<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Under Section 13 or 15(d) of the Securities Exchange Act of 1934
FOR THE QUARTER ENDED APRIL 30, 1996
Commission File No. 1-7886
PENRIL DATACOMM NETWORKS, INC.
A Delaware Corporation
IRS Employer Identification No. 34-1028216
1300 Quince Orchard Blvd., Gaithersburg, Maryland 20878
Telephone - (301) 417-0552
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Common Stock, $.01 par value,
10,543,369 shares outstanding
as of June 6, 1996
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PENRIL DATACOMM NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
April 30, July 31,
1996 1995
------------ ----------
CURRENT ASSETS (unaudited) (audited)
Cash and cash equivalents $ 1,675 $ 1,087
Accounts receivable, net 9,143 14,766
Inventories-
Raw materials 8,250 6,930
Work in process 1,810 1,458
Finished goods 5,978 5,692
------- -------
16,038 14,080
Deferred income taxes 1,700 1,700
Net assets of discontinued operations 2,728 1,376
Other current assets 446 803
------- -------
TOTAL CURRENT ASSETS 31,730 33,812
Property, equipment and technology, net 2,754 3,122
Excess of cost over net assets acquired, net 5,138 5,689
Other assets 2,120 2,509
-------- --------
TOTAL ASSETS $ 41,742 $ 45,132
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowing $ 4,000 $ 5,095
Current portion of long-term debt 1,045 5,164
Accounts payable 6,990 8,673
Deferred revenue -- 1,245
Other accrued expenses 1,483 1,973
------- -------
TOTAL CURRENT LIABILITIES 13,518 22,150
Long-term debt, net of current portion 359 517
Other noncurrent liabilities 748 742
------- -------
TOTAL LIABILITIES 14,625 23,409
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value 103 76
Additional paid-in capital 36,531 22,384
Retained earnings (9,285) (677)
Equity adjustments (232) (60)
------- -------
TOTAL SHAREHOLDERS' EQUITY 27,117 21,723
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 41,742 $ 45,132
======== ========
See notes to condensed consolidated financial statements.
<PAGE>
PENRIL DATACOMM NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - in thousands, except per share amounts)
Three Months Ended Nine months Ended
April 30, April 30,
1996 1995 1996 1995
------ ------- ------- -------
NET REVENUES FROM
CONTINUING OPERATIONS $ 10,540 $ 14,053 $ 31,180 $ 42,935
COSTS AND EXPENSES
Cost of revenues 6,676 7,868 18,518 23,390
Selling, general and administrative 4,736 4,764 14,311 14,730
Product development and engineering 1,944 1,983 5,791 6,268
Amortization of cost over
net assets acquired 183 212 550 636
------- ------- ------- -------
13,539 14,827 39,170 45,024
OPERATING LOSS (2,999) (774) (7,990) (2,089)
------- ------- ------- -------
OTHER EXPENSE
Interest expense (96) (374) (572) (908)
Other income(expense), net (50) (18) (46) (97)
------- ------- ------- -------
(146) (392) (618) (1,005)
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (3,145) (1,166) (8,608) (3,094)
Benefit from income taxes -- -- -- 528
------- ------- ------- -------
NET LOSS FROM
CONTINUING OPERATIONS $ (3,145) $ (1,166) $ (8,608) $ (2,566)
Loss from Discontinued Operations
net of income taxes -- (532) -- (1,244)
------- ------- ------- -------
NET LOSS $ (3,145) $ (1,698) $ (8,608) $ (3,810)
======= ======= ======= =======
Net income (loss) per common and
equivalent share
Continuing operations $ (.31) $ (.15) $ (.96) $ (.34)
Discontinued operations -- (.07) -- (.17)
------- ------- ------- -------
$ (.31) $ (.22) $ (.96) $ (.51)
======= ======= ======= =======
Shares used in per share calculation 10,134 7,534 8,964 7,504
======== ======= ======= =======
See notes to condensed consolidated financial statements.
<PAGE>
PENRIL DATACOMM NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
For the Nine
Months Ended April 30,
1996 1995
-------- --------
CASH FLOWS FROM CONTINUING OPERATIONS
Net loss from operations $ (8,608) $ (3,810)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,790 3,546
Benefit for income tax -- (528)
Other (493) (392)
Decrease in accounts receivable 5,623 2,673
Increase in inventories (1,958) (577)
Decrease (increase) in other current assets 357 (65)
Increase (decrease) in accounts payable (1,683) 972
Decrease in other current liabilities (1,735) (939)
------ ------
Net cash provided by (used in) continuing operations (5,707) 880
CASH FLOWS FROM DISCONTINUED OPERATIONS
Loss from discontinued operations (1,054) (1,244)
Non-cash charges and changes in working capital (298) 1,715
------ ------
Net cash provided by (used in) discontinued operations (1,352) 471
------ ------
Net cash provided by (used in) operations (7,059) 1,351
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property and equipment (981) (1,183)
------ ------
Net cash used in investing activities (981) (1,183)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under line of credit (1,095) 1,900
Payments on long-term debt (4,278) (2,204)
Issuance of common stock 14,174 133
Other (173) 169
------ ------
Net cash provided by financing activities 8,628 (2)
CASH AT THE BEGINNING OF THE PERIOD 1,087 995
------ ------
CASH AT THE END OF THE PERIOD $ 1,675 $ 1,161
======= =======
See notes to condensed consolidated financial statements.
<PAGE>
PENRIL DATACOMM NETWORKS, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine months
Ended April 30, 1996 and 1995
1. The accompanying condensed consolidated financial statements, which should
be read in conjunction with the Annual Report on Form 10-K/A for the fiscal
year ended July 31, 1995, apply to the Company and its wholly-owned
subsidiaries and reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the Company's consolidated
financial position as of April 30, 1996 and the results of operations for
the nine months ended April 30, 1996 and 1995. The results of operations
for such periods, however, are not necessarily indicative of the results to
be expected for a full fiscal year.
Certain reclassifications have been made to prior period consolidated
financial statements to conform to the April 30, 1996 presentation.
The Company's policy is to maintain its uninvested cash at minimal levels.
Cash and cash equivalents include highly liquid debt instruments purchased
with a maturity of three months or less.
2. On September 22, 1995, the Company issued an aggregate of 1,465,000 shares
of its unregistered common stock to Pequot Partners Fund, L.P., Pequot
Endowment Fund, LP and Pequot International Fund, Inc. (collectively the
"Investors") for $7,325,000 in a private transaction. As required by the
Purchase Agreement between the Investors and the Company, a shelf
registration was filed with the Securities and Exchange Commission which
became effective on February 28, 1996. See footnote 9 to the financial
statements of the Company's Annual Report on form 10-K/A for details of the
transaction. In addition, on October 5, 1995, the Company completed the
sale of 50,000 shares of its unregistered common stock to Cramer Partners,
L.P. for $250,000.
In the third quarter of fiscal 1996, the Company issued 810,000 of its
unregistered common stock in private placements which generated $5,496,000.
In the fourth quarter of fiscal 1996, the Company issued 282,267 shares of
its unregistered common stock in private placements which generated
$2,004,000.
3. Previously reported financial statements have been restated to reflect the
Company's wholly-owned subsidiary, Technipower, Inc ("Technipower") as a
discontinued operation. The following is a summary of operating
information for Technipower(in thousands):
Three Months Ended Nine months Ended
April 30, April 30,
1996 1995 1996 1995
------ ------ ------ ------
Revenues $ 1,234 $ 782 $ 3,101 $ 2,542
Loss from operations
before income taxes (422) (532) (1,054) (1,244)
Because the Company expects to retain the tax benefits associated with the
discontinued operation, no income tax benefit has been recorded for any
year.
The loss from operations for the first nine months of fiscal 1996 was
included in the loss on disposal of discontinued operations in fiscal 1995.
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<PAGE>
Net assets of the discontinued operations consist of the following (in
thousands):
April 30, July 31,
1996 1995
----- -----
Current assets $ 3,591 $ 2,784
Current liabilities (1,055) (650)
----- -----
Net current assets 2,536 2,134
Property, plant and equipment, net 304 375
Other non-current tangible assets, net 36 22
Non-current liabilities (6) (10)
----- -----
Net tangible assets 2,870 2,521
Intangible assets, net 205 255
----- -----
3,075 2,776
Estimated loss on disposal (347) (1,400)
----- -----
$ 2,728 $ 1,376
===== =====
4. In August 1995, Henry D. Epstein, Chairman, exercised 25,000 Class E
warrants issued in October 1992. These warrants were issued with a per
share exercise price of $3.625, the fair market value of the Company's
common shares on the date the warrants were issued. Mr. Epstein exercised
the warrants by remitting 12,719 shares with a fair market value of $7.125
per share on the date of the exercise.
On December 13, 1995, the Company adopted the 1995 Long-Term Stock Option
Incentive Plan (the "1995 Plan") to replace the 1986 Incentive Plan which
expires on October 8, 1996. The stockholders of the Company approved the
1995 Plan at the Annual Meeting held April 10, 1996. Under the 1995 Plan,
which will terminate December 13, 2005, awards may be granted to key
employees of the Company and its subsidiaries in one or more of the
following forms: (I)Non-qualified stock options; (ii)Incentive Stock
Options; and (iii)Restricted Stock Awards. The option price of shares of
Common Stock will not be less than 100% (110% in the case of Incentive
Stock Options granted to optionees holding more than 10% of the voting
stock of the Company at the date of grant) of the fair market value of
shares of Common Stock on the date of grant. No option will be exercisable
more than ten years (five years in the case of Incentive Stock Options
granted to optionees holding more than 10% of the voting stock of the
Company on the date of grant) from the date it is granted. The Company has
reserved 1,000,000 shares for issuance under the 1995 Plan.
5. On March 15, 1996 the Company amended the credit agreement with its
principal bank. The new agreement provides for a maximum working capital
facility of $5,500,000 with borrowings based on qualified accounts
receivable and secured by substantially all the Company's assets. Interest
accrues at the bank's prime rate plus 2% with a commitment fee of 3/8%
assessed on the unused portion of the facility. In the event the facility
is cancelled prior to its expiration, there is a fee due the bank equal to
3% of the total facility. The agreement expires March 31, 1997. As of
April 30, 1996, the Company had $5,412,000 available of which the Company
had utilized $4,090,000.
As of March 7, 1996, the Company had repaid all outstanding term debt with
its principal bank.
Subsequent to April 30, 1996, the Company repaid its outstanding subordinated
debt of $805,000. This amount was included in the Current portion of
long-term debt as of April 30, 1996.
<PAGE>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
In the first quarter of fiscal 1996, the Company completed the sale
of 1,515,000 shares of the Company's common stock for $7,575,000 in a
private placement to Pequot Partners Fund, L.P., Pequot Endowment
Fund, LP, Pequot International Fund, Inc. and Cramer Partners, L.P.
The proceeds were used to repay term debt and for general working
capital needs. See footnote 9 of the Company's report on form 10-K/A
for details of the transaction.
In the third quarter of fiscal 1996, the Company issued 810,000 shares
of its unregistered common stock in private placements which generated
$5,496,000 and in the fourth quarter of fiscal 1996 the Company issued
282,000 shares of its unregistered common stock in private placements
generating $2,004,000.
As a result of these financings, the Company was able to reduce
accounts payable by $1,683,000 and fund the loss of $8,608,000
(including depreciation and other non-cash items of $2,790,000 but
excluding cash used for discontinued operations of $1,352,000). Also
contributing to cash flow was the reduction of accounts receivable of
$5,623,000 keeping accounts receivable in line with the sales levels.
Inventories increased by $1,958,000 as a result of lower than expected
sales during the first nine months of fiscal 1996, and because of a
build-up of inventory for the new Access Beyond product line. As a
result of efforts begun during the third quarter, inventory levels at
April 30, 1996 were approximately the same as at January 31, 1996.
The Company is working with several vendors on programs that should
result in lower inventories by the end of the fourth quarter of fiscal
1996.
A portion of the proceeds from the sale of common stock noted above
was used to reduce term debt with the Company's principal bank and,
subsequent to April 30, 1996, to repay the principal balance of the
subordinated debt of $805,000. As of March 7, 1996, the Company had
re-paid all of the outstanding bank term debt. As discussed in Note 5
to the Company's condensed consolidated financial statements, on March
15, 1996, the credit agreement with its principal bank was amended.
The amended agreement which expires March 31, 1997, provides for a
maximum working capital facility of $5,500,000 based on qualified
accounts receivable with interest at the bank's prime rate plus 2%.
As of April 30, 1996, the Company had utilized $4,090,00 of the
facility. See Note 5 for the terms of the new working capital
agreement.
The ability of the Company to generate adequate cash for ongoing
operational and capital needs is dependent on its success in
increasing sales of its data communications products coupled with the
sale of assets. The Company is currently attempting to sell the
Technipower subsidiary. In addition, it may be necessary to raise
cash from other sources including sales of securities.
RESULTS OF OPERATIONS
For the Company's data communications segment revenue increased in the
third quarter of fiscal 1996 when compared to the second quarter of
fiscal 1996. Sales for modems, WAN, and OEM products improved over
last quarter. In addition, the Company began shipping its new Access
Beyond products during the third quarter. Revenue for the third
quarter of fiscal 1996 was $8,973,000 compared to $7,692,000 for the
second quarter of fiscal 1996. Revenue for the third quarter of
fiscal 1996 decreased $3,513,000 compared to the third quarter of
fiscal 1995, and for the first nine months of fiscal 1996 decreased
<PAGE>
$11,755,000 compared to the same period of fiscal 1995. These
decreases in revenue were the result of fewer orders by some of the
Company's OEM customers, slower than expected sales of the Company's
new V.34 modem, and a declining market for the Company's older product
lines.
Revenues for the Company's electronic instrumentation segment
increased $196,000 (14%) in the third quarter of fiscal 1996 compared
to the same period in fiscal 1995, and increased $786,000 (19%) in the
first nine months of fiscal 1996 compared to the same period in fiscal
1995. New orders for large system integration installations and new
orders from original equipment manufacturers are the main reasons for
these increases. Revenue decreased $298,000 in the third quarter of
fiscal 1996 compared to the second quarter of fiscal 1996 because of
the federal government budget delays which prevented several agencies
from ordering products due to lack of funding.
