-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BbpahGjqMQWYb910Ddw+VdRaFQ8O6z6uYN+doB9v3MXHwcIkNhB4jh1PNF03qh4Q 2YTAdlFUPNGCZln2f0kwdA== 0000950110-97-001513.txt : 19971113 0000950110-97-001513.hdr.sgml : 19971113 ACCESSION NUMBER: 0000950110-97-001513 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970829 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19971113 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: DRS TECHNOLOGIES INC CENTRAL INDEX KEY: 0000028630 STANDARD INDUSTRIAL CLASSIFICATION: SEARCH, DETECTION, NAVIGATION, GUIDANCE, AERONAUTICAL SYS [3812] IRS NUMBER: 132632319 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-08533 FILM NUMBER: 97716302 BUSINESS ADDRESS: STREET 1: 3RD FLOOR STREET 2: 5 SYLVAN WAY CITY: PARSIPPANY STATE: NJ ZIP: 07054 BUSINESS PHONE: 201-898-1500 MAIL ADDRESS: STREET 1: 16 THORNTON RD CITY: OAKLAND STATE: NJ ZIP: 07436 FORMER COMPANY: FORMER CONFORMED NAME: DIAGNOSTIC RETRIEVAL SYSTEMS INC DATE OF NAME CHANGE: 19920703 8-K 1 FORM 8-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 OCTOBER 29, 1997 --------------------------------- (Date of earliest event reported) Commission file number 1-8533 DRS TECHNOLOGIES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 13-2632319 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5 SYLVAN WAY, PARSIPPANY, NEW JERSEY 07054 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (973) 898-1500 -------------------------------------------------- (Registrant's telephone number, including area code) ================================================================================ ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On October 29, 1997 (the "Closing Date"), DRS Technologies, Inc. ("the Company") acquired, through certain of its subsidiaries, the assets of the Applied Systems Division of Spar Aerospace Limited ("Spar"), a Canadian corporation, and 100% of the stock of Spar Aerospace (UK) Limited, incorporated under the laws of England and Wales (the "Acquisition"), pursuant to a Purchase Agreement (the "Agreement") dated as of September 19, 1997, between DRS Technologies, Inc., a Delaware corporation, and Spar. The Company paid approximately $29 million in cash for the Acquisition. Headquartered in Kanata, Ontario, Canada, and now operating under the name DRS Flight Safety and Communications, Spar Applied Systems Division has been an international provider of aviation and defense systems for over 30 years. It designs, manufactures and markets sophisticated flight safety systems, naval communications systems and other advanced electronics for government and commercial customers around the world. It also provides custom manufacturing services for complex electronic assemblies and systems. DRS Flight Safety and Communications leases a 70,000 square-foot building in Kanata, Ontario, Canada that houses its executive offices and principal engineering facilities, as well as a 5,600 square-foot production facility in Hayes, Middlesex, United Kingdom. It also owns a 131,000 square-foot production facility in Carleton Place, Ontario. DRS Flight Safety and Communications currently employs approximately 360 people. The Acquisition will be accounted for using the purchase method of accounting. Reference is made to Item 7 for additional information. In connection with the Acquisition, the Company entered into a $60 million secured credit facility with Mellon Bank, N.A., consisting of a $20 million term loan (the "Term Loan") and a $40 million revolving line of credit (the "Line of Credit"). This facility expires on March 31, 2003 and replaces the Company's existing $15 million unsecured revolving line of credit and $5 million secured equipment line of credit/term loan facility. The Term Loan was used to finance a portion of the Acquisition. The Line of Credit was used to finance the remaining balance due in connection with the Acquisition and to repay outstanding borrowings on the $15 million unsecured revolving line of credit and the $5 million secured equipment line of credit/term loan facility. The Line of Credit is available for working capital, general corporate purposes and acquisitions. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements*: As it is impracticable to provide the required financial statements for DRS Flight Safety and Communications with this report on Form 8-K, such financial statements will be filed by amendment to Form 8-K as soon as practicable, but not later than 60 days after the filing of this report. (b) Pro Forma Financial Information*: 1. Unaudited pro forma condensed consolidated balance sheet of DRS Technologies, Inc. and subsidiaries and DRS Flight Safety and Communications as of September 30, 1997. 2. Unaudited pro forma condensed consolidated statements of earnings of DRS Technologies, Inc. and subsidiaries and DRS Flight Safety and Communications for the fiscal year ended March 31, 1997 and the six-month period ended September 30, 1997. (c) Exhibits: 1. Purchase Agreement, dated as of September 19, 1997, between DRS Technologies, Inc. and Spar Aerospace Limited. 2. Revolving Credit Loan and Term Loan Agreement, dated as of October 29, 1997, by and among DRS Technologies, Inc., DRS Technologies Canada Company/Compagnie DRS Technologies Canada, DRS Technologies Canada, Inc. and Mellon Bank, N.A. - ---------- * To be filed by amendment SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DRS TECHNOLOGIES, INC. Registrant Date: November 13, 1997 /s/ NANCY R. PITEK -------------------------------------- Nancy R. Pitek Vice President, Finance and Treasurer EX-1 2 PURCHASE AGREEMENT TABLE OF CONTENTS SECTION DESCRIPTION PAGE - ------- ----------- ---- ARTICLE I INTERPRETATION 1.1 Defined Terms....................................................1 1.2 Currency.........................................................9 1.3 Sections and Headings............................................9 1.4 Number, Gender and Persons.......................................9 1.5 Accounting Principles...........................................10 1.6 Entire Agreement................................................10 1.7 Meaning of Knowledge............................................10 1.8 Time of Essence.................................................11 1.9 Applicable Law..................................................11 1.10 Successors and Assigns..........................................11 1.11 Amendments and Waivers..........................................12 1.12 Schedules.......................................................12 ARTICLE II PURCHASE AND SALE OF PURCHASED ASSETS 2.1 Purchased Assets................................................13 2.2 Excluded Assets.................................................16 2.3 Non-Transferability.............................................19 2.4 Reassignment of Rights..........................................20 ARTICLE III PURCHASE PRICE 3.1 Purchase Price..................................................21 3.2 Closing Date Payment............................................21 3.3 Determination of Working Capital Adjustment.....................21 (a) Closing Balance Sheet.....................................21 (b) Working Capital Calculation...............................22 (c) Approval of Closing Financial Statements..................23 3.4 Adjustment of Closing Date Payment..............................24 (i) 3.5 Allocation of Purchase Price....................................25 3.6 ETA Election....................................................25 3.7 Transfer Taxes..................................................25 3.8 Income Tax Elections............................................26 ARTICLE IV ASSUMPTION OF LIABILITIES 4.1 Assumption of Certain Liabilities by the Purchaser..............26 4.2 Excluded Liabilities............................................27 4.2.1 Panavia Tax Liability ..........................................29 4.3 Product Liability and Warranty Obligations......................29 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE VENDOR 5.1 Organization....................................................30 5.2 Authorization...................................................31 5.3 No Other Agreements to Purchase.................................31 5.4 No Violation....................................................31 5.5 Sufficiency of Purchased Assets.................................32 5.6 Spar (UK).......................................................33 5.7 No Subsidiaries.................................................34 5.8 Title to Personal Property......................................34 5.9 Location of Real Property.......................................34 5.10 Real Property and Leased Property...............................34 5.11 Leased Property.................................................36 5.12 Inventories.....................................................37 5.13 Accounts Receivable.............................................37 5.14 Intellectual Property...........................................38 5.15 Insurance.......................................................39 5.16 No Expropriation................................................39 5.17 Agreements and Commitments......................................39 5.18 Compliance with Laws; Governmental Authorization................43 5.19 Consents and Approvals..........................................43 5.20 Financial Statements............................................44 5.21 Books and Records...............................................45 5.22 Absence of Changes..............................................45 5.23 Non-Arm's Length Transactions...................................47 (ii) 5.24 Taxes...........................................................48 5.25 Litigation......................................................49 5.26 Residency.......................................................49 5.27 GST Registration................................................49 5.28 Environmental...................................................49 5.29 Customers and Suppliers.........................................53 5.30 Employee Plans..................................................53 5.31 Collective Agreements...........................................55 5.32 Employees.......................................................55 5.33 Employee Accruals...............................................56 5.34 Changes.........................................................57 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE PURCHASER 6.1 Organization....................................................57 6.2 Authorization...................................................58 6.3 No Violation....................................................58 6.4 Consents and Approvals..........................................59 6.5 GST Registration................................................59 6.6 Relationship with Major Customers...............................59 ARTICLE VII SURVIVAL OF COVENANTS, REPRESENTATIONSAND WARRANTIES 7.1 Survival of Covenants, Representations and Warranties...........59 ARTICLE VIII COVENANTS 8.1 Access to Purchased Business and Purchased Assets...............62 8.2 Delivery of Books and Records...................................63 8.3 Conduct of Purchased Business and other Matters Prior to Closing63 (a) Conduct Business in the Ordinary Course...................63 (b) Continue Insurance........................................64 (c) Regulatory Consents.......................................64 (d) Contractual Consents......................................64 (e) Preserve Business.........................................64 (f) Discharge Liabilities.....................................64 (iii) (g) Corporate Action..........................................65 (h) Commercially Reasonable Efforts...........................65 8.4 Delivery of Conveyancing Documents..............................65 8.5 Retail Sales Tax Certificate....................................65 8.6 Delivery of Vendor's Closing Documentation......................66 8.7 Delivery of Purchaser's Closing Documentation...................66 8.8 Employees.......................................................66 8.9 Employee Plans..................................................68 8.10 Transfer of Pension Plan Assets.................................69 8.11 Spar Name.......................................................73 8.12 Bulk Sales Compliance...........................................74 8.15 Non-Competition Covenant........................................77 ARTICLE IX CONDITIONS OF CLOSING 9.1 Conditions of Closing in Favour of the Purchaser................79 (a) Representations and Warranties............................79 (b) Covenants.................................................79 (c) Regulatory Consents.......................................80 (d) Contractual Consents......................................80 (e) No Action or Proceeding...................................80 (f) No Material Damage or Loss................................80 (g) No Material Adverse Effect................................80 (h) Legal Matters.............................................80 (i) Legal Opinion.............................................81 (j) Customer Assurances.......................................81 9.2 Conditions of Closing in Favour of the Vendor ..................83 (a) Representations and Warranties............................83 (b) Covenants.................................................83 (c) Regulatory Consents.......................................84 (d) Contractual Consents......................................84 (e) No Action or Proceeding...................................84 (f) Legal Matters.............................................84 (g) Legal Opinion.............................................84 (h) Lenders' Consent..........................................84 9.3 Extension of Closing Date.......................................85 (iv) ARTICLE X CLOSING DATE AND TRANSFER OF POSSESSION 10.1 Transfer........................................................86 10.2 Place of Closing................................................86 10.3 Further Assurances..............................................86 10.4 Risk of Loss....................................................86 ARTICLE XI INDEMNIFICATION 11.1 Indemnification by the Vendor...................................87 11.2 Indemnification by the Purchaser................................88 11.3 Limitation on Indemnities.......................................89 11.4 Maximum Liability...............................................89 11.5 Notice of Claim.................................................89 11.6 Direct Claims...................................................90 11.7 Third Party Claims..............................................90 11.8 Settlement of Third Party Claims................................91 11.9 Co-operation....................................................92 11.10 Exclusivity.....................................................92 11.11 Change of Purchase Price........................................92 ARTICLE XII MISCELLANEOUS 12.1 Notices.........................................................93 12.2 Commissions, etc................................................94 12.3 Consultation....................................................94 12.4 Disclosure......................................................94 12.5 Confidentiality.................................................95 12.6 Commercially Reasonable/Best Efforts............................95 12.7 Counterparts....................................................95 12.8 No Third Party Beneficiaries....................................96 (v) THIS AGREEMENT made the 19th day of September, 1997, B E T W E E N: SPAR AEROSPACE LIMITED, a corporation existing under the laws of Canada (hereinafter called the "Vendor"), - and - DRS TECHNOLOGIES, INC., a corporation existing under the laws of State of Delaware (hereinafter called the "Purchaser"), THIS AGREEMENT WITNESSES THAT in consideration of the respective covenants, agreements, representations, warranties and indemnities of the parties herein contained and for other good and valuable consideration (the receipt and sufficiency of which are acknowledged by each party), the parties agree as follows: ARTICLE I INTERPRETATION I.1 Defined Terms For the purposes of this Agreement, unless the context otherwise requires, the following terms shall have the respective meanings specified or referred to below and grammatical variations of such terms shall have corresponding meanings: - 2 - (a) "Act" means the Canada Business Corporations Act as in effect on the date hereof; (b) "Affiliate" has the meaning given to that term in the Act; (c) "Agreement" means this Asset Purchase Agreement and all amendments made in writing by the parties hereto, "herein" and similar expressions mean and refer to this Agreement and not to any particular Article, section, subsection or Schedule; (d) "Annual Financial Statements" means the unaudited combined financial statements of the Vendor in respect of the Purchased Business (including Spar (UK)) and the financial statements of Spar (UK), in both cases as at and for each of the financial years ended December 31, 1994, 1995 and 1996, including the notes thereto, a copy of which is annexed hereto as Schedule 1; (e) "Arbitrator" has the meaning set out in subsection 3.3(c); (f) "Associate" has the meaning given to that term in the Act; (g) "Assumed Liabilities" has the meaning set out in section 4.1; (h) "Business Day" means any day, other than a Saturday or a Sunday, on which banks are open to the public for the transaction of banking business in Toronto, Ontario and New York, New York; (i) "Cash on Hand" means cash on hand or in banks or other depositories, term or time deposits and similar cash items including all accrued interest thereon and any capital gains relating thereto; - 3 - (j) "Claim" has the meaning set out in section 11.5; (k) "Closing" means the completion of the purchase and sale of the Purchased Assets as contemplated hereby; (l) "Closing Balance Sheet" has the meaning set out in subsection 3.3(a); (m) "Closing Date" means, subject to sections 7.2, 9.1 and 9.3, October 9, 1997 or such other date as the Vendor and the Purchaser may mutually determine; (n) "Closing Date Payment" has the meaning set out in section 3.2; (o) "Closing Financial Statements" has the meaning set out in subsection 3.3(c); (p) "Contract" means any agreement, indenture, contract, lease, deed of trust, licence, option, instrument or other commitment, whether written or oral and shall include any open invoice, tender, bid, quote or order which have been accepted or remain open for acceptance; (q) "Customer-Owned Property" means any property and assets located on or in the premises of the Purchased Business that (i) has been supplied or furnished by customers of the Purchased Business (including governments and government agencies); (ii) is not owned or leased by the Vendor or Spar (UK); and (iii) is used in or relates to the Purchased Business; (r) "Employee Plans" has the meaning set out in section 5.30; - 4 - (s) "Employees" means those salaried and hourly-paid employees of the Vendor who are employed in the Purchased Business immediately prior to the Time of Closing other than employees who are on long-term disability leave or retirees; (t) "Encumbrance" means any encumbrance, lien, charge, hypothec, pledge, mortgage, title retention agreement, security interest of any nature, adverse claim, exception, reservation, easement, right of occupation, any matter capable of registration against title, option, right of pre-emption, privilege or any Contract to create any of the foregoing; (u) "Environmental Laws" has the meaning set out in subsection 5.28(a); (v) "Environmental Permits" has the meaning set out in subsection 5.28(b); (w) "ETA" means Part IX of the Excise Tax Act (Canada), as amended from time to time; (x) "Excluded Assets" has the meaning set out in section 2.2; (y) "Excluded Liabilities" has the meaning set out in section 4.2; (z) "Financial Statements" means the Annual Financial Statements and the Interim Financial Statements; (aa) "GST" means all taxes payable under the ETA or under any provincial legislation similar to the ETA, and any reference to a specific provision of the ETA or any such provincial legislation shall refer to any successor provision thereto of like or similar effect; - 5 - (bb) "Hazardous Substances" has the meaning set out in subsection 5 .28(a); (cc) "Indemnified Party" has the meaning set out in section 11.5; (dd) "Indemnifying Party" has the meaning set out in section 11.5; (ee) "Intellectual Property" has the meaning set out in subsection 2.1(j); (ff) "Interim Financial Statements" means the unaudited combined financial statements of the Vendor in respect of the Purchased Business (including Spar (UK)) and the unaudited financial statements of Spar (UK) in each case as at and for the seven month period ended July 31, 1997 a copy of which is annexed hereto as Schedule 2; (gg) "Leased Property" has the meaning set out in section 5.9; (hh) "Leases" has the meaning set out in section 5.11; (ii) "Licences" has the meaning set out in section 5.18; (jj) "Losses" means, in respect of any matter, all claims, demands, proceedings, losses, damages, liabilities, deficiencies, costs and expenses (including, without limitation, all legal and other professional fees and disbursements, interest, penalties and amounts paid in settlement) arising directly as a consequence of such matter; (kk) "Major Customers" means Agusta SpA, Smiths Industries Aerospace, Defence Systems, North America and GkN Westland Helicopters Limited; - 6 - (ll) "Material Adverse Effect" means any change or effect that is materially adverse to the financial condition, properties, assets, operations or business of the Purchased Business taken as a whole; (mm) "Material Contracts" has the meaning set out in section 5.17; (nn) "Pension Plan" means the Spar Ontario Non-Represented Pension Plan; (oo) "Permitted Encumbrances" means: (i) servitudes, easements, restrictions, rights-of-way and other similar rights in real property or any interest therein, provided the same are not of such nature as to materially adversely affect the use of the property subject thereto; (ii) undetermined or inchoate liens, charges and privileges incidental to current construction or current operations save and except for liens, charges and privileges related to Taxes; (iii) statutory liens, charges, adverse claims, security interests or encumbrances of any nature whatsoever claimed or held by any governmental authority that have not at the time been filed or registered against the title to the asset or served upon the Vendor pursuant to law or that relate to obligations not due or delinquent, save and except for liens, charges, adverse claims, security interests or encumbrances related to Taxes; - 7 - (iv) assignments of insurance provided to landlords (or their mortgagees) pursuant to the terms of any lease, and liens or rights reserved in any lease for rent or for compliance with the terms of such lease; (v) security given in the ordinary course of the Purchased Business to any public utility, municipality or government or to any statutory or public authority in connection with the operations of the Purchased Business, other than security for borrowed money; (vi) the reservations in any original grants from the Crown of any real property or interest therein and statutory exceptions to title, which do not materially detract from the value of the real property concerned or materially impair its use in the operation of the Purchased Business; and (vii) the Encumbrances described in Schedule 12; (pp) "Prime Rate" means the annual variable rate of interest quoted or published from time to time by The Bank of Nova Scotia at its main branch in Toronto, Ontario as the "prime rate" of interest charged by it for Canadian dollar commercial loans made in Canada; (qq) "Purchase Price" has the meaning set out in section 3.1; (rr) Intentionally Deleted; (ss) "Purchased Assets" has the meaning set out in section 2.1; (tt) "Purchased Business" means the business carried on by the Vendor's Applied Systems Division and the business carried on by Spar (UK) consisting primarily - 8 - of the business of design, manufacture, and marketing of avionics and flight safety systems, communications and other advanced electronic products and systems; (uu) "Real Property" has the meaning set out in section 5.9; (vv) "Reimbursable Costs" means, in respect of any party, the reasonable out-of-pocket costs of such party together with all direct incremental labour and material costs of such party but excluding for greater certaint any charges for overhead, general administration or management costs; (ww) "Replacement Plans" has the meaning set out in section 8.9; (xx) "Spar(UK)" means Spar Aerospace (UK) Ltd., a company incorporated under the laws of England and Wales; (yy) "Spar (UK) Asets" means the assets and property owned or leased by Spar (UK); (zz) "Spar (UK) Shars" means the 200,000 Ordinary Shares of Spar (UK) which are owned by the Vendor; (aaa) "Tax" or "Taxes" mens any federal, provincial, state, local, foreign or other income, gross receipts, profits, franchise, transfer, sales, use, customs, payroll, withholding, occupation, health, property, excise, GST or other taxes, liabilities for the employer's portion of Canada pension plan, employment insurance and employee health insurance contributions, fees, duties, assessments, withholdings or governmental charges of any nature (including interest, penalties and additions to such taxes or charges); - 9 - (bbb) "Tax Act" means the Income Tax Act (Canada), as amended from time to time; (ccc) "Time of Closing" means 10:00 a.m. (Toronto time) on the Closing Date, or such other time on the Closing Date as the Vendor and the Purchaser may mutually determine; (ddd) "Transferred Employees" has the meaning set out in section 8.8; (eee) "Warranty Provision" has the meaning set out in subsection 4.3(a); and (fff) "Working Capital" has the meaning set out in subsection 3.3(b). I.2 Currency Unless otherwise indicated, all dollar amounts in this Agreement are expressed in Canadian funds. I.3 Sections and Headings The division of this Agreement into Articles, sections and subsections and the insertion of headings are for convenience of reference only and shall not affect the interpretation of this Agreement. Unless otherwise indicated, any reference in this Agreement to an Article, section, subsection or Schedule refers to the specified Article, section or subsection of or Schedule to this Agreement. I.4 Number, Gender and Persons - 10 - In this Agreement, words importing the singular number only shall include the plural and vice versa, words importing gender shall include all genders and words importing persons shall include individuals, corporations, partnerships, associations, trusts, unincorporated organizations, governmental bodies and other legal or business entities of any kind whatsoever. I.5 Accounting Principles Any reference in this Agreement to generally accepted accounting principles refers to generally accepted accounting principles that have been established in Canada, including those approved from time to time by the Canadian Institute of Chartered Accountants or any successor body thereto. I.6 Entire Agreement Except as otherwise provided herein, this Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether written or oral. There are no conditions, covenants, agreements, representations, warranties or other provisions, express or implied, collateral, statutory or otherwise, relating to the subject matter hereof except as herein provided. I.7 Meaning of Knowledge Whenever a representation or warranty of the Vendor is expressed to be "to the knowledge", "to the best of the knowledge" or "to the belief" of the Vendor or Spar (UK) (or words of similar import, including words that such person "is aware of" certain matters) or has been based upon facts or circumstances of which such person is aware or has notice of, the knowledge of the Vendor or Spar (UK), as the case may be, shall be deemed to be the knowledge - 11 - of the persons identified on Exhibit 5, having conducted due inquiry of their files and their immediate subordinates. I.8 Time of Essence Time shall be of the essence of this Agreement provided however that if the last day of any period of time herein provided for would be a day other than a Business Day such period shall be deemed to end on the next ensuing day that is a Business Day. I.9 Applicable Law This Agreement shall be construed, interpreted and enforced in accordance with, and the respective rights and obligations of the parties shall be governed by, the laws of the Province of Ontario and the federal laws of Canada applicable therein, and each party irrevocably and unconditionally submits to the non-exclusive jurisdiction of the courts of such province and all courts competent to hear appeals therefrom. I.10 Successors and Assigns This Agreement shall enure to the benefit of and shall be binding on and enforceable by the parties and their respective successors and permitted assigns. Except as herein set forth neither party may assign any of its rights or obligations hereunder without the prior written consent of the other party. - 12 - The Purchaser may assign its rights and obligations hereunder in whole or in part to one or more wholly-owned subsidiaries (as defined in the Act) (which subsidiaries may, but need not, be incorporated under Canadian laws) provided that such assignment shall not release or relieve the Purchaser from any of its obligations hereunder and each such subsidiary enters into satisfactory arrangements with the Vendor pursuant to which such subsidiary also covenants to perform the obligations assigned to it and provides evidence reasonably satisfactory to the Vendor that the representations and warranties set forth in Article VI are true and correct, mutatis mutandis, as if the word "Purchaser" was replaced with the name of the subsidiary. I.11 Amendments and Waivers No amendment or waiver of any provision of this Agreement shall be binding on either party unless consented to in writing by such party. No waiver of any provision of this Agreement shall constitute a waiver of any other provision, nor shall any waiver constitute a continuing waiver unless otherwise provided. I.12 Schedules The following Schedules are attached to and form part of this Agreement: Schedule 1 - Annual Financial Statements Schedule 2 - Interim Financial Statements Schedule 3 - Real Property Schedule 4 - Machinery and Equipment Schedule 5 - Vehicles Schedule 6 - Material Contracts Schedule 7 - Employee Matters Schedule 8 - Licences and Permits Schedule 9 - Intellectual Property - 13 - Schedule 10 - Allocation of Purchase Price Schedule 11 - Location of Assets Schedule 12 - Permitted Encumbrances Schedule 13 - Insurance Policies Schedule 14 - Legal and Regulatory Proceedings Schedule 15 - Regulatory Consents Schedule 16 - Third Party Consents Schedule 17 - Environmental Matters Schedule 18 - Major Customers Schedule 19 - Excluded Assets Schedule 20 - Plans and Improvements Schedule 21 - Changes Schedule 22 - Material Regulatory Consents Schedule 23 - Material Contractual Consents Schedule 24 - Customer Owned Assets Exhibit 1 - Opinion of Vendor's Counsel Exhibit 2 - Opinion of Purchaser's Counsel Exhibit 3 - Intentionally Omitted Exhibit 4 - Actuarial Assumptions Exhibit 5 - Knowledge of Vendor Disclosure of information on any one Schedule shall be deemed to be disclosure on all other applicable Schedules. ARTICLE II PURCHASE AND SALE OF PURCHASED ASSETS II.1 Purchased Assets - 14 - Subject to the provisions of this Agreement, the Vendor agrees to sell, assign and transfer to the Purchaser and the Purchaser agrees to purchase from the Vendor, effective as of the Time of Closing, all of the property and assets used in connection with or otherwise relating to the Purchased Business (other than the Excluded Assets), whether real or personal, tangible or intangible, of every kind and description and wheresoever situate, as a going concern (collectively, the "Purchased Assets"), including without limitation: (a) Real Property. All real property, together with all buildings, structures, improvements and appurtenances situate thereon including, without limitation, the real property identified in Schedule 3 as being owned by the Vendor; (b) Leases of Real Property. All rights (whether as lessee or lessor) under leases of real property, together with all leasehold improvements relating thereto, including, without limitation, all rights under the leases described in Schedule 3; (c) Machinery and Equipment. All machinery, equipment, fixtures, furniture, furnishings, parts, tooling moulds, dyes, jigs or patterns and other fixed assets, including, without limitation, the machinery and equipment described in Schedule 4; (d) Vehicles. All trucks, cars and other vehicles, including, without limitation, the vehicles described in Schedule 5; (e) Inventories. All inventories, including, without limitation, unbilled inventories, raw materials, work-in-process, finished goods and replacement parts; - 15 - (f) Accounts Receivable. All accounts receivable, trade accounts, notes receivable, book debts, holdbacks and other debts due or accruing due to the Vendor and the benefit of all security for such accounts, notes and debts; (g) Prepaid Expenses. All prepaid expenses of the Purchased Business (other than those related to Excluded Assets); (h) Agreements. All rights under leases of personal property, orders or contracts for the provision of goods or services (whether as buyer or seller), distribution and agency agreements, employment and collective agreements, agreements and instruments relating to employee pension or benefit plans and other Contracts not otherwise referred to in this section 2.1, including, without limitation, the Material Contracts described in Schedules 6 and 7; (i) Licences and Permits. All licences, permits, approvals, consents, registrations, certificates and other authorizations used in the Purchased Business to the extent that same may be transferred and to the extent any requisite consents are obtained, including, without limitation, those described in Schedule 8; (j) Intellectual Property. All trade or brand names, business names, trade marks, trade mark registrations and applications, service marks, service mark registrations and applications, copyrights, copyright registrations and applications, patents, patent registrations and applications and other patent rights (including any patents issued on such applications or rights), trade secrets, proprietary manufacturing information and know-how, equipment and parts lists and descriptions, instruction manuals, inventions, inventors' notes, research data, unpatented blue prints, drawings and designs, formulae, processes, technology and other intellectual property, together with all rights under licences, technology transfer agreements - 16 - and other agreements or instruments relating to any of the foregoing (collectively, "Intellectual Property"), including, without limitation, the trade marks, copyrights, patents, licences and agreements described in Schedule 9 but excluding all trade or brand names, business names, trade marks, trade mark registrations and applications, service marks, service mark registrations and applications and copyright containing or respecting the words "Spar" or "Spar Aerospace"; (k) Computer Hardware and Software. All computer hardware and software, including all rights under licences and other agreements or instruments relating thereto; (l) Books and Records. All books and records (other than those required by law to be retained by the Vendor, copies of which will be made available to the Purchaser), including without limitation, customer lists, sales records, price lists and catalogues, sales literature, advertising material, manufacturing data, production records, employee manuals, personnel records, supply records, inventory records and correspondence files (together with, in the case of any such information that is stored electronically, the media on which the same is stored); (m) Goodwill. All goodwill of the Purchased Business, together with the exclusive right for the Purchaser to represent itself as carrying on the Purchased Business in succession to the Vendor and the right to use any words indicating that the Purchased Business is so carried on; and (n) Shares of Spar (UK). All of the Spar (UK) Shares. II.2 Excluded Assets The Purchased Assets shall not include any of the following property and assets (collectively, the "Excluded Assets"): - 17 - (a) All Cash on Hand of the Vendor; (b) All liabilities and obligations of the Vendor or any of its Affiliates to the Purchased Business existing, accrued or accruing due immediately prior to the Time of Closing provided that the Vendor shall ensure that all accounts receivable owing from the Vendor or any of its Affiliates to the Purchased Business will have been paid at the Time of Closing; (c) All income and corporate capital tax instalments paid by the Vendor and the right to receive any refund of income, corporate capital or other taxes paid by the Vendor including, without limitation, any investment tax credit or any manufacturing and processing profits tax reduction or refund; (d) All rights of the Vendor in respect of all Employee Plans including, without limitation, all assets held under such plans and all rights of the Vendor to any refunds or funds on deposit relating to such plans which relate to favourable claims experience during the period prior to the Closing; (e) All rights of the Vendor and Spar (UK) to use the name(s) "Spar Aerospace", "Spar" or any word or name containing such phrases or words (including without limitation, all logos, trade or brand names, business names, trade marks, trade mark registrations and applications, service mark registrations and applications and copyrights containing or in respect of such words or phrases); (f) All rights of action and claims (and benefits arising therefrom) of the Vendor against third persons in the conduct of the Purchased Business arising by reason of any facts or circumstances that occurred or existed prior to the Closing Date - 18 - whether or not an action or any other proceeding shall have been commenced before such time, provided that Excluded Assets shall not include any such rights of action or claims relating to any Purchased Asset or which are necessary to permit the Purchaser to realize the benefits of the Purchased Assets (including, for greater certainty, any Contract constituting part thereof) or which relate to obligations or liabilities of, or assumed by, the Purchaser; (g) Subject to section 10.4, insurance policies of the Vendor relating to the Purchased Business and the Purchased Assets and all rights in connection therewith, including, without limitation, any rights to outstanding claims thereunder or refunds of insurance premiums; (h) All rights of the Vendor to any refunds of workers' compensation assessments made in respect of any period ended before the Closing Date; (i) All notes, memoranda, correspondence or similar material reflecting the legal conclusions, recommendations or work product of lawyers for the Vendor; (j) All constating documents, minute books and shareholder records of the Vendor; (k) All files, books, records, correspondence, lists, papers and other instruments prepared in connection with the sale of the Purchased Business, including information received from third persons in respect of Purchased Businesses and analysis relating to the sale of the Purchased Business; (l) The office software and intellectual property owned or licensed by the Vendor or Spar (UK) that is set forth on Schedule 19; - 19 - (m) The assets and Contracts listed on Schedule 19; (n) All rights, properties and assets of the Vendor not used in connection with or relating to the Purchased Business of whatever nature or kind and wherever situate; (o) All rights of the Vendor under this Agreement and agreements, instruments and certificates delivered pursuant to this Agreement; and (p) All Customer-Owned Property, including those assets set forth in Schedule 24. II.3 Non-Transferability (a) Subject to subsections 2.3(b) and 2.3(c), to the extent that any Purchased Asset is not capable of being sold, assigned, transferred, delivered or subleased without the consent or waiver of any person, or if such sale, assignment, transfer, delivery or sublease, or attempted sale, assignment, delivery or sublease would constitute a breach thereof or a violation of any law, statute, ordinance, regulation, rule having the force of law, judgment, decree, order, writ, injunction or award, this Agreement shall not constitute a sale, assignment, transfer, delivery or sublease thereof until such consent or waiver of the applicable person is received. (b) The Vendor shall diligently attempt to obtain (and the Purchaser shall reasonably cooperate with the Vendor), on or before the Closing Date and thereafter as required, the consents and waivers referred to in subsection 2.3(a) and to resolve the impediments to the sale, assignment, transfer, delivery or sublease referred to in subsection 2.3(a) and to obtain any other consents and waivers necessary to convey to the Purchaser any of the Purchased Assets provided that in no event shall the Vendor be required to incur any financial cost or burden (other than incidental costs) to obtain such consents or waivers or resolve such impediments. - 20 - (c) To the extent that the consents and waivers referred to in subsection 2.3(a) are not obtained by the Vendor, or until the impediments to the sale, assignment, transfer, delivery or sublease referred to therein are resolved, the Vendor shall, after the Closing Date: (i) hold the benefits of any Purchased Asset referred to in subsection 2.3(a) in trust for the Purchaser in accordance with the provisions of this subsection 2.3(c); (ii) cooperate in any reasonable and lawful arrangement, approved by the Purchaser, designed to provide such benefits to the Purchaser, without the Vendor thereby incurring any financial obligation to the Purchaser; and (iii) enforce and perform for the account of the Purchaser, any rights or obligations of the Vendor arising from any Purchased Asset referred to in subsection 2.3(a) against or in respect of any person, including the right to elect to terminate in accordance with the terms thereof upon the advice of the Purchaser. This subsection 2.3(c) shall not constitute a waiver of any right of the Purchaser or Vendor to require delivery of all consents and waivers on the Closing Date pursuant to sections 9.1 or 9.2. II.4 Reassignment of Rights If any Claim is asserted against the Vendor in connection with any Excluded Liability, the Purchaser shall, at the request of the Vendor, cooperate in any reasonable and lawful arrangement with the Vendor which assists the Vendor in its defence of such Claim (including a reassignment - 21 - of a Contract or rights thereunder) provided that such arrangement does not adversely affect the Purchaser's right or ability to realize the benefits from any of the Purchased Assets. The Vendor shall pay to the Purchaser the Reimbursable Costs incurred by the Purchaser in complying with any such request. ARTICLE III PURCHASE PRICE III.1 Purchase Price The aggregate purchase price (the "Purchase Price") payable by the Purchaser to the Vendor for acquiring the Purchased Assets and assuming the Assumed Liabilities shall be the Closing Date Payment, as defined in Section 3.2, as adjusted pursuant to Section 3.4. In addition, for greater certainty, the Purchaser shall assume and satisfy the Assumed Liabilities in accordance with the terms of this Agreement. III.2 Closing Date Payment At the Time of Closing, the Purchaser shall pay the Vendor the amount of Cdn $48,150,000 (the "Closing Date Payment"), by certified cheque or bank draft payable to or to the order of the Vendor or, if the Vendor so directs at least two Business Days prior to the Closing Date, by way of electronic transfer of immediately available funds to such bank account in Toronto, Ontario as the Vendor may specify in such direction. III.3 Determination of Working Capital Adjustment (a) Closing Balance Sheet. Within 60 days following the Closing Date, the Vendor shall deliver to the Purchaser an audited combined balance sheet (the "Closing - 22 - Balance Sheet") of the Purchased Business and Spar (UK) as at the opening of business on the Closing Date, prepared in accordance with generally accepted accounting principles applied on a basis consistent with those used in the preparation of the Annual Financial Statements. For greater certainty the Closing Balance Sheet shall include the assets and liabilities of Spar (UK) and shall not include the book value to the Vendor of the Spar (UK) Shares. In addition, all assets and liabilities of the Purchased Business which are denominated in a currency other than Canadian dollars shall be translated into the equivalent amount of Canadian dollars in accordance with the accounting practices of the Vendor, consistently applied based on currency exchange rates in effect as at the Closing Date. For the purpose of preparing the Closing Balance Sheet, the Purchaser agrees to grant the Vendor's authorized representatives reasonable access to relevant records, facilities and personnel of the Purchaser. (b) Working Capital Calculation. At the time of delivery of the Closing Balance Sheet, the Vendor shall also deliver to the Purchaser a written statement setting forth a detailed calculation (the "Working Capital Calculation") of the Working Capital, herein defined, and of the amount by which the Working Capital is greater or less than Cdn $14.1 million. The Working Capital Calculation shall be accompanied by: (i) an itemized list of all Assumed Liabilities and liabilities of Spar (UK) both to the extent reflected as liabilities in the Closing Balance Sheet (excluding, however, deferred revenues associated with the pricing adjustments relating to the Panavia customer contracts); and - 23 - (ii) an itemized list of all current assets of the Purchased Business as reflected in the Closing Balance Sheet, being more specifically, Cash on Hand (excluding Cash on Hand of the Vendor) the accounts and notes receivable, inventories and prepaid expenses. "Working Capital" is defined herein as the amount by which the net book value of the assets identified in (ii) above exceed the net book value of the liabilities identified in (i) above, all as set forth on the Closing Balance Sheet. (c) Approval of Closing Financial Statements. The Purchaser shall have a period of 30 days from the date it receives the Closing Balance Sheet, the Working Capital Calculation and the report of the Vendor's auditors thereon (collectively, the "Closing Financial Statements") in which to review the same. For the purpose of such review, the Vendor agrees to cause its auditors to permit the Purchaser and its authorized representatives to examine all working papers, schedules and other documentation used or prepared by the Vendor's auditors. If no objection to the Closing Financial Statements is given to the Vendor by the Purchaser within such 30-day period, the Closing Financial Statements shall be deemed to have been approved as of the last day of such 30-day period. If the Purchaser objects to any of the Closing Financial Statements within such 30-day period by giving notice to the Vendor setting out in reasonable detail the nature of such objection, the parties agree to attempt to resolve the matters in dispute within 15 days from the date the Purchaser gives such notice to the Vendor. If all matters in dispute are resolved by the parties, the Closing Financial Statements shall be modified to the extent required to give effect to such resolution and shall be deemed to have been approved as of the date of such resolution. - 24 - If the parties cannot resolve all matters in dispute within such 15-day period, all unresolved matters shall be submitted to a nationally recognized firm of chartered accountants acceptable to the Vendor and the Purchaser which is not the auditors of either the Purchaser or the Vendor (the "Arbitrator") for resolution, and the Arbitrator shall be given access to all materials and information reasonably requested by it for such purpose. The rules and procedures to be followed in the arbitration proceedings shall be determined by the Arbitrator in its discretion. The Arbitrator's determination of all such matters shall be final and binding on both parties and shall not be subject to appeal by either party. The fees and expenses of the Arbitrator shall be borne equally by the parties. The Closing Financial Statements shall be modified to the extent required to give effect to the Arbitrator's determination and shall be deemed to have been approved as of the date of such determination. III.4 Adjustment of Closing Date Payment Within two Business Days after the Closing Financial Statements are deemed to have been approved in accordance with section 3.3: (a) if the Working Capital exceeds Cdn $14.1 million, the Purchaser shall pay the Vendor an amount equal to such excess, together with interest thereon at the Prime Rate from and including the Closing Date to but excluding the date of payment; and (b) if the Working Capital is less than Cdn $14.1 million, the Vendor shall pay to the Purchaser an amount equal to such deficit, together with interest thereon at the Prime Rate from and including the Closing Date to but excluding the date of payment. - 25 - III.5 Allocation of Purchase Price The Vendor and the Purchaser agree to allocate the Purchase Price among the Purchased Assets and Assumed Liabilities in accordance with Schedule 10 and to report the sale and purchase of the Purchased Assets for all federal, provincial and local tax purposes in a manner consistent with such allocation. III.6 ETA Election The Purchaser and the Vendor shall elect jointly under subsection 167(1) of the ETA, in the form prescribed for the purposes of that subsection, in respect of the sale and transfer of the Purchased Assets hereunder, and the Purchaser shall file such election in its GST return for its reporting period that includes the Closing Date. The Purchaser shall indemnify the Vendor for any and all liability, including taxes, interest and penalties incurred by the Vendor for GST payable by the Purchaser in connection with this transaction as a result of the failure of Revenue Canada to accept in whole or in part such election by the parties. III.7 Transfer Taxes The Purchaser shall be liable for and shall pay all federal and provincial sales taxes (including any GST, retail sales taxes and land transfer taxes) and all other Taxes properly payable by the Purchaser in connection with the transfer of the Purchased Assets by the Vendor to the Purchaser (excluding, for greater clarity, Taxes for which the Vendor is liable in respect of its business, operations and/or income). The Purchaser shall deliver to the Vendor on the Closing Date purchase exemption certificates or similar documents in respect of such of the Purchased Assets as may, upon delivery of such certificates or documents, be acquired under applicable legislation without payment of sales tax. - 26 - III.8 Income Tax Elections The Purchaser and the Vendor agree to elect jointly in the prescribed form under section 22 of the Tax Act as to the sale of the accounts receivable and other assets that are referred to in subsection 2.1(f) and described in section 22 of the Tax Act and to designate in such election an amount equal to the portion of the Purchase Price allocated to such assets pursuant to section 3.5 as the consideration paid by the Purchaser therefor. The Purchaser and the Vendor agree to elect jointly in the prescribed manner under subsection 20(24) of the Tax Act in respect of all deposits and other prepayments received by the Vendor from customers of the Purchased Business which are transferred by the Vendor to the Purchaser in consideration of the Purchaser assuming the obligation to fulfill the related Contracts. ARTICLE IV ASSUMPTION OF LIABILITIES IV.1 Assumption of Certain Liabilities by the Purchaser The Purchaser agrees to assume, pay, satisfy, discharge, perform and fulfil, from and after the Time of Closing, only those obligations and liabilities of the Vendor relating to the Purchased Business existing, accrued or accruing (whether direct, indirect or contingent) as at the Time of Closing (the "Assumed Liabilities") and which are described below: (a) all liabilities and obligations under or relating to the Contracts comprising part of the Purchased Assets (including, without limitation, the Contracts described in Schedules 3, 6, 7 and 9) but excluding any obligation or liability which was required to be disclosed by the Vendor pursuant to Article V but was not so disclosed by the Vendor; - 27 - (b) all liabilities and obligations under all letters of credit or performance bonds (including obligations to reimburse the issuer thereof for any payments made thereunder) issued to secure or ensure performance by the Vendor or Spar (UK) of its obligations or liabilities under any Contract comprising part of the Purchased Assets; (c) all licences, liabilities and obligations under or relating to the Licences comprising part of the Purchased Assets; (d) all trade and other accounts payable and other existing or accrued current liabilities arising in respect of, or in the ordinary course of the Purchased Business (including, without limitation, capital lease payments, if any, taxes respecting Real Property, liabilities in respect of Permitted Encumbrances and accrued vacation pay and wages) to the extent the same are reflected in the Closing Balance Sheet; (e) all liabilities and obligations under or relating to the Permitted Encumbrances; and (f) all liabilities and obligations that the Purchaser has expressly assumed, or for which the Purchaser is expressly responsible, under this Agreement. IV.2 Excluded Liabilities For greater certainty, and without limiting the generality of section 4.1, the Vendor shall remain liable for and shall pay, satisfy, discharge, perform and fulfil, all other obligations and liabilities of the Vendor relating to the Purchased Business existing, accrued or accruing (whether direct, indirect or contingent) as at the Time of Closing (the "Excluded Liabilities"), including, without limitation: - 28 - (a) any liability for Taxes payable, collectible or remittable by the Vendor in respect of the Purchased Business and the Purchased Assets in respect of the period prior to the Closing Date other than real property and other Taxes levied with respect to the Purchased Assets or Purchased Business to the extent the same are reflected on the Closing Balance Sheet; (b) any liabilities owing to a lender of the Vendor other than the liabilities contained in the Contracts relating to the Defence Industry Production Program as described in Schedule 6; (c) any liability or obligation relating to an Excluded Asset; (d) any liability or obligation resulting from (i) any violation of, or failure to comply with, on or prior to the Closing Date, or (ii) any statutory liability under, any Environmental Law or Environmental Permit in effect on or prior to the Closing Date in connection with the ownership or operation of the Purchased Business or the Purchased Assets by the Vendor or any predecessor in title to the Vendor; and (e) all liabilities or obligations of the Vendor to or in respect of the Employees and the Employer Plans arising prior to the Time of Closing. The Vendor's obligations hereunder to remain liable for and to pay or perform the Excluded Liabilities shall not be limited, terminated or reduced by any representation or warranty concerning the same matter or by any disclosures or qualifications contained therein nor by any limitations of liability applicable to such representation or warranty or any indemnity given in connection therewith. - 29 - 4.2.1 Panavia Tax Liability Notwithstanding anything contained herein to the contrary, the Vendor shall have no liability under or pursuant to this Agreement (including if the same would result in a misrepresentation under section 5.20) for taxes payable by Spar (UK) in connection with the deferred revenues relating to price adjustments for Panavia customer contracts which have not been recognized as income by Spar (UK) prior to Closing, including without limitation if reassessments by applicable tax authorities determine that such taxes are payable before the Closing Date (provided that in such case the Vendor shall be liable for all interest, penalties or fines payable as a result of Spar (UK) failing to pay any such Taxes when due). IV.3 Product Liability and Warranty Obligations (a) Without in any way limiting section 11.1, the Purchaser shall not assume, and the Vendor shall be solely responsible for and shall indemnify and hold harmless the Purchaser from and against any and all Losses arising out of or resulting from any product liability, product warranty and other claims and obligations respecting products delivered, and/or services provided, by the Vendor in connection with the Purchased Business up to the Time of Closing whether such Losses arise before or after the Time of Closing and whether known or unknown as of the Time of Closing to the extent such Losses exceed any provision or allowance for product warranty or liability claims reflected in the Closing Balance Sheet (the "Warranty Provision"). Notwithstanding anything contained herein to the contrary, the Purchaser may if the Purchaser, acting reasonably, determines in good faith to do so for valid business reasons, and shall if requested to do so in writing by the Vendor, satisfy - 30 - or perform any such product warranty obligation of the Vendor not assumed by the Purchaser, provided however that the Purchaser shall first provide the Vendor with an opportunity to assess the claim and comment on its validity and any proposed response by the Purchaser. In any such case, provided such product warranty obligation was a valid and enforceable obligation or liability of the Vendor and the claim in respect thereof was valid, the Vendor shall reimburse the Purchaser forthwith following demand by the Purchaser for all Reimbursable Costs incurred by the Purchaser in repairing or replacing products. The Vendor's obligation to reimburse the Purchaser for any such Reimbursable Costs in respect of each warranty claim will be applicable only to the extent that such Reimbursable Costs in respect of such claim exceeds $25,000 and then only to the extent that the aggregate amount of all such Reimbursable Costs exceeds the Warranty Provision. In all other circumstances, the provisions of sections 11.5 to 11.10 inclusive, shall apply mutatis mutandis to any indemnity claim pursuant to this subsection 4.3(a). (b) The Vendor shall not be responsible for, and the Purchaser shall be solely responsible for and shall indemnify and hold harmless the Vendor from and against any and all Losses arising out of or resulting from any product liability, product warranty and other claims and obligations respecting products manufactured or delivered, and/or services provided, (i) by the Purchaser in connection with the Purchased Business after the Time of Closing and (ii) by the Vendor in connection with the Purchased Business prior to the time of Closing to the extent of the Warranty Provision The provisions of sections 11.5 to 11.10, inclusive, shall apply mutatis mutandis to any indemnity claim pursuant to this subsection 4.3(b). - 31 - ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE VENDOR The Vendor represents and warrants to the Purchaser as follows and acknowledges that the Purchaser is relying on such representations and warranties in connection with its purchase of the Purchased Assets: V.1 Organization The Vendor is a corporation duly incorporated and validly subsisting under the laws of Canada and Spar (UK) is a company duly incorporated and validly subsisting under the laws of England and Wales and each has the corporate power and capacity to own, or lease and operate its property, to carry on the Purchased Business as now being conducted by it and, in the case of the Vendor, to enter into this Agreement and to perform its obligations hereunder. V.2 Authorization This Agreement has been duly authorized, executed and delivered by the Vendor and is a legal, valid and binding obligation of the Vendor, enforceable against the Vendor by the Purchaser in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency and other laws affecting the rights of creditors generally and except that equitable remedies may be granted only in the discretion of a court of competent jurisdiction. V.3 No Other Agreements to Purchase No person other than the Purchaser has any written or oral agreement or option or any right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement or option for the purchase or acquisition from the Vendor or Spar (UK) of any of the Purchased Assets or the Spar (UK) Assets, other than (i) pursuant to purchase orders for the sale of Inventory accepted by the Vendor or Spar (UK) in the ordinary course of the Purchased Business - 32 - or (ii) agreements for the sale of assets having a fair market value of less than $5,000 which are not material to or currently used in the operation of the Purchased Business. V.4 No Violation The execution and delivery of this Agreement by the Vendor and the consummation of the transactions herein provided for will not result in: (a) the breach or violation of any of the provisions of, or constitute a default under, or conflict with or cause the acceleration of any legally binding obligation of the Vendor or Spar (UK) (other than Contracts which do not constitute Material Contracts) including without limitation under: (i) any Material Contract to which the Vendor or Spar (UK) is a party or by which it is or the Purchased Assets are bound provided the consents and waivers set forth in Schedule 16 are obtained; (ii) any provision of the constating documents or by-laws or resolutions of the board of directors (or any committee thereof) or shareholders of the Vendor or Spar (UK); (iii) any judgment, decree, order or award of any court, governmental body or arbitrator having jurisdiction over the Vendor or Spar (UK); (iv) any Licence necessary to the operation of the Purchased Business; or (v) any applicable law, statute, ordinance, regulation or rule having the force of law, other than the Bulk Sales Act (Ontario); nor - 33 - (b) the creation or imposition of any Encumbrance on any of the Purchased Assets or the Spar (UK) Assets. V.5 Sufficiency of Purchased Assets The Purchased Assets owned or leased by the Vendor, together with the Spar (UK) Assets and the Customer-Owned Property, are sufficient to carry on the Purchased Business. To the knowledge of the Vendor, except as set forth in Schedules 4, 5 and 20 hereto, all of the material tangible assets forming part of the Purchased Assets and the Spar (UK) Assets are in good operating condition and are in a state of good repair and maintenance, normal wear and tear excepted after taking into account the age and use of such assets. With the exception of inventory in transit, all the tangible assets of the Purchased Business are situate at the locations set out in Schedule 11. Schedule 24 contains a complete description of all Customer-Owned Property as at the date hereof having a market value of more than $10,000. V.6 Spar (UK) (a) The authorized capital of Spar (UK) consists of 200,000 Ordinary Shares of which only the Spar (UK) Shares are issued and outstanding. All of the Spar (UK) Shares are validly issued, fully paid and non-assessable. (b) Other than the Purchaser hereunder, no person has any written or oral agreement or option or any right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement or option, including convertible securities, warrants or convertible obligations of any nature, for the purchase, subscription - 34 - or acquisition of the Spar (UK) Shares, or for the purchase, subscription, allotment or issuance of any authorized but unissued shares or other securities of Spar (UK). (c) The Vendor is the beneficial owner of record of the Spar (UK) Shares, with good and marketable title thereto, free and clear as at Closing, of all Encumbrances (other than the Permitted Encumbrances) and, without limiting the generality of the foregoing, none of the Spar (UK) Shares is subject to any voting trust, shareholder agreement or voting agreement. Upon completion of the transaction contemplated by this Agreement, all of the Spar (UK) Shares will be owned by the Purchaser as the beneficial owner of record, with a good and marketable title thereto. V.7 No Subsidiaries With the exception of the Vendor's ownership of Spar (UK), the Vendor does not, in connection with the Purchased Business, and Spar (UK) does not, own or have any agreements of any nature to acquire, directly or indirectly, any shares in the capital of or other equity or proprietary interests in any person. V.8 Title to Personal Property The Purchased Assets and the Spar (UK) Assets are owned by the Vendor and Spar (UK), respectively, and on Closing will be owned by the Vendor or Spar (UK), as the case may be, free and clear of all Encumbrances other than Permitted Encumbrances. V.9 Location of Real Property Schedule 3 sets forth the municipal addresses and complete and accurate legal descriptions of all the real property that is used in the Purchased Business and of which the Vendor or Spar - 35 - (UK) is the beneficial or legal owner (the "Real Property") or which is leased by the Vendor or Spar (UK) (the "Leased Property"). V.10 Real Property and Leased Property Neither the Vendor nor Spar (UK) is the beneficial or registered owner of nor has it agreed to acquire any real property or any interest in any real property other than the Real Property and the Leased Property. The Vendor has the exclusive right to possess, use and occupy and has good and marketable title in fee simple to all the Real Property, and on Closing will have good and marketable title in fee simple to the Real Property free and clear of all Encumbrances, other than Permitted Encumbrances. To the knowledge of the Vendor, all buildings, structures, improvements and appurtenances situated on the Real Property or the Leased Property are, in all material respects, in good operating condition and in a state of good maintenance and repair having regard to the use and age thereof and are adequate and suitable for the purposes for which they are currently being used, except as disclosed in Schedule 20. None of such buildings, structures, improvements or appurtenances (or any equipment therein), nor the operation or maintenance thereof, violates any restrictive covenant or any provision of any federal, provincial or municipal law, by-laws, ordinance, or other rule or regulation, or encroaches on any property owned by others, other than violations or encroachments which would not constitute a Material Adverse Effect and other than Environmental Laws (which are dealt with in Section 5.28). Without limiting the generality of the foregoing: (a) the Real Property, the Leased Property, the current uses thereof and the conduct of the Purchased Business comply with all regulations, statutes, enactments, laws and by-laws, orders and approvals including, without limitation, those dealing with zoning, parking, access, loading facilities, landscaped areas, building construction, fire, public health and safety, official plans and Planning Act approvals except - 36 - where such non-compliance would not constitute a Material Adverse Effect and other than Environmental Laws (which are dealt with in Section 5.28); (b) except as disclosed in Schedule 20, no material alteration, repair, improvement or other work has been ordered, directed or requested in writing to be done or performed to or in respect of the Real Property, the Leased Property or to any of the plumbing, heating, elevating, water, drainage or electrical systems, fixtures or works by any municipal, provincial or other competent authority, which alteration, repair, improvement or other work has not been completed, and the Vendor knows of no written notification having been given to it of any such outstanding work being ordered, directed or requested, other than those that have been complied with; (c) all accounts for work and services performed and materials placed or furnished upon or in respect of the Real Property or the Leased Property at the request of the Vendor have been fully paid (to the extent the same is due and owing) and satisfied in all material respects, and no person is entitled to claim a lien under the Construction Lien Act (Ontario) or similar legislation in other provinces of Canada against the Real Property, the Leased Property or any part thereof, other than current accounts in respect of which the payment due date has not yet passed; (d) as at Closing the Permitted Encumbrances will constitute all of the Encumbrances that affect the Real Property or the Leased Property; and (e) except as disclosed in Schedule 20, to the knowledge of the Vendor, each of the Real Property and the Leased Property (including all buildings, improvements and fixtures) is fit for its present use and there are no material repairs or replacements that are necessary and, without limiting the foregoing, there are no material repairs - 37 - to, or replacements of, the roof or the mechanical, electrical, heating, ventilating, air-conditioning, plumbing or drainage equipment or systems that are necessary; and none of the Real Property or the Leased Property is currently undergoing any material alteration or renovation nor is any such alteration or renovation contemplated. V.11 Leased Property Neither the Vendor nor Spar (UK) is a party to any lease or agreement to lease or sublease in respect of any real or immovable property, whether as lessor or lessee or sublessor or sublessee, other than the leases and subleases (the "Leases") described in Schedule 3 relating to the Leased Property. Schedule 3 sets out the parties to each of the Leases, the locations of the leased lands and premises and the current annual base rent payable thereunder. Except as described in Schedule 3, the Vendor or Spar (UK), as applicable, occupies the Leased Property and has the exclusive right to occupy and use the Leased Property. Each of the Leases is in good standing and in full force and effect in all material respects, and neither the Vendor, Spar (UK) nor any other party thereto is in breach of any material covenant, condition or obligation contained therein. The Vendor has provided a true and complete copy of each Lease and all amendments thereto to the Purchaser. V.12 Inventories The inventories of finished products of the Vendor relating to the Purchased Business and of Spar (UK) (excluding inventories which have been written off on the books of the Vendor or Spar (UK)) do not include any items that are slow moving, or of a quality or quantity not usable or saleable in the normal course of business, except to the extent provided for in any applicable allowance or provision reflected in the Financial Statements or the Closing Balance Sheet. The - 38 - inventory levels of the Vendor and Spar (UK) have been maintained at such amounts as are required for the operation of the Purchased Business as previously conducted. V.13 Accounts Receivable All accounts receivable, book debts and other debts due or accruing to the Vendor in connection with the Purchased Business are bona fide, subject to any Accounts Receivable that have been previously written off and to an allowance for doubtful accounts that has been reflected on the books of the Vendor in accordance with generally accepted accounting principles. The sale of accounts receivable by the Vendor to the Purchaser will be eligible for the election under section 22 of the Tax Act. V.14 Intellectual Property Schedule 9 sets out all Intellectual Property which has been registered under applicable legislation or in respect of which registrations are pending (including particulars of registration or application for registration) and all licences and other Contracts that comprise or relate to Intellectual Property. The Intellectual Property comprises all trade or brand names, business names, trade marks, service marks, copyrights, patents, trade secrets, know-how, inventions, designs and other industrial or intellectual property necessary to conduct the Purchased Business. Except as set forth on Schedule 9, the Vendor or Spar (UK), as the case may be, is the beneficial owner of the Intellectual Property free and clear of all Encumbrances, and is not a party to or bound by any Contract or any other obligation whatsoever that limits or impairs its ability to sell, transfer, assign or convey, or that otherwise affects, the Intellectual Property. Neither the Vendor nor Spar (UK) has granted any interest in or right to use all or any portion of the Intellectual Property except as set forth in Schedule 9. The conduct of the Purchased Business does not infringe upon the industrial or intellectual property rights, domestic or foreign, of any other person. The Vendor is not aware of a claim of any infringement or breach of any industrial or intellectual property rights of any other person, nor has the Vendor or Spar (UK) received any notice that the conduct of the Purchased Business, including the use of the Intellectual Property, - 39 - infringes upon or breaches any industrial or intellectual property rights of any other person, and the Vendor has no knowledge of any infringement or violation of any of its rights in the Intellectual Property. The Vendor is not aware of any state of facts that could reasonably be expected to render invalid or unenforceable any of the Intellectual Property. The Vendor has provided to the Purchaser a true and complete copy of all Contracts and amendments thereto that comprise or relate to the Intellectual Property. V.15 Insurance Schedule 13 sets out all insurance policies (specifying the insurer, the amount of the coverage, the type of insurance, the policy number and any pending claims thereunder) maintained by the Vendor on the Purchased Assets, the Purchased Business and the Spar (UK) Assets or their personnel as of the date hereof. Neither the Vendor nor Spar (UK) is in default in any material respect with respect to any of the provisions contained in any such insurance policy and has not failed to give any notice or present any material claim under any such insurance policy, in due and timely fashion. The Vendor has provided details of each insurance policy referred to in Schedule 13 to the Purchaser. V.16 No Expropriation No part of the Purchased Assets or the Spar (UK) Assets has been taken or expropriated by any federal, provincial, municipal or other authority, nor has any notice or proceeding in respect thereof been given or commenced, nor is the Vendor aware of any intent or proposal to give any such notice or commence any such proceedings. - 40 - V.17 Agreements and Commitments Except as described in Schedules 3, 6, 7 and 9, neither the Vendor nor Spar (UK) is a party to or bound by any of the following Contracts in connection with or relating to the Purchased Business: (a) any distributor, sales, advertising, agency or manufacturer's representative Contract; (b) any collective bargaining agreement, letter of understanding, letter of intent, other written communication or other Contract (collectively, "Collective Agreements") with any labour union, trade union, council of trade unions, employer bargaining agency or affiliated bargaining agent; (c) any employment or consulting Contract or any other Contract with any officer, employee or consultant (other than oral Contracts of indefinite hire terminable by the Vendor without cause on reasonable notice); (d) any profit sharing, bonus, stock option, pension, retirement, disability, stock