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FORM 10-Q
UNITED STATES 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 APRIL 30, 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 June 3, 1997 was 6,801,737.
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NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE NO.
Financial Statements:
Condensed Consolidated Balance Sheets as of
April 30, 1997 and January 31, 1997 3
Condensed Consolidated Statements of Income for the
Three Months Ended April 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended April 30, 1997 and 1996 5
Notes to the Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION & SIGNATURES 11
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PART I -- FINANCIAL INFORMATION
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (unaudited)
APRIL 30, 1997 JANUARY 31,
SETS (UNAUDITED) 1997
-------------- ------------
Current assets:
Cash $ 2,280,000 $ 1,204,000
Receivables, less allowance for doubtful
accounts of $755,000 at April 30, 1997
and $703,000 at January 31,1997 11,936,000 12,292,000
Inventories 2,404,000 2,271,000
Deferred income taxes 473,000 440,000
Prepaid expenses 796,000 813,000
-------------- ------------
Total current assets 17,889,000 17,020,000
Property, plant and equipment, at cost 45,116,000 44,409,000
Less: accumulated depreciation 27,834,000 27,309,000
-------------- ------------
Net property, plant and equipment 17,282,000 17,100,000
Intangible assets 427,000 438,000
Property held for sale 544,000 544,000
Other assets 272,000 194,000
-------------- -------------
TOTAL ASSETS $ 36,414,000 $ 35,296,000
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,236,000 $ 3,395,000
Accrued expenses 2,760,000 2,007,000
Income taxes payable 211,000 40,000
Current installments of long-term debt 1,941,000 1,878,000
------------- ------------
Total current liabilities 7,148,000 7,320,000
Long-term debt, excluding current installments 9,512,000 9,183,000
Deferred income taxes 2,360,000 2,057,000
Minority interest - 1,000
Stockholders' equity:
Common stock of $.01 par value.
Authorized, 20,000,000; issued and outstanding
6,746,000 as of April 30, 1997 and
6,736,000 as of January 31, 1997 67,000 67,000
Additional paid-in capital 10,588,000 10,577,000
Retained earnings 6,739,000 6,091,000
-------------- ------------
Total stockholders' equity 17,394,000 16,735,000
-------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 36,414,000 $ 35,296,000
============== ============
See accompanying notes to Consolidated Financial Statements.
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NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (unaudited)
for the Three Months Ended April 30, 1997 and 1996
1997 1996
----------- ------------
Revenues $ 13,153,000 $ 11,149,000
Cost of sales 9,589,000 8,429,000
----------- ------------
Gross profit 3,564,000 2,720,000
Selling, general and administrative expense 2,125,000 1,832,000
----------- ------------
Operating income 1,439,000 888,000
Other income (expense):
Interest expense, net (262,000) (255,000)
Other (1,000) 2,000
----------- ------------
Total other expense (263,000) (253,000)
----------- ------------
Income from continuing operations before
income taxes and minority interest 1,176,000 635,000
Income taxes 529,000 286,000
----------- ------------
Income from continuing operations before
minority interest 647,000 349,000
Minority interest in the loss of
consolidated subsidiary 1,000 4,000
----------- -----------
Income from continuing operations 648,000 353,000
Loss from discontinued operations,
net of income taxes - (15,000)
------------ ------------
Net income $ 648,000 $ 338,000
=========== ============
Primary and fully diluted income per common share
Continuing operations 0.10 0.05
Discontinued operations, net of income taxes - -
----------- ------------
Total $ 0.10 $ 0.05
=========== ============
Weighted average number of common shares and
common stock equivalents outstanding 6,742,000 6,676,000
=========== ============
See accompanying notes to Consolidated Financial Statements.
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NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Three Months Ending April 30, 1997 and 1996
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 648,000 $ 353,000
Adjustments to reconcile income from continuing
operations to net cash provided by
operating activities:
Depreciation and amortization 539,000 581,000
Provision for losses on receivables 52,000 40,000
Deferred income taxes 270,000 173,000
Net changes in assets and liabilities, net:
Accounts receivable 304,000 (955,000)
Inventories (133,000) (318,000)
Prepaid expenses 17,000 49,000
Other assets (78,000) 11,000
Accounts payable (1,159,000) 86,000
Accrued expenses 753,000 279,000
Undistributed loss of affiliate (1,000) (4,000)
Income taxes 171,000 33,000
------------ ------------
Net cash provided by continuing operations 1,383,000 328,000
Loss from discontinued operations - (15,000)
------------ ------------
Net cash provided by operating activities 1,383,000 313,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (710,000) (667,000)
------------ ------------
Net cash used for investing activities (710,000) (667,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 860,000 800,000
Repayments of current and long-term debt (468,000) (428,000)
Proceeds from stock options exercised 11,000 32,000
------------ ------------
Net cash provided by financing activities 403,000 404,000
------------ ------------
Net increase in cash 1,076,000 50,000
Beginning cash balance 1,204,000 1,949,000
------------ ------------
ENDING CASH BALANCE $ 2,280,000 $ 1,999,000
============ ============
See accompanying notes to Consolidated Financial Statements.
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NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements April 30, 1997
1. In accordance with instructions to Form 10-Q the accompanying
consolidated financial statements and footnotes 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 three-month period ended
April 30, 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 three-month period ended April 30, 1997,
was 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, "Earning 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
three-month period ended April 30, 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.
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8. Cash paid for interest and taxes for the three months ended April 30, 1997
was $240,000 and $67,000 respectively. Cash paid for interest and taxes
for the three months ended April 30, 1996 was $181,000 and $93,000
respectively.
9. Minority interest in the Registrant's 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 1995. Profits and losses are
allocated 65% to NQA-USA, Inc. and 35% to National Quality Assurance, Ltd.
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.
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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 first quarter
ended April 30.
RESULTS OF OPERATIONS
REVENUES
Quarter ended April 30
(DOLLARS IN THOUSANDS) 1997 % Change 1996
========= ========== ==========
Technical Services $10,237 13.6% $9,012
Registration Services 736 35.8% 542
Technical Staffing 2,180 36.7% 1,595
--------- ----------
Total Revenues $13,153 18.0% $11,149
========= ==========
For the three months ended April 30, 1997, consolidated revenues increased by
$2,004,000 or 18.0% 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 testing and engineering services.
Revenues in the Technical Staffing segment increased $585,000 due to increases
in the expanding Information Technology (IT) portion of its business and the
continuing success of its strategic alliances with a major technical staffing
company.
Revenues in the Registration Services segment increased $219,000 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 fiscal 1998. The
Registrant also anticipates that revenues in the Registration Services segment
will continue to grow moderately through 1998.
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GROSS PROFIT
Quarter ended April 30
(DOLLARS IN THOUSANDS) 1997 % Change 1996
========= ========== =========
Technical Services $2,845 30.5% $2,180
% to segment revenue 27.8% 24.2%
Registration Services 225 20.3% 187
% to segment revenue 30.6% 34.5%
Technical Staffing 494 39.9% 353
% to segment revenue 22.7% 22.1%
Total Gross Profit $3,564 31.0% $2,720
% to total net revenue 27.1% 24.4%
Total gross profit for the period ended April 30, 1997 increased by $844,000 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 and Technical Staffing segments and the success of its continuing cost
containment programs in these segments.
SELLING, GENERAL & ADMINISTRATIVE
Quarter ended April 30
(DOLLARS IN THOUSANDS) 1997 % Change 1996
========= =========== ========
Technical Services $1,487 7.8% $1,379
% to segment revenue 14.5% 15.3%
Registration Services 209 32.3% 158
% to segment revenue 28.4% 29.2%
Technical Staffing 395 49.6% 264
% to segment revenue 18.1% 16.6%
Corporate 34 9.7% 31
Total S G & A $2,125 16.0% $1,832
% to total net revenue 16.2% 16.4%
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Total selling, general and administrative expenses increased by $293,000 for the
quarter ended April 30, 1997 when compared to the same period in 1996. This
increase was due primarily to the increase in revenues in addition to the
opening of two new marketing offices in the Registrant's Technical Staffing
segment. Selling, general and administrative expenses decreased slightly as a
percentage of net revenue due to the success of the Registrant's continuing
cost containment activities. 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 $7,000 in the first quarter ending April 30, 1997
when compared to the same period in 1996. This increase was principally due to
slightly higher average debt balances offset to some extent by lower interest
rates.
INCOME TAXES
The income tax provisional rate for the first 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 first
quarter ending April 30, 1997 was higher than the same period in 1996 due to the
increase in income before taxes. 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 by assessing
the need for a valuation account.
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 first quarter ending April 30, 1997 compared
to the same period in 1996 was due to increased revenues and higher gross profit
margins.
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
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Staffing segments 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. Because of the foregoing, as well as other 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 first quarter ended April 30, 1997, cash provided by operations
increased by $1,070,000 when compared to the same period in 1996. Major items
contributing to this increase were significant increases in net income and
accounts payable offset by increases in inventory and deferred income tax
balances.
Net cash used in investing activities in the three-month period ended April 30,
1997 increased $43,000 over the same period in 1996. The Registrant anticipates
that its capital spending level in fiscal 1998 will be about the same as 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 three-month period ended April 30, 1997, net cash provided by financing
activities consisted of increases in bank term loans and lines of credit of
$860,000 and proceeds from the exercise of stock options of $11,000, offset by
debt reduction on short term and long term debt of $468,000. Long term debt
increased $329,000 for the quarter 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%,which expires on August 1,
1998, and is in the process of being extended to August 1, 1999, 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 has
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 will be used to retire the existing 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.
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 as of April 30, 1997 aggregated $6,000,000 for
short-term liquidity needs, had $45,000 available. Due to the aforementioned new
debt agreements, the Registrant now has approximately $2,600,000 available on
its new $6,000,000 revolving line of credit, as of May 31, 1997.
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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 1995) that involve 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 service areas and pricing, continued acceptance of new services,
performance issues with key customers and general economic risks and
uncertainties.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
During the quarter ended April 30, 1997 the registrant did not file
a current report on Form 8-K
Exhibit 10.6 Credit Agreement between Sanwa Bank California and NTS
Technical Systems dated April 30, 1997.
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: June 6, 1997 By: /s/ Lloyd Blonder
LLOYD BLONDER
Senior Vice President
Chief Financial Officer
(Signing on behalf of the
registrant and as principal
financial officer)
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Exhibit Index
Exhibit No. Description Page No.
----------- -------------- ---------
Exhibit 10.6 Credit Agreement between
Sanwa Bank California and
NTS Technical Systems dated
April 30, 1997 14
Exhibit 27 Financial Data Schedule 76
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[LOGO]
Sanwa Bank California
MASTER CREDIT AGREEMENT
This MASTER CREDIT AGREEMENT (the "Agreement") is made and entered
into this 30th day of April, 1997 by and between SANWA BANK CALIFORNIA (the
"Bank") and NTS TECHNICAL SYSTEMS (the "Borrower"), on the terms and
conditions provided herein. This Agreement consists of this agreement and
the following Schedules/Exhibits:
RECITALS
A. The Borrower is indebted to the Bank, together with Bank of America
National Trust and Savings Association ("BofA") in connection with several
credit facilities including a $6,000,000 line of credit and a term loan with
an original principal balance of $5,000,000.
B. The Borrower is also indebted to the Bank alone for a term loan
evidenced by a Term Loan Agreement dated as of January 31, 1995 in the
original principal amount of $1,000,000 (the "1995 Term Loan").
C. The Borrower desires to reconfigure the obligations described in
Recital A above by paying off BofA, restructuring such obligations as loans
from the Bank alone, re-state the terms of the 1995 Term Loan, and provide
the basis for the Bank to make future loans to the Borrower on the general
terms stated in the Master Loan Agreement and the specific terms as stated in
one or more addenda to this Agreement.
AGREEMENT
1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS. Unless elsewhere defined in this Agreement,
the following terms shall have the following meanings (such meanings to be
generally applicable to the singular and plural forms of the terms defined):
"Account" means all accounts and chattel paper, whether now owned
or hereafter created or acquired by the Borrower or in which the
Borrower may now have or hereafter acquire any interest.
"Account Debtor" means the person or entity obligated to the
Borrower upon an account.
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"Advance" means an advance to the Borrower under the Line of
Credit.
"Affiliate" means any Person, corporation, association,
partnership, joint venture or other business entity of which more than
25% of the voting stock or other equity interests (in the case of
entities other than corporations), is owned or controlled directly or
indirectly by the Borrower, or one or more of the Subsidiaries of the
Borrower, or any corporation, association, partnership, joint venture,
other Person or combination of the foregoing who, jointly, owns or
controls, directly or indirectly, more than 25% of the voting stock of
the Borrower, or a combination thereof.
"Bank Expenses" means and includes all costs and expenses
required to be paid by the Borrower under the Loan Documents which are
paid or advanced by the Bank; taxes and insurance premiums of every
kind and nature of the Borrower which are paid or advanced by the
Bank; filing, recording, publication and search fees paid or incurred
by the Bank in connection with the transactions contemplated under the
Loan Documents; cost and expenses incurred by the Bank in collecting
the Accounts (with or without suit), to correct any default or enforce
any provision under the Loan Documents, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, appraising,
selling, preparing for sale and/or advertising to sell the Collateral,
whether or not a sale is consummated; costs and expenses of suit
incurred by the Bank in enforcing or defending the Loan Documents or
any portion thereof; and reasonable attorney's fees and expenses
incurred by the Bank in advising, structuring, drafting, reviewing,
amending, terminating, enforcing, defending, or concerning the Loan
Documents, or any portion thereof or any agreement related thereto,
whether or not suit is brought.
"Business Day" means a day other than a Saturday or Sunday on
which commercial banks are open for business in Los Angeles,
California.
"Collateral" means the property described in Section 2.1,
together with any other personal or real property in which the Bank
may be granted a lien or security interest to secure payment of the
Obligations.
"Debt" means all liabilities of the Borrower less Subordinated
Debt.
"Default Interest Rate" means the greater of three percent (3.0%)
in excess of the rate otherwise payable under the respective Loan
Document.
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"Effective Tangible Net Worth" means the Borrower's stated net
worth plus Subordinated Debt but less all intangible assets of the
Borrower (i.e., goodwill, trademarks, patents, copyrights,
organization expense, loans to Affiliates, officers and employees, and
similar intangible items).
"Environmental Claims" means 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 or threat to public health, personal
injury (including sickness, disease or death), property damage,
natural resources damage, or otherwise alleging liability or
responsibility for damages (punitive or otherwise), cleanup, removal,
remedial or response costs, restitution, civil or criminal penalties,
injunctive relief, or other type of relief, resulting from or based
upon (a) the presence, placement, discharge, emission or release
(including intentional and unintentional, negligent and non-negligent,
sudden or non-sudden, accidental or non-accidental placement, spills,
leaks, discharges, emissions or releases) of any Hazardous Material
at, in, or from Property, whether or not owned by the Borrower, or (b)
any other circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law.
"Environmental Laws" means 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; including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980
("CERCLA), the Clean Air Act, the Federal Water Pollution Control Act
of 1972, the Solid Waste Disposal Act, the Federal Resource
Conservation and Recovery Act, the Toxic Substances Control Act, the
Emergency Planning and Community Right-to-Know Act, the California
Hazardous Waste Control Law, the California Solid Waste Management,
Resource, Recovery and Recycling Act, the California Water Code and
the California Health and Safety Code.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, including (unless the context
otherwise requires) any rules or regulations promulgated thereunder.
"Equipment" means as defined in Section 2.1(f).
"Event of Default" means each of those events described in
Subsection entitled Events of Default, which have not been waived by
the Bank in writing, after giving of any required notice and
expiration of any applicable grace period expressly provided therein.
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"Expiration Date" means the date all Indebtedness of the Borrower
under the Loan Documents has been paid in full and the Bank has no
further commitment to make any further extension of credit to the
Borrower.
"GAAP" means generally accepted accounting principles set forth
from time to time in the opinions and pronouncements of the American
Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or
agencies with similar functions of comparable stature and authority
within the accounting profession), or in such other statements by such
other entity as may be in general use by significant segments of the
U.S. accounting profession, which are applicable to the circumstances
as of the date of determination.
"Guarantor" means each of National Technical Systems, Inc., a
California corporation, Acton Environmental Testing Corporation,
Massachusetts corporation, Approved Engineering Laboratories, Inc., a
California corporation , Wise and Associates, Inc., a Texas
corporation, S & W Technical Services, Inc., a Florida corporation,
PECS (OA) North America, Inc. a Massachusetts corporation, and NTS
Products, a California corporation, ETCR, a California corporation,
and National Technical Systems - Certification Services, a Delaware
California corporation.
