidiary to (A) pay dividends or make any other distribution on its
capital stock or any other equity interest or participation in its profits owned
by Borrower or any Subsidiary, or pay or repay any indebtedness owed to Borrower
or a Subsidiary, (B) make loans or advances to Borrower or (C) transfer any of
its properties or assets to the Borrower or any Subsidiary or (ii) Borrower or
any Subsidiary to grant Liens or security interests on the assets of such Person
in favor of the Lender Group, except for such encumbrances or restrictions
existing under or by reason of (A) applicable law, (B) this Agreement, (C)
customary provisions restricting subletting or assignment of any lease governing
a leasehold interest of Borrower or any Subsidiary, and (D) customary
restrictions on dispositions of real property interests found in reciprocal
easement agreements of Borrower or any Subsidiary.
(l) TRANSACTIONS WITH AFFILIATES. Neither the Borrower nor any of its
Subsidiaries shall enter into any transaction for the purchase, sale or exchange
of property or the rendering of any service to or by any affiliate, except in
the ordinary course of and pursuant to the reasonable requirements of the
Borrower's or its Subsidiary's business and upon fair and reasonable terms no
less favorable to the Borrower or its Subsidiary than the Borrower or its
Subsidiary would obtain in a comparable arm's length transaction with an
unaffiliated person.
(m) BOOKS AND RECORDS. The Borrower will, and will cause each of the
Guarantors to, keep proper books of record and account in which full, true and
correct entries in conformity with GAAP and all requirements of applicable law
shall be made of all dealings and transactions in relation to their businesses
and activities.
(n) RESTRUCTURE. Make any material change in the Borrower's financial
structure, the principal nature of the Borrower's business operations (taken as
a whole), or the date of its fiscal year.
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(o) CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND
EQUIPMENT WITH BAILEES. The Borrower shall not relocate its chief executive
office to a new location without providing 30 days prior written notification
thereof to Agent and so long as, at the time of such written notification, the
Borrower provides any financing statements or fixture filings necessary or
advisable to perfect and continue perfected Agent's Liens.
(p) SECURITIES ACCOUNTS. The Borrower shall not establish or maintain
any Securities Account (as defined in Section 8501 of the Code) unless Agent
shall have received a control agreement in form and substance satisfactory to
Agent, duly executed and in full force and effect, in respect of such Securities
Account. The Borrower agrees that it will not transfer assets out of any
Securities Accounts; provided, however, that, so long as no Event of Default has
occurred and is continuing or would result therefrom, the Borrower may use such
assets to the extent permitted by this Agreement.
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.1 EVENTS OF DEFAULT. If any of the following events
("EVENTS OF DEFAULT") shall occur and be continuing:
(a) The Borrower shall fail to pay any installment of principal or
interest or any other amount payable hereunder within five (5) days of the due
date thereof; or
(b) Any representation or warranty made by the Borrower herein or by
the Borrower (or any of its officers) in connection with the Loan Documents
shall prove to have been incorrect in any material respect when made; or
(c) The Borrower shall fail to perform or observe any term, covenant or
agreement contained in this Agreement on its part to be performed or observed
other than as described in SECTION 7.1(a) above and such failure shall continue
for ten (10) consecutive days; PROVIDED, THAT such ten (10) day period shall not
apply in the case of: (i) any failure to observe any such term, covenant,
condition or provision which is not capable of being cured at all or within such
ten (10) day period or which has been the subject of a prior failure within a
six (6) month period, or (ii) an intentional breach by Borrower of any such
term, covenant, condition or provision; or
(d) The Borrower or any of its Subsidiaries shall default in the
performance of or compliance with any term contained in any Loan Document other
than this Agreement and such default shall not have been remedied or waived
within any applicable grace period; or
(e) The Borrower or any of its Subsidiaries shall (i) fail to pay any
principal of, or premium or interest on, any indebtedness when due (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise) and
such failure shall continue after the applicable grace period, if any, specified
in the agreement or instrument relating to such indebtedness, or (ii) fail to
perform or observe any term, covenant or condition on its part to be performed
or observed under any agreement or instrument relating to any such indebtedness
or material to the performance, business, property, assets, condition (financing
or otherwise) or prospects of the Borrower and its Subsidiaries taken as a
whole, when required to be performed or observed, and such failure shall
continue after the applicable grace period, if any, specified in such agreement
or instrument; or
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(f) (i) The Borrower or any of its Subsidiaries shall commence any
case, proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or the Borrower or any
of its Subsidiaries shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the Borrower or any of its
Subsidiaries any case, proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed, undischarged or
unhanded for a period of sixty (60) days; or (iii) there shall be commenced
against the Borrower or any of its Subsidiaries any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, restraint or
similar process against all or any substantial part of its assets which results
in the entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within thirty (30) days from the
entry thereof; or (iv) the Borrower or any of its Subsidiaries shall take any
action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii) and (iii) above;
or (v) the Borrower or any of its Subsidiaries shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its debts as they
become due; or
(g) One or more judgments or decrees shall be entered against the
Borrower or any of its Subsidiaries involving in the aggregate a liability (not
paid or fully covered by insurance or reserves) equal to or greater than
$1,000,000 and all such judgments or decrees shall not have been vacated,
discharged, or stayed or bonded pending appeal within thirty (30) days from the
entry thereof; or
(h) Any guaranty for any reason other than satisfaction in full of all
obligations of the Borrower under the Loan Documents, ceases to be in full force
and effect or is declared null and void, or any Guarantor denies that it has any
further liability under such guaranty or gives notice to such effect and any
such cessation, declaration or denial shall not have been rescinded, and such
guarantee reaffirmed, to the satisfaction of the Agent within thirty (30) days
after the Borrower knows of such development; or
(i) The occurrence of any one or more of the following events with
respect to the Borrower or any ERISA Affiliate of the Borrower provided such
event or events could reasonably be expected, in the judgment of the Agent, to
subject the Borrower or any ERISA Affiliate of the Borrower to any tax, penalty
or liability (or any combination of the foregoing) which, in the aggregate,
could have a material adverse effect on the financial condition of the Borrower
or any ERISA Affiliate of the Borrower with respect to a Plan: (A) a reportable
event shall occur with respect to a Plan which is, in the reasonable judgment of
the Agent, likely to result in the termination of such Plan for purposes of
Title IV of ERISA, or (B) any Plan termination (or commencement of proceedings
to terminate a Plan) or the full or partial withdrawal from a Plan by the
Borrower or any ERISA Affiliate of the Borrower; or
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(j) There shall be instituted against the Borrower or any Material
Subsidiary, or against any Guarantor, any proceeding for which forfeiture of any
property is a potential penalty and such proceeding remains undismissed,
undischarged or unbonded for a period of thirty (30) days from the date the
Borrower knows of such proceeding; or
(k) A Change of Control under clause (b) of the definition thereof
shall have occurred.
Then, upon the occurrence, and during the continuation, of an Event of Default,
the Required Lenders (at their election but without notice of its election and
without demand) may, except to the extent otherwise expressly provided or
required below, authorize and instruct Agent to do any one or more of the
following on behalf of the Lender Group (and Agent, acting upon the instructions
of the Required Lenders, shall do the same on behalf of the Lender Group), all
of which are authorized by the Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable;
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement, under any of the Loan Documents;
(c) Terminate this Agreement and any of the other Loan Documents as to
any future liability or obligation of the Lender Group, but without affecting
Agent's rights and security interests, for the benefit of the Lender Group, in
the Collateral and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Account Debtors
for amounts and upon terms which Agent considers advisable, and in such cases,
Agent will credit Borrower's Loan Account with only the net amounts received by
Agent in payment of such disputed Accounts after deducting all Lender Group
Expenses incurred or expended in connection therewith;
(e) Without notice to or demand upon the Borrower, make such payments
and do such acts as Agent considers necessary or reasonable to protect its
security interests for the benefit of the Lender Group in the Collateral.
Borrower agrees to assemble the Collateral if Agent so requires, and to make the
Collateral available to Agent as Agent may designate. The Borrower authorizes
Agent to enter the premises where the Collateral is located, to take and
maintain possession of the Collateral, or any part of it, and to pay, purchase,
contest, or compromise any encumbrance, charge, or Lien that in Agent's
determination appears to conflict with Agent's Liens and to pay all expenses
incurred in connection therewith. With respect to any owned or leased premises
of the Borrower, the Borrower hereby grants Agent a license to enter into
possession of such premises and to occupy the same, without charge, for up to
120 days in order to exercise any of the Lender Group's rights or remedies
provided herein, at law, in equity, or otherwise;
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(f) Without notice to the Borrower (such notice being expressly
waived), and without constituting a retention of any Collateral in satisfaction
of an obligation (within the meaning of Section 9505 of the Code), set off and
apply to the Obligations any and all (i) balances and deposits of the Borrower
held by the Lender Group, or (ii) indebtedness at any time owing to or for the
credit or the account of the Borrower held by the Lender Group;
(g) Hold, as cash collateral, any and all balances and deposits of the
Borrower held by the Lender Group, to secure the full and final repayment of all
of the Obligations;
(h) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. The Borrower hereby grants to Agent a license or other right to use,
without charge, the Borrower's labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in completing production of, advertising for sale, and selling any Collateral
and Borrower's rights under all licenses and all franchise agreements shall
inure to the Lender Group's benefit;
(i) Sell the Collateral at either a public or private sale, or both, by
way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including any of the Borrower's premises) as Agent
determines is commercially reasonable. It is not necessary that the Collateral
be present at any such sale;
(j) Agent shall give notice of the disposition of the Collateral as
follows:
(1) to the Borrower and each holder of a security interest in the
Collateral who has filed with Agent a written request for notice, a notice in
writing of the time and place of public sale, or, if the sale is a private sale
or some other disposition other than a public sale is to be made of the
Collateral, then the time on or after which the private sale or other
disposition is to be made;
(2) The notice shall be personally delivered or mailed, postage
prepaid, to the Borrower as provided in SECTION 10.2 and at least 10 days before
the date fixed for the sale, or at least 10 days before the date on or after
which the private sale or other disposition is to be made; no notice needs to be
given prior to the disposition of any portion of the Collateral that is
perishable or threatens to decline speedily in value or that is of a type
customarily sold on a recognized market. Notice to Persons other than Borrower
claiming an interest in the Collateral shall be sent to such addresses as they
have furnished to Agent;
(3) If the sale is to be a public sale, Agent also shall give
notice of the time and place by publishing a notice one time at least 5 days
before the date of the sale in a newspaper of general circulation in the county
in which the sale is to be held;
(k) Any one or more members of the Lender Group may credit bid and
purchase at any public sale;
(l) The Lender Group shall have all other rights and remedies available
to it at law or in equity pursuant to any other Loan Documents; and
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(m) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by the Borrower. Any excess will be
returned, without interest and subject to the rights of third Persons, by Agent
to the Borrower.
SECTION 7.2 REMEDIES CUMULATIVE. The rights and remedies of the
Lender Group under this Agreement, the other Loan Documents, and all other
agreements shall be cumulative. The Lender Group shall have all other rights and
remedies not inconsistent herewith as provided under the Code, by law, or in
equity. No exercise by the Lender Group of one right or remedy shall be deemed
an election, and no waiver by the Lender Group of any Event of Default shall be
deemed a continuing waiver. No delay by the Lender Group shall constitute a
waiver, election, or acquiescence by it.
ARTICLE VIII
CREATION OF SECURITY INTEREST.
SECTION 8.1 GRANT OF SECURITY INTEREST. The Borrower hereby grants
to the Agent, for the benefit of the Lender Group a continuing security interest
in all currently existing and hereafter acquired or arising Collateral in order
to secure prompt repayment of any and all Obligations and in order to secure
prompt performance by Borrower of each of its covenants and duties under the
Loan Documents ("AGENT'S LIENS"). The Agent's Liens in and to the Collateral
shall attach to all Collateral without further act on the part of the Lender
Group or the Borrower. Anything contained in this Agreement or any other Loan
Document to the contrary notwithstanding, except for the sale of Inventory to
buyers in the ordinary course of business, the Borrower has no authority,
express or implied, to dispose of any item or portion of the Collateral.
SECTION 8.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral, the
Borrower, immediately upon the request of the Agent, shall endorse and deliver
physical possession of such Negotiable Collateral to the Agent.
SECTION 8.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND
NEGOTIABLE COLLATERAL. At any time, the Agent or the Agent's designee may (a)
notify customers or Account Debtors of the Borrower that the Accounts, General
Intangibles, or Negotiable Collateral have been assigned to the Agent for the
benefit of the Lender Group or that the Agent for the benefit of the Lender
Group or that the Agent for the benefit of the Lender Group has a security
interest therein, and (b) after the occurrence and during the continuance of an
Event of Default, collect the Accounts, General Intangibles, and Negotiable
Collateral directly and charge the collection costs and expenses to the Loan
Account. The Borrower agrees that it will hold in trust for the Lender Group, as
the Lender Group's trustee, any Collections that it receives and immediately
will deliver said Collections to the Agent in their original form as received by
the Borrower.
SECTION 8.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any
time upon the request of the Agent, the Borrower shall execute and deliver to
the Agent, all financing statements, continuation financing statements, fixture
filings, security agreements, pledges, assignments, endorsements of certificates
of title, applications for title, affidavits, reports, notices, schedules of
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accounts, letters of authority, and all other documents that the Agent
reasonably may request, in form satisfactory to the Agent, to perfect and
continue perfected the Agent's Liens on the Collateral (whether now owned or
hereafter arising or acquired), and in order to fully consummate all of the
transactions contemplated hereby and under the other the Loan Documents.
SECTION 8.5 POWER OF ATTORNEY. The Borrower hereby irrevocably
makes, constitutes, and appoints the Agent(and any of the Agent's officers,
employees, or agents designated by the Agent) as the Borrower's true and lawful
attorney, with power to (a) if the Borrower refuses to, or fails timely to
execute and deliver any of the documents described in SECTION 8.4, sign the name
of the Borrower on any of the documents described in SECTION 8.4, (b) at any
time that an Event of Default has occurred and is continuing or the Agent deems
itself insecure, sign the Borrower's name on any invoice or bill of lading
relating to any Account, drafts against Account Debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to Account
Debtors, (c) send requests for verification of Accounts, (d) endorse the
Borrower's name on any Collection item that may come into the Lender Group's
possession, (e) at any time that an Event of Default has occurred and is
continuing or the Agent deems itself insecure, notify the post office
authorities to change the address for delivery of the Borrower's mail to an
address designated by the Agent, to receive and open all mail addressed to the
Borrower, and to retain all mail relating to the Collateral and forward all
other mail to Borrower, (f) at any time that an Event of Default has occurred
and is continuing or the Agent deems itself insecure, make, settle, and adjust
all claims under the Borrower's policies of insurance and make all
determinations and decisions with respect to such policies of insurance, and (g)
at any time that an Event of Default has occurred and is continuing or the Agent
deems itself insecure, settle and adjust disputes and claims respecting the
Accounts directly with Account Debtors, for amounts and upon terms that the
Agent determines to be reasonable, and the Agent may cause to be executed and
delivered any documents and releases that the Agent determines to be necessary.
The appointment of the Agent as the Borrower's attorney, and each and every one
of Agent's rights and powers, being coupled with an interest, is irrevocable
until all of the Obligations have been fully and finally repaid and performed
and the Lender Group's obligations to extend credit hereunder are terminated.
SECTION 8.6 RIGHT TO INSPECT. The Agent and each Lender (through any
of their respective officers, employees, or agents) shall have the right, from
time to time hereafter to inspect the Borrower's Books and to check, test, and
appraise the Collateral in order to verify the Borrower's financial condition or
the amount, quality, value, condition of, or any other matter relating to, the
Collateral.
SECTION 8.7 LIABILITY FOR COLLATERAL. The Borrower hereby agrees
that: (a) so long as the Lender Group complies with its obligations, if any,
under Section 9207 of the Code, the Lender Group shall not in any way or manner
be liable or responsible for: (i) the safekeeping of the Collateral; (ii) any
loss or damage thereto occurring or arising in any manner or fashion from any
cause; (iii) any diminution in the value thereof; or (iv) any act or default of
any carrier, warehouseman, bailee, forwarding agency, or other Person; and (b)
all risk of loss, damage, or destruction of the Collateral shall be borne by the
Borrower.
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ARTICLE IX
THE AGENT; THE LENDER GROUP.
SECTION 9.1 APPOINTMENT AND AUTHORIZATION OF AGENT. Each Lender
hereby designates and appoints Mellon Bank, N.A. as its agent under this
Agreement and the other Loan Documents and each Lender hereby irrevocably
authorizes the Agent to take such action on its behalf under the provisions of
this Agreement and each other Loan Document and to exercise such powers and
perform such duties as are expressly delegated to it by the terms of this
Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. The Agent agrees to act as such on the express
conditions contained in this ARTICLE IX. The provisions of this ARTICLE IX are
solely for the benefit of the Agent, the Agent-Related Persons, and the Lenders;
the Borrower shall have no rights as a third party beneficiary of any of the
provisions contained herein; provided, however, that certain of the provisions
of SECTION 9.10 hereof also shall be for the benefit of the Borrower. Any
provision to the contrary contained elsewhere in this Agreement or in any other
Loan Document notwithstanding, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall the Agent
have or be deemed to have any fiduciary relationship with any Lender, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Agent; it being expressly understood and agreed that
the use of the word "Agent" is for convenience only, that the Bank. is merely
the representative of the Lenders, and has only the contractual duties set forth
herein. Except as expressly otherwise provided in this Agreement, the Agent
shall have and may use its sole discretion with respect to exercising or
refraining from exercising any discretionary rights or taking or refraining from
taking any actions which the Agent is expressly entitled to take or assert under
or pursuant to this Agreement and the other Loan Documents. Without limiting the
generality of the foregoing, or of any other provision of the Loan Documents
that provides rights or powers to the Agent, the Lenders agree that the Agent
shall have the right to exercise the following powers as long as this Agreement
remains in effect: (a) maintain, in accordance with its customary business
practices, ledgers and records reflecting the status of the Revolving Loans, the
Collateral, the Collections, and related matters; (b) execute or file any and
all financing or similar statements or notices, amendments, renewals,
supplements, documents, instruments, proofs of claim, notices and other written
agreements with respect to the Loan Documents; (c) make Revolving Loans, for
itself or on behalf of the Lenders as provided in the Loan Documents; (d)
exclusively receive, apply, and distribute the Collections as provided in the
Loan Documents; (e) open and maintain such bank accounts and lock boxes as the
Agent deems necessary and appropriate in accordance with the Loan Documents for
the foregoing purposes with respect to the Collateral and the Collections; (f)
perform, exercise, and enforce any and all other rights and remedies of the
Lender Group with respect to the Borrower, the Revolving Loans, the Collateral,
the Collections, or otherwise related to any of same as provided in the Loan
Documents; and (g) incur and pay such Lender Group Expenses as the Agent may
deem necessary or appropriate for the performance and fulfillment of its
functions and powers pursuant to the Loan Documents.
SECTION 9.2 DELEGATION OF DUTIES. Except as otherwise provided in
this section, the Agent may execute any of its duties under this Agreement or
any other Loan Document by or through agents, employees or attorneys-in-fact and
shall be entitled to advice of counsel concerning all matters pertaining to such
duties. The Agent shall not be responsible for the negligence or misconduct of
any agent or attorney-in-fact that it selects as long as such selection was made
in compliance with this section and without gross negligence or willful
misconduct.
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SECTION 9.3 LIABILITY OF AGENT. None of the Agent-Related Persons
shall (i) be liable for any action taken or omitted to be taken by any of them
under or in connection with this Agreement or any other Loan Document or the
transactions contemplated hereby (except for its own gross negligence or willful
misconduct), or (ii) be responsible in any manner to any of the Lenders for any
recital, statement, representation or warranty made by the Borrower or any
Subsidiary or Affiliate of the Borrower, or any officer or director thereof,
contained in this Agreement or in any other Loan Document, or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Agreement or any
other Loan Document, or the validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement or any other Loan Document, or for any failure
of the Borrower or any other party to any Loan Document to perform its
obligations hereunder or thereunder. No Agent-Related Person shall be under any
obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or to inspect the properties, books or
records of the Borrower or any of the Borrower's Subsidiaries or Affiliates.
SECTION 9.4 RELIANCE BY AGENT. The Agent shall be entitled to rely,
and shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone
message, statement or other document or conversation believed by it to be
genuine and correct and to have been signed, sent, or made by the proper Person
or Persons, and upon advice and statements of legal counsel (including counsel
to the Borrower or counsel to any Lender), independent accountants and other
experts selected by the Agent. The Agent shall be fully justified in failing or
refusing to take any action under this Agreement or any other Loan Document
unless it shall first receive such advice or concurrence of the Lenders as it
deems appropriate and until such instructions are received, the Agent shall act,
or refrain from acting, as it deems advisable. If the Agent so requests, it
shall first be indemnified to its reasonable satisfaction by the Lenders against
any and all liability and expense that may be incurred by it by reason of taking
or continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement or any
other Loan Document in accordance with a request or consent of the Lenders and
such request and any action taken or failure to act pursuant thereto shall be
binding upon all of the Lenders.
SECTION 9.5 NOTICE OF DEFAULT OR EVENT OF DEFAULT. The Agent shall
not be deemed to have knowledge or notice of the occurrence of any Default or
Event of Default unless the Agent shall have received written notice from a
Lender or the Borrower referring to this Agreement, describing such Default or
Event of Default, and stating that such notice is a "notice of default." The
Agent promptly will notify the Lenders of its receipt of any such notice or of
any Event of Default of which the Agent has actual knowledge. If any Lender
obtains actual knowledge of any Event of Default, such Lender promptly shall
notify the other Lenders and the Agent of such Event of Default. Each Lender
shall be solely responsible for giving any notices to its Participants, if any.
Subject to SECTION 9.4, the Agent shall take such action with respect to such
Default or Event of Default as may be requested by the Required Lenders in
accordance with SECTION 7.1; provided, however, that unless and until the Agent
has received any such request, the Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable.
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SECTION 9.6 CREDIT DECISION. Each Lender acknowledges that none of
the Agent-Related Persons has made any representation or warranty to it, and
that no act by the Agent hereinafter taken, including any review of the affairs
of the Borrower and its Subsidiaries or Affiliates, shall be deemed to
constitute any representation or warranty by any Agent-Related Person to any
Lender. Each Lender represents to the Agent that it has, independently and
without reliance upon any Agent-Related Person and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and
other condition and creditworthiness of the Borrower and any other Person (other
than the Lender Group) party to a Loan Document, and all applicable bank
regulatory laws relating to the transactions contemplated hereby, and made its
own decision to enter into this Agreement and to extend credit to the Borrower.
Each Lender also represents that it will, independently and without reliance
upon any Agent-Related Person and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects, operations, property, financial
and other condition and creditworthiness of the Borrower and any other Person
(other than the Lender Group) party to a Loan Document. Except for notices,
reports and other documents expressly herein required to be furnished to the
Lenders by the Agent, the Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of the Borrower and any other Person party to a Loan Document
that may come into the possession of any of the Agent-Related Persons.
SECTION 9.7 COSTS AND EXPENSES; INDEMNIFICATION. The Agent may incur
and pay Lender Group Expenses to the extent the Agent deems reasonably necessary
or appropriate for the performance and fulfillment of its functions, powers, and
obligations pursuant to the Loan Documents, including without limiting the
generality of the foregoing, court costs, reasonable attorneys fees and
expenses, costs of collection by outside collection agencies and auctioneer fees
and costs of security guards or insurance premiums paid to maintain the
Collateral, whether or not the Borrower is obligated to reimburse the Agent or
the Lenders for such expenses pursuant to the Loan Agreement or otherwise. The
Agent is authorized and directed to deduct and retain sufficient amounts from
Collections to reimburse the Agent for such out-of-pocket costs and expenses
prior to the distribution of any amounts to the Lenders. In the event the Agent
is not reimbursed for such costs and expenses from Collections, each Lender
hereby agrees that it is and shall be obligated to pay to or reimburse the Agent
for the amount of such Lender's Pro Rata Share thereof. Whether or not the
transactions contemplated hereby are consummated, the Lenders shall indemnify
upon demand the Agent-Related Persons (to the extent not reimbursed by or on
behalf of the Borrower and without limiting the obligation of the Borrower to do
so), according to their Pro Rata Shares, from and against any and all
Indemnified Liabilities; provided, however, that no Lender shall be liable for
the payment to the Agent-Related Persons of any portion of such Indemnified
Liabilities resulting solely from such Person's gross negligence or willful
misconduct. Without limitation of the foregoing, each Lender shall reimburse the
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Agent upon demand for its ratable share of any costs or out-of-pocket expenses
(including attorneys fees and expenses) incurred by the Agent in connection with
the preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
any other Loan Document, or any document contemplated by or referred to herein,
to the extent that the Agent is not reimbursed for such expenses by or on behalf
of the Borrower. The undertaking in this section shall survive the payment of
all obligations hereunder and the resignation or replacement of the Agent.
SECTION 9.8 AGENT IN INDIVIDUAL CAPACITY. Mellon and its Affiliates
may make loans to, issue letters of credit for the account of, accept deposits
from, acquire equity interests in and generally engage in any kind of banking,
trust, financial advisory, underwriting or other business with the Borrower and
its Subsidiaries and Affiliates and any other Person (other than the Lender
Group) party to any Loan Documents as though Mellon were not Agent hereunder and
without notice to or consent of the Lenders. The Lenders acknowledge that,
pursuant to such activities, Mellon or its Affiliates may receive information
regarding the Borrower or its Affiliates and any other Person (other than the
Lender Group) party to any Loan Documents that is subject to confidentiality
obligations in favor of the Borrower or such other Person and that prohibit the
disclosure of such information to the Lenders, and the Lenders acknowledge that,
in such circumstances (and in the absence of a waiver of such confidentiality
obligations), the Agent shall be under no obligation to provide such information
to them. With respect to Mellon Loans, Mellon shall have the same rights and
powers under this Agreement as any other Lender and may exercise the same as
though it were not Agent, and the terms "Lender" and "Lenders" include Mellon in
its individual capacity.
SECTION 9.9 SUCCESSOR AGENT. The Agent may resign as Agent upon 45
days notice to the Lenders. If the Agent resigns under this Agreement, the
Required Lenders shall appoint a successor Agent for the Lenders. If no
successor Agent is appointed prior to the effective date of the resignation of
the Agent, the Agent may appoint, after consulting with the Lenders, a successor
Agent. If the Agent has materially breached or failed to perform any material
provision of this Agreement or of applicable law, the Required Lenders may agree
in writing to remove and replace the Agent with a successor Agent from among the
Lenders. In any such event, upon the acceptance of its appointment as successor
Agent hereunder, such successor Agent shall succeed to all the rights, powers
and duties of the retiring Agent and the term "Agent" shall mean such successor
Agent. After any retiring Agent's resignation or replacement hereunder as Agent,
the provisions of this ARTICLE IX shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement and
the retiring Agent's appointment, powers and duties as Agent shall be
terminated.. If no successor Agent has accepted appointment as Agent by the date
which is 45 days following a retiring Agent's notice of resignation, the
retiring Agent's resignation shall nevertheless thereupon become effective and
the Lenders shall perform all of the duties of Agent hereunder until such time,
if any, as the Lenders appoint a successor Agent as provided for above.
SECTION 9.10 WITHHOLDING TAX. If any Lender is a "foreign
corporation, partnership or trust" within the meaning of the IRC and such Lender
claims exemption from, or a reduction of, U.S. withholding tax under Sections
1441 or 1442 of the IRC, such Lender agrees with and in favor of the Agent and
the Borrower, to deliver to Agent and Borrower:
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(i) if such Lender claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, properly completed IRS Forms
1001 and W-8 before the payment of any interest in the first calendar year and
before the payment of any interest in each third succeeding calendar year during
which interest may be paid under this Agreement;
(ii) if such Lender claims that interest paid under this Agreement
is exempt from United States withholding tax because it is effectively connected
with a United States trade or business of such Lender, two properly completed
and executed copies of IRS Form 4224 before the payment of any interest is due
in the first taxable year of such Lender and in each succeeding taxable year of
such Lender during which interest may be paid under this Agreement, and IRS Form
W-9; and
(iii) such other form or forms as may be required under the IRC or
other laws of the United States as a condition to exemption from, or reduction
of, United States withholding tax.
Such Lender agrees promptly to notify the Agent and the Borrower of any change
in circumstances which would modify or render invalid any claimed exemption or
reduction.
(b) If any Lender claims exemption from, or reduction of, withholding
tax under a United States tax treaty by providing IRS Form 1001 and such Lender
sells, assigns, grants a participation in, or otherwise transfers all or part of
the obligations of the Borrower to such Lender, such Lender agrees to notify the
Agent of the percentage amount in which it is no longer the beneficial owner of
obligations of the Borrower to such Lender. To the extent of such percentage
amount, the Agent will treat such Lender's IRS Form 1001 as no longer valid.
(c) If any Lender claiming exemption from United States withholding tax
by filing IRS Form 4224 with the Agent sells, assigns, grants a participation
in, or otherwise transfers all or part of the obligations of the Borrower to
such Lender, such Lender agrees to undertake sole responsibility for complying
with the withholding tax requirements imposed by Sections 1441 and 1442 of the
IRC.
(d) If any Lender is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such Lender
an amount equivalent to the applicable withholding tax after taking into account
such reduction. If the forms or other documentation required by subsection (a)
of this Section are not delivered to the Agent, then the Agent may withhold from
any interest payment to such Lender not providing such forms or other
documentation an amount equivalent to the applicable withholding tax.
(e) If the IRS or any other Governmental Authority of the United States
or other jurisdiction asserts a claim that the Agent did not properly withhold
tax from amounts paid to or for the account of any Lender (because the
appropriate form was not delivered, was not properly executed, or because such
Lender failed to notify the Agent of a change in circumstances which rendered
the exemption from, or reduction of, withholding tax ineffective, or for any
other reason) such Lender shall indemnify the Agent fully for all amounts paid,
directly or indirectly, by the Agent as tax or otherwise, including penalties
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and interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Agent under this Section, together with all costs and expenses
(including attorneys fees and expenses). The obligation of the Lenders under
this subsection shall survive the payment of all obligations of the Borrower and
the resignation or replacement of the Agent.
SECTION 9.11 Collateral Matters. The Lenders hereby irrevocably
authorize the Agent, at its option and in its sole discretion, to release any
Lien on any Collateral (i) upon the termination of the Commitments and payment
and satisfaction in full by Borrower of all obligations; (ii) constituting
property being sold or disposed of if a release is required or desirable in
connection therewith and if the Borrower certifies to the Agent that the sale or
disposition is permitted under this Agreement or the other Loan Documents (and
the Agent may rely conclusively on any such certificate, without further
inquiry); (iii) constituting property in which the Borrower owned no interest at
the time the security interest was granted or at any time thereafter; or (iv)
constituting property leased to the Borrower under a lease that has expired or
is terminated in a transaction permitted under this Agreement. Except as
provided above, the Agent will not execute and deliver a release of any Lien on
any Collateral without the prior written authorization of (y) if the release is
of all or substantially all of the Collateral, all of the Lenders, or (z)
otherwise, the Required Lenders. Upon request by the Agent or the Borrower at
any time, the Lenders will confirm in writing the Agent's authority to release
any such Liens on particular types or items of Collateral pursuant to this
Section; provided, however, that (1) the Agent shall not be required to execute
any document necessary to evidence such release on terms that, in the Agent's
opinion, would expose the Agent to liability or create any obligation or entail
any consequence other than the release of such Lien without recourse,
representation, or warranty, and (2) such release shall not in any manner
discharge, affect, or impair the obligations of the Borrower or any Liens (other
than those expressly being released) upon (or obligations of the Borrower in
respect of) all interests retained by the Borrower, including, the proceeds of
any sale, all of which shall continue to constitute part of the Collateral.
(b) The Agent shall have no obligation whatsoever to any of the Lenders
to assure that the Collateral exists or is owned by the Borrower or is cared
for, protected, or insured or has been encumbered, or that the Agent's Liens
have been properly or sufficiently or lawfully created, perfected, protected, or
enforced or are entitled to any particular priority, or to exercise at all or in
any particular manner or under any duty of care, disclosure or fidelity, or to
continue exercising, any of the rights, authorities and powers granted or
available to the Agent pursuant to any of the Loan Documents, it being
understood and agreed that in respect of the Collateral, or any act, omission or
event related thereto, subject to the terms and conditions contained herein, the
Agent may act in any manner it may deem appropriate, in its sole discretion
given the Agent's own interest in the Collateral in its capacity as one of the
Lenders and that the Agent shall have no other duty or liability whatsoever to
any Lender as to any of the foregoing, except as otherwise provided herein.
SECTION 9.12 Restrictions on Actions by Lenders; Sharing of
Payments. Each of the Lenders agrees that it shall not, without the express
consent of the Agent, and that it shall, to the extent it is lawfully entitled
to do so, upon the request of the Agent, set off against the obligations of the
Borrower, any amounts owing by such Lender to the Borrower or any accounts of
the Borrower now or hereafter maintained with such Lender. Each of the Lenders
further agrees that it shall not, unless specifically requested to do so by the
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Agent, take or cause to be taken any action, including, the commencement of any
legal or equitable proceedings, to foreclose any Lien on, or otherwise enforce
any security interest in, any of the Collateral the purpose of which is, or
could be, to give such Lender any preference or priority against the other
Lenders with respect to the Collateral.
(b) Subject to Section 9.8, if, at any time or times any Lender shall
receive (i) by payment, foreclosure, setoff or otherwise, any proceeds of
Collateral or any payments with respect to the obligations of the Borrower
arising under, or relating to, this Agreement or the other Loan Documents,
except for any such proceeds or payments received by such Lender from the Agent
pursuant to the terms of this Agreement, or (ii) payments from the Agent in
excess of such Lender's ratable portion of all such distributions by the Agent,
such Lender promptly shall (1) turn the same over to the Agent, in kind, and
with such endorsements as may be required to negotiate the same to the Agent, or
in same day funds, as applicable, for the account of all of the Lenders and for
application to the obligations of the Borrower in accordance with the applicable
provisions of this Agreement, or (2) purchase, without recourse or warranty, an
undivided interest and participation in the obligations of the Borrower owed to
the other Lenders so that such excess payment received shall be applied ratably
as among the Lenders in accordance with their Pro Rata Shares; provided,
however, that if all or part of such excess payment received by the purchasing
party is thereafter recovered from it, those purchases of participations shall
be rescinded in whole or in part, as applicable, and the applicable portion of
the purchase price paid therefor shall be returned to such purchasing party, but
without interest except to the extent that such purchasing party is required to
pay interest in connection with the recovery of the excess payment.
SECTION 9.13 AGENCY FOR PERFECTION. The Agent and each Lender hereby
appoints each other Lender as agent for the purpose of perfecting the Agent's
Liens in assets which, in accordance with Article 9 of the UCC can be perfected
only by possession. Should any Lender obtain possession of any such Collateral,
such Lender shall notify Agent thereof, and, promptly upon the Agent's request
therefor shall deliver such Collateral to the Agent or in accordance with the
Agent's instructions.
SECTION 9.14 PAYMENTS BY AGENT TO THE LENDERS. All payments to be
made by the Agent to the Lenders shall be made by bank wire transfer or internal
transfer of immediately available funds pursuant to such wire transfer
instructions as each party may designate for itself by written notice to the
Agent.
SECTION 9.15 CONCERNING THE COLLATERAL AND RELATED LOAN DOCUMENTS.
Each member of the Lender Group authorizes and directs the Agent to enter into
this Agreement and the other Loan Documents relating to the Collateral, for the
benefit of the Lender Group. Each member of the Lender Group agrees that any
action taken by the Agent or all Lenders, as applicable, in accordance with the
terms of this Agreement or the other Loan Documents relating to the Collateral
and the exercise by the Agent or all Lenders, as applicable, of their respective
powers set forth therein or herein, together with such other powers that are
reasonably incidental thereto, shall be binding upon all of the Lenders.
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SECTION 9.16 SEVERAL OBLIGATIONS; NO LIABILITY. Notwithstanding that
certain of the Loan Documents now or hereafter may have been or will be executed
only by or in favor of the Agent in its capacity as such, and not by or in favor
of the Lenders, any and all obligations on the part of the Agent (if any) to
make any credit available hereunder shall constitute the several (and not joint)
obligations of the respective Lenders on a ratable basis, according to their
respective Commitments, to make an amount of such credit not to exceed, in
principal amount, at any one time outstanding, the amount of their respective
Commitments. Nothing contained herein shall confer upon any Lender any interest
in, or subject any Lender to any liability for, or in respect of, the business,
assets, profits, losses, or liabilities of any other Lender. Each Lender shall
be solely responsible for notifying its Participants of any matters relating to
the Loan Documents to the extent any such notice may be required, and no Lender
shall have any obligation, duty, or liability to any Participant of any other
Lender. Except as provided in SECTION 9.7, no member of the Lender Group shall
have any liability for the acts of any other member of the Lender Group. No
Lender shall be responsible to the Borrower or any other Person for any failure
by any other Lender to fulfill its obligations to make credit available
hereunder, nor to advance for it or on its behalf in connection with its
Commitment, nor to take any other action on its behalf hereunder or in
connection with the financing contemplated herein.
SECTION 9.17 HOLDERS OF NOTES. The Agent may deem and treat the
Lender which is payee of a Note as the owner and holder of such Note for all
purposes hereof unless and until an Assignment and Acceptance with respect to
the assignment or transfer thereof shall have been filed with the Agent in
accordance with SECTION 10.6. Any authority, direction or consent of any Person
who at the time of giving such authority, direction or consent is shown in the
records of the Agent as being a Lender shall be conclusive and binding on each
present and subsequent holder, transferee or assignee of any Note or Notes
payable to such Lender or of any Note or Notes issued in exchange therefor.
SECTION 9.18 CALCULATIONS. The Agent shall not be liable for any
calculation, apportionment or distribution of payments made by it in good faith.
If such calculation, apportionment or distribution is subsequently determined to
have been made in error, the sole recourse of any Lender to whom payment was due
but not made shall be to recover from the other Lenders any payment in excess of
the amount to which they are determined to be entitled or, if the amount due was
not paid by the Borrower, to recover such amount from the Borrower.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 AMENDMENTS, ETC. No amendment or waiver of any
provision of the Loan Documents nor consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Required Lenders (or by the Agent at the written request of
the Required Lenders), and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given; PROVIDED,
HOWEVER, that no such waiver, amendment, or consent shall, unless in writing and
signed by all the Lenders and the Borrower and acknowledged by the Agent, do any
of the following:
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(a) increase or extend the Commitment of any Lender;
(b) postpone or delay any date fixed by this Agreement or any other
Loan Document for any payment of principal, interest, fees or other amounts due
to the Lenders (or any of them) hereunder or under any other Loan Document;
(c) reduce the outstanding principal of, or the rate of interest
specified herein on the Revolving Loans (except for pricing adjustments
resulting from the application of the appropriate Applicable Margin), or any
fees or other amounts payable hereunder or under any other Loan Document;
(d) change the percentage of the Commitments that is required for the
Lenders or any of them to take any action hereunder;
(e) amend this Section or any provision of the Agreement providing for
consent or other action by all the Lenders;
(f) release Collateral other than as permitted by Section 8.11;
(g) change the definition of "Required Lenders";
(h) release the Borrower from any obligation for the payment of money;
or
(i) amend any of the provisions of Article IX.
and, provided further, however, that no amendment, waiver or consent shall,
unless in writing and signed by the Agent, affect the rights or duties of the
Agent under this Agreement or any other Loan Document. The foregoing
notwithstanding, any amendment, modification, waiver, consent, termination, or
release of or with respect to any provision of this Agreement or any other Loan
Document that relates only to the relationship of the Lender Group among
themselves, and that does not affect the rights or obligations of the Borrower,
shall not require consent by or the agreement of the Borrower.
SECTION 10.2 NOTICES, ETC. Except as otherwise set forth in this
Agreement, all notices and other communications provided for hereunder shall be
in writing (including facsimile communication) and mailed or sent by facsimile
or delivered, if to the Borrower, at its address set forth on the signature page
hereof; if to the Agent, at its address set forth on the signature page hereof;
if to any Lender, at such Lender's address set forth on the signature page
hereof or on such Assignment and Acceptance by which such Lender became a party
hereto, or, as to each party, at such other address as shall be designated by
such party in a written notice to the other party. All such notices and
communications shall be effective when sent by facsimile, or three days after
such notice or communication is deposited in the mails, except that notices and
communications to the Agent pursuant to ARTICLE II or VII shall not be effective
until received by the Agent.
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SECTION 10.3 RIGHT OF SETOFF. Upon and only after the occurrence of
any uncured Event of Default, the Agent and each Lender is hereby authorized by
the Borrower, at any time and from time to time, without notice, (a) to set off
against, and to appropriate and apply to the payment of, the obligations and
liabilities of the Borrower under the Loan Documents (whether matured or
unmatured, fixed or contingent or liquidated or unliquidated) any and all
amounts owing by any member of the Lender Group to the Borrower (whether payable
in Dollars or any other currency, whether matured or unmatured, and, in the case
of deposits, whether general or special, time or demand and however evidenced)
and (b) pending any such action, to the extent necessary, to hold such amounts
as collateral to secure such obligations and liabilities and to return as unpaid
for insufficient funds any and all checks and other items drawn against any
deposits so held as the Agent or any Lender in its sole discretion may elect.
Each member of the Lender Group is authorized to debit any account maintained
with it by the Borrower for any amount of principal, interest or fees which are
then due and owing to the Lender Group.
SECTION 10.4 NO WAIVER; REMEDIES. No failure on the part of either
party hereto to exercise, and no delay in exercising, any right under any of the
Loan Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under any of the Loan Documents preclude any other
or further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
SECTION 10.5 COSTS AND EXPENSES. The Borrower shall pay to the Agent
promptly after receipt of notice the full amount of all costs and expenses
("LENDER GROUP EXPENSES"), including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of the Agent's in-house counsel),
incurred by the Agent in connection with the negotiation, syndication,
preparation, execution and administration of any commitment letter or this
Agreement and each other of the Loan Documents, and the preparation of any
amendments and waivers hereto and thereto; or incurred by the Agent or the
Lender Group in connection with (a) the enforcement of the Lender Group's rights
and/or the collection of any amounts which become due to the Lender Group under
any of the Loan Documents (including, without limitation, in appellate,
bankruptcy, insolvency, liquidation, reorganization, moratorium or other similar
proceedings) or the restructuring of the Loan Documents, and (b) the prosecution
or defense of any action in any way related to any of the Loan Documents,
including, without limitation, any action for declaratory relief.
SECTION 10.6 ASSIGNMENTS AND PARTICIPATIONS. Any Lender may, with
the written consent of the Agent, and, prior to the occurrence and continuance
of an Event of Default, consent of the Borrower, which consent shall not be
unreasonably withheld, conditioned or delayed, assign and delegate to one or
more assignees (each an "Assignee") all, or any ratable part of all, of the
Revolving Loans, the Commitments and the other rights and obligations of such
Lender hereunder and under the other Loan Documents, in a minimum amount of
$5,000,000; provided, however, that the Borrower and the Agent may continue to
deal solely and directly with such Lender in connection with the interest so
assigned to an Assignee until (i) written notice of such assignment, together
with payment instructions, addresses and related information with respect to the
Assignee, shall have been given to the Borrower and the Agent by such Lender and
the Assignee; (ii) such Lender and its Assignee shall have delivered to the
Borrower and the Agent an Assignment and Acceptance; and (iii) the assignor
Lender or Assignee has paid to the Agent for the Agent's sole and separate
account a processing fee in the amount of $3,500. Anything contained herein to
the contrary notwithstanding, the consent of the Agent or the Borrower shall not
be required (and payment of any fees shall not be required) if such assignment
is in connection with any merger, consolidation, sale, transfer, or other
disposition of all or any substantial portion of the business or loan portfolio
of such Lender.
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(b) From and after the date that the Agent notifies the assignor Lender
that it has received an executed Assignment and Acceptance and payment of the
above-referenced processing fee, (i) the Assignee thereunder shall be a party
hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, shall have the rights
and obligations of a Lender under the Loan Documents, and (ii) the assignor
Lender shall, to the extent that rights and obligations hereunder and under the
other Loan Documents have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights (except with respect to Section 9.7 hereof)
and be released from its obligations under this Agreement (and in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement and the other Loan
Documents, such Lender shall cease to be a party hereto and thereto), and such
assignment shall effect a novation between the Borrower and the Assignee.
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the Assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (1) other than as
provided in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other Loan Document furnished
pursuant hereto; (2) such assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under this Agreement or any other Loan Document furnished pursuant
hereto; (3) such Assignee confirms that it has received a copy of this
Agreement, together with such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (4) such Assignee will, independently and without
reliance upon the Agent, such assigning Lender or any other Lender, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (5) such Assignee appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under this Agreement
as are delegated to the Agent by the terms hereof, together with such powers as
are reasonably incidental thereto; and (6) such Assignee agrees that it will
perform in accordance with their terms all of the obligations which by the terms
of this Agreement are required to be performed by it as a Lender.
(d) Immediately upon each Assignee's making its processing fee payment
under the Assignment and Acceptance, this Agreement shall be deemed to be
amended to the extent, but only to the extent, necessary to reflect the addition
of the Assignee and the resulting adjustment of the Commitments arising
therefrom. The Commitment allocated to each Assignee shall reduce such
Commitments of the assigning Lender pro tanto.
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(e) Any Lender may at any time, with the written consent of the Agent,
and, prior to the occurrence and continuance of an Event of default, consent of
the Borrower, which consent shall not be unreasonably withheld, conditioned or
delayed, sell to one or more commercial banks, financial institutions, or other
Persons not Affiliates of such Lender (a "Participant") participating interests
in the Revolving Loans, the Commitment, and the other rights and interests of
that Lender (the "originating Lender") hereunder and under the other Loan
Documents; provided, however, that (i) the originating Lender's obligations
under this Agreement shall remain unchanged, (ii) the originating Lender shall
remain solely responsible for the performance of such obligations, (iii) the
Borrower and the Agent shall continue to deal solely and directly with the
originating Lender in connection with the originating Lender's rights and
obligations under this Agreement and the other Loan Documents, (iv) no Lender
shall transfer or grant any participating interest under which the Participant
has the sole and exclusive right to approve any amendment to, or any consent or
waiver with respect to, this Agreement or any other Loan Document, except to the
extent such amendment to, or consent or waiver with respect to this Agreement or
of any other Loan Document would (A) extend the final maturity date of the
Revolving Loans hereunder in which such Participant is participating; (B) reduce
the interest rate applicable to the Revolving Loans hereunder in which such
Participant is participating; (C) release all or a material portion of the
Collateral or guaranties (except to the extent expressly provided herein or in
any of the Loan Documents) supporting the Obligations hereunder in which such
Participant is participating; (D) postpone the payment of, or reduce the amount
of, the interest or fees payable to such Participant through such Lender; or (E)
change the amount or due dates of scheduled principal repayments or prepayments
or premiums; and (v) all amounts payable by the Borrower hereunder shall be
determined as if such Lender had not sold such participation; except that, if
amounts outstanding under this Agreement are due and unpaid, or shall have been
declared or shall have become due and payable upon the occurrence of an Event of
Default, each Participant shall be deemed to have the right of set-off in
respect of its participating interest in amounts owing under this Agreement to
the same extent as if the amount of its participating interest were owing
directly to it as a Lender under this Agreement. The rights of any Participant
only shall be derivative through the originating Lender with whom such
Participant participates and no Participant shall have any direct rights as to
the other Lenders, the Agent, the Borrower, the Collections, the Collateral, or
otherwise in respect of the Revolving Loans. No Participant shall have the right
to participate directly in the making of decisions by the Lenders among
themselves.
(f) In connection with any such assignment or participation or proposed
assignment or participation, a Lender may disclose all documents and information
which it now or hereafter may have relating to the Borrower or the Borrower's
business.
(g) Any other provision in this Agreement notwithstanding, any Lender
may at any time create a security interest in, or pledge, all or any portion of
its rights under and interest in this Agreement in favor of any Federal Reserve
Bank in accordance with Regulation A of the Federal Reserve Bank or U.S.
Treasury Regulation 31 CFR ss.203.14, and such Federal Reserve Bank may enforce
such pledge or security interest in any manner permitted under applicable law.
51.
<PAGE>
SECTION 10.7 EFFECTIVENESS: BINDING EFFECT. This Agreement shall
become effective when it shall have been executed by the Borrower, each member
of the Lender Group whose signature is provided for on the signature page
hereof, and the Agent and thereafter shall be binding upon and inure to the
benefit of the Borrower, each Lender, the Agent, and their respective successors
and assigns, except that the Borrower shall not have the right to assign its
rights hereunder or any interest herein without the prior written consent of the
Lenders.
SECTION 10.8 GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS;
JURY TRIAL WAIVER.
(a) The validity, interpretation and enforcement of this Agreement and
the other Loan Documents and any dispute arising out of the relationship between
the parties hereto, whether in contract, tort, equity or otherwise, shall be
governed by the internal laws of the State of California (without giving effect
to principles of conflicts of law).
(b) The Borrower, each Lender, and the Agent irrevocably consent and
submit to the non-exclusive jurisdiction of the state courts of the County of
Los Angeles and the United States District Court for the Central District of
California and waive any objection based on venue or FORUM NON CONVENIENS with
respect to any action instituted therein arising under this Agreement or any of
the other Loan Documents or in any way connected with or related or incidental
to the dealings of the parties hereto in respect of this Agreement or any of the
other Loan Documents or the transactions related hereto or thereto, in each case
whether now existing or hereafter arising, and whether in contract, tort, equity
or otherwise, and agree that any dispute with respect to any such matters shall
be heard only in the courts described above.
(c) The Borrower hereby waives personal service of any and all process
upon it and consents that all such service of process may be made by certified
mail (return receipt requested) directed to its address set forth on the
signature pages hereof and service so made shall be deemed to be completed five
(5) days after the same shall have been so deposited in the U.S. mails, or, at
the Agent's option, by service upon the Borrower in any other manner provided
under the rules of any such courts.
(d) THE BORROWER, EACH LENDER, AND THE AGENT EACH HEREBY WAIVES ANY
RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1)
ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR (2) IN ANY
WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. THE
BORROWER, EACH LENDER, AND THE AGENT EACH HEREBY AGREES AND CONSENTS THAT ANY
SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT THE BORROWER, EACH LENDER, OR THE AGENT MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
52.
<PAGE>
(e) The Lender Group shall not have any liability to the Borrower
(whether in tort, contract, equity or otherwise) for losses suffered by the
Borrower in connection with, arising out of, or in any way related to the
transactions or relationships contemplated by this Agreement, or any act,
omission or event occurring in connection herewith, unless it is determined by a
final and non-appealable judgment or court order binding on the Lender Group,
that the losses were the result of acts or omissions constituting gross
negligence or willful misconduct. In any such litigation, the Lender Group shall
be entitled to the benefit of the rebuttable presumption that it acted in good
faith and with the exercise of ordinary care in the performance by it of the
terms of this Agreement.
SECTION 10.9 WAIVER OF NOTICES. The Borrower hereby expressly waives
demand, presentment, protest and notice of protest and notice of dishonor with
respect to any and all instruments and commercial paper, included in or
evidencing any of the obligations, and any and all other demands and notices of
any kind or nature whatsoever with respect to the obligations and this
Agreement, except such as are expressly provided for herein. No notice to or
demand on the Borrower which the Agent may elect to give shall entitle the
Borrower to any other or further notice or demand in the same, similar or other
circumstances.
SECTION 10.10 DESTRUCTION OF BORROWER'S DOCUMENTS. The Lender Group
will not be obligated to return any schedules, invoices, statements, budgets,
forecasts, reports or other papers delivered by the Borrower. The Lender Group
will destroy or otherwise dispose of such materials at such time as each member
of the Lender Group, in its discretion, deems appropriate.
SECTION 10.11 ENTIRE AGREEMENT. This Agreement with Exhibits and
Schedules and the other Loan Documents embody the entire agreement and
understanding between the parties hereto and supersede all prior agreements and
understandings relating to the subject matter hereof.
SECTION 10.12 SEVERABILITY OF PROVISIONS. In case any one or more of
the provisions contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
SECTION 10.13 EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
53.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
AGENT: BORROWER:
- ------ ----------
MELLON BANK, N.A., as Agent SM & A CORPORATION
By: /S/ Richard M. McNiven By: /S/ Ronald A. Hunn
---------------------------- ----------------------------
Name: Richard M. McNiven Name: Ronald A. Hunn
Title: Assistant Vice President Title: VP, CFO & Sec.
Address: Address:
Mellon Bank SM & A Corporation
Mellon Bank Center 4695 Mac Arthur Court
400 South Hope Street 8th Floor
5th Floor Newport Beach, California 92660
Los Angeles, California 90071 Attention: CFO
Attention: Richard M. McNiven, ---------------------
Assistant Vice President
LENDERS:
--------
MELLON BANK, N.A.
By: /S/ Richard M. McNiven
----------------------------
Name: Richard M. McNiven
Title: Assistant Vice President
Address:
Mellon Bank
Mellon Bank Center
400 South Hope Street
5th Floor
Los Angeles, California 90071
Attention: Richard M. McNiven,
Assistant Vice President
54.
<PAGE>
IMPERIAL BANK
By: /S/ Denise D. Pardue
----------------------------
Name: Denise D. Pardue
Title: Vice President
Address:
Imperial Bank
695 Town Center Drive
Costa Mesa, California 92626
Attention: Denise D. Pardue
Vice President
55.
<PAGE>
SCHEDULE C-1
LENDERS AND COMMITMENT AMOUNTS
NAME OF LENDER REVOLVING COMMITMENT
-------------- --------------------
Mellon Bank, N.A. $15,000,000
Imperial Bank $10,000,000
i
<PAGE>
SCHEDULE 5.1(f)
ARTICLE I LITIGATION
ii
<PAGE>
SCHEDULE 5.1(i)
ENVIRONMENTAL MATTERS
iii
<PAGE>
SCHEDULE 6.1(j)
LOCATION OF INVENTORY AND EQUIPMENT
iv
<PAGE>
SCHEDULE 6.2(e)
PERMITTED LIENS
v
<PAGE>
AMENDMENT NUMBER ONE TO
CREDIT AND SECURITY AGREEMENT
(SM&A CORPORATION)
THIS AMENDMENT NUMBER ONE TO CREDIT AND SECURITY AGREEMENT
(this "Amendment Number One"), dated as of December 4, 1998, is entered into
between SM&A CORPORATION, a California corporation (the "Borrower"), the
Lenders, and MELLON BANK, N.A., as agent for the Lenders, (in such capacity, the
"Agent"), in light of the following:
WHEREAS, Borrower, Lenders and Agent are parties to that
certain Credit and Security Agreement, dated as of September 11, 1998 (as from
time to time amended, modified, supplemented, renewed, extended, or restated,
including without limitation, by this Amendment Number One, the "Agreement");
and
WHEREAS, Borrower has requested that Agent and the Lenders
amend the Agreement to provide Borrower with a letter of credit facility; and
WHEREAS, the Agent and the Lenders are in agreement to provide
a letter of credit facility to the Borrower as provided in this Amendment;
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Initially capitalized terms used herein have the meanings
defined in the Agreement unless otherwise defined herein.
2. Section 1.1 of the Agreement hereby is amended by adding or
modifying, as the case may be, the following definitions:
"AMENDMENT NUMBER ONE" means that certain Amendment Number One
to Credit and Security Agreement dated as of December 4, 1998, between the
Borrower, the Lenders and the Agent, including any attachments thereto.
"AVERAGE UNUSED PORTION OF THE REVOLVING COMMITMENT": The
Revolving Commitment LESS the sum of (i) the average daily balance of the
Revolving Facility Usage for the immediately preceding three-month period, PLUS
(ii) the average daily balance of the L/C Usage for the immediately preceding
three-month period.
"CONSOLIDATED NET WORTH": At any date of determination, the
sum of the capital stock, additional paid-in capital and any indebtedness of the
Borrower or its Subsidiaries subordinated as to payment and performance to the
obligations of Borrower to the Lender Group hereunder on terms and conditions
acceptable to the Agent, plus retained earnings (or minus accumulated deficit)
of the Borrower and its consolidated Subsidiaries, on a consolidated basis
determined in conformity with GAAP.
1
<PAGE>
"ISSUING BANK" means Mellon Bank, N.A.., or any Lender,
Affiliate of any Lender or, if none of the foregoing are capable of issuing
L/Cs, such other financial institution acceptable to the Agent and the Borrower
which may at any time issue or be requested to issue an L/C for the account of
the Borrower under this Agreement. If there is more than one Issuing Bank, all
references to "the Issuing Bank" shall be deemed to refer to each Issuing Bank
or to all Issuing Banks, as the context requires.
"L/C": Has the meaning set forth in Section 2.4A.
"L/C USAGE": As of the date of determination, the sum of (i)
the undrawn amount of outstanding L/Cs, PLUS (ii) the amount of unreimbursed
drawings under L/Cs.
"LETTER OF CREDIT REQUEST": Has the meaning set forth in
Section 2.4A.
"OBLIGATIONS": All loans, Revolving Loans, debts, principal,
interest (including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), premiums, liabilities (including all amounts charged
to the Borrower's Loan Account pursuant hereto), obligations, fees, charges,
costs, or Lender Group Expenses (including any fees or expenses that, but for
the provisions of the Bankruptcy Code, would have accrued), lease payments,
guaranties, covenants, and duties owing by the Borrower to the Lender Group or
the Issuing Bank of any kind and description (whether pursuant to or evidenced
by the Loan Documents or pursuant to any other agreement between the Lender
Group or the Issuing Bank and the Borrower, and irrespective of whether for the
payment of money), whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, and including any debt,
liability, or obligation owing from the Borrower to others that the Lender Group
or the Issuing Bank may have obtained by assignment or otherwise, and further
including all interest not paid when due and all Lender Group Expenses that the
Borrower is required to pay or reimburse by the Loan Documents, by law, or
otherwise.
3. SECTION 1.1 of the Agreement is amended by deleting
therefrom the defined term "Consolidated Tangible Net Worth".
4. SECTION 2.1(a) of the Agreement is amended to read in its
entirety as follows:
(a) THE REVOLVING COMMITMENT. Each Lender agrees,
severally and not jointly, on the terms and conditions
hereinafter set forth, to make loans ("REVOLVING LOANS") to
the Borrower from time to time during the period from the date
hereof to and including the Maturity Date in an aggregate
amount not to exceed such Lender's Pro Rata Share of the
Revolving Commitment, less the undrawn and unreimbursed amount
of L/Cs, as such amount may be reduced pursuant to SECTION
2.1(b). Each borrowing under this SECTION 2.4(a) shall be in a
minimum amount of $1.00; provided that every selection of,
conversion to or renewal of the Libor Rate Option shall be in
a minimum principal amount of $500,000 or an integral multiple
of $100,000 above such amount. Within the limits of the
Revolving Commitment and prior to the Maturity Date, the
Borrower may borrow, repay pursuant to Section 2.3(b) and
reborrow under this Section.
2
<PAGE>
5. SECTION 2.1(d) of the Agreement is amended to read in its
entirety as follows:
(d) LIMITATION ON REVOLVING LOANS. The Lenders shall
have no obligation to make Revolving Loans hereunder to the
extent they would cause the outstanding amount of Revolving
Loans plus the L/C Usage to exceed the Revolving Commitment.
6. The Agreement is hereby amended to add the following as a
new Section 2.4A.
SECTION 2.4A LETTERS OF CREDIT.
(a) ISSUANCE OF LETTERS OF CREDIT. Subject to the
terms and conditions set forth in this Agreement, the Agent
may from time to time cause the Issuing Bank to issue Letters
of Credit (each, an "L/C") hereunder at the request of the
Borrower and for the Borrower's account, as more specifically
described below. The L/C's issued under the SECTION 2.4A shall
be used by the Borrower consistent with this Agreement, for
its general working capital purposes or other ordinary course
business purposes. The Agent shall not be obligated to cause
the Issuing Bank to issue any L/C for the account of any
Borrower if:
(i) Issuance of the requested L/C (i) would
cause the L/C Usage to exceed $2,000,000 or (ii)
would cause the sum of the Revolving Facility Usage
PLUS the L/C Usage to exceed the total Revolving
Commitment then in effect; or
(ii) Issuance of the L/C is enjoined,
restrained or prohibited by any governmental
authority, requirement of any applicable law, rule or
regulation or any request or directive of any
governmental authority (whether or not having the
force of law) or would impose upon the Agent or the
Issuing Bank any material restriction, reserve,
capital requirement, loss, cost or expense (for which
the Agent or the Issuing Bank is not otherwise
compensated); or
(iii) A default of any Lender's obligations
to fund under SUBSECTION 2.4A(f) exists, unless the
Agent and the Issuing Bank have entered into
satisfactory arrangements with the Borrower to
eliminate the Issuing Bank's risk with respect to
such Lender, including cash collateralization of such
Lender's Pro Rata Share of the L/C Usage.
(b) TERMS OF LETTERS OF CREDIT. The proposed amount,
terms and conditions, and form of each L/C (and of any drafts
or acceptances thereunder) shall be subject to approval by the
Agent and the Issuing Bank. The term of each standby L/C shall
not exceed 360 days, but may be subject to annual renewal. No
L/C shall have an expiry date later than the Maturity Date.
3
<PAGE>
(c) REQUEST FOR ISSUANCE. A request for issuance of
an L/C in the form of Exhibit LCR (a "LETTER OF CREDIT
REQUEST") may be given in writing or electronically and, if
requested by the Agent, promptly confirmed in writing. A
Letter of Credit Request must be received by the Agent no
later than 9:00 A.M. Los Angeles time at least three (3)
Business Days (or such shorter period as may be agreed to by
the Issuing Bank) in advance of the proposed date of issuance.
(d) LENDER'S PARTICIPATION. Immediately upon issuance
or amendment of any L/C, each Lender shall be deemed to have
irrevocably and unconditionally purchased and received from
the Issuing Bank, without recourse or warranty, an undivided
interest and participation in all rights and obligations under
such L/C (other than fees and other amounts owing to the
Issuing Bank) in accordance with such Lender's Pro Rata Share.
(e) PAYMENT OF AMOUNTS DRAWN UNDER L/Cs. Upon notice
from the Issuing Bank of any drawing under any L/C, the Agent
which shall notify the Borrower of such drawing not later than
12:00 P.M. Los Angeles time on the Business Day immediately
prior to the date on which the Issuing Bank intends to honor
such drawing. The Borrower will be deemed to have concurrently
given a Standard Notice to the Agent for Revolving Loans to be
made as Prime Rate Loans in the amount of and at the time of
such drawing. The proceeds of such Revolving Loans shall be
applied directly by the Agent to reimburse the Issuing Bank
for the amount of such drawing.
