UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON D.C.
20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR l 5(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number
January 31, 1997 0-22920
- --------------------- ----------------------
NUMEREX CORP.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 11-2948749
------------------------------ --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2360 Maryland Road
Willow Grove, PA 19090
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(610) 892-0316
---------------------------------------------------
(Registrant's telephone number, including area code)
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 month' (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No ___
As of the close of the period covered by this report, an aggregate of
11,202,492 shares of the registrant's Class A Common Stock no par value (being
the registrant's only class of common stock outstanding), were outstanding.
<PAGE>
NUMEREX CORP.
INDEX
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at January 31,
1997 (unaudited) and October 31, 1996 4
Consolidated Statements of Operations (unaudited)
for the three months ended January 31, 1997 and 1996 5
Consolidated Statements of Cash Flows (unaudited)
for the three months ended January 31, 1997 and 1996 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature Page 13
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<PAGE>
NUMEREX CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS POUNDS STERLING)
<TABLE>
<CAPTION>
JANUARY 31, October 31,
1997 1996
(UNAUDITED)
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents (Pound Sterling) 17,620 (Pound Sterling) 18,459
Accounts Receivable, net 5,895 5,397
Inventory 2,601 2,838
Prepaid Expenses 143 175
------ ------
26,259 26,869
PROPERTY AND EQUIPMENT, NET 687 773
INTANGIBLE AND OTHER ASSETS, NET 2,228 2,340
------ ------
TOTAL ASSETS (Pound Sterling) 29,174 (Pound Sterling) 29,982
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable (Pound Sterling) 905 (Pound Sterling) 1,425
Income Taxes 184 243
Other Current Liabilities 1,613 2,014
------ ------
TOTAL LIABILITIES 2,702 3,682
------ ------
SHAREHOLDERS' EQUITY
Class A, Common Stock - no par value;
authorized 30,000,000; issued 11,597,492 18,321 18,321
Treasury Stock, at cost, 395,000 shares at January 31, (1,054) (848)
1997 and 310,000 shares at October 31, 1996
Accumulated Translation Adjustment 209 72
Retained Earnings 8,996 8,755
------ ------
26,472 26,300
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (Pound Sterling) 29,174 (Pound Sterling) 29,982
====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
-4-
<PAGE>
NUMEREX CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS POUNDS STERLING,
EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
JANUARY 31,
-----------------------------------------------
1997 1996
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Net Sales (Pound Sterling) 4,143 (Pound Sterling) 4,139
Cost of Sales 2,201 2,360
------ ------
GROSS PROFIT 1,942 1,779
Selling, General, Administrative
and Other Expenses 1,800 1,763
------ ------
OPERATING INCOME 142 16
Interest and Other Income (Expense) 223 314
------ ------
INCOME BEFORE
INCOME TAXES 365 330
Income Taxes 124 113
------ ------
NET INCOME (Pound Sterling) 241 (Pound Sterling) 217
====== ======
EARNINGS PER SHARE (Pound Sterling) .02 (Pound Sterling) .02
====== ======
WEIGHTED AVERAGE SHARES OUTSTANDING 11,231 11,597
====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
-5-
<PAGE>
NUMEREX CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS POUNDS STERLING)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
JANUARY 31,
------------------------------------------------
1997 1996
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Pound Sterling) 241 (Pound Sterling) 217
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and Amortization 321 339
Changes in current assets and liabilities which
provided (used) cash:
Accounts Receivable (498) 1,506
Inventory 237 (162)
Prepaid Expenses 32 (162)
Accounts Payable (520) (88)
Other Current Liabilities (460) (829)
------ ------
Net Cash Provided by (used in) Operating Activities (647) 821
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Fixed Assets (48) (137)
Increase in Intangible Assets (83) (425)
------- ------
Net Cash Used in Investing Activities (131) (562)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of Treasury Stock (206) --
------ ------
Net Cash Used in Financing Activities (206) --
------ ------
EFFECT OF EXCHANGE DIFFERENCES ON
CASH AND CASH EQUIVALENTS 145 846
------ ------
Net Increase (Decrease) in cash and cash equivalents (839) 1,105
CASH AND CASH EQUIVALENTS, BEGINNING 18,459 22,271
------ ------
CASH AND CASH EQUIVALENTS, ENDING (Pound Sterling) 17,620 (Pound Sterling) 23,376
====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
-6-
<PAGE>
NUMEREX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three month period ended January 31, 1997 may not be indicative of the
results that may be expected for the year ending October 31, 1997. For
further information, reference is also made to the Company's Annual Report
on Form 10-K for the year ended October 31, 1996 and the consolidated
financial statements contained therein.
2. Inventory. January 31 October 31,
1997 1996
---------- ------------
(000's omitted)
(All amounts Pound Sterling)
Raw materials 708 1,051
Work-in-progress 877 730
Finished goods 1,016 1,057
----- -----
2,601 2,838
===== =====
3. Investment Considerations
In analyzing whether to make, or continue, an investment in the Company,
investors should consider, among other factors, certain investment
considerations more particularly described in the Company's Annual Report on
Form 10-K for the year ended October 31, 1996, a copy of which can be obtained
from Charles L. McNew, Chief Financial Of ficer, NumereX Corp., Rose Tree
Corporate Center II, 1400 North Providence Road, Suite 5500, Media, PA 19063.
4. Forward-looking Statements
The information contained in the Quarterly Report on Form 10-Q for the
quarter ended January 31, 1997 contains forward-looking statements (as such
term is defined under Section 21E of the Securities Exchange Act of 1934
and the regulations thereunder), including without limitation, statements
as to trends, management's beliefs, expectations or opinions, which are
based upon a number of assumptions concerning future conditions that
ultimately may prove to be inaccurate.
Such forward-looking statements are subject to risks and uncertainties and
may be affected by various factors which may cause actual results to differ
materially from those in the forward-looking statements. Certain of these
risks, uncertainties and other factors, are discussed in the Company's
Annual Report on Form 10-K for the year ended October 31, 1996.
5. Subsequent Events
On February 28, 1997, the Company completed its acquisition of 100% of the
outstanding common stock of Broadband Networks, Inc. ("BNI") for
approximately $5,600,000. The acquisition will be accounted for using the
purchase method of accounting. In addition, the Company invested $1,675,000
directly into BNI for working capital purposes. Certain employees of BNI
will continue to hold BNI incentive stock options which, upon exercise,
would entitle them to own approximately 18% of BNI's then outstanding
common shares.
The purchase price will be allocated to the assets purchased and the
liabilities assumed based upon their fair values at the date of
acquisition. The excess of the purchase price over the fair values of the
net assets acquired will be recorded as goodwill, which will be amortized
on a straight-line basis over 20 years.
On February 12, 1997, the Company finalized a financing transaction and has
entered into a $ 10,000,000 Revolving Credit Facility with PNC Bank, N.A.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
The following table sets forth, for the periods indicated, the percentage of net
sales represented by selected items in the Company's Consolidated Statements of
Income.
Three Months Ended
January 31,
1997 1996
Net sales:
Derived Channel Systems .............................. 64.1% 69.4%
Intrusion alarm and network products.................. 35.9 30.6
----- -----
Total net sales..................................... 100.0 100.0
Cost of sales........................................... 53.1 57.0
Gross profit............................................ 46.9 43.0
Selling, general, administrative and other.............. 43.5 42.6
----- -----
Operating income........................................ 3.4 0.4
===== =====
Net income.............................................. 5.8% 5.2%
===== =====
<PAGE>
Results of Operations
Net sales were (Pound Sterling)4.1 million for the three months ended
January 31, 1997, virtually unchanged from the comparable period in 1996. There
was a modest improvement in sales of intrusion alarm and network management
products, which was somewhat offset by a slight reduction in Derived Channel
product sales principally due to a decline in the sales of software development
services to British Telecom.
Cost of sales decreased 6.7% to (Pound Sterling)2.2 million for the quarter
ended January 31, 1997 as compared to (Pound Sterling)2.4 million for the
comparable period in 1996. Gross profit as a percentage of net sales increased
to 46.9% for the three months ended January 31, 1997 as compared to 43.0% for
the comparable period in 1996. The increase in the gross profit margin was
primarily due to a shift in sales mix to higher margin products. Lower margin
software development services decreased while higher margin network equipment
sales increased.
Selling, general, administrative and other expenses were (Pound
Sterling)1.8 million for the quarter ended January 31, 1997 virtually unchanged
from the comparable period in 1996.
Operating income increased to (Pound Sterling)0.14 million for the three
months ended January 31, 1997 as compared to (Pound Sterling)0.02 for the
comparable period in 1996.
Other income and expenses decreased 29.0% to (Pound Sterling)0.2 million
for the quarter ended January 31, 1997 as compared to (Pound Sterling)0.3
million for the comparable period in 1996. The decrease was principally related
to a decline in interest income generated from temporary cash investments.
The effective income tax rate was 34.0% for the quarters ended January 31, 1997
and 1996, respectively.
The increase in gross profit margin and operating income which was somewhat
offset by a decrease in other income and expenses were the principal reasons for
an increase in net income of 11.1% to (Pound Sterling)0.24 million as compared
to (Pound Sterling)0.22 million for the comparable period in 1996.
As a result of an on-going stock buyback program, weighted average shares
outstanding declined to 11.2 million shares for the quarter ended January 31,
1997 as compared to 11.6 million shares for the comparable period in 1996.
<PAGE>
Liquidity and Capital Resources of the Company
The Company is presently able to fund its operations and working capital
requirements from anticipated cash flows from future operations and the proceeds
from a public offering completed in April 1995. Net cash used in operating
activities was (Pound Sterling)0.65 million for the quarter ended January 31,
1997 principally due to a settlement payment in conjunction with a shareholder
litigation matter. Net cash provided by operations for the quarter ended January
31, 1996 was (Pound Sterling)0.82 million.