Gross profit margins for the data communications segment improved from
35% in the second quarter to 37% in the third quarter as a result of
product mix. Gross margins declined to 41% in the first nine months of
fiscal 1996 from 46% in the first nine months of fiscal 1995 and in
the third quarter of fiscal 1996 declined to 37% compared to 44% in
the same period in fiscal 1995. Gross margins on product sales of the
electronic instrumentation segment declined to 36% from 41% in the
prior quarter. Gross margins on product sales of the electronic
instrumentation segment declined to 39% in the first nine months of
fiscal 1996 from 44% during the same period in fiscal 1995. Margin
declines in both segments was due to pricing pressures from the
competition.
Selling, general and administrative expenses for the data
communications segment decreased $723,000 (6%) to $11,551,000 in the
first nine months of fiscal 1996 from $12,274,000 for the same period
in fiscal 1995. Reductions in personnel costs accounted for $486,000
of the decreased expenditures. Expenses for the third quarter of
fiscal 1996 were $4,025,000 which remained level with expenses for the
prior quarter.
Selling, general and administrative expenses for the Company's
electronic instrumentation segment increased $130,000 to $1,227,000 in
the first nine months of fiscal 1996 from $1,097,000 in the first
nine months of fiscal 1995. Increases in sales commissions and
administrative personnel costs associated with the new facilities in
Johnstown, New York accounted for the increased costs. Expenses for
the third quarter of fiscal 1996 decreased to $345,000 from $452,000
in the prior quarter, due to lower commissions and promotional
expenses.
Product development and engineering expenses in the data
communications segment were $5,299,000 in the first nine months of
fiscal 1996 compared to $5,666,000 in the first nine months of fiscal
1995. The decrease is primarily attributable to lower personnel
expenses as a result of the Company's cost reduction efforts during
fiscal 1995. Product development costs for the third quarter of fiscal
1996 compared to fiscal 1995 were approximately the same with the
third quarter of fiscal 1996 product development expenses of
$1,775,000 compared to $1,747,000 for the same period in fiscal 1995.
Product development and engineering costs in the electronic
instrumentation segment were $409,000 in the first nine months of
fiscal 1996 compared to $602,000 in the first nine months of fiscal
1995, a decrease of $193,000. This decrease is a result of
engineering efforts related to the large systems orders noted above.
Interest expense for the first nine months of fiscal 1996 declined
$336,000 compared with the same period in fiscal 1995. In the third
<PAGE>
quarter it declined $278,000 compared to the third quarter of last
fiscal year. The repayment of all term debt during the third quarter
resulted in this decrease of interest expense.
In July 1995, the Company decided to sell the Technipower subsidiary
and consequently classified it as a discontinued business. As a
result, the loss from Technipower for the first nine months of fiscal
1995 has been reclassified. The $1,054,000 loss for the first nine
months of fiscal 1996 was accrued at the end of fiscal 1995 and is
included in the net assets of the discontinued operations.
Improved revenues and margins in the third quarter of fiscal 1996
improved the results for the data communications segment. The segment
had a loss of $3,168,000 for the third quarter of fiscal 1996 compared
to a loss of $3,999,000 for the second quarter of fiscal 1996.
Results for the third quarter and first nine months of fiscal 1996
were down compared to the same periods last year. Lower revenues and
decreased margins contributed to a greater loss for the third quarter
of fiscal 1996 compared to third quarter losses of fiscal 1995 of
$1,119,000. The segment had a loss of $8,764,000 for the first nine
months of fiscal 1996 compared to a loss of $3,202,000 for the same
period in fiscal 1995.
Results for the electronic instrumentation segment improved in the
third quarter of fiscal 1996 with net income of $23,000 compared to a
loss of $47,000 for the same period last fiscal year. However, the
decrease in revenue in the third quarter of fiscal 1996 caused net
income to decline when compared to second quarter net income of
$122,000. Results for the first nine months of fiscal 1996 improved
with net income of $156,000 compared to $108,000 for the same period
in fiscal 1995. <PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the shareholders of the Company was held on
April 10, 1996, at which time the shareholders elected two Class III
directors listed in the proxy statement. The vote was:
Directors In Favor Withheld
------------------ ------------ ------------
Henry D. Epstein 9,293,527 164,574
Howard M. Schneider 9,303,920 154,181
The shareholders also voted to approve the Company's 1995 Long-Term
Incentive Plan which will replace the expiring 1986 Incentive Plan.
The vote was:
Abstain/
In Favor Against Not Voted
------------ ----------- ------------
5,159,952 324,948 3,973,201
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
--------
4.01 Third Amended and Restated Credit Agreement dated
as of March 15, 1996 between Penril DataComm
Networks, Inc. and Signet Bank/Maryland
Reports on Form 8-K
- -------------------
None<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Penril DataComm Networks, Inc.
------------------------------
(Registrant)
DATE: June 14, 1996 BY:/s/ Henry D. Epstein
------------------------------
Henry D. Epstein
Chief Executive Officer and
Chairman of the Board of Directors
DATE: June 14, 1996 BY:/s/ Richard D. Rose
---------------------------
Richard D. Rose
Chief Financial Officer
[EXECUTION COPY]
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
dated as of March 15, 1996
between
PENRIL DATACOMM NETWORKS, INC.
and
SIGNET BANK
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
GENERAL DEFINITIONS
Section 1.2. Accounting Terms and Determinations. . . . 16
ARTICLE II
THE CREDIT
Section 2.1. Continuation of Outstanding Revolving
Loans, Exchange Contracts and Letters
of Credit on the Effective Date. . . . . 17
Section 2.2. Revolving Commitment . . . . . . . . . . . 17
Section 2.3. Foreign Exchange Contracts . . . . . . . . 18
Section 2.4. Method of Borrowing. . . . . . . . . . . . 18
Section 2.5. Method of Issuance . . . . . . . . . . . . 18
Section 2.6. Letter of Credit Reimbursements and
Other Payments . . . . . . . . . . . . . 18
Section 2.7. Note . . . . . . . . . . . . . . . . . . . 19
Section 2.8. Interest . . . . . . . . . . . . . . . . . 19
Section 2.9. Fees . . . . . . . . . . . . . . . . . . . 19
Section 2.10. Payment at Maturity; Mandatory
Prepayments. . . . . . . . . . . . . . . 20
Section 2.11. Mandatory Termination of the Commitment. . 20
Section 2.12. Optional Termination or Reduction of the
Commitment . . . . . . . . . . . . . . . 20
Section 2.13. Optional Prepayments . . . . . . . . . . . 21
Section 2.14. General Provisions as to Payments. . . . . 21
Section 2.15. Late Charge. . . . . . . . . . . . . . . . 21
Section 2.16. Computation of Interest and Commitment
Fees . . . . . . . . . . . . . . . . . . 21
ARTICLE III
CONDITIONS
Section 3.1. Conditions to Effectiveness. . . . . . . . 21
Section 3.2. Conditions to All Credit Events. . . . . . 22
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1. Corporate Existence and Power. . . . . . . 23
Section 4.2. Corporate and Governmental
Authorization; Contravention . . . . . . 23
Section 4.3. Binding Effect . . . . . . . . . . . . . . 24
Section 4.4. Financial Information. . . . . . . . . . . 24
Section 4.5. Litigation . . . . . . . . . . . . . . . . 25
Section 4.6. Marketable Title . . . . . . . . . . . . . 25
Section 4.7. Filings. . . . . . . . . . . . . . . . . . 25
Section 4.8. Regulation U . . . . . . . . . . . . . . . 25
Section 4.9. Subsidiaries . . . . . . . . . . . . . . . 25
Section 4.10. Disclosure . . . . . . . . . . . . . . . . 26
ARTICLE V
FINANCIAL COVENANTS
Section 5.1. Certain Definitions. . . . . . . . . . . . 26
Section 5.2. Current Ratio. . . . . . . . . . . . . . . 27
Section 5.3. Consolidated Debt to Consolidated Net
Worth. . . . . . . . . . . . . . . . . . 27
Section 5.4. Consolidated Debt to Consolidated
Tangible Net Worth . . . . . . . . . . . 27
ARTICLE VI
OTHER COVENANTS
Section 6.1. Information. . . . . . . . . . . . . . . . 27
Section 6.2. Compliance with Laws . . . . . . . . . . . 30
Section 6.3. Accounting; Inspection of Property,
Books and Records. . . . . . . . . . . . 30
Section 6.4. Restriction on Liens . . . . . . . . . . . 30
Section 6.5. Consolidations, Mergers and Sales of
Assets . . . . . . . . . . . . . . . . . 32
Section 6.6. Dividends. . . . . . . . . . . . . . . . . 32
Section 6.7. Transactions with Other Persons. . . . . . 32
Section 6.8. Use of Proceeds. . . . . . . . . . . . . . 32
Section 6.9. Independence of Covenants. . . . . . . . . 32
Section 6.10. Restrictions with Respect to
Subsidiaries . . . . . . . . . . . . . . 32
Section 6.11. Debt . . . . . . . . . . . . . . . . . . . 33
Section 6.12. Advances, Investments and Loans. . . . . . 33
Section 6.13. Subordinated Debt. . . . . . . . . . . . . 34
Section 6.14. Transaction with Affiliates. . . . . . . . 34
Section 6.15. Qualifying Inventory . . . . . . . . . . . 35
ARTICLE VII
EMPLOYEE BENEFIT PLANS
Section 7.1. Certain Definitions. . . . . . . . . . . . 35
Section 7.2. Compliance with ERISA. . . . . . . . . . . 36
Section 7.3. Prohibited Transactions. . . . . . . . . . 36
Section 7.4. Information. . . . . . . . . . . . . . . . 36
ARTICLE VIII
DEFAULTS
Section 8.1. Events of Default. . . . . . . . . . . . . 37
ARTICLE IX
CHANGE IN CIRCUMSTANCES
Section 9.1. Increased Cost and Reduced Return. . . . . 40
ARTICLE X
MISCELLANEOUS
Section 10.1. Notices. . . . . . . . . . . . . . . . . . 42
Section 10.2. No Waivers . . . . . . . . . . . . . . . . 42
Section 10.3. Expenses . . . . . . . . . . . . . . . . . 42
Section 10.4. Right of Set-Off . . . . . . . . . . . . . 42
Section 10.5. Amendments and Waivers . . . . . . . . . . 43
Section 10.6. Successors and Assigns . . . . . . . . . . 43
Section 10.7. Virginia Law . . . . . . . . . . . . . . . 45
Section 10.8. Counterparts; Effectiveness. . . . . . . . 45
Section 10.9. Waiver of Jury Trial; Submission to
Jurisdiction . . . . . . . . . . . . . . 45
Section 10.10. Entire Agreement . . . . . . . . . . . . . 45
Exhibit A - Form of Note
Exhibit B - Form of Guarantor Consent
Exhibit C - Form of Borrowing Base Certificate
Exhibit D - Form of Facsimile Agreement
Exhibit E - Form of Subsidiary Guaranty
Exhibit F - Form of Subsidiary Security Agreement
Schedule 4.5 Litigation
<PAGE>
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
This THIRD AMENDED AND RESTATED CREDIT AGREEMENT (as
amended, supplemented or modified from time to time, this
"Amended Agreement") is dated as of March 15, 1996 and is between
PENRIL DATACOMM NETWORKS, INC., a Delaware corporation (the
"Borrower"), and SIGNET BANK, a Virginia banking corporation (the
"Bank").
The Borrower and the Bank (formerly Signet
Bank/Maryland) are parties to a Second Amended and Restated
Credit Agreement dated as of April 25, 1995, as amended by
Amendment No. 1 dated as of September 19, 1995 and by Amendment
No. 2 dated as of December 21, 1995 (the "1995 Credit
Agreement"). The Borrower and the Bank desire to amend and
restate the 1995 Credit Agreement, all on the terms and
conditions set forth in this Amended Agreement. Accordingly, the
parties agree as follows:
ARTICLE I
GENERAL DEFINITIONS
Section 1.1. Definitions. The following terms, as
used herein, have the following meanings:
"Affiliate" means (i) any Person that directly, or
indirectly through one or more intermediaries, controls the
Borrower (a "Controlling Person") or (ii) any Person (other than
the Borrower or a Subsidiary) which is controlled by or is under
common control with a Controlling Person. As used herein, the
term "control" means possession, directly or indirectly, of the
power to direct, or cause the direction of the management or
policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise.
"Application" means an Application and Agreement for
the issuance of a standby or documentary letter of credit in the
Bank's standard form or in such other form as the Bank may
specify from time to time.
"Applied Revolving Amount" means at any date the
collective amount of (i) the aggregate unpaid principal amount of
all Revolving Loans, (ii) all unpaid Reimbursement Amounts and
(iii) the aggregate face amount of all undrawn Letters of Credit.
"Appraiser" means MB Valuation Services or such other
reasonably equivalent inventory appraisal service selected by the
Bank after consultation with the Borrower.
"Asset Sale" means any sale, lease or other disposition
(including any such transaction effected by way of merger or
consolidation) by the Borrower or any Subsidiary of any asset,
including without limitation any sale-leaseback transaction,
whether or not involving a capital lease but excluding
(i) dispositions of inventory or other products or services in
the ordinary course of business and (ii) dispositions of
equipment in the ordinary course of business, the Net Cash
Proceeds of which are used to purchase replacement equipment
within 120 days after the disposition thereof; provided that the
aggregate amount of Net Cash Proceeds not constituting Asset
Sales pursuant to this clause (ii) shall not exceed $100,000 in
any one fiscal year of the Borrower.
"Authorized Officer" means the Chairman and President
or the Chief Financial Officer of the Borrower.
"Bank" means Signet Bank, a Virginia banking
corporation, and its successors and assigns.
"Borrower" means Penril DataComm Networks, Inc., a
Delaware corporation, and its successors.
"Borrower's 1995 Form 10-K" means the Borrower's annual
report on Form 10-K for the fiscal year ended July 31, 1995, as
filed with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934.
"Borrower Security Agreement" means the Security
Agreement dated as of May 6, 1993 between the Borrower and the
Bank, as amended by Amendment No. 1 thereto dated as of April 25,
1995, and as the same may be further amended, supplemented or
modified from time to time.
"Borrower Stock Pledge Agreement" means the Stock
Pledge Agreement dated as of May 6, 1993 between the Borrower and
the Bank, as the same may be amended, supplemented or modified
from time to time.
