Exhibit 10.3. Letter Agreement Regarding Revolving Line of Credit by and between
Zoom Telephonics, Inc. and Fleet National Bank
ZOOM TELEPHONICS, INC.
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January 17, ▇▇▇▇
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Gentlemen:
This letter agreement will set forth certain understandings between Zoom
Telephonics, Inc., a Delaware corporation (the "Borrower") and Fleet National
Bank (the "Bank") with respect to Revolving Loans (hereinafter defined) to be
made by the Bank to the Borrower and with respect to letters of credit which may
hereafter be issued by the Bank for the account of the Borrower. In
consideration of the mutual promises contained herein and in the other documents
referred to below, and for other good and valuable consideration, receipt and
sufficiency of which are hereby acknowledged, the Borrower and the Bank agree as
follows:
I. AMOUNTS AND TERMS
1.1. The Borrowing; Revolving Note. Subject to the terms and conditions
hereinafter set forth, the Bank will make loans ("Revolving Loans") to the
Borrower, in such amounts as the Borrower may request, on any Business Day prior
to the first to occur of (i) the Expiration Date, or (ii) the earlier
termination of the within-described revolving financing arrangements pursuant to
ss.5.2 or ss.6.6; provided, however, that (1) the aggregate principal amount of
Revolving Loans outstanding shall at no time exceed the Maximum Revolving Amount
(hereinafter defined) and (2) the Aggregate Bank Liabilities (hereinafter
defined) shall at no time exceed the Borrowing Base (hereinafter defined).
Without limitation of the foregoing, no Revolving Loan will be made by the Bank
hereunder if, after giving effect to such Revolving Loan, the Aggregate Bank
Liabilities would exceed $10,000,000. Within the foregoing limits, and subject
to the terms and conditions hereof, the Borrower may obtain Revolving Loans,
repay Revolving Loans and obtain Revolving Loans again on one or more occasions.
The Revolving Loans shall be evidenced by that certain $10,000,000 face amount
promissory note of even date herewith (the "Revolving Note") made by the
Borrower and payable to the order of the Bank. The Borrower hereby irrevocably
authorizes the Bank to make or cause to be made, on a schedule attached to the
Revolving Note or on the books of the Bank, at or following the time of making
each Revolving Loan and of receiving any payment of principal, an appropriate
notation reflecting such transaction and the then aggregate unpaid principal
balance of the Revolving Loans. The amount so noted shall constitute presumptive
evidence as to the amount owed by the Borrower with respect to principal of the
Revolving Loans. Failure of the Bank to make any such notation shall not,
however, affect any obligation of the Borrower or any right of the Bank
hereunder or under the Revolving Note.
1.2. Interest Rate. Except as provided below in this ss.1.2, interest on
the Revolving Loans will be payable at a fluctuating rate per annum (the
"Floating Rate") which shall at all times be equal to the Prime Rate as in
effect from time to time (but in no event in excess of the maximum rate
permitted by then applicable law), with a change in such rate of interest to
become effective on each day when a change in the Prime Rate becomes effective.
Subject to the conditions set forth herein, the Borrower may elect that any
Revolving Loan to be made under ss.1.1 will be made as a LIBOR Loan. Such
election shall be made by the Borrower giving to the Bank a written or
telephonic notice received by the Bank within the time period and containing the
information described in the next following sentence (a "Fixed Rate Borrowing
Notice"). The Fixed Rate Borrowing Notice must be received by the Bank no later
than 10:00 a.m. (Boston time) on that day which is two Business Days prior to
the date of the proposed borrowing and must specify the amount of the LIBOR Loan
requested (which shall be $500,000 or an integral multiple thereof), whether the
Interest Period is proposed to be one month, two months, three months or six
months and the proposed commencement date of the relevant Interest Period.
Notwithstanding anything provided elsewhere in this letter agreement, the
Borrower may not select an Interest Period for any LIBOR Loan which would end
after the Expiration Date. Any Fixed Rate Borrowing Notice shall, upon receipt
by the Bank, become irrevocable and binding on the Borrower, and the Borrower
shall, upon demand and receipt of a Bank Certificate with respect thereto,
forthwith indemnify the Bank against any actual loss or expense incurred by the
Bank as a result of any failure by the Borrower to obtain (other than due to the
failure of the Bank to fund in violation of the Bank's obligations under this
letter agreement) or maintain any requested LIBOR Loan, including, without
limitation, any loss or expense incurred by reason of the liquidation or
redeployment of deposits or other funds acquired by the Bank to fund or maintain
such LIBOR Loan. Each LIBOR Loan will be due and payable in full (if not
required to be repaid earlier pursuant to the terms of this letter agreement) on
the last day of the Interest Period applicable thereto. The principal amount of
any such LIBOR Loan so repaid may be reborrowed as a new LIBOR Loan to the
extent and on the terms and conditions contained in this letter agreement by
delivery to the Bank of a new Fixed Rate Borrowing Notice conforming to the
requirements set forth above in this ss.1.2 (and any LIBOR Loan not so repaid
and not so reborrowed as a new LIBOR Loan will be deemed to have been reborrowed
as a Floating Rate Loan). Notwithstanding any other provision of this letter
agreement, the Bank need not make any LIBOR Loan at any time when there exists
any Event of Default (as hereinafter defined) or any event or circumstance
which, with the giving of notice or the passage of time or both, could become an
Event of Default.
1.3. Repayment; Renewal. The Borrower shall repay in full all Revolving
Loans and all interest thereon upon the first to occur of: (i) the Expiration
Date, or (ii) an acceleration under ss.5.2(a) following an Event of Default. In
addition, if at any time the Borrowing Base is in an amount which is less than
the then outstanding Aggregate Bank Liabilities, the Borrower will forthwith
prepay so much of the Revolving Loans as may be required (or arrange for
termination of such letters of credit as may be required) so that the Aggregate
Bank Liabilities will not exceed the Borrowing Base. The Borrower may prepay, at
any time, without penalty or premium, the whole or any portion of any Revolving
Loan which is a Floating Rate Loan. The Borrower may prepay the whole or any
portion of any Revolving Loan which is a LIBOR Loan; provided that (i) the
Borrower gives the Bank not less than two (2) Business Days' prior written
notice of its intent so to prepay, (ii) the Borrower pays all interest on the
LIBOR Loan (or portion thereof) so prepaid accrued to the date of such
prepayment, (iii) any voluntary prepayment shall be in a principal amount of
$1,000,000 or an integral multiple thereof and (iv) if the Borrower for any
reason makes any prepayment of a LIBOR Loan prior to the last day of the
Interest Period applicable thereto, the Borrower shall forthwith pay all amounts
owing to the Bank pursuant to the provisions of ss.1.6 with respect to such
LIBOR Loan. The Bank may, at its sole discretion, renew the financing
arrangements described in this letter agreement by extending the Expiration Date
in a writing signed by the Bank and accepted by the Borrower. Neither the
inclusion in this letter agreement or elsewhere of covenants relating to periods
of time after the Expiration Date, nor any other provision hereof, nor any
action (except a written extension pursuant to the immediately preceding
sentence), non-action or course of dealing on the part of the Bank will be
deemed an extension of, or agreement on the part of the Bank to extend, the
Expiration Date.
1.4. Interest Payments. The Borrower will pay interest on the principal
amount of the Revolving Loans outstanding from time to time, from the date
hereof until payment of the Revolving Loans and the Revolving Note in full and
the termination of this letter agreement. Interest on Floating Rate Loans will
be payable monthly in arrears on the first day of each month. Interest on each
LIBOR Loan will be paid in arrears on the applicable Interest Payment Date or
Dates. In any event, interest shall also be paid on the date of payment of the
Revolving Loans in full. Interest on Floating Rate Loans shall be payable at the
Floating Rate. The rate of interest payable on any LIBOR Loan will be the
Eurodollar Interest Rate applicable thereto. In any event, overdue principal of
any Revolving Loan and, to the extent permitted by law, overdue interest on any
Revolving Loan shall bear interest at a rate per annum which at all times shall
be equal to the sum of (i) two (2%) percent per annum plus (ii) the rate
otherwise applicable to such overdue principal (or to the principal amount as to
which such interest is overdue) under the Revolving Note, payable on demand. All
interest payable hereunder and/or under the Revolving Note will be calculated on
the basis of a 360-day year for the actual number of days elapsed.
1.5. Rate Determination Protection. In the event that:
(i) the Bank shall determine that, by reason of circumstances
affecting the London interbank market or otherwise, adequate and
reasonable methods do not exist for ascertaining the Eurodollar
Interest Rate which would otherwise be applicable during any
Interest Period, or
(ii) the Bank shall determine that:
(A) the making or continuation of any LIBOR Loan has been
made impracticable or unlawful by (1) the occurrence of
any contingency that materially and adversely affects the
London interbank market or (2) compliance by the Bank in
good faith with any applicable law or governmental
regulation, guideline or order or interpretation or change
thereof by any governmental authority charged with the
interpretation or administration thereof or with any
request or directive of any such governmental authority
(whether or not having the force of law); or
(B) LIBOR will not, in the reasonable determination of the
Bank, adequately and fairly reflect the cost to the Bank
of funding the LIBOR Loans for such Interest Period
then the Bank shall forthwith give notice of such determination
(which shall be conclusive and binding on the Borrower) to the
Borrower. In such event the obligations of the Bank to make LIBOR
Loans shall be suspended until the Bank determines that the
circumstances giving rise to such suspension no longer exist,
whereupon the Bank shall notify the Borrower.
1.6. Prepayment of LIBOR Loans. The following provisions of this ss.1.6
shall be effective only with respect to LIBOR Loans: If, due to acceleration of
the Revolving Note or due to voluntary prepayment or due to any other reason,
the Bank receives payment of any principal of a LIBOR Loan on any date prior to
the last day of the relevant Interest Period, the Borrower shall, upon demand
and receipt of a Bank Certificate from the Bank with respect thereto, pay
forthwith to the Bank all amounts required to compensate the Bank for losses,
costs or expenses which it may have reasonably incurred and may reasonably incur
as a result of such payment, including, without limitation, any loss or expense
incurred by reason of the liquidation or redeployment of funds acquired by the
Bank to fund or maintain such LIBOR Loan. This provision shall apply, without
limitation, to any prepayment required under the second sentence of ss.1.3.
