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Exhibit 10.7
QUANTUM BRIDGE COMMUNICATIONS, INC.
One High Street
North Andover, MA 01845
April 1, 1999
Fleet National Bank
One Federal Street
Boston, MA 02110
Gentlemen:
This letter agreement will set forth certain understandings between Quantum
Bridge Communications, Inc., a Delaware corporation (the "Borrower"), and Fleet
National Bank (the "Bank") with respect to Term Loans (hereinafter defined) to
be made by the Bank to 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. REFERENCES TO DOCUMENTS. Reference is made to (i) that certain
$1,000,000 face principal amount promissory note (the "Term Note") of even date
herewith made by the Borrower and payable to the order of the Bank, and (ii)
that certain Inventory and Accounts Receivable Security Agreement and that
certain Supplementary Security Agreement - Security Interest in Goods and
Chattels, each of even date herewith, from the Borrower to the Bank
(collectively, the "Security Agreement").
1.2. THE BORROWING; TERM NOTE. Subject to the terms and conditions
hereinafter set forth, the Bank will make one or more loans (the "Term Loans")
to the Borrower, as the Borrower may request, on any Business Day prior to the
first to occur of (i) March 31, 2000 or (ii) the earlier termination of the
within-described term loan facility pursuant to ss.5.2 or ss.6.7. A Term Loan
shall be made, not more than once per calendar quarter (except that more than
one Term Loan may be made in any calendar quarter provided that each additional
Term Loan in any one calendar quarter is in an amount of at least $25,000), in
order to finance costs of Qualifying Equipment acquired by the Borrower within
the 90 days preceding the request for such Term Loan (except that the first Term
Loan may finance costs of Qualifying Equipment acquired within the 120-day
period preceding the date of such Term Loan) and Qualifying Leasehold
Improvements installed within the 90 days preceding the request for such Term
Loan (except that the first Term Loan may finance costs of Qualifying Leasehold
Improvements installed within the 120-day period preceding the date of such Term
Loan), each such Term Loan to be in such amount as may be requested by the
Borrower; provided that (i) no Term Loan will be made after
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March 31, 2000; (ii) the aggregate original principal amounts of all Term Loans
will not exceed $1,000,000; and (iii) no Term Loan will be in an amount in
excess of 90% of the invoiced actual costs of the items of Qualifying Equipment
and Qualifying Leasehold Improvements with respect to which such Term Loan is
made (excluding taxes, shipping, installation charges, training fees and other
"soft costs" and excluding software except as expressly permitted by the next
following sentence); except that the Borrower may in its sole discretion elect
to deposit with the Bank and pledge to the Bank cash equal to 10% of the
original principal amount of any Term Loan; and if it so elects and pursuant to
such election deposits with the Bank and pledges to the Bank (by instruments
reasonably satisfactory in form and substance to the Bank) cash equal to 10% of
the original principal amount of any Term Loan, then the amount of such Term
Loan (including the amount so pledged) will be 100% of said invoiced actual
costs. The Borrower may include within "Qualifying Equipment" software (not
including "shrink-wrapped" software) purchased by the Borrower for use in
connection with the equipment otherwise included in "Qualifying Equipment";
provided that the aggregate amount of the Term Loans used to fund the purchase
of such software will not exceed $300,000. Prior to the making of each Term
Loan, and as a precondition thereto, the Borrower will provide the Bank with:
(i) invoices supporting the costs of the relevant Qualifying Equipment and
Qualifying Leasehold Improvements; (ii) such evidence as the Bank may reasonably
require showing that the Qualifying Equipment has been delivered to the
Borrower's North Andover, MA premises (or elsewhere to the extent provided in
the last sentence of this paragraph), has become fully operational (provided
that the Borrower may have up to 90 days after delivery of the Qualifying
Equipment to cause same to become fully operational), has been paid for by the
Borrower and is owned by the Borrower free of all liens and interests of any
other Person (other than the security interest of the Bank pursuant to the
Security Agreement); (iii) such evidence as the Bank may reasonably require
showing that the Qualifying Leasehold Improvements have been constructed at or
delivered to the Borrower's North Andover, MA premises, have been paid for by
the Borrower and are owned by the Borrower free of all liens and interests of
any other Person (other than the security interest of the Bank pursuant to the
Security Agreement); (iv) Uniform Commercial Code financing statements (if
needed) reflecting the relevant Qualifying Equipment and Qualifying Leasehold
Improvements with respect to which such Term Loan is being made; and (v)
evidence satisfactory to the Bank that the Qualifying Equipment and Qualifying
Leasehold Improvements are fully insured against casualty loss, with insurance
naming the Bank as secured party and first loss payee. Notwithstanding the
provisions of clause (ii) of the immediately preceding sentence, in the ordinary
course of the Borrower's business, the following Qualifying Equipment need not
be located at said North Andover, MA premises: (i) personal computers used by
salesmen and other employees of the Borrower and (ii) a reasonable amount of
equipment located on a temporary basis at premises of the Borrower's customers
and on other premises for sales, demonstration and testing purposes; provided
that in any event the Borrower notifies the Bank of each location where any
material item of Qualifying Equipment shall be kept and provides to the Bank all
such Uniform Commercial Code financing statements and other documentation, and
takes all such other action, as the Bank may reasonably request in order to
create, perfect and/or protect a first priority security interest in favor of
the Bank in all such Qualifying Equipment.
The Term Loans will be evidenced by the Term Note. Interest on the Term
Loans shall be payable at the times and at the rate provided for in the Term
Note. Overdue principal of any
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Term Loan and, to the extent permitted by law, overdue interest shall bear
interest at a fluctuating rate per annum which at all times shall be equal to
the sum of (i) four (4%) percent per annum PLUS (ii) the per annum rate
otherwise payable under the Term Note (but in no event in excess of the maximum
rate from time to time permitted by then applicable law), compounded monthly and
payable on demand. The Borrower hereby irrevocably authorizes the Bank to make
or cause to be made, on a schedule attached to the Term Note or on the books of
the Bank, at or following the time of making each Term Loan and of receiving any
payment of principal, an appropriate notation reflecting such transaction and
the then aggregate unpaid principal balance of the Term Loans. The amount so
noted shall constitute PRIMA FACIE evidence as to the amount owed by the
Borrower with respect to principal of the Term 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 Term Note.
1.3. PRINCIPAL REPAYMENT OF TERM LOANS. The Borrower shall repay the
principal of the Term Loans in 36 equal consecutive monthly installments,
commencing on April 1, 2000 and continuing on the first day of each month
thereafter. Each such monthly installment of principal of the Term Loans shall
be in an amount equal to 1/36th of the aggregate principal amount of the Term
Loans outstanding at the close of business on March 31, 2000. In any event, the
then outstanding principal balance of the Term Loans and all interest accrued
but unpaid thereon shall be due and payable in full on March 1, 2003. The
Borrower may prepay, at any time or from time to time, without premium or
penalty, the whole or any portion of any Term Loan; provided that each such
principal prepayment shall be accompanied by payment of all interest on the
amount so prepaid accrued but unpaid to the date of payment. Any partial
prepayment of principal of the Term Loans will be applied to installments of
principal of the Term Loans thereafter coming due in inverse order of normal
maturity. Amounts repaid or prepaid with respect to the Term Loans are not
available for reborrowing.
