-----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, TlaT/sacdDRCl28/M0mWRo9h5P7q3iLh88okw4KeqyKYA/4QXc8zZqQn2rmwb3/H Gu7dK24tFF5eHMAYtF6rQw== 0000785037-96-000016.txt : 19960906 0000785037-96-000016.hdr.sgml : 19960906 ACCESSION NUMBER: 0000785037-96-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 DATE AS OF CHANGE: 19960903 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: REFLECTONE INC /FL/ CENTRAL INDEX KEY: 0000785037 STANDARD INDUSTRIAL CLASSIFICATION: 3663 IRS NUMBER: 060663546 STATE OF INCORPORATION: FL FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14059 FILM NUMBER: 96620991 BUSINESS ADDRESS: STREET 1: P.O. BOX 15000 CITY: TAMPA STATE: FL ZIP: 33684-5000 BUSINESS PHONE: 8138871451 MAIL ADDRESS: STREET 1: P.O. BOX 15000 CITY: TAMPA STATE: FL ZIP: 33684-5000 FORMER COMPANY: FORMER CONFORMED NAME: REFLECTONE MERGER SUBSIDIARY INC/FL DATE OF NAME CHANGE: 19880828 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 0-14059 REFLECTONE, INC. (Exact name of Registrant as specified in its charter) Florida 06-0663546 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4908 Tampa West Boulevard, Tampa, Florida 33634-2481 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (813) 885-7481 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for at least the past ninety days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, par value $.10 per share, 2,813,695 shares as of August 12, 1996. 1 Part I - FINANCIAL INFORMATION Item 1 - Financial Statements Reflectone, Inc. & Subsidiaries Consolidated Balance Sheets As of June 30, 1996 and December 31, 1995
(Unaudited) June 30, December 31, ASSETS 1996 1995 Current assets Cash and cash equivalents $ 5,205,084 $ 4,582,021 Receivables - non affiliate 32,765,403 26,101,185 Receivables - affiliate 4,381,911 628,922 Current installments of long-term note receivable - 3,558,000 Net deferred tax assets 1,050,000 1,050,000 Prepaid expenses and other current assets 1,673,524 1,480,190 ____________ ____________ Total current assets 45,075,922 37,400,318 Property, plant & equipment, net 8,179,250 7,881,699 Investments - restricted 5,000,000 5,000,000 Other assets 426,088 441,568 ____________ ____________ $ 58,681,260 $ 50,723,585 ============ ============
2 LIABILITIES & SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 4,609,613 $ 9,980,857 Due to affiliate 2,630,498 1,995,079 Borrowings on line of credit - affiliate 20,146,717 6,513,666 Advance billings 4,341,962 7,832,601 Accrued employee compensation and benefits 3,915,415 4,218,694 Federal and state taxes payable 604,720 827,263 Accrued settlement expenses 1,068,415 1,068,415 Other accrued expenses and liabilities 1,150,522 1,807,763 ____________ ____________ Total current liabilities 38,467,862 34,244,338 ____________ ____________ Deferred gain on sale of equipment 2,323,809 2,503,747 ____________ ____________ Commitments and contingencies (Note 2) Shareholders' equity Convertible preferred stock - par value $1.00; authorized - 50,000 shares; issued and outstanding - 50,000 shares of 8% cumulative convertible preferred stock (liquidating preference $176 per share, aggregating $8,800,000) 50,000 50,000 Common stock - par value $.10; authorized - 10,000,000 shares; issued and outstanding - 2,852,445 and 2,750,255 shares 285,244 275,025 Additional paid-in capital 32,576,611 31,741,011 Cumulative translation adjustment 736,616 734,705 Accumulated deficit (15,758,882) (18,825,241) ____________ ____________ Total shareholders' equity 17,889,589 13,975,500 ____________ ____________ $ 58,681,260 $ 50,723,585 ============ ============
See accompanying notes to consolidated financial statements. 3 Reflectone, Inc. & Subsidiaries Consolidated Statements of Income For the Six and Three Months Ended June 30, 1996 and 1995 (Unaudited)
Six Months 1996 1995 Revenues Non-affiliate $32,062,037 $33,348,998 Affiliate 12,317,875 4,357,538 ___________ ___________ 44,379,912 37,706,536 ___________ ___________ Costs and expenses Cost of sales Non-affiliate 28,437,225 29,917,379 Affiliate 10,019,255 3,402,581 ___________ ___________ 38,456,480 33,319,960 General and administrative 2,017,690 1,910,444 ___________ ___________ 40,474,170 35,230,404 ___________ ___________ Income from operations 3,905,742 2,476,132 ___________ ___________ Other income (expense) Interest income 240,063 380,110 Interest expense (192,892) (1,064,011) Other 133,771 14,554 ___________ ___________ 180,942 (669,347) ___________ ___________ Income before income taxes 4,086,684 1,806,785 Provision for income taxes 668,325 250,000 ___________ ___________ Net income 3,418,359 1,556,785 Preferred stock dividends 352,000 352,000 ___________ ___________ Net income applicable to common shareholders $ 3,066,359 $ 1,204,785 =========== =========== Income per common and common equivalent share Primary $ 1.04 $ .44 =========== =========== Fully diluted $ .99 $ - =========== =========== See accompanying notes to consolidated financial statements. 4 Three Months 1996 1995 $17,831,293 $19,396,440 5,221,556 2,508,224 ___________ ___________ 23,052,849 21,904,664 ___________ ___________ 15,180,927 17,052,389 4,848,979 2,441,117 ___________ ___________ 20,029,906 19,493,506 1,078,313 923,320 ___________ ___________ 21,108,219 20,416,826 ___________ ___________ 1,944,630 1,487,838 ___________ ___________ 133,071 196,610 (73,671) (551,033) 48,763 (68,724) ___________ ___________ 108,163 (423,147) ___________ ___________ 2,052,793 1,064,691 255,295 150,000 ___________ ___________ 1,797,498 914,691 176,000 176,000 ___________ ___________ $ 1,621,498 $ 738,691 =========== =========== $ .55 $ .27 =========== =========== $ .51 $ - =========== ===========
5 Reflectone, Inc. & Subsidiaries Consolidated Statements of Cash Flows Six Months ended June 30, 1996 (Unaudited) 1996 1995 Cash flows from operating activities: Net income $ 3,418,359 $ 1,556,785 Depreciation and amortization 889,119 1,136,843 Change in assets and liabilities: Decrease (increase) in receivables Non-affiliate (6,620,067) 1,492,958 Affiliate (3,761,279) (29,380) Decrease in inventory - 219,736 Decrease in accounts payable (5,338,331) (1,438,523) Increase (decrease) in due to affiliate 634,103 (1,568,710) Increase (decrease) in advance billings (3,491,534) 3,266,668 Increase (decrease) in accrued employee compensation and benefits (302,502) 634,993 Other (1,275,007) (2,042,198) ____________ ____________ Net cash provided by (used for) operating activities (15,847,139) 3,229,172 _____________ ____________ Cash flows from investing activities: Capital expenditures (1,206,938) (514,955) Settlement of long-term note receivable 3,558,284 485,876 ____________ ____________ Net cash provided by (used for) investing activities 2,351,346 (29,079) _____________ ____________ Cash flows from financing activities: Paydowns under line-of-credit agreements (59,713,905) (104,970,848) Borrowings under line-of-credit agreements 73,346,956 97,425,791 Dividends on preferred stock (352,000) (352,000) Other 845,819 30,209 _____________ ____________ Net cash provided by financing activities 14,126,870 7,866,848 _____________ ____________ Net increase (decrease) in cash 631,077 (4,666,755) Cash and cash equivalents at beginning of period 4,582,021 7,329,914 Effect of exchange rate changes on cash (8,014) 9,546 ____________ ____________ Cash and cash equivalents at end of period $ 5,205,084 $ 2,672,705 ============ ============
See accompanying notes to consolidated financial statements. 6 Reflectone, Inc. & Subsidiaries Notes to Consolidated Financial Statements Six Months ended June 30, 1996 (Unaudited) The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. All intercompany transactions have been eliminated. Note 1 - Receivables Component elements of receivables consist of the following:
June 30, December 31, 1996 1995 Receivables U.S. Government Billed $ 4,882,752 $ 5,363,973 Unbilled 3,150,268 1,932,588 Unrecovered costs subject to future negotiation -- not billed 1,400,000 1,400,000 ____________ ____________ 9,433,020 8,696,561 ____________ ____________ Lockheed Martin Corporation Billed 1,247,709 - Unbilled 21,967,605 14,780,610 ____________ ____________ 23,215,314 14,780,610 ____________ ____________ 7 Commercial Billed 605,617 2,554,538 Unbilled - 558,023 Provision for doubtful accounts (488,548) (488,547) ____________ ____________ 117,069 2,624,014 ____________ ____________ $ 32,765,403 $ 26,101,185 ============ ============ Affiliates Billed $ 2,592,330 $ 545,729 Unbilled 1,789,581 83,193 ____________ ____________ $ 4,381,911 $ 628,922 ============ ============
8 Reflectone, Inc. & Subsidiaries Notes to Consolidated Financial Statements Six Months ended June 30, 1996 (Unaudited) Note 1 - Receivables (continued) Unbilled amounts represent the difference between revenue recognized for financial reporting purposes and amounts contractually permitted to be billed to customers. These amounts will be billed in subsequent periods as progress billings, upon shipment of the product, or upon completion of the contract. Unrecovered costs subject to furture negotiation include incremental costs arising out of customer-occasioned unforeseen development work and amounts for work performed not specified in express contract provisions. The amounts recorded represent only a portion of the total compensation sought by the Company from customers. Therefore, while any and all recoveries are subject to future negotiations, the actual recoveries could be more or less than those currently anticipated in the Company's consolidated financial statements. Management has made provision for future costs associated with these actions as described in Note 2. Under the terms of the Company's contract with Lockheed Martin Corporation ("LMC") to design and manufacture two dynamic mission simulators and other related training devices, the Company will not receive a substantial portion of the contractual payments from LMC until delivery and acceptance of the devices currently scheduled for the fourth quarter of 1997. It is anticipated that approximately $23.4 million of receivables will not be collected within one year. An allowance for doubtful accounts is provided based on historical experience and after consideration of specific accounts and current economic conditions. Note 2 - Commitments and Contingencies The Company has asserted its rights to recovery of certain incremental costs arising out of customer-occasioned unforeseen development work and amounts for work performed not specified in express contract provisions as more fully described in Note 1. Management has made provision for future costs associated with these actions and believes the provision established is adequate for this purpose. Note 3 - Earnings Per Common Share Primary earnings per share are based on the weighted average number of common shares and common share equivalents outstanding and give effect to the recognition of preferred dividend requirements. Common share equivalents include dilutive stock options and warrants using the treasury stock method. 9 Reflectone, Inc. & Subsidiaries Notes to Consolidated Financial Statements Six Months ended June 30, 1996 (Unaudited) Note 3 - Earnings Per Common Share (continued) Fully diluted earnings per share assumes, in addition to the above, i) that the Convertible Preferred Stock was converted at the beginning of each period, ii) that earnings were increased for preferred dividends that would not have been incurred had conversion taken place, and, iii) the additional dilutive effect of stock options and warrants. The numbers of shares used in the earnings per share computations are as follows:
Six Months Three Months 1996 1995 1996 1995 Primary Weighted average common shares outstanding 2,792,955 2,684,085 2,813,459 2,686,077 Stock options 143,713 83,834 158,012 61,416 _________ _________ _________ _________ Average common shares outstanding 2,936,668 2,767,919 2,971,471 2,747,493 Convertible preferred stock 500,000 500,000 500,000 500,000 Additional dilutive effect of stock options 32,627 9,299 48,159 - _________ _________ _________ _________ Fully diluted assumed common shares outstanding 3,469,295 3,277,218 3,519,630 3,247,493 ========= ========= ========= =========
Fully diluted per share data is not disclosed for the six months and three months ended June 30, 1995 since the effect would be antidilutive. Note 4 - Stock Options In February 1996, the Company granted options under the Company's 1994 Stock Option Plan to purchase 41,500 shares of the Company's common stock at $18.50 per share. At June 30, 1996 none of these options were exercisable, and there were 62,500 shares of common stock available for future stock options under this plan. 10 Reflectone, Inc. & Subsidiaries Notes to Consolidated Financial Statements Six Months ended June 30, 1996 (Unaudited) Note 5 - Credit Agreements and Borrowings To date the Company has been unable to obtain adequate financing on acceptable terms without recourse to British Aerospace Plc. or its affiliates (collectively, "British Aerospace"). However, pursuant to the terms of an Agreement for Credit Availability dated as of August 7, 1996, British Aerospace has agreed, subject to its continued ownership of a majority of the Company, to continue to provide or guarantee the Company's credit facilities through August 7, 1997. Renewal of the Company's credit facilities beyond August 7, 1997 is, in large part, dependent upon British Aerospace's willingness to continue to provide or guarantee these facilities. By means of a letter dated February 27, 1996, British Aerospace has represented to the Company that it intends to continue to provide or guarantee the Company's credit facilities, as long as financing is not available to the Company without recourse to British Aerospace and British Aerospace continues to hold, or has the ability to hold through the exercise of preferred stock conversion rights and warrants to purchase common stock, a majority ownership position in the Company. Based on the foregoing representations of British Aerospace, management anticipates that the Company's credit facilities will be renewed annually. The Company's credit facilities and the Agreement for Credit Availability with British Aerospace contain certain covenants which, among other things, require the Company: i) to be current with respect to the payment of dividends on its 8% Cumulative Convertible Preferred Stock prior to any draw under the British Aerospace provided facilities, ii) to pay British Aerospace a facility fee of 50 basis points per annum on the maximum aggregate availability ($87.0 million) of the credit facilities provided or guaranteed by British Aerospace, and iii) to pay British Aerospace a guarantee fee of 3.25% per annum on amounts outstanding under the Company's $2.0 million revolving line of credit facility with Wachovia Bank of Georgia, N.A. In addition, the Company's Agreement for Credit Availability requires that the Company obtain the prior approval of British Aerospace for all material capital investment expenditures as defined in the Agreement for Credit Availability. During the second quarter of 1996 the Company reduced its revolving line of credit facility with Wachovia Bank of Georgia, N.A. from $10.0 million to $2.0 million. The facility permits the Company to select loans bearing interest at a floating prime rate or at a fixed rate of LIBOR plus .25% and to specify, within limits, the period during which the selected fixed interest rate will be in effect. The agreement matures on August 7, 1997, and is supported by the corporate guarantee of British Aerospace. At June 30, 1996, no borrowings were outstanding under this line and therefore the full amount of this facility was available. 11 Reflectone, Inc. & Subsidiaries Notes to Consolidated Financial Statements Six Months ended June 30, 1996 (Unaudited) Note 5 - Credit Agreements and Borrowings (continued) Under the Lloyds Bank Plc letter of credit facility, the Company may issue irrevocable standby letters of credit and bank guarantees aggregating up to $20.0 million. The Company pays a non-refundable commission on the stated amount of credits issued for the actual number of days outstanding at 0.55% per annum. The agreement is supported by the corporate guarantee of British Aerospace and matures on October 31, 1996. At June 30, 1996, there were approximately $17.9 million of credit available under this agreement. Subsequent to the end of the second quarter, the Company reduced its revolving line of credit facility with British Aerospace Finance, Inc. from $20.0 million to $10.0 million. The agreement provides for working capital borrowings and an interest rate of LIBOR plus 3.50% per annum is charged under this facility. The agreement matures on August 7, 1997 and permits the Company to specify, within limits, the period during which the borrowings will mature. At June 30, 1996, borrowings under this facility approximated $416,000. As discussed in Note 1, the Company will not receive payments from LMC under the terms of the C-130J contract until the achievement of certain contractual milestones, currently scheduled for the fourth quarter of 1997. Accordingly, during the third quarter of 1995, the Company negotiated a second credit facility (the "C-130J Facility") with British Aerospace to finance the Company's working capital needs with respect to the C-130J contract with LMC. Subsequent to the end of the second quarter of 1996 the C-130J Facility was increased from $40.0 million to $55.0 million. The agreement matures on August 7, 1997. Draws under this facility are limited to actual costs incurred by the Company and Reflectone UK, Ltd., ("RUKL") a wholly-owned subsidiary of the Company on the LMC C-130J program. Interest rates charged under the C-130J Facility are at LIBOR plus 1.50%. By means of a letter dated February 27, 1996, British Aerospace has further represented that, as long as British Aerospace continues to hold, or has the ability to hold through the exercise of preferred stock conversion rights and warrants to purchase common stock, a majority ownership position in the Company, it intends to continue to provide annual financing for the C-130J program until payment is received from LMC. At June 30, 1996, borrowing under this facility approximated $19.7 million. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Management considers liquidity to be the Company's ability to generate adequate cash to meet its short- and long-term business needs. The principal internal source of such cash is the Company's operations, while external sources include borrowings under the Company's credit facilities, the sale of Company-owned assets and the issuance of equity securities. During the six-month period ended June 30, 1996, the Company used $15.8 million in cash, net, for operating activities while in the comparable period of 1995, the Company generated $3.2 million in cash, net, from operating activities. Operating cash flow was negatively impacted during the six-month period ended June 30, 1996 primarily by increases in non- affiliate and affiliate receivables, and reductions in accounts payable, advance billings and other changes in assets and liabilities, net. The increase in non-affiliate receivables primarily related to the contract with Lockheed Martin Corporation ("LMC")to design and manufacture two C-130J dynamic mission simulators and other related training devices. The increase in affiliate receivables primarily relates to three full- flight simulator programs with affiliates. During the six-month period ended June 30, 1996, the Company increased its net short-term borrowings by $13.6 million and increased its cash by $631,000. During the same period, gross borrowings of $73.3 million, and cash received upon settlement of the long-term note receivable were used primarily to fund $59.7 million in scheduled maturities of borrowings under the Company's credit facilities and to fund operating activities during the six-month period. To date the Company has been unable to obtain adequate financing on acceptable terms without recourse to British Aerospace. However, pursuant to the terms of an Agreement for Credit Availability dated as of August 7, 1996, British Aerospace has agreed, subject to its continued ownership of a majority of the Company, to continue to provide or guarantee the Company's credit facilities through August 7, 1997. Renewal of the Company's credit facilities beyond August 7, 1997 is, in large part, dependent upon British Aerospace's willingness to continue to provide or guarantee these facilities. By means of a letter dated February 27, 1996, British Aerospace has represented to the Company that it intends to continue to provide or guarantee the Company's credit facilities, as long as financing is not available to the Company without recourse to British Aerospace and British Aerospace continues to hold, or has the ability to hold through the exercise of preferred stock conversion rights and warrants to purchase common stock, a majority 13 ownership position in the Company. Based on the foregoing representations of British Aerospace, management anticipates that the Company's credit facilities will be renewed annually. Specific discussion of the Company's credit facilities is included in Note 5 to the Consolidated Financial Statements. As discussed in Note 1 to the Company's Consolidated Financial Statements, the Company will not receive payments from LMC under the terms of the C-130J contract until the achievement of certain contractual milestones, currently scheduled for the fourth quarter of 1997. Accordingly, the Company has a special credit facility (the "C-130J Facility") with British Aerospace to finance the Company's working capital needs with respect to the C-130J contract with LMC. Subsequent to the end of the second quarter the C-130J Facility was increased from $40.0 million to $55.0 million. The agreement matures on August 7, 1997. Draws under this facility are limited to actual costs incurred by the Company on the LMC C-130J program. By means of a letter dated February 27, 1996, British Aerospace has further represented that as long as British Aerospace continues to hold, or has the ability to hold through the exercise of preferred stock conversion rights and warrants to purchase common stock, a majority ownership position in the Company, it intends to continue to provide annual financing for the C-130J program until payment is received from LMC. Based on current schedules, the contract is estimated to require incremental funding of $25.0 million during 1996 and $22.0 million in 1997. While the cost of financing this program is being recovered through the contract with LMC, an increase in interest rates or an extension of the scheduled delivery dates could result in financing costs in excess of that priced into the contract. The Company's cash flows are impacted, in the normal course of business, by the Company's ability to book new profitable business and achieve scheduled program milestones on a timely basis. The achievement of program milestones, in turn, provides for and enables contractually defined amounts to be billed to the customer. Often these amounts are significant and, as a result, failure to achieve payment milestones can dramatically impact the Company's credit requirements. As described in Notes 1 and 2 to the Consolidated Financial Statements, management has anticipated recovery of certain costs incurred arising out of customer-occasioned contract delays and amounts for work performed but not specified in express contract provisions. The amounts included in the Consolidated Financial Statements represent only a portion of the total compensation sought by the Company from the customers. Therefore, while any and all recoveries are subject to future negotiations, and actual recoveries could be less than those currently anticipated, any amounts awarded in excess of that anticipated in the Company's Consolidated Financial Statements represent an additional capital resource to the Company. It is anticipated that any actual recoveries of the projected amounts may not be collected within the next twelve months. 