1.7. Increased Costs; Capital Adequacy.
(i) If the adoption, effectiveness or phase-in, after the date
hereof, of any applicable law, rule or regulation, or any change
therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof,
or compliance by the Bank with any request or directive (whether
or not having the force of law) of any such authority, central
bank or comparable agency:
(A) shall subject the Bank to any Imposition or other
charge with respect to any LIBOR Loan, the Revolving Note
or the Bank's agreement to make LIBOR Loans, or shall
change the basis of taxation of payments to the Bank of
the principal of or interest on any LIBOR Loan or any
other amounts due under this letter agreement in respect
of the LIBOR Loans or the Bank's agreement to make LIBOR
Loans (except for changes in the rate of tax on the
over-all net income of the Bank); or
(B) shall impose, modify or deem applicable any reserve,
special deposit, deposit insurance or similar requirement
(including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve
System, but excluding, with respect to any LIBOR Loan, any
such requirement already included in the applicable
Reserve Rate) against assets of, deposits with or for the
account of, or credit extended by, the Bank or shall
impose on the Bank or on the London interbank market any
other condition affecting any LIBOR Loans, the Revolving
Note or the Bank's agreement to make LIBOR Loans
and the result of any of the foregoing is to increase the cost to
the Bank of making or maintaining any LIBOR Loan or to reduce the
amount of any sum received or receivable by the Bank under this
letter agreement or under the Revolving Note with respect to any
LIBOR Loan by an amount deemed by the Bank to be material, then,
upon demand by the Bank and receipt of a Bank Certificate from
the Bank with respect thereto, the Borrower shall pay to the Bank
such additional amount or amounts as the Bank certifies to be
necessary to compensate the Bank for such increased cost or
reduction in amount received or receivable.
(ii) If the Bank shall have determined in good faith that the
adoption, effectiveness or phase-in after the date hereof of any
applicable law, rule or regulation regarding capital requirements
for banks or bank holding companies, or any change therein after
the date hereof, or any change after the date hereof in the
interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the
Bank with any request or directive of such entity regarding
capital adequacy (whether or not having the force of law) has or
would have the effect of reducing the return on the Bank's
capital with respect to its agreement hereunder to make Revolving
Loans or with respect to any Revolving Loan (whether or not then
subject to any Eurodollar Interest Rate) to a level below that
which the Bank could have achieved (taking into consideration the
Bank's policies with respect to capital adequacy immediately
before such adoption, effectiveness, phase-in, change or
compliance and assuming that the Bank's capital was then fully
utilized) by any amount deemed by the Bank in good faith to be
material: (A) the Bank shall promptly after its determination of
such occurrence give notice thereof to the Borrower; and (B) the
Borrower shall pay to the Bank as an additional fee from time to
time on demand such amount as the Bank certifies to be the amount
that will compensate it for such reduction. A Bank Certificate of
the Bank claiming compensation under this ss.1.7 shall be
presumptively conclusive in the absence of manifest error. Such
certificate shall set forth the nature of the occurrence giving
rise to such compensation, the additional amount or amounts to be
paid to the Bank hereunder and the method by which such amounts
are determined. In determining any such amount, the Bank may use
any reasonable averaging and attribution methods.
(iii) No failure on the part of the Bank to demand compensation
on any one occasion shall constitute a waiver of its right to
demand such compensation on any other occasion and no failure on
the part of the Bank to deliver any Bank Certificate in a timely
manner shall in any way reduce any obligation of the Borrower to
the Bank under this ss.1.7.
1.8. Illegality or Impossibility. Notwithstanding any other provision of
this letter agreement, if the introduction of or any change in or in the
interpretation or administration of any law or regulation applicable to the Bank
or the Bank's good faith activities in the London interbank market shall make it
unlawful, or any central bank or other governmental authority having
jurisdiction over the Bank or the Bank's good faith activities in the London
interbank market shall assert that it is unlawful, or otherwise make it
impossible, for the Bank to perform its obligations hereunder to make LIBOR
Loans or to continue to fund or maintain LIBOR Loans, then on notice thereof and
demand therefor by the Bank in good faith to the Borrower, (i) the obligation of
the Bank to fund LIBOR Loans shall terminate and (ii) the Borrower shall prepay
in full all affected LIBOR Loans on or prior to the last day on which such LIBOR
Loans may legally remain outstanding.
1.9. Advances and Payments. The proceeds of all Revolving Loans shall be
credited by the Bank to a general deposit account maintained by the Borrower
with the Bank. The proceeds of each Revolving Loan will be used by the Borrower
solely for working capital purposes.
The Bank may charge any general deposit account of the Borrower at the
Bank with the amount of all payments of interest, principal and other sums due,
from time to time, under this letter agreement and/or the Revolving Note and/or
with respect to any letter of credit; and will thereafter notify the Borrower of
the amount so charged. The failure of the Bank so to charge any account or to
give any such notice shall not affect the obligation of the Borrower to pay
interest, principal or other sums as provided herein or in the Revolving Note or
with respect to any letter of credit.
Whenever any payment to be made to the Bank hereunder or under the
Revolving Note or with respect to any letter of credit shall be stated to be due
on a day which is not a Business Day, such payment may be made on the next
succeeding Business Day, and interest payable on each such date shall include
the amount thereof which shall accrue during the period of such extension of
time. All payments by the Borrower hereunder and/or in respect of the Revolving
Note and/or with respect to any letter of credit shall be made net of any
Impositions or taxes and without deduction, set-off or counterclaim,
notwithstanding any claim which the Borrower may now or at any time hereafter
have against the Bank. All payments of interest, principal and any other sum
payable hereunder and/or under the Revolving Note shall be made to the Bank, in
immediately available funds, at its office at ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
or to such other address as the Bank may from time to time direct. All payments
received by the Bank after 2:00 p.m. on any day shall be deemed received as of
the next succeeding Business Day. All monies received by the Bank shall be
applied first to fees, charges, costs and expenses payable to the Bank under
this letter agreement, the Revolving Note and/or any of the other Loan
Documents, next to interest then accrued on account of any Revolving Loans or
letter of credit reimbursement obligations and only thereafter to principal of
the Revolving Loans and letter of credit reimbursement obligations. All interest
and fees payable hereunder and/or under the Revolving Note shall be calculated
on the basis of a 360-day year for the actual number of days elapsed.
1.10. Letters of Credit. At the Borrower's request, the Bank may, from
time to time, in its discretion, issue one or more letters of credit for the
account of the Borrower; provided that at the time of such issuance and after
giving effect thereto the Aggregate Bank Liabilities will in no event exceed the
lesser of (i) $10,000,000 or (ii) the then effective Borrowing Base. Any such
letter of credit will be issued for such fee and upon such terms and conditions
as may be agreed to by the Bank and the Borrower at the time of issuance. The
Borrower hereby authorizes the Bank, without further request from the Borrower,
to cause the Borrower's liability to the Bank for reimbursement of funds drawn
under any such letter of credit to be repaid from the proceeds of a Revolving
Loan to be made hereunder. The Borrower hereby irrevocably requests that such
Revolving Loans be made.
1.11. Conditions to Advance. Prior to the making of the initial Revolving
Loan or the issuance of any letter of credit hereunder, the Borrower shall
deliver to the Bank duly executed copies of this letter agreement, the Revolving
Note and the documents and other items listed on the Closing Agenda delivered
herewith by the Bank to the Borrower, all of which, as well as all legal matters
incident to the transactions contemplated hereby, shall be satisfactory in form
and substance to the Bank and its counsel in good faith.
Without limiting the foregoing, any Revolving Loan or letter of credit
issuance (including the initial Revolving Loan or letter of credit issuance) is
subject to the further conditions precedent that on the date on which such
Revolving Loan is made or such letter of credit is issued (and after giving
effect thereto):
(a) All statements, representations and warranties of the Borrower made
in this letter agreement and/or in the Security Agreement shall continue to be
correct in all material respects as of the date of such Revolving Loan or the
date of issuance of such letter of credit, as the case may be, other than any
such statements, representations and warranties which by their terms refer only
to the date of this letter agreement.
(b) All covenants and agreements of the Borrower contained herein and/or
in any of the other Loan Documents shall have been complied with in all material
respects on and as of the date of such Revolving Loan or the date of issuance of
such letter of credit, as the case may be.
(c) No event which constitutes, or which with notice or lapse of time or
both could constitute, an Event of Default shall have occurred and be
continuing.
(d) No material adverse change shall have occurred in the financial
condition of the Borrower from that disclosed in the financial statements then
most recently furnished to the Bank.
Each request by the Borrower for any Revolving Loan or for the issuance
of any letter of credit, and each acceptance by the Borrower of the proceeds of
any Revolving Loan or delivery of a letter of credit, will be deemed a
representation and warranty by the Borrower that at the date of such Revolving
Loan or the date of issuance of such letter of credit, as the case may be, and
after giving effect thereto all of the conditions set forth in the foregoing
clauses (a)-(d) of this ss.1.11 will be satisfied. Each request for a Revolving
Loan or letter of credit issuance will be accompanied by a borrowing base
certificate on a form satisfactory to the Bank, executed by the chief financial
officer of the Borrower, unless such a certificate shall have been previously
furnished setting forth the Borrowing Base as at a date not more than 30 days
prior to the date of the requested borrowing or the requested letter of credit
issuance, as the case may be.
II. REPRESENTATIONS AND WARRANTIES
2.1. Representations and Warranties. In order to induce the Bank to enter
into this letter agreement and to make Revolving Loans hereunder and/or issue
letters of credit hereunder, the Borrower warrants and represents to the Bank as
follows:
(a) The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of Delaware. The Borrower has full corporate
power to own its property and conduct its business as now conducted and as
proposed to be conducted and to enter into and perform this letter agreement and
the other Loan Documents. The Borrower is duly qualified to do business and in
good standing in Massachusetts and is also duly qualified to do business and in
good standing in each other jurisdiction where the failure so to qualify could
(singly or in the aggregate with all other such failures) have a material
adverse effect on the financial condition, business or prospects of the
Borrower, all such jurisdictions being listed on item 2.1(a) of the attached
Disclosure Schedule. At the date hereof, the Borrower has no Subsidiaries,
except as shown on said item 2.1(a) of the attached Disclosure Schedule. The
Borrower is not a member of any partnership or joint venture. Each of FSC, Zoom
UK and Tribe is a wholly-owned Subsidiary of the Borrower which has no
Indebtedness for borrowed money (except to the Borrower) and conducts no
business other than acting as a distributor of the Borrower's products.
