<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-QSB
Mark One
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarterly Period Ended March 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition period from to
--------------- ----------------
Commission File Number 000-08193
SENSYS TECHNOLOGIES INC.
(FORMERLY KNOWN AS DAEDALUS ENTERPRISES, INC.)
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-1873250
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8419 Terminal Road, Newington, Virginia 22122-1430
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 550-7000
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- --------
As of May 10, 1999, there were 3,969,971 shares of the Registrant's
Common Stock, par value $.01 per share, outstanding.
<PAGE> 2
SENSYS TECHNOLOGIES INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements (Unaudited)
- -------
Pages
-----
<S> <C>
Condensed Consolidated Balance Sheet at
March 31, 1999 and September 30, 1998...................................... 3-4
Condensed Consolidated Income Statement for the
Three Months Ended March 31, 1999 and March 31, 1998,
And Six Months Ended March 31, 1999 and March 31, 1998.................... 5-6
Condensed Consolidated Statement of Stockholders' Equity for the
Six Months Ended March 31, 1999............................................ 7
Condensed Consolidated Statement of Cash Flows for the
Six Months Ended March 31, 1999 and March 31, 1998........................ 8
Notes to Condensed Consolidated Financial Statements............................ 9-10
Item 2. Management's Discussion and Analysis of Results of
- ------- Operations and Financial Condition................................... 11-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................... 15
- -------
Item 4. Submission of Matters to a Vote of Security Holders.................. 15-16
- -------
Item 6. Exhibits and Reports on Form 8-K..................................... 16
- -------
Signatures ..................................................................... 17
</TABLE>
2
<PAGE> 3
SENSYS TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
------------------- -----------------
(Unaudited) *
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 849,000 $ 112,000
Accounts receivable 3,473,000 5,082,000
Unbilled contract costs, net 5,093,000 3,826,0005
Inventories (Note 3) 447,000 36,000
Deferred tax asset 290,000 288,000
Other current assets 88,000 89,000
Refundable and prepaid income taxes 98,000 311,000
------------------- -----------------
TOTAL CURRENT ASSETS 10,338,000 10,244,000
PROPERTY AND EQUIPMENT 1,598,000 1,647,000
OTHER ASSETS
Deferred tax asset 17,000 236,000
Costs in excess of net assets acquired 700,000 782,000
Property held for resale (Note 5) - 1,446,000
Other assets 81,000 69,000
------------------- -----------------
TOTAL ASSETS $ 12,734,000 $ 14,424,000
=================== =================
</TABLE>
*The year-end balance sheet data was summarized from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
SENSYS TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET, continued
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, September 30,
1999 1999
----------------- ------------------
(Unaudited) *
<S> <C> <C>
CURRENT LIABILITIES
Note payable - line of credit $ - $ 2,049,000
Accounts payable 2,380,000 2,554,000
Accrued salaries, benefits, and related expenses 1,296,000 1,199,000
Deferred compensation 334,000 319,000
Other accrued expenses 569,000 619,000
Mortgage payable (Note 5) - 220,000
Capital leases 45,000 53,000
----------------- ------------------
TOTAL CURRENT LIABILITIES 4,624,000 7,013,000
LONG-TERM LIABILITIES
Capital leases 91,000 104,000
----------------- ------------------
STOCKHOLDERS' EQUITY (Note 2)
Common Stock, at March 31, 1999, $.01 par value,
authorized 5,000,000 shares; issued and outstanding 3,969,971
shares; at September 30, 1998, $.01 par value, authorized
5,000,000 shares; issued and outstanding 3,961,271 shares 40,000 40,000
Additional capital 6,879,000 6,858,000
Retained earnings 1,100,000 409,000
----------------- ------------------
8,019,000 7,307,000
----------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,734,000 $ 14,424,000
================= ==================
</TABLE>
*The year-end balance sheet data was summarized from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles.
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
SENSYS TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION
Three Months Ended
March 31,
1999 1998
--------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUE
Contract revenue $ 7,515,000 $ 6,502,000
COSTS AND EXPENSES
Cost of revenues 5,591,000 5,508,000
General and administrative expenses, 1,225,000 787,000
--------------- ---------------
Total costs and expenses 6,816,000 6,295,000
--------------- ---------------
INCOME FROM OPERATIONS 699,000 207,000
OTHER EXPENSES
Interest expense, net (24,000) (45,000)
--------------- ---------------
INCOME BEFORE INCOME TAXES 675,000 162,000
INCOME TAX PROVISION (260,000) (61,000)
--------------- ---------------
NET INCOME $ 415,000 $ 101,000
=============== ===============
PER SHARE AMOUNT (Note 7)
Basic and diluted earnings per share $ 0.10 $ 0.03
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
SENSYS TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
Six Months Ended
March 31,
1999 1998
--------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUE
Contract revenue $ 13,538,000 $ 12,340,000
COSTS AND EXPENSES
Cost of revenues 10,221,000 10,644,000
General and administrative expenses 2,116,000 1,497,000
--------------- ---------------
Total costs and expenses 12,337,000 12,141,000
--------------- ---------------
INCOME FROM OPERATIONS 1,201,000 199,000
OTHER EXPENSES
Interest expense, net (70,000) (148,000)
--------------- ---------------
INCOME BEFORE INCOME TAXES 1,131,000 51,000
INCOME TAX PROVISION (440,000) (19,000)
--------------- ---------------
NET INCOME $ 691,000 $ 32,000
=============== ===============
PER SHARE AMOUNT (Note 7)
Basic and diluted earnings per share $ 0.17 $ 0.01
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 7
SENSYS TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Retained Stockholders'
Stock Capital Earnings Equity
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1998 $ 40,000 $ 6,858,000 $ 409,000 $7,307,000
Net income - - 691,000 691,000
Exercise of stock options - 21,000 - 21,000
--------- ----------- ----------- -----------
BALANCE AT MARCH 31, 1999 $ 40,000 $ 6,879,000 $1,100,000 $8,019,000
========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE> 8
SENSYS TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
March 31,
1999 1998
---------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net cash provided by operating activities $ 1,797,000 $ 162,000
---------------- ---------------
Cash flows from investing activities:
Acquisition expenses, net of cash acquired - (108,000)
Net acquisitions of property and equipment (237,000) (58,000)
Proceeds from disposal of property held for sale 1,446,000 -
---------------- ---------------
Net cash provided (used) by investing activities $ 1,209,000 $ (166,000)
---------------- ---------------
Cash flows from financing activities:
Net payments under line of credit $ (2,049,000) $ (3,786,000)
Principal payments on mortgage debt (220,000) -
Principal payments on capital lease obligations (21,000) (51,000)
Proceeds of stock option exercises 21,000 -
Issuance of common stock - 3,842,000
---------------- ---------------
Net cash (used) provided by financing activities (2,269,000) 5,000
---------------- ---------------
Net increase in cash and cash equivalents 737,000 1,000
Cash and cash equivalents, beginning of year 112,000 140,000
---------------- ---------------
Cash and cash equivalents, end of year $ 849,000 $ 141,000
================ ===============
Supplemental schedule of non-cash investing and financing activities:
Equipment acquired with capital lease obligations $ - $ 143,000
================ ===============
Supplemental disclosure of cash flow information:
Cash received for income taxes $ 24,000 $ -
Cash paid for interest $ (65,000) $ (136,000)
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE> 9
SENSYS TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information for commercial and industrial companies and with the
instructions to Form 10-QSB and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation have been included.
Operating results for the three and six month periods ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the fiscal
year ending September 30, 1999. Intercompany accounts and transactions have
been eliminated in consolidation. For further information, refer to Sensys
Technologies Inc.'s Annual Report on Form 10-KSB for the year ended September
30, 1998.
2. ACQUISITION
On June 9, 1998, Daedalus Enterprises, Inc. ("DEI") merged with S. T. Research
Corporation ("STR"). In connection with the merger, DEI changed its name to
Sensys Technologies Inc. (the "Company"). While DEI was the legal acquiror, the
merger was accounted for as a reverse acquisition purchase whereby STR was
deemed to have acquired DEI for financial reporting purposes. Consistent with
the reverse acquisition accounting treatment, the historical financial
statements presented for periods prior to the merger date are the financial
statements of STR except for stockholders' equity which has been retroactively
restated for the equivalent number of shares of the legal acquiror. An
adjustment has also been made to adjust the par value of the outstanding shares
with an offset to additional paid-in capital. Because of the accounting
treatment herein described, the financial statements differ from the
consolidated financial statements of DEI as previously reported. The operations
of DEI have been included in the financial statements commencing on the date of
the merger. In connection with the merger, the Company changed its fiscal
year-end from July 31 to September 30.
3. INVENTORIES
Inventories are valued at the lower of cost or market using the first-in,
first-out method and consisted of the following:
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
--------------- ---------------
<S> <C> <C>
Materials $ 97,000 $ 94,000
Work in process 350,000 442,000
--------------- ---------------
$ 447,000 $ 536,000
=============== ===============
</TABLE>
9
<PAGE> 10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
4. STOCK OPTIONS
On October 5, 1998, the Compensation Committee of the Board of Directors
approved the award of 414,000 options to employees at a fair market value price
of $3.00 per share. As of March 31, 1999, 31,000 of these options had been
forfeited.
5. PROPERTY HELD FOR SALE
At September 30, 1998, property held for sale consisted of land and a building
acquired in connection with the merger with DEI. On December 1, 1998, the
Company sold the property for cash of approximately $1,575,000, with net
proceeds of approximately $1,446,000 of which approximately $220,000 was used
to pay off the existing mortgage balance. Under terms of the sales agreement,
the Company is leasing approximately fifty percent of the facility for five
years with a five year option. The annual rental approximates $112,000 for each
of the next five years for an aggregate amount of $560,000.
6. NOTE PAYABLE - LINE OF CREDIT
Effective February 28, 1999, the Company entered into a line of credit and
related note payable with its bank. The agreement expires February 28, 2001,
and provides a maximum available line of credit of $3,000,000. However, the
total borrowing base generally cannot exceed the sum of 90 percent of qualified
Government accounts receivable and 80 percent of qualified non-Government
accounts receivable. The bank agreement establishes the interest rate at the
LIBOR rate (5.0 percent at March 31, 1999) plus 225 to 300 basis points,
determined by the Company's ratio of funded debt to earnings before interest,
taxes, depreciation and amortization. All borrowings under the line of credit
and the performance of the Company's obligations under the line of credit
agreement are secured by the Company's accounts receivable, equipment,
contracts, and general intangibles. The agreement also contains various
covenants as to dividend restrictions, working capital, tangible net worth,
earnings and debt-to-equity ratios. As of March 31, 1999, no amounts were
outstanding. Unused commitment fees of one quarter of one percent per annum are
required.
7. EARNINGS PER SHARE
The computation of net earnings per share is based on the weighted average
number of shares of common stock outstanding during the periods presented. The
weighted average number of shares used in the basic earnings per share
calculation was 3,968,554 and 2,920,065 for the three month periods ended March
31, 1999 and 1998, respectively, and 3,967,576 and 2,387,932 for the six month
periods ended March 31, 1999 and 1998, respectively. The weighted average
number of shares used in the diluted earnings per share calculation was
4,177,764 and 2,950,242 for the three month periods ended March 31, 1999 and
1998, respectively. The weighted average number of shares used in the diluted
earnings per share calculation was 4,159,775 and 2,429,365 for the six month
periods ended March 31, 1999 and 1998, respectively.
8. NEW ACCOUNTING PRONOUNCEMENTS
On June 15, 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes a new
model for accounting for derivatives and hedging. The new standard
10
<PAGE> 11
requires enhanced disclosure of accounting policies for derivative financial
instruments and derivative commodity instruments in the footnotes to the
financial statements. In addition, the standard expands disclosure requirements
to include quantitative and qualitative information about market risk inherent
in market risk sensitive instruments.
The Company will adopt SFAS No. 133 effective October 1, 1999. The Company
believes that the adoption of this statement will not have a material effect on
the Company's consolidated financial position or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion provides information which management believes is
relevant to an assessment and understanding of the Company's operations and
financial condition. This discussion should be read in conjunction with the
condensed consolidated financial statements and accompanying notes.
Forward-looking Statements
Certain statements made by the Company's management may be considered
to be "forward-looking statements" within the meaning of the Private Securities
Litigation Act of 1995. Forward-looking statements are based on various factors
and assumptions that include known and unknown risks and uncertainties. The
words "believe", "expect", "anticipate" and "project" and similar expressions
identify forward-looking statements, which speak only as of the date the
statement was made. Such statements may include, but not be limited to,
projections of revenues, income or loss, expenses, plans, as well as
assumptions relating to the foregoing. Forward-looking statements are
inherently subject to risks and uncertainties, some of which cannot be
predicted or quantified, including, but not limited to the size and timing of
orders and shipments, changes in economic conditions, the cost of labor and raw
materials, changes in technology and general competitive factors. The Company
undertakes no obligation and does not intend to update, revise or otherwise
publicly release the results of any revisions to these forward-looking
statements that may be made to reflect future events or circumstances.
GENERAL OVERVIEW
The Company designs, develops and manufactures systems and equipment used for
electronic reconnaissance and imaging. Through its electronic reconnaissance
efforts, the Company supports telecommunications intelligence, signal
intelligence, electronic support measures, electronic intelligence and airborne
remote sensing initiatives of the defense and intelligence communities. The
Company's activities in airborne imaging principally relate to the manufacture
of airborne imaging systems which are installed in aircraft and are used to
acquire optical radiation data from objects on the earth's surface and in the
atmosphere.
On June 9, 1998, Daedalus Enterprises, Inc. ("DEI") merged with S. T. Research
Corporation ("STR"). In connection with the merger, DEI changed its name to
Sensys Technologies Inc. (the "Company"). The merger was accounted for as a
reverse acquisition purchase whereby STR was deemed to have acquired DEI for
financial reporting purposes. Consistent with the reverse acquisition
accounting treatment, the historical financial statements presented for periods
prior to the merger date are the financial statements of STR except for
stockholders' equity which has been retroactively restated for the equivalent
number of shares of the legal acquiror. An adjustment has also been made to
adjust the par value of the outstanding shares with an offset to additional
paid-in capital. Because of the accounting treatment herein described, the
financial statements differ
11
<PAGE> 12
from the consolidated financial statements of DEI as previously reported. The
operations of DEI have been included in the financial statements commencing on
the date of the merger. In connection with the merger, the Company changed its
fiscal year-end from July 31 to September 30.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31,
1998:
Revenue for the three months ended March 31, 1999 was $7,515,000 compared to
$6,502,000 for the three months ended March 31, 1998, resulting in a $1,013,000
or a 15.6% increase. The increase was primarily the result of additional
revenues of approximately $257,000 from the former DEI business and revenue
from an engineering development subcontract that started in the fourth quarter
of fiscal year 1998.
Cost of revenue, as a percentage of revenue, decreased from 84.7% for the three
months ended March 31, 1998 to 74.4% for the three months ended March 31, 1999.
The decrease primarily resulted from a reduction in revenue from contracts in
which losses were sustained and lower profit margins were realized, as well as
an overall increase in the profit margins under other contracts. The Company
attributes this improvement to focusing the business and streamlining the
operations for higher productivity.
For the three months ended March 31, 1999, general and administrative expenses
increased from $787,000 to $1,225,000 or a 55.7% increase compared to the three
month period ended March 31, 1998. The increase was due principally to an
overall increase in its traditional general and administrative expenses of
approximately $125,000, and Bid & Proposal/Independent Research and Development
(B&P/IR&D) expenses of $185,000 incurred by the acquired DEI business
activities. In addition, incentive compensation benefits increased
approximately $45,000 and expenses of approximately $100,000 were incurred
related to meeting the Company's obligations as a public company, which were
offset by a reduction in bad debt expense of $105,000. Goodwill amortization,
as a result of the DEI acquisition, accounted for approximately $17,000 of the
increase.
Interest expense decreased from $45,000 for the three months ended March 31,
1998 to $24,000 for the three months ended March 31, 1999, which represents a
46.7% decrease. The decrease was principally the result of lower average
borrowings. For the three months ended March 31, 1999, the Company was able to
utilize its improved operating performance and the net proceeds from the sale
of real estate on December 1, 1998, to reduce to zero, at March 31, 1999, its
outstanding balance on its line of credit.
Income tax expense consists of federal and state income tax. The Company's
effective tax rate was 38.5% for the three months ended March 31, 1999,
compared to an effective tax rate of 37.7% for the three months ended March 31,
1998. The principal cause of the change is non-deductible goodwill amortization
in 1999 recorded in association with the Company's merger with DEI and the
impact of marginal tax bracket for lower taxable income in fiscal year 1998.
Net income for the three months ended March 31, 1999 increased to $415,000,
compared to a net income of $101,000 for the three months ended March 31, 1998.
The increase of $314,000 was the result of the items discussed above.
The total amount of funded contracts in backlog as of March 31, 1999 and March
31, 1998 was $12,100,000 and $10,300,000, respectively, including both the
uncompleted portion of contracts in progress and contracts awarded but not yet
started. The funded contract backlog at March 31, 1999 is expected to be
completed
12
<PAGE> 13
within a year.
In addition, at March 31, 1999, the Company had an unfunded backlog of
$4,900,000 compared to an unfunded backlog of $416,000 at March 31, 1998.
Exercisable options for subsequent production under existing contracts are
approximately $44,000,000 at March 31, 1999, compared to $8,400,000 at March
31, 1998.The outstanding options at March 31, 1999 are primarily related to a
first tier subcontract for engineering and production of components of the
AIEWS systems for U.S. Navy surface ships. The Company currently anticipates
that the options will be exercised during the period 2001 through 2005.
SIX MONTHS ENDED MARCH 31, 1999 COMPARED TO SIX MONTHS ENDED MARCH 31, 1998:
Revenue for the six months ended March 31, 1999 was $13,538,000 compared to
$12,340,000 for the six months ended March 31, 1998, resulting in a $1,198,000
or 9.7% increase. The increase was primarily the result of additional revenues
of approximately $650,000 from the former DEI business and revenue from an
engineering development subcontract that started in the fourth quarter of
fiscal year 1998.
Cost of revenue, as a percentage of revenue, decreased from 86.3% for the six
months ended March 31, 1998 to 75.5% for the six months ended March 31, 1999.
The decrease primarily resulted from a reduction in revenue from contracts on
which losses were sustained and contracts on which lower margins were realized,
as well as an overall increase in the profit margins under other contracts. The
Company attributes its improvement to focusing the business and streamlining
the operations for higher productivity.
For the six months ended March 31, 1999, general and administrative expenses
increased from $1,497,000 to $2,116,000 or a 41.3% increase compared to the
six-month period ended March 31, 1998. The increase was due principally to an
overall increase in traditional general and administrative expenses of $210,000
and Bid & Proposal/Independent Research & Development expenses of $240,000,
incurred by the acquired DEI business activities. In addition, incentive
compensation benefits increased approximately $115,000 and expenses of
approximately $125,000 were incurred related to meeting the Company's
obligations as a public company, which were offset by a reduction in bad debt
expense of $135,000. Goodwill amortization, as a result of the DEI acquisition,
accounted for approximately $35,000 of this increase.
Interest expense decreased from $148,000 for the six months ended March 31,
1998 to $70,000, a decrease of 52.7%, for the six months ended March 31, 1999.
The decrease is the result of lower average borrowings by the Company. In
January 1998, the Company's private placement generated $3,783,000 which was
used to pay down the line of credit. During the six month period ended March
31, 1999, the Company used its improved operating performance and the net
proceeds from the sale of real estate on December 1, 1998, to reduce to zero,
at March 31, 1999, its outstanding balance on its line of credit.
Income tax expense consists of federal and state income tax. The Company's
effective tax rate was 38.9% for the six months ended March 31, 1999, compared
to an effective tax rate of 37.3% for the six months ended March 31, 1998. The
principal cause of the change is the nondeductible goodwill amortization in
1999 recorded in association with the Company's merger with DEI and the impact
of the marginal tax bracket on the lower taxable income in fiscal year 1998.
Net income for the six months ended March 31, 1999 increased to $691,000,
compared to a net income of $32,000 for the six months ended March 31, 1998.
The increase of $659,000 was the result of the items discussed above.
13
<PAGE> 14
LIQUIDITY AND SOURCES OF CAPITAL
At March 31, 1999, the Company's cash and cash equivalents totaled $849,000 as
compared to $112,000 at September 30, 1998. During the six-month period ended
March 31, 1999, the net cash provided to the company by its operating
activities was $1,797,000, as compared to $162,000 for the first six months of
fiscal year 1998, an increase of $1,635,000.
The net cash provided to the Company by its investing activities during the
six-month period ended March 31, 1999 was $1,209,000, as compared to cash used
for investing activities of $166,000 during the first six months of fiscal year
1998. This increase is attributable to the realization of net proceeds from the
sale of the real estate sold on December 1, 1998 of $1,446,000, and the
Company's acquisition of property and equipment during the six months ended
March 31, 1999 for $237,000. The Company anticipates that it will continue to
incur capital expenditures at this approximate rate through the end of the
fourth quarter of fiscal year 1999.
The net cash used by the Company in financing activities during the six month
period ended March 31, 1999 was $2,269,000, compared to net cash provided by
financing activities of $5,000 during the comparable six month period of fiscal
year 1998. For the six month period ended March 31, 1999, the net cash used was
primarily devoted to reducing to zero the Company's line of credit and
satisfying the mortgage on the real estate which was sold. The generation of
cash during the 1998 period is attributable to the Company's private placement
of common stock that occurred in January 1998, the proceeds of which were
$3,783,000. The proceeds of the placement were primarily used to satisfy
outstanding obligations of the Company.
The Company believes that cash on hand, anticipated cash flows from 1999
operations and amounts available for borrowing under its line of credit will be
sufficient to meet its working capital needs through the next twelve months.
NEW ACCOUNTING PRONOUNCEMENTS
On June 15, 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes a new
model for accounting for derivatives and hedging. The new standard requires
enhanced disclosure of accounting policies for derivative financial instruments
and derivative commodity instruments in the footnotes to the financial
statements. In addition, the standard expands disclosure requirements to
include quantitative and qualitative information about market risk inherent in
market risk sensitive instruments.
The Company will adopt SFAS No. 133 effective October 1, 1999. The Company
believes that the adoption of this statement will not have a material effect on
the Company's consolidated financial position or results of operations.
IMPLICATIONS OF YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
internal business systems, facilities and products that have software, whether
installed or embedded, may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including among, other things, a temporary
inability to process transactions, send invoices, or engage in
14
<PAGE> 15
similar normal business activities. In addition, disruptions in the economy
generally resulting from Year 2000 issues could have a material adverse affect
on the Company.
The Company began its assessment of the implications of the Year 2000 issue
during March 1998, by developing plans and a program to address the potential
impact of the Year 2000 on its internal business systems, facilities and
products which might include embedded software. The Company has substantially
completed its review of each of these areas for potential Year 2000 impact.
Based on current information, the Company believes there are no material
operational problems or expenses related to the Year 2000 problem. Certain
versions of the Company's products require modifications and it appears there
may be opportunities to sell upgrades to its customer base. The Company does
not believe that it has any contingent liabilities associated with any products
it has previously manufactured which may not be Year 2000 fully compliant.
Detailed implementation plans are in place for the required modifications or
replacements. Products currently in production have been determined to be Year
2000 compliant and require no remediation. While initial assessments of Year
2000 implications are substantially complete, the Company plans to continually
re-assess its software-embedded products and operational software applications
to insure Year 2000 compliance. In addition, the Company has gathered
information about the Year 2000 compliance status of its significant suppliers,
vendors and subcontractors and continues to monitor their compliance. There
have been no significant compliance issues identified. The Year 2000 review
process and progress are monitored on a regular basis by a special task group
of management. There appears to be no material financial risk to the Company.
The Company has contingency plans for certain critical applications. Such plans
include, among other actions, manual workarounds, increasing inventories and
adjusting staffing strategies.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to, nor is any of its property the subject of, any
pending legal proceedings other than that which is incidental to the ordinary
course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the period covered by this report, the Company filed with the Securities
and Exchange Commission and delivered to its shareholders the Company's Proxy
Statement for its Annual Meeting of Stockholders held February 10, 1999.
(a) The Company's Annual Meeting of Stockholders was held on February 10, 1999.
(b) The nominees for the Board of Directors are identified below.
(c) The inspector of election tabulated the following votes for the election of
directors:
Election of Directors
<TABLE>
<CAPTION>
Number of Votes Abstentions and Broker
Nominee for Office Number of Votes "For" "Against" Non-Votes
------------------ --------------------- --------- ---------
<S> <C> <C> <C>
Charles W. Bernard 3,192,681 359 - 0 -
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C> <C> <C>
James B. Busey 3,189,623 3,417 - 0 -
Thomas R. Ory 3,191,283 1,757 - 0 -
S. R. Perrino 3,189,592 3,448 - 0 -
Philip H. Power 3,183,380 9,660 - 0 -
S. Kent Rockwell 3,192,682 358 - 0 -
John D. Sanders 3,189,823 3,217 - 0 -
</TABLE>
The inspector of election tabulated the following votes for the ratification of
the selection of PricewaterhouseCoopers LLP as the Company's independent
accountants for the 1999 fiscal year:
<TABLE>
<CAPTION>
Abstentions and Broker
Number of Votes "For" Number of Votes "Against" Non-Votes
<S> <C> <C>
3,185,637 1 - 0 -
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Exhibits
<S> <C>
10.1 Financing and Security Agreement
10.2 Revolving Credit Note
27 Financial Data Schedule
</TABLE>
16
<PAGE> 17
SIGNATURES
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 officers thereunto duly authorized.
SENSYS TECHNOLOGIES INC.
<TABLE>
<S> <C>
May 15, 1999 By: /s/S. Kent Rockwell
--------------------------------------
S. Kent Rockwell
Chief Executive Officer
By: /s/Robert R. Bower
--------------------------------------
Robert R. Bower
Chief Financial Officer & Treasurer
</TABLE>
17
<PAGE> 1
EXHIBIT 10.1
FINANCING AND SECURITY AGREEMENT
DATED
FEBRUARY 28, 1999
BY AND BETWEEN
SENSYS TECHNOLOGIES INC.