Net cash used in investing activities decreased to (Pound Sterling)0.13 million
for the quarter ended January 31, 1997 as compared to (Pound Sterling)0.56
million for the comparable period in 1996. The decline from 1996 was primarily
due to reductions in amounts invested in capitalized software.
Net cash used in financing activities for the quarter ended January 31, 1997 was
(Pound Sterling)0.21 million due to the purchase of treasury stock. No cash
was used in financing activities for the quarter ended January 31, 1996.
The Company has working capital balances of (Pound Sterling)23.6 million
and (Pound Sterling)23.2 million, respectively, as of January 31, 1997 and
October 31, 1996.
The Company's business has not been capital intensive and, accordingly, capital
expenditures have not been material. To date, the Company has funded all capital
expenditures from working capital and cash provided by operating activities. In
order to fund an expansion of its Derived Channel System business (including an
effort to increase market penetration in North America, Western Europe, and the
Pacific Rim and expand into other parts of the world), the Company may require
significantly greater capital investments than it has in the past. Presently,
the Company has no material commitments for capital expenditures.
The Company believes that its anticipated cash flow from operations, together
with its available cash, including the proceeds of its public offering completed
in April, 1995, and funds available under its Revolving Credit Facility, will be
sufficient to finance its operating and capital requirements at least through
the fiscal year ending October 31, 1997. From these sources, the Company has
used approximately $5.6 million to complete the purchase of BNI. Cash
requirements for future expansion of the Company's operations will be evaluated
on an as needed basis. The Company does not expect that such expansion will have
a materially negative impact on the Company's ability to fund its existing
operations.
<PAGE>
Foreign Currency
Currently, the Company's functional and reporting currency is British pounds
sterling because a substantial majority of the Company's net sales are presently
generated in the United Kingdom. Although the Company does not have an ongoing
currency hedging program in place, it occasionally hedges its operations
selectively against fluctuations in foreign currency as needed. This occasional
hedging is done primarily because a portion of the Company's production costs
associated with its off-shore contract manufacturing are denominated in U.S.
dollars while the bulk of its net sales are in British pounds sterling. The
Company uses forward U.S. dollar contracts which have a maximum term of six
months and which are not material to the Company. The Company anticipates that
it may utilize additional foreign currency contracts as needed to hedge against
fluctuations in the exchange rate between the U.S. dollar and the British pound
sterling. Fluctuations in foreign currency exchange rates are not expected to
have a material impact on the Company's results of operations or liquidity.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In July and August 1995, the Company received complaints in three separate
purported lawsuits. The complaints, which were consolidated into a single
amended complaint, sought class action status and alleged violations
arising under certain federal securities laws for alleged material
misstatements and omissions in the prospectus associated with the Company's
1995 public offering. The Company and the individual defendants believe the
allegations are untrue and without merit. The complaint was filed against
certain of the Company's directors and executive of ficers, principal
shareholder and underwriters. The complaint sought rescission and/or
damages against all defendants, including the awarding of costs and
disbursements. The defendants filed a Motion to Dismiss and in January
1996, the defendants' Motion to Dismiss was granted and the case was
dismissed. In February 1996, the plaintiffs appealed the Order of the U.S.
District Court to the United States Court of Appeals. A settlement,
effective October 24, 1996 was reached among the parties and final court
approval was received on March 3, 1997. Certain defendants paid $2.1
million to a settlement fund, which will be paid to a class. The Company's
contribution to the settlement fund was $1,033,340.
Item 2. Changes in Securities.
` None - not applicable.
<PAGE>
Item 3. Defaults Upon Senior Securities.
None - not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None - not applicable.
Item 5. Other Information.
On February 12, 1997, the Company entered into a financing transaction
whereby it received a $10 million Revolving Credit Facility from PNC Bank,
N.A. Pursuant to the facility, the Company and its subsidiaries, DCX
Systems Inc., Digilog, Inc. and NumereX Investment Corp. are borrowers and
65% of the stock of Bronzebase Limited, Digital Audio Limited and a to be
formed Canadian subsidiary have or will be pledged as collateral security
under the facility.
Item 6. Exhibits and Reports on Form 8K.
Financial Data Schedule
Loan agreement between NumereX Corp., DCX Systems, Inc., Digilog, Inc.,
NumereX Investment Corp., and PNC Bank, N.A. dated February 12, 1997.
Convertible Line of Credit Note in the amount of $10,000,000 by the
Company, DCX Systems, Inc., and Digilog Inc.
<PAGE>
SIGNATURE
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.
NUMEREX CORP.
------------
(Registrant)
Date: March 11, 1997 By: /s/ John J. Reis
------------------------- --------------------------------
JOHN J. REIS
President and
Chief Executive Of ficer
Date: March 11, 1997 By: /s/ Charles L. McNew
------------------------- --------------------------------
CHARLES L. McNEW
Chief Financial Officer and
Chief Accounting Of ficer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> British Pounds Sterling
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-END> Jan-31-1997
<EXCHANGE-RATE> 1.6020
<CASH> 17,620
<SECURITIES> 0
<RECEIVABLES> 5,895
<ALLOWANCES> 0
<INVENTORY> 2,601
<CURRENT-ASSETS> 26,259
<PP&E> 687
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,174
<CURRENT-LIABILITIES> 2,702
<BONDS> 0
0
0
<COMMON> 18,321
<OTHER-SE> 8,151
<TOTAL-LIABILITY-AND-EQUITY> 29,174
<SALES> 4,143
<TOTAL-REVENUES> 0
<CGS> 2,201
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 365
<INCOME-TAX> 124
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 241
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement"), is entered into as of February 12,
1997, between NUMEREX CORP. ("NumereX") AND ITS U.S. SUBSIDIARIES listed on the
signature pages hereto (NumereX and such Subsidiaries each individually a
"Borrower" and collectively, the "Borrowers"; NumereX and all of its
Subsidiaries, both U.S. and foreign, are sometimes collectively referred to as
"NumereX and its Subsidiaries"), and PNC BANK, NATIONAL ASSOCIATION (the
"Bank").
The Borrowers and the Bank, with the intent to be legally bound, agree as
follows:
I. Loan and Security
1.1 Loan. The following loans, lines of credit and credit facilities (if
one or more, collectively, the "Loan"), made for the purpose indicated below
shall be subject to and governed by this Agreement:
Amount and Type Purpose
--------------- -------
$10,000,000 Convertible Line of Credit General working capital and
acquisitions
The Loan is or will be evidenced by a promissory note or notes of the Borrowers
(if one or more, collectively, the "Note") acceptable to the Bank, which shall
set forth the interest rate, repayment and other provisions, the terms of which
are incorporated into this Agreement by reference.
1.2 Security. The security for repayment of the Loan shall consist of
equity interests of NumereX's direct and indirect foreign subsidiaries pledged
under stock pledge or similar agreements heretofore, contemporaneously or
hereafter executed and delivered to the Bank (the "Security Documents"), which
shall secure repayment of the Loan, the Note and all other loans, advances,
debts, liabilities, obligations, covenants and duties owing by the Borrowers to
the Bank of any kind or nature, present or future, whether or not evidenced by
any note, guaranty or other instrument, whether arising under any agreement,
instrument or document, whether or not for the payment of money, whether arising
by reason of an extension of credit, opening of a letter of credit, loan or
guarantee or in any other manner, whether arising out of overdrafts on deposit
or other accounts or electronic funds transfers (whether through automatic
clearing houses or otherwise) or out of the Bank's non-receipt of or inability
to collect funds or otherwise not being made whole in connection with depository
transfer check or other similar arrangements, whether direct or indirect
(including those acquired by assignment or participation), absolute or
contingent, joint or several, due or to become due, now existing or hereafter
arising, and any amendments, extensions, renewals or increases and all costs and
expenses of the Bank incurred in the documentation, negotiation, modification,
enforcement, collection or
<PAGE>
otherwise in connection with any of the foregoing, including but not limited to
reasonable attorneys' fees and expenses (hereinafter referred to collectively as
the "Obligations"). Unless expressly provided to the contrary in documentation
for any other loan or loans, it is the express intent of the Bank and the
Borrowers that all Obligations including those included in the Loan be
cross-collateralized and cross-defaulted, such that collateral securing any of
the Obligations shall secure repayment of all Obligations and a default under
any Obligation shall be a default under all Obligations.
This Agreement, the Note, the Security Documents and all other related documents
are collectively referred to as the "Loan Documents".
II. Representations and Warranties. Each Borrower hereby makes the
following representations and warranties, which shall be continuing in nature
and remain in full force and effect until the Obligations are paid in full, and
which shall be true and correct except as otherwise set forth on the Schedules
attached hereto and incorporated herein by reference:
A. Existence, Power and Authority. NumereX and each of its Subsidiaries
are duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and have the power and
authority to own and operate their assets and to conduct their business as now
or proposed to be carried on, and each is duly qualified, licensed and in good
standing to do business in all jurisdictions where its ownership of property or
the nature of its business requires such qualification or licensing. NumereX and
each of its Subsidiaries are duly authorized to execute and deliver the Loan
Documents, all necessary action to authorize the execution and delivery of the
Loan Documents has been properly taken, and each Borrower is and will continue
to be duly authorized to borrow under this Agreement. NumereX and each of its
Subsidiaries are duly authorized to perform all of the other terms and
provisions of the Loan Documents.
B. Financial Statements. The Borrowers have delivered or caused to be
delivered the most recent balance sheet, income statement and statement of cash
flows for NumereX and its Subsidiaries (the "Historical Financial Statements").
The Historical Financial Statements are true, complete and accurate in all
material respects and fairly present the financial condition, assets and
liabilities, whether accrued, absolute, contingent or otherwise and the results
of the operations of NumereX and its Subsidiaries for the period specified
therein. The Historical Financial Statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied from
period to period subject in the case of interim statements to normal year-end
adjustments and to any comments and notes acceptable to the Bank in its sole
discretion.
