<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Quarter Ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission file number 000-23585
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, EIGHTH FLOOR, NEWPORT BEACH, CA 92660
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(949) 975-1550
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ].
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at
---------------- June 30, 1999
Common Stock 16,551,235
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1 Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 3
Consolidated Statements of Earnings for the three months and six months ended June 30, 1999 and 4
1998
Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6-11
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 12-22
PART II OTHER INFORMATION
Item 1 Legal Proceedings 23
Item 2 Changes in Securities and Use of Proceeds 23
Item 3 Defaults Upon Senior Securities 23
Item 4 Submission of Matters to Vote of Security Holders 23
Item 5 Other Information 23
Item 6 Exhibits and Reports on Form 8-K 24
Signatures 25
</TABLE>
2
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------- -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,926 $ 454
Accounts receivable, net of allowance for doubtful accounts 18,925 15,326
Costs and estimated earnings in excess of billings
on contracts in progress, net of allowance 10,261 7,545
Prepaid income taxes 1,869 2,085
Prepaid expenses and other assets 1,709 559
------- -------
Total current assets 36,690 25,969
Property and equipment 3,519 2,390
Notes receivable affiliates 2,009 2,832
Other assets 5,054 3,346
Goodwill 37,582 31,787
------- -------
Total assets $84,854 $66,324
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 1,783 $ 2,496
Accrued compensation and payroll taxes 7,959 6,585
Deferred income taxes 265 265
Other liabilities 168 644
------- -------
Total current liabilities 10,175 9,990
Deferred income taxes 659 725
Other liabilities 427 280
Long-term debt, excluding current portion 16,850 --
------- -------
Total liabilities 28,110 10,995
Shareholders' equity :
Common stock, no par value 159 165
Additional paid in capital 49,552 54,164
Retained earnings 7,032 1,000
------- -------
Total shareholders' equity 56,743 55,329
------- -------
Total liabilities and shareholders' equity $84,854 $66,324
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net revenues $26,927 $12,684 $52,241 $23,343
Cost of revenues 15,665 6,960 30,402 12,948
------- ------- ------- -------
Gross margin 11,262 5,724 21,839 10,395
Selling, general and administrative expenses 5,630 2,667 10,853 4,413
Amortization of goodwill and other intangibles 285 86 630 86
------- ------- ------- -------
Operating income 5,347 2,971 10,356 5,896
Other income (expense):
Interest expense (199) (7) (222) (77)
Other, net 70 1,136 132 1,275
------- ------- ------- -------
Income before income taxes 5,218 4,100 10,266 7,094
Income tax expense 2,164 1,673 4,234 2,918
------- ------- ------- -------
Income from continuing operations 3,054 2,427 6,032 4,176
Income from operations of discontinued business, 29 29
Net of income tax benefit
Loss from disposal of discontinued business, -- -- -- --
Net of income tax benefit ------- ------- ------- -------
Net income $ 3,054 $ 2,456 $ 6,032 $ 4,205
======= ======= ======= =======
Income per share from continuing operations:
Basic $ 0.19 $ 0.16 $ 0.37 $ 0.28
Diluted $ 0.19 $ 0.16 $ 0.37 $ 0.28
======= ======= ======= =======
Income per share from discontinued operations:
Basic $ -- $ -- $ -- $ --
Diluted $ -- $ -- $ -- $ --
======= ======= ======= =======
Net income per share:
Basic $ 0.19 $ 0.16 $ 0.37 $ 0.28
Diluted $ 0.19 $ 0.16 $ 0.37 $ 0.28
======= ======= ======= =======
Weighted average common shares outstanding:
Basic 16,090 15,297 16,301 14,825
Diluted 16,247 15,630 16,471 15,042
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,032 $ 4,205
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,113 140
Deferred income taxes -- (821)
Changes in assets and liabilities, net of effect
of acquisitions:
Accounts receivable, net (4,885) (551)
Costs and estimated earnings in excess of billings (3,732) --
Prepaid expenses and other assets (2,664) (439)
Trade accounts payable (765) (1,178)
Accrued compensation and payroll taxes 1,357 359
Income taxes 252 161
Other liabilities (474) (465)
------- --------
Net cash (used in) provided by operating activities (3,766) 2,243
Cash flows from investing activities:
Acquisition, net of cash acquired (3,393) (17,134)
Additional expenditures related to acquisitions (757) --
Purchases of property and equipment (1,627) (95)
Collection of advances to shareholder 823 679
------- --------
Net cash used in investing activities (4,954) (16,550)
Cash flows from financing activities:
Proceeds from issuance of common stock 329 39,790
Advances (repayments) of long-term debt, net 16,811 (8,706)
Distributions to shareholders -- (710)
Common stock repurchases (4,948) --
------- --------
Net cash provided by financing activities 12,192 30,374
Net increase in cash and cash equivalents 3,472 16,067
Cash at beginning of period 454 150
------- --------
Cash at end of period $ 3,926 $ 16,217
======= ========
Supplemental information-Cash paid for:
Interest $ 85 $ 149
Income taxes $ 3,892 $ 1,967
======= ========
</TABLE>
Supplemental schedule of noncash investing activity:
<TABLE>
<CAPTION>
Detail of business acquired and other purchase accounting adjustments as follows (in thousands):
<S> <C>
Cash consideration paid for acquisition $3,263
Plus acquisition expenses 155
Less cash acquired in acquisition (25)
------
Cash paid for acquisition, net of cash acquired $3,393
======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months and Six Months Ended June 30, 1999 and 1998
NOTE 1. GENERAL
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. In March 1999, the Company acquired Systems Integration
Software, Inc. ("SIS"). SIS provides systems engineering, information systems
development, scientific research and program management support to the U.S.
Government, principally the Department of Defense. SAC, DSA and SIS are
collectively referred to as "the Acquisitions". These transactions were
accounted for as purchases and, accordingly, the consolidated financial
statements include the financial results of the Acquisitions from the effective
dates of the respective events. On December 31, 1998, SAC merged into DSA. In
connection with the merger, the surviving corporation changed its name to SM&A
Corporation (East).
The accompanying unaudited interim consolidated financial statements of the
Company have been prepared pursuant to the rules of the Securities and Exchange
Commission for quarterly Reports on Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. The information furnished herein includes all adjustments,
consisting of normal recurring adjustments, which are, in the opinion of
management, necessary for a fair presentation of results for these interim
periods.
The results of operations for the three months and six months ended June 30,
1999 are not necessarily indicative of the results to be expected for the entire
fiscal year ending December 31, 1999.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
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 June 30, 1999, no impairment has been recognized.
In addition, these financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto for the year ended
December 31, 1998. This supplementary information is included in Form 10-K filed
by the Company with the Securities and Exchange Commission on March 31, 1999.
6
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Three Months and Six Months Ended June 30, 1999 and 1998
Additional supplementary information which includes the historical pro-forma
financial statements of the Company prior to its IPO is included in Form S-1
filed by the Company with the Securities and Exchange Commission on January 28,
1998, as amended (the "S-1"). Due to the Company converting from an S
corporation to a C corporation, the information found in the S-1 filing includes
pro forma operating results. These pro formas reflect an adjustment of salaries
and bonuses paid to three principal executive officers (which have historically
been included in selling, general, and administrative expenses) in excess or
less than $2.7 million ($675,000 per quarter) in the aggregate (the maximum
salaries and bonuses payable for 1998 under the Company's 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 during such
period.
Certain reclassifications have been made to the prior period financial
statements to conform to current period presentation.
NOTE 2. 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 table illustrates the computation of basic and diluted earnings
per common share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted
income per common share net earnings $ 3,054 $ 2,456 $ 6,032 $ 4,205
------- ------- ------- -------
Denominator:
Denominator for basic income
per share weighted average shares
outstanding during the period 16,090 15,297 16,301 14,825
Incremental common shares attributable
to dilutive outstanding stock options 157 333 170 217
------- ------- ------- -------
Denominator for diluted income per
common share 16,247 15,630 16,471 15,042
------- ------- ------- -------
Basic net income per common share: $ .19 $ .16 $ .37 $ .28
======= ======= ======= =======
Diluted net income per common share: $ .19 $ .16 $ .37 $ .28
======= ======= ======= =======
</TABLE>
7
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
For the Three Months and Six Months Ended June 30, 1999 and 1998
NOTE 3. INCOME TAX PROVISION
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.
NOTE 4. ACQUISITIONS
In March, 1999, the Company purchased all the outstanding common shares of
SIS. The transaction was for cash of $3,263,000 and a one-year earn-out,
contingent upon the achievement of certain operating results. This transaction
was accounted for under the purchase method of accounting and, accordingly, the
consolidated financial statements of the Company for the three months ended
March 31, 1999, include the financial results of SIS from March 1, 1999, the
beginning of the accounting period in which the purchase transaction was
finalized.
In August 1998, the Company issued 714,839 unregistered shares of common stock
valued at approximately $14.4 million, and $14 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 of the
Company for twelve months ended December 31, 1998 include the financial results
of DSA from August 1, 1998, the beginning of the accounting period in which the
purchase transaction was finalized.
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 of the Company for the twelve months ended December 31, 1998, include
the financial results of SAC from May 18, 1998, 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 and the recent market price of the Company's common stock, the Company
issued 703,530 additional shares of common stock to former shareholders of SAC
based upon the market price of the common stock at certain defined liquidation
dates.
The shareholders of common stock issued in the SAC and DSA acquisitions had
demand registration rights. The shareholders exercised such demand rights on
February 1, 1999 and on April 29, 1999, the Company filed a registration
statement with the SEC on Form S-3 to register these common shares.
8
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
For the Three Months and Six Months Ended June 30, 1999 and 1998
The Company recorded goodwill of approximately $38.7 million as a result of
the Acquisitions. The Company incurred costs and expenses in connection with
the Acquisitions, including legal and accounting, and other various expenses.
Eligible costs will be capitalized as part of goodwill in accordance with
generally accepted accounting principles (GAAP). The allocation of the purchase
price for the Acquisitions and other purchase accounting adjustments is as
follows (in thousands):
<TABLE>
<S> <C>
Total purchase price, net $ 49,030
Net assets acquired (11,873)
Acquisition costs 1,503
--------
Goodwill 38,660
Less accumulated amortization (1,078)
--------
Goodwill, net $ 37,582
========
</TABLE>
The following table presents unaudited historical results of operations for
the three months and six months ended June 30, 1999 and unaudited pro forma
results of operations for three months and six months ended June 30, 1998
assuming the acquisitions of SAC and DSA occurred as of January 1, 1998 (in
thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue $26,927 $25,001 $52,241 $48,863
======= =======
Income from continuing operations 3,054 1,213 6,032 3,646
Income from discontinued operations -- 27 -- 58
------- ------- ------- -------
Net income $ 3,054 $ 1,240 $ 6,032 $ 3,704
======= ======= ======= =======
Net income per share:
Basic $ .19 $ .08 $ .37 $ .23
Diluted $ .19 $ .07 $ .37 $ .22
======= ======= ======= =======
Weighted average shares outstanding:
Basic 16,090 16,373 16,301 16,373
Diluted 16,247 16,758 16,471 16,758
</TABLE>
The pro forma data includes adjustments which have been applied to reflect the
purchases of SAC and DSA and the addition of amortization related to intangible
assets acquired. The pro forma data adjustments also include the presentation
of Staminet, Inc. ( a subsidiary of the Company) as a discontinued operation as
of January 1, 1998.
