<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1996 .
--------------------------------
OR
[ ] 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. 0-6272
DATUM INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-2512237
- ----------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9975 TOLEDO WAY, IRVINE, CA 92718-1819
- ----------------------------------------- -------------------
(Address of principal executive offices) (Zip code)
(714) 380-8880
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by a 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 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. YES X . NO .
----- -----
The registrant had 4,040,165 shares of common stock outstanding as of
March 31, 1996.
Total number of sequentially numbered pages contained herein are:
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INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations . . . 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DATUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, December 31,
1996 1995
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<S> <C> <C>
A S S E T S
Current assets
Cash and short-term investments $ 749,000 $ 587,000
Accounts receivable 12,333,000 13,572,000
Accounts receivable, unbilled 166,000 66,000
Inventories
Purchased parts 7,745,000 7,801,000
Work-in-process 10,775,000 9,002,000
Finished products 3,043,000 3,358,000
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21,563,000 20,161,000
Prepaid expenses 346,000 200,000
Deferred income taxes 1,830,000 1,830,000
Income tax refund receivable 108,000 109,000
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Total current assets 37,095,000 36,525,000
Plant and equipment
Land 2,040,000 2,040,000
Buildings 4,477,000 4,474,000
Equipment 15,652,000 15,145,000
Leasehold improvements 1,407,000 1,150,000
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23,576,000 22,809,000
Less accumulated depreciation and amortization 7,927,000 7,155,000
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15,649,000 15,654,000
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Excess of purchase price over net assets acquired 13,691,000 13,914,000
Other assets 55,000 44,000
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$66,490,000 $66,137,000
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</TABLE>
See Notes to Condensed Consolidated Financial Statements
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DATUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, December 31,
1996 1995
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,031,000 $ 5,155,000
Accrued salaries and wages 1,919,000 2,102,000
Accrued warranty 1,233,000 1,337,000
Other accrued expenses 1,398,000 1,822,000
Customer deposits -- 74,000
Income taxes payable 213,000 105,000
Notes payable to bank 11,291,000 10,442,000
Current portion of long-term debt 3,407,000 3,178,000
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Total current liabilities 24,492,000 24,215,000
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Long-term debt 7,696,000 7,938,000
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Postretirement benefits 329,000 290,000
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Other long-term liabilities 1,380,000 1,388,000
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Deferred income taxes 993,000 993,000
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Stockholders' equity
Common stock, par value $.25 per share
Authorized - 8,000,000 shares
Issued - 4,040,165 shares in 1996
4,018,968 shares in 1995 1,010,000 1,005,000
Additional paid-in capital 24,554,000 24,418,000
Retained earnings -
Beginning of period 5,982,000 5,922,000
Net income 182,000 60,000
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End of period 6,164,000 5,982,000
Cumulative translation adjustment (128,000) (92,000)
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Total stockholders' equity 31,600,000 31,313,000
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$66,490,000 $66,137,000
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</TABLE>
See Notes to Condensed Consolidated Financial Statements
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DATUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1996 1995
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<S> <C> <C>
Net product sales and contract revenues $19,602,000 $9,832,000
Costs and expenses
Cost of products sold and contract revenues 11,711,000 5,550,000
Selling 2,700,000 1,596,000
Product development 2,033,000 942,000
General and administrative 2,301,000 1,212,000
Interest expense 555,000 129,000
Interest (income) (6,000) (3,000)
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19,294,000 9,426,000
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Income before income taxes 308,000 406,000
Income tax provision 126,000 166,000
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Net income $ 182,000 $ 240,000
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Earnings per common and common equivalent share $ 0.04 $ 0.08
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Weighted average number of common and
common equivalent shares outstanding 4,203,000 3,089,000
=========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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DATUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
MARCH 31, March 31,
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 182,000 $ 240,000
----------- ------------
Adjustments to reconcile income to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,059,000 300,000
Contribution of the Company's shares of common stock 108,000 45,000
Changes in assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable 1,239,000 (3,116,000)
(Increase) decrease in accounts receivable,
unbilled - current portion (100,000) 90,000