14 Based upon the availability under its current credit facilities and anticipated renewals thereof; anticipated increases in the C-130J Facility; projected cash flows from current and future programs with achievement of projected program milestones; anticipated reductions in restricted investments; expected resolution and recovery of costs subject to future negotiation as described in Notes 1 and 2 to the Consolidated Financial Statements; and income tax benefits available for future use, management believes that the Company's capital resources are adequate to meet its short- and long-term business needs. Results of Operations During the three- and six-month periods ended June 30, 1996, the Company's consolidated revenues increased by $1.1 million and $6.7 million, or 5.2% and 17.7%, respectively, from comparable periods in 1995. Revenues of the Training Devices Segment increased by 32.7% during the six-month period ended June 30, 1996 as compared to the comparable period in 1995. The increase in revenues primarily resulted from revenues generated by the C-130J program with LMC and three full-flight simulator programs with affiliates. Revenues of the Training Services Segment decreased by 15.3% during the six-month period ended June 30, 1996 as compared to the comparable period in 1995. The decrease primarily relates to the 1995 loss of reprocurements relating to four training services contracts in which the Company was the incumbent contractor. Revenues for the six-month period ended June 30, 1996 were also negatively impacted by the revision of the management agreement pursuant to which the Company manages the British Aerospace-owned Dulles Training Center. Under the terms of the revised management agreement, the Company will receive a fixed fee of $500,000 annually and will be reimbursed by British Aerospace for the Company's costs associated with the Dulles Training Center. Revenues of the Systems Management Segment were approximately $4.2 million for the six-month period ended June 30, 1996 as compared to $900,000 for the comparable period in 1995. The increase in revenues related to the third quarter 1995 award of a contract from an affiliate for a C-130H simulator for ultimate delivery to an international customer. The Company's income from operations was approximately $1.9 million and $3.9 million for the three- and six-month periods ended June 30, 1996, respectively. This compares to income from operations of $1.5 million and $2.5 million for the comparable periods in 1995. The operating profit of the Training Devices Segment was $1.7 million and $784,000 for the six-month periods ended June 30, 1996 and 1995, respectively. The increased profitability primarily relates to profits recognized during the 1996 period on two large affiliate programs and an international military program. 15 Operating profits of the Training Services Segment declined by $100,000 or 5.8%, to $1.6 million during the six-month period ended June 30, 1996 as compared to the comparable period in 1995. The reduced profitability primarily related to the decline in revenues resulting from the 1995 loss of reprocurements of four training services contracts in which the Company was the incumbent contractor. Operating profits of the Systems Management Segment were $576,000 for the six-month period ended June 30, 1996 compared to a loss of $19,000 for the comparable period in 1995. The 1996 operating profit reflects profit recognition on a contract from an affiliate for the sale of a C-130H simulator. Interest income approximated $240,000 and $380,000 during the six-month periods ended June 30, 1996 and 1995, respectively. Interest income is primarily interest earned on long-term notes receivable, restricted investments and temporary cash investments. Interest expense for the six-month period ended June 30, 1996, approximated $193,000 as compared to $1.1 million for the comparable period in 1995. The reduction in interest expense results from lower average levels of borrowings as compared to the previous year. In addition, during the six-month period ended June 30, 1996, interest costs of $560,000 associated with the Company's financing of the C-130J program were charged to the C-130J program and reflected in cost of sales rather than as interest expense. The provision for income taxes increased to $668,000 during the six- month period ended June 30, 1996 as compared with $250,000 for the 1995 period. The increase in the provision for income taxes in the six-month period ended June 30, 1996 as compared to the comparable 1995 period resulted from a higher estimate of taxable income for federal and state income tax purposes and the unavailability of net operating loss carryforwards in 1996. The Company has recorded a deferred tax asset of $1.1 million, for which recovery in future periods is not dependent upon future taxable income. Backlog Contractual backlog decreased to $102.9 million at June 30, 1996, from $121.1 million at December 31, 1995. Of the contractual backlog at June 30, 1996, 83.0% consisted of orders of the Training Devices Segment, 5.6% consisted of orders of the Training Services Segment and 11.4% consisted of orders of the Systems Management Segment. This compares to 71.3%, 15.6% and 13.1%, respectively at December 31, 1995. The contractual backlog of the Training Devices Segment includes the Lockheed C-130J program in the amount of $49.0 million. Annual contract awards within the Training Services Segment to provide training to U.S. Military personnel are generally recorded during the fourth calendar quarter. This results in a declining backlog for the Training Services Segment during the first three calendar quarters. Not included in contractual backlog are announced orders for which definitive contracts have not been executed and unobligated contract options under U.S. Government contracts. 16 Factors That May Affect Future Results The Company's future operating results may be affected by a number of factors, many of which are beyond the Company's control, including uncertainties relative to global economic conditions; political instability; the economic strength of governments; levels of U.S. Government and international defense spending; military and commercial aircraft industry trends; and the Company's ability to successfully increase market share in its Training Devices Segment while expanding its product base into other markets. In recent years, the markets into which the Company sells its training device products have been depressed, and the number of units sold into these markets has decreased from prior periods. As a result, competition for available training device opportunities has increased, resulting in lower margins on devices constructed. In addition, the simulation and training industry has been characterized by continuing industry consolidation, rapid technological advances resulting in frequent introduction of new products and product enhancements, and very competitive pricing practices. The Company has responded to these market conditions by diversifying into new markets and by seeking the formation of strategic teaming arrangements with airframe manufacturers and prime contractors for weapon systems. As in prior years, the Company continues its diversification strategy of pursuing a greater number of opportunities in the training services market. In addition, with the acquisition of RUKL in June 1993 and the purchase of certain assets of the Microflite product line in early 1994, the Company expanded the product lines of the Training Devices Segment and increased the number of opportunities available to it in the European and commercial airline simulation markets. In November 1993, RUKL was selected by LMC as its training systems teammate for the C-130J program. This teaming arrangement with LMC resulted in an award during 1995 worth $77.0 million over the life of the program. In the pursuit of new business, the Company may make contract price proposals to potential customers which, if awarded, could result in the recording of loss provisions to the consolidated financial statements. The Company also sometimes designs and manufactures prototype training devices which by their nature involve unforeseen design and development risks and exposures. The Company attempts to price these risks in the contract value but nonetheless, the frequency of losses historically experienced on prototype training devices exceed those experienced on follow-on devices. The Company attempts to recover its investment in the design and development of prototype devices by winning subsequent programs for follow-on devices. While the LMC program involves the development of prototype C-130J training devices, management believes that this program has been appropriately priced for unforeseen risks and exposures and anticipates profits in future periods on the program. The Company is also pursuing several other programs which, if awarded, could involve risks associated with prototype devices. 