EXHIBIT 10(u)
August 24, 1998
First Union National Bank
000 Xxxxxx Xxxxxx
Xxx Xxxxx, XX 00000
Gentlemen:
This letter sets forth our agreements with respect to the obligations
described below of Farmstead Telephone Group, Inc. (the "Borrower") to
First Union National Bank (successor-in-interest to Affiliated Business
Credit Corporation) ("First Union").
Xxxxxxxx acknowledges that it is unconditionally indebted to First
Union with respect to the revolving loan (the "Revolving Loan") extended by
First Union to Borrower in the original principal amount of up to
$3,500,000 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, September 6, 1996, as of May 30, 1997, as of December 1, 1997,
and May 6, 1998 (collectively, the "Loan Agreement") and a $3,500,000 Third
Amended and Restated Revolving Promissory Note dated June 6, 1997 (the
"Third Amended and Restated Revolving Promissory Note"), the current
principal balance of which as of August 24, 1998 is $2,871,861.30 plus
interest accrued and accruing thereon and costs and expenses of collection,
including without limitation, attorneys' fees (collectively, the
"Indebtedness"). Additionally, 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.
Xxxxxxxx has requested that First Union extend to the Borrower the
following accommodation (the "Additional Accommodation"): a temporary
$500,000 increase in the maximum dollar amount of indebtedness that may be
outstanding under the Loan Agreement from $3,500,000 to $4,000,000, which
temporary increase shall be available from the date hereof through
September 30, 1998. 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:
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1. As an inducement to and in consideration of First Union's
agreements contained herein, the Borrower represents, warrants and
acknowledges to First Union that (a) all representations and warranties
contained in the Loan Agreement 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 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) except as expressly
waived herein, 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 Borrower
party or by which it 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 Borrower.
2. The Loan Agreement is hereby amended as follows:
(a) The definition of "Borrowing Base" is hereby deleted in
its entirety and the following is substituted in lieu thereof-
""Borrowing Base" shall mean an amount equal to the lesser of:
(i) (1) from August 24, 1998 through September 30, 1998, FOUR
MILLION DOLLARS ($4,000,000), and (2) from and after October 1,
1998, THREE MILLION FIVE HUNDRED THOUSAND ($3,500,000), or, in
either case, (ii) an amount equal to the aggregate of (1)
seventy-five percent (75%) 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)).".
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3. Borrower acknowledges and affirms that it shall be able to
request the Additional Accommodation only to the extent that Borrower has
borrowing availability pursuant to Section (ii) of the definition of
"Borrowing Base" as currently set forth in the Loan Agreement.
4. Contemporaneously herewith, the Borrower shall execute and/or
deliver to First Union a $500,000 Demand Promissory Note to evidence the
indebtedness that may arise in connection with the Additional
Accommodation, which Note shall be in the form of Exhibit A annexed hereto.
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, including without
limitation the promissory note from FAMS, LLC to Borrower dated December 1,
1997 and all security therefor.
6. 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.
Very truly yours,
FARMSTEAD TELEPHONE GROUP, INC.