"Borrowing Base" means, at any date the net unpaid
balance (not including unearned finance changes, late payment
charges or other similar charges or extension, service or
collection fees in respect thereof) of all Eligible Receivables.
"Borrowing Base Certificate" means a Borrowing Base
Certificate (together with supporting reports and schedules),
substantially in the form of Exhibit C hereto, delivered pursuant
to Section 3.1(g) or Section 6.1(v) hereof.
"Business Day" means any day except a Saturday, Sunday
or other day on which commercial banks in Falls Church, Virginia
are authorized by law to close.
"Cash Equivalents" means (i) direct obligations of the
United States or any agency thereof or obligations guaranteed by
the United Sates or any agency thereof (ii) commercial paper
issued by a Person other than a Restricted Subsidiary or an
Affiliate to the Borrower rated as investment grade by a
nationally recognized credit rating agency or (iii) time deposits
with, including certificates of deposit issued by, any office
located in the United States of any bank or trust company
organized under the laws of the United States or any State
thereof which has capital, surplus and undivided profits
aggregating at least $150,000,000, provided in each case that
such instrument matures within one year from the date of
acquisition thereof by the Borrower or a Restricted Subsidiary.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Collateral" means all of the property which is subject
or is to be subject to the Liens granted by the Collateral
Documents.
"Collateral Documents" means a collective reference to
the Borrower Security Agreement, the Borrower Stock Pledge
Agreement, the Subsidiary Security Agreements, the PEI Stock
Pledge Agreement and all supplemental assignments, mortgages,
deeds of trust and other documents delivered or to be delivered
pursuant thereto.
"Commitment" means the Bank's agreement to continue its
Outstanding Revolving Loans as Revolving Loans under this Amended
Agreement, to continue Outstanding Letters of Credit as Letters
of Credit under this Amended Agreement and to make additional
Revolving Loans and issue additional Letters of Credit such that
the Applied Revolving Amount does not exceed the lesser of (i)
the Borrowing Base or (ii) the Revolving Commitment Amount.
"Components" means Inventory of the Borrower, EMI and
TPI consisting of materials acquired from vendors (such as
resistors, integrated circuits, capacitors, cords and terminal
blocks) to be utilized as raw materials in the manufacture of
products.
"Consolidated Subsidiary" means at any date any
Subsidiary or other entity, the accounts of which would be
consolidated with those of the Borrower in its consolidated
financial statements as of such date.
"Constant Power" means Constant Power, Inc. (formerly
Penril Power Systems, Inc.), a Delaware corporation, and its
successors.
"Constant Power Guaranty" means the Guaranty dated as
of June 5, 1995 between Constant Power and the Bank, as the same
may be amended, modified or supplemented from time to time.
"Constant Power Security Agreement" means the Security
Agreement dated as of June 5, 1995 between Constant Power and the
Bank, as the same may be amended, modified or supplemented from
time to time.
"Credit Event" means the borrowing of a Revolving Loan,
the issuance by the Bank of a Letter of Credit or the entry by
the Bank into an Exchange Contract pursuant hereto.
"Datability" means Datability, Inc., a Delaware
corporation and a direct, Wholly-Owned Consolidated Subsidiary of
the Borrower, and its successors.
"Datability Guaranty" means the Guaranty dated as of
May 6, 1993 between Datability and the Bank, as the same may be
amended, supplemented or modified from time to time.
"Datability Security Agreement" means the Security
Agreement dated as of May 6, 1993 between Datability and the
Bank, as amended by Amendment No. 1 thereto dated as of April 25,
1995, and as the same may be further amended, supplemented or
modified from time to time.
"Debt" of any Person means at any date, without
duplication, (i) all obligations of such Person for borrowed
money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all
obligations of such Person to pay the deferred purchase price of
property or services (other than trade accounts payable arising
in the ordinary course of business), (iv) all obligations of such
Person as lessee under Capital Leases, (v) all obligations of
such Person to purchase securities or other property which arise
out of or in connection with the sale of the same or
substantially similar securities or property, (vi) all non-contingent
obligations of such Person to reimburse any bank or
other person in respect of amounts paid under a letter of credit
or similar instrument, (vii) all obligations of others secured by
obligation is assumed by such Person and (viii) all obligations
of others Guaranteed by such Person.
"Default" means any condition or event which
constitutes an Event of Default or which with the giving of
notice or lapse of time or both would, unless cured or waived,
become an Event of Default.
"Dividend" with respect to any Person means that such
Person has declared or paid a dividend or returned any equity
capital to its stockholders, partners or other Persons holding
ownership interests in such Person or authorized or made any
other distribution, payment or delivery of property (other than
capital stock of such Person) or cash to its stockholders,
partners or other Persons holding ownership interests in such
Person in their capacities as such, or redeemed, retired,
purchased or otherwise acquired, directly or indirectly, for a
consideration any shares of any class of its capital stock,
partnership interests or other ownership interests outstanding on
or after the Effective Date (or any options or warrants issued by
such Person with respect to its capital stock, partnership
interests or other ownership interests), or set aside any funds
for any of the foregoing purposes or shall have permitted any of
its Subsidiaries to purchase or otherwise acquire for
consideration any shares of any class of the capital stock,
partnership interests or other ownership interests of such Person
outstanding on or after the Effective Date (or any options or
warrants issued by such Person with respect to its capital stock,
partnership interests or other ownership interests).
"Effective Date" means the date on which the last of
the conditions to the effectiveness of this Amended Agreement set
forth in Section 3.1 hereof is satisfied.
"EMI" means Electro-Metrics Inc., a Delaware
corporation and a direct, Wholly-Owned Consolidated Subsidiary of
the Borrower, and its successors.
"EMI Guaranty" means the Guaranty dated as of May 6,
1993 between EMI and the Bank, as the same may be amended,
supplemented or modified from time to time.
"EMI Security Agreement" means the Security Agreement
dated as of May 6, 1993 between EMI and the Bank, as amended by
Amendment No. 1 thereto dated as of April 25, 1995, and as the
same may be further amended, supplemented or modified from time
to time.
"Eligible Receivables" means such billed accounts for
goods delivered or services rendered owing to the Borrower, EMI,
TPI, Penril England or Constant Power (each a "Receivables Credit
Party" and collectively, the "Receivables Credit Parties") as to
which the following requirements have been fulfilled to the
satisfaction of the Bank:
(i) a Receivables Credit Party has lawful
and absolute title to each of such accounts;
(ii) each of such accounts is a valid,
legally enforceable obligation of the Person who is
obligated on such account (the "Account Debtor");
(iii) a Receivables Credit Party has the
full and unqualified right to grant the Bank a
security interest in such account;
(iv) such accounts are those in which the
Borrower Security Agreement or a Subsidiary Security
Agreement has created valid and perfected first
priority Lien in favor of the Bank;
(v) each of such accounts is evidenced by
an invoice rendered to the Account Debtor and is not
evidenced by any instrument or chattel paper;
(vi) each of such accounts arises out of
sales that are in the ordinary course of the business
of a Receivables Credit Party;
(vii) such accounts are on terms which are
normal or customary in the business of a Receivables
Credit Party;
(viii) delivery of the goods sold or services
to be rendered underlying such account has been
completed;
(ix) such accounts are not owing from any
person that is an Affiliate of a Receivables Credit
Party unless arising in the ordinary course of
business conducted on an arm's-length basis;
(x) none of the accounts are unpaid more
than 90 days past original invoice date;
(xi) such accounts are not owing from any
Account Debtor if more than 50% of the accounts owing
from such Account Debtor are more than 90 days past
original invoice date;
(xii) such accounts are not those with
respect to which return, rejection or repossession
has occurred or the liability for which has been
disputed by the Account Debtor or the related goods
or services have not been finally accepted without
dispute, offset or counterclaim;
(xiii) such accounts are not owing from any
Person that shall take or be the subject of any
action or proceeding of the type described in
Section 8.1(vii) or (viii) hereof or the credit
standing of which is unsatisfactory to the Bank in
relation to the amount of credit extended;
(xiv) such accounts are not owing from any
Person that is also a supplier to or creditor of a
Receivables Credit Party (except to the extent that
such Person has irrevocably waived any right that
such Person has or may have to offset against
accounts owing by such Person to such Receivables
Credit Party amounts owed by them to such Person);
(xv) such accounts do not arise out of
sales on a bill-and-hold, guaranteed sale,
sale-and-return, sale on approval or consignment
basis or subject to any right of return, set-off or
charge-back;
(xvi) such accounts are not such that the
Bank believes their full and timely collection to be
doubtful;
(xvii) such accounts are not owing from an
Account Debtor that is an agency, department or
instrumentality of the United States or any state or
governmental authority in the United States unless a
Receivables Credit Party shall have satisfied the
requirements of the Assignment of Claims Act of 1940,
as amended, and any similar state legislation in
respect thereof and the Bank is satisfied as to the
absence of set-offs, counterclaims and other defenses
to payment on the part of the United States or such
state governmental authority; and
(xviii) such accounts do not arise out of
sales where the account debtor is located in a
country or foreign jurisdiction that the Bank may
choose to exclude from time to time.
"Equity Issuance" means any sale or issuance by the
Borrower or any Subsidiary of its capital stock, other than
capital stock issued by the Borrower pursuant to employee stock
options, director stock options or other employee benefit
plans.
"Event of Default" has the meaning set forth in
Section 8.1.
"Exchange Contract" means a spot market foreign exchange
contract or a forward foreign exchange contract for a period of
not more than 90 days (unless otherwise agreed by the Bank) issued
by the Bank under the 1995 Credit Agreement or this Amended
Agreement.
"Facsimile Agreement" means a letter agreement,
substantially in the form of Exhibit D hereto, between the
Borrower and the Bank with respect to the execution of
Applications.
"Finished Goods" means all of the Borrower's, EMI's and
TPI's Inventory commonly considered to be finished goods ready for
sale in the ordinary course of its business.
"GAAP" means generally accepted accounting principles in
the United States.
"Governmental Authority" means any federal, state or
local government, authority, agency, central bank, quasi-governmental
authority, court or other body or entity, and any
arbitrator with authority to bind a party at law.
"Guarantee" by any Person means any obligation,
contingent or otherwise, of such Person directly or indirectly
guaranteeing any Debt or other obligation of any other Person and,
without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by
virtue of partnership arrangements, by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or
(ii) entered into for the purpose of assuring in any other manner
the obligee of such Debt or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof
(in whole or in part); provided that the term Guarantee shall not
include endorsements for collection or deposit in the ordinary
course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Guarantors" means a collective reference to Datability,
PEI, Penril Technologies, TPI, EMI, Constant Power and each other
Restricted Subsidiary, and Guarantor means any such Guarantor.
"Inventory" has, with respect to the Borrower, the
meaning set forth in the Borrower Security Agreement and, with
respect to any Subsidiary, the meaning set forth in the Subsidiary
Security Agreement executed and delivered by such Subsidiary.
"Inventory Credit Party" has the meaning set forth in
the definition of Qualifying Inventory.
"Letter of Credit" means a commercial or standby letter
of credit issued by the Bank under the 1995 Credit Agreement or
this Amended Agreement for the account of the Borrower in
accordance with the Bank's customary practices and procedures.
"Lien" means, with respect to any asset, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind
in respect of such asset. For the purposes of this Amended
Agreement, a Person shall be deemed to own subject to a Lien any
asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
"Loan Documents" means a collective reference to this
Amended Agreement, the Note, the Collateral Documents, the
Subsidiary Guaranties, the Subrogation and Contribution Agreement,
the Subordination Agreement and all supplemental assignments,
mortgages, deeds of trust and other documents delivered or to be
delivered pursuant thereto.
"Net Cash Proceeds" means, with respect to any Reduction
Event, an amount equal to the cash proceeds received by the
Borrower or any of its Subsidiaries from or in respect of such
Reduction Event (including any cash proceeds received as income or
other proceeds of any noncash proceeds of any Asset Sale), less
(i) any expenses reasonably incurred by such Person in respect of
such Reduction Event and (ii) if such Reduction Event is an Asset
Sale, (A) the amount of any Debt secured by a Lien on any asset
disposed of in such Asset Sale and discharged from the proceeds
thereof and (B) any taxes actually paid or to be payable by such
Person (as estimated by a senior financial or accounting of the
Borrower, giving effect to the overall tax position of the
Borrower) in respect of such Asset Sale.
"1995 Credit Agreement" has the meaning set forth in the
introductory paragraphs of this Amended Agreement.
"Note" means the promissory note of the Borrower,
substantially in the form of Exhibit A hereto, evidencing the
obligation of the Borrower to repay the Revolving Loans.
"Notice of Borrowing" has the meaning set forth in
Section 2.4.
"Outstanding Exchange Contracts" means those Exchange
Contracts issued pursuant to the 1995 Credit Agreement which are
outstanding immediately prior to the Effective Date.
"Outstanding Letters of Credit" means all Letters of
Credit issued under the 1995 Credit Agreement which are
outstanding immediately prior to the Effective Date.
"Outstanding Revolving Loans" means the aggregate unpaid
principal of the Revolving Loans borrowed under the 1995 Credit
Agreement which are outstanding immediately prior to the Effective
Date.
"PEI" means Penril Electronics, Inc., a Delaware
corporation, and its successors.
"PEI Guaranty" means the Guaranty dated as of May 6,
1993 between PEI and the Bank, as the same may be amended,
supplemented or modified from time to time.
"PEI Security Agreement" means the Security Agreement
dated as of May 6, 1993 between PEI and the Bank, as amended by
Amendment No. 1 thereto dated as of April 25, 1995, and as the
same may be further amended, supplemented or modified from time to
time.
"PEI Stock Pledge Agreement" means the Stock Pledge
Agreement dated as of May 6, 1993 between PEI and the Bank, as the
same may be amended, supplemented or modified from time to time.
"Penril Caribbean" means Penril International, Ltd., a
corporation organized under the laws of the United States Virgin
Islands, and its successors.
"Penril Caribbean Guaranty" means the Guaranty dated as
of October 27, 1993 between Penril Caribbean and the Bank, as the
same may be amended, modified or supplemented from time to time.
"Penril Caribbean Security Agreement" means the Security
Agreement dated as of October 27, 1993 between Penril Caribbean
and the Bank, as the same may be amended, modified or supplemented
from time to time.