purchase, medical, dental, hospitalization, insurance or similar plan or agreement providing benefits to any current or former officer, employee or consultant; (e) any indenture, mortgage, promissory note, loan agreement, guarantee or other Contract for the borrowing of money or a leasing transaction of the type required to be capitalized in accordance with generally accepted accounting principles; (f) any Contract for the sale of any assets, other than sales of inventory to customers in the ordinary course of the Purchased Business; -41- (g) any Contract pursuant to which the Vendor or Spar (UK) is a lessor or lessee of any machinery, equipment, motor vehicles, office furniture, fixtures or other personal property where the lease payments are in excess of $5,000 annually; (h) any confidentiality, secrecy or non-disclosure Contract (whether the Vendor or Spar (UK) is a beneficiary or obligor thereunder) pursuant to which goods or services continue to be provided or pursuant to which there are continuing obligations of the parties thereto relating to any proprietary or confidential information or any non-competition or similar Contracts (other than purchase orders or supply contracts containing standard provisions regarding confidential or proprietary information); (i) any licence, franchise or other agreement that relates in whole or in part to any Intellectual Property; (j) any agreement of guarantee, support, indemnification, assumption or endorsement of, or any other similar commitment with respect to, the obligations, liabilities (whether accrued, absolute, contingent or otherwise) or indebtedness of any other person, except for cheques endorsed for collection in the ordinary course of the Purchased Business; or (k) any Contract for the supply of goods or services material to the Purchased Business which goods or services can not otherwise be readily obtained at comparable prices; (l) any Contract for capital expenditures, other than any such Contract involving an expenditure of less than $25,000 provided that all such Contracts not described in -42- the aforesaid schedules do not involve expenditures of more than $150,000 in the aggregate; (m) any Contract involving the sale of inventory or the supply of services to customers in excess of $150,000 or which expire after one year from the date of this Agreement; (n) any Contract for the purchase of materials, supplies, equipment or services not constituting a capital expenditure, other than any such Contract involving an expenditure of less than $50,000 provided that all such Contracts not described in the aforesaid schedules do not involve expenditures of more than $500,000 in the aggregate; (o) any Contract providing for payments or receipts in excess of $25,000 that expires, or may expire if the same is renewed or extended at the option of any person other than the Vendor, more than one year after the date of this Agreement; (p) any Contract or Contracts involving the payment or receipt by the Vendor of royalties, ongoing licence fees or similar payments in excess of, in aggregate, $10,000 per annum; (q) any Contract not described in subsections 5.17(a) to (p), inclusive, having obligations on any party thereto in excess of $100,000, (collectively, the "Material Contracts"). The Vendor or Spar (UK), as the case may be, is in compliance with all obligations required to be performed by it and is entitled to all benefits under, and is not in default or alleged -43- to be in default in any respect of, any Material Contract relating to the Purchased Business, Purchased Assets or Spar (UK) Assets to which it is a party or by which it is bound except where such breach or non-compliance would not constitute a Material Adverse Effect and all such Material Contracts are in good standing and in full force and effect, and no event, condition or occurrence exists that, after notice or lapse of time or both, would constitute a default in any material respect by any party thereto under any of the foregoing except to the extent the same does not constitute a Material Adverse Effect. The Vendor has provided to the Purchaser a true and complete copy of each Material Contract listed or described in Schedules 3, 6, 7 and 9 and all amendments thereto. V.18 Compliance with Laws; Governmental Authorization The Vendor and Spar (UK) is in compliance with all laws, statutes, ordinances, regulations, rules, judgments, decrees or orders applicable to the Purchased Business, the Purchased Assets or the Spar (UK) Assets except where such non-compliance does not constitute a Material Adverse Effect and except in respect of Environmental Laws (which are dealt with separately in section 5.28). Schedule 8 sets out a complete and accurate list of all governmental or regulatory licences, permits, approvals, consents, certificates, registrations and authorizations (the "Licences") held by or granted to the Vendor in respect of the Purchased Business or Spar (UK), and there are no other Licences necessary to carry on the Purchased Business or to own or lease any of the Purchased Assets or the Spar (UK) Assets, other than those Licences the failure of which to hold or be granted does not constitute a Material Adverse Effect and other than Environmental Permits (which are dealt with separately in section 5.28). Each Licence described in Schedule 8 is valid, subsisting and in good standing and neither the Vendor nor Spar (UK) is in default or breach in any material respect of any such Licence and, to the knowledge of the Vendor, no proceeding is pending or threatened to revoke or limit any Licence. The Vendor has provided a true and complete copy of each such Licence and all amendments thereto to the Purchaser. -44- The Vendor is not subject to any debarment or suspension proceedings by the United States government or in respect of its status as supplier thereto and is not subject to any similar proceedings by the Canadian government or in respect of its status as supplier thereto. V.19 Consents and Approvals There is no requirement to make any filing with, give any notice to or to obtain any Licence, consent or approval of, any governmental or regulatory authority as a condition to the lawful consummation of the transactions contemplated by this Agreement, except for the filings, notifications and Licences described in Schedule 15 or that relate solely to the identity of the Purchaser or the nature of any business carried on by the Purchaser. There is no requirement under any Material Contract to which the Vendor or Spar (UK) is a party or by which it is bound to give any notice to, or to obtain the consent or approval of, any party to such agreement, instrument or commitment relating to the consummation of the transactions contemplated by this Agreement, except for the notifications, consents and approvals described in Schedule 16. V.20 Financial Statements The Financial Statements of the Purchased Business are special purpose financial statements prepared for internal use and represent the combined operations of the Spar Applied Systems Division and Spar (UK). Except as set forth in Schedules 1-1 and 2-1 the Financial Statements of Spar (UK) have been prepared in accordance with U.K. generally accepted accounting principles, applied on a basis consistent with prior periods and the Financial Statements of the Purchased Business have been prepared in accordance with generally accepted accounting principles (except that such Financial Statements have been prepared based on materiality thresholds applicable to the consolidated financial statements of the Vendor and its subsidiaries) applied on a basis consistent with prior periods. The Financial Statements present fairly the -45- assets, liabilities (whether accrued, absolute, contingent or otherwise) and financial condition of the Purchased Business and Spar (UK), as the case may be, as at the respective dates of the Financial Statements and the sales, earnings and results of operations of the Purchased Business and Spar (UK) for the respective periods covered by the Financial Statements. The Vendor has provided true and complete copies of the Financial Statements to the Purchaser. Except for the liabilities reflected or disclosed in this Agreement, the Financial Statements or the Closing Balance Sheet, and except for liabilities incurred in the ordinary course of business after July 31, 1997, the Vendor does not have any material (for greater certainty, based on materiality thresholds ordinarily applicable to businesses similar in size to the Purchased Business) liabilities (whether absolute or contingent) relating to the Purchased Business and Spar (UK) does not have any material liabilities (whether absolute or contingent). V.21 Books and Records Each of the Vendor and Spar (UK) has maintained its accounting books and records of the Purchased Business in accordance with generally accepted accounting principles. V.22 Absence of Changes Since July 31, 1997, except as disclosed in Schedule 21, the Purchased Business has been carried on only in the ordinary and normal course consistent with past practice and there has not been: (a) any adverse change in the condition (financial or otherwise), assets, liabilities, operations, earnings or business of the Purchased Business which would constitute a Material Adverse Effect; -46- (b) any damage, destruction or loss (whether or not covered by insurance) affecting the Purchased Assets or the Spar (UK) Assets which would constitute a Material Adverse Effect; (c) any material obligation or liability (whether absolute, accrued, contingent or otherwise, and whether due or to become due) incurred by the Vendor in connection with the Purchased Business or Spar (UK), other than those incurred in the ordinary and normal course of the Purchased Business and consistent with past practice and which are or shall be disclosed to the Purchaser by the Vendor prior to Closing; (d) any payment, discharge or satisfaction of any material Encumbrance, liability or obligation of the Vendor in relation to the Purchased Business or the Purchased Assets or liability or obligation of Spar (UK) (whether absolute, accrued, contingent or otherwise, and whether due or to become due) other than payment of accounts payable and tax liabilities incurred in the ordinary and normal course of business consistent with past practice; (e) any licence, sale, assignment, transfer, disposition, pledge, mortgage or granting of a security interest or other Encumbrance on or over any Purchased Assets or the Spar (UK) Assets, other than (i) Permitted Encumbrances, (ii) sales of inventory to customers in the ordinary and normal course of the Purchased Business, and (iii) sales of assets having a fair market value of less than $10,000 which are not material to or currently used in the operation of the Purchased Business; (f) any general increase in the compensation of employees of the Vendor involved in the Purchased Business or Spar (UK) (including, without limitation, any increase pursuant to any Employee Plan or commitment) or any increase in any such -47- compensation or bonus payable to any officer, employee, consultant or agent thereof (having an annual salary or remuneration in excess of $100,000) or the execution of any employment contract with any officer, consultant or employee (having an annual salary or remuneration in excess of $100,000), or the making of any loan to, or engagement in any transaction with, or hiring or dismissal of any employee, officer or director of the Vendor in relation to the Purchased Business or of Spar (UK) having an annual salary or remuneration in excess $100,000; (g) any capital expenditures or commitments relating to the Purchased Business in excess of $200,000 in the aggregate; (h) any forward purchase commitments in excess of the requirements of the Purchased Business for normal operating inventories or at prices materially higher than the current market prices; (i) any forward sales commitments other than in the ordinary and normal course of the Purchased Business or any failure to satisfy in any material respect any accepted order for goods or services; (j) any change in the accounting or tax practices followed by the Vendor in relation to the Purchased Business or by Spar (UK); or (k) any material change in the credit terms offered to customers of, or by suppliers to, the Purchased Business. V.23 Non-Arm's Length Transactions With respect to the Purchased Business: -48- (a) neither the Vendor nor Spar (UK) has since December 31, 1996 made any payment or loan to, or borrowed any moneys from or is otherwise indebted to, any employee or any other person not dealing at arm's length with the Purchased Business (within the meaning of the Tax Act) except as disclosed on the Financial Statements and except for employee reimbursements, bonuses and compensation paid in the ordinary course of the Purchased Business; and (b) except for Contracts of employment, neither the Vendor nor Spar (UK) is a party to any Contract with any employee or any other person not dealing at arm's length with the Purchased Business (within the meaning of the Tax Act). V.24 Taxes The Vendor has duly filed on a timely basis all tax returns required to be filed by it and has paid all taxes that are due and payable, and all assessments, reassessments, governmental charges, penalties, interest and fines due and payable by it to the extent the same could affect the ongoing conduct of the Purchased Business, the Purchased Assets, constitute any Encumbrance on the Purchased Assets or become liabilities of the Purchaser. There are no investigations or Claims pending or, to the knowledge of the Vendor, threatened against the Vendor in respect of taxes, governmental charges or assessments, nor are there any material matters under discussion with any governmental authority relating to such taxes, governmental charges or assessments asserted by any such authority, which could affect the Purchased Assets, or the ongoing conduct of the Purchased Business or become a liability of the Purchaser. Spar (UK) has duly filed on a timely basis all tax returns required to be filed by it and has paid all taxes that are due and payable, and all assessments, reassessments, governmental charges, penalties, interest and fines due and payable by it. There are no investigations or Claims pending -49- or, to the knowledge of the Vendor, threatened against Spar (UK) in respect of taxes, governmental charges or assessments, nor are there any material matters under discussion with any governmental authority relating to such taxes, governmental charges or assessments asserted by any such authority. Each of the Vendor and Spar (UK) has withheld from each payment made to, and taxable benefit conferred upon, any of the employees of the Purchased Business, the amount of all taxes or other deductions required to be withheld therefrom and has paid the same to the proper tax or other receiving officers within the time required under applicable legislation. Each of the Vendor and Spar (UK) has remitted to the appropriate tax authority, when required by law to do so, all amounts collected by it on account of GST or Value Added Taxes which could become a liability of the Purchaser. V.25 Litigation Except as described in Schedule 14, there are no actions, suits or proceedings (whether or not purportedly on behalf of the Vendor or Spar (UK)) pending or, to the best knowledge of the Vendor, after due enquiry, threatened against or affecting the Purchased Business at law or in equity or before or by any federal, provincial, municipal or other governmental department, court, commission, board, bureau, agency or instrumentality, domestic or foreign, or before or by an arbitrator or arbitration board. The Vendor is not aware of any ground on which any such action, suit or proceeding might be commenced with any reasonable likelihood of success. V.26 Residency The Vendor is not a non-resident of Canada for the purposes of the Tax Act. V.27 GST Registration -50- The Vendor is a registrant for purposes of the ETA whose registration number is 10495 1983 RT 0001. V.28 Environmental (a) To the knowledge of the Vendor except as described in Schedule 17, the Vendor, in respect of the Purchased Business, the Purchased Assets and Spar (UK) are in compliance with all applicable federal, provincial, municipal and local laws, statutes, ordinances, by-laws and regulations, and orders, directives and decisions rendered by any ministry, department or administrative or regulatory agency ("Environmental Laws") relating to the protection of the environment, occupational health and safety or the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of any pollutants, contaminants, chemicals or industrial toxic or hazardous wastes or substances ("Hazardous Substances"), except for any non-compliance which does not constitute a Material Adverse Effect. (b) To the knowledge of the Vendor except as described in Schedule 17 the Vendor has obtained all licences, permits, approvals, consents, certificates, registrations and other authorizations under Environmental Laws (the "Environmental Permits") required for the operation of the Purchased Business except where the failure to obtain the same would not constitute a Material Adverse Effect, all of which are described in Schedule 8. To the knowledge of the Vendor except as described in Schedule 17 each Environmental Permit is valid, subsisting and in good standing, and neither the Vendor nor Spar (UK) is in default or breach of any such Environmental Permit except for defaults or breaches which does not constitute a -51- Material Adverse Effect and no proceeding is pending or threatened to revoke or limit any Environmental Permit. (c) To the knowledge of the Vendor except as set forth in Schedule 17: (i) the Vendor, in connection with the Purchased Business or the Purchased Assets, and Spar (UK) have not used or permitted to be used, except in material compliance with all Environmental Laws, any of its property (including any of the Real Property and Leased Property) or facilities to generate, manufacture, process, distribute, use, treat, store, dispose of, transport or handle any Hazardous Substance; (ii) since December 31, 1991, neither the Vendor in connection with the Purchased Business or the Purchased Assets, nor Spar (UK) has received any notice of or been prosecuted for non-compliance with any Environmental Laws, nor has the Vendor settled any allegation of non-compliance short of prosecution; (iii) neither the Vendor, in connection with the Purchased Business or the Purchased Assets, nor Spar (UK) has caused or permitted, nor has any knowledge of, the release, in any manner whatsoever, of any Hazardous Substance on or from any of its properties or assets (including any of the Real Property and Leased Property) utilized in the Purchased Business, or any such release on or from a facility owned or operated by third parties but with respect to which the Vendor in connection with the Purchased Business or Spar (UK) is or may reasonably be alleged to have liability other than releases which do not constitute a Material Adverse Effect. To the knowledge of the Vendor except as set forth in Schedule 17 all -52- Hazardous Substances and all other wastes and other materials and substances used in whole or in part by the Vendor in connection with the Purchased Business or resulting from the Purchased Business, or Spar (UK) have been disposed of, treated and stored in compliance, in all material respects, with all Environmental Laws. To the knowledge of the Vendor Schedule 17 identifies all of the locations where Hazardous Substances used in whole or in part by the Vendor in connection with the Purchased Business are being stored or disposed of by the Vendor or Spar (UK); (iv) neither the Vendor nor Spar (UK) has received any notice that the Vendor or Spar (UK) is potentially responsible for a federal, provincial, municipal or local clean-up site or corrective action under any Environmental Laws in connection with the Purchased Business. Neither the Vendor, in connection with the Purchased Business, nor Spar (UK) has received any request for information in connection with any federal, provincial, municipal or local inquiries as to disposal sites; (v) to the knowledge of the Vendor there are no changes to any applicable statutes or regulations relating to environmental laws which have been enacted or issued but are not yet in force which would render unlawful or restrict in any material respect the operations of the Vendor or the Purchased Business, or any part thereof or the manufacture, sale, distribution or provision of any products or services by the Vendor in the Purchased Business; (vi) the Vendor has provided all material reports and information to the appropriate regulatory authority as required by such regulatory authority pursuant to all Environmental Laws and the Environmental Permits -53- applicable to the Purchased Business or the Purchased Assets. The Vendor has fully disclosed to the Purchaser the circumstances in which such reports have been filed. Copies of such reports and any supporting material have been provided to the Purchaser; and (vii) the Vendor knows of no release or disposal of any Hazardous Substance from any property that could have a Material Adverse Effect on the Purchased Business or the Purchased Assets and, to the Vendors knowledge, no property adjacent to any of the Real Property has been used for the disposal, processing or treatment of any Hazardous Substance or as a dump site, either permanently or temporarily in a manner which could reasonably be expected to have a Material Adverse Effect on the Purchased Business or the Purchased Assets. (d) The Vendor's obligations to remain liable for and to pay or perform the Excluded Liabilities, including liabilities relating to environmental matters, as provided elsewhere in this Agreement shall not be limited, terminated or reduced by the representations or warranties contained in this section 5.28 or by any disclosures or qualifications contained therein (including qualifications relating to the knowledge of the Vendor or materiality qualifications) nor by any limitations of liability applicable to such representation or warranty or any indemnity given in connection therewith. V.29 Customers and Suppliers -54- Schedule 18 sets out the major customers and suppliers of the Purchased Business (being those customers of the Purchased Business accounting for more than 10% of sales for the period January 1, 1996 to December 31, 1996 and suppliers of the Purchased Business accounting for more than $500,000 of purchases during the same period) and, to the knowledge of the Vendor since January 1, 1997 there has been no termination or cancellation of, and no material adverse change in, the Vendor's business relationship with any major customer or supplier or group of major customers or suppliers relating to the Purchased Business. V.30 Employee Plans Schedule 7 identifies each retirement, pension, bonus, stock purchase, profit sharing, stock option, deferred compensation, severance or termination pay, insurance, medical, hospital, dental, vision care, drug, sick leave, disability, salary continuation, legal benefits, unemployment benefits, vacation, incentive or other compensation plan or arrangement or other employee benefit that is maintained, or otherwise contributed to or required to be contributed to, by the Vendor or Spar (UK) for the benefit of employees or former employees of the Vendor or Spar (UK) relating to the Purchased Business (the "Employee Plans") and a true and complete copy of each Employee Plan has been furnished to the Purchaser. Each Employee Plan has been maintained in all material respects in compliance with its terms and with the requirements prescribed by any and all statutes, orders, rules and regulations that are applicable to such Employee Plan. Except as described in Schedule 7: (a) all contributions to, and payments from, each Pension Plan that may have been required to be made in accordance with the terms of any such Pension Plan, and, where applicable, the laws of the jurisdictions that govern such Pension Plan, have been made in all material respects in a timely manner; -55- (b) all material reports, returns and similar documents (including applications for approval of contributions) with respect to any Pension Plan required to be filed with any government agency or distributed to any Pension Plan participant have been duly filed or distributed in all material respects in a timely manner; (c) to the knowledge of the Vendor, there are no pending investigations by any governmental or regulatory agency or authority involving or relating to any Employee Plan, no threatened or pending claims (except for claims for benefits payable in the normal operation of the Employee Plans), suits or proceedings against any Employee Plan or asserting any rights or claims to benefits under any Employee Plan that could give rise to a material liability nor are there any facts that could give rise to any material liability in the event of such investigation, claim, suit or proceeding (for greater certainty, the qualification of this representation by the knowledge of the Vendor shall not affect or reduce the Vendor's obligations hereunder to satisfy Excluded Liabilities); (d) no written notice has been received by the Vendor of any complaints or other proceedings of any kind involving the Vendor or, to the Vendor's knowledge, any of the employees of the Purchased Business before any pension board or committee relating to any Pension Plan or to the Purchased Business or the Purchased Assets; and (e) the assets of each Pension Plan are at least equal to the liabilities of such Pension Plans based on the actuarial assumptions utilized in the most recent valuation performed by the actuary for such Pension Plan. V.31 Collective Agreements -56- Except as disclosed in Schedule 7, the Vendor is not a party, either directly or by operation of law, to any Collective Agreement in respect of any of the Employees. Except as disclosed in Schedule 7, no trade union, council of trade unions, employee bargaining agency or affiliated bargaining agent holds bargaining rights with respect to any of the Employees by way of certification, interim certification, voluntary recognition, or successor rights, or has applied or threatened to apply to be certified as the bargaining agent of any of the Employees. To the knowledge of the Vendor, there are no threatened or pending union organizing activities involving the Employees. To the Vendor's knowledge, the Vendor does not have any labour problems that might reasonably be expected to materially adversely affect the operations of the Business or lead to an interruption of operations of the Business. V.32 Employees Schedule 7 contains a complete and accurate list of the names of all individuals who are employees of the Vendor employed or engaged in the Purchased Business and employees of Spar (UK) as of the date of this Agreement specifying: (a) with respect to the hourly employees, the rate of hourly pay, accrued vacation pay, length of service, age, and whether or not such employee is absent for any reason such as disability, parental leave, leave of absence or workers' compensation; and (b) with respect to salaried employees, the length of service, age, title, rate of salary and commission or bonus structure, accrued vacation pay for each such employee and whether or not such employee is absent for any reason such as disability, parental leave, leave of absence or workers' compensation. No notice has been received by the Vendor or Spar (UK) of any currently outstanding complaint filed by any of the employees of the Purchased Business against the Vendor or Spar (UK) claiming -57- that the Vendor and Spar has violated the Employment Standards Act (Ontario), the Human Rights Code (Ontario) (or any other applicable labour relations employee or human rights or similar legislation in the other jurisdictions in which the Purchased Business is conducted) or of any complaints or proceedings of any kind involving the Purchased Business or, to the Vendor's knowledge, before any, labour relations board, except as disclosed in Schedule 7. There are no outstanding orders or charges against the Vendor concerning the Purchased Business under the Occupational Health and Safety Act (Ontario) (or any applicable health and safety legislation in the other jurisdictions in which the Purchased Business is conducted). All levies, assessments and penalties made against the Vendor pursuant to the Workers' Compensation Act (Ontario) (and any applicable workers' compensation legislation in the other jurisdictions in which the Purchased Business is conducted) have been paid by the Vendor or Spar (UK), as the case may be, and neither the Vendor nor Spar (UK) has been reassessed under any such legislation during the past 5 years. V.33 Employee Accruals All accruals in respect of the employees of the Purchased Business for unpaid vacation pay, premiums for unemployment insurance, health premiums, Canada Pension Plan premiums, accrued wages, salaries and commissions and employee benefit plan payments have been reflected in the books and records of the Vendor or Spar (UK), as the case may be. V.34 Changes For the purposes of the representations and warranties contained in this Article V the occurrence on or after the date hereof of any of the events, changes or developments described in section 9.1.1 (except to the extent such events, changes or developments occur as a result of any failure of the Vendor to comply with the terms, covenants and conditions of this Agreement) shall be deemed not to have or constitute a Material Adverse Effect. -58- ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser represents and warrants to the Vendor as follows and acknowledges and confirms that the Vendor is relying on such representations and warranties in connection with its sale of the Purchased Assets: VI.1 Organization The Purchaser is a corporation duly incorporated and validly subsisting under the laws of the State of Delaware and has the corporate power and capacity to enter into this Agreement and to perform its obligations hereunder. The Purchaser is or, on the Closing Date, will be duly registered to carry on business in Ontario and has the requisite corporate power to carry on the Purchased Business following Closing. VI.2 Authorization This Agreement has been duly authorized, executed and delivered by the Purchaser and is a legal, valid and binding obligation of the Purchaser, enforceable against the Purchaser by the Vendor in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency and other laws affecting the rights of creditors generally and except that equitable remedies may only be granted in the discretion of a court of competent jurisdiction. VI.3 No Violation -59- The execution and delivery of this Agreement by the Purchaser and the consummation of the transactions herein provided for will not result in the violation of, or constitute a default under, or conflict with or cause the acceleration of any obligation of the Purchaser under: (a) any Contract to which the Purchaser is a party or by which it is bound; (b) any provision of the constating documents or by-laws or resolutions of the board of directors (or any committee thereof) or shareholders of the Purchaser; (c) any judgment, decree, order or award of any court, governmental body or arbitrator having jurisdiction over the Purchaser; or (d) assuming the consents or waivers described in Schedule 15 are obtained on or prior to Closing any applicable law, statute, ordinance, regulation or rule having the force of law, other than the Bulk Sales Act (Ontario). VI.4 Consents and Approvals There is no requirement for the Purchaser to make any filing with, give any notice to or obtain any licence, permit, certificate, registration, authorization, consent or approval of, any government or regulatory authority as a condition to the lawful consummation of the transactions contemplated by this Agreement except notification under the Investment Canada Act. VI.5 GST Registration The Purchaser or its assignee will, at the Time of Closing, be a registrant for purposes of the ETA and the Purchaser will provide to the Vendor such ETA registration number prior to Closing. -60- VI.6 Relationship with Major Customers The Purchaser is not aware of any reason why its acquisition of the Purchased Business is likely to materially adversely affect the current relationship between the Purchased Business and any of the Major Customers following Closing. ARTICLE VII SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES VII.1 Survival of Covenants, Representations and Warranties To the extent that they have not been fully performed at or prior to the Time of Closing, the covenants, representations and warranties contained in this Agreement and in all certificates and documents delivered pursuant to or contemplated by this Agreement shall survive the closing of the transactions contemplated hereby and shall continue for the applicable limitation period notwithstanding such closing nor any investigation made by or on behalf of the party entitled to the benefit thereof or any knowledge of such party; provided, however, that: (a) the representations and warranties set out in this Agreement (other than section 5.24) and the corresponding representations and warranties set out or incorporated in the certificates to be delivered pursuant to subsection 9.1(a) or 9.2(a), as the case may be shall terminate on September 30, 1999; and (b) the representations and warranties contained in section 5.24 and the corresponding representations and warranties set out or incorporated in the certificates to be -61- delivered pursuant to subsection 9.1(a) shall survive until the expiration of all applicable time periods for assessment, liens and appeals relating thereto, and any claim for breach or inaccuracy of such representations and warranties, to be effective, must be asserted in writing prior to ninety (90) days after such expiration. For greater certainty, neither party shall have any liability in respect of any breach or inaccuracy of any representation or warranty unless and to the extent only that, any claim in respect thereof is asserted in writing within the time periods herein specified. VII.2 Knowledge of Breach of Representation or Warranty (a) The exercise of any rights of inspection by or on behalf of the Purchaser under this Agreement (including section 8.1) shall not mitigate or otherwise affect any of the representations and warranties of the Vendor hereunder, which shall continue in full force and effect as provided in section 7.1, except and to the extent only that the Purchaser has, or prior to Closing obtains, actual knowledge of a breach or inaccuracy in any material respect of a representation or warranty of the Vendor (in which event the Vendor's rights in respect thereof shall be limited to the rights set out in subsection (b) hereof). (b) If the Purchaser has, or prior to Closing obtains, actual knowledge of a breach or inaccuracy in any material respect of a representation or warranty of the Vendor and does not wish to terminate this Agreement prior to Closing, the Purchaser shall prior to the Closing Date provide written notice to the Vendor describing in reasonable detail the alleged breach or inaccuracy and the Purchaser's estimate of the amount payable by the Vendor hereunder in respect of any Claim it may have against the Vendor in respect thereof (the "Subject Claim"). Upon receipt of such notice the Vendor and the Purchaser shall immediately meet to discuss and attempt to resolve the validity of the Subject Claim and the Vendor's obligations in respect thereof and -62- either party may postpone the Closing Date by up to three Business Days for the purposes of attempting to resolve the same prior to Closing. If the parties are unable to reach a mutually satisfactory agreement regarding such Subject Claim prior to Closing and the Vendor's liability in respect of the Subject Claim exceeds $1,500,000 the Purchaser may elect to terminate this transaction and the parties' obligations hereunder pursuant to section 9.1. If the parties are unable to reach a mutually satisfactory agreement regarding the Subject Claim prior to Closing and the Vendor elects not to so terminate this transaction or if the Vendor's liability in respect of the Subject Claim does not exceed $1,500,000, and provided the Purchaser has given notice to the Vendor (as hereinbefore provided), the Purchaser may complete this transaction (subject to the Vendor's right to terminate this transaction as hereinafter provided) and thereafter pursue the Subject Claim against the Vendor following the Closing. Notwithstanding the foregoing, if the parties are unable to reach a mutually satisfactory agreement regarding the Subject Claim prior to Closing and the Vendor's liability in respect of the Subject Claim exceeds $1,500,000 the Vendor may by notice in writing to the Purchaser elect to terminate this Agreement and the obligations of the Vendor and the Purchaser under this Agreement. ARTICLE VIII COVENANTS VIII.1 Access to Purchased Business and Purchased Assets The Vendor shall forthwith make available to the Purchaser and its authorized representatives and, if requested by the Purchaser, provide a copy to the Purchaser of, all title documents, Contracts, financial statements, policies, plans, reports, licences, orders, permits, books of account, accounting records and all other documents, information and data relating to -63- the Purchased Business. The Vendor shall afford the Purchaser and its authorized representatives every reasonable opportunity to have access to the Purchased Assets, the Spar (UK) Assets and all other property and assets utilized in the Purchased Business provided such access is limited to normal business hours and does not disrupt the ongoing operations of the Purchased Business. At the request of the Purchaser, the Vendor shall execute such consents, authorizations and directions as may be necessary to permit any inspection of the Purchased Business or any of the Purchased Assets or the Spar (UK) Assets or to enable the Purchaser or its authorized representatives to obtain full access to all files and records relating to any of the Purchased Assets maintained by governmental or other public authorities. The Purchaser has advised the Vendor that it intends to retain an independent environmental consultant (the "Environmental Consultant") to conduct a Phase I Environmental Audit (the "Phase I") in respect of the Purchased Assets and the Purchased Business. At the request of the Purchaser the Vendor shall provide access and cooperation to the Purchaser and the Environmental Consultant to permit the Purchaser to conduct the Phase I (and any further tests or investigations resulting therefrom) provided however that, upon request by the Vendor, the Purchaser shall provide to the Vendor copies of such Phase I and all information gathered from such Phase I. Prior to Closing the Vendor shall arrange for visits by the Purchaser with representatives of each Major Customer for the purpose of discussions concerning the acquisition by the Purchaser of the Purchased Business and future relationships between the Purchaser as successor to the Purchased Business and such Major Customer. The Vendor may, at its option, attend any such visits. The Purchaser shall use its best efforts to ensure that the current relationship between the Purchased Business and each Major Customer is maintained following Closing. If the Purchased Business is to be acquired by a subsidiary of the Purchaser, the Purchaser shall, if requested by a Major Customer, provide assurances to such Major Customer that the Purchaser -64- will guarantee or otherwise support in a similar manner the obligations of such subsidiary to the Major Customer. VIII.2 Delivery of Books and Records At the Time of Closing, there shall be delivered to the Purchaser by the Vendor all the books and records described in subsection 2.1(l). The Purchaser agrees that it will preserve the books and records so delivered to it for a period of six years from the Closing Date, or for such longer period as is required by any applicable law or by any Contract relating to the Purchased Business or Purchased Assets, and will permit the Vendor or its authorized representatives reasonable access thereto in connection with the affairs of the Vendor relating to its matters, but the Purchaser shall not be responsible or liable to the Vendor for or as a result of any accidental loss or destruction of or damage to any such books or records. VIII.3 Conduct of Purchased Business and other Matters Prior to Closing Without in any way limiting any other obligations of the Vendor and the Purchaser hereunder, during the period from the date hereof to the Time of Closing: (a) Conduct Business in the Ordinary Course. The Vendor shall conduct the Purchased Business only in the ordinary and normal course consistent with past practice and the Vendor shall not, without the prior written consent of the Purchaser, which consent shall not be unreasonably withheld, enter into any transaction or refrain from doing any action that, if effected before the date of this Agreement, would constitute a breach in any material respect of any representation, warranty, covenant or other obligation of the Vendor contained herein; -65- (b) Continue Insurance. The Vendor shall continue to maintain in full force and effect all policies of insurance or renewals thereof now in effect and shall give all notices and present all claims under all policies of insurance in a due and timely fashion; (c) Regulatory Consents. The Vendor and, if applicable, the Purchaser shall (each in cooperation and consultation with the other) use its commercially reasonable efforts to obtain, at or prior to the Time of Closing, from all appropriate federal, provincial, municipal or other governmental or regulatory bodies, the licences, permits, consents, approvals, certificates, registrations and authorizations described in Schedule 15; (d) Contractual Consents. The Vendor shall give and shall use its best efforts to obtain (and the Purchaser shall reasonably cooperate with the Vendor), at or prior to the Time of Closing, the notices, consents and approvals described in Schedule 16 in the manner contemplated by section 2.3; (e) Preserve Business. The Vendor shall use its best efforts to preserve intact the Purchased Business, Purchased Assets and Spar (UK) Assets and to carry on the Purchased Business as currently conducted; (f) Discharge Liabilities. The Vendor shall pay and discharge the liabilities of the Vendor relating to the Purchased Business in the ordinary course in accordance and consistent with the previous practice of the Vendor, except those contested in good faith by the Vendor; (g) Corporate Action. The Vendor and the Purchaser shall take or cause to be taken all necessary corporate action, steps and proceedings to approve or authorize validly and effectively the transfer of the Purchased Assets to the Purchaser and the execution and delivery of this Agreement and the other agreements and documents -66- contemplated hereby and to cause all necessary meetings of directors and shareholders of the Vendor or the Purchaser to be held for such purpose; and (h) Commercially Reasonable Efforts. Each of the Vendor and the Purchaser shall use their respective commercially reasonable efforts to satisfy the conditions contained in sections 9.1 and 9.2. VIII. 4 Delivery of Conveyancing Documents The Vendor shall deliver to the Purchaser all necessary deeds, conveyances, bills of sale, assurances, transfers, assignments and any other documentation necessary or reasonably required to transfer the Purchased Assets to the Purchaser with a good and marketable title, free and clear of all Encumbrances whatsoever except for Permitted Encumbrances. VIII.5 Retail Sales Tax Certificate The Vendor shall deliver to the Purchaser a certificate issued by the Minister of Revenue of Ontario under subsection 6(1) of the Retail Sales Tax Act (Ontario). VIII. 6 Delivery of Vendor's Closing Documentation The Vendor shall deliver to the Purchaser a certificate of compliance and two copies, certified by a senior officer of the Vendor as of the Closing Date, of the constating documents and by-laws of the Vendor and Spar (UK) and of the resolution authorizing the execution, delivery and performance by the Vendor of this Agreement and any documents to be provided by it pursuant to the provisions hereof. The Vendor shall also execute and deliver or cause to be executed and delivered to the Purchaser two copies of such other documents relevant to the closing of the transactions contemplated hereby as the Purchaser, acting reasonably, may request, including -67- without limitation, share certificates evidencing the Spar (UK) Shares duly endorsed in blank for transfer. VIII. 7 Delivery of Purchaser's Closing Documentation The Purchaser shall deliver to the Vendor a certificate of good standing (or similar certificate issued by the applicable governmental authorities) and two copies, certified by a senior officer of the Purchaser as of the Closing Date, of its constating documents and by-laws and of the resolution authorizing the execution, delivery and performance by the Purchaser of this Agreement and any documents to be provided by it pursuant to the provisions hereof. The Purchaser shall also execute and deliver or cause to be executed and delivered two copies of such other documents relevant to the closing of the transactions contemplated hereby as the Vendor, acting reasonably, may request. VIII. 8 Employees (a The Vendor agrees to provide the Purchaser with an up-to-date list of the names of the Employees at least 6 Business Days and not more than 10 Business Days prior to the Closing Date. The Purchaser agrees that it shall offer employment to each of the Employees (within 25 miles of their current place of employment) effective as at the Time of Closing on terms and conditions of employment no less favourable in the aggregate to the Employees than the terms and conditions which are then applicable to such Employee (all Employees who accept such offer are herein called the "Transferred Employees"). The Vendor shall be responsible for and shall indemnify and hold harmless the Purchaser from and against all Losses suffered or incurred by the Purchaser as a result of or arising directly or indirectly out of, in connection with or pursuant to (i) any Claim by any employee or former -68- employee of the Vendor in respect of the Purchased Business (other than the Transferred Employees) arising out of the termination of employment of such employee by the Vendor (including termination and severance pay, vacation pay and other obligations under the Employee Plans but excluding obligations under the Pension Plan) or (ii) any Claim by any Employee relating to services rendered to the Vendor prior to the Closing Date other than those set forth or reserved against on the Closing Balance Sheet. The Purchaser shall indemnify and hold harmless the Vendor from and against all Losses suffered or incurred by the Vendor after the Time of Closing as a result of or arising directly or indirectly out of, in connection with or pursuant to: (i) any Claim by a Transferred Employee constituting Assumed Liabilities or in respect of obligations for services rendered to the Purchaser after the Closing Date; (ii) any Claim by a Transferred Employee resulting from the termination of the employment of the Transferred Employee by the Purchaser; and (iii) any Claim by a Transferred Employee in respect of any change in employment position, salary, benefits or other change in employment status or compensation that occurs upon or subsequent to the Closing. If, for any reason, the Purchaser terminates the employment of any Transferred Employee the Purchaser shall be solely responsible for giving notice or payment of severance or damages in lieu thereof to such Transferred Employee and (to the extent the Vendor would have had such an obligation if it had terminated the Transferred Employee in similar circumstances) shall include the period of employment of such Transferred Employee with the Vendor and the "Leigh Bridged Service" as set forth in Schedule 7 for the purposes of determining the amount of notice, or amount of termination and severance pay in lieu thereof, to which such Transferred Employee is entitled. The provisions of sections 11.5 to 11.10 inclusive shall apply mutatis mutandis to any indemnity claim pursuant to this subsection 8.8(a). No employee of the Purchased -69- Business shall be entitled to any rights under this subsection 8.8(a) or under any other provisions of this Agreement. (b) The Vendor shall employ all of the employees set out in Schedule 7 until the Time of Closing, except for any employees who prior to the Time of Closing: (i) are terminated for cause; (ii) are terminated with the Purchaser's consent, which consent shall not be unreasonably withheld; (iii) voluntarily resign; or (iv) retire. VIII. 9 Employee Plans Without in any way limiting subsection 11.1(d), subject as hereinafter provided (including section 8.10), the Purchaser shall not assume any liability for accrued benefits under any of the Employee Plans nor shall the Purchaser be entitled to any of the assets or surpluses of any such Employee Plan. The Purchaser agrees that it will establish replacement plans (such plans, excluding for greater certainty the Purchaser's Plan, as defined in section 8.10, are herein called the "Replacement Plans") for those Transferred Employees in respect of their employment by the Purchaser from and after the Time of Closing that provide benefits to the Transferred Employees that are comparable to the benefits provided to the Transferred Employees under the Employee Plans except for the Pension Plan (which is dealt with in section 8.10). For the purpose of determining the eligibility of a Transferred Employee for membership or benefits under the Replacement Plans his or her period of employment shall include employment with both the -70- Vendor (and, to the extent the Vendor has agreed thereto, employment with any prior owner of the Purchased Business or portion thereof) and the Purchaser and shall be deemed not to have been interrupted at the Time of Closing and his or her period of membership shall include membership in the relevant Employee Plans and the Replacement Plans and shall be deemed not to have been interrupted at the Time of Closing. The Purchaser agrees to obtain the required approvals of all applicable regulatory authorities in connection with the establishment and registration of the Replacement Plans. VIII. 10 Transfer of Pension Plan Assets (a) The Purchaser will adopt, effective as of the Closing Date, a defined benefit retirement plan ("Purchaser's Plan") covering the Employees who, as of the Closing Date, participated in, or who were in the process of satisfying the eligibility requirements for participation in the Pension Plan, but for greater certainty excluding all employees of the Vendor who terminated employment with a deferred vested pension or who were retired or on long-term disability under the Pension Plan on or prior to the Closing Date. The Purchaser's Plan as adopted and the benefits provided thereunder shall be substantially similar to and shall provide benefits that are no less favourable than those provided under the Pension Plan. (b) Schedule 7 contains a complete and accurate list of all Employees who are participants in the Pension Plan together with his or her credited service in the Pension Plan as at the date hereof. (c) The Purchaser's Plan shall provide for an accrued benefit as of the Closing Date, being an individual=s accrued credited service and earnings history recognized under the Pension Plan, for all Employees covered by the Purchaser's Plan (the -71- total of such accrued benefits shall be referred to herein as the "Accrued Benefits"). Subject to applicable law, the Accrued Benefits shall be determined in accordance with the provisions of the Pension Plan. (d) The Vendor agrees to cause the transfer of that amount of assets (the "Transferred Amount") from the trust fund (the "Vendor's Trust") established to fund the Pension Plan, determined in accordance with the summary of actuarial methods and assumptions annexed hereto as Exhibit 4, which are necessary to fund the Accrued Benefits, as certified by KPMG Actuarial, Benefits and Compensation Inc. ("VA") and approved by an independent actuary selected by the Purchaser ("PA"). If VA and PA are unable to agree on the Transferred Amount, their differences shall be resolved by a third independent actuary selected by VA and PA, and the expense of such independent actuary shall be paid one half by the Vendor and one half by the Purchaser. In certifying, verifying or reviewing the Transferred Amount, the actuaries referred to herein shall have no responsibility, obligation or right to change the methods, assumptions or any other term or condition of the summary of actuarial methods or assumptions annexed hereto as Exhibit 4, it being understood and agreed that the duties requested of such actuaries shall be solely to calculate and otherwise determine the Transferred Amount in a manner consistent with said current funding requirements. If the Pension Commission of Ontario requires an amount other than the Transferred Amount to be transferred, the parties agree that such amount shall be the "Transferred Amount" hereunder. (e) The Purchaser shall, within 120 days following Closing, file applications for registration of the Purchaser's Plan and the associated funding media (the "Purchaser's Trust") and for approval of the transfer of funds from the Vendor's Trust to the Purchaser's Trust contemplated hereunder with the Pension Commission of Ontario and any other necessary provincial regulatory authority and -72- Revenue Canada pursuant to the Pension Benefits Act (Ontario) (or any successor legislation) and the equivalent legislation in any other applicable province and the Tax Act, respectively. The Purchaser agrees to diligently pursue such applications for registration and approval of transfer. The Vendor agrees to diligently cooperate with the Purchaser by amending the Pension Plan and filing or otherwise providing to the Purchaser any information with respect thereto to the extent necessary to allow the Purchaser to effect the registration of the Purchaser's Plan and to obtain the necessary approvals for the transfer of funds from the Vendor=s Trust to the Purchaser's Trust as expeditiously as possible. (f) On the last Business Day of the month in which the last of the registrations and approvals contemplated in paragraph (e) is received by the Buyer or so soon thereafter as is practicable (the "Transfer Date"), the Purchaser shall cause to be transferred from the Vendor's Trust to the Purchaser's Trust cash or assets with a value equal to the Transferred Amount. The Vendor shall, on behalf of the Purchaser's Plan and the Purchaser's Trust, but out of the Pension Plan and the Vendor's Trust, pay or cause to be paid all benefits payable under the Purchaser's Plan and the Purchaser's Trust with respect to the Employees until the completion of the transfer of funds to the Purchaser's Plan and the Purchaser's Trust as contemplated herein. On the Transfer Date, the amount transferred from the Vendor's Trust to the Purchaser's Trust shall be the Transferred Amount, adjusted for investment earnings and losses for the period between the Closing Date and the Transfer Date at the rate of return under the Vendor's Trust for the Pension Plan and reduced by the amount of any benefit payments and reasonable share of the investment and administrative expenses for such period, as determined by the Vendor. The Vendor shall provide the Purchaser such information and -73- reports as Purchaser may reasonably require in order to administer the Pension Plan in respect of the Employees. (g) The Purchaser shall not be entitled to any of the assets of the Pension Plan, except as expressly provided in this Section 8.10, whereby assets are transferred from the Vendor's Trust to the Purchaser's Trust. For greater certainty, the Purchaser shall have no right, interest or entitlement to surplus assets under the Pension Plan. (h) The Vendor has provided the Purchaser with all government inspection reports under occupational health and safety legislation relating to the Purchased Business or Spar (UK) received by the Vendor or Spar (UK) since January 1, 1994. There are no outstanding inspection orders nor, to the Vendor's knowledge, any pending or threatened charges made under any occupational health and safety legislation relating to the Purchased Business or Spar (UK). There have been no fatal or critical accidents within the last year which are reasonably likely to lead to charges under occupational health and safety legislation. The Vendor has complied in all material respects with any orders issued under occupational health and safety legislation. There are no appeals of any orders under occupational health and safety legislation relating to the Purchased Business or Spar (UK) which are currently outstanding. (i) There are no notices of assessment, provisional assessment, reassessment, supplementary assessment, penalty assessment or increased assessment (collectively, "assessments") or any other communications related thereto which the Vendor has received from any workers' compensation board or similar authorities in any jurisdictions where the Purchased Business or the business of Spar (UK) is carried on and there are no assessments which are due but are not yet paid on the date hereof or which will be unpaid at the Time of Closing and, to the -74- Vendor's knowledge, there are no facts or circumstances which would likely result in a material increase in liability to the Purchaser from any applicable workers' compensation legislation, regulations or rules after the Time of Closing. The Vendor's accident cost experience relating to the Purchased Business or the business of Spar (UK) is such that there are no material pending or likely assessments and there are no claims or potential claims which may materially adversely affect the Vendor's accident cost experience. VIII. 11 Spar Name The Purchaser agrees that neither it nor Spar (UK) shall have any right or entitlement to the words "Spar" or "Spar Aerospace" or any word or expression similar thereto. Within thirty (30) days following the Closing, the Purchaser shall cause Spar (UK) to change its name to a name which does not include such words or expressions and shall remove or cause to be removed all such words or expressions from all property, stationery and literature used by the Purchaser, Spar (UK) or any of its Affiliates. The Purchaser and its Affiliates (including Spar (UK)) shall as soon as practical and in any event within thirty (30) days from Closing cease all public use and shall as soon as practical and in any event within sixty (60) days from Closing cease all internal use, of any logos, trademarks, trade names or other references containing the words "Spar", "Spar Aerospace" or any word or expression similar thereto. Any public use of references to such words in connection with any statements, representations, negotiations or other acts which could reasonably be expected to create legal obligations shall clearly state that the Purchased Business is being carried on by the Purchaser and not by the Vendor. VIII. 12 Bulk Sales Compliance Promptly following the execution and delivery of this Agreement, the Vendor shall apply for an order (the "Bulk Sales Exemption Order") exempting the transaction provided for in this -75- Agreement from the application of the Bulk Sales Act (Ontario) and, if obtained prior to Closing, the Vendor shall provide the Purchaser with evidence reasonably satisfactory to the Purchaser that the Vendor has so obtained such Order. If the Vendor has not obtained, for any reason not attributable to any default by the Vendor with its obligations hereunder, the Bulk Sales Exemption Order on or prior to Closing the Purchaser waives compliance with the Bulk Sales Act (Ontario), or similar legislation, in connection with this transaction. The foregoing waiver does not affect the Purchaser's rights under subsection 11.1(c) hereof. VIII. 13 Performance Bonds The Purchaser shall on or immediately following the Closing (i) replace each of the performance bonds identified on Schedule 6.2(b) (each, a "Performance Bond") with performance bonds issued by banks, sureties or other institutions acceptable to the beneficiaries thereof on the same terms as those contained in such Performance Bond (or terms otherwise acceptable to beneficiary) and (ii) cause the Performance Bond to be cancelled and returned to the Vendor upon delivery to the beneficiary of the said replacement bond. The Purchaser shall reimburse the Vendor on demand for any costs incurred by the Vendor in maintaining each Performance Bond for the period following Closing and shall indemnify and hold harmless the Vendor from and against any Losses suffered or incurred by the Vendor as a result of or arising out of any payment made or obligation incurred under any of the Performance Bonds on or following Closing provided that this indemnity shall not apply if and to the extent that any such Loss results from any breach or default of the Vendor prior to Closing of its obligations to the applicable beneficiary. -76- If for any reason the Purchaser is unable, within sixty (60) days following Closing, to cause a Performance Bond to be returned to the Vendor, the Purchaser shall deliver to the Vendor a standby letter of credit or similar instrument from a bank or financial institution reasonably acceptable to the Purchaser in an amount at least equal to the amount of the Performance Bonds and on terms reasonably acceptable to the Vendor to secure the obligations of the Purchaser under the preceding paragraph. VIII. 14 Environmental Remediation The Vendor shall as soon as practical after the date hereof remediate, at Vendor's sole cost and expense, the Chromium Deposits described in Schedule 17 to the extent required by Environmental Laws and/or Environmental Permits (such work together with the UST Remediation, as defined in Schedule 17 is herein called the "Remediation Work"). Prior to and during the conduct of such Remediation Work the Vendor shall consult with the Purchaser regarding the scope of work required, the remediation schedule and the status of the Remediation Work for the purposes of permitting the Purchaser to satisfy itself, acting reasonably, that such Remediation Work is being conducted in accordance with and complies with applicable Environmental Laws and Environmental Permits. The Vendor shall use reasonable efforts to complete the Remediation Work prior to Closing. The parties acknowledge that, notwithstanding the efforts of the Vendor, all or part of the Remediation Work may be conducted following Closing. The Purchaser shall cooperate with the Vendor and permit the Vendor and its representatives access at all reasonable times to the Real Property and the Purchased Business for the purposes of conducting and completing such Remediation Work and complying with its obligations hereunder. If any substantial portion of the Remediation Work will not be completed by Closing the Vendor shall, prior to Closing, notify the Purchaser of such fact and shall provide details of the -77- scope and estimated cost of the Remediation Work which is anticipated to occur following Closing. Upon receipt of such information, the Vendor and the Purchaser or their respective representatives or consultants shall meet to discuss and agree upon the estimated costs to the Vendor to complete the Remediation Work after the Closing (the "Post-Closing Remediation Costs"). In this regard, the Vendor shall provide the Purchaser with access to relevant books and records relating to the Remediation Work. If the Post-Closing Remediation Costs exceed $500,000, the Purchaser may on Closing, at its option, withhold from the Closing Date Payment the amount of such Post-Closing Remediation Costs and pay such amount to the counsel to the Vendor to be held in escrow by such counsel and to be released from escrow (i) to pay the Post-Closing Remediation Costs upon presentation of invoices from the Vendor or the Purchaser or (ii) upon receipt of confirmation that the Vendor has completed all of the Remediation Work. The foregoing escrow shall be subject to such other terms and conditions as the Vendor, the Purchaser and counsel for the Vendor may agree upon. Such escrow shall not affect the Vendors right and obligation hereunder to conduct such Remediation Work following Closing. The appointment of Vendor's counsel as escrow agent and the performance of its obligations in connection therewith shall not prevent or disqualify such counsel from acting as legal counsel to the Vendor in respect of all matters relating to this Agreement and the transactions contemplated hereby. If at any time following Closing the Purchaser intends to make any Claim against the Vendor under the terms of this Agreement in respect of any breach of, or liabilities under, Environmental Laws or Environmental Permits (including the UST Remediation as defined in Schedule 17) the Purchaser shall, except in the case of emergency situations, forthwith provide written notice to the Vendor (the "Purchaser's Notice") of such Claim and provide the Vendor with the opportunity, at the Vendor's option and cost, to conduct such remediation or similar activities as the Vendor may deem necessary or appropriate to satisfy, in whole or in part, as the case may be, the liabilities of the Vendor in respect of the Claim. If the Vendor wishes to conduct any such remediation activities in respect of a Claim, Vendor shall within sixty (60) days after receipt of the Purchaser's Notice, give notice in writing to the Purchaser informing the Purchaser -78- of its election to do so and, in such event, the Vendor shall carry out such remediation activities as soon as practical thereafter. The Purchaser shall provide the Vendor and its representatives and consultants with reasonable access to the Purchased Assets and the Purchased Business (including records, correspondence or reports in respect of the circumstances relating to the Claim) and shall otherwise cooperate with the Vendor and its employees for the purpose of permitting the Vendor to assess the Claim and the type and scope of remediation work which may be required and, if the Vendor so elects, to complete such remediation activities. If the Vendor is required to remediate pursuant to applicable Environmental Laws (including the remediation of the Chromium Deposit or the UST). The Vendor shall perform such remediation in accordance with applicable clean-up guidelines or such other standard as the applicable governmental authority may approve. For greater certainty the election by the Vendor to not conduct such remediation activities (or the failure of the Vendor to do so) shall not restrict, limit or terminate the Vendor's liability hereunder for such Claim. VIII. 15 Non-Competition Covenant (a) The Vendor will not, except as a supplier of goods and services to or at the request of the Purchaser or an affiliate of the Purchaser, either individually or in partnership or in conjunction with any person or persons, firm, association, syndicate or body corporate as principal, agent, shareholder (other than a holder of not more than 5% of the shares of a body corporate the shares of which are listed on a stock exchange), guarantor, creditor, or in any other manner whatsoever, directly or indirectly, for a period of three years after the Closing Date, -79- (i) within Canada, (ii) within the United States of America, (iii) within the United Kingdom of Great Britain and Northern Ireland, (iv) elsewhere within the European Community, and (v) in any other party of the world in which the Vendor now carries on the Purchased Business, or in which it has a customer which is a party to a Material Contract, (each of which areas shall be severable for the purposes of enforcement of this covenant) manufacture, design, produce or sell any of the products (or any enhanced or improved versions thereof) which have been since January 1, 1991 or are currently being manufactured, designed, produced or sold by the Purchased Business or which are currently under development by the Purchased Business. (b) Notwithstanding the foregoing, the restriction in subsection (a) shall not prohibit or restrict the Vendor or any subsidiary from directly or indirectly acquiring a business, company or other operation which as an incidental part of its normal business carries on any of the activities described in subsection (a), provided that following such acquisition such activities continue to constitute an incidental part of such business' operations for the period described in subsection (a) hereof. VIII. 16 Change in Tax Year End The Purchaser acknowledges that prior to Closing Spar (UK) may change its tax year end to the Closing Date or the day prior to such date. If Spar (UK) effects such change (i) the -80- Purchaser shall not, and shall, following Closing, ensure that Spar (UK) shall not, take any steps or action to rescind, revoke or otherwise render ineffective such change of Spar (UK)'s tax year end (provided that Spar (UK) may change its tax year end for periods following Closing) and (ii) the Vendor shall reimburse Spar (UK) for all reasonable costs and expenses incurred by it in connection with the preparation of all tax returns or other activities required as a result of the change in tax year end. ARTICLE IX CONDITIONS OF CLOSING IX.1 Conditions of Closing in Favour of the Purchaser The sale and purchase of the Purchased Assets is subject to the following terms and conditions for the exclusive benefit of the Purchaser, to be performed or fulfilled at or prior to the Time of Closing: (a) Representations and Warranties. The representations and warranties of the Vendor contained in this Agreement shall be true and correct in all material respects at the Time of Closing with the same force and effect as if such representations and warranties were made at and as of such time, and a certificate of a senior officer of the Vendor, dated the Closing Date, to that effect shall have been delivered to the Purchaser, such certificate to be in form and substance satisfactory to the Purchaser, acting reasonably (provided that the Purchaser's right to terminate this Agreement relying on this condition shall apply only to the extent permitted under subsection 7.2(b) hereof); (b) Covenants. All of the terms, covenants and conditions of this Agreement to be complied with or performed by the Vendor at or before the Time of Closing shall have been complied with or performed in all material respects, and a certificate of -81- a senior officer of the Vendor, dated the Closing Date, to that effect shall have been delivered to the Purchaser, such certificate to be in form and substance satisfactory to the Purchaser, acting reasonably; (c) Regulatory Consents. There shall have been obtained from all appropriate federal, provincial, municipal or other governmental or administrative bodies those Licences, permits, consents, approvals, certificates, registrations and authorizations described in Schedule 22, in each case in form and substance satisfactory to the Purchaser, acting reasonably; (d) Contractual Consents. There shall have been given or obtained the notices, consents and approvals described in Schedule 23, in each case in form and substance satisfactory to the Purchaser, acting reasonably; (e) No Action or Proceeding. No legal or regulatory action or proceeding shall be pending or threatened by any person to enjoin, restrict or prohibit the purchase and sale of the Purchased Assets contemplated hereby or which could materially adversely affect the Purchaser's right to own and operate the Purchased Business or to own the Purchased Assets; (f) No Material Damage or Loss. No material damage by fire or other hazard to, or expropriation or seizure by governmental or other lawful authority of, the whole or any material part of the Purchased Assets shall have occurred from the date hereof to the Time of Closing; (g) No Material Adverse Effect. No event or circumstance shall have occurred since the date of the Interim Financial Statements which constitutes a Material Adverse Effect; -82- (h) Legal Matters. All actions, proceedings, instruments and documents required to implement this Agreement, or instrumental thereto shall have been approved as to form and legality by the Purchaser, acting reasonably; (i) Legal Opinion. The Vendor shall have delivered to the Purchaser favourable opinions of counsel to the Vendor in the respective forms annexed hereto as Exhibit 1; and (j) Customer Assurances. The Purchaser shall have been satisfied, acting reasonably, that, based on its meetings with representatives of the Major Customers and the Canadian Department of Supply and Services (ADSS@), the Major Customers and DSS will consent to the assignment to the Purchaser of Contracts currently in existence between the Vendor (or Spar (UK), as the case may be) and such Major Customer or DSS; and the Purchaser shall have not been informed by any Major Customer that the current relationship between the Purchased Business and such Major Customer is not a positive one or will be materially adversely affected as a result of the acquisition by the Purchaser of the Purchased Business (if the Purchaser claims that it has been so informed that the said relationship with such Major Customer is not positive or will be materially adversely affected, this condition shall not be considered to be not satisfied if the Vendor can produce evidence to the contrary in respect of such claim). If any of the conditions contained in this section 9.1 shall not be performed or fulfilled at or prior to the Time of Closing to the satisfaction of the Purchaser, acting reasonably, the Purchaser may, by notice to the Vendor, terminate this Agreement and the obligations of the Vendor and the Purchaser under this Agreement, other than the obligations contained in sections 12.2, 12.3, and 12.4, provided that the Purchaser may also bring an action pursuant to Article XI -83- against the Vendor for damages suffered by the Purchaser where the non-performance or non-fulfilment of the relevant condition is as a result of a breach of covenant, representation or warranty by the Vendor. Any such condition may be waived in whole or in part by the Purchaser without prejudice to any claims it may have for breach of covenant, representation or warranty. Notwithstanding the foregoing, if for any reason, the condition set forth in subsection 9.1(j) is not satisfied, the Purchaser shall not terminate this Agreement and the obligations of the parties hereunder unless, prior thereto, the Purchaser gives to the Vendor written notice of such non-satisfaction together with details thereof. Immediately upon receipt of such notice senior representatives of the Vendor and the Purchaser shall meet to discuss the background and reasons for the non-satisfaction of such condition and shall negotiate in good faith to attempt to satisfactorily address such issue and complete the transactions contemplated hereby. Either party may postpone the Closing Date for up to five Business Days for the purposes of permitting such good faith negotiations to take place. 