C. No Material Adverse Change. Since the date of the most recent
Financial Statements, NumereX and its Subsidiaries on a consolidated basis have
not
-2-
<PAGE>
suffered any damage, destruction or loss, and no event or condition has occurred
or exists, which has resulted or could result in a material adverse change in
their business, assets, operations, financial condition or results of operation.
D. Binding Obligations. Each Borrower has full power and authority to
enter into the transactions provided for in this Agreement and has been duly
authorized to do so by appropriate action of its Board of Directors as may be
required by law, charter, other organizational documents or agreements; and the
Loan Documents, when executed and delivered by NumereX or any of its
Subsidiaries which are parties to the Loan Documents, will constitute the legal,
valid and binding obligations of such obligor, enforceable in accordance with
their terms.
E. No Defaults or Violations. There does not exist any Event of Default
under this Agreement or any default or violation by NumereX or any of its
Subsidiaries of or under any of the terms, conditions or obligations of: (i) its
articles or certificate of incorporation, regulations or bylaws or its other
organizational documents as applicable; (ii) any indenture, mortgage, deed of
trust, franchise, permit, contract, agreement, or other instrument to which it
is a party or by which it is bound; or (iii) any law, regulation, ruling, order,
injunction, decree, condition or other requirement applicable to or imposed upon
it by any law, the action by any court or any governmental authority or agency;
and the consummation of this Agreement and the transactions set forth herein
will not result in any such default or violation.
F. Title to Assets. NumereX and its Subsidiaries have good and
marketable title to the assets reflected on the most recent Financial
Statements, free and clear of all liens and encumbrances, except for (i) current
taxes and assessments not yet due and payable, (ii) liens and encumbrances, if
any, reflected or noted in the Historical Financial Statements, (iii) assets
disposed of by NumereX or its Subsidiaries in the ordinary course of business
since the date of the most recent Financial Statements, and (iv) those liens or
encumbrances specified on Schedule 2.6.
G. Litigation. There are no actions, suits, proceedings or governmental
investigations pending or, to the knowledge of the Borrowers, threatened against
NumereX or any of its Subsidiaries, which could result in a material adverse
change in its business, assets, operations, financial condition or results of
operations and there is no basis known to the Borrowers for any action, suit,
proceedings or investigation which could result in such a material adverse
change. All pending or threatened litigation against NumereX or any of its
Subsidiaries is listed on Schedule 2.7.
H. Tax Returns. NumereX and each of its Subsidiaries have filed all
returns and reports that are required to be filed by any of them in connection
with any federal, state or local tax, duty or charge levied, assessed or imposed
upon any of them or
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<PAGE>
any of their properties or withheld by any of them, including unemployment,
social security and similar taxes and all of such taxes, have been either paid
or adequate reserve or other provision has been made.
I. Employee Benefit Plans. Each employee benefit plan as to which
NumereX or any of its Subsidiaries may have any liability complies in all
material respects with all applicable provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA"), including minimum funding requirements,
and (i) no Prohibited Transaction (as defined under ERISA) has occurred with
respect to any such plan, (ii) no Reportable Event (as defined under Section
4043 of ERISA) has occurred with respect to any such plan which would cause the
Pension Benefit Guaranty Corporation to institute proceedings under Section 4042
of ERISA, (iii) the Borrower has not withdrawn from any such plan or initiated
steps to do so, and (iv) no steps have been taken to terminate any such plan.
J. Environmental Matters. NumereX and its Subsidiaries are in
compliance, in all material respects, with all Environmental Laws, including,
without limitation, all Environmental Laws in jurisdictions in which NumereX or
any Subsidiary owns or operates, or has owned or operated, a facility or site,
stores Collateral, arranges or has arranged for disposal or treatment of
hazardous substances, solid waste or other waste, accepts or has accepted for
transport any hazardous substances, solid waste or other wastes or holds or has
held any interest in real property or otherwise. Except as otherwise disclosed
on Schedule 2.7, no litigation or proceeding arising under, relating to or in
connection with any Environmental Law is pending or, to the best of the
Borrowers' knowledge, threatened against any real property which NumereX or any
of its Subsidiaries holds or has held an interest or any past or present
operation of NumereX or any such Subsidiary. No release, threatened release or
disposal of hazardous waste, solid waste or other wastes is occurring, or to the
best of the Borrowers' knowledge has occurred, on, under or to any real property
in which NumereX or any of its Subsidiaries holds any interest or performs any
of its operations, in violation of any Environmental Law. As used in this
Section, "litigation or proceeding" means any demand, claim notice, suit, suit
in equity, action, administrative action, investigation or inquiry whether
brought by a governmental authority or other person, and "Environmental Laws"
means all provisions of laws, statutes, ordinances, rules, regulations, permits,
licenses, judgments, writs, injunctions, decrees, orders, awards and standards
promulgated by any governmental authority concerning health, safety and
protection of, or regulation of the discharge of substances into, the
environment.
K. Intellectual Property. NumereX and each Subsidiary owns or is
licensed to use all patents, patent rights, trademarks, trade names, service
marks, copyrights, intellectual property, technology, know-how and processes
used in their businesses as currently conducted that are material to the
condition (financial or otherwise), business or operations of NumereX or its
Subsidiaries.
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<PAGE>
L. Regulatory Matters. No part of the proceeds of the Loan will be used
for "purchasing" or "carrying" any "margin stock" within the respective meanings
of each of the quoted terms under Regulation U of the Board of Governors of the
Federal Reserve System as now and from time to time in effect or for any purpose
which violates the provisions of the Regulations of such Board of Governors.
M. Solvency. As of the date hereof and after giving effect to the
transactions contemplated by the Loan Documents, (i) the aggregate value of the
assets of NumereX and its Subsidiaries will exceed their liabilities (including
contingent, subordinated, unmatured and unliquidated liabilities), (ii) NumereX
and its Subsidiaries will have sufficient cash flow to enable them to pay their
debts as they mature, and (iii) NumereX and its Subsidiaries will not have
unreasonably small capital for the businesses in which they are engaged.
N. Disclosure. None of the Loan Documents contains or will contain any
untrue statement of material fact or omits or will omit to state a material fact
necessary in order to make the statements contained in this Agreement or the
Loan Documents not misleading. There is no fact known to any Borrower which
materially adversely affects or, so far as the Borrowers can now reasonably
foresee, might materially adversely affect the business, assets, operations,
financial condition or results of operation of NumereX or any Subsidiary and
which has not otherwise been fully set forth in this Agreement, the Schedules
hereto or in the Loan Documents.
O. Subsidiaries. A complete listing of the Borrowers' Subsidiaries,
including information about their jurisdictions of formation and their equity
ownership is set forth on Schedule 2.15. As used in this Agreement, a
"Subsidiary" of any Borrower at any time shall mean (i) any corporation, Company
or trust of which 50% or more (by number of shares or number of votes) of the
outstanding capital stock or shares of beneficial interest normally entitled to
vote for the election of one or more directors or trustees is at such time owned
directly or indirectly by such Borrower or one or more of such Borrower's
Subsidiaries, or any partnership of which such Borrower is a general partner or
of which 50% or more of the partnership interests is at the time directly or
indirectly owned by such Borrower or one or more of such Borrower's
Subsidiaries, or (ii) any corporation, company, trust, partnership or other
entity which is controlled or capable of being controlled by such Borrower or
one or more of such Borrower's Subsidiaries.
III. Affirmative Covenants. Each Borrower agrees that from the date of
execution of this Agreement until all Obligations have been fully paid and any
commitments of the Bank to the Borrowers have been terminated, such Borrower
will, and will cause each of its Subsidiaries to:
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A. Books and Records. Maintain books and records in accordance with GAAP
and give representatives of the Bank access thereto at all reasonable times,
including permission to examine, copy and make abstracts from any of such books
and records and such other information as the Bank may from time to time
reasonably request, and NumereX and its Subsidiaries will make available to the
Bank for examination copies of any reports, statements or returns which NumereX
or any Subsidiary may make to or file with any governmental department, bureau
or agency, federal or state.
B. Interim Financial Statements; Certificate of No Default. Furnish the
Bank within 45 days after the end of each fiscal quarter the Financial
Statements of NumereX and its Subsidiaries for such period, in reasonable
detail, certified by an authorized officer of NumereX and prepared in accordance
with GAAP applied from period to period subject to normal year end adjustments,
including footnotes and explanations. NumereX shall also deliver a certificate,
in the form of Exhibit A attached hereto, as to compliance with applicable
financial covenants for the period then ended and whether any Event of Default
exists, and, if so, the nature thereof and the corrective measures the Borrower
proposes to take. "Financial Statements" means NumereX consolidated and
consolidating balance sheets, income statements and statements of cash flows of
NumereX and its Subsidiaries for the year, month or quarter together with
year-to-date figures and comparative figures for the corresponding periods of
the prior year.
C. Annual Financial Statements. Furnish annual Financial Statements for
NumereX and its Subsidiaries to the Bank within 120 days after the end of each
fiscal year. The annual consolidated Financial Statements will be audited by an
independent certified public accountant selected by the NumereX and satisfactory
to the Bank; the annual consolidating Financial Statements shall be certified by
an authorized officer of NumereX. The annual audited Financial Statements shall
contain the unqualified opinion of the independent certified public accountant
whose examination shall have been made in accordance with GAAP consistently
applied from period to period.
D. Payment of Taxes and Other Charges. Pay and discharge when due all
indebtedness and all taxes, assessments, charges, levies and other liabilities
imposed upon NumereX and its Subsidiaries, their income, profits, property or
business, except those which currently are being contested in good faith by
appropriate proceedings and for which NumereX and its Subsidiaries shall have
set aside adequate reserves or made other adequate provision with respect
thereto acceptable to the Bank in its sole discretion.
E. Maintenance of Existence, Operation and Assets. Do all things
necessary to maintain, renew and keep in full force and effect its
organizational existence and all rights, permits and franchises necessary to
enable it to continue its business; continue in operation in substantially the
same manner as at present; keep its properties in
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good operating condition and repair; and make all necessary and proper repairs,
renewals, replacements, additions and improvements thereto.
