Exhibit 10.4
 
EXECUTION VERSION
 
AMENDMENT NO. 2 TO SENIOR SUBORDINATED LOAN AGREEMENT
 
THIS AMENDMENT NO. 2 dated as of August 8, 2012 (this “Amendment No. 2”) to that
certain Senior Subordinated Loan Agreement referred to below is entered into by
and among Dynamics Research Corporation, a Massachusetts corporation (the
“Borrower”), the Guarantors, Ares Mezzanine Partners, L.P. (the “Lead Investor”)
and each of the other Lenders from time to time party thereto.
 
STATEMENT OF PURPOSE
 
The Borrower is a party to that certain Senior Subordinated Loan Agreement,
dated as of June 30, 2011, by and among the Borrower, each financial institution
party thereto as a lender (collectively, the “Lenders” and, each individually, a
“Lender”) and the Lead Investor (as amended by that certain Amendment No. 1 to
Senior Subordinated Loan Agreement, dated June 29, 2012, and as otherwise
further amended, restated, supplemented or modified to date, the “Loan
Agreement”).
 
The Borrower now requests that the Loan Agreement be amended in order to grant
certain accommodations to and for the benefit of the Borrower, all as more
particularly described herein.
 
Subject to the terms and conditions of this Amendment No. 2, the Required
Lenders have agreed to grant such requests of the Borrower.
 
NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto agree as follows:
 
SECTION 1.                      Capitalized Terms.  All capitalized undefined
terms used in this Amendment No. 2 (including, without limitation, in the
Statement of Purpose hereto) shall have the meanings assigned thereto in the
Loan Agreement.  This Amendment No. 2 shall be a “Loan Document” for all
purposes of the Loan Agreement and the other Loan Documents.
 
SECTION 2.                      Amendments.  The parties hereto hereby agree
that as of the Amendment No. 2 Effective Date (as defined below):
 
(a)           Section 1.01 of the Loan Agreement is hereby amended by deleting
the definition of “Consolidated EBITDA” in its entirety and replacing it with
the following:
 
““Consolidated EBITDA” means, for any period, for the Borrower and its
Subsidiaries on a consolidated basis, an amount equal to Consolidated Net Income
for such period plus (a) the following to the extent deducted in calculating
such Consolidated Net Income for such period and without duplication: (i)
Consolidated Interest Expense, (ii) the provision for Federal, state, local and
foreign income taxes payable by the Borrower and its Subsidiaries, (iii)
depreciation and amortization expense, (iv) non-cash expenses incurred pursuant
to equity compensation plans approved by the Borrower’s board of directors, (v)
other non-recurring expenses of the Borrower and its Subsidiaries reducing such
Consolidated Net Income which do not represent a cash item in such period or any
future period, (vi) non-cash expenses of the Borrower and its Subsidiaries
reducing such Consolidated Net Income resulting from any impairment or write off
of goodwill during fiscal year 2012  which does not represent a cash item in
such period or any future period and (vii) Transaction Costs incurred by the
Borrower and its Subsidiaries and minus (b) the following to the extent included
in calculating such
 

 
 
 
1
 
 

Consolidated Net Income for such period: (i) Federal, state, local and foreign
income tax credits of the Borrower and its Subsidiaries, (ii) all non-cash items
increasing Consolidated Net Income and (iii) all interest income; provided that
for all purposes under this Agreement, Consolidated EBITDA for the Borrower and
its Subsidiaries for each of the fiscal quarters ended June 30, 2010, September
30, 2010, December 31, 2010 and March 31, 2011 shall be deemed to equal the
respective amounts set forth on Schedule 1.01-A.
 
For the purposes of calculating Consolidated EBITDA for any period pursuant to
any determination of Consolidated EBITDA hereunder, (i) if, at any time during
such period, the Borrower or any Subsidiary shall have made any Disposition,
Consolidated EBITDA for such period shall be reduced by an amount equal to the
Consolidated EBITDA (if positive) attributable to the property that is the
subject of such Disposition for such period or increased by an amount equal to
the Consolidated EBITDA (if negative) attributable thereto for such period and
(ii) if, at any time during such period, the Borrower or any Subsidiary shall
have made a Permitted Acquisition (other than the HPTi Acquisition),
Consolidated EBITDA for such period shall be calculated after giving pro forma
effect thereto as if such Permitted Acquisition occurred on the first day of
such period in connection with such Permitted Acquisition to the extent deducted
in calculating Consolidated Net Income (and not otherwise added back in
calculating Consolidated EBITDA) for such pro forma period.”
 
