<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-14059
REFLECTONE, INC.
(Exact name of Registrant as specified in its charter)
Florida 06-0663546
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4908 Tampa West Boulevard, Tampa, Florida 33634-2481
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (813) 885-7481
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 twelve months (or for such shorter
period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for at least the past
ninety days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Common Stock, par value $.10 per share, 2,813,695 shares as of
August 12, 1996.
1<PAGE>
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Reflectone, Inc. & Subsidiaries
Consolidated Balance Sheets
As of June 30, 1996 and December 31, 1995
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
ASSETS 1996 1995
<S> <C> <C>
Current assets
Cash and cash equivalents $ 5,205,084 $ 4,582,021
Receivables - non affiliate 32,765,403 26,101,185
Receivables - affiliate 4,381,911 628,922
Current installments of long-term
note receivable - 3,558,000
Net deferred tax assets 1,050,000 1,050,000
Prepaid expenses and other
current assets 1,673,524 1,480,190
____________ ____________
Total current assets 45,075,922 37,400,318
Property, plant & equipment, net 8,179,250 7,881,699
Investments - restricted 5,000,000 5,000,000
Other assets 426,088 441,568
____________ ____________
$ 58,681,260 $ 50,723,585
============ ============
</TABLE>
2<PAGE>
<TABLE>
LIABILITIES & SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Accounts payable $ 4,609,613 $ 9,980,857
Due to affiliate 2,630,498 1,995,079
Borrowings on line of credit
- affiliate 20,146,717 6,513,666
Advance billings 4,341,962 7,832,601
Accrued employee compensation
and benefits 3,915,415 4,218,694
Federal and state taxes payable 604,720 827,263
Accrued settlement expenses 1,068,415 1,068,415
Other accrued expenses and
liabilities 1,150,522 1,807,763
____________ ____________
Total current liabilities 38,467,862 34,244,338
____________ ____________
Deferred gain on sale of equipment 2,323,809 2,503,747
____________ ____________
Commitments and contingencies (Note 2)
Shareholders' equity
Convertible preferred stock - par
value $1.00; authorized - 50,000
shares; issued and outstanding -
50,000 shares of 8% cumulative
convertible preferred stock
(liquidating preference $176 per
share, aggregating $8,800,000) 50,000 50,000
Common stock - par value $.10;
authorized - 10,000,000 shares;
issued and outstanding - 2,852,445
and 2,750,255 shares 285,244 275,025
Additional paid-in capital 32,576,611 31,741,011
Cumulative translation adjustment 736,616 734,705
Accumulated deficit (15,758,882) (18,825,241)
____________ ____________
Total shareholders' equity 17,889,589 13,975,500
____________ ____________
$ 58,681,260 $ 50,723,585
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3<PAGE>
Reflectone, Inc. & Subsidiaries
Consolidated Statements of Income
For the Six and Three Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Six Months
1996 1995
<S> <C> <C>
Revenues
Non-affiliate $32,062,037 $33,348,998
Affiliate 12,317,875 4,357,538
___________ ___________
44,379,912 37,706,536
___________ ___________
Costs and expenses
Cost of sales
Non-affiliate 28,437,225 29,917,379
Affiliate 10,019,255 3,402,581
___________ ___________
38,456,480 33,319,960
General and administrative 2,017,690 1,910,444
___________ ___________
40,474,170 35,230,404
___________ ___________
Income from operations 3,905,742 2,476,132
___________ ___________
Other income (expense)
Interest income 240,063 380,110
Interest expense (192,892) (1,064,011)
Other 133,771 14,554
___________ ___________
180,942 (669,347)
___________ ___________
Income before income taxes 4,086,684 1,806,785
Provision for income taxes 668,325 250,000
___________ ___________
Net income 3,418,359 1,556,785
Preferred stock dividends 352,000 352,000
___________ ___________
Net income applicable
to common shareholders $ 3,066,359 $ 1,204,785
=========== ===========
Income per common and
common equivalent share
Primary $ 1.04 $ .44
=========== ===========
Fully diluted $ .99 $ -
=========== ===========
See accompanying notes to consolidated financial statements.
4<PAGE>
Three Months
1996 1995
$17,831,293 $19,396,440
5,221,556 2,508,224
___________ ___________
23,052,849 21,904,664
___________ ___________
15,180,927 17,052,389
4,848,979 2,441,117
___________ ___________
20,029,906 19,493,506
1,078,313 923,320
___________ ___________
21,108,219 20,416,826
___________ ___________
1,944,630 1,487,838
___________ ___________
133,071 196,610
(73,671) (551,033)
48,763 (68,724)
___________ ___________
108,163 (423,147)
___________ ___________
2,052,793 1,064,691
255,295 150,000
___________ ___________
1,797,498 914,691
176,000 176,000
___________ ___________
$ 1,621,498 $ 738,691
=========== ===========
$ .55 $ .27
=========== ===========
$ .51 $ -
=========== ===========
</TABLE>
5<PAGE>
Reflectone, Inc. & Subsidiaries
Consolidated Statements of Cash Flows
Six Months ended June 30, 1996
(Unaudited)
<TABLE>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,418,359 $ 1,556,785
Depreciation and amortization 889,119 1,136,843
Change in assets and liabilities:
Decrease (increase) in receivables
Non-affiliate (6,620,067) 1,492,958
Affiliate (3,761,279) (29,380)
Decrease in inventory - 219,736
Decrease in accounts payable (5,338,331) (1,438,523)
Increase (decrease) in due to
affiliate 634,103 (1,568,710)
Increase (decrease) in advance
billings (3,491,534) 3,266,668
Increase (decrease) in accrued employee
compensation and benefits (302,502) 634,993
Other (1,275,007) (2,042,198)
____________ ____________
Net cash provided by (used for)
operating activities (15,847,139) 3,229,172
_____________ ____________
Cash flows from investing activities:
Capital expenditures (1,206,938) (514,955)
Settlement of long-term note receivable 3,558,284 485,876
____________ ____________
Net cash provided by (used for)
investing activities 2,351,346 (29,079)
_____________ ____________
Cash flows from financing activities:
Paydowns under line-of-credit
agreements (59,713,905) (104,970,848)
Borrowings under line-of-credit
agreements 73,346,956 97,425,791
Dividends on preferred stock (352,000) (352,000)
Other 845,819 30,209
_____________ ____________
Net cash provided by financing activities 14,126,870 7,866,848
_____________ ____________
Net increase (decrease) in cash 631,077 (4,666,755)
Cash and cash equivalents at beginning
of period 4,582,021 7,329,914
Effect of exchange rate changes on cash (8,014) 9,546
____________ ____________
Cash and cash equivalents at end of
period $ 5,205,084 $ 2,672,705
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
6<PAGE>
Reflectone, Inc. & Subsidiaries
Notes to Consolidated Financial Statements
Six Months ended June 30, 1996
(Unaudited)
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q. Accordingly, they do not include all of the information
and notes 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 a fair presentation have been included. Operating results
for the six months ended June 30, 1996 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1996.
For further information, refer to the consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
All intercompany transactions have been eliminated.
Note 1 - Receivables
Component elements of receivables consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
<S> <C> <C>
Receivables
U.S. Government
Billed $ 4,882,752 $ 5,363,973
Unbilled 3,150,268 1,932,588
Unrecovered costs subject to future
negotiation -- not billed 1,400,000 1,400,000
____________ ____________
9,433,020 8,696,561
____________ ____________
Lockheed Martin Corporation
Billed 1,247,709 -
Unbilled 21,967,605 14,780,610
____________ ____________
23,215,314 14,780,610
____________ ____________
7<PAGE>
Commercial
Billed 605,617 2,554,538
Unbilled - 558,023
Provision for doubtful accounts (488,548) (488,547)
____________ ____________
117,069 2,624,014
____________ ____________
$ 32,765,403 $ 26,101,185
============ ============
Affiliates
Billed $ 2,592,330 $ 545,729
Unbilled 1,789,581 83,193
____________ ____________
$ 4,381,911 $ 628,922
============ ============
</TABLE>
8<PAGE>
Reflectone, Inc. & Subsidiaries
Notes to Consolidated Financial Statements
Six Months ended June 30, 1996
(Unaudited)
Note 1 - Receivables (continued)
Unbilled amounts represent the difference between revenue recognized for
financial reporting purposes and amounts contractually permitted to be
billed to customers. These amounts will be billed in subsequent periods
as progress billings, upon shipment of the product, or upon completion
of the contract.
Unrecovered costs subject to furture negotiation include incremental
costs arising out of customer-occasioned unforeseen development work and
amounts for work performed not specified in express contract provisions.
The amounts recorded represent only a portion of the total compensation
sought by the Company from customers. Therefore, while any and all
recoveries are subject to future negotiations, the actual recoveries
could be more or less than those currently anticipated in the Company's
consolidated financial statements. Management has made provision for
future costs associated with these actions as described in Note 2.
Under the terms of the Company's contract with Lockheed Martin
Corporation ("LMC") to design and manufacture two dynamic mission
simulators and other related training devices, the Company will not
receive a substantial portion of the contractual payments from LMC until
delivery and acceptance of the devices currently scheduled for the
fourth quarter of 1997.
It is anticipated that approximately $23.4 million of receivables will
not be collected within one year.
An allowance for doubtful accounts is provided based on historical
experience and after consideration of specific accounts and current
economic conditions.
Note 2 - Commitments and Contingencies
The Company has asserted its rights to recovery of certain incremental
costs arising out of customer-occasioned unforeseen development work and
amounts for work performed not specified in express contract provisions
as more fully described in Note 1. Management has made provision for
future costs associated with these actions and believes the provision
established is adequate for this purpose.
Note 3 - Earnings Per Common Share
Primary earnings per share are based on the weighted average number of
common shares and common share equivalents outstanding and give effect
to the recognition of preferred dividend requirements. Common share
equivalents include dilutive stock options and warrants using the
treasury stock method.
