EXHIBIT 10.46
June 4, 1999
Pulsar Data Systems, Inc.
0000 Xxxxxxxxxx Xxxxx, Xxxxx X
Xxxxxx, XX 00000
Attention: Xx. Xxxxxxx X. Xxxxx, Xx., President/CEO
Dear Xx. Xxxxx:
Reference is made to a proposed transaction pursuant to which Xxxxxxx X. Xxxxx,
Xx. and Xxxxxxx X. Xxxxx (the "Pulsar Shareholders"), the owners of all of the
outstanding shares of capital stock of Pulsar (the "Pulsar Shares") desire to
exchange all of the Pulsar Shares for a minority of the issued and outstanding
shares of Litronic Inc., a Delaware corporation ("Litronic"),resulting in Pulsar
becoming a wholly owned subsidiary of Litronic (the "Transaction"). The
Transaction would be consummated following the acquisition by Litronic of all of
the issued and outstanding shares of capital stock of Litronic Industries, Inc.
a California corporation, and contemporaneously with the initial public offering
of Litronic's common stock.
Pulsar is, as described in subparagraph (c) below, in default (1) under the
Inventory and Working Capital Financing Agreement between Pulsar and IBM Credit
dated October 30, 1997, as amended from time to time (the "Financing
Agreement"), (2) under the conditions to forbearance set forth in the
Forbearance Agreement between Pulsar and IBM Credit dated as of August 31, 1998
as amended from time to time ( the "Forbearance Agreement").
At Pulsar's request, IBM Credit has agreed to make certain financial
accommodations based upon the terms and conditions contained herein.
IBM Credit and Pulsar agree that:
(a) Pulsar acknowledges that Pulsar failed to perform certain of its agreements
required to be performed by January 18, 1999 under a letter agreement
("Letter Agreement A") dated December 16, 1998 among IBM Credit, Pulsar and
Xxxxxxx X. Xxxxx, Xx. and Xxxxxxx Xxxxx as guarantor of Pulsar's
obligations to IBM Credit and under a subsequent letter agreement ("Letter
Agreement B") dated dated March 8, 1999 among the same parties
(collectively the "Letter Agreements").
(b) IBM Credit's agreement under the Letter Agreements to defer the requirement
to further reduce the collateral value of the Nonstandard Collateral (as
defined in Letter Agreement A) monthly, therefore, terminated on June 1,
1999.
(c) Pulsar acknowledges that as a result of the foregoing Pulsar is under
collateralized by approximately $1,246,000.00 pursuant to the agreements
between IBM Credit and Pulsar, and such undercollateralization constitutes
a default under the Financing Agreement and the Forbearance Agreement.
(d) IBM Credit will allow Pulsar to include the value for the Xxxxxxx Xxxxx
accounts assigned to IBM Credit ("the "Merrill Nonstandard Collateral") as
a component of the total value of the Nonstandard Collateral (as defined in
the Letter Agreement). Effective with this Letter, the value of the
Merrill Nonstandard Collateral will be $598,800.00 which, when added to the
collateral value allowed by IBM Credit for the personal residence with
respect to which IBM Credit has been granted an interest (the "Real Estate
Nonstandard Collateral"), will immediately increase the total value of the
Nonstandard Collateral to $1,398,800.00. The Merrill Nonstandard Collateral
will be adjusted each calendar month to equal the market value of the
Merrill Nonstandard Collateral as of the last day of the previous calendar
month, as
Pulsar Data Systems, Inc. -2- June 4, 1999
reported by Xxxxxxx Xxxxx to Pulsar. Pulsar will provide such Xxxxxxx Xxxxx
report to IBM Credit by no later than the seventh Business Day of each
calendar month. If a Shortfall Amount results from such adjustment, Pulsar
shall immediately pay such Shortfall Amount to IBM Credit.
(e) IBM Credit will defer the requirement to reduce the collateral value of
the Nonstandard Collateral by $100,000.00 per month until the earlier of
(i) the occurrence of any failure by Pulsar to perform any of its
agreements under this Letter, (ii) the occurrence of a further default
under the Financing Agreement or the Forbearance Agreement (iii) the
occurrence of any failure by Pulsar to perform any of its agreements under
the Letter Agreements (other than those failures described in IBM Credit's
letter to Pulsar dated February 2, 1999), (iv) the date Pulsar, Xxxxxxx X.
Xxxxx, Xx. or Xxxxxxx Xxxxx determine that the Transaction will not be
consummated and (v) June 21, 1999.
(f) IBM Credit will defer until June 21, 1999 the payments required on February
1, 1999, March 1, 1999, April 1, 1999, May 1, 1999 and June 1, 1999 under
the Promissory Note dated October 30, 1998 made by Pulsar in favor of IBM
Credit.
(g) IBM Credit does not waive any default, but agrees to forebear from
exercising remedies available to it in connection with the default referred
to in subparagraph (c) above and to make the accommodations set forth
herein until the earlier of (i) the occurrence of any failure by Pulsar to
perform any of its agreements under this Letter, (ii) the occurrence of a
further default under the Financing Agreement or the Forbearance Agreement
(iii) the occurrence of any failure by Pulsar to perform any of its
agreements under the Letter Agreements (other than those failures described
in IBM Credit's letter to Pulsar dated February 2, 1999 and for which
action has already been taken by IBM Credit), (iv) the date Pulsar, Xxxxxxx
X. Xxxxx, Xx. or Xxxxxxx Xxxxx determine that the Transaction will not be
consummated and (v) June 21, 1999.
(h) Pulsar, Xxxxxxx X. Xxxxx, Xx. and Xxxxxxx Xxxxx each severally waives the
benefit of any statute of limitations that might otherwise bar the recovery
of any amount due IBM Credit from any one of them in connection with this
subparagraph (h).
Nothing in this Letter or any of the other negotiations or actions undertaken
pursuant to this Letter, shall constitute a waiver or modification of any of IBM
Credit's rights and remedies against Pulsar or Xxxxxxx X. Xxxxx, Xx. or Xxxxxxx
Xxxxx. Notwithstanding any prior mutual temporary disregard of any of the terms
of the Financing Agreement, the Forbearance Agreement, the Letter Agreement or
any other agreement, Pulsar, Xxxxxxx X. Xxxxx, Xx., and Xxxxxxx Xxxxx agree that
the terms of the Financing Agreement, the Forbearance Agreement, the Letter
Agreements, the letter agreement dated February 2, 1999 among IBM Credit,
Pulsar, Xxxxxxx X. Xxxxx, Xx. and Xxxxxxx Xxxxx, and any guaranty in connection
therewith continue in full force and effect and will be strictly adhered to on
and after the date hereof except as expressly set forth in this Letter. Xxxxxxx
X. Xxxxx and Xxxxxxx Xxxxx restate and reaffirm the validity and legality of
each Guaranty. Each party to this Letter agreement agrees and acknowledges that
such party is entering into this Letter agreement freely and voluntarily with
the advice of legal counsel of such party's own choosing.
Capitalized terms used herein but not defined herein will have the meanings set
forth in the Financing Agreement.
Sincerely,
Xxxx X. Xxxxxxxx
Region Loan Manager
ACKNOWLEDGED and AGREED to:
By: ____________________________________________________
Name: Xxxxxxx X. Xxxxx, Xx. as Guarantor and as President and CEO
of Pulsar Data Systems, Inc.
Date: ____________________________
By: ____________________________________________________
Name: Xxxxxxx Xxxxx, as Guarantor and Secretary of Pulsar Data Systems, Inc.
Date: ____________________________