(b)           Exhibit D to the Loan Agreement is hereby amended and restated in
its entirety in the form attached hereto as Schedule 1.
 
SECTION 3.                      Conditions Precedent to Effectiveness.
 
(a)           This Amendment No. 2 shall be effective on June 30, 2012  (such
date, the “Amendment No. 2 Effective Date”) upon the satisfaction of each of the
following conditions:
 
(i)           Executed Amendment. The Lead Investor shall have received
counterparts of this Amendment No. 2 executed by the Borrower, the Guarantors
and the Required Lenders.
 
(ii)           Amendment to Senior Credit Agreement.  Contemporaneously with the
effectiveness of this Amendment No. 2, the Borrower, the Guarantors, the Senior
Agent, and the Senior Lenders shall have entered into an amendment to the Senior
Credit Agreement (the “Senior Amendment”) on terms substantially similar to
those of this Amendment No. 2 in form and substance satisfactory to the Lead
Investor.
 
(iii)           Other Closing Documents.  The Lead Investor shall have received
such other instruments, documents and certificates as the Lead Investor shall
reasonably request in connection with the execution of this Amendment No. 2.
 
(iv)           Amendment Fee.  The Borrower shall have paid to each Lender that
executes and delivers this Amendment No. 2 on or prior to noon (Eastern time) on
August [8], 2012, a consent fee in an aggregate amount equal to 0.25% times the
aggregate outstanding principal amount of the Loans (determined as of the date
hereof immediately prior to the satisfaction of the conditions to effectiveness
of this Amendment No. 2) of such Lender.
 

 
 
2
 
 

(v)           Payment of Fees and Expenses.  The Borrower shall have paid all
out-of-pocket expenses incurred by the Lead Investor (including the fees,
charges and disbursements of counsel for the Lead Investor) with respect to this
Amendment No. 2.
 
(b)             For purposes of determining compliance with the conditions
specified in this Section 3, each Lender that has signed this Amendment No. 2
shall be deemed to have consented to, approved or accepted or to be satisfied
with, each document or other matter required thereunder to be consented to or
approved by or acceptable or satisfactory to a Lender unless the Lead Investor
shall have received notice from such Lender prior to the date hereof specifying
its objection thereto.
 
SECTION 4.                      Effect of the Agreement.  Except as expressly
provided herein, the Loan Agreement and the other Loan Documents shall remain
unmodified and in full force and effect.  Except as expressly set forth herein,
this Amendment No. 2 shall not be deemed (a) to be a waiver of, or consent to, a
modification or amendment of, any other term or condition of the Loan Agreement
or any other Loan Document, (b) to prejudice any other right or rights which the
Lenders may now have or may have in the future under or in connection with the
Loan Agreement or the other Loan Documents or any of the instruments or
agreements referred to therein, as the same may be amended, restated,
supplemented or otherwise modified from time to time, (c) to be a commitment or
any other undertaking or expression of any willingness to engage in any further
discussion with the Borrower or any other Person with respect to any waiver,
amendment, modification or any other change to the Loan Agreement or the Loan
Documents or any rights or remedies arising in favor of the Lenders, or any of
them, under or with respect to any such documents or (d) to be a waiver of, or
consent to or a modification or amendment of, any other term or condition of any
other agreement by and among the Borrower, on the one hand, and any other
Lender, on the other hand.  References in the Loan Agreement to “this Agreement”
(and indirect references such as “hereunder”, “hereby”, “herein”, and “hereof”)
and in any Loan Document to the Loan Agreement shall be deemed to be references
to the Loan Agreement as modified hereby.
 
