April 16, 2002
Parlex Corporation
Xxx Xxxxxx Xxxxx
Xxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxx, President
Re: Second 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
Fifteen Million ($15,000,000.00) 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) $15,000,000.00 (the "Credit Limit") or
(b) the sum of:
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Attn: Xxxxx X. Xxxxxx, President
April 16, 2002
Page 2
(i) seventy percent (70%) of the face amount of
eligible accounts receivable less than ninety (90) days from
the invoice date thereof provided, however, that Bank may in
its discretion increase the borrowing base percentage for
advances as of April 30, 2002, plus
(ii) ninety (90%) percent of the fair market value of
eligible marketable securities, 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").
Borrower and Bank hereby recognize and agree that Bank has
arranged for a Field Exam to be conducted with respect to Borrower's
financial records and collateral for the Revolving Loan (the "Field
Exam"). The Field Exam is currently scheduled to take occur on or
about April 16, 2002. Upon the Bank's receipt of the Field Exam, the
Bank will review its collateral position with respect to the
Borrower's assets and specifically reserves the right to modify the
Borrowing Base, in its reasonable discretion, based upon the results
of the Field Exam.
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
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Attn: Xxxxx X. Xxxxxx, President
April 16, 2002
Page 3
adjustment by the account debtor, except discount allowed for
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,
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Attn: Xxxxx X. Xxxxxx, President
April 16, 2002
Page 4
unless the Borrower has complied with the Federal Assignment
of Claims Act.
(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. Section 3.4 of Agreement is hereby deleted in its entity and
the following new Section 3.4 substituted therefor as follows:
"3.4 The Borrower will, at reasonable times, furnish the Bank
with such information and statements as the Bank may reasonably
request, including without limitation, quarterly (within 45 days of
the end of each fiscal quarter) accounts receivable agings and other
internally generated financial reports and copies of all financial
statements and reports that it shall send or make available its
stockholders and monthly (within 10 days of the end of each fiscal
month) a borrowing base certificate in the form of Exhibit C attached
hereto and made a part hereof."
3. 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
4.19 are substituted therefor as follows:
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Parlex Corporation
Attn: Xxxxx X. Xxxxxx, President
April 16, 2002
Page 5
"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, commencing with
the fiscal quarter ending September 30, 2001.
4.10 (Minimum Tangible Net Worth). The Borrower will not
permit its tangible net worth, determined on a consolidated basis, to
be less than $74,000,000.00 as at the last day of the fiscal quarter
ending September 30, 2001 or less than $74,000,000.00 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 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, commencing with the fiscal
quarter ending September 30, 2001.
4.12 (Minimum Interest Coverage Ratio). The Borrower will not
permit the ratio of its: (a) net operating profit (earnings before
interest and taxes) to (b) interest expense to be less than 3.0 to 1
for the fiscal quarters ending September 30, 2002, December 31, 2002,
March 31, 2003 or June 30, 2003 or less than 3.0 to 1 for the twelve-
month period ending on the last day of any fiscal quarter thereafter.
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.
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Attn: Xxxxx X. Xxxxxx, President
April 16, 2002
Page 6
Prior to the Expiration Date, outstanding balances under the
Revolving Loan shall not be considered current maturities of long
term indebtedness.
4.14 (Maximum Net Loss). The Borrower will not sustain a net
loss in excess of $1,700,000.00 for the fiscal quarter ending March
31, 2002 or sustain a net loss in excess of $500,000.00 for the
fiscal quarter ending June 30, 2002.
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 September 30, 2002.
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 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."
4. Section 7.11 of the Agreement is hereby deleted in its entity and
the following new Section 7.11 substituted therefor as follows:
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Attn: Xxxxx X. Xxxxxx, President
April 16, 2002
Page 7
"7.11 The exhibits annexed hereto as Exhibit A, Exhibit B and
Exhibit C are the only exhibits to be annexed to this Agreement, and
the material contained therein shall be incorporated herein."
5. Section 7 of the Agreement is hereby further amended to add a
new subsection 7.14 thereto, at the end thereof, 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 ____, 2002, as the same
may be amended, supplemented or superceded from time to time."
6. Exhibit A and Exhibit B of the Agreement are hereby deleted in
their entirety and Exhibit A and Exhibit B attached hereto are substituted
therefor.
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
