EXHIBIT 10.16
AMENDMENT NUMBER TEN TO REVOLVING CREDIT
AGREEMENT
This AMENDMENT NUMBER TEN TO
REVOLVING CREDIT AGREEMENT (this “ Amendment ”),
dated as of May __, 2008, 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 ”), UNITED STATES
TEST LABORATORY, L.L.C., a Kansas limited liability company
(“ USTL ”), ELLIOTT LABORATORIES, LLC, a
California limited liability company (“ ELA ”)
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, USTL, ELA 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 ELA), Agent and Lenders are parties to 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, that certain Amendment Number Four to Revolving
Credit Agreement, dated as of July 30, 2004, that certain Amendment
Number Five to Revolving Credit Agreement, dated as of July 1,
2005, that certain Amendment Number Six to Revolving Credit
Agreement, dated as of March 29, 2006, that certain Amendment
Number Seven to Revolving Credit Agreement, dated as of September
21, 2006, that certain Amendment Number Eight to Revolving Credit
Agreement, dated as of September 26, 2007, and that certain
Amendment Number Nine to Revolving Credit Agreement, dated as of
December 5, 2007 (as so amended, the “ Agreement
”);
B. Borrowers (other
than ELA) 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, ELA 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.
2.
Consent . Borrowers have informed Agent and Lenders that
Parent intends to acquire by merger Elliott Laboratories, Inc., a
California corporation (the “ Acquisition ”).
After the merger transactions are consummated, Elliott
Laboratories, Inc. will have been merged into ELA with ELA being
the surviving company. In connection with the Acquisition, Parent
and, if applicable, its designee will owe certain holdback and
earnout obligations to the former shareholders of Elliott
Laboratories, Inc. (collectively, the “ Earnout
”). Borrowers have therefore requested that the Lenders
consent to the Acquisition and the Earnout. Notwithstanding any
term or provision of the Agreement to the contrary, the Lenders
hereby consent to the Acquisition and the Earnout, and agree that
the Acquisition and the Earnout shall not cause an Event of
Default. The consent set forth herein shall be limited precisely as
written and shall not be deemed to be (i) an amendment, waiver,
consent, or modification of any other term or condition of the
Agreement, or (ii) prejudice any right or remedy which the Lenders
may now or in the future have under or in connection with the
Agreement.
3.
Amendments to the Agreement .
3.1
Borrowers . All references to “ Borrowers
” in the Agreement shall include ELA.
3.2
Definitions .
(a)
The following definitions set forth
in Section 1.1 of the Agreement are hereby amended in their
entirety as follows:
“
Amendment Date ” means the date when all of the
conditions set forth in Section 4 of Amendment No. 10 have been
fulfilled to satisfaction of Agent and counsel.
“
Commitment ” means a Lender’s Revolving Credit
Commitment, Term Loan A Commitment, Term Loan B Commitment and/or
Term Loan C Commitment, as the context requires.
“
Excess Cash Flow ” means, for the applicable fiscal
year of Borrowers, the result of (i) Consolidated Net Income, plus
(ii) to the extent deducted from Consolidated Net Income, each
Borrower’s consolidated depreciation, amortization and
non-cash stock option expenses during such fiscal year, plus any
decrease or minus any increase, as applicable, in (iii) Adjusted
Working Capital for such fiscal year, minus (iv) the sum of (a)
unfinanced Capital Expenditures made during such fiscal year up to
the applicable amount set forth in Section 7.12, (b) all regularly
scheduled payments of principal made on Funded Debt (excluding the
Revolving Loans and any other revolving Funded Debt) during such
fiscal year, and (c) the amount of any optional prepayments made on
the Term Loans A, the Term Loans B and the Term Loans C during such
fiscal year (excluding the proceeds of Permitted Real Estate Sales
applied as permanent reductions to the Term Loans A, the Term Loans
B and the Term Loans C); in each case calculated in accordance with
GAAP.
“
Interest Payment Date ” means:
(i) with
respect to each Prime Lending Rate Portion, the last day of each
and every quarter commencing the last such day after the making of
such Loan, and the Revolving Loans Maturity Date (in the case of
the Revolving Loans), the Term Loans A Maturity Date (in the case
of the Term Loans A), the Term Loans B Maturity Date (in the case
of the Term Loans B), and the Term Loans C Maturity Date (in the
case of the Term Loans C).