AND
NATIONSBANK, N. A.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS 1
Section 1.1 Certain Defined Terms. 1
Section 1.2 Accounting Terms and Other Definitional Provisions. 16
ARTICLE II THE CREDIT FACILITIES 16
Section 2.1 The Revolving Credit Facility. 16
2.1.1 Revolving Credit Facility. 16
2.1.2 Procedure for Making Advances Under the Revolving Loan; Lender
Protection Loans. 17
2.1.3 Borrowing Base. 17
2.1.4 Borrowing Base Report. 18
2.1.5 Revolving Credit Note. 19
2.1.6 Mandatory Prepayments of Revolving Loan. 19
2.1.7 Optional Prepayments of Revolving Loan. 19
2.1.8 The Collateral Account. 19
2.1.9 Revolving Loan Account. 20
2.1.10 Revolving Credit Unused Line Fee. 20
Section 2.2 The Letter of Credit Facility. 21
2.2.1 Letters of Credit. 21
2.2.2 Letter of Credit Fees. 21
2.2.3 Terms of Letters of Credit. 21
2.2.4 Procedure for Letters of Credit. 22
2.2.5 Change in Law; Increased Cost. 22
Section 2.3 General Financing Provisions. 22
2.3.1 Borrower's Representatives. 22
2.3.2 Use of Proceeds of the Loan. 23
2.3.3 Administrative and Audit Fees. 23
2.3.4 Computation of Interest and Fees. 23
2.3.5 Payments. 23
2.3.6 Liens; Setoff. 23
2.3.7 Requirements of Law. 24
2.3.8 Funds Transfer Services. 24
Section 2.4 Interest 25
2.4.1 Applicable Interest Rates. 25
2.4.2 Selection of Interest Rates. 26
2.4.3 Inability to Determine Eurodollar Base Rate. 28
2.4.4 Indemnity. 28
2.4.5 Payment of Interest. 29
ARTICLE III THE COLLATERAL 30
Section 3.1 Debt and Obligations Secured. 30
Section 3.2 Grant of Liens. 30
Section 3.3 Collateral Disclosure List. 30
Section 3.4 Personal Property. 30
3.4.1 Securities, Chattel Paper, Promissory Notes, etc. 31
3.4.2 Patents, Copyrights and Other Property Requiring Additional Steps
to Perfect. 31
Section 3.5 Record Searches. 31
Section 3.6 Costs. 31
Section 3.7 Release. 32
Section 3.8 Inconsistent Provisions. 32
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV REPRESENTATIONS AND WARRANTIES 32
Section 4.1 Representations and Warranties. 32
4.1.1 Subsidiaries. 32
4.1.2 Good Standing. 33
4.1.3 Power and Authority. 33
4.1.4 Binding Agreements. 33
4.1.5 No Conflicts. 33
4.1.6 No Defaults, Violations. 33
4.1.7 Compliance with Laws. 34
4.1.8 Margin Stock. 34
4.1.9 Investment Company Act; Margin Securities. 34
4.1.10 Litigation. 34
4.1.11 Financial Condition. 35
4.1.12 Full Disclosure. 35
4.1.13 Funded Indebtedness. 35
4.1.14 Taxes. 35
4.1.15 ERISA. 36
4.1.16 Title to Properties. 36
4.1.17 Patents, Trademarks, Etc. 36
4.1.18 Presence of Hazardous Materials or Hazardous Materials Contamination. 36
4.1.19 Perfection and Priority of Collateral. 37
4.1.20 Places of Business and Location of Collateral. 37
4.1.21 Business Names and Addresses. 37
4.1.22 Equipment. 37
4.1.23 Accounts. 37
4.1.24 Compliance with Eligibility Standards. 38
4.1.25 Year 2000 Compliance. 38
Section 4.2 Survival; Updates of Representations and Warranties. 38
ARTICLE V CONDITIONS PRECEDENT 38
Section 5.1 Conditions to the Initial Advance and Initial Letter of Credit. 38
5.1.1 Organizational Documents - Borrower. 39
5.1.2 Opinion of Borrower's Counsel. 39
5.1.3 Consents, Licenses, Approvals, Etc. 39
5.1.4 Notes. 40
5.1.5 Financing Documents and Collateral. 40
5.1.6 Other Financing Documents. 40
5.1.7 Other Documents, Etc. 40
5.1.8 Payment of Fees. 40
5.1.9 Collateral Disclosure List. 40
5.1.10 Recordings and Filings. 40
5.1.11 Insurance Certificate. 41
5.1.12 Landlord's Waivers. 41
5.1.13 Field Examination. 41
Section 5.2 Conditions to all Extensions of Credit. 41
5.2.1 Compliance. 41
5.2.2 Borrowing Base. 41
5.2.3 Default. 41
5.2.4 Representations and Warranties. 41
5.2.5 Adverse Change. 42
5.2.6 Legal Matters. 42
ARTICLE VI COVENANTS OF THE BORROWER 42
Section 6.1 Affirmative Covenants. 42
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
6.1.1 Financial Statements. 42
6.1.2 Reports to SEC and to Stockholders. 43
6.1.3 Recordkeeping, Rights of Inspection, Audit, Etc. 44
6.1.4 Corporate Existence. 44
6.1.5 Compliance with Laws. 45
6.1.6 Preservation of Properties. 45
6.1.7 Line of Business. 45
6.1.8 Insurance. 45
6.1.9 Taxes. 46
6.1.10 ERISA. 46
6.1.11 Notification of Events of Default and Adverse Developments. 46
6.1.12 Government Contracts. 47
6.1.13 Hazardous Materials; Contamination. 47
6.1.14 Disclosure of Significant Transactions. 48
6.1.15 Financial Covenants. 48
6.1.16 Collection of Receivables. 48
6.1.17 Assignments of Receivables. 49
6.1.18 Insurance With Respect to Equipment. 49
6.1.19 Maintenance of the Collateral. 50
6.1.20 Equipment. 50
6.1.21 Defense of Title and Further Assurances. 50
6.1.22 Business Names; Locations. 51
6.1.23 Subsequent Opinion of Counsel as to Recording Requirements. 51
6.1.24 Use of Premises and Equipment. 51
6.1.25 Protection of Collateral. 51
6.1.26 Year 2000 Compliance. 52
Section 6.2 Negative Covenants. 52
6.2.1 Capital Structure, Merger, Acquisition or Sale of Assets. 52
6.2.2 Subsidiaries. 52
6.2.3 Purchase or Redemption of Securities, Dividend Restrictions. 52
6.2.4 Indebtedness. 52
6.2.5 Investments, Loans and Other Transactions. 53
6.2.6 Operating Lease Obligations. 53
6.2.7 Capital Expenditures. 53
6.2.8 Subordinated Indebtedness. 54
6.2.9 Liens; Confessed Judgment. 54
6.2.10 Transactions with Affiliates. 54
6.2.11 Other Businesses. 54
6.2.12 ERISA Compliance. 55
6.2.13 Prohibition on Hazardous Materials. 55
6.2.14 Method of Accounting; Fiscal Year. 55
6.2.15 Compensation. 55
6.2.16 Transfer of Collateral. 55
6.2.17 Sale and Leaseback. 55
6.2.18 Disposition of Collateral. 56
6.2.19 Profitability. 56
6.2.20 Stock of Subsidiaries. 56
ARTICLE VII DEFAULT AND RIGHTS AND REMEDIES 56
Section 7.1 Events of Default. 56
7.1.1 Failure to Pay. 56
7.1.2 Breach of Representations and Warranties. 56
7.1.3 Failure to Comply with Covenants. 56
7.1.4 Default Under Other Financing Documents or Obligations. 57
7.1.5 Receiver; Bankruptcy. 57
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
7.1.6 Involuntary Bankruptcy, etc. 57
7.1.7 Judgment. 57
7.1.8 Execution; Attachment. 58
7.1.9 Default Under Other Borrowings. 58
7.1.10 Challenge to Agreements. 58
7.1.11 Material Adverse Change. 58
7.1.12 Impairment of Position. 58
7.1.13 Collateral Inadequacy. 58
7.1.14 Change in Control. 58
7.1.15 Liquidation, Termination, Dissolution, Change in Management, etc. 59
7.1.16 Contract Default, Debarment or Suspension etc. 59
7.1.17 Advances to Subsidiares. 59
Section 7.2 Remedies. 59
7.2.1 Acceleration. 59
7.2.2 Further Advances. 59
7.2.3 Uniform Commercial Code. 59
7.2.4 Specific Rights With Regard to Collateral. 60
7.2.5 Application of Proceeds. 61
7.2.6 Performance by Lender. 62
7.2.7 Other Remedies. 62
ARTICLE VIII MISCELLANEOUS 62
Section 8.1 Notices. 62
Section 8.2 Amendments; Waivers. 63
Section 8.3 Cumulative Remedies. 64
Section 8.4 Severability. 64
Section 8.5 Assignments by Lender. 65
Section 8.6 Successors and Assigns. 65
Section 8.7 Continuing Agreements. 65
Section 8.8 Enforcement Costs. 65
Section 8.9 Applicable Law; Jurisdiction. 66
8.9.1 Applicable Law. 66
8.9.2 Submission to Jurisdiction. 66
8.9.3 Appointment of Agent for Service of Process. 66
8.9.4 Service of Process. 66
Section 8.10 Duplicate Originals and Counterparts. 67
Section 8.11 Headings. 67
Section 8.12 No Agency. 67
Section 8.13 Date of Payment. 67
Section 8.14 Entire Agreement. 67
Section 8.15 Waiver of Trial by Jury. 68
Section 8.16 Liability of the Lender. 68
</TABLE>
iv
<PAGE> 6
legal counsel, selected of their own free will, and that they have had the
opportunity to discuss this waiver with counsel.
Section 8.16 Liability of the Lender.
The Borrower hereby agrees that the Lender shall not be chargeable for
any negligence, mistake, act or omission of any accountant, examiner, agency or
attorney employed by the Lender in making examinations, investigations or
collections, or otherwise in perfecting, maintaining, protecting or realizing
upon any lien or security interest or any other interest in the Collateral or
other security for the Obligations.
By inspecting the Collateral or any other properties of the Borrower or
by accepting or approving anything required to be observed, performed or
fulfilled by the Borrower or to be given to the Lender pursuant to this
Agreement or any of the other Financing Documents, the Lender shall not be
deemed to have warranted or represented the condition, sufficiency, legality,
effectiveness or legal effect of the same, and such acceptance or approval shall
not constitute any warranty or representation with respect thereto by the
Lender.
IN WITNESS WHEREOF, each of the parties hereto have executed and
Agreement under their respective seals as of the day and year first written
above.
WITNESS OR ATTEST: SENSYS TECHNOLOGIES INC.
/s/ Darla Cavaliere By: /s/R. R. Bower (Seal)
- ---------------------------- -------------------------
Name: R. R. Bower
Title: V.P. Finance, CFO
WITNESS: NATIONSBANK, N. A.
/s/Douglas T. Brown By: /s/Lawrence J. Shufelt (Seal)
- ---------------------------- -------------------------
Lawrence J. Shufelt
Vice President
lxxvii
<PAGE> 7
EXHIBIT 10.1
FINANCING AND SECURITY AGREEMENT
DATED
FEBRUARY 28, 1999
BY AND BETWEEN
SENSYS TECHNOLOGIES INC.
AND
NATIONSBANK, N. A.
<PAGE> 8
AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT (this
"Agreement") is made as of the 28th day of February, 1999, by and between
SENSYS TECHNOLOGIES INC., a Delaware corporation (the "Borrower") and
NATIONSBANK, N. A., a national banking association (the "Lender").
RECITALS
A. The Borrower and the Lender have previously executed a Loan and
Security Agreement dated as of June 16, 1986 and numerous amendments thereto
(collectively, the "Original Financing Agreement") pursuant to which the Lender
has extended various credit facilities to the Borrower.
B. The Borrower has requested that the Lender amend and restate the
Original Financing Agreement and extend credit facilities consisting of a
revolving credit facility in the maximum principal amount of $3,000,000 and a
letter of credit facility in the maximum principal amount of $750,000, as part
of that revolving credit facility.
C. The Lender is willing to make the credit facilities available to
the Borrower upon the terms and subject to the conditions set forth in this
Agreement.
ARTICLE I
DEFINITIONS
Section 1.1 Certain Defined Terms.
As used in this Agreement, the terms defined in the Preamble and
Recitals hereto shall have the respective meanings specified therein, and the
following terms shall have the following meanings:
"Account" individually and "Accounts" collectively mean all presently
existing or hereafter acquired or created accounts, accounts receivable,
contract rights, notes, drafts, instruments, acceptances, chattel paper, leases
and writings evidencing a monetary obligation or a security interest in, or a
lease of, goods, all rights to receive the payment of money or other
consideration under present or future contracts (including, without limitation,
all rights to receive payments under presently existing or hereafter acquired
or created letters of credit), or by virtue of merchandise sold or leased,
services rendered, loans and advances made or other considerations given, by or
set forth in or arising out of any present or future chattel paper, note,
draft, lease, acceptance, writing, bond, insurance policy, instrument, document
or general intangible, and all extensions and renewals of any thereof, all
rights under or arising out of present or future contracts, agreements or
general interest in merchandise which gave rise to any or all of the foregoing,
including all goods, all claims or causes of action now existing or hereafter
arising in connection with or under any agreement or document or by operation
of law or otherwise, all collateral security of any kind (including, without
limitation, real property mortgages and deeds of trust) and letters of credit
given by any Person with respect to any of the foregoing, all books and records
in whatever media (paper, electronic or otherwise) recorded or stored, with
respect to any or all of the foregoing and all equipment and
1
<PAGE> 9
general intangibles necessary or beneficial to retain, access and/or process
the information contained in those books and records, and all proceeds (cash
and non-cash) of the foregoing.
"Account Debtor" means any Person who is obligated on a Receivable and
"Account Debtors" mean all Persons who are obligated on the Receivables.
"Administrative Fees" has the meaning described in Section 2.3.3
(Administrative and Audit Fees).
"Affiliate" means, with respect to any designated Person, any other
Person, (a) directly or indirectly controlling, directly or indirectly
controlled by, or under direct or indirect common control with the Person
designated, (b) directly or indirectly owning or holding five percent (5%) or
more of any equity interest in such designated Person, or (c) five percent (5%)
or more of whose stock or other equity interest is directly or indirectly owned
or held by such designated Person. For purposes of this definition, the term
"control" (including with correlative meanings, the terms "controlling",
"controlled by" and "under common control with") means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through ownership of voting securities or
other equity interests or by contract or otherwise.
"Agreement" means this Amended and Restated Financing and Security
Agreement, as amended, restated, supplemented or otherwise modified in writing
in accordance with the provisions of Section 8.2 (Amendments; Waivers).
"Applicable Interest Rate" means (a) the Eurodollar Rate or (b) the
Base Rate.
"Applicable Margin" means the applicable rate per annum added, as set
forth in Section 2.4.1 (Applicable Interest Rates), to the Eurodollar Base Rate
or the Prime Rate.
"Assets" means at any date all assets that, in accordance with GAAP
consistently applied, should be classified as assets on a balance sheet of the
Borrower.
"Bankruptcy Code" means the United States Bankruptcy Code, as amended
from time to time.
"Base Rate" the sum of (a) the Applicable Margin plus (b) the Prime
Rate.
"Base Rate Loan" means any Loan for which interest is to be computed
with reference to the Base Rate.
"Borrowing Base" has the meaning described in Section 2.1.3 (Borrowing
Base).
"Borrowing Base Deficiency" has the meaning described in Section 2.1.3
(Borrowing Base).
"Borrowing Base Report" has the meaning described in Section 2.1.4
(Borrowing Base Report).
2
<PAGE> 10
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in the State are authorized or required to close.
"Capital Expenditure" means an expenditure for Fixed or Capital Assets
including, without limitation, the entering into of a Capital Lease.
"Capital Lease" means any lease of real or personal property, for which
the related Lease Obligations have been or should be, in accordance with GAAP
consistently applied, capitalized on the balance sheet.
"Cash Equivalents" means (a) securities with maturities of one year or
less from the date of acquisition issued or fully guaranteed or insured by the
United States Government or any agency thereof, (b) certificates of deposit
with maturities of one (1) year or less from the date of acquisition of, or
money market accounts maintained with, the Lender, any Affiliate of the Lender,
or any other domestic commercial bank having capital and surplus in excess of
One Hundred Million Dollars ($100,000,000.00) or such other domestic financial
institutions or domestic brokerage houses to the extent disclosed to, and
approved by, the Lender and (c) commercial paper of a domestic issuer rated at
least either A-1 by Standard & Poor's Corporation or P-1 by Moody's Investors
Service, Inc. with maturities of six (6) months or less from the date of
acquisition.
"Chattel Paper" means a writing or writings which evidence both a
monetary obligation and a security interest in or lease of specific goods; any
returned, rejected or repossessed goods covered by any such writing or writings
and all proceeds (in any form including, without limitation, accounts, contract
rights, documents, chattel paper, instruments and general intangibles) of such
returned, rejected or repossessed goods; and all proceeds (cash and non-cash)
of the foregoing.
"Closing Date" means the Business Day, in any event not later than
March 26, 1999, on which the Lender shall be satisfied that the conditions
precedent set forth in Section 5.1 (Conditions to Initial Advance) have been
fulfilled.
"Collateral" means all property of the Borrower subject from time to
time to the Liens of this Agreement, any of the Security Documents and/or any
of the other Financing Documents, together with any and all cash and non-cash
proceeds and products thereof.
"Collateral Account" has the meaning described in Section 2.1.8 (The
Collateral Account).
"Collateral Disclosure List" has the meaning described in Section 3.3
(Collateral Disclosure List).
"Collection" means each check, draft, cash, money, instrument, item,
and other remittance in payment or on account of payment of the Accounts or
otherwise with respect to any Collateral, including, without limitation, cash
proceeds of any returned, rejected or repossessed goods, the sale or lease of
which gave rise to an Account, and other proceeds of Collateral; and
"Collections" means the collective reference to all of the foregoing.
"Commitment" means the collective reference to the Revolving Credit
Commitment.
"Committed Amount" means the Revolving Credit Committed Amount.
3
<PAGE> 11
"Compliance Certificate" means a periodic Compliance Certificate
described in Section 6.1.1 (Financial Statements).
"Commonly Controlled Entity" means an entity, whether or not
incorporated, which is under common control with the Borrower within the
meaning of Section 414(b) or (c) of the Internal Revenue Code.
"Copyrights" means and includes, in each case whether now existing or
hereafter arising, all of the Borrower's rights, title and interest in and to
(a) all copyrights, rights and interests in copyrights, works protectable by
copyright, copyright registrations, copyright applications, and all renewals of
any of the foregoing, (b) all income, royalties, damages and payments now or
hereafter due and/or payable under any of the foregoing, including, without
limitation, damages or payments for past, current or future infringements of
any of the foregoing, (c) the right to sue for past, present and future
infringements of any of the foregoing, and (d) all rights corresponding to any
of the foregoing throughout the world.
"Credit Facility" means the Revolving Credit Facility or the Letter of
Credit Facility, as the case may be, and "Credit Facilities" means collectively
the Revolving Credit Facility or the Letter of Credit Facility and any and all
other credit facilities now or hereafter extended under or secured by this
Agreement.
"Debt Service" means for any period of determination thereof an amount
equal to the total of the aggregate amount of all payments of principal and
interest with respect to Funded Indebtedness of the Borrower scheduled to be
due and payable during such period.
"Debt Service Coverage Ratio" means for the period of any determination
the ratio of (a) EBITDA to (b) Debt Service.
"Default" means an event which, with the giving of notice or lapse of
time, or both, could or would constitute an Event of Default under the
provisions of this Agreement.
"Documents" means all documents of title, whether now existing or
hereafter acquired or created, and all proceeds (cash and non-cash) of the
foregoing.
"EBITDA" means as to the Borrower for any period of determination
thereof, the sum of (a) the net profit (or loss) determined in accordance with
GAAP, plus (b) interest and taxes for such period, plus (c) depreciation and
amortization of assets for such period.
"Eligible Receivable" and "Eligible Receivables" mean, at any time of
determination thereof, the unpaid portion of each account receivable (net of any
returns, discounts, claims, credits, charges, accrued rebates or other
allowances, offsets, deductions, counterclaims, disputes or other defenses and
reduced by the aggregate amount of all reserves, limits and deductions provided
for in this definition and elsewhere in this Agreement) in United States Dollars
by the Borrower, provided each account receivable conforms and continues to
conform to the following criteria to the satisfaction of the Lender:
(a) the account arose in the ordinary course of the
Borrower's business from services performed by the Borrower;
4
<PAGE> 12
(b) the account is a valid, legally enforceable
obligation of the Account Debtor and requires no further act on the part of any
Person under any circumstances to make the account payable by the Account
Debtor;
(c) the account is based upon an enforceable order or
contract, written or oral, for services performed, and the same were performed
in accordance with such order or contract;
(d) if the account arises from the performance of
services, such services have been fully rendered and do not relate to any
warranty claim or obligation;
(e) the account is evidenced by an invoice or other
documentation in form acceptable to the Lender, dated no later than the date of
shipment or performance and containing only terms normally offered by the
Borrower;
(f) the amount shown on the books of the Borrower and on
any invoice, certificate, schedule or statement delivered to the Lender is
owing to the Borrower and no partial payment has been received unless reflected
with that delivery;
(g) the account is not outstanding more than ninety (90)
days from the date of the invoice therefor or past due more than sixty (60)
days after its due date, which shall not be later than thirty (30) days after
the invoice date;
(h) the account is not owing by any Account Debtor for
which the Lender has deemed fifty percent (50%) or more of such Account
Debtor's other accounts (or any portion thereof) due to the Borrower to be
non-Eligible Receivables;
(i) the Account Debtor has not returned, rejected or
refused to retain, or otherwise notified the Borrower of any dispute
concerning, or claimed nonconformity of, any services from the furnishing of
which the account arose;
(j) the account is not subject to any present or
contingent (and no facts exist which are the basis for any future) offset,
claim, deduction or counterclaim, dispute or defense in law or equity on the
part of such Account Debtor, or any claim for credits, allowances, or
adjustments by the Account Debtor because of unsatisfactory services, or for
any other reason including, without limitation, those arising on account of a
breach of any express or implied representation or warranty;
(k) the Account Debtor is not a Subsidiary or Affiliate
of the Borrower or an employee, officer, director or shareholder of the
Borrower or any Subsidiary or Affiliate of the Borrower;
(l) the Account Debtor is not incorporated or primarily
conducting business or otherwise located in any jurisdiction outside of the
United States of America unless the account receivable is supported by a letter
of credit from a financial institution acceptable to the Lender;
5
<PAGE> 13
(m) the Account Debtor with respect to such account is
not insolvent or the subject of any bankruptcy or insolvency proceedings of any
kind or of any other proceeding or action, threatened or pending;
(n) the Borrower is not indebted in any manner to the
Account Debtor (as creditor, lessor, supplier or otherwise), with the exception
of customary credits, adjustments and/or discounts given to an Account Debtor
by the Borrower in the ordinary course of its business;
(o) the account does not arise from services under or
related to any warranty obligation of the Borrower or out of service charges,
finance charges or other fees for the time value of money;
(p) the account is not evidenced by chattel paper or an
instrument of any kind and is not secured by any letter of credit;
(q) the title of the Borrower to the account is absolute
and is not subject to any prior assignment, claim, Lien, or security interest,
except Permitted Liens;
(r) no bond or other undertaking by a guarantor or
surety has been or is required to be obtained, supporting the performance of
the Borrower or any other obligor in respect of any of the Borrower's
agreements with the Account Debtor;
(s) no bond or other undertaking by a guarantor or
surety has been or is required to be obtained, supporting the account and any
of the Account Debtor's obligations in respect of the account;
(t) the Borrower has the full and unqualified right and
power to assign and grant a security interest in, and Lien on, the account to
the Lender as security and collateral for the payment of the Obligations;
(u) the account does not arise out of a contract with,
or order from, an Account Debtor that, by its terms, forbids or makes void or
unenforceable the assignment or grant of a security interest by the Borrower to
the Lender of the account arising from such contract or order;
(v) the account is subject to a Lien in favor of the
Lender, which Lien is perfected as to the account by the filing of financing
statements and which Lien upon such filing constitutes a first priority
security interest and Lien;
(w) no part of the account represents a retainage;
(x) the Lender in the good faith exercise of its sole
and absolute discretion has not deemed the account ineligible because of
uncertainty as to the creditworthiness of the Account Debtor or because the
Lender otherwise considers the collateral value of such account to the Lender
to be impaired or its ability to realize such value to be insecure; and
6
<PAGE> 14
(y) the account does not constitute a final billing or
close out billing relating to a completed contract.
In the event of any dispute, under the foregoing criteria, as to
whether an account is, or has ceased to be, an Eligible Receivable, the
decision of the Lender in the good faith exercise of its sole and absolute
discretion shall control.
"Enforcement Costs" means all expenses, charges, costs and fees
whatsoever (including, without limitation, reasonable outside and allocated
in-house counsel attorney's fees and expenses) of any nature whatsoever paid or
incurred by or on behalf of the Lender in connection with (a) any or all of the
Obligations, this Agreement and/or any of the other Financing Documents, (b)
the creation, perfection, collection, maintenance, preservation, defense,
protection, realization upon, disposition, sale or enforcement of all or any
part of the Collateral, this Agreement or any of the other Financing Documents,
including, without limitation, those costs and expenses more specifically
enumerated in Section 3.6 (Costs) and/or Section 8.8 (Enforcement Costs), and
(c) the monitoring, administration, processing and/or servicing of any or all
of the Obligations, the Financing Documents, and/or the Collateral.
"Equipment" means all equipment, machinery, computers, chattels, tools,
parts, machine tools, furniture, furnishings, fixtures and supplies of every
nature, presently existing or hereafter acquired or created and wherever
located, whether or not the same shall be deemed to be affixed to real
property, together with all accessions, additions, fittings, accessories,
special tools, and improvements thereto and substitutions therefor and all
parts and equipment which may be attached to or which are necessary or
beneficial for the operation, use and/or disposition of such personal property,
all licenses, warranties, franchises and general intangibles related thereto or
necessary or beneficial for the operation, use and/or disposition of the same,
together with all Accounts, Chattel Paper, Instruments and other consideration
received by the Borrower on account of the sale, lease or other disposition of
all or any part of the foregoing, and together with all rights under or arising
out of present or future Documents and contracts relating to the foregoing and
all proceeds (cash and non-cash) of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurodollar Base Rate" means for any Interest Period with respect to
any Eurodollar Loan, the per annum interest rate rounded upward, if necessary,
to the nearest next 1/10 of 1%) quoted to the Lender, on an immediately
available funds basis, at or about 11:00 a.m. (London time) on the date that is
two (2) Eurodollar Business Days prior to the first day of such Interest
Period, for the offering by leading banks in the London interbank Eurodollar
market of Dollar deposits with the Lender for a period comparable in time to
the duration of such Interest Period and in amounts comparable to the amount of
such Eurodollar Loan as to which the Eurodollar Base Rate is to be determined.