F. Insurance. Maintain with financially sound and reputable insurers,
insurance with respect to its property and business against such casualties and
contingencies, of such types and in such amounts as is customary for established
companies engaged in the same or similar business and similarly situated.
G. Compliance with Laws. Comply, in all material respects, with all laws
applicable to it and to the operation of its business (including any statute,
rule or regulation relating to employment practices and pension benefits or to
environmental, occupational and health standards and controls).
H. Bank Accounts. Establish and maintain at the Bank each Borrower's
primary depository and disbursement accounts.
I. Financial Covenants. Comply with all of the financial and other
covenants, if any, set forth on the Addendum.
J. Additional Reports. Provide prompt written notice to the Bank of the
occurrence of any of the following (together with a description of the action
which the Borrower proposes to take with respect thereto): (i) any Event of
Default or potential Event of Default, (ii) any litigation filed by or against
NumereX or any of its Subsidiaries, (iii) any Reportable Event or Prohibited
Transaction with respect to any Employee Benefit Plan(s) (as defined in ERISA)
or (iv) any event which might result in a material adverse change in the
business, assets, operations, financial condition or results of operation of
NumereX or any of its Subsidiaries.
K. Annual Projections, etc.. Furnish annual projections and additional
financial information, as the Bank may request.
IV. Negative Covenants. Each Borrower covenants and agrees that from the
date of execution of this Agreement until all Obligations have been fully paid
and any commitments of the Bank to the Borrowers have been terminated, such
Borrower will not, and will not permit any of its Subsidiaries to, without the
Bank's prior written consent:
A. Indebtedness. Incur any indebtedness for borrowed money other than:
(i) the Loan and any subsequent indebtedness to the Bank; (ii) existing
indebtedness disclosed on the Historical Financial Statements referred to in
Section 3.2; and (iii) indebtedness not to exceed $500,000 in the aggregate
outstanding for NumereX and its Subsidiaries at any time.
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B. Liens and Encumbrances. Create, assume or permit to exist any
mortgage, pledge, encumbrance or other security interest or lien upon any assets
(including equity interests in any Subsidiary of NumereX) now owned or hereafter
acquired or enter into any arrangement for the acquisition of property subject
to any conditional sales agreement except (i) liens and encumbrances described
in Section 2.6 (ii) liens and encumbrances securing indebtedness permitted under
Section 4.1(iii) and (iii) liens and encumbrances in favor of Bank.
C. Guarantees. Guarantee, endorse or become contingently liable for the
obligations of any person, firm or corporation, except (a) as provided in
Section 4.1, and (b) in connection with the endorsement and deposit of checks in
the ordinary course of business for collection.
D. Loans, Advances, Investments. Purchase or hold beneficially any
stock, other securities or evidences of indebtedness of any loans or advances
to, or make any investment or acquire any interest whatsoever in, any other
person, firm or corporation, except loans, advances and investments that are (i)
disclosed on the Historical Financial Statements of NumereX and its
Subsidiaries, (ii) acceptable to the Bank in its sole discretion, (iii)
permitted under Section 4.8, (iv) from any Subsidiary of any Borrower to a
Borrower, and (v) from NumereX to its Canadian Subsidiary in the total amount of
not more than $250,000.
E. Merger or Transfer of Assets. Merge or consolidate with or into any
person, firm or corporation or lease, sell, transfer or otherwise dispose of
all, or substantially all, of its property, assets and business whether now
owned or hereafter acquired; provided, however, that NumereX may sell Digital
Audio Limited (UK).
F. Change in Business. Make or permit any material change in the nature
of its business as carried on as of the date hereof.
G. Dividends. Declare or pay any dividends on or make any distribution
with respect to any class of its equity or ownership interest, or purchase,
redeem, retire or otherwise acquire any of its equity, if such action would
cause an Event of Default; nor shall any Subsidiary of any Borrower pay any
dividend or any distribution to anyone other than a Borrower.
H. Acquisitions. Acquire any person, firm or corporation unless (i) the
acquisition fits within such Borrower's current strategic business direction in
its present lines of business, (ii) no Event of Default exists at the time of
the acquisition or would result from the acquisition, and (iii) the
consideration paid for the acquisition when added to the consideration paid for
all other acquisitions after the date of this Agreement for which written
approval is not required is valued at less than $1,500,000.
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<PAGE>
I. Subsidiaries. Create or acquire any Subsidiary unless (i) such
Subsidiary joins this Agreement as a Borrower; or (ii) if the Subsidiary is a
foreign entity and NumereX so chooses, 65% of the equity of such foreign
Subsidiary is pledged to the Bank as collateral security for the Obligations.
J. Negative Pledges. Agree with any party to limit its ability to
provide collateral security to Bank.
V. Events of Default. The occurrence of any of the following will be deemed
to be an "Event of Default":
A. Covenant Default. The Borrowers shall default in the performance of
any of the covenants or agreements contained in this Agreement.
B. Breach of Warranty. Any Financial Statement, representation, warranty
or certificate made or furnished by the Borrowers to the Bank in connection with
this Agreement shall be false, incorrect or incomplete when made.
C. Other Default. The occurrence of an Event of Default as defined in
the Note or other Loan Documents.
D. Change in Control of NumereX. The occurrence of a change of control
in the beneficial ownership of NumereX. For purposes of this Section 5.4, a
"change of control" shall occur if any person or group of persons (within the
meaning of Sections 13(a) or 14(a) of the Securities Exchange Act of 1934, as
amended) other than Gwynedd Resources, Ltd. shall have acquired beneficial
ownership (within the meaning of Rule 13d-3 promulgated by the Securities
Exchange Commission under said Act) of 20% or more of the voting capital stock
of NumereX.
Upon the occurrence of an Event of Default, the Bank will have all rights and
remedies specified in the Note and the Loan Documents and all rights and
remedies (which are cumulative and not exclusive) available under applicable law
or in equity.
VI. Conditions. The Bank's obligation to make any advance under the Loan
is subject to the conditions that as of the date of the advance:
A. No Event of Default. No Event of Default or event which with the
passage of time, provision of notice or both would constitute an Event of
Default shall have occurred and be continuing.
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<PAGE>
B. Authorization Documents. The Bank shall have been furnished certified
copies of resolutions of each Borrower's board of directors authorizing the
transactions contemplated hereby or other proof of authorization satisfactory to
the Bank.
C. Receipt of Loan Documents. The Bank shall have received the Loan
Documents and such other instruments and documents which the Bank may reasonably
request in connection with the transactions provided for in this Agreement,
which may include an opinion of counsel for any party executing any of the Loan
Documents in form and substance satisfactory to the Bank.
VII. Expenses. The Borrowers agree to pay the Bank, upon the closing of
this Agreement, and otherwise on demand, all costs and expenses incurred by the
Bank in connection with the (i) preparation, negotiation and delivery of this
Agreement and the other Loan Documents, and any modifications thereto, and (ii)
collecting the loan or instituting, maintaining, preserving, enforcing and
foreclosing the security interest in any of the collateral securing the Loan,
whether through judicial proceedings or otherwise, or in defending or
prosecuting any actions or proceedings arising out of or relating to this
Agreement, including reasonable fees and expenses of counsel (which may include
costs of in-house counsel) and foreign counsel, expenses for auditors,
appraisers and environmental consultants, lien searches, recording and filing
fees and taxes.
VIII. Increased Costs. On written demand, together with the written
evidence of the justification therefor, the Borrowers agree to pay the Bank, all
direct costs incurred and any losses suffered or payments made by the Bank as a
consequence of making the Loan by reason of any change in law or regulation or
its interpretation imposing any reserve, deposit, allocation of capital or
similar requirement (including without limitation, Regulation D of the Board of
Governors of the Federal Reserve System) on the Bank, its holding company or any
of their respective assets.
IX. Miscellaneous.
A. Notices. All notices, demands, requests, consents, approvals and
other communications required or permitted hereunder must be in writing and will
be effective upon receipt if delivered personally to such party, or if sent by
facsimile transmission with confirmation of delivery, or by nationally
recognized overnight courier service, to the address set forth below or to such
other address as any party may give to the other in writing for such purpose:
To the Bank: PNC Bank, N.A.
1000 Westlakes Drive, Suite 200
Berwyn, PA 19312
Attention: Kristen E. Talaber
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<PAGE>
Facsimile No.: (610) 725-5799
Telephone No.: (610) 725-5742
To any Borrower: NumereX Corp.
Rose Tree Corporate Center II, Suite 5500
1400 N. Providence Road
Media, PA 19063
Attention: Charles L. McNew
Facsimile No.: (610) 892-0725
Telephone No.: (610) 892-0316
B. Preservation of Rights. No delay or omission on the part of the Bank
to exercise any right or power arising hereunder will impair any such right or
power or be considered a waiver of any such right or power or any acquiescence
therein, nor will the action or inaction of the Bank impair any right or power
arising hereunder. The Bank's rights and remedies hereunder are cumulative and
not exclusive of any other rights or remedies which the Bank may have under
other agreements, at law or in equity.
C. Illegality. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
D. Changes in Writing. No modification, amendment or waiver of any
provision of this Agreement nor consent to any departure by the Borrowers
therefrom, will in any event be effective unless the same is in writing and
signed by the Bank, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice to or
demand on the Borrowers in any case will entitle the Borrowers to any other or
further notice or demand in the same, similar or other circumstance.
E. Entire Agreement. This Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement and supersedes
all other prior agreements and understandings, both written and oral, between
the parties with respect to the subject matter hereof.
F. Counterparts. This Agreement may be signed in any number of
counterpart copies and by the parties hereto on separate counterparts, but all
such copies shall constitute one and the same instrument.
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G. Successors and Assigns. This Agreement will be binding upon and inure
to the benefit of the Borrowers and the Bank and their respective heirs,
executors, administrators, successors and assigns; provided, however, that the
Borrowers may not assign this Agreement in whole or in part without the prior
written consent of the Bank and the Bank at any time may assign this Agreement
in whole or in part.