9.1.1 Except to the extent the same constitutes a failure by the Vendor to satisfy the condition set forth in subsection 9.1(b), the conditions in Section 9.1 shall be deemed satisfied notwithstanding that any one or more of the following events, changes or developments shall have occurred on or after the date hereof and such events changes or developments have or could reasonably be expected to have a Material Adverse Effect: (a) new contracts (or amendments to Contracts) entered into by the Vendor or Spar (UK) with respect to which the Purchaser has given, or is not required hereunder to give, its consent; (b) delay, failure or inability by the Vendor to acquire new customers or prospective orders, including, without limiting the generality of the foregoing, the failure or -84- inability to execute contracts and agreements currently under discussion or negotiation; (c) changes in general market conditions related to the Purchased Business, including, without limiting the generality of the foregoing, the entry of new competitors into the markets related to the Purchased Business or the expansion of existing competitors within such markets; (d) delays in product shipments in the ordinary course of business; (e) delays in the delivery of materials from suppliers in the ordinary course of business; (f) loss of customers due to a pre-existing competitive relationship between the customer and Purchaser; or (g) delays in the design or implementation process of products in the ordinary course of business. IX.2 Conditions of Closing in Favour of the Vendor The sale and purchase of the Purchased Assets is subject to the following terms and conditions for the exclusive benefit of the Vendor, to be performed or fulfilled at or prior to the Time of Closing: (a) Representations and Warranties. The representations and warranties of the Purchaser contained in this Agreement shall be true and correct in all material respects at the Time of Closing with the same force and effect as if such -85- representations and warranties were made at and as of such time, and a certificate of a senior officer of the Purchaser, dated the Closing Date, to that effect shall have been delivered to the Vendor, such certificate to be in form and substance satisfactory to the Vendor, acting reasonably; (b) Covenants. All of the terms, covenants and conditions of this Agreement to be complied with or performed by the Purchaser at or before the Time of Closing shall have been complied with or performed in all material respects, and a certificate of a senior officer of the Purchaser, dated the Closing Date, to that effect shall have been delivered to the Vendor, such certificate to be in form and substance satisfactory to the Vendor, acting reasonably; (c) Regulatory Consents. There shall have been obtained from all appropriate federal, provincial, municipal or other governmental or administrative bodies those licences, permits, consents, approvals, certificates, registrations and authorizations described in Schedule 22, in each case in form and substance satisfactory to the Vendor, acting reasonably; (d) Contractual Consents. There shall have been given or obtained the notices, consents and approvals described in Schedule 23, in each case in form and substance satisfactory to the Vendor acting reasonably; (e) No Action or Proceeding. No legal or regulatory action or proceeding shall be pending or threatened by any person to enjoin, restrict or prohibit the purchase and sale of the Purchased Assets contemplated hereby or which could materially adversely affect the Purchaser's right to own and operate the Purchased Business or to own the Purchased Assets; -86- (f) Legal Matters. All actions, proceedings, instruments and documents required to implement this Agreement, or instrumental thereto, shall have been approved as to form and legality by the Vendor, acting reasonably; (g) Legal Opinion. The Purchaser shall have delivered to the Vendor a favourable opinion of counsel to the Purchaser in the form annexed hereto as Exhibit 2; and (h) Lenders' Consent. The Vendor's banking syndicate shall have consented to the transaction and discharged its security interests in the Purchased Business and Purchased Assets. If any of the conditions contained in this section 9.2 shall not be performed or fulfilled at or prior to the Time of Closing to the satisfaction of the Vendor acting reasonably, the Vendor may, by notice to the Purchaser, terminate this Agreement and the obligations of the Vendor and the Purchaser under this Agreement, other than the obligations contained in sections 12.2, 12.3 and 12.4, provided that the Vendor may also bring an action pursuant to Article XI against the Purchaser for damages suffered by it where the nonperformance or non-fulfilment of the relevant condition is as a result of a breach of covenant, representation or warranty by the Purchaser. Any such condition may be waived in whole or in part by the Vendor without prejudice to any claims it may have for breach of covenant, representation or warranty. IX.3 Extension of Closing Date If any of the conditions contained in section 9.1 or section 9.2 shall not be performed or fulfilled at or prior to the Time of Closing to the satisfaction of the Purchaser or the Vendor, as the case may be, acting reasonably, either party hereto (provided such party is not in default of any of its obligations hereunder) may, at or prior to the Time of Closing, provide written notice to the other party extending the Closing Date and, provided such condition may be performed or -87- fulfilled within ten Business Days thereafter, the F Closing shall be postponed until such date as the parties may agree, provided however that if the parties are unable to agree on a new Closing Date the Closing Date shall occur on the tenth Business Day following the original Closing Date. ARTICLE X CLOSING DATE AND TRANSFER OF POSSESSION X.1 Transfer Subject to compliance with the terms and conditions hereof, the transfer of possession of the Purchased Assets shall be deemed to take effect as at the Time of Closing. X.2 Place of Closing The closing shall take place at the Time of Closing at the offices of Borden & Elliot, counsel for Vendor, Suite 4400, 40 King Street West, Toronto, Ontario. X.3 Further Assurances From time to time subsequent to the Closing Date, each party to this Agreement covenants and agrees that it will at all times after the Closing Date, at the expense of the requesting party, promptly execute and deliver all such documents, including, without limitation, all such additional conveyances, transfers, consents and other assurances and do all such other acts and things as the other party, acting reasonably, may from time to time request be executed or done in order to better evidence or perfect or effectuate any provision of this Agreement or of any agreement or other document executed pursuant to this Agreement or any of the respective obligations intended to be created hereby or thereby. -88- X.4 Risk of Loss From the date hereof up to the Time of Closing, the Purchased Assets shall be and remain at the risk of the Vendor. If, prior to the Time of Closing, all or any part of the Purchased Assets that are necessary to carry on the Purchased Business as currently conducted are destroyed or damaged by fire or any other casualty or shall be appropriated, expropriated or seized by governmental or other lawful authority, unless the Purchaser terminates its obligations under this Agreement as contemplated by section 9.1, the Purchaser shall complete the purchase without reduction of the Purchase Price, in which event all proceeds of insurance or compensation for expropriation or seizure shall be paid to the Purchaser at the Time of Closing and all right and claim of the Vendor to any such amounts not paid by the Closing Date shall be assigned at the Time of Closing to the Purchaser. ARTICLE XI INDEMNIFICATION XI.1 Indemnification by the Vendor The Vendor shall indemnify and save harmless the Purchaser from all Losses suffered or incurred by the Purchaser as a result of or arising directly or indirectly out of or in connection with: (a) any breach by the Vendor of or any inaccuracy of any representation or warranty of the Vendor contained in this Agreement or in any agreement, certificate or other document delivered pursuant hereto (provided that the Vendor shall not be required to indemnify or save harmless the Purchaser in respect of any breach or inaccuracy of any representation or warranty unless the Purchaser shall have provided notice to the Vendor in accordance with section 11.5 on or prior to the expiration of the -89- applicable time period related to such representation and warranty as set out in section 7.1); (b) any breach or non-performance by the Vendor of any covenant to be performed by it that is contained in this Agreement or in any agreement, certificate or other document delivered pursuant hereto; (c) if the Vendor shall not have obtained the Bulk Sales Exemption Order, any failure by the Vendor to comply with the applicable provisions of the Bulk Sales Act (Ontario), or similar applicable legislation, other than Losses resulting directly or indirectly from the failure of the Purchaser to satisfy or discharge any of the Assumed Liabilities; and (d) any of the Excluded Liabilities. XI.2 Indemnification by the Purchaser The Purchaser shall indemnify and save harmless the Vendor from all Losses suffered or incurred by the Vendor as a result of or arising directly or indirectly out of or in connection with: (a) any breach by the Purchaser of or any inaccuracy of any representation or warranty contained in this Agreement or in any agreement, instrument, certificate or other document delivered pursuant hereto; (b) any breach or non-performance by the Purchaser of any covenant to be performed by it that is contained in this Agreement or in any agreement, certificate or other document delivered pursuant hereto; and -90- (c) any liabilities or obligations imposed on or incurred by the Vendor as a result of the ownership or use of the Purchased Assets by the Purchaser or the operations of the Purchased Business by the Purchaser after the Time of Closing; and (d) any failure by the Purchaser to pay, satisfy, discharge, perform or fulfil any of the Assumed Liabilities. XI.3 Limitation on Indemnities Notwithstanding section 11.1, the Vendor=s obligation to indemnify the Purchaser in respect of Losses for breaches or inaccuracies of one or more representations or warranties will be applicable only to the extent that the amount of the Loss in respect of any such breach or inaccuracy exceeds an amount equal to $40,000 (a "Material Loss") and then only to the extent that the aggregate of such Material Losses exceeds an amount equal to $300,000 (the "Threshold"). XI.4 Maximum Liability Notwithstanding anything contained herein, the obligation of each of the Vendor and the Purchaser to indemnify the other party in respect of Losses for breaches or inaccuracies of one or more representations or warranties contained in this Agreement or in any agreement, certificate or other document to be executed and delivered pursuant hereto shall be limited to an aggregate maximum liability in respect of all such Losses of an amount equal to seventy-five percent (75%) of the Purchase Price. -91- XI.5 Notice of Claim In the event that a party (the "Indemnified Party") shall become aware of any claim, proceeding or other matter (a "Claim") in respect of which the other party (the "Indemnifying Party") agreed to indemnify the Indemnified Party pursuant to this Agreement, the Indemnified Party shall promptly give written notice thereof to the Indemnifying Party. Such notice shall specify whether the Claim arises as a result of a claim by a person against the Indemnified Party (a "Third Party Claim") or whether the Claim does not so arise (a "Direct Claim"), and shall also specify with reasonable particularity (to the extent that the information is available): (a) the factual basis for the Claim; and (b) the amount of the Claim, if known. If, through the fault of the Indemnified Party, the Indemnifying Party does not receive notice of any Claim in time to effectively contest the determination of any liability susceptible of being contested, the Indemnifying Party shall be entitled to set off against the amount claimed by the Indemnified Party the amount of any Losses incurred by the Indemnifying Party resulting from the Indemnified Party's failure to give such notice on a timely basis. XI.6 Direct Claims With respect to any Direct Claim, following receipt of notice from the Indemnified Party of the Claim, the Indemnifying Party shall have 90 days to make such investigation of the Claim as is considered necessary or desirable. For the purpose of such investigation, the Indemnified Party shall make available to the Indemnifying Party the information relied upon by the Indemnified Party to substantiate the Claim, together with all such other information as the Indemnifying Party may reasonably request. If both parties agree at or prior to the expiration of such 90-day period (or any mutually agreed upon extension thereof) to the validity and amount of such Claim, the Indemnifying Party shall immediately pay to the Indemnified Party the full -92- agreed upon amount of the Claim, failing which the matter shall be referred to binding arbitration in such manner as the parties may agree or shall be determined by a court of competent jurisdiction. XI.7 Third Party Claims With respect to any Third Party Claim, the Indemnifying Party shall have the right, at its expense, to participate in or assume control of the negotiation, settlement or defence of the Claim and, in such event, the Indemnifying Party shall reimburse the Indemnified Party for all the Indemnified Party's out-of-pocket expenses as a result of such participation or assumption. If the Indemnifying Party elects to assume such control, the Indemnified Party shall have the right to participate in the negotiation, settlement or defence of such Third Party Claim and to retain counsel to act on its behalf, provided that the fees and disbursements of such counsel shall be paid by the Indemnified Party unless the Indemnifying Party consents to the retention of such counsel or unless the named parties to any action or proceeding include both the Indemnifying Party and the Indemnified Party and a representation of both the Indemnifying Party and the Indemnified Party by the same counsel would be inappropriate due to the actual or potential differing interests between them (such as the availability of different defences). If the Indemnifying Party, having elected to assume such control, thereafter fails to defend the Third Party Claim within a reasonable time, the Indemnified Party shall be entitled to assume such control and the Indemnifying Party shall be bound by the results obtained by the Indemnified Party with respect to such Third Party Claim. If any Third Party Claim is of a nature such that the Indemnified Party is required by applicable law to make a payment to any person (a "Third Party") with respect to the Third Party Claim before the completion of settlement negotiations or related legal proceedings, the Indemnified Party may make such payment and the Indemnifying Party shall, forthwith after demand by the Indemnified Party, reimburse the Indemnified Party for such payment. If the amount of any liability of the Indemnified Party under the Third Party Claim in respect of which such a payment was made, as finally determined, is less than the amount that was paid by the Indemnifying Party to the Indemnified Party, the Indemnified Party shall, forthwith -93- after receipt of the difference from the Third Party, pay the amount of such difference to the Indemnifying Party. XI.8 Settlement of Third Party Claims If the Indemnifying Party fails to assume control of the defence of any Third Party Claim, the Indemnified Party shall have the exclusive right to contest, settle or pay the amount claimed. Whether or not the Indemnifying Party assumes control of the negotiation, settlement or defence of any Third Party Claim, the Indemnifying Party shall not settle any Third Party Claim without the written consent of the Indemnified Party, which consent shall not be unreasonably withheld or delayed; provided, however, that the liability of the Indemnifying Party shall be limited to the proposed settlement amount if any such consent is not obtained for any reason. XI.9 Co-operation The Indemnified Party and the Indemnifying Party shall co-operate fully with each other with respect to Third Party Claims, and shall keep each other fully advised with respect thereto (including supplying copies of all relevant documentation promptly as it becomes available). XI.10 Exclusivity The provisions of this Article XI shall apply to any Claim for breach of any covenant, representation, warranty or other provision of this Agreement or any agreement, certificate or other document delivered pursuant to this Agreement (other than a claim for specific performance or injunctive relief) with the intent that all such Claims shall be subject to the limitations and other provisions contained in this Article XI. -94- XI.11 Change of Purchase Price Any amount paid under this Article in respect of a breach or inaccuracy of a representation or warranty shall be deemed to increase or decrease the Purchase Price, as the case may be, by the amount of such payment. ARTICLE XII MISCELLANEOUS XII.1 Notices (a) Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be delivered in person, transmitted by telecopy or similar means of recorded electronic communication or sent by registered mail, charges prepaid, addressed as follows: (i) if to the Vendor: Spar Aerospace Limited 121 King Street West Suite 1800 Toronto, Ontario M5H 4C2 Attention: Vice-President, Legal Counsel Telecopier No.: (416) 682-7631 (ii) if to the Purchaser: DRS Technologies, inc. 5 Sylvan Way Parsippany, New Jersey 07054 Attention: General Counsel Telecopier No.: (973) 898-4730 -95- (b) Any such notice or other communication shall be deemed to have been given and received on the day on which it was delivered or transmitted (or, if such day is not a Business Day, on the next following Business Day) or, if mailed, on the fifth Business Day following the date of mailing; provided, however, that if at the time of mailing or within five Business Days thereafter there is or occurs a labour dispute or other event that might reasonably be expected to disrupt the delivery of documents by mail, any notice or other communication hereunder shall be delivered or transmitted by means of recorded electronic communication as aforesaid. (c) Either party may at any time change its address for service from time to time by giving notice to the other party in accordance with this section 12.1. XII.2 Commissions, etc. Each party agrees to indemnify and save harmless the other from and against all Losses suffered or incurred by such other party in respect of any commission or other remuneration payable or alleged to be payable to any broker, agent or other intermediary who purports to act or have acted for or on behalf of such first mentioned party. XII.3 Consultation The parties shall consult with each other before issuing any press release or making any other public announcement with respect to this Agreement or the transactions contemplated hereby and, except as required by any applicable law or regulatory requirement, neither of them shall issue any such press release or make any such public announcement without the prior written consent of the other, which consent shall not be unreasonably withheld or delayed. -96- XII.4 Disclosure Prior to any public announcement of the transaction contemplated hereby pursuant to section 12.3, neither party shall disclose this Agreement or any aspects of such transaction except to its board of directors, its senior management, its legal, accounting, financial or other professional advisors, any financial institution contacted by it with respect to any financing required in connection with such transaction and counsel to such institution, or as may be required by any applicable law or any regulatory authority or stock exchange having jurisdiction. XII.5 Confidentiality The letter agreement dated July 1, 1997 between the Vendor's agent and the Purchaser regarding confidentiality of information shall, notwithstanding execution and delivery of this Agreement, remain in full force and effect pending completion of the transactions contemplated hereby and shall continue to apply to all information and materials referred to in such letter, whether received before or after the date of this Agreement. XII.6 Commercially Reasonable/Best Efforts The parties acknowledge and agree that, for all purposes of this Agreement, an obligation on the part of either party to use its best efforts or commercially reasonable efforts to obtain any waiver, consent, approval, permit, licence or other document shall not require such party to make any payment to any person for the purpose of procuring the same, other than payments for amounts due and payable to such person, payments for incidental expenses incurred by such person and payments required by any applicable law or regulation. -97- XII.7 Counterparts This Agreement may be executed in counterparts, each of which when executed (and delivered by facsimile transmission or otherwise) shall constitute an original and all of which taken together shall constitute one and the same instrument. XII.8 No Third Party Beneficiaries This contract is not intended to grant rights to any persons not parties hereto. IN WITNESS WHEREOF this Agreement has been executed by the parties. SPAR AEROSPACE LIMITED By:_____________________________ DRS TECHNOLOGIES, INC. By:_____________________________ SCHEDULE 10 ALLOCATION OF THE PURCHASE PRICE CANADIAN $ ----------- Shares of Spar Aerospace U.K. Limited $13,100,000 Assets of Applied Systems Division (excludes assets of Spar UK) Trade Receivables $5,010,000 Holdbacks receivables $1,480,000 Inventory - Work in process $75,000 Inventory - Unbilled $5,103,000 Prepaid Expenses ___________ $11,668,000 Net Working Capital Adjustment $0 Land $100,000 Building $600,000 Machinery & Equipment Leasehold Improvements $150,000 Machinery & Equipment & test equipment $925,000 Test Equipment $1,485,000 Furniture & Equipment $200,000 Computer Hardware $350,000 Computer Software $190,000 Subtotal for Machinery & Equipment $3,300,000 ----------- Assets before Goodwill $15,668,000 Trade Accounts Payable ($1,681,000) Accrued Liabilities ($1,943,000) Warranty Provision ($1,248,000) Customer Advance Payments ($1,796,000) ----------- Assumed Liabilities in Applied (6,668,000) Net Assets $9,000,000 Goodwill $26.050.000 ----------- Purchase price $48,150,000 ----------- Note: The components of working capital will be the balances reflected on the closing audited balance sheet. SCHEDULE 11. LOCATION OF ASSETS The assets of Spar Aerospace Limited, Applied Systems are located at: Spar Applied Systems 115 Emily Street Carleton Place, Ontario K7C 4J5 Spar Applied Systems 365 March Road Kanata, Ontario K2K 2C9 and Spar (UK) Limited Springfield Road Hayes, Middlesex England, UB4 0TY EX-2 3 LOAN AGREEMENT - -------------------------------------------------------------------------------- REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT executed by and among DRS TECHNOLOGIES, INC., DRS TECHNOLOGIES CANADA COMPANY / COMPAGNIE DRS TECHNOLOGIES CANADA, AND DRS TECHNOLOGIES CANADA, INC. as the Co-Borrowers, AND MELLON BANK, N.A., as the Agent and as a Lender AND MELLON BANK CANADA as a Lender AND OTHER LENDERS HEREAFTER SIGNATORY HERETO as a Lender DATED: OCTOBER 29, 1997 - -------------------------------------------------------------------------------- TABLE OF CONTENTS PREAMBLE AND RECITALS........................................................ 1 ARTICLE I DEFINITIONS; RULES OF INTERPRETATION AND CONSTRUCTION; AND ACCOUNTING PRINCIPLES Section 1.01 Definitions..................................................... 4 Section 1.02 Rules of Interpretation and Construction........................31 Section 1.03 Accounting Principles...........................................32 ARTICLE II AMOUNTS AND TERMS OF THE LOAN FACILITIES Section 2.01 Revolving Credit Loan Facility..................................34 Section 2.02 Term Loan Facility..............................................42 Section 2.03 Interest on the Loan Facilities.................................43 Section 2.03A Canadian Bankers Acceptances....................................47 Section 2.04 Fees.............................................................50 Section 2.05 Prepayments......................................................51 Section 2.06 Payments; Collection of Accounts................................52 Section 2.07 Special Provisions Governing Eurodollar Rate Loans..............54 Section 2.08 Increased Capital...............................................58 Section 2.09 Authorized Officers of the Co-Borrowers.........................58 Section 2.10 Taxes............................................................58 Section 2.11 Security for the Loan Facilities................................61 Section 2.12 Joint and Several Liability.....................................61 ARTICLE III CONDITIONS TO THE LOAN FACILITIES Section 3.01 Conditions Precedent to the Effectiveness of this Loan Agreement..................................................63 Section 3.02 Conditions Precedent to All Loans and Letters of Credit.........65 ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.01 Representations and Warranties on the Closing Date..............67 Section 4.02 Subsequent Funding Representations and Warranties...............75 ARTICLE V REPORTING COVENANTS Section 5.01 Statement of Accounting.........................................76 Section 5.02 Reporting and Information Requirements..........................77 Section 5.03 Environmental Notices...........................................80 Section 5.04 Notice of Name Changes and Location Changes.....................81 ARTICLE VI AFFIRMATIVE COVENANTS Section 6.01 Corporate Existence, etc........................................82 Section 6.02 Corporate Powers, etc...........................................82 Section 6.03 Compliance with Laws, etc.......................................82 Section 6.04 Payment of Taxes and Claims.....................................82 Section 6.05 Maintenance of Properties; Insurance............................82 Section 6.06 Inspection of Property; Books and Records; Discussions..........83 Section 6.07 Litigation, Claims, etc.........................................83 Section 6.08 Labor Disputes..................................................83 Section 6.09 Maintenance of Licenses, Permits, etc...........................83 Section 6.10 Use of Proceeds.................................................84 Section 6.11 Continuation of or Change in Business...........................84 Section 6.12 Additional Corporate Guarantors and/or Partnership Guarantors...84 Section 6.13 Minimum Asset Coverage..........................................84 Section 6.14 Minimum Required Interest Rate Hedge Protection.................84 ARTICLE VII NEGATIVE COVENANTS Section 7.01 Consolidated Debt...............................................85 Section 7.02 Sales of Assets; Liens..........................................85 Section 7.03 Loans, Advances and Investments.................................86 Section 7.04 Restricted Junior Payments......................................87 Section 7.05 Restriction on Fundamental Changes..............................87 Section 7.06 ERISA...........................................................87 Section 7.07 Amendment of Articles of Incorporation or By-Laws...............88 Section 7.08 Margin Regulations..............................................88 Section 7.09 Cancellation of Consolidated Debt; Prepayments..................88 Section 7.10 Environmental Liabilities.......................................88 Section 7.11 Guaranties......................................................88 Section 7.12 No Negative Pledges to Other Person.............................89 ii ARTICLE VIII FINANCIAL COVENANTS Section 8.01 Minimum Consolidated Net Worth..................................90 Section 8.02 Maximum Consolidated Senior Debt Leverage Ratio.................90 Section 8.03 Maximum Consolidated Funded Debt Leverage Ratio.................91 Section 8.04 Minimum Consolidated Fixed Charge Coverage Ratio................91 ARTICLE IX EVENTS OF DEFAULT; RIGHTS AND REMEDIES Section 9.01 Events of Default...............................................93 Section 9.02 Rights and Remedies.............................................94 Section 9.03 Application of Proceeds.........................................95 Section 9.04 No Notices......................................................96 Section 9.05 Agreement to Pay Attorneys' Fees and Expenses...................96 Section 9.06 No Additional Waiver Implied by One Waiver......................96 Section 9.07 Failure to Exercise Rights......................................96 Section 9.08 Waiver Of Jury Trial............................................97 Section 9.09 Remedies Cumulative.............................................97 ARTICLE X THE AGENT Section 10.01 Appointment....................................................98 Section 10.02 General Nature of the Agent's Duties...........................98 Section 10.03 Exercise of Powers.............................................98 Section 10.04 General Exculpatory Provisions.................................99 Section 10.05 Administration by the Agent...................................100 Section 10.06 Each Lender Not Relying on Agent or Other Lenders.............100 Section 10.07 Indemnification...............................................101 Section 10.08 Agent in its Individual Capacity..............................101 Section 10.09 Holders of Notes..............................................101 Section 10.10 Successor Agent...............................................101 Section 10.11 Additional Agents.............................................102 Section 10.12 Calculations..................................................102 iii ARTICLE XI MISCELLANEOUS Section 11.01 Concerning the Collateral and the Collateral Documents........103 Section 11.02 Assignments and Participations................................103 Section 11.03 Expenses......................................................106 Section 11.04 Indemnity.....................................................106 Section 11.05 Ratable Sharing...............................................107 Section 11.06 Amendments and Waivers........................................108 Section 11.07 Independence of Covenants.....................................108 Section 11.08 Notices.......................................................109 Section 11.09 Survival of Warranties and Agreements.........................109 Section 11.10 Marshalling; Recourse to Security; Payments Set Aside.........109 Section 11.11 Severability..................................................109 Section 11.12 Governing Law.................................................109 Section 11.13 Successors and Assigns........................................109 Section 11.14 Consent to Jurisdiction and Service of Process................109 Section 11.15 Counterparts; Effectiveness; Inconsistencies..................110 Section 11.16 Construction..................................................110 Section 11.17 Entire Agreement..............................................110 Section 11.18 Process Agent.................................................110 Section 11.19 Judgment Currency.............................................111 iv EXHIBITS AND SCHEDULES EXHIBITS Exhibit "A" Form of Assignment and Acceptance Agreement Exhibit "B" Form of Letters of Credit Reimbursement Agreement Exhibit "C" Form of Borrowing Base Certificate Exhibit "D" Form of Notice of Borrowing Exhibit "E" Form of Notice of Conversion/Continuation Exhibit "F" Form of Officer's Certificate Exhibit "G" Form of Revolving Credit Loan Note and Form of Canadian Revolving Credit Loan Note Exhibit "H" Form of Swap Agreement Exhibit "I" Form of Term Loan Note Exhibit "J" Form of Opinion Letter SCHEDULES Schedule 1.01-A List of Leased Properties Schedule 1.01-B Customary Permitted Liens Schedule 1.01-C Eurodollar Affiliates Schedule 1.01-D Permitted Encumbrances Schedule 2.01 List of Subsidiaries and/or Affiliates who may Borrow and/or Have Letters of Credit Issued for their Account Schedule 2.01 (vi) Schedule of Existing Letters of Credit Schedule 2.04 (ii) Letter of Credit Fees Schedule 4.01 (iii) Ownership of Capital Stock Schedule 4.01 (vii) Pending or Threatened Litigation Schedule 4.01 (xv) Environmental Matters Schedule 4.01 (xvii) ERISA Schedule 4.01 (xx) Joint Venture/Partnership Schedule 4.01 (xxi) Insurance Policies, Programs and Claims Schedule 4.01 (xxv) List of Undisclosed Liabilities Schedule 4.01 (xxvii) Labor Matters Schedule 4.01 (xxx) Business Names Schedule 4.01 (xxxi) Location of Collateral Schedule 6.05 Schedule of Insurance Policies and Programs Schedule 7.01(iii) Permitted Existing Debt Schedule 7.02 (ii) Existing Permitted Liens Schedule 7.03 Existing Loans, Advances, Investments Schedule 7.11(i) Existing Guaranties v REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT THIS REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT (including all amendments, modifications and supplements is hereinafter referred to as this "Loan Agreement"), is made this _____ day of October, 1997, by and among DRS TECHNOLOGIES, INC., a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, having its principal office located at 5 Sylvan Way, Parsippany, New Jersey 07054 (hereinafter referred to as "DRS"), AND DRS TECHNOLOGIES CANADA, INC., a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, having its principal office located at 5 Sylvan Way, Parsippany, New Jersey 07054 (hereinafter referred to as "DRS Canada Inc."), AND DRS TECHNOLOGIES CANADA COMPANY / COMPAGNIE DRS TECHNOLOGIES CANADA, a Nova Scotia company, having its principal office and chief executive office located at 365 March Road, Kanata, Ontario K2K 1X3 (hereinafter referred to as "DRS Flight Safety" and hereinafter DRS, DRS Canada Inc., and DRS Flight Safety shall be collectively referred to as the "Co-Borrowers" and sometimes individually referred to as a "Borrower"), AND MELLON BANK, N.A., a national banking association duly organized and validly existing under the laws of the United States of America, having an office located at Mellon Bank Center, 1735 Market Street, Philadelphia, Pennsylvania 19101, strictly in its capacity as a lender hereunder (hereinafter sometimes referred to individually as "Mellon US" and/or as a "Lender"), AND MELLON BANK CANADA, one of the chartered banks of Canada, duly organized and validly existing under the laws of Canada, having an office located at Royal Trust Tower, 32nd Floor, Toronto Dominion Center, Toronto, Ontario M5K 1K2, strictly in its capacity as a lender hereunder (hereinafter sometimes referred to as "Mellon Canada" and/or as a "Lender" and, in its capacity as a maker of Canadian Loans or issuer of or participant in Canadian Letters of Credit, a "Canadian Lender"), AND OTHER FINANCIAL INSTITUTIONS, that are either signatories to this Loan Agreement or who from time to time may hereafter become a lender under the Loan Agreement pursuant to Section 11.8 hereof (hereinafter together with Mellon U.S. and Mellon Canada, collectively referred to as the "Lenders" and individually referred to as a "Lender"), 1 AND MELLON BANK, N.A., a national banking association duly organized and validly existing under the laws of the United States of America, having an office located at Mellon Bank Center, 1735 Market Street, Philadelphia, Pennsylvania 19101, in its capacity as the agent for the Lenders hereunder (hereinafter referred to as the "Agent", as said definition is more fully described in Section 1.01 hereof). W I T N E S S E T H: WHEREAS, the Co-Borrowers are engaged in the business of designing, manufacturing and marketing high technology products for military and commercial customers in the United States, Canada and overseas; and WHEREAS, the Co-Borrowers have requested that the Lenders make available to the Co-Borrowers a secured recourse revolving credit loan in the aggregate principal amount of up to Forty Million and 00/100 (US$40,000,000.00) Dollars for the purposes of financing (i) a portion of the Co-Borrowers' general corporate requirements, including, without limitation, (A) working capital, (B) commercial/documentary and standby letters of credit and (ii) the acquisition by DRS Canada Inc. of 100% of the stock of Spar Aerospace (U.K.) Limited, a company incorporated under the laws of England and Wales ("Spar (UK)") as more fully described herein (hereinafter referred to as the "Revolving Credit Loan Facility"); and WHEREAS, the Co-Borrowers have requested that the Lenders make available to the Co-Borrowers a secured recourse term loan in Canadian Dollars, having a Dollar Equivalent in the aggregate principal amount of Twenty Million and 00/100 (US$20,000,000.00) Dollars, for the purpose of financing the acquisition by DRS Flight Safety of certain assets and properties of Spar Aerospace Limited, a corporation existing under the laws of Canada, all as more fully described herein (hereinafter referred to as the "Term Loan Facility"); and WHEREAS, for the purposes of this Loan Agreement, the Revolving Credit Loan Facility and the Term Loan Facility, as they may from time to time be hereinafter amended, modified, extended, refinanced and/or otherwise supplemented, shall be collectively referred to as the "Loan Facilities"); and WHEREAS, the Lenders have agreed to make the Loan Facilities available to the Co-Borrowers, subject to the terms, conditions and provisions hereinafter set forth; and WHEREAS, the Co-Borrowers and the Lenders anticipate and contemplate that the Lenders may sell, assign and transfer at times after the date hereof, a portion of their respective interests in the Loan Facilities to other financial institutions described in the definition of "Eligible Assignee" set forth in Section 1.01 of this Loan Agreement, and said additional lenders shall hereinafter be a part of and constitute a member of the Lenders; and WHEREAS, the Lenders have requested that the Agent act as administrative and collateral agent for the Lenders in connection with the Loan Facilities, and the Agent has agreed to accept such responsibilities and duties, subject to the terms, conditions and provisions hereinafter set forth. 2 NOW, THEREFORE, in consideration of these premises and the mutual representations, covenants and agreements of the Co-Borrowers, the Lenders and the Agent, each party binding itself and its respective successors and assigns, hereby promises, covenants and agrees as follows: 3 ARTICLE I DEFINITIONS; RULES OF INTERPRETATION AND CONSTRUCTION; AND ACCOUNTING PRINCIPLES Section 1.01 Definitions. The following terms, as used in this Loan Agreement, shall have the following meanings, unless the context clearly indicates and requires otherwise: "Acceptance Fee" means the fee payable at the time of the acceptance of a Canadian Bankers Acceptance established by multiplying the face amount of such Canadian Bankers Acceptance by the BA Margin as of the date of issue and acceptance of such Canadian Bankers Acceptance and by multiplying the product so obtained by a fraction having a numerator equal to the number of days in the term of such Canadian Bankers Acceptance and a denominator of 365. "Accounts" or "Account Receivable" or "Accounts Receivable" shall mean (i) any "account", as such term is defined in Section 9-106 of the Uniform Commercial Code of each State where applicable (or any successor section of the Uniform Commercial Code) and (ii) any "account" as such term is defined in subsection 1(1) of the Personal Property Security Act (Ontario), whether now owned or hereafter acquired by any one of the Co-Borrowers and/or their Subsidiaries and Affiliates, and in any event, includes, without limitation, all accounts, contracts, contract rights, chattel paper, general intangibles, notes, drafts, acceptances, chattel mortgages, conditional sale contracts, bailment leases, security agreements, contribution rights and other forms of obligations now or hereafter arising out of or acquired in the course of or in connection with any business of the Co-Borrowers', their Subsidiaries' or Affiliates' conduct, together with all liens, guaranties, securities, rights, remedies and privileges pertaining to any of the foregoing, whether now existing or hereafter created or arising, and all rights with respect to returned and repossessed items of inventory. "Accrued Unbilled Government Accounts Receivable" shall mean the aggregate face amount owing in respect of Accounts of the Co-Borrowers, their Subsidiaries and Affiliates, generated in connection with Contractual Obligations with any Governmental Authority for work performed for which payment to vendors or subcontractors has been made or accrued, if the Account (i) has not yet been invoiced to the relevant Governmental Authority as a result of the normal frequency of billing under the particular contract or governmental delays in the preparation of contract documents and (ii) will otherwise meet all requirements of Qualified Billed Government Accounts Receivable upon invoicing. "Advance Limit" shall mean the Dollar Equivalent of the amount of the Revolving Credit Facility which the Lenders may from time to time advance to the Co-Borrowers in the form of either direct Revolving Credit Loans or Letters of Credit or Canadian Bankers Acceptances, and which amount shall not in the aggregate at any time outstanding exceed the lesser of (i) US$40,000,000.00 or (ii) the sum of (a) eighty percent (80%) of all Qualified Billed Accounts Receivable (including Qualified Billed Government Accounts Receivable), as of the date of determination, plus (b) fifty (50%) of all Accrued Unbilled Government Accounts Receivable, as of the date of determination and (c) fifty percent (50%) of the Qualified Inventory (net of all progress billings and/or payments), as of the date of determination, provided, however, in no event shall the amount described in clause (c) ever exceed the lesser of (1) US$10,000,000.00 or (2) thirty percent (30%) of the total Revolving Credit Loans outstanding, as of the date of determination. 4 "Affiliate" of any Person shall mean any other Person which or who, directly or indirectly, controls or is controlled by, or is under common control with such Person; provided, however, natural persons and minority partners of any said Person shall not be deemed an Affiliate for purposes of this definition. For the purposes of the preceding sentence, "controls" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise, and in any case shall include direct or indirect ownership (beneficially or of record) of, or direct or indirect power to vote, fifty percent (50%) or more of the outstanding shares of any class of capital stock of such Person (or in the case of Person that is not a corporation, fifty percent (50%) or more of any class of equity interest). "Affiliate Canadian Lender" shall mean an Affiliate, branch or agency of a Lender that is resident in Canada for purposes of the Income Tax Act (Canada) and qualified as a bank under the Bank Act (Canada) or a trust or loan company under the applicable Laws of Canada. "Agent" shall have the meaning ascribed and assigned to such term as set forth in the preamble of this Loan Agreement; provided, however, pursuant to Section 10.11, Agent hereby designates Mellon Bank Canada to act as a co-agent or agent with respect to the administration and funding of Canadian Bankers Acceptances and Canadian Loans and Canadian Letters of Credit to the extent appropriate, the establishment of the "Prime Rate" for relevant Canadian Loans and the administration of Lenders' rights with respect to any Collateral located in Canada (including, without limitation, under the Bank Act (Canada)). "Agent's Office" shall mean the Agent's principal office located at Mellon Bank Center, 1735 Market Street, Philadelphia, Pennsylvania 19101, or at such office or offices of the Agent or branch, subsidiary or affiliate thereof, as may be designated in writing from time to time by the Agent to the Co-Borrowers and the Lenders. "Agreement of Guaranty" shall mean that certain Agreement of Guaranty executed by the Corporate Guarantors and the Partnership Guarantor, on a joint and several basis, and delivered to the Agent, for the benefit of the Lenders, dated the date of this Loan Agreement, pursuant to which the Corporate Guarantors and the Partnership Guarantor unconditionally guaranty the prompt and complete performance of all of the Co-Borrowers' duties, covenants and obligations under this Loan Agreement, the Revolving Credit Loan Notes, the Term Loan Notes and the other Loan Documents. The term "Agreement of Guaranty" shall also be deemed to mean and refer to all amendments, modifications and supplements to said agreement made and/or entered into subsequent to the Closing Date, including, without limitation, all amendments which are consummated for the purposes of adding any new and/or additional Persons as guarantors, all as provided for in Section 6.12 of this Loan Agreement. "Agreements of Lease" shall mean a reference to those certain lease agreements between any one or more of the Co-Borrowers, as tenants, and various owners, as landlords (as more fully set forth on Schedule 1.01-A hereto), pursuant to which such Co-Borrowers have agreed to lease certain real property from their respective landlords. "Applicable Interest Rate" shall mean the applicable per annum interest rate with respect to each of (i) the Revolving Credit Loans determined pursuant to Section 2.03(i)(a) of this Loan 5 Agreement and/or (ii) the Term Loan determined pursuant to Section 2.03(i)(b) of this Loan Agreement. "Applicable Margin" shall have the meaning set forth in Section 2.03(i)(c) of this Loan Agreement. "Assignment and Acceptance Agreement" shall mean an Assignment and Acceptance Agreement in the form of Exhibit "A" attached hereto and made a part hereof (with blanks appropriately filled in) delivered to the Agent in connection with an assignment to an Eligible Assignee of a Lender's interest under this Loan Agreement pursuant to Section 11.02 hereof. "Authorized Officer" shall mean those officers/general partners of the Co-Borrowers, the Corporate Guarantors, the Partnership Guarantor and any Affiliates, whose signatures and incumbency shall have been certified to the Agent pursuant to an Officer's Certificate delivered on the Closing Date or any other form of resolution or certification delivered to and approved by the Agent after the Closing Date. "BA Margin" shall mean the applicable percentage set forth in the Leverage Matrix under the heading "BA Margin". "Bankruptcy Act" shall mean the Bankruptcy and Insolvency Act (Canada) as amended from time to time, or any successor statute. "Bankruptcy Code" shall mean Title 11 of the United States Bankruptcy Code (11 U.S.C. Section 101 et seq.), as amended from time to time, or any successor statute. "Benefit Plan" shall mean a defined benefit plan as defined in Section 3 (35) of ERISA (other than a Multiemployer Plan) in respect of which any of the Co-Borrowers or an ERISA Affiliate is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA. "Big-Six Accounting Firm" shall mean any of Arthur Andersen & Co., KPMG Peat Marwick, Coopers & Lybrand, Ernst & Young, Deloitte & Touche and Price Waterhouse or any of their respective successors. "Borrower" shall have the meaning ascribed and assigned to such term as set forth in the preamble of this Loan Agreement. "Borrowing" and/or "Borrowings" shall mean, except as otherwise provided in Section 2.06(v)(b) hereof, a borrowing consisting of either Revolving Credit Loans of the same type made on the same day by all or some of the Lenders, as applicable, and/or the Term Loan. "Borrowing Base Certificate" shall mean a certificate duly executed by an Authorized Officer of the Co-Borrowers in the form of Exhibit "C" attached hereto and made a apart hereof, setting forth the Co-Borrowers' calculations of the Advance Limit for purposes of determining the availability of a Borrowing under the Revolving Credit Facility. "Borrowing Date" shall mean, with respect to (i) any Revolving Credit Loan, any Business Day specified in any Notice of Borrowing delivered to the Agent by the Co-Borrowers in accordance with the provisions of Section 2.01(ii) of this Loan Agreement, as the date upon 6 which the Co-Borrowers request the Lenders to make a Revolving Credit Loan hereunder (including a conversion or rollover of credit) and upon which such Revolving Credit Loan is made and (ii) the Term Loan, the Closing Date as specified in a Notice of Borrowing delivered to the Agent by the Co-Borrowers in accordance with the provisions of Section 2.02(i)(c) of this Loan Agreement, as the date upon which DRS Flight Safety requests that Mellon Canada make the Term Loan hereunder and upon which the Term Loan is made. "Business Day" shall mean (i) for all purposes (other than as covered by clause (ii) below), any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the Commonwealth of Pennsylvania and/or the laws of the Province of Ontario (Canada) or is a day upon which banking institutions located in such state or province are required or authorized by law or other governmental action to close, (ii) with respect to all notices, determination, fundings and payments in connection with the Eurodollar Rate, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in the London interbank eurodollar market and (iii) when such term is used in respect of a day on which a Canadian Loan is to be made or an interest rate with respect thereto is to be set, a payment is to be made in respect of a Canadian Loan, an Exchange Rate is to be set in respect of Canadian Dollars or any other dealing in Canadian Dollars is to be carried out pursuant to this Agreement, such term shall mean a day on which banks in Toronto, Canada are open for general banking business, other than a Saturday, Sunday or other day on which commercial banks in Pennsylvania are authorized or required by law to close. "Canadian Borrower" shall mean DRS Flight Safety. "Canadian Bankers Acceptance" means a Canadian Loan in the form of a non-interest bearing bill of exchange denominated in Canadian Dollars, drawn and endorsed by the Canadian Borrower and accepted by a Canadian Lender pursuant to this Agreement, having a term of one month to six months, and maturing on a Business Day on or before the Revolving Credit Termination Date or the Term Loan Maturity Date, as the case may be. "Canadian Bankers Acceptance Notice" shall have the meaning ascribed and assigned to such term as set forth in Section 2.03A(i) of this Loan Agreement. "Canadian Dollar", "Canadian Dollars" and the symbol "C$" shall mean lawful money of Canada. "Canadian Dollar Equivalent" shall mean with respect to an amount of U.S. Dollars on any date, the amount of Canadian Dollars that may be purchased with such amount of U.S. Dollars at the Exchange Rate with respect to U.S. Dollars on such date. "Canadian Letters of Credit" shall mean those Letters of Credit issued by Mellon Bank Canada that are denominated in Canadian Dollars and for the account of the Canadian Borrower. "Canadian Letter of Credit Obligations" shall mean, at any time, the sum of (i) Reimbursement Obligations at such time for Canadian Letters of Credit and (ii) the Dollar Equivalent of the aggregate maximum amount then available for drawing under the outstanding Canadian Letters of Credit. 7 "Canadian Loan" means a Loan denominated in Canadian Dollars that is to, or is to be made for the account of, the Canadian Borrower (and which shall include the Canadian Revolving Credit Loans and the Term Loan). "Canadian Revolving Credit Exposure" shall have the meaning ascribed to such term in Section 11.02(i)(g) of this Loan Agreement. "Canadian Revolving Credit Loans" shall mean those Revolving Credit Loans that also constitute Canadian Loans, and which shall include, Canadian Bankers Acceptances. "Canadian Revolving Credit Note" shall have the meaning ascribed to such term in Section 2.01(i)(a) of this Loan Agreement. "Canadian Revolving Credit Sublimit" shall have the meaning ascribed to such term in Section 2.01(i)(a) of this Loan Agreement. "Capital Expenditures" shall mean, for any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities during such period) of any one or more of the Co-Borrowers, their Subsidiaries and Affiliates, which would be properly classified as capital expenditures in accordance with Generally Accepted Accounting Principles (including, without limitation, expenditures for maintenance and repairs which are capitalized, and Capitalized Leases to the extent an asset is recorded in connection therewith in accordance with Generally Accepted Accounting Principles). "Capitalized Lease" and "Capitalized Leases" shall mean at any time any lease which is, or is required under Generally Accepted Accounting Principles to be, capitalized on the balance sheet of the lessee at such time. "Capitalized Lease Obligation" and "Capitalized Lease Obligations" shall mean all monetary obligations of any Person under any leasing or similar arrangement which, in accordance with Generally Accepted Accounting Principles, are or would be classified as Capitalized Leases. "CDIC" shall mean the Canada Deposit Insurance Corporation. "CERCLIS" shall mean the Comprehensive Environmental Response, Compensation and Liability Information System List, as the same may be amended from time to time. "Claim" shall mean any claim or demand, by any Person, of whatsoever kind or nature for any alleged Liabilities and Costs, based in dispute whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, permit, ordinance or regulation, common law or otherwise, the consequences of which disputes are reasonably likely to result in a Material Adverse Effect. "Closing Date" shall mean the date upon which this Loan Agreement is executed by the Lenders, the Co-Borrowers and the Agent, and the conditions set forth in Section 3.01 of this Loan Agreement have been completed and fulfilled to the satisfaction of the Agent. "Co-Borrowers" shall have the meaning ascribed and assigned to such term as set forth in the preamble of this Loan Agreement. 8 "Code" means the Internal Revenue Code of 1986, as amended, any successor statute of similar import, and regulations thereunder, in each case as in effect from time to time. References to sections of the Code shall be construed also to refer to any successor sections. "Collateral" shall mean all property, assets, contracts, interests and/or rights on or in which a Lien is granted to the Agent on behalf of the Lenders pursuant to this Loan Agreement, the Pledge of Stock Agreements, the Security Agreements and/or any other Collateral Documents provided for herein or therein or delivered or to be delivered hereunder or thereunder, as any such Collateral Documents may be amended, supplemented, restated or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Collateral Documents" shall mean the collective reference to the Security Agreements, and any other security agreements, mortgages, deeds of trust, collateral assignments, instruments, documents, certificates or agreements executed and delivered by, or on behalf of, the Co-Borrowers, the Corporate Guarantors and the Partnership Guarantor, to the Agent, on behalf of the Lenders, at any time pursuant to or in connection with the Loan Facilities to create, continue or evidence Liens to secure the Obligations (which, however, in the case of any Swap Obligation owed to Mellon Bank, N.A. or any other Lender, all said Liens shall be subordinated to the senior and superior interests of the Agent and the Lenders in the Collateral securing their non-Swap Obligations). "Commitment Percentage" of a Lender at any time shall mean the percentages for such Lender set forth below its name on the signature pages to this Loan Agreement with respect to its Pro Rata Share of the Loan Facilities, adjusted from time to time to give effect to any transfer by a Lender to another Lender of all or any portion of said Lender's Pro Rata Share, all as provided for in Section 11.02 of this Loan Agreement. A Lender may have both a Revolving Credit Loan Pro Rata Share and a Term Loan Pro Rata Share. "Commitments" shall mean the aggregate of each Lender's Revolving Credit Commitment and Term Loan Commitment. "Consolidated Cash and Cash Equivalents" shall mean all (i) cash and cash equivalents and (ii) any of the following: (a) marketable direct obligations issued or unconditionally guarantied by the United States Government or issued by an agency thereof and backed by the full faith and credit of the United States, in each case maturing within one (1) year after the date of acquisition thereof; (b) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one (1) year after the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc. and not listed in Credit Watch published by Standard & Poor's Corporation; (c) commercial paper of a corporation having a net worth of not less than US$1,000,000,000.00, other than commercial paper issued by the Co-Borrowers, their Subsidiaries or Affiliates, maturing no more than ninety (90) days after the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 or P-1 from either Standard & Poor's Corporation or Moody's Investors Service, Inc.; (d) domestic certificates of deposit or domestic time deposits or repurchase agreements maturing within one (1) year after the date of acquisition thereof issued by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia having FDIC deposit insurance; (e) any funds deposited or invested by any of the Co-Borrowers, their Subsidiaries and/or Affiliates in accounts maintained with the Agent 9 and/or any of the Lenders and/or with any other commercial bank organized under the laws of (1) Canada having insurance with CDIC or (2) the United States of America or any state thereof or the District of Columbia having FDIC insurance; and (f) money market funds having assets in excess of US$1,000,000,000.00. "Consolidated Debt" shall mean with respect to the Co-Borrowers, their Subsidiaries and Affiliates, the aggregate sum of the following items as such items may appear on a consolidated balance sheet of the Co-Borrowers, their Subsidiaries and Affiliates to any Person (other than each other) in accordance with Generally Accepted Accounting Principles: (i) the unpaid principal balance of all indebtedness or liability for money borrowed by the Co-Borrowers, their Subsidiaries and/or Affiliates to any Person (other than each other) from time to time (including any renewals, extensions and refundings thereof), whether or not the indebtedness was heretofore or hereafter created, issued, incurred, assumed or guarantied; (ii) the unpaid principal balance of all indebtedness or liability for the deferred purchase price of property or services incurred (including trade obligations); (iii) all obligations as lessee under leases which have been or should be recorded as Capitalized Lease Obligations; (iv) all current Obligations in respect of any unfunded vested benefits under any Plan covered by Title IV of ERISA; (v) all obligations, contingent or otherwise relative to the face amount of all Letters of Credit issued for the Co-Borrowers', their Subsidiaries' and/or Affiliates' account, whether or not drawn; (vi) all obligations arising under bankers' acceptance facilities issued for the account of the Co-Borrowers, their Subsidiaries and/or Affiliates; (vii) all guaranties, endorsements and other contingent obligations to purchase, to provide funds for payments, to supply funds to invest in the Co-Borrowers, their Subsidiaries and/or Affiliates or otherwise to assure a creditor against loss (except endorsements of negotiable instruments for deposit or collection in the ordinary course of business shall not constitute Consolidated Debt); and (viii) all obligations secured by any mortgage, lien, pledge, or security interest or other charge or encumbrance on property, whether or not the obligations have been assumed. "Consolidated EBITDA" shall mean with respect to the Co-Borrowers, their Subsidiaries and Affiliates, as of any date of determination thereof, for the period of four (4) consecutive Fiscal Quarters immediately preceding said date of determination taken together as one accounting period, the amount equal to the sum of (i) Consolidated Net Income for such test period, plus (ii) all gross interest expense on Consolidated Debt of the Co-Borrowers, their Subsidiaries and Affiliates, for such test period, plus (iii) all charges against income of the Co-Borrowers, their Subsidiaries and Affiliates for foreign, federal, state and local taxes for such test period, plus (iv) all depreciation expense for such test period, plus (v) all amortization expense for such test period plus (vi) all other net non-cash charges for such test period, after eliminating therefrom any, (a) extraordinary items, (b) gains and losses from the sale of assets in connection with any sale/leaseback transaction or arrangement and (c) results of discontinued operations, all as determined in accordance with Generally Accepted Accounting Principles. "Consolidated Fixed Charge Coverage Ratio" shall mean, as of any date of determination thereof, for the period of four (4) consecutive Fiscal Quarters immediately preceding said date of determination taken together as one accounting period, the ratio of (i) Consolidated EBITDA for such test period minus all Capital Expenditures paid or incurred during said test period divided by (ii) all interest expenses on all Consolidated Debt incurred during such test period plus all principal payments due and payable on all Consolidated Debt incurred during such test period, all as calculated in accordance with Generally Accepted Accounting Principles. 10 "Consolidated Funded Debt" shall mean, as of any date of determination thereof, all items which in accordance with Generally Accepted Accounting Principles would be Consolidated Debt, including, without limitation, all Consolidated Subordinated Debt, but exclusive of those items described in clause (ii), (iv), (v) and (vii) of the definition of Consolidated Debt. "Consolidated Funded Debt Leverage Ratio" shall mean, as of any date of determination thereof, the ratio of Consolidated Funded Debt divided by Consolidated EBITDA. "Consolidated Net Income" shall mean, as of any date of determination for any test period, all amounts which, in accordance with Generally Accepted Accounting Principles, would be included under net income (after the provision for the payment of all federal and state income taxes) on a consolidated income statement of the Co-Borrowers, their Subsidiaries and Affiliates for such test period. "Consolidated Net Worth" shall mean, as at any date of determination, all items which, in accordance with Generally Accepted Accounting Principles, would be included under shareholders' equity on a consolidated balance sheet of the Co-Borrowers, their Subsidiaries and Affiliates at such date. "Consolidated Senior Debt" shall mean, as at any date of determination, all items which in accordance with Generally Accepted Accounting Principles would be included on a consolidated balance sheet of the Co-Borrowers, their Subsidiaries and Affiliates as Consolidated Funded Debt, excluding, however, Consolidated Subordinated Debt. "Consolidated Senior Debt Leverage Ratio" shall mean, as of any date of determination thereof, the ratio of Consolidated Senior Debt divided by Consolidated EBITDA. "Consolidated Subordinated Debt" shall mean, as at any date of determination, any Consolidated Debt of the Co-Borrowers, their Subsidiaries and/or Affiliates, which in accordance with the terms of the documentation evidencing said Consolidated Debt, is subordinated to the repayment of the Loan Facilities, including, without limitation, (i) the then outstanding principal balance of an original US$25,000,000.00, 9% Senior Subordinated Convertible Debentures Due October 1, 2003, evidenced by that certain Indenture dated as of September 22, 1995, executed by and between DRS and The Trust Company of New Jersey and (ii) the then outstanding principal balance of an original US$25,000,000.00, 8-1/2 % Convertible Subordinated Debentures Due August 1, 1998, evidenced by that certain Indenture dated August 1, 1983, executed by and between DRS and Bankers Trust Company. "Contractual Obligation" shall mean with respect to any Person, any provision of any Securities issued by that Person or any indenture, mortgage, deed of trust, contract, undertaking, document, instrument or other agreement or instrument to which that Person is a party or by which it or any of its properties is bound, or to which it or any of its properties is subject (including, without limitation, any restrictive covenant affecting such Person or any of its properties). "Corporate Guarantors" shall mean the collective reference to (i) DRS Electronic Systems, Inc., a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, having its principal office located at 200 Professional Drive, Gaithersburg, Maryland 20879; (ii) DRS Photronics Corp., a corporation duly organized, validly existing and in good standing under the laws of the State of New York, having its principal office located at 138 Bauer 11 Drive, Oakland, New Jersey 07436; (iii) DRS Precision Echo, Inc., a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, having its principal office located at 3105 Patrick Henry Drive, Santa Clara, California 95054; (iv) DRS Ahead Technology, Inc., a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, having its principal office located at 6410 Via Del Oro, San Jose, California 95054; (v) DRS Optronics, Inc., a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, having its principal office located at 2330 Commerce Park Drive, N.E., Second Floor, Palm Bay, Florida 32905; (vi) DRS Systems Management Corporation, a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, having its principal office located at 5 Sylvan Way, Parsippany, New Jersey 07054; (vii) DRS Technical Services, Inc., a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, having its principal office located at 2535 Camino Del Rio, Suite 300, San Diego, California 92108; (viii) DRS/MS, Inc., a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, having its principal office located at 5 Sylvan Way, Parsippany, New Jersey 07054; (ix) DRS International, Inc., a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, having its principal office located at 5 Sylvan Way, Parsippany, New Jersey 07054 ; (x) DRS Air, Inc., a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, having its principal office located at 5 Sylvan Way, Parsippany, New Jersey 07054 and (xi) any new or additional Subsidiaries of the Co-Borrowers which are purchased, acquired or created during the term of the Loan Facilities. Each of the Corporate Guarantors may sometimes be hereinafter referred to individually as a "Corporate Guarantor". "Customary Permitted Liens" shall mean (i) Liens (other than Environmental Liens and any Lien imposed under ERISA) for taxes, assessments or charges of any Governmental Authority or claims not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with Generally Accepted Accounting Principles; (ii) statutory Liens of landlord and Liens of carriers, warehousemen, mechanics, materialmen and other Liens (other than any Lien imposed under ERISA) imposed by Law, including, without limitation, Liens in favor of any Governmental Authority securing progress payments made under government contracts created in the ordinary course of business and for amounts not yet due or which are being contested in good faith by appropriate proceedings which are sufficient to prevent imminent foreclosure of such Liens, are promptly instituted and diligently conducted and with respect to which adequate reserves or other appropriate provision are being maintained in accordance with Generally Accepted Accounting Principles; (iii) Liens (other than any Lien imposed under ERISA) incurred or deposits made in the ordinary course of business (including, without limitation, surety bonds and appeal bonds) in connection with workers' compensation, unemployment insurance and other types of social security benefits which have accrued but are not yet payable or due to be remitted or to secure the performance of tenders, bids, leases, contracts (other than for the repayment of Debt), statutory obligations and other similar obligations or arising as a result of progress payments under government contracts; 12 (iv) easements (including, without limitation, reciprocal easement agreements and utility agreements), rights-of-way, covenants, consents, reservations, encroachments, variations and other restrictions, charges or encumbrances (whether or not recorded) affecting the use of real property or impair the use thereof; (v) Liens arising as a result of filing of any financing statement under the Uniform Commercial Code of a particular State, the Personal Property Security Act (Ontario) or any comparable Law of any jurisdiction covering consigned or leased goods which do not constitute assets of any of the Co-Borrowers and/or their Subsidiaries or Affiliates and which consignment and/or lease is not intended as security; (vi) Liens arising out of and with respect to customer deposits made in the ordinary course of the Co-Borrowers', their Subsidiaries and/or Affiliates businesses; and (vii) Liens, security interests and other encumbrances as listed on Schedule 1.01-B; (viii) extensions, renewals or replacements of any Lien referred to in paragraphs (i) through (vii) above, provided (a) that, in the case of subparagraphs (i), (ii), (iii), (v) and (vi) above, the principal amount of the obligation secured thereby is not increased and (b) that any such extension, renewal or replacement is limited to the property originally encumbered thereby. "Default Rate" shall mean a rate of interest equal to two hundred basis points (2.0 %) above the applicable nondefault annual interest rate with respect to the Loans. "Discount" shall mean, with respect to any issue of Canadian Bankers Acceptances, the amount by which the face value of such Canadian Bankers Acceptances exceeds the Discounted Proceeds of such Canadian Bankers Acceptances. "Discounted Proceeds" shall mean, with respect to any Canadian Bankers Acceptance to be purchased by a Canadian Lender, an amount (rounded to the nearest whole Canadian cent, and with one-half of one Canadian cent being rounded up) calculated on the day of such purchase by multiplying (i) the face amount of such Canadian Bankers Acceptance times (ii) the quotient equal to (such quotient being rounded up or down to the nearest fifth decimal place and .000005 being rounded up) (a) one divided by (b) the sum of (1) one plus (2) the product of (A) the Discount Rate (expressed as a decimal) applicable to such Canadian Bankers Acceptance times (B) the quotient equal to (x) the term to maturity of such Canadian Bankers Acceptance divided by (y) the number of days in the calendar year in which such Canadian Bankers Acceptance is to mature. "Discount Rate" as applicable to a Canadian Bankers Acceptance being purchased by any Canadian Lender on any day, the percentage discount rate (expressed to two decimal places and rounded upward, if necessary, to the nearest 1/100th of 1%) quoted by Mellon Bank Canada as the percentage discount rate at which Mellon Bank Canada would, in accordance with normal practice, at or about 9:30 a.m. Toronto time, on such day, be prepared to purchase Canadian Bankers Acceptances accepted by such Canadian Lender in an amount and having a maturity date comparable to the amount and maturity date of such Canadian Bankers Acceptance. "DOL" shall mean the United States Department of Labor and any successor department or agency. 