<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 September 30, 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 92618-1819
(Address of principal executive offices) (Zip code)
(714) 380-8880
(Registrant's telephone number, including area code)
NOT APPLICABLE
(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 4,077,820 shares of common stock outstanding as of
September 30, 1996.
Total number of sequentially numbered pages contained herein are:
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INDEX
<TABLE>
<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................................ 11
Signatures................................................................ 12
Exhibit Index............................................................. 13
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DATUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1996 1995
------------- ------------
<S> <C> <C>
Current assets
Cash and short-term investments $ 1,687,000 $ 587,000
Accounts receivable 16,488,000 13,572,000
Accounts receivable, unbilled 443,000 66,000
Inventories
Purchased parts 6,626,000 7,801,000
Work-in-process 9,609,000 9,002,000
Finished products 1,568,000 3,358,000
----------- -----------
17,803,000 20,161,000
Prepaid expenses 422,000 200,000
Deferred income taxes 1,830,000 1,830,000
Income tax refund receivable 108,000 109,000
----------- -----------
Total current assets 38,781,000 36,525,000
Plant and equipment
Land 2,040,000 2,040,000
Buildings 4,499,000 4,474,000
Equipment 16,144,000 15,145,000
Leasehold improvements 1,399,000 1,150,000
----------- -----------
24,082,000 22,809,000
Less accumulated depreciation and amortization 9,293,000 7,155,000
----------- -----------
14,789,000 15,654,000
----------- -----------
Excess of purchase price over net assets acquired 13,243,000 13,914,000
Other assets 55,000 44,000
----------- -----------
$66,868,000 $66,137,000
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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DATUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
------------- ------------
<S> <C> <C>
Current liabilities
Accounts payable $ 6,186,000 $ 5,155,000
Accrued salaries and wages 1,973,000 2,102,000
Accrued warranty 1,159,000 1,337,000
Other accrued expenses 976,000 1,822,000
Customer deposits -- 74,000
Income taxes payable 680,000 105,000
Notes payable to bank -- 10,442,000
Current portion of long-term debt 41,000 3,178,000
----------- -----------
Total current liabilities 11,015,000 24,215,000
----------- -----------
Long-term debt 20,400,000 7,938,000
----------- -----------
Postretirement benefits 407,000 290,000
----------- -----------
Other long-term liabilities 1,365,000 1,388,000
----------- -----------
Deferred income taxes 993,000 993,000
----------- -----------
Stockholders' equity
Preferred stock, par value $.25 per share
Authorized - 1,000,000 shares in 1996
- 0 shares in 1995
Issued - 0 shares -- --
Common stock, par value $.25 per share
Authorized - 10,000,000 shares in 1996
8,000,000 shares in 1995
Issued - 4,077,820 shares in 1996
4,018,968 shares in 1995 1,019,000 1,005,000
Additional paid-in capital 24,850,000 24,418,000
Retained earnings
Beginning of period 5,982,000 5,922,000
Net income 982,000 60,000
----------- -----------
End of period 6,964,000 5,982,000
Cumulative translation adjustment (145,000) (92,000)
----------- -----------
Total stockholders' equity 32,688,000 31,313,000
----------- -----------
$66,868,000 $66,137,000
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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<PAGE> 5
DATUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net product sales and
contract revenues $24,507,000 $18,607,000 $64,357,000 $45,292,000
----------- ----------- ----------- -----------
Costs and expenses
Cost of products sold and
contract revenues 15,203,000 11,215,000 39,182,000 26,048,000
Selling 2,944,000 2,709,000 8,590,000 6,828,000
Product development 1,895,000 1,963,000 5,810,000 5,193,000
General and administrative 2,843,000 2,010,000 7,463,000 5,217,000
Interest expense 530,000 477,000 1,662,000 1,126,000
Interest income (7,000) (4,000) (14,000) (10,000)
----------- ----------- ----------- -----------
23,408,000 18,370,000 62,693,000 44,402,000
----------- ----------- ----------- -----------
Income before income taxes 1,099,000 237,000 1,664,000 890,000
Income tax provision 450,000 97,000 682,000 365,000
----------- ----------- ----------- -----------
Net income $ 649,000 $ 140,000 $ 982,000 $ 525,000
=========== =========== =========== ===========
Earnings per common and
common equivalent share $ .15 $ .03 $ .23 $ .14
=========== =========== =========== ===========
Weighted average number
of common and common
equivalent shares outstanding 4,237,000 4,291,000 4,229,000 3,874,000
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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<PAGE> 6
DATUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------
SEPTEMBER 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 982,000 $ 525,000
----------- ------------
Adjustments to reconcile income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,029,000 2,109,000
Contribution of shares of common stock
to the Company's 401(K) plan 348,000 241,000
Changes in assets and liabilities, net of acquisition:
Increase in accounts receivable (2,917,000) (599,000)
(Increase) decrease in accounts receivable,
unbilled - current portion (378,000) 65,000
Decrease in income tax refund receivable 1,000 7,000
(Increase) decrease in inventories 2,358,000 (4,473,000
Increase in prepaid expenses (221,000) (453,000)
(Increase) decrease in other assets (11,000) 13,000
Increase in accounts payable 1,031,000 817,000
Increase (decrease) in accrued expenses (1,121,000) 464,000
Decrease in customer deposits (74,000) --
Increase (decrease) in income taxes payable 575,000 (319,000)
Increase in postretirement benefits 117,000 57,000
Decrease in other long-term liabilities (23,000) --
----------- ------------
Total reconciling items 2,714,000 (2,071,000)
----------- ------------
Net cash provided by (used in) operating activities 3,696,000 (1,546,000)
----------- ------------
Cash flows from investing activities:
Book value of equipment disposals 56,000 20,000
Capital expenditures (1,554,000) (1,779,000)
Payment for acquisition, net of cash -- (15,290,000)
Other (48,000) (14,000)
----------- ------------
Net cash used in investing activities (1,546,000) (17,063,000)
----------- ------------
Cash flows from financing activities:
Proceeds from line of credit 203,000 6,724,000
Proceeds from (reductions to) long-term debt (1,351,000) 11,535,000
Exercise of stock options 98,000 139,000
----------- ------------
Net cash provided by (used in) financing activities (1,050,000) 18,398,000
----------- ------------
Net increase (decrease) in cash and cash equivalents 1,100,000 (211,000)
Cash and cash equivalents at beginning of period 587,000 221,000
----------- ------------
Cash and cash equivalents at end of period $ 1,687,000 $ 10,000
=========== ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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<PAGE> 7
DATUM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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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<PAGE> 8
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
statements related to potential rescheduling, or elimination of orders for the
Company's products, and the necessary elements for the successful management of
growth. 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 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 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.
Overview
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 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"), the inventor and leading supplier of high-stability, rubidium-based
oscillators widely used in cellular and PCS systems, from Ball Corporation. 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 nine months ended September 30, 1996 from the corresponding period of 1995.
The Datum companies traditionally have operated on a relatively independent
basis. In the fourth quarter of 1995, the Company combined the operations of its
Bancomm Division and its Timing Division. Should the Company desire to integrate
its operations 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
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<PAGE> 9
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 September 30,
----------------------- --------------------------------
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% 60.3% 62.0%
Selling ........................... 18.1% 16.8% 14.6% 14.6% 12.0%
Product development ............... 7.6% 8.1% 10.5% 10.5% 7.7%
General and administrative ........ 13.4% 12.7% 12.6% 10.8% 11.6%
Interest expense .................. 0.8% 0.8% 2.5% 2.6% 2.2%
Interest income ................... 0.0% 0.0% 0.0% 0.0% 0.0%
Income before income taxes ........... 0.4% 5.0% 0.3% 1.3% 4.5%
Income tax provision ................. 0.1% 2.0% 0.2% 0.5% 1.8%
Net income ........................... 0.3% 3.0% 0.1% 0.8% 2.7%
</TABLE>
Consolidated net product sales and contract revenues increased 31.7% for the
quarter ended September 30, 1996, when compared to the corresponding quarter of
1995. For the nine month period of 1996, the sales increase was 42.1% when
compared to the same three quarters of 1995. The quarterly increase is
attributable to increased sales at all locations with the telecommunications
products at the Company's Austron and Efratom subsidiaries being the largest
portion of the increase. The nine month increase is also partially due to the
acquisition of Efratom on March 17, 1995. Contract revenues as a component of
total revenues are not significant.
Cost of products sold and contract revenues as a percentage of product sales for
the quarter ended September 30, 1996, was 62.0%, compared with 60.3% for the
corresponding quarter of 1995. For the nine month period of 1996, cost of
products sold as a percentage of sales was 60.9% compared with 57.5% for the
corresponding period of 1995. Price changes and the mix of telecommunication
products sold in 1996 contributed to the increase in cost of products sold and
contract revenue compared to the three- and nine-month periods ended September
30, 1995.
Selling expense increased by $235,000 for the quarter ended September 30, 1996
over the similar period in 1995, due mainly to additional commissions on
increased sales volume. However, sales expense as a percentage of product sales
decreased to 12.0% for the quarter ended September 30, 1996 from 14.6% for the
corresponding quarter of 1995, due to a larger sales base. For the nine month
period ended September 30, 1996, the increase in selling expense of $1,762,000
over the corresponding period of 1995 is largely attributable to the acquisition
of Efratom on March 17, 1995.
Product development expense as a percentage of product sales decreased to 7.7%
for the quarter ended September 30, 1996, compared with 10.5% for the
corresponding quarter of 1995 due to an increased sales base and the
efficiencies gained by combining Company's Bancomm and Timing divisions at the
end of 1995. The nine month period ended September 30, 1996, was $617,000 over
the corresponding period of 1995 due mainly to the acquisition of Efratom on
March 17, 1995.
General and administrative expense increased by $833,000 for the quarter ended
September 30, 1996, over the corresponding period of 1995. This increase is
largely due to additional charges, resulting from the Company's acquisition of
Efratom, personnel, insurance, consulting, and post retirement benefits in the
current quarter period.
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<PAGE> 10
For the nine month period ended September 30, 1996, the differential over the
corresponding period of 1995 is due largely to the acquisition of Efratom on
March 17, 1995.
Interest expense increased by $53,000 for the quarter ended September 30, 1996,
to $530,000 when compared to the corresponding quarter of 1995. The borrowing
level at September 30, 1996 was $20.4 million, while the corresponding borrowing
level at September 30, 1995 was $21.3 million.
Net income as a percentage of net sales increased to 2.7% in the current quarter
from 0.8% in the same quarter of 1995. The additional volume and control of
expenses accounted for the differential.
The common and common equivalent shares for the nine months ended September 30,
1996 were affected by the shares issued to Ball Corporation for the acquisition
of Efratom on March 17, 1995 and, to a lesser extent by the exercise of stock
options adding to outstanding shares.
Liquidity and Capital Resources
Accounts receivable, including accounts receivable unbilled, increased at
September 30, 1996 to $16,931,000 from $13,638,000 at December 31, 1995. The
increase is due to larger shipments in the September 30, 1996 quarter over the
December quarter of 1995.
Inventories decreased from $20,161,000 at December 31, 1995, to $17,803,000 at
September 30, 1996 as a result of larger September shipments and an effort to
reduce inventory.
Accounts payable increased from $5,155,000 at December 31, 1995, to $6,186,000
at September 30, 1996, in part, as a result of preparation for larger sales
volume.
At September 30, 1996, the Company had working capital of $27,766,000 and a
current ratio of 3.52:1. This compares to working capital of $12,310,000 and a
current ratio of 1.51:1 at December 31, 1995.
On September 27, 1996, Datum completed the restructuring of its debt and added a
new partner, the Prudential Insurance Company of America, to its current
relationship of over twenty years with Wells Fargo Bank.
The agreements provide for an aggregate credit availability of $30,000,000. The
Prudential portion of the credit facility is $18,000,000 and includes the
following: (i) $6,000,000 of Series A senior secured promissory notes to mature
September 27, 2000, bearing interest at the rate of 9.07% on the unpaid
principal, payable quarterly, with the principal re-paid in equal installments
of $1,500,000 on March 27 and September 27 of each year, commencing March 27,
1999, and (ii) $12,000,000 of Series B senior secured promissory notes to mature
September 27, 2003, bearing interest at the rate of 10.25% on the unpaid
principal, payable quarterly, with the principal re-paid in equal installments
of $2,000,000 on March 27 and September 27 of each year, commencing March 27,
2001. In addition, Datum issued to Prudential common stock purchase warrants for
the purchase of 175,000 shares of common stock at a purchase price per share of
$11.50.
Under the Wells Fargo Bank agreement effective September 27, 1996, the Company
was extended a two-year revolving line of credit not to exceed the principal
amount of $12,000,000 bearing interest at the Bank's prime rate or at LIBOR plus
2.75%.
Under both agreements, the Company is required to maintain certain financial
ratios, limit other indebtedness and may not pay dividends. Other restrictions
include limitations on the amounts of leases and capital expenditures that may
be incurred.
The Company believes that its existing cash balances, funds expected to be
generated from operations and borrowings under its loan agreements with
Prudential and Wells Fargo, will provide the Company with sufficient funds to
finance its operations for at least the next 12 months. However, the Company may
require, or may otherwise seek, additional funds to support its working capital
requirements or for other purposes and may seek to raise such additional funds
through public or private equity and/or debit financings or from other sources.
No assurance can be given that additional financing will be available or that,
if available, such financing will be obtainable on terms favorable to the
Company.
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PART II. OTHER INFORMATION
Item 1 and Items 3 through 5 have been omitted because the related information
is either inapplicable or has been previously reported.
Item 2. Changes in Securities
(c) On September 27, 1996, the Company issued Notes to The Prudential
Insurance Company of America ("Prudential"). The Notes require the Company to
pay interest at a rate of 9.07% on Series A Notes and 10.25% on Series B Notes
and require the Company to repay the principal of the Notes on or before
September 27, 2000 on Series A Notes and September 27, 2003 on Series B Notes.
As part of the same transaction, the Company also issued warrants to purchase
Common Stock of the Company, exercisable at $11.50 per share. As consideration
for the issuance of the Notes and warrants, the Company received $17.50 from
Prudential. The foregoing transaction was completed without registration under
the Securities Act of 1933 in reliance upon Section 4(2) of said Act for
transactions not involving a public offering, among others, on the basis that
such transaction did not involve any public offering and the purchasers were
sophisticated and had access to the kind of information registration would
provide. Broker commissions, in the form of a finders fee, in the amount of
$180,000 were paid in connection with the foregoing transaction.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibit No. Description
----------- -----------
<S> <C>
10.21.1 First Amendment to Consulting Agreement, dated as
of March 1, 1996, between Louis B. Horwitz and
the Registrant.
10.30.5 Amended and Restated Credit Agreement, dated as
of September 27, 1996, by and between the
Registrant and Wells Fargo Bank, National
Association.
10.36 Note and Warrant Purchase Agreement, dated as of
September 27, 1996, by and between The Prudential
Insurance Company of America and the Registrant.
10.37 Common Stock Purchase Warrant, dated September
27, 1996.
10.38 Series A Note, dated September 27, 1996, in favor
of The Prudential Insurance Company of America.
10.39 Series B Note, dated September 27, 1996, in favor
of The Prudential Insurance Company of America.
27.3 Financial Data Schedule
</TABLE>
(b) No current reports on Form 8-K were filed during the quarter
covered by this report.
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<PAGE> 12
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 November 12, 1996
- --------------------------------------------- -------------------------
Louis B. Horwitz, President
/s/ David A. Young Date November 12, 1996
- --------------------------------------------- -------------------------
David A. Young, Chief Financial Officer
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<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
10.21.1 First Amendment to Consulting Agreement, dated as of March 1,
1996, between Louis B. Horwitz and the Registrant.
10.30.5 Amended and Restated Credit Agreement, dated as of September 27,
1996, by and between the Registrant and Wells Fargo Bank,
National Association.
10.36 Note and Warrant Purchase Agreement, dated as of September 27,
1996, by and between The Prudential Insurance Company of America
and the Registrant.
10.37 Common Stock Purchase Warrant, dated September 27, 1996.
10.38 Series A Note, dated September 27, 1996, in favor of The
Prudential Insurance Company of America.
10.39 Series B Note, dated September 27, 1996, in favor of The
Prudential Insurance Company of America.
27.3 Financial Data Schedule
</TABLE>
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<PAGE> 1
EXHIBIT 10.21.1
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
EXHIBIT 10.30.5
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT is entered into as
of September 27, 1996, by and between DATUM INC., a Delaware corporation
("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITALS
A. Borrower and Bank have executed and entered into a Credit
Agreement dated as of December 16, 1994, which Credit Agreement heretofore has
been amended from time to time, including amendments evidenced by (i) that
certain First Amendment to Credit Agreement dated as of August 31, 1995, (ii)
that certain Second Amendment to Credit Agreement dated as of November 1, 1995,
(iii) that certain Third Amendment to Credit Agreement dated as of March 14,
1996 and (iv) that certain Fourth Amendment to Credit Agreement dated as of June
6, 1996 (as so amended, the "Existing Credit Agreement").
B. Pursuant to the Existing Credit Agreement, Borrower has
executed and delivered to the order of Bank (i) that certain Revolving Line of
Credit Note dated August 31, 1995 in the original principal amount of up to
$14,000,000.00 (the "Prior Line of Credit Note"), (ii) that certain Promissory
Note dated March 17, 1995, in the original principal amount of $2,500,000.00
("Term Note I"), (iii) that certain Promissory Note dated March 17, 1995 in the
original principal amount of $2,500,000.00 ("Term Note II"), (iv) that certain
Promissory Note dated March 17, 1995 in the original principal amount of
$6,000,000.00 ("Term Note III") and (v) that certain Term Commitment Note dated
August 31, 1995, in the original principal amount of up to $2,000,000.00 (the
"Term Commitment Note"). The Prior Line of Credit Note, Term Note I, Term Note
II, Term Note III and Term Commitment Note are collectively referred to herein
as the "Existing Notes."
C. In connection with the credit accommodations made by Bank
pursuant to the Existing Credit Agreement and the Existing Notes, Borrower and
its Subsidiaries have executed and delivered to Bank numerous other loan and
security documents, including the "Existing Collateral Documents" (as defined
below), the "Existing Guaranties" (as defined below), letter of credit
agreements and the like. Such documents, together with the Existing Credit
Agreement and the Existing Notes are collectively referred to herein as the
"Existing Loan Documents."
D. The Prior Line of Credit Note is scheduled to mature on
October 7, 1996. Borrower has requested, and subject to the terms and conditions
contained herein, Bank has agreed to (i) extend the scheduled expiration date of
the Line of Credit originally evidenced by the Prior Line of Credit Note to
November 1, 1998 (provided that such Line of Credit shall be reduced to
$12,000,000), (ii) permit Borrower to issue the Series A Secured Notes and
Series B Secured Notes (collectively, the "Prudential Notes") referenced in that
certain Note and Warrant Purchase Agreement dated as of September 27, 1996 (the
"Prudential Agreement") by and between Borrower and The Prudential Insurance
Company of America ("Prudential") and (iii) enter into an intercreditor and
collateral agency arrangement with Prudential pursuant to which Bank shall
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act as collateral agent for and on behalf of itself and the "Noteholders" (as
defined below).
E. This Agreement is intended by Borrower and Bank as an
amendment and restatement of the Existing Credit Agreement as of the "Effective
Date" (as defined below). To the extent not repaid on the Effective Date,
amounts outstanding under the Prior Line of Credit Note shall be deemed to be
outstanding hereunder and evidenced by the "Line of Credit Note" (as defined
below). Amounts outstanding under the other Existing Notes shall be repaid in
full on or before the Effective Date, such repayment to be made with Borrower's
own funds and/or with proceeds obtained in connection with Borrower's issuance
of the Prudential Notes.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as
follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
Section 1.1 DEFINED TERMS. The following definitions are in
addition to those stated elsewhere in this Agreement:
"Advance" means an advance under the Line of Credit.
"Austron" means Austron, Inc., a Texas corporation.
"Borrowing Base" means, as of any date of determination, an
amount determined by Bank with reference to the most recent Borrowing Base
Certificate to be equal to the sum of:
(a) the Eligible Receivables Component; plus
(b) the Eligible Inventory Component, to a maximum of
$4,000,000; plus
(c) the Equipment Component; plus
(d) the Real Property Component; minus
(e) the aggregate amount outstanding under the
Prudential Notes then secured by Liens on the assets of the Borrowing
Base Parties which Liens are of equal priority as the Liens of Bank on
such assets;
provided, however, that (i) the aggregate outstanding Advances against the
Equipment Component and the Real Property Component (on a combined basis) shall
not at any time exceed $6,000,000 and (ii) if on such date the most recent
Borrowing Base Certificate is as of a date more than 60 days prior to such date,
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the Borrowing Base shall mean such amount as may be determined by Bank in its
sole discretion.
"Borrowing Base Certificate" means a borrowing base
certificate in the form of Exhibit A, properly completed and executed by an
officer of Borrower, on behalf of all of the Borrowing Base Parties.
"Borrowing Base Parties" means, for purposes of determining
the Borrowing Base and for certain reporting requirements, Borrower, Austron,
Efratom and Systems.
"Collateral" means all property, real or personal, in which
the Collateral Agent, on behalf of Bank, is granted a Lien in accordance with
the Intercreditor Agreement, this Agreement and the other Loan Documents.
"Collateral Agent" means Wells Fargo Bank, National
Association, in its capacity as collateral agent for Bank and the Noteholders
pursuant to the Intercreditor Agreement, or any successor collateral agent
thereunder.
"Credit" means the credit accommodation described in Article 2
hereof.
"Efratom" means Efratom Time and Frequency Products, Inc., a
Colorado corporation.
"Eligible Inventory" means, as of any date of determination,
"inventory" (as such term is defined in the California Uniform Commercial Code)
of the Borrowing Base Parties, excluding the following:
(a) inventory that is not wholly-owned by one or more
of the Borrowing Base Parties free and clear of all Liens and claims
other than Liens in favor of the Collateral Agent on behalf of Bank;
(b) inventory that is not located at locations with
respect to which all actions necessary to perfect the Collateral
Agent's Liens on such inventory have been taken or completed (or which
is in transit via common carrier from any such location to another such
location);
(c) inventory that is not held for sale or use in the
ordinary course of a Borrowing Base Party's business or is not of good
and merchantable quality;
(d) inventory that Bank has determined to be damaged,
defective, obsolete, unsalable, slow-moving or otherwise unfit for use;
(e) inventory consisting of work-in-process,
packaging materials, bags, boxes, capitalized freight and handling
costs or supplies and discontinued inventory;
(f) inventory covered by negotiable documents of
title that have not been delivered to Bank in pledge;
(g) inventory that has been placed on consignment;
and
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(h) inventory that has otherwise been deemed by Bank
(in its sole discretion) to be ineligible for purposes of computation
of the Eligible Inventory Component of the Borrowing Base.
"Eligible Inventory Component" means, in calculating the
Borrowing Base, twenty-five percent (25%) of the aggregate value of the
Borrowing Base Parties' then existing Eligible Inventory (as determined by Bank
based on such reports and collateral audits as Bank may require or otherwise
obtain), with value in each instance defined as the lower of cost or market
value, with cost values to be determined on a "direct cost" rather than an
"allocated cost" basis.
"Eligible Receivables" means, as of any date of determination,
accounts receivable of the Borrowing Base Parties as to which the Collateral
Agent, on behalf of Bank, holds a first priority perfected Lien, provided that
such accounts receivable have been created in the ordinary course of business of
such Borrowing Base Parties, as applicable, and shall not include:
(a) any account which is past due more than twice the
applicable Borrowing Base Party's standard selling terms, except with
respect to any account for which a Borrowing Base Party has provided
extended payment terms not to exceed one hundred eighty (180) days, any
such account which is more than thirty (30) days past due;
(b) any account with respect to which payment is or
may be contingent or conditional in any respect;
(c) any account for which there exists any right of
setoff, defense or discount (except regular discounts allowed in the
ordinary course of business to promote prompt payment) or for which any
defense or counterclaim has been asserted;
(d) to the extent such accounts exceed ten percent
(10%) of the Borrowing Base Parties' total Eligible Receivables,
accounts representing obligations of state or municipal governments or
of the United States government or political subdivisions thereof
unless such accounts represent obligations of the United States
government and Bank's forms N-138 and N-139 have been duly executed and
acknowledged with respect thereto;
(e) to the extent such accounts exceed five percent
(5%) of the Borrowing Base Parties' total Eligible Receivables,
accounts representing obligations of account debtors located in foreign
countries, except to the extent any such account, in Bank's
determination, is supported by a letter of credit or insured under a
policy of foreign credit insurance, in each case in form, substance and
issued by a party acceptable to Bank;
(f) any account which arises from the sale or lease
to or performance of services for, or represents an obligation of, an
employee, affiliate, partner, member, parent or Subsidiary of any
Borrowing Base Party;
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(g) that portion of any account which represents
interim or progress billings or retention rights on the part of the
account debtor;
(h) any account which represents an obligation of any
account debtor when twenty percent (20%) or more of the combined
accounts owing from such account debtor to the Borrowing Base Parties
are not eligible pursuant to item (a) above;
(i) that portion of any account from an account
debtor other than Lucent Technologies Inc. (successor to AT&T Corp.)
("Lucent") which represents the amount by which the Borrowing Base
Parties' total accounts from said account debtor on a combined basis
exceeds twenty-five percent (25%) of the Borrowing Base Parties' total
accounts on a combined basis; that portion of any account from Lucent
which represents the amount by which the Borrowing Base Parties' total
accounts from Lucent exceeds thirty-five percent (35%) of the Borrowing
Base Parties' total accounts on a combined basis; and/or
(j) any account deemed ineligible by Bank when Bank,
in its sole discretion, deems the creditworthiness or financial
condition of the account debtor, or the industry in which the account
debtor is engaged, to be unsatisfactory.
"Eligible Receivables Component" means, in calculating the
Borrowing Base (but subject to Section 2.1(b)), eighty percent (80%) of the
aggregate book value of the Borrowing Base Parties' then existing Eligible
Receivables, as determined by Bank upon receipt and review of such collateral
reports and other documents as Bank may require.
"Equipment Component" means, in calculating the Borrowing
Base, eighty percent (80%) of the orderly liquidation value of the Borrowing
Base Parties' equipment and other fixed assets (other than the Real Property
Collateral) as to which the Collateral Agent, on behalf of Bank, has a first
priority perfected Lien, with such value determined by Bank upon receipt and
review of such collateral reports, appraisals, audits and other documents as
Bank may require from time to time.
"Existing Collateral Documents" means, collectively, the
Existing Security Agreements, Tozer Road Mortgage Documents, and Vision Drive
Mortgage, in each case as the same may from time to time have been amended,
supplemented, restated or otherwise modified.
"Existing Guaranties" means, collectively, the continuing
guaranties heretofore executed and delivered by Austron, Efratom and Systems to
Bank for the purpose of guarantying Borrower's obligations under the Existing
Credit Agreement and Existing Notes.
"Existing Letter of Credit" means the existing Letter of
Credit described in Section 2.1(d).
"Existing Security Agreements" means, collectively, the
security agreements, pledge agreements, assignments, UCC-1 financing statements,
fixture filings, consents and other collateral security documents heretofore
executed and
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delivered to Bank in connection with the Existing Credit Agreement granting
Liens to Bank, or perfecting, effecting, facilitating, consenting to, providing
notice of, or otherwise evidencing such Liens, in each case as the same may have
been amended, supplemented, restated or otherwise modified.
"Guarantors" means, collectively, Austron, Efratom, Systems
and any other person or entity which at any time furnishes Bank (or Collateral
Agent, on Bank's behalf) with a guaranty in accordance with this Agreement.
"Junior Secured Obligations" shall have the meaning specified
for such term in the Intercreditor Agreement.
"Intercreditor Agreement" means the Intercreditor and
Collateral Agency Agreement of even date herewith by and among the Noteholders,
Bank, Collateral Agent and Borrower, either as originally executed or as the
same may from time to time be amended, restated or otherwise modified.
"Letter of Credit" or "Letters of Credit" means any one or
more of the standby letters of credit described in Section 2.1(d).
"Leverage Ratio" shall have the meaning specified for such
term in Section 5.9(b).
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment for security, security interest, encumbrance, lien or
charge of any kind, whether voluntarily incurred or arising by operation of law
or otherwise, affecting any property, including any agreement to grant any of
the foregoing, any conditional sale or other title retention agreement, any
lease in the nature of a security interest, and/or the filing of or agreement to
give any financing statement (other than a precautionary financing statement
with respect to a lease that is not in the nature of a security interest) under
the Uniform Commercial Code or comparable law of any jurisdiction with respect
to any property.
"Line of Credit" means the revolving line of credit described
in Section 2.1(a).
"Line of Credit Note" means the promissory note described in
Section 2.1(a).
"Line of Credit Termination Date" means November 1, 1998.
"Loan Documents" shall have the meaning set forth for such
term in Section 3.2.
"Loan Party" means Borrower, Austron, Efratom, Systems, any
other Guarantor, any other person or entity which at any applicable time
furnishes Bank with any Collateral and any other person or entity which at any
applicable time becomes a party to any of the Loan Documents.
"Noteholders" means, collectively and as of any date of
determination, the holders of the Prudential Notes as of such date.
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"Opinion of Counsel" means the favorable written legal opinion
of Stradling, Yocca, Carlson & Rauth, counsel to the Loan Parties, substantially
in the form of Exhibit B, together with copies of all factual certificates and
legal opinions upon which such counsel has relied.
"Real Property Collateral" means, as of any date of
determination, the real property owned by the Borrowing Base Parties in which
the Collateral Agent, on behalf of Bank, has a first priority perfected Lien. As
of the Effective Date, the Real Property Collateral consists solely of the Tozer
Road Property and the Vision Drive Property.
"Real Property Component" means, in calculating the Borrowing
Base, seventy-five percent (75%) of the appraised value of the Real Property
Collateral as determined from time to time by Bank in its sole judgment.
"Subsidiary" means any corporation fifty percent (50%) or more
of whose securities having ordinary voting power for the election of directors
(other than securities having such power only by reason of the happening of a
contingency) are at any applicable time owned, directly or indirectly, by
Borrower and/or one or more Subsidiaries.
"Systems" means Frequency & Time Systems, Inc., a Delaware
corporation.
"Tozer Road Mortgage Documents" means, collectively, (a) the
Mortgage Deed and Security Agreement dated March 17, 1995, executed by Systems
in favor of Bank and recorded April 21, 1995 in Book 12992, Page 70, with the
Essex South Registry of Deeds, Essex County, Massachusetts, and filed as
Document No. 307740 with the Essex South Registry District of the Land Court,
Essex County, Massachusetts and (b) the Collateral Assignment of Leases and
Rents dated March 17, 1995, executed by Systems in favor of Bank and recorded
April 21, 1995, in Book 12992, Page 89, with the Essex South Registry of Deeds,
Essex County, Massachusetts, and filed as Document No. 307741 with Essex South
Registry District of the Land Court, Essex County, Massachusetts.
"Tozer Road Real Property" means that certain real property
owned by Systems located in the City of Beverly, County of Essex, State of
Massachusetts, more particularly described in Exhibit A to the Tozer Road
Mortgage.
"Vision Drive Mortgage" means that certain Deed of Trust,
Assignment of Rents and Security Agreement dated March 17, 1995, executed by
Austron in favor of Bank and recorded March 20, 1995, in the real property
records of Travis County, Texas in Volume 12397, Page 1130.
"Vision Drive Real Property" means that certain real property
owned by Austron located in the City of Pflugerville, County of Travis, State of
Texas, more particularly described in Exhibit A to the Vision Drive Mortgage.
Section 1.2 SINGULAR AND PLURAL TERMS. Any defined term used
in the plural in any Loan Document shall refer to all members of the relevant
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class and any defined term used in the singular shall refer to any number of the
members of the relevant class.
Section 1.3 ACCOUNTING PRINCIPLES. Any accounting term used
and not specifically defined in any Loan Document shall be construed in
conformity with, and all financial data required to be submitted under any Loan
Document shall be prepared in conformity with, generally accepted accounting
principles applied on a consistent basis.
Section 1.4 EXHIBITS INCORPORATED. All exhibits to this
Agreement, as now existing and as the same may from time to time be modified,
are incorporated herein by this reference.
Section 1.5 REFERENCES. Any reference to any Loan Document or
other document shall include such document both as originally executed and as it
may from time to time be supplemented, modified, amended, restated or extended.
References herein to Articles, Sections and Exhibits shall be construed as
references to this Agreement unless a different document is named. References to
subparagraphs shall be construed as references to the same Section in which the
reference appears.
Section 1.6 OTHER TERMS. The term "document" is used in its
broadest sense and encompasses agreements, certificates, opinions, consents,
instruments and other written material of every kind. The terms "including" and
"include" mean "including (include) without limitation." The requirement that
any party "deliver" any item to another party shall be construed to require that
the first party "deliver or cause to be delivered" such item to the second
party. The term "any," as a modifier to any noun, shall be construed to mean
"any and/or all" preceding the same noun in the plural. The terms "modify" and
"modification," when used with reference to any document or obligation, include
amendments, supplements, renewals, extensions, waivers, terminations and other
modifications of every kind. The terms "law" and "laws," unless otherwise
modified, mean, collectively, all federal, state and local laws, rules,
regulations, codes and administrative and judicial precedents. The terms
"herein," "hereunder" and other similar compounds of the word "here" refer to
the entire document in which the term appears and not to any particular
provision or section of the document. This Section 1.6 shall apply to all of the
Loan Documents.
Section 1.7 HEADINGS. Article and section headings are
included in the Loan Documents for convenience of reference only and shall not
be used in construing the Loan Documents.
ARTICLE 2
THE CREDIT
Section 2.1 LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions of
this Agreement, Bank hereby agrees to make Advances to Borrower from time to
time up to and including the Line of Credit Termination Date, not to exceed at
any time the aggregate principal amount of Twelve Million and No/100 Dollars
($12,000,000.00) ("Line of Credit"), the proceeds of which shall be used for
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general working capital purposes. Borrower's obligation to repay Advances under
the Line of Credit shall be evidenced by a promissory note substantially in the
form of Exhibit C attached hereto ("Line of Credit Note"), all terms of which
are incorporated herein by this reference.
(b) Limitation on Borrowings. Notwithstanding any other
provision of this Agreement, the aggregate amount of all outstanding borrowings
under the Line of Credit shall at no time exceed the Borrowing Base as
determined by Bank. In that regard, Borrower acknowledges and agrees that Bank
may from time to time, in its sole and absolute discretion (i) establish such
reserves against the various components of the Borrowing Base as Bank deems
necessary and proper and (ii) increase or decrease the percentages applicable to
each of the Borrowing Base components. Without in any way limiting the
foregoing, Borrower acknowledges that the advance rate against Eligible
Receivables was established by Bank with the understanding that, among other
items, the aggregate of all returns, rebates, discounts, credits and allowances
for the immediately preceding three (3) months at all times shall be less than
five percent (5%) of the Borrowing Base Parties' aggregate gross sales for said
period. If such dilution of such accounts of the Borrowing Base Parties' for the
immediately three (3) months at any time exceeds five percent (5%) of the
Borrowing Base Parties' aggregate gross sales for said period, or if there at
any time exists any other matter, event, condition or contingency that Bank
reasonably believes may affect payment of any portion of the Borrowing Base
Parties' accounts, Bank, in its sole discretion, may reduce said advance rate to
a percentage appropriate to reflect such additional dilution and/or establish
additional reserves against the Borrowing Base Parties' Eligible Receivables.
(c) Borrowing and Repayment. Borrower may from time to time
during the term of the Line of Credit borrow, partially or wholly repay its
outstanding borrowings, and reborrow, subject to all of the limitations, terms
and conditions contained herein or in the Line of Credit Note; provided,
however, that the total outstanding borrowings under the Line of Credit shall
not at any time exceed the maximum principal amount available thereunder, as set
forth above.
(d) Letter of Credit Subfeature.