"Guaranty" means the Guaranty, if any, described in Section 2.2.
"Hazardous Materials" means all those substances which are
regulated by, or which may form the basis of liability under, any
Environmental Law, including all substances identified under any
Environmental Law as a pollutant, contaminant, hazardous waste,
hazardous constituent, special waste, hazardous substance, hazardous
material, or toxic substance, or petroleum or petroleum derived
substance or waste.
"Indebtedness" means, with respect to the Borrower, (i) all
indebtedness for borrowed money or for the deferred purchase price of
property or services in respect of which the Borrower is liable,
contingently or otherwise, as obligor, guarantor or otherwise, or in
respect of which the Borrower otherwise assures a creditor against
loss and (ii) obligations under leases which shall have been or should
be, in accordance with generally accepted accounting principles,
reported as capital leases in respect of which the Borrower is liable,
contingently or otherwise, or in respect of which the Borrower
otherwise assures a creditor against loss.
"Inventory" means as defined in Section 2.1(b).
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"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, security interest, encumbrance
(including but not limited to, easements, rights of way, zoning
restrictions and the like), lien (statutory or otherwise), preference,
priority or other security agreement or preferential arrangement of
any kind or nature whatsoever, including, without limitation, any
conditional sale or other title retention agreement, the interest of a
lessor under a capital lease, and the filing of any financing
statement (other than a financing statement filed by a "true" lessor
pursuant to the Uniform Commercial Code) naming the owner of the asset
to which such Lien relates as debtor, under the Uniform Commercial
Code or other comparable Law of any jurisdiction.
"Loan Document" means this Agreement, each Schedule, Exhibit and
Addenda hereto, the Guarantees and the other security agreements,
financing statements and other agreements between the Borrower and the
Bank relating to the Obligations.
"Material Adverse Effect" means (a) a material adverse change in,
or a material adverse effect upon, any of (a) the operations,
business, properties, condition (financial or otherwise) or prospects
of the Borrower taken as a whole; (b) a material impairment of the
ability of the Borrower to perform under any Loan Document and avoid
any Event of Default; or (c) a material adverse effect upon the
legality, validity, binding effect or enforceability of any Loan
Document.
"Obligations" means, as of the date the same is to be determined,
all of the Borrower's obligations under the Loan Documents including
principal and all accrued and unpaid interest and all other costs and
expenses (including, but not limited to, Bank Expenses) then due and
owing by the Borrower.
"Ordinary Course of Business" means, in respect of any
transaction involving the Borrower, the ordinary course of the
Borrower's business, as conducted by the Borrower in accordance with
past practice and undertaken by the Borrower in good faith and not for
purposes of evading any covenant or restriction in any Loan Document.
"Permitted Liens" means:
(1) liens and security interests securing indebtedness owed
by the Borrower to the Bank;
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(2) liens for taxes, assessments or similar charges either
not yet due or which are being contested in good faith by
appropriate proceedings promptly instituted and diligently
conducted, and with respect to which adequate reserves or other
appropriate provisions are being maintained in accordance with
the provisions of GAAP and enforcement thereof is stayed;
(3) liens of materialmen, mechanics, warehousemen, or
carriers or other like liens arising in the Ordinary Course of
Business and securing obligations which are not yet delinquent;
(4) purchase money liens or purchase money security
interests upon or in any property acquired or held by the
Borrower in the Ordinary Course of Business to secure
Indebtedness outstanding on the date hereof or permitted to be
incurred under Section 7 hereof; and
(5) liens and security interests which, as of the date
hereof, have been disclosed to and approved by the Bank in
writing; and
"Proceeds" means as defined in Section 2.1.
1.2 ACCOUNTING TERMS. All references to financial statements, assets,
liabilities, and similar accounting items not specifically defined herein
shall mean such financial statements or such items prepared or determined in
accordance with GAAP consistently applied and, except where otherwise
specified, all financial data submitted pursuant to this Agreement shall be
prepared in accordance with such principles.
1.3 OTHER TERMS. Other terms not otherwise defined shall have the
meanings attributed to such terms in the California Uniform Commercial Code.
2. COLLATERAL AND GENERAL LOAN TERMS
2.1 THE COLLATERAL. To secure payment and performance of all the
Borrower's Obligations under this Agreement and all other liabilities, loans,
guarantees, covenants and duties owed by the Borrower to the Bank, whether or
not evidenced by this or by any other agreement, absolute or contingent, due
or to become due, now existing or hereafter and howsoever created, the
Borrower hereby grants the Bank a security interest in and to all of the
following property:
(a) all accounts, deposit accounts, contract rights, chattel paper,
instruments, documents, general intangibles and all rights to payment of
every kind now existing or hereafter arising;
(b) all inventory, goods held for sale or lease or to be furnished
under contract of service, or goods so leased or furnished, raw
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materials, components parts, work in progress and other materials used
or consumed in the Borrower's business, now or at any time hereafter
owned or acquired by the Borrower ("Inventory"), wherever located, and
all products thereof, whether in the possession of the Borrower, any
warehouseman, any bailee or any other person and whether located at
Borrower's places of business or elsewhere;
(c) all warehouse and other receipts, bills of sale, bills of lading
and other documents of every kind (whether or not negotiable) in which
Borrower now has or at any time hereafter acquires any interest, and all
additions and accessions thereto, including without limitation, all
bills of lading concerning any other Collateral subject hereto and all
warehouse and other receipts concerning any such other Collateral which
is in the possession or custody of the Borrower, any bailee or any other
person for any purpose.
(d) all money and property heretofore, now or hereafter delivered to
or deposited with, or otherwise coming into the possession, custody or
control of the Bank, in any manner of for any purpose whatsoever during
the existence if this Agreement and whether held in a general or special
account or deposit for safekeeping or otherwise;
(e) all right, title and interest of the Borrower under licenses,
guarantees, warranties, management agreements, marketing or sales
agreements, escrow contracts, indemnity agreements, insurance policies,
service agreements, maintenance agreements and other similar contracts
of every kind in which the Borrower now has or at any time hereafter
shall have an interest;
(f) all goods, tools, machinery, furnishings, furniture, equipment
and fixtures of every kind now owned or hereafter acquired, by the
Borrower and all appliances and parts therefore, and all improvements,
replacements, accessions and additions thereto, whether located on any
property owned or leased by the Borrower or elsewhere, including without
limitation, any of the foregoing now or at any time hereafter located at
or installed on the land or in the improvements at any of the real
property owned or leased by the Borrower, and all such goods after they
have been severed and removed from any of said and removed from said
real property ("Equipment"); and
(g) all trademarks and trademark applications, trade names, trade
secrets, business names, patents and patent applications, licenses,
copyrights and copyright applications, software, registrations and
franchise rights of the Borrower, and, in each case, all goodwill
associated therewith, and all books, records, client lists and account
information, ledger cards, files, correspondence, computer programs,
tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the Collateral or are
otherwise necessary or helpful in the collection thereof or realization
thereupon;
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together with whatever is receivable or received when any of the foregoing
or the proceeds thereof are sold, leased, collected, exchanged or otherwise
disposed of, whether such disposition is voluntary or involuntary,
including without limitation, all rights to payment, including returned
premiums with respect to any insurance relating to any of the foregoing,
and all rights to payment with respect to any cause of action affecting or
relating to any of the foregoing (hereinafter called "Proceeds"). The
Bank's security interest in the Collateral shall be a continuing lien and
shall include the proceeds and products of the Collateral including, but
not limited to, the proceeds of any insurance thereon.
2.2 GUARANTIES. Borrower's payment of all Obligations and its full and
timely performance of the terms and conditions of the Agreement shall be
jointly and severally guaranteed in writing, in form and substance
satisfactory to the Bank (each a "Guaranty") by each Guarantor.
2.3 NATURE AND PLACE OF PAYMENTS. All payments made on account of the
Obligations shall be made without setoff or counterclaim in lawful money of
the United States of America in either immediately available or next day
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
(other than California and United States income tax payable by the Bank), and
must be received by Bank by 2:00 p.m. (California time) on the day of
payment, it being expressly agreed and understood that if payment is received
by the Bank after 2:00 p.m. (California time), such payment will be
considered to have been made been made on the next succeeding Business Day
and interest thereon shall be payable at the then applicable 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.
All payments required to be made hereunder shall be made to the office of the
Bank designated for the receipt of notices in Section 10.3 below or such
other office as Bank shall from time to time designate.
2.4 AUTHORIZATION TO CHARGE. The Borrower hereby authorizes the Bank, if
and to the extent payment of any of the Borroer's [sic] Obligations owed to the
Bank is not made when due, to charge, from time to time, against any or all of
the Borrower's deposit accounts with the Bank any amount so due.
3. CONDITIONS OF LENDING
3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE. This Agreement is
subject to the conditions precedent that the Bank shall have received before
the date of such initial Advance and such first extension of credit all of
the following:
(a) Evidence, satisfactory to the Bank, that the execution, delivery
and performance by the Borrower of this Agreement and any document,
instrument or agreement required hereunder have been duly authorized.
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(b) The Guaranties required pursuant Sections 2.2 together with
evidence that the execution, delivery and performance by signatory
thereto has been duly authorized.
(c) A UCC-1 financing Statement, executed by the Borrower, describing
the Collateral, together with such evidence as the Bank may require
evidencing the due recordation of such statement as a lien of first
priority.
(d) Evidence satisfactory to the Bank that the Bank's security
interest in the Collateral has been properly perfected and is of first
priority.
(e) Such other evidence as the Bank may request to establish the
consummation of the transaction contemplated hereunder and compliance
with the conditions of this Agreement.
3.2 CONDITIONS PRECEDENT TO ALL EXTENSIONS OF CREDIT. The obligation of
the Bank to make each extension of credit to or on account of the Borrower
(including the first extension of credit) shall be subject to the further
conditions precedent that, on the date of each extension of credit and after
the making of such extension of credit:
(a) The representations contained in Section 4 and in any other Loan
Document, instrument or certificate delivered to the Bank hereunder are
correct.
(b) No event has occurred and is continuing which constitutes, or,
with the lapse of time or giving of notice or both, would constitute an
Event of Default.
(c) The security interest in the Collateral has been duly authorized,
created and perfected with first priority and is in full force and
effect.
The Borrower's acceptance of the proceeds of each extension of credit
in connection with this Agreement shall be deemed to constitute the
Borrower's representation and warranty that all of the above statements are
true and correct.
4. REPRESENTATIONS AND WARRANTIES
The Borrower hereby makes the following representations and warranties
to the Bank, which representations and warranties are continuing:
4.1 STATUS. The Borrower is a California corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
California; has the power and authority and all governmental licenses,
authorizations, consents and approvals to own its assets, carry on its
business and to execute, deliver, and perform its obligations under, the Loan
Documents; is duly qualified as a foreign corporation, licensed and in good
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standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification; and is in compliance with all applicable laws and
regulations; except, in each case referred to in last two clauses, to the
extent that the failure to do so could not reasonably be expected to have a
Material Adverse Effect.
4.2 AUTHORITY. The execution, delivery and performance by the Borrower of
this Agreement, each and every Loan Document, and any instrument, document or
agreement required hereunder have been duly authorized and do not and will
not:
(a) violate any provision of any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award presently in effect
having application to the Borrower;
(b) result in a breach of or constitute a default under any material
indenture or loan or credit agreement or other material agreement, lease
or instrument to which the Borrower is a party or by which it or its
properties may be bound or affected; or
(c) require any consent or approval of its stockholders or violate any
provision of its articles of incorporation or by-laws, if the Borrower
is a corporation;
4.3 GOVERNMENTAL AUTHORIZATION. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
governmental authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, the Borrower
of this Agreement or any other Loan Document.
4.4 NO CONFLICT. Borrower's execution, delivery and performance of each
Loan Document to which it is party, does not and will not (i) to the best of
Borrower's knowledge, after due and diligent inquiry, interfere with any
contractual right of any Person or conflict with, result in a breach of or
constitute (with or without notice or lapse of time or both) a default under
any Requirement of Law or contractual obligation of Borrower, or require
termination of any contractual obligation, the consequences of which
violation, breach or default or termination, are likely to have a Material
Adverse Effect on the ability of Borrower to perform its obligations under
any Loan Document, or (ii) result in or require the creation or imposition of
any Lien, other than Permitted Liens, upon any of the properties or assets of
Borrower (other than Liens in favor of Bank arising pursuant to the Loan
Documents).
4.5 LEGAL EFFECT. This Agreement and each Loan Document constitutes, and
any instrument, document or agreement required hereunder when delivered
hereunder of thereunder will constitute, legal, valid and binding obligations
of the Borrower enforceable against the Borrower in accordance with their
respective terms.
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4.6 COLLATERAL. With respect to all of the Collateral, (i) the Borrower
is the sole owner of the Collateral (or, in the case of after-acquired
Collateral, at the time the Borrower acquires rights in the Collateral, will
be the sole owner thereof); (ii) all information heretofore, herein or
hereafter supplied to Bank by or on behalf of the Borrower with respect to
the Collateral is accurate and complete; and (iii) except for security
interests in favor of Bank, no person has (or, in the case of after-acquired
Collateral, at the time the Borrower acquires rights therein, will have) any
right, title, claim or interest (by way of security interest or other lien or
otherwise) in, against or to the Collateral.
4.7 FICTITIOUS TRADE STYLES. The Borrower does not use any fictitious
trade style or name in connection with its business operations other than:
NATIONAL TECHNICAL SYSTEMS
The Borrower shall notify the Bank not less than 30 days prior to effecting
any change in the matters described below or prior to using any other
fictitious trade style at any future date, indicating the trade style and
state(s) of its use.
4.8 FINANCIAL STATEMENTS. All financial statements, information and other
data which may have been or which may hereafter be submitted by the Borrower
to the Bank are true, accurate and correct and have been or will be prepared
in accordance with GAAP consistently applied and accurately represent the
financial condition or, as applicable, the other information disclosed
therein. Since the most recent submission of such financial information or
data to the Bank, the Borrower represents and warrants that no in the
Borrower's financial condition or operations has occurred which would have a
Material Adverse Effect and which has not been fully disclosed to the Bank in
writing.
4.9 LITIGATION. There is no action, suit, proceeding, governmental
investigation or arbitration, at law or in equity, before or by any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, pending, or to the best
knowledge of Borrower, threatened against Borrower which could reasonably be
expected (i) to result in any Material Adverse Effect; (ii) to have a
Material Adverse Effect the ability of Borrower to perform its obligations
under any of the Loan Documents; or (iii) to have a Material Adversely Effect
the ability of borrower to perform its obligations to Bank or Bank's ability
to enforce such obligations. Borrower is not (i) in violation of any
applicable law which violation has or is likely to have a Material Adverse
Effect; or (ii) subject to or in default with respect to any final judgment,
writ, injunction, decree, rule or regulation of any court or Governmental
Authority which has or is likely to have a Material Adverse Effect. There is
no action, suit, proceeding or investigation pending or, to the best
knowledge of Borrower, threatened against or affecting Borrower challenging
the validity or the enforceability of any of the Loan Documents.
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4.10 TITLE TO ASSETS. The Borrower has good and marketable title to all of
its assets (including, but not limited to, the Collateral) and the same are
not subject to any security interest, encumbrance, lien or claim of any third
person except for Permitted Liens.
4.11 ERISA. If the Borrower has a pension, profit sharing or retirement
plan subject to ERISA (each a "Plan"), such Plan is in substantial compliance
with ERISA, and no "prohibited transaction" (as defined in Section 4975 of
the Internal Revenue Code) has occurred with respect to any Plan. Borrower
warrants that it will fund the Plans in accordance with its terms, meet all
requirements of ERISA, furnish Bank with a copy of the annual information
report furnished to the IRS, and direct the administrator(s) of the Plans to
give notice to Bank of all information disseminated to participants in the
Plans.
4.12 TAXES. All tax or information returns and reports of Borrower required
to be filed, the failure of which to file has or is likely to have a Material
Adverse Effect, have been timely filed, and all taxes, assessments, fees and
other governmental charges thereupon and upon their respective properties,
assets, income and franchises which are due and payable, the failure of which
to pay when due and payable has or is likely to have a Material Adverse
Effect, have been paid when due and payable. Borrower does not have any
knowledge of any proposed tax assessment against it that is likely to have a
Material Adverse Effect, which is not being actively contested in good faith
by Borrower.