"Penril England" means Penril DataComm, Ltd., a
corporation organized under the laws of England, and its
successors.
"Penril England Debenture" means the Debenture dated
October 15, 1993 between Penril England and the Bank, as the same
may be amended, modified or supplemented from time to time.
"Penril England Guaranty" means the Guaranty dated as of
October 15, 1993 between Penril England and the Bank, as the same
may be amended, modified or supplemented from time to time.
"Penril Hong Kong" means Penril (Far East) Limited, a
corporation organized under the laws of Hong Kong, and its
successors.
"Penril Hong Kong Guaranty" means the Guaranty dated as
of December 22, 1993 between Penril Hong Kong and the Bank, as the
same may be amended, modified or supplemented from time to time.
"Penril Hong Kong Security Agreement" means the Security
Agreement dated as of December 22, 1993 between Penril Hong Kong
and the Bank, as the same may be amended, supplemented or modified
from time to time.
"Penril Technologies" means Penril Technologies Inc., a
Delaware corporation, and its successors.
"Penril Technologies Guaranty" means the Guaranty dated
as of May 6, 1993 between Penril Technologies and the Bank, as the
same may be amended, supplemented or modified from time to time.
"Penril Technologies Security Agreement" means the
Security Agreement dated as of May 6, 1993 between Penril
Technologies and the Bank, as amended by Amendment No. 1 thereto
dated as of April 25, 1995, and as the same may be further
amended, supplemented or modified from time to time.
"Permitted Liens" means the Liens referred to in clauses
(i) through (vi) of Section 6.4.
"Person" means an individual, a corporation, a
partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or
an agency or instrumentality thereof.
"Qualifying Inventory" means, at any date of
determination, the aggregate of the extended cost (as determined
by the Appraiser of all Components, Sub-Assemblies and Finished
Goods of the Borrower, EMI, and Constant Power (each an "Inventory
Credit Party" and collectively the Inventory Credit Parties") as
to which the following requirements have been fulfilled to the
satisfaction of the Bank:
(i) an Inventory Credit Party has lawful and
absolute title to such inventory;
(ii) an Inventory Credit Party has the full
and unqualified right to grant the Bank a security
interest in such inventory;
(iii) all such inventory is subject to a fully
perfected security interest in favor of the Bank
pursuant to the Borrower Security Agreement or a
Subsidiary Security Agreement, prior to the rights of,
and enforceable as such against, any other Person;
(iv) none of such inventory is subject to any
security interest or other Lien in favor of any Person
other than the Bank;
(v) all such inventory is held by an
Inventory Credit Party only for resale in the ordinary
course of its business;
(vi) all of such inventory is located in a
city or county listed on the appropriate schedule to the
Borrower Security Agreement or a Subsidiary Security
Agreement as applicable and at premises owned by an
Inventory Credit Party or leased by an Inventory Credit
Party for which the Bank has received satisfactory
landlord and other waivers;
(vii) none of such inventory is obsolete,
unsalable, damaged or otherwise unfit for sale as
determined by the Bank in its discretion; and
(viii) none of such inventory has been declared
by the Bank in its sole discretion as being ineligible.
"Receivables Credit Party" has the meaning set forth in
the definition of Eligible Receivables.
"Reduction Event" means (i) any Asset Sale or (ii) any
Equity Issuance.
"Reimbursement Amount" means, with respect to any amount
drawn under a Letter of Credit, the amount so drawn plus any and
all reasonable charges and expenses that the Bank may pay or incur
relative to such drawing.
"Restricted Subsidiaries" means, at any date,
collectively, PEI, Penril Technologies, TPI, EMI, Datability,
Penril England, Penril Hong Kong, Penril Caribbean and Constant
Power and all other Consolidated Subsidiaries that have complied
with the following:
(i) such Consolidated Subsidiary and its
shareholders shall have duly executed and delivered a
Restricted Subsidiary Collateral Package and its
shareholders shall have delivered all certificates
representing the shares of stock pledged under the
Restricted Subsidiary Stock Pledge Agreement delivered
as a part of such Restricted Subsidiary Collateral
Package, duly endorsed in blank or accompanied by a
stock power duly executed in blank;
(ii) the Bank shall have received (1) a copy
of such Consolidated Subsidiary's articles of
incorporation, certified as of a recent date by the
governmental agency having authority to issue
certificates or articles of incorporation by the
jurisdiction of such Consolidated Subsidiary's
incorporation, (2) a long-form certificate of such
governmental agency, dated as of a recent date, as to
the good standing and charter documents of such
Consolidated Subsidiary on file and (3) a certificate of
the Secretary or an Assistant Secretary of such
Consolidated Subsidiary dated the date that such
Consolidated Subsidiary becomes a Restricted Subsidiary
certifying (a) that the certificate of incorporation of
such Consolidated Subsidiary has not been amended since
the date of the last amendment thereto indicated on the
certificate furnished pursuant to clause (2) above, (b)
the absence of dissolution or liquidation proceedings by
or against such Consolidated Subsidiary, that attached
thereto is a true and complete copy of the bylaws of
such Consolidated Subsidiary as in effect on the date of
such certificate, (c) that attached thereto is a true,
correct and complete copy of the resolutions adopted by
the Board of Directors of such Consolidated Subsidiary
authorizing the execution, delivery and performance by
it of the applicable Restricted Subsidiary Guaranty and
Restricted Subsidiary Security Agreement and that such
resolutions have not been amended and are in full force
and effect on the date of such certificate and (d) as to
the incumbency and specimen signatures of each officer
of such Consolidated Subsidiary executing the Restricted
Subsidiary Guaranty and the Restricted Subsidiary
Security Agreement;
(iii) each document (including, without
limitation, each Uniform Commercial Code financing
statement) required by law or reasonably requested by
the Bank to be filed, registered or recorded in order to
create in favor of the Bank a perfected first priority
security interest in the collateral subject to the
applicable Subsidiary Security Agreement shall have been
properly filed, registered or recorded in each
jurisdiction in which the filing, registration or
recordation thereof is so required or requested, and the
Bank shall have received the acknowledgment copy, or
other evidence satisfactory to it, of such filing
registration or recordation; and
(iv) receipt by the Bank of reports from
InfoSearch, Inc. or other independent search service
satisfactory to the Bank listing all effective financing
statements that name such Consolidated Subsidiary (under
its present name and any previous names) as debtor or
seller and that are filed in the jurisdictions referred
to in clause (iii) above, together with copies of such
other financing statements (none of which shall cover
the collateral which is subject to applicable Subsidiary
Security Agreement, except as otherwise disclosed in
writing to, and accepted by, the Bank).
"Restricted Subsidiary Collateral Package" means (i) a
Subsidiary Guaranty, (ii) a Subsidiary Security Agreement and if
applicable (iii) a Subsidiary Pledge Agreement, in each case
executed and delivered by the Restricted Subsidiary or its
shareholders, as applicable, in favor of the Bank.
"Restricted Subsidiary Guaranty" means the Guaranty
between a Consolidated Subsidiary and the Bank, substantially in
the form of Exhibit E hereto, as the same may be amended or
modified from time to time.
"Restricted Subsidiary Security Agreement" means a
Security Agreement between a Consolidated Subsidiary and the Bank,
substantially in the form of Exhibit F hereto, as the same may be
amended or modified from time to time.
"Restricted Subsidiary Stock Pledge Agreement" means the
Borrower Stock Pledge Agreement, the PEI Stock Pledge Agreement
or, with respect to any other Consolidated Subsidiary, a Stock
Pledge Agreement between the owner or owners of all outstanding
shares of capital stock of such Consolidated Subsidiary and the
Bank, substantially in the form of the Borrower Stock Pledge
Agreement or the PEI Stock Pledge Agreement, as applicable, as the
same may be amended, modified or supplemented from time to time.
"Revolving Commitment Amount" means, at any date, an
amount equal to $5,500,000, as such amount may be reduced from
time to time pursuant to Section 2.12.
"Revolving Loan" means (i) an Outstanding Revolving Loan
which is continued as a Revolving Loan hereunder or (ii) a Loan
made by the Bank to the Borrower pursuant to Section 2.2, and
"Revolving Loans" means all of such Loans, collectively.
"Signet Rate" means the rate of interest publicly
announced by Signet Bank in Falls Church, Virginia from time to
time as its prime rate. It is a rate set by Signet Bank based
upon various factors, including its costs and desired return,
general economic conditions and other factors, and is used by
Signet Bank as a reference point for pricing some loans, which may
be priced at, above or below the Signet Rate. Any change in the
Signet Rate shall take effect on the opening of business on the
day specified in the announcement of such change.
"Sub-Assemblies" means parts manufactured by an
Inventory Credit Party utilized in the construction of Finished
Goods.
"Subordinated Debt" means (i) the subordinated
promissory note issued by Datability and payable to Howard
International Corporation in the original principal amount of
$909,126 and (ii) the subordinated promissory note issued by
Datability and payable to John Howard in the original principal
amount of $395,374, each subordinated to the Borrower's
Obligations (as defined in the Collateral Documents) to the Bank
pursuant to the Subordination Agreement.
"Subordination Agreement" means the Subordination
Agreement dated as of May 6, 1993 among Howard International
Corporation, John Howard, Datability and the Bank, as amended by
Amendment No. 1 thereto dated as of April 25, 1995, and as the
same may be further amended, supplemented or modified from time to
time.
"Subrogation and Contribution Agreement" means the
Subrogation and Contribution Agreement dated as of May 6, 1993
among the Borrower, PEI, Penril Technologies, TPI, EMI and
Datability, as amended, modified or supplemented from time to
time.
"Subsidiary" means any corporation or other entity of
which securities or other ownership interests having ordinary
voting power to elect a majority of the Board of Directors or
other persons performing similar functions are at the time
directly or indirectly owned by the Borrower.
"Subsidiary Guaranties" means a collective reference to
the PEI Guaranty, the Penril Technologies Guaranty, the TPI
Guaranty, the EMI Guaranty, the Datability Guaranty, the Penril
England Guaranty, the Penril Hong Kong Guaranty, the Penril
Caribbean Guaranty, the Constant Power Guaranty and all Restricted
Subsidiary Guaranties, if applicable.
"Subsidiary Security Agreements" means a collective
reference to the PEI Security Agreement, the Penril Technologies
Security Agreement, the TPI Security Agreement, the EMI Security
Agreement, the Datability Security Agreement, the Penril England
Debenture, the Penril Hong Kong Security Agreement, the Penril
Caribbean Security Agreement, the Constant Power Security
Agreement and all Restricted Subsidiary Security Agreements.
"Tax" means any fee (including license, filing and
registration fee), tax (including any income, gross receipts,
franchise, sales, use or real, personal, tangible or intangible
property tax), interest equalization or stamp tax, assessment,
levy, impost, duty, charge or withholding of any kind or nature
whatsoever, imposed or assessed by any Governmental Authority,
together with any penalty, fine or interest thereon.
"TPI" means Technipower Inc., a Delaware corporation,
and its successors.
"TPI Guaranty" means the Guaranty dated as of May 6,
1993 between TPI and the Bank, as the same may be amended,
supplemented or modified from time to time.
"TPI Security Agreement" means the Security Agreement
dated as of May 6, 1993 between TPI and the Bank, as amended by
Amendment No. 1 thereto dated as of April 25, 1995, and as the
same may be further amended, supplemented or modified from time to
time.
"Unapplied Revolving Amount" means at any date the
excess (if any) of the then Revolving Commitment Amount over the
Applied Revolving Amount.
"Unrestricted Subsidiary" means a Subsidiary other than
a Restricted Subsidiary, and "Unrestricted Subsidiaries" means all
such Subsidiaries.
"Wholly-Owned Consolidated Subsidiary" means any
Restricted Subsidiary all of the shares of capital stock or other
ownership interests of which (except directors' qualifying shares)
are at the time directly or indirectly owned by the Borrower.
Section 1.2. Accounting Terms and Determinations.
Unless otherwise specified herein, all accounting terms used
herein shall be interpreted, all accounting determinations
hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared, in accordance with GAAP
as in effect from time to time, applied on a basis consistent
(except for changes concurred in by the Borrower's independent
public accountants) with the most recent audited consolidated
financial statements of the Borrower and its Consolidated
Subsidiaries delivered to the Bank.
ARTICLE II
THE CREDIT
Section 2.1. Continuation of Outstanding Revolving
Loans, Exchange Contracts and Letters of Credit on the Effective
Date. On the Effective Date:
(i) all Outstanding Revolving Loans shall be
continued as Revolving Loans under this Amended
Agreement;
(ii) all Outstanding Exchange Contracts shall
be continued as Exchange Contracts under this Amended
Agreement; and
(iii) all Outstanding Letters of Credit shall
be continued as Letters of Credit under this Amended
Agreement.
Section 2.2. Revolving Commitment.
(a) Revolving Loans. The Bank agrees, on the terms and
conditions set forth in this Amended Agreement, to make Revolving
Loans to the Borrower from time to time on and after the Effective
Date and to but excluding March 31, 1997 in an aggregate principal
amount such that the Applied Revolving Amount at any one time
outstanding does not exceed the lesser of (i) the Borrowing Base
and (ii) Revolving Commitment Amount. Subject to the foregoing,
the Borrower may borrow, prepay and reborrow Revolving Loans under
this Amended Agreement.
(b) Letters of Credit. The Bank agrees, on the terms
and conditions set forth in this Amended Agreement, from time to
time on and after the Effective Date and to but excluding March
31, 1997, to issue Letters of Credit for the account of the
Borrower in an aggregate stated amount (in each case after giving
effect on the date of issuance to any repayment, prepayment or
borrowing of Revolving Loans, to the expiration without a drawing
of any outstanding Letters of Credit and to the repayment of any
outstanding Reimbursement Amounts owing in respect of drawn
Letters of Credit) such that the Applied Revolving Amount does not
exceed the lesser of (i) the Borrowing Base and (ii) the Revolving
Commitment Amount. No Letter of Credit may have an expiration
date later than March 31, 1997 (or such later date to which the
Revolving Commitment may have been extended by the Bank pursuant
to Section 2.2(c)).
(c) Extensions of Commitment Period. The Bank may,
upon the request of the Borrower, but in its sole discretion,
extend the Commitment from time to time. The Bank shall have the
unconditional right not to extend such commitment periods,
notwithstanding that no Default or Event of Default may then exist
under this Amended Agreement.