(i) As a subfeature under the Line of Credit, Bank
agrees from time to time up to and including the Line of
Credit Termination Date 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 under this subfeature 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 three hundred sixty-five (365) days, as
designated by Borrower; provided, however, that no Letter of
Credit under this subfeature shall have an expiration date
subsequent to May 1, 1999 unless otherwise approved by Bank.
(ii) The undrawn amount of all Letters of Credit under
this subfeature shall be reserved under the Line of Credit and
shall not be available for Advances thereunder. Each Letter of
Credit shall be
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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 of such Letter of Credit
(each individually, a "Letter of Credit Agreement" and
collectively, "Letter of Credit Agreements"). Each draft paid
by Bank under a Letter of Credit under this subfeature
(including under the "Existing Letters of Credit", as such
term is defined below) shall be deemed an Advance under the
Line of Credit and shall repaid in accordance with the terms
and conditions of this Agreement applicable to such Advances;
provided, however, that if the Line of Credit is not
available, for any reason whatsoever, at the time any draft is
paid by Bank, or if Advances are not available under the Line
of Credit at such time due to any limitation on borrowings set
forth herein, 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, in its sole discretion, may debit
any demand deposit account maintained by Borrower with Bank
for the amount of any draft. As of September 27, 1996, there
is a Letter of Credit outstanding in the face amount of One
Hundred Twenty-Two Thousand Six Hundred Twenty Dollars
($122,620.00) in favor of Telstra Corporation Ltd. (the
"Existing Letter of Credit"); however, there are no
outstanding drafts or Advances paid under this subfeature by
Bank. The face amount of the Existing Letter of Credit shall
be deemed to be outstanding under this subfeature subject to
all terms and conditions applicable hereto.
Section 2.2 INTEREST/FEES.
(a) Interest. The outstanding principal balance of the Line of
Credit shall bear interest at the rate of interest set forth in the Line of
Credit Note.
(b) Computation and Payment. Interest shall be computed on the
basis of a 360-day year, actual days elapsed. Interest shall be payable at the
times and place set forth in the Line of Credit Note.
(c) Loan Fee. On or before the Effective Date, Borrower shall
pay to Bank a non-refundable loan fee of $30,000.00.
(d) Unused Commitment Fee. From the Effective Date, Borrower
shall pay to Bank a commitment fee equal to one-quarter percent (0.250%) per
annum times the average daily unused portion of the Line of Credit, provided
however, that the foregoing percentage shall be reduced to one-eighth percent
(0.125%) if Borrower's Leverage Ratio shall be less than 0.50 to 1.00 as of the
last day of any fiscal quarter ending after the Effective Date. Such commitment
fee shall be payable quarterly in arrears on the last day of each calendar
quarter and on the Maturity Date.
(e) 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 the transfer,
amendment or
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cancellation of any Letter of Credit) determined in accordance with Bank's
standard fees and charges then in effect for such activity.
Section 2.3 COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect
all principal, interest and fees due under the Line of Credit by charging
Borrower's demand deposit account number 4643-084544 with Bank, or any other
demand deposit account maintained by Borrower with Bank, for the full amount
thereof. Should there be insufficient funds in any such demand deposit account
to pay all such sums when due, the full amount of such deficiency shall be
immediately due and payable by Borrower.
Section 2.4 FAILURE TO CHARGE NOT SUBSEQUENT WAIVER. Any decision by
Bank not to require payment of any interest (including default interest), fee,
cost or other amount payable under any "Loan Document" (as defined below) upon
any occasion shall in no way limit or be deemed a waiver of Bank's right to
require full payment of any interest (including default interest), fee, cost or
other amount payable under any Loan Document on any other or subsequent
occasion.
Section 2.5 COLLATERAL.
(a) Borrower Collateral. As security for all indebtedness of
Borrower to Bank under this Agreement and the other Loan Documents, Borrower
hereby grants to the Collateral Agent, on behalf of Bank, Liens of first
priority in all Borrower's personal property, including all accounts, rights to
payment, general intangibles (including patents and patent applications),
chattel paper, deposit accounts, instruments, documents, inventory, equipment,
furniture, fixtures and products and proceeds of all of the foregoing.
(b) Subsidiary Collateral. As further security for all
indebtedness of Borrower to Bank under this Agreement and the other Loan
Documents, Borrower shall cause:
(i) Austron, Efratom and Systems to grant to the
Collateral Agent, on behalf of Bank, Liens of first priority
in all of their respective personal property including all
accounts, rights to payment, general intangibles (including
patents and patent applications), chattel paper, deposit
accounts, instruments, inventory, equipment, furniture,
fixtures and products and proceeds of all of the foregoing;
(ii) Austron to grant to the Collateral Agent, on
behalf of Bank, a Lien of not less than first priority on the
Vision Drive Real Property; and
(iii) Systems to grant to the Collateral Agent, on
behalf of Bank, a Lien of not less than first priority on the
Tozer Road Real Property.
(c) Documentation; Reimbursement of Costs. All of the
foregoing shall be evidenced by and subject to the terms of such deeds of trust,
mortgages, security agreements, pledge agreements, assignments, financing
statements and other documents as the Collateral Agent and Bank shall reasonably
require, all in form and substance satisfactory to the Collateral Agent and
Bank. Borrower shall
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reimburse the Collateral Agent and Bank immediately upon demand for all costs
and expenses incurred by the Collateral Agent and Bank in connection with any of
the foregoing security, including filing and recording fees and costs of
appraisals, audits and title insurance.
Section 2.6 GUARANTIES. All indebtedness of Borrower to Bank under this
Agreement and the other Loan Documents, shall be guaranteed by each of the
Guarantors, as evidenced by and subject to the terms of one or more guaranties
in form and substance satisfactory to Bank.
Section 2.7 SUBORDINATION OF DEBT. All obligations of Borrower to the
Noteholders with respect to the Series B Prudential Notes, shall be subordinated
in right of repayment to all obligations of Borrower to Bank, as evidenced by
and subject to the terms of subordination documents in form and substance
satisfactory to Bank.
Section 2.8. LOAN ADMINISTRATION. From and after the Effective Date,
Bank may establish certain procedures and administrative requirements to be
satisfied from time to time by Borrower in connection with Borrower's requests
for Advances and the issuance of Letters of Credit under the Line of Credit.
Such procedures may include the periodic submission of information not otherwise
described herein. In connection with the foregoing and, in particular, with
respect to the periodic calculation of the Borrowing Base and the various
components thereof, Borrower acknowledges that Bank may conduct periodic audits
and appraisals of the Collateral, at such intervals as Bank may reasonably
require and that such audits and appraisals may be performed by employees of
Bank or by independent parties. The costs and expenses of such loan monitoring
and administration, including audits and appraisals, shall be reimbursed by
Borrower upon demand by Bank.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to
Bank, which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge, of all obligations of Borrower to Bank
subject to this Agreement.
Section 3.1 LEGAL STATUS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the State of Delaware, and is
qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower. Austron, Efratom and Systems
are corporations, duly organized and existing and in good standing under the
laws of their state of incorporation, and are qualified or licensed to do
business (and are in good standing as foreign corporations, if applicable) in
all jurisdictions in which such qualification or licensing is required or in
which the failure to so qualify or to be so licensed could have a material
adverse effect on any of them.
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Section 3.2 AUTHORIZATION AND VALIDITY. This Agreement, the Line of
Credit Note, and each other document, contract and instrument required hereby or
at any time hereafter delivered to Bank, or to the Collateral Agent on behalf of
Bank, in connection herewith (collectively and, in each case either as
originally executed or as the same may from time to time be amended,
supplemented, restated or otherwise modified, the "Loan Documents") have been
duly authorized, and upon their execution and delivery in accordance with the
provisions hereof will constitute legal, valid and binding agreements and
obligations of Borrower or the other Loan Party which executes the same,
enforceable in accordance with their respective terms.
Section 3.3 NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws or result in any breach of or default under any contract, obligation,
indenture or other instrument to which Borrower is a party or by which Borrower
may be bound. The execution, delivery and performance by each other Loan Party
of each of the Loan Documents to which it may be a party do not violate any
provision of any law or regulation, or contravene any provision of any formation
document of any Loan Party, or result in a breach or constitute a default under
any contract, obligation, indenture or other instrument to which any Loan Party
is a party or by which any Loan Party may be bound.
Section 3.4 LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower or any other Loan Party other than
those disclosed by Borrower to Bank in writing prior to the date hereof.
Section 3.5 CORRECTNESS OF FINANCIAL STATEMENT. The consolidated
financial statement of Borrower and its Subsidiaries dated June 30, 1996, a true
copy of which has been delivered by Borrower to Bank prior to the date hereof,
(a) is complete and correct and presents fairly the financial condition of
Borrower and its Subsidiaries, (b) discloses all liabilities of Borrower and its
Subsidiaries that are required to be reflected or reserved against under
generally accepted accounting principles, whether liquidated or unliquidated,
fixed or contingent, and (c) has been prepared in accordance with generally
accepted accounting principles consistently applied. Since the date of such
financial statement there has been no material adverse change in the financial
condition of Borrower and its Subsidiaries, nor has Borrower or any Subsidiary
of Borrower mortgaged, pledged, granted a Lien in or otherwise encumbered any of
its assets or properties except (i) in favor of Bank, (ii) pursuant to the terms
and conditions of the Prudential Agreement or (iii) as otherwise permitted by
Bank in writing.
Section 3.6 INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its or any other Loan Party's income tax
payable with respect to any year.
Section 3.7 NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower or any other Loan Party is a party or
by which Borrower or any other Loan Party may be bound that requires the
subordination in right of payment of any of Borrower's or such Loan Party's
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obligations subject to this Agreement to any other obligation of Borrower or any
other Loan Party.
Section 3.8 PERMITS, FRANCHISES. Borrower and each other Loan Party
possess, and will hereafter possess, all permits, franchises and licenses
required and rights to all trademarks, trade names, patents, and fictitious
names, if any, necessary to enable each of them to conduct the business in which
they are now engaged in compliance with applicable law, and without conflict
with the rights of others.
Section 3.9 ERISA. Borrower and each other Loan Party are in compliance
in all material respects with all applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended or recodified from time to
time ("ERISA"); neither Borrower nor any other Loan Party has violated any
provision of any defined employee pension benefit plan (as defined in ERISA)
maintained or contributed to by any of them (each, a "Plan"); no Reportable
Event as defined in ERISA has occurred and is continuing with respect to any
Plan initiated by Borrower or any other Loan Party; Borrower and each Loan Party
have met their minimum funding requirements under ERISA with respect to each
Plan; and each Plan will be able to fulfill its benefit obligations as they come
due in accordance with the Plan documents and under generally accepted
accounting principles.
Section 3.10 OTHER OBLIGATIONS. Neither Borrower nor any other Loan
Party is in default on any obligation for borrowed money, any purchase money
obligation or any other material lease, commitment, contract, instrument or
obligation.
Section 3.11 DIVISIONS, TRADE NAMES, ETC. Schedule 3.11 to this
Agreement sets forth all trade names and trade styles (including all so-called
"divisions") used by Borrower or any of its Subsidiaries at any time within the
five (5) year period ending on the date of this Agreement.
Section 3.12 ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower and each other Loan Party are
in compliance in all material respects with all applicable Federal or state
environmental, hazardous waste, health and safety statutes, and any rules or
regulations adopted pursuant thereto, which govern or affect any of Borrower's
operations and/or properties, including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, the Federal Toxic Substances Control Act and the California Health and
Safety Code, as any of the same may be amended, modified or supplemented from
time to time. None of the operations of Borrower or any other Loan Party is the
subject of any Federal or state investigation evaluating whether any remedial
action involving a material expenditure is needed to respond to a release of any
toxic or hazardous waste or substance into the environment. Neither Borrower nor
any other Loan Party has any material contingent liability in connection with
any release of any toxic or hazardous waste or substance into the environment.
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ARTICLE 4
CONDITIONS
Section 4.1 CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to grant any credit contemplated by this Agreement is subject to the
fulfillment to Bank's satisfaction of all of the following conditions on or
before September 27, 1996 (with the date all such conditions are satisfied (or
waived by Bank in writing) being the "Effective Date"):
(a) Approval of Bank Counsel. All legal matters incidental to
the extension of credit by Bank shall be satisfactory to Bank's counsel.
(b) Documentation. Bank shall have received, in form and
substance satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Line of Credit Note.
(ii) With respect to Letters of Credit, a Letter of
Credit Agreement and Fax Agreement.
(iii) From each Loan Party, such assignments of, and
amendments to, the Existing Collateral Documents as Bank or the
Collateral Agent may require, pursuant to which, among other things,
the Collateral Agent shall be assigned the secured party's interest
thereunder to act as collateral agent for and on behalf of Bank and the
Noteholders.
(iv) Without limiting the foregoing subsection (iii),
assignments and amendments of the Tozer Road Mortgage Documents and the
Vision Drive Mortgage, in each case in form suitable for recording in
the applicable county records, pursuant to which, among other things,
the Collateral Agent shall be assigned the lienholder's interest
thereunder to act as collateral agent for and on behalf of Bank and the
Noteholders.
(v) Such UCC-1 financing statements and UCC-2
financing statement amendments as Bank or the Collateral Agent may
require.
(vi) A deposit account agreement executed by Borrower
and each financial institution (other than Bank) with whom any Loan
Party maintains depository relationships.
(vii) An Amended, Restated and Consolidated Guaranty
executed by each Guarantor.
(viii) Policies of title insurance (or endorsements
to existing title insurance policies, if available) insuring the
continued priority of the Liens granted Bank on the Tozer Road Real
Property and the Vision Drive Real Property (as such Liens are assigned
to the Collateral Agent in connection herewith) after giving effect to
recordation of the assignments and amendments described in subsection
(iv) above.
(ix) With respect to each Loan Party, such
documentation as Bank may require to establish the due organization,
valid existence and good standing of such parties, their qualification
to engage in business in
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each jurisdiction in which they are engaged in business or required to
be so qualified, their authority to execute, deliver and perform any
Loan Documents to which they are a party, and the identity, authority
and capacity of each responsible official thereof authorized to act on
their behalf, including certified copies of articles of incorporation
and amendments thereto, bylaws and amendments thereto, certificates of
good standing and/or qualifications to engage in business, certified
corporate resolutions, incumbency certificates, certificates of
responsible officials, and the like.
(x) The Opinion of Counsel.
(xi) Such other certificates, documents, instruments,
consents and opinions as Bank or the Collateral Agent may require.
(c) Delivery of Pledged Collateral. Each applicable Loan Party
shall have delivered, or caused to be delivered, to the Collateral Agent, on
behalf of Bank, all Collateral pledged to the Collateral Agent pursuant to the
Loan Documents, including any and all capital stock required to be pledged to
the Collateral Agent according to the terms of the Loan Documents, together with
executed stock powers (in blank) relating thereto.
(d) Recordation of Assignments Documents. The assignments and
amendments described in subsection (b)(iv) above shall have been recorded in the
applicable real estate records where the Real Property Collateral is located and
any financing statements or amendments to financing statements shall have been
recorded or filed, as appropriate, where required to perfect the Collateral
Agent's Liens on the Collateral contemplated by the terms hereof and of the
other Loan Documents.
(e) Financial Condition. There shall have been no material
adverse change, as determined by Bank, in the financial condition or business of
Borrower or any other Loan Party hereunder, nor any material decline, as
determined by Bank, in the market value of any Collateral required hereunder or
a substantial or material portion of the assets of Borrower or any such other
Loan Party.
(f) Insurance. Borrower shall have delivered to Bank and the
Collateral Agent evidence of insurance coverage on all Loan Party's property, in
form, substance, amounts, covering risks and issued by companies satisfactory to
Bank, and where required by the Collateral Agent, with loss payable endorsements
(on Form BFU-438) in favor the Collateral Agent, on behalf of Bank.
(g) Collateral Audit. Bank shall have completed, at Borrower's
cost, a collateral audit and examination from an auditor acceptable to Bank and
in form, substance and reflecting collateral values satisfactory to Bank in its
sole discretion.
(h) No Event of Default. No Event of Default, and no event or
act which with the giving of notice or the passage of time or both would
constitute an Event of Default, shall have occurred hereunder or under the
Existing Credit Agreement.
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(i) Prudential Transaction. Borrower's issuance of the
Prudential Notes shall have been completed pursuant to the Prudential Agreement
and otherwise in accordance with all applicable laws, Borrower shall have
received not less than $18,000,000 in cash proceeds from the issuance of the
Prudential Notes, and the Intercreditor Agreement shall have been executed and
delivered by all parties thereto.
(j) Bank's Fees. Borrower shall have paid the Collateral
Agent's and Bank's costs and expenses as required by this Agreement, including
(i) the estimated fees and disbursements (subject to adjustment upon final
accounting of outside counsel to the Collateral Agent and Bank and the allocated
costs of the Collateral Agent's and Bank's in-house counsel), and (ii) costs and
expenses incurred by the Collateral Agent and Bank in connection with all
diligence, appraisals and audits, as well as recording and filing fees related
hereto.
ARTICLE 5
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in
writing:
Section 5.1 PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein, and immediately upon demand by Bank,
the amount by which the outstanding principal balance of the Line of Credit at
any time exceeds any limitation on borrowings applicable thereto.
Section 5.2 ACCOUNTING RECORDS. Maintain, and cause each other Loan
Party to maintain, adequate books and records in accordance with generally
accepted accounting principles consistently applied, and permit any
representative of Bank, at any reasonable time, to inspect, audit and examine
such books and records, to make copies of the same, and to inspect the
properties of Borrower and of each other Loan Party.
Section 5.3 FINANCIAL STATEMENTS. Provide to Bank all of the following,
in form and detail satisfactory to Bank:
(a) As soon as available, but in no event later than 120 days
after and as of the end of each fiscal year, (i) the consolidated balance sheet
of Borrower and its Subsidiaries as of the end of such fiscal year and the
consolidated statements of income, stockholders' equity and cash flows of
Borrower and its Subsidiaries for such fiscal year, and (ii) consolidating
balance sheets and statements of income and cash flows, in each case as at the
end of and for such fiscal year, all in reasonable detail, and presented in a
manner comparing such financial statements to corresponding figures from the
preceding annual financial statements. Such financial statements shall be
prepared in accordance with generally accepted accounting principles,
consistently applied, and such consolidated balance sheet and consolidated
statements shall be
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accompanied by a report of independent public accountants of recognized standing
selected by Borrower and reasonably satisfactory to Bank, which report shall be
prepared in accordance with generally accepted auditing standards as at such
date, and shall not be subject to any qualifications or exceptions as to the
scope of the audit nor to any other qualification or exception determined by
Bank to be adverse to the interest of Bank;
(b) As soon as available, but in no event later than 45 days
after and as of the end of each fiscal quarter, (i) the consolidated balance
sheet of Borrower and its Subsidiaries as at the end of such fiscal quarter and
the consolidated statements of income, stockholders' equity and cash flows of
Borrower and its Subsidiaries for the period from the beginning of the fiscal
year to the end of such fiscal quarter, and (ii) the consolidating balance
sheets and statements of income and cash flows of Borrower and its Subsidiaries
as at the end of such fiscal quarter, all in reasonable detail, and presented in
a manner comparing such figures for the corresponding period in the preceding
fiscal year, and certified by an authorized financial officer of Borrower as
fairly presenting the financial condition, results of operations and cash flows
of Borrowers and its Subsidiaries in accordance with generally accepted
accounting principles, consistently applied, as at such date and for such
periods, subject only to normal year-end-accruals and audit adjustments;
(c) As soon as available, but in no event later than 15 days
after and as of the end of each month, a Borrowing Base Certificate, an
inventory collateral report, an aged listing of accounts receivable and accounts
payable, and a reconciliation of accounts, and not later than 90 days after and
as of the end of each fiscal year end, a list of the names and addresses of all
account debtors of each Borrowing Base Party;
(d) As soon as available, but in no event later 45 days after
and as of the end of each fiscal quarter, a financial statement of each
Guarantor, prepared by each Guarantor, to include a balance sheet, income
statement, and a statement of cash flows;
(e) contemporaneously with each annual and quarterly financial
statement of Borrower required hereby, a certificate of the president or chief
financial officer of Borrower that said financial statements are accurate and
that there exists no Event of Default nor any condition, act or event which with
the giving of notice or the passage of time or both would constitute an Event of
Default;
(f) As soon as available, but in no event later than 30 days
after the first day of each fiscal year, a budget and projection by fiscal
quarter for that fiscal year including projected consolidated and consolidating
balance sheets, statements of income and cash flows of Borrowers and its
Subsidiaries, all in reasonable detail, and setting forth in each case in
comparative form, consolidating and consolidated figures from the corresponding
period in the prior fiscal year;
(g) Promptly after the same are available, copies of each
annual report, proxy or financial statement or other report or communication
sent to the stockholders of Borrower, and copies of all annual, regular,
periodic and special reports and registration statements which Borrower may file
or be required to with the Securities and Exchange Commission (or any other
governmental agency or
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authority succeeding to the function and operations of the Securities and
Exchange Commission);
(h) Promptly upon receipt thereof, copies of any audit
reports, management letters or recommendations submitted to the board of
directors (or the audit committee of the board of directors) of Borrower or any
Subsidiary by independent accounts in connection with the accounts or books of
Borrower of any of its Subsidiaries, or any annual, interim or special audit or
any of them; and
(i) from time to time such other information as Bank may
reasonably request.
Section 5.4 COMPLIANCE. Preserve and maintain, and cause each other
Loan Party to preserve and maintain, all licenses, permits, governmental
approvals, rights, privileges and franchises necessary for the conduct of its
business; conduct, and cause each Guarantor to conduct, its business in an
orderly and regular manner; and comply, and cause such Guarantor to comply, with
the provisions of all documents pursuant to which it is organized and/or which
govern its continued existence and with the requirements of all laws, rules,
regulations and orders of any governmental authority applicable to it and/or its
business.
Section 5.5 INSURANCE. Maintain and keep in force, and cause each other
Loan Party to maintain and keep in force, insurance of the types and in amounts
customarily carried in lines of business similar to that of Borrower and the
Guarantors, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth all
insurance then in effect.
Section 5.6 FACILITIES. Keep, and cause each other Loan Party to keep,
all properties useful or necessary to keep its business in good repair and
condition, and from time to time make necessary repairs, renewals and
replacements thereto so that such properties shall be fully and efficiently
preserved and maintained.
Section 5.7 TAXES AND OTHER LIABILITIES. Pay and discharge when due,
and cause each other Loan Party to pay and discharge when due, any and all
indebtedness, obligations, assessments and taxes, both real or personal,
including Federal and state income taxes and state and local property taxes and
assessments, except such (a) as Borrower or any other Loan Party may in good
faith contest or as to which a bona fide dispute may arise, and (b) for which
Borrower or any other Loan Party has made provision, to Bank's satisfaction, for
eventual payment thereof in the event Borrower or any other Loan Party is
obligated to make such payment.
Section 5.8 LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower or any other Loan Party with a
claim in excess of $150,000.00.
Section 5.9 FINANCIAL CONDITION. Maintain the consolidated financial
condition of Borrower and its Subsidiaries as follows using generally accepted
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accounting principles consistently applied and used consistently with prior
practices (except to the extent modified by the definitions herein):
(a) Current Ratio not at any time less than 2.00 to 1.00, for
the period commencing on the Effective Date and ending December 31, 1997 and not
at any time less than 2:25 to 1.00 at any time thereafter, with "Current Ratio"
defined as total current assets divided by total current liabilities. In
calculating the foregoing, outstanding Advances on the Line of Credit and the
undrawn amount of all Letters of Credit shall be deemed current liabilities.
(b) Leverage Ratio not greater than 1.00 to 1.00, at any time
during the period commencing on the Effective Date and ending December 31, 1997
and not greater than 0.75 to 1.00 at any time thereafter, with "Leverage Ratio"
defined as Total Liabilities divided by Tangible Net Worth. For purposes of the
foregoing, "Total Liabilities" shall mean the aggregate of current liabilities
and non-current liabilities less subordinated debt (including Junior Note
Obligations) and "Tangible Net Worth" shall mean the aggregate of consolidated
stockholders' equity of Borrower and its Subsidiaries plus subordinated debt
(including Junior Note Obligations) less any intangible assets.
(c) EBDITA Coverage Ratio not less than 2.50 to 1.00 as of
each fiscal year end, with "EBDITA" defined as net profit before tax plus
interest expense (net of capitalized interest expense), depreciation expense and
amortization expense, and with "EBDITA Coverage Ratio", defined as EBDITA
divided by the aggregate of total interest expense plus the prior period current
maturity of long-term debt and the prior period current maturity of subordinated
debt (including Junior Note Obligations). For purposes of the foregoing,
outstanding Advances on the Line of Credit and the undrawn amount of Letters of
Credit shall be excluded from the computation of current maturity of long-term
debt.
Section 5.10 NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or
any condition, event or act which with the giving of notice or the passage of
time or both would constitute an Event of Default; (b) any change in the name or
the organizational structure of Borrower or any other Loan Party; (c) the
occurrence and nature of any Reportable Event or Prohibited Transaction, each as
defined in ERISA, or any funding deficiency with respect to any Plan; (d) any
termination or cancellation of any insurance policy which Borrower or any other
Loan Party is required to maintain, or any uninsured or partially uninsured loss
through liability or property damage, or through fire, theft or any other cause
affecting Borrower's or any other Loan Party's property in excess of an
aggregate of $100,000.00; or (e) the acquisition by Borrower or any other Loan
Party or any other Loan Party or Subsidiary or other affiliate.
Section 5.11 FURTHER ASSURANCES. Promptly execute and deliver, or cause
to be executed and delivered, the documents described in Schedule 5.11 to this
Agreement, and take or cause to be taken such action, and otherwise comply with
such obligations, as are specified in Schedule 5.11.
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ARTICLE 6
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains
committed to extend credit to Borrower pursuant hereto, or any liabilities
(whether direct or contingent, liquidated or unliquidated) of Borrower to Bank
under any of the Loan Documents remain outstanding, and until payment in full of
all obligations of Borrower subject hereto, Borrower will not without Bank's
prior written consent:
Section 6.1 USE OF FUNDS. Use any of the proceeds of any of the Line of
Credit except for the purposes stated in Article 1 hereof.
Section 6.2 CAPITAL EXPENDITURES. Make, or permit any Guarantor to
make, any additional investment in fixed assets in any fiscal year in excess of
an aggregate of $4,000,000.00 for Borrowers and all Guarantors combined.
Section 6.3 LEASE EXPENDITURES. Incur, or permit any Guarantor to
incur, operating lease expense in any fiscal year which, in the aggregate,
exceeds the consolidated operating lease expense of Borrower and all Guarantors
for the previous fiscal year by more than $500,000.00.
Section 6.4 OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist, or permit any other Loan Party to create, incur, assume or permit to
exist, any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to Bank,
(b) the indebtedness of Borrower to the Noteholders provided such indebtedness
shall not exceed the aggregate principal amount of $18,000,000 at any time
outstanding, and (c) any other liabilities of Borrower or any other Loan Party
existing as of, and disclosed to Bank prior to, the date hereof.
Section 6.5 MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with, or permit any other Loan Party to merge into or consolidate
with, any other entity; make, or permit any other Loan Party to make, any
substantial change in the nature of its business as conducted as of the date
hereof; acquire all or substantially all of the assets of any other entity; nor
sell, lease, transfer or otherwise dispose of all or a substantial or material
portion of its assets except (a) in the ordinary course of its business and (b)
any of the foregoing by and among the Loan Parties with one another so long as
after giving effect thereto the Liens of the Collateral Agent on any assets
affected thereby shall remain in full force and effect and with the same
priority as immediately before such action.
Section 6.6 GUARANTIES. Guarantee or become liable, or permit any other
Loan Party to guarantee or become liable, in any way as surety, endorser (other
than as endorser of negotiable instruments for deposit or collection in the
ordinary course of business), accommodation endorser or otherwise for, nor
pledge or hypothecate any assets of Borrower as security for, any liabilities or
obligations of any other person or entity, except any of the foregoing in favor
of Bank or the Collateral Agent on behalf of Bank and the Noteholders.
Section 6.7 LOANS, ADVANCES, INVESTMENTS. Make, or permit any other
Loan Party to make, any loans or advances to or investments in any person
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or entity, except any of the foregoing existing as of, and disclosed to Bank
prior to, the date hereof.
Section 6.8 PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to
exist, or permit any other Loan Party to mortgage, pledge, grant or permit to
exist, a security interest in, or Lien upon, all or any portion of its assets
now owned or hereafter acquired, except any of the foregoing (a) in favor of
Bank or Collateral Agent on behalf of Bank and the Noteholders or (b) which is
existing as of, and disclosed to Bank in writing prior to, the date hereof.
Section 6.9 DIVIDENDS: DISTRIBUTIONS. Declare or pay, or permit any
other Loan Party to declare or pay, any dividend or distribution either in cash,
stock or any other property, on Borrower's or such Loan Party's stock now or
hereafter outstanding; except for dividends, distributions and redemptions which
(a) are made in compliance with applicable law, (b) are made when no Event of
Default exists hereunder, and when no condition, event or act exists which, with
the giving of notice or the passage of time, or both, would constitute such an
Event of Default, and (c) would not result in an Event of Default hereunder.
ARTICLE 7
EVENTS OF DEFAULT
Section 7.1 The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay within five (5) days of when
due any principal, interest, fees or other amounts payable under any of the Loan
Documents.
(b) Any financial statement or certificate furnished to Bank
in connection with, or any representation or warranty made by Borrower or any
other Loan Party under this Agreement or any other Loan Document shall prove to
be incorrect, false or misleading in any material respect when furnished or
made.
(c) Any default in the performance of or compliance with any
obligation, agreement or other provision contained herein or in any other Loan
Document (other than those referred to in subsections (a) and (b) above), and
with respect to any such default which by its nature can be cured, such default
shall continue for a period of twenty (20) days from its occurrence.
(d) Any default in the payment or performance of any
obligation, or any defined event of default, under the terms of any contract or
instrument (other than any of the Loan Documents) pursuant to which Borrower or
any other Loan Party has incurred any debt or other liability to Bank.
(e) Any default in the payment or performance of any
obligation, or any defined event of default, under the terms of any contract or
instrument pursuant to which Borrower or any other Loan Party has incurred any
debt or other liability to any person or entity, whether such debt or other
liability shall be for borrowed money, the purchase or lease of property or the
guaranty of any present or future indebtedness for borrowed money or the
purchase or lease of property, on its part to be paid and the effect of such
default is to cause, or to
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permit such person or entity to cause, such debt or other liability to become
due prior to any stated maturity, provided that the aggregate amount of all such
debt and other liabilities as to which such a default shall occur and be
continuing exceeds $100,000.00.
(f) The filing of a notice of judgment Lien against Borrower
or any other Loan Party; or the recording of any abstract of judgment against
Borrower or any other Loan Party in any county in which Borrower or such Loan
Party has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower or any other Loan Party; or the entry of a judgment against
Borrower or any other Loan Party; provided, however, that such judgments, Liens,
levies, writs, executions and other process involve debts of or claims against
Borrower or such Loan Party in excess of $100,000.00, individually or in the
aggregate, for all such judgments, Liens, levies, writs, executions and other
process against Borrower and other Loan Parties combined, and within twenty (20)
days after the creation thereof, or at least ten (10) days prior to the date on
which any assets could be lawfully sold in satisfaction thereof, such debt or
claim is not satisfied but stayed pending appeal and insured against in a manner
satisfactory to Bank.
(g) Borrower or any other Loan Party shall become insolvent,
or shall suffer or consent to or apply for the appointment of a receiver,
trustee, custodian or liquidator of itself or any of its property, or shall
generally fail to pay its debts as they become due, or shall make a general
assignment for the benefit of creditors; Borrower or any other Loan Party shall
file a voluntary petition in bankruptcy, or seeking reorganization, in order to
effect a plan or other arrangement with creditors or any other relief under the
Bankruptcy Reform Act, Title 11 of the United States Code, as amended or
recodified from time to time ("Bankruptcy Code"), or under any state or Federal
law granting relief to debtors, whether now or hereafter in effect; or any
involuntary petition or proceeding pursuant to the Bankruptcy Code or any other
applicable state or Federal law relating to bankruptcy, reorganization or other
relief for debtors is filed or commenced against Borrower or any other Loan
Party, or Borrower or any such Loan Party shall file an answer admitting the
jurisdiction of the court and the material allegations of any involuntary
petition; or Borrower or any other Loan Party shall be adjudicated a bankrupt,
or an order for relief shall be entered against Borrower or any other Loan Party
by any court of competent jurisdiction under the Bankruptcy Code or any other
applicable state or Federal law relating to bankruptcy, reorganization or other
relief for debtors.
(h) There shall exist or occur any event or condition which
Bank in good faith believes impairs, or is substantially likely to impair, the
prospect of payment or performance by Borrower or any other Loan Party of its
respective obligations under any of the Loan Documents.
(i) The dissolution or liquidation of Borrower or any other
Loan Party or any of their directors, stockholders or members shall take action
seeking to effect the dissolution or liquidation of Borrower or such Loan Party.
(j) The sale, transfer, hypothecation, assignment or
encumbrance, whether voluntary, involuntary or by operation of law, without
Bank's prior written consent, of all or any part of or interest in any Real
Property Collateral required hereby.
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<PAGE> 24
(k) Any default under the Prudential Agreement or under any
other document, instrument or agreement executed in connection therewith, which
default is not cured within any applicable grace and/or notice period, or which
is not waived in writing by the applicable Noteholders.
Section 7.2 REMEDIES. Upon the occurrence of any Event of Default: (a)
all indebtedness of Borrower under each of the Loan Documents, any term thereof
to the contrary notwithstanding, shall at Bank's option and without notice
become immediately due and payable without presentment, demand, protest or
notice of dishonor, all of which are hereby expressly waived by Borrower; (b)
the obligation, if any, of Bank to extend any further credit under any of the
Loan Documents shall immediately cease and terminate; and (c) Bank shall have
all rights, powers and remedies available under each of the Loan Documents, or
accorded by law, including the right to resort to any or all security for the
Line of Credit and to exercise any or all of the rights of a beneficiary or
secured party pursuant to applicable law. In addition, Bank shall have no
obligation to permit further borrowings hereunder if Borrower fails to pay when
due any principal, interest, fees or other amounts payable under any of the Loan
Documents, notwithstanding that an Event of Default has not yet occurred under
Section 6.1(a) above. All rights, powers and remedies of Bank may be exercised
at any time by Bank and from time to time after the occurrence of an Event of
Default, are cumulative and not exclusive, and shall be in addition to any other
rights, powers or remedies provided by law or equity.
ARTICLE 8
MISCELLANEOUS
Section 8.1 NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.
Section 8.2 NOTICES. All notices, requests and demands which any party
is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:
BORROWER:
DATUM INC.
9975 Toledo Way
Irvine, California 92718-1819
Attention: David A. Young
Vice President/Chief Financial Officer
Telecopier: (714) 380-8555
Telephone: (714) 470-8800
-24-
<PAGE> 25
BANK:
WELLS FARGO BANK, NATIONAL ASSOCIATION
2030 Main Street, Suite 900
Irvine, California 92614
Attention: Datum Account Officer
Telecopier: (714) 261-1830
Telephone: (714) 251-4100
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
Section 8.3 COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), incurred by
Bank in connection with (a) the negotiation and preparation of this Agreement
and the other Loan Documents, Bank's continued administration hereof and
thereof, and the preparation of any amendments and waivers hereto and thereto,
(b) the enforcement of Bank's rights and/or the collection of any amounts which
become due to Bank under any of the Loan Documents and/or the Prior Loan
Documents, and (c) the prosecution or defense of any action in any way related
to any of the Loan Documents and/or the Prior Loan Documents, including any
action for declaratory relief, and including any of the foregoing incurred in
connection with any bankruptcy proceeding relating to Borrower or any other Loan
Party.