H. Interpretation. In this Agreement, unless the Bank and the Borrowers
otherwise agree in writing, the singular includes the plural and the plural the
singular; words importing any gender include the other genders; references to
statutes are to be construed as including all statutory provisions
consolidating, amending or replacing the statute referred to; the word "or"
shall be deemed to include "and/or", the words "including", "includes" and
"include" shall be deemed to be followed by the words "without limitation";
references to articles, sections (or subdivisions of sections) or exhibits are
to those of this Agreement unless otherwise indicated; and references to
agreements and other contractual instruments shall be deemed to include all
subsequent amendments and other modifications to such instruments, but only to
the extent such amendments and other modifications are not prohibited by the
terms of this Agreement. Section headings in this Agreement are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose. Unless otherwise specified in this Agreement, all
accounting terms shall be interpreted and all accounting determinations shall be
made in accordance with GAAP. If this Agreement is executed by more than one
party as Borrower, the obligations of such persons or entities will be joint and
several.
I. Indemnity. The Borrowers agree to indemnify each of the Bank, its
directors, officers and employees and each legal entity, if any, who controls
the Bank (the "Indemnified Parties") and to hold each Indemnified Party harmless
from and against any and all claims, damages, losses, liabilities and expenses
(including, without limitation, all fees of counsel with whom any Indemnified
Party may consult and all expenses of litigation or preparation therefor) which
any Indemnified Party may incur or which may be asserted against any Indemnified
Party in connection with or arising out of the matters referred to in this
Agreement or in the other Loan Documents by any person, entity or governmental
authority (including any person or entity claiming derivatively on behalf of the
Borrowers), whether (a) arising from or incurred in connection with any breach
of a representation, warranty or covenant by any Borrower, or (b) arising out of
or resulting from any suit, action, claim, proceeding or governmental
investigation, pending or threatened, whether based on statute, regulation or
order, or tort, or contract or otherwise, before any court or governmental
authority, which arises out of or relates to this Agreement, any other Loan
Document, or the use of the proceeds of the Loan; provided, however, that the
foregoing indemnity agreement shall not apply to claims, damages, losses,
liabilities and expenses solely attributable to an Indemnified Party's gross
negligence or willful misconduct. The indemnity agreement contained in this
Section shall survive the termination of this Agreement, payment
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of any Loan and assignment of any rights hereunder. The Borrowers may
participate at its expense in the defense of any such action or claim.
J. Assignments and Participations. At any time, without any notice to
the Borrowers, the Bank may sell, assign, transfer, negotiate, grant
participations in, or otherwise dispose of all or any part of the Bank's
interest in the Loan. The Borrowers hereby authorize the Bank to provide,
without any notice to the Borrowers, any information concerning the Borrowers,
including information pertaining to the Borrowers' financial condition, business
operations or general creditworthiness, to any person or entity which may
succeed to or participate in all or any part of the Bank's interest in the Loan.
K. Governing Law and Jurisdiction. This Agreement has been delivered to
and accepted by the Bank and will be deemed to be made in the State where the
Bank's office indicated above is located. THIS AGREEMENT WILL BE INTERPRETED AND
THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH
THE LAWS OF THE STATE WHERE THE BANK'S OFFICE INDICATED ABOVE IS LOCATED,
EXCLUDING ITS CONFLICT OF LAWS RULES. The Borrowers hereby irrevocably consent
to the exclusive jurisdiction of any state or federal court for the county or
judicial district where the Bank's office indicated above is located, and
consents that all service of process be sent by nationally recognized overnight
courier service directed to the Borrowers at the Borrowers' registered addresses
or Borrowers' commercial registered office provider and service so made will be
deemed to be completed on the business day after deposit with such courier;
provided that nothing contained in this Agreement will prevent the Bank from
bringing any action, enforcing any award or judgment or exercising any rights
against any Borrower individually, against any security or against any property
of the Borrowers within any other county, state or other foreign or domestic
jurisdiction. The Bank and the Borrowers agree that the venue provided above is
the most convenient forum for both the Bank and the Borrowers. The Borrowers
waive any objection to venue and any objection based on a more convenient forum
in any action instituted under this Agreement.
L. WAIVER OF JURY TRIAL. EACH OF THE BORROWERS AND THE BANK IRREVOCABLY
WAIVES ANY AND ALL RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR CLAIM OF ANY NATURE RELATING TO THIS AGREEMENT, ANY DOCUMENTS
EXECUTED IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN
ANY OF SUCH DOCUMENTS. EACH BORROWER AND THE BANK ACKNOWLEDGE THAT THE FOREGOING
WAIVER IS KNOWING AND VOLUNTARY.
9.13. Appointment of Agent. The Borrowers shall appoint an agent such as CT
Corporation, acceptable to Bank, as its agent for the service of process on any
action or proceeding undertaken or prosecuted in connection with this Agreement
or any of the other
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<PAGE>
Loan Documents. This appointment shall not affect the Bank's right to
serve legal process in any other manner permitted by law.
9.14. Joint and Several Liability. The Obligations of each Borrower under
this Agreement, the Note and other Loan Documents are joint and several.
9.15 Confidential Information. The Bank acknowledges that the reports,
documents and other information supplied or to be supplied by the Borrowers to
the Bank pursuant to this Agreement, including without limitation, the reports,
documents and other information to be supplied pursuant to Section 3.2, are
confidential (all such reports, documents and other information are hereinafter
referred to as "Confidential Information"). Notwithstanding the foregoing,
Confidential Information shall not include any reports, documents and other
information which are, or become, generally available to the public other than
as a result of a breach of this Section 9.15 by the Bank or its respective
directors, officers, employees, representatives, agents, affiliates or
professional advisors. Without the prior written consent of the Borrowers, the
Bank shall not disclose any Confidential Information to any person or entity
other than (a) its respective directors, officers, employees, representatives,
agents, affiliates and professional advisors and then only on a "need to know"
basis (the "Permitted Persons") or (b) to, or in any filing with, any state of
federal regulatory agency to which the Bank is required to report by its charter
or by statute or regulation. The Bank shall cause all Permitted Persons to
comply with all the terms and covenants of this Section 9.15. The Bank shall
inform all Permitted Persons of the confidential nature of the Confidential
Information and shall, if requested by the Borrowers, obtain the written
agreement of all Permitted Persons to be bound by and comply with the provisions
of this Section 9.15 on the same terms and conditions as if specifically named a
party. Without limiting the generality of the foregoing, the Bank agrees that it
shall not trade in, or make recommendations concerning trades in, the common
stock or other securities of the Borrowers. The Bank acknowledges that any
breach of this Section 9.15 may cause irreparable injury to a Borrower for which
money damages could not adequately compensate. If there is such a breach, such
Borrower shall be entitled, in addition to any other rights and remedies they
may have at law or in equity, to have an injunction issued by any competent
court enjoining and restraining the breaching parties from continuing such
breach. The existence of any claim or cause of action which any of the breaching
parties may have against the Borrowers shall not constitute a defense or bar to
the enforcement of this Section 9.15. Notwithstanding the foregoing, if the Bank
is required to disclose any Confidential Information in a judicial,
administrative or governmental proceeding, the Bank will notify the Borrowers as
promptly as practicable so that the Borrowers may either seek an appropriate
protective order or relief or waive the provisions of this Section 9.15. If, in
the absence of any such protective order, relief or waiver, the Bank is
required, in the written opinion of its legal counsel, to disclose Confidential
Information to any court, governmental agency or tribunal or else stand liable
for contempt or other penalty, the Bank may disclose such Confidential
Information without liability hereunder.
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<PAGE>
Each Borrower acknowledges that it has read and understood all the provisions of
this Agreement, including the waiver of jury trial, and has been advised by
counsel as necessary or appropriate.
WITNESS the due execution hereof as a document under seal, as of the date
first written above.
[CORPORATE SEAL] NUMEREX CORP.
Attest: /s/Robert Drennen By: /s/Charles L. McNew
------------------------- ------------------------------
Print Name: Robert Drennen Print Name:
-------------------- ----------------------
Title: Senior Accountant Title:
--------------------------- ----------------------------
[CORPORATE SEAL] DCX SYSTEMS, INC.
Attest: /s/Robert Drennen By: /s/Charles L. McNew
------------------------- ------------------------------
Print Name: Robert Drennen Print Name:
-------------------- ----------------------
Title: Senior Accountant Title:
--------------------------- ----------------------------
[CORPORATE SEAL] DIGILOG INC.
Attest: /s/Robert Drennen By: /s/Charles L. McNew
------------------------- ------------------------------
Print Name: Robert Drennen Print Name: Charles L. McNew
-------------------- ----------------------
Title: Title:
--------------------------- ----------------------------
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<PAGE>
[CORPORATE SEAL] NUMEREX INVESTMENT CORP.
Attest: /s/Robert Drennen By: /s/Charles L. McNew
------------------------- ------------------------------
Print Name: Print Name:
-------------------- ----------------------
Title: Title:
--------------------------- ----------------------------
PNC BANK, NATIONAL ASSOCIATION
By: /s/Kristen Talaber
------------------------------
Print Name: Kristen Talaber
---------------------
Title: Assistant Vice President
-------------------------
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ADDENDUM
FINANCIAL COVENANTS
Debt Service Coverage Ratio. Beginning with the fiscal quarter ending January
31, 1997, the Borrowers will not permit the ratio of Operating Cash Flow to Debt
Service, calculated on a rolling basis as of the end of each fiscal quarter for
the previous four quarters, to be less than 1.10 to 1.00; provided, however,
that for the fiscal quarters ending January 31, April 30, and July 31, 1997, the
Debt Service Coverage Ratio will be measured cumulatively at quarter end for
such quarters only and not any prior quarters ending in fiscal year 1996.
