Exhibit 10-Z
As of October 31, 2002
Parlex Corporation
Xxx Xxxxxx Xxxxx
Xxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxx, President
Re: Third Amendment of Loan Agreement dated Xxxxx 0, 0000
Xxxxxxxxx:
Reference is made to that certain Loan Agreement dated March 1, 2000,
as amended (the "Agreement") by and between Parlex Corporation (the
"Borrower") and Fleet National Bank (the "Bank"). Notwithstanding any
provisions of the Agreement to the contrary, the Agreement is hereby amended,
effective immediately, as follows:
1. All capitalized terms used herein, unless otherwise defined,
shall have the meanings ascribed to them in the Agreement.
2. Section 1.1 of the Agreement is hereby deleted in its entity and
the following new Section 1.1 substituted therefor as follows:
"1.1A Subject to the terms and conditions of this Agreement,
the Bank hereby establishes a revolving line of credit of up to
Fourteen Million ($14,000,000.00) Dollars (the "Revolving Loan") to
be advanced as hereinafter provided. The Bank shall, as long as no
Event of Default has occurred hereunder, from time to time, make
advances in the form of direct loans or letters of credit issued for
the account of the Borrower comprising the Revolving Loan (all of
which shall be called "Loans" hereunder) to the Borrower upon the
Borrower's request; provided, however, that no advance or other
financial accommodation will be made if, after giving effect to the
Borrower's request for such advance or other financial accommodation,
the outstanding principal balance of the Revolving Loan would exceed
the lesser of:
(a) $14,000,000.00 which amount shall automatically reduce to
13,000,000.00 on December 31, 2002 and to $12,000,000.00
on March 31, 2003 the "Credit Limit") or
(b) the sum of:
(i) eighty percent (80%) of the face amount of eligible
accounts receivable less than ninety (90) days from
the invoice date thereof, plus
(ii) seventy percent (70%) of the "as is" appraised
market value of the Premises located at One Parlex
Place Methuen MA (the Bank reserves the right to
have the Premises appraised from time to time to
establish or adjust such value, which is currently
Seven Million Two Hundred Thousand ($7,200,000.00)
Dollars, which is equal to seventy percent (70%) of
the Ten Million Three Hundred Thousand
($10,300,000.00) Dollar "as is" value of the
Premises based on the appraisal from MacPherson
Appraisal Company dated May 17, 2002), minus
(iii) one hundred (100%) percent of the aggregate
amount of all letters of credit or acceptances
issued for the account of the account of the
Borrower (the sum of (i) plus (ii) minus (iii) is
hereinafter called the "Borrowing Base").
1.1B For purposes of the Borrowing Base calculation set forth
above, eligible accounts receivable are those which are owing to the
Borrower which met the following specifications at the time it came
into existence and continues to meet the same until collected in
full:
(i) The account arose from the performance of services
or an outright sale of goods by Borrower, such
goods have been shipped to the account debtor, and
Borrower has possession of, or has delivered to
Bank, shipping and delivery receipts evidencing
such shipment.
(ii) The account is not subject to any prior assignment,
claim, lien, or security interest, and Borrower
will not make any further assignment thereof or
create any further security interest therein, nor
permit Borrower's rights therein to be reached by
attachment, levy, garnishment or other judicial
process.
(iii) The account is not subject to set?off, credit,
allowance or adjustment by the account debtor,
except discount allowed for
2
prompt payment and the account debtor has not
complained as to his liability thereon and has not
returned any of the goods from the sale of which
the account arose.
(iv) The account arose in the ordinary course of
Borrower's business and did not arise from the
performance of services or a sale of goods to a
supplier or employee of the Borrower.
(v) No notice of bankruptcy or insolvency of the
account debtor has been received by or is known to
the Borrower.
(vi) The account is not owed by an account debtor whose
principal place of business is outside the United
States of America, unless such account is supported
by a letter of credit acceptable to the Bank in all
respects (which requirement may be modified or
waived in Bank's sole discretion).
(vii) The account is not owed by an entity which is a
parent, brother/sister, subsidiary or affiliate of
Borrower.