(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 quarter, and the Term Loans A Maturity Date.
“
LIBOR Lending Rate Margin ” means (a) with respect to
all Revolving Loans, two percentage points (200 basis points), (b)
with respect to the Term Loans A and the Term Loans B, two and
one-quarter percentage points (225 basis points), and (c) with
respect to the Term Loans C, two and one-half percentage points
(250 basis points).
“
Loans ” means the Revolving Loans, the Term Loans A,
the Term Loans B, and the Term Loans C (each, a “ Loan
”).
“
Notes ” means, collectively, the Revolving Notes, the
Term A Notes, the Term B Notes, and the Term C Notes (each, a
“ Note ”).
“
Permitted Real Estate Sales ” means, collectively, the
Boxborough Real Estate Sale, the 118 Acre Parcel Sale, the Acton
Real Estate Sale and the Fullerton Real Estate Sale.
“
Prime Lending Rate ” means the variable per annum rate
equal to: (a) with respect to Revolving Loans and Term Loans A and
Term Loans B, the Prime Rate minus one quarter of one percentage
point (25 basis points); and (b) with respect to Term Loans C, the
Prime Rate.
“
Total Commitment Percentage ” means, with respect to
any Lender, the percentage equal to sum of such Lender’s
Revolving Loan Commitment, Term Loan A Commitment, Term Loan B
Commitment and Term Loan C Commitment, divided by the Total
Credit.
“
Total Credit ” means $43,829,000.
“
Interest Period ” means, with respect to each LIBOR
Lending Rate Portion, the period commencing on the date of such
LIBOR Lending Rate Portion and ending on the numerically
corresponding day one (1), two (2), three (3), four (4), five (5),
six (6) or twelve (12) months thereafter as Parent or any Borrower
may elect pursuant to the applicable Notice of Borrowing or Notice
of Conversion or Continuation; provided , however ,
that:
(i) any
Interest Period which would otherwise end on a day which is not a
LIBOR Business Day shall be extended to the next succeeding LIBOR
Business Day unless such LIBOR Business Day falls in another
calendar month in which case such Interest Period shall end on the
immediately preceding LIBOR Business Day;
(ii) any
Interest Period which begins on the last LIBOR Business Day of the
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such
Interest Period) shall end on the last LIBOR Business Day of the
calendar month in which it would have ended if there were a
numerically corresponding day in such calendar month;
and
(iii) no
Interest Period respecting a Revolving Loan may extend beyond the
Revolving Loans Maturity Date, no Interest Period respecting the
Term Loans A may extend beyond the Term Loans A Maturity Date, no
Interest Period respecting the Term Loans B may extend beyond the
Term Loans B Maturity Date, and no Interest Period respecting the
Term Loans C may extend beyond the Term Loans C Maturity
Date.
(b) The
following definitions are hereby added to Section 1.1 of the
Agreement in alphabetical order:
“
Acton Real Estate ” means the commercial real estate
owned by ETCR -and located at 533 Main Street, Acton,
MA.
“
Acton Real Estate Sale ” means the sale of the Acton
Real Estate.
“
Acton Real Estate Sale Proceeds ” means the proceeds
received from the Acton Real Estate Sale in an amount equal to the
greater of (i) $1,807,500, or (ii) the sale price of the Acton Real
Estate, net of taxes and documented out-of-pocket costs and
expenses incurred in connection with such sale.
“
Amendment No. 10 ” means that certain Amendment Number
Ten to Revolving Credit Agreement, dated as of May __, 2008, among
Borrowers, Agent and Lenders.
“
ELA ” means Elliot Laboratories, LLC, a California
limited liability company.
“
ELA Acquisition ” means the acquisition by Parent (or
its designee), through two successive merger transactions, of
Elliott Laboratories, Inc., a California corporation.
“
Fullerton Real Estate ” means the commercial real
estate owned by ETCR and located at 1536 E. Valencia Drive,
Fullerton, CA.
