LOAN AGREEMENT
EXHIBIT 10.1
THIS LOAN AGREEMENT (“Agreement”) is made and entered into as of June 21, 2007 by and between
SPARTA, Inc., a Delaware corporation (“Borrower”), and UNION BANK OF CALIFORNIA, N.A., a national
banking association (“Bank”).
SECTION 1. THE CREDIT
1.1 CREDIT FACILITIES
1.1.1 The Revolving Loan. Bank will loan to Borrower an amount not to exceed Ten Million Dollars
($10,000,000) outstanding in the aggregate at any one time (the “Revolving Loan”). The proceeds of
the Revolving Loan shall be used for Borrower’s working capital and general corporate purposes.
Borrower may borrow, repay and reborrow all or part of the Revolving Loan in amounts of not less
than Two Hundred Fifty Thousand Dollars ($250,000) in accordance with the terms of the Revolving
Note (defined below). All borrowings of the Revolving Loan must be made before July 1, 2010, at
which time all unpaid principal and interest of the Revolving Loan shall be due and payable. The
Revolving Loan shall be evidenced by Bank’s standard form of commercial promissory note (the
“Revolving Note”). Bank shall enter each amount borrowed and repaid in Bank’s records and such
entries shall be deemed correct. Omission of Bank to make any such entries shall not discharge
Borrower of its obligation to repay in full with interest all amounts borrowed.
As of the date of this Agreement, the principal amount outstanding under Borrower’s revolving loan
with Bank evidenced by the promissory note dated July 2, 2004 (“Old Note”) shall be deemed the
initial principal amount outstanding under the Revolving Loan, and the Old Note is hereby cancelled
and superceded by the Revolving Note.
1.2 Terminology. The following words and phrases, whether used in their singular or plural form,
shall have the meanings set forth below:
| “GAAP” means generally accepted accounting principles and practices consistently applied. Accounting terms used in this Agreement but not otherwise expressly defined have the meanings given them by GAAP. | ||
| “L/C” means the Commercial L/Cs or the Standby L/Cs, or both, as the context may require. | ||
| “Lien” means any voluntary or involuntary security interest, mortgage, pledge, claim, charge, encumbrance, title retention agreement, or third party interest, covering all or any part of the property of Borrower or any Guarantor. | ||
| “Loan” means all the credit facilities described above. | ||
| “Loan Documents” means this Agreement, the Note, and all other documents, instruments and agreements required by Bank and executed in connection with this Agreement, the Note, the Loans, and with all other credit facilities from time to time made available to Borrower by Bank. | ||
| “Note” means all the promissory notes described above. |
1.3 Prepayment. The Loan may be prepaid in full or in part but only in accordance with the terms
of the Note, and any such prepayment shall be subject to any prepayment fee provided for therein.
In the event of a principal prepayment on any term indebtedness, the amount prepaid shall be
applied to the scheduled principal installments due in the reverse order of their maturity on the
Loan being prepaid.
1.4 Interest. The unpaid principal balance of the Loan shall bear interest at the rate or rates
provided in the Note.
1.5 Documentation Fee. On or before the date of execution of this Agreement, Borrower shall pay to
Bank a nonrefundable documentation fee of Five Hundred Dollars ($500.00).
1.6 Commitment Fee. On the last calendar day of the third month following the execution of this
Agreement and on the last calendar day of each three-month period thereafter, Borrower shall pay to
Bank a fee of one eighth of one percent (.125%) per year on the unused portion of the Revolving
Loan for the preceding quarter, computed on the basis of a 360 day year for actual days elapsed.
1.7 Balances. Borrower shall maintain its major depository accounts with Bank until all
obligations of Borrower to Bank under the Loan Documents have been paid in full.
1.8 Disbursement. Bank shall disburse the proceeds of the Loan as provided in Bank’s standard form
Authorization to Disburse executed by Borrower.