4.13 NONCONTRAVENTION. No contractual obligation to which Borrower is a
party, or by which any of its properties is bound or to which any of its
properties is subject, restricts it from granting to the Bank a security
interest in the Collateral.
4.14 ENVIRONMENTAL MATTERS. The operations of the Borrower complies, and
during the term of this Agreement will at all times comply, in all respects
with all Environmental Laws; the Borrower has obtained all licenses, permits,
authorizations and registrations required under any Environmental Law
("Environmental Permits") and necessary for its Ordinary Course of Business,
all such Environmental Permits are in good standing, and the Borrower is in
compliance with all material terms and conditions of such Environmental
Permits; neither the Borrower nor any of its present property or operations
is subject to any outstanding written order from or agreement with any
governmental authority nor subject to any judicial or docketed administrative
proceeding, respecting any Environmental Law, Environmental Claim or
Hazardous Material; there are no Hazardous Materials or other conditions or
circumstances existing, or arising from operations prior to the date of this
Agreement, with respect to any property of the Borrower that would reasonably
be expected to give rise to Environmental Claims; provided, however, that
with respect to property leased from an unrelated third party, the foregoing
representation is made to the best knowledge of the Borrower. In addition,
(i) the Borrower does not have any underground storage tanks (x) that are not
properly registered or permitted under applicable Environmental Laws, or (y)
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that are leaking or disposing of Hazardous Materials off-site, and (ii) the
Borrower has notified all of their employees of the existence, if any, of any
health hazard arising from the conditions of their employment and have met
all notification requirements under Title III of CERCLA and all other
Environmental Laws.
4.15 SUBSEQUENT FUNDING REPRESENTATIONS AND WARRANTIES. In order to induce
Bank to enter into this Agreement and to make the Advances, Borrower hereby
represents and warrants to the Bank as of the date hereof that the statements
set forth in Section 4 above are true, correct and complete in all material
respects on and as of the date of each Advance (except with respect to such
representations and warranties which speak as of a specific time which shall
be true and correct as of such time).
5. FINANCIAL COVENANTS AND REPORTING.
5.1 REPORTING AND CERTIFICATION REQUIREMENTS. The Borrower promises and
agrees, during the term of the Agreement and until full payment of all of
Borrower's Obligations, to deliver or cause to be delivered to the Bank in
form and detail satisfactory to the Bank:
(a) As soon as available but not later than 120 days after the end of
each of the Borrower's fiscal years:
(1) a copy of the consolidated and consolidating balance sheet
of National Technical Systems, Inc. ("NTS"), as of the end of such
fiscal year and the related statements of income, shareholders'
equity and cash flows for such fiscal year, audited by a certified
public accountant satisfactory to the Bank and containing such
accountant's unqualified opinion;
(2) a copy of the NTS's most recent 10-K; and
(3) an officer certificate in the form attached as Exhibit "A"
with proper insertions certifying as to the matters set forth
therein.
(b) As soon as available, but not later than 60 days after the end of
each of the Borrower's fiscal quarters, a copy of the consolidated
balance sheet of NTS (10Q) as of the end of such quarter and the related
statements of income and cash flows for the period commencing on the
first day of the fiscal year and ending on the last day of such quarter,
prepared and certified by the Borrower as being complete and correct and
fairly presenting the financial position and the results of operations
of NTS.
(c) within 30 days after the end of each fiscal quarter, an aging of
the Borrower's accounts showing, for each account debtor as of the end
of the month of the immediate preceding month, the amount owed by such
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account debtor which is current, 1 to 30 days past due, 31 to 60 days
past due, and over 60 days past due;
(d) as soon as available but not later than 120 days after the end of
each Guarantor's fiscal years (excluding NTS), a copy of such Guarantor's
balance sheet as of the end of such fiscal year and the related
statements of income, shareholders' equity and cash flows for such
fiscal year, certified by the respective Guarantor as being complete and
correct and fairly presenting the financial condition and the results of
operations of the respective Guarantor.
(e) promptly upon the Bank's request, such other information
pertaining to the Borrower or the Collateral as the Bank may reasonably
request.
5.2 FINANCIAL CONDITION. The Borrower promises and agrees, during the term
of the Agreement and until full payment of all of Borrower's Obligations, the
Borrower will maintain:
(a) A minimum Effective Tangible Net Worth of at least $15,750,000.00
increasing each fiscal quarter beginning with the fiscal quarter ending
January 31, 1997 by the sum of (1) sixty percent (60%) of net profit
after tax for such fiscal quarter less (2) dividends paid during such
fiscal quarter.
(b) A ratio of Debt to Effective Tangible Net Worth of not more than
1.50 to 1.0.
(c) A ratio of cash plus accounts receivable to current liabilities
of not less than 0.90 to 1.0.
(d) A Cash Flow Ratio of not less than 1.30 to 1.
For purposes of this Section 5.2, the term "Cash Flow Ratio" means, as
of the end of each fiscal quarter, the sum of (a) net profit after tax plus
depreciation, amortization and similar non-cash expenditures, plus interest
expense, plus increase in deferred income taxes less dividends for the four
fiscal quarters then ending, divided by the sum of (b) the current portion
of long term as of the end of such fiscal quarter plus interest expense and
dividends for the four fiscal quarters then ending.
5.3 ACCOUNTING RECORDS. The Borrower will maintain adequate books and
records in accordance with GAAP consistently applied and in a manner
otherwise acceptable to the Bank, and, at any reasonable time and from time
to time, permit the Bank or any representative thereof to examine and make
copies of the records and visit the properties of the Borrower and discuss
the business and operations of the Borrower with any employee or
representative thereof. If the Borrower shall maintain any records
(including, but not limited to, computer generated records or computer
programs for the generation of such records) in the possession of a third
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party, the Borrower hereby agrees to notify such third party to permit the
Bank free access to such records at all reasonable times and to provide the
Bank with copies of any records which it may request, all at the Borrower's
expense, the amount of which shall be payable immediately upon demand. In
addition, the Bank may, at any reasonable time and from time to time, conduct
inspections and audits of the Collateral and the Borrower's accounts
receivable and payable, the cost and expenses of which shall be paid by the
Borrower to the Bank upon demand.
6. GENERAL COVENANTS
The Borrower covenants and agrees that, during the term of this
Agreement, and so long thereafter as the Borrower is indebted to the Bank
under this Agreement, the Borrower will, unless the Bank shall otherwise
consent in writing:
6.1 PRESERVATION OF EXISTENCE; COMPLIANCE WITH APPLICABLE LAWS. Maintain
and preserve its existence and all rights and privileges now enjoyed; not
liquidate or dissolve, merge or consolidate with or into, or acquire any
other business organization; and conduct its business and operations in
accordance with all applicable laws, rules and regulations.
6.2 CHIEF EXECUTIVE - BUSINESS OFFICE. The Borrower shall keep its chief
executive office and the office where it keeps its records concerning the
Collateral, and the offices where it keeps all originals of all chattel paper
which evidence accounts, at:
24007 Ventura Boulevard, Calabasas, California 91302
or any other location in the State of California; provided that the Bank
receives written notice from the Borrower at least thirty (30) days prior
to any move of the Borrower's chief executive office other than that above.
6.3 COLLECTION OF ACCOUNTS. Except as otherwise provided in this
Agreement, the Borrower shall continue to collect the accounts in accordance
with its customary practice, all amounts due or to become due to the Borrower
under the Accounts and, prior to the occurrence of an Event of Default, the
Borrower shall have the right to adjust, settle or compromise the amount or
payment of any account, or release wholly or partly any account debtor or
obligor thereof, of allow any credit or discount thereon, all in accordance with
its customary practices in the Ordinary Course of Business. All proceeds of
Collateral shall be deposited in the a deposit account maintained with the Bank.
6.4 MAINTENANCE OF INSURANCE. Maintain insurance in such amounts and
covering such risks as is usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas in which
the Borrower operates and maintain such other insurance and coverages as may
be required by the Bank. All such insurance shall be in form and amount and
with companies satisfactory to the Bank. With respect to insurance covering
the Collateral, such insurance shall name the Bank as loss payee pursuant to
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a loss payable endorsement satisfactory to the Bank and shall not be altered
or canceled except upon 10 days' prior written notice to the Bank. Upon the
Bank's request, the Borrower shall furnish the Bank with the original policy
or binder of all such insurance.
6.5 LOCATION AND MAINTENANCE OF EQUIPMENT.
(a) Except as occurring in the Ordinary Course of Business, the
Equipment shall at all times be in the Debtor's physical possession,
shall not be held for sale or lease, and shall be kept only at the
locations now or hereafter described in Exhibit B. The Borrower shall
not secrete, abandon or remove, or permit the removal of, the Equipment,
or any part thereof, from such location(s) or remove or permit to be
removed any accessories now or hereafter placed upon the Equipment.
(b) Upon the Bank's demand, the Borrower shall immediately provide the
Bank with a complete and accurate description of the Equipment
including, as applicable, the make, model, identification number and
serial number of each item of Equipment. In addition, the Borrower
shall immediately notify the Bank of the acquisition of any new or
additional Equipment or the replacement of any existing Equipment and
shall supply the Bank with a complete description of any such additional
or replacement Equipment.
(c) The Borrower shall, at the Borrower's sole cost and expense, keep
and maintain the Equipment in a good state of repair and shall not
destroy, misuse, abuse, illegally use or be negligent in the care of the
Equipment or any part thereof. The Borrower shall not remove, destroy,
obliterate, change, cover, paint, deface or alter the name plates,
serial numbers, labels or other distinguishing numbers or identification
marks placed upon the Equipment or any part thereof by or on behalf of
the manufacturer, any dealer or rebuilder thereof, or the Bank. The
Borrower shall not be released from any liability to the Bank hereunder
because of any injury to or loss or destruction of the Equipment. The
Borrower shall allow the Bank and its representatives free access to and
the right to inspect the Equipment at all times and shall comply with
the terms and conditions of any leases covering the real property on
which the Equipment is located and any orders, ordinances, laws,
regulations or rules of any federal, state or municipal agency or
authority having jurisdiction of such real property or the conduct of
the business of the persons having control or possession of the
Equipment.
(d) The Equipment is not now and shall not at any time hereafter be so
affixed to the real property on which it is located as to become a
fixture or a part thereof. The Equipment is now and shall at all times
hereafter be and remain personal property of the Borrower.
6.6 INVENTORY.
(a) The Inventory is now and shall at all times hereafter be of good
and merchantable quality and free from defects; is not now and shall not
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at any time hereafter be stored with a bailee, warehouseman or similar
party without the Bank's prior written consent; shall at all times be in
the Borrower's physical possession; shall not be held by any other party
on consignment, sale on approval, or sale or return; and, except as
occurring in the Ordinary Course of Business, shall be kept only at the
locations now or hereafter described in Exhibit B.
(b) At any reasonable time and from time to time, allow Bank to have
the right, upon demand, to inspect and examine inventory and to check
and test the same as to quality, quantity, value and condition and the
Borrower agrees to reimburse the Bank for the Bank's reasonable costs
and expenses in so doing.
6.7 PAYMENT OF OBLIGATIONS AND TAXES. Make timely payment of all
assessments and taxes and all of its liabilities and obligations including,
but not limited to, trade payables, unless the same are being contested in
good faith by appropriate proceedings with the appropriate court or
regulatory agency. For purposes hereof, the Borrower's issuance of a check,
draft or similar instrument without delivery to the intended payee shall not
constitute payment.
6.8 TRANSFER ASSETS. Not, after the date hereof, sell, contract for sale,
convey, transfer, assign, lease or sublet, any of its assets (including, but
not limited to, the Collateral) except in the ordinary course of business as
presently conducted by the Borrower and, then, only for full, fair and
reasonable consideration.
6.9 CHANGE IN NATURE OF BUSINESS. Not make any material change in its
financial structure or the nature of its business as existing or conducted as
of the date hereof.
6.10 COMPENSATION OF EMPLOYEES. Compensate its employees for services
rendered at an hourly rate at least equal to the minimum hourly rate
prescribed by any applicable federal or state law or regulation.
6.11 PAYMENT OF DIVIDENDS. Not declare or pay any dividends on any class of
stock now or hereafter outstanding except (a) dividends payable solely in
the Borrower's capital stock and (b) dividends not exceeding forty percent
(40%) of the after tax profit for the fiscal year most recently ended.
6.12 REDEMPTION OR REPURCHASE OF STOCK. Not redeem or repurchase any class
of the Borrower's stock now or hereafter outstanding.
6.13 ADDITIONAL INDEBTEDNESS. Not, after the date hereof, create, incur or
assume, directly or indirectly, any additional Indebtedness other than (i)
Indebtedness owed or to be owed to the Bank or (ii) Indebtedness to trade
creditors incurred in the Ordinary Course of Business.
6.14 LOANS. Not make any loans or advances or extend credit to any third
person, including, but not limited to, directors, officers, shareholders,
partners, employees, affiliated entities and subsidiaries of the Borrower,
except for credit extended in the Ordinary Course of Business as presently
conducted.
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6.15 LIENS AND ENCUMBRANCES. Not create, assume or permit to exist any
security interest, encumbrance, mortgage, deed of trust, or other lien
(including, but not limited to, a lien of attachment, judgment or execution)
affecting any of the Borrower's properties, or execute or allow to be filed
any financing statement or continuation thereof affecting any of such
properties, except for Permitted Liens or as otherwise provided in this
Agreement.
6.16 CAPITAL EXPENSE. Not make any fixed capital expenditure or any
commitment therefor, including, but not limited to, incurring liability for
leases which would be, in accordance with generally accepted accounting
principles, reported as capital leases, or purchase any real or personal
property in an aggregate amount exceeding $2,500,000.00 in any one fiscal
year.
6.17 NOTICE. Give prompt written notice to the Bank of:
(a) any and all Events of Default or any event which, with the passage
of time or the giving of notice or both, would constitute an Event of
Default;
(b) of any and all litigation, arbitration or administrative
proceedings to which the Borrower is a party and in which the claim or
liability exceeds $200,000.
(c) any change in the Borrower's name or any action or event which may
adversely affect Borrower's operations or its performance under this
Agreement;
(d) any change in Borrower's business or results of operations which
would have a Material Adverse Effect; and
(e) upon, but in no event later than 10 days after, becoming aware of
(i) any enforcement, cleanup, removal or other governmental or
regulatory actions instituted, completed or threatened against the
Borrower or any of its properties pursuant to any applicable
Environmental Laws, (ii) all other Environmental Claims, and (iii) any
environmental or similar condition on any real property adjoining or in
the vicinity of the property of the Borrower that could reasonably be
anticipated to cause such property or any part thereof to be subject to
any restrictions on the ownership, occupancy, transferability or use of
such property under any Environmental Laws.
6.18 ENVIRONMENTAL LAWS. The Borrower shall conduct its operations and
keep and maintain all of its property in compliance with all Environmental Laws
and, upon the written request of the Bank, the Borrower shall submit to the
Bank, at the Borrower's sole cost and expense, at reasonable intervals, a
report providing an update of the status of any environmental, health or
safety compliance, hazard or liability issue identified in any notice or
report required pursuant to the immediate preceding Section.
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6.19 FURTHER ASSURANCES. Execute and deliver all instruments, and perform
such acts, as the Bank may reasonably deem necessary or desirable to confirm
and secure to the Bank all rights and remedies conferred upon them by this
Agreement and all other documents related hereto.
7. DEFAULT
7.1 EVENTS OF DEFAULT. Any one or more of the following described events
shall constitute an event of default (an "Event of Default") under this
Agreement:
(a) NON-PAYMENT. The Borrower shall fail to pay any Obligations
within ten (10) days of when due.
(b) PERFORMANCE UNDER THIS AND OTHER AGREEMENTS. The Borrower shall
fail in any material respect to perform or observe any term, covenant or
agreement contained in this Agreement or in any document, instrument or
agreement evidencing or relating to any indebtedness of the Borrower
(whether such indebtedness is owed to the Bank or third persons), and
any such failure (exclusive of the payment of money to the Bank under
this Agreement or under any other instrument, document or agreement,
which failure shall constitute and be an immediate Event of Default if
not paid when due or when demanded to be due) shall continue for more
than 15 days after written notice from the Bank to the Borrower of the
existence and character of such Event of Default.