(b) At the date of this letter agreement, all of the outstanding capital
stock of the Borrower is owned, of record and beneficially, by the Parent.
(c) The execution, delivery and performance by the Borrower of this
letter agreement and each of the other Loan Documents have been duly authorized
by all necessary corporate and other action and do not and will not:
(i) violate any provision of, or require as a prerequisite to
effectiveness any filing, registration, consent or approval under, any
law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to the
Borrower;
(ii) violate any provision of the charter or by-laws of the
Borrower, or result in a breach of or constitute a default or require
any waiver or consent under any indenture or loan or credit agreement or
any other material agreement, lease or instrument to which the Borrower
is a party or by which the Borrower or any of its properties may be
bound or affected or require any other consent of any Person; or
(iii) result in, or require, the creation or imposition of any
lien, security interest or other encumbrance (other than in favor of the
Bank), upon or with respect to any of the properties now owned or
hereafter acquired by the Borrower.
(d) This letter agreement and each of the other Loan Documents delivered
herewith has been duly executed and delivered by the Borrower and each is a
legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its respective terms.
(e) Except as described on item 2.1(e) of the attached Disclosure
Schedule, there are no actions, suits or proceedings pending or, to the
knowledge of the Borrower, threatened by or against the Borrower or any
Subsidiary (nor, to the knowledge of the Borrower, is there any pending or
threatened investigation of the Borrower or any Subsidiary) before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which could hinder or prevent the consummation of the
transactions contemplated hereby or call into question the validity of this
letter agreement or any of the other Loan Documents or any action taken or to be
taken in connection with the transactions contemplated hereby or thereby or
which in any single case or in the aggregate is reasonably likely to have
resulted in or is reasonably expected to result in any material adverse change
in the business, prospects, condition, affairs or operations of the Borrower or
any Subsidiary.
(f) The Borrower is not in violation of any term of its charter or
by-laws as now in effect. Neither the Borrower nor any Subsidiary of the
Borrower is in material violation of any term of any mortgage, indenture or
judgment, decree or order, or any other material instrument, contract or
agreement to which it is a party or by which any of its property is bound.
(g) The Borrower has filed (and has caused each of its Subsidiaries to
file) all federal, foreign, state and local tax returns, reports and estimates
required to be filed by the Borrower and/or by any such Subsidiary. All such
filed returns, reports and estimates are proper and accurate and the Borrower or
the relevant Subsidiary has paid all taxes, assessments, impositions, fees and
other governmental charges required to be paid in respect of the periods covered
by such returns, reports or estimates. No deficiencies for any tax, assessment
or governmental charge have been asserted or assessed, and the Borrower knows of
no material tax liability or basis therefor.
(h) The Borrower is in compliance (and each Subsidiary of the Borrower
is in compliance) with all requirements of law, federal, foreign, state and
local, and all requirements of all governmental bodies or agencies having
jurisdiction over it, the conduct of its business, the use of its properties and
assets, and all premises occupied by it, failure to comply with any of which
could (singly or in the aggregate with all other such failures) have a material
adverse effect upon the assets, business, financial condition or prospects of
the Borrower or any such Subsidiary. Without limiting the foregoing, the
Borrower has all the material franchises, licenses, leases, permits,
certificates and authorizations needed for the conduct of its business and the
use of its properties and all premises occupied by it, as now conducted, owned
and used and as proposed to be conducted, owned and used.
(i) The audited consolidated financial statements of the Parent and the
Parent's Subsidiaries as at December 31, 1995 and the management-generated
statements of the Parent and the Parent's Subsidiaries as at September 30, 1996,
each heretofore delivered to the Bank, are complete and accurate and fairly
present the financial condition of the Parent and the Parent's Subsidiaries as
at the respective dates thereof and for the periods covered thereby, except that
the management-generated statements do not have footnotes and thus do not
present the information which would normally be contained in the footnotes to
financial statements and subject to normal year-end adjustments, which shall not
be material. Neither the Parent nor any of the Parent's Subsidiaries has any
liability, contingent or otherwise, not disclosed in the aforesaid financial
statements or in any notes thereto that could materially affect the financial
condition of the Parent and the Parent's Subsidiaries. Since December 31, 1995,
there has been no material adverse development in the business, condition or
prospects of the Parent and the Parent's Subsidiaries, and neither the Parent
nor any of the Parent's Subsidiaries has entered into any material transaction
other than in the ordinary course.
(j) The principal place of business and chief executive offices of the
Borrower are located at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇.
(k) To the best knowledge of the Borrower, the Borrower owns or has a
valid right to use all of the material patents, copyrights, trademarks and trade
names now being used to conduct its business. To the best knowledge of the
Borrower, the conduct of the Borrower's business as now operated does not
conflict with valid patents, copyrights, trademarks or trade names of others in
any manner that could materially adversely affect the business, prospects,
assets or condition, financial or otherwise, of the Borrower.
(l) To the best knowledge of the Borrower, none of the executive
officers or key employees of the Borrower is subject to any agreement in favor
of anyone other than the Borrower which materially limits or restricts that
person's right to engage in the type of business activity conducted or proposed
to be conducted by the Borrower or which grants to anyone other than the
Borrower any rights in any inventions or other ideas susceptible to legal
protection developed or conceived by any such officer or key employee.
(m) The Borrower is not a party to any contract or agreement which now
has or, as far as can be foreseen by the Borrower at the date hereof, may have a
material adverse effect on the financial condition, business, prospects or
properties of the Borrower.
III. AFFIRMATIVE COVENANTS AND REPORTING REQUIREMENTS
Without limitation of any other covenants and agreements contained
herein or elsewhere, the Borrower agrees that so long as the financing
arrangements contemplated hereby are in effect or any Revolving Loan or any of
the other Obligations shall be outstanding or any letter of credit issued
hereunder shall be outstanding:
3.1. Legal Existence; Qualification; Compliance. The Borrower will
maintain (and will cause each Subsidiary of the Borrower to maintain) its
corporate existence and good standing in the jurisdiction of its incorporation.
The Borrower will remain qualified to do business and in good standing in
Massachusetts and the Borrower will qualify to do business and will remain
qualified and in good standing (and the Borrower will cause each Subsidiary of
the Borrower to qualify and remain qualified and in good standing) in each other
jurisdiction where the failure so to qualify could (singly or in the aggregate
with all other such failures) have a material adverse effect on the financial
condition, business or prospects of the Borrower or any such Subsidiary. The
Borrower will comply (and will cause each Subsidiary of the Borrower to comply)
with its charter documents and by-laws. The Borrower will comply with (and will
cause each Subsidiary of the Borrower to comply with) all applicable laws, rules
and regulations (including, without limitation, ERISA and those relating to
environmental protection) other than (i) laws, rules or regulations the validity
or applicability of which the Borrower or such Subsidiary shall be contesting in
good faith by proceedings which serve as a matter of law to stay the enforcement
thereof and (ii) those laws, rules and regulations the failure to comply with
any of which could not (singly or in the aggregate) have a material adverse
effect on the financial condition, business or prospects of the Borrower or any
such Subsidiary.
3.2. Maintenance of Property; Insurance. The Borrower will maintain and
preserve (and will cause each Subsidiary of the Borrower to maintain and
preserve) all of its fixed assets used in its business in good working order and
condition, making all necessary repairs thereto and replacements thereof. The
Borrower will maintain, with financially sound and reputable insurers, insurance
with respect to its property and business against such liabilities, casualties
and contingencies and of such types and in such amounts as shall be reasonably
satisfactory to the Bank from time to time and in any event all such insurance
as may from time to time be customary for companies conducting a business
similar to that of the Borrower in similar locales.
3.3. Payment of Taxes and Charges. The Borrower will pay and discharge
(and will cause each Subsidiary of the Borrower to pay and discharge) all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or property, including, without limitation, taxes, assessments, charges
or levies relating to real and personal property, franchises, income,
unemployment, old age benefits, withholding, or sales or use, prior to the date
on which penalties would attach thereto, and all lawful claims (whether for any
of the foregoing or otherwise) which, if unpaid, might give rise to a lien upon
any property of the Borrower or any such Subsidiary, except any of the foregoing
which is being contested in good faith and by appropriate proceedings which
serve as a matter of law to stay the enforcement thereof and for which the
Borrower has established and is maintaining adequate reserves. The Borrower will
pay, and will cause each of its Subsidiaries to pay, in a timely manner, all
material lease obligations, material trade debt, material purchase money
obligations and material equipment lease obligations. The Borrower will perform
and fulfill all material covenants and agreements under any material leases of
real estate, material agreements relating to purchase money debt, material
equipment leases and other material contracts. The Borrower will maintain in
full force and effect, and comply with the terms and conditions of, all material
permits, permissions and licenses necessary or desirable for its business.
3.4. Accounts. The Borrower will maintain its principal depository
and operating accounts with the Bank.
3.5. Conduct of Business. The Borrower will conduct, in the ordinary
course, the business in which it is presently engaged. The Borrower will not,
without the prior written consent of the Bank (such consent not to be
unreasonably withheld), directly or indirectly (itself or through any
Subsidiary) enter into any other unrelated lines of business, businesses or
ventures.