Section 2.3. Foreign Exchange Contracts. The Bank
may, in its sole discretion, enter into spot Exchange Contracts
with the Borrower from time to time from and including the
Effective Date to but excluding March 31, 1997 (or such later date
to which the Commitment may have been extend by the Bank pursuant
to Section 2.2(c)) in an aggregate amount which, together with all
Outstanding Exchange Contracts continued as Exchange Contracts
under this Amended Agreement pursuant to Section 2.1(ii) hereof
does not exceed $250,000.
Section 2.4. Method of Borrowing. The Borrower shall
give the Bank notice (which may be oral if promptly confirmed in
writing) (a "Notice of Borrowing") one Business Day before each
Revolving Loan, specifying the amount and date (which shall be a
Business Day) of such Loan. Unless the Bank determines that any
applicable condition specified in this Amended Agreement has not
been satisfied, the Bank will credit the amount of each requested
Revolving Loan to the general deposit account of the Borrower with
the Bank or, at the Borrower's request delivered in writing not
later than contemporaneously with the related Notice of Borrowing,
the Bank will wire transfer immediately available funds in the
amount of such Loan to such other bank account of the Borrower
within the continental United States as may be specified in such
request.
Section 2.5. Method of Issuance of Letters of Credit.
The Borrower may request the Bank to issue a Letter of Credit by
delivering a duly executed Application (which may be delivered by
telecopier if a Facsimile Agreement is in effect) not later than
11:00 A.M. (Eastern Time) at least two Business Days before the
requested date of issuance to the Bank at 7 St. Paul Street,
Baltimore, Maryland 21202 or at such other address as the Bank may
from time to time specify for the purpose of such notices to the
Borrower. Not later than 2:00 P.M. (Eastern time) on the date so
specified, the Bank shall (unless it determines that any
applicable condition specified in this Amended Agreement has not
been satisfied) send a Letter of Credit conforming to the terms
specified in the related Application to the Borrower or, if so
instructed by the Borrower, the Letter of Credit or an authorized
written advice of its issuance to the beneficiary named therein.
Section 2.6. Letter of Credit Reimbursements and Other
Payments. In addition to (but without duplication of) the
payments required by the Terms and Conditions of any Application,
the Borrower agrees to pay to the Bank: (i) on each date that any
amount is drawn under any Letter of Credit a sum equal to such
amount so drawn plus any and all reasonable charges and expenses
which the Bank may pay or incur relative to such drawing;
(ii) upon each transfer of any Letter of Credit in accordance with
its terms a sum in such amount as shall be necessary to cover the
costs and expenses of the Bank incurred in connection with such
transfer; or (iii) if any Reimbursement Amount cannot be repaid in
full through the borrowing of a Revolving Loan, upon demand
interest on such Reimbursement Amount for each day from the date
on which a draft under a Letter of Credit is paid until payment in
full at a rate per annum equal to the rate applicable to Revolving
Loans for such day.
Section 2.7. Note. The Revolving Loans shall be
evidenced by a single promissory note of the Borrower,
substantially in the form of Exhibit A hereto and appropriately
completed. The Bank shall record, and prior to any transfer of
the Note shall endorse on the schedule forming a part thereof
appropriate notations to evidence, the date and amount of each
Revolving Loan and the date and amount of each payment of
principal made by the Borrower with respect thereto; provided,
however, that any failure by the Bank to make such a notation or
any error therein shall not in any manner affect the obligation of
the Borrower to repay the Revolving Loans in accordance with the
terms hereof and of the Note. The Bank is hereby irrevocably
authorized by the Borrower so to endorse the Note and to attach to
and make a part of the Note a continuation of any such schedule as
and when required.
Section 2.8. Interest. Interest shall accrue on the
outstanding principal amount of each Loan, for each day from the
Effective Date until such Loan becomes due, at a rate per annum
equal to the sum of 2% plus Signet Rate for such date. Such
interest shall be payable in arrears on the last day of each
calendar month. From and after the occurrence of an Event of
Default, the outstanding principal amount of each Loan and, to the
extent permitted by law, accrued interest thereon shall bear
interest for each day until such Event of Default is cured or
waived at a rate per annum equal to 2% plus the otherwise
applicable rate for such day.
Section 2.9. Fees.
(a) The Borrower shall pay to the Bank a commitment fee
at the rate of 37.5 basis points per annum on the Unapplied
Revolving Amount. Such commitment fee shall accrue from and
including the Effective Date to and including March 31, 1997 and
shall be payable quarterly in arrears on March 31, June 30,
September 30 and December 31, 1996 and on March 31, 1997.
(b) The Borrower shall pay to the Bank a fee equal to
3% of the initial stated amount of each Letter of Credit on the
date of its issuance.
Section 2.10. Payment at Maturity; Mandatory
Prepayments.
(a) Revolving Loans. Unless extended by the Bank
pursuant to Section 2.2(c), all Revolving Loans shall be due and
payable (together with accrued interest thereon) on March 31,
1997.
(b) Reduction Transactions. If the Borrower or any
Subsidiary shall at any time receive any Net Cash Proceeds of any
Reduction Event, an amount equal 100% of such Net Cash Proceeds
shall be applied (forthwith upon receipt by the Borrower or any of
its Subsidiaries, as the case may be) to prepay Revolving Loans.
(c) Over Formula; Over Line. In addition to any other
required payments pursuant to this Section 2.10, (i) on each date
on which the Applied Revolving Amount exceeds the Borrowing Base,
the Borrower shall prepay (and there shall become due and payable)
such principal amount of the Revolving Loans as is equal to such
excess and (ii) on each date when the Applied Revolving Amount
exceeds the Revolving Commitment Amount, the Borrower shall prepay
(and there shall become due and payable) such principal amount of
the Revolving Loans as is equal to such excess and (ii) on each
date when the Applied Revolving Amount exceeds the Revolving
Commitment Amount, the Borrower shall prepay (and there shall
become due and payable) such principal amount of the Revolving
Loans as is equal to such excess.
Section 2.11. Mandatory Termination of the Commitment.
Unless extended by the Bank pursuant to Section 2.2(c), the
Commitment shall terminate on March 31, 1997. The Commitment
shall not be reduced by the amount of any required prepayment of
the Revolving Loans pursuant to Section 2.10(b)(ii).
Section 2.12. Optional Termination or Reduction of the
Commitment. The Borrower may, upon at least three Business Days'
notice to the Bank, terminate at any time, or reduce from time to
time by an aggregate amount of $250,000 or any larger multiple of
$100,000, the unused portion of the Commitment. If the Commitment
is terminated in its entirety, any accrued commitment fee shall be
payable on the effective date of such termination. The Borrower
shall pay the Bank a Commitment reduction fee in an amount equal
to 3% of each amount by which the Commitment is reduced pursuant
to this Section 2.12, such fee to be due and payable on the
effective date of each such reduction.
Section 2.13. Optional Prepayments. The Borrower may,
upon at least one Business Day's notice to the Bank, prepay the
Loans in whole or in part by paying the principal amount to be
prepaid together with accrued interest thereon to the date of
prepayment.
Section 2.14. General Provisions as to Payments. The
Borrower shall make each payment of principal of and interest on,
the Revolving Loans and of the commitment and issuance fees
hereunder, not later than 1:00 P.M. (local time in Falls Church,
Virginia) on the date when due, in Federal or other funds
immediately available in Falls Church, Virginia, to the Bank at
its address referred to in Section 10.1. Whenever any payment of
principal of, or interest on, the Revolving Loans or of the
commitment or issuance fees shall be due on a day which is not a
Business Day, the date for payment thereof shall be extended to
the next succeeding Business Day. If the date for any payment of
principal of is extended by operation of law or otherwise,
interest thereon shall be payable for such extended time.
Section 2.15. Late Charge. The Borrower shall pay to
the Bank a late charge of 5% of the amount of any payment due
hereunder which is not paid within seven days of the due date
thereof.
Section 2.16. Computation of Interest and Commitment
Fees. Interest and the commitment fee hereunder shall be computed
on the basis of a year of 365 days (or 366 days in a leap year)
and paid for the actual number of days elapsed.
ARTICLE III
CONDITIONS
Section 3.1. Conditions to Effectiveness. This
Amended Agreement will become effective on and as of the date (the
"Effective Date") when the last of the following conditions shall
have been satisfied:
(a) Execution and Delivery of this Amended Agreement.
On or prior to the Effective Date, the Bank shall have received
duly executed counterparts of this Amended Agreement signed on
behalf of itself and the Borrower.
(b) Replacement Note. On or prior to the Effective
Date, the Bank shall have received duly executed Note,
substantially in the forms of Exhibit A hereto, which Note shall
be issued to the Bank in lieu of and in substitution for the
Revolving Note issued under the 1995 Credit Agreement.
(c) Guarantor and Restricted Subsidiary Consents. On
or prior to the Effective Date, each Guarantor and each other
Restricted Subsidiary shall have duly authorized, executed and
delivered to the Bank a consent (a "Guarantor Consent")
substantially in the form of Exhibit B to this Amended Agreement.
(d) Legal Matters. All legal matters incident to this
Amended Agreement and the other Amendment Documents and the
transactions contemplated hereby and thereby shall be reasonably
satisfactory to McGuire, Woods, Battle & Boothe, L.L.P., counsel
for the Bank.
(e) Borrowing Base Certificate. The Bank shall have
received a Borrowing Base Certificate, dated as of the close of
business on the Thursday immediately preceding the Effective Date,
which Borrowing Base Certificate shall reflect that the Applied
Revolving Amount (assuming the consummation of the transactions
contemplated hereby to occur on the Effective Date) does not
exceed the lesser of (i) the Borrowing Base or (ii) $5,500,000.
(f) Release of TPI and EMI Stock. The Bank shall have
executed and delivered to the Borrower such documents as the
Borrower shall reasonably request to evidence the termination of
the Bank's security interest in the shares of TPI and EMI pledged
to the Bank under the Borrower Stock Pledge Agreement. Any such
documents shall be without recourse to or warranty by the Bank.
On the Effective Date, the 1995 Credit Agreement will be
automatically amended and restated in its entirety to read as set
forth herein. Once the Effective Date has occurred, the rights
and obligations of the parties hereto shall be governed by this
Amended Agreement. The Note delivered to the Bank under the 1995
Credit Agreement shall become void on the Effective Date and, upon
receiving the new Revolving Note, the new Term Notes and
Acquisition Note delivered pursuant to paragraph (b) of this
Section 3.1, the Bank will return the Revolving Note, the Term
Notes and the Acquisition Note delivered to it under the 1995
Credit Agreement to the Borrower. No failure by the Bank so to
return any Note delivered to it under the 1995 Credit Agreement
shall affect the validity of the Note delivered to it under this
Amended Agreement.
Section 3.2. Conditions to All Credit Events. The
obligation of the Bank to make each Revolving Loan and to issue
each Letter of Credit is subject to the satisfaction of the
following conditions:
(i) in the case of a Revolving Loan, receipt
by the Bank of Notice of Borrowing as required by
Section 2.4;
(ii) in the case of a Letter of Credit,
receipt by the Bank of an Application as required by
Section 2.5;
(iii) the fact that, no Default has and is
continuing or would result from such Credit Event;
(iv) the fact that the representations and
warranties of the Borrower contained in the Loan
Documents shall be true in all material respects on and
as of the date of such Credit Event; and
(v) the fact that, after giving effect to
such Credit Event and the application of the proceeds
thereof, the Applied Revolving Amount will not exceed
the lesser of (A) the Revolving Commitment Amount and
(B) the Borrowing Base.
Each Credit Event hereunder shall be deemed to be a representation
and warranty by the Borrower on the date thereof that the facts
hereinabove set forth in clauses (iii) and (iv) of this Section
are true as of such date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
Section 4.1. Corporate Existence and Power. The
Borrower is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware, and has
all corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its
business as now conducted. The Borrower and each Subsidiary is
duly qualified as a foreign corporation and in good standing in
each jurisdiction where qualification or licensing is required by
the nature of its business or the character and location of its
property, business or customers and in which the failure to so
qualify or be licensed, as the case may be, in the aggregate,
would have a material adverse effect on the business, financial
position, results of operations, properties or prospects of the
Borrower and its Consolidated Subsidiaries considered as a whole.
Section 4.2. Corporate and Governmental Authorization;
Contravention. The execution, delivery and performance by the
Borrower of this Amended Agreement, the Note and the other Loan
Documents to which it is a party are within its corporate power,
have been duly authorized by all necessary corporate action,
require no action by or in respect of, or filing with, any
Governmental Authority and do not contravene, or constitute (with
or without the giving of notice or lapse of time or both) a
default under, any provision of applicable law or of the
certificate of incorporation or by-laws of the Borrower or of any
agreement, judgment, injunction, order, decree or other instrument
binding upon the Borrower or result in the creation or imposition
of any Lien on any of its assets (other than those created
pursuant to the Collateral Documents).
Section 4.3. Binding Effect. This Amended Agreement
and the other Loan Documents to which the Borrower is a party
constitute valid and binding agreements of the Borrower, and the
Note, when executed and delivered in accordance with this Amended
Agreement, will constitute valid and binding obligations of the
Borrower, in each case enforceable against the Borrower in
accordance with their terms, except as (i) the enforceability
hereof and thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (ii) rights
of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability.
Section 4.4. Financial Information. (a) The
consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as of July 31, 1995 and the related consolidated
statements of income and cash flows for the fiscal year then
ended, reported on by Deloitte and Touche, as set forth in the
Borrower's 1995 Form 10-K/A, a copy of which has been delivered to
the Bank, fairly present, in conformity with GAAP, the
consolidated financial position of the Borrower and its
Consolidated Subsidiaries as of such date and their results of
operations and changes in financial position for such fiscal year.
As of the date of such financial statements, the Borrower and its
Consolidated Subsidiaries did not have any material contingent
obligation, contingent liability or liability for Taxes, long-term
lease or unusual forward or long-term commitment, which was not
reflected in any of such financial statements or notes thereto.