By:
--------------------------------
Xxxxxx X. XxXxxxx
Its Executive Vice President & CFO
Reviewed and Agreed to:
FIRST UNION NATIONAL BANK
By:
-------------------------------
Its
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STATE OF CONNECTICUT
ss: East Hartford
COUNTY OF HARTFORD
On this the 24th day of August, 1998 before me, the undersigned
officer, personally appeared Xxxxxx X. XxXxxxx who acknowledged that
he is the Executive Vice President and CFO 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 4/30/2003
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Exhibit A
REVOLVING PROMISSORY NOTE
$500,000 August 24, 1998
For value received, the undersigned, FARMSTEAD TELEPHONE GROUP, INC.,
a Delaware corporation ("Maker"), promises to pay to FIRST UNION BANK OF
CONNECTICUT (SUCCESSOR-IN-INTEREST TO AFFILIATED BUSINESS CREDIT
CORPORATION), or order ("Lender") at its office at 000 Xxxxxx Xxxxxx, Xxx
Xxxxx, Xxxxxxxxxxx 00000, or at such other place as the holder hereof
(including Lender, hereinafter referred to as "Holder") may designate, the
sum of up to FIVE HUNDRED THOUSAND DOLLARS ($500,000), together with
interest on the unpaid balance of this Note, beginning as of the date
hereof, before or after maturity or judgment, at the rate of one half of
one percentage point (.5%) per annum above the Prime Rate on a floating
basis, which rate shall be computed daily and payable monthly in arrears on
the basis of a Three Hundred Sixty (360) day year and actual days elapsed,
together with all taxes levied or assessed on this Note or the debt
evidenced hereby against the Holder, and together with all costs, expenses
and attorneys' and other professional fees incurred in any action to
collect this Note or to enforce, preserve, realize or foreclose any
mortgage, security agreement or other agreement securing this Note or to
preserve, enforce, protect or sustain the lien of said mortgage, security
agreement or other agreement or in any litigation or controversy arising
from or connected with said mortgage, security agreement or other agreement
or this Note. The term "Prime Rate" as used herein 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 Lender's Prime Rate, and Maker acknowledges that Xxxxxx's
Prime Rate is not represented or intended to be the lowest or most
favorable rate of interest offered by Xxxxxx. Any change in the interest
rate because of a change in the Prime Rate shall become effective, without
notice or demand, immediately following any change in the Prime Rate.
The principal amount of this Note shall be advanced, at the sole
discretion of Holder, pursuant to a Commercial Revolving Loan and Security
Agreement between Maker and Lender dated June 5, 1995, as amended by
various letter agreements between Maker and Lender, the most recent of
which is dated as of the date hereof (collectively, the "CRLSA") and is
subject in all respects to the terms and conditions of the CRLSA,
including, but not limited to, the repayment terms and the termination date
set forth in the CRLSA. Advances and payments on this Note may be evidenced
by borrowing certificates, a grid (if any) attached to this Note or similar
certificates or documents, or by an internal
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ledger account of Lender which shall set forth, among other things, the
principal amount of any advances and payments thereof. Interest shall be
paid on the first business day of each and every month commencing on
September 1, 1998. Holder may, in its sole discretion, charge any amounts
due hereunder to Maker's revolving loan account maintained with Holder
pursuant to the CRLSA.
Maker agrees that (i) if any installment of interest, principal or
other sum due hereunder is not paid when it is due under this Note, the
CRLSA or under any instrument evidencing any other obligation of Maker to
Holder; or (ii) if Maker or Holder shall terminate the CRLSA; or (iii) if
Maker or any guarantor of any obligation of Maker hereunder shall make an
assignment for the benefit of creditors or suffer or permit the appointment
of a receiver for any part of its property or suffer or permit the filing
by or against it of any petition for adjudication, arrangement,
reorganization or the like under any bankruptcy or insolvency law; or (iv)
if an Event of Default shall occur under the CRLSA or any mortgage,
security agreement or any other agreement securing this Note, any other
note by Maker to Holder, or in the performance of any other obligation to
Holder or any other entity or person; or (v) if there shall be any material
adverse change from the present condition or affairs (financial or
otherwise) of Maker or any of the guarantors of the obligations of Maker,
that in Holder's reasonable opinion materially impairs its security or
increases its risk; then an Event of Default shall have occurred hereunder
and, upon the happening of any such event, the entire indebtedness with
accrued interest thereon due under this Note shall, at the option of
Holder, be immediately due and payable without notice. Failure to exercise
such option shall not constitute a waiver of the right to exercise the same
in the event of any subsequent default. Upon the occurrence and during the
continuance of such an Event of Default, the interest rate on this Note
shall automatically increase without notice to a floating per annum rate
equal to two percentage points (2.0%) above the rate otherwise in effect
hereunder.
In the event of Maker's failure to pay any installment of interest,
and/or to pay any other sum due hereunder or under the CRLSA for more than
ten (10) days after the date it is due and payable, without in any way
affecting Xxxxxx's right to declare an event of default to have occurred, a
late charge equal to five percent (5%) of such late payment shall be
assessed against Maker and shall be due and payable immediately.