1.9 Security. Prior to any Loan disbursement, Borrower shall execute one or more security
agreements on Bank’s standard form, and one or more financing statements suitable for filing in the
official records of the appropriate state government and/or any other location required by Bank,
granting to Bank a first priority security interest in such of Borrower’s property as is described
in said security agreement. Any exceptions to Bank’s first priority Lien are permitted only as
provided in this Agreement. At Bank’s request, Borrower will obtain executed landlord’s and
mortgagee’s waivers, each on Bank’s form, covering all of Borrower’s property located on leased or
encumbered real property.
SECTION 2. CONDITIONS PRECEDENT
Bank shall not be obligated to disburse all or any portion of the Loans unless at or prior to the
time of each such disbursement, the following conditions have been fulfilled to Bank’s
satisfaction:
2.1 Compliance. Borrower shall have performed and complied with all terms and conditions required
by this Agreement to be performed or complied with, and shall have executed and delivered to Bank
the Note and all other Loan Documents.
2.2 Subordination Agreements. Bank shall have received such subordination agreements, in form
satisfactory to Bank, as shall be necessary for Borrower to achieve and maintain compliance with
the provisions of Section 5.7 hereof.
2.3 Authorization to Obtain Credit. Borrower shall have provided Bank with an executed copy of
Bank’s form Authorization to Obtain Credit, authorizing the execution, delivery and performance of
this Agreement and the other Loan Documents. Such resolutions shall also designate the persons who
are authorized to act on Borrower’s behalf in connection with this Agreement to do the things
required of Borrower pursuant to this Agreement.
2.4 Continuing Compliance. At the time any disbursement is to be made and immediately thereafter,
there shall not exist any Event of Default (as hereinafter defined) or any event, condition, or act
which with notice or lapse of time, or both, would constitute an Event of Default.
SECTION 3. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
3.1 Business Activity. Borrower’s principal business is the design and management of programs for
national defense and various other departments of the federal government.
3.2 Affiliates and Subsidiaries. Borrower’s affiliates and subsidiaries (those entities in which
Borrower has either a controlling interest or a twenty-five percent (25%) or more ownership
interest) and their addresses, and the names of the persons or entities owning five percent (5%) or
more of the equity interests in Borrower, are as provided on a schedule delivered to Bank on or
before the date of this Agreement.
3.3 Organization and Qualification. Borrower is duly organized and existing under the laws of the
state of its organization, is duly qualified and in good standing in any jurisdiction where such
qualification is required, and has the power and authority to carry on the business in which it is
engaged and/or proposes to engage.
3.4 Power and Authorization. Borrower has the power and authority to enter into this Agreement and
to execute and deliver the Note and all other Loan Documents. This Agreement and all things
required by this Agreement and the other Loan Documents have been duly authorized by all requisite
action of Borrower.
3.5 Authority to Borrow. The execution, delivery and performance of this Agreement, the Note and
all other Loan Documents are not in contravention of any of the terms of any indenture, agreement
or undertaking to which Borrower is a party or by which it or any of its property is bound or
affected.
3.6 Compliance with Laws. Borrower is in compliance with all applicable laws, rules, ordinances or
regulations which materially affect the operations or financial condition of Borrower.
3.7 Title. Except for assets which may have been disposed of in the ordinary course of business,
Borrower has good and marketable title to all property reflected in its financial statements
delivered to Bank and to all property acquired by Borrower since the date of said financial
statements, free and clear of all Liens, except Liens specifically referred to in said financial
statements.
3.8 Financial Statements. Borrower’s financial statements, including both a balance sheet at
December 31, 2006 together with supporting schedules, and an income statement for the twelve (12)
months ended December 31, 2006, have heretofore been furnished to Bank, are true and complete, and
fairly represent Borrower’s financial condition for the period covered thereby. Since December 31,
2006, there has been no material adverse change in Borrower’s financial condition or operations.
3.9 Litigation. There is no litigation or proceeding pending or threatened against Borrower or any
of its property which is reasonably likely to affect the financial condition, property or business
of Borrower in a materially adverse manner or result in liability in excess of Borrower’s insurance
coverage.
