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 Quarterly Period Ended October 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For transition period from ________________ to
_________________
0-16438
------------------------
(Commission File Number)
NATIONAL TECHNICAL SYSTEMS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-4134955
---------- ----------
(State of Incorporation) (IRS Employer
Identification number)
24007 Ventura Boulevard, Calabasas, California
----------------------------------------------
(Address of registrant's principal executive office)
(818) 591-0776 91302
-------------- -----
(Registrant's telephone number) (Zip code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [x] NO [ ]
The number of shares of common stock, par value $.01 per share, outstanding as
of December 2, 1997 was 6,966,412.
Exhibit Index on Page 19
Page 1 of 133
<PAGE>
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Index
PART I. FINANCIAL INFORMATION Page No.
Financial Statements:
Condensed Consolidated Balance Sheets
October 31, 1997 (unaudited) and January 31, 1997 3
Unaudited Condensed Consolidated Statements of Income
Nine Months Ended October 31, 1997 and 1996 4
Unaudited Condensed Consolidated Statements of Income
Three Months Ended October 31, 1997 and 1996 5
Unaudited Condensed Consolidated Statements of Cash Flows
Nine Months Ended October 31, 1997 and 1996 6
Notes to the Unaudited Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION & SIGNATURE
Item 6. Exhibits and Reports on Form 8-K 17
Page 2 of 133
<PAGE>
PART I -- FINANCIAL INFORMATION
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
October 31, January 31,
1997 1997
(unaudited)
Assets
Current assets:
Cash $ 1,496,000 $ 1,204,000
Receivables, less allowance for doubtful accounts
of $825,000 at October 31, 1997 and $703,000
at January 31, 1997 13,721,000 12,292,000
Inventories 2,598,000 2,271,000
Deferred income taxes 528,000 440,000
Prepaid expenses 964,000 813,000
----------- -----------
Total current assets 19,307,000 17,020,000
Property, plant and equipment, at cost 47,677,000 44,409,000
Less: accumulated depreciation 28,941,000 27,309,000
----------- -----------
Net property, plant and equipment 18,736,000 17,100,000
Intangible assets 678,000 438,000
Property held for sale 544,000 544,000
Other assets 277,000 194,000
----------- -----------
Total other assets 1,499,000 1,176,000
----------- -----------
Total Assets $39,542,000 $35,296,000
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,599,000 $ 3,395,000
Accrued expenses 3,092,000 2,007,000
Income taxes payable 257,000 40,000
Current installments of long-term debt 1,204,000 1,878,000
----------- -----------
Total current liabilities 7,152,000 7,320,000
Long-term debt, excluding current installments 11,533,000 9,183,000
Deferred income taxes 2,158,000 2,057,000
Minority Interest 11,000 1,000
Stockholders' equity:
Common stock, no par value; Authorized,
20,000,000; issued and outstanding
6,965,912 as of October 31, 1997 and
6,736,000 as of January 31, 1997 11,020,000 10,644,000
Retained earnings 7,668,000 6,091,000
----------- -----------
Total stockholders' equity 18,688,000 16,735,000
----------- -----------
Total Liabilities and Stockholders' Equity $39,542,000 $35,296,000
=========== ===========
See accompanying notes to Unaudited Condensed Consolidated Financial Statements.
Page 3 of 133
<PAGE>
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Income
for Nine Months Ended October 31, 1997 and 1996
1997 1996
------------ ------------
Revenues $ 41,664,000 $ 34,857,000
Cost of sales 30,387,000 26,290,000
------------ ------------
Gross profit 11,277,000 8,567,000
Selling, general and administrative expense 6,772,000 5,566,000
------------ ------------
Operating income 4,505,000 3,001,000
Other income (expense):
Interest expense, net (868,000) (778,000)
Other 2,000 28,000
------------ ------------
Total other expense (866,000) (750,000)
------------ ------------
Income before income taxes, minority interest
and discontinued operations 3,639,000 2,251,000
Income taxes 1,637,000 1,014,000
------------ ------------
Income before minority interest and
discontinued operations 2,002,000 1,237,000
Minority interest (10,000) 11,000
------------ ------------
Income from continuing operations 1,992,000 1,248,000
Loss from discontinued operations 0 (209,000)
------------ ------------
Net Income $ 1,992,000 $ 1,039,000
============ ============
Primary and fully diluted net income per
common share
Continuing operations 0.29 0.19
Discontinued operations 0.00 (0.03)
------------ ------------
Total $ 0.29 $ 0.16
============ ============
Weighted average number of common shares and
common stock equivalents outstanding 6,827,000 6,697,000
============ ============
See accompanying notes to Unaudited Condensed Consolidated Financial Statements.
Page 4 of 133
<PAGE>
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Income
for Three Months Ended October 31, 1997 and 1996
1997 1996
------------ ------------
Revenues $ 14,970,000 $ 12,308,000
Cost of sales 10,901,000 9,262,000
------------ ------------
Gross profit 4,069,000 3,046,000
Selling, general and administrative expense 2,495,000 1,882,000
------------ ------------
Operating income 1,574,000 1,164,000
Other income (expense):
Interest expense, net (320,000) (261,000)
Other 4,000 2,000
------------ ------------
Total other expense (316,000) (259,000)
------------ ------------
Income before income taxes, minority interest
and discontinued operations 1,258,000 905,000
Income taxes 568,000 407,000
------------ ------------
Income before minority interest and
discontinued operations 690,000 498,000
Minority interest (9,000) 2,000
------------ ------------
Income from continuing operations 681,000 500,000
Loss from discontinued operations 0 (145,000)
------------ ------------
Net Income $ 681,000 $ 355,000
============ ============
Primary and fully diluted net income
per common share
Continuing operations 0.10 0.07
Discontinued operations 0.00 (0.02)
------------ ------------
Total $ 0.10 $ 0.05
============ ============
Weighted average number of common shares and
common stock equivalents outstanding 6,946,000 6,710,000
============ ============
See accompanying notes to Unaudited Condensed Consolidated Financial Statements.
Page 5 of 133
<PAGE>
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
for Nine Months Ended October 31, 1997 and 1996
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 1,992,000 $ 1,248,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,670,000 1,689,000
Provision for losses on receivables 122,000 126,000
Deferred income taxes 13,000 464,000
Gain on sale of assets 0 1,000
Tax benefit from sale of stock options
exercised 120,000 0
Net changes in assets and liabilities:
Accounts receivable (1,551,000) (1,345,000)
Inventories (327,000) (245,000)
Prepaid expenses (151,000) (421,000)
Other assets (83,000) (12,000)
Accounts payable (796,000) (282,000)
Accrued expenses 1,085,000 838,000
Income taxes 217,000 (65,000)
Distributed earnings (losses) of
affiliate 0 (51,000)
Undistributed earnings (losses)
of affiliate 10,000 (11,000)
------------ ------------
Net cash provided by continuing operations 2,321,000 1,934,000
Loss from discontinued operations 0 (209,000)
------------ ------------
Net cash provided by operating activities 2,321,000 1,725,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (3,271,000) (2,371,000)
Investment in new business (275,000) (253,000)
Proceeds on sale of assets 0 4,000
------------ ------------
Net cash used in investing activities (3,546,000) (2,620,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 15,981,000 2,375,000
Repayments of current and long-term debt (14,305,000) (1,619,000)
Cash dividends paid (415,000) (335,000)
Proceeds from stock options exercised 256,000 44,000
------------ ------------
Net cash provided by financing activities 1,517,000 465,000
------------ ------------
Net increase (decrease) in cash 292,000 (430,000)
Beginning cash balance 1,204,000 1,949,000
------------ ------------
ENDING CASH BALANCE $ 1,496,000 $ 1,519,000
============ ============
See accompanying notes to Unaudited Condensed Consolidated Financial Statements.
Page 6 of 133
<PAGE>
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
1. In accordance with instructions to Form 10-Q the accompanying financial
statements and notes have been condensed and, therefore, do not contain all
disclosures required by generally accepted accounting principles. These
statements should be read in conjunction with the financial statements and
notes thereto included in the Registrant's Form 10-K for the year ended
January 31, 1997.
2. The statements presented as of and for the nine-month and three-month
periods ended October 31, 1997 and 1996 are unaudited. In Management's
opinion, all adjustments have been made to present fairly the results of
such unaudited interim periods. All such adjustments are of a normal
recurring nature.
3. While the Registrant's business is not materially seasonal, the quarterly
results of operations should not be construed as representing pro rata
results of the Registrant's fiscal year.
4. Income taxes for the interim periods are computed using the effective tax
rates estimated to be applicable for the full fiscal year.
5. Primary income per share for the nine-month and three-month periods ended
October 31, 1997, were computed on the weighted average number of shares of
common stock and stock equivalents (stock options) outstanding. The effect
of stock options on the fully diluted calculations was either immaterial or
antidilutive. In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings per Share", which is required to be
adopted on December 31, 1997. At that time, the Registrant will be required
to change the method currently used to compute earnings per share and to
restate all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will be
excluded. The impact of Statement 128 will have no material effect on the
calculation of earnings per share for the nine-month and three-month
periods ended October 31, 1997.
6. The consolidated financial statements include the accounts of the
Registrant and its wholly owned and financially controlled subsidiaries.
All significant intercompany balances and transactions have been eliminated
in consolidation.
7. Inventories consist of accumulated costs applicable to uncompleted
contracts and are stated at actual cost which is not in excess of estimated
net realizable value.
8. Cash paid for interest and taxes for the nine months ended October 31, 1997
was $817,000 and $917,000 respectively. Cash paid for interest and taxes
for the nine months ended October 31,1996 was $846,000 and $582,000
respectively.
9. Minority interest in the Registrants NQA-USA, Inc. subsidiary is a result
of 50% of the stock of NQA-USA, Inc. being issued to National Quality
Assurance, Ltd. in December 1996. Profits are shared 64% to NQA-USA, Inc.
and 36% to National Quality Assurance, Ltd.
Page 7 of 133
<PAGE>
10. In January 1997, the Registrant, after considering the highly competitive
and unreliable nature of the business and the inability to operate at
profitable levels, elected to discontinue and abandon its Environmental
Services segment. All historical data has been restated to reflect this
discontinued operation.
11. Due to the reincorporation of the Registrant into a California corporation,
the par value of the common stock changed from $.01 to no par value. The
common stock account has been adjusted to combine the additional paid in
capital account and the common stock account into one account.
Page 8 of 133
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the consolidated
quarterly financial statements and notes thereto. All information is based upon
operating results of National Technical Systems, Inc. for the nine months ended
October 31.
(TABULAR HEADER INFORMATION: DOLLARS IN THOUSANDS)
RESULTS OF OPERATIONS
REVENUES
Nine months ended October 31 1997 % Change 1996
========= ========== ==========
Technical Services $31,383 11.8% $28,065
Registration Services 2,416 42.8% 1,692
Technical Staffing 7,865 54.2% 5,100
========= ==========
Total net revenue $41,664 19.5% $34,857
========= ==========
For the nine months ended October 31, 1997, consolidated revenues increased by
$6,807,000 or 19.5% when compared to the same period in 1996. In 1997, the
Technical Services segment revenues increased due to increases in its
traditional aerospace and defense testing business resulting from increased
research and development budgets of government defense and aerospace contractors
as well as an increase in outsourcing of engineering and evaluation services by
commercial customers.
Revenues in the Technical Staffing segment increased by $2,765,000 due to
increases in the expanding information technology portion of its business, the
continuing success of its strategic alliances with major technical staffing
companies, the opening of three new staffing offices during the first six months
of 1997 and the acquisition of the staffing division of Texas-based Johnson
Engineering Corporation in the third quarter of 1997.
Revenues in the Registration Services segment increased $724,000 as a result of
continuing marketing efforts and an increase in demand by U.S. companies for ISO
9000 certification.
It is anticipated by the Registrant that revenues in the Technical Services and
Technical Staffing segments will continue to increase at about the same rate
through fiscal 1998. The Registrant also anticipates that revenues in the
Registration Services segment will continue to grow moderately through 1998.
Page 9 of 133
<PAGE>
GROSS PROFIT
Nine months ended October 31 1997 % Change 1996
========= ========== =========
Technical Services $8,640 25.3% $6,893
% to segment revenue 27.5% 24.6%
Registration Services 911 98.0% 460
% to segment revenue 37.6% 27.2%
Technical Staffing 1,726 42.2% 1,214
% to segment revenue 21.9% 23.8%
========= =========
Total $11,277 31.6% $8,567
========= =========
% to total net revenue 27.1% 24.6%
Total gross profit for the nine-month period ended October 31, 1997 increased by
$2,710,000 as a result of increased revenues in 1997 compared to 1996. Gross
profit as a percentage of net revenues in 1997 also increased when compared to
the same period in 1996. This increase was due primarily to the success of the
Registrant in obtaining more profitable fixed price contracts in its Technical
Services segment and the success of its continuing cost containment programs in
all segments of its business, other than the Technical Staffing segment which
experienced a decrease in its gross profit as a percentage of net revenues due
primarily to the opening of three new staffing offices in the first six months
of 1997 and the acquisition of the staffing division of Texas-based Johnson
Engineering Corporation in the third quarter of 1997.
Page 10 of 133
<PAGE>
SELLING, GENERAL & ADMINISTRATIVE
Nine months ended October 31 1997 % Change 1996
========= ========== =========
Technical Services $4,611 14.2% $4,037
% to segment revenue 14.7% 14.4%
Registration Services 664 18.8% 559
% to segment revenue 27.4% 33.0%
Technical Staffing 1,397 58.6% 881
% to segment revenue 17.8% 17.3%
Corporate 100 12.4% 89
========= =========
Total S G & A $6,772 21.7% $5,566
========= =========
% to total net revenue 16.3% 16.0%
Total selling, general and administrative expenses increased $1,206,000 for the
nine-month period ended October 31, 1997 when compared to the same period in
1996. This increase was due primarily to the increase in revenues in addition to
expenses related to the acquisition of the staffing division of Texas-based
Johnson Engineering Corporation located in Boulder, Colorado during the third
quarter of 1997, along with the opening of three new staffing offices in the
Registrant's Technical Staffing segment. Selling, general and administrative
expenses increased slightly as a percentage of net revenues in the Technical
Services Segment due to increased selling expenses related to salaries,
commissions, advertising and the opening of a new laboratory. The Registrant
continues to look for new ways to reduce costs yet remain effective in all
segments of its business.
INTEREST EXPENSE
Net interest expense increased $90,000 in the nine months ended October 31, 1997
when compared to the same period in 1997. This increase was principally due to
increases in the term loan and line of credit balances.
Page 11 of 133
<PAGE>
INCOME TAXES
The income tax provisional rate for the first nine months of 1997 and 1996
reflects a rate in excess of the U.S. federal statutory rate primarily due to
the inclusion of state income taxes. The Registrant's provision for the nine
months ended October 31, 1997 increased over the same period in 1996 due to the
higher income before taxes in 1997. Current income tax liability was reduced by
$120,000 related to the tax benefit of stock options exercised. Management has
determined that it is more likely than not that the deferred tax asset will be
realized on the basis of offsetting it against deferred tax liabilities. It is
the Registrant's intention to evaluate the realizability of the deferred tax
asset quarterly.
DISCONTINUED OPERATIONS
The loss from discontinued operations represents the operating results of the
Registrant's Environmental Services segment prior to its discontinuance in
fiscal 1997 and estimated future shutdown expenses.
NET INCOME
The increase in net income in the nine months ended October 31, 1997 compared to
the same period in 1997 was due to increased revenues and higher gross profit
margin, partially offset by higher interest, selling, general and administrative
expenses and income taxes.
The following information is based upon results for National Technical Systems,
Inc. for the three months ended October 31.
REVENUES
Quarter ended October 31 1997 % Change 1996
========= ========== ==========
Technical Services $10,919 11.9% $9,759
Registration Services 901 38.0% 653
Technical Staffing 3,150 66.1% 1,896
========= ==========
Total net revenue $14,970 21.6% $12,308
========= ==========
For the three months ended October 31, 1997, consolidated revenues increased by
$2,662,000 or 21.6% when compared to the same period in 1996. In 1997, the
Technical Services segment revenues increased $1,160,000 due to the increases
in its traditional aerospace and defense testing business resulting from
increased research and development budgets of government defense and aerospace
contractors as well as their continued outsourcing of engineering and evaluation
services.
Page 12 of 133
<PAGE>
Revenues in the Technical Staffing segment increased $1,254,000 due to increases
in the expanding information technology portion of its business, the continuing
success of its strategic alliances with major technical staffing companies, the
opening of three new staffing offices during the first six months of 1997 and
the acquisition of the staffing division of Texas-based Johnson Engineering
Corporation in the third quarter of 1997.
Revenues in the Registration Services segment increased $248,000 as a result of
continuing marketing efforts and an increase in demand by U.S. companies for ISO
9000 certification.
It is anticipated by the Registrant that revenues in the Technical Services and
Technical Staffing segments will continue to increase through the end of fiscal
1998. The Registrant also anticipates that revenues in the Registration Services
segment will continue to grow moderately for the remainder of fiscal 1998.
GROSS PROFIT
Quarter ended October 31 1997 % Change 1996
========= ========== =========
Technical Services $3,026 20.3% $2,515
% to segment revenue 27.7% 25.8%
Registration Services 343 419.7% 66
% to segment revenue 37.9% 10.1%
Technical Staffing 700 50.5% 465
% to segment revenue 22.2% 24.5%
========= =========
Total $4,069 33.6% $3,046
========= =========
% to total net revenue 27.2% 24.7%
Total gross profit for the quarter ended October 31, 1997 increased by
$1,023,000 as a result of increased revenues in 1997 compared to 1996. Gross
profit as a percentage of net revenues in 1997 also increased when compared to
the same period in 1996. This increase was due primarily to the success of the
Registrant in obtaining more profitable fixed price contracts in its Technical
Services segment and the success of its continuing cost containment programs in
all segments of its business, other than the Technical Staffing segment which
experienced a decrease in its gross profit as a percentage of net revenues due
Page 13 of 133
<PAGE>
primarily to the opening of three new staffing offices in the first six months
of 1997 and the acquisition of the staffing division of Texas-based Johnson
Engineering Corporation in the third quarter of 1997.
SELLING, GENERAL & ADMINISTRATIVE
Quarter ended October 31 1997 % Change 1996
========= ========== =========
Technical services $1,650 29.1% $1,278
% to segment revenue 15.1% 13.1%
Registration services 239 -4.8% 251
% to segment revenue 26.4% 38.4%
Technical Staffing 574 77.2% 324
% to segment revenue 18.2% 17.1%
Corporate 32 10.3% 29
========= =========
Total S G & A $2,495 32.6% $1,882
========= =========
% to total net revenue 16.7% 15.3%
Total selling, general and administrative expenses increased $613,000 for the
quarter ended October 31, 1997 when compared to the same period in 1996. This
increase was due primarily to the increase in revenues in addition to expenses
related to the acquisition of the staffing division of Texas-based Johnson
Engineering Corporation located in Boulder, Colorado during the third quarter of
1997, along with expenses related to the three new staffing offices opened
during fiscal 1998. Selling, general and administrative expenses increased as a
percentage of net revenues in the Technical Services Segment due to increased
selling expenses related to salaries, commissions and advertising. The
Registrant continues to look for new ways to reduce costs yet remain effective
in all segments of its business.
INTEREST EXPENSE
Net interest expense increased $59,000 in the quarter ended October 31, 1997
when compared to the same period in 1996. This increase was principally due to
increases in the term loan and line of credit balances.
Page 14 of 133
<PAGE>
INCOME TAXES
The income tax provisional rate for the third quarters of 1997 and 1996 reflects
a rate in excess of the U.S. federal statutory rate primarily due to the
inclusion of state income taxes. The Registrant's provision for the quarter
ended October 31, 1997 was higher than the same period in 1996 due to the
increase in income before taxes and minority interest. Management has determined
that it is more likely than not that the deferred tax asset will be realized on
the basis of offsetting it against deferred tax liabilities. It is the
Registrant's intention to evaluate the realizability of the deferred tax asset
quarterly.
DISCONTINUED OPERATIONS
The loss from discontinued operations represents the operating results of the
Registrant's Environmental Services segment prior to its discontinuance in
fiscal 1997 and estimated future shutdown expenses.
NET INCOME
The increase in net income in the quarter ended October 31, 1997 compared to the
same period in 1996 was due to increased revenues and higher gross profit
margins, partially offset by higher interest, selling, general and
administrative expenses and income taxes.
BUSINESS ENVIRONMENT
During the course of the last fiscal year, the business climate in the aerospace
and defense industry, which in the past had shown signs of uncertainty, seems to
have stabilized and, in some areas, shows signs of strengthening. Various major
prime government contractors have won significant development contracts, which
increases the market for the Registrant's Technical Services segment. During the
period of uncertainty the Registrant developed a strategy of growth through
diversification and taking advantage of opportunities created by the aerospace
and defense industry's merger activities and ultimate downsizing. In addition,
increased activity in commercial satellite and launch vehicles has increased
demand for component and systems testing. As the demand for nuclear staff
augmentation has decreased, the Registrant has aggressively pursued additional
business in the growing Information Technology ("IT") portion of its Technical
Staffing segment's business. The Registrant supplies IT professionals in support
of customers who need help-desk analysts and managers; relational database
administrators and developers; application and systems programmers;
configuration and project managers; and multiple levels of system operations
personnel. Also, the Registrant continues to pursue ISO registration business
through its Registration Services segment as demand for these services continues
to increase as more companies must compete for business in the global market
place. Notwithstanding the foregoing, and because of factors affecting the
Registrant's operating results, past financial performance should not be
considered to be a reliable indicator of future performance.
LIQUIDITY AND CAPITAL RESOURCES
In the nine months ended October 31, 1997, cash provided by operations after
discontinued operations increased by $596,000 when compared to the same period
in 1996. Major items contributing to this increase were significant increases in
net income and accrued expenses offset by decreases in accounts payable.
Page 15 of 133
<PAGE>
Net cash used in investing activities in the nine months ended October 31, 1997
increased $926,000 over the same period in 1996. The Registrant anticipates that
its capital spending level in fiscal 1998 will be higher than fiscal 1997. The
actual level of spending will be dependent on a variety of factors, including
general economic conditions, bank covenants and the Registrant's operating
requirements.
In the nine months ended October 31, 1997, net cash provided by financing
activities consisted of increases in bank term loans and lines of credit of
$15,981,000 and proceeds from the exercise of stock options of $256,000, offset
by debt reduction on short term and long term debt of $14,305,000 and cash
dividends paid of $415,000. Long term debt increased $1,769,000 for the
nine-month period ended October 31, 1997 when compared to the same period in
1996 due to new borrowings in excess of regularly scheduled payments on
long-term debt. In May 1997, the Registrant paid off its revolving lines of
credit and term loans with Bank of America NT & SA and replaced them with a new
$6,000,000 revolving line of credit with Sanwa Bank California at an interest
rate of prime plus 0.5% and a $3,250,000 term loan with Sanwa Bank California at
an interest rate of prime plus 0.75% which matures on May 1, 2002. In addition,
the Registrant entered into an agreement with Sanwa Bank California for a
$2,000,000 equipment line of credit which matures on February 1, 2003 with
interest only payments through January 31, 1998. This line was used to retire
the leases outstanding with Bank of America NT & SA which were approximately
$1,170,000 at May 31, 1997, and to finance a portion of future requirements. In
September 1997, the Registrant negotiated with Sanwa Bank California as agent
and Mellon Bank a new credit agreement which replaces all of the above
agreements. The new agreements include a new $6,000,000 revolving line of credit
at an interest rate of the Bank's reference rate plus 0.25% which expires in
September 1999. Also included in the new agreements is a $6,500,000 term loan at
an interest rate of the Bank's reference rate plus 0.50% which expires in
January 2003. The Registrant entered into an agreement with Mellon US Leasing
for a $1,500,000 equipment line of credit.
Management is not aware of any significant demands for capital funds that may
materially affect the short or long-term liquidity in the form of large fixed
asset acquisitions, unusual working capital commitments or contingent
liabilities. In addition, the Registrant has made no material commitments for
capital expenditures. The Registrant's future working capital will be provided
from operations, plus the new revolving lines of credit. The Registrant's bank
revolving lines of credit, which at October 31, 1997 aggregated $6,000,000 for
short-term liquidity needs, had $1,770,000 available.
FORWARD-LOOKING INFORMATION
Certain statements or assumptions in Management's Discussion and Analysis
contain or are based on "forward-looking" information (as defined in the Private
Securities Litigation and Reform Act of 1997) that involves risk and
uncertainties inherent in the Registrant's business. Actual outcomes are
dependent upon the Registrant's successful performance of internal plans,
customer changes in short range and long range plans, competition in the
Registrant's services areas and pricing, continued acceptance of new services,
performance issues with key customers, and general economic risks and
uncertainties.
Page 16 of 133
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8K
(a) Exhibits
Exhibit 10.7 - Credit Agreement between Sanwa Bank California and
Mellon Bank dated September 8, 1997, replacing all prior credit
agreements with Sanwa Bank California and Bank of America.
Exhibit 27 - Financial Data Schedule.
(b) Form 8-K
During the quarter ended October 31, 1997 the registrant did not
file a current report on Form 8K.
Page 17 of 133
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL TECHNICAL SYSTEMS, INC.
Date: December 10, 1997 By: /s/ Lloyd Blonder
--------------------------------
Lloyd Blonder
Senior Vice President
Chief Financial Officer
(Signing on behalf of the
registrant and as principal
financial officer)
Page 18 of 133
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
- --------------------------------------------------------------------------------
10.7 Credit Agreement between Sanwa Bank
California and Mellon Bank dated September 8,
1997, replacing all prior credit agreements
with Sanwa Bank California and Bank of America 20
27 Financial Data Schedule 133
Page 19 of 133
<PAGE>
EXHIBIT 10.7
CREDIT AGREEMENT
DATED AS OF SEPTEMBER 8, 1997
BY AND AMONG
NTS TECHNICAL SYSTEMS,
AS THE BORROWER,
SANWA BANK CALIFORNIA,
AS AGENT,
AND
THE LENDERS AND L/C BANK PARTY HERETO
Page 20 of 133
<PAGE>
TABLE OF CONTENTS
PAGE NO.