Section 8.4 SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate or
grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents. In connection therewith, Bank may
disclose all documents and information which Bank now has or may hereafter
acquire relating to the Line of Credit, Borrower or its business, any other Loan
Party or the business of such Loan Party, or any Collateral required hereunder.
Section 8.5 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to the Line of Credit and supersede all prior negotiations,
communications, discussions and correspondence concerning the subject matter
hereof. This Agreement may be amended or modified only by a written instrument
executed by each party hereto.
-25-
<PAGE> 26
Section 8.6 NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.
Section 8.7 TIME. Time is of the essence of each and every provision of
this Agreement and each other of the Loan Documents.
Section 8.8 SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
Section 8.9 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to be
an original, and all of which when taken together shall constitute one and the
same Agreement.
Section 8.10 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
Section 8.11 INDEMNITY BY BORROWER. Borrower agrees to indemnify, save
and hold harmless Bank and its directors, officers, agents, attorneys and
employees (collectively, the "Indemnitees") from and against: (a) Any and all
claims, demands, actions or causes of action that are asserted against any
Indemnitee if the claim, demand, action or cause of action arises out of or
relates to the relationship between Borrower and Bank under any of the Loan
Documents or the transactions contemplated thereby; (b) Any and all
administrative or investigative proceedings by any governmental agency or
authority arising out of or related to any claim, demand, action or cause of
action described in clause (a) above; and (c) Any and all liabilities, losses,
costs or expenses (including reasonable attorneys' fees and disbursements and
other professional services) that any Indemnitee suffers or incurs as a result
of the assertion of any of the foregoing; provided that no Indemnitee shall be
entitled to indemnification for any loss caused by its own or its employees' or
agents' gross negligence or willful misconduct. Each Indemnitee is authorized to
employ counsel in enforcing its rights hereunder and in defending against any
claim, demand, action, cause of action or administrative or investigative
proceeding covered by this Section 8.11; provided that the Indemnitees as a
group may retain only one law firm to represent them with respect to any such
matter unless there is, under applicable standards of professional conduct,
conflict on any significant issue between the positions of any two or more
Indemnitee. Any obligation or liability of Borrower to any Indemnitee under this
Section 8.11 shall be and hereby is covered and secured by the Loan Documents
and the Collateral referred to in Section 2.5 and shall survive the expiration
or termination of this Agreement and the repayment of the Line of Credit and the
payment and performance of all other obligations owed to Bank.
-26-
<PAGE> 27
Section 8.12 NONLIABILITY OF BANK. Borrower acknowledges and agrees
that:
(a) Any inspections of Collateral made by Bank are for
purposes of administration of the Line of Credit only and Borrower is not
entitled to rely upon the same;
(b) By accepting or approving anything required to be
observed, performed, fulfilled or given to Bank pursuant to the Loan Documents,
including any certificate, financial statement, insurance policy or other
document, Bank shall not be deemed to have warranted or represented the
sufficiency, legality, effectiveness or legal effect of the same, or of any
term, provision or condition thereof, and such acceptance or approval thereof
shall not constitute a warranty or representation to anyone with respect thereto
by Bank;
(c) The relationship between Borrower and Bank in connection
with this Agreement and the other Loan Documents is, and shall at all times
remain, solely that of a borrower and lender; Bank shall not under any
circumstance be construed to be a partner or joint venturer of Borrower; Bank
shall not under any circumstances be deemed to be in a relationship of
confidence or trust or a fiduciary relationship with Borrower, or to owe any
fiduciary duty to Borrower as a result of the transactions arising under this
Agreement and the other Loan Documents; Bank does not undertake or assume any
responsibility or duty to Borrower to select, review, inspect, supervise, pass
judgment upon or inform Borrower of any matter in connection with its property,
any Collateral held by Bank or the operations of Borrower; Borrower shall rely
entirely upon its own judgment with respect to such matters; and any review,
inspection, supervision, exercise of judgment or supply of information
undertaken or assumed by Bank in connection with such matters is solely for the
protection of Bank and neither Borrower nor any other person or entity is
entitled to rely thereon; and
(d) Bank shall not be responsible or liable to any person or
entity for any loss, damage, liability or claim of any kind relating to injury
or death to persons or damage to property caused by the actions, inaction or
negligence of Borrower and Borrower hereby indemnifies and holds Bank harmless
from any such loss, damage, liability or claim.
Section 8.13 FURTHER ASSURANCES. Borrower shall, at its expense and
without expense to Bank, do, execute and deliver such further acts and documents
as Bank from time to time reasonably requires for the assuring and confirming
unto Bank of the rights hereby created or intended now or hereafter so to be, or
for carrying out the intention or facilitating the performance of the terms of
any Loan Document, or for assuring the validity, perfection, priority or
enforceability of any Lien under any Loan Document.
Section 8.14 CONFLICTING PROVISIONS. The provisions of this Agreement
are not intended to supersede the provisions of the other Loan Documents but
shall be construed as supplemental thereto. However, in the event of any actual
irreconcilable conflict between the provisions hereof and any provisions of the
other Loan Documents, it is intended that the provisions of this Agreement shall
control; provided that the inclusion of provisions in such other Loan Documents
which are not addressed in this Agreement shall not be deemed
-27-
<PAGE> 28
a conflict with this Agreement. The foregoing shall apply with respect to all
Loan Documents, whether executed and delivered by Borrower or by any
third-party.
Section 8.15. CONTINUED EXISTING EFFECTIVENESS OF CERTAIN EXISTING LOAN
DOCUMENTS. Each of the Existing Loan Documents (other than the Existing Credit
Agreement, Existing Notes and any other Existing Loan Document that has been (or
will be) expressly superseded, replaced or otherwise restated by a "Loan
Document", either as previously executed in connection with a prior amendment or
as executed in connection herewith) shall continue in full force and effect and
shall, as of the effective date hereof, be deemed to be a "Loan Document" as
such term is used and defined in this Agreement.
Section 8.15 ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute
shall be resolved by binding arbitration (except as set forth in (e) below) in
accordance with the terms of this Agreement. A "Dispute" shall mean any action,
dispute, claim or controversy of any kind, whether in contract or tort,
statutory or common law, legal or equitable, now existing or hereafter arising
under or in connection with, or in any way pertaining to, any of the Loan
Documents, or any past, present or future extensions of credit and other
activities, transactions or obligations of any kind related directly or
indirectly to any of the Loan Documents, including any of the foregoing arising
in connection with the exercise of any self-help, ancillary or other remedies
pursuant to any of the Loan Documents. Any party may by summary proceedings
bring an action in court to compel arbitration of a Dispute. Any party who fails
or refuses to submit to arbitration following a lawful demand by any other party
shall bear all costs and expenses incurred by such other party in compelling
arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be
administered by the American Arbitration Association ("AAA") or such other
administrator as the parties shall mutually agree upon in accordance with the
AAA Commercial Arbitration Rules. All Disputes submitted to arbitration shall be
resolved in accordance with the Federal Arbitration Act (Title 9 of the United
States Code), notwithstanding any conflicting choice of law provision in any of
the Loan Documents. The arbitration shall be conducted at a location in
California selected by the AAA or other administrator. If there is any
inconsistency between the terms hereof and any such rules, the terms and
procedures set forth herein shall control. All statutes of limitation applicable
to any Dispute shall apply to any arbitration proceeding. All discovery
activities shall be expressly limited to matters directly relevant to the
Dispute being arbitrated. Judgment upon any award rendered in an arbitration may
be entered in any court having jurisdiction; provided however, that nothing
contained herein shall be deemed to be a waiver by any party that is a bank of
the protections afforded to it under 12 U.S.C. Section 91 or any similar
applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and
Foreclosure. No provision hereof shall limit the right of any party to exercise
self-help remedies such as setoff, foreclosure against or sale of any real or
personal property Collateral or security, or to obtain provisional or ancillary
remedies, including injunctive relief, sequestration, attachment, garnishment or
the appointment of a receiver, from a court of competent jurisdiction before,
after or during the
-28-
<PAGE> 29
pendency of any arbitration or other proceeding. The exercise of any such remedy
shall not waive the right of any party to compel arbitration or reference
hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators
must be active members of the California State Bar or retired judges of the
state or federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
costs and fees, to impose sanctions and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is $5,000,000 or less shall
be decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the
contrary, in any arbitration in which the amount in controversy exceeds
$25,000,000, the arbitrators shall be required to make specific, written
findings of fact and conclusions of law. In such arbitrations (A) the
arbitrators shall not have the power to make any award which is not supported by
substantial evidence or which is based on legal error, (B) an award shall not be
binding upon the parties unless the findings of fact are supported by
substantial evidence and the conclusions of law are not erroneous under the
substantive law of the state of California, and (C) the parties shall have in
addition to the grounds referred to in the Federal Arbitration Act for vacating,
modifying or correcting an award the right to judicial review of (1) whether the
findings of fact rendered by the arbitrators are supported by substantial
evidence, and (2) whether the conclusions of law are erroneous under the
substantive law of the state of California. Judgment confirming an award in such
a proceeding may be entered only if a court determines the award is supported by
substantial evidence and not based on legal error under the substantive law of
the state of California.
(f) Real Property Collateral; Judicial Reference.
Notwithstanding anything herein to the contrary, no Dispute shall be submitted
to arbitration if the Dispute concerns indebtedness secured directly or
indirectly, in whole or in part, by any real property unless (i) the holder of
the mortgage, Lien or security interest specifically elects in writing to
proceed with the arbitration, or (ii) all parties to the arbitration waive any
rights or benefits that might accrue to them by virtue of the single action rule
statute of California, thereby agreeing that all indebtedness and obligations of
the parties, and all mortgages, Liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in
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<PAGE> 30
accordance with said Section 638. A referee with the qualifications required
herein for arbitrators shall be selected pursuant to the AAA's selection
procedures. Judgment upon the decision rendered by a referee shall be entered in
the court in which such proceeding was commenced in accordance with California
Code of Civil Procedure Sections 644 and 645.
(g) Miscellaneous. To the maximum extent practicable, the AAA,
the arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first written above.
DATUM INC., a Delaware corporation
By: /s/ Louis B. Horwitz
------------------------------------------
Louis B. Horwitz, President/Chief
Executive Officer/Chairman of the Board
By: /s/ David A. Young
------------------------------------------
David A. Young, Vice President/Chief
Financial Officer
WELLS FARGO BANK, NATIONAL ASSOCIATION
By: /s/ Ronald K. Peters
------------------------------------------
Ronald K. Peters, Vice President
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<PAGE> 31
SCHEDULE 3.11
DIVISIONS, TRADE NAMES, ETC.
A. TRADE NAMES AND TRADE STYLES
Datum Timing
Bancomm
Efratom
B. DIVISIONS
Bancomm - Timing Division
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<PAGE> 32
SCHEDULE 5.11
FURTHER ASSURANCES
1. Borrower and Bank acknowledge that the deposit account
agreements required pursuant to Section 4.1(b)(vi) of this Agreement, although
executed by the applicable Loan Parties and the Collateral Agent, have not been
executed and delivered by the applicable financial institutions referenced
therein. Bank agrees that Borrower may satisfy the condition precedent set forth
in Section 4.1(b)(vi) after the Effective Date and Borrower shall be deemed to
have satisfied such condition by delivering such deposit account agreements
(executed by the applicable depository financial institutions) to the Collateral
Agent within fifteen (15) days of the Effective Date.
2. Bank agrees that, notwithstanding the condition precedent
set forth in Section 4.1(b)(viii) of this Agreement, Borrower may satisfy such
condition after the Effective Date and Borrower shall be deemed to have
satisfied such condition by causing such policies of title insurance (or
endorsements to existing title insurance policies) to be delivered to the
Collateral Agent within fifteen (15) days of the Effective Date.
3. In addition to the foregoing, Bank agrees that,
notwithstanding the condition precedent set forth in Section 4.1(d) of this
Agreement, Borrower may satisfy such condition after the Effective Date and
Borrower shall be deemed to have satisfied such condition by causing (a) the
recordation of the referenced assignments and amendments in the applicable real
estate records within fifteen (15) days of the Effective Date and (b) the
recordation or filing, as appropriate, of the referenced financing statements
and amendments to financing statements within five (5) days of the Effective
Date.
4. Borrower shall execute and deliver, or obtain and deliver,
to the Collateral Agent, within thirty (30) days of the Effective Date, such
trademark collateral assignment agreements and related documents as the
Collateral Agent may require, in form and substance satisfactory to the
Collateral Agent, pursuant to which the Collateral Agent shall be granted a
first priority perfected Lien on the registered trademarks and service marks
referenced in Schedule 8R to the Prudential Agreement.
5. Bank agrees that, notwithstanding the condition precedent
set forth in Section 4.1(j) of this Agreement, Borrower may satisfy such
condition after the Effective Date and Borrower shall be deemed to have
satisfied such condition by paying the referenced costs and expenses of the
Collateral Agent and Bank within three (3) days of the Collateral Agent's and/or
Bank's demand therefor.
6. Borrower and Bank acknowledge and agree that the form of
Borrowing Base Certificate to be attached to this Agreement as Exhibit A has not
been finalized as of the Effective Date. Borrower and Bank agree to finalize the
form of such Borrowing Base Certificate within fifteen (15) days of the
Effective Date and, in that regard, Bank agrees to provide Borrower a proposed
form of Borrowing Base Certificate within seven (7) days of the Effective Date.
-32-
<PAGE> 1
EXHIBIT 10.36
DATUM INC.
NOTE AND WARRANT PURCHASE AGREEMENT
$6,000,000
9.07% SERIES A SECURED NOTES DUE SEPTEMBER 27, 2000
$12,000,000
10.25% SERIES B SECURED NOTES DUE SEPTEMBER 27, 2003
COMMON STOCK PURCHASE WARRANT
Dated as of September 27, 1996
<PAGE> 2
TABLE OF CONTENTS
(Not Part of Agreement)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1A. AUTHORIZATION OF ISSUE OF SERIES A SECURED NOTES.............................. 1
1B. AUTHORIZATION OF SERIES B SECURED NOTES....................................... 2
1C. AUTHORIZATION OF COMMON STOCK PURCHASE WARRANT................................ 2
2. PURCHASE AND SALE OF SECURITIES............................................... 2
3. CONDITIONS OF CLOSING......................................................... 2
3A. OPINION OF COMPANY'S COUNSEL......................................... 2
3B. OPINION OF PRUDENTIAL'S SPECIAL COUNSEL.............................. 3
3C. REPRESENTATIONS AND WARRANTIES; NO DEFAULT........................... 3
3D. STRUCTURING FEE...................................................... 3
3E. PURCHASE PERMITTED BY APPLICABLE LAWS................................ 3
3F. PROCEEDINGS.......................................................... 3
3G. PAYOFF LETTER; DISBURSEMENT INSTRUCTIONS............................. 3
3H. DOCUMENTS............................................................ 3
3I. CERTIFICATES OF INSURANCE............................................ 4
3J. NO MATERIAL ADVERSE CHANGE........................................... 4
3K. ENVIRONMENTAL ASSESSMENTS............................................ 5
3L. BANK FACILITY........................................................ 5
3M. CAPITAL STOCK........................................................ 5
3N. FEES AND EXPENSES.................................................... 5
4. PREPAYMENTS OF NOTES.......................................................... 5
4A(1). REQUIRED PREPAYMENTS OF SERIES A NOTES............................... 5
4A(2). REQUIRED PREPAYMENTS OF SERIES B NOTES............................... 5
4B(1). OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT.................... 6
4B(2). PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT PURSUANT TO
INTERCREDITOR AGREEMENT.............................................. 6
4C. NOTICE OF OPTIONAL PREPAYMENT........................................ 6
4D. PARTIAL PAYMENTS PRO RATA............................................ 6
4E. RETIREMENT OF NOTES.................................................. 7
5. AFFIRMATIVE COVENANTS......................................................... 7
5A. FINANCIAL STATEMENTS................................................. 7
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
5B. INFORMATION REQUIRED BY RULE 144A.................................... 9
5C. INSPECTION OF PROPERTY............................................... 9
5D. COVENANT TO SECURE NOTES EQUALLY..................................... 9
5E. PUT OPTION........................................................... 9
5F. MAINTENANCE OF INSURANCE............................................. 10
5G. COMPLIANCE WITH LAWS................................................. 10
5H. NATURE OF BUSINESS................................................... 10
5I. MAINTENANCE OF CREDIT FACILITY....................................... 10
5J. MAINTENANCE OF PROPERTIES............................................ 10
5K. CORPORATE EXISTENCE, ETC............................................. 10
5L. PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION....................... 11
5M. CERTAIN POST CLOSING COVENANTS....................................... 11
6. NEGATIVE COVENANTS............................................................ 11
6A. FINANCIAL COVENANTS.................................................. 11
6A(1). QUICK RATIO.......................................................... 11
6A(2). CONSOLIDATED TANGIBLE NET WORTH...................................... 11
6A(3). FIXED CHARGE COVERAGE................................................ 11
6A(4). LIQUIDITY............................................................ 11
6B. RESTRICTED PAYMENTS.................................................. 11
6C. LIEN, DEBT AND OTHER RESTRICTIONS.................................... 12
6C(1). LIENS................................................................ 12
6C(2). DEBT................................................................. 13
6C(3). LOANS, ADVANCES AND INVESTMENTS...................................... 13
6C(4). SALE OF STOCK AND DEBT OF SUBSIDIARIES............................... 14
6C(5). MERGER AND CONSOLIDATION............................................. 14
6C(6). TRANSFER OF ASSETS................................................... 14
6C(7). SALE OR DISCOUNT OF, OR LIEN UPON, RECEIVABLES....................... 15
6C(8). RELATED PARTY TRANSACTIONS........................................... 15
6C(9). SALE AND LEASE-BACK.................................................. 15
6C(10). SUBSIDIARY DIVIDEND RESTRICTIONS..................................... 15
6D. ISSUANCE OF STOCK BY SUBSIDIARIES.................................... 16
6E. AMENDMENT TO BANK AGREEMENT.......................................... 16
7. EVENTS OF DEFAULT............................................................. 16
7A. ACCELERATION......................................................... 16
7B. RESCISSION OF ACCELERATION........................................... 20
7C. NOTICE OF ACCELERATION OR RESCISSION................................. 20
7D. OTHER REMEDIES....................................................... 20
8. REPRESENTATIONS, COVENANTS AND WARRANTIES..................................... 20
8A. ORGANIZATION; CAPITAL STOCK.......................................... 20
8B. FINANCIAL STATEMENTS; RESTRICTED PAYMENTS............................ 21
8C. ACTIONS PENDING...................................................... 21
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
8D. OUTSTANDING DEBT..................................................... 21
8E. TITLE TO PROPERTIES.................................................. 22
8F. ENVIRONMENTAL COMPLIANCE............................................. 22
8G. TAXES................................................................ 22
8H. CONFLICTING AGREEMENTS AND OTHER MATTERS............................. 22
8I. OFFERING OF SECURITIES............................................... 23
8J. REGULATION G, ETC.................................................... 23
8K. ERISA................................................................ 23
8L. GOVERNMENTAL CONSENT................................................. 24
8M. REPRESENTATION RE LUCENT AND ANY OTHER MATERIAL CONTRACTS............ 24
8N. REGULATORY STATUS.................................................... 24
8O. RULE 144A............................................................ 24
8P. ABSENCE OF FINANCING STATEMENTS, ETC................................. 24
8Q. ESTABLISHMENT OF SECURITY INTEREST................................... 25
8R. POSSESSION OF INTELLECTUAL PROPERTY.................................. 25
8S. DISCLOSURE........................................................... 25
9. REPRESENTATIONS OF PRUDENTIAL................................................. 26
9A. NATURE OF PURCHASE................................................... 26
9B. SOURCE OF FUNDS...................................................... 26
10. DEFINITIONS; ACCOUNTING MATTERS............................................... 26
10A. YIELD-MAINTENANCE TERMS.............................................. 26
10B. OTHER TERMS.......................................................... 28
10C. ACCOUNTING AND LEGAL PRINCIPLES, TERMS AND DETERMINATIONS............ 37
11. MISCELLANEOUS................................................................. 37
11A. NOTE PAYMENTS........................................................ 37
11B. EXPENSES............................................................. 37
11C. CONSENT TO AMENDMENTS................................................ 38
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES;
LIMITATION ON TRANSFER OF NOTES...................................... 38
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS................................ 39
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT......... 39
11G. SUCCESSORS AND ASSIGNS............................................... 40
11H. NOTICES.............................................................. 40
11I. DESCRIPTIVE HEADINGS................................................. 40
11J. SATISFACTION REQUIREMENT............................................. 40
11K. PAYMENTS DUE ON NON-BUSINESS DAYS.................................... 40
11L. GOVERNING LAW........................................................ 40
11M. COUNTERPARTS......................................................... 41
11N. INDEPENDENCE OF COVENANTS............................................ 41
11O. PURCHASE PRICE ALLOCATION............................................ 41
</TABLE>
iii
<PAGE> 5
11P. BINDING AGREEMENT........................................42
PURCHASER SCHEDULE
EXHIBIT A-1 -- FORM OF SERIES A NOTE
EXHIBIT A-2 -- FORM OF SERIES B NOTE
EXHIBIT B -- FORM OF OPINION OF COMPANY'S COUNSEL
SCHEDULE 6C(1) -- LIENS SECURING DEBT
SCHEDULE 8A -- SUBSIDIARIES AND AFFILIATES OF THE COMPANY
SCHEDULE 8R -- MATERIAL INTELLECTUAL PROPERTY
iv
<PAGE> 6
DATUM INC.
9975 Toledo Way
Irvine, CA 92718
As of September 27, 1996
The Prudential Insurance Company
of America ("PRUDENTIAL")
c/o Prudential Capital Group
Four Embarcadero Center
Suite 2700
San Francisco, California 94111
Gentlemen:
The undersigned, Datum Inc. (herein called the "COMPANY"), hereby
agrees with you as follows:
1A. AUTHORIZATION OF ISSUE OF SERIES A SECURED NOTES. The Company has
authorized the issue of its Series A secured promissory notes (herein called the
"SERIES A NOTES") in the aggregate principal amount of $6,000,000, to be dated
the date of issue thereof, to mature September 27, 2000, to bear interest on the
unpaid balance thereof from the date thereof until the principal thereof shall
have become due and payable at the rate of 9.07% per annum and on overdue
principal, Yield-Maintenance Amount and interest at the rate specified therein,
and to be substantially in the form of Exhibit A-1 hereto. The terms "SERIES A
NOTE" and "SERIES A NOTES" as used herein shall include each Series A Note
delivered pursuant to any provision of this Agreement and each Series A Note
delivered in substitution or exchange for any such Series A Note pursuant to any
such provision.
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1B. AUTHORIZATION OF SERIES B SECURED NOTES. The Company has authorized
the issue of its Series B secured promissory notes (herein called the "SERIES B
NOTES") in the aggregate principal amount of $12,000,000, to be dated the date
of issue thereof, to mature September 27, 2003, to bear interest on the unpaid
balance thereof from the date thereof until the principal thereof shall have
become due and payable at the rate of 10.25% per annum and on overdue principal,
Yield-Maintenance Amount and interest at the rate specified therein, and to be
substantially in the form of Exhibit A-2 hereto. The terms "SERIES B NOTE" and
"SERIES B NOTES" as used herein shall include each Series B Note delivered
pursuant to any provision of this Agreement and each Series B Note delivered in
substitution or exchange for any such Series B Note pursuant to any such
provision. The terms "NOTE" and "NOTES" as used herein shall include each Series
A Note and each Series B Note delivered pursuant to any provision of this
Agreement and each Note delivered in substitution or exchange for any such Note
pursuant to any such provision.
1C. AUTHORIZATION OF COMMON STOCK PURCHASE WARRANT. The Company has
authorized the issue of its common stock purchase warrant (herein called the
"WARRANT" and, together with the Notes, the "SECURITIES") for the purchase of
175,000 shares of its Common Stock, $.25 par value per share.
2. PURCHASE AND SALE OF SECURITIES. The Company hereby agrees to sell
to Prudential and, subject to the terms and conditions herein set forth,
Prudential agrees to purchase from the Company, (i) the Notes at 100% of the
aggregate principal amount thereof and (ii) the Warrant for a purchase price of
$17.50. The Company will deliver to Prudential at the offices of O'Melveny &
Myers, 400 South Hope Street, Los Angeles, California, the Securities registered
in its name, in each case in the denomination or denominations specified in the
Purchaser Schedule attached hereto, against payment of the purchase price
thereof by transfer of immediately available funds as contemplated by paragraph
3G on the date of closing, which shall be September 27, 1996 or any other date
prior to October 7, 1996 upon which the Company and Prudential may mutually
agree (herein called the "CLOSING DAY").
3. CONDITIONS OF CLOSING. Prudential's obligation to purchase the
Securities is subject in each case to the satisfaction, on or before the Closing
Day, of the following conditions:
3A. OPINION OF COMPANY'S COUNSEL. On the Closing Day, Prudential shall
have received from Stradling Yocca Carlson & Rauth, special counsel to the
Company, a favorable opinion satisfactory to Prudential and substantially in the
form of Exhibit B attached hereto. The Company hereby directs such counsel to
deliver such opinion, and agrees that the issuance and sale of the Securities
will constitute a reconfirmation of such direction.
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<PAGE> 8
3B. OPINION OF PRUDENTIAL'S SPECIAL COUNSEL. Prudential shall have
received from O'Melveny & Myers LLP, special counsel for Prudential in
connection with this transaction, a favorable opinion satisfactory to Prudential
as to such matters incident to the matters herein contemplated as it may
reasonably request.
3C. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations and
warranties contained in paragraph 8 shall be true on and as of the Closing Day;
there shall exist on such day no Default or Event of Default; and the Company
shall have delivered to Prudential an officer's certificate, dated the Closing
Day, to both such effects.
3D. STRUCTURING FEE. The Company shall have paid to Prudential a
$125,000 non-refundable structuring fee (the "Structuring Fee").
3E. PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and payment
for the Securities to be purchased on the Closing Day on the terms and
conditions herein provided (including the use of the proceeds of the Notes by
the Company) shall not violate any applicable law or governmental regulation
(including, without limitation, Section 5 of the Securities Act or Regulation G,
T or X of the Board of Governors of the Federal Reserve System) and shall not
subject Prudential to any tax, penalty, liability or other onerous condition
under or pursuant to any applicable law or governmental regulation, and
Prudential shall have received such certificates or other evidence it may
request to establish compliance with this condition.
3F. PROCEEDINGS. All corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby and all documents
incident thereto shall be satisfactory in substance and form to Prudential, and
Prudential shall have received all such counterpart originals or certified or
other copies of such documents as it may reasonably request.
3G. PAYOFF LETTER; DISBURSEMENT INSTRUCTIONS. On or before the Closing
Day, Prudential shall have received disbursement instructions from the Company,
directing that the purchase price of the Securities be paid directly to the Bank
in satisfaction of indebtedness owed to the bank.
3H. DOCUMENTS. Prudential shall have received the following documents,
each duly executed and delivered by the party or parties thereto, in form and
substance satisfactory to Prudential, and on the Closing Day in full force and
effect with no event having occurred and being then continuing that would
constitute a default thereunder or constitute or provide the basis for the
termination thereof:
(i) security agreements, general pledge agreements, patent
collateral assignment agreements and assignments of leases and rents
made by the Company and the
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<PAGE> 9
Subsidiaries in favor of the Collateral Agent (together with any other
such security agreements entered into for the benefit of the Collateral
Agent as contemplated by the Intercreditor Agreement as the same may be
amended, modified, or supplemented from time to time, collectively
called the "Security Agreements" and individually called a "Security
Agreement");
(ii) fee mortgages made by Frequency and Time Systems, Inc.
With respect to its Beverly, Massachusetts, facility and by Austron,
Inc., with respect to its Austin, Texas, facility in favor of the
Collateral Agent in the form of (together with any other mortgages
entered into for the benefit of the Collateral Agent as contemplated by
the Intercreditor Agreement, as the same may be amended, modified, or
supplemented from time to time, collectively called the "Mortgages" and
individually called a "Mortgage");]
(iii) the guaranty for the benefit of the Collateral Agent of
the Subsidiary Guarantors with respect to the Notes and the Bank Debt
(such guaranty, together with any other guarantees of Subsidiaries
provided as contemplated by such guaranty or the Intercreditor
Agreement, as the same may be amended, modified or supplemented from
time to time, collectively called the "Subsidiary Guarantees" and
individually called a "Subsidiary Guaranty");
(iv) the intercreditor agreement dated the date hereof among
the Collateral Agent, the Bank and Prudential (as amended, modified or
supplemented from time to time, the "INTERCREDITOR AGREEMENT"); and
(v) such other certificates, documents and agreements as
Prudential may request.
3I. CERTIFICATES OF INSURANCE. Prudential shall have received (i) a
certificate of insurance from an independent insurance broker dated as of the
Closing Day, identifying insurers, types of insurance, insurance limits, and
policy terms, and otherwise confirming that insurance has been obtained in
accordance with the provisions of this Agreement and the Security Documents and
(ii) certified copies of all policies evidencing such insurance, or certificates
therefor signed by the insurer or an agent authorized to bind the insurer.
3J. NO MATERIAL ADVERSE CHANGE. No material adverse change in the
business, condition (financial or otherwise), operations or prospects of the
Company and its Subsidiaries shall have occurred or be threatened since December
31, 1995, as determined by Prudential.
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<PAGE> 10
3K. ENVIRONMENTAL ASSESSMENTS. The Company shall have delivered to
Prudential phase 1 environmental assessments prepared in 1994 by Recon
Environmental Corp. ("Recon") with respect to facilities of Subsidiaries located
in Beverly, Massachusetts and Austin, Texas; Recon shall have consented in
writing to Prudential's reliance thereon; and such assessments and consent shall
be in form and content satisfactory to Prudential. Further, Prudential shall be
satisfied with the environmental condition of all of the real property owned or
leased by the Company and its Subsidiaries.
3L. BANK FACILITY. The Company shall have entered into a two-year
committed revolving credit facility with aggregate borrowing availability of at
least $5,000,000 with Bank, which facility shall have terms and conditions which
are satisfactory to Prudential.
3M. CAPITAL STOCK.The Company shall have delivered to Prudential a
certificate dated the Closing Day setting forth (i) the number of shares of its
Common Stock which were outstanding on August 13, 1996 and (ii) the number of
shares of its Common Stock which were subject to acquisition or purchase on
August 13, 1996 pursuant to then outstanding options, warrants, convertible
securities and any other stock acquisition or purchase rights.
3N. FEES AND EXPENSES. In addition to the Structuring Fee, the Company
shall have paid (i) such fees and expenses of Prudential's special counsel as
Prudential shall have required to have been paid on or before the Closing Day
(which fees shall not include any amounts attributable to the drafting of this
Agreement or the Warrant) and (ii) such fees and expenses of environmental
consultants retained by Prudential in connection with the transactions
contemplated hereby as Prudential shall have required to have been paid on or
before the Closing Day.
4. PREPAYMENTS OF NOTES. The Notes shall be subject to prepayment with
respect to the required prepayments specified in paragraph 4A and also under the
circumstances set forth in paragraph 4B. Any prepayment made by the Company
pursuant to any other provision of this paragraph 4 or purchase of Notes
pursuant to paragraph 5E shall not reduce or otherwise affect its obligation to
make any prepayment as specified in paragraph 4A.
4A(1). REQUIRED PREPAYMENTS OF SERIES A NOTES. Until the Series A Notes
shall be paid in full, the Company shall apply to the prepayment of the Series A
Notes, without Yield- Maintenance Amount, $1,500,000 on March 27 and September
27 in each year, commencing March 27, 1999 and through March 27, 2000. The
remaining unpaid principal amount of the Series A Notes, together with interest
accrued thereon, shall become due on the maturity date of the Series A Notes.
4A(2). REQUIRED PREPAYMENTS OF SERIES B NOTES. Until the Series B Notes
shall be paid in full, the Company shall apply to the prepayment of the Series B
Notes, without Yield-
5
<PAGE> 11
Maintenance Amount, $2,000,000 on March 27 and September 27 in each year,
commencing March 27, 2001 and through March 27, 2003. The remaining unpaid
principal amount of the Series B Notes, together with interest accrued thereon,
shall become due on the maturity date of the Series B Notes.
4B(1). OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT. The Notes
shall be subject to prepayment by Series, in whole or in part, at the option of
the Company, in multiples of $500,000 (or, if less, the then remaining principal
amount of all Notes of such Series), at 100% of the principal amount so prepaid
plus interest thereon to the prepayment date and the Yield-Maintenance Amount,
if any, with respect to each Note of such Series. Any partial prepayment of a
Series of Notes pursuant to this paragraph 4B(1) shall be applied in
satisfaction of required payments of principal of such Series on a pro rata
basis.
4B(2). PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT PURSUANT TO
INTERCREDITOR AGREEMENT. If amounts are to be applied to the principal of any
Notes pursuant to the terms of the Intercreditor Agreement, interest owing
thereon to the prepayment date and the Yield- Maintenance Amount, if any, with
respect to each Note shall be due and payable on such date. Any partial
prepayment of a Series of Notes pursuant to this paragraph 4B(2) shall be
applied in satisfaction of required payments of principal of such Series on a
pro rata basis.
4C. NOTICE OF OPTIONAL PREPAYMENT. The Company shall give the holder of
each Note of a Series irrevocable written notice of any optional prepayment of
the Notes of such Series pursuant to paragraph 4B(1) not less than five Business
Days prior to the prepayment date, specifying (i) such prepayment date, (ii) the
aggregate principal amount of the Notes of such Series to be prepaid on such
date, (iii) the principal amount of the Notes of such holder to be prepaid on
such date, and (iv) stating that such optional prepayment is to be made pursuant
to paragraph 4B(1). Notice of optional prepayment having been given as
aforesaid, the principal amount of the Notes of such Series specified in such
notice, together with interest thereon to the prepayment date and together with
the Yield-Maintenance Amount, if any, herein provided, shall become due and
payable on such prepayment date. The Company shall, on or before the day on
which it gives written notice of any prepayment pursuant to paragraph 4B(1),
give telephonic notice of the principal amount of the Notes to be prepaid and
the prepayment date to each Significant Holder of the Notes of the Series to be
prepaid which shall have designated a recipient of such notices in the Purchaser
Schedule attached hereto or by notice in writing to the Company.
4D. PARTIAL PAYMENTS PRO RATA. Upon any partial prepayment of the Notes
of a Series pursuant to paragraph 4A or 4B, the principal amount so prepaid
shall be allocated to all Notes of such Series at the time outstanding
(including, for the purpose of this paragraph 4D only, all Notes of such Series
prepaid or otherwise retired or purchased (including a purchase pursuant to
paragraph 5E) or otherwise acquired by the Company or any of its Subsidiaries or
Affiliates, other
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<PAGE> 12
than by prepayment pursuant to paragraph 4A or 4B) in proportion to the
respective outstanding principal amounts thereof.
4E. RETIREMENT OF NOTES. The Company shall not, and shall not permit
any of its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or
in part prior to their stated final maturity (other than by prepayment pursuant
to paragraphs 4A or 4B, upon exercise of a put option pursuant to paragraph 5E,
or upon acceleration of such final maturity pursuant to paragraph 7A), or
purchase or otherwise acquire, directly or indirectly, any Notes unless the
Company or such Subsidiary or Affiliate shall have offered to prepay or
otherwise retire or purchase or otherwise acquire, as the case may be, the same
proportion of the aggregate principal amount of Notes of such Series held by
each other holder of Notes of such Series at the time outstanding upon the same
terms and conditions. Any Notes prepaid or otherwise retired or purchased or
otherwise acquired by the Company or any of its Subsidiaries or Affiliates shall
not be deemed to be outstanding for any purpose under this Agreement, except as
provided in paragraph 4D.
