Exhibit 10.1
As of May 30, 1997
First Union Bank of Connecticut
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Gentlemen:
This letter sets forth our agreements with respect to the
obligations described below of Farmstead Telephone Group, Inc. (the
"Borrower") and Farmstead Asset Management Services, LLC (the "Guarantor")
to First Union Bank of Connecticut (successor-in-interest to Affiliated
Business Credit Corporation) ("First Union").
The Borrower acknowledges that it is unconditionally indebted to
First Union with respect to the demand revolving loan (the "Revolving
Loan") extended by First Union to Borrower in the original principal
amount of up to $2,500,000 which is evidenced by, among other things, a
Commercial Revolving Loan and Security Agreement dated June 5, 1995, as
amended by letter agreements between Borrower and First Union dated March
11, 1996, May 1, 1996 and September 6, 1996 (collectively, the "Loan
Agreement") and a $2,500,000 Second Amended and Restated Revolving
Promissory Note dated September 6, 1996 (the "Second Amended and Restated
Revolving Promissory Note"), the current principal balance of which as of
May 22, 1997 is $1,866,874.11, plus interest accrued and accruing thereon
and costs and expenses of collection, including without limitation,
attorneys' fees (collectively, the "Indebtedness"). Additionally, the
Borrower acknowledges that it has no defense, offset, counterclaim or
right of recoupment to its obligations with respect to the Indebtedness
and further that it has no other claim whatsoever against First Union
(whether arising in contract, tort or otherwise) with respect to the
Indebtedness or any other matter whatsoever.
All indebtedness, liabilities and obligations of the Borrower to
First Union, whenever and however arising, including without limitation,
the obligations arising under the Loan Agreement and the Second Amended
and Restated Revolving Promissory Note, have been unconditionally, jointly
and severally guaranteed by the Guarantor pursuant to a Guaranty Agreement
dated March 11, 1996 (the "Guaranty"). The Guarantor acknowledges that it
has no defense, offset, counterclaim or right of recoupment to its
obligations with respect to the Guaranty and further that it has no other
claim whatsoever against First Union (whether arising in contract, tort or
otherwise) with respect to the Guaranty or any other matter whatsoever.
The Borrower and the Guarantor (collectively, the "Obligors") have
requested that First Union (a) agree that the Indebtedness not be due and
payable on demand, (b) increase the maximum aggregate amount of advances
permitted to be outstanding at any one time under the Revolving Loan from
$2,500,000 to $3,500,000, (c) permit the Borrower to enter into that
certain Agreement for Wholesale Financing with AT&T Commercial Finance
Corporation in the form attached hereto as Exhibit A, and (d) permit the
Borrower to enter into a certain agreement with ICON Capital Corp. in the
form attached hereto as Exhibit B (the "Accommodations"). Capitalized
terms used herein that are not defined herein have the meanings ascribed
to them in the Loan Agreement.
First Union has agreed to extend the Accommodations but only on the
following terms and conditions:
1. As an inducement to and in consideration of First Union's
agreements contained herein, the Obligors represent, warrant and
acknowledge to First Union that (a) all representations and warranties
contained in the Loan Agreement, as modified by the Schedules attached
hereto which are hereby attached to the Loan Agreement in lieu of the
schedules currently attached thereto, and in the other documents executed
in connection with the Indebtedness (collectively, including without
limitation the Loan Agreement, the "Loan Documents") are true and correct
on and as of the date hereof and are incorporated herein by reference and
hereby remade; (b) the resolutions previously adopted by the Board of
Directors of the Borrower and the members of the Guarantor and provided to
First Union have not in any way been rescinded or modified and are now in
full force and effect, except to the extent that they have been modified
or supplemented to authorize this Agreement and the transactions described
herein; (c) no event of default has occurred or is continuing under any of
the Loan Documents and no condition exists which would constitute an event
of default thereunder but for the giving of notice or passage of time, or
both; and (d) the consummation of the transactions contemplated hereby is
not prevented or limited by, nor does it conflict with or result in a
breach of the terms, conditions or provisions of, any evidence of
indebtedness, agreement or instrument of whatever nature to which either
the Borrower or the Guarantor is a party or by which either of them is
bound, does not constitute a default under any of the foregoing, and does
not violate any federal, state or local law, regulation or order of any
court or agency which is binding upon the Borrower or the Guarantor.
