<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission file number 0-26596
Computational Systems, Incorporated
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Tennessee 62-1198047
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
835 Innovation Drive
Knoxville, Tennessee 37932
- --------------------------------------- ----------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, Including Area Code: (423) 675-2110
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Common Stock outstanding - 4,832,479 shares at July 19, 1996
Page 1 of pages.
Exhibit Index on page .
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
- -------------------------------------------------------------------------------
Consolidated Condensed Balance Sheets
Consolidated Condensed Statements of Income
Consolidated Condensed Statements of Cash Flows
Notes to Consolidated Condensed Financial Statements
<PAGE> COMPUTATIONAL SYSTEMS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $8,867,085 $8,824,332
Accounts receivable, less allowance for
doubtful accounts 9,278,928 9,980,006
Inventories 3,802,374 3,623,124
Other current assets 1,227,782 1,102,369
---------- ----------
Total current assets 23,176,169 23,529,831
---------- ----------
Property, plant and equipment:
Land 729,204 729,204
Building and improvements 4,508,040 4,488,421
Equipment and furniture 9,962,987 6,850,428
---------- ----------
15,200,231 12,068,053
Less accumulated depreciation (5,132,470) (4,129,812)
---------- ----------
Total property, plant and equipment, net 10,067,761 7,938,241
---------- ----------
Other assets, including intangibles 781,237 682,701
---------- ----------
Total assets 34,025,167 32,150,773
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt 18,903 18,377
Accounts payable and other current liabilities 2,699,879 2,610,363
Accrued liabilities 4,466,801 4,469,251
---------- ----------
Total current liabilities 7,185,583 7,097,991
Long-term debt, less current maturities 3,652 13,172
Deferred maintenance contract revenue 576,730 512,159
---------- ----------
Total liabilities 7,765,965 7,623,322
========== ==========
Shareholders' equity:
Common stock, no par value, 50,000,000 shares
authorized, 4,813,773 and 4,743,209 shares
issued and outstanding in 1996 and 1995,
respectively 15,738,949 15,459,192
Additional paid-in capital 815,862 815,862
Retained earnings 9,704,391 8,252,397
---------- ----------
Total shareholders' equity 26,259,202 24,527,451
---------- ----------
Total liabilities and shareholders' equity $34,025,167 $32,150,773
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE>
COMPUTATIONAL SYSTEMS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
<TABLE>
Three Months Ended Six Months Ended
----------------------- --------------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues, net:
Product $8,354,790 $7,420,511 $16,287,638 $14,453,470
Services 2,854,602 2,258,105 5,653,047 4,579,626
---------- ---------- ----------- -----------
11,209,392 9,678,616 21,940,685 19,033,096
Cost of revenues:
Product 2,014,666 2,190,189 4,330,721 4,588,694
Services 2,299,255 1,732,532 4,479,510 3,462,115
---------- ---------- ----------- -----------
4,313,921 3,922,721 8,810,231 8,050,809
Gross margin 6,895,471 5,755,895 13,130,454 10,982,287
---------- ---------- ----------- -----------
Costs and expenses
Selling , general and administrative 4,224,642 3,548,772 8,579,642 7,142,092
Research & development 1,325,457 1,151,393 2,531,653 2,229,828
---------- ---------- ----------- -----------
5,550,099 4,700,165 11,111,295 9,371,920
---------- ---------- ----------- -----------
Income from operations 1,345,372 1,055,730 2,019,159 1,610,367
Other income (expense)
Interest expense (221) (145,510) (1,366) (290,644)
Interest income 134,872 15,477 252,460 44,327
Other income (expense), net 4,347 1,185 (1,512) 1,207
---------- ---------- ----------- -----------
138,998 (128,848) 249,582 (245,110)
---------- ---------- ----------- -----------
Income before taxes 1,484,370 926,882 2,268,741 1,365,257
Provision for taxes 534,374 333,678 816,749 491,493
---------- ---------- ----------- -----------
Net Income $949,996 $593,204 $1,451,992 $873,764
========== ========== =========== ===========
Earnings per share $0.19 $0.17 $0.29 $0.24
Weighted Average Shares Outstanding 5,068,388 3,539,886 5,047,363 3,652,730
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements
<PAGE>
COMPUTATIONAL SYSTEMS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
Six Months Ended
-------------------------
June 30, June 30,
1996 1995
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,451,992 $873,764
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,120,084 489,581
Deferred income taxes (176,000) (21,000)
Changes in operating assets and liabilities:
Accounts receivable 701,078 460,766
Income taxes refundable (payable) 66,306 (272,000)
Inventories (374,029) (47,746)
Prepaids 32,587 (130,907)
Other assets (170,062) (2,347)
Accounts payable (323,789) (6,015)
Accrued liabilities (68,756) 332,890
Deferred maintenance contract revenue 477,876 287,755
---------- ---------
Net cash provided by operating activities 2,737,287 1,964,741
---------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (2,965,297) (996,123)
Notes receivable from shareholders ------ 245,756
---------- ---------
Net cash used in investing activities (2,965,297) (750,367)
---------- ---------
Cash flows from financing activities:
Net borrowings under (repayments on) line of
credit ----- (1,290,614)
Repayments of long-term debt (8,994) (73,649)
Proceeds from issuance of common stock 279,757 231,530
Purchases of common stock ----- (27,840)
Checks outstanding in excess of bank balances ----- (43,338)
---------- ---------
Net cash provided (used) by financing
activities 270,763 (1,203,911)
---------- ---------
Net increase (decrease) in cash and cash equivalents 42,753 10,463
Cash and cash equivalents, at beginning of period 8,824,332 -----
---------- ---------
Cash and cash equivalents, at end of period $8,867,085 $10,463
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE>
COMPUTATIONAL SYSTEMS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS:
Information in the accompanying financial statements and notes to the
financial statements for the interim periods is unaudited. The accompanying
unaudited consolidated condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of regulation
S-X. Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for 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 ended
December 31, 1996. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Form 10-K for
December 31, 1995.
2. INVENTORIES:
Inventories consist of the following:
June 30, December 31,
1996 1995
---------- -----------
(Unaudited)
Raw Materials $1,778,319 $1,835,885
Work in-process 981,775 736,109
Finished goods, net 1,042,280 1,051,130
---------- -----------
$3,802,374 $3,623,124
3. DEBT:
On June 14, 1996 the Company entered into an Amended and Restated Credit
Agreement (Agreement) with two banks for a line of credit with available
borrowings up to $12,000,000. The Agreement expires on April 30, 1999.
Borrowings under the Agreement bear interest either at the bank's base rate or
the adjusted LIBOR rate plus the applicable LIBOR margin at the Company's
discretion. As of June 30, 1996, there have been no borrowings under the new
Agreement. The Company's debt agreement contains certain financial and
operational covenants which, among other things, require the Company to maintain
minimum tangible net worth and working capital levels and meet certain financial
statement ratios.
4. CASH FLOW INFORMATION:
June 30, June 30,
1996 1995
(Unaudited) (Unaudited)
---------- ----------
Supplemental disclosures of cash flows:
Interest paid $ 1,693 $ 290,644
========== ==========
Income taxes paid, net $ 857,894 $ 740,000
========== ==========
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
REVENUES, NET. Total revenues increased 15.8% in the three months
ended June 30, 1996 ("the 1996 period") to $11.2 million, compared to $9.7
million in the three months ended June 30, 1995 ("the 1995 period"). Revenues
from the sale of products increased 12.6% to $8.4 million in the 1996 period
from $7.4 million in the 1995 period. The increase in product revenues is due
primarily to the introduction of our two-channel 2120 analyzer in early 1996.
Service revenues increased 26.4% to $2.8 million in the 1996 period from $2.3
million in the 1995 period primarily as a result of the increased acceptance
of Tribology services, the addition of new training centers and an increased
emphasis in the maintenance contracts area due to greater sales support.
COST OF REVENUE. Total costs of revenues increased 10.0% to $4.3
million in the 1996 period from $3.9 million in the 1995 period. As a
percentage of net revenues, total cost of revenue decreased from 40.5% in the
1995 period to 38.5% in the 1996 period. Product costs decreased 8.0% to $2.0
million in the 1996 period from $2.2 million in the 1995 period primarily due
to favorable pricing that resulted from the use of blanket purchase orders
causing a reduction of standard costs. In addition, labor hours required in
the manufacturing process decreased due to improved technologies, while other
efficiencies and improvements were derived from the Company's ISO 9002
processes. Service costs increased 32.7% to $2.3 million in the 1996 period
from $1.7 million in the 1995 period. As a percentage of service revenues,
service costs increased 3.8 basis points from 76.7% in 1995 to 80.5% in 1996.
This is due primarily to the front-end loaded cost of establishing an increased
number of field service locations, the addition of eighteen field service reps
and the opening of two new training facilities in 1996 in San Diego, CA and
Detroit, MI. Costs associated with the Company's service business are accounted
for almost entirely in cost of revenue.
SELLING, GENERAL and ADMINISTRATIVE. SG&A expense increased 19.0% to
$4.2 million in the 1996 period from $3.5 million in the 1995 period. The
increase was due primarily to an increase in market development expenditures
such as an increase in sales and administration personnel and higher
commission expenses due to the increased sales. SG&A expense, as a percentage
of net revenues, increased to 37.7% in the 1996 period from 36.7% in the 1995
period.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
by $200,000 or 15.1% to $1.3 million in the 1996 period from $1.1 million in
the 1995 period, reflecting nine additions to the Company's staff in support
of a more diverse product line. As a percentage of net product revenues,
research and development expenses declined to 11.8% in the 1996 period from
11.9% in the 1995 period.
<PAGE>
INCOME FROM OPERATIONS. Income from operations for the 1996 period
increased 27.4% to $1.3 million or 12.0% of net revenue, from $1.1 million, or
10.9% of net revenue, in the 1995 period. Total operating expenses increased
by 18.1%.
INTEREST EXPENSE/INCOME. Interest expense decreased from approximately
$145,000 in the 1995 period to less than $1,000 in the 1996 period, primarily
as a result of the retirement of debt and borrowings under the line of credit
from the proceeds of the Company's Initial Public Offering (IPO) in August 1995.
Interest income increased 771.4% in the 1996 period to $135,000 from $15,000 in
the 1995 period due to proceeds from the IPO being invested in short-term
government securities that bear interest at approximately 5% per anum.
INCOME TAXES. The Company's effective tax rate for the 1995 and 1996
periods was approximately 36%.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
REVENUES, NET. Total revenues increased 15.3% in the 1996 period to
$21.9 million, compared to $19.0 million in the 1995 period. Revenues from
the sale of products increased 12.7% to $16.3 million in the 1996 period from
$14.4 million in the 1995 period. The increase in product revenues is due
primarily to the introduction of our two-channel 2120 analyzer in early 1996
and our corrective products in the fall of 1995. Service revenues increased
23.4% to $5.6 million in the 1996 period from $4.6 million in the 1995 period
primarily as a result of the increased acceptance of Tribology services as
well as an increased emphasis in the maintenance contracts area due to greater
sales support.
COST OF REVENUE. Total costs of revenues increased 9.4% to $8.8
million in the 1996 period from $8.1 million in the 1995 period. As a
percentage of net revenues, total cost of revenue decreased from 42.3% in the
1995 period to 40.2% in the 1996 period. Product costs decreased 5.6% to
$4.3 million in the 1996 period from $4.6 million in the 1995 period primarily
due to favorable pricing that resulted from the use of blanket purchase orders
causing a reduction of standard costs, decreased labor hours required in the
manufacturing process due to improved technologies, while other efficiencies
and improvements were derived from the Company's ISO 9002 processes. Service
costs increased 29.4% to $4.5 million in the 1996 period from $3.5 million in
the 1995 period. As a percentage of service revenues, service costs increased
3.6 basis points from 75.6% in 1995 to 79.2% in 1996. This is due primarily
to the front-end loaded cost of establishing an increased number of field
service locations, the addition of eighteen field service reps and the opening
of two new training facilities in 1996 in San Diego, CA and Detroit, MI.
Costs associated with the Company's service business are accounted for almost
entirely in cost of revenue.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expense increased 20.1% to
$8.6 million in the 1996 period from $7.1 million in the 1995 period. The
increase was due primarily to an increase in market development expenditures
such as an increase in sales and administration personnel and higher
commission expense due to increased sales. SG&A expense, as a percentage of
net revenues, increased to 39.1% in the 1996 period from 37.5% in the 1995
period.
<PAGE>
RESEARCH AND DEVELOPMENT. Research and development expenses increased
by $302,000 or 13.5% to $2.5 million in the 1996 period from $2.2 million in
the 1995 period, reflecting net additions to the Company's staff in support of
a more diverse product line. As a percentage of net product revenues,
however, research and development expenses declined to 11.5% in the 1996
period from 11.7% in the 1995 period.
INCOME FROM OPERATIONS. Income from operations for the 1996 period
increased 25.4% to $2.0 million or 9.2% of net revenue, from $1.6 million, or
8.5% of net revenue, in the 1995 period. Total operating expenses increased
by 18.6%.
INTEREST EXPENSE/INCOME. Interest expense decreased from $291,000 in
the 1995 period to approximately $1,000 in the 1996 period, primarily as a
result of the retirement of debt and borrowings under the line of credit from
the proceeds of the Company's Initial Public Offering (IPO) in August 1995.
Interest income increased 469.5% in the 1996 period to $252,000 from $44,000 in
the 1995 period due to proceeds from the IPO being invested in short-term
government securities that bear interest at approximately 5% per anum.
INCOME TAXES. The Company's effective tax rate for the 1995 and 1996
periods was approximately 36%.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations through a
combination of cash flow from operations, bank borrowings and equity capital.
The Company's capital requirements have arisen primarily in connection with
purchases of fixed and intangible assets, including acquisitions, and the
Company makes significant expenditures each year for research and development
and market development.
Net cash provided by operating activities in the first six months of
1996 increased to $2.7 million from $2.0 million in the first six months of
1995 primarily due to an increase in net income that reflects the higher level
of business activity. Investing activities primarily include additions to
property, plant and equipment.
On June 14, 1996, the Company entered into an Amended and Restated Credit
Agreement (Agreement) with two banks for a line of credit with available
borrowings up to $12,000,000. The Agreement expires on April 30, 1999.
Borrowings under the Agreement bear interest either at the bank's base rate or
the adjusted LIBOR rate plus the applicable LIBOR margin at the Company's
discretion. As of June 30, 1996, there have been no borrowings under the new
Agreement. The Company's debt agreement contains certain financial and
operational covenants which, among other things, require the Company to maintain
minimum tangible net worth and working capital levels and meet certain financial
statement ratios.
The Company's total liabilities decreased to $7.8 million as of June
30,1996 as compared to $11.8 million as of June 30, 1995 due to the
extinguishment of long-term debt and line of credit from the proceeds of the
IPO. Of the $14.1 million net proceeds of the Company's IPO, approximately
$4.4 million was used to pay off the Company's long-term debt and line of
credit.
<PAGE>
Although the Company has at present no acquisition agreements nor
arrangements, the Company may in the future make strategic acquisitions of
other providers of maintenance products or services using stock, cash, debt or
a combination thereof. Depending on the terms of the acquisition, the Company
may need to incur additional indebtedness or issue equity securities to make
any such acquisition.
The Company routinely engages in transactions in foreign countries.
Substantially all of the Company's transactions are denominated in U.S.
currency, thereby limiting the Company's exposure to fluctuations in foreign
currency exchange rates.
<PAGE>
The following table sets forth the percentage relationships to net revenues of
certain statements of income data, for the periods indicated.
<TABLE>
Percentage of Revenues, Net
---------------------------
Three Months Ended Six Months Ended
------------------ ------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues, net:
Product 74.5% 76.7% 74.2% 75.9%
Services 25.5% 23.3% 25.8% 24.1%
------- ------- ------- -------
Total 100.0% 100.0% 100.0% 100.0%
Cost of revenues:
Product 18.0% 22.6% 19.8% 24.1%
Services 20.5% 17.9% 20.4% 18.2%
------- ------- ------- -------
Total 38.5% 40.5% 40.2% 42.3%
Gross margin 61.5% 59.5% 59.8% 57.7%
Operating expenses:
Selling , general and administrative 37.7% 36.7% 39.1% 37.5%
Research & development 11.8% 11.9% 11.5% 11.7%
------- ------- ------- -------
Total 49.5% 48.6% 50.6% 49.2%
------- ------- ------- -------
Income from operations 12.0% 10.9% 9.2% 8.5%
Other income (expense)
Interest expense -0.0% -1.5% -0.0% -1.5%
Interest income 1.2% 0.2% 1.1% 0.2%
Other income (expense), net 0.0% 0.0% 0.0% 0.0%
------- ------- ------- -------
Total 1.2% -1.3% 1.1% -1.3%
------- ------- ------- -------
Income before provision for income taxes 13.2% 9.6% 10.3% 7.2%
Provision for income taxes 4.8% 3.4% 3.7% 2.6%
Net income 8.5% 6.1% 6.6% 4.6%
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -------------------------------------------------------------------------------
(a) Exhibits:
(10) Amended and Restated Credit Agreement with First American
National Bank and NationsBank of Tennessee
(11) Statement re: Computation of per share earnings
(b) No reports on Form 8-K were filed for the quarter ended June 30, 1996.
<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.
COMPUTATIONAL SYSTEMS, INCORPORATED
Date: July 23, 1996 By: /s/ Ronald G. Canada
-----------------------------------
Ronald G. Canada, Chairman and
Chief Executive Officer
By: /s/ Bryan J. Collier
-----------------------------------
Bryan J. Collier, Vice President of
Finance and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Sequential
Item Description Page No.