(c) REPRESENTATIONS AND WARRANTIES; FINANCIAL STATEMENTS. Any
representation or warranty made by the Borrower under or in connection
with this Agreement or any financial statement given by the Borrower or
any guarantor shall prove to have been incorrect in any material respect
when made or given or when deemed to have been made or given.
(d) EXECUTION. Any writ of execution or attachment or any judgment
lien shall be issued against any property of the Borrower in an amount
exceeding $350,000 and shall not be discharged or bonded against or
released within 15 days after the issuance or attachment of such writ or
lien.
(e) REVOCATION OR LIMITATION OF GUARANTY. Any Guaranty shall be
revoked or limited or its enforceability or validity shall be contested
by any Guarantor, by operation of law, legal proceeding or and a new
Guarantor or substitute performance acceptable to the Bank is not
provided within thirty (30) days.
(f) REVOCATION OR LIMITATION OF SUBORDINATION AGREEMENT. Any
Subordination Agreement shall be revoked or limited or its
enforceability or validity shall be contested by any creditor signatory
thereto, by operation of law, legal proceeding or otherwise.
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(g) CHANGE IN OWNERSHIP. There shall occur a sale, transfer,
disposition or encumbrance (whether voluntary or involuntary), or an
agreement shall be entered into to do so, with respect to more than 10%
of the issued and outstanding capital stock of the Borrower, if a
corporation, or there shall occur a change in any general partner or a
change affecting the control of the Borrower, if a partnership.
(h) INSOLVENCY. The Borrower or any Guarantor shall:
(1) become insolvent or be unable to pay its debts as they
mature;
(2) make an assignment for the benefit of creditors or to an
agent authorized to liquidate any substantial amount of its
properties and assets;
(3) file a voluntary petition in bankruptcy or seeking
reorganization or to effect a plan or other arrangement with
creditors;
(4) file an answer admitting the material allegations of an
involuntary petition relating to bankruptcy or reorganization or
join in any such petition;
(5) become or be adjudicated a bankrupt;
(6) apply for or consent to the appointment of, or consent that
an order be made, appointing any receiver, custodian or trustee,
for itself or any of its properties, assets or businesses; or
(7) any receiver, custodian or trustee shall have been appointed
for all or substantial part of its properties, assets or businesses
and shall not be discharged within 30 days after the date of such
appointment.
(i) SUSPENSION. The Borrower shall voluntarily suspend the
transaction of business or allow to be suspended, terminated, revoked
or expired any permit, license or approval of any governmental body
necessary to conduct the Borrower's business as now conducted.
7.2 REMEDIES ON DEFAULT. Upon the occurrence of any Event of Default, the
Bank may, at its sole and absolute election, without demand and only upon
such notice as may be required by law:
(a) ACCELERATION. Declare any or all of the Borrower's indebtedness
owing to the Bank, whether under this Agreement or any other document,
instrument or agreement, immediately due and payable, whether or not
otherwise due and payable.
(b) CEASE EXTENDING CREDIT. Cease making Advances or otherwise
extending credit to or for the account of the Borrower under this
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Agreement or under any other agreement now existing or hereafter entered
into between the Borrower and the Bank.
(c) TERMINATION. Terminate this Agreement as to any future obligation
of the Bank without affecting the Borrower's obligations to the Bank or
the Bank's rights and remedies under this Agreement or under any other
document, instrument or agreement.
(d) NOTIFICATION OF ACCOUNT DEBTORS:
(1) Notify any Account Debtor, any buyers or transferee of the
Collateral or any other persons of the Bank's interest in the
Collateral and the proceeds thereof.
(2) Sign the Borrower's name (which authority the Borrower hereby
irrevocably and unconditionally grants to the Bank) on any invoice
or bill of lading relating to accounts or other drafts against the
Account Debtors, notify post office authorities to change the
address for delivery of mail addressed to the Borrower to such
address as the Bank may designate and take possession of and open
mail addressed to the Borrower and remove therefrom, proceeds of
and payments on the Collateral, and demand, receive and endorse
payment and give receipts, releases and satisfactions for and sue
for all money payable to the Borrower.
(3) Require the Borrower to indicate on the face of all invoices
(or such other documentation as may be specified by the Bank
relating to the sale, delivery or shipment of goods giving rise to
the account) that the account has been assigned to the Bank and
that all payments are to be made directly to the Bank at such
address as the Bank may designate.
(e) PROTECTION OF SECURITY INTEREST. Make such payments and do such
acts as the Bank, in its sole judgment, considers necessary and
reasonable to protect its security interest or lien in the Collateral.
The Borrower hereby irrevocably authorizes the Bank to pay, purchase,
contest or compromise any encumbrance, lien or claim which the Bank, in
its sole judgment, deems to be prior or superior to its security
interest. Further, the Borrower hereby agrees to pay to the Bank, upon
demand therefor, all expenses and expenditures (including attorneys'
fees) incurred in connection with the foregoing.
(f) FORECLOSURE. Enforce any security interest or lien given or
provided for under this Agreement or under any security agreement,
mortgage, deed of trust or other document, in such manner and such
order, as to all or any part of the properties subject to such security
interest or lien, as the Bank, in its sole judgment, deems to be
necessary or appropriate and the Borrower hereby waives any and all
rights, obligations or defenses now or hereafter established by law
relating to the foregoing. In the enforcement of its security interest
or lien, the Bank is authorized to enter upon the premises where any
Collateral is located and take possession of the Collateral or any part
thereof, together with the Borrower's records pertaining thereto, or the
Bank may require the Borrower to assemble the Collateral and records
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pertaining thereto and make such Collateral and records available to the
Bank at a place designated by the Bank. The Bank may sell the
Collateral or any portions thereof, together with all additions,
accessions and accessories thereto, giving only such notices and
following only such procedures as are required by law, at either a
public or private sale, or both, with or without having the Collateral
present at the time of the sale, which sale shall be on such terms and
conditions and conducted in such manner as the Bank determines in its
sole judgment to be commercially reasonable. Any deficiency which
exists after the disposition or liquidation of the Collateral shall be
a continuing liability of the Borrower to the Bank and shall be
immediately paid by the Borrower to the Bank.
(g) NON-EXCLUSIVITY OF REMEDIES. Exercise one or more of the Bank's
rights set forth herein or seek such other rights or pursue such other
remedies as may be provided by law, in equity or in any other agreement
now existing or hereafter entered into between the Borrower and the
Bank, or otherwise.
(h) APPLICATION OF PROCEEDS. All amounts received by the Bank as
proceeds from the disposition or liquidation of the Collateral shall be
applied to the Borrower's indebtedness to the Bank as follows: first,
to the costs and expenses of collection, enforcement, protection and
preservation of the Bank's lien in the Collateral, including court costs
and reasonable attorneys' fees, whether or not suit is commenced by the
Bank; next, to those costs and expenses incurred by the Bank in
protecting, preserving, enforcing, collecting, liquidating, selling or
disposing of the Collateral; next, to the payment of accrued and unpaid
interest on all of the Obligations; next, to the payment of the
outstanding principal balance of the Obligations; and last, to the
payment of any other indebtedness owed by the Borrower to the Bank. Any
excess Collateral or excess proceeds existing after the disposition or
liquidation of the Collateral will be returned or paid by the Bank to
the Borrower.
8. DISPUTE RESOLUTION
8.1 DISPUTES. It is understood and agreed that upon the request of any
party to this agreement any dispute, claim, or controversy of any kind,
whether in contract or in tort, statutory or common law, legal or equitable
now existing or hereinafter arising between the parties in any way arising
out of, pertaining to or in connection with: (i) this Agreement, or any
related agreements, documents, or instruments, (ii) all past and present
loans, credits, accounts, deposit accounts (whether demand deposits or time
deposits), safe deposit boxes, safekeeping agreements, guarantees, letters of
credit, goods or services, or other transactions, contracts or agreements of
any kind, (iii) any incidents, omissions, acts, practices, or occurrences
causing injury to either party whereby the other party or its agents,
employees or representatives may be liable, in whole or in part, or (iv) any
aspect of the past or present relationships of the parties, shall be resolved
through a two-step dispute resolution process administered by Judicial
Arbitration & Mediation Services, Inc. ("J-A-M-S") as follows:
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(a) STEP I - MEDIATION. At the request of any party to the dispute,
claim or controversy of the matter shall be referred to the nearest
office of J-A-M-S for mediation, that is, an informal, non-binding
conference or conferences between the parties in which a retired judge
or justice for the J-A-M-S panel will seek to guide the parties to a
resolution of the case.
(b) STEP II - ARBITRATION. Should any dispute, claim or controversy
remain unresolved at the conclusion of the Step I Mediation Phase then
all such remaining matters shall be resolved by final and binding
arbitration before a different judicial panelist, unless the parties
shall agree to have the mediator panelist act as arbitrator. The
hearing shall be conducted at a location determined by the arbitrator in
Los Angeles, California and shall be administered by and in accordance
with the then existing Rules of Practice and Procedure of Judicial
Arbitration & Mediation Services, Inc., and judgment upon any award
rendered by the arbitrator may be entered by any State or Federal Court
having jurisdiction thereof. The arbitrator shall determine which is
the prevailing party and shall include in the award that party's
reasonable attorneys fees and costs. This Section shall apply only if,
at the time of the submission of the matter to J-A-M-S, the dispute(s)
or issue(s) do(es) not arise out of a transaction(s) which is/are
secured by real property collateral or, if so secured, all parties
consent to such submission. As soon as practicable after selection of
the arbitrator, the arbitrator or his/her designated representative
shall determine a reasonable estimate of anticipated fees and costs of
the arbitrator, and render a statement to each party setting forth that
party's pro-rata share of said fees and costs. Thereafter each party
shall, within 10 days of receipt of said statement, deposit said sum
with the arbitrator. Failure of any party to make such a deposit shall
result in a forfeiture by the non-depositing party of the right to
prosecute or defend the claim which is the subject of the arbitration,
but shall not otherwise serve to abate, stay or suspend the arbitration
proceedings.
(c) STEP II - TRIAL BY COURT REFERENCE. If the dispute, claim or
controversy is not one required or agreed to be submitted to arbitration
as provided by this Section and has not been resolved by Step I
Mediation, then any remaining dispute, claim or controversy shall be
submitted for determination by a trial on Order of Reference conducted
by a retired judge or justice from the panel of Judicial Arbitration &
Mediation, Inc. J-A-M-S appointed pursuant to the provisions of
California Code of Civil Procedure ss.638(1) or any amendment, addition or
successor section thereto to hear the case and report a statement of
decision thereon. The parties intend this general reference agreement
to be specifically enforceable in accordance with said section. If the
parties are unable to agree upon a member of the J-A-M-S' panel to act
as referee then one shall be appointed by the Presiding Judge of the
county wherein the hearing is to be held. The parties shall pay in
advance, to the referee, the estimated reasonable fees and costs of the
reference, as may be specified in advance by the referee. The parties
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shall initially share equally, by paying their proportionate amount of
the estimated fees and costs of the reference. Failure of any party to
make such a fee deposit shall result in a forfeiture by the
non-depositing party of the right to prosecute or defend the cause(s) of
action which is(are) the subject of the reference, but shall not
otherwise serve to abate, stay or suspend the reference proceeding.
(d) PROVISIONAL REMEDIES, SELF HELP AND FORECLOSURE. No provision of,
or the exercise of any right(s) under this Section, nor any other
provision of this Dispute Resolution Provision, shall limit the right of
any party to exercise self help remedies such as set off, to foreclose
against any real or personal property collateral, or obtain provisional
or ancillary remedies such as injunctive relief or the appointment of a
receiver from any court having jurisdiction before, during or after the
pendency of any arbitration. At Bank's option, foreclosure under a deed
of trust or mortgage may be accomplished either by exercise of power of
sale under the deed of trust or mortgage, or by judicial foreclosure.
The institution and maintenance of an action for provisional remedies
pursuit of provisional or ancillary remedies or exercise of self help
remedies shall not constitute a waiver of the right of any party,
including the plaintiff, to submit the controversy or claim to
arbitration.
(e) SUMMARY JUDGMENT. In any arbitration proceeding subject to these
provisions, the arbitrator is specifically empowered to decide (by
documents only, or with a hearing, at the arbitrator's discretion)
pre-hearing motions which are substantially similar to motions for
summary judgment and for summary adjudication.
8.2 PRIVILEGE. Borrower agrees that any proceeding under the immediate
preceding Section shall, for purposes of Section 47 of the California Civil
Code, be a judicial proceeding.
8.3 WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK EACH WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES
AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS,
TORT CLAIMS, OR OTHERWISE. THE BORROWER AND THE BANK EACH AGREE THAT ANY
SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY.
WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS
TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN
PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
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9. MISCELLANEOUS
9.1 AMOUNTS PAYABLE ON DEMAND. If the Borrower shall fail to pay on demand
any amount so payable under this Agreement, the Bank may, at its option and
without any obligation to do so and without waiving any default occasioned by
the Borrower having so failed to pay such amount, create an Advance under the
Line of Credit in an amount equal to the amount so payable, which Advance
shall thereafter bear interest as provided under the Line of Credit.
9.2 DEFAULT INTEREST RATE. The Borrower shall pay the Bank interest on any
indebtedness or amount payable under this Agreement, from the date that such
indebtedness or amount became due or was demanded to be due until paid in
full, at a rate per annum equal to the Default Interest Rate.
9.3 NOTICES. All notices, payments, requests, information and demands
which either party hereto may desire, or may be required to give or make to the
other party hereto, shall be given or made to such party by hand delivery or
through deposit in the United States mail, postage prepaid, or by Western
Union telegram, addressed as follows:
If to Bank: If to the Borrower:
Sanwa Bank California NTS Technical Systems
Sherman Oaks Commercial Banking 24007 Ventura Blvd.
Center Calabasas, California 91302
15165 Ventura Blvd. Attn. Lloyd Blonder
Sherman Oaks, California 91403
Attn: M. W. Platt
9.4 RIGHTS OF THE BANK WITH OR WITHOUT DEFAULT. The Borrower agrees that
the Bank may at any time and at its option, whether or not the Borrower is in
default:
(a) Require the Borrower to deliver to the Bank, at such times
designated by the Bank, records and schedules which show the status and
condition of the Collateral, where it is located and such contracts or
other matters which affect the Collateral.
(b) Send verification requests to any Account Debtor.
(c) Make inquiries of the Borrower's trade vendors.
9.5 DISPOSAL OF INVOICES. All documents, schedules, invoices or other
papers received by the Bank from the Borrower may be destroyed or disposed of
6 months after receipt by the Bank, unless the Borrower requests in writing
the return thereof, which shall be done at the Borrower's expense.
9.6 INDEMNIFICATION. The Borrower agrees to hold the Bank harmless from
and indemnify and defend the Bank from any liability, claim, loss or expense
(including, but not limited to, attorneys' fees) arising from any transaction
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between the Borrower and any Account Debtor including, but not limited to,
any loss, claim or liability arising from:
(a) Any violation of any federal or state consumer protection law
(including, but not limited to, the federal Truth-In-Lending Act) and
regulations promulgated thereunder.
(b) Improper collection practices or procedures of the Borrower.
(c) Any unlawful acts taken by the Borrower in connection with the
collection of any account(s).
(d) Any suit by any person against the Bank resulting or arising from
such person's dealings with the Borrower.
9.7 RELIANCE. Each warranty, representation, covenant, obligation and
agreement contained in this Agreement shall be conclusively presumed to have
been relied upon by the Bank regardless of any investigation made or
information possessed by the Bank and shall be cumulative and in addition to
any other warranties, representations, covenants and agreements which the
Borrower now or hereafter shall give, or cause to be given, to the Bank.
9.8 ATTORNEY'S FEES. The Borrower agrees to pay or reimburse Bank within
five Business Days after demand for (i) all costs and expenses incurred by
Bank in connection with the development, preparation, delivery,
administration and execution of any amendment, supplement, waiver or
modification to (in each case, whether or not consummated), this Agreement,
any Loan Document and any other documents prepared in connection therewith,
and the consummation of the transactions contemplated hereby and thereby,
including the reasonable attorney fees and costs incurred by Bank with
respect thereto; and (ii) all costs and expenses incurred by the Bank in
connection with the enforcement, attempted enforcement, or preservation of
any rights or remedies (including in connection with any restructuring
regarding the Obligations) under this Agreement, any other Loan Document, and
any such other documents, including attorney fees incurred by the Bank; (iii)
all costs and expenses (including attorney's fees) incurred in connection with
any insolvency proceeding (including but not limited to debtor examinations,
relief from stay motions, cash collateral disputes, collateral value
disputes, assumption and rejection motions, and disputes concerning any
proposed disclosure statement and plan proposed during any such proceeding)
and (iv) in the event of any action in relation to this Agreement or any
document, instrument or agreement executed with respect to, evidencing or
securing the Obligations, the prevailing party, in addition to all other sums
to which it may be entitled, shall be entitled to reasonable attorneys' fees.