9<PAGE>
Reflectone, Inc. & Subsidiaries
Notes to Consolidated Financial Statements
Six Months ended June 30, 1996
(Unaudited)
Note 3 - Earnings Per Common Share (continued)
Fully diluted earnings per share assumes, in addition to the above, i)
that the Convertible Preferred Stock was converted at the beginning of
each period, ii) that earnings were increased for preferred dividends
that would not have been incurred had conversion taken place, and, iii)
the additional dilutive effect of stock options and warrants.
The numbers of shares used in the earnings per share computations are as
follows:
<TABLE>
<CAPTION>
Six Months Three Months
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Primary
Weighted average common
shares outstanding 2,792,955 2,684,085 2,813,459 2,686,077
Stock options 143,713 83,834 158,012 61,416
_________ _________ _________ _________
Average common shares
outstanding 2,936,668 2,767,919 2,971,471 2,747,493
Convertible preferred stock 500,000 500,000 500,000 500,000
Additional dilutive effect
of stock options 32,627 9,299 48,159 -
_________ _________ _________ _________
Fully diluted assumed common
shares outstanding 3,469,295 3,277,218 3,519,630 3,247,493
========= ========= ========= =========
</TABLE>
Fully diluted per share data is not disclosed for the six months and
three months ended June 30, 1995 since the effect would be antidilutive.
Note 4 - Stock Options
In February 1996, the Company granted options under the Company's 1994
Stock Option Plan to purchase 41,500 shares of the Company's common
stock at $18.50 per share. At June 30, 1996 none of these options were
exercisable, and there were 62,500 shares of common stock available for
future stock options under this plan.
10<PAGE>
Reflectone, Inc. & Subsidiaries
Notes to Consolidated Financial Statements
Six Months ended June 30, 1996
(Unaudited)
Note 5 - Credit Agreements and Borrowings
To date the Company has been unable to obtain adequate financing on
acceptable terms without recourse to British Aerospace Plc. or its
affiliates (collectively, "British Aerospace"). However, pursuant to the
terms of an Agreement for Credit Availability dated as of August 7,
1996, British Aerospace has agreed, subject to its continued ownership
of a majority of the Company, to continue to provide or guarantee the
Company's credit facilities through August 7, 1997. Renewal of the
Company's credit facilities beyond August 7, 1997 is, in large part,
dependent upon British Aerospace's willingness to continue to provide or
guarantee these facilities. By means of a letter dated February 27,
1996, British Aerospace has represented to the Company that it intends
to continue to provide or guarantee the Company's credit facilities, as
long as financing is not available to the Company without recourse to
British Aerospace and British Aerospace continues to hold, or has the
ability to hold through the exercise of preferred stock conversion
rights and warrants to purchase common stock, a majority ownership
position in the Company. Based on the foregoing representations of
British Aerospace, management anticipates that the Company's credit
facilities will be renewed annually. The Company's credit facilities and
the Agreement for Credit Availability with British Aerospace contain
certain covenants which, among other things, require the Company: i) to
be current with respect to the payment of dividends on its 8% Cumulative
Convertible Preferred Stock prior to any draw under the British
Aerospace provided facilities, ii) to pay British Aerospace a facility
fee of 50 basis points per annum on the maximum aggregate availability
($87.0 million) of the credit facilities provided or guaranteed by
British Aerospace, and iii) to pay British Aerospace a guarantee fee of
3.25% per annum on amounts outstanding under the Company's $2.0 million
revolving line of credit facility with Wachovia Bank of Georgia, N.A. In
addition, the Company's Agreement for Credit Availability requires that
the Company obtain the prior approval of British Aerospace for all
material capital investment expenditures as defined in the Agreement for
Credit Availability.
During the second quarter of 1996 the Company reduced its revolving line
of credit facility with Wachovia Bank of Georgia, N.A. from $10.0
million to $2.0 million. The facility permits the Company to select
loans bearing interest at a floating prime rate or at a fixed rate of
LIBOR plus .25% and to specify, within limits, the period during which
the selected fixed interest rate will be in effect. The agreement
matures on August 7, 1997, and is supported by the corporate guarantee
of British Aerospace. At June 30, 1996, no borrowings were outstanding
under this line and therefore the full amount of this facility was
available.
11<PAGE>
Reflectone, Inc. & Subsidiaries
Notes to Consolidated Financial Statements
Six Months ended June 30, 1996
(Unaudited)
Note 5 - Credit Agreements and Borrowings (continued)
Under the Lloyds Bank Plc letter of credit facility, the Company may
issue irrevocable standby letters of credit and bank guarantees
aggregating up to $20.0 million. The Company pays a non-refundable
commission on the stated amount of credits issued for the actual number
of days outstanding at 0.55% per annum. The agreement is supported by
the corporate guarantee of British Aerospace and matures on October 31,
1996. At June 30, 1996, there were approximately $17.9 million of credit
available under this agreement.
Subsequent to the end of the second quarter, the Company reduced its
revolving line of credit facility with British Aerospace Finance, Inc.
from $20.0 million to $10.0 million. The agreement provides for working
capital borrowings and an interest rate of LIBOR plus 3.50% per annum is
charged under this facility. The agreement matures on August 7, 1997 and
permits the Company to specify, within limits, the period during which
the borrowings will mature. At June 30, 1996, borrowings under this
facility approximated $416,000.
As discussed in Note 1, the Company will not receive payments from LMC
under the terms of the C-130J contract until the achievement of certain
contractual milestones, currently scheduled for the fourth quarter of
1997. Accordingly, during the third quarter of 1995, the Company
negotiated a second credit facility (the "C-130J Facility") with British
Aerospace to finance the Company's working capital needs with respect to
the C-130J contract with LMC. Subsequent to the end of the second
quarter of 1996 the C-130J Facility was increased from $40.0 million to
$55.0 million. The agreement matures on August 7, 1997. Draws under this
facility are limited to actual costs incurred by the Company and
Reflectone UK, Ltd., ("RUKL") a wholly-owned subsidiary of the Company
on the LMC C-130J program. Interest rates charged under the C-130J
Facility are at LIBOR plus 1.50%. By means of a letter dated February
27, 1996, British Aerospace has further represented that, as long as
British Aerospace continues to hold, or has the ability to hold through
the exercise of preferred stock conversion rights and warrants to
purchase common stock, a majority ownership position in the Company, it
intends to continue to provide annual financing for the C-130J program
until payment is received from LMC. At June 30, 1996, borrowing under
this facility approximated $19.7 million.
12<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
Management considers liquidity to be the Company's ability to generate
adequate cash to meet its short- and long-term business needs. The
principal internal source of such cash is the Company's operations,
while external sources include borrowings under the Company's credit
facilities, the sale of Company-owned assets and the issuance of equity
securities.
During the six-month period ended June 30, 1996, the Company used $15.8
million in cash, net, for operating activities while in the comparable
period of 1995, the Company generated $3.2 million in cash, net, from
operating activities. Operating cash flow was negatively impacted during
the six-month period ended June 30, 1996 primarily by increases in non-
affiliate and affiliate receivables, and reductions in accounts payable,
advance billings and other changes in assets and liabilities, net. The
increase in non-affiliate receivables primarily related to the contract
with Lockheed Martin Corporation ("LMC")to design and manufacture two
C-130J dynamic mission simulators and other related training devices.
The increase in affiliate receivables primarily relates to three full-
flight simulator programs with affiliates.
During the six-month period ended June 30, 1996, the Company increased
its net short-term borrowings by $13.6 million and increased its cash by
$631,000. During the same period, gross borrowings of $73.3 million, and
cash received upon settlement of the long-term note receivable were used
primarily to fund $59.7 million in scheduled maturities of borrowings
under the Company's credit facilities and to fund operating activities
during the six-month period.
To date the Company has been unable to obtain adequate financing on
acceptable terms without recourse to British Aerospace. However,
pursuant to the terms of an Agreement for Credit Availability dated as
of August 7, 1996, British Aerospace has agreed, subject to its
continued ownership of a majority of the Company, to continue to provide
or guarantee the Company's credit facilities through August 7, 1997.
Renewal of the Company's credit facilities beyond August 7, 1997 is, in
large part, dependent upon British Aerospace's willingness to continue
to provide or guarantee these facilities. By means of a letter dated
February 27, 1996, British Aerospace has represented to the Company that
it intends to continue to provide or guarantee the Company's credit
facilities, as long as financing is not available to the Company without
recourse to British Aerospace and British Aerospace continues to hold,
or has the ability to hold through the exercise of preferred stock
conversion rights and warrants to purchase common stock, a majority
13<PAGE>
ownership position in the Company. Based on the foregoing
representations of British Aerospace, management anticipates that the
Company's credit facilities will be renewed annually. Specific
discussion of the Company's credit facilities is included in Note 5 to
the Consolidated Financial Statements.
As discussed in Note 1 to the Company's Consolidated Financial
Statements, the Company will not receive payments from LMC under the
terms of the C-130J contract until the achievement of certain
contractual milestones, currently scheduled for the fourth quarter of
1997. Accordingly, the Company has a special credit facility (the
"C-130J Facility") with British Aerospace to finance the Company's
working capital needs with respect to the C-130J contract with LMC.
Subsequent to the end of the second quarter the C-130J Facility was
increased from $40.0 million to $55.0 million. The agreement matures on
August 7, 1997. Draws under this facility are limited to actual costs
incurred by the Company on the LMC C-130J program. By means of a letter
dated February 27, 1996, British Aerospace has further represented that
as long as British Aerospace continues to hold, or has the ability to
hold through the exercise of preferred stock conversion rights and
warrants to purchase common stock, a majority ownership position in the
Company, it intends to continue to provide annual financing for the
C-130J program until payment is received from LMC. Based on current
schedules, the contract is estimated to require incremental funding of
$25.0 million during 1996 and $22.0 million in 1997. While the cost of
financing this program is being recovered through the contract with LMC,
an increase in interest rates or an extension of the scheduled delivery
dates could result in financing costs in excess of that priced into the
contract.