RECITALS.....................................................................1
1. Definitions...............................................................1
2. Credit Facilities........................................................10
2(a) Credit Limits.......................................................10
(1) Revolving Loans...................................................10
(2) Letters of Credit.................................................11
(3) Term Loans........................................................11
2(b) Maintenance of Loans................................................11
(1) Revolving Loans...................................................11
(2) Term Loans........................................................11
2(c) Calculation of Interest.............................................11
2(d) Payment of Interest.................................................12
2(e) Repayment of Principal..............................................12
2(f) Election of Type of Loan; Conversion Options........................13
2(g) Inability to Determine Rate.........................................14
2(h) Illegality..........................................................14
2(i) Requirements of Law; Increased Costs................................15
2(j) Funding.............................................................16
2(k) Prepayment Premium..................................................16
3. Miscellaneous Provisions.................................................16
3(a) Use of Proceeds.....................................................16
3(b) Request for Loans and Letters of Credit; Making of Loans
and Issuance of Letters of Credit...................................16
(1) The Loans.........................................................16
(2) Letters of Credit.................................................17
3(c) Evidence of Repayment Obligations....................................17
(1) The Loans..........................................................17
(2) Letters of Credit..................................................18
3(d) Nature and Place of Payments.........................................19
3(e) Default Interest.....................................................19
3(f) Computations.........................................................19
3(g) Prepayments..........................................................19
3(h) Allocation of Payments Received......................................20
3(i) Fees.................................................................20
(1) Letter of Credit Fees..............................................20
(2) Other Fees.........................................................21
3(j) Collateral Security; Additional Documents............................21
-i-
Page 21 of 133
<PAGE>
4. Conditions to Making Loans...............................................22
4(a) First Credit.........................................................22
4(b) Ongoing Loans and Letters of Credit..................................24
5. Representations and Warranties of the Borrower...........................24
5(a) Financial Position...................................................24
5(b) No Change............................................................25
5(c) Corporate Existence; Compliance with Law.............................25
5(d) Corporate Power; Authorization; Enforceable Obligations..............25
5(e) No Legal Bar.........................................................25
5(f) No Material Litigation...............................................25
5(g) Taxes................................................................26
5(h) Regulated Entities...................................................26
5(i) Subsidiaries.........................................................26
5(j) Federal Reserve Board Regulations....................................26
5(k) ERISA................................................................26
5(l) Assets...............................................................27
5(m) Securities Acts......................................................27
5(n) Consents, etc........................................................27
5(o) No Burdensome Restrictions...........................................27
5(p) Environmental Matters................................................27
5(q) No Default...........................................................28
5(r) Intellectual Property................................................28
5(s) Full Disclosure......................................................28
6. Affirmative Covenants....................................................28
6(a) Financial Statements.................................................28
6(b) Certificates; Reports; Other Information.............................29
6(c) Payment of Indebtedness..............................................30
6(d) Maintenance of Existence and Properties..............................30
6(e) Inspection of Property; Books and Records; Discussions...............30
6(f) Notices..............................................................31
6(g) Expenses and Indemnity...............................................31
6(h) Loan Documents.......................................................32
6(i) Insurance............................................................32
6(j) Hazardous Materials..................................................32
6(k) ERISA................................................................32
7. Negative Covenants.......................................................34
7(a) Liens................................................................34
-ii-
Page 22 of 133
<PAGE>
7(b) Funded Debt..........................................................34
7(c) Consolidation and Merger.............................................35
7(d) Acquisitions; Investments; Advances..................................35
7(e) Payment of Dividends.................................................36
7(f) Purchase or Retirement of Stock......................................36
7(g) Sale of Assets.......................................................36
7(h) Conduct of Business, etc.............................................37
7(i) ERISA................................................................37
7(j) Financial Covenants..................................................37
8. Events of Default........................................................38
9. The Agent................................................................41
9(a) Appointment..........................................................41
9(b) Delegation of Duties.................................................42
9(c) Exculpatory Provisions...............................................42
9(d) Reliance by Agent....................................................42
9(e) Notice of Default....................................................43
9(f) Non-Reliance on Agent and Other Lenders..............................43
9(g) Indemnification......................................................44
9(h) Agent in Its Individual Capacity.....................................44
9(i) Successor Agent......................................................44
10. Miscellaneous Provisions...............................................45
10(a) No Assignment......................................................45
10(b) Amend; No Waiver...................................................45
10(c) Cumulative Rights..................................................45
10(d) Entire Agreement...................................................45
10(e) U.S. Withholding Tax...............................................46
10(f) Survival...........................................................47
10(g) Notices............................................................47
10(h) Governing Law......................................................47
10(i) Assignment and Participation.......................................48
10(j) Counterparts.......................................................48
10(k) Sharing of Payments................................................48
10(l) Accounting Terms...................................................49
10(m) Disputed Claims Arbitration........................................49
10(n) Set Off............................................................50
-iii-
Page 23 of 133
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (the "AGREEMENT") is made and dated as of the 8th
day of September 1997 by and among SANWA BANK CALIFORNIA ("SANWA"), those other
banks party hereto from time to time (such banks and such other banks being
referred to herein individually as a "LENDER" and, collectively, the "LENDERS"),
SANWA BANK CALIFORNIA, as agent for the Lenders (in such capacity, the "AGENT")
and as the L/C Bank, and NTS TECHNICAL SYSTEMS, a California corporation (the
"BORROWER").
RECITALS
A. The Borrower has requested the Lenders to extend credit to the
Borrower, and the Lenders have agreed to do so.
B. The Borrower, the Agent and the Lenders desire to set forth herein the
mutually agreed upon terms and conditions of such credit extension.
NOW, THEREFORE, in consideration of the above Recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. DEFINITIONS. For purposes of this Agreement, the terms set forth
below shall have the following meanings:
"ACCUMULATED FUNDING DEFICIENCY" shall mean a funding deficiency
described in section 302 of ERISA.
"ADJUSTED LIBOR" shall mean, for any Interest Period, (i) the higher
of the Applicable LIBOR or the COF Rate plus (ii) the Adjusted LIBOR Spread.
"ADJUSTED LIBOR SPREAD" shall mean (i) with respect to Revolving
Loans, 2.25% per annum and (ii) with respect to Term Loans, 2.50% per annum.
"AFFILIATE" shall mean, as to any Person, any other Person directly
or indirectly controlling, controlled by or under direct or indirect common
control with, such Person. "Control" as used herein means the power to direct
the management and policies of such corporation.
-1-
Page 24 of 133
<PAGE>
"AGENT" shall have the meaning given such term in the introductory
paragraph hereof and shall include any successor to Sanwa Bank California as the
initial "Agent" hereunder and, for purposes of being entitled to the benefits of
the Loan Documents, including, without limitation, the Collateral and, for
purposes of PARAGRAPHS 9(A) through 9(I) hereof, shall include the L/C Bank.
"AGREEMENT" shall mean this Agreement, as the same may be amended,
extended or replaced from time to time.
"APPLICABLE LIBOR" shall mean with respect to any Interest Period
for a Eurodollar Loan, the rate per annum (rounded upward, if necessary, to the
next one-sixteenth of one percent (1/16%)) calculated in accordance with the
following formula:
IR
---------
Applicable LIBOR = 1-IRP
where
IR = LIBOR for such Interest Period
IRP = LIBOR Reserve Percentage
"APPLICABLE REFERENCE RATE" shall mean the Reference Rate, as from
time to time in effect, plus (i) in the case of Revolving Loans, .25% per annum
and (ii) in the case of Term Loans, .50% per annum.
"BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or
a day on which banks in Los Angeles, California are authorized or obligated to
close their regular banking business.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations issued thereunder as from time to time in effect.
"COF RATE" shall mean the rate which is quoted and offered by Sanwa
Bank California, in its sole discretion, which is approximately equal to Sanwa
Bank California's cost of acquiring a time certificate of deposit in an amount
approximately equal to the amount of the relevant Loan and for a period
approximately equal to the relevant Interest Period.
"COLLATERAL" shall mean the Borrower's and the Guarantors' personal
property (tangible and intangible) which are covered by the Security Documents.
-2-
Page 25 of 133
<PAGE>
"COMPLIANCE CERTIFICATE" shall mean a compliance certificate
substantially in the form of EXHIBIT G attached hereto duly executed by a
Responsible Officer of the Borrower.
"CONSOLIDATED SUBSIDIARY" shall mean a Subsidiary of a Person whose
assets and liabilities are consolidated with such Person's on the financial
statements of such Person in accordance with GAAP.
"CONTRACTUAL OBLIGATION" as to any Person shall mean any provision
of any security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of its
property is bound.
"CURRENT LIABILITIES" shall mean the current liabilities of a Person
as determined in accordance with GAAP plus the principal amount of outstanding
Revolving Loans not otherwise included in current liabilities on the date of
determination.
"DEBT COVERAGE RATIO" shall mean the ratio of (i) for any period,
(a) net profit after taxes realized during such period plus (b) depreciation and
amortization expense and interest expense deducted in determining such net
income plus (c) any increase in deferred income taxes from the beginning of the
relevant fiscal year until the date such period ends minus (d) any decrease in
deferred income taxes from the beginning of the relevant fiscal year until the
date such period ends to (ii) the sum of the current portion of long-term debt
as at the end of such period plus interest expense and cash dividends paid
during the period just ended.
"ENVIRONMENTAL CLAIMS" shall mean all claims, however asserted, by
any Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or injury
to the environment.
"ENVIRONMENTAL LAWS" shall mean all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental
Authorities, in each case relating to environmental, health, safety and land use
matters.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations issued thereunder as from time
to time in effect.
-3-
Page 26 of 133
<PAGE>
"ERISA AFFILIATE" shall mean each trade or business, including the
Borrower, whether or not incorporated, which together with the Borrower would be
treated as a single employer under section 4001 of ERISA.
"EURODOLLAR BUSINESS DAY" shall mean a Business Day upon which
commercial banks in London, England, New York, New York, and Los Angeles,
California are open for domestic and international business.
"EURODOLLAR LOANS" shall mean Loans at such time as they are made
and/or being maintained at a rate of interest based upon the Adjusted LIBOR.
"EVENT OF DEFAULT" shall have the meaning given such term in
PARAGRAPH 8 below.
"FIXED RATE" shall mean a per annum rate equal to the sum of (i) a
fixed rate agreed upon by the Lenders for a given Interest Period plus (ii)
2.50% per annum.
"FIXED RATE LOANS" shall mean Loans hereunder at such time as they
are made and/or maintained at a rate of interest based upon the Fixed Rate.
"FUNDED DEBT" of any Person shall mean, at any date, without
duplication, (i) all obligations of such Person for borrowed money, (ii) all
obligations of such Person evidenced by bonds, debentures, notes, or similar
instruments, (iii) all obligations of such Person to pay the deferred purchase
price of property or services, except trade accounts payable arising in the
ordinary course of business, (iv) all obligations of such Person as lessee under
capital leases, (v) all Indebtedness of any other Person secured by a Lien on
any asset of such Person, and (vi) all Funded Debt of any other Person
guaranteed by such Person.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government, any
state or other political subdivision thereof, or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GUARANTOR" shall mean the Parent, its Subsidiaries (except NQA USA,
a Massachusetts corporation and, subject to PARAGRAPH 8(M) below, PECS (QA)
North America, Inc.) and each of the Borrower's Subsidiaries.
-4-
Page 27 of 133
<PAGE>
"GUARANTY" shall have the meaning given such term in PARAGRAPH 3(J)
below.
"INDEBTEDNESS" of any Person shall mean all items of indebtedness
which, in accordance with GAAP and industry practices, would be included in
determining liabilities as shown on the liability side of a balance sheet of
such Person as of the date as of which indebtedness is to be determined,
including, without limitation, all obligations for money borrowed and
capitalized lease obligations, and shall also include all indebtedness and
liabilities of any other Person assumed or guaranteed by such Person or in
respect of which such Person is secondarily or contingently liable (other than
by endorsement of instruments in the course of collection) whether by reason of
any agreement to acquire such indebtedness or to supply or advance sums or
otherwise.
"INTEREST PERIOD" shall mean (i) with respect to any Fixed Rate
Loan, a period not less than one year agreed upon by the Lenders and (ii) with
respect to any Eurodollar Loan, the period commencing on the date advanced and
ending one, two, three or six months thereafter, all as designated in the
related Loan Request; provided, however, that (a) any Interest Period applicable
to a Eurodollar Loan which would otherwise end on a day which is not a
Eurodollar Business Day shall be extended to the next succeeding Eurodollar
Business Day unless by such extension it would fall in another calendar month,
in which case such Interest Period shall end on the immediately preceding
Eurodollar Business Day, (b) any Interest Period applicable to a Eurodollar Loan
which begins on a day for which there is no numerically corresponding day in the
calendar month during which such Interest Period is to end shall, subject to the
provisions of clause (a) hereof, end on the last day of such calendar month, (c)
no such Interest Period applicable to Revolving Loans shall extend beyond the
Revolving Loan Maturity Date, and (d) no Interest Period applicable to Term
Loans shall extend beyond the Term Loan Maturity Date.
"L/C BANK" shall mean Sanwa Bank California, in its capacity as
issuer of Letters of Credit.
"L/C DOCUMENTS" shall have the meaning given such term in PARAGRAPH
3(B) below.
"L/C DRAWING" shall have the meaning given such term in PARAGRAPH
3(C) below.
"L/C SUBLIMIT" shall mean $500,000.
-5-
Page 28 of 133
<PAGE>
"LETTERS OF CREDIT" shall have the meaning given such term in
PARAGRAPH 2(A) below.
"LETTER OF CREDIT REQUEST" shall mean a request for a Letter of
Credit in form satisfactory to the L/C Bank.
"LIBOR" shall mean with respect to any Interest Period for a
Eurodollar Loan, the rate per annum which is determined by the Agent's Treasury
Desk as being the arithmetic mean (rounded upwards, if necessary, to the nearest
whole multiple of one-sixteenth of one percent (l/16%)) of the U.S. dollar
London Interbank Offered Rates for such period appearing on page 3750 (or such
other page as may replace page 3750) of the Telerate screen at or about 11:00
a.m. (London time) on the second Eurodollar Business Day prior to the first day
of such period.
"LIBOR RESERVE PERCENTAGE" shall mean for any day, that percentage
expressed as a decimal, which is in effect on such day, as specified by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum aggregate reserve requirement (including all basic,
supplemental, marginal and other reserves) which is imposed on eurocurrency
liabilities.
"LIEN" shall mean any security interest, mortgage, pledge,
privilege, lien, claim on property, charge or encumbrance (including any
conditional sale or other title retention agreement), any lease in the nature
thereof, and the filing of or agreement to give any financing statement under
the Uniform Commercial Code of any jurisdiction.
"LOAN DOCUMENTS" shall mean this Agreement, the Notes, the
Guaranties, the Security Documents, and each other document, instrument or
agreement executed by the Borrower or any Guarantor in connection herewith or
therewith, as any of the same may be amended, extended or replaced from time to
time.
"LOAN REQUEST" shall mean a request for a Loan in the form attached
hereto as EXHIBIT H, or in other form satisfactory to the Agent.
"LOANS" means Revolving Loans and Term Loans.
"MAJORITY LENDERS" shall mean the Lenders holding not less than
sixty-six and two-thirds percent (66K%) of the Percentage Shares.
"MATERIAL ADVERSE CHANGE" shall mean (i) a material adverse change
in, or a material adverse effect upon, the operations, business, properties,
condition (financial or otherwise) or prospects of the Parent, the Borrower, or
the Parent or Borrower and their respective Subsidiaries taken as a whole, (ii)
-6-
Page 29 of 133
<PAGE>
a material impairment of the ability of the Borrower or any Guarantor to perform
under any Loan Document, or (iii) a material adverse effect upon the legality,
validity, binding effect or enforceability against the Borrower or any Guarantor
of any Loan Document.
"MULTIEMPLOYER PLAN" shall mean a Plan described in section
4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is required to
contribute on behalf of any of its employees.
"NOTES" shall have the meaning given such term in PARAGRAPH 3(C)(1)
below.
"OBLIGATIONS" shall mean any and all debts, obligations and
liabilities of the Borrower to the Agent, the L/C Bank and the Lenders arising
out of or related to the Loan Documents (whether principal, interest, fees or
otherwise, now existing or hereafter arising, whether voluntary or involuntary,
whether or not jointly owed with others, whether direct or indirect, absolute or
contingent, contractual or tortious, liquidated or unliquidated, arising by
operation of law or otherwise, whether or not from time to time decreased or
extinguished and later increased, created or incurred, and whether or not
extended, modified, rearranged, restructured, refinanced or replaced, including
without limitation, modifications to interest rates or other payment terms of
such debts, obligations or liabilities).
"OUTSTANDING LETTER OF CREDIT" shall mean (i) any Letter of Credit
which has not been canceled, expired un-utilized or fully drawn down and (ii)
the amount of any unreimbursed L/C Drawings.
"PARENT" shall mean National Technical Systems, Inc., a California
corporation.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA and any successor
thereto.
"PERCENTAGE SHARE" shall mean, for any Lender at any date, that
percentage set forth opposite such Lender's name on the signature pages hereof
as the same may be revised from time to time pursuant to PARAGRAPH 10(I) below.
"PERSON" shall mean any corporation, natural person, firm, joint
venture, partnership, trust, unincorporated organization, government or any
department or agency of any government.
-7-
Page 30 of 133
<PAGE>
"PLAN" shall mean any plan (other than a Multiemployer Plan) subject
to Title IV of ERISA maintained for employees of the Borrower or any ERISA
Affiliate (and any such plan no longer maintained by the Borrower or any of its
ERISA Affiliates to which the Borrower or any of its ERISA Affiliates has made
or was required to make any contributions during the five years preceding the
date on which such plan ceased to be maintained).
"POTENTIAL DEFAULT" shall mean an event which but for the lapse of
time or the giving of notice, or both, would constitute an Event of Default.
"PROCEEDS" shall mean whatever is receivable or received when
Collateral or Proceeds are sold, collected, exchanged or otherwise disposed of,
whether such disposition is voluntary or involuntary, and includes, without
limitation, all rights to payment, including return premiums, with respect to
any insurance relating thereto.
"PROHIBITED TRANSACTION" shall mean any transaction described in
section 406 of ERISA which is not exempt by reason of section 408 of ERISA or
the transitional rules set forth in section 414(c) of ERISA and any transaction
described in section 4975(c)(1) of the Code which is not exempt by reason of
section 4975(c)(2) or section 4975(d) of the Code, or the transitional rules of
section 2003(c) of ERISA.
"PROPERTY" shall mean, collectively and severally, any and all real
property, including all improvements and fixtures thereon, owned or occupied by
the relevant Person.
"QUICK ASSETS" shall mean, on a consolidated basis, cash plus net
accounts receivable after eliminating any inter-company items.
"QUICK RATIO" shall mean the ratio of (i) Quick Assets to (ii)
Current Liabilities.
"REFERENCE RATE" shall mean the fluctuating per annum rate announced
from time to time by Sanwa Bank California in Los Angeles, California, as its
"Reference Rate". The Reference Rate is a rate set by Sanwa Bank California
based upon various factors including Sanwa Bank California's costs and desired
return, general economic conditions, and other factors, and is used as a
reference point for pricing some loans, which may be priced at, above or below
the Reference Rate.
"REFERENCE RATE LOAN" shall mean Loans hereunder at such time as
they are made and/or being maintained at a rate of interest based on the
Reference Rate.
-8-
Page 31 of 133
<PAGE>
"REPORTABLE EVENT" shall mean any of the events set forth in section
4043(b) of ERISA or the regulations thereunder, a withdrawal from a Plan
described in section 4063 of ERISA, a cessation of operations described in
section 4068(f) of ERISA, an amendment to a Plan necessitating the posting of
security under section 401(a)(29) of the Code, or a failure to make a payment
required by section 412(m) of the Code and section 302(e) of ERISA when due.
"REQUIREMENTS OF LAW" shall mean as to any Person the Certificate of
Incorporation and Bylaws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation, or a final and binding
determination of an arbitrator or a determination of a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.
"RESPONSIBLE OFFICER" shall mean the chief financial officer or, in
the absence of the chief financial officer, such officer as the chief financial
officer shall advise the Agent in writing is a "Responsible Officer" for
purposes of this Agreement.
"REVOLVING CREDIT LIMIT" shall mean $6,000,000, as such amount may
be increased or decreased by written agreement of the Agent, the Borrower and
one hundred percent (100%) of the Lenders.
"REVOLVING LOAN MATURITY DATE" shall mean the earliest of: (i)
September 8, 1999, as such date may be extended from time to time in writing by
the Borrower and one hundred percent (100%) of the Lenders, in their sole
discretion, (ii) the date the Lenders terminate their obligation to make further
Loans hereunder pursuant to PARAGRAPH 8 below, or (iii) the date the Revolving
Credit Limit is reduced to $0.00.
"REVOLVING LOANS" shall have the meaning given such term in
PARAGRAPH 2(A) below.
"SECURITY AGREEMENT" shall have the meaning given such term in
PARAGRAPH 3(J) below.
"SECURITY DOCUMENTS" shall have the meaning given such term in
PARAGRAPH 3(J) below.
"SUBORDINATED DEBT" shall mean Indebtedness subordinated to the
Obligations on terms and conditions satisfactory to the Lenders.
-9-
Page 32 of 133
<PAGE>
"SUBSIDIARY" shall mean any Person more than fifty percent (50%) of
the equity of which has by the terms thereof ordinary voting power to elect the
board of directors, managers or trustees of the entity (irrespective of whether
or not at the time stock of any other class or classes of such Person shall have
or might have voting power by reason of the happening of any contingency) or
shall, at the time as of which any determination is being made, be owned, either
directly or through Subsidiaries.
"TANGIBLE NET WORTH" shall mean (i) the consolidated gross book
value of the assets of the Parent and its Consolidated Subsidiaries appearing on
a balance sheet prepared in accordance with GAAP minus (ii) loans to
stockholders (other than the Borrower and the Guarantors) of the Parent and its
Consolidated Subsidiaries in an aggregate amount in excess of $100,000 minus
(iii) all liabilities and the net book value of all assets of the Parent and its
Consolidated Subsidiaries which would be treated as intangibles under GAAP,
including, without limitation, unamortized debt discount and expense, covenants
not to compete, customer lists, unamortized research and development expense,
unamortized deferred charges and costs, goodwill, trademarks, service marks,
trade names, patents, copyrights and licenses.
"TERM CREDIT LIMIT" shall mean $6,500,000, as such amount may be
increased or decreased by written agreement of the Agent, the Borrower and one
hundred percent (100%) of the Lenders.
"TERM LOAN CONVERSION DATE" shall mean January 2, 1998.
"TERM LOAN MATURITY DATE" shall mean the earlier of (i) January 8,
2003, as such date may be extended from time to time in writing by the Borrower
and one hundred percent (100%) of the Lenders in their sole discretion and (ii)
the date the Lenders terminate their obligation to permit the Term Loans to
remain outstanding pursuant to PARAGRAPH 8 below.
"TERM LOANS" shall have the meaning given such term in PARAGRAPH
2(A) below.
2. CREDIT FACILITIES.
2(a) CREDIT LIMITS.
(1) REVOLVING LOANS. On the terms and subject to the
conditions set forth herein, each Lender agrees that it shall from time to time
up to and including the Revolving Loan Maturity Date (as such term and
capitalized terms not otherwise defined herein are defined in PARAGRAPH 1 above)
make Revolving Loans (the "REVOLVING LOANS" or a "REVOLVING LOAN") to the
-10-
Page 33 of 133
<PAGE>
Borrower in an aggregate amount with all its other outstanding Revolving Loans
and participation interest in Outstanding Letters of Credit not to exceed at any
one time its Percentage Share of the Revolving Credit Limit.
(2) LETTERS OF CREDIT. On the terms and subject to the
conditions set forth herein, the L/C Bank agrees to issue for the account of the
Borrower from time to time from the date hereof to and including the 30th day
immediately preceding the Revolving Loan Maturity Date, its Letters of Credit (a
"LETTER OF CREDIT" and collectively the "LETTERS OF CREDIT") in an aggregate
amount with other Outstanding Letters of Credit not to exceed the L/C Sublimit.
No commercial Letter of Credit shall expire more than 180 days from the date of
its issuance; no standby Letter of Credit shall expire more than one year from
the date of its issuance. The aggregate of Outstanding Letters of Credit and
outstanding Revolving Loans shall not exceed at any one time the Revolving
Credit Limit. No Letter of Credit may have an expiration date later than the
Revolving Loan Maturity Date. Letters of Credit may be commercial Letters of
Credit or stand-by Letters of Credit.
(3) TERM LOANS. On the terms and subject to the conditions set
forth herein, each Lender agrees that it shall from time to time up to and
including the Term Loan Conversion Date make Term Loans (the "TERM LOANS" or a
"TERM LOAN") to the Borrower in an aggregate amount with all its other
outstanding Term Loans not to exceed its Percentage Share of the Term Credit
Limit. Once borrowed, the Term Loans may not be repaid and reborrowed.
2(b) MAINTENANCE OF LOANS.
(1) REVOLVING LOANS. Revolving Loans shall be maintained, at
the election of the Borrower made from time to time as permitted herein, as
Reference Rate Loans and/or Eurodollar Loans, or any combination thereof.
(2) TERM LOANS. Term Loans shall be maintained, at the
election of the Borrower made from time to time as permitted herein (i) until
the Term Loan Conversion Date, as Reference Rate Loans and/or Eurodollar Loans
or any combination thereof and (ii) thereafter, as Reference Rate Loans and/or
Eurodollar Loans and/or Fixed Rate Loans, or any combination thereof.
2(c) CALCULATION OF INTEREST. The Borrower shall pay interest on
Loans outstanding hereunder from the date disbursed to but not including the
date of payment at a rate per annum equal to, at the option of and as selected
by the Borrower from time to time (subject to the provisions of PARAGRAPHS 2(F),
(G) and (H) below): (1) with respect to each Loan which is a Eurodollar Loan, at
the Adjusted LIBOR for the applicable Interest Period, (2) with respect to each
-11-
Page 34 of 133
<PAGE>
Loan which is a Reference Rate Loan, at a fluctuating rate per annum equal to
the Applicable Reference Rate during the applicable calculation period, and (3)
with respect to Fixed Rate Loans, the Fixed Rate for the applicable Interest
Period.
2(d) PAYMENT OF INTEREST. Interest accruing on Reference Rate Loans
and Fixed Rate Loans outstanding hereunder shall be payable monthly, in arrears,
for each month on the first Business Day of the next succeeding month and a
final payment shall be payable, with respect to Revolving Loans, on the
Revolving Loan Maturity Date and, with respect to Term Loans, on the Term Loan
Maturity Date. Interest accruing on Eurodollar Loans shall be payable in
arrears: (1) in the case of Eurodollar Loans with Interest Period ending one
month from the date advanced, at the end of the applicable Interest Period
therefor; and (2) in the case of Eurodollar Loans with Interest Periods ending
later than one month from the date advanced, at the end of each one month period
from the date advanced, and then at the end of the applicable Interest Period
therefor. The Borrower hereby irrevocably authorizes and directs the Agent to
collect interest when due by debiting the amount of interest payable from any
collected funds then on deposit in such account maintained by the Borrower with
the Agent as the Borrower shall designate, but no failure by the Agent to so
debit such account and no insufficiency in the amount on deposit in such account
shall excuse the Borrower from making any payment in full when due. In
accordance with its usual procedures, the Agent will notify the Borrower of the
date and approximate amount of any such debit at least two Business Days prior
to the date thereof.
2(e) REPAYMENT OF PRINCIPAL.
(1) Subject to the prepayment requirements of PARAGRAPH 2(H)
below, the Borrower shall pay:
(i) the principal amount of all Revolving Loans remaining
outstanding on the Revolving Loan Maturity Date; and
(ii) the principal amount of the Term Loans in sixty (60)
equal installments equal to l/60th of the Term Loans outstanding on the Term
Loan Conversion Date payable on the first Business Day of each month, commencing
January 2, 1998 until the Term Loan Maturity Date when all Term Loans remaining
outstanding shall be due and payable.
(2) The Borrower hereby irrevocably authorizes and directs the
Agent to collect principal on the Loans when due by debiting the amount of
principal payable from any collected funds then on deposit in such account
-12-
Page 35 of 133
<PAGE>
maintained by the Borrower with the Agent as the Borrower shall designate, but
no failure by the Agent to so debit such account and no insufficiency in the
amount on deposit in such account shall excuse the Borrower from making any
payment in full when due.
2(f) ELECTION OF TYPE OF LOAN; CONVERSION OPTIONS.
(1) Subject to the other provisions of this paragraph, the
Borrower may elect from time to time to have Loans funded (i) as Reference Rate
Loans by giving the Agent prior irrevocable notice no later than 11:00 a.m. (Los
Angeles time) on the proposed date of borrowing of such election, (ii) as Fixed
Rate Loans by giving the Agent prior irrevocable notice of such election no
later than 11:00 a.m. (Los Angeles time) three Business Days before the proposed
date of borrowing, (iii) as Eurodollar Loans by giving the Agent prior
irrevocable notice of such election no later than 11:00 a.m. (Los Angeles time)
three Eurodollar Business Days before the proposed date of borrowing. Subject to
the other provisions of this paragraph, the Borrower may elect from time to time
to (i) convert Loans outstanding as Eurodollar Loans or Fixed Rate Loans to
Reference Rate Loans by giving the Agent prior irrevocable notice of such
election no later than 11:00 a.m. (Los Angeles time) on the proposed date of
conversion, (ii) convert Loans outstanding as Reference Rate Loans or Fixed Rate
Loans to Eurodollar Loans by giving the Agent prior irrevocable notice of such
election no later than 11:00 a.m. three Eurodollar Business Days before the
proposed date of conversion, and (iii) convert Loans outstanding as Reference
Rate Loans or Eurodollar Loans to Fixed Rate Loans by giving the Agent prior
irrevocable notice of such election no later than 11:00 a.m. three Business Days
before the proposed date of conversion. Only Term Loans outstanding after the
Term Loan Conversion Date may be funded as or converted into Fixed Rate Loans.