------ -------------------------------------------- ----------
(10) Amended and Restated Credit Agreement with
First American National Bank and NationsBank
of Tennessee
(11) Statement re: Computation of per share earnings
<PAGE>
EXHIBIT 10
=============================================================
$12,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of June 14, 1996
Among
COMPUTATIONAL SYSTEMS, INCORPORATED
(as "Borrower")
The Banks Listed Herein
and
FIRST AMERICAN NATIONAL BANK
as Loan Administrator for the Banks
===============================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I
LOANS
SECTION 1.01. Commitment.. . . . . . . . . . . . . . . . 1
SECTION 1.02. Funding Loans. . . . . . . . . . . . . . . 1
SECTION 1.03. Notes; Principal Payments. . . . . . . . . 2
SECTION 1.04. Interest.. . . . . . . . . . . . . . . . . 3
SECTION 1.05. Facility Fee; Commitment Fee; Termination
and Reduction of Commitments.. . . . . . . . . . . . 3
SECTION 1.06. Additional Interest; Alternate Rate of
Interest; Maximum Interest Rate. . . . . . . . . . . 4
SECTION 1.07. Continuation and Conversion of Loans.. . . 5
SECTION 1.08. Optional Payment/Prepayment of Loans.. . . 6
SECTION 1.09. Manner of Payment. . . . . . . . . . . . . 7
SECTION 1.10. Indemnity for LIBOR Loans. . . . . . . . . 7
SECTION 1.11. Reasonableness of Increased Costs. . . . . 8
SECTION 1.12. Pro Rata Treatment.. . . . . . . . . . . . 8
SECTION 1.13. Certain Notices. . . . . . . . . . . . . . 8
SECTION 1.14. Borrowing Base and Other Restrictions. . . 9
ARTICLE II
COLLATERAL AND GUARANTIES
SECTION 2.01. Secured Obligations. . . . . . . . . . . . 10
SECTION 2.02. No Guaranty. . . . . . . . . . . . . . . . 10
SECTION 2.03. Loan Documents . . . . . . . . . . . . . . 10
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Initial Loans. . . . . . . . . . . . . . . 10
SECTION 3.02. All Loans. . . . . . . . . . . . . . . . . 10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Organization; Powers; Qualification. . . . 11
SECTION 4.02. Authorization; Enforceability. . . . . . . 11
SECTION 4.03. Consents and Approvals.. . . . . . . . . . 12
SECTION 4.04. Financial Statements.. . . . . . . . . . . 12
SECTION 4.05. No Material Adverse Change.. . . . . . . . 12
SECTION 4.06. Subsidiaries . . . . . . . . . . . . . . . 12
SECTION 4.07. Litigation.. . . . . . . . . . . . . . . . 13
SECTION 4.08. Tax Returns. . . . . . . . . . . . . . . . 13
SECTION 4.09. Properties.. . . . . . . . . . . . . . . . 13
SECTION 4.10. Employee Benefit Plans.. . . . . . . . . . 13
<PAGE>
SECTION 4.11. Government Regulation. . . . . . . . . . . 14
SECTION 4.12. Margin Stock.. . . . . . . . . . . . . . . 14
SECTION 4.13. No Material Misstatements. . . . . . . . . 14
SECTION 4.14. Patents, Trademarks, etc.. . . . . . . . . 14
SECTION 4.15. Hazardous Wastes.. . . . . . . . . . . . . 15
SECTION 4.16. No Brokers or Finders. . . . . . . . . . . 15
SECTION 4.17. No Default of Indebtedness; Solvency.. . . 15
SECTION 4.18. Agreements.. . . . . . . . . . . . . . . . 15
SECTION 4.19. Compliance with Law. . . . . . . . . . . . 16
SECTION 4.20. Labor Controversies. . . . . . . . . . . . 16
ARTICLE V
AFFIRMATIVE COVENANTS
SECTION 5.01. Corporate Existence and Maintenance of
Properties. . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.02. Compliance with Laws.. . . . . . . . . . . 16
SECTION 5.03. Insurance. . . . . . . . . . . . . . . . . 17
SECTION 5.04. Obligations and Taxes. . . . . . . . . . . 17
SECTION 5.05. Accounting Methods and Financial Records.. 18
SECTION 5.06. Financial Statements, Certificates, Reports
and Auditors.. . . . . . . . . . . . . . . . . . . . 18
SECTION 5.07. Access to Premises and Records.. . . . . . 19
SECTION 5.08. Notice of Default. . . . . . . . . . . . . 19
SECTION 5.09. Notice of Litigation.. . . . . . . . . . . 20
SECTION 5.10. Notice of Strikes, Labor Controversies,
etc. . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 5.11. Update of Subsidiaries . . . . . . . . . . 20
SECTION 5.12. Acquisition Target Stock Pledge. . . . . . 20
ARTICLE VI
NEGATIVE COVENANTS
SECTION 6.01. Liens. . . . . . . . . . . . . . . . . . . 20
SECTION 6.02. Indebtedness.. . . . . . . . . . . . . . . 22
SECTION 6.03. Liquidation, Sale of Assets, Acquisitions and
Mergers. . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 6.04. Investments. . . . . . . . . . . . . . . . 23
SECTION 6.05. Guarantees.. . . . . . . . . . . . . . . . 24
SECTION 6.06. Breach or Violation. . . . . . . . . . . . 24
SECTION 6.07. Use of Proceeds. . . . . . . . . . . . . . 24
SECTION 6.08. Transactions with Affiliates.. . . . . . . 24
SECTION 6.09. Restrictive Covenants. . . . . . . . . . . 24
SECTION 6.10. Increase in Benefits; New Plans. . . . . . 25
SECTION 6.11. Management Changes . . . . . . . . . . . . 25
SECTION 6.12. Ownership Changes. . . . . . . . . . . . . 25
<PAGE>
ARTICLE VII
FINANCIAL COVENANTS
SECTION 7.01. Consolidated Current Ratio.. . . . . . . . 25
SECTION 7.02. Consolidated Tangible Net Worth. . . . . . 26
SECTION 7.03. Consolidated Adjusted EBIDA to Consolidated
Adjusted Debt Service. . . . . . . . . . . . . . . . 26
SECTION 7.04. Consolidated Long Term Debt to Consolidated
Total Net Worth. . . . . . . . . . . . . . . . . . . 26
SECTION 7.05. Consolidated Total Liabilities to
Consolidated Tangible Net Worth. . . . . . . . . . . 26
SECTION 7.06. Capital Expenditures.. . . . . . . . . . . 26
SECTION 7.07. Consolidated Financial Covenants . . . . . 26
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. Events of Default. . . . . . . . . . . . . 26
SECTION 8.02. Exercise of Remedies.. . . . . . . . . . . 29
ARTICLE IX
THE LOAN ADMINISTRATOR
SECTION 9.01. Appointment and Authorization. . . . . . . 30
SECTION 9.02. Noteholders. . . . . . . . . . . . . . . . 30
SECTION 9.03. Consultation with Counsel. . . . . . . . . 30
SECTION 9.04. Documents. . . . . . . . . . . . . . . . . 30
SECTION 9.05. Resignation or Removal of the Loan
Administrator. . . . . . . . . . . . . . . . . . . . 30
SECTION 9.06. Responsibility of the Loan Administrator.. 31
SECTION 9.07. Notices of Event of Default. . . . . . . . 32
SECTION 9.08. Bank Credit Decision.. . . . . . . . . . . 32
SECTION 9.09. Indemnification. . . . . . . . . . . . . . 32
SECTION 9.10. Benefit of Article IX. . . . . . . . . . . 33
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Modification. . . . . . . . . . . . . . . 33
SECTION 10.02. Waiver. . . . . . . . . . . . . . . . . . 33
SECTION 10.03. Payment of Expenses.. . . . . . . . . . . 34
SECTION 10.04. Notices.. . . . . . . . . . . . . . . . . 35
SECTION 10.05. Governing Law.. . . . . . . . . . . . . . 36
SECTION 10.06. Invalid Provisions. . . . . . . . . . . . 36
SECTION 10.07. Nonliability of Banks.. . . . . . . . . . 37
SECTION 10.08. Binding Effect and Assignability. . . . . 37
SECTION 10.09. Entirety; Conflicts.. . . . . . . . . . . 37
<PAGE>
SECTION 10.10. Headings, etc.. . . . . . . . . . . . . . 37
SECTION 10.11. Survival. . . . . . . . . . . . . . . . . 37
SECTION 10.12. No Third Party Beneficiary. . . . . . . . 37
SECTION 10.13. Waiver of Jury Trial. . . . . . . . . . . 38
SECTION 10.14. Arbitration . . . . . . . . . . . . . . . 38
SECTION 10.15. Multiple Counterparts.. . . . . . . . . . 39
SECTION 10.16. Disclosures.. . . . . . . . . . . . . . . 39
SECTION 10.17. Sharing of Setoffs. . . . . . . . . . . . 39
SECTION 10.18. Repayments in Bankruptcy. . . . . . . . . 40
SECTION 10.19. Amendment and Restatement . . . . . . . . 40
ARTICLE XI
DEFINITIONS
SECTION 11.01. Definitions.. . . . . . . . . . . . . . . 40
SECTION 11.02. Other Definitional Provisions.. . . . . . 41
SECTION 11.03. Accounting Matters. . . . . . . . . . . . 41
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------
THIS AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement") dated as
of June 14, 1996, among COMPUTATIONAL SYSTEMS, INCORPORATED, a Tennessee
corporation (the "Borrower"), the Banks set forth on the signature page hereto
(collectively, the "Banks"), and FIRST AMERICAN NATIONAL BANK, a national
banking association, as loan administrator for the Banks under this Agreement
(in such capacity, the "Loan Administrator") and as lender under this
Agreement ("First American") (unless otherwise indicated, capitalized terms
herein have the meanings set forth in Exhibit A hereto), recites and provides
as follows:
RECITALS
--------
WHEREAS, the Borrower has requested that the Banks extend credit to the
Borrower in an aggregate principal amount of up to $12,000,000 to refinance
certain indebtedness owing to First American and to provide funds for
acquisition financing, capital expenditures and other general corporate
purposes; and
WHEREAS, the Banks are willing to extend such credit on the terms and
subject to the conditions set forth herein;
NOW THEREFORE, in consideration of the mutual promises set forth herein
and for other valuable consideration, the parties agree as follows:
ARTICLE I
---------
LOANS
-----
SECTION 1.01. Commitment. Subject to the terms and conditions and
relying upon the representations and warranties herein, each Bank, severally
and not jointly, agrees to make Loans to the Borrower, from time to time on or
after the date hereof and until the Commitment Termination Date, in an
aggregate principal amount at any time outstanding not exceeding the amount of
its Commitment; provided, however, the aggregate principal amount of Loans
outstanding at any time shall not exceed the Borrowing Base except as
specifically provided in Section 1.15(b). The Borrower may borrow, repay and
reborrow hereunder on or after the date hereof and prior to the Commitment
Termination Date, subject to the terms and conditions herein.
SECTION 1.02. Funding Loans. (a) Each Loan shall be either a LIBOR
Loan or a Base Rate Loan as the Borrower may request subject to and in
accordance with this Section. All LIBOR Loans made by the Banks in any one
borrowing shall be in a minimum aggregate principal amount of $100,000 and in
integral multiples of $1,000 in excess thereof, and all Base Rate Loans made
by the Banks in any one borrowing shall be in a minimum aggregate principal
amount of $1,000 and in integral multiples of $1,000 in excess thereof;
<PAGE>
provided, however, that the failure of any Bank to make its Loan shall not in
itself relieve any other Bank of its obligation to lend hereunder. Each Bank
may, at its option, fulfill its commitment with respect to any LIBOR Loan by
causing a foreign branch or Affiliate of such Bank to make such Loan, provided
that any exercise of such option shall not affect the obligation of the
Borrower to repay such Loan in accordance with the terms of the applicable
Note. Subject to the other provisions of this Section and the provisions of
Section 1.07, Loans of more than one type may be outstanding at the same time.
(b) The Borrower shall give the Loan Administrator written notice (as
provided in Section 1.14) of each borrowing under Section 1.01 excepting,
however, any and all Base Rate Loans made under the Cash Management System, as
to which no notice of borrowing shall be required. Upon receipt by the Loan
Administrator of notice from the Borrower pursuant to this paragraph, the Loan
Administrator shall promptly notify the Banks thereof. On the borrowing date
requested in such notice, each Bank shall make its ratable share (determined
by its Percentage) of the borrowing available to the Borrower in an account
maintained at the offices of the Loan Administrator (the "Loan Account") no
later than 2:00 p.m. Knoxville, Tennessee time, in federal or other
immediately available funds. As to those Base Rate Loans made under the Cash
Management System, the Loan Administrator shall notify the Banks at least
weekly of such borrowings, and upon such notice each Bank shall make its
ratable share (determined by its Percentage) of the borrowing(s) available to
the Borrower in the Loan Account no later than 2:00 p.m. Knoxville, Tennessee
time, in federal or other immediately available funds on the date of such
notice.
(c) Notwithstanding any provision in this Agreement to the contrary,
the Borrower shall not in any notice of borrowing under this Section 1.02
request any LIBOR Loan that would not be permitted if characterized as a
continuation or conversion pursuant to Section 1.07.
SECTION 1.03. Notes; Principal Payments. (a) The Loans made by each
Bank and the Borrower's obligation to repay the Loans with interest in
accordance with the terms of this Agreement shall be evidenced by this
Agreement, the records of such Bank and a Note duly executed on behalf of the
Borrower, dated the Closing Date, in substantially the form attached hereto as
Exhibit B, payable to the order of such Bank in a principal amount equal to
its Commitment. Each Note shall bear interest from its date on the
outstanding principal balance thereof as set forth in Section 1.04. The
outstanding aggregate unpaid amount of the Loans of each Bank at any time
<PAGE>
shall be the principal amount owing on the Note of such Bank at such time.
The records of each Bank shall be prima facie evidence of the Loans of such
Bank and accrued interest thereon and of all payments made in respect thereof.
(b) If not sooner paid, the entire unpaid principal balance of each
Note shall be due and payable on the Commitment Termination Date.
SECTION 1.04. Interest. (a) Subject to the provisions of Section
1.06, each Base Rate Loan and each other amount (other than principal on the
Loans) becoming due hereunder shall bear interest at a rate per annum
(computed on the basis of the actual number of days elapsed over a year of 360
days) equal to the Base Rate as in effect from time to time plus the Base Rate
Margin.
(b) Subject to the provisions of Section 1.06, each LIBOR Loan shall
bear interest at a rate per annum (computed on the basis of the actual number
of days elapsed over a year of 360 days) equal to the Adjusted LIBOR Rate plus
the Applicable LIBOR Margin. The Loan Administrator shall determine the
applicable Adjusted LIBOR Rate for each such Loan under this paragraph (b) as
soon as practicable on the date when such determination is to be made in
respect of such Interest Period and shall notify the Borrower and the Banks of
the Adjusted LIBOR Rate so determined.
(c) Interest on each Loan shall be payable on each applicable Interest
Payment Date, commencing with the first of such dates after the date of such
Loan, and on each Conversion Date and the Commitment Termination Date.
SECTION 1.05. Facility Fee; Commitment Fee; Termination and Reduction
of Commitments.
(a) In consideration of the Commitments hereunder, the Borrower shall
pay in immediately available funds to the Loan Administrator, for the pro rata
account of each Bank, on the first day of each calendar quarter, commencing
with the first such date after the Closing Date, and on the date of any
reduction or termination of the Commitments of the Banks hereunder, a
commitment fee (the "Facility Fee") in an amount equal to .125% multiplied by
the average daily unused amount of the Commitment of such Bank during the most
recently ended quarter. The Facility Fee shall commence to accrue as of the
Closing Date, and shall cease to accrue on the Commitment Termination Date.
(b) On or prior to the Closing Date, the Borrower shall pay in
immediately available funds to the Banks a non-refundable closing fee of an
aggregate of $15,000, $7,500 for each Bank (the "Closing Fee").
<PAGE>
(c) The Borrower may, by written notice to the Banks (as provided in
Section 1.14) terminate in full, or from time to time permanently reduce in
part, the aggregate Commitments. Each such voluntary partial reduction of the
aggregate Commitments shall be in an aggregate principal amount of $1,000,000
and in integral multiples of $1,000,000 in excess thereof.
(d) The Borrower shall repay the Loans upon reduction of the
Commitments pursuant to this Section 1.05 in an amount sufficient to reduce
the outstanding principal balance of the Loans to an amount not greater than
the aggregate reduced Commitments. All repayments under this Section shall be
accompanied by accrued interest on the principal amount being repaid to the
date of repayment.
(e) Each reduction in the aggregate Commitments shall be made ratably
among the Banks in accordance with each Bank's Percentage. Once reduced, the
Commitments cannot be reinstated without the consent of the Majority Banks.
SECTION 1.06. Additional Interest; Alternate Rate of Interest; Maximum
Interest Rate. (a) Upon the occurrence and during the continuation of an
Event of Default, the outstanding principal balance of the Loans and all other
amounts becoming due hereunder shall accrue interest at the Default Rate.
(b) If the Banks, in their reasonable judgment, determine at any time
that dollar deposits in the amount of the principal amount of any requested
LIBOR Loan are not generally available in the relevant interbank market, or
that the rate at which such dollar deposits are being offered will not
adequately and fairly reflect the cost to the Banks of making or maintaining
the principal amount of such requested LIBOR Loan during such Interest Period,
or that reasonable means do not exist for ascertaining the Adjusted LIBOR
Rate, the Loan Administrator shall, as soon as practicable thereafter, give
prompt written or telephonic notice of such determination to the Borrower and
the Banks. After such notice has been given and until the circumstances
giving rise to such notice no longer exist, each request for a LIBOR Loan or
for conversion to or maintenance of a LIBOR Loan shall be deemed to be a
request for a Base Rate Loan. Each determination by any Bank hereunder shall
be conclusive absent manifest error.
(c) Nothing contained in this Agreement or any Note shall require the
Borrower at any time to pay interest at a rate exceeding the Maximum Permitted
Rate. If interest payable to any Bank on any date would exceed the maximum
amount permitted by the Maximum Permitted Rate, such interest payment shall
automatically be reduced to such maximum permitted amounts, and interest for
any subsequent period, to the extent less than the maximum amount permitted
for such period by the Maximum Permitted Rate, shall be increased by the
<PAGE>
unpaid amount of such reduction. Any interest actually received for any
period in excess of such maximum allowable amount for such period shall be
deemed to have been applied as a prepayment of the then outstanding Loans in
accordance with Section 1.08.
SECTION 1.07. Continuation and Conversion of Loans. Subject to Section
1.10, the Borrower may, by written notice to the Loan Administrator (as
provided in Section 1.14) at any time, continue any LIBOR Loan or portion
thereof, into a subsequent Interest Period and convert any Loan or portion
thereof into a Loan of a different type, subject in each case to the
following:
(a) no Default (except in the case of conversion to Base Rate Loans)
shall have occurred and be continuing at the time of such notice or such
continuation or conversion;
(b) on and as of the date of such continuation or conversion, each
representation and warranty set forth in Article IV shall be true and correct,
as determined by the Banks, it being understood that the representations and
warranties set forth in Sections 4.04 and 4.05 shall be deemed to apply to the
most recent financial statements furnished by the Borrower to the Banks prior
to such Loan;
(c) the notice given to the Loan Administrator by the Borrower shall
specify the Loans (identified by reference to the aggregate amount of such
Loans by all of the Banks) to be continued or converted and provide the
information required pursuant to Section 1.14 with respect to the continuation
or conversion;
(d) such continuation or conversion shall be made pro rata among the
Banks in accordance with their respective Percentages;
(e) in the case of a continuation or conversion of less than all Loans,
the aggregate principal amount of Loans continued or converted shall not be
less than the minimum borrowing amounts set forth in Section 1.02(a);
(f) no Loan may be continued or converted to a LIBOR Loan having an
Interest Period that would extend beyond the scheduled Commitment Termination
Date;
(g) the Conversion Date must be a Business Day with respect to the new
Loan;
(h) no Loan (or portion thereof) may be converted to a LIBOR Loan if,
after such conversion, and after giving effect to any prepayment of Loans, an
aggregate of more than five separate Loans of any Bank would be outstanding
hereunder, it being understood that for such purposes, LIBOR Loans having
<PAGE>
different Interest Periods, regardless of whether they commence or end on the
same date, shall be considered separate Loans, and any and all Base Rate Loan
advances also shall be considered collectively as one separate Loan hereunder;
(i) each request for continuation of or conversion into a LIBOR Loan
that fails to state an applicable Interest Period shall be deemed to be a
request for an Interest Period of one (1) month;
(j) in the event that the Borrower fails to give notice to continue any
LIBOR Loan into a subsequent Interest Period or convert any LIBOR Loan into a
Loan of another type, such LIBOR Loan (unless repaid in full) shall
automatically become a Base Rate Loan at the expiration of the then current
Interest Period; and
(k) each continuation or conversion shall be effected by each Bank as
if the proceeds of the new Loan were applied to payment of the existing Loan
(or portion thereof) being continued or converted, and accrued interest on the
Loan (or portion thereof) being continued or converted shall be paid by the
Borrower on and as of the Conversion Date.
SECTION 1.08. Optional Payment/Prepayment of Loans. (a) The Borrower
shall have the right at any time and from time to time to pay any Base Rate
Loan in whole or in part, without premium or penalty, without any prior notice
to the Loan Administrator or any Bank; provided, however, that each such
partial payment shall be in the minimum principal amount of $1,000 and in
increments of $1,000 in excess thereof.
(b) The Borrower shall have the right to prepay any LIBOR Loan, in
whole or in part, upon prior written notice to the Loan Administrator (as
provided in Section 1.14); provided, however, that each such partial
prepayment shall be in the minimum principal amount of $1,000,000 and in
increments of $1,000,000 in excess thereof. If the Borrower prepays any LIBOR
Loan except on the last day of the Interest Period in effect for such Loan,
then the Borrower shall make the payments required by Section 1.10.
(c) Each notice of prepayment under paragraph (b) of this Section 1.08
shall specify which Loan(s) is to be prepaid, the prepayment date and the
principal amount of each Loan to be prepaid. All prepayments under this
Section shall be accompanied by accrued interest on the principal amount being
prepaid to the date of prepayment. Amounts prepaid pursuant to this Section
prior to the Commitment Termination Date shall be available to be reborrowed
from the Banks hereunder in accordance with and subject to the terms hereof.
<PAGE>
SECTION 1.09. Manner of Payment. (a) All payments by the Borrower
hereunder and under the Notes shall be made to the Loan Administrator, at its
primary office in Knoxville, Tennessee, for the account of each Bank, in
Dollars in federal or other immediately available funds, by 11:00 a.m.,
Knoxville time, on the date on which such payment is due, in all cases without
any deduction or withholdings whatsoever, including any deduction or
withholding for any setoff, recoupment, counterclaim or Tax. Whenever any
payment required to be made hereunder or under the Notes is stated to be due
on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and interest shall continue to accrue thereon until
such payment is made. Interest in respect of any Loan hereunder shall accrue
from and including the date of such Loan to but excluding the date on which
such Loan is paid in full. If such payments are not received by the Loan
Administrator within five (5) Business Days after the due date thereof, such
payments may be deducted by the Banks in accordance with Section 10.17.
(b) All payments received by the Loan Administrator shall be remitted
to the Banks on the Business Day on which such payments are received or deemed
to be received by the Loan Administrator, excepting, however, any and all
payments made under the Cash Management System, which payments the Loan
Administrator shall remit to the Banks (net of advances under the Cash
Management System) not less than once per week.
SECTION 1.10. Indemnity for LIBOR Loans. The Borrower shall reimburse
each Bank for any loss incurred or to be incurred by it in the reemployment of
the funds released by any prepayment or conversion of any LIBOR Loan required
or permitted by any other provision of this Agreement if such Loan is prepaid
or converted other than on the last day of the applicable Interest Period.
Such loss shall be the difference as determined by such Bank between (a) the
amount that would have been realized by such Bank for the remainder of such
Interest Period for such Loan and (b) any lesser amount that would be realized
by such Bank in reemploying such funds by purchasing on the date of prepayment
or conversion a U.S. Treasury security in the principal amount prepaid or
converted that matures on the last day of the Interest Period of the Loan
being prepaid or converted. Without duplication of the foregoing indemnity
payments, the Borrower shall indemnify each Bank against any actual loss or
expense that such Bank may sustain or incur as a consequence of any default in
payment or prepayment of the principal amount of any Loan or any part thereof
or interest accrued thereon, as and when due and payable (at the due date
thereof, by notice of prepayment or otherwise), or the occurrence of any Event
of Default, including but not limited to any loss or expense sustained or
incurred in liquidating or employing deposits from third parties acquired to
effect or maintain such Loan or any part thereof.
<PAGE>
SECTION 1.11. Reasonableness of Increased Costs. Notwithstanding
anything to the contrary in Section 1.10, the amounts payable by the Borrower
thereunder shall not exceed the amounts necessary to indemnify the affected
Bank against such increased cost actually incurred or the reduction in amount
actually received. A certificate in reasonable detail as to the amount of
such increased cost or reduction in amount received and the method of
calculation shall be submitted to the Borrower by such Bank and shall be
conclusive absent manifest error. The Borrower shall pay to each Bank the
amounts shown as due on any such certificate within ten (10) days after its
receipt of the same. No failure on the part of any Bank to demand
compensation under such Sections above on any one occasion shall constitute a
waiver of its right to demand such compensation on any other occasion.
