EXHIBIT 10.8
CONSENT AND THIRD AMENDMENT
TO
LOAN AND SECURITY
AGREEMENT
THIS CONSENT AND THIRD AMENDMENT TO
LOAN AND SECURITY AGREEMENT (the “ Amendment ”),
dated as of July 25, 2005, is made by and among NCI INFORMATION
SYSTEMS, INCORPORATED , a Virginia corporation (“ NCI
Virginia ”), and SCIENTIFIC AND ENGINEERING SOLUTIONS,
INC. , a Maryland corporation (“ SES ,”
together with NCI Virginia, collectively, the “
Borrowers ,” and individually, a “
Borrower ”), the several banks and other financial
institutions from time to time party to the Loan Agreement (the
“ Lenders ”), SUNTRUST BANK , or such
Affiliate as it shall designate, in its capacity as Lead Arranger
and Book Manager (in such capacity, the “ Arranger
”) and SUNTRUST BANK , in its capacity as
Administrative Agent for the Lenders (in such capacity, the “
Administrative Agent ”).
RECITALS
The Lenders and the Borrowers are
parties to a certain Loan and Security Agreement, dated as of
December 23, 2003, as amended by the Amendment to Loan and Security
Agreement, dated as of May 6, 2004, but effective as of December
31, 2003, as amended by the Second Amendment to Loan and Security
Agreement, dated as of March 15, 2005, but effective as of
September 30, 2004 (as further amended, modified or supplemented
from time to time, the “ Loan Agreement ”).
Capitalized terms defined in the Loan Agreement and undefined
herein shall have the same defined meanings when such terms are
used in this Amendment.
NCI Acquisition, LLC, a Virginia
limited liability company (“ Acquisition ”) is
or will be a direct, wholly owned subsidiary of NCI, Inc . ,
a Delaware corporation (“ NCI Delaware ”).
Narang will contribute all of his shares of capital stock of NCI
Virginia to Acquisition in exchange for shares of Class B common
stock of NCI Delaware (each, a “ NCI Delaware Class B
Share ”) pursuant to a Share Exchange Agreement in the
form attached hereto as Exhibit A-1 (the “ Share
Exchange Agreement ”). The transactions contemplated by
the Share Exchange Agreement are referred to as the “
Narang Share Exchange .” NCI Virginia, Acquisition and
NCI Delaware will become parties to an Agreement and Plan of Merger
in the form of Exhibit A-2 attached hereto (the “
Merger Agreement ”). Pursuant to the provisions of the
Merger Agreement, (1) NCI Virginia will merge with Acquisition,
with NCI Virginia being the surviving entity of such merger, and
the existence of Acquisition terminating (the “ Merger
”), and (2) each share of common stock, par value $0.01 per
share, of NCI Virginia issued and outstanding (each, a “
NCI Virginia Share ”) converting, by virtue of the
Merger and without any action on the part of the holder thereof,
into a right to receive, upon surrender of the certificate
representing such NCI Virginia Share, one share of Class A common
stock of NCI Delaware (each, a “ NCI Delaware Class A
Share ”), with all NCI Virginia Shares owned by NCI
Virginia as treasury stock being, by virtue of the Share
Conversion, no longer outstanding, and automatically cancelled and
retired without payment of any consideration therefor (the “
Share Conversion ,” and together with the
1
Narang Share Exchange and the Merger,
collectively, the “ Reincorporation Transaction
”). As a result of the Reincorporation Transaction, and
pursuant to the terms and conditions of the Share Exchange
Agreement and the Merger Agreement, NCI Delaware will became the
holder of all of the outstanding capital stock of NCI
Virginia.
To finance the payment of a portion
of a distribution to the shareholders of NCI Virginia, the
Borrowers have requested that the Lenders make a time loan to the
Borrowers of up to $15,000,000. The Lenders have agreed to do so,
subject to the terms and conditions hereof.
The Borrowers have requested that
the Lenders consent to the Reincorporation Transaction and to the
initial public offering of the NCI Delaware Class A Shares and
amend certain provisions of the Loan Agreement to take into account
the effect of the Reincorporation Transaction, the initial public
offering and certain dividends by NCI Virginia and/or NCI Delaware.
The Lenders have agreed to do so, subject to the other terms of
this Amendment.
Accordingly, for valuable
consideration, the receipt and sufficiency of which are
acknowledged, the parties hereto agree as follows:
AGREEMENT
1. Incorporation of Recitals
. The Recitals hereto are incorporated herein by reference to the
same extent and with the same force and effect as if fully set
forth herein.
2. Amendments to Loan
Agreement . The Loan Agreement is hereby amended as
follows:
(a) All references in the Loan
Agreement to the Company shall mean NCI Virginia prior to the
satisfaction of the Reincorporation Conditions, as hereinafter
defined, and NCI Delaware from and after satisfaction of the
Reincorporation Conditions.
