-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V8CrRV4xVzWI9xR2hChMcORnq6I6wTn/Zf/+a8grxOYtDGmLHV+znfCcEBJd0J13 Pb/n0jtQBNo2/RBED+dx2Q== /in/edgar/work/0001095811-00-004728/0001095811-00-004728.txt : 20001115 0001095811-00-004728.hdr.sgml : 20001115 ACCESSION NUMBER: 0001095811-00-004728 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATUM INC CENTRAL INDEX KEY: 0000027119 STANDARD INDUSTRIAL CLASSIFICATION: [3825 ] IRS NUMBER: 952512237 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-06272 FILM NUMBER: 762973 BUSINESS ADDRESS: STREET 1: 9975 TOLEDO WAY CITY: IRVINE STATE: CA ZIP: 92618 BUSINESS PHONE: 9495987500 MAIL ADDRESS: STREET 1: 9975 TOLEDO WAY CITY: IRVINE STATE: CA ZIP: 92618 10-Q 1 a67295e10-q.txt FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 ----------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to __________________. Commission file no. 0-6272 DATUM INC. (Exact name of registrant as specified in its charter) DELAWARE 95-2512237 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9975 TOLEDO WAY, IRVINE, CA 92618-1819 (Address of principal executive offices) (Zip code) (949) 598-7500 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. YES X NO --- --- The registrant had 6,052,426 shares of common stock outstanding as of November 6, 2000. 2 INDEX PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements........................................ 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 10 Item 3. Quantitative and Qualitative Disclosures about Market Risk.. 12 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K............................ 13 -2- 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DATUM INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (In thousands, except share data) (Unaudited)
SEPTEMBER 30, December 31, 2000 1999 ------------- ------------ ASSETS Current assets Cash and cash equivalents $ 1,927 $ 8,271 Accounts receivable, net 31,155 22,927 Inventories Purchased parts 12,688 8,720 Work-in-process 8,626 8,082 Finished products 4,629 5,009 ------- ------- 25,943 21,811 Prepaid expenses 684 495 Deferred income taxes 3,359 3,359 Income tax refund receivable 423 463 ------- ------- Total current assets 63,491 57,326 Plant and equipment Land 2,040 2,040 Buildings 5,330 5,210 Equipment 24,321 21,974 Leasehold improvements 1,349 1,185 ------- ------- 33,040 30,409 Less accumulated depreciation and amortization 18,586 15,650 ------- ------- 14,454 14,759 ------- ------- Excess of purchase price over net assets acquired, net 13,127 14,722 Other assets 387 975 ------- ------- $91,459 $87,782 ======= =======
See Notes to Condensed Consolidated Financial Statements -3- 4 DATUM INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (In thousands, except share data) (Unaudited)
SEPTEMBER 30, December 31, 2000 1999 ------------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 9,507 $ 6,706 Accrued salaries and wages 5,044 2,269 Accrued warranty 2,134 1,635 Other accrued expenses 1,390 1,144 Income taxes payable 1,772 553 Current portion of long-term debt 3,001 3,002 -------- -------- Total current liabilities 22,848 15,309 -------- -------- Long-term debt 2,501 11,671 -------- -------- Postretirement benefits 1,148 1,034 -------- -------- Other long-term liabilities 374 418 -------- -------- Deferred income taxes 1,030 1,030 -------- -------- Stockholders' equity Preferred stock, par value $.25 per share Authorized - 1,000,000 shares Issued - none -- -- Common stock, par value $.25 per share Authorized - 10,000,000 shares Issued - 6,043,835 shares in 2000 5,854,997 shares in 1999 1,511 1,464 Additional paid-in capital 49,647 47,709 Retained earnings 13,617 10,178 Unamortized stock compensation (183) (309) Accumulated other comprehensive loss (1,034) (722) -------- -------- Total stockholders' equity 63,558 58,320 -------- -------- $ 91,459 $ 87,782 ======== ========
See Notes to Condensed Consolidated Financial Statements -4- 5 DATUM INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------- ------------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Net Sales $ 36,197 $ 25,017 $ 98,708 $ 74,334 Operating expenses: Cost of sales 19,776 14,908 54,185 44,356 Selling 4,285 3,696 12,746 10,678 Product development 4,044 4,298 11,833 11,691 General and administrative 4,546 2,607 12,796 7,367 -------- -------- -------- -------- Operating income (loss) 3,546 (492) 7,148 242 -------- -------- -------- -------- Interest expense 186 473 1,529 1,475 Interest income (20) (97) (159) (416) -------- -------- -------- -------- Income (loss) before income taxes 3,380 (868) 5,778 (817) Income tax provision (benefit) 1,333 (248) 2,340 (228) -------- -------- -------- -------- Net income (loss) $ 2,047 $ (620) $ 3,438 $ (589) ======== ======== ======== ======== Net income (loss) per common share: Basic $ 0.34 $ (0.11) $ 0.58 $ (0.10) ======== ======== ======== ======== Diluted $ 0.32 $ (0.11) $ 0.55 $ (0.10) ======== ======== ======== ======== Shares used in per share calculation: Basic 5,977 5,770 5,913 5,615 ======== ======== ======== ======== Diluted 6,376 5,770 6,249 5,615 ======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements -5- 6 DATUM INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) (Unaudited)
Nine Months Ended September 30, ------------------------ 2000 1999 ------- -------- Cash flows from operating activities: Net income (loss) $ 3,438 $ (589) ------- -------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 3,526 2,911 Amortization of goodwill 1,595 911 Contribution of shares of common stock to the Company's 401(k) plan 572 455 Stock based compensation 229 44 Changes in assets and liabilities: Increase in accounts receivable (8,226) (4,482) Decrease in income tax refund receivable 40 332 (Increase) decrease in inventories (4,132) 2,011 Increase in prepaid expenses (189) (141) Increase in other assets 164 137 Increase in accounts payable 2,801 868 Increase in accrued expenses 3,510 205 Increase in income taxes payable 1,219 30 Increase in postretirement benefits 114 162 Decrease in other long-term liabilities (44) (603) ------- -------- Total reconciling items 1,179 2,840 ------- -------- Net cash provided by operating activities 4,617 2,251 ------- -------- Cash flows from investing activities: Proceeds from equipment disposals 51 -- Capital expenditures (2,762) (1,744) Payment for acquisition, net of cash acquired -- (2,204) Other (310) (226) ------- -------- Net cash used by investing activities (3,021) (4,174) ------- -------- Cash flows from financing activities: Reduction of line of credit -- (7) Payments of long-term debt (9,501) (3,018) Proceeds from exercise of stock options 1,352 86 Proceeds from ESP plan 209 160 ------- -------- Net cash used for financing activities (7,940) (2,779) ------- -------- Net decrease in cash and cash equivalents (6,344) (4,702) Cash and cash equivalents at beginning of period 8,271 10,307 ------- -------- Cash and cash equivalents at end of period $ 1,927 $ 5,605 ======= ========
See Notes to Condensed Consolidated Financial Statements -6- 7 DATUM INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 AND 1999 NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and, therefore, do not include all information and footnotes which would be presented were such financial statements prepared in accordance with generally accepted accounting principles. The condensed consolidated balance sheet at December 31, 1999 was derived from the audited consolidated balance sheet at that date which is not presented herein. In the opinion of management, the accompanying financial statements reflect all adjustments, which are normal and recurring, necessary to provide a fair presentation of the results for the interim period presented. These condensed consolidated financial statements should be read in conjunction with the audited financial statements presented in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. Operating results for interim periods are not necessarily indicative of operating results for an entire year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates. NOTE B - EARNINGS PER SHARE Net income per share-basic excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the reporting period. Net income per share-diluted reflects the potential dilutive effect, calculated using the treasury stock method, of additional common shares that are issuable upon exercise of outstanding stock options and stock warrants as follows (in thousands):
Three months ended Nine months ended September 30, September 30, ------------------ ----------------- 2000 1999 2000 1999 ----- ----- ----- ----- Basic shares outstanding (weighted average) 5,977 5,770 5,913 5,615 Effect of dilutive securities 399 -- 336 -- ----- ----- ----- ----- Diluted shares outstanding 6,376 5,770 6,249 5,615 ===== ===== ===== =====
Options outstanding during the three months ended September 30, 2000 to purchase approximately 9,000 shares of common stock, and options outstanding during the nine months ended September 30, 2000 to purchase approximately 46,500 shares of common stock were not included in the computation of dilutive securities because the options' exercise price was greater than the average market price of the common stock during the period and, therefore, the effect would be anti-dilutive. NOTE C - COMPREHENSIVE INCOME Total comprehensive income (loss) was $1,843,000 and $(456,000) for the three months ended September 30, 2000 and 1999, respectively. For the nine months ended September 30, 2000 and 1999, total comprehensive income (loss) was $3,126,000 and $(825,000), respectively. The difference from net income as reported is the change in cumulative translation adjustment. -7- 8 NOTE D - SEGMENT AND RELATED INFORMATION The Company has six reportable segments: Irvine, CA, Austin, TX, Beverly, MA, San Jose, CA, Lexington, MA, and Hofolding, Germany. The Irvine, CA segment produces products primarily for the wireless telecommunications market. At the Austin, TX segment, products are primarily produced for the wireline telecommunications market. At the Beverly, MA segment, Cesium standards are produced for the test and measurement, telecommunications and satellite markets. The San Jose, CA segment produces products for both the enterprise computing and test and measurement markets. The Lexington, MA segment produces products for the e-business market. The Hofolding, Germany segment produces products for the wireless and wireline telecommunications and test and measurement markets. The Company evaluates performance of its segments and allocates resources to them based on segment operating income. Segment operating income does not include corporate expenses, amortization of goodwill and intersegment profit elimination. Identifiable assets include accounts receivable, inventories, and land, building and equipment and do not include cash, income tax refund receivable and deferred income taxes, prepaid expenses, goodwill and other long-term corporate assets. The tables below present information about reported segments for the quarters ended September 30: Segment Sales (in thousands)
Irvine, Austin, San Jose, Beverly, Lexington, Hofolding, CA TX CA MA MA Germany Total -------- -------- --------- -------- ---------- ---------- -------- 2000 Total sales $ 16,070 $ 14,044 $ 3,074 $ 5,532 $ 40 $ 1,888 $ 40,648 Intersegment sales (1,693) (345) (74) (2,197) -- (142) $ (4,451) -------- -------- ------- ------- ----- ------- -------- Outside sales $ 14,377 $ 13,699 $ 3,000 $ 3,335 $ 40 $ 1,746 $ 36,197 ======== ======== ======= ======= ===== ======= ======== 1999 Total sales $ 11,326 $ 7,963 $ 3,472 $ 3,818 $ 33 $ 1,541 $ 28,153 Intersegment sales (1,520) (157) (107) (1,336) -- (16) (3,136) -------- -------- ------- ------- ----- ------- -------- Outside sales $ 9,806 $ 7,806 $ 3,365 $ 2,482 $ 33 $ 1,525 $ 25,017 ======== ======== ======= ======= ===== ======= ========
Segment Operating Income (Loss) (in thousands)
Irvine, Austin, San Jose, Beverly, Lexington, Hofolding, CA TX CA MA MA Germany Total -------- -------- --------- -------- ---------- ---------- -------- 2000 $ 3,657 $ 2,907 $ (166) $ 915 $(910) $ 102 $ 6,505 1999 $ (904) $ 1,277 $ 36 $ 422 $(273) $ 157 $ 715
A reconciliation of segment operating income to consolidated amounts as reported for the quarters ended September 30: 2000 1999 ------- ----- (in thousands) Segment operating income $ 6,505 $ 715 Corporate expenses (2,330) (587) Amortization of goodwill (717) (649) Intercompany profit (loss) elimination 88 29 ------- ----- Consolidated operating income (loss) $ 3,546 $(492) ======= ===== -8- 9 The table below presents identifiable segments assets as of September 30, 2000 compared to prior year end: IDENTIFIABLE SEGMENT ASSETS (in thousands)
Irvine, Austin, San Jose, Beverly, Lexington, Hofolding, CA TX CA MA MA Germany Total ------- ------- --------- -------- ---------- ---------- ------- September 30, 2000 $22,066 $24,722 $4,237 $14,529 $272 $3,132 $68,958 December 31, 1999 $17,126 $19,436 $4,977 $12,260 $206 $1,920 $55,925
NOTE E - RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Financial Accounting Standards No. 133 (FAS 133) "Accounting for Derivative Instruments and Hedging Activities," which defines derivatives, requires all derivatives be carried at fair value and provides for hedging accounting when certain conditions are met. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Although the Company has not fully assessed the implications of this new statement, the Company does not believe adoption of this statement will have a material impact on its financial position and results of operations. In December 1999, the Securities and Exchange Commission (the "SEC") released Staff Accounting Bulletin ("SAB") No. 101, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. The Company is required to be in conformity with the provisions of SAB 101 no later than fourth quarter 2000. The Company is continuing to assess the impact of SAB 101. -9- 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" presented in the Company's Annual Report to Stockholders on Form 10-K for the year ended December 31, 1999. INTRODUCTORY NOTE All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable at this time, it can give no assurance that such expectations will prove to have been correct. The Company makes no undertaking to correct or update any such statements in the future. Important factors that could cause actual results to differ materially from the expectations ("Cautionary Statements") are set forth in Management's Discussion and Analysis of Financial Condition and Results of Operations as well as in, or incorporated by reference in, the Annual Report on Form 10-K for the year ended December 31, 1999. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. Overview Datum designs, manufactures and markets a wide variety of high performance time and frequency products used to synchronize the flow of information in telecommunications networks. The Company is also a leading supplier of precise timing products for enterprise computing networks and a wide variety of space, scientific and industrial test and measurement applications. A small number of customers account for a substantial portion of the Company's net sales and the Company expects that a limited number of customers will continue to represent a substantial portion of net sales for the foreseeable future. There can be no assurance that a major customer will not reduce, delay or eliminate its purchases from the Company. Any such reduction, delay or loss in orders could have a material adverse effect on the Company's business, financial condition and results of operations. Results of Operations Net sales. Net sales increased $11.2 million, or 44.7%, to $36.2 million for the quarter ended September 30, 2000 from $25.0 million for the corresponding quarter in 1999. Net sales in the wireline synchronization business increased $5.9 million or 75.5%, net sales in the wireless business increased $4.6 million or 46.6% and net sales in the Cesium standard business increased $0.9 million or 34.3% for the quarter ended September 30, 2000 compared to the corresponding quarter of 1999. This was offset by net sales decreases of $0.4 million or 10.8% in the enterprise timing products business for the quarter ended September 30, 2000 compared to the corresponding quarter of 1999. For the nine months ended September 30, 2000, net sales increased $24.4 million or 32.8% compared to the first nine months of 1999. Growth in the telecommunications network infrastructure, the Company's emphasis on lower cost solutions and new products all contributed to the growth in net sales. Gross margin. Gross margin increased to 45.4% for the quarter ended September 30, 2000 from 40.4% for the corresponding quarter in 1999. For the nine months ended September 30, 2000, gross margin increased to 45.1% from 40.3% in the first nine months of 1999. The increases are primarily a result of enhanced manufacturing and development efficiencies, improved supply chain management and efficiencies gained from increases in sales. Selling expense. Selling expense increased by 15.9% to $4.3 million for the quarter ended September 30, 2000, from $3.7 million for the corresponding quarter in 1999. As a percentage of net sales, selling expense decreased to 11.8% for the quarter ended September 30, 2000 from 14.8% for the corresponding quarter in 1999. For the nine months ended September 30, 2000, selling expense increased by 19.4% to $12.7 million, from $10.7 million for the corresponding period in 1999. As a percentage of net sales, selling expense decreased to 12.9% for the nine months ended September 30, 2000 from 14.4% for the corresponding period in 1999. The decrease was -10- 11 primarily due to the increase in sales and the continued reduction in outside commissions caused by the replacement of outside sales representatives, where appropriate, with a direct sales force. Product development. Product development expense decreased slightly to $4.0 million for the quarter ended September 30, 2000 from $4.3 million in 1999. As a percentage of net sales, product development expense decreased to 11.2% for the quarter ended September 30, 2000 from 17.2% for the corresponding quarter of 1999. For the nine months ended September 30, 2000, product development expense increased 1.2% to $11.8 million from $11.7 million in the corresponding period in 1999. As a percentage of net sales, product development expense decreased to 12.0% for the nine months ended September 30, 2000 from 15.7% for the corresponding period of 1999. The spending reflects the continual emphasis on new product design and enhancement of current products. General and administrative. General and administrative expense increased 74.4% to $4.5 million for the quarter ended September 30, 2000, from $2.6 million for the corresponding quarter of 1999. Goodwill amortization from the July 1999 Digital Delivery acquisition and other Digital Delivery general and administrative expense is responsible for $379,000 of the increase. The balance of the change was caused primarily by incentive accruals and a $517,000 charge related to the relocation of several product lines from San Jose to Massachusetts. As a percentage of net sales, general and administrative expense increased to 12.6% for the quarter ended September 30, 2000, from 10.4% for the corresponding quarter of 1999. For the nine months ended September 30, 2000, general and administrative expense increased 74.4% to $12.8 million, or 13.0% of net sales, from $7.4 million, or 9.9% of net sales for the corresponding period in 1999. Interest, net. Net interest expense decreased by $210,000 to $166,000 for the quarter ended September 30, 2000 from $376,000 for the corresponding quarter of 1999. For the nine months ended September 30, 2000, net interest expense increased $0.3 million to $1.4 million from $1.1 million for the corresponding period in 1999. The increase in year to date net interest expense is a result of lower interest income and the write-off of unamortized debt expense in the quarter ended June 30, 2000 in relation to the Company's refinancing of its debt. Shares outstanding. Shares outstanding increased for the quarter ended September 30, 2000 as a result of shares issued through the Company's 401(k), Employee Stock Purchase Plan and incentive stock option plans. Liquidity and Capital Resources On July 6, 2000, the Company refinanced its debt. The balance of the Series A and Series B notes were paid off in full and replaced with a $6 million term loan payable in monthly principal installments of $250,000 plus interest beginning August 1, 2000. The interest rate on the $6 million term loan is fixed at 9.15%. The Company has a secured credit facility at an amount not to exceed $10 million, under which no amounts were outstanding as of September 30, 2000. The facility expires in June 2001. The Company believes that its cash and credit facilities are adequate to fund the Company's operations for the foreseeable future. Cash provided by operations was approximately $4.6 million for the nine months ended September 30, 2000 compared to cash provided by operations of $2.3 million for the corresponding period of 1999. Cash flows were positively affected in the third quarter of 2000 by slight increases in inventory levels and accounts receivable balances relative to sales, and increases in accounts payable and accrued expense. Cash used in investing activities was approximately $3.0 million for the nine months ended September 30, 2000 compared to $4.2 million for the corresponding period of 1999. Cash used in financing activities was approximately $7.9 million for the nine months ended September 30, 2000 compared to $2.8 million for the corresponding nine months of 1999. This was the result of refinancing the Company's debt in the third quarter of 2000. Accounts receivable increased $8.2 million to $31.2 million at September 30, 2000 from $22.9 million at December 31, 1999 due to increased shipments in the wireline and wireless businesses during the latter half of the third quarter of 2000 compared to the latter half of the fourth quarter of 1999. -11- 12 Inventories increased $4.1 million to $25.9 million at September 30, 2000 from $21.8 million at December 31, 1999, as a result of the continued increase in bookings during the third quarter of 2000. Accounts payable increased $2.8 million to $9.5 million at September 30, 2000 from $6.7 million at December 31, 1999. This was a result of increased inventory purchases to support increased sales volume during the quarter ended September 30, 2000 in the wireless and wireline businesses compared to the quarter ended December 31, 1999. At September 30, 2000, the Company had working capital of $40.7 million and a current ratio of 2.8:1 compared to working capital of $42.0 million and a current ratio of 3.7:1 at December 31, 1999. The decrease is primarily due to the decrease in cash as a result of the debt refinancing. Information Regarding Potential Fluctuations in Quarterly Operating Results The Company has experienced, and expects to continue to experience, fluctuations in sales and operating results from quarter to quarter. As a result, the Company believes that period-to-period comparisons of its operating results are not necessarily meaningful, and that such comparisons cannot be relied upon as indicators of future performance. A significant component of the fluctuations results from rescheduling of orders by the Company's major customers, in some cases due in part to the customers' attempts to minimize inventories. Other factors that could cause the Company's sales and operating results to vary significantly from period to period include: contractual price reductions on products sold to certain major customers; the timing, availability and sale of new products; changes in the mix of products with differing gross margins; variations in manufacturing capacities, efficiencies and costs; the availability and cost of components; warranty expenses; and variations in product development and other operating expenses. In addition, the sales cycles for many of the products are often lengthy and unpredictable, and can take up to 36 months. Further, there can be no assurance that the Company will be successful in closing large transactions on a timely basis or at all. The timing of these transactions could cause additional variability in the Company's operating results. The Company's quarterly results of operations are also influenced by competitive factors, including pricing and availability of the Company's and competing companies' time and frequency products. Large portions of the Company's expenses are fixed and difficult to reduce in a short period of time. If net sales do not meet the Company's expectations, the Company's fixed expenses would exacerbate the effect of such net sales shortfall. Furthermore, announcements by the Company or its competitors regarding new products and technologies could cause customers to defer purchases of the Company's products. Order deferrals by the Company's customers, purchase policy changes, delays in the Company's introduction of new products and longer than anticipated sales cycles for the Company's products have in the past materially adversely affected the Company's quarterly results of operations. Due to the foregoing factors, as well as other unanticipated factors, it is likely that in some future quarter the Company's operating results will be below the expectations of public market analysts or investors. In such event, the price of the Company's common stock would be materially adversely affected. Item 3. Quantitative and Qualitative Disclosures about Market Risk. There has been no material change from the disclosure regarding market risk contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 1999. -12- 13 PART II. OTHER INFORMATION Items 1 through 5 have been omitted because the related information is either inapplicable or has been previously reported. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.53 Second Amended and Restated Credit Agreement, dated as of July 7, 2000, by and between the Registrant and Wells Fargo Bank, National Association. 10.54 Third Amended and Restated Revolving Line of Credit Note, date July 7, 2000, issued by the Registrant in favor of Wells Fargo Bank, National Association. 10.55 Term Note, dated July 7, 2000, issued by the Registrant in favor of Wells Fargo Bank, National Association. 27 Financial Data Schedule (b) No reports on Form 8-K were filed with the Securities and Exchange Commission during the quarter ended September 30, 2000 -13- 14 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATUM INC. /s/ Erik H. van der Kaay Date November 13, 2000 - ----------------------------------- ----------------------- Erik H. van der Kaay, President and Chief Executive Officer /s/ Robert J. Krist Date November 13, 2000 - ----------------------------------- ----------------------- Robert J. Krist, Vice President and Chief Financial Officer -14- 15 EXHIBIT INDEX Exhibit No. Description - ------- ----------- 10.53 Second Amended and Restated Credit Agreement, dated as of July 7, 2000, by and between the Registrant and Wells Fargo Bank, National Association. 10.54 Third Amended and Restated Revolving Line of Credit Note, date July 7, 2000, issued by the Registrant in favor of Wells Fargo Bank, National Association. 10.55 Term Note, dated July 7, 2000, issued by the Registrant in favor of Wells Fargo Bank, National Association. 27 Financial Data Schedule EX-10.53 2 a67295ex10-53.txt EXHIBIT 10.53 1 EXHIBIT 10.53 SECOND AMENDED AND RESTATED CREDIT AGREEMENT THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of July 7, 2000, by and between DATUM INC., a Delaware corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITALS A. Borrower and Bank have executed and entered into an Amended and Restated Credit Agreement dated as of September 27, 1996, which Amended and Restated Credit Agreement heretofore has been amended from time to time, including amendments evidenced by (i) that certain First Amendment to Amended and Restated Credit Agreement dated as of October 30, 1998, (ii) that certain Second Amendment to Amended and Restated Credit Agreement dated as of December 18, 1998 and (iii) that certain Third Amendment to Amended and Restated Credit Agreement dated as of June 15, 1999 (as so amended, the "Existing Credit Agreement"). The Existing Credit Agreement amended and restated that certain Credit Agreement dated as of December 16, 1994 between Borrower and Bank. B. Pursuant to the Existing Credit Agreement, Borrower has executed and delivered to the order of Bank that certain Amended and Restated Revolving Line of Credit Note dated June 15, 1999 in the original principal amount of up to $10,000,000.00 (the "Existing Note"). C. Concurrently with Borrower's execution and delivery to Bank of the Existing Credit Agreement, Borrower entered into that certain Note and Warrant Purchase Agreement dated as of September 27, 1996 (as amended, the "Note Agreement") with The Prudential Insurance Company of America ("Prudential"), pursuant to which Borrower issued its Series A Secured Notes and Series B Secured Notes (collectively, the "Prudential Notes"). Bank, together with Borrower, Efratom, Austron, Systems, the holders of the Prudential Notes (the "Noteholders") and Wells Fargo Bank, National Association, as collateral agent ("Collateral Agent") for Bank and the Noteholders, entered into an Intercreditor and Collateral Agency Agreement dated as of September 27, 1996 (as amended, the "Intercreditor Agreement") which provided for, among other things, the appointment of the Collateral Agent and the application of payments received by the Collateral Agent with respect to the obligations owing to Bank and the Noteholders. D. In connection with the credit accommodations made by Bank pursuant to the Existing Credit Agreement and the Existing Note, Borrower and its Subsidiaries have executed and delivered to Collateral Agent or Bank, as applicable, numerous other loan and security documents, including the "Existing Collateral Documents" (as defined below), the "Existing Guaranty" (as defined below), letter of credit agreements and the like. Such documents, together with the Existing Credit Agreement and the Existing Note are collectively referred to herein as the "Existing Loan Documents." 