SECTION 1.12. Pro Rata Treatment. Except as provided below in this
Section 1.12 or as otherwise provided in Section 1.10, all payments and
prepayments of principal and interest in respect of the Loans, all payments of
Facility Fees and Closing Fees and all borrowings hereunder shall be made pro
rata among the Banks in accordance with their respective Percentages. All
sale proceeds received as a result of foreclosure and subsequent disposition
of collateral and all other rights and benefits of collateral security shall
be shared by the Banks and applied to the Obligations pro rata in accordance
with each Bank's portion of the unpaid Obligations.
SECTION 1.13. Certain Notices. Notices by the Borrower to the Banks
and/or the Loan Administrator, as the case may be, of any terminations or
reductions of the Commitments, of borrowings and prepayments of Loans, of
continuation and conversion of Loans, of type of Loans and of the duration of
Interest Periods shall be irrevocable and shall be effective only if received
by the Banks and/or the Loan Administrator, as the case may be, not later than
11:00 a.m. Knoxville time on the number of Business Days prior to the date of
the relevant termination, reduction, borrowing, continuation, conversion, or
prepayment or the first day of such Interest Period specified below (it being
understood that notices received by the Banks and/or the Loan Administrator,
as the case may be, after 11:00 a.m. Knoxville time shall be considered timely
received on the next Business Day):
Number of
Business
Notice Days Prior
------ ----------
Termination or reduction of
Commitment 10
<PAGE>
Borrowing, continuation
or payment of or conversion
into Base Rate Loans same day
Borrowing, continuation
or prepayment of, conversion
into, or notification of duration
of Interest Period for,
LIBOR Loans 2
Each such notice of termination or reduction shall specify the amount of the
Commitment to be terminated or reduced. Each such notice of borrowing,
continuation, conversion or prepayment shall specify the Loans to be borrowed,
continued, converted or prepaid and the amount and type of the Loans to be
borrowed, continued, converted or prepaid and the date of borrowing,
continuation, conversion or prepayment (which shall be a Business Day). Each
such notice of the duration of an Interest Period for LIBOR Loans shall
specify the Loans to which such Interest Period is to relate. In the event
that the Borrower fails to select within the time period and otherwise as
provided in this Section 1.13 the type of Loan or the duration of the Interest
Period for any LIBOR Loan, such Loan shall be automatically converted into a
Base Rate Loan on the last day of the then current Interest Period for such
Loan or will remain as, or will be made as, a Base Rate Loan.
SECTION 1.14. Borrowing Base and Other Restrictions. (a) The Banks
have no obligation to advance Loan proceeds in excess of the Borrowing Base,
except as permitted by paragraph (b) of this Section 1.14. The Borrower shall
deliver to the Loan Administrator a Borrowing Base Certificate appropriately
completed in the form attached to this Agreement as Exhibit E, not later than
the last day of each calendar month and at such other time or times as may be
reasonably requested by the Loan Administrator. If at any time the aggregate,
outstanding principal balance of Loans under this Agreement exceeds the
Borrowing Base as reflected by the most recent Borrowing Base Certificate
delivered to the Loan Administrator by Borrower, the Borrower will immediately
and without notice from the Loan Administrator or any Bank repay an amount
sufficient to reduce the aggregate, outstanding principal balance of the Loans
to an amount not in excess of the Borrowing Base as reflected on the most
recent Borrowing Base Certificate delivered to the Loan Administrator by the
Borrower (subject, however, to paragraph (b) below).
(b) Notwithstanding anything to the contrary in this Agreement,
Borrower may use Loan proceeds up to but not in excess of $5,000,000 for
acquisitions and/or capital expenditures without the prior consent of the
Banks, and such $5,000,000 shall not be subject to the Borrowing Base
restrictions set forth in paragraph (a) above. Any and all advances of Loan
proceeds in excess of $5,000,000 (which is outstanding and originally used for
acquisitions and/or capital expenditures) to be used for further acquisitions
or capital expenditure purposes must be approved for such purposes by the
Banks in writing prior to disbursement.
<PAGE>
ARTICLE II
COLLATERAL AND GUARANTIES
SECTION 2.01. Secured Obligations. The parties acknowledge that the
Loans are secured obligations of the Borrower and that the Borrower is
pledging certain collateral, including, without limitation, (i) accounts
receivable, inventory, furniture, equipment, fixtures, general intangibles and
patents, trademarks, copyrights, trade names and other intellectual property
rights and interests pursuant to the Security Agreement and (ii) all its
rights, titles and interests in and to certain real property and improvements
located at 835 Innovation Drive, Knoxville, Tennessee, pursuant to the Deed of
Trust.
SECTION 2.02. No Guaranty. Payment of the Obligations is not
guaranteed by any third party.
SECTION 2.03. Loan Documents. The Borrower agrees to execute and
deliver all Loan Documents and other instruments contemplated by this
Agreement, in form and substance reasonably satisfactory to the Banks and
their counsel.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Initial Loans. In addition to the conditions precedent
in Section 3.02, the obligations of the Banks to make initial Loans hereunder
are subject to the following conditions precedent:
(a) Satisfaction of each of the conditions set forth on Exhibit C
hereto, the satisfaction of which shall be determined by the Banks in their
sole discretion.
(b) All legal matters incident to this Agreement and the Loans shall be
satisfactory to Hunton & Williams, special counsel for the Loan Administrator
and the Banks.
<PAGE>
SECTION 3.02. All Loans. As conditions to each Loan to be made
hereunder:
(a) The Loan Administrator shall have received a notice of such Loan as
required by Section 1.02.
(b) On and as of the date of such Loan, both before and after giving
effect to such Loan and applying the proceeds thereof:
(i) each representation and warranty set forth in Article IV
shall be true and correct, as determined by the Banks in their sole and
absolute discretion, it being understood that the representations and
warranties set forth in Sections 4.04 and 4.05 shall be deemed to apply to the
most recent financial statements furnished by the Borrower to the Banks prior
to such Loan, and
(ii) the Borrower shall be in compliance with all the terms
and provisions of this Agreement on its part to be observed or performed, no
Default shall have occurred and be continuing, and the Banks shall have
received a certificate to such effect.
(c) Such Loan will not contravene any Legal Requirement applicable to
any Bank.
The Borrower shall be deemed to make representations and warranties on the
date of each Loan as to the matters specified in paragraphs (b) and (c) of
this Section.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Banks to enter into this Agreement and to make Loans
hereunder, the Borrower represents and warrants to each of the Banks that:
SECTION 4.01. Organization; Powers; Qualification. It (a) is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Tennessee, (b) has the power and authority to own its
properties and to carry on its businesses as now conducted, (c) is qualified
to do business in the jurisdictions indicated on Schedule 4.01, (d) is not
required to be qualified in any other jurisdiction where the failure to be so
qualified would have a Material Adverse Effect, and (e) has the power to
execute, deliver and perform its obligations under this Agreement, to borrow
hereunder and to execute and deliver the Notes and the other Loan Documents
and to perform its obligations thereunder.
<PAGE>
SECTION 4.02. Authorization; Enforceability. The execution, delivery
and performance of this Agreement, the borrowings hereunder, the execution,
delivery and performance of the Notes and the other Loan Documents and the
transactions contemplated hereby and thereby (a) have been duly authorized by
all requisite action on the part of Borrower, (b) will not (i) violate (A) any
provision of law, the Organizational Documents of Borrower or (B) any
applicable order of any Governmental Authority, (ii) violate, conflict with,
breach or constitute (with due notice or lapse of time or both) a default
under any indenture, agreement for borrowed money, bond, note, instrument or
other agreement to which Borrower is a party or by which Borrower or any of
its property is bound or (iii) result in the creation or imposition of any
Lien of any nature whatsoever upon any property or assets of Borrower. This
Agreement has been duly executed and delivered by the Borrower and
constitutes, and the Notes and the other Loan Documents when executed and
delivered will constitute, legal, valid and binding obligations of the
Borrower enforceable against Borrower in accordance with their respective
terms.
SECTION 4.03. Consents and Approvals. No action, consent or approval
of, or registration or filing with, or any other action by any Governmental
Authority or of stockholders is required in connection with the execution,
delivery and performance by the Borrower of this Agreement, the borrowings
hereunder or the execution, delivery and performance of the Notes or any other
Loan Document.
SECTION 4.04. Financial Statements. The Borrower has heretofore
furnished the following financial statements to each of the Banks:
consolidated balance sheet as of the 1995 fiscal year end of Borrower and its
consolidated statements of income, retained earnings and cash flows for the
fiscal year then ended, reported on by Coopers & Lybrand, Knoxville,
Tennessee, independent public accountants. Such financial statements fairly
present the consolidated financial condition of Borrower and its Consolidated
Subsidiaries as of the dates thereof and the consolidated results of
operations for the periods covered thereby and are complete and correct. All
such financial statements were prepared in accordance with Generally Accepted
Accounting Principles applied on a consistent basis (subject, in the case of
such interim statements, to the omission of footnotes and year-end audit
adjustments).
SECTION 4.05. No Material Adverse Change. There has been no material
adverse change in the business, assets, liabilities, condition (financial or
otherwise), results of operations or business prospects, on a consolidated
basis, of Borrower since fiscal year end 1995.
SECTION 4.06. Subsidiaries. Set forth on Schedule 4.06(a) is a
complete and accurate list of all Material Subsidiaries of Borrower on the
date hereof, showing as to each such Material Subsidiary the jurisdiction of
its organization, its type of entity and its principal place of business. All
of the outstanding Capital Securities of each of the Material Subsidiaries are
wholly owned, directly or indirectly, by Borrower. Such Capital Securities
are owned free and clear of all Liens except Permitted Liens, and Borrower, as
the owner of such Capital Securities, has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive dividends and
distributions on, such Capital Securities.
<PAGE>
SECTION 4.07. Litigation. Borrower has filed with the SEC all reports
it is required to file with the SEC regarding any action, suit or proceeding
at law or in equity or by or before any court or Governmental Authority now
pending or threatened against or affecting Borrower or any property or rights
of Borrower.
SECTION 4.08. Tax Returns. The Borrower has filed or caused to be
filed all federal, state and local tax returns that are required to be filed
and have paid or caused to be paid all taxes as shown on such returns or on
any assessment received by any of them to the extent that such taxes have
become due, except taxes the validity of which is being contested in good
faith by appropriate proceedings and with respect to which the Borrower has
set aside on its books adequate reserves, if any, required in accordance with
Generally Accepted Accounting Principles.
SECTION 4.09. Properties. The Borrower has good and marketable title
(subject to minor title defects) to all its properties and assets reflected on
the consolidated balance sheet, referred to in Section 4.04, except for such
properties and assets as (I) have been disposed of since such date, (ii) are
no longer necessary in the conduct of its businesses or (iii) have been
disposed of in the ordinary course of business, and the Borrower owns all such
properties and assets free and clear of any Liens except Permitted Liens.
SECTION 4.10. Employee Benefit Plans. Schedule 4.10 sets forth a true
and complete list of all Plans that Borrower maintains, or expects to
maintain, or to which Borrower is, or is expected to be, required to make any
contribution. The Borrower and each Plan are in compliance in all material
respects with the applicable provisions of law, including the applicable
provisions of ERISA and the regulations and published interpretations
thereunder. No Plan is (I) a multiemployer plan (as defined in Section 3(37)
of ERISA), (ii) subject to the provisions of Title IV of ERISA or (iii)
subject to the minimum funding provisions of ERISA or the Internal Revenue
Code. Neither the Borrower nor any ERISA Affiliate has maintained,
contributed to, or had an obligation to contribute to, any Plan described in
items (I), (ii) or (iii) of the preceding sentence. Except for the continued
coverage requirements of the Consolidated Omnibus Budget Reconciliation Act of
1985 and subsequent legislation, Borrower is not obligated to provide medical
benefits, hospitalization benefits or benefits under any other employee
welfare benefit plan (within the meaning of Section 3(1) of ERISA) to any
former employee or the spouse or dependent of any former employee.
<PAGE>
SECTION 4.11. Government Regulation. Borrower is not subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Investment Company Act of 1940, the Interstate Commerce Act (as
any of such acts may be amended) or any other law (other than Regulation X)
that regulates the incurring by Borrower of indebtedness.
SECTION 4.12. Margin Stock. No proceeds of any Loan will be used for
the purpose of purchasing or carrying any Margin Stock or for the purpose of
reducing or retiring any indebtedness which was originally incurred to
purchase or carry a Margin Stock or for any other purpose which might
constitute this transaction a "purpose credit" within the meaning of
Regulation U or G. The Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying Margin Stocks. Neither the
Borrower nor any Person acting on behalf of Borrower has taken or will take
any action which might cause the Notes or any of the other Loan Documents,
including this Agreement, to violate Regulation U or G or any other
regulations of the Federal Reserve Board or to violate Section 7 of the
Securities Exchange Act of 1934 or any rule or regulation thereunder, in each
case as now in effect or as the same may hereinafter be in effect. The
Borrower does not own Margin Stock except that which, as of the date hereof,
does not exceed 25% of the value of all of Borrower's assets.
SECTION 4.13. No Material Misstatements. All information, financial
statements and documents furnished to the Loan Administrator and/or the Banks
in connection herewith are complete and accurate in all material respects. No
information, report, financial statement, exhibit or schedule furnished by or
on behalf of the Borrower to the Loan Administrator or any Bank in connection
with the negotiation, execution, delivery or performance of this Agreement,
any Note or any other Loan Document hereunder, or any schedule hereto or
thereto contains any material misstatement of fact or omitted or omits to
state any material fact necessary to make the statements herein or therein not
misleading. There is no event or fact that the Borrower has not disclosed to
the Banks in writing that causes a Material Adverse Effect or, so far as the
Borrower can now foresee, is likely to cause a Material Adverse Effect.
SECTION 4.14. Patents, Trademarks, etc. The Borrower possesses
adequate assets, licenses, patents, patent applications, copyrights,
trademarks, service marks, trademark applications, trade names, technology,
processes and permits and other governmental approvals and authorizations to
conduct its business. There are no existing or, to the knowledge of the
Borrower, threatened claims of any Person based on the use of such permits,
patents, trademarks, trade names, copyrights, technology and processes by the
Borrower and to the knowledge of the Borrower, no such use infringes on the
rights of any Person.
<PAGE>
SECTION 4.15. Hazardous Wastes. To the best of Borrower's knowledge,
all land owned, leased or otherwise used by Borrower is free from reportable
quantities of Hazardous Wastes, and no portion of such land would subject
Borrower to liability under federal, state or local law or regulation because
of the presence of stored, leaked or spilled Toxic Substances or Hazardous
Wastes, underground storage tanks, "asbestos" (as defined in 40 C.F.R. Section
61.141) or the past or present accumulation, spillage or leakage of any such
substance, nor has the Borrower arranged for disposal or treatment (or
arranged with a transporter for transport for disposal or treatment) of any
such substance to any other location except in compliance with Environmental
Laws. The Borrower has not received any notice from the Environmental
Protection Agency or any other Governmental Authority alleging that it is a
"responsible party" with respect to any of the foregoing.
SECTION 4.16. No Brokers or Finders. No broker or finder brought about
or contributed to the obtaining, making or closing of the Loans made pursuant
to this Agreement, and the Borrower has no obligation to any person in respect
of any finder's or brokerage fees in connection with the Loans contemplated by
this Agreement.
SECTION 4.17. No Default of Indebtedness; Solvency.
(a) The Borrower is not in default of any Indebtedness, and no holder
of any such Indebtedness has given notice of an asserted default thereunder.
No liquidation, dissolution or other winding up of Borrower and no bankruptcy
or similar proceedings relative to it or its property are pending or, to the
knowledge of Borrower, threatened against it.
(b) On the date hereof, the Borrower is, and after consummation of this
Agreement and after giving effect to all Indebtedness incurred (assuming the
entire Commitments are fully advanced on the Closing Date) and Liens, if any,
created by Borrower in connection herewith will be, Solvent.
SECTION 4.18. Agreements. The Borrower is not a party to any agreement
or instrument or subject to any provision in its Organizational Documents that
could have a Material Adverse Effect or conflict with or constitute a Default
under this Agreement or any other Loan Document. The Borrower is not in
default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement or instrument
to which it is a party in any manner that could have a Material Adverse
Effect.
<PAGE>
SECTION 4.19. Compliance with Law. The Borrower has complied in all
material respects with all applicable statutes, rules, regulations, orders and
restrictions of any Governmental Authority.
SECTION 4.20. Labor Controversies. The Borrower is not a party to any
collective bargaining agreement. To the best knowledge of the Borrower, it is
in compliance with all applicable laws respecting employment and employment
practices where such failure to comply could reasonably be expected to have a
Material Adverse Effect.
ARTICLE V
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees with the Banks that until the
Repayment Date, unless the Majority Banks otherwise consent in writing, as
follows:
SECTION 5.01. Corporate Existence and Maintenance of Properties. It
shall do or cause to be done all things necessary to preserve, maintain, renew
and keep in full force and effect its corporate existence and all of its
material rights, licenses, permits and franchises; conduct its business in
substantially the same manner as heretofore conducted; at all times maintain
and preserve all property used or useful in the conduct of its business and
keep the same in good repair, working order and condition (ordinary wear and
tear excepted), and from time to time make, or cause to be made, all necessary
and proper repairs, renewals and replacements thereto, so that the business
carried on in connection therewith may be properly conducted at all times.
SECTION 5.02. Compliance with Laws. It shall do or cause to be done
all things necessary to comply with all laws and regulations applicable to it,
including without limitation the following:
(a) SEC Filings. Make on a timely basis, all filings, if any, it is
required to make with the SEC.
(b) ERISA. Comply, and shall cause each of its ERISA Affiliates to
comply, in all material respects with the applicable provisions of ERISA and
as soon as possible, and in any event within 10 days after Borrower knows or
has reason to know of a violation of ERISA with respect to any Plan, shall
deliver to each Bank a statement signed by a senior financial officer of
Borrower setting forth details respecting such event or condition and the
action, if any, that Borrower or its ERISA Affiliate proposes to take with
respect thereto.
<PAGE>
(c) Environmental Laws. (I) Remain in compliance in all material
respects with the provisions of all federal, state and local environmental,
health and safety laws, codes and ordinances, and all rules and regulations
issued thereunder; notify the Banks immediately of any notice of a hazardous
discharge or environmental complaint received from any Governmental Authority
or any other Person; notify the Banks immediately of any hazardous discharge
from or affecting the Premises, which is also required to be reported to any
Governmental Authority; immediately contain and remove the same, in compliance
with all applicable Legal Requirements; permit the Banks to inspect the
Premises, to conduct tests thereon, and to inspect all books, correspondence
and records pertaining thereto; and at any Bank's request, and at the
Borrower's expense, provide a report of a qualified environmental engineer
satisfactory in scope, form, and contents to the Banks, and such other and
further assurances reasonably satisfactory to the Banks that the condition has
been corrected.
(ii) The Borrower acknowledges that the Loan Administrator and
the Banks have entered into this Agreement and that the Banks have made the
Loans in reliance upon Borrower's representations and warranties in Section
4.15 and its covenants in this Section 5.02(c). Accordingly, the Borrower
hereby agrees that it shall be liable for all costs and expenses incurred by
or asserted against the Loan Administrator or any Bank arising under
violations of the terms of this Section 5.02 or a breach of any
representation or warranty contained in Section 4.15 of this Agreement. All
of the representations and warranties contained in Section 4.15 and the
Borrower's covenants under this Section 5.02 shall survive the Repayment
Date.
SECTION 5.03. Insurance. The Borrower shall maintain insurance with
financially sound and reputable insurance companies or associations, in such
amounts and covering such risks (but including, in any event, public
liability) as is usually carried by companies engaged in the same or similar
businesses and owning similar properties in the same general areas in which
Borrower operates and shall furnish to the Banks, upon reasonable request,
full information (including certificates and originals or certified copies of
the policies) as to the insurance carried.
SECTION 5.04. Obligations and Taxes. The Borrower shall pay all of its
Indebtedness and obligations promptly and in accordance with the terms thereof
and pay and discharge promptly all taxes, assessments and governmental charges
or levies imposed upon it or upon its income or profits or in respect of its
property, before the same shall become in default or delinquent, as the case
may be, as well as all lawful claims for labor, materials and supplies or
otherwise that, if unpaid, might become a Lien upon such properties or any
part thereof; provided, however, that the Borrower shall not be required to
pay and discharge or to cause to be paid and discharged any such tax,
assessment, charge, levy or claim so long as the validity or amount thereof is
contested in good faith by appropriate proceedings and Borrower sets aside on
its books adequate reserves therefor, if any, required in accordance with
Generally Accepted Accounting Principles.
<PAGE>
SECTION 5.05. Accounting Methods and Financial Records. The Borrower
shall maintain a system of accounting and financial records in accordance with
Generally Accepted Accounting Principles, and keep such books, records and
accounts (which shall be true and complete), as may be required or necessary
to permit (a) the preparation of financial statements required to be delivered
pursuant to Section 5.06 and (b) the determination of Borrower's compliance
with the terms of this Agreement.