17 The Company may experience transaction gains and losses from currency fluctuations related to its international operations. In order to minimize foreign exchange risk, the Company selectively hedges certain of its foreign exchange exposures principally relating to foreign currency accounts payable and accounts receivable. The Company's hedging strategy is facilitated by its ability to borrow foreign currencies under the revolving credit facility and the C-130J Facility provided by British Aerospace. This strategy has reduced the Company's vulnerability to certain of its foreign currency exposures, and the Company expects to continue this practice in the future to the extent appropriate. The Company does not engage in speculative hedging activities, nor does the Company hedge nontransaction-related balance sheet exposure. The Company has entered into contracts to buy forward British pounds with an equivalent value of $9.5 million to reduce the Company's exposure to foreign currency exchange risk associated with the cost of subcontractors and other requirements of the C-130J program denominated in British pounds. These contracts mature quarterly in varying amounts from September 1996 to June 1997. British Aerospace is the counterparty to these instruments. The forward contracts should not subject the Company to risk from exchange movement because gains and losses on these contracts offset losses and gains on the transactions being hedged. However, the amount and timing of the program costs were estimated and changes in these estimates could result in future gains or losses from exchange rate movements. This Quarterly Report on Form 10-Q contains forward-looking comments that involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking comments as a result of certain factors, including those set forth under "Factors That May Affect Future Results" and elsewhere in this Quarterly Report. 18 Part II OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits. The following documents are filed as exhibits to this Report: 10.12 $10,000,000 Borrowing Facility Agreement between Reflectone, Inc. and British Aerospace Finance, Inc. dated as of August 7, 1996. 10.13 Agreement for Credit Availability between Reflectone, Inc. and British Aerospace Plc dated as of August 7, 1996. 10.15 $2,000,000 Revolving Line of Credit Agreement between Reflectone, Inc. and Wachovia Bank of Georgia, N.A. dated as of August 7, 1996. 10.30 $55,000,000 Borrowing Facility Agreement C-130J Program between Reflectone, Inc. and British Aerospace Finance, Inc. dated as of August 7, 1996. (b) The Registrant did not file any reports on Form 8-K during the three-month period ended June 30, 1996. 19 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. REFLECTONE, INC. (Registrant) Date: August 13, 1996 By: /s/Richard G. Snyder Richard G. Snyder President and Chief Executive Officer Date: August 13, 1996 By: /s/ Richard W. Welshhans Richard W. Welshhans Vice President - Finance and Chief Financial Office (Principal Financial and Accounting Officer) 20 REFLECTONE, INC. FORM 10-Q For the Six Months Ended June 30, 1996 EXHIBIT INDEX EXHIBIT NUMBER 10.12 $10,000,000 Borrowing Facility Agreement between Reflectone, Inc. and British Aerospace Finance, Inc. dated as of August 7, 1996. 10.13 Agreement for Credit Availability between Reflectone, Inc. and British Aerospace Plc dated as of August 7, 1996. 10.15 $2,000,000 Revolving Line of Credit Agreement between Reflectone, Inc. and Wachovia Bank of Georgia, N.A. dated as of August 7, 1996. 10.30 $55,000,000 Borrowing Facility Agreement C-130J Program between Reflectone, Inc. and British Aerospace Finance, Inc. dated as of August 7, 1996. 21 EX-10.12 2 Exhibit 10.12 BORROWING FACILITY AGREEMENT BY AND BETWEEN BRITISH AEROSPACE FINANCE, INC. AS LENDER AND REFLECTONE, INC. AS BORROWER DATED AUGUST 7, 1996 British Aerospace Finance Inc. ("BAFI") doing business at Washington Technology Park, Suite 200, 15000 Conference Center Drive, Virginia 20151-3819, hereby agrees to make available to Reflectone, Inc.("Reflectone") doing business at 4908 Tampa West Boulevard, Tampa, Florida 33634, a Facility for short term advances (each advance a "Drawing") up to the equivalent of US$10,000,000 (Ten Million United States Dollars) ("the Facility"). SECTION 1. TERMS OF DRAWINGS Each Drawing will be for a Term as defined herein and as agreed between BAFI and Reflectone but which Term shall not extend beyond the Termination Date as defined herein. Each Drawing will be in United States Dollars or such other currency as is acceptable to BAFI and Reflectone and will be subject to the availability to BAFI of the currency concerned. Each Drawing will be conditional upon Reflectone's not being in default hereunder and there being no cumulation of undeclared or unpaid dividends on Reflectone's 8% preferred stock. Notice of Drawings is required by 11:00 a.m. New York, NY time on the day that funds are required in U.S. Dollars, or two days prior to that date for U.K. Pounds Sterling, or any other major foreign currency. Signed confirmations in respect of each Drawing are required within two business days of the date thereof. SECTION 2. TERMINATION The Facility shall expire on the date which is 365 days from the date hereof ("Termination Date"). Except as provided in Section 5 hereof, all amounts borrowed under the Facility shall be repaid in full on the Termination Date. -1- SECTION 3. RATES ON BORROWINGS Reflectone hereby agrees to pay interest on each Drawing under the Facility at the relevant LIBOR plus a margin of 3.50% per annum ("the Margin"). In the case of U.S. Dollar Drawings, the relevant U.S. Dollar LIBOR plus the Margin shall apply. In the case of U.K. Pound Sterling Drawings, the relevant U.K. Pound Sterling LIBOR plus the Margin shall apply. The relevant LIBOR rate will be as determined by BAFI (based upon the amount of the Drawing and the Term thereof) agreed between the parties hereto by reference to Telerate Page 3750 at 11:00 a.m. New York, NY time for U.S. Dollar Drawings and at 11:00 a.m. London, England time for U.K. Pound Sterling Drawings or any other major foreign currency Drawings, or if the Telerate Page 3750 is not generally available to such other reference quotation as may be agreed between the parties hereto. Interest due in respect of Drawings made under the Facility shall accrue from day to day commencing on the Drawing date and shall be computed on the basis of the actual number of days elapsed using a 360 day year, or in the case of Pound Sterling Drawings, using a 365 day year. All payments made by Reflectone to BAFI shall be made to the order of BAFI, as directed by BAFI, in immediately available funds. Reflectone promises to pay interest on overdue amounts of principal and interest (as permitted by applicable law) at a rate equal to the rate publicly announced from time to time by Citibank, N.A. (New York) as its prime rate plus 3% (three percent). SECTION 4. TERM OF BORROWINGS: MINIMUM BORROWING AMOUNTS By execution hereof, Reflectone promises to pay, at the end of each Term as defined herein, any unpaid principal amount disbursed by BAFI to Reflectone plus interest thereon. The term (the "Term") of any Drawing hereunder shall be stipulated by Reflectone prior to such Drawing, and the Term may be either 15, 30, 45, or 60 days in duration. Such Term shall apply unless otherwise mutually agreed between the parties. Amounts repaid shall be available for further drawing in accordance with the terms hereof. Each U.S. Dollar Drawing shall be in an amount of not less than U.S. $100,000 (One Hundred Thousand United States Dollars). Each U.K. Pound Sterling Drawing shall be in an amount of not less than U.K. 100,000 (One Hundred Thousand U.K. Pounds Sterling). Any other major foreign currency Drawing shall be in an equivalent amount of not less than U.K. 100,000 Pounds Sterling. -2- SECTION 5. PAYMENTS All payments of principal and interest due under the Facility shall be made at the end of the Term for each Drawing (or earlier in the case of an Event of Termination or a Default) without deduction or withholding for or on account of any present or future taxes, duties or governmental charges of any nature whatsoever imposed, levied or collected by or in or on behalf of the United States of America or the United Kingdom or by or on behalf of any political subdivision or authority therein having power to tax, unless such deduction or withholding is required by law. In such event, and if the tax, duty or charge is the result of an assessment or levy on a transaction arising out of this Agreement, then Reflectone shall pay such additional amounts of principal and interest as may be necessary in order to ensure that the net amounts received by BAFI shall equal the respective amounts of principal and interest which would have been receivable had no such deduction or withholding been required and no such payment of any additional amount been made. SECTION 6. EVENT OF TERMINATION If at any time between the date hereof and the Termination Date (i) BAe PLC, directly or indirectly, shall at any time cease to have the ability to hold through the exercise of conversion rights and warrants, a majority interest in Reflectone or (ii) as a result of changes in applicable law or regulation, advances by BAFI are or may be illegal, then BAFI may give notice of its intent to terminate this agreement. Upon the giving of such notice BAFI's obligation to make advances hereunder shall terminate, and 60 days from the giving of such notice all amounts of principal owing hereunder together with accrued interest thereupon shall be payable to BAFI. SECTION 7. REPRESENTATION AND WARRANTIES Reflectone represents and warrants as follows as of the date hereof and as of the date of each Drawing: 7.1 Existence. It is a corporation duly organized, validly existing, and in good standing under the laws of the State of its incorporation. -3- 7.2 Authority. It has full corporate power and authority to execute and deliver this Agreement and to perform and observe the provisions thereof, all of which have been duly authorized by all necessary corporate action. By executing and delivering this Agreement and by performing and observing the provisions thereof, it will not (a) violate any existing provisions of its Certificate of Incorporation or By-laws or violate or otherwise become in default under any contract, law, order, regulation, or other obligation binding upon it, or (b) cause the creation or imposition of any lien, charge, or encumbrance of any nature whatsoever, upon any of it's property, except as provided herein. This Agreement has been duly authorized and executed and is valid, enforceable, and legally binding upon Reflectone, except as such enforcement may be limited by bankruptcy, insolvency, and other laws of general application affecting the rights and remedies of creditors and by equitable principles which may render certain remedies unavailable. It has all requisite corporate power and authority to own its properties and to carry on its business as now or proposed to be conducted. 