EXHIBIT 10.8
AMENDMENT
NUMBER FIVE TO REVOLVING CREDIT AGREEMENT
This
AMENDMENT NUMBER FIVE TO REVOLVING CREDIT AGREEMENT (this
“Amendment”), dated as of July 1, 2005, is
entered into among NATIONAL TECHNICAL SYSTEMS, INC., a California
corporation (“Parent”), NTS TECHNICAL SYSTEMS, a
California corporation, dba National Technical Systems
(“NTS”), XXCAL, INC., a California corporation
(“XXCAL”), APPROVED ENGINEERING TEST
LABORATORIES, INC., a California corporation
(“AETL”), ETCR, INC., a California corporation
(“ETCR”), ACTON ENVIRONMENTAL TESTING
CORPORATION, a Massachusetts corporation
(“Acton”), PHASE SEVEN LABORATORIES, INC., a
California corporation (“Phase Seven”), and one
or more Subsidiaries of Parent, whether now existing or hereafter
acquired or formed, which become party to the Agreement (as defined
below) by executing an Addendum in the form of Exhibit 1 of
the Agreement (NTS, XXCAL, AETL, ETCR, Acton, Phase Seven and such
other Subsidiaries are sometimes individually referred to herein as
a “Subsidiary Borrower” and collectively
referred to herein as “Subsidiary Borrowers”,
and Subsidiary Borrowers and Parent are sometimes individually
referred to herein as a “Borrower” and collectively
referred to herein as “Borrowers”), the
financial institutions from time to time parties hereto as Lenders,
whether by execution hereof or an Assignment and Acceptance in
accordance with Section 11.5(c) of the Agreement, and Comerica
Bank, in its capacity as contractual representative for itself and
the other Lenders (“Agent”), with reference to
the following facts:
A. Borrowers
(other than Phase Seven), Agent and Lenders previously entered into
that certain Revolving Credit Agreement, dated as of November 21,
2001, as amended by that certain Amendment Number One to Revolving
Credit Agreement, dated as of July 17, 2002, that certain Amendment
Number Two to Revolving Credit Agreement, dated as of November 25,
2002, that certain Amendment Number Three to Revolving Credit
Agreement, dated as of July 21, 2003, and that certain Amendment
Number Four to Revolving Credit Agreement, dated as of July 30,
2004 (as amended, the “Agreement”);
B. Borrowers
(other than Phase Seven) and Agent, in its capacity as Agent for
the Lenders, entered into that certain Security Agreement, dated as
of November 21, 2001 (the “Security
Agreement”);
C. Concurrent
herewith, Phase Seven is executing and delivering an Addendum to
Revolving Credit Agreement and an Addendum to Security Agreement in
order to become a Borrower under the Agreement and the Security
Agreement; and
D
Borrowers,
Agent and Lenders desire to further amend the Agreement in
accordance with the terms of this Amendment.
NOW,
THEREFORE, in consideration of the foregoing, the parties hereto
hereby agree as follows:
1.
Defined Terms. All initially capitalized terms used but not
defined herein shall have the meanings assigned to such terms in
the Agreement.
22
2
Amendments to the Agreement.
2.1
Borrowers. All references to “Borrowers” in the
Agreement shall include Phase Seven.
2.2
Definitions.
(a)
The
following definitions set forth in Section 1.1 of the Agreement are
hereby amended in their entirety as follows:
|
|
|
|
|
“Borrowing” means a borrowing of Revolving Loans
or Equipment Loans from the Revolving Loan Lenders or Equipment
Loan Lenders, as applicable, pursuant to the terms and conditions
hereof.
|
|
|
|
|
|
“Commitment” means a Lender’s Revolving
Credit Commitment, Term Loan Commitment, and/or Equipment Loan
Commitment, as the context requires.
|
|
|
|
|
|
“Consolidated Adjusted Net Income” means, with
respect to any period, the consolidated net income of Borrowers and
the Subsidiaries after all federal, state and local income taxes
reflected on Borrowers’ Financial Statement for such period,
calculated in accordance with GAAP plus (x) any non-cash
compensation paid to Borrowers’ and the Subsidiaries’
officers, directors and employees, including non-cash stock option
expense determined in accordance with FAS 123R and (y) the
write-off of goodwill, if any, as required by FASB 142.