3.6. Reporting Requirements. The Borrower will furnish to the Bank
(or cause to be furnished to the Bank):
(i) Within 90 days after the end of each fiscal year of the
Parent, a copy of the consolidated annual audit report for such fiscal
year for the Parent and the Parent's Subsidiaries, including therein
consolidated and consolidating balance sheets of the Parent and the
Parent's Subsidiaries as at the end of such fiscal year and related
consolidated and consolidating statements of income, stockholders'
equity and cash flow for the fiscal year then ended. Said consolidating
statements will include schedules showing the financial results of the
Borrower separately, certified as accurate by the Borrower's chief
financial officer. The annual consolidated financial statements shall be
certified by independent public accountants selected by the Parent and
reasonably acceptable to the Bank, such certification to be in such form
as is generally recognized as "unqualified". The Borrower will also
deliver to the Bank, within 90 days after the end of each fiscal year,
projections of sales, income and expenses of the Borrower for the
succeeding fiscal year, prepared by the Borrower's management, such
projections to be in such detail as is reasonably satisfactory to the
Bank.
(ii) Within 45 days after the end of each fiscal quarter of the
Borrower, a copy of the Parent and the Parent's Subsidiaries
consolidated Quarterly Report on Form 10-Q, as filed with the Securities
and Exchange Commission ("SEC"). If, for any reason, the Parent is not
required to file such Quarterly Report on Form 10-Q with the SEC within
45 days after the end of any fiscal quarter, then within such 45-day
period after the end of such fiscal quarter the Borrower will deliver
(or cause to be delivered) to the Bank consolidated and consolidating
balance sheets of the Parent and the Parent's Subsidiaries and related
consolidated and consolidating statements of income and cash flow,
unaudited but complete and accurate (except with regard to year-end
FSC-related adjustments) and prepared in accordance with generally
accepted accounting principles consistently applied fairly presenting
the financial condition of the Parent and the Parent's Subsidiaries as
at the dates thereof and for the periods covered thereby (except that
such quarterly statements need not contain footnotes) and certified as
accurate (except with regard to year-end FSC-related adjustments) by the
chief financial officer of the Parent, such balance sheets to be as at
the end of such fiscal quarter and such statements of income and cash
flow to be for such fiscal quarter and for the year to date. The
above-described Form 10-Q or other quarterly financial statements will
include or be accompanied by schedules showing the financial results of
the Borrower separately, certified as accurate by the Borrower's chief
financial officer. In any event, the Borrower will also deliver to the
Bank on a quarterly basis, within 45 days after the end of each fiscal
quarter, an accounts receivable aging report in such form and in such
detail as is reasonably satisfactory to the Bank, which report shall
include, without limitation, detail as to foreign Receivables and a
summary list of the Borrower's top ten customers.
(iii) At the time of delivery of each annual or quarterly report
or financial statement of the Parent and the Parent's Subsidiaries or of
the Borrower, a certificate executed by the chief financial officer of
the Borrower stating that he or she has reviewed this letter agreement
and the other Loan Documents and has no knowledge of any default by the
Borrower in the performance or observance of any of the provisions of
this letter agreement or of any of the other Loan Documents or, if he or
she has such knowledge, specifying each such default and the nature
thereof. Each financial statement given as at the end of any fiscal
quarter of the Borrower will also set forth the calculations necessary
to evidence compliance with ss.ss.3.7-3.10.
(iv) Monthly, within 20 days after the end of each month, (A) an
aging report in form satisfactory to the Bank covering all Receivables
of the Borrower outstanding as at the end of such month, and (B) a
certificate of the chief financial officer of the Borrower setting forth
the Borrowing Base as at the end of such month, all in form reasonably
satisfactory to the Bank.
(v) Promptly after receipt, a copy of all audits or reports
submitted to the Parent and/or any of the Parent's Subsidiaries by
independent public accountants in connection with any annual, special or
interim audits of the books of the Parent and/or any of the Parent's
Subsidiaries and any letter of comments directed by such accountants to
the management of the Parent and/or any of the Parent's Subsidiaries.
(vi) As soon as possible and in any event within five days after
the occurrence of any Event of Default or any event which, with the
giving of notice or passage of time or both, would constitute an Event
of Default, the statement of the Borrower setting forth details of each
such Event of Default or event and the action which the Borrower
proposes to take with respect thereto, provided, however, that the
Borrower need not furnish such statements with respect to the covenants
contained in any of Sections 3.7, 3.8, 3.9 and/or 3.10 as to any fiscal
period until the earlier of (i) the closing of the Borrower's fiscal
books for the relevant fiscal period or (ii) 20 days after the end of
the relevant fiscal period.
(vii) Promptly after the commencement thereof, notice of all
actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, to which the Borrower or any Subsidiary of the
Borrower is a party.
(viii) As long as the Parent and/or any of the Parent's
Subsidiaries has a class of securities which is publicly traded, a copy
of each periodic or current report of the Parent and/or any of the
Parent's Subsidiaries filed with the SEC or any successor agency and
each annual report, proxy statement and other communication sent by the
Parent and/or any of the Parent's Subsidiaries to shareholders or other
securityholders generally, such copy to be provided to the Bank promptly
upon such filing with the SEC or such communication with shareholders or
securityholders, as the case may be.
(ix) Promptly after the Borrower has knowledge thereof, written
notice of any development or circumstance which may reasonably be
expected to have a material adverse effect on the Borrower or its
business, properties, assets, Subsidiaries or condition, financial or
otherwise.
(x) Promptly upon request, such other information respecting the
financial condition, operations, Receivables, inventory, machinery or
equipment of the Borrower or any Subsidiary as the Bank may from time to
time reasonably request.
3.7. Debt to Worth. The Borrower will maintain as at the end of each
fiscal quarter (commencing with its results as at September 30, 1996) on a
consolidated basis a Leverage Ratio of not more than 1.0 to 1. As used herein,
"Leverage Ratio" means, as at any date when same is to be determined, the ratio
of (x) the total consolidated Senior Debt of the Borrower and/or its
Subsidiaries then outstanding to (y) the then consolidated Capital Base of the
Borrower and its Subsidiaries.
3.8. Capital Base. The Borrower will maintain as at the end of each
fiscal quarter (commencing with its results as at September 30, 1996) a
consolidated Capital Base of not less than the then-effective Capital Base
Requirement. As used herein, the "Capital Base Requirement" will be deemed to
have been $40,000,000 for June 30, 1996; and as at the last day of each fiscal
quarter thereafter (commencing with September 30, 1996) (each, a "Determination
Date"), the Capital Base Requirement will be deemed to become an amount equal to
the sum of: (i) that Capital Base Requirement which was in effect at the last
day of the immediately preceding fiscal quarter, plus (ii) 50% of the
consolidated Net Income of the Borrower and Subsidiaries during the fiscal
quarter ending at such Determination Date (but without giving effect to any Net
Income which is less than zero for any fiscal quarter).
3.9. Profitability. The Borrower will not incur a consolidated quarterly
Net Loss of $2,500,000 or more in any fiscal quarter (commencing with its
results for the fiscal quarter ended September 30, 1996). Further, if the
Borrower incurs any consolidated quarterly Net Loss in any fiscal quarter
(commencing with its results for the fiscal quarter ending September 30, 1996),
then the Borrower will achieve a consolidated quarterly Net Income of at least
$1.00 for the immediately following fiscal quarter.
3.10. Liquidity. The Borrower will maintain as at the end of each fiscal
quarter of Borrower (commencing with its results as at September 30, 1996) a
ratio of Net Quick Assets to Current Liabilities, which ratio shall be not less
than 1.5 to 1.
3.11. Books and Records. The Borrower will maintain (and will cause the
Parent and the Parent's Subsidiaries and each of the Borrower's Subsidiaries to
maintain) complete and accurate books, records and accounts which will at all
times accurately and fairly reflect all of its transactions in accordance with
generally accepted accounting principles consistently applied. The Borrower
will, at any reasonable time and from time to time upon reasonable notice and
during normal business hours (and at any time and without any necessity for
notice following the occurrence of an Event of Default), permit the Bank, and
any agents or representatives thereof, to examine and make copies of and take
abstracts from the records and books of account of, and visit the properties of
the Borrower and any of its Subsidiaries, and to discuss its affairs, finances
and accounts with its officers, directors and/or independent accountants, all of
whom are hereby authorized and directed to cooperate with the Bank in carrying
out the intent of this ss.3.11. Each financial statement of the Borrower
hereafter delivered pursuant to this letter agreement will be complete and
accurate and will fairly present the financial condition of the Borrower as at
the date thereof and for the periods covered thereby, subject (as to interim
financial statements) to normal year-end audit adjustments.
IV. NEGATIVE COVENANTS
Without limitation of any other covenants and agreements contained
herein or elsewhere, the Borrower agrees that so long as the financing
arrangements contemplated hereby are in effect or any Revolving Loan or any of
the other Obligations shall be outstanding or any letter of credit issued
hereunder shall be outstanding:
4.1. Indebtedness. The Borrower will not create, incur, assume or suffer
to exist any Indebtedness (nor allow any of its Subsidiaries to create, incur,
assume or suffer to exist any Indebtedness), except for:
(i) Indebtedness owed to the Bank (or its assigns), including,
without limitation, the Indebtedness represented by the Revolving Note
and any Indebtedness in respect of letters of credit issued by the Bank;
(ii) Subject always to the satisfaction of the requirements of clause
(vi) of ss.4.6 below, (A) Indebtedness of Subsidiaries of the Borrower
owed to the Borrower, (B) Indebtedness of the Borrower owed to any
Subsidiary of the Borrower and (C) Indebtedness of any Subsidiary of the
Borrower owed to any other Subsidiary of the Borrower;
(iii) Indebtedness of the Borrower or any Subsidiary for taxes,
assessments and governmental charges or levies not yet due and payable;
(iv) Indebtedness under or in respect of currency exchange contracts
or interest rate protection obligations incurred in the ordinary course
of business; provided that the aggregate of the notional amounts of all
such contracts and obligations will not exceed $1,000,000;
(v) Indebtedness in connection with performance bonds or letters of
credit obtained and issued in the ordinary course of business; including
letters of credit related to insurance associated with claims for
work-related injuries;
(vi) Subordinated Debt; provided that the Bank has consented to the
economic terms, amount and subordination provisions of all such
Subordinated Debt;
(vii) unsecured current liabilities of the Borrower or any Subsidiary
(other than for money borrowed or for purchase money Indebtedness with
respect to fixed assets) incurred upon customary terms in the ordinary
course of business;
(viii) purchase money Indebtedness (including, without limitation,
Indebtedness in respect of capitalized equipment leases) owed to
equipment vendors and/or lessors for equipment purchased or leased by
the Borrower for use in the Borrower's business, provided that the total
of Indebtedness permitted under this clause (viii) plus
presently-existing equipment financing permitted under clause (ix) of
this ss.4.1 will not exceed $2,000,000 in the aggregate outstanding at
any one time;
(ix) other Indebtedness (not described in any of clauses (i)-(viii)
above) existing at the date hereof, but only to the extent set forth on
item 4.1 of the attached Disclosure Schedule; and
(x) any guaranties or other contingent liabilities expressly
permitted pursuant to ss.4.3.