(f) PAYMENT BY LENDERS. If Revolving Loans are not
made in an amount sufficient to reimburse the Issuing Bank in
full for the amount of any draw, the Agent shall promptly
notify each Lender of the unreimbursed amount of such drawing
and of such Lender's respective participation therein. Each
Lender shall make available to the Agent, for the account of
the Issuing Bank, the amount of its participation in
immediately available funds not later than 12:00 P.M. Los
Angeles time on the next Business Day. If any Lender fails to
make available to the Agent the amount of such Lender's
participation, the Issuing Bank shall be entitled to recover
such amount on demand from such Lender together with interest
at the Federal Funds Rate for the first three Business Days
and thereafter at the Prime Rate. For each L/C, the Agent
shall promptly distribute to each Lender which has funded the
amount of its participation its Pro Rata Share of all payments
subsequently received by the Agent from the Borrower in
reimbursement of honored drawings thereunder.
4
<PAGE>
(g) NATURE OF ISSUING BANK'S DUTIES. In determining
whether to pay under any L/C, the Issuing Bank shall be
responsible only to determine that the documents and
certificates required to be delivered under that L/C have been
delivered and that they comply on their face with the
requirements of that L/C. As among the Borrower, the Issuing
Bank and each other Lender, the Borrower assumes all risks of
the acts and omissions of the Issuing Bank, or misuse of the
L/C by the respective beneficiaries of such L/C. Any action
taken or omitted to be taken by the Issuing Bank under or in
connection with any L/C, if taken or omitted in the absence of
gross negligence or willful misconduct, shall not create for
the Issuing Bank any liability to any Borrower, the Agent or
any Lender.
(h) OBLIGATIONS ABSOLUTE. The obligations of the
Borrower to reimburse the Issuing Bank for drawings honored
under the L/Cs issued for the account of the Borrower and the
obligations of the Lenders under SUBSECTION 2.4A(f) shall be
unconditional and irrevocable and shall be paid strictly in
accordance with the terms of this Agreement under all
circumstances including, without limitation, the fact that an
Event of Default shall have occurred and be continuing.
(i) AGENT'S EXECUTION OF APPLICATIONS AND OTHER
ISSUING BANK DOCUMENTATION; RELIANCE ON AGREEMENT BY ISSUING
BANK. The Agent shall be authorized to execute, deliver and
perform on behalf of the Lenders such letter of credit
applications, shipping indemnities, letter of credit
modifications and consents and other undertakings for the
benefit of the Issuing Bank as may be reasonably necessary or
appropriate in connection with the issuance or modification of
L/Cs requested by the Borrower hereunder. The Lenders, the
Agent and the Borrower all expressly agree that the terms of
this Section 2.4A and various other provisions of this
Agreement identifying the Issuing Bank are also intended to
benefit the Issuing Bank and the Issuing Bank shall be
entitled to enforce the provisions hereof which are for its
benefit.
(j) ADDITIONAL PAYMENTS. If by reason of (a) any
change in any legal requirement or any change in the
interpretation or application by any governmental authority of
any legal requirement or (b) compliance by the Issuing Bank or
any Lender with any direction, request or requirement (whether
or not having the force of law) of any governmental authority
or monetary authority including, without limitation,
Regulation D of the Board of Governors of the Federal Reserve
System as from time to time in effect (and any successor
thereto):
(i) any reserve, deposit or similar
requirement is or shall be applicable, imposed or
modified in respect of any L/Cs issued by the Issuing
Bank or participations therein purchased by any
Lender; or
(ii) there shall be imposed on the Issuing
Bank or any Lender any other condition regarding this
SUBSECTION 2.4A(j), any L/C or any participation
therein;
5
<PAGE>
and the result of the foregoing is to directly or indirectly
increase the cost to the Issuing Bank or any Lender of
issuing, making or maintaining any L/C or of purchasing or
maintaining any participation therein, or to reduce the amount
receivable in respect thereof by such Issuing Bank or any
Lender, then, and in any such case, the Issuing Bank or such
Lender may, at any time within a reasonable period after the
additional cost is incurred or the amount received is reduced,
notify the Borrower, and the Borrower shall pay on demand such
amounts as the Issuing Bank or such Lender may specify to be
necessary to compensate the Issuing Bank or such Lender for
such additional cost or reduced receipt, together with
interest on such amount from the date of such demand until
payment in full thereof at a rate equal at all times to the
Prime Rate PER ANNUM. The determination by the Issuing Bank or
any Lender, as the case may be, of any amount due pursuant to
this subsection, as set forth in a certificate setting forth
the calculation thereof in reasonable detail, shall, in the
absence of manifest or demonstrable error, be final and
conclusive and binding on all of the parties hereto.
(k) Immediately upon the termination of this
Agreement, Borrower agrees to either: (i) provide cash
collateral, if requested by the Agent, to be held by Agent in
an amount equal to one hundred percent (100%) of the maximum
amount of the Lender Group's obligations under outstanding
L/Cs, or (ii) cause to be delivered to the Agent releases of
all of the Lender Group's obligations under outstanding L/Cs.
At the Agent's discretion, any proceeds of collateral received
by any Lender or the Issuing Bank after the occurrence and
during the continuation of an Event of Default may be held as
the cash collateral required by this SECTION 2.4A(k). Any cash
collateral received by any Lender or the Issuing Bank pursuant
to this SECTION 2.4A(k) shall be held by such Lender or the
Issuing Bank in an interest bearing account selected by the
Agent in its reasonable credit judgment, and interest earned
on deposits in such account, if any, shall be for the account
of the Borrower subject to the provisions of this Agreement.
The provisions of this SECTION 2.4A shall survive the
termination of this Agreement with respect to any L/Cs then
outstanding.
7. SECTION 2.5(b) of the Agreement is amended to read in its
entirety as follows:
(b) UNUSED LINE FEE. The Borrower shall pay to the
Agent for the ratable benefit of the Lender Group, a fee (the
"Unused Line Fee") in an amount equal to the Applicable Unused
Line Rate times the Average Unused Portion of the Revolving
Commitment. The Unused Line Fee shall be payable in arrears,
commencing on the first Business Day of January 1, 1999, and
thereafter (i) on the first Business Day of each three-month
period during the term of this Agreement, (ii) on the date of
any reduction of the Revolving Commitment (to the extent
accrued and unpaid on the amount of such reduction), and (iii)
on the Maturity Date; and
6
<PAGE>
8. The Agreement is hereby amended to add the following as a
new subsection (d) to SECTION 2.5.
(d) LETTER OF CREDIT FEES
(i) Borrower shall pay to the Agent for the
ratable benefit of the Lenders on the first Business
Day of each month a fee (the "LETTER OF CREDIT
FEES"), in an amount equal to (i) the rate PER ANNUM
equal to the Applicable Libor Rate Margin of the
daily weighted average amount of undrawn and
unreimbursed standby L/Cs outstanding for the account
of the Borrower during the immediately preceding
month, with a minimum charge of $250 per standby L/C,
subject to change in the future in accordance with
Issuing Bank's standard fee schedule, (ii) the
Issuing Bank's customary opening fee for each
documentary L/C issued for the account of the
Borrower during the immediately preceding month,
(iii) the Issuing Bank's customary negotiation fee
for amounts drawn under each documentary L/C issued
for the account of the Borrower during the
immediately preceding month, and (iv) the Issuing
Bank's customary guaranty fee on the maximum amount
available to be drawn under each documentary L/C
guaranteed for the account of the Borrower hereunder
and outstanding during the immediately preceding
month. The rate applicable pursuant to this
SUBSECTION 2.5(d)(i) shall change each day the
Applicable Libor Rate Margin changes. Notwithstanding
the foregoing, Letter of Credit Fees on undrawn and
unencumbered L/Cs outstanding after the occurrence
and during the continuance of an Event of Default
shall be payable on demand at a rate equal to the
rate at which the Letter of Credit Fees are charged
pursuant to the first sentence of this SUBSECTION
2.5(d)(i), PLUS 2% PER ANNUM.
(ii) The Borrower shall also pay the
customary charges, fees and expenses of the Issuing
Bank for the issuance, administration and negotiation
of each L/C for the account of the Borrower and the
Agent shall be entitled to charge to the Loan Account
such fees, charges and expenses of the Issuing Bank
(in each case, the "Issuing Bank Fees"). Each
determination by the Agent of Letter of Credit Fees,
Issuing Bank Fees and other fees, charges and
expenses under this Section shall be conclusive and
binding for all purposes, absent manifest or
demonstrable error.
9. The first sentence of SECTION 3.6 of the Agreement is
amended to read in its entirety as follows:
Whether or not the transactions contemplated hereby shall be
consummated, the Borrower agrees to indemnify, pay and hold the Lender Group and
the Issuing Bank, and the shareholders, officers, directors, employees and
7
<PAGE>
agents of the Lender Group and the Issuing Bank (each, an "INDEMNIFIED PERSON"),
harmless from and against any and all claims, liabilities, losses, damages,
costs and expenses (whether or not any of the foregoing Indemnified Persons is a
party to any litigation), including, without limitation, reasonable attorneys'
fees and costs (including, without limitation, the reasonable estimate of the
allocated cost of in-house legal counsel and staff) and costs of investigation,
document production, attendance at a deposition, or other discovery, prior to
the assumption of defense by the Borrower, with respect to or arising out of any
proposed acquisition by the Borrower or any of its Subsidiaries of any Person or
any securities (including a self-tender), this Agreement or any use of proceeds
hereunder, or any claim, demand, action or cause of action being asserted
against the Borrower or any of its Subsidiaries (collectively, the "INDEMNIFIED
LIABILITIES"), provided that the Borrower shall have no obligation hereunder
with respect to Indemnified Liabilities arising from the gross negligence or
willful misconduct of any such Indemnified Persons.
10. SECTION 4.2 of the Agreement is amended to read in its
entirety as follows:
SECTION 4.2 CONDITIONS PRECEDENT TO EACH BORROWING. The
obligation of the Lender Group (or any member thereof) to make a Loan on the
occasion of each Borrowing (including the initial Borrowing) or of the Agent to
cause the Issuing Bank to issue any requested L/C shall be subject to the
further conditions precedent that on the date of such Borrowing, or Letter of
Credit Request, the following statements shall be true and the Agent shall have
received the notice required by SECTION 2.1(b), which notice shall be deemed to
be a certification by the Borrower that:
(i) The representations and warranties contained in Section
5.1 are correct on and as of the date of such Borrowing, or
Letter of Credit Request, as though made on and as of such
date;
(ii) No event has occurred and is continuing, or would result
from such Borrowing, or Letter of Credit Request, which
constitutes an Event of Default or Potential Event of Default;
(iii) Nothing shall have occurred and the Agent shall not have
become aware of any fact or condition not previously known,
which the Agent shall determine has, or could reasonably be
expected to have, a material adverse effect on the rights or
remedies of the Lender Group, or on the ability of the
Borrower to perform its obligations to the Lender Group or
which has, or could reasonably be expected to have, a
materially adverse effect on the performance, business,
property, assets, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries taken as a
whole; and
(iv) The security interests and liens in favor of the Lender
Group are valid, enforceable, and prior to all others' rights
and interests, except those the Agent consents to in writing;
and
8
<PAGE>
(v) All Loan Documents are in full force and effect;
and (b) the Agent shall have received such other approvals, opinions or
documents as the Agent may reasonably request.
11. Subsection 6.2(a) of the Agreement is hereby amended to
read in its entirety as follows:
(a) (a) CONSOLIDATED NET WORTH. At any time, permit
Consolidated Net Worth to be less than $35,000,000; which such minimum amount of
Consolidated Net Worth shall be increased (i) at the end of each fiscal quarter
of the Borrower, commencing with Borrower's fiscal quarter ending June 30, 1998,
by an amount equal to 75% of the consolidated net income of Borrower for such
fiscal quarter, determined in accordance with GAAP, PROVIDED, HOWEVER, that if
Borrower's net income for any fiscal quarter, determined in accordance with
GAAP, shall be less than zero, then no adjustment to such minimum amount of
Consolidate Net Worth shall be made; and (ii) at such time Borrower shall issue
equity securities, by an amount equal to 100% of the issuance proceeds (net of
ordinary and customary underwriters' discounts and commissions, and costs, fees,
and expenses incurred in connection with such issuance).
12. SUBSECTION 6.2(f) of the Agreement is hereby amended to
read in its entirety as follows:
(f) DEBT. Create, incur, assume or permit to exist, or permit
any Subsidiary, to create, incur, assume or permit to exist, any direct or
contingent indebtedness, liabilities or lease obligations (other than those to
the Lender Group or the Issuing Bank), or become liable for the debts of others
without the Agent's written consent, except for (i) acquiring goods, supplies or
merchandise on normal trade credit; (ii) endorsing negotiable instruments
received in the usual course of business; (iii) obtaining surety bonds in the
usual course of business, (iv) the indebtedness of the Borrower and its
Subsidiaries existing as of, and disclosed to the Agent prior to the date of
this Agreement; (v) secured indebtedness, in the aggregate, for purchase money
financing of equipment which is permitted under SECTION 6.2(e)(ii) hereof and
obligations under Capital Leases not to exceed $1,000,000 outstanding at any
time; and (vi) operating leases.
13. The first three (3) sentences of SECTION 9.1 of the
Agreement are hereby amended to read in their entirety as follows:
Each Lender hereby designates and appoints Mellon Bank, N.A.
as its agent under this Agreement and the other Loan Documents and each Lender
and the Issuing Bank (by its acceptance of the benefits hereof) hereby
irrevocably authorizes the Agent to take such action on its behalf under the
provisions of this Agreement and each other Loan Document and to exercise such
powers and perform such duties as are expressly delegated to it by the terms of
this Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. The Agent agrees to act as such on the express
conditions contained in this ARTICLE IX. The provisions of this ARTICLE IX are
solely for the benefit of the Agent, the Agent-Related Persons, the Lenders and
the Issuing Bank; the Borrower shall have no rights as a third party beneficiary
of any of the provisions contained herein; provided, however, that certain of
the provisions of SECTION 9.10 hereof also shall be for the benefit of the
Borrower.
9
<PAGE>
14. SECTION 10.1 of the Agreement is hereby amended to read in
its entirety as follows:
SECTION 10.1 AMENDMENTS, ETC. No amendment or waiver of any
provision of the Loan Documents nor consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Required Lenders (or by the Agent at the written request of
the Required Lenders), and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given; PROVIDED,
HOWEVER, that no such waiver, amendment, or consent shall, unless in writing and
signed by all the Lenders and the Borrower and acknowledged by the Agent, do any
of the following:
a. increase or extend the Commitment of any Lender;
b. postpone or delay any date fixed by this Agreement or any
other Loan Document for any payment of principal, interest,
fees or other amounts due to the Lenders (or any of them)
hereunder or under any other Loan Document;
c. reduce the outstanding principal of, or the rate of
interest specified herein on the Revolving Loans (except
for pricing adjustments resulting from the application of
the appropriate Applicable Margin), or any fees or other
amounts payable hereunder or under any other Loan Document;
d. change the percentage of the Commitments that is required
for the Lenders or any of them to take any action
hereunder;
e. amend this Section or any provision of the Agreement
providing for consent or other action by all the Lenders;
f. release Collateral other than as permitted by Section 8.11;
g. change the definition of "Required Lenders";
h. release the Borrower from any obligation for the payment of
money; or
i. amend any of the provisions of Article IX.
and, provided further, however, that no amendment, waiver or consent shall,
unless in writing and signed by the Agent or the Issuing Bank, as the case may
be, affect the rights or duties of the Agent or the Issuing Bank under this
Agreement or any other Loan Document. The foregoing notwithstanding, any
amendment, modification, waiver, consent, termination, or release of or with
respect to any provision of this Agreement or any other Loan Document that
relates only to the relationship of the Lender Group among themselves, and that
does not affect the rights or obligations of the Borrower, shall not require
consent by or the agreement of the Borrower.
10
<PAGE>
15. SECTION 10.3 of the Agreement is hereby amended to read in
its entirety as follows:
SECTION 10.3 RIGHT OF SETOFF. Upon and only after the
occurrence of any uncured Event of Default, the Agent, each Lender and the
Issuing Bank is hereby authorized by the Borrower, at any time and from time to
time, without notice, (a) to set off against, and to appropriate and apply to
the payment of, the obligations and liabilities of the Borrower under the Loan
Documents (whether matured or unmatured, fixed or contingent or liquidated or
unliquidated) any and all amounts owing by any member of the Lender Group to the
Borrower (whether payable in Dollars or any other currency, whether matured or
unmatured, and, in the case of deposits, whether general or special, time or
demand and however evidenced) and (b) pending any such action, to the extent
necessary, to hold such amounts as collateral to secure such obligations and
liabilities and to return as unpaid for insufficient funds any and all checks
and other items drawn against any deposits so held as the Agent, any Lender or
the Issuing Bank in its sole discretion may elect. Each member of the Lender
Group and the Issuing Bank is authorized to debit any account maintained with it
by the Borrower for any amount of principal, interest or fees which are then due
and owing to the Lender Group.
16. SECTION 10.5 of the Agreement is hereby amended to read in
its entirety as follows:
SECTION 10.5 COSTS AND EXPENSES. The Borrower shall pay to the
Agent promptly after receipt of notice the full amount of all costs and expenses
("LENDER GROUP EXPENSES"), including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of the Agent's in-house counsel),
incurred by the Agent in connection with the negotiation, syndication,
preparation, execution and administration of any commitment letter or this
Agreement and each other of the Loan Documents, and the preparation of any
amendments and waivers hereto and thereto; or incurred by the Agent, the Lender
Group or the Issuing Bank in connection with (a) the enforcement of the Lender
Group's or the Issuing Bank's rights and/or the collection of any amounts which
become due to the Lender Group or the Issuing Bank under any of the Loan
Documents (including, without limitation, in appellate, bankruptcy, insolvency,
liquidation, reorganization, moratorium or other similar proceedings) or the
restructuring of the Loan Documents, and (b) the prosecution or defense of any
action in any way related to any of the Loan Documents, including, without
limitation, any action for declaratory relief.
17. SUBSECTIONS (b), (d) AND (e) of SECTION 10.8 of the
Agreement are hereby amended to read in their entirety as follows:
11
<PAGE>
(b) The Borrower, each Lender, the Issuing Bank and
the Agent irrevocably consent and submit to the non-exclusive
jurisdiction of the state courts of the County of Los Angeles
and the United States District Court for the Central District
of California and waive any objection based on venue or FORUM
NON CONVENIENS with respect to any action instituted therein
arising under this Agreement or any of the other Loan
Documents or in any way connected with or related or
incidental to the dealings of the parties hereto in respect of
this Agreement or any of the other Loan Documents or the
transactions related hereto or thereto, in each case whether
now existing or hereafter arising, and whether in contract,
tort, equity or otherwise, and agree that any dispute with
respect to any such matters shall be heard only in the courts
described above.
(d) THE BORROWER, EACH LENDER, THE ISSUING BANK, AND
THE AGENT EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER
THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR (2) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED
HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR
OTHERWISE. THE BORROWER, EACH LENDER, THE ISSUING BANK, AND
THE AGENT EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY AND THAT THE BORROWER, EACH LENDER, OR
THE AGENT MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
JURY.
(e) Neither the Lender Group nor the Issuing Bank
shall have any liability to the Borrower (whether in tort,
contract, equity or otherwise) for losses suffered by the
Borrower in connection with, arising out of, or in any way
related to the transactions or relationships contemplated by
this Agreement, or any act, omission or event occurring in
connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on the Lender
Group or the Issuing Bank, as the case may be, that the losses
were the result of acts or omissions constituting gross
12
<PAGE>
negligence or willful misconduct. In any such litigation, the
Lender Group or the Issuing Bank, as the case may be, shall be
entitled to the benefit of the rebuttable presumption that it
acted in good faith and with the exercise of ordinary care in
the performance by it of the terms of this Agreement.
18. The Agreement, and all rights and obligations of the
parties thereto with respect thereto, shall be governed by and construed and
interpreted in accordance with SECTION 10.8 of the Agreement. The jury trial
waiver contained in the Agreement remains in full force and effect.
19. Borrower represents and warrants to the Lender Group as
follows: (a) The execution, delivery, and performance by Borrower of this
Amendment Number One has been duly authorized by all necessary corporate and
other action and do not and will not require by the Borrower any registration
with, consent or approval of, or notice to or action by, any Person in order to
be effective and enforceable, (b) the Agreement, as amended by this Amendment
Number One, constitutes the legal, valid, and binding obligation of Borrower,
enforceable against Borrower in accordance with its terms, without defense,
counterclaim, or offset, (c) the representations and warranties of the Borrower
in this Amendment Number One, the Agreement as amended by this Amendment Number
One, and the other Loan Documents shall be true and correct in all respects on
and as of the date hereof, as though made on such date (except to the extent
that such representations and warranties relate solely to an earlier date), and
(d) to the Borrower's actual knowledge, no injunction, writ, restraining order,
or other order of any nature prohibiting, directly or indirectly, the
consummation of the transactions contemplated herein shall have been issued and
remain in force by any governmental authority against the Borrower or the Lender
Group.
20. Except as herein expressly amended or modified by this
Amendment Number One, all terms, covenants and provisions of the Agreement are
and shall remain in full force and effect and all references therein to the
Agreement shall henceforth refer to the Agreement as amended by this Amendment
Number One. This Amendment Number One shall be deemed incorporated into, and a
part of, the Agreement.
21. This Amendment Number One, together with the Agreement and
the other Loan Documents, contains the entire and exclusive agreement of the
parties hereto with reference to the matters discussed herein and therein. This
Amendment Number One supersedes all prior drafts and communications with respect
thereto. This Amendment Number One may not be amended except in writing executed
by both of the parties hereto.
22. If any term or provision of this Amendment Number One
shall be deemed prohibited by or invalid under any applicable law, such
provision shall be invalidated without affecting the remaining provisions of
this Amendment Number One or the Agreement, respectively.
13
<PAGE>
23. This Amendment Number One shall not be effective until the
following conditions precedent are satisfied (or waived by the Lender Group in
their sole and absolute discretion): (a) Each party named on the signature pages
of this Amendment Number One has executed and delivered a counterpart of this
Amendment Number One, and (b) Lender Group shall have received such opinions of
counsel to Borrower as Lender Group may require, which opinions shall be
satisfactory in form and substance to Lender Group.
24. This Amendment Number One may be executed in any number of
counterparts, each of which shall be deemed an original, and all such
counterparts together shall constitute but one and the same instrument. Delivery
of an executed counterpart of this Amendment Number One by telefacsimile shall
be equally as effective as delivery of an original executed counterpart of this
Amendment Number One. Any party delivering an executed counterpart of this
Amendment Number One by telefacsimile also shall deliver an original executed
counterpart of this Amendment Number One but the failure to deliver an original
executed counterpart shall not affect the validity, enforceability, and binding
effect of this Amendment Number One.
{THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK - SIGNATURES BEGIN ON NEXT
PAGE}
14
<PAGE>
IN WITNESS HEREOF, this Amendment Number One has been executed
and delivered as of the date first set forth of above.
AGENT: BORROWER:
- ------ ---------
MELLON BANK, N.A., as Agent SM&A CORPORATION
By: /s/ Richard M. McNiven By: /s/ Kenneth W. Colbaugh
--------------------------------- -------------------------------
Name: Richard M. McNiven Name: Kenneth W. Colbaugh
Title: Assistant Vice President Title: Executive Vice President and
Chief Operations Officer
Address: Address:
Mellon Bank SM&A Corporation
Mellon Bank Center 4695 MacArthur Court
400 South Hope Street 8th Floor
5th Floor Newport Beach, California 92660
Los Angeles, California 90071 Attention: Kenneth W. Colbaugh
Executive Vice President and
Attention: Richard M. McNiven, Chief Operations Officer
Assistant Vice President
LENDERS:
--------
MELLON BANK, N.A.
By: /s/ Richard M. McNiven
---------------------------------
Name: Richard M. McNiven
Title: Assistant Vice President
Address:
Mellon Bank
Mellon Bank Center
400 South Hope Street
5th Floor
Los Angeles, California 90071
Attention: Richard M. McNiven
Assistant Vice President
IMPERIAL BANK
By: /s/ Denise D. Pardue
--------------------------------
Name: Denise D. Pardue
Title: Vice President
Address:
Imperial Bank
695 Town Center Drive
Costa Mesa, California 92626
Attention: Denise D. Pardue
Vice President
15
<PAGE>
PROMISSORY NOTE
$15,000,000.00 September 11, 1998
Los Angeles, California
FOR VALUE RECEIVED, SM & A CORPORATION, a California
corporation (the "BORROWER"), promises to pay to the order of MELLON BANK, N.A.
(the "BANK") on the Maturity Date (as defined in the Credit Agreement referred
to below) the principal amount of Fifteen Million Dollars ($15,000,000.00), or,
if less, the aggregate amount of Revolving Loans (as defined in the Credit
Agreement) made by the Bank to the Borrower pursuant to the Credit Agreement
outstanding on the Maturity Date. All unpaid amounts of principal and interest
shall be due and payable in full on September 10, 2001.
The Borrower also promises to pay interest on the unpaid
principal amount hereof from the date hereof until paid at the rates and at the
times which shall be determined in accordance with the provisions of the Credit
Agreement. Any interest not paid when due shall be compounded and shall
thereafter accrue interest at the rates and at the times which shall be
determined in accordance with the provisions of the Credit Agreement.
All payments of principal and interest in respect of this Note
shall be made in lawful money of the United States of America in same day funds
at the office of the Bank located at Three Mellon Bank Center, 23rd Floor/Loan
Administration, Pittsburgh, Pennsylvania 15259 or at such other place as shall
be designated in writing for such purpose in accordance with the terms of the
Credit Agreement. Until notified of the transfer of this Note, the Borrower
shall be entitled to deem the Bank or such person who has been so identified by
the transferor in writing to the Borrower as the holder of this Note, as the
owner and holder of this Note. Each of the Bank and any subsequent holder of
this Note agrees that before disposing of this Note or any part hereof, it will
make a notation hereon of all principal payments previously made hereunder and
of the date to which interest hereon has been paid on the schedule attached
hereto, if any; provided, however, that the failure to make notation of any
payment made on this Note shall not limit or otherwise affect the obligation of
the Borrower hereunder with respect to payments of principal or interest on this
Note.
This Note is referred to in, and is entitled to the benefits
of, that certain Credit and Security Agreement dated as of September 11, 1998
(as amended from time to time, the "CREDIT AGREEMENT") between the Borrower on
the one hand, and on the other hand, the financial institutions (including the
Bank) signatory thereto ("Lenders") and Mellon Bank, N.A., as agent for the
Lenders (in such capacity, "Agent"). The Credit Agreement, among other things,
(i) provides for the making of advances (the "LOANS") by the Bank to the
Borrower from time to time in an aggregate amount not to exceed at any time
outstanding the U.S. dollar amount first above mentioned, the indebtedness of
the Borrower resulting from each such Loan being evidenced by this Note, and
(ii) contains provisions for acceleration of the maturity hereof upon the
happening of certain stated events and also for prepayments on account of
principal hereof prior to the maturity hereof upon the terms and conditions
therein specified.
The terms of this Note are subject to amendment only in the
manner provided in the Credit Agreement.
No reference herein to the Credit Agreement and no provision
of this Note or the Credit Agreement shall alter or impair the obligation of the
Borrower, which is absolute and unconditional, to pay the principal of and
interest on this Note at the place, at the respective times, and in the currency
herein prescribed.
The Borrower promises to pay all reasonable costs and
expenses, including reasonable attorneys' fees, incurred in the collection and
enforcement of this Note. The Borrower hereby consents to renewals and
extensions of time at or after the maturity hereof, without notice, and, subject
to the Credit Agreement, hereby waives diligence, presentment, protest, demand
and notice of every kind and, to the full extent permitted by law, the right to
plead any statute of limitations as a defense to any demand hereunder.
IN WITNESS WHEREOF, the Borrower has caused this Note to be
executed and delivered by its duly authorized officer, as of the date and the
place first above-written.
SM & A CORPORATION,
a California corporation
By: /S/ Ronald A. Hunn
--------------------------------------
Name: Ronald A. Hunn
------------------------------------
Title: V.P., C.F.O. and Sec.
-----------------------------------
<PAGE>
<TABLE>
SCHEDULE OF
TRANSACTIONS ON
NOTE
<CAPTION>
Amount of Amount of Interest Paid Principal Notation
Loan Made Principal Paid Interest Paid Through Balance Made By
- --------- -------------- ------------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
PROMISSORY NOTE
$10,000,000.00 September 11, 1998
Los Angeles, California
FOR VALUE RECEIVED, SM & A CORPORATION, a California
corporation (the "BORROWER"), promises to pay to the order of IMPERIAL BANK (the
"BANK") on the Maturity Date (as defined in the Credit Agreement referred to
below) the principal amount of Ten Million Dollars ($10,000,000.00), or, if
less, the aggregate amount of Revolving Loans (as defined in the Credit
Agreement) made by the Bank to the Borrower pursuant to the Credit Agreement
outstanding on the Maturity Date. All unpaid amounts of principal and interest
shall be due and payable in full on September 10, 2001.
The Borrower also promises to pay interest on the unpaid
principal amount hereof from the date hereof until paid at the rates and at the
times which shall be determined in accordance with the provisions of the Credit
Agreement. Any interest not paid when due shall be compounded and shall
thereafter accrue interest at the rates and at the times which shall be
determined in accordance with the provisions of the Credit Agreement.
All payments of principal and interest in respect of this Note
shall be made in lawful money of the United States of America in same day funds
at the office of the Bank located at 695 Town Center Drive, Suite 100, Costa
Mesa, California 92626, or at such other place as shall be designated in writing
for such purpose in accordance with the terms of the Credit Agreement. Until
notified of the transfer of this Note, the Borrower shall be entitled to deem
the Bank or such person who has been so identified by the transferor in writing
to the Borrower as the holder of this Note, as the owner and holder of this
Note. Each of the Bank and any subsequent holder of this Note agrees that before
disposing of this Note or any part hereof, it will make a notation hereon of all
principal payments previously made hereunder and of the date to which interest
hereon has been paid on the schedule attached hereto, if any; provided, however,
that the failure to make notation of any payment made on this Note shall not
limit or otherwise affect the obligation of the Borrower hereunder with respect
to payments of principal or interest on this Note.
This Note is referred to in, and is entitled to the benefits
of, that certain Credit and Security Agreement dated as of September 11, 1998
(as amended from time to time, the "CREDIT AGREEMENT") between the Borrower on
the one hand, and on the other hand, the financial institutions (including the
Bank) signatory thereto ("Lenders") and Mellon Bank, N.A., as agent for the
Lenders (in such capacity, "Agent"). The Credit Agreement, among other things,
(i) provides for the making of advances (the "LOANS") by the Bank to the
Borrower from time to time in an aggregate amount not to exceed at any time
outstanding the U.S. dollar amount first above mentioned, the indebtedness of
the Borrower resulting from each such Loan being evidenced by this Note, and
(ii) contains provisions for acceleration of the maturity hereof upon the
happening of certain stated events and also for prepayments on account of
principal hereof prior to the maturity hereof upon the terms and conditions
therein specified.
The terms of this Note are subject to amendment only in the
manner provided in the Credit Agreement.
No reference herein to the Credit Agreement and no provision
of this Note or the Credit Agreement shall alter or impair the obligation of the
Borrower, which is absolute and unconditional, to pay the principal of and
interest on this Note at the place, at the respective times, and in the currency
herein prescribed.
The Borrower promises to pay all reasonable costs and
expenses, including reasonable attorneys' fees, incurred in the collection and
enforcement of this Note. The Borrower hereby consents to renewals and
extensions of time at or after the maturity hereof, without notice, and, subject
to the Credit Agreement, hereby waives diligence, presentment, protest, demand
and notice of every kind and, to the full extent permitted by law, the right to
plead any statute of limitations as a defense to any demand hereunder.
IN WITNESS WHEREOF, the Borrower has caused this Note to be
executed and delivered by its duly authorized officer, as of the date and the
place first above-written.
SM & A CORPORATION,
a California corporation
By: /S/ Ronald A. Hunn
--------------------------------------
Name: Ronald A. Hunn
------------------------------------
Title: V.P., C.F.O. and Sec.
-----------------------------------
<PAGE>
<TABLE>
SCHEDULE OF
TRANSACTIONS ON
NOTE
<CAPTION>
Amount of Amount of Interest Paid Principal Notation
Loan Made Principal Paid Interest Paid Through Balance Made By
- --------- -------------- ------------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
GENERAL CONTINUING GUARANTY
---------------------------
THIS GENERAL CONTINUING GUARANTY ("Guaranty"), dated as of
September 11, 1998, is executed and delivered by Space Applications Corporation,
a California corporation ("Guarantor"), in favor of Mellon Bank, N.A., as agent
for the Lender Group ("Guarantied Party"), in light of the following:
WHEREAS, Debtor and the Lender Group are, contemporaneously
herewith, entering into the Credit Agreement; and
WHEREAS, in order to induce the Lender Group to extend
financial accommodations to Debtor pursuant to the Credit Agreement, and in
consideration thereof, and in consideration of any loans or other financial
accommodations heretofore or hereafter extended by the Lender Group to Debtor,
whether pursuant to the Credit Agreement or otherwise, Guarantor has agreed to
guaranty the Guarantied Obligations.
NOW, THEREFORE, in consideration of the foregoing, Guarantor
hereby agrees, in favor of Guarantied Party, as follows:
1. DEFINITIONS AND CONSTRUCTION.
(a) DEFINITIONS. Capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to them in the Credit
Agreement. The following terms, as used in this Guaranty, shall have the
following meanings:
"CREDIT AGREEMENT" shall mean that certain Credit and
Security Agreement, dated as of even date herewith, among Debtor and the Lender
Group
"DEBTOR" shall mean SM & A Corporation.
"GUARANTIED OBLIGATIONS" shall mean: (a) the due and
punctual payment of the principal of, and interest (including, any and all
interest which, but for the application of the provisions of the Bankruptcy
Code, would have accrued on such amounts) on, any and all premium on, and any
and all fees, costs, and expenses incurred in connection with or on the
Indebtedness owed by Debtor to Guarantied Party pursuant to the terms of the
Loan Documents; and (b) the due and punctual payment of all other present or
future Indebtedness owing by Debtor to Guarantied Party.
"GUARANTIED PARTY" shall have the meaning set forth in the
preamble to this Guaranty.
"GUARANTOR" shall have the meaning set forth in the
preamble to this Guaranty.
<PAGE>
"GUARANTY" shall have the meaning set forth in the
preamble to this Guaranty.
"INDEBTEDNESS" shall mean any and all obligations,
indebtedness, or liabilities of any kind or character owed by Debtor to
Guarantied Party and arising directly or indirectly out of or in connection with
the Credit Agreement or the other Loan Documents, including all such
obligations, indebtedness, or liabilities, whether for principal, interest
(including any and all interest which, but for the application of the provisions
of the Bankruptcy Code, would have accrued on such amounts), premium,
reimbursement obligations, fees, costs, expenses (including attorneys fees), or
indemnity obligations, whether heretofore, now, or hereafter made, incurred, or
created, whether voluntarily or involuntarily made, incurred, or created,
whether secured or unsecured (and if secured, regardless of the nature or extent
of the security), whether absolute or contingent, liquidated or unliquidated, or
determined or indeterminate, whether Debtor is liable individually or jointly
with others, and whether recovery is or hereafter becomes barred by any statute
of limitations or otherwise becomes unenforceable for any reason whatsoever,
including any act or failure to act by Guarantied Party.
"LENDER GROUP" shall mean, individually and collectively,
each of the Lenders and Mellon in its capacity as Agent for the Lenders.
"LENDERS" shall mean, individually and collectively, each
of the financial institutions (including Mellon) listed on the signature pages
of the Credit Agreement (together with their respective successors and assigns)
(b) CONSTRUCTION. Unless the context of this Guaranty clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the part includes the whole, the terms
"include" and "including" are not limiting, and the term "or" has the inclusive
meaning represented by the phrase "and/or." The words "hereof," "herein,"
"hereby," "hereunder," and other similar terms refer to this Guaranty as a whole
and not to any particular provision of this Guaranty. Any reference in this
Guaranty to any of the following documents includes any and all alterations,
amendments, restatements, extensions, modifications, renewals, or supplements
thereto or thereof, as applicable: the Credit Agreement; this Guaranty; and the
other Loan Documents. Neither this Guaranty nor any uncertainty or ambiguity
herein shall be construed or resolved against Guarantied Party, the Lender
Group, or Guarantor, whether under any rule of construction or otherwise. On the
contrary, this Guaranty has been reviewed by Guarantor, Guarantied Party, the
several members of the Lender Group, and their respective counsel, and shall be
construed and interpreted according to the ordinary meaning of the words used so
as to fairly accomplish the purposes and intentions of Guarantied Party and
Guarantor.
2. GUARANTIED OBLIGATIONS. Guarantor hereby irrevocably and
unconditionally guaranties to Guarantied Party for the benefit of the Lender
Group, as and for its own debt, until final and indefeasible payment thereof has
been made, (a) the payment of the Guarantied Obligations, in each case when and
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as the same shall become due and payable, whether at maturity, pursuant to a
mandatory prepayment requirement, by acceleration, or otherwise; it being the
intent of Guarantor that the guaranty set forth herein shall be a guaranty of
payment and not a guaranty of collection; and (b) the punctual and faithful
performance, keeping, observance, and fulfillment by Debtor of all of the
agreements, conditions, covenants, and obligations of Debtor contained in the
Credit Agreement, and under each of the other Loan Documents.
3. CONTINUING GUARANTY. This Guaranty includes Guarantied
Obligations arising under successive transactions continuing, compromising,
extending, increasing, modifying, releasing, or renewing the Guarantied
Obligations, changing the interest rate, payment terms, or other terms and
conditions thereof, or creating new or additional Guarantied Obligations after
prior Guarantied Obligations have been satisfied in whole or in part. To the
maximum extent permitted by law, Guarantor hereby waives any right to revoke
this Guaranty as to future Indebtedness. If such a revocation is effective
notwithstanding the foregoing waiver, Guarantor acknowledges and agrees that (a)
no such revocation shall be effective until written notice thereof has been
received by Guarantied Party, (b) no such revocation shall apply to any
Guarantied Obligations in existence on such date (including any subsequent
continuation, extension, or renewal thereof, or change in the interest rate,
payment terms, or other terms and conditions thereof), (c) no such revocation
shall apply to any Guarantied Obligations made or created after such date to the
extent made or created pursuant to a legally binding commitment of Guarantied
Party in existence on the date of such revocation, (d) no payment by Guarantor,
Debtor, or from any other source, prior to the date of such revocation shall
reduce the maximum obligation of Guarantor hereunder, and (e) any payment by
Debtor or from any source other than Guarantor subsequent to the date of such
revocation shall first be applied to that portion of the Guarantied Obligations
as to which the revocation is effective and which are not, therefore, guarantied
hereunder, and to the extent so applied shall not reduce the maximum obligation
of Guarantor hereunder.
4. PERFORMANCE UNDER THIS GUARANTY. In the event that Debtor
fails to make any payment of any Guarantied Obligations, on or before the due
date thereof, or if Debtor shall fail to perform, keep, observe, or fulfill any
other obligation referred to in CLAUSE (b) OF SECTION 2 hereof in the manner
provided in the Credit Agreement or the other Loan Documents, as applicable,
Guarantor immediately shall cause such payment to be made or each of such
obligations to be performed, kept, observed, or fulfilled.
5. PRIMARY OBLIGATIONS. This Guaranty is a primary and
original obligation of Guarantor, is not merely the creation of a surety
relationship, and is an absolute, unconditional, and continuing guaranty of
payment and performance which shall remain in full force and effect without
respect to future changes in conditions. Guarantor agrees that it is directly,
jointly and severally with any other guarantor of the Guarantied Obligations,
liable to Guarantied Party for the benefit of the Lender Group, that the
obligations of Guarantor hereunder are independent of the obligations of Debtor
or any other guarantor, and that a separate action may be brought against
Guarantor, whether such action is brought against Debtor or any other guarantor
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or whether Debtor or any other guarantor is joined in such action. Guarantor
agrees that its liability hereunder shall be immediate and shall not be
contingent upon the exercise or enforcement by Guarantied Party for the benefit
of the Lender Group of whatever remedies it may have against Debtor or any other
guarantor, or the enforcement of any lien or realization upon any security
Guarantied Party may at any time possess. Guarantor agrees that any release
which may be given by the Lender Group or Guarantied Party on behalf thereof to
Debtor or any other guarantor shall not release Guarantor. Guarantor consents
and agrees that the Lender Group or Guarantied Party on behalf thereof shall be
under no obligation to marshal any property or assets of Debtor or any other
guarantor in favor of Guarantor, or against or in payment of any or all of the
Guarantied Obligations.
6. WAIVERS.
(a) To the fullest extent permitted by applicable law,
Guarantor hereby waives: (i) notice of acceptance hereof; (ii) notice of any
loans or other financial accommodations made or extended under the Credit
Agreement, or the creation or existence of any Guarantied Obligations; (iii)
notice of the amount of the Guarantied Obligations, subject, however, to
Guarantor's right to make inquiry of Guarantied Party to ascertain the amount of
the Guarantied Obligations at any reasonable time; (iv) notice of any adverse
change in the financial condition of Debtor or of any other fact that might
increase Guarantor's risk hereunder; (v) notice of presentment for payment,
demand, protest, and notice thereof as to any instrument among the Loan
Documents; (vi) notice of any unmatured Event of Default or Event of Default
under the Credit Agreement; and (vii) all other notices (except if such notice
is specifically required to be given to Guarantor under this Guaranty or any
other Loan Documents to which Guarantor is a party) and demands to which
Guarantor might otherwise be entitled.
(b) To the fullest extent permitted by applicable law,
Guarantor waives the right by statute or otherwise to require the Lender Group
or Guarantied Party on behalf thereof to institute suit against Debtor or to
exhaust any rights and remedies which the Lender Group or Guarantied Party on
behalf thereof has or may have against Debtor. In this regard, Guarantor agrees
that it is bound to the payment of each and all Guarantied Obligations, whether
now existing or hereafter arising, as fully as if such Guarantied Obligations
were directly owing to the Lender Group or Guarantied Party on behalf thereof by
Guarantor. Guarantor further waives any defense arising by reason of any
disability or other defense (other than the defense that the Guarantied
Obligations shall have been fully and finally performed and indefeasibly paid)
of Debtor or by reason of the cessation from any cause whatsoever of the
liability of Debtor in respect thereof.
(c) To the fullest extent permitted by applicable law,
Guarantor hereby waives: (i) any rights to assert against the Lender Group or
Guarantied Party on behalf thereof any defense (legal or equitable), set-off,
counterclaim, or claim which Guarantor may now or at any time hereafter have
against Debtor or any other party liable to the Lender Group or Guarantied Party
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on behalf thereof; (ii) any defense, set-off, counterclaim, or claim, of any
kind or nature, arising directly or indirectly from the present or future lack
of perfection, sufficiency, validity, or enforceability of the Guarantied
Obligations or any security therefor; (iii) any defense arising by reason of any
claim or defense based upon an election of remedies by the Lender Group or
Guarantied Party on behalf thereof including any defense based upon an election
of remedies by the Lender Group or Guarantied Party on behalf thereof under the
provisions of ss.ss. 580d and 726 of the California Code of Civil Procedure, or
any similar law of California or any other jurisdiction; (iv) the benefit of any
statute of limitations affecting Guarantor's liability hereunder or the
enforcement thereof, and any act which shall defer or delay the operation of any
statute of limitations applicable to the Guarantied Obligations shall similarly
operate to defer or delay the operation of such statute of limitations
applicable to Guarantor's liability hereunder.
(d) Until such time as all of the Guarantied Obligations have
been fully, finally, and indefeasibly paid in full in cash: (i) Guarantor hereby
waives and postpones any right of subrogation Guarantor has or may have as
against Debtor with respect to the Guarantied Obligations; (ii) in addition,
Guarantor hereby waives and postpones any right to proceed against Debtor or any
other Person, now or hereafter, for contribution, indemnity, reimbursement, or
any other suretyship rights and claims (irrespective of whether direct or
indirect, liquidated or contingent), with respect to the Guarantied Obligations;
and (iii) in addition, Guarantor also hereby waives and postpones any right to
proceed or to seek recourse against or with respect to any property or asset of
Debtor.
(e) If any of the Guarantied Obligations at any time are
secured by a mortgage or deed of trust upon real property, Guarantied Party on
behalf of the Lender Group may elect, in its sole discretion, upon a default
with respect to the Guarantied Obligations, to foreclose such mortgage or deed
of trust judicially or nonjudicially in any manner permitted by law, before or
after enforcing this Guaranty, without diminishing or affecting the liability of
Guarantor hereunder. Guarantor understands that (a) by virtue of the operation
of California's antideficiency law applicable to nonjudicial foreclosures, an
election by the Lender Group or Guarantied Party on behalf thereof nonjudicially
to foreclose such a mortgage or deed of trust probably would have the effect of
impairing or destroying rights of subrogation, reimbursement, contribution, or
indemnity of Guarantor against Debtor or other guarantors or sureties, and (b)
absent the waiver given by Guarantor herein, such an election would estop the
Lender Group or Guarantied Party on behalf thereof from enforcing this Guaranty
against Guarantor. Understanding the foregoing, and understanding that Guarantor
is hereby relinquishing a defense to the enforceability of this Guaranty,
Guarantor hereby waives any right to assert against the Lender Group or
Guarantied Party any defense to the enforcement of this Guaranty, whether
denominated "estoppel" or otherwise, based on or arising from an election by the
Lender Group or Guarantied Party on behalf thereof nonjudicially to foreclose
any such mortgage or deed of trust. Guarantor understands that the effect of the
foregoing waiver may be that Guarantor may have liability hereunder for amounts
with respect to which Guarantor may be left without rights of subrogation,
reimbursement, contribution, or indemnity against Debtor or other guarantors or
sureties. Guarantor also agrees that the "fair market value" provisions of
Section 580a of the California Code of Civil Procedure shall have no
applicability with respect to the determination of Guarantor's liability under
this Guaranty.
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<PAGE>
(f) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR
OTHER PROVISION SET FORTH IN THIS GUARANTY, GUARANTOR HEREBY WAIVES, TO THE
MAXIMUM EXTENT SUCH WAIVER IS PERMITTED BY LAW, ANY AND ALL BENEFITS OR DEFENSES
ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE
ss.ss. 2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2822, 2838, 2839, 2845,
2847, 2848, 2849, AND 2850, CALIFORNIA CODE OF CIVIL PROCEDURE ss.ss. 580a,
580b, 580c, 580d, AND 726, AND CHAPTER 2 OF TITLE 14 OF THE CALIFORNIA CIVIL
CODE.
(g) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR
OTHER PROVISION SET FORTH IN THIS GUARANTY, GUARANTOR WAIVES ALL RIGHTS AND
DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY THE GUARANTIED PARTY, EVEN
THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH RESPECT
TO SECURITY FOR A GUARANTIED OBLIGATION, HAS DESTROYED THE GUARANTOR'S RIGHTS OF
SUBROGATION AND REIMBURSEMENT AGAINST THE DEBTOR BY THE OPERATION OF SECTION
580d OF THE CALIFORNIA CODE OF CIVIL PROCEDURE OR OTHERWISE.
7. RELEASES. Guarantor consents and agrees that, without notice
to or by Guarantor and without affecting or impairing the obligations of
Guarantor hereunder, the Lender Group or Guarantied Party on behalf thereof may,
by action or inaction, compromise or settle, extend the period of duration or
the time for the payment, or discharge the performance of, or may refuse to, or
otherwise not enforce, or may, by action or inaction, release all or any one or
more parties to, any one or more of the terms and provisions of the Credit
Agreement or any of the other Loan Documents or may grant other indulgences to
Debtor in respect thereof, or may amend or modify in any manner and at any time
(or from time to time) any one or more of the Credit Agreement or any of the
other Loan Documents, or may, by action or inaction, release or substitute any
other guarantor, if any, of the Guarantied Obligations, or may enforce,
exchange, release, or waive, by action or inaction, any security for the
Guarantied Obligations or any other guaranty of the Guarantied Obligations, or
any portion thereof.
8. NO ELECTION. Guarantied Party shall have the right to seek
recourse against Guarantor to the fullest extent provided for herein and no
election by the Lender Group or Guarantied Party on behalf thereof to proceed in
one form of action or proceeding, or against any party, or on any obligation,
shall constitute a waiver of Guarantied Party's right on behalf of the Lender
Group to proceed in any other form of action or proceeding or against other
parties unless Guarantied Party has expressly waived such right in writing.
Specifically, but without limiting the generality of the foregoing, no action or
proceeding by the Lender Group or Guarantied Party on behalf thereof under any
document or instrument evidencing the Guarantied Obligations shall serve to
diminish the liability of Guarantor under this Guaranty except to the extent
that the Lender Group finally and unconditionally shall have realized
indefeasible payment by such action or proceeding.
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<PAGE>
9. INDEFEASIBLE PAYMENT. The Guarantied Obligations shall not
be considered indefeasibly paid for purposes of this Guaranty unless and until
all payments to the Lender Group are no longer subject to any right on the part
of any person whomsoever, including Debtor, Debtor as a debtor in possession, or
any trustee (whether appointed under the Bankruptcy Code or otherwise) of
Debtor's assets to invalidate or set aside such payments or to seek to recoup
the amount of such payments or any portion thereof, or to declare same to be
fraudulent or preferential. In the event that, for any reason, all or any
portion of such payments to the Lender Group is set aside or restored, whether
voluntarily or involuntarily, after the making thereof, the obligation or part
thereof intended to be satisfied thereby shall be revived and continued in full
force and effect as if said payment or payments had not been made and Guarantor
shall be liable for the full amount the Lender Group is required to repay plus
any and all costs and expenses (including attorneys fees) paid by the Lender
Group in connection therewith.
10. FINANCIAL CONDITION OF DEBTOR. Guarantor represents and
warrants to Guarantied Party that it is currently informed of the financial
condition of Debtor and of all other circumstances which a diligent inquiry
would reveal and which bear upon the risk of nonpayment of the Guarantied
Obligations. Guarantor further represents and warrants to Guarantied Party that
it has read and understands the terms and conditions of the Credit Agreement and
the other Loan Documents. Guarantor hereby covenants that it will continue to
keep itself informed of Debtor's financial condition, the financial condition of
other guarantors, if any, and of all other circumstances which bear upon the
risk of nonpayment or nonperformance of the Guarantied Obligations.
11. SUBORDINATION. Guarantor hereby agrees that any and all
present and future indebtedness of Debtor owing to Guarantor is postponed in
favor of and subordinated to payment, in full, in cash, of the Guarantied
Obligations. In this regard, no payment of any kind whatsoever shall be made
with respect to such indebtedness until the Guarantied Obligations have been
indefeasibly paid in full.
12. PAYMENTS; APPLICATION. All payments to be made hereunder by
Guarantor shall be made in lawful money of the United States of America at the
time of payment, shall be made in immediately available funds, and shall be made
without deduction (whether for taxes or otherwise) or offset. All payments made
by Guarantor hereunder shall be applied as follows: first, to all reasonable
costs and expenses (including attorneys fees) incurred by Guarantied Party on
behalf of the Lender Group in enforcing this Guaranty or in collecting the
Guarantied Obligations; second, to all accrued and unpaid interest, premium, if
any, and fees owing to the Lender Group constituting Guarantied Obligations; and
third, to the balance of the Guarantied Obligations.
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13. ATTORNEYS FEES AND COSTS. Guarantor agrees to pay, on demand,
all reasonable attorneys fees and all other reasonable costs and expenses which
may be incurred by Guarantied Party on behalf of the Lender Group in the
enforcement of this Guaranty or in any way arising out of, or consequential to
the protection, assertion, or enforcement of the Guarantied Obligations (or any
security therefor), irrespective of whether suit is brought.
14. NOTICES. Unless otherwise specifically provided in this
Guaranty, any notice or other communication relating to this Guaranty or any
other agreement entered into in connection therewith shall be in writing and
shall be personally delivered or sent by registered or certified mail, postage
prepaid, return receipt requested, or by prepaid telex, TWX, telefacsimile, or
telegram (with messenger delivery specified) to Guarantor or to Guarantied
Party, as the case may be, at its addresses set forth below:
If to Guarantor: Space Application Corporation
1110 North Glebe Road, Suite 400
Arlington, Virginia 22201
Attn: Chief Financial Officer
Telecopy No.: (703) 255-3667
with a copy to Rutan & Tucker
611 Anton Boulevard, 14th Floor
Costa Mesa, California 92626
Attn: Thomas J. Crane, Esq.
Telecopy No.: (714) 546-9035
If to Guarantied Party: Mellon Bank, N.A.
Mellon Bank Center
400 South Hope Street
5th Floor
Los Angeles, California 90071
Attn: Mr. Richard M. McNiven
Telecopy No.: (213) 629-0484
with a copy to: Brobeck, Phleger & Harrison
550 South Hope Street
Los Angeles, California 90071
Attn: James D. Prendergast, Esq.
Telecopy No.: (213) 745-3345
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this Section 14, other
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than notices by Guarantied Party in connection with Sections 9504 or 9505 of the
Code, shall be deemed received on the earlier of the date of actual receipt or
three (3) calendar days after the deposit thereof in the mail. Guarantor
acknowledges and agrees that notices sent by Guarantied Party in connection with
Sections 9504 or 9505 of the Code shall be deemed sent when deposited in the
mail or transmitted by telefacsimile or other similar method set forth above.
15. CUMULATIVE REMEDIES. No remedy under this Guaranty, under the
Credit Agreement, or any other Loan Document is intended to be exclusive of any
other remedy, but each and every remedy shall be cumulative and in addition to
any and every other remedy given under this Guaranty, under the Credit
Agreement, or any other Loan Document, and those provided by law. No delay or
omission by Guarantied Party to exercise any right under this Guaranty shall
impair any such right nor be construed to be a waiver thereof. No failure on the
part of Guarantied Party to exercise, and no delay in exercising, any right
under this Guaranty shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under this Guaranty preclude any other or further
exercise thereof or the exercise of any other right.
16. SEVERABILITY OF PROVISIONS. Any provision of this Guaranty
which is prohibited or unenforceable under applicable law shall be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
17. ENTIRE AGREEMENT; AMENDMENTS. This Guaranty constitutes
the entire agreement between Guarantor and Guarantied Party pertaining to the
subject matter contained herein. This Guaranty may not be altered, amended, or
modified, nor may any provision hereof be waived or noncompliance therewith
consented to, except by means of a writing executed by both Guarantor and
Guarantied Party. Any such alteration, amendment, modification, waiver, or
consent shall be effective only to the extent specified therein and for the
specific purpose for which given. No course of dealing and no delay or waiver of
any right or default under this Guaranty shall be deemed a waiver of any other,
similar or dissimilar, right or default or otherwise prejudice the rights and
remedies hereunder.
18. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding
upon Guarantor and its successors and assigns and shall inure to the benefit of
the successors and assigns of the Lender Group and Guarantied Party; provided,
however, Guarantor shall not assign this Guaranty or delegate any of its duties
hereunder without Guarantied Party's prior written consent and any unconsented
to assignment shall be absolutely void. In the event of any assignment or other
transfer of rights by the Lender Group or Guarantied Party, the rights and
benefits herein conferred upon Guarantied Party for the benefit of the Lender
Group shall automatically extend to and be vested in such assignee or other
transferee.
19. NO THIRD PARTY BENEFICIARY. This Guaranty is solely for
the benefit of the Lender Group and Guarantied Party on behalf thereof and their
respective successors and assigns and may not be relied on by any other Person.
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20. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
------------------------------------------
THE VALIDITY OF THIS GUARANTY, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS GUARANTY SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND
FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, OR AT
THE SOLE OPTION OF GUARANTIED PARTY, IN ANY OTHER COURT IN WHICH GUARANTIED
PARTY SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF GUARANTOR AND GUARANTIED
PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY
HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 20.
GUARANTOR AND GUARANTIED PARTY HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS GUARANTY OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. GUARANTOR AND GUARANTIED PARTY REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A
COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
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IN WITNESS WHEREOF, the undersigned has executed and delivered this
Guaranty as of the date first written above.
SPACE APPLICATIONS CORPORATION,
a California corporation
By /s/ Ronald A. Hunn
---------------------------------------
Title: V.P. and Assistant Secretary
-----------------------------------
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GENERAL CONTINUING GUARANTY
THIS GENERAL CONTINUING GUARANTY ("Guaranty"), dated as of
September 11, 1998, is executed and delivered by Decision-Science Applications
Inc., a California corporation ("Guarantor"), in favor of Mellon Bank, N.A., as
agent for the Lender Group ("Guarantied Party"), in light of the following:
WHEREAS, Debtor and the Lender Group are, contemporaneously
herewith, entering into the Credit Agreement; and
WHEREAS, in order to induce the Lender Group to extend
financial accommodations to Debtor pursuant to the Credit Agreement, and in
consideration thereof, and in consideration of any loans or other financial
accommodations heretofore or hereafter extended by the Lender Group to Debtor,
whether pursuant to the Credit Agreement or otherwise, Guarantor has agreed to
guaranty the Guarantied Obligations.
NOW, THEREFORE, in consideration of the foregoing, Guarantor
hereby agrees, in favor of Guarantied Party, as follows:
1. DEFINITIONS AND CONSTRUCTION.
(a) DEFINITIONS. Capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to them in the Credit
Agreement. The following terms, as used in this Guaranty, shall have the
following meanings:
"CREDIT AGREEMENT" shall mean that certain Credit and
Security Agreement, dated as of even date herewith, among Debtor and the Lender
Group
"DEBTOR" shall mean SM & A Corporation.
"GUARANTIED OBLIGATIONS" shall mean: (a) the due and
punctual payment of the principal of, and interest (including, any and all
interest which, but for the application of the provisions of the Bankruptcy
Code, would have accrued on such amounts) on, any and all premium on, and any
and all fees, costs, and expenses incurred in connection with or on the
Indebtedness owed by Debtor to Guarantied Party pursuant to the terms of the
Loan Documents; and (b) the due and punctual payment of all other present or
future Indebtedness owing by Debtor to Guarantied Party.
"GUARANTIED PARTY" shall have the meaning set forth in the
preamble to this Guaranty.
"GUARANTOR" shall have the meaning set forth in the
preamble to this Guaranty.
<PAGE>
"GUARANTY" shall have the meaning set forth in the
preamble to this Guaranty.
"INDEBTEDNESS" shall mean any and all obligations,
indebtedness, or liabilities of any kind or character owed by Debtor to
Guarantied Party and arising directly or indirectly out of or in connection with
the Credit Agreement or the other Loan Documents, including all such
obligations, indebtedness, or liabilities, whether for principal, interest
(including any and all interest which, but for the application of the provisions
of the Bankruptcy Code, would have accrued on such amounts), premium,
reimbursement obligations, fees, costs, expenses (including attorneys fees), or
indemnity obligations, whether heretofore, now, or hereafter made, incurred, or
created, whether voluntarily or involuntarily made, incurred, or created,
whether secured or unsecured (and if secured, regardless of the nature or extent
of the security), whether absolute or contingent, liquidated or unliquidated, or
determined or indeterminate, whether Debtor is liable individually or jointly
with others, and whether recovery is or hereafter becomes barred by any statute
of limitations or otherwise becomes unenforceable for any reason whatsoever,
including any act or failure to act by Guarantied Party.
"LENDER GROUP" shall mean, individually and collectively,
each of the Lenders and Mellon in its capacity as Agent for the Lenders.
"LENDERS" shall mean, individually and collectively, each
of the financial institutions (including Mellon) listed on the signature pages
of the Credit Agreement (together with their respective successors and assigns)
(b) CONSTRUCTION. Unless the context of this Guaranty clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the part includes the whole, the terms
"include" and "including" are not limiting, and the term "or" has the inclusive
meaning represented by the phrase "and/or." The words "hereof," "herein,"
"hereby," "hereunder," and other similar terms refer to this Guaranty as a whole
and not to any particular provision of this Guaranty. Any reference in this
Guaranty to any of the following documents includes any and all alterations,
amendments, restatements, extensions, modifications, renewals, or supplements
thereto or thereof, as applicable: the Credit Agreement; this Guaranty; and the
other Loan Documents. Neither this Guaranty nor any uncertainty or ambiguity
herein shall be construed or resolved against Guarantied Party, the Lender
Group, or Guarantor, whether under any rule of construction or otherwise. On the
contrary, this Guaranty has been reviewed by Guarantor, Guarantied Party, the
several members of the Lender Group, and their respective counsel, and shall be
construed and interpreted according to the ordinary meaning of the words used so
as to fairly accomplish the purposes and intentions of Guarantied Party and
Guarantor.
2. GUARANTIED OBLIGATIONS. Guarantor hereby irrevocably and
unconditionally guaranties to Guarantied Party for the benefit of the Lender
Group, as and for its own debt, until final and indefeasible payment thereof has
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been made, (a) the payment of the Guarantied Obligations, in each case when and
as the same shall become due and payable, whether at maturity, pursuant to a
mandatory prepayment requirement, by acceleration, or otherwise; it being the
intent of Guarantor that the guaranty set forth herein shall be a guaranty of
payment and not a guaranty of collection; and (b) the punctual and faithful
performance, keeping, observance, and fulfillment by Debtor of all of the
agreements, conditions, covenants, and obligations of Debtor contained in the
Credit Agreement, and under each of the other Loan Documents.
3. CONTINUING GUARANTY. This Guaranty includes Guarantied
Obligations arising under successive transactions continuing, compromising,
extending, increasing, modifying, releasing, or renewing the Guarantied
Obligations, changing the interest rate, payment terms, or other terms and
conditions thereof, or creating new or additional Guarantied Obligations after
prior Guarantied Obligations have been satisfied in whole or in part. To the
maximum extent permitted by law, Guarantor hereby waives any right to revoke
this Guaranty as to future Indebtedness. If such a revocation is effective
notwithstanding the foregoing waiver, Guarantor acknowledges and agrees that (a)
no such revocation shall be effective until written notice thereof has been
received by Guarantied Party, (b) no such revocation shall apply to any
Guarantied Obligations in existence on such date (including any subsequent
continuation, extension, or renewal thereof, or change in the interest rate,
payment terms, or other terms and conditions thereof), (c) no such revocation
shall apply to any Guarantied Obligations made or created after such date to the
extent made or created pursuant to a legally binding commitment of Guarantied
Party in existence on the date of such revocation, (d) no payment by Guarantor,
Debtor, or from any other source, prior to the date of such revocation shall
reduce the maximum obligation of Guarantor hereunder, and (e) any payment by
Debtor or from any source other than Guarantor subsequent to the date of such
revocation shall first be applied to that portion of the Guarantied Obligations
as to which the revocation is effective and which are not, therefore, guarantied
hereunder, and to the extent so applied shall not reduce the maximum obligation
of Guarantor hereunder.