Any conversion of Eurodollar Loans or Fixed Rate Loans may only be made on the
last day of the applicable Interest Period. All such elections shall be
evidenced by the delivery by the Borrower to the Agent within the required time
frame of a duly executed Loan Request. No Reference Rate Loan shall be converted
into a Eurodollar Loan or Fixed Rate Loan if an Event of Default or Potential
Default has occurred and is continuing on the day occurring three Eurodollar
Business Days or Business Days, respectively, prior to the date of the
conversion requested by the Borrower. All or any part of outstanding Loans may
be converted as provided in this PARAGRAPH 2(F)(1), provided that partial
conversions shall be in a principal amount of $500,000 or whole multiples of
$100,000 in excess thereof, and in the case of conversions into Eurodollar Loans
or Fixed Rate Loans, after giving effect thereto the aggregate of the then
number of Eurodollar Loans and Fixed Rate Loans of each Lender having a
different Interest Period does not exceed five.
-13-
Page 36 of 133
<PAGE>
(2) Any Eurodollar Loan or Fixed Rate Loan may be continued as
such upon the expiration of the Interest Period with respect thereto by giving
the Agent at least three Eurodollar Business Days' or Business Days',
respectively, prior irrevocable notice of such election as set forth on a duly
executed Loan Request; provided, however, that no Eurodollar Loan or Fixed Rate
Loan may be continued as such when any Event of Default or Potential Default has
occurred and is continuing, but shall be automatically converted to an Reference
Rate Loan on the last day of the then current Interest Period applicable
thereto, and the Agent shall notify the Lenders affected thereby and the
Borrower promptly that such automatic conversion will occur. If the Borrower
shall fail to give notice as provided above, the Borrower shall be deemed to
have elected to convert the affected Eurodollar Loan or Fixed Rate Loan to a
Reference Rate Loan on the last day of the relevant Interest Period.
2(g) INABILITY TO DETERMINE RATE. In the event that the Agent shall
have determined (which determination shall be conclusive and binding upon the
Borrower) that by reason of circumstances affecting the interbank eurodollar
market adequate and reasonable means do not exist for ascertaining the LIBOR for
any Interest Period, the Agent shall forthwith give notice to each Lender
affected thereby and to the Borrower. If such notice is given: (1) no Loan may
be converted to a Eurodollar Loan, (2) any Loan that was to have been or would
be converted to a Eurodollar Loan shall, subject to the provisions hereof, be
continued as a Reference Rate Loan, and (3) any outstanding Eurodollar Loan
shall be converted, on the last day of the then current Interest Period with
respect thereto, to a Reference Rate Loan.
2(h) ILLEGALITY. Notwithstanding any other provisions herein, if any
law, regulation, treaty or directive or any change therein or in the
interpretation or application thereof, shall make it unlawful for any Lender to
make or maintain Eurodollar Loans as contemplated by this Agreement: (1) the
commitment of all Lenders hereunder to make or to continue Eurodollar Loans or
to convert Reference Rate Loans or Fixed Rate Loans to Eurodollar Loans shall
forthwith be canceled and (2) the Lenders' Loans then outstanding as Eurodollar
Loans, if any, shall be converted automatically to Reference Rate Loans at the
end of their respective Interest Periods or within such earlier period as
required by law. In the event of a conversion of any such Loan prior to the end
of its applicable Interest Period the Borrower hereby agrees promptly to pay any
Lender affected thereby, upon demand in writing setting forth in reasonable
detail the calculation of the amount so demanded, the amounts required pursuant
to PARAGRAPH 2(K) below, it being agreed and understood that such conversion
shall constitute a prepayment for all purposes hereof. The provisions hereof
shall survive the termination of this Agreement and payment of the outstanding
Loans and all other amounts payable hereunder.
-14-
Page 37 of 133
<PAGE>
2(i) REQUIREMENTS OF LAW; INCREASED COSTS. In the event that any
applicable law, order, regulation, treaty or directive issued by any central
bank or other Governmental Authority, agency or instrumentality or in the
governmental or judicial interpretation or application thereof, or compliance by
the L/C Bank or any Lender with any request or directive (whether or not having
the force of law) issued by any central bank or other Governmental Authority,
agency or instrumentality:
(1) Does or shall subject the L/C Bank or any Lender to any tax
of any kind whatsoever with respect to this Agreement or any Loans made or
Letters of Credit issued hereunder, or change the basis of taxation of payments
to the L/C Bank or such Lender of principal, fee, interest or any other amount
payable hereunder (except for change in the rate of tax on the overall net
income of such Lender);
(2) Does or shall impose, modify or hold applicable any reserve,
capital requirement, special deposit, compulsory loan or similar requirements
against assets held by, or deposits or other liabilities in or for the account
of, advances or Loans by, any Letter of Credit, or other credit extended by, or
any other acquisition of funds by, any office of such Lender which are not
otherwise included in the determination of interest payable on the Obligations;
or
(3) Does or shall impose on the L/C Bank or such Lender any other
condition;
and the result of any of the foregoing is to increase the cost to the L/C Bank
or such Lender of making, renewing or maintaining any Loan or Letter of Credit
or to reduce any amount receivable in respect thereof or the rate of return on
the capital of the L/C Bank or such Lender or any corporation controlling the
L/C Bank or such Lender, then, in any such case, the Borrower shall promptly pay
to such Lender, upon its written demand made to the Borrower (with a copy to the
Agent), any additional amounts necessary to compensate the L/C Bank or such
Lender, as applicable, for such additional cost or reduced amounts receivable or
rate of return as determined by such Lender with respect to this Agreement or
Loans made or Letters of Credit issued hereunder. If the L/C Bank or a Lender
becomes entitled to claim any additional amounts pursuant to this PARAGRAPH
2(I), it shall promptly notify the Borrower of the event by reason of which it
has become so entitled. A certificate as to any additional amounts payable
pursuant to the foregoing sentence containing the calculation thereof in
reasonable detail submitted by the L/C Bank or a Lender to the Borrower shall be
conclusive in the absence of manifest error. The provisions hereof shall survive
the termination of this Agreement and payment of the outstanding Loans, Letters
of Credit and all other amounts payable hereunder.
-15-
Page 38 of 133
<PAGE>
2(j) FUNDING. Each Lender shall be entitled to fund all or any portion
of its Loans in any manner it may determine in its sole discretion, including,
without limitation, in the Grand Cayman inter-bank market, the London inter-bank
market and within the United States, but all calculations and transactions
hereunder shall be conducted as though all Lenders actually fund all Eurodollar
Loans through the purchase in London of offshore dollar deposits in the amount
of the relevant Eurodollar Loan in maturities corresponding to the applicable
Interest Period.
2(k) PREPAYMENT PREMIUM. In addition to all other payment
obligations hereunder, in the event: (1) any Loan which is outstanding as a
Eurodollar Loan or Fixed Rate Loan is prepaid prior to the last day of the
applicable Interest Period, whether following a voluntary prepayment, a
mandatory prepayment or otherwise, or (2) the Borrower shall fail to continue or
to make a conversion to a Eurodollar Loan or Fixed Rate Loan after the Borrower
has given notice thereof as provided in PARAGRAPH 2(F) above, then the Borrower
shall immediately pay to the Lenders holding the Loans prepaid or not converted,
an additional premium sum compensating each such Lender for losses, costs and
expenses incurred by such Lender in connection with such prepayment, including,
without limitation, those incurred in connection with redeployment of funds.
3. MISCELLANEOUS PROVISIONS.
3(a) USE OF PROCEEDS. The proceeds of the Loans shall be utilized by
the Borrower and Letters of Credit shall be requested by the Borrower for
general corporate purposes, for equipment financing and to consolidate loans
outstanding in favor of Sanwa Bank California.
3(b) REQUEST FOR LOANS AND LETTERS OF CREDIT; MAKING OF LOANS AND
ISSUANCE OF LETTERS OF CREDIT.
(1) THE LOANS. If the Borrower desires to borrow hereunder, the
Borrower shall deliver a Loan Request to the Agent, which shall be delivered
telephonically and immediately confirmed by facsimile transmission, no later
than the time and the day notice of borrowing is required to be given for the
type of Loan being requested pursuant to PARAGRAPH 2(F)(1) above. Each Loan that
is a Reference Rate Loan shall be in a minimum amount not less than $100,000 and
in increments of $50,000 in excess thereof. Each Term Loan that is a Fixed Rate
Loan shall be in a minimum amount not less than $500,000 and in increments of
$100,000 in excess thereof. Each Loan that is a Eurodollar Loan shall be in a
minimum amount not less than $500,000 and in increments of $100,000 in excess
thereof. The Agent shall notify each Lender of such Lender's Percentage Share
thereof promptly on the date such notice is received by the Agent. Each Lender
shall make its Percentage Share of the proposed Loan available to the Agent,
-16-
Page 39 of 133
<PAGE>
in immediately available funds, no later than 2:00 p.m. (Los Angeles time) on
the funding date. The failure of any Lender (a "Non-advancing Lender") to
advance its Percentage Share of a proposed Loan shall not relieve any other
Lender of its obligation hereunder to advance its Percentage Share thereof. No
Lender shall be responsible for the failure of any Non-advancing Lender to make
any such advance, but so long as no Non-advancing Lender has notified the other
Lenders in writing that such Non-advancing Lender has failed to advance its
Percentage Share of a Loan due to the occurrence and continuance of an Event of
Default, at the request of the Borrower, any other Lender(s) may make Loans
("Over-advance Loans") to the Borrower in an aggregate amount not to exceed the
amount which such Non-advancing Lender has failed to advance hereunder. Unless
otherwise agreed by the Lender(s) making Over-advance Loans, payments received
thereafter on account of any Loans shall be applied to repay the Over-advance
Loans and interest (and any penalty or premium thereon) in full prior to payment
on account of any other Loans.
(2) LETTERS OF CREDIT. If the Borrower desires to request a
Letter of Credit hereunder, the Borrower shall deliver a Letter of Credit
Request (which shall be completed in form and substance satisfactory to the L/C
Bank) to the L/C Bank which shall be delivered by telefacsimile transmission at
least one (1) Business Day prior to the requested date of issuance. Each such
Letter of Credit Request shall be accompanied by all other documents,
instruments, and agreements as the L/C Bank may reasonably request in connection
with such request (the "L/C DOCUMENTS"). The Agent shall notify each Lender of
the contents of such notice and of each such Lender's Percentage Share thereof
on the date such notice is received by the Agent. The L/C Bank shall issue its
Letter of Credit in accordance with the terms of such notice.
3(c) EVIDENCE OF REPAYMENT OBLIGATIONS.
(1) THE LOANS. The obligation of the Borrower to repay the
Revolving Loans and Term Loans may at the request of any Lender be evidenced by
notes payable to the order of such Lender in the form of that attached hereto as
EXHIBIT A- 1 and EXHIBIT A-2, respectively (a "NOTE" or the "NOTES"). Upon any
advance, conversion or prepayment as provided in this Agreement with respect to
any Loan, any Lender requesting Notes is hereby authorized to record the date
and amount of each such advance and conversion made by such Lender, or the date
and amount of each such payment or prepayment of principal of the Loans made by
such Lender, the applicable Interest Period and interest rate with respect
thereto, on the schedules annexed to and constituting a part of its respective
Notes (or by any analogous method any Lender may elect consistent with its
customary practices) and any such recordation shall constitute PRIMA FACIE
evidence of the accuracy of the information so recorded absent manifest error.
-17-
Page 40 of 133
<PAGE>
The failure of any Lender to make any such notation, or the decision of any
Lender not to request Notes, shall not affect in any manner or to any extent the
Borrower's Obligations hereunder.
(2) LETTERS OF CREDIT. Each drawing under a Letter of Credit (an
"L/C DRAWING") shall be payable in full by the Borrower on the date thereof,
without demand or notice of any kind. If the Borrower desires to repay an L/C
Drawing from the proceeds of a Loan, the Borrower may request a Revolving Loan
in accordance with the other terms and conditions of this Agreement and, if
disbursed on the date of such drawing, shall be applied in payment of such
obligation by the Borrower. Each Lender hereby purchases an undivided
participation equal to its Percentage Share in the L/C Bank's commitment to
issue Letters of Credit pursuant to SUBPARAGRAPH (2) of PARAGRAPH 2(A) above,
each Outstanding Letter of Credit, and each L/C Drawing made hereunder. If any
L/C Drawing shall not be repaid when due in accordance with the terms of this
Agreement, each Lender shall, upon demand from the Agent confirmed thereafter in
writing, make its Percentage Share of such L/C Drawing available to the Agent,
for the account of the L/C Bank, in immediately available funds, and the
Borrower shall reimburse each Lender for its Percentage Share of each such L/C
Drawing together with interest thereon until paid at the rate set forth in
PARAGRAPH 3(E) below. The obligation of the Borrower to reimburse the L/C Bank
for L/C Drawings and the obligation of each Lender to reimburse the L/C Bank for
otherwise unreimbursed L/C Drawings shall be absolute, irrevocable and
unconditional under any and all circumstances whatsoever and irrespective of any
set-off, counterclaim or defense to payment which the Borrower may have or have
had against the L/C Bank, the Agent or any Lender (except such as may arise out
of the L/C Bank's gross negligence or willful misconduct hereunder) or any other
Person, including, without limitation, any set-off, counterclaim or defense
based upon or arising out of:
(a) Any lack of validity or enforceability of this
Agreement or any of the other Loan Documents;
(b) Any amendment or waiver of or any consent to departure
from the terms of any Letter of Credit;
(c) The existence of any claim, set-off, defense or other
right which the Borrower or any other Person may have at any time against
any beneficiary or any transferee of any Letter of Credit (or any Person
for whom any such beneficiary or any such transferee may be acting); or
(d) Any allegation that any demand, statement or any other
document presented under any Letter of Credit is forged, fraudulent,
invalid or insufficient in any respect, or any statement therein being
untrue or inaccurate in any respect whatsoever or any variations in
-18-
Page 41 of 133
<PAGE>
punctuation, capitalization, spelling or format of the drafts or any
statements presented in connection with any L/C Drawing.
3(d) NATURE AND PLACE OF PAYMENTS. All payments made on account of
the Obligations shall be made by the Borrower, without setoff or counterclaim,
in lawful money of the United States of America in immediately available funds,
free and clear of and without deduction for any taxes, fees or other charges of
any nature whatsoever imposed by any taxing authority and must be received by
the Agent by 12:00 noon (Los Angeles time) on the day of payment, it being
expressly agreed and understood that if a payment is received after 12:00 noon
(Los Angeles time) by the Agent, such payment will be considered to have been
made by the Borrower on the next succeeding Business Day and interest thereon
shall be payable by the Borrower at the Applicable Reference Rate during such
extension. If any payment required to be made by the Borrower hereunder becomes
due and payable on a day other than a Business Day, the due date thereof shall
be extended to the next succeeding Business Day and interest thereon shall be
payable at the then applicable rate during such extension. The Agent shall
promptly pay to the Lenders all payments received for their account hereunder.
3(e) DEFAULT INTEREST. After the occurrence of and during the
continuance of an Event of Default, the Agent, in its sole discretion, may
determine that (i) all Loans shall bear interest from the date of the occurrence
of such Event of Default at a per annum rate equal to two percent (2%) over the
interest then applicable thereto, and (ii) all other Obligations shall bear
interest from the date due until paid in full at a per annum rate equal to two
percent (2%) above the Reference Rate.
3(f) COMPUTATIONS. All computations of interest and fees payable
hereunder shall be based upon a year of 360 days for the actual number of days
elapsed.
3(g) PREPAYMENTS.
(1) The Borrower may prepay Reference Rate Loans hereunder in
whole or in part at any time. Eurodollar Loans and Fixed Rate Loans may only be
paid at the end of their respective Interest Periods.
(2) The Borrower shall pay in connection with any prepayment
hereunder, whether voluntary or mandatory, all interest accrued but unpaid on
Loans to which such prepayment is applied, and all prepayment premiums, if any,
on Eurodollar Loans and Fixed Rate Loans to which such prepayment is applied,
concurrently with payment to the Agent of any principal amounts.
-19-
Page 42 of 133
<PAGE>
(3) Subject to the other terms and conditions of this Agreement,
the Borrower may, from time to time, reduce the Revolving Credit Limit, in
increments of not less than $100,000 to an amount not less than the aggregate
Revolving Loans outstanding and Outstanding Letters of Credit.
3(h) ALLOCATION OF PAYMENTS RECEIVED. Prior to the occurrence of an
Event of Default and acceleration of the Obligations, all amounts received by
the Agent on account of the Obligations shall be disbursed by the Agent to the
Lenders pro rata in accordance with their respective Percentage Shares, or in
the case of reimbursements of L/C Drawings to the L/C Bank, by wire transfer on
the date of receipt if received by the Agent before 12:00 noon (Los Angeles
time) or if received later, by 12:00 noon (Los Angeles time) on the next
succeeding Business Day, without further interest payable by the Agent.
Following the occurrence of an Event of Default and acceleration of the
Obligations, all amounts received by the Agent on account of the Obligations
shall be disbursed by the Agent as follows:
(1) First, to the payment of expenses incurred by the Agent in
the performance of its duties and enforcement of its rights under the Loan
Documents, including, without limitation, all costs and expenses of collection,
attorneys' fees and disbursements, court costs and foreclosure expenses;
(2) Then, to the L/C Bank until all L/C Drawings not otherwise
reimbursed to the L/C Bank by the Borrower or the Lenders have been paid in full
together with interest thereon;
(3) Then, to the Lenders pro rata in accordance with their
respective Percentage Shares until Obligations due to them under PARAGRAPH 6(G)
below have been paid in full;
(4) Then, to the Lenders pro rata in accordance with their
respective Percentage Shares until all other outstanding Obligations have been
paid in full; and
(5) Then, to such Persons as may be legally entitled thereto.
3(i) FEES.
(1) LETTER OF CREDIT FEES.
(i) With respect to each commercial Letter of Credit, the
Borrower shall pay to the Agent for the pro rata account of each of the
-20-
Page 43 of 133
<PAGE>
Lenders, in accordance with their respective Percentage Shares, (A) on the
date of issuance, a non-refundable Letter of Credit fee equal to the
greater of (1) $100.00 or (2) (a) the fee equal to 0.125% of the face
amount of such Letter of Credit times (b) the number of full or partial
three month periods from the date of issuance to the stated expiration
date, and (B) on the date of payment of any drawing, a non-refundable
payment fee equal to the greater of (1) $100.00 or (2) the fee equal to
.25% of the amount paid.
(ii) With respect to each standby Letter of Credit, the
Borrower shall pay to the Agent on the date of issuance, for the pro rata
account of each of the Lenders, in accordance with their respective
Percentage Shares, a non-refundable Letter of Credit commission equal to
the greater of (A) $300 or (B) the commission computed at the per annum
rate of 1.00% on the face amount of such standby Letter of Credit.
(iii) With respect to each standby and commercial Letter of
Credit, the Borrower shall pay to the L/C Bank on demand, for its own
account, such other fees as may be required by the L/C Bank in accordance
with its standard fee structure for such Letters of Credit.
(2) OTHER FEES. The Borrower shall pay (i) to the Agent, for the
pro rata account of each of the Lenders, on the last Business Day of each
calendar quarter during the term of this Agreement and on the Revolving Loan
Maturity Date, a facility fee calculated at .50% per annum on the average daily
Revolving Credit Limit in effect during the quarter just ended or, in the case
of payment on the Revolving Loan Maturity Date, the period just ended, and (ii)
such other fees as it shall from time to time agree upon in connection with this
Agreement pursuant to letter agreements entered into with reference to this
paragraph.
3(j) COLLATERAL SECURITY; ADDITIONAL DOCUMENTS. As collateral security
for the Obligations, the Borrower shall execute and deliver and cause to be
executed and delivered to the Agent for its benefit and that of the L/C Bank and
each of the Lenders: (1) a Guaranty from each Guarantor substantially in the
form of EXHIBIT D hereto (collectively the "GUARANTY"), (2) a Security Agreement
from the Borrower and each Guarantor substantially in the form attached hereto
as EXHIBIT B-1 and EXHIBIT B-2, respectively (collectively, the "SECURITY
AGREEMENT"), pursuant to which the Borrower and each Guarantor shall pledge,
assign and grant to the Agent, for its benefit and that of the L/C Bank and each
of the Lenders, a first priority security interest in and Lien upon their
respective Collateral, and (3) such UCC-1 financing statements as the Agent may
require. The Borrower further agrees to execute and deliver or to cause to be
executed and delivered to the Agent from time to time such confirmatory
-21-
Page 44 of 133
<PAGE>
Guaranties, Security Agreements, financing statements, consents of and notices
to third parties and such documents, instruments and agreements, including,
without limitation, relating to the creation or perfection of Liens under any
relevant state or Federal law, or the law of any relevant foreign jurisdiction
as any Lender may reasonably request which are in such Lender's judgment
necessary or desirable to obtain for the Agent and the Lenders the benefit of a
Guaranty from each Guarantor, the Security Agreements and the Collateral (the
Security Agreements, the UCC-1 financing statements referred to in subparagraph
(2) above, and such additional documents, instruments and agreements being
referred to herein as the "SECURITY DOCUMENTS").
4. CONDITIONS TO MAKING LOANS.
4(a) FIRST CREDIT. As conditions precedent to the obligations of the
Lenders to make the first Loan and of the L/C Bank to issue the first Letter of
Credit:
(1) The Borrower shall have delivered or shall have had delivered
to the Agent each of the following (with sufficient copies for each of the
Lenders):
(i) A duly executed copy of this Agreement;
(ii) Duly executed copies of each of the other Loan
Documents;
(iii) Such credit applications, financial statements,
authorizations, environmental reviews of the Property, and such
information concerning the Borrower and its business, operations and
condition (financial and otherwise) as any Lender may reasonably request;
(iv) Certified copies of resolutions of the Board of
Directors of the Borrower and each Guarantor approving the execution and
delivery of the Loan Documents to which it is a party;
(v) A certificate of the Secretary or an Assistant
Secretary of the Borrower and each Guarantor certifying the names and true
signatures of the officers of the Borrower authorized to sign the Loan
Documents to which it is a party;
(vi) A copy of the Certificate of Incorporation of the
Borrower and each Guarantor, certified by the Secretary of State of the
State of their incorporation as of a recent date;
-22-
Page 45 of 133
<PAGE>
(vii) A copy of each of the Certificate of Incorporation
(if required by the Lenders) and Bylaws of the Borrower and each
Guarantor, certified by the Secretary or an Assistant Secretary of the
Borrower and each Guarantor as of the date of this Agreement as being
accurate and complete;
(viii) A certificate of good standing or status of the
Borrower and each Guarantor from the Secretary of State of the State of
its incorporation as of a recent date;
(ix) A duly executed copy of letters acknowledging receipt
of payment of fees payable on or prior to the effective date of this
Agreement pursuant to PARAGRAPH 3(I)(1) above;
(x) Search reports for those jurisdictions notified by the
Borrower to the Agent in writing as the only jurisdictions in which
filings or recordings are necessary to perfect a security interest in the
Collateral, which reports shall show only such financing statements and
other filings of record as to the Collateral as shall be acceptable to the
Agent and each Lender;
(xi) An opinion of Sheppard, Mullin, Richter & Hampton,
LLP, counsel to the Parent, the Borrower and their respective
Subsidiaries, in form and substance satisfactory to the Lenders,
addressing the due authorization, execution and delivery of the Loan
Documents and such other matters as the Lenders shall reasonably request;
and
(xii) A copy of insurance policies or a certificate of
insurance evidencing compliance by the Borrower under PARAGRAPH 6(I)
below.
(2) All fees and other amounts payable hereunder prior to such
date shall have been paid, and all acts and conditions (including, without
limitation, the obtaining of any necessary regulatory approvals and the making
of any required filings, recordings or registrations) required to be done and
performed and to have happened precedent to the execution, delivery and
performance of the Loan Documents and to constitute the same legal, valid and
binding obligations, enforceable in accordance with their respective terms,
shall have been done and performed and shall have happened in due and strict
compliance with all applicable laws.
(3) The Agent shall not have received notification from any
Lender that (i) any documentation, including, without limitation, documentation
for corporate and legal proceedings in connection with the transactions
-23-
Page 46 of 133
<PAGE>
contemplated by the Loan Documents is unsatisfactory in either form or substance
or (ii) a Material Adverse Change has occurred since April 30, 1997.
4(b) ONGOING LOANS AND LETTERS OF CREDIT. As conditions precedent to
each Lenders' obligation to make any Loan, including the first Loan, and the L/C
Bank's obligations to issue any Letter of Credit, including the first Letter of
Credit, at and as of the date of the funding or issuance thereof;
(1) There shall have been delivered to the Agent: (i) in the
case of a Loan, a Loan Request, and (ii) in the case of the Letter of
Credit, a Letter of Credit Request and the related L/C Documents;
(2) The representations and warranties made by or on behalf of
the Borrower and each Guarantor in or pursuant to the Loan Documents shall
be accurate and complete in all material respects as if made on and as of
such date;
(3) There shall not have occurred an Event of Default or
Potential Default not otherwise cured or waived; and
(4) Following the making of a Loan or issuance of such Letter of
Credit, the aggregate principal amount of Loans outstanding and
Outstanding Letters of Credit will not exceed the limitation of PARAGRAPHS
2(A) above.
By delivering a Loan Request to the Agent or a Letter of Credit Request to the
L/C Bank hereunder, or by requesting the conversion of a Loan or the
continuation of a Loan pursuant to PARAGRAPH 2(F) above, the Borrower shall be
deemed to have represented and warranted the accuracy and completeness of the
statements set forth in SUBPARAGRAPHS (B)(2) through (B)(4) above.
5. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. As an inducement to the
Agent, the L/C Bank and each Lender to enter into this Agreement and to make
Loans and to issue and participate in Letters of Credit as provided herein, the
Borrower represents and warrants to the Agent, the L/C Bank and each Lender
that:
5(a) FINANCIAL POSITION. The financial statements of the Parent
dated April 30, 1997 which have heretofore been furnished to each Lender and the
Agent, present fairly in all material respects and, except as otherwise agreed
by the Lenders, present fairly in accordance with GAAP the consolidated
financial position of the Borrower at such dates and the results of its
operations and changes in its cash flows for the fiscal periods then ended.
-24-
Page 47 of 133
<PAGE>
5(b) NO CHANGE. Since the date of the financial statements described
in the preceding PARAGRAPH 5(A), there has been no material adverse change in
the business, operations, assets or financial or other condition of the Parent
or the Borrower on a consolidated basis. Since such date, neither the Parent nor
the Borrower has not entered into, incurred or assumed any long-term debt,
mortgages, material leases or oral or written commitments, nor commenced any
significant project, nor made any purchase or acquisition of any significant
property.
5(c) CORPORATE EXISTENCE; COMPLIANCE WITH LAW. The Borrower and each
Guarantor (1) is duly organized, validly existing and in good standing as a
corporation under the laws of the state of its incorporation and is qualified to
do business in each jurisdiction where its ownership of property or conduct of
business requires such qualification and where failure to qualify would have a
material adverse effect on it or its property and/or business or on its ability
to pay or perform the Obligations, (2) has the corporate power and authority and
the legal right to own and operate its property and to conduct business in the
manner in which it does and proposes so to do, and (3) is in compliance with all
Requirements of Law and Contractual Obligations.
5(d) CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The
Borrower and each Guarantor has the corporate power and authority and the legal
right to execute, deliver and perform the Loan Documents to which it is a party
and has taken all necessary corporate action to authorize the execution,
delivery and performance of the Loan Documents. The Loan Documents have been
duly executed and delivered on behalf of the Borrower and each Guarantor party
thereto and constitute such Person's legal, valid and binding obligations
enforceable against it in accordance with their respective terms, subject to the
effect of applicable bankruptcy and other similar laws affecting the rights of
creditors generally and the effect of equitable principles whether applied in an
action at law or a suit in equity.