4.2. Liens. The Borrower will not create, incur, assume or suffer to
exist (nor allow any of its Subsidiaries to create, incur, assume or suffer to
exist) any mortgage, deed of trust, pledge, lien, security interest, or other
charge or encumbrance (including the lien or retained security title of a
conditional vendor) of any nature (collectively, "Liens"), upon or with respect
to any of its property or assets, now owned or hereafter acquired, except that
the foregoing restrictions shall not apply to:
(i) Liens for taxes, assessments or governmental charges or levies on
property of the Borrower or any of its Subsidiaries if the same shall
not at the time be delinquent or thereafter can be paid without interest
or penalty or are being contested in good faith and by appropriate
proceedings which serve as a matter of law to stay any enforcement
thereof and as to which adequate reserves are maintained;
(ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar Liens arising in the ordinary course
of business for sums not yet due or which are being contested in good
faith and by appropriate proceedings which serve as a matter of law to
stay the enforcement thereof and as to which adequate reserves are
maintained;
(iii) pledges or deposits under workmen's compensation laws,
unemployment insurance, social security, retirement benefits or similar
legislation;
(iv) Liens in favor of the Bank;
(v) Liens in favor of equipment vendors and/or lessors securing
purchase money Indebtedness to the extent permitted by clause (viii) of
ss.4.1; provided that no such Lien will extend to any property of the
Borrower other than the specific items of equipment financed; or
(vi) other Liens existing at the date hereof, but only to the extent
and with the relative priorities set forth on item 4.2 of the attached
Disclosure Schedule.
Without limitation of the foregoing, the Borrower covenants and agrees
that it will not enter into (and represents and warrants that it is not now a
party to or subject to) any agreement or understanding with any Person other
than the Bank which could prohibit or restrict in any manner the right of the
Borrower to grant Liens on its assets to the Bank.
4.3. Guaranties. The Borrower will not, without the prior written consent
of the Bank, assume, guarantee, endorse or otherwise become directly or
contingently liable (including, without limitation, liable by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply
funds to or otherwise invest in any debtor or otherwise to assure any creditor
against loss) (and will not permit any of its Subsidiaries so to assume,
guaranty or become directly or contingently liable) in connection with any
indebtedness of any other Person, except (i) guaranties by endorsement for
deposit or collection in the ordinary course of business, (ii) guaranties in the
ordinary course connected with the sale of the products or services, and (iii)
guaranties existing at the date hereof and described on item 4.3 of the attached
Disclosure Schedule.
4.4. Dividends. The Borrower will not, without the prior written consent
of the Bank, make any distributions to its shareholders, pay any dividends
(other than dividends payable solely in capital stock of the Borrower) or
redeem, purchase or otherwise acquire, directly or indirectly any of its capital
stock.
4.5. Loans and Advances. The Borrower will not make (and will not permit
any Subsidiary to make) any loans or advances to any Person, including, without
limitation, the Borrower's directors, officers and employees, except advances to
such directors, officers or employees with respect to expenses incurred by them
in the ordinary course of their duties and advances against salary, all of which
loans and advances will not exceed, in the aggregate, $500,000 outstanding at
any one time.
4.6. Investments. The Borrower will not, without the Bank's prior written
consent (which consent shall not be unreasonably withheld), invest in, hold or
purchase any stock or securities of any Person (nor will the Borrower permit any
of its Subsidiaries to invest in, purchase or hold any such stock or securities)
except: (i) readily marketable direct obligations of, or obligations guarantied
by, the United States of America or any agency thereof; (ii) other investment
grade debt securities; (iii) mutual funds, the assets of which are primarily
invested in items of the kind described in the foregoing clauses (i) and (ii) of
this ss.4.6; (iv) deposits with or certificates of deposit issued by the Bank
and any other obligations of the Bank or the Bank's parent; (v) deposits in any
other bank organized in the United States having capital in excess of
$100,000,000; and (vi) investments in any Subsidiaries now existing or hereafter
created by the Borrower pursuant to ss.4.7 below; provided that in any event the
Tangible Net Worth of the Borrower alone (exclusive of its investment in
Subsidiaries and any debt owed by any Subsidiary to the Borrower) will not be
less than 90% of the consolidated Tangible Net Worth of the Borrower and
Subsidiaries.
4.7. Subsidiaries; Acquisitions. The Borrower will not, without the prior
written consent of the Bank, form or acquire any Subsidiary or make any other
acquisition of the stock of any other Person or of all or substantially all of
the assets of any other Person.
The Borrower will not become a partner in any partnership.
4.8. Merger. The Borrower will not, without the prior written consent of
the Bank, merge or consolidate with any Person, or sell, lease, transfer or
otherwise dispose of any material portion of its assets (whether in one or more
transactions), other than sale of inventory in the ordinary course.
4.9. Affiliate Transactions. The Borrower will not, without prior written
consent of the Bank, enter into any transaction, including, without limitation,
the purchase, sale or exchange of any property or the rendering of any service,
with any affiliate of the Borrower, except in the ordinary course of and
pursuant to the reasonable requirements of the Borrower's business and upon fair
and reasonable terms no less favorable to the Borrower than would be obtained in
a comparable arms'-length transaction with any Person not an affiliate; provided
that nothing in this ss.4.9 shall be deemed to restrict the payment of salary or
other similar payments to any officer or director of the Borrower, nor to
restrict the hiring of additional officers. For the purposes of this letter
agreement, "affiliate" means any Person which, directly or indirectly, controls
or is controlled by or is under common control with the Borrower; any officer or
director or former officer or director of the Borrower; any Person owning of
record or beneficially, directly or indirectly, 5% or more of any class of
capital stock of the Borrower or 5% or more of any class of capital stock or
other equity interest having voting power (under ordinary circumstances) of any
of the other Persons described above; and any member of the immediate family of
any of the foregoing. "Control" means possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of any
Person, whether through ownership of voting equity, by contract or otherwise.
4.10. Change of Address, etc. The Borrower will not change its corporate
name, nor will the Borrower change its chief executive offices or principal
place of business from the address described in ss.2.1(j) above, unless the
Borrower gives prompt written notice to the Bank of each such change. The
Borrower will not change its fiscal year or methods of financial reporting
unless, in each instance, prior written notice of such change is given to the
Bank and prior to such change the Borrower enters into amendments to this letter
agreement in form and substance reasonably satisfactory to the Bank in order to
preserve unimpaired the rights of the Bank and the obligations of the Borrower
hereunder.
4.11. Hazardous Waste. Except as provided below, the Borrower will not
dispose of or suffer or permit to exist any hazardous material or oil on any
site or vessel owned, occupied or operated by the Borrower or any Subsidiary of
the Borrower, nor shall the Borrower store (or permit any Subsidiary to store)
on any site or vessel owned, occupied or operated by the Borrower or any such
Subsidiary, or transport or arrange the transport of, any hazardous material or
oil (the terms "hazardous material", "oil", "site" and "vessel", respectively,
being used herein with the meanings given those terms in Mass. Gen. Laws, Ch.
21E or any comparable terms in any comparable statute in effect in any other
relevant jurisdiction). The Borrower shall provide the Bank with written notice
of (i) the intended storage or transport of any hazardous material or oil by the
Borrower or any Subsidiary of the Borrower, (ii) any known release or known
threat of release of any hazardous material or oil at or from any site or vessel
owned, occupied or operated by the Borrower or any Subsidiary of the Borrower,
and (iii) any incurrence of any expense or loss by any government or
governmental authority in connection with the assessment, containment or removal
of any hazardous material or oil for which expense or loss the Borrower or any
Subsidiary of the Borrower may be liable. Notwithstanding the foregoing, the
Borrower and its Subsidiaries may use, store and transport, and need not notify
the Bank of the use, storage or transportation of, (x) oil in reasonable
quantities, as fuel for heating of their respective facilities or for vehicles
or machinery used in the ordinary course of their respective businesses and (y)
hazardous materials that are solvents, cleaning agents or other materials used
in the ordinary course of the respective business operations of the Borrower and
its Subsidiaries, in reasonable quantities, as long as in any case the Borrower
or the Subsidiary concerned (as the case may be) has obtained and maintains in
effect any necessary governmental permits, licenses and approvals, complies with
all requirements of applicable federal, state and local law relating to such
use, storage or transportation, follows the protective and safety procedures
that a prudent businessperson conducting a business the same as or similar to
that of the Borrower or such Subsidiary (as the case may be) would follow, and
disposes of such materials (not consumed in the ordinary course) only through
licensed providers of hazardous waste removal services.
4.12. No Margin Stock. No proceeds of any Revolving Loan shall be used
directly or indirectly to purchase or carry any margin security.
4.13. Subordinated Debt. The Borrower will not directly or indirectly
make any optional or voluntary prepayment or purchase of Subordinated Debt or
modify, alter or add any provisions with respect to payment of Subordinated
Debt. In any event, the Borrower will not make any payment of any principal of
or interest on any Subordinated Debt at any time when there exists, or if there
would result therefrom, any Event of Default hereunder.