It is acknowledged that, at the Borrower's request, the Bank intends to sell
a participation or to syndicate some of the Obligations which may be subject
to the terms of this Agreement. Without limiting the genrality [sic] of the
foregoing, the Borrower agrees to pay all costs and expenses incurred by Bank
in connection therewith including attorney fees incurred by the Bank.
9.9 WAIVER. Neither the failure nor delay by the Bank in exercising any
right hereunder or under any document, instrument or agreement mentioned
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herein shall operate as a waiver thereof, nor shall any single or partial
exercise of any right hereunder or under any other document, instrument or
agreement mentioned herein preclude other or further exercise thereof or the
exercise of any other right; nor shall any waiver of any right or default
hereunder, or under any other document, instrument or agreement mentioned
herein, constitute a waiver of any other right or default or constitute a
waiver of any other default of the same or any other term or provision.
9.10 CONFLICTING PROVISIONS. To the extent the provisions contained in
this Agreement are inconsistent with those contained in any other document,
instrument or agreement executed pursuant hereto, the terms and provisions
contained herein shall control. Otherwise, such provisions shall be
considered cumulative.
9.11 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Borrower and the Bank and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the Bank. The Bank may sell, assign or grant participation in all
or any portion of its rights and benefits hereunder. The Borrower agrees
that, in connection with any such sale, grant or assignment, the Bank may
deliver to the prospective buyer, participant or assignee financial
statements and other relevant information relating to the Borrower and any
guarantor.
9.12 AMENDMENT. This Agreement may be amended only by instrument in writing
singed by the Bank and the Borrower.
9.13 JURISDICTION. THIS AGREEMENT, THE RIGHTS OF THE PARTIES HEREUNDER TO
AND CONCERNING THE COLLATERAL, EACH LOAN DOCUMENT AND ANY DOCUMENTS,
INSTRUMENTS OR AGREEMENTS MENTIONED OR REFERRED TO HEREIN SHALL BE GOVERNED
BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF CALIFORNIA WITHOUT
REFERENCE TO CONFLICT OF LAWS DOCTRINES, TO THE JURISDICTION OF WHOSE COURTS
THE PARTIES HEREBY SUBMIT.
9.14 COUNTERPARTS. This Agreement and the other Loan Documents may be
executed in one or more counterparts and each set of counterparts signed by
all the parties shall constitute one original.
9.15 SEVERABILITY. If any provision of this Agreement shall be
unenforceable for any reason, then the remaining provisions of this Agreement
shall be enforced without regard to such provision.
9.16 HEADINGS. The headings herein set forth are solely for the purpose of
identification and have no legal significance.
9.17 ENTIRE AGREEMENT. This Agreement together with the other Loan
Documents 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 Agreement or in
such documents, instruments and agreements are superseded hereby.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first hereinabove written.
BANK: BORROWER
SANWA BANK CALIFORNIA NTS TECHNICAL SYSTEMS
By: /s/ M. W. Platt By: /s/ LLOYD BLONDER
----------------------------- ----------------------------
M. W. Platt, Vice President LLOYD BLONDER, V.P.
----------------------------
(name/title)
By: /s/
----------------------------
----------------------------
(name/title)
-28-
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<PAGE>
EXHIBIT A
FORM OF OFFICER'S CERTIFICATE
[BORROWER'S LETTER HEAD]
To: Sanwa Bank California
Sherman Oaks Commercial Banking Center
15165 Ventura Boulevard
Sherman Oaks, California 991403
Re: Master Credit Agreement dated ____________________________, 1997
(the "Agreement")
The undersigned certifies that he is the ______________________________
_________________________________________, an officer of ____________________
__________________________________________________. (the "Borrower"). The
undersigned warrants and represents as follows:
A. That no Event of Default has occurred and is continuing under the
Agreement; and
B. That the Borrower is in full and timely compliance with all of the
terms and provisions of the Agreement.
The foregoing representations are made based on the undersigned's personal
knowledge after making such inquires and investigations as the undersigned
deemed necessary and appropriate. It is understood and intended that the
foregoing be relied upon by Sanwa Bank California.
___________________________________
(signature)
___________________________________
(typed/printed name)
-29-
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<PAGE>
EXHIBIT B
Description of the Borrower's Locations
DIRECTORY OF FACILITIES
ACTON
NUCLEAR SERVICES
533 MAIN STREET
ACTON, MA 01720
(508) 263-2933
FAX (508) 263-5734
ARIZONA
1155 WEST 23RD STREET, STE. 11-1
TEMPE, AZ 85282
(602) 966-5517
FAX (602) 966-5525
BOXBOROUGH
1146 MASSACHUSETTS AVENUE
BOXBOROUGH, MA 01719
(508) 266-1001
FAX (508) 266-1073
CAMDEN
HIGHLAND INDUSTRIAL PARK
BLDG. K5, HWY. 274
PO BOX 3315
CAMDEN, AR 71701
(501) 574-0031
FAX (501) 574-0037
CORPORATE
24007 VENTURA BOULEVARD
CALABASAS, CA 91302
(818) 591-0776
FAX (818) 591-0899
DETROIT
12601 SOUTHFIELD ROAD
DETROIT, MI 48223
(313) 835-0044
FAX (313) 272-1190
FULLERTON
1536 EAST VALENCIA DRIVE
FULLERTON, CA 92831
(213) 583-1227 (714) 879-6110
FAX (714) 879-6117
-30-
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<PAGE>
LAB CORP.
5743 SMITHWAY STREET
CITY OF COMMERCE, CA 90040
MAILBOX 103
(213) 838-9250 FAX (213) 838-9252
BRILL TRAW DIRECT (213) 838-9251
DICK SHORT DIRECT (213) 838-9251
LARGO
7887 BRYAN DAIRY ROAD, BUILDING __
PO BOX 5260
LARGO, FL 33773
813-547-1204
FAX 813-548-7305
LOS ANGELES (LAX)
5320 WEST 104TH STREET
LOS ANGELES, CA 90045
(310) 348-0090 (213) 776-3202
FAX (310) 670-7556
NTS CERTIFICATION SERVICES
1146 MASSACHUSETTS AVENUE
BOXBOROUGH, MA 01719
(508) 263-4811
FAX (508) 635-1037
RYE CANYON
25100 RYE CANYON ROAD
BLDG. 202
VALENCIA, CA 91355
(805) 259-8184
FAX (805) 257-3539
SAUGUS
20988 W. GOLDEN TRIANGLE ROAD
SAUGUS, CA 91350-2679
(805) 259-8184
FAX (805) 254-4814
VIRGINIA
46 JACK ELLINGTON ROAD
FREDERICKSBURG, VA 22406
(540) 752-5300
FAX (540) 752-5202
NATIONAL QUALITY ASSURANCE (NQA)
4 POST OFFICE SQUARE ROAD
ACTON, MA 01720
(800) 649-5289
(508) 635-9256
FAX (508) 266-1073
NTS TECHNICAL SERVICE, INC.
(S&W Technical Services, Inc.)
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<PAGE>
SAN ANTONIO
8122 DATAPOINT DRIVE, SUITE 326
SAN ANTONIO, TX 78229
(210) 614-1080
FAX (210) 614-7085
ZACHARY
4824 WAYWOOD DRIVE
ZACHARY, LA 70791
(504) 654-4820
FAX (504) 654-0150
DALLAS
14785 PRESTON ROAD, SUITE 550
DALLAS, TX 75240
(972) 789-5195
FAX (972) 789-5136
RALEIGH
1000 PARK FORTY PLAZA, SUITE 300
DURHAM, NC 27713
(919) 547-7047
FAX (919) 547-7046
E-MAIL: [email protected]
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<PAGE>
[LOGO]
Sanwa Bank California
1997 $2,000,000 TERM LOAN ADDENDUM
This 1997 $2,000,000 TERM LOAN ADDENDUM (the "Addendum") is made and
entered into this 30th day of April, 1997, by and between SANWA BANK
CALIFORNIA (the "Bank") and NTS TECHNICAL SYSTEMS (the "Borrower"), on the
terms and conditions provided herein.
RECITALS
A. On or about April 30, 1997 the Borrower made executed and delivered
to the Bank a MASTER CREDIT AGREEMENT (the "Master Agreement").
B. On or about April 15, 1997 the Borrower made, executed and
delivered a certain Equipment Purchase Line of Credit Agreement. It is the
intention of the parties that this Addendum supersede, and it is hereby
agreed that it does supersede, in its entirety said agreement.
C. This Addendum is made pursuant and subject to the Master
Agreement. Terms not defined in this Addendum have the meaning given such
terms in the Master Agreement.
AGREEMENT
1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS. Unless elsewhere defined in this Addendum,
the following terms shall have the following meanings (such meanings to be
generally applicable to the singular and plural forms of the terms defined):
"Advance" has the meaning given in Section 2.1.
"Applicable Margin" means, with respect to a Fixed Rate Advance,
two and three quarter percent (2.75%) and, with respect to a Variable Rate
Advance, three-quarters of one percent (0.75%).
"COF Rate" means, with respect to a Fixed Rate Balance, the rate
which is quoted and offered by the Bank and accepted by the Borrower
pursuant to Section 2.4 below which is approximately equal to (a) the
Bank's cost of acquiring a time certificate of deposit in an amount
approximately equal to the amount of the relevant Fixed Rate Balance and
for a period approximately equal to the relevant Interest Period plus (b)
the Applicable Margin.
"Conversion Date" means February 1, 1999 or the date of termination
of the Bank's commitment to lend under this Addendum pursuant to the terms
of the Master Agreement.
-1-
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<PAGE>
"Fixed Rate" means the COF Rate.
"Fixed Rate Balance" means the principal balance of the Term Loan
after the Conversion and after the Borrower has elected interest accrue at
a Fixed Rate.
"Interest Period" means with respect to a Fixed Rate Balance, the
period of time commencing on the Business Day the Borrower elects the Term
Loan accrue interest at a Fixed Rate and ending on the Maturity Date
provided that:
(1) no Interest Period with respect to a Fixed Rate Balance
shall expire on a date which is after the Maturity Date,
(3)[sic] if any Interest Period would otherwise end on a day
which is not a Business Day, that Interest Period shall be extended to
the next succeeding Business Day, and
(4) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month at
the end of such Interest Period.
"Lost Opportunity Rate" means the amount expressed as an interest rate
by which (a) the offered sale price for a United States Treasury security
selected by the Bank having a maturity which most approximates the
Interest Period of the Fixed Rate Balance being repaid determined as of
the first day of the Interest Period pertaining to such Fixed Rate
Balance, exceeds (b) the offered sales price for the same United States
Treasury security selected pursuant to (a) as of the respective Prepayment
Date.
"Maturity Date" means February 1, 2003.
"Obligations" means, as of the date the same is to be determined, the
principal amount of the Term Loan, all accrued and unpaid interest and all
other costs and expenses (including, but not limited to, Bank Expenses)
then due and owing by the Borrower under this Addendum.
"Prepayment" shall mean any principal payment on the Term Loan other
than payments required to be made pursuant to Section 2.7.
"Prepayment Date" shall mean the date of the respective Prepayment.
"Prepayment Fee" shall mean the fee described in Section 3.2.
"Prepayment Term" shall mean the dollar amount of each principal
repayment remaining to be made pursuant to Section 2.7 without regard to
any previous Prepayment (each a "Scheduled Payment" or "$") times the
-2-
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<PAGE>
number of years and/or fraction thereof from the Determination Date until
the date each such Scheduled Payment was to be paid pursuant to the Loan
Documents ("Y") divided by the total of the Scheduled Payments ("P").
APT = SUM($ X Y)
----------
P
"Term Loan" means the principal balance outstanding under this
Addendum after the Conversion Date.
"Reference Rate" means an index for a variable interest rate which is
quoted, published or announced from time to time by the Bank as its
reference rate and as to which loans may be made by the Bank at, below or
above such reference rate.
"Request for Advance" has the meaning given in Section 2.2.
"Variable Rate" means a rate per annum equal to the Reference
Rate plus the Applicable Margin, adjusted concurrently with any change in
the Reference Rate.
2. THE LINE OF CREDIT
2.1 THE LINE OF CREDIT. On terms and conditions as set forth herein, the
Bank agrees to make a term loan to the Borrower (the "Term Loan") provided the
aggregate principal amount of the Term Loan shall not exceed TWO MILLION
DOLLARS ($2,000,000.00). The Term Loan shall be disbursed in advances made
at the Borrower's request and received on or before the Conversion Date (each
an "Advance"). Advances shall be made for the purpose of:
(a) paying in full the Borrower's Indebtedness to Bank of America
National Trust and Savings Association ("BofA") in connection with the
Borrower's lease of certain equipment from BofA provided the aggregate
amount of such Advances shall not exceed the Indebtedness owed to BofA;
and
(b) financing the Borrower's cost of new equipment provided that each
Advance shall not exceed 100% of the Borrower's cost of such equipment
(including sales tax, if any).
Any principal repaid by the Borrower may NOT be re-borrowed.
2.2 REQUESTING ADVANCES. For each Advance made for the purpose described
in Section 2.1(a) above, the Borrower shall submit to the Bank a written
request in the form attached as Exhibit "A" (each a "Request for Advance")
describing with reasonable particularity the equipment being acquired,
together with evidence of the purchase price (i.e., an invoice).
-3-
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<PAGE>
2.3 INTEREST PRIOR TO THE CONVERSION DATE. Interest shall accrue on the
principal amount of Advances outstanding hereunder, and the Borrower promises
and agrees to pay interest, at a rate equal to the Variable Rate.
2.4 INTEREST AFTER THE CONVERSION DATE. At Borrower's option, interest on
the outstanding principal balance from and after the Conversion Date shall
accrue at either Variable Rate (the principal balance while so accruing
interest a "Variable Rate Balance") or a Fixed Rate (the principal balance
while so accruing interest a "Fixed Rate Balance").
EACH FIXED RATE BALANCE IS SUBJECT TO THE PREPAYMENT
PROHIBITIONS AND PREPAYMENT FEES ENUMERATED IN SECTION 3 BELOW.
(a) NOTICE. Upon telephonic notice which shall be received by the
Bank at or before the times prescribed below on a Business Day, the
Borrower may request the Term Loan accrue interest at a Fixed Rate by
requesting the Bank to provide a quote as to the rate which would apply
(the "Fixed Rate") for a designated Interest Period and, concurrently with
receiving such quote, give the Bank irrevocable notice of the Borrower's
acceptance of the rate quoted provided such notice shall be given to the
Bank not more than two (2) Business Days prior to but not later than 11:00
a.m. (California time) on the Conversion Day. If the Bank shall not have
received notice as prescribed herein of the Borrower's election that
interest accrue at the Fixed Rate, the Borrower shall be deemed to have
elected that interest from the Conversion Date at the Variable Rate.
(b) CONVERSION OF A VARIABLE RATE BALANCE. If the Borrower initially
elected that interest accrue on the Term Loan at the Variable Rate, upon
telephonic notice to the Bank, the Borrower may elect that interest on the
Term Loan be adjusted to accrue at a Fixed Rate by requesting the Bank to
provide a quote as to the rate which would apply (the "Fixed Rate") and,
concurrently with receiving such quote, give the Bank irrevocable notice
of the Borrower's acceptance of the rate quoted provided such notice shall
be given to the Bank not more than two (2) Business Days prior to but not
later than 11:00 a.m. (California time) on the day (which shall be a
Business Day) on which the Borrower requests such Variable Rate Balance be
converted to a Fixed Rate Balance. THE BORROWER'S OPTION TO CONVERT
INTEREST FROM THE VARIABLE RATE TO A FIXED RATE MAY BE EXERCISED ONCE AND
ONCE ONLY, AND ONLY WITH RESPECT TO THE ENTIRE PRINCIPAL BALANCE OF THE
TERM LOAN THEN OUTSTANDING.
(c) CONFIRMATION. Bank may, at its option, confirm in writing the
terms of any Fixed Rate Balance which confirmation shall be considered to
be correct and conclusively binding on the Borrower unless the Borrower
notifies the Bank to the contrary within 5 days after the Borrower's
receipt of any such confirmation which it deems to be incorrect.