The Company's cash flows are impacted, in the normal course of business,
by the Company's ability to book new profitable business and achieve
scheduled program milestones on a timely basis. The achievement of
program milestones, in turn, provides for and enables contractually
defined amounts to be billed to the customer. Often these amounts are
significant and, as a result, failure to achieve payment milestones can
dramatically impact the Company's credit requirements.
As described in Notes 1 and 2 to the Consolidated Financial Statements,
management has anticipated recovery of certain costs incurred arising
out of customer-occasioned contract delays and amounts for work
performed but not specified in express contract provisions. The amounts
included in the Consolidated Financial Statements represent only a
portion of the total compensation sought by the Company from the
customers. Therefore, while any and all recoveries are subject to future
negotiations, and actual recoveries could be less than those currently
anticipated, any amounts awarded in excess of that anticipated in the
Company's Consolidated Financial Statements represent an additional
capital resource to the Company. It is anticipated that any actual
recoveries of the projected amounts may not be collected within the next
twelve months.
14<PAGE>
Based upon the availability under its current credit facilities and
anticipated renewals thereof; anticipated increases in the C-130J
Facility; projected cash flows from current and future programs with
achievement of projected program milestones; anticipated reductions in
restricted investments; expected resolution and recovery of costs
subject to future negotiation as described in Notes 1 and 2 to the
Consolidated Financial Statements; and income tax benefits available for
future use, management believes that the Company's capital resources are
adequate to meet its short- and long-term business needs.
Results of Operations
During the three- and six-month periods ended June 30, 1996, the
Company's consolidated revenues increased by $1.1 million and $6.7
million, or 5.2% and 17.7%, respectively, from comparable periods in
1995.
Revenues of the Training Devices Segment increased by 32.7% during the
six-month period ended June 30, 1996 as compared to the comparable
period in 1995. The increase in revenues primarily resulted from
revenues generated by the C-130J program with LMC and three full-flight
simulator programs with affiliates.
Revenues of the Training Services Segment decreased by 15.3% during the
six-month period ended June 30, 1996 as compared to the comparable
period in 1995. The decrease primarily relates to the 1995 loss of
reprocurements relating to four training services contracts in which the
Company was the incumbent contractor. Revenues for the six-month period
ended June 30, 1996 were also negatively impacted by the revision of the
management agreement pursuant to which the Company manages the British
Aerospace-owned Dulles Training Center. Under the terms of the revised
management agreement, the Company will receive a fixed fee of $500,000
annually and will be reimbursed by British Aerospace for the Company's
costs associated with the Dulles Training Center.
Revenues of the Systems Management Segment were approximately $4.2
million for the six-month period ended June 30, 1996 as compared to
$900,000 for the comparable period in 1995. The increase in revenues
related to the third quarter 1995 award of a contract from an affiliate
for a C-130H simulator for ultimate delivery to an international
customer.
The Company's income from operations was approximately $1.9 million and
$3.9 million for the three- and six-month periods ended June 30, 1996,
respectively. This compares to income from operations of $1.5 million
and $2.5 million for the comparable periods in 1995. The operating
profit of the Training Devices Segment was $1.7 million and $784,000 for
the six-month periods ended June 30, 1996 and 1995, respectively. The
increased profitability primarily relates to profits recognized during
the 1996 period on two large affiliate programs and an international
military program.
15<PAGE>
Operating profits of the Training Services Segment declined by $100,000
or 5.8%, to $1.6 million during the six-month period ended June 30, 1996
as compared to the comparable period in 1995. The reduced profitability
primarily related to the decline in revenues resulting from the 1995
loss of reprocurements of four training services contracts in which the
Company was the incumbent contractor.
Operating profits of the Systems Management Segment were $576,000 for
the six-month period ended June 30, 1996 compared to a loss of $19,000
for the comparable period in 1995. The 1996 operating profit reflects
profit recognition on a contract from an affiliate for the sale of a
C-130H simulator.
Interest income approximated $240,000 and $380,000 during the six-month
periods ended June 30, 1996 and 1995, respectively. Interest income is
primarily interest earned on long-term notes receivable, restricted
investments and temporary cash investments.
Interest expense for the six-month period ended June 30, 1996,
approximated $193,000 as compared to $1.1 million for the comparable
period in 1995. The reduction in interest expense results from lower
average levels of borrowings as compared to the previous year. In
addition, during the six-month period ended June 30, 1996, interest
costs of $560,000 associated with the Company's financing of the
C-130J program were charged to the C-130J program and reflected in cost
of sales rather than as interest expense.
The provision for income taxes increased to $668,000 during the six-
month period ended June 30, 1996 as compared with $250,000 for the 1995
period. The increase in the provision for income taxes in the six-month
period ended June 30, 1996 as compared to the comparable 1995 period
resulted from a higher estimate of taxable income for federal and state
income tax purposes and the unavailability of net operating loss
carryforwards in 1996. The Company has recorded a deferred tax asset of
$1.1 million, for which recovery in future periods is not dependent upon
future taxable income.
Backlog
Contractual backlog decreased to $102.9 million at June 30, 1996, from
$121.1 million at December 31, 1995. Of the contractual backlog at June
30, 1996, 83.0% consisted of orders of the Training Devices Segment,
5.6% consisted of orders of the Training Services Segment and 11.4%
consisted of orders of the Systems Management Segment. This compares to
71.3%, 15.6% and 13.1%, respectively at December 31, 1995. The
contractual backlog of the Training Devices Segment includes the
Lockheed C-130J program in the amount of $49.0 million. Annual contract
awards within the Training Services Segment to provide training to U.S.
Military personnel are generally recorded during the fourth calendar
quarter. This results in a declining backlog for the Training Services
Segment during the first three calendar quarters. Not included in
contractual backlog are announced orders for which definitive contracts
have not been executed and unobligated contract options under U.S.
Government contracts.
16<PAGE>
Factors That May Affect Future Results
The Company's future operating results may be affected by a number of
factors, many of which are beyond the Company's control, including
uncertainties relative to global economic conditions; political
instability; the economic strength of governments; levels of U.S.
Government and international defense spending; military and commercial
aircraft industry trends; and the Company's ability to successfully
increase market share in its Training Devices Segment while expanding
its product base into other markets. In recent years, the markets into
which the Company sells its training device products have been
depressed, and the number of units sold into these markets has decreased
from prior periods. As a result, competition for available training
device opportunities has increased, resulting in lower margins on
devices constructed. In addition, the simulation and training industry
has been characterized by continuing industry consolidation, rapid
technological advances resulting in frequent introduction of new
products and product enhancements, and very competitive pricing
practices.
The Company has responded to these market conditions by diversifying
into new markets and by seeking the formation of strategic teaming
arrangements with airframe manufacturers and prime contractors for
weapon systems. As in prior years, the Company continues its
diversification strategy of pursuing a greater number of opportunities
in the training services market. In addition, with the acquisition of
RUKL in June 1993 and the purchase of certain assets of the Microflite
product line in early 1994, the Company expanded the product lines of
the Training Devices Segment and increased the number of opportunities
available to it in the European and commercial airline simulation
markets. In November 1993, RUKL was selected by LMC as its training
systems teammate for the C-130J program. This teaming arrangement with
LMC resulted in an award during 1995 worth $77.0 million over the life
of the program.
In the pursuit of new business, the Company may make contract price
proposals to potential customers which, if awarded, could result in the
recording of loss provisions to the consolidated financial statements.
The Company also sometimes designs and manufactures prototype training
devices which by their nature involve unforeseen design and development
risks and exposures. The Company attempts to price these risks in the
contract value but nonetheless, the frequency of losses historically
experienced on prototype training devices exceed those experienced on
follow-on devices. The Company attempts to recover its investment in the
design and development of prototype devices by winning subsequent
programs for follow-on devices. While the LMC program involves the
development of prototype C-130J training devices, management believes
that this program has been appropriately priced for unforeseen risks and
exposures and anticipates profits in future periods on the program. The
Company is also pursuing several other programs which, if awarded, could
involve risks associated with prototype devices.
17<PAGE>
The Company may experience transaction gains and losses from currency
fluctuations related to its international operations. In order to
minimize foreign exchange risk, the Company selectively hedges certain
of its foreign exchange exposures principally relating to foreign
currency accounts payable and accounts receivable. The Company's hedging
strategy is facilitated by its ability to borrow foreign currencies
under the revolving credit facility and the C-130J Facility provided by
British Aerospace. This strategy has reduced the Company's vulnerability
to certain of its foreign currency exposures, and the Company expects to
continue this practice in the future to the extent appropriate. The
Company does not engage in speculative hedging activities, nor does the
Company hedge nontransaction-related balance sheet exposure.
The Company has entered into contracts to buy forward British pounds
with an equivalent value of $9.5 million to reduce the Company's
exposure to foreign currency exchange risk associated with the cost of
subcontractors and other requirements of the C-130J program denominated
in British pounds. These contracts mature quarterly in varying amounts
from September 1996 to June 1997. British Aerospace is the counterparty
to these instruments. The forward contracts should not subject the
Company to risk from exchange movement because gains and losses on these
contracts offset losses and gains on the transactions being hedged.
However, the amount and timing of the program costs were estimated and
changes in these estimates could result in future gains or losses from
exchange rate movements.
This Quarterly Report on Form 10-Q contains forward-looking comments
that involve risks and uncertainties. The Company's actual results could
differ materially from those anticipated in these forward-looking
comments as a result of certain factors, including those set forth
under "Factors That May Affect Future Results" and elsewhere in this
Quarterly Report.
18<PAGE>
Part II OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits.
The following documents are filed as exhibits to this Report:
10.12 $10,000,000 Borrowing Facility Agreement between Reflectone,
Inc. and British Aerospace Finance, Inc. dated as of
August 7, 1996.
10.13 Agreement for Credit Availability between Reflectone, Inc.
and British Aerospace Plc dated as of August 7, 1996.