9
<PAGE>
SM&A CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
For the Three Months and Six Months Ended June 30, 1999 and 1998
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,
1998 along with 819,743 shares issued in the SAC acquisition and 714,839 shares
issued in the DSA acquisition. The pro forma results presented above may not be
indicative of future performance.
NOTE 6. LONG-TERM DEBT
In September 1998, the Company entered into a credit agreement with a bank
which provided for a $25.0 million revolving line of credit. Subsequently, in
June 1999, the Company renegotiated with its lenders to increase the amount
provided under the agreement to $50.0 million. The credit agreement, which is
secured by a first priority interest in substantially all of the assets of the
Company, matures in May 2004 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
fees on the unused portion of the facility and contains certain covenants. The
most restrictive covenant requires the Company to maintain minimum consolidated
net worth, as defined in the credit agreement. As of June 30, 1999, the Company
was in compliance with all covenants. The Company had $16,850,000 outstanding
under the credit agreement at June 30, 1999 at an effective interest rate of
7.75%.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
From time to time, the Company 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.
RISK FACTORS
There are risks associated with 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 SAC, DSA or SIS 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
12
<PAGE>
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.
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.
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.
13
<PAGE>
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 our 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.
14
<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.
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 win rate of approximately 90% in the proposal
management business drops significantly, our growth prospects could be
materially and adversely affected.
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
15
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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 have obtained a similar policy on Mr. Piraino.
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.
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 June
30, 1999 the closing sale price has ranged from a low of $6.06 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
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
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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.
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 43.6% of our outstanding common stock at June
30, 1999 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.
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The number of shares available for future sale could adversely affect the price
of our publicly traded stock
As of June 30, 1999, we had 16,551,235 shares of common stock outstanding.
As of June 30, 1999, we had outstanding options to acquire, subject to certain
vesting requirements, 1,653,900 shares of common stock pursuant to our 1997
Stock Option Plan. Additionally, in connection with our acquisition of SAC,
options were granted to purchase an aggregate of 175,906 shares of common stock.
We have registered on a registration statement on Form S-8 all 2,500,000
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.
Overview
The Company 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 1998 acquisitions of SAC and DSA, and the 1999 acquisition of SIS, which
collectively added approximately 480 employees to the Company's workforce,
provide 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. Within high-end contract support services, two new lines of
business were established, the Information Technology Solutions Group ("ITSG")
and the Systems Solutions Group ("SSG"). ITSG provides information systems
development, scientific research and program management support to the U.S.
Government, principally the Department of Defense. SSG provides systems
engineering, program management support and technical support to military and
civilian space programs, the intelligence community and the armed services.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Net Revenues. Net revenues for the three months ended June 30, 1999 were $26.9
million compared to $12.7 million for the three months ended June 30, 1998, an
increase of $14.2 million or 111.9%. Net revenues from Proposal Management
Services were $8.2 million for the three months ended June 30, 1999 compared to
$8.2 million for the comparable three months of the prior year. Net revenues
from high-end contract support services, specifically SSG and ITSG were $13.5
million and $5.2 million, respectively, for the three months ended June 30, 1999
compared to $4.5 million and nothing for the same three months of the prior
year. Revenues from high-end contract support services in total increased $14.2
million or 315.6% due to the Company expanding their scope of high-end contract
support services as a result of the acquisitions of SAC, DSA and SIS in May and
August 1998, and March 1999, respectively.
Gross Margin. Gross margin was $11.3 million for the three months ended June
30, 1999 compared to $5.7 million for the three months ended June 30, 1998, an
increase of $5.6 million or 98.3%. This increase in gross profit was primarily
attributable to the increase in high end contract support services provided as a
result of the acquisitions of SAC, DSA and SIS in May and August 1998, and March
1999, respectively. As a percentage of net revenues, gross margin decreased to
42.0% compared to 44.9% for the prior year period. The decrease in gross margin
as a percentage of net revenues was primarily attributable to lower gross margin
contributions from the newly acquired entities.
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Selling, General & Administrative Expenses. Selling, General and
Administrative expenses for the three months ended June 30, 1999 were $5.6
million compared to $2.7 million for the three months ended June 30, 1998, an
increase of $2.9 million or 107.4%. The increase was primarily the result of
increased overhead and facility expenses related to the Acquisitions, an
increase in senior management staff to position the Company for continued
growth, and an increase in facility lease costs. As a percentage of total
revenues, Selling, General and Administrative expenses were substantially the
same for both periods.
Goodwill Amortization. Amortization of goodwill for the three months ended
June 30, 1999 was $285,000 due to the Acquisitions.
Operating Income. Operating income from continuing operations for the three
months ended June 30, 1999 was $5.3 million compared to $3.0 million for the
three months ended June 30, 1998, an increase of $2.3 million or 76.7%. As a
percentage of total revenues, operating income decreased to 19.7% for the three
months ended June 30, 1999 from 23.6% for the three months ended June 30, 1998.
Other Income (Expense). Other expense, net was $129,000 for the three months
ended June 30, 1999 compared to other income, net of $1,129,000 for the same
three months of 1998. The 1998 amount included income of $880,000 from the sale
of an aircraft. The balance of the decrease in income was a result of higher
interest expense attributable to increased bank borrowings in the three months
ended June 30, 1999 and lower interest income due to fewer cash equivalents in
1999 compared to the same three month period of 1998.
Income From Continuing Operations. Income from continuing operations was $3.1
million for the three months ended June 30, 1999 compared to $2.4 million for
the three months ended June 30, 1998, an increase of $.7 million or 29.2%.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Net Revenues. Net revenues for the six months ended June 30, 1999 were $52.2
million compared to $23.3 million for the six months ended June 30, 1998, an
increase of $28.9 million or 124.0%. Net revenues from Proposal Management
Services were $18.8 million for the six months ended June 30, 1999 compared to
$17.3 million for the comparable six months of the prior year, an increase of
$1.5 million or 8.7%. This increase was attributable to continued strong demand
for the Company's proposal management services and an increased customer base.
Net revenues from high-end contract support services, specifically SSG and ITSG
were $23.3 million and $10.1 million, respectively, for the six months ended
June 30, 1999 compared to $6.0 million and nothing for the same six months of
the prior year. Revenues from high-end contract support services in total
increased $27.4 million or 456.7% due to the Company expanding the scope of
high-end contract support services as a result of the acquisitions of SAC,
DSA and SIS in May and August 1998 and March 1999, respectively.
Gross Margin. Gross margin was $21.8 million for the six months ended June 30,
1999 compared to $10.4 million for the six months ended June 30, 1998, an
increase of $11.4 million or 109.6%. This increase in gross profit was primarily
attributable to the increase in high end contract support services provided as a
result of the acquisitions of SAC, DSA and SIS in May and August 1998 and March
1999, respectively. As a percentage of net revenues, gross margin decreased to
41.8% compared to 44.6% for the prior year period. The decrease in gross margin
as a percentage of net revenues was primarily attributable to lower gross margin
contributions from the newly acquired entities.
Selling, General & Administrative Expenses. Selling, General and
Administrative expenses for the six months ended June 30, 1999 were $10.9
million compared to $4.4 million for the six months ended June 30, 1998, an
increase of $6.5 million or 147.7%. The increase was primarily the result of
increased overhead and facility expenses related to the Acquisitions, an
increase in senior management staff to position the Company for continued
growth, and an increase in facility lease costs. As a percentage of total
revenues, Selling, General and Administrative expenses were 20.9% for the six
months ended June 30, 1999, up from 18.9% for the six months ended June 30, 1998
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Goodwill Amortization. Amortization of goodwill for the six months ended June
30, 1999 was $630,000 due to the Acquisitions.
Operating Income. Operating income from continuing operations for the six
months ended June 30, 1999 was $10.4 million compared to $5.9 million for the
six months ended June 30, 1998, an increase of $4.5 million or 76.3%. As a
percentage of total revenues, operating income decreased to 19.9% for the six
months ended June 30, 1999 from 25.3% for the six months ended June 30, 1998.
Other Income (Expense). Other expense, net was $90,000 for the six months
ended June 30, 1999 compared to other income, net of $1,198,000 for the same six
months of 1998. The 1998 amount included income of $880,000 from the sale of an
aircraft. The balance of the decrease in income was a result of higher interest
expense attributable to increased bank borrowings in the six months ended June
30, 1999 and lower interest income due to fewer cash equivalents in 1999
compared to the same six month period of 1998.
Income From Continuing Operations. Income from continuing operations was $6.0
million for the six months ended June 30, 1999 compared to $4.2 million for the
three months ended June 30, 1998, an increase of $1.8 million or 42.9%.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1999, the Company's net cash used in
operating activities was approximately $3.8 million, compared to cash flows
provided by operating activities of $2.2 million in the same period of the
prior year. This change was mainly due to an increase in accounts receivable and
costs and estimated earnings in excess of billings on contracts in progress, and
a decrease in other liabilities.
Net cash used in investing activities was $5.0 million for the six months
ending June 30, 1999, compared to cash flows used in investing activities of
$16.6 million for the same period of the prior year. The Company's primary uses
of funds on investing activities during the six months ended June 30, 1999 were
the acquisition of SIS in March 1999, additional costs related to the
acquisitions of DSA and SAC, and purchases of new office furniture and computer
equipment related to the east coast operations move into the Company's new
facility.
Net cash provided by financing activities was $12.2 million in the six months
ended June 30, 1999, compared to $30.4 million for the same period of the prior
year. The primary source of cash provided by investing activities for the six
months ended June 30, 1999, was advances on the bank line of credit of $17.8
million, required due to the deterioration of days sales outstanding in
receivables. The primary uses of cash on financing activities were the
repayment of $1.0 million of outstanding bank debt and the payment of $4.9
million for the repurchase of 680,000 shares of the Company's outstanding common
stock.
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 $50 million revolving line of credit
facility with three banks. The revolving line of credit will be used, as
considered necessary, for operating cash and for future acquisitions. As of
June 30, 1999, the Company had $16.9 million of borrowings outstanding on the
line.
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.
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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 ("Year 2000 Issues"). 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.
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
Issues 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 Issues project cost and estimates to complete exclude
the estimated costs and time associated with the impact of a third party's Year
2000 Issues, which are not yet determinable.
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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 Issues 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 ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). In July 1999, the FASB issued
SFAS 137 deferring the effective date of SFAS 133 until June 30, 2000. 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 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.
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PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
On June 8, 1999 the Company announced the amendment of its open market
Stock Repurchase Program to provide authority for the repurchase of up to
800,000 shares of its issued and outstanding common stock. As of June 23, 1999
the Company has repurchased 680,000 shares at an average purchase price of $
7.24. These repurchases are made at the sole discretion of the Company's
management.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to Vote of Security Holders
On May 18, 1999, the Company held its Annual Meeting of Shareholders. At
the meeting, the shareholders elected as directors Steven S. Myers (with
13,379,738 affirmative votes and 76,546 votes withheld), Michael A. Piraino
(with 13,383,994 affirmative votes and 72,290 votes withheld), J. Christopher
Lewis (with 13,383,994 affirmative votes and 72,290 votes withheld), James R.