“
Fullerton Real Estate Sale ” means the sale of the
Fullerton Real Estate.
“
Fullerton Real Estate Sale Proceeds ” means the
proceeds received from the Fullerton Real Estate Sale in an amount
equal to the greater of (i) $3,825,000, or (ii) the sale price of
the Fullerton Real Estate, net of taxes and documented
out-of-pocket costs and expenses incurred in connection with such
sale.
“
Term Loan C Commitment ” means, with respect to any
Term Loan C Lender, the amount indicated opposite such
Lender’s name on Schedule 1.1C under the heading Term Loan C
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 C Commitment assigned to such assignee
Lender (collectively, the “ Term Loan C Commitments
”).
“
Term Loan C Commitment Percentage ” means, with
respect to any Term Loan C Lender, the percentage indicated on
Schedule 1.1C under the heading Term Loan C 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 C Commitment assigned to such assignee Lender.
“
Term Loan C Lender ” means each of the Lenders
indicated on Schedule 1.1C under the heading Term Loan C Lenders,
and also means any assignee of such Lender pursuant to Section
11.5(c).
“
Term Loans C Maturity Date ” means May 30,
2013.
“
Term C 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 C.
3.3
Term Loans C . The Agreement is hereby amended to add a new
Section 2.3A as follows:
2.3A
Term Loans C .
(a)
Several Term Loans C . Subject to the terms and conditions
hereof, each Term Loan C Lender severally agrees to make a term
loan (each a “ Term Loan C ” and collectively
the “ Term Loans C ”) to Borrowers on the
Amendment Date in an amount equal to each such Term Loan C
Lender’s Term Loan C Commitment, the proceeds of which shall
be used for the purposes allowed in Section 7.1(d). Each Term Loan
C Lender shall make the amount of such Lender’s Term Loan C
available to Agent in same day funds, not later than 9:00 a.m.
(Pacific time), on the Amendment Date, or as soon as practicable
thereafter. After Agent’s receipt of the proceeds of the Term
Loans C, Agent shall disburse the Term Loans C as directed pursuant
to written disbursement instructions provided by
Borrowers.
(b)
Amortization . Borrowers shall pay quarterly principal
reduction payments on the Term Loans C each in the amount of
$214,285. Each such payment shall be due and payable on the last
day of each quarter commencing July 31, 2008 and continuing on the
last day of each succeeding quarter. On the Term Loans C Maturity
Date, the outstanding principal balance, and all accrued and unpaid
interest under the Term Loans C shall be due and payable in
full.
(c)
Prepayments . Borrowers may prepay the Term Loans C 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 C Lender. Upon
receipt of any such notice of a prepayment, Agent shall promptly
notify each Term Loan C Lender thereof. Agent shall, promptly
following its receipt of any payment or prepayment of the Term
Loans C, distribute to each Term Loan C Lender its pro rata share
(based upon the principal amounts outstanding) of all amounts
received by Agent pursuant to this Section 2.3A for each such Term
Loan C Lender’s respective account. All prepayments shall be
applied toward scheduled principal reductions payments owing under
this Section 2.3A in inverse order of maturity.
3.4
Interest Rates . Section 2.4(a) of the Agreement is hereby
amended to add a new subsection (iv) as follows:
(iv)
Term Loans C . Subject to the terms and conditions hereof,
the Term Loans C, 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 C;
provided , however , there shall be no more than
three (3) LIBOR Lending Rate Portions of Term Loans C outstanding
at any time. LIBOR Lending Rate Portions of Term Loans C shall be
in minimum amounts each of $1,000,000.
3.5
Notes . Sections 2.11(a) and (b) of the Agreement are hereby
amended in their entirety as follows:
(a) Borrowers
agree that, upon the request to Agent by any Lender if and to the
extent that such Lender has a Commitment as of the date of such
request, or in connection with any assignment pursuant to Section
11.5(c), to evidence such Lender’s Loans, Borrowers will
execute and deliver to such Lender a Revolving Note, Term A Note,
Term B Note and/or Term C Note, as applicable, substantially in the
forms of Exhibit 2.11(a), with appropriate insertions as to payee,
date and principal amount (each, as amended, supplemented, replaced
or otherwise modified from time to time, a “ Note
” and, collectively, the “ Notes ”),
payable to the order of such Lender and in a principal amount equal
to
such
Lender’s Revolving Credit Commitment, Term Loan A Commitment,
Term Loan B Commitment and/or Term Loan C Commitment, as
applicable. Each Note shall (x) be dated the date the applicable
Commitment became effective, (y) be payable as provided herein and
(z) provide for the payment of interest in accordance with Section
2.4.