SECTION 5.06. Financial Statements, Certificates, Reports and Auditors.
The Borrower shall:
(a) Quarterly Financial Statements. Furnish to the Banks as soon as
available, and in any event within forty-five (45) days after the end of each
fiscal quarter of Borrower, copies of its unaudited financial statements, both
on a consolidated and consolidating basis, containing a balance sheet of
Borrower and its Consolidated Subsidiaries as of the end of such quarter and
consolidated statements of income and cash flows of the Borrower and its
Consolidated Subsidiaries for such quarter and for the period beginning on the
first day of the then current fiscal year and ending on the last day of such
fiscal quarter. Such financial statements shall be accompanied by a properly
completed Officer's Certificate in the form attached as Appendix 3 to Exhibit
C hereto and a properly completed Compliance Certificate in the form attached
hereto as Exhibit D.
(b) Annual Statements. Furnish to the Banks as soon as available and
in any event within one hundred fifty (150) days after the close of each
fiscal year of Borrower, copies of the Annual Report of Borrower on Form 10-K
as filed with the SEC, containing a consolidated balance sheet of Borrower and
its Consolidated Subsidiaries as of the close of such fiscal year and
consolidated statements of income and cash flows of Borrower and its
Consolidated Subsidiaries for such fiscal year, in each case setting forth in
comparative form the figures for the preceding fiscal year. Such financial
statements shall be accompanied by a properly completed Officer's Certificate
and a properly completed Compliance Certificate.
<PAGE>
(c) Other SEC Filings. Deliver to the Banks promptly upon its becoming
available, and in any event within two weeks of its submission to the SEC or
any securities exchange, one copy of each financial statement, report, notice
or proxy statement sent by Borrower to holders of its Capital Securities and
of each regular or periodic report, registration statement or prospectus, if
any, filed by Borrower with any securities exchange or the SEC or any
successor agency, including without limitations Forms 10-K, 8-K and 10-Q.
(d) Audit Reports and Management Letters. Furnish to the Banks,
promptly upon receipt thereof, and in any event within two weeks of Borrower's
receipt, one copy of each written report and/or any related management letters
submitted to Borrower by independent accountants in any annual, quarterly or
special audit made.
(e) Other Financial Information. Furnish to the Banks, as soon as
available, and in any event within ten (10) days after the end of each
calendar quarter hereafter, Accounts Receivable and Accounts Payable Aging
Reports and Inventory Reports. The Banks reserve the right to request and
receive all such reports and information on a monthly basis.
(f) Notices of Discrepancies. Furnish to the Banks, immediately after
Borrower's discovery thereof, written notice of any inaccuracy or incorrect
statement contained in any of the foregoing that is material or that changes
any of the financial calculations under this Agreement, including a statement
containing the correct information required.
(g) Other Information. Furnish to the Banks, such other information
concerning the business, properties or financial condition of the Borrower as
the Banks shall reasonably request.
(h) Auditors. Give the Banks not less than 90 days prior notice of any
change in its auditors, with such change to be acceptable to the Banks in
their reasonable discretion.
SECTION 5.07. Access to Premises and Records. Upon reasonable notice,
the Borrower shall permit representatives of each Bank to have access to the
financial records and the Premises of Borrower at reasonable times and to make
copies of such records.
SECTION 5.08. Notice of Default. The Borrower shall give to each Bank,
promptly after learning of the occurrence of any Default that has not
previously been disclosed in writing to the Loan Administrator and/or the
Banks, as applicable, (a) notice of such event, (b) the Borrower's assessment
of the effect such event is likely to have on the financial condition of the
Borrower during the following ninety days, (c) the Borrower's plan for
minimizing the adverse effects of such event and (d) a description of any
material development in any such event.
<PAGE>
SECTION 5.09. Notice of Litigation. The Borrower shall, upon request,
deliver or cause to be delivered to each Bank, a description of any material
development in any of the matters described in Section 4.07 that has been
disclosed in filings with the SEC.
SECTION 5.10. Notice of Strikes, Labor Controversies, etc. The
Borrower shall deliver or cause to be delivered to each Bank, promptly after
learning of the occurrence of any event described in Section 4.20 that has not
previously been disclosed in writing to the Loan Administrator and/or the
Banks, as applicable, (a) notice of such event, (b) the Borrower's assessment
of the effect such event is likely to have on the financial condition of the
Borrower during the following ninety days, (c) the Borrower's plan for
minimizing the adverse effects of such event and (d) a description of any
material development in any such event.
SECTION 5.11. Update of Subsidiaries. Borrower shall, upon request,
deliver or cause to be delivered to the Loan Administrator an update of the
Material Subsidiaries listed on Schedule 4.06(a).
SECTION 5.12. Acquisition Target Stock Pledge. The Borrower shall,
upon any event permitted pursuant to Section 6.03(b)(ii), pledge, or cause to
be pledged, to the Loan Administrator (as collateral agent for the Banks), any
and all of the Capital Securities of any acquisition target now or hereafter
owned by the Borrower or any such Material Subsidiary pursuant to a pledge
agreement in form and substance reasonably satisfactory to the Loan
Administrator and the Banks.
ARTICLE VI
NEGATIVE COVENANTS
The Borrower covenants and agrees with the Banks that, until the
Repayment Date, unless the Majority Banks otherwise consent in writing, as
follows:
SECTION 6.01. Liens. It shall not, directly or indirectly, create,
incur, assume or suffer to exist any Lien upon or with respect to any of its
assets or properties, now owned or hereafter acquired, or assign or otherwise
convey any right to receive income; provided that, the foregoing restrictions
shall not apply to Liens:
(a) for taxes, assessments or governmental charges or levies on its
property if they (I) are not delinquent at the time or thereafter can be paid
without penalty and (ii) are being contested in good faith and by appropriate
proceedings and with respect to which it has set aside on its books adequate
reserves, if any, required in accordance with Generally Accepted Accounting
Principles;
<PAGE>
(b) imposed by law, such as carriers', warehousemen's and mechanics'
liens and other similar liens, that arise in the ordinary course of business
with respect to obligations not yet due or being contested in good faith and
by appropriate proceedings and with respect to which it has set aside on its
books adequate reserves, if any, required in accordance with Generally
Accepted Accounting Principles;
(c) arising in the ordinary course of business out of pledges or
deposits under workmen's compensation laws, unemployment insurance, pensions,
or other social security or retirement benefits, or similar legislation;
(d) incidental to the conduct of its business or the ownership of its
property and assets (such as easements, zoning restrictions and restrictive
covenants) not incurred in connection with the borrowing of money or the
obtaining of advances or credit, and which do not in the aggregate materially
detract from the value of its property or assets or materially impair the use
thereof in the operation of its business;
(e) arising in the ordinary course of business out of pledges or
deposits to secure performance in connection with bids, tenders, contracts
(other than contracts for the payment of money), bonds (other than bonds of or
for the benefit of Borrower) or leases to which Borrower is a party;
(f) in respect of property acquired or constructed by it after the date
hereof for use in the business of Borrower (such as real property, automobiles
and other vehicles and equipment), which Liens (including Capitalized Lease
Obligations) exist or are created at the time of acquisition or completion of
construction of such property or within 60 days thereafter, to secure
Indebtedness assumed or incurred to finance all or any part of the purchase
price or cost of construction of such property, but any such Lien shall cover
only the property so acquired or constructed and the aggregate amount secured
by such Liens shall not exceed $500,000 at any time outstanding;
(g) on assets of any Person existing at the time such Person
becomes, by acquisition, consolidation or merger, a Material Subsidiary of
Borrower, provided that, such Lien covers only the assets of the Person so
acquired and was not created in connection with or in contemplation of such
acquisition; and
(h) set forth in Schedule 6.01.
<PAGE>
SECTION 6.02. Indebtedness. The Borrower shall not, directly or
indirectly, create, incur, assume or suffer to exist any Indebtedness, except:
(a) Indebtedness hereunder and under the Loan Documents in respect of
the Notes;
(b) Indebtedness of a Material Subsidiary to Borrower;
(c) Indebtedness assumed or incurred to finance all or any part of the
purchase price or cost of acquisition or construction of property and secured
by Liens permitted pursuant to Section 6.01(f) and (g);
(d) Indebtedness assumed in connection with any acquisition permitted
pursuant to Section 6.03 provided that such Indebtedness was not created in
connection with or in contemplation of such acquisition; and
(e) Indebtedness payable to the applicable seller as all or any part of
the purchase price of any acquisition permitted pursuant to Section 6.03.
SECTION 6.03. Liquidation, Sale of Assets, Acquisitions and Mergers.
(a) Except as otherwise provided herein, Borrower shall not, and shall
not cause, permit or suffer any of its Material Subsidiaries to, (i) sell,
lease, transfer or otherwise dispose of any portion of its properties and
assets to any Person (other than in the ordinary course of business) or (ii)
liquidate or discontinue its business; provided, however, that a Material
Subsidiary may sell, lease or transfer all or substantially all of its assets
to Borrower or another Material Subsidiary and Borrower may acquire (for an
amount not exceeding the fair value thereof) all or substantially all of the
properties and assets of any Material Subsidiary so to be sold, leased or
transferred to it, if immediately before and after giving effect to such sale,
lease or transfer, no Default shall have occurred and be continuing.
(b) The Borrower shall not, and shall not cause, permit or
suffer any of its Material Subsidiaries to, merge or consolidate with or into
any other Person or acquire all or substantially all the Capital Securities,
properties or assets of any other Person except that (i) a Material Subsidiary
may be merged into, or consolidated with, Borrower or another Material
Subsidiary and (ii) Borrower or any Material Subsidiary may acquire all or
substantially all of the properties or assets of any other Person or a
Controlling Interest in any other Person, provided that (A) if the acquisition
of such Controlling Interest is by way of a merger with Borrower, Borrower
will be the surviving entity, (B) if a Controlling Interest is acquired other
<PAGE>
than through a merger with Borrower, such Controlling Interest shall
constitute such Person a Material Subsidiary, immediately prior to such
acquisition, no Default shall have occurred and be continuing, (D) immediately
after giving effect to such acquisition, no Default shall have occurred or be
continuing, (E) any and all mergers and acquisitions permitted under this
Section 6.03 shall be limited to businesses in compatible industries, (F) any
and all merger and/or acquisition targets shall be required to guarantee the
Obligations pursuant to the terms of a guaranty agreement in form and
substance reasonably satisfactory to the Banks, (G) any and all Indebtedness
of such merger or acquisition target in excess of $500,000 shall be made
subordinate to the Obligations, and (H) borrowings under this Agreement used
to finance acquisitions and/or mergers shall not exceed $12,000,000 in any
calendar year.
SECTION 6.04. Investments. The Borrower shall not, and shall not
cause, permit or suffer any of its Material Subsidiaries to, make or commit to
make any advance, loan, extension of credit or capital contribution to, or
purchase of any stock, bonds, notes, debentures or other securities of, or
make any other investment (by way of guarantee or otherwise) in any Person
other than (i) investments in obligations of, and obligations of third parties
that are fully guaranteed as to principal and interest by, the United States
of America; or (ii) investments in commercial paper issued by any Person
having at least an A2 credit rating from the publication services of
Standard & Poor's Credit Corp. ("S&P"), or P2 by Moody's Investor Services,
Inc. ("Moody's"), or similar ratings provided by successor rating agencies; or
(iii) demand deposits maintained in the ordinary course of Borrower's business
or that of any of the Material Subsidiaries; or (iv) repurchase agreements
collateralized by the investments referred to in (I) or (ii) above; or (v)
certificates of deposit, master notes, bankers' acceptances, or LIBOR time
deposits issued by commercial banks or trust companies having capital and
surplus in excess of $100,000,000; or (vi) obligations of states,
municipalities, counties, political subdivisions, agencies of the foregoing
and other similar entities, rated at least A, MIG-1, or MIG-2 by Moody's or at
least A by S&P, or similar ratings by successor rating agencies; or (vii)
unrated obligations of states, municipalities, counties, political
subdivisions, agencies of the foregoing and other similar entities, supported
by irrevocable letters of credit issued by commercial banks having capital and
surplus in excess of $100,000,000 and long-term debt that is rated at least A
by Moody's or S&P (or similar ratings by successor rating agencies) or
commercial paper that is rated at least A2 by Moody's or P2 by S&P (or similar
ratings by successor rating agencies); or (viii) unrated general obligations
of states, municipalities, counties, political subdivisions, agencies of the
foregoing and other similar entities, provided that the issuer has other
outstanding general obligations rated at least A, MIG-1 or MIG-2 by Moody's or
A by S&P (or similar ratings by successor rating agencies; (ix) repurchases of
Capital Securities of Borrower pursuant to any stock repurchase plan; (x)
investments permitted pursuant to Section 6.03(b); and (xi) loans or advances
to stockholders in an aggregate amount at any time not to exceed $500,000.
<PAGE>
SECTION 6.05. Guarantees. The Borrower shall not issue any Guaranty
except that (i) the Borrower may endorse checks for deposit in the ordinary
course of business and (ii) the Borrower may guarantee the obligations of a
Material Subsidiary in an amount, which when combined with Borrower's other
contingent liabilities, does not exceed an aggregate of $1,000,000 (provided,
however, that the Borrower shall not guarantee, directly or indirectly, the
obligations of any partnership or joint venture which is a Subsidiary and in
which the Borrower does not own a Controlling Interest or in which Borrower or
any Subsidiary has invested and in which the Borrower does not own a
Controlling Interest).
SECTION 6.06. Breach or Violation. The Borrower shall not enter into
any agreement containing any provision that would be violated or breached by
the performance of the Borrower's obligations under this Agreement, the Notes
or any of the other Loan Documents.
SECTION 6.07. Use of Proceeds. The Borrower shall not use any of the
proceeds of any of the Loans for any purpose other than the purposes set forth
in the Recitals herein. Without limiting the generality of the foregoing, no
part of the proceeds of the Loans hereunder will be used (a) to purchase or
carry any Margin Stock or to extend credit to others for the purpose of
purchasing or carrying any Margin Stock if such action would violate, or be
inconsistent with, any rules or regulations of the Federal Reserve Board,
including without limitation any provisions of Regulation G, U or X, or (b) to
acquire any security in any transaction that is subject to Section 13 or 14 of
the Securities Exchange Act of 1934, including particularly (but without
limitation) Sections 13(d) and 14(d) thereof. If requested by any Bank,
Borrower will furnish to the Banks a statement in conformity with the
requirements of Federal Reserve Form U-1 referred to in Regulation U.
SECTION 6.08. Transactions with Affiliates. The Borrower shall not
effect any transaction with any Affiliate on a basis less favorable than would
at the time be obtainable for a comparable transaction in arms-length dealing
with an unrelated third party.
SECTION 6.09. Restrictive Covenants. Except as may otherwise be
specifically provided for in this Agreement or any other Loan Document,
Borrower shall not, and shall not cause, permit or suffer any of its Material
Subsidiaries to, enter into any Contract, or otherwise create or cause or
permit to exist or become effective any consensual restriction, limiting the
ability (whether by covenant, event of default or otherwise) of any Material
Subsidiary to (a) pay dividends or make any other distributions on its Capital
Securities held by Borrower or any other Material Subsidiary, (b) pay any
obligation owed to Borrower or any other Material Subsidiary, make any loans
or advances to or investments in any other Material Subsidiary, (d) transfer
any of its property or assets to any other Material Subsidiary, or (e) create
any Lien (other than Permitted Liens) upon its property or assets whether now
owned or hereafter acquired or upon any income or profits therefrom.
<PAGE>
SECTION 6.10. Increase in Benefits; New Plans. The Borrower shall not,
and shall not cause, permit or suffer any ERISA Affiliate to, (a) increase
benefits under any Plan or adopt or establish any new employee benefit plans
(within the meaning of Section 3(3) of ERISA), fringe benefit plans or
arrangements, or executive or incentive plans, if such action would require it
to make substantial additional contributions thereto or to incur a substantial
obligation thereto, except for changes in the ordinary course of business
consistent with past practices of the Borrower (such as annual cost of living
increases) and changes to existing benefits or new benefits deemed necessary
by the Borrower to remain competitive with the benefits generally offered by
other companies in the same business as the Borrower; or (b) adopt, establish,
or become a party to any Plan that is subject to the provisions of Title IV of
ERISA or any multiemployer plan (within the meaning of Section 3(37) of
ERISA).
SECTION 6.11. Management Changes. Borrower shall not permit any
Material Management Change.
SECTION 6.12. Ownership Changes. Borrower shall not permit any
Material Ownership Change.
ARTICLE VII
FINANCIAL COVENANTS
Borrower covenants and agrees with the Banks that, until the Repayment
Date, unless the Majority Banks otherwise consent in writing, it shall comply
with the following financial covenants:
SECTION 7.01. Consolidated Current Ratio. The ratio of Consolidated
Current Assets to Consolidated Current Liabilities as of the last day of each
fiscal quarter shall not be less than 1.25 to 1.00.
SECTION 7.02. Consolidated Tangible Net Worth. Consolidated Tangible
Net Worth shall not be less than $22,500,000.
SECTION 7.03. Consolidated Adjusted EBIDA to Consolidated Adjusted Debt
Service. The ratio of Consolidated Adjusted EBIDA to Consolidated Adjusted
Debt Service shall not be less than 1.50 to 1.00.
SECTION 7.04. Consolidated Long Term Debt to Consolidated Total Net
Worth. The ratio of Consolidated Long Term Debt to Consolidated Total Net
Worth shall not exceed .50 to 1.00.
SECTION 7.05. Consolidated Total Liabilities to Consolidated Tangible
Net Worth. The ratio of Consolidated Total Liabilities to Consolidated
Tangible Net Worth shall not exceed 1.00 to 1.00.
SECTION 7.06. Capital Expenditures. Borrower, together with its
Consolidated Subsidiaries, shall not make, or incur any obligation to make,
any Capital Expenditures in any one fiscal year in excess of an aggregate of
$5,000,000.
SECTION 7.07. Consolidated Financial Covenants. Unless otherwise
expressly designated above, all financial covenants set forth above in this
Article VII shall be calculated on a consolidated basis using the financial
statements to be delivered to the Banks pursuant to Section 5.06 hereof.
<PAGE>
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. Events of Default. Each of the following shall
constitute an "Event of Default", whatever the reason for such event and
whether it shall be voluntary or involuntary, or within or beyond the control
of the Borrower, or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
governmental or nongovernmental body:
(a) any payment of the principal of or interest on any Note or of the
Facility Fee or Closing Fee, or any other amount due under this Agreement or
the Notes, shall not be made, within five Business Days after the same shall
become due and payable, whether at the due date thereof or at a date fixed for
prepayment thereof or by acceleration thereof or otherwise;
(b) any representation or warranty made herein or in any other Loan
Document or any statement or representation made in any report, certificate,
financial statement or other instrument furnished by Borrower to the Loan
Administrator or the Banks pursuant to this Agreement shall prove to have been
false or misleading in any material respect (whether or not known to such
Borrower) when made or delivered or when deemed made in accordance with the
terms hereof;
(c) Borrower gives notice to the Loan Administrator and/or the Banks or
the Loan Administrator or the Banks otherwise become aware that an event has
occurred or a circumstance exists or has become known after the Closing Date,
including without limitation notices pursuant to Sections 5.02. 5.06, 5.08,
5.09 and 5.10, that, after notice to the Borrower and an opportunity (within
five Business Days) to discuss Borrower's plans with respect thereto, the
Banks determine could reasonably be expected to have a Material Adverse
Effect;
(d) the Borrower or any Subsidiary shall fail to observe or perform any
covenant, warranty or agreement contained in or referred to in Sections 5.02
and 5.07 and Article VII;
(e) the Borrower or any Subsidiary shall fail to observe or perform any
covenant, warranty or agreement contained in or referred to in Article VI,
provided that any such inadvertent failure made in good faith shall not
constitute an Event of Default if it is curable and is cured promptly after
notice from Loan Administrator (not to exceed, in any event, 15 days);
(f) the Borrower or any Subsidiary shall fail to observe or perform any
other covenant, condition or agreement to be observed or performed pursuant to
the terms hereof and such default shall continue unremedied for thirty (30)
days after written notice thereof to the Borrower by the Loan Administrator or
the Majority Banks;
(g) the Borrower or any Material Subsidiary shall fail to pay any
Indebtedness greater than $1,000,000 other than the Loans hereunder, or any
interest or premium thereon, when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), and such failure shall
continue after the applicable grace period, if any, specified in the agreement
or instrument relating to such Indebtedness; or the Borrower or any Material
<PAGE>
Subsidiary shall fail to perform any term, covenant or agreement on its part
to be performed under any agreement or instrument evidencing or securing or
relating to such Indebtedness; provided that in the case of Indebtedness
payable to sellers in connection with acquisitions by Borrower and its
Subsidiaries, such failure shall not constitute an Event of Default if there
is a valid dispute regarding the payment or a valid counterclaim exists
against such seller and, in either case, the payment of such Indebtedness is
contested in good faith;
(h) Borrower or any Material Subsidiary shall (i) voluntarily commence
any proceeding or file any petition seeking relief under Title 11 of the
United States Code or any other federal, state or foreign bankruptcy,
insolvency or similar law, (ii) consent to the institution of, or fail to
controvert in a timely and appropriate manner, any such proceeding or the
filing of any such petition, (iii) apply for or consent to the appointment of
a receiver, trustee, custodian, sequestrator or similar official for Borrower
or such Material Subsidiary or for a substantial part of its property,
(iv) file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (v) make a general assignment for the
benefit of creditors, (vi) admit in writing its inability or fail generally to
pay its debts as they become due, or (vii) take corporate action for the
purpose of effecting any of the foregoing;
(i) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking
(i) relief in respect of Borrower or any Material Subsidiary, or of a
substantial part of its property, under Title 11 of the United States Code or
any other federal, state or foreign bankruptcy, insolvency or similar law,
(ii) the appointment of a receiver, trustee, custodian, sequestrator or
similar official for Borrower or such Material Subsidiary or for a substantial
part of its property or (iii) the winding-up or liquidation of Borrower or
such Material Subsidiary; and such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering any of the
foregoing shall continue unstayed and in effect for 30 days;
(j) a default or event of default shall have occurred and be continuing
pursuant to any other Loan Document after the expiration of any applicable
notice and cure period provided therein;
(k) a judgment or order for the payment of money shall be entered
against Borrower or any Material Subsidiary by any court, and either (I) such
judgment or order shall continue undischarged and unstayed for a period of 10
days in which the aggregate amount of all such judgments and orders exceeds
$500,000 or (ii) enforcement proceedings shall have been commenced upon such
judgment or order;
(l) any Person or group of related Persons owns of record or
beneficially, or files with the SEC notice of intent to acquire, 20% or more
of the voting Capital Securities of Borrower (excluding amounts owned by such
Persons as of the date hereof), it being understood that for purposes hereof
employees of Borrower and its Subsidiaries shall not be deemed to be "related
Persons" solely as a result of their common employment;
<PAGE>
(m) (I) any Person shall engage in any transaction involving any Plan
that is prohibited under Internal Revenue Code Section 4975 or ERISA Section
406 and not exempt under Internal Revenue Code Section 4975 or ERISA Section
408, (ii) Borrower or any ERISA Affiliate shall fail to pay when due an amount
that is payable by it to a Plan or (iii) any other event or condition shall
occur or exist with respect to a Plan, except that no event or condition
referred to in clauses (I) through (iii) shall constitute an Event of Default
if it, together with all other such events or conditions at the time existing,
has not subjected, or in the reasonable determination of the Majority Banks
would not subject, Borrower or any ERISA Affiliate to any Indebtedness or
liability that, alone or in the aggregate with all such Indebtedness and
liabilities, would have a Material Adverse Effect; or
(n) the Borrower shall fail to deliver any notice required to be
delivered to the Loan Administrator and/or the Banks, as applicable, pursuant
to any of Sections 5.02. 5.06, 5.08, 5.09 and 5.10 within ten (10) days after
the event giving rise to the obligation to give notice thereunder.