Decrease in income tax refund receivable 1,000 6,000
Increase in inventories (1,402,000) (391,000)
Increase in prepaid expenses (146,000) (107,000)
(Increase) decrease in other assets (11,000) 8,000
Increase (decrease) in accounts payable (124,000) 874,000
Decrease in accrued expenses (711,000) (243,000)
Decrease in customer deposits (74,000) --
Increase in income taxes payable 108,000 164,000
Increase in postretirement benefits 39,000 19,000
Increase (decrease) in other long-term liabilities (8,000) 218,000
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Total reconciling items (22,000) (2,133,000)
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Net cash provided by (used in) operating activities 160,000 (1,893,000)
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Cash flows from investing activities:
Book value of equipment disposals 56,000 1,000
Capital expenditures (887,000) (359,000)
Payment for acquisition, net of cash -- (14,494,000)
Other (36,000) --
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Net cash used in investing activities (867,000) (14,852,000)
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Cash flows from financing activities:
Proceeds from line of credit 849,000 5,650,000
Proceeds from (reductions to) long-term debt (13,000) 11,087,000
Exercise of stock options 33,000 42,000
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Net cash provided by financing activities 869,000 16,779,000
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Net increase in cash and cash equivalents 162,000 34,000
Cash and cash equivalents at beginning of period 587,000 221,000
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Cash and cash equivalents at end of period $ 749,000 $ 255,000
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</TABLE>
See Notes to Condensed Consolidated Financial Statements
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DATUM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the requirements of Form 10-Q and, therefore,
do not include all information and footnotes which would be presented were such
financial statements prepared in accordance with generally accepted accounting
principles, and should be read in conjunction with the audited financial
statements presented in the Company's 1995 Annual Report to Stockholders. In
the opinion of management, the accompanying financial statements reflect all
adjustments which are necessary for a fair presentation of the results for the
interim period presented. The results of operations for such interim period are
not necessarily indicative of results to be expected for the full year.
NOTE B - EARNINGS PER SHARE
Earnings per share is calculated by dividing net earnings by the weighted
average number of common and common equivalent shares outstanding during each
period taking into consideration dilutive effects of common stock equivalents.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" presented in the
Company's 1995 Annual Report to Stockholders.
INTRODUCTORY NOTE
This Report on Form 10-Q contains certain forward-looking statements, including
(i) statements related to potential rescheduling, or elimination of orders for
the Company's products, (ii) the necessary elements for the successful
management of growth, and (iii) the need for, and availability of, additional
financing. The forward-looking statements and associated risks set forth in
this Report also include or relate to trend information related to the
Company's March 1995 acquisition of Efratom Time and Frequency Products, Inc.,
a Colorado corporation and Efratom Elektronik GmbH, a corporation organized
under the laws of the Republic of Germany (collectively, "Efratom") and
Efratom's ongoing operations.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. The
forward-looking statements are based on assumptions that the Company will not
lose a significant customer or customers or experience increased fluctuations
of demand or rescheduling of purchase orders, that the Company's markets will
continue to grow, that the Company's markets will continue to grow, that the
Company's products will remain accepted within their respective markets and
will not be replaced by new technology, that competitive conditions within the
Company's markets will not change materially or adversely, that the Company
will be successful in integrating the operations of its Efratom subsidiary with
the rest of the Company's operations, that the Company will retain key
technical and management personnel, that the Company's forecasts will
accurately anticipate market demand, and that there will be no material adverse
change in the Company's operations or business. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions, and future business decisions, all
of which are difficult or impossible to predict accurately and many of which
are beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of
the assumptions could prove inaccurate and, therefore, there can be no
assurance that the results contemplated in forward-looking statements will be
realized. In addition, the business and operations of the Company are subject
to substantial risks which increase the uncertainty inherent in such
forward-looking statements. In light of the significant uncertainties inherent
in the forward-looking information included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives or plans of the Company will be achieved.
Overview
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The Company designs, manufactures and markets a wide variety of high-quality,
high performance time and frequency products used to synchronize the flow of
information in telecommunications and enterprise computing networks. The
Company also is a leading supplier of high-performance timing products for a
wide variety of scientific and industrial test and measurement applications.