5. AFFIRMATIVE COVENANTS.
5A. FINANCIAL STATEMENTS. The Company covenants that it will deliver in
duplicate (a) to each holder of Notes in the case of items described in clauses
(i) through (iii) below and (b) to each Significant Holder in the case of items
described in clauses (iv) through (vi) below:
(i) as soon as practicable and in any event within 60 days
after the end of each of the first three fiscal quarters in each fiscal
year (or, if earlier, the date on which such financial information is
first provided to any other creditor of the Company), consolidating and
consolidated statements of income, stockholders' equity and cash flows
of the Company and its Subsidiaries for the period from the beginning
of the fiscal year to the end of such fiscal quarter, and a
consolidating and consolidated balance sheet of the Company and its
Subsidiaries as at the end of such fiscal quarter, setting forth in
each case in comparative form figures for the corresponding period in
the preceding fiscal year, all in reasonable detail and satisfactory in
form to the Required Holder(s) and certified by an authorized financial
officer of the Company;
(ii) as soon as practicable and in any event within 105 days
after the end of each fiscal year (or, if earlier, the date on which
such financial information is first provided to any other creditor of
the Company), consolidating and consolidated statements of income,
stockholders' equity and cash flows of the Company and its Subsidiaries
for such year, and a consolidating and consolidated balance sheet of
the Company and its Subsidiaries as at the end of such year, setting
forth in each case in comparative form corresponding consolidated
figures from the preceding annual
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<PAGE> 13
audit, all in reasonable detail and satisfactory in form to the
Required Holder(s), in the case of the consolidated statements reported
on by independent public accountants of recognized national standing
selected by the Company whose report shall be without limitation as to
the scope of the audit and satisfactory in substance to the Required
Holder(s) and in the case of the consolidating statements certified by
an authorized financial officer of the Company;
(iii) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as it shall
send to its public stockholders and copies of all registration
statements (without exhibits) and all reports which it files with the
Securities and Exchange Commission (or any governmental body or agency
succeeding to the functions of the Securities and Exchange Commission);
(iv) promptly upon receipt thereof, a copy of each management
letter and other report submitted to the management or board of
directors of the Company or any Subsidiary by independent accountants
in connection with any annual, interim or special audit made by them of
the books of the Company or any Subsidiary;
(v) as soon as practicable and in any event within thirty days
after the first day of each fiscal year, Company management's projected
consolidating and consolidated statements of income and cash flows for
each fiscal quarter of such fiscal year, along with projected
consolidating and consolidated balance sheets as of the last day of
each such fiscal quarter, setting forth in each case in comparative
form consolidating and consolidated figures from the corresponding
period in the preceding fiscal year; and
(vi) with reasonable promptness, such other financial data and
other information as such Significant Holder may reasonably request.
Together with each delivery of financial statements required by clauses (i) and
(ii) above, the Company will deliver to each holder of Notes a certificate of a
Responsible Officer (a) demonstrating (with computations in reasonable detail)
compliance by the Company and its Subsidiaries with the provisions of paragraphs
6A(1), 6A(2), 6A(3), 6B, 6C(1), 6C(2), 6C(3)(vi) and 6C(6) and (b) stating that
there exists no Event of Default or Default, or, if any Event of Default or
Default exists, specifying the nature and period of existence thereof and what
action the Company proposes to take with respect thereto. Together with each
delivery of financial statements required by clause (i) above, the Company will
deliver to each holder of Notes a certificate of such accountants stating that,
in making the audit necessary for their report on such financial statements,
they have obtained no knowledge of any Event of Default or Default or, if they
have obtained knowledge of any Event of Default or
8
<PAGE> 14
Default, specifying the nature and period of existence thereof. Such
accountants, however, shall not be liable to anyone by reason of their failure
to obtain knowledge of any Event of Default or Default which would not be
disclosed in the course of an audit conducted in accordance with generally
accepted auditing standards. The Company also covenants that immediately after
any Responsible Officer obtains knowledge of an Event of Default or Default, it
will deliver to each holder of Notes an officer's certificate specifying the
nature and period of existence thereof and what action the Company proposes to
take with respect thereto.
5B. INFORMATION REQUIRED BY RULE 144A. The Company covenants that it
will, upon the request of the holder of any Note, provide such holder, and any
"Qualified Institutional Buyer" (as defined in Rule 144A under the Securities
Act) designated by such holder, such financial and other information as such
holder may reasonably determine to be necessary in order to permit the holder's
compliance with the information requirements of Rule 144A under the Securities
Act in connection with the resale of Notes, except at such times as the Company
is subject to the reporting requirements of section 13 or 15(d) of the Exchange
Act.
5C. INSPECTION OF PROPERTY. The Company covenants that it will permit
any Person designated by any Significant Holder in writing, at such Significant
Holder's expense (or, upon the occurrence and during the continuance of an Event
of Default, at the Company's expense), to visit and inspect any of the
properties of the Company and its Subsidiaries, to examine the corporate books
and financial records of the Company and its Subsidiaries and make copies
thereof or extracts therefrom and to discuss the affairs, finances and accounts
of any of such corporations with the principal officers of the Company and its
independent public accountants, all at such reasonable times and as often as
such Significant Holder may reasonably request.
5D. COVENANT TO SECURE NOTES EQUALLY. The Company covenants that, if it
or any Subsidiary shall create or assume any Lien upon any of its property or
assets, whether now owned or hereafter acquired, other than Liens permitted by
the provisions of paragraph 6C(1) (unless prior written consent to the creation
or assumption thereof shall have been obtained pursuant to paragraph 11C), it
will make or cause to be made effective provision whereby the Notes will be
secured by such Lien equally and ratably with any and all other Debt thereby
secured so long as any such other Debt shall be so secured.
5E. PUT OPTION. The Company covenants that within two Business Days
after any Responsible Officer shall obtain knowledge of the occurrence of a
Change of Control, the Company shall provide each holder of Notes written notice
thereof, describing in reasonable detail the facts and circumstances
constituting such Change of Control. If at any time on or prior to the tenth
Business Day after receipt of written notice of such Change of Control, any
holder of Notes shall request in writing that the Company purchase such holder's
Notes, the Company shall, on a date determined by the Company (which date shall
be a Business Day not later than five Business Days
9
<PAGE> 15
after such tenth Business Day), purchase (and each such requesting holder shall
sell) all of the Notes of such requesting holders at a purchase price equal to
the aggregate outstanding principal amount thereof, together with interest
thereon to the date of purchase and the Yield-Maintenance Amount, if any, with
respect thereto. No holder of any such Note shall be required to make any
representation or warranty in connection with such sale, other than with respect
to its ownership of its Note.
5F. MAINTENANCE OF INSURANCE. The Company covenants that it and each
Subsidiary will maintain, with financially sound and reputable insurers,
insurance in such amounts and against such liabilities and hazards as
customarily is maintained by other companies operating similar businesses and,
in any event, such insurance as is required to be maintained by the Security
Documents. The Company will, upon the request of any Significant Holder, deliver
an officer's certificate specifying the details of such insurance then in
effect.
5G. COMPLIANCE WITH LAWS. The Company covenants that it will, and will
cause each of its Subsidiaries to, comply in a timely fashion with, or operate
pursuant to valid waivers of the provisions of, all applicable laws, statutes,
laws, regulations, decrees and orders of governmental and judicial bodies,
including all Environmental Laws, except where noncompliance would not
materially and adversely affect the business, condition (financial or otherwise)
or operations of the Company and its Subsidiaries taken as a whole.
5H. NATURE OF BUSINESS. The Company covenants that it and its
Subsidiaries shall engage, on a consolidated basis, in substantially the same
business as engaged in by the Company and Subsidiaries on December 31, 1995.
5I. MAINTENANCE OF CREDIT FACILITY. The Company shall maintain at all
times a committed revolving credit facility with a term of at least two years
from inception or renewal (as the case may be) and aggregate borrowing
availability of at least $5,000,000 (less amounts actually outstanding
thereunder) and, if any such facility is not renewed or replaced at least 90
days prior to its scheduled termination, the Company shall, within two Business
Days after such ninetieth day, provide each holder of Notes with notice thereof.
5J. MAINTENANCE OF PROPERTIES. The Company covenants that it and each
Subsidiary will maintain or cause to be maintained in good repair, working order
and condition all properties necessary at that time in its business and from
time to time will make or cause to be made all appropriate repairs, renewals and
replacements thereof.
5K. CORPORATE EXISTENCE, ETC. Except as permitted by paragraph 6C(5)
the Company covenants that it will, and will cause all its Subsidiaries to,
preserve and keep in full force and effect at all times its corporate existence,
and all permits, licenses, franchises and other rights material to its business.
10
<PAGE> 16
5L. PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION. The Company will,
and will cause each Subsidiary to, pay all taxes, assessments and other
governmental charges imposed upon it or any of its properties or assets or in
respect of any of its franchises, business, income or profits before any penalty
or interest accrues thereon, and all claims (including, without limitation,
claims for labor, services, materials and supplies) for sums that have become
due and payable and which by law have or might become a Lien upon any of its
properties or assets; provided, that no such charge or claim need be paid if
being contested in good faith by appropriate proceedings timely initiated and
diligently conducted and if such reserves or other appropriate provision, if
any, as required by GAAP shall have been made therefor.
The Company will not consent to or permit the filing of or be a party
to any consolidated income tax return on behalf of itself or any of its
Subsidiaries with any Person (other than a consolidated return of the Company
and its Subsidiaries).
5M. CERTAIN POST CLOSING COVENANTS.
(i) On or before October 15, 1996, the Company will satisfy or
cause the satisfaction of each condition precedent set forth in Section
3 that shall have been waived by Prudential.
(ii) The Company shall and shall cause its subsidiaries to
execute and deliver to the Collateral Agent such trademark collateral
assignment agreements and related documents as the Collateral Agent
shall request, in form and substance satisfactory to the Collateral
Agent, pursuant to which the Collateral Agent shall be granted a first
priority perfected Lien on the registered trademarks and service marks
referenced in Schedule 8R.
(iii) The Company shall cooperate with the Collateral Agent to
cause policies of title insurance (or endorsements to existing title
insurance policies) with respect to the real property encumbered by the
Security Documents to be delivered to the Collateral Agent or before
October 15, 1996.
6. NEGATIVE COVENANTS.
6A. FINANCIAL COVENANTS. The Company will not permit:
6A(1). QUICK RATIO. The ratio of Consolidated Quick Assets to
Consolidated Current Liabilities to be less than (i) 0.75 to 1.00 at any time
from the Closing Day through December 31, 1998 and (ii) 1.00 to 1.00 at any time
thereafter;
6A(2). CONSOLIDATED TANGIBLE NET WORTH. Consolidated Tangible Net Worth
at any time to be less than $18,600,000 plus, to the extent positive, 70% of
Consolidated Net Income for the period, treated as one accounting period,
commencing July 1, 1996 and ending on the last day of the fiscal quarter most
recently ended as of any date of determination; or
6A(3). FIXED CHARGE COVERAGE. For any period of four consecutive fiscal
quarters, the ratio of (i) Income Available for Fixed Charges to (i) Fixed
Charges to be less than (a) 2.00 to 1.00 for each such period ended on or prior
to December 31, 1998 and (b) 1.00 to 1.00 for each such period ended thereafter;
or
6A(4). LIQUIDITY. The aggregate amount available to the Company (giving
effect to borrowing base and other limitations) under the line of credit in the
Bank Agreement to at any time be less than the sum of 20% of the book value of
the inventory and 65% of the book value of the accounts receivable in each case
of the Company and Subsidiaries on a consolidated basis, or, if less, the stated
amount of the line of credit.
6B. RESTRICTED PAYMENTS. The Company covenants that it will not, and
will not permit any Subsidiary to, make, pay or declare, or commit to make, pay
or declare, any Restricted
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Payment unless (i) after giving effect to such Restricted Payment the aggregate
amount of all Restricted Payments made, paid or declared subsequent to June 30,
1996 would not exceed Consolidated Net Income Available for Restricted Payments
and (ii) no Default or Event of Default exists or would exist after giving
effect thereto.
6C. LIEN, DEBT AND OTHER RESTRICTIONS. The Company will not and will
not permit any Subsidiary to:
6C(1). LIENS. Create, assume or suffer to exist at any time any Lien
upon any of its properties or assets, whether now owned or hereafter acquired
(whether or not provision is made for the equal and ratable securing of the
Notes in accordance with the provisions of paragraph 5D), except:
(i) Liens for taxes not yet due or which are being actively
contested in good faith by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP,
(ii) other Liens incidental to the conduct of its business or
the ownership of its property and assets (including workers'
compensation liens, mechanics' liens and materialmens' liens) which do
not secure Debt and which do not in the aggregate materially detract
from the value of its property or assets or materially impair the use
thereof in the operation of its business,
(iii) Liens on property or assets of a Subsidiary to secure
obligations of such Subsidiary to the Company or a Wholly Owned
Domestic Subsidiary,
(iv) Liens created by the Security Documents securing the
Notes, the Subsidiary Guarantees and, for so long as the Intercreditor
Agreement is in full force and effect, the Bank Debt,
(v) Liens consisting of set-off or similar rights for the
benefit of Bank, provided that the Intercreditor Agreement is in full
force and effect,
(vi) Liens securing Debt outstanding on the date of this
Agreement (excluding any extension or refinancing thereof), in each
case as set forth on Schedule 6C(1), and
(vii) additional Liens securing Debt (exclusive of the Bank
Debt), provided that Priority Debt shall at no time exceed 20% of
Consolidated Tangible Net Worth;
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6C(2). DEBT. Create, incur, assume or suffer to exist at any time any
Debt, except:
(i) Debt of any Subsidiary to the Company or a Wholly Owned
Domestic Subsidiary,
(ii) Debt evidenced by the Notes, the Subsidiary Guarantees
and the Bank Debt, and
(iii) other Debt;
provided that (a) the aggregate amount of Debt (without duplication) permitted
by clauses (ii) and (iii) above shall not exceed an amount equal to (1) 65% of
Total Capitalization at any time through December 31, 1996, (2) 60% of Total
Capitalization at any time thereafter through December 31, 1998, (3) 55% of
Total Capitalization at any time thereafter through December 31, 2000 or (4) 50%
of Total Capitalization at any time thereafter and (b) Priority Debt shall at no
time exceed 20% of Consolidated Tangible Net Worth;
6C(3). LOANS, ADVANCES AND INVESTMENTS. Make or permit to remain
outstanding any loan or advance to, or own, purchase or acquire any stock,
obligations or securities of, or any other interest in, or make any capital
contribution to, any Person, except:
(i) loans or advances to, and stock, obligations or other
securities of, a Subsidiary or a corporation which immediately after
the purchase or acquisition of such stock, obligations or other
securities will be a Subsidiary,
(ii) direct obligations of, or obligations guaranteed by, or
repurchase agreements which are at all times fully collateralized by
direct obligations of, the United States of America maturing not more
than one year from the date of purchase thereof,
(iii) investments in commercial paper rated P-1 by Moody's
Investors Service, Inc. ("MOODY'S") or A-1 by Standard & Poor's
Corporation ("S&P") maturing not more than 270 days from the date of
purchase thereof,
(iv) demand and time deposits with, and certificates of
deposit issued by, any commercial bank or trust company (a) organized
under the laws of the United States or any of its states, (b) having
equity capital in excess of $250,000,000, and (c) rated "A" or better
by Moody's or S&P, in each case (x) payable in the United States in
United States dollars, and (y) which mature within one year from the
date acquired,
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(v) state or municipal general obligation bonds or notes rated
"A" or better by S&P or Moody's and maturing not more than one year
from the date of purchase, and
(vi) other loans, advances and investments, provided that the
aggregate amount thereof, at original cost, at no time exceeds an
amount equal to 15% of Consolidated Tangible Net Worth;
6C(4). SALE OF STOCK AND DEBT OF SUBSIDIARIES. Sell or otherwise
dispose of, or part with control of, any shares of stock or Debt of any
Subsidiary, except to the Company or a Wholly Owned Domestic Subsidiary, and
except that all shares of stock and Debt of any Subsidiary at the time owned by
or owed to the Company and all Subsidiaries may be sold as an entirety for a
cash consideration which represents the fair value (as determined in good faith
by the Board of Directors of the Company) at the time of sale of the shares of
stock and Debt so sold; provided that (i) such sale or other disposition, if
treated as a Transfer of assets of such Subsidiary, would be permitted by
paragraph 6C(6) and (ii) at the time of such sale, such Subsidiary shall not
own, directly or indirectly, any shares of stock or Debt of any other Subsidiary
(unless all of the shares of stock and Debt of such other Subsidiary owned,
directly or indirectly, by the Company and all Subsidiaries are simultaneously
being sold as permitted by this paragraph 6C(4));
6C(5). MERGER AND CONSOLIDATION. Merge or consolidate with or into any
other Person, except that:
(i) any Subsidiary may merge or consolidate with or into the
Company, provided that the Company is the continuing or surviving
corporation,
(ii) any Subsidiary may merge or consolidate with or into a
Wholly Owned Domestic Subsidiary, provided that the Wholly Owned
Domestic Subsidiary is the continuing or surviving corporation, and
(iii) the Company may merge with any other corporation,
provided that (a) the Company shall be the continuing or surviving
corporation and (b) no Default or Event of Default exists or would
exist immediately after giving effect to such merger;
6C(6). TRANSFER OF ASSETS. Transfer any of its assets except that:
(i) any Subsidiary may Transfer assets to the Company or a
Wholly Owned Domestic Subsidiary,
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(ii) the Company or any Subsidiary may sell inventory in the
ordinary course of business and assets no longer used or useful in its
business if such assets are obsolete, and
(iii) the Company or any Subsidiary may otherwise Transfer
assets, provided that after giving effect thereto (a) the Twelve Month
Percentage of Earnings Capacity Transferred pursuant to this clause
(iii) and the proviso in paragraph 6C(4) shall not exceed 10% (or, to
the extent in excess of 10%, such excess is applied on the date of
Transfer to the prepayment of the Notes pursuant to paragraph 4B(1)),
(b) the Twelve Month Percentage of Assets Transferred pursuant to this
clause (iii) and the proviso in paragraph 6C(4) shall not exceed 10%
(or, to the extent in excess of 10%, such excess is applied on the date
of Transfer to the prepayment of the Notes pursuant to paragraph
4B(1)), (c) the Aggregate Percentage of Earnings Capacity Transferred
pursuant to this clause (iii) and the proviso in paragraph 6C(4) shall
not exceed 25% and (d) the Aggregate Percentage of Total Assets
Transferred pursuant to this clause (iii) and the proviso in paragraph
6C(4) shall not exceed 25%.
6C(7). SALE OR DISCOUNT OF, OR LIEN UPON, RECEIVABLES. Sell with
recourse, or discount or otherwise sell for less than the face value thereof, or
subject to a Lien (other than Liens securing the Notes, the Subsidiary
Guarantees and, to the extent the Intercreditor Agreement is in full force and
effect, the Bank Debt), any of its notes or accounts receivable;
6C(8). RELATED PARTY TRANSACTIONS. Directly or indirectly, purchase,
acquire or lease any property from, or sell, transfer or lease any property to,
or otherwise deal with, in the ordinary course of business or otherwise, any
Related Party, other than (i) any such transactions which are demonstrably no
less advantageous to the Company or a Subsidiary than an arm's length
transaction and (ii) consulting payments to, and medical and other non-cash
benefits for, Louis B. Horwitz pursuant to a consulting agreement dated October
9, 1992, as amended or restated from time to time, provided such consulting
payments do not exceed $100,000 in any fiscal year;
6C(9). SALE AND LEASE-BACK. Enter into any arrangement with any lender
or investor or to which such lender or investor is a party providing for the
leasing by the Company or any Subsidiary of real or personal property which has
been or is to be sold or transferred by the Company or any Subsidiary to such
lender or investor or to any Person to whom funds have been or are to be
advanced by such lender or investor on the security of such property or rental
obligations of the Company or any Subsidiary; or
6C(10). SUBSIDIARY DIVIDEND RESTRICTIONS. Enter into, or be otherwise
subject to, any contract or agreement (including its charter) which limits the
amount of, or otherwise imposes restrictions on the payment of, dividends by any
Subsidiary or repayment by any Subsidiary of
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obligations owed to the Company or any other Subsidiary, other than limitations
on such payments and repayments to the extent applicable only to minority
interests.
6D. ISSUANCE OF STOCK BY SUBSIDIARIES. The Company covenants that it
will not permit any Subsidiary (either directly, or indirectly by the issuance
of rights or options for, or securities convertible into, such shares) to issue,
sell or otherwise dispose of any shares of any class of such Subsidiary's stock
(other than directors' qualifying shares) except to the Company or a
Wholly-Owned Domestic Subsidiary.
6E. AMENDMENT TO BANK AGREEMENT. The Company covenants that it will
not, without the written consent of the Required Holders, enter into any
amendment of, or accept any consent or waiver under, the Bank Agreement, if the
effect thereof would be to (i) modify sections 5.9, 6 or 7 thereof (or to add
new operational or financial covenants or defaults thereto), (ii) reduce the
amount of the line of credit available thereunder, or (iii) increase the line of
credit available thereunder to an amount in excess of $13,500,000.
7. EVENTS OF DEFAULT.
7A. ACCELERATION. If any of the following events shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) the Company defaults in the payment of any principal of or
Yield- Maintenance Amount payable with respect to any Note when the
same shall become due, either by the terms thereof or otherwise as
herein provided; or
(ii) the Company defaults in the payment of any interest on
any Note for more than 5 days after the date due; or
(iii) the Company or any Subsidiary defaults (whether as
primary obligor or as guarantor or other surety) in any payment of
principal of or interest on any other Debt beyond any period of grace
provided with respect thereto, or the Company or any Subsidiary fails
to perform or observe any other agreement, term or condition contained
in any agreement under which any such Debt is created (or if any other
event thereunder or under any such agreement shall occur and be
continuing) and the effect of such failure or other event is to cause,
or to permit the holder or holders of such Debt (or a trustee on behalf
of such holder or holders) to cause, such Debt to become due (or to be
repurchased by the Company or any Subsidiary) prior to any stated
maturity, provided that (a) the aggregate amount of all Debt as to
which such a payment default shall occur and be continuing or such a
failure or other event
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causing or permitting acceleration (or resale to the Company or any
Subsidiary) shall occur and be continuing exceeds $1,000,000 or (b)
such Debt is the Bank Debt (regardless of the amount thereof); or
(iv) any representation or warranty made by the Company herein
or in the Warrant or by the Company, any Subsidiary or any of their
officers in any writing furnished in connection with or pursuant to
this Agreement or the Warrant shall be false in any material respect on
the date as of which made; or
(v) the Company fails to perform or observe any agreement
contained in paragraph 5D, 5E or 6; or
(vi) the Company fails to perform or observe any other
agreement, term or condition contained herein or any material
agreement, term or condition in the Warrant and such failure shall not
be remedied within 30 days after any Responsible Officer obtains actual
knowledge thereof; or
(vii) the Company or any Subsidiary makes an assignment for
the benefit of creditors or is generally not paying its debts as such
debts become due; or
(viii) any decree or order for relief in respect of the
Company or any Subsidiary is entered under any bankruptcy,
reorganization, compromise, arrangement, insolvency, readjustment of
debt, dissolution or liquidation or similar law, whether now or
hereafter in effect (herein called the "Bankruptcy Law"), of any
jurisdiction; or
(ix) the Company or any Subsidiary petitions or applies to any
tribunal for, or consents to, the appointment of, or taking possession
by, a trustee, receiver, custodian, liquidator or similar official of
the Company or any Subsidiary, or of any substantial part of the assets
of the Company or any Subsidiary, or commences a voluntary case under
the Bankruptcy Law of the United States or any proceedings (other than
proceedings for the voluntary liquidation and dissolution of a
Subsidiary) relating to the Company or any Subsidiary under the
Bankruptcy Law of any other jurisdiction; or
(x) any such petition or application is filed, or any such
proceedings are commenced, against the Company or any Subsidiary and
the Company or such Subsidiary by any act indicates its approval
thereof, consent thereto or acquiescence therein, or an order, judgment
or decree is entered appointing any such trustee, receiver, custodian,
liquidator or similar official, or approving the petition in any
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such proceedings, and such order, judgment or decree remains unstayed
and in effect for more than 30 days; or
(xi) any order, judgment or decree is entered in any
proceedings against the Company decreeing the dissolution of the
Company and such order, judgment or decree remains unstayed and in
effect for more than 30 days; or
(xii) any order, judgment or decree is entered in any
proceedings against the Company or any Subsidiary decreeing a split-up
of the Company or such Subsidiary which requires the divestiture of
assets representing a substantial part, or the divestiture of the stock
of a Subsidiary whose assets represent 10% or more, of the consolidated
assets of the Company and its Subsidiaries or which requires the
divestiture of assets, or stock of a Subsidiary, which shall have
contributed 10% or more of the consolidated net income of the Company
and its Subsidiaries for any of the three fiscal years then most
recently ended, and such order, judgment or decree remains unstayed and
in effect for more than 30 days; or
(xiii) a final judgment or judgments in an amount in excess of
$2,500,000 are rendered against the Company or any Subsidiary and,
within 30 days after entry thereof, such judgment is not discharged or
execution thereof stayed pending appeal, or within 30 days after the
expiration of any such stay, such judgment is not discharged; or
(xiv) any representation or warranty made by the Company or
any Subsidiary in any Security Document or Subsidiary Guaranty or by
any of their officers in any writing furnished in connection with or
pursuant to any Security Document or Subsidiary Guaranty shall be false
or misleading in any material respect on the date as of which made; or
(xv) the Company or any Subsidiary shall fail to perform or
observe any material agreement, term or condition contained in, or
otherwise be in default (beyond any applicable grace period) under, any
of the Security Documents or Subsidiary Guarantees to which it is a
party; or any of the Security Documents or Subsidiary Guarantees shall
fail to be in full force and effect or otherwise shall not be
enforceable in accordance with its terms; or the Company or any
Subsidiary shall contest or deny the validity or enforceability of, or
deny that it has any liability or obligations under, any agreement,
term or condition contained in any Security Document or Subsidiary
Guaranty to which it is a party; or
(xvi) the Collateral Agent does not have, or ceases to have, a
valid first
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priority security interest in all of the Collateral, or the
Intercreditor Agreement shall cease to be in full force and effect; or
(xvii) (a) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is
sought or granted under section 412 of the Code, (b) a notice of intent
to terminate any Plan shall have been or is reasonably expected to be
filed with the PBCG or the PBGC shall have instituted proceedings under
ERISA section 4042 to terminate or appoint a trustee to administer any
Plan or the PBGC shall have notified the Company or any ERISA Affiliate
that a Plan may become a subject of such proceedings, (c) any "amount
of unfunded benefit liabilities" (within the meaning of section
4001(a)(18) of ERISA) exists under any Plan, (d) the Company or any
ERISA Affiliate shall have incurred or is reasonably expected to incur
any liability pursuant to Title I or IV or ERISA or the penalty or
excise tax provisions of the Code relating to employee benefit plans,
(e) the Company or any ERISA Affiliate withdraws from any Multiemployer
Plan, or (f) the Company or any Subsidiary establishes or amends any
employee welfare benefit plan that provides post-employment welfare
benefits in a manner that would increase the liability of the Company
or any Subsidiary thereunder; and any such event or events described in
clauses (a) through (f) above, either individually or together with any
other such event or events, results or could reasonably be expected to
result, in aggregate liability of the Company and Subsidiaries in
excess of $1,000,000;
then (a) if such event is an Event of Default specified in clause (i) or (i) of
this paragraph 7A, the holder of any Note (other than the Company or any of its
Subsidiaries or Affiliates) may at its option, by notice in writing to the
Company, declare such Note to be, and such Note shall thereupon be and become,
immediately due and payable at par together with interest accrued thereon,
without presentment, demand, protest or additional notice of any kind, all of
which are hereby waived by the Company, (b) if such event is an Event of Default
specified in clause (viii), (ix) or (x) of this paragraph 7A with respect to the
Company, all of the Notes at the time outstanding shall automatically become
immediately due and payable together with interest accrued thereon and the
Yield-Maintenance Amount, if any, with respect to each Note, without
presentment, demand, protest or notice of any kind, all of which are hereby
waived by the Company, and (c) with respect to any event constituting an Event
of Default hereunder (including an Event of Default described in clause (i) or
(ii) of this paragraph 7A), the Required Holder(s) of the Notes may at its or
their option, by notice in writing to the Company, declare all of the Notes to
be, and all of such Notes shall thereupon be and become, immediately due and
payable together with interest accrued thereon and the Yield- Maintenance
Amount, if any, with respect to each such Note, without presentment, demand,
protest or additional notice of any kind, all of which are hereby waived by the
Company.
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7B. RESCISSION OF ACCELERATION. At any time after any or all of the
Notes shall have been declared immediately due and payable pursuant to paragraph
7A, the Required Holder(s) of the Notes may, by notice in writing to the
Company, rescind and annul such declaration and its consequences if (i) the
Company shall have paid all overdue interest on such Notes, the principal of and
Yield-Maintenance Amount, if any, payable with respect to such Notes which have
become due otherwise than by reason of such declaration, and interest on such
overdue interest, overdue principal and Yield-Maintenance Amount at the rate
specified herein or in such Notes, (ii) the Company shall not have paid any
amounts which have become due solely by reason of such declaration, (iii) all
Events of Default and Defaults, other than non-payment of amounts which have
become due solely by reason of such declaration, shall have been cured or waived
pursuant to paragraph 11C, and (iv) no judgment or decree shall have been
entered for the payment of any amounts due pursuant to the Notes or this
Agreement. No such rescission or annulment shall extend to or affect any
subsequent Event of Default or Default or impair any right arising therefrom.
7C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall be
declared immediately due and payable pursuant to paragraph 7A or any such
declaration shall be rescinded and annulled pursuant to paragraph 7B, the
Company shall forthwith give written notice thereof to the holder of each Note
at the time outstanding.
7D. OTHER REMEDIES. If any Event of Default or Default shall occur and
be continuing, the holder of any Note may proceed to protect and enforce its
rights under this Agreement, such Note and the Security Documents by exercising
such remedies as are available to such holder in respect thereof (i) under the
Security Documents and (ii) under applicable law, either by suit in equity or by
action at law, or both, whether for specific performance of any covenant or
other agreement contained in this Agreement or any Security Document or in aid
of the exercise of any power granted in this Agreement. No remedy conferred in
this Agreement or any Security Document upon the holder of any Note is intended
to be exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to every other remedy conferred herein, in
any Security Document or now or hereafter existing at law or in equity or by
statute or otherwise.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents,
covenants and warrants as follows:
8A. ORGANIZATION; CAPITAL STOCK. The Company is a corporation duly
organized and existing in good standing under the laws of the State of Delaware,
and each Subsidiary is a corporation duly organized and existing in good
standing under the laws of its jurisdiction of incorporation. Each of the
Company and its Subsidiaries has the corporate power and authority to own or
hold under lease the properties it purports to own or hold under lease, to
transact the business it transacts and proposes to transact, to execute and
deliver (to the extent a party thereto) this
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Agreement, the Securities, the Security Documents, the Subsidiary Guarantees and
the Intercreditor Agreement and to perform (to the extent a party thereto) the
provisions hereof and thereof. Schedule 8A contains (except as noted therein)
complete and correct lists (i) of the Company's Subsidiaries, showing, as to
each Subsidiary, the correct name thereof, the jurisdiction of its organization,
and the percentage of shares of each class of its capital stock or similar
equity interests outstanding owned by the Company and each other Subsidiary and
(ii) of the Company's Affiliates. All of the outstanding shares of capital stock
or similar equity interests of each Subsidiary shown in Schedule 8A as being
owned by the Company and its Subsidiaries have been validly issued, are fully
paid and nonassessable and are owned by the Company or another Subsidiary free
and clear of any Lien (except as otherwise disclosed in Schedule 8A).
8B. FINANCIAL STATEMENTS; RESTRICTED PAYMENTS. The Company has
furnished Prudential with the following financial statements, identified by a
principal financial officer of the Company: (i) a consolidated balance sheet of
the Company and its Subsidiaries as at December 31 in each of the years 1993 to
1995, and consolidated statements of income, stockholders' equity and cash flows
of the Company and its Subsidiaries for each such year, all reported on by Price
Waterhouse LLP; and (ii) a consolidated balance sheet of the Company and its
Subsidiaries as at June 30 in each of the years 1996 and 1995 and consolidated
statements of income, stockholders' equity and cash flows for the six-month
period ended on each such date, prepared by the Company. Such financial
statements (including any related schedules and/or notes) are true and correct
in all material respects (subject, as to interim statements, to changes
resulting from audits and year-end adjustments), have been prepared in
accordance with GAAP consistently followed throughout the periods involved and
show all liabilities, direct and contingent, of the Company and its Subsidiaries
required to be shown in accordance with such principles. The balance sheets
fairly present the condition of the Company and its Subsidiaries as at the dates
thereof, and the statements of income, stockholders' equity and cash flows
fairly present the results of the operations of the Company and its Subsidiaries
and their cash flows for the periods indicated. There has been no material
adverse change in the business, condition (financial or otherwise) or operations
of the Company and its Subsidiaries taken as a whole since December 31, 1995. No
Restricted Payment has been made by the Company or any Subsidiary from June 30,
1996 through the Closing Day.
8C. ACTIONS PENDING. There is no action, suit, investigation or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries, or any properties or rights of the Company
or any of its Subsidiaries, by or before any court, arbitrator or administrative
or governmental body which might result in any material adverse change in the
business, condition (financial or otherwise) or operations of the Company and
its Subsidiaries taken as a whole.
8D. OUTSTANDING DEBT. Upon giving effect to the use of proceeds from
the sale of Notes as contemplated by paragraph 8J, neither the Company nor any
of its Subsidiaries has
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outstanding any Debt except as permitted by paragraph 6C(2). There exists no
default under the provisions of any instrument evidencing such Debt or of any
agreement relating thereto.
8E. TITLE TO PROPERTIES. The Company and each Subsidiary has good and
indefeasible title to its respective real properties (other than properties
which it leases) and good title to all of its other properties and assets,
including, without limitation, all properties and assets reflected in the most
recent audited balance sheet referred to in paragraph 8B, subject to no Lien of
any kind except Liens permitted by paragraph 6C(1). All leases necessary in any
material respect for the conduct of the business of the Company and each
Subsidiary are valid and subsisting and are in full force and effect.
8F. ENVIRONMENTAL COMPLIANCE. The Company and its Subsidiaries and all
of their respective properties and facilities have complied at all times and in
all respects with all Environmental Laws, except where failure to comply would
not result in a material adverse effect on the business, condition (financial or
otherwise) or operations of the Company and its Subsidiaries taken as a whole.
8G. TAXES. The Company has and each of its Subsidiaries has filed all
federal, state, foreign and other income tax returns which, to the best
knowledge of the officers of the Company, are required to be filed, and each has
paid all taxes as shown on such returns and on all assessments received by it to
the extent that such taxes have become due, except such taxes as are being
contested in good faith by appropriate proceedings for which adequate reserves
have been established in accordance with GAAP.
8H. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the Company nor
any of its Subsidiaries is a party to any contract or agreement or subject to
any charter or other corporate restriction which materially and adversely
affects its business, property or assets, or financial condition. Neither the
execution nor delivery of this Agreement, any Security Document, any Subsidiary
Guaranty or the Securities, nor the offering, issuance and sale of the
Securities, nor the fulfillment of nor compliance with the terms and provisions
hereof, of any Security Document, any Subsidiary Guaranty or of the Securities
will conflict with, or result in a breach of the terms, conditions or provisions
of, or constitute a default under, or result in any violation of, or result in
the creation of any Lien (other than Liens created for the benefit of the
Collateral Agent pursuant to the Security Documents) upon any of the properties
or assets of the Company or any of its Subsidiaries pursuant to, the charter or
by-laws of the Company or any of its Subsidiaries, any award of any arbitrator
or any agreement (including any agreement with stockholders of the Company or
Persons with direct or indirect ownership interests in stockholders of the
Company), instrument, order, judgment, decree, statute, law, rule or regulation
to which the Company or any of its Subsidiaries is subject. Neither the Company
nor any of its Subsidiaries is a party to, or otherwise subject to any provision
contained in, any instrument evidencing indebtedness of the Company or such
Subsidiary,
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any agreement relating thereto or any other contract or agreement (including its
charter) which prohibits (i) incurrence of the Debt to be evidenced by the Notes
or the Subsidiary Guarantees, (ii) issuance of the Warrant, (iii) upon exercise
of the Warrant, issuance of the common stock purchasable thereunder or (iv) the
granting of the Liens purported to be granted by the Security Documents.