SECTION 8.02. Exercise of Remedies. Upon the occurrence of an
Event of Default and in every such event and at any time thereafter during the
continuance of such event, the Banks shall, by written notice to the Borrower,
take either or both of the following actions, at the same or different times:
(a) terminate the Commitments and
(b) declare the Notes to be forthwith due and payable, whereupon the
Notes shall become forthwith due and payable, both as to principal and
interest (which, after such declaration, shall bear interest as provided in
Section 1.06(a)), without presentment, demand, protest or any other notice of
any kind, all of which are hereby expressly waived by the Borrower, anything
contained herein or in the Notes to the contrary notwithstanding.
Notwithstanding the foregoing, if an Event of Default specified in paragraph
(h) or (I) of Section 8.01 occurs with respect to Borrower or any Material
Subsidiary, the Commitments shall automatically terminate and the Notes shall
become immediately due and payable, both as to principal and interest, without
any action by any Bank or the Loan Administrator and without presentment,
demand, protest or any other notice of any kind, all of which are hereby
expressly waived by the Borrower, anything contained herein or in the Notes to
the contrary notwithstanding. The Loan Administrator shall further be
entitled to exercise, for the benefit of the Banks, all of the rights and
remedies available under the Loan Documents and applicable law.
ARTICLE IX
THE LOAN ADMINISTRATOR
SECTION 9.01. Appointment and Authorization. Each Bank hereby
irrevocably appoints and authorizes the Loan Administrator to take such action
on its behalf and to exercise such powers hereunder and under the other Loan
Documents as are delegated to the Loan Administrator by the terms hereof and
thereof together with such powers as are incidental thereto. With respect to
the Loans made by it and the Note(s) issued to it, the Loan Administrator
shall have the same rights and powers under this Agreement and the other Loan
Documents as any other Bank and may exercise the same as though it were not
the Loan Administrator; and the term "Bank" or "Banks" shall, unless otherwise
<PAGE>
expressly indicated, include the Loan Administrator in its capacity as a Bank.
The Loan Administrator and its Affiliates may accept deposits from, lend money
to, act as trustee under indentures of and generally engage in any kind of
business with, the Borrower, and any Person that may do business with the
Borrower, all as if the Loan Administrator were not the Loan Administrator
hereunder and without any duty to account therefor to the Banks.
SECTION 9.02. Noteholders. The Loan Administrator may treat the payee
of any Note as the holder thereof.
SECTION 9.03. Consultation with Counsel. The Banks agree that the Loan
Administrator may consult with legal counsel selected by it and shall not be
liable for any action taken or suffered in good faith by it in accordance with
the advice of such counsel.
SECTION 9.04. Documents. The Loan Administrator shall not be under a
duty to examine or pass upon the validity, effectiveness, enforceability,
genuineness or value of any of the Loan Documents or any other instrument or
document furnished pursuant thereto or in connection therewith, and the Loan
Administrator shall be entitled to assume that the same are valid, effective,
enforceable and genuine and what they purport to be.
SECTION 9.05. Resignation or Removal of the Loan Administrator.
Subject to the appointment and acceptance of a successor Loan Administrator as
provided below, the Loan Administrator may resign at any time by giving
written notice thereof to the Banks and the Borrower and the Loan
Administrator may be removed at any time with or without cause by the Majority
Banks. Upon any such resignation or removal, the Majority Banks shall have
the right to appoint a successor Loan Administrator. If no successor Loan
Administrator shall have been so appointed by the Majority Banks and shall
have accepted such appointment within thirty (30) days after the retiring Loan
Administrator's giving of notice of resignation or the Majority Banks' removal
of the retiring Loan Administrator, then the retiring Loan Administrator may,
on behalf of the Banks, appoint a successor Loan Administrator. Upon the
acceptance of any appointment as the Loan Administrator hereunder by a
successor Loan Administrator, such successor Loan Administrator shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Loan Administrator, and the retiring Loan
Administrator shall be discharged from its duties and obligations hereunder.
After any retiring Loan Administrator's resignation or removal hereunder as
the Loan Administrator, the provisions of this Article IX shall continue in
effect for its benefit in respect to any actions taken or omitted to be taken
by it while it was acting as the Loan Administrator.
SECTION 9.06. Responsibility of the Loan Administrator. (a) It is
expressly understood and agreed that the obligations of the Loan Administrator
under the Loan Documents are only those expressly set forth in the Loan
Documents and that the Loan Administrator shall be entitled to assume that no
Default has occurred and is continuing, unless the Loan Administrator has
actual knowledge of such fact or has received written notice from the Borrower
or from a Bank that such Bank considers that a Default has occurred and is
continuing and specifying the nature thereof. The Banks recognize and agree
that the Loan Administrator shall not be required to determine independently
whether the conditions described in Articles I and III have been satisfied
<PAGE>
and, in disbursing funds to the Borrower, may rely fully upon statements
contained in the relevant notice. Neither the Loan Administrator nor any of
its directors, officers or employees shall be liable for any action taken or
omitted to be taken by it under or in connection with the Loan Documents,
except for its own gross negligence or willful misconduct. The Loan
Administrator shall incur no liability under or in respect of any of the Loan
Documents by acting upon any notice, consent, certificate, warranty or other
paper or instrument believed by it to be genuine or authentic or to be signed
by the proper party or parties, or with respect to anything that it may do or
refrain from doing in the reasonable exercise of its judgment, or that may
seem to it to be necessary or desirable in the circumstances.
(b) The Loan Administrator shall not be responsible to the Banks for any
recitals, statements, representations or warranties contained in this
Agreement, or in any certificate or other document referred to or provided for
in, or received by any Bank under, this Agreement, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any document referred to or provided for herein or for any failure by the
Borrower to perform any of its obligations hereunder. The Loan Administrator
may employ agents and attorneys-in-fact and shall not be answerable, except as
to money or securities received by it or its authorized agents, for the
negligence or misconduct of any such agents or attorneys-in-fact.
(c) The relationship between the Loan Administrator and each of the
Banks is only that of agent and principal and has no fiduciary aspects, and
the Loan Administrator's duties hereunder are acknowledged to be only
administrative and ministerial and not involving the exercise of discretion on
its part. Nothing in this Agreement or elsewhere contained shall be construed
to impose on the Loan Administrator any duties or responsibilities other than
those for which express provision is herein made. In performing its duties
and functions hereunder, the Loan Administrator does not assume and shall not
be deemed to have assumed, and hereby expressly disclaims, any obligation or
responsibility toward or any relationship of agency or trust with or for the
Borrower. As to any matters not expressly provided for by this Agreement
(including, without limitation, enforcement or collection of the Notes), the
Loan Administrator shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting (and shall
be fully protected in so acting or refraining from acting) upon the
instructions of the Majority Banks and such instructions shall be binding upon
all the Banks and all holders of Notes; provided, however, that the Loan
Administrator shall not be required to take any action that exposes the Loan
Administrator to personal liability or that is contrary to this Agreement or
applicable law.
SECTION 9.07. Notices of Event of Default. In the event that the Loan
Administrator shall have acquired actual knowledge of any Default or Event of
Default, the Loan Administrator shall promptly give notice thereof to the
other Banks.
SECTION 9.08. Bank Credit Decision. Each Bank acknowledges that it
has, independently and without reliance upon the Loan Administrator or any
other Bank and based on the financial information referred to in Section 4.04
and such other documents and information as it has deemed appropriate, made
its own independent credit analysis and decision to enter into this Agreement.
Each Bank also acknowledges that it will, independently and without reliance
upon the Loan Administrator or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.
<PAGE>
SECTION 9.09. Indemnification. (a) The Banks jointly and severally
agree to indemnify the Loan Administrator (to the extent not reimbursed by the
Borrower), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, or
disbursements of any kind or nature whatsoever that may be imposed on,
incurred by or asserted against the Loan Administrator in any way relating to
or arising out of the Loan Documents or any action taken or omitted by the
Loan Administrator (other than in its capacity as a Bank hereunder) under the
Loan Documents, provided that (i) payment of each Bank's indemnification shall
be made ratably according to its Percentage unless one or more Banks is not
able or permitted to make such indemnification, in which case each other Bank
ratably shall make payments on behalf of the Bank(s) not so permitted or able
and (ii) no Bank shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Loan Administrator's gross
negligence or willful misconduct.
(b) The Banks hereby agree that any amounts owed to the Loan
Administrator by any of the Banks may be deducted by the Loan Administrator,
and applied to such amounts, from amounts made available, in accordance with
any of the Loan Documents to the Loan Administrator for the account of the
Banks, with the Banks remaining liable for any deficiency.
SECTION 9.10. Benefit of Article IX. The agreements contained in this
Article IX are solely for the benefit of the Loan Administrator and the Banks,
and are not for the benefit of or to be relied upon by, the Borrower or any
third party.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Modification. All modifications, consents, amendments
or waivers of any provision of any Loan Document, or consent to any departure
by the Borrower therefrom, shall be effective only if the same shall be in
writing and concurred in by the Majority Banks and then shall be effective
only in the specific instance and for the purpose for which given; provided,
however, that no change in the provisions of Articles I, III and VII, this
Section 10.01 or in the definition of the Majority Banks, shall be effective
absent the written concurrence of all of the Banks, and no change in the
provisions of Article IX shall be effective absent the written concurrence of
the Loan Administrator.
SECTION 10.02. Waiver. No failure to exercise, and no delay in
exercising, on the part of any Bank, any right hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right. The
rights of the Banks hereunder and under the Loan Documents shall be in
addition to all other rights provided by law. No modification or waiver of
any provision of this Agreement, the Notes or any Loan Documents, nor consent
to departure therefrom, shall be effective unless in writing and no such
consent or waiver shall extend beyond the particular case and purpose
involved. No notice or demand given in any case shall constitute a waiver of
the right to take other action in the same, similar or other instances without
such notice or demand.
<PAGE>
SECTION 10.03. Payment of Expenses. Whether or not any Loans are made
hereunder, the Borrower shall, on demand, pay or reimburse (a) the Loan
Administrator and/or the Banks, as applicable, for all transfer, documentary,
stamp and similar taxes, and all recording and filing fees, payable in
connection with, arising out of or in any way related to the execution,
delivery and performance of this Agreement, the Notes or the making of the
Loans, (b) the Banks for all field examination and audit costs and expenses
(including, without limitation, those costs and expenses of experts and
independent contractors employed by the Loan Administrator and/or any Bank, as
applicable) and the Loan Administrator for all of its costs and expenses
(including reasonable fees and disbursements of legal counsel and other
experts employed or retained by the Loan Administrator) incurred, and all
payments made, and indemnify and hold the Loan Administrator harmless from and
against all losses suffered, by the Loan Administrator and the Banks in
connection with, arising out of, or in any way related to (I) the negotiation,
preparation, execution and delivery of (A) this Agreement and the other Loan
Documents and (B) (whether or not executed) any waiver, amendment or consent
hereunder or thereunder and (ii) the administration of any operations under
this Agreement, and the Loan Administrator and the Banks for all of their
reasonable costs and expenses (including reasonable fees and disbursements of
legal counsel and other experts employed or retained by the Loan Administrator
and the Banks) incurred, and all payments made, and indemnify and hold the
Loan Administrator and the Banks harmless from and against all losses
suffered, by the Loan Administrator and the Banks in connection with, arising
out of, or in any way related to (I) consulting with respect to any matter in
any way arising out of, relating to, or connected with, this Agreement or any
other Loan Document, including but not limited to the enforcement by the Loan
Administrator and the Banks of any of their rights hereunder or thereunder or
the performance by the Loan Administrator and the Banks of any of their
obligations hereunder or thereunder, (ii) protecting, preserving, exercising
or enforcing any of the rights of the Loan Administrator and the Banks
hereunder and under the other Loan Documents, (iii) any claim (whether
asserted by the Loan Administrator, the Banks or the Borrower or any other
Person and whether asserted before or after the payment, performance and
observance in full of the Borrower's obligations hereunder and under the other
Loan Documents) and the prosecution or defense thereof, in any way arising
under, related to, or connected with, this Agreement, the other Loan Documents
or the relationship established hereunder or thereunder and (iv) any
governmental investigation arising out of, relating to, or in any way
connected with this Agreement or any other Loan Document, except that the
foregoing indemnity shall not be applicable to any loss suffered by the Loan
Administrator and the Banks to the extent such loss is determined by a
judgment of a court that is binding on the Loan Administrator and the Banks,
final and not subject to review on appeal, to be the result of acts or
omissions on the Loan Administrator's or the Banks' part, as the case may be,
constituting (x) willful misconduct, (y) knowing violations of law or, in the
case only of claims by the Borrower against the Loan Administrator or the
Banks, the Loan Administrator's or the Banks' failure, as the case may be, to
comply with its contractual obligations under this Agreement or any other Loan
Document or, but only to the extent not waivable thereunder, applicable law.
Upon request of the Borrower, the Banks shall request an itemization (with
reasonable detail) of all costs and expenses from all third parties for which
it seeks reimbursement hereunder and shall provide a copy thereof to the
Borrower upon receipt. Further, the Loan Administrator and the Banks shall
not be entitled to reimbursement for costs and expenses of third party
consultants (other than their regular inside and outside legal counsel) unless
an Event of Default has occurred and is continuing or a bona fide dispute
exists hereunder.
<PAGE>
SECTION 10.04. Notices. All notices and other communications provided
for herein (including, without limitation, any modifications of, or waivers or
consents under, this Agreement) shall (unless otherwise indicated) be given or
made by telecopy or in writing and telecopied, mailed or delivered to the
intended recipient at the address of such party as follows:
(a) The Borrower:
Computational Systems, Incorporated
Attn: Bryan J. Collier
835 Innovation Drive
Knoxville, Tennessee 37932
Fax: (423) 675-3100
And with a copy of such notice to:
Hugh W. Morgan
Kramer, Rayson, Leake, Rodgers & Morgan
2500 Plaza Tower
800 South Gay Street
Knoxville, Tennessee 37929
Fax: (423) 522-5723
(b) The Loan Administrator or any Bank at its address shown below
its name on the signature pages hereof.
With a copy of such notice to:
Hunton & Williams
900 South Gay Street, Suite 2000
Knoxville, Tennessee 37901
Attn: Jeffrey J. Wall
Fax: (423) 549-7704
Except as otherwise provided in this Agreement, all such communications shall
be deemed to have been duly given when transmitted by telecopier, personally
delivered or, in the case of a mailed notice, upon receipt, in each case given
or addressed as aforesaid. Any such notice or communication that is delivered
by mail shall be presumed to have been received three Business Days after the
day it is mailed. Unless otherwise indicated, notices received after 5:00
p.m. Knoxville time on any day shall be deemed to have been given by the
sender on the next succeeding Business Day. Any party may change its address
for purposes of this Agreement by giving notice of such change to the other
parties pursuant to this Section 10.04.
SECTION 10.05. Governing Law. This Agreement has been prepared, is
being executed and delivered, and is intended to be performed in the State of
Tennessee, and the substantive laws of such state (without regard to choice of
law provisions thereof) shall govern the validity, construction, enforcement
and interpretation of this Agreement and all of the other Loan Documents.
<PAGE>
SECTION 10.06. Invalid Provisions. If any provision of any Loan
Document is held to be illegal, invalid or unenforceable under present or
future laws during the term of this Agreement, such provision shall be fully
severable; such Loan Document shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part of such
Loan Document; and the remaining provisions of such Loan Document shall remain
in full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from such Loan Document.
Furthermore, in lieu of each such illegal, invalid or unenforceable provision
shall be added as part of such Loan Document a provision mutually agreeable to
the Borrower, the Loan Administrator and the Majority Banks as similar in
terms to such illegal, invalid or unenforceable provision as may be possible
and be legal, valid and enforceable. In the event the Borrower, the Loan
Administrator, and the Majority Banks are unable to agree, after good faith
negotiations, upon a provision to be added to the Loan Document within a
period of ten (10) Business Days after a provision of the Loan Document is
held to be illegal, invalid or unenforceable, then a provision acceptable to
the Loan Administrator and the Majority Banks as similar in terms to the
illegal, invalid or unenforceable provision as is possible and be legal, valid
and enforceable shall be added automatically to such Loan Document. In either
case, the effective date of the added provision shall be the date upon which
the prior provision was held to be illegal, invalid or unenforceable.
SECTION 10.07. Nonliability of Banks. The relationship between the
Borrower and the Banks is, and shall at all times remain, solely that of
borrower and lenders, and the Banks and the Loan Administrator neither
undertake nor assume any responsibility or duty to the Borrower to review,
inspect, supervise, pass judgment upon, or inform the Borrower of any matter
in connection with any phase of the Borrower's businesses, operations, or
condition, financial or otherwise. The Borrower shall rely entirely upon its
own respective judgments with respect to such matters, and any review,
inspection, supervision, exercise of judgment, or information supplied to the
Borrower by any Bank or the Loan Administrator in connection with any such
matter is for the protection of the Banks and the Loan Administrator, and
neither the Borrower nor any third party is entitled to rely thereon.
SECTION 10.08. Binding Effect and Assignability. The Loan Documents
shall be binding upon and inure to the benefit of the Borrower, the Loan
Administrator and the Banks and their respective successors, assigns and legal
representatives; provided, however, that Borrower may not, without the prior
written consent of the Loan Administrator and the Banks, assign any rights,
powers, duties or obligations thereunder.
SECTION 10.09. Entirety; Conflicts. The Loan Documents embody the
entire agreement between the parties and supersede all prior agreements and
understandings, if any, relating to the subject matter hereof and thereof. In
the event of any conflict in the provisions of this Agreement with the
provisions of any other Loan Document, the provisions of this Agreement shall
govern.
SECTION 10.10. Headings, etc. Article and Section headings and
captions and the table of contents hereto are for convenience of reference
only and shall in no way affect the interpretation of this Agreement.
SECTION 10.11. Survival. All representations and warranties made by
the Borrower herein shall survive delivery of the Notes and the making of the
Loans.
<PAGE>
SECTION 10.12. No Third Party Beneficiary. Without limiting the effect
of Sections 10.08 and 10.17, the parties do not intend the benefits of this
Agreement to inure to any third party, nor shall this Agreement be construed
to make or render the Loan Administrator or the Banks liable to any
materialman, supplier, contractor, subcontractor, purchaser or lessee of any
property owned by the Borrower, or for debts or claims accruing to any such
persons against the Borrower. Notwithstanding anything contained herein or in
the Notes, or in any other Loan Document, or any conduct or course of conduct
by any or all of the parties hereto, before or after signing this Agreement
nor any other Loan Document shall be construed as creating any right, claim or
cause of action against the Loan Administrator or the Banks, or any of their
officers, directors, agents or employees, in favor of any materialman,
supplier, contractor, subcontractor, purchaser or lessee of any property owned
by the Borrower, nor to any other person or entity other than the Borrower.