On March 17, 1995, the Company completed its acquisition of Efratom, the
inventor and leading supplier of high-stability, rubidium-based oscillators
widely used in cellular and PCS systems. The purchase price consisted of
$15,000,000 cash and 1,277,778 shares of the Company's Common Stock. The final
purchase price is subject to a post-closing adjustment. The transaction has
been accounted for as a purchase and, accordingly, the acquired assets and
liabilities have been recorded at their estimated fair market values at the
date of the acquisition. In connection with the acquisition, the Company
recorded $12,117,000 in goodwill, which amount will be amortized (and charged
against earnings) for 15 years from the date of the acquisition. Included in
goodwill is an amount that the Company expects to settle with Ball Corporation
upon final negotiations of the purchase price adjustment.
As a result of the acquisition, the Company has experienced significant
increases (in absolute terms) in revenue, selling expenses, general and
administrative expenses, accounts receivable, inventory and accounts payable,
in the quarter ended March 31, 1996 from the corresponding period of 1995. In
addition, the Company has experienced, and expects to continue to experience,
material changes (in percentage terms) in certain areas of its operations as a
result of the acquisition of Efratom. Efratom has historically experienced
substantial fluctuations in quarterly operating results because of its
dependence on relatively few major customers and the ordering patterns of its
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<PAGE> 9
customers and other factors. The future operating results of the Company may
exhibit similar fluctuations due to the combination with Efratom. Due to
contractual obligations and the nature of its manufacturing processes, Efratom
maintains higher levels of inventories, both on absolute and percentage basis,
than the Company historically maintained. As a result, the Company anticipates
that inventories, as a percentage of total assets, will continue above previous
levels, which will have the effect of increasing the Company's working capital
requirements. In addition, Efratom traditionally has had higher research and
product development expenses as a percentage of net sales, and the Company
anticipates maintaining such higher level of expenditures.
The Datum companies traditionally have operated on a relatively independent
basis. Should the Company desire to integrate them to a greater extent in the
future, certain operational changes, cost controls, systems integrations,
marketing focus and the coordination of new product development may be
required. There can be no assurance that the Company will be successful in
completing any such efforts or that such efforts will result in increased
revenues or earnings. See "Introductory Note."
The Company's ability to manage its growth effectively will require it to
enhance its operational, financial and management systems; to expand its
facilities and equipment; and to successfully hire, train and motivate
additional employees. The failure of the Company to manage its growth on an
effective basis could have a material adverse effect on the Company's operating
results and financial conditions. The Company will be required to increase
staffing and other expenses as well as its expenditures on capital equipment
and leasehold improvements in order to meet the demands of its customers or to
enter new markets. Customers, however, may not commit to firm production
schedules for more than a short time in advance, and new products may have
uncertain market acceptance. The Company's profitability would be adversely
affected if the Company increases its expenditures in anticipation of future
sales that do not materialize. See "Introductory Note."
A small number of customers account for a substantial portion of the Company's
net sales. There can be no assurance that a major customer will not reduce,
delay or eliminate its purchases. Any such reduction, delay or loss in orders
could have a material adverse effect on the Company's business and results of
operations. See "Introductory Note."
Results of Operations
- ---------------------
The following table sets forth, for the fiscal periods indicated, certain
income and expense items expressed as a percentage of The Company's total
sales:
<TABLE>
<CAPTION>
Percentage of Total Sales
-------------------------------------------------------------------
Year Ended December 31, Three Months Ended March 31,
--------------------------------- ----------------------------
1993 1994 1995 1995 1996
------ ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net product sales and contract revenue . . 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses
Cost of products sold and
contract revenue . . . . . . . . . . 59.6% 56.6% 59.5% 56.4% 59.7%
Selling . . . . . . . . . . . . . . . . 18.1% 16.8% 14.6% 16.2% 13.8%
Product development . . . . . . . . . . 7.6% 8.1% 10.5% 9.6% 10.4%
General and administrative . . . . . . . 13.4% 12.7% 12.6% 12.3% 11.7%
Interest expense . . . . . . . . . . . . 0.8% 0.8% 2.5% 1.3% 2.8%
Interest income . . . . . . . . . . . . 0.0% 0.0% 0.0% 0.0% 0.0%
Income before income taxes . . . . . . . . 0.4% 5.0% 0.3% 4.1% 1.6%
Income tax provision . . . . . . . . . . . 0.1% 2.0% 0.2% 1.7% 0.6%
Net income . . . . . . . . . . . . . . . . 0.3% 3.0% 0.1% 2.4% 0.9%
</TABLE>
Net product sales and contract revenues increased 99.4% for the quarter ended
March 31, 1996, when compared to the corresponding quarter of 1995. The
increase was attributable to growth in the Company's wireline products at it's
Austron subsidiary and to the acquisition of Efratom on March 17, 1995. The
1995 quarter contained only two weeks of Efratom sales.