(viii) The account debtor is not located in the State of
New Jersey or Indiana, unless Borrower has filed
and shall file all legally required Notice of
Business Activities Report(s) with the New Jersey
Division of Taxation or the Indiana Department of
Revenue, respectively.
(ix) The account is not evidenced by a promissory note.
(x) The account did not arise out of any sale made on a
xxxx and hold, dating or delayed shipment basis.
(xi) The account when aggregated with all of the
accounts of that account debtor does not exceed
twenty-five percent (25%) of the then aggregate
eligible accounts.
(xii) The account did not arise out of a contract with
the United States government or any department,
agency or instrumentality thereof, unless the
Borrower has complied with the Federal Assignment
of Claims Act.
3
(xiii) The Bank in its reasonable discretion exercised in
its good faith banking judgment, does not deem the
account to be unacceptable for any reason.
Provided that if any time twenty-five percent (25%) or more of
the aggregate amount of the accounts due from any account debtor are
unpaid in whole or in part more than ninety (90) days from the
respective dates of invoice, from and after such time none of the
accounts (then existing or thereafter arising) due from such account
debtor shall be deemed to be eligible accounts until such time as all
accounts due from such account debtor are (as a result of actual
payments received thereon) no more than ninety (90) days from the
date of invoice; accounts payable by Borrower to an account debtor
shall be netted against accounts due from such account debtor and the
difference (if positive) shall constitute eligible accounts from such
account debtor for purposes of determining the Borrowing Base
(notwithstanding sub-paragraph (iii) above); characterization of any
account due from an account debtor as an eligible account shall not
be deemed a determination by Bank as to its actual value nor in any
way obligate Bank to accept any account subsequently arising from
such account debtor to be, or to continue to deem such account to be,
an eligible account; it is the Borrower's responsibility to determine
the creditworthiness of account debtors and all risks concerning the
same and collection of accounts are with Borrower; and all accounts,
whether or not eligible accounts, constitute Collateral (as
hereinafter defined)."
2. Sections 4.9 thru and including 4.17 of the Agreement are hereby
deleted in their entirety and the following new Sections 4.9 thru 4.17 are
substituted therefor as follows:
"4.9 (Minimum Current Ratio). The Borrower will not permit
the ratio of its current assets to its current liabilities,
determined on a consolidated basis, to be less than 2.0 to 1 as at
the last day of any fiscal quarter of the Borrower.
4.10 (Minimum Tangible Net Worth). The Borrower will not
permit its tangible net worth, determined on a consolidated basis, to
be less than $65,500,000.00 as at the last day of the fiscal quarter
ending June 30, 2002 or less than $65,500,000.00 plus fifty (50%)
percent of the prior quarter's net income for each subsequent fiscal
quarter thereafter (without reduction for any losses sustained in any
fiscal quarter). The term "tangible net worth" shall mean
stockholders' equity determined in accordance with generally accepted
accounting principles, consistently applied, subtracting therefrom:
(i) intangibles (as determined in accordance with such principles so
applied), including, without limitation, goodwill, purchased
technology and capitalized software development
4
costs; and (ii) accounts and indebtedness owing from any employee or
parent, subsidiary or other affiliate.
4.11 (Maximum Total Liabilities to Tangible Net Worth Ratio).
The Borrower will not permit the ratio of its total liabilities
(including, without limitation, all deferred taxes and contingent
liabilities such as guarantees) to its tangible net worth, determined
on a consolidated basis, to be more than 1.0 to 1 as at the last day
of each fiscal quarter of the Borrower.
4.12 [Intentionally deleted]
4.13 (Maximum Senior Funded Indebtedness to EBITDA). The
Borrower will not permit the ratio of its senior indebtedness to its
EBITDA, determined on a consolidated basis, to be more than 2.0 to 1
for the twelve-month period ending on the last day of any fiscal
quarter, commencing with the fiscal quarter ending June 30, 2003.
The term "EBITDA" as used herein, shall mean, for the applicable
period, income from operations before the payment of interest and
taxes, plus depreciation and amortization. Prior to the Expiration
Date, outstanding balances under the Revolving Loan shall not be
considered current maturities of long term indebtedness.