13 "Dollar Equivalent" means, with respect to (a) the amount of any Canadian Dollars on any date, the equivalent amount in U.S. Dollars that may be purchased with such amount of Canadian Dollars, as determined by the Agent using the Exchange Rate and (b) any amount in U.S. Dollars, such amount. "Domestic Letters of Credit" shall mean those Letters of Credit denominated in U.S. Dollars for the joint and several account of the Co-Borrowers. "Eligible Assignee" shall mean any Person(s), each of whom must be acceptable to the Agent and the Co-Borrowers; provided, however, in each such instance, said bank or other institutional lender must then be in compliance with all then applicable Laws regarding regulatory capital requirements after giving effect to any "phase-in" provisions thereof; provided, further, that such Person shall have an Affiliate Canadian Lender which shall purchase and assume a Pro Rata Share of the Canadian Revolving Credit Sublimit and the Term Loan and Term Loan Commitment, and the term Eligible Assignee as used herein shall include such Person and its Affiliate Canadian Lender as the context requires. "Environment" shall mean all air, surface water, water, vapor, groundwater, drinking water supply or land, including land surface or subsurface, and includes all fish, wildlife, biota and all other natural resources, whether located in the United States, Canada or elsewhere. "Environmental Affiliate" shall mean, with respect to any Person, any other Person whose liability (contingent or otherwise) for any Environmental Claim such first mentioned Person has retained, assumed or otherwise is liable for (by Law, agreement or otherwise). "Environmental Approval" shall mean any Governmental Action pursuant to or required under any Environmental Law. "Environmental Claim" shall mean, with respect to any Person, any action, suit, proceeding, investigation, notice, claim, complaint or demand, made by any other Person (including but not limited to, any Governmental Authority, citizens' group or present or former employee of such first Person) alleging, asserting or claiming any actual or potential (i) violation of any Environmental Law, (ii) liability under any Environmental Law or (iii) liability for investigatory costs, cleanup costs, governmental response costs, damages to the Environment, property damages, personal injuries, fines or penalties arising out of, based on or resulting from the presence, or release into the Environment, of any Environmental Concern Materials at any location, whether or not owned by such Person; provided, however, in no event shall any voluntary action, proceeding or investigation made or brought by the Co-Borrowers, their Subsidiaries and/or Affiliates from time to time in connection with their own activities or inactivities be included in this definition. "Environmental Cleanup Site" shall mean any location whether located in the United States, Canada or elsewhere which is listed or proposed for listing on the National Priorities List, on CERCLIS or on any similar state list of sites or identified by any Canadian Governmental Authority requiring investigation or cleanup, or which is the subject of any pending or threatened action, suit, proceeding or investigation related to or arising from any alleged violation of any Environmental Law. "Environmental Concern Materials" shall mean (i) any flammable substance, explosive, radioactive material, hazardous material, hazardous waste, toxic substance, solid waste, 14 pollution, contaminate or any related material, raw material, substance, product or by-product of any substance specified in or regulated or otherwise affected by any Environmental Law (including but not limited to any "hazardous substance" as defined in any Environmental Law), (ii) any toxic chemical or other substance from or related to industrial, commercial or institutional activities, and (iii) asbestos, gasoline, diesel fuel, motor oil, waste and used oil, heating oil and other petroleum products or compounds, polychlorinated biphenyls, radon and urea-formaldehyde. "Environmental Law" and "Environmental Laws" shall mean any Law, whether now existing or subsequently enacted or amended, relating to (i) pollution or protection of the Environment, (ii) exposure of Persons, including but not limited to employees, to Environmental Concern Materials, (iii) protection of the public health or welfare from the effects of products, by-products, wastes, emissions, discharges or releases of Environmental Concern Materials or (iv) regulation of the manufacture, generation, use or introduction into commerce of Environmental Concern Materials including their manufacture, formulation, packaging, labeling, distribution, treatment, transportation, handling, storage or disposal. Without limitation, "Environmental Law" shall include (a) any Environmental Approval and the terms and conditions thereof; (b) the following statutes: the Clean Air Act (42 U.S.C.A. (section)7401 et seq.); the Comprehensive Environmental Response Compensation and Liability Act of 1980 (42 U.S.C. (section)9601 et seq.); the Federal Water Pollution Control Act (33 U.S.C. (section)1251 et seq.), the Hazardous Material Transportation Act (49 U.S.C. (section)1801 et seq.); the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. (section)136), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. (section)6901 et seq.) (including the Hazardous and Solid Waste Amendments of 1984), the Toxic Substance Control Act (15 U.S.C. (section)2601 et seq.), the Federal Occupational Safety & Health Act of 1970 (29 U.S.C. (section)651 et seq.) (including (section)3101 of the Omnibus Reconciliation Act of 1990); the New Jersey Spill Compensation and Control Act (N.J.S.A. 58:10-23.11 et seq.); the New Jersey Environmental Cleanup Responsibility Act (N.J.S.A. 13:lK-6 et seq.); and the New Jersey Leaking Underground Storage Tank Act (N.J.S.A. 58:l0A-21 et seq.), and all regulations promulgated thereunder and all as amended from time to time; (c) the Environmental Protection Act (Ontario), the Water Resources Act (Ontario), the Canadian Environmental Protection Act and The Transportation of Dangerous Goods Act (Canada) and (d) any common law doctrine (including, without limitation, injunctive relief and tort, such as negligence, nuisance, trespass and strict liability) that may impose obligations or liabilities for personal injury or property damage due to, or threatened as a result of, the presence of or exposure to Environmental Concern Materials. "Environmental Lien" shall mean a Lien in favor of any Governmental Authority for (i) any liability currently due and payable under any Environmental Laws or (ii) damages arising from, or costs incurred by such Governmental Authority in response to, a Release or threatened Release of any Environmental Concern Material into the Environment. "Equipment" of any Person, shall mean and include all of said Person's now owned and hereafter acquired (i) machinery, (ii) manufacturing, distribution, selling, data processing and office equipment and (iii) furniture, furnishings, appliances, fixtures and trade fixtures, tools, toolings, molds, dies, vehicles, vessels, aircraft and all other goods of every type and description (other than Inventory). "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute of similar import, together with the regulations 15 promulgated thereunder by the United States Treasury Department, the Department of Labor and/or the PBGC. "ERISA Affiliate" shall mean each trade or business (whether or not incorporated) which together with all or any of the Co-Borrowers would be deemed to be a "single employer" within the meaning of Section 4001 of ERISA. "Eurodollar Affiliate" shall mean with respect to each Lender, the Affiliate of such Lender, if any, including, without limitation, those Affiliates set forth on Schedule 1.01-C attached to this Loan Agreement. "Eurodollar Interest Payment Date" shall mean, with respect to any Eurodollar Rate Loan, the last day of each Eurodollar Interest Period applicable to such Eurodollar Rate Loan. "Eurodollar Interest Period" shall mean one or more periods of time during which the Co-Borrowers may select, convert to or continue a Eurodollar Rate Loan, such funding period to be either a one (1), two (2) or three (3) month period subject to availability, all as more fully subject to the provisions of Section 2.07 of this Loan Agreement. "Eurodollar Interest Rate Determination Date" shall mean the date on which the Agent determines the Eurodollar Rate applicable to (i) a Borrowing of a Eurodollar Rate Loan or (ii) the continuation or conversion of Eurodollar Rate Loans. The Eurodollar Interest Rate Determination Date shall be the second Business Day prior to the first day of the Eurodollar Interest Period applicable to such Borrowing, continuation or conversion. "Eurodollar Portion" of any Revolving Credit Loan or the Term Loan shall mean at any time the portion, including the whole, of such Revolving Credit Loan or the Term Loan which is bearing interest at any time under the Eurodollar Rate. "Eurodollar Rate" shall mean, with respect to any Eurodollar Interest Period applicable to a Borrowing of Eurodollar Rate Loans, an interest rate per annum determined by the Agent obtained by dividing (i) the rate of interest determined by the Agent in good faith in accordance with its usual procedure (which determination shall be conclusive, if made in good faith, absent manifest error) to be the average (rounded upward to the nearest whole multiple of one one-thousandth of one percent (1/1000 of 1%) per annum if such average is not such a multiple) of the rates per annum at which deposits in U.S. Dollars and/or Canadian Dollars are offered by the Agent to major money center banks in the London interbank eurodollar market at approximately 11:00 A.M. (London time) on the Eurodollar Interest Rate Determination Date for a period equal to such Eurodollar Interest Period and in an amount substantially equal to the amount of the Eurodollar Rate Loan to be made by the Lenders and to be outstanding during such Eurodollar Interest Period, by (ii) a percentage equal to 100% minus the Eurodollar Reserve Percentage. The Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Reserve Percentage. The "Eurodollar Rate" may also be expressed by the following formula: [average of the rates offered by the Agent to major money center banks in the London interbank Eurodollar market Eurodollar Rate = determined by the Agent ] ------------------------------------ [1.00- Eurodollar Reserve Percentage ] 16 Finally, the "Eurodollar Rate" shall in all circumstances mean the rate of interest which is customarily referred to as the "London Interbank Offered Rate". "Eurodollar Rate Loans" shall mean those Revolving Credit Loans and the Term Loan outstanding which bear interest at a rate determined by reference to the Eurodollar Rate as provided for in Section 2.03(i) of this Loan Agreement. "Eurodollar Rate Option" shall mean one of the interest rates available to the Co-Borrowers as provided for and described in Section 2.03(i) of this Loan Agreement. "Eurodollar Rate Taxes" shall have the meaning ascribed to such term in Section 2.07(vii) (a) of this Loan Agreement. "Eurodollar Reserve Percentage" shall mean for any date that percentage, if any, (expressed as a decimal, rounded upward to the nearest 1/100 of 1%), as determined in good faith by the Agent (which determination shall be conclusive, if made in good faith, absent manifest error) which is in effect on such date, as prescribed by the Federal Reserve Board, for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in respect of "eurocurrency liabilities" having a term equal to the applicable Eurodollar Interest Period (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Eurodollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any bank to United States residents). "Event of Default" or "Events of Default" shall mean any of the events of default as defined and described in Section 9.01 of this Loan Agreement. "Excess Cash Flow" shall mean as of any date of determination thereof for the period of four (4) consecutive Fiscal Quarters immediately preceding said date of determination, taken together as one accounting period, Consolidated EBITDA minus the sum of, without duplication (i) interest expense on all Consolidated Debt of the Co-Borrowers for such test period, plus (ii) principal amortization payments due and payable on all Consolidated Debt during such test period, plus (iii) Capital Expenditures during such test period, plus (iv) Restricted Junior Payments paid during such test period, plus (v) voluntary prepayments of principal made on all Consolidated Senior Debt during such test period and plus (vi) all charges against income of the Co-Borrowers for federal, state and local taxes accrued for such test period, all as calculated in accordance with Generally Accepted Accounting Principles. "Exchange Rate" shall mean, on any day, (a) with respect to Canadian Dollars in relation to U.S. Dollars, the spot rate as quoted by Mellon Bank Canada as its noon spot rate at which U.S. Dollars are offered on such day for Canadian Dollars, and (b) with respect to U.S. Dollars in relation to Canadian Dollars, the spot rate as quoted by Mellon Bank Canada as its noon spot rate at which Canadian Dollars are offered on such day for U.S. Dollars. "FDIC" shall mean the Federal Deposit Insurance Corporation or any successor thereto. "Federal Funds Effective Rate" for any day shall mean the rate per annum (rounded upward to the nearest 1/100 of 1%) determined by the Agent (which determination shall be 17 conclusive, if made in good faith, absent manifest error) to be the rate per annum announced by the Federal Reserve Bank of Philadelphia or the Federal Reserve Bank of Cleveland, as selected by the Agent (or any successor) on such day as being the weighted average of the rates on overnight Federal funds transactions arranged by Federal funds brokers on the previous trading day, as computed and announced by such Federal Reserve Bank (or any successor) in substantially the same manner as such Federal Reserve Bank computes and announces the weighted average it refers to as the "Federal Funds Effective Rate" as of the date of this Agreement; provided, that if such Federal Reserve Bank (or its successor) does not announce such rate on any day, the "Federal Funds Effective Rate" for such day shall be the Federal Funds Effective Rate for the last day on which such rate was announced. "Federal Reserve Board" shall mean the Board of Governors of the Federal Reserve System or any governmental authority succeeding to its functions. "Fiscal Quarter" shall mean the following three month periods of each Fiscal Year: April 1 - June 30 July 1 - September 30 October 1 - December 31 January 1 - March 31 "Fiscal Year" shall mean that period commencing on April 1 and ending on March 31 of each succeeding year or such other period as the Co-Borrowers may designate and the Agent may approve in writing. "Funding Segment" shall mean with respect to an Eurodollar Rate Loan, the entire principal amount of such Eurodollar Portion to which, at the time in question, there is applicable a particular Eurodollar Interest Period beginning on a particular day and ending on a particular day. (By definition, each such Eurodollar Portion is at all times composed of an integral number of discrete Funding Segments and the sum of the principal amounts of all Funding Segments of any such Portion at any time equals the principal amount of such Portion at such time.) "Generally Accepted Accounting Principles" shall mean generally accepted accounting principles in the United States of America, as in effect from time to time, as developed, modified and set forth in the opinions and pronouncements of the Accounting Principles Board, the American Institute of Certified Public Accountants and the Financial Accounting Standards Board, or in such other statements by such other Person as may be in general use by significant segments of the accounting profession, which are applicable to the circumstances as of the date of determination, subject to the terms of Section 1.03 of this Loan Agreement. "Governmental Action" shall mean any approval, order, consent, authorization, certificate, license, permit or validation of, or exemption or other action by, or filing, recording or registration with or notice to, any Governmental Authority. "Governmental Acts" shall have the meaning ascribed to such term in Section 2.01(vii)(a) of this Loan Agreement. 18 "Governmental Approvals" shall mean any approval, order, consent, authorization, certificate, license, permit or validation of, or exemption or other action by, or filing, recording or registration with or notice to, any Governmental Authority. "Governmental Authority" shall mean any government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. "Indemnified Party" and "Indemnified Parties" shall mean the Agent, each Lender and the directors, officers, trustees, employees, agents, attorneys and controlling shareholders of the Agent and each Lender. "Independent Certified Public Accountant" shall mean KPMG Peat Marwick, and its successors and any other independent certified public accounting firm selected by the Co-Borrowers, their Subsidiaries and Affiliates, which accounting firm is reasonably satisfactory to the Agent and the Requisite Lenders including, without limitation, any one of the Big-Six Accounting Firms. "Inventory" shall mean all "inventory", as such term is defined in (i) the Uniform Commercial Code for each State in the United States in which the Co-Borrowers, their Subsidiaries and Affiliates may now or hereafter have such inventory located and (ii) the Personal Property Security Act for each Province in Canada in which the Co-Borrowers, their Subsidiaries and Affiliates may now or hereafter have such inventory located, whether now owned and hereafter acquired by the Co-Borrowers, and shall also mean and include all inventory, wherever located (whether in possession of the Co-Borrowers or of a bailee or other Person), now owned or hereafter acquired by the Co-Borrowers or in which the Co-Borrowers has or hereafter may acquire any rights, title or interests including, without limitation, all goods, materials, supplies, merchandise and other personal property furnished under any contract of service or intended for sale or lease, including, without limitation, all raw materials, work in process, finished goods and materials, parts and supplies of any kind, nature or description which are used or consumed in such Person's business, all returned or repossessed goods now, or at any time or times hereafter, in the possession or under the control of such Person, and all documents of title or documents representing the same, but excluding all goods not owned by such Person which have been sold on consignment by such Person to the extent included in the foregoing; together with all proceeds and products thereof. "IRS" shall mean the Internal Revenue Service and any Person succeeding to the functions thereof. "Issuing Bank" and "Issuing Banks" shall mean (individually or collectively, as the context requires) any one or more of Mellon Bank, N.A. or an Affiliate of Mellon Bank N.A., including, without limitation, Mellon Bank Canada (with respect to Canadian Letters of Credit), which has agreed to act as the issuer hereunder for purposes of issuing Letters of Credit. "Law" shall mean any law (including common law), constitution, statute, treaty, convention, regulation, rule, ordinance, order, injunction, writ, decree or award of any Governmental Authority. "Lender" and "Lenders" shall mean Mellon Bank, N.A., Mellon Bank Canada, and each financial banking institution that has purchased and/or acquired a portion of Mellon Bank, 19 N.A.'s, Mellon Bank Canada's or any other Lender's rights and interests under this Loan Agreement, subject to the terms and conditions of Section 11.02 of this Loan Agreement. For purposes of this agreement, "Lender" includes each Canadian Lender unless the context otherwise requires. "Letter of Credit" or "Letters of Credit" shall mean any sight commercial/documentary or standby letter of credit issued by the Issuing Bank for the account of the Co-Borrowers pursuant to Section 2.01(vi) of this Loan Agreement (and shall include Canadian Letters of Credit). "Letter of Credit Obligations" shall mean, at any time, the sum of (i) Reimbursement Obligations at such time for Letters of Credit and (ii) the Dollar Equivalent of the aggregate maximum amount then available for drawing under the outstanding Letters of Credit. "Letters of Credit Reimbursement Agreement" shall mean, with respect to any Letter of Credit, such form of application therefor and form of continuing Letters of Credit Reimbursement Agreement therefor (in the form of a single document), as Issuing Bank may employ in the ordinary course of business for its own account, all as more fully set forth in Exhibit "B" attached hereto and made a part hereof. "Letter of Credit Sublimit" shall mean the lesser of (i) the applicable Advance Limit or (ii) US$15,000,000.00 minus the outstanding principal amount of all Revolving Credit Loans in excess of US$25,000,000.00. "Leverage Matrix" shall mean the following matrix, upon which (i) interest rates described in Section 2.03 hereof and (ii) certain fees described in Section 2.04 hereof are determined on the basis of the Consolidated Funded Debt Leverage Ratio:
Consolidated Unused Funded Debt Eurodollar Prime Rate BA Commitment Letter of Credit Leverage Ratio Spread Spread Margin Fee Rate Annual Fee ---------------------------------------------------------------------------------------------------------- I less than 1.5 1.0% 0% 1.0% 0.125% 0.75% II equal to or greater than 1.5 but less than 2.0 1.25% 0% 1.25% 0.125% 0.75% III equal to or greater than 2.0 but less than 2.5 1.5% 0% 1.5% 0.20% 1.0% IV equal to or greater than 2.5 but less than 3.0 1.75% 0.25% 1.75% 0.25% 1.0% V equal to or greater than 3.0 2.0% 0.50% 2.0% 0.25% 1.25%
20 "Liabilities and Costs" shall mean all liabilities, obligations, responsibilities, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including, without limitation, attorneys', experts and consulting fees and costs of investigation and feasibility studies), fines, penalties and monetary sanctions, interest, direct or indirect, known or unknown, absolute or contingent, past, present or future, arising out of or relating to any actions, suit, proceeding or resolution or settlement thereof. "Lien" shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other) or preference, priority, security interest, or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any financing lease involving substantially the same economic effect as any of the foregoing and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction). "Loan Account" shall have the meaning ascribed to such term in Section 2.06(v) of this Loan Agreement. "Loan Agreement" shall have the meaning ascribed and assigned to such term as set forth in the preamble of this Loan Agreement. "Loan Documents" shall mean any and all agreements, documents, certificates and instruments executed by any one or more of the Co-Borrowers, the Corporate Guarantors, the Partnership Guarantor and/or any other Person and delivered by them to either or both the Lenders or the Agent pursuant to and in connection with the Loan Facilities, including, without limitation, this Loan Agreement, the Notes, the Collateral Documents and the Swap Agreement(s) in each case as amended, supplemented, restated or otherwise modified from time to time in accordance with the provisions thereof. "Loan Facilities" shall have the meaning ascribed and assigned to such term as set forth in the fourth recital of this Loan Agreement. "Loans" shall mean a collective reference to all Revolving Credit Loans and the Term Loan outstanding from time to time. "Margin Stock" shall have the meaning ascribed and assigned to such term in Regulation G and Regulation U. "Marketable Securities" shall mean any stock, shares, voting trust certificates, bonds, debentures, notes or other evidences of indebtedness commonly known as "securities", secured or unsecured, convertible, subordinated or otherwise, and in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing which can readily be bought and sold on any nationally recognized securities exchange and would properly be classified as marketable securities on the consolidated balance sheet of the Co-Borrowers and its Subsidiaries in accordance with Generally Accepted Accounting Principles. "Material Adverse Effect" shall mean (i) a material adverse effect upon the business, financial condition, financial performance, properties or operations of any one or more of the Co-Borrowers, their Subsidiaries and/or Affiliates taken as a whole or (ii) a material adverse effect 21 upon the ability of the Co-Borrowers, their Subsidiaries and/or Affiliates to perform their Obligations under the Loan Documents. "Maximum Amount of Revolving Credit Loans" shall mean, as of any date of determination, the available Advance Limit (as determined by the calculations set forth in a current Borrowing Base Certificate) minus the amount of the Letter of Credit Obligations as of any date of determination. "Maximum Canadian Exposure" shall have the meaning ascribed to such term in Section 2.12 of this Loan Agreement. "Multiemployer Plan" shall mean an employee benefit plan defined in Section 4001(a)(3) of ERISA which is, or within the immediately preceding six (6) years was, contributed to by the Co-Borrowers, their Subsidiaries, their Affiliates or an ERISA Affiliate. "Note" or "Notes" shall mean the reference to (i) the Revolving Credit Loan Note(s) and (ii) the Term Loan Notes, together with all amendments, modifications, extensions, renewals, refinancings or refundings of any thereof, in whole or in part. "Notice of Borrowing" shall mean with respect to a proposed Borrowing pursuant to Section 2.01(ii) or Section 2.02(i)(c) hereof, a written loan authorization and certificate duly executed by an Authorized Officer of the Co-Borrowers and delivered to the Agent in the form of Exhibit "D" attached hereto. "Notice of Conversion/Continuation" shall mean, with respect to a proposed conversion or continuation of a Revolving Credit Loan or the Term Loan as a Eurodollar Rate Loan or a Prime Rate Loan, pursuant to Section 2.03(iii) hereof, a notice in the form of Exhibit "E" attached hereto. "Obligations" shall mean all present and future indebtedness and other liabilities of each of the Co-Borrowers owing to the Agent, any Lender, or any Person entitled to indemnification pursuant to Section 11.04 hereof, or any of their respective permitted successors, transferees or assigns, of every type and description, arising under or in connection with this Loan Agreement or any other Loan Document, whether or not for the payment of money, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all Reimbursement Obligations, Swap Obligations, all interest, charges, expenses, fees, attorneys' fees and disbursements and any other sum chargeable to the Co-Borrowers under this Loan Agreement or any other Loan Document. "Office" when used in connection with the Agent, shall mean its principal office located at 1735 Market Street, Philadelphia, Pennsylvania 19101, or at such office or offices of the Agent or branch, subsidiary or affiliate thereof as may be designated in writing from time to time by the Agent to the Co-Borrowers and the Lenders. "Officer's Certificate" shall mean a certificate for the Co-Borrowers executed by any Authorized Officers of the Co-Borrowers, including, without limitation, the president, any vice-president, the chief financial officer, the controller and the treasurer, in the form of Exhibit "F". 22 "OECD" shall mean the Organization for Economic Cooperation and Development. "Operating Lease" shall mean, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee which is not a Capitalized Lease. "Partnership Guarantor" shall mean (i) Laurel Technologies Partnership t/a DRS Laurel Technologies, a general partnership duly organized, validly existing and in good standing under the laws of the State of Delaware, having its principal office located at 423 Walters Avenue, Johnstown, Pennsylvania 15904 and (ii) any new or additional non-corporate Affiliates of the Co-Borrowers in which any of the Co-Borrowers acquires an ownership interest of more than fifty percent (50%). "PBGC" shall mean the Pension Benefit Guaranty Corporation and any Person succeeding to any or all of its functions and duties under ERISA. "Pension Plan" shall mean any "employee pension benefit plan" within the meaning of Section 3(2) of ERISA (other than a Multiemployer Plan) covered by Title IV of ERISA by reason of Section 4021 of ERISA, of which the Co-Borrowers or any ERISA Affiliate are or have been within the preceding five years a "contributing sponsor" within the meaning of Section 4001(a)(13) of ERISA, or which are or have been within the preceding five years maintained for employees of the Co-Borrowers or any ERISA Affiliate. "Permits" shall mean any permit, approval, authorization, license, variance, or permission required from a Governmental Authority under an applicable Requirement of Law. "Permitted Encumbrances" shall mean a collective reference to (i) any Customary Permitted Liens, (ii) any Liens created or contemplated by the Loan Documents and (iii) any Liens existing on the Closing Date, as described on Schedule 1.01-D attached hereto and made a part hereto which Liens are reasonably acceptable to the Lender. "Person" or "Persons" shall mean any natural person, employee, general or limited partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, limited liability company, trust, bank or other organization, whether or not a legal entity or any other non-governmental entity, or any Governmental Authority. "Plan" shall mean any employee benefit plan within the meaning of Section 3(3) of ERISA (other than a Multiemployer Plan) of which the Co-Borrowers or any ERISA Affiliate are, or within the preceding five years were, an "employer" as that term is defined in Section 3(5) of ERISA. "Pledge of Stock Agreements" shall mean a collective reference to (i) that certain Pledge of Stock Agreement #2, dated as of October 29, 1997, executed by DRS, as pledgor, pledging 100% of the authorized, issued and outstanding voting capital stock of (a) DRS International, (b) DRS Canada Inc., (c) DRS Systems Management, (d) DRS/MS, (e) DRS Air, (f) DRS Electronic Systems, (g) DRS Photronics and (h) DRS Precision Echo; (ii) that certain Pledge of Stock Agreement #1, dated as of October 29, 1997, executed by DRS Canada Inc., as pledgor, pledging 100% of the authorized, issued and outstanding voting capital stock of DRS Flight Safety; (iii) that certain Pledge of Stock Agreement #3, dated as of October 29, 1997, executed by DRS Electronic Systems, as pledgor, pledging 100% of the authorized, issued and outstanding voting capital stock of DRS Technical Services; (iv) that certain Pledge of Stock Agreement #4, dated 23 as of October 29, 1997, executed by DRS Precision Echo, as pledgor, pledging 100% of the authorized, issued and outstanding voting capital stock of DRS Ahead Technology; (v) that certain Pledge of Stock Agreement #5, dated as of October 29, 1997, executed by DRS Photronics, as pledgor, pledging 100% of the authorized, issued and outstanding voting capital stock of DRS Optronics and (vi) that certain Pledge of Stock Agreement #6, dated as of October 31, 1997, executed by DRS Canada Inc., as pledgor, pledging 100% of the authorized, issued and outstanding voting capital stock of Spar (UK). "Potential Event of Default" shall mean an event, condition or situation which, with the giving of any required notice and/or the passage of any required grace or cure periods, or any combination of the foregoing, would constitute an Event of Default. "Prime Rate" or "Prime Lending Rate" shall mean the fluctuating interest rate per annum publicly announced by the Agent from time to time as its "prime rate" or "prime lending rate", which interest rate may not necessarily be the rate actually charged by the Agent to its most creditworthy customers. "Prime Rate Loans" shall mean all Revolving Credit Loans and the Term Loan outstanding which bear interest at a rate determined by reference to the Prime Rate as provided for in Section 2.03(i) of this Loan Agreement. "Prime Rate Option" shall mean one of the two interest rates available to the Co-Borrowers as provided for and described in Section 2.03(i)(a) and Section 2.03(i)(b) of this Loan Agreement. "Prime Rate Portion" of any Borrowing or Borrowings shall mean at any time the portion, including the whole, of such Borrowing or Borrowings bearing interest at such time under the Prime Rate Option. If no Borrowing or Borrowings is specified, "Prime Rate Portion" shall refer to the Prime Rate Portion of all Borrowings outstanding at such time. "Property" shall mean any real or personal property, plant, building, facility, structure, underground storage tank, machinery and Equipment, Inventory, Accounts or other assets now or hereafter owned, leased or operated by the Co-Borrowers. "Pro Rata Share" for any Lender shall mean with respect to (i) the Revolving Credit Facility, a fraction (expressed as a percentage), the numerator of which shall be the amount of such Lender's Revolving Credit Commitment and the denominator of which shall be the aggregate amount of all of the Lenders' Revolving Credit Commitments, as adjusted from time to time to give effect to any applicable Assignment and Acceptance Agreement and any reduction of the Revolving Credit Facility under Section 2.01(v) of this Loan Agreement and (ii) the Term Loan Facility, a fraction (expressed as a percentage), the numerator of which shall be the amount of such Lender's Term Loan Commitment and the denominator of which shall be the aggregate amount of all of the Lenders' Term Loan Commitments, as adjusted from time to time to give effect to any applicable Assignment and Acceptance Agreement. "Purchase Agreement" shall mean that certain agreement dated September 19, 1997 by and between Spar Aerospace Limited, as the Seller, and DRS Technologies, Inc., as the Purchaser, pursuant to which Spar Aerospace Limited has agreed to sell to DRS Technologies, Inc. certain of the assets of the Spar Applied Systems Division and 100% of the stock of Spar Aerospace (U.K.) Limited. 24 "Qualified Billed Accounts Receivable" shall mean an Account which has been identified by the Co-Borrowers, their Subsidiaries and Affiliates to the Agent in the Borrowing Base Certificate and is represented by the Co-Borrowers, the Corporate Guarantors and the Partnership Guarantor to the best of their knowledge (by their acceptance of Revolving Credit Loans hereunder) as meeting all of the following criteria on its origination date and thereafter until collected, and is in all other respects acceptable to the Agent based on its customary credit and collateral considerations regarding the value of the Account: (i) the Co-Borrowers, their Subsidiaries and Affiliates are the sole owners of the Account and have not sold, assigned or otherwise transferred it, and the Account is not subject to any claim or Lien (other than any Lien granted to the Agent in connection with the Loan Facilities); (ii) the Account is bona fide and legally enforceable and owing to the Co-Borrowers, their Subsidiaries and Affiliates for the sale of goods and performance of services in the United States, Canada and/or their respective territories and possessions, and in the ordinary course of business and the Account does not require any further act on the part of the Co-Borrowers, their Subsidiaries and Affiliates to make it owing by the Account debtor, and the Co-Borrowers, their Subsidiaries and Affiliates have delivered to the Agent if required by the Agent, invoices, billings, shipping documents and other documents evidencing the obligation to pay the Account; (iii) the Account does not represent a conditional sale, consignment or other sale on a basis other than that of absolute sale, is not evidenced by any note, instrument, chattel paper or like document; (iv) the Account is invoiced for payment promptly on or about the date Inventory or other goods represented thereby are shipped to the account debtor, and said Account (a) has not remained unpaid for more than ninety (90) days after its due date and (b) does not provide for the remaining payment terms to exceed one-hundred fifty (150) days; (v) the Account is not subject to any valid defense, offset, request for equitable adjustment, claim, counterclaim, credit, allowance or adjustment except usual and customary prompt payment discounts, nor has the account debtor returned the goods or indicated any dispute or complaint concerning them; provided, however, if the account debtor has returned any goods, or indicated a dispute or complaint with respect thereto or with respect to the Account, then the Account will be disqualified under this clause (v) only to the extent of the goods returned or the amount of the dispute or the complaint if the account debtor can reasonably be expected to pay the remainder of the Account; (vi) the Co-Borrowers, their Subsidiaries and Affiliates have not received any notice, nor have any knowledge, of any facts which materially adversely affect the creditworthiness of the applicable Account debtor, including, without limitation, the customer, is not the subject of any bankruptcy or other insolvency proceeding; (vii) the account debtor is not an Affiliate of the Co-Borrowers, their Subsidiaries or Affiliates nor a director or officer of the Co-Borrowers, their Subsidiaries or Affiliates or an Affiliate of any director or officer; (viii) the Account does not represent a contra account; (ix) the Agent holds a first priority perfected security interest lien on said Account, subject to any rights of any Governmental Authority under a Contractual Obligation; (x) the Account is not with a customer located in any state denying creditors access to said state's courts in the absence of a Notice of Business Activities Report or other similar filing, unless the Co-Borrowers, their Subsidiaries and Affiliates have either qualified as a foreign corporation authorized to transact business in such state or has filed a Notice of Business Activities Report or similar filing with the applicable state agency for the then current year; and (xi) the Account is not due from an account debtor whose principal place of business is located outside the United States of America or Canada unless (a) such Account is backed by a letter of credit issued or confirmed by a bank that is organized under the laws of the United States of America or a State thereof and has capital and surplus in excess of US$1,000,000,000.00 (provided, however, that such letter of credit shall have been delivered to the Agent as additional Collateral under the Loan Documents) or such Account is covered by foreign credit insurance reasonably satisfactory to the Lender or (b) such account debtor is, in the reasonable commercial judgment of the Agent, creditworthy in relation to the Accounts 25 owing by such customer to the Co-Borrowers, their Subsidiaries and Affiliates. The Agent shall have the right to request from the Co-Borrowers, their Subsidiaries and Affiliates, at any time, such information concerning an Account or Accounts as the Agent may reasonably require in order to ascertain that the criteria set forth above in clauses (i) through (xi) have been satisfied with respect to such Account or Accounts. In addition, if an Account or Accounts of an account debtor representing fifty (50%) percent or more of the total balance due on all Accounts of said account debtor fail(s) to satisfy the requirements described in clauses (i) through (xi) above, then all Accounts of said account debtor shall be ineligible and shall not be "Qualified Billed Accounts Receivable". Additionally, without limiting any other provision of this Loan Agreement, or the discretion of the Agent or Lenders to deem Accounts ineligible pursuant to any other provision of this Loan Agreement, it is expressly understood and agreed that if any of the Co-Borrowers, their Subsidiaries or Affiliates, (i) has been debarred or suspended by any Governmental Authority, or been issued a notice of proposed debarment or notice of proposed suspension by any Governmental Authority; (ii) is the subject of an investigation by any Governmental Authority (other than a normal and customary review) involving or possibly involving fraud, willful misconduct or any other wrongdoing, and which could result in criminal liability, civil liability or expense in excess of Five Hundred Thousand and 00/100 (US$500,000.00) Dollars, suspension, debarment or any other adverse administrative action; (iii) is a party to any Contractual Obligation with any Governmental Authority which has been actually terminated due to such Co-Borrower's, Subsidiary's or Affiliate's alleged fraud, willful misconduct or any other wrongdoing; (iv) is a party to any Contractual Obligation with any Governmental Authority which has been actually terminated for any other reason whatsoever, which could result in liability or expense in excess of Five Hundred Thousand and 00/100 (US$500,000.00) Dollars, and (v) has been issued a cure notice or show cause notice under any Contractual Obligation with any Governmental Authority involving amounts in excess of Five Hundred Thousand and 00/100 (US$500,000.00) Dollars and has failed to cure the default giving rise to such cure notice or failed to resolve the matter set forth in the show cause notice (a) within the time period available to such Co-Borrower, Subsidiary or Affiliate, pursuant to such Contractual Obligation with any Governmental Authority and/or such notice or (b) before the date on which the Contractual Obligation as a consequence of such default or matter set forth in the show cause notice, then in any such event, any and all Accounts of such Co-Borrower, Subsidiary or Affiliate, may, in the sole but reasonable discretion of the Agent, be deemed and treated by the Agent as ineligible Accounts and shall not be "Qualified Billed Accounts Receivable." "Qualified Billed Government Accounts Receivable" shall mean all Accounts arising from a Contractual Obligation with any Governmental Authority which (i) represents amounts due and owing to the Co-Borrowers, their Subsidiaries or Affiliates pursuant to a Contractual Obligation with any Governmental Authority, (ii) have been properly billed, (iii) arise in the ordinary course of Co-Borrowers', their Subsidiaries' or Affiliates' businesses, (iv) are due, owing and not subject to any defense, set-off or counterclaim and (v) are otherwise in all cases a Qualified Billed Accounts Receivable. "Qualified Inventory" shall mean the Inventory of each of the Co-Borrowers, their Subsidiaries and Affiliates in the sole possession or control of such Co-Borrowers, their Subsidiaries and Affiliates, stored in a location or locations and in a manner acceptable to the Agent, valued at the lower of cost or market value, which Inventory is, and at all times continues to be, acceptable to the Agent, and in which the Agent has an enforceable perfected security interest under the applicable Uniform Commercial Code or the Personal Property Security Act which is 26 prior to all Liens, except Liens for taxes not yet due and payable to the extent given priority by statute and prior to any rights of suppliers in Canada to repossess thirty (30) day goods pursuant to the Bankruptcy Act. "RCRA" shall mean the Resource Conservation and Recovery Act, 42 U.S.C. (section)6901 et. seq., and any successor statute, and regulations promulgated thereunder. "Refunding Bankers Acceptance" shall have the meaning ascribed and assigned to such term as set forth in Section 2.03A(ii) in this Loan Agreement. "Regulation D" shall mean Regulation D of the Federal Reserve Board, or any successor statute or regulation thereto, as in effect from time to time. "Regulation G" shall mean Regulation G of the Federal Reserve Board, or any successor statute or regulation thereto, as in effect from time to time. "Regulation T" shall mean Regulation T of the Federal Reserve Board, or any successor statute or regulation thereto, as in effect from time to time. "Regulation U" shall mean Regulation U of the Federal Reserve Board, or any successor statute or regulation thereto, as in effect from time to time. "Regulation X" shall mean Regulation X of the Federal Reserve Board, or any successor statute or regulation thereto, as in effect from time to time. "Reimbursement Obligations" shall mean the Dollar Equivalent of the unpaid reimbursement or repayment obligations of the Co-Borrowers to either or both Issuing Banks pursuant to the Letter(s) of Credit Reimbursement Agreement for amounts paid out under Letters of Credit. "Release" shall mean release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration of Environmental Concern Materials in violation of Environmental Laws into the indoor or outdoor Environment or into or out of any Property, including the movement of Environmental Concern Materials through or in the air, soil, surface water, groundwater or Property. "Remedial Action" shall mean actions required to (i) clean up, remove, treat or in any other way address Environmental Concern Materials in the indoor or outdoor Environment; (ii) prevent the Release or threat of Release or minimize the further Release of Environmental Concern Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor Environment; or (iii) perform pre-remedial studies and investigations and post-remedial monitoring and care. "Reportable Event" shall mean any event described as such in Section 4043 of ERISA or regulations promulgated thereunder. "Restricted Junior Payments" shall mean (i) any dividend or other distribution to the shareholders of DRS (whether direct or indirect and whether in cash, property, Securities or otherwise) on account of any shares of any class of capital stock (or equivalent partnership interest) of the DRS now or hereafter outstanding, (ii) any scheduled payment or prepayment of principal of, 27 premium, if any, or interest on, or fees in respect of, redemption, conversion, exchange, purchase, retirement, defeasance, sinking fund or similar payment with respect to any Consolidated Subordinated Debt after the occurrence of an Event of Default and (iii) any prepayment in advance of anticipated and scheduled payment dates of principal of, premium, if any, or interest on, or fees in respect of, redemption, conversion, exchange, purchase, retirement, defeasance, sinking fund or similar payment with respect to any Consolidated Subordinated Debt (except for (a) prepayments in connection with the refinance of such Consolidated Subordinated Debt in amounts and on terms and conditions equal to or better than the existing terms and conditions and (b) prepayments of up to US$1,000,000.00 in the aggregate of outstanding principal on any said Consolidated Subordinated Debt). "Requirements of Law" shall mean, as to any Person, the charter and by-laws or other organization or governing documents of such Person, and any law, rule or regulation, Permit, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject, including, without limitation, the Securities Act, the Securities Exchange Act, Regulations G, U and X, and any certificate of occupancy, zoning ordinance, building, environmental or land use requirement or Permit or occupational safety or health law, rule or regulation. "Requisite Lenders" shall mean, as of any date of determination, (i) if the Commitments are then in effect, Lenders having Pro Rata Shares which are, in the aggregate, sixty-six and two-thirds percent (66 2/3%) or more of the then aggregate amount of the Commitments then in effect and (ii) if the Commitments are not then in effect but there are Obligations outstanding, Lenders holding, in the aggregate, sixty-six and two thirds percent (66 2/3%) or more of the outstanding Obligations. "Revolving Credit Accommodations" shall mean, at any time, the sum of (i) all Revolving Credit Loans outstanding at such time and (ii) all Letter of Credit Obligations outstanding at such time. "Revolving Credit Commitment" shall mean, with respect to each Lender, as of any date of determination, such Lender's Revolving Credit Loan Pro Rata Share of the amount of the Revolving Credit Loan Facility as of such date which percentage and amount shall be set forth on the signature pages to this Loan Agreement and/or in any Assignment and Acceptance Agreement. "Revolving Credit Commitments" shall mean, as of any date of determination, collectively, the aggregate amount of each Revolving Credit Commitment of all the Lenders as of such date. "Revolving Credit Loan Facility" shall have the meaning ascribed and assigned to such term as set forth in the second recital of this Loan Agreement. "Revolving Credit Loan" and "Revolving Credit Loans" shall have the meaning ascribed and assigned to such term in Section 2.01(i) of this Loan Agreement. "Revolving Credit Loan Note" or "Revolving Credit Loan Notes" shall mean those Revolving Credit Notes in substantially the form attached hereto as Exhibit "G" with blanks 28 appropriately filled, each such note payable to the order of a Lender in a face amount equal to such Lender's Pro Rata Share of the Revolving Credit Commitments. "Revolving Credit Termination Date" shall mean the earlier of (i) March 31, 2003, (ii) the date of the permanent termination of the Revolving Credit Commitments pursuant to Section 2.01(v) of this Loan Agreement or (iii) the date of termination of the Revolving Credit Commitments pursuant to Section 9.02 of this Loan Agreement. "Securities" shall mean any stock, shares, voting trust certificates, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, and in general any instruments commonly known as "securities", or any certificates of interest, shares, or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire any of the foregoing, but shall not include any evidence of the Obligations. "Securities Act" shall mean the Securities Act of 1933, as amended to the date hereof and from time to time hereafter, and any successor statute. "Securities Exchange Act" shall mean the Securities Exchange Act of 1934, as amended to the date hereof from time to time hereafter, and any successor statute. "Security Agreement" and "Security Agreements" shall mean those certain Security Agreements dated the date of this Loan Agreement, whereby the Co-Borrowers, the Corporate Guarantors and the Partnership Guarantor have collaterally assigned, hypothecated, pledged, conveyed, transferred, given and granted to the Agent, for the benefit of all of the Lenders, a continuing security interest in all of their respective rights, title and interests in and to certain assets and properties of the Co-Borrowers, the Corporate Guarantors and the Partnership Guarantor described therein (including, without limitation, Accounts, Inventory and Equipment.) "Senior Financial Officer" shall mean the chief financial officer of the Co-Borrowers designated by the Co-Borrowers in a written statement delivered to the Agent. "Single Employer Plan" shall mean any Plan which is not a Multiemployer Plan under ERISA. "Solvent" shall mean when used with respect to any Person, that at the time of determination: (i) the fair value of its assets (both at fair valuation and at present fair salable value) in excess of the total amount of its liabilities, including, without limitation, contingent liabilities; and (ii) is then able to pay its Consolidated Debts as they mature; and (iii) it owns property having a value (both at fair valuation and at present fair salable value) in excess of the total amount required to pay its Consolidated Debts. "Subsidiary" or "Subsidiaries" shall mean (i) a corporation a majority of whose capital stock with voting power, under ordinary circumstances, to elect a majority of directors is at the time, directly or indirectly, owned by any of the Co-Borrowers, by any of the Co-Borrowers and 29 one or more Subsidiaries of any of the Co-Borrowers or by one or more Subsidiaries of any of the Co-Borrowers, (ii) any other Person (other than a corporation) in which the Co-Borrowers and one or more Subsidiaries of the Co-Borrowers, directly or indirectly, at the date of determination thereof has at least majority ownership interest and/or (iii) any entity whose net earnings (losses) or portions thereof would be properly included and consolidated with the net earnings of the Co-Borrowers in accordance with Generally Accepted Accounting Principles; provided, however, that the term Subsidiary shall not include any entity that is not reflected on the consolidated balance sheet of the Co-Borrowers due to inactivity and lack of material assets and liabilities. "Swap Agreement" shall mean one or more written agreements between any of the Co-Borrowers and one or more financial institutions providing for "swap", "cap", "collar" or other interest rate or currency exchange protection with respect to any of the Loan Facilities, including, without limitation, that certain Interest Rate and Currency Exchange Agreement in substantially the form attached hereto as Exhibit "H", as said Interest and Currency Rate Exchange Agreement may hereinafter be executed by the Co-Borrowers and delivered to the Agent, all as it may be amended, modified, supplemented, extended, renewed or otherwise renegotiated by and between the Agent and the Co-Borrowers. "Swap Obligation" shall mean the Co-Borrowers' obligations to any Person (that is or was a Lender or an Affiliate of a Lender at the time of entering into a Swap Agreement) arising from time to time under a Swap Agreement, including any and all payment or reimbursement obligations of whatever nature. "Taxes" shall have the meaning ascribed and assigned to such term as set forth in Section 2.09 of this Loan Agreement. "Termination Event" shall mean (i) any Reportable Event with respect to any Benefit Plan, (ii) the withdrawal of the Co-Borrowers, or an ERISA Affiliate from a Benefit Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (iii) the notification by either the Co-Borrowers or an ERISA Affiliate to affected parties of an intent to terminate a Benefit Plan in a distress termination described in Section 4041(c) of ERISA, (iv) the institution by the PBGC of proceedings to terminate any Benefit Plan, (v) any event or condition which constitutes grounds under Section 4042 of ERISA for the appointment of a trustee to administer a Benefit Plan or (vi) the partial or complete withdrawal of the Co-Borrowers or any ERISA Affiliate from a Multiemployer Plan. "Term Loan" shall mean the term loan in Canadian Dollars with a Dollar Equivalent in the aggregate principal amount of US$20,000,000.00 made to the Canadian Borrower by the Canadian Lenders under Section 2.02 of this Loan Agreement. "Term Loan Commitment" shall mean, with respect to each Canadian Lender, as of any date of determination, such Lender's Pro Rata Share of the amount of the Term Loan Facility, as of such date, which percentage and amount shall be set forth on the signature pages to this Loan Agreement and/or in any Assignment and Acceptance Agreement. "Term Loan Commitments" shall mean, as of any date of determination, collectively the aggregate amount of each Term Loan Commitment of all of the Canadian Lenders as of such date. 30 "Term Loan Facility" shall have the meaning ascribed and assigned to such term as set forth in the third recital of this Loan Agreement. "Term Loan Maturity Date" shall mean March 31, 2003. "Term Loan Note" and "Term Loan Notes" shall mean those Term Loan Notes in substantially the form attached hereto as Exhibit "I" with blanks appropriately filled in, each such note payable to the order of a Canadian Lender in a face amount equal to such Lender's Pro Rata Share of the Term Loan Commitments. "Uniform Customs" shall mean the Uniform Customs and Practice for Documentary Credits (1993 Revisions), International Chamber of Commerce Publication No. 500, as the same may be amended from time to time. "Unused Commitment Fee Rate" shall mean, as of each date of determination during the term of the Loan Facilities, the applicable percentage set forth in the Leverage Matrix opposite the Consolidated Funded Debt Leverage Ratio (determined as of the last day of the prior Fiscal Quarter). "US Dollar", "US Dollars" and the symbol "US$" shall mean lawful money of the United States of America. Section 1.02 Rules of Interpretation and Construction. In this Loan Agreement unless the context otherwise clearly requires: (i) Articles and Sections mentioned by number only are the respective Articles and Sections of this Loan Agreement as so numbered; (ii) Words importing a particular gender mean and include every other gender, and words importing the singular number mean and include the plural number and vice versa; (iii) Words importing persons mean and include firms, associations, partnerships (including limited partnerships), societies, trusts, corporations or other legal entities, including public or governmental bodies, as well as natural persons; (iv) Any headings preceding the texts of the several Articles and Sections of this Loan Agreement, and any table of contents or marginal notes appended to copies hereof, shall be solely for convenience of reference and shall not affect or control the meaning, construction or interpretation of this Loan Agreement; (v) If any clause, provision or section of this Loan Agreement shall be ruled invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any of the remaining provisions thereof, unless not invalidating or rendering unenforceable the remaining provisions shall be inequitable; (vi) The terms "herein", "hereunder", "hereby", "hereto", "hereof" and any similar terms as used in this Loan Agreement refer to this Loan Agreement as a whole and not to any particular provision of this Loan Agreement; the term "heretofore" means before the date of execution of this Loan Agreement; and the term "hereafter" means on or after the date of execution of this Loan Agreement; 31 (vii) This Loan Agreement and all matters relating hereto shall be governed by and construed and interpreted in accordance with the laws of the Commonwealth of Pennsylvania; (viii) If any clause, provision or section of this Loan Agreement shall be determined to be apparently contrary to or conflicting with any other clause, provision or section of this Loan Agreement, then the clause, provision or section containing the more specific provisions shall control and govern with respect to such apparent conflict; (ix) References in this Loan Agreement to "determination" (and similar terms) by the Agent or by any Lender include good faith estimates by the Agent or by any Lender (in the case of quantitative determinations) and good faith beliefs by the Agent or by any Lender (in the case of qualitative determinations); and (x) Any reference to "$" when used herein, shall be construed to mean and refer to dollars denominated in the currency of the United States, unless the context clearly indicates otherwise. Section 1.03 Accounting Principles. (i) As used in this Loan Agreement "Generally Accepted Accounting Principles" shall be established on the date a relevant computation or determination is to be made or the date of relevant financial statements, as the case may be. (ii) Except as otherwise provided in this Loan Agreement, all computations and determinations as to accounting or financial matters shall be made, and all financial statements to be delivered pursuant to this Loan Agreement shall be prepared, in accordance with Generally Accepted Accounting Principles (including principles of consolidation where appropriate), and all accounting or financial terms shall have the meanings ascribed to such terms by Generally Accepted Accounting Principles. (iii) If any change in Generally Accepted Accounting Principles after the date of this Loan Agreement is or shall be required to be applied to transactions then or thereafter in existence, and a violation of one or more provisions of this Loan Agreement shall have occurred or in the opinion of the Co-Borrowers would likely occur which would not have occurred or be likely to occur if no change in accounting principles had taken place, (a) the Co-Borrowers and the Agent agree that such violation shall not be considered to constitute an Event of Default or a Potential Event of Default for a period of thirty (30) days from the date the Co-Borrowers notify the Agent and the Lenders of the applicability of this Section 1.03 (iii); (b) the Co-Borrowers, the Agent and the Lenders agree in such event to negotiate in good faith an amendment of this Loan Agreement which shall approximate to the extent possible the economic effect of the original financial covenants after taking into account such change in Generally Accepted Accounting Principles; and (c) if the Co-Borrowers, the Agent and the Lenders are unable to negotiate such an amendment within the thirty (30) day period described above in clause (a), the Co-Borrowers shall have the option of (1) prepaying the Loans (pursuant to applicable provisions hereof) or (2) submitting the drafting of such an amendment to a firm of independent certified public accountants of nationally recognized standing acceptable to the Co-Borrowers, the Agent and the Lenders, which shall complete its draft of such amendment, which shall be binding upon the parties, within thirty (30) days of submission; if the Co-Borrowers, the Agent and the Lenders 32 cannot agree, the firm shall be selected by binding arbitration in the City of Philadelphia, Pennsylvania in accordance with the rules then obtaining of the American Arbitration Association. If the Co-Borrowers do not exercise either such option within said period, then as used in this Loan Agreement, "Generally Accepted Accounting Principles" shall mean generally accepted accounting principles in effect at the relevant date. The Co-Borrowers, the Agent and the Lenders agree that if the Co-Borrowers elect the option in clause (2) above, until such firm has been selected and completes drafting such amendment, no such violation shall constitute an Event of Default or a Potential Event of Default. (iv) If any change in Generally Accepted Accounting Principles after the date of this Loan Agreement is required to be applied to transactions or conditions then or thereafter in existence, and the Agent shall assert that the effect of such change is or shall likely be to distort materially the effect of any of the definitions of financial terms in Article I of this Loan Agreement or any of the covenants of the Co-Borrowers in Article VIII of this Loan Agreement (hereinafter referred to as the "Financial Provisions"), so that the intended economic effect of any of the Financial Provisions will not in fact be accomplished, then (a) the Agent shall notify the Co-Borrowers of such assertion, specifying the change in Generally Accepted Accounting Principles which is objected to, and until otherwise determined as provided below, the specified change in Generally Accepted Accounting Principles shall not be made by the Co-Borrowers in their financial statements for the purpose of applying the Financial Provisions; and (b) the Agent and the Co-Borrowers shall follow the procedures set forth in paragraph (iii)(b) and the first sentence of paragraph (c) of subsection (iii) of this Section 1.03. If the Agent, the Co-Borrowers and the Lenders are unable to agree on an amendment as provided in said paragraph (iii)(b) and if the Co-Borrowers does not exercise either option set forth in the first sentence of said paragraph (iii)(c) within the specified period, then as used in this Loan Agreement "Generally Accepted Accounting Principles" shall mean generally accepted accounting principles in effect at the relevant date, except that the specified change in "Generally Accepted Accounting Principles" which is objected to by the Agent shall not be made in applying the Financial Provisions. The Agent, the Co-Borrowers and the Lenders agree that if the Co-Borrowers elect the option in clause (2) of this first sentence of said paragraph (iii)(c), until such independent accounting firm has been selected and completes drafting such amendment, the specified change in "Generally Accepted Accounting Principles" shall not be made in applying the Financial Provisions. (v) All expenses of compliance with this Section 1.03 shall be paid for by the Co-Borrowers, except the Co-Borrowers and the Lenders shall be responsible for their own costs and expenses associated with proceedings under Section 1.03(iii)(c) hereof other than the cost and expense payable to the American Arbitration Association and any such accounting firm which shall be divided equally between the Agent and Lenders on the one hand and the Co-Borrowers on the other. 33 ARTICLE II AMOUNTS AND TERMS FOR THE LOAN FACILITIES Section 2.01 Revolving Credit Loan Facility. (i) Availability. (a) Subject to the terms and conditions set forth in this Loan Agreement, and provided no Potential Event of Default or Event of Default shall have occurred and be continuing, each Lender hereby severally and not jointly agrees to make available to the Co-Borrowers (or to any other Person described on Schedule 2.01 attached hereto, as directed by the Co-Borrowers in writing), and each Canadian Lender hereby severally and not jointly agrees to make available to the Canadian Borrower, from time to time during the period from the Closing Date to the Business Day next preceding the Revolving Credit Termination Date, revolving credit loans (each individually, a "Revolving Credit Loan" and collectively, the "Revolving Credit Loans"), in a principal amount which shall not exceed, in the aggregate at any time outstanding, such Lender's Pro Rata Share of the Revolving Credit Commitments in effect at such time; provided, however, that (1) at no time shall the aggregate principal amount of all Revolving Credit Loans outstanding at any time exceed the Maximum Amount of Revolving Credit Loans at such time, (2) the aggregate Dollar Equivalent of the outstanding principal amount of the Canadian Revolving Credit Loans and the Canadian Letter of Credit Obligations shall not exceed a maximum aggregate amount outstanding equal to US$20,000,000.00 (the "Canadian Revolving Credit Sublimit") and (3) Canadian Revolving Credit Loans shall be (A) made solely to the Canadian Borrower, (B) made only by the Canadian Lenders and (C) denominated in Canadian Dollars or U.S. Dollars, as selected by the Canadian Borrower. The Revolving Credit Loans may be made in U.S. Dollars or Canadian Dollars and from time to time be (x) in the case of Revolving Credit Loans denominated in U.S. Dollars, Eurodollar Rate Loans or Prime Rate Loans and (y) in the case of Revolving Credit Loans that are denominated in Canadian Dollars, Eurodollar Rate Loans, Prime Rate Loans or Canadian Bankers Acceptances. The Revolving Credit Loans shall be evidenced by the Revolving Credit Notes. Each Lender (including each Canadian Lender) is hereby authorized to record the date and amount of each Revolving Credit Loan (including Canadian Revolving Credit Loans) made by said Lender, the date and amount of each payment or prepayment of principal thereof either (1) on the Schedule "1" annexed to and constituting a part of said Lender's Revolving Credit Note or (2) by entering such information into said Lender's automated loan tracking system, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded; provided, however, the failure to make such notation(s) with respect to any Borrowing shall not limit or otherwise affect the obligation of the Co-Borrowers to the Lenders under this Loan Agreement or the Revolving Credit Notes. The Canadian Revolving Credit Loans shall be evidenced by separate promissory notes of the Canadian Borrower in substantially the form of Exhibit G hereto (each, a "Canadian Revolving Credit Note"), dated as of the Closing Date and completed with appropriate insertions. One Canadian Revolving Credit Note shall be payable to the order of each Canadian Lender in an amount equal to its Pro Rata Share of the Canadian Revolving Credit Sublimit. If the outstanding amount of the Revolving Credit Loans shall exceed the Maximum Amount of the Revolving Credit Loans at any time, such excess shall be immediately due and payable to the Lenders. The Co-Borrowers hereby acknowledge and agree that they are jointly and severally liable for all Revolving Credit Loans. 34 (b) All Revolving Credit Loans under this Loan Agreement shall be made by the Lenders simultaneously and proportionately to their respective Pro Rata Share of the Revolving Credit Commitments. It shall be understood that no Lender shall be responsible for any failure by any other Lender to perform its obligation to make a Revolving Credit Loan hereunder and that the Revolving Credit Commitment of any Lender shall not be increased or decreased as a result of the failure by any other Lender to perform its obligation to make a Revolving Credit Loan. (c) Revolving Credit Loans may be voluntarily prepaid pursuant to Section 2.05(i) hereof and, subject to the provisions of this Loan Agreement, any amounts so prepaid may be reborrowed, up to the amount available under this Section 2.01(i) at the time of such Borrowing, until the Business Day next preceding the Revolving Credit Termination Date. Each Lender's Revolving Credit Commitment shall expire and each Revolving Credit Loan then outstanding shall be repaid by the Co-Borrowers no later than the Revolving Credit Termination Date. The final payment of all principal, unpaid accrued interest, fees and expenses, if any, owing to the Lenders on the Revolving Credit Loan Facility shall be due and payable on the Revolving Credit Termination Date. (ii) Notice of Borrowing. Whenever the Co-Borrowers (or in the case of a Canadian Revolving Credit Loan, the Canadian Borrower) desire to borrow under this Section 2.01, the Co-Borrowers (or in the case of a Canadian Revolving Credit Loan, the Canadian Borrower) shall deliver to the Agent a Notice of Borrowing no later than 10:00 A.M. (Philadelphia, Pennsylvania time) (a) at least one (1) Business Day in advance of the proposed Borrowing Date, in the case of a Borrowing as a Prime Rate Loan and (b) at least three (3) Business Days in advance of the proposed Borrowing Date in the case of a Borrowing as a Eurodollar Rate Loan; provided that the Co-Borrowers may deliver to the Agent a Notice of Borrowing no later than 10:00 A.M. (Philadelphia, Pennsylvania time) on the proposed Borrowing Date if in connection with such Borrowing the Agent would be required to comply with Section 2.01(iii)(a) hereof. The Notice of Borrowing shall specify (1) the Borrowing Date (which shall be a Business Day) in respect of the Revolving Credit Loan, (2) the amount of the proposed Borrowing which shall not be less than US$100,000.00 (or in the case of a Canadian Revolving Credit Loan, an amount in Canadian Dollars of which the Dollar Equivalent is at least US$100,000.00) (except in those situations where a Letter of Credit becomes a Reimbursement Obligation under Section 2.0l(vi)(d)(2) hereof), (3) the designation of whether the Borrowing shall be made available to the Co-Borrowers in U.S. Dollars or to the Canadian Borrower in Canadian Dollars (in which case the Borrowing shall be funded and booked by the Canadian Lenders), (4) the applicable interest rate option as described in Section 2.02(i) of this Loan Agreement and, if applicable, (5) the Eurodollar Interest Period. In lieu of delivering the above-described Notice of Borrowing, the Co-Borrowers may give the Agent telephonic notice of any proposed Borrowing by the time required under this Section 2.01(ii); provided, however, that such notice shall be confirmed in writing by delivery to the Agent promptly (but in no event later than the Borrowing Date of the requested Revolving Credit Loan) of a Notice of Borrowing. Any Notice of Borrowing (or telephonic notice in lieu thereof) pursuant to this Section 2.01(ii) shall be irrevocable. (iii) Making of Revolving Credit Loans. (a) Promptly after receipt of a Notice of Borrowing under Section 2.01(ii) hereof (or telephonic notice in lieu thereof), the Agent shall notify Mellon Bank, N.A. and its syndicate members and/or participants or Mellon Bank Canada and its syndicate members and/or participants with a Revolving Credit Commitment, by telex or telecopy or other similar form of teletransmission, of the proposed Borrowing. Each such Lender 35 shall make the amount of its Pro Rata Share of each Revolving Credit Loan available to the Agent in the requested currency (U.S. Dollars or Canadian Dollars, as applicable), and in immediately available funds, to such bank and account, in Philadelphia, Pennsylvania, or in Toronto, Canada as the Agent may designate, not later than 10:00 A.M. (Philadelphia, Pennsylvania time) on the Borrowing Date. After the Agent's receipt of the proceeds of such Revolving Credit Loans, the Agent shall make the proceeds of such Revolving Credit Loan available to the Co-Borrowers in Philadelphia, Pennsylvania or to the Canadian Borrower in Toronto, Canada on such Borrowing Date and shall disburse such funds in U.S. Dollars or Canadian Dollars, as applicable, and in immediately available funds to an account of the Co-Borrowers at the Agent (or to an account of the Canadian Borrower at Mellon Bank Canada in Toronto, Canada) and thereafter to any substitute account, designated in writing by the Co-Borrowers (or the Canadian Borrower, as the case may be) in the Notice of Borrowing. (b) In connection with Revolving Credit Loans funded pursuant to Section 2.01(iii) (a) hereof, unless the Agent shall have been notified by any Lender prior to any Borrowing Date in respect of any Borrowing of Revolving Credit Loans that such Lender does not intend to make available to the Agent such Lender's Pro Rata Share of the requested Revolving Credit Loan on such Borrowing Date, the Agent may assume that such Lender has made such amount available to the Agent on such Borrowing Date and the Agent in its sole discretion may, but shall not be obligated to, make available to the Co-Borrowers a corresponding amount on such Borrowing Date. If such corresponding amount is not in fact made available to the Agent by such Lender on or prior to a Borrowing Date, such Lender agrees to pay (and, provided the Agent fund said amount, the Co-Borrowers agree to repay the Agent in accordance with the terms of the Loan Documents) such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Co-Borrowers until the date such amount is paid or repaid to the Agent, at (1) in the case of such non-performing Lender, the Federal Funds Effective Rate (or if a Canadian Lender, the corresponding rate for overnight funds) and (2) in the case of the Co-Borrowers (or the Canadian Borrower), the interest rate applicable at the time to a Borrowing of Prime Rate Loans made on such Borrowing Date. If such non-performing Lender shall pay to the Agent such corresponding amount, such amount so paid shall constitute such Lender's Pro Rata Share of the Revolving Credit Loan, and if both such Lender and the Co-Borrowers (or the Canadian Borrower) shall have paid and repaid, respectively, such corresponding amount, the Agent shall promptly return to the Co-Borrowers (or the Canadian Borrower) such corresponding amount in same day funds. Nothing in this Section 2.01(iii) shall be deemed to relieve any Lender of its obligation hereunder to fund its Pro Rata Share of the Revolving Credit Loan on any Borrowing Date. (iv) Use of Proceeds of Revolving Credit Loans and Use of Letters of Credit. The proceeds of the Revolving Credit Loans shall be used by the Co-Borrowers for working capital in the ordinary course of their business and for other lawful and permitted corporate purposes to the extent not otherwise prohibited hereunder including, without limitation (a) up to US$5,000,000.00 (or its Canadian Dollar Equivalent) for acquisition by DRS Flight Safety of certain of the assets of Spar Aerospace Limited as described in the Purchase Agreement, (b) up to US$10,000,000.00 for acquisition by DRS of 100% of the authorized, issued and outstanding capital stock of Spar Aerospace (U.K.) Limited, as described in the Purchase Agreement, (c) refinancing Consolidated Debt, (d) working capital in the ordinary course of the Co-Borrowers', their Subsidiaries' and Affiliates' businesses, (d) up to US$20,000,000.00 (or its Canadian Dollar Equivalent) of proceeds of the Revolving Credit Loans for acquisitions and (e) Letters of Credit, subject to the Letter of Credit Sublimit. Letters of Credit may be used in support of working 36 capital in the ordinary course of business and for other lawful and permitted corporate purposes to the extent not otherwise prohibited hereunder. (v) Reduction of Revolving Credit Commitments; Revolving Credit Termination Date. (a) The Co-Borrowers shall have the right, at any time and from time to time, to terminate in whole or permanently reduce in part, without premium or fee, the Revolving Credit Commitments by an amount not to exceed the amount of (1) the aggregate Revolving Credit Commitments in effect at such time minus (2) the aggregate principal amount of the Revolving Credit Accommodations then outstanding. The Co-Borrowers shall give not less than five (5) Business Days' prior express written notice to the Agent designating the date (which shall be a Business Day) of such termination or total permanent reduction and the amount of any partial permanent reduction. Promptly after receipt of a notice of such termination or reduction, the Agent shall notify each Lender of the proposed termination or reduction. Such termination or partial reduction of the Revolving Credit Commitments shall be effective on the date specified in the Co-Borrowers' notice and shall reduce the Revolving Credit Commitment of each Lender proportionately in accordance with its Pro Rata Share of all of the Revolving Credit Commitments (including each Canadian Lender's corresponding Pro Rata Share of the Canadian Revolving Credit Sublimit). Any such partial reduction of the Revolving Credit Commitments shall be in an aggregate minimum amount of US$5,000,000.00 and integral multiples of US$1,000,000.00 in excess of that amount. (b) Each Lender's Revolving Credit Commitment shall expire without further action on the part of the Lenders, and all then outstanding Revolving Credit Loans and Reimbursement Obligations shall be due and payable in full on the Revolving Credit Termination Date. (vi) Issuance of Letters of Credit. (a) Subject to the terms and conditions set forth in this Loan Agreement, the Issuing Banks agree to issue for the account of the Co-Borrowers one or more Letters of Credit up to an aggregate face amount at any one time outstanding equal to the Letter of Credit Sublimit, from time to time during the period commencing on the Closing Date and ending on a Business Day at least sixty (60) Business Days preceding the Revolving Credit Termination Date; provided, however, the Letters of Credit described on Schedule 2.01(v)(i) attached hereto shall also be considered Letters of Credit issued under this Loan Agreement. The Letter of Credit Obligations shall constitute financial accommodations under the Revolving Credit Loan Facility and shall reduce availability under the Revolving Credit Commitments by the stated amount of such Letter of Credit Obligations. Each Letter of Credit (1) shall be denominated in U.S. Dollars or Canadian Dollars, (2) shall be in all instances either a standby letter of credit or a documentary/commercial letter of credit and (3) shall expire no later than thirty (30) days prior to the Revolving Credit Termination Date. Each Letter of Credit shall be subject to the Uniform Customs and, to the extent not inconsistent therewith, the Laws of the Commonwealth of Pennsylvania if issued by Mellon Bank, N.A., or the Laws of the Province of Ontario if issued by Mellon Bank Canada. (b) In addition to being subject to the satisfaction of the conditions precedent contained in Section 3.02 hereof, the obligation of the Issuing Bank to issue any Letter of Credit is subject to the satisfaction in full of the following conditions: (1) the Co-Borrowers shall have delivered to the Issuing Bank at such times and in such manner as the Issuing Bank may prescribe, a Letter of Credit Reimbursement Agreement and such other documents and materials as may be required 37 