Notwithstanding any provisions of this Note, it is the understanding
and agreement of Maker and Holder (and any guarantors of Maker's
liabilities) that the maximum rate of interest to be paid by Maker (or
guarantors of Maker's liabilities) to Holder shall not exceed the highest
or the maximum rate of interest permissible to be charged by a commercial
lender such as Lender to a commercial borrower such as Maker under the laws
of the State of Connecticut. Any amount paid in excess of such rate shall
be considered to have been payments in reduction of principal.
Maker, and each and all guarantors of this Note hereby give Holder a
lien and right of setoff for all Maker's liabilities upon and against all
the deposits, credits, collateral and property of Maker and guarantors, now
or hereafter in the possession or control of Holder or in transit to it.
Holder may, upon the occurrence of an event of default hereunder or upon
demand for payment of any demand indebtedness owing from Maker to Holder,
apply or set off the same, or any part thereof, to any liability of Maker
even though unmatured.
Failure by Holder to insist upon the strict performance by Maker of
any terms and provisions herein shall not be deemed to be a waiver of any
terms and provisions herein, and Holder shall retain the right thereafter
to insist upon strict performance by Maker of any and all terms and
provisions of this Note or any document securing the repayment of this
Note.
MAKER HEREBY WAIVES TRIAL BY JURY IN ANY COURT AND IN ANY SUIT,
ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY
RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS NOTE IS A PART AND/OR
THE ENFORCEMENT OF ANY OF HOLDER'S RIGHTS AND REMEDIES, INCLUDING WITHOUT
LIMITATION, TORT CLAIMS.
MAKER AND EACH AND ALL GUARANTORS OF THIS NOTE ACKNOWLEDGE THAT THE
LOAN EVIDENCED BY THIS NOTE IS A COMMERCIAL TRANSACTION AND WAIVES ITS
RIGHTS TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL
STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR FEDERAL LAW WITH RESPECT
TO ANY PREJUDGMENT REMEDY WHICH HOLDER MAY DESIRE TO USE, AND FURTHER
WAIVES ITS RIGHTS TO REQUEST THAT HOLDER POST A BOND, WITH OR WITHOUT
SURETY, TO PROTECT SAID MAKER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY
PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY HOLDER. Maker further, waive
diligence, demand, presentment for payment, notice of nonpayment, protest
and notice of protest, and notice of any renewals or extensions of this
Note, and all rights under any statute of limitations, and all guarantors
agree that the time for payment of this Note may be extended at Holder's
sole discretion, without impairing their liability thereon, and further
consent to the release of all or any part of the security for the payment
hereof, at the discretion of Holder, or the release of any party liable for
this obligation without affecting the liability of the other parties
hereto.
MAKER ACKNOWLEDGES THAT IT MAKES THE WAIVERS SET FORTH IN THE TWO
PRECEDING PARAGRAPHS KNOWINGLY,
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VOLUNTARILY AND WITHOUT DURESS AND ONLY AFTER CONSIDERATION OF THE
RAMIFICATIONS OF SUCH WAIVERS WITH ITS ATTORNEYS. MAKER FURTHER
ACKNOWLEDGES THAT XXXXXX HAS NOT AGREED WITH OR REPRESENTED TO MAKER THAT
THE PROVISIONS OF THE TWO PRECEDING PARAGRAPHS WILL NOT BE FULLY ENFORCED
IN ALL INSTANCES.
This Note shall be governed by and construed in accordance with the
laws of the State of Connecticut (but not its conflicts of law provisions).
FARMSTEAD TELEPHONE GROUP, INC.
By:
--------------------------------
Its
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STATE OF CONNECTICUT )
ss: East Hartford
COUNTY OF HARTFORD )
On this the 24th day of August, 1998 before me, the undersigned officer,
personally appeared Xxxxxx X. XxXxxxx who acknowledged that he is the
Executive Vice President and CFO 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: April 30, 2003
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