2 E. Borrower has represented to Bank that Borrower desires to repay in full the indebtedness evidenced by the Prudential Notes and to terminate the Note Agreement. Bank is willing to amend the Existing Credit Agreement and the other Existing Loan Documents to reflect the termination of the credit facilities provided pursuant to the Note Agreement, the termination of the Intercreditor Agreement and certain other modifications agreed to between Borrower and Bank. F. This Agreement is intended by Borrower and Bank as an amendment and restatement of the Existing Credit Agreement as of the "Effective Date" (as defined below). To the extent not repaid on the Effective Date, amounts outstanding under the Existing Note shall be deemed to be outstanding hereunder and evidenced by the "Line of Credit Note" (as defined below). NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as follows: ARTICLE 1. DEFINITIONS AND INTERPRETATION Section 1.1. DEFINED TERMS. The following definitions are in addition to those stated elsewhere in this Agreement: "Advance" means an advance under the Line of Credit. "Austron" means Austron, Inc., a Texas corporation. "Borrowing Base" means, as of any date of determination, an amount determined by Bank with reference to the most recent Borrowing Base Certificate to be equal to the Eligible Receivables Component; provided, however, that if on such date the most recent Borrowing Base Certificate is as of a date more than 60 days prior to such date, the Borrowing Base shall mean such amount as may be determined by Bank in its sole discretion. "Borrowing Base Certificate" means a borrowing base certificate in the form of Exhibit A, properly completed and executed by an officer of Borrower, on behalf of all of the Borrowing Base Parties. "Borrowing Base Parties" means, for purposes of determining the Borrowing Base and for certain reporting requirements, Borrower, Austron, Efratom, Systems and Digital. "Collateral" means all property, real or personal, in which Bank is granted a Lien in accordance with this Agreement and the other Loan Documents. "Credit" means the credit accommodation described in Article 2 hereof. 2 3 "Digital" means Digital Delivery, Inc., a Massachusetts corporation. "Efratom" means Efratom Time and Frequency Products, Inc., a Colorado corporation. "Eligible Receivables" means, as of any date of determination, accounts receivable of the Borrowing Base Parties as to which Bank holds a first priority perfected Lien, provided that such accounts receivable have been created in the ordinary course of business of such Borrowing Base Parties, as applicable, and shall not include: (a) any account which is past due more than twice the applicable Borrowing Base Party's standard selling terms, except with respect to any account for which a Borrowing Base Party has provided extended payment terms not to exceed one hundred eighty (180) days, any such account which is more than thirty (30) days past due; (b) any account with respect to which payment is or may be contingent or conditional in any respect; (c) any account for which there exists any right of setoff, defense or discount (except regular discounts allowed in the ordinary course of business to promote prompt payment) or for which any defense or counterclaim has been asserted; (d) to the extent such accounts exceed ten percent (10%) of the Borrowing Base Parties' total Eligible Receivables, accounts representing obligations of state or municipal governments or of the United States government or political subdivisions thereof unless such accounts represent obligations of the United States government and Bank's forms N-138 and N-139 have been duly executed and acknowledged with respect thereto; (e) to the extent such accounts exceed five percent (5%) of the Borrowing Base Parties' total Eligible Receivables, accounts representing obligations of account debtors located in foreign countries, except to the extent any such account, in Bank's determination, is supported by a letter of credit or insured under a policy of foreign credit insurance, in each case in form, substance and issued by a party acceptable to Bank; (f) any account which arises from the sale or lease to or performance of services for, or represents an obligation of, an employee, affiliate, partner, member, parent or Subsidiary of any Borrowing Base Party; (g) that portion of any account which represents interim or progress billings or retention rights on the part of the account debtor; 3 4 (h) any account which represents an obligation of any account debtor when twenty percent (20%) or more of the combined accounts owing from such account debtor to the Borrowing Base Parties are not eligible pursuant to item (a) above; (i) that portion of any account from an account debtor other than Lucent Technologies Inc. (successor to AT&T Corp.) ("Lucent") which represents the amount by which the Borrowing Base Parties' total accounts from said account debtor on a combined basis exceeds twenty-five percent (25%) of the Borrowing Base Parties' total accounts on a combined basis; that portion of any account from Lucent which represents the amount by which the Borrowing Base Parties' total accounts from Lucent exceeds thirty-five percent (35%) of the Borrowing Base Parties' total accounts on a combined basis; and/or (j) any account deemed ineligible by Bank when Bank, in its sole discretion, deems the creditworthiness or financial condition of the account debtor, or the industry in which the account debtor is engaged, to be unsatisfactory. "Eligible Receivables Component" means, in calculating the Borrowing Base (but subject to Section 2.1(b)), eighty percent (80%) of the aggregate book value of the Borrowing Base Parties' then existing Eligible Receivables, as determined by Bank upon receipt and review of such collateral reports and other documents as Bank may require. "Existing Collateral Documents" means, collectively, the Existing Security Agreements, Tozer Road Mortgage Documents, and Vision Drive Mortgage, in each case as the same may from time to time have been amended, supplemented, restated or otherwise modified. "Existing Guaranty" means the Amended, Restated and Consolidated Guaranty dated as of September 27, 1996 by Austron, Efratom and Systems in favor of the Collateral Agent for the purpose of guarantying, among other things, Borrower's obligations under the Existing Credit Agreement and Existing Note and Borrower's obligations under the Note Agreement and the Prudential Notes. "Existing Letters of Credit" means the existing Letters of Credit described in Section 2.1(d). "Existing Security Agreements" means, collectively, the security agreements, pledge agreements, assignments, UCC-1 financing statements, fixture filings, consents and other collateral security documents heretofore executed and delivered to Bank in connection with the Existing Credit Agreement granting Liens to Collateral Agent, or perfecting, effecting, facilitating, consenting to, providing notice of, or otherwise evidencing such Liens, in each case as the same may have been amended, supplemented, restated or otherwise modified. "Guarantors" means, collectively, Austron, Efratom, Systems, Digital and any other person or entity which at any time furnishes Bank (or Collateral Agent, on Bank's behalf) with a guaranty in accordance with this Agreement. 4 5 "Letter of Credit" or "Letters of Credit" means any one or more of the standby letters of credit described in Section 2.1(d). "Leverage Ratio" shall have the meaning specified for such term in Section 5.9(b). "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, affecting any property, including any agreement to grant any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature of a security interest, and/or the filing of or agreement to give any financing statement (other than a precautionary financing statement with respect to a lease that is not in the nature of a security interest) under the Uniform Commercial Code or comparable law of any jurisdiction with respect to any property. "Line of Credit" means the revolving line of credit described in Section 2.1(a). "Line of Credit Note" means the promissory note described in Section 2.1(a). "Line of Credit Termination Date" means June 15, 2001. "Loans" means, collectively, the Line of Credit and the Term Loan. "Loan Documents" shall have the meaning set forth for such term in Section 3.2. "Loan Party" means Borrower, Austron, Efratom, Systems, Digital, any other Guarantor, any other person or entity which at any applicable time furnishes Bank with any Collateral and any other person or entity which at any applicable time becomes a party to any of the Loan Documents. "Real Property Collateral" means, as of any date of determination, the real property owned by the Borrowing Base Parties in which the Bank has a first priority perfected Lien. As of the Effective Date, the Real Property Collateral consists solely of the Tozer Road Property and the Vision Drive Property. "Subsidiary" means any corporation fifty percent (50%) or more of whose securities having ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) are at any applicable time owned, directly or indirectly, by Borrower and/or one or more Subsidiaries of Borrower. "Systems" means Frequency & Time Systems, Inc., a Delaware corporation. "Term Loan" shall mean the term loan described in Section 2.2 hereof. "Term Note" shall have the meaning set forth in Section 2.2 hereof. 5 6 "Tozer Road Mortgage Documents" means, collectively, (a) the Mortgage Deed and Security Agreement dated March 17, 1995, executed by Systems in favor of Bank and recorded April 21, 1995 in Book 12992, Page 70, with the Essex South Registry of Deeds, Essex County, Massachusetts, and filed as Document No. 307740 with the Essex South Registry District of the Land Court, Essex County, Massachusetts and (b) the Collateral Assignment of Leases and Rents dated March 17, 1995, executed by Systems in favor of Bank and recorded April 21, 1995, in Book 12992, Page 89, with the Essex South Registry of Deeds, Essex County, Massachusetts, and filed as Document No. 307741 with Essex South Registry District of the Land Court, Essex County, Massachusetts. "Tozer Road Real Property" means that certain real property owned by Systems located in the City of Beverly, County of Essex, State of Massachusetts, more particularly described in Exhibit A to the Tozer Road Mortgage. "Vision Drive Mortgage" means that certain Deed of Trust, Assignment of Rents and Security Agreement dated March 17, 1995, executed by Austron in favor of Bank and recorded March 20, 1995, in the real property records of Travis County, Texas in Volume 12397, Page 1130. "Vision Drive Real Property" means that certain real property owned by Austron located in the City of Pflugerville, County of Travis, State of Texas, more particularly described in Exhibit A to the Vision Drive Mortgage. Section 1.2. SINGULAR AND PLURAL TERMS. Any defined term used in the plural in any Loan Document shall refer to all members of the relevant class and any defined term used in the singular shall refer to any number of the members of the relevant class. Section 1.3. ACCOUNTING PRINCIPLES. Any accounting term used and not specifically defined in any Loan Document shall be construed in conformity with, and all financial data required to be submitted under any Loan Document shall be prepared in conformity with, generally accepted accounting principles applied on a consistent basis. Section 1.4. EXHIBITS INCORPORATED. All exhibits to this Agreement, as now existing and as the same may from time to time be modified, are incorporated herein by this reference. Section 1.5. REFERENCES. Any reference to any Loan Document or other document shall include such document both as originally executed and as it may from time to time be supplemented, modified, amended, restated or extended. References herein to Articles, Sections and Exhibits shall be construed as references to this Agreement unless a different document is named. References to subparagraphs shall be construed as references to the same Section in which the reference appears. Section 1.6. OTHER TERMS. The term "document" is used in its broadest sense and encompasses agreements, certificates, opinions, consents, instruments and other written material of every kind. The terms "including" and "include" mean "including (include) without limitation." The requirement that any party "deliver" any item to another party shall be 6 7 construed to require that the first party "deliver or cause to be delivered" such item to the second party. The term "any," as a modifier to any noun, shall be construed to mean "any and/or all" preceding the same noun in the plural. The terms "modify" and "modification," when used with reference to any document or obligation, include amendments, supplements, renewals, extensions, waivers, terminations and other modifications of every kind. The terms "law" and "laws," unless otherwise modified, mean, collectively, all federal, state and local laws, rules, regulations, codes and administrative and judicial precedents. The terms "herein," "hereunder" and other similar compounds of the word "here" refer to the entire document in which the term appears and not to any particular provision or section of the document. This Section 1.6 shall apply to all of the Loan Documents. Section 1.7. HEADINGS. Article and section headings are included in the Loan Documents for convenience of reference only and shall not be used in construing the Loan Documents. ARTICLE 2. THE CREDITS Section 2.1. LINE OF CREDIT. 2.1.0.0.0.1. Line of Credit. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make Advances to Borrower from time to time up to and including the Line of Credit Termination Date, not to exceed at any time the aggregate principal amount of Ten Million and No/100 Dollars ($10,000,000.00)("Line of Credit"), the proceeds of which shall be used to repay the Prudential Notes and for general working capital purposes. Borrower's obligation to repay Advances under the Line of Credit shall be evidenced by a promissory note substantially in the form of Exhibit B attached hereto ("Line of Credit Note"), all terms of which are incorporated herein by this reference. 2.1.0.0.0.2. Limitation on Borrowings. Notwithstanding any other provision of this Agreement, the aggregate amount of all outstanding borrowings under the Loans shall at no time exceed the Borrowing Base as determined by Bank. 2.1.0.0.0.3. Borrowing and Repayment. Borrower may from time to time during the term of the Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Line of Credit Note; provided, however, that the total outstanding borrowings under the Loans shall not at any time exceed the maximum principal amount available thereunder, as set forth in this Agreement, and Borrower shall immediately repay the amount, if any, by which the total outstanding borrowings under the Loans exceeds such maximum available principal amount. 2.1.0.0.0.4. Letter of Credit Subfeature. 