2. The Loan Agreement is hereby amended as follows:
(a) By deleting all references in the Loan Agreement to the
Indebtedness being due and payable on demand, it being agreed that the
Indebtedness shall not be due and payable on demand and shall only be due
and payable upon the occurrence of an Event of Default unless the same
shall have been waived or cured during any applicable cure period.
(b) By deleting all references in the Loan Agreement
to "$2,500,000" in their entirety and substituting "$3,500,000" therefor.
(c) By deleting the definition of Borrowing Base and
substituting therefor the following definition:
""Borrowing Base" shall mean an amount equal to the lesser of:
(i) (i) THREE MILLION FIVE HUNDRED THOUSAND DOLLARS
($3,500,000), or (ii) an amount equal to the aggregate of (1)
eighty percent (80%) of Eligible Accounts (not including AT&T
Coupons (as defined below)), plus (2) the lesser of (A) ONE
HUNDRED FIFTY THOUSAND DOLLARS ($150,000), or (B) fifty percent
(50%) of the amount due to Borrower from American Telephone &
Telegraph Company ("AT&T") in connection with the coupons issued
in the so-called SPIRIT Communications System Class Action
Settlement ("AT&T Coupons") (it being expressly agreed and
understood that only the amount by which AT&T's obligations with
respect to AT&T Coupons together with all accounts due from AT&T
to Borrower exceeds the then amount due from Borrower to AT&T
shall be eligible pursuant to this subsection (2)(B)."
(d) By deleting the definition of Prime Rate and
Substituting therefor the following definition:
"Prime Rate" shall mean that rate announced by the Lender
from time to time as its Prime Rate and is one of several
interest rate bases used by Lender. Lender lends at rates both
above and below ▇▇▇▇▇▇'s Prime Rate, and Borrower acknowledges
that ▇▇▇▇▇▇'s Prime Rate is not represented or intended to be
the lowest or most favorable rate of interest offered by ▇▇▇▇▇▇."
(e) By deleting Section 3.1a and substituting therefor the
following:
"(a) Interest Rate. So long as no Defaulting Event has
occurred, the Revolving Loan shall bear interest (from the date
made through and including the date of payment in full), at a
floating rate per annum equal to one-half of one percentage
point (.5%) above the Prime Rate."
(f) By deleting Section 6.21 and substituting therefor the
following:
"Section 6.21 Sale and Lease of Assets. Sell or lease any
assets, except for sales or leases or rentals of inventory in
the ordinary course of business consistent with past practices
and on an arms-length basis; provided, however, that Borrower
may become obligated as lessee under leases covering equipment
having an aggregate cost not to exceed $750,000 in fiscal year
1997 and $250,000 in any fiscal year thereafter."
(g) By adding the following to the Loan Agreement immediately
following Section 6.26 and immediately preceding Article VII on page 26:
"C. Financial Covenants.
"Borrower agrees and covenants that from the date hereof until
the payment and performance in full of the Obligations, and until
termination of this Agreement, Borrower shall not:"
"Section 6.27 Tangible Net Worth. Permit its Tangible Net
Worth to be less than (a) $6,000,000 at May 30, 1997 and at any
time through and including December 30, 1997, and (b) $6,400,000
at any time thereafter. As used herein, "Tangible Net Worth"
shall mean at any time the sum of (i) book value of total assets,
minus (ii) total liabilities, minus (iii) all assets which are
classified as intangible assets in accordance with generally
accepted accounting principles, minus (iv) debt due from any
shareholders of Borrower or other affiliates of Borrower, plus
(v) all debt that has been subordinated to the Lender by express
written agreement between the Lender and the holder of such debt.