SECTION 10.13. Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED
BY LAW, THE LOAN ADMINISTRATOR, THE BANKS AND THE BORROWER HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR
IN CONNECTION WITH, THIS AGREEMENT, THE NOTES OR ANY LOAN DOCUMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (VERBAL OR WRITTEN), OR
ACTIONS OF THE LOAN ADMINISTRATOR, THE BANKS, OR THE BORROWER. THIS PROVISION
IS A MATERIAL INDUCEMENT FOR THE LOAN ADMINISTRATOR AND THE BANKS ENTERING
INTO THIS AGREEMENT.
SECTION 10.14. Arbitration. (a) ANY CONTROVERSY OR CLAIM BETWEEN OR
AMONG THE PARTIES HERETO INCLUDING, BUT NOT LIMITED TO, THOSE ARISING OUT OF
OR RELATING TO THIS AGREEMENT, THE NOTES OR ANY LOAN DOCUMENT OR INSTRUMENTS,
INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE
DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW, THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OR JUDICIAL ARBITRATION
AND MEDIATION SERVICES, INC. ("J.A.M.S.") AND THE "SPECIAL RULES" SET FORTH
BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL.
JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION. ANY PARTY TO THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER
SUCH ACTION.
(b) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY
OF BORROWERS'S DOMICILE AT THE TIME OF THIS AGREEMENT'S EXECUTION AND
ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR. IF J.A.M.S. IS
UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE
AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE
COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION. FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR AN ADDITIONAL 60 DAYS.
<PAGE>
NOTHING IN THIS AGREEMENT, THE NOTES OR ANY LOAN DOCUMENT SHALL
BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES
OF LIMITATION OR REPOSE AND ANY WAIVER CONTAINED IN THIS AGREEMENT, THE NOTES
OR ANY LOAN DOCUMENT OR (ii) BE A WAIVER BY THE LOAN ADMINISTRATOR OR THE
BANKS OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. Section 91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW, OR (iii) LIMIT THE RIGHT OF THE LOAN
ADMINISTRATOR OR THE BANKS HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS
(BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL
PROPERTY COLLATERAL, OR TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY
REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR
THE APPOINTMENT OF A RECEIVER. THE LOAN ADMINISTRATOR AND/OR THE BANKS MAY
EXERCISE SUCH SELF HELP RIGHTS, FORECLOSURE UPON SUCH PROPERTY, OR OBTAIN SUCH
PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY
ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT, THE NOTES OR ANY
LOAN DOCUMENT. NEITHER THE EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION
OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY
REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE
CLAIMANT IN SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM
OCCASIONING RESORT TO SUCH REMEDIES.
SECTION 10.15. Multiple Counterparts. This Agreement may be executed
in any number of counterparts, all of which taken together shall constitute
one and the same agreement, and any of the parties hereto may execute this
Agreement by signing any such counterpart.
SECTION 10.16. Disclosures. The Loan Administrator and each Bank may
disclose to, and exchange and discuss with, any other Person (the Loan
Administrator, each Bank and each such other Person being hereby irrevocably
authorized to do so) any information concerning the Borrower or any Subsidiary
(whether received by the Loan Administrator, the Bank or such Person in
connection with or pursuant to this Agreement or otherwise) solely as may be
determined by the disclosing party to be required by applicable law or
necessary or desirable for the purpose of protecting, preserving, exercising
or enforcing any rights hereunder or under the Notes, or consulting with
respect to any such rights or any rights of the Borrower.
SECTION 10.17. Sharing of Setoffs. Upon the occurrence and during the
continuance of an Event of Default, the holder of any Note shall have the
right, in addition to and not in limitation of any right that any such holder
may have under applicable law or otherwise, to setoff against the unpaid
balance of any Note or Notes or participations therein held by it any debt
owing to the Borrower by such holder, including, without limitation, any funds
in any deposit account maintained by the Borrower with such holder, and
nothing in this Agreement shall be deemed any waiver or prohibition of any
Bank's right of banker's lien or setoff. Each holder of a Note agrees that if
it shall, through the exercise of a right of banker's lien, setoff,
counterclaim or otherwise, obtain payment of a proportion of any Notes held by
it in excess of the proportion of the Notes of the other holders of the Notes
being paid simultaneously or required hereby to be paid proportionately, it
shall be deemed to have simultaneously purchased from such other holders a
participation in the Notes held by such other holders so that the aggregate
unpaid principal amount of all Notes then outstanding as the principal amount
of such note held by it prior to such exercise of banker's lien, setoff or
counterclaim or receipt of other payment was to the principal amount of all
Notes outstanding prior to such exercise of banker's lien, setoff or
counterclaim or receipt of other payment, and it shall promptly remit to each
<PAGE>
such holder the amount of the participation thus deemed to have been
purchased. Borrower expressly consents to the foregoing arrangement and
agrees that any holder of a participation in a Note so acquired may exercise
any and all rights of banker's lien, setoff, counterclaim or otherwise with
respect to any and all moneys owing by such holder to such Borrower as fully
as if such holder were a holder of a Note in the amount of such participation.
If all or any portion of any such excess payment is thereafter recovered from
the holder that received the same, the purchase provided for herein shall be
deemed to have been rescinded to the extent of such recovery, without
interest. Each holder of a Note agrees to give prompt written notice to the
Borrower of any setoff made pursuant to this Section 10.17.
SECTION 10.18. Repayments in Bankruptcy. In the event any amount of
the Indebtedness of the Borrower to the Banks hereunder is paid by the
Borrower and because of bankruptcy or other laws relating to creditors' rights
the Banks repay any such amounts to the Borrower or to any trustee, receiver
or otherwise, then the amounts so repaid shall again become part of the Loans
payable by the Borrower.
SECTION 10.19. Amendment and Restatement. This Agreement amends and
restates the First American National Bank Loan Agreement dated as of September
30, 1995 by and between the Borrower and First American.
ARTICLE XI
DEFINITIONS
SECTION 11.01. Definitions. For purposes of this Agreement, unless the
context otherwise requires, capitalized terms shall have the respective
meanings assigned to them in Exhibit A hereto.
SECTION 11.02. Other Definitional Provisions. (a) Except as otherwise
specified herein, all references herein (I) to any Person shall be deemed to
include such person's, successors, transferees and assignees, but only, in the
case of transferees and assignees of the Borrower, the Loan Administrator and
the Banks, to the extent the applicable transfer or assignment complies with
the provisions of this Agreement, (ii) to any applicable law defined or
referred to herein shall be deemed references to such applicable law as the
same may have been or may be amended or supplemented from time to time and
(iii) to any Contract defined or referred to herein shall be deemed references
to such Contract (and, in the case of any instrument, any other instrument
issued in substitution therefor) as the terms thereof may have been or may be
amended, supplemented, waived or otherwise modified from time to time.
(b) When used in this Agreement, the words "herein", "hereof", and
"hereunder" and words of similar import shall refer to this Agreement as a
whole and not to any provision of this Agreement, and the words "section",
"schedule" and "exhibit" shall refer to Sections of and Schedules and Exhibits
to this Agreement unless otherwise specified.
(c) Whenever the context so requires, the neuter gender includes the
masculine or feminine, and the singular number includes the plural, and vice
versa.
<PAGE>
(d) All terms defined in this Agreement shall have the defined meanings
when used in the Notes, and except as otherwise expressly stated therein, any
certificate, opinion or other Loan Document delivered pursuant hereto or
referred to herein.
SECTION 11.03. Accounting Matters. Unless otherwise specified herein,
all accounting determinations hereunder and all computations utilized by the
Borrower in complying with the covenants contained herein shall be made, all
accounting terms used herein shall be interpreted, and all financial
statements required to be delivered hereunder shall be prepared, in accordance
with Generally Accepted Accounting Principles, except, in the case of such
financial statements, for departures from Generally Accepted Accounting
Principles that may from time to time be approved in writing by the
independent certified accountants who are at the time in accordance with
Section 5.05 reporting on the Borrower's financial statements.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized officers as of the day
and year first above written.
COMPUTATIONAL SYSTEMS, INCORPORATED
By: /s/ Bryan J. Collier
------------------------------
Bryan J. Collier
Title: Chief Financial Officer
FIRST AMERICAN NATIONAL BANK
as Loan Administrator
By: /s/ Joe L. Evans
------------------------------
Joe L. Evans
Title: Vice President
Address: 505 South Gay Street
Knoxville, Tennessee 37902
Amount of Percentage
Commitment Interest
- ---------- ----------
FIRST AMERICAN NATIONAL BANK, as Bank
$6,000,000 50% By: /s/ Joe L. Evans
------------------------------
Joe L. Evans
Title: Vice President
Address: 505 South Gay Street
Knoxville, Tennessee 37902
Fax: (423) 521-5352
NATIONSBANK OF TENNESSEE, N.A., as Bank
$6,000,000 50% By: /s/ John F. Fisher
------------------------------
John F. Fisher
Title: Senior Vice President
Address: 500 Main Avenue
Knoxville, Tennessee 37902
Fax: (423) 546-2865
<PAGE>
EXHIBIT A
DEFINITIONS
-----------
This is Exhibit A to that certain Amended and Restated Credit Agreement
dated as of June 14, 1996, among Computational Systems, Incorporated, as
Borrower, First American National Bank, as Loan Administrator, and the Banks
listed therein (the "Agreement"). When used in this Exhibit, the words
"herein", "hereof", and "hereunder" and words of similar import shall refer to
the Agreement, and the words "section", "schedule" and "exhibit" shall refer to
Sections of and Schedules and Exhibits to the Agreement, unless otherwise
specified.
"Accounts" means any "Account", as such term is defined in Section 9-106
of the Uniform Commercial Code as adopted in Tennessee, in which Borrower shall
now or hereafter have any right, title or interest.
"Adjusted LIBOR Rate" means, with respect to any LIBOR Loan, the London
Interbank Offered Rate for U.S. Dollar-denominated interbank obligations in the
London, England, market. For purposes of this definition, a "LIBOR Loan" or
"LIBOR Advance" is an advance or refinance of outstanding indebtedness hereunder
bearing interest in relation to LIBOR. The LIBOR applicable to a LIBOR Loan
made on a given funding day is the LIBOR for obligations with terms of the same
number of days (e.g., 30, 60, 90 or 120 days) as the period during which the
interest rate on the LIBOR Loan is to remain unchanged (defined in this
Agreement as the "Interest Period"), quoted as of 11:00 a.m. London time (a)
two (2) Business Days prior to the date of funding, and rounded up to the
nearest .01% per annum. The Loan Administrator may determine LIBOR from
TELERATE, Reuter Screen or any other generally recognized financial reporting
service.
"Affiliate" means, with respect to any Person, any other Person directly
or indirectly, through one or more intermediaries, controlling, controlled by,
or under common control with, such first Person. For the purposes of this
definition, "control" (including the terms "controlled by" and "under common
control with"), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of
Capital Securities having voting rights or by contract or otherwise. Unless
otherwise specified, "Affiliate" means an Affiliate of Borrower.
"Agreement" means the Amended and Restated Credit Agreement among the
Borrower, the Banks and the Loan Administrator, dated as of June 14, 1996, as
the same may be amended, modified, supplemented or restated from time to time.
<PAGE>
"Applicable LIBOR Margin" means the annual rate of interest to be added to
the Adjusted LIBOR Rate in calculating interest payable on LIBOR Loans and
shall be determined based on the ratio of (I) Consolidated Funded Debt to (ii)
Consolidated Adjusted EBIDA for which quarterly financial statements have been
delivered to the Banks and such determination shall be based on a rolling four
quarters basis:
Ratio Applicable LIBOR Margin
----- -----------------------
Greater than or equal to 1.75 to 2.75%
1.00 but less than 2.51 to 1.00
Greater than or equal to 2.375%
1.51 to 1.00 but less
than 1.75 to 1.00
Less than or equal to 1.50 to 1.00 2.00%
The ratio upon which a determination of "Applicable LIBOR Margin" is based
shall be computed on the basis of the financial statements delivered by
Borrower pursuant to Section 5.06(a). Changes in the Applicable LIBOR Margin
shall be effective as of the first day of the month next succeeding the date
of determination. In the event that any financial information provided by
Borrower is subsequently determined to be inaccurate and accurate information
would have resulted in a higher Applicable LIBOR Margin, such higher
Applicable LIBOR Margin shall be given effect retroactively, and Borrower
shall promptly pay to the Loan Administrator for the benefit of the Banks such
amount as is necessary to give effect to such change.
"Banks" means the institutions indicated as Banks on the signature pages
hereof.
"Base Rate" means the "Prime Rate" of interest as published daily in The
Wall Street Journal under the "Money Rates" section. If no such Prime Rate is
published in The Wall Street Journal, the "Base Rate" shall mean the Base Rate
of First American (which rate may not be the lowest rate charged by First
American on similar loans). Each change in the Base Rate shall become
effective without prior notice to the Borrower automatically as of the date of
such change in the Base Rate.
"Base Rate Margin" means zero percent (0%) per annum.
"Base Rate Loan" shall mean a Loan on which interest accrues based on
the Base Rate in accordance with Article I.
"Borrower" shall have the meaning assigned to such term in the preamble
hereof.
"Borrowing Base" means the sum of the following:
(a) 80% of Eligible Accounts Receivable, plus
(b) 50% of Eligible Raw Materials Inventory, plus
50% of Eligible Finished Goods Inventory.
<PAGE>
"Borrowing Base Certificate" shall mean the certificate in the form
attached as Exhibit E to this Agreement.
"Business Day" means any day other than Saturday, Sunday or a day on
which banks are required or authorized to be closed for business in Knoxville,
Tennessee, and, with respect to any LIBOR Loan, means any such Business Day on
which transactions are effected in deposits of U.S. Dollars in the relevant
interbank foreign currency deposits market and on which commercial banks are
open for domestic and international business (including dealings in Dollar
deposits) in the jurisdiction in which such interbank market is located.
"Capital Lease" means, as of any date, any lease of property, real or
personal, that would be capitalized on a balance sheet of the lessee prepared
as of such date in accordance with Generally Accepted Accounting Principles,
together with any other lease by such lessee that is in substance a financing
lease, including without limitation, any lease under which (a) such lessee has
or will have an option to purchase the property subject thereto at a nominal
amount or an amount less than a reasonable estimate of the fair market value
of such property as of the date such lease is entered into, or (b) the term of
the lease approximates or exceeds the expected useful life of the property
leased thereunder.
"Capital Securities" means with respect to any Person that is (a) a
corporation, any shares of capital stock of such corporation, (b) a general or
limited partnership, any general or limited partnership interest of such
partnership, a limited liability company, any stock or other membership or
ownership interests in such limited liability company, and also means any
security convertible into, or any option, warrant or other right to acquire,
any of the items described in clause (a), (b) or above of such Person.
"Capitalized Lease Obligations" means all obligations of Borrower and
its Consolidated Subsidiaries under Capital Leases.
"Cash Management System" means the cash management system and account(s)
of the Borrower maintained and administered by First American.
"Closing Date" means June 14, 1996, or such other date as the Borrower
and the Banks may agree.
"Closing Fee" shall have the meaning assigned to such term in Section
1.05 hereof.
"CMLTD" means current maturities of Consolidated Long Term Debt and
shall be determined both as to classification of items and amounts in
accordance with Generally Accepted Accounting Principles and shall also
include 20% of the outstanding principal and all accrued, unpaid interest
under the Loans.
"Commitment Termination Date" means the Maturity Date, or such earlier
date and time on which the Commitments are terminated pursuant to Article
VIII.
"Compliance Certificate" shall mean a certificate of the chief financial
officer of Borrower in the form of Exhibit D hereto setting forth computations
in reasonable detail as of the date thereof of compliance with Article VII.
<PAGE>
"Commitment" means, with respect to each Bank, the amount of the
Commitment of such Bank as set forth opposite such Bank's name on the
signature pages hereof, as the same may be reduced from time to time pursuant
to this Agreement.
"Consolidated Adjusted Debt Service" means, for any twelve month period,
the sum (determined on a consolidated basis) for Borrower and its Consolidated
Subsidiaries of (a) CMLTD for such period, plus (b) current maturities of
Capital Leases, plus Interest Expense for such period.
"Consolidated Adjusted EBIDA" means, for any period, consolidated
earnings of the Borrower and its Consolidated Subsidiaries for such period
after taxes but before depreciation, amortization and Interest Expense, less
dividends paid for such period.
"Consolidated Current Assets" means, at any date, the aggregate amount
of all assets of Borrower and its Consolidated Subsidiaries determined on a
consolidated basis that would be classified as current assets according to
Generally Accepted Accounting Principles.
"Consolidated Current Liabilities" means, at any date, the aggregate
amount of all liabilities of Borrower and its Consolidated Subsidiaries
determined on a consolidated basis that would be classified as current
liabilities according to Generally Accepted Accounting Principles.
"Consolidated Funded Debt" means, as of any date, the sum of the
following, without duplication, (I) all Indebtedness of the Borrower and its
Consolidated Subsidiaries as of such date, other than Consolidated Current
Liabilities, (ii) all Indebtedness which would be classified as "funded
indebtedness" or "long-term indebtedness" on a consolidated balance sheet of
Borrower and its Consolidated Subsidiaries prepared as of such date in
accordance with Generally Accepted Accounting Principles, (iii) all
Indebtedness of Borrower and its Consolidated Subsidiaries having a final
maturity (or which is renewable or extendable at the option of the Obligor for
a period ending) more than one year after the date of creation thereof,
notwithstanding the fact that payments in respect thereof (whether
installment, serial maturity, or sinking fund payments, or otherwise) are
required to be made by the Obligor less than one year after the date of
creation thereof, (iv) all Indebtedness of Borrower and its Consolidated
Subsidiaries under a revolving credit or similar agreement providing for
borrowings over a period of more than one year, (v) the present value
(discounted at the implicit rate, if known, or ten percent (10%) per annum
otherwise) of all obligations in respect of Capital Leases of Borrower and its
Consolidated Subsidiaries, and (vi) all obligations under Guaranties of
Borrower and its Consolidated Subsidiaries.
"Consolidated Long Term Debt" means, for any period, the consolidated
long term debt of Borrower and its Consolidated Subsidiaries for such period
(taken as a cumulative whole) all as delivered in accordance with Generally
Accepted Accounting Principles.
"Consolidated Subsidiaries" means, as of any date, all Affiliates of
Borrower included as of such date in the consolidated financial statements of
Borrower.
<PAGE>
"Consolidated Tangible Net Worth" means, at any date, the net worth of
Borrower and its Consolidated Subsidiaries after subtracting therefrom the
aggregate amount of intangible assets including, without limitation, goodwill,
franchises, licenses, patents, trademarks, trade names, copyrights, service
marks, brand names, experimental or organization expenses, unamortized debt
discount and expenses, deferred charges, and treasury stock and all
subordinated stockholder loans, including, but not limited to, accounts or
subordinated stockholder loans evidenced by promissory notes or other
instruments.
"Consolidated Total Net Worth" means, at any date, the consolidated
total net worth of Borrower and its Consolidated Subsidiaries on such date
(taken as a cumulative whole) all as determined in accordance with Generally
Accepted Accounting Principles.
"Consolidated Total Liabilities" means, at any date, the consolidated
total liabilities of Borrower and its Consolidated Subsidiaries on such date
(taken as a cumulative whole) all as determined in accordance with Generally
Accepted Accounting Principles.
"Contract" means an indenture, agreement (other than this Agreement),
other contractual restriction, lease, instrument (other than the Notes),
certificate or Organizational Document.
"Controlled Group" means (a) the controlled group of corporations as
defined in Section 1563 of the Internal Revenue Code or (b) the group of
trades or businesses under common control as defined in Section 414 of the
Internal Revenue Code of which the Borrower is a part or may become a part.
"Controlling Interests" means ownership of a sufficient interest in a
Person to approve mergers, sales of assets, dissolutions, amendments to
Organizational Documents and other acts requiring a "supermajority" vote under
applicable law and such Person's Organizational Documents.
"Conversion Date" means the date on which any Loan is converted from a
Base Rate Loan or a LIBOR Loan to a Loan of a different type pursuant to
Section 1.07 hereof.
"Deed of Trust" means the Deed of Trust, Security Agreement, Assignment
of Rents and Leases and Fixture Filing dated as of June 14, 1996 made by the
Borrower to a trustee for the benefit of the Loan Administrator (as collateral
agent) on behalf of the Banks, as the same may be amended, modified, restated
or supplemented from time to time.
"Default Rate" means the Base Rate plus two percent (2%) per annum.
"Default" means an Event of Default or any condition or event that with
the giving of notice or the lapse of time or both would become an Event of
Default.
"Dollars" and the sign "$" shall refer to lawful currency of the United
States of America.