4. PERFORMANCE UNDER THIS GUARANTY. In the event that Debtor
fails to make any payment of any Guarantied Obligations, on or before the due
date thereof, or if Debtor shall fail to perform, keep, observe, or fulfill any
other obligation referred to IN CLAUSE (b) OF SECTION 2 hereof in the manner
provided in the Credit Agreement or the other Loan Documents, as applicable,
Guarantor immediately shall cause such payment to be made or each of such
obligations to be performed, kept, observed, or fulfilled.
5. PRIMARY OBLIGATIONS. This Guaranty is a primary and
original obligation of Guarantor, is not merely the creation of a surety
relationship, and is an absolute, unconditional, and continuing guaranty of
payment and performance which shall remain in full force and effect without
respect to future changes in conditions. Guarantor agrees that it is directly,
jointly and severally with any other guarantor of the Guarantied Obligations,
liable to Guarantied Party for the benefit of the Lender Group, that the
obligations of Guarantor hereunder are independent of the obligations of Debtor
or any other guarantor, and that a separate action may be brought against
Guarantor, whether such action is brought against Debtor or any other guarantor
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or whether Debtor or any other guarantor is joined in such action. Guarantor
agrees that its liability hereunder shall be immediate and shall not be
contingent upon the exercise or enforcement by Guarantied Party for the benefit
of the Lender Group of whatever remedies it may have against Debtor or any other
guarantor, or the enforcement of any lien or realization upon any security
Guarantied Party may at any time possess. Guarantor agrees that any release
which may be given by the Lender Group or Guarantied Party on behalf thereof to
Debtor or any other guarantor shall not release Guarantor. Guarantor consents
and agrees that the Lender Group or Guarantied Party on behalf thereof shall be
under no obligation to marshal any property or assets of Debtor or any other
guarantor in favor of Guarantor, or against or in payment of any or all of the
Guarantied Obligations.
6. Waivers.
(a) To the fullest extent permitted by applicable law,
Guarantor hereby waives: (i) notice of acceptance hereof; (ii) notice of any
loans or other financial accommodations made or extended under the Credit
Agreement, or the creation or existence of any Guarantied Obligations; (iii)
notice of the amount of the Guarantied Obligations, subject, however, to
Guarantor's right to make inquiry of Guarantied Party to ascertain the amount of
the Guarantied Obligations at any reasonable time; (iv) notice of any adverse
change in the financial condition of Debtor or of any other fact that might
increase Guarantor's risk hereunder; (v) notice of presentment for payment,
demand, protest, and notice thereof as to any instrument among the Loan
Documents; (vi) notice of any unmatured Event of Default or Event of Default
under the Credit Agreement; and (vii) all other notices (except if such notice
is specifically required to be given to Guarantor under this Guaranty or any
other Loan Documents to which Guarantor is a party) and demands to which
Guarantor might otherwise be entitled.
(b) To the fullest extent permitted by applicable law,
Guarantor waives the right by statute or otherwise to require the Lender Group
or Guarantied Party on behalf thereof to institute suit against Debtor or to
exhaust any rights and remedies which the Lender Group or Guarantied Party on
behalf thereof has or may have against Debtor. In this regard, Guarantor agrees
that it is bound to the payment of each and all Guarantied Obligations, whether
now existing or hereafter arising, as fully as if such Guarantied Obligations
were directly owing to the Lender Group or Guarantied Party on behalf thereof by
Guarantor. Guarantor further waives any defense arising by reason of any
disability or other defense (other than the defense that the Guarantied
Obligations shall have been fully and finally performed and indefeasibly paid)
of Debtor or by reason of the cessation from any cause whatsoever of the
liability of Debtor in respect thereof.
(c) To the fullest extent permitted by applicable law,
Guarantor hereby waives: (i) any rights to assert against the Lender Group or
Guarantied Party on behalf thereof any defense (legal or equitable), set-off,
counterclaim, or claim which Guarantor may now or at any time hereafter have
against Debtor or any other party liable to the Lender Group or Guarantied Party
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on behalf thereof; (ii) any defense, set-off, counterclaim, or claim, of any
kind or nature, arising directly or indirectly from the present or future lack
of perfection, sufficiency, validity, or enforceability of the Guarantied
Obligations or any security therefor; (iii) any defense arising by reason of any
claim or defense based upon an election of remedies by the Lender Group or
Guarantied Party on behalf thereof including any defense based upon an election
of remedies by the Lender Group or Guarantied Party on behalf thereof under the
provisions of ss.ss. 580d and 726 of the California Code of Civil Procedure, or
any similar law of California or any other jurisdiction; (iv) the benefit of any
statute of limitations affecting Guarantor's liability hereunder or the
enforcement thereof, and any act which shall defer or delay the operation of any
statute of limitations applicable to the Guarantied Obligations shall similarly
operate to defer or delay the operation of such statute of limitations
applicable to Guarantor's liability hereunder.
(d) Until such time as all of the Guarantied Obligations have
been fully, finally, and indefeasibly paid in full in cash: (i) Guarantor hereby
waives and postpones any right of subrogation Guarantor has or may have as
against Debtor with respect to the Guarantied Obligations; (ii) in addition,
Guarantor hereby waives and postpones any right to proceed against Debtor or any
other Person, now or hereafter, for contribution, indemnity, reimbursement, or
any other suretyship rights and claims (irrespective of whether direct or
indirect, liquidated or contingent), with respect to the Guarantied Obligations;
and (iii) in addition, Guarantor also hereby waives and postpones any right to
proceed or to seek recourse against or with respect to any property or asset of
Debtor.
(e) If any of the Guarantied Obligations at any time are
secured by a mortgage or deed of trust upon real property, Guarantied Party on
behalf of the Lender Group may elect, in its sole discretion, upon a default
with respect to the Guarantied Obligations, to foreclose such mortgage or deed
of trust judicially or nonjudicially in any manner permitted by law, before or
after enforcing this Guaranty, without diminishing or affecting the liability of
Guarantor hereunder. Guarantor understands that (a) by virtue of the operation
of California's antideficiency law applicable to nonjudicial foreclosures, an
election by the Lender Group or Guarantied Party on behalf thereof nonjudicially
to foreclose such a mortgage or deed of trust probably would have the effect of
impairing or destroying rights of subrogation, reimbursement, contribution, or
indemnity of Guarantor against Debtor or other guarantors or sureties, and (b)
absent the waiver given by Guarantor herein, such an election would estop the
Lender Group or Guarantied Party on behalf thereof from enforcing this Guaranty
against Guarantor. Understanding the foregoing, and understanding that Guarantor
is hereby relinquishing a defense to the enforceability of this Guaranty,
Guarantor hereby waives any right to assert against the Lender Group or
Guarantied Party any defense to the enforcement of this Guaranty, whether
denominated "estoppel" or otherwise, based on or arising from an election by the
Lender Group or Guarantied Party on behalf thereof nonjudicially to foreclose
any such mortgage or deed of trust. Guarantor understands that the effect of the
foregoing waiver may be that Guarantor may have liability hereunder for amounts
with respect to which Guarantor may be left without rights of subrogation,
reimbursement, contribution, or indemnity against Debtor or other guarantors or
sureties. Guarantor also agrees that the "fair market value" provisions of
Section 580a of the California Code of Civil Procedure shall have no
applicability with respect to the determination of Guarantor's liability under
this Guaranty.
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<PAGE>
(f) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR
OTHER PROVISION SET FORTH IN THIS GUARANTY, GUARANTOR HEREBY WAIVES, TO THE
MAXIMUM EXTENT SUCH WAIVER IS PERMITTED BY LAW, ANY AND ALL BENEFITS OR DEFENSES
ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE
ss.ss. 2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2822, 2838, 2839, 2845,
2847, 2848, 2849, AND 2850, CALIFORNIA CODE OF CIVIL PROCEDURE ss.ss. 580a,
580b, 580c, 580d, AND 726, AND CHAPTER 2 OF TITLE 14 OF THE CALIFORNIA CIVIL
CODE.
(g) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR
OTHER PROVISION SET FORTH IN THIS GUARANTY, GUARANTOR WAIVES ALL RIGHTS AND
DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY THE GUARANTIED PARTY, EVEN
THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH RESPECT
TO SECURITY FOR A GUARANTIED OBLIGATION, HAS DESTROYED THE GUARANTOR'S RIGHTS OF
SUBROGATION AND REIMBURSEMENT AGAINST THE DEBTOR BY THE OPERATION OF SECTION
580d OF THE CALIFORNIA CODE OF CIVIL PROCEDURE OR OTHERWISE.
7. RELEASES. Guarantor consents and agrees that, without
notice to or by Guarantor and without affecting or impairing the obligations of
Guarantor hereunder, the Lender Group or Guarantied Party on behalf thereof may,
by action or inaction, compromise or settle, extend the period of duration or
the time for the payment, or discharge the performance of, or may refuse to, or
otherwise not enforce, or may, by action or inaction, release all or any one or
more parties to, any one or more of the terms and provisions of the Credit
Agreement or any of the other Loan Documents or may grant other indulgences to
Debtor in respect thereof, or may amend or modify in any manner and at any time
(or from time to time) any one or more of the Credit Agreement or any of the
other Loan Documents, or may, by action or inaction, release or substitute any
other guarantor, if any, of the Guarantied Obligations, or may enforce,
exchange, release, or waive, by action or inaction, any security for the
Guarantied Obligations or any other guaranty of the Guarantied Obligations, or
any portion thereof.
8. NO ELECTION. Guarantied Party shall have the right to seek
recourse against Guarantor to the fullest extent provided for herein and no
election by the Lender Group or Guarantied Party on behalf thereof to proceed in
one form of action or proceeding, or against any party, or on any obligation,
shall constitute a waiver of Guarantied Party's right on behalf of the Lender
Group to proceed in any other form of action or proceeding or against other
parties unless Guarantied Party has expressly waived such right in writing.
Specifically, but without limiting the generality of the foregoing, no action or
proceeding by the Lender Group or Guarantied Party on behalf thereof under any
document or instrument evidencing the Guarantied Obligations shall serve to
diminish the liability of Guarantor under this Guaranty except to the extent
that the Lender Group finally and unconditionally shall have realized
indefeasible payment by such action or proceeding.
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9. INDEFEASIBLE PAYMENT. The Guarantied Obligations shall not be
considered indefeasibly paid for purposes of this Guaranty unless and until all
payments to the Lender Group are no longer subject to any right on the part of
any person whomsoever, including Debtor, Debtor as a debtor in possession, or
any trustee (whether appointed under the Bankruptcy Code or otherwise) of
Debtor's assets to invalidate or set aside such payments or to seek to recoup
the amount of such payments or any portion thereof, or to declare same to be
fraudulent or preferential. In the event that, for any reason, all or any
portion of such payments to the Lender Group is set aside or restored, whether
voluntarily or involuntarily, after the making thereof, the obligation or part
thereof intended to be satisfied thereby shall be revived and continued in full
force and effect as if said payment or payments had not been made and Guarantor
shall be liable for the full amount the Lender Group is required to repay plus
any and all costs and expenses (including attorneys fees) paid by the Lender
Group in connection therewith.
10. FINANCIAL CONDITION OF DEBTOR. Guarantor represents and
warrants to Guarantied Party that it is currently informed of the financial
condition of Debtor and of all other circumstances which a diligent inquiry
would reveal and which bear upon the risk of nonpayment of the Guarantied
Obligations. Guarantor further represents and warrants to Guarantied Party that
it has read and understands the terms and conditions of the Credit Agreement and
the other Loan Documents. Guarantor hereby covenants that it will continue to
keep itself informed of Debtor's financial condition, the financial condition of
other guarantors, if any, and of all other circumstances which bear upon the
risk of nonpayment or nonperformance of the Guarantied Obligations.
11. SUBORDINATION. Guarantor hereby agrees that any and all
present and future indebtedness of Debtor owing to Guarantor is postponed in
favor of and subordinated to payment, in full, in cash, of the Guarantied
Obligations. In this regard, no payment of any kind whatsoever shall be made
with respect to such indebtedness until the Guarantied Obligations have been
indefeasibly paid in full.
12. PAYMENTS; APPLICATION. All payments to be made hereunder by
Guarantor shall be made in lawful money of the United States of America at the
time of payment, shall be made in immediately available funds, and shall be made
without deduction (whether for taxes or otherwise) or offset. All payments made
by Guarantor hereunder shall be applied as follows: first, to all reasonable
costs and expenses (including attorneys fees) incurred by Guarantied Party on
behalf of the Lender Group in enforcing this Guaranty or in collecting the
Guarantied Obligations; second, to all accrued and unpaid interest, premium, if
any, and fees owing to the Lender Group constituting Guarantied Obligations; and
third, to the balance of the Guarantied Obligations.
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<PAGE>
13. ATTORNEYS FEES AND COSTS. Guarantor agrees to pay, on demand,
all reasonable attorneys fees and all other reasonable costs and expenses which
may be incurred by Guarantied Party on behalf of the Lender Group in the
enforcement of this Guaranty or in any way arising out of, or consequential to
the protection, assertion, or enforcement of the Guarantied Obligations (or any
security therefor), irrespective of whether suit is brought.
14. NOTICES. Unless otherwise specifically provided in this
Guaranty, any notice or other communication relating to this Guaranty or any
other agreement entered into in connection therewith shall be in writing and
shall be personally delivered or sent by registered or certified mail, postage
prepaid, return receipt requested, or by prepaid telex, TWX, telefacsimile, or
telegram (with messenger delivery specified) to Guarantor or to Guarantied
Party, as the case may be, at its addresses set forth below:
If to Guarantor: Decision-Science Applications, Inc.
901 Follin Lane, Suite 400
Vienna, Virginia 22180
Attn: Chief Financial Officer
Telecopy No.: (703) 875-9231
with a copy to Rutan & Tucker
611 Anton Boulevard, 14th Floor
Costa Mesa, California 92626
Attn: Thomas J. Crane, Esq.
Telecopy No.: (714) 546-9035
If to Guarantied Party: Mellon Bank, N.A.
Mellon Bank Center
400 South Hope Street
5th Floor
Los Angeles, California 90071
Attn: Mr. Richard M. McNiven
Telecopy No.: (213) 629-0484
with a copy to: Brobeck, Phleger & Harrison
550 South Hope Street
Los Angeles, California 90071
Attn: James D. Prendergast, Esq.
Telecopy No.: (213) 745-3345
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this SECTION 14, other
than notices by Guarantied Party in connection with Sections 9504 or 9505 of the
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Code, shall be deemed received on the earlier of the date of actual receipt or
three (3) calendar days after the deposit thereof in the mail. Guarantor
acknowledges and agrees that notices sent by Guarantied Party in connection with
Sections 9504 or 9505 of the Code shall be deemed sent when deposited in the
mail or transmitted by telefacsimile or other similar method set forth above.
15. CUMULATIVE REMEDIES. No remedy under this Guaranty, under the
Credit Agreement, or any other Loan Document is intended to be exclusive of any
other remedy, but each and every remedy shall be cumulative and in addition to
any and every other remedy given under this Guaranty, under the Credit
Agreement, or any other Loan Document, and those provided by law. No delay or
omission by Guarantied Party to exercise any right under this Guaranty shall
impair any such right nor be construed to be a waiver thereof. No failure on the
part of Guarantied Party to exercise, and no delay in exercising, any right
under this Guaranty shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under this Guaranty preclude any other or further
exercise thereof or the exercise of any other right.
16. SEVERABILITY OF PROVISIONS. Any provision of this Guaranty
which is prohibited or unenforceable under applicable law shall be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
17. ENTIRE AGREEMENT; AMENDMENTS. This Guaranty constitutes the
entire agreement between Guarantor and Guarantied Party pertaining to the
subject matter contained herein. This Guaranty may not be altered, amended, or
modified, nor may any provision hereof be waived or noncompliance therewith
consented to, except by means of a writing executed by both Guarantor and
Guarantied Party. Any such alteration, amendment, modification, waiver, or
consent shall be effective only to the extent specified therein and for the
specific purpose for which given. No course of dealing and no delay or waiver of
any right or default under this Guaranty shall be deemed a waiver of any other,
similar or dissimilar, right or default or otherwise prejudice the rights and
remedies hereunder.
18. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon
Guarantor and its successors and assigns and shall inure to the benefit of the
successors and assigns of the Lender Group and Guarantied Party; PROVIDED,
HOWEVER, Guarantor shall not assign this Guaranty or delegate any of its duties
hereunder without Guarantied Party's prior written consent and any unconsented
to assignment shall be absolutely void. In the event of any assignment or other
transfer of rights by the Lender Group or Guarantied Party, the rights and
benefits herein conferred upon Guarantied Party for the benefit of the Lender
Group shall automatically extend to and be vested in such assignee or other
transferee.
19. NO THIRD PARTY BENEFICIARY. This Guaranty is solely for the
benefit of the Lender Group and Guarantied Party on behalf thereof and their
respective successors and assigns and may not be relied on by any other Person.
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20. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
------------------------------------------
THE VALIDITY OF THIS GUARANTY, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS GUARANTY SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND
FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, OR AT
THE SOLE OPTION OF GUARANTIED PARTY, IN ANY OTHER COURT IN WHICH GUARANTIED
PARTY SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF GUARANTOR AND GUARANTIED
PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY
HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 20.
GUARANTOR AND GUARANTIED PARTY HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS GUARANTY OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. GUARANTOR AND GUARANTIED PARTY REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A
COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
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IN WITNESS WHEREOF, the undersigned has executed and delivered this
Guaranty as of the date first written above.
DECISION-SCIENCE APPLICATIONS INC.,
a California corporation
By: /S/ Ronald A. Hunn
--------------------------------------
Title: C.F.O. and Sec.
-----------------------------------
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SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement"), is entered into as
of September 11, 1998, between MELLON BANK, N.A., as agent for the Lender Group,
(in such capacity, "Agent"), with a place of business located at Mellon Bank
Center, 400 South Hope Street, 5th Floor, Los Angeles, California 90071, and
SPACE APPLICATIONS CORPORATION, a California corporation ("Guarantor"), with its
chief executive office located at 901 Follin Lane, Suite 400, Vienna, Virginia
22180.
WHEREAS, Borrower, the Lenders, and Agent are,
contemporaneously herewith, entering into the Credit Agreement;
WHEREAS, Guarantor has executed that certain General
Continuing Guaranty, of even date herewith, in favor of Agent for the benefit of
the Lender Group (the "Guaranty"), respecting certain obligations of Borrower
owing to the Lender Group under the Credit Agreement;
WHEREAS, Guarantor desires to collateralize its obligations
under the Guaranty by granting to Agent for the benefit of the Lender Group a
security interest in certain of its assets; and
WHEREAS, Guarantor will benefit by virtue of the loan from the
Lender Group to Borrower.
NOW THEREFORE, in consideration of the premises set forth
above, the terms and conditions contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
each intending to be bound hereby, Agent on behalf of the Lender Group and
Guarantor agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. All capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to them in the Credit
Agreement. As used in this Agreement, the following terms shall have the
following definitions:
"ACCOUNTS" means all currently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Guarantor
arising out of the sale, license, or lease of goods or General Intangibles or
the rendition of services by Guarantor, irrespective of whether earned by
performance, and any and all credit insurance, guaranties, or security therefor.
<PAGE>
"AGREEMENT" means this Security Agreement and any extensions,
riders, supplements, notes, amendments, or modifications to or in connection
with this Security Agreement.
"BORROWER" means SM & A Corporation, a California corporation.
"CODE" means the California Uniform Commercial Code.
"COLLATERAL" means each of the following: the Accounts;
Guarantor's Books; the Equipment; the General Intangibles; the Inventory; the
Negotiable Collateral; any money, or other assets of Guarantor which now or
hereafter come into the possession, custody, or control of Agent; and the
proceeds and products, whether tangible or intangible, of any of the foregoing,
including proceeds of insurance covering any or all of the Collateral, and any
and all Accounts, Guarantor's Books, Equipment, General Intangibles, Inventory,
Negotiable Collateral, money, deposit accounts, or other tangible or intangible
property resulting from the sale, exchange, collection, or other disposition of
any of the foregoing, or any portion thereof or interest therein, and the
proceeds thereof.
"CREDIT AGREEMENT" means that certain Credit and Security
Agreement, dated as of even date herewith, among Borrower, the Lenders and
Agent.
"EQUIPMENT" means all of Guarantor's present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts, dies,
jigs, goods (other than consumer goods, farm products, or Inventory), wherever
located, and any interest of Guarantor in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located.
"EVENT OF DEFAULT" has the meaning ascribed to it in Section
6.
"GENERAL INTANGIBLES" means all of Guarantor's present and
future general intangibles and other personal property (including contract
rights, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, source code, blueprints, drawings, purchase orders, customer lists,
monies due or recoverable from pension funds, route lists, rights to payment and
other rights under any royalty or licensing agreements, infringements, claims,
computer programs, computer discs, computer tapes, literature, reports,
catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax
refund claims), other than goods, Accounts, and Negotiable Collateral.
"GUARANTIED OBLIGATIONS" shall have the meaning ascribed to it
in the Guaranty.
"GUARANTOR'S BOOKS" means all of Guarantor's books and
records, including: ledgers; records indicating, summarizing, or evidencing
Guarantor's properties or assets (including the Collateral) or liabilities; all
information relating to Guarantor's business operations or financial condition;
and all computer programs, disc or tape files, printouts, runs, or other
computer prepared information in respect of such books and records.
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<PAGE>
"GUARANTOR" has the meaning ascribed thereto in the preamble
to this Agreement.
"GUARANTY" means the General Continuing Guaranty Guarantor to
Agent for the benefit of the Lender Group of even date herewith.
"INVENTORY" means all present and future inventory in which
Guarantor has any interest, including goods held for sale, license, or lease or
to be furnished under a contract of service and all of Guarantor's present and
future raw materials, work in process, finished goods, and packing and shipping
materials, wherever located, and any documents of title representing any of the
above.
"INVESTMENT PROPERTY" means "investment property" as that term
is defined in Section 9115 of the Code.
"LENDER GROUP" means, individually and collectively, each of
the Lenders and Mellon in its capacity as Agent for the Lenders.
"LENDERS" means, individually and collectively, each of the
financial institutions (including Mellon) listed on the signature pages of the
Credit Agreement (together with their respective successors and assigns).
"NEGOTIABLE COLLATERAL" means all of Guarantor's present and
future letters of credit, notes, drafts, instruments, Investment Property,
documents, personal property leases (wherein Guarantor is the lessor), chattel
paper, and Guarantor's Books relating to any of the foregoing.
1.2 CODE. Any terms used in this Agreement which are
defined in the Code shall be construed and defined as set forth in the Code
unless otherwise defined herein.
1.3 CONSTRUCTION. Unless the context of this Agreement
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the term "including" is not
limiting, and the term "or" has, except where otherwise indicated, the inclusive
meaning represented by the phrase "and/or." The words "hereof," "herein,"
"hereby," "hereunder," and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this Agreement.
Section, subsection, clause, schedule, and exhibit references are to this
Agreement unless otherwise specified. Any reference in this Agreement or in any
of the other Loan Documents to this Agreement or any of the other Loan Documents
shall include all alterations, amendments, restatements, changes, extensions,
modifications, renewals, replacements, substitutions, and supplements, thereto
and thereof, as applicable. In the event of a direct conflict between the terms
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and provisions of this Agreement and the Credit Agreement, it is the intention
of the parties hereto that both such documents shall be read together and
construed, to the fullest extent possible, to be in concert with each other. In
the event of any actual, irreconcilable conflict that cannot be resolved as
aforesaid, the terms and provisions of the Credit Agreement shall control and
govern; provided, however, that the inclusion herein of additional obligations
on the part of Guarantor and supplemental rights and remedies in favor of the
Lender Group, in each case in respect of the Collateral, shall not be deemed a
conflict with the Credit Agreement.
1.4 SCHEDULES AND EXHIBITS. All of the schedules and
exhibits attached to this Agreement shall be deemed incorporated herein by
reference.
2. CREATION OF SECURITY INTEREST.
2.1 GRANT OF SECURITY INTEREST. Guarantor hereby grants to
Agent for the benefit of the Lender Group a continuing security interest in all
currently existing and hereafter acquired or arising Collateral in order to
secure its performance pursuant to the Guaranty. The security interests of Agent
for the benefit of the Lender Group in the Collateral shall attach to all
Collateral without further act on the part of Agent or Guarantor. Anything
contained in this Agreement or any other Loan Document to the contrary
notwithstanding, except for the sale of Inventory to buyers in the ordinary
course of business, Guarantor has no authority, express or implied, to dispose
of any item or portion of the Collateral.
2.2 NEGOTIABLE COLLATERAL. In the event that any
Collateral, including proceeds, is evidenced by or consists of Negotiable
Collateral, Guarantor shall, immediately upon the request of Agent, endorse and
assign such Negotiable Collateral to Agent for the benefit of the Lender Group
and deliver physical possession of such Negotiable Collateral to Agent.
2.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES,
NEGOTIABLE COLLATERAL. At any time, Agent or Agent's designee may: (a) notify
customers or Account Debtors of Guarantor that the Accounts, General
Intangibles, or Negotiable Collateral have been assigned to Agent for the
benefit of the Lender Group or that Agent for the benefit of the Lender Group
has a security interest therein; and (b) collect the Accounts, General
Intangibles, and Negotiable Collateral directly and charge the collection costs
and expenses to Borrower's loan account. Guarantor agrees that it will hold in
trust for the Lender Group, as The Lender Group's trustee, any cash receipts,
checks, and other items of payment (including, insurance proceeds, proceeds of
cash sales, rental proceeds, and tax refunds) that it receives and immediately
will deliver said cash receipts, checks, and other items of payment to Agent in
their original form as received by Guarantor.
2.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED.
Guarantor shall execute, and deliver to Agent, prior to or concurrently with
Guarantor's execution and delivery of this Agreement and at any time thereafter
at the request of Agent, all financing statements, continuation financing
statements, fixture filings, security agreements, chattel mortgages, pledges,
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mortgages, deeds of trust, assignments, endorsements of certificates of title,
applications for title, affidavits, reports, notices, schedules of accounts,
letters of authority, and all other documents that Agent may reasonably request,
in form satisfactory to Agent, to perfect and continue perfected the security
interests of Agent for the benefit of the Lender Group in the Collateral and in
order to fully consummate all of the transactions contemplated under the Loan
Documents.
2.5 POWER OF ATTORNEY. Guarantor hereby irrevocably makes,
constitutes, and appoints Agent (and any of Agent's officers, employees, or
agents designated by Agent) as Guarantor's true and lawful attorney, with power
to: (a) if Guarantor refuses to, or fails timely to execute and deliver any of
the documents described in Section 2.4, sign the name of Guarantor on any of the
documents described in Section 2.4; (b) at any time that an Event of Default has
occurred and is continuing or Agent deems itself insecure (in accordance with
Section 1208 of the Code), sign Guarantor's name on any invoice or bill of
lading relating to any Account, drafts against Account Debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to Account
Debtors; (c) send requests for verification of Accounts; (d) at any time that an
Event of Default has occurred and is continuing, endorse Guarantor's name on any
checks, notices, acceptances, money orders, drafts, or other item of payment or
security that may come into Agent's possession; (e) at any time that an Event of
Default has occurred and is continuing or Agent deems itself insecure (in
accordance with Section 1208 of the Code), notify the post office authorities to
change the address for delivery of Guarantor's mail to an address designated by
Agent, to receive and open all mail addressed to Guarantor, and to retain all
mail relating to the Collateral and forward all other mail to Guarantor; (f) at
any time that an Event of Default has occurred and is continuing or Agent deems
itself insecure (in accordance with Section 1208 of the Code), make, settle, and
adjust all claims under Guarantor's policies of insurance and make all
determinations and decisions with respect to such policies of insurance; and (g)
at any time that an Event of Default has occurred and is continuing or Agent
deems itself insecure (in accordance with Section 1208 of the Code), settle and
adjust disputes and claims respecting the Accounts directly with Account
Debtors, for amounts and upon terms which Agent determines to be reasonable, and
Agent may cause to be executed and delivered any documents and releases which
Agent determines to be necessary. The appointment of Agent as Guarantor's
attorney, and each and every one of Agent's rights and powers, being coupled
with an interest, is irrevocable until all of the Guarantied Obligations have
been fully and finally repaid and performed and the Lender Group's obligation to
extend credit under the Credit Agreement is terminated.
2.6 RIGHT TO INSPECT. Agent (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter to
inspect Guarantor's Books and to check, test, and appraise the Collateral in
order to verify Guarantor's financial condition or the amount, quality, value,
condition of, or any other matter relating to, the Collateral.
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3. REPRESENTATIONS AND WARRANTIES.
Guarantor represents and warrants as follows:
3.1 NO PRIOR ENCUMBRANCES. Guarantor has good and
indefeasible title to the Collateral, free and clear of liens, claims, security
interests, or encumbrances except for Permitted Liens.
3.2 PLACE OF BUSINESS/CHIEF EXECUTIVE OFFICE; FEIN. The
chief executive office of Guarantor is at the address indicated in the first
paragraph of this Agreement and all other locations at which Guarantor has a
place of business are set forth on SCHEDULE 3.2. Guarantor's FEIN is 95-2587760.
3.3 INVENTORY. All Inventory is now and at all times
hereafter shall be of good and serviceable quality, free from defects.
3.4 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment are not stored with a bailee, warehouseman, or similar party (without
Agent's prior written consent) and are located only at the locations identified
on Schedule 3.2 or as otherwise permitted by Section 5.9.
3.5 INVENTORY RECORDS. Guarantor now keeps, and hereafter
at all times shall keep, correct and accurate records itemizing and describing
the kind, type, quality, and quantity of the Inventory, and Guarantor's cost
therefor.
3.6 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
Guarantor is a California corporation, and it is and shall at all times
hereafter be duly organized and existing and in good standing under the laws of
California and qualified and licensed to do business in, and in good standing
in, any state where the failure to be so licensed or qualified could reasonably
be expected to have a material adverse effect on the business, operations,
condition (financial or otherwise), finances, or prospects of Guarantor or on
the value of the Collateral.
3.7 DUE AUTHORIZATION; NO CONFLICT. The execution,
delivery, and performance of this Agreement, the Guaranty, and any other Loan
Document to which Guarantor is a party are within Guarantor's corporate powers,
have been duly authorized, and are not in conflict with nor, constitute a breach
of any provision contained in Guarantor's Articles or Certificate of
Incorporation, By-laws, or any partnership or trust agreement pertaining to
Guarantor, nor will they constitute an event of default under any material
agreement to which Guarantor is now or may hereafter become a party.
3.8 LITIGATION. There are no actions or proceedings
pending by or against Guarantor before any court or administrative agency and
Guarantor does not have knowledge or belief of any pending, threatened, or
imminent litigation, governmental investigations, or claims, complaints,
actions, or prosecutions involving Guarantor, except for: (a) ongoing collection
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matters in which Guarantor is the plaintiff; (b) matters disclosed on SCHEDULE
3.8; and (c) matters arising after the date hereof that, if decided adversely to
Guarantor, would not materially impair the prospect of repayment of the
Guarantied Obligations or materially impair the value or priority of the
security interests of Agent for the benefit of the Lender Group in the
Collateral.
3.9 SOLVENCY. Guarantor is Solvent. No transfer of
property is being made by Guarantor and no obligation is being incurred by
Guarantor in connection with the transactions contemplated by this Agreement or
the other Loan Documents with the intent to hinder, delay, or defraud either
present or future creditors of Guarantor.
3.10 RELIANCE BY THE LENDER GROUP; CUMULATIVE. The
warranties, representations, and agreements set forth herein shall be
conclusively presumed to have been relied upon by the Lender Group and shall be
cumulative and in addition to any and all other warranties, representations, and
agreements which Guarantor shall now or hereinafter give, or cause to be given,
to the Lender Group.
4. AFFIRMATIVE COVENANTS.
Guarantor covenants and agrees that, until payment in full of
the Guarantied Obligations, and unless Agent shall otherwise consent in writing,
Guarantor shall do all of the following:
4.1 SCHEDULES OF ACCOUNTS. With such regularity as Agent
shall require, provide Agent with schedules describing all Accounts. Agent's
failure to request such schedules or Guarantor's failure to execute and deliver
such schedules shall not affect or limit Agent's security interests or other
rights in and to the Accounts.
4.2 INVENTORY REPORTING. From time to time hereafter, at
the request of Agent, execute and deliver to Agent a report regarding
Guarantor's Inventory specifying Guarantor's cost therefor and further
specifying such other information as Agent may reasonably request.
4.3 TITLE TO EQUIPMENT. Upon Agent's request, deliver to
Agent, properly endorsed, any and all evidences of ownership of, certificates of
title, or applications for title to any items of Equipment.
4.4 MAINTENANCE OF EQUIPMENT. Keep and maintain the
Equipment in good operating condition and repair (ordinary wear and tear
excepted), and make all necessary replacements thereto so that the value and
operating efficiency thereof shall at all times be maintained and preserved.
Guarantor shall not permit any item of Equipment to become a fixture to real
estate or an accession to other property, and the Equipment is now and shall at
all times remain personal property.
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4.5 TAXES. All assessments and taxes, whether real,
personal, or otherwise, due or payable by, or imposed, levied, or assessed
against Guarantor or any of its property have been paid, and shall hereafter be
paid in full, before delinquency or before the expiration of any extension
period. Guarantor shall make due and timely payment or deposit of all taxes,
assessments, or contributions required of it by law, and will execute and
deliver to Agent, on demand, appropriate certificates attesting to the payment
or deposit thereof. Guarantor will make timely payment or deposit of all tax
payments and withholding taxes required of it by applicable laws, and will, upon
request, furnish Agent with proof satisfactory to Agent indicating that
Guarantor has made such payments or deposits, other than assessments or taxes
that are the subject of a Permitted Protest.
4.6 INSURANCE.
(a) At its expense, keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as are ordinarily insured against by
other owners in similar businesses. Guarantor also shall maintain business
interruption, public liability, product liability, and property damage insurance
relating to their ownership and use of the Collateral, as well as insurance
against larceny, embezzlement, and criminal misappropriation.
(b) All such policies of insurance shall be in
such form, with such companies, and in such amounts as may be reasonably
satisfactory to Agent. All such policies of insurance (except those of public
liability and property damage) shall contain a 438BFU lender's loss payable
endorsement, or an equivalent endorsement in a form satisfactory to Agent,
showing Agent, for the benefit of the Lender Group as a loss payee thereof as
its interest may appear, shall contain a waiver of warranties, and shall specify
that the insurer must give at least ten (10) days prior written notice to Agent
before canceling its policy for any reason. Guarantor shall deliver to Agent
certified copies of such policies of insurance and evidence of the payment of
all premiums therefor. All proceeds payable under any such policy shall be
payable to Agent for the benefit of the Lender Group to be applied on account of
the Guarantied Obligations.
4.7 LENDER GROUP EXPENSES. Guarantor shall immediately
upon demand reimburse Agent for all sums expended by the Lender Group which
constitute Lender Group Expenses and Guarantor hereby authorizes and approves
all advances and payments by the Lender Group for items constituting Lender
Group Expenses.
5. NEGATIVE COVENANTS.
Guarantor covenants and agrees that until payment in full of
the Guarantied Obligations, it will not do any of the following without Agent's
prior written consent, except as expressly permitted by the Credit Agreement:
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5.1 LIENS. Create, incur, assume, or permit to exist,
directly or indirectly, any lien on or with respect to any of its property or
assets, of any kind, whether now owned or hereafter acquired, or any income or
profits therefrom, except for Permitted Liens (including liens that are
replacements of Permitted Liens to the extent that the original indebtedness is
refinanced under Section 7.1(f) of the Credit Agreement and so long as the
replacement liens secure only those assets or property that secured the original
indebtedness).
5.2 RESTRICTIONS ON FUNDAMENTAL CHANGES. Except as
permitted by the Credit Agreement, enter into any acquisition, merger,
consolidation, reorganization, or recapitalization, or reclassify its capital
stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose
of, in one transaction or a series of transactions, all or any substantial part
of its business, property, or assets, whether now owned or hereafter acquired,
or acquire by purchase or otherwise all. or substantially all of the properties,
assets, stock, or other evidence of beneficial ownership of any Person.
5.3 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS.
Enter into any transaction not in the ordinary and usual course of Guarantor's
business, including the sale, lease, or other disposition of, moving,
relocation, or transfer, whether by sale or otherwise, of any of Guarantor's
properties or assets.
5.4 CHANGE NAME. Change Guarantor's name, FEIN, business
structure, or identity, or add any new fictitious name.
5.5 GUARANTEE. Guarantee or otherwise become in any way
liable with respect to the obligations of any third Person except by endorsement
of instruments or items of payment for deposit to the account of Guarantor or
which are transmitted or turned over to Agent and except for the guarantee of
the payment and performance of the Guarantied Obligations.
5.6 NATURE OF BUSINESS; FISCAL YEAR.
(a) Make any change in the principal nature of
Guarantor's business, or (b) without the prior written consent of Agent, which
consent shall not unreasonably be withheld, change the date of its fiscal year.
5.7 TRANSACTIONS WITH AFFILIATES. Guarantor will not
directly or indirectly enter into or permit to exist any material transaction
with any Affiliate of Guarantor except for transactions which are in the
ordinary course of Guarantor's business, upon fair and reasonable terms and
which are fully disclosed to Agent and, no less favorable to Guarantor than
would be obtained in arm's length transaction with a non-Affiliate.
5.8 SUSPENSION. Suspend or go out of business.
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5.9 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE;
INVENTORY AND EQUIPMENT WITH BAILEES. Without thirty (30) days prior written
notification to Agent, relocate its chief executive office to a new location,
unless, at the time of such written notification, Guarantor provides any
financing statements or fixture filings necessary to perfect and continue
perfected the security interests of Agent for the benefit of the Lender Group,
and also provides to Agent a landlord's waiver in form and substance
satisfactory to Agent. The Inventory and Equipment shall not at any time now or
hereafter be stored with a bailee, warehouseman, or similar party without
Agent's prior written consent.
6. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an
event of default (each, an "Event of Default") under this Agreement:
6.1 The occurrence of an Event of Default (as defined in
the Credit Agreement);
6.2 If Guarantor fails or neglects to perform, keep, or
observe, in any material respect, any term, provision, condition, covenant, or
agreement contained in this Agreement or in the Guaranty, or in any other
present or future agreement between Guarantor and the Lender Group
6.3 If there is a material impairment of the prospect of
repayment of any portion of the Guarantied Obligations owing to the Lender Group
or a material impairment of the value or priority of the security interests of
Agent for the benefit of the Lender Group in the Collateral;
6.4 If a notice of lien, levy, or assessment is filed of
record with respect to any of Guarantor's properties or assets by the United
States Government, or any department, agency, or instrumentality thereof, or by
any state, county, municipal, or governmental agency, or if any taxes or debts
owing at any time hereafter to any one or more of such entities becomes a lien,
whether choate or otherwise, upon any of Guarantor's properties or assets and
the same is not paid on the payment date thereof; and
6.5 If a judgment or other claim becomes a lien or
encumbrance upon any material portion of Guarantor's properties or assets;
6.6 If there is a default in any material agreement to
which Guarantor is a party with one or more third Persons resulting in a right
by such third Persons, irrespective of whether exercised, to accelerate the
maturity of Guarantor's obligations thereunder;
6.7 If Guarantor makes any payment on account of
indebtedness that has been contractually subordinated in right of payment to the
payment of the Guarantied Obligations, except to the extent such payment is
permitted by the terms hereof and by the subordination provisions applicable to
such indebtedness;
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6.8 If any misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to the
Lender Group by Guarantor or any officer, employee, agent, or director of
Guarantor, or if any such warranty or representation is withdrawn.
7. THE LENDER GROUP'S RIGHTS AND REMEDIES.
7.1 RIGHTS AND REMEDIES. Upon the occurrence of an Event
of Default, the security hereby constituted shall become enforceable and, in
addition to all other rights and remedies available to the Lender Group as
provided hereafter, Agent, on behalf of the Lender Group, may, at its election,
without notice of its election and without demand, [but subject to any
applicable terms and conditions set forth in the Bankruptcy Court Order, if any]
do any one or more of the following, all of which are authorized by Guarantor:
(a) Proceed directly and at once, without notice,
against the Guarantor to collect and recover the full amount or any portion of
the Guarantied Obligations, without first proceeding against Borrower, or
against any security or collateral for the Guarantied Obligations.
(b) Without notice to the Guarantor and
regardless of the acceptance of any security or collateral for the payment
hereof, appropriate and apply toward the payment of the Guarantied Obligations
(i) any indebtedness due or to become due from the Lender Group to the Guarantor
and (ii) any moneys, credits or other property belonging to the Guarantor at any
time held by or coming into the possession of the Lender Group.
(c) May exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein and the Guaranty or
otherwise available to it, all the rights and remedies available to it at law
(including those of a secured party under the Code) or in equity.
(d) Settle or adjust disputes and claims directly
with Account Debtors for amounts and upon terms which Agent considers advisable,
and in such cases, Agent will credit Borrower's loan account with only the net
amounts received by Agent in payment of such disputed Accounts after deducting
all Lender Group Expenses incurred or expended in connection therewith;
(e) Cause Guarantor to hold all returned
Inventory in trust for the Lender Group, segregate all returned Inventory from
all other property of Guarantor or in Guarantor's possession and conspicuously
label said returned Inventory as the property of the Lender Group;
(f) Without notice or demand, make such payments
and do such acts as Agent considers necessary or reasonable to protect the
security interest of Agent for the benefit of the Lender Group in the
Collateral. Guarantor agrees to assemble the Collateral if Agent so requires,
and to make the Collateral available to Agent as Agent may designate. Guarantor
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authorizes Agent to enter the premises where the Collateral is located, to take
and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any encumbrance, charge, or lien which in
Agent's determination appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith. With respect to any of
Guarantor's owned premises, Guarantor hereby grants Agent for the benefit of the
Lender Group a license to enter into possession of such premises and to occupy
the same, without charge, for up to one hundred twenty (120) days in order to
exercise any of the Lender Group's rights or remedies provided herein, at law,
in equity, or otherwise;
(g) Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Collateral. Agent for the benefit of the Lender Group
is hereby granted a license or other right to use, without charge, Guarantor's
labels, patents, copyrights, rights of use of any name, trade secrets, trade
names, trademarks, service marks, and advertising matter, or any property of a
similar nature, as it pertains to the Collateral, in completing production of
advertising for sale and selling any Collateral, and Guarantor's rights under
all licenses and all franchise agreements shall inure to the benefit of Agent
for the benefit of the Lender Group;
(h) Sell all or any part of the Collateral at
either a public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places (including
Guarantor's premises) as Agent determines is commercially reasonable. It is not
necessary that the Collateral be present at any such sale. Agent on behalf of
the Lender Group shall have the right upon any such public sale or sales, and,
to the extent permitted by law, upon any such private sale or sales, to purchase
the whole or any part of the Collateral so sold, free of any right or equity of
redemption in Guarantor, which right or equity is hereby waived or released to
the extent permitted by law;
(i) By an instrument in writing, appoint a
receiver (which term shall include a receiver and manager) of all or any part of
the Collateral and may remove or replace such receiver from time to time or may
institute proceedings in any court of competent jurisdiction for the appointment
of such receiver;
(j) Require Guarantor to establish a lockbox or
other restricted account satisfactory to Agent for the collection of Accounts of
Guarantor, General Intangibles, or Negotiable Collateral;
(k) Notify customers or Account Debtors of
Guarantor that the Accounts of Guarantor, General Intangibles, or Negotiable
Collateral have been assigned to Agent for the benefit of the Lender Group or
that Agent for the benefit of the Lender Group has a security interest therein;
(l) Collect the Accounts of Debtor, General
Intangibles, and Negotiable Collateral directly, and charge the collection costs
and expenses as Lender Group Expenses; but, unless and until Agent does so or
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gives Guarantor other written instructions, Guarantor shall collect all Accounts
of Guarantor, General Intangibles, and Negotiable Collateral for the Lender
Group, receive in trust all payments thereon as the Lender Group's trustee, and
immediately deliver said payments to Agent for the benefit of the Lender Group
in their original form as received from such Account Debtor;
(m) Any deficiency which exists after disposition
of the Collateral as provided above will be paid immediately by Guarantor up to
the maximum amount, if any, of Guarantor's liability under the Guaranty. Any
excess will be returned to Guarantor, without interest and subject to the rights
of third parties, by Agent.
Except as required by law, Agent on behalf of the Lender Group
may take any or all of the foregoing action without demand, presentment,
protest, advertisement or notice of any kind to or upon Guarantor or any other
person.
7.2 REMEDIES CUMULATIVE. The rights and remedies of Agent
for the benefit of the Lender Group under this Agreement, the Loan Documents,
and all other agreements shall be cumulative. The Lender Group shall have all
other rights and remedies not inconsistent herewith as provided under the Code,
by law, or in equity. No exercise by the Lender Group of one right or remedy
shall be deemed an election, and no waiver by the Lender Group of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by the
Lender Group shall constitute a waiver, election, or acquiescence by it.
8. TAXES AND EXPENSES REGARDING THE COLLATERAL.
If Guarantor fails to pay any monies (whether taxes, rents,
assessments, insurance premiums, or otherwise) due to third persons or entities,
or fails to make any deposits or furnish any required proof of payment or
deposit, all as required under the terms of this Agreement, then, to the extent
that Agent determines that such failure, by Guarantor could have a material
adverse effect on the interests of Agent for the benefit of the Lender Group in
the Collateral, in its discretion and without prior notice to Guarantor, Agent
on behalf of the Lender Group may do any or all of the following: (a) make
payment of the same or any part thereof; (b) set up such reserves in Borrower's
loan account as Agent deems necessary to protect the Lender Group from the
exposure created by such failure; or (c) obtain and maintain insurance policies
insuring Guarantor's ownership and use of the Collateral, and take any action
with respect to such policies as Agent deems prudent. Any amounts paid or
deposited by Agent on behalf of the Lender Group shall constitute :Lender Group
Expenses, shall immediately become additional Guarantied Obligations, shall bear
interest at the applicable rate described in the Loan Document, and shall be
secured by the Collateral. Any payments made by Agent on behalf of the Lender
Group shall not constitute an agreement by the Lender Group to make similar
payments in the future or a waiver by the Lender Group of any Event of Default
under this Agreement. Agent need not inquire as to, or contest the validity of,
any such expense, tax, security interest, encumbrance, or lien and the receipt
of the usual official notice for the payment thereof shall be conclusive
evidence that the same was validly due and owing. Agent shall use its best
efforts to provide notice to Guarantor of any action taken by it under this
SECTION 8.
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9. WAIVERS; INDEMNIFICATION.
9.1 DEMAND; PROTEST; ETC. To the extent permitted by law,
Guarantor waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of accounts,
documents, instruments, chattel paper, and guarantees at any time held by the
Lender Group on which Guarantor may in any way be liable.
9.2 LENDER GROUP'S LIABILITY FOR COLLATERAL. So long as
the Lender Group complies with its obligations, if any, under Section 9207 of
the Code, the Lender Group shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other Person. All risk of loss,
damage, or destruction of the Collateral shall be borne by Guarantor.
9.3 INDEMNIFICATION. Guarantor agrees to defend,
indemnify, save, and hold Indemnified Person harmless against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
Person, and (b) all losses (including attorneys fees and disbursements) in any
way suffered, incurred, or paid by the Lender Group as a result of or in any way
arising out of, following, or consequential to transactions with Borrower or
Guarantor, whether under this Agreement, the other Loan Documents or otherwise,
but excluding any obligations, demands, claims, liabilities, and losses caused
by the Lender Group's gross negligence or willful misconduct. This provision
shall survive the termination of this Agreement.
9.4 WAIVERS.
(a) To the maximum extent permitted by law,
Guarantor hereby waives: (i) notice of acceptance hereof; (ii) notice of any
loans or other financial accommodations made or extended under the Credit
Agreement, or the creation or existence of any Obligations; (iii) notice of the
amount of the Obligations, subject, however, to Guarantor's right to make
inquiry of Agent to ascertain the amount of the Obligations at any reasonable
time; (iv) notice of any adverse change in the financial condition of Borrower
or of any other fact that might increase Guarantor's risk hereunder; (v) notice
of presentment for payment, demand, protest, and notice thereof as to any
instrument among the Loan Documents; (vi) notice of any unmatured Event of
Default or Event of Default under the Credit Agreement; and (vii) all other
notices (except if such notice is specifically required to be given to Guarantor
under this Agreement) and demands to which Guarantor might otherwise be
entitled.
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(b) To the fullest extent permitted by applicable
law, Guarantor waives the right by statute or otherwise to require the Lender
Group to institute suit against Borrower or to exhaust any rights and remedies
which the Lender Group has or may have against Borrower. Guarantor further
waives any defense arising by reason of any disability or other defense (other
than the defense that the Obligations shall have been fully and finally
indefeasibly paid) of Borrower or by reason of the cessation from any cause
(other than that the Obligations shall have been fully and finally indefeasibly
paid) whatsoever of the liability of Borrower in respect thereof.
(c) To the maximum extent permitted by law,
Guarantor hereby waives: (i) any rights to assert against the Lender Group any
defense (legal or equitable), set-off, counterclaim, or claim which Guarantor
may now or at any time hereafter have against Borrower or any other party liable
to the Lender Group on account of or with respect to the Obligations; (ii) any
defense, set-off, counterclaim, or claim, of any kind or nature, arising
directly or indirectly from the present or future sufficiency, validity, or
enforceability of the Obligations; (iii) any defense arising by reason of any
claim or defense based upon an election of remedies by the Lender Group
including, to the extent applicable, the provisions of ss.ss. 580d and 726 of
the California Code of Civil Procedure, or any similar law of California or any
other jurisdiction; (iv) the benefit of any statute of limitations affecting
Guarantor's liability hereunder or the enforcement thereof.
(d) To the maximum extent permitted by law,
Guarantor hereby waives any right of subrogation Guarantor has or may have as
against Borrower with respect to the Obligations. In addition, Guarantor hereby
waives any right to proceed against Borrower, now or hereafter, for
contribution, indemnity, reimbursement, or any other suretyship rights and
claims (irrespective of whether direct or indirect, liquidated or contingent),
with respect to the Obligations. Guarantor also hereby waives any right to
proceed or to seek recourse against or with respect to any property or asset of
Borrower. Guarantor hereby agrees that, in light of the waivers contained in
this Section, Guarantor shall not be deemed to be a "creditor" (as that term is
defined in the Bankruptcy Code or otherwise) of Borrower, whether for purposes
of the application of Sections 547 or 550 of the United States Bankruptcy Code
or otherwise.
(e) If any of the Guarantied Obligations at any
time are secured by a mortgage or deed of trust upon real property, Agent on
behalf of the Lender Group may elect, in its sole discretion, upon a default
with respect to the Guarantied Obligations, to foreclose such mortgage or deed
of trust judicially or nonjudicially in any manner permitted by law, before or
after enforcing this Agreement, without diminishing or affecting the liability
of Guarantor hereunder. Guarantor understands that (a) by virtue of the
operation of California's antideficiency law applicable to nonjudicial
foreclosures, an election by the Lender Group nonjudicially to foreclose such a
mortgage or deed of trust probably would have the effect of impairing or
destroying rights of subrogation, reimbursement, contribution, or indemnity of
Guarantor against Borrower or guarantors or sureties, and (b) absent the waiver
given by Guarantor herein, such an election might estop Agent from enforcing
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this Agreement against Guarantor. Understanding the foregoing, and understanding
that Guarantor is hereby relinquishing a defense to the enforceability of this
Agreement, Guarantor hereby waives any right to assert against the Lender Group
any defense to the enforcement of this Agreement, whether denominated "estoppel"
or otherwise, based on or arising from an election by the Lender Group
nonjudicially to foreclose any such mortgage or deed of trust. Guarantor
understands that the effect of the foregoing waiver may be that Guarantor may
have liability hereunder for amounts with respect to which Guarantor may be left
without rights of subrogation, reimbursement, contribution, or indemnity against
Borrower or guarantors or sureties. Guarantor also agrees that the "fair market
value" provisions of Section 580a of the California Code of Civil Procedure
shall have no applicability with respect to the determination of Guarantor's
liability under this Agreement.
(f) WITHOUT LIMITING THE GENERALITY OF ANY OTHER
WAIVER OR OTHER PROVISION SET FORTH IN THIS AGREEMENT, GUARANTOR HEREBY WAIVES,
TO THE MAXIMUM EXTENT SUCH WAIVER IS PERMITTED BY LAW, ANY AND ALL DEFENSES
ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE
ss.ss. 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2838, 2839, 2845, 2848, 2849,
AND 2850, TO THE EXTENT APPLICABLE, CALIFORNIA CODE OF CIVIL PROCEDURE ss.ss.
580a, 580b, 580c, 580d, AND 726, AND, TO THE EXTENT APPLICABLE, CHAPTER 2 OF
TITLE 14 OF THE CALIFORNIA CIVIL CODE.
(g) WITHOUT LIMITING THE GENERALITY OF ANY OTHER
WAIVER OR OTHER PROVISION SET FORTH IN THIS AGREEMENT, GUARANTOR HEREBY WAIVES
ALL RIGHTS AND DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY THE LENDER
GROUP, EVEN THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE
WITH RESPECT TO SECURITY FOR A SECURED OBLIGATION, HAS DESTROYED GUARANTOR'S
RIGHTS OF SUBROGATION AND REIMBURSEMENT AGAINST THE PRINCIPAL BY THE OPERATION
OF SECTION 580d OF THE CODE OF CIVIL PROCEDURE OR OTHERWISE.
10. NOTICES.
All notices and other communications hereunder to Agent shall
be in writing and shall be mailed, sent or delivered in accordance with the
Credit Agreement and all notices and other communications hereunder to Guarantor
shall be in writing and shall be mailed, sent or delivered in care of Borrower
in accordance with the Credit Agreement.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE
DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
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STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING
IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE
AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR,
AT THE SOLE OPTION OF AGENT, IN ANY OTHER COURT IN WHICH AGENT SHALL INITIATE
LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER
THE MATTER IN CONTROVERSY. EACH OF GUARANTOR AND AGENT WAIVES, TO THE EXTENT
PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE
OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS
BROUGHT IN ACCORDANCE WITH THIS SECTION 11.
GUARANTOR AND AGENT HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. GUARANTOR AND AGENT REPRESENT THAT EACH HAS REVIEWED THIS
WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
12. DESTRUCTION OF GUARANTOR'S DOCUMENTS.
All documents, schedules, agings, or other papers delivered to
Agent may be destroyed or otherwise disposed of by Agent four (4) months after
they are delivered to or received by Agent, unless Guarantor requests, in
writing, the return of said documents, schedules or other papers and makes
arrangements, at Guarantor's expense, for their return.
13. GENERAL PROVISIONS.
13.1 EFFECTIVENESS. This Agreement shall be binding and
deemed effective when executed by Guarantor and accepted and executed by Agent.
13.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of the respective successors and assigns of each of the
parties; provided, however, that Guarantor may not assign this Agreement or any
rights or duties hereunder without Agent's prior written consent and any
prohibited assignment shall be absolutely void. No consent to an assignment by
Agent shall release Guarantor from its Guarantied Obligations. Agent may assign
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this Agreement and its rights and duties hereunder and no consent or approval by
Guarantor is required in connection with any such assignment. The Lender Group
reserves the right to sell, assign, transfer, negotiate, or grant participations
in all or any part of, or any interest in the Lender Group's rights and benefits
hereunder. In connection therewith, the Lender Group may disclose all documents
and information which the Lender Group now or hereafter may have relating to
Guarantor or Guarantor's business. To the extent that Agent assigns its rights
and obligations to a third Person, Agent thereafter shall be released from such
assigned obligations to Guarantor and such assignment shall effect a novation
between Guarantor and such third Person.
13.3 SECTION HEADINGS. Headings and numbers have been set
forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to this entire
Agreement.
13.4 INTERPRETATION. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against the
Lender Group or Guarantor, whether under any rule of construction or otherwise.
On the contrary, this Agreement has been reviewed by all parties and shall be
construed and interpreted according to the ordinary meaning of the words used so
as to fairly accomplish the purposes and intentions of all parties hereto.
13.5 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
13.6 AMENDMENTS IN WRITING. This Agreement can only be
amended by a writing signed by both Agent and Guarantor.
13.7 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement.
13.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Guarantied Obligations by Guarantor or the transfer
by Guarantor to the Lender Group of any property of Guarantor should for any
reason subsequently be declared to be void or voidable under any state or
federal law relating to creditors' rights, including provisions of the
Bankruptcy Code relating to fraudulent conveyances, preferences, and other
voidable or recoverable payments of money or transfers of property
(collectively, a "Voidable Transfer"), and if the Lender Group is required to
repay or restore, in whole or in part, any such Voidable Transfer, or elects to
do so upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that the Lender Group is required or elects to
repay or restore, and as to all reasonable costs, expenses, and attorneys fees
of the Lender Group related thereto, the liability of Guarantor automatically
shall be revived, reinstated, and restored and shall exist as though such
Voidable Transfer had never been made.
[Signature page to follow.]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed at Los Angeles, California.
SPACE APPLICATIONS CORPORATION,
a California corporation
By /s/ Ronald A. Hunn
---------------------------------------
Its VP and Assistant Secretary
--------------------------------------
MELLON BANK, N.A.,
as agent
By /s/ Richard M. McNiven
---------------------------------------
Richard M. McNiven
Assistant Vice President
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SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement"), is entered into as
of September 11, 1998, between MELLON BANK, N.A., as agent for the Lender Group,
(in such capacity, "Agent"), with a place of business located at Mellon Bank
Center, 400 South Hope Street, 5th Floor, Los Angeles, California 90071, and
DECISION-SCIENCE APPLICATIONS, INC., a California corporation ("Guarantor"),
with its chief executive office located at 1110 North Glebe Road, Suite 400,
Arlington, Virginia 22201.
WHEREAS, Borrower, the Lenders, and Agent are,
contemporaneously herewith, entering into the Credit Agreement;
WHEREAS, Guarantor has executed that certain General
Continuing Guaranty, of even date herewith, in favor of Agent for the benefit of
the Lender Group (the "Guaranty"), respecting certain obligations of Borrower
owing to the Lender Group under the Credit Agreement;
WHEREAS, Guarantor desires to collateralize its obligations
under the Guaranty by granting to Agent for the benefit of the Lender Group a
security interest in certain of its assets; and
WHEREAS, Guarantor will benefit by virtue of the loan from the
Lender Group to Borrower.
NOW THEREFORE, in consideration of the premises set forth
above, the terms and conditions contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
each intending to be bound hereby, Agent on behalf of the Lender Group and
Guarantor agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. All capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to them in the Credit
Agreement. As used in this Agreement, the following terms shall have the
following definitions:
"ACCOUNTS" means all currently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Guarantor
arising out of the sale, license, or lease of goods or General Intangibles or
the rendition of services by Guarantor, irrespective of whether earned by
performance, and any and all credit insurance, guaranties, or security therefor.
<PAGE>
"AGREEMENT" means this Security Agreement and any extensions,
riders, supplements, notes, amendments, or modifications to or in connection
with this Security Agreement.
"BORROWER" means SM & A Corporation, a California corporation.
"CODE" means the California Uniform Commercial Code.
"COLLATERAL" means each of the following: the Accounts;
Guarantor's Books; the Equipment; the General Intangibles; the Inventory; the
Negotiable Collateral; any money, or other assets of Guarantor which now or
hereafter come into the possession, custody, or control of Agent; and the
proceeds and products, whether tangible or intangible, of any of the foregoing,
including proceeds of insurance covering any or all of the Collateral, and any
and all Accounts, Guarantor's Books, Equipment, General Intangibles, Inventory,
Negotiable Collateral, money, deposit accounts, or other tangible or intangible
property resulting from the sale, exchange, collection, or other disposition of
any of the foregoing, or any portion thereof or interest therein, and the
proceeds thereof.
"CREDIT AGREEMENT" means that certain Credit and Security
Agreement, dated as of even date herewith, among Borrower, the Lenders and
Agent.
"EQUIPMENT" means all of Guarantor's present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts, dies,
jigs, goods (other than consumer goods, farm products, or Inventory), wherever
located, and any interest of Guarantor in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located.
"EVENT OF DEFAULT" has the meaning ascribed to it in Section
6.
"GENERAL INTANGIBLES" means all of Guarantor's present and
future general intangibles and other personal property (including contract
rights, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, source code, blueprints, drawings, purchase orders, customer lists,
monies due or recoverable from pension funds, route lists, rights to payment and
other rights under any royalty or licensing agreements, infringements, claims,
computer programs, computer discs, computer tapes, literature, reports,
catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax
refund claims), other than goods, Accounts, and Negotiable Collateral.
"GUARANTIED OBLIGATIONS" shall have the meaning ascribed to it
in the Guaranty.
"GUARANTOR'S BOOKS" means all of Guarantor's books and
records, including: ledgers; records indicating, summarizing, or evidencing
Guarantor's properties or assets (including the Collateral) or liabilities; all
information relating to Guarantor's business operations or financial condition;
and all computer programs, disc or tape files, printouts, runs, or other
computer prepared information in respect of such books and records.
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"GUARANTOR" has the meaning ascribed thereto in the preamble
to this Agreement.
"GUARANTY" means the General Continuing Guaranty Guarantor to
Agent for the benefit of the Lender Group of even date herewith.
"INVENTORY" means all present and future inventory in which
Guarantor has any interest, including goods held for sale, license, or lease or
to be furnished under a contract of service and all of Guarantor's present and
future raw materials, work in process, finished goods, and packing and shipping
materials, wherever located, and any documents of title representing any of the
above.
"INVESTMENT PROPERTY" means "investment property" as that term
is defined in Section 9115 of the Code.
"LENDER GROUP" means, individually and collectively, each of
the Lenders and Mellon in its capacity as Agent for the Lenders.
"LENDERS" means, individually and collectively, each of the
financial institutions (including Mellon) listed on the signature pages of the
Credit Agreement (together with their respective successors and assigns).
"NEGOTIABLE COLLATERAL" means all of Guarantor's present and
future letters of credit, notes, drafts, instruments, Investment Property,
documents, personal property leases (wherein Guarantor is the lessor), chattel
paper, and Guarantor's Books relating to any of the foregoing.