If the Lender shall be unable or shall otherwise fail to so obtain the
Eurodollar Base Rate, the Eurodollar Base Rate shall be the average of those
rates quoted on the REUTERS "LIBO" page for a period comparable to the
applicable Interest Period (rounded upward, if necessary, to the nearest next
1/10 of 1%).
7
<PAGE> 15
"Eurodollar Business Day" means any Business Day on which dealings in
United States Dollar deposits are carried out on the London interbank market
and on which commercial banks are open for domestic and international business
(including dealings in Dollar deposits) in London, England.
"Eurodollar Loan" means any Loan for which interest is to be computed
with reference to the Eurodollar Rate.
"Eurodollar Rate" means for any Interest Period with respect to any
Eurodollar Loan, (a) the Applicable Margin, plus (b) the per annum rate of
interest calculated pursuant to the following formula:
Eurodollar Base Rate
1.00 - Reserve Percentage
"Event of Default" has the meaning described in ARTICLE VII (Default
and Rights and Remedies).
"Facilities" means the collective reference to the loan, letter of
credit, interest rate protection, foreign exchange risk, cash management, and
other credit facilities now or hereafter provided to the Borrower by the Lender
whether under this Agreement or otherwise.
"Fees" means the collective reference to each fee payable to the Lender
under the terms of this Agreement or under the terms of any of the other
Financing Documents, including, without limitation, the following: Revolving
Credit Unused Line Fees, Letter of Credit Fees and Administrative Fees.
"Financing Documents" means at any time collectively this Agreement,
the Notes, the Security Documents, the Letter of Credit Documents, and any
other instrument, agreement or document previously, simultaneously or hereafter
executed and delivered by the Borrower, any Guarantor and/or any other Person,
singly or jointly with another Person or Persons, evidencing, securing,
guarantying or in connection with this Agreement, any Note, any of the Security
Documents, any of the Facilities, and/or any of the Obligations.
"Funded Indebtedness" of a Person means at any time the sum at such
time of (a) indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, (b) any obligations of such Person in
respect of letters of credit, banker's or other acceptances or similar
obligations issued or created for the account of such Person, (c) Lease
Obligations of such Person with respect to Capital Leases, (d) all liabilities
secured by any Lien on any property owned by such Person, to the extent
attached to such Person's interest in such property, even though such Person
has not assumed or become personally liable for the payment thereof, (e)
obligations of third parties which are being guarantied or indemnified against
by such Person or which are secured by the property of such Person; (f) any
obligation of such Person under a employee stock ownership plan, deferred
compensation plan or other similar employee benefit plan; (g) any obligation of
such Person or a Commonly Controlled Entity to a Multi-employer Plan; and (h)
any obligations, liabilities or indebtedness, contingent or otherwise, under or
in connection with, any interest rate or currency swap agreements, cap, floor,
and collar agreements, currency spot, foreign exchange and forward contracts
and other similar agreements and arrangements; but
8
<PAGE> 16
excluding trade and other accounts payable in the ordinary course of business
in accordance with customary trade terms and which are not overdue (as
determined in accordance with customary trade practices) or which are being
disputed in good faith by such Person and for which adequate reserves are being
provided on the books of such Person in accordance with GAAP.
"GAAP" means generally accepted accounting principles in the United
States of America in effect from time to time.
"General Intangibles" means all general intangibles of every nature,
whether presently existing or hereafter acquired or created, and without
implying any limitation of the foregoing, further means all books and records,
claims (including without limitation all claims for income tax and other
refunds), choses in action, claims, causes of action in tort or equity,
contract rights, judgments, customer lists, Patents, Trademarks, licensing
agreements, rights in intellectual property, goodwill (including goodwill of
the Borrower's business symbolized by and associated with any and all
trademarks, trademark licenses, Copyrights and/or service marks), royalty
payments, licenses, contractual rights, rights as lessee under any lease of
real or personal property, literary rights, Copyrights, service names, service
marks, logos, trade secrets, amounts received as an award in or settlement of a
suit in damages, deposit accounts, interests in joint ventures, general or
limited partnerships, or limited liability companies or partnerships, rights in
applications for any of the foregoing, books and records in whatever media
(paper, electronic or otherwise) recorded or stored, with respect to any or all
of the foregoing and all equipment and general intangibles necessary or
beneficial to retain, access and/or process the information contained in those
books and records, and all proceeds (cash and non-cash) of the foregoing.
"Government Contracts" means any contract with the United States or
with any state or political subdivision thereof or any department, agency or
instrumentality of the United States, or any state or political subdivision
thereof.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government and any department, agency or instrumentality thereof.
"Hazardous Materials" means (a) any "hazardous waste" as defined by the
Resource Conservation and Recovery Act of 1976, as amended from time to time,
and regulations promulgated thereunder; (b) any "hazardous substance" as
defined by the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended from time to time, and regulations promulgated
thereunder; (c) any substance the presence of which on any property now or
hereafter owned, acquired or operated by the Borrower is prohibited by any Law
similar to those set forth in this definition; and (d) any other substance
which by Law requires special handling in its collection, storage, treatment or
disposal.
"Hazardous Materials Contamination" means the contamination (whether
presently existing or occurring after the date of this Agreement) by Hazardous
Materials of any property owned, operated or controlled by the Borrower or for
which the Borrower has responsibility, including, without limitation,
improvements, facilities, soil, ground water, air or other elements on, or of,
any
9
<PAGE> 17
property now or hereafter owned, acquired or operated by the Borrower, and any
other contamination by Hazardous Materials for which the Borrower is, or is
claimed to be, responsible.
"Indebtedness" of a Person means at any date the total liabilities of
such Person at such time determined in accordance with GAAP consistently
applied.
"Interest Period" means as to any Eurodollar Loan, the period
commencing on and including the date such Eurodollar Loan is made (or on the
effective date of the Borrower's election to convert any Base Rate Loan to a
Eurodollar Loan in accordance with the provisions of this Agreement) and ending
on and including the day which is one month, two months or three months
thereafter, as selected by the Borrower in accordance with the provisions of
this Agreement, and thereafter, each period commencing on the last day of the
then preceding Interest Period for such Eurodollar Loan and ending on and
including the day which is one month, two months or three months thereafter, as
selected by the Borrower in accordance with the provisions of this Agreement;
provided, however that:
(a) the first day of any Interest Period shall be a
Eurodollar Business Day;
(b) if any Interest Period would end on a day that shall
not be a Eurodollar Business Day, such Interest Period shall be extended to the
next succeeding Eurodollar Business Day unless such next succeeding Eurodollar
Business Day would fall in the next calendar month, in which case, such
Interest Period shall end on the next preceding Eurodollar Business Day; and
(c) no Interest Period shall extend beyond the Revolving
Credit Expiration Date.
"Interest Rate Election Notice" has the meaning described in Section
2.4.2(e) (Selection of Interest Rates).
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the Income Tax Regulations issued and proposed
to be issued thereunder.
"Instrument" means a negotiable instrument (as defined under Article 3
of the Uniform Commercial Code), a "certificated security" (as defined under
Article 8 of the Uniform Commercial Code), or any other writing which evidences
a right to payment of money and is not itself a security agreement or lease and
is of a type which is in the ordinary course of business transferred by
delivery with any necessary indorsement.
"Item of Payment" means each check, draft, cash, money, instrument,
item, and other remittance in payment or on account of payment of the
Receivables or otherwise with respect to any Collateral, including, without
limitation, cash proceeds of any returned, rejected or repossessed goods, the
sale or lease of which gave rise to a Receivable, and other proceeds of
Collateral; and "Items of Payment" means the collective reference to all of the
foregoing.
"Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs, or decrees of any Governmental Authority.
10
<PAGE> 18
"Lease Obligations" of a Person means for any period the rental
commitments of such Person for such period under leases for real and/or
personal property (net of rent from subleases thereof, but including taxes,
insurance, maintenance and similar expenses which such Person, as the lessee,
is obligated to pay under the terms of said leases, except to the extent that
such taxes, insurance, maintenance and similar expenses are payable by
sublessees), including rental commitments under Capital Leases.
"Letter of Credit" and "Letters of Credit" shall have the meanings
described in Section 2.2.1 (Letters of Credit).
"Letter of Credit Agreement" means the collective reference to each
letter of credit application and agreement substantially in the form of the
Lender's then standard form of application for letter of credit or such other
form as may be approved by the Lender, executed and delivered by the Borrower
in connection with the issuance of a Letter of Credit, as the same may from
time to time be amended, restated, supplemented or modified and "Letter of
Credit Agreements" means all of the foregoing in effect at any time and from
time to time.
"Letter of Credit Documents" means any and all drafts under or
purporting to be under a Letter of Credit, any Letter of Credit Agreement, and
any other instrument, document or agreement executed and/or delivered by the
Borrower or any other Person under, pursuant to or in connection with a Letter
of Credit or any Letter of Credit Agreement.
"Letter of Credit Facility" means the facility established by the
Lender pursuant to Section 2.2 (Letter of Credit Facility).
"Letter of Credit Fee" and "Letter of Credit Fees" have the meanings
described in Section 2.2.2 (Letter of Credit Fees).
"Letter of Credit Obligations" means all Obligations of the Borrower
with respect to the Letters of Credit and the Letter of Credit Agreements.
"Liabilities" means at any date all liabilities that in accordance with
GAAP consistently applied should be classified as liabilities on a balance
sheet of the Borrower.
"Lien" means any mortgage, deed of trust, deed to secure debt, grant,
pledge, security interest, assignment, encumbrance, judgment, lien,
hypothecation, provision in any instrument or other document for confession of
judgment, cognovit or other similar right or remedy, claim or charge of any
kind, whether perfected or unperfected, avoidable or unavoidable, including,
without limitation, any conditional sale or other title retention agreement,
any lease in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction,
excluding the precautionary filing of any financing statement by any lessor in
a true lease transaction, by any bailor in a true bailment transaction or by
any consignor in a true consignment transaction under the Uniform Commercial
Code of any jurisdiction or the agreement to give any financing statement by
any lessee in a true lease transaction, by any bailee in a true bailment
transaction or by any consignee in a true consignment transaction.
"Loan" means the Revolving Loan.
11
<PAGE> 19
"Loan Notice" has the meaning described in Section 2.1.2 (Procedure for
Making Advances).
"Lockbox" has the meaning described in Section 2.1.8 (The Collateral
Account).
"Multi-employer Plan" means a Plan that is a Multi-employer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Worth" means as to the Borrower at any date the excess of (a) the
Assets, over (b) the Liabilities.
"Note" means the Revolving Credit Note, and "Notes" means collectively
the Revolving Credit Note and any other promissory note which may from time to
time evidence all or any portion of the Obligations.
"Obligations" means all present and future indebtedness, duties,
obligations, and liabilities, whether now existing or contemplated or hereafter
arising, of the Borrower to the Lender under, arising pursuant to, in
connection with and/or on account of the provisions of this Agreement, each
Note, each Security Document, and/or any of the other Financing Documents, the
Loan, and/or any of the Facilities including, without limitation, the principal
of, and interest on, each Note, late charges, the Fees, Enforcement Costs, and
prepayment fees (if any), letter of credit fees or fees charged with respect to
any guaranty of any letter of credit; also means all other present and future
indebtedness, liabilities and obligations, whether now existing or contemplated
or hereafter arising, of the Borrower to the Lender of any nature whatsoever
regardless of whether such debts, obligations and liabilities be direct,
indirect, primary, secondary, joint, several, joint and several, fixed or
contingent; and also means any and all renewals, extensions, substitutions,
amendments, restatements and rearrangements of any such debts, obligations and
liabilities.
"Original Closing Date" means June 16, 1986.
"Outstanding Letter of Credit Obligations" has the meaning described in
Section 2.2.3 (Terms of Letters of Credit).
"Patents" means and includes, in each case whether now existing or
hereafter arising, all of the Borrower's rights, title and interest in and to
(a) any and all patents and patent applications, (b) any and all inventions and
improvements described and claimed in such patents and patent applications, (c)
reissues, divisions, continuations, renewals, extensions and
continuations-in-part of any patents and patent applications, (d) income,
royalties, damages, claims and payments now or hereafter due and/or payable
under and with respect to any patents or patent applications, including,
without limitation, damages and payments for past and future infringements, (e)
rights to sue for past, present and future infringements of patents, and (f)
all rights corresponding to any of the foregoing throughout the world.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Liens" means: (a) Liens for Taxes which are not delinquent
or which the Lender has determined in the exercise of its sole and absolute
discretion (i) are being diligently contested in good faith and by appropriate
proceedings, (ii) the Borrower has the financial ability to pay, with all
12
<PAGE> 20
penalties and interest, at all times without materially and adversely affecting
the Borrower, and (iii) are not, and will not be with appropriate filing, the
giving of notice and/or the passage of time, entitled to priority over any Lien
of the Lender; (b) deposits or pledges to secure obligations under workers'
compensation, social security or similar laws, or under unemployment insurance
in the ordinary course of business; (c) Liens in favor of the Lender; (d)
judgment Liens to the extent the entry of such judgment does not constitute a
Default or an Event of Default under the terms of this Agreement or result in
the sale or levy of, or execution on, any of the Collateral; and (e) such other
Liens, if any, as are set forth on Schedule 4.1.19 attached hereto and made a
part hereof.
"Permitted Uses" means to finance the performance of Borrower's
Government Contracts, to support the issuance of commercial and standby letters
of credit and for Borrower's short term working capital purposes.
"Person" means and includes an individual, a corporation, a
partnership, a joint venture, a limited liability company or partnership, a
trust, an unincorporated association, a Governmental Authority, or any other
organization or entity.
"Plan" means any pension plan that is covered by Title IV of ERISA and
in respect of which the Borrower or a Commonly Controlled Entity is an
"employer" as defined in Section 3 of ERISA.
"Post-Default Rate" means the Base Rate in effect from time to time,
plus four percent (4%) per annum.
"Prepayment" means a Revolving Loan Mandatory Prepayment and a
Revolving Loan Optional Prepayment, as the case may be, and "Prepayments" mean
collectively all Revolving Loan Mandatory Prepayments and all Revolving Loan
Optional Prepayments.
"Pricing Ratio" means the Funded Debt to EBITDA Ratio.
"Prime Rate" means the floating and fluctuating per annum prime
commercial lending rate of interest of the Lender, as established and declared
by the Lender at any time or from time to time. The Prime Rate shall be
adjusted automatically, without notice, as of the effective date of any change
in such prime commercial lending rate. The Prime Rate does not necessarily
represent the lowest rate of interest charged by the Lender to borrowers.
"Receivable" means one of the Borrower's now owned and hereafter owned,
acquired or created Accounts, Chattel Paper, General Intangibles and
Instruments; and "Receivables" means all of the Borrower's now or hereafter
owned, acquired or created Accounts, Chattel Paper, General Intangibles and
Instruments, and all cash and non-cash proceeds and products thereof.
"Reportable Event" means any of the events set forth in Section 4043(c)
of ERISA or the regulations thereunder.
"Reserve Percentage" means, at any time, the then current maximum rate
for which reserves (including any basic, special, supplemental, marginal and
emergency reserves) are required to be maintained by member banks of the
Federal Reserve System under Regulation D of the Board of Governors of the
Federal Reserve System against "Eurocurrency liabilities", as that term is
defined in Regulation D. Without limiting the effect of the foregoing, the
Reserve
13
<PAGE> 21
Percentage shall reflect any other reserves required to be maintained by such
member banks with respect to (i) any category of liabilities which includes
deposits by reference to which the Eurodollar Rate is to be determined, or (ii)
any category of extensions of credit or other assets which include Eurodollar
Loans. The Eurodollar Rate shall be adjusted automatically on and as of the
effective date of any change in the Reserve Percentage.
"Responsible Officer" means the chief executive officer of the Borrower
or the president of the Borrower or, with respect to financial matters, the
chief financial officer of the Borrower.
"Revolving Credit Commitment" means the agreement of the Lender
relating to the making of the Revolving Loan and advances thereunder subject to
and in accordance with the provisions of this Agreement.
"Revolving Credit Commitment Period" means the period of time from the
Closing Date to the Business Day preceding the Revolving Credit Termination
Date.
"Revolving Credit Committed Amount" has the meaning described in
Section 2.1 (Revolving Credit Facility).
"Revolving Credit Expiration Date" means February 28, 2001.
"Revolving Credit Facility" means the facility established by the
Lender pursuant to Section 2.1 (Revolving Credit Facility).
"Revolving Credit Note" has the meaning described in Section 2.1.5
(Revolving Credit Note).
"Revolving Credit Termination Date" means the earlier of (a) the
Revolving Credit Expiration Date, or (b) the date on which the Revolving Credit
Commitment is terminated pursuant to Section 7.2 (Remedies) or otherwise.
"Revolving Credit Unused Line Fee" and "Revolving Credit Unused Line
Fees" have the meanings described in Section 2.1.10 (Revolving Credit Unused
Line Fee).
"Revolving Loan" has the meaning described in Section 2.1 (Revolving
Credit Facility).
"Revolving Loan Account" has the meaning described in Section 2.1.9
(Revolving Loan Account).
"Revolving Loan Mandatory Prepayment" and "Revolving Loan Mandatory
Prepayments" have the meanings described in Section 2.1.6 (Mandatory
Prepayments of Revolving Loan).
"Revolving Loan Optional Prepayment" and "Revolving Loan Optional
Prepayments" have the meanings described in Section 2.1.7 (Optional Prepayment
of Revolving Loan).
"Securities" means the collective reference to each and every
certificated or uncertificated security which constitutes a "security" under
the provisions of Title 8 of the Uniform Commercial Code and to each and every
"investment property" under the provisions of Title 9 of the Uniform
14
<PAGE> 22
Commercial Code (if that definition is included in that Title), and all
proceeds (cash and non-cash) of the foregoing.
"Security Documents" means collectively any assignment, pledge
agreement, security agreement, mortgage, deed of trust, deed to secure debt,
financing statement and any similar instrument, document or agreement under or
pursuant to which a Lien is now or hereafter granted to, or for the benefit of,
the Lender on any real or personal property of any Person to secure all or any
portion of the Obligations, all as the same may from time to time be amended,
restated, supplemented or otherwise modified.
"Security Procedures" means the rules, policies and procedures adopted
and implemented by the Lender and its Affiliates at any time and from time to
time with respect to security procedures and measures relating to electronic
funds transfers, all as the same may be amended, restated, supplemented,
terminated, or otherwise modified at any time and from time to time by the
Lender in its sole and absolute discretion.
"State" means the Commonwealth of Virginia.
"Subordinated Indebtedness" means all Indebtedness, incurred at any
time by the Borrower, which is in amounts, subject to repayment terms, and
subordinated to the Obligations, as set forth in one or more written
agreements, all in form and substance satisfactory to the Lender in its sole
and absolute discretion.
"Subsidiary" means any corporation the majority of the voting shares of
which at the time are owned directly by the Borrower and/or by one or more
Subsidiaries of the Borrower.
"Tangible Net Worth" means as to the Borrower at any date of
determination thereof, the sum at such time of: the Net Worth less the total of
(a) all Assets that would be classified as intangible assets under GAAP
consistently applied and (b) officer loans.
"Taxes" means all taxes and assessments whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character
(including all penalties or interest thereon), which at any time may be
assessed, levied, confirmed or imposed by any Governmental Authority on the
Borrower or any of its properties or assets or any part thereof or in respect
of any of its franchises, businesses, income or profits.
"Trademarks" means and includes in each case whether now existing or
hereafter arising, all of the Borrower's rights, title and interest in and to
(a) any and all trademarks (including service marks), trade names and trade
styles, and applications for registration thereof and the goodwill of the
business symbolized by any of the foregoing, (b) any and all licenses of
trademarks, service marks, trade names and/or trade styles, whether as licensor
or licensee, (c) any renewals of any and all trademarks, service marks, trade
names, trade styles and/or licenses of any of the foregoing, (d) income,
royalties, damages and payments now or hereafter due and/or payable with
respect thereto, including, without limitation, damages, claims, and payments
for past, present and future infringements thereof, (e) rights to sue for past,
present and future infringements of any of the foregoing, including the right
to settle suits involving claims and demands for royalties owing, and (f) all
rights corresponding to any of the foregoing throughout the world.
15
<PAGE> 23
"Uniform Commercial Code" means, unless otherwise provided in this
Agreement, the Uniform Commercial Code as adopted by and in effect from time to
time in the State or in any other jurisdiction, as applicable.
"Wholly Owned Subsidiary" means any domestic United States corporation
all the shares of stock of all classes of which (other than directors'
qualifying shares) at the time are owned directly or indirectly by the Borrower
and/or by one or more Wholly Owned Subsidiaries of the Borrower.
"Wire Transfer Procedures" means the rules, policies and procedures
adopted and implemented by the Lender and its Affiliates at any time and from
time to time with respect to electronic funds transfers, including, without
limitation, the Security Procedures, all as the same may be amended, restated,
supplemented, terminated or otherwise modified at any time and from time to
time by the Lender in its sole and absolute discretion.
Section 1.2 Accounting Terms and Other Definitional Provisions.
Unless otherwise defined herein, as used in this Agreement and in any
certificate, report or other document made or delivered pursuant hereto,
accounting terms not otherwise defined herein, and accounting terms only partly
defined herein, to the extent not defined, shall have the respective meanings
given to them under GAAP, as consistently applied to the applicable Person.
Unless otherwise defined herein, all terms used herein which are defined by the
Uniform Commercial Code shall have the same meanings as assigned to them by the
Uniform Commercial Code unless and to the extent varied by this Agreement. The
words "hereof", "herein" and "hereunder" and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and article, section, subsection,
schedule and exhibit references are references to articles, sections or
subsections of, or schedules or exhibits to, as the case may be, this Agreement
unless otherwise specified. As used herein, the singular number shall include
the plural, the plural the singular and the use of the masculine, feminine or
neuter gender shall include all genders, as the context may require. Reference
to any one or more of the Financing Documents shall mean the same as the
foregoing may from time to time be amended, restated, substituted, extended,
renewed, supplemented or otherwise modified.
ARTICLE II
THE CREDIT FACILITIES
Section 2.1 The Revolving Credit Facility.
2.1.1 Revolving Credit Facility.
Subject to and upon the provisions of this Agreement, the
Lender establishes a revolving credit facility in favor of the Borrower. The
aggregate of all advances under the Revolving Credit Facility is sometimes
referred to in this Agreement as the "Revolving Loan".
The principal amount of Three Million Dollars ($3,000,000)
is the "Revolving Credit Committed Amount". If at any time the unpaid
principal balance of the
16
<PAGE> 24
Revolving Loan exceeds the Revolving Credit Committed Amount in effect from
time to time, the Borrower shall pay such excess to the Lender ON DEMAND.
During the Revolving Credit Commitment Period, the Lender
agrees to make advances under the Revolving Loan requested by the Borrower from
time to time provided that after giving effect to the Borrower's request, the
outstanding principal balance of the Revolving Loan and of the Letter of Credit
Obligations would not exceed the lesser of (a) the Revolving Credit Committed
Amount, or (b) the then most current Borrowing Base.
Unless sooner paid, the unpaid Revolving Loan, together
with interest accrued and unpaid thereon, and all other Obligations shall be
due and payable in full on the Revolving Credit Expiration Date.
2.1.2 Procedure for Making Advances Under the Revolving
Loan; Lender Protection Loans.
The Borrower may borrow under the Revolving Credit
Commitment on any Business Day. Advances under the Revolving Loan shall be
deposited to a demand deposit account of the Borrower with the Lender (or an
Affiliate of the Lender) or shall be otherwise applied as directed by the
Borrower, which direction the Lender may require to be in writing. No later
than 10:00 a.m. (Baltimore time) on the date of the requested borrowing, the
Borrower shall give the Lender oral or written notice (a "Loan Notice") of the
amount and (if requested by the Lender) the purpose of the requested borrowing.
Any oral Loan Notice shall be confirmed in writing by the Borrower within three
(3) Business Days after the making of the requested Revolving Loan. In
addition, the Borrower hereby irrevocably authorizes the Lender at any time and
from time to time, without further request from or notice to the Borrower, to
make advances under the Revolving Loan which the Lender, in its sole and
absolute discretion, deems necessary or appropriate to protect the Lender's
interests under this Agreement, including, without limitation, advances under
the Revolving Loan made to cover debit balances in the Revolving Loan Account,
principal of, and/or interest on, any Loan, any of the Obligations, and/or
Enforcement Costs, prior to, on, or after the termination of other advances
under this Agreement, regardless of whether the outstanding principal amount of
the Revolving Loan which the Lender may make hereunder exceeds the Revolving
Credit Committed Amount.
2.1.3 Borrowing Base.
As used in this Agreement, the term "Borrowing Base" means
at any time, an amount equal to the aggregate of (a) ninety percent (90%) of
the amount of Eligible Receivables derived from Government Contracts, (b)
eighty percent (80%) of the amount of Eligible Receivables derived from
contracts other than Government Contracts approved by the Lender and (c) ninety
percent (90%) of the Borrower's foreign Eligible Receivables that are supported
by a letter of credit from a financial institution acceptable to the Lender.
The Borrowing Base shall be computed based on the Borrowing
Base Report most recently delivered to, and accepted by, the Lender in its sole
and absolute discretion. In the event the Borrower shall fail to furnish a
Borrowing Base Report required by Section 2.1.4 (Borrowing Base Report), or in
the event the Lender believes that a Borrowing Base Report is no
17
<PAGE> 25
longer accurate, the Lender may, in its sole and absolute discretion exercised
from time to time and without limiting its other rights and remedies under this
Agreement, suspend the making of or limit advances under the Revolving Loan.
The Borrowing Base shall be subject to reduction by amounts credited to the
Collateral Account since the date of the most recent Borrowing Base Report and
by the amount of any Receivable which was included in the Borrowing Base but
which the Lender determines fails to meet the respective criteria applicable
from time to time for Eligible Receivables.
If at any time the total of the aggregate principal amount
of the Revolving Loan and Outstanding Letter of Credit Obligations exceeds the
Borrowing Base, a borrowing base deficiency ("Borrowing Base Deficiency") shall
exist. Each time a Borrowing Base Deficiency exists, the Borrower, at the sole
and absolute discretion of the Lender exercised from time to time, shall pay
the Borrowing Base Deficiency ON DEMAND to the Lender.