|
|
|
|
|
|
“Debt Service Coverage Ratio” means, with the
exception of test dates July 31, 2005 and October 31, 2005, for the
rolling four fiscal quarter period ending on the date of
determination, the ratio of (i) the sum of: (1) Consolidated
Adjusted Net Income for such period, plus (2) each
Borrower’s and the Subsidiaries’ consolidated
depreciation and amortization expense for such period (including
any non-cash compensation paid to Borrowers’ and the
Subsidiaries’ officers, directors, employees, and agents),
minus (3) any Distributions paid or Capital Stock of each
Borrower acquired or any other action taken under Section 7.10
during such period, plus or minus (4) any change in
Borrowers’ deferred federal or state taxes during such
period, minus (5) unfunded cash Capital Expenditures during
such period (including any fixed assets acquired pursuant to a
Permitted Acquisition), to (ii) the sum of: (1) the current portion
of Borrowers’ long term Debt that came due during such
period, plus (2) the current portion of Borrowers’
Capital Lease Obligations that came due during such period. For
test dates July 31, 2005 and October 31, 2005, the calculations of
Debt Service Coverage Ratio shall be based on the annualized year
to date numbers.
|
|
|
|
|
|
“Fees” means the Closing Fee, the Facility Fee,
the Equipment Fee, the Late Payment Fee, the Letter of Credit Fees
and the Audit Fees.
|
23
“Interest Payment Date” means:
|
|
|
|
|
(i)
with respect to each Prime Lending Rate Portion, the last day of
each and every month commencing the last such day after the making
of such Loan, and the Equipment Loans Maturity Date (in the case of
the Equipment Loans), the Revolving Loans Maturity Date (in the
case of the Revolving Loans), and the Term Loans Maturity Date (in
the case of the Term Loans);
|
|
|
|
|
|
(ii)
with respect to each LIBOR Lending Rate Portion, the earlier of:
(1) the last day of the Interest Period with respect thereto, or
(2) if the Interest Period has a duration of more than three
months, every LIBOR Business Day that occurs during such Interest
Period every three months from the first day of such Interest
Period; and
|
|
|
|
|
|
(iii)
with respect to the COF Lending Rate Loans, the last day of each
and every month, and the Equipment Loans Maturity
Date.”
|
|
|
|
|
|
“Loans” means the Revolving Loans, the Term
Loans and the Equipment Loans (each, a “Loan”)
.
|
|
|
|
|
|
“Notes” means, collectively, the Revolving
Notes, the Term Notes and the Equipment Loans Notes (each, a
“Note”) .
|
|
|
|
|
|
“Revolving Loans Maturity Date” means August 1,
2007.
|
|
|
|
|
|
“Total Commitment Percentage” means, with
respect to any Lender, the percentage equal to sum of such
Lender’s Revolving Loan Commitment, Term Loan Commitment, and
Equipment Loan Commitment, divided by the Total
Credit.”
|
|
|
|
|
(b)
The definition of “ Interest Period” in Section
1.1 of the Agreement is hereby amended to amend clause (iii) to
read as follows:
|
|
|
|
|
|
(iii)
no Interest Period respecting a Revolving Loan may extend beyond
the Revolving Loans Maturity Date, and no Interest Period
respecting the Term Loans may extend beyond the Term Loans Maturity
Date.
|
|
|
|
|
(c) The
following definitions are hereby added to Section 1.1 of the
Agreement in alphabetical order:
|
|
|
|
|
|
“Amendment Date” means the date when all of the
conditions set forth in Section 4 of Amendment No. 5 have been
fulfilled to satisfaction of Agent and counsel.
|
|
|
|
|
|
“Amendment No. 5” means that certain Amendment
Number Five to Revolving Credit Agreement, dated as of July 1,
2006, among Borrowers, Agent and Lenders.
|
24
|
|
|
|
|
“COF” means the ratedetermined by Agent, in its
sole discretion, from time to time as its cost of funds, as such
rate may change from time to time.
|
“COF Lending
Rate” means the sum
of the COF (as of the date the Equipment Loans have been converted
to COF Lending Rate Loans pursuant to Borrowers’ exercise of
their option under Section 2.4(a)(iii)) plus two and one half
percentage points (250 basis points).
“COF Lending Rate Loans” means the Equipment
Loans if the Borrower has elected to convert all of such Loans to
bear interest at the COF Lending Rate pursuant to Section
2.4(a)(iii).
“Equipment” has the meaning given to such term
in the Security Agreement.
“
Equipment Fee” has the meaning given to such term in
Section 2.15(e).