1.2 CODE. Any terms used in this Agreement which are
defined in the Code shall be construed and defined as set forth in the Code
unless otherwise defined herein.
1.3 CONSTRUCTION. Unless the context of this Agreement
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the term "including" is not
limiting, and the term "or" has, except where otherwise indicated, the inclusive
meaning represented by the phrase "and/or." The words "hereof," "herein,"
"hereby," "hereunder," and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this Agreement.
Section, subsection, clause, schedule, and exhibit references are to this
Agreement unless otherwise specified. Any reference in this Agreement or in any
of the other Loan Documents to this Agreement or any of the other Loan Documents
shall include all alterations, amendments, restatements, changes, extensions,
modifications, renewals, replacements, substitutions, and supplements, thereto
and thereof, as applicable. In the event of a direct conflict between the terms
and provisions of this Agreement and the Credit Agreement, it is the intention
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<PAGE>
of the parties hereto that both such documents shall be read together and
construed, to the fullest extent possible, to be in concert with each other. In
the event of any actual, irreconcilable conflict that cannot be resolved as
aforesaid, the terms and provisions of the Credit Agreement shall control and
govern; provided, however, that the inclusion herein of additional obligations
on the part of Guarantor and supplemental rights and remedies in favor of the
Lender Group, in each case in respect of the Collateral, shall not be deemed a
conflict with the Credit Agreement.
1.4 SCHEDULES AND EXHIBITS. All of the schedules and
exhibits attached to this Agreement shall be deemed incorporated herein by
reference.
2. CREATION OF SECURITY INTEREST.
2.1 GRANT OF SECURITY INTEREST. Guarantor hereby grants to
Agent for the benefit of the Lender Group a continuing security interest in all
currently existing and hereafter acquired or arising Collateral in order to
secure its performance pursuant to the Guaranty. The security interests of Agent
for the benefit of the Lender Group in the Collateral shall attach to all
Collateral without further act on the part of Agent or Guarantor. Anything
contained in this Agreement or any other Loan Document to the contrary
notwithstanding, except for the sale of Inventory to buyers in the ordinary
course of business, Guarantor has no authority, express or implied, to dispose
of any item or portion of the Collateral.
2.2 NEGOTIABLE COLLATERAL. In the event that any
Collateral, including proceeds, is evidenced by or consists of Negotiable
Collateral, Guarantor shall, immediately upon the request of Agent, endorse and
assign such Negotiable Collateral to Agent for the benefit of the Lender Group
and deliver physical possession of such Negotiable Collateral to Agent.
2.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES,
NEGOTIABLE COLLATERAL. At any time, Agent or Agent's designee may: (a) notify
customers or Account Debtors of Guarantor that the Accounts, General
Intangibles, or Negotiable Collateral have been assigned to Agent for the
benefit of the Lender Group or that Agent for the benefit of the Lender Group
has a security interest therein; and (b) collect the Accounts, General
Intangibles, and Negotiable Collateral directly and charge the collection costs
and expenses to Borrower's loan account. Guarantor agrees that it will hold in
trust for the Lender Group, as The Lender Group's trustee, any cash receipts,
checks, and other items of payment (including, insurance proceeds, proceeds of
cash sales, rental proceeds, and tax refunds) that it receives and immediately
will deliver said cash receipts, checks, and other items of payment to Agent in
their original form as received by Guarantor.
2.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED.
Guarantor shall execute, and deliver to Agent, prior to or concurrently with
Guarantor's execution and delivery of this Agreement and at any time thereafter
at the request of Agent, all financing statements, continuation financing
statements, fixture filings, security agreements, chattel mortgages, pledges,
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mortgages, deeds of trust, assignments, endorsements of certificates of title,
applications for title, affidavits, reports, notices, schedules of accounts,
letters of authority, and all other documents that Agent may reasonably request,
in form satisfactory to Agent, to perfect and continue perfected the security
interests of Agent for the benefit of the Lender Group in the Collateral and in
order to fully consummate all of the transactions contemplated under the Loan
Documents.
2.5 POWER OF ATTORNEY. Guarantor hereby irrevocably makes,
constitutes, and appoints Agent (and any of Agent's officers, employees, or
agents designated by Agent) as Guarantor's true and lawful attorney, with power
to: (a) if Guarantor refuses to, or fails timely to execute and deliver any of
the documents described in Section 2.4, sign the name of Guarantor on any of the
documents described in Section 2.4; (b) at any time that an Event of Default has
occurred and is continuing or Agent deems itself insecure (in accordance with
Section 1208 of the Code), sign Guarantor's name on any invoice or bill of
lading relating to any Account, drafts against Account Debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to Account
Debtors; (c) send requests for verification of Accounts; (d) at any time that an
Event of Default has occurred and is continuing, endorse Guarantor's name on any
checks, notices, acceptances, money orders, drafts, or other item of payment or
security that may come into Agent's possession; (e) at any time that an Event of
Default has occurred and is continuing or Agent deems itself insecure (in
accordance with Section 1208 of the Code), notify the post office authorities to
change the address for delivery of Guarantor's mail to an address designated by
Agent, to receive and open all mail addressed to Guarantor, and to retain all
mail relating to the Collateral and forward all other mail to Guarantor; (f) at
any time that an Event of Default has occurred and is continuing or Agent deems
itself insecure (in accordance with Section 1208 of the Code), make, settle, and
adjust all claims under Guarantor's policies of insurance and make all
determinations and decisions with respect to such policies of insurance; and (g)
at any time that an Event of Default has occurred and is continuing or Agent
deems itself insecure (in accordance with Section 1208 of the Code), settle and
adjust disputes and claims respecting the Accounts directly with Account
Debtors, for amounts and upon terms which Agent determines to be reasonable, and
Agent may cause to be executed and delivered any documents and releases which
Agent determines to be necessary. The appointment of Agent as Guarantor's
attorney, and each and every one of Agent's rights and powers, being coupled
with an interest, is irrevocable until all of the Guarantied Obligations have
been fully and finally repaid and performed and the Lender Group's obligation to
extend credit under the Credit Agreement is terminated.
2.6 RIGHT TO INSPECT. Agent (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter to
inspect Guarantor's Books and to check, test, and appraise the Collateral in
order to verify Guarantor's financial condition or the amount, quality, value,
condition of, or any other matter relating to, the Collateral.
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3. REPRESENTATIONS AND WARRANTIES.
Guarantor represents and warrants as follows:
3.1 NO PRIOR ENCUMBRANCES. Guarantor has good and
indefeasible title to the Collateral, free and clear of liens, claims, security
interests, or encumbrances except for Permitted Liens.
3.2 PLACE OF BUSINESS/CHIEF EXECUTIVE OFFICE; FEIN. The
chief executive office of Guarantor is at the address indicated in the first
paragraph of this Agreement and all other locations at which Guarantor has a
place of business are set forth on SCHEDULE 3.2. Guarantor's FEIN is 54-1035921.
3.3 INVENTORY. All Inventory is now and at all times
hereafter shall be of good and serviceable quality, free from defects.
3.4 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment are not stored with a bailee, warehouseman, or similar party (without
Agent's prior written consent) and are located only at the locations identified
on Schedule 3.2 or as otherwise permitted by Section 5.9.
3.5 INVENTORY RECORDS. Guarantor now keeps, and hereafter
at all times shall keep, correct and accurate records itemizing and describing
the kind, type, quality, and quantity of the Inventory, and Guarantor's cost
therefor.
3.6 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
Guarantor is a California corporation, and it is and shall at all times
hereafter be duly organized and existing and in good standing under the laws of
California and qualified and licensed to do business in, and in good standing
in, any state where the failure to be so licensed or qualified could reasonably
be expected to have a material adverse effect on the business, operations,
condition (financial or otherwise), finances, or prospects of Guarantor or on
the value of the Collateral.
3.7 DUE AUTHORIZATION; NO CONFLICT. The execution,
delivery, and performance of this Agreement, the Guaranty, and any other Loan
Document to which Guarantor is a party are within Guarantor's corporate powers,
have been duly authorized, and are not in conflict with nor, constitute a breach
of any provision contained in Guarantor's Articles or Certificate of
Incorporation, By-laws, or any partnership or trust agreement pertaining to
Guarantor, nor will they constitute an event of default under any material
agreement to which Guarantor is now or may hereafter become a party.
3.8 LITIGATION. There are no actions or proceedings
pending by or against Guarantor before any court or administrative agency and
Guarantor does not have knowledge or belief of any pending, threatened, or
imminent litigation, governmental investigations, or claims, complaints,
actions, or prosecutions involving Guarantor, except for: (a) ongoing collection
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matters in which Guarantor is the plaintiff; (b) matters disclosed on SCHEDULE
3.8; and (c) matters arising after the date hereof that, if decided adversely to
Guarantor, would not materially impair the prospect of repayment of the
Guarantied Obligations or materially impair the value or priority of the
security interests of Agent for the benefit of the Lender Group in the
Collateral.
3.9 SOLVENCY. Guarantor is Solvent. No transfer of
property is being made by Guarantor and no obligation is being incurred by
Guarantor in connection with the transactions contemplated by this Agreement or
the other Loan Documents with the intent to hinder, delay, or defraud either
present or future creditors of Guarantor.
3.10 RELIANCE BY THE LENDER GROUP; CUMULATIVE. The
warranties, representations, and agreements set forth herein shall be
conclusively presumed to have been relied upon by the Lender Group and shall be
cumulative and in addition to any and all other warranties, representations, and
agreements which Guarantor shall now or hereinafter give, or cause to be given,
to the Lender Group.
4. AFFIRMATIVE COVENANTS.
Guarantor covenants and agrees that, until payment in full of
the Guarantied Obligations, and unless Agent shall otherwise consent in writing,
Guarantor shall do all of the following:
4.1 SCHEDULES OF ACCOUNTS. With such regularity as Agent
shall require, provide Agent with schedules describing all Accounts. Agent's
failure to request such schedules or Guarantor's failure to execute and deliver
such schedules shall not affect or limit Agent's security interests or other
rights in and to the Accounts.
4.2 INVENTORY REPORTING. From time to time hereafter, at
the request of Agent, execute and deliver to Agent a report regarding
Guarantor's Inventory specifying Guarantor's cost therefor and further
specifying such other information as Agent may reasonably request.
4.3 TITLE TO EQUIPMENT. Upon Agent's request, deliver to
Agent, properly endorsed, any and all evidences of ownership of, certificates of
title, or applications for title to any items of Equipment.
4.4 MAINTENANCE OF EQUIPMENT. Keep and maintain the
Equipment in good operating condition and repair (ordinary wear and tear
excepted), and make all necessary replacements thereto so that the value and
operating efficiency thereof shall at all times be maintained and preserved.
Guarantor shall not permit any item of Equipment to become a fixture to real
estate or an accession to other property, and the Equipment is now and shall at
all times remain personal property.
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4.5 TAXES. All assessments and taxes, whether real,
personal, or otherwise, due or payable by, or imposed, levied, or assessed
against Guarantor or any of its property have been paid, and shall hereafter be
paid in full, before delinquency or before the expiration of any extension
period. Guarantor shall make due and timely payment or deposit of all taxes,
assessments, or contributions required of it by law, and will execute and
deliver to Agent, on demand, appropriate certificates attesting to the payment
or deposit thereof. Guarantor will make timely payment or deposit of all tax
payments and withholding taxes required of it by applicable laws, and will, upon
request, furnish Agent with proof satisfactory to Agent indicating that
Guarantor has made such payments or deposits, other than assessments or taxes
that are the subject of a Permitted Protest.
4.6 INSURANCE.
(a) At its expense, keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as are ordinarily insured against by
other owners in similar businesses. Guarantor also shall maintain business
interruption, public liability, product liability, and property damage insurance
relating to their ownership and use of the Collateral, as well as insurance
against larceny, embezzlement, and criminal misappropriation.
(b) All such policies of insurance shall be in
such form, with such companies, and in such amounts as may be reasonably
satisfactory to Agent. All such policies of insurance (except those of public
liability and property damage) shall contain a 438BFU lender's loss payable
endorsement, or an equivalent endorsement in a form satisfactory to Agent,
showing Agent, for the benefit of the Lender Group as a loss payee thereof as
its interest may appear, shall contain a waiver of warranties, and shall specify
that the insurer must give at least ten (10) days prior written notice to Agent
before canceling its policy for any reason. Guarantor shall deliver to Agent
certified copies of such policies of insurance and evidence of the payment of
all premiums therefor. All proceeds payable under any such policy shall be
payable to Agent for the benefit of the Lender Group to be applied on account of
the Guarantied Obligations.
4.7 LENDER GROUP EXPENSES. Guarantor shall immediately
upon demand reimburse Agent for all sums expended by the Lender Group which
constitute Lender Group Expenses and Guarantor hereby authorizes and approves
all advances and payments by the Lender Group for items constituting Lender
Group Expenses.
5. NEGATIVE COVENANTS.
Guarantor covenants and agrees that until payment in full of
the Guarantied Obligations, it will not do any of the following without Agent's
prior written consent, except as expressly permitted by the Credit Agreement:
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5.1 LIENS. Create, incur, assume, or permit to exist,
directly or indirectly, any lien on or with respect to any of its property or
assets, of any kind, whether now owned or hereafter acquired, or any income or
profits therefrom, except for Permitted Liens (including liens that are
replacements of Permitted Liens to the extent that the original indebtedness is
refinanced under Section 7.1(f) of the Credit Agreement and so long as the
replacement liens secure only those assets or property that secured the original
indebtedness).
5.2 RESTRICTIONS ON FUNDAMENTAL CHANGES. Except as
permitted by the Credit Agreement, enter into any acquisition, merger,
consolidation, reorganization, or recapitalization, or reclassify its capital
stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, , or otherwise dispose
of, in one transaction or a series of transactions, all or any substantial part
of its business, property, or assets, whether now owned or hereafter acquired,
or acquire by purchase or otherwise all. or substantially all of the properties,
assets, stock, or other evidence of beneficial ownership of any Person.
5.3 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS.
Enter into any transaction not in the ordinary and usual course of Guarantor's
business, including the sale, lease, or other disposition of, moving,
relocation, or transfer, whether by sale or otherwise, of any of Guarantor's
properties or assets.
5.4 CHANGE NAME. Change Guarantor's name, FEIN, business
structure, or identity, or add any new fictitious name.
5.5 GUARANTEE. Guarantee or otherwise become in any way
liable with respect to the obligations of any third Person except by endorsement
of instruments or items of payment for deposit to the account of Guarantor or
which are transmitted or turned over to Agent and except for the guarantee of
the payment and performance of the Guarantied Obligations.
5.6 NATURE OF BUSINESS; FISCAL YEAR.
(a) Make any change in the principal nature of
Guarantor's business, or (b) without the prior written consent of Agent, which
consent shall not unreasonably be withheld, change the date of its fiscal year.
5.7 TRANSACTIONS WITH AFFILIATES. Guarantor will not
directly or indirectly enter into or permit to exist any material transaction
with any Affiliate of Guarantor except for transactions which are in the
ordinary course of Guarantor's business, upon fair and reasonable terms and
which are fully disclosed to Agent and, no less favorable to Guarantor than
would be obtained in arm's length transaction with a non-Affiliate.
5.8 SUSPENSION. Suspend or go out of business.
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5.9 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE;
INVENTORY AND EQUIPMENT WITH BAILEES. Without thirty (30) days prior written
notification to Agent, relocate its chief executive office to a new location,
unless, at the time of such written notification, Guarantor provides any
financing statements or fixture filings necessary to perfect and continue
perfected the security interests of Agent for the benefit of the Lender Group,
and also provides to Agent a landlord's waiver in form and substance
satisfactory to Agent. The Inventory and Equipment shall not at any time now or
hereafter be stored with a bailee, warehouseman, or similar party without
Agent's prior written consent.
6. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an
event of default (each, an "Event of Default") under this Agreement:
6.1 The occurrence of an Event of Default (as defined in
the Credit Agreement);
6.2 If Guarantor fails or neglects to perform, keep, or
observe, in any material respect, any term, provision, condition, covenant, or
agreement contained in this Agreement or in the Guaranty, or in any other
present or future agreement between Guarantor and the Lender Group
6.3 If there is a material impairment of the prospect of
repayment of any portion of the Guarantied Obligations owing to the Lender Group
or a material impairment of the value or priority of the security interests of
Agent for the benefit of the Lender Group in the Collateral;
6.4 If a notice of lien, levy, or assessment is filed of
record with respect to any of Guarantor's properties or assets by the United
States Government, or any department, agency, or instrumentality thereof, or by
any state, county, municipal, or governmental agency, or if any taxes or debts
owing at any time hereafter to any one or more of such entities becomes a lien,
whether choate or otherwise, upon any of Guarantor's properties or assets and
the same is not paid on the payment date thereof; and
6.5 If a judgment or other claim becomes a lien or
encumbrance upon any material portion of Guarantor's properties or assets;
6.6 If there is a default in any material agreement to
which Guarantor is a party with one or more third Persons resulting in a right
by such third Persons, irrespective of whether exercised, to accelerate the
maturity of Guarantor's obligations thereunder;
6.7 If Guarantor makes any payment on account of
indebtedness that has been contractually subordinated in right of payment to the
payment of the Guarantied Obligations, except to the extent such payment is
permitted by the terms hereof and by the subordination provisions applicable to
such indebtedness;
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6.8 If any misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to the
Lender Group by Guarantor or any officer, employee, agent, or director of
Guarantor, or if any such warranty or representation is withdrawn.
7. THE LENDER GROUP'S RIGHTS AND REMEDIES.
7.1 RIGHTS AND REMEDIES. Upon the occurrence of an Event
of Default, the security hereby constituted shall become enforceable and, in
addition to all other rights and remedies available to the Lender Group as
provided hereafter, Agent, on behalf of the Lender Group, may, at its election,
without notice of its election and without demand, [but subject to any
applicable terms and conditions set forth in the Bankruptcy Court Order, if any]
do any one or more of the following, all of which are authorized by Guarantor:
(a) Proceed directly and at once, without notice,
against the Guarantor to collect and recover the full amount or any portion of
the Guarantied Obligations, without first proceeding against Borrower, or
against any security or collateral for the Guarantied Obligations.
(b) Without notice to the Guarantor and
regardless of the acceptance of any security or collateral for the payment
hereof, appropriate and apply toward the payment of the Guarantied Obligations
(i) any indebtedness due or to become due from the Lender Group to the Guarantor
and (ii) any moneys, credits or other property belonging to the Guarantor at any
time held by or coming into the possession of the Lender Group.
(c) May exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein and the Guaranty or
otherwise available to it, all the rights and remedies available to it at law
(including those of a secured party under the Code) or in equity.
(d) Settle or adjust disputes and claims directly
with Account Debtors for amounts and upon terms which Agent considers advisable,
and in such cases, Agent will credit Borrower's loan account with only the net
amounts received by Agent in payment of such disputed Accounts after deducting
all Lender Group Expenses incurred or expended in connection therewith;
(e) Cause Guarantor to hold all returned
Inventory in trust for the Lender Group, segregate all returned Inventory from
all other property of Guarantor or in Guarantor's possession and conspicuously
label said returned Inventory as the property of the Lender Group;
(f) Without notice or demand, make such payments
and do such acts as Agent considers necessary or reasonable to protect the
security interest of Agent for the benefit of the Lender Group in the
Collateral. Guarantor agrees to assemble the Collateral if Agent so requires,
and to make the Collateral available to Agent as Agent may designate. Guarantor
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authorizes Agent to enter the premises where the Collateral is located, to take
and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any encumbrance, charge, or lien which in
Agent's determination appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith. With respect to any of
Guarantor's owned premises, Guarantor hereby grants Agent for the benefit of the
Lender Group a license to enter into possession of such premises and to occupy
the same, without charge, for up to one hundred twenty (120) days in order to
exercise any of the Lender Group's rights or remedies provided herein, at law,
in equity, or otherwise;
(g) Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Collateral. Agent for the benefit of the Lender Group
is hereby granted a license or other right to use, without charge, Guarantor's
labels, patents, copyrights, rights of use of any name, trade secrets, trade
names, trademarks, service marks, and advertising matter, or any property of a
similar nature, as it pertains to the Collateral, in completing production of
advertising for sale and selling any Collateral, and Guarantor's rights under
all licenses and all franchise agreements shall inure to the benefit of Agent
for the benefit of the Lender Group;
(h) Sell all or any part of the Collateral at
either a public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places (including
Guarantor's premises) as Agent determines is commercially reasonable. It is not
necessary that the Collateral be present at any such sale. Agent on behalf of
the Lender Group shall have the right upon any such public sale or sales, and,
to the extent permitted by law, upon any such private sale or sales, to purchase
the whole or any part of the Collateral so sold, free of any right or equity of
redemption in Guarantor, which right or equity is hereby waived or released to
the extent permitted by law;
(i) By an instrument in writing, appoint a
receiver (which term shall include a receiver and manager) of all or any part of
the Collateral and may remove or replace such receiver from time to time or may
institute proceedings in any court of competent jurisdiction for the appointment
of such receiver;
(j) Require Guarantor to establish a lockbox or
other restricted account satisfactory to Agent for the collection of Accounts of
Guarantor, General Intangibles, or Negotiable Collateral;
(k) Notify customers or Account Debtors of
Guarantor that the Accounts of Guarantor, General Intangibles, or Negotiable
Collateral have been assigned to Agent for the benefit of the Lender Group or
that Agent for the benefit of the Lender Group has a security interest therein;
(l) Collect the Accounts of Debtor, General
Intangibles, and Negotiable Collateral directly, and charge the collection costs
and expenses as Lender Group Expenses; but, unless and until Agent does so or
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gives Guarantor other written instructions, Guarantor shall collect all Accounts
of Guarantor, General Intangibles, and Negotiable Collateral for the Lender
Group, receive in trust all payments thereon as the Lender Group's trustee, and
immediately deliver said payments to Agent for the benefit of the Lender Group
in their original form as received from such Account Debtor;
(m) Any deficiency which exists after disposition
of the Collateral as provided above will be paid immediately by Guarantor up to
the maximum amount, if any, of Guarantor's liability under the Guaranty. Any
excess will be returned to Guarantor, without interest and subject to the rights
of third parties, by Agent.
Except as required by law, Agent on behalf of the Lender Group
may take any or all of the foregoing action without demand, presentment,
protest, advertisement or notice of any kind to or upon Guarantor or any other
person.
7.2 REMEDIES CUMULATIVE. The rights and remedies of Agent
for the benefit of the Lender Group under this Agreement, the Loan Documents,
and all other agreements shall be cumulative. The Lender Group shall have all
other rights and remedies not inconsistent herewith as provided under the Code,
by law, or in equity. No exercise by the Lender Group of one right or remedy
shall be deemed an election, and no waiver by the Lender Group of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by the
Lender Group shall constitute a waiver, election, or acquiescence by it.
8. TAXES AND EXPENSES REGARDING THE COLLATERAL.
If Guarantor fails to pay any monies (whether taxes, rents,
assessments, insurance premiums, or otherwise) due to third persons or entities,
or fails to make any deposits or furnish any required proof of payment or
deposit, all as required under the terms of this Agreement, then, to the extent
that Agent determines that such failure, by Guarantor could have a material
adverse effect on the interests of Agent for the benefit of the Lender Group in
the Collateral, in its discretion and without prior notice to Guarantor, Agent
on behalf of the Lender Group may do any or all of the following: (a) make
payment of the same or any part thereof; (b) set up such reserves in Borrower's
loan account as Agent deems necessary to protect the Lender Group from the
exposure created by such failure; or (c) obtain and maintain insurance policies
insuring Guarantor's ownership and use of the Collateral, and take any action
with respect to such policies as Agent deems prudent. Any amounts paid or
deposited by Agent on behalf of the Lender Group shall constitute :Lender Group
Expenses, shall immediately become additional Guarantied Obligations, shall bear
interest at the applicable rate described in the Loan Document, and shall be
secured by the Collateral. Any payments made by Agent on behalf of the Lender
Group shall not constitute an agreement by the Lender Group to make similar
payments in the future or a waiver by the Lender Group of any Event of Default
under this Agreement. Agent need not inquire as to, or contest the validity of,
any such expense, tax, security interest, encumbrance, or lien and the receipt
of the usual official notice for the payment thereof shall be conclusive
evidence that the same was validly due and owing. Agent shall use its best
efforts to provide notice to Guarantor of any action taken by it under this
SECTION 8.
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9. WAIVERS; INDEMNIFICATION.
9.1 DEMAND; PROTEST; ETC. To the extent permitted by law,
Guarantor waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of accounts,
documents, instruments, chattel paper, and guarantees at any time held by the
Lender Group on which Guarantor may in any way be liable.
9.2 LENDER GROUP'S LIABILITY FOR COLLATERAL. So long as
the Lender Group complies with its obligations, if any, under Section 9207 of
the Code, the Lender Group shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other Person. All risk of loss,
damage, or destruction of the Collateral shall be borne by Guarantor.
9.3 INDEMNIFICATION. Guarantor agrees to defend,
indemnify, save, and hold Indemnified Person harmless against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
Person, and (b) all losses (including attorneys fees and disbursements) in any
way suffered, incurred, or paid by the Lender Group as a result of or in any way
arising out of, following, or consequential to transactions with Borrower or
Guarantor, whether under this Agreement, the other Loan Documents or otherwise,
but excluding any obligations, demands, claims, liabilities, and losses caused
by the Lender Group's gross negligence or willful misconduct. This provision
shall survive the termination of this Agreement.
9.4 WAIVERS.
(a) To the maximum extent permitted by law,
Guarantor hereby waives: (i) notice of acceptance hereof; (ii) notice of any
loans or other financial accommodations made or extended under the Credit
Agreement, or the creation or existence of any Obligations; (iii) notice of the
amount of the Obligations, subject, however, to Guarantor's right to make
inquiry of Agent to ascertain the amount of the Obligations at any reasonable
time; (iv) notice of any adverse change in the financial condition of Borrower
or of any other fact that might increase Guarantor's risk hereunder; (v) notice
of presentment for payment, demand, protest, and notice thereof as to any
instrument among the Loan Documents; (vi) notice of any unmatured Event of
Default or Event of Default under the Credit Agreement; and (vii) all other
notices (except if such notice is specifically required to be given to Guarantor
under this Agreement) and demands to which Guarantor might otherwise be
entitled.
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(b) To the fullest extent permitted by applicable
law, Guarantor waives the right by statute or otherwise to require the Lender
Group to institute suit against Borrower or to exhaust any rights and remedies
which the Lender Group has or may have against Borrower. Guarantor further
waives any defense arising by reason of any disability or other defense (other
than the defense that the Obligations shall have been fully and finally
indefeasibly paid) of Borrower or by reason of the cessation from any cause
(other than that the Obligations shall have been fully and finally indefeasibly
paid) whatsoever of the liability of Borrower in respect thereof.
(c) To the maximum extent permitted by law,
Guarantor hereby waives: (i) any rights to assert against the Lender Group any
defense (legal or equitable), set-off, counterclaim, or claim which Guarantor
may now or at any time hereafter have against Borrower or any other party liable
to the Lender Group on account of or with respect to the Obligations; (ii) any
defense, set-off, counterclaim, or claim, of any kind or nature, arising
directly or indirectly from the present or future sufficiency, validity, or
enforceability of the Obligations; (iii) any defense arising by reason of any
claim or defense based upon an election of remedies by the Lender Group
including, to the extent applicable, the provisions of ss.ss. 580d and 726 of
the California Code of Civil Procedure, or any similar law of California or any
other jurisdiction; (iv) the benefit of any statute of limitations affecting
Guarantor's liability hereunder or the enforcement thereof.
(d) To the maximum extent permitted by law,
Guarantor hereby waives any right of subrogation Guarantor has or may have as
against Borrower with respect to the Obligations. In addition, Guarantor hereby
waives any right to proceed against Borrower, now or hereafter, for
contribution, indemnity, reimbursement, or any other suretyship rights and
claims (irrespective of whether direct or indirect, liquidated or contingent),
with respect to the Obligations. Guarantor also hereby waives any right to
proceed or to seek recourse against or with respect to any property or asset of
Borrower. Guarantor hereby agrees that, in light of the waivers contained in
this Section, Guarantor shall not be deemed to be a "creditor" (as that term is
defined in the Bankruptcy Code or otherwise) of Borrower, whether for purposes
of the application of Sections 547 or 550 of the United States Bankruptcy Code
or otherwise.
(e) If any of the Guarantied Obligations at any
time are secured by a mortgage or deed of trust upon real property, Agent on
behalf of the Lender Group may elect, in its sole discretion, upon a default
with respect to the Guarantied Obligations, to foreclose such mortgage or deed
of trust judicially or nonjudicially in any manner permitted by law, before or
after enforcing this Agreement, without diminishing or affecting the liability
of Guarantor hereunder. Guarantor understands that (a) by virtue of the
operation of California's antideficiency law applicable to nonjudicial
foreclosures, an election by the Lender Group nonjudicially to foreclose such a
mortgage or deed of trust probably would have the effect of impairing or
destroying rights of subrogation, reimbursement, contribution, or indemnity of
Guarantor against Borrower or guarantors or sureties, and (b) absent the waiver
given by Guarantor herein, such an election might estop Agent from enforcing
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this Agreement against Guarantor. Understanding the foregoing, and understanding
that Guarantor is hereby relinquishing a defense to the enforceability of this
Agreement, Guarantor hereby waives any right to assert against the Lender Group
any defense to the enforcement of this Agreement, whether denominated "estoppel"
or otherwise, based on or arising from an election by the Lender Group
nonjudicially to foreclose any such mortgage or deed of trust. Guarantor
understands that the effect of the foregoing waiver may be that Guarantor may
have liability hereunder for amounts with respect to which Guarantor may be left
without rights of subrogation, reimbursement, contribution, or indemnity against
Borrower or guarantors or sureties. Guarantor also agrees that the "fair market
value" provisions of Section 580a of the California Code of Civil Procedure
shall have no applicability with respect to the determination of Guarantor's
liability under this Agreement.
(f) WITHOUT LIMITING THE GENERALITY OF ANY OTHER
WAIVER OR OTHER PROVISION SET FORTH IN THIS AGREEMENT, GUARANTOR HEREBY WAIVES,
TO THE MAXIMUM EXTENT SUCH WAIVER IS PERMITTED BY LAW, ANY AND ALL DEFENSES
ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE
ss.ss. 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2838, 2839, 2845, 2848, 2849,
AND 2850, TO THE EXTENT APPLICABLE, CALIFORNIA CODE OF CIVIL PROCEDURE ss.ss.
580a, 580b, 580c, 580d, AND 726, AND, TO THE EXTENT APPLICABLE, CHAPTER 2 OF
TITLE 14 OF THE CALIFORNIA CIVIL CODE.
(g) WITHOUT LIMITING THE GENERALITY OF ANY OTHER
WAIVER OR OTHER PROVISION SET FORTH IN THIS AGREEMENT, GUARANTOR HEREBY WAIVES
ALL RIGHTS AND DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY THE LENDER
GROUP, EVEN THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE
WITH RESPECT TO SECURITY FOR A SECURED OBLIGATION, HAS DESTROYED GUARANTOR'S
RIGHTS OF SUBROGATION AND REIMBURSEMENT AGAINST THE PRINCIPAL BY THE OPERATION
OF SECTION 580d OF THE CODE OF CIVIL PROCEDURE OR OTHERWISE.
10. NOTICES.
All notices and other communications hereunder to Agent shall
be in writing and shall be mailed, sent or delivered in accordance with the
Credit Agreement and all notices and other communications hereunder to Guarantor
shall be in writing and shall be mailed, sent or delivered in care of Borrower
in accordance with the Credit Agreement.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE
DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
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STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING
IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE
AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR,
AT THE SOLE OPTION OF AGENT, IN ANY OTHER COURT IN WHICH AGENT SHALL INITIATE
LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER
THE MATTER IN CONTROVERSY. EACH OF GUARANTOR AND AGENT WAIVES, TO THE EXTENT
PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE
OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS
BROUGHT IN ACCORDANCE WITH THIS SECTION 11.
GUARANTOR AND AGENT HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. GUARANTOR AND AGENT REPRESENT THAT EACH HAS REVIEWED THIS
WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
12. DESTRUCTION OF GUARANTOR'S DOCUMENTS.
All documents, schedules, agings, or other papers delivered to
Agent may be destroyed or otherwise disposed of by Agent four (4) months after
they are delivered to or received by Agent, unless Guarantor requests, in
writing, the return of said documents, schedules or other papers and makes
arrangements, at Guarantor's expense, for their return.
13. GENERAL PROVISIONS.
13.1 EFFECTIVENESS. This Agreement shall be binding and
deemed effective when executed by Guarantor and accepted and executed by Agent.
13.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of the respective successors and assigns of each of the
parties; provided, however, that Guarantor may not assign this Agreement or any
rights or duties hereunder without Agent's prior written consent and any
prohibited assignment shall be absolutely void. No consent to an assignment by
Agent shall release Guarantor from its Guarantied Obligations. Agent may assign
this Agreement and its rights and duties hereunder and no consent or approval by
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Guarantor is required in connection with any such assignment. The Lender Group
reserves the right to sell, assign, transfer, negotiate, or grant participations
in all or any part of, or any interest in the Lender Group's rights and benefits
hereunder. In connection therewith, the Lender Group may disclose all documents
and information which the Lender Group now or hereafter may have relating to
Guarantor or Guarantor's business. To the extent that Agent assigns its rights
and obligations to a third Person, Agent thereafter shall be released from such
assigned obligations to Guarantor and such assignment shall effect a novation
between Guarantor and such third Person.
13.3 SECTION HEADINGS. Headings and numbers have been set
forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to this entire
Agreement.
13.4 INTERPRETATION. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against the
Lender Group or Guarantor, whether under any rule of construction or otherwise.
On the contrary, this Agreement has been reviewed by all parties and shall be
construed and interpreted according to the ordinary meaning of the words used so
as to fairly accomplish the purposes and intentions of all parties hereto.
13.5 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
13.6 AMENDMENTS IN WRITING. This Agreement can only be
amended by a writing signed by both Agent and Guarantor.
13.7 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement.
13.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Guarantied Obligations by Guarantor or the transfer
by Guarantor to the Lender Group of any property of Guarantor should for any
reason subsequently be declared to be void or voidable under any state or
federal law relating to creditors' rights, including provisions of the
Bankruptcy Code relating to fraudulent conveyances, preferences, and other
voidable or recoverable payments of money or transfers of property
(collectively, a "Voidable Transfer"), and if the Lender Group is required to
repay or restore, in whole or in part, any such Voidable Transfer, or elects to
do so upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that the Lender Group is required or elects to
repay or restore, and as to all reasonable costs, expenses, and attorneys fees
of the Lender Group related thereto, the liability of Guarantor automatically
shall be revived, reinstated, and restored and shall exist as though such
Voidable Transfer had never been made.
[Signature page to follow.]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed at Los Angeles, California.
DECISION-SCIENCE APPLICATIONS, INC.,
a California corporation
By /s/ Ronald A. Hunn
---------------------------------------
Its CFO and Secretary
---------------------------------------
MELLON BANK, N.A. ,
as agent
By /s/ Richard M. McNiven
---------------------------------------
Richard M. McNiven
Assistant Vice President
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COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT dated as of September 30, 1998 (the
"AGREEMENT") is entered into by and between SPACE APPLICATIONS CORPORATION, a
California corporation ("SAC") and SUMMIT AVIATION, INC., a California
corporation ("PURCHASER").
R E C I T A L S:
A. SAC desires to sell to Purchaser all of its right, title and interest in
its 4,500 shares of Common Stock of Savant Corporation, a Maryland corporation
("SAVANT") representing all the shares of Common Stock of Savant owned by SAC;
and
B. Purchaser desires to purchase the Shares on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein contained, SAC and Purchaser agree as follows:
1. PURCHASE AND SALE OF SHARES.
----------------------------
(a) SALE OF SHARES. Subject to the terms and conditions herein stated, SAC
agrees to sell, assign, transfer and deliver to Purchaser on the Closing Date,
and Purchaser agrees to purchase from SAC on the Closing Date, four thousand
five hundred (4,500) shares (the "SHARES") of Savant Common Stock owned by SAC.
The certificate(s) representing the Shares shall be duly endorsed in blank, or
accompanied by stock powers duly executed in blank by SAC. SAC agrees to cure
any deficiencies with respect to the endorsement of the certificates
representing the Shares owned by SAC or with respect to the stock power
accompanying any such certificate(s).
(b) PRICE. In consideration for the purchase by Purchaser of the Shares,
Purchaser shall pay to SAC on the Closing Date an aggregate of One Million Eight
Hundred Thousand Dollars ($1,800,000) (the "PURCHASE PRICE") as follows:
(i) $180,000 in cash; and
(ii) $1,620,000 by guaranteed promissory note (the "NOTE") payable to
the order of SAC.
(c) CONTINGENT PAYMENT AND NOTE ACCELERATION ON SUBSEQUENT SALE. In
addition to the Purchase Price, if substantially all the assets of Savant are
sold or if fifty percent (50%) or more of the Shares are sold or exchanged in a
merger or other reorganization ("SALE TRANSACTION"):
(i) within six (6) months of the date first set forth above, Purchaser
shall pay to SAC an amount equal to fifty percent (50%) of (A) any amount
paid for the Shares or (B) received or to be received as a result of
ownership of the Shares, with respect to such Sale Transaction, in excess
of the Purchase Price ("EXCESS PROCEEDS");
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(ii) after six (6) month, but within twelve (12) months of the date
first set forth above, Purchaser shall pay to SAC an amount equal to
twenty-five percent (25%) of any Excess Proceeds;
(iii) any additional consideration payable to SAC pursuant to SECTIONS
1(c)(i) OR (ii) as a result of such Sale Transaction shall be paid by
Purchaser at such time as Excess Proceeds are actually received by
Purchaser. In the event that payment is received in-kind, the fair market
value of such in-kind payment shall be used to determine the amounts owing
pursuant to this SECTION 1(c) and all amounts due and owing to SAC shall be
paid in cash regardless whether or not Purchaser receives an in-kind
payment in connection with such Sale Transaction;
(iv) the Note shall become immediately due and payable upon the
closing of a Sale Transaction resulting in a payment obligation to
Purchaser equal to or greater in value than the original principal balance
of the Note.
(d) CLOSING. The purchase and sale of the Shares shall take place at 10:00
a.m. at the offices of Rutan & Tucker, LLP, 611 Anton Boulevard, Suite 1400,
Costa Mesa, California 92626 on September __, 1998. Such time and date are
herein referred to as the "CLOSING DATE."
2. REPRESENTATIONS OF SAC.
-----------------------
SAC represents, warrants and agrees as follows:
(a) OWNERSHIP OF STOCK. SAC is the lawful owner of the Shares free and
clear of all liens, encumbrances, restrictions and claims of every kind; SAC has
full legal right, power and authority to enter into this Agreement and to sell,
assign, transfer and convey the Shares so owned by SAC pursuant to this
Agreement; the delivery to Purchaser of the Shares pursuant to the provisions of
this Agreement will transfer to Purchaser valid title thereto, free and clear of
all liens, encumbrances, restrictions and claims of every kind. The Shares
represent all of SAC's ownership of equity interest of any kind whatsoever in
Savant.
(b) EXISTENCE AND GOOD STANDING. SAC is a corporation duly organized,
validly existing and in good standing under the laws of the State of California.
(c) CAPITAL STOCK OF SAVANT. To SAC's knowledge, Savant has an authorized
capitalization consisting of 20,000 shares of common stock, $.01 par value per
share, of which, 10,062 shares are issued and outstanding; all of such
outstanding shares have been duly authorized and validly issued and are fully
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paid and nonassessable. To SAC's knowledge, there are no outstanding options,
warrants, rights, calls, commitments, conversion rights, rights of exchange,
plans or other agreements of any character providing for the purchase, issuance
or sale of any shares of the capital stock of SAC, other than as contemplated by
this Agreement.
3. INVESTMENT REPRESENTATIONS.
---------------------------
In connection with the sale of the Shares hereunder, Purchaser hereby
represents and warrants to, and agrees with, SAC as follows:
(a) It is purchasing and will hold the Shares for investment for its
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act of 1933, as
amended (the "SECURITIES ACT").
(b) It understands that the Shares have not been registered under the
Securities Act by reason of a specified exemption therefrom, and that the Shares
must be held indefinitely unless (i) subsequently registered under the
Securities Act, (ii) it can transfer the Shares in compliance with Rule 144,
promulgated under the Securities Act (as described below), or (iii) it obtains
an opinion of counsel, in form and substance satisfactory to SAC and its
counsel, that such registration is not required. Purchaser further acknowledges
and understands that SAC is under no obligation to register the Shares.
(c) It is aware of Rule 144, promulgated under the Securities Act, which
permits limited public resales of securities acquired in a nonpublic offering,
subject to the satisfaction of certain conditions.
(d) It will not sell, transfer or otherwise dispose of the Shares in
violation of the Securities Act, the Securities and Exchange Act of 1934, as
amended, or the rules of the Commission promulgated thereunder, including Rule
144 of the Securities Act.
(e) It represents that it has had the opportunity to ask questions
concerning Savant's business and financial condition and to obtain any
information which he considered necessary to make an informed investment
decision with respect to the purchase of the Shares. It has such knowledge and
experience in financial and business matters as to make him capable of utilizing
said information to evaluate the risks of the prospective investment and to make
an informed investment decision. It has discussed Savant's business, financial
condition and future plans, as well as the terms and conditions of the issuance
and sale of the Shares, with an officer of Savant's and has received
satisfactory answers to all questions.
(f) It is aware that his investment in Savant is a speculative investment
which has limited liquidity and is subject to the risk of complete loss. It is
able, without impairing his financial condition, to hold the Shares for an
indefinite period and to suffer a complete loss of its investment in the Shares.
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4. LEGEND.
-------
All certificates representing any shares of stock may be imprinted with a
legend appropriate under the applicable federal securities laws or the
securities laws of any state.
5. FURTHER ASSURANCES.
-------------------
The parties agree to execute such further instruments and to take such
further action as may be necessary or appropriate to carry out the provisions of
this Agreement.
6. NOTICES.
--------
Any notice or other communication provided for herein to be sent to any
party under this Agreement shall be dated and in writing and shall be deemed to
have been duly given (i) if to be delivered to an address in the United States,
on the third day after deposit in the United States mail, first class postage
prepaid, and addressed as provided below, (ii) if to be delivered at an address
outside of the United States, on the tenth day after deposit in the United
States mail, airmail postage prepaid, and addressed as provided below, or (iii)
if to be delivered by means of personal delivery, telex, telecopy or other
electronic facsimile transmission, on the day after such personal delivery of
transmission of the telex, telecopy or other electronic facsimile transmission.
Such notice shall be addressed and directed as follows:
If to SAC at: Space Applications Corporation
c/o SM&A Corporation
4695 MacArthur Blvd, Eighth Floor
Newport Beach, CA 92660
Attn: Chief Financial Officer
If to the Purchaser at: Summit Aviation, Inc.
5 Summit
Irvine, CA 92612
Attn: President
7. ASSIGNMENTS.
------------
No party may assign any of its rights under this Agreement without the
written consent of the other party hereto. This Agreement shall inure to the
benefit of the successors and assignees of SAC and Purchaser.
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8. ENTIRE AGREEMENT.
-----------------
This Agreement constitutes the entire agreement of the parties with respect
to the subject matter hereof.
9. AMENDMENTS, ETC.
----------------
Except as otherwise expressly provided herein, this Agreement or any
provision hereof may be amended, waived, discharged or terminated only by a
statement in writing signed by the party against whom it is sought to be
enforced.
10. GOVERNING LAW.
--------------
This Agreement shall be governed by and construed under the laws of the
State of California.
11. COUNTERPARTS.
-------------
This Agreement may be executed in any number of counterparts, each of which
shall be an original, but all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SAC: SPACE APPLICATIONS CORPORATION,
a California corporation
By: /s/ Kenneth w. Colbaugh
-----------------------------------
Its: EVP
-------------------------------
PURCHASER: SUMMIT AVIATION, INC.,
a California corporation
By: /s/ Steven S. Myers
-----------------------------------
Its: President
-------------------------------
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EMPLOYMENT AGREEMENT
THIS AGREEMENT (this "AGREEMENT") is made as of December 10, 1998, by
and between SM&A CORPORATION, a California corporation (the "CORPORATION"), and
MICHAEL PIRAINO (the "EXECUTIVE"), with reference to the following facts:
R E C I T A L S:
- - - - - - - -
A. The Corporation desires to employ Executive as its
President and Chief Operating Officer.
B. Executive desires to perform the duties connected with such position
on the terms and conditions hereinafter set forth.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing facts, the mutual
promises set forth below, and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Term.
----
The term of this Agreement ("EMPLOYMENT TERM") shall commence on
December 10, 1998, and shall continue for three (3) years, subject to earlier
termination only as set forth in SECTION 5.
2. Duties.
------
2.1 OFFICE. Executive is hereby appointed to serve as President and
Chief Operating Officer of the Corporation. In the above capacity, Executive
shall report directly to the Chief Executive Officer of the Corporation.
Executive shall exercise such responsibilities and authority relating to
Corporation's business and operations as are customarily performed by an
executive holding the offices of President and Chief Operating Officer, and such
additional or different duties and services as the Board of Directors may
reasonably require from time to time.
2.2 PERFORMANCE OF SERVICES. During the Employment Term, Executive
shall use his best efforts and abilities to promote Corporation's interests.
Executive agrees that he will diligently endeavor to perform the services
contemplated by this Agreement in accordance with policies established by the
Board of Directors from time to time.
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3. Compensation.
------------
3.1 SALARY. As compensation for the services to be performed hereunder,
Corporation shall pay or cause to be paid to Executive a salary ("SALARY") of
Three Hundred Thousand Dollars ($300,000) per annum. The Salary shall be earned
and shall be payable to Executive at such intervals and otherwise in such manner
as is consistent with the normal payroll practices of Corporation for
remuneration of its executives.
3.2 BONUS COMPENSATION. As additional compensation for the performance
by Executive of services hereunder and as a further incentive to Executive to
devote his best efforts to the business and affairs of Corporation, Executive
may be eligible to receive, at the sole and exclusive discretion of the
Corporation's Compensation Committee (the "COMPENSATION COMMITTEE"), an annual
bonus in such amount as the Compensation Committee shall determine to be
appropriate, not to exceed $300,000.
3.3 OPTIONS. Upon execution of this Agreement by both parties hereto,
Employee shall be granted 300,000 incentive options to purchase shares of the
Company's common stock pursuant to its 1997 Employee Stock Option Plan (the
"PLAN"). Subject to the terms of the Option Agreement issued to Employee
pursuant to the Plan, such options shall have an exercise price equal to the
closing price of the Company's common stock on the NASDAQ Nation Market System
as of the date hereof, vest quarterly over a period of three (3) years
commencing on the date hereof, and have a term of five years from the date of
grant. Options shall be granted to Employee pursuant to the Company's standard
Option Agreements as historically employed pursuant to the Plan. In addition,
Employee shall be granted 10,000 options on each anniversary date of his
employment with the Company for a period equal to the shorter of (i) the term of
his employment with the Company, or (ii) five years. Nothing set forth herein
shall be construed to extend Employee's Employment Term beyond that set forth in
SECTION 1.
3.4 WITHHOLDING. Corporation shall be entitled to withhold amounts from
any compensation or other form of remuneration or benefit payable by Corporation
to Executive that Corporation reasonably believes is required to be withheld
under any federal, state or local tax law to which Corporation is subject.
4. Benefits.
--------
4.1 VACATION AND HOLIDAYS. During the Employment Term, Executive shall
be entitled to holidays and four weeks vacation time per year in accordance with
policies established by the Corporation from time to time. No vacation time may
be carried forward and accumulated with the vacation time afforded Executive in
any subsequent year.
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4.2 EXPENSES. Corporation shall, during the Employment Term, reimburse
Executive for all reasonable business expenses incurred and paid by Executive in
the course of the performance of his duties pursuant to this Agreement,
including those set forth on EXHIBIT A, consistent with the Corporation's
expense reimbursement policies and procedures as in effect from time to time.
4.3 OTHER BENEFITS. Executive shall be entitled to participate in any
policies, programs and benefits which the Corporation may, in its discretion,
adopt for its Executive employees generally relating to sick leave, disability
insurance, life insurance, medical insurance, and bonus and incentive plans.
5. Termination.
-----------
The Employment Term shall terminate upon any of the following
occurrences:
5.1 TERMINATION FOR CAUSE. Corporation may terminate this Agreement at
any time for "good and valid cause," thereby canceling, effective immediately,
all rights and obligations of the parties hereunder. In the event that
Executive's employment by the Corporation is terminated for good and valid
cause, Corporation shall have no obligation to pay any severance pay to
Executive, or to otherwise pay Executive's salary, bonus or any other benefits
due hereunder (except for salary, bonus and other benefits accrued on the books
of Employer through the date of termination).
For purposes of this Agreement, "GOOD AND VALID CAUSE" shall mean: (i)
conviction by a court of competent jurisdiction of a felony or other crime
involving moral turpitude; (ii) Executive's refusal or failure to substantially
perform the primary duties of his employment hereunder after written
notification thereof by the Corporation, which notice shall specify the alleged
instances of failure or refusal to perform and shall provide Executive with
thirty (30) days in which to cure; (iii) the determination by the Board of
Directors that Executive has become unable as a result of alcohol or drug abuse
to carry out the responsibilities of his employment; (v) Executive's breach of a
material term of this Agreement after written notification thereof by the
Corporation, which notice shall specify the alleged material breach and shall
provide Executive with ten (10) days in which to cure; or (v) the death or
PERMANENT DISABILITY of Executive, with the term "permanent disability" defined
as a physical or mental disability continuing for a period of not less than
ninety (90) consecutive days, which prevents Executive from substantially
discharging his duties and responsibilities as set forth herein.
5.2 TERMINATION WITHOUT CAUSE. Corporation shall have the right,
exercisable upon four (4) weeks' written notice, to terminate Executive's
employment under this Agreement without good and valid cause at any time during
the Employment Term. If Executive's employment is terminated by Corporation
without good and valid cause, Executive shall be entitled to receive as
severance pay, following termination, an amount equal to one (1) time the annual
salary and bonus paid to Executive by Corporation as provided in SECTIONS 3.1
AND 3.2, respectively. Such severance pay shall be paid at Corporation's
election either in a lump sum or in 12 equal monthly installments.
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5.3 TERMINATION BY REASON OF EXECUTIVE'S VOLUNTARY RESIGNATION.
Executive shall be entitled to voluntarily resign from employment with
Corporation upon four (4) weeks' advance written notice to Corporation. Upon
such voluntary resignation, the Employment Term shall terminate without further
action by either party hereto and all rights and obligations of the parties
pursuant to this Agreement shall cease. Corporation shall have no obligation to
pay any severance pay to Executive in the event that Executive voluntarily
resigns, or to otherwise pay Executive's salary, bonus or any other benefits due
hereunder (except for salary, bonus and other benefits accrued on the books of
Employer through the date of termination).
6. Confidentiality.
---------------
Executive acknowledges that, by reason of his employment with
Corporation, he may learn trade secrets and obtain other confidential
information concerning the business and policies of Corporation. Executive
agrees that, during and after the end of the Employment Term, he will not
voluntarily divulge or otherwise disclose, directly or indirectly, any such
trade secrets or other confidential information concerning the business or
policies of Corporation that he may learn as a result of his employment during
the Employment Term or may have learned prior to the Employment Term, except to
the extent such information is lawfully obtainable from public sources or such
use or disclosure is (i) necessary to the performance of this Agreement and in
furtherance of Corporation's best interests, (ii) required by applicable laws,
or (iii) authorized by Corporation.
7. Miscellaneous.
-------------
7.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of Corporation and its respective successors and assigns
and shall be binding upon and inure to the benefit of Executive and his
executors and administrators. This Agreement, and Executive's rights and
obligations hereunder, may not be assigned by Executive.
7.2 WAIVER OF BREACH. The waiver by Corporation or Executive of a
breach of any provision of this Agreement by the other party shall not be
construed as a waiver of any subsequent breach of the same provision or of any
other provision of this Agreement.
7.3 NOTICES. All notices, requests, demands and other communications
submitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered or mailed, first class postage prepaid registered mail,
addressed as follows:
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If to Executive: Michael Piraino
1201 Santiago Drive
Newport Beach, CA 92660
If to Corporation: SM&A Corporation, Attn: CEO
4695 MacArthur Court, 8th Floor
Newport Beach, CA 92660
7.4 ARBITRATION. If any dispute between the parties arises out of this
Agreement, such dispute shall be finally resolved by arbitration conducted in
Orange County, California, in accordance with the then existing Commercial
Arbitration Rules of the American Arbitration Association, and judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. The parties agree that there shall be no pre-arbitration
discovery and the arbitrator shall not award punitive damages to either of the
parties.
7.5 SEVERABILITY. If any provision of this Agreement shall be found
invalid by any court of competent jurisdiction, such findings shall not affect
the validity of the other provisions hereof and the invalid provisions shall be
deemed to have been severed herefrom.
7.6 ENTIRE AGREEMENT. This instrument, including Exhibit A hereto,
contains the entire agreement of the parties. It may not be changed orally but
only by an agreement in writing signed by the parties.
7.7 APPLICABLE LAW. This Agreement is entered into and executed in the
State of California and shall be governed by the laws of such State.
7.8 COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
7.9 HEADINGS. The paragraph and subparagraph headings herein are for
convenience only and shall not affect the construction hereof.
7.10 FURTHER ASSURANCES. Each of the parties hereto shall, from time to
time, and without charge to the other parties, take such additional actions and
execute, deliver and file such additional instruments as may be reasonably
required to give effect to the transactions contemplated hereby.
7.11 ATTORNEYS' FEES. In the event any party hereto commences
arbitration or legal action in connection with this Agreement, the prevailing
party shall be entitled to its attorneys' fees, costs and expenses incurred in
such action.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMPANY: SM&A CORPORATION,
a California corporation
By: /S/ Steven S. Myers
-------------------------------------
Steven S. Myers,
Chief Executive Officer
EXECUTIVE: /S/ Michael Piraino
-------------------------------------
MICHAEL PIRAINO
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EXHIBIT A
RELOCATION LIMITATION. Executive shall not be required to be officed in
excess of forty (40) miles from the Corporation's executive offices as of the
date of this Agreement. Both parties acknowledge and agree that any requirement
to relocate in violation of the preceding sentence shall constitute a
termination of Executive without good and valid cause as set forth in Section
5.2.
OTHER EXPENSES. The Corporation shall reimburse Executive for (i) the
lease payments (approximately $900 per month) and auto insurance for Executive's
BMW automobile, and (ii) Executive's business use of his cellular phone.
BONUS GUARANTY - FIRST YEAR. Notwithstanding any provision in the
Agreement to the contrary, Executive shall receive no less than $100,000 as a
bonus for the first year of the Employment Term, payable on the first
anniversary of the date hereof (or as soon thereafter as is reasonably
practicable), without regard to whether (a) Executive is currently in the employ
of the Company, and (b) the reason for Executive's termination of employment
with the Company on or prior to such first anniversary.
BONUS PRO RATED. In the event that Executive dies or is terminated
without good and valid cause (as defined in Section 5.1) during the Employment
Term, Executive shall receive a pro rata portion of the bonus payment to which
he would otherwise have been entitled which is equal to the number of calendar
days actually employed during such calendar year, divided by 365.
CHANGE IN DUTIES/TITLE. In the event the Company causes a material and
substantial diminution in Executive's duties or title as set forth in this
Agreement, Executive may, within ten (10) days of such diminution, treat his
employment with Company as having been terminated without good and valid cause
and entitle Executive to the benefits set forth in SECTION 5.2.
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MULTITENANT
OFFICE DEED OF
LEASE AGREEMENT
OPUS EAST, L.L.C., as Landlord,
and
SM&A CORPORATION, as Tenant.
METRO PLACE II
MERRIFIELD, VIRGINIA
<PAGE>
TABLE OF CONTENTS
-----------------
Basic Terms
ARTICLE 1. LEASE OF PREMISES AND LEASE TERM....................................1
1.1. Premises..............................................................1
1.1.1. Letting........................................................1
1.1.2. Initial Premises, Expansion Premises and Other Premises........1
1.1.3. Measurement....................................................1
1.1.4. Parking........................................................2
1.2. Term, Delivery and Commencement.......................................2
1.2.1. Term...........................................................2
1.2.1.1. Initial Term..............................................3
1.2.1.2. Option to Renew...........................................3
1.2.1.3. Exercise of Option to Renew...............................3
1.2.2. Tender of Possession...........................................3
1.2.3. Commencement Date Memorandum...................................3
1.2.4. Early Occupancy - Fit-Up-Work..................................4
1.2.5. First Expansion Space..........................................4
1.2.6. Second Expansion Space.........................................5
1.2.7. First Notice Space.............................................6
1.2.8. Other Expansion Premises and First Offer Space Matters.........6
1.3. Effectof Occupancy....................................................7
1.4. Security Deposit......................................................7
ARTICLE 2. RENTAL AND OTHER PAYMENTS...........................................8
2.1. Basic Rent............................................................8
2.1.1. Staged Delivered Floors........................................8
2.1.1. Initial Premises - Initial Term................................8
2.1.2. Expansion Premises and First Notice Space - Initial Term.......9
2.1.3. Second Expansion Space, First Offer Space, and Entire
Premises Renewal Term(s)..............................................9
2.1.3.1. Landlord's and Tenant's Proposal..........................9
2.1.3.2. Arbitration..............................................10
2.1.4. Payment - Basic Rent - Parking Rent - T/I Rent................10
2.2. Additional Rent......................................................11
2.3. Delinquent Rental Payments...........................................11
2.4. Independent Obligations..............................................11
ARTICLE 3. PROPERTY TAXES AND OPERATING EXPENSES..............................11
3.1 Payment of Excess Expenses...........................................11
3.2. Estimation of Tenant's Share of Excess Expenses......................12
3.3. payment of Estimated Tenant's Share of Excess Expenses...............12
3.4. Re-Estimation of Excess Expenses.....................................12
3.5. Confirmation of Tenant's Share of Excess Expenses....................13
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3.6. Tenant Inspection and Audit Rights...................................13
3.7. Intentionally Deleted................................................14
3.8. Personal Property Taxes..............................................14
3.9. Landlord's Right to Contest Property Taxes...........................14
3.10. Adjustment for Variable Operating Expenses..........................14
ARTICLE 4. USE................................................................15
4.1 Permitted Use........................................................15
4.2. Acceptance of Premises...............................................15
4.3. Increased Insurance..................................................15
4.4. Laws/Building Rules..................................................16
4.5. Common Area..........................................................16
4.6. Signs................................................................16
ARTICLE 5. HAZARDOUS MATERIALS................................................17
5.1. Compliance with Hazardous Materials Laws.............................18
5.2. Notice of Actions....................................................18
5.3. Disclosure and Warning Obligations...................................18
5.4. Indemnification......................................................19
ARTICLE 6. SERVICES...........................................................19
6.1. Landlord's Obligations...............................................19
6.1.1. Janitorial Service............................................19
6.1.2. Electrical Energy.............................................20
6.1.3. Heating, Ventilation and Air Conditioning.....................20
6.1.4. Water.........................................................20
6.1.5. Passenger Elevator Service....................................20
6.1.6. Common Area...................................................20
6.1.7. Re-Paint and Carpet Cleaning..................................21
6.1.8. Roof Antennae.................................................21
6.1.9. Security......................................................21
6.1.10. Exercise Facility............................................21
6.1.11. Failure to Provide Certain Services - Abatement..............22
6.2. Tenant's Obligations.................................................22
6.3. Other Provisions Relating to Services................................22
6.4. Tenant Devices.......................................................23
ARTICLE 7. MAINTENANCE AND REPAIR.............................................23
7.1. Landlord's Obligations...............................................23
7.2. Tenant's Obligations.................................................23
7.2.1. Maintenance of Premises.......................................23
7.2.2. Alterations Required by Laws..................................24
ARTICLE 8. CHANGES AND ALTERATIONS............................................24
8.1. Landlord Approval....................................................24
8.2. Tenant's Responsibility for Cost and Insurance.......................25
8.3. Construction Obligations and Ownership...............................25
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8.4. Liens................................................................26
8.5. Indemnification......................................................26
ARTICLE 9. RIGHTS RESERVED BY LANDLORD........................................26
9.1. Landlord's Entry.....................................................26
9.2. Control of Property..................................................27
9.3. Lock Box.............................................................28
ARTICLE 10. INSURANCE.........................................................28
10.1. Tenant's Insurance Obligations......................................28
10.1.1. Liability Insurance..........................................28
10.1.2. Property Insurance...........................................29
10.1.3. Other Insurance..............................................29
10.1.4. Miscellaneous Insurance Provisions...........................29
10.1.5. Tenant's Waiver and Release of Claims and Subrogation........29
10.1.6. No Limitation................................................30
10.2. Landlord's Insurance Obligations....................................30
10.2.1. Property Insurance...........................................30
10.2.2. Liability Insurance..........................................30
10.2.3. Landlord's Waiver and Release of Claims and Subrogation......30
10.3. Tenant's Indemnification of Landlord................................31
10.4. Intentionally Deleted...............................................31
10.5. Tenant's Failure to Insure..........................................31
ARTICLE 11. DAMAGE OR DESTRUCTION.............................................31
11.1. Tenantable Within 200 Days..........................................31
11.2. Not Tenantable Within 200 Days......................................31
11.3. Building Substantially Damaged......................................32
11.4. Intentionally Deleted...............................................32
11.5. Landlord's Repair Obligations.......................................32
11.6. Rent Apportionment..................................................33
11.7. Exclusive Casualty Remedy...........................................33
ARTICLE 12. EMINENT DOMAIN....................................................33
12.1. Termination of Lease................................................33
12.2. Landlord's Repair Obligations.......................................33
12.3. Tenant's Participation..............................................34
12.4. Exclusive Taking Remedy.............................................34
ARTICLE 13. TRANSFERS.........................................................34
13.1. Restriction on Transfers............................................34
13.1.1. General Prohibition..........................................34
13.1.2. Transfers to Affiliates......................................35
13.1.3. Costs........................................................35
ARTICLE 14. DEFAULTS; REMEDIES................................................36
14.1. Events of Default...................................................36
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14.1.1. Failure to Pay Rent..........................................36
14.1.2. Failure to Perform...........................................36
14.1.3. Misrepresentation............................................36
14.1.4. Other Defaults...............................................36
14.1.5. Notice Requirements..........................................37
14.2. Remedies............................................................37
14.2.1. Termination of Tenant's Possession/Re-entry and
Reletting Right..............................................37
14.2.2. Termination of Lease.........................................38
14.2.3. Present Worth of Rent........................................38
14.3. Costs...............................................................38
14.4. No Waiver...........................................................39
14.5. Waiver and Release by Tenant........................................39
14.6. Landlord's Default..................................................39
14.7. Landlord's Waiver of Consequential Damages..........................40
ARTICLE 15. CREDITORS; ESTOPPEL CERTIFICATES..................................40
15.1. Subordination.......................................................40
15.2. Attornment..........................................................40
15.3. Mortgagee Protection Clause.........................................40
15.4. Estoppel Certificates...............................................41
15.4.1. Contents.....................................................41
15.4.2. Failure to Delivery..........................................41
ARTICLE 16. TERMINATION OF LEASE..............................................41
16.1. Surrender of Premises...............................................41
16.2. Holding Over........................................................42
ARTICLE 17. ADDITIONAL PROVISIONS.............................................42
17.1. Landlord's Improvements.............................................42
17.2. Initial Improvements................................................43
17.2.1. Initial Improvement Plans....................................43
17.2.2. Initial Improvements Construction............................44
17.2.3. Initial Allowance............................................44
17.2.4. Construction Costs...........................................45
17.2.5. Bidding......................................................46
17.2.6. Allowance Expenses Incurred by Tenant........................46
17.2.7. Change Orders................................................47
17.2.8. Punch List...................................................47
17.3. Failure to Complete Initial Premises................................47
17.4. Expansion Premises..................................................48
17.5. Construction Warranty...............................................49
ARTICLE 18. MISCELLANEOUS PROVISIONS..........................................49
18.1. Notices.............................................................49
18.2. Transfer of Landlord's Interest.....................................49
18.3. Successors..........................................................50
18.4. Captions and Interpretation.........................................50
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18.5. Relationship of Parties............................................50
18.6. Entire Agreement: Amendment........................................50
18.7. Severability.......................................................50
18.8. Landlord's Limited Liability.......................................51
18.9. Survival...........................................................51
18.10. Attorneys' Fees....................................................51
18.11. Brokers............................................................51
18.12. Governing Law......................................................51
18.13. Time is of the Essence.............................................51
18.14. Joint and Several Liability........................................52
18.15. Tenant's and Landlord's Waiver.....................................52
18.16. Tenant Organization Documents; Authority...........................52
18.17. Provisions are Covenants and Conditions............................52
18.18. Force Majeure......................................................52
18.19. Management.........................................................52
18.20. Financial Statements...............................................53
18.21. Quiet Enjoyment....................................................53
18.22. No Recording.......................................................53
18.23. Intentionally Deleted..............................................53
18.24. Construction of Lease and Terms....................................54
Exhibit A. Definitions
Exhibit B. Legal Description of Land
Exhibit C. Floor Plan
Exhibit D. Commencement Date Memorandum
Exhibit E. Building Rules
Exhibit F. Landlord's Improvements
Exhibit G. Schedule of Fit-Up Work
Exhibit H. Parking Plan
Exhibit I. Initial Improvement Bidder List
Exhibit L. Subordination, Non-Disturbance and Attornment Agreement
v
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OFFICE DEED OF LEASE AGREEMENT
------------------------------
This Office Deed of Lease Agreement is made and entered into as of the
Effective Date by and between OPUS EAST, L.L.C., a Delaware limited liability
company, as Landlord, and SM&A CORPORATION, a California corporation. as Tenant.
