EXHIBIT 10.15
April 14, 2003
Mr. Steven S. Myers
Ms. Cathy Wood
S M & A
4695 MacArthur Court, 8th Floor
Newport Beach, Ca. 92660
Attention: Ms. Wood
RE: REVOLVING NOTE DATED APRIL 10, 2003, IN THE ORIGINAL PRINCIPAL
SUM OF $10,000,000.00 EXECUTED BY S M & A, A CALIFORNIA CORPORATION
("BORROWER") IN FAVOR OF CITY NATIONAL BANK ("CNB").
This is to confirm that CNB will extend the credit facility more
completely described in the enclosed Note, subject to the additional terms and
conditions set forth herein. This letter is to confirm that the following
additional terms and conditions will apply to the Note. Capitalized terms not
defined in this letter have the meanings given them in the Note. This letter is
hereby incorporated into the Note (this letter and the Note, collectively, will
be called the "Note").
A. ADDITIONAL EVENTS OF DEFAULT.
The following shall constitute additional Events of Default under the
Note:
1. Failure of Borrower to furnish CNB, within the times specified, the
following statements:
1.1 Within forty-five (45) days after the end of each of the first three
quarterly accounting periods of each fiscal year, a financial
statement consisting of not less than a balance sheet and income
statement, reconciliation of net worth and statement of cash flows,
prepared in accordance with generally accepted accounting principles
consistently applied, which financial statement may be internally
prepared;
1.2 Within one hundred twenty (120) days after the close of each fiscal
year, a copy of the annual audit report for such year for Borrower
and the Subsidiaries including therein a balance sheet, income
statement, reconciliation of net worth and statement of cash flows,
with notes thereto, the balance sheet, income statement and
statement of cash flows to be audited by a certified public
accountant acceptable to CNB, and certified by such accountants to
have been prepared in accordance with generally accepted accounting
principles consistently applied and accompanied by Borrower's
certification as to whether any event has occurred which constitutes
an Event of Default, and if so, stating the facts with respect
thereto;
S M & A
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1.3 Prior to the end of each of Borrower's fiscal years, for the next
fiscal year, a detailed and comprehensive statement of projected
cash flows, a projected balance sheet and a projected income
statement, prepared in accordance with FASB 95;
1.4 Copies of the Federal Income Tax Return, and any amendments thereto
and extensions thereof, for Borrower within thirty (30) days after
the filing thereof;
1.5 Such additional information, reports and/or statements as CNB may,
from time to time, reasonably request;
2. Failure of Borrower to maintain the following:
2.1 Tangible Net Worth plus Subordinated Debt of not less than
$6,750,000.00 commencing 12/31/02 and increasing $1,500,000.00 each
quarter thereafter;
2.2 A ratio of Total Senior Liabilities to Tangible Net Worth plus
Subordinated Debt of not more than 2.00 to 1.00 through 6/29/03,
then decreasing down to 1.75 to 1.00 through 12/30/03, then
decreasing down to 1.25 to 1.00 as of 12/31/03;
2.3 A ratio of Current Assets to Current Liabilities of not less than
1.00 to 1.00 at all times;
3. Borrower of the Note defaults in the payment or performance of any
obligation, or defaults under any provision of any contract or instrument
pursuant to which any of such parties has incurred any obligation for
borrowed money, any purchase obligation or any other liability of any kind
to any person or entity, including CNB;
4. Any sale or transfer of all or a substantial or material part of the
assets of Borrower other than in the ordinary course of business,
without CNB's prior written consent;
5. Failure of Borrower to pay and discharge all taxes, assessments,
governmental charges and real and personal property taxes prior to the
date upon which penalties are attached;
6. Failure of Borrower to maintain in full force and effect insurance for its
business, including, without limitation, fire, public liability, property
damage, and worker's compensation, in amounts, in form and substance, and
issued by an insurance company, acceptable to CNB;
7. Borrower creates, incurs, assumes or permits to exist any indebtedness in
excess of $1,000,000.00, except indebtedness to CNB, and trade debt
incurred in the ordinary course of business, without CNB's prior written
consent;
8. Borrower assumes, guarantees, or otherwise becomes liable for the
obligation of any person or entity in excess of $250,000.00, except
contingent liabilities in favor of CNB, without CNB's prior written
consent; or
9. Borrower mortgages, pledges, hypothecates, grants or contracts to grant
any security interest of any kind in any of its property or assets to
anyone, except CNB, without CNB's prior written consent; or
10. Borrower makes or commits to make expenditures for capital assets
(including capitalized lease expenditures and acquisitions) of more than
$2,000,000.00 in the aggregate for Borrower and all Subsidiaries in any
fiscal year, without CNB's prior written consent.
S M & A
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B. DEFINITIONS.