“Equipment Loan Commitment” means, with respect
to any Equipment Loan Lender, the amount indicated under such
Lender’s name on Schedule 1.1 C under the heading Equipment
Loan Commitment or, in the case of any Lender that is an assignee
Lender pursuant to Section 11.5(c), the amount of the assigning
Lender’s Equipment Loan Commitment assigned to such assignee
Lender (collectively, the “ Equipment Loan
Commitments”).
“Equipment Loan Commitment Percentage” means,
with respect to any Equipment Loan Lender, the percentage indicated
on Schedule 1.1 C under the heading Equipment Loan Commitment
Percentage or, in the case of any Lender that is an assignee Lender
pursuant to Section 11.5(c), the percentage of the assigning
Lender’s Equipment Loan Commitment assigned to such assignee
Lender.
“Equipment Loan Lender” means each of the
Lenders indicated on Schedule 1.1 C under the heading Equipment
Loan Lenders, and also means any assignee of such Lender pursuant
to Section 11.5(c).
“Equipment Loans” has the meaning given to such
term in Section 2.3(a). “ Equipment
Loans Conversion Date” means June 30, 2006.
“Equipment Loans Maturity Date” means June 30,
2010.
“Equipment Loans Notes” means, collectively, the
promissory notes executed by each Borrower to the order of each
Lender pursuant to Section 2.11(a) to evidence such Lender’s
Equipment Loans.
“Prepaid Principal Amount” means the principal
balance of the COF Lending Rate Loans that Borrowers have elected
to prepay, or the amount of the principal balance of the COF
Lending Rate Loans that Borrowers must prepay because of
acceleration, as the case may be.
“Prepayment Amount” means:
(i) If
the Prepaid Principal Amount exceeds Seven Hundred Fifty Thousand
Dollars ($750,000), then the Prepayment Amount is the sum of: (x)
the Prepaid Principal
25
Amount; (y) interest accruing on
the Prepaid Principal Amount up to, but not including, the
Prepayment Date; (z) Five Hundred Dollars ($500.00); plus the
present value, discounted at the Reinvestment Rates of the positive
amount by which (A) the interest the Equipment Loan Lenders would
have earned had the Prepaid Principal Amount not been paid prior to
the Equipment Loans Maturity Date at the COF Lending Rate, exceeds
(B) the interest the Equipment Loan Lenders would earn by
reinvesting the Prepaid Principal Amount at the Reinvestment
Rates.
(ii)
If the
Prepaid Principal Amount is Seven Hundred Fifty Thousand Dollars
($750,000) or less, then the Prepayment Amount is the sum of: (x)
the Prepaid Principal Amount; (y) interest accruing on the Prepaid
Principal Amount up to, but not including, the Prepayment Date;
plus (z) an amount equal to two percent (2%) of the Prepaid
Principal Amount.
“Prepayment Date” means the date of any
prepayment of the COF Lending Rate Loans pursuant to Section
2.16(c).
“Reinvestment Rates” mean the per annum rates of
interest equal to one half percent (1/2%) above the rates of
interest reasonably determined by Agent to be in effect not more
than seven (7) days prior to the Prepayment Date in the secondary
market for United States Treasury Obligations in amount(s) and with
maturity(ies) which correspond (as closely as possible) to the COF
Lending Rate Loans being prepaid.
“Term Loan Commitment” means, with respect to
any Term Loan Lender, the amount indicated opposite such
Lender’s name on Schedule 1.1 C under the heading Term Loan
Commitment or, in the case of any Lender that is an assignee Lender
pursuant to Section 11.5(c), the amount of the assigning
Lender’s Term Loan Commitment assigned to such assignee
Lender (collectively, the “Term Loan
Commitments”).
“Term Loan Commitment Percentage” means, with
respect to any Term Loan Lender, the percentage indicated on
Schedule 1.1 C under the heading Term Loan Commitment Percentage
or, in the case of any Lender that is an assignee Lender pursuant
to Section 11.5(c), the percentage the assigning Lender’s
Term Loan Commitment assigned to such assignee Lender.
“Term Loan Lender” means each of the Lenders
indicated on Schedule 1.1 C under the heading Term Loan Lenders,
and also means any assignee of such Lender pursuant to Section
11.5(c).
“Term Loans Maturity Date” means June 30,
2010.
26
“Term
Notes” means,
collectively, the promissory notes executed by each Borrower to the
order of each Lender pursuant to Section 2.11(a) to evidence
such Lender’s Term Loan.
“Total Credit” means $21,000,000.
2.3
Term Loans. Section 2.2 of the Agreement is hereby amended
as follows:
2.2
The Term Loans.