DEFINITIONS
-----------
Capitalized terms used in this Lease have the meanings ascribed to them
on the attached EXHIBIT "A."
BASIC TERMS
-----------
The following Basic Terms are applied under and governed by the
particular Section(s) in this Lease pertaining to the following information:
1. INITIAL PREMISES: Initial Premises: Suites 700, 800, 900 and
1000. consisting of approximately 96,274 RSF
(See Section 1.1.3) and located on the 7th
through the 10th floor(s) of the Building.
The Initial Premises are depicted on EXHIBIT
"C."
2. OPTIONS TO EXPAND: (See Sections 1.2.5 and 1.2.6)
3. RIGHT OF FIRST NOTICE: (See Section 1.2.7)
4. INITIAL TERM: Ten (10) Lease Years plus those number of
days remaining in the month in which the
tenth anniversary of the Initial
Commencement Date occurs (See Section 1.2.1)
5. RENEWAL TERM(S): Two-5 year options to renew (See Section
1.2.5)
6. INITIAL PREMISES DELIVERY DATE: May 1, 1999 (See Section 1.2.4 and 17.3)
7. BASIC RENT: On the Initial Commencement Date, for the
Initial Premises. 52,527.192.50 per annum
($26.25/RSF). or 5210.599.37 per month, with
a 2.5% annual escalation.
8. TENANT'S SHARE OF EXCESS
EXPENSES PERCENTAGE: For the Initial Premises, 41.37% (See
Sections 1.1.3, 1.2.5, and 1.2.8)
<PAGE>
9. TENANT'S SHARE OF EXCESS EXPENSES
PERTAINING TO OPERATING EXPENSES: Tenant's Share of Excess Expenses Percentage
of the increase in Operating Expenses over
the first Lease Year's Operating Expenses,
provided no increase is greater than 8% of
the previous Lease Year's Expenses, except
in the instance of utilities and insurance
costs (See Sections 3.1 and 3.3).
10. TENANT'S SHARE OF EXCESS EXPENSES
PERTAINING TO PROPERTY TAXES: Tenant's Share of Excess Expenses Percentage
of the increase in Property Taxes over the
stop of$1.75 in Property Taxes per RSF of
the Building.
11. IMPROVEMENT ALLOWANCE: $30 to $35 per RSF of the Initial Premises
and the First Expansion Space only plus, for
the Initial Premises only, $0.10 per RSF for
test fit. (See Sections 1.2.8(v) and
17.2.3), and an Additional Allowance for the
Second Expansion Space and First Notice
Space (See Sections 1.2.8(v) and 17.4)
12. SECURITY DEPOSIT: $842,397.48, subject to increase and subject
to elimination (See Section 1.4)
13. RENT PAYMENT ADDRESS: Opus East, L.L.C. Corporation
6707 Democracy Boulevard
Suite 510
Bethesda, Maryland 20817
Telephone: (301) 493-4444
Facsimiles: (301) 493-8410
14. ADDRESS OF LANDLORD FOR NOTICES:
Opus East, L.L.C.
6707 Democracy Boulevard
Suite 510
Bethesda, Maryland 20817
Attn: Scott Brody
Telephone: (301) 493-4444
Facsimiles: (301) 493-8410
With a copy to: Opus Corporation
10350 Bren Road East
Minnetonka, Minnesota 55343
Attn: Legal Department
Facsimiles (612) 936-9808
<PAGE>
15. ADDRESS OF TENANT FOR NOTICES:
(before the Initial Commencement
Date) SM&A Corporation
901 Follin Lane
Suite 400
Vienna, Virginia 22180
Attn: Steven Mast
Telephone: (703) 242-4050
Facsimile: (703) 255-3667
(after the Initial Commencement
Date) SM&A Corporation
2600 Park Tower Road
Merrifield, Virginia 22180
Attn: Steven Mast
With a copy to:
(before the Initial Commencement
Date) Theresa M. McGrath
Administrative Operations Manager
Decision-Science Applications, Inc.
1110 North Glebe Road
Suite 400
Arlington, Virginia 22201
Facsimile: (703) 875-9231
(after the Initial Commencement
Date) Theresa M. McGrath
Administrative Operations Manager
Decision-Science Applications. Inc.
c/o SM&A Corporation
2600 Park Tower Road
Merrifield, Virginia 22180
With additional copy to: Greenstein DeLorme & Luchs. P.C.
1620 L Street, N.W.
Washington, D.C. 20036
Attn: Abraham J.Greenstein. Esq.
Facsimile: (202) 452-1410
16. BROKER(S): Tenant's: The Fred Ezra Company
8300 Greensboro Drive
McLean, Virginia 22102
-and-
<PAGE>
CB Richard Ellis. Inc.
700 14th Street. N.W.
Suite 200
Washington. D.C. 20005
Listing: CB Richard Ellis, Inc.
1650 Tysons Boulevard
McLean, Virginia 22102
17. Guarantor(s): None (See definition of "Affiliate")
<PAGE>
ARTICLE 1.
----------
LEASE OF PREMISES AND LEASE TERM
--------------------------------
1.1. PREMISES.
1.1.1. LETTING.
Landlord leases and demises the Premises to Tenant and Tenant leases the
Premises from Landlord, in consideration of the covenants and agreements set
forth in this Lease and upon and subject to the terms, covenants and conditions
set forth in this Lease.
1.1.2. INITIAL PREMISES, EXPANSION PREMISES AND OTHER PREMISES.
The portion of the Building designated on the Floor Plan attached hereto as
EXHIBIT "C" and described in the Basic Terms is the "INITIAL PREMISES." The
portion of the Building to which Tenant elects, if at all, to exercise its
option to lease either the First Expansion Space or the Second Expansion Space
as provided in Sections 1.2.5 and 1.2.6 hereof are collectively the "EXPANSION
PREMISES." The portion of the Building comprised of the Initial Premises,
Expansion Premises and any First Notice Space leased pursuant to Section 1.1.7
hereof are collectively the "PREMISES."
1.1.3. MEASUREMENT.
Subject to adjustment as hereafter provided, the RSF of the Initial
Premises is the RSF specified in the Basic Terms, and the RSF of the Building
for the purposes of determining Tenant's Share of Excess Expenses is 234,667,
inclusive of the RSF contained in the Exercise Facility. Landlord determined the
RSF of the Initial Premises and Building for the foregoing purposes in
accordance with BOMA Standards. Likewise, the RSF of the Expansion Premises or
any First Notice Space, if applicable in either instance, will be determined by
Landlord in accordance with BOMA Standards, and Landlord shall advise Tenant, in
writing, of such determination prior, as applicable, to the First and Second
Expansion Commencement Date or the First Notice Space Commencement Date.
If prior to the expiration of three (3) months after the Initial
Commencement Date. Landlord or Tenant determines, in accordance with BOMA
Standards, that the RSF of the Building is not the RSF set forth above for the
determination of Tenant's Share of Excess Expenses Percentage, Landlord and
Tenant will amend this Lease accordingly in respect to such Tenant's Share of
Excess Expenses Percentage. Any such amendment will operate prospectively only
from the Initial Commencement. Landlord and Tenant will not make any retroactive
adjustments in Tenant's Share of Excess Expenses Percentage in respect to the
RSF of the Building. If no adjustment in the RSF of the Building is made prior
to the expiration of three (3) months after the Initial Commencement Date, the
RSF of the Building for the balance of the Term shall be as aforesaid.
If, prior to the expiration of three (3) months after, as applicable, the
Commencement Date for the applicable portion of the Premises, Landlord or Tenant
determines, in accordance
<PAGE>
with BOMA Standards, that the RSF of the applicable portion of the Premises
differs from the RSF either specified in the Basic Terms or as determined by
Landlord as aforesaid. Landlord and Tenant will amend this Lease accordingly in
respect to Tenant's Share of Excess Expenses Percentage and the RSF of the
applicable portion of the Premises: provided, however, that any such amendment
will operate prospectively only from the applicable Commencement Date. Landlord
and Tenant will not make any retroactive adjustments to Rent on account of any
difference between the RSF of the applicable portion of the Premises either
specified in the Basic Terms or determined by Landlord. If no adjustment in the
RSF of the applicable portion of the Premises is made prior to the expiration of
three (3) months after the applicable Commencement Date, the RSF of the
applicable portion of the Premises for the balance of the Term shall be as set
forth in the Basic Terms in respect to the Initial Premises or determined by
Landlord prior to the applicable Commencement Date as aforesaid.
1.1.4. PARKING.
In addition to the Premises let to Tenant pursuant to this Lease, during
the Term, at no cost to Tenant, Landlord, shall provide non-exclusive surface
parking spaces in the ratio of 3.6 parking spaces per 1,000 RSF leased in the
Building, including any Expansion Premises and any First Notice Space. Further,
in respect to the Initial Premises, Landlord shall make available to Tenant five
(5) reserved surface parking space ("RESERVED PARKING SPACE(S)"). In the event
the Expansion Premises or First Notice Space is added to the Premises as
provided herein, thereafter at Tenant's option, thirty (30) days' following
written notice from Tenant to Landlord, Landlord shall add one (1) additional
Reserved Parking Space for each 19,250 RSF of either Expansion Premises or First
Notice Space added to the Premises. The Reserved Parking Spaces applicable to
the Initial Premises shall be located as designated on the Parking Plan attached
hereto as EXHIBIT "H." Any added Reserved Parking Spaces as aforesaid shall be
located as close to the Initial Premises' Reserved Parking Spaces as is
reasonable, taking into account other reserved parking spaces then let to other
tenants of the Building. During the Term, Landlord shall not let or otherwise
make available to other tenants of the building reserved parking spaces in a
quantity that is greater than one (1) reserved parking space for each 19,250 RSF
of such other tenants' premises in the Building.
For the first Lease Year, Tenant shall pay to Landlord, as provided in
Section 2.1.4. as rent for each Reserved Parking Space ("PARKING RENT"), the sum
of Sixty Dollars ($60.00) per month. After the expiration of the first Lease
Year and each Lease Year thereafter during the Term, the Parking Rent shall be
increased by the amount charged by Landlord to other tenants of the Building for
other reserved parking spaces that is in excess of the Parking Rent charged by
Landlord to Tenant for the previous Lease Year, provided, however, the Parking
Rent, in any Lease Year, shall not increase by more than eight percent (8%) of
the previous Lease Year's Parking Rent. Landlord shall advise Tenant annually of
such increase, if any, to the Parking Rent.
1.2. TERM, DELIVERY AND COMMENCEMENT
1.2.1. TERM.
2
<PAGE>
1.2.1.1 INITIAL TERM.
The Initial Term of this Lease is the period stated in the Basic Terms. The
Initial Term and the Term commences on the Initial Commencement Date. Unless
sooner terminated as provided herein, the Initial Term expires on the last day
of the calendar month last commencing in the Initial Term, and the Term expires
on the last day of the calendar month last commending in the Term.
1.2.1.2. OPTION TO RENEW.
At the end of the Initial Term, provided Tenant is not then in default.
Tenant shall have the right to extend the Initial Term of this Lease for two (2)
additional periods of five (5) years each (respectively, "FIRST RENEWAL TERM,"
and "SECOND RENEWAL TERM"). The First Renewal Term and the Second Renewal Term
are sometimes individually referred to as "RENEWAL TERM" or collectively as
"RENEWAL TERMS."
1.2.1.3. EXERCISE OF OPTION TO RENEW.
Subject to the Tenant's right to withdraw a Renewal Notice as provided in
Section 2.1.3 hereof, the right to renew for the First Renewal Term or the
Second Renewal Term shall be exercised by Tenant giving written Notice to
Landlord not less than twelve (12) months prior the expiration, as applicable,
of the Initial Term and the First Renewal Term. Each written Notice in respect
to the exercise of Tenant's right to renew is hereinafter referred to as
"RENEWAL NOTICE." Notwithstanding the foregoing, Tenant's right to renew for the
Second Renewal Term is contingent on Tenant having exercised its right to the
First Renewal Term.
1.2.2. TENDER OF POSSESSION.
Subject to Force Majeure, Tenant Delay and Change Orders. Landlord will
tender possession to Tenant of (i) the entire Initial Premises on or before the
Initial Commencement Date, (ii) the applicable Expansion Premises on or before
the subject Expansion Commencement Date, and (iii) the First Notice Space on or
before the applicable First Notice Space Commencement Date. If for any reason
Landlord is unable to tender possession of the applicable portion of the
Premises to Tenant on or before the applicable foregoing dates, this Lease shall
nonetheless remain in full force and effect and Landlord shall not be liable to
Tenant for any resulting loss or damage, except, in respect to the Initial
Premises as provided in Section 17.3. Notwithstanding the foregoing, if there is
a delay in the tender of possession for the applicable portion of the Premises
that is caused by Tenant Delay, the applicable Rent Commencement Date shall be
on the date the Tenant's Improvements for such portion of the Premises would
have been Substantially Completed, but for the subject Tenant Delay.
1.2.3. COMMENCEMENT DATE MEMORANDUM.
Within a reasonable time after the applicable Commencement Date, Landlord
will execute and deliver to Tenant the Commencement Date Memorandum with all
blanks completed
3
<PAGE>
relating to dates applicable to the subject portion of the Premises as provided
in this Lease. Tenant will, within ten (10) days after receiving the applicable
Commencement Date Memorandum from Landlord, deliver to Landlord the applicable
Commencement Date Memorandum executed by Tenant or a written objection from
Tenant as to the accuracy of its content. Tenant's failure to execute and
deliver to Landlord the applicable Commencement Date Memorandum does not affect
any obligation of Tenant under this Lease. If Tenant does not timely execute and
deliver to Landlord the applicable Commencement Date Memorandum or deliver its
written objection thereto as aforesaid, Landlord and any prospective purchaser
or encumbrancer may conclusively rely on the information contained in the
applicable Commencement Date Memorandum executed by Landlord and delivered to
Tenant.
1.2.4. EARLY OCCUPANCY - FIT-UP WORK.
Except for Fit-Up Work hereafter provided, Tenant will not occupy any
portion of the Premises before Substantial Completion of such applicable portion
without Landlord's prior written consent, which consent Landlord may grant,
withhold or condition in its sole discretion. However, not less than thirty (30)
days prior to the date Landlord reasonably estimates to be the date on which
each floor of the Initial Premises and, if applicable and if Landlord is
constructing the Tenant's Improvements therefor, the Expansion Premises and
First Notice Space will each be Substantially Complete, Landlord shall advise
Tenant of the same, in writing. Thereafter, for each floor of the Initial
Premises and, if applicable, for the Expansion Premises and First Notice Space
for which Landlord has given Notice as aforesaid, Tenant shall be permitted to
enter the applicable portion of the Premises to perform, at Tenant's sole cost
and expense, that work set fort on EXHIBIT "G" attached hereto and made a part
hereof which shall be referred to as "FIT-UP WORK." All Fit-Up Work shall be
performed by Tenant pursuant to those safety, scheduling, staging, labor and
insurance rules, regulations and requirements as Landlord shall reasonably
establish.
1.2.5. FIRST EXPANSION SPACE.
Not less than one hundred ten (110) days prior to the date Landlord
reasonably estimates to be the date on which the entire Initial Premises will be
Substantially Complete, Landlord shall advise Tenant, in writing, of the same
together with Landlord's designation of the size, configuration and location of
those portions of the Building (which shall be at least one (1) full floor of
contiguous space) that is then currently available to be added to the Premises.
Within fifteen (15) Business Days following Tenant's receipt of such Notice,
Tenant, at its election, may notify Landlord, in writing ("FIRST EXPANSION
NOTICE"), of those portions ("FIRST EXPANSION SPACE") of the Landlord designated
vacant space Tenant elects to add to the Premises, provided such election is for
not more than one (1) full floor of the Building and not for less than 10,000
RSF of the Building. The configuration and location of the First Expansion Space
shall also be agreed to in good faith by Landlord and Tenant so as to create
efficient, functional design for the First Expansion Space. In any event, the
exact number of RSF by which the Premises will be increased will be that number
of RSF as close to the RSF specified in Tenant's aforesaid election Notice which
permits the balance of the applicable portion of the Building not affected by
the First Expansion Space to be of such a size, location and configuration so as
to not unreasonably interfere with leasing the balance of the applicable portion
of the Building to other tenants.
4
<PAGE>
However, if Landlord does not receive within said fifteen (15) Business Days
Tenant's First Expansion Notice, it shall act as notice to Landlord that Tenant
has waived and released such right.
1.2.6. SECOND EXPANSION SPACE.
At the times and on the terms hereafter provided, Tenant shall have the
right to add to the Premises approximately 20,000 RSF of office space in the
Building ("SECOND EXPANSION SPACE"). If Tenant desires to add Second Expansion
Space to the Premises, Tenant shall notify Landlord, in writing, of the same at
any time prior to the expiration of the fifty-third month following the Initial
Commencement Date. Within ten (10) days following Landlord's receipt of such
Notice, Landlord shall advise Tenant, in writing, of the size (which shall be at
least 20.000 RSF), configuration, location and extent of prior tenant
improvements of those portions of the Building that will be available during the
period commencing on the sixtieth (60th) month and ending on the sixty-sixth
(66th) month subsequent to the Initial Commencement Date. Within thirty (30)
days following Tenant's receipt of Landlord's designated vacant space as
aforesaid, Tenant, at its election, subject to the foregoing size limitations,
may specify, in writing ("SECOND EXPANSION NOTICE"), the location, size and
reasonable configuration of the Second Expansion Space. Notwithstanding the
foregoing, as provided in Section 2.1.3.1, Tenant may withdraw its Second
Expansion Notice. The configuration and location of the Second Expansion Space
shall also be agreed to in good faith by Landlord and Tenant so as to create
efficient, functional design for the Second Expansion Space. In any event, the
exact number of RSF by which the Premises will be increased will be as close to
20,000 RSF which permits the balance of the applicable portion of the Building
not affected by the Second Expansion Space to be of such a size, location and
configuration so as to not unreasonably interfere with leasing the balance of
the applicable portion of the Building to other tenants. However, if Landlord
does not receive within said thirty (30) days Tenant's Second Expansion Notice,
it shall act as notice to Landlord that Tenant has waived and released such
right.
1.2.7. FIRST NOTICE SPACE.
Promptly following the execution of leases (including this Lease) for
ninety-five percent (95%) of the office space in the Building ("INITIAL
LEASE-UP"), Landlord shall advise Tenant of the same, in writing. During the
period ("NOTICE PERIOD") commencing on the date of the Initial Lease-Up, and
ending, subject to the following, on the date that is three (3) years prior the
expiration of the applicable portion of the Term, Landlord shall advise Tenant
of (i) the date on which office space in the Building will become available (and
re-available, if let to other tenants because Tenant did not exercise its rights
thereto as provided in this Section 1.2.7); (ii) the size. configuration, and
location thereof (iii) the prior tenant improvements thereto; and (iv) the
rights, if any, of other tenants in the Building to such office space (e.g.,
expansion rights) that may become effective at some time after the date of such
availability.
If Tenant chooses, within thirty (30) days subsequent to the date Landlord
advised Tenant as aforesaid, Tenant may elect, by written notice to Landlord
("FIRST NOTICE ELECTION"), to add all or any portion of such noticed space
("FIRST NOTICE SPACE") to the Premises, on all of the terms and conditions of
this Lease, except that the Basic Rent or Additional Allowance therefor,
5
<PAGE>
if Landlord and Tenant cannot agree as provided in Section 2.1.3.1, shall be
determined by arbitration as provided in Section 2.1.3.2 hereof. In the event
Landlord does not receive a First Notice Election from Tenant within said thirty
(30) day period, it shall act as notice to Landlord that Tenant has waived its
right to the office space that is the subject of Landlord's aforesaid notice to
Tenant until such space again becomes available for lease as aforesaid.
If, as applicable, prior to the seventh (7th) anniversary of the Initial
Term or prior to the third (3rd) anniversary of the First Renewal Term Tenant
does not then elect to extend the Term for the applicable Renewal Term, the
rights of Tenant pursuant to this Section 1.2.7 will expire, respectively, on
the seventh (7th) anniversary of the Initial Commencement Date and on the third
(3r) anniversary of the First Renewal Term. Notwithstanding the foregoing, if
after such expiration Tenant exercises its applicable Renewal Term rights as
provided herein, then the rights of Tenant pursuant to this Section 1.2.7 shall
be reinstated until the date that is three (3) years prior to the expiration of
the applicable portion of the Term (subject to further reinstatement if Tenant
exercises its right to the Second Renewal Term).
1.2.8. OTHER EXPANSION PREMISES MATTERS.
If Tenant does elect to add First Expansion Space, Second Expansion Space
or First Notice Space to the Premises as aforesaid:
(i) The First Expansion Space shall be deemed to form a part of the
Premises on the First Expansion Commencement Date, the Second
Expansion Space shall be deemed to form a part of the Premises on
the Second Expansion Commencement Date, and the applicable First
Notice Space shall be deemed to form a part of the Premises on the
subject First Notice Space Commencement Date.
(ii) The annual Basic Rent shall be increased on the First Expansion
Commencement Date, by an amount equal to the Basic Rent per RSF
then required to be paid by Tenant for the Initial Premises
multiplied by the number of RSF in the First Expansion Space. The
annual Basic Rent shall be increased on, as applicable, the Second
Expansion Commencement Date and the subject First Notice Space
Commencement Date as determined pursuant to Section 2.1.3 hereof.
(iii) Tenant's Share for Excess Expenses Percentage for both Operating
Expenses and Property Taxes shall be adjusted on the applicable
Commencement Date in respect to the number of RSF included, as
applicable, in the First Expansion Space, Second Expansion Space
and First Notice Space.
(iv) As provided in Section 17.4, (1) Landlord shall construct the
First Expansion Space Expansion Improvements, and (2) Landlord
shall construct or shall permit Tenant to construct or cause to be
constructed the Second Expansion Space Expansion Improvements and
First Notice Space Improvements that are reasonably consistent to
the Initial Improvements. If the proposed Second Expansion Space
Expansion Improvements or First Notice Space Improvements are not
reasonably consistent, such inconsistent Expansion Improvements or
First
6
<PAGE>
Notice Space Improvements shall be deemed Alterations subject to
the provisions of Article 8 hereof. Further, promptly following
the completion of the Second Expansion Space Expansion
Improvements or First Notice Space Improvements, if constructed or
caused to be constructed by Tenant, Tenant shall deliver to
Landlord a complete set of the as- built plans and specifications
therefor.
(v) An Additional Allowance equal to the Initial Allowance shall be
afforded by Landlord to Tenant for the First Expansion Space. As
provided in Section 17.4 hereof, no Additional Allowance will be
afforded by Landlord to Tenant for that portion of the Second
Expansion Space or subject First Notice Space that has been
improved for the use of other tenant(s) prior to the date Tenant
exercises its rights hereunder to such portion of the Premises. As
to those portions of the Second Expansion Space or subject First
Notice Space that have not been improved for the use of other
tenant(s). Landlord shall afford Tenant the Additional Allowance
determined, if Landlord and Tenant cannot agree, by arbitration
pursuant to Section 2.1.3.2 hereof.
1.3. EFFECT OF OCCUPANCY.
Subject to the Warranty Terms, except for Fit-Up Work, Tenant's occupancy
of the Premises after Substantial Completion of the applicable portion of the
Tenant's Improvements conclusively establishes that Landlord completed the
Improvements as required by this Lease in a manner satisfactory to Tenant. The
Warranty Terms provide Tenant with its sole and exclusive remedies for
Landlord's incomplete or defective construction of the Improvements. Tenant's
failure to strictly comply with the Warranty Terms with respect to any item
included as part of the Improvements constitutes Tenant's waiver and release of
any and all rights, benefits, claims or warranties available to Tenant under
this Lease, at law or in equity in connection with each such item.
1.4. SECURITY DEPOSIT.
Contemporaneously with the execution hereof, Tenant shall either pay to
Landlord the sum of Eight Hundred Forty Two Thousand, Three Hundred Ninety Seven
and 48/100ths Dollars ($842,397.48) in cash, or deliver to Landlord an
unconditional letter of credit, in form, content and drawn on a nationally
insured bank reasonably satisfactory to Landlord in the foregoing amount (in
either instance, "SECURITY DEPOSIT"). The Security Deposit, if in cash, shall be
held by Landlord in a money market account reasonably acceptable to Landlord and
Tenant. The interest earned thereon shall be deemed income to Tenant and
distributed by Landlord to Tenant not more frequently than once each Lease Year
within thirty (30) days following Tenant's written request to Landlord for such
distribution. Landlord shall not be responsible for any loss resulting from the
deposit of such cash in a money market account. In the event of a loss of
principal. Tenant shall pay to Landlord the amount of such loss within ten (10)
days following written request therefor from Landlord to Tenant. Whether the
Security Deposit is in cash or by letter of credit it shall be held by Landlord
as security for the performance by Tenant of Tenant's covenants and obligations
under this Lease. It is expressly understood that the Security Deposit shall not
be considered an advance payment of Basic Rent or Additional Rent, or a measure
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of Landlord's damages in case of a default by Tenant hereunder which is not
cured within the applicable cure period provided in this Lease. Additionally. if
the Security Deposit is in the form of a letter of credit, unless Tenant
delivers to Landlord a replacement letter of credit not less than thirty (30)
days prior to the expiration of the exiting letter of credit, Landlord may draw
upon such letter of credit and hold the cash therefrom as the Security Deposit.
Upon the occurrence of a default by Tenant which is not cured within the
applicable cure period provided in this Lease, Landlord may, from time to time,
without prejudice to any other remedy, use the Security Deposit, if in cash, or
draw on the letter of credit and use the cash therefrom to the extent necessary
to make good any arrearages of Basic Rent, Additional Rent, or any other damage.
injury, expense or liability caused to Landlord by such default of Tenant which
is not cured within the applicable cure period provided in this Lease. Following
any such application of the Security Deposit, Tenant shall pay to Landlord,
within ten (10) days after written demand to Tenant the amount so applied in
order to restore the Security Deposit to its original amount. If Tenant has not
then met the net worth test provided in the next grammatical paragraph, in the
event Tenant elects to add Expansion Premises or First Notice Space to the
Premises, on the applicable Commencement Date therefor, the Security Deposit
shall be increased by the amount that equals four (4) months Basic Rent for such
Expansion Premises or First Notice Space.
Provided there exists no default by Tenant hereunder or, if a default,
after such default is acknowledged, in writing, by Landlord to have been cured,
Landlord shall return to Tenant any remaining balance of the Security Deposit
together with interest earned thereon (or the letter of credit, if not then
drawn upon) within ten (10) days following the first to occur of (i) Tenant
delivering to Landlord financial statements or other documentation, each in form
and content reasonably satisfactory to Landlord, that the net worth of Tenant
(exclusive of goodwill), determined in accordance with generally accepted
accounting principles, consistently applied, has, for the previous three (3)
months, been equal to or greater than Forty Million Dollars ($40,000,000.00), or
(ii) the expiration or earlier termination of the Term. Landlord shall assign
the Security Deposit to any transferee of Landlord's interest in the Building,
which transferee shall accept such assignment, in writing, and thereafter
Landlord shall have no further liability for the return of the Security Deposit.
ARTICLE 2.
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RENTAL AND OTHER PAYMENTS
-------------------------
2.1. BASIC RENT.
2.1.1. INITIAL PREMISES - INITIAL TERM.
For the first Lease Year of the Initial Term, the Basic Rent for the
Initial Premises is Twenty Six and 25/100 Dollars ($26.25) per RSF in the
Initial Premises which equals Two Million Five Hundred Twenty Seven Thousand.
One Hundred Ninety Two and 50/100 Dollars ($2,527,192.50) per annum or Two
Hundred Ten Thousand. Five Hundred Ninety Nine and 36/100 Dollars ($210,599.37)
per month. if the RSF of the Initial Premises, pursuant to Section 1.1.3 hereof,
remains 96,274 RSF. Commencing on the first day of the second Lease Year and
continuing on the first day of each Lease Year thereafter during the Initial
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Term, the Basic Rent per annum for the Initial Premises will be increased by an
amount equal to Two and One-Half percent (2.5%) of the preceding Lease Year's
Basic Rent for the Initial Premises.
2.1.2. EXPANSION PREMISES AND FIRST NOTICE SPACE - INITIAL TERM.
Commencing on the First Expansion Commencement Date and for the balance of
the Initial Term thereafter, the Basic Rent shall be increased by the amount
equal to the Basic Rent per RSF then required to be paid for the Initial
Premises multiplied by the number of RSF contained in the First Expansion Space.
If pursuant to Section 2.1.3.1 hereof Landlord and Tenant cannot agree on the
Basic Rent for the Second Expansion Space or the subject First Notice Space,
then the Basic Rent therefor commencing on the applicable Commencement Date and
continuing for the balance of the Initial Term thereafter shall be determined by
arbitration as provided in Section 2.1.3.2 hereof.
2.1.3. SECOND EXPANSION SPACE, FIRST NOTICE SPACE AND ENTIRE PREMISES
RENEWAL TERM(S).
2.1.3.1. LANDLORD'S AND TENANT'S PROPOSAL.
Subject to the right of Tenant to withdraw its Renewal Notice, Second
Expansion Notice or First Notice Election (as applicable, "PROPOSAL NOTICE") as
hereafter provided, within fifteen (15) days following its receipt of a Proposal
Notice, Landlord shall advise Tenant, in writing ("LANDLORD'S PROPOSAL"), of (i)
Landlord's proposed Basic Rent, as applicable, for the applicable Renewal Term,
Second Expansion Space or subject First Notice Space setting forth. with
reasonable specificity, the method of computation, (ii) the amount of Additional
Allowance, consistent with the provisions of Section 1.2.8 hereof that Landlord,
in light of the proposed Basic Rent, proposes to afford Tenant for the Second
Expansion Space or subject First Notice Space, and (iii) the designation of
Landlord's Arbitrator. Not later than fifteen (15) days following Tenant's
receipt of Landlord's Proposal, Tenant shall advise Landlord, in writing, of
whether Tenant (a) accepts Landlord's Proposal in its entirety, (b) withdraws
the subject Proposal Notice, or (c) rejects some or all of Landlord's Proposal,
and desires to have either or both of the Basic Rent or Additional Allowance
determined by arbitration as hereafter provided. If Tenant accepts Landlord's
Proposal, Tenant shall be deemed to have exercised its right, as applicable, to
extend the Term for the applicable Renewal Term, or add to the Premises the
Second Expansion Space or subject First Notice Space, and the Basic Rent and
Additional Allowance, if applicable, shall be as set forth in Landlord's
Proposal. If Tenant withdraws the subject Proposal Notice as aforesaid or fails
to advise Landlord as aforesaid of Tenant's election, Tenant shall have waived,
as applicable, its right to renew for the applicable Renewal Term or to add to
the Premises the Second Expansion Space or First Notice Space. If Tenant rejects
Landlord's Proposal, in whole or in part, but Tenant desires to have the
rejected part determined by arbitration. Tenant shall advise Landlord and
Landlord's designated Arbitrator of the designation of Tenant's Arbitrator. In
such event, the arbitration shall be binding on Landlord and Tenant in respect
to, as applicable, the Second Expansion Space or First Notice Space, and Tenant
shall not be permitted to thereafter withdraw, as applicable, its Second
Expansion Notice or First Notice Election. However, as provided in Section
2.1.3.2, Tenant shall be permitted to withdraw its Renewal Notice.
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2.1.3.2 ARBITRATION
Within seven (7) days following the date Landlord is advised of (i) the
rejection of all or a part of Landlord's Proposal, and (ii) the identity of
Tenant's designated Arbitrator, the Arbitrators designated by Landlord and
Tenant shall designate a third Arbitrator. Thereafter, within fourteen (14) days
following the designation of the third Arbitrator, each designated Arbitrator
shall notify both Landlord and Tenant, in writing, of their respective
determination of the Market Rate and/or the subject Additional Allowance, which
determination of the Additional Allowance shall take into account the Market
Rate, as applicable, set forth in Landlord's Proposal or as determined by the
subject Arbitrator. Each Arbitrator shall set forth the supporting evidence and
data which such Arbitrator took into account in making such determination(s). If
the Arbitrators are determining the Market Rate, the highest and the lowest
Market Rate determined by the Arbitrators shall be disregarded, and the Basic
Rent, as applicable, for the Renewal Term, Second Expansion Space or subject
First Notice Space shall equal the middle Market Rate. In the event the
Additional Allowance together with the Market Rate are the subject of
arbitration, the Additional Allowance shall be that amount determined by the
Arbitrator who determined the middle Market Rate as aforesaid. If only the
Additional Allowance is the subject of arbitration, then the Additional
Allowance shall be determined by the Arbitrators taking into account the Basic
Rent set forth in Landlord's Proposal and the highest and the lowest Additional
Allowances determined by the Arbitrators shall be disregarded. However, if two
Arbitrators determine the same Market Rate, such commonly determined Market Rate
shall be the Basic Rent, and the Additional Allowance, if applicable, shall be
the average of that determined by such two Arbitrators. If only the Additional
Allowance is the subject of arbitration, and two Arbitrators determine the same
Additional Allowance, such commonly determined Additional Allowance shall be the
Additional Allowance binding on Landlord and Tenant. Notwithstanding the
foregoing, within ten (10) days following Tenant's receipt of the determination
of the Market Rate for the applicable Renewal Term, by Notice from Tenant to
Landlord, Tenant may withdraw its Renewal Notice in which event Tenant shall be
deemed to have waived its right to the applicable Renewal Term. If Tenant fails
to give such Notice to Landlord, it shall act as notice to Landlord that Tenant
has accepted the Market Rate determined as aforesaid and has exercised its right
to the applicable Renewal Term.
In the instance of the Second Expansion Space. First Notice Space and the
applicable Renewal Term (if Tenant does not withdraw its Renewal Notice as
aforesaid), Landlord and Tenant shall each pay the costs incurred in respect to
their respective designated Arbitrators and shall each pay 50% of the cost of
the third Arbitrator. If Tenant withdraws its Renewal Notice as provided in this
Section 2.1.3.2, Tenant shall pay the costs incurred in respect to its
designated Arbitrator and the third Arbitrator and the reasonable costs incurred
by Landlord in respect to Landlord's designated Arbitrator.
2.1.4. PAYMENT - BASIC RENT - PARKING RENT - T/I RENT.
During the Term, Tenant will pay Basic Rent, Parking Rent and T/I Rent in
monthly installments to Landlord, in advance, without offset or deduction
(except as provided in Sections 17.2.4 and 17.4 hereof), commencing on the
applicable Rent Commencement Date for the applicable portion of the Premises,
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and continuing on the first day of each and every calendar month after such Rent
Commencement Date. Tenant will make all Basic Rent. Parking Rent and T/I Rent
payments to Landlord at the address specified in the Basic Terms or at such
other place or in such other manner as Landlord may from time to time designate
in writing. Tenant will make all Basic Rent, Parking Rent and T/I Rent payments
without Landlord's previous demand. Landlord and Tenant will prorate. on a per
diem basis, Basic Rent, Parking and T/I Rent for any partial month within the
Term. Notwithstanding the foregoing, in the event there is any change during the
Term in the amount of or any Basic Rent, Parking Rent or T/I Rent as provided
herein, the amount in respect to such change shall not be due and payable until
thirty (30) days following Tenant's receipt of an invoice therefor.
2.2. ADDITIONAL RENT.
Article 3 of this Lease requires Tenant to pay certain Additional Rent
pursuant to estimates Landlord delivers to Tenant. Monthly, during the Term,
Landlord shall invoice Tenant for all Additional Rent due and payable as
provided herein. Tenant will make all payments of estimated Additional Rent in
accordance with Sections 3.3 and 3.4 without deduction or offset. Unless
otherwise specified herein to the contrary, within thirty (30) days following
receipt of Landlord's invoice, Tenant will pay (i) all changes in the Additional
Rent that is the subject of Section 3.3 and 3.4 hereof, and (ii) all other
Additional Rent described in this Lease that is not the subject of Section 3.3
or 3.4. Tenant will make all Additional Rent payments to the same location and
in the same manner as Tenant's Basic Rent payments.
2.3. DELINQUENT RENTAL PAYMENTS.
If Tenant does not pay any installment of Basic Rent or any Additional Rent
within five (5) Business Days after the date the payment is due, Tenant will pay
Landlord an additional amount equal to the greater of (a) interest on the
delinquent payment calculated at the Maximum Rate from the date when the payment
is due through the date the payment is made, or (b) a late payment charge equal
to 5% of the amount of the delinquent payment. Landlord's right to such
compensation for the delinquency is in addition to all of Landlord's rights and
remedies under this Lease, at law or in equity.
2.4. INDEPENDENT OBLIGATIONS.
Notwithstanding any-contrary term or provision of this Lease, Tenant's
covenant and obligation to pay Rent is independent from any of Landlord's
covenants, obligations, warranties or representations in this Lease. Tenant will
pay Rent without any right of offset or deduction. except as provided in Section
17.2.4 and 17.4 hereof.
ARTICLE 3.
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PROPERTY TAXES AND OPERATING EXPENSES
-------------------------------------
3.1. PAYMENT OF EXCESS EXPENSES.
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Except as hereafter provided in the instance of Tenant's Share of Excess
Expenses pertaining to Operating Expenses for the first Lease Year. Tenant will
pay, as Additional Rent. Tenant's Share of Excess Expenses due and payable
during any calendar year of the Term in the manner this Article 3 describes.
Commencing on the first anniversary of the Initial Commencement Date, Tenant
will pay Tenant's Share of Excess Expenses pertaining to Operating Expenses.
Except for increases in utility charges and insurance costs forming a part of
Operating Expenses, Tenant's Share of Excess Expenses pertaining to Operating
Expenses for the second and subsequent Lease Years shall not be greater than one
hundred eight percent (108%) of the previous Lease Year's Tenant's Share of
Excess Expenses pertaining to Operating Expenses. Tenant will pay Tenant's Share
of Excess Expenses pertaining to Property Taxes for the entire Initial Premises,
commencing on the Initial Commencement Date. Landlord will prorate the
applicable portion of Tenant's Share of Excess Expenses due and payable during
the subject calendar year in which Tenant's obligation to pay Tenant's Share of
Excess Expenses commences or terminates as of the applicable Commencement Date
or termination date, on a per diem basis based on the number of days of the Term
within such calendar year.
3.2. ESTIMATION OF TENANT'S SHARE OF EXCESS EXPENSES.
Landlord will deliver to Tenant a written estimate of the following for
each calendar year of the Term: (a) Property Taxes, (b) Operating Expenses, (c)
Excess Expenses. (d) Tenant's Share of Excess Expenses, and (e) the annual and
monthly Additional Rent attributable to Tenant's Share of Excess Expenses.
3.3. PAYMENT OF ESTIMATED TENANT'S SHARE OF EXCESS EXPENSES.
In equal monthly installments, in advance, on the first day of each month
during the following calendar years (or portions thereof) within the Term,
Tenant will pay the following portions of Tenant's Share of Excess Expenses.
Tenant shall commence paying Tenant's Share of Excess Expenses pertaining to
Operating Expenses on the first anniversary of the Initial Commencement Date. If
Landlord has not delivered the estimates to Tenant by the first day of January
of the applicable calendar year. Tenant will continue paying the applicable
portions of Tenant's Share of Excess Expenses based on Landlord's estimates for
the previous calendar year. When Tenant receives Landlord's estimates for the
current calendar year, Tenant will pay the estimated amount (less amounts Tenant
paid to Landlord in accordance with the immediately preceding sentence) in equal
monthly installments over the balance of such calendar year. with the number of
installments being equal to the number of full calendar months remaining in such
calendar year.
3.4. RE-ESTIMATION OF EXCESS EXPENSES.
Not more frequently than once each Lease Year. Landlord may re-estimate
Excess Expenses during the Term. In such event. Landlord will re-estimate the
monthly Additional Rent attributable to Tenant's Share of Excess Expenses to an
amount sufficient for Tenant to pay the re-estimated monthly amount over the
balance of the calendar year. Landlord will notify Tenant of the re-estimate and
Tenant will pay the re-estimated amount in the manner provided in the last
sentence of Section 3.3.
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3.5. CONFIRMATION OF TENANT'S SHARE OF EXCESS EXPENSES.
Not later than one hundred twenty (120) days after the end of each calendar
year within the Term, Landlord will determine the actual amount of Excess
Expenses and Tenant's Share of Excess Expenses for the expired calendar year and
deliver to Tenant a written statement of the amount. If Tenant paid less than
the amount specified in the statement, Tenant will pay the difference to
Landlord as Additional Rent in the manner described in Section 2.2. If Tenant
paid more than the amount specified in the statement, Landlord will, at
Landlord's option, either (a) refund the excess amount to Tenant, or (b) credit
the excess amount against Tenant's next due monthly installment or installments
of estimated Additional Rent. If Landlord is delayed in delivering such
statement to Tenant, such delay does not constitute Landlord's waiver of
Landlord's rights under this Section.
3.6. TENANT INSPECTION AND AUDIT RIGHTS.
If Tenant disputes Landlord's determination of the actual amount of Excess
Expenses or Tenant's Share of Excess Expenses for any calendar year and Tenant
delivers to Landlord written Notice of the dispute within one hundred twenty
(120) days after Landlord's delivery of the statement of such amount under
Section 3.5, Tenant (but not any subtenant or assignee that is not an Affiliate
of Tenant) may, at its sole cost and expense, upon prior Notice and during
regular business hours at a time and place reasonably acceptable to Landlord
located in the Washington, D.C. metropolitan area (which may be the location
where Landlord or Property Manager maintains the applicable records), cause
either a nationally recognized or Washington D.C. regionally prominent certified
public accounting firm, on a non-contingent basis, to audit Landlord's records
relating to the disputed amounts. Tenant's objection to Landlord's determination
of Excess Expenses or to Tenant's Share of Excess Expenses is deemed withdrawn
unless Tenant completes the audit within six (6) months after the date Tenant
delivers its dispute Notice to Landlord under this Section 3.6. If the audit
shows that the amount Landlord charged Tenant for Tenant's Share of Excess
Expenses was greater than the amount this Article 3 required Tenant to pay,
Landlord will refund the excess amount to Tenant, together with interest on the
excess amount at the Maximum Rate (computed from the date Tenant delivers its
dispute Notice to Landlord) within ten (10) days after Landlord receives a copy
of the audit report. If the audit shows that the amount Landlord charged Tenant
for Tenant's Share of Excess Expenses was less than the amount this Article 3
required Tenant to pay, Tenant will pay to Landlord, as Additional Rent, the
difference between the amount Tenant paid and the amount determined in the
audit, together with interest on the difference at the Maximum Rate (computed
from the date Tenant delivers its dispute Notice to Landlord). Pending
resolution of any audit under this Section 3.6, Tenant will continue to pay to
Landlord the estimated amounts of Tenant's Share of Excess Expenses in
accordance with Sections 3.3 and 3.4. Tenant must keep all information it
obtains in any audit strictly confidential and may only use such information for
the limited purpose this Section 3.6 describes and for Tenant's own account.
In the event the audit determines that the actual amount of the Excess
Expenses was less than ninety five percent (95%) of the amount of the Excess
Expenses disclosed in Landlord's statement delivered pursuant to Section 3.5.
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Landlord shall pay the reasonable out-of-pocket costs incurred by Tenant in
conducting such audit.
3.7. INTENTIONALLY DELETED
3.8. PERSONAL PROPERTY TAXES.
Tenant will pay, prior to delinquency, all taxes charged against Tenant's
trade fixtures and other personal property. Tenant will use all reasonable
efforts to have such trade fixtures and other personal property taxed separately
from the Property. If any of Tenant's trade fixtures and other personal property
are taxed with the Property, Tenant will pay the taxes attributable to Tenant's
trade fixtures and other personal property to Landlord as Additional Rent.
3.9. LANDLORD'S RIGHT TO CONTEST PROPERTY TAXES.
Landlord may, but is not obligated to (except as hereafter provided)
contest the amount or validity, in whole or in part, of any Property Taxes.
Unless Tenant requires Landlord to contest Property Taxes as hereafter provided,
Landlord's contest will be at Landlord's sole cost and expense, except that if
Property Taxes are reduced (or if a proposed increase is avoided or reduced)
because of Landlord's contest, Landlord may include in its computation of
Property Taxes the actual third party costs and expenses Landlord incurred in
connection with contesting the Property Taxes, including reasonable attorney's
fees, up to the amount of any Property Tax reduction Landlord realized from the
contest or Property Tax increase avoided or reduced in connection with the
contest, as the case may be. Provided Tenant timely directs Landlord, in
writing, on the terms hereafter provided, Landlord will contest the amount or
validity, in whole or in part, of any Property Taxes. If Tenant does so request
Landlord to contest, such contest will be at Tenant's sole cost and expense
("TENANT'S CONTEST COSTS"), as part of Tenant's Additional Rent, except that if
Property Taxes are reduced (or if a proposed increase is avoided or reduced)
because of such contest, Landlord shall include in its computation of Property
Taxes and reduce the Tenant's Contest Costs by the actual third party costs and
expenses Landlord incurred in connection with contesting the Property Taxes,
including reasonable attorney's fees. up to the amount of any Property Tax
reduction Landlord realized from the contest or Property Tax increase avoided or
reduced in connection with the contest, as the case may be. Tenant shall pay the
Tenant's Contest Costs within thirty (30) days after Landlord invoices Tenant
for the same.
3.10. ADJUSTMENT FOR VARIABLE OPERATING EXPENSES.
Notwithstanding any contrary language in this Article 3, if 95% or more of
the RSF of the office space of the Building is not occupied at all times during
any calendar year (including the calendar years which fall within the first
Lease Year) pursuant to leases under which the terms have commenced for such
calendar year. Landlord will reasonably and equitably adjust its computation of
Operating Expenses for that calendar year to obligate Tenant to pay all
components of Operating Expenses that vary based on occupancy (including, but
not limited to. utilities, janitorial and other cleaning services, service
contracts for building systems under warranty and management fees) in an amount
equal to the amount Tenant would have paid for such components of Operating
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Expenses had 95% of the RSF of the office space of the Building been occupied at
all times during such calendar year pursuant to leases under which the terms
have commenced for such calendar year. Landlord will also equitably adjust
Operating Expenses to account for any Operating Expense any tenant of the
Building pays directly to a service provider. Promptly following the written
request by Tenant to Landlord. Landlord shall provide Tenant with reasonable
documentation containing reasonable specificity that sets forth the gross-up of
Operating Expenses provided in this Section 3.10.
ARTICLE 4.
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USE
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4.1. PERMITTED USE.
Tenant will not use the Premises for any purpose other than general office
purposes. Notwithstanding the foregoing, Landlord and Tenant acknowledge that
Tenant's use of that portion of the Premises indicated on the approved Initial
Improvements Plans as proposal development center ("PDC") for so-called proposal
development purposes in the pursuit of government contracts on behalf of Tenant
or Tenant's clientele shall be deemed a general office purpose use. However,
Tenant will not use the Property or knowingly permit the Premises to be used in
violation of any Laws or in any manner that would (a) violate any certificate of
occupancy affecting the Property; (b) make void or voidable any insurance now or
after the Effective Date in force with respect to the Property; (c) cause injury
or damage to the Property or to the person or property of any other tenant on
the Property; (d) cause substantial diminution in the value or usefulness of all
or any part of the Property (reasonable wear and tear excepted); or (e)
constitute a public or private nuisance or waste.
4.2. ACCEPTANCE OF PREMISES.
Except for the Warranty Terms, Tenant acknowledges that neither Landlord
nor any agent, contractor or employee of Landlord has made any representation or
warranty of any kind with respect to the Premises, the Building or the Property,
specifically including, but not limited to, any representation or warranty of
suitability or fitness of the Premises, Building or the Property for any
particular purpose. Subject to the Warranty Terms, Tenant accepts the Premises,
the Building and the Property in an "AS IS - WHERE IS" condition.
4.3. INCREASED INSURANCE.
Tenant will not do on the Property or permit to be done on the Premises
anything that will (a) increase the premium of any insurance policy Landlord
carries covering the Premises or the Property; (b) cause a cancellation of or be
in conflict with any such insurance policy; (c) result in any insurance
company's refusal to issue or continue any such insurance in amounts
satisfactory to Landlord; or (d) subject Landlord to any liability or
responsibility for in to any person or property by reason of Tenant's operations
in the Premises. Tenant will, at Tenant's sole cost and expense, comply with all
rules, orders, regulations and requirements of insurers and of the American
Insurance Association or any other organization performing a similar function
which are applicable solely to Tenant's particular use of the Premises. Tenant
will reimburse Landlord, as Additional Rent, for any additional premium charges
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for such policy or policies resulting from Tenant's failure to comply with the
provisions of this Section 4.3. It is expressly understood that Landlord shall
not have the right to reimbursement of insurance premiums pursuant to this
Section 4.3 if (i) any rate increase is due to factors generally applicable to
the insurance or rental market, rather than to Tenant's activities or presence
in the Premises permitted pursuant to Section 4.1 hereof, or (ii) Tenant is
conducting only the permitted use of the Premises pursuant to Section 4.1
hereof, and such use is being conducted in accordance with all Laws and the
provisions of this Lease.
4.4. LAWS/BUILDING RULES.
Tenant agrees to comply with all Laws which are applicable to Tenant. A
copy of the current Building Rules is attached to this Lease as EXHIBIT "E."
Landlord may amend the Building Rules from time to time in Landlord's sole
discretion, provided that no such amendment shall be inconsistent with the terms
of this Lease or adversely diminish Tenant's rights or adversely increase
Tenant's obligations hereunder, and each such amendment shall be generally
applicable to all office tenants of the Building. Landlord shall not
discriminate against Tenant in Landlord's enforcement of the Building Rules.
4.5. COMMON AREA.
Landlord grants Tenant the non-exclusive right, together with all other
occupants of the Building and their agents, employees and invitees, to use the
Common Area during the Term. subject to all Laws. Landlord may, at Landlord's
sole and exclusive discretion, make changes to the Common Area so long as none
of the same unreasonably interfere with Tenant's use or access to the Premises,
the parking or the Property. Landlord's rights regarding the Common Area
include, but are not limited to, the right to (a) restrain unauthorized persons
from using the Common Area; (b) place permanent or temporary kiosks, displays,
carts or stands in the Common Area and to lease the same to tenants; (c)
temporarily close any portion of the Common Area so long as none of the same
interfere with Tenant's use of the Premises or unreasonably interfere with
Tenant's access to the Premises; (i) for repairs, improvements or Alterations.
(ii) to discourage unauthorized use, (iii) to prevent dedication or prescriptive
rights so long as none of the same interfere with Tenant's use or access to the
Premises, the parking or the Property, or (iv) for any other reason Landlord
deems sufficient in Landlord's judgment; (d) change the shape and size of the
Common Area; (e) add, eliminate or change the location of any improvements
located in the Common Area and construct buildings or other structures in the
Common Area; and (f) subject to the provisions of Section 4.4 hereof, impose and
revise Building Rules concerning use of the Common Area, including any parking
facilities comprising a portion of the Common Area.
4.6. SIGNS.
4.6.1. ENTRY AND DIRECTORY SIGNAGE.
Landlord will provide to Tenant (a) one building standard tenant
identification sign adjacent to the entry door of each floor of the Building on
which the Premises is located ("ENTRY SIGNAGE"), and (b) that number of standard
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building directory listings ("DIRECTORY LISTINGS") for Tenant and its employees
at the Building that is in that proportion to directory listings for other
tenants of the Building equal to the ratio of the RSF of Premises to the office
space RSF of the Building. The Entry Signage for those portions of the Premises,
if any, that are not occupying an entire floor of the Building will conform to
Landlord's sign criteria. For that Entry Signage that is for those portions of
the Premises that occupy an entire floor of the Building, if such Entry Signage
is different that Landlord's sign criteria, the excess cost of providing such
different Entry Signage shall be at Tenant's sole cost and expense. At Tenant's
sole cost and expense, Tenant will maintain the Entry Signage in good condition
and repair during the Term. Except for the Building Signage as hereafter
provided, Tenant will not install or permit to be installed in the Premises any
other sign, decoration or advertising material of any kind that is visible from
the exterior of the Premises without, in each instance, first obtaining
Landlord's prior written approval, which approval shall not be unreasonably
withheld or delayed. Landlord may immediately remove, at Tenant's sole cost and
expense, any sign, decoration or advertising material that violates this
Section. Landlord, as part of the Operating Expenses, will maintain the
Directory Listings.
4.6.2. BUILDING SIGNAGE.
On the terms that are in compliance with Laws, Tenant may designate and
thereafter construct and install up to three (3) signs (or such lesser number
permitted by the applicable Laws) containing its name and logo to be located on
the exterior facade of the Building in the place so designated by Tenant as
aforesaid ("BUILDING SIGNAGE"). Except for that portion of the exterior of the
Building below the third floor thereof, Landlord shall not allow any other
signage, except the Building Signage, to be located on the exterior of the
Building Notwithstanding the foregoing, the size, shape, visibility, text, name,
script, manner of illumination and affixing to the Building of the Building
Signage shall be subject to Landlord's prior written approval, which approval
shall not be unreasonably withheld or delayed. During the Term, at Tenant's sole
cost and expense, and subject to Landlord's prior written approval, which
approval shall not be unreasonably withheld or delayed. Tenant may change the
name or logo of the Building Signage to reflect changes in Tenant's name and
logo. No sublessee of all or any of Tenant's rights under this Lease shall have
any rights in or to the Building Signage.
The cost of constructing and affixing the Building Signage on or prior to
the Commencement Date may, at Tenant's election, be paid solely by Tenant or, to
the extent there is available Initial Allowance applicable therefor. be paid by
Landlord as part of the Initial Allowance. At Tenant's sole cost and expense.
the Building Signage shall be removed from the Building at the end or earlier
expiration of the Term and Tenant shall repair any damage to the Building caused
by the affixing and removal thereof to the reasonable satisfaction of Landlord.
Notwithstanding the foregoing, Landlord acknowledges that the removal of the
Building Signage may leave a "shadow" on the Building, which "shadow" Tenant
shall not be required to eliminate. For purposes of Tenant's obligation of
repair and maintenance set forth in Section 72 hereof, the Building Signage
shall be deemed a part of the Premises.
ARTICLE 5.
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HAZARDOUS MATERIALS
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5.1 COMPLIANCE WITH HAZARDOUS MATERIALS LAWS.
Tenant will not cause any Hazardous Material to be brought upon, kept or
used on the Property in a manner or for a purpose prohibited by or that could
result in liability under any Hazardous Materials Law. Tenant, at its sole cost
and expense, will comply with all Hazardous Materials Laws and prudent industry
practice relating to the presence, treatment, storage, transportation, disposal,
release or management of Hazardous Materials in, on. under or about the Property
required for Tenant's use of the Premises and will notify Landlord of any and
all Hazardous Materials Tenant brings upon, keeps or uses on the Property (other
than small quantities of office cleaning or other office supplies as are
customarily used by a tenant in the ordinary course in a general office
facility). On or before the expiration or earlier termination of this Lease,
Tenant, at its sole cost and expense, will completely remove from the Property
(regardless whether any Hazardous Materials Law requires removal), in compliance
with all Hazardous Materials Laws, all Hazardous Materials Tenant causes to be
present in, on, under or about the Property. Tenant will not take any remedial
action in response to the presence of any Hazardous Materials in on, under or
about the Property, nor enter into any settlement agreement, consent decree or
other compromise with respect to any Claims relating to or in any way connected
with Hazardous Materials in, on, under or about the Property, without first
notifying Landlord of Tenant's intention to do so and affording Landlord
reasonable opportunity to investigate, appear, intervene and otherwise assert
and protect Landlord's interest in the Property.
5.2. NOTICE OF ACTIONS.
Tenant will notify Landlord of any of the following actions affecting
Landlord, Tenant or the Property that result from or in any way relate to
Tenant's use of the Property immediately after receiving Notice of the same: (a)
any enforcement, clean-up, removal or other governmental or regulatory action
instituted, completed or threatened under any Hazardous Materials Law; (b) any
Claim made or threatened by any person relating to damage. contribution.
liability, cost recovery, compensation, loss or injury resulting from or claimed
to result from any Hazardous Material; and (c) any reports made by any person,
including Tenant, to any environmental agency relating to any Hazardous
Material, including any complaints, notices, warnings or asserted violations.
Tenant will also deliver to Landlord, as promptly as possible and in any event
within five Business Days after Tenant first receives or sends the same, copies
of all Claims, reports, complaints, notices, warnings or asserted violations
relating in any way to the Premises or Tenant's use of the Premises. Upon
Landlord's written request. Tenant will promptly deliver to Landlord
documentation acceptable to Landlord reflecting the legal and proper disposal of
all Hazardous Materials removed or to be removed from the Premises. All such
documentation will list Tenant or its agent as a responsible party and will not
attribute responsibility for any such Hazardous Materials to Landlord or
Property Manager.
5.3. DISCLOSURE AND WARNING OBLIGATIONS.
Tenant acknowledges and agrees that all reporting and warning obligations
required under Hazardous Materials Laws resulting from or in any way relating to
Tenant's actions in brining Hazardous Materials onto, or using Hazardous
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Materials on or in the Premises or Property are Tenant's sole responsibility,
regardless whether the Hazardous Materials Laws permit or require Landlord to
report or warn.
5.4. INDEMNIFICATION.
Tenant will indemnify, defend, protect and hold harmless the Landlord
Parties from and against any and all Claims whatsoever arising or resulting, in
whole or in part, directly or indirectly, from the presence, treatment, storage,
transportation, disposal, release or management of Hazardous Materials in, on,
under, upon or from the Property (including water tables and atmosphere)
resulting from or in any way related to Tenant's actions in brining Hazardous
Materials onto, or using Hazardous Materials on or in the Premises or Property.
Tenant's obligations under this Section include, without limitation and whether
foreseeable or unforeseeable, (a) the costs of any required or necessary repair,
clean-up, detoxification or decontamination of the Property; (b) the costs of
implementing any closure, remediation or other required action in connection
therewith as stated above; and (c) consultants fees, experts' fees and response
costs. The obligations of Tenant under this Section survive the expiration or
earlier termination of this Lease.
5.5 LANDLORD'S REPRESENTATION.
Landlord represents and warrants to Tenant that (i) Landlord, except in
compliance with Hazardous Materials Laws, has not caused or knowingly permitted
any Hazardous Materials to be brought upon the Property or used in the
construction of the Improvements, and (ii) as of the date of this Lease, to the
best of Landlord's knowledge, except as disclosed in that certain environmental
report entitled Phase I Environmental Assessment, dated July 11, 1997, prepared
by Engineering Consulting Services, LTD., there exists no Hazardous Materials
in, on or under the Property. For the purposes of this Section 5.5, "Landlord's
knowledge" shall mean the actual, and not imputed, knowledge of Joseph R.
Rauenhorst, James Lee and Scott Brody.
ARTICLE 6.
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SERVICES
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6.1. LANDLORD'S OBLIGATIONS.
Landlord will provide the following services in a manner and of a quality
in which such services are provided in first-class office buildings in the
Merrifield and Tysons Corner. Virginia area, the costs of which are Operating
Expenses, except to the extent excluded therefrom pursuant to the provisions of
this Lease:
6.1.1. JANITORIAL SERVICE.
Janitorial service in the Premises, five nights per week (except on
Holidays) after Business Hours, including cleaning, trash removal, vacuuming,
maintaining towels, tissue and other restroom supplies and such other work in
accordance with the specifications attached hereto as EXHIBIT "J" pertaining to
janitorial specifications.