5(e) NO LEGAL BAR. The execution, delivery and performance of the
Loan Documents, the borrowings hereunder and the use of the proceeds thereof,
will not violate any Requirement of Law or any Contractual Obligations of the
Borrower or any Guarantor or create or result in the creation of any Lien on any
assets of the Borrower or any Guarantor except as contemplated thereby.
5(f) NO MATERIAL LITIGATION. Except as disclosed on EXHIBIT C
hereto, no litigation, investigation or proceeding of or before any arbitrator
or Governmental Authority is pending or, to the knowledge of the Borrower or any
Guarantor, threatened by or against the Borrower or any Guarantor or against any
of the Borrower's or any Guarantor's properties or revenues which is likely to
be adversely determined and which, if adversely determined, is likely to have a
-25-
Page 48 of 133
<PAGE>
material adverse effect on the business, operations, property or financial or
other condition of the Parent and its Subsidiaries, taken as a whole.
5(g) TAXES. The Borrower and each Guarantor has filed all tax
returns that are required to be filed and have paid all taxes shown to be due
and payable on said returns or on any assessments made against them or any of
their property other than with respect to immaterial taxes and other than taxes
which are being contested in good faith by appropriate proceedings and as to
which the Borrower or a Guarantor has established adequate reserves in
conformity with GAAP.
5(h) REGULATED ENTITIES. The Borrower is not an "investment company"
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. The Borrower is not subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act, any state public utilities code, or any
other Federal or state statute or regulation limiting its ability to incur
Indebtedness.
5(i) SUBSIDIARIES. EXHIBIT I truly and correctly describes each of
its Subsidiaries.
5(j) FEDERAL RESERVE BOARD REGULATIONS. The Borrower is not engaged
and will not engage, principally or as one of its important activities, in the
business of extending credit for the purpose of "purchasing" or "carrying" any
"margin stock" within the respective meanings of such terms under Regulation U.
No part of the proceeds of any Loan issued hereunder will be used for
"purchasing" or "carrying" "margin stock" as so defined or for any purpose which
violates, or which would be inconsistent with, the provisions of the Regulations
of the Board of Governors of the Federal Reserve System.
5(k) ERISA. (1) No Prohibited Transactions, Accumulated Funding
Deficiencies, withdrawals from Multiemployer Plans or Reportable Events have
occurred with respect to any Plans or Multiemployer Plans that, in the
aggregate, could subject the Borrower or any Guarantor to any tax, penalty or
other liability where such tax, penalty or liability is not covered in full, for
the benefit of the Borrower or such Guarantor by insurance; (2) no notice of
intent to terminate a Plan has been filed, nor has any Plan with an Accumulated
Funding Deficiency remaining outstanding been terminated under section 4041 of
ERISA, nor has the PBGC instituted proceedings to terminate, or appoint a
trustee to administer, a Plan, and no event has occurred or condition exists
which might constitute grounds under section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Plan; (3) the present
value of all benefit liabilities (as defined in section 4001(a)(16) of ERISA)
-26-
Page 49 of 133
<PAGE>
under all Plans (based on the actuarial assumptions used to fund the Plans) does
not exceed the assets of the Plans; and (4) the execution, delivery and
performance by the Borrower and the Guarantors of the Loan Documents and the use
of the proceeds thereof will not involve any Prohibited Transactions.
5(l) ASSETS. The Borrower and each Guarantor has good and marketable
title to all property and assets reflected in the financial statements referred
to in PARAGRAPH 5(A) above, except property and assets sold or otherwise
disposed of in the ordinary course of business subsequent to the respective
dates thereof. Except as permitted under PARAGRAPH 7(A) below, neither the
Borrower nor any Guarantor has any outstanding Liens on any of its properties or
assets and there are no security agreements to which the Borrower or any
Guarantor is a party, or title retention agreements, whether in the form of
leases or otherwise, of any personal property.
5(m) SECURITIES ACTS. Neither the Borrower nor any Guarantor has
issued any unregistered securities in violation of the registration requirements
of Section 5 of the Securities Act of 1933, as amended, or any other law, or is
violating any rule, regulation or requirement under the Securities Act of 1933,
as amended, or the Securities and Exchange Act of 1934, as amended. The Borrower
is not required to qualify an indenture under the Trust Indenture Act of 1939,
as amended, in connection with its execution and delivery of the Notes.
5(n) CONSENTS, ETC.. No consent, approval, authorization of, or
registration, declaration or filing with any Governmental Authority is required
on the part of the Borrower or any Guarantor in connection with the execution
and delivery of the Loan Documents or the performance of or compliance with the
terms, provisions and conditions hereof or thereof.
5(o) NO BURDENSOME RESTRICTIONS. Neither the Borrower nor any
Guarantor is a party to or bound by any Contractual Obligation, or subject to
any restriction in any organizational documents, or any Requirements of Law,
which could reasonably be expected to cause a Material Adverse Change.
5(p) ENVIRONMENTAL MATTERS. The Borrower and each Guarantor conducts
in the ordinary course of business a review of the effect of existing
Environmental Laws and existing Environmental Claims on its business, operations
and properties, and except as disclosed to the Lenders in writing on SCHEDULE
5(P) hereto, if any, such Environmental Laws and Environmental Claims could not,
individually or in the aggregate, reasonably be expect to cause a Material
Adverse Change.
-27-
Page 50 of 133
<PAGE>
5(q) NO DEFAULT. No Potential Default or Event of Default exists or
would result from the incurring of any Obligations by the Borrower. As of the
date of this Agreement, neither the Borrower nor any Guarantor is in default
under or with respect to any Contractual Obligation in any respect which,
individually or together with all such defaults, could reasonably be expected to
cause a Material Adverse Change or that would, if such default had occurred
after the date hereof, create an Event of Default.
5(r) INTELLECTUAL PROPERTY. The Borrower and the Guarantors own or
are licensed or otherwise have the right to use all of the patents, trademarks,
service marks, trade names, copyrights, contractual franchises, authorizations
and other rights that are reasonably necessary for the operation of their
respective businesses, without conflict with the rights of any other Person. To
the best knowledge of the Borrower, no slogan or other advertising device,
product, process, method, substances, part or other material now employed or now
contemplated to be employed, by the Borrower or any Guarantor infringes upon any
rights held by any other party. Except as specifically disclosed in SCHEDULE
5(R), if any, no claim or litigation regarding any of the foregoing is pending
or threatened, and no patent, invention, device, application, principle or any
statute, law, rule, regulation, standard or code is pending or, to the knowledge
of the Borrower, proposed, which, in either case, could reasonably be expected
to cause a Material Adverse Change.
5(s) FULL DISCLOSURE. None of the representations or warranties made
by the Borrower or any Guarantor in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of the Borrower or any Guarantor in connection with the Loan
Documents. contains any untrue statement of a material fact or omits any
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they are made, not
misleading as of the time when made or delivered.
6. AFFIRMATIVE COVENANTS. The Borrower hereby covenants and agrees with the
Agent and each Lender that, as long as any Obligations remain unpaid or any
Lender has any obligation to make Loans hereunder or the L/C Bank has any
obligation to issue Letters of Credit for the account of the Borrower, the
Borrower shall and, in the case of PARAGRAPHS 6(C) through 6(E) and 6(H) through
6(K) shall cause the Guarantors to:
6(a) FINANCIAL STATEMENTS. Furnish or cause to be furnished to the
Agent and each of the Lenders directly:
(1) Within 120 days after the last day of each fiscal year of the
Parent the audited balance sheet of the Parent as at the end of, and the related
-28-
Page 51 of 133
<PAGE>
statements of income, shareholders' equity and cash flows for such year,
prepared on a consolidated basis, and the comparative financial statements as at
the end of, and for, the preceding fiscal year, all prepared in accordance with
GAAP accompanied by an opinion satisfactory to the Agent and the Lenders of a
firm of independent certified public accountants of nationally recognized
standing, which opinion shall be unqualified.
(2) Within 120 days after the last day of each fiscal year of the
Parent, the balance sheet of the Parent as at the end of, and the related
statement of income, for such year prepared on a consolidating basis, certified
by a Responsible Officer of the Borrower as fairly presenting the consolidating
financial condition and results of operations of the Parent and its Consolidated
Subsidiaries and as having been prepared in accordance with GAAP applied on a
basis consistent with the audited financial statements of the Parent.
(3) Within 60 days after the last day of each fiscal quarter the
balance sheet of the Parent as of the end of, and the related statement of
income for the quarter and for the period from the beginning of the then current
fiscal year to the end of such quarter and the related statements of income,
shareholders' equity and cash flows for such period, prepared on a consolidated
basis, certified by a Responsible Officer of the Borrower as fairly presenting
the consolidated financial condition and results of operations of the Parent and
its Consolidated Subsidiaries and as having been prepared in accordance with
GAAP applied on a basis consistent with the audited financial statements of the
Parent, subject to changes resulting from audit and normal year-end adjustments.
6(b) CERTIFICATES; REPORTS; OTHER INFORMATION. Furnish or cause to
be furnished to the Agent and each of the Lenders directly:
(1) Promptly after sending, filing or publishing the same, copies
of all proxy statements, financial statements and reports which the Parent sends
to its stockholders and copies of all regular and periodic reports and all
registration statements which the Parent files with the Securities and Exchange
Commission and copies of all press releases issued by the Parent;
(2) Together with the financial statements delivered pursuant to
PARAGRAPHS 6(A)(1) and 6(A)(2) above, a Compliance Certificate of a Responsible
Officer of the Parent.
(3) Within 60 days after the end of each fiscal quarter of the
Parent, a summary accounts receivable aging for the Parent and its Subsidiaries;
-29-
Page 52 of 133
<PAGE>
(4) Within 60 days after the end of each fiscal quarter of the
Parent, backlog reports for the Parent and its Subsidiaries;
(5) Promptly upon request of any Lender delivered to the Borrower
no later than thirty (30) days after receipt by such Lender of any summary
report pursuant to PARAGRAPHS 6(B)(3) or 6(B)(4) above, detailed accounts
receivable and accounts payable aging reports and backlog reports for the Parent
and its Subsidiaries supporting such summary report;
(6) Promptly, such additional financial and other information,
including, without limitation, financial statements of the Borrower or any
Affiliate, if available to the Borrower, as any Lender may from time to time
reasonably request, including, without limitation, such information as is
necessary for any Lender to participate out any of its interests in the
Revolving Loans hereunder or to enable other financial institutions to become
signatories hereto.
6(c) PAYMENT OF INDEBTEDNESS. Pay, discharge or otherwise satisfy at
or before maturity or before it becomes delinquent, defaulted or accelerated, as
the case may be, all its Indebtedness (including taxes), except (i) Indebtedness
for trade debt incurred in the ordinary course of business which is not more
than 60 days delinquent, and (ii) Indebtedness being contested in good faith and
for which provision is made to the satisfaction of the Lenders for the payment
thereof in the event the Borrower or any Guarantor is found to be obligated to
pay such Indebtedness and which Indebtedness is thereupon promptly paid by the
Borrower or such Guarantor.
6(d) MAINTENANCE OF EXISTENCE AND PROPERTIES. Except as otherwise
permitted in PARAGRAPH 7(C) below, maintain its corporate existence and maintain
all rights, privileges, licenses, approvals, franchises, properties and assets,
necessary or desirable in the normal conduct of its business, and comply with
all Contractual Obligations and Requirements of Law;
6(e) INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. (1) Keep
proper books of record and account on the same fiscal year basis as maintained
on the date of this Agreement in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities and (2) permit
representatives of the Agent or any Lender (i) to visit and inspect any of its
properties and examine and make abstracts from and copies of any of its books
and records at any reasonable time and as often as may reasonably be desired by
the Agent or any Lender, (ii) to (at a cost reimbursed pursuant to PARAGRAPH
6(G) below) audit its accounts receivable and inventory, and (iii) with prior
notice to the Borrower, to discuss the business, operations, properties and
-30-
Page 53 of 133
<PAGE>
financial and other condition of the Borrower with officers and, in the
reasonable discharge of its rights and obligations, employees of such parties,
and with their independent certified public accountants.
6(f) NOTICES. Promptly give written notice to the Agent and each
Lender of:
(1) The occurrence of any Potential Default or Event of Default;
(2) Any litigation or proceeding, including, without limitation,
any substantial dispute with any governmental or law enforcement agency, in an
aggregate amount in excess of $250,000 affecting the Borrower, any Guarantor or
the Collateral; and
(3) A material adverse change in the business, operations,
property or financial or other condition of the Borrower or any Guarantor.
6(g) EXPENSES AND INDEMNITY. Whether or not the transactions
contemplated hereby shall be consummated,
(1) Pay all reasonable out-of-pocket expenses : (1) of the Agent
incident to the preparation, negotiation, syndication, arrangement, closing,
waiver to, amendment or modification of, and administration of the Loan
Documents, and the protection of the rights of the Lenders and the Agent under
the Loan Documents, and (2) of the Agent and each of the Lenders after the
occurrence and during the continuance of any Event of Default and/or incident to
the enforcement of payment of the Obligations, whether by judicial proceedings
or otherwise, including, without limitation, in connection with bankruptcy,
insolvency, liquidation, reorganization, moratorium or other similar proceedings
involving the Borrower or any Guarantor.
(2) Indemnify, pay and hold harmless the Agent and each Lender
and the officers, directors, employees and agents of the Agent and each Lender
(collectively, the "INDEMNITEES") from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including
the fees and disbursements of counsel for such Indemnitees) in connection with
any investigative, administrative or judicial proceedings, whether or not such
Indemnitees shall be designated a party thereto, and the expenses of
investigation by engineers, environmental consultants and similar technical
personnel imposed on, incurred by or asserted against such Indemnitees as a
result of or in connection with the transactions contemplated hereby or any of
the other Loan Documents and the use or intended use of the Loans and the
-31-
Page 54 of 133
<PAGE>
Letters of Credit, except the Borrower shall have no obligation hereunder to an
Indemnitee with respect to any liability resulting from the gross negligence or
willful misconduct of such Indemnitee. To the extent that the undertaking set
forth in the immediately preceding sentence may be unenforceable, the Borrower
shall contribute the maximum portion which it is permitted to pay and satisfy
under applicable law to the payment and satisfaction of all such indemnified
liabilities incurred by the Indemnitees or any of them. Without limiting the
generality of the foregoing, to the fullest extent permitted by law, the
Borrower hereby waives all rights for contribution or any other rights of
recovery with respect to liabilities, losses, damages, costs and expenses
arising under or relating to Environmental Laws that it might have by statute or
otherwise against any Indemnitee.
(3) The obligations of the Borrower under this PARAGRAPH 6(G)
shall be effective and enforceable whether or not any Loan is made hereunder and
shall survive payment of all other Obligations.
6(h) LOAN DOCUMENTS. Use the Loans and Letters of Credit as
contemplated by PARAGRAPH 3(A) and comply with and observe all terms and
conditions of the Loan Documents.
6(i) INSURANCE. Obtain and maintain insurance with responsible
companies in such amounts and against such risks as are usually carried by
corporations engaged in similar businesses similarly situated, and furnish any
of the Lenders on request through the Agent full information as to all such
insurance and obtain loss-payee endorsements thereon in favor of the Agent. All
such insurance shall be provided by insurers and cover such matters as shall be
acceptable to the Lenders.
6(j) HAZARDOUS MATERIALS. The Borrower and each Guarantor shall
indemnify and hold harmless the Agent and each Lender from any loss or liability
directly or indirectly arising out of the use, generation, manufacture,
production, storage, release, threatened release, discharge, disposal or
presence of a hazardous substance. This indemnity will apply whether the
hazardous substance is on, under or about the Borrower's or a Guarantor's
property or operations or property leased to the Borrower or a Guarantor. The
indemnity includes but is not limited to attorneys' fees. The indemnity extends
to the Agent, each Lender and their respective parents, subsidiaries and all of
their directors, officers, employees, agents, successors, attorneys and assigns.
For these purposes, the term "hazardous substances" means any substance which is
or becomes designated as "hazardous" or "toxic" under any federal, state or
local law. This indemnity is without limitation and will survive repayment of
the Borrower's Obligations.
6(k) ERISA. Furnish to the Agent and each Lender:
-32-
Page 55 of 133
<PAGE>
(1) Promptly and in any event within 30 days after the Borrower
or a Guarantor knows or has reason to know of the occurrence of a Reportable
Event with respect to a Plan with regard to which notice must be provided to the
PBGC, a copy of such materials required to be filed with the PBGC with respect
to such Reportable Event and in each such case a statement of the chief
financial officer of the Borrower setting forth details as to such Reportable
Event and the action which the Borrower proposes to take with respect thereto,
if relevant;
(2) Promptly and in any event within 30 days after the Borrower
or a Guarantor knows or has reason to know of any condition existing with
respect to a Plan which presents a material risk of termination of the Plan,
imposition of an excise tax, requirement to provide security to the Plan or
incurrence of other liability not contemplated by a Plan by the Borrower or any
ERISA Affiliate, a statement of the chief financial officer of the Borrower
describing such condition;
(3) At least ten days prior to the filing by any plan
administrator of a Plan with an Accumulated Funding Deficiency of a notice of
intent to terminate such Plan, a copy of such notice;
(4) Promptly and in no event more than ten days after the filing
thereof with the Secretary of the Treasury, a copy of any application by the
Borrower or an ERISA Affiliate for a waiver of the minimum funding standard
under section 412 of the Code;
(5) Promptly and in any event within 30 days after it knows or
has reason to know of any event or condition which might constitute grounds
under section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, a statement of the chief financial officer of
the Borrower describing such event or condition;
(6) Promptly and in no event more than ten days after receipt
thereof by the Borrower or any ERISA Affiliate, a copy of each notice received
by the Borrower or an ERISA Affiliate concerning the imposition of any
withdrawal liability under section 4202 of ERISA; and
(7) Promptly after receipt thereof a copy of any notice the
Borrower or any ERISA Affiliate may receive from the PBGC or the Internal
Revenue Service with respect to any Plan or Multiemployer Plan; provided,
however, that this SUBPARAGRAPH (7) shall not apply to notices of general
application promulgated by the PBGC or the Internal Revenue Service.
-33-
Page 56 of 133
<PAGE>
7. NEGATIVE COVENANTS. The Borrower hereby agrees that, as long as any
Obligations remain unpaid or any Lender has any obligation to make Loans
hereunder or the L/C Bank has any obligation to issue Letters of Credit
hereunder, the Borrower shall not, directly or indirectly and will not permit
any of the Guarantors to:
7(a) LIENS. Create, incur, assume or suffer to exist, any Lien upon
any of its property or assets except:
(1) Liens or charges for current taxes, assessments or other
governmental charges which are not delinquent or which remain payable without
penalty, or the validity of which are contested in good faith by appropriate
proceedings upon stay of execution of the enforcement thereof, provided the
Borrower or relevant Guarantor shall have set aside on its books and shall
maintain adequate reserves for the payment of same in conformity with GAAP;
(2) Liens, deposits or pledges made to secure statutory
obligations, surety or appeal bonds, or bonds for the release of attachments or
for stay of execution, or to secure the performance of bids, tenders, contracts
(other than for the payment of borrowed money), leases or for purposes of like
general nature in the ordinary course of the Borrower's or relevant Guarantor's
business;
(3) Liens in favor of the Lenders and the Agent;
(4) Liens in existence on the date hereof as set forth on
EXHIBIT E; and
(5) purchase money Liens on assets securing Indebtedness incurred
in purchasing or leasing such assets.
7(b) FUNDED DEBT. Create, incur, assume or suffer to exist, or
otherwise become or be liable in respect of any Funded Debt except:
(1) The Obligations;
(2) Indebtedness on endorsements of instruments for collection in
the ordinary course of business;
(3) Funded Debt reflected in the financial statements referred to
in PARAGRAPH 5(A) above;
(4) Funded Debt of NQA USA;
-34-
Page 57 of 133
<PAGE>
(5) Funded Debt of the Borrower and of the Guarantors payable
to the Borrower or any Guarantor; and
(6) Other Funded Debt of the Borrower and the Guarantors in an
aggregate amount outstanding not to exceed $250,000, excluding Funded Debt
secured by purchase money Liens described in PARAGRAPH 7(A)(5) above.
7(c) CONSOLIDATION AND MERGER. Without the prior consent of the
Lenders, liquidate or dissolve or enter into any consolidation, merger,
partnership, joint venture, syndicate, dissolution or other combination except
that so long as no Event of Default or Potential Default occurs as a result
thereof (i) Subsidiaries of the Borrower may consolidate or merge with each
other; (ii) the Parent may merge into the Borrower; (iii) the Borrower and the
Guarantors may merge or consolidate with each other so long as the Borrower is
the surviving entity or the surviving entity assumes the obligation of the
Borrower under this Agreement; and (iv) so long as NTS Products and/or PECS (QA)
North America, Inc. is dormant and owns no assets, such Person may be dissolved.
7(d) ACQUISITIONS; INVESTMENTS; ADVANCES. Without the prior consent of
the Lenders, purchase or acquire or incur liability for the purchase or
acquisition of any or all of the assets or business of any Person, other than
purchases, acquisitions, and incurrences of liability not in the nature of a
business acquisition and made in the ordinary course of business as conducted on
the date of this Agreement; or, make or commit to make any advance, loan or
extension of credit or capital contributions to, or purchase any stock, bonds,
notes, debentures, or other securities of, forgive any Indebtedness of, or make
any other investment in, any Person other than:
(1) Investments reflected in the financial statements referred to
in PARAGRAPH 5(A) above;
(2) Investments in marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one (1) year of the acquisition thereof;
(3) Investments in marketable direct obligations issued by any
state of the United States of America or any political subdivision thereof, in
each case maturing within one (1) year of the acquisition thereof and having the
highest rating obtainable from either Standards & Poor's Corporation or Moody's
Investors Service, Inc.;
-35-
Page 58 of 133
<PAGE>
(4) Investments in certificates of deposit or bankers'
acceptances maturing within one (1) year from the date of acquisition issued by
commercial banks organized under the laws of the United States of America or any
state thereof or the District of Columbia, each having combined capital and
surplus of not less than Two Hundred Fifty Million Dollars ($250,000,000.00);
(5) Acquisitions by the Borrower and the Guarantors in an
aggregate amount not to exceed $500,000 in any fiscal year; and
(6) Investments in the Borrower and Guarantors.
For purposes of this definition, "Investment" shall mean any direct or indirect
purchase or other acquisition by that Person of, or a beneficial interest in,
stock, or other securities of any other Person, or any direct or indirect loan,
advance (other than advances to employees for moving and travel expenses,
drawing accounts and similar expenditures in the ordinary course of business) or
capital contribution by that Person to any other Person, including all
indebtedness and accounts receivable from that other Person which are not
current assets or did not arise from sales to that other Person in the ordinary
course of business. The amount of any Investment shall be the original cost of
such Investment plus the cost of all additions thereto, without any adjustments
for increases or decreases in value, or write-ups, write-downs or write-offs
with respect to such Investment.
7(e) PAYMENT OF DIVIDENDS. Except to the Borrower, declare or pay any
dividends upon its shares of stock now or hereafter outstanding or make any
distribution of assets to its stockholders as such, whether in cash, property or
securities, except (i) dividends by the Borrower to the Parent (ii) dividends by
the Parent to its shareholders in an aggregate amount in any fiscal year not to
exceed 40% of the consolidated net income of the Parent in the immediately
preceding fiscal year, (iii) dividends payable in shares of capital stock, and
(iv) cash in lieu of fractional shares or in options, warrants or other rights
to purchase shares of capital stock.
7(f) PURCHASE OR RETIREMENT OF STOCK. Acquire, purchase, redeem or
retire any shares of its capital stock now or hereafter outstanding.
7(g) SALE OF ASSETS. In any fiscal year, sell, lease, assign, transfer
or otherwise dispose of any of its assets (other than (i) inventory held for
sale, (ii) assets of the Borrower and the Guarantors disposed of in the ordinary
course of business as presently conducted for an aggregate sales price not in
excess of $100,000, and (iii) real property held for sale as of the date of this
-36-
Page 59 of 133
<PAGE>
Agreement in Vista, California), whether now owned or hereafter acquired and not
enter into any sale and leaseback agreement relating to its assets without the
prior written consent of the Majority Lenders.
7(h) CONDUCT OF BUSINESS, ETC.
(1) Engage in any business activities substantially different
from the Borrower's as conducted on the date of this Agreement; or
(2) Enter into or agree to enter into any leveraged lease or
similar transaction pursuant to which it extends financing accommodations to any
other Person; or
(3) Change the accounting policies or principles on which its
financial statements are prepared or presented.
7(i) ERISA.
(1) Terminate or withdraw from any Plan so as to result in any
material liability to the PBGC;
(2) Engage in or permit any person to engage in any Prohibited
Transaction involving any Plan which would subject the Borrower to any material
tax, penalty or other liability;
(3) Incur or suffer to exist any material Accumulated Funding
Deficiency, whether or not waived, involving any Plan;
(4) Allow or suffer to exist any event or condition which
presents a risk of incurring a material liability to the PBGC;
(5) Amend any Plan so as to require the posting of security under
section 401(a)(29) of the Code; or
(6) Fail to make payments required under section 412(m) of the
Code and section 302(e) of ERISA which would subject the Borrower to any
material tax, penalty or other liability.
7(j) FINANCIAL COVENANTS. For the Parent and its Consolidated
Subsidiaries calculated on a consolidated basis in accordance with GAAP:
(1) permit its Tangible Net Worth at any one time to be less than
the sum of (A) $15,750,000 plus (B) as at the end of each fiscal quarter, 60% of
-37-
Page 60 of 133
<PAGE>
net income after taxes and dividends for the fiscal quarter just ended (but, in
each case, only if a positive number). Additions to Tangible Net Worth shall be
made as at the end of each fiscal quarter commencing February 1, 1997 and shall
be cumulative for each successive quarter;
(2) at any one time, permit the ratio of (i) all liabilities
which in accordance with GAAP and industry practices are shown on the liability
side of a balance sheet to (ii) Tangible Net Worth at any one time to be greater
than 1.50 to 1.00;
(3) make capital expenditures in aggregate in excess of (i)
$4,000,000 in the fiscal year ending January 31, 1998 or (ii) $2,500,000 in any
fiscal year thereafter;
(4) permit at any time the Quick Ratio to be less than .90 to
1.00; or
(5) as at the end of any fiscal quarter, permit the Debt Coverage
Ratio for the preceding four fiscal quarters, to be less than 1.30 to 1.00.