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Cost of products sold for the quarter ended March 31, 1996, was 59.7%, compared
with 56.4% for the corresponding quarter of 1995. Profit margin decreased due
to contractual requirements of some larger customers, in addition to pricing
pressures affecting the Company's products generally.
Selling expense as a percent of sales was 13.8% for the quarter ended March 31,
1996, compared to 16.2% for the corresponding quarter of 1995. The decrease in
selling expense as a percentage of net sales reflects the increase in net sales
attributable to the Efratom acquisition. The increase in absolute dollars for
selling expense also reflects the Efratom acquisition.
Product development expense as a percentage of sales increased to 10.4% for the
quarter ended March 31, 1996, compared with 9.6% for the corresponding quarter
of 1995. Efratom product development expense, as a percentage of sales, is
higher than that of the other divisions of Datum. The increase in absolute
dollars was due to the acquisition of Efratom.
General and administrative expense as a percent of sales for the quarter ended
March 31, 1996, was 11.7%, compared to 12.3% for the corresponding quarter of
1995.
The acquisition of Efratom on March 17, 1995, brought with it an increase in
the borrowing of $15 million for part of the purchase price and up to an
additional $14 million to cover the increased daily working capital needs of
the combined operations. The increase in interest expense to 2.8%, as a
percentage of sales, for the quarter ended March 31, 1996, compares with 1.3%
for the corresponding quarter in 1995.
Net income as a percentage of net sales decreased from 2.4% for the quarter
ended March 31, 1995 to 0.9% for the quarter ended March 31, 1996. This
decrease was primarily due to the pricing pressure described above and the fact
that deployment of PCS has been slower than anticipated, which the Company
believes has led certain of the Company's larger customers to reduce or delay
purchases of the Company's oscillator products. Net income was also adversely
affected by increased interest expense in the quarter ended March 31, 1996, as
compared to the quarter ended March 31, 1995.
Liquidity and Capital Resources
- -------------------------------
Accounts receivable, including accounts receivable unbilled, decreased from
$13,638,000 at December 31, 1995, to $12,499,000 at March 31, 1996. The
decrease is attributable to the lower volume of sales in the March quarter of
1996.
Inventories increased from $20,161,000 at December 31, 1995, to $21,563,000 at
March 31, 1996. Lower than planned sales in the March 1996 quarter was the
reason for this growth in inventory.
Accounts payable decreased form $5,155,000 at December 31, 1995, to $5,031,000
at March 31, 1996. Controlling inventory purchases are reflected in this
change.
At March 31, 1996, the Company had working capital of $12,603,000 and a current
ratio of 1.5:1. This compares to working capital of $12,310,000 and a current
ratio of 1.5:1 at December 31, 1995.
In connection with the acquisition of Efratom in March 1995, the Company
financed the cash portion of the purchase price and expenses and provided for
an ongoing credit facility under a credit agreement with an aggregate credit
availability of $22,000,000. The credit facility included, (i) an $11,000,000
Revolving Line of Credit bearing interest at the bank's prime rate plus 0.5%,
(ii) a $2,500,000 Term Loan bearing interest at the bank's prime rate plus
0.75% with interest and principal payable ratably over 72 months (Term Loan I),
(iii) a $2,500,000 Term Loan bearing interest at the Bank's pr;ime rate plus
0.5% amortized over 25 years, payable in five years (Term Loan II), and (iv) a
%6,000,000 Term Loan bearing interest at the bank's prime rate plus 0.75% with
interest and principal payable ratably over 48 months (Term Loan III). The
loans are secured by the accounts receivable, inventory, real estate and
equipment of the Company. Upon repayment of Term Loan III, the interest rates
on each of the Revolving Line of Credit and Term Loan I will be reduced by
0.25%. On August 31, 1995, the credit facility was amended to increase the
Revolving Line of Credit from $11,000,000 to $14,000,000 and to provide for an
additional Term Commitment of up to $2,000,000 through January 10, 1996,
bearing interest at the bank's prime rate plus .75%, with interest payable
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monthly and principal payable in 36 monthly installments commencing February
1996. On March 14, 1996, the credit facility was amended to permit an
over-advance on the borrowing base calculation by up to $2,000,000. As
consideration for this over-advance line, the Company will pay a non-refundable
fee of 0.5% on the revolving line of credit amount.