Fixed Charge Coverage Ratio. The Borrowers will cause NumereX and its
Subsidiaries to maintain a Fixed Charge Coverage Ratio of at least 1.00 to 1 as
of the end of each fiscal quarter, beginning with the fiscal quarter ending
January 31, 1997.
Leverage Ratio. The Borrowers will not permit (i) the ratio of their
consolidated liabilities to their consolidated Tangible Net Worth to exceed 1.20
to 1.00 at any time or (ii) the ratio of consolidated liabilities to Tangible
Net Worth for NumereX and its Subsidiaries to exceed 1.00 to 2.00 at any time.
Tangible Net Worth. The Borrowers (i) will maintain at all times consolidated
Tangible Net Worth of at least $18,000,000 and (ii) will cause NumereX and its
Subsidiaries to maintain at all times consolidated Tangible Net Worth of at
least $32,500,000.
Operating Income. The Borrowers will not have an operating loss for any fiscal
quarter or year, except that the Borrowers may have operating losses during
fiscal 1997 so long as the cumulative amount of such losses does not exceed
$250,000 for the fiscal year ending October 31, 1997. The quarterly calculation
of operating income shall not take into account expenses of foreign Subsidiaries
of NumereX which are eliminated in the annual consolidated Financial Statements.
As used above:
"Debt Service" means the sum of scheduled principal payments of long term debt
plus interest expense, measured for Borrowers on a consolidated basis at the end
of each quarter.
"EBITDA" means consolidated net income plus non-recurring, non-cash
extraordinary items, income tax expense, interest expense, depreciation and
amortization, measured at the end of each fiscal quarter for the previous four
quarters.
"Fixed Charges" means the consolidated sum of principal payments of long term
debt, interest expense, capital expenditures, income tax expense and dividends,
measured at the end of each fiscal quarter for the previous four quarters.
"Fixed Charge Coverage Ratio" means the ratio of EBITDA to Fixed Charges.
<PAGE>
"Operating Cash Flow" means net income plus interest expense, depreciation and
amortization measured for Borrowers on a consolidated basis at the end of each
fiscal quarter.
"Tangible Net Worth" means total consolidated stockholders' equity (which shall
not include expenses of foreign Subsidiaries of NumereX which are eliminated in
the annual consolidated Financial Statements) less total consolidated net
intangible assets.
All accounting terms not otherwise defined shall be defined, and all
calculations and other determinations shall be made, in accordance with GAAP
consistently applied from period to period.
ADDITIONAL TERMS AND CONDITIONS
Pledge of Stock in Canadian Subsidiary. The equity interests in DCX Systems
Company, NumereX's existing Canadian Subsidiary, cannot be transferred because
of a provision in its charter which cannot be amended. Within ten days after the
date of this Agreement, however, NumereX will either (i) cause DCX Systems
Company to discontinue operations and form a new Canadian Subsidiary whose
shares can be transferred or (ii) amalgamate DCX Systems Company with another
Canadian Subsidiary so that the shares in the resulting company can be
transferred. In either event, within the same ten day period, NumereX will also
deliver to Bank Security Documents by which NumereX pledges 65% of the equity
interests in its ultimate Canadian Subsidiary, accompanied by a legal opinion
from Canadian counsel in form and substance satisfactory to Bank.
Release of Certain Liens. Within 30 days of the date of this Agreement,
NumereX shall provide the Bank with satisfactory evidence that Lloyds Bank has
released its charge against the property of Digital Audio Limited. In addition,
as a condition precedent to the initial advance of the Loan, NumereX shall
provide the Bank with satisfactory evidence that (a) Digital Audio Limited has
terminated its line of credit with Lloyds Bank and taken appropriate steps to
assure the release of Lloyd's charge within 30 days of the date of this
Agreement and (b) Joseph Mariano "and others" have released the charge they hold
on the property of Versus Technology Limited.
CONVERTIBLE LINE OF CREDIT NOTE
$10,000,000 February 12, 1997
FOR VALUE RECEIVED, NUMEREX CORP. AND ITS U.S. SUBSIDIARIES listed on the
signature page hereto (each individually and collectively, the "Borrower"), with
an address at Rose Tree Corporate Center II, Suite 5500, 1400 N. Providence
Road, Media, Pennsylvania 19063, jointly and severally promise to pay to the
order of PNC BANK, NATIONAL ASSOCIATION (the "Bank"), in lawful money of the
United States of America in immediately available funds at its offices located
at 1600 Market Street, Philadelphia, Pennsylvania 19103, or at such other
location as the Bank may designate from time to time, the principal sum of TEN
MILLION DOLLARS ($10,000,000) (the "Facility") or such lesser amount as may be
advanced to or for the benefit of the Borrower hereunder prior to the Conversion
Date (as hereinafter defined), together with interest accruing on the
outstanding principal balance from the date hereof, as provided below:
1. Advance Procedures. During the period from the date of this Note to and
including the Conversion Date, the Borrower may borrow, repay and reborrow
hereunder, subject to the terms and conditions of this Note and the Loan
Documents (as defined herein).
In no event shall the aggregate unpaid principal amount of advances under this
Note exceed the face amount of this Note. On the Conversion Date, the
then-outstanding principal amount of the loan hereunder may at the election of
Borrower convert to an amortizing term loan payable as set forth below provided,
that no Event of Default exists or would exist with the giving of notice or the
passage of time or both. The "Conversion Date" shall mean January 1, 1999.
Borrower must make its election to convert to an amortizing term loan no later
than sixty (60) days prior to the Conversion Date by sending written notice
(which notice shall be irrevocable) in which the Borrower shall state that it
elects to convert.
A request for advance made by telephone must be promptly confirmed in writing by
such method as the Bank may require. The Borrower authorizes the Bank to accept
telephonic requests for advances, and the Bank shall be entitled to rely upon
the authority of any person providing such instructions. The Borrower hereby
indemnifies and holds the Bank harmless from and against any and all claims,
damages, losses, liabilities, costs and expenses (including reasonable
attorneys' fees and expenses) which may arise or be created by the acceptance of
such telephone requests or making such advances, provided, however, that such
indemnification shall not apply to claims, damages, losses, liabilities, costs
and expenses solely attributable to the Bank's gross negligence or willful
misconduct. The Bank will enter on its books and records, which entry when made
will be presumed correct, the date and amount of each advance, as well as the
date and amount of each payment made by the Borrower.
<PAGE>
2. Rate of Interest; Commitment Fee. Amounts outstanding under this Note will
bear interest at either the Prime Rate Option or Euro-Rate Option, as the
Borrower may select.
Prime Rate Option: Prior to the Conversion Date, a rate per annum
("Floating Rate") which is at all times equal to the Prime Rate minus the
applicable number of basis points calculated under the "Pricing Grid" attached
as Exhibit "A".
Interest under the Prime Rate Option will be calculated on the basis of a
year of 365 or 366 days, as the case may be, and paid on the actual number of
days elapsed. As used herein, "Prime Rate" shall mean the rate publicly
announced by the Bank from time to time as its prime rate. The Prime Rate is not
tied to any external rate or index and does not necessarily reflect the lowest
rate of interest actually charged by the Bank to any particular class or
category of customers. If and when the Prime Rate changes, the Floating Rate
will change automatically without notice to the Borrower, effective on the date
of any such change. In no event will the rate of interest hereunder exceed the
maximum rate allowed by law.
Euro-Rate Option: Prior to the Conversion Date, a rate per annum equal to
the sum of the Euro-Rate plus the applicable number of basis points calculated
under the Pricing Grid, for the applicable Euro-Rate Interest Period in an
amount equal to the advance and having a comparable maturity as determined at or
about 11:00 a.m. (eastern time) two Business Days prior to the commencement of
the Euro-Rate Interest Period.
For the purpose hereof, the following terms shall have the following meanings:
"Business Day" shall mean any day other than a Saturday or Sunday or a
legal holiday on which commercial banks are authorized or required to be
closed for business in Pennsylvania.
"Euro-Rate" shall mean, with respect to any advance to which the Euro-
Rate Option applies for any Euro-Rate Interest Period, the interest rate
per annum determined by the Bank by dividing (the resulting quotient
rounded upwards, if necessary, to the nearest 1/100th of 1% per annum) (i)
the rate of interest determined by the Bank in accordance with its usual
procedures (which determination shall be conclusive absent manifest error)
to be the eurodollar rate two (2) Business Days prior to the first day of
such Euro-Rate Interest Period for an amount comparable to such advance and
having a borrowing date and a maturity comparable to such Euro-Rate
Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve
Percentage.
"Euro-Rate Interest Period" shall mean the period of one (1), two (2),
three (3) or six (6) months selected by the Borrower commencing on the date
of disbursement of an advance and each successive period selected by the
Borrower
- 2 -
<PAGE>
thereafter; provided that if a Euro-Rate Interest Period would end on a day
which is not a Business Day, it shall end on the next succeeding Business
Day, unless such day falls in the succeeding calendar month in which case
the Euro-Rate Interest Period shall end on the next preceding Business Day.
In no event shall any Euro-Rate Interest Period end on a day after the
Conversion Date (as such term is defined in the Loan Documents).
"Euro-Rate Reserve Percentage" shall mean the maximum effective
percentage in effect on such day as prescribed by the Board of Governors of
the Federal Reserve System (or any successor) for determining the reserve
requirements (including, without limitation, supplemental, marginal and
emergency reserve requirements) with respect to eurocurrency funding
(currently referred to as "Eurocurrency liabilities").
The Euro-Rate shall be adjusted with respect to any advance to which the
Euro-Rate Option applies that is outstanding on the effective date of any change
in the Euro-Rate Reserve Percentage as of such effective date. The Bank shall
give prompt notice to the Borrower of the Euro-Rate as determined or adjusted in
accordance herewith, which determination shall be conclusive absent manifest
error.