pursuant to the terms thereof and the terms of the proposed Letter of Credit shall be reasonably satisfactory to the Issuing Bank thereof; (2) immediately after the issuance of such Letter of Credit, the aggregate principal amount of Letter of Credit Obligations then existing shall not exceed the Letter of Credit Sublimit; and (3) as of the date of issuance, no order, judgment or decree of any court, arbitrator or Governmental Authority shall purport by its terms to enjoin or restrain the Issuing Bank from issuing the Letter of Credit and no Law applicable to the Issuing Bank and no request or directive (whether or not having the force of Law and whether or not the failure to comply therewith would be unlawful) from any Governmental Authority with jurisdiction over the Issuing Bank shall prohibit or request that the Issuing Bank refrain from the issuance of letters of credit generally or the issuance of such Letter of Credit. (c) To open a Letter of Credit, the Co-Borrowers shall give the Issuing Bank written notice at the following address: (1) if the Letter of Credit is to be denominated in U.S. Dollars, then Mellon Bank, N.A., 3 Mellon Bank Center, Room 2329, Pittsburgh, PA 15259 not later than 10:00 A.M. (Philadelphia, Pennsylvania time) on the requested issuance date thereof under this Loan Agreement and (2) if the Letter of Credit is to be denominated in Canadian Dollars, then Mellon Bank Canada, Royal Trust Tower, 32nd Floor, Toronto Dominion Center, Toronto, Ontario, M5K 1K2 not later than 10:00 A.M. (Toronto, Canada time) on the requested issuance date thereof under this Loan Agreement. Such notice shall be irrevocable and shall specify (1) the stated amount of the Letter of Credit requested, (2) the effective date (which day shall be a Business Day) of issuance of such requested Letter of Credit, (3) the date on which such requested Letter of Credit is to expire (which date shall be a Business Day), (4) the Person for whose benefit the requested Letter of Credit is to be issued, (5) the stated amount of then outstanding Letter of Credit Obligations and (6) the principal amount of then outstanding Revolving Credit Loans. A copy of such notice shall be delivered by facsimile to the Agent contemporaneously therewith at the Agent's Edison, New Jersey address. (d) Notwithstanding any provisions to the contrary in any Letter of Credit Reimbursement Agreement: (1) the Co-Borrowers shall unconditionally reimburse the Issuing Bank for drawings under such Letter of Credit no later than the time specified in such Letter of Credit Reimbursement Agreement irrespective of any claim, set-off, defense or other right which the Co-Borrowers may have at any time against the Agent, Issuing Bank and/or the Lenders, except with respect to the Agent's, the Issuing Bank's and/or the Lender's gross negligence or willful misconduct; and (2) in connection with a Letter of Credit issued by the Issuing Bank, to the extent any Reimbursement Obligation is not paid when due, such Reimbursement Obligation shall be deemed to be a Revolving Credit Loan payable to the Lenders in the amount of such Reimbursement Obligation made in accordance with Section 2.01(i) hereof; (3) any Reimbursement Obligation with respect to any Letter of Credit shall bear interest from the date of the relevant drawing under the pertinent Letter of 38 Credit at the interest rate applicable to Prime Rate Loans described in Section 2.03(i)(a) hereof, until paid in full; and (4) With respect to all Letters of Credit which, on or before the Revolving Credit Termination Date, have not been presented for honor, notwithstanding the occurrence of the Revolving Credit Termination Date and the satisfaction of all other obligations under the Loan Documents, the Co-Borrowers' obligations under the Loan Documents shall continue until all amounts paid by the Issuing Bank under such Letters of Credit have been reimbursed (as well as all other Obligations under the Loan Documents have been satisfied) and the Liens granted under and pursuant to the Loan Documents shall continue to secure such Letter of Credit Obligations; provided, however, that the Agent may release the Liens under the Loan Documents (but not the other Obligations thereunder) upon (i) the deposit by the Co-Borrowers in an interest-bearing cash collateral account opened by the Agent of an amount in Cash or Cash Equivalents equal to the aggregate amount of the Letter of Credit Obligations to collateralize the Reimbursement Obligations with respect to such Letters of Credit or (ii) an indemnification agreement from a financial institution or "back-up" letters of credit issued by a financial institution all in form and substance reasonably satisfactory to the Agent. Notwithstanding, the payment of all other Obligations under the Loan Documents, the Reimbursement Obligations associated with such Letters of Credit shall accrue interest in accordance with Section 2.01(vi)(d)(3) until such Reimbursement Obligations have been satisfied in full. (5) With respect to any Reimbursement Obligation, such Reimbursement Obligation shall: (A) be payable by the Co-Borrowers upon demand, (B) be deemed to be a Revolving Credit Loan as described in Section 2.0l(vi)(d)(2) above, (C) bear interest from the date of payment by the Agent at the interest rate applicable to Prime Rate Loans described in Section 2.03(i)(a) hereof, until paid in full and (D) be subject to immediate reimbursement by the Lenders to the Agent, in an amount equal to each Lender's Pro Rata Credit Share of the Revolving Credit Commitments. (e) No action taken or omitted to be taken by the Issuing Bank under or in connection with any Letter of Credit (except in connection with its gross negligence or willful misconduct) shall put the Issuing Bank under any resulting liability to the Co-Borrowers and/or any Lender or, subject to paragraph (b) above, relieve that Lender of its obligations hereunder to reimburse the Issuing Bank. In the event this Loan Agreement and any Letter of Credit Reimbursement Agreement are inconsistent, the terms of this Loan Agreement shall prevail. In determining whether to pay under any Letter of Credit, the Issuing Bank shall have no obligation to the other Lenders other than to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear on their face to comply with the requirements of such Letter of Credit. (f) (1) Immediately upon issuance by the Issuing Bank of any Letter of Credit for the account of the Co-Borrowers in accordance with the procedures set forth in this Section 2.01(vi), each Lender for Domestic Letters of Credit and each Canadian Lender for Canadian Letters of Credit (other than the Issuing Bank) shall be deemed to have irrevocably and unconditionally purchased and received from the Issuing Bank without recourse to or warranty from the Issuing Bank an undivided interest in such Letter of Credit in the amount of such Lender's Pro Rata Share (including, without limitation, all obligations of the Co-Borrowers with respect thereto other than amounts 39 owing to the Issuing Bank under Section 2.03(ii) hereof) and any security therefor or guaranty pertaining thereto. (2) If the Issuing Bank makes any payment under any Letter of Credit (whether prior or subsequent to the Revolving Credit Termination Date) and the Co-Borrowers do not repay such amount to the Issuing Bank pursuant to Section 2.01(vi)(d) above or effect a Borrowing as provided for in Section 2.01(vi)(d) above or Section 2.01(vi)(g) below, the Agent shall promptly notify each other Lender of such failure, and each such other Lender or its Affiliate Canadian Lender (other than the Issuing Bank) shall promptly and unconditionally pay to the Agent for the account of the Issuing Bank the amount of such Lender's Pro Rata Share of such payment, in U.S. Dollars or Canadian Dollars, as applicable, and in immediately available funds, and the Agent shall promptly pay such amount, and any other amounts received by the Agent for the Issuing Bank's account pursuant to this Section 2.01(vi)(f), to the Issuing Bank. If the Agent so notifies a Lender prior to 10:00 A.M. (Philadelphia, Pennsylvania time) on any Business Day, such Lender or its Affiliate Canadian Lender shall make available to the Agent for the account of the Issuing Bank, its Pro Rata Share of the amount of such payment on such Business Day in U.S. Dollars or Canadian Dollars, as applicable, and in immediately available funds in Pittsburgh, Pennsylvania. If and to the extent such Lender shall not have so made its Pro Rata Share of the amount of such payment available to the Agent for the account of the Issuing Bank, such Lender agrees to pay to the Agent for the account of the Issuing Bank forthwith on demand such amount together with interest thereon, for each day from the date such payment was first due until the date such amount is paid to the Agent for the account of the Issuing Bank, at the Federal Funds Effective Rate (or the corresponding Canadian overnight rate) for three (3) Business Days and then at the Prime Rate. The failure of any Lender (other than the Issuing Bank) to make available to the Agent for the account of the Issuing Bank its Pro Rata Share of any such payment shall not relieve any other Lender (other than the Issuing Bank) of its obligation hereunder to make available to the Agent for the account of the Issuing Bank its Pro Rata Share of any payment on the date such payment is to be made. (3) Whenever the Issuing Bank receives a payment on account of a Reimbursement Obligation, including any interest thereon, as to which the Agent has previously received payments from the Lenders (other than the Issuing Bank) for the account of the Issuing Bank pursuant to this paragraph (f), it shall promptly pay to the Agent and the Agent shall promptly pay to each Lender which has funded its participating interest therein, in Pittsburgh, Pennsylvania, in U.S. Dollars or Canadian Dollars, as applicable, and in the kind of funds so received, an amount equal to such Lender's Pro Rata Share thereof. Each such payment shall be made by the Issuing Bank or the Agent, as the case may be, on the Business Day on which such Person receives the funds paid to such Person pursuant to the preceding sentence, if received prior to 10:00 A.M. (Philadelphia, Pennsylvania time) on such Business Day, and otherwise on the next succeeding Business Day. (4) The obligations of a Lender (other than the Issuing Bank) to make payments to the Agent for the account of the Issuing Bank with respect to a Letter of Credit issued on behalf of the Co-Borrowers by such Issuing Bank shall be irrevocable, shall not be subject to any qualification or exception whatsoever and shall be honored in accordance with the terms and conditions of this Loan Agreement under all circumstances (subject to paragraph (b) above) including, without limitation any of the following 40 circumstances (except in connection with the gross negligence or willful misconduct of the Issuing Bank): (A) any lack of validity or enforceability of this Loan Agreement or any of the other Loan Documents; (B) the existence of any claim, set-off , defense or other right which the Co-Borrowers may have at any time against a beneficiary named in a Letter of Credit or any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Agent, the Issuing Bank any Lender, or any other Person, whether in connection with this Loan Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transactions between the Co-Borrowers and the beneficiary named in any Letter of Credit); (C) any draft, certificate of any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (D) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; (E) any failure by the Agent or the Issuing Bank to make any reports required pursuant to paragraph (viii) below; or (F) the occurrence of any Event of Default or Potential Event of Default. (g) (1) The Co-Borrowers unconditionally agree to pay to the Issuing Bank the amount of all Reimbursement Obligations, interest and other amounts payable to the Issuing Bank under or in connection with any Letter of Credit issued on behalf of one or more of the Co-Borrowers immediately when due, irrespective of any claim, set-off, defense or other right which the Co-Borrowers may have at any time against the Issuing Bank or any other Person. (2) In the event any payment by the Co-Borrowers received by the Issuing Bank with respect to such Letter of Credit and distributed by the Agent to the Lenders on account of their participations is thereafter set aside, avoided or recovered from the Issuing Bank in connection with any receivership, liquidation or bankruptcy proceeding or otherwise, each Lender which received such distribution shall, upon demand by the Issuing Bank, contribute such Lender's Pro Rata Share of the amount set aside, avoided or recovered together with interest at the rate required to be paid by the Issuing Bank upon the amount required to be repaid by it. (vii) Issuing Bank, Agent and Lenders Not Liable. (a) In addition to amounts payable as elsewhere provided in Section 2.01(vi), the Co-Borrowers hereby agree on a joint and several basis to protect, indemnify, pay and save the Agent, the Issuing Bank and each Lender harmless from and against any and all Liabilities and Costs which the Agent or the Issuing Bank or any Lender may incur or be subject to as a consequence, direct or indirect, of (1) the issuance of a Letter of Credit for the account of the Co-Borrowers other than, in the case of the Issuing Bank, as a result of its gross negligence or willful misconduct, as determined by the final judgment of a 41 court of competent jurisdiction or (2) the failure of the Issuing Bank to honor a drawing under such Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto Governmental Authority (all such acts or omissions hereinafter referred to as the "Governmental Acts"). (b) As between the Co-Borrowers, their Subsidiaries and Affiliates, the Lenders, the Agent and the Issuing Bank, subject to the second to the last sentence of this subparagraph (b), the Co-Borrowers assume all risks of the acts and omissions of, or misuse of such Letter of Credit by the beneficiary of such Letter of Credit. In furtherance and not in limitation of the foregoing, subject to the provisions of the Letter of Credit Reimbursement Agreements, the Agent, the Issuing Bank and the Lenders shall not be responsible: (1) for the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by the Co-Borrowers or the beneficiary in connection with the application for and issuance of the Letters of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (2) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (3) for failure of the beneficiary of a Letter of Credit to comply duly with conditions required in order to draw upon such Letter of Credit; (4) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex, or other similar form of teletransmission or otherwise, whether or not they be in cipher; (5) for errors in interpretation of technical terms; (6) for any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit or of the proceeds thereof; (7) for the misapplication by the beneficiary of a Letter of Credit of the proceeds of any drawing under such Letter of Credit; and (8) for any consequences arising from causes beyond the control of the Agent, the Issuing Bank and the Lenders including, without limitation, any Governmental Acts. None of the above shall affect, impair, or prevent the vesting of any of the rights or powers of the Issuing Bank under this subparagraph (b); provided, however, the Co-Borrowers may have a Claim against either the Agent, the Issuing Bank and/or the Lenders, to the extent of any direct, but not consequential, damages suffered by the Co-Borrowers that were caused by the Agent's, Issuing Bank's and/or Lenders' willful misconduct or gross negligence. In furtherance and not in limitation of the foregoing, the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. (c) In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by the Issuing Bank under or in connection with Letters of Credit issued on behalf of the Co-Borrowers and/or the Persons described on Schedule 2.01 attached hereto in accordance with written directions of the Co-Borrowers, or any related certificates, if taken or omitted in good faith, shall not, in the absence of an express violation of the standards set forth in the Uniform Customs and subsequent revisions thereof, put the Issuing Bank, the Agent or any Lender under any resulting liability to the Co-Borrowers or relieve the Co-Borrowers of any of its obligations hereunder to any such Person. Section 2.02 Term Loan Facility (i) Availability. (a) Subject to the terms and conditions set forth in this Loan Agreement, each of the Canadian Lenders hereby severally and not jointly agrees to make available to the Canadian Borrower on the Closing Date, a term loan (hereinafter referred to as the "Term 42 Loan") in the principal amount which shall not exceed in the aggregate at any time outstanding, such Lender's Pro Rata Share of the Term Loan Commitments in effect at such time. The Term Loan shall be evidenced by the Term Loan Notes. The Co-Borrowers hereby acknowledge and agree that they are jointly and severally liable for the Term Loan made to the Canadian Borrower. (b) The Canadian Borrower may not reborrow any principal amount repaid or prepaid on the Term Loan Facility. (c) The Canadian Borrower shall deliver to the Agent at least two (2) days prior to the Closing Date, a Notice of Borrowing which shall specify the appropriate interest rate selected by the Canadian Borrower and the designation of Mellon Bank Canada as the Lender. (ii) Use of Proceeds of the Term Loan Facility. The proceeds of the Term Loan Facility shall be used by the Canadian Borrower for the sole purpose of acquiring certain of the assets of Spar Aerospace Limited, pursuant to the Purchase Agreement, including the payment of closing costs and expenses. (iii) Amortization of the Term Loan Facility. Subject to the provisions of Section 2.05 of this Loan Agreement, the Canadian Borrower shall repay to the Agent for the account of the Canadian Lenders the outstanding principal balance of the Term Loan Facility in consecutive quarterly installments commencing on June 30, 1998 and continuing thereafter on the last day of each succeeding calendar quarter, in an amount as set forth in the following schedule (the entire unpaid principal amount of the Term Loan Facility, together with all accrued and unpaid interest, fees and other charges shall be due and payable on the Term Loan Maturity Date): Quarterly Principal Payments (of an amount in Canadian Dollars for which During Fiscal Year the Dollar Equivalent is:) - ------------------ -------------------------- Closing Date through March 31, 1998 US$0.00 April 1, 1998 through March 31, 1999 US$375,000.00 April 1, 1999 through March 31, 2000 US$1,000,000.00 April 1, 2000 through March 31, 2001 US$1,125,000.00 April 1, 2001 through March 31, 2002 US$1,125,000.00 April 1, 2002 through March 31, 2003 US$1,375,000.00 Section 2.03 Interest on the Loan Facilities. (i) Rates of Interest. (a) All Revolving Credit Loans (other than Canadian Bankers Acceptances which are described in Section 2.03A below) shall bear interest computed daily on the outstanding principal balance thereof from the date made until paid in full at one or more of the interest rate options selected by the Co-Borrowers (or the Canadian Borrower for Canadian Loans) from between the two (2) interest rate options set forth below. Subject to the provisions of this Loan Agreement, the Co-Borrowers (or the Canadian Borrower for Canadian 43 Loans) may select different options to apply simultaneously to different portions of the Revolving Credit Loans and may select different Funding Segments to apply simultaneously to different parts of the Eurodollar Rate Portion of the Revolving Credit Loans. Each selection of a rate option shall apply separately and without overlap to the Revolving Credit Loans as a class. The aggregate number of Funding Segments applicable to the Eurodollar Rate Portion of the Revolving Credit Loans at any time shall not exceed twenty (20). Interest Rate Options For Revolving Credit Loans: (1) Prime Rate Option: A fluctuating rate per annum for each day equal to the Prime Rate of the Agent, in effect from time to time (such interest rate to change immediately upon any change in the Prime Rate) plus the Applicable Margin for such day; or (2) Eurodollar Rate Option. A fixed rate per annum for each day during a Eurodollar Interest Period equal to the Eurodollar Rate plus the Applicable Margin for such day. The Agent shall give prompt notice to the Co-Borrowers and to the Lenders of the Eurodollar Rate determined or adjusted in accordance with the provisions hereof, which determination or adjustment shall be conclusive (absent manifest error) if made in good faith. The Eurodollar Rate shall be calculated in accordance with the Eurodollar Reserve Percentage, if the Agent is required to hold such reserves. (b) The Term Loan (other than Canadian Bankers Acceptances which are described in Section 2.03A below) shall bear interest computed daily on the outstanding principal balance thereof from the date made until paid in full at one or more of the interest rate options selected by the Canadian Borrower from between the two (2) interest rate options set forth below. The aggregate number of Funding Segments applicable to the Eurodollar Rate Portion of the Term Loan at any time shall not exceed five (5). Interest Rate Options For Term Loan: (1) Prime Rate Option: A fluctuating rate per annum for each day equal to the Prime Rate of the Agent, in effect from time to time (such interest rate to change immediately upon any change in the Prime Rate) plus the Applicable Margin for such day; or (2) Eurodollar Rate Option. A fixed rate per annum for each day during a Eurodollar Interest Period equal to the Eurodollar Rate plus the Applicable Margin for such day. The Agent shall give prompt notice to the Canadian Borrower and to the Lenders of the Eurodollar Rate determined or adjusted in accordance with the provisions hereof, which determination or adjustment shall be conclusive (absent manifest error) if made in good faith. The Eurodollar Rate shall be calculated in accordance with the Eurodollar Reserve Percentage, if the Agent is required to hold such reserves. (c) The Applicable Margin for Prime Rate Loans, Eurodollar Rate Loans and Canadian Bankers Acceptances with respect to both Loan Facilities for any day shall be the applicable percentage set forth in the Leverage Matrix. For purposes of this Section 2.03(i)(d), the Co-Borrowers' Consolidated Funded Debt Leverage Ratio shall be tested at the end of the periods covered by the quarterly and annual consolidated financial statements which are to be provided to the Agent pursuant to Section 5.02 of the Loan Agreement. Any change in the Applicable Margin (both increases and decreases therein) shall be effective on the first (1st) day of 44 the Fiscal Quarter following the Fiscal Quarter in which the Agent is entitled to receive said submitted financial statements all as provided for in Article V hereof. For example, for financial statements covering the first Fiscal Quarter of any Fiscal Year, the effective date of any increase or decrease in the Applicable Margin would be October 1st of said calendar year. For the period from the Closing Date up through and including March 31, 1998, the Applicable Margin for Prime Rate Loans, Eurodollar Rate Loans and Canadian Bankers Acceptances shall be the percentage described at level V on the Leverage Matrix. (d) Notwithstanding subsection (a), (b) and (c) above, interest in respect of any Loan shall not exceed the maximum rate permitted by applicable Law. (ii) Interest Payments. Subject to Section 2.03(iv) hereof, (a) interest accrued on all Prime Rate Loans in any calendar quarter shall be payable by the Co-Borrowers in arrears (1) on the last day of each calendar quarter during the term of this Loan Agreement, commencing on the last such day following the making of each such Prime Rate Loan, (2) upon the prepayment thereof in full and (3) at maturity and (b) interest accrued on each Eurodollar Rate Loan shall be payable by the Co-Borrowers in arrears (1) on each Eurodollar Interest Payment Date applicable to that Loan, (2) upon prepayment thereof in full or (3) at maturity. (iii) Conversion or Continuation. (a) Subject to the provisions of Section 2.07 and Section 2.08 hereof, the Co-Borrowers shall have the option (1) to convert at any time all or any part of outstanding Loans which, in the aggregate, equal US$100,000.00 or an integral multiple of US$1,000.00 in excess of that amount from Prime Rate Loans to Eurodollar Rate Loans; or (2) to convert at any time all or any part of the outstanding Loans which, in the aggregate, equal US$100,000.00 or an integral multiple of US$1,000.00 in excess of that amount from Eurodollar Rate Loans to Prime Rate Loans on the expiration date of any Eurodollar Interest Period applicable thereto; or (3) upon the expiration of any Eurodollar Interest Period applicable to a Borrowing of Eurodollar Rate Loans, to continue all or any portion of such Loans equal to US$100,000.00 or an integral multiple of US$1,000.00 in excess of that amount as Eurodollar Rate Loans of the same type, and the succeeding Eurodollar Interest Period of such continued Loans shall commence on the expiration date of the Eurodollar Interest Period applicable thereto; provided, however, that no outstanding Loan may be continued as, or be converted into, a Eurodollar Rate Loan when any Event of Default or Potential Event of Default has occurred and is continuing. Without limiting the generality of the foregoing sentence, by giving a Notice of Conversion/Continuation, the Canadian Borrower may, subject again to Sections 2.07 and 2.08 hereof, elect from time to time (A) to convert such Borrower's Canadian Prime Rate or Eurodollar Loans (on the maturity thereof) to Canadian Bankers Acceptances or (B) to convert such Borrower's Canadian Bankers Acceptances (on the maturity thereof) to Canadian Prime Rate or Eurodollar Loans; provided that a Canadian Bankers Acceptance may be converted only on the last day of its term. By giving a Notice of Continuation, the Canadian Borrower may renew any of such Canadian Borrower's outstanding Canadian Bankers Acceptances for an additional term. (b) In the event the Co-Borrowers shall elect to convert or continue a Loan under this Section 2.03(iii), the Co-Borrowers (or for a Canadian Loan, the Canadian Borrower) shall deliver a Notice of Conversion/Continuation to the Agent no later than 10:00 A.M. (Philadelphia, Pennsylvania time) (1) at least one (1) Business Day in advance of the proposed conversion date in the case of a conversion to a Prime Rate Loan, (2) at least two (2) Business Days in advance of a proposed conversion or continuation/rollover into or, of Canadian Bankers Acceptances and (3) at least three (3) Business Days in advance of the proposed 45 conversion/continuation date in the case of a conversion to, or a continuation of a Eurodollar Rate Loan. A Notice of Conversion/Continuation shall specify (A) the proposed conversion/continuation date (which shall be a Business Day), (B) the amount of the Loan to be converted/continued, (C) the nature of the proposed conversion/continuation and (D) in the case of a conversion to, or continuation of, a Eurodollar Rate Loan, the requested Eurodollar Interest Period. In lieu of delivering the above-described Notice of Conversion/Continuation, the Co-Borrowers may give the Agent telephonic notice of any proposed conversion/continuation by the time required under this Section 2.03(iii); provided, however, that such notice shall be confirmed in writing by delivery to the Agent promptly (but in no event later than the proposed conversion/continuation date) of a Notice of Conversion/Continuation. Promptly after receipt of a Notice of Conversion/ Continuation under this Section 2.03(iii) (or telephonic notice in lieu thereof), the Agent shall notify each Lender by telex, telecopy, telegram, telephone or other similar form of transmission, of the proposed conversion/continuation. In the event the Co-Borrowers fail to provide the Agent with the requisite Notice of Conversion/Continuation for a conversion to, or a continuation of, a Loan, said affected Loan shall automatically continue as, or convert to, a Prime Rate Loan. (c) Any Co-Borrower (other than the Canadian Borrower) may convert Revolving Credit Loans outstanding in U.S. Dollars to Revolving Credit Loans in Canadian Dollars and vice versa by repaying such Loans in the first currency and borrowing Loans in such different currency. If the Canadian Borrower shall fail to timely give a Notice of Conversion/Continuation in respect of outstanding and maturing Canadian Bankers Acceptances, such Canadian Borrower shall be deemed to have given a Notice of Conversion/Continuation such that it will be deemed to have requested a Prime Rate Loan to repay such maturing Canadian Bankers Acceptances. (d) Any Notice of Conversion/Continuation for conversion to, or continuation of, a Loan (or telephonic notice in lieu thereof) shall be irrevocable and the Co-Borrowers shall be bound to convert or continue in accordance therewith. (iv) Default Interest. Notwithstanding the rates of interest specified in Section 2.03(i) hereof and the payment dates specified in Section 2.03(ii) hereof, effective immediately upon the occurrence of any Event of Default under Section 9.01 of this Loan Agreement, as determined by the Agent, and for as long thereafter as any such Event of Default shall be continuing the principal balance of all Loans then outstanding and, to the extent permitted by applicable Law, any interest payments on the Loans not paid when due, shall bear interest payable upon demand at the Default Rate. (v) Computation of Interest. Except as otherwise described in the last sentence of this Section 2.03(v), below, interest on Prime Rate Loans and Eurodollar Rate Loans shall be computed on the basis of the actual number of days elapsed in the period during which interest accrues and a year of 360 days. In computing interest on any Loan, the date of the making of the Loan or the first day of a Eurodollar Interest Period, as the case may be, shall be included and the date of payment or the expiration date of a Eurodollar Interest Period, as the case may be, shall be excluded; provided, however, that if a Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Loan. For purposes of complying with the Interest Act (Canada) where any interest is calculated pursuant to this Loan Agreement at a rate based upon a 360 day period (the "first rate"), the yearly rate or percentage of interest to which the "first rate" is equivalent is the "first rate" multiplied by the actual number of days in the applicable calendar year divided by 360. 46 (vi) Changes; Legal Restrictions. Except as provided in Section 2.07(iv) hereof with respect to certain determinations on Eurodollar Interest Rate Determination Dates, in the event that after the date hereof (a) the adoption of or any change in any law, treaty, rule, regulation, guideline or determination of a court or Governmental Authority or any change in the interpretation or application thereof by a court or Governmental Authority or (b) compliance by any Lender with any request or directive (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful) from any central bank or other Governmental Authority or quasi-governmental authority: (1) does or may impose, modify, or hold applicable, in the determination of a Lender, any reserve, special deposit, compulsory loan, FDIC insurance, CDIC insurance, capital allocation or similar requirement against assets held by, or deposits or other liabilities (including those pertaining to Letters of Credit) in or for the account of advances or loans by, Commitments made, or other credit extended by, or any other acquisition of funds by, a Lender or any applicable lending office or Eurodollar Affiliate of such Lender (except, with respect to Prime Rate Loans, to the extent that the reserve and FDIC insurance or CDIC insurance requirements or requirements of the Office of the Superintendent of Financial Institutions (Canada) are reflected in the definition of "Prime Rate" and, with respect to a Eurodollar Rate Loan, to the extent that the reserve requirements are reflected in the definition of "Eurodollar Rate"); or (2) does impose on such Lender any other condition materially more burdensome in nature, extent or consequence than those in existence as of the Closing Date; and the result of any of the foregoing is to increase the cost to such Lender of making, renewing or maintaining the Loans, its Revolving Credit Commitment and its Term Loan Commitment to the Co-Borrowers or issuing for the account of any one or more of the Co-Borrowers any Letter of Credit or to reduce any amount receivable thereunder, then, in any such case, the Co-Borrowers shall pay to such Lender, within thirty (30) days following demand, and delivery to the Co-Borrowers and the Agent of the statement described in the next sentence, such amount or amounts (based upon an allocation thereof by such Lender to the financing transactions contemplated by this Loan Agreement and effected by this Section 2.03 (vi)) as may be necessary to compensate that Lender for any such additional cost incurred or reduced amount received. Such Lender shall deliver to the Co-Borrowers a written statement of the costs or reductions claimed and the basis therefor, and the allocation made by such Lender of such costs and reductions shall be conclusive, absent manifest error if made in good faith. If a Lender subsequently recovers any amount previously paid by the Co-Borrowers pursuant to this Section 2.03 (vi), such Lender shall, within thirty (30) days after receipt of such recovery and to the extent permitted by applicable Law, pay to the Co-Borrowers the amount of any such recovery. Section 2.03A Canadian Bankers Acceptances. (i) Acceptance and Purchase. Subject to the terms and conditions hereof, each Canadian Lender severally agrees to the extent of its respective Pro Rata Share of the Revolving Credit Commitments accept and purchase Canadian Bankers Acceptances drawn upon it by the Canadian Borrower denominated in Canadian Dollars. The Canadian Borrower shall notify the Agent by irrevocable written notice (each a "Canadian Bankers Acceptance Notice") by 10:00 a.m. (Toronto, Ontario time) two (2) Business Days prior to the date of any Borrowing 47 (including a conversion into or continuation/rollover of) by way of Canadian Bankers Acceptances. Each Borrowing by way of Canadian Bankers Acceptances shall be in a minimum aggregate face amount of C$500,000.00 and integral multiples of C$100,000.00 in excess thereof. Each Canadian Bankers Acceptance Notice shall be in the form of Exhibit "D". In no event shall the Dollar Equivalent of the aggregate face amount (without discount) of all outstanding Canadian Bankers Acceptances exceed the Maximum Canadian Exposure minus the sum of the outstanding principal amount of all Canadian Loans (expressed in its Dollar Equivalent thereof), plus the Canadian Letter of Credit Obligations (expressed in its Dollar Equivalent thereof). (a) Term. Bankers Acceptances shall be issued and shall mature on a Business Day. Each Bankers Acceptance shall have a term of 30, 60, 90 or 180 days and shall mature no later than five (5) days prior to the Revolving Credit Termination Date, or the Term Loan Maturity Date, as the case may be, and shall be in form and substance reasonably satisfactory to the Canadian Lender which is accepting such Bankers Acceptance. (b) Canadian Bankers Acceptances in Blank. To facilitate the acceptance of Canadian Bankers Acceptances under this Agreement, the Canadian Borrower shall, upon execution of this Agreement and from time to time as required, provide to the Agent drafts, in form satisfactory to the Agent, duly executed and endorsed in blank by the Canadian Borrower in quantities sufficient for each Canadian Lender to fulfill its obligations hereunder. In addition, the Canadian Borrower hereby appoints each Canadian Lender as its attorney to complete the relevant parts of Canadian Bankers Acceptances (pursuant to the Canadian Bankers Acceptance Notice) with amount, term and other relevant details and to sign and endorse on its behalf, in handwriting or by facsimile or mechanical signature as and when deemed necessary by such Canadian Lender, blank forms of Canadian Bankers Acceptances. The Canadian Borrower recognizes and agrees that all Canadian Bankers Acceptances so completed, signed and/or endorsed on its behalf by a Canadian Lender shall bind the Canadian Borrower as fully and effectually as if signed in the handwriting of and duly issued by the proper signing officers of the Canadian Borrower. Each Canadian Lender is hereby authorized to issue such Canadian Bankers Acceptances endorsed in blank in such face amounts as may be determined by such Canadian Lender provided that the aggregate amount thereof is equal to the aggregate amount of Canadian Bankers Acceptances required to be accepted by such Lender pursuant to clause (d) below. No Canadian Lender shall be responsible or liable for its failure to accept a Canadian Bankers Acceptance if the cause of such failure is, in whole or in part, due to the failure of the Canadian Borrower to provide duly executed and endorsed drafts to the Agent on a timely basis nor shall any Canadian Lender or the Agent be liable for any damage, loss or other claim arising by reason of any loss or improper use of any such instrument except loss or improper use arising by reason of the gross negligence or willful misconduct of such Lender or the Agent, its officers, employees, agents or representatives. Each Canadian Lender shall maintain a record with respect to Canadian Bankers Acceptances (A) received by it from the Agent in blank hereunder, (B) voided by it for any reason, (C) accepted by it hereunder, (D) purchased by it hereunder and (E) canceled at their respective maturities. Each Canadian Lender further agrees to retain such records in the manner and for the statutory periods provided in the various Canadian provincial or federal statutes and regulations which apply to such Lender. The Agent and each Canadian Lender shall hold all Canadian Bankers Acceptances endorsed in blank and delivered to them in safekeeping in the same manner as they would hold their own property of a similar kind. (c) Execution of Bankers Acceptances. Drafts of the Canadian Borrowers to be accepted as Bankers Acceptances hereunder shall be duly executed by one or more duly 48 authorized officers on behalf of the Canadian Borrower, subject to Section 2.03A(i)(b) above. Notwithstanding that any Person whose signature appears on any Canadian Bankers Acceptance as a signatory for the Canadian Borrower may no longer be an authorized signatory for the Canadian Borrower at the date of issuance of a Canadian Bankers Acceptance, such signature shall nevertheless be valid and sufficient for all purposes as if such authority had remained in force at the time of such issuance and any such Canadian Bankers Acceptance so signed shall be binding on the Canadian Borrower. (d) Issuance of Bankers Acceptances. Promptly following receipt of a Canadian Bankers Acceptance Notice, the Agent shall so advise the Canadian Lenders of the face amount of each Canadian Bankers Acceptance to be accepted by it and the term thereof. The aggregate face amount of Canadian Bankers Acceptances to be accepted by a Canadian Lender shall be determined by the Agent by reference to the respective Pro Rata Shares of the Canadian Revolving Credit Sublimit and the respective Term Loan Commitments of the Canadian Lenders, except that, if the face amount of a Bankers Acceptance, which would otherwise be accepted by a Canadian Bank, would not be C$100,000.00 or an integral multiple thereof, such face amount shall be increased or reduced by the Agent in its sole and unfettered discretion to the nearest integral multiple of C$100,000.00. (e) Acceptances of Bankers Acceptances. Each Canadian Bankers Acceptance to be accepted by a Canadian Lender shall be accepted at such Lender's office as designated by said Canadian Lender from time to time. (f) Purchase of Canadian Bankers Acceptances. On the relevant date of borrowing, each Canadian Lender severally agrees to purchase from the Canadian Borrower, at the face amount thereof discounted by the Discount Rate, any Bankers Acceptance accepted by it and provide to the Agent, for the account of the Canadian Borrower, the Discounted Proceeds in respect thereof after deducting therefrom the amount of the Acceptance Fee payable by the Canadian Borrower to such Canadian Lender under Section 2.03A(iii) in respect of such Canadian Bankers Acceptance. (g) Sale of Bankers Acceptances. Each Canadian Lender may at any time and from time to time hold, sell, rediscount or otherwise dispose of any or all Bankers Acceptances accepted and purchased by it. (h) Waiver of Presentment and Other Conditions. The Canadian Borrower waives presentment for payment and any other defense to payment of any amounts due to a Canadian Lender in respect of a Canadian Bankers Acceptance accepted by such Canadian Lender pursuant to this Agreement which might exist solely by reason of such Canadian Bankers Acceptance being held, at the maturity thereof, by such Canadian Lender in its own right. The Canadian Borrower shall not claim or require any days of grace or require the Agent or any Canadian Lender to claim or allow any days of grace for the payment of any Canadian Bankers Acceptance. (ii) Refunding Canadian Bankers Acceptances. With respect to each Canadian Bankers Acceptance, the Canadian Borrower, prior to the occurrence and continuation of an Event of Default, may give irrevocable telephone or written notice (or such other method of notification as may be agreed upon between the Agent and the Canadian Borrower) to the Agent at or before 2:00 P.M. (Toronto, Ontario time) two (2) Business Days prior to the maturity date of such Canadian Bankers Acceptance followed by written confirmation electronically transmitted 49 to the Agent on the same day, of the Canadian Borrower's intention to issue one or more Canadian Bankers Acceptances on such maturity date (each a "Refunding Canadian Bankers Acceptance") to provide for the payment of such maturing Canadian Bankers Acceptance (it being understood that payments by the Canadian Borrower and fundings by the Canadian Lenders in respect of each maturing Canadian Bankers Acceptance and each related Refunding Canadian Bankers Acceptance shall be made on a net basis reflecting the difference between the face amount of such maturing Canadian Bankers Acceptance and the Discounted Proceeds (net of the applicable Acceptance Fee) of such Refunding Canadian Bankers Acceptance). Any funding on account of any maturing Canadian Bankers Acceptance must be made at or before 12:00 noon (Toronto, Ontario) on the maturity date of such Canadian Bankers Acceptance. If the Canadian Borrower fails to give such notice, the Canadian Borrower shall be irrevocably deemed to have requested and to have been advanced a Canadian Prime Rate Loan in the face amount of such maturing Canadian Bankers Acceptance on the maturity date of such maturing Canadian Bankers Acceptance from the Canadian Lender which accepted such maturing Canadian Bankers Acceptance, which Canadian Prime Rate Loan shall thereafter bear interest as such in accordance with the provisions hereof and otherwise shall be subject to all provisions of this Agreement applicable to Canadian Prime Rate Loans until paid in full. (iii) Acceptance Fee. An Acceptance Fee shall be payable by the Canadian Borrower to each Canadian Lender and each Canadian Lender shall deduct the amount of such Acceptance Fee from the Discounted Proceeds (in the manner specified in Section 2.03A(i)(f) in respect of each Canadian Bankers Acceptance). (iv) Cash Collateral. Subject to the terms and conditions of Section 11.05 of this Loan Agreement, upon the occurrence and during the continuance of any Event of Default or Potential Event of Default, and in addition to any other rights or remedies of any Canadian Lender and the Agent hereunder (a) the Canadian Borrower shall, notwithstanding the maturity date of outstanding Canadian Bankers Acceptances, pay to the Agent upon demand therefor an amount equivalent to the amount required to pay in the aggregate the undiscounted face amount of all outstanding Canadian Bankers Acceptances which shall be deposited into a cash collateral account with the Agent as additional security for payment of the undiscounted face amount of such Canadian Bankers Acceptances upon maturity thereof, and (b) any Canadian Lender or the Agent as and by way of collateral security (or such alternate arrangement as may be agreed upon by the Canadian Borrower and such Canadian Lender or the Agent, as applicable) shall be entitled to deposit and retain in an account to be maintained by the Agent (bearing interest at the Agent's rates as may be applicable in respect of other deposits of similar amounts for similar terms) amounts which are received by such Canadian Lender or the Agent from the Canadian Borrower hereunder or as proceeds of the exercise of any rights or remedies of any Canadian Lender or the Agent hereunder against the Canadian Borrower, to the extent such amounts may be required to satisfy any contingent or unmatured obligations or liabilities of the Canadian Borrower to the Canadian Lenders or the Agent, or any of them hereunder, in respect of Canadian Bankers Acceptances. Section 2.04 Fees (i) Unused Commitment Fee. From and after the Closing Date until the Obligations are paid in full and the Revolving Credit Commitments are terminated, the Co-Borrowers shall pay to the Agent, for the ratable accounts of the applicable Lenders according to their Pro Rata Shares, an unused commitment fee accruing at a rate per annum equal to the Unused Commitment Fee Rate in effect from time to time multiplied by the average daily 50 amount of the excess of the Revolving Credit Commitments over the Dollar Equivalent of all Revolving Credit Loans and Letter of Credit Obligations outstanding from time to time. All such commitment fees payable under this paragraph shall be payable quarterly in arrears on the last day in each calendar quarter beginning after the Closing Date. For the period from the Closing Date up through and including March 31, 1998, the Unused Commitment Fee Rate shall be the percentage described at level V on the Leverage Matrix. (ii) Letter of Credit Fees. The Co-Borrowers shall pay to the Agent, for the account of the Issuing Bank in connection with the issuance, negotiation, termination, draw under, transfer of and any other related Letter of Credit activity, the customary fees as are established from time to time by the Issuing Bank in connection with Letters of Credit, including, without limitation, the fees for the issuance, administration, amendment, payment or cancellation of any Letter of Credit, all as more fully set forth on Schedule 2.04(ii) and all as more fully revised from time to time based upon the Leverage Matrix. For the period from the Closing Date up through and including March 31, 1998, the annual Letter of Credit fee shall be the percentage described at level V on the Leverage Matrix. (iii) Late Charge Fee. In the event that any payment, including, without limitation, interest or principal, required to be made by the Co-Borrowers under the Notes or under this Loan Agreement shall not be received by the Agent within fifteen (15) days of when due, the Agent, on behalf of the Lenders, may charge, and if so charged, the Co-Borrowers shall pay, a late charge of ($0.05) for each dollar ($1.00) of each delinquent payment for the purpose of defraying the expense incident to the handling of such delinquent payment. In no event shall said late charge fee be less than ten dollars ($10.00). (iv) Agent's Fee. The Co-Borrowers shall pay to the Agent, for the Agent's own account and not for the Lenders, an annual fee agreed upon by and between the Co-Borrowers and the Agent. (v) Payment of Fees. The fees described in this Section 2.04 represent compensation for services rendered and to be rendered separate and apart from the lending of money or the provision of credit and do not constitute compensation for the use, detention or forbearance of money, and the obligation of the Co-Borrowers to pay each fee described herein shall be in addition to, and not in lieu of, the obligation of the Co-Borrowers to pay interest, other fees and expenses otherwise described in this Loan Agreement. Fees shall be payable when due in Philadelphia, Pennsylvania in immediately available funds. All fees shall be non-refundable when paid, except as may be otherwise expressly provided in this Loan Agreement. All fees and expenses specified or referred to in this Loan Agreement due and owing to the Agent or to a Lender, including, without limitation, those referred to in this Section 2.04 and in Section 11.3 hereof shall bear interest, if not paid when due, at the Default Rate (but not to exceed the maximum rate permitted by applicable Law), shall constitute Obligations and shall be secured by all of the Collateral. Except as described in the last sentence of this Section 2.04 (v) below, all fees described in this Section 2.04 which are expressed as a per annum charge shall be calculated on the basis of the actual number of days elapsed in a 360-day year. For purposes of complying with the Interest Act (Canada) where any interest is calculated pursuant to this Loan Agreement at a rate based upon a 360 day period (the "first rate"), the yearly rate or percentage of interest to which the "first rate" is equivalent is the "first rate" multiplied by the actual number of days in the applicable calendar year divided by 360. 51 Section 2.05 Prepayments. (i) Voluntary Prepayments of the Loans. The Co-Borrowers may, upon not less than two (2) Business Days' prior written or telephonic notice confirmed promptly in writing to the Agent (which notice the Agent shall promptly transmit by telegram, telecopy or telephone to each Lender), at any time and from time to time, prepay any Prime Rate Loan in whole or in part, without prepayment premium or fee, in an aggregate minimum amount of US$1,000,000.00 and integral multiples of US$1,000,000.00 in excess of that amount. Eurodollar Rate Loans may be prepaid in whole or in part, without prepayment premium or fee, on the expiration date of the Eurodollar Interest Period applicable thereto and otherwise only upon payment of the amounts described in Section 2.07(vi) hereof. Notwithstanding the foregoing, in the event that any prepayments are made in connection with the termination of this Loan Agreement, such prepayments shall be made only upon ten (10) Business Days' prior written notice to the Agent. Any notice of prepayment given to the Agent under this Section 2.04(i) shall specify the date of prepayment and the aggregate principal amount of the prepayment. (ii) Mandatory Prepayment of the Loans. (a) The Co-Borrowers shall make, in addition to the required quarterly principal payments on the Term Loan Facility described in Section 2.02 hereof, a mandatory prepayment of the Term Loan: (1) once each year, in an amount equal to fifty percent (50%) of the Excess Cash Flow for the prior Fiscal Year. The Excess Cash Flow shall be determined from the annual financial statements to be delivered to the Agent pursuant to Section 5.02 of this Loan Agreement. The mandatory prepayment of principal, if any, shall be made on or before August 15th of each Fiscal Year, with the first payment due and owing on August 15, 1999 for the prior 1999 Fiscal Year (which Fiscal Year ended on March 31, 1999); and (2) from time to time as Properties are damaged, destroyed or condemned in an amount equal to the net insurance or condemnation proceeds / award (each to the extent that such net insurance or condemnation proceeds / award are not reinvested by the Co-Borrowers in similar Properties within twelve (12) months of the receipt of net proceeds from the damage, destruction or condemnation. (b) All mandatory prepayments of the Term Loan Facility shall be applied in the inverse order of maturity until the Term Loan Facility has been repaid in full. (c) To the extent of any remaining monies available under Section 2.05(ii)(a) above, after repayment in full of the Term Loan Facility, all such monies shall be the sole property of the Co-Borrowers and the Agent and the Lenders shall have no rights or interests therein. Section 2.06 Payments; Collection of Accounts. (i) Collection of Accounts (a) The Co-Borrowers are authorized to collect the Accounts and any other proceeds of Collateral on behalf of and in trust for the Agent and the Lenders, at the Co-Borrowers' expense, but such authority shall automatically terminate upon the occurrence of an Event of Default. The Agent may modify or terminate such authority at any time upon the occurrence of an Event of Default and directly collect the Accounts and other 52 monetary obligations included in the Collateral. The Co-Borrowers shall, at the Co-Borrowers' expense and in the manner requested by the Agent from time to time, direct that remittances and all other proceeds of Accounts and other Collateral shall be delivered to the Agent pursuant to the terms of the Restricted Account Agreement. (ii) Manner and Time of Payment. All payments of principal, interest, Reimbursement Obligations and fees hereunder or under any Letter of Credit payable to the Agent and/or the Lenders shall be made without condition or reservation or right, in the applicable Currency and in immediately available funds, delivered to the Agent not later than 10:00 A.M. (Philadelphia, Pennsylvania time) on the date due, to such account of the Agent at the Agent's Office or Mellon Bank Canada's principal office in Toronto, Ontario, as the Agent may designate, for the account of the Lenders. Funds received by the Agent after that time and date shall be deemed to have been paid on the next succeeding Business Day. The Agent shall send a monthly and/or quarterly invoice, as applicable, to the Co-Borrowers reflecting the accrued interest due and owing and all fees due and owing hereunder. The Co-Borrowers hereby agree that on the Business Day that any payment of principal, interest and fees are due, the Agent shall automatically charge a demand deposit account of the Co-Borrowers, which account shall be maintained with the Agent at all times throughout the term of the Loan Facilities. The Co-Borrowers' authorization of the Agent to charge such account having sufficient funds on deposit shall constitute payment of the amount so authorized notwithstanding the Agent's failure to charge said account. Any failure or delay by the Agent in submitting invoices for interest and fee payments shall not discharge or relieve the Co-Borrowers of the obligation to make such payments into the demand deposit account. All payments actually received by the Agent pursuant to the Loan Documents for the account of the Lenders shall be paid to them promptly after receipt thereof by the Agent. (iii) Apportionment of Payments. So long as there does not exist an Event of Default, all payments of principal and interest in respect of outstanding Loans, all payments of the fees described herein and all payments in respect of any other obligation (other than any fees payable by the Co-Borrowers solely to the Agent under any Swap Agreement) shall be allocated amongst the Agent and the Lenders as they may be entitled thereto as provided herein. After the occurrence and during the continuance of an Event of Default, the Agent may, and shall upon the direction of the Requisite Lenders, after providing notice to the Co-Borrowers that payments and proceeds shall be so applied, apply all payments remitted to the Agent and all amounts and proceeds of Collateral received by the Agent, subject to the provisions of this Loan Agreement, (a) first, to pay Obligations in respect of any fees, expense reimbursements or indemnities then due to the Agent from the Co-Borrowers; (b) second, to pay Obligations in respect of any fees, expense reimbursements or indemnities then due to any Lender from the Co-Borrowers, (c) third, to pay interest due in respect of Loans and Reimbursement Obligations, (d) fourth, to pay or prepay principal of the Term Loan; (e) fifth, to pay or prepay principal of Revolving Credit Loans and Reimbursement Obligations, and to pay (or to the extent such Obligations are contingent, prepay or provide cash collateral in respect of) Letter of Credit Obligations; (f) sixth, to the ratable payment of all other non-Swap Obligations and (g) seventh, to pay Swap Obligations; provided, however, that if sufficient funds are not available to fund all payments to be made in respect of the Obligations owing by the Co-Borrowers described in any of the foregoing clauses (a) through (g), the available funds shall be allocated within the last particular clause to the payment of such Obligations ratably, based on the proportion of the Agent's and each Lender's interest in the aggregate outstanding Obligations described in such clause. The Agent shall promptly distribute to each Lender at its primary address set forth on the appropriate signature page hereof, or at such other address as a Lender may request in 53 writing, such funds as it may be entitled to receive, provided that the Agent shall in any event not be bound to inquire into or determine the validity, scope or priority of any interest or entitlement of any Lender and may suspend all payments or seek appropriate relief (including, without limitation, instructions from the Requisite Lenders or an action in the nature of an interpleader) in the event of any doubt or dispute as to any apportionment or distribution contemplated hereby. The order of priority herein is set forth solely to determine the rights and priorities of the Lenders as among themselves and at any time or from time to time may be changed by the Lenders as they may elect, in writing in accordance with Section 11.08 hereof, without necessity of notice to or consent of or approval by the Co-Borrowers or any other Person. (iv) Payments on Non-Business Days. Whenever any payment to be made by the Co-Borrowers hereunder shall be stated to be due on a day which is not a Business Day, payments shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder (at the otherwise applicable rate) and of any of the fees specified in Section 2.04 hereof, as the case may be. (v) Agent's or Lender's Accounting. The Agent shall maintain a loan account (hereinafter referred to as the "Loan Account") on its books in which shall be recorded (a) the names and addresses of the Lenders and the Commitments of and principal amount of the Term Loan, the Revolving Credit Loans and Letter of Credit Obligations owing to, each Lender from time to time; (b) all other appropriate debits and credits as provided in this Loan Agreement, including, without limitation, all interest, fees, expenses, charges and other Obligations; (C) all payments of Obligations made by the Co-Borrowers, or for the Co-Borrowers' account. All entries in the Loan Account shall be made in accordance with the Agent's customary accounting practices as in effect from time to time. The Agent will render a statement of the Loan Account monthly to the Co-Borrowers and will deliver a copy thereof to each Lender. The Agent will notify each Lender monthly, if any Letter of Credit Obligations with respect to Letters of Credit issued by the Issuing Bank are outstanding on such date, and the principal amount of such Letter of Credit Obligation owing to each Lender on such date. Each and every such statement shall be deemed final, binding and conclusive upon the Co-Borrowers and the Lenders in all respects as to all matters reflected therein (if made in good faith, absent manifest error), unless the Co-Borrowers or any Lender, within twenty (20) days after the date such statement is rendered, delivers to the Agent written notice of any objection which the Co-Borrowers or such Lender may have to any such statement. In that event, only those items expressly objected to in such notice shall be deemed to be disputed by the Co-Borrowers or the Lenders and all of the Agent's other entries in the Loan Account evidencing Loans, Letters of Credit and other financial accommodations made from time to time shall be final, binding and conclusive upon the Co-Borrowers and the Lenders (if made in good faith, absent manifest error) as to the existence and amount of the Obligations recorded in the Loan Account. Section 2.07. Spection Provisions Governing Eurodollar Rate Loans. Notwithstanding other provisions of this Loan Agreement to the contrary, if any, the following provisions shall govern with respect to Eurodollar Rate Loans as to the matters covered: (i) Amount of Eurodollar Rate Loans. Each Eurodollar Rate Loan shall be for a minimum amount of US$100,000.00 and in integral multiples of US$1,000.00 in excess of that amount. (ii) Determination of Eurodollar Interest Period. By giving notice as set forth in Section 2.01(ii) and Section 2.03(iii) hereof (with respect to a conversion into or a 54 continuation of Eurodollar Rate Loans), the Co-Borrowers shall have the option, subject to the other provision of this Section 2.07, to specify an Eurodollar Interest Period to apply to the Borrowing of Eurodollar Rate Loans described in such notice, subject to availability. The determination of Eurodollar Interest Periods shall be subject to the following provisions: (a) In the case of immediately successive Eurodollar Interest Periods applicable to a Borrowing of Eurodollar Rate Loans, each successive Eurodollar Interest Period shall commence on the day on which the next preceding Eurodollar Interest Period expires; (b) If any Eurodollar Interest Period would otherwise expire on a day which is not a Business Day, the Eurodollar Interest Period shall be extended to expire on the next succeeding Business Day; provided, however, that if any such Eurodollar Interest Period applicable to a Borrowing of Eurodollar Rate Loans would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in that month, that Eurodollar Interest Period Shall expire on the immediately preceding Business Day; (c) The Co-Borrowers may not select a Eurodollar Interest Period for any Loan which terminates later than March 31, 2003; (d) The Co-Borrowers may not select a Eurodollar Interest Period with respect to any portion of principal of a Eurodollar Rate Loan which extends beyond a date on which the Co-Borrowers are required to make a scheduled payment of any portion of principal, it being understood and agreed that any Eurodollar Rate Loan whose Eurodollar Interest Period ends less than one month prior to such required principal payment date shall be deemed converted to a Prime Rate Loan as of the last day of such Eurodollar Interest Period for purposes of determining whether any portion of principal of any Eurodollar Rate Loan is required in order to make a mandatory payment of principal; and (e) There shall be no more than twenty-five (25) Eurodollar Interest Periods under this Loan Agreement in effect at any one time. (iii) Determination of Interest Rate. As soon as practicable after 10:00 A.M. (Philadelphia, Pennsylvania time) on any Eurodollar Interest Rate Determination Date, the Agent shall determine (which determination shall, absent manifest error, be presumptively correct) the interest rate which shall apply to the Eurodollar Rate Loans for which an interest rate is then being determined for the applicable Eurodollar Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to the Co-Borrowers and to each Lender. (iv) Interest Rate Unascertainable, Inadequate or Unfair. If, with respect to any Eurodollar Interest Period, the Agent or any Lender determines that (a) deposits in Dollars (in the applicable amounts) are not being offered in the relevant market for such Eurodollar Interest Period, (b) adequate and reasonable means do not exist for ascertaining the Eurodollar Rate, (c) a contingency has occurred which materially and adversely affects the London interbank Eurodollar market as a whole, or (d) the effective cost to such Lender of funding a proposed Funding Segment of the Eurodollar Portion from a corresponding source of funds in the London interbank eurodollar market shall exceed the Eurodollar Rate, applicable to such Funding Segment, the Agent shall forthwith give notice thereof to the Co-Borrowers, whereupon until the Agent notifies the Co-Borrowers that the circumstances giving rise to such suspension no longer exist, (1) the right of the Co-Borrowers to elect to have Loans bear interest based upon 55 the Eurodollar Rate shall be suspended and (2) each outstanding Eurodollar Rate Loan shall be converted into a Prime Rate Loan on the last day of the then current Eurodollar Interest Period therefor, notwithstanding any prior election by the Co-Borrowers to the contrary. (v) Illegality. (a) In the event that on any date any Lender shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties) that the making or continuation of any Eurodollar Rate Loan has become unlawful by compliance by that Lender in good faith with any Law of any Governmental Authority (whether or not having the force of Law and whether or not failure to comply therewith would be unlawful), then, and in any such event, such Lender shall promptly give notice (by telephone promptly confirmed in writing) to the Co-Borrowers and the Agent (which notice the Agent shall promptly transmit to each Lender) of that determination. (b) Upon the giving of the notice referred to in Section 2.07(v)(a) hereof, (1) the Co-Borrowers' right to request of such Lender and such Lender's obligation to make Eurodollar Rate Loans shall be immediately suspended, and such Lender shall make a Revolving Credit Loan, as part of any requested Borrowing of Eurodollar Rate Loans, as a Prime Rate Loan, which Prime Rate Loan shall, for all purposes, be considered a part of such Borrowing, and (2) if the affected Eurodollar Rate Loan or Loans are then outstanding, the Co-Borrowers shall immediately (or, if permitted by applicable Law, no later than the date permitted thereby, upon at least one (1) Business Day's written notice to the Agent and the affected Lender) convert each such Revolving Credit Loan into a Prime Rate Loan. (c) In the event that such Lender determines at any time following its giving of the notice referred to in Section 2.07(iv) and/or Section 2.07(v)(a) hereof that such Lender may lawfully make Eurodollar Rate Loans of the type referred to in such notice, such Lender shall promptly give notice (by telephone confirmed in writing) to the Co-Borrowers and the Agent (which notice the Agent shall promptly transmit to each Lender) of that determination, whereupon the Co-Borrowers' right to request of such Lender, and such Lender's obligation to make, Eurodollar Rate Loans shall be restored. (vi) Compensation. In addition to such amounts as are required to be paid by the Co-Borrowers pursuant to Sections 2.03(i), 2.03(iv) and 2.03(v) hereof, the Co-Borrowers shall compensate each Lender, upon demand, for all losses, expenses and liabilities (including, without limitation, any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds required by such Lender to fund or maintain such Lender's Eurodollar Rate Loans to the Co-Borrowers) which losses, expenses and liabilities such Lender may sustain (a) if for any reason, other than the gross negligence or willful misconduct of the Agent or such Lender, a Borrowing, conversion or continuation of Eurodollar Rate Loans does not occur on a date specified therefor in a Notice of Borrowing or a Notice of Conversion/Continuation or in a telephonic request for borrowing or conversion/continuation or a successive Eurodollar Interest Period does not commence after notice therefor is given pursuant to Section 2.03(iii) hereof, (b) if any prepayment of Eurodollar Rate Loan (including, without limitation, any prepayment pursuant to Section 2.05 hereof) occurs for any reason on a date which is not the last day of the applicable Eurodollar Interest Period, (c) as a consequence of any required conversion of a Eurodollar Rate Loan to a Prime Rate Loan as a result of any of the events indicated in Section 2.07(v), or (d) as a consequence of any other failure by the Co-Borrowers (other than the failure of the Agent to charge any account having sufficient funds as authorized by the Co-Borrowers pursuant to Section 2.07(ii) hereof) to repay Eurodollar Rate Loans when required by the terms of this Loan Agreement. Such Lender shall deliver to the Co-Borrowers a written statement as to 56 such losses, expenses and liabilities which statement shall be conclusive as to such amounts in the absence of manifest error. (vii) Eurodollar Rate Taxes. The Co-Borrowers agree that: (a) provided the Co-Borrowers shall have received a written request therefor, together with a certificate setting forth the basis therefor and calculation thereof, the Co-Borrowers will pay, on the later of (1) thirty (30) days following its receipt of such request and certificate or (2) the Business Day immediately prior to the date upon which penalties attach thereto, all present and future stamp and other taxes, levies, or costs and charges whatsoever imposed, assessed, levied or collected on or in respect of a Loan solely as a result of the interest rate being determined by reference to the Eurodollar Rate or the provisions of this Loan Agreement relating to the Eurodollar Rate or the recording, registration, notarization or other formalization of any thereof or any payments of principal, interest or other amounts made on or in respect of a Loan made to the Co-Borrowers when the interest rate is determined by reference to the Eurodollar Rate (all such taxes, levies, costs and charges being herein collectively called "Eurodollar Rate Taxes"), excluding any of the foregoing arising out of the gross negligence or willful misconduct of any Lender; provided, however, that Eurodollar Rate Taxes shall not include net income or franchise taxes imposed by any Governmental Authorities. The Co-Borrowers shall also pay such additional amounts equal to increases in Eurodollar Rate Taxes attributable to payments made by the Co-Borrowers pursuant to this clause (a). Promptly after the date on which payment of any such Eurodollar Rate Tax is due pursuant to the preceding sentence, the Co-Borrowers will, at the request of such Lender, furnish to such Lender evidence, in form and substance satisfactory to such Lender, that the Co-Borrowers have met their obligation under this Section 2.07(vii); and (b) the Co-Borrowers will indemnify each Lender against, and reimburse each Lender on demand for, any Eurodollar Rate Taxes paid by such Lender in respect of a Loan made to the Co-Borrowers, as determined by such Lender in its reasonable business judgment, provided that the Lender shall have provided the Co-Borrowers with (1) appropriate receipts for any payments or reimbursements made by the Co-Borrowers pursuant to this clause (b) and (2) such information as may reasonably be required to indicate the basis for such Eurodollar Rate Taxes; provided, however, that if a Lender subsequently recovers, or receives a net tax benefit with respect to, any amount of Eurodollar Rate Taxes previously paid or indemnified by the Co-Borrowers pursuant to this Section 2.07 (vii)(a) or (b), such Lender shall, within thirty (30) days after receipt of such refund, and to the extent permitted by applicable Law, pay to the Co-Borrowers the amount of any such recovery or net tax benefit. The amount of Eurodollar Rate Taxes due pursuant to the provisions of this subsection (b) shall only be payable to the extent such Eurodollar Rate Taxes exceed the amount paid pursuant to subsection (a) of Section 2.07(vii). (c) Notwithstanding anything contained in this Section 2.07, the provisions of Section 2.10 hereof applicable to Taxes shall be fully applicable, mutatis mutandis, to Eurodollar Rate Taxes, and the Co-Borrowers shall not be required to pay any amount under this Section 2.07 that would not be payable after taking into account the provisions of such Section 2.10, including, without limitation, any limitation on the amount payable to the Co-Borrowers pursuant to subsections (iii) through (ix) inclusive of such Section 2.10. (viii) Booking of Eurodollar Rate Loans. Any Lender may make, carry or transfer Eurodollar Rate Loans at, to, or for the account of, any of its branch offices, agencies or 57 the office of a Eurodollar Affiliate of that Lender; provided, however, no such Lender shall be entitled to receive any greater amount under Section 2.03(vi) or Section 2.07(vii) hereof as a result of the transfer of any such Eurodollar Rate Loan than such Lender would be entitled to immediately prior thereto unless (a) such transfer occurred at a time when circumstances giving rise to the claim for such greater amount did not exist and were not reasonably foreseeable in the view of such Lender and (b) such claim would have arisen even if such transfer had not occurred. (ix) Affiliates Not Obligated. Unless expressly provided herein, no Eurodollar Affiliate or other Affiliate of any Lender shall be deemed a party to this Loan Agreement or shall have any rights, liability or obligation under this Loan Agreement. Section 2.08. Increased Capital. If either (i) the introduction of or any change in or in the interpretation of any Law or regulation or (ii) compliance by any Lender with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful) affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and such Lender determines that the amount of such capital is increased by or based upon the existence of such Lender's Commitment and other commitments of this type or upon the existence of Letters of Credit (or similar contingent obligations), then, upon demand by such Lender, together with the certificate referred to in the last sentence of this Section 2.08, the Co-Borrowers shall immediately pay to such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender for any loss in its net yield from the transactions contemplated by this Loan Agreement in the light of such circumstances, to the extent that such Lender determines such increase in capital to be allocable to the existence of such Lender's Commitment or to the issuance or maintenance of any Letter of Credit for the account of the Co-Borrowers. A certificate as to such amounts, together with calculations evidencing such additional amount and the law, rule, interpretation, regulation or guideline with respect thereto, submitted to the Co-Borrowers by such Lender, shall, in the absence of manifest error, be conclusive and binding for all purposes. Section 2.09. Authorized Officers of the Co-Borrowers. The Co-Borrowers shall notify the Agent in writing of the names of the officers and employees authorized to request Loans and Letters of Credit and to request a conversion/continuation of any Loan and shall provide the Agent with a specimen signature of each such Authorized Officer. The Agent and each of the Lenders shall be entitled to rely conclusively on such officer's or employee's authority to request such Loan or Letter of Credit or such conversion/continuation until the Agent receives written notice to the contrary. Neither the Agent nor any of the Lenders shall have any duty to verify the authenticity of the signature appearing on any written Notice of Borrowing or Notice of Conversion/Continuation which it believes in good faith and absent gross negligence has been signed or presented by the proper party or parties and, with respect to an oral request for such a Loan or Letter of Credit or such conversion/continuation, neither the Agent nor any of the Lenders shall have any duty to verify the identity of any Person representing himself as one of the officers or employees authorized to make such request on behalf of the Co-Borrowers. Neither the Agent nor any Lender shall incur any liability to the Co-Borrowers in acting upon any telephonic notice referred to above which the Agent believes in good faith and absent gross negligence to have been given by a duly Authorized Officer or other person authorized to borrow on behalf of the Co-Borrowers or for otherwise acting in good faith under this Section 2.09. Section 2.10 Taxes. 