V. DEFAULT AND REMEDIES
5.1. Events of Default. The occurrence of any one of the following events
shall constitute an Event of Default hereunder:
(a) The Borrower shall fail to make any payment of principal of or
interest on the Revolving Note on or before the date when due; or the Borrower
shall fail to pay when due any amount owed to the Bank in respect of any letter
of credit now or hereafter issued by the Bank; or
(b) Any representation or warranty of the Borrower contained herein
shall at any time prove to have been incorrect in any material respect when made
or any representation or warranty made by the Borrower in connection with any
Revolving Loan or letter of credit shall at any time prove to have been
incorrect in any material respect when made; or
(c) The Borrower shall default in the performance or observance of any
agreement or obligation under any of ss.ss.3.6, 3.7, 3.8, 3.9 or 3.10 or Article
IV; or
(d) The Borrower shall default in the performance or observance of any
agreement or obligation under either ss.3.1 or ss.3.3 and such default shall
continue unremedied for 30 days after the Borrower knows of, or reasonably
should have known of, the facts or circumstances constituting such default; or
(e) The Borrower shall default in the performance of any other term,
covenant or agreement contained in this letter agreement and such default shall
continue unremedied for 30 days after notice thereof shall have been given to
the Borrower; or
(f) Any default on the part of the Borrower or any Subsidiary of the
Borrower shall exist, and shall remain unwaived or uncured beyond the expiration
of any applicable notice and/or grace period, under any other contract,
agreement or undertaking now existing or hereafter entered into with or for the
benefit of the Bank (or any affiliate of the Bank); or
(g) Any default shall exist and remain unwaived or uncured with respect
to any Subordinated Debt of the Borrower or with respect to any instrument
evidencing, guaranteeing or otherwise relating to any such Subordinated Debt, or
any such Subordinated Debt shall not have been paid when due, whether by
acceleration or otherwise, or shall have been declared to be due and payable
prior to its stated maturity, or any event or circumstance shall occur which
permits, or with the lapse of time or the giving of notice or both would permit,
the acceleration of the maturity of any Subordinated Debt by the holder or
holders thereof; or
(h) Any default shall exist and remain unwaived or uncured with respect
to any other Indebtedness for borrowed money of the Borrower or any Subsidiary
of the Borrower in excess of $500,000 in aggregate principal amount or with
respect to any instrument evidencing, guaranteeing, securing or otherwise
relating to any such Indebtedness for borrowed money, or any such Indebtedness
in excess of $500,000 in aggregate principal amount shall not have been paid
when due, whether by acceleration or otherwise, or shall have been declared to
be due and payable prior to its stated maturity, or any event or circumstance
shall occur which permits, or with the lapse of time or the giving of notice or
both would permit, the acceleration of the maturity of any such Indebtedness by
the holder of holders thereof; or
(i) The Borrower shall be dissolved, or the Borrower or any Subsidiary
of the Borrower shall become insolvent or bankrupt or shall cease paying its
debts as they mature or shall make an assignment for the benefit of creditors,
or a trustee, receiver or liquidator shall be appointed for the Borrower or any
Subsidiary of the Borrower or for a substantial part of the property of the
Borrower or any such Subsidiary, or bankruptcy, reorganization, arrangement,
insolvency or similar proceedings shall be instituted by or against the Borrower
or any such Subsidiary under the laws of any jurisdiction (except for an
involuntary proceeding filed against the Borrower or any Subsidiary of the
Borrower which is dismissed within 60 days following the institution thereof);
or
(j) Any attachment, execution or similar process shall be issued or
levied against any material item of the property of the Borrower or any
Subsidiary and such attachment, execution or similar process shall not be paid,
stayed, released, vacated or fully bonded within 10 days after its issue or
levy; or
(k) Any final uninsured judgment in excess of $500,000 shall be entered
against the Borrower or any Subsidiary of the Borrower by any court of competent
jurisdiction and shall remain unpaid and unstayed for more than 30 days after
the date of such entry; or
(l) The Borrower or any Subsidiary of the Borrower shall fail to meet
its minimum funding requirements under ERISA with respect to any employee
benefit plan (or other class of benefit which the PBGC has elected to insure) or
any such plan shall be the subject of termination proceedings (whether voluntary
or involuntary) and there shall result from such termination proceedings a
liability of the Borrower or any Subsidiary of the Borrower to the PBGC which,
in each case, in the reasonable opinion of the Bank may have a material adverse
effect upon the financial condition of the Borrower or any such Subsidiary; or
(m) At any time, the Borrower shall not be a wholly-owned subsidiary of
the Parent; or
(n) There shall occur any other material adverse change in the condition
(financial or otherwise), operations, properties, assets, liabilities or
earnings of the Borrower.
5.2. Rights and Remedies on Default. Upon the occurrence of any Event of
Default, in addition to any other rights and remedies available to the Bank
hereunder or otherwise, the Bank may exercise any one or more of the following
rights and remedies (all of which shall be cumulative):
(a) Declare the entire unpaid principal amount of the Revolving Note
then outstanding, all interest accrued and unpaid thereon and all other amounts
payable under this letter agreement, and all other Indebtedness of the Borrower
to the Bank, to be forthwith due and payable, whereupon the same shall become
forthwith due and payable, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived by the Borrower.
(b) Terminate the revolving financing arrangements provided for by this
letter agreement.
(c) Exercise all rights and remedies hereunder, under the Revolving Note
and under each and any other agreement with the Bank; and exercise all other
rights and remedies which the Bank may have under applicable law.
5.3. Set-off. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default, the Bank is hereby authorized at any time or
from time to time, without presentment, demand, protest or other notice of any
kind to the Borrower or to any other Person, all of which are hereby expressly
waived, to set off and to appropriate and apply any and all deposits and any
other Indebtedness at any time held or owing by the Bank or any affiliate
thereof to or for the credit or the account of the Borrower against and on
account of the obligations and liabilities of the Borrower to the Bank under
this letter agreement or otherwise, irrespective of whether or not the Bank
shall have made any demand hereunder and although said obligations, liabilities
or claims, or any of them, may then be contingent or unmatured and without
regard for the availability or adequacy of other collateral. As security for the
Obligations, the Borrower grants to the Bank a security interest with respect to
all its deposits and all securities or other property in the possession of the
Bank or any affiliate of the Bank from time to time, and, upon the occurrence of
any Event of Default, the Bank may exercise all rights and remedies of a secured
party under the Uniform Commercial Code.
5.4. Letters of Credit. Without limitation of any other right or remedy
of the Bank, (i) if an Event of Default shall have occurred and the Bank shall
have accelerated the Revolving Loans or (ii) if this letter agreement and/or the
revolving financing arrangements described herein shall have expired or shall
have been earlier terminated by either the Bank or the Borrower for any reason,
the Borrower will forthwith deposit with the Bank in cash a sum equal to the
total of all then undrawn amounts of all outstanding letters of credit issued by
the Bank for the account of the Borrower.
VI. MISCELLANEOUS
6.1. Costs and Expenses. The Borrower agrees to pay, on demand and
delivery of a Bank Certificate therefor, all costs and expenses (including,
without limitation, reasonable legal fees) of the Bank in connection with the
preparation, execution and delivery of this letter agreement, the Revolving Note
and all other instruments and documents to be delivered in connection with any
Revolving Loan or any letter of credit issued hereunder and any amendments or
modifications of any of the foregoing, as well as the costs and expenses
(including, without limitation, the reasonable fees and expenses of legal
counsel) incurred by the Bank in connection with preserving, enforcing or
exercising, upon default, any rights or remedies under this letter agreement,
the Revolving Note and all other instruments and documents delivered or to be
delivered hereunder or in connection herewith, all whether or not legal action
is instituted. In addition, the Borrower shall be obligated to pay any and all
stamp and other taxes payable or determined to be payable in connection with the
execution and delivery of this letter agreement, the Revolving Note and all
other instruments and documents to be delivered in connection with any
Obligation. Any fees, expenses or other charges which the Bank is entitled to
receive from the Borrower under this Section shall bear interest from the date
of any demand therefor until the date when paid at a rate per annum equal to 2%
per annum the highest per annum rate otherwise payable under the Revolving Note
(but in no event in excess of the maximum rate permitted by then applicable
law).
6.2. Facility Fees. The Borrower will pay to the Bank, on the last day of
each calendar quarter (commencing with March 31, 1997) and on the Expiration
Date, a facility fee equal to 0.20% per annum (appropriately pro-rated for any
partial calendar quarter) based on the average daily Unused Portion during such
calendar quarter. As used herein, the "Unused Portion" on any day means that
amount by which (x) $10,000,000 exceeds (y) the Aggregate Bank Liabilities
outstanding on that day, whether such excess results from a failure by the
Borrower to borrow (or obtain letters of credit) up to $10,000,000 or from a
repayment of Revolving Loans or reduction of outstanding letter of credit
liabilities or due to any other reason. In addition, if the within-described
revolving financing arrangements are terminated by the Borrower for any reason
or by the Bank as the result of the Borrower's default, the Borrower shall
forthwith upon such termination pay to the Bank a sum equal to all of the
facility fees which would have become due (absent such termination) pursuant to
the immediately preceding sentence during the period from the date of such
termination through the Expiration Date, assuming for this purpose that no
Aggregate Bank Liabilities would have been outstanding during such period. The
fees described in this Section are in addition to any balances and fees required
by the Bank or any of its affiliates in connection with any other services now
or hereafter made available to the Borrower.
6.3. Other Agreements. The provisions of this letter agreement are not in
derogation or limitation of any obligations, liabilities or duties of the
Borrower under any of the other Loan Documents or any other agreement with or
for the benefit of the Bank. No inconsistency in default provisions between this
letter agreement and any of the other Loan Documents or any such other agreement
will be deemed to create any additional grace period or otherwise derogate from
the express terms of each such default provision. No covenant, agreement or
obligation of the Borrower contained herein, nor any right or remedy of the Bank
contained herein, shall in any respect be limited by or be deemed in limitation
of any inconsistent or additional provisions contained in any of the other Loan
Documents or any such other agreement.
6.4. Governing Law. This letter agreement and the Revolving Note shall
be governed by, and construed and enforced in accordance with, the laws of The
Commonwealth of Massachusetts.
6.5. Addresses for Notices, etc. All notices, requests, demands and other
communications provided for hereunder shall be in writing and shall be mailed or
delivered to the applicable party at the address indicated below:
If to the Borrower:
Zoom Telephonics, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Chief Financial Officer
with a copy to:
Brown, Rudnick, Freed & Gesmer, P.C.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
If to the Bank:
Fleet National Bank
High Technology Group
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Vice President
or, as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to the other party complying as to delivery with
the terms of this Section. All such notices, requests, demands and other
communications shall be deemed delivered on the earlier of (i) the date received
or (ii) the date of delivery, refusal or non-delivery indicated on the return
receipt if deposited in the United States mails, sent postage prepaid, certified
or registered mail, return receipt requested, addressed as aforesaid.