10.15 $2,000,000 Revolving Line of Credit Agreement between
Reflectone, Inc. and Wachovia Bank of Georgia, N.A. dated as
of August 7, 1996.
10.30 $55,000,000 Borrowing Facility Agreement C-130J Program
between Reflectone, Inc. and British Aerospace Finance, Inc.
dated as of August 7, 1996.
(b) The Registrant did not file any reports on Form 8-K
during the three-month period ended June 30, 1996.
19<PAGE>
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 thereunto duly authorized.
REFLECTONE, INC.
(Registrant)
Date: August 13, 1996 By: /s/Richard G. Snyder
Richard G. Snyder
President and Chief Executive
Officer
Date: August 13, 1996 By: /s/ Richard W. Welshhans
Richard W. Welshhans
Vice President - Finance and
Chief Financial Office (Principal
Financial and Accounting Officer)
20<PAGE>
REFLECTONE, INC.
FORM 10-Q
For the Six Months Ended June 30, 1996
EXHIBIT INDEX
EXHIBIT
NUMBER
10.12 $10,000,000 Borrowing Facility Agreement between
Reflectone, Inc. and British Aerospace Finance, Inc.
dated as of August 7, 1996.
10.13 Agreement for Credit Availability between Reflectone,
Inc. and British Aerospace Plc dated as of
August 7, 1996.
10.15 $2,000,000 Revolving Line of Credit Agreement between
Reflectone, Inc. and Wachovia Bank of Georgia, N.A.
dated as of August 7, 1996.
10.30 $55,000,000 Borrowing Facility Agreement C-130J
Program between Reflectone, Inc. and British Aerospace
Finance, Inc. dated as of August 7, 1996.
21
<PAGE>
Exhibit 10.12
BORROWING FACILITY AGREEMENT
BY AND BETWEEN BRITISH AEROSPACE FINANCE, INC. AS LENDER
AND REFLECTONE, INC. AS BORROWER
DATED AUGUST 7, 1996
British Aerospace Finance Inc. ("BAFI") doing business at
Washington Technology Park, Suite 200, 15000 Conference Center Drive,
Virginia 20151-3819, hereby agrees to make available to Reflectone,
Inc.("Reflectone") doing business at 4908 Tampa West Boulevard, Tampa,
Florida 33634, a Facility for short term advances (each advance a
"Drawing") up to the equivalent of US$10,000,000 (Ten Million United
States Dollars) ("the Facility").
SECTION 1. TERMS OF DRAWINGS
Each Drawing will be for a Term as defined herein and as agreed
between BAFI and Reflectone but which Term shall not extend beyond the
Termination Date as defined herein. Each Drawing will be in United
States Dollars or such other currency as is acceptable to BAFI and
Reflectone and will be subject to the availability to BAFI of the
currency concerned. Each Drawing will be conditional upon Reflectone's
not being in default hereunder and there being no cumulation of
undeclared or unpaid dividends on Reflectone's 8% preferred stock.
Notice of Drawings is required by 11:00 a.m. New York, NY time on the
day that funds are required in U.S. Dollars, or two days prior to that
date for U.K. Pounds Sterling, or any other major foreign currency.
Signed confirmations in respect of each Drawing are required within two
business days of the date thereof.
SECTION 2. TERMINATION
The Facility shall expire on the date which is 365 days from the
date hereof ("Termination Date"). Except as provided in Section 5
hereof, all amounts borrowed under the Facility shall be repaid in full
on the Termination Date.
-1-<PAGE>
SECTION 3. RATES ON BORROWINGS
Reflectone hereby agrees to pay interest on each Drawing under the
Facility at the relevant LIBOR plus a margin of 3.50% per annum ("the
Margin"). In the case of U.S. Dollar Drawings, the relevant U.S. Dollar
LIBOR plus the Margin shall apply. In the case of U.K. Pound Sterling
Drawings, the relevant U.K. Pound Sterling LIBOR plus the Margin shall
apply. The relevant LIBOR rate will be as determined by BAFI (based
upon the amount of the Drawing and the Term thereof) agreed between the
parties hereto by reference to Telerate Page 3750 at 11:00 a.m. New
York, NY time for U.S. Dollar Drawings and at 11:00 a.m. London, England
time for U.K. Pound Sterling Drawings or any other major foreign
currency Drawings, or if the Telerate Page 3750 is not generally
available to such other reference quotation as may be agreed between the
parties hereto. Interest due in respect of Drawings made under the
Facility shall accrue from day to day commencing on the Drawing date and
shall be computed on the basis of the actual number of days elapsed
using a 360 day year, or in the case of Pound Sterling Drawings, using
a 365 day year. All payments made by Reflectone to BAFI shall be made
to the order of BAFI, as directed by BAFI, in immediately available
funds.
Reflectone promises to pay interest on overdue amounts of principal
and interest (as permitted by applicable law) at a rate equal to the
rate publicly announced from time to time by Citibank, N.A. (New York)
as its prime rate plus 3% (three percent).
SECTION 4. TERM OF BORROWINGS: MINIMUM BORROWING AMOUNTS
By execution hereof, Reflectone promises to pay, at the end of each
Term as defined herein, any unpaid principal amount disbursed by BAFI to
Reflectone plus interest thereon. The term (the "Term") of any Drawing
hereunder shall be stipulated by Reflectone prior to such Drawing, and
the Term may be either 15, 30, 45, or 60 days in duration. Such Term
shall apply unless otherwise mutually agreed between the parties.
Amounts repaid shall be available for further drawing in accordance with
the terms hereof.
Each U.S. Dollar Drawing shall be in an amount of not less than
U.S. $100,000 (One Hundred Thousand United States Dollars). Each U.K.
Pound Sterling Drawing shall be in an amount of not less than U.K.
100,000 (One Hundred Thousand U.K. Pounds Sterling). Any other major
foreign currency Drawing shall be in an equivalent amount of not less
than U.K. 100,000 Pounds Sterling.
-2-<PAGE>
SECTION 5. PAYMENTS
All payments of principal and interest due under the Facility shall
be made at the end of the Term for each Drawing (or earlier in the case
of an Event of Termination or a Default) without deduction or
withholding for or on account of any present or future taxes, duties or
governmental charges of any nature whatsoever imposed, levied or
collected by or in or on behalf of the United States of America or the
United Kingdom or by or on behalf of any political subdivision or
authority therein having power to tax, unless such deduction or
withholding is required by law. In such event, and if the tax, duty or
charge is the result of an assessment or levy on a transaction arising
out of this Agreement, then Reflectone shall pay such additional amounts
of principal and interest as may be necessary in order to ensure that
the net amounts received by BAFI shall equal the respective amounts of
principal and interest which would have been receivable had no such
deduction or withholding been required and no such payment of any
additional amount been made.
SECTION 6. EVENT OF TERMINATION
If at any time between the date hereof and the Termination Date (i)
BAe PLC, directly or indirectly, shall at any time cease to have the
ability to hold through the exercise of conversion rights and warrants,
a majority interest in Reflectone or (ii) as a result of changes in
applicable law or regulation, advances by BAFI are or may be illegal,
then BAFI may give notice of its intent to terminate this agreement.
Upon the giving of such notice BAFI's obligation to make advances
hereunder shall terminate, and 60 days from the giving of such notice
all amounts of principal owing hereunder together with accrued interest
thereupon shall be payable to BAFI.
SECTION 7. REPRESENTATION AND WARRANTIES
Reflectone represents and warrants as follows as of the date hereof
and as of the date of each Drawing:
7.1 Existence. It is a corporation duly organized, validly
existing, and in good standing under the laws of the State of its
incorporation.
-3-<PAGE>
7.2 Authority. It has full corporate power and authority to
execute and deliver this Agreement and to perform and observe the
provisions thereof, all of which have been duly authorized by all
necessary corporate action. By executing and delivering this Agreement
and by performing and observing the provisions thereof, it will not (a)
violate any existing provisions of its Certificate of Incorporation or
By-laws or violate or otherwise become in default under any contract,
law, order, regulation, or other obligation binding upon it, or (b)
cause the creation or imposition of any lien, charge, or encumbrance of
any nature whatsoever, upon any of it's property, except as provided
herein. This Agreement has been duly authorized and executed and is
valid, enforceable, and legally binding upon Reflectone, except as such
enforcement may be limited by bankruptcy, insolvency, and other laws of
general application affecting the rights and remedies of creditors and
by equitable principles which may render certain remedies unavailable.
It has all requisite corporate power and authority to own its properties
and to carry on its business as now or proposed to be conducted.
7.3 Consents or Approvals. No consent, approval, or
authorization of, or filing, registration, or qualification with, any
governmental authority or any other person is required to be obtained by
it in connection with the execution, delivery, performance, or
enforceability of this Agreement.
SECTION 8. GOVERNING LAW
This Agreement shall be governed and construed in accordance with
the Law of the Commonwealth of Virginia.
In Witness Hereof, the parties have duly and properly executed this
Facility as of even date herewith.
For and on behalf of
BRITISH AEROSPACE FINANCE, INC. /s/David P. Loose
For and on behalf of
REFLECTONE, INC. /s/R W Welshhans
Vice President & Treasurer
faciliti1
-4-<PAGE>
Exhibit 10.13
AGREEMENT FOR CREDIT AVAILABILITY
THIS AGREEMENT FOR CREDIT AVAILABILITY ("Agreement") is made and
entered into as of the 7th day of August, 1996, by and between
REFLECTONE, INC., a corporation organized and existing under the laws
of the state of Florida ("Reflectone"), and BRITISH AEROSPACE PUBLIC
LIMITED COMPANY, a public limited company organized and existing under
the laws of England ("BAe").
W I T N E S S E T H:
WHEREAS, BAe currently guarantees or provides certain of
Reflectone's credit facilities;
WHEREAS, the parties believe that it is in their best interests
to set forth their mutual understandings with respect to BAe's
continuing guarantee of these credit facilities.