58 (i) Payments Net of Taxes. Provided that each Lender and the Agent shall have complied with the provisions of subsection (iii) of this Section 2.10, all payments made by the Co-Borrowers under this Loan Agreement or any other Loan Document shall be made free and clear of, and without reduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, including, without limitation, any taxes assessed by the United States, any State in the United States, Canada and/or any Province in Canada, and all liabilities with respect thereto, excluding (a) in the case of the Agent and each Lender, net income or franchise taxes imposed on the Agent or such Lender by the jurisdiction under the laws of which the Agent or such Lender is organized or any political subdivision or taxing authority thereof or therein or as a result of a connection between such Lender and any jurisdiction (whether or not attributable to the transactions contemplated hereby), and (b) in the case of each Lender, net income or franchise taxes imposed by any jurisdiction in which such Lender's lending offices which make or book loans are located or any political subdivision or taxing authority thereof or therein (all such non-excluded taxes, levies, imposts, duties, deductions, charges, fees or withholdings of such Governmental Authorities, including Canada and the United States, being hereinafter called "Taxes"). If any Taxes are required to be withheld or deducted from any amounts payable to the Agent or any Lender under this Loan Agreement or any other Loan Document, the Co-Borrowers shall pay the relevant amount of such Taxes and the amounts so payable to the Agent or such Lender shall be increased to the extent necessary to yield to the Agent or such Lender (after payment of all Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Loan Agreement and the other Loan Documents. Whenever any Taxes are paid by the Co-Borrowers with respect to payments made in connection with this Loan Agreement or any other Loan Document, as promptly as possible thereafter, the Co-Borrowers shall send to the Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by the Co-Borrowers showing payment thereof. (ii) Indemnity. Provided that each Lender and the Agent shall have complied with the provisions of subsection (iii) of this Section 2.10, the Co-Borrowers hereby agree to indemnify the Agent and each of the Lenders for the full amount of all Taxes attributable to payments by or on behalf of the Co-Borrowers hereunder or under any of the other Loan Documents paid by the Agent or such Lender (including any incremental Taxes, interest or penalties that may become payable by the Agent or such Lender as a result of any failure to pay such Taxes), whether or not such Taxes were correctly or legally asserted, excluding any of the foregoing arising out of the Agent's or any Lender's gross negligence or willful misconduct. The amount of Taxes due pursuant to the preceding sentence shall only be payable to the extent such Taxes exceed the amount of Taxes paid pursuant to subsection (i) of this Section 2.10. Such indemnification shall be made within thirty (30) days from the date such Lender or the Agent, as the case may be, makes written demand therefrom together with the calculation thereof and the basis therefor. (iii) Withholding and Backup Withholding. (a) Each Lender that is incorporated or organized under the Laws of any jurisdiction other than the United States or any State thereof agrees that, on or prior to the date any payment is due to be made to it hereunder or under any other Loan Document in connection with its Revolving Credit Commitment and Term 59 Loan Commitment for Loans and Letters of Credit which are to be booked in the United States, as directed by the Co-Borrowers, it will furnish to the Co-Borrowers and the Agent (1) two valid, duly completed copies of United States Internal Revenue Service Form 4224 or United States Internal Revenue Form 1001 or successor applicable form, as the case may be, certifying in each case that such Lender is entitled to receive payments under this Loan Agreement and the other Loan Documents without deduction or withholding of any United States federal income taxes and (2) a valid, duly completed Internal Revenue Service Form W-8 or W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup withholding tax. Each Lender which so delivers to the Co-Borrowers and the Agent a Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms agrees to deliver to the Co-Borrowers and the Agent two further copies of the said Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms, or other manner of certification, as the case may be, on or before the date that any such form expires or becomes obsolete or otherwise is required to be resubmitted as a condition to obtaining an exemption from withholding tax, or after the occurrence of any event requiring a change in the most recent form previously delivered by it, and such extensions or renewals thereof as may reasonably be requested by the Co-Borrowers and the Agent, certifying in the case of a Form 1001 or Form 4224 that such Lender is entitled to receive payments under this Loan Agreement or any other Loan Document without deduction or withholding of any United States federal income taxes, unless a change of Law has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such letter or form with respect to it and such Lender advises the Co-Borrowers and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-8 or W-9, establishing an exemption from United States backup withholding tax. If the form provided by the Lender or the Agent (other than in the event of a change in law) indicates a withholding tax in excess of zero, then such withholding tax shall be considered excluded from Taxes and no payment shall be due under this Section 2.10 with respect to such withholding tax. (b) Each Lender that is incorporated or organized under the Laws of any jurisdiction other than Canada or any Province of Canada agrees that, on or prior to the date any payment is to be made to it hereunder or under any other Loan Document in connection with its Revolving Credit Commitment and Term Loan Commitment for Loans and Letters of Credit which are to be booked in Canada, as directed by the Co-Borrowers, it will furnish or will have previously furnished to the Canadian Borrower and the Agent a Certificate of Residency, in a form reasonably acceptable to the Agent. (iv) Any Lender or the Agent claiming amounts payable under this Section 2.10 or Section 2.07(vii) of this Loan Agreement shall use reasonable efforts to mitigate taxes (e.g., changing the jurisdiction of its lending office) if such efforts would reduce the amounts payable under this Section 2.10 or Section 2.07(vii) of this Loan Agreement. (v) Upon the payment in full to a Lender or the Agent with respect to Taxes or Eurodollar Rate Taxes under this Section 2.10 or Section 2.07(vii) the Co-Borrowers shall be subrogated to all rights of the applicable Lender or the Agent to seek recovery or reimbursement 60 from any Person of such amounts. Provided a Lender has complied with the terms of this Section 2.10 and Section 11.02 of this Loan Agreement, there shall be no right of the Co-Borrowers to recover or receive reimbursement against or from said Lender or the Agent for foreign tax credits in respect of said Lender's taxable income in respect of such Taxes or Eurodollar Rate Taxes. Each Lender and the Agent shall reasonably assist the Co-Borrowers to recover amounts paid pursuant to this Section 2.10 or Section 2.07(vii) from the relevant taxing authority. If a Lender or the Agent subsequently recovers, or receives a net tax benefit with respect to any amount of Taxes or Eurodollar Rate Taxes paid or indemnified by the Co-Borrowers, then such Lender or the Agent, as applicable, shall pay to the Co-Borrowers the amount of any such recovery or net tax benefit within thirty (30) days of the receipt of such refund. (vi) Unless the Co-Borrowers have given their prior written consent, none of the Lenders or the Agent shall be entitled to a payment under this Section 2.10 or Section 2.07(vii) of this Loan Agreement with respect to Taxes or Eurodollar Rate Taxes which resulted directly from the Agent's or a Lender's change in account, branch or office. (vii) None of the Lenders or the Agent shall be entitled to a payment under this Section 2.10 or Section 2.07(vii) to the extent such payment arises out of the Lender's or the Agent's gross negligence or willful misconduct. (viii) No amounts will be payable under this Section 2.10 to the extent that such amounts have been covered pursuant to another section of this Loan Agreement. (ix) All payments made pursuant to this Section 2.10 or Section 2.07(vii) shall be treated by the relevant parties as additional interest hereunder. Section 2.11 Security for the Loan Facilities. As security for the due and punctual payment and performance of the Obligation of the Co-Borrowers under the Loan Documents, the Co-Borrowers shall execute, or cause to be executed, and deliver to the Agent, for the benefit of all of the Lenders, the Collateral Documents. Section 2.12 Currency Fluctuations. (a) Not later than 1:00 P.M. (Philadelphia, Pennsylvania time) on the last Business Day of each calendar month (the "Calculation Date"), the Agent shall determine the Exchange Rate as of such date. The Exchange Rate so determined shall become effective on the first Business Day immediately following such determination (a "Reset Date") and shall remain effective until the next succeeding Reset Date. (b) Not later than 4:00 P.M. (Philadelphia, Pennsylvania time) on each Reset Date, the Agent shall determine the Dollar Equivalent of the outstanding Canadian Loans, Canadian Bankers Acceptances (without discount) and Canadian Letters of Credit denominated in Canadian Dollars. (c) If, on any Reset Date and on the Term Loan Maturity Date and Revolving Credit Termination Date, the aggregate outstanding amount (expressed in U.S. Dollars) of all Canadian Loans, Canadian Letter of Credit Obligations and the aggregate face amount of all outstanding Canadian Bankers Acceptances (without discount) exceeds the sum of the Term Loan Commitments and the Canadian Revolving Credit Sublimit expressed in U.S. Dollars (such 61 sum being the "Maximum Canadian Exposure") [by more than $100,000,] then (i) the Agent shall give notice thereof to the Canadian Borrower and the Canadian Lenders and (ii) within two (2) Business Days thereafter, the Canadian Borrower shall repay or prepay Canadian Loans in accordance with this Agreement in an aggregate principal amount such that, after giving effect thereto, the aggregate outstanding amount (expressed in U.S. Dollars) of all Canadian Loans, Canadian Letter of Credit Obligations and the aggregate face amount (without discount) of all outstanding Canadian Bankers Acceptances no longer exceeds the Maximum Canadian Exposure; provided, that nothing herein shall diminish the Canadian Borrower's obligation to repay in full all Obligations in respect of the Term Loan on the Term Loan Maturity Date and to repay in full all Obligations in respect of the Revolving Credit Loans owed by the Canadian Borrower on the Revolving Credit Termination Date. (d) Without limiting subsection 2.12(c), if, on any day prior to the Term Loan Maturity Date, the aggregate outstanding amount (expressed in U.S. Dollars) of all Canadian Loans, the Canadian Letter of Credit Obligations and the aggregate face amount of all outstanding Canadian Bankers Acceptances (without discount) exceeds the Maximum Canadian Exposure by five percent (5%) or more, then (i) the Agent shall give notice thereof to the Canadian Borrower and the Canadian Lenders and (ii) within two (2) Business Days thereafter, the Canadian Borrower shall repay or prepay Canadian Loans in accordance with this Agreement in an aggregate principal amount such that, after giving effect thereto, the aggregate outstanding amount (expressed in U.S. Dollars) of all Canadian Loans, the Canadian Letter of Credit Obligations and the aggregate face amount of all outstanding Canadian Bankers Acceptances (without discount) no longer exceeds the Maximum Canadian Exposure. Nothing set forth in this Section 2.12 shall be construed to require the Agent to calculate daily compliance under this Section 2.12. (e) To the extent the repayments and prepayments referenced in Sections 2.12(c) and 2.12(d) are such that, after giving effect thereto, the Canadian Letter of Credit Obligations and the aggregate face amount of all outstanding Canadian Bankers Acceptances (without discount) still exceeds the Maximum Canadian Exposure (expressed in U.S. Dollars), then the Canadian Borrower shall immediately upon demand provide cash collateral to the Agent required to obtain such results. Section 2.13 Joint and Several Liability. The Co-Borrowers hereby acknowledge, covenant and agree that all Obligations, liabilities and covenants made, incurred and undertaken by them under this Loan Agreement and the other Loan Documents are on a joint and several basis, including, without limitation, all obligations to pay principal, interest, fees and expenses. 62 ARTICLE III CONDITIONS TO THE LOAN FACILITIES Section 3.01. Conditions Precedent to the Effectivenes of this Loan Agreement. This Loan Agreement shall become effective on the Closing Date when the following conditions precedent have been satisfied (unless waived by the Requisite Lenders or unless the deadline for delivery has been extended by the Agent): (i) Certain Documents. The Agent shall have received on or before the Closing Date all of the following, all of which, except as otherwise specifically described below, shall be in form and substance satisfactory to the Requisite Lenders and in sufficient copies for each of the Lenders: (a) This Loan Agreement, together with all Exhibits and Schedules attached hereto; (b) A Notice of Borrowing pursuant to Section 2.01 and Section 2.02 hereof dated the Closing Date and executed by the Co-Borrowers; (c) A Revolving Credit Loan Note made payable to Mellon Bank, N.A.; (d) A Term Loan Note made payable to Mellon Bank Canada; (e) A Revolving Credit Loan Note made payable to Mellon Bank Canada; (f) The Security Agreements; (g) The Pledge of Stock Agreements; (h) The Agreement of Guaranty; (i) Each UCC-1 Financing Statement filing or Personal Property Security Act (Ontario) financing statement and registration form for the Collateral permitting registration in Nova Scotia, Canada, signed by the Co-Borrowers; (j) Opinions addressed to the Agent and each Lender, dated the Closing Date, of counsel to the Co-Borrowers, the Corporate Guarantors, the Partnership Guarantor and Spar Aerospace (U.K.) Limited covering the matters addressed in Exhibit "J" hereto and such other matters as may be requested by the Agent, all in form and substance reasonably satisfactory to the Agent; and (k) Certificates of the Secretary or Assistant Secretary of the Co-Borrowers, their Subsidiaries and Affiliates dated the Closing Date certifying (1) the names and true signatures of the incumbent officers of the Co-Borrowers, their Subsidiaries and Affiliates authorized to sign this Loan Agreement and all other Loan Documents executed by the Co-Borrowers, their Subsidiaries and Affiliates in connection with this Loan Agreement, (2) the By-Laws of the Co-Borrowers, their Subsidiaries and Affiliates as in effect on the date of such 63 certification, (3) the resolutions of the Co-Borrowers', their Subsidiaries' and Affiliates' respective Board of Directors approving and authorizing the execution, delivery and performance of this Loan Agreement and all other Loan Documents executed by the Co-Borrowers, their Subsidiaries and Affiliates in connection therewith, or filed by the Co-Borrowers, their Subsidiaries and Affiliates and (4) that there have been no changes in the Certificate of Incorporation of the Co-Borrowers, their Subsidiaries and Affiliates since the date of the most recent certification thereof by the office of the appropriate Governmental Authority delivered to the Agent prior to the Closing Date; (l) The Certificates of Incorporation of the Co-Borrowers, their Subsidiaries and Affiliates, as amended, modified or supplemented to the Closing Date, which shall be certified to be true, correct and complete by the office of the appropriate Governmental Authority delivered to the Agent prior to the Closing Date; (m) Good Standing Certificates or Certificates of Status certified by the appropriate Secretaries of State or the Registrar of Joint Stock Companies of Nova Scotia, Canada, relating to the Co-Borrowers, their Subsidiaries and Affiliates for each of the states in which the Co-Borrowers, their Subsidiaries and Affiliates are qualified to conduct business; (n) Projected consolidated balance sheets, income statements and cash flow projections for the Co-Borrowers, their Subsidiaries and Affiliates for the Fiscal Years 1998 through 2003 and such other financial information (including any annual or quarterly financial statements of the Co-Borrowers, their Subsidiaries and Affiliates) as the Agent or the Requisite Lenders may reasonably request; (o) Evidence of the insurance required by the terms of the Collateral Documents, containing the endorsements required by such Collateral Documents and this Loan Agreement; (p) A contemporaneous search of UCC, Personal Property Security Act (and corresponding personal property security registries in Nova Scotia, Canada) real property, tax, judgment and litigation dockets and records and other appropriate registers shall have revealed no filings or recordings in effect with respect to the Collateral purported to be covered by the Collateral Documents, except such as are acceptable to the Agent (it being understood that such acceptance does not limit the obligations of the Co-Borrowers with respect to the priority of the Liens in favor of the Agent) and the Agent shall have received a copy of the search reports received as a result of the search; (q) The partnership agreements for the Partnership Guarantor shall be certified to be true, correct and complete by the Partnership Guarantor as of the Closing Date; (r) Such additional documentation as the Agent or the Requisite Lenders may reasonably require. (ii) Fees and Expenses Paid. The Co-Borrowers shall have paid to the Agent, for its own account and for the account of each Lender, as applicable, all fees and expenses due and payable under this Loan Agreement, if any, on or before the Closing Date. (iii) Representations and Warranties. All of the representations and warranties of the Co-Borrowers, their Subsidiaries and Affiliates contained in subsections (i) through 64 (xxxiv) of Section 4.01 hereof and in any other Loan Document (other than for changes permitted or contemplated by this Loan Agreement and/or the Agreement of Guaranty) shall be true and correct in all material respects on and as of the Closing Date as though made on and as of that date (except any such representations and warranties stated to be given on a specific date other than the Closing Date). (iv) No Default. No Event of Default or Potential Event of Default hereunder or under the other Loan Documents shall have occurred and be continuing on the Closing Date. (v) No Injunction. No Requirements of Law shall prohibit, and no order, judgment or decree of any Governmental Authority shall and, except as set forth on Schedule 4.01(vii) hereto, no litigation shall be pending or threatened which in the reasonable judgment of the Agent or Requisite Lenders would, enjoin, prohibit restrain, impose or result in the imposition of any material adverse condition upon the consummation of the transactions contemplated hereby. (vi) Collateral Information. The Agent shall have received complete and accurate information from the Co-Borrowers with respect to (a) the name and the location of the principal place of business and chief executive office for the Co-Borrowers, their Subsidiaries and Affiliates. (vii) Consents. The Co-Borrowers, the Corporate Guarantors and the Partnership Guarantor shall have received all consents and authorizations required pursuant to any material contractual obligation with any other Person and shall have obtained all consents and authorizations of, and effected all notices to and filings with, any Governmental Authority, in each case, as may be necessary to allow the Co-Borrowers, the Corporate Guarantor and the Partnership Guarantor lawfully (a) to execute, deliver and perform, in all material respects, their respective obligations under this Loan Agreement, the other Loan Documents to which they are, or are to be, a party and each other agreement or instrument to be executed and delivered by them pursuant thereto or in connection therewith and (b) to create and perfect or continue the perfection of the Liens on the Collateral to be owned by them in the manner and for the purpose contemplated by the Collateral Documents. (viii) No Material Adverse Effect. No Material Adverse Effect shall have occurred since the date of the most recent annual "audited" financial report of the Co-Borrowers, their Subsidiaries and Affiliates delivered to the Agent and the Requisite Lenders through the Closing Date, as to the condition (financial or otherwise), operations, performance, properties or prospects of the Co-Borrowers, their Subsidiaries and Affiliates. Section 3.02. Conditions Precedent to All Loans and Letters of Credit. The obligation of each Lender to make any Loan requested to be made by it, and of the Issuing Bank to issue any Letter of Credit, on any date, is subject to the following conditions precedent as of such date: (i) Notice of Borrowing. With respect to a request for a Revolving Credit Loan, the Agent shall have received in accordance with the provisions of Section 2.0l(ii) hereof, on or before any Borrowing Date, an original or facsimile, duly executed, Notice of Borrowing. With respect to a request for a Term Loan, the Agent shall have received in accordance with the provisions of Section 2.02 (ii) hereof, on or before the Closing Date, an original or facsimile, duly executed, Notice of Borrowing. 65 (ii) Application for Letters of Credit. With respect to a request for the issuance of a Letter of Credit, the Agent shall have received in accordance with the provisions of Section 2.01(vi) hereof, on or before the date of issuance, an original and duly executed Letters of Credit Reimbursement Agreement. (iii) Additional Matters. As of the Borrowing Date for any Loan or the date of issuance of any Letter of Credit: (a) Representations and Warranties. All of the representations and warranties of the Co-Borrowers, their Subsidiaries and Affiliates contained in subsections (i) through (xxxiv) of Section 4.01 hereof and in any other Loan Document (other than representations and warranties which expressly speak only of a different date and other than for changes permitted or contemplated by this Loan Agreement) shall be true and correct in all material respects on and as of such Borrowing Date, as though made on and as of such date; (b) No Default. No Event of Default or Potential Event of Default shall have occurred and be continuing or would result from the making of the requested Loan or the issuance of the requested Letter of Credit; (c) No Injunction. No law or regulations shall prohibit, and no order, judgment or decree of any Governmental Authority shall, and, except as set forth on Schedule 4.01(vii) hereto, no litigation shall be pending or threatened which in the judgment of the Agent or the Requisite Lenders would, enjoin, prohibit, restrain, impose or result in the imposition of any material adverse condition upon, (1) any Lender from making the Loan requested to be made on the Borrowing Date or (2) the Issuing Bank, as the case may be, from issuing the Letter of Credit requested to be issued on the Borrowing Date; and (d) No Material Adverse Change. No Material Adverse Effect shall have occurred after the Closing Date. Each submission by the Co-Borrowers to the Agent of a Notice of Borrowing with respect to a Loan and the acceptance by the Co-Borrowers of the proceeds of each such Loan made hereunder, or the request for the issuance of a Letter of Credit and the issuance of such Letter of Credit, shall constitute a representation and warranty by the Co-Borrowers as of the Borrowing Date in respect of such Loan and the date of issuance of any Letter of Credit that all the conditions contained in this Section 3.02 have been satisfied. 66 ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.01 Representations and Warranties on the Closing Date. In order to induce the Agent and the Lenders to enter into this Loan Agreement, the Co-Borrowers hereby represent and warrant to the Agent and the Lenders that the following statements are true, correct and complete on and as of the Closing Date: (i) Organization; Corporate Powers. Each of the Co-Borrowers and their Subsidiaries (a) is a corporation duly organized, validly existing and in good standing under the Laws of the jurisdiction of its respective incorporation or formation, (b) except for DRS and DRS Electronic Systems, Inc., is duly qualified to conduct business as a foreign corporation and is in good standing under the Laws of each jurisdiction in which it owns or leases real property or in which the nature of its business requires it to be so qualified, and (c) has all requisite power and authority to own, operate and encumber its property and assets and to conduct its business as presently conducted and as proposed to be conducted in connection with and following the consummation of the transactions contemplated by the Loan Documents. The Certificate of Authority to Conduct Business in the Commonwealth of Virginia has been revoked for both DRS and DRS Electronic Systems, Inc. DRS and DRS Electronic Systems, Inc. are diligently proceeding to have their respective Certificates of Authority to Conduct Business in the Commonwealth of Virginia reinstated. (ii) Authority. (a) Each of the Co-Borrowers and Corporate Guarantors has the requisite corporate power and authority (1) to execute, deliver and perform each of the Loan Documents executed by it, or to be executed by it and (2) to file the Loan Documents filed by it, or to be filed by it, with the appropriate Governmental Authority. (b) The Partnership Guarantor has the requisite power and authority (1) to execute, deliver and perform each of the Loan Documents executed by it, or to be executed by it and (2) to file the Loan Documents filed by it, or to be filed by it, with the appropriate Governmental Authority. (c) The execution, delivery and performance (or filing, as the case may be) of each of the Loan Documents to which it is a party and the consummation of the transactions contemplated thereby, have been duly authorized by the Board of Directors of said Co-Borrower or Corporate Guarantor and no further corporate proceedings on the part of said Co-Borrower or Corporate Guarantor are necessary to consummate such transactions. (d) Each of the Loan Documents to which said Co-Borrower, Corporate Guarantor or Partnership Guarantor is a party has been duly executed and delivered (or filed, as the case may be) by said Co-Borrower, Corporate Guarantor or Partnership Guarantor and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. (iii) Subsidiaries and Ownership of Capital Stock. As of the Closing Date, DRS has thirteen (13) Subsidiaries. In addition, the Partnership Guarantor is an Affiliate of DRS. Except for DRS, the Pledge of Stock Agreements set forth the number of authorized, issued and outstanding shares of each class of capital stock of the Co-Borrowers and their Subsidiaries. Except for DRS, no capital stock (or any securities, instruments, warrants, option or purchase rights, conversion or exchange rights, calls, commitments or claims of any character convertible 67 into or exercisable for capital stock) of the Co-Borrowers and their Subsidiaries is subject to issuance under any security, instrument, warrant, option or purchase rights, conversion or exchange rights, call, commitment or claim of any right, title or interest therein or thereto, except as set forth on Schedule 4.01(iii) attached hereto. The outstanding capital stock of all of the Co-Borrowers and their Subsidiaries has been duly authorized, validly issued, fully paid and nonassessable and is not Margin Stock; provided upon the liquidation or dissolution of DRS Flight Safety the shareholders of DRS Flight Safety would be liable for the unsatisfied obligations of DRS Flight Safety to the extent the assets are insufficient to cover the liabilities. (iv) No Conflict. The execution and delivery by the Co-Borrowers, the Corporate Guarantors and the Partnership Guarantor of each Loan Document and the performance of each of the transactions contemplated thereby do not and will not (a) to the best knowledge of the Co-Borrowers, constitute a tortious interference with any Contractual Obligation of the Co-Borrowers, the Corporate Guarantors and/or the Partnership Guarantor, (b) conflict with or violate the Co-Borrowers' and/or the Corporate Guarantors' Certificates of Incorporation or By-Laws, (c) conflict with or violate the Partnership Guarantor's partnership agreement, (d) conflict with, result in a breach of or constitute (with or without notice or lapse of time or both) a default under any Requirement of Law, subject to clause (a) above, or require termination of any Contractual Obligation, the consequences of which conflict or default or termination are reasonably likely to have a Material Adverse Effect, (e) result in or require the creation or imposition of any Lien whatsoever upon any of the properties or assets of the Co-Borrowers (other than Liens in favor of the Agent permitted pursuant to Section 7.02(ii) hereof) or (f) require any approval of stockholders, other than as otherwise obtained. (v) Governmental Consents. The execution, delivery and performance of each Loan Document and the transactions contemplated thereby do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by any Governmental Authority, except filings, consents or notices which have been, or will in due course, be made, obtained or given. (vi) Governmental Regulation. The Co-Borrowers, their Subsidiaries and Affiliates are not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, the Investment Company Act of 1940 or any other Law such that the Co-Borrowers', their Subsidiaries' and/or Affiliates' ability to incur indebtedness is limited or its ability to consummate the transactions contemplated hereby is materially impaired. (vii) Litigation; Adverse Effects. (a) Except as set forth in Schedule 4.01(vii) attached hereto, there is no claim, request for equitable adjustment, termination for convenience or default, action, suit, proceeding, audit, governmental investigation or arbitration, at law or in equity, or before or by or against any Governmental Authority, pending, or to the knowledge of the Co-Borrowers, threatened against the Co-Borrowers, their Subsidiaries or Affiliates or any Property of the Co-Borrowers, their Subsidiaries or Affiliates which is reasonably likely to (1) result in any Material Adverse Effect, (2) materially and adversely affect the ability of the Co-Borrowers, their Subsidiaries and Affiliates to perform their respective obligations under the Law, any material Contractual Obligation and/or the Loan Documents or (3) materially and adversely affect the ability of the Co-Borrowers, their Subsidiaries and/or Affiliates to perform their collective Obligations or the Lenders' ability to enforce such Obligations. 68 (b) The Co-Borrowers, their Subsidiaries or Affiliates are not (1) in violation of any applicable Law which violation has or is reasonably likely to have a Material Adverse Effect or (2) subject to or in default with respect to any final judgment, writ, injunction, decree, rule or regulation of any court or Governmental Authority which has or is reasonably likely to have a Material Adverse Effect. Except as set forth in Schedule 4.01(vii) attached hereto, there is no action, suit, proceeding or investigation pending or, threatened against or affecting the Co-Borrowers, their Subsidiaries or Affiliates challenging the validity or the enforceability of any of the Loan Documents. (viii) No Material Adverse Change. Since March 31, 1997, no material adverse change has occurred in the condition (financial or otherwise), operations or performance of the Co-Borrowers, their Subsidiaries or Affiliates, or the ability of the Co-Borrowers, their Subsidiaries or Affiliates to perform their Obligations under the Loan Documents. (ix) Payment of Taxes. All tax returns and reports of the Co-Borrowers, their Subsidiaries and Affiliates required to be filed, have been timely filed (or appropriate extensions of time for the filing of same have been timely requested), and all taxes, assessments, fees and other governmental charges thereupon and upon their respective Properties, assets, income and franchises which are shown on such returns as being due and payable, have been paid when due and payable, except such taxes, if any, that are reserved against in accordance with Generally Accepted Accounting Principles, such taxes as are being contested in good faith by appropriate proceedings or such filings or taxes the failure to file or to make payment of which when due and payable would not have, in the aggregate, a Material Adverse Effect. The Co-Borrowers have no knowledge of any proposed written tax assessment against the Co-Borrowers, their Subsidiaries and Affiliates that is reasonably likely to have a Material Adverse Effect, which is not being actively contested in good faith by the Co-Borrowers, their Subsidiaries and Affiliates. (x) Material Adverse Agreements. The Co-Borrowers, their Subsidiaries and Affiliates are not a party to or subject to any Contractual Obligation or other restriction contained in their respective Certificates of Incorporation, By-Laws, partnership agreements or similar governing documents which is reasonably likely to have a Material Adverse Effect. (xi) Performance. The Co-Borrowers, their Subsidiaries and Affiliates are not in default in the performance, observance or fulfillment of any of the material obligations, covenants or conditions contained in any Contractual Obligation applicable to them, and no condition exists which, with the giving of notice or the lapse of time or both, would constitute a default under such Contractual Obligation, in each case, except where the consequences, direct or indirect, of such default or defaults, if any, are not reasonably likely to have a Material Adverse Effect. (xii) Securities Activities. The Co-Borrowers, their Subsidiaries and Affiliates are not engaged principally in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. (xiii) Requirements of Law. The Co-Borrowers, their Subsidiaries and Affiliates have no actual knowledge of any non-compliance with respect to all Requirements of Law applicable to the Co-Borrowers, their Subsidiaries and Affiliates and their respective businesses, and to the Co-Borrowers' knowledge, the Co-Borrowers, their Subsidiaries and Affiliates are not charged with, under investigation with respect to, any violation of any such Requirements of Law, except where a non-compliance or violation of all Requirements of Law would not reasonably be likely to result in a Material Adverse Effect. 69 (xiv) Patents, Trademarks, Permits, etc. The Co-Borrowers, their Subsidiaries and Affiliates own, are licensed to use or otherwise have the lawful right to use, or have all permits and other governmental approvals, patents, trademarks, trade names, copyrights, technology, know-how and processes used in or necessary for the conduct of their respective businesses as currently conducted, except as would not reasonably be likely to have a Material Adverse Effect. To the Co-Borrowers' knowledge, the use of such permits and other governmental approvals, patents, trademarks, trade names, copyrights, technology, know how and processes by the Co-Borrowers, their Subsidiaries and Affiliates does not infringe on the rights of any Person, subject to such claims and infringements and do not, in the aggregate, give rise to any liability on the part of the Co-Borrowers, their Subsidiaries and Affiliates which has or is reasonably likely to have a Material Adverse Effect. As of the Closing Date, the Co-Borrowers, their Subsidiaries and Affiliates have no filings or registrations for patents, trademarks or tradenames in the United States Patent and Trademark Office or the Canadian Intellectual Property Office (for patents, trademarks, copyrights or otherwise), except one registered patent held by DRS Ahead Technology, Inc. for a "microglide burnish head" in the United States Patent and Trademark Office. (xv) Environmental Matters. Except as disclosed in Schedule 4.01(xv) attached hereto and except where the failure to comply with the provisions of clauses (a) through (k) below does not result in a Material Adverse Effect, (a) the operations of the Co-Borrowers, their Subsidiaries and Affiliates comply in all substantial respects with all applicable environmental, health and safety Requirements of Law; (b) the Co-Borrowers, their Subsidiaries and Affiliates have obtained all environmental, health and safety Permits necessary for their respective operations, and all such Permits are in good standing, and the Co-Borrowers, their Subsidiaries and Affiliates are in material compliance with all terms and conditions of such Permits; (c) the Co-Borrowers', their Subsidiaries' and Affiliates' respective present Properties and operations, and to the best of the Co-Borrowers' knowledge, the Co-Borrowers', their Subsidiaries' and Affiliates' respective past Properties and operations, are not the subject of any order from or agreement with any Governmental Authority or private party or any judicial or administrative proceeding or investigations respecting any environmental, health or safety Requirements of Law, and are not the subject of any Remedial Action or other Liabilities and Costs arising from the Release or threatened Release of an Environmental Concern Material into the Environment; (d) the Co-Borrowers, their Subsidiaries and Affiliates have not filed any notice under any Requirement of Law indicating past or present treatment, storage or disposal of an Environmental Concern Material in violation of any Environmental Law; (e) the Co-Borrowers, their Subsidiaries and Affiliates have not filed any notice under any applicable Requirement of Law reporting a Release of an Environmental Concern Material into the Environment in violation of any Environmental Law; (f) there is not now, nor has there ever been, on or in the Property of the Co-Borrowers, their Subsidiaries and/or Affiliates in violation of any Environmental Law: (1) any generation, treatment, recycling, storage or disposal of any Environmental Concern Material, (2) any underground storage tanks or surface impoundments, (3) any asbestos-containing material, or (4) any polychlorinated biphenyls (PCB's) used in hydraulic oils, electrical transformers or other equipment; (g) the Co-Borrowers, their Subsidiaries and/or Affiliates have not received any notice or claim to the effect that it is or may be liable to any Person as a result of the Release or threatened Release of a Environmental Concern Material into the Environment, or as a result of exposure to asbestos or to cotton dust, which may result in any liability; (h) after due inquiry, no Environmental Lien has attached to any Property of the Co-Borrowers, their Subsidiaries and/or Affiliates; (i) the Co-Borrowers, their Subsidiaries and Affiliates have not entered into any negotiations or agreements with any Person (including, without limitation, the prior owner(s) of any Property owned or leased by the Co-Borrowers, their Subsidiaries and/or Affiliates) relating to any Remedial Action or environmentally related Claim; 70 (j) the Co-Borrowers, their Subsidiaries and Affiliates have no material contingent liability in connection with any Release or threatened Release of any Environmental Concern Material into the Environment; and (k) none of the products that the Co-Borrowers, their Subsidiaries and/or Affiliates manufacture, distribute or sell, or, to the best of the Co-Borrowers', their Subsidiaries' or Affiliates' knowledge, ever have manufactured, distributed or sold, contains an asbestos-containing material. (xvi) ERISA. As of the Closing Date, the Co-Borrowers, their Subsidiaries, Affiliates and any ERISA Affiliate do not maintain or contribute to any Plan other than a Plan listed on Schedule 4.01(xvi) attached hereto. Except as otherwise provided on Schedule 4.01(xvi), each Plan which is intended to be a qualified plan has been determined by the IRS to be qualified under Section 401(a), and each trust related to any such Plan has been so determined to be exempt from federal income tax under Section 501(a) of the Code prior to its amendment by the Tax Reform Act of 1986, and such Plan and trust are being operated in all material respects in compliance with and will be timely amended in accordance with the Tax Reform Act of 1986 and the Omnibus Budget Reconciliation Act of 1987 as interpreted by the regulations promulgated thereunder. Except as otherwise provided on Schedule 4.01(xvi) attached hereto, the Co-Borrowers, their Subsidiaries, Affiliates and any ERISA Affiliate do not maintain or contribute to any employee welfare benefit plan within the meaning of Section 3(1) of ERISA which provides lifetime benefits to retirees other than as may be required by the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended and interpreted by regulations promulgated thereunder. The Co-Borrowers, their Subsidiaries, Affiliates and all of their ERISA Affiliates are in compliance in all material respects with the responsibilities, obligations or duties imposed on them by ERISA or regulations promulgated thereunder with respect to all Plans. No material accumulated funding deficiency (as defined in Section 302(a)(2) of ERISA and Section 412(a) of the Code) exists in respect to any Benefit Plan. The Co-Borrowers, their Subsidiaries, Affiliates any ERISA Affiliate and any fiduciary of any Plan (a) have not engaged in a nonexempt "prohibited transaction" described in Section 406 of ERISA or Section 4975 of the Code or (b) have not taken any action which would constitute or result in a Termination Event with respect to any Plan such that actions under (a) or (b) or both would result in a material obligation to pay money. The Co-Borrowers, their Subsidiaries, Affiliates and any ERISA Affiliate have not incurred any material liability to the PBGC which remains outstanding other than the liability to pay the PBGC insurance premiums for the current year. Schedule B to the most recent annual report filed with the IRS with respect to each Benefit Plan (which has been furnished to the Agent) is complete and accurate in all material respects. Except as provided on Schedule 4.01(xvi) attached hereto, since the date of each such Schedule B, there has been no material adverse change in the funding status or financial condition of the Benefit Plan relating to such Schedule B which would result in a Material Adverse Effect. The Co-Borrowers, their Subsidiaries, Affiliates and any ERISA Affiliate have not failed to make a required installment under subsection (m) of Section 412 of the Code or any other payment required under Section 412 of the Code on or before the due date for such installment or other payment which would in the aggregate have a Material Adverse Effect. The Co-Borrowers, their Subsidiaries, Affiliates and any ERISA Affiliate are not required to provide security to a Plan under Section 401(a)(29) of the Code due to a Plan amendment that results in an increase in current liability for the plan year. The Co-Borrowers, their Subsidiaries, Affiliates and any ERISA Affiliate are not contributing and have not ever contributed to or been obligated to contribute to any Multiemployer Plan, and no employees or former employees of the Co-Borrowers, their Subsidiaries, Affiliates or any ERISA Affiliate have been covered by any Multiemployer Plan in respect of their employment by the Co-Borrowers or any ERISA Affiliate, and, accordingly, the representations and warranties in this paragraph (xvi) do not apply to Multiemployer Plans. 71 (xvii) Solvency. The Co-Borrowers, their Subsidiaries and Affiliates taken as a whole are Solvent after giving effect to the transactions contemplated by this Loan Agreement and the other Loan Documents, the payment and accrual of all costs payable on the Closing Date with respect to any of the foregoing, and all obligations, if any, under any Plan or the equivalent for unfunded past service liability and any other unfunded medical (including post-retirement) and death benefits. (xviii) Notes Qualification. As of the date on which this representation and warranty is made, the offering and issuance of the Notes are exempt from registration under Section 5 of the Securities Act and the Notes issued by the Canadian Borrower to the Canadian Lenders are exempt from the prospectus filing and renewal requirements of the applicable Securities Acts of the Provinces of Ontario and Nova Scotia, Canada or has been registered pursuant to a registration statement filed pursuant to the Securities Act and, if so registered, is qualified under the Trust Indenture Act of 1939, as amended. (xix) Assets and Properties. Substantially all of the assets and properties owned by, leased to or used by the Co-Borrowers, their Subsidiaries and Affiliates (a) are in good operating condition and repair, (ordinary wear and tear excepted), (b) are free and clear of any known defects (except such defects as do not substantially interfere with the continued use thereof in the conduct of normal operations) and (c) are able to serve the function for which they are currently being used, in each case where the failure of such asset to meet such requirements would not have or is not reasonably likely to have a Material Adverse Effect. (xx) Joint Venture; Partnership. Except as set forth in Schedule 4.01(xx) attached hereto, as of the Closing Date the Co-Borrowers, their Subsidiaries and Affiliates are not engaged in any joint venture or partnership with any other Person. (xxi) Insurance. The Co-Borrowers, their Subsidiaries and Affiliates maintain with financially sound and reputable insurers not related to or affiliated with the Co-Borrowers, their Subsidiaries and Affiliates, insurance with respect to its Properties and businesses, insured against such liabilities, casualties and contingencies and in such types and amounts as is customary in the case of corporations engaged in the same or a similar business or having similar properties similarly situated. Schedule 4.01(xxi) attached hereto sets forth a list of all insurance currently maintained by or in respect of the Co-Borrowers, their Subsidiaries and Affiliates setting forth the identity of the insurance carrier, the type of coverage, the amount of coverage and the deductible. There are no claims, actions, suits, proceedings against, arising under or based upon any of such insurance policies except as set forth in Schedule 4.01(xxi) attached hereto. (xxii) Title to Property. The Co-Borrowers, their Subsidiaries and Affiliates have good and marketable title in fee simple to all respective Property owned or purported to be owned by them, including, without limitation to all Property reflected in the most recent consolidated balance sheet referred to in Section 4.01(xxiii) hereof or submitted pursuant to Article V (except as sold or otherwise disposed of in the ordinary course of business after the date of such balance sheet), in each case free and clear of all Liens, other than Liens permitted under the terms of Section 7.02(ii) of this Loan Agreement.. (xxiii) Audited Financial Statements. The Co-Borrowers have heretofore furnished to the Agent a consolidated and consolidating "audited" balance sheet of DRS, its Subsidiaries and Affiliates dated as of March 31, 1997, and the related statements of income, cash flows and changes in stockholders' equity for the 1997 Fiscal Year then ended, as examined and reported on by their 72 Independent Certified Public Accountant, who delivered an unqualified opinion in respect thereof, all as set forth in the Form 10-K. Such financial statements (including the notes thereto) present fairly the financial condition of DRS, its Subsidiaries and Affiliates as of the end of such 1997 Fiscal Year and the results of their operations and their cash flows for the 1997 Fiscal Year then ended, all in conformity with Generally Accepted Accounting Principles. (xxiv) Interim Financial Statements. The Co-Borrowers have heretofore furnished to the Agent interim balance sheets of DRS, its Subsidiaries and Affiliates as of the end of their first Fiscal Quarter of the 1998 Fiscal Year which began on April 1, 1997, together with the related statements of income and cash flows for the applicable fiscal periods ending on each such date, all as set forth in the Form 10-Q. Such financial statements present fairly the financial condition of DRS, its Subsidiaries and Affiliates as of the end of such Fiscal Quarter and the results of their operations and their cash flows for the fiscal periods then ended, all in conformity with Generally Accepted Accounting Principles (except to the extent set forth in the notes to said financial statements), subject to normal and recurring year-end audit adjustments. (xxv) Absence of Undisclosed Liabilities. Except as provided on Schedule 4.01 (xxv) attached hereto and made a part hereof, the Co-Borrowers, their Subsidiaries and Affiliates have no liability or obligation of any nature whatever (whether absolute, accrued, contingent or otherwise, whether or not due), forward or long-term commitments or unrealized or anticipated losses from unfavorable commitments, except (a) as disclosed in the financial statements referred to in Sections 4.01(xxiii) and 4.01(xxiv) above, (b) matters that, individually or in the aggregate could not have a Material Adverse Effect and (c) Contractual Obligations incurred in the ordinary course of the Co-Borrowers', their Subsidiaries' and Affiliates' businesses. (xxvi) Margin Regulations. No part of the proceeds of the Loan Facilities will be used for the purpose of buying or carrying any Margin Stock, as such term is used in Regulations G and U of the Federal Reserve Board, as amended from time to time, or to extend credit to others for the purpose of buying or carrying any Margin Stock. The Co-Borrowers, their Subsidiaries and Affiliates are not engaged in the business of extending credit to others for the purpose of buying or carrying Margin Stock. Neither the making of any Loan nor any use of proceeds of any such Loan will violate or conflict with the provisions of Regulation G, T, U or X of the Federal Reserve Board, as amended from time to time. (xxvii) Labor Matters. Except as set forth on Schedule 4.01(xxvii) attached hereto, the Co-Borrowers, their Subsidiaries and Affiliates are not a party to any labor union or collective bargaining agreements. The Co-Borrowers, their Subsidiaries and Affiliates are in compliance with all applicable laws respecting employment and employment practices, including, without limitation, laws, regulations, and judicial and administrative decisions relating to wages, hours, conditions of work, collective bargaining, health and safety, payment of social security, payroll, withholding and other taxes, worker's compensation, insurance requirements, as well as requirements of ERISA and the Consolidated Omnibus Budget Reconciliation Act, except to the extent that noncompliance would not have a Material Adverse Effect. There is no (a) unfair labor practice complaint pending or, to the best knowledge of the Co-Borrowers, their Subsidiaries and Affiliates, threatened against the Co-Borrowers, their Subsidiaries and Affiliates before the National Labor Relations Board, any court or any other Governmental Authority nor any pending or, to the best knowledge of the Co-Borrowers, their Subsidiaries and Affiliates, threatened sexual harassment, or wrongful discharge claim, (b) labor strike, dispute, slowdown, or stoppage pending or, to the best knowledge of the Co-Borrowers, their Subsidiaries and Affiliates, threatened against the Co-Borrowers, their Subsidiaries and Affiliates, or (c) representation petition, respecting the 73 employees of the Co-Borrowers, their Subsidiaries and Affiliates filed or threatened to be filed with the National Labor Relations Board. (xxviii) Brokerage Commissions. No other Person is entitled to receive from the Co-Borrowers, their Subsidiaries and/or Affiliates any brokerage commission, finder's fee or similar fee or payment in connection with the consummation of the transactions contemplated by this Loan Agreement. No brokerage or other fee, commission or compensation is to be paid by the Lender by reason of any act, alleged act or omission of the Co-Borrowers, their Subsidiaries and/or Affiliates with respect to the transactions contemplated hereby. (xxix) Books and Records. All of the Co-Borrowers (except DRS Flight Safety) maintain their books and records relative to their assets, Properties and business transactions at DRS's chief executive offices located at 5 Sylvan Way, Parsippany, New Jersey 07054. DRS Flight Safety maintains its books and records relative to its assets, Properties and business transactions at its chief executive offices located at 365 March Road, Kanata, Ontario, Canada K2K 1X3. All of the Subsidiaries and Affiliates maintain their respective books and records at their respective chief executive offices described in the Agreement of Guaranty. (xxx) Business Name. The only name by which the Co-Borrowers, their Subsidiaries and Affiliates are known or under which they are conducting their businesses are set forth on Schedule 4.01(xxx) attached hereto and made a part hereof. (xxxi) Location of Collateral. Except as set forth (a) on Schedule 4.01(xxxi) attached hereto and made a part hereof and (b) in the Security Agreements, as of the Closing Date, none of the Collateral pledged to the Lender as collateral security pursuant to this Loan Agreement, the Collateral Documents or any other Loan Documents, is or will be located in, AT or on any location or property other than as set forth on Schedule 4.01(xxxi) (except Inventory temporarily in transit or Collateral located at Properties other than those described on Schedule 4.01 (xxxi) for which the Agent has received the requisite notice described in Section 5.04 hereof). None of the Collateral (including, without limitation, Inventory) is now or will hereafter be located in the Province of Quebec, Canada. During the six (6) month period immediately preceding the Closing Date, none of the Collateral was located in, at or on any location or property other than those sites listed on Schedule 4.01 (xxxi) attached hereto and in the Security Agreements (except Inventory temporarily in transit). (xxxii) Accounts Receivable. The most recent list of Accounts Receivable of the Co-Borrowers, their Subsidiaries and Affiliates delivered to the Agent is complete in all material respects, and contains an aging thereof that is accurate in all material respects. The Accounts Receivable of the Co-Borrowers, their Subsidiaries and Affiliates have arisen in the ordinary course of their businesses and reflect bona fide obligations for the payment of goods or services provided by the Co-Borrowers or their predecessors subject to reserves for uncollectable amounts (including, without limitation, markdown allowances and chargebacks) established in the ordinary course of business. As of the Closing Date, all Accounts Receivable are collectable in the ordinary course of the Co-Borrowers', their Subsidiaries' and Affiliates' businesses, subject to reserves for uncollectable amounts (including, without limitation, markdown allowances and chargebacks) established in the ordinary course of business; are subject to no counter-claims or set-offs of any nature whatsoever (other than those arising out of customer deposits) that would have a Material Adverse Effect; and require no further act on the Co-Borrowers', their Subsidiaries' and Affiliates' part to make such Accounts owing by the account debtors. None of the Accounts Receivable includes consignments or sales on any basis other than that of absolute sale in the ordinary and 74 usual course of business, except as otherwise set forth on said list. No agreement has been made under which any deductions or discounts may be claimed as to any such account except regular discounts in the usual course of business. (xxxiii) Inventory. Subject to the second sentence of this Section 4.01(xxxiii), the Inventory of the Co-Borrowers, their Subsidiaries and Affiliates (a) does not contain a misbranded hazardous substance or a barred hazardous substance, (b) is suitable and useful for the purposes of the Co-Borrowers', their Subsidiaries' and Affiliates' businesses, (c) is not obsolete, spoiled, contaminated or damaged and (d) consists of items of a quality and quantity useable or saleable in the ordinary course of the Co-Borrowers' business, except that which would not have a Material Adverse Effect. The value of obsolete items, items below standard quality and items in the process of repair have been written down to realizable market value, or adequate reserves have been provided therefor, and the values carried on the balance sheet are set at the lower of cost or market, in accordance with Generally Accepted Accounting Principles. (xxxiv) Pledge of Collateral. The Co-Borrowers, their Subsidiaries and Affiliates have good and marketable title to the Collateral pledged by them, and all such Collateral is free and clear of all Liens except for (a) Permitted Encumbrances and (b) as specifically permitted or contemplated by the terms and provisions of this Loan Agreement and the Collateral Documents relating to such Collateral. Section 4.02. Subsequent Funding Representations and Warranties. In order to induce the Agent and the Lenders to enter into this Loan Agreement and to make the Loans and issue the Letters of Credit, the Co-Borrowers hereby represent and warrant to the Agent and the Lenders that the statements set forth in paragraphs (i) through (xxxiv) of Section 4.01 hereof (except (i) to the extent that such statements (a) are made expressly only as of the Closing Date or (b) other than for changes permitted or contemplated by this Loan Agreement), are true, correct and complete in all material respects on and as of the Borrowing Date in respect of each Borrowing after the Closing Date and the date of issuance of each Letter of Credit (the making of each Revolving Credit Loan and the issuance of each Letter of Credit being referred to as a "Subsequent Funding"). 75 ARTICLE V REPORTING COVENANTS On and after the Closing Date and so long as the Co-Borrowers shall have any Obligation hereunder or any Lender shall have any Commitment hereunder, unless the Requisite Lenders shall give their prior express written consent to the effect otherwise, then: Section 5.01. Statement of Accounting. The Co-Borrowers, their Subsidiaries and Affiliates shall make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflect their transactions and dispositions of their assets and shall maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization, (ii) transactions are recorded as necessary (a) to permit preparation of financial statements in conformity with Generally Accepted Accounting Principles and any other accounting principles applicable thereto and (b) to maintain accountability for assets and (iii) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences; provided, however, that with respect to DRS Flight Safety all transactions, books and records are maintained in accordance with generally accepted accounting principles as in effect from time to time in Canada as said principles are developed, modified and set forth in the opinions and pronouncements and/or Handbook of the Canadian Institute of Chartered Accountants. Section 5.02 Reporting and Information Requirements. The Co-Borrowers shall deliver or cause to be delivered to the Agent the following financial statements, data, reports and information, at the Co-Borrowers' own cost and expense: (i) Annual Audited Consolidated and Consolidating Financial Statements of the Co-Borrowers, their Subsidiaries and Affiliates. As soon as available, but in any event within ninety (90) days after the close of each Fiscal Year of the Co-Borrowers, "audited" consolidated statements of income, retained earnings and a statement of cash flows for the Co-Borrowers, their Subsidiaries and Affiliates for such Fiscal Year and a consolidated balance sheet for the Co-Borrowers, their Subsidiaries and Affiliates as of the close of such Fiscal Year, and notes to each, all as set forth in the Form 10-K filed with the United States Securities and Exchange Commission. Such consolidated financial statements shall be accompanied by an opinion of the Independent Certified Public Accountant, which opinion shall be free of exceptions or qualifications which is of "going concern" or like nature or which relates to a more limited scope of examination. Such opinion shall in any event contain a written statement of such accountants substantially to the effect that (a) such accountants examined the financial statements in accordance with Generally Accepted Auditing Standards and accordingly made such tests of accounting records and such other auditing procedures as such accountants considered necessary under the circumstances and (b) in the opinion of such accountants such financial statements present fairly the financial position and cash flows of the Co-Borrowers, their Subsidiaries and Affiliates as of the end of such Fiscal Year, and the results of the Co-Borrowers', their Subsidiaries' and Affiliates' operations and the changes in their financial position for such Fiscal Year, in conformity with Generally Accepted Accounting Principles applied on a basis consistent with that of the preceding Fiscal Year. In addition to the delivery of the annual "audited" consolidated financial statements, the Co-Borrowers shall also deliver to the Agent and each of the Lenders, at the same time, an "unaudited" management prepared consolidating statement of income for the Co-Borrowers, their Subsidiaries and Affiliates for such Fiscal Year and a consolidating balance sheet for the Co-Borrowers, their Subsidiaries and 76 Affiliates as of the close of such Fiscal Year, all prepared and certified to the Agent and the Lenders by the Co-Borrowers' chief accounting officer in her capacity as an Authorized Officer. (ii) Annual Operating Plan. As soon as available, but in any event within ninety (90) days after the close of each Fiscal Year of the Co-Borrowers, a copy of the Co-Borrowers', their Subsidiaries' and Affiliates' annual operating plan for the then current Fiscal Year. (iii) Quarterly Consolidated and Consolidating Financial Statements of the Co-Borrowers, their Subsidiaries and Affiliates. As soon as available, but in any event within forty-five (45) days after the close of each of the first three Fiscal Quarters of each Fiscal Year of the Co-Borrowers, "unaudited" consolidated statements of income and a statement of cash flows for the Co-Borrowers, their Subsidiaries and Affiliates for such Fiscal Quarter and for the period from the beginning of such Fiscal Year to the end of such Fiscal Quarter, and an "unaudited" balance sheet of the Co-Borrowers, their Subsidiaries and Affiliates as of the close of such Fiscal Quarter, all as set forth in the Form 10-Q filed with the United States Securities and Exchange Commission. In addition to the delivery of the quarterly consolidated financial statements, the Co-Borrowers shall also deliver to the Agent and the Lenders, at the same time, an "unaudited" management prepared consolidating statement of income for the Co-Borrowers, their Subsidiaries and Affiliates for such Fiscal Quarter and for the period from the beginning of such Fiscal Year to the end of such Fiscal Quarter and an "unaudited" consolidating balance sheet of the Co-Borrowers, their Subsidiaries and Affiliates as of the close of such Fiscal Quarter, all as certified by the chief accounting officer of the Co-Borrowers in her capacity as an Authorized Officer as presenting fairly the financial position of the Co-Borrowers, their Subsidiaries and Affiliates as of the end of such dates and fiscal periods and the results of the Co-Borrowers', their Subsidiaries' and Affiliates' operations and the changes in the Co-Borrowers', their Subsidiaries' and Affiliates' financial position and cash flows for such fiscal periods, in conformity with Generally Accepted Accounting Principles applied in a manner consistent with that of the most recent audited financial statements furnished to the Agent, subject to normal and recurring year-end audit adjustments. (iv) Contract Backlog Report. As soon as available, but in any event within forty-five (45) days after the close of each Fiscal Quarter of each Fiscal Year of the Co-Borrowers, a contract backlog report for the Co-Borrowers, their Subsidiaries and Affiliates signed by an Authorized Officer of the Co-Borrowers. (v) Compliance Certificates. Together with each delivery of any financial statement pursuant to this Section 5.02(i) and Section 5.02(iii) above, an Officer's Certificate of the Co-Borrowers substantially in the form of Exhibit "E" attached hereto, (a) stating that the officer signatory thereto in his or her capacity as an Authorized Officer has reviewed the terms of this Loan Agreement and the principal Loan Documents, and has made, or caused to be made under his or her supervision, a review in reasonable detail of the transactions and condition of the Co-Borrowers, their Subsidiaries and Affiliates, taken as a whole, during the accounting period covered by such financial statements, and that such review has not disclosed the existence during or at the end of such accounting period, and that the signer does not have knowledge of the existence as at the date of the Officer's Certificate, of any condition or event which constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Co-Borrowers have taken, are taking and propose to take with respect thereto; and (b) demonstrating in reasonable detail compliance during and at the end of such accounting periods with the financial covenants contained in Article VIII of this Loan Agreement. 77 (vi) Monthly Accounts Receivable Aging Reports, etc. As soon as available, but in any event within thirty (30) days after the close of each month during each Fiscal Year, a monthly accounts receivable aging report in summary form only, setting forth the amounts due and owing to each of the Co-Borrowers, their Subsidiaries and Affiliates, respectively, as of the close of the preceding month. (vii) Borrowing Base Certificates. As soon as available, but in any event within thirty (30) days after the close of the prior month during each Fiscal Year, a Borrowing Base Certificate signed by an Authorized Officer of the Co-Borrowers. In addition, the Co-Borrowers may deliver to the Agent, at any time during a calendar month, additional Borrowing Base Certificates at the time of each request for a Borrowing. (viii) Other Reports and Information. Promptly upon their becoming available to the Co-Borrowers, a copy of (a) all reports, financial statements and other information distributed generally by the Co-Borrowers, their Subsidiaries and/or Affiliates to their respective stockholders, partners, bondholders or the financial community and (b) all accountants' management letters pertaining to, all other reports submitted by accountants in connection with any audit of, and all other material reports, if any, from outside accountants with respect to, the Co-Borrowers, their Subsidiaries and/or Affiliates. (ix) Further Information. The Co-Borrowers shall promptly furnish to the Agent such business, financial or other information concerning the Co-Borrowers, their Subsidiaries and Affiliates in such form as the Agent and said Lenders may reasonably request from time to time. (x) Notice of Event of Default. Promptly upon becoming aware of any Event of Default or Potential Event of Default, the Co-Borrowers shall give the Agent written notice thereof, together with a written statement of the President or chief accounting officer of the Co-Borrowers in her capacity as an Authorized Officer setting forth the details thereof and any action with respect thereto taken or contemplated to be taken by the Co-Borrowers. (xi) Notice of Material Adverse Change. Promptly upon becoming aware thereof, the Co-Borrowers shall give the Agent written notice concerning any material adverse change in the business, assets, operations or financial condition of the Co-Borrowers, their Subsidiaries and/or Affiliates taken as a whole, including, without limitation, (a) any loss from casualty or theft in excess of $500,000.00 whether or not insured, affecting any Property of the Co-Borrowers, their Subsidiaries and Affiliates, setting forth the details thereof and any action with respect thereto taken or contemplated to be taken by the Co-Borrowers, (b) any loss of funding for the continuation of a multi-year and/or cost-plus contract with any Person whereby any one of the Co-Borrowers, their Subsidiaries or Affiliates is the contractor and said contract has a remaining value in excess of US$5,000,000.00, (c) any modification of a contract with any Person where any one of the Co-Borrowers, their Subsidiaries or Affiliates is the contractor, under the "changes clause" of said contract resulting in the deletion of at least fifty percent (50%) of the work originally intended to be performed under such contract resulting in said contract as changed having a remaining value in excess of US$2,500,000.00, (d) the termination for default of any contract with any Governmental Authority and (e) the termination for convenience of any contract with any Governmental Authority whereby any one of the Co-Borrowers, their Subsidiaries or Affiliates is the service provider and said contract has a remaining value in excess of US$5,000,000.00. (xii) Notice of Material Proceedings. Promptly upon becoming aware thereof, the Co-Borrowers shall give the Agent written notice of the commencement, existence or threat of any 78 action, suit, claim, request for equitable adjustment, proceeding, audit, governmental investigation or arbitration against or by or otherwise affecting the Co-Borrowers, their Subsidiaries and/or Affiliates (including without limitation, litigation, arbitration or administration proceedings) which, if adversely decided, would have a Material Adverse Effect on the business, assets, operations or financial condition of the Co-Borrowers, their Subsidiaries and/or Affiliates taken as a whole or on the ability of the Co-Borrowers, their Subsidiaries and/or Affiliates to perform their obligations under this Loan Agreement or the other Loan Documents. (xiii) Notice of Pension-Related Events. The Co-Borrowers shall give the Agent the following: (a) As soon as possible, and in any event within ten (10) days after the Co-Borrowers, their Subsidiaries, their Affiliates or an ERISA Affiliate knows or has reason to know that a Termination Event has occurred, a written statement of the chief accounting officer of the Co-Borrowers describing such Termination Event and the action, if any, which the Co-Borrowers, their Subsidiaries, their Affiliates. or an ERISA Affiliate has taken, is taking or proposes to take with respect thereto, and when known, any action taken or threatened by the IRS, the DOL or PBGC with respect thereto; (b) As soon as possible, and in any event within fifteen (15) days, after the Co-Borrowers, their Subsidiaries, their Affiliates or an ERISA Affiliate knows or has reason to know that a non-exempt prohibited transaction (as defined in Section 406 of ERISA and Section 4975 of the Code) has occurred, a statement of the chief accounting officer of the Co-Borrowers describing such transaction; (c) Within ten (10) days after the filing thereof with the DOL, IRS or PBGC, copies of each annual report, filed with respect to each Benefit Plan; (d) Within ten (10) days after the filing thereof with the IRS, a copy of each funding waiver request filed with respect to any Benefit Plan and all communications received by the Co-Borrowers, their Subsidiaries, their Affiliates, or an ERISA Affiliate with respect to such request; (e) Within thirty (30) days after a written request from the Agent, information describing an amendment of any existing Benefit Plan which will result in a material increase in the benefits under such Benefit Plan or a notification of any such increase, or the establishment of any new Plan or the commencement of contributions to any Plan to which the Co-Borrowers, their Subsidiaries, their Affiliates or an ERISA Affiliate was not previously contributing in a material amount; (f) Promptly upon, and in any event within fifteen (15) Business Days after, receipt by the Co-Borrowers, their Subsidiaries, their Affiliates or an ERISA Affiliate of the PBGC's intention to terminate a Benefit Plan or to have a trustee appointed to administer a Benefit Plan, copies of each such notice; (g) Promptly upon, and in any event within ten (10) Business Days after, receipt by the Co-Borrowers, their Subsidiaries, their Affiliates or an ERISA Affiliate of an unfavorable determination letter from the IRS regarding the qualification of a Plan under Section 401(a) of the Code; 79 (h) Promptly upon, and in any event within fifteen (15) Business Days after, receipt by the Co-Borrowers, their Subsidiaries, their Affiliates or an ERISA Affiliate of a notice from a Multiemployer Plan regarding the imposition of withdrawal liability; and (i) Promptly upon, and in any event within fifteen (15) Business Days after, the Co-Borrowers, their Subsidiaries, their Affiliates or any ERISA Affiliate fails to make a required installment under subsection (m) of Section 412 of the Code or any other payment required under Section 412 of the Internal Revenue Code on or before the due date for such installment or payment, a notification of such failure provided that such installment payment is an amount which is material. (xiv) Notice of Other Material Defaults. Promptly upon becoming aware of any material default by the Co-Borrowers, their Subsidiaries and/or Affiliates under any Contractual Obligation to which the Co-Borrowers, their Subsidiaries and/or Affiliates or by which the Co-Borrowers, their Subsidiaries and/or Affiliates or their respective properties may be bound (the result of which could reasonably be expected to have a Material Adverse Effect), the Co-Borrowers shall give the Agent written notice thereof, together with a written statement of the President or chief accounting officer of the Co-Borrowers in her capacity as an Authorized Officer setting forth the details thereof and any action with respect thereto taken or contemplated to be taken by the Co-Borrowers, their Subsidiaries and/or Affiliates. (xv) Notice of Material Claims. The Co-Borrowers shall promptly notify the Agent of all written claims, complaints, orders, citations or notices, whether formal or informal, received by the Co-Borrowers, their Subsidiaries or Affiliates from a Governmental Authority or other Person relating to any Law, including, without limitation, any Environmental Law or health and safety law, which could reasonably be expected to have a Material Adverse Effect. Such notices shall include, among other information, the name of the party who filed the claim, the potential amount of the claim, and the nature of the claim. Section 5.03 Environmental Notices. (i) The Co-Borrowers shall notify the Agent, in writing, promptly, and in any event within five (5) Business Days after obtaining knowledge, of any: (a) notice or claim to the effect that the Co-Borrowers, their Subsidiaries and/or Affiliates are or may be liable to any Person as a result of the Release or threatened Release of any Environmental Concern Material into the Environment which may have a Material Adverse Effect; (b) notice that the Co-Borrowers, their Subsidiaries or Affiliates are under investigation by any Governmental Authority evaluating whether any Remedial Action is needed to respond to the Release or threatened Release of any Environmental Concern Material into the Environment which may have a Material Adverse Effect; (c) notice that any Property of the Co-Borrowers, their Subsidiaries or Affiliates is subject to an Environmental Lien which could reasonably be expected to have a Material Adverse Effect; (d) notice of violation to the Co-Borrowers, their Subsidiaries or Affiliates or awareness by the Co-Borrowers, their Subsidiaries or Affiliates of a condition which might reasonably result in a notice of violation of any environmental, health or safety Requirement of Law, which could have a Material Adverse Effect; (e) commencement or threat of any judicial or administrative proceeding alleging a violation of any environmental, health or safety Requirement of Law which may have a Material Adverse Effect; (f) new or proposed changes to any existing environmental, health or safety Requirement of Law that could have a Material Adverse Effect on the operations of the Co-Borrowers, their Subsidiaries or Affiliates; or (g) any proposed acquisition of stock, assets, real estate, or leasing of property, or any other action by the Co-Borrowers, their Subsidiaries or Affiliates that could subject the Co-Borrowers, their Subsidiaries or Affiliates to environmental, health or safety Liabilities and Costs that could have a Material Adverse Effect. 