Mellor (with 13,383,994 affirmative votes and 72,290 votes withheld), and
Malcom R. Currie (with 13,389,543 affirmative votes and 66,741 votes withheld.
The shareholders also approved the following: (i) an amendment to the
Company's 1997 Stock Option Plan to increase the number of shares of common
stock available for issuance thereunder to 2,500,000 (with 12,133,216 shares
voting for, 1,322,068 against, and 1,000 abstaining); (ii) the adoption of the
Company's Employee Stock Purchase Plan (with 12,932,571 shares voting for,
523,713 against, and none abstaining); and (iii) the ratification of the
appointment of KPMG LLP as the independent public accountants for the Company
for the fiscal year ending December 31, 1999 (with 13,452,219 shares voting
for, 4,065 against, and none abstaining).
Item 5. Other Information
Not applicable
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
-------
No.
---
10.1*. Amended and Restated Credit and Security Agreement, dated as of
June 7, 1999 between SM&A Corporation, the Lenders set forth
therein, Mellon Bank, N.A., as agent for the Lenders, and Wells
Fargo Bank, N.A., as co-agent for the Lenders.
10.2*. Promissory Note ($15,000,000), dated June 7, 1999, payable to
Wells Fargo Bank, N.A.
10.3*. Promissory Note ($10,000,000), dated June 7, 1999, payable to
Imperial Bank
10.4*. Promissory Note ($25,000,000), dated June 7, 1999, payable to
Mellon Bank, N.A.
10.5*. Security Agreement dated as of June 7, 1999, between Mellon Bank,
N.A., as agent for the Lender Group and SM&A Corporation (EAST).
10.6*. Security Agreement dated as of June 7, 1999, between Mellon Bank,
N.A., as agent for the Lender Group, and Systems Integration
Software.
10.7*. General Continuing Guaranty, dated as of June 7, 1999, by Systems
Integration Software, in favor of Mellon Bank, N.A. as agent for
the Lender Group.
10.8*. General Continuing Guaranty, dated as of June 7, 1999, by SM&A
Corporation (EAST), in favor of Mellon Bank, N.A., as agent for
the Lender Group.
10.9*. Allonge to Promissory Note by Summit Aviation, Inc., dated June 1,
1999.
10.10+. Amendment No. 1 to Common Stock Purchase Agreement between Summit
Aviation, Inc. and SM&A Corporation (East), dated June 1, 1999.
27.1*. Financial Data Schedule
(b) Reports on Form 8-K
None
-----------------------
* filed herewith
+ to be filed by amendment
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SIGNATURE
Pursuant to the requirements of the Securities and 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
Date: August 16, 1999
By: /S/ Edward A. Beeman
--------------------
Edward A. Beeman
Senior Vice President, Chief Financial
Officer and Secretary
(Principal Financial Officer)
25
<PAGE>
EXHIBIT INDEX
Description
-----------
10.1 Amended and Restated Credit and Security Agreement, dated as of June 7,
1999 between SM&A Corporation, the Lenders set forth therein, Mellon
Bank, N.A., as agent for the Lenders, and Wells Fargo Bank, N.A., as co-
agent for the Lenders.
10.2 Promissory Note ($15,000,000), dated June 7, 1999, payable to Wells Fargo
Bank, N.A.
10.3 Promissory Note ($10,000,000), dated June 7, 1999, payable to Imperial
Bank.
10.4 Promissory Note ($25,000,000), dated June 7, 1999, payable to Mellon
Bank, N.A.
10.5 Security Agreement dated as of June 7, 1999, between Mellon Bank, N.A.,
as agent for the Lender Group and SM&A Corporation (EAST).
10.6 Security Agreement dated as of June 7, 1999, between Mellon Bank, N.A.,
as agent for the Lender Group, and Systems Integration Software.
10.7 General Continuing Guaranty, dated as of June 7, 1999, by Systems
Integration Software, in favor of Mellon Bank, N.A. as agent for the
Lender Group.
10.8 General Continuing Guaranty, dated as of June 7, 1999, by SM&A
Corporation (EAST), in favor of Mellon Bank, N.A., as agent for the
Lender Group.
10.9 Allonge to Promissory Note by Summit Aviation, Inc., dated June 1, 1999.
10.10+ Amendment No. 1 to Common Stock Purchase Agreement between Summit
Aviation, Inc. and SM&A Corporation (East) dated June 1, 1999.
27.1 Financial Data Schedules (EDGAR)
+ to be filed by amendment
26
<PAGE>
EXHIBIT 10.1
AMENDED AND RESTATED
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
and
WELLS FARGO BANK, N.A., as Co-Agent
June 7, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS....................................................................................... 1
SECTION 1.1 Defined Terms.................................................................................. 1
SECTION 1.2 Other Definitional Provisions.................................................................. 14
ARTICLE II THE CREDIT....................................................................................... 14
SECTION 2.1 The Revolving Loans............................................................................ 14
SECTION 2.2 Making the Revolving Loans..................................................................... 16
SECTION 2.3 Swing Line Loans............................................................................... 19
SECTION 2.4 Making the Swing Line Loans.................................................................... 19
SECTION 2.5 Repayment...................................................................................... 20
SECTION 2.6 Interest Rate and Payment Dates................................................................ 21
SECTION 2.7 Letters of Credit.............................................................................. 22
SECTION 2.8 Fees........................................................................................... 25
ARTICLE III GENERAL PROVISIONS CONCERNING THE LOANS......................................................... 27
SECTION 3.1 Use of Proceeds................................................................................ 27
SECTION 3.2 Computation of Interest and Fees............................................................... 27
SECTION 3.3 Payments....................................................................................... 27
SECTION 3.4 Apportionment, Application, and Reversal of Payments........................................... 28
SECTION 3.5 Reduced Return................................................................................. 28
SECTION 3.6 Indemnities and Losses......................................................................... 29
SECTION 3.7 Requirements of Law............................................................................ 30
ARTICLE IV CONDITIONS OF LENDING............................................................................ 31
</TABLE>
i.
<PAGE>
<TABLE>
<S> <C>
SECTION 4.1 Conditions Precedent to Initial Loans.......................................................... 31
SECTION 4.2 Conditions Precedent to Each Borrowing......................................................... 32
ARTICLE V REPRESENTATIONS AND WARRANTIES.................................................................... 33
SECTION 5.1 Representations and Warranties................................................................. 33
ARTICLE VI COVENANTS........................................................................................ 37
SECTION 6.1 Affirmative Covenants.......................................................................... 37
SECTION 6.2 Negative Covenants............................................................................. 41
ARTICLE VII EVENTS OF DEFAULT............................................................................... 45
SECTION 7.1 Events of Default.............................................................................. 45
SECTION 7.2 Remedies....................................................................................... 47
SECTION 7.3 Remedies Cumulative............................................................................ 49
ARTICLE VIII CREATION OF SECURITY INTEREST.................................................................. 49
SECTION 8.1 Grant of Security Interest..................................................................... 49
SECTION 8.2 Negotiable Collateral.......................................................................... 50
SECTION 8.3 Collection of Accounts, General Intangibles, and Negotiable Collateral......................... 50
SECTION 8.4 Delivery of Additional Documentation Required.................................................. 50
SECTION 8.5 Power of Attorney.............................................................................. 50
SECTION 8.6 Right to Inspect............................................................................... 51
SECTION 8.7 Liability for Collateral....................................................................... 51
ARTICLE IX THE AGENT; THE LENDER GROUP...................................................................... 51
SECTION 9.1 Appointment and Authorization of Agent......................................................... 51
SECTION 9.2 Delegation of Duties........................................................................... 52
SECTION 9.3 Liability of Agent............................................................................. 53
</TABLE>
ii.
<PAGE>
<TABLE>
<S> <C>
SECTION 9.4 Reliance by Agent.............................................................................. 53
SECTION 9.5 Notice of Default or Event of Default.......................................................... 53
SECTION 9.6 Credit Decision................................................................................ 54
SECTION 9.7 Costs and Expenses; Indemnification............................................................ 54
SECTION 9.8 Agent in Individual Capacity................................................................... 55
SECTION 9.9 Successor Agent................................................................................ 55
SECTION 9.10 Withholding Tax................................................................................ 56
SECTION 9.11 Collateral Matters............................................................................. 57
SECTION 9.12 Restrictions on Actions by Lenders; Sharing of Payments........................................ 58
SECTION 9.13 Agency for Perfection.......................................................................... 58
SECTION 9.14 Payments by Agent to the Lenders............................................................... 59
SECTION 9.15 Concerning the Collateral and Related Loan Documents........................................... 59
SECTION 9.16 Several Obligations; No Liability.............................................................. 59
SECTION 9.17 Holders of Notes............................................................................... 59
SECTION 9.18 Calculations................................................................................... 60
SECTION 9.19 Co-Agent....................................................................................... 60
ARTICLE X MISCELLANEOUS..................................................................................... 60
SECTION 10.1 Amendments, Etc................................................................................ 60
SECTION 10.2 Notices, Etc................................................................................... 61
SECTION 10.3 Right of Setoff................................................................................ 61
SECTION 10.4 No Waiver; Remedies............................................................................ 62
SECTION 10.5 Costs and Expenses............................................................................. 62
SECTION 10.6 Assignments and Participations................................................................. 62
SECTION 10.7 Effectiveness: Binding Effect.................................................................. 64
</TABLE>
iii.
<PAGE>
<TABLE>
<S> <C>
SECTION 10.8 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver......................... 65
SECTION 10.9 Waiver of Notices............................................................................. 66
SECTION 10.10 Destruction of Borrower's Documents........................................................... 66
SECTION 10.11 Entire Agreement.............................................................................. 66
SECTION 10.12 Severability of Provisions.................................................................... 66
SECTION 10.13 Execution in Counterparts..................................................................... 66
</TABLE>
iv.
<PAGE>
SCHEDULES AND EXHIBITS
Exhibit A-1 Form of Assignment and Acceptance
Exhibit RN-1 Form of Promissory Note
Exhibit LCR Form of Letter of Credit Request
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
v.
<PAGE>
AMENDED AND RESTATED
CREDIT AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT dated as of June 7,
1999 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"), MELLON BANK, N.A., as agent for the Lenders (in such
-------
capacity, the "Agent"), and WELLS FARGO BANK, N.A., as co-agent for the Lenders
-----
(in such capacity, together with its successors, if any, in such capacity, the
"Co-Agent"). The Borrower , the Lenders, the Agent, and the Co-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": 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": 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
1.
<PAGE>
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.
"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 as of the end of each fiscal
quarter of the Borrower to EBITDA 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/ equal to or less more than 1.00:1.00 and more than 1.50:1.00 and more than 2:001.00
than 1.00:1.00 less than or equal less than or equal
EBITDA to 1.50:1.00 to 2.00:1.00
Libor Rate 125 bps 150 bps 175 bps 200 bps
Portion
Prime Rate 0 bps 0 bps 0 bps 0 bps
Portion
</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
- -----------
2.