NOW, THEREFORE, in consideration of the mutual promises and
agreements contained herein, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound
thereby, agree as follows:
1. Credit Facilities.
(a) Guaranteed Facilities. Reflectone and BAe hereby
acknowledge that BAe currently guarantees an aggregate of U.S.
$22,000,000 of credit facilities provided to Reflectone by third-party
lenders, which facilities are more fully described on
Exhibit A hereto (the "Guaranteed Facilities"). The Guaranteed
Facilities provide Reflectone with access to an aggregate of U.S.
$2,000,000 for working capital purposes and an aggregate of U.S.
$20,000,000 for the provision of letters of credit, bonds and
over-draft facilities. Subject to the terms and conditions set
forth herein, BAe hereby agrees to continue to guarantee the
Guaranteed Facilities throughout the term of this Agreement.
-1-<PAGE>
(b) BAeF Facilities. In addition, Reflectone and BAe
hereby acknowledge that BAe, through its subsidiary British
Aerospace Finance, Inc. ("BAeF"), provides Reflectone with two
Borrowing Facilities totalling U.S. $65,000,000 for working
capital purposes (the "BAeF Facilities"). Subject to the terms
and conditions set forth herein and in the related Borrowing
Facility Agreements between Reflectone and BAeF, BAe hereby
agrees to continue to provide the BAeF Facilities throughout the
term of this Agreement.
2. Fees.
(a) Facility Fee. As compensation for the provision of
credit facilities described in Section 1 of this Agreement,
Reflectone shall pay to BAe a quarterly fee (the "Facility Fee")
equal to one eighth of one percent of the maximum amount of the
Guaranteed and BAeF Facilities available during the relative
quarter to be paid in the manner set forth in Section 2(c)
hereof. This fee will be adjusted prorata for early termination.
(b) Guaranty Fee. As compensation for the guaranty of the
US$2,000,000. Working Capital Facility described in Exhibit A of
this Agreement, Reflectone shall pay in the manner set forth in
Section 2(c) hereof, to BAe a guarantee fee (the "Guaranty Fee")
based on the drawings made under the Guaranteed Facility equal to
3.5 percent per annum, less the margin charged by Wachovia Bank
of Georgia, N.A. as more fully described in the Agreement
establishing the Working Capital Facility. The Guaranty Fee due
in respect of drawings under the Working Capital Facility shall
accrue from day to day commencing on the date of each drawing and
shall be computed on the basis of the actual days elapsed using a
360-day year.
(c) Payment. The Credit Availability Fee and Guaranty Fee
shall each be paid by Reflectone to BAe quarterly in arrears,
payable on March 31, June 30, September 30, and December 31 of
each year during the term of this Agreement.
-2-<PAGE>
3. Financial Reporting Matters.
(a) Monthly Reporting. During the term of this Agreement,
Reflectone shall submit to BAe or British Aerospace Holdings,
Inc. ("BAeI") its monthly financial reports ("Monthly Report") in
accordance with the timetables and formats specified by Bae from
time to time.
(b) Annual Budget and Business (5-year Strategic) Plan.
During the term of this Agreement, on or before the due dates
specified by BAe, Reflectone shall submit to BAe or BAeI its
annual budget ("Annual Budget") and Business (5-year Strategic)
Plan ("Business Plan"). Each Annual Budget and Business Plan
shall be prepared in accordance with the format and timetable
specified by BAe from time to time. In addition, Reflectone
shall supply annual supplementary management information in a
format and timetable specified by BAe from time to time.
(c) Annual Audited Reporting Package. During the term of
this Agreement Reflectone shall submit to BAe or BAeI an audited
reporting package for the previous fiscal year, in a format and
timetable specified by BAe from time to time.
4. Capital Expenditure Review.
During the term of this Agreement Reflectone shall provide
for prior review and approval by BAe or BAeI all capital
investment expenditure in excess of sterling 50,000. where such
expenditure has been reflected in Reflectone's annual budget. If
such capital investment has not been reflected in Reflectone's
annual budget and is not wholly substitutional, prior review by
BAe or BAeI is required for amounts above sterling 10,000. All
acquisitions and disposals of businesses, including joint
ventures, shall require prior review by BAe or BAeI. Reflectone
undertakes not to proceed with any such investment without prior
approval from BAe or BAeI. All investment reviews submitted to
BAe or BAeI must comply with the form, content and timetable as
specified by BAe from time to time.
-3-<PAGE>
5. Other Contractual Agreements.
During the term of this Agreement Reflectone shall not
knowingly or willfully take any action, or omit to take any
action, or enter into any agreement which would cause BAe to be
in violation of any law, regulation or any financial or
contractual covenants provided by BAe in any agreement to which
it is a party or which would otherwise place BAe in default of
any such agreement.
6. Term.
This Agreement shall expire on August 7, 1997 provided,
however, that this Agreement may be terminated by either party
hereto upon thirty (30) days' written notice in the event that:
(a) BAe shall at any time cease to have the ability to hold
through the exercise of conversion rights and warrants, a
majority interest in Reflectone, or
(b) credit facilities in the amounts set forth in Section 1
hereof shall become obtainable by Reflectone on terms
substantially the same as the Facilities through third parties,
without the requirement that BAe guarantee or otherwise become
obligated for such other facilities.
7. Representation and Warranties.
Reflectone represents and warrants as follows as of the date
hereof and as of the date of each utilization of the Facilities.
8.1 Existence. It is a corporation duly organized, validly
existing, and in good standing under the laws of the State of
Florida.
8.2 Authority. It has full corporate power and authority
to execute and deliver this Agreement and to perform and observe
the provisions thereof, all of which have been duly authorized by
all necessary corporate action. By executing and delivering this
Agreement and by performing and observing the provisions thereof,
it will not (a) violate any existing provisions of its
-4-<PAGE>
Certificate of Incorporation or By-laws or violate or otherwise
become in default under any contract, law, order, regulation, or
other obligation binding upon it, or (b) cause the creation or
imposition of any lien, charge, or encumbrance of any nature
whatsoever, upon any of its property, except as provided herein.
This Agreement has been duly authorized, and executed and is
valid, enforceable, and legally binding upon it, except as such
enforcement may be limited by bankruptcy, insolvency, and other
laws of general application affecting the rights and remedies of
creditors and by equitable principles which may render certain
remedies unavailable. It has all requisite corporate power and
authority to own its properties and to carry on its business as
now or proposed to be conducted.
8.3. Consents or Approvals. No consent, approval, or
authorization of, or filing, registration, or qualification with,
any governmental authority or any other Person is required to be
obtained by it in connection with the execution, delivery,
performance, or enforceability of this Agreement.
8. Miscellaneous.
(a) Notices. Any notices or other communications required
or permitted hereunder shall be given in writing and shall be
delivered or sent by certified or registered mail, postage
prepaid, addressed as follows:
If to Reflectone, to:
Reflectone, Inc.
4908 Tampa West Boulevard
P.O. Box 15000
Tampa, Florida 33684
Attn: Vice President Finance
-5-<PAGE>
If to BAe, to:
c/o British Aerospace Holdings, Inc.
Washington Technology Park
15000 Conference Center Drive, Suite 200
Chantilly, Virginia 20151-3819
Attn: Sr. Vice President and General Manager
or to such other address as shall be furnished in writing by such
party, and any such notice or communication shall be effective
and be deemed to have been given as of two (2) days following the
date so mailed; provided that any notice or communications
changing any of the addresses set forth above shall be effective
and deemed given only upon its receipt.
(b) Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights,
interests, or obligations hereunder shall be assigned by either
of the parties hereto without the prior written consent of the
other party.
(c) Entire Agreement. This Agreement, including the
exhibits and other documents referred to herein which form a part
hereof, contains the entire understanding of the parties with
respect to the transactions contemplated hereby and supersedes
all prior arrangements or understandings with respect thereto.
There are no restrictions, agreements, promises, warranties,
covenants, or undertakings other than those expressly set forth
herein or therein.
(d) Modifications and Amendments. No change, modification
or termination of any terms, provisions, or conditions of this
Agreement shall be effective unless made in writing and signed or
initialed by all parties hereto, their successor and assigns.
(e) Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the
same Agreement and each of which shall be deemed an original.
-6-<PAGE>
(f) Governing Law. This Agreement shall be governed by the
laws of the Commonwealth of Virginia, United States of America
(regardless of the laws that might be applicable under principles
of conflicts of law) as to all matters, including but not limited
to, matters of validity, construction, effect, and performance.
(g) Headings and Captions. The titles or captions of
sections and subsections contained in this Agreement are provided
for convenience of reference only, and shall not be considered a
part hereof for purposes of interpreting or applying this
Agreement, and, therefore, such titles or captions do not define,
limit, extend, explain, or describe the scope or extent of this
Agreement or any of its terms, provisions, representations,
warranties, conditions, etc., in any manner or way whatsoever.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement individually or by its duly authorized officers, as of the
day and year first above-written.
WITNESSES:
REFLECTONE, INC.
By: /s/R W Welshhans
Name:R W Welshhans
Title:Chief Financial Officer
"Reflectone"
BRITISH AEROSPACE
PUBLIC LIMITED COMPANY
By:/s/David P. Loose
Name:David P. Loose
Title:
"BAe"
-7-<PAGE>
EXHIBIT A
Reflectone Credit Facilities
Provided or Guaranteed by BAe
a Working Capital Facility consisting of $2 million Revolving Line
of Credit Agreement between Wachovia Bank of Georgia, N.A., BAe and
Reflectone to be used for working capital purposes;
a $20 million Letter of Credit Agreement with Lloyds Bank PLC;
-8-<PAGE>
EXHIBIT B
Description of British Aerospace
Finance Facility
a $10 million Borrowing Facility Agreement with BAeF for
working capital purposes
a $55 million Borrowing Facility Agreement with BAeF to
provide working capital in respect to Reflectone's C130-J
contract with Lockheed Aeronautics Corporation.
reflagr
-9-<PAGE>
Exhibit 10.15
June 28, 1996
Mr. Richard W. Welshhans
Vice President
Chief Financial Officer
Reflectone, Inc.