<PAGE>
"Eligible Accounts Receivable" means such Accounts which are and at all
times shall continue to be acceptable to the Banks in all respects; subject,
however, to the following restrictions: (i) the Borrower must have lawful and
absolute title to such Accounts; (ii) such Accounts do not remain unpaid for
more than ninety (90) days after their respective billing or invoice dates;
(iii) such Accounts are valid, legally enforceable obligations of the account
debtors; (iv) such Accounts are not subject to any known counterclaim or other
claim or defense on the part of the account debtors asserted in good faith and
in writing or to any known claim on the part of the account debtors denying
liability for such Accounts in whole or in part, asserted in good faith and in
writing; (v) the Borrower has the full and unqualified right to assign and
grant a security interest in such Accounts to the Banks as security for the
Obligations; (vi) such Accounts are not subject to any security interest or
Lien in favor of any Person other than the Lien of the Banks; (vii) such
Accounts are evidenced by an invoice rendered to the account debtor and are
not evidenced by any instrument or chattel paper; (viii) such Accounts have
arisen from the absolute sale (any sale on consignment, approval or sale-and-
return basis under policies approved by the Banks shall not become absolute
unless and until any period during which the sale may be rescinded or the such
goods could be returned has expired and they have not been returned) of goods
or services by the Borrower in the ordinary course of the Borrower's business,
and with respect to the goods subject of the Accounts, such goods have been
shipped or delivered to, or at the instruction of, the account debtors for
such Accounts; (ix) the account debtors in respect of such Accounts are not
(A) an affiliate or employee of the Borrower, or (B) any foreign government or
any agency, department or instrumentality thereof whose account is not
supported by a letter of credit; and (x) such Accounts are not owing by an
account debtor subject to any reorganization, bankruptcy, receivership,
custodianship, insolvency or other like condition. Notwithstanding the above,
criteria for eligibility shall be fixed and revised from time to time solely
by the Banks in their exclusive judgment.
"Eligible Finished Goods Inventory" means, as of any time, all "finished
goods" Inventory of the Borrower which is in good and saleable condition, is
not obsolete or unmerchantable, in which the Banks have been granted a first
priority security interest which the Banks have perfected and is acceptable to
the Banks in all respects in the Banks' exclusive judgment.
"Eligible Raw Materials Inventory" means, as of any time, all raw
materials used or intending to be used by the Borrower in the production of
its Inventory, which is in good and useable condition, is not obsolete, in
which the Banks have been granted a first priority security interest which the
Banks have perfected and which is acceptable to the Banks in all respects in
the Banks' exclusive judgment.
"Environmental Laws" means all laws relating to Hazardous Waste
disposal, Toxic Substances, or environmental conservation.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, together with all regulations and official rulings and
interpretations issued pursuant thereto.
"ERISA Affiliate" means any corporation or trade or business, whether or
not incorporated, which together with the Borrower would be treated as a
single employer under ERISA or the Internal Revenue Code.
"Event of Default" shall have the meaning assigned to such term in
Article VIII.
<PAGE>
"Facility Fee" shall have the meaning assigned to such term in Section
1.06 hereof.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System and any successor agency.
"Generally Accepted Accounting Principles" means those generally
accepted accounting principles and practices that are recognized as such by
the American Institute of Certified Public Accountants acting through its
Accounting Principles Board or by the Financial Accounting Standards Board or
through other appropriate boards or committees thereof and that are
consistently applied for all periods after the date of the most recent balance
sheet of Borrower referred to in Section 5.06 so as to properly reflect the
financial condition, and the results of operations and cash flows, of Borrower
and its Consolidated Subsidiaries, except that any accounting principle or
practice required to be changed by the Accounting Principles Board or
Financial Accounting Standards Board (or other appropriate board or committee
of such Boards) in order to continue as a generally accepted accounting
principle or practice may so be changed. In the event of a change in
Generally Accepted Accounting Principles, the Banks and the Borrower will
thereafter negotiate in good faith to revise any covenants of this Agreement
affected by such change in order to make such covenants consistent with
Generally Accepted Accounting Principles then in effect.
"Governmental Authority" means (a) with respect to the Borrower, any
government (or any political unit thereof), court, bureau, agency or other
governmental authority having or claiming jurisdiction over the Borrower or
any of its businesses, operations or properties and (b) with respect to the
Loan Administrator, the Banks and their Affiliates, the Federal Reserve Board,
the Comptroller of the Currency, any state banking regulator or any other
government (or any political unit thereof), court, bureau, agency or other
governmental authority having or claiming jurisdiction or regulatory authority
over the Loan Administrator, such Bank or their Affiliates or any of their
respective businesses, operations or properties.
"Guaranty" of any Person means any contract, agreement or understanding
of such Person pursuant to which such Person provides for the payment of any
Indebtedness of any other Person (the "Primary Obligor") or otherwise
protecting, or having the practical effect of protecting, the holder of such
Indebtedness against loss, in any manner, whether directly or indirectly,
contingent or otherwise, including without limitation agreements: (a) to
purchase such Indebtedness or any property constituting security therefor, (b)
to advance or supply funds (I) for the purchase or payment of such
Indebtedness, or (ii) to maintain net worth or working capital or other
balance sheet conditions, or otherwise to advance or make available funds for
the purchase or payment of such Indebtedness, to purchase property,
securities or service primarily for the purpose of assuring the holder of such
Indebtedness of the ability of the Primary Obligor to make payment of the
Indebtedness, or (d) otherwise to assure the holder of the Indebtedness of the
Primary Obligor against loss in respect thereof.
"Hazardous Wastes" means all waste materials subject to regulation or
defined as such under the Comprehensive Environmental Response, Compensation,
and Liability Act as modified by the Superfund Amendments and Reauthorization
Act of 1986, the Resource Conservation and Recovery Act, the Clean Air Act,
the Federal Water Pollution Control Act, the Toxic Substance Control Act, or
any applicable state law and any other applicable federal, state or local laws
and their regulations now in force or hereafter enacted relating to hazardous
waste disposal or environmental conservation.
<PAGE>
"Indebtedness" means, with respect to any Person and without
duplication: (a) all obligations of such Person for borrowed money or the
deferred purchase price of goods or services (except trade payables in the
ordinary course of business); (b) all obligations of such Person in respect of
any Guaranty (other than endorsements of checks for deposit in the ordinary
course of business), all obligations of such Person in respect of any
Capital Lease, (d) all obligations, indebtedness and liabilities, including
any refinancings thereof, secured by any lien or any security interest on any
property or assets of such Person, and (e) all Mandatorily Redeemable
Securities of such Person valued in accordance with Generally Accepted
Accounting Principles.
"Intercreditor Agreement" means the Intercreditor Agreement dated as of
June 14, 1996 by and among the Borrower and the Banks, as the same may be
amended, modified, restated or supplemented from time to time.
"Interest Expense" means, for any period, all interest in respect of
Indebtedness accrued or capitalized during such period (whether or not
actually paid during such period).
"Interest Payment Date" means (a) with respect to each LIBOR Loan, (I)
the last day of each Interest Period for all Loans having a one (1), two (2)
or three (3) month Interest Period and the Commitment Termination Date, as
applicable, and (ii) the last day of the second month and the last day of the
Interest Period and the Commitment Termination Date, as applicable, for all
LIBOR Loans having a four (4) month Interest Period; and (b) with respect to
each Base Rate Loan, the first day of each calendar month and the Commitment
Termination Date.
"Interest Period" means, as to any LIBOR Loan, the period commencing on
the date of such LIBOR Loan or continuation thereof and ending on the
numerically corresponding day (or, if there is no numerically corresponding
day, on the last day) in the calendar month that is one (1), two (2), three
(3) or four (4) months thereafter, as the Borrower may elect; provided,
however, that (y) if any Interest Period would end on a day that is not a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless such next succeeding Business Day would fall in the next
calendar month, in which case such Interest Period shall end on the next
preceding Business Day and (z) no Interest Period with respect to any LIBOR
Loan shall end later than the Commitment Termination Date.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, and all regulations and official rulings and interpretations
thereunder or thereof.
"Inventory" has the meaning provided in the Security Agreement.
"Legal Requirement" means any requirement imposed upon the Loan
Administrator or any Bank by any law of the United States of America or any
other jurisdiction exercising or claiming authority over the Loan
Administrator or such Bank, including without limitation, any regulation,
order, interpretation, ruling or official directive (whether or not having the
force of law) of any Governmental Authority.
"LIBOR Loan" means a Loan on which interest accrues based on the
Adjusted LIBOR Rate in accordance with Article I and as further defined in the
definition of "Adjusted LIBOR Rate".
<PAGE>
"Lien" means any lien, mortgage, security interest, tax lien,
attachment, levy, charge, pledge, encumbrance, conditional sale or title
retention arrangement, or any other interest in property or assets (or the
income or profits therefrom) designed to secure the repayment of Indebtedness,
whether consensual or nonconsensual and whether arising by agreement or under
any statute or law, or otherwise.
"Loan Account" shall have the meaning assigned to such term in Section
1.02 hereof.
"Loan Administrator" shall have the meaning assigned to such term in the
preamble hereof, and any successor thereto pursuant to Article IX hereof.
"Loan Documents" means this Agreement, the Notes, the Deed of Trust, the
Security Agreement, the Intercreditor Agreement and any other document now or
hereafter executed or delivered in connection with this Agreement or the
Obligations, including, without limitation, any life insurance assignment,
title commitment or policy, pledge agreement, security agreement, financing
statement, deed of trust, mortgage, promissory note, or subordination
agreement (including any renewals, extensions and refundings thereof and any
modifications, supplements and amendments thereto and substitutes therefor),
each of which shall be in form and substance satisfactory to the Banks.
"Loan" means an amount advanced pursuant to Section 1.01 and a Loan of a
"type" means a Loan that bears, or is to bear, as the context may require,
interest based on the Base Rate or Adjusted LIBOR Rate.
"Majority Banks" means, as of any date, Banks holding Notes representing
one hundred percent (100%) of the aggregate unpaid principal amount of the
Loans outstanding on such date, and in the event no Loans are outstanding on
such date, Banks holding one hundred (100%) of the aggregate Commitments of
all Banks.
"Mandatorily Redeemable Securities" means, as applied to a Person, any
of such Person's Capital Securities or debt to the extent that it is
redeemable, payable or required to be purchased or otherwise retired or
extinguished (a) at a fixed or determinable date, whether by operation of a
sinking fund or otherwise, (b) at the option of any Person other than such
Person or upon the occurrence of a condition not solely within the control
of such Person, such as a redemption required to be made out of future
earnings.
"Margin Stock" means "margin stock" as defined in Regulation U or G.
"Material Adverse Effect" means any material adverse effect upon (a) the
validity, performance or enforceability of any Loan Document, (b) the
financial condition or business operations of Borrower or any Material
Subsidiary, or the ability of the Borrower to fulfill its obligations under
the Loan Documents.
"Material Management Change" means the termination of employment by the
Borrower, or the substantial demotion with respect to management
responsibilities, of any of the following management personnel: (a) Ron
Canada, (b) Ken Piety and Bryan Collier (such persons, collectively, the
"Material Managers"), except as a result of death, disability, or retirement.
<PAGE>
"Material Ownership Change" means any change in the Material Managers'
beneficial ownership of the Capital Securities of the Borrower resulting from
the transfer, sale or other disposition (including, without limitation, the
creation of a lien thereon) of such Capital Securities, whereby the Material
Managers' aggregate ownership is at any time less than 35% of the issued and
outstanding Capital Securities of the Borrower.
"Material Subsidiary" means any of the Subsidiaries listed on Schedule
4.06(a) and any other domestic Subsidiary now or in the future that has annual
revenues (either historically or on a pro forma basis) exceeding 2.25% of
total consolidated revenues of Borrower and its Consolidated Subsidiaries,
provided that the sum of all revenues of all Material Subsidiaries shall not
be less than 75% of total consolidated revenues of Borrower and its
Consolidated Subsidiaries, and if less, additional Subsidiaries (in descending
order of total revenues) shall become Material Subsidiaries until the sum of
all revenues exceeds 75%.
"Maturity Date" means April 30, 1999.
"Maximum Permitted Rate" means, with respect to interest payable on any
amount, the rate of interest on such amount that, if exceeded could, under
applicable law, result in (a) civil or criminal penalties being imposed on any
Bank or (b) any Bank's being unable to enforce payment of (or if collected, to
retain) all or part of such amount or the interest payable thereon.
"Mortgagee Title Insurance Policy" means the title insurance policy
issued by Lawyers Title Insurance Corporation from Title Commitment No.
52763/LES insuring the lien of the Deed of Trust.
"Notes" means the promissory notes executed by the Borrower and
delivered to the Banks pursuant to Section 1.03 of this Agreement, together
with any renewals, extensions, replacements or modifications thereof.
"Obligations" means all indebtedness, liabilities and obligations,
whether now existing or hereafter arising, direct or indirect, fixed or
contingent, secured or unsecured, matured or unmatured, joint, several or
joint and several, arising out of or in connection with this Agreement, the
Notes, the Loans or any other Loan Document or other document executed or
delivered in connection with this Agreement or the Loans.
"Organizational Documents" means the fundamental organizational and
governing documents of a Person and includes, without limitation, (a) in the
case of a corporation, its articles of incorporation and other charter
documents, bylaws and agreements among shareholders, (b) in the case of a
partnership, its certificate of partnership, partnership agreement and other
agreements among partners and in the case of a limited liability company,
its articles of organization, operating agreement and other agreements among
members.
"Percentage" means, with respect to each Bank, the percentage set forth
opposite the name of such Bank on the signature pages hereof.
"Permitted Liens" shall mean the Liens permitted pursuant to the
provisions of Section 6.01.
"Person" shall include an individual, a sole proprietorship, a
corporation, a joint venture, a general or limited partnership, a trust, an
unincorporated organization, a mutual company, a joint stock company, an
estate, a union, an employee organization or a Governmental Authority.
<PAGE>
"Plan" means an employee benefit plan as defined in Section 3(3) of
ERISA maintained by the Borrower or any Subsidiary for employees of the
Borrower and/or the Subsidiaries, and every other employee benefit arrangement
not subject to ERISA, including but not limited to, those arrangements
providing profit-sharing, stock bonus, stock option, executive compensation,
deferred compensation, severance, hospitalization, medical, dental, disability
or life insurance benefits.
"Premises" means any and all of the real property owned, leased or
otherwise used by Borrower and its Material Subsidiaries.
"Regulations D, G, U and X" means Regulations D, G, U and X of the
Federal Reserve Board, as the same is from time to time in effect, and all
official rulings thereunder or thereof.
"Regulatory Change" means (a) any new, or any change in any existing,
law, regulation, interpretation, directive or request (whether or not having
the force of law) or (b) any change in the administration or enforcement of
any such applicable law, regulation, interpretation, directive or request that
becomes effective after the date of this Agreement, whether as a result of an
enactment or determination of a Governmental Authority or otherwise.
"Repayment Date" means the later of (a) the Commitment Termination Date
or the reduction to zero of the Commitments, whichever first occurs and (b)
the date on which the Loans and all other amounts payable hereunder are paid
in full.
"SEC" means the Securities and Exchange Commission of the United States
and any successor agency thereto.
"Security Agreement" means the Amended and Restated Security Agreement
made by the Borrower, Windrock, Inc. and MachineView, Inc. for the benefit of
the Loan Administrator dated as of June 14, 1996, as such may be amended,
modified, restated or supplemented from time to time.
"Solvent" means, with respect to any Person on a particular date, that
on such date (a) the fair value of the property of such Person is greater than
the total amount of liabilities, including, without limitation, contingent
liabilities, of such Person, (b) the amount that will be required to pay the
probable liabilities of such Person on its debts as they become absolute and
matured will not be greater than the fair salable value of the assets of such
Person at such time, such Person is able to realize upon its assets and pay
its debts and other liabilities, contingent obligations and other commitments
as they mature in the normal course of business, (d) such Person does not
intend to, and does not believe that it will, incur debts or liabilities
beyond such Person's ability to pay as such debts and liabilities mature, and
(e) such Person is not engaged in business or a transaction, and is not about
to engage in business or a transaction, for which such Person's property would
constitute unreasonably small capital after giving due consideration to
prevailing practices in the industry in which such Person is engaged. In
computing the amount of any contingent liability at any time, it is intended
that such liability will be computed at the amount which, in light of all the
facts and circumstances existing at such time, represents the amount that
might reasonably be expected to become an actual or matured liability.
<PAGE>
"State Official" means, with respect to any Person, the Secretary of
State or other appropriate official of the jurisdiction in which such Person
was incorporated or organized who is authorized to certify official records of
such Person on file in such jurisdiction.
"Subsidiary" means, with respect to any Person, any other Person fifty
percent (50%) or more of the outstanding Capital Securities of each class of
which is owned or controlled, directly or indirectly, by such first Person and
its Affiliates.
"Tax" means, in relation to any LIBOR Loan and the applicable LIBOR, any
federal, state, local or foreign tax, levy, impost, duty, deduction,
withholding or other charge of whatever nature required by any Legal
Requirement (a) to be paid by the Banks or (b) to be withheld or deducted from
any payment otherwise required hereby to be made by the Borrower to the Banks;
provided, however, that the term "Tax" shall not include any taxes imposed
upon the net income of the Banks by the United States, any political
subdivision thereof or any other taxing authority.
"Toxic Substances" means and includes any materials present on the
Premises which have been shown to have significant adverse effects on human
health or which are subject to regulation under the Toxic Substances Control
Act, applicable state law, or any other applicable federal, state or local
laws now in force or hereafter enacted relating to toxic substances. "Toxic
Substances" includes, but is not limited to, asbestos, polychlorinated
biphenyls ("PCBs"), petroleum products, and lead-based paints.
<PAGE>
EXHIBIT B
[Form of Amended and Restated Revolving Note]
$6,000,000 Knoxville, Tennessee
June 14, 1996
FOR VALUE RECEIVED, COMPUTATIONAL SYSTEMS, INCORPORATED, a Tennessee
corporation (the "Borrower"), hereby promises, to pay to the order of
(the "Bank"), at the office of First American National
Bank, as Loan Administrator (the "Loan Administrator"), at 505 South Gay
Street, Knoxville, Tennessee 37902, on the dates provided in the Amended and
Restated Credit Agreement dated as of the date hereof among the Borrower, the
Loan Administrator and the Banks described therein (the "Credit Agreement"),
but in no event later than the Commitment Termination Date, in lawful money of
the United States of America, in immediately available funds, the principal
amount of SIX MILLION DOLLARS ($6,000,000) or, if less than such principal
amount, the aggregate unpaid principal amount of the Loans (as defined in the
Credit Agreement) made by the Bank to the Borrower pursuant to the Credit
Agreement, and to pay interest from the date hereof on the unpaid principal
amount hereof, in like money, at said office, on the dates and at the rates
selected in accordance with Article I of the Credit Agreement.
The Borrower promises to pay interest, payable on demand, on any overdue
principal and, to the extent permitted by law, overdue interest from their due
dates at a rate or rates determined as set forth in the Credit Agreement.
Additionally, if any payment is past due by five (5) days or more, the
Borrower agrees to pay the holder a late charge of (I) 5% of such payment
amount or (ii) any lesser maximum amount permitted under applicable law. No
late charge, however, shall be imposed on any payment made on time and in full
solely by reason of any previously accrued and unpaid late charge.
The Borrower hereby waives diligence, presentment, demand, protest and
notice of any kind whatsoever. The nonexercise by the holder of any of its
rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
All borrowings evidenced by this Note and all payments and prepayments
of the principal hereof and interest hereon and the respective dates thereof
shall be evidenced by the books and records of the Loan Administrator and the
Bank.
This Note is one of the Notes referred to in the Credit Agreement which,
among other things, contains provisions for the acceleration of the maturity
hereof upon the happening of certain events, for optional prepayment of the
principal hereof prior to the maturity thereof and for the amendment or waiver
of certain provisions of the Credit Agreement, all upon the terms and
conditions therein specified. This Note shall be construed in accordance with
and governed by the laws of the State of Tennessee. [This Note amends and
restates (a) the Amended and Restated Revolving Credit Note dated September
30, 1995 made by Borrower payable to First American National Bank in the
principal amount of $4,000,000.] [FOR FIRST AMERICAN NOTE ONLY]
<PAGE>
IN WITNESS WHEREOF, the party hereto have caused this Note to be duly
executed by its duly authorized officer as of the day and year first above
written.
COMPUTATIONAL SYSTEMS, INCORPORATED
By:
-------------------------------
Bryan J. Collier
Title: Chief Financial Officer
<PAGE>
EXHIBIT C
CONDITIONS TO INITIAL LOANS
This is Exhibit C to that certain Amended and Restated Credit Agreement
dated as of June 14, 1996, Computational Systems, Incorporated, First American
National Bank, as Loan Administrator, and the Banks listed therein (the
"Agreement"). All capitalized terms used but not defined herein or in the
appendices hereto shall have the meanings given to them in the Agreement.
1. The Borrower shall have delivered, or caused to be delivered, to
each Bank:
(a) a duplicate original of the Agreement executed on the Borrower's
behalf by its duly authorized officer.
(b) a duly executed Note payable to its order and otherwise complying
with the provisions of Section 1.02 of the Agreement.
(c) the Deed of Trust executed on the Borrower's behalf by its duly
authorized officer and such Deed of Trust shall have been recorded in the
Register's Office of Knox County, Tennessee.
(d) the Security Agreement executed on the Borrower's behalf by its
duly authorized officer.
(e) UCC Financing Statements executed on the Borrower's behalf by its
duly authorized officer and such Financing Statements shall have been recorded
in the proper filing offices.
(f) the written opinion of Kramer, Rayson, Leake, Rodgers & Morgan,
counsel to the Borrower, substantially in the form attached as Appendix 1 to
this Exhibit, and addressing such other legal matters as the Banks and their
counsel may require.
2. The Borrower shall have delivered, or caused to be delivered, to
the Loan Administrator:
(a) a copy of the Borrower's Articles of Incorporation or Charter, as
amended, certified as of a recent date by a State Official.
(b) a certificate of a State Official, dated as of a recent date, as
to the good standing and charter documents of the Borrower on file in the
office of such State Official.