(a)
Several Term Loans. Subject to the terms and conditions
hereof, each Term Loan Lender severally agrees to make a term loan
(each a “Term Loan” and collectively the
“Term Loans” ) to Borrowers on the Amendment
Date, in an amount equal to each such Term Loan Lender’s Term
Loan Commitment, the proceeds of which shall only be used for the
purposes allowed in Section 7.1(c). Each Term Loan Lender shall
make the amount of such Lender’s Term Loan available to Agent
in same day funds, not later than 9:00 a.m. (Pacific time), on the
Amendment Date. After Agent’s receipt of the proceeds of such
Term Loans, upon the effectiveness of Amendment No. 5, Agent shall
apply the proceeds of such Term Loans to repay $2,500,000 of
Revolving Loans outstanding on the Amendment Date.
(b)
Amortization. Borrowers shall pay sixty monthly principal
reduction payments on the Term Loans, each in the aggregate amount
of $41,667. Each such payment shall be due and payable on the last
day of each month commencing July 31, 2005 and continuing on the
last day of each succeeding month. On the Term Loans Maturity Date,
the outstanding principal balance, and all accrued and unpaid
interest under the Term Loans shall be due and payable in full.
Borrowers may prepay the Term Loans at any time, in whole or in
part, without penalty or premium except as otherwise required by
Section 2.7(a) with respect to repayments of LIBOR Lending Rate
Portions. All principal amounts so repaid or prepaid may not be
reborrowed. Borrowers shall give Agent at least two (2) LIBOR
Business Days’ prior written notice of any prepayment of a
LIBOR Lending Rate Portion, upon receipt of which, Agent shall
promptly give notice to each Term Loan Lender. Upon receipt of any
such notice of a prepayment, Agent shall promptly notify each Term
Loan Lender thereof. Agent shall, promptly following its receipt of
any payment or prepayment of the Term Loans, distribute to each
Term Loan Lender its pro rata share (based upon the principal
amounts outstanding) of all amounts received by Agent pursuant to
this Section 2.2 for each such Term Loan Lender’s respective
account. All prepayments shall be applied toward scheduled
principal reductions payments owing under this Section 2.2 in
inverse order of maturity.
27
2.4
Equipment Loans. Section 2.3 of the Agreement is hereby
amended as follows:
2.3
Equipment Loans.
(a)
Several Equipment Loans. Subject to the terms and conditions
hereof, from the Amendment Date up to but not including the
Equipment Loans Conversion Date, each Equipment Loan Lender
severally agrees to make a series of term loans (each, an
“Equipment Loan” and collectively the
“Equipment Loans”) to or for the benefit of
Borrowers, in an amount equal to such Equipment Loan Lender’s
Equipment Loan Percentage of each Borrowing of Equipment Loans, up
to an aggregate amount not to exceed such Equipment Loan
Lender’s Equipment Loan Commitment. Each Borrowing consisting
of Equipment Loans shall be advanced directly to the applicable
vendor or Borrower, as Borrowers may request. The foregoing to the
contrary notwithstanding, (i) each Borrowing consisting of
Equipment Loans shall be in an amount, as determined by the
Equipment Loan Lenders, not to exceed 100% of Borrowers’
invoice cost (net of shipping, freight, installation, and other
so-called “soft costs”) of new Equipment that is to be
purchased by Borrowers with the proceeds of such Borrowing, or new
Equipment that has been purchased and accepted by Borrowers within
30 days prior to the date of such Borrowing, (ii) the Equipment
that is to be acquired or that has been purchased by Borrowers must
be acceptable to the Equipment Loan Lenders in all respects, and,
except for any Equipment that is or will be installed on any Real
Property Collateral upon delivery to Borrowers, not be a fixture,
and not be intended to be affixed to real property or to become
installed in or affixed to other goods unless waivers or fixture
filings acceptable to the Equipment Loan Lenders and Agent have
been obtained, and (iii) the Equipment Loan Lenders shall have no
obligation to fund any Equipment Loans hereunder to the extent that
the making thereof would cause the then outstanding amount of all
Equipment Loans to exceed the aggregate Equipment Loan Commitments.
On the Equipment Loans Conversion Date, each Equipment Loan
Lender’s obligations to make Equipment Loans to Borrowers
shall cease. Each Borrowing of Equipment Loans shall be in a
minimum amount of $100,000.