On March 31, 1996, an aggregate of approximately $22,274,000 million was
outstanding under the Company's bank credit arrangement. The notes payable to
the bank of $11,291,000 at March 31, 1996, reflects the balance outstanding
under the $14,000,000 Revolving Line of Credit. The balance reflects usage to
date and includes $4,000,000 utilized as a portion of the $15,000,000 cash
purchase price of Efratom. The additional usage is partially to cover the
higher levels of accounts receivable and inventory.
The current portion of long term-debt reflects the banking arrangements
described above which are due and payable in a twelve month period.
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PART II. OTHER INFORMATION
Items 1 through 5 have been omitted because the related information is either
inapplicable or has been previously reported.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
<TABLE>
<CAPTION>
(a) Exhibit No. Description
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<S> <C>
10.21.1 Amendment No. 1 to Consulting Agreement between the Company and
Louis B. Horwitz, dated March 1, 1996
10.30.2 Second amendment to the Credit Agreement dated November 1, 1995
10.30.3 Third amendment to the Credit Agreement dated March 14, 1996
27.1 Financial Data Schedule
(b) No current reports on Form 8-K were filed during the quarter covered by this report.
</TABLE>
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<PAGE> 13
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.
DATUM INC.
/s/ LOUIS B. HORWITZ Date May 8, 1996
- -------------------------- -----------------
Louis B. Horwitz,
President
/s/ DAVID A. YOUNG Date May 8, 1996
- -------------------------- -----------------
David A. Young,
Chief Financial Officer
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<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Description Page
- ----------- ----------- ------------
<S> <C>
10.21.1 Amendment No. 1 to Consulting Agreement between the
Company and Louis B. Horwitz, dated March 1, 1996
10.30.2 Second amendment to the Credit Agreement dated November 1, 1995
10.30.3 Third amendment to the Credit Agreement dated March 14, 1996
27.1 Financial Data Schedule
</TABLE>
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<PAGE> 1
FIRST AMENDMENT
TO
CONSULTING AGREEMENT
It has been agreed between the parties that Paragraph 5, Compensation -
Consulting Term, Sub-paragraph (a) Fee, to a Consulting Agreement of October 9,
1992, between Louis B. Horwitz and Datum Inc. shall be modified to read as
follows:
As compensation for Horwitz's services as a consultant, Datum shall pay
Horwitz a fee in the sum of $8,333.33 per day plus travel expenses, if any,
for each day Horwitz is called upon to render such services. During the
Consulting Term, Horwitz shall be guaranteed a minimum of twelve (12) days
of consulting services. In the event he is called upon for a lesser number
of days, he shall, nonetheless, be compensated for the minimum number of
days set forth. Payment shall be on or before the first day of each month.
DATUM, INC.
A Delaware Corporation
/s/ LOUIS B. HORWITZ /s/ DAVID A. YOUNG
- ----------------------------- ---------------------------------
Louis B. Horwitz David A. Young
Vice President, Finance and
Administration
/s/ DAN L. MCGURK
---------------------------------
Dan L. McGurk, Chairman
Compensation Committee
Board of Directors
<PAGE> 1
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of November 1, 1995, by and between Datum, Inc., a Delaware
corporation("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and
conditions of that certain Credit Agreement between Borrower and Bank dated as
of December 16, 1994, as amended from time to time ("Credit Agreement").
WHEREAS, Bank and Borrower have agreed to certain changes in the terms and
conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:
1. The following is hereby added to the Credit Agreement as Section
1.1.(a.1):
"(a.1) Letter of Credit Subfeature. As a subfeature under the Line
of Credit, Bank agrees from time to time during the term thereof to
issue standby letters of credit for the account of Borrower to
finance a potential contract with the Italian telephone company
(each, a "Letter of Credit" and collectively, "Letters of Credit");
provided however, that the form and substance of each Letter of
Credit shall be subject to approval by Bank, in its sole discretion;
and provided further, that the aggregate undrawn amount of all
<PAGE> 2
outstanding Letters of Credit shall not at any time exceed Two
Hundred Fifty Thousand Dollars ($250,000.00). No Letter of Credit
shall have an expiration date subsequent to March 7, 1996. The
undrawn amount of all Letters of Credit shall be reserved under the
Line of Credit and shall not be available for borrowings thereunder.