7 8 2.1.0.0.0.4.1. As a subfeature under the Line of Credit, Bank agrees from time to time up to and including the Line of Credit Termination Date to issue standby letters of credit for the account of Borrower (each, a "Letter of Credit" and collectively, "Letters of Credit"); provided, however, that the form and substance of each Letter of Credit shall be subject to approval by Bank, in its sole discretion, and provided further, that the aggregate undrawn amount of all outstanding Letters of Credit under this subfeature shall not at any time exceed Five Hundred Thousand Dollars ($500,000.00). Each Letter of Credit shall be issued for a term not to exceed three hundred sixty-five (365) days, as designated by Borrower; provided, however, that no Letter of Credit under this subfeature shall have an expiration date subsequent to June 15, 2002 unless otherwise approved by Bank. 2.1.0.0.0.4.2. The undrawn amount of all Letters of Credit under this subfeature shall be reserved under the Line of Credit and shall not be available for Advances thereunder. Each Letter of Credit shall be subject to the additional terms and conditions of the Letter of Credit Agreement and related documents, if any, required by Bank in connection with the issuance of such Letter of Credit (each individually, a "Letter of Credit Agreement" and collectively, "Letter of Credit Agreements"). Each draft paid by Bank under a Letter of Credit under this subfeature (including under the "Existing Letters of Credit", as such term is defined below) shall be deemed an Advance under the Line of Credit and shall repaid in accordance with the terms and conditions of this Agreement applicable to such Advances; provided, however, that if the Line of Credit is not available, for any reason whatsoever, at the time any draft is paid by Bank, or if Advances are not available under the Line of Credit at such time due to any limitation on borrowings set forth herein, then the full amount of such draft shall be immediately due and payable, together with interest thereon, from the date such amount is paid by Bank to the date such amount is fully repaid by Borrower at the rate of interest applicable to Advances under the Line of Credit. In such event Borrower agrees that Bank, in its sole discretion, may debit any demand deposit account maintained by Borrower with Bank for the amount of any draft. As of the Effective Date, there are Letters of Credit outstanding in the face amount of (A) One Hundred Twenty Thousand Dollars ($120,000.00) in favor of PT Aditech Matra and (B) Eighteen Thousand Sixty-Nine Dollars and Forty-Five Cents ($18,069.45) in favor of China Unicom Import/Export Company Limited (collectively, the "Existing Letters of Credit"); however, there are no outstanding drafts or Advances paid under this subfeature by Bank. The face amount of the Existing Letters of Credit shall be deemed to be outstanding under this subfeature subject to all terms and conditions applicable hereto. 8 9 Section 2.2. TERM LOAN. (a) Term Loan. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make a loan to Borrower in the principal amount of Six Million and No/100 Dollars ($6,000,000.00)("Term Loan"), the proceeds of which shall be used to repay the Prudential Notes. Borrower's obligation to repay the Term Loan shall be evidenced by a promissory note substantially in the form of Exhibit C attached hereto ("Term Note"), all terms of which are incorporated herein by this reference. Lender's commitment to grant the Term Loan shall terminate on the date of execution of this Agreement. (b) Limitation on Borrowings. Notwithstanding any other provision of this Agreement, the aggregate amount of all outstanding borrowings under the Loans shall at no time exceed the Borrowing Base as determined by Bank. (c) Repayment. The principal amount of the Term Loan shall be repaid in accordance with the provisions of the Term Note; provided, however, that Borrower shall immediately repay the amount, if any, by which the total outstanding borrowings under the Loans exceeds the maximum principal amount available thereunder, as set forth in this Agreement. (d) Prepayment. Borrower may prepay principal on the Term Loan solely in accordance with the provisions of the Term Note. Section 2.3. LIMITATION ON BORROWINGS. With respect to Section 2.1(b) and Section 2.2(b), Borrower acknowledges and agrees that Bank may from time to time, in its sole and absolute discretion (i) establish such reserves against the various components of the Borrowing Base as Bank deems necessary and proper and (ii) increase or decrease the percentage applicable to any Borrowing Base component. Without in any way limiting the foregoing, Borrower acknowledges that the advance rate against Eligible Receivables was established by Bank with the understanding that, among other items, the aggregate of all returns, rebates, discounts, credits and allowances for the immediately preceding three (3) months at all times shall be less than five percent (5%) of the Borrowing Base Parties' aggregate gross sales for said period. If such dilution of such accounts of the Borrowing Base Parties for the immediately preceding three (3) months at any time exceeds five percent (5%) of the Borrowing Base Parties' aggregate gross sales for said period, or if there at any time exists any other matter, event, condition or contingency that Bank reasonably believes may affect payment of any portion of the Borrowing Base Parties' accounts, Bank, in its sole discretion, may reduce said advance rate to a percentage appropriate to reflect such additional dilution and/or establish additional reserves against the Borrowing Base Parties' Eligible Receivables. 9 10 Section 2.4. INTEREST/FEES. 2.4.0.0.0.1. Interest. The outstanding principal balances of the Line of Credit and the Term Loan shall bear interest at the rate(s) of interest set forth in the Line of Credit Note and the Term Note, respectively. 2.4.0.0.0.2. Computation and Payment. Interest shall be computed on the basis of a 360-day year, actual days elapsed. Interest shall be payable at the times and places set forth in the Line of Credit Note and the Term Note. 2.4.0.0.0.3. Line of Credit Fee. On or before the Effective Date, Borrower shall pay to Bank a nonrefundable line of credit fee equal to Ten Thousand Dollars ($10,000.00). 2.4.0.0.0.4. Term Loan Fee. On or before the Effective Date, Borrower shall pay to Bank a non-refundable term loan fee equal to Fifteen Thousand Dollars ($15,000.00). 2.4.0.0.0.5. Unused Commitment Fee. From and after the Effective Date, Borrower shall pay to Bank a commitment fee equal to one-half percent (0.50%) per annum times the average daily unused portion of the Line of Credit. Such commitment fee shall be payable quarterly in arrears on the last day of each calendar quarter and on the Line of Credit Termination Date. 2.4.0.0.0.6. Letter of Credit Fees. Borrower shall pay to Bank fees upon the issuance of each Letter of Credit, upon the payment or negotiation by Bank of each draft under any Letter of Credit and upon the occurrence of any other activity with respect to any Letter of Credit (including the transfer, amendment or cancellation of any Letter of Credit) determined in accordance with Bank's standard fees and charges then in effect for such activity. In addition to the foregoing Borrower shall pay to Bank a standby Letter of Credit fee in connection with standby Letter(s) of Credit issued hereunder equal to two percent (2.0%) per annum (computed on the basis of a 360-day year, actual days elapsed) of the amount of such Letter(s) of Credit. Such fees shall be payable upon the issuance of each such standby Letter of Credit. Section 2.5. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all principal, interest and fees due under the Line of Credit and with respect to the Term Loan by charging Borrower's demand deposit account number 4643-084544 with Bank, or any other demand deposit account maintained by Borrower with Bank, for the full amount thereof. Should there be insufficient funds in any such demand deposit account to pay all such sums when due, the full amount of such deficiency shall be immediately due and payable by Borrower. Section 2.6. FAILURE TO CHARGE NOT SUBSEQUENT WAIVER. Any decision by Bank not to require payment of any interest (including default interest), fee, cost 10 11 or other amount payable under any "Loan Document" (as defined below) upon any occasion shall in no way limit or be deemed a waiver of Bank's right to require full payment of any interest (including default interest), fee, cost or other amount payable under any Loan Document on any other or subsequent occasion. Section 2.7. COLLATERAL. 2.7.0.0.0.1. Borrower Collateral. As security for all indebtedness of Borrower to Bank under this Agreement and the other Loan Documents, Borrower hereby grants to Bank Liens of first priority in all Borrower's personal property, including all accounts, rights to payment, general intangibles (including patents and patent applications), chattel paper, deposit accounts, instruments, documents, inventory, equipment, furniture, fixtures and products and proceeds of all of the foregoing. 2.7.0.0.0.2. Subsidiary Collateral. As further security for all indebtedness of Borrower to Bank under this Agreement and the other Loan Documents, Borrower shall cause: 2.7.0.0.0.2.1. Austron, Efratom, Systems and Digital to grant to Bank Liens of first priority in all of their respective personal property including all accounts, rights to payment, general intangibles (including patents and patent applications), chattel paper, deposit accounts, instruments, inventory, equipment, furniture, fixtures and products and proceeds of all of the foregoing; 2.7.0.0.0.2.2. Austron to grant to Bank a Lien of not less than first priority on the Vision Drive Real Property (which Lien shall secure only Austron's obligations under its guaranty to Bank); and 2.7.0.0.0.2.3. Systems to grant to Bank a Lien of not less than first priority on the Tozer Road Real Property (which Lien shall secure only Systems' obligations under its guaranty to Bank). 2.7.0.0.0.3. Documentation; Reimbursement of Costs. All of the foregoing shall be evidenced by and subject to the terms of such deeds of trust, mortgages, security agreements, pledge agreements, assignments, financing statements and other documents as Bank shall reasonably require, all in form and substance satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand for all costs and expenses incurred by Bank in connection with any of the foregoing security, including filing and recording fees and costs of appraisals, audits and title insurance. Section 2.8. GUARANTIES. All indebtedness of Borrower to Bank under this Agreement and the other Loan Documents, shall be guaranteed by each of the Guarantors, as evidenced by and subject to the terms of one or more guaranties in form and substance satisfactory to Bank. 11 12 Section 2.9. LOAN ADMINISTRATION. From and after the Effective Date, Bank may establish certain procedures and administrative requirements to be satisfied from time to time by Borrower in connection with Borrower's requests for Advances and the issuance of Letters of Credit under the Line of Credit and the administration of the Term Loan. Such procedures may include the periodic submission of information not otherwise described herein. In connection with the foregoing and, in particular, with respect to the periodic calculation of the Borrowing Base and the various components thereof, Borrower acknowledges that Bank may conduct periodic audits and appraisals of the Collateral, at such intervals as Bank may reasonably require and that such audits and appraisals may be performed by employees of Bank or by independent parties. The costs and expenses of such loan monitoring and administration, including audits and appraisals, shall be reimbursed by Borrower upon demand by Bank. ARTICLE 3. REPRESENTATIONS AND WARRANTIES Borrower makes the following representations and warranties to Bank, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Bank subject to this Agreement. Section 3.1. LEGAL STATUS. Borrower is a corporation, duly organized and existing and in good standing under the laws of the State of Delaware, and is qualified or licensed to do business (and is in good standing as a foreign corporation, if applicable) in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a material adverse effect on Borrower. Austron, Efratom, Systems and Digital are corporations, duly organized and existing and in good standing under the laws of their state of incorporation, and are qualified or licensed to do business (and are in good standing as foreign corporations, if applicable) in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a material adverse effect on any of them. Section 3.1. AUTHORIZATION AND VALIDITY. This Agreement, the Line of Credit Note, the Term Note and each other document, contract and instrument required hereby or at any time hereafter delivered to Bank in connection herewith (collectively and, in each case either as originally executed or as the same may from time to time be amended, supplemented, restated or otherwise modified, the "Loan Documents") have been duly authorized, and upon their execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations of Borrower or the other Loan Party which executes the same, enforceable in accordance with their respective terms. Section 3.2. NO VIOLATION. The execution, delivery and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation, or contravene any provision of the Articles of Incorporation or By-Laws or result in any breach of or default under any contract, obligation, indenture or other instrument to 12 13 which Borrower is a party or by which Borrower may be bound. The execution, delivery and performance by each other Loan Party of each of the Loan Documents to which it may be a party do not violate any provision of any law or regulation, or contravene any provision of any formation document of any Loan Party, or result in a breach or constitute a default under any contract, obligation, indenture or other instrument to which any Loan Party is a party or by which any Loan Party may be bound. Section 3.3. LITIGATION. There are no pending, or to the best of Borrower's knowledge threatened, actions, claims, investigations, suits or proceedings by or before any governmental authority, arbitrator, court or administrative agency which could have a material adverse effect on the financial condition or operation of Borrower or any other Loan Party other than those disclosed by Borrower to Bank in writing prior to the date hereof. Section 3.4. CORRECTNESS OF FINANCIAL STATEMENT. The consolidated and consolidating financial statement of Borrower and its Subsidiaries dated as of March 31, 2000, a true copy of which has been delivered by Borrower to Bank prior to the date hereof, (a) is complete and correct and presents fairly the financial condition of Borrower and its Subsidiaries, (b) discloses all liabilities of Borrower and its Subsidiaries that are required to be reflected or reserved against under generally accepted accounting principles, whether liquidated or unliquidated, fixed or contingent, and (c) has been prepared in accordance with generally accepted accounting principles consistently applied. Since the date of such financial statement there has been no material adverse change in the financial condition of Borrower and its Subsidiaries, nor has Borrower or any Subsidiary of Borrower mortgaged, pledged, granted a Lien in or otherwise encumbered any of its assets or properties except (i) in favor of Bank, (ii) pursuant to the Note Agreement or (iii) as otherwise permitted by Bank in writing. Section 3.5. INCOME TAX RETURNS. Borrower has no knowledge of any pending assessments or adjustments of its or any other Loan Party's income tax payable with respect to any year. Section 3.6. NO SUBORDINATION. There is no agreement, indenture, contract or instrument to which Borrower or any other Loan Party is a party or by which Borrower or any other Loan Party may be bound that requires the subordination in right of payment of any of Borrower's or such Loan Party's obligations subject to this Agreement to any other obligation of Borrower or any other Loan Party. Section 3.7. PERMITS, FRANCHISES. Borrower and each other Loan Party possess, and will hereafter possess, all permits, franchises and licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable each of them to conduct the business in which they are now engaged in compliance with applicable law, and without conflict with the rights of others. Section 3.8. ERISA. Borrower and each other Loan Party are in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time ("ERISA"); neither Borrower nor any other Loan Party has violated any provision of any defined employee pension benefit plan 13 14 (as defined in ERISA) maintained or contributed to by any of them (each, a "Plan"); no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower or any other Loan Party; Borrower and each Loan Party have met their minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under generally accepted accounting principles. Section 3.9. OTHER OBLIGATIONS. Neither Borrower nor any other Loan Party is in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation. Section 3.10. DIVISIONS, TRADE NAMES, ETC. Schedule 3.11 to this Agreement sets forth all trade names and trade styles (including all so-called "divisions") used by Borrower or any of its Subsidiaries at any time within the five (5) year period ending on the date of this Agreement. Section 3.