SECTION 5.                      Representations and Warranties.  By its
execution hereof, each Loan Party hereby represents and warrants as follows:
 
(a)           such Loan Party has the right, power and authority and has taken
all necessary corporate and other action to authorize the execution, delivery
and performance of this Amendment No. 2 and each other document executed in
connection herewith to which it is a party in accordance with their respective
terms;
 
(b)           this Amendment No. 2 and each other document executed in
connection herewith has been duly executed and delivered by its duly authorized
officers, and each such document constitutes the legal, valid and binding
obligation of such Loan Party, enforceable in accordance with its terms, except
as such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar state or federal debtor relief laws from time to time in
effect which affect the enforcement of creditors’ rights in general and the
availability of equitable remedies;
 
(c)           each representation and warranty contained in the Loan Agreement
and the other Loan Documents is true, correct and complete in all material
respects as of the date hereof as if fully set forth herein, except for any
representation and warranty made as of an earlier date, which representation and
warranty shall remain true, correct and complete in all material respects as of
such earlier date; provided that any representation or warranty that is
qualified by materiality or by reference to Material Adverse Effect shall be
true, correct and complete in all respects as of the applicable date; and
 
(d)           no Default has occurred and is continuing as of the date hereof or
would result after giving effect to the transactions contemplated by this
Amendment No. 2.
 

 
 
3
 
 

SECTION 6.                      Reaffirmation, Ratification and
Acknowledgment.  Each Loan Party (a) agrees that the transactions contemplated
by this Amendment No. 2 shall not limit or diminish the obligations of such
Person under, or release such Person from any obligations under, the Guaranty,
the Subordination Agreement and each other Loan Document to which it is a party,
(b) confirms and reaffirms its obligations under the Guaranty, the Subordination
Agreement and each other Loan Document to which it is a party and (c) agrees
that the Guaranty, the Subordination Agreement and each other Loan Document to
which it is a party remain in full force and effect and are hereby ratified and
confirmed.
 
SECTION 7.                      Miscellaneous.
 
(a)           Counterparts.  This Amendment No. 2 may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and shall be binding
upon all parties, their successors and assigns, and all of which taken together
shall constitute one and the same agreement.
 
(b)           Governing Law.  This Amendment No. 2, unless otherwise expressly
set forth herein, shall be governed by, construed and enforced in accordance
with the laws of the State of New York, without reference to the conflicts or
choice of law principles thereof.
 
(c)           Electronic Transmission.  A facsimile, telecopy or other
reproduction of this Amendment No. 2 may be executed by one or more parties
hereto, and an executed copy of this Amendment No. 2 may be delivered by one or
more parties hereto by facsimile or similar instantaneous electronic
transmission device pursuant to which the signature of or on behalf of such
party can be seen, and such execution and delivery shall be considered valid,
binding and effective for all purposes.  At the request of any party hereto, all
parties hereto agree to execute an original of this Amendment No. 2 as well as
any facsimile, telecopy or other reproduction hereof.
 
(d)           Entire Agreement. This Amendment No. 2 is the entire agreement,
and supersedes any prior agreements and contemporaneous oral agreements, of the
parties concerning its subject matter.
 
(e)           Successors and Assigns.  This Amendment No. 2 shall be binding on
and inure to the benefit of the parties and their heirs, beneficiaries,
successors and assigns.
 
[Signature Pages Follow]
 

 
 
4
 
 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to be
duly executed by their respective authorized officers as of the day and year
first above written.

 
BORROWER:

 
DYNAMICS RESEARCH CORPORATION,

 
as Borrower

 
 
By:
/s/ David Keleher     Name:  David Keleher     Title:  Senior Vice President,
CFO and Treasurer  

 

Amendment No. 2
to
Dynamics Research Corporation Senior Subordinated Loan Agreement
 
 
 
 

GUARANTORS:

 
DRC INTERNATIONAL CORPORATION

 
 
 
By:
/s/ David Keleher     Name:  David Keleher     Title:  Vice President and CFO  

 
 
 
H.J. FORD ASSOCIATES, INC.

 
 
 
By:
/s/ David Keleher     Name:  David Keleher     Title:  Treasurer, CFO and Asst.
Treasurer  

 

 
KADIX SYSTEMS, LLC

 
 
 
By:
/s/ David Keleher     Name:  David Keleher     Title:  Treasurer and CFO  

 

 
HIGH PERFORMANCE TECHNOLOGIES, INC.