8I. OFFERING OF SECURITIES. Neither the Company nor any agent acting on
its behalf has, directly or indirectly, offered the Notes, the Warrant or any
similar security of the Company for sale to, or solicited any offers to buy the
Notes, the Warrant or any similar security of the Company from, or otherwise
approached or negotiated with respect thereto with, any Person other than not
more than 25 Institutional Investors, and neither the Company nor any agent
acting on its behalf has taken or will take any action which would subject the
issuance or sale of the Notes to the provisions of section 5 of the Securities
Act or to the provisions of any securities of Blue Sky law of any applicable
jurisdiction.
8J. REGULATION G, ETC. The proceeds of sale of the Notes will be used
to repay existing indebtedness owed to the Bank. None of the proceeds of any
Note will be used, directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of purchasing or carrying any margin stock or for the
purpose of maintaining, reducing or retiring any indebtedness which was
originally incurred to purchase or carry any stock that is currently a margin
stock or for any other purpose which might constitute this transaction a
"purpose credit" within the meaning of such Regulation G. Neither the Company
nor any agent acting on its behalf has taken or will take any action which might
cause this Agreement or the Notes to violate Regulation G, Regulation T or any
other regulation of the Board of Governors of the Federal Reserve System or to
violate the Exchange Act, in each case as in effect now or as the same may
hereafter be in effect.
8K. ERISA. No accumulated funding deficiency (as defined in section 302
of ERISA and section 412 of the Code), whether or not waived, exists with
respect to any Plan (other than a Multiemployer Plan). No liability to the
Pension Benefit Guaranty Corporation has been or is expected by the Company or
any ERISA Affiliate to be incurred with respect to any Plan (other than a
Multiemployer Plan) by the Company, any Subsidiary or any ERISA Affiliate which
is or would be materially adverse to the business, condition (financial or
otherwise) or operations of the Company and its Subsidiaries taken as a whole.
Neither the Company, any Subsidiary nor any ERISA Affiliate has incurred or
presently expects to incur any withdrawal liability under Title IV of ERISA with
respect to any Multiemployer Plan which is or would be materially adverse to the
business, condition (financial or otherwise) or operations of the Company and
its Subsidiaries taken as a whole. The execution and delivery of this Agreement
and the issuance and sale of the Notes will be exempt from, or will not involve
any transaction which is subject to, the prohibitions of section 406 of ERISA
and will not involve any transaction in connection with which a penalty could be
imposed under section 502(i) of ERISA or a tax could be imposed pursuant to
section 4975 of the
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Code. The representation by the Company in the next preceding sentence is made
in reliance upon and subject to the accuracy of Prudential's representation in
paragraph 9B as to the source of funds to be used by it to purchase the Notes.
8L. GOVERNMENTAL CONSENT. Neither the nature of the Company or of any
Subsidiary nor any of their respective businesses or properties, nor any
relationship between the Company or any Subsidiary and any other Person, nor any
circumstance in connection with the offering, issuance, sale or delivery of the
Securities or the use of the proceeds thereof is such as to require any
authorization, consent, approval, exemption or other action by or notice to or
filing with any court or administrative or governmental body (excluding routine
filings with respect to the Notes to be made after the date of closing with the
Securities and Exchange Commission and/or state Blue Sky authorities and the
filing of appropriate notices for perfection of security interests) in
connection with (i) the execution and delivery of this Agreement, any Security
Document or any Subsidiary Guaranty, (ii) the offering, issuance, sale or
delivery of the Securities, or (iii) the fulfillment of or compliance with the
terms and provisions hereof, of the Securities, any Security Document or any
Subsidiary Guaranty.
8M. REPRESENTATION RE LUCENT AND ANY OTHER MATERIAL CONTRACTS. Neither
the Company nor any Subsidiary has received notice or is otherwise aware that
any contract material to its business (including the Lucent Contract) has been
or will be terminated, or that the quantity or price of products sold under any
such contract has been or is proposed to be reduced in any material way
(exclusive of ordinary quantity fluctuations resulting from the "demand-pull"
component of the Lucent Contract and price reductions currently set forth in the
Lucent Contract), or that any material amount of product delivered under any
such contract is considered to be defective or otherwise unsatisfactory by the
purchaser or any user(s) thereof.
8N. REGULATORY STATUS. Neither the Company nor any Subsidiary is (i) an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, (ii) a "holding
company" or a "subsidiary company" or an "affiliate" of a "holding company" or a
"subsidiary company" of a "holding company", within the meaning of the Public
Utility Act of 1935, as amended, or (iii) a "public utility" within the meaning
of the Federal Power Act, as amended.
8O. RULE 144A. The Securities are not of the same class as securities
of the Company listed on a national securities exchange registered under Section
6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation
system.
8P. ABSENCE OF FINANCING STATEMENTS, ETC. Except with respect to Liens
permitted by paragraph 6C(1) hereof, there is no financing statement, security
agreement, chattel mortgage, real estate mortgage or other document filed or
recorded with any filing records, registry or other public
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office, that purports to cover, affect or give notice of any present or possible
future Lien on, or security interest in, any assets or property of the Company
or any of its Subsidiaries or any rights relating thereto.
8Q. ESTABLISHMENT OF SECURITY INTEREST. All filings, assignments,
pledges and deposits of documents or instruments have been made and all other
actions have been taken, that are required to be made or taken on or prior to
the Closing Day to establish the Collateral Agent's security interest in the
Collateral. With the exception of rights of set-off of the Bank permitted by
paragraph 6C(1)(v), the Collateral and the Collateral Agent's rights with
respect to the Collateral are not subject to any set off, claims, withholdings
or other defenses. The Company or a Subsidiary (as the case may be) is the owner
of the Collateral described in each Security Document free from any Lien, except
for Liens in favor of the Collateral Agent and Liens permitted by paragraph
6C(1)(vi).
8R. POSSESSION OF INTELLECTUAL PROPERTY. Except as set forth on
Schedule 8R, neither the Company nor any Subsidiary has any patents, trademarks,
service marks, trade names, copyrights or similar intellectual property
(collectively, "Intellectual Property") which are material to the conduct of its
business. The Company and its Subsidiaries possess, free from burdensome
restriction, all Intellectual Property that are necessary in any material
respect for the ownership, maintenance and operation of their business,
properties and assets, and, to the knowledge of the Company, neither the Company
nor any Subsidiary has infringed upon or violated the Intellectual Property of
any third party. The Company is not aware of any material violation by any third
party of any Intellectual Property of the Company or any Subsidiary. All patents
of the Company and Subsidiaries are pledged as security to the Collateral Agent
for the benefit of the Bank and the holder of the Note and filings reflecting
such pledges are of record in the United States Patent and Trademark Office.
8S. DISCLOSURE. Neither this Agreement, the Warrant, any Security
Document, any Subsidiary Guaranty nor any other document or certificate
furnished by or on behalf of the Company or any Subsidiary in connection with
this Agreement, any Security Document, any Subsidiary Guaranty or the issuance
of the Securities (including, without limitation, the Confidential Information
Memorandum distributed by ABN AMRO Inc. when read in conjunction with the
Company's reports filed pursuant to the Exchange Act) contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein not misleading. There
is no fact peculiar to the Company or any of its Subsidiaries which materially
adversely affects or in the future may (so far as the Company can now reasonably
foresee) materially adversely affect the business, property or assets, or
financial condition of the Company or any of its Subsidiaries which has not been
set forth in this Agreement or in the other documents, certificates and
statements furnished in connection with the transactions contemplated hereby by
or on behalf of the Company prior to the date hereof or any date on which this
representation is repeated or confirmed in connection with the transactions
contemplated hereby. All financial projections
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delivered by the Company to Prudential are reasonable based upon the assumptions
stated therein and the best information available to the officers of the
Company.
9. REPRESENTATIONS OF PRUDENTIAL. Prudential represents as follows:
9A. NATURE OF PURCHASE. It is not acquiring the Notes to be purchased
by it hereunder with a view to or for sale in connection with any distribution
thereof within the meaning of the Securities Act, provided that the disposition
of its property shall at all times be and remain within its control.
9B. SOURCE OF FUNDS. No part of the funds being used by it to pay the
purchase price of the Notes being purchased by it hereunder constitutes assets
allocated to any separate account maintained by it in which any employee benefit
plan, other than employee benefit plans identified on a list (if any) which has
been furnished by it to the Company, participates to the extent of 10% or more.
For the purpose of this paragraph 9B, the terms "separate account" and "employee
benefit plan" shall have the respective meanings specified in section 3 of
ERISA.
10. DEFINITIONS; ACCOUNTING MATTERS. For the purpose of this Agreement,
the terms defined in paragraphs 10A and 10B (or within the text of any other
paragraph) shall have the respective meanings specified therein and all
accounting matters shall be subject to determination as provided in paragraph
10C.
10A. YIELD-MAINTENANCE TERMS.
"BUSINESS DAY" shall mean any day other than a Saturday, a
Sunday or a day on which commercial banks in New York City are required or
authorized to be closed.
"CALLED PRINCIPAL" shall mean, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to paragraph 4B or
purchased by the Company pursuant to paragraph 5E or becomes immediately due and
payable pursuant to paragraph 7A, as the context requires.
"DISCOUNTED VALUE" shall mean, with respect to the Called
Principal of any Note, the amount obtained by discounting all Remaining
Scheduled Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a discount
factor (as converted to reflect the periodic basis on which interest on such
Note is payable, if interest is payable other than on a semi-annual basis) equal
to the Reinvestment Yield with respect to such Called Principal.
"REINVESTMENT YIELD" shall mean, with respect to the Called
Principal of any
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Series A Note, 1.00% over, and with respect to any Series B Note, .75% over, the
yield to maturity implied by (i) the yields reported, as of 10:00 a.m. (New York
City time) on the Business Day next preceding the Settlement Date with respect
to such Called Principal, on the display designated as "Page 678" on the
Telerate Service (or such other display as may replace Page 678 on the Telerate
Service) for actively traded U.S. Treasury securities having a maturity equal to
the Remaining Average Life of such Called Principal as of such Settlement Date,
or if such yields shall not be reported as of such time or the yields reported
as of such time shall not be ascertainable, (i) the Treasury Constant Maturity
Series yields reported, for the latest day for which such yields shall have been
so reported as of the Business Day next preceding the Settlement Date with
respect to such Called Principal, in Federal Reserve Statistical Release H.15
(519) (or any comparable successor publication) for actively traded U.S.
Treasury securities having a constant maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date. Such implied yield
shall be determined, if necessary, by (a) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted financial
practice and (b) interpolating linearly between yields reported for various
maturities.
"REMAINING AVERAGE LIFE" shall mean, with respect to the
Called Principal of any Note, the number of years (calculated to the nearest
one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the
sum of the products obtained by multiplying (a) each Remaining Scheduled Payment
of such Called Principal (but not of interest thereon) by (b) the number of
years (calculated to the nearest one-twelfth year) which will elapse between the
Settlement Date with respect to such Called Principal and the scheduled due date
of such Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the
Called Principal of any Note, all payments of such Called Principal and interest
thereon that would be due on or after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to its
scheduled due date.
"SETTLEMENT DATE" shall mean, with respect to the Called
Principal of any Note, the date on which such Called Principal is to be prepaid
pursuant to paragraph 4B or purchased pursuant to paragraph 5E or becomes
immediately due and payable pursuant to paragraph 7A, as the context requires.
"YIELD-MAINTENANCE AMOUNT" shall mean, with respect to any
Note, an amount equal to the excess, if any, of the Discounted Value of the
Called Principal of such Note over the sum of (i) such Called Principal plus (i)
interest accrued thereon as of (including interest due on) the Settlement Date
with respect to such Called Principal. The Yield-Maintenance Amount shall in no
event be less than zero.
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10B. OTHER TERMS.
"AFFILIATE" shall mean any Person directly or indirectly
controlling, controlled by, or under direct or indirect common control with, the
Company or another specified Person, except a Subsidiary. A Person shall be
deemed to control a corporation if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.
"AGGREGATE PERCENTAGE OF EARNINGS CAPACITY TRANSFERRED" shall
mean, with respect to the period commencing on July 1, 1996 and ending on the
last day of the fiscal quarter most recently ended as of any date of
determination, the sum of the Percentages of Earnings Capacity Transferred for
each asset of the Company and Subsidiaries Transferred during such period
pursuant to clause (iii) of paragraph 6C(6) or the proviso in paragraph 6C(4).
"AGGREGATE PERCENTAGE OF TOTAL ASSETS TRANSFERRED" shall mean
the sum of the Percentages of Total Assets Transferred for each asset of the
Company and Subsidiaries that is Transferred pursuant to clause (iii) of
paragraph 6C(6) or the proviso in paragraph 6C(4) during the period commencing
on July 1, 1996 and ending on any date of determination.
"BANK" shall mean Wells Fargo Bank N.A. and any other provider
of Bank Debt to the Company.
"BANK AGREEMENT" shall mean the Amended and Restated Credit
Agreement dated as of September 27, 1996, between the Company and the Bank.
"BANK DEBT" shall mean Debt of the Company incurred and
outstanding pursuant to the Bank Agreement and guaranteed by the Subsidiary
Guarantors, or any replacement facility providing for aggregate borrowings of at
least $5,000,000, the lender or lenders under which have become party to the
Intercreditor Agreement.
"BANKRUPTCY LAW" shall have the meaning specified in clause
(viii) of paragraph 7A.
"BUSINESS DAY" shall have the meaning specified in paragraph
10A.
"CAPITAL STOCK" of any Person, shall mean any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock, including each class of common stock and preferred stock of such Person
or partnership interests and any warrants, options or other rights to acquire
such stock or interests.
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<PAGE> 34
"CAPITALIZED LEASE OBLIGATION" shall mean any rental
obligation which, under GAAP, is or will be required to be capitalized on the
books of the Company or any Subsidiary, taken at the amount thereof accounted
for as indebtedness (net of interest expense) in accordance with such
principles.
"CHANGE OF CONTROL" shall mean (i) an event or series of
events by which any Person or Persons or other entities acting in concert as a
partnership or other group (a "Group of Persons"), shall, as a result of a
tender or exchange offer, open market purchases, privately negotiated purchases,
merger, consolidation or otherwise, have become the beneficial owner (within the
meaning of Rule 13d-3 under the Securities Exchange Act), of 50% or more of the
Voting Power of the Company, (ii) the Company is merged with or into another
corporation with the effect that immediately after such transaction the
stockholders of the Company immediately prior to such transaction hold less than
a majority of the combined Voting Power of the Person surviving the transaction,
(iii) the direct or indirect Transfer of all or substantially all of the assets
of the Company to any Person or Group of Persons or (iv) the failure of any
person nominated by management to be elected to the Company's board of directors
to be so elected in any contested board election, with the result that a
majority of the persons elected to serve on the Company's board of directors
have not been nominated for election by management.
"CLOSING DAY" shall have the meaning provided in paragraph 2A.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended.
"COLLATERAL" shall mean the property and rights purported to
be pledged as security pursuant to the Security Documents.
"COLLATERAL AGENT" shall mean Wells Fargo Bank N.A. and any
successor thereto as such under the Intercreditor Agreement.
"COMPANY" shall have the meaning specified in the introductory
paragraph of this Agreement.
"CONSOLIDATED CURRENT LIABILITIES" shall mean, as at any time
of determination thereof, the consolidated current liabilities of the Company
and its Subsidiaries.
"CONSOLIDATED NET INCOME" shall mean, as to any period,
consolidated gross revenues of the Company and Subsidiaries less all operating
and non-operating expenses for such period, including all charges of a proper
character (including current and deferred taxes on income, provision for taxes
on unremitted foreign earnings which are included in gross revenues, and current
additions to reserves), but excluding from gross revenues (i) any gains (net of
expenses and taxes
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<PAGE> 35
applicable thereto) in excess of losses resulting from the sale, conversion or
other disposition of capital assets (i.e., assets other than current assets),
(i) any gains resulting from the write-up of assets, (i(i) any equity in the
unremitted earnings of any Person which is not a Subsidiary, (iv) any earnings
of any Person acquired through purchase, merger or consolidation or otherwise
for any fiscal period prior to the fiscal period of acquisition, (v) any
extraordinary gain or loss or (vi) any deferred credit representing the excess
of equity in any Subsidiary at the date of acquisition over the cost of the
investment in such Subsidiary.
"CONSOLIDATED NET INCOME AVAILABLE FOR RESTRICTED PAYMENTS"
shall mean an amount equal to (a) $500,000 plus (b) 25% (or minus 100% in the
case of a deficit) of Consolidated Net Income for the period (taken as one
accounting period) commencing on July 1, 1996 and terminating at the end of the
last fiscal quarter preceding the date of any proposed Restricted Payment, plus
(c) the aggregate net cash proceeds received by the Company from the sale of its
capital stock subsequent to the Closing Day (exclusive of capital stock sold to
Subsidiaries and capital stock which is subject to mandatory redemption or which
can be put to the Company or a Subsidiary at the option of the holder thereof).
"CONSOLIDATED QUICK ASSETS" shall mean, as of any time of
determination thereof, the aggregate amount of cash, cash equivalents and
accounts receivable of the Company and Subsidiaries, determined on a
consolidated basis.
"CONSOLIDATED TANGIBLE NET WORTH" shall mean, as at any time
of determination thereof, the sum of (i) the stated or par value of the
Company's capital stock of all classes, plus (or minus in the case of a surplus
deficit), (ii) the amount of the Company's consolidated surplus, whether capital
or earned, plus (iii) the amount of the Company's paid in capital, less (iv) the
amount of any treasury stock and other contra-equity accounts of the Company,
less (v) the amount of any Intangibles, less (vi) the amount of any foreign
currency translation adjustment.
"DEBT" shall mean, with respect to any Person without
duplication, (i) indebtedness for borrowed money (including purchase money and
similar obligations) payable within one year of the date of creation (exclusive
of trade and taxes payables), (ii) any obligation payable more than one year
from the date of creation thereof which in accordance with GAAP should be shown
on a balance sheet as a liability (including Capitalized Lease Obligations but
excluding (a) reserves for deferred taxes (b) long term compensation and
severance obligations in existence on June 30, 1996 and (c) post-retirement
benefit liabilities in accordance with Financial Accounting Standards Board
Statement No. 106), (ii(i) any obligation of the sort described in clause (i) or
(ii) which is secured by any Lien on property owned by such Person, whether or
not the obligation secured thereby shall have been assumed by such Person, (iv)
all mandatorily redeemable capital stock of such Person, (v) if such Person is a
Subsidiary, all preferred stock of such Person (except to the extent held by the
Company or a Wholly-Owned Domestic Subsidiary), (vi) all obligations of
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<PAGE> 36
such Person with respect to letters of credit and similar instruments and (vii)
all obligations with respect to which such Person has become liable by way of a
Guarantee.
"ENVIRONMENTAL LAWS" shall mean all federal, state, local and
foreign laws relating to pollution or protection of the environment, including
laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment (including, without limitation,
ambient air, surface water, ground water or land), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes, and any and all regulations, codes,
plans, orders, decrees, judgments, injunctions, notices or demand letters
issued, entered, promulgated or approved thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ERISA AFFILIATE" shall mean any corporation which is a member
of the same controlled group of corporations as the Company within the meaning
of section 414(b) of the Code, or any trade or business which is under common
control with the Company within the meaning of section 414(c) of the Code.
"EVENT OF DEFAULT" shall mean any of the events specified in
paragraph 7A, provided that there has been satisfied any requirement in
connection with such event for the giving of notice, or the lapse of time, or
the happening of any further condition, event or act, and "DEFAULT" shall mean
any of such events, whether or not any such requirement has been satisfied.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
"FIXED CHARGES" shall mean, for any period, the aggregate
amount of (i) interest expense (including, without limitation, all commissions,
discounts or related amortization and other fees and charges with respect to
letters of credit and bankers' acceptance financing and the net costs associated
with interest swap obligations, amortization of debt expense and original issue
discount and the interest portion of any deferred payment obligation, calculated
in accordance with the effective interest method), (ii) operating lease and rent
expense and (iii) required principal payments on Funded Debt (other than the
Bank Debt) of the Company and Subsidiaries determined on a consolidated basis.
"FUNDED DEBT" shall mean Debt due more than one year from the
date of creation thereof, including in any event the Bank Debt.
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<PAGE> 37
"GAAP" shall mean generally accepted accounting principles, as
in existence from time to time, applied on a basis consistent with the financial
statements delivered pursuant to paragraph 5A(i) or, if no such financial
statements have been delivered, the most recent financial statements referenced
in clause (i) of paragraph 8B.
"GUARANTEE" shall mean, with respect to any Person, any direct
or indirect liability, contingent or otherwise, of such Person with respect to
any indebtedness, lease, dividend or other obligation of another, including,
without limitation, any such obligation directly or indirectly guaranteed,
endorsed (otherwise than for collection or deposit of negotiable instruments in
the ordinary course of business) or discounted or sold with recourse by such
Person, or in respect of which such Person is otherwise directly or indirectly
liable, including, without limitation, any such obligation in effect guaranteed
by such Person through any agreement (contingent or otherwise) to
(i) purchase, repurchase or otherwise acquire such obligation
or any security therefor, or to provide funds for the payment or
discharge of such obligation (whether in the form of loans, advances,
stock purchases, capital contributions or otherwise),
(ii) maintain the solvency or any balance sheet or other
financial condition of the obligor of such obligation,
(iii) make payment for any products, materials or supplies or
for any transportation or services regardless of the non-delivery or
non-furnishing thereof,
(iv) rent or lease (as lessee) any real or personal property
if such contract (or any related document) provides that the obligation
to make payments thereunder is absolute and unconditional under
conditions not customarily found in commercial leases then in general
use or requires that the lessee purchase or otherwise acquire
securities or obligations of the lessor, or
(v) sell or provide materials, supplies or other property or
services, if such agreement (or any related document) requires that
payment for such materials, supplies or other property or services,
shall be subordinated to any indebtedness (of the purchaser or user of
such materials, supplies or other property or the Person entitled to
the benefit of such services) owed or to be owed to any Person,
in any such case if the purpose, intent or effect of such agreement is to
provide assurance that such obligation will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected against loss in respect thereof. The amount of any
Guarantee shall be equal to the outstanding principal amount of the obligation
guaranteed or
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such lesser amount to which the maximum exposure of the guarantor shall have
been specifically limited.
"INCLUDING" shall mean, unless the context clearly requires
otherwise, "including without limitation".
"INCOME AVAILABLE FOR FIXED CHARGES" shall mean, for any
period, Consolidated Net Income plus, to the extent deducted in the calculation
thereof, depreciation, amortization, taxes, extraordinary losses and Fixed
Charges (other than Fixed Charges described in clause (i(i) of the definition
thereof), and less any extraordinary income included in Consolidated Net Income.
"INSTITUTIONAL INVESTOR" shall mean an insurance company,
bank, finance company, mutual fund, registered money manager, pension fund,
investment company, "qualified institutional buyer" (as such term is defined
under Rule 144A promulgated under the Securities Act, or any successor law, rule
or regulation) or "accredited investor" (as such term is defined under
Regulation D promulgated under the Securities Act, or any successor law, rule or
regulation).
"INTANGIBLES" shall mean any patents, trademarks, copyrights,
trade names, licenses, operating agreements, deferred or capitalized research
and development costs, intellectual know-how, software and engineering programs,
goodwill (including any amounts, however designated, representing the cost of
acquisition of businesses and investments in excess of the book value thereof),
unamortized debt discount and expense, any write-up of asset values after June
30, 1996 and any other assets treated as intangible assets under GAAP.
"INTERCREDITOR AGREEMENT" shall have the meaning provided in
paragraph 3H(iv).
"LIEN" shall mean any mortgage, pledge, security interest,
encumbrance, deposit agreement, lien (statutory or otherwise) or charge of any
kind (including any agreement to give any of the foregoing, any set-off or
similar rights (whether statutory, contractual or arising under law), any
conditional sale or other title retention agreement, any lease in the nature
thereof, and the filing of or agreement to give any financing statement under
the Uniform Commercial Code of any jurisdiction) or any other type of
preferential arrangement for the purpose, or having the effect, of protecting a
creditor against loss or securing the payment or performance of an obligation.
"LUCENT CONTRACT" shall mean that certain contract between the
Company and Efratom Time and Frequency Products, Inc., on the one hand, and
Lucent Technologies Inc. (as successor to AT&T Corp.), on the other hand, dated
June 12, 1995.
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"MULTIEMPLOYER PLAN" shall mean any Plan which is a
"multiemployer plan" as such term is defined in section 4001(a)(3) of ERISA.
"NOTE" and "NOTES" shall have the meaning specified in
paragraph 1B.
"PERCENTAGE OF EARNINGS CAPACITY TRANSFERRED" shall mean, with
respect to each asset Transferred pursuant to clause (iii) of paragraph 6C(6) or
the proviso in paragraph 6C(4), the percentage of Consolidated Net Income
produced by, or attributable to, such asset during the four fiscal quarter
period most recently ended prior to the effective date of such Transfer.
"PERCENTAGE OF TOTAL ASSETS TRANSFERRED" shall mean, with
respect to each asset Transferred pursuant to clause (iii) of paragraph 6C(6) or
the proviso in paragraph 6C(4), the ratio (expressed as a percentage) of (i) the
greater of such asset's fair market value or net book value on the date of
Transfer to (ii) the book value of the consolidated assets of the Company and
Subsidiaries as of the last day of the fiscal quarter immediately preceding the
day of Transfer.
"PERSON" shall mean and include an individual, a partnership,
a joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
"PLAN" shall mean any "employee pension benefit plan" (as such
term is defined in section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company or
by any trade or business, whether or not incorporated which, together with the
Company, is under common control, as described in section 414(b) or (c) of the
Code.
"PRIORITY DEBT" shall mean (i) all Debt of Subsidiaries
(including all Guarantees by Subsidiaries of Debt of the Company), whether or
not secured, other than (a) Debt owed to the Company or a Wholly-Owned Domestic
Subsidiary, (b) the Subsidiary Guarantees, (c) the Bank Debt and (d) any such
Debt set forth on Schedule 6C(1) and (ii) all Debt of the Company secured by any
Lien, other than (x) the Notes, (y) the Bank Debt and (z) any such Debt set
forth on Schedule 6C(1).
"PRUDENTIAL" shall mean The Prudential Insurance Company of
America.
"RELATED PARTY" shall mean (i) any director, executive officer
or Significant Stockholder, (ii) all persons to whom any Person described in
clause (i) is related by blood, adoption or marriage and (iii) all Affiliates of
the foregoing Persons.
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"REQUIRED HOLDER(S)" shall mean the holder or holders of at
least 51% of the aggregate principal amount of the Notes or of a Series of
Notes, as the context may require, from time to time outstanding.
"RESPONSIBLE OFFICER" shall mean the chief executive officer,
chief operating officer, chief financial officer or chief accounting officer of
the Company or any other officer of the Company involved principally in its
financial administration or its controllership function.
"RESTRICTED PAYMENTS" shall mean any of the following:
(i) any dividend on any class of the Company's or any
Subsidiary's capital stock;
(ii) any other distribution on account of, or with respect to,
any class of the Company's or any Subsidiary's capital stock; and
(iii) any redemption, purchase or other acquisition, direct or
indirect, of any shares of the Company's or any Subsidiary's capital
stock.
Notwithstanding the foregoing, Restricted Payments shall not include: (a)
dividends paid, or distributions made, in capital stock of the Person paying or
making the dividend or distribution, (b) exchanges of capital stock by a Person
for another class of capital stock of such Person, except to the extent that
cash or other non-stock value is involved in such exchange or (c) dividends and
distributions received by the Company or a Wholly-Owned Domestic Subsidiary. The
term "capital stock" as used in this Agreement shall include capital stock,
warrants, options and similar rights to purchase capital stock.
"SECURITIES" shall have the meaning provided in paragraph 1C.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SECURITY DOCUMENTS" shall mean the Security Agreements and
the Mortgages.
"SERIES" shall mean the Series A Notes or the Series B Notes,
as the case may be.
"SIGNIFICANT HOLDER" shall mean (i) Prudential, (ii) any
wholly owned subsidiary of Prudential and (iii) any other holder of at least 20%
of the aggregate principal amount of the Notes from time to time outstanding.
35
<PAGE> 41
"SIGNIFICANT STOCKHOLDER" shall mean and include any Person
(other than Prudential and any Person directly or indirectly controlled by
Prudential) who owns, beneficially or of record, directly or indirectly, at any
time during any year with respect to which a computation is being made, either
individually or together with all persons to whom such Person is related by
blood, adoption or marriage, 5% or more of any class of the capital stock of the
Company.
"SUBSIDIARY" shall mean any corporation of which more than 80%
of the Voting Stock is, at the time as of which any determination is being made,
owned by the Company either directly or through Wholly-Owned Domestic
Subsidiaries.
"SUBSIDIARY GUARANTOR" shall mean each Subsidiary which has
provided a Subsidiary Guaranty.
"SUBSIDIARY GUARANTY" shall have the meaning provided in
paragraph 3H.
"TOTAL CAPITALIZATION" shall mean, as of any time of
determination thereof, the sum of Consolidated Tangible Net Worth and all Debt
of the Company and Subsidiaries, exclusive of Debt described in clause (i) of
paragraph 6C(2).
"TRANSFER" shall mean, with respect to any item, the sale,
exchange, conveyance, lease, transfer or other disposition of such item.
"TRANSFEREE" shall mean any direct or indirect transferee of
all or any part of any Security purchased under this Agreement.
"TWELVE-MONTH PERCENTAGE OF EARNINGS CAPACITY TRANSFERRED"
shall mean, with respect to any period of twelve consecutive months, the sum of
the Percentages of Earnings Capacity Transferred for each asset of the Company
and its Subsidiaries that is Transferred during such period.
"TWELVE-MONTH PERCENTAGE OF TOTAL ASSETS TRANSFERRED" shall
mean, with respect to any period of twelve consecutive months, the sum of the
Percentages of Total Assets Transferred for each asset of the Company and its
Subsidiaries that is Transferred during such period.
"VOTING POWER" shall mean, with respect to any corporation,
the power to vote or designate members of the board of directors of such
corporation, whether exercised by virtue of the record ownership of stock, under
a close corporation or similar agreement or under an irrevocable proxy.
36
<PAGE> 42
"VOTING STOCK" shall mean, with respect to any corporation,
any shares of stock of such corporation whose holders are entitled under
ordinary circumstances to vote for the election of directors of such corporation
(irrespective of whether at the time stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).
"WHOLLY-OWNED DOMESTIC SUBSIDIARY" shall mean a Subsidiary
organized under the laws of any state in the United States, all of the capital
stock of which is owned by the Company or other Wholly-Owned Domestic
Subsidiaries.
10C. ACCOUNTING AND LEGAL PRINCIPLES, TERMS AND DETERMINATIONS. All
references in this Agreement to "GAAP" shall be deemed to refer to GAAP as in
effect in the United States at the time of application thereof. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all unaudited financial statements and certificates and reports as to financial
matters required to be furnished hereunder shall be prepared, in accordance with
GAAP (without provision of footnotes in the case of unaudited financial
statements), applied on a basis consistent with the most recent audited
consolidated financial statements of the Company and its Subsidiaries delivered
pursuant to clause (i) of paragraph 5A or, if no such statements have been so
delivered, the most recent audited financial statements referred to in clause
(i) of paragraph 8B.
11. MISCELLANEOUS.
11A. NOTE PAYMENTS. The Company agrees that, so long as Prudential
shall hold any Note, it will make payments of principal thereof,
Yield-Maintenance Amount, if any, and interest thereon, which comply with the
terms of this Agreement, by wire transfer of immediately available funds for
credit to (i) the account or accounts as specified in the Purchaser Schedule
attached hereto or (ii) such other account or accounts in the United States as
Prudential may designate in writing, notwithstanding any contrary provision
herein or in any Note with respect to the place of payment. Prudential agrees
that, before disposing of any Note, it will make a notation thereon (or on a
schedule attached thereto) of all principal payments previously made thereon and
of the date to which interest thereon has been paid. The Company agrees to
afford the benefits of this paragraph 11A to any Transferee which shall have
made the same agreement as Prudential has made in this paragraph 11A.
11B. EXPENSES. The Company agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay, and save Prudential and any
Transferee harmless against liability for the payment of, all out-of-pocket
expenses arising in connection with such transactions, including (i) all
document production and duplication charges and the reasonable fees and expenses
of any special counsel engaged by Prudential or any Transferee in connection
with the Security Documents, the Intercreditor Agreement and the Subsidiary
Guarantees, the transactions contemplated hereby and thereby and any subsequent
proposed modification requested by the
37
<PAGE> 43
Company of, or proposed consent under, this Agreement, any Security Document or
any Subsidiary Guaranty, whether or not such proposed modification shall be
effected or proposed consent granted, and (ii) the costs and expenses, including
reasonable attorneys' fees, incurred by Prudential or any Transferee in
enforcing (or in determining whether or how to enforce) any rights under this
Agreement, any Security Document, any Subsidiary Guaranty or any Security, or in
responding to any subpoena or other legal process issued in connection with this
Agreement, any Security Document, any Subsidiary Guaranty, any Security or the
transactions contemplated hereby or thereby or by reason of Prudential's or any
Transferee's having acquired any Security, including, without limitation, costs
and expenses incurred in any bankruptcy case. Notwithstanding the immediately
preceding sentence, the Company shall have no obligation to reimburse Prudential
or any Transferee for (a) expenses incurred in connection with the transfer of
any Security (except, in the case of the Warrant, as provided in the Warrant) or
(b) fees and expenses incurred through the Closing Day of special counsel to
Prudential to the extent attributable to the drafting of this Agreement or the
Warrant. The obligations of the Company under this paragraph 11B shall survive
the transfer of any Security or portion thereof or interest therein by
Prudential or any Transferee and the payment of any Note.
11C. CONSENT TO AMENDMENTS. This Agreement may be amended, and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if the Company shall obtain the written consent
to such amendment, action or omission to act, of the Required Holder(s) of the
Notes except that, (i) with the written consent of the holders of all Notes of a
Series and, if an Event of Default shall have occurred and be continuing, of the
holders of all Notes at the time outstanding (and not without such written
consents), the Notes of such Series may be amended or the provisions thereof
waived to change the maturity thereof, to change or affect the principal
thereof, or to change or affect the rate or time of payment of interest or
Yield-Maintenance Amounts payable with respect to such Notes and (ii) without
the written consent of the holder or holders of all Notes at the time
outstanding, no amendment to or waiver of the provisions of this Agreement shall
change or affect the provisions of paragraph 7A or this paragraph 11C insofar as
such provisions relate to proportions of the principal amount of the Notes, or
the rights of any individual holder of Notes, required with respect to any
declaration of Notes to be due and payable or with respect to any consent. Each
holder of any Note at the time or thereafter outstanding shall be bound by any
consent authorized by this paragraph 11C, whether or not such Note shall have
been marked to indicate such consent, but any Notes issued thereafter may bear a
notation referring to any such consent. No course of dealing between the Company
and the holder of any Note nor any delay in exercising any rights hereunder or
under any Note shall operate as a waiver of any rights of any holder of such
Note. As used herein and in the Notes, the term "this Agreement" and references
thereto shall mean this Agreement as it may from time to time be amended or
supplemented.