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Bank in writing prior to the date hereof, Borrower a__ each other Loan Party are in compliance in all material respects with all applicable Federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any of Borrower's operations and/or properties, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, the Federal Toxic Substances Control Act and the California Health and Safety Code, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower or any other Loan Party is the subject of any Federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. Neither Borrower nor any other Loan Party has any material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment. ARTICLE 4. CONDITIONS Section 4.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Bank to grant any credit contemplated by this Agreement is subject to the fulfillment to Bank's satisfaction of all of the following conditions (with the date all such conditions are satisfied (or waived by Bank in writing) being the "Effective Date"): 4.1.0.0.0.1. Approval of Bank Counsel. All legal matters incidental to the extension of credit by Bank shall be satisfactory to Bank's counsel. 14 15 4.1.0.0.0.2. Documentation. Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed: 4.1.0.0.0.2.1. This Agreement, the Line of Credit Note and the Term Note. 4.1.0.0.0.2.2. With respect to Letters of Credit, a Letter of Credit Agreement and Fax Agreement. 4.1.0.0.0.2.3. From each Loan Party, such assignments of, and amendments to, the Existing Collateral Documents as Bank may require, pursuant to which, among other things, Bank shall be assigned the secured party's interest thereunder. 4.1.0.0.0.2.4. Without limiting the foregoing subsection (iii), assignments and amendments of the Tozer Road Mortgage Documents and the Vision Drive Mortgage, in each case in form suitable for recording in the applicable county records, pursuant to which, among other things, Bank shall be assigned the lienholder's interest thereunder. 4.1.0.0.0.2.5. Such UCC-1 financing statements and UCC-2 financing statement amendments as Bank may require. 4.1.0.0.0.2.6. A deposit account agreement executed by Borrower and each financial institution (other than Bank) with whom any Loan Party maintains depository relationships. 4.1.0.0.0.2.7. A Second Amended and Restated Guaranty executed by each Guarantor. 4.1.0.0.0.2.8. Documentation evidencing repayment in full of the Prudential Notes and termination of the Note Agreement and the Intercreditor Agreement. 4.1.0.0.0.2.9. Policies of title insurance (or endorsements to existing title insurance policies, if available) insuring the continued priority of the Liens granted Bank on the Tozer Road Real Property and the Vision Drive Real Property (as such Liens are assigned to Bank in connection herewith) after giving effect to recordation of the assignments and amendments described in subsection (iv) above. 4.1.0.0.0.2.10. With respect to each Loan Party, such documentation as Bank may require to establish the due organization, valid existence and good standing of such parties, their qualification to engage in business in each jurisdiction in which they are engaged in business or required to be so qualified, their 15 16 authority to execute, deliver and perform any Loan Documents to which they are a party, and the identity, authority and capacity of each responsible official thereof authorized to act on their behalf, including certified copies of articles of incorporation and amendments thereto, bylaws and amendments thereto, certificates of good standing and/or qualifications to engage in business, certified corporate resolutions, incumbency certificates, certificates of responsible officials, and the like. 4.1.0.0.0.2.11. Such other certificates, documents, instruments, consents and opinions as Bank may require. 4.1.0.0.0.3. Delivery of Pledged Collateral. Each applicable Loan Party shall have delivered, or caused to be delivered, to Bank, all Collateral pledged to Bank pursuant to the Loan Documents, including any and all capital stock required to be pledged to Bank according to the terms of the Loan Documents, together with executed stock powers (in blank) relating thereto. 4.1.0.0.0.4. Recordation of Assignment Documents. The assignments and amendments described in subsection (b)(iv) above shall have been recorded in the applicable real estate records where the Real Property Collateral is located and any financing statements or amendments to financing statements shall have been recorded or filed, as appropriate, where required to perfect Bank's Liens on the Collateral contemplated by the terms hereof and of the other Loan Documents. 4.1.0.0.0.5. Financial Condition. There shall have been no material adverse change, as determined by Bank, in the financial condition or business of Borrower or any other Loan Party hereunder, nor any material decline, as determined by Bank, in the market value of any Collateral required hereunder or a substantial or material portion of the assets of Borrower or any such other Loan Party. 4.1.0.0.0.6. Insurance. Borrower shall have delivered to Bank evidence of insurance coverage on all Loan Parties' property, in form, substance, amounts, covering risks and issued by companies satisfactory to Bank, with loss payable endorsements (on Form BFU-438) in favor of Bank. 4.1.0.0.0.7. Collateral Audit. Bank shall have completed, at Borrower's cost, a collateral audit and examination from an auditor acceptable to Bank and in form, substance and reflecting collateral values satisfactory to Bank in its sole discretion. 4.1.0.0.0.8. No Event of Default. No Event of Default, and no event or act which with the giving of notice or the passage of time or both would constitute an Event of Default, shall have occurred hereunder or under the Existing Credit Agreement. 4.1.0.0.0.9. Bank's Fees. Borrower shall have paid Bank's costs and expenses as required by this Agreement, including (i) the estimated fees and disbursements (subject to adjustment upon final accounting of outside counsel to Bank and the allocated 16 17 costs of Bank's in-house counsel), and (ii) costs and expenses incurred by Bank in connection with all diligence, appraisals and audits, as well as recording and filing fees related hereto. ARTICLE 5. AFFIRMATIVE COVENANTS Borrower covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in writing: Section 5.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or other liabilities due under any of the Loan Documents at the times and places and in the manner specified therein, and immediately upon demand by Bank, the amount by which the outstanding principal balance of the Line of Credit at any time exceeds any limitation on borrowings applicable thereto. Section 5.2. ACCOUNTING RECORDS. Maintain, and cause each other Loan Party to maintain, adequate books and records in accordance with generally accepted accounting principles consistently applied, and permit any representative of Bank, at any reasonable time, to inspect, audit and examine such books and records, to make copies of the same, and to inspect the properties of Borrower and of each other Loan Party. Section 5.2.1. FINANCIAL STATEMENTS. Provide to Bank all of the following, in form and detail satisfactory to Bank: 5.2.0.0.0.1. As soon as available, but in no event later than 120 days after and as of the end of each fiscal year, (i) the consolidated balance sheet of Borrower and its Subsidiaries as of the end of such fiscal year and the consolidated statements of income, stockholders' equity and cash flows of Borrower and its Subsidiaries for such fiscal year, and (ii) consolidating balance sheets and statements of income and cash flows, in each case as at the end of and for such fiscal year, all in reasonable detail, and presented in a manner comparing such financial statements to corresponding figures from the preceding annual financial statements. Such financial statements shall be prepared in accordance with generally accepted accounting principles, consistently applied, and such consolidated balance sheet and consolidated statements shall be accompanied by a report of independent public accountants of recognized standing selected by Borrower and reasonably satisfactory to Bank, which report shall be prepared in accordance with generally accepted auditing standards as at such date, and shall not be subject to any qualifications or exceptions as to the scope of the audit nor to any other qualification or exception determined by Bank to be adverse to the interest of Bank; 5.2.0.0.0.2. As soon as available, but in no event later than 45 days after and as of the end of each fiscal quarter, (i) the consolidated balance sheet of Borrower and its 17 18 Subsidiaries as at the end of such fiscal quarter and the consolidated statements of income, stockholders' equity and cash flows of Borrower and its Subsidiaries for the period from the beginning of the fiscal year to the end of such fiscal quarter, and (ii) the consolidating balance sheets and statements of income and cash flows of Borrower and its Subsidiaries as at the end of such fiscal quarter, all in reasonable detail, and presented in a manner comparing such figures for the corresponding period in the preceding fiscal year, and certified by an authorized financial officer of Borrower as fairly presenting the financial condition, results of operations and cash flows of Borrower and its Subsidiaries in accordance with generally accepted accounting principles, consistently applied, as at such date and for such periods, subject only to normal year-end-accruals and audit adjustments; 5.2.0.0.0.3. (i) As soon as available, but in no event later than 15 days after and as of the end of each month, a Borrowing Base Certificate, an aged listing of accounts receivable and accounts payable, and a reconciliation of accounts; provided, however, that, except as specified below, Bank waives receipt of the foregoing information for any particular month with respect to which no Advance (or portion thereof) shall be outstanding at any time during such month, provided further that in any event such reports shall be due not later than 15 days after and as of the end of each fiscal quarter. Notwithstanding the foregoing, at any time an Advance is made under the Line of Credit, Borrower shall immediately provide to Bank in connection with its request for such Advance the foregoing information for the most recently ended month for which such information is available (to the extent such information shall not have been previously provided to Bank) and, regardless of whether such Advance remains outstanding as of any such date, for and as of the last day of the month in which such Advance is made and for any month thereafter during which all or any portion of such Advance remains outstanding. (ii) Not later than 90 days after and as of the end of each fiscal year, a list of the names and addresses of all account debtors of each Borrowing Base Party; 5.2.0.0.0.4. contemporaneously with each annual and quarterly financial statement of Borrower required hereby, a certificate of the president or chief financial officer of Borrower that said financial statements are accurate and that there exists no Event of Default nor any condition, act or event which with the giving of notice or the passage of time or both would constitute an Event of Default; 5.2.0.0.0.5. As soon as available, but in no event later than 30 days after the first day of each fiscal year, a budget and projection by fiscal quarter for that fiscal year including projected consolidated and consolidating balance sheets, statements of income and cash flows of Borrower and its Subsidiaries, all in reasonable detail, and setting forth in each case in comparative form, consolidating and consolidated figures from the corresponding period in the prior fiscal year; 5.2.0.0.0.6. Promptly after the same are available, copies of each annual report, proxy or financial statement or other report or communication sent to the stockholders of Borrower, and copies of all annual, regular, periodic and special reports and registration statements which Borrower may file or be required to file with the Securities and Exchange 18 19 Commission (or any other governmental agency or authority succeeding to the function and operations of the Securities and Exchange Commission); 5.2.0.0.0.7. Promptly upon receipt thereof, copies of any audit reports, management letters or recommendations submitted to the board of directors (or the audit committee of the board of directors) of Borrower or any Subsidiary by independent accountants in connection with the accounts or books of Borrower of any of its Subsidiaries, or any annual, interim or special audit of any of them; and 5.2.0.0.0.8. from time to time such other information as Bank may reasonably request. Section 5.3. COMPLIANCE. Preserve and maintain, and cause each other Loan Party to preserve and maintain, all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its business; conduct, and cause each Guarantor to conduct, its business in an orderly and regular manner; and comply, and cause such Guarantor to comply, with the provisions of all documents pursuant to which it is organized and/or which govern its continued existence and with the requirements of all laws, rules, regulations and orders of any governmental authority applicable to it and/or its business. Section 5.4. INSURANCE. Maintain and keep in force, and cause each other Loan Party to maintain and keep in force, insurance of the types and in amounts customarily carried in lines of business similar to that of Borrower and the Guarantors, including but not limited to fire, extended coverage, public liability, flood, property damage and workers' compensation, with all such insurance carried with companies and in amounts satisfactory to Bank, and deliver to Bank from time to time at Bank's request schedules setting forth all insurance then in effect. Section 5.5. FACILITIES. Keep, and cause each other Loan Party to keep, all properties useful or necessary to keep its business in good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that such properties shall be fully and efficiently preserved and maintained. Section 5.6. TAXES AND OTHER LIABILITIES. Pay and discharge when due, and cause each other Loan Party to pay and discharge when due, any and all indebtedness, obligations, assessments and taxes, both real or personal, including Federal and state income taxes and state and local property taxes and assessments, except such (a) as Borrower or any other Loan Party may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower or any other Loan Party has made provision, to Bank's satisfaction, for eventual payment thereof in the event Borrower or any other Loan Party is obligated to make such payment. Section 5.7. LITIGATION. Promptly give notice in writing to Bank of any litigation pending or threatened against Borrower or any other Loan Party with a claim in excess of $150,000.00. 