3.10 ERISA. Borrower’s defined benefit pension plans (as defined in the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”)), meet, as of the date hereof, the minimum funding
standards of Section 302 of ERISA, and no Reportable Event or Prohibited Transaction as defined in
ERISA has occurred with respect to any such plan.
3.11 Regulation U. No action has been taken or is currently planned by Borrower, or any agent
acting on its behalf, which would cause this Agreement or the Note to violate Regulation U or any
other regulation of the Board of Governors of the Federal Reserve System, or to violate the
Securities and Exchange Act of 1934,
in each case as in effect now or as the same may hereafter be in effect. Borrower is not engaged
in the business of extending credit for the purpose of purchasing or carrying margin stock as one
of its important activities and, except as may be expressly agreed to and documented between
Borrower and Bank, none of the proceeds of the Loan will be used directly or indirectly for such
purpose.
3.12 No Event of Default. Borrower is not now in default in the payment of any of its material
obligations, and there exists no Event of Default, and no condition, event or act which with notice
or lapse of time, or both, would constitute an Event of Default.
3.13 Continuing Representations and Warranties. The foregoing representations and warranties shall
be considered to have been made again at and as of the date of each and every Loan disbursement and
shall be true and correct as of each such date.
SECTION 4. AFFIRMATIVE COVENANTS
Until all sums payable pursuant to this Agreement, the Note and the other Loan Documents have been
paid in full, unless Bank otherwise consents in writing, Borrower agrees that:
4.1 Use of Proceeds. Borrower will use the proceeds of the Loan only as provided in Section 1
above.
4.2 Payment of Obligations. Borrower will pay and discharge promptly all taxes, assessments and
other governmental charges and claims levied or imposed upon it or its property, or any part
thereof; provided, however, that Borrower shall have the right in good faith to contest any such
taxes, assessments, charges or claims and, pending the outcome of such contest, to delay or refuse
payment thereof provided that adequately funded reserves are established by it to pay and discharge
any such taxes, assessments, charges and claims.
4.3 Maintenance of Existence. Borrower will maintain and preserve its existence, its assets, and
all rights, franchises, licenses and other authority necessary for the conduct of its business, and
will maintain and preserve its property, equipment and facilities in good order, condition and
repair. Bank may, at reasonable times, visit and inspect any of Borrower’s properties.
4.4 Records. Borrower will keep and maintain full and accurate accounts and records of its
operations in accordance with GAAP and will permit Bank, at Borrower’s expense, to have access
thereto, to make examination and photocopies thereof, and to make audits of Borrower’s accounts and
records and Bank’s collateral during regular business hours.
4.5 Information Furnished. Borrower will furnish to Bank:
(a) Within fifty (50) days after the close of each fiscal quarter, except for the final
quarter of each fiscal year, its unaudited balance sheet as of the close of such fiscal
quarter, its unaudited income and expense statement with year-to-date totals and supportive
schedules, and its statement of retained earnings for that fiscal quarter, all prepared in
accordance with GAAP.
(b) Within one hundred twenty (120) days after the close of each fiscal year, a copy of its
statement of financial condition including at least its balance sheet as of the close of
such fiscal year and its income and expense statement, and its retained earnings statement
for such fiscal year, examined and prepared on an audited basis by independent certified
public accountants selected by Borrower and reasonably satisfactory to Bank, in accordance
with GAAP along with any management letter provided by such accountants.
(c) Prompt written notice to Bank of any Event of Default or breach under any of the terms
or provisions of this Agreement or any other Loan Document, any litigation which would have
a
material adverse effect on Borrower’s financial condition, and any other matter which has
resulted in, or is likely to result in, a material adverse change in Borrower’s financial
condition or operations.
(d) Prior written notice to Bank of any change in Borrower’s officers and other senior
management, Borrower’s name or state of organization, and the location of Borrower’s assets.