<PAGE>
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/EBITDA ratio as of the last day of such
fiscal quarter was the same as the Indebtedness/EBITDA 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
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/EBITDA ratio is reported the Level I Applicable Margin shall apply
irrespective of the Indebtedness/EBITDA 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/EBITDA 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/EBITDA equal to or less more than 1.00:1.00 and more than 2.00:1.00
than 1.00:1.00 less than or equal
Ratio 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/EBITDA ratio as of the last day
of such fiscal quarter was the same as the Indebtedness/EBITDA 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/EBITDA ratio is reported the Level I Unused Line Rate shall apply
irrespective of the Indebtedness/EBITDA 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.
- -----------
3.
<PAGE>
"Average Unused Commitment": With respect to any Lender, (a) such Lender's
-------------------------
Commitment, minus (b) the sum of (i) the average daily balance of such Lender's
-----
Pro Rata Share of the Revolving Facility Usage for the immediately preceding
three-month period, plus (ii) the average daily balance of such Lender's Pro
----
Rata Share of the L/C Usage for the immediately preceding three-month period,
plus (iii) with respect to the Swing Line Lender, the average daily balance of
- ----
the Swing Line Facility Usage for the immediately preceding three-month period.
"Average Unused Commitments" means, collectively, the aggregate amount of the
--------------------------
Average Unused Commitments of all of the Lenders.
"Bankruptcy Code": The United States Bankruptcy Code (11 U.S.C. (S) 101 et
--------------- --
seq.), as amended, and any successor statute.
- ---
"Borrower": As set forth in the introductory paragraph of this Agreement.
--------
"Borrower's Books": 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.
"Borrowing": A borrowing hereunder consisting of Revolving Loans made on
---------
the same day by the Lenders to the Borrower, or a Swing Line Loan made by
Mellon.
"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) with the exception of Steven S. Myers or an Affiliate of Steven S. Myers, 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.
"Co-Agent": As set forth in the introductory paragraph of this Agreement.
--------
4.
<PAGE>
"Code": The California Uniform Commercial Code.
----
"Collateral": 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
(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": 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 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
5.
<PAGE>
deficit) of the Borrower and its consolidated Subsidiaries, 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.
"EBITDA": For any period, Borrower's consolidated net earnings (or loss)
------
less the amount of any extraordinary gains, and before interest expense,
provision for income taxes, non-cash extraordinary losses, depreciation, and
amortization expense, including any non-cash write-off of capitalized research
and development costs included in the assets acquired pursuant to an
Acquisition, in each case, for such period, , provided that such write-offs
--------
shall be either (a) expressly approved by Borrower's independent certified
public accountants, or (b) the amount is shown as a separate item in Borrower's
financial statements, all as determined in accordance with GAAP.
"Equipment": 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.
"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 Letters": means, collectively, the letter dated June 7, 1999, between
-----------
the Borrower and Agent, and the letter dated June 7, 1999, between the Borrower
and Co-Agent, providing, in each case, for the payment of certain fees in
connection with this Agreement.
6.
<PAGE>
"Fixed Charge Coverage Ratio": For any date of determination, on a
---------------------------
consolidated basis, the ratio of: (a) the sum of (i) EBITDA, minus, (ii)
-----
Capital Expenditures (net of the capitalized portion of leasehold improvements
to the extent reimbursed by Borrower's landlords under any tenant improvement
allowance), minus, (iii) provision for income taxes, in each case under this
-----
clause (a), for the 12 month period ending on such date of determination in
accordance with GAAP; to (b) the sum of (i) Interest Expense, plus (ii)
----
scheduled payments of principal of long-term Indebtedness, plus (iii) scheduled
----
payments in respect of capitalized lease obligations, and plus (iv) any payments
----
made by Borrower in reduction of the Revolving Commitment pursuant to subsection
----------
2.1(b)(i)(A), in each case under this clause (b) with the exception of item (i),
- ------------
for the 12 month period following such date of determination for said period in
accordance with GAAP, and, with respect to item (i), for the 12 month period
ending on such date of determination for said period in accordance with GAAP.
"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.
"Indebtedness": With respect to the Borrower and its consolidated
------------
Subsidiaries, without duplication, in accordance with GAAP: (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 (other than accounts payable
arising in the ordinary course of business on terms customary in the trade), (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
7.
<PAGE>
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 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 and its consolidated
Subsidiaries, 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 2.6(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": 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": "investment property" as that term is defined in
-------------------
Section 9115 of the Code.
"Issuing Bank": 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 2.7.
--- -----------
"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.
"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.
--------------------- ------------
"Letter of Credit Request": Has the meaning set forth in Section 2.7.
------------------------ -----------
8.
<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 Agent]
---------------------------------
[1.00 - Libor Rate Reserve Percentage]
"LIBOR Rate Option": Has the meaning set forth in Section 2.6(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 Loans and other
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": Revolving Loans and Swing Line Loans.
-----
"Loan Documents": This Agreement, the Note(s), each security agreement and
--------------
each guarantee, including, but not limited to, the guaranties and the security
agreements of each of the Guarantors, the Fee Letters, and other documents
required by the Lender Group in connection with this Agreement and/or the credit
extended hereunder.
9.
<PAGE>
"London Business Day": A day for dealing in deposits in Dollars by and
-------------------
among banks in the London interbank market.
"Material Subsidiary": (a) SM&A Corporation (East), a California
-------------------
corporation, successor in interest by merger of Space Applications Corporation,
a California corporation, and Decision-Science Applications, Inc., a California
corporation, (b) Systems Integration Software, 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": May 31, 2004.
-------------
"Maximum Aggregate Acquisition Purchase Price": As of any date of
--------------------------------------------
determination, (a) $15,000,000 in total Acquisition Purchase Price paid or
incurred during the 12 calendar month period ending immediately prior to such
date, if the ratio of Indebtedness as of such date to EBITDA for the same 12
month period is equal to or greater than 2.00:1.00, and (b) $25,000,000 in total
Acquisition Purchase Price paid or incurred during the 12 calendar month period
ending immediately prior to such date, if the ratio of Indebtedness as of such
date to EBITDA for the same 12 calendar month period is less than 2.00:1.00.
"Mellon": Mellon Bank, N.A., a national banking association.
------
"Negotiable Collateral": 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.
"Net Profitability": As of any date of determination, the net income of
-----------------
the Borrower and its Subsidiaries determined on a consolidated basis in
accordance with GAAP, plus the amount of any non-operating non-recurring loss
----
reflected in such net income, and less the amount of any non-operating non-
----
recurring gain reflected in such net income.
"New Commitment": At any time with respect to a Lender, the principal
---------------
amount set forth beside such Lender's name under the heading "New 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 "New Commitments" means, collectively,
------------ ---------------
the aggregate amount of the New Commitments of all of the Lenders.
"Notes": The Revolving Notes.
------
10.
<PAGE>
"Obligations": All loans, Revolving Loans, Swing Line 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.
"Old Commitment": At any time with respect to a Lender, the principal
--------------
amount set forth beside such Lender's name under the heading "Old Commitment" on
Schedule C-1 attached hereto, and "Old Commitments" means, collectively, the
- ------------ ---------------
aggregate amount of the Old Commitments of all of the Lenders.
"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 Acquisition": Permitted Acquisition shall mean (a) an
---------------------
Acquisition with respect to which the Acquisition Purchase Price for such
Acquisition together with the Acquisition Purchase Price for all Acquisitions
(excluding the cash consideration paid by Borrower with respect to the
Acquisitions of Space Applications Corporation and Decision-Science
Applications, Inc.) consummated in the 12 month period immediately preceding the
consummation date of such Acquisition shall not, in the aggregate, exceed the
Maximum Aggregate Acquisition Purchase Price as of the consummation date of the
proposed Acquisition, provided that such Acquisition satisfies 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; (iv) the Acquisition shall not have been the result of a
- -----------
hostile tender offer or other action contrary to the decisions of the board of
directors or a majority of the shareholders of the Person that is the subject of
the Acquisition; and (v) the Person that is the subject of the Acquisition shall
have had positive EBITDA for the period of four fiscal quarters ending
immediately preceding the consummation date of the proposed Acquisition; and (b)
Acquisitions that do not satisfy clause (a) hereof but are approved by the
Required Lenders.
11.
<PAGE>
"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 2.6(b) hereof, or in accordance with Section 2.6(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 2.6(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 2.6(b).
----------------- -------------
"Pro Rata Share": With respect to any Lender: (a) with respect to the Old
--------------
Commitments, the percentage obtained by dividing (i) such Lender's Old
Commitment to make Revolving Loans, by (ii) the aggregate Old Commitments of all
Lenders to make Revolving Loans; (b) with respect to the New Commitments, the
percentage obtained by dividing (i) such Lender's New Commitment to make
Revolving Loans, by (ii) the aggregate New Commitments of all Lenders to make
Revolving Loans; (c) with respect to the Average Unused Commitments, the
percentage obtained by dividing (i) such Lender's Average Unused Commitment, by
(ii) the aggregate Average Unused Commitment of all Lenders, and (d) with
respect to all other matters, the percentage obtained by dividing (i) such
Lender's Commitment to make Revolving Loans, by (ii) the aggregate Commitments
of all Lenders to make Revolving Loans.
"Rate Period": As defined in Section 2.6(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).
12.
<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": At any time, Lenders whose Pro Rata Shares aggregate
----------------
66.7% of the Commitment, or if the Commitments have been terminated irrevocably,
66.7% of the Obligations then outstanding.
"Revolving Commitment": The amount of $50,000,000, as such amount shall be
--------------------
reduced pursuant to Section 2.1(b).
--------------
"Revolving Facility Usage": As of any date of determination, 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(d)(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;
13.
<PAGE>
(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; and
(iii) on the same Business Day that is the requested Funding Date in
the case of the making of a Swing Line Loan.
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.
"Swing Line Commitment": The amount of $5,000,000.
---------------------
"Swing Line Facility Usage": As of any date of determination, the
-------------------------
aggregate amount of Swing Line Loans outstanding.
"Swing Line Lender": Mellon in its capacity as a Lender.
-----------------
"Swing Line Loan": As defined in Section 2.2(c).
--------------- --------------
"Unused Line Fee": As defined in Section 2.8(c).
--------------- --------------
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.
--------------------
14.
<PAGE>
(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)) less the undrawn and unreimbursed amount of L/Cs, in each case, as of
- ------
the date of the making of any such loan. Within the limits of the Revolving
Commitment and prior to the Maturity Date, the Borrower may borrow, repay
pursuant to Section 2.5(b) and reborrow under this section.
--------------
(b) Reduction of the Revolving Commitment.
(i) On March 31, 2001, and on the last day of each calendar
quarter thereafter, the Revolving Commitment shall be permanently reduced by
$1,800,000. Upon the effectiveness of such reduction in the Revolving
Commitment, (A) to the extent that the aggregate outstanding Obligations exceeds
the Revolving Commitment, the amount of such excess shall be immediately due and
payable, without notice, in accordance with Section 2.5(a), and (B) each
--------------
Lender's Commitment shall be reduced ratably.