(b) The definitions of
“Borrower” and “Borrowers” in Section 1 of
the Loan Agreement shall be deemed to include NCI Delaware from and
after satisfaction of the Reincorporation Conditions.
(c) The following definitions are
added in the appropriate alphabetical order to Section 1 of the
Loan Agreement:
“AAA Distribution” means
any distribution made by either NCI Virginia or NCI Delaware out of
NCI Virginia’s accumulated adjustments account with respect
to the cumulative total of undistributed Net Income items generated
by NCI Virginia during the period of the effectiveness of its
election to be treated as an S corporation under the
Code.
2
“Deposit Rate” means, if
applicable, the rate of interest paid on the deposit account
maintained with the Administrative Agent and pledged and assigned
pursuant to the Narang Security Agreement.
“IPO” means the initial
public offering of the NCI Delaware Class A Shares.
“Narang” means Chander
K. Narang.
“Narang Security
Agreement” means the Custody Account Security Agreement,
dated as of July 25, 2005, from Narang in favor of the
Administrative Agent for the ratable benefit of the Lenders, as the
same may be amended, modified or supplemented from time to
time.
“NCI Delaware” means
NCI, Inc., a Delaware corporation.
“NCI Virginia” means NCI
Information Systems, Incorporated, a Virginia
corporation.
“Permitted AAA
Distributions” means AAA Distributions in an aggregate amount
not to exceed (a) up to $18,000,000 to be funded by Revolving Loans
in an aggregate amount not to exceed $3,000,000 and the Time Loans
in an aggregate amount of up to $15,000,000, plus (b) an additional
amount approved by the Board of Directors of NCI Delaware and/or
NCI Virginia, as applicable, to be paid concurrently with the
receipt of the Net Cash Proceeds of the Equity Issuance in
connection with the IPO or within 12 months thereafter, provided
that in to event shall the total amount of Permitted AAA
Distributions exceed $23,000,000 plus the amount by which the Net
Cash Proceeds of the Equity Issuance in connection with the IPO
exceeds $30,000,000.
“Time Loan” has the
meaning assigned to such term in as defined in Section
2.8A.
“Time Loan Commitment”
means as to any Lender, the obligation of such Lender, if any, to
make a Time Loan to the Borrowers hereunder in a principal amount
not to exceed the amount set forth with respect to such Lender on
the signature pages to this Agreement. The original aggregate
amount of the Time Loan Commitments is $15,000,000.
“Time Loan Date” shall
mean the date on which the Time Loans are made.
3
“Time Loan Lender” means
each Lender that has an undrawn Time Loan Commitment or, after the
Time Loan Date, is the holder of a Time Loan.
“Time Loan Percentage”
means as to any Time Loan Lender at any time, the percentage which
such Lender’s undrawn Time Loan Commitment then constitutes
of the aggregate undrawn Time Loan Commitments (or, at any time
after the Time Loan Date, the percentage which the aggregate
principal amount of such Lender’s Time Loans then outstanding
constitutes of the aggregate principal amount of the Time Loans
then outstanding).
“Time Loan Maturity
Date” means on the first to occur of (a) NCI Delaware’s
receipt of the Net Cash Proceeds of the Equity Issuance in
connection with the IPO, (b) six months after the Time Loan Date,
or (c) March 31, 2006.
“Time Loan Reserve”
shall mean at any time: (a) if United States Treasury bills are
pledged as security under the Narang Security Agreement, the amount
by which the quotient obtained by dividing the sum of the
outstanding Time Loans by 0.95 exceeds the sum of the outstanding
Time Loans, or (b) zero if a deposit maintained by Narang with the
Administrative Agent is pledged as security under the Narang
Security Agreement.
“Time Note” means a
promissory note payable to the order of a requesting Time Loan
Lender, in form and substance acceptable to the Administrative
Agent and the requesting Time Loan Lender, in the principal amount
of such Time Loan Lender’s Time Loan, and evidencing the
joint and several obligations of the Borrowers to repay the Time
Loan made by such Time Loan Lender, together with interest thereon,
and all extensions, renewals, modifications and amendments of such
note, made in accordance with the terms hereof.
“Voting Control” means
the ownership of shares of stock representing the right to vote not
less than 51% of the votes on all matters submitted to a vote of
the stockholders of the Company.
(d) The following definitions in
Section 1 of the Loan Agreement are hereby amended to read as
follows:
“Aggregate Exposure”
means, with respect to any Lender at any time, an amount equal to
the sum of (i) the aggregate then unpaid principal
4
amount of such Lender’s Term
Loans, (ii) the aggregate then unpaid principal amount of such
Lender’s Time Loans (or, prior to the Time Loan Date, the
amount of such Lender’s Time Loan Commitment then in effect),
and (iii) the amount of such Lender’s Revolving Commitment
then in effect or, if the Revolving Commitments have been
terminated, the amount of such Lender’s Revolving Credit
Exposure then outstanding.