2.5 CALCULATION OF INTEREST. Interest at the Variable Rate shall be
adjusted concurrently with any change in the Reference Rate. Interest at
both the Variable Rate and the Fixed Rate shall be computed on the basis of
360 days per year, but charged on the actual number of days elapsed.
-4-
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<PAGE>
2.6 PAYMENT OF INTEREST. The Borrower hereby promises and agrees to pay
interest on the first calendar day of each month commencing on the first such
day to occur after the date of this Addendum. If interest is not paid as it
becomes due, it may be added to, become and be treated as a part of the
principal, and shall thereafter bear like interest.
2.7 PAYMENT OF PRINCIPAL. The Borrower promises and agrees to repay the
principal balance of the Term Loan in 47 equal monthly payments equal to
1/48th of the principal amount outstanding as of the close of business on the
Conversion Date commencing on March 1, 1998 and continuing on the first
calendar day of each month thereafter. The Borrower hereby promises and
agrees to pay to the Bank in full on the Maturity Date the aggregate unpaid
principal amount of the Term Loan then outstanding, together with all accrued
and unpaid interest thereon. At Bank's option, the Borrower agrees to execute
and deliver a promissory note in form and substance satisfactory to the Bank
describing the payments as described in this Section.
2.8 LATE PAYMENT. If any payment of interest or principal, or any portion
thereof, under this Addendum is not paid within ten (10) calendar days after
it is due, a late payment charge equal to five percent (5%) of such past due
payment may be assessed and shall be immediately payable.
2.9 LOAN ACCOUNT. The Bank may maintain on its books a record of account
in which the Bank shall make entries for each Advance and such other debits and
credits as shall be appropriate in connection with this Addendum (the "Loan
Account"). The Bank may provide the Borrower with a monthly statement of the
Borrower's Loan Account, which statement shall be considered to be correct
and conclusively binding on the Borrower unless the Borrower notifies the
Bank to the contrary within 30 days after the Borrower's receipt of any such
statement which it deems to be incorrect.
3. PREPAYMENT; INDEMNITY
3.1 PROHIBITION AGAINST PREPAYMENT. Notwithstanding anything to the
contrary in this Addendum, no prepayment shall be made on any Fixed Rated
Balance except by reason of conversion pursuant to Section 3.4 or by reason
of acceleration as a result of the occurrence of an Event of Default.
3.2 PREPAYMENT FEE. Bank expects to incur or will incur certain financial
obligations in order to offer the Borrower Fixed Rate Balances. In the event
the Borrower is required to prepay a Fixed Rate Balance before the end of the
applicable Interest Period, the Bank may incur certain costs and expenses
which are a direct or indirect result of such Prepayment(s). Such expenses
would be difficult and costly to determine at the time of occurrence. The
parties agree that the prepayment fees (each a "Prepayment Fee") described
herein are reasonably approximate to the Bank's actual damages as they can
best be determined as of the date hereof.
-5-
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<PAGE>
(a) PREPAYMENT FEE. In the event the Borrower is required to prepay
all or a portion of a Fixed Rate Balance, the Borrower shall pay Bank
concurrently with any such Prepayment and as compensation for the damages
Bank is reasonably expected to incur, a Prepayment Fee equal to the Lost
Opportunity Rate times the Prepayment Term times the amount of the
Prepayment.
(b) UNAVAILABLE INDEX. In the event any index or rate described
herein cannot be determined on any date the same is to be determined, the
Bank shall make a good faith estimate such index or rate which estimate
shall be binding upon the parties. Absent manifest error, all calculations
made by Bank as to any index, rate or time period described herein or the
amount of any Prepayment Fee shall be conclusive and binding upon all
parties.
3.3 INDEMNIFICATION FOR COSTS. During any period of time in which the
Term Loan is accruing Interest at a Fixed Rate, the Borrower shall, upon
Bank's request, promptly pay to and reimburse the Bank for all costs incurred
and payments made by Bank by reason of any future assessment, reserve, deposit
or similar requirements or any surcharge, tax or fee imposed upon Bank or as a
result of Bank's compliance with any directive or requirement of any
regulatory authority pertaining or relating to funds used by Bank in quoting
and determining the Fixed Rate. The Fixed Rate applicable to the Term Loan
shall be automatically adjusted to reflect any change in the applicable
assessment, reserve, deposit or similar requirement provided, however, that
any failure or delay of the Bank to so adjust the Fixed Rate in any instance
shall not be deemed a waiver of the right to adjust the Fixed Rate for the
same or any later instance.
3.4 CONVERSION FROM FIXED RATE TO REFERENCE RATE. In the event that Bank
shall at any time determine that the accrual of interest on the basis of the
Fixed Rate is or has become unlawful or infeasible by reason of Bank's
compliance with any new law, rule, regulation, guideline or order, or any new
interpretation of any present law, rule, regulation, guideline or order, then
Bank shall give telephonic notice thereof (confirmed in writing) to the
Borrower, in which event the Term Loan shall no longer accrue interest at a
Fixed Rate and interest shall thereupon immediately accrue at the Variable
Rate, provided, however, that in such event, the Prepayment Fee shall
nonetheless be payable.
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<PAGE>
4. MASTER AGREEMENT
This Addendum is expressly made subject to the terms and conditions of
the Master Agreement and is secured by the Collateral described therein.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed as of the date first hereinabove written.
BANK: BORROWER
SANWA BANK CALIFORNIA NTS TECHNICAL SYSTEMS
By: /s/ M. W. Platt By: /s/ LLOYD BLONDER
--------------------------------- -----------------------------
M. W. Platt, Vice President LLOYD BLONDER, V.P.
-----------------------------
(name/title)
By: /s/
-----------------------------
-----------------------------
(name/title)
-7-
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<PAGE>
EXHIBIT A
REQUEST FOR ADVANCE
[BORROWER'S LETTER HEAD]
Sanwa Bank California
Sherman Oaks Commercial Banking Center
15165 Ventura Boulevard
Sherman Oaks, California 91403
Re: 1997 $2,000,000 Term Loan Addendum (the "Addendum")
Pursuant to Section 2 of the Addendum, the undersigned ("Borrower")
requests and Advance in the principal amount of $_______________________.
The proceeds of such Advance shall be used to acquire the following equipment:
The Borrower certifies that the purchase cost of such equipment is
$______________________ as evidenced by the attached documentation. You
are requested to:
[ ] Deposit the proceeds of such Advance in the undersigned's deposit
account No. _______________________.
[ ] Pay the proceeds of such Advance to ______________________________
according to the following instructions: _________________________
__________________________________________________________________.
Dated as of ________________________, 199____.
BORROWER
NTS TECHNICAL SYSTEMS
By:
-----------------------------
-----------------------------
(name/title)
-8-
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<PAGE>
[LOGO]
Sanwa Bank California
1997 LINE OF CREDIT ADDENDUM
This 1997 LINE OF CREDIT ADDENDUM (the "Addendum") is made and entered
into this 30th day of April, 1997 by and between SANWA BANK CALIFORNIA (the
"Bank") and NTS TECHNICAL SYSTEMS (the "Borrower"), on the terms and
conditions provided herein.
RECITALS
A. On or about April 30, 1997 the Borrower made executed and delivered
to the Bank a MASTER CREDIT AGREEMENT (the "Master Agreement").
B. This Addendum is made pursuant and subject to the Master Agreement.
Terms not defined in this Addendum have the meaning given such terms in the
Master Agreement.
AGREEMENT
1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS. Unless elsewhere defined in this Addendum,
the following terms shall have the following meanings (such meanings to be
generally applicable to the singular and plural forms of the terms
defined):
"Advance" has the meaning given in Section 2.1.
"Applicable Margin" means, with respect to a Fixed Rate Advance,
two and one-half percent (2.50%) and, with respect to a Variable Rate
Advance, one-half percent (0.50%).
"COF Rate" means, with respect to a Fixed Rate Advance, the rate
which is quoted and offered by the Bank and accepted by the Borrower
pursuant to Section 2.2 below which is approximately equal to the
Bank's cost of acquiring a time certificate of deposit in an amount
approximately equal to the amount of the relevant Fixed Rate Advance
and for a period approximately equal to the relevant Interest Period
plus the Applicable Margin.
"Commitment Fee" means the fee payable pursuant to Section 2.3.
"Credit Limit" means SIX MILLION DOLLARS ($6,000,000.00).
"Draft" has the meaning given in Section 3.
-1-
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<PAGE>
"Drawing" shall mean the presentation of a draft(s) together with
any accompanying documents by a beneficiary under a Letter of Credit to
seeking payment under such Letter of Credit.
"Expiration Date" means August 1, 1998 or the date of termination
of the Bank's commitment to lend under this Addendum pursuant to the
terms of the Master Agreement.
"Fixed Rate" means the COF Rate.
"Fixed Rate Advance" means a Advance of not less than $500,000.00
and in $100,000.00 increments thereafter which a Borrower has elected
accrue interest at a Fixed Rate pursuant to Section 2.2.
"Interest Period" means, with respect to a Fixed Rate Advance, the
period of time commencing on the Business Day the Fixed Rate Advance is
made or on the Business Day on which an Advance is converted to or
continued as a Fixed Rate Advance and ending on a Business Day not less
than thirty (30) days nor more than one hundred and eighty (180) days
thereafter (or such other period of time as the Bank may offer) which is
offered by Bank and selected by a Borrower during which such Borrower
has elected an Advance accrue interest at either the Fixed Rate provided
that:
(1) no Interest Period shall expire on a date which is after
the Expiration Date,
(2) if any Interest Period would otherwise end on a day which
is not a Business Day, that Interest Period shall be extended to
the next succeeding Business Day, and
(3) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month at
the end of such Interest Period.
"L/C Sublimit" means FIVE HUNDRED THOUSAND DOLLARS ($500,000.00).
"Letter of Credit" shall mean a letter of credit issued by Bank
pursuant to Section 3.
"Letter of Credit Obligations" shall mean, at any time, the aggregate
obligations of the Borrower then outstanding, or which may thereafter
arise in respect of Letters of Credit then issued by Bank, to reimburse
the amount paid by the Bank with respect to a past, present or future
Drawing under Letters of Credit.
-2-
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<PAGE>
"Lost Opportunity Rate" means the amount expressed as an interest
rate by which (a) the offered sale price for a United States Treasury
security selected by the Bank having a maturity which most
approximates the Interest Period of the Fixed Rate Advance being
repaid determined as of the first day of the Interest Period
pertaining to such Advance, exceeds (b) the offered sales price for
the same United States Treasury security selected pursuant to (a) as
of the respective Prepayment Date.
"Obligations" means, as of the date the same is to be determined,
the principal amount of all Advances, the Letter of Credit Obligations,
all accrued and unpaid interest and all other costs and expenses
(including, but not limited to, Bank Expenses) then due and owing by
the Borrower under this Addendum.
"Prepayment" shall mean any principal payment made with respect to a
Fixed Rate Advance on other than the last day of the relevant Interest
Period.
"Prepayment Date" shall mean the date of the respective Prepayment.
"Prepayment Fee" shall mean the fee described in Section 4.2.
"Prepayment Term" shall mean, as of the Prepayment Date the number
of years (or fraction thereof) from the Prepayment Date to the last day
of the Interest Period applicable to the Fixed Rate Advance being
prepaid.
"Reference Rate" means an index for a variable interest rate which
is quoted, published or announced from time to time by the Bank as its
reference rate and as to which loans may be made by the Bank at, below
or above such reference rate.
"Sight Credit" means a Letter of Credit, the terms of which require
the Bank to make payment upon presentation of conforming documents.
"Standby Credit" means a Letter of Credit designed to be payable in
the event of default or other nonperformance by party obligated to the
beneficiary, such event to be evidenced by the presentation of
documents.
"Variable Rate" means a rate per annum equal to the Reference Rate
plus the Applicable Margin, adjusted concurrently with any change in
the Reference Rate.
2. THE LINE OF CREDIT
2.1 THE LINE OF CREDIT. On terms and conditions as set forth herein,
the Bank agrees to make Advances to the Borrower (each an "Advance") from time
-3-
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<PAGE>
to time from the date hereof to the Expiration Date, provided the aggregate
principal amount of Advances outstanding plus the Letter of Credit Obligations
do not, at any time, exceed the Credit Limit. Within the foregoing limits, the
Borrower may borrow, partially or wholly prepay (but any prepayment is subject
to Section 4 below), and re-borrow under this Section 2.1.
2.2 INTEREST ON ADVANCES. At Borrower's option, interest shall accrue
from the date of each Advance at the Variable Rate (each Advance so made a
"Variable Rate Advance") or at a Fixed Rate (each Advance so made a "Fixed
Rate Advance").
EACH FIXED RATE ADVANCE IS SUBJECT TO THE PREPAYMENT
PROHIBITIONS AND PREPAYMENT FEES ENUMERATED IN SECTION 4 BELOW.
(a) NOTICE OF BORROWING. Upon telephonic notice which shall be
received by the Bank at or before the times prescribed below on a Business
Day, the Borrower may request an Advance by:
(1) A VARIABLE RATE ADVANCE. Requesting a Variable Rate
Advance may be made on the day notice is received by the
Bank; provided, however, that if the Bank shall not have
received notice at or before 2:30 p.m. on the day such
Advance is requested to be made, such Variable Rate Advance
may be made, at the Bank's option, on the next Business Day.
(2) A FIXED RATE ADVANCE. Requesting an Advance be made as
a Fixed Rate Advance by requesting the Bank to provide a quote as
to the rate which would apply (the "Fixed Rate") for a designated
Interest Period and, concurrently with receiving such quote, give
the Bank irrevocable notice of the Borrower's acceptance of the rate
quoted provided such notice shall be given to the Bank not more
than two (2) Business Days prior to but not later than 11:00 a.m.
(California time) on the day (which shall be a Business Day) on
which the Borrower requests such Fixed Rate Advance to be made.
(b) NOTICE OF ELECTION TO ADJUST INTEREST RATE. Upon telephonic
notice to the Bank, the Borrower may elect:
(1) CONVERSION OF A VARIABLE RATE ADVANCE. That interest
on a Variable Rate Advance shall be adjusted to accrue at
either a Fixed Rate by requesting the Bank to provide a
quote as to the rate which would apply (the "Fixed Rate")
for a designated Interest Period and, concurrently with
receiving such quote, give the Bank irrevocable notice of
the Borrower's acceptance of the rate quoted provided such
notice shall be given to the Bank not more than two (2)
Business Days prior to but not later than 11:00 a.m.
(California time) on the day (which shall be a Business Day)
-4-
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<PAGE>
on which the Borrower requests such Variable Rate Advance be
converted to a Fixed Rate Advance.
(2) CONVERSION OR CONTINUATION OF A FIXED RATE ADVANCE. That
interest on a Fixed Rate Advance shall, effective on the last day
of the current Interest Period pertaining to such Fixed Rate Advance,
(A) continue to accrue at a Fixed Rate by requesting
the Bank to provide a quote as to the Fixed Rate which
would apply for a designated Interest Period and,
concurrently with receiving such quote, give the Bank
irrevocable notice of the Borrower's acceptance of the
rate quoted provided such notice shall be given to the
Bank not more than two (2) Business Days prior to but
not later than 11:00 a.m. (California time) on the last
day of the then current Interest Period., or
(B) be adjusted to commence to accrue at the Variable
Rate.
If the Bank shall not have received notice as prescribed herein of
the Borrower's election that interest on any Fixed Rate Advance shall
continue to accrue at the Fixed Rate, the Borrower shall be deemed to
have elected that interest thereon shall be adjusted to accrue at the
Variable Rate upon the expiration of the Interest Period pertaining
to such Fixed Rate Advance.
(c) CONFIRMATION. Bank may, at its option, confirm in writing the
terms of any Fixed Rate Advance which confirmation shall be considered to
be correct and conclusively binding on the Borrower unless the Borrower
notifies the Bank to the contrary within 5 days after the Borrower's
receipt of any such confirmation which it deems to be incorrect.
(d) CALCULATION OF INTEREST. Interest at the Variable Rate shall be
adjusted concurrently with any change in the Reference Rate. Interest at
both the Variable Rate and the Fixed Rate shall be computed on the basis
of 360 days per year, but charged on the actual number of days elapsed.
(e) PAYMENT OF INTEREST. The Borrower hereby promises and agrees to
pay interest, with respect to both Variable Rate Advances and Fixed Rate
Advances, on the first calendar day of each month commencing on the first
such day to occur after the date of this Addendum. If interest is not paid
as it becomes due, it may be added to, become and be treated as a part of
the principal, and shall thereafter bear like interest.