6.6. Binding Effect; Assignment; Termination. This letter agreement shall
be binding upon the Borrower, its successors and assigns and shall inure to the
benefit of the Borrower and the Bank and their respective permitted successors
and assigns. The Borrower may not assign this letter agreement or any rights
hereunder without the express written consent of the Bank. The Bank may, in
accordance with applicable law and with prior written notice to the Borrower
(except that, in the case of an assignment to a Federal Reserve Bank as security
for a borrowing by the Bank, such notice shall not be required), from time to
time assign or grant participation in this letter agreement, the Revolving
Loans, the Revolving Note and/or the letters of credit issued hereunder. The
Borrower may terminate this letter agreement and the financing arrangements made
herein by giving written notice of such termination to the Bank together with
payment of the sum described in the second sentence of ss.6.2; provided that no
such termination will release or waive any of the Bank's rights or remedies or
any of the Borrower's obligations under this letter agreement or any of the
other Loan Documents unless and until the Borrower has paid in full the
Revolving Loans and all interest thereon and all fees and charges payable in
connection therewith and all letters of credit issued hereunder have been
terminated.
6.7. Consent to Jurisdiction. The Borrower irrevocably submits to the
non-exclusive jurisdiction of any Massachusetts court or any federal court
sitting within The Commonwealth of Massachusetts over any suit, action or
proceeding arising out of or relating to this letter agreement and/or the
Revolving Note. The Borrower irrevocably waives, to the fullest extent permitted
by law, any objection which it may now or hereafter have to the laying of venue
of any such suit, action or proceeding brought in such a court and any claim
that any such suit, action or proceeding has been brought in an inconvenient
forum. The Borrower agrees that final judgment in any such suit, action or
proceeding brought in such a court shall be enforced in any court of proper
jurisdiction by a suit upon such judgment, provided that service of process in
such action, suit or proceeding shall have been effected upon the Borrower in
one of the manners specified in the following paragraph of this ss.6.7 or as
otherwise permitted by law.
The Borrower hereby consents to process being served in any suit, action
or proceeding of the nature referred to in the preceding paragraph of this
ss.6.7 either (i) by mailing a copy thereof by registered or certified mail,
postage prepaid, return receipt requested, to it at its address set forth in
ss.6.5 (as such address may be changed from time to time pursuant to said
ss.6.5) or (ii) by serving a copy thereof upon it at its address set forth in
ss.6.5 (as such address may be changed from time to time pursuant to said
ss.6.5).
6.8. Severability. In the event that any provision of this letter
agreement or the application thereof to any Person, property or circumstances
shall be held to any extent to be invalid or unenforceable, the remainder of
this letter agreement, and the application of such provision to Persons,
properties or circumstances other than those as to which it has been held
invalid and unenforceable, shall not be affected thereby, and each provision of
this letter agreement shall be valid and enforced to the fullest extent
permitted by law.
VII. DEFINED TERMS
7.1. Definitions. In addition to terms defined elsewhere in this letter
agreement, as used in this letter agreement, the following terms have the
following respective meanings:
"Aggregate Bank Liabilities" - At any time, the sum of (i) the principal
amount of all Revolving Loans then outstanding, plus (ii) all then undrawn
amounts of letters of credit issued by the Bank for the account of the Borrower,
plus (iii) all amounts then drawn on any such letter of credit which at said
date shall not have been reimbursed to the Bank by the Borrower.
"Bank Certificate" - A certificate signed by an officer of the Bank
setting forth any additional amount required to be paid by the Borrower to the
Bank pursuant to ss.1.2, ss.1.6, ss.1.7 or ss.6.1 of this letter agreement,
which certificate shall be submitted by the Bank to the Borrower in connection
with each demand made at any time by the Bank upon the Borrower with respect to
any such additional amount, and each such certificate shall, save for manifest
error, constitute presumptive evidence of the additional amount required to be
paid by the Borrower to the Bank upon each demand. A claim by the Bank for all
or any part of any additional amount required to be paid by the Borrower may be
made before and/or after the end of the Interest Period to which such claim
relates or during which such claim has arisen and before and/or after any
payment hereunder to which such claim relates. Each Bank Certificate shall set
forth in reasonable detail the basis for and the calculation of the claim to
which it relates.
"Borrowing Base" - As determined at any date, the sum of (i) 80% of the
aggregate principal amount of the Qualified Domestic Receivables of the Borrower
then outstanding, plus (ii) 80% of the aggregate principal amount of the
Qualified Foreign Receivables of the Borrower then outstanding, plus (iii) 50%
of the aggregate principal amount of the Other Acceptable Foreign Receivables of
the Borrower then outstanding; provided, however, that the total amount which
may be contributed to Borrowing Base by Other Acceptable Foreign Receivables
pursuant to this clause (iii) will not at any time exceed 10% of the
then-effective total Borrowing Base.
"Business Day" - Any day which is not a Saturday, nor a Sunday nor a
public holiday under the laws of the United States of America or The
Commonwealth of Massachusetts applicable to a national bank; provided however
that if the applicable provision relates to a LIBOR Loan, then the term
"Business Day" shall not include any day on which dealings are not carried on in
the London interbank market or on which banks are not open for business in
London.
"Capital Base" - At any time, the sum of (i) the consolidated Tangible
Net Worth of the Borrower and Subsidiaries then existing, plus (ii) the
principal amount of Subordinated Debt of the Borrower then outstanding (nothing
contained herein being deemed to authorize the incurrence of any such
Subordinated Debt).
"Current Liabilities" - All liabilities of the Borrower and/or any
Subsidiary of the Borrower which are properly shown as current liabilities on a
consolidated balance sheet of the Borrower prepared in accordance with generally
accepted accounting principles consistently applied. Further, "Current
Liabilities" will in any event be deemed to include the Revolving Loans.
"ERISA" - The Employee Retirement Income Security Act of 1974, as
amended.
"Eurocurrency Liabilities" - Has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System (or any
successor), as in effect from time to time, or in any successor regulation
relating to the liabilities described in said Regulation D.
"Eurodollar Interest Rate" - For any Interest Period, an interest rate
per annum, expressed as a percentage, determined by the Bank pursuant to the
following formula:
*EIR = LIBOR + ERI
[1.00 - RR]
Where EIR = Eurodollar Interest Rate
LIBOR = See definition of LIBOR
RR = Reserve Rate
ERI = Eurodollar Rate Increment
*EIR and each component thereof to be rounded upwards to the next
higher 1/16th of 1%
"Eurodollar Rate Increment" -One and one-half percent (1.5%) per annum.
"Expiration Date" - August 31, 1997, unless extended by the Bank, which
extension may be given or withheld by the Bank in its sole discretion.
"Floating Rate" - As defined in ss.1.2.
"Floating Rate Loan" - Any Revolving Loan which bears interest at the
Floating Rate.
"FSC" - Zoom Telephonics Foreign Sales Corporation, a U.S.
Virgin Islands corporation which is a wholly-owned Subsidiary of the Borrower.
"Impositions" - All present and future taxes, levies, duties,
impositions, deductions, charges and withholdings applicable to the Bank with
respect to any LIBOR Loan, excluding, however, any taxes imposed directly on the
Bank's income and any franchise taxes imposed on it by the jurisdiction under
the laws of which the Bank is organized or any political subdivision thereof.
"Indebtedness" - All obligations of a Person, whether current or
long-term, senior or subordinated, which in accordance with generally accepted
accounting principles would be included as liabilities upon such Person's
balance sheet at the date as of which Indebtedness, is to be determined, and
shall also include guaranties, endorsements (other than for collection in the
ordinary course of business) or other arrangements whereby responsibility is
assumed for the obligations of others, whether by agreement to purchase or
otherwise acquire the obligations of others, including any agreement, contingent
or otherwise, to furnish funds through the purchase of goods, supplies or
services for the purpose of payment of the obligations of others.
"Interest Payment Date" - As to each LIBOR Loan, the last day of
Interest Period applicable to such LIBOR Loan; provided that if any Interest
Period is in excess of three months, there will be two Interest Payment Dates
applicable thereto - the first being three months from the commencement date of
such Interest Period and the second being the last day of such Interest Period.
"Interest Period" - As to each LIBOR Loan, the period commencing with
the date of the making of such LIBOR Loan and ending one, two or three months
thereafter, as the Borrower may select; provided that (A) any such Interest
Period which would otherwise end on a day which is not a Business Day shall be
extended to the next succeeding Business Day unless such Business Day occurs in
a new calendar month, in which case such Interest Period shall end on the
immediately preceding Business Day, (B) any such Interest Period which begins on
a day for which there is no numerically corresponding day in the calendar month
during which such Interest Period is to end shall end on the last Business Day
of such calendar month, and (C) no Interest Period may be selected which would
end after the Expiration Date.
"LIBOR" - With respect to each Interest Period for a LIBOR Loan, that
rate per annum (rounded upward, if necessary, to the nearest 1/16 of 1%) at
which deposits in United States Dollars are offered to the Bank, for delivery on
the first day of the applicable Interest Period, in the London interbank market
at 10:00 a.m. London time two Business Days prior to the first day of the
applicable Interest Period for a term equal to the term of the LIBOR Loan
requested for such Interest Period and in an amount substantially equal to the
principal amount of the relevant LIBOR Loan. The Bank shall give prompt notice
to the Borrower of LIBOR as determined for each LIBOR Loan and such notice shall
be conclusive and binding, absent manifest error.
"LIBOR Loan" - Any Revolving Loan which bears interest at a Eurodollar
Interest Rate.
"Loan Documents" - Each of this letter agreement, the Revolving Note and
each other instrument, document or agreement evidencing, securing, guaranteeing
or relating in any way to any of the Revolving Loans or any of the letters of
credit issued hereunder, all whether now existing or hereafter arising or
entered into.
"London" - The City of London in England.