Without implying any limitation on the Lender's discretion
with respect to the Borrowing Base, the criteria for Eligible Receivables
contained in the definition of Eligible Receivables is in part based upon the
business operations of the Borrower existing on or about the Closing Date and
upon information and records furnished to the Lender by the Borrower. If at any
time or from time to time hereafter, the business operations of the Borrower
change or such information and records furnished to the Lender is materially
incorrect or misleading, the Lender in its discretion, may at any time and from
time to time during the duration of this Agreement change such criteria or add
new criteria. The Lender may communicate such changed or additional criteria to
the Borrower from time to time either orally or in writing.
2.1.4 Borrowing Base Report.
The Borrower will furnish to the Lender no less frequently
than monthly and at such other times as may be reasonably requested by the
Lender a report of the Borrowing Base (each a "Borrowing Base Report";
collectively, the "Borrowing Base Reports") in the form required from time to
time by the Lender, appropriately completed and duly signed. The Borrowing Base
Report shall contain the amount and payments on the Receivables, and the
calculations of the Borrowing Base, all in such detail, and accompanied by such
supporting and other information, as the Lender may from time to time request.
Upon the Lender's request upon the creation of any Receivables or at such other
intervals as the Lender may require, the Borrower will provide the Lender with:
(a) confirmatory assignment schedules; (b) copies of Account Debtor invoices;
(c) such further schedules, documents and/or information regarding any of the
Receivables as the Lender may reasonably require. The items to be provided
under this subsection shall be in form satisfactory to the Lender, certified as
true and correct by a Responsible Officer (or by any other officers or
employees of the Borrower whom a Responsible Officer from time to time
authorizes in writing to do so), and delivered to the Lender from time to time
solely for the Lender's convenience in maintaining records of the Collateral.
The failure of the Borrower to deliver any such items to the Lender shall not
affect, terminate, modify, or otherwise limit the Lender's security interests
in, and Liens on, the Collateral.
18
<PAGE> 26
2.1.5 Revolving Credit Note.
The obligation of the Borrower to pay the Revolving Loan,
with interest, shall be evidenced by a promissory note (as from time to time
extended, amended, restated, supplemented or otherwise modified, the "Revolving
Credit Note") substantially in the form of EXHIBIT "A" attached hereto and made
a part hereof, with appropriate insertions. The Revolving Credit Note shall be
dated as of the Closing Date, shall be payable to the order of the Lender at
the times provided in the Revolving Credit Note, and shall be in the principal
amount of the Revolving Credit Committed Amount. The Borrower acknowledges and
agrees that, if the outstanding principal balance of the Revolving Loan
outstanding from time to time exceeds the face amount of the Revolving Credit
Note, the excess shall bear interest at the Post-Default Rate for the Revolving
Loan and shall be payable, with accrued interest, ON DEMAND. The Revolving
Credit Note shall not operate as a novation of any of the Obligations or
nullify, discharge, or release any such Obligations or the continuing
contractual relationship of the parties hereto in accordance with the
provisions of this Agreement.
2.1.6 Mandatory Prepayments of Revolving Loan.
The Borrower shall make the mandatory prepayments (each a
"Revolving Loan Mandatory Prepayment" and collectively, the "Revolving Loan
Mandatory Prepayments") of the Revolving Loan at any time and from time to time
in such amounts requested by the Lender pursuant to Section 2.1.3 (Borrowing
Base) in order to cover any Borrowing Base Deficiency.
2.1.7 Optional Prepayments of Revolving Loan.
The Borrower shall have the option, at any time and from
time to time, to prepay (each a "Revolving Loan Optional Prepayment" and
collectively the "Revolving Loan Optional Prepayments") the Revolving Loan, in
whole or in part without premium or penalty.
2.1.8 The Collateral Account.
The Borrower will deposit, or cause to be deposited, all
Items of Payment to a bank account designated by the Lender and from which the
Lender alone has power of access and withdrawal (the "Collateral Account").
Each deposit shall be made not later than the next Business Day after the date
of receipt of the Items of Payment. The Items of Payment shall be deposited in
precisely the form received, except for the endorsements of the Borrower where
necessary to permit the collection of any such Items of Payment, the Borrower
hereby agreeing to make such endorsement. In the event the Borrower shall fail
to do so, the Lender is hereby authorized by the Borrower to make the
endorsement in the name of the Borrower. Prior to such a deposit, the Borrower
will not commingle any Items of Payment with any of the other funds or property
of the Borrower, but will hold them separate and apart in trust and for the
account of the Lender.
In addition, if so directed by the Lender, the Borrower
shall direct the mailing of all Items of Payment from its Account Debtors to a
post-office box designated by the Lender, or to such other additional or
replacement post-office boxes pursuant to the request of
19
<PAGE> 27
the Lender from time to time (collectively, the "Lockbox"). The Lender shall
have unrestricted and exclusive access to the Lockbox.
The Borrower hereby authorizes the Lender to inspect all
Items of Payment, endorse all Items of Payment in the name of the Borrower, and
deposit Items of Payment in the Collateral Account. The Lender reserves the
right, exercised in its sole and absolute discretion from time to time, to
provide to the Collateral Account credit prior to final collection of an Item
of Payment and to disallow credit for any Item of Payment which is
unsatisfactory to the Lender. In the event Items of Payment are returned to the
Lender for any reason whatsoever, the Lender may, in the exercise of its
discretion from time to time, forward such Items of Payment a second time. Any
returned Items of Payment shall be charged back to the Collateral Account, the
Revolving Loan Account, or other account, as appropriate.
The Lender will apply the whole or any part of the
collected funds credited to the Collateral Account against the Revolving Loan
(or with respect to Items of Payment which are not proceeds of accounts or
inventory or after a Default or Event of Default, against any of the
Obligations) or credit such collected funds to the depository account of the
Borrower with the Lender (or an Affiliate of the Lender), the order and method
of such application to be in the reasonable discretion of the Lender.
2.1.9 Revolving Loan Account.
The Lender will establish and maintain a loan account on
its books (the "Revolving Loan Account") to which the Lender will (a) debit (i)
the principal amount of each advance of the Revolving Loan made by the Lender
hereunder as of the date made, (ii) the amount of any interest accrued on the
Revolving Loan as and when due, and (iii) any other amounts due and payable by
the Borrower to the Lender from time to time under the provisions of this
Agreement in connection with the Revolving Loan, including, without limitation,
Enforcement Costs, Fees, late charges, and service, collection and audit fees,
as and when due and payable, and (b) credit all payments made by the Borrower
to the Lender on account of the Revolving Loan as of the date made including,
without limitation, funds credited to the Revolving Loan Account from the
Collateral Account. The Lender may debit the Revolving Loan Account for the
amount of any Item of Payment that is returned to the Lender unpaid. All credit
entries to the Revolving Loan Account are conditional and shall be readjusted
as of the date made if final and indefeasible payment is not received by the
Lender in cash or solvent credits. Any and all periodic or other statements or
reconciliations, and the information contained in those statements or
reconciliations, of the Revolving Loan Account shall be final, binding and
conclusive upon the Borrower in all respects, absent manifest error, unless the
Lender receives specific written objection thereto from the Borrower within
thirty (30) Business Days after such statement or reconciliation shall have
been received by the Borrower.
2.1.10 Revolving Credit Unused Line Fee.
The Borrower shall pay to the Lender a quarterly revolving
credit facility fee (collectively, the "Revolving Credit Unused Line Fees" and
individually, a "Revolving Credit Unused Line Fee") in an amount equal to one
quarter of one percent (1/4%) per annum of the average daily unused and
undisbursed portion of the Revolving Credit Committed Amount in
20
<PAGE> 28
effect from time to time accruing during each calendar quarter. The accrued and
unpaid portion of the Revolving Credit Unused Line Fee shall be paid by the
Borrower to the Lender on the first day of each calendar quarter, commencing on
the first such date following the date hereof, and on the Revolving Credit
Termination Date.
Section 2.2 The Letter of Credit Facility.
2.2.1 Letters of Credit.
Subject to and upon the provisions of this Agreement, and
as a part of the Revolving Credit Commitment, the Borrower may, upon the prior
approval of the Lender, obtain standby or commercial letters of credit (as the
same may from time to time be amended, supplemented or otherwise modified, each
a "Letter of Credit" and collectively the "Letters of Credit") from the Lender
from time to time from the Closing Date until the Business Day preceding the
Revolving Credit Termination Date. The Borrower will not be entitled to obtain
a Letter of Credit hereunder unless (a) after giving effect to the request, the
outstanding principal balance of the Revolving Loan and of the Letter of Credit
Obligations would not exceed the lesser of (i) the Revolving Credit Committed
Amount, or (ii) the most current Borrowing Base and (b) the sum of the
aggregate face amount of the then outstanding Letters of Credit (including the
face amount of the requested Letter of Credit) does not exceed Seven Hundred
Fifty Thousand Dollars ($750,000).
2.2.2 Letter of Credit Fees.
Prior to or simultaneously with the opening of each Letter
of Credit, the Borrower shall pay to the Lender, a letter of credit fee (each a
"Letter of Credit Fee" and collectively the "Letter of Credit Fees") in an
amount equal to two percent (2%) per annum of the amount of the Letter of
Credit. Such Letter of Credit Fees shall be paid upon the opening of the Letter
of Credit and upon each anniversary thereof, if any. In addition, the Borrower
shall pay to the Lender any and all additional issuance, negotiation,
processing, transfer or other fees to the extent and as and when required by
the provisions of any Letter of Credit Agreement; such additional fees are
included in and a part of the "Fees" payable by the Borrower under the
provisions of this Agreement.
2.2.3 Terms of Letters of Credit.
Each Letter of Credit shall (a) be opened pursuant to a
Letter of Credit Agreement, and (b) expire on a date not later than the
Business Day preceding the Revolving Credit Expiration Date; provided, however,
if any Letter of Credit does have an expiration date later than the Business
Day preceding the Revolving Credit Termination Date, as of the Business Day
preceding the Revolving Credit Termination Date an advance of the Revolving
Credit Facility shall be made by the Lender in the face amount of such Letter
of Credit (or Letters of Credit) and the proceeds thereof shall be deposited in
an account titled in the name of the Lender as trustee for the Borrower. The
proceeds of the trustee account referred to in the immediately preceding
sentence shall be held as collateral for the Letter of Credit (or Letters of
Credit) and in the event of a draw under the Letter of Credit (or Letters of
Credit), used to pay any such draw. The aggregate face amount of all Letters of
Credit at any one time outstanding and issued by the Lender pursuant to the
provisions of this Agreement, plus the amount of any unpaid Letter of
21
<PAGE> 29
Credit Fees accrued or scheduled to accrue thereon, and less the aggregate
amount of all drafts issued under or purporting to have been issued under such
Letters of Credit that have been paid by the Lender, is herein called the
"Outstanding Letter of Credit Obligations".
2.2.4 Procedure for Letters of Credit.
The Borrower shall give the Lender written notice at least
three (3) Business Days prior to the date on which a Letter of Credit is
requested to be opened of their request for a Letter of Credit. Such notice
shall be accompanied by a duly executed and delivered Letter of Credit
Agreement. Upon receipt of the Letter of Credit Agreement and the Letter of
Credit Fee, the Lender shall process such Letter of Credit Agreement in
accordance with its customary procedures and open such Letter of Credit on the
Business Day specified in such notice.
2.2.5 Change in Law; Increased Cost.
If any change in any law or regulation or in the
interpretation thereof by any court or other Governmental Authority charged
with the administration thereof shall either (a) impose, modify or deem
applicable any reserve, special deposit or similar requirement against Letters
of Credit issued by the Lender, or (b) impose on the Lender any other condition
regarding this Agreement or any Letter of Credit, and the result of any event
referred to in clauses (a) or (b) above shall be to increase the cost to the
Lender of issuing, maintaining or extending the Letter of Credit or the cost to
the Lender of funding any obligation under or in connection with the Letter of
Credit, then, upon demand by the Lender, the Borrower shall immediately pay to
the Lender from time to time as specified by the Lender, additional amounts
which shall be sufficient to compensate the Lender for such increased cost,
together with interest on each such amount from the date demanded until payment
in full thereof at a rate per annum equal to the then highest current rate of
interest on the Revolving Loan. A certificate as to such increased cost
incurred by the Lender, submitted by the Lender to the Borrower, shall be
conclusive, absent manifest error.
Section 2.3 General Financing Provisions.
2.3.1 Borrower's Representatives.
The Lender is hereby irrevocably authorized by the
Borrower to make advances under the Loan to the Borrower pursuant to the
provisions of this Agreement upon the written, oral or telephone request of any
one of the Persons who is from time to time a Responsible Officer of the
Borrower under the provisions of the most recent "Certificate" of corporate
resolutions of the Borrower on file with the Lender or who is an officer or
employee of the Borrower whom a Responsible Officer from time to time
authorizes in writing to do so. The Lender does not and shall not assume any
responsibility or liability for any errors, mistakes, and/or discrepancies in
the oral, telephonic, written or other transmissions of any instructions,
orders, requests and confirmations between the Lender and the Borrower in
connection with the Credit Facilities, any Loan or any other transaction in
connection with the provisions of this Agreement.
22
<PAGE> 30
2.3.2 Use of Proceeds of the Loan.
The proceeds of each advance under the Loan shall be used
by the Borrower for Permitted Uses, and for no other purposes except as may
otherwise be agreed by the Lender in writing. The Borrower shall use the
proceeds of the Loan promptly.
2.3.3 Administrative and Audit Fees.
The Borrower shall pay to the Lender a quarterly
administrative and audit fee (each an "Administrative Fee" and collectively,
the "Administrative Fees") for administrative and/or audit services performed
in conjunction with the Revolving Credit Facility. The quarterly Administrative
Fee shall be $1,500 and shall be payable each quarter, in advance, on the first
(1st) day of each March, June, September and December until the Revolving
Credit Termination Date.
2.3.4 Computation of Interest and Fees.
All applicable Fees and interest shall be calculated on
the basis of a year of 360 days for the actual number of days elapsed. Any
change in the interest rate on any of the Obligations resulting from a change
in the Base Rate shall become effective as of the opening of business on the
day on which such change in the Base Rate is announced.
2.3.5 Payments.
All payments of the Obligations, including, without
limitation, principal, interest, Prepayments, and Fees, shall be paid by the
Borrower without setoff, recoupment or counterclaim to the Lender in
immediately available funds not later than 12:00 noon, Baltimore, Maryland time
on the due date of such payment. All such payments shall be made to the
Lender's principal office in Baltimore, Maryland or at such other location as
the Lender may at any time and from time to time notify the Borrower.
Alternatively, at its sole discretion, the Lender may charge any deposit
account of the Borrower at the Lender or any Affiliate of the Lender with all
or any part of any amount due to the Lender under this Agreement or any of the
other Financing Documents to the extent that the Borrower shall have not
otherwise tendered payment to the Lender. All payments shall be applied first
to any unpaid Fees, second to any and all accrued and unpaid late charges and
Enforcement Costs, third to any and all accrued and unpaid interest on the
Obligations, and then to the then unpaid principal balance of the Obligations,
all in such order and manner as shall be determined by the Lender in its sole
and absolute discretion.
2.3.6 Liens; Setoff.
The Borrower hereby grants to the Lender as additional
collateral and security for all of the Obligations, a continuing Lien on any
and all monies, Securities, and other personal property of the Borrower and any
and all proceeds thereof, now or hereafter held or received by, or in transit
to, the Lender or any Affiliate of the Lender from, or for the account of, the
Borrower, and also upon any and all depository accounts (whether general or
special) and credits of the Borrower, if any, with the Lender or any Affiliate
of the Lender, at any time existing, excluding any depository accounts held by
the Borrower in its capacity as trustee for
23
<PAGE> 31
Persons who are not Affiliates of the Borrower. Without implying any limitation
on any other rights the Lender may have under the Financing Documents or
applicable Laws, during the continuance of an Event of Default, the Lender is
hereby authorized by the Borrower at any time and from time to time at the
Lender's option, without notice to, or consent of, the Borrower, to set off,
appropriate, seize, freeze and apply any or all items hereinabove referred to
against all Obligations then outstanding (whether or not then due), all in such
order and manner as shall be determined by the Lender in its sole and absolute
discretion.
2.3.7 Requirements of Law.
In the event that the Lender shall have determined in good
faith that (a) the adoption of any Laws regarding capital adequacy, or (b) any
change in such Laws or in the interpretation or application thereof or (c)
compliance by the Lender or any corporation controlling the Lender with any
request or directive regarding capital adequacy (whether or not having the
force of law) from any Governmental Authority or central bank, does or shall
have the effect of reducing the rate of return on the capital of the Lender or
such controlling corporation as a consequence of the Lender's obligations under
this Agreement to a level below that which the Lender or such corporation would
have achieved but for such adoption, change or compliance (taking into
consideration the policies of the Lender and its controlling corporation with
respect to capital adequacy) by an amount deemed by the Lender, in its
discretion, to be material, then from time to time, after submission by the
Lender to the Borrower of a written request therefor and a statement of the
basis for the Lender's determination, the Borrower shall pay to the Lender ON
DEMAND such additional amount or amounts in order to compensate the Lender or
its controlling corporation for any such reduction.
2.3.8 Funds Transfer Services.
(a) The Borrower has requested that the Lender and its
Affiliates make available to the Borrower electronic funds transfer services
and related security measures in connection with the Obligations. A copy of the
Lender's current Wire Transfer Procedures, including the Security Procedures,
is attached to this Agreement as EXHIBIT B. The Borrower acknowledges and
agrees that all electronic funds transfers made by the Lender or any Affiliate
of the Lender to, or for the account of, the Borrower shall be governed by, and
subject to, the Wire Transfer Procedures and the Security Procedures in effect
from time to time. The Borrower and the Lender agree that the current Wire
Transfer Procedures and the Security Procedures are commercially reasonable.
The Borrower further acknowledges and agrees, however, that the full scope of
the Security Procedures which the Lender and its Affiliates offer and strongly
recommend for electronic funds transfers is available only if the Borrower
communicates directly with the Lender or its Affiliate, as applicable, in
accordance with and as required by the Wire Transfer Procedures and the
Security Procedures. If the Borrower attempts to communicate with the Lender or
any Affiliate of the Lender by any other method or otherwise does not
communicate with the Lender and/or its Affiliate, as appropriate, in accordance
with the Wire Transfer Procedures and the Security Procedures, the Lender
and/or its Affiliate, as applicable, shall not be required to execute the
instructions of the Borrower, but if the Lender or such Affiliate, as
applicable, does so, the Borrower will be deemed to have refused and waived the
Security Procedures that the Lender or its Affiliate, as applicable, offers and
strongly recommends, and the Borrower will be bound by any funds transfer,
whether or not authorized,
24
<PAGE> 32
which is issued in the Borrower's name and accepted by the Lender or any
Affiliate, as applicable, in good faith. The Lender or its Affiliate, as
applicable, may modify the Wire Transfer Procedures including, without
limitation, the Security Procedures at such time or times and in such manner as
the Lender and/or any Affiliate of the Lender, as applicable, in its or their
sole and absolute discretion, deems appropriate to meet then prevailing
standards of good banking practice. The Lender shall notify the Borrower of any
material change or modification to the Wire Transfer Procedures and/or the
Security Procedures. By continuing to use the wire transfer services of the
Lender and/or any Affiliate of the Lender following notice to the Borrower of
any such change or modification to the Wire Transfer Procedures and/or the
Security Procedures, the Borrower shall be deemed automatically to have agreed
to the Wire Transfer Procedures and the Security Procedures, as changed and/or
modified and to have further agreed that the Wire Transfer Procedures and the
Security Procedures, as changed and/or modified, are likewise commercially
reasonable. The Borrower further agrees to establish and maintain procedures to
safeguard the Security Procedures and any information related thereto. Neither
the Lender nor any Affiliate of the Lender is responsible for detecting any
error in any payment order sent by the Borrower to the Lender or any Affiliate
of the Lender.
(b) The Lender and its Affiliates, as applicable, will
generally use the Fedwire funds transfer system for domestic funds transfers,
and the funds transfer system operated by the Society for Worldwide
International Financial Telecommunication (SWIFT) for international funds
transfers. International funds transfers may also be initiated through the
Clearing House InterBank Payment System (CHIPs) or international cable.
However, the Lender and/or its Affiliates, as applicable, may use any means and
routes that the Lender or any such Affiliate, as applicable, in its sole
discretion, may consider suitable for the transmission of funds. Each payment
order, or cancellation thereof, carried out through a funds transfer system or
a clearinghouse will be governed by all applicable funds transfer system rules
and clearing house rules and clearing arrangements, whether or not the Lender
or any Affiliate, as applicable, is a member of the system, clearinghouse or
arrangement and the Borrower acknowledges that the right of the Lender or any
Affiliate, as applicable, to reverse, adjust, stop payment or delay posting of
an executed payment order is subject to the Laws, regulations, rules, circulars
and arrangements described herein.
Section 2.4 Interest
2.4.1 Applicable Interest Rates.
(a) Each Loan shall bear interest until maturity (whether
by acceleration, declaration, extension or otherwise) at either the Base Rate
or the Eurodollar Rate, as selected and specified by the Borrower in an
Interest Rate Election Notice furnished to the Lender in accordance with the
provisions of Section 2.4.1(e), or as otherwise determined in accordance with
the provisions of this Section 2.4, as may be adjusted from time to time in
accordance with the provisions of Section 2.4.1(d)
(b) Notwithstanding the foregoing, following the
occurrence and during the continuance of an Event of Default, at the option of
the Lender, all Loans and all other Obligations shall bear interest at the
Post-Default Rate.
25
<PAGE> 33
(c) The Applicable Margin for (i) Eurodollar Loans shall
be 225 basis points per annum, and (ii) Base Rate Loans shall be 0 basis points
per annum unless and until a change is required by the operation of Section
2.4.1(d).
(d) Changes in the Applicable Margin shall be made not
more frequently than quarterly based on the Borrower's Pricing Ratio,
determined by the Lender in the exercise of its sole and absolute discretion
from the reports required by Section 6.1.1 (Financial Statements), except that
the first such determination shall be made based on the Borrower's quarterly
financial statements for the period ending December 31, 1998 previously
delivered to the Lender and shall be effective as of the first day of the first
month after the Lender receives such statements. The Applicable Margin
(expressed as basis points) shall vary depending upon the Borrower's Pricing
Ratio, as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Applicable Margin for Applicable Margin for
--------------------- ---------------------
Pricing Ratio Eurodollar Loans Base Rate Loans
-------------- ---------------- ---------------
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Less than 1.5 225 basis points 0
- -----------------------------------------------------------------------------------------------
1.5 but not greater than 2.5 250 basis points 0
- -----------------------------------------------------------------------------------------------
2.5 but not greater than 3.5 275 basis points 0
- -----------------------------------------------------------------------------------------------
3.5 or greater 300 basis points 25
- -----------------------------------------------------------------------------------------------
</TABLE>
2.4.2 Selection of Interest Rates.
(a) The Borrower may select the initial Applicable
Interest Rate or Applicable Interest Rates to be charged on the Loan.
(b) From time to time after the date of this
Agreement as provided in this Section, by a proper and timely Interest Rate
Election Notice furnished to the Lender in accordance with the provisions of
Section 2.4.2(e), the Borrower may select an initial Applicable Interest Rate
or Applicable Interest Rates for any Loans or may convert the Applicable
Interest Rate and, when applicable, the Interest Period, for any existing Loan
to any other Applicable Interest Rate or, when applicable, any other Interest
Period.
(c) The Borrower's selection of an Applicable
Interest Rate and/or an Interest Period, the Borrower's election to convert an
Applicable Interest Rate and/or an Interest Period to another Applicable
Interest Rate or Interest Period, and any other adjustments in an interest rate
are subject to the following limitations:
(i) the Borrower shall not at any time select
or change to an Interest Period that extends beyond the Revolving
Credit Expiration Date in the case of the Revolving Loan;
(ii) except as otherwise provided in Section
2.4.4, no change from the Eurodollar Rate to the Base Rate shall become
effective on a day other than a Business Day and on a day which is the
last day of the then current Interest Period, no change of an Interest
Period shall become effective on a day other than the last day of the
then current Interest Period, and no change from the Base Rate to the
Eurodollar Rate shall become effective on a day other than a day which
is a Eurodollar Business Day;
26
<PAGE> 34
(iii) any Applicable Interest Rate change for any
Loan to be effective on a date on which any principal payment on
account of such Loan is scheduled to be paid shall be made only after
such payment shall have been made;
(iv) no more than three (3) different Eurodollar
Rates may be outstanding at any time and from time to time with respect
to the Revolving Loan;
(v) the first day of each Interest Period shall
be a Eurodollar Business Day;
(vi) as of the effective date of a selection,
there shall not exist a Default or an Event of Default; and
(vii) the minimum principal amount of a Eurodollar
Loan shall be One Hundred Thousand Dollars ($100,000).
(d) If a request for an advance under the Loan is not
accompanied by an Interest Rate Election Notice or does not otherwise include a
selection of an Applicable Interest Rate and, if applicable, an Interest
Period, or if, after having made a selection of an Applicable Interest Rate
and, if applicable, an Interest Period, the Borrower fails or is not otherwise
entitled under the provisions of this Agreement to continue such Applicable
Interest Rate or Interest Period, the Borrower shall be deemed to have selected
the Base Rate as the Applicable Interest Rate until such time as the Borrower
has selected a different Applicable Interest Rate and specified an Interest
Period in accordance with, and subject to, the provisions of this Section.
(e) The Lender will not be obligated to make Loans, to
convert the Applicable Interest Rate on Loans to another Applicable Interest
Rate, or to change Interest Periods, unless the Lender shall have received an
irrevocable written or telephonic notice (an "Interest Rate Election Notice")
from the Borrower specifying the following information:
(i) the amount to be borrowed or converted;
(ii) a selection of the Base Rate or the Eurodollar
Rate;
(iii) the length of the Interest Period if the
Applicable Interest Rate selected is the Eurodollar Rate; and
(iv) the requested date on which such election is to
be effective.
Any telephonic notice must be confirmed in writing within
three (3) Business Days. Each Interest Rate Election Notice must be received by
the Lender not later than 10:00 a.m. (Baltimore City time) on the Business Day
of any requested borrowing or conversion in the case of a selection of the Base
Rate and not later than 10:00 a.m. (Baltimore City time) on the third Business
Day before the effective date of any requested borrowing or conversion in the
case of a selection of the Eurodollar Rate.