80 (ii) Upon written request of the Agent, no more frequently than once a year, the Co-Borrowers shall submit to the Agent a report prepared by an Authorized Officer of the Co-Borrowers providing an update of the status of each material health or safety compliance hazard or liability issue identified in any notice or report required pursuant to Section 5.03(i) hereof. Section 5.04 Notice of Name Changes and Location Changes. The Co-Borrowers shall (i) immediately notify the Agent if any of the Co-Borrowers, their Subsidiaries or Affiliates is known by or conducting business under any names other than the names described in Section 4.01 (xxx) hereof, (ii) notify the Agent within fifteen (15) days if the Co-Borrowers, their Subsidiaries or Affiliates are conducting any of their businesses or operations at or out of offices or locations other than those described in Section 4.01(xxix) and (xxxii) hereof, and (iii) notify the Agent at least fifteen (15) days prior to the date upon which the Co-Borrowers intend to change the location of their chief executive offices, principal places of business or location of Collateral from those locations set forth Schedule 4.01(xxxi) attached hereto. 81 ARTICLE VI AFFIRMATIVE COVENANTS The Co-Borrowers covenant and agree that, on and after the Closing Date and so long as any Lender shall have any Commitment hereunder and until payment in full of all of the obligations, unless the Requisite Lenders shall otherwise give prior express written consent: Section 6.01 Corporate Existence, etc. The Co-Borrowers, their Subsidiaries and Affiliates shall at all times maintain their respective status as a corporation and/or partnership, as applicable, duly organized, validly existing and in good standing under the laws of their respective jurisdiction of incorporation and/or formation and preserve and keep in full force and effect their rights and franchises unless the failure to maintain such rights and franchises would not have a Material Adverse Effect. Section 6.02 Corporate Powers, etc. The Co-Borrowers, their Subsidiaries and Affiliates shall qualify and remain qualified to conduct business in each jurisdiction in which the nature of their respective businesses or the ownership of their respective Properties or both requires it to be so qualified, unless the failure to maintain so qualified would not have a Material Adverse Effect. The Co-Borrowers, their Subsidiaries and Affiliates shall transact business in their own names and trade names and shall invoice all accounts in their own respective names and trade names. Section 6.03 Compliance with Laws, etc. The Co-Borrowers, their Subsidiaries and Affiliates shall comply with all Requirements of Law, and all restrictive covenants affecting the Co-Borrowers, their Subsidiaries and Affiliates or the business, Properties, assets or operations of the Co-Borrowers, their Subsidiaries and Affiliates except to the extent that non-compliance with this Section 6.03 would not result in a Material Adverse Effect. Section 6.04 Payment of Taxes and Claims. The Co-Borrowers, their Subsidiaries and Affiliates shall pay or cause to be paid (i) all taxes, assessments and other governmental charges imposed upon them or on any of their respective properties or assets or in respect of any of their respective franchises, business, income or property before any penalty or interest accrues thereon and (ii) all Claims (including, without limitation, claims for labor, services, materials and supplies) for sums material in the aggregate to the Co-Borrowers, their Subsidiaries and Affiliates which have become due and payable and which by Law have or may become a Lien (other than a Customary Permitted Lien) upon the Co-Borrowers', their Subsidiaries' and/or Affiliates' Property, prior to time when any penalty or fine shall be incurred with respect thereto; provided, however, that no such taxes, assessments and governmental charges referred to in clause (i) above or Claims referred to in clause (ii) above need be paid if being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if adequate reserves shall have been set aside therefor in accordance with Generally Accepted Accounting Principles. Section 6.05. Maintenance of Properties; Insurance. The Co-Borrowers, their Subsidiaries and Affiliates shall maintain or cause to be maintained in good repair, working order and condition, excepting ordinary wear and tear, all of their respective Properties material to their operations and will make or cause to be made all appropriate repairs, renewals and replacements thereof, consistent with past practice. The Co-Borrowers, their Subsidiaries and Affiliates shall maintain or cause to be maintained with financially sound and reputable insurers reasonably acceptable to the Agent, the insurance policies and programs listed on Schedule 6.05 attached hereto or substantially similar programs or policies and amounts or other programs, policies and amounts acceptable to the Agent. 82 Not later than thirty (30) days later than the renewal, replacement or material modification of any policy or program, the Co-Borrowers shall deliver or cause to be delivered to the Agent a certificate of insurance setting forth for each such policy or program: (i) the amount of such policy, (ii) the risks insured against by such policy, (iii) the name of the insurer and each insured party under such policy, and (iv) the policy number of such policy. Section 6.06. Inspection of Property; Books and Records; Discussions. Except for information and records which the Co-Borrowers may not under applicable Law disseminate or disclose to the Agent and/or the Lenders, the Co-Borrowers, their Subsidiaries and Affiliates shall permit any authorized representative(s) designated by the Agent and/or the Lenders to visit, to conduct a field audit or to otherwise inspect any of the Co-Borrowers', their Subsidiaries' and/or Affiliates' respective Properties, including their financial and accounting records, and to make copies and take extracts therefrom, and to discuss the Co-Borrowers', their Subsidiaries' and/or Affiliates' respective affairs, finances and accounts with the Agent's and the Lenders' officers, employees, representatives or independent certified public accountants, upon reasonable notice and during normal business hours. All information furnished to the Agent and/or the Lenders shall be received and maintained by the Agent and the Lenders in strict confidence and in accordance with applicable Law, and they shall not disseminate said information to any Person except where required by and in accordance with applicable Law or where contemplated by the Loan Documents. The Agent and the Lenders agree that it shall not take any action or omit to take any action which would cause or result in the violation of Law (including without limitation, any export control law) by the Co-Borrowers, their Subsidiaries and Affiliates. Each such visitation and inspection by or on behalf of the Agent and/or the Lenders after the occurrence and during the continuance of an Event of Default shall be at the Co-Borrowers' own reasonable cost and expense. The Co-Borrowers shall, and shall cause their Subsidiaries and Affiliates, to keep proper books and records and account in accordance with sound and accepted accounting practices, consistently applied (and all Requirements of Law). Section 6.07. Litigation, Claims, etc. The Co-Borrowers shall provide the Agent with (i) a litigation status report with respect to any suit at law or in equity asserted against it of the type referred to in Schedule 4.01(vii) attached hereto, in form and substance satisfactory to the Agent, promptly after the close of each calendar quarter; (ii) notice of any suit at law or in equity or claim brought or asserted against the Co-Borrowers, their Subsidiaries and/or Affiliates promptly after learning thereof with respect to any suit or claim involving money or property valued in excess of $500,000.00 or any such suits or claims which in the aggregate involve money or property valued in excess of $500,000.00; and (iii) prompt notice of any investigation or proceeding before or by any Governmental Authority, the effect of which is reasonably likely to have a Material Adverse Effect. Section 6.08 Labor Disputes. The Co-Borrowers shall notify the Agent in writing, promptly, but in any event within two (2) Business Days after learning thereof, of any material labor dispute to which the Co-Borrowers, their Subsidiaries and/or Affiliates may become a party, any strikes or walkouts relating to any of their Properties and the expiration of any labor contract to which they are a party or by which they are bound. Section 6.09 Maintenance of Licenses, Permits, etc. The Co-Borrowers (i) shall maintain in full force and effect, and shall cause each of their Subsidiaries and Affiliates, to maintain in full force and effect, all licenses, permits, governmental approvals, franchises, authorizations or other rights necessary for the operation of the Co-Borrowers', their Subsidiaries' and/or Affiliates' businesses, except where the failure to obtain any of the foregoing would not have or is not 83 reasonably likely to have a Material Adverse Effect and (ii) shall notify the Agent in writing, promptly after learning thereof, of the suspension, cancellation, revocation or discontinuance of or of any pending or threatened action or proceeding seeking to suspend, cancel, revoke or discontinue any such license, permit, governmental approval, franchise authorization or right, where the result thereof could reasonably be expected to have a Material Adverse Effect. Section 6.10 Use of Proceeds. The Co-Borrowers shall not use the proceeds of any Loans hereunder directly or indirectly for any unlawful purpose, in any manner inconsistent with Section 2.01(iv) and Section 2.02(ii) hereof, or inconsistent with any other provision of any Loan Document. Section 6.11 Continuation of or Change in Business. The Co-Borrowers, their Subsidiaries and Affiliates shall continue to engage in their collective businesses substantially as conducted and operated during the present and preceding Fiscal Year, and the Co-Borrowers, their Subsidiaries and Affiliates shall not engage in any other material business other than the business of high technology products and services for military and commercial customers in the United States and abroad. Section 6.12 Additional Corporate Guarantors and/or Partnership Guarantors. The Co-Borrowers shall cause any Subsidiaries and/or Affiliates which are acquired or formed after the Closing Date to execute the Agreement of Guaranty. Section 6.13 Minimum Asset Coverage. The Co-Borrowers, their Subsidiaries and Affiliates shall maintain at all times during the term of the Loan Facilities the sum of the following assets as reflected on their consolidated balance sheet, as of the date of determination, in excess of all Consolidated Senior Debt as also reflected on their consolidated balance sheet, as of the same date of determination: (i) Accounts Receivable, (ii) Inventory and (iii) Cash and Cash Equivalents which are domiciled in either or both of the United States or Canada. Section 6.14 Minimum Required Interest Rate Hedge Protection. The Co-Borrowers shall maintain for at least three (3) consecutive years during the term of the Term Loan Facility a Swap Agreement in place covering at least fifty percent (50%) of the aggregate outstanding principal balance of the Term Loan, from time to time. 84 ARTICLE VII NEGATIVE COVENANTS The Co-Borrowers covenant and agree that, on and after the Closing Date and so long as any Lender shall have any obligation hereunder and until payment in full of all of the Obligations, unless the Requisite Lenders shall otherwise give prior written consent thereto: Section 7.01. Consolidated Debt. The Co-Borrowers, their Subsidiaries and Affiliates shall not directly or indirectly create, incur, assume or otherwise become or remain directly or indirectly liable with respect to, any Consolidated Debt, except for: (i) the Obligations; (ii) accounts payable (including royalties and similar payments) owing to and letters of credit in favor of trade creditors arising from current liabilities for goods and services purchased in the normal course of the Co-Borrowers', their Subsidiaries' and/or Affiliates' respective businesses; (iii) the permitted existing Consolidated Debt as described on Schedule 7.01(iii) attached hereto, and extensions, renewals, replacements and refinancing thereof, not exceeding the principal amount outstanding on the date of such extension, renewal, replacement or refinancing, provided that the terms are no less advantageous to the Co-Borrowers, their Subsidiaries and/or Affiliates than the predecessor obligation; provided, however, in any event, the Co-Borrowers shall be permitted to refinance any of the existing Consolidated Senior Debt described on Schedule 7.01(iii) with proceeds of the Revolving Credit Facility; (iv) Consolidated Debt in respect of guarantees permitted by Section 7.11 hereof; and (v) Consolidated Debt in connection with purchase money Liens permitted by Section 7.02(ii)(e) hereof; and (vi) Unsecured Consolidated Funded Debt having in the aggregate an outstanding principal balance of not more than US$5,000,000.00, which Consolidated Debt was acquired by the Co-Borrowers, their Subsidiaries and/or Affiliates in connection with the acquisition (whether a stock acquisition or asset acquisition) of any Subsidiary, Affiliate or any other Person. Section 7.02. Sales of Assets; Liens. (i) Sales. The Co-Borrowers, their Subsidiaries and Affiliates shall not sell, assign, transfer, lease, convey, abandon or otherwise dispose of, voluntarily or involuntarily, any Properties, whether now owned or hereafter acquired, or any income or profits therefrom, except: (a) sales of Inventory in the ordinary course of business; and/or (b) sales of any Properties having net sales proceeds of up to US$750,000.00 per year in the aggregate (and the Agent and the Lenders agree to release their security interest in the Collateral which is sold for no consideration). 85 (ii) Liens. The Co-Borrowers, their Subsidiaries and Affiliates shall not directly or indirectly create, incur, assume or permit to exist any Lien on or with respect to any of their respective Properties except: (a) Liens securing the Obligations; (b) any interest or title of a lessor or secured by a lessor's interest under any lease permitted by this Loan Agreement; (c) Liens existing on the date of this Loan Agreement securing any of the existing Consolidated Debt described on Schedule 7.01(iii) attached hereto (but said Liens may not be increased in principal amount); (d) Customary Permitted Liens; (e) purchase money Liens securing Consolidated Debt (including the interest of a lessee under a Capitalized Lease) in the aggregate principal amount outstanding at any time not to exceed US$1,000,000.00; and (f) Liens securing Consolidated Debt permitted under Section 7.01(vi) above. Section 7.03. Loans, Advances and Investments. The Co-Borrowers, their Subsidiaries and Affiliates shall not, at any time make or suffer to exist or remain outstanding, any loan or advance to, or purchase, acquire or own (beneficially or of record) any stock, bonds, notes or securities of, or any partnership interest (whether general or limited) in, or any other interest in, or make any capital contribution to or other investment in, any other Person, or agree, become or remain liable (contingent or otherwise) to do any of the foregoing, except: (i) Loans and investments existing on the date hereof and listed in Schedule 7.03 attached hereto and extensions, renewals and refinancing thereof on terms no less favorable than those existing immediately before such extension, renewal or refinancing); (ii) Accounts receivable owing to the Co-Borrowers, their Subsidiaries and Affiliates arising from sales of inventory under usual and customary terms in the ordinary course of business and loans and advances extended by the Co-Borrowers, their Subsidiaries and/or Affiliate to subcontractors or suppliers (excluding subcontractors or suppliers who are Subsidiaries or Affiliates) under usual and customary terms in the ordinary course of business; (iii) Loans from a Co-Borrower, a Subsidiary or an Affiliate to another Co-Borrower, Subsidiary or Affiliate; (iv) Loans or advances not to exceed US$500,000.00 in the aggregate at any time outstanding made to officers, partners or other employees of the Co-Borrowers, their Subsidiaries and/or Affiliates; (v) Investments in Cash or Cash Equivalents; (vi) Investments in all existing and any new Subsidiaries or Affiliates who are conducting business similar to or the same as the Co-Borrowers, their Subsidiaries or Affiliates; 86 provided, that, the Co-Borrowers shall deliver to the Agent at least ten (10) Business Days prior to the actual closing date of the formation or acquisition of said new Subsidiaries or Affiliates, a proforma compliance certificate in the form set forth in Exhibit "F-1" attached hereto, taking into consideration the effect of said acquisition or formation; and (vii) Loans not to exceed US$2,000,000.00 in the aggregate at any time outstanding to Persons whom the Co-Borrowers, their Subsidiaries and/or Affiliates have identified to the Lender in writing are targets of a proposed or contemplated acquisition by the Co-Borrowers, their Subsidiaries and/or Affiliates. Section 7.04. Restricted Junior Payments. The Co-Borrowers, their Subsidiaries and Affiliates shall not declare or make any Restricted Junior Payment, except (i) they may make any distribution (whether direct or indirect and whether in the form of cash, property, securities or otherwise) to shareholders, employees or other permitted distributees under DRS's 1996 Omnibus Plan and other benefit or retirement plans maintained by the Co-Borrowers, their Subsidiaries and Affiliates and (ii) they may distribute shares of their capital stock to any Person or the owners of said Person in connection with an acquisition of said Person. Section 7.05. Restriction on Fundamental Changes. The Co-Borrowers, their Subsidiaries and Affiliates shall not enter into any merger or consolidation, or liquidate, windup or dissolve (or suffer any liquidation or dissolution), or convey, lease, sell, transfer or otherwise dispose of, in one transaction or series of transactions, all or any substantial part of their respective businesses, properties or assets, whether now or hereafter acquired except (i) as permitted by Section 7.02(i) hereof and (ii) mergers of any Subsidiary or Affiliate into (a) any of the Co-Borrowers or (b) another Subsidiary or Affiliate. Section 7.06. ERISA. The Co-Borrowers, their Subsidiaries and Affiliates shall not, and the Co-Borrowers shall not permit any of its ERISA Affiliates to, do any of the following to the extent that such act or failure to act would result in the aggregate, after taking into account any other such acts or failure to act, in an obligation to pay a sum of money that is material to the business of the Co-Borrowers, their Subsidiaries and Affiliates: (i) Engage, or permit an ERISA Affiliate to engage, in any prohibited transaction described in Section 406 of ERISA or Section 4975 of the Code for which a class exemption is not available or a private exemption has not been obtained from the DOL; (ii) Permit to exist any accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived; (iii) Fail, or permit an ERISA Affiliate to fail, to pay timely required contributions or annual installments due with respect to any waived funding deficiency to any Plan; (iv) Terminate, or permit an ERISA Affiliate to terminate, any Benefit Plan which would result in any liability of the Co-Borrowers, their Subsidiaries, Affiliates or an ERISA Affiliate under Title IV of ERISA; or (v) Fail, or permit any ERISA Affiliate to fail, to pay any required installment under section (m) of Section 412 of the Code or any other payment required under Section 412 of the Code on or before the due date for such installment or other payment. 87 Section 7.07 Amendment of Articles of Incorporation or By-Laws. The Co-Borrowers, their Subsidiaries and Affiliates shall not materially amend, modify or supplement their respective articles of incorporation, by-laws or partnership agreements, except upon at least ten (10) days' prior express written notice to the Agent. Section 7.08 Margin Regulations. No portion of the proceeds of any credit extended under this Loan Agreement shall be used in any manner which might cause the extension of credit or the application of such proceeds to violate Regulation G, Regulation U or Regulation X or any other regulation of the Federal Reserve Board or to violate the Securities Exchange Act or the Securities Act, in each case as in effect on the date or dates of such Borrowing and such use of proceeds. Section 7.09 Cancellation of Consolidated Debt; Prepayment. The Co-Borrowers, their Subsidiaries and Affiliates shall not cancel any Claim or Consolidated Debt (except for adequate consideration and in the ordinary course of their respective businesses) and shall not prepay any long-term Consolidated Subordinated Debt; provided, however, that the foregoing shall not prohibit the prepayment of the Obligations or the refinance of any Consolidated Subordinated Debt in amounts and on terms and conditions equal to or better than the existing terms and conditions. Section 7.10 Environmental Liabilities. The Co-Borrowers, their Subsidiaries and Affiliates shall not become subject to any Liabilities and Costs which the Agent deems has or is likely to have a Material Adverse Effect arising out of or related to (i) the Release or threatened Release at any location of any Environmental Concern Material into the Environment, or any Remedial Action in response thereto, or (ii) any violation of any Environmental, health or safety Requirement of Law; provided, however, that this covenant shall not be violated so long as (a) the Co-Borrowers, their Subsidiaries and Affiliates shall have notified the Agent of the assertion of such liability or required expenditures promptly upon receiving written notice of such assertion, (b) the Co-Borrowers shall have continued to furnish the Agent with such information concerning such asserted liability or required expenditure as the Agent shall have reasonably requested, or as otherwise provided herein, (c) the Co-Borrowers, their Subsidiaries and Affiliates shall be diligently pursuing indemnification for such liability or required expenditures from any Person which has an obligation to provide such indemnification, and (d) the Agent is satisfied that the imposition of such liability during the pendency of the Co-Borrowers', their Subsidiaries' or Affiliates' pursuit of indemnification will not materially impair the Co-Borrowers', its Subsidiaries' or its Affiliates' ability to perform its financial obligations under this Loan Agreement. Section 7.11 Guaranties. The Co-Borrowers, their Subsidiaries and Affiliates shall not assume, guaranty, endorse or otherwise be or become directly or contingently responsible or liable, for obligations or liabilities of any Person, except for: (i) guaranties existing on the Closing Date as described on Schedule 7.11(i) attached hereto; (ii) guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (iii) guaranties of direct obligations of any of the Co-Borrowers, their Subsidiaries and/or Affiliates. 88 Section 7.12 No Negative Pledges to Other Person. The Co-Borrowers, their Subsidiaries and Affiliates shall not grant to another Person a covenant commonly referred to as a "negative pledge" with respect to their respective assets and Properties. 89 ARTICLE VIII FINANCIAL COVENANTS The Co-Borrowers covenant and agree that, on and after the Closing Date so long as any Lender has any Commitment hereunder and until payment in full of all the Obligations unless the Requisite Lenders shall otherwise give prior written consent thereto: Section 8.01 Minimum Consolidated Net Worth. The Co-Borrowers, their Subsidiaries and Affiliates shall have on the last day of each Fiscal Year (which covenant shall be tested at the end of the periods covered by the annual consolidated and consolidating financial statements which are to be provided to the Agent pursuant to Section 5.02 of this Loan Agreement), a minimum Consolidated Net Worth of at least the amount set forth below for each corresponding Fiscal Year: Fiscal Year Test Dates Minimum Consolidated Net Worth ---------------------- ------------------------------ March 31, 1998 the greater of (i) US$29,688,000.00 or (ii) ninety percent (90%) of the actual Consolidated Net Worth as of said March 31, 1998 On the last day of each subsequent Fiscal Year thereafter * * For each Fiscal Year after the Fiscal Year ending on March 31, 1998, the Co-Borrowers, their Subsidiaries and Affiliates shall maintain a Minimum Consolidated Net Worth of not less than the minimum actual Consolidated Net Worth for the immediately preceding Fiscal Year plus (a) fifty percent (50%) of the Consolidated Net Income (profits but not losses) of the Co-Borrowers, their Subsidiaries and Affiliates for each said Fiscal Year then ended and (b) one hundred percent (100%) of the net proceeds received by any one or more of the Co-Borrowers, their Subsidiaries or Affiliates from the equity issuance of their capital stock to Persons other than the Co-Borrowers, their Subsidiaries or Affiliates. Section 8.02 Maximum Consolidated Senior Debt Leverage Ratio. The Co-Borrowers, their Subsidiaries and Affiliates shall have on the last day of each Fiscal Quarter and each Fiscal Year (which covenant shall be tested at the end of the periods covered by the quarterly and annual consolidated and consolidating financial statements which are to be provided to the Agent pursuant to Section 5.02 of this Loan Agreement) a Consolidated Senior Debt Leverage Ratio equal to or less than the ratios set forth below for each corresponding test date. Fiscal Quarter Test Dates Maximum Permitted Ratio ------------------------- ----------------------- December 31, 1997 and 2.5 - to - 1.0 March 31, 1998 June 30, 1998, September 30, 1998, 2.0 - to - 1.0 December 31, 1998 and March 31, 1999 June 30, 1999 and each 1.5 - to - 1.0 September 30, December 31, March 31 and June 30 thereafter up through and including March 31, 2003 90 Section 8.03 Maximum Consolidated Funded Debt Leverage Ratio. The Co-Borrowers, their Subsidiaries and Affiliates shall have on the last day of each Fiscal Quarter and each Fiscal Year (which covenant shall be tested at the end of the periods covered by the quarterly and annual consolidated and consolidating financial statements which are to be provided to the Agent pursuant to Section 5.02 of this Loan Agreement) a Consolidated Funded Debt Leverage Ratio equal to or less than the ratios set forth below for each corresponding test date. Fiscal Quarter Test Dates Maximum Permitted Ratio ------------------------- ----------------------- December 31, 1997 and 3.5 - to - 1.0 March 31, 1998 June 30, 1998, September 30, 1998, 3.0 - to - 1.0 December 31, 1998 and March 31, 1999 June 30, 1999, September 30, 1999, 2.75 - to - 1.0 December 31, 1999 and March 31, 2000 June 30, 2000 and each 1.75 - to - 1.0 September 30, December 31, March 31 and June 30 thereafter up through and including March 31, 2003 91 Section 8.04 Minimum Consolidated Fixed Charge Coverage Ratio. The Co-Borrowers, their Subsidiaries and Affiliates shall have on the last day of each Fiscal Quarter and each Fiscal Year (which covenant shall be tested at the end of the periods covered by the quarterly and annual consolidated and consolidating financial statements which are to be provided to the Agent pursuant to Section 5.02 of this Loan Agreement) a Consolidated Fixed Charge Coverage Ratio equal to or greater than the ratios set forth below for each corresponding test date. Fiscal Quarter Test Dates Maximum Permitted Ratio ------------------------- ----------------------- December 31, 1997, 1.25 - to - 1.0 March 31, 1998, June 30, 1998,* September 30, 1998, December 31, 1998 and March 31, 1999 June 30, 1999, September 30, 1999, 1.5 - to - 1.0 December 31, 1999 and March 31, 2000 June 30, 2000, September 30, 2000, 1.75 - to - 1.0 December 31, 2000 and March 31, 2001 June 30, 2001 and each 2.0 - to - 1.0 September 30, December 31, March 31 and June 30 thereafter up through and including March 31, 2003 * For purposes of this Section 8.04, the Consolidated Fixed Charge Coverage Ratio for the test dates of December 31, 1997, March 31, 1998 and June 30, 1998 shall be calculated not on a rolling four (4) quarters basis but rather only for the prior Fiscal Quarter ending on each such date. Commencing on September 30, 1998 and continuing at all times thereafter, the Consolidated Fixed Charge Coverage Ratio shall be tested for the period of four (4) consecutive Fiscal Quarters immediately preceding said date of determination taken together as one (1) accounting period. 92 ARTICLE IX EVENTS OF DEFAULT; RIGHTS AND REMEDIES Section 9.01 Events of Default. The occurrence of any of the following events with the passing of any applicable notice and cure periods shall constitute an "Event of Default" under this Loan Agreement (hereinafter referred to as an "Event of Default"): (i) Any representation or warranty made by any one or more of the Co-Borrowers, the Partnership Guarantor, the Corporate Guarantors or any other Person in any of the Loan Documents furnished in connection with the Loan Facilities, shall prove to have been false, incorrect or misleading in any substantial and material respect on the date as of which made; (ii) Any one or more of the Co-Borrowers shall have failed to make any payment of any installment of interest on any of the Notes, the Letters of Credit Reimbursement Agreement and/or under this Loan Agreement on their respective due dates; (iii) Any one or more of the Co-Borrowers shall have failed to make any payment of principal on any of the Notes, the Letters of Credit Reimbursement Agreement and/or under this Loan Agreement on their respective due dates; (iv) Any one or more of the Co-Borrowers, the Partnership Guarantor and/or the Corporate Guarantors shall have failed to duly observe or perform any covenant, condition or agreement with respect to the payment of monies on the part of the Co-Borrowers, the Partnership Guarantor and/or the Corporate Guarantors to be observed or performed pursuant to the terms of the Loan Documents, other than the payment of principal and interest which shall be governed by Section 9.01(ii) and (iii) above, and such default shall have remained uncured for a period of thirty (30) days after written notice thereof to the Co-Borrowers, the Partnership Guarantor and/or the Corporate Guarantors by the Agent; (v) Any one or more of the Co-Borrowers, the Partnership Guarantor and/or the Corporate Guarantors shall have failed to duly observe or perform any covenant, condition or agreement on the part of the Co-Borrowers, the Partnership Guarantor and/or the Corporate Guarantors to be observed or performed pursuant to the terms of the Loan Documents other than the payment of monies which shall be governed by Section 9.01 (ii), (iii) and (iv) above, and such default shall have remained uncured for a period of thirty (30) days after written notice thereof to the Co-Borrowers, the Partnership Guarantor and/or the Corporate Guarantors by the Agent; (vi) Any one or more of the Co-Borrowers, the Partnership Guarantor and/or the Corporate Guarantors shall have applied for or consented to the appointment of a custodian, receiver, trustee or liquidator of all or a substantial part of their respective assets; a custodian shall have been appointed with or without consent of the Co-Borrowers, the Partnership Guarantor and/or the Corporate Guarantors; the Co-Borrowers, the Partnership Guarantor and/or the Corporate Guarantors shall generally not be paying their respective Debts as they become due; the Co-Borrowers, the Partnership Guarantor and/or the Corporate Guarantors shall have made a general assignment for the benefit of their respective creditors; the Co-Borrowers, the Partnership Guarantor and/or the Corporate Guarantors, shall have filed a voluntary petition (or assignment) in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with their respective creditors, or shall have taken advantage of any insolvency law, or shall have filed an answer admitting the material allegations of a petition in bankruptcy, reorganization or insolvency 93 proceeding; or a petition in bankruptcy shall have been filed against any one or more of the Co-Borrowers, the Partnership Guarantor and/or the Corporate Guarantors and shall not have been dismissed for a period of sixty (60) consecutive days, or an Order for Relief or Receiving Order or Interim Order shall have been entered against the Co-Borrowers, the Partnership Guarantor and/or the Corporate Guarantors under either the Bankruptcy Code or the Bankruptcy Act; or an order, judgment or decree shall have been entered without the application, approval or consent of the Co-Borrowers, the Partnership Guarantor and/or the Corporate Guarantors by any court of competent jurisdiction appointing a receiver, trustee, custodian or liquidator of the Co-Borrowers, the Partnership Guarantor and/or the Corporate Guarantors of a substantial part of their respective assets and such order, judgment or decree shall have continued unstayed and in effect for any period of sixty (60) consecutive days; (vii) A writ of execution or attachment or any similar process shall be issued or levied against all or any part of or interest in any of the Properties of any one or more of the Co-Borrowers, the Partnership Guarantor and/or the Corporate Guarantors or any judgment involving monetary damages shall be entered against any one or more of the Co-Borrowers, the Partnership Guarantor and/or the Corporate Guarantors which shall become a lien on any one or more of the Co-Borrowers', the Partnership Guarantor's and/or the Corporate Guarantors' Properties or any portion thereof or interest therein and such execution, attachment or similar process is not released, bonded, satisfied, vacated or stayed within thirty (30) days after its entry or levy, and said writ of execution, attachment, levy or judgment shall involve monetary damages aggregating more than US$500,000.00; (viii) Seizure or foreclosure of any of the Properties of any one or more of the Co-Borrowers, the Partnership Guarantor and/or the Corporate Guarantors pursuant to process of law or by respect of legal self-help, involving monetary damages aggregating more than US$500,000.00, unless said seizure or foreclosure is stayed or bonded within thirty (30) days after the occurrence of same; (ix) The voluntary permanent closing of business or ceasing of operations of any one or more of the Co-Borrowers, the Partnership Guarantor and/or the Corporate Guarantors, the result of which would have a Material Adverse Effect; (x) Default by any one or more of the Co-Borrowers, the Partnership Guarantor and/or the Corporate Guarantors in any of the terms or conditions of any agreement (excluding the Loan Documents) covering the payment of borrowed money from the Agent and/or any other creditor (which with respect to any other creditor shall be in an amount involving not less than US$500,000.00), which default has been declared by the Agent or said other creditor, and said Consolidated Debt with respect to any other creditor has been accelerated; (xi) The occurrence of a material adverse change in the business, financial condition, financial performance, properties or operations of any one or more of the Co-Borrowers, the Partnership Guarantor and the Corporate Guarantors taken as a whole; and (xii) The occurrence of a Reportable Event, the result of which would have a Material Adverse Effect. Section 9.02 Rights and Remedies. 94 (i) Acceleration. Upon the occurrence and during the continuance of any Event of Default described in the foregoing Section 9.01(vi) hereof, the Commitments shall automatically and immediately terminate and the unpaid principal amount of and any and all accrued interest on the Loans and all Reimbursement Obligations shall automatically become immediately due and payable, with all additional interest from time to time accrued thereon and without presentment, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and of acceleration), all of which are hereby expressly waived by the Co-Borrowers, their Subsidiaries and Affiliates, and the obligation of each of the Lenders to make any additional Revolving Credit Loans or issue any additional Letters of Credit hereunder shall thereupon terminate. Upon the occurrence and during the continuance of any other Event of Default described in Section 9.01 above, the Agent shall, at the request, or may with the consent, of the Requisite Lenders, by written notice to the Co-Borrowers, (a) declare that the Commitments are terminated, whereupon the Commitments and the obligation of each Lender to make any Loan or the Issuing Bank to issue any Letters of Credit hereunder shall immediately terminate and/or (b) declare the unpaid principal amount of and any and all accrued and unpaid interest on the Loans and all Reimbursement Obligations to be, and the same shall thereupon be, immediately due and payable with all additional interest from time to time accrued thereon and without presentment, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and of acceleration), all of which are hereby expressly waived by the Co-Borrowers. (ii) Deposit for Letters of Credit. Upon demand by the Agent or the Issuing Bank after the occurrence and during the continuance of any Event of Default, the Co-Borrowers shall deposit with the Agent for the benefit of the Issuing Bank with respect to each Letter of Credit then outstanding for the account of the Co-Borrowers, promptly upon the demand of the Agent, Cash or Cash Equivalents in an amount equal to the greatest amount for which all such Letter of Credit may be drawn. Such deposit shall be held by the Agent for the benefit of the Issuing Bank as security for, and to provide for the payment of, the Reimbursement Obligations. (iii) Rights Under Loan Documents. Upon the occurrence and during the continuance of any Event of Default, the Agent may and upon the direction of the Required Lenders, shall take any lawful action against the Co-Borrowers, the Corporate Guarantors and/or the Partnership Guarantor to collect the payments then due and thereafter to become due under the Loan Documents, including, without limitation, any rights under the Collateral Documents. (iv) Set-off. Upon the occurrence and during the continuance of any Event of Default, without prior notice or other action (any such notice being expressly waived by the Co-Borrowers; however the Agent and each Lender shall give the Co-Borrowers notice within three (3) days after the Agent and/or the Lender has set off any amounts) the Agent and each Lender may set-off any money owed by the Agent and said Lender in any capacity to the Co-Borrowers or any Property of the Co-Borrowers in the possession of the Agent and said Lender against any of the monetary obligations of the Co-Borrowers to the Agent and said Lender under the Loan Documents, and the Agent and said Lender shall be deemed to have exercised such right of set-off and to have made a charge against any such money or property immediately, even though the actual book entries may be made at some time subsequent thereto. Section 9.03 Application of Proceeds. (i) All payments and proceeds received under Section 9.02 of this Loan Agreement shall be applied in the following order of priority: 95 (a) First, to the payment of all reasonable fees, costs and expenses (including reasonable attorney's fees and expenses) incurred by the Agent, any Lender and/or their agents or representatives in connection with the realization of such payments or proceeds; (b) Next, to the payment in full of all unpaid principal, accrued interest and other sums, if any, due and owing under the Term Loan Facility; (c) Next, to the payment in full of all unpaid principal, accrued interest and other sums, if any, due and owing under the Revolving Credit Facility; (d) Next, to any Swap Obligations; (e) Next, the balance, if any, or such payments, proceeds, or amounts to the Co-Borrowers, or, if otherwise determined by a court of competent jurisdiction, to whomever may be entitled thereto. (ii) If the amount of the proceeds received from the sale or other disposition of the Collateral shall be insufficient to satisfy in full the amounts referred to in clauses (a) and (d) above, then the Co-Borrowers shall remain and be jointly and severally liable for any such deficiency. Section 9.04 No Notices. In order to entitle the Agent to exercise any remedy available to it under Section 9.02 of this Loan Agreement, it shall not be necessary for the Agent to give any notice, other than such notice as may be required expressly in this Loan Agreement or by applicable Law. Section 9.05 Agreement to Pay Attorneys' Fees and Expenses. Upon the occurrence and during the continuance of an Event of Default, as a result of which the Agent and/or any Lender shall require and employ attorneys or incur other expenses for the collection of payments due or to become due or the enforcement or performance or observance of any obligation or agreement on the part of the Co-Borrowers contained herein, the Co-Borrowers shall, on demand, pay to the Agent and/or the applicable Lender, the reasonable fees of such attorneys and such other expenses so incurred by them. Section 9.06 No Additional Waiver Implied by One Waiver. In the event that any agreement contained in this Loan Agreement should be breached by any party and thereafter waived by the other parties, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. Section 9.07 Failure to Exercise Rights. Nothing herein contained shall impose upon the Agent and the Lenders any obligation to enforce any terms, covenants or conditions contained in this Loan Agreement and the other Loan Documents. Failure of the Agent and/or the Lenders, in any one or more instances, to insist upon strict performance by the Co-Borrowers of any terms, covenants or conditions of this Loan Agreement and the other Loan Documents, shall not be considered or taken as a waiver or relinquishment by the Agent and the Lenders of its right to insist upon and to enforce in the future, by injunction or other appropriate legal or equitable remedy, strict compliance by the Co-Borrowers with all the terms, covenants and conditions of this Loan Agreement and the other Loan Documents. The consent of the Agent and/or the Lenders to any act or omission by the Co-Borrowers shall not be construed to be a consent to any other or subsequent act or omission or to waive the requirement for the Agent's or the Lender's consent to be obtained in any future or other instance. 96 Section 9.08 Waiver Of Jury Trial. THE CO-BORROWERS, THE AGENT AND THE LENDERS HEREBY WAIVE ANY AND ALL RIGHTS THAT THEY MAY NOW OR HEREAFTER HAVE UNDER THE LAWS OF THE UNITED STATES OF AMERICA OR ANY STATE, TO A TRIAL BY JURY OF ANY AND ALL ISSUES ARISING EITHER DIRECTLY OR INDIRECTLY IN ANY ACTION OR PROCEEDING BETWEEN THE CO-BORROWERS, THE AGENT AND THE LENDERS OR THEIR SUCCESSORS AND ASSIGNS, OUT OF OR IN ANY WAY CONNECTED WITH THIS LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS. IT IS INTENDED THAT SAID WAIVER SHALL APPLY TO ANY AND ALL DEFENSES, RIGHTS, AND/OR COUNTERCLAIMS IN ANY ACTION OR PROCEEDING. THE CO-BORROWERS, THE AGENT AND THE LENDERS RECOGNIZE THAT ANY DISPUTE ARISING IN CONNECTION WITH THE REVOLVING CREDIT FACILITY IS LIKELY TO BE COMPLEX AND CONSEQUENTLY THEY WISH TO STREAMLINE AND MINIMIZE THE COST OF THE DISPUTE RESOLUTION PROCESS BY AGREEING TO WAIVE THEIR RIGHTS TO A JURY TRIAL. Section 9.09 Remedies Cumulative. No remedy herein conferred upon or reserved to the Agent and/or the Lenders is intended to be exclusive of any other remedy or remedies; but each and every such remedy shall be cumulative, and shall be in addition to every other remedy given hereunder, or now or hereafter existing at law or in equity or by statute. No express or implied waiver by the Agent and/or the Lender of any Event of Default hereunder shall in any way be, or be construed to be, a waiver of any future or subsequent Event of Default. No delay or omission to exercise any right or power accruing upon any Event of Default continuing as aforesaid, shall impair any such right or power or shall be construed to be a waiver of any such Event of Default, or acquiescence therein; and every such right and power may be exercised from time to time and as often as may be deemed expedient. 97 ARTICLE X THE AGENT Section 10.01 Appointment. (i) Each Lender hereby irrevocably designates and appoints Mellon Bank N.A. as the Agent of such Lender under this Loan Agreement and the Loan Documents. Each Lender hereby irrevocably authorizes the Agent to take such action on its behalf under the provisions of this Loan Agreement and the other Loan Documents and to exercise such powers as are set forth herein or therein together with such other powers as are incidental thereto. Each Lender hereby irrevocably authorizes the Agent to execute and deliver each of the Loan Documents and to accept delivery of such of the other Loan Documents as may not require execution by the Agent. Each Lender agrees that the rights and remedies granted to the Agent under the Loan Documents shall be exercised exclusively by the Agent, and that no Lender shall have any right individually to exercise any such right or remedy, except to the extent expressly provided herein or therein. The Agent agrees to act as such on the express conditions contained in this Article X. (ii) The provisions of this Article X are solely for the benefit of the Agent and the Lenders, and the Co-Borrowers shall not have any rights to rely on or enforce any of the provisions hereof. In performing its functions and duties under this Loan Agreement, the Agent shall act solely as agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for the Co-Borrowers. Section 10.02 General Nature of the Agent's Duties. Notwithstanding anything to the contrary elsewhere in this Loan Agreement or in any other Loan Document: (i) The Agent shall have no duties or responsibilities except those expressly set forth in this Loan Agreement and the other Loan Documents, and no implied duties or responsibilities on the part of the Agent shall be read into this Loan Agreement or any Loan Document or shall otherwise exist. (ii) The duties and responsibilities of the Agent under this Loan Agreement and the other Loan Documents shall be mechanical and administrative in nature, and the Agent shall not have a fiduciary relationship in respect of any Lender. (iii) The Agent is and shall be solely the agent of the Lenders. The Agent does not assume, and shall not at any time be deemed to have, any relationship of agency or trust with or for, or any other duty or responsibility to, the Co-Borrowers, the Subsidiaries or their Affiliates or any other Person (except only for its relationship as agent for, and its express duties and responsibilities to the Lenders as provided in this Loan Agreement and the other Loan Documents). (iv) The Agent shall be under no obligation to take any action hereunder or under any other Loan Document if the Agent believes in good faith that taking such action may conflict with any Law or any provision of this Loan Agreement or any other Loan Document, or may require the Agent to qualify to do business in any jurisdiction where it is not then so qualified. Section 10.3 Exercise of Powers. The Agent shall take any action of the type specified in this Loan Agreement or any other Loan Document as being within the Agent's rights, powers 98 or discretion in accordance with directions from the Requisite Lenders (or, to the extent this Loan Agreement or such other Loan Document expressly requires the direction or consent of some other Person or set of Persons, then instead in accordance with the directions of such other Person or set of Persons). In the absence of such directions, the Agent shall have the authority (but under no circumstances shall be obligated), in its sole discretion, to take any such action, except to the extent this Loan Agreement or such Loan Document expressly requires the direction or consent of the Requisite Lenders (or some other Person or set of Persons), in which case the Agent shall not take such action absent such direction or consent. Any action or inaction pursuant to such direction, discretion or consent shall be binding on all the Lenders. The Agent shall not have any liability to any Person as a result of (i) the Agent acting or refraining from acting in accordance with the directions of the Requisite Lenders (or other applicable Person or set of Persons), (ii) the Agent refraining from acting in the absence of instructions to act from the Requisite Lenders (or other applicable Person or set of Persons), whether or not the Agent has discretionary power to take such action, or (iii) the Agent taking discretionary action it is authorized to take under this Section (subject, in the case of this clause (iii), to the provisions of Section 10.04(i) hereof). Section 10.04 General Exculpatory Provisions. Notwithstanding anything to the contrary elsewhere in this Loan Agreement or any other Loan Document: (i) The Agent shall not be liable for any action taken or omitted to be taken by it under or in connection with this Loan Agreement or any other Loan Documents, unless caused by its own gross negligence or willful misconduct. (ii) The Agent shall not be responsible for (a) the execution, delivery, effectiveness, enforceability, genuineness, validity or adequacy of this Loan Agreement or any other Loan Document, (b) any recital, representation, warranty, document, certificate, report or statement in, provided for in, or received under or in connection with, this Loan Agreement or any other Loan Document, (c) any failure of the Co-Borrowers, their Subsidiaries or Affiliates or any Lender to perform any of their respective obligations under this Loan Agreement or any other Loan Document, (d) the existence, validity, enforceability, perfection, recordation, priority, adequacy or value, now or hereafter, of any Lien or other direct or indirect security afforded or purported to be afforded by any of the Loan Documents or otherwise from time to time, or (e) caring for, protecting, insuring, or paying any taxes, charges or assessments with respect to any Collateral. (iii) The Agent shall not be under any obligation to ascertain, inquire or give any notice relating to (a) the performance or observance of any of the terms or conditions of this Loan Agreement or any other Loan Document on the part of the Co-Borrowers, their Subsidiaries or Affiliates (b) the business, operations, condition (financial or otherwise) or prospects of the Co-Borrowers, their Subsidiaries or Affiliates or (c) except to the extent set forth in Section 10.05(vi) hereof, the existence of any Event of Default or any Potential Event of Default. (iv) The Agent shall not be under any obligation, either initially or on a continuing basis, to provide any Lender with any notices, reports or information of any nature, whether in its possession presently or hereafter, except for such notices, reports and other information expressly required by this Loan Agreement or any other Loan Document to be furnished by the Agent to such Lender, of which the Agent has actual receipt or possession. 99 Section 10.05 Administration by the Agent. (i) The Agent may rely upon any notice or other communication of any nature (written or oral, including but not limited to telephone conversations, whether or not such notice or other communication is made in a manner permitted or required by this Loan Agreement or any Loan Document) purportedly made by or on behalf of the proper party or parties, and the Agent shall not have any duty to verify the identity or authority of any Person giving such notice or other communication. (ii) The Agent may consult with legal counsel (including, without limitation, in-house counsel for the Agent or in-house or other counsel for the Co-Borrowers or any Lender), independent certified public accountants and any other experts selected by it from time to time, and the Agent shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts. (iii) The Agent may conclusively rely upon the truth of the statements and the correctness of the opinions expressed in any certificates or opinions furnished to the Agent in accordance with the requirements of this Loan Agreement or any other Loan Document. Whenever the Agent shall deem it necessary or desirable that a matter be proved or established with respect to the Co-Borrowers or any Lender, such matter may be established by a certificate of the Co-Borrowers or any Lender, as the case may be, and the Agent may conclusively rely upon such certificate (unless other evidence with respect to such matter is specifically prescribed in this Loan Agreement or another Loan Document). (iv) The Agent may fail or refuse to take any action unless it shall be indemnified to its satisfaction from time to time against any and all amounts, liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature which may be imposed on, incurred by or asserted against the Agent by reason of taking or continuing to take any such action. (v) The Agent may perform any of its duties under this Loan Agreement or any other Loan Document by or through agents or attorneys-in-fact. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. (vi) The Agent shall not be deemed to have any knowledge or notice of the occurrence of any Event of Default or Potential Event of Default unless the Agent has received notice from a Lender or the Co-Borrowers referring to this Loan Agreement, describing such Event of Default or Potential Event of Default, and stating that such notice is a "notice of default". If the Agent receives such a notice, the Agent shall give prompt notice thereof to each Lender. Section 10.06 Each Lender Not Relying on Agent or Other Lenders. Each Lender acknowledges as follows: (i) neither the Agent nor any other Lender has made any representation or warranties to it, and no act taken or hereafter by the Agent or any other Lender shall be deemed to constitute any representation or warranty by the Agent or such other Lender to it; (ii) it has, independently and without reliance upon the Agent or any other Lender, and based upon such documents and information as it has deemed appropriate, made its own credit and legal analysis and decision to enter into this Loan Agreement and the other Loan Documents; and (iii) 100 it will, independently and without reliance upon the Agent or any other Lender, and based upon such documents and information as it shall deem appropriate at the time, make its own decisions to take or not take action under or in connection with this Loan Agreement and the other Loan Documents. Section 10.07 Indemnification. Each Lender agrees to reimburse and indemnify the Agent and its directors, officers, employees, attorneys and agents (to the extent not reimbursed by the Co-Borrowers and without limitation of the obligations of the Co-Borrowers to do so), for such Lender's Pro Rata Share (based on the Commitments), from and against any and all amounts, losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements of any kind or nature (including, without limitation, the fees and disbursements of counsel for the Agent for such other Person in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not the Agent or such other Person shall be designated a party thereto) that may at any time be imposed on, incurred by or asserted against the Agent or such other Person as a result of, or arising out of, or in any way related to or by reason of, this Loan Agreement, any other Loan Document, any transaction from time to time contemplated hereby or thereby, or any transaction financed in whole or in part or directly or indirectly with the proceeds of any Loan; provided, however, no Lender shall be liable for any portion of such amounts, losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements resulting solely from the gross negligence or willful misconduct of the Agent or such other Person. Payment under this Section 10.07 shall be due and payable on demand, and to the extent that any Lender fails to pay any such amount on demand, such amount shall bear interest for each day from the date of demand until paid (before and after judgment) at a rate per annum (calculated on the basis of a year of 360 days and actual days elapsed) which for each day shall be equal to the Federal Funds Effective Rate. Section 10.08 Agent in its Individual Capacity. With respect to its Commitments and the Obligations owing to it, the Agent shall have the same rights and powers under this Loan Agreement and each other Loan Document as any other Lender and may exercise the same as though it were not the Agent, and the terms "Lenders," "holders of Notes" and like terms shall include the Agent in its individual capacity as such. The Agent and its Affiliates may, without liability to account, make loans to, accept deposits from, acquire debt or equity interests in, act as trustee under indentures of, and engage in any other business with the Co-Borrowers as though the Agent were not the Agent hereunder. Section 10.09 Holders of Notes. The Agent may deem and treat the Lender which is payee of a Note as the owner and holder of such Note for all purposes hereof unless and until an Assignment and Acceptance with respect to the assignment or transfer thereof shall have been filed with the Agent in accordance with Section 11.02 hereof. Any authority direction or consent of any person who at the time of giving such authority, direction or consent is shown in the Loan Account as being a Lender shall be conclusive and binding on each present and subsequent holder, transferee or assignee of any Note or Notes payable to such Lender or of any Note or Notes issued in exchange therefor. Section 10.10 Successor Agent. The Agent may resign at any time by ten (10) days prior express written notice thereof to the Lenders and the Co-Borrowers. The Agent may be removed by the Requisite Lenders at any time, for cause, by giving ten (10) days prior express written notice thereof to the Agent, the other Lenders and the Co-Borrowers. Upon any such resignation or removal, the Requisite Lenders shall have the right to appoint a successor Agent. If no 101 successor Agent shall have been so appointed and consented to, and shall have accepted such appointment, within thirty (30) days after such notice of resignation or removal, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent. Each successor Agent shall be a commercial bank or trust company organized under the laws of the United States of America, or any State thereof, or Canada, or any Province thereof, and having a combined capital and surplus of at least US$1,000,000,000.00 and is otherwise in compliance with all then applicable laws or regulations regarding regulatory capital requirements after giving effect to any "phase-in" provisions thereof. Upon the acceptance by a successor Agent of its appointment as Agent hereunder, such successor Agent shall thereupon succeed to and become vested with all the properties, rights, powers, privileges and duties of the former Agent, without further act, deed or conveyance. Upon the effective date of resignation or removal of a retiring Agent, such Agent shall be discharged from its duties under this Loan Agreement and the other Loan Documents, but the provisions of this Loan Agreement shall inure to its benefit as to any actions taken or omitted by it while it was Agent under this Loan Agreement. If and so long as no successor Agent shall have been appointed, then any notice or other communication required or permitted to be given by the Agent shall be sufficiently given if given by the Requisite Lenders, all notices or other communications required or permitted to be given to the Agent shall be given to each Lender, and all payments to be made to the Agent shall be made directly to the Co-Borrowers or the Lender for whose account such payment is made. Section 10.11 Additional Agents. If the Agent shall from time to time deem it necessary or advisable, for its own protection in the performance of its duties hereunder or in the interest of the Lenders, then the Agent and the Co-Borrowers shall execute and deliver a supplemental agreement and all other instruments and agreements necessary or advisable, in the opinion of the Agent, to constitute another commercial bank or trust company, or one or more other Persons approved by the Agent, to act as co-Agent or agent with respect to any part of the Collateral with such powers of the Agent as may be provided in such supplemental agreement, and to vest in such bank, trust company or Person as such co-Agent or separate agent, as the case may be, any properties, rights, powers, privileges and duties of the Agent under this Loan Agreement or any other Loan Document. Section 10.12 Calculations. The Agent shall not be liable for any calculation, apportionment or distribution of payments made by it in good faith. If such calculation, apportionment or distribution is subsequently determined to have been made in error, the sole recourse of any Lender to whom payment was due but not made shall be to recover from the other Lenders any payment in excess of the amount to which they are determined to be entitled or, if the amount due was not paid by the Co-Borrowers, to recover such amount from the Co-Borrowers. 102 ARTICLE XI MISCELLANEOUS Section 11.01 Concerning the Collateral and the Collateral Documents. Each Lender authorizes and directs the Agent for the benefit of the Lenders, to enter into the Collateral Documents. Each Lender agrees that any action taken by the Agent or the Requisite Lenders in accordance with the provisions of this Loan Agreement or the Collateral Documents, and the exercise by the Agent or the Requisite Lenders of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Lenders. Section 11.02 Assignments and Participations. (i) Each Lender (including, without limitation, each Canadian Lender) may assign to any bank or financial institution, all or a portion of its rights and obligations under this Loan Agreement (including, without limitation, all or a portion of its Revolving Credit Commitments, its Term Loan Commitments, its Pro Rata Share of the Term Loan and its Pro Rata Share of the Revolving Credit Loans owing to it) subject to the following conditions: (a) each such assignment, shall be of a constant, and not a varying, percentage of the assigning Lender's rights and obligations under this Loan Agreement and the assignments shall cover the same percentage of such Lender's (including its Affiliate Canadian Lender's) Revolving Credit Commitment, Term Loan Commitment, Letter of Credit Obligations, Term Loan and Revolving Credit Loans, (b) the aggregate amount of the Commitments of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance Agreement with respect to such assignment) shall not cause or otherwise result in said assigning Lender's remaining unassigned aggregate amount of Commitments, Letter of Credit Obligations, Term Loan and Revolving Credit Loans to be less than US$7,500,000.00 (except the Agent, in its capacity as a Lender, shall always retain at least US$10,000,000.00), (c) each such assignment shall be to an Eligible Assignee, (d) the Eligible Assignee shall execute and deliver to the Agent, for its approval, acceptance and recording in a register maintained by the Agent, an Assignment and Acceptance Agreement, together with processing and recordation fee of Five Thousand and 00/100 (US$5,000.00) Dollars unless waived by the Agent; (e) the principal amount of an assigned Revolving Credit Commitments, Letter of Credit Obligations and Revolving Credit Loans shall be not less than US$7,500,000.00 or any integral multiple of US$1,000,000.00 in excess thereof; (f) the Agent and, so long as no Event of Default exists or is continuing, the Co-Borrowers have provided their respective prior express written consents to such assignment, with consent shall not be unreasonably withheld and which consent shall be indicated by their execution of said Assignment and Acceptance Agreement (it being understood and agreed that the Lenders may assign their rights and interests under the Loan Documents to any Person or Persons following the occurrence of an Event of Default, without the consent of any of the Co-Borrowers, the Corporate Guarantors or the Partnership Guarantor); and (g) a Lender may not assign, or permit its Affiliate Canadian Lender to assign, its Pro Rata Share of the Canadian Revolving Credit Sublimit (its "Canadian Revolving Credit Exposure") or the Term Loan or Term Loan Commitments to an Eligible Assignee that is a non-resident of Canada for purposes of the Income Tax Act of Canada (with respect to which payments to such non-resident of principal, interest, fees and other amounts by the Canadian Borrower would be subject to Canadian withholding tax) at a rate higher than that then applicable to the assignor, provided further, that the assignment by a Lender of its Affiliate Canadian Lender's Canadian 103 Revolving Credit Exposure, shall constitute the assignment of a like amount of such Lender's Revolving Credit Loans and Revolving Credit Commitment. Upon such execution, delivery, approval, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance Agreement, (1) the Eligible Assignee thereunder shall be a party to this Loan Agreement and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance Agreement, have the rights and obligations of a Lender hereunder and (2) the Lender assignor thereunder shall to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance Agreement, relinquish its rights and be released from its obligations under this Loan Agreement. (ii) By executing and delivering an Assignment and Acceptance Agreement, the assignor Lender thereunder and the Eligible Assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (a) other than as provided in such Assignment and Acceptance Agreement, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Loan Agreement or any other Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Loan Agreement or any other Loan Document or any other instrument or document furnished pursuant hereto; (b) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Co-Borrowers, their Subsidiaries or Affiliates or the performance or observance by the Co-Borrowers, their Subsidiaries or Affiliates of any of their obligations under any Loan Document or any other instrument or document furnished pursuant hereto; (c) such Eligible Assignee confirms that it has received all Loan Documents and other documents and information as such Eligible Assignee has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance Agreement; (d) such Eligible Assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Loan Agreement; (e) such Eligible Assignee confirms that it is an Eligible Assignee; (f) such Eligible Assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto; and (g) such Eligible Assignee agrees that it will perform in accordance with its terms all of the obligations which by the terms of this Loan Agreement are required to be performed by it as a Lender. (iii) The Agent shall maintain at its address referred to on the signature pages hereof a copy of each Assignment and Acceptance Agreement delivered to and accepted by it and shall record in the Loan Account the names and addresses of each Lender and the Commitment of, and principal amount of the Loans owing to, such Lender from time to time. The Co-Borrowers, their Subsidiaries and Affiliates, the Agent and the Lenders may treat each Person whose name is recorded in the Loan Account as a Lender hereunder for all purposes of this Loan Agreement. (iv) Upon its receipt of an Assignment and Acceptance Agreement executed by an assigning Lender and an Eligible Assignee representing that it is an Eligible Assignee, the Agent shall, if such Assignment and Acceptance Agreement has been properly completed and is in substantially the form of Exhibit "A" attached hereto, (a) accept such Assignment and Acceptance Agreement, (b) record the information contained therein in the Loan Account and (c) give prompt notice thereof to the Co-Borrowers. 104 (v) Each Lender may sell to any bank or other financial institution one or more participations, in any amounts, in and to a portion of its rights and obligations under this Loan Agreement (including, without limitation, all or a portion of its Revolving Credit Commitment, Term Loan Commitment, Loans and Letter of Credit Obligations owing to it) subject to the following conditions: (a) such Lender's obligations under this Loan Agreement (including, without limitation, its Revolving Credit Commitment, Term Loan Commitment, Loans and Letter of Credit Obligations to the Co-Borrowers hereunder) shall remain unchanged; (b) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations; (c) the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Loan Agreement, including voting rights, and with regard to any and all payments to be made under this Loan Agreement; (d) Mellon Bank, N.A. shall at all times retain a beneficial interest in the Loan Facilities of not less than US$7,500,000.00; and (e) the holder of any such participation shall not (1) be entitled to voting rights or the right to approve of any action under this Loan Agreement or otherwise, except that such selling Lender may agree that it will not vote, without the consent of Persons holding a majority of such Lender's rights and interests under this Loan Agreement, solely with respect to the amendment or modification of those provisions of this Loan Agreement for which, pursuant to Section 11.06 hereof, the consent of all the Lenders would be required and (2) be permitted to contact the Co-Borrowers without the prior express written consent of the Selling Lender and the Agent (which consent may be rescinded by the Co-Borrowers at any time). The Co-Borrowers authorize the Agent and each Lender to disclose to any prospective participant any and all financial and other information in such Person's possession concerning the Co-Borrowers which have been or may have been delivered to such Person by or on behalf of the Co-Borrowers in connection with this Loan Agreement or any other Loan Document or such Person's credit evaluation of the Co-Borrowers, their Subsidiaries and Affiliates provided, however, said prospective participant shall enter into a confidentiality agreement with the selling Person in form and substance satisfactory to the Agent. (vi) Any Lender may at any time assign and pledge to any Federal Reserve Bank (or to an Affiliate of such Lender for the purpose of permitting such Affiliate to assign and pledge to any Federal Reserve Bank), as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank all or any portion of its Revolving Credit Commitment, Term Loan Commitment, Letter of Credit Obligations and Loans. No such assignment shall release the assigning Lender from its obligations hereunder. (vii) In connection with the execution and delivery of each Assignment and Acceptance Agreement as provided for in Section 11.02(iv) above, the assigning Lender shall deliver to the Agent the superseded Note and the Agent shall deliver to the Co-Borrowers for execution by the Co-Borrowers, new Notes in order to reflect the Pro Rata Share of Commitments of the assigning Lender and the applicable Eligible Assignee after giving effect to such Assignment and Acceptance Agreement. The Co-Borrowers covenant and agree to execute said new Notes and to return them to the Agent so that the Agent may deliver said new Notes to the appropriate Lenders; provided, however, the Agent shall not deliver said new Notes unless and until the assigning Lender shall have delivered the superseded Note to the Agent. The assigning Lender hereby appoints the Agent as its attorney-in-fact (coupled with an interest) for the sole purpose of canceling the superseded Note and the assigning Lender hereby covenants and agrees that the Agent shall not be liable for any action taken or omitted to be taken by the 105 Agent in connection therewith, unless caused by the Agent's own gross negligence or willful misconduct. Upon the Co-Borrowers' request, the Agent shall stamp the superseded Note "CANCELED" and return said superseded Note to the Co-Borrowers and shall deliver the new Notes to the appropriate Lenders. Section 11.03 Expenses (i) Generally. The Co-Borrowers agree upon demand to pay or reimburse the Agent for, all of the Agent's reasonable external legal costs and expenses (but not internal legal costs and expenses) and all internal and external audit, appraisal, valuation and investigation expenses and for all other reasonable out-of-pocket costs and expenses of every type and nature (including, without limitation, the reasonable fees, expenses and disbursements of Reed Smith Shaw & McClay LLP and any other attorneys retained by the Agent, auditors, accountants, appraisers, printers, insurance and environmental advisers, and other consultants and agents) incurred by the Agent in connection with (a) the protection of the Agent's Liens in the Collateral (including, without limitation, any fees and expenses for title and lien searches, local counsel in various jurisdictions, filing and recording fees and taxes, duplication costs and corporate search fees), (b) administration of this Loan Agreement, the Loan Documents, the Loans and the Collateral, including consultation with attorneys in connection therewith and in connection with the amendment, waiver or consents required or requested hereunder and (c) the protection, collection or enforcement of any of the Obligations or the Collateral. (ii) After Default. The Co-Borrowers further agree to pay, or reimburse the Agent and the Lenders for all reasonable out-of-pocket costs and expenses, including, without limitation, reasonable attorneys' fees and disbursements, and costs of settlement incurred by the Agent after the occurrence of an Event of Default (a) in enforcing any Obligation or in foreclosing against the Collateral or exercising or enforcing any other right or remedy available by reason of such Event of Default, (b) in connection with any refinancing or restructuring of the credit arrangements provided under this Loan Agreement in the nature of a "work-out" or in any insolvency or bankruptcy proceeding, (c) in commencing, defending or intervening in any litigation or in filing a petition, complaint, answer, motion or other pleadings in any legal proceeding relating to the Co-Borrowers and related to or arising out of the transactions contemplated thereby or by any of the Loan Documents, (d) in taking any other action in or with respect to any suit or proceeding (whether in bankruptcy or otherwise), (e) in protecting, preserving, collecting, leasing, selling, taking possession of, or liquidating any of the Collateral, or (f) attempting to enforce or enforcing any security interest in any of the Collateral or any other rights under the Collateral Documents. Section 11.04 Indemnity. The Co-Borrowers further agree to defend, protect, indemnify, and hold harmless the Indemnified Parties from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for the Indemnified Parties in connection with any investigative, administrative or judicial proceeding, whether or not the Indemnified Parties shall be designated a party thereto), imposed on, incurred by or asserted against the Indemnified Parties (whether direct, indirect or consequential and whether based on any Federal or state Laws or other statutory regulations, including, without limitation, securities and commercial laws and regulations, under common law or at equitable cause, or on contract or otherwise, including any liability and costs under Federal, 106 state or local environmental, health or safety laws, regulations, or common law principles, arising from or in connection with the past, present or future environmental condition of the Property, the presence of asbestos-containing materials at the Property, or the Release or threatened Release of any Environmental Concern Material into the Environment from the Property) in any manner relating to the conduct of the business of the Co-Borrowers, their Subsidiaries and/or Affiliates or the use or intended use of the proceeds of the Loans hereunder (collectively, the "Indemnified Matters"); provided, however, that the Co-Borrowers shall not have any obligation to an Indemnified Party hereunder with respect to (a) matters for which such Indemnified Party has been compensated pursuant to or for which an exemption is provided in Section 2.06 and Section 2.07 hereof or any other provision of this Loan Agreement and (b) Indemnified Matters caused by or resulting from the willful misconduct or gross negligence of that Indemnified Party, as determined by a court of competent jurisdiction. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Co-Borrowers shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all Indemnified Matters incurred by the Indemnified Parties. Section 11.05 Ratable Sharing. Subject to Article II hereof, the Lenders agree among themselves that (i) with respect to all amounts received by them which are applicable to the payment of the Obligations (excluding the fees described in Section 2.04) hereof, equitable adjustment will be made so that, in effect, all such amounts will be shared among them ratably in proportion to the respective principal amounts of the Loans then outstanding to each Lender (or if no Loans are outstanding, ratably according to the respective amount of each Lender's Revolving Credit Commitment to all Revolving Credit Commitments and each Lender's Term Loan Commitment to all Term Loan Commitments), whether received by voluntary payment, by the exercise of the right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any or all of the Obligations (excluding the fees described in Section 2.04 hereof) or the Collateral, (b) if any of them shall by voluntary payment or by the exercise of any right of counterclaim, set-off, banker's lien or otherwise, receive payment of a proportion of the aggregate amount of the Obligations held by it which is greater than its ratable share, determined in proportion to the respective principal amounts of the Loans then outstanding to each Lender (or if no Loans are outstanding, ratably according to the respective amount of each Lender's Revolving Credit Commitment to all Revolving Credit Commitments and each Lender's Term Loan Commitment to all Term Loan Commitments), of the payments on account of Obligations (excluding the fees described in Section 2.04 hereof), the one receiving such excess payment shall purchase, without recourse or warranty, an undivided interest and participation (which it shall be deemed to have done simultaneously upon the receipt of such payment) in such obligations shall be applied ratably in proportion to respective principal amounts of the Loans then outstanding to each Lender (or if no Loans are outstanding, ratably according to the respective amount of each Lender's Revolving Credit Commitment to all Revolving Credit Commitments and each Lender's Term Loan Commitment to all Term Loan Commitments); provided, however, that if all or part of such excess payment received by the purchasing party is thereafter recovered from it, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to that party to the extent necessary to adjust for such recovery, but without interest except to the extent the purchasing party is required to pay interest in connection with such recovery. The Co-Borrowers agree that any Lender so purchasing a participation from another Lender pursuant to this Section 11.05 may, to the fullest extent permitted by law, exercise all its rights of payment with respect to such participation as fully as if such Lender were the direct creditor of the Co-Borrowers in the amount of such participation. For purposes of this Section 11.05, the Swap Agreement shall not be included as part of the 107 defined term "Obligations" in determining, as set forth above, all amounts that shall be shared ratably amongst the Lenders. Section 11.06 Amendments and Waivers. No amendment or modification of any provision of this Loan Agreement shall be effective without the written agreement of the Requisite Lenders and the Co-Borrowers, and no termination or waiver of any provision of this Loan Agreement, or consent to any departure by the Co-Borrowers therefrom, shall in any event be effective without the written concurrence of the Requisite Lenders, which the Requisite Lenders shall have the right to grant or withhold at their sole discretion; except that any amendment, modification or waiver of any of the following provisions shall be effective only if evidenced by a writing signed by or on behalf of all Lenders: (i) Increase the Revolving Credit Commitment of any Lender over the amount thereof then in effect, or extend the Revolving Credit Termination Date or the maturity; (ii) Increase the Term Loan Commitment of any Lender over the amount thereof then in effect, or extend the Term Loan Maturity Date; (iii) Reduce the principal amount of or extend the time for any scheduled payment of principal of any of the Loans or Reimbursement Obligations, or reduce the rate of interest or extend the time for payment of interest borne by any of the Loans or Reimbursement Obligations or extend the time for payment or reduce the payment of any fees, or reduce or postpone the payment of any other expenses, indemnities or amounts payable under any of the Loan Documents; (iv) Change the definition of "Requisite Lenders" or amend this Section 11.06; (v) Release any Collateral or any guarantees of the Loan Facilities; and (vi) Change the definition of "Pro Rata Share". No amendment, modification, termination, or waiver of any provision of Article X hereof or any other provision referring to the Agent shall be effective without the prior express written consent of the Agent. The Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of such Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on the Co-Borrowers in any case shall entitle the Co-Borrowers to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 11.06 shall be binding on each assignee, transferee or recipient of a Lender's Revolving Credit Commitment or Loans at the time outstanding, each future assignee, transferee or recipient of a Lender's Revolving Credit Commitment, Term Loan Commitment, Letter of Credit Obligations or Loans, and, if signed by the Co-Borrowers, on the Co-Borrowers. Section 11.07 Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitation of, another covenant shall not avoid the occurrence of an Event of Default or potential Event of Default if such action is taken or condition exists. 108 Section 11.08 Notices. Unless otherwise specifically provided therein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served or sent by confirmed telecopy transmission, nationally recognized overnight courier service or United States mail and shall be deemed to have been given when delivered in person or by courier service, upon receipt of a confirmed telecopy transmission or four (4) Business Days after deposit in the United States mail (registered or certified, with postage prepaid and properly addressed). Notices to the Agent pursuant to Article II hereof shall not be effective until received by the Agent. For the purposes hereof, the addresses of the parties hereto (until notice of a. change thereof is delivered as provided in this Section 11.08) shall be as set forth below each party's name on the signature pages hereof, or, as to each party, at such other address as may be designated by such party in a written notice to all of the other parties. Section 11.09 Survival of Warranties and Agreement. All agreements, representations and warranties made herein shall survive the execution and delivery of this Loan Agreement and the other Loan Documents and the making and repayment of the Loans hereunder. Section 11.10 Marshalling; Recourse to Security; Payments Set Aside. The Agent and the Lenders shall not be under any obligation to marshall any assets in favor of the Co-Borrowers or any other party or against or in payment of any or all of the Obligations. Recourse to the Collateral shall not be required at any time. To the extent that the Co-Borrowers make a payment or payments to the Agent or a Lender, or the Agent or a Lender enforces their security interests or exercise their rights of set-off, and such payment or payments or the proceeds of such enforcement or set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or set-off and not occurred. Section 11.11 Severability. In case any provision in or obligation under this Loan Agreement or the other Loan Documents shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. Section 11.12 Governing Law. This Loan Agreement shall be governed by, and shall be construed and enforced in accordance with, the laws of the Commonwealth of Pennsylvania. Section 11.13 Successors and Assigns. This Loan Agreement and the other Loan Documents shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and permitted assigns of the Lenders. The terms and provisions of this Loan Agreement shall inure to the benefit of any assignee or transferee of the Loans and Commitments of any Lender, and in the event of such transfer or assignment, the rights and privileges herein conferred upon Lenders shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. The Co-Borrowers' duties and Obligations hereunder, may not be assigned without the prior express written consent of the Requisite Lenders. Section 11.14 Consent to Jurisdiction and Service of Process. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE CO-BORROWERS, THEIR 109 SUBSIDIARIES AND/OR AFFILIATES WITH RESPECT TO THIS LOAN AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE CITY OF PHILADELPHIA, PENNSYLVANIA, AND BY EXECUTION AND DELIVERY OF THIS LOAN AGREEMENT, THE CO-BORROWERS ACCEPT, FOR THEMSELVES AND IN CONNECTION WITH THEIR PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY FINAL JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS LOAN AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS FROM WHICH NO APPEAL HAS BEEN TAKEN OR IS AVAILABLE. THE CO-BORROWERS IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO ITS NOTICE ADDRESS SPECIFIED ON THE SIGNATURE PAGES HEREOF, SUCH SERVICE TO BECOME EFFECTIVE TEN (10) DAYS AFTER SUCH MAILING. THE CO-BORROWERS, THE SUBSIDIARIES AND AFFILIATES, THE AGENT AND THE LENDERS IRREVOCABLY WAIVE ANY OBJECTION (INCLUDING WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS LOAN AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY JURISDICTION SET FORTH ABOVE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF ANY LENDER TO BRING PROCEEDINGS AGAINST THE CO-BORROWERS IN THE COURTS OF ANY OTHER JURISDICTION. Section 11.15 Counterparts; Effectiveness; Inconsistencies. This Loan Agreement and any amendments, waivers, consents, or supplements may be executed in counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Loan Agreement and each of the other Loan Documents shall be construed to the extent reasonable to be consistent one with the other, but to the extent that the terms and conditions of this Loan Agreement are actually inconsistent with the terms and conditions of any other Loan Documents, this Loan Agreement shall govern. Section 11.16 Construction. The parties acknowledge that each party and its counsel have reviewed and revised this Loan Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Loan Agreement or any amendments or exhibits hereto. Section 11.17 Entire Agreement. This Loan Agreement, taken together with all of the other Loan Documents and all certificates and other documents delivered by the Co-Borrowers or any other Person to the Agent or the Lenders, embody the entire agreement and supersede all prior agreements, written and oral, relating to the subject matter hereof. Section 11.18 Process Agent. The Canadian Borrower hereby irrevocably appoints DRS Technologies, Inc., with an address on the date hereof at 5 Sylvan Way, Parsippany, New Jersey 07054 (the "Process Agent"), as process agent in its name, place and stead to receive and 110 forward service of any and all writs, summonses and other legal process in any suit, action or proceeding brought in the State of Pennsylvania, agrees that such service in any such suit, action or proceeding may be made upon the Process Agent and agrees to take all such action as may be necessary to continue said appointment in full force and effect or to appoint another agent so that such Canadian Borrower will at all times have an agent for service of process for the above purposes. Section 11.19 Judgment Currency. The payment obligation of the Canadian Borrower shall not be discharged by an amount paid in another currency (other than U.S. Dollars) or in another place, whether pursuant to a judgment or otherwise, to the extent the amount so paid on prompt conversion to U.S. Dollars and transferred to the Agent, under normal banking procedures does not yield the amount of U.S. Dollars in the Agent's Office due hereunder. In the event that any payment by or on behalf of the Canadian Borrower, whether pursuant to a judgment or otherwise, upon conversion and transfer does not result in payment of such amount of U.S. Dollars to the Agent at the Agent's Office, the Agent shall have a separate cause of action against the Co-Borrowers for the additional amount necessary to yield the amount due and owing to the Agent and the Lenders hereunder. IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be executed and delivered by their proper and duly authorized corporate officers, and each of the Co-Borrowers has caused its corporate seal to be hereunto affixed and attested pursuant to the resolution of its Board of Directors, all as of the day and year first hereinabove written. [SEAL] DRS TECHNOLOGIES, INC., ATTEST: a Delaware corporation, as a Co-Borrower ______________________ By:_______________________________ Nancy R. Pitek Mark S. Newman Assistant Secretary President Notice Address: 5 Sylvan Way Parsippany, New Jersey 07054 Attn.: Nancy R. Pitek Vice President, Finance and Treasurer Telecopy No.: (973) 898-4730 111 With a copy to: Hannoch Weisman, A Professional Corporation 4 Becker Farm Road Roseland, New Jersey 07068 Attn.: Jonathan M. Gross, Esq. Telecopy No.: (973) 994-7198 [SEAL] DRS TECHNOLOGIES CANADA COMPANY/ ATTEST: ATTEST: COMPAGNIE DRS TECHNOLOGIES CANADA a Nova Scotia company, as a Co-Borrower _____________________ By:_______________________ Nancy R. Pitek Mark S. Newman Assistant Secretary President Notice Address: 5 Sylvan Way Parsippany, New Jersey 07054 Attn.: Nancy R. Pitek Vice President, Finance and Treasurer Telecopy No.: (973) 898-4730 With a copy to: Hannoch Weisman, A Professional Corporation 4 Becker Farm Road Roseland, New Jersey 07068 Attn.: Jonathan M. Gross, Esq. Telecopy No.: (973) 994-7198 [SEAL] DRS TECHNOLOGIES CANADA, INC., ATTEST: a Delaware corporation, as a Co-Borrower ______________________ By:_________________________________ Nancy R. Pitek Mark S. Newman Assistant Secretary President Notice Address: 5 Sylvan Way Parsippany, New Jersey 07054 Attn.: Nancy R. Pitek Vice President, Finance and Treasurer Telecopy No.: (973) 898-4730 112 With a copy to: Hannoch Weisman, A Professional Corporation 4 Becker Farm Road Roseland, New Jersey 07068 Attn.: Jonathan M. Gross, Esq. Telecopy No.: (973) 994-7198 MELLON BANK, N.A., as a Lender By:___________________________ G. Richard Bertolet Senior Vice President Notice Address: Mellon Financial Services Raritan Plaza One Raritan Center Edison, New Jersey 08837 Attn.: Peter A. Dontas Vice President Telecopy No.: (732) 225-4820 With a copy to: Reed Smith Shaw & McClay LLP 136 Main Street Princeton Forrestal Village Princeton, New Jersey 08540 Attn.: Daniel F. Peck, Jr., Esq. Telecopy No.: (609) 951-0824 (1) Commitment Percentage of Revolving Credit Loan Facility: 100% (2) Pro Rata Share of Revolving Credit Commitments: US$40,000,000.00 (3) Commitment Percentage of Term Loan Facility:_-0-_% (4) Pro Rata Share of Term Loan Commitments: US$_____-0-_________ 113 MELLON BANK CANADA, as a Lender By:____________________________ Notice Address: Mellon Bank Canada Royal Trust Tower P.O. Box 320, Suite 3200 Toronto Dominion Centre, 32nd Floor Toronto, Ontario M5K 1K2 Attn.: Vice President and Manager, Corporate Banking Telecopy No.:(416) 860-2409 With a copy to: Reed Smith Shaw & McClay LLP 136 Main Street Princeton Forrestal Village Princeton, New Jersey 08540 Attn.: Daniel F. Peck, Jr., Esq. Telecopy No.: (609) 951-0824 and Mellon Financial Services Raritan Plaza One Raritan Center Edison, New Jersey 08837 Attn.: Peter A. Dontas Vice President Telecopy No.: (732) 225-4820 and Fraser & Beatty, Barristers & Solicitors P.O. Box 100 1 First Canadian Place 100 King Street, West Toronto, Ontario M5X 1B2 Canada Attn.: Peter E. Murphy Telecopy No.: (416) 863-4592 (1) Commitment Percentage of Revolving Credit Loan Facility: 50 %* (2) Pro Rata Share of Revolving Credit Commitments: US$20,000,000.00* 114 (3) Commitment Percentage of Term Loan Facility:_100_% (4) Pro Rata Share of Term Loan Commitments: US$20,000,000.00____ * This percentage and dollar amount represents a sublimit of the Revolving Credit Loan Facility. 115 MELLON BANK, N.A., as the Agent By:__________________________ G. Richard Bertolet Senior Vice President Notice Address: Mellon Financial Services Raritan Plaza One Raritan Center Edison, New Jersey 08837 Attn.: Peter A. Dontas Vice President Telecopy No.: (732) 225-4820 With a copy to: Reed Smith Shaw & McClay LLP 136 Main Street Princeton Forrestal Village Princeton, New Jersey 08540 Attn.: Daniel F. Peck, Jr., Esq. Telecopy No.: (609) 951-0824 116 EXHIBIT "A" ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT THIS ASSIGNMENT AND ACCEPTANCE AGREEMENT, dated as of ___________________ (hereinafter referred to as the "Assignment Agreement"), executed by and between _____________, a [national banking association organized and existing under the laws of the United States of America] [state banking institution organized and existing under the laws of the State of __________ ] (hereinafter referred to as the "Assignor") and _______________, a [national banking association organized and existing under the laws of the United States of America] [state banking institution organized and existing under the laws of the State of __________ ] (hereinafter referred to as the "Assignee"). PRELIMINARY STATEMENTS WHEREAS, the Assignor in its capacity as a Lender is a party to that certain Revolving Credit Loan and Term Loan Agreement dated October 29, 1997, executed by and among DRS Technologies, Inc., DRS Technologies Canada Company / Compagnie DRS Technologies Canada and DRS Technologies Canada, Inc. (hereinafter collectively referred to as the "Co-Borrowers"), Mellon Bank, N.A., as the Agent for all of the Lenders (hereinafter referred to as the "Agent"), and the Lenders identified therein (hereinafter each individually referred to as a "Lender" and hereinafter said Revolving Credit Loan and Term Loan Agreement as it may be from time to time amended, supplemented or otherwise modified in accordance with its terms shall be referred to as the "Loan Agreement" and all capitalized terms used herein but not expressly defined herein shall have the meanings assigned to such terms in the Loan Agreement); and WHEREAS, in accordance with Section 11.02 of the Loan Agreement, the Assignor wishes to sell, assign and transfer to the Assignee, and the Assignee wishes to purchase, accept and acquire from the Assignor, a portion, specified herein, of the Assignor's outstanding Credit Loans, Term Loan, Letter of Credit Obligations, Revolving Credit Commitments and term Loan Commitments, subject to and in accordance with all of the terms and conditions of this Assignment Agreement; and NOW THEREFORE, intending to be legally bound hereby, the parties hereto agree as follows: SECTION 1. ASSIGNMENT; PAYMENTS; THE NOTES. (a) Subject to the terms and conditions hereof, the Assignor hereby irrevocably sells, assigns and transfers to the Assignee, without recourse, and the Assignee hereby purchases, takes and assumes from the Assignor all of the Assignor's rights, title and interests in and to, together with all of the Assignor's duties, liabilities and obligations in connection with: (i) that percentage (hereinafter referred to as the "Percentage") identified on Exhibit "A" attached hereto, of the Assignor's Revolving Credit Commitment and Term Loan Commitment, under the Loan Agreement and other Loan Documents; and (ii) an identical Percentage of all Revolving Credit Loans, Term Loan and Letter of Credit Obligations owned by the Assignor outstanding and other amounts under the Loan Agreement and the Notes owned by the Assignor as of the date hereof; and (iii) all guarantees thereof and collateral security therefore and all rights, duties, instruments and documents pertaining thereto and arising under or in connection with the Loan Agreement or the Loan Documents (hereinafter the foregoing Sections (i), (ii) and (iii) shall be collectively referred to as the "Assigned Obligations"). From and after the date hereof: (1) principal due on or after the date hereof that would otherwise be payable to the Assignor pursuant to the Loan Agreement, its Revolving Credit Note and its Term Loan Note shall be payable to the Assignee to the extent of the Assignee's Percentage (as now reflected in the Assignor's and the Assignee's respective new Revolving Credit Notes [AND TERM NOTES]; (2) the Assignor and Assignee shall make all appropriate adjustments in payments for periods prior to the date hereof or with respect to the making of this Assignment Agreement, directly between themselves, it being understood that interest and fees with respect to the assigned obligations and accruing prior to the date hereof shall be the property of the Assignor, and interest and fees with respect to the assigned obligations and accruing on or after the date hereof shall be the property of the Assignee, and (3) with respect to the Assigned Obligations, the Assignee shall assume and perform all of the Assignor's duties and liabilities under or in connection with the Loan Agreement, the Revolving Credit Note, the Term Loan Note and the Loan Documents. (b) In consideration of the transfer of the Assigned Obligations, the Assignee shall pay to the Assignor, concurrently with the execution of this Assignment Agreement, the purchase price (hereinafter referred to as the "Purchase Price") listed on Exhibit "A" attached hereto representing the Assignee's Percentage of the outstanding principal amount of the Assignor's Revolving Credit Loans, Term Loan and Letter of Credit Obligations. The Assignor and this Assignee shall make appropriate adjustments in payments of interest or fees for periods prior to the date hereof, it being understood that regardless of how or where received, interest and fees with respect to the Assigned Obligations accruing prior to the date hereof shall be the property of the Assignor, and interest and fees with respect to the Assigned Obligations accruing on or after the date hereof shall be the property of the Assignee. SECTION 2. MUTUAL REPRESENTATIONS AND WARRANTIES; MUTUAL COVENANT. (a) Each of the Assignor and the Assignee represents and warrants to the other as follows: (i) it is duly organized and validly existing and has full power, authority and legal right to execute and deliver this Assignment Agreement and to perform the provisions of this Assignment Agreement on its part to be performed; (ii) the execution, delivery and performance of this Assignment Agreement have been duly authorized by all necessary corporate action; (iii) this Assignment Agreement is its legal, valid and binding obligation, enforceable against it in accordance with the terms hereof, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting the creditor's rights generally, and subject, as to enforceability, to general principles of equity or at law; and (iv) no governmental or regulatory consents, or other official authorizations and approvals are required for the due execution, delivery and performance of this Assignment Agreement, and no action by, and no notice to or filing with, any governmental authority or regulatory body is required for such execution, delivery or performance. (b) Each of the Assignor and the Assignee agree that at any time and from time to time upon the request of the other party, it will execute and deliver such further documents and do such further acts and things as such other party may reasonably request in order to effect the purposes of this Assignment Agreement. SECTION 3. DISCLAIMER. Except as set forth below, the Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representation made in or in connection with the Loan Agreement, the Loan Documents or any document or any instrument related thereto or the execution, legality, validity, enforceability, genuineness or sufficiency of any such document and assumes no responsibility for the financial condition of the Co-Borrowers or any other party obligated with respect to the Loan Agreement or the Loan Documents or the Notes or the sufficiency or adequacy of any security therefor. The Assignor represents and warrants to the Assignee that the Assignor has good and valid title to the Assigned Obligations, free and clear of any liens, security interests and encumbrances. SECTION 4. ACKNOWLEDGMENTS AND AGREEMENTS OF THE ASSIGNEE. (a) The Assignee acknowledges receipt of a conformed copy of the Loan Agreement and all the other Loan Documents and any other documents and instruments incorporated into any of the foregoing. The Assignee agrees to be bound by all of the terms and provisions of the Loan Agreement and the other Loan Documents (including without limitation the provisions of the Section 11.02 of the Loan Agreement with respect to subsequent sale, assignment or participation of all or a portion of the Loans) as if an original Lender signatory or party thereto. (b) The Assignee expressly accepts this Assignment Agreement without recourse to the Assignor. The Assignee hereby confirms that it has made an independent credit investigation and appraisal of the Co-Borrowers, the Corporate Guarantors, the Partnership Guarantor, the Revolving Credit Loan Facility, the Term Loan Facility and the sufficiency of any Collateral for the Assigned Obligations on the basis of such information as the Assignee has deemed appropriate, has entered into this Assignment Agreement on the basis of such independent investigation and appraisal and has made and shall continue to make its own credit decisions with respect to the Assigned Obligations and the Loan Agreement and actions taken or not taken thereunder. The Assignee expressly acknowledges that it is not relying upon any representation or warranty of the Assignor, express or implied relating to the validity, genuineness, enforceability, collectibility or other status of the Assigned Obligations or the credit worthiness of the Co-Borrowers or any other Person obligated with respect to the Assigned Obligations under or in connection with the Loan Agreement, the Assignor's Term Note and the Assignor's Revolving Credit Note and the Loan Documents or the value of any security therefor. The Assignee further acknowledges that the Assignor has made no assurances that the Assignor will not transfer all or any part of its remaining outstanding Revolving Credit Loans, Term Loan, Letter of Credit Obligations, Term Loan Commitment or Revolving Credit Commitment under the Loan Agreement, except that the Assignor shall be required to comply with the provisions of Section 11.02 of the Loan Agreement. SECTION 5. ASSIGNMENT. Neither the Assignee nor the Assignor may assign any of its rights or obligations under this Assignment Agreement without the prior express written consent of the other party, such consent not to be unreasonably withheld or delayed. SECTION 6. NOTICES; AUTHORIZED COMMUNICATIONS. (a) All notices and other communications provided for in this Assignment Agreement shall be in writing, which may be by confirmed telecopier transmission and addressed as set forth below or to such other address or telecopier number as may from time to time be designated by the intended recipient thereof by notice to the other party. All such notices and other communications shall be hand-delivered, or mailed by airmail, postage prepaid, or telecopied, addressed as aforesaid, and shall be effective if hand-delivered, upon delivery, or if mailed, when received, or if telecopied, when transmitted. (b) Each party hereto shall be authorized and entitled to rely upon any communication reasonably believed by such party to be signed, sent or made by a proper and duly authorized person. SECTION 7. AMENDMENT. This Assignment Agreement may not be amended, supplemented or modified except in writing, signed by both the Assignee and the Assignor. SECTION 8. WAIVER. No failure or delay on the part of either party in exercising any right hereunder shall operate as a waiver of, or impair such right. No single or partial exercise of any such right shall preclude any other further exercise thereof or the exercise of any other rights. No waiver of any such right shall be effective unless given in writing. No waiver of any such right shall be deemed a waiver of any other right hereunder. SECTION 9. ENTIRE AGREEMENT. This Assignment Agreement contains the entire agreement between the parties relating to the subject matter herein and supersedes all previous oral statements and other writings with respect thereto. The section headings used herein are intended for convenience only and shall not be deemed to control or effect any interpretation of any of the provisions hereof. SECTION 10. GOVERNING LAW. This Assignment Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. SECTION 11 COUNTERPARTS. This Assignment Agreement and any amendments, waivers, consents, or supplements may be executed in counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by an authorized signatory and delivered as of the day and year first written above. ASSIGNOR: ____________________________ By:_________________________ ASSIGNEE: ____________________________ ____________________________ By:_________________________ CONSENTED TO AND AGREED UPON THIS ____ DAY OF __________, 19___ MELLON BANK, N.A., as the Agent By: __________________________ Name: Title: CONSENTED TO AND AGREED UPON THIS ____ DAY OF __________, 19___ DRS TECHNOLOGIES, INC. as a Co-Borrower By: __________________________ Name: Title: DRS TECHNOLOGIES CANADA COMPANY / COMPAGNIE DRS TECHNOLOGIES CANADA as a Co-Borrower By: __________________________ Name: Title: DRS TECHNOLOGIES CANADA, INC. as a Co-Borrower By: __________________________ Name: Title: EXHIBIT "A" ASSIGNED OBLIGATIONS - _________________FORM DATE:_______________ 1. ASSIGNOR'S REVOLVING CREDIT COMMITMENT (PRIOR TO _________________ ASSIGNMENT): US$_________; ( % Pro Rata Share)* ASSIGNEE'S REVOLVING CREDIT COMMITMENT (AFTER _______ ASSIGNMENT): US$_________; ( % Pro Rata Share)* ASSIGNOR'S REVOLVING CREDIT COMMITMENT (AFTER _______ ASSIGNMENT): US$_________; ( % Pro Rata Share)* 2. AGGREGATE REVOLVING CREDIT LOANS OWNED BY THE ASSIGNOR AND OUTSTANDING (PRIOR TO ASSIGNMENT): US$_________ Revolving Credit Loans AGGREGATE REVOLVING CREDIT LOANS OWNED BY THE ASSIGNEE AND OUTSTANDING (AFTER ASSIGNMENT): US$_________ Revolving Credit Loans AGGREGATE REVOLVING CREDIT LOANS OWNED BY THE ASSIGNOR AND OUTSTANDING (AFTER ASSIGNMENT): US$_________ Revolving Credit Loans 3. AGGREGATE LETTERS OF CREDIT OWNED BY THE ASSIGNOR AND OUTSTANDING (PRIOR TO ASSIGNMENT): US$_________Letters of Credit AGGREGATE LETTERS OF CREDIT OWNED BY THE ASSIGNEE AND OUTSTANDING (AFTER ASSIGNMENT): US$_________Letters of Credit AGGREGATE LETTERS OF CREDIT OWNED BY THE ASSIGNOR AND OUTSTANDING (AFTER ASSIGNMENT): US$_________Letters of Credit 4. AGGREGATE TERM LOAN COMMITMENT OWNED BY THE ASSIGNOR (PRIOR TO ASSIGNMENT): US$_________; Term Loan ( % Pro Rata Share) AGGREGATE TERM LOAN COMMITMENT OWNED BY THE ASSIGNEE (AFTER ASSIGNMENT): US$_________; Term Loan ( % Pro Rata Share) AGGREGATE TERM LOAN COMMITMENT OWNED BY THE ASSIGNOR (AFTER ASSIGNMENT): US$_________; Term Loan ( % Pro Rata Share) * sublimit under U.S. Revolver, if Canadian Assignor and Assignee. EXHIBIT "B" ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 FORM OF LETTER OF CREDIT REIMBURSEMENT AGREEMENT See Attached EXHIBIT "C" ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 FORM OF BORROWING BASE CERTIFICATE - ------------------------------------------------------------------------------ DRS TECHNOLOGIES, INC., DRS TECHNOLOGIES CANADA COMPANY / COMPAGNIE DRS TECHNOLOGIES CANADA, DRS TECHNOLOGIES CANADA, INC. BORROWING BASE/NON-DEFAULT CERTIFICATE US$40,000,000 REVOLVING CREDIT LOAN TO: Mellon Bank, N.A. FROM: DRS Technologies, Inc., DRS Technologies Canada Company / Compagnie DRS Technologies Canada, and DRS Technologies Canada, Inc. DATE: ______________, - ----------------------------------------------------------------------------- QUALIFIED BILLED ACCOUNTS RECEIVABLE 1. Total Qualified Billed Accounts Receivable US$________ 1.a: Qualified Billed Government Accounts Receivable US$________ 2. Less: 90 Days from Date of Original Invoice US$________ 3. Other (explanation attached) US$________ 4. Total Ineligible Accounts Receivable US$________ 5. Eligible Billed Accounts Receivable (Line 1 - Line 4) US$________ 6. Available from Billed Accounts Receivable (80% of Line 5) US$________ ACCRUED UNBILLED GOVERNMENT ACCOUNTS RECEIVABLE 7. Total Unbilled Accounts Receivable US$________ 8. Less (explanation attached) US$________ 9. Total Ineligible Accounts Receivable US$________ 10. Eligible Unbilled Accounts Receivable (Line 7- Line 9) US$________ 11. Available from Unbilled Accounts Receivable (50% of US$________ Line 10) INVENTORY 12. Inventory (gross) US$________ 12a: Unbilled Government WIP US$________ 13. Less: Progress Billings and customer advances US$________ 14. Eligible Inventory US$________ 15. Margined Inventory (50% of line 14; capped at 30% US$________ of Revolving Credit Facility outstanding Balance or $10,000,000) BORROWING BASE AVAILABILITY 16. Borrowing Base (Ln 6 + Ln 15 + Ln 11, not >$40,000,000) US$________ 17. Current Loan Balance US$________ 18. Borrowing Base Availability (Line 16 - Line 17) US$________ The undersigned certifies to the Agent, on behalf of each of the Co-borrowers (a) the foregoing Borrowing Base Certificate is true and correct in all respects, is in accordance with the books and records of the undersigned and is prepared in accordance with the terms of the Agreement; (b) all of the representations and warranties of the Co-borrowers contained in the Loan Agreement are true and correct in all respects (if unable to recertify certain representation and/or warranties, please describe the circumstances thereof on Attachment A); and (c) no default or Event of Default or any act, event or condition which, with the giving of notice or the passage of time or both, would constitute a default or Event of Default under the Loan Agreement exists. IN WITNESS THEREOF, the undersigned has duly executed this Borrowing Base/Non-Default Certificate this ___day of ______, 199_. DRS TECHNOLOGIES, INC., DRS TECHNOLOGIES CANADA COMPANY / COMPAGNIE DRS TECHNOLOGIES CANADA AND DRS TECHNOLOGIES CANADA, INC. By:___________________________ Title:________________________ EXHIBIT "D" ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 FORM OF NOTICE OF BORROWING To: Mellon Bank, N.A. (hereinafter referred to as "Mellon") in its capacity as agent (hereinafter referred to as "Agent") under that certain Revolving Credit Loan and Term Loan Agreement dated October 29, 1997 (hereinafter referred to as the "Loan Agreement") by and between DRS Technologies, Inc., DRS Technologies Canada Company / Compagnie DRS Technologies Canada and DRS Technologies Canada, Inc. (hereinafter collectively referred to as the "Co-Borrowers") and Mellon Bank, N.A. as Agent and a Lender and certain other financial institutions as Lenders. Terms defined in the Loan Agreement and not otherwise expressly defined herein are used herein as therein defined. CC: Mellon Bank Canada (for Canadian transactions only) Pursuant to Section 2.01(ii) and Section 2.02 of the Loan Agreement, this Notice of Borrowing in respect of [REVOLVING CREDIT LOANS] [TERM LOAN] (hereinafter referred to as the "Notice") represents the request of the [CO-BORROWERS][CANADIAN BORROWER] to borrow on _______________, 19 (hereinafter referred to as the "Borrowing Date") from the Lenders an aggregate principal amount of [US$][C$]_________________ in [REVOLVING CREDIT LOANS][TERM LOAN] as a [PRIME RATE LOAN] [EURODOLLAR RATE LOAN] [CANADIAN BANKERS ACCEPTANCE]. In connection with a Eurodollar Rate Loan, the Co-Borrowers hereby elect an Eurodollar Interest Period of [ONE (1)] [TWO (2)] [THREE (3)] months. The maturity date of the Canadian Bankers Acceptance to be issued is _____ days after the date of purchase thereof. Proceeds of such [REVOLVING CREDIT LOANS][TERM LOAN] are to be deposited on the Borrowing Date in the account maintained by the Co-Borrowers with [MELLON BANK, N.A.][MELLON BANK CANADA], Account No. ______, in immediately available funds [and immediately thereafter such proceeds shall be wire-transferred to an account maintained with _________, Account Number: ________]. The Co-Borrowers hereby certify that (i) the representations and warranties of the Co-Borrowers as set forth in Sections 4.01 and Section 4.02 of the Loan Agreement and in any other Loan Document (except (a) representations and warranties which expressly speak only as of a different date, and (b) changes permitted or contemplated by the Loan Agreement) are true and correct in all material respects as of the Borrowing Date; (ii) no Event of Default or Potential Event of Default has occurred and is continuing under the Loan Agreement or any other Loan Document or will result from this proposed Borrowing; and (iii) the Co-Borrowers shall have performed in all material respects all agreements contained in and satisfied all conditions under Section 3.02 of the Loan Agreement and the other Loan Documents required to be performed by it on or prior to the Borrowing Date. The Co-Borrowers hereby represent and warrant and agree that the proceeds of the [REVOLVING CREDIT LOANS][TERM LOAN] requested by this Notice shall be used for a purpose which is permitted under Section 2.01 and/or Section 2.02 of the Loan Agreement. Dated:___________________, 19__ DRS TECHNOLOGIES, INC., as a Co-Borrower By: __________________________ Name: Title: DRS TECHNOLOGIES CANADA COMPANY / COMPAGNIE DRS TECHNOLOGIES CANADA as a Co-Borrower By: __________________________ Name: Title: DRS TECHNOLOGIES CANADA, INC., as a Co-Borrower By: __________________________ Name: Title: EXHIBIT "E" ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 FORM OF NOTICE OF CONVERSION/CONTINUATION To: Mellon Bank, N.A. (hereinafter referred to as "Mellon") in its capacity as agent (hereinafter referred to as "Agent") under that certain Revolving Credit Loan and Term Loan dated October 29, 1997 (hereinafter referred to as the "Loan Agreement") by and between DRS Technologies, Inc., DRS Technologies Canada Company / Compagnie DRS Technologies Canada and DRS Technologies Canada, Inc. (hereinafter collectively referred to as the "Co-Borrowers") and Mellon Bank, N.A. as Agent and a Lender and certain other financial institutions as Lenders. Terms defined in the Loan Agreement and not otherwise expressly defined herein are used herein as therein defined. CC: Mellon Bank Canada (for Canadian transactions only) Pursuant to Section 2.03(iii) of the Loan Agreement, this Notice of Conversion/Continuation (hereinafter referred to as the "Notice") represents the Co-Borrowers' election to [insert one of the following"]: *convert an aggregate principal amount of [US$][C$]___________ of [REVOLVING CREDIT LOANS][TERM LOAN] which are [PRIME RATE LOANS][CANADIAN BANKERS ACCEPTANCES] to [US$][C$] Eurodollar Rate Loans on _________ 19__. The initial Eurodollar Interest Period for such Eurodollar Rate Loans is required to be a [ONE (1)] [TWO (2)] [THREE (3)] month period. **convert an aggregate principal amount of [US$][C$]_________ of [REVOLVING CREDIT LOANS][TERM LOAN] which are [EURODOLLAR RATE LOANS WITH A CURRENT EURODOLLAR INTEREST PERIOD ENDING__________, 19__ ][CANADIAN BANKERS ACCEPTANCES WITH A TERM ENDING ___________, 19__], to [US$][C$] Prime Rate Loans on ____________, 19__ [.]*** [***, and continue as Eurodollar Rate Loans in an aggregate principal of [US$][C$]__________ of Eurodollar Rate Loans with a current Eurodollar Interest Period ending __________, 19__. The succeeding Eurodollar Interest Period is requested to be a [ONE (1) [TWO (2)] [THREE (3)] month period.] [****, and continue as a Canadian Bankers Acceptance in an aggregate principal of [US$][C$]__________ to be issued __ days after the date of purchase thereof. * Use if converting Prime Rate Loans or Canadian Bankers Acceptances to Eurodollar Rate Loans. ** Use if converting Eurodollar Rate Loans or Canadian Bankers Acceptances to Prime Rate Loans. *** Use if continuing as a portion of Eurodollar Rate Loan. **** Use if continuing a Canadian Bankers Acceptance. The Co-Borrowers hereby certify that no Event of Default or Potential Event of Default has occurred and is continuing under the Loan Agreement. Dated:____________________, 19__ DRS TECHNOLOGIES, INC., as a Co-Borrower By: __________________________ Name: Title: DRS TECHNOLOGIES CANADA COMPANY / COMPAGNIE DRS TECHNOLOGIES CANADA as a Co-Borrower By: __________________________ Name: Title: DRS TECHNOLOGIES CANADA, INC., as a Co-Borrower By: __________________________ Name: Title: EXHIBIT "F" ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 FORM OF OFFICER'S CERTIFICATE This Officer's Certificate of DRS TECHNOLOGIES, INC., DRS TECHNOLOGIES CANADA COMPANY / COMPAGNIE DRS TECHNOLOGIES CANADA AND DRS TECHNOLOGIES CANADA, INC. (hereinafter referred to as the "Certificate") is delivered to you pursuant to Section 5.02(v) of the Revolving Credit Loan and Term Loan Agreement dated October 29, 1997 (hereinafter said Revolving Credit Loan and Term Loan Agreement as it may be amended from time to time shall hereinafter be referred to as the "Loan Agreement") by and among DRS TECHNOLOGIES, INC., DRS TECHNOLOGIES CANADA COMPANY / COMPAGNIE DRS TECHNOLOGIES CANADA AND DRS TECHNOLOGIES CANADA, INC. (hereinafter referred to as the "Co-Borrowers") and Mellon Bank, N.A., as Agent and as a Lender and certain other financial institutions as Lenders. Terms defined in the Loan Agreement and not otherwise defined herein are used herein as therein defined. 1. I am the duly elected, qualified and acting [CHIEF FINANCIAL OFFICER], [PRESIDENT] OR [CHIEF ACCOUNTING OFFICER], of Co-Borrowers. 2. I have reviewed and am familiar with the contents of this Certificate. I am providing this certificate solely in my capacity as an Authorized Officer of the Co-Borrowers. The matters set forth herein are true to the best of my knowledge, after diligent inquiry, but I express no personal opinion as to any conclusions of law or other legal matters. 3. I have reviewed the terms of the Loan Agreement and the principal Loan Documents and have made, or caused to be made, under my supervision, a review in reasonable detail of the transactions and condition of the Co-Borrowers, their Subsidiaries and Affiliates during the accounting period covered by the attached financial statements and computations attached hereto as Exhibit "F-1" (hereinafter referred to as the "Financial Statements"). Such review did not disclose the existence during or at the end of the accounting period covered by the attached Financial Statements, and I have no knowledge of the existence as of the date of this Certificate, of any condition or event which constitutes an Event of Default or Potential Event of Default, except as set forth below:* * set forth additional factual information if applicable 4. I hereby certify in my capacity as [PRESIDENT] [CHIEF FINANCIAL OFFICER] OR [CHIEF ACCOUNTING OFFICER] in my capacity as an Authorized Officer the Financial Statements, as to my knowledge, present fairly the financial position of the Co-Borrowers, their Subsidiaries and Affiliates as of the end of such fiscal period and the results of their operations and the changes in their financial position and cash flows for such fiscal periods, in conformity with Generally Accepted Accounting Principles applied in a manner consistent with that of the most recent audited financial statements furnished to the Agent, subject to normal and recurring year-end audit adjustments. IN WITNESS WHEREOF we execute this Certificate this ____ day of _________ , 19__. DRS TECHNOLOGIES, INC., as a Co-Borrower By: __________________________ Name: Title: DRS TECHNOLOGIES CANADA COMPANY / COMPAGNIE DRS TECHNOLOGIES CANADA, as a Co-Borrower By: __________________________ Name: Title: DRS TECHNOLOGIES CANADA, INC., as a Co-Borrower By: __________________________ Name: Title: * Describe here (or in a separate attachment to this Certificate) the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Co-Borrowers have taken, are taking and propose to take with respect to each such condition or event. EXHIBIT "F-1" FORM OF COMPLIANCE CERTIFICATE DRS TECHNOLOGIES, INC., ET AL. This Officer's Certificate of DRS TECHNOLOGIES, INC., ET AL. ("Certificate") is delivered to you pursuant to Section 5.01(v) of the Revolving Credit Loan and Term Loan Agreement dated October 29, 1997 (hereinafter said Revolving Credit Loan and Term Loan Agreement as it may be from time to time amended, modified and/or supplemented shall be referred to as the "Loan Agreement") by and among DRS Technologies, Inc., DRS Technologies Canada Company / Compagnie DRS Technologies Canada and DRS Technologies Canada, Inc. (hereinafter referred to as the "Co-Borrowers") and Mellon Bank, N.A., as Agent and as a Lender and certain other financial institutions as Lenders. Terms defined in the Loan Agreement and not otherwise defined herein are used herein as therein defined. The Co-Borrowers hereby deliver to each Lender, together with the financial statements being delivered to the Lenders pursuant to Section 5.01(i) and (vi) of the Loan Agreement, this Compliance Certificate (hereinafter referred to as the "Certificate") for the accounting period from ____________, 19 to __________, * 19 . For purposes hereof, section and subsection references herein relate to sections and subsections, respectively, of the Loan Agreement, and amounts or ratios refer to the maximum or minimum amounts or ratios required under the relevant sections of the Loan Agreement. I. AFFIRMATIVE COVENANTS A. Minimum Asset Coverage (Section 6.13) 1. Aggregate Consolidated Senior Debt US$_______________ 2. Aggregate sum of (i) Accounts Receivable, (ii) Inventory and (iii) Cash and Cash Equivalents US$_______________ 3. Required Minimum Amount: the amount described in #1 above must not exceed the amount described in #2 above. II. NEGATIVE COVENANTS A. Consolidated Debt (Section 7.01) 1. Actual aggregate amount of additional new Consolidated Debt: US$_________________ 2. Permitted amount of additional Consolidated Debt: (a) purchase money debt US$1,000,000.00 (b) permitted additional term loans US$5,000,000.00 B. Loans, Advances and Investments (Section 7.03) 1. Aggregate demand advances to officers and employees outstanding at any time during the period covered by this Certificate: (a) Outstanding US$_________________ (b) Maximum permitted per officer/employee US$ 250,000.00 2. Aggregate loans in connection with the acquisition of another Person (a) Outstanding US$[___________] (b) Maximum permitted US$ 250,000.00 III. FINANCIAL COVENANTS A. Minimum Consolidated Net Worth (Section 8.01) 1. Consolidated Net Worth, as determined at the end of the period covered by this Certificate: (a) Actual Amount US$______________ (b) Minimum Amount US$______________ B. Maximum Consolidated Senior Debt Leverage Ratio (Section 8.02) 1. Total Consolidated Senior Debt to Consolidated EBITDA, as determined at the end of the period covered by this Certificate: (a) Actual Ratio_____________ - to -1.0 (b) Maximum Ratio _________- to -1.0 C. Maximum Consolidated Funded Debt Leverage Ratio (Section 8.03) 1. Total Consolidated Funded Debt to Consolidated EBITDA, as determined at the end of the period covered by this Certificate: (a) Actual Ratio_____________ - to -1.0 (b) Maximum Ratio _________- to -1.0 D. Minimum Consolidated Fixed Charge Coverage Ratio (Section 8.04) 1. Total Consolidated EBITDA minus Capital Expenditures -to- Principal and Interest payments on Consolidated Debt, as determined at the end of the period covered by this Certificate: (a) Actual Ratio_____________ - to -1.0 (b) Maximum Ratio _________- to -1.0 We hereby certify, in our capacity as officers of the Company, that the information set forth above is accurate as of ,19 , to the best of our knowledge after diligent inquiry. Dated:____________, 19__ DRS TECHNOLOGIES, INC., as a Co-Borrower By: __________________________ Name: Title: DRS TECHNOLOGIES CANADA COMPANY / COMPAGNIE DRS TECHNOLOGIES CANADA, as a Co-Borrower By: __________________________ Name: Title: DRS TECHNOLOGIES CANADA, INC., as a Co-Borrower By: __________________________ Name: Title: EXHIBIT "G" ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 FORM OF REVOLVING CREDIT NOTE US$__________ ____________ , ______________ ______________, 19__ FOR VALUE RECEIVED, the undersigned, DRS TECHNOLOGIES, INC., DRS TECHNOLOGIES CANADA COMPANY / COMPAGNIE DRS TECHNOLOGIES CANADA AND DRS TECHNOLOGIES CANADA, INC., (hereinafter collectively referred to as the "Co-Borrowers"), promise to pay on a joint and several basis to the order of ____________________________________ (hereinafter referred to as the "Lender") on or before the Revolving Credit Termination Date, the lesser of (i) the principal sum of ___________________ AND 00/100 (US$_____________) DOLLARS or (ii) the aggregate unpaid principal amount of all Revolving Credit Loans made by the Lender to the Co-Borrowers pursuant to the "Loan Agreement" (as such term is hereinafter defined). The Co-Borrowers further promise to pay to the order of the Lender interest on the unpaid principal amount of the Revolving Credit Loans from the date outstanding at the interest rate or interest rates per annum determined pursuant to Section 2.03(i)(a) of, or as otherwise provided in, the Loan Agreement payable on the dates set forth in Section 2.03(ii) of, or as otherwise provided in, the Loan Agreement. All payments of principal and interest hereunder shall be due and payable to Mellon Bank, N.A., as Agent, at Mellon Bank Center, 1735 Market Street, Philadelphia, Pennsylvania 19101, on or before 10:00 A.M. (Philadelphia, Pennsylvania time), on the day when due, all as more fully and accurately set forth in Section 2.06 of the Loan Agreement. Such payments shall be made in U.S. Dollars in immediately available funds without set-off, counterclaim or other deduction of any nature. Except as otherwise provided in the Loan Agreement, if any payment of principal or interest hereunder shall become due on a day which is not a Business Day, such payment shall be made on the next following Business Day and such extension of time shall be included in computing interest in connection with such payment. This Revolving Credit Note is one of the "Revolving Credit Notes" referred to in, and is entitled to the benefits of the Revolving Credit Loan and Term Loan Agreement dated October 29, 1997 by and among the Co-Borrowers, the Lender and the other lenders named therein, as Lenders and Mellon Bank N.A., as Agent (hereinafter as said Revolving Credit Loan and Term Loan Agreement may be amended, modified or supplemented from time to time shall hereinafter be referred to as the "Loan Agreement"), which among other things provides for the acceleration of the maturity hereof upon the occurrence of certain events and for prepayments in certain circumstances and upon certain terms and conditions. This Revolving Credit Note is secured by and is entitled to the benefits of the Collateral Documents. Terms defined in the Loan Agreement have the same meanings herein. The holder of this Revolving Credit Note is authorized to endorse on the Schedule 1 attached hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof (hereinafter referred to as the "Grid") the date and amount of each Revolving Credit Loan made pursuant to Section 2.01 of the Loan Agreement, and the date and amount of each payment or prepayment of principal thereof, which endorsement shall constitute prima facie evidence of the accuracy of the information endorsed; provided, however, that the failure to make any such endorsement shall not affect the obligations of the Co-Borrowers in respect of such Revolving Credit Loan. The Co-Borrowers hereby expressly waive presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Revolving Credit Note and the Loan Agreement, and an action for amounts due hereunder or thereunder shall immediately accrue. Notwithstanding the aggregate stated principal amounts of this Revolving Credit Note and all other Revolving Credit Notes to the contrary, the aggregate outstanding principal balance with respect to the Revolving Credit Facility shall not exceed US$40,000,000.00. This Revolving Credit Note shall be governed by, construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, the Co-Borrowers have caused this Revolving Credit Note to be executed and delivered by its proper and duly Authorized Officers and has caused its corporate seal to be hereunto affixed and attested, pursuant to the resolution of its Board of Directors, all on the day and year first hereinabove written. DRS TECHNOLOGIES, INC., as a Co-Borrower By: __________________________ Name: Title: DRS TECHNOLOGIES CANADA COMPANY / COMPAGNIE DRS TECHNOLOGIES CANADA, as a Co-Borrower By: __________________________ Name: Title: DRS TECHNOLOGIES CANADA, INC., as a Co-Borrower By: __________________________ Name: Title: SCHEDULE A TO REVOLVING LINE OF CREDIT NOTE LOANS AND PAYMENTS OF REVOLVING CREDIT LOANS - ---------------------------------------------------------------------------- Unpaid Amount of Principal Amount of Principal Balance of Notation Date Loans Repaid Loans Made By - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- EXHIBIT "H" ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 FORM OF SWAP AGREEMENT See Attached EXHIBIT "I" ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 FORM OF TERM LOAN NOTE US$___________ _____________________ __________, 19__ FOR VALUE RECEIVED, the undersigned, DRS TECHNOLOGIES, INC., DRS TECHNOLOGIES CANADA COMPANY / COMPAGNIE DRS TECHNOLOGIES CANADA AND DRS TECHNOLOGIES CANADA, INC., (hereinafter collectively referred to as the "Co-Borrowers"), promise to pay on a joint and several basis to the order of ________________________ (hereinafter referred to as the "Lender") on or before the Term Loan Maturity Date, or such other date as may be determined pursuant to the "Loan Agreement" (as such term is hereinafter defined) the principal sum of ________________________________________ AND 00/100 (US$____________) DOLLARS. The Undersigned further promise to pay to the order of the Lender interest on the unpaid principal amount hereof from time to time at the interest rate or interest rates per annum determined pursuant to Section 2.03(i)(b) of, or as otherwise provided in, the Loan Agreement. Such principal and interest shall be payable on the dates set forth in Section 2.03(ii) of, or as otherwise provided in, the Loan Agreement. All payments of principal and interest hereunder shall be due and payable to the Lender not later than 2:00 P.M.(New York City time), on the day when due, all as more fully set forth in Section 2.06 of the Loan Agreement. Such payments shall be made in U.S. Dollars in immediately available funds without set-off, counterclaim (other than a compulsory counterclaim) or other deduction of any nature. Except as otherwise provided in the Loan Agreement, if any payment of principal or interest hereunder shall become due on a day which is not a Business Day, such payment shall be made on the next following Business Day and such extension of time shall be included in computing interest in connection with such payment. This Term Loan Note is the "Term Loan Note" referred to in, and is entitled to the benefits of the Revolving Credit Loan and Term Loan Agreement dated October 29, 1997, executed by and among, amongst others, the Undersigned and the Lender (as the same may be amended, modified or supplemented from time to time, hereinafter referred to as the "Loan Agreement"), which among other things provides for the acceleration of the maturity hereof upon the occurrence of certain events and for prepayments in certain circumstances and upon certain terms and conditions. Terms defined in the Loan Agreement shall have the same meanings herein. The Undersigned hereby expressly waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Term Loan Note and the Loan Agreement. This Term Loan Note shall be governed by, construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, the Undersigned have caused this Term Loan Note to be executed and delivered by their proper and duly Authorized Officers and have caused their respective corporate seals to be hereunto affixed and attested, pursuant to the resolution of their respective Boards of Directors, all on the day and year first hereinabove written. DRS TECHNOLOGIES, INC., as a Co-Borrower By: __________________________ Name: Title: DRS TECHNOLOGIES CANADA COMPANY / COMPAGNIE DRS TECHNOLOGIES CANADA, as a Co-Borrower By: __________________________ Name: Title: DRS TECHNOLOGIES CANADA, INC., as a Co-Borrower By: __________________________ Name: Title: EXHIBIT "J" ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 FORM OF OPINION LETTER See Attached Form SCHEDULE 1.01-A ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 LIST OF LEASED PROPERTIES See Attached.
Date of Expiration of Location/Address Landlord Lease Lease ---------------- -------- ------- ------------- 1. DRS Technologies 5 Sylvan Way Sammis New Jersey Associates 03/31/95 09/27/00 Parsippany, New Jersey 07054 1215 Jefferson Davis Highway Charles E. Smith 08/01/97 07/31/99 Arlington, Virginia 22202 2. DRS Electronic Systems, Inc. 200 Professional Drive Montgomery County Teachers 02/22/94 03/01/00 Gaithersburg, Maryland 20879 Federal Credit Union DRS Technical Services, Inc. K-B Opportunity Fund LP 12/01/96 01/31/00 2535 Camino Del Rio South / Parkstone Companies South 300 San Diego, California 92108 DRS Technical Services, Inc. Progressive Land Partners LP 01/03/97 04/30/04 737 Volvo Parkway Suite 150 Chesapeake, VA 23320 3. DRS Systems Management Corp c/o DRS Laurel Technologies 423 Walters Avenue Skateland Roller Rink, Inc. 11/10/93 11/30/98 Johnstown, Pennsylvania 15904 15 Route 403 The Picking Company 05/15/96 09/25/98 Davidsville, Pennsylvania 15928 4. DRS Precision Echo, Inc. 3105 Patrick Henry Drive Bay 511 Corporation 07/13/97 10/31/00 Santa Clara, California 95054 5. DRS Ahead Technologies, Inc. Plymouth Business Center St. Paul/United Properties, Inc. 08/01/97 07/31/02 3550 Annapolis Lane, Suite 60 Plymouth, Minnesota 55447
Date of Expiration of Location/Address Landlord Lease Lease ---------------- -------- ------- ------------- 520/530 Blanding Woods Road S. North Land Aluminum 06/17/97 06/17/99 St. Croix Falls, Wisconsin 54024 Products 145 South Third Street Applied Magnetics Corporation 11/06/92 11/06/01 Dassel, Minnesota 55325 6410 Via Del Oro, N. E. South San Jose Interests 8/17/95 08/31/00 San Jose, Ca. 95119 1602 Rhodes Lane Gilbert Surgical and 1/l/97 12/31/00 Bloomington, Illinois Medical Supplies 533 Atlantic Avenue Paul Opsahl Plumbing & 10/22/96 11/15/97 Dassel, Minnesota 55325 Heating Company 6. DRS Optronics, Inc. 2330 Commerce Park Drive, Fred E. Sutton and 08/14/95 8/14/05 N.E., Suite 2 Harold S Sutton Palm Bay, Florida 32905 d/b/a Sutton Properties 7. DRS Photronics, Inc. 138 Bauer Drive LDR Realty Co. 03/31/84 05/31/98 Oakland, New Jersey 07436 133 Bauer Drive North Holding Partnership 08/9/97 08/08/02 Oakland, New Jersey 07436 8. DRS Technologies Canada Company 365 March Road 151516 Canada Inc. 07/01/93 06/30/98 Kanata, Ontario, Canada C/O RealFund K2K 2C9 9. Spar UK Springfield Road SKM EUROPE LIMITED 02/28/97 Hayes Registration No. 2627854 Middlesex, England UB4 OTY
SCHEDULE 1.01-B ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 CUSTOMARY PERMITTED LIENS None. SCHEDULE 1.01-C ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 EURODOLLAR AFFILIATES None. SCHEDULE 1.01-D ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 PERMITTED ENCUMBRANCES DRS Photronics, Inc. 1. Security interest in certain equipment held by Manufacturers and Traders Trust Company, as trustee, as security for Suffolk County Industrial Development Agency $2,395,000. 1991 Variable Rate Demand Industrial Development Revenue Refunding Bonds (Photronics Corp. Facility)(the "Photronics Bonds") 2. Security interest in certain equipment, accounts receivable and other assets and mortgage on the real property located at 270 Motor Parkway, Hauppauge, New York, held by Morgan Guaranty Trust Company of New York ("Morgan") to secure a letter of credit issued by Morgan to secure the Photronics Bonds. Morgan has released this security interest and mortgage. The Morgan security interest and mortgage will be discharged of record after the Closing Date. SCHEDULE 2.01 ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 LIST OF SUBSIDIARIES AND/OR AFFILIATES THAT MAY BORROW AND/OR HAVE LETTERS OF CREDIT ISSUED FOR THEIR ACCOUNT All Corporate Guarantors and the Partnership Guarantor SCHEDULE 2.01 (vi) ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 SCHEDULE OF EXISTING LETTERS OF CREDIT ISSUING BANK FAC NUMBER BAL/CUR SHARE FACE/LIMIT MATURITY ------------ ---------- ------------- ---------- -------- Mellon Bank, N.A. 202-451-8476790 3,263,290.39 3,263,290.39 7/30/99 Mellon Bank, N.A. 202-451-8532790 35,600.00 35,600.00 12/30/98 Mellon Bank, N.A. 202-451-8516150 115,752.00 115,752.00 5/31/98 Mellon Bank, N.A. 202-451-8516160 302,767.00 302,767.00 5/31/98 SCHEDULE 2.04 (ii) ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 LETTER OF CREDIT FEES Issuance: US$150.00 Amendment: US$ 75.00 Standby Commission: US$250.00 minimum per year Transfer: US$ one quarter of one percent flat fee / US$200.00 minimum Assignment of Proceeds: US$100.00 Telecommunications: Full Text: US$ 40.00 Brief Text: US$ 20.00 Fax Copy: US$ 5.00 per page (domestic) / US$15.00 maximum US$ 15.00 per page (international) / US$45.00 maximum SCHEDULE 4.01 (iii) ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 OWNERSHIP OF CAPITAL STOCK None. SCHEDULE 4.01 (vii) ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 PENDING OR THREATENED LITIGATION 1. Amplicon, Inc. d/b/a Amplicon Financial v. Photronics Corp., et. al., U.S. District Court, C.D. Cal., Case No. SACV 96-0151 (AHS)(EEx) This case is going to trial and has a potential claim amount of less than $300,000.00. SCHEDULE 4.01 (xv) ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 ENVIRONMENTAL MATTERS GENERAL DISCLOSURE Reference is made to the following documents: (a) Due Diligence Assessment dated 21 September, 1990, prepared by Environmental Resources Management, Inc.; (b) Condition Survey of Leigh Instrument Building dated October 4, 1990, prepared by Trow Inc.; (c) Ventilation at Spar Applied Systems dated July 4, 1994, prepared by Trow Consulting Engineers Ltd.; (d) Workwell Health & Safety Evaluation dated March 12, 1997; (e) Report of Findings, Subsurface Investigation at SPAR Aerospace Ltd., 115 Emily Street, Carleton Place, Ontario, dated October 10, 1997, prepared by ERM-Ontario Inc.; (f) Subsurface analysis with respect to Borehole No. 3, from a geotechnical report dated October, 1997, prepared by Morey Houle Chevrier Engineering Ltd.; and (g) Report of Findings, Subsurface Investigation at SPAR Applied Systems, 365 March Road, Kanata, Ontario dated October 10, 1997, prepared by ERM-Ontario Inc. The documents described in subparagraphs (a) to (g) inclusive (the "Environmental Reports") have been provided to the Co-Borrowers and disclose information in relation to the purchased assets. COMPLIANCE WITH ENVIRONMENTAL LAWS The Co-Borrowers disclose to the Agent the existence of PAH compounds and metals in soil and groundwater samples investigated at the property located at 115 Emily Street, Carleton Place, and described in the Environmental Reports, items (e) and (f) above. The Co-Borrowers disclose to the Agent the existence of a disused underground fuel oil tank and hydrocarbon contamination at the property located at 365 March Road, Kanata, described in the Environmental Reports, item (g), above. The Co-Borrowers' records indicate some MSDS have expired and are being renewed. The Co-Borrowers have not conducted a further assessment of exposure or likelihood of exposure as a result of a change intended to improve ventilation for the process involving isocyanates in the airfoil lay-up room, at the Carleton Place property. Previous assessment of exposures to isocyanates were within regulated limits. NOTICES Since December 31, 1991, the following notices of non-compliance with Environmental Laws have been received: (a) Order dated April 29, 1996 re: hand truck (b) Order dated April 29, 1996 re: lift truck (c) Inspection report dated May 19, 1994 LOCATION OF HAZARDOUS SUBSTANCES Annex I hereto contains an inventory of Hazardous Substances used in whole or in part by the Co-Borrowers in connection with the purchased business, and the location of such Hazardous Substances. REPORTS TO REGULATORY AUTHORITIES The Co-Borrowers disclose to the Agent that on October 20, 1997, the Ministry of Environment and Energy was notified concerning the findings of PAH compounds and metals in soil and groundwater samples at 115 Emily Street, Carleton Place, Ontario. KANATA UNDERGROUND FUEL OIL TANK Spar Aerospace Limited ("Spar") shall be responsible for the removal of the underground fuel oil tank (the "UST") located on its premises at 365 March Road, Kanata (the "Kanata Premises") and the remediation of the surrounding soil if and to the extent that such removal and/or remediation is a liability of Spar either under applicable Environmental Laws and/or Environmental Permits or under Spar's lease in respect of the Kanata Premises (such removal and/or remediation obligation, if any, of Spar is herein called the "UST Remediation"). For the purposes solely of determining Spar's liability to the Co-Borrowers hereunder in respect of Environmental Laws, provided the UST is not used by the Co-Borrowers, the UST shall be deemed not to have been used for the three years preceding the date hereof. If it is determined that as between Spar and the landlord, Spar is legally responsible for the UST Remediation, such UST Remediation shall constitute Remediation Work for the purposes of section 8.14 of the Asset Purchase Agreement. Spar has notified the landlord of the Kanata premises that removal of the UST is required, and provided the landlord with a copy of the report prepared by ERM Ontario Inc. in respect of the UST (item (g), above). The parties acknowledge that the landlord of the Kanata Premises may be legally responsible for the removal of the UST and remediation of the surrounding soil. Nothing contained herein shall in any way relieve the landlord of such liability or require either Spar or the Co-Borrowers to perform or satisfy the landlord's liabilities or obligations in respect thereof. Neither Spar nor the Co-Borrowers shall take any actions or execute any documents which would relieve the landlord of its liability and/or impose such liability on the other party hereto. The parties further acknowledge that the ability of Spar to effect and complete the UST Remediation shall be subject to the consent and approval of the landlord of the Kanata premises to the extent such consent or approval is required. SCHEDULE 4.01 (xvii) ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 ERISA PLANS REQUIRING FILING OF 5500'S DRS Group Health & Life Plans DRS Optronics Group Health Plan DRS Optronics Long-Term Disability Plan DRS Optronics Short-Term Disability Plan DRS Electronic Systems Group Health & Welfare Plans DRS Electronic Systems Flex Benefit Plan DRS Laurel Technologies Group Life Plan DRS Laurel Technologies Group Health Plan DRS Retirement/Savings Plan TAS Employee Savings Plan (frozen, pending termination) SCHEDULE 4.01 (xx) ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 JOINT VENTURE/PARTNERSHIP 1. Laurel Technologies Partnership t/a DRS Laurel Technologies 2. DRS Medical Systems (sold all assets in September, 1997 and has ceased all operations). SCHEDULE 4.01 (xxi) ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 INSURANCE POLICIES, PROGRAMS AND CLAIMS See Attached. SCHEDULE 4.01 (xxv) ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 LIST OF UNDISCLOSED LIABILITIES 1. Contingent liability under Panavia agreement. SCHEDULE 4.01 (xxvii) ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 LABOR MATTERS None. SCHEDULE 4.01 (xxx) ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 BUSINESS NAMES 1. DRS Technologies Canada Company / Compagnie DRS Technologies Canada also conducts business under the name of "DRS Flight Safety and Communications". 2. DRS Technologies, Inc. also conducts business under the name of "DRS Electronic Systems". 3. Laurel Technologies Partnership also conducts business under the name of "DRS Laurel Technologies". SCHEDULE 4.01 (xxxi) ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 LOCATION OF COLLATERAL 1. DRS Technologies, Inc. 5 Sylvan Way Parsippany, New Jersey 07054 1215 Jefferson Davis Highway Arlington, Virginia 22202 2. DRS Electronic Systems, Inc. 200 Professional Drive Gaithersburg, Maryland 20879 DRS Technical Services, Inc. 2535 Camino Del Rio South Suite 300 San Diego, California 92108 DRS Technical Services, Inc. 737 Volvo Parkway, Suite 150 Chesapeake, Virginia 23320 3. DRS Laurel Technologies 423 Walters Avenue Johnstown, Pennsylvania 15904 15 Route 403 Davidsville, Pennsylvania 15928 4. DRS Precision Echo, Inc. 3105 Patrick Henry Drive Santa Clara, California 95054 5. DRS Ahead Technologies, Inc. Plymouth Business Center 3550 Annapolis Lane, Suite 60 Plymouth, Minnesota 55447 520/530 Blanding Woods Road South St Croix Falls, Wisconsin 54024 145 South Third Street Dassel, Minnesota 55325 6410 Via Del Oro, N.E. San Jose, California, California 95119 1602 Rhodes Lane Bloomington, Illinois 61704 2760 Razlog 1 Stara Planiana Strp. Bulgaria 533 Atlantic Avenue Dassel, Minnesota 55325 6. DRS Optronics, Inc. 2330 Commerce Park Drive, N.E., Suite 2 Palm Bay, Florida 32905 7. DRS Photronics, Inc. 270 Motor Parkway Hauppauge, New York 11788 138 Bauer Drive Oakland, New Jersey 07436 133 Bauer Drive Oakland, New Jersey 07436 8. DRS Technologies Canada Company 115 Emily Street Carleton Place, Ontario, Canada K7C 4J5 365 March Road Kanata, Ontario, Canada K2K 2C9 SCHEDULE 6.05 ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 SCHEDULE OF INSURANCE POLICIES AND PROGRAMS See Attached. SCHEDULE 7.01 (iii) ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 PERMITTED EXISTING DEBT 1. 9% Senior Subordinated Convertible Debentures due October 1, 2003 Principal amount outstanding: $25,000,000.00 2. 8.5% Convertible Subordinated Debentures due August 1, 1998 Principal amount outstanding: $4,992,000.00 3. Suffolk County Industrial Development Agency 1991 Variable Rate Demand Industrial Development Revenue Refunding Bonds (Photronics Corp. Facility) Principal amount outstanding: $1,595,000.00 4. Covenant and Agreement Not to Compete Dated October 28, 1994 Between Ahead Technology, Inc. and Robert F. Van Houtten Amount outstanding: $225,000.00 ($9,000.00 per month) 5. Term Note to Southern Alleghenies Planning and Development Commission Principal amount outstanding: $40,581.00 (monthly installments through March 1, 2000) 6. Term Note to SPIRC Principal amount outstanding: $54,947.00 (monthly installments through March 1, 2000) 7. Term Note to Cananwill, Inc. Principal amount outstanding: $27,434.00 (monthly installments through December, 1997) 8. Irrevocable Letter of Credit, No. PB-284327, issued by Morgan Guaranty Trust Company of New York for the account of Photronics Corp. for the benefit of Manufacturers and Traders Trust Company in the Stated Amount of $1,633,743.15 issued on December 19, 1991 and expiring no later than January 19, 1998. NOTE: All principal amounts are as of October 24, 1997. SCHEDULE 7.02 (ii) ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 LIST OF EXISTING PERMITTED LIENS See Schedule 1.01-D. SCHEDULE 7.03 ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 EXISTING LOANS, ADVANCES, INVESTMENTS I. Loans: 1. Amended and Restated Promissory Note from Mark S. Newman (Chairman of the Board, President and Chief Executive Officer) to the Company, dated as of May 26, 1995; $104,100. principal amount; 8% per annum interest rate. II. Investments: 1. Excess corporate cash balances are currently invested in the following: (a) The Pierpont Money Market Fund (J.P. Morgan) (b) Merrill Lunch Institutional Fund (c) Dreyfus Treasury Fund SCHEDULE 7.11(i) ATTACHED TO AND MADE A PART OF THAT CERTAIN REVOLVING CREDIT LOAN AND TERM LOAN AGREEMENT BY AND AMONG DRS TECHNOLOGIES, INC., ET AL., AS THE CO-BORROWERS, AND MELLON BANK, N.A., AS THE AGENT, DATED OCTOBER 29, 1997 EXISTING GUARANTIES None other than as described in Sections 7.11(ii) and 7.11(iii). -----END PRIVACY-ENHANCED MESSAGE-----