4.14 (Minimum EBITDA). The Borrower will not permit its
EBITDA to be less than $1.00 for the fiscal quarter ending September
30, 2002 or less than $500,000.00 for the fiscal quarter ending
December 31, 2002, or for any fiscal quarter thereafter.
4.15 (Minimum Net Income). The Borrower's net income after
taxes will not be less than $1.00 for any fiscal quarter, commencing
with the fiscal quarter ending March 31, 2003.
4.16 (Maximum Capital Expenditures). The Borrower will not
permit Borrower's Capital Expenditures to exceed $8,000,000.00 for
any fiscal year of Borrower, commencing with the fiscal year ending
June 30, 2002. The term "Capital Expenditures" as used herein means,
for any period, the aggregate amount of all expenditures for the
acquisition, construction, replacement or purchase of Capital Assets
and Intangible Assets, including, but not limited to, expenditures
under Capital Leases. The term "Capital Assets" as used herein means
assets that according to generally accepted accounting principles
consistently applied are required or permitted to be depreciated or
amortized on Borrower's balance sheet. The term "Intangible Assets"
as used herein means assets that according to generally accepted
accounting principles
5
consistently applied are properly classified as intangible assets,
including, but not limited to, goodwill, franchises, licenses,
patents, trademarks, trade names and copyrights. The term "Capital
Leases" as used herein means capital leases, conditional sales
contracts and other title retention agreements related to the
purchase or acquisitions of Capital Assets. In calculating Capital
Expenditures, Borrower will be assessed the value of Borrower's
capital expenditures for Borrower's Chinese Joint Venture (the Joint
Venture") times Borrower's percentage interest in such Joint Venture.
Furthermore, capital equipment being transferred (or sold) from
Borrower's locations to China will be excluded in calculating
Borrower's Capital Expenditures for purposes of this covenant.
4.17 All accounting terms not otherwise specifically defined
herein shall be construed and interpreted in accordance with generally
accepted accounting principles consistently applied."
3. Section 7.14 of the Agreement is hereby deleted in its entirety
and a new subsection 7.14 substituted therefor, as follows:
"7.14 All Liabilities of the Borrower to the Bank, whether now
existing or hereafter arising, shall be secured by a security interest
in substantially all assets of the Borrower pursuant to a Security
Agreement (All Assets) dated April 16, 2002, as the same may be
amended, supplemented or superceded from time to time and by a
Mortgage, Security Agreement and Financing Statement with respect to
Premises located at One Parlex Place, Methuen, MA."
4. Exhibit B and Exhibit C of the Agreement are hereby deleted in
their entirety and Exhibit B and Exhibit C attached hereto are substituted
therefor.
5. In addition to the foregoing, the Borrower and Bank hereby agree
that until such time as the Borrower delivers a Covenant Compliance
Certificate to the Bank as of the end of any fiscal quarter of Borrower which
demonstrates the Borrower's full compliance with the financial covenants
contained in Section 4 of the Agreement and provided no Event of Default has
occurred under the Agreement which has not been otherwise waived or cured,
the "Margin" over the applicable LIBOR Interest Rate in the Revolving Note
shall be 250 basis points instead of 225 basis points and shall revert to 225
basis points upon delivery of the Covenant Compliance Certificate by the
Borrower to the Bank reflecting full compliance with the financial covenants
contained in
6
Section 4 of the Agreement. Borrower and Bank acknowledge that the
provisions of this Section shall specifically amend the Revolving Note, which
shall otherwise remain in full force and effect.
Except as specifically amended hereby, the Agreement shall remain in
full force and effect, and the Borrower hereby reaffirms all representations
and warranties contained therein, as of date hereof.
Please acknowledge your acceptance and agreement to the matters
contained herein by signing this letter in the space provided and returning
it to the undersigned, whereupon it shall take effect as an instrument under
seal.
Very truly yours,
FLEET NATIONAL BANK
By:__________________________________
Xxxxxx X. Xxxxxxx, Senior Vice President
ACCEPTED AND AGREED TO:
PARLEX CORPORATION
By:_________________________________
Xxxxx X. Xxxxxx, President
7