7.3 Consents or Approvals. No consent, approval, or authorization of, or filing, registration, or qualification with, any governmental authority or any other person is required to be obtained by it in connection with the execution, delivery, performance, or enforceability of this Agreement. SECTION 8. GOVERNING LAW This Agreement shall be governed and construed in accordance with the Law of the Commonwealth of Virginia. In Witness Hereof, the parties have duly and properly executed this Facility as of even date herewith. For and on behalf of BRITISH AEROSPACE FINANCE, INC. /s/David P. Loose For and on behalf of REFLECTONE, INC. /s/R W Welshhans Vice President & Treasurer faciliti1 -4- EX-10.13 3 Exhibit 10.13 AGREEMENT FOR CREDIT AVAILABILITY THIS AGREEMENT FOR CREDIT AVAILABILITY ("Agreement") is made and entered into as of the 7th day of August, 1996, by and between REFLECTONE, INC., a corporation organized and existing under the laws of the state of Florida ("Reflectone"), and BRITISH AEROSPACE PUBLIC LIMITED COMPANY, a public limited company organized and existing under the laws of England ("BAe"). W I T N E S S E T H: WHEREAS, BAe currently guarantees or provides certain of Reflectone's credit facilities; WHEREAS, the parties believe that it is in their best interests to set forth their mutual understandings with respect to BAe's continuing guarantee of these credit facilities. NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound thereby, agree as follows: 1. Credit Facilities. (a) Guaranteed Facilities. Reflectone and BAe hereby acknowledge that BAe currently guarantees an aggregate of U.S. $22,000,000 of credit facilities provided to Reflectone by third-party lenders, which facilities are more fully described on Exhibit A hereto (the "Guaranteed Facilities"). The Guaranteed Facilities provide Reflectone with access to an aggregate of U.S. $2,000,000 for working capital purposes and an aggregate of U.S. $20,000,000 for the provision of letters of credit, bonds and over-draft facilities. Subject to the terms and conditions set forth herein, BAe hereby agrees to continue to guarantee the Guaranteed Facilities throughout the term of this Agreement. -1- (b) BAeF Facilities. In addition, Reflectone and BAe hereby acknowledge that BAe, through its subsidiary British Aerospace Finance, Inc. ("BAeF"), provides Reflectone with two Borrowing Facilities totalling U.S. $65,000,000 for working capital purposes (the "BAeF Facilities"). Subject to the terms and conditions set forth herein and in the related Borrowing Facility Agreements between Reflectone and BAeF, BAe hereby agrees to continue to provide the BAeF Facilities throughout the term of this Agreement. 2. Fees. (a) Facility Fee. As compensation for the provision of credit facilities described in Section 1 of this Agreement, Reflectone shall pay to BAe a quarterly fee (the "Facility Fee") equal to one eighth of one percent of the maximum amount of the Guaranteed and BAeF Facilities available during the relative quarter to be paid in the manner set forth in Section 2(c) hereof. This fee will be adjusted prorata for early termination. (b) Guaranty Fee. As compensation for the guaranty of the US$2,000,000. Working Capital Facility described in Exhibit A of this Agreement, Reflectone shall pay in the manner set forth in Section 2(c) hereof, to BAe a guarantee fee (the "Guaranty Fee") based on the drawings made under the Guaranteed Facility equal to 3.5 percent per annum, less the margin charged by Wachovia Bank of Georgia, N.A. as more fully described in the Agreement establishing the Working Capital Facility. The Guaranty Fee due in respect of drawings under the Working Capital Facility shall accrue from day to day commencing on the date of each drawing and shall be computed on the basis of the actual days elapsed using a 360-day year. (c) Payment. The Credit Availability Fee and Guaranty Fee shall each be paid by Reflectone to BAe quarterly in arrears, payable on March 31, June 30, September 30, and December 31 of each year during the term of this Agreement. -2- 3. Financial Reporting Matters. (a) Monthly Reporting. During the term of this Agreement, Reflectone shall submit to BAe or British Aerospace Holdings, Inc. ("BAeI") its monthly financial reports ("Monthly Report") in accordance with the timetables and formats specified by Bae from time to time. (b) Annual Budget and Business (5-year Strategic) Plan. During the term of this Agreement, on or before the due dates specified by BAe, Reflectone shall submit to BAe or BAeI its annual budget ("Annual Budget") and Business (5-year Strategic) Plan ("Business Plan"). Each Annual Budget and Business Plan shall be prepared in accordance with the format and timetable specified by BAe from time to time. In addition, Reflectone shall supply annual supplementary management information in a format and timetable specified by BAe from time to time. (c) Annual Audited Reporting Package. During the term of this Agreement Reflectone shall submit to BAe or BAeI an audited reporting package for the previous fiscal year, in a format and timetable specified by BAe from time to time. 4. Capital Expenditure Review. During the term of this Agreement Reflectone shall provide for prior review and approval by BAe or BAeI all capital investment expenditure in excess of sterling 50,000. where such expenditure has been reflected in Reflectone's annual budget. If such capital investment has not been reflected in Reflectone's annual budget and is not wholly substitutional, prior review by BAe or BAeI is required for amounts above sterling 10,000. All acquisitions and disposals of businesses, including joint ventures, shall require prior review by BAe or BAeI. Reflectone undertakes not to proceed with any such investment without prior approval from BAe or BAeI. All investment reviews submitted to BAe or BAeI must comply with the form, content and timetable as specified by BAe from time to time. -3- 5. Other Contractual Agreements. During the term of this Agreement Reflectone shall not knowingly or willfully take any action, or omit to take any action, or enter into any agreement which would cause BAe to be in violation of any law, regulation or any financial or contractual covenants provided by BAe in any agreement to which it is a party or which would otherwise place BAe in default of any such agreement. 6. Term. This Agreement shall expire on August 7, 1997 provided, however, that this Agreement may be terminated by either party hereto upon thirty (30) days' written notice in the event that: (a) BAe shall at any time cease to have the ability to hold through the exercise of conversion rights and warrants, a majority interest in Reflectone, or (b) credit facilities in the amounts set forth in Section 1 hereof shall become obtainable by Reflectone on terms substantially the same as the Facilities through third parties, without the requirement that BAe guarantee or otherwise become obligated for such other facilities. 7. Representation and Warranties. Reflectone represents and warrants as follows as of the date hereof and as of the date of each utilization of the Facilities. 8.1 Existence. It is a corporation duly organized, validly existing, and in good standing under the laws of the State of Florida. 8.2 Authority. It has full corporate power and authority to execute and deliver this Agreement and to perform and observe the provisions thereof, all of which have been duly authorized by all necessary corporate action. By executing and delivering this Agreement and by performing and observing the provisions thereof, it will not (a) violate any existing provisions of its -4- Certificate of Incorporation or By-laws or violate or otherwise become in default under any contract, law, order, regulation, or other obligation binding upon it, or (b) cause the creation or imposition of any lien, charge, or encumbrance of any nature whatsoever, upon any of its property, except as provided herein. This Agreement has been duly authorized, and executed and is valid, enforceable, and legally binding upon it, except as such enforcement may be limited by bankruptcy, insolvency, and other laws of general application affecting the rights and remedies of creditors and by equitable principles which may render certain remedies unavailable. It has all requisite corporate power and authority to own its properties and to carry on its business as now or proposed to be conducted. 8.3. Consents or Approvals. No consent, approval, or authorization of, or filing, registration, or qualification with, any governmental authority or any other Person is required to be obtained by it in connection with the execution, delivery, performance, or enforceability of this Agreement. 8. Miscellaneous. (a) Notices. Any notices or other communications required or permitted hereunder shall be given in writing and shall be delivered or sent by certified or registered mail, postage prepaid, addressed as follows: If to Reflectone, to: Reflectone, Inc. 4908 Tampa West Boulevard P.O. Box 15000 Tampa, Florida 33684 Attn: Vice President Finance -5- If to BAe, to: c/o British Aerospace Holdings, Inc. Washington Technology Park 15000 Conference Center Drive, Suite 200 Chantilly, Virginia 20151-3819 Attn: Sr. Vice President and General Manager or to such other address as shall be furnished in writing by such party, and any such notice or communication shall be effective and be deemed to have been given as of two (2) days following the date so mailed; provided that any notice or communications changing any of the addresses set forth above shall be effective and deemed given only upon its receipt. (b) Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned by either of the parties hereto without the prior written consent of the other party. (c) Entire Agreement. This Agreement, including the exhibits and other documents referred to herein which form a part hereof, contains the entire understanding of the parties with respect to the transactions contemplated hereby and supersedes all prior arrangements or understandings with respect thereto. There are no restrictions, agreements, promises, warranties, covenants, or undertakings other than those expressly set forth herein or therein. (d) Modifications and Amendments. No change, modification or termination of any terms, provisions, or conditions of this Agreement shall be effective unless made in writing and signed or initialed by all parties hereto, their successor and assigns. (e) Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same Agreement and each of which shall be deemed an original. -6- (f) Governing Law. This Agreement shall be governed by the laws of the Commonwealth of Virginia, United States of America (regardless of the laws that might be applicable under principles of conflicts of law) as to all matters, including but not limited to, matters of validity, construction, effect, and performance. (g) Headings and Captions. The titles or captions of sections and subsections contained in this Agreement are provided for convenience of reference only, and shall not be considered a part hereof for purposes of interpreting or applying this Agreement, and, therefore, such titles or captions do not define, limit, extend, explain, or describe the scope or extent of this Agreement or any of its terms, provisions, representations, warranties, conditions, etc., in any manner or way whatsoever. IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement individually or by its duly authorized officers, as of the day and year first above-written. WITNESSES: REFLECTONE, INC. By: /s/R W Welshhans Name:R W Welshhans Title:Chief Financial Officer "Reflectone" BRITISH AEROSPACE PUBLIC LIMITED COMPANY By:/s/David P. Loose Name:David P. Loose Title: "BAe" -7- EXHIBIT A Reflectone Credit Facilities Provided or Guaranteed by BAe a Working Capital Facility consisting of $2 million Revolving Line of Credit Agreement between Wachovia Bank of Georgia, N.A., BAe and Reflectone to be used for working capital purposes; a $20 million Letter of Credit Agreement with Lloyds Bank PLC; -8- EXHIBIT B Description of British Aerospace Finance Facility a $10 million Borrowing Facility Agreement with BAeF for working capital purposes a $55 million Borrowing Facility Agreement with BAeF to provide working capital in respect to Reflectone's C130-J contract with Lockheed Aeronautics Corporation. reflagr -9- EX-10.15 4 Exhibit 10.15 June 28, 1996 Mr. Richard W. Welshhans Vice President Chief Financial Officer Reflectone, Inc. 5125 Tampa West Boulevard Tampa, FL 33634 Re: $2,000,000 Revolving Line of Credit Agreement (the "Agreement") Dear Richard: Wachovia Bank of Georgia. N.A. (the "Lender") agrees to open a revolving line of credit (the "Line of Credit") in favor of Reflectone, lnc., a Florida corporation (the "Borrower"), so that Borrower may borrow, repay and reborrow from time to time, subject to the terms and conditions of this Agreement, up to a maximum aggregate principal amount outstanding of $2,000,000 (the "Committed Amount"). The obligation of Borrower to repay any Advances under the Line of Credit shall be evidenced by a master note (the "Note") substantially in the form of Exhibit "A" attached hereto. The terms and conditions of the Agreement are incorporated in the Note by reference as though the same were written therein. This Line of Credit shall terminate on the Termination Date, and on the Termination Date Lender's obligation to extend further credit under the Line of Credit shall cease and the principal amount of and all interest on all Advances under the Line of Credit shall be due and payable in full automatically and without demand. All payments of principal and interest due on the Note shall be made in immediately available funds in Atlanta, Georgia. The Borrower's obligations under this Agreement and the Note are unconditionally guaranteed by British Aerospace Public Limited Company (the "Guarantor") pursuant to a Guaranty Agreement substantially in the form of Exhibit "B" attached hereto. This Line of Credit replaces the $10,000,000 Line of Credit provided under a $10,000,000 Revolving Line of Credit Agreement between the Borrower, the Lender and the Guarantor dated June 30, 1995. l. Lender's obligation to make Advances under the Line of Credit is subject to the following conditions precedent: (i) Borrower shall have paid to Lender on or before the fifth Business Day following the execution of this agreement a one-time facility fee of $7,500.; (ii) the Lender shall have received, on or before the date of the first Advance (a) a copy of the Resolutions of the Board of Directors of the Borrower, certified on such date, 1 authorizing the execution and delivery of the Agreement, and the borrowing hereunder and the execution and delivery of the Note, (b) a copy of documentation satisfactory to the Lender from the Banking Committee of the Guarantor's Board of Directors authorizing the Guarantor's execution and delivery of the Guaranty Agreement, and (c) such additional documents as the Lender may reasonably request; (iii) on the date of any Advance, each of the representations and warranties made by the Borrower in Paragraph 4 hereof shall be true on and as of the date of the making of such Advance with the same force and effect as if made on and as of such date; and (iv) at the time of each Advance, the Borrower, and each of its Subsidiaries, shall be in compliance with all of the terms and provisions set forth herein on their part to be observed and performed, and no event of default as specified in Paragraph 8 hereof, nor any event which upon notice or lapse of time, or both, would constitute such an event of default, shall have occurred at the time of such Advance 2. For purposes of this Agreement the following terms shall have the following definitions: "Adjusted LlBOR Rate" shall mean a rate per annum (adjusted to the nearest 1/100 of 1% or, if there is no nearest 1/100 of 1%, to the next highest 1/100 of 1 %) determined by the Lender as the rate per annum equal to the sum of: LIBOR + Applicable LIBOR Margin. 100%. Eurodollar Reserve Percentage "Advance" shall mean any borrowing by the Borrower hereunder. "Applicable LIB0R Margin" means .25 of 1 percent (.25%); "Base Rate" shall mean for any day, the rate per annum equal to the higher as of such day of (i) the Prime Rate and (ii) one-half of one percent above the Federal Funds Rate for such day. For purposes of determining the Base Rate changes in the Prime Rate will be effective on the date of each such change. "Business Day" means any other day other than Saturday, Sunday, or other day on which commercial banks in Georgia are authorized or required to close under the laws of the State of Georgia. In addition, where such day relates to an Advance, bearing interest at the Adjusted LIBOR Rate, "Business Day" means only a day on which dealings in United States dollar time deposits are carried out in the Eurodollar interbank market and which is also a Business Day in accordance with the immediately preceding sentence. 2 "Eurodollar Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in respect of "Eurocurrency liabilities" (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). The Eurodollar Reserve Percentage shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Reserve Percentage. "Federal Funds Rate" means, for any day, the rate per annum (rounded upward, if necessary, to the next higher 1/100 of 1 %) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the business Day next succeeding such day, provided that (i) if the day for which such rate is to be determined is not a Business Day the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding business Day, and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to the Bank on such day on such transactions as determined by the Bank. "Interest Payment Date" shall mean the last day of each Interest Period and, if such Interest Period is longer than 3 months, at intervals of 3 months from the first day thereof. "Interest Period" shall mean for any Advance the period commencing on the date such Advance is made and ending: (i) In the case of an Advance bearing interest at the Adjusted LIBOR Rate, on that day which is the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as the Borrower may select hereunder except that each such Interest Period which commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of such appropriate subsequent calendar month; 3 (ii) In the case of an Advance bearing interest at the Base Rate, on that day which is thirty (30) days thereafter. Notwithstanding the foregoing, (i) each Interest Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (or, in the case of an Advance bearing interest at the Adjusted LIBOR Rate, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day), (ii) if any Interest Period would otherwise commence before and end after the Termination Date, such Interest Period shall end on such date, and (iii) notwithstanding clause (ii) above, no Interest Rate Period for any Advance bearing interest at the Adjusted LIBOR date shall have a duration of less than one month if the Interest Period for any such Advance would otherwise be a shorter period, such Advance shall bear interest at the Base Rate. "Interest Rate" shall mean the Adjusted LIBOR Rate or the Base Rate, as the context requires. "LIBOR" means the rate per annum determined on the basis of the offered rate for deposits in dollars of amounts equal or comparable to the principal amount of such Advance offered for a term comparable to such Interest Period, which rates appear on the Reuters Screen LIBO page as of 11:00 a.m., London time, two (2) Eurodollar Business Days prior to the first day of such Interest Period, provided that (i) if more than one such offered rate appears on the Reuters Screen LlB0 page, the "London Interbank Offered Rate" will be the arithmetic mean of such offered rates; (ii) if no such offered rates appear on such page, the London Interbank Offered Rate" for such Interest Period will be the arithmetic mean of rates quoted by not less than two major banks in New York City, selected by the Lender, at approximately 10:00 a.m., New York City time, two (2) Eurodollar Business Days prior to the first day of such Interest Period, for deposits in dollars offered to leading European banks for a period comparable to such Interest Period in an amount comparable to the Advance. "Maturity" shall mean the last day of any Interest Period with respect to an Advance or the Termination Date with respect to the Line of Credit, as the context requires. "Person" shall mean an individual, corporation, a partnership, an association, a trust, or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. 4 "Prime Rate" refers to that interest rate so denominated and set by the Lender from time to time as an interest rate basis for borrowings. The Prime Rate is but one of several interest rate bases used by the Lender. The Lender lends at rates above and below the Prime Rate. "Subsidiary" and "Subsidiaries" means any corporation of which fifty percent (50%) or more of the voting stock at any time is owned or controlled directly or indirectly by the Borrower. "Termination Date" means the earliest of (i) August 7, 1997, or (ii) that Business Day on which Lender receives a notice of termination, by registered mail, addressed to the office of the Lender extending credit under this Line of Credit from the Guarantor. Words importing the singular include the plural and vice versa unless the context otherwise requires. 3. Each Advance under the Line of Credit shall bear interest for each applicable Interest Period at one of the following rates per annum as selected by the Borrower: (i) the Adjusted LIBOR Rate or (ii) the Base Rate. interest on each Advance shall be due and payable on each Interest Payment Date. After Maturity, interest on any unpaid Advance balance is payable at the rate per annum equal to the Base Rate plus 1.00%, and shall be due and payable on demand. In all cases, interest shall be calculated on the outstanding principal amount of each outstanding Advance on the basis of a 360-day year and the actual days during which such Advance is outstanding. In borrowing hereunder, the Borrower shall have the option to select the Interest Rate and Maturity of each Advance as provided hereunder. The Borrower shall notify the Lender of the amount of such Advance, the Maturity of such Advance, and the Interest Rate applicable to such Advance. Each Advance under this Line of Credit shall be in a principal amount of $1,000.000 or any larger multiple of $100,000 in the case of an Advance at the Adjusted LIBOR Rate and $100,000 in the case of an Advance at the Base Rate. Upon Maturity of an Advance, the Borrower shall either repay the Advance in full or renew the Advance, any such renewal constituting a new Advance hereunder. 5 If an Advance is renewed, such Advance may be renewed in whole or in part, and an amount equal to the difference between the principal of the Advance to be renewed and the principal of the Advance to be repaid shall be made available by the Lender to the Borrower or the Borrower to the Lender, as the case may be. Prepayment of Advances prior to the Maturity thereof shall not be permitted except in the case of Advances bearing interest at the Base Rate. Notices by the Borrower to the Lender specifying the amount, Maturity and Interest Rate applicable to each Advance shall be made by giving to the Lender written or telephonic notice (which telephonic notice shall be promptly confirmed in writing). Such notices shall be irrevocable and shall be effective only if received by the Lender not later than 2:00 p.m. Atlanta, Georgia time, the first Business Day of the Interest Period of any Advance except in the case of an Advance bearing interest at the Adjusted LIBOR Rate for which notice must be received by the Lender not later than 2:00 pm Atlanta, Georgia time, two (2) Business Days prior to the first day of the applicable Interest Period. If, (i) after its receipt of any notice of Borrower's election of the Adjusted LIBOR Rate, Lender determines in its reasonable judgment prior to the disbursement of the Advance to which such notice relates that it is not possible to determine LIBOR or LIBOR shall no longer cover the effective cost to Lender of obtaining United States dollar deposits in the Eurodollar interbank market or (ii) in the event that, as a result of any change in applicable law, rules, regulations, treaties directives or in the interpretation or administration thereof or by reason of Lender's compliance therewith, the effective cost to Lender of making maintaining or funding the indebtedness represented by the Note at the Adjusted LIBOR Rate is increased, then Lender shall notify Borrower of such determination and Advances under the Line of Credit shall bear interest at the Base Rate. The Lender or other holder shall be and is hereby authorized by the Borrower to set forth on the reverse side of the Note, or on an attachment thereto: (1) the amount and date of each Advance made hereunder; (2) the Maturity date of each such Advance; (3) the Interest Rate for each such Advance; (4) the Interest Payment Dates for each such Advance, and (5) each payment of principal received thereon and the date of such payment. All such notations shall be conclusive absent manifest error but failure to make any such notation shall not limit or otherwise affect the obligation of the Borrower with respect to the payment of all Advances actually made hereunder and the interest thereon. 6 4. Borrower represents and warrants to the Lender that (i) it is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (ii) the making and performance by Borrower of this Agreement and the Note are within Borrower's corporate powers and will not contravene any provisions of law or its charter or by-laws or of any indenture or other agreement or instrument to which it is now or by which it or any of its properties may be bound or affected; (iii) it has the corporate authority to execute, deliver and perform this Agreement and to borrow in accordance with the terms of this Agreement and it has taken all necessary and appropriate corporate action to authorize the borrowing under and the execution, delivery and performance of this Agreement and the Note; (iv) this Agreement is and the Note, when executed and delivered, will be valid obligations of the Borrower, legally binding and enforceable against it in accordance with their respective terms; (v) there are no pending or threatened proceedings before any court or administrative body which might materially and adversely affect the financial condition or operations of Borrower which has not been previously disclosed; and (vi) the annual audit reports and financial statements of Borrower and Consolidated Subsidiaries for the fiscal year most recently ended previously furnished to Lender have been prepared in accordance with generally accepted accounting principles and fairly present the financial condition of Borrower and Consolidated Subsidiaries as of such date and since such date there has been no material adverse change in such condition. 5. Financial Statement: So long as the Lender's obligation to extend credit under this Line of Credit exists or any amount payable on the Note remains unpaid, the Borrower agrees to furnish the Lender consolidated financial statements of the Borrower and its Subsidiaries for each fiscal year, prepared in conformity with generally accepted accounting principles and audited by an independent certified public accountant. Additionally, the Borrower agrees to provide consolidated financial statements for each quarter, signed by an officer of the Borrower. The annual and quarterly financial statements shall be delivered to the Lender within 90 days and 60 days, respectively, after the close of the fiscal period. The Borrower also shall provide the Lender, with reasonable promptness, such further information regarding the Borrower's business affairs and financial condition as the Lender may reasonably request. 7 6. Covenants Of The Borrower: So long as the Lender's obligation to extend credit under this Line of Credit exists or any amount payable on the Note remains unpaid, the Borrower agrees that the Borrower will and will require its Subsidiaries to adhere to the following Covenants: a. Maintain insurance in such amounts and against such risks as are usually insured against by companies engaged in the same or similar business. b. Maintain its corporate existence and comply with all valid and applicable statutes, rules and regulations, and maintain its properties in good operating condition. 7. The occurrence or existence of any one or more of the following events or conditions will constitute an event of default by the Borrower under this Agreement, whereupon the Lender's obligation to make Advances under the Line of Credit will immediately terminate and the Note and all indebtedness of the Borrower to the Lender will, at the option of the Lender, immediately become due and payable without presentation, demand, protest, or notice of any kind, all of which are hereby expressly waived by the Borrower, and the Lender will, at the option of the Lender, call upon the Guaranty Agreement. a. Nonpayment within seven Business Days after notification that such payment has become due and remains unpaid, whether by acceleration or otherwise, of any payment of principal or interest on the Note; or b. Nonpayment within seven Business Days after notification that such payment has become due and remains unpaid of any payment of a fee or other charge under this Agreement; or c. A breach or failure of performance by the Borrower or any Subsidiary of any covenant or other provision of this Agreement which is not remedied within 30 days after written notice by the Lender; or d. A representation or warranty by the Borrower shall prove to have been false or erroneous when made or when deemed made or any certificate or financial statement provided to the Lender proves to be inaccurate in any material respect when delivered or when deemed to have been delivered; or 8 e. The Borrower, or any Subsidiary: (i) files a petition or has a petition filed against it under the Bankruptcy Code (as it now exists or may be amended) or an admission seeking the relief therein provided, (ii) is unable, or admits in writing its inability, to pay its debts as they become due, (iii) makes an assignment for the benefit of creditors, (iv) has a receiver appointed, voluntarily or otherwise, for its property, (v) is adjudicated a bankrupt, (vi) suspends business, (vii) becomes insolvent however otherwise evidenced, or (viii) has any final judgement for money damages in excess of $5,000,000.00 entered against it in a court of competent jurisdiction which remains unsatisfied for a period of thirty (30) days or more; or f. An Event of Default under the Agreement dated the 19th day of May, 1995 between British Aerospace Finance, Inc., British Aerospace Public Limited Company, British Aerospace Operations Limited and Wachovia Bank of Georgia, N.A. shall have occurred and be continuing. 8. If the Lender shall have determined that after the date hereof the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof, or compliance by the Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any authority, has or would have the effect of reducing the rate of return on the Lender's capital as a consequence of its obligations hereunder to a level below that which the Lender could have achieved but for such adoption, change or compliance (taking into consideration the Lender's policies with respect to capital adequacy) by an amount deemed by the Lender to be material, then the Lender shall notify the Borrower of such determination and then from time to time, within fifteen days after demand by the Lender, the Borrower shall pay to the Lender such additional amount or amounts as will compensate the Lender for such reduction. 9. No amendment or waiver of any provision of this Agreement or consent to any departure by the Borrower therefore shall in any event be effective unless the same shall be in writing and signed by the Lender. Any such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 9 10. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The Borrower may, with the prior written consent of the Lender, assign or otherwise transfer any of its rights under this Agreement provided that: (i) such assignee is a corporation that is incorporated within the United States of America and (ii) such assignment or transfer is accompanied by a Guaranty Agreement in substantially the form of Exhibit B hereto from the Guarantor providing for the Guarantor's unconditional guarantee of such assignees' obligations. 11. This Agreement and the Note issued and all other documents furnished hereunder shall be governed by and be construed according to the laws of the State of Georgia. 12. The Borrower will pay the reasonable attorney's fees incurred by the Lender in connection with the enforcement of this Agreement. If the foregoing terms and conditions are acceptable to the Borrower, please indicate the Borrower's agreement to such terms and conditions by executing this Agreement in the appropriate space provided below, by executing the Note and the Guaranty Agreement and by returning this Agreement, the Note, and the Guaranty Agreement to the Lender. Very truly yours. WACHOVIA BANK OF GEORGlA, N.A. By:/s/James C. Ratcliff, Jr. Its:Vice President Accepted and agreed to this 9th day of August, 1996 . Borrower: Reflectone, Inc. By:/s/R W Welshhans Its: Chief Financial Officer Accepted and agreed to this 9th day of August, 1996 . 10 Exhibit A MASTER NOTE June 28, 1996 $2,000,000 FOR VALUE RECEIVED the undersigned, Reflectone, Inc, a Florida corporation ("Borrower"), hereby promises to pay to the order of Wachovia Bank of Georgia, N.A., a national banking association ("Lender") at its office located at Atlanta, Georgia, in lawful money of the United States of America in immediately available funds, the principal sum of Two Million Dollars ($2,000,000) or if less, the aggregate unpaid principal amount of all Advances outstanding made by the Lender pursuant to the Revolving Line of Credit Agreement dated June 28, 1996 ("Agreement") between the Borrower and the Lender, and to pay interest on the unpaid principal hereof, at said office, in like money and funds, during the period commencing on the date hereof until paid at the rates per annum and at the times provided in the Agreement. Capitalized terms used in this Note, unless otherwise defined herein, shall have the respective meanings assigned to them in the Agreement. The amount and date of each Advance made by the Lender to the Borrower hereunder, the Maturity date of each such Advance, the Interest Rate for each such Advance, the Interest Payment Dates for each such Advance and each payment of principal received thereon and the date of such payment shall be recorded by the Lender and endorsed on the schedule attached hereto which is made a part of this Note. All such endorsements shall be conclusive absent manifest error but failure to make any such endorsement shall not affect the Borrower's obligations hereunder or under the Agreement in respect of such Advances and the interest thereon. All parties to this Note, including the makers, endorsers, sureties and guarantors, whether bound by this or by separate instrument or agreement, hereby (1) waive presentment for payment, demand, protest, notice of nonpayment or dishonor and of protest and any and all other notices and demands whatsoever; (2) consent that at any time or from time to time, payment of any sum payable under this Note may be extended without notice, whether for a definite or indefinite time; and (3) agree to remain liable until the indebtedness evidenced hereby is paid in full irrespective of any extension, modification or renewal. 11 Should the indebtedness represented by this Note or any part hereof be collected at law or in equity or in bankruptcy, receivership or other court proceedings or this Note be placed in the hands of attorneys for collection on default, the Borrower agrees to pay in addition to the principal and interest due and payable hereon reasonable attorneys' fees and legal expenses, together with all other reasonable costs of collection. The terms and conditions contained in the Agreement shall be considered a part hereof to the same extent as if written herein. This Note shall be construed in accordance with and be governed by the laws of the State of Georgia. This note is intended to be effective as an instrument executed under seal, as of the date first above written. IN WITNESS WHEREOF, the Borrower has caused this instrument to be executed as of the date first above written Borrower: Reflectone, Inc. By: /s/R W Welshhans ATTEST: Its: Secretary (CORPORATE SEAL) 12 SCHEDULE FOR MASTER NOTE Interest Date of Amount of Maturity Payment Interest Principal Balance Advance Advance Date Date Rate Payment Outstanding WTS-188.RGP 13 EX-10.30 5 Exhibit 10.30 BORROWING FACILITY AGREEMENT C-130J PROGRAM BY AND BETWEEN BRITISH AEROSPACE FINANCE, INC. AS LENDER AND REFLECTONE, INC. AS BORROWER DATED AUGUST 7, 1996 British Aerospace Finance Inc. ("BAFI") doing business at Washington Technology Park, Suite 200, 15000 Conference Center Drive, Virginia 20151-3819, hereby agrees to make available to Reflectone, Inc.("Reflectone") doing business at 4908 Tampa West Boulevard, Tampa, Florida 33634, a Facility for short term advances (each advance a "Drawing") up to the equivalent of US$55,000,000 (Fifty Five Million United States Dollars) ("the Facility"). SECTION 1. TERMS OF DRAWINGS Each Drawing will be for a Term as defined herein and as agreed between BAFI and Reflectone but which Term shall not extend beyond the Termination Date as defined herein. Each Drawing will be in United States Dollars or such other currency as is acceptable to BAFI and Reflectone and will be subject to the availability to BAFI of the currency concerned. Total Drawing shall be limited to actual costs incurred on the UK C-130J program and shall be subject to written verification and audit. Each Drawing will be conditional upon Reflectone's not being in default hereunder and there being no cumulation of undeclared or unpaid dividends on Reflectone's 8% preferred stock. Notice of Drawings is required by 11:00 a.m. New York, NY time on the day that funds are required in U.S. Dollars, or two days prior to that date for U.K. Pounds Sterling, or any other major foreign currency. Signed confirmations in respect of each Drawing are required within two business days of the date thereof. SECTION 2. TERMINATION The Facility shall expire on the date which is 365 days from the date hereof ("Termination Date"). Except as provided in Section 5 hereof, all amounts borrowed under the Facility shall be repaid in full on the Termination Date. -1- SECTION 3. RATES ON BORROWINGS Reflectone hereby agrees to pay interest on each Drawing under the Facility at the relevant LIBOR plus a margin of 1.50% per annum ("the Margin"). In the case of U.S. Dollar Drawings, the relevant U.S. Dollar LIBOR plus the Margin shall apply. In the case of U.K. Pound Sterling Drawings, the relevant U.K. Pound Sterling LIBOR plus the Margin shall apply. The relevant LIBOR rate will be as determined by BAFI (based upon the amount of the Drawing and the Term thereof) agreed between the parties hereto by reference to Telerate Page 3750 at 11:00 a.m. New York, NY time for U.S. Dollar Drawings and at 11:00 a.m. London, England time for U.K. Pound Sterling Drawings or any other major foreign currency Drawings, or if the Telerate Page 3750 is not generally available to such other reference quotation as may be agreed between the parties hereto. Interest due in respect of Drawings made under the Facility shall accrue from day to day commencing on the Drawing date and shall be computed on the basis of the actual number of days elapsed using a 360 day year, or in the case of Pound Sterling Drawings, using a 365 day year. All payments made by Reflectone to BAFI shall be made to the order of BAFI, as directed by BAFI, in immediately available funds. Reflectone promises to pay interest on overdue amounts of principal and interest (as permitted by applicable law) at a rate equal to the rate publicly announced from time to time by Citibank, N.A. (New York) as its prime rate plus 3% (three percent). SECTION 4. TERM OF BORROWINGS: MINIMUM BORROWING AMOUNTS By execution hereof, Reflectone promises to pay, at the end of each Term as defined herein, any unpaid principal amount disbursed by BAFI to Reflectone plus interest thereon. The term (the "Term") of any Drawing hereunder shall be stipulated by Reflectone prior to such Drawing, and the Term may be either 15, 30, 45, or 60 days in duration. Such Term shall apply unless otherwise mutually agreed between the parties. Amounts repaid shall be available for further drawing in accordance with the terms hereof. -2- Each U.S. Dollar Drawing shall be in an amount of not less than U.S. $100,000 (One Hundred Thousand United States Dollars). Each U.K. Pound Sterling Drawing shall be in an amount of not less than U.K. 100,000 (One Hundred Thousand U.K. Pounds Sterling). Any other major foreign currency Drawing shall be in an equivalent amount of not less than U.K. 100,000 Pounds Sterling. SECTION 5. PAYMENTS All payments of principal and interest due under the Facility shall be made at the end of the Term for each Drawing (or earlier in the case of an Event of Termination or a Default) without deduction or withholding for or on account of any present or future taxes, duties or governmental charges of any nature whatsoever imposed, levied or collected by or in or on behalf of the United States of America or the United Kingdom or by or on behalf of any political subdivision or authority therein having power to tax, unless such deduction or withholding is required by law. In such event, and if the tax, duty or charge is the result of an assessment or levy on a transaction arising out of this Agreement, then Reflectone shall pay such additional amounts of principal and interest as may be necessary in order to ensure that the net amounts received by BAFI shall equal the respective amounts of principal and interest which would have been receivable had no such deduction or withholding been required and no such payment of any additional amount been made. SECTION 6. EVENT OF TERMINATION If at any time between the date hereof and the Termination Date (i) BAe PLC, directly or indirectly, shall at any time cease to have the ability to hold through the exercise of conversion rights and warrants, a majority interest in Reflectone or (ii) as a result of changes in applicable law or regulation, advances by BAFI are or may be illegal, then BAFI may give notice of its intent to terminate this agreement. Upon the giving of such notice BAFI's obligation to make advances hereunder shall terminate, and 60 days from the giving of such notice all amounts of principal owing hereunder together with accrued interest thereupon shall be payable to BAFI. -3- SECTION 7. REPRESENTATION AND WARRANTIES Reflectone represents and warrants as follows as of the date hereof and as of the date of each Drawing: 7.1 Existence. It is a corporation duly organized, validly existing, and in good standing under the laws of the State of its incorporation. 7.2 Authority. It has full corporate power and authority to execute and deliver this Agreement and to perform and observe the provisions thereof, all of which have been duly authorized by all necessary corporate action. By executing and delivering this Agreement and by performing and observing the provisions thereof, it will not (a) violate any existing provisions of its Certificate of Incorporation or By-laws or violate or otherwise become in default under any contract, law, order, regulation, or other obligation binding upon it, or (b) cause the creation or imposition of any lien, charge, or encumbrance of any nature whatsoever, upon any of it's property, except as provided herein. This Agreement has been duly authorized and executed and is valid, enforceable, and legally binding upon Reflectone, except as such enforcement may be limited by bankruptcy, insolvency, and other laws of general application affecting the rights and remedies of creditors and by equitable principles which may render certain remedies unavailable. It has all requisite corporate power and authority to own its properties and to carry on its business as now or proposed to be conducted. 7.3 Consents or Approvals. No consent, approval, or authorization of, or filing, registration, or qualification with, any governmental authority or any other person is required to be obtained by it in connection with the execution, delivery, performance, or enforceability of this Agreement. -4- SECTION 8. GOVERNING LAW This Agreement shall be governed and construed in accordance with the Law of the Commonwealth of Virginia. In Witness Hereof, the parties have duly and properly executed this Facility as of even date herewith. For and on behalf of BRITISH AEROSPACE FINANCE, INC. /s/David P. Loose For and on behalf of REFLECTONE, INC. /s/R W Welshhans Vice President & Treasurer -5- EX-27 6
5 6-MOS DEC-31-1996 JUN-30-1996 5,205,084 0 37,635,862 488,548 0 2,723,524 18,195,222 10,015,972 58,681,260 38,467,862 0 0 50,000 285,244 17,554,345 58,681,260 44,379,912 44,379,912 38,456,480 40,474,170 (133,771) 0 (47,171) 4,086,684 668,325 3,418,359 0 0 0 3,418,359 1.04 .99
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