8. EVENTS OF DEFAULT. Upon the occurrence of any of the following events
(an "EVENT OF DEFAULT"):
8(a) The Borrower shall fail to pay with ten days of the date when due
any principal on the Loans, any interest, or other Obligation under the Loan
Documents; or
8(b) Any representation or warranty made by the Borrower or any
Guarantor in any Loan Documents or in connection with any Loan Documents shall
be materially inaccurate or incomplete in any respect on or as of the date made;
or
8(c) The Borrower shall default in any material respect in the
observance or performance of any covenant or agreement contained in PARAGRAPH 7
above; or
8(d) The Borrower or any Guarantor shall fail to observe or perform in
any material respect any other term or provision contained in the Loan Documents
and such failure shall continue for 30 days; or
8(e) The Borrower or any Guarantor shall default in any payment of
principal of or interest on any Funded Debt (other than the Obligations) in an
aggregate amount in excess of $250,000 or any other event shall occur the effect
-38-
Page 61 of 133
<PAGE>
of such is to permit such Indebtedness to be declared or otherwise to become due
prior to its stated maturity; or
8(f) (1) The Borrower or any Guarantor shall commence any case,
proceeding or other action (i) 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
(ii) 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 Guarantor shall make a general assignment for the benefit of its
creditors; or (2) there shall be commenced against the Borrower or any Guarantor
any case, proceeding or other action of a nature referred to in clause (1) above
which (i) results in the entry of an order for relief or any such adjudication
or appointment, or (ii) remains undismissed, undischarged or unbonded for a
period of 60 days; or (3) there shall be commenced against the Borrower or any
Guarantor any case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or substantially
all of its assets which results in the entry of an order for any such relief
which shall not have been vacated, discharged, stayed, satisfied or bonded or
appealed against pending appeal within 60 days from the entry thereof; or (4)
the Borrower or any Guarantor shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in (other than in
connection with a final settlement), any of the acts set forth in clause (1),
(2) or (3) above; or (5) the Borrower or any Guarantor shall generally not, or
shall be unable to, or shall admit in writing its inability to pay its debts as
they become due; or
8(g) (1) Any Reportable Event or a Prohibited Transaction shall occur
with respect to any Plan which would result in any material liability to the
Borrower; or (2) a notice of intent to terminate a Plan with an Accumulated
Funding Deficiency under section 4041 of ERISA shall be filed; or (3) a notice
shall be received by the plan administrator of a Plan that the PBGC has
instituted proceedings to terminate a Plan or appoint a trustee to administer a
Plan; or (4) any other event or condition shall exist which might, in the
reasonable opinion of the Lenders, constitute grounds under section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Plan; or (5) the Borrower or any ERISA Affiliate shall withdraw from a
Multiemployer Plan under circumstances which the Lenders reasonably determine
could have a material adverse effect on the financial condition of the Borrower;
or
8(h) One or more judgments or decrees for an aggregate amount in
excess of $250,000 shall be entered against the Borrower and the Guarantors and
-39-
Page 62 of 133
<PAGE>
all such judgments or decrees shall not have been vacated, discharged, stayed,
satisfied or bonded pending appeal within 60 days from the entry thereof or in
any event later than five days prior to the date of any proposed sale
thereunder; or
8(i) Any material adverse change shall occur in the business,
properties, or financial condition of the Parent and its Subsidiaries, taken as
a whole; or
8(j) The Agent or Lenders shall fail to have an enforceable first
priority Lien (subject only to such prior Liens as the Lenders shall have
consented to in writing) on the Collateral; or
8(k) Any financial or other information delivered by Borrower to the
Agent or Lenders proves to be false or misleading in any material respect; or
8(l) (i) The Parent shall fail to hold all of the shares of the
Borrower's stock or (ii) individuals who constitute the Parent's board of
directors as of the date of this Agreement (together with any new director whose
election by the Parent's board of directors or whose nomination for election by
the Parent's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors as of such date or
whose election or nomination for election was previously so approved) cease for
any reason (other than death or disability) to constitute a majority of the
Parent's board of directors then in office or (iii) the acquisition after the
date of this Agreement by any person (as such term is used in section 13(d) and
section 14(d)(2) of the Securities and Exchange Act of 1934 as in effect on the
date of this Agreement) or related persons constituting a group (as such term is
used in Rule 13d-5 under such Securities and Exchange Act as in effect after the
date of this Agreement) of (y) the power to elect, appoint or cause the election
or appointment of at least a majority of the members of the board of directors
of the Parent, through beneficial ownership of the capital stock of the Parent
or otherwise, or (z) all or substantially all of the properties and assets of
the Parent; or
8(m) No later than March 8, 1998, PECS (QA) North America, Inc. shall
fail to either (1) be dissolved or (2) execute and deliver to the Lenders a
Guaranty, a Security Agreement, and related financing statements as requested by
the Lenders together with certified copies of resolutions of its Board of
Directors approving the execution and delivery of such Loan Documents, a
certificate of its Secretary or an Assistant Secretary certifying the names and
true signatures of the officers authorized to sign such Loan Documents, a copy
of its certificate of incorporation certified by the Secretary of the State of
its incorporation as of a recent date, a copy of its Bylaws certified by its
Secretary or an Assistant Secretary, and a certificate of good standing from the
-40-
Page 63 of 133
<PAGE>
Secretary of the State of its incorporation and each jurisdiction where it is
qualified to do business as of a recent date.
THEN:
(1) Automatically upon the occurrence of an Event of Default under
PARAGRAPH 8(F) above;
(2) At the option of any Lender upon the occurrence of an Event of
Default under PARAGRAPH 8(A) above; and
(3) In all other cases, at the option of the Majority Lenders;
each Lender's and the L/C Bank's obligation, or in the case of subparagraph (2)
above such Lender's or the L/C Bank's obligation, to make Loans or to issue
Letters of Credit shall terminate and the principal balance of outstanding Loans
and interest accrued but unpaid thereon and the aggregate contingent obligation
of the Borrower to reimburse the Lenders, or in the case of subparagraph (2)
above such Lender, for future L/C Drawings with respect to Outstanding Letters
of Credit shall become immediately due and payable, without demand upon or
presentment to the Borrower, which are expressly waived by the Borrower, and the
Agent and Lenders, or in the case of subparagraph (2) above such Lender, may
immediately exercise all rights, powers and remedies available to them, or it,
at law, in equity or otherwise. Any amounts paid by the Borrower to the Lenders
hereunder on account of Outstanding Letters of Credit shall be held by the
Lenders as cash Collateral for the obligations of the Borrower with respect to
L/C Drawings relating thereto, and the Borrower hereby grants to the Lenders a
first perfected security interest in said cash and authorizes the Lenders to
apply such cash on account of future L/C Drawings as such L/C Drawings become
payable by the Borrower.
9. THE AGENT.
9(a) APPOINTMENT. Each Lender hereby irrevocably designates and
appoints the Agent as the agent of such Lender under the Loan Documents and each
such Lender hereby irrevocably authorizes the Agent, as the agent for such
Lender, to take such action on its behalf under the provisions of the Loan
Documents and to exercise such powers and perform such duties as are expressly
delegated to the Agent by the terms of the Loan Documents, together with such
other powers as are reasonably incidental thereto. Notwithstanding any provision
to the contrary elsewhere in the Loan Documents, the Agent shall not have any
duties or responsibilities, except those expressly set forth herein or therein,
or any fiduciary relationship with any Lender, and no implied covenants,
-41-
Page 64 of 133
<PAGE>
functions, responsibilities, duties, obligations or liabilities shall be read
into the Loan Documents or otherwise exist against the Agent.
9(b) DELEGATION OF DUTIES. The Agent may execute any of its duties
under the Loan Documents by or through agents 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
agents or attorneys-in-fact selected by it with reasonable care.
9(c) EXCULPATORY PROVISIONS. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be
(1) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with the Loan Documents (except for its or such
Person's own gross negligence or willful misconduct), or (2) responsible in any
manner to any of the Lenders for any recitals, statements, representations or
warranties made by the Borrower or any officer thereof contained in the Loan
Documents 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 the
Loan Documents or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of the Loan Documents or for any failure of the
Borrower to perform its obligations hereunder. The Agent shall not 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, the Loan
Documents or to inspect the properties, books or records of the Borrower.
9(d) RELIANCE BY AGENT. The Agent shall be entitled to rely, and shall
be fully protected in relying, upon any note, writing, resolution, notice,
consent, certification, affidavit, letter, cablegram, telegram, telecopy, telex
or teletype message, statement, order or other document or conversation
reasonably 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, without limitation, counsel to the Borrower),
independent accountants and other experts selected by the Agent. The Agent may
deem and treat the payee of any note as the owner thereof for all purposes. As
to the Lenders: (1) the Agent shall be fully justified in failing or refusing to
take any action under the Loan Documents unless it shall first receive such
advice or concurrence of the Majority Lenders or all of the Lenders, as
appropriate, or it shall first be indemnified to its satisfaction by the Lenders
ratably in accordance with their respective Percentage Shares against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any action (except for liabilities and expenses resulting
from the Agent's gross negligence or willful misconduct), and (2) the Agent
shall in all cases be fully protected in acting, or in refraining from acting,
-42-
Page 65 of 133
<PAGE>
under the Loan Documents in accordance with a request of the Majority Lenders or
all of the Lenders, as appropriate, and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Lenders.
9(e) NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Potential Default or Event of
Default hereunder unless the Agent has received notice from a Lender or the
Borrower referring to the Loan Documents, describing such Potential Default or
Event of Default and stating that such notice is a "notice of default." In the
event that the Agent receives such a notice, the Agent shall give notice thereof
to the Lenders. The Agent shall take such action with respect to such Potential
Default or Event of Default as shall be reasonably directed by the Majority
Lenders; provided that, unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Potential Default or Event
of Default as it shall deem advisable in the best interest of the Lenders.
9(f) NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender expressly
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any representations
or warranties to it and that no act by the Agent hereinafter taken, including
any review of the affairs of the Borrower, shall be deemed to constitute any
representation or warranty by the Agent to any Lender. Each Lender represents to
the Agent that it has, independently and without reliance upon the Agent or any
other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Borrower and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Lender also represents that it will, independently and
without reliance upon the Agent 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 analysis, appraisals and decisions in taking or not taking action
under this Agreement, and to make such investigation as it deems necessary to
inform itself as to the business, operations, property, financial and other
condition and creditworthiness of the Borrower. Except for notices, reports and
other documents expressly required to be furnished to the Lenders by the Agent
hereunder, the Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business, operations,
property, financial and other condition or creditworthiness of the Borrower
which may come into the possession of the Agent or any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates.
-43-
Page 66 of 133
<PAGE>
9(g) INDEMNIFICATION. The Lenders agree to indemnify the Agent in its
capacity as such (to the extent not reimbursed by the Borrower and without
limiting the obligation of the Borrower to do so), ratably according to the
respective amounts of their Percentage Shares, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time
(including without limitation at any time following the payment of the
Obligations) be imposed on, incurred by or asserted against the Agent in any way
relating to or arising out of the Loan Documents or any documents contemplated
by or referred to herein or the transactions contemplated hereby or any action
taken or omitted by the Agent under or in connection with any of the foregoing;
provided that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the Agent's gross negligence or
willful misconduct. The agreements in this subsection shall survive the payment
of the Obligations.
9(h) AGENT IN ITS INDIVIDUAL CAPACITY. The Agent and its Affiliates
may make Revolving Loans to, accept deposits from and generally engage in any
kind of business with the Borrower as though the Agent were not the Agent
hereunder. With respect to such Revolving Loans made or renewed by them and any
Note issued to them, the Agent shall have the same rights and powers under the
Loan Documents as any Lender and may exercise the same as though it were not the
Agent, and the terms "Lender" and "Lenders" shall include the Agent in its
individual capacity.
9(i) SUCCESSOR AGENT. The Agent may resign as Agent under the Loan
Documents upon 60 days' notice to the Lenders and the Borrower. If the Agent
shall resign, then the Majority Lenders shall appoint from among the Lenders a
successor agent or, if the Majority Lenders are unable to agree on the
appointment of a successor agent, the Agent shall appoint a successor agent for
the Lenders (which successor agent shall, in either case and assuming that there
does not exist a Potential Default or Event of Default, be reasonably acceptable
to the Borrower), whereupon such successor agent shall succeed to the rights,
powers and duties of the Agent, and the term "Agent" shall mean such successor
agent effective upon its appointment, and the former Agent's rights, powers and
duties as Agent shall be terminated, without any other or further act or deed on
the part of such former Agent or any of the parties to this Agreement or any of
the Loan Documents or successors thereto. After any retiring Agent's resignation
hereunder as Agent, the provisions of this PARAGRAPH 9 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under the Loan Documents.
-44-
Page 67 of 133
<PAGE>
10. MISCELLANEOUS PROVISIONS.
10(a) NO ASSIGNMENT. The Borrower may not assign its rights or
obligations under this Agreement without the prior written consent of one
hundred percent (100%) of the Agent and the Lenders. Subject to the foregoing,
all provisions contained in this Agreement or any document or agreement referred
to herein or relating hereto shall inure to the benefit of each Lender, its
successors and assigns, and shall be binding upon the Borrower, its successors
and assigns.
10(b) AMEND; NO WAIVER. This Agreement may not be amended or terms or
provisions hereof waived unless such amendment or waiver is in writing and
signed by the Majority Lenders, the Agent and the Borrower; provided, however,
that without the prior written consent of one hundred percent (100%) of the
Agent and the Lenders and (other than with respect to CLAUSE (3) below) the
Borrower, no amendment or waiver shall: (1) reduce the principal of, or rate of
interest or fees on, the Loans, or change the scheduled date for payment of
principal, interest or fees due on the Loans, (2) modify the Revolving Credit
Limit or the Term Credit Limit, (3) except pursuant to PARAGRAPH 10(I) below,
modify any Lender's Percentage Share thereof, (4) modify the definition of
"Majority Lenders", (5) extend the Revolving Loan Maturity Date or the Term Loan
Maturity Date, (6) release any Collateral, other than an immaterial portion
thereof, (7) amend this PARAGRAPH 10(B), (8) waive any Event of Default
occurring under PARAGRAPH 8(J) above or any other Event of Default occurring as
a result of a breach by the Borrower of its agreements under PARAGRAPHS 4(B) and
6(E)(2) above, or (9) amend any defined terms used in PARAGRAPHS 4(B), 6(E)(2)
or 8(J). It is expressly agreed and understood that the failure by the Majority
Lenders to elect to accelerate amounts outstanding hereunder and/or to terminate
the obligation of the Lenders to make Revolving Loans hereunder shall not
constitute an amendment or waiver of any term or provision of this Agreement. No
delay or failure by the Agent or any Lender to exercise any right, power or
remedy shall constitute a waiver thereof by the Agent or such Lender, and no
single or partial exercise by the Agent or any Lender of any right, power or
remedy shall preclude other or further exercise thereof or any exercise of any
other rights, powers or remedies.
10(c) CUMULATIVE RIGHTS. The rights, powers and remedies of the Agent
and the Lenders hereunder are cumulative and in addition to all rights, power
and remedies provided under any and all agreements between the Borrower, the
Agent and any of the Lenders relating hereto, at law, in equity or otherwise.
10(d) ENTIRE AGREEMENT. This Agreement and the documents and
agreements referred to herein embody the entire agreement and understanding
between the parties hereto and supersede all prior agreements and understandings
relating to the subject matter hereof and thereof.
-45-
Page 68 of 133
<PAGE>
10(e) U.S. WITHHOLDING TAX.
(1) If any Lender is a "foreign corporation, partnership or
trust" within the meaning of the Code when used herein (as defined in Subsection
9.06(b) hereof), and the Lender claims exemption from U.S. withholding tax under
Section 1441 or 1442 of the Code, such Lender shall deliver to the Agent: (i) if
such Lender claims an exemption from, or a reduction of, withholding tax under a
United States tax treaty, a properly completed Internal Revenue Service ("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 4114 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 Code or other laws of the
United States as a condition to exemption from or reduction of, United States
withholding tax. Such Lender agrees to promptly notify the Agent of any change
in circumstances which would modify or render invalid claimed exemption or
reduction. In addition, in the event a 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 or grants a "participation" of part or
all of the obligations of the Borrower to such Lender under this Agreement, such
Lender agrees to notify the Agent of the percentage amount in which it is no
longer beneficial owner of obligations of the Borrower to such Lender acquired
under this Agreement. To the extent of this percentage amount, the Agent will
treat Lender's IRS form 1001 as no longer valid. In the event a Lender claiming
exemption from United States withholding tax by filing IRS form 4224 with the
Agent sells, assigns or grants a "participation" in the obligations of the
Borrower, as the case may be, 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 Code.
(2) Where 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 subparagraph (1)
are not delivered to the Agent, then the Agent may withhold from any interest
payment to the Lender not providing such forms or other documentation, an amount
equivalent to the applicable withholding tax.
-46-
Page 69 of 133
<PAGE>
(3) If the IRS or any authority of the United States of America
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 subparagraph (3), together with all costs,
expenses, and attorneys' fees (including allocated costs for in-house legal
service).
10(f) SURVIVAL. All representations, warranties, covenants and
agreements herein contained on the part of the Borrower shall survive the
termination of this Agreement and shall be effective until the Obligations are
paid and performed in full or longer as expressly provided herein.
10(g) NOTICES. All notices, consents, requests and demands to or upon
the respective parties hereto shall be:
(1) in writing and delivered in person or transmitted by
overnight courier, telex, telecopy, facsimile, or certified or registered U.S.
mail, postage prepaid, return receipt requested;
(2) shall be deemed to have been given or made (i) if delivered
in person on a Business Day during normal business hours of the recipient, then
on the date of receipt and, otherwise, on the next succeeding Business Day; (ii)
if delivered by overnight courier service, on the Business Day next succeeding
the day of sending; (iii) if delivered by telex, telecopy, or facsimile, during
normal business hours of the recipient, then on the date sent and, otherwise, on
the next succeeding Business Day; and (iv) if delivered by U.S. mail, on the
third business day after deposit in a regular depository of the United States
mail; and
(3) addressed as set forth on the signature pages hereof, or such
other address as either party may designate by notice to the other in accordance
with the terms of this PARAGRAPH 10(G).
10(h) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, without giving effect to
choice of law rules.
-47-
Page 70 of 133
<PAGE>
10(i) ASSIGNMENT AND PARTICIPATION. (1) This Agreement shall inure to
the benefit of each party hereto and those persons who shall henceforth fall
within the definition of the term "Lenders" or "L/C Bank." The Borrower may not
assign or transfer any of its rights, benefits or obligations under this
Agreement unless the prior written consent of all the L/C Bank and the Lenders
is obtained thereto. With the prior written consent of the Agent and the
Borrower (neither of which shall be unreasonably withheld), any other Lender may
make assignments of its Percentage Share of the Revolving Credit Limit and
Revolving Loans and/or Term Loans in integral multiples of $2,500,000, provided
that Sanwa Bank California shall not make any assignment if the effect thereof
would be to reduce to less than $5,000,000 the sum of its Percentage Share of
the Revolving Credit Limit and Term Loans. In order to consummate an assignment
hereunder, a Lender and each proposed assignee shall execute and deliver to the
Agent an assignment agreement substantially in form of EXHIBIT F hereto.
(2) Each Lender (the "SELLING LENDER") may sell participations (a
"PARTICIPATION" or "PARTICIPATIONS") to one or more financial institutions
acceptable to the Borrower or to one or more Lenders, in all or a portion of its
benefits, rights and obligations under the Agreement in an aggregate amount not
to exceed one-half of its Percentage Share as in effect on the date hereof;
PROVIDED that (i) such Selling Lender's obligations hereunder shall remain
unchanged, (ii) such Selling Lender shall remain solely responsible to the other
parties to this Agreement for the performance of such obligations, (iii) such
Selling Lender may disclose to the purchasing lender information supplied by the
Borrowers to such Selling Lender concerning the Borrower subject to any
confidentiality agreement reasonably requested by the Borrower, (iv) the
Borrower, the Agent and the other Lenders shall continue to deal solely and
directly with the Selling Lender in connection with such Lender's benefits,
rights and obligations under this Agreement.
10(j) COUNTERPARTS. This Agreement and the other Loan Documents may be
executed in any number of counterparts, all of which together shall constitute
one agreement.
10(k) SHARING OF PAYMENTS. If any Lender shall receive and retain any
payment, whether by setoff, application of deposit balance or security, or
otherwise, in respect of the Obligations in excess of such Lender's Percentage
Share thereof, then such Lender shall purchase from the other Lenders for cash
and at face value and without recourse, such participation in the Obligations
held by them as shall be necessary to cause such excess payment to be shared
ratably as aforesaid with each of them; provided, that if such excess payment or
part thereof is thereafter recovered from such purchasing Lender, the related
purchases from the other Lenders shall be rescinded ratably and the purchase
-48-
Page 71 of 133
<PAGE>
price restored as to the portion of such excess payment so recovered, but
without interest. Each Lender is hereby authorized by the Borrower to exercise
any and all rights of setoff, counterclaim or bankers' lien against the full
amount of the Obligations, whether or not held by such Lender. Each Lender
hereby agrees to exercise any such rights first against the Obligations and only
then to any other Indebtedness of the Borrower to such Lender.
10(l) ACCOUNTING TERMS. All accounting terms not otherwise defined
herein are used with the meanings given such terms under GAAP.
10(m) DISPUTED CLAIMS ARBITRATION.
(1) This PARAGRAPH 10(M) concerns the resolution of any
controversies or claims between the Borrower and the Agent and/or any Lender
and/or the L/C Bank, including but not limited to those that arise from:
(i) This Agreement (including any renewals, extensions or
modifications of this Agreement or any other Loan Document);
(ii) Any document, agreement or procedure related to or
delivered in connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business
conducted between the Borrower, the Agent and/or any Lender and/or the L/C
Bank, including claims for injury to persons, property or business
interests (torts).
(2) At the request of the Borrower or the Agent and/or any Lender
and/or the L/C Bank, any such controversies or claims will be settled by
arbitration in accordance with the United States Arbitration Act. The United
States Arbitration Act will apply even though this Agreement provides that it is
governed by California law.
(3) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration.
(4) For purposes of the application of the statute of
limitations, a demand for arbitration with the offices of the American
Arbitration Association in Los Angeles pursuant to this paragraph is the
equivalent of the filing of a lawsuit, and any claim or controversy which may be
arbitrated under this paragraph is subject to any applicable statute of
limitations. The arbitrators will have the authority to decide whether any
-49-
Page 72 of 133
<PAGE>
such claim or controversy is barred by the statute of limitations and, if so, to
dismiss the arbitration on that basis.
(5) If there is a dispute as to whether an issue is arbitrable,
the arbitrators will have the authority to resolve any such dispute.
(6) The decision that results from an arbitration proceeding may
be submitted to any authorized court of law to be confirmed and enforced.
(7) This provision does not limit the right of the Borrower, the
Agent or any Lender or the L/C Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any Collateral; or
(iii) act in a court of law, before, during or after the
arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(8) The pursuit of or successful action for interim, additional
or supplementary remedies, or the filing of a court action, does not constitute
a waiver of the right of the Borrower, the Agent or any Lender or the L/C Bank,
including the suing party, to submit the controversy or claim to arbitration if
the other party contests the lawsuit.
10(n) SET OFF. The Lenders and the L/C Bank may exercise their right
of set-off against the Obligations to the same extent as if the Obligations were
unsecured.
-50-
Page 73 of 133
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
NTS TECHNICAL SYSTEMS,
a California corporation,
as the Borrower
By: /s/ Lloyd Blonder
------------------------------
Print Name: Lloyd Blonder
---------------------
Title: V.P.
---------------------------
Address: NTS Technical Systems
24007 Ventura Blvd.
Calabasas, CA 91302
Attn: Lloyd Blonder
SANWA BANK CALIFORNIA, as Agent and
as the L/C Bank
By: /s/ Michael Platt
------------------------------
Print Name: Michael Platt
----------------------
Title: Vice President
---------------------------
Address: Sanwa Bank California
Sherman Oaks Commercial Banking
Center
15165 Ventura Boulevard
Sherman Oaks, CA 91403
Attn: M.W. Platt
-51-
Page 74 of 133
<PAGE>
Percentage Share: SANWA BANK CALIFORNIA,
60% as a Lender
By: /s/ Michael Platt
------------------------------
Print Name: Michael Platt
----------------------
Title: Vice President
---------------------------
Address: Sanwa Bank California
Sherman Oaks Commercial Banking
Center
15165 Ventura Boulevard
Sherman Oaks, CA 91403
Attn: M.W. Platt
Percentage Share: MELLON BANK, N.A.
40% as a Lender
By: /s/ Kevin D. Kelly
------------------------------
Print Name: Kevin D. Kelly
----------------------
Title: Vice President
---------------------------
Address: Mellon Bank, N.A.
400 S. Hope Street
5th Floor
Los Angeles, CA 90071
Attn: Kevin D. Kelly
-52-
Page 75 of 133
<PAGE>
EXHIBITS AND SCHEDULES
EXHIBIT DOCUMENT
A-1 Form of Revolving Note
A-2 Form of Term Note
B-1 Form of Security Agreement - Borrower
B-2 Form of Security Agreement - Guarantor
C Litigation Disclosure
D Form of Guaranty
E Permitted Liens
F Form of Assignment Agreement
G Form of Compliance Certificate
H Form of Loan Request
I List of Subsidiaries
SCHEDULES
5(p) Material Environmental Claims, if any
5(r) Material Intellectual Property Litigation, if any
-53-
Page 76 of 133
<PAGE>
EXHIBIT A-1
TO CREDIT AGREEMENT
FORM OF
REVOLVING LOAN NOTE
$_____________ September 8, 1997
FOR VALUE RECEIVED, the undersigned NTS TECHNICAL SYSTEMS, a
California corporation ("Borrower"), hereby unconditionally promises to pay to
the order of __________________ ("Lender") the unpaid principal amount of each
Revolving Loan made by Lender under the Credit Agreement referred to below in
accordance with the provisions of such Credit Agreement, provided that on or
before the Revolving Loan Maturity Date, Borrower shall pay in full the unpaid
principal amount of all Revolving Loans made by Lender to Borrower under the
Credit Agreement referred to below.
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 that certain
Credit Agreement dated as of September 8, 1997 entered into among Borrower,
Sanwa Bank California, as Agent ("Agent"), Lender and the other lenders named
therein (as the same may be amended from time to time, the "Credit Agreement"),
and to pay all sums owed to Lender under the Credit Agreement. Any amounts not
paid when due under this Revolving Loan Note shall bear interest at the rate
specified in the Credit Agreement.
All payments of principal and interest shall be made to Agent for
the account of Lender in United States Dollars in immediately available funds at
________________________________.
The type, amounts and dates of all Revolving Loans and the amounts
and dates of all payments and prepayment hereon shall be endorsed by the holder
hereof on a schedule to be attached hereto; provided, however, that the failure
by the holder to make such endorsements shall in no way detract from Borrower's
obligations hereunder.
This Revolving Loan Note is one of the "Notes" referred to in the
Credit Agreement and is subject to the terms and conditions thereof. The Credit
Agreement provides, inter alia, for the prepayment in whole or in part hereof or
the acceleration of the maturity hereof upon the occurrence of certain events
stated therein and for the payment of attorneys' fees incurred to enforce
payment hereof. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned in the Credit Agreement.
The undersigned hereby waives notice of default, presentment, demand
for performance, notice of nonpayment, protest, notice of protest and all other
notices in connection with the delivery, acceptance, performance, default or
enforcement of this Revolving Loan Note.
1
Page 77 of 133
<PAGE>
This Revolving Loan Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of California.
NTS TECHNICAL SYSTEMS, a California
corporation
By:_______________________________
Print Name: ______________________
Title: ___________________________
2
Page 78 of 133
<PAGE>
EXHIBIT A-2
TO CREDIT AGREEMENT
FORM OF TERM NOTE
$______________ September 8, 1997
FOR VALUE RECEIVED, the undersigned NTS TECHNICAL SYSTEMS, a
California corporation ("Borrower"), hereby unconditionally promises to pay to
the order of ___________________ ("Lender") the unpaid principal amount of each
Term Loan made by Lender under the Credit Agreement referred to below in
accordance with the provisions of such Credit Agreement, provided that on or
before the Term Loan Maturity Date, Borrower shall pay in full the unpaid
principal amount of all Revolving Loans made by Lender to Borrower under the
Credit Agreement referred to below.
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 that certain
Credit Agreement dated as of September 8, 1997 entered into among Borrower,
Sanwa Bank California, as Agent ("Agent"), Lender and the other lenders named
therein (as the same may be amended from time to time, the "Credit Agreement"),
and to pay all sums owed to Lender under the Credit Agreement. Any amounts not
paid when due under this Term Loan Note shall bear interest at the rate
specified in the Credit Agreement.
All payments of principal and interest shall be made to Agent for
the account of Lender in United States Dollars in immediately available funds at
___________________________.
The type, amounts and dates of all Term Loans and the amounts and
dates of all payments and prepayment hereon shall be endorsed by the holder
hereof on a schedule to be attached hereto; provided, however, that the failure
by the holder to make such endorsements shall in no way detract from Borrower's
obligations hereunder.
This Term Loan Note is one of the "Notes" referred to in the Credit
Agreement and is subject to the terms and conditions thereof. The Credit
Agreement provides, inter alia, for the prepayment in whole or in part hereof or
the acceleration of the maturity hereof upon the occurrence of certain events
stated therein and for the payment of attorneys' fees incurred to enforce
payment hereof. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned in the Credit Agreement.