27
<PAGE> 35
2.4.3 Inability to Determine Eurodollar Base Rate.
In the event that (a) the Lender shall have determined
that, by reason of circumstances affecting the London interbank eurodollar
market, adequate and reasonable means do not exist for ascertaining the
Eurodollar Base Rate for any requested Interest Period with respect to a Loan
the Borrower has requested to be made as or to be converted to a Eurodollar
Loan or (b) the Lender shall determine that the Eurodollar Base Rate for any
requested Interest Period with respect to a Loan the Borrower has requested to
be made as or to be converted to a Eurodollar Loan does not adequately and
fairly reflect the cost to the Lender of funding or converting such Loan, the
Lender shall give telephonic or written notice of such determination to the
Borrower at least one (1) day prior to the proposed date for funding or
converting such Loan. If such notice is given, any request for a Eurodollar
Loan shall be made as or converted to a Base Rate Loan. Until such notice has
been withdrawn by the Lender, the Borrower will not request that any Loan be
made as or converted to a Eurodollar Loan.
2.4.4 Indemnity.
The Borrower agrees to indemnify and reimburse the Lender
and to hold the Lender harmless from any loss, cost (including administrative
costs) or expense which the Lender may sustain or incur as a consequence of (a)
a default by the Borrower in payment when due of the principal amount of or
interest on any Eurodollar Loan, (b) the failure of the Borrower to make, or
convert the Applicable Interest Rate of, a Loan after the Borrower has given a
Loan Notice or an Interest Rate Election Notice, (c) the failure of the
Borrower to make any prepayment of a Eurodollar Loan after the Borrower has
given notice of such intention to make such a prepayment, and/or (d) the making
by the Borrower of a prepayment of a Eurodollar Loan on a day which is not the
last day of the Interest Period for such Eurodollar Loan, calculated as
provided in the following paragraph. This agreement and covenant of the
Borrower shall survive termination or expiration of this Agreement and payment
of the other Obligations.
Contemporaneously with any prepayment of principal of a
Eurodollar Loan, a prepayment fee shall be due and payable to the Lender in an
amount equal to the product of
(A) the amount so prepaid
multiplied by
(B) the difference (but not less than zero) of
(i) the constant maturity 360-day interest yield (as of the first
day of the then effective Interest Period and expressed as a decimal)
for a United States Treasury bill, note, or bond (a "Treasury
obligation") selected by the Lender, in an aggregate amount comparable
to the amount prepaid, and having, as of the first day of the then
effective Interest Period, a remaining term approximately equal to the
original Interest Period,
minus
28
<PAGE> 36
(ii) the 360-day interest yield (as of the Business Day immediately
preceding the prepayment date and expressed as a decimal) on such
Treasury obligation and having, as of the Business Day immediately
preceding the prepayment date, a remaining term until maturity
approximately equal to the unexpired portion of the Interest Period
multiplied by
(C) the quotient of
(i) the number of calendar days in the unexpired portion of the
Interest Period,
divided by
(ii) 360.
The applicable yields on the Treasury obligations described
above shall be determined based upon the Federal Reserve statistical release
H.15 published for the applicable determination dates set forth above. Any
Treasury obligation selected when the related Interest Period is one year or
less shall be United States Treasury Bills. The Lender shall not be obligated
or required to have actually reinvested the prepaid amount of the Eurodollar
Loan in any such Treasury obligation as a condition precedent to the Borrower's
being obligated to pay a prepayment fee as outlined above. The Lender shall not
be obligated to accept any prepayment of principal unless it is accompanied by
the prepayment fee, if any, due in connection therewith as calculated pursuant
to the provisions of this paragraph. No prepayment fee payable in connection
herewith shall in any event or under any circumstances be deemed or construed
as a penalty.
2.4.5 Payment of Interest.
(a) Unpaid and accrued interest on the Loans shall be
paid monthly, in arrears, on the first day of each calendar month, commencing
on the first such date after the date of this Agreement, and on the first day
of each calendar month thereafter, and at maturity (whether by acceleration,
declaration, extension or otherwise).
(b) Notwithstanding the foregoing, any and all unpaid
and accrued interest on any Base Rate Loan converted to a Eurodollar Loan or
prepaid shall be paid immediately upon such conversion and/or prepayment, as
appropriate.
(c) Unpaid and accrued interest on any Eurodollar Loan
shall be paid on the last Business Day of each Interest Period for such
Eurodollar Loan and at maturity (whether by acceleration, declaration,
extension or otherwise); provided, however that any and all unpaid and accrued
interest on any Eurodollar Loan prepaid prior to expiration of the then current
Interest Period for such Eurodollar Loan shall be paid immediately upon
prepayment.
29
<PAGE> 37
ARTICLE III
THE COLLATERAL
Section 3.1 Debt and Obligations Secured.
All property and Liens assigned, pledged or otherwise granted under or
in connection with this Agreement (including, without limitation, those under
Section 3.2 (Grant of Liens)) or any of the Financing Documents shall secure
(a) the payment of all of the Obligations, and (b) the performance, compliance
with and observance by the Borrower of the provisions of this Agreement and all
of the other Financing Documents or otherwise under the Obligations.
Section 3.2 Grant of Liens.
The Borrower hereby assigns, pledges and grants to the Lender, and
agrees that the Lender shall have a perfected and continuing security interest
in, and Lien on, (a) all of the Borrower's Accounts, Chattel Paper, Government
Contracts, Documents, Instruments, Equipment, Securities, and General
Intangibles, whether now owned or existing or hereafter acquired or arising,
(b) all insurance policies relating to the foregoing, (c) all books and records
in whatever media (paper, electronic or otherwise) recorded or stored, with
respect to the foregoing and all Equipment and General Intangibles necessary or
beneficial to retain, access and/or process the information contained in those
books and records, and (d) all cash and non-cash proceeds and products of the
foregoing. The Borrower further agrees that the Lender shall have in respect
thereof all of the rights and remedies of a secured party under the Uniform
Commercial Code as well as those provided in this Agreement, under each of the
other Financing Documents and under applicable Laws.
The Borrower covenants and agrees that the Borrower shall provide the
Lender with all necessary information and will execute and deliver such
documents as are required to comply with the Federal Assignment of Claims Act
of 1940 (31 U.S.C. Section 3727 and 41 U.S.C. Section 15), to perfect the
Lender's security interest in Government Contracts with a contract value equal
to or greater than One Million Dollars ($1,000,000) and such other Government
Contracts as the Lender may determine in its sole discretion.
Section 3.3 Collateral Disclosure List.
On or prior to the Closing Date, the Borrower shall deliver to the
Lender a list (the "Collateral Disclosure List") which shall contain such
information with respect to the Borrower's business and real and personal
property as the Lender may require and shall be certified by a Responsible
Officer of the Borrower, all in the form provided to the Borrower by the
Lender. Promptly after demand by the Lender, the Borrower shall furnish to the
Lender an update of the information contained in the Collateral Disclosure List
at any time and from time to time as may be requested by the Lender.
Section 3.4 Personal Property.
The Borrower acknowledges and agrees that it is the intention of the
parties to this Agreement that the Lender shall have a first priority,
perfected Lien, in form and substance satisfactory to the Lender and its
counsel, on all of the Borrower's personal property of any kind
30
<PAGE> 38
and nature whatsoever, whether now owned or hereafter acquired, subject only to
the Permitted Liens, if any. In furtherance of the foregoing:
3.4.1 Securities, Chattel Paper, Promissory Notes, etc.
(a) On the Closing Date and without implying any
limitation on the scope of Section 3.2 (Grant of Liens), the Borrower shall
deliver to the Lender all originals of all of the Borrower's letters of credit,
Securities, Chattel Paper, Documents and Instruments and, if the Lender so
requires, shall execute and deliver to the Lender separate pledges, assignments
and security agreements in form and content acceptable to the Lender, which
pledges, assignments and security agreements shall assign, pledge and grant a
Lien to the Lender on all letters of credit, Securities (other than those
covered by the Stock Pledge Agreement), Chattel Paper, Documents, and
Instruments.
(b) In the event that the Borrower shall acquire after
the Closing Date any letters of credit, Securities, Chattel Paper, Documents,
or Instruments, the Borrower shall promptly so notify the Lender and deliver
the originals of all of the foregoing to the Lender promptly and in any event
within ten (10) days of each acquisition.
(c) All letters of credit, Securities, Chattel Paper,
Documents and Instruments shall be delivered to the Lender endorsed and/or
assigned as required by any pledge, assignment and security agreement and/or as
the Lender may require and, if applicable, shall be accompanied by blank
irrevocable and unconditional stock or bond powers and/or notices as the Lender
may require.
3.4.2 Patents, Copyrights and Other Property Requiring
Additional Steps to Perfect.
On the Closing Date and without implying any limitation on the
scope of Section 3.2 (Grant of Liens), the Borrower shall execute and deliver
all Financing Documents and take all actions reasonably requested by the Lender
in order to perfect a first priority assignment of Patents, Copyrights,
Trademarks or any other type or kind of intellectual property acquired by the
Borrower after the Closing Date.
Section 3.5 Record Searches.
As of the Closing Date and thereafter at the time any Financing
Document is executed and delivered by the Borrower pursuant to this Section,
the Lender shall have received, in form and substance satisfactory to the
Lender, such Lien or record searches with respect to the Borrower and/or any
other Person, as appropriate, and the property covered by such Financing
Document showing that the Lien of such Financing Document will be a perfected
first priority Lien on the property covered by such Financing Document subject
only to Permitted Liens or to such other matters as the Lender may approve.
Section 3.6 Costs.
The Borrower agrees to pay, as part of the Enforcement Costs and to the
fullest extent permitted by applicable Laws, on demand all costs, fees and
expenses incurred by the Lender in
31
<PAGE> 39
connection with the taking, perfection, preservation, protection and/or release
of a Lien on the Collateral, including, without limitation:
(a) customary fees and expenses incurred in preparing
Financing Documents from time to time (including, without limitation,
reasonable attorneys' fees incurred in connection with preparing the Financing
Documents);
(b) all filing and/or recording taxes or fees;
(c) all costs of Lien and record searches;
(d) reasonable attorneys' fees in connection with all
legal opinions required; and
(e) all related costs, fees and expenses.
Section 3.7 Release.
Upon the indefeasible repayment in full in cash of the Obligations and
performance of all Obligations of the Borrower and all obligations and
liabilities of each other Person, other than the Lender, under this Agreement
and all other Financing Documents, the termination and/or expiration of the
Commitment and Outstanding Letter of Credit Obligations, upon the Borrower's
request and at the Borrower's sole cost and expense, the Lender shall release
and/or terminate any Financing Document but only if and provided that there is
no commitment or obligation (whether or not conditional) of the Lender to
re-advance amounts which would be secured thereby.
Section 3.8 Inconsistent Provisions.
In the event that the provisions of any Financing Document directly
conflict with any provision of this Agreement, the provisions of this Agreement
govern.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties.
The Borrower represents and warrants to the Lender, as follows:
4.1.1 Subsidiaries.
The Borrower has only those Subsidiaries listed on the
Collateral Disclosure List attached hereto and made a part hereof and no
others. Each of the Subsidiaries is a Wholly Owned Subsidiary except as shown
on the Collateral Disclosure List, which correctly indicates the nature and
amount of the Borrower's ownership interests therein.
32
<PAGE> 40
4.1.2 Good Standing.
Each of the Borrower and its Subsidiaries (a) is a
corporation duly organized, existing and in good standing under the laws of the
jurisdiction of its incorporation, (b) has the corporate power to own its
property and to carry on its business as now being conducted, and (c) is duly
qualified to do business and is in good standing in each jurisdiction in which
the character of the properties owned by it therein or in which the transaction
of its business makes such qualification necessary.
4.1.3 Power and Authority.
The Borrower has full corporate power and authority to
execute and deliver this Agreement, the other Financing Documents to which it
is a party, to make the borrowings under this Agreement, and to incur and
perform the Obligations whether under this Agreement, the other Financing
Documents or otherwise, all of which have been duly authorized by all proper
and necessary corporate action. No consent or approval of shareholders or any
creditors of the Borrower, and no consent, approval, filing or registration
with or notice to any Governmental Authority on the part of the Borrower, is
required as a condition to the execution, delivery, validity or enforceability
of this Agreement, the other Financing Documents, the performance by the
Borrower of the Obligations.
4.1.4 Binding Agreements.
This Agreement and the other Financing Documents executed
and delivered by the Borrower have been properly executed and delivered and
constitute the valid and legally binding obligations of the Borrower and are
fully enforceable against the Borrower in accordance with their respective
terms, subject to bankruptcy, insolvency, reorganization, moratorium and other
laws of general applications affecting the rights and remedies of creditors and
secured parties, and general principles of equity regardless of whether applied
in a proceeding i equity or at law.
4.1.5 No Conflicts.
Neither the execution, delivery and performance of the
terms of this Agreement or of any of the other Financing Documents executed and
delivered by the Borrower nor the consummation of the transactions contemplated
by this Agreement will conflict with, violate or be prevented by (a) the
Borrower's charter or bylaws, (b) any existing mortgage, indenture, contract or
agreement binding on the Borrower or affecting its property, or (c) any Laws.
4.1.6 No Defaults, Violations.
(a) No Default or Event of Default has occurred and is
continuing.
(b) Neither the Borrower nor any of its Subsidiaries is
in default under or with respect to any obligation under any existing mortgage,
indenture, contract or agreement binding on it or affecting its property in any
respect which could be materially adverse to the business, operations, property
or financial condition of the Borrower, or which
33
<PAGE> 41
could materially adversely affect the ability of the Borrower to perform its
obligations under this Agreement or the other Financing Documents, to which the
Borrower is a party.
4.1.7 Compliance with Laws.
Neither the Borrower nor any of its Subsidiaries is in
violation of any applicable Laws (including, without limitation, any Laws
relating to employment practices, to environmental, occupational and health
standards and controls) or order, writ, injunction, decree or demand of any
court, arbitrator, or any Governmental Authority affecting the Borrower or any
of its properties, the violation of which, considered in the aggregate, could
materially adversely affect the business, operations or properties of the
Borrower and/or its Subsidiaries.
4.1.8 Margin Stock.
None of the proceeds of the Loan will be used, directly
or indirectly, by the Borrower or any Subsidiary for the purpose of purchasing
or carrying, or for the purpose of reducing or retiring any indebtedness which
was originally incurred to purchase or carry, any "margin security" within the
meaning of Regulation G (12 CFR Part 207), or "margin stock" within the meaning
of Regulation U (12 CFR Part 221), of the Board of Governors of the Federal
Reserve System or for any other purpose which might make the transactions
contemplated in this Agreement a "purpose credit" within the meaning of said
Regulation G or Regulation U, or cause this Agreement to violate any other
regulation of the Board of Governors of the Federal Reserve System or the
Securities Exchange Act of 1934 or the Small Business Investment Act of 1958,
as amended, or any rules or regulations promulgated under any of such statutes.
4.1.9 Investment Company Act; Margin Securities.
Neither the Borrower nor any of its Subsidiaries is an
investment company within the meaning of the Investment Company Act of 1940, as
amended, nor is it, directly or indirectly, controlled by or acting on behalf
of any Person which is an investment company within the meaning of said Act.
Neither the Borrower nor any of its Subsidiaries is engaged principally, or as
one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying "margin security" within the meaning of
Regulation G (12 CFR Part 207), or "margin stock" within the meaning of
Regulation U (12 CFR Part 221), of the Board of Governors of the Federal
Reserve System.
4.1.10 Litigation.
Except as otherwise disclosed to the Lender on Schedule
4.1.10 attached to and made a part of this Agreement, there are no proceedings,
actions or investigations pending or, so far as the Borrower knows, threatened
before or by any court, arbitrator or any Governmental Authority which, in any
one case or in the aggregate, if determined adversely to the interests of the
Borrower or any Subsidiary, would have a material adverse effect on the
business, properties, condition (financial or otherwise) or operations, present
or prospective, of the Borrower.
34
<PAGE> 42
4.1.11 Financial Condition.
The financial statements of the Borrower dated December
31, 1998, are complete and correct and fairly present the financial position of
the Borrower and the results of its operations and transactions in its surplus
accounts as of the date and for the period referred to and have been prepared
in accordance with GAAP applied on a consistent basis throughout the period
involved. There are no liabilities, direct or indirect, fixed or contingent, of
the Borrower as of the date of such financial statements that are not reflected
therein or in the notes thereto. There has been no adverse change in the
financial condition or operations of the Borrower since the date of such
financial statements and to the Borrower's knowledge no such adverse change is
pending or threatened. The Borrower has not guaranteed the obligations of, or
made any investment in or advances to, any Person, except as disclosed in such
financial statements.
4.1.12 Full Disclosure.
The financial statements referred to in Section 4.1.11
(Financial Condition), the Financing Documents (including, without limitation,
this Agreement), and the statements, reports or certificates furnished by the
Borrower in connection with the Financing Documents (a) do not contain any
untrue statement of a material fact and (b) when taken in their entirety, do
not omit any material fact necessary to make the statements contained therein
not misleading. There is no fact known to the Borrower which the Borrower has
not disclosed to the Lender in writing prior to the date of this Agreement with
respect to the transactions contemplated by the Financing Documents which
materially and adversely affects or in the future could, in the reasonable
opinion of the Borrower materially adversely affect the condition, financial or
otherwise, results of operations, business, or assets of the Borrower.
4.1.13 Funded Indebtedness.
Except for the Obligations and except as set forth in
Schedule 4.1.13 attached to and made a part of this Agreement, the Borrower has
no Funded Indebtedness. The Lender has received photocopies of all promissory
notes evidencing any Funded Indebtedness set forth in Schedule 4.1.13, together
with any and all subordination agreements, other agreements, documents, or
instruments securing, evidencing, guarantying or otherwise executed and
delivered in connection therewith.
4.1.14 Taxes.
Each of the Borrower and its Subsidiaries has filed all
returns, reports and forms for Taxes which, to the knowledge of the Borrower,
are required to be filed, and has paid all Taxes as shown on such returns or on
any assessment received by it, to the extent that such Taxes have become due,
unless and to the extent only that such Taxes, assessments and governmental
charges are currently contested in good faith and by appropriate proceedings by
the Borrower, such Taxes are not the subject of any Liens other than Permitted
Liens, and adequate reserves therefor have been established as required under
GAAP. All tax liabilities of the Borrower were as of the date of audited
financial statements referred to in Section 4.1.11 (Financial Condition), and
are now, adequately provided for on the books of the Borrower or its
35
<PAGE> 43
Subsidiaries, as appropriate. No tax liability has been asserted by the
Internal Revenue Service or any state or local authority against the Borrower
for Taxes in excess of those already paid.
4.1.15 ERISA.
With respect to any "pension plan" as defined in SECTION
3(2) of ERISA, which plan is now or previously has been maintained or
contributed to by the Borrower and/or by any commonly controlled entity: (a) no
"accumulated funding deficiency" as defined in Code Section 412 or ERISA
Section 302 has occurred, whether or not that accumulated funding deficiency
has been waived; (b) no Reportable Event has occurred; (c) no termination of
any plan subject to Title IV of ERISA has occurred; (d) neither the Borrower
nor any commonly controlled entity (as defined under ERISA) has incurred a
"complete withdrawal" within the meaning of ERISA Section 4203 from any
Multi-employer Plan; (e) neither the Borrower nor any commonly controlled
entity has incurred a "partial withdrawal" within the meaning of ERISA Section
4205 with respect to any Multi-employer Plan; (f) no Multi-employer Plan to
which the Borrower or any commonly controlled entity has an obligation to
contribute is in "reorganization" within the meaning of ERISA Section 4241 nor
has notice been received by the Borrower or any commonly controlled entity that
such a Multi-employer Plan will be placed in "reorganization".
4.1.16 Title to Properties.
The Borrower has good and marketable title to all of its
properties, including, without limitation, the Collateral and the properties
and assets reflected in the balance sheets described in Section 4.1.11
(Financial Condition). The Borrower has legal, enforceable and uncontested
rights to use freely such property and assets.
4.1.17 Patents, Trademarks, Etc.
The Borrower owns, possesses, or has the right to use
all necessary Patents, licenses, Trademarks, Copyrights, permits and franchises
to own its properties and to conduct its business as now conducted, without
known conflict with the rights of any other Person. Any and all obligations to
pay royalties or other charges with respect to such properties and assets are
properly reflected on the financial statements described in Section 4.1.11
(Financial Condition).
4.1.18 Presence of Hazardous Materials or Hazardous
Materials Contamination.
Except as previously disclosed to the Lender, to the
best of the Borrower's knowledge, (a) no Hazardous Materials are located on any
real property owned, controlled or operated by of the Borrower or for which the
Borrower is, or is claimed to be, responsible, except for reasonable quantities
of necessary supplies for use by the Borrower in the ordinary course of its
current line of business and stored, used and disposed in accordance with
applicable Laws; and (b) no property owned, controlled or operated by the
Borrower or for which the Borrower has, or is claimed to have, responsibility
has ever been used as a manufacturing, storage, or dump site for Hazardous
Materials nor is affected by Hazardous Materials Contamination at any other
property.
36
<PAGE> 44
4.1.19 Perfection and Priority of Collateral.
The Lender has, or upon execution and recording of this
Agreement and the Security Documents will have, and will continue to have as
security for the Obligations, a valid and perfected Lien on and security
interest in all Collateral, free of all other Liens, claims and rights of third
parties whatsoever except Permitted Liens, including, without limitation, those
described on Schedule 4.1.19.
4.1.20 Places of Business and Location of Collateral.
The information contained in the Collateral Disclosure
List is complete and correct. The Collateral Disclosure List completely and
accurately identifies the address of (a) the chief executive office of the
Borrower, (b) any and each other place of business of the Borrower, (c) the
location of all books and records pertaining to the Collateral, and (d) each
location, other than the foregoing, where any of the Collateral is located. The
proper and only places to file financing statements with respect to the
Collateral within the meaning of the Uniform Commercial Code are the filing
offices for those jurisdictions in which the Borrower maintains a place of
business as identified on the Collateral Disclosure List.
4.1.21 Business Names and Addresses.
In the twelve (12) years preceding the date hereof, the
Borrower has not changed its name, identity or corporate structure, has not
conducted business under any name other than its current name, and has not
conducted its business in any jurisdiction other than those disclosed on the
Collateral Disclosure List.
4.1.22 Equipment.
All Equipment is personalty and is not and will not be
affixed to real estate in such manner as to become a fixture or part of such
real estate. No equipment is held by the Borrower on a sale on approval basis.
4.1.23 Accounts.
With respect to all Accounts and to the best of the
Borrower's knowledge (a) they are genuine, and in all respects what they
purport to be, and are not evidenced by a judgment, an Instrument, or Chattel
Paper (unless such judgment has been assigned and such Instrument or Chattel
Paper has been endorsed and delivered to the Lender); (b) they represent bona
fide transactions completed in accordance with the terms and provisions
contained in the invoices, purchase orders and other contracts relating
thereto, and the underlying transaction therefor is in accordance with all
applicable Laws; (c) the amounts shown on the Borrower's books and records,
with respect thereto are actually and absolutely owing to the Borrower and are
not contingent or subject to reduction for any reason other than regular
discounts, credits or adjustments allowed by the Borrower in the ordinary
course of its business; (d) no payments have been or shall be made thereon
except payments turned over to the Lender by the Borrower; (e) all Account
Debtors thereon have the capacity to contract; and (f) the services furnished
giving rise thereto are not subject to any Liens except the security interest
granted to the Lender by this Agreement and Permitted Liens.
37
<PAGE> 45
4.1.24 Compliance with Eligibility Standards.
Each Account included in the calculation of the
Borrowing Base does and will at all times meet and comply with all of the
standards for Eligible Receivables. With respect to those Accounts which the
Lender has deemed Eligible Receivables (a) there are no facts, events or
occurrences which in any way impair the validity, collectibility or
enforceability thereof or tend to reduce the amount payable thereunder; and (b)
there are no proceedings or actions known to the Borrower which are threatened
or pending against any Account Debtor which might result in any material
adverse change in the Borrowing Base.
4.1.25 Year 2000 Compliance.
The Borrower has (a) initiated a review and assessment
of all areas within its and each of its Subsidiaries' businesses and operations
(including those affected by suppliers, vendors and customers) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by the Borrower or any of its Subsidiaries (or suppliers,
vendors and customers) may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999), (b) developed a plan and timeline for addressing the Year
2000 Problem on a timely basis, and (c) to date, implemented that plan in
accordance with that timetable. Based on the foregoing, the Borrower believes
that all computer applications (including those of its suppliers, vendors and
customers) that are material to its or any of its Subsidiaries' business and
operations are reasonably expected on a timely basis to be able to perform
properly date-sensitive functions for all dates before and after January 1,
2000 (that is, be 'Year 2000 compliant"), except to the extent that a failure
to do so could not reasonably expected to have a material adverse effect.
Section 4.2 Survival; Updates of Representations and Warranties.
All representations and warranties contained in or made under or in
connection with this Agreement and the other Financing Documents shall survive
the Closing Date, the making of any advance under the Loan and extension of
credit made hereunder, and the incurring of any other Obligations and shall be
deemed to have been made at the time of each request for, and again at the time
the making of, each advance under the Loan or the issuance of each Letter of
Credit, except that the representations and warranties which relate to
financial statements which are referred to in Section 4.1.11 (Financial
Condition), shall also be deemed to cover financial statements furnished from
time to time to the Lender pursuant to Section 6.1.1 (Financial Statements).
ARTICLE V
CONDITIONS PRECEDENT
Section 5.1 Conditions to the Initial Advance and Initial Letter of
Credit.
The making of the initial advance under the Loan and the issuance of
the initial Letter of Credit is subject to the fulfillment on or before the
Closing Date of the following conditions precedent in a manner satisfactory in
form and substance to the Lender and its counsel:
38
<PAGE> 46
5.1.1 Organizational Documents - Borrower.
The Lender shall have received:
(a) a certificate of good standing for the Borrower
certified by the Secretary of State, or other appropriate Governmental
Authority, of the state of incorporation for the Borrower;
(b) a certificate of qualification to do business for
the Borrower certified by the Secretary of State or other Governmental
Authority of each state in which the Borrower conducts business; (c) a
certificate dated as of the Closing Date by the Secretary or an Assistant
Secretary of the Borrower covering:
(i) true and complete copies of the Borrower's
corporate charter, bylaws, and all amendments thereto;
(ii) true and complete copies of the resolutions of
its Board of Directors authorizing (i) the execution, delivery and performance
of the Financing Documents to which the Borrower is a party, (ii) the
borrowings by the Borrower hereunder, (iii) the granting of the Liens
contemplated by this Agreement and the Financing Documents to which the
Borrower is a party;
(iii) the incumbency, authority and signatures of
the officers of the Borrower authorized to sign this Agreement and the other
Financing Documents to which the Borrower is a party; and
(iv) the identity of the Borrower's current
directors.
5.1.2 Opinion of Borrower's Counsel.
The Lender shall have received the favorable opinion of
counsel for the Borrower addressed to the Lender.