 
 
 
By:
/s/ David Keleher     Name:  David Keleher     Title:  Treasurer and CFO  

 

Amendment No. 2
to
Dynamics Research Corporation Senior Subordinated Loan Agreement
 
 
 
 

 
ARES MEZZANINE PARTNERS, L.P.

 
By: ARES MEZZANINE PARTNERS GP, L.P.,

 
its general partner

 
By: ARES MEZZANINE MANAGEMENT LLC,

 
its general partner

 
 
 
By:
/s/ Mitchell Golstein     Name:  Mitchell Goldstein     Title:  Authorized
Signatory  

 

 
Amendment No. 2
to
Dynamics Research Corporation Senior Subordinated Loan Agreement
 
 
 
 

 
PARTNERS GROUP PRIVATE EQUITY (MASTER FUND), LLC

 
By: Partners Group (USA) Inc., as investment manager

 
By: Partners Group (Guernsey) Limited under power of attorney

 
 
 
By:
/s/ Neil Hartley     Name:  Neil Hartley     Title:  Authorised Signatory  

 
 
 
By:
/s/ Daniel Stopher     Name:  Daniel Stopher     Title:  Director  

 

           Amendment No. 2
to
Dynamics Research Corporation Senior Subordinated Loan Agreement
 
 
 
 

Schedule 1

Exhibit D to Loan Agreement

[Attached]

 
 
 
 
 

Exhibit D

FORM OF
COMPLIANCE CERTIFICATE

Financial Statement Date: __________, 20___

To:           Each Lender (defined below) under the Loan Agreement (defined
below)

Re:
Senior Subordinated Loan Agreement, dated as of June 30, 2011 (as amended,
restated, extended, supplemented or otherwise modified in writing from time to
time, the “Loan Agreement;” the terms defined therein being used herein as
therein defined), among Dynamics Research Corporation, a Massachusetts
corporation (the “Borrower”) and the Lenders from time to time party thereto
(collectively, the “Lenders” and, individually, a “Lender”).

Ladies and Gentlemen:
 
The undersigned Responsible Officer of the Borrower hereby certifies as of the
date hereof that he/she is the [chief executive officer][chief financial
officer] of the Borrower, and that, as such, he/she is authorized to execute and
deliver this Compliance Certificate to each Lender on the behalf of the
Borrower, and that:
 
[Use following paragraph 1 for fiscal year-end financial statements]
 
1.
The Borrower has delivered the year-end audited financial statements required by
Section 6.01(a) of the Loan Agreement for the fiscal year of the Borrower ended
as of the above date and a comparison against the figures for the previous
fiscal year and against the most recent annual forecasts delivered pursuant to
Section 6.01(d) of the Loan Agreement, together with (i) the report and opinion
of an independent certified public accountant required by such section and (ii)
a management discussion and analysis submitted by the Borrower to the SEC with
respect to such period.

 
[Use following paragraph 1 for fiscal quarter-end financial statements]
 
1.
The Borrower has delivered the unaudited financial statements required by
Section 6.01(b) of the Loan Agreement for the fiscal quarter of the Borrower
ended as of the above date.  Such financial statements fairly present the
financial condition, results of operations and cash flows of the Borrower and
its Subsidiaries in accordance with GAAP as at such date and for such period,
subject only to normal year-end audit adjustments and the absence of footnotes
and a comparison (both in Dollar and percentage terms) to projections for such
fiscal quarter, and period commencing at the end of the previous fiscal year of
Borrower and ending with the end of such

 

 
 
 
 
 

 
fiscal quarter, in each case as set forth in the most recent forecasts delivered
pursuant to Section 6.01(d) of the Loan Agreement.

 
2.
The undersigned has reviewed and is familiar with the terms of the Loan
Agreement and has made, or has caused to be made under his/her supervision, a
detailed review of the transactions and condition (financial or otherwise) of
the Borrower during the accounting period covered by such financial statements.

 
3.
A review of the activities of the Borrower during such fiscal period has been
made under the supervision of the undersigned with a view to determining whether
during such fiscal period the Borrower performed and observed all its
Obligations under the Loan Documents, and

 
 
[select one:]

 
[to the knowledge of the undersigned, during such fiscal period the Borrower
performed and observed each covenant and condition of the Loan Documents
applicable to it, and no Default has occurred and is continuing.]
 