5125 Tampa West Boulevard
Tampa, FL 33634
Re: $2,000,000 Revolving Line of Credit Agreement (the "Agreement")
Dear Richard:
Wachovia Bank of Georgia. N.A. (the "Lender") agrees to open a
revolving line of credit (the "Line of Credit") in favor of
Reflectone, lnc., a Florida corporation (the "Borrower"), so that
Borrower may borrow, repay and reborrow from time to time, subject to
the terms and conditions of this Agreement, up to a maximum aggregate
principal amount outstanding of $2,000,000 (the "Committed Amount").
The obligation of Borrower to repay any Advances under the Line of
Credit shall be evidenced by a master note (the "Note") substantially
in the form of Exhibit "A" attached hereto. The terms and conditions
of the Agreement are incorporated in the Note by reference as though
the same were written therein. This Line of Credit shall terminate on
the Termination Date, and on the Termination Date Lender's obligation
to extend further credit under the Line of Credit shall cease and the
principal amount of and all interest on all Advances under the Line of
Credit shall be due and payable in full automatically and without
demand. All payments of principal and interest due on the Note shall
be made in immediately available funds in Atlanta, Georgia. The
Borrower's obligations under this Agreement and the Note are
unconditionally guaranteed by British Aerospace Public Limited Company
(the "Guarantor") pursuant to a Guaranty Agreement substantially in
the form of Exhibit "B" attached hereto.
This Line of Credit replaces the $10,000,000 Line of Credit provided
under a $10,000,000 Revolving Line of Credit Agreement between the
Borrower, the Lender and the Guarantor dated June 30, 1995.
l. Lender's obligation to make Advances under the Line of Credit is
subject to the following conditions precedent: (i) Borrower shall
have paid to Lender on or before the fifth Business Day following
the execution of this agreement a one-time facility fee of
$7,500.; (ii) the Lender shall have received, on or before the
date of the first Advance (a) a copy of the Resolutions of the
Board of Directors of the Borrower, certified on such date,
1<PAGE>
authorizing the execution and delivery of the Agreement, and the
borrowing hereunder and the execution and delivery of the Note, (b) a
copy of documentation satisfactory to the Lender from the Banking
Committee of the Guarantor's Board of Directors authorizing the
Guarantor's execution and delivery of the Guaranty Agreement, and (c)
such additional documents as the Lender may reasonably request; (iii)
on the date of any Advance, each of the representations and warranties
made by the Borrower in Paragraph 4 hereof shall be true on and as of
the date of the making of such Advance with the same force and effect
as if made on and as of such date; and (iv) at the time of each
Advance, the Borrower, and each of its Subsidiaries, shall be in
compliance with all of the terms and provisions set forth herein on
their part to be observed and performed, and no event of default as
specified in Paragraph 8 hereof, nor any event which upon notice or
lapse of time, or both, would constitute such an event of default,
shall have occurred at the time of such Advance
2. For purposes of this Agreement the following terms shall have the
following definitions:
"Adjusted LlBOR Rate" shall mean a rate per annum (adjusted to
the nearest 1/100 of 1% or, if there is no nearest 1/100 of 1%,
to the next highest 1/100 of 1 %) determined by the Lender as the
rate per annum equal to the sum of:
LIBOR + Applicable LIBOR Margin.
100%. Eurodollar Reserve Percentage
"Advance" shall mean any borrowing by the Borrower hereunder.
"Applicable LIB0R Margin" means .25 of 1 percent (.25%);
"Base Rate" shall mean for any day, the rate per annum equal to
the higher as of such day of (i) the Prime Rate and (ii) one-half
of one percent above the Federal Funds Rate for such day. For
purposes of determining the Base Rate changes in the Prime Rate
will be effective on the date of each such change.
"Business Day" means any other day other than Saturday, Sunday,
or other day on which commercial banks in Georgia are authorized
or required to close under the laws of the State of Georgia. In
addition, where such day relates to an Advance, bearing interest
at the Adjusted LIBOR Rate, "Business Day" means only a day on
which dealings in United States dollar time deposits are carried
out in the Eurodollar interbank market and which is also a
Business Day in accordance with the immediately preceding
sentence.
2<PAGE>
"Eurodollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as
prescribed by the board of Governors of the Federal Reserve
System (or any successor) for determining the maximum reserve
requirement for a member bank of the Federal Reserve System in
respect of "Eurocurrency liabilities" (or in respect of any other
category of liabilities which includes deposits by reference to
which the interest rate on Eurodollar Loans is determined or any
category of extensions of credit or other assets which includes
loans by a non-United States office of any Bank to United States
residents). The Eurodollar Reserve Percentage shall be adjusted
automatically on and as of the effective date of any change in
the Eurodollar Reserve Percentage.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upward, if necessary, to the next higher 1/100 of 1 %)
equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the business Day next
succeeding such day, provided that (i) if the day for which such
rate is to be determined is not a Business Day the Federal Funds
Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next
succeeding business Day, and (ii) if such rate is not so
published for any day, the Federal Funds Rate for such day shall
be the average rate charged to the Bank on such day on such
transactions as determined by the Bank.
"Interest Payment Date" shall mean the last day of each Interest
Period and, if such Interest Period is longer than 3 months, at
intervals of 3 months from the first day thereof.
"Interest Period" shall mean for any Advance the period
commencing on the date such Advance is made and ending:
(i) In the case of an Advance bearing interest at the Adjusted
LIBOR Rate, on that day which is the numerically
corresponding day in the first, second, third or sixth
calendar month thereafter, as the Borrower may select
hereunder except that each such Interest Period which
commences on the last Business Day of a calendar month (or
on any day for which there is no numerically corresponding
day in the appropriate subsequent calendar month) shall end
on the last Business Day of such appropriate subsequent
calendar month;
3<PAGE>
(ii) In the case of an Advance bearing interest at the Base Rate,
on that day which is thirty (30) days thereafter.
Notwithstanding the foregoing, (i) each Interest Period
which would otherwise end on a day which is not a Business
Day shall end on the next succeeding Business Day (or, in
the case of an Advance bearing interest at the Adjusted
LIBOR Rate, if such next succeeding Business Day falls in
the next succeeding calendar month, on the next preceding
Business Day), (ii) if any Interest Period would otherwise
commence before and end after the Termination Date, such
Interest Period shall end on such date, and (iii)
notwithstanding clause (ii) above, no Interest Rate Period
for any Advance bearing interest at the Adjusted LIBOR date
shall have a duration of less than one month if the Interest
Period for any such Advance would otherwise be a shorter
period, such Advance shall bear interest at the Base Rate.
"Interest Rate" shall mean the Adjusted LIBOR Rate or the Base
Rate, as the context requires.
"LIBOR" means the rate per annum determined on the basis of the
offered rate for deposits in dollars of amounts equal or
comparable to the principal amount of such Advance offered for a
term comparable to such Interest Period, which rates appear on
the Reuters Screen LIBO page as of 11:00 a.m., London time, two
(2) Eurodollar Business Days prior to the first day of such
Interest Period, provided that (i) if more than one such offered
rate appears on the Reuters Screen LlB0 page, the "London
Interbank Offered Rate" will be the arithmetic mean of such
offered rates; (ii) if no such offered rates appear on such page,
the London Interbank Offered Rate" for such Interest Period will
be the arithmetic mean of rates quoted by not less than two major
banks in New York City, selected by the Lender, at approximately
10:00 a.m., New York City time, two (2) Eurodollar Business Days
prior to the first day of such Interest Period, for deposits in
dollars offered to leading European banks for a period comparable
to such Interest Period in an amount comparable to the Advance.
"Maturity" shall mean the last day of any Interest Period with
respect to an Advance or the Termination Date with respect to the
Line of Credit, as the context requires.
"Person" shall mean an individual, corporation, a partnership, an
association, a trust, or any other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
4<PAGE>
"Prime Rate" refers to that interest rate so denominated and set
by the Lender from time to time as an interest rate basis for
borrowings. The Prime Rate is but one of several interest rate
bases used by the Lender. The Lender lends at rates above and
below the Prime Rate.
"Subsidiary" and "Subsidiaries" means any corporation of which
fifty percent (50%) or more of the voting stock at any time is
owned or controlled directly or indirectly by the Borrower.
"Termination Date" means the earliest of (i) August 7, 1997, or
(ii) that Business Day on which Lender receives a notice of
termination, by registered mail, addressed to the office of the
Lender extending credit under this Line of Credit from the
Guarantor.
Words importing the singular include the plural and vice versa
unless the context otherwise requires.
3. Each Advance under the Line of Credit shall bear interest for
each applicable Interest Period at one of the following rates per
annum as selected by the Borrower: (i) the Adjusted LIBOR Rate or
(ii) the Base Rate. interest on each Advance shall be due and
payable on each Interest Payment Date.
After Maturity, interest on any unpaid Advance balance is payable
at the rate per annum equal to the Base Rate plus 1.00%, and
shall be due and payable on demand.
In all cases, interest shall be calculated on the outstanding
principal amount of each outstanding Advance on the basis of a
360-day year and the actual days during which such Advance is
outstanding.
In borrowing hereunder, the Borrower shall have the option to
select the Interest Rate and Maturity of each Advance as provided
hereunder. The Borrower shall notify the Lender of the amount of
such Advance, the Maturity of such Advance, and the Interest Rate
applicable to such Advance. Each Advance under this Line of
Credit shall be in a principal amount of $1,000.000 or any larger
multiple of $100,000 in the case of an Advance at the Adjusted
LIBOR Rate and $100,000 in the case of an Advance at the Base
Rate. Upon Maturity of an Advance, the Borrower shall either
repay the Advance in full or renew the Advance, any such renewal
constituting a new Advance hereunder.