5.1.3 Consents, Licenses, Approvals, Etc.
The Lender shall have received copies of all consents,
licenses and approvals, required in connection with the execution, delivery,
performance, validity and enforceability of the Financing Documents, and such
consents, licenses and approvals shall be in full force and effect.
39
<PAGE> 47
5.1.4 Notes.
The Lender shall have received the Revolving Credit
Note, conforming to the requirements hereof and executed by a Responsible
Officer of the Borrower and attested by a duly authorized representative of the
Borrower.
5.1.5 Financing Documents and Collateral.
The Borrower shall have executed and delivered the
Financing Documents to be executed by it, and shall have delivered original
Chattel Paper, Instruments, Securities, and related Collateral and all
opinions, title insurance, and other documents contemplated by ARTICLE III (The
Collateral).
5.1.6 Other Financing Documents.
In addition to the Financing Documents to be delivered
by the Borrower, the Lender shall have received the Financing Documents duly
executed and delivered by Persons other than the Borrower.
5.1.7 Other Documents, Etc.
The Lender shall have received such other certificates,
opinions, documents and instruments confirmatory of or otherwise relating to
the transactions contemplated hereby as may have been reasonably requested by
the Lender.
5.1.8 Payment of Fees.
The Lender shall have received payment of any Fees due
on or before the Closing Date.
5.1.9 Collateral Disclosure List.
The Borrower shall have delivered the Collateral
Disclosure List required under the provisions of Section 3.3 (Collateral
Disclosure List) duly executed by a Responsible Officer of the Borrower.
5.1.10 Recordings and Filings.
The Borrower shall have: (a) executed and delivered all
Financing Documents (including, without limitation, UCC-1 and UCC-3 statements)
required to be filed, registered or recorded in order to create, in favor of
the Lender, a perfected Lien in the Collateral (subject only to the Permitted
Liens) in form and in sufficient number for filing, registration, and recording
in each office in each jurisdiction in which such filings, registrations and
recordations are required, and (b) delivered such evidence as the Lender
require that all necessary filing fees and all recording and other similar
fees, and all Taxes and other expenses related to such filings, registrations
and recordings will be or have been paid in full.
40
<PAGE> 48
5.1.11 Insurance Certificate.
The Lender shall have received an insurance certificate
in accordance with the provisions of Section 6.1.8 (Insurance) and Section
6.1.18 (Insurance With Respect to Equipment).
5.1.12 Landlord's Waivers.
The Lender shall have received a landlord's waiver from
each landlord of each and every business premise leased by the Borrower and on
which any of the Collateral is or may hereafter be located, which landlords'
waivers must be reasonably acceptable to the Lender and its counsel in their
sole and absolute discretion.
5.1.13 Field Examination.
The Lender shall have completed a field examination and
audit of the Borrower's business, operations and income, the results of which
field examination and audit shall be in all respects acceptable to the Lender
in its sole and absolute discretion and shall include reference discussions
with key customers and vendors.
Section 5.2 Conditions to all Extensions of Credit.
The making of all advances under the Loan and the issuance of all
Letters of Credit is subject to the fulfillment of the following conditions
precedent in a manner satisfactory in form and substance to the Lender and its
counsel:
5.2.1 Compliance.
The Borrower shall have complied and shall then be in
compliance with all terms, covenants, conditions and provisions of this
Agreement and the other Financing Documents that are binding upon it.
5.2.2 Borrowing Base.
The Borrower shall have furnished all Borrowing Base
Reports required by Section 2.1.4 (Borrowing Base Report), there shall exist no
Borrowing Base Deficiency, and as evidence thereof, the Borrower shall have
furnished to the Lender such reports, schedules, certificates, records and
other papers as may be requested by the Lender.
5.2.3 Default.
There shall exist no Event of Default or Default
hereunder.
5.2.4 Representations and Warranties.
The representations and warranties of the Borrower
contained among the provisions of this Agreement shall be true and with the
same effect as though such representations and warranties had been made at the
time of the making of, and of the request for, each advance under the Loan or
the issuance of each Letter of Credit, except that the
41
<PAGE> 49
representations and warranties which relate to financial statements which are
referred to in Section 4.1.11 (Financial Condition), shall also be deemed to
cover financial statements furnished from time to time to the Lender pursuant
to Section 6.1.1 (Financial Statements).
5.2.5 Adverse Change.
No adverse change shall have occurred in the condition
(financial or otherwise), operations or business of the Borrower that would, in
the good faith judgment of the Lender, materially impair the ability of the
Borrower to pay or perform any of the Obligations.
5.2.6 Legal Matters.
All legal documents incident to each advance under the
Loan and each of the Letters of Credit shall be reasonably satisfactory to
counsel for the Lender.
ARTICLE VI
COVENANTS OF THE BORROWER
Section 6.1 Affirmative Covenants.
So long as any of the Obligations or the Commitment shall be
outstanding hereunder, the Borrower agrees with the Lender as follows:
6.1.1 Financial Statements.
The Borrower shall furnish to the Lender:
(a) Annual Statements and Certificates. The Borrower
shall furnish to the Lender as soon as available, but in no event more than one
hundred and twenty (120) days after the close of each fiscal year of the
Borrower, (i) a copy of the annual financial statement in reasonable detail
satisfactory to the Lender relating to the Borrower, prepared in accordance
with GAAP and examined and certified by independent certified public
accountants satisfactory to the Lender, which financial statement shall include
a balance sheet of the Borrower as of the end of such fiscal year and
statements of income, cash flows and changes in shareholders equity of the
Borrower for such fiscal year, (ii) a Compliance Certificate, in substantially
the form attached to this Agreement as EXHIBIT C, as may be amended by the
Lender from time to time, containing a detailed computation of each financial
covenant which is applicable for the period reported, a certification that no
material change has occurred to the information contained in the Collateral
Disclosure List (except as set forth in a schedule attached to the
certification), and a cash flow projection report, each prepared by a
Responsible Officer of the Borrower in a format acceptable to the Lender, and
(iii) a management letter in the form prepared by the Borrower's independent
certified public accountants.
(b) Annual Opinion of Accountant. The Borrower shall
furnish to the Lender as soon as available, but in no event more than one
hundred and twenty (120) days after the close of the Borrower's fiscal years, a
letter or opinion of the accountant who examined and certified the annual
financial statement relating to the Borrower (i) stating whether anything in
such accountant's examination has revealed the occurrence of a Default or an
Event of Default
42
<PAGE> 50
hereunder, and, if so, stating the facts with respect thereto and (ii)
acknowledging that the Lender will rely on the statement and that the Borrower
knows of the intended reliance by the Lender.
(c) Monthly Statements and Certificates. The Borrower
shall furnish to the Lender as soon as available, but in no event more than
thirty (30) days after the close of the Borrower's fiscal months, balance
sheets of the Borrower as of the close of such period, income, cash flows and
changes in shareholders equity statements for such period and a detailed
computation of each financial covenant in this Agreement which is applicable
for the period reported, all as prepared and certified by a Responsible Officer
of the Borrower and accompanied by a certificate of that officer stating
whether any event has occurred which constitutes a Default or an Event of
Default hereunder, and, if so, stating the facts with respect thereto.
(d) Quarterly Contract Backlog Reports. The Borrower
shall furnish to the Lender within thirty (30) days after the end of each
fiscal quarter, a contract backlog report in form and substance acceptable to
the Lender.
(e) Monthly reports. The Borrower shall furnish to the
Lender within twenty (20) days after the end of each fiscal month, the
Borrowing Base Report and a report containing the following information:
(i) a detailed aging schedule of all Receivables by
Account Debtor, in such detail, and accompanied by such supporting
information, as the Lender may from time to time reasonably request;
(ii) a detailed aging of all accounts payable by
supplier, in such detail, and accompanied by such supporting information, as
the Lender may from time to time reasonably request; and
(iii) such other information as the Lender may
reasonably request.
(f) Annual Budget and Projections. The Borrower shall
furnish to the Lender as soon as available, but in no event later than the
thirtieth (30th) day subsequent to the end of each fiscal year:
(i) a budget and pro forma financial statements on
a quarterly basis for the following fiscal year, and
(ii) cash flow projections on a month-to-month
basis.
(g) Additional Reports and Information. The Borrower
shall furnish to the Lender promptly, such additional information, reports or
statements as the Lender may from time to time reasonably request.
6.1.2 Reports to SEC and to Stockholders.
The Borrower will furnish to the Lender, promptly upon
the filing or making thereof, at least one (1) copy of all financial
statements, reports, notices and proxy
43
<PAGE> 51
statements sent by the Borrower to its stockholders, and of all regular and
other reports filed by the Borrower with any securities exchange or with the
Securities and Exchange Commission.
6.1.3 Recordkeeping, Rights of Inspection, Audit, Etc.
(a) The Borrower shall , and shall cause each of its
Subsidiaries to, maintain books of record and account in which full, true and
correct entries are made of all dealings and transactions in relation to its
properties, business and activities.
(b) The Borrower shall, and shall cause each of its
Subsidiaries to, permit authorized representatives of the Lender to visit and
inspect the properties of the Borrower and its Subsidiaries, to review, audit,
check and inspect the Collateral at any time with or without notice, to review,
audit, check and inspect the Borrower's other books of record at any time with
or without notice and to make abstracts and photocopies thereof, and to discuss
the affairs, finances and accounts of the Borrower and/or any Subsidiaries,
with the officers, directors, employees and other representatives of the
Borrower and/or any Subsidiaries and their respective accountants, all at such
times during normal business hours and other reasonable times and as often as
the Lender may reasonably request.
(c) The Borrower hereby irrevocably authorizes and
directs all accountants and auditors employed by the Borrower and/or any
Subsidiaries at any time prior to the repayment in full of the Obligations to
exhibit and deliver to the Lender copies of any and all of the financial
statements, trial balances, management letters, or other accounting records of
any nature of the Borrower and/or any Subsidiaries in the accountant's or
auditor's possession, and to disclose to the Lender any information they may
have concerning the financial status and business operations of the Borrower
and/or any Subsidiaries. Further, the Borrower hereby authorizes all
Governmental Authorities to furnish to the Lender copies of reports or
examinations relating to the Borrower and/or any Subsidiaries, whether made by
the Borrower or otherwise.
(d) Any and all costs and expenses incurred by, or on
behalf of, the Lender in connection with the conduct of any of the foregoing
shall be part of the Enforcement Costs and shall be payable to the Lender upon
demand. The Borrower acknowledges and agrees that such expenses may include,
but shall not be limited to, any and all out-of-pocket costs and expenses of
the Lender's employees and Lenders in, and when, travelling to the Borrower's
facilities.
6.1.4 Corporate Existence.
The Borrower shall maintain its corporate existence in
good standing in the jurisdiction in which it is incorporated and in each other
jurisdiction where it is required to register or qualify to do business if the
failure to do so in such other jurisdiction might have a material adverse
effect on the ability of the Borrower to perform the Obligations, the conduct
of the Borrower's operations, the Borrower's financial condition, or the value
of, or the ability of the Lender to realize upon, the Collateral.
44
<PAGE> 52
6.1.5 Compliance with Laws.
The Borrower shall comply, and cause each of its
Subsidiaries to comply, with all applicable Laws and observe the valid
requirements of Governmental Authorities, the noncompliance with or the
nonobservance of which might have a material adverse effect on the ability of
the Borrower to perform the Obligations, the conduct of the Borrower's
operations, the Borrower's financial condition, or the value of, or the ability
of the Lender to realize upon, the Collateral.
6.1.6 Preservation of Properties.
The Borrower will, and will cause each of its
Subsidiaries to, at all times (a) maintain, preserve, protect and keep its
properties, whether owned or leased, in good operating condition, working order
and repair (ordinary wear and tear excepted), and from time to time will make
all proper repairs, maintenance, replacements, additions and improvements
thereto needed to maintain such properties in good operating condition, working
order and repair, and (b) do or cause to be done all things necessary to
preserve and to keep in full force and effect its material franchises, leases
of real and personal property, trade names, Patents, Trademarks, Copyrights and
permits which are necessary for the orderly continuance of its business.
6.1.7 Line of Business.
The Borrower will continue to engage substantially only
in the business of electronic systems manufacturer and integrator with
associated related services.
6.1.8 Insurance.
The Borrower will, and will cause each of its
Subsidiaries to, at all times maintain with A-or better rated insurance
companies such insurance as is required by applicable Laws and such other
insurance, all in such amounts not less than the Lender shall reasonably
determine from time to time, of such types and against such risks, hazards,
liabilities, casualties and contingencies as are usually insured against in the
same geographic areas by business entities engaged in the same or similar
business. Without limiting the generality of the foregoing, the Borrower will,
and will cause each of its Subsidiaries to, keep adequately insured all of its
property against loss or damage resulting from fire or other risks insured
against by extended coverage and maintain public liability insurance against
claims for personal injury, death or property damage occurring upon, in or
about any properties occupied or controlled by it, or arising in any manner out
of the businesses carried on by it. The Borrower shall deliver to the Lender on
the Closing Date (and thereafter on each date there is a material change in the
insurance coverage) a certificate of a Responsible Officer of the Borrower
containing a detailed list of the insurance then in effect and stating the
names of the insurance companies, the types, the amounts and rates of the
insurance, dates of the expiration thereof and the properties and risks covered
thereby. Within thirty (30) days after notice in writing from the Lender, the
Borrower will obtain such additional insurance as the Lender may reasonably
request.
45
<PAGE> 53
6.1.9 Taxes.
Except to the extent that the validity or amount thereof
is being contested in good faith and by appropriate proceedings, the Borrower
will, and will cause each of its Subsidiaries to, pay and discharge all Taxes
prior to the date when any interest or penalty would accrue for the nonpayment
thereof. The Borrower shall furnish to the Lender at such times as the Lender
may require proof satisfactory to the Lender of the making of payments or
deposits required by applicable Laws including, without limitation, payments or
deposits with respect to amounts withheld by the Borrower from wages and
salaries of employees and amounts contributed by the Borrower on account of
federal and other income or wage taxes and amounts due under the Federal
Insurance Contributions Act, as amended.
6.1.10 ERISA.
The Borrower will, and will cause each of its
Subsidiaries and Affiliates to, comply with the funding requirements of ERISA
with respect to employee pension benefit plans for its respective employees.
The Borrower will not permit with respect to any employee benefit plan or plans
covered by Title IV of ERISA (a) any prohibited transaction or transactions
under ERISA or the Internal Revenue Code, which results, or may result, in any
material liability of the Borrower, Subsidiary and/or Affiliate, or (b) any
Reportable Event if, upon termination of the plan or plans with respect to
which one or more such Reportable Events shall have occurred, there is or would
be any material liability of the Borrower, Subsidiary and/or Affiliate to the
PBGC. Upon the Lender's request, the Borrower will deliver to the Lender a copy
of the most recent actuarial report, financial statements and annual report
completed with respect to any "defined benefit plan", as defined in ERISA.
6.1.11 Notification of Events of Default and Adverse
Developments.
The Borrower shall promptly notify the Lender upon
obtaining knowledge of the occurrence of:
(a) any Event of Default;
(b) any Default;
(c) any litigation instituted or threatened against the
Borrower or its Subsidiaries and of the entry of any judgment or Lien (other
than any Permitted Liens) against any of the assets or properties of the
Borrower or any Subsidiary where the claims against the Borrower or any
Subsidiary exceed Ten Thousand Dollars ($10,000) and are not covered by
insurance;
(d) any event, development or circumstance whereby the
financial statements furnished hereunder fail in any material respect to
present fairly, in accordance with GAAP, the financial condition and
operational results of the Borrower;
(e) any judicial, administrative or arbitral proceeding
pending against the Borrower or any of its Subsidiaries and any judicial or
administrative proceeding known by the Borrower or any of its Subsidiaries to
be threatened against it which, if adversely
46
<PAGE> 54
decided, could materially adversely affect its financial condition or
operations (present or prospective);
(f) the receipt by the Borrower or any of its
Subsidiaries of any notice, claim or demand from any Governmental Authority
which alleges that the Borrower or any of its Subsidiaries is in violation of
any of the terms of, or has failed to comply with any applicable Laws
regulating its operation and business, including, but not limited to, the
Occupational Safety and Health Act and the Environmental Protection Act; and
(g) any other development in the business or affairs of
the Borrower or any of its Subsidiaries which may be materially adverse; in
each case describing in detail satisfactory to the Lender the nature thereof
and the action the Borrower proposes to take with respect thereto.
6.1.12 Government Contracts.
The Borrower shall immediately notify the Lender of the
execution of any Government Contract with a contract value equal to or greater
than One Million Dollars ($1,000,000) and shall in accordance with Section 3.2
execute any instruments and take any steps in order that all moneys due and to
become due under such Government Contracts shall be assigned to the Lender and
notice thereof given to the Government under the Federal Assignment of Claims
Act of 1940 (31 U.S.C. Section 3727 and 41 U.S.C. Section 15) or any other
similar applicable law. On the Lender's request the Borrower shall assign such
other Government Contracts as the Lender requires in the exercise of its
reasonable discretion.
6.1.13 Hazardous Materials; Contamination.
The Borrower agrees to: (a) give notice to the Lender
immediately upon the Borrower's acquiring knowledge of the presence of any
Hazardous Materials and of any Hazardous Materials Contamination on any
property owned or controlled by the Borrower or for which the Borrower is, or
is claimed to be, responsible (provided that such notice shall not be required
for Hazardous Materials placed or stored on such property in accordance with
applicable Laws in the ordinary course (including, without limitation,
quantity) of the Borrower's line of business expressly described in this
Agreement) or of any Hazardous Materials Contamination, with a full description
thereof;
(b) promptly comply with any Laws requiring the removal,
treatment or disposal of Hazardous Materials or Hazardous Materials
Contamination and provide the Lender with satisfactory evidence of such
compliance;
(c) provide the Lender, within thirty (30) days after a
demand by the Lender, with a bond, letter of credit or similar financial
assurance evidencing to the Lender's satisfaction that the necessary funds are
available to pay the cost of removing, treating, and disposing of such
Hazardous Materials or Hazardous Materials Contamination and discharging
47
<PAGE> 55
any Lien which may be established as a result thereof on any property owned or
controlled by the Borrower or for which the Borrower is, or is claimed to be,
responsible; and
(d) as part of the Obligations, defend, indemnify and
hold harmless the Lender and its agents, employees, trustees, successors and
assigns from any and all claims which may now or in the future (whether before
or after the termination of this Agreement) be asserted as a result of the
presence of any Hazardous Materials or of any Hazardous Materials Contamination
on any property owned or controlled by the Borrower or for which the Borrower
is, or is claimed to be, responsible. The Borrower acknowledges and agrees that
this indemnification shall survive the termination of this Agreement and the
Commitment and the payment and performance of all of the other Obligations.
6.1.14 Disclosure of Significant Transactions.
The Borrower shall deliver to the Lender a written
notice describing in detail each transaction by it involving the purchase,
sale, lease, or other acquisition or loss or casualty to or disposition of an
interest in Fixed or Capital Assets which exceeds Fifty Thousand Dollars
($50,000.00), said notices to be delivered to the Lender within thirty (30)
days of the occurrence of each such transaction.
6.1.15 Financial Covenants.
(a) Tangible Net Worth. The Borrower will at all
times maintain a Tangible Net of not less than the following:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Closing Date through September 29, 1999 $6,800,000
September 30, 1999 and at all times thereafter $7,500,000
</TABLE>
(b) Debt Service Coverage Ratio. The Borrower will
maintain, tested as of the last day of each of the Borrower's fiscal quarters
commencing March 30, 1999, a ratio of Debt Service Coverage Ratio of not less
than 1.5 to 1.0.
(c) Funded Indebtedness to EBITDA Ratio. The Borrower
will maintain, tested as of the last day of each of the Borrower's fiscal
quarters, a Funded Indebtedness to EBITDA Ratio of not less than 4.0 to 1.0.
During fiscal year 1999 this covenant shall be calculated by annualizing year
to date results as of the end of the quarter most recently ended and commencing
in fiscal year 2000 this covenant shall be calculated using a rolling four (4)
quarter period.
6.1.16 Collection of Receivables.
Until such time that the Lender shall notify the
Borrower of the revocation of such privilege, the Borrower shall at its own
expense have the privilege for the account of, and in trust for, the Lender of
collecting its Receivables and receiving in respect thereto all Items of
Payment and shall otherwise completely service all of the Receivables including
(a) the billing, posting and maintaining of complete records applicable
thereto, (b) the taking of such action with respect to the Receivables as the
Lender may request or in the absence of such request, as the Borrower may deem
advisable; and (c) the granting, in the ordinary course of business, to
48
<PAGE> 56
any Account Debtor, any rebate, refund or adjustment to which the Account
Debtor may be lawfully entitled, and may accept, in connection therewith, the
return of goods, the sale or lease of which shall have given rise to a
Receivable and may take such other actions relating to the settling of any
Account Debtor's claim as may be commercially reasonable. The Lender may, at
its option, at any time or from time to time after and during the continuance
of an Event of Default hereunder, revoke the collection privilege given in this
Agreement to the Borrower by either giving notice of its assignment of, and
lien on the Collateral to the Account Debtors or giving notice of such
revocation to the Borrower. The Lender shall not have any duty to, and the
Borrower hereby releases the Lender from all claims of loss or damage caused by
the delay or failure to collect or enforce any of the Receivables or to
preserve any rights against any other party with an interest in the Collateral.
The Lender shall be entitled at any time and from time to time to confirm and
verify Receivables.
6.1.17 Assignments of Receivables.
The Borrower will promptly, upon request, execute and
deliver to the Lender written assignments, in form and content acceptable to
the Lender, of specific Receivables or groups of Receivables; provided,
however, the Lien and/or security interest granted to the Lender under this
Agreement shall not be limited in any way to or by the inclusion or exclusion
of Receivables within such assignments. Receivables so assigned shall secure
payment of the Obligations and are not sold to the Lender whether or not any
assignment thereof, which is separate from this Agreement, is in form absolute.
The Borrower agrees that neither any assignment to the Lender nor any other
provision contained in this Agreement or any of the other Financing Documents
shall impose on the Lender any obligation or liability of the Borrower with
respect to that which is assigned and the Borrower hereby agrees to indemnify
the Lender and hold the Lender harmless from any and all claims, actions,
suits, losses, damages, costs, expenses, fees, obligations and liabilities
which may be incurred by or imposed upon the Lender by virtue of the assignment
of and Lien on the Borrower's rights, title and interest in, to, and under the
Collateral.
6.1.18 Insurance With Respect to Equipment.
The Borrower will (a) maintain hazard insurance with
fire and extended coverage and naming the Lender as an additional insured with
loss payable to the Lender as its respective interest may appear on the
Equipment in an amount at least equal to the lesser amount of the outstanding
principal amount of the Obligations or the fair market value of the Equipment
(but in any event sufficient to avoid any co-insurance obligations) and with a
specific endorsement to each such insurance policy pursuant to which the
insurer agrees to give the Lender at least thirty (30) days written notice
before any alteration or termination of such insurance policy and that no act
or default of the Borrower shall affect the right of the Lender to recover
under such policy in the event of loss or damage; (b) file with the Lender,
upon its request, a detailed list of the insurance then in effect and stating
the names of the insurance companies, the amounts and rates of the insurance,
dates of the expiration thereof and the properties and risks covered thereby;
and (c) within thirty (30) days after notice in writing from the Lender, obtain
such additional insurance as the Lender may reasonably request.
49
<PAGE> 57
6.1.19 Maintenance of the Collateral.
The Borrower will maintain the Collateral in good
working order, saving and excepting ordinary wear and tear, and will not permit
anything to be done to the Collateral which may materially impair the value
thereof. The Lender, or an agent designated by the Lender, shall be permitted
to enter the premises of the Borrower and examine, audit and inspect the
Collateral at any reasonable time and from time to time without notice. The
Lender agrees to act in a commercially reasonable manner when inspecting the
premises of the Borrower and when examining, auditing and/or inspecting the
Collateral. The Lender shall not have any duty to, and the Borrower hereby
releases the Lender from all claims of loss or damage caused by the delay or
failure to collect or enforce any of the Receivables or to, preserve any rights
against any other party with an interest in the Collateral.
6.1.20 Equipment.
The Borrower shall (a) maintain all Equipment as
personalty, (b) not affix any Equipment to any real estate in such manner as to
become a fixture or part of such real estate, and (c) shall hold no Equipment
on a sale on approval basis. The Borrower hereby declares its intent that,
notwithstanding the means of attachment, no goods of the Borrower hereafter
attached to any realty shall be deemed a fixture, which declaration shall be
irrevocable, without the Lender's consent, until all of the Obligations have
been paid in full and all of the Commitments have been terminated.
6.1.21 Defense of Title and Further Assurances.
At its expense the Borrower will defend the title to the
Collateral (and any part thereof), and will immediately execute, acknowledge
and deliver any financing statement, renewal, affidavit, deed, assignment,
continuation statement, security agreement, certificate or other document which
the Lender may require in order to perfect, preserve, maintain, continue,
protect and/or extend the Lien granted to the Lender under this Agreement or
under any of the other Financing Documents and the first priority of that Lien
subject only to the Permitted Liens. The Borrower will from time to time do
whatever the Lender may require by way of obtaining, executing, delivering,
and/or filing financing statements, landlords', mortgagees' or bailees'
waivers, notices of assignment and other notices and amendments and renewals
thereof and the Borrower will take any and all steps and observe such
formalities as the Lender may require, in order to create and maintain a valid
Lien upon, pledge of, or paramount security interest in, the Collateral,
subject to the Permitted Liens. The Borrower shall pay to the Lender on demand
all taxes, costs and expenses incurred by the Lender in connection with the
preparation, execution, recording and filing of any such document or
instrument. To the extent that the proceeds of any of the Accounts or
Receivables of the Borrower are expected to become subject to the control of,
or in the possession of, a party other than the Borrower or the Lender, the
Borrower shall cause all such parties to execute and deliver on the Closing
Date security documents, financing statements or other documents as requested
by the Lender and as may be necessary to evidence and/or perfect the security
interest of the Lender in those proceeds. The Borrower agrees that a copy of a
fully executed security agreement and/or financing statement shall be
sufficient to satisfy for all purposes the requirements of a financing
statement as set forth in Article 9 of the applicable Uniform Commercial Code.
The Borrower hereby irrevocably appoints the Lender as
50
<PAGE> 58
the Borrower's attorney-in-fact, with power of substitution, in the name of the
Lender or in the name of the Borrower or otherwise, for the use and benefit of
the Lender, but at the cost and expense of the Borrower and without notice to
the Borrower, to execute and deliver any and all of the instruments and other
documents and take any action which the Lender may require pursuant the
foregoing provisions of this Section 6.1.21.