 
[or:]

 
[to the knowledge of the undersigned, during such fiscal period the following
covenants or conditions have not been performed or observed and attached hereto
is a list of each such Default and its nature and status.]
 
 
4.
The representations and warranties of (a) the Borrower contained in Article V of
the Loan Agreement and (b) each Loan Party contained in each other Loan Document
or in any document furnished at any time under or in connection with the Loan
Documents, are true and correct in all material respects (except if qualified by
materiality or reference to Material Adverse Effect, such representation and
warranty shall be true and correct in all respects) on and as of the date hereof
with the same effect as if made on and as of such date (except (i) to the extent
that such representations and warranties specifically refer to an earlier date,
in which case they shall be true and correct as of such earlier date, and (ii)
that for purposes of this Compliance Certificate, the representations and
warranties contained in subsections (a) and (b) of Section 5.05 shall be deemed
to refer to the most recent statements furnished pursuant to clauses (a) and
(b), respectively, of Section 6.01 of the Loan Agreement, including the
statements in connection with which this Compliance Certificate is delivered.

 

 
 
 
 
 

 
5.
Set forth on Schedule 1 attached hereto are true and accurate calculations
demonstrating compliance with Section 7.11 of the Loan Agreement on and as of
the date of this Compliance Certificate.

 
6.
Set forth on Schedule 2 attached hereto is a true and accurate summary of the
Borrower’s and each Subsidiary’s backlog of revenue-generating Government
Contracts on and as of the date of this Compliance Certificate.

 
IN WITNESS WHEREOF, the undersigned has executed this Compliance Certificate as
of , 20__.
 

 

 
DYNAMICS RESEARCH CORPORATION

By:_________________________________
Name:
Title:

 

 

 
 
 
 
 

Schedule 1
to Compliance Certificate1

For the fiscal [quarter][year] ended: ______________, 20___ (the “Statement
Date”)

I.  Consolidated EBITDA (for the period of the four (4) consecutive fiscal
quarters most recently ended on or immediately prior to the Statement Date):
 
A.
Consolidated Net Income
$____________
 
B.
Consolidated Interest Expense
$____________
 
C.
the provision for Federal, state, local and foreign income taxes payable by the
Borrower and its Subsidiaries
$____________
 
D.
depreciation and amortization expense
$____________
 
E.
non-cash expenses incurred pursuant to equity compensation plans approved by the
Borrower’s board of directors
$____________
 
F.
other non-recurring expenses of the Borrower and its Subsidiaries reducing such
Consolidated Net Income which do not represent a cash item in such period or any
future period
$____________
 
G.
Non-cash expenses of the Borrower and its Subsidiaries reducing such
Consolidated Net Income resulting from any impairmnet or write off of good will
during fiscal year 2012 which does not respresent a cash item in such period or
any future period
   
H.
Transaction Costs incurred by the Borrower and its Subsidiaries
$____________
 
I.
Federal, state, local and foreign income tax credits of the Borrower and its
Subsidiaries
$____________
 
J.
all non-cash items increasing Consolidated Net Income
$____________
 
K.
all interest income
$____________
 
L.
Consolidated EBITDA = Lines A + B + C + D + E + F + G + H – I – J
– K
$____________

II.  Consolidated Total Leverage Ratio [Section 7.11(a) of the Loan Agreement]
A.
Consolidated Funded Indebtedness as of the Statement Date:
   
1.
the outstanding principal amount of all obligations, whether current or
long-term, for borrowed money (including Obligations hereunder) and all
obligations evidenced by bonds, debentures, notes, loan agreements or other
similar instruments
$____________
 
2.
all purchase money Indebtedness
$____________
 
3.
all direct obligations arising under letters of credit (including standby and
commercial), bankers’ acceptances, bank guaranties, surety bonds and similar
instruments
$____________
 
4.
all obligations in respect of the deferred purchase price of property or
services (other than trade accounts payable in the ordinary course of business)
$____________
 