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6.1.2. ELECTRICAL ENERGY
Electrical energy to the Premises for lighting and for operating office
machines for general office use. Electrical energy will be sufficient for Tenant
to operate personal computers and other equipment of similar low electrical
consumption, but will not be sufficient for lighting in excess of two (2) watts
per RSF installed or for electrical convenience outlets in excess of six (6)
watts per RSF installed. Tenant will not use any equipment requiring electrical
energy in excess of the above standards without receiving Landlord's prior
written consent, which consent Landlord will not unreasonably withhold but may
condition on Tenant paying all costs of installing the equipment and facilities
necessary to furnish such excess energy and an amount equal to the average cost
per unit of electricity for the Building applied to the excess use as reasonably
determined either by an engineer selected by Landlord or by submeter. As part of
Operating Expenses, Landlord will replace all light bulbs and tubes, ballasts
and starters within the Premises and other tenant premises within the Building.
6.1.3. HEATING, VENTILATION AND AIR CONDITIONING.
During Business Hours, except on Holidays, heating, ventilation and air
conditioning to the Premises in accordance with the specifications attached
hereto as EXHIBIT "J" pertaining to HVAC. During other times, Landlord will
provide heat and air conditioning upon Tenant's reasonable advance Notice (not
less than twelve (12) hours). Tenant will pay Landlord, as Additional Rent, for
such extended service on an hourly basis at Landlord's actual direct costs for
personnel and electricity. If extended service is not a continuation of the
service Landlord furnished during Business Hours, Landlord may require Tenant to
pay for a minimum of two (2) hours of such service. In addition, Landlord shall
provide the indoor air quality in accordance with the specifications attached
hereto as EXHIBIT "J" pertaining to indoor air quality.
6.1.4. WATER.
Hot and cold water from standard building outlets for lavatory, restroom
and drinking purposes.
6.1.5. PASSENGER ELEVATOR SERVICE.
Passenger elevator service to be used by Tenant in common with other
tenants. Landlord may restrict Tenant's use of elevators for freight purposes to
the freight elevator and to hours Landlord reasonably determines, provided,
however, upon request from Tenant. Landlord shall make freight elevator service
available to Tenant at reasonable times during and after Business Hours.
Landlord may limit the number of elevators in operation at times other than
Business Hours, but not less than two (2) passenger elevators shall nonetheless
be available to service the Premises 24-hours per day. 365 days per year during
the Term.
6.1.6. COMMON AREA.
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Maintenance of the Common Area in good order, condition and repair, subject
to all other terms and conditions of this Lease relating to the Common Area.
6.1.7. RE-PAINT AND CARPET CLEANING.
Not more than thirty (30) days before, nor later than thirty (30) days
after a written request made by Tenant within six (6) months before or six (6)
months after the commencement of the sixth (6th) Lease Year. Landlord, at its
sole cost and expense, and not as part of the Operating Expenses, shall cause
two (2) coats of paint to be applied to all painted surfaces in the Premises,
and to shampoo all installed carpeting in the Premises. Such painting and
shampooing shall be done after Business Hours so has to minimize the disruption
to the conduct of Tenant's business in the Premises.
6.1.8. ROOF ANTENNAE.
On the terms that are in compliance with Laws, at its sole cost and
expense. Tenant shall have the non-exclusive right to install satellite dishes,
antennae or other telecommunications equipment for its and its Affiliate's sole
and exclusive use, and not for public broadcast purposes (collectively,
"ANTENNAE"). If Tenant elects to install Antennae, it shall be installed on the
roof of the Building in an area thereof reasonably acceptable to Landlord and
Tenant that is not larger than 20 feet by 25 feet in area. Notwithstanding the
foregoing, the size, shape, visibility, and manner of affixing to the roof of
the Building of the Antennae shall be subject to Landlord's prior written
approval, which approval shall not be unreasonably withheld or delayed. At
Tenant's sole cost and expense, the Antennae shall be removed from the Building
at the end of the Term and Tenant shall repair any damage to the Building caused
by the affixing and removal thereof to the reasonable satisfaction of Landlord
by plugging and sealing the holes, if any. For purposes of Tenant's obligation
of repair and maintenance set forth in Section 7.2 hereof, the Antennae shall be
deemed a part of the Premises.
6.1.9. SECURITY.
Landlord, at Landlord's soles cost and expense, will provide a monitored
card and key access system to the Building and to at least two (2) passenger
elevators of the Building that will permit Tenant access to the Building and the
Premises twenty-four (24) hours a day on each day during the Term. In reasonable
quantity required by Tenant, at Landlord's expense, Landlord shall supply cards
and/or keys to permit access the foregoing system by Tenant and its employees.
The cost of replacing any lost of stolen cards and/or keys shall be paid by
Tenant in the amount then charged by Landlord to other tenants of the Building.
6.1.10. EXERCISE FACILITY.
Twenty-four hours a day on each day in the Term (except for routine
maintenance and replacements), at no cost or expense to Tenant (except for
Tenant's Share of Excess Expenses), Landlord, as part of the Operating Expenses,
shall maintain the Exercise Facility for the use by Tenant, other tenants of the
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Building and their respective employees at the Building. The Exercise Facility
shall contain those amenities set forth on Exhibit "K" attached hereto and made
a part hereof.
6.1.11. FAILURE TO PROVIDE CERTAIN SERVICES - ABATEMENT.
In the event a Service Delay occurs in the nature of an interruption of the
services required by Landlord to be provided pursuant to Sections 6.1.2. 6.1.3
or 6.1.4 that lasts for a period in excess of three (3) consecutive Business
Days, and such interruption was not caused by Tenant, its agents, employees,
contractors or invitees, then in such event the Rent shall abate on a per diem
basis commencing at 12.01 A.M. on the first Business Day following the
expiration of said three (3) Business Day period and ending on the day such
Service Delay to the Premises is restored. If the restoration of such service
occurs after twelve noon or other than on a Business Day, it shall be presumed
that the restoration did not occur until 12:01 A.M. on the next occurring
Business Day.
Notwithstanding the foregoing or any other provision of this Lease, if the
United States government or the State requires that the temperature conditions
of the Building be maintained to a standard other than required pursuant to
Section 6.1.3 hereof, Landlord shall have the right to institute such policies,
programs and measures that are in compliance with such governmental
requirements, and Landlord shall be deemed to be performing its obligations
pursuant to Section 6.1.3.
6.2. TENANT'S OBLIGATIONS.
Tenant is solely responsible for paying directly to the applicable utility
companies, prior to delinquency, all separately metered or separately charged
utilities, if any, to the Premises or to Tenant. Such separately metered or
charged amounts are not Operating Expenses. Except as provided in Sections 6.1
and 17.1, Tenant will also obtain and pay for all other utilities and services
Tenant requires with respect to the Premises (including, but not limited to,
hook-up and connection charges).
6.3. OTHER PROVISIONS RELATING TO SERVICES.
No Service Delay or interruption in, or temporary stoppage of, any of the
services this Article 6 describes is to be deemed an eviction or disturbance of
Tenant's use and possession of the Premises, nor does any interruption or
stoppage relieve Tenant from any obligation this Lease describes (except as
provided in Section 6.1.11), render Landlord liable for damages or entitle
Tenant to any Rent abatement (except as provided in Section 6.1.11); provided,
however, that if any service(s) described in this Lease which is to be provided
by Landlord is suspended, Landlord shall use commercially reasonable efforts to
effect the restoration of such service(s). In no event is Landlord required to
provide any heat, air conditioning, electricity or other service in excess of
that permitted by voluntary or involuntary governmental guidelines or other
Laws. Landlord has the exclusive right and discretion to select the provider of
any utility or service to the Property and to determine whether the Premises or
any other portion of the Property may or will be separately metered or
separately supplied. Provided it does not diminish the obligations of Landlord
to provided the services required pursuant to this Article 6. Landlord reserves
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the right, from time to time, to make reasonable and non-discriminatory
modifications to the above standards for utilities and services.
6.4. TENANT DEVICES.
Tenant will not, without Landlord's prior written consent, use any
apparatus or device in or about the Premises that causes substantial noise or
vibration which is audible or can be felt outside of the Premises. Except for
the Building Signage and Antennae, Tenant will not connect any apparatus or
device to electrical current or water except through the electrical and water
outlets Landlord installs in the Premises.
ARTICLE 7
---------
MAINTENANCE AND REPAIR
----------------------
7.1. LANDLORD'S OBLIGATIONS.
Except as otherwise provided in this Lease, Landlord will repair and
maintain the following in good order, condition and repair: (a) the Common
Areas; (b) the foundations, exterior walls and roof of the Building; and (c) the
electrical, mechanical, plumbing, heating and air conditioning systems,
facilities and components located in the Building and used in common by all
tenants of the Building. Landlord will also maintain and repair windows, doors,
plate glass and the exterior surfaces of walls that are adjacent to Common Area.
Landlord's repair and maintenance costs under this Section 7.1 are Operating
Expenses. Neither Basic Rent nor Additional Rent will be reduced, nor will
Landlord be liable, for loss or injury to or interference with Tenant's
property, profits or business arising from or in connection with Landlord's
performance of its obligations under this Section.
7.2. TENANT'S OBLIGATIONS.
7.2.1. MAINTENANCE OF PREMISES.
Except as otherwise specifically provided in this Lease, Landlord is not
required to furnish any services or facilities, or to make any repairs or
Alterations, in, about or to the Premises or the Property. Except as
specifically described in Section 7.1, Tenant assumes the full and sole
responsibility for the condition, operation, repair, replacement, maintenance
and management of the Premises, except for structural components and for
Building system components serving more than just the Premises that are located
therein. Except as specifically described in Section 7.1, Tenant, at Tenant's
sole cost and expense, will keep and maintain the Premises (including, but not
limited to. all non-structural interior portions. systems and equipment;
interior surfaces of exterior walls; interior moldings, partitions and ceilings;
and interior electrical, lighting and plumbing fixtures) in good order,
condition and repair, reasonable wear and tear and damage from insured
casualties excepted. Tenant will keep the Premises in a neat and sanitary
condition and will not commit any nuisance or waste in, on or about the Premises
or the Property. Tenant is solely responsible for and will, to the fullest
extent allowable under the Laws. indemnify, protect and defend Landlord against
and hold Landlord harmless from, the cost of repairing, and any Claims resulting
from. any penetrations or perforations of the roof or exterior walls of the
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Building Tenant causes. Tenant will maintain the Premises in a first-class and
fully operative condition. Tenant's repairs will be at least equal in quality
and workmanship to the original work and Tenant will make the repairs in
accordance with all Laws.
7.2.2. ALTERATIONS REQUIRED BY LAWS.
If any governmental authority requires any Alteration to the Building or
the Premises as a result of Tenant's particular use of the Premises which is not
applicable to other office leases or as a result of any Alteration to the
Premises made by or on behalf of Tenant or if Tenant's particular use of the
Premises which is not applicable to other office uses subjects Landlord or the
Property to any obligation under any Laws, Tenant will pay the cost of all such
Alterations or the cost of compliance, as the case may be. If any such
Alterations are Structural Alterations, Landlord will make the Structural
Alterations after Tenant deposits with Landlord an amount sufficient to pay the
cost of the Structural Alterations (including, without limitation, reasonable
overhead and administrative costs when Landlord acts as the general contractor
in respect to such Structural Alterations). If the Alterations are not
Structural Alterations. Tenant will make the Alterations at Tenant's sole cost
and expense in accordance with Article 8.
ARTICLE 8.
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CHANGES AND ALTERATIONS
-----------------------
8.1. LANDLORD APPROVAL.
Tenant will not make any Structural Alterations, all of which will be made
by Landlord as provided in Section 7.2.2. Except as hereafter provided, Tenant
will not make any other Alterations without Landlord's prior written consent,
which consent Landlord may grant, withhold or condition in its reasonable
discretion. Along with any request for Landlord's consent, Tenant will deliver
to Landlord plans and specifications for the Alterations and names and addresses
of all prospective contractors for the Alterations. Depending on the type of
Alteration for which Landlord's consent is being sought, if Landlord reasonably
deems it necessary, as a condition to Landlord's approval, Landlord may require
the review of the proposed plans and specifications by a third party
consultant(s) or by qualified employees of the property manager, if any. The
reasonable costs and expenses incurred by Landlord to third party consultants
(including affiliated property managers, but only if the salary of such property
manager's employee making the review is not a part of Operating Expenses) shall
be paid by Tenant. Landlord itself shall not charge a fee for its review of the
proposed Alteration plans and specifications. If Landlord approves the proposed
Alterations, Tenant will, before delivering or accepting delivery of any
materials to be used in connection with the Alterations, deliver to Landlord for
Landlord's reasonable approval copies of all contracts, proof of insurance
required by Section 8.2, copies of any contractor safety programs, copies of all
necessary permits and licenses and such other information relating to the
Alterations as Landlord reasonably requests. For those Alterations requiring
Landlord's consent. Tenant will not commence the Alterations before obtaining
Landlord's approval. Tenant will construct all approved Alterations or cause all
approved Alterations to be constructed (a) promptly by a contractor Landlord
approves in writing in Landlord's reasonable discretion, (b) in a good and
workmanlike manner. (c) in compliance with all Laws, (d) in accordance with all
orders, rules and regulations of the Board of Fire Underwriters having
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jurisdiction over the Premises and any other body exercising similar functions,
and (e) in full compliance with all of Landlord's rules and regulations
applicable to third party contractors, subcontractors and suppliers performing
work at the Property which are generally applicable to all office tenants of the
Building and which are reasonable in content. Notwithstanding the foregoing,
provided no Structural Alterations are required, Tenant shall not be required to
obtain Landlord's prior written consent for (i) Alterations consisting of
painting, other wall coverings or installing or replacing floor coverings, and
(ii) other Alterations (excluding Structural Alterations) the reasonably
estimated costs of which does not exceed $25,000.00 in the aggregate of
reasonably concurrent Alterations.
8.2. TENANT'S RESPONSIBILITY FOR COST AND INSURANCE.
Tenant will pay the cost and expense of all Alterations, requested
Structural Alterations or Structural Alterations required pursuant to Section
7.2.2, including reasonable costs and expenses incurred by Landlord to third
party consultants for review, inspection and engineering time, and for any
painting, restoring or repairing of the Premises or the Building the Alterations
occasion. If the property manager's employee (regardless whether the property
manager is an affiliate of Landlord) undertakes the foregoing review or
inspection of Alterations. Tenant shall pay the cost and expense of such
property manager's employee's review or inspection, but only if the salary of
such employee is not a part of Operating Expenses.
Prior to commencing those Alterations that require Landlord's prior written
consent as provided in Section 8.1, Tenant will deliver the following to
Landlord in form and amount reasonably satisfactory to Landlord: (a) demolition
(if applicable) and payment and performance bonds, (b) builder's "all risk"
insurance in an amount at least equal to the replacement value of the Property
(excluding the Land, foundation, grading costs and excavation costs), (c) public
liability insurance insuring against construction related risks, and (d) copies
of all applicable contracts and of all necessary permits and licenses. The
insurance policies described in clauses (b) and (c) of this Section must name
Landlord, Landlord's lender (if any) and Property Manager as additional
insureds.
8.3. CONSTRUCTION OBLIGATIONS AND OWNERSHIP.
Landlord may inspect construction of the Alterations. Immediately after
completing those Alterations that require Landlord's prior written consent as
provided in Section 8.1, Tenant will furnish Landlord with contractor
affidavits, full and final lien waivers and receipted bills covering all labor
and materials expended and used in connection with such Alterations. Tenant will
remove any Alterations Tenant constructs in violation of this Article 8 within
ten (10) days after Landlord's written request. All Alterations Tenant makes or
installs (including all telephone, computer and other wiring and cabling located
within the walls of and outside the Premises, but excluding Tenant's movable
trade fixtures, furniture and equipment) become the property of Landlord upon
installation and. unless Landlord requires Tenant to remove the Alterations as
hereafter provided. Tenant will surrender the Alterations to Landlord upon the
expiration or earlier termination of this Lease at no cost to Landlord. Tenant,
upon submitting its request to Landlord to make Alterations as provided in
Section 8.1. shall have the right to request therein that Landlord specify
whether and to what extent Landlord will require Tenant to remove the
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Alterations in questions at the expiration or earlier termination of this Lease.
If Tenant shall fail to request such information in its request to make
Alterations, such right shall be deemed null and void as to the Alterations in
questions, and all such Alterations shall thereafter be subject to the exercise
of Landlord's rights and to Tenant's obligations set forth in this Section 8.3.
If Tenant submits its request for such information in accordance with the
foregoing provisions and Landlord consents to the Alterations requested,
Landlord shall, together with its consent, specify in writing whether and to
what extent it will require Tenant to remove the Alterations in questions at the
expiration or earlier termination of this Lease. If Landlord fails to so
specify, Tenant shall have no further obligation to remove the Alterations which
were the subject of Tenant's request. In no event shall Tenant be obligated to
remove the Initial Improvements, cabling, wiring, or Expansion Improvements or
First Notice Space Improvements, if the Expansion Improvements and First Notice
Space Improvements are reasonably similar to the Initial Improvements as
provided in Section 1.2.8.
8.4. LIENS.
Tenant will keep the Property free from any mechanics', materialmens',
designers' or other liens arising out of any work performed, materials furnished
or obligations incurred by or for Tenant or any person or entity claiming by,
through or under Tenant. Tenant will notify Landlord in writing ten (10) days
prior to commencing any Alterations in order to provide Landlord the opportunity
to record and post notices of non-responsibility or such other protective
notices available to Landlord under the Laws. If any such liens are filed and
Tenant, within thirty (30) days after such filing, does not (i) release the same
of record, (ii) provide Landlord with a bond or other surety satisfactory to
Landlord protecting Landlord and the Property against such liens, or (iii) cause
Landlord's owner's title insurance policy and the lender's title insurance
policy of the holder of any Mortgage to be endorsed against such lien, in form
and content reasonably acceptable to Landlord and such holder, Landlord may,
without waiving its rights and remedies based upon such breach by Tenant and
without releasing Tenant from any obligation under this Lease, cause such liens
to be released by any means Landlord deems proper. including, but not limited
to, paying the claim giving rise to the lien or posting security to cause the
discharge of the lien. In such event, Tenant will reimburse Landlord, as
Additional Rent, for all amounts Landlord pays (including, without limitation,
reasonable attorneys' fees and costs).
8.5. INDEMNIFICATION.
To the fullest extent allowable under the Laws, Tenant will indemnify,
protect, defend and hold harmless the Landlord Parties and the Property from and
against any Claims arising directly out of any Alterations or any other work
performed, materials furnished or obligations incurred by or for Tenant or any
person or entity claiming by, through or under Tenant.
ARTICLE 9.
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RIGHTS RESERVED BY LANDLORD
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9.1. LANDLORD'S ENTRY.
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Landlord and its authorized representatives may at all reasonable times and
upon reasonable notice to Tenant enter the Premises to: (a) inspect the
Premises; (b) within the last nine (9) months of the Term, show the Premises to
prospective tenants: (c) show the Premises to prospective purchasers and
mortgagees: (d) if the statutes of the State permit, post notices of
non-responsibility or other protective notices available under the Laws; or (e)
exercise and perform Landlord's rights and obligations under this Lease.
Landlord may in the event of any emergency enter the Premises without notice to
Tenant. Landlord's entry into the Premises is not to be construed as a forcible
or unlawful entry into, or detainer of. the Premises or as an eviction of Tenant
from all or any part of the Premises. Tenant will also permit Landlord (or its
designees) to erect, install, use, maintain, replace and repair pipes, cables,
conduits, plumbing and vents, and telephone, electric and other wires or other
items, in, to and through the Premises if Landlord determines that such
activities are necessary or appropriate for properly operating and maintaining
the Building so long as any of the same are installed above the ceiling, beyond
the walls or below the slab of the Premises and there is no unreasonable
interference with Tenant's business operations in the Premises. Notwithstanding
the foregoing, Tenant shall be permitted to maintain the entries to the PDC
locked and to maintain certain other locked facilities within the Premises
("SCIFF SPACE") if Tenant notifies Landlord of the location of such SCIFF Space
prior to locking-off such areas, in which case Landlord shall not enter the PDC
or the SCIFF Space without being accompanied by a representative of Tenant, and
Tenant shall provide Landlord with the names of persons whom Landlord may
contact in the event of an emergency requiring access to the Premises outside of
Business Hours.
9.2. CONTROL OF PROPERTY.
Landlord reserves all rights respecting the Property and Premises not
specifically granted to Tenant under this Lease, including, without limitation,
the right to: (a) except as hereafter provided, change the name or street
address of the Building; (b) subject to the provisions of Section 4.6, designate
and approve all types of signs, window coverings, internal lighting and other
aspects of the Premises and its contents that may be visible from the exterior
of the Premises; (c) grant any party the exclusive right to conduct any business
or render any service in the Building, provided such exclusive right to conduct
any business or render any service in the Building does not prohibit Tenant from
any permitted use for which Tenant is then using the Premises; (d) prohibit
Tenant's installation of vending or dispensing machines of any kind in or about
the Premises other than those Tenant installs in the Premises solely for use by
Tenant's employees and business invitees; (e) close the Building after Business
Hours, except that Tenant and its employees and invitees may access the Premises
at all times in accordance with such rules and regulations as Landlord may
prescribe from time to time for security purposes; (f) install, operate and
maintain security systems that monitor, by closed circuit television or
otherwise, all persons entering or leaving the Building; (g) subject to the
provisions of Section 9.1 install and maintain pipes, ducts, conduits, wires and
structural elements in the Premises that serve other parts or other tenants of
the Building; and (h) subject to the provisions of Section 9.1, retain and
receive master keys or pass keys to the Premises and all doors in the Premises.
Notwithstanding the foregoing, or the provision of any security-related services
by Landlord. Landlord is not responsible for the security of persons or property
on the Property and Landlord is not and will not be liable in any way whatsoever
for any breach of security not solely and directly caused by the negligence or
willful misconduct of Landlord, its agents or employees. Notwithstanding the
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provisions of clause (a) above, Landlord shall not name the Building for any
other tenant or other party. In addition, if the name or street address of the
Building is changed for reasons other than a governmental requirement, Landlord
shall give Tenant ninety (90) days prior written notice of such change and
Landlord shall reimburse Tenant for the reasonable out-of-pocket cost incurred
by Tenant for reprinting Tenant's stationary that includes the name or address
of the Building
9.3. LOCK BOX.
Landlord may, from time to time, designate a lock box collection agent to
collect Rent. In such event, Tenant's payment of Rent to the lock box collection
agent is deemed to have been made (a) as of the date the lock box collection
agent receives Tenant's payment (if the payment is not dishonored for any
reason); or (b) if Tenant's payment is dishonored for any reason, the date
Landlord collects the payment. Neither Tenant's payment of any amount of Rent to
the lock box collection agent nor Landlord's collection of such amount if the
payment is dishonored constitutes Landlord's waiver of any default by Tenant in
the performance of Tenant's obligations under this Lease or Landlord's waiver of
any of Landlord's rights or remedies under this Lease. If Tenant pays any amount
to the lock box collection agent other than the actual amount due Landlord, then
Landlord's receipt or collection of such amount does not constitute an accord
and satisfaction, Landlord is not prejudiced in collecting the proper amount due
Landlord and Landlord may retain the proceeds of any such payment, whether
restrictively endorsed or otherwise, and apply the same toward amounts due and
payable by Tenant under this Lease.
ARTICLE 10.
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INSURANCE
---------
10.1. TENANT'S INSURANCE OBLIGATIONS.
Tenant will at all times during the Term and during any early occupancy
period. at Tenant's sole cost and expense, maintain the insurance this Section
10.1 describes.
10.1.1. LIABILITY INSURANCE.
Commercial general liability insurance (providing coverage at least as
broad as the current ISO form) with respect to the Premises and Tenant's
activities in the Premises and upon and about the Property, on an "occurrence"
basis, with minimum limits of $1,000,000 each occurrence and $3,000,000 general
aggregate. Such insurance must include specific coverage provisions or
endorsements (a) for broad form contractual liability insurance insuring
Tenant's obligations under this Lease; (b) naming Landlord and Property Manager
as additional insureds by an "Additional Insured - Managers or Lessors of
Premises" endorsement (or equivalent coverage or endorsement); (c) waiving the
insurer's subrogation rights against all Landlord Parties: (d) providing
Landlord with at least thirty (30) days prior notice of cancellation or
expiration; and (e) expressly stating that Tenant's insurance will be provided
on a primary basis and will not contribute with any insurance Landlord
maintains. If Tenant provides such liability insurance under a blanket policy,
the insurance must be made specifically applicable to the Premises and this
Lease on a "per location" basis.
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10.1.2 PROPERTY INSURANCE
Property insurance providing coverage at least as broad as the current ISO
Special Form ("all-risks") policies in an amount not less than the full
insurable replacement cost of all of Tenant's trade fixtures and other personal
property within the Premises and including business income insurance covering at
least nine months loss of income from Tenant's business in the Premises. If
Tenant provides such property insurance under a blanket policy, the insurance
must include "agreed amount, no coinsurance" provisions.
10.1.3. OTHER INSURANCE.
Such other insurance as may be required by any Laws from time to time or
may reasonably be required by Landlord from time to time. If insurance
obligations generally required of tenants in similar space in similar office
buildings in the area in which the Premises is located increase or otherwise
change, Landlord may likewise increase or otherwise change Tenant's insurance
obligations under this Lease.
10.1.4. MISCELLANEOUS INSURANCE PROVISIONS.
All of Tenant's insurance will be written by companies rated at least "Best
A-VII" and otherwise reasonably satisfactory to Landlord. Tenant will deliver a
certified copy of each policy, or a certificate of insurance or other evidence
of insurance reasonably satisfactory to Landlord, (a) on or before the
Commencement Date (and prior to any earlier occupancy by Tenant), (b) not later
than thirty (30) days prior to the expiration of any current policy or
certificate, and (c) at such other times as Landlord may reasonably request. If
Tenant provides evidence of insurance by certificate, Tenant will deliver an
ACCORD Form 27 certificate and will attach or cause to be attached to the
certificate copies of the endorsements this Section 10.1 requires (including
specifically, but without limitation, the "additional insured" endorsement).
Tenant's insurance must permit releases of liability as provided in Section
10.1.5 and must provide for waiver of subrogation.
10.1.5. TENANT'S WAIVER AND RELEASE OF CLAIMS AND SUBROGATION.
To the extent not prohibited by the Laws, Tenant, on behalf of Tenant and
its insurers, waives, releases and discharges the Landlord Parties from all
Claims arising out of personal injury or damage to or destruction of the
Premises. Property or Tenant's trade fixtures, other personal property or
business, and any loss of use or business interruption, occasioned by any fire
or other casualty or occurrence whatsoever (whether similar or dissimilar),
regardless whether any such Claim results from the negligence or fault of any
Landlord Party or otherwise, and Tenant will look only to Tenant's insurance
coverage (regardless whether Tenant maintains any such coverage) in the event of
any such Claim. Tenant's trade fixtures, other personal property and all other
property in Tenant's care, custody or control, is located at the Property at
Tenant's sole risk, except as otherwise herein provided. Landlord is not liable
for any damage to such property or for any theft, misappropriation or loss of
such property. Tenant is solely responsible for providing such insurance as may
be required to protect Tenant, its employees and invitees against any injury,
loss, or damage to persons or property occurring in the Premises or at the
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Property, including, without limitation, any loss of business or profits from
any casualty or other occurrence at the Property.
10.1.6. NO LIMITATION.
Landlord's establishment of minimum insurance requirements is not a
representation by Landlord that such limits are sufficient and does not limit
Tenant's liability under this Lease in any manner.
10.2. LANDLORD'S INSURANCE OBLIGATIONS.
Landlord will (except for the optional coverages and endorsements Section
10.2.1 describes) at all times during the Term maintain the insurance this
Section 10.2 describes. All premiums and other costs and expenses Landlord
incurs in connection with maintaining such insurance are Operating Expenses.
10.2.1. PROPERTY INSURANCE.
Property insurance on the Building (inclusive of the Initial Improvements,
Expansion Improvements, if any, and First Notice Space Improvements, if any) in
an amount not less than the full insurable replacement cost thereof (excluding
foundation, grading and excavation costs) insuring against loss or damage by
fire and such other risks as are customarily covered with respect to buildings
and improvements similar in construction, general location, use, occupancy and
design to the Building, including, but not limited to, windstorm, hail,
explosion, vandalism, riot and civil commotion. Landlord may, at its option,
obtain such additional coverages or endorsements as Landlord deems appropriate
or necessary, including, without limitation, business income and rents
insurance, earthquake insurance, flood insurance, and other coverages. Landlord
may maintain such insurance in whole or in part under blanket policies. Such
insurance will not cover or be applicable to any property of Tenant within the
Premises or otherwise located at the Property.
10.2.2. LIABILITY INSURANCE.
Commercial general liability insurance against Claims for bodily
injury, personal injury, and property damage occurring at the Property in such
amounts as are comparable coverages for Comparable Buildings. Such liability
insurance will protect only Landlord and, at Landlord's option, some or all of
the Landlord Parties, and does not replace or supplement the liability insurance
this Lease obligates Tenant to carry.
10.2.3. LANDLORD'S WAIVER AND RELEASE OF CLAIMS AND SUBROGATION.
To the extent not expressly prohibited by the Laws, Landlord, on behalf of
Landlord and its insurers, waives, releases and discharges Tenant from all
claims or demands whatsoever arising out of damage to or destruction of the
Property, or loss of use of the Property, occasioned by fire or other casualty
or occurrence whatsoever (whether similar or dissimilar), regardless whether any
such claim or demand results from the negligence or fault of Tenant or any of
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its employees, or otherwise. Landlord's policy or policies of property insurance
will permit releases of liability as provided in this Section and will provide
for waiver of subrogation as to tenants of the property.
10.3. TENANT'S INDEMNIFICATION OF LANDLORD.
In addition to Tenant's other indemnification obligations in this Lease and
except as specifically set forth in Section 10.1, Tenant will, to the fullest
extent allowable under the Laws, indemnify, protect, defend and hold harmless
the Landlord Parties from and against all Claims arising from (a) any act,
omission, negligence or misconduct of Tenant, and (b) any accident, injury,
occurrence or damage in, about or to the Premises and, to the extent caused in
whole or in part by Tenant, the Property.
10.4. INTENTIONALLY DELETED
10.5. TENANT'S FAILURE TO INSURE.
Notwithstanding any contrary language in this Lease and any notice and cure
rights this Lease provides Tenant, if Tenant fails to provide Landlord with
evidence of insurance as required under Section 10.1, Landlord may assume that
Tenant is not maintaining the insurance Section 10.1 requires Tenant to maintain
and Landlord may, but is not obligated to, with concurrent notice to Tenant, but
without waiving or releasing Tenant from any obligation contained in this Lease,
obtain such insurance for Landlord's benefit. In such event, Tenant will pay to
Landlord, as Additional Rent, the reasonable premiums for such insurance, minus
any cancellation refund received by Landlord upon the satisfaction of Tenant's
obligations pursuant to Section 10.1. Landlord's exercise of its rights under
this Section does not relieve Tenant from any default under this Lease that is
not cured within the applicable cure period provided herein.
ARTICLE 11.
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DAMAGE OR DESTRUCTION
---------------------
11.1 TENANTABLE WITHIN 200 DAYS.
Except as provided in Section 11.3, if fire or other casualty renders the
whole or any material part of the Premises untenantable and Landlord expects (in
Landlord's reasonable discretion) to make the Premises tenantable within two
hundred (200) days after the date of the casualty, then Landlord will notify
Tenant that Landlord will repair and restore the Building and the Premises to as
near their condition prior to the casualty as is reasonably possible within the
two hundred (200) day period (subject to delays caused by Force Majeure. Tenant
Delays or Change Orders). Landlord will provide the Notice within thirty (30)
days after the date of the casualty. In such case, this Lease remains in full
force and effect, but Basic Rent and Tenant's Share of Excess Expenses for the
period during which the Premises are untenantable abates pro rata (based upon
the RSF of the untenantable portion of the Premises as compared with the RSF of
the entire Premises).
11.2. NOT TENANTABLE WITHIN 200 DAYS.
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If fire or other casualty renders the whole or any material part of the
Premises untenantable and Landlord does not expect (in Landlord's reasonable
discretion) to make the Premises tenantable within two hundred (200) days after
the date of the casualty, then Landlord will so notify Tenant within thirty (30)
days after the date of the casualty and may, in such Notice, terminate this
Lease effective on the date thirty (30) days after the date of Landlord's
Notice. If Landlord does not terminate this Lease as provided in this Section,
Tenant may terminate this Lease by notifying Landlord within thirty (30) days
after the date of Landlord's Notice, which termination will be effective thirty
(30) days after the date of Landlord's Notice or thirty (30) days after the date
of Tenant's Notice, at Tenant's Option.
11.3. BUILDING SUBSTANTIALLY DAMAGED.
If the Building is damaged or destroyed by fire or other casualty
(regardless whether the Premises is affected) and the damage reduces the value
of the improvements on the Property by more than 50% (as Landlord reasonably
determines value before and after the casualty), regardless whether Landlord
expects that it could make the Building tenantable within two hundred (200) days
after the date of the casualty, then Landlord may, at Landlord's option, by
notifying Tenant within thirty (30) days after the casualty, terminate this
Lease effective on the date one hundred eighty (180) days after the date of
Landlord's termination Notice.
11.4. INTENTIONALLY DELETED.
11.5. LANDLORD'S REPAIR OBLIGATIONS.
If this Lease is not terminated under Sections 11.1 through 11.3 following
a fire or other casualty, then Landlord will repair and restore the Premises
(except as hereafter provided in this Section 11.5) and the Building to as near
their condition prior to the fire or other casualty as is reasonably possible
with all commercially reasonable diligence and speed (subject to delays caused
by Force Majeure. Tenant Delays or Change Orders) and Basic Rent and Tenant's
Share of Excess Expenses for the period during which the applicable portion of
the Premises are untenantable will abate as hereafter provided. If 30% or more
of a floor within the Premises is damaged by fire or other casualty, the entire
Rent applicable to such floor shall abate as provided in Section 11.6, except
for that portion of such floor in which Tenant continues to conduct its
business. In such event, the Rent for the portion of the damaged floor in which
Tenant continues to conduct its business shall, be pro rata based upon the RSF
of that portion in which Tenant continues to conduct its business as compared
with the RSF of the entire subject floor). In the event any portion of the PDC
or the SCIFF Space is damaged by fire or other casualty, the entire Rent
applicable to the PDC or the SCIFF Space shall abate as provided in Section
11.6, except for that portion of the PDC or SCIFF Space in which Tenant
continues to conduct its business. In such event, the Rent for such portion of
the PDC or SCIFF Space in which Tenant continues to conduct its business shall
be pro rata based upon the RSF of that portion in which Tenant continues to
conduct is business as compared with the RSF, as applicable, of the entire PDC
or SCIFF Space.
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Except for the Initial Improvements, Expansion Improvements and First
Notice Space Improvements, in no event is Landlord obligated to repair or
restore any Alterations that are not covered by Landlord's insurance, any
special equipment or improvements installed by Tenant. any personal property, or
any other property of Tenant. Landlord will equitably adjust Tenant's Share of
Excess Expenses Percentage, subject to Section 3.10, to account for any
reduction in the RSF of the Premises or Building resulting from the casualty.
11.6. RENT APPORTIONMENT.
If either Landlord or Tenant terminates this Lease under this Article 11,
Landlord will apportion Basic Rent and Tenant's Share of Excess Expenses on a
per diem basis and Tenant will pay the Basic Rent and Tenant's Share of Excess
Expenses to (a) the date of the fire or other casualty if the event renders the
Premises completely untenantable or (b) if the event does not render the
Premises completely untenantable, the effective date of such termination
(provided that if a portion of the Premises is rendered untenantable, but the
remaining portion is tenantable, then Tenant's obligation to pay Basic Rent and
Tenant's Share of Excess Expenses abates pro rata as provided in Section 11.5
from the date of the casualty and Tenant will pay the unabated portion of the
Basic Rent to the date of such termination).
11.7. EXCLUSIVE CASUALTY REMEDY.
The provisions of this Article 11 are Tenant's sole and exclusive rights
and remedies in the event of a casualty. To the extent permitted by the Laws,
Tenant waives the benefits of any Law that provides Tenant any abatement or
termination rights (by virtue of a casualty) not specifically described in this
Article 11.
ARTICLE 12.
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EMINENT DOMAIN
--------------
12.1. TERMINATION OF LEASE.
In the event of a Taking of all or any material part of the Premises that
renders any remaining Premises unsuitable for Tenant's intended purposes (as
reasonably determined by Landlord and Tenant), Tenant will so notify Landlord
within thirty (30) days after the Taking and this Lease will terminate as of the
date the Condemning Authority takes possession of the portion of the Premises
taken-or one hundred eighty (180) days after Tenant's notice. which ever is
earlier. Tenant will pay Rent to the date of termination. If a Condemning
Authority takes all or any material part of the Building or if a taking reduces
the value of the Property by 50% or more (as reasonably determined by Landlord),
then Landlord may, at Landlord's option, by notifying Tenant within thirty (30)
days after the date the Condemning Authority takes possession of the portion of
the Property taken, terminate this Lease effective on the date one hundred
eighty (180) days after the date of Landlord's Notice.
12.2. LANDLORD'S REPAIR OBLIGATIONS
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If this Lease does not terminate with respect to the entire Premises under
Section 12.1 and the Taking includes a portion of the Premises, this Lease
automatically terminates as to the portion of the Premises taken as of the date
the Condemning Authority takes possession of the portion taken and Landlord
will, at its sole cost and expense. restore the remaining portion of the
Premises to a complete architectural unit with all commercially reasonable
diligence and speed and will reduce the Basic Rent for the period after the date
the Condemning Authority takes possession of the portion of the Premises taken
to a sum equal to the product of the Basic Rent provided for in this Lease
multiplied by a fraction, the numerator of which is the RSF of the Premises
after the Taking and after Landlord restores the Premises to a complete
architectural unit, and the denominator of which is the RSF of the Premises
prior to the Taking. Landlord will also equitably adjust Tenant's Share of
Excess Expenses Percentage for the same period, subject to Section 3.7, to
account for the reduction in the RSF of the Premises or the Building resulting
from the Taking. Tenant's obligation to pay Basic Rent and Tenant's Share of
Excess Expenses will abate on a proportionate basis with respect to that portion
of the Premises remaining after the Taking that Tenant is unable to use during
Landlord's restoration for the period of time that Tenant is unable to use such
portion of the Premises.
12.3. TENANT'S PARTICIPATION.
Landlord is entitled to receive and keep all damages, awards or payments
resulting from or paid on account of the Taking. Accordingly, Tenant waives and
assigns to Landlord any interest of Tenant in any such damages, awards or
payments. Tenant may prove in any condemnation proceedings and may receive any
separate award for damages to or condemnation of Tenant's movable trade fixtures
and equipment and for moving expenses; provided however, that Tenant has no
right to receive any award for its interest in this Lease or for loss of
leasehold.
12.4. EXCLUSIVE TAKING REMEDY.
The provisions of this Article 12 are Tenant's sole and exclusive rights
and remedies in the event of a Taking. To the extent permitted by the Laws,
Tenant waives the benefits of any Law that provides Tenant any abatement or
termination rights (by virtue of a Taking) not specifically described in this
Article 12.
ARTICLE 13.
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TRANSFERS
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13.1. RESTRICTION ON TRANSFERS.
13.1.1. GENERAL PROHIBITION.
Except as set forth in Section 13.1.2. Tenant will not cause or suffer a
Transfer without obtaining Landlord's prior written consent. which consent shall
not be unreasonably withheld. conditioned or delayed. In addition, at Landlord's
option as hereafter provided. Landlord may recapture the portion of the Premises
that would be affected by such Transfer solely for the period of the proposed
Transfer. If prior to marketing any portion of the Premises for a Transfer
Tenant desires to ascertain whether Landlord intends to so recapture, Tenant
shall notify Landlord, in writing, of the portion of the Premises that will be
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subject to the proposed Transfer and the proposed duration thereof. Landlord,
within fifteen (15) days following Tenant's notice. shall advise Tenant, in
writing, whether Landlord will recapture for the proposed duration or whether
Landlord waives its right to recapture. If Landlord fails to so advise Tenant.
it shall act as notice to Tenant that Landlord has waived its right to
recapture. If Landlord has waived or is deemed to have waived its option to
recapture, but the subject Transfer does not occur within six (six) months after
Tenant's notice or the Transfer involves different portions of the Premises or
is for a different duration, Landlord's option to recapture shall be reinstated.
If Landlord consents to the Transfer, Landlord may impose on Tenant or the
transferee such reasonable conditions as do not increase the obligations or
decrease the rights of Tenant or any sublessee under this Lease. Tenant will, in
connection with requesting Landlord's consent, provide Landlord with a copy of
those documents and that information regarding the proposed Transfer and the
proposed transferee as Landlord reasonably requests. If the Transfer results
from a merger or consolidation, Tenant shall be required to supply to Landlord
only such documents that demonstrate such merger or consolidation occurred,
provided such information shall include, in form and content, reasonably
acceptable to Landlord, the net worth (exclusive of goodwill) of the resultant
entity, determined in accordance with generally accepted accounting principles,
consistently applied. If within thirty (30) days following Tenant's request to
Transfer Landlord fails to advise Tenant whether Landlord consents thereto, it
shall act as notice to Tenant that Landlord has given its consent. No Transfer,
including, without limitation, a Transfer under Section 13.1.2, releases Tenant
from any liability or obligation under this Lease and Tenant remains liable to
Landlord after such a Transfer as a principal and not as a surety. If Landlord
consents to any Transfer, Tenant will pay to Landlord, as Additional Rent, 50%
of any rent Tenant receives on account of the Transfer that is in excess of the
sum of (i) amounts this Lease otherwise requires Tenant to pay, plus (ii) all
reasonable out-of-pocket expenses actually incurred by Tenant to unrelated third
parties, at arms length, in connection with such Transfer. Any attempted
Transfer in violation of this Lease is null and void and constitutes a breach of
this Lease.
13.1.2 TRANSFERS TO AFFILIATES.
Tenant may, without Landlord's consent (provided that Tenant is not in
default in the performance of its obligations under this Lease), cause a
Transfer to an Affiliate if Tenant (a) notifies Landlord at least thirty (30)
days prior to such Transfer; (b) delivers to Landlord, at the time of Tenant's
Notice, current financial statements of Tenant and the proposed transferee that
are reasonably acceptable to Landlord; and (c) the transferee assumes and agrees
in a writing reasonably acceptable to Landlord to perform Tenant's obligations
under this Lease and to observe all terms and conditions of this Lease.
Landlord's right described in Section 13.1.1 to share in any profit Tenant
receives from a Transfer permitted under this Section 13.1.2 and Landlord's
recapture right under Section 13.1.1 does not apply to any Transfer this Section
13.1.3. COSTS.
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Tenant will pay to Landlord, as Additional Rent. all costs and expenses
Landlord incurs in connection with the Transfer reasonable attorneys',
architects', engineers' and accounting fees and costs, regardless whether
Landlord consents to the Transfer.
ARTICLE 14.
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DEFAULTS: REMEDIES
------------------
14.1. EVENTS OF DEFAULT.
The occurrence of any of the following constitutes an "EVENT OF DEFAULT" by
Tenant under this Lease:
14.1.1. FAILURE TO PAY RENT.
Notwithstanding the interest or late payment chargeable by Landlord as
provided in Section 2.3, Tenant's failure to pay Basic Rent, any monthly
installment of Tenant's Share of Excess Expenses or any other Additional Rent or
portion of Rent amount as and when due and such failure continues for ten (10)
days after Landlord notifies Tenant in writing.
14.1.2 FAILURE TO PERFORM.
Tenant falls to perform any of Tenant's nonmonetary obligations under this
Lease and the failure continues for a period of thirty (30) days after Landlord
notifies Tenant of Tenant's failure; provided that if Tenant cannot reasonably
cure its failure within a thirty (30) day period. Tenant's failure is not an
Event of Default if Tenant commences to cure its failure within the thirty (30)
day period and thereafter diligently pursues the cure and effects the cure
within a period of time that does not exceed sixty (60) days after the
expiration of the thirty (30) day period. Notwithstanding any contrary language
contained in this Section 14.1.2. Tenant is not entitled to any notice or cure
period before an uncurable breach of this Lease becomes an Event of Default.
14.1.3. MISREPRESENTATION.
The knowing existence of any material misrepresentation or material
omission in any financial statements, correspondence or other information
provided to Landlord by or on behalf of Tenant in connection with (a) Tenant's
negotiation or execution of this Lease; (b) Landlord's evaluation of Tenant as a
prospective tenant at the Property; (c) any proposed or attempted Transfer; or
(d) any consent or approval Tenant requests under this Lease.
14.1.4. OTHER DEFAULTS.
(a) Tenant makes a general assignment or general arrangement for the
benefit of creditors; (b) a petition for adjudication of bankruptcy or for
reorganization or rearrangement is filed by Tenant; (c) a petition for
adjudication of bankruptcy or for reorganization or rearrangement is filed
against Tenant and is not dismissed within sixty (60) days; (d) a trustee or
receiver is appointed to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease and possession is
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not restored to Tenant within sixty (60) days; or (e) substantially all of
Tenant's assets located at the Premises or Tenant's interest in this Lease is
subjected to attachment, execution or other judicial seizure not discharged
within sixty (60) days. If a court of competent jurisdiction determines that any
act described in this Section does not constitute an Event of Default. and the
court appoints a trustee to take possession of the Premises (or if Tenant
remains a debtor in possession of the Premises) and such trustee or Tenant
transfers Tenant's interest hereunder, then Landlord is entitled to receive, as
Additional Rent, the amount by which the Rent (or any other consideration) paid
in connection with the transfer exceeds the Rent otherwise payable by Tenant
under this Lease.
14.1.5. NOTICE REQUIREMENTS.
The Notices required by this Section 14.1 are intended to satisfy any and
all notice requirements imposed by the Laws and are not in addition to any such
requirements.
14.2. REMEDIES
Upon the occurrence of any Event of Default, Landlord may at any time and
from time to time, and without preventing Landlord from exercising any other
right or remedy, exercise any of the following remedies:
14.2.1. TERMINATION OF TENANT'S POSSESSION/RE-ENTRY AND RELETTING
RIGHT.
Terminate Tenant's right to possess the Premises by any judicial proceeding
with or without terminating this Lease, in which event Tenant will immediately
surrender possession of the Premises to Landlord. In such event, this Lease
continues in full force and effect (except for Tenant's right to possess the
Premises) and Tenant continues to be obligated for and must pay all Rent as and
when due under this Lease. Unless Landlord specifically states that it is
terminating this Lease, Landlord's termination of Tenant's right to possess the
Premises is not to be construed as an election by Landlord to terminate this
Lease or Tenant's obligations and liabilities under this Lease. If Landlord
terminates Tenant's right to possess the Premises. Landlord may, but is not
obligated to, re-enter the Premises and remove all persons and property from the
Premises. Landlord may store any property Landlord removes from the Premises in
a public warehouse or elsewhere at the cost and for the account of Tenant. Upon
such re-entry. Landlord will commence extending commercially reasonable efforts
to relet all or any part of the Premises to a third party-or parties acceptable
to Landlord, all for Tenant's account. Notwithstanding the foregoing, if there
are, at any time during such reletting. vacant portions of the Building,
Landlord's commercially reasonable efforts to relet all or any part of the
Premises shall be subordinate to such other vacant portions of the Building.
Tenant is immediately liable to Landlord for all Re-entry Costs. Landlord may
relet the Premises for a period shorter or longer than the remaining Term. If
Landlord relets all or any part of the Premises. Tenant will continue to pay
Rent when due under this Lease and Landlord will refund to Tenant the Net Rent
Landlord actually receives from the reletting up to a maximum amount equal to
the Rent Tenant paid that came due after Landlord's reletting. If the Net Rent
Landlord actually receives from reletting exceeds such Rent. Landlord will apply
the excess sum to future Rent due under this Lease. Landlord may retain any
surplus Net Rent remaining at the expiration of the Term.
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14.2.2. TERMINATION OF LEASE
Terminate this Lease effective on the date Landlord notifies Tenant of the
termination. Upon termination. Tenant will immediately surrender possession of
the Premises to Landlord. If Landlord terminates this Lease. Landlord may
recover from Tenant and Tenant will pay to Landlord on demand all damages
Landlord incurs by reason of Tenant's default, including, without limitation,
(a) all Rent due and payable under this Lease as of the effective date of the
termination; (b) subject to the limitation provided in Section 14.7 hereof, any
amount necessary to compensate Landlord for any detriment proximately caused
Landlord by Tenant's failure to perform its obligations under this Lease or
which in the ordinary course would likely result from Tenant's failure to
perform, including, but not limited to, any Re-entry Costs, and (c) an amount
equal to the difference between the present worth. as of the effective date of
the termination, of the Rent for the balance of the Term remaining after the
effective date of the termination (assuming no termination) and the present
worth, as of the effective date of the termination, of a fair market Rent for
the Premises for the same period (as Landlord reasonably determines the fair
market Rent). For purposes of this Section, Landlord will compute present worth
by utilizing a discount rate of 8% per annum. Nothing in this Section limits or
prejudices Landlord's right to prove and obtain damages in an amount equal to
the maximum amount allowed by the Laws, regardless whether such damages are
greater than the amounts set forth in this Section.
14.2.3. PRESENT WORTH OF RENT.
Recover from Tenant, and Tenant will pay to Landlord on demand, an amount
equal to the then present worth of the aggregate of the Basic Rent and any other
charges payable by Tenant under this Lease for the unexpired portion of the
Term. Landlord will employ a discount rate of 8% per annum to compute present
worth.
14.3. COSTS.
Tenant will reimburse and compensate Landlord on demand and as Additional
Rent for any actual loss Landlord reasonably incurs in connection with,
resulting from or related to any breach or default of Tenant under this Lease,
whether or not the breach or default constitutes an Event of Default, and
whether or not suit is commenced or judgment is entered. Such loss includes all
reasonable legal fees, costs and expenses (including paralegal fees and other
professional fees and expenses) Landlord incurs investigating, negotiating,
settling or enforcin2 any of Landlord's rights or remedies. Tenant will also
indemnify, defend, protect and hold harmless the Landlord Parties from and
against all Claims Landlord or any of the other Landlord Parties incurs if
Landlord or any of the other Landlord Parties becomes or is made a party to any
claim or action (a) instituted by Tenant or by or against any person holding any
interest in the Premises by, under or through Tenant; (b) for foreclosure of any
lien for labor or material furnished to or for Tenant or such other person: or
(c) otherwise arising out of or resulting from any act or omission of Tenant or
such other person. In addition to the foregoing, Landlord is entitled to
reimbursement of all of Landlord's fees, expenses and damages, including, but
not limited to, reasonable attorneys' fees and paralegal and other professional
fees and expenses. Landlord incurs in connection with protecting its interests
in any bankruptcy or insolvency proceeding involving Tenant or the Premises,
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including, without limitation, any proceeding under any chapter of the
Bankruptcy Code; by exercising and advocating rights under Section 365 of the
Bankruptcy Code; by proposing a plan of reorganization and objecting to
competing plans; and by filing motions for relief from stay. Such fees and
expenses are payable on demand, or. in any event, upon assumption or rejection
of this Lease in bankruptcy.
14.4. NO WAIVER.
No failure by Landlord or Tenant to insist upon the other's performance of
any of the terms of this Lease or to exercise any right or remedy consequent
upon a breach thereof, and no acceptance by Landlord of full or partial Rent
from Tenant or any third party during the continuance of any such breach,
constitutes a waiver of any such breach or of any breach or default by the other
party in its performance of its obligations under this Lease. None of the terms
of this Lease to be kept, observed or performed by Landlord or Tenant, and no
breach thereof, are waived, altered or modified except by a written instrument
executed by Landlord and Tenant. No waiver of any default of either party in the
performance of its obligations under this Lease may be implied from any omission
by either party to take any action on account of such default. One or more
waivers by either party is not to be construed as a waiver of a subsequent
breach of the same covenant, term or condition. No statement on a payment check
from Tenant or in a letter accompanying a payment check is binding on Landlord.
Landlord may, with or without notice to Tenant, negotiate such check without
being bound to the conditions of any such statement.
14.5. WAIVER AND RELEASE BY TENANT.
Tenant waives and releases all Claims Tenant may have resulting from
Landlord's re-entry and taking possession of the Premises by any lawful means
pursuant to a judicial proceeding and removing and storing Tenant's property as
permitted under this Lease and, to the fullest extent allowable under the Laws,
will indemnify, defend, protect and hold harmless the Landlord Parties from and
against any and all Claims occasioned thereby. No such reentry is to be
considered or construed as a forcible entry by Landlord.
14.6. LANDLORD'S DEFAULT.
If Landlord defaults in the performance of any of its obligations under
this Lease, Tenant will notify Landlord, in writing, of the default and Landlord
will have thirty (30) days after receiving such Notice to cure the default. If
Landlord is not reasonably able to cure the default within a thirty (30) day
period. Landlord will have an additional reasonable period of time to cure the
default as long as Landlord commences the cure within the thirty (30) day period
and thereafter diligently pursues the cure. If Landlord fails to cure the
default within such time periods, Tenant will provide a second Notice of the
default to Landlord and if Landlord fails to cure such default within fifteen
(15) days after receiving such second Notice, then Tenant may exercise or pursue
such rights or remedies as are available to Tenant under the Laws; provided.
however, that in no event is Landlord liable for consequential or punitive
damages. including, without limitation, lost profits.
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14.7 LANDLORD'S WAIVER OF CONSEQUENTIAL DAMAGES.
Notwithstanding any provision to the contrary in this Lease. Landlord
waives and in no event is Tenant liable for consequential or punitive damages.
ARTICLE 15.
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CREDITORS; ESTOPPEL CERTIFICATES
--------------------------------
15.1. SUBORDINATION.
This Lease, all rights of Tenant in this Lease, and all interest or estate
of Tenant in the Property, is subject and subordinate to the lien of any
Mortgage. Tenant will, on Landlord's demand, execute and deliver to Landlord or
to any other person Landlord designates an original of a subordination,
non-disturbance and attornment agreement in form and content substantially
similar to the Subordination, Non-Disturbance and Attornment Agreement attached
hereto as EXHIBIT "L." Notwithstanding the foregoing, the subordination to any
Mortgage provided for in this Section is expressly conditioned upon the
mortgagee's agreement that as long as Tenant is not in default in the payment of
Rent or the performance and observance of any covenant, condition, provision,
term or agreement to be performed and observed by Tenant under this Lease,
beyond any applicable grace or cure period this Lease provides Tenant, the
holder of the Mortgage will not disturb Tenant's rights under this Lease and
will recognized Tenant's rights with respect to the Expansion Premises, First
Notice Space and Section 6.1.7 hereof. The lien of any existing or future
Mortgage will not cover Tenant's moveable trade fixtures or other personal
property of Tenant located in or on the Premises. Within thirty (30) days
following the execution of this Lease, Landlord will undertake to cause the
holder of the existing Mortgage to execute and deliver an undertaking in respect
to the foregoing non-disturbance provision.
15.2. ATTORNMENT.
If any ground lessor, the holder of any Mortgage at a foreclosure sale or
any other transferee acquires Landlord's interest in this Lease, the Premises or
the Property, Tenant will attorn to the transferee of or successor to Landlord's
interest in this Lease, the Premises or the Property (as the case may be) and
recognize such transferee or successor as landlord under this Lease, subject to
the terms of this Lease.
Tenant waives the protection of any statute or rule of law that gives or
purports to give Tenant any right to terminate this Lease or surrender
possession of the Premises upon the transfer of Landlord's interest.
15.3. MORTGAGEE PROTECTION CLAUSE.
Tenant will give the holder of any Mortgage. by registered mail, a copy of
any Notice of default Tenant serves on Landlord, provided that Landlord or the
holder of the Mortgage previously notified Tenant (by way of notice of
assignment of rents and leases or otherwise) of the address of such holder.
Tenant further agrees that if Landlord fails to cure such default within the
time provided for in this Lease, then Tenant will provide written notice of such
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failure to such holder and such holder will have an additional thirty (30) days
within which to cure the default.
15.4. ESTOPPEL CERTIFICATES.
15.4.1. CONTENTS.
Upon Landlord's written request, Tenant will execute, acknowledge and
deliver to Landlord a written statement in form satisfactory to Landlord
certifying: (a) that this Lease (and all guaranties, if any) is unmodified and
in full force and effect (or, if there have been any modifications, that the
Lease is in full force and effect, as modified, and stating the modifications);
(b) whether this Lease has been canceled or terminated; (c) the last date of
payment of Rent and the time period covered by such payment; (d) whether there
are then existing any breaches or defaults by Landlord under this Lease known to
Tenant, and, if so, specifying the same; (e) specifying any existing setoffs or
defenses in favor of Tenant against the enforcement of this Lease (or of any
guaranties); and (t) such other factual statements about this Lease or the
Premises as Landlord, any lender, prospective lender, investor or purchaser may
reasonably request. Tenant will deliver the statement to Landlord within twenty
(20) days after Landlord's request. Landlord may give any such statement by
Tenant to any lender, prospective lender, investor or purchaser of all or any
part of the Property and any such party may conclusively rely upon such
statement as true and correct.
15.4.2. FAILURE TO DELIVER.
If Tenant, within the time provided in Section 15.4.1, does not deliver to
Landlord (i) the statement referenced therein, or (ii) object to the same in
writing, such failure shall constitute an Event of Default under this Lease, and
Landlord and any lender, prospective lender, investor or purchaser may
conclusively presume and rely that (i) the terms and provisions of this Lease
have not been changed except as otherwise represented by this Lease and any then
existing written modifications, amendments or clarifications thereto between
Landlord and Tenant; (ii) this Lease has not been canceled or terminated; (iii)
that not more than one month's Rent has been paid in advance; and (iv) that
Landlord is not in default in the performance of any of its obligations under
this Lease. In such event, Tenant is estopped from denying the truth of such
facts.
ARTICLE 16.
TERMINATION OF LEASE
16.1. SURRENDER OF PREMISES.
Tenant will surrender the Premises to Landlord at the expiration or earlier
termination of this Lease in good order, condition and repair, reasonable wear
and tear, permitted Alterations and damage by insured casualty or condemnation
excepted, and will surrender all keys to the Premises to Property Manager or to
Landlord at the place then fixed for Tenant's payment of Basic Rent. Tenant will
also inform Landlord of all combinations on locks, safes and vaults, if any, in
the Premises or on the Property. Tenant will at such time remove all of its
property from the Premises and, if Landlord so requests. all Alterations and
improvements Tenant placed on the Premises. Tenant will promptly repair any
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damage to the Premises caused by such removal. Any and all such property not
removed by Tenant. at Landlord's option. becomes Landlord's exclusive property
and Landlord may dispose of such property at Tenant's sole cost and expense
without further notice to or demand upon Tenant. If Tenant does not surrender
the Premises in accordance with this Section, Tenant will indemnify, defend,
protect and hold harmless Landlord from and against any Claim resulting from
Tenant's delay in so surrendering the Premises, including, without limitation,
any Claim made by any succeeding occupant founded on such delay. Except for the
Antennae as hereafter provided, all property of Tenant not removed on or before
the last day of the Term is deemed abandoned. Within thirty (30) days after the
expiration of the Term, Tenant shall be permitted access to the roof of the
Building in order to remove the Antennae as provided in Section 6.1.8 hereof,
but if not then removed, the Antennae shall be deemed abandoned. Tenant appoints
Landlord as Tenant's agent to remove, at Tenant's sole cost and expense, all of
Tenant's property from the Premises upon termination of this Lease (except as
aforesaid in respect to the Antennae) and to cause its transportation and
storage for Tenant's benefit, all at the sole cost and risk of Tenant, and
Landlord will not be liable for damage, theft, misappropriation or loss thereof
or in any manner in respect thereto.
16.2. HOLDING OVER.
If Tenant possesses the Premises after the Term expires or is otherwise
terminated without executing a new lease but with Landlord's ,written consent,
Tenant is deemed to be occupying the Premises as a tenant from month-to-month,
subject to all provisions, conditions and obligations of this Lease applicable
to a month-to-month tenancy, and either Landlord or Tenant may terminate the
month-to-month tenancy at any time upon thirty (30) days prior Notice to the
other party. If Tenant possesses the Premises after the Term expires or is
otherwise terminated without executing a new lease and without Landlord's
written consent, Tenant is deemed to be occupying the Premises without claim of
right (but subject to all terms and conditions of this Lease) and, in addition
to Tenant's liability for failing to surrender possession of the Premises as
provided in Section 16.1, Tenant will pay Landlord a charge for each day of
occupancy after expiration of the Term in an amount equal to double that of
Tenant's then-existing Rent.
ARTICLE 17.
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ADDITIONAL PROVISIONS
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17.1. LANDLORD'S IMPROVEMENTS.
Prior to the Initial Commencement Date. Landlord shall, at Landlord's sole
cost and expense, construct the Landlord's Improvements. Anything in this Lease
to the contrary notwithstanding, (i) subject to adverse weather conditions,
within thirty (30) days after the Initial Commencement Date, Landlord will
complete, among other Landlord's Improvements, any surface coat paving and
landscaping of exterior areas which cannot reasonably be completed by the
Initial Commencement Date due to Force Majeure; and (ii) provided there is no
adverse effect on Tenant's parking or access to the Building or the Premises,
Landlord shall have no obligation to Tenant with respect to (A) the completion
(or the time thereof) of tenant improvements or finishes for spaces within the
Building for the benefit of other tenants, or (B) the completion of components
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of the Building or the Property which (1) do not adversely affect the structure
or function of the Building or the Property, or the systems or components
thereof for the benefit of Tenant, (2) are not within or do not directly serve
the Premises, and (3) do not unreasonably adversely affect the appearance or
aesthetics of the Building or the Property, either from the exterior thereof or
from any of the Common Areas.