6.28 Maximum Leverage. Permit its Maximum Leverage to be
greater than 1.5 to 1.0 at June 30, 1997 and at the end of each
and every fiscal quarter thereafter. As used herein, "Maximum
Leverage" shall mean at any time the ratio of ▇▇▇▇▇▇▇▇'s total
liabilities (minus all debt that has been subordinated to the
Lender by express written agreement between the Lender and the
holder of such debt) to its Tangible Net Worth (as defined in
Section 6.27 hereof).
6.29 Debt Service Coverage Ratio. At December 31, 1997 and at
the end of each and every three (3) month period thereafter,
permit its Debt Service Coverage Ratio for the immediately
preceding twelve (12) month period to be less than 1.2 to 1.0. As
used herein, "Debt Service Coverage Ratio" shall mean that
quotient equal to: (a) the sum of (i) earnings before interest
and income tax expense plus depreciation and amortization during
such twelve (12) month period, plus (ii) the amount of increases
to debt that has been subordinated to the Lender by express
written agreement between the Lender and the holder of such debt
during such twelve (12) month period, plus (iii) unrestricted
cash proceeds of additional equity received during such twelve
(12) month period, minus (iii) all unfinanced expenditures of
cash for the purchase of capital assets during such twelve (12)
month period, minus (iv) distributions to Borrower's shareholders
during such twelve (12) month period, plus/minus (v)
undistributed income/loss of unconsolidated subsidiaries and/or
affiliates during such twelve (12) month period, minus (vi)
reductions during such twelve (12) month period (by virtue of the
payment of dividends, redemptions or otherwise) in any equity,
divided by (b) the sum of (i) the scheduled repayment of long
term indebtedness paid during such preceding twelve (12) month
period, including but not limited to, amounts paid during such
preceding twelve (12) month period under capital leases, plus
(ii) interest expensed during such preceding twelve (12) month
period."
(h) By deleting Section 8.1(d) and substituting therefor the
following:
"(d) loss, theft or destruction of any Collateral in excess of
Two Hundred Fifty Thousand ($250,000) Dollars in value which is
not covered by insurance with ▇▇▇▇▇▇'s loss payee endorsement as
required herein;"
(i) By deleting the reference to "May 31, 1997" in Section
12.1(a)and substituting "May 30, 1999" therefor.
(j) "All references to "Minimum Balance" and "Minimum Interest
Amount" are deleted and Section 12.1(b) is deleted and the following is
substituted therefor:
(b) Termination Fee. In the event that: (a) the Borrower
attempts to breach this Agreement by terminating this Agreement
upon less than 60 days notice during the Term (or upon less than
60 days notice during a Renewal Term), or (b) this Agreement is
terminated as a result of the occurrence of an Event of Default
or a Defaulting Event, immediately upon such termination and in
addition to and any other payments Borrower is required to make
hereunder, Borrower shall pay to Lender a fee equal to $2,500.
(k) "Notwithstanding anything to the contrary contained in the
Loan Agreement, there shall be no dollar limit on the amount the Borrower
is permitted to invest in the Guarantor, and any default arising by virtue
of any failure by the Borrower to comply with any such limit in the past
is hereby waived."
3. Contemporaneously herewith, (a) the Borrower shall execute and
deliver to First Union a $3,500,000 Third Amended and Restated Revolving
Promissory Note (the "Third Amended and Restated Revolving Promissory Note"),
which shall supersede and replace the Second Amended and Restated Revolving
Promissory Note, (b) the Borrower and the Guarantor shall execute and deliver
to First Union resolutions authorizing this Agreement and the transactions
described herein, and (c) the Borrower shall deliver to First Union
intercreditor agreements from AT&T Commercial Finance Corporation and ICON
Capital Corp. (collectively, the "Intercreditor Agreements"), all of which
shall be in form and content satisfactory to First Union."