1.4. ADVANCES AND PAYMENTS. The proceeds of all Term Loans shall be
credited by the Bank to a general deposit account maintained by the Borrower
with the Bank. The proceeds of each Term Loan will be used by the Borrower
solely to pay (or reimburse the Borrower for) the costs of acquisition of
Qualifying Equipment and Qualifying Leasehold Improvements.
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 Term Note; 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 Term Note; provided that, notwithstanding the foregoing, if no
Event of Default has occurred and is then continuing the Bank will give prior
written notice to the Borrower before changing such account for any costs and
expenses due under ss.6.1 below.
Whenever any payment to be made to the Bank hereunder or under the Term
Note 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
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hereunder and/or in respect of the Term Note 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 Term Note shall be made to the Bank, in
lawful money of the United States in immediately available funds, at its office
at One Federal Street, Boston, MA 02110 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 Term Note and/or
any of the other Loan Documents, next to interest then accrued on account of any
Term Loans and only thereafter to principal of the Term Loans. All interest and
fees payable hereunder and/or under the Term Note shall be calculated on the
basis of a 360-day year for the actual number of days elapsed.
1.5. CONDITIONS TO ADVANCE. Prior to the making of the initial Term Loan,
the Borrower shall deliver to the Bank duly executed copies of this letter
agreement, the Security Agreement, the Term 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.
Without limiting the foregoing, any Term Loan (including the initial Term
Loan) is subject to the further conditions precedent that on the date on which
such Term Loan is made (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 Term Loan (except for
such statements, representations and warranties that expressly relate to a
specific date).
(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 Term Loan.
(c) No event which constitutes, or which with notice or lapse of time or
both would 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 Term Loan, and each acceptance by the
Borrower of the proceeds of any Term Loan, will be deemed a representation and
warranty by the Borrower that at the date of such Term Loan and after giving
effect thereto all of the conditions set forth in the foregoing clauses (a)-(d)
of this ss.1.5 will be satisfied.
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II. REPRESENTATIONS AND WARRANTIES
2.1. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to enter
into this letter agreement and to make Term Loans 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 the State 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, to grant the security interests contemplated by
the Security Agreement 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 in each other jurisdiction in which the
Borrower maintains any plant, office, warehouse or other facility and in each
other jurisdiction where the failure so to qualify would be reasonably likely
(singly or in the aggregate with all other such failures) to 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.
(b) At the date of this letter agreement, all of the outstanding capital
stock of the Borrower is owned, of record and beneficially, as set forth on item
2.1(b) of the attached Disclosure Schedule. The Borrower owns 100% of the
outstanding capital stock of each Subsidiary, if any.
(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 any filing (other than
filings under the Uniform Commercial Code), 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 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.
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(d) This letter agreement and each of the other Loan Documents 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, proceedings or investigations pending or,
to the knowledge of the Borrower, threatened by or against the Borrower or any
Subsidiary of the Borrower 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 other instrument provided for or contemplated by this
letter agreement 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 would be reasonably likely to result in any material adverse
change in the business, prospects, condition, affairs or operations of the
Borrower or any such 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, which violation would be
reasonably likely to have a material adverse effect on the financial condition,
business or prospects of the Borrower.
(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. Except as
set forth on item 2.1(g) of the attached Disclosure Schedule, 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, other than any such taxes, assessments,
impositions, fees and charges which are being contested in good faith by
appropriate proceedings which serve to stay the remedies of the relevant taxing
authority and as to which the Borrower has established and maintains adequate
reserves. No deficiencies for any tax, assessment or governmental charge have
been asserted or assessed, and the Borrower knows of no material tax liability
nor any basis therefor.
(h) The Borrower is in compliance with (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
would be reasonably likely (singly or in the aggregate with all other such
failures) to 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 of 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.
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(i) The management-generated financial statements of the Borrower as at
December 31, 1998, heretofore delivered to the Bank, are complete and accurate
and fairly present the financial condition of the Borrower as at the date
thereof and for the period covered thereby, except that said
management-generated statements do not have footnotes and thus do not present
all of the information which would normally be contained in footnotes to
financial statements. Neither the Borrower nor any of the Borrower's
Subsidiaries has any liability, contingent or otherwise, not disclosed in the
aforesaid December 31, 1998 financial statements or in any notes thereto that
could materially adversely affect the financial condition of the Borrower. Since
December 31, 1998, there has been no material adverse development in the
business, condition or prospects of the Borrower, and the Borrower has not
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 One High Street, North Andover, MA 01845. All of the
books and records of the Borrower are located at said address. Other than as
described on item 2.1(j) of the attached Disclosure Schedule, none of the assets
of the Borrower are located at any other address, except (i) personal computers
used in the ordinary course of the Borrower's business by salesmen and other
employees of the Borrower and (ii) a reasonable amount of equipment located on a
temporary basis in the ordinary course of the Borrower's business at premises of
the Borrower's customers and at other premises for sales, demonstration and
testing purposes; provided that in any event the Borrower notifies the Bank of
each location where any material item of such assets shall be kept and provides
to the Bank all such Uniform Commercial Code financing statements and other
documentation, and takes all such other action, as the Bank may reasonably
request in order to create, prefect and/or protect a first priority security
interest in favor of the Bank in each material item of such assets. Said Item
2.1(j) of the attached Disclosure Schedule sets forth the names and addresses of
all record owners of any premises where any material item of Collateral is
located.
(k) The Borrower owns or has a valid right to use all of the material
patents, licenses, copyrights, trademarks, trade names and franchises now being
used or necessary to conduct its business as presently conducted. The conduct of
the Borrower's business as now operated does not conflict with valid patents,
licenses, copyrights, trademarks, trade names or franchises of others in any
manner that could materially adversely affect the business or assets or
condition, financial or otherwise, of the Borrower.
(l) 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 limits
or restricts that person's right to engage in the type of business activity
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, is reasonably
likely to have a material adverse effect on the financial condition, business,
prospects or properties of the Borrower.
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(n) Except as heretofore disclosed in writing to the Bank, the Borrower
has reviewed the software which it uses in its business for "Year 2000"
compliance and has determined that such software will continue to function in
the manner intended without interruption of service or other difficulty
resulting from the "Year 2000 problem". The Borrower will, at the request of the
Bank, provide such reports and such other information as the Bank may reasonably
request in order to evidence such Year 2000 compliance.
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 all or any portion of any Term Loan or any
of the other Obligations 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. 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 Borrower or such Subsidiary, as the case may be,
maintains any plant, office, warehouse or other facility and 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 would not (singly or in the aggregate) be reasonably likely to 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 in good working order and condition, making
all necessary repairs thereto and replacements thereof. The Borrower will
maintain all such insurance as may be required under the Security Agreement and
will also 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.
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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, material equipment lease obligations and all of its other material
Indebtedness. The Borrower will perform and fulfill all material covenants and
agreements under any material leases of real estate, agreements relating to
material 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 of the development, manufacturing, marketing and sales of
telecommunications equipment. The Borrower will not, without the prior written
consent of the Bank, directly or indirectly (itself or through any Subsidiary)
enter into any other 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 Borrower
(commencing with its fiscal year ending December 31, 1999), a copy of the
annual audit report for such fiscal year for the Borrower, including
therein consolidated and consolidating balance sheets of the Borrower and
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. The annual consolidated financial statements
shall be certified by independent public accountants selected by the
Borrower and reasonably acceptable to the Bank, such certification to be in
such form as is generally recognized as "unqualified".