(b)
Payments. From the Amendment Date until the Equipment Loans
Conversion Date, no principal payments shall be due on the
outstanding Equipment Loans; provided that Borrowers shall
make interest payments thereon during such period in accordance
with Section 2.4. The aggregate amount of all Equipment Loans
outstanding on the Equipment Loans Conversion Date shall be
repayable in equal monthly installments of principal, each such
installment in an amount equal to 1/48th of the aggregate principal
amount of Equipment Loans outstanding on the Equipment Loans
Conversion Date, and such installments to be due and payable on the
last day of each month commencing July 31, 2006 and continuing on
the last day of each succeeding month until the Equipment Loans
Maturity Date, whereupon the entire remaining unpaid principal
balance of the Equipment Loans together with all accrued but unpaid
interest thereon shall be due and payable.
(c)
Prepayment. Borrowers may prepay the Equipment Loans at any
time, in whole or in part, without penalty or premium except as
otherwise required by Section 2.16 with respect to prepayments of
COF Lending Rate Loans. All principal amounts so repaid or prepaid
may not be reborrowed. Agent shall, promptly following its receipt
of any payment or prepayment of the Equipment Loans, distribute to
each Equipment Loan Lender, its pro rata share (based upon the
principal amounts outstanding) of all amounts received by
Agent
28
|
|
|
|
|
pursuant to this Section 2.3 for
each such Lender’s respective account. All prepayments shall
be applied toward scheduled principal reductions payments owing
under Section 2.3(b) in inverse order of maturity.
|
|
|
|
|
|
2.5
Interest Rates. Section 2.4(a) of the Agreement is
hereby amended as follows:
|
|
|
|
|
|
(a)
Interest Rate Options.
|
|
|
|
|
|
(i)
Revolving Loans. Subject to the terms and conditions hereof,
all Revolving Loans, or portions thereof, may be outstanding as
either Prime Lending Rate Portions or LIBOR Lending Rate Portions,
by designating, in accordance with Sections 2.5(b) and 2.6(b),
either the Prime Lending Rate or the LIBOR Lending Rate to apply to
all or any portion of the unpaid principal balance of the Revolving
Loans; provided, however, there shall be no more than
three (3) LIBOR Lending Rate Portions of Revolving Loans
outstanding at any time. LIBOR Lending Rate Portions shall be in
minimum amounts each of One Million Dollars
($1,000,000).
|
|
|
|
|
|
(ii)
Term Loans. Subject to the terms and conditions hereof, the
Term Loans, or portions thereof, may be outstanding as either Prime
Lending Rate Portions or LIBOR Lending Rate Portions, by
designating, in accordance with Sections 2.5(b) and 2.6(b), either
the Prime Lending Rate, or the LIBOR Lending Rate to apply to all
or any portion of the unpaid principal balance of the Term Loans;
provided, however, there shall be no more than two
(2) LIBOR Lending Rate Portions of Term Loans outstanding at any
time. LIBOR Lending Rate Portions of Term Loans shall be in minimum
amounts each of One Million Dollars ($1,000,000).
|
|
|
|
|
|
(iii)
Equipment Loans. Subject to the terms and conditions hereof,
all Equipment Loans shall be outstanding as Prime Lending Rate
Portions; provided, however, at any time from and
after the Equipment Loans Conversion Date, Borrowers shall have the
option to convert the entire outstanding balance of Equipment Loans
to COF Lending Rate Loans upon three (3) Business Days’ prior
written notice to Agent.. If Borrowers fail to exercise such
option, the Equipment Loans shall continue to be outstanding as
Prime Lending Rate Portions from and after the Equipment Loans
Conversion Date. Once the Equipment Loans have been converted to
COF Lending Rate Loans pursuant to this clause (iii), such COF
Lending Rate Loans may not be converted back to Prime Lending Rate
Portions.
|
|
|
|
2.6
Notice of Borrowing Requirements. Section 2.5 of the
Agreement is hereby amended as follows:
2.5
Notice of Borrowing Requirements.
|
|
|
|
|
(a)
Each Borrowing of a Prime Lending Rate Portion shall be made on a
Business Day, and each Borrowing of a LIBOR Lending Rate Portion
shall be made on a LIBOR Business Day.
|
29
|
|
|
|
|
(b) Each
Borrowing shall be made upon telephonic notice given by a
Responsible Officer of Borrowers, followed by a Notice of
Borrowing, given by facsimile or personal service, delivered to
Agent at the address set forth in the Notice of Borrowing. If for a
Prime Lending Rate Portion, Age
|