(c) a certificate of the Secretary or an Assistant Secretary of the
Borrower dated as of the Closing Date substantially in the form attached as
Appendix 2 to this Exhibit.
(d) a certificate of the Chief Financial Officer of the Borrower,
substantially in the form attached as Appendix 3 to this Exhibit, certifying
that (I) the Borrower is in compliance with all the terms and provisions of
the Agreement and at the time of and immediately after such borrowing no
Default has occurred or is continuing and (ii) the representations and
warranties contained in Article IV of the Agreement are true and correct.
<PAGE>
(e) certified copies of all consents and required governmental
approvals, if any, necessary for the execution, delivery and performance of
the Agreement, the Notes, and the other Loan Documents and the transactions
contemplated thereby.
(f) payment in full of all fees required to be paid on the Closing
Date (including the fees, if any, payable pursuant to Section 1.05 of the
Agreement) and all of the Banks' out-of-pocket costs and expenses (including
counsel fees and disbursements) payable in accordance with Section 10.03 for
which invoices have been submitted on or prior to such date.
(g) a notice of such Loan as required by Section 1.02 of the
Agreement.
(h) such other documents as the Loan Administrator, the Banks and/or
their counsel may request, including, without limitation, (I) an appraisal of
the Borrower's premises located at 835 Innovation Drive, Knoxville, Tennessee,
(ii) an environmental survey of those premises, (iii) a title insurance
commitment in favor of the Loan Administrator and/or Banks, and (iv) a metes
and bounds property survey of the premises identified in (I) above, all in
form and substance reasonably satisfactory to the Loan Administrator and the
Banks.
<PAGE>
APPENDIX 1
FORM OF OPINION
[Letterhead of Counsel to Borrower]
June 14, 1996
[Addressed to the Loan Administrator and the Banks]
Dear Sirs:
We have acted as counsel to Computational Systems, Incorporated a
Tennessee corporation ("Borrower"), in connection with the preparation,
execution and delivery of the Amended and Restated Credit Agreement dated as
of June 14, 1996 (the "Credit Agreement"), among the Borrower and First
American National Bank, as loan administrator (the "Loan Administrator") and
lender, and the lenders named therein (collectively, the "Banks").
Terms capitalized but not defined herein shall have the meanings given
to them in the Credit Agreement.
In so acting, we have reviewed executed copies of the Credit Agreement,
the Notes and the other Loan Documents. We have relied upon originals or
copies certified or otherwise identified to our satisfaction, of such records,
documents, certificates, and other instruments, and have made such other
investigations, as in our judgment are necessary or appropriate to enable us
to render the opinions expressed below. Except with respect to the Borrower,
we have assumed the genuineness of all signatures and the authenticity of all
documents submitted to us as originals, the conformity to original documents
of all documents submitted to us as certified copies or photocopies and the
authenticity of the originals of such latter documents.
Based upon and subject to the foregoing and the qualifications and
assumptions set forth below, we are of the opinion that:
1. The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of Tennessee. The Borrower has
the corporate power and authority to own its properties and to carry on its
businesses as now conducted and is duly qualified to do business, and is in
good standing as a foreign entity in all jurisdictions wherein such
qualification is required by reason of the nature of its business and
activities or the location of its property. The Borrower has the corporate
power to execute, deliver and perform the Credit Agreement, to borrow
thereunder and to execute and deliver the Notes.
2. The execution and delivery by the Borrower of, and performance by
the Borrower of the obligations provided for in, the Loan Documents have been
duly authorized by all proper and necessary corporate action. Each of the
Loan Documents to which the Borrower is a party has been duly executed and
delivered by the Borrower.
3. The Loan Documents constitute the legal, valid and binding
obligations of the Borrower, enforceable against the Borrower in accordance
with their terms, except as may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the rights of
creditors generally and (b) general principles of equity (whether considered
in a proceeding at law or in equity).
<PAGE>
4. No action, suit, proceeding, inquiry or investigation before or
by any arbitrator or any court, public body, board, administrative agency or
other Governmental Authority is pending or, to best of our knowledge,
threatened against or affecting the Borrower.
5. To the best of our knowledge, the Borrower is not in default with
respect to any judgment, writ, injunction, decree, rule or regulation of any
governmental instrumentality or other agency where such default could have a
material and adverse effect on the financial condition of the Borrower.
6. No approval of, consent from or filing with, any Governmental
Authority or any other Person, which approval, consent or filing has not
heretofore been obtained, given or made, is required in connection with the
execution and delivery by the Borrower of any of the Loan Documents.
7. The execution and delivery of the Loan Documents, the
consummation of the transactions therein contemplated, the performance of and
compliance with the provisions thereof and the application of the proceeds of
the Loans as therein contemplated do not and will not (A) violate, conflict
with, result in the breach of, or constitute a default under (I) any provision
of law, (ii) the Organizational Documents of the Borrower, (iii) any
instrument, agreement or contract to which the Borrower is a party, or by or
to which the Borrower or any properties of the Borrower may be affected, bound
or subject, or (iv) any order, writ, injunction or decree of any court,
arbitrator or Governmental Authority, or (B) result in the creation or
imposition of any lien, charge or encumbrance upon any assets of the Borrower
except in favor of the Loan Administrator (as collateral agent for the benefit
of the Banks) and/or the Bank.
8. The execution, delivery and performance of the Credit Agreement and
the use of the proceeds of the Loans thereunder do not and will not constitute
a violation of Regulations G, X or U of the Board of Governors of the Federal
Reserve System.
9. The Security Agreement is in a form sufficient to create a valid
security interest under Article 9 of the Code in those items and types of
Collateral which are subject to the provisions of Article 9 of the Code (such
Collateral collectively referred to hereinafter as the "UCC Collateral") as
security for the payment of the Obligations. We express no opinion as to the
status of title to, or concerning the priority of any lien or security
interest encumbering the UCC Collateral.
The UCC-3 Financing Statements to be filed in Tennessee are in proper
form for filing in the Office of the Secretary of State of Tennessee (the
"Filing Office"). With respect to the UCC-3 Assignments executed by First
American National Bank in favor of the Loan Administrator in connection with
First American National Bank's assignment of its security interest in the UCC
Collateral to the Loan Administrator (collectively, the "UCC-3 Assignments"),
the due filing and indexing of the UCC-3 Assignments among the financing
statements records of the Filing Office will be sufficient to validly assign
the security interest perfected by the UCC-1 Financing Statements referred to
in the UCC-3 Assignments to the Loan Administrator as secured party for the
benefit of the Banks, and such UCC-3 Assignments shall not act to terminate
the security interest previously perfected by the UCC-1 Financing Statement
referred to in the UCC-3 Assignments. Once value has been given by the Banks,
<PAGE>
the due filing and indexing of the UCC-3 Assignments among the financing
statements records of the Filing Office will be sufficient to perfect and/or
continue the perfection of, as applicable, the security interests created by
the Security Agreement in those items and types of the UCC Collateral in which
a security interest may be perfected by the filing of a financing statement in
the State of Tennessee under the Code. No further filing or refiling or any
other action is necessary under the Code to perfect or maintain such
perfection, except that a continuation statement must be filed within the
period of eight months prior to the expiration of five years from the date of
each original filing and within the period of eight months prior to the
expiration of each succeeding period of five years from the date of such
original filing to maintain the effectiveness of the filings referred to in
this paragraph.
10. The Deed of Trust creates in favor of the Loan Administrator for
the benefit of the Banks a legal, valid, binding and enforceable lien
encumbering the Borrower's interest in the real property described in the Deed
of Trust. With respect to all matters of title to the real property described
in the Deed of Trust, we understand that you are relying upon a mortgagee
title insurance policy being issued effective as of this date and, thus, we
express no opinion as to the status of title to such real property or
concerning the priority of the real property lien on the Deed of Trust.
11. The payment by the Borrower and receipt by the Banks, as
applicable, of interest and other payments required to be paid pursuant to the
terms of the Credit Agreement and the Notes will not constitute unlawful
interest or otherwise violate the usury laws of the State of Tennessee.
This opinion is being delivered to you at the request of our clients
pursuant to Section 1 of Exhibit C to the Credit Agreement. This opinion is
solely for your benefit and may not be relied upon by any other person without
our prior written consent.
We are members of the Bar of the State of Tennessee and express no
opinion with respect to the law of any jurisdiction other than the laws of the
State of Tennessee and the federal laws of the United States, in each case as
in effect on the date hereof.
Very truly yours,
<PAGE>
APPENDIX 2
FORM OF SECRETARY'S CERTIFICATE
Computational Systems, Incorporated
(the "Company")
Secretary's Certificate Regarding
Incumbency, Resolutions,
Articles of Incorporation, By-Laws and Certificate of Existence
---------------------------------------------------------------
The undersigned, being the duly appointed, qualified and acting
Secretary of the Company, hereby certifies that the persons named below are,
on the date hereof, the duly elected, qualified and acting officers of the
Company and occupy the offices set opposite their respective names, and the
signatures opposite their names below are their true and correct signatures:
Name Office Signature
------------------
------------------
------------------
and hereby further certifies that:
(a) The Board of Directors of the Company adopted, on ,
at a duly called meeting at which a quorum was present and voting throughout,
the resolutions set forth in Exhibit "A" attached hereto, none of which has
been amended or repealed in any respect since such date, and all of which
remain in full force and effect as of the date hereof.
(b) Attached hereto as Exhibit "B" is a true, correct and complete
copy of the Articles of Incorporation of the Company, certified by the
appropriate State Official, and no action has been taken by the Board of
Directors of the Company or its Shareholders to amend or in contemplation of
amending the Articles of Incorporation since such certification date.
(c) Attached hereto as Exhibit "C" is a true, correct and complete
copy of the By-Laws of the Company in effect on the date hereof.
(d) Attached hereto as Exhibit "D" is a true, correct and complete
copy of the Certificate of Existence of the Company issued by the appropriate
State Official certifying the good standing of the Company in the State of
Tennessee.
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand as of this day of
June, 1996.
, Secretary
I, , of the Company do hereby
certify that is the duly elected, qualified and acting
Secretary of the Company, and that his signature set forth above is his true
signature.
IN WITNESS WHEREOF, I have hereunto set my hand as of this day of
June, 1996.
<PAGE>
APPENDIX 3
FORM OF OFFICER'S CERTIFICATE
[Company letterhead]
Computational Systems, Incorporated
(the "Company")
The undersigned, who is Chief Financial Officer of the Company, in
connection with a certain Amended and Restated Credit Agreement dated as of
June 14, 1996 (the "Credit Agreement"), among the Company, the banks listed
therein (the "Banks") and First American National Bank, as the loan
administrator for the Banks (the "Loan Administrator"), hereby certifies to
the Loan Administrator and each of the Banks that, as of the date of this
certificate:
(a) The Company is in compliance with all the terms and provisions of
the Credit Agreement and no Default has occurred or is continuing; and
(b) Each of the representations and warranties contained in Article
IV of the Credit Agreement are true and correct.
The financial statements, certificates and other reports most
recently delivered by the Borrower pursuant to Section 5.06 of the Credit
Agreement are accurate, true and complete in all material respects and do not
contain any misstatement of material fact or omitted or omit to state any
material fact necessary to make the statements therein not misleading.
Terms used herein but not defined shall have the meanings ascribed to
them in the Credit Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand as of this day of
, 1996.
COMPUTATIONAL SYSTEMS, INCORPORATED
By:
---------------------------
Bryan J. Collier
Title: Chief Financial Officer
<PAGE>
EXHIBIT D
FORM OF COMPLIANCE CERTIFICATE
[company letterhead]
[To the Loan Administrator and the Banks]
Computational Systems, Incorporated
Ladies and Gentlemen:
This certificate is delivered to you pursuant to Section 5.06 of the
Amended and Restated Credit Agreement, dated as of June 14, 1996 (the "Credit
Agreement"), among Computational Systems, Incorporated (the "Borrower"), the
banks listed therein as, or that may from time to time become, parties thereto
(collectively, the "Banks"), and First American National Bank, as the loan
administrator (the "Loan Administrator") for the Banks. Unless otherwise
defined, terms used herein (including the Attachment hereto) have the meanings
ascribed to them in the Credit Agreement.
The undersigned hereby certifies that he is the Chief Financial Officer
of Computational Systems, Incorporated, and further certifies that as of
, 199 (the "Computation Date"):
(a) the Borrower's (I) Consolidated Current Assets was $ , and
(ii) Consolidated Current Liabilities was $ , and (iii) Consolidated
Current Ratio was , as shown in detail on the Attachment hereto, which
[complies] [does not comply] with the requirements of Section 7.01 of the
Credit Agreement;
(b) the Borrower's Consolidated Tangible Net Worth was $ ,
as shown in detail on the Attachment hereto, which [complies][does not comply]
with the requirements of Section 7.02 of the Credit Agreement;
the Borrower's (I) Consolidated Adjusted EBIDA was $ ,
(ii) Consolidated Adjusted Debt Service was $ , and (iii) Consolidated
Debt Service Coverage Ratio was , as shown in detail on the Attachment
hereto, which [complies][does not comply] with the requirements of Section
7.03 of the Credit Agreement;
(d) the Borrower's (I) Consolidated Long Term Debt was $ , (ii)
Consolidated Total Net Worth was $ and (iii) ratio of Consolidated Long
Term Debt to Consolidated Total Net Worth was , as shown in detail on
the Attachment hereto, which [complies] [does not comply] with the
requirements of Section 7.04 of the Credit Agreement;
(e) the Borrower's (I) Consolidated Total Liabilities was $ ,
(ii) Consolidated Tangible Net Worth was $ , and (iii) ratio of
Consolidated Total Liabilities to Consolidated Tangible Net Worth was ,
as shown in detail on the Attachment hereto, which [complies] [does not
comply] with the requirements of Section 7.05 of the Credit Agreement; and
<PAGE>
(f) the Borrower's Capital Expenditures for the fiscal year ending
199 was $ , which [complies] [does not comply] with the requirements
of Section 7.06 of the Credit Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand as of this day of
, 19 .
COMPUTATIONAL SYSTEMS, INCORPORATED
By:
----------------------------
Bryan J. Collier
Title: Chief Financial Officer
<PAGE>
ATTACHMENT
to
\ \
Compliance Certificate of
Computational Systems, Incorporated
1. CONSOLIDATED CURRENT RATIO:
(a) Consolidated Current Assets of $
(b) Consolidated Current Liabilities of $
Ratio is to 1.0
2. CONSOLIDATED TANGIBLE NET WORTH:
(a) Consolidated Net Worth of $ , less
(b) Consolidated Intangible Assets of $ , equals
Consolidated Tangible Net Worth of $
3. CONSOLIDATED DEBT SERVICE COVERAGE RATIO:
(a) Consolidated Adjusted EBIDA:
(i) Consolidated Net Income (after taxes) of $ ,
plus
(ii) Depreciation and amortization (to the
extent deducted in determining Consolidated Net
Income) of $ , plus
(iii) Interest Expense (to the extent
deducted in determining Consolidated Net Income) of
$ , less
(iv) Dividends (paid for such period)
of $ , equals
Consolidated Adjusted EBIDA of $
(b) Consolidated Adjusted Debt Service:
(i) CMLTD (for the immediately preceding
twelve-month period) of $ , plus
(ii) Current maturities of Capital Leases
of $ , plus
(iii) Interest Expense (for the immediately preceding
twelve-month period) of $ , equals
Consolidated Adjusted Debt Service of $
Ratio of Consolidated Adjusted EBIDA to
Consolidated Adjusted Debt Service is to 1
<PAGE>
4. CONSOLIDATED LONG TERM DEBT TO CONSOLIDATED TOTAL NET WORTH:
(a) Consolidated Long Term Debt of $
(b) Consolidated Total Net Worth of $
Ratio is to 1
5. CONSOLIDATED TOTAL LIABILITIES TO CONSOLIDATED TANGIBLE NET WORTH:
(a) Consolidated Total Liabilities of $
(b) Consolidated Tangible Net Worth of $
(see 2 above)
Ratio is to 1.0
<PAGE>
EXHIBIT E
BORROWING BASE CERTIFICATE
--------------------------
Pursuant to Section 1.14 of the Amended and Restated Credit Agreement
dated as of June 14, 1996 by and among Computational Systems, Incorporated (the
"Borrower") and First American National Bank, as loan administrator and lender
and the other lenders named therein (collectively, the "Banks") (as at any time
further amended, modified, supplemented or restated, the "Credit Agreement")
(capitalized terms herein shall have the respective meanings assigned to them
in the Credit Agreement), the undersigned certifies, on behalf of the Borrower,
as follows, as of the date hereof:
1. Borrowing Base:
(a) As of the date hereof, the aggregate outstanding principal
amount of the Loans. . . . . . . . . . $
(b) If applicable, the aggregate amount of advances being
requested concurrently with the delivery of
this Certificate . . . . . . . . . . . $
Sum of 1(a) and (b) . . . . . . . . . . $
(d) Borrowing Base: Value of:
(i) 80% of Eligible Accounts Receivable,
plus . . . . . . . . $
(ii) 50% of Eligible Raw Materials Inventory,
plus. . . . . . . . $
(iii) 50% of Eligible Finished Goods
Inventory . . . . . . . . . . . . . $
Subtotal (I)-(iii) . . . . . . . . . . $
(e) Borrowing Availability ((d) less (c)) (negative
number indicates Loan will exceed Borrowing Base) $
2. By delivery of this Certificate, the Borrower hereby represents and
warrants that it is in compliance with all of the terms and provisions of the
Credit Agreement and that there exists no Event of Default specified in Section
8.01 of the Credit Agreement, and there exists no condition, event or act
which, with the giving of notice or lapse of time, or both, would constitute
such an Event of Default.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on behalf
of the Borrower as of the day of , 199 .
COMPUTATIONAL SYSTEMS, INCORPORATED
By:
-----------------------------------------
Title:
-----------------------------------------
<PAGE>
Schedule 4.01
Jurisdictions Qualified In
North Dakota
Tennessee
West Virginia
Indiana
Texas
California
Michigan (pending)
<PAGE>
Schedule 4.06(a)
List of Material Subsidiaries
NONE
List of Subsidiaries
Windrock, Inc.
MachineView, Inc.
CSI International, Inc.
Computational Systems UK Limited
Computational Systems, Inc. Europe
<PAGE>
Schedule 4.10
CSI Employee Benefit Plans
1987 Incentive Stock Option Plan
Discretionary Stock Option Plan
1990 Employee Stock Purchase Plan
Non-Employee Directors' Stock Option Plan
1994 Senior Executive Incentive Compensation Plan
1995 New Employee Stock Purchase Plan
1995 Amended and Restated Non-Employee Directors' Stock Option Plan
1995 Employee Stock Incentive Plan
Employee Health Benefit Plan
Employee Life Insurance Plan
Employee Disability Benefit Plan
401(K) Employee Savings & Retirement Plan
<PAGE>
Schedule 6.01
-------------
Additional Permitted Liens
NONE
<PAGE>
EXHIBIT 11 - EARNINGS PER SHARE
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
PRIMARY:
Weighted average number of common shares outstanding 4,798,001 3,359,246 4,781,501 3,346,350
Net effect of dilutive stock options based on the treasury
stock method using the average market price 270,387 180,640 265,862 306,380
--------- --------- --------- ---------
Weighted average number of common and common
equivalent shares outstanding 5,068,388 3,539,886 5,047,363 3,652,730
========= ========= ========= =========
Net income $949,996 $593,204 $1,451,992 873,764
Primary net income per common share as reported $0.19 $0.17 $0.29 $0.24
FULLY DILUTED:
Weighted average number of common shares outstanding 4,798,001 3,359,246 4,781,501 3,346,350
Net effect of dilutive stock options based on the treasury
stock method using the period-end market price if higher
than average price 270,387 180,640 284,453 306,380
--------- --------- --------- ---------
Weighted average number of common and common
equivalent shares outstanding 5,068,388 3,539,886 5,065,954 3,652,730
========= ========= ========= =========
Net income $949,996 $593,204 $1,451,992 $873,764
Fully diluted net income per common share as reported $0.19 $0.17 $0.29 $0.24
</TABLE>
The difference between fully diluted earnings per share and primary earnings
per share is immaterial. Therefore, fully diluted earnings per share have not
been disclosed in the financial statements.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 8867085 8867085
<SECURITIES> 0 0
<RECEIVABLES> 9411405 9411405
<ALLOWANCES> 132477 132477
<INVENTORY> 3802374 3802374
<CURRENT-ASSETS> 23176169 23176169
<PP&E> 15200231 15200231
<DEPRECIATION> 5132470 5132470
<TOTAL-ASSETS> 34025167 34025167
<CURRENT-LIABILITIES> 7185583 7185583
<BONDS> 22555 22555
0 0
0 0
<COMMON> 15738949 15738949
<OTHER-SE> 10520253 10520253
<TOTAL-LIABILITY-AND-EQUITY> 34025167 34025167
<SALES> 8354790 16287638
<TOTAL-REVENUES> 11209392 21940685
<CGS> 2014666 4330721
<TOTAL-COSTS> 4313921 8810231
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 8990 58930
<INTEREST-EXPENSE> 221 1366
<INCOME-PRETAX> 1484370 2268741
<INCOME-TAX> 534374 816749
<INCOME-CONTINUING> 949996 1451992
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 949996 1451992
<EPS-PRIMARY> .19 .29
<EPS-DILUTED> .19 .29