19 20 Section 5.8. FINANCIAL CONDITION. Maintain the consolidated financial condition of Borrower and its Subsidiaries as follows using generally accepted accounting principles consistently applied and used consistently with prior practices (except to the extent modified by the definitions herein): 5.8.0.0.0.1. Quick Ratio not at any time less than 1.2:1.0, with "Quick Ratio" defined as the aggregate of unrestricted cash, unrestricted marketable securities and receivables readily convertible into cash divided by total current liabilities. In calculating the foregoing, outstanding Advances on the Line of Credit and amortization payments on the Term Loan shall be deemed current liabilities. 5.8.0.0.0.2. Leverage Ratio not greater than 0.75 to 1.00 at any time, with "Leverage Ratio" defined as Total Liabilities divided by Tangible Net Worth. For purposes of the foregoing, "Total Liabilities" shall mean the aggregate of current liabilities and non-current liabilities less subordinated debt and "Tangible Net Worth" shall mean the aggregate of consolidated stockholders' equity of Borrower and its Subsidiaries plus subordinated debt less any intangible assets. 5.8.0.0.0.3. EBITDA Coverage Ratio not less than (i) 1.25 to 1.00 as of the end of the fiscal quarter ending June 30, 2000, and (ii) 1.75 to 1.00 as of the end of each fiscal quarter thereafter, with "EBITDA" defined as net profit before tax plus interest expense (net of capitalized interest expense), depreciation expense and amortization expense, and with "EBITDA Coverage Ratio", defined as EBITDA for the four fiscal quarter period ending as of the date of determination (the "Test Period") divided by the aggregate of total interest expense plus the amount of scheduled amortization on long-term debt (including, without limitation, the Term Loan) and the amount of scheduled amortization on subordinated debt paid during the Test Period. For purposes of the foregoing, outstanding Advances on the Line of Credit and the undrawn amount of Letters of Credit shall be excluded from the computation of current maturity of long-term debt. (d) Achieve net income of not less than $1 for each fiscal quarter, as of the end of such fiscal quarter. Section 5.9. NOTICE TO BANK. Promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give written notice to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or any condition, event or act which with the giving of notice or the passage of time or both would constitute an Event of Default; (b) any change in the name or the organizational structure of Borrower or any other Loan Party; (c) the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan; (d) any termination or cancellation of any insurance policy which Borrower or any other Loan Party is required to maintain, or any uninsured or partially uninsured loss through liability or property damage, or through fire, theft or any other cause affecting Borrower's or any other Loan Party's property in excess of an aggregate of $100,000.00; or (e) the acquisition by Borrower or any other Loan Party of any other Loan Party or Subsidiary or other affiliate. 20 21 ARTICLE 6. NEGATIVE COVENANTS Borrower further covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower will not without Bank's prior written consent: Section 6.1. USE OF FUNDS. Use any of the proceeds of any of the Line of Credit or the Term Loan except for the purposes stated in Article 2 hereof. Section 6.2. CAPITAL EXPENDITURES. Make, or permit any Guarantor to make, any additional investment in fixed assets in any fiscal year in excess of an aggregate of $5,000,000.00 for Borrowers and all Guarantors combined. Section 6.3. LEASE EXPENDITURES. Incur, or permit any Guarantor to incur, operating lease expense in any fiscal year which, in the aggregate, exceeds the consolidated operating lease expense of Borrower and all Guarantors for the previous fiscal year by more than $500,000.00. Section 6.4. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist, or permit any other Loan Party to create, incur, assume or permit to exist, any indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except (a) the liabilities of Borrower to Bank and (b) any other liabilities of Borrower or any other Loan Party existing as of, and disclosed to Bank prior to, the date hereof. Section 6.5. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate with, or permit any other Loan Party to merge into or consolidate with, any other entity; make, or permit any other Loan Party to make, any substantial change in the nature of its business as conducted as of the date hereof; acquire all or substantially all of the assets of any other entity; nor sell, lease, transfer or otherwise dispose of all or a substantial or material portion of its assets except (a) in the ordinary course of its business and (b) any of the foregoing by and among the Loan Parties with one another so long as after giving effect thereto the Liens of Bank on any assets affected thereby shall remain in full force and effect and with the same priority as immediately before such action. Section 6.6. GUARANTIES. Guarantee or become liable, or permit any other Loan Party to guarantee or become liable, in any way as surety, endorser (other than as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for, nor pledge or hypothecate any assets of Borrower as security for, any liabilities or obligations of any other person or entity, except any of the foregoing in favor of Bank. 21 22 Section 6.7. LOANS, ADVANCES, INVESTMENTS. Make, or permit any other Loan Party to make, any loans or advances to or investments in any person or entity, except (i) any of the foregoing existing as of, and disclosed to Bank prior to, the date hereof and (ii) any of the foregoing made by Borrower or any other Loan Party not to exceed an aggregate principal amount of $1,000,000 at any time outstanding (with investments for this purpose valued at their original cost or book value, whichever is higher). Section 6.8. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist, or permit any other Loan Party to mortgage, pledge, grant or permit to exist, a security interest in, or Lien upon, all or any portion of its assets now owned or hereafter acquired, except any of the foregoing (a) in favor of Bank or (b) which is existing as of, and disclosed to Bank in writing prior to, the date hereof. Section 6.9. DIVIDENDS: DISTRIBUTIONS. Declare or pay, or permit any other Loan Party to declare or pay, any dividend or distribution either in cash, stock or any other property, on Borrower's or such Loan Party's stock now or hereafter outstanding; except for dividends, distributions and redemptions which (a) are made in compliance with applicable law, (b) are made when no Event of Default exists hereunder, and when no condition, event or act exists which, with the giving of notice or the passage of time, or both, would constitute such an Event of Default, and (c) would not result in an Event of Default hereunder. ARTICLE 7. EVENTS OF DEFAULT Section 7.1. The occurrence of any of the following shall constitute an "Event of Default" under this Agreement: 7.1.0.0.0.1. Borrower shall fail to pay within five (5) days of when due any principal, interest, fees or other amounts payable under any of the Loan Documents. 7.1.0.0.0.2. Any financial statement or certificate furnished to Bank in connection with, or any representation or warranty made by Borrower or any other Loan Party under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading in any material respect when furnished or made. 7.1.0.0.0.3. Any default in the performance of or compliance with any obligation, agreement or other provision contained herein or in any other Loan Document (other than those referred to in subsections (a) and (b) above), and with respect to any such default which by its nature can be cured, such default shall continue for a period of twenty (20) days from its occurrence. 7.1.0.0.0.4. Any default in the payment or performance of any obligation, or any defined event of default, under the terms of any contract or instrument (other than any of the Loan Documents) pursuant to which Borrower or any other Loan Party has incurred any debt or other liability to Bank. 22 23 7.1.0.0.0.5. Any default in the payment or performance of any obligation, or any defined event of default, under the terms of any contract or instrument pursuant to which Borrower or any other Loan Party has incurred any debt or other liability to any person or entity, whether such debt or other liability shall be for borrowed money, the purchase or lease of property or the guaranty of any present or future indebtedness for borrowed money or the purchase or lease of property, on its part to be paid and the effect of such default is to cause, or to permit such person or entity to cause, such debt or other liability to become due prior to any stated maturity, provided that the aggregate amount of all such debt and other liabilities as to which such a default shall occur and be continuing exceeds $100,000.00. 7.1.0.0.0.6. The filing of a notice of judgment Lien against Borrower or any other Loan Party; or the recording of any abstract of judgment against Borrower or any other Loan Party in any county in which Borrower or such Loan Party has an interest in real property; or the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower or any other Loan Party; or the entry of a judgment against Borrower or any other Loan Party; provided, however, that such judgments, Liens, levies, writs, executions and other process involve debts of or claims against Borrower or such Loan Party in excess of $100,000.00, individually or in the aggregate, for all such judgments, Liens, levies, writs, executions and other process against Borrower and other Loan Parties combined, and within twenty (20) days after the creation thereof, or at least ten (10) days prior to the date on which any assets could be lawfully sold in satisfaction thereof, such debt or claim is not satisfied but stayed pending appeal and insured against in a manner satisfactory to Bank. 7.1.0.0.0.7. Borrower or any other Loan Party shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower or any other Loan Party shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time ("Bankruptcy Code"), or under any state or Federal law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or Federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower or any other Loan Party, or Borrower or any such Loan Party shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Borrower or any other Loan Party shall be adjudicated a bankrupt, or an order for relief shall be entered against Borrower or any other Loan Party by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or Federal law relating to bankruptcy, reorganization or other relief for debtors. 7.1.0.0.0.8. There shall exist or occur any event or condition which Bank in good faith believes impairs, or is substantially likely to impair, the prospect of payment or 23 24 performance by Borrower or any other Loan Party of its respective obligations under any of the Loan Documents. 7.1.0.0.0.9. The dissolution or liquidation of Borrower or any other Loan Party or any of their directors, stockholders or members shall take action seeking to effect the dissolution or liquidation of Borrower or such Loan Party. 7.1.0.0.0.10. The sale, transfer, hypothecation, assignment or encumbrance, whether voluntary, involuntary or by operation of law, without Bank's prior written consent, of all or any part of or interest in any Real Property Collateral required hereby. Section 7.2. REMEDIES. Upon the occurrence of any Event of Default: (a) all indebtedness of Borrower under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Bank's option and without notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by Borrower; (b) the obligation, if any, of Bank to extend any further credit under any of the Loan Documents shall immediately cease and terminate; and (c) Bank shall have all rights, powers and remedies available under each of the Loan Documents, or accorded by law, including the right to resort to any or all security for the Line of Credit and the Term Loan and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. In addition, Bank shall have no obligation to permit further borrowings hereunder if Borrower fails to pay when due any principal, interest, fees or other amounts payable under any of the Loan Documents, notwithstanding that an Event of Default has not yet occurred under Section 6.1(a) above. All rights, powers and remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity. ARTICLE 8. MISCELLANEOUS Section 8.1. NO WAIVER. No delay, failure or discontinuance of Bank in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing. 24 25 Section 8.2. NOTICES. All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following address: BORROWER: DATUM INC. 9975 Toledo Way Irvine, California 92618 Attention: David A. Young Vice President/Chief Financial Officer Telecopier: (949) 598-7555 Telephone: (949) 598-7575 BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION 2030 Main Street, Suite 900 Irvine, California 92614 Attention: Datum Account Officer Telecopier: (949) 261-1830 Telephone: (949) 251-4489 or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt. Section 8.2.1. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel), incurred by Bank in connection with (a) the negotiation and preparation of this Agreement and the other Loan Documents, Bank's continued administration hereof and thereof, and the preparation of any amendments and waivers hereto and thereto, (b) the enforcement of Bank's rights and/or the collection of any amounts which become due to Bank under any of the Loan Documents and/or the Existing Loan Documents, and (c) the prosecution or defense of any action in any way related to any of the Loan Documents and/or the Existing Loan Documents, including any action for declaratory relief, and including any of the foregoing incurred in connection with any bankruptcy proceeding relating to Borrower or any other Loan Party. Section 8.3. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interest hereunder without Bank's prior written consent. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Bank's rights and benefits under each of the Loan Documents. In connection therewith, Bank may disclose all documents and information which Bank now has or may hereafter acquire 25 26 relating to the Line of Credit, the Term Loan, Borrower or its business, any other Loan Party or the business of such Loan Party, or any Collateral required hereunder. Section 8.4. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other Loan Documents constitute the entire agreement between Borrower and Bank with respect to the Line of Credit and the Term Loan and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This Agreement may be amended or modified only by a written instrument executed by each party hereto. Section 8.5. NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party. Section 8.6. TIME. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents. Section 8.7. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement. Section 8.7.1. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same Agreement. Section 8.8. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California. Section 8.9. INDEMNITY BY BORROWER. Borrower agrees to indemnify, save and hold harmless Bank and its directors, officers, agents, attorneys and employees (collectively, the "Indemnitees") from and against: (a) Any and all claims, demands, actions or causes of action that are asserted against any Indemnitee if the claim, demand, action or cause of action arises out of or relates to the relationship between Borrower and Bank under any of the Loan Documents or the transactions contemplated thereby; (b) Any and all administrative or investigative proceedings by any governmental agency or authority arising out of or related to any claim, demand, action or cause of action described in clause (a) above; and (c) Any and all liabilities, losses, costs or expenses (including reasonable attorneys' fees and disbursements and other professional services) that any Indemnitee suffers or incurs as a result of the assertion of any of the foregoing; provided that no Indemnitee shall be entitled to indemnification for any loss caused by its own or its employees' or agents' gross negligence or willful misconduct. Each Indemnitee is authorized to employ counsel in enforcing its rights hereunder and in defending against any claim, demand, action, cause of action or administrative or investigative proceeding covered by this Section 8.11; provided that the 26 27 Indemnitees as a group may retain only one law firm to represent them with respect to any such matter unless there is, under applicable standards of professional conduct, conflict on any significant issue between the positions of any two or more Indemnitees. Any obligation or liability of Borrower to any Indemnitee under this Section 8.11 shall be and hereby is covered and secured by the Loan Documents and the Collateral referred to in Section 2.7 and shall survive the expiration or termination of this Agreement and the repayment of the Line of Credit and the Term Loan and the payment and performance of all other obligations owed to Bank. Section 8.10. NONLIABILITY OF BANK. Borrower acknowledges and agrees that: 8.10.0.0.0.1. Any inspections of Collateral made by Bank are for purposes of administration of the Line of Credit and the Term Loan only and Borrower is not entitled to rely upon the same; 8.10.0.0.0.2. By accepting or approving anything required to be observed, performed, fulfilled or given to Bank pursuant to the Loan Documents, including any certificate, financial statement, insurance policy or other document, Bank shall not be deemed to have warranted or represented the sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision or condition thereof, and such acceptance or approval thereof shall not constitute a warranty or representation to anyone with respect thereto by Bank; 8.10.0.0.0.3. The relationship between Borrower and Bank in connection with this Agreement and the other Loan Documents is, and shall at all times remain, solely that of a borrower and lender; Bank shall not under any circumstance be construed to be a partner or joint venturer of Borrower; Bank shall not under any circumstances be deemed to be in a relationship of confidence or trust or a fiduciary relationship with Borrower, or to owe any fiduciary duty to Borrower as a result of the transactions arising under this Agreement and the other Loan Documents; Bank does not undertake or assume any responsibility or duty to Borrower to select, review, inspect, supervise, pass judgment upon or inform Borrower of any matter in connection with its property, any Collateral held by Bank or the operations of Borrower; Borrower shall rely entirely upon its own judgment with respect to such matters; and any review, inspection, supervision, exercise of judgment or supply of information undertaken or assumed by Bank in connection with such matters is solely for the protection of Bank and neither Borrower nor any other person or entity is entitled to rely thereon; and 8.10.0.0.0.4. Bank shall not be responsible or liable to any person or entity for any loss, damage, liability or claim of any kind relating to injury or death to persons or damage to property caused by the actions, inaction or negligence of Borrower and Borrower hereby indemnifies and holds Bank harmless from any such loss, damage, liability or claim. Section 8.11. FURTHER ASSURANCES. Borrower shall, at its expense and without expense to Bank, do, execute and deliver such further acts and documents as Bank from time to time reasonably requires for the assuring and confirming unto Bank of the rights hereby created or intended now or hereafter so to be, or for carrying out the intention or 27 28 facilitating the performance of the terms of any Loan Document, or for assuring the validity, perfection, priority or enforceability of any Lien under any Loan Document. Section 8.12. CONFLICTING PROVISIONS. The provisions of this Agreement are not intended to supersede the provisions of the other Loan Documents but shall be construed as supplemental thereto. However, in the event of any actual irreconcilable conflict between the provisions hereof and any provisions of the other Loan Documents, it is intended that the provisions of this Agreement shall control; provided that the inclusion of provisions in such other Loan Documents which are not addressed in this Agreement shall not be deemed a conflict with this Agreement. The foregoing shall apply with respect to all Loan Documents, whether executed and delivered by Borrower or by any third-party. Section 8.13. CONTINUED EXISTING EFFECTIVENESS OF CERTAIN EXISTING LOAN DOCUMENTS. Each of the Existing Loan Documents (other than the Existing Credit Agreement, Existing Note and any other Existing Loan Document that has been (or will be) expressly superseded, replaced or otherwise restated by a "Loan Document", either as previously executed in connection with a prior amendment or as executed in connection herewith) shall continue in full force and effect and shall, as of the effective date hereof, be deemed to be a "Loan Document" as such term is used and defined in this Agreement. Section 8.14. ARBITRATION. 8.14.0.0.0.1. Arbitration. Upon the demand of any party, any Dispute shall be resolved by binding arbitration (except as set forth in (e) below) in accordance with the terms of this Agreement. A "Dispute" shall mean any action, dispute, claim or controversy of any kind, whether in contract or tort, statutory or common law, legal or equitable, now existing or hereafter arising under or in connection with, or in any way pertaining to, any of the Loan Documents, or any past, present or future extensions of credit and other activities, transactions or obligations of any kind related directly or indirectly to any of the Loan Documents, including any of the foregoing arising in connection with the exercise of any self-help, ancillary or other remedies pursuant to any of the Loan Documents. Any party may by summary proceedings bring an action in court to compel arbitration of a Dispute. Any party who fails or refuses to submit to arbitration following a lawful demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any Dispute. 8.14.0.0.0.2. Governing Rules. Arbitration proceedings shall be administered by the American Arbitration Association ("AAA") or such other administrator as the parties shall mutually agree upon in accordance with the AAA Commercial Arbitration Rules. All Disputes submitted to arbitration shall be resolved in accordance with the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the Loan Documents. The arbitration shall be conducted at a location in California selected by the AAA or other administrator. If there is any inconsistency between the terms hereof and any such rules, the terms and procedures set forth herein shall control. All statutes of limitation applicable to any Dispute shall apply to any arbitration 28 29 proceeding. All discovery activities shall be expressly limited to matters directly relevant to the Dispute being arbitrated. Judgment upon any award rendered in an arbitration may be entered in any court having jurisdiction; provided however, that nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. Section 91 or any similar applicable state law. 8.14.0.0.0.3. No Waiver; Provisional Remedies, Self-Help and Foreclosure. No provision hereof shall limit the right of any party to exercise self-help remedies such as setoff, foreclosure against or sale of any real or personal property Collateral or security, or to obtain provisional or ancillary remedies, including injunctive relief, sequestration, attachment, garnishment or the appointment of a receiver, from a court of competent jurisdiction before, after or during the pendency of any arbitration or other proceeding. The exercise of any such remedy shall not waive the right of any party to compel arbitration or reference hereunder. 8.14.0.0.0.4. Arbitrator Qualifications and Powers; Awards. Arbitrators must be active members of the California State Bar or retired judges of the state or federal judiciary of California, with expertise in the substantive laws applicable to the subject matter of the Dispute. Arbitrators are empowered to resolve Disputes by summary rulings in response to motions filed prior to the final arbitration hearing. Arbitrators (i) shall resolve all Disputes in accordance with the substantive law of the state of California, (ii) may grant any remedy or relief that a court of the state of California could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award, and (iii) shall have the power to award recovery of all costs and fees, to impose sanctions and to take such other actions as they deem necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Any Dispute in which the amount in controversy is $5,000,000 or less shall be decided by a single arbitrator who shall not render an award of greater than $5,000,000 (including damages, costs, fees and expenses). By submission to a single arbitrator, each party expressly waives any right or claim to recover more than $5,000,000. Any Dispute in which the amount in controversy exceeds $5,000,000 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. 8.14.0.0.0.5. Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the contrary, no Dispute shall be submitted to arbitration if the Dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, Lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, Liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such Dispute is not submitted to arbitration, the Dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA's selection procedures. Judgment upon the decision rendered by 29 30 a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. 8.14.0.0.0.6. Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the Dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business, by applicable law or regulation, or to the extent necessary to exercise any judicial review rights set forth herein. If more than one agreement for arbitration by or between the parties potentially applies to a Dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the Dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first written above. DATUM INC., a Delaware corporation By: /s/ David A. Young ----------------------------------- Name: David A. Young Title: Chief Financial Officer By: /s/ Erik H. van der Kaay ----------------------------------- Name: Erik H. van der Kaay Title: Chairman and CEO WELLS FARGO BANK, NATIONAL ASSOCIATION By: /s/ Timothy R. Sandel ----------------------------------- Timothy R. Sandel, Vice President 30 31 SCHEDULE 3.11 DIVISIONS, TRADE NAMES, ETC. A. TRADE NAMES AND TRADE STYLES Datum Timing Bancomm Efratom Datum - Irvine Datum - Austin Datum - Beverly Datum - San Jose Datum - Lexington E - Business Solutions B. DIVISIONS Bancomm - Timing Division EX-10.54 3 a67295ex10-54.txt EXHIBIT 10.54 1 EXHIBIT 10.54 THIRD AMENDED AND RESTATED REVOLVING LINE OF CREDIT NOTE Irvine, California $10,000,000.00 July 7, 2000 FOR VALUE RECEIVED, the undersigned DATUM INC., a Delaware corporation ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its office at Orange Coast Regional Commercial Banking Office, 2030 Main Street, Suite 900, Irvine, California 92614, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Ten Million Dollars ($10,000,000.00), or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein. This Note amends and restates in its entirety that certain Amended and Restated Revolving Line of Credit Note dated June 15, 1999 executed and delivered by Borrower to the order of Bank in the original principal amount of up to $10,000,000.00 (the "Prior Note"). Amounts outstanding and committed under the Prior Note shall, upon the effectiveness of this Note be deemed to be outstanding and committed hereunder and evidenced hereby, subject, however, to all terms and conditions hereunder and under the Credit Agreement referred to below. This Note is the "Line of Credit Note" referred to in the Credit Agreement. DEFINITIONS: As used herein, the following terms shall have the meanings set forth after each, and any other term defined in this Note shall have the meaning set forth at the place defined: 1. 