(ii) Within 30 days after the end of each month, consolidated and
consolidating balance sheets of the Borrower and Subsidiaries and related
consolidated and consolidating statements of income and cash flow,
unaudited but complete and accurate and prepared in accordance with
generally accepted accounting principles consistently applied fairly
presenting the financial condition of the Borrower and
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Subsidiaries as at the dates thereof and for the periods covered thereby
(except that such monthly statements need not contain footnotes) and
certified as accurate (subject to normal year-end audit adjustments, which
shall not be material) by the President or Vice President of Finance and
Administration of the Borrower, such balance sheets to be as at the end of
each such month and such statements of income and cash flow to be for each
such month and for the fiscal year to date, in each case (commencing with
its statements for the fiscal period ending June 30, 1999) together with a
comparison to budget and a comparison to the results for the corresponding
fiscal period of the immediately prior fiscal year.
(iii) At the time of delivery of each annual or monthly financial
statement of the Borrower, a certificate executed by the President or Vice
President of Finance and Administration 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 such financial statement
will also set forth the calculation necessary to evidence compliance with
ss.3.7.
(iv) Promptly after receipt, a copy of all audits or reports submitted
to the Borrower by independent public accountants in connection with any
annual, special or interim audits of the books of the Borrower and any
"management letter" prepared by such accountants. Also, within 90 days
after the beginning of each fiscal year (or by June 30, 1999 with respect
to its 1999 fiscal year), the Borrower will deliver to the Bank a budget
for such fiscal year approved by the Borrower's Board of Directors, such
budget to include projected income statements, balance sheets and cash
flows on a monthly basis.
(v) As soon as possible and in any event within five days after the
Borrower knows of or reasonably should have known of the occurrence of any
Default or Event of Default, the statement of the Borrower setting forth
details of each such Default or Event of Default and the action which the
Borrower proposes to take with respect thereto.
(vi) Promptly after the commencement thereof, notice of the
commencement 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; provided, however, that nothing
contained in this clause (vi) will be deemed to require the Borrower to
give notice of any such action, suit or proceeding which seeks monetary
damage only, such damages being in the amount of $50,000 or less.
(vii) Should any securities of the Borrower be publicly traded or if
registration of any such securities is being sought, the Borrower will
furnish to the Bank, promptly upon same becoming available, one copy of
each financial statement, report, notice or proxy statement sent by the
Borrower to stockholders or the holders of debt securities generally or
disseminated to the public, and of each regular or periodic report and any
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registration statement, prospectus or listing application filed by the
Borrower with the National Association of Securities Dealers, any
securities exchange or the Securities and Exchange Commission or any
successor agency.
(viii) Promptly after the Borrower has knowledge thereof, written
notice of any development or circumstance which would be reasonably
expected to have a material adverse effect on the Borrower or its business,
properties, assets, Subsidiaries or condition, financial or otherwise.
(ix) 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. CAPITAL BASE. The Borrower will maintain at all times a consolidated
Capital Base which shall not be less than $750,000.
3.8. BOOKS AND RECORDS. The Borrower will maintain (and will cause each of
its 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 (but not more
than once per calendar quarter unless an Event of Default has occurred and is
then continuing) 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.3.8. 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.
3.9. LANDLORD'S WAIVER. Prior to the making of the first Term Loan, the
Borrower will use its best efforts to obtain, and will thereafter use its best
efforts to maintain in effect at all times, waivers from the owners of all
premises in which any material amount of Collateral is permanently located, such
waivers to be in form and substance reasonably satisfactory to the Bank.
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 all or any portion of any Term Loan or any
of the other Obligations shall be outstanding:
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<PAGE> 12
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, including, without limitation, the
Indebtedness represented by the Term Note;
(ii) Indebtedness of the Borrower or any Subsidiary for taxes,
assessments and governmental charges or levies not yet due and payable;
(iii) 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;
(iv) purchase money Indebtedness (including, without limitation,
Indebtedness in respect of capitalized equipment leases) incurred after the
date hereof 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 (iv) plus
presently-existing equipment financing permitted under clause (v) of this
ss.4.1 will not exceed $200,000 in the aggregate outstanding at any one
time;
(v) other Indebtedness existing at the date hereof, but only to the
extent set forth on item 4.1 of the attached Disclosure Schedule; and
(vi) any guaranties or other contingent liabilities expressly
permitted pursuant toss.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 the 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;
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<PAGE> 13
(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 (iv) 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 agrees that the Borrower
will not enter into any agreement (a "Restrictive Agreement") which would have
the effect of prohibiting the Borrower from granting to the Bank in the future a
Lien on any of the Borrower's property and interests. The Borrower represents
that it is not now a party to any such Restrictive Agreement.
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, and (ii) 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;
provided that so long as the Borrower's consolidated Capital Base is (and after
giving effect to any such repurchase would continue to be) in excess of
$750,000, the Borrower may repurchase from employees and former employees stock
issued under the Borrower's Stock Incentive Plan.
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, $25,000 outstanding at any
one time.
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<PAGE> 14
4.6. INVESTMENTS. The Borrower will not, without the Bank's prior written
consent, invest in, hold or purchase (other than the repurchase of the
Borrower's stock described in ss.4.4 above) 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 with or certificates
of deposits issued by 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 all or substantially all 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 the prior
written consent of the Bank (such consent not to be unreasonably withheld or
delayed), 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 at a level
consistent with the salary and other payments being paid at the date of this
letter agreement, nor to prevent the hiring of additional officers at a level of
compensation consistent with industry practice, nor to prevent reasonable
periodic increases in salary and other compensation. 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. Notwithstanding the foregoing, nothing
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<PAGE> 15
contained in this ss.4.9 will be deemed to prohibit any sales of additional
equity in the Borrower to any present or future affiliate of the Borrower.
4.10. CHANGE OF ADDRESS, ETC. The Borrower will not change its corporate
name or legal structure, nor will the Borrower change its chief executive
offices or principal place of business from the address described in ss.2.1(j),
nor will the Borrower remove any books or records from such address, nor will
the Borrower keep any Collateral at any location other than the premises
referred to in said ss.2.1(j) without, in each instance, giving the Bank at
least 30 days' prior written notice and providing all such financing statements,
certificates and other documentation as the Bank may reasonably request in order
to maintain the perfection and priority of the security interests granted or
intended to be granted pursuant to the Security Agreement; provided however,
that in the ordinary course of the Borrower's business, the following items of
Collateral may be located at other premises: (i) personal computers used by
salesmen and other employees of the Borrower and (ii) a reasonable amount of
equipment located on a temporary basis at premises of the Borrower's customers
and on other premises for sales, demonstration and testing purposes so long as,
in each such case, the Borrower notifies the Bank of each location where any
material item of Collateral shall be kept and provides to the Bank all such
Uniform Commercial Code financing statements and other documentation, and takes
all such other action, as the Bank may reasonably request in order to create,
perfect and/or protect a first priority security interest in favor of the Bank
in each material item of Collateral. 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 potential or known release
or 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 and other combustible
materials 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
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<PAGE> 16
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 any hazardous wastes (not consumed in the ordinary course) only
through licensed providers of hazardous waste removal services.