(b) The unaudited consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of January 31, 1996
and the related unaudited consolidated statements of income and
cash flows for the six months then ended, set forth in the
Borrower's quarterly report for the fiscal quarter ended January
31, 1996 as filed with the Securities and Exchange Commission on
Form 10-Q, a copy of which has been delivered to the Bank, fairly
present, in conformity with GAAP applied on a basis consistent
with the financial statements referred to in clause (a) of this
Section, the consolidated financial position of the Borrower and
its Consolidated Subsidiaries as of such date and their results of
operations and changes in financial position for such six-month
period (subject to normal year-end adjustments).
(c) Except as disclosed in the Borrower's 1995
Form 10-K or Forms 10-Q or 10-Q/A for the fiscal quarters ended
October 31, 1995 and January 31, 1996, since July 31, 1995 there
has been no material adverse change in the business, financial
position, results of operations or prospects of the Borrower and
its Consolidated Subsidiaries considered as a whole.
Section 4.5. Litigation. Except as disclosed in the
financial statements and in the notes and exhibits thereto
referred to in Section 4.4, there is no action, suit or proceeding
pending against, or to the knowledge of the Borrower threatened
against or affecting, the Borrower or any Consolidated Subsidiary
before any Governmental Authority in which there is a reasonable
possibility of an adverse decision which could materially
adversely affect the business, financial position or results of
operations of the Borrower and its Consolidated Subsidiaries
considered as a whole or which in any manner draws into question
the validity of this Amended Agreement, the Note or other Loan
Document and there is no basis known to the Borrower for any such
action, suit or proceeding.
Section 4.6. Marketable Title. The Borrower has good
and marketable title to all its properties and assets subject to
no Lien, except Permitted Liens.
Section 4.7. Filings. All actions by or in respect
of, and all filing with, any Governmental Authority required in
connection with the execution, delivery and performance of this
Amended Agreement, the Note and the other Loan Documents, or
necessary for the validity or enforceability thereof or for the
protection or perfection of the rights and interests of the Bank
thereunder, will, prior to the date of delivery thereof, have been
duly taken or made, as the case may be, and will at all times
thereafter remain in full force and effect.
Section 4.8. Regulation U. The Borrower does not own
any "margin stock" as such term is defined in Regulation U of the
Board of Governors of the Federal Reserve System. The proceeds of
the Loans will be used by the Borrower only for the purposes set
forth in Article II hereof. None of the Loan proceeds will be
used, directly or indirectly, for the purpose of purchasing or
carrying any margin stock or for the purpose of reducing or
retiring any indebtedness which was originally incurred to
purchase or carry margin stock or for any other purpose which
might constitute the Loans a "purpose credit" within the meaning
of Regulation U or Regulation X of the Board of Governors of the
Federal Reserve System.
Section 4.9. Subsidiaries. Each of the Borrower's
corporate Subsidiaries is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction
of incorporation, and has all corporate power and all material
governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
Section 4.10. Disclosure. None of this Amended
Agreement or other Loan Documents or any schedule or exhibit
thereto or document, certificate, report, statement or other
information furnished to the Bank in connection herewith or
therewith or with the consummation of the transactions
contemplated hereby or thereby contains any material misstatement
of fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading. There is
no fact materially adversely affecting the assets, business,
financial position, results of operations or prospects of the
Borrower or any Consolidated Subsidiary which has not been set
forth in a footnote included in the financial statements referred
to in Section 4.4 or in exhibit or schedule thereto.
ARTICLE V
FINANCIAL COVENANTS
The Borrower agrees that so long as the Bank is
committed to make Loans or issue Letters of Credit hereunder or
any amount payable hereunder remains unpaid:
Section 5.1. Certain Definitions. As used in this
Article V and hereafter in this Amended Agreement, the following
terms have the following meanings:
"Capital Lease" means a lease that should be capitalized
on the balance sheet of the lessee prepared in accordance with
GAAP.
"Consolidated Current Assets" means at any date the
consolidated current assets of the Borrower and its Consolidated
Subsidiaries determined at such date.
"Consolidated Current Liabilities" means at any date
(i) the consolidated current liabilities of the Borrower and its
Consolidated Subsidiaries plus (ii) the current liabilities of any
Person (other than the Borrower or a Consolidated Subsidiary) that
are Guaranteed by the Borrower or a Consolidated Subsidiary, all
determined at such date.
"Consolidated Debt" means at any date the Debt of the
Borrower and its Consolidated Subsidiaries, determined on a
consolidated basis as of such date.
"Consolidated Intangible Assets" means at any date the
amount of (i) all write-ups (other than write-ups resulting from
write-ups of assets of a going concern business made within 12
months after the acquisition of such business) subsequent to
July 31, 1995 and the book value of any asset owned by the
Borrower or a Consolidated Subsidiary, (ii) all unamortized debt
discount and expense, unamortized deferred charges, capitalized
start-up costs, goodwill, patents, licenses, trademarks, trade
names, copyrights, organization or developmental expenses,
covenants not to compete and other intangible items and (iii) all
funds owed to the Borrower or a Consolidated Subsidiary by an
Affiliate, all the term on a consolidated basis as of such date.
"Consolidated Net Worth" means at any date the excess of
the total consolidated assets of the Borrower and its Consolidated
Subsidiaries over their total consolidated liabilities.
"Consolidated Tangible Net Worth" means at any date the
excess of the total consolidated assets of the Borrower and its
Consolidated Subsidiaries over their total consolidated
liabilities, less their total Consolidated Intangible Assets.
Section 5.2. Current Ratio. The ratio of Consolidated
Current Assets to Consolidated Current Liabilities on the last day
of each fiscal quarter will not be less than 1.60 to 1.0.
Section 5.3. Consolidated Debt to Consolidated Net
Worth. The ratio of Consolidated Debt to Consolidated Net Worth
will not exceed 1.0 to 1.0 on the last day of any fiscal quarter.
For purposes of this Section 5.3 any preferred stock of a
Restricted Subsidiary held by a Person other than the Borrower or
a Wholly-Owned Restricted Subsidiary shall be included, at the
higher of its voluntary or involuntary liquidation value, in
"Consolidated Debt".
Section 5.4. Consolidated Debt to Consolidated
Tangible Net Worth. The ratio of Consolidated Debt to
Consolidated Tangible Net Worth will not exceed 1.2 to 1.0 on the
last day of any fiscal quarter. For purposes of this Section 5.4
any preferred stock of a Restricted Subsidiary held by a Person
other than the Borrower or a Wholly-Owned Restricted Subsidiary
shall be included, at the higher of its voluntary or involuntary
liquidation value, in "Consolidated Debt".
ARTICLE VI
OTHER COVENANTS
The Borrower agrees that so long as the Bank is
committed to make Loans hereunder or any amount payable hereunder
or under the Note remains unpaid:
Section 6.1. Information. The Borrower will deliver
or cause to be delivered to the Bank:
(i) as soon as available and in any event
within 90 days after the end of each fiscal year of the
Borrower, a consolidated balance sheet of the Borrower
and its Consolidated Subsidiaries as of the end of such
fiscal year and the related statements of income and
cash flows for such fiscal year, setting forth in each
case in comparative form the figures for the previous
fiscal year, all in reasonable detail and accompanied by
an opinion thereon by Deloitte & Touche or other similar
nationally-recognized independent public accountants
reasonably satisfactory to the Bank;
(ii) as soon as available and in any event
within 45 days after the end of each of the first eleven
calendar months of each fiscal year of the Borrower, a
consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries and the related consolidated
income statement for such month and for the portion of
the Borrower's fiscal year ended at the end of such
month, setting forth for each month coinciding with the
end of a fiscal quarter in comparative form the figures
for the corresponding quarter and the corresponding
portion of the Borrower's previous fiscal year, all
certified (subject to normal year-end audit adjustments)
as complete and correct by the chief financial officer
or chief accounting officer of the Borrower;
(iii) simultaneously with the delivery of each
set of financial statements referred to in clause (i)
and after the end of each of the first three quarters of
each fiscal year of the Borrower, a certificate of the
chief financial officer or chief accounting officer of
the Borrower, (A) setting forth in reasonable detail the
calculations required to establish whether the Borrower
was in compliance with the requirements of Sections 5.2
through 5.4, inclusive, on the date of such financial
statements, (B) stating whether there exists on the date
of such certificate any Default and, if any Default then
exists, setting forth the details thereof and the action
which the Borrower is taking or proposes to take with
respect thereto and (C) stating whether, since the date
of the most recent previous delivery of financial
statements pursuant to clause (i) or (ii) of this
Section, there has been any material adverse change in
the business, financial position or results of
operations of the Borrower and its Consolidated
Subsidiaries, considered as a whole, and, if so, the
nature of such material adverse change;
(iv) as soon as available and in any event
within 90 days after the end of each fiscal year of the
Borrower, a copy of the annual pro-forma projections for
the current fiscal year, together with updated
projections at such times, and for such periods, as the
Bank may reasonably request;
(v) no later than 12:00 noon (local time in
Baltimore, Maryland) on Monday of each calendar week, a
Borrowing Base Certificate computing the Borrowing Base
in the form supplied by the Bank's Commercial Support
Group as of the close of business on the preceding
Thursday, certified by the Chief Financial Officer of
the Borrower;
(vi) as soon as available and in any event
within 30 days after the end of each calendar month, a
summary report, in form satisfactory to the Bank,
showing an aging of all billed accounts for goods
delivered or services rendered owing to the Borrower or
any of its Subsidiaries and an aging of the Borrower's
or any Subsidiary's accounts payable;
(vii) if so requested by the Bank, a copy of
the annual management letter from the auditors of the
Borrower;
(viii) forthwith upon the occurrence of any
Default, a certificate of the chief financial officer or
chief accounting officer of the Borrower setting forth
the details thereof and the action which the Borrower is
taking or proposes to take with respect thereto;
(ix) as soon as reasonably practicable after
obtaining knowledge of the commencement of an action,
suit or proceeding against the Borrower or any of its
Subsidiaries which could materially adversely affect the
business, properties, financial position or results of
operations of the Borrower and its Consolidated
Subsidiaries, considered as a whole, or which in any
manner questions the validity of this Amended Agreement,
the Note or any of the other transactions contemplated
hereby or thereby, the nature of such pending action,
suit or proceeding and such additional information as
may be reasonably requested by the Bank;
(x) promptly upon transmission thereof,
copies of all press releases and other statements made
available generally by the Borrower or its Subsidiaries
to the public concerning material developments in the
results of operations, financial condition or business
of the Borrower or its Subsidiaries; and
(xi) from time to time such additional
information regarding the financial position, results of
operations or business of the Borrower or any of its
Subsidiaries as the Bank may reasonably request.
Section 6.2. Compliance with Laws. The Borrower will
comply, and will cause each of its Subsidiaries to comply, with
all applicable laws, ordinances, rules, regulations, and
requirements of Governmental Authorities (including, without
limitation, ERISA and the rules and regulations thereunder) except
where the necessity of compliance therewith is contested in good
faith by appropriate proceedings.
Section 6.3. Accounting; Inspection of Property, Books
and Records. (a) The Borrower will keep, and will cause each of
its Subsidiaries to keep, proper books of record and account in
which full, true and correct entries in conformity with GAAP shall
be made of all dealings and transactions in relation to their
respective businesses and activities, will maintain, and will
cause each of its Subsidiaries to maintain, their respective
fiscal reporting periods on the present basis and will permit, and
will cause each of its Subsidiaries to permit, representatives of
the Bank and, for purposes reasonably related to providing the
Appraisal and all updates thereof, the Appraiser to visit and
inspect any of their respective properties, to examine and make
copies of any of their respective books and records and to discuss
their respective affairs, finances and accounts with their
officers, employees and independent public accountants, all at
such reasonable times and as often as may reasonably be desired on
reasonable notice.
(b) The Borrower will permit the Bank (the Commercial
Support Group) to visit and inspect any of its properties, to
examine and make copies of any of its books and records and to
discuss its affairs, finances and accounts with its officers,
employees and independent public accountants, at the Borrower's
expense and conducted from time to time as the Bank may reasonably
determine.
Section 6.4. Restriction on Liens. The Borrower will
not, and will not permit any of its Subsidiaries to at any time
create, assume or suffer to exist any Lien on any property or
asset now owned or hereafter acquired by the Borrower or any of
its Subsidiaries or assign or subordinate any present or future
right to receive assets except:
(i) Liens arising under the Collateral
Documents or otherwise in favor of the Bank;
(ii) any purchase money security interest on
any capital asset of the Borrower or any of its
Subsidiaries if such purchase money security interest
attaches to such capital asset concurrently with the
acquisition thereof and if the Debt secured by such
purchase money security interest does not exceed the
lesser of the cost or fair market value as of the time
of acquisition of the asset covered thereby to the
Borrower or such Subsidiary; provided, that the
aggregate amount of Debt secured by all such Liens does
not exceed $1,250,000 in the aggregate at any one time
outstanding and provided, that no such purchase money
security interest shall extend to or cover any property
or asset of the Borrower or such Subsidiary other than
the related asset;
(iii) Liens imposed by law (exclusive of ERISA
Liens) (A) which are incurred in the ordinary course of
business (such as carriers, warehousemen's and
mechanics' Liens, other similar Liens arising in the
ordinary course of business and Liens securing Taxes,
assessments or governmental charges) and (x) which do
not in the aggregate materially detract from the value
of the property or assets to which they attach or
materially impair the use thereof in the operation of
the Borrower's or a Subsidiary's business or (y) which
are being contested in good faith by appropriate
proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or
asset subject to such Lien or (B) which do not relate to
material liabilities of the Borrower or any Subsidiary
and do not in the aggregate detract from the value of
the property and assets of the Borrower and its
Subsidiaries considered as a whole;
(iv) Liens (exclusive of ERISA Liens) not
securing Debt which are incurred in the ordinary course
of business in connection with workmen's compensation,
unemployment insurance, social security and other like
laws;
(v) any Lien arising pursuant to any order of
attachment, distraint or similar legal process arising
in connection with court proceedings so long as the
execution or other enforcement thereof is effectively
stayed and the claims secured thereby are being
contested in good faith by appropriate proceedings; and
(vi) Liens incurred by the Unrestricted
Subsidiaries, provided, that the aggregate amount of
Debt secured by all such Liens permitted under this
clause (vi) does not exceed $100,000 in the aggregate at
any one time outstanding.