17.2. INITIAL IMPROVEMENTS.
17.2.1. INITIAL IMPROVEMENT PLANS.
Subject to the Initial Allowance, Tenant, at its sole cost and expense. is
required (i) to cause the Tenant's Architect, in a timely manner and for
Landlord's reasonable approval, to prepare, in compliance with Laws, the plans
and specifications, including, without limitation, all required mechanical,
electrical, plumbing, fire/life safety and other architectural and engineering
drawings (collectively, "INITIAL IMPROVEMENT PLANS") for those improvements to
the Initial Premises ("INITIAL IMPROVEMENTS") that Tenant requires and that are
reasonably approved by Landlord, and (ii) to make certain color and other
selections for or with respect to the Initial Improvements. The Initial
Improvement Plans shall be sufficient to permit Landlord to apply for and
receive those governmental approvals and permits necessary to construct the
Initial Improvements. Anything in this Lease to the contrary notwithstanding,
Tenant shall provide Landlord with the Initial Improvement Plans and with any
and all required color and other selections no 1.ater than December 1, 1998. If
Tenant fails to cause the Initial Improvement Plans as aforesaid to be delivered
by December 1, 1998, then there shall be a Tenant Delay to the extent of the
effect of such late delivery, as limited by the next sentence of this
grammatical paragraph. Notwithstanding the foregoing, if the time period from
the date of application for the necessary approvals and permits to construct the
Initial Improvements to the date of the issuance of such approvals and permits
is less than sixty (60) days, then for each day less than such sixty (60) days
for such issuance there shall be deducted one (1) day from the number of days of
Tenant Delay for such late delivery, if any. By way of example, if the Initial
Improvement Plans are delivered on December 11, 1998 and the number of days from
the date of application until the issuance of the necessary approvals and
permits is fifty (50) days, no Tenant Delay shall be deemed to have occurred for
such late delivery. If the number of days from the date of application to the
date of issuance of such approvals and permits is more than sixty (60) days, the
number of days over sixty (60) for such issuance shall be deemed to be Force
Majeure and there shall be no deduction from the number of days of Tenant Delays
for late delivery, if any, of the Initial Improvement Plans.
Within thirty (30) days after Landlord's receipt of the Initial Improvement
Plans and Tenant's required selections, Landlord shall advise Tenant, in
writing, of those portions of the Initial Improvements that are so-called "long
lead time" items. In those cases where Landlord's reasonable approval is
required under this Section 17.2.1, if Landlord fails to disapprove any of the
Initial Improvement Plans within five (5) Business Days after their delivery,
such Initial Improvement Plans, as delivered, shall be deemed to have been
approved. However, if any Initial Improvement Plans are disapproved within such
five (5) Business Day period, Landlord shall notify Tenant thereof, in writing,
within such five (5) Business Day period. detailing with reasonable specificity
that portion or element that has been disapproved and the reasons for such
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disapproval. Thereafter, in each instance of further resubmission of the Initial
Improvement Plans, Landlord shall have three (3) Business Days to approve or
disapprove, and Tenant shall have five (5) Business Days within which to revise
and resubmit the disapproved Initial Improvement Plans for Landlord's approval
or disapproval, as aforesaid. Such five (5) Business Day and three (3) Business
Day sequence of resubmission and approval or disapproval shall continue until
such time as the Initial Improvement Plans have been approved by Landlord, and,
when so approved, representatives of Landlord and Tenant shall affix their
respective signatures or initials to each page comprising the approved Initial
Improvement Plans. Landlord shall apply for all necessary building permits
within three (3) Business Days following approval of the Initial Improvement
Plans.
17.2.2. INITIAL IMPROVEMENTS CONSTRUCTION.
Landlord shall construct and furnish or cause to be constructed and
furnished, at Tenant's sole cost and expense, subject to the Initial Allowance,
all of the material, labor and equipment for the construction of the Initial
Improvements as required by the Initial Improvement Plans. Such construction
shall be effected in a good and workmanlike manner in substantial accordance
with the Initial Improvement Plans, and Landlord shall complete, or cause the
completion of. the construction thereof in substantial accordance with all Laws.
17.2.3. INITIAL ALLOWANCE.
Although Tenant shall be solely responsible for all costs and expenses in
connection with the construction of the Initial Improvements. Landlord shall
fund, for the benefit of Tenant, an allowance for the Initial Improvements in an
amount not to exceed Thirty Five and 10/100 Dollars ($35.10) per RSF of the
Initial Premises ("Initial Allowance"). The following portions of the Initial
Allowance can be applied by Tenant as follows:
(i) MOVING/FF&E ALLOWANCE. Up to Three and 00/100 Dollars ($3.00) per
RSF of the Initial Premises of the Initial Allowance can be applied
to the costs and expenses reasonably documented for the benefit of
Landlord that are incurred by Tenant for (i) moving and related
relocation expenses in connection with Tenant's occupancy of the
Initial Premises. (ii) the purchase of furniture, fixture and
equipment to be used by Tenant in the Initial Premises, and (iii)
cabling of the Initial Premises (collectively in respect to clauses
(i) through (iii), "MOVING/FF&E Allowance").
(ii) CONSTRUCTION ALLOWANCE. For the Construction Costs, Tenant shall be
permitted to apply so much of the Initial Allowance that equals
Thirty Five and 00/100 Dollars ($35.00) per RSF of the Initial
Premises, minus the amount applied by Tenant for the Moving/FF&E
Allowance ("Construction Allowance"). Provided. however, if the
aggregate of the Construction Costs, plus the portion of the Initial
Allowance applied by Tenant to the Moving/FF&E Allowance exceeds
Thirty and 00/100 Dollars ($30.00) per RSF of the Initial Premises
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(but in no instance more than Thirty Five 00/100 Dollars ($35.00)
per RSF of the Initial Premises), when each installment of Basic
Rent is due, Tenant shall pay to Landlord, in equal monthly
installments ("T/I Rent"), in addition to the Basic Rent and
Additional Rent, the amount that is necessary to amortize over the
Initial Term at the rate of nine percent (9%) the excess over said
Thirty and 00/100 Dollars ($30.00) per RSF of the Initial Premises.
(iii) TEST FIT ALLOWANCE. Up to Ten Cents ($0.10) per RSF of the Initial
Premises shall be paid by Landlord to defray the costs and expenses
reasonably documented for the benefit of Landlord that are incurred
by Tenant for test fitting the Initial Premises ("TEST FIT
ALLOWANCE").
17.2.4. CONSTRUCTION COSTS.
For purposes of this Lease, the "CONSTRUCTION COSTS" shall be equal to the
sum of (i) all actual so-called "hard" costs of constructing the Initial
Improvements, including, without limitation, the cost of all materials, labor,
equipment, hoisting, insurance, taxes and permits (all of which shall be
documented and verifiable); (ii) all actual so-called "soft" costs in connection
with the construction of the Initial Improvements, including, without
limitation, all architect's, engineer's and design fees, and all other
consulting fees (including, without limitation, fees relating to the review and
approval of Tenant's plans and drawings for the Initial Improvements); (iii) a
fee equal to fourteen percent (14%) of all of the costs described in the
foregoing clauses (i) and (ii), which fee shall be in lieu of general
conditions, overhead and profit, any construction management fees, and any other
fees to Landlord (except as hereafter provided in respect to Change Orders);
(iv) the cost of any Change Orders; and (v) the reasonable costs and expenses
incurred by Tenant for the preparation of the Initial Improvement Plans.
During the construction of the Initial Improvements, Landlord shall
periodically provide Tenant with updated projections of the Construction Costs
as compared with the Construction Allowance. On and after the time, if ever,
that the Construction Costs exceed the Construction Allowance, Tenant shall pay
to Landlord, within thirty (30) days after the date Landlord invoices Tenant
therefor, those Construction Costs incurred by Landlord during the previous
thirty (30) period. As soon as practicable following the Initial Commencement
Date, Landlord shall (a) determine the actual Construction Costs, (b) reconcile
such actual Construction Costs with the Construction Allowance and the foregoing
payments (if any) theretofore made by Tenant, and (c) notify Tenant, in writing,
of such determination and reconciliation. In the event that such reconciliation
shows that the Construction Costs were less than the sum equal to (1) Thirty and
00/100 Dollars ($30.00) per RSF of the Initial Premises, minus (2) Moving/FF&E
Allowance, plus (3) any progress payments theretofore made by Tenant to Landlord
as aforesaid, then such lesser amount shall be credited against the Basic Rent
payments due hereunder from and after the Initial Commencement Date (beginning
with the first Basic Rent payment due after Landlord's delivery of the aforesaid
reconciliation notification), until such lesser amount, in its entirety, has
been so applied. In the alternative, at Landlord's sole election, Landlord shall
pay such lesser amount, in its entirety, to Tenant within thirty (30) days after
Landlord's delivery of the aforesaid reconciliation notification. On the other
hand, in the event that such reconciliation shows that the Construction Costs
exceeded the sum of the Construction Allowance, plus any progress payments
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theretofore made by Tenant to Landlord as aforesaid, then Tenant shall pay such
excess amount, in its entirety, to Landlord within thirty (30) days after
Landlord's delivery of the aforesaid reconciliation notification.
17.2.5. BIDDING.
Landlord shall solicit bids from "major subcontractors" furnishing labor or
materials for the Initial Improvements, unless Tenant otherwise authorizes
(e.g., in cases where, for expediency, Landlord believes it beneficial not to
solicit multiple bids), in accordance with the following procedure:
(I) Attached hereto as EXHIBIT "I" is the list prepared by Landlord of
three (3) potential pre-qualified bidders from whom Landlord shall
seek bids for construction of the Initial Premises. Such list is
based on each bidder's qualifications, past experience on similar
types of projects, availability to do the work, financial strength,
bondability, if applicable, and previous history of work with
Landlord.
(ii) On the bid due dates, the bids will be opened and reviewed by
Landlord for, among other things, completeness, compliance with the
bid request, a "cost versus budget" comparison, and the ability of
the bidder to complete its commitment.
(iii) After the review of the bids, Landlord shall prepare a bid summary
and its recommendations for awards, and shall present the same to
Tenant's Architect for its approval. Within three (3) Business Days
after the presentation of the aforesaid bid summary to Tenant's
Architect, Tenant shall cause Tenant's Architect to approve or
disapprove such recommendations, which approval or disapproval
rights shall not be unreasonably exercised. If Tenant's Architect
fails to approve or disapprove such recommendations within the
aforesaid three (3) Business Day period, then it shall be
conclusively presumed that Tenant's Architect has given its approval
thereto. Notwithstanding the foregoing, if any bidder qualifies its
bid, Landlord shall not be required to accept such bid if Landlord
reasonably objects to such qualification. Tenant shall be
responsible for any delays, as a Tenant Delay, necessitated by
rebidding or delays in bid opening required by Tenant.
17.2.6. ALLOWANCE EXPENSES INCURRED BY TENANT.
Periodically during the pendancy of the construction of the Initial
Improvements by Landlord, but in any event on or before the Initial Commencement
Date, Tenant shall provide Landlord with copies of invoices, in form and
specificity reasonably satisfactory to Landlord. that Tenant shall collect and
that evidences the reasonable costs and expenses incurred by Tenant for (i) the
preparation of the Initial Improvement Plans. (ii) moving and related relocation
expenses in connection with Tenant's move into the Initial Premises and the
furniture, fixtures and equipment purchased by Tenant for use in the Initial
Premises and cabling expenses at the Initial Premises Tenant incurred that
Tenant requires to be paid out of the Moving/FF&E Allowance, and (iii) the fit
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up tests conducted by Tenant that Tenant requires to be paid out of the Test Fit
Allowance. Within thirty (30) days after the last to occur of the Initial
Commencement Date and the date Landlord receives invoices from Tenant for the
expenditure of the Moving/FF&E Allowance, Landlord shall reimburse Tenant
therefor. up to the maximum of the Moving/FF&E Allowance.
17.2.7. CHANGE ORDERS.
With respect to the Initial Improvements, Tenant may order changes in the
work required by the Initial Improvement Plans consisting of additions or
deletions to, or other revisions thereto, so long as the same are reasonably
acceptable to Landlord. Any such change in work which has been authorized by a
written order (which shall be executed as hereinafter provided) is a "CHANGE
ORDER." Any Change Order shall provide the duration of delay, if any, in the
completion of the Improvements resulting from the requested change in work. No
Change Order shall be effected if it is not permitted by Law.
A Change Order is a written order prepared by or on behalf of Landlord and
signed by Tenant, stating in detail the change in the work for the Initial
Improvements and any change in the scheduled date for the Substantial Completion
thereof resulting from such Change Order. The cost and expense incurred by
Landlord in effectuating any Change Order that increases the scope of the work
together with a fee equal to five percent (5%) of all such costs and expenses
(which fee shall be in lieu of general conditions, overhead and profit, and any
construction management fees in respect to such Change Order) shall form a part
of the Construction Costs.
17.2.8. PUNCH LIST.
Within twenty (20) days after Substantial Completion of the Initial
Improvements, Tenant and Landlord will mutually, reasonably agree on a Punch
List. Landlord will complete (or repair, as the case may be) the items Tenant
and Landlord list on the Punch List with commercially reasonable diligence and
speed, subject to delays caused by Force Majeure and Tenant Delays and, in any
event, within thirty (30) days after completion of the Punch List, except for
long lead-time items for repair work that form a portion of the Punch List or
other long-lead time items about which Tenant has been advised by Landlord as
provided in Section 17.2.1. If Tenant does not raise any incomplete items
requiring repair at the time of preparation of the Punch List, Tenant is deemed
to have accepted the Premises as delivered, subject to Section 17.5.
17.3. FAILURE TO COMPLETE INITIAL PREMISES.
"HOLDOVER EXPENSES" shall mean the additional payment obligations that are
in excess of the normal rent payment obligations that Tenant is required to pay
to lessors under those leases by and between Tenant and such other lessors for
those premises located at (i) 901 Follin Lane, Vienna. Virginia. and (ii) 1110
North Glebe Road, Arlington, Virginia (collectively in respect to clauses (i)
and (ii), "OTHER LEASES") as a result of Tenant being unable to vacate such
premises at the expiration of the terms of the Other Leases because the entire
Initial Premises are not then Substantially Complete. If on or after January 1.
1999, Tenant is required to and does pay Holdover Expenses, Landlord shall be
responsible to defray (as hereafter provided) that portion of the Holdover
Expenses ("LANDLORD'S HOLDOVER OBLIGATION") that equals (a) the first $75,000.00
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of Holdover Expenses that accumulate on a per diem basis, PLUS (b) one-half of
the next $100,000.00 of the Holdover Expenses that accumulate on a per diem
basis that, in the instance of clauses (a) and (b), accumulate prior to the Rent
Commencement Date for the Initial Premises; provided, however, in no instance
shall the total of Landlord's Holdover Obligation exceed the sum of $125,000.00.
In the event there is a Landlord's Holdover Obligation. notwithstanding any
provision to the contrary contained in this Lease, the amount thereof (up to
$125,000.00) shall be paid by the forgiveness of so much Basic Rent first
becoming due after the Rent Commencement Date for the Initial Premises that
equals the amount of the Landlord's Holdover Obligation. Notwithstanding the
foregoing, Tenant shall extend commercially reasonable efforts to mitigate the
amount of Holdover Expenses.
Landlord and Tenant have fully negotiated the provisions of this Section
17.3 with respect to the liquidated damages evidenced by the foregoing portions
of the Holdover Expenses. free from any duress or other undue influence. Having
determined that the actual amount of any losses which Tenant would incur as a
result of a delay in the Substantial Completion of the entire Initial
Improvements would be difficult, if not impossible, to ascertain, Landlord and
Tenant have independently concluded that the foregoing portions of the Holdover
Expenses are a good faith and reasonable estimation of and basis for any such
losses. Accordingly, in the event of any such delay, the payment of the
foregoing portions of the Holdover Expenses shall be the sole obligation of
Landlord in the event of any such delay, and shall be in lieu of any other
rights or remedies which Tenant would otherwise have at law or in equity, except
the right of specific performance.
17.4. EXPANSION PREMISES.
In the event Tenant exercises its right to add the First Expansion Space,
Second Expansion Space or First Notice Space to the Premises as provided,
respectively, in Sections 1.2.5, 1.2.6 and 1.2.7, all of the terms and
provisions of Section 17.2 in respect to the Initial Improvements shall apply to
the improvements required by Tenant in the applicable Expansion Premises
("EXPANSION IMPROVEMENTS") and to the improvements required by Tenant in the
subject First Notice Space ("FIRST NOTICE SPACE IMPROVEMENTS") that are
reasonably approved by Landlord as provided in Section 1.2.8. Notwithstanding
the foregoing, (i) except as hereafter provided in the instance of the First
Expansion Space, Tenant shall be required to deliver the plans and
specifications for the Expansion Improvements ("EXPANSION PLANS") and for the
First Notice Space Improvements within forty five (45) days following the date
on which the size, shape and location of the Expansion Premises or First Notice
Space is determined in accordance with, as applicable, Sections 1.2.5, 1.2.6 and
1.2.7; (ii) there will be no Moving/FF&E Allowance or Test Fit Allowance
applicable to the Expansion Premises or First Notice Space; (iii) the allowance
for the First Expansion Space Expansion Improvements shall equal the Initial
Allowance based on the number of RSF in the First Expansion Space. (iv) the
amount necessary to determine the T/I Rent, if any, for the First Expansion
Space, will be amortized over the balance of the Initial Term remaining after
the First Expansion Commencement Date; (v) the amount of the Additional
Allowance applicable to the Second Expansion Space and the First Notice Space
shall be determined as provided in Section 2.1.3; (vi) there will be no T/I Rent
applicable to the Second Expansion Space or First Notice Space, unless included
pursuant to the provisions of Section 2.1.3; and (vii) in the instance of the
Second Expansion Space or First Notice Space, unless Landlord elects, in
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writing, to do so, Landlord will not be responsible to cause such Expansion
Improvements or First Notice Space Improvements to be constructed, in which
event, Tenant, with a general contractor reasonably acceptable to Landlord
employing bidding requirements reasonably acceptable to Landlord, shall cause
the Expansion Improvements or First Notice Space Improvements to be constructed
pursuant to safety, insurance, labor, staging, hoisting and other requirements
reasonably required by Landlord. Notwithstanding the foregoing, if prior to
December 10, 1998, Tenant delivers to Landlord the First Expansion Notice to add
the First Expansion Space to the Premises as provided in Section 1.2.5, Tenant
shall cause the Expansion Plans therefor to be delivered to Landlord not later
than February 12, 1999, and Landlord, subject to Force Majeure, Tenant Delays
and Change Orders, shall cause the Expansion Improvements for the First
Expansion Space to be Substantially Complete not later than July 1,1999.
17.5. CONSTRUCTION WARRANTY.
Except as provided in the last two sentences of this Section, Landlord
warrants Tenant's Improvements which Landlord constructs or causes to be
constructed against defective workmanship and materials for a period of one (1)
year after the date of Substantial Completion, as applicable, of the Initial
Improvements and those Expansion Improvements or First Notice Space Improvements
Landlord caused to be constructed, and will, as Landlord's sole obligation,
repair or replace, as necessary, any defective item included in the Initial
Improvements and such Expansion Improvements and First Notice Space Improvements
occasioned by poor workmanship or materials if Tenant notifies Landlord of the
defective item within such applicable one (1) year period. Landlord has no
obligation to repair or replace any item after such applicable one (1) year
period expires. This warranty does not apply to any defective workmanship or
materials of which Tenant knew or should have known within the time period
referenced in Section 17.2.8 for, as applicable, the Initial Improvements,
Expansion Improvements or First Notice Space Improvements Landlord caused to be
constructed.
ARTICLE 18.
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MISCELLANEOUS PROVISIONS
------------------------
18.1. NOTICES.
All Notices must be in writing and must be sent by personal delivery,
United States registered or certified mail (postage prepaid) or by an
independent overnight courier service, addressed to the addresses specified in
the Basic Terms or at such other place as either party may designate to the
other party by Notice given in accordance with this Section. Notices given by
mail are deemed delivered within three (3) Business Days after the party sending
the Notice deposits the Notice with the United States Post Office. Notices
delivered by courier are deemed delivered on the next Business Day after the day
the party delivering the Notice timely deposits the Notice with the courier for
overnight (next day) delivery.
18.2. TRANSFER OF LANDLORD'S INTEREST.
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If Landlord transfers any interest in the Premises, the transferor is
automatically relieved of all obligations on the part of Landlord accruing under
this Lease from and after the date of the transfer, provided that the transferor
will deliver to the transferee any funds the transferor holds in which Tenant
has an interest (such as a security deposit). Landlord's covenants and
obligations in this Lease bind each successive Landlord only during and with
respect to its respective period of ownership. However, notwithstanding any such
transfer, the transferor remains entitled to the benefits of Tenant's indemnity
and insurance obligations (and similar obligations) under this Lease with
respect to matters arising or accruing during the transferor's period of
ownership.
18.3. SUCCESSORS.
The covenants and agreements contained in this Lease bind and inure to the
benefit of Landlord, its successors and assigns, bind Tenant and its successors
and assigns and inure to the benefit of Tenant and its permitted successors and
assigns.
18.4. CAPTIONS AND INTERPRETATION.
The captions of the Articles and Sections of this Lease are to assist the
parties in reading this Lease and are not a part of the terms or provisions of
this Lease. Whenever required by the context of this Lease, the singular
includes the plural and the plural includes the singular.
18.5. RELATIONSHIP OF PARTIES.
This Lease does not create the relationship of principal and agent, or of
partnership, joint venture, or of any association or relationship between
Landlord and Tenant other than that of Landlord and Tenant.
18.6. ENTIRE AGREEMENT; AMENDMENT.
All exhibits, addenda and schedules attached to this Lease are incorporated
into this Lease as though fully set forth in this Lease and together with this
Lease contain the entire agreement between the parties with respect to the
improvement and leasing of the Premises. All preliminary and contemporaneous
negotiations, including, without limitation, any letters of intent or other
proposals and any drafts and related correspondence, are merged into and
superseded by this Lease. No-subsequent alteration, amendment, change or
addition to this Lease (other than to the Building Rules) is binding on Landlord
or Tenant unless it is in writing and signed by the party to be charged with
performance.
18.7. SEVERABILITY.
If any covenant, condition, provision, term or agreement of this Lease is,
to any extent. held invalid or unenforceable, the remaining portion thereof and
all other covenants, conditions. provisions, terms and agreements of this Lease,
will not be affected by such holding, and will remain valid and in force to the
fullest extent permitted by law.
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18.8. LANDLORD'S LIMITED LIABILITY.
Tenant will look solely to Landlord's interest in the Property, together
with any insurance proceeds, condemnation proceeds and rents collect by Landlord
that were not distributed by Landlord to its entity interest holders prior to
the subject alleged default by Landlord for recovering any judgment from
Landlord or any other Landlord Party. Tenant agrees that neither Landlord nor
any other Landlord Party will be personally liable for any personal judgment or
deficiency decree or judgment against it.
18.9. SURVIVAL.
All of Tenant's obligations under this Lease (together with interest on
payment obligations at the Maximum Rate) accruing prior to expiration or other
termination of this Lease survive the expiration or other termination of this
Lease. Further, all of Tenant's indemnification, defense and hold harmless
obligations under this Lease survive the expiration or other termination of this
Lease, without limitation.
18.10. ATTORNEYS' FEES.
If either Landlord or Tenant commences any litigation or judicial action to
determine or enforce any of the provisions of this Lease, the prevailing party
in any such litigation or judicial action is entitled to recover all of its
costs and expenses (including, but not limited to, reasonable attorneys' fees,
costs and expenditures) from the nonprevailing party.
18.11. BROKERS.
Landlord and Tenant each represents and warrants to the other that it has
not had any dealings with any realtors, brokers, finders or agents in connection
with this Lease (except as may be specifically set forth in the Basic Terms) and
agrees to indemnify, defend and hold the other harmless from and against the
failure to pay any realtors, brokers, finders or agents (other than the brokers
specified in the Basic Terms) and from any cost, expense or liability for any
compensation, commission or changes claimed by any realtors, brokers, finders or
agents (other than the brokers specified in the Basic Terms) claiming by,
through or on behalf of it with respect to this Lease or the negotiation of this
Lease. Landlord will pay the brokers named in the Basic Terms in accordance with
the applicable listing agreement for the Property and a separate agreement with
The Fred Ezra Company.
18.12. GOVERNING LAW.
This Lease is governed by, and must be interpreted under, the internal laws
of the State. Any suit arising from or relating to this Lease must be brought in
the County; Landlord and Tenant waive the right to bring suit elsewhere.
18.13. TIME IS OF THE ESSENCE.
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Time is of the essence with respect to the performance of every provision
of this Lease in which time of performance is a factor.
18.14. JOINT AND SEVERAL LIABILITY.
All parties signing this Lease as Tenant are jointly and severally liable
for performing all of Tenant's obligations under this Lease. Notwithstanding the
foregoing, the individual persons executing this Lease on behalf of Tenant and
Landlord shall have no individual liability on behalf of Tenant and Landlord.
18.15. TENANT'S AND LANDLORD'S WAIVER.
Any claim Landlord or Tenant may have against the other for default in
performance of any of the other's obligations under this Lease is deemed waived
unless the claiming party notifies the other of the default within ninety (90)
days after the claiming party knew or should have known of the default and
commences suit on the alleged default within one (1) year after the date the
claiming party knew or should have known of the default.
18.16. TENANT ORGANIZATION DOCUMENTS; AUTHORITY.
If Tenant is an entity, Tenant will, within ten (10) days after Landlord's
written request, deliver to Landlord (a) Certificate(s) of Good Standing from
the state of formation of Tenant and, if different, the State, confirming that
Tenant is in good standing under the laws governing formation and qualification
to transact business in such state(s); and (b) and a copy resolution of Tenant,
certified by the appropriate officer thereof, authorizing the execution and
performance by Tenant of all of Tenant's obligations hereunder. Tenant and each
individual signing this Lease on behalf of Tenant represents and warrants that
they are duly authorized to sign on behalf of and to bind Tenant and that this
Lease is a duly authorized obligation of Tenant.
18.17. PROVISIONS ARE COVENANTS AND CONDITIONS.
All provisions of this Lease, whether covenants or conditions, are deemed
both covenants and conditions.
18.18. FORCE MAJEURE.
If Landlord is delayed or prevented from performing any act required in
this Lease (excluding, however, the payment of money) by reason of Force
Majeure, Tenant Delays or Change Orders. Landlord's performance of such act is
excused for the period of the delay and the period of the performance by
Landlord of any such act will be extended for a period equivalent to the period
of such delay.
18.19. MANAGEMENT.
Property Manager is authorized to manage the Property. Landlord appointed
Property Manager to act as Landlord's agent for leasing, managing and operating
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the Property. The Property Manager then serving is authorized to accept service
of process and to receive and give Notices and demands on Landlord's behalf.
18.20. FINANCIAL STATEMENTS.
Tenant will, prior to Tenant's execution of this Lease and within ten (10)
days after Landlord's request at any time during the Term, deliver to Landlord a
complete copy of Tenant's then most recent filing with the U.S. Securities and
Exchange Commission.
18.21. QUIET ENJOYMENT.
Landlord covenants that Tenant will quietly hold, occupy and enjoy the
Premises during the Term subject to the terms and conditions of this Lease if
Tenant pays all Rent as and when due and keeps, observes and fully satisfies all
other covenants, obligations and agreements of Tenant under this Lease.
18.22. NO RECORDING.
Tenant will not record this Lease or a Memorandum of this Lease without
Landlord's prior written consent, which consent Landlord may grant or withhold
in its sole discretion.
18.23. INTENTIONALLY DELETED
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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18.24. CONSTRUCTION OF LEASE AND TERMS.
The terms and provisions of this Lease represent the results of
negotiations between Landlord and Tenant, each of which are sophisticated
parties and each of which has been represented or been given the opportunity to
be represented by counsel of its own choosing. and neither of which has acted
under any duress or compulsion, whether legal, economic or otherwise.
Consequently, the terms and provisions of this Lease must be interpreted and
construed in accordance with their usual and customary meanings, and Landlord
and Tenant each waive the application of any rule of law that ambiguous or
conflicting terms or provisions contained in this Lease are to be interpreted or
construed against the party who prepared the executed Lease or any earlier draft
of the same. Landlord's submission of this instrument to Tenant for examination
or signature by Tenant does not constitute a reservation of or an option to
lease and is not effective as a lease or otherwise until Landlord and Tenant
both execute and deliver this Lease. The parties agree that, regardless of which
party provided the initial form of this Lease, drafted or modified one or more
provisions of this Lease, or compiled, printed or copied this Lease, this Lease
is to be construed solely as an offer from Tenant to lease the Premises,
executed by Tenant and provided to Landlord for acceptance on the terms set
forth in this Lease, which acceptance and the existence of a binding agreement
between Tenant and Landlord may then be evidenced only by Landlord's execution
of this Lease.
Landlord and Tenant caused this Lease to be executed and delivered by their duly
authorized representative to be effective as of the Effective Date.
Dated: 12/9/98
LANDLORD: TENANT:
OPUS EAST. L.L.C., a Delaware limited SM&A CORPORATION,
liability company a California Corporation
By: /s/ Joseph J. Rauenhorst By: Steven R. Mast
-------------------------------- ------------------------------
Name: Joseph J. Rauenhorst Name: Steven R. Mast
Title: President Title: Sr. V.P. & CFO
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EXHIBIT "A"
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DEFINITIONS
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"ADDITIONAL ALLOWANCE" means as defined in Section 17.4.
"ADDITIONAL RENT" means any charge, fee or expense (other than Basic Rent.
T/I Rent and Parking Rent) payable by Tenant under this Lease, however denoted.
"AFFILIATE" means any person or corporation that, directly or indirectly,
controls, is controlled by or is under common control with Tenant and any entity
into which or with which Tenant is merged or consolidated or which is merged or
consolidated into or with Tenant provided that the entity resulting from such
merger or consolidation has a net worth determined in accordance with generally
accepted accounting principles consistently applied (exclusive of goodwill)
equal to or greater than such net worth of the Tenant immediately prior to such
merger or consolidation or, if the resultant entity does not meet such net worth
test, the resultant entity causes another entity meeting such net worth test
that has received valuable consideration as a result of such merger or
consolidation to guaranty for the benefit of Landlord, in form and substance
reasonably acceptable to Landlord, the obligations of Tenant under the Lease.
For purposes of this definition, "control" means possessing the power to direct
or cause the direction of the management and policies of the entity by the
ownership of a majority of the voting securities of the entity. Landlord
acknowledges that Space Applications Corporation and Decision-Science
Applications, Inc. are Affiliates.
"ALTERATION" means any change, alteration, addition or improvement to the
Premises or Property.
"ANTENNAE" means as defined in Section 6.2.8.
"ARBITRATOR" shall mean a licensed real estate broker in the Commonwealth
of Virginia with not less than ten (10) years of experience in the brokerage of
improved commercial office building real estate in the Washington, D.C.
metropolitan area who devotes substantially all of his or her time to
professional brokerage work for commercial office buildings at the time of
appointment and who is in all respects impartial and disinterested.
"BANKRUPTCY CODE" means the United States Bankruptcy Code as the same now
exists and as the same may be amended, including any and all rules and
regulations issued pursuant to or in connection with the United States
Bankruptcy Code now in force or in effect after the Effective Date.
"BASIC RENT" means the basic rent amounts specified in the Basic Terms and
in Section 2.1.
"BASIC TERMS" means the terms of this Lease identified as the "Basic Terms"
before Article 1 of the Lease.
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"BOMA STANDARDS" means the "Standard Method for Measuring Floor Area in
Office Buildings" approved June 7, 1996 by the American National Standards
Institute. Inc. and the Building Owners and Managers Association International
(ANSI/BOMA Z65.l-1996).
"BUILDING" means that certain office building now existing on the Land
containing 232,718 RSF, as may be adjusted pursuant to Section 1.1.3.
"BUILDING RULES" means those certain rules attached to this Lease as
EXHIBIT "E," as Landlord may amend the same from time to time in accordance with
the Lease.
"BUILDING SIGNAGE" means as defined in Section 4.6.
"BUSINESS DAYS" means any day other than Saturday, Sunday or a Holiday.
"BUSINESS HOURS" means Monday through Friday from 8:00 a.m. to 6:00 p.m.
and on Saturdays from 8:00 a.m. to 1:00 p.m., excluding Holidays.
"CHANGE ORDER" means as defined in Section 17.2.7.
"CITY" means Merrifield, Virginia.
"CLAIMS" means all claims, actions, demands, liabilities, damages, costs,
penalties. forfeitures, losses or expenses, including, without limitation,
reasonable attorneys' fees and the costs and expenses of enforcing any
indemnification, defense or hold harmless obligation under this Lease.
"COMMENCEMENT DATE" means, as applicable, the Initial Commencement Date,
First Expansion Commencement Date, Second Expansion Commencement Date or the
subject First Notice Space Commencement Date.
"COMMENCEMENT DATE MEMORANDUM" means the form of memorandum attached to
this Lease as EXHIBIT "D."
"COMMON AREA" means the parking area, driveways, lobby areas, and other
areas of the Property Landlord may designate from time to time as common area
available to all tenants. including, but not limited to the Exercise Facility.
"COMPARABLE BUILDINGS" shall mean those buildings and complexes of
reasonably comparable size and quality to the Building which are located in the
Merrifield and Tysons Corner. Virginia marketplace.
"CONDEMNING AUTHORITY" means any person or entity with a statutory or other
power of eminent domain.
"CONSTRUCTION ALLOWANCE" means as defined in Section 17.2.3.
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"CONSTRUCTION COSTS" means as defined in Section 17.2.4.
"COUNTY" means Fairfax County, Virginia.
"DELIVERYDATE" means the target date, subject to Force Majeure. Tenant
Delays and Change Orders, for Landlord's delivery of the entire Initial Premises
to Tenant, which initially is the delivery date specified in the Basic Terms.
"DIRECTORY LISTINGS" means as defined in Section 4.6.1.
"EFFECTIVE DATE" means the date Landlord executes this Lease.
"ENTRY SIGNAGE" means as defined in Section 4.6.1.
"EVENT OF DEFAULT" means the occurrence of any of the events specified in
Section 14.1 of the Lease.
"EXCESS EXPENSES" means the total amount of (i) Property Taxes in excess of
One and 75/100 Dollars ($1.75) per RSF of the Building (inclusive of retail
space therein), and (ii) Operating Expenses for each Lease Year of the Term
(exclusive of the first Lease Year) that are due and payable in such Lease Year
that are in excess of Operating Expenses for the first Lease Year, provided such
excess Operating Expenses are not more than one hundred eight percent (108%) of
the preceding Lease Year's Operating Expenses.
"EXERCISE FACILITY" means that portion of the Building located in the
basement of the Building in which the Landlord, as part of the Operating
Expenses, maintains those exercise machines and equipment and the access thereto
set both on Exhibit "K" attached hereto which are available twenty-four hours a
day during each day within the Term (subject to routine maintenance and
replacement requirements), all at no additional charge for the use by all
tenants and their employees at the Building.
"EXPANSION IMPROVEMENTS" means as defined in Section 17.4.
"EXPANSION PLANS" means as defined in Section 17.4.
"EXPANSION PREMISES" means, depending on the context, either the First
Expansion Space. Second Expansion Space or both.
"EXPANSION COMMENCEMENT DATE" means, as applicable, the First Expansion
Commencement Date or the Second Expansion Commencement Date.
"FIRST EXPANSION COMMENCEMENT DATE" means the earlier of (a) the date of
Substantial Completion of the Tenant's Improvements for the First Expansion
Space, or (b) the date the Tenant's Improvements for the First Expansion Space
would have been substantially completed in accordance with the definition of
Substantial Completion but for Tenant Delays.
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"FIRST EXPANSION NOTICE" means that written Notice from Tenant to Landlord
concerning the First Expansion Space as provided in Section 1.2.5.
"FIRST EXPANSION SPACE" means that portion of the Building elected by
Tenant to be added to the Premises pursuant to the provisions of Section 1.2.5.
"FIRST NOTICE ELECTION" means as defined in Section 1.2.7.
"FIRST NOTICE SPACE" means as defined in Section 1.2.7.
"FIRST NOTICE SPACE COMMENCEMENT DATE" means, (a) if Landlord constructs
the First Notice Space Improvements, the date that is the earlier of (x) the
date of Substantial Completion of the First Notice Space Improvements, or (y)
the date the subject First Notice Space Improvements would have been
Substantially Completed, but for Tenant Delays, or (b) if Tenant causes the
First Notice Space Improvements to be constructed as provided in Section 17.4,
the date that is the earlier of (x) the date Tenant commences to conduct its
business in the subject First Notice Space, or (y) subject to Force Majeure, the
date that is sixty (60) days subsequent to the date Landlord approves the plans
and specifications for the subject First Notice Space Improvements.
"FIRST NOTICE SPACE IMPROVEMENTS" means as defined in Section 17.4.
"FIRST RENEWAL TERM" means as defined in Section 1.2.1.2.
"FIT-UP WORK" means that work that Tenant may undertake to complete in the
applicable portion of the Premises prior to the applicable Commencement Date as
provided in Section 1.2.4.
"FLOOR PLAN" means the floor plan attached to the Lease as EXHIBIT "C."
"FORCE MAJEURE" means (i) acts of God; (ii) strikes; (iii) lockouts; (iv)
labor troubles: (v) inability to procure materials; (vi) material adverse
changes governmental laws or regulations; (vii) orders or directives of any
legislative, administrative, or judicial body or any governmental department
other than those which enforce then existing Laws; (viii) inability, within
sixty (60) days of application therefor, despite due diligence in pursuit
thereof, to obtain any governmental licenses, permissions or authorities
necessary for the construction Improvements despite commercially reasonable
pursuit of such licenses, permissions or authorities, unless such inability is
occasioned by a Tenant Delay; and (ix) other similar or dissimilar causes beyond
Landlord's reasonable control.
"HAZARDOUS MATERIALS" means any of the following, in any amount: (a) any
petroleum or petroleum product, asbestos in any form, urea formaldehyde and
polychlorinated biphenyls: (b) any radioactive substance: (c) any toxic,
infectious, reactive, corrosive, ignitable or flammable chemical or chemical
compound; and (d) any chemicals, materials or substances, whether solid, liquid
or gas. defined as or included in the definitions of "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants," "solid
waste," or words of similar import in any federal, state or local statute, law,
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ordinance or regulation now existing or existing on or after the Effective Date
as the same may be interpreted by government offices and agencies.
"HAZARDOUS MATERIALS LAWS" means any federal, state or local statutes,
laws, ordinances or regulations now existing or existing after the Effective
Date that control, classify. regulate. list or define Hazardous Materials.
"HOLDOVER EXPENSES" means as defined in Section 17.3.
"HOLIDAY" means New Year's Day, President's Day, Memorial Day, Martin
Luther King, Jr.'s Birthday, Fourth of July, Labor Day, Thanksgiving Day and
Christmas Day.
"IMPROVEMENTS" means, collectively, the Landlord's Improvements and the
Tenant's Improvements.
"INITIAL ALLOWANCE" means as defined in Section 17.2.3.
"INITIAL COMMENCEMENT DATE" means the earlier of (a) the date of
Substantial Completion of all of the Initial Improvements for the Initial
Premises or (b) the date all of the Initial Improvements for the Initial
Premises would have been substantially completed in accordance with the
definition of Substantial Completion, but for Tenant Delays.
"INITIAL IMPROVEMENT PLANS" means as defined in Section 17.2.1.
"INITIAL IMPROVEMENTS" means as defined in Section 17.2.1.
"INITIAL LEASE UP" means as defined in Section 1.2.7.
"INITIAL PREMISES" means that certain space situated in the Building show
and designated on the Floor Plans and described in the Basic Terms.
"LAND" means that certain parcel of Land legally described on the attached
EXHIBIT
"LANDLORD" means only the owner or owners of the Property at the time in
question.
"LANDLORD PARTIES" means Landlord and Landlord's officers, directors,
partners. shareholders, members, employees and Property Manager.
"LANDLORD'S HOLDOVER OBLIGATION" means as defined in Section 17.3.
"LANDLORD'S IMPROVEMENTS" means the base building improvements to the
Premises described on the attached EXHIBIT "F."
"LANDLORD'S PROPOSAL" means as defined in Section 2.1.3.1.
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"LAWS" means any law. regulation. rule. order, statute or ordinance of any
governmental or private entity in effect on or after the Effective Date and
applicable to the Property or the use or occupancy of the Property, including,
without limitation, Hazardous Materials Laws. Building Rules and Permitted
Encumbrances.
"LEASE" means this Office Deed of Lease Agreement. as the same may be
amended or modified after the Effective Date.
"LEASE YEAR" means each consecutive 12 month period during the Term.
commencing on the Initial Commencement Date, except that if the Initial
Commencement Date is not the first day of a calendar month, then the first Lease
Year is a period beginning on the Initial Commencement Date and ending on the
last day of the calendar month in which the Initial Commencement Date occurs
plus the following 12 consecutive calendar months.
"MARKET RATE" shall mean the Basic Rent for which the Premises would be
expected to be leased for a five (5) year term commencing on the first day of
the applicable Renewal Term. in its then existing condition, in an arms-length
transaction between a willing landlord and tenant in the office space market
(taking into account the Building and Comparable Buildings only) at the time
such Market Rate is established, and considering (i) the size, location, area
and view of the Premises, (ii) the credit worthiness of Tenant, (iii) the five
(5) year nature of the Renewal Term. (iv) the Additional Rent and other
provisions of this Lease, other than Basic Rent, (v) the absence of tenant
improvement allowances, brokerage fees, moving costs or expenses. free rent or
any other tenant concessions which might otherwise be afforded by landlords to
tenants in connection with new leases or renewals in the market, the absence of
the benefits of which market tenant concessions shall instead be factored
directly into the determination of Market Rate, and (vi) the location and
quality of the Building.
"MAXIMUM RATE" means interest at a rate equal to the lesser of 18% per
annum and the maximum interest rate permitted by law.
"MORTGAGE" means any mortgage, deed of trust, security interest or other
security document of like nature made by Landlord that at any time may encumber
all or any part of the Property and any replacements, renewals. amendments.
modifications, extensions or refinancings thereof, and each advance (including
future advances) made under any such instrument.
"MOVING/FF&E ALLOWANCE" means as defined in Section 17.2.3.
"NET RENT" means all rental Landlord actually receives from any reletting
of all or any part of the Premises, less any indebtedness from Tenant to
Landlord other than Rent (which indebtedness is paid first to Landlord) and less
the Re-entry Costs (which costs are paid second to Landlord).
"NOTICE PERIOD" means as defined in Section 1.2.7.
"NOTICES" means all notices, demands or requests that may be or are
required to be given. demanded or requested by either party to the other as
provided in the Lease.
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"OPERATING EXPENSES" means, except as hereafter provided, all expenses
Landlord incurs in connection with maintaining, repairing and operating the
Property, as determined by Landlord's accountant in accordance with generally
accepted accounting principles consistently followed, including, but not limited
to, the following: insurance premiums and deductible amounts under any insurance
policy; maintenance and repair costs; steam, electricity, water, sewer, gas and
other utility charges; fuel; lighting; window washing; janitorial services;
trash and rubbish removal; property association fees and dues and all payments
under any Permitted Encumbrance (except Mortgages and payments other than those
for the sharing of maintenance and repair costs) affecting the Property; wages
payable to persons at the level of manager and below whose duties are connected
with maintaining and operating the Property (but only for the portion of such
persons' time allocable to the Property), together with all payroll taxes,
unemployment insurance, vacation allowances and disability, pension, profit
sharing, hospitalization, retirement and other so-called "fringe benefits" paid
in connection with such persons (allocated in a manner consistent with such
persons' wages); amounts paid to contractors or subcontractors for work or
services performed in connection with maintaining and operating the Property;
all costs of uniforms, supplies and materials used in connection with
maintaining, repairing and operating the Property; any expense imposed upon
Landlord, its contractors or subcontractors pursuant to law or pursuant to any
collective bargaining agreement covering such employees; all services, supplies,
repairs, replacements or other expenses for maintaining and operating the
Property; non-capital costs of complying with Laws; reasonable management fees
not to exceed three percent (3%) of gross rents received during any Lease Year
(provided such management fees shall not increase during the first two Lease
Years); the costs of replacing light bulbs and tubes, ballasts and starters in
tenant premises (including the Premises) of the Building; and the costs of
maintaining a management office in the Building; and such other expenses as may
ordinarily be incurred in connection with maintaining and operating an office
complex similar to the Property. The term "Operating Expenses" also includes
expenses Landlord incurs in connection with maintaining and operating the
Exercise Facility and in connection with public sidewalks adjacent to the
Property, any pedestrian walkway system (either above or below ground) and any
other public facility to which Landlord or the Property is from time to time
subject in connection with operating the Property. The term "Operating Expenses"
does not include the cost of any capital improvement to the Property other than
replacements required for normal maintenance and repair. except for the cost of
replacing exercise equipment in the Exercise Facility; the cost of repairs,
restoration or other work occasioned by fire, windstorm or other insured
casualty other than the amount of any deductible under any insurance policy;
expenses Landlord incurs in connection with leasing or procuring tenants or
renovating space for new or existing tenants; legal expenses incident to
Landlord's enforcement of any lease; interest or principal payments on any
mortgage or other indebtedness of Landlord; allowance or expense for
depreciation or amortization; or the maintenance of Common Areas to the extent
such Common Areas are attributable to retail space operating in the Building;
payments of principal. interest, or other finance charges made on any debt, or
the amortization of funds borrowed by Landlord; ground rent or other rental
payment made under any ground lease or underlying lease; costs of leasing
commissions and legal. space planning, construction, and other expenses incurred
in procuring tenants for the Building or in connection with the renewal or
expansion of any existing tenancies; costs of painting, redecorating, or other
services or work performed for the benefit of another tenant, prospective tenant
or occupant (other than for any Common Area); salaries,wages. or other
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compensation paid to officers or executives of Landlord: salaries. wages,
or other compensation or benefits paid to off-site employees or other employees
of Landlord who are not assigned full-time to the operation, management,
maintenance, or repair of the Building or Property; provided, however, that
Operating Expenses shall include Landlord's reasonable allocation of
compensation paid for the wages, salary, or other compensation or benefits paid
to personnel, if off-site, who are assigned part-time to the operation,
management, maintenance, or repair of the Building or Property; costs of
advertising and public relations and promotional costs associated with the
promotion or leasing of the Building and costs of signs in or on the Building
identifying the owners of the Building or any tenant of the Building, except for
Directory Signage and signage which identifies Landlord, its management agent or
both, and a telephone number to call for Building Services, utilities and other
similar expenses incurred solely by or on behalf of retail tenants in the
Building; any fines or penalties incurred due to the violation by Landlord or
any Laws, unless such violation has been cause by Tenant; any other expenses for
which Landlord actually receives reimbursement from any source; costs of
repairs, restoration, replacements or other work occasioned by the intentional
misconduct of Landlord or any subsidiary or affiliate of Landlord, or any
representative, employee or agent of same; costs incurred in connection with
negotiations or disputes with tenants concerning nonpayment of rent, and costs
and expenses incurred in connection with negotiations or disputes with
management agents, leasing agents, purchasers or mortgagees of the Building;
costs of repairing, replacing or otherwise correcting defects (including latent
defects) in (but not the costs of ordinary and customary repair for normal wear
and tear of) the initial design or construction of the Building or the initial
design or construction of any tenant improvements; costs relating to another
tenant's or occupant's space which (A) were incurred in rendering any service or
benefit to such tenant that Landlord was not required, or were for a service in
excess of the service that Landlord Was required, to provide to Tenant
hereunder, or (B) were otherwise in excess of the Building standard services
then being provided by Landlord to all tenants or other occupants in the
Building, whether or not such other tenant or occupant is actually charged
therefor by Landlord (including, but not limited to, HVAC services which are
provided outside of the Business Hours); costs incurred in connection with the
sale, financing, refinancing, mortgaging, selling or change or ownership of the
Building; costs, fines, interest, penalties, legal fees or costs of litigation
incurred due to the late payment of taxes, utility bills and other costs
incurred by Landlord's failure to make such payments when due; general overhead
and general administrative expenses and accounting, record-keeping and clerical
support of Landlord or management agent that are not directly attributable to
the Building; all amounts which would otherwise be included in Operating
Expenses which are paid to any affiliate or subsidiary of Landlord, or any
representative, employees or agent of same, to the extent of the costs of such
services which are in excess of arm's-length, competitive costs for similar
services of comparable quality rendered by persons or entities of similar skill,
competence and experience: increased insurance premiums caused by Landlord's or
any other tenant's hazardous acts; costs incurred to correct violations by
Landlord on the Initial Commencement Date; costs arising from the presence of
Hazardous Materials in or about or below the Land or the Building, including.
without limitation. Hazardous Materials in the groundwater or soil; non-cash
items, such as deductions for depreciation and amortization of the Building and
the Building equipment. interest on capital invested, bad debt losses, rent
losses and reserves for such losses; and services provided and costs incurred in
connection with the operation of retail or other ancillary operations owned,
operated or subsidized by Landlord. Notwithstanding the foregoing, if Landlord
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installs equipment in, or makes improvements or alterations to, the Property to
reduce energy, maintenance or other costs, or to comply with any Laws. Landlord
may include in Operating Expenses reasonable charges for interest paid on the
investment and reasonable charges for depreciation of the investment so as to
amortize the investment over the reasonable life of the equipment, improvement
or alteration on a straight line basis.
"OTHER LEASES" means as defined in Section 17.3.
"PARKING RENT" means as defined in Section 1.1.4.
"PDC" means as defined in Section 4.1.
"PERMITTED ENCUMBRANCES" means all Mortgages, liens, easements,
declarations, encumbrances, covenants, conditions, reservations, restrictions
and other matters now or after the Effective Date affecting title to the
Property.
"PREMISES" means the Initial Premises, and if applicable, the Expansion
Premises, Building Signage and Antennae.
"PROPERTY" means, collectively, the Land and all improvements on the Land.
"PROPERTY MANAGER" means any agent Landlord appoints to manager the
Property.
"PROPERTY TAXES" means any general real property tax, improvement tax,
assessment, special assessment, reassessment, commercial rental tax in lieu of
real estate taxes, levy, charge, penalty or similar imposition imposed by any
authority having the direct or indirect power to tax that are due and payable
during any Lease Year, including but not limited to, (a) any city, county, state
or federal entity. (b) any school, agricultural, lighting, drainage or other
improvement or special assessment district, (c) any governmental agency, or (d)
any private entity having the authority to assess the Property under any of the
Permitted Encumbrances. The term "Property Taxes" includes all charges or
burdens of every kind and nature Landlord incurs in connection with using,
occupying, owning, operating, leasing or possessing the Property, without
particularizing by any known name and whether any of the foregoing are general,
special, ordinary, extraordinary, foreseen or unforeseen; any tax or charge for
fire protection, street lighting, streets, sidewalks, road maintenance, refuse,
sewer, water or other services provided to the Property. The term "Property
Taxes" does not include Landlord's state or federal income, franchise, estate,
inheritance, transfer. recordation or gross receipts taxes. If Landlord is
entitled to pay, and elects to pay, any of the above listed assessments or
charges in installments over a period of two or more calendar years. then only
such installments of the assessments or charges (including interest thereon) as
are actually paid in a calendar year will be included within the term "Property
Taxes" for such calendar year.
"PROPOSAL NOTICE" means as defined in Section 2.1.3.1.
"PUNCH LIST" means a list of items not completed by Landlord in connection
with Tenant's Improvements.
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"RE-ENTRYCOSTS" means (a) all costs and expenses Landlord incurs
re-entering all or any part of the Premises, including, without limitation, all
costs and expenses Landlord incurs (y) maintaining or preserving the Premises
after an Event of Default, and (z) recovering possession of the Premises,
removing persons and property from the Premises and storing such property
(including court costs and reasonable attorneys' fees); and (b) the costs and
expenses Landlord incurs in respect to the Premises for (w) reletting (including
advertising), (x) renovating or altering for reletting, (y) paying real estate
brokers' commissions for reletting, and (z) granting free or reduced rent and
other tenant concessions (including tenant improvement allowances) that, in the
instance of clauses (w) through (z), are amortized on a straight line basis over
the remainder of the Term had the term not been terminated.
"RENEWAL TERM(S)" means either the First Renewal Term, Second Renewal Term
of both.
"RENT" means, collectively, Basic Rent, T/I Rent, Parking Rent and
Additional Rent.
"RENT COMMENCEMENT DATE" means, as applicable, in respect to the Initial
Premises, Expansion Premises or First Notice Space, the earlier of (a) the
applicable Commencement Date or the date such Commencement Date would have
occurred, but for Tenant Delays or Change Orders; or (b) the date Tenant
commences business operations in the subject portion of the Premises.
"RENEWAL NOTICE" means as defined in Section 1.2.1.3.
"RESERVED PARKING" means as defined Section 1.1.4.
"RSF" means the rentable square footage of the Building or the applicable
portions thereof, exclusive of storage space, space therein dedicated to retail
use and garage space, that is determined in accordance with BOMA Standards, with
an add-on factor of
"SCIFF SPACE" means as defined in section 9.1.
"SECOND EXPANSION COMMENCEMENT DATE" means, (a) if Landlord constructs the
Expansion Improvements for the Second Expansion Space, the date that is the
earlier of (x) the date of Substantial Completion of the subject Expansion
Improvements, or (y) the date the subject Expansion Improvements would have been
Substantially Completed, but for Tenant Delays, or (b) if Tenant causes the
Expansion Improvements for the Second Expansion Space to be constructed as
provided in Section 17.4, the date that is the earlier of (x) the date Tenant
commences to conduct its business in the Second Expansion Space, or (y) subject
to Force Majeure, the date that is sixty (60) days subsequent to the date
Landlord approves the Expansion Plans for the subject Expansion Improvements.
"SECOND EXPANSION NOTICE" means that written Notice from Tenant to Landlord
concerning the Second Expansion Space as provided in Section 1.2.6.
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"SECOND EXPANSION SPACE" means that portion of the Building elected by
Tenant to be added to the Premises pursuant to the provisions of Section 1.2.6.
"SECOND RENEWAL TERM" means as defined in Section 1.2.1.2.
"SECURITY DEPOSIT" means as defined in Section 1.4.
"SERVICE DELAY(S)" means the failure to furnish or a delay or diminution in
furnishing the services required of Landlord to be provided pursuant to Section
6.1 that are the result of causes occurring on the Property, other than any
strike, lock-out or other labor dispute, the inability to secure fuel or
supplies for the Building (after reasonable effort to do so), any accident or
casualty whatsoever, or mandatory governmental rules, regulations or guidelines.
"STATE" means the Commonwealth of Virginia.
"STRUCTURAL ALTERATIONS" means any Alterations involving the structural,
mechanical, electrical, fire/life safety or heating, ventilating and air
conditioning systems of the Building.
"SUBSTANTIAL COMPLETION" means the date that is the last to occur of (i)
when the only work remaining to be completed in connection with Landlord's and
Tenant's Improvements is such minor details of construction which work that
Landlord can complete without materially interfering with Tenant's business
within thirty (30) days, subject to the provisions of Section 17.2.8, and (ii)
the issuance of a certificate of occupancy from the County for the applicable
portion of the Premises. "Substantial Completion" shall also mean "Substantially
Complete" or "Substantially Completed."
"TAKING" means the exercise by a Condemning Authority of its power of
eminent domain on all or any part of the Property, either by accepting a deed in
lieu of condemnation or by any other manner.
"TENANT" means the tenant identified in the Lease and such tenant's
permitted successors and assigns. In any provision relating to the conduct, acts
or omissions of "Tenant," the term "Tenant" includes the tenant identified in
the Lease and such tenant's agents, employees, contractors, successors, assigns
and others using the Premises or on the Property with Tenant's expressed or
implied permission.
"TENANT'SARCHITECT" means Gensler & Associates or such other professional
architect designated by Tenant, in writing, to Landlord that is licensed in the
State of Virginia and that is reasonably acceptable to Landlord.
"TENANT'S CONTEST COSTS" means as defined in Section 3.9.
"TENANT DELAYS" means any delays caused or contributed to or by Tenant,
including, without limitation, with respect to Tenant's Improvements, Tenant's
failure to submit or resubmit, when required. the Initial Improvement Plans or
Expansion Plans: and any delays caused by any revisions Tenant proposes to the
Initial Improvement Plans or Expansion Plans.
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"TENANT'SIMPROVEMENTS" means, other than Landlord's Improvements, all
Initial Improvements, Expansion Improvements and First Notice Space Improvements
to the Premises to be designed by tenant and installed by Landlord, in the
instance of the Initial Improvements and First Expansion Space Expansion
Improvements, and installed by Tenant or Landlord, as applicable, in the
instance of the Second Expansion Space Expansion Improvements and First Notice
Space and paid for, in either instance, by Tenant.
"TENANT'SSHARE OF EXCESS EXPENSES" means. (i) in respect to Operating
Expenses. the product obtained by multiplying the amount of Excess Expenses for
Operating Expenses for the period in question by the Tenant's Share of Excess
Expenses Percentage applicable to Operating Expenses, except that Tenant's Share
of Excess Expenses in respect to Operating Expenses shall not increase in the
second and subsequent Lease Years by more than one hundred eight percent (108%)
of the preceding Lease Year's Tenant's Share of Excess Expenses in respect to
Operating Expenses, except in the instance of Operating Expenses for utilities
and insurance costs, and (ii) in respect to Property Taxes, the product obtained
by multiplying the amount of Excess Expenses for Property Taxes for the period
in question by the Tenant's Share of Excess Expenses Percentage applicable to
Property Taxes.
"TENANT'S SHARE OF EXCESS EXPENSES PERCENTAGE" means the percentage
specified in the Basic Terms, as such percentage may be adjusted as provided in
Section 1.1.3.
"TERM" means the Initial Term of this Lease specified in the Basic Terms
and, if applicable, any Renewal Term then in effect.
"TEST FIT ALLOWANCE" means as defined in Section 17.2.3.
"T/I RENT" means as defined in Section 17.2.3.
"TRANSFER" means Tenant's assignment, mortgage, pledge, transfer, sublease
or other encumbering or disposal (voluntarily, by operation of law or otherwise)
of this Lease or the Premises or any interest in this Lease or the Premises. The
term "Transfer" also includes any assignment, mortgage, pledge, transfer or
other encumbering or disposal (voluntarily, by operation of law or otherwise) of
any ownership interest in Tenant that results or could result in a change of
control of Tenant.
"WARRANT TERMS" means, collectively, the Punch List and construction
warranty provisions of Section 17.5 of the Lease.
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EXHIBIT "B"
-----------
LEGAL DESCRIPTION OF THE LAND
-----------------------------
All of that certain lot or parcel of land situated, lying and being in Fairfax
County. Virginia. and being more particularly described as follows:
Parcel B, containing 2.91031 acres, being a resubdivision of MetroPlace at Dunn
Loring, as shown on a plat attached to Deed of Resubdivision and Dedication
recorded in Deed Book 7279 at page 1398, among the land records of Fairfax
County, Virginia.
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EXHIBIT "C"
-----------
FLOOR PLAN
----------
[TO BE ATTACHED]
C-1
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Exhibit "C"
[picture of Level Seven here]
<PAGE>
Exhibit "C"
[picture of Level Eight here]
<PAGE>
Exhibit "C"
[picture of Level Nine here]
<PAGE>
Exhibit "C"
[picture of Level Ten here]
<PAGE>
EXHIBIT "D"
-----------
COMMENCEMENT DATE MEMORANDUM
----------------------------
THIS MEMORANDUM is made and entered into as of [__________,_____] by and
between [________________] ("Landlord") and [__________________] "Tenant").
RECITALS:
1. Landlord and Tenant are party to a certain Office Deed of Lease
Agreement dated as of [________], 1998 ("Lease"), relating to certain premises
("Premises") located in the building commonly known as "Metro Place II,"]
located in Merrifield, Virginia ("Building").
2. Landlord and Tenant desire to confirm the Commencement Date and Rent
Commencement Date (as such terms are defined in the Lease) and the date the
[Initial] Term of the Lease expires [and the Notice date(s) and expiration
date(s) of any renewal Term(s) provided to Tenant under the Lease].
ACKNOWLEDGMENTS:
Pursuant to Section 1.2.3 of the Lease and in consideration of the facts
set forth in the Recitals, Landlord and Tenant acknowledge and agree as follows:
1. All capitalized terms not otherwise defined in this Memorandum have the
meanings ascribed to them in the Lease.
2. The Commencement Date under the Lease is [______________].
3. The Rent Commencement Date under the Lease is [______________].
4. The [Initial] Term of the Lease expires on [__________], unless the
Lease is sooner terminated in accordance with the terms and conditions of the
Lease.
[5. Tenant must exercise its right to the [________________] Renewal Term,
if at all, by notifying Landlord no later than [_____________], subject to the
conditions and limitations set forth in the Lease.]
[6.The ________ Renewal Term expires on [_______________].
Landlord and Tenant caused this Memorandum to be executed by their duly
authorized representative as of the day and date written above. This Memorandum
may be executed in counterparts. each of which is an original and all of which
constitute one instrument.
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LANDLORD:
[________________________________]
By:_______________________________
Name:_____________________________
Its:______________________________
TENANT:
SM&A Corporation.
a California corporation
By:_______________________________
Name:_____________________________
Its:______________________________
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EXHIBIT "E"
-----------
BUILDING RULES
--------------
In the event of any conflict between the Building Rules and the terms of
the Lease, the Lease shall control. The following are the Building Rules:
1. Except as specifically provided otherwise in the Lease, any sign,
lettering, picture. notice or advertisement installed on or in any part of the
Premises and visible from the exterior of the Premises, shall be installed at
Tenant's sole cost and expense, and in such manner, character and style as
Landlord may approve in writing. In the event of a violation of the foregoing by
Tenant, Landlord may remove the same without any liability and may charge the
expense incurred by such removal to Tenant.
2. No awning or other projection shall be attached to the outside walls of
the Building. No curtains, blinds, shades or screens visible from the exterior
of the Building or visible from the exterior of the Premises, shall be attached
to or hung in, or used in connection with any window or door of the Premises
without the prior written consent of Landlord. Such curtains, blinds, shades.
screens or other fixtures must be of a quality, type, design and color, and
attached in the manner approved by Landlord.
3. Tenant, its servants, employees, customers, invitees and guests shall
not obstruct sidewalks, entrances, passages, corridors, vestibules, halls,
elevators, or stairways in and about the Building which are used in common with
other tenants and their servants, employees, customers. guests and invitees, and
which are not a part of the Premises of Tenant. Tenant shall not place objects
against glass partitions or doors or windows which would be unsightly from the
Building corridors or from the exterior of the Building, or that would interfere
with the operation of any device, equipment, radio, television broadcasting or
reception from or within the Building or elsewhere and shall not place or
install any projections, antennas, aerials or similar devices inside or outside
of the Premises or on the Building, except as specifically provided in the
Lease.
4. Provided the following does not diminish the obligations of Landlord set
forth in Section 6.1 of the Lease, Tenant shall not waste electricity, water or
air conditioning and shall cooperate fully with Landlord to insure the most
effective operation of the Building's heating and air conditioning systems and
shall refrain from attempting to adjust any controls other than unlocked room
thermostats, if any, installed for Tenant's use. Tenant shall keep corridor
doors closed.
5. Tenant assumes full responsibility for protecting its space from theft,
robbery and pilferage, which includes keeping doors locked and other means of
entry to the Premises closed and secured after normal business hours.