4.12. NO MARGIN STOCK. No proceeds of any Term 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 Default or 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 Term Note on or before the date when due; 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
Term Loan 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.3.1, 3.3, 3.6 or 3.7 or any provision
of Article IV; or
(d) 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 written notice thereof shall have been
given to the Borrower; or
(e) 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
(f) 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
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<PAGE> 17
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
(g) 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 $100,000 in aggregate principal amount or with
respect to any instrument evidencing, guaranteeing, securing or otherwise
relating to any such Indebtedness, or any such Indebtedness in excess of
$100,000 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
(h) 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
(i) Any attachment, execution or similar process (securing amounts in
excess of $100,000) shall be issued or levied against any 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 30 days
after its issue or levy; or
(j) Any final uninsured judgment in excess of $100,000 shall be entered
against the Borrower or any Subsidiary of the Borrower by any court of competent
jurisdiction and not paid or satisfied within 30 days after the entry thereof;
or
(k) 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 would be reasonably likely
to have a material adverse effect upon the financial condition of the Borrower
or any such Subsidiary; or
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<PAGE> 18
(l) The Security Agreement or any other Loan Document shall for any
reason (other than due to payment in full of all amounts secured or evidenced
thereby or due to discharge in writing by the Bank) not remain in full force and
effect; or
(m) The security interest and liens of the Bank in and on any of the
Collateral covered or intended to be covered by the Security Agreement shall for
any reason (other than written release by the Bank) not be fully perfected liens
and security interests; or
(n) If, at any time, more than 50% of any class of voting stock of the
Borrower shall be held, of record and/or beneficially, by any Person or by any
"group" (as defined in the Securities Exchange Act of 1934, as amended, and the
regulations thereunder) other than by one or more of the Persons listed on item
5.1(n) of the attached Disclosure Schedule or a group consisting of such
Persons.
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 Term 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 arrangements for Term Loans provided for by this
letter agreement.
(c) Exercise all rights and remedies hereunder, under the Security
Agreement, under the Term 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
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<PAGE> 19
the Uniform Commercial Code. ANY AND ALL RIGHTS TO REQUIRE THE BANK TO EXERCISE
ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES ANY OF
THE OBLIGATIONS PRIOR TO THE EXERCISE BY THE BANK OF ITS RIGHT OF SET-OFF UNDER
THIS SECTION ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
VI. MISCELLANEOUS
6.1. COSTS AND EXPENSES. The Borrower agrees to pay, on demand, all
reasonable costs and expenses (including, without limitation, reasonable legal
fees) incurred by the Bank in connection with the preparation, execution and
delivery of this letter agreement, the Security Agreement, the Term Note and all
other instruments and documents to be delivered in connection with any Term Loan
and any amendments or modifications of any of the foregoing, as well as the
reasonable 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 Security Agreement, the Term 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 Security Agreement, the Term 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 the sum of (i)
four (4%) percent per annum PLUS (ii) the per annum rate otherwise payable under
the Term Note (but in no event in excess of the maximum rate permitted by then
applicable law).
6.2. FACILITY FEE. With respect to the within facility for Term Loans,
the Borrower will pay to the Bank, on the Fee Payment Date (defined below), a
non-refundable facility fee in the amount of $10,000; provided that such $10,000
fee will not be charged if on or prior to the Fee Payment Date at least $625,000
in aggregate principal amount of the Term Loans has been advanced to the
Borrower. As used herein, "Fee Payment Date" means the earliest of (i) March 31,
2000, (ii) the date of termination of the Term Loan facility under ss.5.2 or
ss.6.7, or (iii) the date of any acceleration under ss.5.2. The fee described in
this Section is 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. CAPITAL ADEQUACY. If the Bank shall have determined that the
adoption 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 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 the Term
Loans and/or the within-described term loan facilities
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<PAGE> 20
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, phase-in, change or compliance and assuming that the
Bank's capital was then fully utilized) but for such adoption, phase-in, change
or compliance by any amount deemed by the Bank to be material: (i) the Bank
shall promptly after its determination of such occurrence give notice thereof to
the Borrower; and (ii) the Borrower shall pay forthwith to the Bank as an
additional fee such amount as the Bank certifies to be the amount that will
compensate it for such reduction with respect to the Term Loans and/or the
within-described term loan facilities.
A certificate of the Bank claiming compensation under this Section shall
be conclusive in the absence of manifest error; provided that the Bank will not
claim compensation under this Section unless the Bank is seeking similar
compensation generally from other similar borrowers whose loan documents contain
similar provisions. Such certificate shall set forth the nature of the
occurrence giving rise to such compensation, the additional amount or amounts to
be paid to it hereunder and the method by which such amounts were determined. In
determining such amounts, the Bank may use any reasonable averaging and
attribution methods. 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 certificate in a timely manner shall reduce any obligation of the
Borrower to the Bank under this Section.
6.4. 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.
6.5. GOVERNING LAW. This letter agreement and the Term Note shall be
governed by, and construed and enforced in accordance with, the laws of The
Commonwealth of Massachusetts.
6.6. 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:
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<PAGE> 21
If to the Borrower:
Quantum Bridge Communications, Inc.
One High Street, 4th Floor
North Andover, MA 01845
Attention: Cheryl Reault, Vice President of Finance and Administration
If to the Bank:
Fleet National Bank
High Technology Division
Mail Stop: MA OF D07A
One Federal Street
Boston, MA 02110
Attention: Irina V. Case, 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. If any
such notice, request, demand or other communication is hand-delivered, same
shall be effective upon receipted delivery.
6.7. BINDING EFFECT; ASSIGNMENT; TERMINATION. This letter agreement shall
be binding upon the Borrower and the Bank and their respective 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, from time to time
assign or grant participations in this letter agreement, the Term Loans and/or
the Term Note. Without limitation of the foregoing generality,
(i) The Bank may at any time pledge all or any portion of its rights
under the Loan Documents (including any portion of the Term Note) to any
of the 12 Federal Reserve Banks organized under Section 4 of the Federal
Reserve Act, 12 U.S.C. Section 341. No such pledge or the enforcement
thereof shall release the Bank from its obligations under any of the Loan
Documents.
(ii) The Bank shall have the unrestricted right at any time and from
time to time, and without the consent of or notice to the Borrower, to
grant to one or more banks or other financial institutions (each, a
"Participant") participating interests in the Bank's obligation to lend
hereunder and/or any or all of the Term Loans held by the Bank hereunder.
In the event of any such grant by the Bank of a participating interest to
a Participant, whether or not upon notice to the Borrower, the Bank shall
remain responsible for the performance of its obligations hereunder and
the Borrower shall
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<PAGE> 22
continue to deal solely and directly with the Bank in connection with the
Bank's rights and obligations hereunder. The Bank may furnish any
information concerning the Borrower in its possession from time to time to
prospective assignees and Participants; provided that the Bank shall
require any such prospective assignee or Participant to agree in writing
to maintain the confidentiality of such information to the same extent as
the Bank would be required to maintain such confidentiality.
The Borrower may terminate this letter agreement and the financing
arrangements made herein by giving written notice of such termination to the
Bank; 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 Term Loans and all interest thereon and all fees and charges
payable in connection therewith.
6.8. 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 Term
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.6.8 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.6.8 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.6.6 (as such address may be changed from time to time pursuant to said
ss.6.6) or (ii) by serving a copy thereof upon it at its address set forth in
ss.6.6 (as such address may be changed from time to time pursuant to said
ss.6.6).