Section 6.5. Consolidations, Mergers and Sales of
Assets. The Borrower will not (i) consolidate or merge with or
into any other Person or (ii) sell, lease or otherwise transfer
all or any substantial part of its assets to any other Person.
The Borrower will not permit any of its Subsidiaries to
consolidate or merge with or into, or transfer all or any
substantial part of its assets to, any Person other than the
Borrower or a Wholly-Owned Consolidated Subsidiary.
Section 6.6. Dividends. The Borrower will not declare
or pay any Dividends.
Section 6.7. Transactions with Other Persons. The
Borrower will not, and will not permit any of its Restricted
Subsidiaries to, enter into any agreement with any Person whereby
any of them shall agree to any restriction on the Borrower's or
such Restricted Subsidiary's right to amend or waive any of the
provisions of this Amended Agreement or any other Loan Document to
which they are a party, other than as provided in the proviso to
Section 10.5.
Section 6.8. Use of Proceeds. None of the proceeds of
the Loans will be used, directly or indirectly, for the purpose,
whether immediate, incidental or ultimate, of purchasing or
carrying any "margin stock" within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System. The
proceeds of Revolving Loans shall be used for the Borrower's and
the Restricted Subsidiaries' general working capital requirements
(including payment of Reimbursement Amounts). The Borrower will
advance a not insubstantial amount of the proceeds of the
Revolving Loans to the Restricted Subsidiaries.
Section 6.9. Independence of Covenants. All covenants
contained herein shall be given independent effect so that if a
particular action or condition is not permitted by any of such
covenants, the fact that such action or condition would be
permitted by an exception to, or otherwise be within the
limitations of another covenant shall not avoid the occurrence of
a Default if such action is taken or condition exists.
Section 6.10. Restrictions with Respect to
Subsidiaries.
(a) The Borrower will not, and will not permit any of
its Subsidiaries to, sell, assign, transfer or otherwise dispose
of (except to the Borrower or to a Wholly-Owned Consolidated
Subsidiary) any shares of stock of any class of such Subsidiary
unless all of the capital stock and the entire Debt of such
Subsidiary at the time owing to the Borrower and to all other
Subsidiaries shall be sold, assigned, transferred or otherwise
disposed of at the same time if permissible under Section 6.5.
(b) The Borrower will not permit any of its
Subsidiaries (i) to issue or sell any shares of preferred stock
except to the Borrower or to a Wholly-Owned Consolidated
Subsidiary or (ii) to issue or sell any shares of its common stock
(except to directors for the purpose of qualifying them as
directors, if required) unless, after such issue or sale, the
Borrower and its Subsidiaries, taken together, shall retain the
same proportionate interest in such Subsidiary.
Section 6.11. Debt. Neither the Borrower nor any of
its Restricted Subsidiaries will incur or at any time be liable
with respect to any Debt except (i) Debt outstanding under this
Amended Agreement, the Note and the Loan Documents, (ii) Debt
secured by a lien permitted under Section 6.4(i) or (ii) and
(iii) the Subordinated Debt.
Section 6.12. Advances, Investments and Loans. The
Borrower will not, and will not permit any of its Restricted
Subsidiaries to, lend money or credit or make advances of money or
other assets to any Person, or purchase or acquire any stock,
obligations or securities of, or any other interest in, or make
any capital contribution to any Person, except:
(i) the Borrower or any of its Restricted
Subsidiaries may invest in cash and Cash Equivalents;
(ii) the Borrower and its Restricted
Subsidiaries may acquire and hold receivables owing to
them and make advances to customers, in each case if
created, acquired or made in the ordinary course of
business and payable or dischargeable in accordance with
customary trade terms;
(iii) the Borrower and its Restricted
Subsidiaries may make loans and advances to employees
and officers of the Borrower and its Restricted
Subsidiaries (for business-related travel expenses,
moving and relocation expenses and other similar
expenses) in each case incurred in the ordinary course
of business and consistent with past practices;
(iv) the Borrower and its Restricted
Subsidiaries may acquire and hold investments in Persons
other than Restricted Subsidiaries in an aggregate
principal amount (valuing non-cash investments at the
fair market value of the asset or other property so
invested as determined in good faith by the Board of
Directors or Executive Committee of such Board of the
Borrower or Restricted Subsidiary making such
investment) not exceeding $100,000 at any one time
outstanding; and
(v) the Borrower or any of its Restricted
Subsidiaries may acquire and own investments (including
Debt obligations) received in connection with the
bankruptcy or reorganization of suppliers and customers
or in settlement of delinquent obligations of, and other
disputes with, customers and suppliers arising in the
ordinary course of business.
Section 6.13. Subordinated Debt. The Borrower will
not, and will not permit any Restricted Subsidiary to, directly or
indirectly, make any principal or interest payments in respect of
the Subordinated Debt, except, that (i) the Borrower may make the
scheduled payment in May 1995 in respect of principal of the
Subordinated Debt in an aggregate amount not to exceed $75,775,
(ii) the Borrower may make payments in respect of the Subordinated
Debt (on account of principal and/or interest as may be determined
by the holders of the Subordinated Debt and the Borrower) on the
dates, and in amounts not exceeding, the respective dates and
amounts specified under the terms of the Subordinated Debt as in
effect on the Effective Date as the dates and amounts for payment
of interest on the Subordinated Debt and (iii) the Borrower may
make payments of principal and interest in respect of the
Subordinated Debt on the dates, in the amounts and (in respect of
interest) at the rate or rates specified in the Subordinated Debt;
provided, however, that such payment at such time may be paid to,
and retained by, the holders of the Subordinated Debt under the
Subordination Agreement.
(a) The Borrower shall pay regularly scheduled payments
of principal and interest on the Subordinated Debt if, at the time
it is paid, such payment would otherwise be permitted to be made
to, and retained by, the holders of the Subordinated Debt under
the Subordination Agreement.
Section 6.14. Transaction with Affiliates. The
Borrower will not, and will not permit any Restricted Subsidiary
to, transfer any equipment or fixed assets having an aggregate
book value exceeding $100,000 to Penril Caribbean or Penril Hong
Kong. The Borrower will not, and will not permit any Restricted
Subsidiary to directly or indirectly, pay any funds to or for the
account of, make any investment in, engage in any transaction with
or effect any transaction in connection with any joint enterprise
or other joint arrangement with, any Affiliate of the Borrower,
except that the Borrower and its Restricted Subsidiaries may make
payment and provide compensation (including without limitation the
establishment of customary employee benefit plans), for personal
services rendered by employees and other persons on terms fair and
reasonable in light of the circumstances under which such services
which or are to be rendered.
Nothing in the second sentence of this Section 6.14
shall prohibit the Borrower or a Restricted Subsidiary from making
sales to or purchases from any Affiliate and, in connection
therewith, extending credit from making payments or from making
payments for services rendered by any Affiliate, as such sales and
purchases are made or such services are rendered in the ordinary
course of business and on the terms and conditions at least as
favorable to the Borrower or Restricted Subsidiaries as the terms
and conditions which would prohibit the Borrower from
participating in, or effecting any transactions in connection
with, any joint enterprise or other joint arrangement with any
Affiliate of the Borrower participating in the ordinary course of
its business and on a basis advantageous and on the basis on which
such Affiliate participates.
Section 6.15. Qualifying Inventory. At no time will
the value of Qualified Inventory be less than $3,000,000.
ARTICLE VII
EMPLOYEE BENEFIT PLANS
Section 7.1. Certain Definitions. As used in this
Article VII and hereafter in this Amended Agreement, the following
terms have the following meanings:
"Controlled Group" means all members of a controlled
group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the
Borrower, are treated as a single employer under Section 414(b) or
414(c) of the Code.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
"PBGC" means the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions under ERISA.
"Plan" means at any time an employee pension benefit
plan which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Code and is
either (i) maintained by a member of the Controlled Group for
employees of a member or members of the Controlled Group or
(ii) maintained pursuant to a collective bargaining agreement or
any other arrangement under which more than one employer makes
contributions and to which a member of the Controlled Group is
then making or accruing an obligation to make contributions or has
within the preceding five plan years made contributions.
"Unfunded Vested Liabilities" means, with respect to any
Plan at any time, the amount (if any) by which (i) the present
value of all vested nonforfeitable benefits under such Plan
exceeds (ii) the fair market value of all Plan assets allocable to
such benefits, all determined as of the then most recent valuation
date for such Plan, but only to the extent that such excess
represents a potential liability of a member of the Controlled
Group to the PBGC or the Plan under Title IV of ERISA.
Section 7.2. Compliance with ERISA. Each member of
the Controlled Group has fulfilled its obligations under the
minimum funding standards of ERISA and the Code with respect to
each Plan and is in compliance in all material respects with
provisions of ERISA and the Code presently applicable to each
Plan. No member of the Controlled Group has incurred any
liability, or has entered into any transaction that is likely to
cause any liability to be incurred, to the PBGC or any Plan under
Title IV of ERISA. No Lien has been attached and no Person has
threatened to attach a Lien on any property of the Borrower as a
result of the Borrower's failure to comply with ERISA.
Section 7.3. Prohibited Transactions. The Borrower
will not at any time permit any Plan to:
(i) engage in any "prohibited transaction",
as such term is defined in Section 4975 of the Code or
in Section 406 of ERISA;
(ii) incur any "accumulated funding
deficiency", as such term is defined in Section 302 of
ERISA, whether or not waived; or
(iii) be terminated in a manner which could
result in the imposition of a Lien on the property of
the Borrower pursuant to Section 4068 of ERISA.
Section 7.4. Information. The Borrower agrees that so
long as the Bank is committed to make Loans or enter into Exchange
Contracts hereunder, or any Note or Reimbursement Amount remains
unpaid, the Borrower will deliver or cause to be delivered to the
Bank if and when any member of the Controlled Group (i) gives or
is required to give notice to the PBGC of any "reportable event"
(as defined in Section 4043 of ERISA) with respect to any Plan
which might constitute grounds for a termination of such Plan
under Title IV of ERISA, or knows that the plan administrator of
any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event
given or required to be given to the PBGC; (ii) receives notice of
complete or partial withdrawal liability under Title IV of ERISA,
a copy of such notice; or (iii) receives notice from the PBGC
under Title IV of ERISA of an intent to terminate or appoint a
trustee to administer any Plan, a copy of such notice.
ARTICLE VIII
DEFAULTS
Section 8.1. Events of Default. If one or more of the
following events ("Events of Default") shall have occurred and be
continuing:
(i) the Borrower shall fail to pay when due
any principal of or interest on any Loan, any fee or
other amount payable hereunder or under the Note or any
other Loan Document;
(ii) the Borrower shall fail to observe or
perform any covenant contained in Article V or in
Section 6.4, 6.5, 6.6, 6.7, 6.8, 6.10, 6.11, 6.12, 6.13
or 6.15;
(iii) the Borrower shall fail to observe or
perform any covenant or agreement contained in this
Amended Agreement or other Loan Document (other than
those covered by clauses (i) or (ii) above) for 30 days
after written notice thereof has been given to the
Borrower by the Bank;
(iv) any representation, warranty,
certification or statement made by the Borrower in this
Amended Agreement or other Loan Document in any
certificate, financial statement or other document
delivered pursuant hereto shall prove to have been
incorrect in any material respect when made;
(v) the Borrower or any Restricted Subsidiary
shall fail to make any payment in respect of any Debt
(other than the Note and other than a failure to make a
payment of Subordinated Debt which would have been made
but for the provisions of the Subordination Agreement)
when due or within any applicable grace period;
(vi) any event or condition shall occur which
results in the acceleration of the maturity of any Debt
of the Borrower or any Restricted Subsidiary or enables
(or, with the giving of notice or lapse of time or both,
would enable) the holder of such Debt or any Person
acting on such holder's behalf to accelerate the
maturity thereof;
(vii) the Borrower or any Restricted Subsidiary
shall commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar
official of it or any substantial part of its property,
or shall consent to any such relief or to the
appointment of or taking possession by any such official
in an involuntary case or other proceeding commenced
against it, or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any corporation
action to authorize any of the foregoing;
(viii) an involuntary case or other proceeding
shall be commenced against the Borrower or any
Restricted Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its
debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any
substantial part of its property, and such involuntary
case or other proceeding shall remain undismissed and
unstayed for a period of 60 days; or an order for relief
shall be entered against the Borrower or any Subsidiary
of the Borrower under the federal bankruptcy laws as now
or hereafter in effect;
(ix) any member of the Controlled Group shall
fail to pay when due an amount or amounts aggregating in
excess of $750,000 which it shall have become liable to
pay to the PBGC, any Plan or any Plan trustee under
Title IV of ERISA or section 412 of the Code; or notice of
intent to terminate a Plan or Plans having aggregate
Unfunded Vested Liabilities in excess of $2,000,000
(collectively, a "Material Plan") shall be provided
under Title IV of ERISA by any member of the Controlled
Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under
Title IV of ERISA to terminate or to cause a trustee to
be appointed to administer any Material Plan or a
proceeding shall be instituted by a fiduciary of any
Material Plan against any member of the Controlled Group
to enforce Section 515 of ERISA and such proceeding
shall not have been dismissed within 30 days thereafter;
or a condition shall exist by reason of which the PBGC
would be entitled to obtain a decree adjudicating that
any Material Plan must be terminated;
(x) a judgment or order for the payment of
money in excess of $1,250,000 shall be rendered against
the Borrower or any Subsidiary of the Borrower and such
judgment or order shall continue unsatisfied and
unstayed for a period of 21 days; or
(xi) any certificate or opinion covering the
financial statements of the Borrower and its
Consolidated Subsidiaries shall contain a qualification
(an "Avoidable Qualification") to such certificate or
opinion (such as a "subject to" or "except for"
statement therein) (A) resulting from a limitation on
the scope of examination of such financial statements or
the underlying data, (B) as to the capability of the
Person whose financial statements are certified to
continue operations as a going concern or (C) which
could be eliminated by changes in financial statements
or notes thereto covered by such certificate or opinion
(such as, by the creation of or increase in a reserve or
a decrease in the carrying value of assets) and which,
if so eliminated by the making of any such change and
after giving effect thereto, would occasion an Event of
Default or a Default hereunder; provided, however, that
neither of the following shall constitute an Avoidable
Qualification: (x) a consistency exception relating to a
change in the accounting principles with which the
independent public accountants for the Person the
statements of which are being certified have concurred
or (y) a qualification relating to the outcome or
disposition of threatened litigation, pending litigation
being contested in good faith, pending or threatened
claims or other contingencies, the impact of which
cannot be determined with sufficient certainty to permit
qualification in such financial statements;
then, and in every such event, the Bank, at its option, may by
notice to the Borrower terminate the Commitment and it shall
thereupon terminate, and may, at its option, by notice to the
Borrower declare the Note (together with accrued interest thereon)
to be, and the Note shall thereupon become, immediately due and
payable without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Borrower; provided
that in the case of any of the Events of Default specified in
paragraph (vii) or (viii) above, without any notice to the
Borrower or any other act by the Bank, the Commitment shall
thereupon terminate and the Note (together with accrued interest
thereon) shall become immediately due and payable without
presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Borrower.