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES;
LIMITATION
38
<PAGE> 44
ON TRANSFER OF NOTES. The Notes are issuable as registered notes without coupons
in denominations of at least $500,000, except as may be necessary to reflect any
principal amount not evenly divisible by $500,000. The Company shall keep at its
principal office a register in which the Company shall provide for the
registration of Notes and of transfers of Notes. Upon surrender for registration
of transfer of any Note at the principal office of the Company, the Company
shall, at its expense, execute and deliver one or more new Notes of like tenor
and of a like aggregate principal amount, registered in the name of such
transferee or transferees. At the option of the holder of any Note, such Note
may be exchanged for other Notes of like tenor and of any authorized
denominations, of a like aggregate principal amount, upon surrender of the Note
to be exchanged at the principal office of the Company. Whenever any Notes are
so surrendered for exchange, the Company shall, at its expense, execute and
deliver the Notes which the holder making the exchange is entitled to receive.
Every Note surrendered for registration of transfer or exchange shall be duly
endorsed, or be accompanied by a written instrument of transfer duly executed,
by the holder of such Note or such holder's attorney duly authorized in writing.
Any Note or Notes issued in exchange for any Note or upon transfer thereof shall
carry the rights to unpaid interest and interest to accrue which were carried by
the Note so exchanged or transferred, so that neither gain nor loss of interest
shall result from any such transfer or exchange. Upon receipt of written notice
from the holder of any Note of the loss, theft, destruction or mutilation of
such Note and, in the case of any such loss, theft or destruction, upon receipt
of such holder's unsecured indemnity agreement, or in the case of any such
mutilation upon surrender and cancellation of such Note, the Company will make
and deliver a new Note, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Note.
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment
for registration of transfer, the Company may treat the Person in whose name any
Note is registered as the owner and holder of such Note for the purpose of
receiving payment of principal of and any Yield-Maintenance Amount and interest
on such Note and for all other purposes whatsoever, whether or not such Note
shall be overdue, and the Company shall not be affected by notice to the
contrary. Subject to the preceding sentence, the holder of any Note may from
time to time grant participations in all or any part of such Note to any Person
on such terms and conditions as may be determined by such holder in its sole and
absolute discretion.
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All
representations and warranties contained herein and in the Securities, the
Subsidiary Guarantees and the Security Documents, or made in writing by or on
behalf of the Company or any Subsidiary in connection with such documents, shall
survive the execution and delivery of this Agreement and the Securities, the
transfer by Prudential of any Security or portion thereof or interest therein
and the payment of any Note, and may be relied upon by any Transferee,
regardless of any investigation made at any time by or on behalf of Prudential
or any Transferee. Subject to the first sentence of this paragraph, this
Agreement, the Security Documents, the Subsidiary Guarantees and the Securities
embody the entire agreement and understanding between the parties hereto with
respect to the
39
<PAGE> 45
subject matter hereof and supersede all prior agreements and understandings
relating to the subject matter hereof.
11G. SUCCESSORS AND ASSIGNS. All covenants and other agreements in this
Agreement, the Securities and the Security Documents contained by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto (including, without
limitation, any Transferee) whether so expressed or not; provided, however, that
the Company may not assign its rights or obligations hereunder to any Person.
11H. NOTICES. All written communications provided for hereunder shall
be sent by first class mail or nationwide overnight delivery service (with
charges prepaid) and (i) if to Prudential, addressed as specified for such
communications in the Purchaser Schedule attached hereto, or at such other
address as Prudential shall have specified to the Company in writing, (ii) if to
any other holder of any Note, addressed to such other holder at such address as
such other holder shall have specified to the Company in writing or, if any such
other holder shall not have so specified an address to the Company, then
addressed to such other holder in care of the last holder of such Note which
shall have so specified an address to the Company, and (iii) if to the Company,
addressed to it at 9975 Toledo Way, Irvine, CA 92718, Attention: Chief Financial
Officer, or at such other address as the Company shall have specified to the
holder of each Note in writing.
11I. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
11J. SATISFACTION REQUIREMENT. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to Prudential or to the Required Holder(s), the
determination of such satisfaction shall be made by Prudential or the Required
Holder(s), as the case may be, in the sole and exclusive judgment (exercised in
good faith) of the Person or Persons making such determination.
11K. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or
the Notes to the contrary notwithstanding, any payment of principal of or
interest on any Note that is due on a date other than a Business Day shall be
made on the next succeeding Business Day. If the date for any payment is
extended to the next succeeding Business Day by reason of the preceding
sentence, the period of such extension shall not be included in the computation
of the interest payable on such Business Day.
11L. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the
internal law of the State of California.
40
<PAGE> 46
11M. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, and it shall
not be necessary in making proof of this Agreement to produce or account for
more than one such counterpart.
11N. INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given
independent effect so that if a particular action or condition is prohibited by
any one of such covenants, the fact that it would be permitted by an exception
to, or otherwise be in compliance within the limitations of, another covenant
shall not (i) avoid the occurrence of an Event of Default or Default if such
action is taken or such condition exists or (ii) in any way prejudice an attempt
by a holder or the holders of the Notes to prohibit (through equitable action or
otherwise) the taking of any action by the Company or a Subsidiary which would
result in an Event of Default or Default.
11O. PURCHASE PRICE ALLOCATION. Prudential and the Company agree that
the Warrants have no readily ascertainable value within the meaning of the
Department of Treasury regulation section 1.1232-3(b)(2)(i)(a). Prudential and
the Company further agree, pursuant to the Department of Treasury regulation
section 1.1232-3(b)(2)(i)(b) and for the purposes of section 1273(c) of the
Code, that (i) the assumed issue price at which the Notes would have been issued
had they been issued in a transaction not involving the Warrant would have been
$18,000,000 and (i) the purchase price for the Warrant shall be $17.50. The
Company and Prudential recognize that the agreements in this paragraph limit the
original issue discount that the Company will be entitled to deduct for federal
income tax purposes over the life of the Notes to an amount, if any, determined
by reference to this paragraph and the Company and Prudential agree to adhere to
the agreements set forth in this paragraph for federal income tax purposes.
41
<PAGE> 47
11P. BINDING AGREEMENT. When this Agreement is executed and delivered
by the Company and Prudential, it shall become a binding agreement between the
Company and Prudential.
Very truly yours,
DATUM INC.
By: /s/ David A. Young
------------------------------------
Its: CHIEF FINANCIAL OFFICER
------------------------------------
The foregoing Agreement is
hereby accepted as of the
date first above written.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By:
------------------------------------
Title: Vice President
42
<PAGE> 48
PURCHASER SCHEDULE
DATUM INC.
SERIES A NOTES
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL
AMOUNT OF
NOTES TO BE NOTE DENOM-
PURCHASED INATION(S)
--------- ----------
<S> <C> <C>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA $6,000,000 $6,000,000
</TABLE>
(1) All payments on account of Notes held by such
purchaser shall be made by wire transfer of
immediately available funds for credit to:
Account No. 890-0304-391
Bank of New York
New York, New York
(ABA No.: 021-000-018)
Each sure wire transfer shall set forth the name
of the Company, a reference to "9.07% Series A Notes
due September 27, 2000, Security No.
!INV5461!", and the due date and application
(as among principal, interest and Yield-Maintenance
Amount) of the payment being made.
(2) Address for all notices relating to payments:
The Prudential Insurance Company of America
c/o Prudential Capital Group
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102
Attention: Manager, Investment Operations Group
Telephone: (201) 802-5260
Telecopy: (201) 802-8055
(3) Address for all other communications and notices:
The Prudential Insurance Company of America
c/o Prudential Capital Group
Four Embarcadero Center
Suite 2700
San Francisco, California 94111
Attention: Managing Director
Telecopy: (415) 398-7310
1
<PAGE> 49
(4) Recipient of telephonic prepayment notices:
Manager, Investment Structure and Pricing
Telephone: (201) 802-6660
Telecopy: (201) 802-9425
(5) Tax Identification No.: 22-1211670
SERIES B NOTES
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL
AMOUNT OF
NOTES TO BE NOTE DENOM-
PURCHASED INATION(S)
--------- ----------
<S> <C> <C>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA $12,000,000 $12,000,000
</TABLE>
(1) All payments on account of Notes held by such
purchaser shall be made by wire transfer of
immediately available funds for credit to:
Account No. 890-0304-391
Bank of New York
New York, New York
(ABA No.: 021-000-018)
Each such wire transfer shall set forth the name
of the Company, a reference to "10.25% Series B
Notes due September 27, 2003, Security No.
!INV5461!", and the due date and application
(as among principal, interest and Yield-Maintenance
Amount) of the payment being made.
(2) Address for all notices relating to payments:
The Prudential Insurance Company of America
c/o Prudential Capital Group
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102
Attention: Manager, Investment Operations Group
Telephone: (201) 802-5260
Telecopy: (201) 802-8055
2
<PAGE> 50
(3) Address for all other communications and notices:
The Prudential Insurance Company of America
c/o Prudential Capital Group
Four Embarcadero Center
Suite 2700
San Francisco, California 94111
Attention: Managing Director
Telecopy: (415) 398-7310
(4) Recipient of telephonic prepayment notices:
Manager, Investment Structure and Pricing
Telephone: (201) 802-6660
Telecopy: (201) 802-9425
(5) Tax Identification No.: 22-1211670
3
<PAGE> 51
EXHIBIT A-1
THE ISSUANCE OF THIS NOTE HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT AND NO OFFER OR SALE HEREOF
MAY BE MADE BY THE HOLDER HEREOF ABSENT REGISTRATION
UNDER THE SECURITIES ACT OR AN EXEMPTION THEREFROM.
[FORM OF SERIES A NOTE]
DATUM INC.
9.07% SENIOR SECURED SERIES A NOTE DUE SEPTEMBER 27, 2000
No. ____ [Date]
$_______
FOR VALUE RECEIVED, the undersigned, Datum Inc. (herein called the
"Company"), a corporation organized and existing under the laws of the State of
Delaware, hereby promises to pay to ___________________________, or registered
assigns, the principal sum of ___________________________ DOLLARS on September
27, 2000, with interest (computed on the basis of a 360-day year--30-day month)
(a) on the unpaid balance thereof at the rate of 9.07% per annum from the date
hereof, payable quarterly on the 27th day of March, June, September and December
in each year, commencing with the March 27, June 27, September 27 or December 27
next succeeding the date hereof, until the principal hereof shall have become
due and payable, and (b) on any overdue payment (including any overdue
prepayment) of principal, any overdue payment of interest and any overdue
payment of any Yield-Maintenance Amount (as defined in the Agreement referred to
below), payable quarterly as aforesaid (or, at the option of the registered
holder hereof, on demand), at a rate per annum from time to time equal to the
greater of (i) 11.07% or (ii) 2.0% over the rate of interest publicly announced
by Morgan Guaranty Trust Company of New York from time to time in New York City
as its prime rate.
Payments of principal of, interest on and any Yield-Maintenance Amount
payable with respect to this Note are to be made at the main office of Bank of
New York in New York City or at such other place as the holder hereof shall
designate to the Company in writing, in lawful money of the United States of
America.
A-1-1
<PAGE> 52
This Note is one of a series of Senior Secured Notes (herein called the
"Notes") issued pursuant to a Note and Warrant Purchase Agreement, dated as of
September 27, 1996 (herein called the "Agreement"), between the Company and The
Prudential Insurance Company of America and is entitled to the benefits thereof.
The Notes are secured and guaranteed as contemplated by the Agreement.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for a like principal amount will be issued to, and registered in the name of,
the transferee. Prior to due presentment for registration of transfer, the
Company may treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes, and the
Company shall not be affected by any notice to the contrary.
The Company agrees to make required prepayments of principal on the
dates and in the amounts specified in the Agreement. This Note is also subject
to optional prepayment, in whole or from time to time in part, on the terms
specified in the Agreement.
In case an Event of Default, as defined in the Agreement, shall occur
and be continuing, the principal of this Note may be declared or otherwise
become due and payable in the manner and with the effect provided in the
Agreement.
This Note shall be construed and enforced in accordance with the
internal law of the State of California.
DATUM INC.
By: _______________________________
Its: ______________________________
A-1-2
<PAGE> 53
EXHIBIT B-1
THE ISSUANCE OF THIS NOTE HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT AND NO OFFER OR SALE HEREOF
MAY BE MADE BY THE HOLDER HEREOF ABSENT REGISTRATION
UNDER THE SECURITIES ACT OR AN EXEMPTION THEREFROM.
DATUM INC.
10.25% SENIOR SECURED SERIES B NOTE DUE SEPTEMBER 27, 2003
No. B-____ [Date]
$_________
FOR VALUE RECEIVED, the undersigned, Datum Inc. (herein called the
"Company"), a corporation organized and existing under the laws of the State of
Delaware, hereby promises to pay to _____________________________ or registered
assigns, the principal sum of _______________________ DOLLARS on September 27,
2003, with interest (computed on the basis of a 360-day year--30-day month) (a)
on the unpaid balance thereof at the rate of 10.25% per annum from the date
hereof, payable quarterly on the 27th day of March, June, September and December
in each year, commencing with the March 27, June 27, September 27 or December 27
next succeeding the date hereof, until the principal hereof shall have become
due and payable, and (b) on any overdue payment (including any overdue
prepayment) of principal, any overdue payment of interest and any overdue
payment of any Yield-Maintenance Amount (as defined in the Agreement referred to
below), payable quarterly as aforesaid (or, at the option of the registered
holder hereof, on demand), at a rate per annum from time to time equal to the
greater of (i) 12.25% or (ii) 2.0% over the rate of interest publicly announced
by Morgan Guaranty Trust Company of New York from time to time in New York City
as its prime rate.
Payments of principal of, interest on and any Yield-Maintenance Amount
payable with respect to this Note are to be made at the main office of Bank of
New York in New York City or at such other place as the holder hereof shall
designate to the Company in writing, in lawful money of the United States of
America.
B-1-1
<PAGE> 54
This Note is one of a series of Senior Secured Notes (herein called the
"Notes") issued pursuant to a Note and Warrant Purchase Agreement, dated as of
September 27, 1996 (herein called the "Agreement"), between the Company and The
Prudential Insurance Company of America and is entitled to the benefits thereof.
The Notes are secured and guaranteed as contemplated by the Agreement.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for a like principal amount will be issued to, and registered in the name of,
the transferee. Prior to due presentment for registration of transfer, the
Company may treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes, and the
Company shall not be affected by any notice to the contrary.
The Company agrees to make required prepayments of principal on the
dates and in the amounts specified in the Agreement. This Note is also subject
to optional prepayment, in whole or from time to time in part, on the terms
specified in the Agreement.
In case an Event of Default, as defined in the Agreement, shall occur
and be continuing, the principal of this Note may be declared or otherwise
become due and payable in the manner and with the effect provided in the
Agreement.
This Note shall be construed and enforced in accordance with the
internal law of the State of California.
DATUM INC.
By: __________________________
Its: __________________________
B-1-2
<PAGE> 55
SCHEDULE 6C(1)
OUTSTANDING DEBT
1. Debt under the Company's Credit Agreement with Wells Fargo Bank, N.A., as
amended to date, which is secured by a blanket security interest in the
assets of the Company and its domestic subsidiaries.
2. Debt under a capital lease between the Company and Xerox Corporation,
secured by a lien on the following collateral: "One Xerox 5365 copier
together with all additions, substitutions and repairs and all proceeds
including without limitations, all equipment and other specified items of
collateral which are acquired with an case proceeds."
3. Debt under a capital lease between the Company's Austron subsidiary and
AT&T Capital Corp., secured by a lien on the following collateral: "1 ea.
TTC/T-Berd 209A Test Set."
4. Debt under a capital lease between the Company's Frequency and Time
Systems, Inc. subsidiary and Citicorp Leasing (as assignee of Priority
Leasing Corporation), secured by a lien on the following collateral:
"Fourth Shift Computer System:
Fourth Shift Software System
Everex Step Tower 486/33, 340 MB
HD, 16 Bit NIC 8MB RAM, 1P/2S Ports
1.2 MB Floppy, Mono Monitor
Everex Step 486/33, 8 MB RAM, 16 Bit
NICm 1P/2S Ports, 1.2 MB/Floppy, Mono Monitor
Novell 3.11 Netware, ___20 USER LIC
2 Gateway 9 Port Concentractors,
9 Samsung SD700 386/16 SX, 2MB RAM
1.44 MB Floppy, 40MB HD, 1P/2S Ports, VGA Monitor
APC Smart-Ups 1200
APC Powerchute plus tips to Netware
Colorado Jumbo 250 Tape Back-Up Unit
2 TI Microlaser Plus Laser Printer
Cardinal 2400 BD External Modem"
5. Debt under a capital lease between the Company's Frequency and Time
Systems, Inc. subsidiary and NTFC Capital Corporation, secured by a lien
on the following collateral: "Norstar 8x24 KSU ... including, but not
limited to, all substitutions, replacements, attachments and upgrades."
6. Debt under a capital lease between the Company's Frequency and time
Systems, Inc. subsidiary and US Bancorp Leasing & Financial -- Machine
Tool Finance group, secured by a lien on the following collateral:
"Together with all replacements, parts, repairs, additions, accessions,
and accessories incorporated therein or affixed or attached thereto and
any and all proceeds of the foregoing including, without limitation,
insurance
<PAGE> 56
SCHEDULE 8A
ORGANIZATION; CAPITAL STOCK
(i) Subsidiaries. The Company has the following subsidiaries:
Austron, Inc. (Texas)
EFRATOM Time and Frequency Products, Inc. (Colorado)
Efratom Elektronik GmbH (Germany)
Frequency and Time Systems, Inc. (Massachusetts)
Each subsidiary is 100% owned by the Company.
(ii) Affiliates.
1. The Company's officers and directors, including certain officers of
its subsidiaries.
2. Ball Corporation, an Indiana corporation.
3. Efratom Holding, Inc., a Colorado corporation.
<PAGE> 57
SCHEDULE 8R
INTELLECTUAL PROPERTY
1. Patents
(a) Patent No. 5,220,333: Method and apparatus for determining
universal coordinated time from Loran-C transmissions, issued
June 15, 1993.
(b) Patent No. 4,839,613: Temperature compensation for a disciplined
frequency standard, Issued June 13, 1989.
(c) Patent No. 4,740,761: Fine tuning of atomic frequency standards,
issued April 26, 1988.
(d) Patent No. 4,661,782: Integrated Microwave Cavity Resonator and
Magnetic Shield for an Atomic Frequency Standard, issued April
28, 1987.
(e) Patent No. 4,879,700: Time Internal Counter, issued November 7,
1989.
(f) Patent No. 5,256,995: Atomic Frequency Standard & Method for
Forming Same, issued October 26, 1993.
(g) Patent No. 5,146,185: Compact Optically Pumped Resonance Systems
and Apparatus, issued September 8, 1992.
(h) Patent No. 5,517,157: Evanescent-Field Interrogator for Atomic
Frequency Standard, issued May 14, 1996.
(i) Patent No. 5,457,430: Method and Apparatus for Reduction of
Light Intensity Decay in Optical Pumping Devices, issued
February 13, 1996.
(j) Patent No. 5,491,451: Method and Apparatus for Reduction of
Atomic Frequency Standard Phase Noise, issued October 10, 1995.
(k) Patent No. 5,489,821: Lamp Oscillator for Atomic Frequency
Standards, Issued February 6, 1996.
(l) Application No. 08/348,468: Heater Controller for Atomic
Frequency Standard.
(m) Application No. 08/358,832: Digital Frequency Generation in
Atomic Frequency Standards.
(n) Application No. __________ Step Recovery Diode Multiplier for
Rubidium Frequency Standard.
<PAGE> 58
(o) Application No. 08/602,987: Resonator Package for Atomic
Frequency Standard.
2. Registered Trademarks/Service Marks:
(a) EFRATOM in Class 9, Serial No.: 74/647,855, statement of use
accepted July 22, 1996.
(b) Mark No. 1,223,231: Austron, registered January 11, 1983.
(c) Mark No. 1,211,407: Design Only (Triangle within Double
Circle), registered October 5, 1982.
(d) NETSYNC (Plus), registration filed by Austron, Inc., December,
1995.
(e) TYMCOR, registered by Datum's Bancomm division.
(f) Time View, registered by Datum's Bancomm division.
(g) StarTime, registered by Datum's Bancomm division.
(h) THE MASTERS OF TIME, registered by Datum's Bancomm division.
3. Common Law Marks:
(a) Datum
(b) Datum timing
(c) Frequency and Time Systems
(d) Bancomm
(e) Efracom
(f) Efracom Time and Frequency Products
<PAGE> 1
EXHIBIT 10.37
DATUM INC.
COMMON STOCK PURCHASE WARRANT
SEPTEMBER 27, 1996
This Warrant and any shares acquired upon the exercise of this
Warrant have not been registered under the Securities Act of 1933 and
may not be transferred in the absence of such registration or an
exemption therefrom under such Act. This Warrant expires after the
close of normal business hours on September 27, 2003, unless exercised
prior to such time.
<PAGE> 2
TABLE OF CONTENTS
Page
1. Exercise of Warrant....................................... 1
1.1. Manner of Exercise............................... 1
1.2. When Exercise Deemed Effected.................... 2
1.3. Delivery of Stock Certificates, etc.............. 2
1.4. Company to Reaffirm Obligation................... 3
1.5. Payment by Application of the Notes or
Surrender of Warrant............................. 3
2. Adjustment of Common Stock Issuable Upon Exercise......... 4
2.1. Number of Shares; Warrant Price.................. 4
2.2. Adjustment of Warrant Price...................... 4
2.3. Treatment of Options and Convertible Securities.. 5
2.4. Treatment of Stock Dividends, Stock Splits, etc.. 8
2.5. Computation of Consideration..................... 8
2.6. Adjustments for Combinations, etc................ 10
2.7. Dilution in Case of Other Securities............. 10
2.8. Minimum Adjustment of Warrant Price.............. 10
3. Change in Control Events, etc............................. 10
3.1. General Provisions............................... 10
3.2. Assumption of Obligations........................ 12
4. Other Events.............................................. 12
5. No Dilution or Impairment................................. 13
6. Accountants' Report as to Adjustments..................... 13
7. Notices of Corporate Action............................... 14
8. Restrictions on Transfer.................................. 14
8.1. Restrictive Legends.............................. 14
8.2. Notice of Proposed Transfer; Removal of Legend... 15
8.3. Termination of Restrictions...................... 16
i
<PAGE> 3
9. Registration under Securities Act, etc.................... 16
9.1. Registration on Request.......................... 16
9.2. Incidental Registration.......................... 19
9.3. Registration Procedures.......................... 20
9.4. Underwritten Offerings........................... 24
9.5. Preparation; Reasonable Investigation............ 25
9.6. Indemnification.................................. 25
9.7. Adjustments Affecting Registrable Securities..... 28
9.8. Covenants Relating to Rule 144 and Rule 144A..... 28
10. Availability of Information............................... 28
11. Reservation of Stock, etc................................. 29
12. Listing on Securities Exchanges........................... 29
13. Ownership, Transfer and Substitution of Warrants.......... 29
13.1. Ownership of Warrants............................ 29
13.2. Transfer and Exchange of Warrants................ 30
13.3. Replacement of Warrants.......................... 30
14. Definitions............................................... 30
15. Remedies.................................................. 37
16. No Rights or Liabilities as Stockholder................... 37
17. Notices................................................... 37
18. Expiration; Notice........................................ 37
19. Miscellaneous............................................. 37
ii
<PAGE> 4
DATUM INC.
Common Stock Purchase Warrant
Expiring September 27, 2003
Irvine, California
September 27, 1996
No. W-1
Datum Inc., a Delaware corporation (the "Company"), for value
received, hereby certifies that The Prudential Insurance Company of America, or
registered assigns (the "Purchaser"), is entitled to purchase from the Company
One Hundred Seventy-Five Thousand (175,000) duly authorized, validly issued,
fully paid and nonassessable shares of the Company's Common Stock, par value
$.25 per share (the "Common Stock"), at the initial purchase price per share of
$11.50 at any time or from time to time during the Exercise Period, all subject
to the terms, conditions and adjustments set forth below in this Warrant.
This Warrant is one of the Common Stock Purchase Warrants (the
"Warrants", such term to include all Warrants issued in substitution therefor)
originally issued in connection with the issue and sale by the Company of its
Senior Series A Secured Notes due September 27, 2000 and its Series B Secured
Notes due September 27, 2003 (together with all notes issued in substitution
therefor, the "Notes"), pursuant to the Note and Warrant Purchase Agreement (the
"Note Agreement"), dated as of September 27, 1996 between the Company and the
Purchaser. The Warrants originally so issued evidence rights to purchase an
aggregate of 175,000 shares of Common Stock, subject to adjustment as provided
herein. Certain capitalized terms used in this Warrant are defined in section
14.
1. Exercise of Warrant. 1.1. Manner of Exercise. This Warrant
may be exercised by the holder hereof, in whole or in part, during Normal
Business Hours on any Business Day during the Exercise Period by surrender of
this Warrant, with the form of
1
<PAGE> 5
subscription at the end hereof (or a reasonable facsimile thereof) duly executed
by such holder, to the Company at its principal office (or, if such exercise
shall be in connection with an underwritten Public Offering of shares of Common
Stock (or Other Securities) issuable upon the exercise of this Warrant, at the
location at which the Company shall have agreed to deliver the shares of Common
Stock (or Other Securities) subject to such underwritten Public Offering),
accompanied by payment, in cash or by certified or official bank check payable
to the order of the Company or by the application of Notes or surrender of this
Warrant in the manner provided in section 1.5 or by wire transfer of immediately
available funds (or by any combination of such methods), in the amount obtained
by multiplying (a) the number of shares of Common Stock (without giving effect
to any adjustment therein) designated in such form of subscription by (b)
$11.50, and such holder shall thereupon be entitled to receive the number of
duly authorized, validly issued, fully paid and nonassessable shares of Common
Stock (or Other Securities) determined as provided in sections 2 through 4.
1.2. When Exercise Deemed Effected. Each exercise of this
Warrant shall be deemed to have been effected immediately prior to the close of
Normal Business Hours on the Business Day during the Exercise Period on which
this Warrant shall have been surrendered to the Company (or, if such exercise
shall be in connection with an underwritten Public Offering of shares of Common
Stock (or Other Securities) issuable upon the exercise of this Warrant, at such
time as the holder hereof and the Company may agree to permit the holder hereof
to participate in such Public Offering) as provided in section 1.1, and at such
time the person or persons in whose name or names any certificate or
certificates for shares of Common Stock (or Other Securities) shall be issuable
upon such exercise as provided in section 1.3 shall be deemed to have become the
holder or holders of record thereof.
1.3. Delivery of Stock Certificates, etc. As soon as
practicable after the exercise of this Warrant, in whole or in part, and in any
event within three Business Days thereafter (unless such exercise shall be in
connection with an underwritten Public Offering of shares of Common Stock (or
Other Securities) subject to this Warrant, in which event concurrently with such
exercise), the Company at its expense (including the payment by it of any
applicable taxes payable by the Company) will cause to be issued in the name of
and delivered to the holder hereof or, subject to section 8, as such holder
(upon payment by such holder of any applicable transfer taxes) may direct,
(a) a certificate or certificates for the number of duly
authorized, validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such holder shall be
entitled upon such exercise plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash in an amount equal
to the same fraction of the Market Price per share of such Common Stock
(or Other Securities) on the Business Day next preceding the date of
such exercise, and
2
<PAGE> 6
(b) in case such exercise is in part only, a new Warrant or
Warrants of like tenor, calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock equal (without giving
effect to any adjustment therein) to the number of such shares called
for on the face of this Warrant minus the number of such shares
designated by the holder upon such exercise as provided in section 1.1.
1.4. Company to Reaffirm Obligations. The Company will, at the
time of or at any time after each exercise of this Warrant, upon the request of
the holder hereof or of any shares of Common Stock (or Other Securities) issued
upon such exercise, acknowledge in writing its continuing obligation to afford
to such holder all rights (including, without limitation, any right of
registration of any shares of Common Stock (or Other Securities) issuable upon
exercise of this Warrant pursuant to section 9) to which such holder shall
continue to be entitled after such exercise in accordance with the terms of this
Warrant, provided that if any such holder shall fail to make any such request,
such failure shall not affect the continuing obligation of the Company to afford
such rights to such holder.
1.5. Payment by Application of the Notes or Surrender of
Warrant. (a) Upon any exercise of this Warrant, the holder hereof may, at its
option, instruct the Company, by so specifying in the form of subscription
submitted therewith as provided in section 1.1, to apply to the payment required
by section 1.1 all or any part of (i) the principal amount then unpaid, (ii) the
interest on such principal amount then accrued and (iii) any yield maintenance
amount then owing, on any one or more Notes at the time held by such holder, in
which case the Company will accept the aggregate amount of such principal,
accrued interest and yield maintenance amount as is specified in such form of
subscription in satisfaction of a like amount of such payment. In case less than
the entire unpaid principal amount of any Note shall be so specified, the
principal amount so specified shall be credited, as of the date of such
exercise, on a pro rata basis against all future required prepayments of
principal of such Note. Within five days after receipt of any such notice, the
Company will pay to the holder of the Notes submitting such form of
subscription, in the manner provided in such Notes and the Note Agreement, all
unpaid interest accrued (but not applied to the payment required by section 1.1
under this section 1.5) to the date of exercise of such Warrant on the principal
amount so specified in such form of subscription. In the event that the entire
unpaid principal amount of any Note is applied to the payment required by
section 1.1 under this section 1.5, such Note shall be promptly surrendered and
cancelled and shall be deemed no longer outstanding for all purposes of the Note
Agreement, except as provided in paragraph 4D thereof.
(b) Upon any exercise of this Warrant, the holder hereof may,
at its option, make the payment required by section 1.1 by surrendering this
Warrant, and making the appropriate instruction in the form of subscription
submitted therewith as provided in section 1.1, in which event the Company shall
issue to the holder hereof, and
3
<PAGE> 7
will otherwise comply with section 1.3 with respect to, a number of shares of
Common Stock computed using the following formula:
X=Y (A-B)
---
A
where: X = the number of shares of Common Stock to be
issued to holder pursuant to this paragraph (b).
Y = the number of shares of Common Stock with
respect to which the right to purchase is being
surrendered in connection with the exercise
pursuant to this section 1.1(b).
A = the Market Price of one share of Common Stock.
B = the Warrant Price.
2. Adjustment of Common Stock Issuable Upon Exercise. 2.1.
Number of Shares; Warrant Price. The number of shares of Common Stock which the
holder of this Warrant shall be entitled to receive upon each exercise hereof
shall be determined by multiplying the number of shares of Common Stock which
would otherwise (but for the provisions of this section (2) be issuable upon
such exercise, as designated by the holder hereof pursuant to section 1.1, by a
fraction of which (i) the numerator is $11.50 and (ii) the denominator is the
Warrant Price in effect on the date of such exercise. The "Warrant Price" shall
initially be $11.50 per share, shall be adjusted and readjusted from time to
time as provided in this section 2 and, as so adjusted or readjusted, shall
remain in effect until a further adjustment or readjustment thereof is required
by this section 2.
2.2. Adjustment of Warrant Price. 2.2.1. Issuance of
Additional Shares of Common Stock. In case the Company, at any time or from time
to time after August 13, 1996 (the "Initial Date"), shall issue or sell
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to section 2.3 or 2.4) without consideration or for
a consideration per share less than the Base Price in effect, in each case, on
the date of and immediately prior to such issue or sale, then, and in each such
case, subject to section 2.8, the Warrant Price then in effect (or, if such
issue or sale took place prior to the date hereof, the warrant price otherwise
in effect on the date hereof) shall be reduced, concurrently with such issue or
sale (or, if such issue or sale took place prior to the date hereof, on the date
hereof), to a price (calculated to the nearest .001 of a cent) determined by
multiplying such Warrant Price by a fraction,
(a) the numerator of which shall be (i) the number of shares
of Common Stock outstanding immediately prior to such issue or sale
plus (ii) the number of shares of Common Stock which the aggregate
consideration received (as determined pursuant to section 2.5) by the
Company for the total number of such
4
<PAGE> 8
Additional Shares of Common Stock so issued or sold would purchase at
the Base Price, and
(b) the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such issue or sale,
provided that, for the purposes of this section 2.2.1 (x) shares of Common Stock
issuable pursuant to outstanding Convertible Securities or Options (other than
Additional Shares of Common Stock deemed to have been issued pursuant to section
2.3 or 2.4) shall be deemed to be outstanding, (y) immediately after any
Additional Shares of Common Stock are deemed to have been issued pursuant to
section 2.3 or 2.4, such Additional Shares shall be deemed to be outstanding,
and (z) treasury shares shall not be deemed to be outstanding.
2.2.2. Extraordinary Dividends and Distributions. In case the
Company at any time or from time to time after the Initial Date shall declare,
order, pay or make, or shall fix a record date for the determination of holders
of Common Stock entitled to receive a dividend or other distribution (including,
without limitation, any distribution of other or additional stock or other
securities or property or Options by way of dividend or spin-off,
reclassification, recapitalization or similar corporate rearrangement) on any
Common Stock , other than (a) a dividend payable in Additional Shares of Common
Stock or in Options for Common Stock or (b) a regular, periodic dividend payable
in cash and declared out of the earned surplus of the Company (not to exceed the
earned surplus as at the date thereof or otherwise the maximum amount then
permitted by applicable law), then, and in each such case, subject to section
2.8, the Warrant Price in effect immediately prior to the close of business on
the record date fixed for the determination of holders of any class of
securities entitled to receive such dividend or distribution shall be reduced,
effective as of the close of business on such record date, to a price
(calculated to the nearest .001 of a cent) determined by multiplying such
Warrant Price by a fraction,
(i) the numerator of which shall be the Current Market Price
in effect on such record date or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading, less the value of such dividend or distribution (as determined
in good faith by the Board of Directors of the Company) applicable to
one share of Common Stock, and
(ii) the denominator of which shall be such Current Market
Price.
2.3. Treatment of Options and Convertible Securities. In case
the Company at any time or from time to time after the Initial Date shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities entitled to receive, any Options or
Convertible Securities, then, and in each such case, the maximum number of
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a
5
<PAGE> 9
subsequent adjustment of such number) issuable upon the exercise of such Options
or, in the case of Convertible Securities and Options therefor, the conversion
or exchange of such Convertible Securities, shall be deemed to be issued for
purposes of section 2.1 as of the time of such issue, sale, grant or assumption
or, in case such a record date shall have been fixed, as of the close of
business on such record date (or, if the Common Stock trades on an ex-dividend
basis on such record date, on the date prior to the commencement of ex-dividend
trading), provided that such Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per share (determined
pursuant to section 2.5) of such shares would be less than the Base Price in
effect, in each case, on the date of and immediately prior to such issue, sale,
grant or assumption or immediately prior to the close of business on such record
date (or, if the Common Stock trades on an ex-dividend basis on such record
date, on the date prior to the commencement of ex-dividend trading), as the case
may be, and provided, further, that in any case in which Additional Shares of
Common Stock are so deemed to be issued,
(a) no further adjustment of the Warrant Price shall be made
upon the subsequent issue or sale of Additional Shares of Common Stock
or Convertible Securities upon the exercise of such Options or the
conversion or exchange of such Convertible Securities;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
Additional Shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof (by change of rate or otherwise), the
Warrant Price computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be,
with respect thereto), and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it affects
such Options, or the rights of conversion or exchange under such
Convertible Securities, which are outstanding at such time;
(c) upon the expiration of any such Options or of the rights
of conversion or exchange under any such Convertible Securities which
shall not have been exercised (or upon purchase by the Company and
cancellation or retirement of any such Options which shall not have
been exercised or of any such Convertible Securities the rights of
conversion or exchange under which shall not have been exercised), the
Warrant Price computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be,
with respect thereto), and any subsequent adjustments based thereon,
shall, upon such expiration (or such cancellation or retirement, as the
case may be), be recomputed as if:
6
<PAGE> 10
(i) in the case of Options for Common Stock or of
Convertible Securities, the only Additional Shares of Common
Stock issued or sold were the Additional Shares of Common
Stock, if any, actually issued or sold upon the exercise of
such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was (x) in
the case of Options, an amount equal to (1) the consideration
actually received by the Company for the issue, sale, grant or
assumption of all such Options, whether or not exercised, plus
(2) the consideration actually received by the Company upon
such exercise, minus (3) the consideration paid by the Company
for any purchase of such Options which were not exercised, or
(y) in the case of Convertible Securities, an amount equal to
(1) the consideration actually received by the Company for the
issue, sale, grant or assumption of all such Convertible
Securities which were actually converted or exchanged or
purchased by the Company, plus (2) the additional
consideration, if any, actually received by the Company upon
such conversion or exchange, minus (3) the consideration paid
by the Company for any purchase of such Convertible Securities
the rights of conversion or exchange under which were not
exercised, and
(ii) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually
issued or sold upon the exercise of such Options were issued
at the time of the issue, sale, grant or assumption of such
Options, and the consideration received by the Company for the
Additional Shares of Common Stock deemed to have then been
issued was an amount equal to (x) the consideration actually
received by the Company for the issue, sale, grant or
assumption of all such Options, whether or not exercised, plus
(y) the consideration deemed to have been received by the
Company (pursuant to section 2.5) upon the issue or sale of
the Convertible Securities with respect to which such Options
were actually exercised, minus (z) the consideration paid by
the Company for any purchase of such Options which were not
exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above
shall have the effect of increasing the Warrant Price by an amount in
excess of the amount of the adjustment thereof originally made in
respect of the issue, sale, grant or assumption of such Options or
Convertible Securities; and
(e) in the case of any such Options which expire by their
terms not more than 30 days after the date of issue, sale, grant or
assumption thereof, no adjustment of the Warrant Price shall be made
until the expiration or exercise of all such Options, whereupon such
adjustment shall be made in the manner provided in subdivision (c)
above.