5<PAGE>
If an Advance is renewed, such Advance may be renewed in whole or
in part, and an amount equal to the difference between the
principal of the Advance to be renewed and the principal of the
Advance to be repaid shall be made available by the Lender to the
Borrower or the Borrower to the Lender, as the case may be.
Prepayment of Advances prior to the Maturity thereof shall not be
permitted except in the case of Advances bearing interest at the
Base Rate.
Notices by the Borrower to the Lender specifying the amount,
Maturity and Interest Rate applicable to each Advance shall be
made by giving to the Lender written or telephonic notice (which
telephonic notice shall be promptly confirmed in writing). Such
notices shall be irrevocable and shall be effective only if
received by the Lender not later than 2:00 p.m. Atlanta, Georgia
time, the first Business Day of the Interest Period of any
Advance except in the case of an Advance bearing interest at the
Adjusted LIBOR Rate for which notice must be received by the
Lender not later than 2:00 pm Atlanta, Georgia time, two (2)
Business Days prior to the first day of the applicable Interest
Period. If, (i) after its receipt of any notice of Borrower's
election of the Adjusted LIBOR Rate, Lender determines in its
reasonable judgment prior to the disbursement of the Advance to
which such notice relates that it is not possible to determine
LIBOR or LIBOR shall no longer cover the effective cost to Lender
of obtaining United States dollar deposits in the Eurodollar
interbank market or (ii) in the event that, as a result of any
change in applicable law, rules, regulations, treaties directives
or in the interpretation or administration thereof or by reason
of Lender's compliance therewith, the effective cost to Lender of
making maintaining or funding the indebtedness represented by the
Note at the Adjusted LIBOR Rate is increased, then Lender shall
notify Borrower of such determination and Advances under the Line
of Credit shall bear interest at the Base Rate.
The Lender or other holder shall be and is hereby authorized by
the Borrower to set forth on the reverse side of the Note, or on
an attachment thereto: (1) the amount and date of each Advance
made hereunder; (2) the Maturity date of each such Advance; (3)
the Interest Rate for each such Advance; (4) the Interest Payment
Dates for each such Advance, and (5) each payment of principal
received thereon and the date of such payment. All such notations
shall be conclusive absent manifest error but failure to make any
such notation shall not limit or otherwise affect the obligation
of the Borrower with respect to the payment of all Advances
actually made hereunder and the interest thereon.
6<PAGE>
4. Borrower represents and warrants to the Lender that (i) it is a
corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation; (ii) the
making and performance by Borrower of this Agreement and the Note
are within Borrower's corporate powers and will not contravene
any provisions of law or its charter or by-laws or of any
indenture or other agreement or instrument to which it is now or
by which it or any of its properties may be bound or affected;
(iii) it has the corporate authority to execute, deliver and
perform this Agreement and to borrow in accordance with the terms
of this Agreement and it has taken all necessary and appropriate
corporate action to authorize the borrowing under and the
execution, delivery and performance of this Agreement and the
Note; (iv) this Agreement is and the Note, when executed and
delivered, will be valid obligations of the Borrower, legally
binding and enforceable against it in accordance with their
respective terms; (v) there are no pending or threatened
proceedings before any court or administrative body which might
materially and adversely affect the financial condition or
operations of Borrower which has not been previously disclosed;
and (vi) the annual audit reports and financial statements of
Borrower and Consolidated Subsidiaries for the fiscal year most
recently ended previously furnished to Lender have been prepared
in accordance with generally accepted accounting principles and
fairly present the financial condition of Borrower and
Consolidated Subsidiaries as of such date and since such date
there has been no material adverse change in such condition.
5. Financial Statement: So long as the Lender's obligation to extend
credit under this Line of Credit exists or any amount payable on
the Note remains unpaid, the Borrower agrees to furnish the
Lender consolidated financial statements of the Borrower and its
Subsidiaries for each fiscal year, prepared in conformity with
generally accepted accounting principles and audited by an
independent certified public accountant. Additionally, the
Borrower agrees to provide consolidated financial statements for
each quarter, signed by an officer of the Borrower.
The annual and quarterly financial statements shall be delivered
to the Lender within 90 days and 60 days, respectively, after the
close of the fiscal period. The Borrower also shall provide the
Lender, with reasonable promptness, such further information
regarding the Borrower's business affairs and financial condition
as the Lender may reasonably request.
7<PAGE>
6. Covenants Of The Borrower: So long as the Lender's obligation to
extend credit under this Line of Credit exists or any amount
payable on the Note remains unpaid, the Borrower agrees that the
Borrower will and will require its Subsidiaries to adhere to the
following Covenants:
a. Maintain insurance in such amounts and against such risks as
are usually insured against by companies engaged in the same
or similar business.
b. Maintain its corporate existence and comply with all valid
and applicable statutes, rules and regulations, and maintain
its properties in good operating condition.
7. The occurrence or existence of any one or more of the following
events or conditions will constitute an event of default by the
Borrower under this Agreement, whereupon the Lender's obligation
to make Advances under the Line of Credit will immediately
terminate and the Note and all indebtedness of the Borrower to
the Lender will, at the option of the Lender, immediately become
due and payable without presentation, demand, protest, or notice
of any kind, all of which are hereby expressly waived by the
Borrower, and the Lender will, at the option of the Lender, call
upon the Guaranty Agreement.
a. Nonpayment within seven Business Days after notification
that such payment has become due and remains unpaid, whether
by acceleration or otherwise, of any payment of principal or
interest on the Note; or
b. Nonpayment within seven Business Days after notification
that such payment has become due and remains unpaid of any
payment of a fee or other charge under this Agreement; or
c. A breach or failure of performance by the Borrower or any
Subsidiary of any covenant or other provision of this
Agreement which is not remedied within 30 days after written
notice by the Lender; or
d. A representation or warranty by the Borrower shall prove to
have been false or erroneous when made or when deemed made
or any certificate or financial statement provided to the
Lender proves to be inaccurate in any material respect when
delivered or when deemed to have been delivered; or
8<PAGE>
e. The Borrower, or any Subsidiary: (i) files a petition or has
a petition filed against it under the Bankruptcy Code (as it
now exists or may be amended) or an admission seeking the
relief therein provided, (ii) is unable, or admits in
writing its inability, to pay its debts as they become due,
(iii) makes an assignment for the benefit of creditors, (iv)
has a receiver appointed, voluntarily or otherwise, for its
property, (v) is adjudicated a bankrupt, (vi) suspends
business, (vii) becomes insolvent however otherwise
evidenced, or (viii) has any final judgement for money
damages in excess of $5,000,000.00 entered against it in a
court of competent jurisdiction which remains unsatisfied
for a period of thirty (30) days or more; or
f. An Event of Default under the Agreement dated the 19th day
of May, 1995 between British Aerospace Finance, Inc.,
British Aerospace Public Limited Company, British Aerospace
Operations Limited and Wachovia Bank of Georgia, N.A. shall
have occurred and be continuing.
8. If the Lender shall have determined that after the date hereof
the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change therein, or any change in the
interpretation or administration thereof, or compliance by the
Lender with any request or directive regarding capital adequacy
(whether or not having the force of law) of any authority, has or
would have the effect of reducing the rate of return on the
Lender's capital as a consequence of its obligations hereunder to
a level below that which the Lender could have achieved but for
such adoption, change or compliance (taking into consideration
the Lender's policies with respect to capital adequacy) by an
amount deemed by the Lender to be material, then the Lender shall
notify the Borrower of such determination and then from time to
time, within fifteen days after demand by the Lender, the
Borrower shall pay to the Lender such additional amount or
amounts as will compensate the Lender for such reduction.
9. No amendment or waiver of any provision of this Agreement or
consent to any departure by the Borrower therefore shall in any
event be effective unless the same shall be in writing and signed
by the Lender. Any such amendment, waiver or consent shall be
effective only in the specific instance and for the specific
purpose for which given.
9<PAGE>
10. The provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective
successors and assigns. The Borrower may, with the prior written
consent of the Lender, assign or otherwise transfer any of its
rights under this Agreement provided that: (i) such assignee is a
corporation that is incorporated within the United States of
America and (ii) such assignment or transfer is accompanied by a
Guaranty Agreement in substantially the form of Exhibit B hereto
from the Guarantor providing for the Guarantor's unconditional
guarantee of such assignees' obligations.
11. This Agreement and the Note issued and all other documents
furnished hereunder shall be governed by and be construed
according to the laws of the State of Georgia.
12. The Borrower will pay the reasonable attorney's fees incurred by
the Lender in connection with the enforcement of this Agreement.
If the foregoing terms and conditions are acceptable to the Borrower,
please indicate the Borrower's agreement to such terms and conditions
by executing this Agreement in the appropriate space provided below,
by executing the Note and the Guaranty Agreement and by returning this
Agreement, the Note, and the Guaranty Agreement to the Lender.
Very truly yours.
WACHOVIA BANK OF GEORGlA, N.A.
By:/s/James C. Ratcliff, Jr.
Its:Vice President
Accepted and agreed to this 9th day of August, 1996 .
Borrower: Reflectone, Inc.
By:/s/R W Welshhans
Its: Chief Financial Officer
Accepted and agreed to this 9th day of August, 1996 .
10<PAGE>
Exhibit A
MASTER NOTE
June 28, 1996 $2,000,000
FOR VALUE RECEIVED the undersigned, Reflectone, Inc, a Florida
corporation ("Borrower"), hereby promises to pay to the order of
Wachovia Bank of Georgia, N.A., a national banking association
("Lender") at its office located at Atlanta, Georgia, in lawful money of
the United States of America in immediately available funds, the
principal sum of Two Million Dollars ($2,000,000) or if less, the
aggregate unpaid principal amount of all Advances outstanding made by
the Lender pursuant to the Revolving Line of Credit Agreement dated June
28, 1996 ("Agreement") between the Borrower and the Lender, and to pay
interest on the unpaid principal hereof, at said office, in like money
and funds, during the period commencing on the date hereof until paid at
the rates per annum and at the times provided in the Agreement.