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<PAGE>
2.3 COMMITMENT FEE. The Borrower promises to pay to the Bank a commitment
fee (the "Commitment Fee") of $30,000 payable in quarterly installments of
$7,500 on the first day of each August 1997, November 1997, February 1998 and
May 1998. The Borrower acknowledges that the Commitment Fee will be fully
earned by the Bank with the execution and delivery of this Addendum.
2.4 MAKING LINE ADVANCES.. Each Advance shall be conclusively deemed to
have been made at the request of and for the benefit of the Borrower (i) when
credited to any deposit account of the Borrower maintained with the Bank or
(ii) when paid in accordance with the Borrower's written instructions.
2.5 PAYMENT OF PRINCIPAL. On the Expiration Date, the Borrower hereby
promises and agrees to pay to the Bank in full the aggregate unpaid principal
amount of all Advances then outstanding, together with all accrued and unpaid
interest thereon.
2.6 LATE PAYMENT. If any payment of interest, or any portion thereof,
under this Addendum is not paid within ten (10) calendar days after it is due,
a late payment charge equal to five percent (5%) of such past due payment may
be assessed and shall be immediately payable.
2.7 LOAN ACCOUNT. The Bank may maintain on its books a record of account
in which the Bank shall make entries for each Advance and such other debits
and credits as shall be appropriate in connection with this Addendum (the
"Loan Account"). The Bank may provide the Borrower with a monthly statement of
the Borrower's Loan Account, which statement shall be considered to be correct
and conclusively binding on the Borrower unless the Borrower notifies the Bank
to the contrary within 30 days after the Borrower's receipt of any such
statement which it deems to be incorrect.
2.8 AUTHORIZATION TO CHARGE. The Borrower hereby authorizes the Bank, if
and to the extent payment owed to the Bank under the Line of Credit is not
made when due, to charge, from time to time, against any or all of the
Borrower's deposit accounts with the Bank any amount so due.
3. LETTERS OF CREDIT SUBLIMIT.
3.1 AMOUNT. The Bank hereby agrees to issue Letters of Credit for and on
behalf of Borrower provided that the total Letter of Credit Obligations shall
not exceed the L/C Sublimit and, together with the principal amount of
Advances outstanding, do not exceed the Credit Limit.
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<PAGE>
3.2 LETTER OF CREDIT GENERAL CONDITIONS.
(a) Letters of Creidt [sic] may be issued to suppport [sic] the
Borrower's business operations.
(b) As a condition precedent to Bank's obligation to issue any
Letter of Credit hereunder, the Borrower shall pay to the Bank an
issuance fee equal to
(1) 1.0% per annum time the amount of each Standby
Credit (or a minimum fee of $300.00)
(2) 0.125% times the amount of each Sight Credit times the
number of calendar quarters, or portion thereof, measured
from the issue date to the expiration date (or a minimum fee
of $100.00), and
shall promptly pay, upon request, such other fees, commissions, costs
and any out-of-pocket expenses charged or incurred by the Bank with
respect to any Letter of Credit.
(c) The commitment by the Bank to issue Letters of Credit shall,
unless earlier terminated in accordance with the terms of the Master,
automatically terminate on the Expiration Date and no Letter of Credit
shall expire, and no draft under a Letter of Credit shall be payable on a
date which more than ninety (90) days after the Expiration Date.
(d) Each Letter of Credit shall be in form and substance satisfactory
to the Bank and shall be in favor of beneficiaries satisfactory to the
Bank, provided that the Bank may refuse to issue a Letter of Credit due to
the nature of the transaction or its terms or in connection with any
transaction where the Bank, due to the beneficiary or the nationality or
residence of the beneficiary, would be prohibited by any applicable law,
regulation or order from issuing such Letter of Credit.
(e) Prior to the issuance of each Letter of Credit, but in no event
later than 10:00 a.m. (California time) on the day such Letter of Credit
is to be issued (which shall be a Business Day), the Borrower shall
deliver to the Bank the Bank's standard form of application for issuance
of a letter of credit with proper insertions, duly executed by Borrower.
3.3 DRAWINGS: Upon receipt from any beneficiary under a Letter of Credit
of a demand for payment under such Letter of Credit (each a "Drawing"), the
Bank shall promptly notify the Borrower. Each 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 a Drawing from the proceeds of an Advance, the
Borrower may request an Advance in accordance with the terms and conditions of
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<PAGE>
this Addendum and, if disbursed or created on the date of such Drawing, shall
be applied in payment of such obligation by the Borrower. If any Drawing shall
not be paid when due in accordance with the terms of this Addendum, the
Borrower shall reimburse the Bank for each Drawing together with interest
thereon until paid at the Default Interest Rate. The obligation of the
Borrower to reimburse the Bank for 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 Bank (except such as may arise out of the Bank's gross
negligence or willful misconduct) or any other person, including, without
limitation, and set-off, counterclaim or defense based upon or arising out of:
(a) any lack of validity or enforceability of this Addendum or any
of the other Loan Documents;
(b) any amendment or waiver of or 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 punctuation,
capitalization, spelling or format of the drafts or any statements
presented in connection with any Drawing.
3.4 RELEASE OF DOCUMENTS. The Bank shall not be obligated to release any
documents accompanying a Drawing under a Sight Credit until such time as the
Borrower has paid the full amount of such Drawing. No past or future custom or
practice of releasing documents prior to receiving such payment shall operate
as a waiver of the Bank's right under this Paragraph. From and after the
occurrence of an Event of Default and until such time as such Event of Default
has been cured or waived, the Bank shall not be obligated to release documents
accompanying a Drawing under any Usance Credit until such time as the Borrower
has deposited with the Bank, the full amount of such Drawing.
4. PREPAYMENT; INDEMNITY
4.1 PROHIBITION AGAINST PREPAYMENT. Notwithstanding anything to the
contrary in this Addendum, no prepayment shall be made on any Fixed Rate
Advance except by reason of conversion pursuant to Section 4.4 or by reason of
acceleration as a result of the occurrence of an Event of Default.
-8-
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<PAGE>
4.2 PREPAYMENT FEE. Bank expects to incur or will incur certain financial
obligations in order to offer the Borrower Fixed Rate Advances. In the event
the Borrower is required to prepay a Fixed Rate Advance before the end of the
applicable Interest Period, the Bank may incur certain costs and expenses
which are a direct or indirect result of such Prepayment(s). Such expenses
would be difficult and costly to determine at the time of occurrence. The
parties agree that the prepayment fees (each a "Prepayment Fee") described
herein are reasonably approximate to the Bank's actual damages as they can
best be determined as of the date hereof.
(a) PREPAYMENT FEE. In the event the Borrower is required to
prepay all or a portion of a Fixed Rate Advance, the Borrower shall pay
Bank concurrently with any such Prepayment and as compensation for the
damages Bank is reasonably expected to incur, a Prepayment Fee equal to
the Lost Opportunity Rate times the Prepayment Term times the amount of
the Prepayment.
(b) UNAVAILABLE INDEX. In the event any index or rate described
herein cannot be determined on any date the same is to be determined, the
Bank shall make a good faith estimate such index or rate which estimate
shall be binding upon the parties. Absent manifest error, all calculations
made by Bank as to any index, rate or time period described herein or the
amount of any Prepayment Fee shall be conclusive and binding upon all
parties.
4.3 INDEMNIFICATION FOR COSTS. During any period of time in which a Fixed
Rate Advance is outstanding, the Borrower shall, upon Bank's request, promptly
pay to and reimburse the Bank for all costs incurred and payments made by Bank
by reason of any future assessment, reserve, deposit or similar requirements
or any surcharge, tax or fee imposed upon Bank or as a result of Bank's
compliance with any directive or requirement of any regulatory authority
pertaining or relating to funds used by Bank in quoting and determining the
Fixed Rate. The Fixed Rate applicable to any Fixed Rate Advance for any
Interest Period shall be automatically adjusted during such Interest Period to
reflect any change in the applicable assessment, reserve, deposit or similar
requirement provided, however, that any failure or delay of the Bank to so
adjust the Fixed Rate in any instance shall not be deemed a waiver of the
right to adjust the Fixed Rate for the same or any later instance.
4.4 CONVERSION FROM FIXED RATE TO REFERENCE RATE. In the event that Bank
shall at any time determine that the accrual of interest on the basis of the
Fixed Rate is or has become unlawful or infeasible by reason of Bank's
compliance with any new law, rule, regulation, guideline or order, or any new
interpretation of any present law, rule, regulation, guideline or order, then
Bank shall give telephonic notice thereof (confirmed in writing) to the
Borrower, in which event any Fixed Rate Advance shall no longer be deemed to
be a Fixed Rate Advance and interest shall thereupon immediately accrue at the
Variable Rate, provided, however, that in such event, the Prepayment Fee shall
nonetheless be payable. Thereafter principal and interest shall be payable as
a Variable Rate Advance.
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<PAGE>
5. MASTER AGREEMENT
This Addendum is expressly made subject to the terms and conditions of the
Master Agreement and is secured by the Collateral described therein.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed as of the date first hereinabove written.
BANK: BORROWER
SANWA BANK CALIFORNIA NTS TECHNICAL SYSTEMS
By: /s/ M. W. Platt By: /s/ LLOYD BLONDER
----------------------------------- ----------------------------
M. W. Platt, Vice President LLOYD BLONDER, V.P.
----------------------------
(name/title)
By: /s/
----------------------------
----------------------------
(name/title)
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<PAGE>
[LOGO]
Sanwa Bank California
1997 $3,250,000 TERM LOAN ADDENDUM
This 1997 $3,250,000 TERM LOAN ADDENDUM (the "Addendum") is made and
entered into this _____ day of April, 1997, by and between SANWA BANK
CALIFORNIA (the "Bank") and NTS TECHNICAL SYSTEMS (the "Borrower"), on the
terms and conditions provided herein.
RECITALS
A. On or about April ______, 1997 the Borrower made executed and
delivered to the Bank a MASTER CREDIT AGREEMENT (the "Master Agreement").
B. This Addendum is made pursuant and subject to the Master
Agreement. Terms not defined in this Addendum have the meaning given such
terms in the Master Agreement.
AGREEMENT
1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS. Unless elsewhere defined in this Addendum,
the following terms shall have the following meanings (such meanings to be
generally applicable to the singular and plural forms of the terms defined):
"Applicable Margin" means, with respect to a Fixed Rate Loan, two
and three quarter percent (2.75%) and, with respect to a Variable Rate
Advance, three-quarters of one percent (0.75%).
"COF Rate" means the rate per annum which is quoted and offered
by the Bank and accepted by the Borrower pursuant to Section 2.2 below
which is approximately equal to the Bank's cost of acquiring a time
certificate of deposit in an amount approximately equal to the amount of
the then principal balance of the Term Loan for a period of time
approximately equal to the date such rate is to become effective to the
Maturity Date plus the Applicable Margin.
"Fixed Rate" means the COF Rate.
"Fixed Rate Loan" means the principal balance of the Term Loan after
the Borrower has elected that interest accrue at a Fixed Rate.
"Interest Period" means, with respect to a Fixed Rate Loan, the
period of time commencing on the Business Day the Term Loan begins to
accrue interest at a Fixed Rate and ending on the Maturity Date, provided
that:
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<PAGE>
(1) if any Interest Period would otherwise end on a day which
is not a Business Day, that Interest Period shall be extended to
the next succeeding Business Day, and
(2) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month at
the end of such Interest Period.
"Lost Opportunity Rate" means the amount expressed as an interest
rate by which (a) the offered sale price for a United States Treasury
security selected by the Bank having a maturity which most approximates
the Interest Period of the Fixed Rate Loan being repaid determined as of
the first day of the Interest Period , exceeds (b) the offered sales price
for the same United States Treasury security selected pursuant to (a) as
of the respective Prepayment Date.
"Maturity Date" means May 1, 2002.
"Obligations" means, as of the date the same is to be determined,
the principal amount of the Term Loan, all accrued and unpaid interest and
all other costs and expenses (including, but not limited to, Bank
Expenses) then due and owing by the Borrower under this Addendum.
"Prepayment" shall mean any principal payment made with respect
to a Fixed Rate Loan on other than payments required to be made pursuant
to Section 2.5.
"Prepayment Date" shall mean the date of the respective
Prepayment.
"Prepayment Fee" shall mean the fee described in Section 3.2.
"Prepayment Term" shall mean the dollar amount of each principal
repayment remaining to be made pursuant to Section 2.5 without regard to
any previous Prepayment (each a "Scheduled Payment" or "$") times the
number of years and/or fraction thereof from the Determination Date until
the date each such Scheduled Payment was to be paid pursuant to the Loan
Documents ("Y") divided by the total of the Scheduled Payments ("P").
APT = SUM($ X Y)
----------
P
"Term Loan" means the principal balance outstanding under this
Addendum.
"Reference Rate" means an index for a variable interest rate
which is quoted, published or announced from time to time by the Bank as
its reference rate and as to which loans may be made by the Bank at, below
or above such reference rate.
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<PAGE>
"Variable Rate" means a rate per annum equal to the Reference
Rate plus the Applicable Margin, adjusted concurrently with any change in
the Reference Rate.
2. THE TERM LOAN
2.1 AMOUNT. On terms and conditions as set forth herein, the Bank agrees
to make a term loan to the Borrower (the "Term Loan") provided the aggregate
principal amount of the Term Loan shall not exceed THREE MILLION, TWO HUNDRED
AND FIFTY THOUSAND DOLLARS ($3,250,000.00). The Term Loan is for the purpose
of paying the amount owed by the Borrower to Bank of America National Trust
and Savings Association ("BofA") and the Bank pursuant to a $6,000,000
revolving line of credit and the amount owing to BofA pursuant to a term loan
in the original principal amount of $5,000,000 (the amount owed to the Bank
pursuant to such term loan being financed pursuant to the 1997 $749,986 Term
Loan Addendum being executed concurrently herewith).
2.2 REQUESTING ADVANCES. For each Advance made for the purpose described
in Section 2.1(a) above, the Borrower shall submit to the Bank a written request
in the form attached as Exhibit "A" (each a "Request for Advance") describing
with reasonable particularity the equipment being acquired, together with
evidence of the purchase price (i.e., an invoice).
2.3 INTEREST. At Borrower's option, interest on the outstanding principal
balance of the Term Loan shall accrue at either Variable Rate (the principal
balance while so accruing interest a "Variable Rate Balance") or a Fixed Rate
(the principal balance while so accruing interest a "Fixed Rate Loan").
EACH FIXED RATE LOAN IS SUBJECT TO THE PREPAYMENT
PROHIBITIONS AND PREPAYMENT FEES ENUMERATED IN SECTION 3 BELOW.
(a) NOTICE. Upon telephonic notice which shall be received by the
Bank at or before the times prescribed below on a Business Day, the
Borrower may request the Term Loan accrue interest at a Fixed Rate by
requesting the Bank to provide a quote as to the rate which would apply
(the "Fixed Rate") for a designated Interest Period and, concurrently with
receiving such quote, give the Bank irrevocable notice of the Borrower's
acceptance of the rate quoted provided such notice shall be given to the
Bank not more than two (2) Business Days prior to but not later than 11:00
a.m. (California time) on the day (which shall be a Business Day) on which
the Term Loan is to be made. If the Bank shall not have received notice as
prescribed herein of the Borrower's election that interest accrue at the
Fixed Rate, the Borrower shall be deemed to have elected that interest
accrue at the Variable Rate.
(b) CONVERSION OF A VARIABLE RATE BALANCE. If the Borrower initially
elected that interest accrue on the Term Loan at the Variable Rate, upon
telephonic notice to the Bank, the Borrower may elect that interest on the
Term Loan be adjusted to accrue at a Fixed Rate by requesting the
-3-
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<PAGE>
Bank to provide a quote as to the rate which would apply (the "Fixed
Rate") and, concurrently with receiving such quote, give the Bank
irrevocable notice of the Borrower's acceptance of the rate quoted
provided such notice shall be given to the Bank not more than two (2)
Business Days prior to but not later than 11:00 a.m. (California time) on
the day (which shall be a Business Day) on which the Borrower requests
such Variable Rate Balance be converted to a Fixed Rate Balance. THE
BORROWER'S OPTION TO CONVERT INTEREST FROM THE VARIABLE RATE TO A FIXED
RATE MAY BE EXERCISED ONCE AND ONCE ONLY, AND ONLY WITH RESPECT TO THE
ENTIRE PRINCIPAL BALANCE OF THE TERM LOAN THEN OUTSTANDING.