7
<PAGE> 11
2.4. Treatment of Stock Dividends, Stock Splits, etc. In case
the Company at any time or from time to time after the Initial Date shall
declare or pay any dividend or other distribution on any class of stock of the
Company payable in Common Stock, or shall effect a subdivision of the
outstanding shares of Common Stock into a greater number of shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in Common
Stock), then, and in each such case, Additional Shares of Common Stock shall be
deemed to have been issued (a) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of any class of securities entitled to receive such dividend or
distribution, or (b) in the case of any such subdivision, at the close of
business on the day immediately prior to the day upon which such corporate
action becomes effective.
2.5. Computation of Consideration. For the purposes of this
section 2:
(a) The consideration for the issue or sale of any Additional
Shares of Common Stock or for the issue, sale, grant or assumption of
any Options or Convertible Securities, irrespective of the accounting
treatment of such consideration, shall
(i) insofar as it consists of cash, be computed at
the amount of cash received by the Company, before deducting
any expenses paid or incurred by the Company or any
commissions or compensation paid or concessions or discounts
allowed to underwriters, dealers or others performing similar
services and any accrued interest or dividends in connection
with such issue or sale,
(ii) insofar as it consists of consideration
(including securities) other than cash, be computed at the
Fair Value thereof at the time of such issue or sale, before
deducting any expenses paid or incurred by the Company for any
commissions or compensation paid or concessions or discounts
allowed to underwriters, dealers or others performing similar
services and any accrued interest or dividends in connection
with such issue or sale, and
(iii) in case Additional Shares of Common Stock are
issued or sold or Options or Convertible Securities are
issued, sold, granted or assumed together with other stock or
securities or other assets of the Company for a consideration
which covers both, be the proportion of such consideration so
received, computed as provided in subdivisions (i) and (ii)
above, allocable to such Additional Shares of Common Stock,
Options or Convertible Securities, as the case may be, all as
determined in good faith by the Board of Directors of the
Company or, if the Requisite Holders of Warrants shall object
to such determination, by an independent investment banking
firm of national standing engaged by the Company that has not
8
<PAGE> 12
rendered services to the Company, any Subsidiary or any
Affiliate within the three-year period preceding such
engagement and the determination by such investment banking
firm shall be final and binding. If such investment banking
firm allocates such consideration in a manner which is more
favorable to the holders of Warrants than the allocation
determined by the Board of Directors of the Company, the
Company shall pay the fees and expenses of such investment
banking firm; otherwise, the holders of Warrants objecting to
such determination shall pay the fees and expenses of such
investment banking firm.
(b) All Additional Shares of Common Stock, Options or
Convertible Securities issued in payment of any dividend or other
distribution on any class of stock of the Company and all Additional
Shares of Common Stock issued to effect a subdivision of the
outstanding shares of Common Stock into a greater number of shares of
Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock) shall be deemed to have been issued without
consideration.
(c) Additional Shares of Common Stock deemed to have been
issued for consideration pursuant to section 2.3, relating to Options
and Convertible Securities, shall be deemed to have been issued for a
consideration per share determined by dividing
(i) the total amount, if any, received and receivable
by the Company as consideration for the issue, sale, grant or
assumption of the Options or Convertible Securities in
question, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for
a subsequent adjustment of such consideration) payable to the
Company upon the exercise in full of such Options or the
conversion or exchange of such Convertible Securities or, in
the case of Options for Convertible Securities, the exercise
of such Options for Convertible Securities and the conversion
or exchange of such Convertible Securities, in each case
computing such consideration as provided in the foregoing
subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment
of such number) issuable upon the exercise of such Options or
the conversion or exchange of such Convertible Securities.
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(d) Additional Shares of Common Stock issued or deemed to have
been issued pursuant to the operation of anti-dilution provisions
applicable to Convertible Securities (other than the Warrants), Options
or other securities of the Company (either as a result of the
adjustments provided for by the Warrants or otherwise) shall be deemed
to have been issued without consideration.
2.6. Adjustments for Combinations, etc. In case the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the Warrant Price in effect immediately prior to such combination or
consolidation shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
2.7. Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person referred to in section 3) or
to subscription, purchase or other acquisition pursuant to any Options issued or
granted by the Company (or any such other issuer or Person) for a consideration
such as to dilute, on a basis consistent with the standards established in the
other provisions of this section 2, the purchase rights granted by this Warrant,
then, and in each such case, the computations, adjustments and readjustments
provided for in this section 2 with respect to the Warrant Price shall be made
as nearly as possible in the manner so provided and applied to determine the
amount of Other Securities from time to time receivable upon the exercise of the
Warrants, so as to protect the holders of the Warrants against the effect of
such dilution.
2.8. Minimum Adjustment of Warrant Price. If the amount of any
adjustment of the Warrant Price required pursuant to this section 2 would be
less than one one-hundredth (.01) of a cent, such amount shall be carried
forward for the next five years and adjustment with respect thereto made at the
time of and together with any subsequent adjustment which, together with such
amount and any other amount or amounts so carried forward, shall aggregate at
least one one-hundredth (.01) of a cent.
3. Change in Control Events, etc. 3.1. General Provisions. In
case the Company, after the Initial Date, shall consummate or announce its
intent to consummate a Change in Control Event, then, and in the case of each
such transaction, the Company shall give written notice thereof to each holder
of any Warrant not less than 30 days, if practicable, prior to the consummation
thereof and proper provision shall be made so that, upon the basis and the terms
and in the manner provided in this section 3, the holder of this Warrant, upon
the exercise hereof at any time after the consummation of such transaction shall
be entitled to receive, at the aggregate Warrant Price in effect at the time of
such consummation for all Common Stock (or Other Securities) issuable upon such
exercise immediately prior to such consummation, in lieu of the Common Stock (or
Other Securities) issuable upon such exercise prior to such consummation, either
of the following, as such holder shall elect by written notice to the Company on
or before the
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seventh day preceding the date of the consummation of such transaction (and, in
the absence of such notice, the provisions of subdivision (ii) below shall be
deemed to have been elected by such holder on such seventh day):
(i) the highest amount of cash, securities or other property
to which such holder would actually have been entitled as a shareholder
upon such consummation if such holder had exercised this Warrant
immediately prior thereto, subject to adjustments (subsequent to such
consummation) as nearly equivalent as possible to the adjustments
provided for in section 2 and this section 3, provided that if a
purchase, tender or exchange offer shall have been made to and accepted
by the holders of Common Stock under circumstances which, upon
completion of such purchase, tender or exchange offer, would result in
a Change in Control Event, and if the holder of this Warrant so
designates in such notice given to the Company, the holder of this
Warrant shall be entitled to receive the highest amount of cash,
securities or other property to which such holder would actually have
been entitled as a shareholder if the holder of this Warrant had
exercised this Warrant prior to the expiration of such purchase, tender
or exchange offer, accepted such offer and all of the Common Stock held
by such holder (or, if pursuant to such purchase, tender or exchange
offer each shareholder of the Company is limited as to the maximum
percentage of its shares of Common Stock which may be purchased,
exchanged or tendered, then that percentage of the Common Stock of such
holder) had been purchased pursuant to such purchase, tender or
exchange offer, subject to adjustments (from and after the consummation
of such purchase, tender or exchange offer) as nearly equivalent as
possible to the adjustments provided for in section 2 and this section
3; or
(ii) the number of shares of Voting Common Stock (or
equivalent equity interests) of the Acquiring Person or, if the
Acquiring Person fails to meet, but its Parent meets, the requirements
set forth in the proviso below, of its Parent, subject to adjustments
(subsequent to such corporate action) as nearly equivalent as possible
to the adjustments provided for in section 2 and this section 3,
determined by dividing (x) the product obtained by multiplying (1) the
number of shares of Common Stock (or Other Securities) to which the
holder of this Warrant would have been entitled had such holder
exercised this Warrant immediately prior to the consummation of such
transaction, times (2) the Acquisition Price by (y) the Current Market
Price per share of the Voting Common Stock (or equivalent equity
interests) of the Acquiring Person or its Parent, as the case may be,
on the date immediately preceding the date of such consummation;
provided that the Company shall not effect any Change in Control Event
involving the receipt of Voting Common Stock by the holders of Common
Stock unless, immediately after the date of the consummation of such
transaction, the Acquiring Person or its Parent is required to file, by
virtue of having an outstanding class of Voting Common Stock (or
equivalent equity interests), reports with the Commission pursuant to
section 13 or section 15(d) of the Exchange Act, and
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<PAGE> 15
such Voting Stock (or equivalent equity interests) is listed or
admitted to trading on a national securities exchange or is quoted in
the NASD automated quotation system. In the event that the Acquiring
Person fulfills the requirements contained in the immediately preceding
proviso, then, if the holder of this Warrant shall elect (or shall be
deemed to elect) to receive Voting Common Stock (or equivalent equity
interests) pursuant to subdivision (ii) above, such holder shall be
entitled to receive, upon the basis stated in such subdivision (ii),
only the Voting Common Stock (or equivalent equity interests) of the
Acquiring Person.
3.2. Assumption of Obligations. Notwithstanding anything
contained in this Warrant or the Note Agreement to the contrary, the Company
will not effect any Change in Control Event unless, prior to the consummation
thereof, each Person (other than the Company) which may be required to deliver
any cash, stock or other securities or other property upon the exercise of this
Warrant as provided herein shall assume, by written instrument delivered to, and
reasonably satisfactory to, the Requisite Holders of the Warrants, (a) the
obligations of the Company under this Warrant (and if the Company shall survive
the consummation of such transaction, such assumption shall be in addition to,
and shall not release the Company from, any continuing obligations of the
Company under this Warrant), and (b) the obligation to deliver to such holder
such cash, stock or other securities or other property as, in accordance with
the foregoing provisions of this section 3, such holder may be entitled to
receive, and such Person shall have similarly delivered to such holder an
opinion of counsel for such Person, which counsel shall be reasonably
satisfactory to such holder, stating that this Warrant shall thereafter continue
in full force and effect and the terms hereof (including, without limitation,
all of the provisions of section 2 and this section 3) shall be applicable to
the cash, stock or other securities or other property which such Person may be
required to deliver upon any exercise of this Warrant or the exercise of any
rights pursuant hereto. Nothing in this section 3 or in section 7 shall be
deemed to authorize the Company to enter into any transaction not otherwise
permitted by the Note Agreement.
4. Other Events. In case any event shall occur as to which the
provisions of section 2 or section 3 are not strictly applicable, but the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles of such sections, then, in each such case, the Company shall appoint
a firm of independent public accountants of recognized national standing (which
may be the regular auditors of the Company) or an independent investment banking
firm of recognized national standing, which shall give their opinion upon the
adjustment, if any, on a basis consistent with the essential intent and
principles established in sections 2 and 3, necessary to preserve, without
dilution, the purchase rights represented by this Warrant, but in no event shall
any such adjustment have the effect of increasing the Warrant Price or
decreasing the number of shares of Common Stock issuable upon exercise of this
Warrant. Upon receipt of such opinion, the Company will promptly mail a copy
thereof to the holder of this Warrant and shall make the adjustments described
therein.
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<PAGE> 16
5. No Dilution or Impairment. The Company will not, by
amendment of its certificate of incorporation or through any consolidation,
merger, reorganization, transfer of assets, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the holder of this Warrant against dilution or other impairment. Without
limiting the generality of the foregoing, the Company (a) will not permit the
par value of any shares of stock receivable upon the exercise of this Warrant to
exceed the amount payable therefor upon such exercise, (b) will take all such
action as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of stock upon the exercise
of all of the Warrants from time to time outstanding, and (c) will not take any
action which results in any adjustment of the Warrant Price if the total number
of shares of Common Stock (or Other Securities) issuable after the action upon
the exercise of all of the Warrants would exceed the total number of shares of
Common Stock (or Other Securities) then authorized by the Company's certificate
of incorporation and available for the purpose of issue upon such exercise.
6. Accountants' Report as to Adjustments. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable upon the exercise of the Warrants, the Company at its expense will
promptly compute such adjustment or readjustment in accordance with the terms of
the Warrants and the chief financial officer of the Company will certify such
computation and prepare a report setting forth such adjustment or readjustment
and showing in reasonable detail the method of calculation thereof and the facts
upon which such adjustment or readjustment is based, including without
limitation a statement of (a) the consideration received or to be received by
the Company for any Additional Shares of Common Stock issued or sold or deemed
to have been issued, (b) the number of shares of Common Stock, outstanding or
deemed to be outstanding, and (c) the Warrant Price in effect immediately prior
to such issue or sale and as adjusted and readjusted (if required by section 2)
on account thereof. The Company will forthwith mail a copy of each such
certificate and report to each holder of a Warrant and will, upon the written
request at any time of any holder of a Warrant, furnish to such holder a like
certificate and report setting forth the Warrant Price at the time in effect and
showing in reasonable detail how it was calculated. The Company will also keep
copies of all such reports at its principal office and will cause the same to be
available for inspection at such office during Normal Business Hours by any
holder of a Warrant or any prospective purchaser of a Warrant designated by the
holder thereof. At least once in each fiscal year of the Company, in connection
with the preparation of the Company's annual audited financial statements, the
Company will cause the auditors preparing such statements to review the
certificates and reports delivered pursuant to this section 6 and to confirm in
writing to each holder of a Warrant the correctness of the computations set
forth therein; provided, however, that such review and confirmation need not be
made if the aggregate amounts of adjustments in any fiscal year is less than
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<PAGE> 17
$0.10. Such confirmation may accompany or be part of the certificate delivered
by the auditors to the holders of the Notes pursuant to paragraph 5A of the Note
Agreement.
7. Notices of Corporate Action. In the event of
(a) any taking by the Company of a record of the
holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive
any dividend (other than a regular periodic dividend payable
in cash out of earned surplus) or other distribution, or any
right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of
the Company or any consolidation or merger involving the
Company and any other Person or any transfer of all or
substantially all the assets of the Company to any other
Person, or
(c) any voluntary or involuntary dissolution,
liquidation or winding-up of the Company,
the Company will mail to each holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up. Such notice shall be
mailed simultaneously with the Company's mailing of notice to its shareholders,
but in no event less than 15 days prior to the date or expected date specified
in the notice.
8. Restrictions on Transfer. 8.1. Restrictive Legends. Except
as otherwise permitted by this section 8, each Warrant originally issued
pursuant to the Note Agreement and each Warrant issued upon direct or indirect
transfer or in substitution for any such Warrant pursuant to section 13 shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"This Warrant and any shares acquired upon the exercise of
this Warrant have not been registered under the Securities Act of 1933
and may not be transferred in the absence of such registration or an
exemption therefrom under such Act."
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Except as otherwise permitted by this section 8, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant and each
certificate issued upon the direct or indirect transfer of any such Common Stock
(or Other Securities) shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and may not be transferred
in the absence of such registration or an exemption therefrom under
such Act. Such shares are also subject to certain provisions regarding
transferability imposed by Common Stock Purchase Warrants expiring
September 27, 2003, a copy of which is on file at the offices of the
Company."
8.2. Notice of Proposed Transfer; Removal of Legend. Prior to
any transfer of any Restricted Securities which are not registered under an
effective registration statement under the Securities Act (other than a transfer
pursuant to Rule 144, Rule 144A or any comparable rule under such Act), the
holder thereof will give written notice to the Company of such holder's
intention to effect such transfer and to comply in all other respects with this
section 8.2. Each such notice (a) shall describe the manner and circumstances of
the proposed transfer in reasonable detail, including the name and address of
the transferee, the number of Restricted Securities to be transferred, and the
expected settlement date for the transaction, and (b) shall designate counsel
for the holder giving such notice (who may be in-house counsel for such holder).
The holder giving such notice will submit a copy thereof to the counsel
designated in such notice and, if in the opinion of such counsel the proposed
transfer may be effected without registration, such holder shall thereupon be
entitled to transfer such Restricted Securities in accordance with the terms of
the notice delivered by such holder to the Company. Each Warrant or certificate,
if any, issued upon or in connection with such transfer shall bear the
appropriate restrictive legend set forth in section 8.1 unless, in the opinion
of each such counsel, such legend is no longer required to ensure compliance
with the Securities Act. Without limiting the generality of the foregoing, the
Company agrees that any transfer of Restricted Securities to an Institutional
Investor shall be deemed to be in compliance with the Securities Act, so long as
such Institutional Investor executes and delivers to the Company a writing
containing (A) its representation and warranty that it is acquiring such
Restricted Securities for investment and not with a view to the distribution
thereof (subject, however, to any requirement of law that the disposition
thereof shall at all times be within the control of such holder) and (B) its
acknowledgment that the Company is relying on such representation and warranty
in removing said restrictive legend.
The Company will pay the reasonable fees and disbursements of counsel (other
than in-house counsel) for any holder of Restricted Securities in connection
with all opinions rendered by them pursuant to this section 8.2 and pursuant to
section 8.3; provided that if any such holder of Restricted Securities has
in-house counsel with the requisite expertise to render such an opinion, such
holder will utilize such in-house counsel for such
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purposes to the extent such in-house counsel is available to render the opinion
on a timely basis.
8.3. Termination of Restrictions. The restrictions imposed by
this section 8 upon the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities (a) when such securities
shall have been effectively registered under the Securities Act and disposed of
in accordance with the registration statement covering such Restricted
Securities, (b) when, in the opinions of both counsel for the holder thereof and
counsel for the Company, such restrictions are no longer required in order to
ensure compliance with the Securities Act, or (c) when the holder of such
securities is entitled to distribute such securities to the public pursuant to
Rule 144(k) under the Securities Act. Whenever such restrictions shall terminate
as to any Restricted Securities, as soon as practicable thereafter and in any
event within five Business Days, the holder thereof shall be entitled to receive
from the Company, without expense to such holder (other than transfer taxes, if
any), new securities of like tenor not bearing the applicable legend set forth
in section 8.1 hereof.
9. Registration under Securities Act, etc. 9.1. Registration
on Request. (a) Request. Upon the written request of one or more Initiating
Holders, requesting that the Company effect the registration under the
Securities Act of all or part of such Initiating Holders' Registrable Securities
and specifying the intended method of disposition thereof, the Company will
promptly give written notice of such requested registration to all holders of
outstanding Registrable Securities, and thereupon will use its best efforts to
effect the registration under the Securities Act of
(i) the Registrable Securities which the Company has been so
requested to register by such Initiating Holder or Holders for
disposition in accordance with the intended method of disposition
stated in such request, and
(ii) all other Registrable Securities the Holders of which
have made written requests to the Company for registration thereof
within 20 Business Days after the giving of such written notice by the
Company (which request shall specify the intended method of disposition
thereof),
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities so to be
registered; provided that (A) the Company shall not be required to effect the
registration pursuant to this section 9.1 of any Warrants (but shall be required
to effect the registration of Registrable Securities described in clauses (b)
and (c) of the definition of Registrable Securities); (B) the Company shall not
be required to effect any registration pursuant to this section 9.1 if the
aggregate number of Registrable Securities requested to be registered pursuant
to this section 9.1 does not equal or exceed the lesser of (x) 40% (by number of
shares) of the Registrable Securities outstanding on the date of this Agreement
(such outstanding Registrable Securities to be adjusted from time to time to
reflect the issuance of
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additional shares of Common Stock by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise by multiplying such number, as the same may
have been previously adjusted, by the percentage by which the number of
outstanding shares of Registrable Securities shall have increased or decreased
as a result of such stock dividend, stock split, combination of shares,
recapitalization, merger or consolidation or other reorganization) and (y) the
amount of Registrable Securities outstanding on the date of such request; (C)
the Company shall not be required to effect more than two registrations pursuant
to this section 9.1; and (D) the Company shall not be required to effect any
registration pursuant to this section 9.1 if within the 45-day period prior to
the date of the written request of any Initiating Holder a registration
statement in connection with a Public Offering shall have become effective under
the Securities Act. If the Board of Directors of the Company shall determine in
its good faith judgment that registration of Registrable Securities pursuant
hereto would be detrimental to the best interests of the Company and its
shareholders, the Company may delay proceeding with such registration for a
period not exceeding 90 days after its receipt of a request therefor. Subject to
subdivision (f), the Company may include in such registration other securities
for sale for its own account or for the account of any other Person.
(b) Registration Statement Form. Registrations under this
section 9.1 shall be on such appropriate registration form of the Commission
that shall be selected by the Company, and be reasonably acceptable to the
holders of more than 50% (by number of shares) of the Registrable Securities so
to be disposed of (it being understood that Form S-2 or Form S-3 or other
comparable "short-form" that the Company is then eligible to utilize is
acceptable unless (i) the managing underwriter, if any, for such distribution,
advises the Initiating Holder(s) that such registration is reasonably likely to
result in a sale of such Registrable Securities on materially less attractive
economic terms than would be the case in a sale pursuant to Form S-1 or similar
"long-form" registration or (ii) in the case of a non-underwritten distribution,
the Initiating Holder(s) reach the same determination, it being agreed, however,
that if, pursuant to clause (i) or (ii), a sale pursuant to Form S-1 or similar
"long-form" registration is required by the Initiating Holder(s), such
Initiating Holder(s) shall pay all registration costs in excess of those which,
in the reasonable determination of the managing underwriter, or if there is no
managing underwriter, the Initiating Holder(s), would have been incurred in
connection with a Form S-2, Form S-3 or other comparable "short-form"
registration), and shall permit the disposition of such Registrable Securities
in accordance with the intended method or methods specified in their request for
such registration.
(c) Expenses. The Company will pay all Registration Expenses
in connection with any registration requested and effected pursuant to this
section 9.1. In the event of registrations effected pursuant to this section 9.1
that includes both Registrable Securities and shares other than Registrable
Securities, the Registration Expenses (and underwriting discounts and
commissions and transfer taxes, if any) in connection with such registration
shall be allocated among all Persons on whose behalf
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<PAGE> 21
securities of the Company are included in such registration, pro rata among such
Persons on the basis of the respective amounts of the securities then being
registered on their behalf.
(d) Selection of Underwriters. If, in the discretion of the
holders of a majority (by number of shares) of the Registrable Securities to be
registered, any offering pursuant to this section 9.1 shall constitute an
underwritten offering, the underwriter or underwriters thereof shall be selected
by such holders subject to the approval of the Company, which shall not
unreasonably withhold its acceptance of such underwriter or underwriters.
(e) Effective Registration Statement. A registration requested
pursuant to this section 9.1 will not be deemed to have been effected (i) unless
it has become effective with respect to 100% of the Registrable Securities
requested to be included in such registration by the Initiating Holders,
provided that a registration which does not become effective after the Company
has filed a registration statement with respect to 100% of the Registrable
Securities requested to be included in such registration by the Initiating
Holders solely by reason of the refusal to proceed of the Initiating Holders
shall be deemed to have been effected by the Company at the request of such
Initiating Holders, unless such Initiating Holders shall have elected to pay all
Registration Expenses in connection with such registration, (ii) if, after it
has become effective, such registration is interfered with by any stop order,
injunction or other order or requirement of the Commission or other governmental
agency or court, or (iii) if the conditions to closing specified in the purchase
agreement or underwriting agreement entered into in connection with such
registration are not satisfied or waived.
(f) Priority in Requested Registrations. If a requested
registration pursuant to this section 9.1 involves an underwritten offering, and
the managing underwriter shall advise the Company in writing (with a copy to
each holder of Registrable Securities requesting registration) that in its
opinion, the number of securities requested to be included in such registration
(including securities of the Company which are not Registrable Securities)
exceeds the number which can be sold in such offering within a price range
acceptable to the Initiating Holders, the Company will include in any such
registration to the extent of the number which the Company is so advised can be
sold in such offering (i) first, Registrable Securities requested to be included
in such registration by the Initiating Holders, together with securities
requested to be included in such registration pursuant to the Prior Agreement
(to the extent the Prior Agreement requires inclusion therein on a first
priority basis), pro rata among the holders of such securities on the basis of
the number of shares of such securities requested to be included by such
holders, (ii) second, other Registrable Securities requested to be included in
such registration, pro rata among the holders thereof requesting such
registration on the basis of the number of shares of such securities requested
to be included by such holders, and (iii) third, other securities of the Company
proposed to be included in such registration, in
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accordance with the priorities, if any, then existing among the Company and the
holders of such other securities.
9.2. Incidental Registration. (a) Right to Include Registrable
Securities. Notwithstanding any limitation contained in section 9.1, if senior
management or the board or directors of the Company at any time determine to
register any of the Company's Common Stock under the Securities Act (other than
by a registration on Form S-4, S-8 or any successor or similar forms), whether
or not for sale for its own account, in a manner which would permit registration
of Registrable Securities for sale to the public under the Securities Act, the
Company will each such time give written notice within five days following such
determination to all holders of Registrable Securities of its intention to do
so, specifying the securities to be offered and the amount thereof proposed to
be sold, and of such holders' rights under this section 9.2. Upon the written
request of any such holder made within 15 days after the receipt of any such
notice (which request shall specify the Registrable Securities intended to be
disposed of by such holder and the intended method of disposition thereof), the
Company will use its best efforts to effect the registration under the
Securities Act of all Registrable Securities which the Company has been so
requested to register by the holders thereof, to the extent requisite to permit
the disposition (in accordance with the intended methods thereof as aforesaid)
of the Registrable Securities so to be registered, by inclusion of such
Registrable Securities in the registration statement which covers the securities
which the Company proposes to register, provided that (A) the Company shall not
be required to effect the registration pursuant to this section 9.2 of any
Warrants (but shall be required to effect the registration of Registrable
Securities described in clauses (b) and (c) of the definition of Registrable
Securities) and (B) if, at any time after giving written notice of its intention
to register any securities and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to each holder of Registrable Securities and, thereupon, (x) in
the case of a determination not to register, shall be relieved of its obligation
to register any Registrable Securities in connection with such registration (but
not from its obligation to pay the Registration Expenses in connection
therewith), without prejudice, however, to the rights of any holder or holders
of Registrable Securities entitled to do so to request that such registration be
effected as a registration under section 9.1, and (y) in the case of a
determination to delay registering, shall be permitted to delay registering any
Registrable Securities for the same period as the delay in registering such
other securities. No registration effected under this section 9.2 shall relieve
the Company of its obligation to effect any registration statement upon request
under section 9.1. The Company will pay all Registration Expenses in connection
with each registration of Registrable Securities requested pursuant to this
section 9.2.
(b) Priority in Incidental Registrations. If a registration
pursuant to this section 9.2 involves an underwritten offering and the managing
underwriter advises the Company in writing that, in its opinion, the number of
securities requested to be included
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in such registration exceeds the number which can be sold in such
offering within a price range acceptable to the Company or the shareholders
requesting such registration, the Company will include in such registration to
the extent of the number which the Company is so advised can be sold in such
offering securities determined as follows:
(i) if such registration as initially proposed by the Company
was solely a primary registration of its securities, (x) first, the
securities proposed by the Company to be sold for its own account, and
(y) second, any Registrable Securities and any other securities of the
Company requested to be included in such registration, pro rata among
the holders thereof requesting such registration on the basis of the
number of shares of such securities requested to be included by such
holders, and
(ii) if such registration as initially proposed by the Company
was in whole or in part requested by holders of securities pursuant to
the Prior Agreement, (x) first, if and to the extent the Prior
Agreement so requires, such securities held by the holders initiating
such registration, pro rata among the holders thereof, on the basis of
the number of shares of such securities requested to be included by
such holders, (y) second, such securities held by the holders of
Registrable Securities, pro rata among the holders thereof, on the
basis of the number of shares of such securities requested to be
included by such holders, and (z) third, any other securities of the
Company requested to be included in such registration, pro rata among
the holders thereof requesting such registration on the basis of the
number of shares of such securities requested to be included by such
holders, and
(iii) if such registration as initially proposed by the
Company was in whole or in part requested by holders of securities of
the Company, other than holders of Registratable Securities and other
than holders of securities with registration rights under the Prior
Agreement, (x) first, such securities held by the holders initiating
such registration and, if and to the extent the Prior Agreement so
requires, the holders of securities with registration rights under the
Prior Agreement, pro rata among the holders thereof, on the basis of
the number of shares of such securities requested to be included by
such holders, (y) second, such securities held by the holders of
Registrable Securities, pro rata among the holders thereof, on the
basis of the number of shares of such securities requested to be
included by such holders, and (z) third any other securities of the
Company requested to be included in such registration, pro rata among
the holders thereof requesting such registration on the basis of the
number of shares of such securities requested to be included by such
holders.
9.3 Registration Procedures. If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in sections 9.1 and 9.2, the
Company will as expeditiously as possible:
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(a) prepare and file with the Commission the requisite
registration statement (including such audited financial statements as
may be required by the Securities Act or the rules and regulations
promulgated thereunder) to effect such registration and use its best
efforts to cause such registration statement to become effective,
provided that before filing such registration statement or any
amendments thereto, the Company will furnish to the counsel selected by
the holders of Registrable Securities whose Registrable Securities are
to be included in such registration copies of drafts of all such
documents proposed to be filed in reasonably final form, which
documents will be subject to the prompt review of such counsel;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to maintain the effectiveness
of such registration statement and to comply with the provisions of the
Securities Act with respect to the disposition of all securities
covered by such registration statement until the earlier of such time
as all of such securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set
forth in such registration statement or 120 days after such
registration statement becomes effective, provided that if less than
all the Registerable Securities are withdrawn from registration after
the relevant period, the shares to be so withdrawn shall be allocated
pro rata among the holders thereof on the basis of the respective
numbers of Registrable Securities held by them included in such
registration;
(c) furnish to each seller of Registrable Securities covered
by such registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of
the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity
with the requirements of the Securities Act, and such other documents,
as such seller may reasonably request;
(d) use its best efforts to register or qualify all
Registrable Securities and other securities covered by such
registration statement under such other securities or Blue Sky laws of
such jurisdictions as each seller thereof shall reasonably request and
to keep such registration or qualification in effect for so long as
such registration statement remains in effect, and take any other
action which may be reasonably necessary or advisable to enable such
seller to consummate the disposition in such jurisdictions of the
securities owned by such seller, except that the Company shall not for
any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it would not, but for
the requirements of this subdivision (d), be obligated to be so
qualified or to consent to general service of process in any such
jurisdiction;
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(e) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities in the
United States as may be necessary to enable the seller or sellers
thereof to consummate the disposition of such Registrable Securities;
(f) furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller (and the underwriters, if any),
of
(i) an opinion of counsel for the Company, dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, dated
the date of any closing under the underwriting agreement),
reasonably satisfactory in form and substance to such seller,
and
(ii) a "comfort" letter, dated the effective date of
such registration statement (and, if such registration
includes an underwritten Public Offering, dated the date of
any closing under the underwriting agreement), signed by the
independent public accountants who have certified the
Company's financial statements included in such registration
statement,
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in
the case of the accountants' letter, with respect to events subsequent
to the date of such financial statements, as are customarily covered in
opinions of issuer's counsel and in accountants' letters delivered to
the underwriters in underwritten Public Offerings of securities (or, in
the case of the accountants' comfort letter, as may be delivered to
shareholders pursuant to applicable AICPA standards);
(g) notify each holder of Registrable Securities covered by
such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which
they were made, and promptly prepare and furnish to such seller a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which
they were made;
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(h) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more
than eighteen months, beginning with the first full calendar month
after the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
Securities Act, and not file any such registration statement,
prospectus or amendment or supplement thereto to which any such seller
shall have reasonably objected on the grounds that such registration
statement, prospectus, amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or of the
rules or regulations thereunder, having been furnished with a copy
thereof as soon as practicable;
(i) provide a transfer agent and registrar for all Registrable
Securities covered by such registration statement not later than the
effective date of such registration statement; and
(j) use of its best efforts, at its option, either (1) to
cause all such Registrable Securities covered by such registration
statement to be listed on a national securities exchange within the
United States (if such Registrable Securities are not already so
listed) and on each additional national securities exchange within the
United States on which similar securities issued by the Company are
then listed, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (2) to secure
designation of all such Registrable Securities covered by such
registration statement as a NASDAQ "national market system security"
within the meaning of Rule 11Aa2-1 of the Commission if similar
securities of the Company are then so designated.
The Company may require each holder of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such holder and the distribution of such securities as the Company is advised by
its counsel is legally required in connection with such registration.
Each holder of Registrable Securities agrees by acquisition of
such Registrable Securities that upon receipt of any notice from the Company of
the happening of any event of the kind described in subdivision (g) of this
section 9.3, such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (g) of this
section 9.3 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice. In the event the
Company shall give any such notice, the periods referred to in subdivision (b)
of this section 9.3 shall be extended by a number of days
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equal to the number of days during the period from and including the giving of
notice pursuant to subdivision (g) of this section 9.3 to and including the date
when each seller of any Registrable Securities covered by such registration
statement shall receive the copies of the supplemented or amended prospectus
contemplated by subdivision (g) of this section 9.3.
9.4 Underwritten Offerings. (a) Requested Underwritten
Offerings. If requested by the underwriters for any underwritten offering by
holders of Registrable Securities pursuant to the registration requested under
section 9.1, the Company will enter into an underwriting agreement with such
underwriters for such offering, such agreement to be reasonably satisfactory in
substance and form to the Company, each such holder and the underwriters and to
contain such representations and warranties by the Company and such other terms
as are customarily contained in agreements of this type, including, without
limitation, indemnities to the effect and to the extent provided in section 9.6.
The holders of Registrable Securities to be distributed by such underwriters
shall execute and deliver and be parties to such underwriting agreement as a
condition to such holder's participation in the offering and may, at their
option, require that any or all of the representations and warranties by, and
the other agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable Securities. No
holder of Registrable Securities shall be required to make any representations
or warranties to or agreements with the Company or the underwriters other than
customary representations, warranties or agreements regarding such holder, such
holder's ownership of the Registrable Securities to be sold and such holder's
intended method of distribution and any other representation required by law.
(b) Incidental Underwritten Offerings. If the Company at any
time proposes to register any of its securities under the Securities Act as
contemplated by section 9.2 and such securities are to be distributed by or
through one or more underwriters, the Company will, subject to the provisions of
section 9.2(b), use its best efforts, if requested by any holder of Registrable
Securities, to arrange for such underwriters to include the Registrable
Securities to be offered and sold by such holder among the securities to be
distributed by such underwriters. The holders of Registrable Securities to be
distributed by such underwriters shall execute and deliver and be parties to the
underwriting agreement as a condition to such holder's participation in the
offering between the Company and such underwriters and may, at their option,
require that any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable Securities. No
holder of Registrable Securities shall be required to make any representations
or
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warranties to or agreements with the Company or the underwriters other than
customary representations, warranties or agreements regarding such holder, such
holder's ownership of the Registrable Securities to be sold and such holder's
intended method of distribution and any other representation required by law.