Capitalized terms used in this Note, unless otherwise defined herein,
shall have the respective meanings assigned to them in the Agreement.
The amount and date of each Advance made by the Lender to the Borrower
hereunder, the Maturity date of each such Advance, the Interest Rate for
each such Advance, the Interest Payment Dates for each such Advance and
each payment of principal received thereon and the date of such payment
shall be recorded by the Lender and endorsed on the schedule attached
hereto which is made a part of this Note. All such endorsements shall be
conclusive absent manifest error but failure to make any such
endorsement shall not affect the Borrower's obligations hereunder or
under the Agreement in respect of such Advances and the interest
thereon.
All parties to this Note, including the makers, endorsers, sureties and
guarantors, whether bound by this or by separate instrument or
agreement, hereby (1) waive presentment for payment, demand, protest,
notice of nonpayment or dishonor and of protest and any and all other
notices and demands whatsoever; (2) consent that at any time or from
time to time, payment of any sum payable under this Note may be extended
without notice, whether for a definite or indefinite time; and (3) agree
to remain liable until the indebtedness evidenced hereby is paid in full
irrespective of any extension, modification or renewal.
11<PAGE>
Should the indebtedness represented by this Note or any part hereof be
collected at law or in equity or in bankruptcy, receivership or other
court proceedings or this Note be placed in the hands of attorneys for
collection on default, the Borrower agrees to pay in addition to the
principal and interest due and payable hereon reasonable attorneys' fees
and legal expenses, together with all other reasonable costs of
collection.
The terms and conditions contained in the Agreement shall be considered
a part hereof to the same extent as if written herein.
This Note shall be construed in accordance with and be governed by the
laws of the State of Georgia. This note is intended to be effective as
an instrument executed under seal, as of the date first above written.
IN WITNESS WHEREOF, the Borrower has caused this instrument to be
executed as of the date first above written
Borrower: Reflectone, Inc.
By: /s/R W Welshhans
ATTEST:
Its:
Secretary
(CORPORATE SEAL)
12<PAGE>
SCHEDULE FOR MASTER NOTE
Interest
Date of Amount of Maturity Payment Interest Principal Balance
Advance Advance Date Date Rate Payment Outstanding
WTS-188.RGP
13
<PAGE>
Exhibit 10.30
BORROWING FACILITY AGREEMENT C-130J PROGRAM
BY AND BETWEEN BRITISH AEROSPACE FINANCE, INC. AS LENDER
AND REFLECTONE, INC. AS BORROWER
DATED AUGUST 7, 1996
British Aerospace Finance Inc. ("BAFI") doing business at
Washington Technology Park, Suite 200, 15000 Conference Center Drive,
Virginia 20151-3819, hereby agrees to make available to Reflectone,
Inc.("Reflectone") doing business at 4908 Tampa West Boulevard, Tampa,
Florida 33634, a Facility for short term advances (each advance a
"Drawing") up to the equivalent of US$55,000,000 (Fifty Five Million
United States Dollars) ("the Facility").
SECTION 1. TERMS OF DRAWINGS
Each Drawing will be for a Term as defined herein and as agreed
between BAFI and Reflectone but which Term shall not extend beyond the
Termination Date as defined herein. Each Drawing will be in United
States Dollars or such other currency as is acceptable to BAFI and
Reflectone and will be subject to the availability to BAFI of the
currency concerned. Total Drawing shall be limited to actual costs
incurred on the UK C-130J program and shall be subject to written
verification and audit. Each Drawing will be conditional upon
Reflectone's not being in default hereunder and there being no
cumulation of undeclared or unpaid dividends on Reflectone's 8%
preferred stock. Notice of Drawings is required by 11:00 a.m. New
York, NY time on the day that funds are required in U.S. Dollars, or
two days prior to that date for U.K. Pounds Sterling, or any other
major foreign currency. Signed confirmations in respect of each
Drawing are required within two business days of the date thereof.
SECTION 2. TERMINATION
The Facility shall expire on the date which is 365 days from the
date hereof ("Termination Date"). Except as provided in Section 5
hereof, all amounts borrowed under the Facility shall be repaid in
full on the Termination Date.
-1-<PAGE>
SECTION 3. RATES ON BORROWINGS
Reflectone hereby agrees to pay interest on each Drawing under the
Facility at the relevant LIBOR plus a margin of 1.50% per annum ("the
Margin"). In the case of U.S. Dollar Drawings, the relevant U.S. Dollar
LIBOR plus the Margin shall apply. In the case of U.K. Pound Sterling
Drawings, the relevant U.K. Pound Sterling LIBOR plus the Margin shall
apply. The relevant LIBOR rate will be as determined by BAFI (based
upon the amount of the Drawing and the Term thereof) agreed between the
parties hereto by reference to Telerate Page 3750 at 11:00 a.m. New
York, NY time for U.S. Dollar Drawings and at 11:00 a.m. London, England
time for U.K. Pound Sterling Drawings or any other major foreign
currency Drawings, or if the Telerate Page 3750 is not generally
available to such other reference quotation as may be agreed between the
parties hereto. Interest due in respect of Drawings made under the
Facility shall accrue from day to day commencing on the Drawing date and
shall be computed on the basis of the actual number of days elapsed
using a 360 day year, or in the case of Pound Sterling Drawings, using
a 365 day year. All payments made by Reflectone to BAFI shall be made
to the order of BAFI, as directed by BAFI, in immediately available
funds.
Reflectone promises to pay interest on overdue amounts of principal
and interest (as permitted by applicable law) at a rate equal to the
rate publicly announced from time to time by Citibank, N.A. (New York)
as its prime rate plus 3% (three percent).
SECTION 4. TERM OF BORROWINGS: MINIMUM BORROWING AMOUNTS
By execution hereof, Reflectone promises to pay, at the end of each
Term as defined herein, any unpaid principal amount disbursed by BAFI to
Reflectone plus interest thereon. The term (the "Term") of any Drawing
hereunder shall be stipulated by Reflectone prior to such Drawing, and
the Term may be either 15, 30, 45, or 60 days in duration. Such Term
shall apply unless otherwise mutually agreed between the parties.
Amounts repaid shall be available for further drawing in accordance with
the terms hereof.
-2-<PAGE>
Each U.S. Dollar Drawing shall be in an amount of not less than
U.S. $100,000 (One Hundred Thousand United States Dollars). Each U.K.
Pound Sterling Drawing shall be in an amount of not less than U.K.
100,000 (One Hundred Thousand U.K. Pounds Sterling). Any other major
foreign currency Drawing shall be in an equivalent amount of not less
than U.K. 100,000 Pounds Sterling.
SECTION 5. PAYMENTS
All payments of principal and interest due under the Facility shall
be made at the end of the Term for each Drawing (or earlier in the case
of an Event of Termination or a Default) without deduction or
withholding for or on account of any present or future taxes, duties or
governmental charges of any nature whatsoever imposed, levied or
collected by or in or on behalf of the United States of America or the
United Kingdom or by or on behalf of any political subdivision or
authority therein having power to tax, unless such deduction or
withholding is required by law. In such event, and if the tax, duty or
charge is the result of an assessment or levy on a transaction arising
out of this Agreement, then Reflectone shall pay such additional amounts
of principal and interest as may be necessary in order to ensure that
the net amounts received by BAFI shall equal the respective amounts of
principal and interest which would have been receivable had no such
deduction or withholding been required and no such payment of any
additional amount been made.
SECTION 6. EVENT OF TERMINATION
If at any time between the date hereof and the Termination Date (i)
BAe PLC, directly or indirectly, shall at any time cease to have the
ability to hold through the exercise of conversion rights and warrants,
a majority interest in Reflectone or (ii) as a result of changes in
applicable law or regulation, advances by BAFI are or may be illegal,
then BAFI may give notice of its intent to terminate this agreement.
Upon the giving of such notice BAFI's obligation to make advances
hereunder shall terminate, and 60 days from the giving of such notice
all amounts of principal owing hereunder together with accrued interest
thereupon shall be payable to BAFI.
-3-<PAGE>
SECTION 7. REPRESENTATION AND WARRANTIES
Reflectone represents and warrants as follows as of the date hereof
and as of the date of each Drawing:
7.1 Existence. It is a corporation duly organized, validly
existing, and in good standing under the laws of the State of its
incorporation.
7.2 Authority. It has full corporate power and authority to
execute and deliver this Agreement and to perform and observe the
provisions thereof, all of which have been duly authorized by all
necessary corporate action. By executing and delivering this Agreement
and by performing and observing the provisions thereof, it will not (a)
violate any existing provisions of its Certificate of Incorporation or
By-laws or violate or otherwise become in default under any contract,
law, order, regulation, or other obligation binding upon it, or (b)
cause the creation or imposition of any lien, charge, or encumbrance of
any nature whatsoever, upon any of it's property, except as provided
herein. This Agreement has been duly authorized and executed and is
valid, enforceable, and legally binding upon Reflectone, except as such
enforcement may be limited by bankruptcy, insolvency, and other laws of
general application affecting the rights and remedies of creditors and
by equitable principles which may render certain remedies unavailable.
It has all requisite corporate power and authority to own its properties
and to carry on its business as now or proposed to be conducted.
7.3 Consents or Approvals. No consent, approval, or
authorization of, or filing, registration, or qualification with, any
governmental authority or any other person is required to be obtained by
it in connection with the execution, delivery, performance, or
enforceability of this Agreement.
-4-<PAGE>
SECTION 8. GOVERNING LAW
This Agreement shall be governed and construed in accordance with
the Law of the Commonwealth of Virginia.
In Witness Hereof, the parties have duly and properly executed this
Facility as of even date herewith.
For and on behalf of
BRITISH AEROSPACE FINANCE, INC. /s/David P. Loose
For and on behalf of
REFLECTONE, INC. /s/R W Welshhans
Vice President & Treasurer
-5-<PAGE>
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