(e) Within fifteen (15) days after Borrower knows or has reason to know that any Reportable
Event or Prohibited Transaction (as defined in ERISA) has occurred with respect to any
defined benefit pension plan of Borrower, a statement of an authorized officer of Borrower
describing such event or condition and the action, if any, which Borrower proposes to take
with respect thereto.
(f) Such other financial statements and information as Bank may reasonably request from time
to time.
4.6 Tangible Net Worth. Borrower will at all times maintain Tangible Net Worth of not less than
Forty Five Million Dollars ($45,000,000). “Tangible Net Worth” means Borrower’s net worth
increased by indebtedness subordinated to Bank and decreased by patents, licenses, trademarks,
trade names, goodwill and other similar intangible assets, organizational expenses, security
deposits, prepaid costs and expenses and monies due from affiliates (including officers,
shareholders and directors).
4.7 Profitability. Borrower will achieve net profit after taxes of not less than Four Million
Dollars ($4,000,000) for each fiscal year.
4.8 Insurance. Borrower will keep all of its insurable property, whether real, personal or mixed,
insured by companies approved by Bank, against fire and such other risks, and in such amounts as is
customarily obtained by companies conducting similar business with respect to like properties.
Borrower will furnish to Bank statements of its insurance coverage, will promptly upon Bank’s
request furnish other or additional insurance deemed necessary by Bank to the extent that such
insurance may be available, and hereby assigns to Bank, as security for Borrower’s obligations to
Bank, the proceeds of any such insurance. Prior to any Loan disbursement, Bank will be named loss
payee under all policies insuring the collateral. Borrower will maintain adequate worker’s
compensation insurance and adequate insurance against liability for damage to persons or property.
All policies shall require at least ten (10) days’ written notice to Bank before alteration or
cancellation.
4.9 Additional Requirements. Upon Bank’s demand, Borrower will promptly take such further action
and execute all such additional documents and instruments in connection with this Agreement and the
other Loan Documents as Bank in its reasonable discretion deems necessary, and promptly supply Bank
with such other information concerning its affairs as Bank may request from time to time.
4.10 Litigation and Attorneys’ Fees. Upon Bank’s demand, Borrower will promptly pay to Bank
reasonable attorneys’ fees, including the reasonable estimate of the allocated costs and expenses
of in-house legal counsel and staff, and all costs and other expenses paid or incurred by Bank in
collecting, modifying or compromising the Loan or in enforcing or exercising its rights or remedies
created by, connected with or provided for in this Agreement and the other Loan Documents. If any
judicial action, arbitration or other proceeding is commenced, only the prevailing party shall be
entitled to attorneys’ fees and court costs.
4.11 Bank Expenses. Upon Bank’s request, Borrower will pay or reimburse Bank for all costs,
expenses and fees incurred by Bank in preparing and documenting this Agreement and the Loan, and
all amendments and modifications to any Loan Documents, including but not limited to all filing and
recording fees, costs of appraisals, insurance and attorneys’ fees, including the reasonable
estimate of the allocated costs and expenses of in-house legal counsel and staff.
SECTION 5. NEGATIVE COVENANTS
Until all sums payable pursuant to this Agreement, the Note and the other Loan Documents have been
paid in full, unless Bank otherwise consents in writing, Borrower agrees that:
5.1 Liens. Borrower will not create, assume or suffer to exist any Lien on any of its property,
whether real, personal or mixed, now owned or hereafter acquired, or upon the income or profits
thereof, except (a) Liens in favor of Bank, (b) Liens for taxes not delinquent and taxes and other
items being contested in good faith, (c) minor encumbrances and easements on real property which do
not affect its market value, (d) existing Liens on Borrower’s personal property, and (e) future
purchase money security interests encumbering only the personal property purchased.