“Borrowing Base” means,
at the time in question, the sum of the following, without
duplication, (a) 90% of Eligible Billed Government Receivables
arising out of Government Contracts on which a Borrower is a prime
contractor; plus (b) 85% of Eligible Billed Government
Receivables arising out of Government Contracts on which a Borrower
is a subcontractor; plus (c) 85% of Eligible Billed
Commercial Receivables; minus (d) the Term Loan Reserve;
minus (e) the Time Loan Reserve, and minus (f) the
Contingent Payment Reserve; provided , however , that
if the Borrowing Base attributable to clauses (b) and (c) shall
exceed 25% of the Borrowing Base, the Administrative Agent may,
with written notice to the Borrowers, reduce the advance percentage
used in clauses (b) and (c) from 85% to such lower percentage as
the Lender shall deem to be appropriate, provided that at no time
will such percentage be reduced to less than 80% without the
consent of the Borrowers. For the purposes of determining the
Borrowing Base as of the end of each calendar month, an Eligible
Receivable may be treated as having been billed if the applicable
Borrower is then entitled under the term of the contract or
agreement with the applicable Customer to bill such Eligible
Receivable and an appropriate invoice is delivered to such Customer
by the 20 th day of the next succeeding calendar
month; provided that in no event shall an Eligible Receivable which
has not been billed as of the date of any Borrowing Base
Certificate be classified as an Eligible Billed Commercial
Receivable or an Eligible Billed Government Receivable on such
Borrowing Base Certificate.
“Cash Flow Available for Fixed
Charges” means, for any period, EBITDA for such period,
minus Restricted Payments paid during such period, other
than Permitted AAA Distributions, minus income taxes paid in
cash during such period, and minus Non-Financed Capital
Expenditures for such period, all as determined on a consolidated
basis for the Company and its Subsidiaries in accordance with
GAAP.
“Class,” when used in
reference to any Loan or Borrowing, refers to whether such Loan, or
the Loans comprising such Borrowing, are Revolving Loans, Swingline
Loans, Term Loans or Time Loans and when
5
used in reference to any Commitment,
refers to whether such Commitment is a Revolving Commitment, a
Swingline Commitment, a Term Loan Commitment or a Time Loan
Commitment.
“Commitment” shall mean
a Revolving Commitment, a Swingline Commitment, a Term Loan
Commitment or a Time Loan Commitment, or any combination thereof
(as the context shall permit or require).
“Funded Debt Ratio”
means, at any time, the ratio of (a) consolidated Funded Debt of
the Company and its Subsidiaries then outstanding, excluding the
Time Loans for as long as the security pledged and assigned to the
Administrative Agent pursuant to the Narang Security Agreement
consists of a deposit account maintained with the Administrative
Agent or United States Treasury bills, maturing not later than six
months after the Time Loan Date and held in a securities account
under the control of the Administrative Agent, to (b) consolidated
EBITDA of the Company and its Subsidiaries for the period of four
fiscal quarters most recently ended, or, if such determination is
being made at the end of a fiscal quarter of the Company, for the
period of four fiscal quarters then ended.
“Loan Documents” means
this Agreement, each Notice of Borrowing, each Revolving Note, the
Swingline Note, each Term Note, each Time Note, the Narang Security
Agreement, each Assumption Agreement, each Intellectual Property
Assignment, each Letter of Credit Agreement, each LC Document, each
Hedging Agreement between any Borrower and the Administrative Agent
or any Lender or the Issuing Bank or any Affiliate of the
Administrative Agent or any Lender or the Issuing Bank, any
Mortgage and any other document now or hereafter executed or
delivered in connection with the Obligations, in evidence thereof
or as security therefor, including, without limitation, any life
insurance assignment, pledge agreement, security agreement,
interest rate swap agreement or similar agreement, deed of trust,
mortgage, guaranty, promissory note or subordination
agreement.
“Loans” means all
Revolving Loans, Swingline Loans, Term Loans and Time Loans in the
aggregate or any of them, as the context may require, to be made by
the Lenders to the Borrowers pursuant to Section 2.1 of this
Agreement.
“Minimum Compliance
Level” means (a) Net Worth of (1) zero as of September 30,
2005, (2) $2,000,000 as of December 31, 2005, (3)
6
$2,500,000 as of March 31, 2006, (4)
$3,700,000 as of June 30, 2006, (5) $4,900,000 as of September 30,
2006, and (6) $6,400,000 as of December 31, 2006, and at all times
thereafter, (b) adjusted upwards (1) as of the end of each fiscal
quarter of the Company by an amount equal to 70% of
