EXHIBIT 10(w)
As of October 15, 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
$4,000,000 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,
May 6, 1998, August 24, 1998 and as of September 29, 1998 (collectively,
the "Loan Agreement"), a $3,500,000 Third Amended and Restated Revolving
Promissory Note dated June 6, 1997 (the "Third Amended and Restated
Revolving Promissory Note"), and a $500,000 Revolving Promissory Note dated
August 24, 1998 (the "$500,000 Note") (the Third Amended and Restated
Revolving Promissory Note and the $500,000 Note are collectively referred
to herein as the "Notes"). Borrower acknowledges that the aggregate
outstanding principal balance of the Notes on October 13, 1998 was
$3,644,360.48 ($3,500,000.00 with respect to the Third Amended and Restated
Revolving Promissory Note and $ $144,360.48 with respect to the $500,000
Note), 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.
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Xxxxxxxx has requested that First Union increase the maximum dollar
amount of indebtedness that may be outstanding under the Loan Agreement
from $4,000,000 to $6,000,000, and extend the Term of the Revolving Loan
for the period through and including May 30, 2000 (the "Accommodation"').
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 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) 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 is a 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) All references in the Loan Agreement to "$3,500,000" are
hereby deleted in their entirety and "$6,000,000" is substituted in
lieu thereof.
(b) 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) SIX MILLION DOLLARS ($6,000,000), and
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(ii) an amount equal to seventy-five percent (75%) of Eligible
Accounts."
(c) Section 6.27 is hereby deleted in its entirety and the
following is substituted in lieu thereof-
"Section 6.27 Tangible Net Worth. Permit its Tangible Net
Worth to be less than (a) $5,750,000 at any time through
and including December 31, 1998, and (b) $600,000 at
December 31, 1999 and any time thereafter. As used herein
"Tangible Net Worth" shall mean at any time the sum of
(i) the 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."
(d) The reference to May 30, 1999 in Section 12.1 (a) is
hereby deleted and "May 30, 2000" is substituted in lieu thereof.
(e) All references in the Loan Agreement to the Third Amended
and Restated Revolving Promissory Note are hereby deleted and "Fourth
Amended and Restated Revolving Promissory Note" is substituted
therefor. The copy of the Third Amended and Restated Revolving
Promissory Note attached to the Loan Agreement as Exhibit A is hereby
deleted and a copy of the Fourth Amended and Restated Revolving
Promissory Note annexed hereto as Schedule A is attached in lieu
thereof.
3. 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 Notes, 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.
4. The Borrower has reviewed the areas within its business and
operations which could be adversely affected by, and has developed or is
developing a program to address on a timely basis, the risk that computer
applications used by the Borrower may be unable to recognize and perform
properly
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date-sensitive functions involving certain dates prior to and any date
after December 31, 1999 (the "Year 2000 Problem"). Based upon such review,
the Borrower reasonably believes that the "Year 2000 Problem" will not have
any materially adverse effect on the business or financial condition of the
Borrower. Borrower shall take all action necessary to assure that
Xxxxxxxx's computer based systems are able to operate and effectively
process data including dates on and after January 1, 2000. At the request
of First Union, Borrower shall provide First Union with assurance
acceptable to First Union of Xxxxxxxx's Year 2000 compatibility.
5. On or before the date hereof, Borrower shall pay or have paid
to First Union (i) a facility fee in the amount of $3,750 representing one
quarter of one percent (0.25%) of the increased commitment under the
Revolving Loan, and (ii) all fees and expenses and other costs incurred by
First Union in connection with the Accommodations contemplated herein
(including without limitation, all attorney's and other professional fees
and expenses).
6. Disbursements of Revolving Loan advances shall be made by
crediting the amount thereof to an account of Borrower maintained at First
Union, as specified by Xxxxxxxx.
7. Contemporaneously herewith, (a) the Borrower shall execute and
deliver to First Union a $6,000,000 Fourth Amended and Restated Revolving
Promissory Note (the "Fourth Amended and Restated Revolving Promissory
Note"), which shall supersede and replace the Notes, and (b) the Borrower
shall execute and deliver to
First Union resolutions authorizing this Agreement and the transactions
described herein, all of which shall be in form and content satisfactory to
First Union.
8. 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.
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If the foregoing is in accordance with your agreement, please
indicate the same by signing below.
Very truly yours,
FARMSTEAD TELEPHONE GROUP, INC.
By:
--------------------------------
Its
Reviewed and Agreed to:
FIRST UNION NATIONAL BANK
By
--------------------------------
Its Vice President
STATE OF CONNECTICUT )
ss: East Hartford
COUNTY HARTFORD
On this the 19th day of October, 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 5/31/2002
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Schedule A
----------
FOURTH AMENDED AND RESTATED
REVOLVING PROMISSORY NOTE
$6,000,000 As of October 15, 1998
For value received, the undersigned, FARMSTEAD TELEPHONE GROUP, INC.,
a Delaware corporation ("Maker"), promises to pay to FIRST UNION NATIONAL
BANK (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 SIX
MILLION DOLLARS ($6,000,000), 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 (0.5%) 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 dated March 11, 1996,
May 1, 1996, September 6, 1996, as of May 30, 1997, as of December 1, 1997,
May 6, 1998, August 24, 1998, September 29, 1998 and 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
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similar certificates or documents, or by an internal 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 November 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 risi; 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.
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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.
FARMSTEAD TELEPHONE GROUP, INC.
By:
--------------------------------
Its
STATE OF CONNECTICUT )
ss: East Hartford
COUNTY OF HARTFORD )
On this the _____ day of October, 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:
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