The undersigned hereby waives notice of default, presentment, demand
for performance, notice of nonpayment, protest, notice of protest and all other
notices in connection with the delivery, acceptance, performance, default or
enforcement of this Revolving Loan Note.
1
Page 79 of 133
<PAGE>
This Term Loan Note shall be governed by, and construed and enforced
in accordance with, the laws of the State of California.
NTS TECHNICAL SYSTEMS, a California
corporation
By: _______________________________
Print Name: _______________________
Title: ____________________________
2
Page 80 of 133
<PAGE>
EXHIBIT B-1
TO CREDIT AGREEMENT
FORM OF
SECURITY AGREEMENT
(Borrower)
THIS SECURITY AGREEMENT (the "Security Agreement") is made and dated
this 8th day of September 1997 by and between NTS TECHNICAL SYSTEMS, a
California corporation ("Debtor"), and SANWA BANK CALIFORNIA, a California bank
acting in its capacity as agent ("Agent") for the L/C Bank (as defined in the
Agreement described below) and the lenders ("Lenders") from time to time party
to the Agreement.
RECITALS
A. Pursuant to that certain Credit Agreement dated as of September
8, 1997 among Debtor, the L/C Bank, the Lenders and the Agent (as amended,
modified or waived from time to time, the "Agreement"), the Lenders and the L/C
Bank have agreed to extend credit to Debtor on the terms and subject to the
conditions set forth therein. All terms not otherwise defined herein are used
with the same meanings as set forth in the Agreement.
B. To induce the Lenders to extend such credit, Debtor has agreed to
pledge and to grant to the Agent for the benefit of the Agent, the L/C Bank and
the Lenders a security interest in and lien upon the Collateral (as described
below).
NOW, THEREFORE, in consideration of the above Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Debtor hereby agrees as follows:
AGREEMENT
1. Grant of Security Interest. Debtor hereby pledges and grants to the
Agent for the benefit of the Agent, the L/C Bank and the Lenders a pari passu
security interest in the property described in Paragraph 2 below (collectively
and severally, the "Collateral") to secure payment and performance of the
obligations described in Paragraph 3 below (collectively and severally, the
"Obligations").
1
Page 81 of 133
<PAGE>
2. Collateral. The Collateral shall consist of the following, whether now
owned or hereafter acquired:
(a) Accounts, Etc. All present and future accounts, and other rights
of Debtor to the payment of money no matter how evidenced, including, without
limitation, all government contracts, all chattel paper, instruments and other
writings evidencing any such right, and all goods repossessed or returned in
connection therewith;
(b) Inventory. All inventory of Debtor, now owned or hereafter
acquired, and all raw materials, work in process, materials used or consumed in
Debtor's business and finished goods, together with all additions and accessions
thereto and replacements therefor, and products thereof;
(c) Equipment. All equipment of Debtor, now owned or hereafter
acquired, including, without limitation, all machinery, tools, dies, blueprints,
catalogues, computer hardware and software, furniture, furnishings and fixtures;
(d) Documents and Instruments. All documents and instruments of
Debtor, now owned or hereafter acquired;
(e) General Intangibles, Etc. All now existing or hereafter acquired
general intangibles of every nature, all permits, regulatory approvals,
copyrights, patents, trademarks, service marks, trade names, mask works, good
will, licenses, and all other intellectual property owned by Debtor or used in
Debtor's business;
(f) Investment Property. All investment properties, including,
without limitation, certificated and uncertificated securities and securities
entitlements owned by the Debtor (except shares in Subsidiaries owned by
Debtor), and all new substituted and additional documents, instruments, and
general intangibles issued with respect thereto including, without limitation,
all voting and rights to and interest in all cash and noncash dividends and all
other property now or hereafter distributable on account of or receivable with
respect to any of the foregoing;
(g) Deposit Accounts. All deposit accounts, now existing or
hereafter arising, maintained in Debtor's name with any financial institution
and any and all deposits at any time held therein;
2
Page 82 of 133
<PAGE>
(h) Property in any Lender's Possession. All other property of
Debtor now or hereafter in the possession, custody or control of any Lender,
including, without limitation, all deposit accounts of Debtor with any Lender,
and all property of Debtor in which any Lender now has or hereafter acquires a
security interest;
(i) Partnership Interests. All partnership interests together with
all now existing or hereafter arising rights of Debtor to receive distributions
of payments from such partnership(s), whether in cash or in kind, and whether
such distributions or payments are on account of Debtor's interest as a partner,
creditor or otherwise;
(j) Other Goods. All of Debtor's other goods;
(k) Books and Records. All now existing and hereafter acquired books
and records relating to the foregoing Collateral and all equipment containing
such books and records (including, without limitation, computer data and storage
media); and
(l) Proceeds. All proceeds of the foregoing Collateral. For purposes
of this Security Agreement, the term "proceeds" includes whatever is receivable
or received when Collateral or proceeds is sold, collected, exchanged or
otherwise disposed of, whether such disposition is voluntary or involuntary, and
includes, without limitation, all rights to payment, including return premiums,
with respect to any insurance relating thereto.
3. Obligations. The Obligations secured by this Security Agreement shall
consist of any and all debts, obligations and liabilities of Debtor to the
Agent, the L/C Bank and the Lenders arising out of, connected with or related to
the Agreement and this Security Agreement. The Obligations secured by this
Security Agreement shall include, without limitation, all such debts,
obligations and liabilities, whether now existing or hereafter arising,
voluntary or involuntary, whether due or not due, whether or not jointly owed
with others, direct or indirect, absolute or contingent, liquidated or
unliquidated, or whether incurred directly or acquired by the Agent, the L/C
Bank and the Lenders by assignment or otherwise and whether or not from time to
time decreased or extinguished and later increased, created or incurred.
4. Representations and Warranties. In addition to any representations and
warranties of Debtor set forth in any other agreement with or for the benefit of
the Agent, the L/C Bank and the Lenders, which are incorporated herein by this
reference, Debtor hereby represents and warrants that:
3
Page 83 of 133
<PAGE>
(a) Ownership of Collateral. Debtor is the sole owner of and has
good and marketable title to the Collateral (or, in the case of after-acquired
Collateral, at the time the Debtor acquires rights in the Collateral, will be
the sole owner thereof);
(b) Priority. Except for security interests in favor of the Agent
for the benefit of the Agent, the L/C Bank and the Lenders and other Liens
permitted under the Credit Agreement, no Person has (or, in the case of
after-acquired Collateral, at the time Debtor acquires rights therein, will
have) any right, title, claim or interest (by way of security interest or other
Lien or charge) in, against or to the Collateral;
(c) Accuracy of Information. All information heretofore, herein or
hereafter supplied to the Agent, the L/C Bank or the Lenders by or on behalf of
Debtor with respect to the Collateral is true and correct. All of the matters
set forth on the Perfection Certificate attached hereto are true and correct in
all material respects as of the date of this Security Agreement, and the Debtor
will promptly notify the Agent of any change necessary to make such statements
true and correct at all times during the term of this Security Agreement.
(d) Delivery of Documents, Etc, Debtor has delivered to the Agent
for the benefit of the Agent, the L/C Bank and the Lenders all instruments,
documents, chattel paper and other items of Collateral in which a security
interest is or may be perfected by possession, the certificate of title with
respect to each motor vehicle, if any, included in the Collateral, together with
such additional writings, including, without limitation, assignments and stock
powers, with respect thereto as the Agent shall request;
(e) Exclusion of Certain Collateral. Unless otherwise agreed by the
Agent, the Collateral does not include any vehicles, Federally registered
patents, copyrights, Federally registered trademarks, tradenames or mask works,
aircraft, watercraft or vessels, railroad cars, railroad equipment, locomotives
or other rolling stock intended for a use related to interstate commerce. A
buyer of any Collateral from Debtor pursuant to a sale not prohibited by this
Security Agreement or the Agreement may take such Collateral free of the
security interest created by this Security Agreement without necessity of
further release by the Agent;
(f) Investment Properties. The Agent has and will at all times have
control over all investment properties.
5. Covenants and Agreements of Debtor. In addition to all covenants and
agreements of Debtor set forth in any other agreement with the Agent, the L/C
4
Page 84 of 133
<PAGE>
Bank and the Lenders, which are incorporated herein by this reference, Debtor
hereby agrees:
(a) Preservation of Collateral. To do all acts that may be
necessary to maintain, preserve and protect the Collateral;
(b) Use of Collateral. Not to use or permit any Collateral to be
used unlawfully or in violation of any provision of this Security Agreement, any
other agreement with the Agent, the L/C Bank or any Lender related hereto or any
applicable statute, regulation or ordinance or any policy of insurance covering
the Collateral;
(c) Defense of Litigation. To appear in and defend any action or
proceeding which may affect its title to or the Agent's interest in the
Collateral;
(d) Possession of Collateral. Not to surrender or lose possession of
(other than to the Agent), sell, encumber, lease, rent, or otherwise dispose of
or transfer any Collateral or right or interest therein except as hereinafter
provided, and to keep the Collateral free of all levies and security interests
or other liens or charges except those approved in writing by the Agent;
provided that, unless an Event of Default shall occur, Debtor may, in the
ordinary course of business, sell or lease any Collateral consisting of
inventory and license intellectual property;
(e) Compliance With Law. To comply with all laws, regulations and
ordinances relating to the possession, operation, maintenance and control of the
Collateral;
(f) Standard of Care by the Agent. That such care as the Agent gives
to the safekeeping of its own property of like kind shall constitute reasonable
care of the Collateral when in the Agent's possession;
(g) Delivery of After-Acquired Collateral. To account fully for and
promptly deliver to the Agent, in the form received, all documents, chattel
paper, instruments and agreements constituting Collateral hereunder and all
proceeds of the Collateral received, all endorsed to the Agent or in blank, as
requested by the Agent, and accompanied by such stock powers as appropriate and
until so delivered all such documents, instruments, agreements and proceeds
shall be held by Debtor in trust for the Agent, separate from all other property
of Debtor and identified as the property of the Agent;
5
Page 85 of 133
<PAGE>
(h) Maintenance of Records. To keep separate, accurate and complete
records of the Collateral and to provide the Agent with such records and such
other reports and information relating to the Collateral as the Agent may
reasonably request from time to time;
(i) Further Assurances. To procure, execute and deliver from time to
time any endorsements, notifications, registrations, assignments, financing
statements, certificates of title, ship mortgages, aircraft mortgages, copyright
mortgages, assignments or mortgages of patents, mortgages of mask works,
mortgages for filing pursuant to the Interstate Commerce Act, agreements for
control of investment properties, and other writings deemed necessary or
appropriate by the Agent to perfect, maintain and protect its security interest
in the Collateral hereunder and the priority thereof, and to take such other
actions as the Agent may request to protect the value of the Collateral and of
the Agent's security interest in the Collateral, including, without limitation,
provision of assurances from third parties regarding the Agent's access to,
right to foreclose on or sell, Collateral and right to realize the practical
benefits of such foreclosure or sale;
(j) Payment of the Agent's Costs and Expenses. To reimburse the
Agent upon demand for any costs and expenses, including, without limitation,
reasonable attorneys' fees, that the Agent may incur while exercising any right,
power or remedy provided by this Security Agreement or by law, all of which
costs and expenses are included in the Obligations secured hereby;
(k) Notification Regarding Certain Types of Collateral. To promptly
notify the Agent of its intent to include in the Collateral after the date
hereof of any investment properties, vehicles, Federally registered patents,
copyrights, Federally registered trademarks, tradenames or mask works, aircraft,
watercraft or vessels, railroad cars, railroad equipment, locomotives or other
rolling stock intended for a use related to interstate commerce;
(l) Location of Records. To keep the records concerning the
Collateral of the location(s) set forth in the penultimate paragraph of this
Security Agreement and not to remove such records from such location(s) without
the prior written consent of the Agent;
(m) Purchase Money Agreement. If the L/C Bank or the Lenders give
value to enable Debtor to acquire rights in or the use of any Collateral, to use
such value for such purpose;
6
Page 86 of 133
<PAGE>
(n) Care for Collateral by Debtor. To keep the Collateral in good
condition and repair and not to cause or permit any waste or unusual or
unreasonable depreciation of the Collateral;
(o) Inspection by the Agent or any Lender. At any time, with
reasonable advance notice, upon demand by the A6ent, the L/C Bank or any Lender,
to exhibit to and allow inspection by the Agent, the L/C Bank or such Lender
(or persons designated by the Agent, the L/C Bank or such Lender) of the
Collateral;
(p) Insurance. To insure the Collateral, with the Agent for the
benefit of the Lenders named as loss payee, in form and amounts, with companies,
and against risks and liabilities satisfactory to the Agent, and hereby assigns
the policies to the Agent, agrees to deliver them to the Agent at its request,
and agrees that the Agent may make any claim thereunder, cancel the insurance on
default by Debtor, collect and receive payment of and endorse any instrument in
payment of loss or return premium or other refund or return, and apply such
amounts received, at the Agent's election, to replacement of Collateral or to
the Obligations. Notwithstanding the foregoing, so long as no Potential Default
or Event of Default (as each such term is defined in the Agreement) shall have
occurred and be continuing, the Agent may not make any claim under, collect or
receive payment of or endorse any instrument in payment under any such insurance
except that the Agent may collect or receive payment under insurance that Debtor
does not reasonably expect to apply to replacement or repair of the Collateral
in respect of which paid within a reasonable period after receipt; and
(q) Amendment of Partnership Agreement. Not to amend or permit the
amendment of any partnership agreement which constitutes or evidences Collateral
and not to take any action, or permit any action to be taken which would
dissolve or terminate any such partnership.
6. Authorized Action by the Agent. After the occurrence of a Potential
Default or Event of Default, Debtor hereby agrees that from time to time,
without presentment, notice or demand, and without affecting or impairing in any
way the rights of the Agent with respect to the Collateral, the obligations of
the Debtor hereunder or the Obligations, the Agent may, but shall not be
obligated to and shall incur no liability to Debtor or any third party for
failure to take any act which Debtor is obligated by this Security Agreement to
do and to exercise such rights and powers as Debtor might exercise with respect
to the Collateral, and Debtor hereby irrevocably appoints the Agent as its
attorney-in-fact, so long as an Event of Default has occurred and is continuing,
to exercise such rights and powers, including without limitation: (i) collect by
legal proceedings or otherwise and endorse, receive and receipt for all
7
Page 87 of 133
<PAGE>
dividends, interest, payments, proceeds and other sums and property now or
hereafter payable on or on account of the Collateral; (ii) enter into any
extension, reorganization, deposit, merger, consolidation or other agreement
pertaining to, or deposit, surrender, accept, hold or apply other property in
exchange for the Collateral; (iii) insure, process and preserve the Collateral;
(iv) transfer the Collateral to its own or its nominee's name; (v) make any
compromise or settlement, and take any action it deems advisable, with respect
to the Collateral; and (vi) to notify any Account Debtor on any Collateral to
make payment directly to the Agent.
7. Default. A default under this Security Agreement shall be deemed to
exist when any Event of Default has occurred and is continuing.
8. Remedies. So long as any such Event of Default has occurred and is
continuing, the Agent may, at its option, and without notice to or demand on
Debtor and in addition to all rights and remedies available to the Agent under
any other agreement do any one or more of the following:
(a) General Enforcement. Foreclose or otherwise enforce the
Agent's security interest in any manner permitted by law, or provided for in
this Security Agreement;
(b) Sale, Etc, Sell, lease or otherwise dispose of any Collateral at
one or more public or private sales at the Agent's place of business or any
other place or places, including, without limitation, any broker's board or
securities exchange, whether or not such Collateral is present at the place of
sale, for cash or credit or future delivery, on such terms and in such manner as
the Agent may determine;
(c) Costs of Remedies. Recover from Debtor all costs and expenses,
including, without limitation, reasonable attorneys' fees, incurred or paid by
the Agent in exercising any right, power or remedy provided by this Security
Agreement or by law;
(d) Assembly of Collateral. Require Debtor to assemble the
Collateral and make it available to the Agent at a place to be designated by the
Agent;
(e) Take Possession of Collateral. Enter onto property where any
Collateral is located and take possession thereof with or without judicial
process;
(f) Preparation of Collateral for Sale. Prior to the disposition of
the Collateral, store, process, repair or recondition it or otherwise prepare it
8
Page 88 of 133
<PAGE>
for disposition in any manner and to the extent the Agent deems appropriate and
in connection with such preparation and disposition, without charge, use any
trademark, tradename, copyright, patent or technical process used by Debtor;
(g) Manner of Sale of Collateral. Debtor shall be given five (5)
business days' prior notice of the time and place of any public sale or of the
time after which any private sale or other intended disposition of Collateral is
to be made, which notice Debtor hereby agrees shall be deemed reasonable notice
thereof;
(h) Delivery to and Rights of Purchaser. Upon any sale or other
disposition pursuant to this Security Agreement, the Agent shall have the right
to deliver, assign and transfer to the purchaser thereof the Collateral or
portion thereof so sold or disposed of. Each purchaser at any such sale or other
disposition (including the Agent) shall hold the Collateral free from any claim
or right of whatever kind, including any equity or right of redemption of Debtor
and Debtor specifically waives (to the extent permitted by law) all rights of
redemption, stay or appraisal which it has or may have under any rule of law or
statute now existing or hereafter adopted;
(i) Allocation of Proceeds. The Agent on behalf of itself, the L/C
Bank and the Lenders agree that all proceeds of the Collateral shall be applied
as provided in Paragraph 3(h) of the Agreement.
9. Cumulative Rights. The rights, powers and remedies of the Agent under
this Security Agreement shall be in addition to all rights, powers and remedies
given to the Agent by virtue of any statute or rule of law, the Agreement or any
other agreement, all of which rights, powers and remedies shall be cumulative
and may be exercised successively or concurrently without impairing the Agent's
security interest in the Collateral.
10. Waiver. Any waiver, forbearance or failure or delay by the Agent in
exercising any right, power or remedy shall not preclude the further exercise
thereof, and every right, power or remedy of the Agent shall continue in full
force and effect until such right, power or remedy is specifically waived in a
writing executed by the Agent. Debtor waives any right to require the Agent to
proceed against any person or to exhaust any Collateral or to pursue any remedy
in the Agent's power.
11. Setoff. Debtor agrees that the Agent may exercise its rights of setoff
with respect to the Obligations in the same manner as if the Obligations were
unsecured.
9
Page 89 of 133
<PAGE>
12. Binding Upon Successors. All rights of the Agent under this Security
Agreement shall inure to the benefit of its successors and assigns, and all
obligations of Debtor shall bind its heirs, executors, administrators,
successors and assigns.
13. Entire Agreement; Severability. This Security Agreement contains the
entire security agreement between the Agent and Debtor. If any of the provisions
of this Security Agreement shall be held invalid or unenforceable, this Security
Agreement shall be construed as if not containing those provisions and the
rights and obligations of the parties hereto shall be construed and enforced
accordingly.
14. References. The singular includes the plural. If more than one
executes this Security Agreement, the term Debtor shall be deemed to refer to
each of the undersigned Debtors as well as to all of them, and their obligations
and agreements hereunder shall be joint and several. If any of the undersigned
is a married person, recourse may be had against his or her separate property
for the Obligations.
15. Choice of Law. This Security Agreement shall be construed in
accordance with and governed by the laws of the State of California, and, where
applicable and except as otherwise defined herein, terms used herein shall have
the meanings given them in the Uniform Commercial Code of such state.
16. Amendment. This Security Agreement may not be amended or modified
except by a writing signed by each of the parties hereto.
17. Addresses for Notices. All demands, notices and other communications
to Debtor or the Agent provided for hereunder shall be made or given as set
forth in the Agreement.
18. Disputed Claims Arbitration.
(1) This Section 18 concerns the resolution of any controversies or
claims between the Debtor and the Agent and/or any Lender and/or the L/C Bank,
including but not limited to those that arise from:
(i) This Security Agreement (including any renewals,
extensions or modifications of this Security Agreement or any other Loan
Document);
(ii) Any document, agreement or procedure related to or
delivered in connection with this Security Agreement;
10
Page 90 of 133
<PAGE>
(iii) Any violation of this Security Agreement; or
(iv) Any claims for damages resulting from any business
conducted between the Debtor, the Agent and/or any Lender and/or the L/C
Bank, including claims for injury to persons, property or business
interests (torts).
(2) At the request of the Debtor or the Agent and/or any Lender
and/or the L/C Bank, any such controversies or claims will be settled by
arbitration in accordance with the United States Arbitration Act. The United
States Arbitration Act will apply even though this Security Agreement provides
that it is governed by California law.
(3) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration.
(4) For purposes of the application of the statute of limitations, a
demand for arbitration with the offices of the American Arbitration Association
in Los Angeles pursuant to this section is the equivalent of the filing of a
lawsuit, and any claim or controversy which may be arbitrated under this
paragraph is subject to any applicable statute of limitations. The arbitrators
will have the authority to decide whether any such claim or controversy is
barred by the statute of limitations and, if so, to dismiss the arbitration on
that basis.
(5) If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
(6) The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed and enforced.
(7) This provision does not limit the right of the Borrower, the
Agent or any Lender or the L/C Bank to:
(i) exercise self-help remedies such as setoff,
(ii) foreclose against or sell any Collateral; or
(iii) act in a court of law, before, during or after the
arbitration proceeding to obtain:
11
Page 91 of 133
<PAGE>
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(8) The pursuit of or successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not constitute a
waiver of the right of the Debtor, the Agent or any Lender or the L/C Bank,
including the suing party, to submit the controversy or claim to arbitration if
the other party contests the lawsuit.
EXECUTED this 8th day of September 1997.
DEBTOR:
NTS TECHNICAL SYSTEMS, a California
corporation
By: _____________________________
Name: ___________________________
Title: __________________________
Address: NTS Technical Systems 24007
Ventura Blvd.
Calabasas, CA 91302
Attn: Lloyd Blonder
AGENT:
SANWA BANK CALIFORNIA,
a California Bank
By: ___________________________
Name: _________________________
Title: ________________________
Address: Sanwa Bank California Sherman Oaks
Commercial Banking Center
15165 Ventura Blvd.
Sherman Oaks, CA 91403
Attn: M.W. Platt
12
Page 92 of 133
<PAGE>
EXHIBIT A
TO BORROWER
SECURITY AGREEMENT
PERFECTION CERTIFICATE
The undersigned, a Responsible Officer of NTS TECHNICAL SYSTEMS,
a California corporation (the "Borrower"), hereby certifies with reference to
the Security Agreement dated as of September 8, 1997 between the Borrower and
SANWA BANK CALIFORNIA, as Agent (terms defined therein being used herein as
therein defined), to the Agent an each Lender as follows:
1. Names. (a) The exact corporate name of each Subsidiary as it
appears in its certificate of incorporation is as follows:
(b) Set forth below is each other corporate name that the
Borrower and each Subsidiary has had in the past five years, together with the
date of the relevant change:
(c) Except as set forth in Schedule 1, neither the
Borrower nor any Subsidiary has changed its identity or corporate structure in
any way within the past five years.
[Changes in identity or corporate structure would include
mergers, consolidations and acquisitions, as well as any change in the form,
nature or jurisdiction of corporate organization. If any such change has
occurred, include in Schedule I the information required by paragraphs 1, 2 and
3 of this certificate as to each acquiree or constituent party to a merger or
consolidation.]
(d) The following is a list of all other names (including
trade names or similar appellations) used by the Borrower and each Subsidiary at
any time during the past five years:
1
Page 93 of 133
<PAGE>
2. Current Locations. (a) The chief executive offices of the Borrower
and each Subsidiary are located at the following addresses:
Name Mailing Address State
- ---- --------------- -----
(b) The following are all the locations where the Borrower and
each Subsidiary maintain any books or records relating to any Accounts:
Name Mailing Address County State
- ---- --------------- ------ -----
(c) The following are all the places of business of the
Borrower and each Subsidiary not identified above.
Name Mailing Address County State
- ---- --------------- ------ -----
(d) The following are all the locations where the Borrower and
each Subsidiary maintain any Physical Property, Equipment or Inventory not
identified above (except locations of distributors, wholesalers, retailers and
exhibitors having possession of the same in the ordinary course of business):
Name Mailing Address County State
- ---- --------------- ------ -----
2
Page 94 of 133
<PAGE>
(e) The following are the names and addresses of all Persons
other than the Borrower and the Subsidiaries which have possession of any of
their Physical Property, Equipment or Inventory (except locations of
distributors, wholesalers, retailers and exhibitors having possession of the
same in the ordinary course of business):
Name Mailing Address County State
- ---- --------------- ------ -----
3. Prior Locations. (a) Set forth below is the information required by
subparagraphs (a), (b) and (c) of paragraph 2 with respect to each location or
place of business maintained by the Borrower or any Subsidiary at any time
during the past five years.
(b) Set forth below is the information required by
subparagraphs (d) and (e) of paragraph 2 with respect to each location or bailee
where or with whom physical Property, Equipment or Inventory has been lodged at
any time during the past four months:
4. File Search Reports. Attached hereto as Schedule 4(A) is a true copy
of a file search report from the Uniform Commercial Code filing officer in each
jurisdiction identified in paragraph 2 or 3 above with respect to each name set
forth in paragraph 1 above. Attached hereto as Schedule 4(B) is a true copy of
each financing statement or other filing identified in such file search reports.
IN WITNESS WHEREOF, we have hereunto set our hands this 8th day
of September 1997.
By: ____________________________
Name: __________________________
Title: _________________________
3
Page 95 of 133
<PAGE>
EXHIBIT B-2
TO CREDIT AGREEMENT
FORM OF
SECURITY AGREEMENT
(Guarantor)
THIS SECURITY AGREEMENT (the "Security Agreement") is made and dated
this 8th day of September 1997 by and among each of the undersigned Guarantors
of NTS Technical Systems, (each a "Guarantor" and collectively "Guarantors"),
and SANWA BANK CALIFORNIA, a California bank acting in its capacity as agent
("Agent") for the L/C Bank (as defined in the Agreement described below) and the
lenders ("Lenders") from time to time party to the Agreement.
RECITALS
A. Pursuant to that certain Credit Agreement dated as of September
8, 1997 among NTS Technical Systems, a California corporation ("Debtor"), the
L/C Bank, the Lenders and the Agent (as amended, modified or waived from time to
time, the "Agreement"), the L/C Bank, and the Lenders have agreed to extend
credit to Debtor on the terms and subject to the conditions set forth therein.
All terms not otherwise defined herein are used with the same meanings as set
forth in the Agreement.
B. To induce the L/C Bank and the Lenders to extend such credit to
Debtor, Guarantors have guaranteed the Obligations (as defined in the Agreement)
of the Debtor to the Agent, the L/C Bank and the Lenders pursuant to a
continuing Guaranty dated as of the date indicated below the Guarantors'
signatures below (each such continuing Guaranty being the relevant Guarantor's
"Guaranty") and agreed to pledge and to grant to the Agent for the benefit of
the L/C Bank and the Lenders a security interest in and lien upon the Collateral
(as described below).
NOW, THEREFORE, in consideration of the above Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Guarantors hereby agree as follows:
AGREEMENT
1. Grant of Security Interest. Each Guarantor hereby pledges and
grants to the Agent for the benefit of the Agent, the L/C Bank and the Lenders a
pari passu security interest in the property described in Paragraph 2 below
(collectively and severally, the "Collateral") to secure payment and performance
of such Guarantor's obligations described in Paragraph 3 below (such Guarantor's
"Obligations").