If the Bank determines (which determination shall be made in good faith and
shall be final and conclusive) that, by reason of circumstances affecting the
interbank eurodollar market generally, deposits in dollars (in the applicable
amounts) are not being offered to banks in the interbank eurodollar market for
the selected term, or adequate means do not exist for ascertaining the
Euro-Rate, then the Bank shall give notice thereof to the Borrower. Thereafter,
until the Bank notifies the Borrower that the circumstances giving rise to such
suspension no longer exist, (a) the availability of the Euro-Rate Option shall
be suspended, and (b) the interest rate for all advances then bearing interest
under the Euro-Rate Option shall be converted at the expiration of the then
current Euro-Rate Interest Period(s) to the Prime Rate Option.
In addition, if, after the date of this Note, the Bank shall determine (which
determination shall be made in good faith and shall be final and conclusive)
that any enactment, promulgation or adoption of or any change in any applicable
law, rule or regulation, or any change in the interpretation or administration
thereof by a governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by the Bank
with any guideline, request or directive (whether or not having the force of
law) of any such authority, central bank or comparable agency shall make it
unlawful or impossible for the Bank to make or maintain or fund loans under the
Euro-Rate Option, the Bank shall notify the Borrower. Upon receipt of such
notice, until the Bank notifies the Borrower that the circumstances giving rise
to such determination no longer apply, (a) the availability of the Euro-Rate
Option shall be suspended, and (b) the interest rate on all advances then
bearing interest under the Euro-Rate Option shall be converted to the Prime Rate
Option either (i) on the last day
- 3 -
<PAGE>
of the then current Euro-Rate Interest Period(s) if the Bank may lawfully
continue to maintain advances under the Euro-Rate Option to such day, or (ii)
immediately if the Bank may not lawfully continue to maintain advances under the
Euro-Rate Option.
The foregoing notwithstanding, it is understood that the Borrower may select no
more than four (4) different Euro-Rate Interest Periods (as defined above) to
apply simultaneously. Interest will be calculated on the basis of a year of 360
days for the actual number of days in each interest period. In no event will the
rate of interest hereunder exceed the maximum rate allowed by law.
From and after the Conversion Date if Borrower elects to convert, amounts
outstanding under this Note will bear interest at a rate per annum as offered by
the Bank, in its sole discretion, calculated on a 360 day basis.
Commitment Fee: Beginning on March 31, 1997 and continuing on the last day
or each calendar quarter thereafter until the Conversion Date, the Borrower
shall pay a commitment fee to Bank, in arrears, at the applicable rate per annum
calculated under the Pricing Grid on the average daily unused portion of the
facility during the calendar quarter then ending. The commitment fee shall be
computed on the basis or a year of 365 or 366 days, as the case may be, and paid
on the actual number of days elapsed.
3. Payment Terms.
(A) Prior to the Conversion Date, interest under the Prime Rate Option will
be due and payable commencing on March 1, 1997, and continuing on the first day
of each month thereafter until the Conversion Date.
(B) Prior to the Conversion Date, accrued interest under the Euro-Rate
Option will be due and payable on the last day of each Euro-Rate Interest Period
and, if such Euro-Rate Interest Period is longer than three (3) months, also on
the last day of every third month during such Euro-Rate Interest Period.
(C) From and after the Conversion Date, if Borrower so elects, principal
shall be due and payable in thirty-six (36) equal consecutive monthly
installments, each of which shall be in an amount determined by dividing the
outstanding principal amount hereunder on the Conversion Date by sixty (60),
commencing on the first day of the month following the month in which the
Conversion Date occurs, and continuing on the first day of each month thereafter
until the third anniversary of the Conversion Date, at which time a final
installment shall be payable in an amount equal to the remaining outstanding
principal balance hereunder. Interest shall be payable at the same times as the
principal payments. Any outstanding principal and accrued interest shall be due
and payable in full on the third anniversary of the Conversion Date.
- 4 -
<PAGE>
(D) If Borrower does not elect to convert, the outstanding principal
balance and any accrued but unpaid interest shall be due and payable on January
1, 1999.
If any payment under this Note shall become due on a Saturday, Sunday or public
holiday under the laws of the State where the Bank's office indicated above is
located, such payment shall be made on the next succeeding business day and such
extension of time shall be included in computing interest in connection with
such payment. The Borrower hereby authorizes the Bank to charge the Borrower's
deposit account at the Bank for any payment when due hereunder. Payments
received will be applied to charges, fees and expenses (including attorneys'
fees), accrued interest and principal in any order the Bank may choose, in its
sole discretion.
4. Late Payments; Default Rate. If the Borrower fails to make any payment of
principal, interest or other amount coming due pursuant to the provisions of
this Note within ten (10) calendar days of the date due and payable, the
Borrower also shall pay to the Bank a late charge equal to the lesser of ten
percent (10%) of the amount of such payment. Such ten day period shall not be
construed in any way to extend the due date of any such payment. The late charge
is imposed for the purpose of defraying the Bank's expenses incident to the
handling of delinquent payments and is in addition to, and not in lieu of, the
exercise by the Bank of any rights and remedies hereunder, under the other Loan
Documents or under applicable laws, and any fees and expenses of any agents or
attorneys which the Bank may employ. Upon maturity, whether by acceleration,
demand or otherwise, and at the option of the Bank upon the occurrence of any
Event of Default (as hereinafter defined) and during the continuance thereof,
this Note shall bear interest at a rate per annum (based on a year of 360 days
and actual days elapsed) which shall be two percentage points (2%) in excess of
the interest rate in effect from time to time under this Note but not more than
the maximum rate allowed by law (the "Default Rate"). The Default Rate shall
continue to apply whether or not judgment shall be entered on this Note.
5. Prepayment. Prior to the Conversion Date, (a) any indebtedness bearing
interest under the Prime Rate Option may be repaid without penalty; and (b) if
the Bank has not determined that the Euro-Rate is unavailable and Borrower
repays all or any part of any advance which is accruing interest under the
Euro-Rate Option on other than the last day of the applicable interest period,
the Borrower shall pay to Bank, on demand therefor, all amounts due pursuant to
paragraph 6 below including the Cost of Prepayment, as defined below. After the
Conversion Date, (a) if this Note bears interest at the floating rate, the
indebtedness may be prepaid in whole or in part at any time without penalty; and
(b) if this Note bears interest at a fixed rate, notwithstanding anything
contained herein to the contrary, upon any prepayment by or on behalf of the
Borrower (whether voluntary, on default or otherwise), the Bank may require, if
it so elects, the Borrower to pay the Bank as compensation for the cost of being
prepared to advance fixed rate funds hereunder an amount equal to the Cost of
Prepayment.
- 5 -
<PAGE>
6. Yield Protection. The Borrower shall pay to Bank, on written demand therefor,
together with the written evidence of the justification therefor, all direct
costs incurred, losses suffered or payments made by Bank by reason of any change
in law or regulation or its interpretation imposing any reserve, deposit,
allocation or capital, or similar requirement (including without limitation,
Regulation D of the Board of Governors of the Federal Reserve System) on the
Bank, its holding company or any of their respective assets. In addition, the
Borrower agrees to indemnify the Bank against any liabilities, losses or
expenses (including loss of margin, any loss or expense sustained or incurred in
liquidating or employing deposits from third parties acquired to effect, fund or
maintain any Advance bearing interest under the Euro-Rate Option or any part
thereof) which the Bank sustains or incurs as a consequence of either (i) the
Borrower's failure to make a payment on the due date thereof or (ii) the
Borrower's payment, prepayment or conversion of any Advance bearing interest
under the Euro-Rate Option on a day other than the last day of the applicable
Euro-Rate Interest Period including but not limited to the Cost of Prepayment.
"Cost of Prepayment" means an amount equal to the present value, if positive, of
the product of (a) the difference between (i) the yield, on the beginning date
of the applicable interest period, of a U.S. Treasury obligation with a maturity
similar to the applicable interest period minus (ii) the yield, on the
prepayment date, of U.S. Treasury obligation with a maturity similar to the
remaining maturity of the applicable interest period, and (b) the principal
amount to be prepaid, and (c) the number of years, including fractional years
from the prepayment date to the end of the applicable interest period. The yield
on any U.S. Treasury obligation shall be determined by reference to Federal
Reserve Statistical Release H.15(519) "Selected Interest Rates." For purposes of
making present value calculations, the yield to maturity of a similar maturity
U.S. Treasury obligation on the prepayment date shall be deemed the discount
rate. The Cost of Prepayment shall also apply to any payments made after
acceleration of the maturity of this Note. The Bank's determination of an amount
payable under this paragraph shall, in the absence of manifest error, be
conclusive and shall be payable on demand.
7. Other Loan Documents. This Note is issued in connection with the "Loan
Agreement" dated today among Borrower and Bank, the "Security Documents" (as
defined in the Loan Agreement), and all other documents related thereto, the
terms of which are incorporated herein by reference (the "Loan Documents").