6.9. 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.
6.10. REPLACEMENT NOTE. Upon receipt of an affidavit of an officer of the
Bank as to the loss, theft, destruction or mutilation of the Term Note or of any
other Loan Document which is not of public record and upon the Bank providing
reasonable indemnification for the Borrower (the Borrower agreeing that the
Bank's unsecured agreement of indemnity will be sufficient for this purpose)
and, in the case of any such mutilation, upon surrender and cancellation of the
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<PAGE> 23
Term Note or other Loan Document, the Borrower will issue, in lieu thereof, a
replacement Term Note or other Loan Document in the same principal amount (as to
the Term Note) and in any event of like tenor.
6.11. USURY. All agreements between the Borrower and the Bank are hereby
expressly limited so that in no contingency or event whatsoever, whether by
reason of acceleration of maturity of the Term Note or otherwise, shall the
amount paid or agreed to be paid to the Bank for the use or the forbearance of
the Indebtedness represented by the Term Note exceed the maximum permissible
under applicable law. In this regard, it is expressly agreed that it is the
intent of the Borrower and the Bank, in the execution, delivery and acceptance
of the Term Note, to contract in strict compliance with the laws of The
Commonwealth of Massachusetts. If, under any circumstances whatsoever,
performance or fulfillment of any provision of any of the Term Note or any of
the other Loan Documents at the time such provision is to be performed or
fulfilled shall involve exceeding the limit of validity prescribed by applicable
law, then the obligation so to be performed or fulfilled shall be reduced
automatically to the limits of such validity, and if under any circumstances
whatsoever the Bank should ever receive as interest an amount which would exceed
the highest lawful rate, such amount which would be excessive interest shall be
applied to the reduction of the principal balance evidenced by the Term Note and
not to the payment of interest. The provisions of this ss.6.11 shall control
every other provision of this letter agreement and of the Term Note.
6.12. WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY MUTUALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN
RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS LETTER AGREEMENT, THE TERM NOTE OR ANY OTHER LOAN DOCUMENTS OR OUT OF ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE BANK
TO ENTER INTO THIS LETTER AGREEMENT AND TO MAKE TERM LOANS AS CONTEMPLATED
HEREIN.
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:
"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.
"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 additional Subordinated
Debt).
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<PAGE> 24
"Collateral" - All property now or hereafter owned by the Borrower or in
which the Borrower now or hereafter has any interest which is now or hereafter
described as "Collateral" in the Security Agreement or in Subsection 7.2(b)
below.
"Default" - Any event or circumstance which, with the passage of time or
the giving of notice or both, could become an Event of Default under this letter
agreement.
"ERISA" - The Employee Retirement Income Security Act of 1974, as amended.
"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.
"Loan Documents" - Each of this letter agreement, the Term Note, the
Security Agreement and each other instrument, document or agreement evidencing,
securing, guaranteeing or relating in any way to any of the Term Loans, all
whether now existing or hereafter arising or entered into.
"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, whether or not
relating to any of the Term Loans.
"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.
"Qualifying Equipment" - Items of equipment (not including software,
except as provided in the next following sentence) purchased by the Borrower
within the 90-day period prior to the date of the advance of the relevant Term
Loan (except that the first Term Loan may finance costs of Qualifying Equipment
acquired within the 120-day period preceding the date of such Term Loan), all of
which items of equipment must meet all of the following criteria: (i) such items
of equipment are shown on the Equipment and Improvements List heretofore
delivered by the Borrower to the Bank or have otherwise been approved by the
Bank in its reasonable discretion for use in supporting a Term Loan, (ii) each
item of such equipment has been delivered to the Borrower's North Andover, MA
premises (or elsewhere as specifically provided in ss.1.2 above) and has become
fully operational (or will become fully operational within the time period
provided in ss.1.2 above), (iii) the Borrower has paid in full for each item of
such equipment and holds title to same, free of all interests and claims of any
other Person (other than the security
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<PAGE> 25
interest of the Bank), and (iv) the Bank has a fully perfected first security
interest in such equipment. Notwithstanding the provisions of the immediately
preceding sentence, the Borrower may include within "Qualifying Equipment" any
software (not including "shrink-wrapped" software) which meets all of the
conditions and criteria set forth in the immediately preceding sentence to be
Qualifying Equipment (other than the exclusion of software contained therein)
and which is purchased by the Borrower for use in connection with its tangible
Qualifying Equipment; provided that the aggregate principal amount of the Term
Loans made with respect to the costs of the software so included will be limited
to $300,000.
"Qualifying Leasehold Improvements" - Leasehold improvements made to the
Borrower's North Andover, MA premises within the 90-day period prior to the date
of the advance of the relevant Term Loan (except that the first Term Loan may
finance the costs of Qualifying Leasehold Improvements made within the 120-day
period preceding the date of such Term Loan), all of which improvements must
meet all of the following criteria: (i) such improvements are shown on the
Equipment and Improvements List heretofore delivered by the Borrower to the Bank
or otherwise have been approved by the Bank in its reasonable discretion for use
in supporting a Term Loan, (ii) the Borrower has paid in full for such
improvements and holds title to some, free of all interests and claims of any
other Person (other than the security interest of the Bank), and (iii) the Bank
has a fully perfected first security interest in such improvements.
"Receivables" - As to any Person, all of such Person's present and future
accounts receivable for goods sold or for services rendered.
"SEC" - The Securities and Exchange Commission or any successor thereto.
"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).
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<PAGE> 26
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.
7.2. SECURITY AGREEMENT. (a) The Borrower acknowledges and agrees that
the "Obligations" described in and secured by the Security Agreement include,
without limitation, all of the obligations of the Borrower under the Term Note
and/or this letter agreement.
(b) The Security Agreement is hereby modified to provide as follows:
(i) That the "Collateral" subject thereto includes, without
limitation and in addition to the Collateral described therein, all of the
Borrower's files, books and records (including, without limitation, all
electronically recorded data) all whether now owned or existing or
hereafter acquired, created or arising, but excluding any of the foregoing
items in this clause (i) which constitute or relate to intellectual
property. The Borrower hereby grants to the Bank a security interest in
all such Collateral in order to secure the full and prompt payment and
performance of all of the Obligations.
(ii) That, upon the occurrence and during the continuance of any
Event of Default (as defined in ss.5.1 of this letter agreement), the Bank
may, at any time, notify account debtors that the Collateral has been
assigned to the Bank and that payments by such account debtors shall be
made directly to the Bank, without prior notice to the Borrower but with
written notice of such notification to be given to the Borrower promptly
after such notification is given to account debtors. At any time after the
occurrence and during the continuance of an Event of Default, the Bank may
collect the Borrower's Receivables, or any of same, directly from account
debtors and may charge the collection costs and expenses to the Borrower.
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<PAGE> 27
This letter agreement is executed, as an instrument under seal, as of the
day and year first above written.
Very truly yours,
QUANTUM BRIDGE COMMUNICATIONS, INC.