(c) Holdback Agreements. (i) Each holder of Registrable
Securities agrees by acquisition of such Registrable Securities, if so requested
by the managing underwriter, not to effect any public sale or distribution of
such securities during the seven days prior to and such period of time as is
requested by such managing underwriter (not to exceed 90 days) after any
underwritten registration pursuant to section 9.1 or 9.2 has become effective,
except as part of such underwritten registration, whether or not such holder
participates in such registration.
(ii) The Company agrees (x) not to effect any public sale or
distribution of its equity securities or securities convertible into or
exchangeable or exercisable for any of such securities during the seven days
prior to and the 60 days after any underwritten registration pursuant to section
9.1 or 9.2 has become effective, except as part of such underwritten
registration and except pursuant to registrations on Form S-4, S-8 or any
successor or similar forms thereto, and (y) to cause each holder of its equity
securities or of any securities convertible into or exchangeable or exercisable
for any of such securities, in each case purchased from the Company at any time
after the date of this Agreement (other than in a Public Offering), to agree not
to effect any such public sale or distribution of such securities, during such
period, except as part of such underwritten registration.
9.5 Preparation; Reasonable Investigation. In connection with
the preparation and filing of each registration statement under the Securities
Act, the Company will give the holders of Registrable Securities registered
under such registration statement, their underwriters, if any, their respective
inside counsel and one special counsel and accounting firm for all such holders,
the opportunity to participate in the preparation of such registration
statement, each prospectus included therein or filed with the Commission, and
each amendment thereof or supplement thereto, and will give each of them such
access to its books and records and such opportunities to discuss the business
of the Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of such
holders' and such underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
9.6 Indemnification. (a) Indemnification by the Company. In
the event of any registration of any securities of the Company under the
Securities Act, the Company will, and hereby does, indemnify and hold harmless
the seller of Registrable Securities covered by any registration statement filed
pursuant to section 9.1 or 9.2, its directors and officers, each other Person
who participates as an underwriter in the offering or sale of such securities
and each other Person, if any, who controls any such seller or
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any such underwriter within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which such seller
or any such director or officer or underwriter or controlling Person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company will reimburse such seller and each such director, officer,
underwriter and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; provided that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and strictly in conformity with written information
(which information shall be limited to a brief description of the seller, its
holdings of the Registrable Securities to be sold and its plan of distribution
therefor) furnished by such seller to the Company in an instrument duly executed
by such seller specifically stating that it is for use in the preparation
thereof and provided further that the Company shall not be liable to any Person
who participates as an underwriter, in the offering or sale of Registrable
Securities or any other Person, if any, who controls such underwriter within the
meaning of the Securities Act, in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of such Person's failure to send or give a copy of the final
prospectus to the Person asserting an untrue statement or alleged untrue
statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such Person if such
statement or omission was corrected in such final prospectus. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of such seller or any such director, officer, underwriter or
controlling person and shall survive the transfer of such securities by such
seller. The Company shall agree to provide for such contribution relating to
such indemnity as shall be reasonably requested by any seller of Registrable
Securities or the underwriters.
(b) Indemnification by the Sellers. In the event of any
registration of any securities of the Company under the Securities Act, each
holder of Registrable Securities included in such registration will, and hereby
does, indemnify and hold harmless (in the same manner and to the same extent as
set forth in subdivision (a) of this section 9.6) the Company, each director of
the Company, each officer of the Company and each other Person, if any, who
controls the Company within the meaning of the Securities Act, with respect to
any statement or alleged statement in or omission or alleged omission from
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such registration statement, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement thereto, if
such statement or alleged statement or omission or alleged omission was made in
reliance upon and strictly in conformity with written information (which
information shall be limited to a brief description of the seller, its holdings
of the Registrable Securities to be sold and its plan of distribution therefor)
furnished to the Company by such seller in an instrument duly executed by such
seller specifically stating that it is for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the Company
or any such director, officer or controlling person and shall survive the
transfer of such securities by such seller. Such seller shall agree to provide
for such contribution relating to such indemnity as shall be reasonably
requested by the Company, provided that such seller shall not be required to
make any contribution unless it is at fault under the standards set forth in the
first sentence of this section 9.6(b). The indemnity and contribution provided
by each seller of securities under this section 9.6(b) is and shall be provided
severally, and not jointly or jointly and severally with any other seller or
prospective seller of securities, and is and shall be limited in amount to the
net amount of proceeds received by such seller from the sale of Registrable
Securities pursuant to such registration statement.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this section 9.6,
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this section 9.6, except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, such indemnified
party shall have the right to employ counsel separate from counsel for the
indemnifying party, but the fees and expenses of such counsel shall be borne by
such indemnified party unless (i) the indemnifying party agrees to pay such fees
and expenses, (ii) the indemnifying party shall have failed to assume the
defense of such claim or engage experienced, independent, regionally-recognized
counsel on behalf of the indemnified party, or (iii) in the reasonable judgment
of the indemnified party, a conflict of interest is likely to exist between the
indemnified party and the indemnifying party with respect to such claims (in
such case, upon notice to the indemnifying party of such determination, the
indemnifying party shall not have the right to assume the defense of such
indemnified party). If none of the events described in clauses (i), (ii) or
(iii) of the preceding sentence exist, the indemnifying party shall be entitled
to participate in and to assume the defense of any action against an indemnified
party, jointly with any other indemnifying party similarly notified to the
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such
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indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall consent to entry of any judgment or
enter into any settlement without the consent of the indemnified party which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation.
(d) Indemnification Payments. The indemnification required by
this section 9.6 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred, provided that the indemnified
party shall execute and deliver an undertaking agreement to repay such advances
if it is judicially determined that such party was not entitled to such advances
pursuant to this section 9.6.
9.7 Adjustments Affecting Registrable Securities. The Company
will not effect or permit to occur any combination or subdivision of shares
which would adversely affect the ability of the holders of Registrable
Securities to include such Registrable Securities in any registration of its
securities contemplated by this section 9 or the marketability of such
Registrable Securities under any such registration.
9.8 Covenants Relating to Rules 144 and 144A. The Company will
file reports in compliance with the Exchange Act and will, at its expense,
forthwith upon the request of any holder of Restricted Securities, deliver to
such holder a certificate, signed by the Company's principal financial officer,
stating (a) the Company's name, address, and telephone number (including area
code), (b) the Company's Internal Revenue Service identification number, (c) the
Company's Commission file number, (d) the number of shares of Common Stock of
the Company outstanding as shown by the most recent report or statement
published by the Company, and (e) whether the Company has filed the reports
required to be filed under the Exchange Act for a period of at least 90 days
prior to the date of such certificate and in addition has filed the most recent
annual report required to be filed thereunder. If at any time the Company is not
required to file reports in compliance with either section 13 or section 15 (d)
of the Exchange Act, the Company at its expense will, forthwith upon the written
request of the holder of any Restricted Securities, make available to (i) such
holder adequate current public information with respect to the Company within
the meaning of paragraph (c)(2) of Rule 144 of the General Rules and Regulations
promulgated under the Securities Act or (ii) such holder or a QIB designated by
such holder such financial and other information as such holder may reasonably
determine to be necessary in order to permit compliance with the information
requirements of Rule 144A under the Securities Act in connection with the resale
of the Registrable Securities.
10. Availability of Information. The Company will cooperate
with each holder of any Restricted Securities in supplying such
publicly-available information as may be necessary for such holder to complete
and file any information reporting forms
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presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of any
Restricted Securities. The Company will furnish to each holder of any Warrants,
promptly upon their becoming available, copies of all financial statements,
reports, notices and proxy statements sent or made available generally by the
Company to its stockholders, and copies of all regular and periodic reports and
all registration statements and prospectuses filed by the Company with any
securities exchange or with the Commission.
11. Reservation of Stock, etc. The Company will at all times
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrants, the number of shares of Common Stock (or Other Securities) from
time to time issuable upon exercise of all Warrants at the time outstanding, and
if at any time the number of authorized but unissued shares of Common Stock is
insufficient to permit such issuance, the Company shall seek shareholder
approval to amend its certificate of incorporation or other charter, and shall
take such other action as may be necessary, to increase the number of authorized
shares to such number of shares as shall be sufficient for such purpose. All
shares of Common Stock (or Other Securities) shall be duly authorized and, when
issued upon such exercise, shall be validly issued and, in the case of shares,
fully paid and nonassessable with no liability on the part of the holders
thereof.
12. Listing on Securities Exchanges. The Company will list on
each national securities exchange on which any Common Stock may at any time be
listed, subject to official notice of issuance upon exercise of the Warrants,
and will maintain such listing of, all shares of Common Stock from time to time
issuable upon exercise of the Warrants. During any period when the Common Stock
shall not be listed on any national securities exchange, the Company will
maintain the designation of the shares of Common Stock from time to time
issuable upon exercise of the Warrants as a NASDAQ "national market system
security" within the meaning of Rule 11Aa2-1 of the Commission, if similar
securities of the Company are then so designated and, if similar securities are
not then so designated, the Company will cause its Common Stock to be listed in
the "pink sheets". The Company will also so list on each national securities
exchange, and will maintain such listing of, or, as the case may be, will secure
such designation and such registration with respect to, any Other Securities if
at the time any securities of the same class shall be listed on such national
securities exchange by the Company or shall be so designated, as the case may
be.
13. Ownership, Transfer and Substitution of Warrants. 13.1
Ownership of Warrants. The Company may treat the person in whose name any
Warrant is registered on the register kept at the principal office of the
Company as the owner and holder thereof for all purposes, notwithstanding any
notice to the contrary, except that, if and when any Warrant is properly
assigned in blank, the Company may (but shall not be obligated to) treat the
bearer thereof as the owner of such Warrant for all purposes, notwithstanding
any notice to the contrary. Subject to section 8, a Warrant, if properly
assigned, may be exercised by a new holder without first having a new Warrant
issued.
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13.2 Transfer and Exchange of Warrants. Upon the surrender of
any Warrant, properly endorsed, for registration of transfer or for exchange at
the principal office of the Company, the Company at its expense will (subject to
compliance with section 8, if applicable) execute and deliver to or upon the
order of the holder thereof a new Warrant or Warrants of like tenor, in the name
of such holder or as such holder (upon payment by such holder of any applicable
transfer taxes) may direct, calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock called for on the face or faces
of the Warrant or Warrants so surrendered.
13.3 Replacement of Warrants. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction of any Warrant held by a Person other than the Purchaser or any
Institutional Investor, upon the execution and delivery of a written indemnity
agreement reasonably satisfactory to the Company in form and amount or, in the
case of any such mutilation, upon surrender of such Warrant for cancellation at
the principal office of the Company, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
14. Definitions. As used herein, unless the context otherwise
requires, the following terms have the respective meanings set forth in this
section 14. Capitalized terms not defined herein which are defined in the Note
Agreement shall have the respective meanings assigned to them in the Note
Agreement.
Acquiring Person: the continuing or surviving corporation of a
consolidation or merger with the Company (if other than the Company), the
transferee of substantially all of the properties and assets of the Company, the
corporation consolidating with or merging into the Company in a consolidation or
merger in connection with which the Common Stock is changed into or exchanged
for stock or other securities of any other Person or cash or any other property,
or, in the case of a capital reorganization or reclassification, the Company.
Acquisition Price: as applied to the Common Stock, with
respect to any transaction to which section 3 applies, (a) the price per share
equal to the greater of the following, determined in each case as of the date
immediately preceding the date of consummation of such transaction: (i) the
Market Price of the Common Stock and (ii) the highest amount of cash plus the
Fair Value of the highest amount of securities or other property which the
holder of this Warrant would have been entitled as a shareholder to receive upon
such consummation if such holder had exercised this Warrant, immediately prior
thereto, or (b) if a purchase, tender or an exchange offer is made by the
Acquiring Person (or by any of its affiliates) to the holders of the Common
Stock and such offer is accepted by the holders of more than 50% of the
outstanding shares of Common Stock, the greater of (i) the price determined in
accordance with the foregoing subdivision (a) and (ii) the price per share equal
to the greater of the following, determined in each case as of the date
immediately preceding the acceptance of such offer by the holders of more
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than 50% of the outstanding shares of Common Stock: (x) the Market Price of the
Common Stock and (y) the highest amount of cash plus the Fair Value of the
highest amount of securities or other property which the holder of this Warrant
would be entitled as a shareholder to receive pursuant to such offer if such
holder had exercised this Warrant immediately prior to the expiration of such
offer and accepted the same.
Additional Shares of Common Stock: all shares (including
treasury shares) of Common Stock issued or sold (or, pursuant to section 2.3 or
2.4, deemed to be issued) by the Company after the Initial Date, whether or not
subsequently reacquired or retired by the Company, other than (A) shares of
Common Stock issued upon the exercise of Warrants, and (B) shares of Common
Stock issued to officers, directors and employees of and consultants to the
Company pursuant to stock option, stock purchase or 401(k) benefit plans so long
as, in the case of clause (B), the maximum number of shares issuable under all
stock option and stock purchase plans described in such clause at no time
exceeds 20% of the shares of Common Stock outstanding on a fully-diluted basis
and the maximum number of shares issuable pursuant to 401(k) benefit plans does
not exceed 5,000 in any calendar month.
Base Price: on any date specified herein, 95% of the greater
of (i) the Current Market Price and (ii) the Warrant Price.
Business Day: any day other than a Saturday or a Sunday or a
day on which commercial banking institutions in the City of New York or the
State of California are authorized by law to be closed, provided that, in
determining the period within which certificates or Warrants are to be issued
and delivered pursuant to section 1.3 at a time when shares of Common Stock (or
Other Securities) are listed or admitted to trading on any national securities
exchange or in the over-the-counter market and in determining the Market Price
of any securities listed or admitted to trading on any national securities
exchange or in the over-the-counter market, "Business Day" shall mean any day
when the principal exchange in which securities are then listed or admitted to
trading is open for trading or, if such securities are traded in the
over-the-counter market in the United States, such market is open for trading,
and provided further that any reference to "days" (unless Business Days are
specified) shall mean calendar days.
Change in Control Event: shall mean (i) an event or series of
events by which any Person or Persons or other entities acting in concert as a
partnership or other group (a "Group of Persons"), shall, as a result of a
tender or exchange offer, open market purchases, privately negotiated purchases,
merger, consolidation or otherwise, have become the beneficial owner (within the
meaning of Rule 13d-3 under the Securities Exchange Act), of 50% or more of the
Voting Power of the Company, (ii) the Company is merged with or into another
corporation with the effect that immediately after such transaction the
stockholders of the Company immediately prior to such transaction hold less than
a majority of the combined Voting Power of the Person surviving the transaction,
(iii) the direct or indirect transfer (by sale, lease or otherwise) of all or
31
<PAGE> 35
substantially all of the assets of the Company to any Person or Group of Persons
or (iv) the failure of any person nominated by management to be elected to the
Company's board of directors to be so elected in any contested board election,
with the result that a majority of the persons elected to serve on the Company's
board of directors have not been nominated for election by management.
Commission: the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act or the
Exchange Act, whichever is the relevant statute for the particular purpose.
Common Stock: the Company's Common Stock, par value $.25 per
share, as constituted on the date hereof, any stock into which such Common Stock
shall have been changed or any stock resulting from any reclassification of such
Common Stock, and all other stock of any class or classes (however designated)
of the Company the holders of which have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference.
Company: Datum Inc., a Delaware corporation.
Convertible Securities: any notes, debentures, other evidences
of indebtedness, shares of stock (other than Common Stock) or other securities
directly or indirectly convertible into or exchangeable for Additional Shares of
Common Stock.
Current Market Price: on any date specified herein, (a) with
respect to Common Stock or to Voting Common Stock (or equivalent equity
interests) of an Acquiring Person or its Parent, (i) the average daily Market
Price during the period of the most recent 10 consecutive Business Days ending
on the date immediately preceding such date, or (ii) if shares of Common Stock
or such Voting Common Stock (or equivalent equity interests), as the case may
be, are not then listed or admitted to trading on any national securities
exchange and if the closing bid and asked prices thereof are not then quoted or
published in the over-the-counter market, the Market Price on such date; and (b)
with respect to any other securities, the Market Price on such date.
Event of Default: an Event of Default as defined in the Note
Agreement.
Exchange Act: the Securities Exchange Act of 1934, or any
similar Federal statute, and the rules and regulations of the Commission
thereunder, all as to the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934 shall include a
reference to the comparable section, if any, of any such similar Federal
statute.
Exercise Period: the period ending at the end of Normal
Business Hours on September 27, 2003 and commencing on the earliest to occur of
(a) September
32
<PAGE> 36
27, 1997; (b) consummation of a Public Offering; (c) an Event of Default; (d) a
Change in Control Event or (e) to the extent not specified in the preceding
clauses (a) through (d), an event of the type described in section 3.1 hereof.
Fair Value: with respect to any securities or other property,
the fair value thereof as of a date which is within 15 days of the date as of
which the determination is to be made as determined in good faith by the Board
of Directors of the Company or, if the Requisite Holders of Warrants shall
object to such determination, by an investment banking firm mutually acceptable
to the Company and such Holders and the determination by such investment banking
firm shall be final and binding.
Institutional Investor: (I) any bank, savings bank, savings
and loan association, finance company or insurance company, (ii) any pension
plan or portfolio, (iii) any mutual or investment fund, (iv) any registered
investment company, (v) any investment bank or licensed broker-dealer, or (vi)
to the extent not already specified, a QIB or accredited investor (the latter as
defined under Regulation D promulgated under the Securities Act).
Initial Date: the meaning specified in section 2.2.
Initiating Holders: any holder or holders of Registrable
Securities holding at least 33-1/3% (by number of shares outstanding or
purchasable) of Registrable Securities making a written request pursuant to
section 9.1 for the registration of all or part of the Registrable Securities
held by such holder or holders.
Market Price: on any date specified herein, (a) with respect
to Common Stock or Voting Common Stock (or equivalent equity interests) of an
Acquiring Person or its Parent, the amount per share equal to (i) the last sale
price of shares of such security, regular way, on such date or, if no such sale
takes place on such date, the average of the closing bid and asked prices
thereof on such date, in each case as officially reported on the principal
national securities exchange on which the same are then listed or admitted to
trading, or (ii) if no shares of such security are then listed or admitted to
trading on any national securities exchange but such security is designated as a
national market system security by the NASD, the last trading price of such
security on such date, or if such security is not so designated, the average of
the reported closing bid and asked prices thereof on such date as shown by the
NASD automated quotation system or, if no shares thereof are then quoted in such
system, as published by the National Quotation Bureau, Incorporated or any
successor organization, and in either case as reported by any member firm of the
New York Stock Exchange selected by the Company, or (iii) if no shares of such
security are then listed or admitted to trading on any national exchange or
designated as a national market system security and if no closing bid and asked
prices thereof are then so quoted or published in the over-the-counter market,
the higher of (x) the book value thereof as determined by any firm of
independent public accountants of recognized standing selected by the Board of
Directors of the Company, as of the last day of any
33
<PAGE> 37
month ending within 60 days preceding the date as of which the determination is
to be made or (y) the Fair Value thereof; and (b) with respect to any other
securities, the Fair Value thereof.
NASD: the National Association of Securities Dealers.
Normal Business Hours: with respect to any trading of
securities or settlement of any such trade, 9:30 A.M. to 4:00 P.M., New York
City time and, otherwise, 9:00 A.M. to 5:00 P.M. California time.
Note Agreement: the meaning specified in the second paragraph
of this Warrant.
Notes: the meaning specified in the second paragraph of this
Warrant.
Options: rights, options or warrants to subscribe for,
purchase or otherwise acquire either Additional Shares of Common Stock or
Convertible Securities.
Other Securities: any stock (other than Common Stock) and
other securities of the Company or any other Person (corporate or otherwise)
which the holders of the Warrants at any time shall be entitled to receive, or
shall have received, upon the exercise of the Warrants, in lieu of or in
addition to Common Stock, or which at any time shall be issuable or shall have
been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to section 3 or otherwise.
Parent: as to any Acquiring Person, any corporation which (a)
controls the Acquiring Person directly or indirectly through one or more
intermediaries, (b) is required to include the Acquiring Person in its
consolidated financial statements under generally accepted accounting principles
and (c) is not itself included in the consolidated financial statements of any
other Person (other than its consolidated subsidiaries).
Person: an individual, a partnership, an association, a joint
venture, a corporation, a business, a trust, an unincorporated organization or a
government or any department, agency or subdivision thereof.
Prior Agreement: the Stockholders' Agreement dated March 17,
1995, between the Company and Efratom Holding, Inc., a Colorado corporation
("Holding"), excluding any amendment thereto entered into after the date thereof
to the extent such amendment provides any greater registration-related rights to
Holding or any successors or assigns.
Public Offering: any offering of Common Stock to the public
pursuant to an effective registration statement under the Securities Act.
34
<PAGE> 38
Purchaser: the meaning specified in the opening paragraph of
this Warrant.
QIB: a qualified institutional buyer as defined in Rule 144A
promulgated under the Securities Act.
Registrable Securities: (a) the Warrants, (b) any shares of
Common Stock or Other Securities issued or issuable upon exercise of the
Warrants and (c) any securities issued or issuable with respect to any Common
Stock or Other Securities referred to in subdivision (b) by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise.
For purposes of section 9 and the definition of "Initiating Holders", holders of
Warrants shall be deemed to be the holders of the Registrable Securities which
are at the time issuable upon full exercise thereof whether or not such holders
are entitled to exercise such Warrants pursuant to the terms thereof, and such
Registrable Securities shall be deemed to be outstanding. As to any particular
Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (x) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration
statement, (y) they shall have been sold or otherwise distributed pursuant to
Rule 144 or Rule 144A (or any successor provisions) under the Securities Act, or
(z) they shall have ceased to be outstanding. As to any particular holder of
Registrable Securities, once issued such securities shall cease to be
Registrable Securities when such holder shall be entitled to sell all of such
securities without restriction pursuant to Rule 144(k) (or any successor
provision) under the Securities Act, and such securities, once having ceased to
be Registrable Securities by operation of this sentence, shall be reinstated as
Registrable Securities at any time when the holder shall cease to be so entitled
for any reason.
Registration Expenses: all expenses incident to the Company's
performance of or compliance with section 9, including, without limitation, all
registration, filing and NASD fees, all fees and expenses of complying with
securities or Blue Sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees and disbursements of counsel
for the Company and of its independent public accountants, including the
expenses of any special audits or "comfort" letters required by or incident to
such performance and compliance, the reasonable fees and disbursements of a
single counsel retained by the holders of the Registrable Securities being
registered, and any fees and disbursements of underwriters customarily paid by
issuers or sellers of securities, but excluding underwriting discounts and
commissions and transfer taxes, if any, provided that, in any case where
Registration Expenses are not to be borne by the Company, such expenses shall
not include salaries of Company personnel or general overhead expenses of the
Company, auditing fees, premiums or other expenses relating to liability
insurance required by underwriters of the Company, or other expenses for the
preparation of financial statements or other data normally prepared by the
35
<PAGE> 39
Company in the ordinary course of its business or which the Company would have
incurred in any event.
Requisite Holders of Warrants: the holders of at least 66-2/3%
of all the Warrants at the time outstanding determined on the basis of the
number of shares of Common Stock or Other Securities deliverable upon exercise
thereof.
Restricted Securities: (a) any Warrants bearing the applicable
legend set forth in section 8.1, (b) any shares of Common Stock (or Other
Securities) which have been issued upon the exercise of Warrants and which are
evidenced by a certificate or certificates bearing the applicable legend set
forth in such section, and (c) unless the context otherwise requires, any shares
of Common Stock (or Other Securities) which are at the time issuable upon the
exercise of Warrants and which, when so issued, will be evidenced by a
certificate or certificates bearing the applicable legend set forth in such
section.
Securities Act: the Securities Act of 1933, or any similar
Federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to a particular section of
the Securities Act of 1933 shall include a reference to the comparable section,
if any, of any such similar Federal statute.
Transfer: unless the context otherwise requires, any sale,
assignment, pledge or other disposition of any security, or of any interest
therein, which could constitute a "sale" as that term is defined in section 2(3)
of the Securities Act.
Voting Common Stock: with respect to any corporation,
association or other business entity, stock of any class or classes (or
equivalent interest), if the holders of the stock of such class or classes (or
equivalent interests) are ordinarily, in the absence of contingencies, entitled
to vote for the election of a majority of the directors (or persons performing
similar functions) of such corporation, association or business entity, even if
the right so to vote has been suspended by the happening of such a contingency.
Voting Power: shall mean, with respect to any corporation, the
power to vote or designate members of the board of directors of such
corporation, whether exercised by virtue of the record ownership of stock, under
a close corporation or similar agreement or under an irrevocable proxy.
Warrant Expiration Date: September 27, 2003.
Warrant Price: the meaning specified in section 2.1. The
Warrant Price represents an effective exercise premium (within the meaning of
Rule 144A(a)(7) and for the purposes of Rule 144A(d)(3)(i)) of 118% of the
Market Price of the common stock on the date the Warrants were priced.
36
<PAGE> 40
Warrants: this Warrant and any warrants issued in replacement,
subdivision or substitution herefor.
15. Remedies. The Company stipulates that the remedies at law
of the holder of this Warrant in the event of any default or threatened default
by the Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
16. No Rights or Liabilities as Stockholder. Nothing contained
in this Warrant shall be construed as conferring upon the holder hereof any
rights as a stockholder of the Company or as imposing any liabilities on such
holder to purchase any securities or as a stockholder of the Company, whether
such liabilities are asserted by the Company or by creditors or stockholders of
the Company or otherwise.
17. Notices. All notices and other communications to the
Company shall be in writing and sent in the manner and to the locations as are
specified in the Note Agreement. All notices and other communications to any
holder of any Warrant or any holder of any Common Stock (or Other Securities)
shall be mailed by registered or certified mail, return receipt requested,
addressed to such holder at its address set forth in the register kept at the
principal office of the Company; provided that the exercise of any Warrant shall
be effected in the manner provided in section 1.
18. Expiration; Notice. The Company will give the holder of
this Warrant no less than 45 days' nor more than 90 days' notice of the
expiration of the right to exercise this Warrant; provided that the sole remedy
of a Warrant Holder for a breach by the Company of its undertaking in this
section 18 shall be an extension of the Exercise Period, and in no event shall
the Company be liable for monetary or other consequential damages. The right to
exercise this Warrant shall expire at the end of Normal Business Hours on the
Warrant Expiration Date.
19. Miscellaneous. This Warrant and any term hereof may be
amended, changed or waived only with the written consent of the Requisite
Holders of Warrants, except that, without the written consent of the holder or
holders of all Warrants at the time outstanding, no amendment to this Warrant
shall change the number of shares purchasable hereunder; the Warrant Price or
the method set forth in section 2.1 for calculating adjustments thereto; the
Exercise Period (other than an extension thereof); the alternative methods of
payment on exercise; or the definition of Requisite Holders of Warrants. The
agreements of the Company contained in this Warrant other than those applicable
solely to the Warrants and the holders thereof shall inure to the benefit of and
be enforceable by any holder or holders at the time of any Common Stock (or
Other Securities) issued upon the exercise of Warrants, whether so expressed or
not. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
37
<PAGE> 41
WITH AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA. The section headings
in this Warrant are for purposes of convenience only and shall not constitute a
part hereof.
DATUM INC.
By: David A. Young
-------------------------------
Title: Vice President
Chief Financial Officer
38
<PAGE> 42
FORM OF SUBSCRIPTION
(To be executed only upon exercise of Warrant)
To ______________________________________
The undersigned registered holder of the within Warrant hereby
irrevocably exercises such Warrant for, and purchases thereunder,
______________________(1) shares of Common Stock of ___________________, [and
herewith makes payment of $________ therefor] [by application pursuant to
section 1.5(a) of such Warrant of $________ aggregate principal amount of
[Series __] Notes (as defined in such Warrant) plus $________ accrued interest
thereon and $__________ of yield maintenance amount with respect thereto] [by
surrender of the within Warrant pursuant to section 1.5(b) of such Warrant],(2)
and requests that the certificates for such shares be issued in the name of, and
delivered to _________________________________________ whose address is
_______________________________________________________.
__________
1 INSERT HERE THE NUMBER OF SHARES CALLED FOR ON THE FACE OF THIS WARRANT
(OR, IN THE CASE OF A PARTIAL EXERCISE, THE PORTION THEREOF AS TO WHICH
THIS WARRANT IS BEING EXERCISED), IN EITHER CASE WITHOUT MAKING ANY
ADJUSTMENT FOR ADDITIONAL COMMON STOCK OR ANY OTHER STOCK OR OTHER
SECURITIES OR PROPERTY OR CASH WHICH, PURSUANT TO THE ADJUSTMENT
PROVISIONS OF THIS WARRANT, MAY BE DELIVERED UPON EXERCISE. IN THE CASE
OF A PARTIAL EXERCISE, A NEW WARRANT OR WARRANTS WILL BE ISSUED AND
DELIVERED, REPRESENTING THE UNEXERCISED PORTION OF THIS WARRANT, TO THE
HOLDER SURRENDERING THE SAME.
2 DELETE INAPPLICABLE LANGUAGE IN BRACKETS.
39
<PAGE> 43
Dated:
-------------------------------
---------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of this
Warrant)
---------------------------------
(Street Address)
---------------------------------
(City) (State) (Zip Code)
40
<PAGE> 1
EXHIBIT 10.38
THE ISSUANCE OF THIS NOTE HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT AND NO OFFER OR SALE HEREOF
MAY BE MADE BY THE HOLDER HEREOF ABSENT REGISTRATION
UNDER THE SECURITIES ACT OR AN EXEMPTION THEREFROM.
DATUM INC.
9.07% SENIOR SECURED SERIES A NOTE DUE SEPTEMBER 27, 2000
No. A-1 September 30, 1996
$6,000,000
FOR VALUE RECEIVED, the undersigned, Datum Inc. (herein called the
"Company"), a corporation organized and existing under the laws of the State of
Delaware, hereby promises to pay to The Prudential Insurance Company of America,
or registered assigns, the principal sum of SIX MILLION DOLLARS on September 27,
2000, with interest (computed on the basis of a 360-day year--30-day month) (a)
on the unpaid balance thereof at the rate of 9.07% per annum from the date
hereof, payable quarterly on the 27th day of March, June, September and December
in each year, commencing with the March 27, June 27, September 27 or December 27
next succeeding the date hereof, until the principal hereof shall have become
due and payable, and (b) on any overdue payment (including any overdue
prepayment) of principal, any overdue payment of interest and any overdue
payment of any Yield-Maintenance Amount (as defined in the Agreement referred to
below), payable quarterly as aforesaid (or, at the option of the registered
holder hereof, on demand), at a rate per annum from time to time equal to the
greater of (i) 11.07% or (ii) 2.0% over the rate of interest publicly announced
by Morgan Guaranty Trust Company of New York from time to time in New York City
as its prime rate.
Payments of principal of, interest on and any Yield-Maintenance Amount
payable with respect to this Note are to be made at the main office of Bank of
New York in New York City or at such other place as the holder hereof shall
designate to the Company in writing, in lawful money of the United States of
America.
This Note is one of a series of Senior Secured Notes (herein called the
"Notes") issued pursuant to a Note and Warrant Purchase Agreement, dated as of
September 27, 1996 (herein called the "Agreement"), between the Company and The
Prudential Insurance Company of America and is entitled to the benefits thereof.
The Notes are secured and guaranteed as contemplated by the Agreement.
- 1 -
<PAGE> 2
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for a like principal amount will be issued to, and registered in the name of,
the transferee. Prior to due presentment for registration of transfer, the
Company may treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes, and the
Company shall not be affected by any notice to the contrary.
The Company agrees to make required prepayments of principal on the
dates and in the amounts specified in the Agreement. This Note is also subject
to optional prepayment, in whole or from time to time in part, on the terms
specified in the Agreement.
In case an Event of Default, as defined in the Agreement, shall occur
and be continuing, the principal of this Note may be declared or otherwise
become due and payable in the manner and with the effect provided in the
Agreement.
This Note shall be construed and enforced in accordance with the
internal law of the State of California.
DATUM INC.
By: David A. Young
-----------------------
Its: Chief Financial Officer
----------------------
- 2 -
<PAGE> 1
EXHIBIT 10.39
THE ISSUANCE OF THIS NOTE HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT AND NO OFFER OR SALE HEREOF
MAY BE MADE BY THE HOLDER HEREOF ABSENT REGISTRATION
UNDER THE SECURITIES ACT OR AN EXEMPTION THEREFROM.
DATUM INC.
10.25% SENIOR SECURED SERIES B NOTE DUE SEPTEMBER 27, 2003
No. B-1 September 30, 1996
$12,000,000
FOR VALUE RECEIVED, the undersigned, Datum Inc. (herein called the
"Company"), a corporation organized and existing under the laws of the State of
Delaware, hereby promises to pay to THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
or registered assigns, the principal sum of TWELVE MILLION DOLLARS on September
27, 2003, with interest (computed on the basis of a 360-day year--30-day month)
(a) on the unpaid balance thereof at the rate of 10.25% per annum from the date
hereof, payable quarterly on the 27th day of March, June, September and December
in each year, commencing with the March 27, June 27, September 27 or December 27
next succeeding the date hereof, until the principal hereof shall have become
due and payable, and (b) on any overdue payment (including any overdue
prepayment) of principal, any overdue payment of interest and any overdue
payment of any Yield-Maintenance Amount (as defined in the Agreement referred to
below), payable quarterly as aforesaid (or, at the option of the registered
holder hereof, on demand), at a rate per annum from time to time equal to the
greater of (i) 12.25% or (ii) 2.0% over the rate of interest publicly announced
by Morgan Guaranty Trust Company of New York from time to time in New York City
as its prime rate.
Payments of principal of, interest on and any Yield-Maintenance Amount
payable with respect to this Note are to be made at the main office of Bank of
New York in New York City or at such other place as the holder hereof shall
designate to the Company in writing, in lawful money of the United States of
America.
This Note is one of a series of Senior Secured Notes (herein called the
"Notes") issued pursuant to a Note and Warrant Purchase Agreement, dated as of
September 27, 1996 (herein called the "Agreement"), between the Company and The
Prudential Insurance Company of America and is entitled to the benefits thereof.
The Notes are secured and guaranteed as contemplated by the Agreement.
-1-
<PAGE> 2
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for a like principal amount will be issued to, and registered in the name of,
the transferee. Prior to due presentment for registration of transfer, the
Company may treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes, and the
Company shall not be affected by any notice to the contrary.
The Company agrees to make required prepayments of principal on the
dates and in the amounts specified in the Agreement. This Note is also subject
to optional prepayment, in whole or from time to time in part, on the terms
specified in the Agreement.
In case an Event of Default, as defined in the Agreement, shall occur
and be continuing, the principal of this Note may be declared or otherwise
become due and payable in the manner and with the effect provided in the
Agreement.
This Note shall be construed and enforced in accordance with the
internal law of the State of California.
DATUM INC.
By: /s/ David A. Young
-------------------------
Its: Chief Financial Officer
------------------------
-2-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,687
<SECURITIES> 0
<RECEIVABLES> 17,035
<ALLOWANCES> 104
<INVENTORY> 17,803
<CURRENT-ASSETS> 38,781
<PP&E> 24,082
<DEPRECIATION> 9,293
<TOTAL-ASSETS> 66,868
<CURRENT-LIABILITIES> 11,015
<BONDS> 20,400
0
0
<COMMON> 1,019
<OTHER-SE> 31,669
<TOTAL-LIABILITY-AND-EQUITY> 66,868
<SALES> 24,507
<TOTAL-REVENUES> 24,507
<CGS> 15,203
<TOTAL-COSTS> 22,885
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 523
<INCOME-PRETAX> 1,099
<INCOME-TAX> 450
<INCOME-CONTINUING> 649
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 649
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