4. All references in the Loan Agreement to the Second Amended and
estated Revolving Promissory Note are hereby deleted and replaced with
"Third Amended and Restated Revolving Promissory Note". The copy of the
Second Amended and Restated Revolving Promissory Note attached to the Loan
Agreement as Exhibit A is hereby deleted and a copy of the Third Amended
and Restated Revolving Promissory Note is attached in lieu thereof.
5. The Borrower acknowledges and agrees that all indebtedness,
liabilities and obligations of the Borrower to First Union, including
without limitation, the Indebtedness evidenced by the Third Amended and
Restated Revolving Promissory Note, shall (except as set forth in the
Intercreditor Agreements) continue to be secured by a first lien on and
security interest in all of the Borrower's assets."
6. The Guarantor hereby consents to the Accommodations and further
acknowledges and affirms that the Guaranty shall continue to secure all
indebtedness, liabilities and obligations of the Borrower to First Union,
including without limitation, the Indebtedness evidenced by the Third
Amended and Restated Revolving Promissory Note, and shall continue to be
secured by a first lien on and security interest in all of the Guarantor's
assets."
7. "This Agreement and the other Loan Documents constitute the entire
understanding and agreement among the parties hereto and supersede any
prior or contemporaneous oral understanding with respect to the subject
matter hereof. Except as expressly modified herein, the Loan Documents
remain unmodified and in full force and effect in accordance with their
terms. To the extent that there is a conflict between this Agreement and
the Loan Documents, the terms of this Agreement shall prevail."
If the foregoing is in accordance with your agreement, please indicate
the same by signing below."
WITNESSED: "Very truly yours,
_________________________ FARMSTEAD TELEPHONE GROUP, INC.
_________________________
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------
Its Vice President
_________________________ FARMSTEAD ASSET MANAGEMENT
SERVICES, LLC
By: Farmstead Telephone
Group,Inc.
a member
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------
Its Vice President
Reviewed and Agreed to:
FIRST UNION BANK OF CONNECTICUT
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
-----------------
Its Vice President
STATE OF CONNECTICUT )
) ss: East Hartford
COUNTY OF HARTFORD )
On this the ____ day of June, 1997 before me, the undersigned officer,
personally appeared _____________, who acknowledged that he is the __________
of Farmstead Telephone Group, Inc., a Delaware corporation, and that he as
such officer, being authorized so to do, executed the foregoing instrument
for the purposes therein contained, as his and its free act and deed.
IN WITNESS WHEREOF, I hereunto set my hand.
________________________________
Notary Public
My Commission Expires:
STATE OF CONNECTICUT )
ss:
COUNTY OF HARTFORD )
On this the ______ day of June, 1997, before me, the undersigned
officer, personally appeared _____________________, who acknowledged that he
is the ________________________ of Farmstead Telephone Group, Inc., a member
of Farmstead Asset Management Services, LLC, a Delaware limited liability
company, and that he as such officer, being authorized so to do, executed the
foregoing instrument for the purposes therein contained, as his, the member's
and the limited liability company's free act and deed.
IN WITNESS WHEREOF, I hereunto set my hand.
____________________________
Notary Public
My Commission Expires:
STATE OF CONNECTICUT )
ss:
COUNTY OF HARTFORD )
On this the ______ day of June, 1997, before me, the undersigned
officer, personally appeared _____________________, who acknowledged that he
is the ____________ of First Union Bank of Connecticut, and that he as such
officer, being authorized so to do, executed the foregoing instrument for
the purposes therein contained, as his and its free act and deed."
"IN WITNESS WHEREOF, I hereunto set my hand.
Notary Public
My Commission Expires:
STATE OF CONNECTICUT )
COUNTY OF NEW HAVEN )
) ss:
On this the __________day of June, 1997, before me, the undersigned
officer, personally appeared ____________________, who acknowledged that
he is the _________________ of First Union Bank of Connecticut, and that
he as such officer, being authorized so to do, executed the foregoing
instrument for the purposes therein contained, as his and its free act and
deed.
IN WITNESS WHEREOF, I hereunto set my hand.
Notary Public
My Commission Expires:
