-----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, DI96gw9ifnVyHJws+Hvh7ZVK/skHT5BO60lfwAA4D55OeDDyrvbbe0991GSDwQ0O WGsl66zF/Nh9ivbwsAAheQ== 0000785037-96-000018.txt : 19961113 0000785037-96-000018.hdr.sgml : 19961113 ACCESSION NUMBER: 0000785037-96-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960927 FILED AS OF DATE: 19961112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: REFLECTONE INC /FL/ CENTRAL INDEX KEY: 0000785037 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [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: 96659546 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 ORIGINAL 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 September 27, 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 Identification No.) incorporation or organization) 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, 2,863,733 shares as of October 23,1996. 1 Part I - FINANCIAL INFORMATION Item 1 - Financial Statements Reflectone, Inc. & Subsidiaries Consolidated Balance Sheets As of September 27, 1996 and December 31, 1995
(Unaudited) September 27, December 31, ASSETS 1996 1995 Current assets Cash and cash equivalents $ 3,899,089 $ 4,582,021 Receivables - non affiliate 43,342,516 26,101,185 Receivables - affiliate 2,991,101 628,922 Current installments of long-term note receivable - 3,558,000 Net deferred tax assets 1,638,930 1,050,000 Prepaid expenses and other current assets 1,827,079 1,480,190 ------------ ------------ Total current assets 54,033,415 37,400,318 Property, plant & equipment, net 8,271,859 7,881,699 Investments - restricted 5,000,000 5,000,000 Other assets 401,182 441,568 ------------ ------------ $ 67,706,456 $ 50,723,585 ============ ============
2
LIABILITIES & SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 5,568,901 $ 9,980,857 Due to affiliate 2,121,778 1,995,079 Borrowings on line of credit - affiliate 27,806,184 6,513,666 Advance billings 3,346,171 7,832,601 Accrued employee compensation and benefits 3,499,650 4,218,694 Federal and state taxes payable 157,486 827,263 Accrued settlement expenses 1,068,414 1,068,415 Other accrued expenses and liabilities 2,260,996 1,807,763 ------------ ------------ Total current liabilities 45,829,580 34,244,338 ------------ ------------ Deferred gain on sale of equipment 2,262,189 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 - 2,863,733 and 2,750,255 shares 286,373 275,025 Additional paid-in capital 32,622,531 31,741,011 Cumulative translation adjustment 734,360 734,705 Accumulated deficit (14,078,577) (18,825,241) ------------ ------------ Total shareholders' equity 19,614,687 13,975,500 ------------ ------------ $ 67,706,456 $ 50,723,585 ============ ============ See accompanying notes to consolidated financial statements.
3 Reflectone, Inc. & Subsidiaries Consolidated Statements of Income For the Nine and Three Months Ended September 27, 1996 and September 29,1995 (Unaudited)
Nine Months 1996 1995 Revenues Non-affiliate $52,256,269 $48,604,361 Affiliate 17,985,362 14,422,630 ----------- ----------- 70,241,631 63,026,991 ----------- ----------- Costs and expenses Cost of sales Non-affiliate 46,693,241 44,525,470 Affiliate 14,593,591 11,146,979 ----------- ----------- 61,286,832 55,672,449 General and administrative 2,879,708 2,484,817 ----------- ----------- 64,166,540 58,157,266 ----------- ----------- Income from operations 6,075,091 4,869,725 ----------- ----------- Other income (expense) Interest income 389,419 600,330 Interest expense (339,127) (1,847,779) Other 19,946 20,655 ----------- ----------- 70,238 (1,226,794) ----------- ----------- Income before income taxes 6,145,329 3,642,931 Provision for income taxes 870,665 606,000 ----------- ----------- Net income 5,274,664 3,036,931 Preferred stock dividends 528,000 528,000 ----------- ----------- Net income applicable to common shareholders $ 4,746,664 $ 2,508,931 =========== =========== Income per common and common equivalent share Primary $ 1.60 $ .89 =========== =========== Fully diluted $ 1.52 $ - =========== ===========
4
Three Months 1996 1995 $20,194,232 $15,255,363 5,667,487 10,065,092 ----------- ----------- 25,861,719 25,320,455 ----------- ----------- 18,256,016 14,608,091 4,574,336 7,744,398 ----------- ----------- 22,830,352 22,352,489 862,018 574,373 ----------- ----------- 23,692,370 22,926,862 ----------- ----------- 2,169,349 2,393,593 ----------- ----------- 149,356 220,220 (146,235) (783,768) (113,825) 6,101 ----------- ----------- (110,704) (557,447) ----------- ----------- 2,058,645 1,836,146 202,340 356,000 ----------- ----------- 1,856,305 1,480,146 176,000 176,000 ----------- ----------- $ 1,680,305 $ 1,304,146 =========== =========== $ .56 $ .45 =========== =========== $ .53 $ .43 =========== =========== See accompanying notes to consolidated financial statements.
5 Reflectone, Inc. & Subsidiaries Consolidated Statements of Cash Flows Nine Months ended September 27, 1996 and September 29,1995 (Unaudited)
1996 1995 Cash flows from operating activities: Net income $ 5,274,664 $ 3,036,931 Depreciation and amortization 1,353,402 1,709,005 Change in assets and liabilities: Increase in receivables Non-affiliate (17,588,553) (185,394) Affiliate (2,367,422) (4,998,366) Decrease in inventory - 4,267,295 Decrease in accounts payable (4,401,606) (1,560,776) Increase (decrease) in due to affiliate 115,678 (1,293,039) Increase (decrease) in advance billings (4,487,496) 3,312,379 Increase (decrease) in accrued employee compensation and benefits (721,296) 238,521 Other (1,256,487) (2,179,042) ------------ ------------ Net cash provided by (used for) operating activities (24,049,116) 2,347,514 ------------ ------------ Cash flows from investing activities: Capital expenditures (1,759,628) (490,917) Settlement of long-term note receivable 3,558,000 485,876 ------------ ------------ Net cash provided by (used for) investing activities 1,798,372 (5,041) ------------ ------------ Cash flows from financing activities: Paydowns under line-of-credit agreements (140,125,285) (131,700,531) Borrowings under line-of-credit agreements 161,417,803 124,802,769 Dividends on preferred stock (528,000) (528,000) Proceeds from sales of common stock 552,215 159,678 Other 340,653 - ------------ ------------ Net cash provided by financing activities 21,657,386 (7,266,084) ------------ ------------ Net decrease in cash (593,358) (4,923,611) Cash and cash equivalents at beginning of period 4,582,021 7,329,914 Effect of exchange rate changes on cash (89,574) 7,674 ------------ ------------ Cash and cash equivalents at end of period $ 3,899,089 $ 2,413,977 ============ ============ See accompanying notes to consolidated financial statements.
6 Reflectone, Inc. & Subsidiaries Notes to Consolidated Financial Statements Nine months ended September 27, 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 nine months ended September 27, 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:
September 27, December 31, 1996 1995 Receivables U.S. Government Billed $ 5,033,485 $ 5,363,973 Unbilled 2,418,913 1,932,588 Unrecovered costs subject to future negotiation -- not billed 1,400,000 1,400,000 ------------ ------------ 8,852,398 8,696,561 ------------ ------------ Lockheed Martin Corporation Billed 547,190 - Unbilled 32,315,796 14,780,610 ------------ ------------ 32,862,986 14,780,610 ------------ ------------
7 Commercial Billed 2,462,662 2,554,538 Unbilled - 558,023 Provision for doubtful accounts (500,830) (488,547) ------------ ------------ 1,961,832 2,624,014 ------------ ------------ $ 43,677,216 $ 26,101,185 ============ ============ Affiliates Billed $ 2,250,038 $ 545,729 Unbilled 741,062 83,193 ------------ ------------ $ 2,991,101 $ 628,922 ============ ============
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 future 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. Subsequent to the end of the third quarter of 1996, the Company negoiated modifications to the C-130J contract providing for a milestone payment of $15.0 million in the fourth quarter of 1996 and a payment of $6.0 million in the second quarter of 1997. Remaining payments under the contract are billable upon the achievement of certain contractual milestones, currently scheduled for the third and fourth quarters of 1997. It is anticipated that approximately $12.7 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. 8 Reflectone, Inc. & Subsidiaries Notes to Consolidated Financial Statements Nine Months ended September 27, 1996 (Unaudited) 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. 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:
Nine Months Three Months 1996 1995 1996 1995 Primary Weighted average common shares outstanding 2,814,682 2,689,174 2,858,134 2,699,351 Stock options 142,872 132,847 158,381 169,665 --------- --------- --------- --------- Average common shares outstanding 2,957,554 2,822,021 3,016,516 2,869,016 Convertible preferred stock 500,000 500,000 500,000 500,000 Additional dilutive effect of stock options 21,600 19,051 - 41,544 --------- --------- --------- --------- Fully diluted assumed common shares outstanding 3,479,154 3,341,072 3,516,516 3,410,560 ========= ========= ========= =========
9 Reflectone, Inc. & Subsidiaries Notes to Consolidated Financial Statements Nine Months ended September 27, 1996 (Unaudited) Note 3 - Earnings Per Common Share (continued) Fully diluted per share data is not disclosed for the nine months ended September 29, 1995 since the effect would be antidilutive. Note 4 - Stock Options In February 1996, the Company granted options to purchase 41,500 shares of the Company's common stock at $18.50 per share under the Company's 1994 Stock Option Plan. At September 27, 1996 none of these options were exercisable, and there were 62,500 shares of common stock available for issuance upon the exercise of stock options granted in the future under this plan. 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 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 10 Reflectone, Inc. & Subsidiaries Notes to Consolidated Financial Statements Nine Months ended September 27, 1996 (Unaudited) Note 5 - Credit Agreements and Bororwings (continued) 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 the Company to obtain the prior approval of British Aerospace for all material capital investment expenditures as defined in the Agreement for Credit Availability. 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 agreement is supported by the corporate guarantee of British Aerospace. Subsequent to the end of the third quarter of 1996, this facility was renewed for another one year period, maturing on October 31, 1997. With the renewal,fees charged on the amount of credits issued for the actual number of days outstanding were reduced from .55% per annum to .25% per annum. At September 27, 1996, letters of credit and guarantees issued under this facility approximated $1.9 million. During the third quarter of 1996, 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 September 27, 1996, borrowings under this facility approximated $1.3 million. 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. During the third 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% per annum. 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 September 27, 1996, borrowings under this facility approximated $26.5 million. 11 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 nine-month period ended September 27, 1996, the Company used $23.7 million in cash, net, for operating activities while in the comparable period of 1995, the Company generated $2.3 million in cash, net, from operating activities. Operating cash flow was negatively impacted during the nine- month period ended September 27, 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 nine-month period ended September 27, 1996, the Company increased its net short-term borrowings by $21.3 million and reduced its cash by $593,000 prior to the effect of exchange rate changes on cash. During the same period, gross borrowings of $161.4 million, and cash received upon settlement of the long-term note receivable were used primarily to fund $140.1 million in scheduled maturities of borrowings under the Company's credit facilities and to fund operating activities and capital expenditures during the nine-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 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, 12 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. Specific discussion of the Company's credit facilities is included in Note 5 to the Consolidated Financial Statements. 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. During the third 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 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. Through September 27, 1996, funding related to this program has approximated $32.9 million. Based on current schedules, the contract is estimated to require additional funding of $8.0 million during the fourth quarter of 1996 and $22.0 million in 1997. Subsequent to the end of the third quarter of 1996, the Company negotiated modifications to the C-130J contract providing for a milestone payment of $15.0 million in the fourth quarter of 1996 and a payment of $6.0 million in the second quarter of 1997. Remaining payments under the contract are billable upon the achievement of certain contractual milestones, currently scheduled for the third and fourth quarters of 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 13 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. 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; and expected resolution and recovery of costs subject to future negotiation as described in Notes 1 and 2 to the Consolidated Financial Statements 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 nine-month periods ended September 27, 1996, the Company's consolidated revenues increased by $541,000 and $7.2 million, or 2.1% and 11.4%, respectively, from comparable periods in 1995. Revenues of the Training Devices Segment increased by 29.5% during the nine- month period ended September 27, 1996 as compared to the comparable period in 1995. The increase in revenues of the Training Devices Segment 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 19.8% during the nine-month period ended September 27, 1996 as compared to the comparable period in 1995. The decrease primarily related to the 1995 loss of reprocurements relating to four training services contracts in which the Company was the incumbent contractor. Revenues for the nine-month period ended September 27, 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 $4.9 million million for the nine-month period ended September 27, 1996 as compared to $6.0 million for the comparable period in 1995. Revenues in both periods primarily relate to the 1995 third quarter award of a contract from an affiliate for a C-130H simulator for ultimate delivery to an international customer. The decrease in revenues relate to lower levels of material throughput on the contract in 1996 from that experienced in 1995. 14 The Company's income from operations was approximately $2.2 million and $6.1 million for the three- and nine-month periods ended September 27, 1996, respectively. This compares to income from operations of $2.4 million and $4.9 million for the comparable periods in 1995. The operating profit of the Training Devices Segment was $3.1 million and $1.1 million for the nine- month periods ended September 27, 1996 and 1995, respectively. The increased profitability primarily related to profits recognized during the 1996 periods on two large affiliate programs and an international military program. Operating profits of the Training Services Segment declined by $455,000 or 16.5% to $2.3 million during the nine-month period ended September 27, 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 $630,000 for the nine-month period ended September 27, 1996 compared to $961,000 for the comparable period in 1995. The decrease in operating profits of the systems management segment resulted from a decrease in revenues during the period on a contract from an affiliate for the sale of a C-130H simulator. Interest income approximated $389,000 and $600,000 during the nine-month periods ended September 27, 1996 and 1995, respectively. Interest income is primarily interest earned on long-term notes receivable, restricted investments and temporary cash investments. The decrease in interest income primarily related to the 1996 first quarter settlement of the long-term note receivable. Interest expense for the nine-month period ended September 27, 1996, approximated $339,000 as compared to $1.8 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 nine- month period ended September 27, 1996, interest costs of $1.2 million associated with the Company's financing of the C-130J program were charged to the C-130J program and are reflected in cost of sales rather than as interest expense. In the comparable period in 1995, interest cost charged to the C-130J program approximated $59,000. The provision for income taxes increased to $871,000 during the nine-month period ended September 27, 1996 as compared with $606,000 for the 1995 period. The increase in the provision for income taxes in the nine-month period ended September 27, 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 $1.6 million, for which recovery in future periods is not dependent upon future taxable income. 15 Backlog Contractual backlog decreased to $89.8 million at September 27, 1996, from $121.1 million at December 31, 1995. Of the contractual backlog at September 27, 1996, 85.1% consisted of orders of the Training Devices Segment, 2.6% consisted of orders of the Training Services Segment and 12.3% 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 LMC C-130J program in the amount of $43.5 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 of each year. 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. 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. 16 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. 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 $7.1 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 December 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. 17 From time to time, the Company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include 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: 10.16 $20,000,000 Letter of Credit Agreement between Lloyds Bank Plc and Reflectone, Inc. dated November 1, 1996. (b) The Registrant did not file any reports on Form 8-K during the three-month period ended September 27, 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: November 8, 1996 By: /s/Richard G. Snyder Richard G. Snyder President and Chief Executive Officer Date: November 8, 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 Nine Months Ended September 27, 1996 EXHIBIT INDEX EXHIBIT NUMBER 10.16 $20,000,000 Letter of Credit Agreement between Lloyds Bank Plc and Reflectone, Inc. dated November 1, 1996. 21 EX-10 2 LETTER OF CREDIT AGREEMENT This LETTER OF CREDIT AGREEMENT ("this Agreement") is made as of the First day of November 1st, 1996 between LLOYDS BANK PLC (the "Bank") and REFLECTONE, INC. (the "Applicant"). Subject to the terms and conditions of this Agreement the Bank hereby agrees to issue and provide, for the account and at the request of the Applicant including its wholly-owned subsidiary Reflectone U.K. Ltd., one or more: (i) irrevocable letters of credit, and (ii) Bonds and overdraft facilities as described in the Letter of Agreement between Reflectone U.K. Ltd and the Bank which is attached hereto as Exhibit A. Each of the Letters of Credit or Bonds shall be in such currency and each in such form as shall have been agreed by the Bank and the Applicant (each a "Credit", and together the "Credits") provided that (a) the aggregate face amount of all unexpired Credits issued pursuant hereto, together with all amounts drawn under any Credits issued pursuant hereto and not yet reimbursed by or for the account of the Applicant shall never when added to the overdraft facilities detailed in the attached Exhibit A exceed $20,000,000 or its equivalent in other currencies (as determined by the Bank) (the "Commitment"), (b) the Commitment shall be available to be utilized by the Applicant by means of its requesting the Bank to issue Credits for the Applicant's account hereunder from the date hereof until October 31, 1997 (the "Commitment Termination Date"), (c) no Credit shall have a term from its date of issuance to its stated date of expiry of longer than one (1) year and (d) the following statements shall be true on and as of the date of issuance of each Credit: (i) the representations and warranties contained in Section 7 of this Agreement are correct on and as of such date and as though made on and as of such date and (ii) no event which is, or with the giving of notice or the passage of time, or both, would be, an Event of Default (collectively, "Defaults", and individually a "Default") shall then exist and be continuing or shall result from the issuance of such Credit. In consideration of the issuance by the Bank of one or more Credits as requested in the Agreement (as each Credit may, from time to time, be amended or modified with the written agreement of the Applicant), the Applicant hereby agrees with the Bank as follows: 1. The Applicant hereby agrees to pay on demand to the Bank at the Bank's office at One Biscayne Boulevard, Miami, Florida 33131 (the "Issuing Branch"): 1 (i) the amount which the Bank shall have paid pursuant to the terms of each Credit at any time; (ii) interest on (a) the amounts referred to in clause (i) above from the date any such amount is paid by the Bank under such Credit until payment in full is received by the Bank and (b) any other amount due from the Applicant to the Bank under this Agreement from the date which is ten (10) days following the Bank's written demand to the Applicant therefor, at a fluctuating interest rate per annum (computed on the basis of a year of 360 days for the actual number of days elapsed until payment in full) equal to the rate designated from time to time by the Bank in the United States as its Prime Rate plus 1%, such rate to change automatically from time to time as of the opening of business on the effective date of each change in the Prime Rate (the "Bank Rate"), and (iii) any and all reasonable charges and expenses as described in Sections 2 and 6 hereof incurred by the Bank relative to the Credit, together with interest thereon at the Bank Rate from the tenth (10th) day following delivery by the Bank to the Applicant of a written invoice detailing any such charges or expenses. 2. (a) The Applicant will pay to the Bank at the Issuing Branch a non-refundable commission with respect to each Credit at the rate of 0.25% per annum on the stated amount of such Credit on each day for the preceding quarter (the "Maximum Amount"). Such commission shall be computed on the basis of a 360-day year for the actual number of days elapsed and shall be payable quarterly in arrears for so long as such Credit remains in effect (and on the expiry date of such Credit). (b) If any change in any law, regulation or regulatory guideline, or in the interpretation thereof by any court or administrative or governmental authority charged with the administration thereof shall either (i) impose, modify or deem applicable any reserve, special deposit, capital adequacy or similar requirement or guideline against letters of credit, or commitments to extend credit, issued by the Bank or (ii) impose on the Bank any other condition therefor, and the result of any event referred to in clause (i) or (ii) above shall be to increase, by an amount deemed by the Bank in its sole discretion to be material, the cost (other than an increase resulting from a change in any net income tax imposed upon the Bank) to the Bank of issuing or maintaining any Credit or the Commitment, then, within ten (10) days following demand by the Bank, accompanied by the certificate referred to in the following sentence, the Applicant shall immediately pay to the Bank, from time to time as specified by the Bank, additional amounts which shall be sufficient to compensate the Bank for such increased cost. A certificate as to such increased cost incurred by the Bank as a result of any event mentioned in clause (i) or (ii) above, submitted by the Bank to the Applicant and including a statement in reasonable detail as to the reason for and calculation of such increase, shall, absent manifest error, be conclusive as to the amount thereof. 2 2(A) The obligation of the Bank to issue the initial Credit requested by the Applicant is subject to the conditions precedent that the Bank shall have received on or before the day of issuance of such initial Credit the following, each dated on or within thirty (30) days prior to such date of issuance, in form and substance satisfactory to the Bank: (a) A certified copy of the resolution of the Board of Directors of the Applicant authorizing this Agreement, and all documents evidencing other necessary corporate (or other) action and governmental approvals, if any, with respect to this Agreement. (b) An Incumbency Certificate executed by the Secretary or an Assistant Secretary of the Applicant certifying the names and true signatures of the officers of the Applicant authorized to sign this Agreement and the other documents to be delivered hereunder. (c) The original of the unconditional guarantee, in a form and in substance acceptable to the Bank (the "Guarantee"), from British Aerospace Plc (the "Guarantor"), guaranteeing the prompt payment and performance of the obligations of the Applicant to the Bank under this Agreement. (d) A certified copy of the resolution of the Banking Committee of the Board of Directors of the Guarantor authorizing the Guarantee, and all documents evidencing other necessary corporate (or other) action and governmental approvals, if any, with respect to the Guarantee. (e) A Power of Attorney executed by the Secretary or an Assistant Secretary of the Guarantor authorizing certain individuals to sign the Guarantee and any other documents to be delivered thereunder. 3. The obligations of the Applicant under this Agreement shall be absolute and unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including, without limitation, the following circumstances: (a) any lack of validity or enforceability of this Agreement, any Credit, or any other agreement or instrument relating thereto (collectively, the "Related Documents"); (b) any amendment or waiver of or any consent to departure from all or any of the Related Documents; (c) the existence of any claim, set-off, defense or other right which the Applicant may have at any time against the beneficiary of any Credit (or any entities for whom such beneficiary may be acting), whether in connection with this Agreement, the transactions contemplated hereby or any unrelated transaction; 3 (d) any statement or any other draft or document presented under any Credit proving to be forged, fraudulent, invalid or inaccurate in any material respect; (e) payment by the Bank under any Credit against presentation of a statement or draft which does not strictly comply with the terms of the Letter of Credit, provided that the action or inaction of the Bank shall not have manifested gross negligence or willful misconduct on the part of the Bank. 4. In the event of any change or modification, with the written agreement of the Applicant, relative to any Credit or any instruments or documents called for thereunder, including waiver of noncompliance of any such instruments or documents with the terms of such Credit, this Agreement shall be binding upon the Applicant with regard to such Credit as so changed or modified, and to any action taken by the Bank or any of its correspondents relative thereto. 5. Neither the Bank nor any of its officers or directors shall be liable or responsible for: (a) the use which may be made of any Credit or for any acts or omissions of the beneficiary thereof in connection therewith; (b) the validity, accuracy or genuineness of documents, or of any endorsement(s) thereon, even if such documents should in fact prove to be in any or all respects invalid, inaccurate, fraudulent or forged; (c) payment by the Bank against presentation of documents which do not strictly comply with the terms of any Credit, including failure of any documents to bear any reference or adequate reference to such Credit, or (d) any other circumstances whatsoever in making or failure to make payment under any Credit, except only that the Applicant shall have a claim against the Bank, and the Bank shall be liable to the Applicant to the extent, but only to the extent, of any direct, as opposed to consequential, damages suffered by the Applicant which the Applicant proves were caused by (i) the Bank's willful misconduct or gross negligence in determining whether documents presented under any Credit complied with the terms of such Credit or (ii) the Bank's willful failure to pay under any Credit after the presentation to it by the beneficiary thereof of a sight draft and certificate strictly complying with the terms and conditions of such Credit. In furtherance and not in limitation of the foregoing, the Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. In no event shall the Bank be liable to the Applicant for the actions of any third party, including, without limitation, correspondents of the Bank selected by the Bank with reasonable care. 6. The Applicant agrees to hold the Bank and its officers, directors, shareholders, employees, agents and servants (collectively, the "Bank's Parties") indemnified and harmless against any and all claims, liabilities, 4 losses or damages, including the reasonable fees, costs and/or disbursements of counsel to the Bank, however arising from or in connection with any Credit and the transactions contemplated thereby and/or hereby except to the extent of any such loss or damage is incurred as a result of the gross negligence or willful misconduct of the Bank or any of the Bank's Parties, as the case may be. 7. The Applicant represents and warrants to the Bank as follows: (a) The Applicant is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida and has all requisite corporate power and authority to own its properties and to conduct its business as now conducted. (b) The Applicant has full right, power and authority to enter into this Agreement, to execute and deliver all Related Documents executed by it, and to incur the obligations provided for herein and therein, all of which acts have been duly authorized by all proper and necessary corporate action on the part of the Applicant. (c) Except as has been disclosed to the Bank in writing, there are no actions, suits or proceedings pending or, to the knowledge of the Applicant, threatened against or affecting the Applicant, or any of its properties or assets, before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, if determined adversely to the Applicant, would have a material adverse effect upon the ability of the Applicant to perform its obligations hereunder and under the Related Documents. (d) The balance sheet of the Applicant and its consolidated subsidiaries as of and for the fiscal year ending on 31 December, 1995, and the related statements of income and retained earnings of the Applicant and its consolidated subsidiaries for the fiscal year then ended, and the balance sheet of the Guarantor and its consolidated subsidiaries as of and for the fiscal year ending on 31 December, 1994, and the related statements of income and retained earnings of the Guarantor and its consolidated subsidiaries for the fiscal year then ended, copies of all of which have been furnished to the Bank, fairly present the financial condition of the Applicant and its consolidated subsidiaries and the Guarantor and its consolidated subsidiaries for the periods ended on such dates, all in accordance with generally accepted accounting principles consistently applied in the jurisdiction of organization of the Applicant and the Guarantor, respectively, and since those dates, there has been no material adverse change in such condition of either the Applicant or the Guarantor which has not already been previously disclosed to the bank prior to the date of this agreement. 5 (e) This Agreement and all Related Documents executed by the Applicant are the legal, valid, and binding obligations of the Applicant enforceable against the Applicant in accordance with their respective terms, except as such enforceability may be limited by general principles of equity and by bankruptcy, insolvency, reorganization or other laws of general application affecting the enforcement of creditors' rights. (f) There is no default by the Applicant or, to the best of the Applicant's knowledge, by any party to any other Related Document and no event has occurred and is continuing, and no condition exists, which with notice or the passage of time or both would constitute a default under any thereof. 8. So long as any Credit remains outstanding or any amount remains outstanding hereunder, the Applicant will, unless the Bank shall otherwise agree in writing: (a) Compliance with Laws, Etc. Comply, in all material respects, with all applicable laws, rules, regulations and governmental orders except (i) such as are being contested in good faith by appropriate proceedings and (ii) for failures to comply which, individually or in the aggregate, do not have a material adverse effect on the financial condition of the Applicant and its subsidiaries, taken as a whole. (b) Reporting Requirements. Furnish to the Bank: (i) as soon as available and in any event within 60 days after the end of each fiscal quarter in each fiscal year of the Applicant (except the final such fiscal quarter), a consolidated balance sheet and statement of income and retained earnings or a Form 10Q of the Applicant and its subsidiaries as of the end of such fiscal quarter and for the period commencing at the end of the previous fiscal year and ending with the end of such fiscal quarter certified by the Applicant's Chief Financial Officer, which certificate shall also state that no Default has occurred and is continuing (or if such has occurred and is continuing, providing the details thereof together with the action which the Applicant has taken or proposes to take to remedy such Default); (ii) as soon as available and in any event within 120 days after the end of each fiscal year of the Applicant and the Guarantor a copy of the annual report or report and accounts or Form 10k for such year for the Applicant and its subsidiaries, and the Guarantor and its subsidiaries, respectively, containing the balance sheet and statement of income and retained earnings of the Applicant and its subsidiaries and the Guarantor and its subsidiaries, respectively, as at the end of such fiscal year, certified in a manner consistent with generally accepted auditing practices by Coopers & Lybrand and KPMG Peat Marwick respectively, or any other independent public accountants of recognized national standing then serving as the Applicant's 6 and the Guarantor's, respectively, independent public accountants (and including copies of the transmittal letter from such accountants to the Applicant and the Guarantor, respectively) and accompanied by a certificate of the Applicant's Chief Financial Officer to the effect that no Default has occurred and is continuing (or if such has occurred and is continuing, providing the details thereof together with the action which the Applicant has taken or proposes to take to remedy such Default); (iii) within a reasonable period of time after the sending or filing thereof, copies of all such proxy statements and reports as the Applicant or the Guarantor sends to the holders of its securities generally. (c) Notice of Events. Give the Bank, promptly upon the Applicant's obtaining knowledge thereof, written notice of any condition or event which has resulted in a Default. 9.(a) Any of the following events shall constitute an "Event of Default" hereunder: (i) The Applicant shall fail to pay within 10 days after the due date thereof the commission referred to in Section 2(a) hereof or shall fail to pay when due to the Bank any other amount when due and payable hereunder; or (ii) Any representation or warranty made by the Applicant in this Agreement or any Related Document shall prove to have been incorrect in any material respect when made or deemed made; or (iii) The Applicant shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and not otherwise enumerated in this Section 9, and any such failure shall remain unremedied for 30 days after written notice thereof shall have been given to the Applicant by the Bank; or (iv) A proceeding shall have been instituted in a court having jurisdiction in the premises seeking a decree or order for relief in respect of the Applicant or the Guarantor in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect or for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Applicant or the Guarantor, as the case may be, of for any substantial part of its property or for the winding up or liquidation of its affairs and any of the aforesaid proceedings shall remain undismissed or unstayed and in effect for a period of 60 consecutive days or a decree or order shall be entered granting the relief sought in such proceeding; or 7 (v) The Applicant or the Guarantor shall become insolvent or unable to pay its debts as they mature (or shall admit in writing that it is unable to do so), shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law or shall take any action in furtherance of any of the foregoing or the Applicant or the Guarantor, as the case may be, shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or sequestrator (or other similar official) of it or for any substantial part of its property, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any action in furtherance of any of the foregoing; or (vi) The failure of the Guarantee to remain in full force and effect at any time, or the declaration by the Guarantor that it has no further obligations thereunder; or (vii) (a) The Applicant or the Guarantor or a material subsidiary of the Guarantor defaults in the performance of any other agreement for borrowed money and such default is not remedied within any applicable period of grace so as to accelerate the due date of payment of borrowed money thereunder or if any borrowed money of the Applicant or the Guarantor or a material subsidiary of the Guarantor becomes due and payable prior to the stated maturity thereof as a result of any event of default by the Applicant or the Guarantor or a material subsidiary of the Guarantor or if any borrowed money is not paid at the maturity thereof and within any period of grace applicable thereto or any guarantee for borrowed money given by the Applicant or the Guarantor or a material subsidiary of the Guarantor shall not be honoured when called and within any appliable period of grace; and (b) The aggregate of all such borrowed money in default exceeds 10,000,000 pound sterling (or the equivalent amount thereof in other currencies) provided that, for the purposes of this paragraph (vii) no account shall be taken of any borrowed money owing to a trade creditor by the Applicant or the Guarantor or a material subsidiary of the Guarantor, if the Applicant or Guarantor is in bona fide dispute with such trade creditor and the payment of such borrowed money is being withheld by reason of such bona fide dispute; or 8 (b) If one or more of the foregoing Events of Default shall occur, the Bank may, in addition to the other remedies available to it hereunder, at law or in equity, or under any of the Related Documents, exercise one or more of the following remedies: (i) by notice to the Applicant, declare the obligations of the Applicant hereunder to be forthwith due and payable, and the same shall thereupon become due and payable without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived provided, however, that upon the occurrence of an event described in subsections (a)(iv) or (a)(v) of this Section 9, the obligations of the Applicant hereunder shall automatically become due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, or (ii) exercise such other remedies as may be available to the Bank under any of the Related Documents or at law. 10. No delay, extension of time, renewal, compromise or other indulgence which may be granted by the Bank to the Applicant shall impair the Bank's rights or powers hereunder. Neither party to this Agreement shall be deemed to have waived any of its rights hereunder, unless such party or its authorized agent shall have signed such waiver in writing. No such waiver, unless expressly as stated therein, shall be effective as to any transaction which occurs subsequent to the date of such waiver, nor as to any continuance of a breach of any provision of this Agreement after such waiver. 11.(a) This Agreement is a continuing obligation and shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, transferees and assigns; provided, however, that the Applicant may not assign or delegate any part of this Agreement, or its obligations hereunder, without the prior written consent of the Bank. (b) Upon expiration or cancellation of all Credits pursuant to their terms, and payment by or for the account of the Applicant to the Bank of all amounts outstanding hereunder, the agreement represented by this Agreement shall terminate and be of no further force and effect, provided that the provisions of Section 6 hereof shall survive such termination. 12. Any provision of this Agreement which is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceablity or nonauthorization without nvalidating the remaining provisions hereof or affecting the validity, enforceability or legality of such provisions in any other jurisdiction. 9 13. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. The Applicant hereby submits itself to the non-exclusive jurisdiction of the courts of the State of New York and of the United States of America sitting in New York City, New York in connection with any proceeding arising hereunder. Notwithstanding any other provision of this Agreement, nothing in this Agreement shall be construed to require the Applicant to pay interest on any amount at a rate per annum in excess of the highest rate permitted by applicable law. IN WITNESS WHEREOF, the parties have signed this Agreement as of the date set forth in the Preamble of this Agreement. REFLECTONE INC. By:/s/Richard W. Welshhans --------------------------- As its CFO LLOYDS BANK PLC, acting through its Issuing Branch By: /s/Windsor Davies --------------------------- By:/s/Stephen Attree --------------------------- 10 EX-27 3
5 9-MOS DEC-31-1996 SEP-27-1996 3,899,089 0 47,169,147 500,830 0 54,033,415 18,756,151 8,271,859 67,706,456 45,829,580 0 286,373 0 50,000 19,278,314 67,706,456 70,241,631 70,241,631 61,286,832 64,166,540 (409,365) 0 339,127 6,145,329 870,665 5,274,664 0 0 0 5,274,664 1.60 1.52
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