By: /s/ Cheryl Reault
--------------------------------------
Name: Cheryl Reault
Title: Vice President of Finance
and Administration
Accepted and agreed:
FLEET NATIONAL BANK
By: /s/ Irina Case
------------------------------
Name: Irina Case
Title: Vice President
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<PAGE> 28
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement ("this Agreement") is made as of November
18, 1999 between Quantum Bridge Communications, Inc., a Delaware corporation
(the "Borrower") and Fleet National Bank (the "Bank"). For good and valuable
consideration, receipt and sufficiency of which are hereby acknowledged, the
Borrower and the Bank act and agree as follows:
1. Reference is made to: (i) that certain letter agreement dated April
1, 1999 (the "Letter Agreement") between the Borrower and the Bank; (ii) that
certain $1,000,000 face principal amount promissory note dated April 1, 1999
(the "Facility One Term Note") made by the Borrower and payable to the order of
the Bank; (iii) that certain Inventory and Accounts Receivable Security
Agreement dated April 1, 1999 (the "IAR Security Agreement") given by the
Borrower to the Bank; (iv) that certain Supplementary Security Agreement -
Security Interest in Goods and Chattels dated April 1, 1999 (the "Supplementary
Security Agreement") given by the Borrower to the Bank; and (v) that certain
$2,000,000 face principal amount promissory note of even date herewith (the
"Facility Two Term Note") made by the Borrower and payable to the order of the
Bank. The Letter Agreement, the IAR Security Agreement, the Supplementary
Security Agreement, the Facility One Term Note and the Facility Two Term Note
are hereinafter collectively referred to as the "Financing Documents".
2. The Letter Agreement is hereby amended, effective as of the date
hereof:
a. By deleting from clause (i) of Section 1.1 of the Letter Agreement
the words "Term Note" and by substituting in their stead the following:
"Facility One Term Note"
b. By deleting the period appearing at the end of Section 1.1 of the
Letter Agreement and by substituting in its stead the following:
", and (iii) that certain $2,000,000 face principal amount
promissory note (the `Facility Two Term Note') dated November 18,
1999 issued by the Borrower pursuant to ss.1.3A below and payable to
the order of the Bank."
c. By deleting in its entirety the caption to Section 1.2 of the Letter
Agreement and by substituting in its stead the following:
"FACILITY ONE TERM LOANS; FACILITY ONE TERM NOTE."
d. By deleting from the first sentence of Section 1.2 of the Letter
Agreement the words "Term Loans" and by substituting in their stead the
following:
"Facility One Term Loans"
<PAGE> 29
e. By providing that, in each of Sections 1.2 and 1.3 of the Letter
Agreement, all references to a "Term Loan" or to the "Term Loans" will be deemed
to refer to a Facility One Term Loan or to the Facility One Term Loans,
respectively.
f. By inserting into Article I of the Letter Agreement, immediately
after Section 1.3 thereof, the following:
"1.3A. FACILITY TWO TERM LOANS; FACILITY TWO TERM NOTE. In addition
to the foregoing, subject to the terms of this letter agreement, the
Bank will make one or more loans (the `Facility Two Term Loans') to
the Borrower, as the Borrower may request, in an aggregate principal
amount up to $2,000,000, in order to finance Qualifying Equipment
and Qualifying Leasehold Improvements. A Facility Two Term Loan
shall be made, no more than once per calendar quarter (except that
more than one Facility Two Term Loan may be made in any calendar
quarter provided that each additional Facility Two Term Loan in any
one calendar quarter is in an amount of at least $25,000), in order
to finance costs of Qualifying Equipment acquired by the Borrower
within the 90 days preceding the request for such Facility Two Term
Loan and Qualifying Leasehold Improvements installed within the 90
days preceding the request for such Facility Two Term Loan, each
such Facility Two Term Loan to be in such amount as may be requested
by the Borrower; provided that (i) no Facility Two Term Loan will be
made after the close of business on September 29, 2000; (ii) the
aggregate original principal amounts of all Facility Two Term Loans
will not exceed $2,000,000; (iii) the aggregate original principal
amounts of all Facility Two Term Loans made in respect of Qualifying
Leasehold Improvements will not exceed $600,000 and (iv) no Facility
Two Term Loan will be in an amount in excess of 90% of the invoiced
actual costs of the items of Qualifying Equipment and Qualifying
Leasehold Improvements with respect to which such Facility Two Term
Loan is made (excluding taxes, shipping, installation charges,
training fees and other `soft costs' and excluding software except
as expressly permitted by the next following sentence); except that
the Borrower may in its sole discretion elect to deposit with the
Bank and pledge to the Bank cash equal to 10% of the original
principal amount of any Facility Two Term Loan; and if it so elects
and pursuant to such election deposits with the Bank and pledges to
the Bank (by instruments reasonably satisfactory in form and
substance to the Bank) cash equal to 10% of the original principal
amount of any Facility Two Term Loan, then the amount of such
Facility Two Term Loan (including the amount so pledged) will be
100% of said invoiced actual costs. The Borrower may include within
`Qualifying Equipment' software (not including `shrink-wrapped'
software) purchased by the Borrower for use in connection with the
equipment otherwise included in `Qualifying Equipment'; provided
that the aggregate amount of the Facility Two Term Loans used to
fund the purchase of such software will not exceed $400,000. Prior
to the making of each Facility Two Term Loan, and as a precondition
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<PAGE> 30
thereto, the Borrower will provide the Bank with: (i) invoices
supporting the costs of the relevant Qualifying Equipment and
Qualifying Leasehold Improvements; (ii) such evidence as the Bank
may reasonably require showing that the Qualifying Equipment has
been delivered to the Borrower's North Andover, MA premises (or
elsewhere to the extent provided in the last sentence of this
paragraph), has become fully operational (provided that the Borrower
may have up to 90 days after delivery of the Qualifying Equipment to
cause same to become fully operational), has been paid for by the
Borrower and is owned by the Borrower free of all liens and
interests of any other Person (other than the security interest of
the Bank pursuant to the Security Agreement); (iii) such evidence as
the Bank may reasonably require showing that the Qualifying
Leasehold Improvements have been constructed at or delivered to the
Borrower's North Andover, MA premises, have been paid for by the
Borrower and are owned by the Borrower free of all liens and
interests of any other Person (other than the security interest of
the Bank pursuant to the Security Agreement); (iv) Uniform
Commercial Code financing statements (if needed) reflecting the
relevant Qualifying Equipment and Qualifying Leasehold Improvements
with respect to which such Term Loan is being made; and (v) evidence
satisfactory to the Bank that the Qualifying Equipment and
Qualifying Leasehold Improvements are fully insured against casualty
loss, with insurance naming the Bank as secured party and first loss
payee. Notwithstanding the provisions of clause (ii) of the
immediately preceding sentence, in the ordinary course of the
Borrower's business, the following Qualifying Equipment need not be
located at said North Andover, MA premises: (i) personal computers
used by salesmen and other employees of the Borrower and (ii) a
reasonable amount of equipment located on a temporary basis at
premises of the Borrower's customers and on other premises for
sales, demonstration and testing purposes; provided that in any
event the Borrower notifies the Bank of each location where any
material item of Qualifying Equipment shall be kept and provides to
the Bank all such Uniform Commercial Code financing statements and
other documentation, and takes all such other action, as the Bank
may reasonably request in order to create, perfect and/or protect a
first priority security interest in favor of the Bank in all such
Qualifying Equipment.