"Maximum Revolving Amount" - At any date as of which same is to be
determined, the amount by which (x) $10,000,000 exceeds (y) the sum of (i) all
then undrawn amounts of letters of credit issued by the Bank for the account of
the Borrower plus (ii) all amounts then drawn on any such letter of credit which
at said date shall not have been reimbursed to the Bank by the Borrower (by
virtue of the making of a Revolving Loan or otherwise).
"Net Income" (or "Net Loss") - The book net income (or book net loss, as
the case may be) of a Person for any period, after all taxes actually paid or
accrued and all expenses and other charges determined in accordance with
generally accepted accounting principles consistently applied.
"Net Quick Assets" - Such current assets of the Borrower as consist of
cash, cash-equivalents, readily-marketable securities and Receivables (less an
allowance for bad debt consistent with the Borrower's prior experience).
"Obligations" - All Indebtedness, covenants, agreements, liabilities and
obligations, now existing or hereafter arising, made by the Borrower with or for
the benefit of the Bank or owed by the Borrower to the Bank in any capacity.
"Other Acceptable Foreign Receivables" - Those Receivables of the
Borrower which are not Qualified Foreign Receivables (because they are not
supported by acceptable credit enhancement) but which satisfy all of the
criteria set forth below to be Qualified Domestic Receivables other than the
requirement that the relevant customer be located in the United States; provided
that in each case the Bank has approved the relevant customer as being
satisfactory for this purpose. The approval of the Bank of any customer for this
purpose may be given or withheld by the Bank, and any approval previously given
may at any time be withdrawn by the Bank, all at the Bank's sole discretion. In
addition, if FSC and/or Zoom UK executes and delivers to the Bank (together with
such corporate documentation as the Bank may reasonably require) and thereafter
maintains in effect a guaranty of the Borrower's Obligations (such guaranty to
be satisfactory in form and substance to the Bank), then "Other Acceptable
Foreign Receivables" will be deemed to include such amounts as are now or
hereafter owed to the Borrower by FSC and/or Zoom UK, as applicable (exclusive
of any such amounts includable in the definition of "Qualified Domestic
Receivables" or "Qualified Foreign Receivables"), even though such amounts are
owed to the Borrower by an entity related to the Borrower, to the extent, but
only to the extent, that such amounts arise out of sales of the Borrower's
products made by FSC and/or Zoom UK, as the case may be, to unrelated customers
and that the Receivables of FSC and/or Zoom UK, as the case may be, generated by
such sales satisfy all of the requirements set forth in the immediately
preceding two sentences to be "Other Acceptable Foreign Receivables", other than
the requirement that such Receivables be owned by the Borrower.
"Parent" - Zoom Telephonics, Inc., a Canadian corporation which owns
100% of the outstanding capital stock of the Borrower.
"Parent's Subsidiaries" - Any corporation or other entity of which the
Parent and/or any of the other Parent's Subsidiaries, directly or indirectly,
owns, or has the right to control or direct the voting of, fifty (50%) percent
or more of the outstanding capital stock or other ownership interest having
general voting power (under ordinary circumstances).
"PBGC" - The Pension Benefit Guaranty Corporation or any successor
thereto.
"Person" - An individual, corporation, partnership, limited liability
company, joint venture, trust or unincorporated organization, or a government or
any agency or political subdivision thereof.
"Qualified Domestic Receivables" - Only those Receivables of the
Borrower which arise out of bona fide sales made to customers of the Borrower
(which customers are located in the United States and are unrelated to the
Borrower) in the ordinary course of the Borrower's business and which remain
unpaid no more than 90 days past the respective invoice dates of such
Receivables, the payment of which is not in dispute. Unless the Bank in its sole
discretion otherwise determines with respect to any Receivable, a Receivable
which would otherwise be a Qualified Domestic Receivable shall be deemed not to
be a Qualified Domestic Receivable (i) if such Receivable is not free and clear
of all adverse interests in favor of any Person other than the Borrower; (ii) if
such Receivable is subject to any deduction, off-set, contra account,
counterclaim or condition; (iii) if a field examination made by the Bank fails
to confirm that such Receivable exists and satisfies all of the criteria set
forth herein to be a Qualified Domestic Receivable; (iv) if such Receivable is
not properly invoiced at the date of sale; (v) if the customer or account debtor
has disputed liability or made any claim with respect to the Receivable or the
merchandise covered thereby (provided, however, that if such dispute or claim
relates to less than 15% of the principal amount of the relevant Receivable,
then only the disputed amount and not the entire amount of such Receivable will
be deemed excluded pursuant to this clause (v)); (vi) if the customer or account
debtor is subject to a petition for bankruptcy or any other application for
relief under the Bankruptcy Code (whether or not such petition was filed by said
customer or account debtor) or is subject to an assignment for the benefit of
creditors, or if said customer's or account debtor's business is suspended, or
if the customer or account debtor is insolvent or is not paying its debts as
they become due, or if a receiver or trustee is appointed for any of its assets
or affairs; (vii) if the customer or account debtor has failed to pay other
Receivables so that an aggregate of 25% of the total Receivables owing to the
Borrower by such customer or account debtor has been outstanding for more than
90 days past their respective due dates; or (viii) if the Bank reasonably
believes that collection of such Receivable is insecure or that it may not be
paid by reason of financial inability to pay or otherwise or that such
Receivable is not for any reason suitable for use as a basis for borrowing
hereunder. In addition, if Tribe executes and delivers to the Bank (together
with such corporate documentation as the Bank may reasonably require) and
thereafter maintains in effect a guaranty of the Borrower's Obligations (such
guaranty to be satisfactory in form and substance to the Bank), then "Qualified
Domestic Receivables" will be deemed to include such amounts as are now or
hereafter owed by Tribe to the Borrower (even though such amounts are owed to
the Borrower by an entity related to the Borrower) to the extent, but only to
the extent, that such amounts arise out of sales of the Borrower's products made
by Tribe to unrelated customers and that the Receivables of Tribe generated by
such sales satisfy all of the requirements set forth in the immediately
preceding two sentences to be Qualified Domestic Receivables, other than the
requirement that such Receivables be owned by the Borrower.
"Qualified Foreign Receivables" - Those Receivables of the Borrower
which satisfy all of the criteria set forth above to be Qualified Domestic
Receivables other than the requirement that the relevant customer be located in
the United States; provided that each such Qualified Foreign Receivable is
supported by credit insurance or a letter of credit, in each case issued by a
credit enhancer satisfactory to the Bank and in each case containing terms and
conditions satisfactory to the Bank. In addition, if FSC and/or Zoom UK executes
and delivers to the Bank (together with such corporate documentation as the Bank
may reasonably require) and thereafter maintains in effect a guaranty of the
Borrower's Obligations (such guaranty to be satisfactory in form and substance
to the Bank), then "Qualified Foreign Receivables" will be deemed to include
such amounts as are now or hereafter owed to the Borrower by FSC and/or Zoom UK,
as applicable (even though such amounts are owed to the Borrower by an entity
related to the Borrower) to the extent, but only to the extent, that such
amounts arise out of sales of the Borrower's products made by FSC and/or Zoom
UK, as the case may be, to unrelated customers and that the Receivables of FSC
and/or Zoom UK, as the case may be, generated by such sales satisfy all of the
requirements set forth in the immediately preceding sentence to be Qualified
Foreign Receivables, other than the requirement that such Receivables be owned
by the Borrower. Amounts included in "Qualified Foreign Receivables" pursuant to
the immediately preceding sentence are not to be "double counted" with any
amounts includable in "Qualified Domestic Receivables" or "Other Acceptable
Foreign Receivables".
"Receivables" - As to any Person, all of such Person's present and
future accounts receivable for goods sold or for services rendered.
"Reserve Rate" - The aggregate rate, expressed as a decimal, at which
the Bank would be required to maintain reserves under Regulation D of the Board
of Governors of the Federal Reserve System (or any successor or similar
regulation relating to such reserve requirements) against Eurocurrency
Liabilities, as well as any other reserve required of the Bank with respect to
the LIBOR Loans. The Eurodollar Interest Rate shall be adjusted automatically on
and as of the effective date of any change in the Reserve Rate.
"Senior Debt" - All Indebtedness of the Borrower and/or its Subsidiaries
which does not constitute Subordinated Debt.
"Subordinated Debt" - Any Indebtedness of the Borrower which is
expressly subordinated, pursuant to a subordination agreement in form and
substance satisfactory to the Bank, to all Indebtedness now or hereafter owed by
the Borrower to the Bank.
"Subsidiary" - Any corporation or other entity of which the Borrower
and/or any of its Subsidiaries, directly or indirectly, owns, or has the right
to control or direct the voting of, fifty (50%) percent or more of the
outstanding capital stock or other ownership interest having general voting
power (under ordinary circumstances).
"Tangible Net Worth" - An amount equal to the total assets of any Person
(excluding (i) the total intangible assets of such Person, (ii) any minority
interests in Subsidiaries and (iii) any assets representing amounts due from any
officer or employee of such Person or from any Subsidiary of such Person) minus
the total liabilities of such Person. Total intangible assets shall be deemed to
include, but shall not be limited to, the excess of cost over book value of
acquired businesses accounted for by the purchase method, formulae, trademarks,
trade names, patents, patent rights and deferred expenses (including, but not
limited to, unamortized debt discount and expense, organizational expense,
capitalized software costs and experimental and development expenses).
"Tribe" - Tribe Computer Works Incorporated, a Delaware corporation
which is a wholly-owned Subsidiary of the Borrower.
"Zoom UK" - Zoom Telephonics, Ltd., a United Kingdom corporation which
is a wholly-owned Subsidiary of the Borrower.
Any defined term used in the plural preceded by the definite article
shall be taken to encompass all members of the relevant class. Any defined term
used in the singular preceded by "any" shall be taken to indicate any number of
the members of the relevant class.
This letter agreement is executed, as an instrument under seal, as of the
day and year first above written.
Very truly yours,
ZOOM TELEPHONICS, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President & CEO
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇▇▇▇▇
Title: V.P. Finance & CFO
Accepted and agreed:
FLEET NATIONAL BANK
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Its Vice President, High Technology Division
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
Its Senior Vice President, High Technology Division