For purposes of the Note, the following terms have the following meanings:
"CURRENT ASSETS" shall be determined on a consolidated basis for Borrower
and the Subsidiaries in accordance with generally accepted accounting principles
consistently applied, excluding, however, from the determination of Current
Assets, loans to shareholders, management or employees, amounts due from
Subsidiaries or affiliates, deferred costs, and other intangible assets.
"CURRENT LIABILITIES" shall be determined on a consolidated basis for
Borrower and the Subsidiaries in accordance with generally accepted accounting
principles consistently applied, and shall include without limitation (a) all
payments on Subordinated Debt required to be made within one (1) year after the
date on which the determination is made; and (b) all indebtedness payable to
stockholders, affiliates, Subsidiaries or officers regardless of maturity,
unless such indebtedness shall have been subordinated to CNB, on terms
satisfactory to CNB.
"SUBORDINATED DEBT" shall mean indebtedness of Borrower or any Subsidiary,
the repayment of principal and interest of which is subordinated to CNB, on
terms satisfactory to CNB.
"SUBSIDIARY" shall mean any corporation, the majority of whose voting
shares are at any time owned, directly or indirectly by Borrower and/or by one
or more Subsidiaries.
"TANGIBLE NET WORTH" shall mean the total of all assets appearing on a
balance sheet prepared in accordance with generally accepted accounting
principles consistently applied for Borrower and the Subsidiaries on a
consolidated basis, minus (a) all intangible assets, including, without
limitation, any accounts receivable converted to notes receivable, unamortized
debt discount, affiliate, employee and officer receivables or advances,
goodwill, research and development costs, patents, trademarks, the excess of
purchase price over underlying values of acquired companies, any covenants not
to compete, deferred charges, copyrights, franchises and appraisal surplus;
minus (b) all obligations which are required by generally accepted accounting
principles consistently applied to be reflected as a liability on the
consolidated balance sheet of Borrower and the Subsidiaries; minus, (c) the
amount, if any, at which shares of stock of a non-wholly owned Subsidiary appear
on the asset side of Borrower's consolidated balance sheet, as determined in
accordance with generally accepted accounting principles consistently applied;
minus (d) minority interests; and minus (e) deferred income and reserves not
otherwise reflected as a liability on the consolidated balance sheet of Borrower
and the Subsidiaries.
"TOTAL SENIOR LIABILITIES" shall mean, as of any date of determination,
the amount of all obligations that should be reflected as a liability on a
consolidated balance sheet of Borrower and the Subsidiaries prepared in
accordance with generally accepted accounting principles consistently applied,
less Subordinated Debt.
"WORKING CAPITAL" shall mean Current Assets minus Current Liabilities.
C. ADDITIONAL TERMS AND CONDITIONS.
The following additional terms and conditions shall also apply to the
Note:
1. FEES. Borrower shall pay to CNB a non-refundable fee equal to .25% of
the original principal amount of the Note, due and payable in full upon
execution of this letter and the Note, and upon any subsequent renewal.
S M & A
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2. ENVIRONMENTAL INDEMNIFICATION. Borrower has agreed to indemnify CNB
against any claims that may arise as a result of Borrower's business
activities that are environmental in nature and for which CNB may be
named as a liable party.
Borrower agrees that it shall indemnify and hold harmless CNB, its parent
company, subsidiaries and all of their respective directors, officers,
employees, agents, successors, attorneys, and assigns from and against any
loss, damage, cost, expense, or liability directly of indirectly arising
out of or attributable to the use, generation, manufacture, production,
storage, release, threatened release, discharge, disposal, or presence of
a hazardous substance on, under, or about Borrower's property or
operations or property leased to Borrower, including but not limited to
attorneys' fees (including the reasonable estimate of the allocated cost
of in-house counsel and staff). For these purposes, the term "hazardous
substances" means any substance which is or becomes designated as
"hazardous" or "toxic" under any Federal, state, or local law. This
indemnity shall survive repayment of Borrower's obligations to CNB.
Except for documents and instruments specifically referenced herein or in
the Note, this letter and the Note constitute the entire agreement of the
parties hereto and supersedes any prior or contemporaneous oral or written
agreements, understandings, representations, warranties and negotiations, if
any, which are merged into this letter and the Note. If you agree to accept the
terms of this letter and the Note, please sign the enclosed acknowledgement copy
of this letter, as well as the enclosed Note, and return them to City National
Bank.
Sincerely,
CITY NATIONAL BANK
/s/ Christine Borrelli
By: Christine Borrelli
Vice President
ACCEPTED AND AGREED TO THIS 29 DAY OF APRIL , 2003.
SM&A, A CALIFORNIA CORPORATION
By: /s/ Cathy L. Wood
Title: EVP & CFO