In addition, the Bank, at its option, may by notice to
the Borrower require the Borrower to pay, and there shall be
immediately due and payable hereunder, an amount (the
"LC Liquidated Payment") equal to the face amount of all undrawn
Letters of Credit then issued and outstanding. Such payment shall
represent liquidated damages resulting from the Event of Default
and not a penalty and when made shall thereby automatically
discharge the Borrower from its obligation to reimburse the Bank
for any future payments made by the Bank under Letters of Credit.
Upon the termination of the last outstanding Letter of Credit, the
Bank shall pay to the Borrower as an adjustment to the
LC Liquidated Payment an amount equal to (i) the LC Liquidated
Payment previously paid minus (ii) all amounts drawn under Letters
of Credit which were the basis for the LC Liquidated Payment (and
not otherwise reimbursed) on or prior to the date of such
adjustment.
ARTICLE IX
CHANGE IN CIRCUMSTANCES
Section 9.1. Increased Cost and Reduced Return.
(a) If after the date hereof, the adoption of any
applicable law, rule or regulation, or any change therein, or any
change in the interpretation or administration thereof by any
Governmental Authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance
by the Bank with any request or directive (whether or not having
the force of law) of any such authority, central bank or
comparable agency:
(i) shall subject the Bank to any tax, duty
or other charge with respect to the Loans, the Note, its
obligation to make Loans or issue any Letter of Credit,
or shall change the basis of taxation of payments to the
Bank of the principal of or interest on Loans or in
respect of Letters of Credit or Reimbursement Amounts
with respect thereto or any other amounts due under this
Amended Agreement in respect of its Loans, its
obligation to make Loans or any Letter of Credit (except
for changes in the rate of tax on the overall net income
of the Bank imposed by the jurisdiction in which the
Bank's principal executive office is located); or
(ii) shall impose, modify or deem applicable
any reserve, special deposit or similar requirement
(including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve
System) against assets of, deposits with or for the
account of, or credit extended by, the Bank or shall
impose on the Bank any other condition affecting the
Loans, the Note, its obligation to make Loans or issue
any Letter of Credit, and the result of any of the
foregoing is to increase the cost to the Bank or making
or maintaining any Loan or issuing or maintaining any
Letter of Credit, or to reduce the amount of any sum
received or receivable by the Bank under this Amended
Agreement or under the Note with respect thereto, by an
amount deemed by the Bank to be material;
then, within 15 days after demand by the Bank, the Borrower shall
pay to the Bank such additional amount or amounts as will
compensate the Bank for such increased cost or reduction. The
Bank will promptly notify the Borrower of any event of which it
has knowledge, occurring after the date hereof, which will entitle
the Bank to compensation pursuant to this Section. A certificate
of the Bank claiming compensation under this Section and setting
forth the additional amount or amounts to be paid to it hereunder
shall be conclusive in the absence of manifest error. In
determining such amount, the Bank may use any reasonable averaging
and attribution methods.
(b) If the Bank shall determine that the adoption after
the date hereof of any generally-applicable law, rule, regulation
or guideline regarding capital adequacy, or any change in any of
the foregoing or in the interpretation or administration
applicable law, role, regulation or guideline (whether adopted
before or after the date hereof) by any Governmental Authority,
central bank or comparable agency charged with the interpretation
or administration thereof, or compliance by the Bank with any
request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the
rate of return on the Bank's capital or the capital of any Person
controlling the Bank (but only to the extent of such Person's
interest in the Bank) as a consequence of the Bank's obligations
hereunder to a level below that which the Bank or such controlling
Person could have achieved but for such law, adoption, change or
compliance (taking into consideration the Bank's policies with
respect to capital adequacy) by an amount deemed by the Bank to be
material, then from time to time, within ten days after demand by
the Bank, the Borrower shall pay to the Bank such additional
amount or amounts as will compensate the Bank for such reduction.
A certificate of the Bank claiming compensation under this Section
and setting forth the additional amount or amounts to be paid to
it hereunder shall be conclusive in the absence of manifest error.
In determining any such amount, the Bank may use any reasonable
averaging and attribution methods. If the Bank fails to notify
the Borrower that it intends to claim compensation for such
reduction within 30 days after the Bank has knowledge of such
reduction, the Borrower shall not be obligated to compensate the
Bank for such reduction accruing prior to the date on which the
Bank first notifies the Borrower that it intends to claim such
compensation.
ARTICLE X
MISCELLANEOUS
Section 10.1. Notices. All notices, requests and other
communications to a party hereunder shall be in writing and shall
be given to such party at its address set forth on the signature
pages hereof or such other address as such party may hereafter
specify for the purpose by notice to the other. Each such notice,
request or other communication shall be effective (i) if given by
mail, 48 hours after such communication is deposited in the mails
with first class postage prepaid, addressed as aforesaid or
(ii) if given by any other means, when delivered at the address
specified in this Section; provided that notices to the Bank under
Article II or Article IX shall not be effective until received.
Section 10.2. No Waivers. No failure or delay by the
Bank in exercising any right, power or privilege hereunder or
under the Note or the Applications shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
Section 10.3. Expenses. The Borrower shall pay (i) all
reasonable out-of-pocket expenses of the Bank, including the
reasonable monitoring fees of the Bank's Commercial Support Group
and all reasonable fees and disbursements of the Appraiser and the
reasonable fees and disbursements of special counsel for the Bank,
in connection with the preparation of this Amended Agreement and
the other Amendment Documents, any waiver or consent hereunder or
any amendment hereof or any Default or alleged Default hereunder
and (ii) if an Event of Default occurs, all out-of-pocket expenses
incurred by the Bank, including reasonable fees and disbursements
of counsel, in connection with such Event of Default and
collection and other enforcement proceedings resulting therefrom.
The Borrower shall indemnify the Bank against any transfer taxes,
documentary taxes, assessments or charges made by any Governmental
Authority by reason of the execution and delivery of this Amended
Agreement, the Letters of Credit, the Exchange Contracts or the
Note.
Section 10.4. Right of Set-Off. Upon the occurrence
and during the continuance of any Event of Default, the Bank is
hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing
by the Bank to or for the credit or the account of the Borrower
against any and all of the obligations now or hereafter existing
under this Amended Agreement, the Note or the Exchange Contracts,
irrespective of whether or not the Bank shall have made any demand
hereunder or under the Note and although such obligations may be
unmatured. The rights of the Bank under this Section 10.4 are in
addition to other rights and remedies (including, without
limitation, other rights of set-off) which the Bank may have. The
Borrower agrees, to the fullest extent it may effectively do so
under applicable law, that any holder of a participation in the
Note, the Letters of Credit or the Exchange Contracts may exercise
rights of set-off or counterclaim or other rights with respect to
such participation as fully as if such holder of a participation
were a direct creditor of the Borrower in the amount of such
participation. The Bank agrees to notify the Borrower promptly
after it exercises any such right of set-off.
Section 10.5. Amendments and Waivers. Any provision of
this Amended Agreement or of the Note may be amended or waived if,
but only if, such amendment or waiver is in writing and is signed
by the Borrower and the Bank; provided, however, that the covenant
of the Borrower set forth in Section 6.14(b) of this Amended
Agreement may not be amended without the consent of the holders of
a majority in principal amount of the Subordinated Debt.
Section 10.6. Successors and Assigns. (a) The
provisions of this Amended Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Borrower may not assign or
otherwise transfer any of its rights under this Amended Agreement
without the prior written consent of the Bank, which consent shall
not be unreasonably withheld.
(b) The Bank may at any time grant to one or more banks
or other institutions (each a "Participant") participating
interests in the Commitments or in any or all of the Loans, the
Note, the Letters of Credit or the Exchange Contracts. In the
event of any such grant by the Bank of a participating interest to
a Participant, whether or not upon notice to the Borrower, the
Bank shall remain responsible for the performance of its
obligations hereunder, and the Bank shall continue to deal solely
and directly with the Borrower in connection with the Bank's
rights and obligations under this Amended Agreement. Any
agreement pursuant to which the Bank may grant such a
participating interest shall provide that the Bank shall retain
the sole right and responsibility to enforce the obligations of
the Borrower hereunder including, without limitation, the right to
approve any amendment, modification or waiver of any provision of
this Amended Agreement; provided that such participation agreement
may provide that the Bank will not agree to any modification,
amendment or waiver of this Amended Agreement which would have the
effect of (i) increasing, decreasing or extending the Commitment,
(ii) reducing the principal of or rate of interest on any Loan,
(iii) postponing the date fixed for any payment of principal of or
interest on any Loan or fees hereunder or under the Note or the
Letters of Credit, (iv) extending the Availability Period without
the consent of the Participant. An assignment or other transfer
which is not permitted by subsection (c) or (d) below shall be
given effect for purposes of this Amended Agreement only to the
extent of a participating interest granted in accordance with this
subsection (b).
(c) The Bank may at any time assign to one or more
banks or other institutions (each an "Assignee") all, or a
proportionate part of all, of its rights and obligations under
this Amended Agreement, the Note, the Letters of Credit and the
Exchange Contracts, and such Assignee shall assume such rights and
obligations, pursuant to an instrument executed by such Assignee
and the Bank, with (and subject to) the consent of the Borrower;
provided that if an Assignee is an affiliate of the Bank, no such
consent shall be required. Upon execution and delivery of such an
instrument and payment by such Assignee to the Bank of an amount
equal to the purchase price agreed between the Bank and such
Assignee, such Assignee shall become a Bank party to this Amended
Agreement and shall have all the rights and obligations of a Bank
as set forth in such instrument of assumption, and the transferor
Bank shall be released from its obligations hereunder to a
corresponding extent, and no further consent or action by any
party shall be required. Upon the consummation of any assignment
pursuant to this subsection (c), the transferor Bank and the
Borrower shall make appropriate arrangements so that, if required,
a new Note is issued to the Assignee. If the Assignee is not
incorporated under the laws of the United States of America or a
state thereof, it shall, prior to the first date on which interest
or fees are payable hereunder for its account deliver to the
Borrower certification as to exemption from deduction or
withholding of any United States federal income taxes.
(d) The Bank may at any time assign all or any portion
of its rights under this Amended Agreement, the Note, the Letters
of Credit and the Exchange Contracts to a Federal Reserve Bank.
No such assignment shall release the Bank from its obligations
hereunder.
(e) The Bank may furnish any information concerning the
Borrower in its possession from time to time to Assignees and
Participants (including prospective Assignees and Participants)
and may furnish such information in response to credit inquiries
consistent with general banking practice.
(f) No assignee or other transferee of the Bank's
rights shall be entitled to receive any greater payment under
Section 10.1 than the Bank would have been entitled to receive
with respect to the rights assigned or otherwise transferred,
unless such assignment or transfer is made with the Borrower's
prior written consent or at a time when the circumstances giving
rise to such greater payment did not exist.
Section 10.7. Virginia Law. This Amended Agreement,
the Note, the Letters of Credit and the Exchange Contracts shall
be governed by and construed in accordance with the laws of the
Commonwealth of Virginia.
Section 10.8. Counterparts; Effectiveness. This
Amended Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This
Amended Agreement shall become effective when the Bank shall have
received counterparts hereof (which may be by facsimile) signed by
both parties.
Section 10.9. Waiver of Jury Trial; Submission to
Jurisdiction. The Borrower hereby irrevocably and unconditionally
waives all right to trial by jury in any action, proceeding, or
counterclaim arising out of or related to this Amended Agreement,
the Note, the Letters of Credit and the Exchange Contracts or any
of the transactions contemplated hereby or thereby. Any legal
action or proceeding with respect to this Amended Agreement, the
Note, the Letters of Credit and the Exchange Contracts or any
document related hereto or thereto shall be brought in the courts
of the Commonwealth of Virginia in the City of Richmond or of the
United States of America for the Eastern District of Virginia and
by execution and delivery of this Amended Agreement the Borrower
hereby accepts for itself and in respect of its property,
generally and unconditionally, the non-exclusive jurisdiction of
the aforesaid courts. The Borrower hereby irrevocably and
unconditionally waives any objection, including without
limitation, any objection to the laying of venue or based on the
grounds of the forum non conveniens which it now or hereafter may
have to the bringing of any action or proceeding in such
respective jurisdictions.
Section 10.10. Entire Agreement. This Amended
Agreement, the Note and the Exchange Contracts set forth the
entire agreement of the parties with respect to the subject matter
hereof and thereof and supersede all previous understandings,
written or oral, in respect thereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Amended Agreement to be duly executed by their respective
authorized officers as of the day and year first above written.
PENRIL DATACOMM NETWORKS, INC.
By \s\R. D. Rose
------------------------------------
Title: Vice President, Finance and
Assistant Secretary
1300 Quince Orchard Blvd.
Gaithersburg, Maryland 20878
Telecopier Number: (301) 948-5761
with a copy (which shall not
constitute notice) to:
Richard D. Margolis, Esq.
Benesch, Friedlander, Coplan &
Aronoff
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114
Telephone Number: (216) 363-4500
Telecopier Number: (216) 363-4588
SIGNET BANK
By \s\ Michelle Riley Levinson
-------------------------------
Title: Vice President
7799 Leesburg Pike, Suite 500
Falls Church, Virginia 22043
Telecopier Number: (703) 503-9712
with copy (which shall not
constitute notice) to:
Brian D. Murphy, Esq.
McGuire, Woods, Battle & Boothe,
L.L.P.
One James Center
Richmond, Virginia 23219
Telephone Number: (804) 775-4332
Telecopier Number: (804) 775-1062
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