The Facility Two Term Loans will be evidenced by the Facility Two
Term Note. Interest on the Facility Two Term Loans shall be payable
at the times and at the rate provided for in the Facility Two Term
Note. After the occurrence and during the continuance of any Event
of Default, the Facility Two Term Loans shall bear interest at a
fluctuating rate per annum which at all times shall be equal to the
sum of (i) four (4%) percent per annum PLUS (ii) the per annum rate
otherwise payable under the Facility Two Term Note (but in no event
in excess of the maximum rate from time to time permitted by then
applicable law). The Borrower hereby irrevocably authorizes the
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<PAGE> 31
Bank to make or cause to be made, on a schedule attached to the
Facility Two Term Note or on the books of the Bank, at or following
the time of making each Facility Two Term Loan and of receiving any
payment of principal of a Facility Two Term Loan, an appropriate
notation reflecting such transaction and the then aggregate unpaid
principal balance of the Facility Two Term Loans. The amount so
noted shall constitute PRIMA FACIE evidence as to the amount owed by
the Borrower with respect to principal of the Facility Two Term
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 Facility Two Term Note.
1.3B. PRINCIPAL REPAYMENT OF FACILITY TWO TERM LOANS. The Borrower
shall repay principal of the Facility Two Term Loans in 35 equal
consecutive monthly installments, commencing on October 1, 2000 and
continuing on the first day of each month thereafter through and
including August 1, 2003 (each such monthly installment to be in an
amount equal to 1/36th of the aggregate principal amount of the
Facility Two Term Loans outstanding at the close of business on
September 29, 2000), PLUS a 36th and final installment payment due
on September 1, 2003 in an amount equal to the then outstanding
principal balance of all Facility Two Term Loans and all interest
then accrued but unpaid thereon. The Borrower may prepay, at any
time or from time to time, without premium or penalty, the whole or
any portion of the Facility Two Term Loans; provided that each such
principal prepayment shall be accompanied by payment of all interest
under the Facility Two Term Note accrued but unpaid to the date of
payment. Any partial prepayment of principal of the Facility Two
Term Loans will be applied to installments of principal of the
Facility Two Term Loans thereafter coming due, in inverse order of
normal maturity. Amounts paid or prepaid on the Facility Two Term
Loans will not be available for reborrowing."
g. By deleting from Section 1.4 of the Letter Agreement the words "the
Term Note", in each place where same appear, and by substituting in their stead,
in each such place, the following:
"any Term Note"
h. By deleting the period appearing at the end of the penultimate
sentence of Section 1.4 of the Letter Agreement and by substituting in its stead
the following:
", being applied to principal installments of the Term Loans in
inverse order of normal maturity."
i. By deleting the last sentence of clause (iii) of Section 3.6 of the
Letter Agreement and by substituting in its stead following:
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<PAGE> 32
"Each such monthly financial statement will also set forth the
calculations necessary to determine compliance with each of ss.3.7,
ss.3.7A and ss.3.7B."
j. By deleting in its entirety Section 3.7 of the Letter Agreement and
by substituting in its stead the following:
"3.7. CAPITAL BASE. The Borrower will maintain, as at the end of
each month (commencing with the Borrower's results as at October 31,
1999), a consolidated Capital Base which shall not be less than
$3,000,000.
3.7A. LIQUIDITY. The Borrower will maintain, as at the end of each
month (commencing with the Borrower's results as at October 31,
1999), a Quick Ratio which shall not be less than 1.5 to 1. As
determined at any date, the `Quick Ratio' is the ratio of (x) the
Borrower's then Net Quick Assets to (y) outstanding Adjusted Current
Liabilities.
3.7B. LEVERAGE. The Borrower will maintain, as at the end of each
month (commencing with the Borrower's results as at October 31,
1999), a Leverage Ratio which shall not be greater than 1.25 to 1.
As determined at any date, the `Leverage Ratio' is the ratio of (x)
Adjusted Debt outstanding at that date to (y) the Borrower's then
consolidated Capital Base."
k. By deleting from clause (i) of Section 4.1 of the Letter Agreement
the words "the Term Note" and by substituting in their stead the following:
"the Term Notes"
l. By adding to Section 4.5 of the Letter Agreement, at the end of such
Section, the following:
"Nothing contained in this Section will be deemed to prevent the
Borrower from owning a $125,000 certificate of deposit issued by
Silicon Valley Bank, which certificate of deposit is pledged by the
Borrower to Silicon Valley Bank to secure a letter of credit."
m. By deleting in its entirety Section 4.6 of the Letter Agreement and
by substituting in its stead the following:
"4.6. INVESTMENTS. The Borrower will not, without the Bank's prior
written consent, invest in, hold or purchase (other than the
repurchase of the Borrower's stock described in ss.4.4 above) 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 rated
not less than AA by Moody's Investors Service, Inc.
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<PAGE> 33
(`Moody's') or its equivalent by Standard & Poor's Ratings Group
(`S&P'); (iii) mutual funds rated not less than AA by Moody's or its
equivalent by S&P; (iv) a $125,000 certificate of deposit issued to
the Borrower by Silicon Valley Bank; (v) deposits with or
certificates of deposit issued by the Bank and any other obligations
of the Bank or the Bank's parent; (vi) deposits with or certificates
of deposit issued by any other bank organized in the United States
having capital in excess of $100,000,000; and (vii) investments by
the Borrower in Securities Corp. or in any other Subsidiaries now
existing or hereafter created by the Borrower pursuant to ss.4.7
below; provided that in any event the combined Tangible Net Worths
(after eliminating intercompany items) of the Covered Entities alone
(exclusive of any investment by a Covered Entity in any Subsidiary
thereof and any debt owed by any Subsidiary to such Covered Entity)
will not be less than 90% of the consolidated Tangible Net Worth of
the Borrower and Subsidiaries. As used herein, the term `Covered
Entities' means each of (i) the Borrower and (ii) Securities Corp.,
so long as the capital stock of the Securities Corp. is pledged to
the Bank (with appropriate assurances from Securities Corp. as to
the nature of its activities) pursuant to instruments satisfactory
in form and substance to the Bank."
n. By inserting into the first sentence of Section 4.7 of the Letter
Agreement, immediately after the words "acquire any Subsidiary", the following:
"(provided that the Borrower may form Securities Corp.)"
o. By deleting from clause (a) of Section 5.1 of the Letter Agreement
the words "the Term Note" and by substituting in their stead the following:
"any Term Note"
p. By deleting from clause (c) of Section 5.1 of the Letter Agreement
the words "or 3.7" and by substituting in their stead the following:
", 3.7, 3.7A or 3.7B"
q. By deleting from each of clauses (g), (i) and (j) Section 5.1 of the
Letter Agreement the amount "$100,000", in each place where such amount appears,
and by substituting in its stead, in each such place, the following:
"$250,000"
r. By deleting from clause (a) of Section 5.2 of the Letter Agreement
the words "the Term Note" and by substituting in their stead the following:
"each Term Note"
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<PAGE> 34
s. By deleting from clause (c) of Section 5.2 of the Letter Agreement
the words "the Term Note" and by substituting in their stead the following:
"each Term Note"
t. By deleting from the first sentence of Section 6.1 of the Letter
Agreement, in both places where same appear, the words "the Term Note" and by
substituting in their stead, in both such places, the following:
"the Term Notes"
u. By deleting from the second sentence of Section 6.1 of the Letter
Agreement the words "the Term Note" and by substituting in their stead the
following:
"the Term Notes"
v. By deleting from the last sentence of Section 6.1 of the Letter
Agreement the words "the per annum rate otherwise payable under the Term Note"
and by substituting in their stead the following:
"the highest per annum rate then otherwise payable under any Term
Note"
w. By providing that all references in Section 6.2 of the Letter
Agreement to any "Term Loans" will be deemed to refer to the Facility One Term
Loans.