Each Letter of Credit shall be subject to the additional terms and
conditions of the Letter of Credit Agreement and related documents,
if any, required by Bank in connection with the issuance thereof
(each, a "Letter of Credit Agreement" and collectively, "Letter of
Credit Agreements"). Each draft paid by Bank under a Letter of
Credit shall be deemed an advance under the Line of Credit and shall
be repaid by Borrower in accordance with the terms and conditions of
this Agreement applicable to such advances; provided however, that
if advances under the Line of Credit are not available, for any
reason whatsoever, at the time any draft is paid by Bank, then the
full amount of such draft shall be immediately due and payable,
together with interest thereon, from the date such amount is paid by
Bank to the date such amount is fully repaid by Borrower, at the
rate of interest applicable to advances under the Line of Credit.
In such event Borrower agrees that Bank, at Bank's sole discretion,
may debit any demand deposit account maintained by Borrower with
Bank for the amount of any such draft."
2. The following is hereby added to the Credit Agreement as Section
1.5(c):
"(c) Letter of Credit Fees. Borrower shall pay to Bank fees upon
the issuance of each Letter of Credit, upon the payment or
negotiation by Bank of each draft under any Letter of Credit and
upon the occurrence of any other activity with respect to any
Letter of Credit (including without limitation, the transfer,
amendment or cancellation of any Letter of Credit) determined in
accordance with Bank's standard fees and charges then in effect for
such activity."
3. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this
<PAGE> 3
Amendment. This Amendment and the Credit Agreement shall be read together, as
on document.
4. Borrower hereby remakes all representations and warranties contained
in the Credit Agreement and reaffirms all covenants set forth therein.
Borrower further certifies that as of the date of this Amendment there exists
no Event of Default as defined in the Credit Agreement, nor any condition, act
or event which with the giving of notice or the passage of time or both would
constitute any such Event of Default.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
DATUM, INC. WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ LOUIS B. HORWITZ By: /s/ TIMOTHY R. SANDEL
--------------------------------- ----------------------------
Louis B. Horwitz Timothy R. Sandel
Chief Executive Officer Assistant Vice President
By: /s/ DAVID A. YOUNG
---------------------------------
David A. Young
Chief Financial
Officer/Secretary
<PAGE> 1
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of March 14, 1996, by and between DATUM INC., a Delaware corporation
("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and
conditions of that certain Credit Agreement between Borrower and Bank dated as
of December 16, 1994, as amended from time to time ("Credit Agreement");
WHEREAS, Bank and Borrower have agreed to certain changes in the terms and
conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:
1. Section 1.1 (a.1) is hereby deleted in its entirety.
2. Section 1.1 is hereby amended by adding thereto a new subsection
(c), to read as follows:
"(c) Permitted Overadvance. Section 1.1(a) above sets forth a
borrowing base (the "Borrowing Base") which limits the aggregate amount of
all outstanding borrowings under the Line of Credit. Notwithstanding such
limitation, the aggregate amount of all outstanding borrowings under the
Line of Credit may exceed the
<PAGE> 2
Borrowing Base by up to $2,000,000.00 until June 6, 1996."
3. Section 1.1 is hereby further amended by adding thereto a new
subsection (d), to read as follows:
"(d) Letter of Credit Subfeature. As a subfeature under
the Line of Credit, Bank agrees from time to time during the term thereof
to issue standby letters of credit for the account of Borrower (each, a
"Letter of Credit" and collectively, "Letters of Credit"); provided
however, that the form and substance of each Letter of Credit shall be
subject to approval by Bank, in its sole discretion; and provided further,
that the aggregate undrawn amount of all outstanding Letters of Credit
shall not at any time exceed Two Hundred Fifty Thousand Dollars
($250,000.00). Each Letter of Credit shall be issued for a term not to
exceed one (1) year, as designated by Borrower; provided however, that no
Letter of Credit shall have an expiration date subsequent to January 31,
1997. The undrawn amount of all Letters of Credit shall be reserved under
the Line of Credit and shall not be available for borrowings thereunder.