2. Collateral. The Collateral in which each Guarantor grants a
security interest shall consist of the following, whether now owned or hereafter
acquired:
1
Page 96 of 133
<PAGE>
(a) Accounts, Etc. All present and future accounts, and other
rights of such Guarantor to the payment of money no matter how evidenced,
including, without limitation, all government contracts, all chattel paper,
instruments and other writings evidencing any such right, and all goods
repossessed or returned in connection therewith;
(b) Inventory. All inventory of such Guarantor, now owned or
hereafter acquired, and all raw materials, work in process, materials used or
consumed in such Guarantor's business and finished goods, together with all
additions and accessions thereto and replacements therefor, and products
thereof;
(c) Equipment. All equipment of such Guarantor, now owned or
hereafter acquired, including, without limitation, all machinery, tools, dies,
blueprints, catalogues, computer hardware and software, furniture, furnishings
and fixtures;
(d) Documents and Instruments. All documents and instruments
of such Guarantor, now owned or hereafter acquired;
(e) General Intangibles, Etc, All now existing or hereafter
acquired general intangibles of every nature, all permits, regulatory approvals,
copyrights, patents, trademarks, service marks, trade names, mask works, good
will, licenses, and all other intellectual property owned by such Guarantor or
used in such Guarantor's business;
(f) Investment Property. All investment properties, including,
without limitation, certificated and uncertificated securities and securities
entitlements owned by such Guarantor (except shares in Subsidiaries of such
Guarantor), and all new substituted and additional documents, instruments, and
general intangibles issued with respect thereto including, without limitation,
all voting and rights to and interest in all cash and noncash dividends and all
other property now or hereafter distributable on account of or receivable with
respect to any of the foregoing;
(g) Deposit Accounts. All deposit accounts, now existing or
hereafter arising, maintained in such Guarantor's name with any financial
institution and any and all deposits at any time held therein;
(h) Property in any Lender's Possession. All other property of
such Guarantor now or hereafter in the possession, custody or control of any
Lender, including, without limitation, all deposit accounts of such Guarantor
with any Lender, and all property of such Guarantor in which any Lender now has
or hereafter acquires a security interest;
(i) Partnership Interests. All partnership interests together
with all now existing or hereafter arising rights of such Guarantor to receive
distributions of payments from such partnerships), whether in cash or in kind,
and whether such distributions or payments are on account of such Guarantor's
interest as a partner, creditor or otherwise;
2
Page 97 of 133
<PAGE>
(j) Other Goods. All of such Guarantor's other goods;
(k) Books and Records. All now existing and hereafter acquired
books and records relating to the foregoing Collateral and all equipment
containing such books and records (including, without limitation, computer data
and storage media); and
(1) Proceeds. All proceeds of the foregoing Collateral. For
purposes of this Security Agreement, the term "proceeds" includes whatever is
receivable or received when Collateral or proceeds is sold, collected, exchanged
or otherwise disposed of, whether such disposition is voluntary or involuntary,
and includes, without limitation, all rights to payment, including return
premiums, with respect to any insurance relating thereto.
3. Obligations. The Obligations of a Guarantor secured by this
Security Agreement shall consist of any and all debts, obligations and
liabilities of such Guarantor to the Agent, the L/C Bank and the Lenders under
such Guarantor's Guaranty.
4. Representations and Warranties. In addition to any
representations and warranties of each Guarantor set forth in any other
agreement with or for the benefit of the Agent, the L/C Bank and the Lenders,
which are incorporated herein by this reference, each Guarantor hereby
represents and warrants that:
(a) Ownership of Collateral. Guarantor is the sole owner of
and has good and marketable title to its respective portion of the Collateral
(or, in the case of after-acquired Collateral, at the time such Guarantor
acquires rights in the Collateral, will be the sole owner thereof);
(b) Priority. Except for security interests in favor of the
Agent for the benefit of the Agent, the L/C Bank and the Lenders and other Liens
permitted under the Credit Agreement, no Person has (or, in the case of
after-acquired Collateral, at the time Guarantor acquires rights therein, will
have) any right, title, claim or interest (by way of security interest or other
Lien or charge) in, against or to its Collateral;
(c) Accuracy of Information. All information heretofore,
herein or hereafter supplied to the Agent, the L/C Bank or the Lenders by or on
behalf of such Guarantor with respect to its Collateral is true and correct;
(d) Delivery of Documents, Etc, Such Guarantor has delivered
to the Agent for the benefit of the Agent, the L/C Bank and the Lenders all
instruments, documents, chattel paper and other items of its Collateral in which
a security interest is or may be perfected by possession, the certificate of
title with respect to each motor vehicle, if any, included in the Collateral,
together with such additional writings, including, without limitation,
assignments and stock powers, with respect thereto as the Agent shall request;
(e) Exclusion of Certain Collateral. Unless otherwise agreed
by the Agent, the Collateral does not include any vehicles, Federally registered
patents, copyrights, Federally registered trademarks, tradenames or mask works,
aircraft, watercraft or vessels, railroad cars, railroad equipment, locomotives
or other rolling stock intended for a use related to interstate commerce. A
3
Page 98 of 133
<PAGE>
buyer of any Collateral from such Guarantor pursuant to a sale not prohibited by
this Security Agreement, the Agreement or its Guaranty may take such Collateral
free of the security interest created by this Security Agreement without
necessity of further release by the Agent;
(f) Investment Properties. The Agent has and will at all
times have control over the investment properties;
5. Covenants and Agreements of Guarantor. In addition to all
covenants and agreements of each Guarantor set forth in any other agreement with
the Agent, the L/C Bank and the Lenders, which are incorporated herein by this
reference, each Guarantor hereby agrees:
(a) Preservation of Collateral. To do all acts that may be
necessary to maintain, preserve and protect its Collateral;
(b) Use of Collateral. Not to use or permit any of its
Collateral to be used unlawfully or in violation of any provision of this
Security Agreement, any other agreement with the Agent, the L/C Bank or any
Lender related hereto or any applicable statute, regulation or ordinance or any
policy of insurance covering the Collateral;
(c) Defense of Litigation. To appear in and defend any action
or proceeding which may affect its title to or the Agent's interest in its
Collateral;
(d) Possession of Collateral. Not to surrender or lose
possession of (other than to the Agent), sell, encumber, lease, rent, or
otherwise dispose of or transfer any of its Collateral or right or interest
therein except as hereinafter provided, and to keep its Collateral free of all
levies and security interests or other liens or charges except those approved in
writing by the Agent; provided that, unless an Event of Default shall occur,
such Guarantor may, in the ordinary course of business, sell or lease any of its
Collateral consisting of inventory and license intellectual property;
(e) Compliance With Law. To comply with all laws, regulations
and ordinances relating to the possession, operation, maintenance and control of
its Collateral;
(f) Standard of Care by the Agent. That such care as the Agent
gives to the safekeeping of its own property of like kind shall constitute
reasonable care of its Collateral when in the Agent's possession;
(g) Delivery of After-Acquired Collateral To account fully for
and promptly deliver to the Agent, in the form received, all documents, chattel
paper, instruments and agreements constituting its Collateral hereunder and all
proceeds of the Collateral received, all endorsed to the Agent or in blank, as
requested by the Agent, and accompanied by such stock powers as appropriate and
until so delivered all such documents, instruments, agreements and proceeds
shall be held by such Guarantor in trust for the Agent, separate from all other
property of such Guarantor and identified as the property of the Agent;
4
Page 99 of 133
<PAGE>
(h) Maintenance of Records. To keep separate, accurate and
complete records of its Collateral and to provide the Agent with such records
and such other reports and information relating to its Collateral as the Agent
may reasonably request from time to time;
(i) Further Assurances. To procure, execute and deliver from
time to time any endorsements, notifications, registrations, assignments,
financing statements, certificates of title, ship mortgages, aircraft mortgages,
copyright mortgages, assignments or mortgages of patents, mortgages of mask
works, mortgages for filing pursuant to the Interstate Commerce Act, and other
writings deemed necessary or appropriate by the Agent to perfect, maintain and
protect its security interest in its Collateral hereunder and the priority
thereof, and to take such other actions as the Agent may request to protect the
value of its Collateral and of the Agent's security interest in its Collateral,
including, without limitation, provision of assurances from third parties
regarding the Agent's access to, right to foreclose on or sell, its Collateral
and right to realize the practical benefits of such foreclosure or sale;
(j) Payment of the Agent's Costs and Expenses. To reimburse
the Agent upon demand for any costs and expenses, including, without limitation,
reasonable attorneys' fees, that the Agent may incur while exercising any right,
power or remedy provided by this Security Agreement or by law, all of which
costs and expenses are included in its Obligations secured hereby;
(k) Notification Regarding Certain Types of Collateral. To
promptly notify the Agent of its intent to include in its Collateral after the
date hereof of any investment properties, vehicles, Federally registered
patents, copyrights, Federally registered trademarks, tradenames or mask works,
aircraft, watercraft or vessels, railroad cars, railroad equipment, locomotives
or other rolling stock intended for a use related to interstate commerce;
(l) Notice of Changes. To give the Agent thirty (30) days
prior written notice of any change in such Guarantor's residence or chief place
of business or legal name or trade name(s) or style(s) set forth in the
Perfection Certificate appearing as Exhibit A to the Security Agreement dated as
of September 8, 1997 from the Borrower (the "Perfection Certificate) or below
its signature below;
(m) Location of Records. To keep the records concerning its
Collateral at the locations) set forth in the penultimate paragraph of this
Security Agreement and not to remove such records from such locations) without
the prior written consent of the Agent;
(n) Purchase Money Agreement. If the Agent, the L/C Bank or
the Lenders give value to enable such Guarantor to acquire rights in or the use
of any of its Collateral, to use such value for such purpose;
5
Page 100 of 133
<PAGE>
(o) Care for Collateral by Guarantor. To keep its Collateral
in good condition and repair and not to cause or permit any waste or unusual or
unreasonable depreciation of its Collateral;
(p) Inspection by the Agent or any Lender. At anytime, with
reasonable advance notice, upon demand by the Agent, the L/C Bank or any Lender,
to exhibit to and allow inspection by the Agent, the L/C Bank or such Lender (or
persons designated by the Agent, the L/C Bank or such Lender) of its Collateral;
(q) Location of Collateral. To keep its Collateral at the
locations) described in the Perfection Certificate and, except as otherwise
permitted by the Agreement, not to remove the Collateral from such locations)
without the prior written consent of the Agent;
(r) Insurance. To insure its Collateral, with the Agent for
the benefit of the Lenders named as loss payee, in form and amounts, with
companies, and against risks and liabilities satisfactory to the Agent, and
hereby assigns the policies to the Agent, agrees to deliver them to the Agent at
its request, and agrees that the Agent may make any claim thereunder, cancel the
insurance on default by such Guarantor, collect and receive payment of and
endorse any instrument in payment of loss or return premium or other refund or
return, and apply such amounts received, at the Agent's election, to replacement
of such Collateral or to such Guarantor's Obligations. Notwithstanding the
foregoing, so long as no Potential Default or Event of Default (as each such
term is defined in the Agreement) shall have occurred and be continuing, the
Agent may not make any claim under, collect or receive payment of or endorse any
instrument in payment under any such insurance except that the Agent may collect
or receive payment under insurance that such Guarantor does not reasonably
expect to apply to replacement or repair of such Collateral in respect of which
paid within a reasonable period after receipt; and
(s) Amendment of Partnership Agreement. Not to amend or permit
the amendment of any partnership agreement which constitutes or evidences such
Guarantor's Collateral and not to take any action, or permit any action to be
taken which would dissolve or terminate any such partnership.
6. Authorized Action by the Agent. After the occurrence of a
Potential Default or Event of Default, each Guarantor hereby agrees that from
time to time, without presentment, notice or demand, and without affecting or
impairing in any way the rights of the Agent with respect to the Collateral, the
obligations of the Guarantor hereunder or the Obligations, the Agent may, but
shall not be obligated to and shall incur no liability to any Guarantor or any
third party for failure to take any act which any Guarantor is obligated by this
Security Agreement to do and to exercise such rights and powers as any Guarantor
might exercise with respect to the Collateral, and each Guarantor hereby
irrevocably appoints the Agent as its attorney-in-fact, so long as an Event of
Default has occurred and is continuing, to exercise such rights and powers,
including without limitation: (i) collect by legal proceedings or otherwise and
endorse, receive and receipt for all dividends, interest, payments, proceeds and
other sums and property now or hereafter payable on or on account of such
Collateral; (ii) enter into any extension, reorganization, deposit, merger,
6
Page 101 of 133
<PAGE>
consolidation or other agreement pertaining to, or deposit, surrender, accept,
hold or apply other property in exchange for such Collateral; (iii) insure,
process and preserve Guarantor's Collateral; (iv) transfer Guarantor's
Collateral to its own or its nominee's name; (v) make any compromise or
settlement, and take any action it deems advisable, with respect to Guarantor's
Collateral; and (vi) to notify any Account Guarantor on any Guarantor's
Collateral to make payment directly to the Agent.
7. Default. A default under this Security Agreement shall be deemed
to exist when any Event of Default has occurred and is continuing.
8. Remedies. So long as any such Event of Default has occurred and
is continuing, the Agent may, at its option, and without notice to or demand on
any Guarantor and in addition to all rights and remedies available to the Agent
under any other agreement do any one or more of the following:
(a) General Enforcement. Foreclose or otherwise enforce the
Agent's security interest against all or any Guarantor(s) Collateral in any
manner permitted by law, or provided for in this Security Agreement;
(b) Sale, Etc. Sell, lease or otherwise dispose of any
Collateral at one or more public or private sales at the Agent's place of
business or any other place or places, including, without limitation, any
broker's board or securities exchange, whether or not such Collateral is present
at the place of sale, for cash or credit or future delivery, on such terms and
in such manner as the Agent may determine;
(c) Costs of Remedies. Recover from each Guarantor all costs
and expenses, including, without limitation, reasonable attorneys' fees,
incurred or paid by the Agent in exercising any right, power or remedy against
such Guarantor provided by this Security Agreement or by law;
(d) Assembly of Collateral. Require each Guarantor to assemble
its Collateral and make it available to the Agent at a place to be designated by
the Agent;
(e) Take Possession of Collateral. Enter onto property where
any Collateral is located and take possession thereof with or without judicial
process;
(f) Preparation of Collateral for Sale. Prior to the
disposition of the Collateral, store, process, repair or recondition it or
otherwise prepare it for disposition in any manner and to the extent the Agent
deems appropriate and in connection with such preparation and disposition,
without charge, use any trademark, tradename, copyright, patent or technical
process used by any Guarantor;
(g) Manner of Sale of Collateral. Each Guarantor shall be
given five (5) business days' prior notice of the time and place of any public
sale or of the time after which any private sale or other intended disposition
of Collateral is to be made, which notice each Guarantor hereby agrees shall be
deemed reasonable notice thereof.
7
Page 102 of 133
<PAGE>
(h) Delivery to and Rights of Purchaser. Upon any sale or
other disposition pursuant to this Security Agreement, the Agent shall have the
right to deliver, assign and transfer to the purchaser thereof the Collateral or
portion thereof so sold or disposed of. Each purchaser at any such sale or other
disposition (including the Agent) shall hold the Collateral free from any claim
or right of whatever kind, including any equity or right of redemption of any
Guarantor, and each Guarantor specifically waives (to the extent permitted by
law) all rights of redemption, stay or appraisal which it has or may have under
any rule of law or statute now existing or hereafter adopted.
(i) Allocation of Proceeds. The Agent on behalf of itself, the
L/C Bank and the Lenders agrees that all proceeds of the Collateral shall be
applied as provided in Paragraph 3(h) of the Agreement.
9. Cumulative Rights. The rights, powers and remedies of the Agent
under this Security Agreement shall be in addition to all rights, powers and
remedies given to the Agent by virtue of any statute or rule of law, the
Agreement or any other agreement, all of which rights, powers and remedies shall
be cumulative and may be exercised successively or concurrently without
impairing the Agent's security interest in the Collateral.
10. Waiver. Any waiver, forbearance or failure or delay by the Agent
in exercising any right, power or remedy shall not preclude the further exercise
thereof, and every right, power or remedy of the Agent shall continue in full
force and effect until such right, power or remedy is specifically waived in a
writing executed by the Agent. Each Guarantor waives any right to require the
Agent to proceed against any person or to exhaust any Collateral or to pursue
any remedy in the Agent's power.
11. Setoff. Each Guarantor agrees that the Agent may exercise its
rights of setoff with respect to its Obligations in the same manner as if such
Obligations were unsecured.
12. Binding Upon Successors. All rights of the Agent under this
Security Agreement shall inure to the benefit of its successors and assigns, and
all obligations of each Guarantor shall bind its heirs, executors,
administrators, successors and assigns.
13. Entire Agreement; Severability. This Security Agreement contains
the entire security agreement between the Agent and each Guarantor. If any of
the provisions of this Security Agreement shall be held invalid or
unenforceable, this Security Agreement shall be construed as if not containing
those provisions and the rights and obligations of the parties hereto shall be
construed and enforced accordingly.
14. References. The singular includes the plural. If more than one
executes this Security Agreement, the term Guarantor shall be deemed to refer to
each of the undersigned Debtors as well as to all of them, and their obligations
and agreements hereunder shall be joint and several. If any of the undersigned
is a married person, recourse may be had against his or her separate property
for the Obligations.
8
Page 103 of 133
<PAGE>
15. Choice of Law. This Security Agreement shall be construed in
accordance with and governed by the laws of the State of California, and, where
applicable and except as otherwise defined herein, terms used herein shall have
the meanings given them in the Uniform Commercial Code of such state.
16. Amendment. This Security Agreement may not be amended or
modified except by a writing signed by each of the parties hereto.
17. Addresses for Notices. All demands, notices and other
communications to Guarantors or the Agent provided for hereunder shall be made
or given as set forth in the Agreement.
18. Disputed Claims Arbitration.
(1) This Section 18 concerns the resolution of any
controversies or claims between any Guarantor and the Agent and/or any Lender
and/or the L/C Bank, including but not limited to those that arise from:
(i) This Security Agreement (including any renewals,
extensions or modifications of this Security Agreement or any other Loan
Document);
(ii) Any document, agreement or procedure related to or
delivered in connection with this Security Agreement;
(iii) Any violation of this Security Agreement; or
(iv) Any claims for damages resulting from any business
conducted between any Guarantor, the Agent and/or any Lender and/or the
L/C Bank, including claims for injury to persons, property or business
interests (torts).
(2) At the request of any Guarantor or the Agent and/or any
Lender and/or the L/C Bank, any such controversies or claims will be settled by
arbitration in accordance with the United States Arbitration Act. The United
States Arbitration Act will apply even though this Security Agreement provides
that it is governed by California law.
(3) Arbitration proceedings will be administered by the
American Arbitration Association and will be subject to its commercial rules of
arbitration.
(4) For purposes of the application of the statute of
limitations, a demand for arbitration with the offices of the American
Arbitration Association in Los Angeles pursuant to this section is the
equivalent of the filing of a lawsuit, and any claim or controversy which may be
arbitrated under this paragraph is subject to any applicable statute of
limitations. The arbitrators will have the authority to decide whether any such
claim or controversy is barred by the statute of limitations and, if so, to
dismiss the arbitration on that basis.
(5) If there is a dispute as to whether an issue is
arbitrable, the arbitrators will have the authority to resolve any such dispute.
9
Page 104 of 133
<PAGE>
(6) The decision that results from an arbitration proceeding
may be submitted to any, authorized court of law to be confirmed and enforced.
(7) This provision does not limit the right of any Guarantor,
the Agent or any Lender or the L/C Bank to:
(i) exercise self-help remedies such as setoff,
(ii) foreclose against or sell any Collateral; or
(iii) act in a court of law, before, during or after the
arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(8) The pursuit of or successful action for interim,
additional or supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of any Guarantor, the Agent or any Lender or
the L/C Bank, including the suing party, to submit the controversy or claim to
arbitration if the other party contests the lawsuit.
EXECUTED this 8th day of September 1997.
GUARANTORS:
ACTON ENVIRONMENTAL TESTING
CORPORATION, a Massachusetts corporation
By:_________________________
Name:_______________________
Title:_________________________
Address: 533 Main Street
Acton, Massachusetts 01720
As Guarantor under a continuing Guaranty
dated as of September 8, 1997.
Tradename or style(s): d/b/a National
Technical Systems
10
Page 105 of 133
<PAGE>
APPROVED ENGINEERING TEST
LABORATORIES, INC., a California corporation
By:_________________________
Name:_______________________
Title:_________________________
Address: Hartwood Division
46 Jack Ellington Road
Fredericksburg, Virginia 22406
As Guarantor under a continuing Guaranty
dated as of September 8, 1997.
Tradename or style(s): d/b/a National
Technical Systems
ETCR, INC., a California corporation
By:_________________________
Name:_______________________
Title:_________________________
Address: 24007 Ventura Boulevard, #200
Calabasas, California 91302
As Guarantor under a continuing Guaranty
dated as of September 8, 1997.
Tradename or style(s): None
NATIONAL TECHNICAL SYSTEMS, INC., a
California corporation
By:_________________________
Name:_______________________
Title:_________________________
Address: 24007 Ventura Boulevard, #200
Calabasas, California 91302
As Guarantor under a continuing Guaranty
dated as of September 8, 1997.
Tradename or style(s): National Technical
Systems
11
Page 106 of 133
<PAGE>
NATIONAL TECHNICAL SYSTEMS -
CERTIFICATION SERVICES, INC., a Delaware
corporation)
By:_________________________
Name:_______________________
Title:_________________________
Address: 1146 Massachusetts Avenue
Boxborough, Massachusetts 01719
As Guarantor under a continuing Guaranty
dated as of September 8, 1997.
Tradename or style(s): National Technical
Systems - Certification Services
NTS PRODUCTS, a California corporation
By:_________________________
Name:_______________________
Title:_________________________
Address: 24007 Ventura Boulevard, #200
Calabasas, California 91302
As Guarantor under a continuing Guaranty
dated as of September 18, 1997.
Tradename or style(s): NTS Products
NTS TECHNICAL SERVICES, INC., a Florida
corporation
By:_________________________
Name:_______________________
Title:_________________________
Address: 8122 Datapoint Drive, Suite 326
San Antonio, Texas 78229
As Guarantor under a continuing Guaranty
dated as of September 8, 1997.
Tradename or style(s): NTS Technical
Services, Inc.
12
Page 107 of 133
<PAGE>
WISE AND ASSOCIATES, INC., a Texas
corporation
By:_________________________
Name:_______________________
Title:_________________________
Address: 8122 Datapoint Drive, Suite 326
San Antonio, Texas 78229
As Guarantor under a continuing Guaranty
dated as of September 8, 1997.
Tradename or style(s): Wise & Associates,
Inc.
AGENT:
SANWA BANK CALIFORNIA,
a California bank
By:_________________________
Name:_______________________
Title:_________________________
Address: Sanwa Bank California
Sherman Oaks Commercial Banking
Center
15165 Ventura Boulevard
Sherman Oaks, California 91403
Attention: M.W. Platt
13
Page 108 of 133
<PAGE>
EXHIBIT C TO
CREDIT AGREEMENT
LITIGATION DISCLOSURE
None.
Page 109 of 133
<PAGE>
Exhibit D
to Credit Agreement
FORM OF CONTINUING GUARANTY
FOR VALUE RECEIVED and in consideration of the extension of credit
by the Lenders (the "Lenders") and the L/C Bank party with SANWA BANK
CALIFORNIA, as agent (the "Agent") to that certain Credit Agreement dated as of
September 8, 1997 (as amended from time to time, the "Credit Agreement") with
NTS TECHNICAL SYSTEMS, INC. (the "Debtor") and the benefits to the undersigned
derived therefrom, the undersigned (each a "Guarantor") guarantees and promises
to pay to the Agent, the L/C Bank and the Lenders any and all Indebtedness (as
defined below) and agrees as follows:
1. Indebtedness. The term "Indebtedness" means any and all
Obligations of the Debtor heretofore, now, or hereafter made, incurred or
created under the Credit Agreement, whether voluntary or involuntary and however
arising, whether direct or acquired by the L/C or the Lenders by assignment or
succession, whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether the Debtor may be liable
individually or jointly with others, or whether recovery upon any Indebtedness
may be or thereafter becomes barred by any statute of limitations or whether any
Indebtedness may be or hereafter becomes other unenforceable.
2. Guaranty. The Guarantor unconditionally agrees to pay to the
Agent's, the an s and Lenders' order, on demand, an amount equal to the amount
of the Indebtedness or otherwise perform any obligation of the Debtor undertaken
pursuant to any Indebtedness. In addition to any maximum principal liability
hereunder, the Guarantor agrees to (i) bear the expenses enumerated hereunder in
the paragraph herein entitled "Attorneys' Fees" and (ii) pay interest on the
Indebtedness at the rate(s) applicable thereto. Notwithstanding the foregoing,
the L/C Bank and the Lenders may allow the Indebtedness to exceed the
Guarantor's liability hereunder. Any payment by the Guarantor shall not reduce
the maximum principal obligation of the Guarantor hereunder unless written
notice to that effect is actually received by the L/C Bank an 1 6 the Lenders at
or prior to the time of such payment. Any payment by the Debtor or any other
person shall not reduce the Guarantor's maximum principal liability hereunder.
1
Page 110 of 133
<PAGE>
3. Right to Amend or Modify Indebtedness. The Guarantor authorizes
the it their sole discretion, with or without notice and without affecting the
Guarantor's liability hereunder, from time to time to: (i) change the time or
manner of payment of any Indebtedness by renewal, extension, modification,
acceleration or otherwise; (ii) alter or change any provision of any
Indebtedness including, but not limited to, the rate of interest thereon, and
any document, instrument or agreement (other than this Guaranty) evidencing,
guaranteeing, securing or related to any Indebtedness; (iii) release, discharge,
exonerate, substitute or add one or more parties liable on any Indebtedness or
one or more endorsers, cosigners or guarantors for any Indebtedness; (iv) obtain
collateral for the payment of any Indebtedness or any guaranty thereof, (v)
release existing or after-acquired collateral on such terms as the L/C Bank and
the Lenders, in their sole discretion, shall determine; (vi) apply any sums
received from the Debtor, any endorser, consignor, other guarantor or other
person liable on any Indebtedness or from the sale or collection of collateral
or its proceeds to any indebtedness whatsoever owed or to be owed to the L/C
Bank and the Lenders by the Debtor in and order or amount and regardless of
whether or not such indebtedness is guaranteed hereby, is secured by collateral
or is due and payable; and (vii) apply to any Indebtedness, in my order or
amount, regardless of whether such Indebtedness is secured by collateral or is
due and payable, an, sums received from the Guarantor or from the sale of
collateral in which the Guarantor has granted the L/C Bank and/or the Lenders a
security interest.
4. Waivers. The Guarantor hereby unconditionally and irrevocably
acknowledges and agrees to the matters set forth below:
(a) Deficiency. In the event that any Indebtedness is now or
hereafter secured by a deed of trust, the Guarantor waives any defense and all
rights and benefits of those laws in to state that no deficiency judgment may be
recovered on certain real property purchase money obligations (as presently
contained in Section 580b of the California Code of Civil Procedure and as it
may be amended or superseded in the future) and those laws purporting to state
that no deficiency judgment may be recovered after a trustee's sale under a deed
of trust Section 580d of the California Code of Civil Procedure and as it may in
the future). THE GUARANTOR ACKNOWLEDGES THAT A TRUSTEE'S SALE UNDER A DEED OF
TRUST MAY RESULT IN THE DESTRUCTION OF THE GUARANTOR'S SUBROGATION RIGHTS THAT
MAY OTHERWISE EXIST AND THAT A DESTRUCTION OF THOSE RIGHTS MAY CREATE A DEFENSE
TO A DEFICIENCY JUDGMENT. THE GUARANTOR HEREBY SPECIFICALLY WAIVES ANY SUCH
DEFENSE.
2
Page 111 of 133
<PAGE>
(b) Election of Remedies. The Guarantor waives any defense
based upon the Guarantor's loss of a right against the Debtor arising from the
Agent's, the L/C Bank's or Lenders' election of a remedy on any Indebtedness
under bankruptcy or other debtor relief laws or under any other laws, including,
but not limited to, those purporting to reduce the L/C Bank's or the Lenders'
right against the Guarantor in proportion to the principal obligation of an as
it any Indebtedness (as presently contained in Section 2809 of the California
Civil Coded may be amended or superseded in the future).