(c) CONFIRMATION. Bank may, at its option, confirm in writing the
terms of any Fixed Rate Balance which confirmation shall be considered to
be correct and conclusively binding on the Borrower unless the Borrower
notifies the Bank to the contrary within 5 days after the Borrower's
receipt of any such confirmation which it deems to be incorrect.
2.4 CALCULATION OF INTEREST. Interest at the Variable Rate shall be
adjusted concurrently with any change in the Reference Rate. Interest at
both the Variable Rate and the Fixed Rate shall be computed on the basis of
360 days per year, but charged on the actual number of days elapsed.
2.5 PAYMENT OF INTEREST. The Borrower hereby promises and agrees to pay
interest on the first calendar day of each month commencing on the first such
day to occur after the date of this Addendum. If interest is not paid as it
becomes due, it may be added to, become and be treated as a part of the
principal, and shall thereafter bear like interest.
2.6 PAYMENT OF PRINCIPAL. The Borrower promises and agrees to repay the
principal balance of the Term Loan in 59 equal monthly payments $54,166.00
commencing on June 1, 1997 and continuing on the first calendar day of each
month thereafter. The Borrower hereby promises and agrees to pay to the Bank
in full on the Maturity Date the aggregate unpaid principal amount of the
Term Loan then outstanding, together with all accrued and unpaid interest
thereon. At Bank's option, the Borrower agrees to execute and deliver a
promissory note in form and substance satisfactory to the Bank describing the
payments as described in this Section.
2.7 LOAN FEE. The Borrower shall pay to the Bank, concurrently with the
execution and delivery of this Addendum, and as condition precedent thereto,
a non-refundable loan fee (the "Loan Fee") $16,250.00. The Borrower
acknowledges that the Loan Fee will be fully earned by the Bank with the
execution and delivery of this Addendum.
2.8 LATE PAYMENT. If any payment of interest or principal, or any portion
thereof, under this Addendum is not paid within ten (10) calendar days after
it is due, a late payment charge equal to five percent (5%) of such past due
payment may be assessed and shall be immediately payable.
-4-
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<PAGE>
2.9 LOAN ACCOUNT. The Bank may maintain on its books a record of account
in which the Bank shall make entries for each Advance and such other debits and
credits as shall be appropriate in connection with this Addendum (the "Loan
Account"). The Bank may provide the Borrower with a monthly statement of the
Borrower's Loan Account, which statement shall be considered to be correct
and conclusively binding on the Borrower unless the Borrower notifies the
Bank to the contrary within 30 days after the Borrower's receipt of any such
statement which it deems to be incorrect.
3. PREPAYMENT; INDEMNITY
3.1 PROHIBITION AGAINST PREPAYMENT. Notwithstanding anything to the
contrary in this Addendum, no prepayment shall be made on the Fixed Rated
Loan except by reason of conversion pursuant to Section 3.4 or by reason of
acceleration as a result of the occurrence of an Event of Default.
3.2 PREPAYMENT FEE. Bank expects to incur or will incur certain financial
obligations in order to offer the Borrower Fixed Rate Loan. In the event the
Borrower is required to prepay the Fixed Rate Loan before the Maturity Date,
the Bank may incur certain costs and expenses which are a direct or indirect
result of such Prepayment(s). Such expenses would be difficult and costly to
determine at the time of occurrence. The parties agree that the prepayment
fees (each a "Prepayment Fee") described herein are reasonably approximate to
the Bank's actual damages as they can best be determined as of the date
hereof.
(a) PREPAYMENT FEE. In the event the Borrower is required to prepay
all or a portion of the Fixed Rate Loan, the Borrower shall pay Bank
concurrently with any such Prepayment and as compensation for the damages
Bank is reasonably expected to incur, a Prepayment Fee equal to the Lost
Opportunity Rate times the Prepayment Term times the amount of the
Prepayment.
(b) UNAVAILABLE INDEX. In the event any index or rate described
herein cannot be determined on any date the same is to be determined, the
Bank shall make a good faith estimate such index or rate which estimate
shall be binding upon the parties. Absent manifest error, all calculations
made by Bank as to any index, rate or time period described herein or the
amount of any Prepayment Fee shall be conclusive and binding upon all
parties.
3.3 INDEMNIFICATION FOR COSTS. During any period of time in which the
Term Loan is accruing Interest at a Fixed Rate, the Borrower shall, upon
Bank's request, promptly pay to and reimburse the Bank for all costs incurred
and payments made by Bank by reason of any future assessment, reserve, deposit
or similar requirements or any surcharge, tax or fee imposed upon Bank or as a
result of Bank's compliance with any directive or requirement of any
regulatory authority pertaining or relating to funds used by Bank in quoting
and determining the Fixed Rate. The Fixed Rate applicable to the Term Loan
shall be automatically adjusted to reflect any change in the applicable
-5-
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<PAGE>
assessment, reserve, deposit or similar requirement provided, however, that
any failure or delay of the Bank to so adjust the Fixed Rate in any instance
shall not be deemed a waiver of the right to adjust the Fixed Rate for the
same or any later instance.
3.4 CONVERSION FROM FIXED RATE TO REFERENCE RATE. In the event that Bank
shall at any time determine that the accrual of interest on the basis of the
Fixed Rate is or has become unlawful or infeasible by reason of Bank's
compliance with any new law, rule, regulation, guideline or order, or any new
interpretation of any present law, rule, regulation, guideline or order, then
Bank shall give telephonic notice thereof (confirmed in writing) to the
Borrower, in which event the Term Loan shall no longer accrue interest at a
Fixed Rate and interest shall thereupon immediately accrue at the Variable
Rate, provided, however, that in such event, the Prepayment Fee shall
nonetheless be payable.
4. MASTER AGREEMENT
This Addendum is expressly made subject to the terms and conditions of
the Master Agreement and is secured by the Collateral described therein.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed as of the date first hereinabove written.
BANK: BORROWER
SANWA BANK CALIFORNIA NTS TECHNICAL SYSTEMS
By: /s/ M. W. Platt By: /s/
----------------------------------- -----------------------------
M. W. Platt, Vice President
-----------------------------
(name/title)
By: /s/
-----------------------------
-----------------------------
(name/title)
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<PAGE>
EXHIBIT A
REQUEST FOR ADVANCE
[BORROWER'S LETTER HEAD]
Sanwa Bank California
Sherman Oaks Commercial Banking Center
15165 Ventura Boulevard
Sherman Oaks, California 91403
Re: 1997 $2,000,000 Term Loan Addendum (the "Addendum")
Pursuant to Section 2 of the Addendum, the undersigned ("Borrower")
requests and Advance in the principal amount of $_________________________.
The proceeds of such Advance shall be used to acquire the following equipment:
The Borrower certifies that the purchase cost of such equipment is
$______________________ as evidenced by the attached documentation. You
are requested to:
[ ] Deposit the proceeds of such Advance in the undersigned's deposit
account No. _______________________.
[ ] Pay the proceeds of such Advance to ________________________________
according to the following instructions: ___________________________
____________________________________________________________________.
Dated as of ________________________, 199____.
BORROWER
NTS TECHNICAL SYSTEMS
By:
---------------------------------------
---------------------------------------
(name/title)
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[LOGO]
Sanwa Bank California]
1997 $749,986 TERM LOAN ADDENDUM
This 1997 $749,986 TERM LOAN ADDENDUM (the "Addendum") is made and
entered into this 30th day of April, 1997, by and between SANWA BANK
CALIFORNIA (the "Bank") and NTS TECHNICAL SYSTEMS (the "Borrower"), on the
terms and conditions provided herein.
RECITALS
A. On or about April 30, 1997 the Borrower made executed and
delivered to the Bank a MASTER CREDIT AGREEMENT (the "Master Agreement").
B. This Addendum is made pursuant and subject to the Master
Agreement. Terms not defined in this Addendum have the meaning given such
terms in the Master Agreement.
AGREEMENT
1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS. Unless elsewhere defined in this Addendum,
the following terms shall have the following meanings (such meanings to be
generally applicable to the singular and plural forms of the terms defined):
"Fixed Rate" means a rate per annum equal to 7.37%.
"Lost Opportunity Rate" means the amount expressed as an interest
rate by which (a) the offered sale price for a United States Treasury
security selected by the Bank having a maturity which most approximates
the Interest Period of the Fixed Rate Advance or Fixed Rate Balance being
repaid determined as of the first day of the Interest Period pertaining to
such Advance or Balance, exceeds (b) the offered sales price for the same
United States Treasury security selected pursuant to (a) as of the
respective Prepayment Date.
"Maturity Date" means August 31, 1998.
"Obligations" means, as of the date the same is to be determined,
the principal amount of the Term Loan, all accrued and unpaid interest and
all other costs and expenses (including, but not limited to, Bank
Expenses) then due and owing by the Borrower under this Addendum.
"Prepayment" shall mean any principal payment made with respect
to the Term Loan on other than payments required to be made pursuant to
Section 2.5 and payments made on the last day of an Interest Period.
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<PAGE>
"Prepayment Date" shall mean the date of the respective Prepayment.
"Prepayment Fee" shall mean the fee described in Section 3.2.
"Prepayment Term" shall mean the dollar amount of each principal
repayment remaining to be made pursuant to Section 2.5 without regard to
any previous Prepayment (each a "Scheduled Payment" or "$") times the
number of years and/or fraction thereof from the Determination Date until
the date each such Scheduled Payment was to be paid pursuant to the Loan
Documents ("Y") divided by the total of the Scheduled Payments ("P").
APT = SUM($ X Y)
----------
P
"Term Loan" means the loan described in Section 2.1.
"Reference Rate" means an index for a variable interest rate
which is quoted, published or announced from time to time by the Bank as
its reference rate and as to which loans may be made by the Bank at, below
or above such reference rate.
"Variable Rate" means a rate per annum equal to the Reference
Rate plus two and three quarters percents (2.75%), adjusted concurrently
with any change in the Reference Rate.
2. THE TERM LOAN
2.1 AMOUNT. On terms and conditions as set forth herein, the Bank agrees
to make a term loan to the Borrower (the "Term Loan") provided the aggregate
principal amount of the Term Loan shall not exceed the lesser of SEVEN
HUNDRED, FORTY-NINE THOUSAND, NINE HUNDRED EIGHTY-SIX DOLLARS ($749,986) or
the amount owed by the Borrower to the Bank pursuant to that certain Business
Loan Agreement dated as of September 1, 1993 by and among the Borrower, Bank
of America National Trust and Savings Association, and the Bank (the "Business
Loan Agreement"). The Term Loan is for the purpose of paying the amount owed
by the Borrower to the Bank the Business Loan Agreement.
2.2 INTEREST. Borrower promises and agrees to pay interest on the
outstanding balance of the Term Loan at a rate per annum equal to the Fixed
Rate.
THE TERM LOAN WHILE ACCRUING INTEREST AT THE FIXED RATE IS
SUBJECT TO THE PREPAYMENT PROHIBITIONS AND PREPAYMENT FEES
ENUMERATED IN SECTION 3 BELOW.
2.3 CALCULATION OF INTEREST. Interest be computed on the basis of 360
days per year, but charged on the actual number of days elapsed.
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<PAGE>
2.4 PAYMENT OF INTEREST. The Borrower hereby promises and agrees to pay
interest on the first calendar day of each month commencing on the first such
day to occur after the date of this Addendum. If interest is not paid as it
becomes due, it may be added to, become and be treated as a part of the
principal, and shall thereafter bear like interest.
2.5 PAYMENT OF PRINCIPAL. The Borrower promises and agrees to repay the
principal balance of the Term Loan in equal monthly payments of $41,667
commencing on May 1, 1997 and continuing on the first calendar day of each
month thereafter. The Borrower hereby promises and agrees to pay to the Bank
in full on the Maturity Date the aggregate unpaid principal amount of the
Term Loan then outstanding, together with all accrued and unpaid interest
thereon. At Bank's option, the Borrower agrees to execute and deliver a
promissory note in form and substance satisfactory to the Bank describing the
payments as described in this Section.
2.6 LATE PAYMENT. If any payment of interest or principal, or any portion
thereof, under this Addendum is not paid within ten (10) calendar days after
it is due, a late payment charge equal to five percent (5%) of such past due
payment may be assessed and shall be immediately payable.
2.7 LOAN ACCOUNT. The Bank may maintain on its books a record of account
in which the Bank shall make entries for each Advance and such other debits and
credits as shall be appropriate in connection with this Addendum (the "Loan
Account"). The Bank may provide the Borrower with a monthly statement of the
Borrower's Loan Account, which statement shall be considered to be correct
and conclusively binding on the Borrower unless the Borrower notifies the
Bank to the contrary within 30 days after the Borrower's receipt of any such
statement which it deems to be incorrect.
3. PREPAYMENT; INDEMNITY
3.1 PROHIBITION AGAINST PREPAYMENT. Notwithstanding anything to the
contrary in this Addendum, no prepayment shall be made on the Term Loan
Balance except by reason of conversion pursuant to Section 3.4 or by reason
of acceleration as a result of the occurrence of an Event of Default.
3.2 PREPAYMENT FEE. Bank expects to incur or will incur certain financial
obligations in order to offer the Borrower Fixed Rate. In the event the
Borrower is required to prepay the Term Loan in advance of payments due
pursuant to Section 2.5, the Bank may incur certain costs and expenses which
are a direct or indirect result of such Prepayment(s). Such expenses would
be difficult and costly to determine at the time of occurrence. The parties
agree that the prepayment fees (each a "Prepayment Fee") described herein are
reasonably approximate to the Bank's actual damages as they can best be
determined as of the date hereof.
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<PAGE>
(a) PREPAYMENT FEE. In the event the Borrower is required to
prepay all or a portion of the Term Loan, the Borrower shall pay Bank
concurrently with any such Prepayment and as compensation for the damages
Bank is reasonably expected to incur, a Prepayment Fee equal to the Lost
Opportunity Rate times the Prepayment Term times the amount of the
Prepayment.
(b) UNAVAILABLE INDEX. In the event any index or rate described
herein cannot be determined on any date the same is to be determined, the
Bank shall make a good faith estimate such index or rate which estimate
shall be binding upon the parties. Absent manifest error, all calculations
made by Bank as to any index, rate or time period described herein or the
amount of any Prepayment Fee shall be conclusive and binding upon all
parties.
3.3 INDEMNIFICATION FOR COSTS. The Borrower shall, upon Bank's request,
promptly pay to and reimburse the Bank for all costs incurred and payments
made by Bank by reason of any future assessment, reserve, deposit or similar
requirements or any surcharge, tax or fee imposed upon Bank or as a result of
Bank's compliance with any directive or requirement of any regulatory
authority pertaining or relating to funds used by Bank in quoting and
determining the Fixed Rate. The Fixed Rate applicable to the Term Loan shall
be automatically adjusted to reflect any change in the applicable assessment,
reserve, deposit or similar requirement provided, however, that any failure
or delay of the Bank to so adjust the Fixed Rate in any instance shall not be
deemed a waiver of the right to adjust the Fixed Rate for the same or any
later instance.
3.4 CONVERSION FROM FIXED RATE TO VARIABLE RATE. In the event that Bank
shall at any time determine that the accrual of interest on the basis of the
Fixed Rate is or has become unlawful or infeasible by reason of Bank's
compliance with any new law, rule, regulation, guideline or order, or any new
interpretation of any present law, rule, regulation, guideline or order, then
Bank shall give telephonic notice thereof (confirmed in writing) to the
Borrower, in which event the Term Loan shall no longer accrue interest at a
Fixed Rate and interest shall thereupon immediately accrue at the Variable
Rate, provided, however, that in such event, the Prepayment Fee shall
nonetheless be payable.
4. MASTER AGREEMENT
This Addendum is expressly made subject to the terms and conditions of
the Master Agreement and is secured by the Collateral described therein.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed as of the date first hereinabove written.
BANK: BORROWER
SANWA BANK CALIFORNIA NTS TECHNICAL SYSTEMS
By: /s/ M. W. Platt By: /s/
----------------------------------- -----------------------------
M. W. Platt, Vice President
-----------------------------
(name/title)
By: /s/
-----------------------------
-----------------------------
(name/title)
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Page 75 of 76
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<FISCAL-YEAR-END> JAN-31-1998
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0
0
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