(ii) 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 (the "Revolving Notes"), with any appropriate insertions, 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 2.6. 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.
-----------------------------
15.
<PAGE>
The Lenders shall have no obligation to make Revolving Loans hereunder to
the extent they would cause the Revolving Facility Usage, plus the Swing Line
----
Facility Usage, plus the L/C Usage 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 no later than
12:00 noon, Los Angeles time, 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. Each Borrowing 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.
(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 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(d), 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) Refunding of Swing Line Loans.
-----------------------------
16.
<PAGE>
(i) At any time, upon the request of Swing Line Lender in its
sole and absolute discretion, Agent shall, on behalf of the Borrower (which
hereby irrevocably directs and authorizes Agent to act on its behalf), request
each lender, including Swing Line Lender, to make a Revolving Loan (with respect
to which the Prime Rate Option shall apply) in an amount equal to such Lender's
Pro Rata Share of all or a portion of the Swing Line Loans outstanding on the
date such notice is given. Each Lender shall make the proceeds of such Revolving
Loans available to Agent in accordance with the provisions of Section
-------
2.2(d)(ii). Agent shall wire transfer the amount of such proceeds, or portion
- ----------
thereof, received by Agent to Swing Line Lender's account by no later than 12:00
noon (Los Angeles time) on the Business Day immediately following the date such
proceeds are received.
(ii) If the Commitments shall expire or terminate at any time
while Swing Line Loans are outstanding then, to the extent the Swing Line Loans
are not repaid in accordance with the terms of this Agreement, Agent shall, on
behalf of the Borrower (which hereby irrevocably directs and authorizes Agent to
act on its behalf), request each Lender, including Swing Line Lender, to make a
Revolving Loan (with respect to which the Prime Rate Option shall apply) in an
amount equal to such Lender's Pro Rata Share of the Swing Line Loans outstanding
on the date such notice is given. Each Lender shall make the proceeds of such
Revolving Loans available to Agent in accordance with the provisions of Section
-------
2.2(d)(ii). Agent shall wire transfer the amount of such proceeds, or portion
- ----------
thereof, received by Agent to Swing Line Lender's account by no later than 12:00
noon (Los Angeles time) on the Business Day immediately following the date such
proceeds are received.
(iii) The provisions of this Section 2.2(c) shall not affect the
--------------
Borrower's obligations to repay Swing Line Loans in accordance with the terms of
this Agreement.
(iv) Anything contained in this Section 2.2(c) to the contrary
--------------
notwithstanding, each Lender's obligation to fund its portion of any Swing Line
Loans made by Swing Line Lender to Borrower will commence on the date such Swing
Line Loans are made by Swing Line Lender.
(d) 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(d). 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, in the aggregate, equals or
exceeds $100,000 (each such day being a
17.
<PAGE>
"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.
(e) 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
will make such amount available to the Agent on the Business Day following the
next Settlement Date. If a Lender does 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 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(e) 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.
(f) 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
18.
<PAGE>
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.
(g) 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 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 Loans
hereunder, and (ii) no failure by any Lender to perform its obligation to make
any Loans hereunder shall excuse any other Lender from its obligation to make
any Loans hereunder.
(h) 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).
SECTION 2.3 Swing Line Loans
----------------
(a) Swing Line Commitments. Subject to the terms and conditions
----------------------
hereof, Swing Line Lender agrees to make loans ("Swing Line 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 the Swing Line
Commitment. Within the limits of the Swing Line Commitment and prior to the
Maturity Date, the Borrower may borrow, repay pursuant to Section 2.5(b) and
--------------
reborrow under this section.
(b) Revolving Notes. Swing Line 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 Swing Line Loan made by Swing Line Lender,
and the date and amount of each payment of principal thereof, and any such
recordation shall constitute prima facie evidence of the accuracy of the
----- -----
information so recorded; provided, that failure by Swing Line Lender to effect
--------
such recordation shall not affect the Borrower's obligations hereunder.
(c) Limitation on Swing Line Loans. Swing Line Lender shall have
------------------------------
no obligation to make Swing Line Loans hereunder to the extent they would (i)
cause the sum of the Revolving Facility Usage, plus the Swing Line Facility
----
Usage, plus the L/C Usage, to exceed the Revolving Commitment, or (ii) cause the
----
sum of the Swing Line Lender's Pro Rata Share of the Revolving Facility Usage,
plus the Swing Line Facility Usage to exceed Swing Line Lender's Commitment.
- ----
SECTION 2.4 Making the Swing Line Loans.
----------------------------
19.
<PAGE>
(a) Notice to Agent. The Borrower may borrow under the Swing Line
---------------
Commitment on any Business Day: (i) on an automatic basis if at the time of the
making of a Swing Line Loan Borrower is participating in an automatic borrowing
system with the Swing Line Lender, or (ii) through the Borrower providing the
Agent Standard Notice specifying (x) the amount of the proposed Borrowing and
(y) 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 Swing Line Lender 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. Each Borrowing shall be in a minimum amount of
$1.00.
(b) Disbursement of Funds.
---------------------
The Agent shall advise Swing Line Lender by telephone or telecopy of the
amount of the Swing Line Loan requested by Borrower no later than 1:00 p.m. (Los
Angeles time) on the requested Funding Date applicable thereto, and Swing Line
Lender shall pay the Agent the amount of such requested Swing Line Loan, in same
day funds, by wire transfer to the Agent's account on such Funding Date.
Nothing in this Section 2.4(b) or elsewhere in this Agreement or the other Loan
--------------
Documents shall be deemed to require the Agent to advance funds on behalf of
Swing Line 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 Swing Line Lender as a result of any default by Swing Line
Lender hereunder.
SECTION 2.5 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
Obligations exceed the Revolving Commitment then in effect, including, but not
limited to, as a result of a permanent reduction in the Revolving Commitment
required under Section 2.1(b) hereof, 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 Swing Line Loans in whole or in part without premium or penalty.
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 and accrued interest thereon shall be
due and payable.
20.
<PAGE>
(c) Repayment of Swing Line Loans.
-----------------------------
The aggregate principal amount of the Swing Line 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 Swing
Line Loans exceeds the Swing Line Commitment, the borrower shall immediately
repay the excess to the Agent for the benefit of Swing Line Lender.
SECTION 2.6 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 June 30, 1999, and on the last Business Day of each
calendar quarter thereafter. 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 Notes 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; provided, however,
---------------------- -------- -------
that the Prime Rate Option shall apply to all Swing Line Loans. 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.
----
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
--------
21.
<PAGE>
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 2.6(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.
SECTION 2.7 Letters of Credit.
------------------
22.
<PAGE>
(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 this Section 2.7 shall be used by the
-----------
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 $5,000,000 or (ii) would cause the sum of the Revolving Facility
Usage, plus the Swing Line Facility Usage, plus the L/C Usage to exceed the
---- ----
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 set 2.7(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.
(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) and under this
Agreement and any reimbursement agreement executed by the Borrower therefor, 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
23.
<PAGE>
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.
(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
----------
2.7(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 2.7 and
-----------
various other provisions of this Agreement identifying the Issuing Bank are
intended to benefit the Issuing Bank and the Issuing Bank shall be entitled to
enforce the provisions hereof which are for its benefit.
24.
<PAGE>
(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 2.7(j), any L/C or any
-----------------
participation therein;
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 2.7(k). Any cash collateral received by any Lender or the
--------------
Issuing Bank pursuant to this Section 2.7(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 2.7 shall survive the termination of
-----------
this Agreement with respect to any L/Cs then outstanding.
SECTION 2.8 Fees.
----
Borrower shall pay to Agent for the ratable benefit of the Lender Group
(except as otherwise indicated) the following:
25.
<PAGE>
(a) Loan Fee. Upon the execution of this Agreement, a loan fee
--------
Fee") of $62,500, for the ratable benefit of the Lenders (based upon their Pro
Rata Share of the New Commitments) such Loan Fee to be earned in full upon
payment;
(b) Old Lender Loan Fee. The Borrower shall pay to the Agent for
-------------------
the benefit of the Lenders according to their Pro Rata Share of the Old
Commitments upon the execution of this Agreement, a loan fee (the "Old Lender
Loan Fee") of $12,500, such Old Lender Loan Fee to be earned in full upon
payment;
(c) Unused Line Fee. The Borrower shall pay to the Agent for the
---------------
benefit of the Lender Group according to each Lender's Pro Rata Share of the
Average Usused Commitments, a fee (the "Unused Line Fee") in an amount equal to
the Applicable Unused Line Rate times the Average Unused Commitments. The Unused
Line Fee shall be payable in arrears, commencing on the first Business Day of
October, 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
(d) Annual Administration Fee. As set forth in the Fee Letters.
-------------------------
(e) 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 2.8(e)(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 2.8(e)(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"). As between Agent and
-----------------
Borrower, each determination by the Agent of Letter of Credit Fees, Issuing Bank
Fees and
26.
<PAGE>
other fees, charges and expenses under this Section shall be conclusive and
binding for all purposes, absent manifest or demonstrable error.
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, to repay
existing indebtedness, and for the repurchase of Borrower's equity securities as
permitted under Section 6.2(j).
--------------
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.
---------
(a) 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).
(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
27.
<PAGE>
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 Federal Funds Rate 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 Swing Line 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) ratably to pay interest due in respect of all outstanding
Revolving Loans and Swing Line Loans;
(iv) ratably to pay principal of all outstanding Revolving Loans
and Swing Line 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 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
28.
<PAGE>
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 Issuing
Bank, and the shareholders, officers, directors, employees and 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. 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.
(b) Funding Losses.
--------------
29.
<PAGE>
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 2.6(e) hereof; or (v) breach of or
--------------
default by any obligor in the performance or observance of any material covenant
or condition in the Notes, any separate security, guarantee or suretyship
agreement between the Lender Group and any obligor, or any other material
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
30.
<PAGE>
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 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;
31.
<PAGE>
(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 entered into by
Borrower with or for the benefit of the Lender Group;
(vii) An executed original of all Loan Documents entered into by
each of the Guarantors with or for the benefit of the Lender Group;
(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 December
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; and
(h) 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) 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:
32.
<PAGE>
(a) the following statements shall be true and the Agent shall have
received the notice required by Section 2.2(a), 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 the issuance of such
requested L/C as though made on and as of such date;
(ii) No event has occurred and is continuing, or would result
from such Borrowing, or the issuance of the requested L/C, 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.
The foregoing conditions precedent are not conditions to each Lender (i)
participating in or reimbursing Agent for such Lender's Pro Rata Share of any
drawings under L/Cs or Revolving Loans made by Agent, in each case, as provided
herein, or (ii) participating in or reimbursing Swing Line Lender for such
Lender's Pro Rata Share of any Swing Line Loan as provided herein.
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
33.
<PAGE>
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.
(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
December 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 December 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
34.
<PAGE>
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 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.
(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;
35.
<PAGE>
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 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.
----------------------------------------------------
36.
<PAGE>
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 material 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 material laws, rules, regulations, licenses, permits,
approvals and orders of any foreign, Federal, state or local governmental
authority.
(o) Year 2000 Compliance.