6.1.22 Business Names; Locations.
The Borrower will notify the Lender not less than thirty
(30) days prior to (a) any change in the name under which the Borrower conducts
its business, (b) any change of the location of the chief executive office of
the Borrower, and (c) the opening of any new place of business or the closing
of any existing place of business, and any change in the location of the places
where the Collateral, or any part thereof, or the books and records, or any
part thereof, are kept.
6.1.23 Subsequent Opinion of Counsel as to Recording
Requirements.
In the event that the Borrower shall transfer its
principal place of business or the office where it keeps its records pertaining
to the Collateral, upon the Lender's request, the Borrower will provide to the
Lender a subsequent opinion of counsel as to the filing, recording and other
requirements with which the Borrower has complied to maintain the Lien and
security interest in favor of the Lender in the Collateral.
6.1.24 Use of Premises and Equipment.
The Borrower agrees that until the Obligations are fully
paid and this Agreement has been terminated, the Lender (a) after and during
the continuance of a Default or an Event of Default, may use any of the
Borrower's owned or leased lifts, hoists, trucks and other facilities or
equipment for handling or removing the Collateral; and (b) shall have, and is
hereby granted, a right of ingress and egress to the places where the
Collateral is located, and may proceed over and through any of the Borrower's
owned or leased property.
6.1.25 Protection of Collateral.
The Borrower agrees that the Lender may at any time
following an Event of Default take such steps as the Lender deems reasonably
necessary to protect the Lender's interest in, and to preserve the Collateral,
including, the hiring of such security guards or the placing of other security
protection measures as the Lender deems appropriate, may employ and maintain at
any of the Borrower's premises a custodian who shall have full authority to do
all acts necessary to protect the Lender's interests in the Collateral and may
lease warehouse facilities to which the Lender may move all or any part of the
Collateral to the extent commercially reasonable. The Borrower agrees to
cooperate fully with the Lender's efforts to preserve the Collateral and will
take such actions to preserve the Collateral as the Lender may reasonably
direct. All of the Lender's expenses of preserving the Collateral, including
any reasonable expenses relating to the compensation and bonding of a
custodian, shall be part of the Enforcement Costs.
51
<PAGE> 59
6.1.26 Year 2000 Compliance.
The Borrower will promptly notify the Lender in the
event the Borrower discovers or determines that any computer application
(including those of its suppliers, vendors and customers) that is material to
its or any of its Subsidiaries' business and operations will not be Year 2000
compliant, except to the extent that such failure could not reasonably be
expected to have a material adverse effect.
Section 6.2 Negative Covenants.
So long as any of the Obligations or the Commitment shall be
outstanding hereunder, the Borrower agrees with the Lender as follows:
6.2.1 Capital Structure, Merger, Acquisition or Sale of
Assets.
The Borrower will not alter or amend its capital
structure, authorize any additional class of equity, enter into any merger or
consolidation or amalgamation, windup or dissolve itself (or suffer any
liquidation or dissolution) or acquire all or substantially all the assets of
any Person, or sell, lease or otherwise dispose of any of its assets. Any
consent of the Lender to the disposition of any assets may be conditioned on a
specified use of the proceeds of disposition.
6.2.2 Subsidiaries.
The Borrower will not create or acquire any Subsidiaries
other than the Subsidiaries identified on the Collateral Disclosure List
without the prior written consent of the Lender.
6.2.3 Purchase or Redemption of Securities, Dividend
Restrictions.
The Borrower will not purchase, redeem or otherwise
acquire any shares of its capital stock or warrants now or hereafter
outstanding, declare or pay any dividends thereon (other than stock dividends),
apply any of its property or assets to the purchase, redemption or other
retirement of, set apart any sum for the payment of any dividends on, or for
the purchase, redemption, or other retirement of, make any distribution by
reduction of capital or otherwise in respect of, any shares of any class of
capital stock of the Borrower, or any warrants, permit any Subsidiary to
purchase or acquire any shares of any class of capital stock of, or warrants
issued by, the Borrower, make any distribution to stockholders or set aside any
funds for any such purpose, and not prepay, purchase or redeem any Funded
Indebtedness other than the Obligations.
6.2.4 Indebtedness.
The Borrower will not create, incur, assume or suffer to
exist any Funded Indebtedness, except:
(a) the Obligations;
(b) current accounts payable arising in the ordinary
course;
52
<PAGE> 60
(c) Indebtedness secured by Permitted Liens;
(d) Subordinated Indebtedness;
(e) Indebtedness of the Borrower existing on the date
hereof and reflected on the financial statements furnished pursuant to Section
4.1.11 (Financial Condition); and
(f) Capitalized Leases less than Two Hundred and Fifty
Thousand Dollars ($250,000) in the aggregate at any time.
6.2.5 Investments, Loans and Other Transactions.
Except as otherwise provided in this Agreement, the
Borrower will not (a) make, assume, acquire or continue to hold any investment
in any real property (unless used in connection with its business and treated
as a Fixed or Capital Asset of the Borrower) or any Person, whether by stock
purchase, capital contribution, acquisition of indebtedness of such Person or
otherwise (including, without limitation, investments in any joint venture or
partnership), (b) guaranty or otherwise become contingently liable for the
indebtedness or obligations of any Person, or (c) make any loans or advances,
or otherwise extend credit to any Person, except:
(a) any advance to an officer of the Borrower for travel
or other business expenses in the ordinary course of business, provided that
the aggregate amount of all such advances by the Borrower (taken as a whole)
outstanding at any time shall not exceed Twenty Thousand Dollars ($20,000);
(b) the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business;
(c) any investment in Cash Equivalents, which are
pledged to the Lender as collateral and security for the Obligations; and
(d) trade credit extended to customers in the ordinary
course of business.
6.2.6 Operating Lease Obligations.
The Borrower will not incur or permit to exist any Lease
Obligations except Capital Leases expressly permitted by this Agreement, if the
aggregate amount of all such Lease Obligations would at any time exceed One
Million Dollars ($1,000,000) during any fiscal year of the Borrower.
6.2.7 Capital Expenditures.
The Borrower will not, directly or indirectly (by way of
the acquisition of the securities of a Person or otherwise), make any Capital
Expenditures in the aggregate in any fiscal year exceeding Six Hundred Thousand
Dollars ($600,000).
53
<PAGE> 61
6.2.8 Subordinated Indebtedness.
The Borrower will not make:
(a) any payment of principal of, or interest on, any
of the Subordinated Indebtedness, including, without limitation, the
Subordinated Debt, if a Default or an Event of Default then exists hereunder or
would result from such payment;
(b) any payment of the principal or interest due on the
Subordinated Indebtedness as a result of acceleration thereunder or a mandatory
prepayment thereunder;
(c) any amendment or modification of or supplement to
the documents evidencing or securing the Subordinated Indebtedness; or
(d) payment of principal or interest on the
Subordinated Indebtedness other than when due (without giving effect to any
acceleration of maturity or mandatory prepayment).
6.2.9 Liens; Confessed Judgment.
The Borrower agrees that it (a) will not create, incur,
assume or suffer to exist any Lien upon any of its properties or assets,
whether now owned or hereafter acquired, except for Liens securing the
Obligations and Permitted Liens, (b) will not agree to, assume or suffer to
exist any provision in any instrument or other document for confession of
judgment, cognovit or other similar right or remedy, (c) will not allow or
suffer to exist any Permitted Liens to be superior to Liens securing the
Obligations, (d) will not enter into any contracts for the consignment of goods
to the Borrower, (e) will not execute or suffer the filing of any financing
statements or the posting of any signs giving notice of consignments to the
Borrower, (f) will not, as a material part of its business, engage in the sale
of goods belonging to others, and (g) will not allow or suffer to exist the
failure of any Lien described in the Security Documents to attach to, and/or
remain at all times perfected on, any of the property described in the Security
Documents.
6.2.10 Transactions with Affiliates.
The Borrower and its Subsidiaries will not enter into or
participate in any transaction with any Affiliate or, except in the ordinary
course of business, with the officers, directors, employees and other
representatives of the Borrower and/or any Subsidiary.
6.2.11 Other Businesses.
The Borrower and its Subsidiaries will not engage
directly or indirectly in any business other than its current line of business
described elsewhere in this Agreement.
54
<PAGE> 62
6.2.12 ERISA Compliance.
Neither the Borrower nor any Commonly Controlled Entity
shall: (a) engage in or permit any "prohibited transaction" (as defined in
ERISA); (b) cause any "accumulated funding deficiency" as defined in ERISA
and/or the Internal Revenue Code; (c) terminate any pension plan in a manner
which could result in the imposition of a lien on the property of the Borrower
pursuant to ERISA; (d) terminate or consent to the termination of any
Multi-employer Plan; or (e) incur a complete or partial withdrawal with respect
to any Multi-employer Plan.
6.2.13 Prohibition on Hazardous Materials.
The Borrower shall not place, manufacture or store or
permit to be placed, manufactured or stored any Hazardous Materials on any
property owned, operated or controlled by the Borrower or for which the
Borrower is responsible other than Hazardous Materials placed or stored on such
property in accordance with applicable Laws in the ordinary course.
6.2.14 Method of Accounting; Fiscal Year.
(a) The Borrower shall not change the method of
accounting employed in the provisions of Section 6.1.1 (Financial Statements),
unless required to conform to GAAP and on the condition that the Borrower's
accountants shall furnish such information as the Lender may request to
reconcile the changes with the Borrower's prior financial statements.
(b) The Borrower will not change its fiscal year from a
year ending on September 30.
6.2.15 Compensation.
The Borrower shall not pay any bonuses, fees,
compensation, commissions, salaries, drawing accounts, or other payments (cash
and non-cash), whether direct or indirect, to any stockholders of the Borrower,
or any Affiliate of the Borrower, other than reasonable compensation for actual
services rendered by stockholders in their capacity as officers or employees of
the Borrower.
6.2.16 Transfer of Collateral.
The Borrower will not transfer, or permit the transfer,
to another location of any of the Collateral or the books and records related
to any of the Collateral.
6.2.17 Sale and Leaseback.
The Borrower will not directly or indirectly enter into
any arrangement to sell or transfer all or any substantial part of its fixed
assets and thereupon or within one year thereafter rent or lease the assets so
sold or transferred.
55
<PAGE> 63
6.2.18 Disposition of Collateral.
The Borrower will not sell, discount, allow credits or
allowances, transfer, assign, extend the time for payment on, convey, lease,
assign, transfer or otherwise dispose of the Collateral, except, prior to an
Event of Default, dispositions expressly permitted elsewhere in this Agreement,
and the sale of unnecessary or obsolete Equipment, but only if the proceeds of
the sale of such Equipment are (a) used to purchase similar Equipment to
replace the unnecessary or obsolete Equipment or (b) immediately turned over to
the Lender for application to the Obligations.
6.2.19 Profitability.
The Borrower will not incur a net loss in any fiscal
6.2.20 Stock of Subsidiaries.
The Borrower will not sell or otherwise dispose of any
shares of capital stock of any Subsidiary (except in connection with a merger
or consolidation of a Wholly Owned Subsidiary into the Borrower or another
Wholly Owned Subsidiary or with the dissolution of any Subsidiary) or permit
any Subsidiary to issue any additional shares of its capital stock except pro
rata to its stockholders.
ARTICLE VII
DEFAULT AND RIGHTS AND REMEDIES
Section 7.1 Events of Default.
The occurrence of any one or more of the following events shall
constitute an "Event of Default" under the provisions of this Agreement:
7.1.1 Failure to Pay.
The failure of the Borrower to pay any of the
Obligations as and when due and payable in accordance with the provisions of
this Agreement, the Notes and/or any of the other Financing Documents.
7.1.2 Breach of Representations and Warranties.
Any representation or warranty made in this Agreement or
in any report, statement, schedule, certificate, opinion (including any opinion
of counsel for the Borrower), financial statement or other document furnished
in connection with this Agreement, any of the other Financing Documents, or the
Obligations, shall prove to have been false or misleading when made (or, if
applicable, when reaffirmed) in any material respect.
7.1.3 Failure to Comply with Covenants.
The failure of the Borrower to perform, observe or
comply with any covenant, condition or agreement contained in this Agreement.
56
<PAGE> 64
7.1.4 Default Under Other Financing Documents or
Obligations.
A default shall occur under any of the other Financing
under any other Obligations, and such default is not cured within any applicable
grace period provided therein.
7.1.5 Receiver; Bankruptcy.
The Borrower or any Subsidiary shall (a) apply for or
consent to the appointment of a receiver, trustee or liquidator of itself or
any of its property, (b) admit in writing its inability to pay its debts as
they mature, (c) make a general assignment for the benefit of creditors, (d) be
adjudicated a bankrupt or insolvent, (e) file a voluntary petition in
bankruptcy or a petition or an answer seeking or consenting to reorganization
or an arrangement with creditors or to take advantage of any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or liquidation
law or statute, or an answer admitting the material allegations of a petition
filed against it in any proceeding under any such law, or take corporate action
for the purposes of effecting any of the foregoing, or (f) by any act indicate
its consent to, approval of or acquiescence in any such proceeding or the
appointment of any receiver of or trustee for any of its property, or suffer
any such receivership, trusteeship or proceeding to continue undischarged for a
period of sixty (60) days, or (g) by any act indicate its consent to, approval
of or acquiescence in any order, judgment or decree by any court of competent
jurisdiction or any Governmental Authority enjoining or otherwise prohibiting
the operation of a material portion of the Borrower's or any Subsidiary's
business or the use or disposition of a material portion of the Borrower's or
any Subsidiary's assets.
7.1.6 Involuntary Bankruptcy, etc.
(a) An order for relief shall be entered in any
involuntary case brought against the Borrower or any Subsidiary under the
Bankruptcy Code, or (b) any such case shall be commenced against the Borrower
or any Subsidiary and shall not be dismissed within sixty (60) days after the
filing of the petition, or (c) an order, judgment or decree under any other Law
is entered by any court of competent jurisdiction or by any other Governmental
Authority on the application of a Governmental Authority or of a Person other
than the Borrower or any Subsidiary (i) adjudicating the Borrower or any
Subsidiary, bankrupt or insolvent, or (ii) appointing a receiver, trustee or
liquidator of the Borrower or any Subsidiary, or of a material portion of the
Borrower's or any Subsidiary's assets, or (iii) enjoining, prohibiting or
otherwise limiting the operation of a material portion of the Borrower's or any
Subsidiary's business or the use or disposition of a material portion of the
Borrower's or any Subsidiary's assets, and such order, judgment or decree
continues unstayed and in effect for a period of thirty (30) days from the date
entered.
7.1.7 Judgment.
Unless adequately insured in the opinion of the Lender,
the entry of a final judgment for the payment of money involving more than
$25,000 against the Borrower, and the failure by the Borrower to discharge the
same, or cause it to be discharged, within thirty (30)
57
<PAGE> 65
days from the date of the order, decree or process under which or pursuant to
which such judgment was entered, or to secure a stay of execution pending
appeal of such judgment.
7.1.8 Execution; Attachment.
Any execution or attachment shall be levied against the
Collateral, or any part thereof, and such execution or attachment shall not be
set aside, discharged or stayed within thirty (30) days after the same shall
have been levied.
7.1.9 Default Under Other Borrowings.
Default shall be made with respect to any Funded
Indebtedness (other than the Loan) if the effect of such default is to
accelerate the maturity of such Funded Indebtedness or to permit the holder or
obligee thereof or other party thereto to cause any such Funded Indebtedness to
become due prior to its stated maturity.
7.1.10 Challenge to Agreements.
The Borrower or any of the Guarantors shall challenge
the validity and binding effect of any provision of any of the Financing
Documents or shall state its intention to make such a challenge of any of the
Financing Documents or any of the Financing Documents shall for any reason
(except to the extent permitted by its express terms) cease to be effective or
to create a valid and perfected first priority Lien (except for Permitted
Liens) on, or security interest in, any of the Collateral purported to be
covered thereby.
7.1.11 Material Adverse Change.
The Lender in its reasonable discretion determines in
good faith that a material adverse change has occurred in the financial
condition of the Borrower.
7.1.12 Impairment of Position.
The Lender in its reasonable discretion determines in
good faith that an event has occurred which impairs the prospect of payment of
the Obligations and/or the value of the Collateral.
7.1.13 Collateral Inadequacy.
The determination in good faith by the Lender that the
security for the Obligations is inadequate.
7.1.14 Change in Control.
Any change in control of the Borrower shall occur.
58
<PAGE> 66
7.1.15 Liquidation, Termination, Dissolution, Change in
Management, etc.
The Borrower shall liquidate, dissove or terminate its existence
or shall suspend or terminate a substantial portion of its business operations
or any change occurs in the management or control of the Borrower without the
prior written consent of the Lender.
7.1.16 Contract Default, Debarment or Suspension etc.
Default shall be made under any Government Contract, or
any Government Contract is terminated for default by any Governmental Authority
for any reason whatsoever, or if the Borrower is debarred or suspended, whether
temporarily or permanently, by any Governmental Authority.
7.1.17 Advances to Subsidiares.
The Borrower shall make any advance, loan, or extension
of credit to or any payment on behalf of or guaranty any obligation of any
Subsidiary without the Lender's prior written consent.
Section 7.2 Remedies.
Upon the occurrence of any Default or Event of Default, the Lender may
at any time thereafter exercise any one or more of the following rights, powers
or remedies:
7.2.1 Acceleration.
The Lender may declare the Obligations to be immediately
due and payable, notwithstanding anything contained in this Agreement or in any
of the other Financing Documents to the contrary, without presentment, demand,
protest, notice of protest or of dishonor, or other notice of any kind, all of
which the Borrower hereby waives.
7.2.2 Further Advances.
The Lender may from time to time without notice to the
Borrower suspend, terminate or limit any further loans or other extensions of
credit under this Agreement and under any of the other Financing Documents.
Further, upon the occurrence of an Event of Default or Default specified in
Sections 7.1.5 (Receiver; Bankruptcy) or Section 7.1.6 (Involuntary Bankruptcy,
etc.), the Revolving Credit Commitment and any agreement in any of the
Financing Documents to provide additional credit shall immediately and
automatically terminate and the unpaid principal amount of the Notes (with
accrued interest thereon) and all other Obligations then outstanding, shall
immediately become due and payable without further action of any kind and
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived by the Borrower.
7.2.3 Uniform Commercial Code.
The Lender shall have all of the rights and remedies of
a secured party under the applicable Uniform Commercial Code and other
applicable Laws. Upon demand by
59
<PAGE> 67
the Lender, the Borrower shall assemble the Collateral and make it available to
the Lender, at a place designated by the Lender. The Lender or its agents may
without notice from time to time enter upon the Borrower's premises to take
possession of the Collateral, to remove it, to render it unusable, to process
it or otherwise prepare it for sale, or to sell or otherwise dispose of it.
Any written notice of the sale, disposition or other
intended action by the Lender with respect to the Collateral which is sent by
regular mail, postage prepaid, to the Borrower at the address set forth in
Section 8.1 (Notices), or such other address of the Borrower which may from
time to time be shown on the Lender's records, at least ten (10) days prior to
such sale, disposition or other action, shall constitute commercially
reasonable notice to the Borrower. The Lender may alternatively or additionally
give such notice in any other commercially reasonable manner. Nothing in this
Agreement shall require the Lender to give any notice not required by
applicable Laws.
If any consent, approval, or authorization of any state,
municipal or other governmental department, agency or authority or of any
person, or any person, corporation, partnership or other entity having any
interest therein, should be necessary to effectuate any sale or other
disposition of the Collateral, the Borrower agrees to execute all such
applications and other instruments, and to take all other action, as may be
required in connection with securing any such consent, approval or
authorization.
The Borrower recognizes that the Lender may be unable to
effect a public sale of all or a part of the Collateral consisting of
securities by reason of certain prohibitions contained in the Securities Act of
1933, as amended, and other applicable federal and state Laws. The Lender may,
therefore, in its discretion, take such steps as it may deem appropriate to
comply with such Laws and may, for example, at any sale of the Collateral
consisting of securities restrict the prospective bidders or purchasers as to
their number, nature of business and investment intention, including, without
limitation, a requirement that the Persons making such purchases represent and
agree to the satisfaction of the Lender that they are purchasing such
securities for their account, for investment, and not with a view to the
distribution or resale of any thereof. The Borrower covenants and agrees to do
or cause to be done promptly all such acts and things as the Lender may request
from time to time and as may be necessary to offer and/or sell the securities
or any part thereof in a manner which is valid and binding and in conformance
with all applicable Laws. Upon any such sale or disposition, the Lender shall
have the right to deliver, assign and transfer to the purchaser thereof the
Collateral consisting of securities so sold.
7.2.4 Specific Rights With Regard to Collateral.
In addition to all other rights and remedies provided
hereunder or as shall exist at law or in equity from time to time, the Lender
may (but shall be under no obligation to), without notice to the Borrower, and
the Borrower hereby irrevocably appoints the Lender as its attorney-in-fact,
with power of substitution, in the name of the Lender or in the name of the
Borrower or otherwise, for the use and benefit of the Lender, but at the cost
and expense of the Borrower and without notice to the Borrower:
60
<PAGE> 68
(a) request any account debtor obligated on any of the
Accounts to make payments thereon directly to the Lender, with the Lender
taking control of the cash and non-cash proceeds thereof;
(b) compromise, extend or renew any of the Collateral or
deal with the same as it may deem advisable;
(c) make exchanges, substitutions or surrenders of all
or any part of the Collateral;
(d) copy, transcribe, or remove from any place of
business of the Borrower or any Subsidiary all books, records, ledger sheets,
correspondence, invoices and documents, relating to or evidencing any of the
Collateral or without cost or expense to the Lender, make such use of the
Borrower's or any Subsidiary's place(s) of business as may be reasonably
necessary to administer, control and collect the Collateral;
(e) demand, collect, receipt for and give renewals,
extensions, discharges and releases of any of the Collateral;
(f) institute and prosecute legal and equitable
proceedings to enforce collection of, or realize upon, any of the Collateral;
(g) settle, renew, extend, compromise, compound,
exchange or adjust claims in respect of any of the Collateral or any legal
proceedings brought in respect thereof;
(h) endorse or sign the name of the Borrower upon any
Items of Payment, certificates of title, Instruments, Securities, stock powers,
documents, documents of title, financing statements, assignments, notices, or
other writing relating to or part of the Collateral and on any Proof of Claim
in Bankruptcy against an Account Debtor;
(i) notify the Post Office authorities to change the
address for the delivery of mail to the Borrower to such address or Post Office
Box as the Lender may designate and receive and open all mail addressed to the
Borrower; and
(j) take any other action necessary or beneficial to
realize upon or dispose of the Collateral or to carry out the terms of this
Agreement.
7.2.5 Application of Proceeds.
Any proceeds of sale or other disposition of the
Collateral will be applied by the Lender to the payment of the Enforcement
Costs, and any balance of such proceeds will be applied by the Lender to the
payment of the balance of the Obligations in such order and manner of
application as the Lender may from time to time in its sole and absolute
discretion determine. If the sale or other disposition of the Collateral fails
to fully satisfy the Obligations, the Borrower shall remain liable to the
Lender for any deficiency.
61
<PAGE> 69
7.2.6 Performance by Lender.
Upon the occurrence and continuation of an Event of
Default, the Lender without notice to or demand upon the Borrower and without
waiving or releasing any of the Obligations or any Default or Event of Default,
may (but shall be under no obligation to) at any time thereafter make such
payment or perform such act for the account and at the expense of the Borrower,
and may enter upon the premises of the Borrower for that purpose and take all
such action thereon as the Lender may consider necessary or appropriate for
such purpose and the Borrower hereby irrevocably appoints the Lender as its
attorney-in-fact to do so, with power of substitution, in the name of the
Lender or in the name of the Borrower or otherwise, for the use and benefit of
the Lender, but at the cost and expense of the Borrower and without notice to
the Borrower. All sums so paid or advanced by the Lender together with interest
thereon from the date of payment, advance or incurring until paid in full at
the Post-Default Rate and all costs and expenses, shall be deemed part of the
Enforcement Costs, shall be paid by the Borrower to the Lender on demand, and
shall constitute and become a part of the Obligations.
7.2.7 Other Remedies.
The Lender may from time to time proceed to protect or
enforce its rights by an action or actions at law or in equity or by any other
appropriate proceeding, whether for the specific performance of any of the
covenants contained in this Agreement or in any of the other Financing
Documents, or for an injunction against the violation of any of the terms of
this Agreement or any of the other Financing Documents, or in aid of the
exercise or execution of any right, remedy or power granted in this Agreement,
the Financing Documents, and/or applicable Laws. The Lender is authorized to
offset and apply to all or any part of the Obligations all moneys, credits and
other property of any nature whatsoever of the Borrower now or at any time
hereafter in the possession of, in transit to or from, under the control or
custody of, or on deposit with, the Lender.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Notices.
All notices, requests and demands to or upon the parties to this
Agreement shall be in writing and shall be deemed to have been given or made
when delivered by hand on a Business Day, or two (2) days after the date when
deposited in the mail, postage prepaid by registered or certified mail, return
receipt requested, or when sent by overnight courier, on the Business Day next
following the day on which the notice is delivered to such overnight courier,
addressed as follows:
Borrower: Sensys Technologies Inc.
8419 Terminal Road
Newington, Virginia 22122
Attention: Robert C. Bower
62
<PAGE> 70
Lender: NationsBank, N. A.
8300 Greensboro Drive
Suite 550
McLean, Virginia 22102-3604
Attention: Government Contractor Unit
By written notice, each party to this Agreement may change the address
to which notice is given to that party, provided that such changed notice shall
include a street address to which notices may be delivered by overnight courier
in the ordinary course on any Business Day.
Section 8.2 Amendments; Waivers.
This Agreement and the other Financing Documents may not be amended,
modified, or changed in any respect except by an agreement in writing signed by
the Lender and the Borrower. No waiver of any provision of this Agreement or of
any of the other Financing Documents, nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same shall be in
writing. No course of dealing between the Borrower and the Lender and no act or
failure to act from time to time on the part of the Lender shall constitute a
waiver, amendment or modification of any provision of this Agreement or any of
the other Financing Documents or any right or remedy under this Agreement,
under any of the other Financing Documents or under applicable Laws.
Without implying any limitation on the foregoing:
(a) Any waiver or consent shall be effective only in the
specific instance, for the terms and purpose for which given, subject to such
conditions as the Lender may specify in any such instrument.
(b) No waiver of any Default or Event of Default shall
extend to any subsequent or other Default or Event of Default, or impair any
right consequent thereto.