6. Except as specifically provided in the Lease, no person or contractor
not employed by Landlord shall be used to perform janitorial work, window
washing cleaning, maintenance. repair or similar work in the Premises without
the written consent of Landlord.
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7. In no event shall Tenant bring into the Building inflammables. such as
gasoline. kerosene. naphtha and benzine. or explosives or any other article of
intrinsically dangerous nature. If. by reason of the failure of Tenant to comply
with the provisions of this paragraph. any insurance premium for all or any part
of the Building shall at any time be increased. Tenant shall make immediate
payment of the whole of the increased insurance premium, without waiver of any
of Landlord's other rights at law or in equity for Tenant's breach of this
Lease.
8. Tenant shall comply with all applicable federal, state and municipal
laws, ordinances and regulations, and Building rules and shall not directly or
indirectly make any use of the Premises which may be prohibited by any of the
foregoing or which may be dangerous to persons or property or may increase the
cost of insurance or require additional insurance coverage.
9. Landlord shall have the right to prohibit any advertising by Tenant in
Tenant's use of the name or address of the Building which in Landlord's
reasonable opinion tends to impair the reputation of the Building or its
desirability as an office complex for office use, and upon written notice from
Landlord, Tenant shall refrain from or discontinue such advertising.
10. The Premises shall not be used for cooking (except for limited
microwave food preparation that does not cause the emission of unreasonable
odors), lodging, sleeping or for any immoral or illegal purpose.
11. Tenant and Tenant's servants, employees, agents, visitors and licensees
shall observe faithfully and comply strictly with the foregoing rules and
regulations and such other and further appropriate rules and regulations as
Landlord or Landlord's agent may from time to time adopt. Reasonable notice of
any additional rules and regulations shall be given in such manner as Landlord
may reasonably elect.
12. Unless expressly permitted by Landlord, no additional locks or similar
devices shall be attached to any door or window and no keys other than those
provided by Landlord shall be made for any door. If more than two keys for one
lock are desired by Tenant, Landlord shall provide the same upon payment by
Tenant. Upon termination of this Lease or of Tenant's possession, Tenant shall
surrender all keys of the Premises and shall explain to Landlord all combination
locks on safes, cabinets and vaults.
13. Any carpeting cemented down by Tenant shall be installed with a
releasable adhesive. In the event of a violation of the foregoing by Tenant.
Landlord may charge the expense incurred by such removal to Tenant.
14. The water and wash closets, drinking fountains and other plumbing
fixtures shall not be used for any purpose other than those for which they were
constructed, and no sweepings. rubbish, rags. coffee grounds or other substances
shall be thrown therein. All damages resulting from any misuse of the fixtures
shall be borne by Tenant who, or those servants. employees. agents, visitors or
licensees, shall have caused the same. No person shall waste water by
interfering or tampering with the faucets or otherwise.
E-2
<PAGE>
15. No electrical circuits for any purpose shall be brought into the
Premises without Landlord's written permission specifying the manner in which
same may be done.
16. No bicycle or other vehicle, and no dog or other animal shall be
allowed in offices. halls, corridors, or elsewhere in the Building.
17. Tenant shall not throw anything out of the door or windows, or down any
passageways or elevator shafts.
18. All loading, unloading, receiving or delivery of goods. supplies or
disposal of garbage or refuse shall be made only through entryways and freight
elevators provided for such purposes and indicated by Landlord. Tenant shall be
responsible for any damage to the Building or property of its employees or
others and injuries sustained by any person whomsoever resulting from the use or
moving of such articles in or out of the Premises, and shall make all repairs
and improvements required by Landlord or governmental authorities in connection
with the use or moving of such articles.
19. All safes, equipment or other heavy articles shall be carried in or out
of the Premises only at such time and in such manner as shall be prescribed in
writing by Landlord, and Landlord shall in all cases have the right to specify
the proper position of any such safe, equipment or other heavy article, which
shall only be used by Tenant in a manner which will not interfere with or cause
damage to the Premises or the Building in which they are located, or to the
other tenants or occupants of the Building. Tenant shall be responsible for any
damage to the Building or the property of its employees or others and injuries
sustained by any person whomsoever resulting from the use or moving of such
articles in or out of the Premises, and shall make all repairs and improvements
required by Landlord or governmental authorities in connection with the use or
moving of such articles.
20. Canvassing, soliciting, and peddling in the Building is prohibited and
each Tenant shall cooperate to prevent the same.
21. Vending machines shall not be installed without permission of Landlord,
except for vending machines in the Premises for the exclusive use of Tenant's
employees and guests.
22. Wherever in these Building Rules and Regulations the word "Tenant"
occurs, it is understood and agreed that it shall mean Tenant's associates.
agents, clerks, servants and visitors. Wherever the word "Landlord" occurs, it
is understood and agreed that it shall mean Landlord's assigns, agents, clerks,
servants and visitors.
23. Except as specifically provided in the Lease, Landlord shall have the
right to enter upon the Premises at all reasonable hours for the purpose of
inspecting the same.
24. Tenants, its servants, employees, customers, invitees and guests shall,
when using the common parking facilities, if any. in and around the Building,
observe and obey all signs regarding fire lanes and no parking zones, and when
parking always park between the designated lines. Landlord reserves the right to
tow away, at the expense of the owner, any vehicle which is improperly parked in
E-3
<PAGE>
a no parking zone. All vehicles shall be parked at the sole risk of the owner.
and Landlord assumes no responsibility for any damage to or loss of vehicles.
25. At all times, the Building shall be in controlled by Landlord's or the
Building manager's employee in charge and (a) persons may enter the Building
only in accordance with Landlord's regulations, (b) persons entering or
departing from the Building may be questioned as to their business in the
Building, and the right is reserved to require the use of an identification card
or other access device and the registering of such persons as to the hour of
entry and departure. nature of visit, and other information deemed necessary for
the protection of the Building. and (c) all entries into and departures from the
Building will take place through such one or more entrances as Landlord shall
from time to time designate; provided, however, anything herein to the contrary
notwithstanding, Landlord shall not be liable for any lack of security in
respect to the Building whatsoever. Landlord will normally not enforce clauses
(a), (b) and (c) above from 7:00 a.m. to 6:00 p.m., Monday through Friday, and
from 8:00 a.m. to 1:00 p.m. on Saturdays. but it reserves the right to do so or
not to do so at any time at its sole discretion. In case of invasion, mob, riot,
public excitement, or other commotion, Landlord reserves the right to prevent
access to the Building during the continuance of the same by closing the doors
or otherwise, for the safety of the tenants or the protection of the Building
and the property therein. Landlord shall in no case be liable for damages for
any error or other action taken with regard to the admission to or exclusion
from the Building of any person.
26. All entrance doors to the Premises shall be locked when the Premises
are not in use. All corridor doors shall also be closed during times when the
air conditioning equipment in the Building is operating so as not to dissipate
the effectiveness of the system or place an overload thereon.
27. Landlord reserves the right at any time and from time to time to
rescind, alter or waive, in whole or in part, any of these Rules and Regulations
when it is deemed necessary, desirable, or proper, in Landlord's judgment, for
its best interest or for the best interest of the tenants of the Building.
E-4
<PAGE>
EXHIBIT "F"
-----------
LANDLORD'S IMPROVEMENTS
-----------------------
F-1
<PAGE>
Exhibit "F"
METRO PLACE II BASE BUILDING OUTLINE SPECIFICATION
MARCH 1998
1.0 - GENERAL REQUIREMENTS SCOPE
-----
This outline specification prepared by Opus
East L.L.C. (Contractor), defines the scope
of work for the design and construction of a
speculative shell office building
(approximately 240.000) gross square feet on
a site referred to as 2600 Park Tower Drive
located in Merrifield. Virginia.
GUARANTEES
----------
All materials and equipment incorporated into
this project shall be new. The contractor
shall guarantee all work to be free from
defects of workmanship and material for one
(1) year after completion of the base
building. The Contractor shall obtain a ten
(10) year manufacturer's standard roofing
system warranty for the building.
PERMITS, LICENSING FEES
-----------------------
Contractor shall give to the proper
authorities all notices required by law
relative to the work of the project, obtain
and pay for all building permits and licenses
as are required for construction. Permits
required in conjunction with the Tenant's
professional activities would be the
responsibility of the Tenant.
CODES
-----
Contractor will be responsible for complying
with local building codes and zoning
ordinances which apply to the project
including the Americans With Disabilities Act
and the Occupational Safety and Health Act
provisions applicable to construction sites.
The building will be designed per BOCA 1996
standards.
WORKMANSHIP
-----------
The design and construction of this facility
will be in accordance with the standard
practices of the construction industry and
will be performed in a first class,
"workman-like" manner.
INSURANCE
---------
Contractor will maintain the following
insurance coverage for the project with
limits required by law or up to S2,000,000
when discretionary:
A. Workman's Compensation Insurance.
B. Comprehensive Public Liability Insurance
- including Auto liability, Complete
operations, Contingent liability,
Contractor's operations, Broad Form
Contractual Liability and blanket XCU, if
applicable.
C. Builder's Risk Insurance "All Risk" form.
TESTING
-------
The Contractor shall develop and employ a
field testing program for quality control
during the course of the project. A testing
program including, but not necessarily
limited to, soils, cast-in-place concrete.
bituminous pavements, structural steel, and
other materials will be developed and
employed by the Contractor during the course
of the project.
PROJECT MANAGEMENT
------------------
Contractor will designate a full time staff
member who will be responsible for the base
building design and construction of the
project. The project manager will have full
authority to make decisions for and represent
Page 1 of 12
<PAGE>
METRO PLACE II BASE BUILDING OUTLINE SPECIFICATION
March 1998
Contractor's interests in matters related to
schedule, cost, and execution of work. The
project manager shall be responsible for
issuing all notices and communication
affecting the project on a timely basis,
interfacing with the local and state
regulatory authorities, managing the work of
the Contractor's and selected subcontractors
forces and coordinating and implementing any
changes in the work into the design and
construction of the project.
FIELD SUPERVISION
-----------------
The Contractor shall furnish an employee who
shall act as the field superintendent until
substantial completion of the project. The
superintendent shall be responsible for
planning and executing die base building
field work including scheduling and directing
subcontractors. maintaining on-site records,
monitoring the completed work for compliance
with the contract drawings and specifications
and over-seeing layout and dimensional
control.
TEMPORARY CONSTRUCTION
----------------------
The Contractor shall furnish all temporary
construction as needed by the Contractor for
this project. Temporary construction shall
include weather-tight enclosures, temporary
roadways and parking areas, erosion control
structures, material staging and lay down
areas, material storage structures and
enclosures, enclosures for tools and other
equipment, and a field office with
appropriate facilities for storing plans,
records, and other supplies necessary to the
field management for the project base
building construction.
TEMPORARY UTILITIES
-------------------
The Contractor shall furnish temporary water,
electricity, telephone service, temporary
toilets and other supplies necessary to the
field management for the project base
building construction.
PROTECTION
----------
The Contractor shall provide protection as
needed by the Contractor for the base
building materials and work in place or
stored at the job site, whether from dampness
or cold, vandalism, theft, collapse or abuse.
CLEAN-UP
--------
The Contractor shall be responsible at all
times to keep the premises free from
excessive accumulations of waste materials
and/or rubbish. Periodically, the Contractor
shall remove all rubbish and waste materials
from the building and the construction site,
and at the completion of the project, all
debris, tools, scaffolding and surplus
materials shall be removed and the project
shall be left in a "broom clean" condition.
2.0 - SITEWORK GRADING AND EARTH WORK
----------------------
Contractor will clear, strip, excavate, and
rough and fine grade the site based on the
findings of a qualified Geotechnical
Engineer. Adequate grades will be established
for drainage which will be handled by means
of catch basins, storm sewers, and surface
run off as appropriate. The scope of the
earth work and the foundation system design
will be in accordance with soil borings
prepared by an independent soils engineer.
Page 2 of 12
<PAGE>
METRO PLACE II BASE BUILDING OUTLINE SPECIFICATION
March 1998
Top soil stripped from the building and paved
areas will be re-spread in lawn areas or
landscape berms.
All Earth work will be observed, tested, and
approved by an independent soils engineer.
Fill areas will be compacted in accordance
with his recommendations in both the building
and parking areas. Areas to receive
bituminous paving outside the building
structure area will be graded for proper
drainage.
UTILITIES
---------
Contractor will make all necessary
connections to the municipal utilities and
flush and test all piping systems including
water storm and sanitary from supply lines
currently existing.
PAVING AND STRIPING
-------------------
The Contractor shall furnish and install all
bituminous paved parking lots. Striping using
standard markings is included. Handicapped
parking per ADA guidelines.
EXTERIOR CONCRETE
-----------------
The project includes curb and gutter for the
parking areas in accordance with State of
Virginia standards. Broom finished concrete
sidewalks for pedestrian access from parking
areas and around site shall be provided in
accordance with State of Virginia standards.
SITE ELECTRIC
-------------
Illumination of the parking areas shall be a
minimum average of 5 fc. The aforementioned
will be in accordance with local code
guidelines. Empty conduits only will be
provided for telephone and/or fiber optic.
LANDSCAPING AND IRRIGATION
--------------------------
Landscaping and irrigation shall be in
accordance with local code guidelines and
match the quality of surrounding development.
3.0 - CONCRETE The concrete parking structure will conform
to the standards of ACI, ASTM and applicable
building regulations and code. The general
construction of garage and stairs will be
precast columns, spandrel beams and double
tees on spread concrete footings and concrete
foundations/retaining walls.
The foundations will conform to the standards
of Ad. ASTM and applicable building
regulations and codes. Soil bearing pressure
is assumed to be a minimum of 3000 psf.
4.0 - MASONRY The building exterior wall system will
consist of precast panels and cast stone
accents applied to an engineered structural
stud and sheathing system. The building
exterior wall systems will be constructed to
compliment aluminum windows and the
storefront system.
Page 3 of 12
<PAGE>
METRO PLACE II BASE BUILDING OUTLINE SPECIFICATION
March 1998
5.0 - METALS STRUCTURAL STEEL
---------------- The structural system will conform to he
standards of ACI, .ASTM, SJI and applicable
building regulations and code. The general
construction will be structural steel columns
and beams on spread concrete footings with
concrete floor decking. The first floor shall
be slab on grade. The roof shall be metal
deck supported by beams or bar joists with
single ply membrane roofing and insulation.
The live load design criteria will be in
accordance with all applicable codes of the
jurisdiction.
MISCELLANEOUS METALS
--------------------
Access ladder at elevator pits shall be
provided. Rails for interior stairwells will
be furnished.
Interior building stairs will be constructed
of steel stringers and concrete filled metal
pan treads with metal risers.
7.0 - THERMAL & MOISTURE PROTECTION
INSULATION
----------
Insulation for exterior walls will be
fiberglass batts with vapor barrier applied
between the structural steel studs supporting
the veneer and window system. All exterior
soffits and window overhangs will be
insulated. Rigid perimeter insulation will be
provided to a depth of 2' below finished
grade at all exterior walls.
ROOFING
-------
The roof over the entire facility will be of
single ply membrane, insulated with an R19
rating and ballasted.
Roofing and flashing will be guaranteed by
the roofing subcontractor for one year. The
single-ply membrane system, excluding
insulation and metal coping, will be
guaranteed by the membrane manufacturer for
ten (10) years.
8.0 - DOORS AND WINDOWS WINDOWS & STOREFRONT
--------------------
All exterior main entrance doors and frames
will be prefinished aluminum framing members
matching the windows and curtain wall. All
main exterior doors will have aluminum
thresholds. Service entrance doors shall be
galvanized, painted, hollow metal.
Windows will be manufacturer's standard
color, lightly reflective, insulated glass
set in prefinished aluminum frames with a
thermal break design.
Window units will be fixed, with no operating
sash.
The lobby curtain/storefront system will be
manufacturers standard color lightly
reflective or clear glass set in prefinished
aluminum frames with a thermal break design.
WOOD DOORS
----------
Interior doors will be 3'x 7' solid core,
plain sliced, red oak veneer or equal. with
manufacturer's standard finish. Wood doors
will be provided
Page 4 of 12
<PAGE>
METRO PLACE II BASE BUILDING OUTLINE SPECIFICATION
March 1998
with standard profile. 2 wide, hollow metal
frame. Base building doors will be provided
as shown on the plans. Suite entry doors and
tenant area interior partition doors will be
installed as part of the tenant improvement
allowance.
HOLLOW METAL DOORS AND FRAMES
-----------------------------
Exterior and interior hollow metal doors in
service areas will be 3'x 7' flush face,
panel design. All interior frames will be
standard profile. 2' wide, hollow metal
frame. All hollow metal doors and frames will
be painted.
FINISH HARDWARE
----------------
All door hardware will be as manufactured by
Schlage. Russwin, Corbin or equal to meet ADA
requirements with functions appropriate for
intended use. Base building and tenant
locksets will be lever style hardware with US
26D satin chrome or polished chrome finish. A
complete keying system enabling doors within
a given area to be keyed alike and tied into
a building master and grand master system
will be furnished. Hinges are to be primed to
receive a painted finish.
9.0 - FINISHES
TENANT AREA
-----------
Perimeter walls, interior columns, tenant
side of common area walls and shaft walls to
be framed, gypsum board installed, taped,
sanded and finished ready for paint. Ceiling
grid will be installed as part of the base
building scope of work.
FIRST FLOOR MAIN LOBBY
----------------------
The first floor, main elevator lobby of the
base building shall include the finishes and
allowances outlined below. It shall be
designed and constructed to optimize
appearance and allow for reasonable
maintenance of high traffic areas.
o Drywall walls and ceilings
o Natural stone flooring similar to 3/8"
thick, 12" x 12" granite pavers similar
to Rosio Parrino, Luna Pearl, Rosa Beta
or Dynasty Black with 4" high base
similar to flooring.
o Down lighting and light cove fluorescent
strip lighting concealed by eggcrate
lens.
o Manufacturer's standard walk off mats.
o Stain grade. wood wall panels from base
to ceiling.
o Building directory
Page 5 of 12
<PAGE>
METRO PLACE II BASE BUILDING OUTLINE SPECIFICATION
MARCH 1998
ELEVATOR LOBBIES - FLOOR COMMON CORRIDORS*
------------------------------------------
o Drywall walls and ceilings.
o Carpet flooring with 4" vinyl base.
o Down lighting
o Vinyl wallcovering from floor to ceiling.
o Wood trim approximately 500 If per lobby.
* For multi-tenant floors only. On single
tenant floors, the elevator lobby and
corridors will be constructed as part of the
tenant improvement allowance.
TOILET ROOMS
------------
A. FLOORS: The toilet room floors will
receive a standard 2" x 2" domestic
ceramic tile, similar to keystones,
mosaics, unglazed Daltile or equal.
B. WALLS/BASE: All toilet room walls will be
floor to floor height, dry wall partitions
with acoustic batt insulation. Plumbing,
toilet and urinal side walls will receive
full height, unglazed, 4" x 4" domestic
ceramic tile similar to Daltile
semi-gloss-gloss or matte wall tile. All
other wall surfaces will be vinyl. Ceramic
tile base with a cove profile will be
provided around the full perimeter of each
toilet room.
C. CEILINGS: Suspended drywall taped, sanded
and painted with access panels as
required. This includes bathroom
vestibules. Lighting as described above in
8.8
D. VANITIES: Conan vanity top with under
counter basin.
E. TOILET PARTITIONS AND ACCESSORIES: Floor
mounted, painted metal partitions in
conjunction with standard toilet room
accessories including soap dispensers.
towel dispensers, trash receptacles, paper
holders, etc.
F. VESTIBULES: Vinyl wall covering and
commercial grade carpet consistent with
that used in the corridors.
STAIRS
------
A. FLOORS: Exposed. sealed concrete with
painted stringers and risers.
B. WALLS: All stair side gypsum board will be
provided with 2 coats of semi-gloss latex
paint.
C. CEILINGS: The underside of the exposed
stairway will be painted. Stairwell
ceiling to be exposed and painted.
D. METALS: All handrails, stringers. etc.
will be painted.
E. BASE: 4" covered vinyl base will be
installed around each floor level stairway
landing.
ELECTRICAL MECHANICAL AND TELEPHONE ROOMS
-----------------------------------------
A. FLOORS: The floors will be sealed concrete
with 4" vinyl base.
B. WALLS: Gypsom. block and taped only.
C. CEILING: Exposed structure will remain
unfinished.
JANITOR'S CLOSET
----------------
A. FLOORS: The floors will be VCT similar to
Armstrong Standard Excelon with 4" vinyl
base.
B. WALLS: Gypsom walls will be painted. Vinyl
base will be installed at the perimeter of
the room.
Page 6 of 12
<PAGE>
METRO PLACE II BASE BUILDING OUTLINE SPECIFICATION
MARCH 1998
C. CEILING: Exposed structure will remain
unfinished.
10.0 - SPECIALTIES FIRE EXTINGUISHERS AND CABINETS
-------------------------------
Fire extinguishers and recessed cabinets will
be provided in core areas as required by
code.
INTERIOR SIGNAGE
----------------
Core area rooms will be furnished with
commercial grade signage including rest
rooms, mechanical and electrical rooms.
stairwells. etc. All other exterior and
interior signage is included in the Tenant
Improvement Allowance.
BLINDS
------
Mini blinds shall be included at each
exterior window.
11.0 - EQUIPMENT RECEIVING AREA
--------------
A loading area shall be provided with
separate entry doors.
14.0 - ELEVATORS BUILDING ELEVATOR
-----------------
Contractor will furnish and install six (6)
overhead traction passenger elevators with 8'
cabs, having capacities of 3000 pounds and
operating at speeds of 350'/minute. Cab
finishes shall be manufacturer's standard
with custom carpet floor and custom laminated
or wood veneer walls which will be
coordinated with the tenant finishes and
designed to minimize maintenance. The
elevators will have call buttons and
indicator lights for all levels.
GARAGE ELEVATOR
---------------
Contractor will furnish and install two (2)
hydraulic elevator cabs with capacities of
3500 pounds at 150'/minute. The cabs shall be
manufacturer's standard plastic laminate cabs
with VCT flooring.
15.0 - PLUMBING SYSTEM SYSTEM DESCRIPTION
------------------
Contractor will design and install a complete
base building plumbing system to accommodate
the plumbing needs of the facility. Scope to
include all outside sanitary, storm water,
and domestic water work, interior waste and
vent, hot and cold water piping system,
common plumbing fixtures, and parking garage
storm sewer work.
OUTSIDE SEWER AND WATER WORK
----------------------------
Contractor will make all necessary
connections to the site, utilities 5"-0"
outside of building and flush and test all
building piping systems.
INTERIOR PIPING SYSTEMS
-----------------------
A complete sanitary waste and vent piping
system and hot and cold water piping system
will be provided for the base building core
areas using code approved materials and
methods. An interior roof drainage system
will be connected to the exterior storm drain
system.
Stop valves at each fixture in addition to
the required unions and insulating valves
will be used to create an easily serviceable
system. All piping systems will be flushed
and tested.
Page 7 or 12
<PAGE>
METRO PLACE II BASE BUILDING OUTLINE SPECIFICATION
MARCH 1998
DRAINAGE SPECIALTIES
--------------------
Floor drains will be provided in the toilet,
mechanical and elevator machine rooms. Drains
and cleanouts will be equal to Smith, Wade or
Zurn. Deck drains will be provided at the
parking garage.
SERVICE WATER HEATING SYSTEM
----------------------------
Hot water will be provided for lavatories by
means of electric water heaters located close
to each respective restroom group.
PLUMBING FIXTURES AND EQUIPMENT
-------------------------------
Plumbing fixtures will be commercial quality
equal to American Standard, Kohler, or Eljer.
All ADA requirements shall be met.
Lavatories will be under-counter bowls and
single handled, ADA compliant style faucets.
Water closets will be wall mounted, flush
valve type. Urinals will be wall mounted,
flush valve units. All fixtures will conform
to the applicable plumbing Code. Fixture
counts will conform to local code
requirements.
Janitor's mop sinks will be furnished at each
floor.
One freeze-proof wall hydrant equal to
Woodford, Josam, or Zurn, will be installed
at the dock area, three freeze-proof wall
hydrants will be installed around the
building.
Electric ADA compatible water coolers will be
installed at toilet room entrance locations.
The quality will be equal to Halsey-Taylor,
Westinghouse, or Oasis. Reduced pressure
backflow preventor will be installed in die
main water room area.
15.0 - FIRE PROTECTION SPRINKLER SYSTEM
FIRE PROTECTION SYSTEM
----------------------
Contractor will install a wet pipe, automatic
fire protection system for the facility to
comply with the written requirements of the
Fire Marshall and applicable codes.
FIRE PROTECTION DESIGN CRITERIA
-------------------------------
The base building sprinkler system will
include piping from a reduced pressure
backflow preventor, riser piping and control
valve for each floor. Each floor or zone of
the sprinkler system will contain a flow
alarm capable of being connected to a fire
alarm panel for remote alarm monitoring.
The system will include a building mounted,
fire department siamese connection located
per the jurisdictional and code requirements.
The system loop complete from the riser is
included in the base building. All branch
work, sprinkler heads and drops will be
installed as part of the Tenant Improvement
Allowance.
Sprinkler heads shall be recessed and
finished at a minimum distance of 1'-0" from
edge of ceiling grid based on light hazard
coverage per NFPA 13. Sprinkler heads shall
be upright in exposed parking structure based
on ordinary hazard coverage per NFPA 13.
Page 8 or 12
<PAGE>
METRO PLACE II BASE BUILDING OUTLINE SPECIFICATION
MARCH 1998
15.0 - HVAC SYSTEM A floor by floor VAV supply with (1)
water-cooled self contained unit on each
floor is anticipated. Cooling tower to be
centrally located on the roof adjacent to a
mechanical penthouse near the elevator
penthouse. Pumps. tanks, and heat exchanger
to be located in penthouse. Outside
ventilation air units to be located on the
roof. Perimeter, fan powered. VAV boxes with
electric heating coils and interior, fan
powered. non heating, VAV boxes are to be
provided as part of the base building.
The system will feature code required
ventilation. Minimum outside air provision
will be based on the higher standard of
ASHRAE STANDARD 62-89 (ventilation for
acceptable indoor air quality) or the
successor to such standard which is currently
being written. Minimum outside air will be
actively controlled in accordance with the
actual building population.
The system, including the exhaust fans, will
be designed to conform to the floor plans and
to operate so that sound transmission levels
do not exceed NC40.
The system will be designed with no more than
60 If per zone for perimeter enclosed offices
on a single exposure, with an average of not
less than one zone per 900 sf of usable area
in the premises.
The design of the air conditioning system is
based on the assumption that the general
offices will contain one person and one
personal computer per ISO gross square feet
and each personal computer generates 1000
Btu's. Lighting loads are assumed to equal
two watts per gross square foot including
common areas.
Heating, ventilation and air conditioning
systems shall meet the following design
conditions at the stated outside conditions:
1. Summer, outdoor conditions 93 degrees
Fahrenheit drybulb, 75 degrees Fahrenheit
wet bulb, indoor conditions 75 degrees
Fahrenheit drybulb, 50% relative humidity
maximum.
2. Winter-outdoor conditions 14 degrees
Fahrenheit drybulb. indoor conditions 72
degrees Fahrenheit drybulb.
All interior areas should be suitably zoned
with independent zone controls.
Supply outlets should be selected for minimum
drafts and adequate air distribution.
The type and size of diffusers are to be
standard, perforated. 2' x 2' similar to
Titus P4S and standard 2 slot linear
diffusers similar to Titus TBD 80. The type
and size of grilles are to be similar to
Titus PXP.
All supply and/or return ducts should be
equipped with fusible link dampers as
required by applicable laws and codes.
Electrical closets and telephone closets will
be equipped with relief openings and exhaust
fans, exhausting to the return air plenum.
Page 9 of 12
<PAGE>
METRO PLACE II BASE BUILDING OUTLINE SPECIFICATION
MARCH 1998
Air filtration should be provided by one
filter set of at least 65% efficiency.
A direct digital control system (energy
management system) will be provided with the
features listed below as a minimum:
1. System equipment to maintain occupancy
comfort at minimum energy use.
2. Provide run time status of HVAC equipment.
3. Control each zone to maintain set point
temperature. The set point temperature
shall be adjustable through system
software.
4. Provide alarms indicating equipment
failure, zone high/low temperatures, etc.
Loading and mechanical room areas will be
heated to 60 degrees Fahrenheit at 10 degrees
Fahrenheit winter conditions.
Elevator machine room area will be
ventilated. Elevator shaft will have relief
dampers.
Toilet areas will be exhausted at required
code rates.
Base building scope to include all work up to
and including VAV boxes. Tenant improvement
allowance to include low pressure ductwork,
grilles, diffusers and thermostats.
16.0 - ELECTRICAL SYSTEM PRIMARY ELECTRICAL SERVICE
--------------------------
A pad mounted transformer will be furnished
by the electrical utility. Basic electrical
service will consist of 480/277 volts, 3
phase, 4 wire, 60 cycles through a grounded
switchboard suitable for such service. The
electrical service conductor and switchboard
shall be oversized 20% to facilitate future
growth requirements. Switchboard devices
shall be selectively coordinated with a
ground fault protection system. Power will be
brought into the building from the
transformer via an underground duct bank to a
main service disconnect located in the first
floor.
SECONDARY ELECTRICAL DISTRIBUTION
---------------------------------
Distribution voltages shall be 480/277 volts,
4 wire, 3 phase for fluorescent lighting and
integral horsepower motors; and 120/208
volts. 4 wire, 3 phase for receptacle
circuits, small motors and incandescent
lighting.
The electrical service shall provide a
minimum of six watts per rentable square foot
for lighting and receptacles in all areas,
excluding HVAC equipment. special systems.
miscellaneous electrical loads and elevator
equipment requirements.
Power distribution throughout the building
shall be via wire in conduit. Busways shall
be of the low impedance type and totally
enclosed. Firestops or barriers shall be
included as an integral part of each length
and fitting of duct where required and at
each floor.
Electrical distribution shall be to the
electrical rooms on each floor. Electrical
rooms will be stacked directly above each
other. Each of the rooms on each floor will
be fed by its own wire in conduit.
Page 10 of 12
<PAGE>
METRO PLACE II BASE BUILDING OUTLINE SPECIFICATION
MARCH 1998
Circuit breaker panel boards shall he located
in each electrical room to serve electrical
loads and the portion of the leased premises
on the floor as follows:
o One 480/277 volt panel board in each
electrical room. Panel board shall have
100 amp main breaker and provision for 42
one pole bolt on breakers. Panel boards
shall include at least one 20 amp circuit
breaker per 500 square feet of usable
space (exclusive of the 20% growth
requirement).
o In each electrical room, two 480/120/208
volt panel boards with a 75 KVA-K4 dry
type transformer fed from the plug-in bus
duct, with 200% neutral. Each panel board
shall have a 225 amp main breaker and
provisions for 42 one pole, bolt-on
breakers. Panel boards shall include at
least one 20 amp circuit breaker per 250
square feet of usable space. Each panel
shall have its own main breaker. Each
120/208 panel shall be equipped with a
200% neutral, ground and isolated ground
bus.
o Panel boards and cabinets shall contain
space for 20% additional circuit breakers
for future requirements.
GROUNDING
---------
The entire electrical system and equipment
shall be grounded in accordance with the
National Electrical Code. In addition, ground
counterpoise shall be a 350 MCM ground
conductor installed around the perimeter of
the building and connected to building steel.
Switchboard shall be connected to this ground
and a 350 MCM riser run through each
electrical / telephone and data room. Provide
in each electrical, telephone and data room a
1/4" x 2" x 24" ground bus connected to the
350 MCM ground riser.
MISCELLANEOUS POWER
-------------------
The base building shall include miscellaneous
use duplex 120 volt receptacles in equipment
rooms, bathrooms, mechanical rooms, lobbies.
storage areas and corridors. Exterior service
outlets will be provided near the roof
mounted HVAC equipment.
EMERGENCY POWER & LIGHTING
--------------------------
The building shall have an emergency power
back-up system for elevators. emergency
lighting and emergency communications.
Emergency generator to be designed per code
and located outside of building. All work
support UPS components shall be installed by
Tenants and/or included as part of the Tenant
Improvement Allowance.
TELEPHONE SERVICE
-----------------
An underground telephone service conduit will
be provided and extended to the building
telephone service room. Telephone equipment
and wiring to the individual floors and
tenant spaces will be the Tenant's
responsibility and cost.
SPECIAL SYSTEMS
---------------
Fire alarm System - A complete UL approved
fire management alarm system will be provided
to comply with local fire department
requirements for shell building use and
occupancy. All tire alarm features required
in the tenant area to complete the system
such as strobes, speakers, pull
Page 11 of 12
<PAGE>
METRO PLACE II BASE BUILDING OUTLINE SPECIFICATION
MARCH 1998
stations, etc., will be provided as part of
the tenant improvement allowance. A security
system will be provided to allow after hour
electronic access at building entry
locations.
INTERIOR LIGHTING
-----------------
ELEVATOR LOBBIES
----------------
The lobbies, corridors, vestibules, elevator
lobbies, etc. will be lit with PL down light
fixtures, uplights or cove lighting to an
average of 35 foot candles.
ELECTRICAL ROOMS, MECHANICAL ROOMS, JANITOR'S
CLOSETS, AND DOCK AREAS
---------------------------------------------
Lighting in these areas will be 4' or 8' wall
or ceiling mounted fluorescent strip fixtures
to an average of 40 foot candles.
TOILET ROOMS
------------
Toilet rooms will be lit with light coves
consisting of fluorescent strip fixtures and
egg-crate lens provided in each toilet room.
STAIRS
------
Stairwell lighting will consist of ceiling
mounted or wall mounted fluorescent lighting
fixtures, included as part of base building
cost.
EXTERIOR LIGHTING
-----------------
Lighting at the building exterior exits will
consist of strategically located flood
lighting. Wall mounted fixtures will also be
provided as required at the dock area. All
exterior lighting is included as part of base
building costs. Site parking lot lighting is
as outlined in section 2.0.
GARAGE LIGHTING
---------------
Garage lighting to be strip type providing a
minimum of 5 fc in the under deck areas. The
top deck to be pole mounted as described in
section 2.0.
TENANT AREA LIGHTING
--------------------
All Tenant area lighting shall be purchased
and installed as part of the Tenant
Improvement Allowance.
Part 12 of 12
<PAGE>
EXHIBIT "G"
-----------
SCHEDULE OF FIT-UP WORK
-----------------------
G-1
<PAGE>
EXHIBIT "G"
SCHEDULE OF FIT-UP WORK
o Data/Computer Cabling
o Computer Systems Installation and Check-out
o Phone System Cabling
o Phone System Installation and Check-out
o Security System Cabling
o Security System Installation
o Intercom System Cabling and Installation
o Vendor Machine Installation
o Artwork and other Interior Wall Decoration
o Interior Signage
o Other Tenant Interior Items as necessary
<PAGE>
EXHIBIT "H"
-----------
PARKING PLAN
------------
H-1
<PAGE>
Exhibit "H" p. 1/6
[picture of Level One Parking Plan here]
<PAGE>
Exhibit "H" p. 2/6
[picture of Level Two Parking Plan here]
<PAGE>
Exhibit "H" p. 3/6
[picture of Level Three Parking Plan here]
<PAGE>
Exhibit "H" p. 4/6
[picture of Level Four Parking Plan here]
<PAGE>
Exhibit "H" p. 5/6
[picture of Level B-1 Parking Plan here]
<PAGE>
Exhibit "H" p. 6/6
[picture of Level B-2 Parking Plan here]
<PAGE>
EXHIBIT "I"
-----------
INITIAL IMPROVEMENT BIDDER LIST
-------------------------------
I-1
<PAGE>
Exhibit "I"
METRO PLACE
BIDDERS
MILLWORK
- --------
Firm: Specified Washington Jefferson Millwork
Woodworking Woodworking and Design
- --------------------------------------------------------------------------------
Address 532 Anniversay 2010 Beaver Rd. 44098 Mercure Cir.
Circle Suite 115
Address Gaithersburg, MD Landover, MD Sterling, Va 20166
20877 20785
Address
Contact: Duane Gross, Rick Ken Lauer Mike Corrigan
Hakanson
Telephone Number: 301.840.0741 301-341-2500 703-260-3370
================================================================================
DOORS, FRAMES,
- --------------
HARDWARE
--------
Firm: Swingin' Door Dominion Door C.H. Edwards
& Hardware
- --------------------------------------------------------------------------------
Address 7400 Lindbergh Ammendale Hwy 11, South
Drive Commerce Center
Address Gaithersburg, MD 6501 Virginia Greenville, NC
Manor Road 27834
Address 20879 Beltsville, MD
20705
Contact: Toy Sakosi Bill Suhosky Steve Nichols
Telphone Number: 301-417-9000 301-419-2000 919-756-8500
================================================================================
CERAMIC FLOORING
- ----------------
11/11/1998
Firm: David Allen McClary Tile Majolica
- --------------------------------------------------------------------------------
Address 12176 Livingston 5918 Farrington 1415 Cresent Spot
Road Ave. Lane
Address Manassas, VA Alexandria, VA Frederick, MD 21702
20109 22304
Address
Contact: Stuart Lloyd Neff McClary Kathy Fox
Telephone Number: 703.690.4422 703-751-5430 301-694-0168
================================================================================
<PAGE>
METRO PLACE
BIDDERS
PAINTING
- --------
11/11/1998
Firm: Cochran & Mann Sparkle Atlantic Decorating,
Inc.
- --------------------------------------------------------------------------------
Address 7841 Cessna Ave 7962 Conell CT. 3354-B Patuxent River
Rd.
Address Gaithersburg, MD Lorton, VA 22079 Davidsonville, MD
20879 21035
Address
Contact: Mike Cochran, Jim Doherty, Kelly Kevin Trumpower,
Lisa Palmer Maxwell John Tomay
Telephone Number: 301-948-1471 703-541-3100 301-261-7902
================================================================================
CARPET
- ------
Firm: Ryan Floors, Inc. Southern Md. Dupont Flooring
Floors
- --------------------------------------------------------------------------------
Address 7534 10505 Theadore 22960 Shaw Road
Rickenbacker Dr. Green Blvd.
Address Gaithersburg, MD White Plains, MD Sterling, VA 20166
20879 20695
Address
Contact: Pat Ryan Al Blaso Marty Schray
Telephone Number: 301-258-1900 301-870-2100 703-742-9000 Ext.
================================================================================
DRYWALL AND CEILINGS
- --------------------
11/11/98
Firm: Tri State Ceilings & Summit Interior
Drywall Partitions
- --------------------------------------------------------------------------------
Address 14630 Rothgeb 8812 Spectrum 95 Monacacy Blvd,
Drive Drive Unit B-21
Address Rockville, MD Landover, MD Frederick, MD
20850 20785 21701
Address
Contact: Jaco Pare Tom Larry Sadowski Bob Godhart, Greg
Hockman
Telephone Number: 301-424-4900 301-808-1400 301-698-0313
301-424-2574
================================================================================
<PAGE>
METRO PLACE
BIDDERS
PLUMBING, HVAC
- --------------
Firm PBM Mech MDS Magnolia
- --------------------------------------------------------------------------------
Address 2820 Dorr Ave, 2811 Noble Fir 600 Galladin St, NE
Suite 210 Court
Address Fairfax, Va. Woodbridge VA Washington, DC
22031 22192 20017
Address
Contact: Pat McAtter, Mitch Schirly John Magnolia
Chris Campbel
Telephone Number: 703-698-9700 703-643-1781 202-829-8510
================================================================================
SPRINKLER
- ---------
Firm: Capitol Chesapeake Livingston Fire
Sprinklers Sprinkler
- --------------------------------------------------------------------------------
Address 6550 Dobbin Road 44642-108 504 Shaw Road, Suite
Guilford Dr. 219
Address Columbia, MD Ashburn, VA Sterling, VA
Address 21045 22011 20166
Contact: Bill B. Treece Bob Kerr x22 John Livingston
Dave Floer
Telephone Number: 301-982-1023 703-729-5150 703-478-6789
================================================================================
ELECTRICAL
- ----------
Firm: Tower Electric Freestate Truland
- --------------------------------------------------------------------------------
Address 11170 Lee 6623 Mid Cities 3330 Washington
Highway, Suite D Ave. Blvd.
Address Faifax, VA Beltsville, MD Arlington, VA 22201
22030 20705
Address
Contact: Kin Plubell Mack Hayden Keith Bush, Frank
Baughman
Telephone Number: 703.591.8860 301-595-0665 703-516-2621 2620
================================================================================
<PAGE>
EXHIBIT "J"
-----------
JANITORIAL, HVAC AND INDOOR AIR QUALITY SPECIFICATIONS
------------------------------------------------------
I. JANITORIAL
----------
DAILY NIGHT CLEANING
--------------------
OFFICE AREAS:
1. FLOORS
CARPETS
All carpets will be thoroughly vacuumed throughout the building.
Spills. spots and adherents will be cleaned/removed. Spot
cleaning/shampooing as required.
VINYL (RESILIENT) TILE
All tile floors will be dusted with a treated dust mop. All spillage
will be removed, including damp mop cleaning when required. Spray buff
floor, using a commercial floor polishing machine, synthetic fiber pad
and an approved commercial grade high-gloss, slip resistant floor
finish in accordance with an approved schedule and/or as needed.
2. TRASH REMOVAL
All trash containers will be emptied and returned to original
locations. Plastic liners will be used in trash containers and changed
as necessary for appearance and sanitation. No trash bag should ever be
placed directly on carpet. A mat or liner should always be used to
protect carpet from stains. Trash containers will be periodically
washed, for appearance and sanitation. All trash collected will be
deposited in the bulk trash compactor located in the loading dock.
Doors on the compactor will be kept closed when not in use. Any spills
during the collection of trash will be cleaned immediately (inside or
outside the building) and related stains will be washed/shampooed as
required. The loading dock will be swept clean each night. NO TRASH
WILL REMAIN IN THE BUILDING.
3. ASH TRAYS
All ashtrays will be emptied and wiped with a damp cloth to remove
stains and odors and returned to original locations.
4. DESKS AND CHAIRS
Wood desks will be thoroughly dusted with a treated dust cloth and
oiled/waxed only when requested by Tenants. Non-wood desks will be damp
wiped as necessary to remove spots and stains, including front and side
vertical surfaces. All glass desktops will be damp cleaned. Papers on
desks will not be disturbed. All chairs will be dusted as required (see
WEEKLY CLEANING).
J-1
<PAGE>
5. FILE AND STORAGE CABINETS
All file and storage cabinets will be dusted thoroughly. using a
treated dust cloth. Cabinets lined in a row will be dusted along the
horizontal and vertical surface of each cabinet. Spots will be damp
cleaned.
6. TABLES AND LAMPS
Tables will be treated in a like manner as desks. Lamps will be dusted
thoroughly using a treated dust cloth.
7. SUITE ENTRANCE LOBBIES
All hard surface floors will be thoroughly cleaned and non-slip floor
finish applied as necessary. Spray buff floor, using a commercial floor
polishing machine, synthetic fiber pad and an approved commercial grade
high-gloss, slip resistant finish in accordance with an approved
schedule and/or as needed. All entrance glass doors will be cleaned.
Area mats will be thoroughly vacuumed and returned to their original
locations. Carpeted areas will be vacuumed and stains removed as
needed.
8. KITCHENS/WORK ROOMS
Carpeted areas will be vacuumed and all stains removed. Resilient
flooring will be swept and damp moped to remove spillage. Resilient
floors will be spray buffed using a commercial floor polishing machine,
synthetic fiber pad and an approved commercial grade high-gloss, slip
resistant floor finish in accordance with an approved schedule and/or
as needed.
PUBLIC AREAS
9. STAIRWAYS
Stair landings and steps will be checked nightly. Spills will be wiped
up daily. Resilient floors will be spray buffed. using a commercial
floor polishing machine. synthetic fiber pad and an approved commercial
grade high-gloss, slip resistant floor finish in accordance with an
approved schedule and/or as needed. Carpeted stairwells will be
vacuumed nightly. All hard floor stairwells will be swept twice weekly
and mopped not less than twice monthly.
10. OUTSIDE ENTRANCES
Entrances to the building will be cleaned nightly. Both sides of
entrance doors will be cleaned. All metal will be cleaned and polished.
Entrance mats will be cleaned daily and shampooed weekly. All hard
floors will be swept. dry mopped or wet mopped (on schedule and/or as
needed).
11. LOADING DOCK/FREIGHT ELEVATOR
Loading dock/freight elevator and lift will be swept and damp mopped.
Lift floor will be cleaned as needed.
J-2
<PAGE>
12. WATER FOUNTAINS
Water fountains and surrounding area will be washed, sanitized and
polished nightly.
13. ELEVATOR LOBBIES
The elevator lobbies and public area corridors on each floor will be
thorou~hlv cleaned. Carpets will be vacuumed. Hard floors will be
dusted with a treated dust mop. All spillage will be removed, including
damp mop cleaning when required. Spray buff floor, using a commercial
floor polishing machine, synthetic fiber pad and an approved commercial
grade high-gloss, slip resistant finish in accordance with an approved
schedule and/or as needed.
14. DOORS
Glass doors and walls will be washed. Wood doors will be wiped with a
dry cloth to remove spots, smudges and fingerprints. All metal will be
cleaned and polished.
15. MAIN LOBBY
Sweep and dust mop all stone floor areas. Entrance mats and carpets
will be vacuumed. Dust and wash glass doors and walls. Polish metal of
front doors and back doors. Dust ledges, light fixtures and planters.
Dust and clean directory.
Stone floor will be spray buffed, using a commercial floor polishing
machine. synthetic fiber pad and an approved commercial grade
high-gloss, slip resistant finish in accordance with an approved
nightly schedule. Lobby floor buffing will be performed between 7:00PM
and 10:00PM weeknights. Special lobby floor maintenance work, including
stripping and refinishing may be performed on weekends with prior
approval.
16. ELEVATORS
All elevator walls will be thoroughly dusted and cleaned with a damp
cloth. Carpets will be vacuumed and spots removed. Carpets will be
shampoo cleaned on a regular schedule.
RESTROOMS
Restroom will receive completed cleaning and sanitation each night in
accordance with the specifications listed below (no harsh abrasive or
toxic cleaners may be used):
J-3
<PAGE>
17. COMMODES AND URINALS
Commodes and urinals will be washed inside and outside including under
each bowl and the wall immediately surrounding. This work will be
performed using an approved disinfectant cleanser. All bright metal
will be cleaned and dry polished. Deodorant blocks will not be used in
the urinals. Stainless steel polish will be used regularly.
18. WASH BASINS
Washbasins will be washed inside and outside using an approved
disinfectant cleanser. All bright metal fixture units and plumbing will
be dry polished. Stainless steel polish will be used regularly.
19. STALL PARTITIONS
All stall partitions will be damp cleaned using an approved
disinfectant cleanser. Special attention will be given to urinal
partitions.
20. ENTRANCE DOORS
All entrance doors including stops, jambs and frames will be cleaned.
Any stainless steel will be polished.
21. MIRRORS AND LIGHTS
All mirrors and lights immediately above mirrors will be cleaned.
Burned-out light bulbs will be reported to the property management
company.
22. SANITARY NAPKIN DISPOSAL CONTAINERS
All sanitary napkin containers will be emptied, damp cleaned with an
approved disinfectant cleanser and provided with a new paper bag liner.
23. INSTALLATION OF SUPPLIES
All supplies such as toilet tissue, paper hand towels and liquid hand
soap will be restocked. The proper quantity will be installed to avoid
malfunction. Both keyed locks of the paper towel dispensers should be
locked after each installation.
24. FLOORS
Tile floors will be dusted with a treated dust mop. All spillage will
be removed. including damp mop cleaning using an approved disinfectant
cleanser nightly. Spray buff floor. using a commercial floor polishing
machine, synthetic fiber pad and an approved commercial grade
high-gloss, slip resistant finish in accordance with an approved
schedule and/or as needed.
25. WALLS
All tile walls around basins. commodes. urinals, soap and towel
dispensers and trash receptacles will be washed nightly.
26. TRAPS AND FLOOR DRAINS
J-4
<PAGE>
All floor drains must remain free from odor at all times. Water will be
poured down into drains daily to insure vapor seals.
WEEKLY CLEANING
---------------
OFFICE AREAS
1. FLOORS
CARPETS
All carpets will be inspected for cleanliness. Spots will be removed.
Carpet should be shampooed if necessary. Public area carpets will be
shampooed in accordance with an approved schedule and/or as requested
by property management.
2. VINYL (RESILIENT) TILE FLOORS
All vinyl (resilient) tile should be spray buffed, using a commercial
floor polishing machine, synthetic fiber pad and an approved commercial
grade high-gloss, slip resistant floor finish in accordance with an
approved weekly schedule and/pr as needed.
3. DESKS AND CHAIRS
All chairs will be dusted on a weekly basis. Desks will be polished
weekly if requested by tenant and only in accordance with tenant's or
manufacturers instructions.
4. BLINDS AND SILLS
Window blinds and sills will be dusted weekly. Washing of the blinds
may be required on an as needed basis. Sill will be washed and polished
weekly. Any personal items on the sills will not be moved.
PUBLIC AREAS
5. STAIRWAYS
Please refer to Daily Cleaning, #9. Stairways.
6. OUTSIDE ENTRANCES
Entrance mats will be shampooed weekly.
J-5
<PAGE>
7. ELEVATOR
All elevator walls will be thoroughly dusted and cleaned with a damp
cloth. Carpets will be vacuumed and spots removed. Carpets will be
shampoo cleaned on a regular schedule.
RESTROOMS
8. FLOORS
At least once per week, tile floors will be spray buffed. using a
commercial floor polishing machine, synthetic fiber pad and an approved
commercial grade high-gloss, slip resistant floor finish in accordance
with an approved weekly schedule.
9. WALLS
Walls throughout the restrooms, including stall partitions, will be
thoroughly washed using an approved non-abrasive disinfectant cleanser.
II. HVAC
----
Heating, ventilation and air conditioning systems shall meet the following
design conditions at the stated outside conditions:
1. Summer, outdoor conditions 93 degrees Fahrenheit drybulb. 75
degrees Fahrenheit wet bulb, indoor conditions 75 degrees
Fahrenheit drybulb, 50% relative humidity.
2. Winter, outdoor conditions 14 degrees Fahrenheit drybulb, indoor
conditions 72 degrees Fahrenheit drybulb.
Outside Air Volume: 0.1 4/cfm/RSF minimum
Supply Air Volume: 0.8 - 1.0 cfm/RSF
Exhaust Air Volume: 2 cfm/square foot for toilets and janitor closet (core)
Occupancy: One person per 142 RSF and a sensible load of 5 watts/RSF
III. INDOOR AIR QUALITY
An annual inspection of the building will be performed generating a report
noting building conditions and remedial recommendations relative to applicable
standards such as:
o EPA Building Air Quality Manual
o ASI-IIRAE Standard 62-1989 "Ventilation for Acceptable Indoor Air Quality"
o SMACNA IAQ Guidelines for Occupied Buildings Under Construction
J-6
<PAGE>
EXHIBIT "K"
-----------
EXERCISE FACILITY SPECIFICATIONS
--------------------------------
K-1
<PAGE>
Exbihit "K"
[picture of Exercise Facility here]
* HVAC and air quality standards shall be supplied to the Exercise Facility
in the same manner and during the same times as are required to be
supplied to the Premises as set forth in Exhibit "J"
GENSLER Project
2020 K Street, NW METRO PLACE II 11/03/98
Suite 200 FITNESS CENTER
Washington DC 20006 Project No. 09.7095.003
Tel: 202.721.5200 Description: FITNESS CENTER
Fax: 202.872.8587 1/8"=1'-0"
<PAGE>
EXHIBIT "L"
SUBORDINATION, NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
------------------------
This Agreement is made as of this ______day of __________, ______, by and among
________________________ a ("Lender"); ________________________, a
______________________________________________ ("Tenant"); and
________________________________, a _____________________ ("Landlord").
W I T N E S S E T H:
WHEREAS, Landlord owns an office building located in Merrifield,
Virginia. which building is situated on the real property more fully described
on Exhibit "A" attached hereto and made a part hereof (the "Building"); and
WHEREAS, Tenant has entered into a certain lease dated _________, 1998
(the "Lease") with Landlord for space in the Building (hereinafter, the
"Premises"), which Premises are more fully described in Exhibit "B" attached
hereto and made a part hereof; and
WHEREAS, the Premises are encumbered or to be encumbered by that
certain first deed of trust (the "Deed of Trust"), which Deed of Trust has
heretofore been or will be recorded among the Land Records of Fairfax County,
Virginia; and
WHEREAS, Lender has made or will make a loan to Landlord, as borrower,
the repayment of which is secured or will be secured by the Deed of Trust; and
WHEREAS, Tenant has agreed that the Lease is now and shall remain
subject and subordinate to the operation and effect of the Deed of Trust
provided that, subject to the provisions of this Agreement, Tenant is assured
that the Lease and the Tenant's rights thereunder will not be terminated or
otherwise disturbed by any foreclosure of, or other action relating to. the Deed
of Trust.
NOW, THEREFORE, in consideration of the sum of One Dollar ($1.00), the
receipt of which is hereby acknowledged, and in consideration of the mutual
premises, covenants, and agreements herein contained, the parties hereto,
intending to be legally bound hereby, promise. covenant, and agree as follows:
1. Subject to the terms of this Agreement. Tenant covenants and agrees
that the Lease is and shall be subject and subordinate to the lien, provisions,
operation and effect of the Deed of Trust and to all funds and all indebtedness
which may be secured by such Deed of Trust and to all renewals. amendments,
modifications, consolidations. replacements, increases, and extensions thereof.
Notwithstanding anything to the contrary contained herein, at any time, at the
election of Lender, such Lender shall have the right to declare the Lease
superior to the lien, provisions. operation and effect of the Deed of Trust.
L-1
<PAGE>
2 In the event it should become necessary to foreclose the Deed of
Trust pursuant to the power of sale contained therein, or by deed given in lieu
of foreclosure. Lender. for itself and its successors and assigns, agrees that
such foreclosure will not terminate nor otherwise disturb the Lease nor the
rights of Tenant thereunder (including the right of Tenant to (i) be paid the
Initial Allowance and Additional Allowance, if any, (ii) the Expansion Premises
and First Offer Space. and (iii) renew for the Renewal Term(s)) ,as long as
Tenant continues to pay rent as required by the Lease, and otherwise continues
to perform its obligations on its part to be performed hereunder and under the
Lease, and further provided that (unless waived by Lender):
(a) Tenant shall not be, at the time of such foreclosure, in
default beyond any applicable notice and cure period under
any of the terms, covenants, or conditions of the Lease, and
no event exists which, with notice or the passage of time, or
both, would constitute a default on the part of Tenant under
the Lease;
(b) Tenant shall pay rent and otherwise perform its obligations
under the Lease;
(c) Lender, its successors and assigns, and any party acquiring
title to the Premises through foreclosure or by virtue of a
deed given in lieu of foreclosure, (hereinafter collectively
referred to as a "Successor in Interest") shall not be liable
for any act or omission of any prior landlord or liable for
any breach of an agreement contained in the Lease arising
prior to the date such Successor in Interest acquired title
to the property;
(d) Such Successor in Interest shall not be bound by any rent or
additional rent which Tenant might have paid for more than
one (1) month in advance to any prior landlord;
(e) Such Successor in Interest shall not be bound by any
amendment or modification of the Lease made without the
written consent of Lender and its successors and assigns; and
(f) Such Successor in Interest shall not be liable for damages
for any act or omission of any prior landlord.
3 Subject to the terms of this Agreement. Tenant agrees with Landlord
and Lender that in the event of a foreclosure sale of the Premises, including a
conveyance to Lender by deed in lieu of foreclosure, or in the event that
Landlord conveys its estate in the Premises or. in the event that Landlord's
estate in the Premises passes to any other person, firm or corporation by
operation of law or any other means, then in any of said events. Tenant shall
promptly attorn to the purchaser at the foreclosure sale or to the grantee of
the Premises from Landlord or to such other successors to Landlord's estate,
under all the terms, covenants, and conditions of the Lease and this Agreement
and, at the request of Lender or such person or entity acquiring the Premises
through or under Lender to execute a new lease with such person or entity on the
same terms and conditions as are set forth in the Lease. except that the term of
the new lease shall be for the then remaining balance of the term of the Lease.
L-2
<PAGE>
4 Tennant hereby warrants and represents, covenants and agrees to and
with Lender:
(a) to deliver to Lender a duplicate of each notice of default
delivered to Landlord at the same time as such notice is
given to Landlord;
(b) that Tenant is now the sole owner of the leasehold estate
created by the Lease and shall not hereafter assign the Lease
except as permitted by the terms thereof, and that
notwithstanding any such assignment or any sublease. Tenant
shall remain primarily liable for the observance and
performance of all of its agreements under the Lease except
as otherwise provided therein;
(c) not to seek to terminate the Lease by reason of any default
of Landlord without prior written notice thereof to Lender
and the lapse thereafter of thirty (30) days within which
time Lender, at its option, may remedy any such default;
(d) to promptly certify in writing to Lender whether or not any
default on the part of Landlord then exists under the Lease
or whether there are any events which, with notice or the
passage of time, or both, would constitute a default of
Landlord:
(e) to provide on fifteen (15) business days written notice
estoppel certificates in recordable form confirming Tenant's
covenants and agreements pursuant to this Agreement and
certifying that: (i) the Lease is subordinate to the lien,
provisions, operation and effect of the Deed of Trust, or is
superior to the Deed of Trust (if Lender has so elected) (ii)
Tenant is in full and complete possession of the Premises,
stating the date on which rent commenced to accrue and the
date to which it is paid; (iii) the Lease is in full force
and effect, and has not been amended, modified, or superseded
(except as indicated); (iv) Tenant has received no notice of
any sale, transfer, pledge, or assignment of the Lease or of
the rentals by the Landlord except for the assignment to
Lender; (v) Tenant has not advanced any amounts to or on
behalf of the Landlord under the Lease which have not been
reimbursed; (vi) Tenant holds no claim against the Landlord
which might be set off against accruing rentals; (vii) Tenant
understands that the Lease has been collaterally assigned to
Lender as security for Lender's loan; and (viii) containing
such other certificates as Lender shall reasonably request;
and
(f) Not to alter, amend or modify any of the terms, covenants or
conditions of the Lease without the prior written consent of
Lender.
5 Tenant acknowledges that the Lease has been assigned by Landlord to
Lender and agrees with Lender that, from and after the date Lender notifies
Tenant in writing that Landlord is in default under the Deed of Trust and that
Lender has exercised its rights under the assignment of rent provisions
contained in the Deed of Trust given by Borrower to Lender, Tenant shall
promptly remit all payments due under the Lease to Lender or to any receiver
appointed by Lender.
L-3
<PAGE>
6 This Agreement shall be binding upon and shall extend to and benefit
the successors and assigns of the parties hereto.
7 All notices, demands and requests shall be in writing, and shall be
effectively served by forwarding such notice, demand or request by certified or
registered mail, postage prepaid. or by commercial overnight courier service, or
by hand delivery with signed receipts. addressed as follows:
(a) IF ADDRESSED TO TENANT: _______________________________
_______________________________
_______________________________
Attn:__________________________
(B) IF ADDRESSED TO LANDLORD: _______________________________
_______________________________
_______________________________
Attn:__________________________
with a copy to: _______________________________
_______________________________
_______________________________
Attn:__________________________
with additional copy to: _______________________________
_______________________________
_______________________________
Attn:__________________________
(C) IF ADDRESSED TO LENDER: _______________________________
_______________________________
_______________________________
Attn:__________________________
or at such other address as the respective party may hereafter designate by
written notice to the other parties. The effective date of all notices shall be
(i) three (3) business days after the date of mailing if sent by United States
Postal Service. certified mail, return receipt requested. (ii) the date of
delivery if sent by a nationally recognized overnight courier service, or (iii)
the date of receipt if sent by hand delivery with signed receipts.
L-4
<PAGE>
8 This Agreement may L~ executed in two or more counterparts. all of
which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their
duly authorized officers the day and year first above written.
WITNESS/ATTEST: LENDER:
_______________________________
a______________________________
By:_______________________________ By:____________________________
Name:_____________________________ Name:__________________________
Title:____________________________ Title:_________________________
WITNESS/ATTEST: TENANT:
_______________________________
a______________________________
By:_______________________________ By:____________________________
Name:_____________________________ Name:__________________________
Title:____________________________ Title:_________________________
WITNESS/ATTEST: LANDLORD:
_______________________________
a______________________________
By:_______________________________ By:____________________________
Name:_____________________________ Name:__________________________
Title:____________________________ Title:_________________________
L-5
<PAGE>
EXHIBIT NO. 21
SUBSIDIARIES OF THE REGISTRANT
SM&A Corporation (East), a California corporation
Steven Myers & Associates, Inc., a California corporation
Staminet, Inc., a California corporation (a subsidiary of SM&A
Corporation (East))
<PAGE>
The Board of Directors and Shareholders of
SM&A Corporation
We consent to incorporation by reference in the Registration Statement No.
333-50887 on Form S-8 of SM&A Corporation (formerly known as Steven Myers &
Associates, Inc.) of our report dated January 25, 1999, except for notes 5 and
13 which are dated as of March 12, 1999, relating to the consolidated balance
sheets of SM&A Corporation and subsidiaries as of December 31, 1998, and 1997,
and the related consolidated statements of income, shareholders' equity
(deficiency), and cash flows for each of the years in the three-year period
ended December 31, 1998, and related schedule, which report appears in the
December 31, 1998, annual report on Form 10-K of SM&A Corporation.
KPMG LLP
/s/ KPMG LLP
Orange County, CA
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
SM&A Corporation audited financial statements for the twelve months ended
December 31, 1998.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 454
<SECURITIES> 0
<RECEIVABLES> 23,514
<ALLOWANCES> (643)
<INVENTORY> 0
<CURRENT-ASSETS> 25,969
<PP&E> 3,002
<DEPRECIATION> (612)
<TOTAL-ASSETS> 66,324
<CURRENT-LIABILITIES> 9,990
<BONDS> 0
0
0
<COMMON> 165
<OTHER-SE> 55,164
<TOTAL-LIABILITY-AND-EQUITY> 55,329
<SALES> 68,449
<TOTAL-REVENUES> 68,449
<CGS> 40,483
<TOTAL-COSTS> 55,370
<OTHER-EXPENSES> (1,253)
<LOSS-PROVISION> 643
<INTEREST-EXPENSE> 148
<INCOME-PRETAX> 14,599
<INCOME-TAX> 6,072
<INCOME-CONTINUING> 8,527
<DISCONTINUED> (815)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,712
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.48
</TABLE>