--------------------
Borrower and its Subsidiaries have reviewed the areas within their
operations and business which could be adversely affected by, and have developed
or are developing a program to address on a timely basis, the Year 2000 Problem
and have made related appropriate inquiry of material suppliers and vendors, and
based on such review and program, the Year 2000 Problem will not have material
adverse effect upon its financial condition, operations or business as now
conducted. "Year 2000 Problem" means the possibility that any computer
applications or equipment used by Borrower may be unable to recognize and
properly perform date-sensitive functions involving certain dates prior to and
any dates on or after December 31, 1999.
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;
(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
37.
<PAGE>
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;
38.
<PAGE>
(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, an officer's certificate specifying the nature of such
occurrence or forthcoming occurrence;
(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
(S) 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.
------------------------------------
39.
<PAGE>
Maintain or cause to be maintained in good repair, working order and
condition (ordinary wear and tear excepted) 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
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 on behalf of the Lenders 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 secret or any level of secret
or similar classification pursuant to appropriate governmental authority unless
such access is permitted by applicable governmental regulations.
(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
40.
<PAGE>
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.
(k) Year 2000 Compliance.
--------------------
Borrower shall perform all acts reasonably necessary to ensure that (i)
Borrower and its Subsidiaries and any business in which Borrower or any of its
Subsidiaries holds a substantial interest, and (ii) all customers, suppliers,
and vendors that are material to the business of Borrower or of any of its
Subsidiaries, become Year 2000 Compliant in a timely manner. Such acts shall
include, without limitation, performing a comprehensive review and assessment of
all systems of Borrower and its Subsidiaries and adopting a detailed plan, with
itemized budget, for the remediation, monitoring and testing of such systems. As
used in this Section, "Year 2000 Compliant" shall mean, in regard to any Person,
that all software, hardware, firmware, equipment, goods or systems utilized by
or material to the business operations or financial condition of such entity,
will properly perform date sensitive functions before, during and after the year
2000. Borrower shall, immediately upon request, provide to the Agent such
certifications or other evidence of the compliance by Borrower and its
Subsidiaries with the terms of this Section as Agent may from time to time
reasonably require.
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) Minimum Consolidated Net Worth.
------------------------------
At any time, permit Consolidated Net Worth to be less than $53,500,000;
which such minimum amount of Consolidated Net Worth shall be decreased by an
amount equal to the total consideration, whether in cash or property, paid to
repurchase the Borrower's common stock in
41.
<PAGE>
accordance with the terms hereof, and shall be increased (i) at the end of each
fiscal quarter of the Borrower, commencing with Borrower's fiscal quarter ending
June 30, 1999, 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 after the date hereof, 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) Maximum Leverage.
----------------
The Borrower will not permit the ratio of Indebtedness, as of the last day
of any fiscal quarter, to EBITDA for the four consecutive fiscal quarters ending
on such date, to be greater than 3.00:1.00.
(c) Minimum Fixed Charge Coverage Ratio.
-----------------------------------
The Borrower will not permit the Fixed Charge 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 1.25:1.00.
(d) Minimum Net Profitability.
-------------------------
The Borrower will not permit the Net Profitability for the fiscal quarter
ending June 30, 1999, and each fiscal quarter thereafter 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 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
42.
<PAGE>
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 $1,500,000 outstanding at any time; and (vi) operating leases.
(g) Consolidation, Merger or Dissolution.
------------------------------------
Except for Permitted Acquisitions, consolidate with or merge into, or
permit any Subsidiary to 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 or any Lender, 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
43.
<PAGE>
(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.
(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 or other distributions on its
capital stock or redeem, repurchase or acquire any shares of its capital stock,
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 (i) 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, or (ii)
repurchase its capital stock in an aggregate amount not to exceed $5,000,000
during the period from June 1, 1999 through December 31, 1999, and $1,000,000
during each fiscal year thereafter during the term of this Agreement.
(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
44.
<PAGE>
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.
(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.
-----------------
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
-----------------
(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
45.
<PAGE>
(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 five (5) consecutive days after the Borrower becomes aware of such
failure to perform or observe any such term, covenant or agreement; provided,
--------
that such five (5) 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 five (5) 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
(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
46.
<PAGE>
(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 of the Loans 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
(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.
SECTION 7.2 Remedies.
--------
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;
47.
<PAGE>
(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;
(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;
48.
<PAGE>
(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 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
(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 7.3 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
49.
<PAGE>
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, after the occurrence
and during the continuance of an Event of Default, (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 has a
security interest therein, and (b) 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 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
50.
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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, upon
reasonable notice to Borrower and during normal business hours, 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.
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 and the
Issuing Bank (by its acceptance of the benefits hereof) hereby irrevocably
authorizes the Agent to take such action on
51.
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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. 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 Agent.
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 Required 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
-------
53.
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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
-------
7.2; 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.
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
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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 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 Loans made by
Mellon, 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
55.
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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.
----------------
(a) 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:
(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.
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(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
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.
------------------
(a) 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
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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.
-------------------------------------------------------
(a) Each of the Lenders agrees that it shall not, without the express
consent of the Required Lenders, and that it shall, to the extent it is lawfully
entitled to do so, upon the request of the Required Lenders, 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 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
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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.
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
59.
<PAGE>
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.
SECTION 9.19 Co-Agent.
---------
Notwithstanding the provisions of this Agreement or any of the other Loan
Documents, the Co-Agent (in its capacity as Co-Agent as opposed to its capacity
as a Lender) shall have no powers, rights, duties, responsibilities, or
liabilities with respect to this Agreement and the other Loan Documents nor
shall Co-Agent have or be deemed to have any fiduciary relationship with any
Lender.
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:
(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;
60.
<PAGE>
(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 9.11;
(g) change the definition of "Required Lenders";
(h) release the Borrower from any obligation for the payment of
money;
(i) release any Guarantor from its guaranty of the Loans or any of
its obligations thereunder; or
(j) 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.
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.
- ---------- ---
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
61.
<PAGE>
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.
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), 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.
SECTION 10.6 Assignments and Participations.
-------------------------------
(a) 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
62.
<PAGE>
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.
(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.
63.
<PAGE>
(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 (S)203.14, and such Federal Reserve Bank may enforce
such pledge or security interest in any manner permitted under applicable law.
SECTION 10.7 Effectiveness; Binding Effect.
------------------------------
64.
<PAGE>
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, 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.
(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, 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
65.
<PAGE>
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 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.
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.
--------------------------
66.
<PAGE>
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.
SECTION 10.14 Confidentiality.
----------------
Each Lender shall hold all non-public information obtained pursuant to the
requirements of this Agreement which has been identified as confidential by
Borrower in accordance with such lender's customary procedures for handling
confidential information of this nature, it being understood and agreed by
Borrower that in any event a Lender may make disclosures to its examiners,
outside auditors, counsel and other professional advisors, or Affiliates of such
Lender, or disclosures reasonably required by any bona fide assignee, transferee
or participant in connection with the contemplated assignment or transfer by
such Lender of any loans or any sale or participations therein, or disclosures
required or requested by any governmental agency or representative thereof, or
pursuant to legal process: provided that, unless specifically prohibited by
--------
applicable law or court order, each Lender shall notify Borrower of any request
by any governmental agency or representative thereof (other than any such
request in connection with any examination of the financial condition of such
lender by such governmental agency) for disclosure of any such non-public
information prior to disclosure of such information; and provided, further that
-------- -------
in no event shall any Lender be obligated or required to return any materials
furnished by Borrower or any of its Subsidiaries.
67.
<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:____________________________________ By:_____________________________
Name: Richard M. McNiven, Name: Edward A. Beeman
Title: Assistant Vice President Title: Senior Vice President/
Chief Financial 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: Edward A. Beeman,
Senior Vice President/
Chief Financial Officer
Attention: Richard M. McNiven,
Assistant Vice President
CO-AGENT: LENDERS:
- --------- --------
WELLS FARGO BANK, N.A., as Co-Agent MELLON BANK, N.A.
By:____________________________________ By:_____________________________
Name: Richard LaPoint Name: Richard M. McNiven
Title: Vice President Title: Assistant Vice President
Address: Address:
Wells Fargo Bank, N.A. Mellon Bank
2030 Main Street Mellon Bank Center
Suite 900 400 South Hope Street
Irvine, California 92614 5th Floor
Attention: Richard LaPoint Los Angeles, California 90071
Vice President Attention: Richard M. McNiven,
Assistant Vice President
68.
<PAGE>
WELLS FARGO BANK, N.A.
By:___________________________________
Name: Richard LaPoint
Title: Vice President
Address:
Wells Fargo Bank, N.A.
2030 Main Street
Suite 900
Irvine, California 92614
Attention: Richard LaPoint
Vice President
IMPERIAL BANK
By:___________________________________
Name: Denise D. Pardue
Title: Vice President
Address:
Imperial Bank
695 Town Center Drive
Costa Mesa, California 92626
Attention: Denise D. Pardue
Vice President
69.
<PAGE>
Schedule C-1
LENDERS AND COMMITMENT AMOUNTS
<TABLE>
<CAPTION>
Name of Lender Old Commitment New Commitment Total Commitment
-------------- -------------- -------------- ----------------
<S> <C> <C> <C>
Mellon Bank, N.A. $15,000,000 $10,000,000 $25,000,000
Imperial Bank $10,000,000 -0- $10,000,000
Wells Fargo Bank, N.A. -0- $15,000,000 $15,000,000
----------------------- ------------------------------ -------------------------------
$25,000,000 $25,000,000 $50,000,000
</TABLE>
<PAGE>
Schedule 5.1(f)
Litigation
<PAGE>
Schedule 5.1(i)
Environmental Matters
<PAGE>
Schedule 6.1(j)
Location of Inventory and Equipment
<PAGE>
Schedule 6.2(e)
Permitted Liens
<PAGE>
EXHIBIT 10.2
PROMISSORY NOTE
$15,000,000.00 June 7, 1999
Los Angeles, California
FOR VALUE RECEIVED, SM&A CORPORATION, a California corporation (the
"Borrower"), promises to pay to the order of WELLS FARGO 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 May 31, 2004.
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 2030 Main Street, Suite 900, Irvine, California
92614 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 Amended and Restated Credit and Security Agreement dated as of June 7,
1999 (as amended from time to time, the "Credit Agreement") between the Borrower
----------------
on the one hand, and on the other hand, each of the financial institutions
(including the Bank) signatory thereto ("Lenders") and Mellon Bank,
<PAGE>
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:______________________________________________
Name:____________________________________________
Title:___________________________________________
2.
<PAGE>
SCHEDULE OF
TRANSACTIONS ON
NOTE
<TABLE>
<CAPTION>
Interest Paid
Through
-------
Amount of Amount of Principal Notation
Principal Paid Balance Made By
-------------- ------- -------
Loan Made Interest Paid
- --------- -------------
<S> <C> <C> <C> <C> <C>
</TABLE>
3.
<PAGE>
EXHIBIT 10.3
PROMISSORY NOTE
$10,000,000.00 June 7, 1999
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 May 31, 2004.