8. Events of Default. The occurrence of any of the following events will be
deemed to be an "Event of Default" under this Note: (i) the nonpayment of any
principal, interest or other indebtedness under this Note when due; (ii) the
occurrence of any event of default or default and the lapse of any notice or
cure period under any Loan Document or any other debt, liability or obligation
to the Bank of any Obligor or any Subsidiary; (iii) the filing by or against any
Obligor or any Subsidiary of any proceeding in bankruptcy, receivership,
insolvency, reorganization, liquidation, conservatorship or similar proceeding
(and, in the case of any such proceeding instituted against any Obligor or any
Subsidiary, such proceeding is not dismissed or stayed within thirty (30) days
of
- 6 -
<PAGE>
the commencement thereof, provided that the Bank shall not be obligated to
advance additional funds during such period); (iv) any assignment by any Obligor
or any Subsidiary for the benefit of creditors, or any levy, garnishment,
attachment or similar proceeding is instituted against any property of any
Obligor or any Subsidiary held by or deposited with the Bank; (v) a default with
respect to any other indebtedness of any Obligor or any Subsidiary for borrowed
money exceeding $50,000, if the effect of such default is to cause or permit the
acceleration of such debt; (vi) the commencement of any foreclosure or
forfeiture proceeding, execution or attachment against any collateral securing
the obligations of any Obligor to the Bank; (vii) the entry of a final judgment
against any Obligor or any Subsidiary in an amount exceeding $50,000 and the
failure of such Obligor or Subsidiary to discharge the judgment within ten (10)
days of the entry thereof; (viii) in the event that this Note or any guarantee
executed by any Guarantor is secured, the failure of any Obligor to provide the
Bank with additional collateral if in the opinion of the Bank at any time or
times, the market value of any of the collateral securing this Note or any
guarantee has depreciated; (ix) any material adverse change in the business,
assets, operations, financial condition or results of operations of Obligors and
Subsidiaries in the aggregate; (x) the Borrower or any Subsidiary ceases doing
business as a going concern; (xi) the revocation or attempted revocation, in
whole or in part, of any guarantee by any Guarantor; (xii) the death or legal
incompetency of any individual Obligor or, if any Obligor is a partnership, the
death or legal incompetency of any individual general partner; (xiii) any
representation or warranty made by any Obligor to the Bank in any Loan Document,
or any other documents now or in the future securing the obligations of any
Obligor to the Bank, is false, erroneous or misleading in any material respect;
or (xiv) the failure of any Obligor to observe or perform any covenant or other
agreement with the Bank contained in any Loan Document or any other documents
now or in the future securing the obligations of any Obligor to the Bank. As
used herein, (A) the term "Obligor" means any Borrower, any "Guarantor" (meaning
any guarantor of the obligations of the Borrower to the Bank existing on the
date of this Note or arising in the future), and any "Pledgor" (meaning any
party which has pledged equity in any foreign Subsidiary of Borrower as
collateral security for this Note) and (B) the term "Subsidiary" has the meaning
given to such term is the Loan Agreement and includes all Subsidiaries of the
Borrower.
Upon the occurrence of an Event of Default: (a) the Bank shall be under no
further obligation to make advances hereunder; (b) if an Event of Default
specified in clause (iii) or (iv) above shall occur, the outstanding principal
balance and accrued interest hereunder together with any additional amounts
payable hereunder shall be immediately due and payable without demand or notice
of any kind; (c) if any other Event of Default shall occur, the outstanding
principal balance and accrued interest hereunder together with any additional
amounts payable hereunder, at the option of the Bank and without demand or
notice of any kind, may be accelerated and become immediately due and payable;
(d) at the option of the Bank, this Note will bear interest at the Default Rate
from the date of the occurrence of the Event of Default; and (e) the Bank may
exercise
- 7 -
<PAGE>
from time to time any of the rights and remedies available to the Bank under the
Loan Documents or under applicable law.
9. Power to Confess Judgment. The Borrower hereby empowers any attorney of any
court of record, after the occurrence of any Event of Default hereunder, to
appear for the Borrower and, with or without complaint filed, confess judgment,
or a series of judgments, against the Borrower in favor of the Bank or any
holder hereof for the entire principal balance of this Note, all accrued
interest and all other amounts due hereunder, together with costs of suit and an
attorney's commission of the greater of ten percent (10%) of such principal and
interest or $1,000 added as a reasonable attorney's fee, and for doing so, this
Note or a copy verified by affidavit shall be a sufficient warrant. The Borrower
hereby forever waives and releases all errors in said proceedings and all rights
of appeal and all relief from any and all appraisement, stay or exemption laws
of any state now in force or hereafter enacted. Interest on any such judgment
shall accrue at the Default Rate.
No single exercise of the foregoing power to confess judgment, or a series of
judgments, shall be deemed to exhaust the power, whether or not any such
exercise shall be held by any court to be invalid, voidable, or void, but the
power shall continue undiminished and it may be exercised from time to time as
often as the Bank shall elect until such time as the Bank shall have received
payment in full of the debt, interest and costs.
10. Right of Setoff. In addition to all liens upon and rights of setoff against
the money, securities or other property of the Borrower given to the Bank by
law, the Bank shall have, with respect to the Borrower's obligations to the Bank
under this Note and to the extent permitted by law, a contractual possessory
security interest in and a contractual right of setoff against, and the Borrower
hereby assigns, conveys, delivers, pledges and transfers to the Bank all of the
Borrower's right, title and interest in and to, all deposits, moneys, securities
and other property of the Borrower now or hereafter in the possession of or on
deposit with, or in transit to, the Bank whether held in a general or special
account or deposit, whether held jointly with someone else, or whether held for
safekeeping or otherwise, excluding, however, all IRA, Keogh, and trust
accounts. Every such security interest and right of setoff may be exercised
without demand upon or notice to the Borrower. Every such right of setoff shall
be deemed to have been exercised immediately upon the occurrence of an Event of
Default hereunder without any action of the Bank, although the Bank may enter
such setoff on its books and records at a later time.
11. Miscellaneous. No delay or omission of the Bank to exercise any right or
power arising hereunder shall impair any such right or power or be considered to
be a waiver of any such right or power, nor shall the Bank's action or inaction
impair any such right or power. The Borrower agrees to pay on demand, to the
extent permitted by law, all costs and expenses incurred by the Bank in the
enforcement of its rights in this Note and in any security therefor, including
without limitation reasonable fees and expenses of the
- 8 -
<PAGE>
Bank's counsel. If any provision of this Note is found to be invalid by a court,
all the other provisions of this Note will remain in full force and effect. The
Borrower and all other makers and indorsers of this Note hereby forever waive
presentment, protest, notice of dishonor and notice of non-payment. The Borrower
also waives all defenses based on suretyship or impairment of collateral. If
this Note is executed by more than one Borrower, the obligations of such persons
or entities hereunder will be joint and several. This Note shall bind the
Borrower and its heirs, executors, administrators, successors and assigns, and
the benefits hereof shall inure to the benefit of the Bank and its successors
and assigns.
This Note has been delivered to and accepted by the Bank and will be deemed to
be made in the State where the Bank's office indicated above is located. THIS
NOTE WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE BANK AND THE
BORROWER DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE BANK'S
OFFICE INDICATED ABOVE IS LOCATED, EXCLUDING ITS CONFLICT OF LAWS RULES. The
Borrower hereby irrevocably consents to the exclusive jurisdiction of any state
or federal court for the county or judicial district where the Bank's office
indicated above is located, and consents that all service of process be sent by
nationally recognized overnight courier service directed to the Borrower at the
Borrower's address set forth herein and service so made will be deemed to be
completed on the business day after deposit with such courier; provided that
nothing contained in this Note will prevent the Bank from bringing any action,
enforcing any award or judgment or exercising any rights against the Borrower
individually, against any security or against any property of the Borrower
within any other county, state or other foreign or domestic jurisdiction. The
Borrower acknowledges and agrees that the venue provided above is the most
convenient forum for both the Bank and the Borrower. The Borrower waives any
objection to venue and any objection based on a more convenient forum in any
action instituted under this Note.
12. WAIVER OF JURY TRIAL. THE BORROWER IRREVOCABLY WAIVES ANY ALL RIGHTS THE
BORROWER MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY
NATURE RELATING TO THIS NOTE, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS
NOTE OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE BORROWER
ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
- 9 -
<PAGE>
The Borrower acknowledges that it has read and understood all the provisions of
this Note, including the confession of judgment and waiver of jury trial, and
has been advised by counsel as necessary or appropriate.
WITNESS the due execution hereof as a document under seal, as of the date first
written above, with the intent to be legally bound hereby.
[CORPORATE SEAL] NUMEREX CORP.
Attest: /s/Robert Drennen By: /s/Charles L. McNew
------------------------- ---------------------------
Print Name: Robert Drennen Print Name: Charles L. McNew
-------------------- -------------------
Title: Title:
--------------------------- -------------------------
[CORPORATE SEAL] DCX SYSTEMS, INC.
Attest: /s/Robert Drennen By: /s/Charles L. McNew
------------------------- ---------------------------
Print Name: Robert Drennen Print Name: Charles L. McNew
-------------------- -------------------
Title: Title:
--------------------------- -------------------------
[CORPORATE SEAL] DIGILOG INC.
Attest: /s/Robert Drennen By: /s/Charles L. McNew
------------------------- ---------------------------
Print Name: Robert Drennen Print Name: Charles L. McNew
-------------------- -------------------
Title: Title:
--------------------------- -------------------------
[CORPORATE SEAL] NUMEREX INVESTMENT CORP.
Attest: /s/Robert Drennen By: /s/Charles L. McNew
------------------------- ---------------------------
Print Name: Robert Drennen Print Name: Charles L. McNew
-------------------- -------------------
Title: Title:
--------------------------- -------------------------
- 10 -
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
Pricing Grid(1)
===================================================================================================================================
LEVEL I LEVEL II
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Basis for Pricing Consolidated Net Income is less than $5,000,000 Consolidated Net Income is equal to or greater
than $5,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
Commitment Fee 25 13
- -----------------------------------------------------------------------------------------------------------------------------------
Euro-Rate plus 125 100
- -----------------------------------------------------------------------------------------------------------------------------------
Prime Rate minus 25 50
===================================================================================================================================
</TABLE>
(1) All prices are expressed in basis points per annum; basis points in
"Euro-Rate" and "Prime Rate" rows represent margins added to or subtracted
from those rates in computing the interest rate(s) payable on the amounts
outstanding under this Note. Pricing levels are determined quarterly on the
basis of the Borrower's "Consolidated Net Income" as set forth in the
compliance certificates submitted under the Loan Agreement. Changes in
pricing levels will become effective on the fifth Business Day following
the Bank's receipt of a compliance certificate indicating a change in the
Borrower's Consolidated Net Income which requires a change in pricing
level. Pricing will be at level I from the Closing Date until any change is
necessitated by the Borrower's Consolidated Net Income for the quarter
ending January 31, 1997.
(2) "Consolidated Net Income" means the consolidated net income of NumereX
Corp. and its subsidiaries measured at the end of each fiscal quarter for
the previous four fiscal quarters.
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