(b) The
Revolving Loans and Borrowers’ obligation to repay the same
shall be evidenced by the Revolving Notes, this Agreement and the
books and records of Agent and the Revolving Loan Lenders. The Term
Loans A and Borrowers’ obligation to repay the same shall be
evidenced by the Term A Notes, this Agreement and the books and
records of Agent and the Term Loan A Lenders. The Term Loans B and
Borrowers’ obligation to repay the same shall be evidenced by
the Term B Notes, this Agreement and the books and records of Agent
and the Term Loan B Lenders. The Term Loans C and Borrowers’
obligation to repay the same shall be evidenced by the Term C
Notes, this Agreement and the books and records of Agent and the
Term Loan C Lenders. Agent shall maintain the Register pursuant to
Section 10.13, and a sub-account therein for each Lender, in which
shall be recorded (i) the amount of each Loan made hereunder,
whether each such Loan is a LIBOR Lending Rate Portion, a Prime
Lending Rate Portion or the COF Lending Rate Loans, and each
Interest Period, if any, applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable
from Borrowers to each Lender hereunder and (iii) both the amount
of any sum received by Agent hereunder from Borrowers and each
Lender’s share thereof; provided , however ,
any failure by Agent to maintain the Register or any such
sub-account with respect to any Loan or continuation, conversion or
payment thereof shall not limit or otherwise affect
Borrowers’ obligations hereunder or under the
Notes.
3.6
Mandatory Principal Reductions . Section 2.14 of the
Agreement is hereby amended in its entirety as follows:
2.14
Mandatory Principal Reductions .
(a)
Asset Sales . Each Borrower shall pay to Agent for the
account of the Lenders, on the first Business Day following such
Borrower’s receipt thereof, one hundred percent (100%) of the
Net Cash Proceeds derived from each and all of its Asset Sales
other than Permitted Real Estate Sales; provided that so
long as no Event of Default has occurred and is continuing,
Borrowers shall be permitted to retain the Net Cash Proceeds
derived from (i) the Permitted Asset Sales, and (ii) any other
Asset Sales, other than the Permitted Real Estate Sales, not to
exceed $300,000 in any transaction or series of transactions or
$500,000 in the aggregate in any fiscal year of Parent;
provided , however , in accordance with Section 7.7,
Borrowers shall not conduct or consummate any Asset Sales unless
and until the prior written consent of Agent and the Majority
Lenders has been obtained, or unless such Asset Sale is otherwise
permitted by Section 7.7. Agent shall apply such Net Cash Proceeds
FIRST toward accrued and unpaid Expenses, SECOND toward accrued and
unpaid interest on the Loans, THIRD toward the remaining scheduled
principal reduction payments on the Term Loans A required by
Section 2.2, the Term Loans B required by Section 2.3, and the Term
Loans C required by Section 2.3A, on a pro rata basis, in inverse
order of their maturity, and FOURTH, toward outstanding Revolving
Loans. In the event that any payments are applied toward
outstanding Revolving Loans pursuant to this Section, the Revolving
Credit Commitments shall be permanently reduced by the amount of
such payments.
(b)
Issuance of Subordinate Debt and/or Capital Stock .
Borrowers shall also pay to Agent for the account of the Lenders
one hundred percent (100%) of the net proceeds from the issuance of
any subordinate Debt or fifty percent (50%) of the net proceeds
from the issuance of Capital Stock of Parent (other than Capital
Stock issued in connection a Permitted Acquisition) concurrent with
any such issuance; provided that so long as no Event of
Default has occurred and is continuing, Parent shall be entitled to
retain the proceeds from the exercise of employee stoc