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, 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 Amended and Restated Credit and Security Agreement dated as of June 7,
1999 (as amended from time to time, the "Credit Agreement") between the Borrower
----------------
on the one hand, and on the other hand, each of 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
<PAGE>
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:______________________________________________
Name:____________________________________________
Title:___________________________________________
2.
<PAGE>
SCHEDULE OF
TRANSACTIONS ON
NOTE
<TABLE>
<CAPTION>
Interest Paid
Through
-------
Amount of Amount of Principal Notation
Principal Paid Balance Made By
-------------- ------- -------
Loan Made Interest Paid
- --------- -------------
<S> <C> <C> <C> <C> <C>
</TABLE>
3.
<PAGE>
EXHIBIT 10.4
PROMISSORY NOTE
$25,000,000.00 June 7, 1999
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 Twenty Five Million Dollars ($25,000,000.00), 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 May 31, 2004.
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 400 South Hope Street, 5th Floor, Los Angeles,
California 90071 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 Amended and Restated Credit and Security Agreement dated as of June 7,
1999 (as amended from time to time, the "Credit Agreement") between the Borrower
----------------
on the one hand, and on the other hand, each of the financial institutions
(including the Bank) signatory thereto ("Lenders") and Mellon Bank,
<PAGE>
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:______________________________________________
Name:____________________________________________
Title:___________________________________________
2.
<PAGE>
SCHEDULE OF
TRANSACTIONS ON
NOTE
<TABLE>
<CAPTION>
Interest Paid
Through
-------
Amount of Amount of Principal Notation
Principal Paid Balance Made By
-------------- ------- -------
Loan Made Interest Paid
- --------- -------------
<S> <C> <C> <C> <C> <C>
</TABLE>
3.
<PAGE>
EXHIBIT 10.5
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), is entered into as of June 7,
1999, 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 SM&A
CORPORATION (EAST), a California corporation, successor in interest by merger of
Space Applications Corporation, a California corporation, and Decision-Science
Applications, Inc., a California corporation ("Guarantor"), with its chief
executive office located at 4695 MacArthur Court, 8th Floor, Newport Beach,
California 92660.
WHEREAS, Borrower, the Lenders, and Agent are, contemporaneously herewith,
entering into the Credit Agreement;
WHEREAS, Borrower owns one hundred percent (100%) of the issued and
outstanding capital stock of Guarantor;
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:
DEFINITIONS AND CONSTRUCTION.
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:
<PAGE>
"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.
"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 Amended and Restated 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
2.
<PAGE>
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.
"Guarantor" has the meaning ascribed thereto in the preamble to this
---------
Agreement.
"Guaranty" means that certain General Continuing Guaranty, dated as of even
--------
date herewith, entered into by Guarantor in favor of Agent for the benefit of
the Lender Group.
"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 Bank, N.A. in its capacity as Agent for the Lenders.
"Lenders" means, individually and collectively, each of the financial
-------
institutions (including Mellon Bank N.A.) 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.
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.
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,
3.
<PAGE>
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.
Schedules and Exhibits.
-----------------------
All of the schedules and exhibits attached to this Agreement shall be
deemed incorporated herein by reference.
CREATION OF SECURITY INTEREST.
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.
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.
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.
4.
<PAGE>
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, 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.
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.
Right to Inspect.
-----------------
5.
<PAGE>
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.
REPRESENTATIONS AND WARRANTIES.
Guarantor represents and warrants as follows:
No Prior Encumbrances.
----------------------
Guarantor has good and indefeasible title to the Collateral, free and
clear of liens, claims, security interests, or encumbrances except for Liens
permitted under Section 6.2(e) of the Credit Agreement.
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 _______-
------------
_______________.
Inventory.
----------
All Inventory is now and at all times hereafter shall be of good and
serviceable quality, free from defects.
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.
- ---
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.
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.
6.
<PAGE>
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.
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 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.
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.
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 or to Agent for the benefit thereof.
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:
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.
7.
<PAGE>
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.
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.
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.
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.
Insurance.
----------
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.
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
8.
<PAGE>
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.
Lender Group Expenses.
----------------------
Guarantor shall immediately upon demand reimburse Agent for all sums
expended by Agent or any other member of the Lender Group which constitute
Lender Group Expenses and Guarantor hereby authorizes and approves all advances
and payments by Agent or any other member of the Lender Group for items
constituting Lender Group Expenses.
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:
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
Liens permitted under Section 6.2(e) of the Credit Agreement and so long as the
replacement liens secure only those assets or property that secured the original
indebtedness).
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.
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.
Change Name.
------------
Change Guarantor's name, FEIN, business structure, or identity, or add any
new fictitious name.
9.
<PAGE>
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.
Nature of Business; Fiscal Year.
--------------------------------
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.
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.
Suspension.
-----------
Suspend or go out of business.
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.
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
10.
<PAGE>
Agreement or in the Guaranty, or in any other present or future agreement
between Guarantor and the Lender Group or Agent for the benefit thereof;
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;
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; and
6.8 If any misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to the
Lender Group, or to Agent for the benefit thereof, by Guarantor or any
officer, employee, agent, or director of Guarantor, or if any such warranty
or representation is withdrawn.
THE LENDER GROUP'S RIGHTS AND REMEDIES.
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, do any one or more of the following, all of which are authorized
by Guarantor:
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;
11.
<PAGE>
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;
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;
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;
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;
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 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;
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;
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
12.
<PAGE>
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;
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;
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;
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;
Collect the Accounts of Guarantor, 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 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; and
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.
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.
13.
<PAGE>
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.
---------
WAIVERS; INDEMNIFICATION.
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 or by Agent for the benefit
thereof on which Guarantor may in any way be liable.
Lender Group's Liability for Collateral.
----------------------------------------
So long as Agent and each other member of the Lender Group complies with
its obligations, if any, under Section 9207 of the Code, neither Agent nor any
other member of the Lender Group shall 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.
Indemnification.
----------------
14.
<PAGE>
Guarantor agrees to defend, indemnify, save, and hold each 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.
Waivers.
--------
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.
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.
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 (S)(S) 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.
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
15.
<PAGE>
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.
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 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.
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 (S)(S) 2808, 2809, 2810, 2815,
2819, 2820, 2821, 2838, 2839, 2845, 2848, 2849, AND 2850, TO THE EXTENT
APPLICABLE, CALIFORNIA CODE OF CIVIL PROCEDURE (S)(S) 580a, 580b, 580c, 580d,
AND 726, AND, TO THE EXTENT APPLICABLE, CHAPTER 2 OF TITLE 14 OF THE CALIFORNIA
CIVIL CODE.
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
16.
<PAGE>
THE OPERATION OF SECTION 580d OF THE CODE OF CIVIL PROCEDURE OR OTHERWISE.
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.
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 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.
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,
17.
<PAGE>
unless Guarantor requests, in writing, the return of said documents, schedules
or other papers and makes arrangements, at Guarantor's expense, for their
return.
GENERAL PROVISIONS.
Effectiveness.
--------------
This Agreement shall be binding and deemed effective when executed by
Guarantor and accepted and executed by Agent.
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 or any other member of the Lender Group may assign 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 or any other member
of the Lender Group assigns its rights and obligations to a third Person, Agent
or any other such member of the Lender Group thereafter shall be released from
such assigned obligations to Guarantor and such assignment shall effect a
novation between Guarantor and such third Person.
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.
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.
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.
18.
<PAGE>
Amendments in Writing.
----------------------
This Agreement can only be amended by a writing signed by both Agent and
Guarantor.
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.
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 follows.]
19.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed at Los Angeles, California.
SM&A CORPORATION (EAST),
a California corporation
By _______________________________
Name:
Title:
MELLON BANK, N.A. , as agent
By _______________________________
Name: Richard M. McNiven
Title: Assistant Vice President
20.
<PAGE>
EXHIBIT 10.6
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), is entered into as of June 7,
1999, 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 SYSTEMS
INTEGRATION SOFTWARE, a California corporation ("Guarantor"), with its chief
executive office located at 4695 MacArthur Court, 8th Floor, Newport Beach,
California 92660.
WHEREAS, Borrower, the Lenders, and Agent are, contemporaneously herewith,
entering into the Credit Agreement;
WHEREAS, Borrower owns one hundred percent (1`00%) of the issued and
outstanding capital stock of Guarantor;
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:
<PAGE>
"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.
"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 Amended and Restated 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
2.
<PAGE>
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.
"Guarantor" has the meaning ascribed thereto in the preamble to this
---------
Agreement.
"Guaranty" means that certain General Continuing Guaranty, dated as of even
--------
date herewith, entered into by Guarantor in favor of Agent for the benefit of
the Lender Group.
"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 Bank, N.A. in its capacity as Agent for the Lenders.
"Lenders" means, individually and collectively, each of the financial
-------
institutions (including Mellon Bank N.A.) 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,
3.
<PAGE>
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.
4.
<PAGE>
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, 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.
-----------------
5.
<PAGE>
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.
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 Liens
permitted under Section 6.2(e) of the Credit Agreement.
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 _____-
------------
_______________.
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.
6.
<PAGE>
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 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 or to Agent for the benefit thereof.
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.
7.
<PAGE>
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.
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)
8.
<PAGE>
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 Agent or any other member of the Lender Group which constitute
Lender Group Expenses and Guarantor hereby authorizes and approves all advances
and payments by Agent or any other member of 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:
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
Liens permitted under Section 6.2(e) 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.
9.
<PAGE>
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.
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
10.
<PAGE>
Agreement or in the Guaranty, or in any other present or future agreement
between Guarantor and the Lender Group or Agent for the benefit thereof;
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;
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; and
6.8 If any misstatement or misrepresentation exists now or hereafter
in any warranty, representation, statement, or report made to the Lender
Group, or to Agent for the benefit thereof, 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, 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;
11.
<PAGE>
(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 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
12.
<PAGE>
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 Guarantor, 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 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; and
(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.
13.
<PAGE>
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.
---------
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 or by Agent for the benefit
thereof on which Guarantor may in any way be liable.
9.2 Lender Group's Liability for Collateral.
----------------------------------------
So long as Agent and each other member of the Lender Group complies with
its obligations, if any, under Section 9207 of the Code, neither Agent nor any
other member of the Lender Group shall 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.
----------------
14.
<PAGE>
Guarantor agrees to defend, indemnify, save, and hold each 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.
(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 (S)(S) 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
15.
<PAGE>
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 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 (S)(S) 2808, 2809,
2810, 2815, 2819, 2820, 2821, 2838, 2839, 2845, 2848, 2849, AND 2850, TO THE
EXTENT APPLICABLE, CALIFORNIA CODE OF CIVIL PROCEDURE (S)(S) 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
16.
<PAGE>
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 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.
17.
<PAGE>
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 or any other member of the Lender Group may assign 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 or any other member
of the Lender Group assigns its rights and obligations to a third Person, Agent
or any other such member of the Lender Group 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.
---------------------------
18.
<PAGE>
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 follows.]
19.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed at Los Angeles, California.
SYSTEMS INTEGRATION SOFTWARE,
a California corporation
By __________________________________________
Name:
Title:
MELLON BANK, N.A., as agent
By __________________________________________
Name: Richard M. McNiven
Title: Assistant Vice President
20.