Each Letter of Credit shall be subject to the additional terms and
conditions of the Letter of Credit Agreement and related documents, if
any, required by Bank in connection with the issuance thereof (each, a
"Letter of Credit Agreement" and collectively, "Letter of Credit
Agreements"). Each draft paid by Bank under a Letter of Credit shall be
deemed an advance under the Line of Credit and shall be repaid by Borrower
in accordance with the terms and conditions of this Agreement applicable
to such advances; provided however, that if advances under the Line of
Credit are not available, for any reason, at the time any draft is paid by
Bank, then Borrower shall immediately pay to Bank the full amount of such
draft, together with interest thereon from the date such amount is paid by
Bank to the date such amount is fully repaid by Borrower, at the rate of
interest applicable to advances under the Line of Credit. In such event
Borrower agrees that Bank, in its sole discretion, may debit any demand
deposit account maintained by Borrower with Bank for the amount of any
such draft."
4. As consideration for the permitted overadvance provided above,
Borrower shall pay to Bank a non-refundable fee equal to
-2-
<PAGE> 3
$25,000.00, which fee shall be due and payable in full upon execution of this
Amendment by Borrower.
5. As additional consideration for the permitted overadvance provided
above, Borrower shall pay to Bank a non-refundable monthly fee on the sixth day
of each month (the "Date of Determination"), commencing April l6, 1996,
calculated as follows:
A + B x .005
----- ----
2 12
A = the aggregate principal balance outstanding under the
Credits (excluding the undrawn amount of issued and
outstanding Letters of Credit) as of the seventh day of
the month immediately preceding the Date of
Determination.
B = the aggregate principal balance outstanding under the
Credits (excluding the undrawn amount of issued and
outstanding Letters of Credit) as of the Date of
Determination.
6. As set forth in Section 7.3 of the Credit Agreement, Borrower shall
reimburse Bank immediately upon demand for all costs and expenses incurred by
Bank in connection with the negotiation and preparation of this Amendment,
including reasonable attorneys' fees (to include outside counsel fees and all
allocated costs of Bank's in-house counsel).
-3-
<PAGE> 4
7. Recently Bank has honored overdrafts against Borrower's deposit
accounts with Bank. Borrower hereby acknowledges that Bank has no obligation
to honor any overdrafts against Borrower's deposit accounts with Bank, and that
Bank shall determine whether to honor any future overdrafts in Bank's sole
discretion.
8. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.
9. Borrower hereby remakes all representations and warranties contained
in the Credit Agreement and reaffirms all covenants set forth therein.
Borrower further certifies that as of the date of this Amendment there exists
no Event of Default as defined in the Credit Agreement, nor any condition, act
or event which with the giving of notice or the passage of time or both would
constitute any such Event of Default.
10. This Amendment shall be effective when executed by Bank and
Borrower, and acknowledged by the Guarantors, in the spaces provided below.
This Amendment may be executed in any number of counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same agreement.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
DATUM INC. WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ LOUIS B. HORWITZ By: /s/ RONALD K. PETERS
--------------------------- ---------------------------
Louis B. Horwitz Ronald K. Peters
Chief Executive Officer Vice President
By: /s/ DAVID A. YOUNG
----------------------------
David A. Young
Chief Financial Officer
Acknowledged and agreed to by the undersigned Guarantors, which confirm
that the guaranties executed by them shall continue in full force and effect.
EFRATOM TIME AND FREQUENCY AUSTRON, INC.
PRODUCTS, INC.
By: /s/ LOUIS B. HORWITZ By: /s/ LOUIS B. HORWITZ
--------------------------- ---------------------------
Louis B. Horwitz Louis B. Horwitz
Chief Executive Officer Chief Executive Officer
By: /s/ DAVID A. YOUNG By: /s/ DAVID A. YOUNG
--------------------------- ---------------------------
David A. Young David A. Young
Chief Financial Officer Chief Financial Officer
FREQUENCY & TIME SYSTEMS, INC.
By: /s/ LOUIS B. HORWITZ
---------------------------
Louis B. Horwitz
Chief Executive Officer
By: /s/ DAVID A. YOUNG
---------------------------
David A. Young
Chief Financial Officer
-5-
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
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0
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