(c) No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other or further notice or demand in the
same, similar or other circumstance.
(d) No failure or delay by the Lender to insist upon the
strict performance of any term, condition, covenant or agreement of this
Agreement or of any of the other Financing Documents, or to exercise any right,
power or remedy consequent upon a breach thereof, shall constitute a waiver,
amendment or modification of any such term, condition, covenant or agreement or
of any such breach or preclude the Lender from exercising any such right, power
or remedy at any time or times.
(e) By accepting payment after the due date of any
amount payable under this Agreement or under any of the other Financing
Documents, the Lender shall not be deemed to waive the right either to require
prompt payment when due of all other amounts payable under this Agreement or
under any of the other Financing Documents, or to declare a default for failure
to effect such prompt payment of any such other amount.
63
<PAGE> 71
Section 8.3 Cumulative Remedies.
The rights, powers and remedies provided in this Agreement and in the
other Financing Documents are cumulative, may be exercised concurrently or
separately, may be exercised from time to time and in such order as the Lender
shall determine and are in addition to, and not exclusive of, rights, powers
and remedies provided by existing or future applicable Laws. In order to
entitle the Lender to exercise any remedy reserved to it in this Agreement, it
shall not be necessary to give any notice, other than such notice as may be
expressly required in this Agreement. Without limiting the generality of the
foregoing, the Lender may:
(a) proceed against the Borrower with or without
proceeding against any Person (including, without limitation, any one or more
of the Personal Guarantors) who may be liable (by endorsement, guaranty,
indemnity or otherwise) for all or any part of the Obligations;
(b) proceed against the Borrower with or without
proceeding under any of the other Financing Documents or against any Collateral
or other collateral and security for all or any part of the Obligations;
(c) without reducing or impairing the obligation of the
Borrower and without notice, release or compromise with any guarantor or other
Person liable for all or any part of the Obligations under the Financing
Documents or otherwise;
(d) without reducing or impairing the obligations of the
Borrower and without notice thereof: (i) fail to perfect the Lien in any or all
Collateral or to release any or all the Collateral or to accept substitute
Collateral, (ii) approve the making of advances under the Revolving Loan under
this Agreement, (iii) waive any provision of this Agreement or the other
Financing Documents, (iv) exercise or fail to exercise rights of set-off or
other rights, or (v) accept partial payments or extend from time to time the
maturity of all or any part of the Obligations.
Section 8.4 Severability.
In case one or more provisions, or part thereof, contained in this
Agreement or in the other Financing Documents shall be invalid, illegal or
unenforceable in any respect under any Law, then without need for any further
agreement, notice or action:
(a) the validity, legality and enforceability of the
remaining provisions shall remain effective and binding on the parties thereto
and shall not be affected or impaired thereby;
(b) the obligation to be fulfilled shall be reduced to
the limit of such validity;
(c) if such provision or part thereof pertains to
repayment of the Obligations, then, at the sole and absolute discretion of the
Lender, all of the Obligations of the Borrower to the Lender shall become
immediately due and payable; and
64
<PAGE> 72
(d) if the affected provision or part thereof does not
pertain to repayment of the Obligations, but operates or would prospectively
operate to invalidate this Agreement in whole or in part, then such provision
or part thereof only shall be void, and the remainder of this Agreement shall
remain operative and in full force and effect.
Section 8.5 Assignments by Lender.
The Lender may, without notice to, or consent of, the Borrower, sell,
assign or transfer to or participate with any Person or Persons all or any part
of the Obligations, and each such Person or Persons shall have the right to
enforce the provisions of this Agreement and any of the other Financing
Documents as fully as the Lender, provided that the Lender shall continue to
have the unimpaired right to enforce the provisions of this Agreement and any
of the other Financing Documents as to so much of the Obligations that the
Lender has not sold, assigned or transferred. In connection with the foregoing,
the Lender shall have the right to disclose to any such actual or potential
purchaser, assignee, transferee or participant all financial records,
information, reports, financial statements and documents obtained in connection
with this Agreement and any of the other Financing Documents or otherwise.
Section 8.6 Successors and Assigns.
This Agreement and all other Financing Documents shall be binding upon
and inure to the benefit of the Borrower and the Lender 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 Lender.
Section 8.7 Continuing Agreements.
All covenants, agreements, representations and warranties made by the
Borrower in this Agreement, in any of the other Financing Documents, and in any
certificate delivered pursuant hereto or thereto shall survive the making by
the Lender of the Loan and the execution and delivery of the Notes, shall be
binding upon the Borrower regardless of how long before or after the date
hereof any of the Obligations were or are incurred, and shall continue in full
force and effect so long as any of the Obligations are outstanding and unpaid.
From time to time upon the Lender's request, and as a condition of the release
of any one or more of the Security Documents, the Borrower and other Persons
obligated with respect to the Obligations shall provide the Lender with such
acknowledgments and agreements as the Lender may require to the effect that
there exists no defenses, rights of setoff or recoupment, claims,
counterclaims, actions or causes of action of any kind or nature whatsoever
against the Lender, its agents and others, or to the extent there are, the same
are waived and released.
Section 8.8 Enforcement Costs.
The Borrower shall pay to the Lender on demand all Enforcement Costs,
together with interest thereon from the date incurred or advanced until paid in
full at a per annum rate of interest equal at all times to the Post-Default
Rate. Enforcement Costs shall be immediately due and payable at the time
advanced or incurred, whichever is earlier. Without implying any limitation on
the foregoing, the Borrower shall pay, as part of the Enforcement Costs, upon
demand any and all stamp and other Taxes and fees payable or determined to be
payable in connection with the execution and delivery of this Agreement and the
other Financing
65
<PAGE> 73
Documents and to save the Lender harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission
to pay any Taxes or fees referred to in this Section. The provisions of this
Section shall survive the execution and delivery of this Agreement, the
repayment of the other Obligations and shall survive the termination of this
Agreement.
Section 8.9 Applicable Law; Jurisdiction.
8.9.1 Applicable Law.
As a material inducement to the Lender to enter into this
Agreement, the Borrower acknowledges and agrees that the Financing Documents,
including, this Agreement, shall be governed by the Laws of the State, as if
each of the Financing Documents and this Agreement had each been executed,
delivered, administered and performed solely within the State even though for
the convenience and at the request of the Borrower, one or more of the
Financing Documents may be executed elsewhere. The Lender acknowledges,
however, that remedies under certain of the Financing Documents that relate to
property outside the State may be subject to the laws of the state in which the
property is located.
8.9.2 Submission to Jurisdiction.
The Borrower irrevocably submits to the jurisdiction of
any state or federal court sitting in the State over any suit, action or
proceeding arising out of or relating to this Agreement or any of the other
Financing Documents. The Borrower irrevocably waives, to the fullest extent
permitted by law, any objection that it may now or hereafter have to the laying
of the venue of any such suit, action or proceeding brought in any such court
and any claim that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum. Final judgment in any such
suit, action or proceeding brought in any such court shall be conclusive and
binding upon the Borrower and may be enforced in any court in which the
Borrower is subject to jurisdiction, by a suit upon such judgment, provided
that service of process is effected upon the Borrower in one of the manners
specified in this Section or as otherwise permitted by applicable Laws.
8.9.3 Appointment of Agent for Service of Process.
The Borrower hereby irrevocably designates and appoints
Robert C. Bower at 8419 Terminal Road Newington, Virginia 22122, as the
Borrower's authorized agent to receive on the Borrower's behalf service of any
and all process that may be served in any suit, action or proceeding of the
nature referred to in this Section in any state or federal court sitting in the
State. If such agent shall cease so to act, the Borrower shall irrevocably
designate and appoint without delay another such agent in the State
satisfactory to the Lender and shall promptly deliver to the Lender evidence in
writing of such other agent's acceptance of such appointment and its agreement
that such appointment shall be irrevocable.
8.9.4 Service of Process.
The Borrower hereby consents to process being served in
any suit, action or proceeding of the nature referred to in this Section by (a)
the mailing of a copy thereof by
66
<PAGE> 74
registered or certified mail, postage prepaid, return receipt requested, to
the Borrower at the Borrower's address designated in or pursuant to Section 8.1
(Notices), and (b) serving a copy thereof upon the agent, if any, designated
and appointed by the Borrower as the Borrower's agent for service of process by
or pursuant to this Section. The Borrower irrevocably agrees that such service
(y) shall be deemed in every respect effective service of process upon the
Borrower in any such suit, action or proceeding, and (z) shall, to the fullest
extent permitted by law, be taken and held to be valid personal service upon
the Borrower. Nothing in this Section shall affect the right of the Lender to
serve process in any manner otherwise permitted by law or limit the right of
the Lender otherwise to bring proceedings against the Borrower in the courts of
any jurisdiction or jurisdictions.
Section 8.10 Duplicate Originals and Counterparts.
This Agreement may be executed in any number of duplicate originals or
counterparts, each of such duplicate originals or counterparts shall be deemed
to be an original and all taken together shall constitute but one and the same
instrument.
Section 8.11 Headings.
The headings in this Agreement are included herein for convenience
only, shall not constitute a part of this Agreement for any other purpose, and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
Section 8.12 No Agency.
Nothing herein contained shall be construed to constitute the Borrower
as the Lender's agent for any purpose whatsoever or to permit the Borrower to
pledge any of the Lender's credit. The Lender shall not be responsible nor
liable for any shortage, discrepancy, damage, loss or destruction of any part
of the Collateral wherever the same may be located and regardless of the cause
thereof. The Lender shall not, by anything herein or in any of the Financing
Documents or otherwise, assume any of the Borrower's obligations under any
contract or agreement assigned to the Lender, and the Lender shall not be
responsible in any way for the performance by the Borrower of any of the terms
and conditions thereof.
Section 8.13 Date of Payment.
Should the principal of or interest on any of the Notes become due and
payable on other than a Business Day, the maturity thereof shall be extended to
the next succeeding Business Day and in the case of principal, interest shall
be payable thereon at the rate per annum specified in the Notes during such
extension.
Section 8.14 Entire Agreement.
This Agreement is intended by the Lender and the Borrower to be a
complete, exclusive and final expression of the agreements contained herein.
Neither the Lender nor the Borrower shall hereafter have any rights under any
prior agreements pertaining to the matters addressed by this Agreement but
shall look solely to this Agreement for definition and determination of all of
their respective rights, liabilities and responsibilities under this Agreement.
67
<PAGE> 75
Section 8.15 Waiver of Trial by Jury.
THE BORROWER AND THE LENDER HEREBY JOINTLY AND SEVERALLY WAIVE TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO WHICH THE BORROWER AND THE LENDER MAY BE
PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS AGREEMENT, (B) ANY
OF THE FINANCING DOCUMENTS, OR (C) THE COLLATERAL. THIS WAIVER CONSTITUTES A
WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS
AGREEMENT.
This waiver is knowingly, willingly and voluntarily made by the
Borrower and the Lender, and the Borrower and the Lender hereby represent that
no representations of fact or opinion have been made by any individual to
induce this waiver of trial by jury or to in any way modify or nullify its
effect. The Borrower and the Lender further represent that they have been
represented in the signing of this Agreement and in the making of this waiver
by independent legal counsel, selected of their own free will, and that they
have had the opportunity to discuss this waiver with counsel.
Section 8.16 Liability of the Lender.
The Borrower hereby agrees that the Lender shall not be chargeable for
any negligence, mistake, act or omission of any accountant, examiner, agency or
attorney employed by the Lender in making examinations, investigations or
collections, or otherwise in perfecting, maintaining, protecting or realizing
upon any lien or security interest or any other interest in the Collateral or
other security for the Obligations.
By inspecting the Collateral or any other properties of the Borrower or
by accepting or approving anything required to be observed, performed or
fulfilled by the Borrower or to be given to the Lender pursuant to this
Agreement or any of the other Financing Documents, the Lender shall not be
deemed to have warranted or represented the condition, sufficiency, legality,
effectiveness or legal effect of the same, and such acceptance or approval
shall not constitute any warranty or representation with respect thereto by the
Lender.
IN WITNESS WHEREOF, each of the parties hereto have executed and
delivered this Agreement under their respective seals as of the day and year
first written above.
WITNESS OR ATTEST: SENSYS TECHNOLOGIES INC.
<TABLE>
<S> <C>
/s/Darla Cavaliere By: /s/R.R. Bower (Seal)
- ------------------------- -------------------------------
Name: R.R. Bower
Title: V.P. Finance, CFO
</TABLE>
68
<PAGE> 76
WITNESS: NATIONSBANK, N. A.
<TABLE>
<S> <C>
/s/Douglas T. Brown By: /s/Lawrence J. Shufelt (Seal)
- ------------------------- -------------------------------
Lawrence J. Shufelt
Vice President
</TABLE>
69
<PAGE> 1
EXHIBIT 10.2
IMPORTANT NOTICE
THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION THAT CONSTITUTES A
WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO
OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.
AMENDED AND RESTATED REVOLVING CREDIT PROMISSORY NOTE
$3,000,000 McLean, Virginia
February 28, 1999
FOR VALUE RECEIVED, SENSYS TECHNOLOGIES INC., a corporation organized
under the laws of the State of Delaware (the "Borrower"), promises to pay to
the order of NATIONSBANK, N. A., a national banking association (the "Lender"),
the principal sum of THREE MILLION DOLLARS ($3,000,000) (the "Principal Sum"),
or so much thereof as has been or may be advanced or readvanced to or for the
account of the Borrower pursuant to the terms and conditions of the Financing
Agreement (as hereinafter defined), together with interest thereon at the rate
or rates hereinafter provided, in accordance with the following:
1. Interest.
Commencing as of the date hereof and continuing until repayment in full
of all sums due hereunder, the unpaid Principal Sum shall bear interest at the
Applicable Interest Rate or the Post Default Rate in effect from time to time
pursuant to the terms of the Financing Agreement. The Applicable Interest Rate
shall be determined in the manner provided in the Financing Agreement.
2. Payments and Maturity.
The unpaid Principal Sum, together with interest thereon, shall be
payable as follows:
(a) Interest only on the unpaid Principal Sum shall be due and
payable on the Interest Payment Date (as that term is defined in the Financing
Agreement); and
(b) Unless sooner paid, the unpaid Principal Sum, together with
interest accrued and unpaid thereon, shall be due and payable in full on the
Revolving Credit Expiration Date (as that term is defined in the Financing
Agreement).
The fact that the balance hereunder may be reduced to zero from time to
time pursuant to the Financing Agreement will not affect the continuing
validity of this Note or the Financing Agreement, and the balance may be
increased to the Principal Sum after any such reduction to zero.
The Lender is authorized to deduct any payment due hereunder from the
Borrower's account #37500119089 issued by the Lender, on or after the date the
payment is due.
1
<PAGE> 2
3. Default Interest.
Upon the occurrence of an Event of Default (as hereinafter defined), the
unpaid Principal Sum shall bear interest thereafter at a rate four percent (4%)
per annum in excess of the Applicable Interest Rate until such Event of Default
is cured.
4. Late Charges.
If the Borrower shall fail to make any payment under the terms of this
Note within fifteen (15) days after the date such payment is due, the Borrower
shall pay to the Lender on demand a late charge equal to five percent (5%) of
such payment.
5. Application and Place of Payments.
All payments, made on account of this Note shall be applied first to the
payment of any late charge then due hereunder, second to the payment of accrued
and unpaid interest then due hereunder, and the remainder, if any, shall be
applied to the unpaid Principal Sum. All payments on account of this Note shall
be paid in lawful money of the United States of America in immediately
available funds during regular business hours of the Lender at its principal
office in Baltimore, Maryland or at such other times and places as the Lender
may at any time and from time to time designate in writing to the Borrower.
6. Prepayment.
(c) Mandatory Prepayments. The Borrower shall make mandatory
prepayments of the Revolving Loan as required to comply with the provisions of
Section 2.1.6 of the Financing Agreement.
(d) Voluntary Prepayments. Subject to the provisions of the
Financing Agreement, the Borrower may voluntarily prepay the Revolving Loan at
any time without premium or penalty.
7. Financing Agreement and Other Financing Documents.
This Note is the "Revolving Credit Note" described in an Amended and
Restated Financing and Security Agreement of even date herewith by and between
the Borrower and the Lender (the "Financing Agreement"). The indebtedness
evidenced by this Note is included within the meaning of the term "Obligations"
as defined in the Financing Agreement. The term "Financing Documents" as used
in this Note shall mean collectively this Note, the Financing Agreement and any
other instrument, agreement, or document previously, simultaneously, or
hereafter executed and delivered by the Borrower and/or any other person,
singularly or jointly with any other person, evidencing, securing,
guaranteeing, or in connection with the Principal Sum, this Note and/or the
Financing Agreement.
8. Security.
This Note is secured as provided in the Financing Agreement.
2
<PAGE> 3
9. Events of Default.
The occurrence of any one or more of the following events shall
constitute an event of default (individually, an "Event of Default" and
collectively, the "Events of Default") under the terms of this Note:
(a) The failure of the Borrower to pay to the Lender when due any
and all amounts payable by the Borrower to the Lender under the terms of this
Note; or
(b) The occurrence of an event of default (as defined therein)
under the terms and conditions of any of the other Financing Documents.
10. Remedies.
Upon the occurrence of an Event of Default, at the option of the Lender,
all amounts payable by the Borrower to the Lender under the terms of this Note
shall immediately become due and payable by the Borrower to the Lender without
notice to the Borrower or any other person, and the Lender shall have all of
the rights, powers, and remedies available under the terms of this Note, any of
the other Financing Documents and all applicable laws. The Borrower and all
endorsers, guarantors, and other parties who may now or in the future be
primarily or secondarily liable for the payment of the indebtedness evidenced
by this Note hereby severally waive presentment, protest and demand, notice of
protest, notice of demand and of dishonor and non-payment of this Note and
expressly agree that this Note or any payment hereunder may be extended from
time to time without in any way affecting the liability of the Borrower,
guarantors and endorsers.
11. Confessed Judgment.
The Borrower hereby appoints and designates Amy S. Owen, Esquire and
Brian F. Kenney, Esquire, respectively and individually, the Borrower's duly
constituted attorney-in-fact to confess judgment against the Borrower pursuant
to the provisions hereof and of Section 8.01-432 of the Code of Virginia of
1950, as amended, which judgment shall be confessed in the Clerk's Office of
the Circuit Court of Fairfax County, Virginia. The Borrower shall, upon the
Lender's request, name such additional or alternative persons designated by the
Lender as the Borrower's duly constituted attorney or attorneys-in-fact to
confess judgment against the Borrower in accordance with the terms hereof.
Furthermore, upon the Lender's request, the Borrower shall agree to the
designation of any additional circuit courts in the Commonwealth of Virginia in
which judgment may be confessed against the Borrower.
Upon the occurrence of an Event of Default, the Borrower hereby
authorizes the above designated attorney-in-fact or any successor named
therefor to confess judgment against the Borrower for the amount of the unpaid
Principal Sum, all interest accrued and unpaid thereon, and all other amounts
payable by the Borrower to the Lender under the terms of this Note or any of
the other Financing Documents, together with court costs and attorneys' fees of
fifteen percent (15%) of the unpaid Principal Sum and interest then due
hereunder. The Borrower hereby releases, to the extent permitted by applicable
law, all errors and all rights of exemption, appeal, stay of execution,
inquisition, and other rights to which the Borrower may otherwise be entitled
under the laws of the United States of America or of any state or possession of
the United States of America now in force or which may hereafter be enacted.
The authority and power to appear for and enter judgment
3
<PAGE> 4
against the Borrower shall not be exhausted by one or more exercises thereof or
by any imperfect exercise thereof and shall not be extinguished by any judgment
entered pursuant thereto. Such authority may be exercised on one or more
occasions or from time to time as often as the Lender shall deem necessary or
desirable, for all of which this Note shall be a sufficient warrant.
12. Expenses.
The Borrower promises to pay to the Lender on demand by the Lender all
reasonable costs and expenses incurred by the Lender in connection with the
collection and enforcement of this Note, including, without limitation, all
reasonable attorneys' fees and expenses and all court costs.
13. Notices.
Any notice, request, or demand to or upon the Borrower or the Lender
shall be deemed to have been properly given or made when delivered in
accordance with Section 8.1 of the Financing Agreement.
14. Miscellaneous.
Each right, power, and remedy of the Lender as provided for in this Note
or any of the other Financing Documents, or now or hereafter existing under any
applicable law or otherwise shall be cumulative and concurrent and shall be in
addition to every other right, power, or remedy provided for in this Note or
any of the other Financing Documents or now or hereafter existing under any
applicable law, and the exercise or beginning of the exercise by the Lender of
any one or more of such rights, powers, or remedies shall not preclude the
simultaneous or later exercise by the Lender of any or all such other rights,
powers, or remedies. No failure or delay by the Lender to insist upon the
strict performance of any term, condition, covenant, or agreement of this Note
or any of the other Financing Documents, or to exercise any right, power, or
remedy consequent upon a breach thereof, shall constitute a waiver of any such
term, condition, covenant, or agreement or of any such breach, or preclude the
Lender from exercising any such right, power, or remedy at a later time or
times. By accepting payment after the due date of any amount payable under the
terms of this Note, the Lender shall not be deemed to waive the right either to
require prompt payment when due of all other amounts payable under the terms of
this Note or to declare an Event of Default for the failure to effect such
prompt payment of any such other amount. No course of dealing or conduct shall
be effective to amend, modify, waive, release, or change any provisions of this
Note.
15. Partial Invalidity.
In the event any provision of this Note (or any part of any provision) is
held by a court of competent jurisdiction to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision (or remaining part of the affected
provision) of this Note; but this Note shall be construed as if such invalid,
illegal, or unenforceable provision (or part thereof) had not been contained in
this Note, but only to the extent it is invalid, illegal, or unenforceable.
4
<PAGE> 5
16. Captions.
The captions herein set forth are for convenience only and shall not be
deemed to define, limit, or describe the scope or intent of this Note.
17. Governing Law.
The provisions of this Note shall be construed, interpreted and enforced
in accordance with the laws of the Commonwealth of Virginia as the same may be
in effect from time to time.
18. Consent to Jurisdiction.
The Borrower irrevocably submits to the jurisdiction of any state or
federal court sitting in the Commonwealth of Virginia over any suit, action, or
proceeding arising out of or relating to this Note. The Borrower irrevocably
waives, to the fullest extent permitted by law, any objection that the Borrower
may now or hereafter have to the laying of venue of any such suit, action, or
proceeding brought in any such court and any claim that any such suit, action,
or proceeding brought in any such court has been brought in an inconvenient
forum. Final judgment in any such suit, action, or proceeding brought in any
such court shall be conclusive and binding upon the Borrower and may be
enforced in any court in which the Borrower is subject to jurisdiction by a
suit upon such judgment provided that service of process is effected upon the
Borrower as provided in this Note or as otherwise permitted by applicable law.
19. Service of Process.
The Borrower hereby irrevocably designates and appoints R.R. Bower, as
the Borrower's authorized agent to accept and acknowledge on the Borrower's
behalf service of any and all process that may be served in any suit, action,
or proceeding instituted in connection with this Note in any state or federal
court sitting in the Commonwealth of Virginia. If such agent shall cease so to
act, the Borrower shall irrevocably designate and appoint without delay another
such agent in the Commonwealth of Virginia satisfactory to the Lender and shall
promptly deliver to the Lender evidence in writing of such agent's acceptance
of such appointment and its agreement that such appointment shall be
irrevocable.
The Borrower hereby consents to process being served in any suit, action,
or proceeding instituted in connection with this Note by (a) the mailing of a
copy thereof by certified mail, postage prepaid, return receipt requested, to
the Borrower and (b) serving a copy thereof upon the agent hereinabove
designated and appointed by the Borrower as the Borrower's agent for service of
process. The Borrower irrevocably agrees that such service shall be deemed to
be service of process upon the Borrower in any such suit, action, or
proceeding. Nothing in this Section shall affect the right of the Lender to
serve process in any manner otherwise permitted by law and nothing in this
Section will limit the right of the Lender otherwise to bring proceedings
against the Borrower in the courts of any jurisdiction or jurisdictions.
20. WAIVER OF TRIAL BY JURY.
THE BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
WHICH THE BORROWER AND THE LENDER MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY
PERTAINING TO (A) THIS NOTE OR
5
<PAGE> 6
(B) THE FINANCING DOCUMENTS. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER
CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH
ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO
THIS NOTE.
This waiver is knowingly, willingly and voluntarily made by the Borrower,
and the Borrower hereby represents that no representations of fact or opinion
have been made by any individual to induce this waiver of trial by jury or to
in any way modify or nullify its effect. The Borrower further represents that
it has been represented in the signing of this Note and in the making of this
waiver by independent legal counsel, selected of its own free will, and that it
has had the opportunity to discuss this waiver with counsel.
21. Interest Rate Not to Exceed Applicable Laws.
The interest rate required by this Note, the Financing Agreement or any
of the other Financing Documents shall not exceed the maximum rate permissible
under applicable laws, and any amounts paid in excess of such rate or rates
shall be applied to reduce the unpaid balance of the Principal Sum or shall be
refunded to the Borrower at the option of the Lender.
22. No Novation.
This Note, is intended as a replacement of, and is in substitution for,
that certain Revolving Credit Note dated June 16, 1986 from the Borrower, as
maker, payable to the order of NationsBank, N. A. (as from time to time
extended, amended, restated, supplemented or otherwise modified, collectively,
the "Original Note"), but is not intended as a novation of the Original Note or
any of the Obligations evidenced by the Original Note. All references in the
Financing Agreement or any of the other Financing Documents to the Note shall
mean the Original Note, as amended and restated in accordance with the
provisions of this Note.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal by its duly authorized officers as of the date first written above.
WITNESS OR ATTEST SENSYS TECHNOLOGIES INC.
/s/Darla Cavaliere By: /s/R.R. Bower (SEAL)
- -------------------------- ----------------------------------
Name: R.R. Bower
Title: V.P. Finance, CFO
6
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 849
<SECURITIES> 0
<RECEIVABLES> 3,473
<ALLOWANCES> 0
<INVENTORY> 447
<CURRENT-ASSETS> 10,338
<PP&E> 1,598
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,734
<CURRENT-LIABILITIES> 4,624
<BONDS> 0
0
0
<COMMON> 40
<OTHER-SE> 7,979
<TOTAL-LIABILITY-AND-EQUITY> 12,734
<SALES> 0
<TOTAL-REVENUES> 13,538
<CGS> 0
<TOTAL-COSTS> 10,221
<OTHER-EXPENSES> 2,116
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70
<INCOME-PRETAX> 1,131
<INCOME-TAX> 440
<INCOME-CONTINUING> 691
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 691
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
