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EXHIBIT 10.01
[KeyBank Letterhead]
July 31, 1998
Xx. Xxxxx X. Xxxxxxx
Executive Vice President-Finance and Administration
Nematron Corporation
0000 Xxxxxxxxx Xxxxx
Xxx Xxxxx, XX 00000
Re: KeyBank National Association ("Bank") Commercial Loans and
Nematron Corporation ("Borrower")
Dear Xxxxx:
This letter serves to formalize our agreement to renew Nematron's line of
credit, and extend the maturity of Nematron's term loan, both of which
facilities were renewed/granted in connection with a Loan Agreement between
Bank and Borrower dated September 30, 1996 (as amended from time to time, the
"Loan Agreement", and all documents executed in connection therewith being the
"Loan Documents"). As you are aware, the Notes evidencing the obligations of
Nematron under those facilities matured by their terms on May 29, 1998 and
remain unpaid.
In addition to the maturity of the Notes, Borrower has violated covenants
relating to its maintenance of a borrowing base formula, stated levels of
tangible net worth, a current ratio, debt service coverage ratio and a modified
debt to equity ratio, all as set forth in Section 1.1.3, 3.7.1, 3.7.2, 3.8, and
3.9 of the Loan Agreement. Each of these events is an Event of Default under
the Loan Agreement and certain other Loan Document.
The extension of the aforesaid credit facilities will be on the following terms
and conditions:
A. Line of Credit
i. Renewal and extension until January 15, 1999;
ii. Advances subject to strict compliance with borrowing formula,
plus overadvance through August 31, 1998;
iii. Borrowing formula limited to lesser of (a) $6,000,000 or (b)
80% of Eligible Domestic Accounts, plus 80% of Eligible
Foreign Accounts plus
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the following percentages during the following time periods, of the
aggregate sum not to exceed $2,500,000 of (x) Eligible Raw Inventory
(valued at the lower of Borrower's and NemaSoft's cost, or market) and
(y) Eligible Finished Inventory (valued at Borrower's and NemaSoft's
cost of production):
Percentage Time Period
35% Closing through November 29, 1998
34% November 30, 1998 through December 30, 1998
32% December 31, 1998 and thereafter
iv. Advances to bear interest at KeyBank Prime Rate plus one quarter
of one percent, payable monthly on the first day of each month.;
v. Overadvance on line of credit (approximately $595,000 as of June
30, 1998 to be eliminated by no later than August 31, 1998.
B. Term Loan
i) Maturity extended to January 15, 1999;
ii) Monthly payments of principal in the amount of $30,000, payable
on the first day of each month;
iii) Interest on the principal amount of the loan shall accrue at
KeyBank's Prime Rate plus one half of one percent.
C. Terms and Conditions Applicable to Both Line of Credit and Term
Loan
i) Facilities to be cross collateralized and cross defaulted;
ii) Accounts receivable to be directed to a lockbox and cash
collateral account, pursuant to terms of a Master Agreement
Cash Management Services;
iii) All patents and trademarks to be assigned for collateral
purposes to Bank, and documentation necessary or desirable to
file assignment with appropriate offices in Washington, D.C.
to be provided to Bank;
iv) All obligations of Borrower to Bank to be secured by Xxxxxxxx's
real property, and appropriate mortgage amendment to be
executed to accomplish same;
v) Subordinated creditors to further subordinate their interests or
reaffirm subordinations, if so requested by Bank;
vi) Borrower to pay $30,000 extension fee at closing;
vii) Borrower to pay all out of pocket expenses, including legal
fees, incurred by Bank in connection with extending Borrower's
credit facilities, upon demand by Bank therefor;
viii) Borrower shall have obtained a loan, subordinated to Borrower's
obligations to Bank in form and substance satisfactory to Bank,
or an equity infusion, in an amount of not less than $2,000,000
by October 1, 1998;
ix) Terms and conditions stated herein shall be encompassed within a
Repayment Agreement and associated documents, as may be
requested by
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Bank and in form and substance acceptable to Bank (it being
understood all terms of such documents are not exhaustively
set forth herein);
x) There shall occur no further material adverse change in
Borrower's financial condition or prospects from that
heretofore disclosed in writing by Borrower to Bank between
the date hereof and the date of execution of the various
documents necessary to, or requested by Bank in connection
with, the renewal of the above-referenced credit facilities.
If the foregoing terms are acceptable, please indicate by obtaining all
signatures requested below, and returning a signed original to my attention by
no later than August 4, 1998. If the Bank has not received a fully-executed
original by that date, the offer to extend the credit facilities to Borrower
described herein will automatically terminate.
I look forward to hearing from you.
Sincerely,
/s/ Xxxxxxx X. Xxxxxxxxx
Xxxxxxx X. Xxxxxxxxx
Vice President
Agreed to and accepted:
Nematron Corporation
By: Xxxxx X. Xxxxxxx
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Its: VP - Finance & Administration
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NemaSoft, Inc.
By: Xxxxx X. Xxxxxxx
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Its: Secretary
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