5.
all Attributable Indebtedness
$____________
 
6.
without duplication, all Guarantees with respect to outstanding Indebtedness of
the types specified in Lines II.A.1 through 5 above of Persons other than the
Borrower or any Subsidiary
$____________
 
7.
all Indebtedness of the types referred to in Lines II.A.1 through 6 above of any
partnership or joint venture (other than a joint venture that is itself a
corporation or limited liability company) in which the Borrower or a Subsidiary
is a general partner or joint venturer, unless such Indebtedness is expressly
made non-recourse to the Borrower or such Subsidiary
$____________
 
8.
Consolidated Funded Indebtedness = Lines II.A.1 + 2 + 3 + 4 + 5 + 6 + 7
$____________
B.
Consolidated EBITDA for the period of the four (4) consecutive fiscal quarters
most recently ended on or immediately prior to the Statement Date
[Line I.L above]
$____________
C.
Consolidated Total Leverage Ratio = Line II.A.8 / Line II.B
_____ to 1.00
 
Maximum Consolidated Total Leverage Ratio permitted pursuant to Section 7.11(a)
of the Loan Agreement as of the Statement Date:
_____ to 1.00

III.  Consolidated Senior Leverage Ratio [Section 7.11(b) of the Loan Agreement]
A.
Consolidated Funded Indebtedness as of the Statement Date
[Line II.A.8 above]
$____________
B.
All Obligations under the Loan Agreement
$____________
C.
All Subordinated Indebtedness of the Borrower and its Subsidiaries as of the
Statement Date
$____________
D.
Consolidated EBITDA for the period of the four (4) consecutive fiscal quarters
most recently ended on or immediately prior to the Statement Date
[Line I.L above]
$____________
E.
Consolidated Senior Leverage Ratio = [Line III.A – Line III.B – Line III.C] /
Line III.D
_____ to 1.00
 
Maximum Consolidated Senior Leverage Ratio permitted pursuant to Section 7.11(b)
of the Loan Agreement as of the Statement Date:
_____ to 1.00

IV.  Consolidated Fixed Charge Coverage Ratio [Section 7.11(c) of the Loan
Agreement]
A.
Consolidated EBITDA for the period of the four (4) consecutive fiscal quarters
most recently ended on or immediately prior to the Statement Date
[Line I.L. above]:
$____________
B.
Capital Expenditures for such period
$____________
C.
federal, state, local and foreign taxes paid or payable in cash
$____________
D.
Consolidated Fixed Charges for such period:
   
1.
Consolidated Interest Expense paid or payable in cash
$____________
 
2.
scheduled principal payments with respect to Indebtedness, regardless of whether
or not such Scheduled Principal Payments are actually made by the Borrower or
any Subsidiary during such period
$____________
 
3.
Restricted Payments
   
4.
Consolidated Fixed Charges = Lines IV.D.1 + 2 + 3
$____________
E.
Consolidated Fixed Charge Coverage Ratio =
[Lines IV.A. – B – C] / Line IV.D.4
_____ to 1.00
 
Minimum Consolidated Fixed Charge Coverage Ratio required pursuant to Section
7.11(c) of the Loan Agreement as of the Statement Date:
[___] to 1.00

V.  CAPITAL EXPENDITURES [Section 7.11(d) of the Loan Agreement]
A.
Aggregate amount of all Capital Expenditures (other than leasehold improvement
expenditures not made in cash) made by the Borrower and its Subsidiaries for the
portion of the current fiscal year ended on the Statement Date:
$____________
 
Maximum amount of all Capital Expenditures (other than leasehold improvement
expenditures not made in cash) allowed to be made by the Borrower and its
Subsidiaries in any fiscal year pursuant to Section 7.11(d) of the Loan
Agreement as of the Statement Date (including amounts permitted to be carried
over from the previous year in accordance with such Section):
$[____________]

--------------------------------------------------------------------------------

 
1 This schedule is intended as a template only.  Please refer to all relevant
definitions and Sections in the Loan Agreement and Schedule 1.01-A to the Loan
Agreement when completing this schedule.

 
 
 
 
 

Schedule 2
to Compliance Certificate

Summary of the Borrower’s and each Subsidiary’s backlog of
revenue-generating Government Contracts as of the Statement Date

[See attached.]