2. (a) "Business Day" means any day except a Saturday, Sunday or any other day on which commercial banks in California are authorized or required by law to close. (b) "Credit Agreement" means that certain Second Amended and Restated Credit Agreement between Borrower and Bank dated as of July 7, 2000, either as originally executed or as the same may from time to time be supplemented, modified, amended, restated, extended or supplemented. (c) "Fixed Rate Term" means a period commencing on a Business Day and continuing for (1) one month, (2) months, (3) months or (6) months, as designated by Borrower, during which all or a portion of the outstanding principal balance of this Note bears interest determined in relation to LIBOR; provided however, that no Fixed Rate Term may be selected for a principal amount less than Five Hundred Thousand Dollars ($500,000.00); and provided further, that no Fixed Rate Term shall extend beyond the scheduled maturity date hereof. If any Fixed Rate Term would end on a day which is not a Business Day, then such Fixed Rate Term shall be extended to the next succeeding Business Day. 2 (d) "LIBOR" means the rate per annum (rounded upward, if necessary, to the nearest whole 1/8 of 1%) and determined pursuant to the following formula: LIBOR = Base LIBOR ------------------------------- 100% - LIBOR Reserve Percentage (i) "Base LIBOR" means the rate per annum for United States dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by Bank for the purpose of calculating effective rates of interest for loans making reference thereto, on the first day of a Fixed Rate Term for delivery of funds on said date for a period of time approximately equal to the number of days in such Fixed Rate Term and in an amount approximately equal to the principal amount to which such Fixed Rate Term applies. Borrower understands and agrees that Bank may base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market indicators of the Inter-Bank Market as Bank in its discretion deems appropriate including, but not limited to, the rate offered for U.S. dollar deposits on the London Inter-Bank Market. (ii) "LIBOR Reserve Percentage" means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by Bank for expected changes in such reserve percentage during the applicable Fixed Rate Term. (e) "Prime Rate" means at any time the rate of interest most recently announced within Bank at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Bank's base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Bank may designate. INTEREST: (f) Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) either (i) at a fluctuating rate per annum equal to the Prime Rate in effect from time to time, or (ii) at a fixed rate per annum determined by Bank to be two and one quarter percent (2.25%) above LIBOR in effect on the first day of the applicable Fixed Rate Term. When interest is determined in relation to the Prime Rate, each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. With respect to each LIBOR selection hereunder, Bank is hereby authorized to note the date, principal amount, interest rate and Fixed Rate Term applicable thereto and any payments made thereon on Bank's books and records (either manually or by electronic entry) and/or on any schedule attached to this Note, which notations shall be prima facie evidence of the accuracy of the information noted. (g) Selection of Interest Rate Options. At any time any portion of this Note bears interest determined in relation to LIBOR, it may be continued by Borrower at the end of the Fixed Rate Term applicable thereto so that all or a portion thereof bears interest determined in relation to the Prime Rate or to LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion of this Note bears interest determined in relation to the Prime Rate, Borrower may convert all or a portion thereof so that it bears interest determined in relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as Borrower requests an 2 3 advance hereunder or wishes to select a LIBOR option for all or a portion of the outstanding principal balance hereof, and at the end of each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the interest rate option selected by Borrower; (ii) the principal amount subject thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed Rate Term. Any such notice may be given by telephone (or such other electronic method as Bank may permit) so long as, with respect to each LIBOR selection, (A) if requested by Bank, Borrower provides to Bank written confirmation thereof not later than three (3) Business Days after such notice is given, and (B) such notice is given to Bank prior to 10:00 a.m. on the first day of the Fixed Rate Term, or at a later time during any Business Day if Bank, at it's sole option but without obligation to do so, accepts Borrower's notice and quotes a fixed rate to Borrower. If Borrower does not immediately accept a fixed rate when quoted by Bank, the quoted rate shall expire and any subsequent LIBOR request from Borrower shall be subject to a redetermination by Bank of the applicable fixed rate. If no specific designation of interest is made at the time any advance is requested hereunder or at the end of any Fixed Rate Term, Borrower shall be deemed to have made a Prime Rate interest selection for such advance or the principal amount to which such Fixed Rate Term applied. (h) Limitation on LIBOR Portions. Unless Bank otherwise consents, no more than one (1) portion of the outstanding principal balance of this Note shall bear interest in relation to Bank's LIBOR at any time. (i) Taxes and Regulatory Costs. Borrower shall pay to Bank immediately upon demand, in addition to any other amounts due or to become due hereunder, any and all (i) withholdings, interest equalization taxes, stamp taxes or other taxes (except income and franchise taxes) imposed by any domestic or foreign governmental authority and related in any manner to LIBOR, and (ii) future, supplemental, emergency or other changes in the LIBOR Reserve Percentage, assessment rates imposed by the Federal Deposit Insurance Corporation, or similar requirements or costs imposed by any domestic or foreign governmental authority or resulting from compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority and related in any manner to LIBOR to the extent they are not included in the calculation of LIBOR. In determining which of the foregoing are attributable to any LIBOR option available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower. (j) Payment of Interest. Interest accrued on this Note shall be payable on the first day of each month, commencing July 1, 2000. (k) Default Interest. From and after the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to four percent (4%) above the rate of interest from time to time applicable to this Note. 3 4 BORROWING AND REPAYMENT: (l) Borrowing and Repayment. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with or governing this Note; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on June 15, 2001. (m) Advances. Advances hereunder, to the total amount of the principal sum stated above, may be made by the holder at the oral or written request of (i) Erik H. van der Kaay or Chris Felfe or David A. Young, any one acting alone, who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any deposit account of Borrower, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by Borrower. (n) Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. All payments credited to principal shall be applied first, to the outstanding principal balance of this Note which bears interest determined in relation to the Prime Rate, if any, and second, to the outstanding principal balance of this Note which bears interest determined in relation to LIBOR, with such payments applied to the oldest Fixed Rate Term first. PREPAYMENT: (o) Prime Rate. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to the Prime Rate at any time, in any amount and without penalty. (p) LIBOR. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to LIBOR at any time and in the minimum amount of Two Hundred Fifty Thousand Dollars ($250,000.00); provided however, that if the outstanding principal balance of such portion of this Note is less than said amount, the minimum prepayment amount shall be the entire outstanding principal balance thereof. In consideration of Bank providing this prepayment option to Borrower, or if any such portion of this Note shall become due and payable at any time prior to the last day of the Fixed Rate Term applicable thereto by acceleration or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is the sum of the discounted monthly differences for each month from the month of prepayment through the month in which such Fixed Rate Term matures, calculated as follows for each such month: 4 5 (i) Determine the amount of interest which would have accrued each month on the amount prepaid at the interest rate applicable to such amount had it remained outstanding until the last day of the Fixed Rate Term applicable thereto. (ii) Subtract from the amount determined in (i) above the amount of interest which would have accrued for the same month on the amount prepaid for the remaining term of such Fixed Rate Term at LIBOR in effect on the date of prepayment for new loans made for such term and in a principal amount equal to the amount prepaid. (iii) If the result obtained in (ii) for any month is greater than zero, discount that difference by LIBOR used in (ii) above. Each Borrower acknowledges that prepayment of such amount may result in Bank incurring additional costs, expenses and/or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses and/or liabilities. Each Borrower, therefore, agrees to pay the above-described prepayment fee and agrees that said amount represents a reasonable estimate of the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to pay any prepayment fee when due, the amount of such prepayment fee shall thereafter bear interest until paid at a rate per annum four percent (4.00%) above the Prime Rate in effect from time to time (computed on the basis of a 360-day year, actual days elapsed). Each change in the rate of interest on any such past due prepayment fee shall become effective on the date each Prime Rate change is announced within Bank. EVENTS OF DEFAULT: This Note is made pursuant to and is subject to the terms and conditions of the Credit Agreement. Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an "Event of Default" under this Note. 5 6 MISCELLANEOUS: (q) Remedies. Upon the sale, transfer, hypothecation, assignment or other encumbrance, whether voluntary, involuntary or by operation of law, of all or any interest in any real property securing this Note, or upon the occurrence of any Event of Default, the holder of this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel), expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Borrower or any other person or entity. (r) Obligations Joint and Several. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several. (s) Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California. 6 7 IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above. DATUM INC., a Delaware corporation By: /s/ David A. Young -------------------------------- Name: David A. Young Title: Chief Financial Officer By: /s/ Erik H. van der Kaay -------------------------------- Name: Erik H. van der Kaay Title: Chairman and CEO 7 EX-10.55 4 a67295ex10-55.txt EXHIBIT 10.55 1 EXHIBIT 10.55 EXHIBIT C TERM NOTE Irvine, California $6,000,000.00 July 7, 2000 FOR VALUE RECEIVED, the undersigned DATUM INC., a Delaware corporation ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its office at Orange Coast Regional Commercial Banking Office, 2030 Main Street, Suite 900, Irvine, California 92614, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Six Million Dollars ($6,000,000.00), with interest thereon as set forth herein. INTEREST: 1. Interest. The outstanding principal balance of this Note shall bear interest at nine and three-twentieths percent (9.15%) per annum (computed on the basis of a 360-day year, actual days elapsed). 2. Payment of Interest. Interest accrued on this Note shall be payable on the first day of each month, commencing July 1, 2000. 3. Default Rate. From and after the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to four percent (4%) above the rate of interest from time to time applicable to this Note. REPAYMENT AND PREPAYMENT: 4. Repayment. Principal shall be payable on the first day of each month in installments of Two Hundred Fifty Thousand Dollars ($250,000.00) each, commencing August 1, 2000, and continuing up to and including June 1, 2002, with a final installment consisting of all remaining unpaid principal due and payable in full on June 15, 2002. 5. Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. 6. Prepayment. Borrower may prepay principal on this Note in the minimum amount of Two Hundred Fifty Thousand Dollars ($250,000.00); provided however, that if the outstanding principal balance of this Note is less than said amount, the minimum prepayment amount shall be the entire outstanding principal balance hereof. In consideration of Bank providing this prepayment option to Borrower, or if this Note shall become due and payable at any time prior to the maturity date hereof by acceleration or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is the sum of the discounted monthly differences 2 for each month from the month of prepayment through the month in which said maturity date occurs, calculated as follows for each such month: 7. Determine the amount of interest which would have accrued each month on the amount prepaid at the interest rate applicable to such amount had it remained outstanding until the maturity date hereof. 8. Subtract from the amount determined in (i) above the amount of interest which would have accrued for the same month on the amount prepaid for the remaining term until the maturity date hereof at the Treasury Rate in effect on the date of prepayment for new loans made for such term and in a principal amount equal to the amount prepaid. 9. If the result obtained in (ii) for any month is greater than zero, discount that difference by the Treasury Rate used in (ii) above. Borrower acknowledges that prepayment of such amount may result in Bank incurring additional costs, expenses and/or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses and/or liabilities. Borrower, therefore, agrees to pay the above-described prepayment fee and agrees that said amount represents a reasonable estimate of the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to pay any prepayment fee when due, the amount of such prepayment fee shall thereafter bear interest until paid at a rate per annum four percent (4.00%) above the Prime Rate in effect from time to time (computed on the basis of a 360-day year, actual days elapsed). The "Prime Rate" is a base rate that Bank from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. Each change in the rate of interest on any such past due prepayment fee shall become effective on the date each Prime Rate change is announced within Bank. The "Treasury Rate" means the yield to maturity at the asked price of the applicable obligation of the United States Treasury, with the applicable obligation determined by Bank to be the Treasury obligation that will mature on the maturity date of this Note (or the next day thereafter for which an asked price is readily quoted in the public securities market), with the understanding that such rate serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Bank may designate. All prepayments of principal shall be applied on the most remote principal installment or installments then unpaid. EVENTS OF DEFAULT: This Note is made pursuant to and is subject to the terms and conditions of that certain Second Amended and Restated Credit Agreement between Borrower and Bank dated as of July 7, 2000, as amended from time to time (the "Credit Agreement"). Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an "Event of Default" under this Note. 2 3 MISCELLANEOUS: 10. Remedies. Upon the sale, transfer, hypothecation, assignment or other encumbrance, whether voluntary, involuntary or by operation of law, of all or any interest in any real property securing this Note, or upon the occurrence of any Event of Default, the holder of this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by Borrower. Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel), expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Borrower or any other person or entity. 11. Obligations Joint and Several. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several. 12. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California. 3 4 IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above. DATUM INC., a Delaware corporation By: /s/ David A. Young ------------------------------- Name: David A. Young Title: Chief Financial Officer By: /s/ Erik H. van der Kaay ------------------------------- Name: Erik H. van der Kaay Title: Chairman and CEO 4 EX-27.1 5 a67295ex27-1.txt FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 1,927 0 31,155 608 25,943 63,491 33,040 18,586 91,459 22,848 5,502 0 0 1,511 62,047 91,459 98,708 98,708 54,185 37,375 0 0 1,370 5,778 2,340 3,438 0 0 0 3,438 .58 .55
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