(c) Action Against the Debtor and Collateral (and Other
Remedies). The Guarantor waives all right to require the Agent, the L/C Bank or
Lenders to: (i) proceed against the Debtor, any endorser, consignor, other
guarantor or other person liable on any Indebtedness; (ii) join the Debtor or
any endorser, cosigner, other guarantor or other person liable on Indebtedness
in any action or actions that may be brought and prosecuted by the Agent, the
Bank or the Lenders solely and separately against the Guarantor on any
Indebtedness; proceed against any item or items of collateral securing any
Indebtedness or any guaranty thereof; or (iv) pursue or refrain from pursuing
any other remedy whatsoever in the, Agent's, the L/C Bank's or the Lenders'
power.
(d). Debtor's Defenses. The Guarantor waives any defense
arising by reason of any disability or other defense of the Debtor, the Debtor's
successor or any endorser, cosigner, other guarantor or other person liable on
any Indebtedness. Until all Indebtedness has been paid in full, even though it
may be in excess of the liability incurred hereby, the Guarantor shall not have
any right of subrogation and the Guarantor waives any benefit of and right to
participate in any collateral now or hereafter held by the Agent, the L/C Bank
or the Lenders. The Guarantor waives all presentments, demands for performance,
notices of nonperformance, protests, notices of protest, notices of dishonor,
notices of sale of any collateral securing any Indebtedness or any guaranty
thereof, and notice of the existence, creation or incurring of new or additional
Indebtedness.
(e). Debtor's Financial Condition. The Guarantor hereby
recognizes, acknowledges and agrees that advances may be made in the future from
time to time with respect to any Indebtedness without authorization from or
notice to the Guarantor even though the financial condition of the Debtor, any
endorser, cosigner, other guarantor or other person liable on any Indebtedness
may have deteriorated since the date of this Guaranty. The Guarantor waives all
right to require the Agent, the L/C Bank or the Lenders to disclose any
information with respect to: (i) any Indebtedness now existing or hereafter
incurred; (ii) the present or future financial condition, credit or character
3
Page 112 of 133
<PAGE>
of the Debtor, any endorser, cosigner, other guarantor or other person liable on
any Indebtedness; (iii) any present or future collateral securing any
Indebtedness or any guaranty thereof, or (iv) any present or future action or
inaction on the part of the Agent, the L/C Bank or the Lenders, the Debtor or
any endorser, cosigner, other guarantor or other person liable on any
Indebtedness. The Guarantor hereby assumes the responsibility for being informed
of the financial condition, credit and character of the Debtor and of all
circumstances bearing upon the risk of non-payment of any Indebtedness which
diligent inquiry would reveal.
5. Right of Set-Off; Grant of Security Interest. In addition to all
liens upon and rights of set-off against any monies, securities or other
property of the Guarantor given to the Agent, the L/C Bank and the Lenders by
law, the Agent, the L/C Bank and the Lenders shall have a security interest in
and a right to set off against all monies, securities and other property of the
Guarantor now or hereafter in the possession of or on deposit with the Agent,
the L/C Bank or the Lenders, the Agent's, the L/C Bank's or the Lenders' agents
or any one or more of them, whether held in general or special account or
deposit or for safekeeping or otherwise, and each such security interest and
right of set-off may be exercised without demand upon or notice to the
Guarantor. No action or inaction by the Agent, the L/C Bank or Lenders with
respect to any security interest or right of set-off shall be deemed a waiver
thereof and every right of set-off and security interest shall continue in full
force and effect until specifically released by the Agent, the L/C Bank and the
Lenders in writing. The security interest created hereby shall secure all of the
Guarantor's obligations under this Guaranty.
6. Right of Foreclosure. The Agent, the L/C Bank and the Lenders may
foreclose, either by judicial foreclosure or by exercise of power of sale, any
deed of trust securing any Indebtedness even though such foreclosure may destroy
or diminish the Guarantor's rights against the Debtor. The Guarantor shall be
liable to the Agent, the L/C Bank and the Lenders for any part of any
Indebtedness remaining unpaid after any such foreclosure whether or not such
foreclosure was for fair market value.
7. Subordination. Any Indebtedness of the Debtor or any endorser,
cosigner, other guarantor or other person liable on any Indebtedness now or
hereafter owed to the Guarantor is hereby subordinated to the Indebtedness. Such
Indebtedness owed to the Guarantor shall, if the Agent, the L/C Bank or the
Lenders so request, be collected, enforced and received or as trustee for the
Agent, the L/C Bank and the Lenders and be paid over to the Agent on account of
the Indebtedness, but without reducing or affecting in any manner the liability
of the Guarantor set forth herein. Should the Guarantor fail to collect the
proceeds of any such Indebtedness owed to it and pay the proceeds to the Agent,
4
Page 113 of 133
<PAGE>
the Agent, as the Guarantor's attorney-in-fact, may do such acts and sign
such documents in the Guarantor's name as the Lenders consider necessary to
effect such collection.
8. Invalid, Fraudulent or Preferential Payments. The Guarantor agrees
that to the extent the Debtor or any endorser, cosigner, other guarantor or
other person liable on any Indebtedness makes a payment or payments to, or is
credited for any payment or payments made for or on behalf of the Debtor to the
Agent, the L/C Bank or the Lenders, which payment or payments, or any part
thereof, is subsequently invalidated, determined to be fraudulent or
preferential, set aside or required to be repaid to any trustee, receiver,
assignee or any other party whether under any bankruptcy, state or federal law
or under any common law or equitable cause or otherwise, then, to the extent
thereof, the obligation or part thereof intended to be satisfied by shall be
revived, reinstated and continued in full force and effect as if such payment or
payments had not originally been made or credited.
9. Joint and Several Obligations; Independent Obligations. If more
than one Guarantor signs this Guaranty, the obligations hereunder are joint and
several. The Guarantor's obligations hereunder are independent of the
obligations of the Debtor or any endorser, cosigner, other guarantor or other
person liable on any Indebtedness and a separate action or actions may be
brought and prosecuted against the Guarantor on any Indebtedness.
10. Acknowledgment of Receipt. Receipt of a true copy of this
Guaranty is hereby acknowledged by the Guarantor. The Guarantor understands and
agrees that this Guaranty shall not constitute a commitment of any nature
whatsoever by the Agent or the Lenders to renew or hereafter extend credit to
the Debtor. The Guarantor agrees that this Guaranty shall be effective ,with or
without notice from the Agent, the L/C Bank or the Lenders of the Agent's, the
L/C Bank's or Lenders' acceptance hereof.
11. Continuing Guaranty. This Guaranty is a continuing guaranty.
Revocation shall be effective only upon written notice personally received by an
officer of the Agent at the originating office indicated below or actually
received at the originating office by United States mail postage prepaid. Notice
shall be effective at any office of the Agent should the originating office no
longer be in existence. Revocation shall be effective at the close of the
Agent's business day when such notice is actually received. Any revocation shall
be effective at the close of the Agent's business day when such notice is
5
Page 114 of 133
<PAGE>
actually received. Any revocation shall be effective only as to the revoking
party and shall not affect that party's obligation with respect to any
Indebtedness existing before such revocation is effective.
12. Non-Reliance. In executing this Guaranty, the undersigned is not
relying, and has not relied, upon any, statement or representation made by the
Agent or the Lenders, or any employee, agent or representative of the Lenders,
with respect to the status, financial condition or other matters related to the
Debtor or the relationship between the Debtor and the Lenders.
13. Multiple Guaranties. If the Guarantor has executed or does
execute more than one guaranty of any indebtedness of the Debtor to the Agent or
the Lenders, the limits of liability thereunder and hereunder shall be
cumulative.
14. Severability. Should any one or more provisions of this Guaranty
be determined to be illegal or unenforceable, all other provisions shall remain
effective.
15. Corporate or Partnership Authority. If the Debtor is a
corporation or partnership, neither the Agent or the Lenders need inquire into
the power of the Debtor or the authority of its officers, directors, partners or
agents acting or purporting to act in its behalf and any credit granted in
reliance upon the purported exercise of such power or authority is guarantied
hereunder.
16. Separate Property. Any married person who signs this Guaranty
expressly agrees that recourse may be had against such person's separate
property for all obligations hereunder.
17. Assignment. The Agent or any Lender may, with or without notice,
assign this Guaranty in whole or in part. This Guaranty shall insure to the
benefit of the Agent and the Lenders, their successors and assigns, and shall
bind the Guarantor and the Guarantor's heirs, executors, administrators,
successors and assigns.
18. Waiver of Jury. The Guarantor and the Lenders hereby expressly
and voluntarily waive any and all rights, whether arising under the California
constitution, any rules of the California Code of Civil Procedure, common law or
otherwise, to demand a trial by jury in any action, matter, claim or cause of
action whatsoever arising out of or in any way related to this Guaranty or any
other agreement, document or transaction contemplated hereby.
6
Page 115 of 133
<PAGE>
19. Dispute Resolution.
(1) This Section 19 concerns the resolution of any controversies
or claims between any Guarantor and the Agent and/or any Lender and/or the L/C
Bank, including but not limited to those that arise from:
(i) This Guaranty (including any renewals, extensions or
modifications of this Guaranty or any other Loan Document);
(ii) Any document, agreement or procedure related to or
delivered in connection with this Guaranty;
(iii) Any violation of this Guaranty; or
(iv) Any claims for damages resulting from any business
conducted between the any Guarantor, the Agent and/or any Lender and/or the
L/C Bank, including claims for injury to persons, property or business
interests (torts).
(2) At the request of any Guarantor or the Agent and/or any
Lender and/or the L/C Bank, any such controversies or claims will be settled by
arbitration in accordance with the United States Arbitration Act. The United
States Arbitration Act will apply even though this Guaranty provides that it is
governed by California law.
(3) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration.
(4) For purposes of the application of the statute of
limitations, a demand for arbitration with the offices of the American
Arbitration Association in Los Angeles pursuant to this section is the
equivalent of the filing of a lawsuit, and any claim or controversy which may be
arbitrated under this paragraph is subject to any applicable statute of
limitations. The arbitrators will have the authority to decide whether any such
claim or controversy is barred by the statute of limitations and, if so, to
dismiss the arbitration on that basis.
(5) If there is a dispute as to whether an issue is arbitrable,
the arbitrators will have the authority to resolve any such dispute.
(6) The decision that results from an arbitration proceeding may
be submitted to any authorized court of law to be confirmed and enforced.
7
Page 116 of 133
<PAGE>
(7) This provision does not limit the right of any Guarantor,
the Agent or any Lender or the L/C Bank to:
(i) exercise self-help remedies such as setoff,
(ii) foreclose against or sell any Collateral; or
(iii) act in a court of law, before, during or after the
arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(8) The pursuit of or successful action for interim, additional
or supplementary remedies, or the filing of a court action, does not constitute
a waiver of the right of the any Guarantor, the Agent or any Lender or the L/C
Bank, including the suing party, to submit the controversy or claim to
arbitration if the other party contests the lawsuit.
20. Attorneys' Fees. Whether or not any suit, action, arbitration or
other dispute resolution proceeding is instituted, the Guarantor agrees to pay
reasonable attorneys' fees and all other costs and expenses which may be
incurred in the collection of any Indebtedness, in the protection or
preservation of, or realization on, any collateral securing any Indebtedness and
in the enforcement by the Agent and the Lenders of this Guaranty.
21. Governing Law. This Guaranty shall be governed by and construed
according to the laws of the State of California and the Guarantor hereby
submits to the jurisdiction of the courts of the State of California.
22. Entire Agreement. This Guaranty and all documents, instruments and
agreements mentioned herein constitute the entire and complete understanding of
the parties with respect to the transactions contemplated hereunder. All
previous conversations, memoranda and writings between the parties pertaining to
the transactions contemplated hereunder not incorporated or referenced in this
Guaranty or in such documents, instruments and agreements are superseded hereby.
23. Headings. The headings used herein are solely for the purpose of
identification and have no legal significance.
8
Page 117 of 133
<PAGE>
This Guaranty is made as of the 8th day of September, 1997, which shall
be the date of this Guaranty.
Executed by the undersigned Guarantors as of the date set forth above.
GUARANTORS
NATIONAL TECHNICAL SYSTEMS, INC., a
California corporation
By:_____________________________
Its:_____________________________
Address:_________________________
ACTON ENVIRONMENTAL TESTING
CORPORATION, a Massachusetts corporation
By:_____________________________
Its:_____________________________
Address:_________________________
APPROVED ENGINEERING TEST
LABORATORIES, INC., a California corporation
By:_____________________________
Its:_____________________________
Address:_________________________
ETCR, INC., a California corporation
By:_____________________________
Its:_____________________________
Address:_________________________
9
Page 118 of 133
<PAGE>
NATIONAL TECHNICAL SYSTEMS
CERTIFICATION SERVICES, INC., a Delaware
corporation
By:_____________________________
Its:_____________________________
Address:_________________________
NTS PRODUCTS, a California corporation
By:_____________________________
Its:_____________________________
Address:_________________________
NTS TECHNICAL SERVICES, INC., a Florida
corporation
By:_____________________________
Its:_____________________________
Address:_________________________
WISE AND ASSOCIATES, INC., a Texas
corporation
By:_____________________________
Its:_____________________________
Address:_________________________
10
Page 119 of 133
<PAGE>
EXHIBIT E TO
CREDIT AGREEMENT
<TABLE>
PERMITTED LIENS*
<CAPTION>
Date Filing
File No. Filed Jurisdiction Debtor Secured Party Type
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
745892 12/14/87 MA Secty of State Acton Environmental Testing Corp. Sanwa Business Credit Corp. UCC-1
119189 10/13/92 MA Secty of State Acton Environmental Testing Corp. Sanwa Business Credit Corp. UCC-3(contin.)
752745 01/13/88 MA Secty of State Acton Environmental Testing Corp. Springfield Inst. for Savings UCC-1
125800 11/17/97 MA Secty of State Acton Environmental Testing Corp. Springfield Inst. for Savings UCC-3(contin.)
484721 07/21/97 MA Secty of State Acton Environmental Testing Corp. Springfield Inst. for Savings UCC-3(contin.)
871030 10/11/93 AR Secty of State National Technical Systems Highland Industrial Park UCC-1
887483 02/15/94 AR Secty of State National Technical Systems Merchants and Planters Bank, NA UCC-1
896756 04/08/91 AR Secty of State National Technical Systems, Inc. Clarklift of Arkansas, Inc. UCC-1
87283941 11/20/87 CA Secty of State National Technical Systems Sanwa Business Credit Corp. UCC-1
1024461-2 08/24/92 CA Secty of State National Technical Systems Sanwa Business Credit Corp. UCC-2(contin.)
88193377 08/08/88 CA Secty of State National Technical Systems Security Pacific Equipment UCC-1
Leasing, Inc.
- -- 05/11/93 CA Secty of State National Technical Systems Security Pacific Equipment UCC-2(contin.)
Leasing, Inc.
90037525 02/08/90 CA Secty of State National Technical Systems Security Pacific Equipment UCC-1
Leasing, Inc.
94335C0630 11/08/94 CA Secty of State National Technical Systems Security Pacific Equipment UCC-2(contin.)
Leasing, Inc.
90134396 05/24/90 CA Secty of State National Technical Systems Security Pacific Equipment UCC-1
Leasing, Inc.
95062C0608 02/27/95 CA Secty of State National Technical Systems Security Pacific Equipment UCC-2(contin.)
Leasing, Inc.
90165523 06/28/90 CA Secty of State National Technical Systems Security Pacific Equipment UCC-1
Leasing, Inc.
95094C0568 03/31/95 CA Secty of State National Technical Systems Security Pacific Equipment UCC-2(contin.)
Leasing, Inc.
90177373 07/13/90 CA Secty of State National Technical Systems Security Pacific Equipment UCC-1
Leasing, Inc.
95122C0651 05/01/95 CA Secty of State National Technical Systems Security Pacific Equipment UCC-2(contin.)
Leasing, Inc.
92222008 10/13/92 CA Secty of State National Technical Systems Lease American Corporation UCC-1
93069460 04/08/93 CA Secty of State National Technical Systems AT&T Capital Corporation UCC-1
93203857 10/06/93 CA Secty of State National Technical Systems First Concord Acceptance Corp. UCC-1
95179C0625 06/26/95 CA Secty of State National Technical Systems First Concord Acceptance Corp. UCC-3(assign.)
9436360084 12/12/94 CA Secty of State National Technical Systems, Inc. Apple Commercial Credit UCC-1
9514560543 05/23/95 CA Secty of State National Technical Systems, Inc. Sterling Financial, Inc. UCC-1
9613160497 05/09/96 CA Secty of State National Technical Systems The CIT Group/Equipment UCC-1
Financing, Inc.
C697649 03/23/93 MI Secty of State National Technical Systems, Inc. SunTel Services, Inc. UCC-1
47487B 10/05/94 MI Secty of State National Technical Systems, Inc. Telogy, Inc. UCC-1
52807B 02/22/95 MI Secty of State National Technical Systems, Inc. Telogy, Inc. UCC-1
53192B 03/03/95 MI Secty of State National Technical Systems, Inc. Telogy, Inc. UCC-1
</TABLE>
Page 120 of 133
<PAGE>
EXHIBIT E TO
CREDIT AGREEMENT
(Continued)
<TABLE>
PERMITTED LIENS*
<CAPTION>
Date Filing
File No. Filed Jurisdiction Debtor Secured Party Type
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
53664B 03/15/95 MI Secty of State National Technical Systems, Inc. Telogy, Inc. UCC-1
59196B 08/07/95 MI Secty of State National Technical Systems, Inc. Telogy, Inc. UCC-1
87112 1334 11/17/87 VA State Corp. Comm. National Technical Systems Sanwa Business Credit Corp. UCC-1
920830457 08/24/92 VA State Corp. Comm. National Technical Systems Sanwa Business Credit Corp. UCC-2(contin.)
900531783 05/29/90 VA State Corp. Comm. National Technical Systems Security Pacific Equipment UCC-1
Leasing, Inc.
9502277324 02/27/95 VA State Corp. Comm. National Technical Systems Security Pacific Equipment UCC-2(contin.)
Leasing, Inc.
900620468 06/11/90 VA State Corp. Comm. National Technical Systems Security Pacific Equipment UCC-1
Leasing, Inc.
9504037223 04/03/95 VA State Corp. Comm. National Technical Systems Security Pacific Equipment UCC-2(contin.)
Leasing, Inc.
9312137255 12/13/93 VA State Corp. Comm. National Technical System Pitney Bowes Credit Corp. UCC-1
</TABLE>
*Note: Copies of entire Financing Statements included as exhibits to original
Page 121 of 133
<PAGE>
EXHIBIT F
TO CREDIT AGREEMENT
FORM OF ASSIGNMENT AGREEMENT
Dated: _____________, 19___
Reference is made to the Credit Agreement dated as of September 8,
1997 (as amended, the "Credit Agreement") among NTS Technical Systems (the
"Borrower"), the Lenders (as defined in the Credit Agreement) and Sanwa Bank
California, as Agent for the Lenders (the "Agent"). Terms defined in the Credit
Agreement are used herein with the same meaning.
_______________________ (the "Assignor") and ______________ (the
"Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, that interest in and to
all of the Assignor's rights and obligations under and in respect of the Credit
Agreement as of the Effective Date (as defined below) hereof which represents
the percentage interest specified on Schedule I hereto in and to all outstanding
rights and obligations under and in respect of the Credit Agreement as of the
Effective Date. After giving effect to such sale and assignment, the amount of
the Assignee's commitments and the amount of the Assignee's interest in the
Revolving Loans and Letters of Credit will be as set forth in Section 2 of
Schedule I hereto.
2. The Assignor (a) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (b) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit Agreement
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of the Credit Agreement or any other instrument or document furnished
pursuant thereto; and (c) 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 financial condition of the Borrower or the
performance or observance by the Borrower of any of its obligations under the
Credit Agreement or any other instrument or document furnished pursuant thereto.
1
Page 122 of 133
<PAGE>
3. The Assignee (a) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred to
in Paragraph 5(a) thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Assignment Agreement; (b) agrees that it will, independently and without
reliance upon the Agent, the Assignor 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 the Credit
Agreement; (c) appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers under the Loan Documents as are delegated
to the Agent by the terms thereof, together with such powers as are reasonably
incidental thereto; (d) agrees that it will perform in accordance with their
terms all of the obligations which by the terms of any Loan Document are
required to be performed by it as a Lender; and (e) specifies as its lending
office (and address for notices) the office set forth beneath its name on the
signature pages hereof.
4. Following the execution of this Assignment Agreement, it will be
delivered to the Agent for acceptance by the Borrower and recording by the
Agent. If the Borrower accepts this assignment, Borrower agrees to execute and
deliver to the Agent replacement Notes (against delivery of the Notes being
replaced) reflecting the assignment contemplated hereby. The effective date of
this Assignment Agreement shall be the date of acceptance thereof by the Agent,
unless otherwise specified on Schedule I hereto (the "Effective Date").
5. Upon such recording by the Agent and delivery of the replacement
Notes, as of the Effective Date, (a) the Assignee shall be a party to the Credit
Agreement and, to the extent provided in this Assignment Agreement, have the
rights and obligations of a Lender thereunder and (b) the Assignor shall, to the
extent provided in this Assignment Agreement, relinquish its rights and be
released from its obligations under the Credit Agreement.
6. Upon such recording by the Agent, from and after the Effective
Date, the Agent shall make all payments under the Credit Agreement in respect of
the interest assigned hereby (including, without limitation, all payments of
principal, interest and commitment fees with respect thereto) to the Assignee.
The Assignor and Assignee shall make appropriate adjustments in payments under
the Credit Agreement for periods prior to the Effective Date directly between
themselves.
7. This Assignment Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
2
Page 123 of 133
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Assignment
Agreement to be executed by their respective officers thereunder duly
authorized, as of the date first above written.
[NAME OF ASSIGNOR]
By:____________________________
Title:_________________________
By:____________________________
Title:_________________________
[NAME OF ASSIGNEE]
By:____________________________
Title:_________________________
By:____________________________
Title:_________________________
Lending Office (and address for notices):
[Address]
Accepted:
NTS TECHNICAL SYSTEMS
By: ________________________________
Title: _________________________
Date: __________________________
Received this __ day of ___________, 19___
Sanwa Bank California, as Agent
By: ____________________________
Title: _____________________
3
Page 124 of 133
<PAGE>
SCHEDULE 1 TO
ASSIGNMENT AGREEMENT
1. Percentage Interest assigned: ______________%
2. Amount of Revolving Loans and Letters of Credit assigned:
a. Revolving Loans: $_____________
b. Letter of Credit: $_____________
3. Effective Date: ____________________, 19____
4
Page 125 of 133
<PAGE>
EXHIBIT G
TO CREDIT AGREEMENT
FORM OF
CERTIFICATE OF COMPLIANCE
I, ______________________, Chief Financial Officer of NTS Technical Systems (the
"Borrower"), Inc., hereby certify that to the best of my knowledge (i) no of
Event of Default or Potential Event of Default has occurred through the period
ended ________________, (ii) it is in compliance with all covenants as stated in
that certain Credit Agreement dated as of September 8, 1997 (as amended, the
"Credit Agreement") among the Borrower, Sanwa Bank California, as Agent, and the
Lenders party thereto, and (iii) attached hereto are true and correct
calculations demonstrating compliance with Paragraph 7(i) of the Credit
Agreement as of and for the period ending _____________, 199__.
NTS TECHNICAL SYSTEMS, INC.
By: _____________________________ _________________________
Chief Financial Officer Date
I, _________________, Chief Financial Officer of the Parent (as defined in the
Credit Agreement), certify to the best of my knowledge that the foregoing
certification is true and correct in all respects.
By: _____________________________ _________________________
Chief Financial Officer Date
1
Page 126 of 133
<PAGE>
1. QUICK RATIO
NOT LESS THAN.90 TO 1.00
CASH $________________
NET ACCOUNTS RECEIVABLE $________________
TOTAL $________________
CURRENT LIABILITIES $________________
QUICK RATIO _______ : _______
2. TANGIBLE NET WORTH
NOT LESS THAN $15,750,000 PLUS 60%
OF NET INCOME AFTER TAXES AND DIVIDENDS
CONSOLIDATED GROSS BOOK VALUE $________________
LESS INTANGIBLES - PLUS LOANS TO $________________
STOCKHOLDERS, ETC.
TANGIBLE NET WORTH $________________
3. TOTAL LIABILITIES TO TANGIBLE
NET WORTH
NOT MORE THAN 1.50 TO 1.0
TOTAL LIABILITIES $________________
TANGIBLE NET WORTH $________________
DEBT TO WORTH $________________
4. DEBT COVERAGE RATIO
NOT LESS THAN 1.30 TO 1.0
NET INCOME $________________
ADD: INTEREST EXPENSE $________________
INCREASE IN DEFERRED TAXES $________________
DEPRECIATION & AMORTIZATION $________________
TOTAL $________________
2
Page 127 of 133
<PAGE>
CURRENT PORTION OF LONG TERM DEBT $________________
ADD: INTEREST EXPENSE $________________
DIVIDENDS PAID $________________
TOTAL FIXED CHARGES $________________
DEBT COVERAGE RATIO _______ : _______
3
Page 128 of 133
<PAGE>
EXHIBIT H
TO CREDIT AGREEMENT
FORM OF
LOAN REQUEST
NTS Technical Systems ("Borrower") hereby requests a [Loan]
[conversion of a Loan] under that certain Credit Agreement dated as of September
8, 1997, among Borrower, Sanwa Bank California, as Agent, and the Lenders named
therein (the "Credit Agreement") as follows:
Amount of Loan to be
made or converted: $________________
Borrowing or Conversion Date: ________________
Type of Loans Requested,
if a new Loan: ________________
Interest Period (if applicable) ________________
Please pay proceeds of Loans requested hereby as follows:
Borrower hereby confirms that all of the conditions precedent required
by Section 4 of the Credit Agreement have been met on and as of the borrowing
date, and after giving effect to the above requested borrowing, and that no
Potential Default or Event of Default will have occurred and be continuing as of
the borrowing date or after giving effect to the above requested borrowing.
All capitalized terms not defined herein are used as defined in the
Credit Agreement.
NTS TECHNICAL SYSTEMS
By: _______________________
Title: ______________________
Page 129 of 133
<PAGE>
EXHIBIT I TO
CREDIT AGREEMENT
LIST OF SUBSIDIARIES (Including
public company parent)
National Technical Systems, Inc. (California)
NTS Technical Systems (California) dba
"National Technical Systems"
CTCR, Inc. (California)
Approved Engineering Test Laboratories, Inc. (California)
Acton Environmental Testing Corp. (Massachusetts)
National Technical Systems - Certification Services, Inc. (Delaware)
PECS (QA) North America, Inc. (Massachusetts)
Wise and Associates, Inc. (Texas)
NTS Technical Services, Inc. (Florida)
NTS Products (California)
Page 130 of 133
<PAGE>
SCHEDULE 5(p) TO
CREDIT AGREEMENT
MATERIAL ENVIRONMENTAL CLAIMS
None.
Borrower has advised Lenders of environmental conditions
affecting Hartwood, Virginia and Fullerton, California
facilities.
Page 131 of 133
<PAGE>
SCHEDULE 5(r) TO
CREDIT AGREEMENT
MATERIAL INTELLECTUAL
PROPERTY LITIGATION
None.
Page 132 of 133
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 1,496
<SECURITIES> 0
<RECEIVABLES> 13,721
<ALLOWANCES> 825
<INVENTORY> 2,598
<CURRENT-ASSETS> 19,307
<PP&E> 47,677
<DEPRECIATION> 28,941
<TOTAL-ASSETS> 39,542
<CURRENT-LIABILITIES> 7,152
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 39,542
<SALES> 41,664
<TOTAL-REVENUES> 41,664
<CGS> 30,387
<TOTAL-COSTS> 30,387
<OTHER-EXPENSES> 6,772
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 868
<INCOME-PRETAX> 3,639
<INCOME-TAX> 1,637
<INCOME-CONTINUING> 1,992
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,992
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
</TABLE>