<PAGE>
EXHIBIT 10.7
- ------------
GENERAL CONTINUING GUARANTY
---------------------------
THIS GENERAL CONTINUING GUARANTY ("Guaranty"), dated as of June 7, 1999, is
executed and delivered by SYSTEMS INTEGRATION SOFTWARE, 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:
(a) 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 Amended and
----------------
Restated Credit and Security Agreement, dated as of even date herewith, among
Debtor and the Lender Group.
"Debtor" shall mean SM&A Corporation, a California
------
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 Guarantied Party in its capacity as agent for the
Lenders.
"Lenders" shall mean, individually and collectively, each of
-------
the financial institutions (including Guarantied Party) 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.
<PAGE>
(b) 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
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.
(c) 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.
(d) 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.
(e) 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
3.
<PAGE>
against Guarantor, whether such action is brought against Debtor or any other
guarantor 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.
(f) Waivers.
-------
c. 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.
d. 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)
4.
<PAGE>
of Debtor or by reason of the cessation from
any cause whatsoever of the liability of
Debtor in respect thereof.
e. 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 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 (S)(S) 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.
f. 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.
g. 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
5.
<PAGE>
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.
h. 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 (S)(S) 2799, 2808,
2809, 2810, 2815, 2819, 2820, 2821, 2822,
2838, 2839, 2845, 2847, 2848, 2849, AND 2850,
CALIFORNIA CODE OF CIVIL PROCEDURE (S)(S)
580a, 580b, 580c, 580d, AND 726, AND CHAPTER
2 OF TITLE 14 OF THE CALIFORNIA CIVIL CODE.
i. 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
6.
<PAGE>
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.
(g) 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.
(h) 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.
(i) 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.
7.
<PAGE>
(j) 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.
(k) 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.
(l) 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.
(m) 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.
(n) 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: Systems Integration Software
c/o SM&A Corporation
4695 MacArthur Court, 8th Floor
Newport Beach, California 92660
8.
<PAGE>
Attn: Edward A. Beeman
Senior Vice President/
Chief Financial Officer
Telefacsimilie: (949) 975-1624
with a copy to Rutan & Tucker
61 Antor Boulevard, 14th Floor
Costa Mesa, California 92626
Attn: Thomas J. Crane, Esq.
Telefacsimilie: (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
Telefacsimilie: (213) 629-0484
with a copy to: Brobeck, Phleger & Harrison
550 South Hope Street
Los Angeles, California 90071
Attn: James D. Prendergast, Esq.
Telefacsimilie: (213) 745-3345
9.
<PAGE>
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
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.
(o) 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.
(p) 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.
(q) 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.
(r) 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.
(s) 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.
10.
<PAGE>
(t) 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.
[Signature page follows.]
11.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Guaranty as of the date first written above.
SYSTEMS INTEGRATION SOFTWARE,
a California corporation
By ________________________________
Title: ____________________________
12.
<PAGE>
EXHIBIT 10.8
- ------------
GENERAL CONTINUING GUARANTY
---------------------------
THIS GENERAL CONTINUING GUARANTY ("Guaranty"), dated as of June 7, 1999, is
executed and delivered by SM&A CORPORATION (EAST), a California corporation,
successor in interest by merger of Space Applications Corporation, a California
corporation, and 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:
(u) Definitions and Construction.
----------------------------
j. 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 Amended and
----------------
Restated Credit and Security Agreement, dated as of even date herewith, among
Debtor and the Lender Group.
"Debtor" shall mean SM&A Corporation, a California
------
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.
<PAGE>
"Guarantor" shall have the meaning set forth in the preamble
---------
to this Guaranty.
"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 Guarantied Party in its capacity as agent for the
Lenders.
"Lenders" shall mean, individually and collectively, each of
-------
the financial institutions (including Guarantied Party) listed on the signature
pages of the Credit Agreement (together with their respective successors and
assigns)
k. 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
2.
<PAGE>
accomplish the purposes and intentions of Guarantied
Party and Guarantor.
(v) 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
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.
(w) 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.
(x) 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.
(y) 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
3.
<PAGE>
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 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.
(z) Waivers.
-------
l. 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.
m. 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
4.
<PAGE>
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.
n. 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 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 (S)(S) 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.
o. 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.
p. 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
5.
<PAGE>
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.
q. 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 (S)(S) 2799, 2808, 2809, 2810,
2815, 2819, 2820, 2821, 2822, 2838, 2839, 2845, 2847,
2848, 2849, AND 2850, CALIFORNIA CODE OF CIVIL
PROCEDURE (S)(S) 580a, 580b, 580c, 580d, AND 726, AND
CHAPTER 2 OF TITLE 14 OF THE CALIFORNIA CIVIL CODE.
r. 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
6.
<PAGE>
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.
(aa) 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.
(bb) 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.
(cc) 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
7.
<PAGE>
all costs and expenses (including attorneys fees) paid by the Lender Group in
connection therewith.
(dd) 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.
(ee) 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.
(ff) 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.
(gg) 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.
(hh) 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: SM&A Corporation (East)
8.
<PAGE>
4695 MacArthur Court, 8th Floor
Newport Beach, California 92660
Attn: Edward A. Beeman
Senior Vice President/
Chief Financial Officer
Telefacsimilie: (949) 975-1624
with a copy to Rutan & Tucker
61 Antor Boulevard, 14th Floor
Costa Mesa, California 92626
Attn: Thomas J. Crane, Esq.
Telefacsimilie: (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
Telefacsimilie: (213) 629-0484
with a copy to: Brobeck, Phleger & Harrison
550 South Hope Street
Los Angeles, California 90071
Attn: James D. Prendergast, Esq.
Telefacsimilie: (213) 745-3345
9.
<PAGE>
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
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.
(ii) 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.
(jj) 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.
(kk) 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.
(ll) 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.
10.
<PAGE>
(mm) 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.
(nn) 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.
11.
<PAGE>
[Signature page follows.]
12.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Guaranty as of the date first written above.
SM&A CORPORATION (EAST),
a California corporation
By ________________________________
Title: ____________________________
13.
<PAGE>
EXHIBIT 10.9
Allonge to Promissory Note
By this Allonge to Promissory Note (this "Allonge"), the undersigned,
SUMMIT AVIATION, agrees that the Promissory Note (the "Original Note") of the
undersigned, dated September 30, 1998, and payable to SPACE APPLICATIONS
CORPORATION (now, SM&A Corporation (East), successor in interest), is amended by
deleting the following sentence:
FOR VALUE RECEIVED, the undersigned, SUMMIT AVIATION, INC., a California
corporation ("Maker"), hereby promises to pay to the order of SPACE
APPLICATIONS CORPORATION, a California corporation ("Holder"), at its
office at 4695 MacArthur Boulevard, Eighth Floor, Newport Beach, CA 92660,
Attention: Chief Financial Officer, or at such other place or to such other
party or parties as the Holder of this Note may from time to time
designate, the principal sum of ONE MILLION EIGHT HUNDRED THOUSAND DOLLARS
($1,800,000), together with interest on the unpaid principal balance from
time to time outstanding at the rate of nine percent (9%) per annum.
Amounts owing hereunder shall be paid in thirty (30) equal monthly payments
of Thirty Thousand Dollars ($30,000) each, commencing October 31, 1998,
with a final balloon payment of all outstanding principal and interest
owing hereunder due and payable on March 31, 2001.
and substituting therefor the following sentence:
FOR VALUE RECEIVED, the undersigned, SUMMIT AVIATION, INC., a California
corporation ("Maker"), hereby promises to pay to the order of SM&A
CORPORATION (EAST), a California corporation successor to SPACE
APPLICATIONS CORPORATION, a California corporation ("Holder"), at its
office at 4695 MacArthur Boulevard, Eighth Floor, Newport Beach, CA 92660,
Attention: Chief Financial Officer, or at such other place or to such other
party or parties as the Holder of this Note may from time to time
designate, the principal sum of ONE MILLION EIGHT HUNDRED THOUSAND DOLLARS
($1,800,000), together with interest on the unpaid principal balance from
time to time outstanding at a rate equal to the LIBOR-three month rate as
such may be in effect from time to time and as published in the Western
Edition of the Wall Street Journal. Amounts owing hereunder shall be paid
in thirty (30) equal monthly payments of Thirty Thousand Dollars ($30,000)
each, commencing October 31,
<PAGE>
1998, with a final balloon payment of all outstanding principal and interest
owing hereunder due and payable on March 31, 2001.
No further changes are intended hereby.
Date: June 1, 1999
SUMMIT AVIATION, INC.
/s/ STEVEN S. MYERS
----------------------------------
Steven S. Myers, President
SM&A CORPORATION (EAST)
/s/ MICHAEL A. PIRAINO
----------------------------------
Michael A. Piraino, President
2.
<PAGE>
EXHIBIT 10.10
AMENDMENT NO. 1 TO COMMON STOCK PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 TO COMMON STOCK PURCHASE AGREEMENT is dated as of June
1, 1999 by and between SM&A CORPORATION (EAST) ("SMAE") as successor-in-interest
to 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 and Purchaser entered into that certain Common Stock Purchase
Agreement (the "Original Agreement') as of September 30, 1998.
B SMAE, as successor to SAC, and Purchaser desire to amend the original
Agreement as specifically set forth below:
1. Section 1(c)(ii) shall be amended to read in its entirety as
follows:
"(ii) After six (6) months, but within eighteen (18) months of
the date first set forth above, Purchaser shall pay to
[SAC] SMAE an amount equal to twenty-five percent (25%) of
any Excess Proceeds;"
2. Change in Interest Rate of Promissory Note:
The interest rate payable pursuant to the Note as defined
in the Original Agreement is hereby changed from nine percent
(9%) per annum to the LIBOR-three month rate. There shall be
executed an Allonge to the Note setting forth such amended
interest rate.
3. Except as set forth above, no further changes are intended with
respect to the Original Agreement.
3.
<PAGE>
SM&A CORPORATION (EAST)
successor-in-interest to
Space Applications Corporation,
a California corporation
By /s/ MICHAEL A. PIRAINO
---------------------------
Its President
SUMMIT AVIATION, INC.,
a California corporation
By /s/ STEVEN S. MYERS
-------------------
4.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SM&A
CORPROATION UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30,
1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,926
<SECURITIES> 0
<RECEIVABLES> 29,186
<ALLOWANCES> 680
<INVENTORY> 0
<CURRENT-ASSETS> 36,690
<PP&E> 4,722
<DEPRECIATION> 1,203
<TOTAL-ASSETS> 84,954
<CURRENT-LIABILITIES> 10,175
<BONDS> 0
0
0
<COMMON> 159
<OTHER-SE> 56,584
<TOTAL-LIABILITY-AND-EQUITY> 56,743
<SALES> 26,927
<TOTAL-REVENUES> 26,927
<CGS> 15,665
<TOTAL-COSTS> 21,580
<OTHER-EXPENSES> (129)
<LOSS-PROVISION> 680
<INTEREST-EXPENSE> 199
<INCOME-PRETAX> 5,218
<INCOME-TAX> 2,164
<INCOME-CONTINUING> 3,054
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,054
<EPS-BASIC> .19
<EPS-DILUTED> .19
</TABLE>