5.2 Borrowings. Borrower will not sell, discount or otherwise transfer any account receivable or
any note, draft or other evidence of indebtedness, except to Bank or except to a financial
institution at face value for deposit or collection purposes only, and without any fees other than
the financial institution’s normal fees for such services. Borrower will not borrow any money,
become contingently liable to borrow money, or enter any agreement to directly or indirectly obtain
borrowed money, except pursuant to agreements with Bank.
5.3 Sale of Assets, Liquidation or Merger. Borrower will not liquidate, dissolve or enter into any
consolidation, merger, partnership or other combination, or convey, sell or lease all or the
greater part of its assets or business, or purchase or lease all or the greater part of the assets
or business of another; provided, however, that Borrower may acquire, merge or consolidate if
Borrower is the surviving entity and the aggregate value of the assets so transferred does not
exceed Ten percent (10%) of Borrower’s Tangible Net Worth as of the end of the month prior to the
effective date of such combination, such assets will not be subject to any Lien following the
effective date of such combination, and no Event of Default shall have occurred and be continuing
or shall result therefrom.
5.4 Loans, Advances and Guaranties. Borrower will not, except in the ordinary course of business
as currently conducted, make any loans or advances, become a guarantor or surety, or pledge its
credit or properties, except as allowed by Borrower’s stock option plan or loans extended to
current employees not to exceed Twenty Thousand Dollars ($20,000) per employee.
5.5 Investments. Borrower will not purchase the debt or equity of another except for savings
accounts and certificates of deposit of Bank, direct U.S. Government obligations, and commercial
paper issued by corporations with the top ratings of Moody’s or Standard & Poor’s, provided that
all such permitted investments shall mature within one year of purchase.
5.6 Payment of Dividends. Borrower will not declare or pay any dividends, other than dividends
payable solely in its own common stock, or authorize or make any other distribution with respect to
any of its stock now or hereafter outstanding.
5.7 Subordination of Certain Indebtedness. Not at any time permit the aggregate principal amount
outstanding under all promissory notes issued by Borrower to all former employees of Borrower and
other persons in full or partial consideration for Borrower’s repurchase of shares of stock in
Borrower from such former employees and other persons to exceed Ten Million Dollars ($10,000,000)
unless all such amounts in excess of Ten Million Dollars ($10,000,000) are subordinated to all
obligations now or hereafter owed by Borrower to Bank pursuant to subordination agreements in form
and substance satisfactory to Bank. Bank hereby acknowledges and agrees, however, that each of
such subordination agreements shall permit Borrower to make, and shall permit the payee of the
promissory notes subordinated thereby to receive, regularly scheduled payments of principal and
interest under such promissory note(s) so long as Borrower has made each and every payment of
principal and interest due and owing to Bank and is not in default under any of its agreements with
Bank.
5.8 Affiliate Transactions. Borrower will not transfer any property to any affiliate, except for
value received in the normal course of business and for an amount, including any management or
service fee(s), as would be conducted and charged with an unrelated or unaffiliated entity.
Borrower will not pay any management fee or fee for services to any affiliate without Bank’s prior
written consent.
5.9 Losses. Borrower will not allow a net loss for any two (2) consecutive fiscal quarters.
SECTION 6. EVENTS OF DEFAULT
The occurrence of any of the following events (“Events of Default”) shall terminate any obligation
of Bank to make or continue the Loan and shall automatically, unless otherwise provided under the
Note, make all sums of interest and principal and any other amounts owing under the Loan
immediately due and payable, without notice of default, presentment or demand for payment, protest
or notice of nonpayment or dishonor, or any other notices or demands:
6.1 Borrower shall default in the due and punctual payment of the principal of or the interest on
the Note or on any amounts owing under any of the Loan Documents.
6.2 Any default shall occur under the Note.
6.3 Borrower shall default in the due performance or observance of any covenant or condition of the
Loan Documents.
6.4 Any guaranty or subordination agreement required hereunder shall be breached or becomes
ineffective, or any Guarantor or subordinating creditor shall die, disavow or attempt to revoke or
terminate such guaranty or subordination agreement.
6.5 There shall be a change in ownership or control of ten percent (10%) or more of the equity
interests in Borrower or any Guarantor.
SECTION 7. GENERAL PROVISIONS
7.1 Additional Remedies. The rights, powers and remedies given to Bank hereunder shall be
cumulative and not alternative and shall be in addition to all rights, powers and remedies given to
Bank by law against Borrower or any other person or entity including but not limited to Bank’s
rights of setoff and banker’s lien.
7.2 Nonwaiver. Any forbearance or failure or delay by Bank in exercising any right, power or
remedy hereunder shall not be deemed a waiver thereof and any single or partial exercise of any
right, power or remedy shall not preclude the further exercise thereof. No waiver shall be
effective unless it is in writing and signed by an officer of Bank.
7.3 Inurement. The benefits of this Agreement and the other Loan Documents shall inure to the
successors and assigns of Bank and the permitted successors and assigns of Borrower, but any
attempted assignment by Borrower without Bank’s prior written consent shall be null and void.
7.4 Applicable Law. This Agreement and the other Loan Documents shall be governed by and construed
according to the laws of the State of California.
7.5 Severability. Should any one or more provisions of this Agreement or any other Loan Document
be determined to be illegal or unenforceable, all other provisions of such document shall
nevertheless be effective.
7.6 Controlling Document. In the event of any inconsistency between the terms of this Agreement
and any other Loan Document, the terms of the other Loan Document shall prevail.
7.7 Construction. The section and subsection headings herein are for convenient reference only and
shall not limit or otherwise affect the interpretation of this Agreement.
7.8 Amendments. This Agreement may be amended only in writing signed by all parties hereto.
7.9 Counterparts. Borrower and Bank may execute one or more counterparts to this Agreement, each
of which shall be deemed an original, but all such counterparts when taken together, shall
constitute one and the same agreement.
7.10 Notices. Any notices or other communications provided for or allowed hereunder shall be
effective only when given by one of the following methods and addressed to the parties at their
respective addresses and shall be considered to have been validly given (a) upon delivery, if
delivered personally, (b) upon receipt, if mailed, first class postage prepaid, with the United
States Postal Service, (c) on the next business day, if sent by overnight courier service of
recognized standing, or (d) upon telephoned confirmation of receipt, if telecopied or e-mailed.
The addresses to which notices or demands are to be given may be changed from time to time by
notice delivered as provided above.
7.11 Integration Clause. Except for the other Loan Documents, this Agreement constitutes the
entire agreement between Bank and Borrower regarding the Loan, and all prior oral or written
communications between Borrower and Bank shall be of no further effect or evidentiary value.
THIS AGREEMENT is executed on behalf of the parties by their duly authorized representatives as of
the date first above written.
| SPARTA, Inc. | UNION BANK OF CALIFORNIA, N.A. | |||||||
By:
|
/s/ Xxxxx X. Xxxxxx | By: | /s/ Xxxxx Xxxx | |||||
Name:
|
Xxxxx X. Xxxxxx | Name: | Xxxxx Xxxx | |||||
Title:
|
Vice President | Title: | Vice President | |||||
By:
|
/s/ Xxxxx X. Xxxxxxxxx | Address: | 18300 Xxx Xxxxxx | |||||
Name:
|
Xxxxx X. Xxxxxxxxx | Suite 310 | ||||||
Title:
|
Vice President / CFO | Xxxxxx, XX 00000 | ||||||
Address:
|
0000 X. Xxxx Xxxx Dr. | Attention: | Xxx Xxxx | |||||
| Suite 1100 | Telecopier: | (000) 000-0000 | ||||||
| Xxxxxxxxx, XX 00000 | Telephone: | (000) 000-0000 | ||||||
Attention:
|
Xxxxx Xxxxxxxxx, CFO | |||||||
Telecopier:
|
(000) 000-0000 | |||||||
Telephone:
|
(000) 000-0000 | |||||||