x. By deleting from Section 6.3 of the Letter Agreement, in each place
where same appear, the words "the Term Loans" and by substituting in their
stead, in each place, the following:
"any Term Loans"
y. By deleting from Section 6.5 of the Letter Agreement the words "the
Term Note" and by substituting in their stead the following:
"any Term Notes"
z. By changing the notice address of the Bank, pursuant to Section 6.6
of the Letter Agreement, to the following:
"Fleet National Bank
100 Federal Street
Mail Code: MA BOS 01-08-06
Boston, MA 02110
Attention: Irina V. Case, Vice President"
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<PAGE> 35
aa. By deleting from each of Section 6.7 and Section 6.8 of the Letter
Agreement, in each place where same appear, the words "the Term Note" and by
substituting in their stead, in each such place, the following:
"any of the Term Notes"
bb. By deleting in their entireties Sections 6.10 and 6.11 of the Letter
Agreement and by substituting in their stead the following:
"6.10. REPLACEMENT NOTE. Upon receipt of an affidavit of an officer
of the Bank as to the loss, theft, destruction or mutilation of any
Term Note or of any other Loan Document which is not of public
record and upon the Bank providing reasonable indemnification for
the Borrower (the Borrower agreeing that the Bank's unsecured
agreement of indemnification will be sufficient for this purpose)
and, in the case of any such mutilation, upon surrender and
cancellation of such Term Note or other Loan Document, the Borrower
will issue, in lieu thereof, a replacement Term Note or other Loan
Document in the same principal amount (as to any Term Note) and in
any event of like tenor.
6.11. USURY. All agreements between the Borrower and the Bank are
hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of maturity of the
Term Notes or otherwise, shall the amount paid or agreed to be paid
to the Bank for the use or the forbearance of the Indebtedness
represented by any Term Note exceed the maximum permissible under
applicable law. In this regard, it is expressly agreed that it is
the intent of the Borrower and the Bank, in the execution, delivery
and acceptance of the Term Notes, to contract in strict compliance
with the laws of The Commonwealth of Massachusetts. If, under any
circumstances whatsoever, performance or fulfillment of any
provision of any of the Term Notes or any of the other Loan
Documents at the time such provision is to be performed or fulfilled
shall involve exceeding the limit of validity prescribed by
applicable law, then the obligation so to be performed or fulfilled
shall be reduced automatically to the limits of such validity, and
if under any circumstances whatsoever the Bank should ever receive
as interest an amount which would exceed the highest lawful rate,
such amount which would be excessive interest shall be applied to
the reduction of the principal balance evidenced by the Term Notes
and not to the payment of interest. The provisions of this ss.6.11
shall control every other provision of this letter agreement and of
each Term Note."
cc. By inserting into Section 7.1 of the Letter Agreement, immediately
before the definition of "Business Day", the following:
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<PAGE> 36
"`Adjusted Current Liabilities' - All Current Liabilities of the
Borrower and/or any of its Subsidiaries (taken on a consolidated
basis), other than any such Current Liabilities which constitute
Deferred Revenue.
"Adjusted Debt' - The Total Liabilities of the Borrower and/or any
of its Subsidiaries (taken on a consolidated basis), other than any
such Total Liabilities which consist of Deferred Revenue."
dd. By inserting, into Section 7.1 of the Letter Agreement, immediately
after the definition of "Collateral", the following:
"`Current Liabilities' - All liabilities of the Borrower and/or any
Subsidiary of the Borrower which would properly be shown as current
liabilities on a consolidated balance sheet of the Borrower prepared
in accordance with generally accepted accounting principles
consistently applied."
ee. By inserting into Section 7.1 of the Letter Agreement, immediately
after the definition of "Default", the following:
"`Deferred Revenue' - All liabilities of the Borrower which would
properly be shown as `deferred revenue' on a balance sheet of the
Borrower prepared consistently with the balance sheet included in
the Borrower's annual financial statements as at December 31, 1998,
heretofore furnished to the Bank."
ff. By inserting into Section 7.1 of the Letter Agreement, immediately
after the definition of "ERISA", the following:
"`Facility One Term Loan' - Any loan made pursuant to ss.1.2.
`Facility Two Term Loan' - Any loan made pursuant to ss.1.3A.
`Facility One Term Note' - As defined inss.1.1.
`Facility Two Term Note' - As defined inss.1.1."
gg. By deleting from the definition of "Loan Documents" appearing in
Section 7.1 of the Letter Agreement, the words "the Term Note" and by
substituting in their stead the following:
"the Facility One Term Note, the Facility Two Term Note, the Pledge
Agreement from the Borrower to the Bank in respect of the capital
stock of Securities Corp.,"
hh. By inserting into Section 7.1 of the Letter Agreement, immediately
after the definition of "Loan Documents", the following:
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<PAGE> 37
"`Net Quick Assets' - Such current assets of the Borrower as consist
of cash, cash-equivalents, readily-marketable securities permitted
as investments under this letter agreement and Receivables (less an
allowance for bad debt consistent with the Borrower's prior
experience)."
ii. By deleting the PROVISO appearing at the end of the definition of
"Qualifying Equipment" contained in Section 7.1 of the Letter Agreement and by
substituting in its stead the following:
"; provided that the aggregate principal amount of the Facility One
Term Loans made with respect to the costs of the software so
included will be limited to $300,000 and the aggregate principal
amount of the Facility Two Term Loans made with respect to the costs
of the software so included will be limited to $400,000."
jj. By inserting into Section 7.1 of the Letter Agreement, immediately
after the definition of "SEC", the following:
"`Securities Corp." - Quantum Bridge Communications Massachusetts
Securities Corp., a Massachusetts corporation constituting a
`security corporation' within the meaning of Mass. Gen. Laws,
Chapter 63, Section 38B."
kk. By inserting into Section 7.1 of the Letter Agreement, immediately
after the definition of "Tangible Net Worth", the following:
"`Term Loans' - Collectively, the Facility One Term Loans and the
Facility Two Term Loans.
`Term Notes' - Collectively, the Facility One Term Note and the
Facility Two Term Note.
`Total Liabilities' - All Indebtedness of the Borrower and/or any of
its Subsidiaries which would properly be shown as liabilities on the
consolidated balance sheet of the Borrower."
ll. By deleting from Subsection 7.2(a) of the Letter Agreement the words
"the Term Note" and by substituting in their stead the following:
"the Term Notes"
3. The Facility One Term Note is hereby modified: (i) by providing that
all references therein to a "Term Loan" or to the "Term Loans" will be deemed to
apply, respectively, to any Facility One Term Loan or to the Facility One Term
Loans (as described in the Letter Agreement, as amended by this Agreement), and
(ii) by deleting the words "the Term
-10-
<PAGE> 38
Note" appearing in the eighth paragraph of the text of the Facility One Term
Note and by substituting in their stead the words "the Facility One Term Note".
4. Wherever in any Financing Document, or in any certificate or opinion
to be delivered in connection therewith, reference is made to a "letter
agreement" or to the "Letter Agreement", from and after the date hereof same
will be deemed to refer to the Letter Agreement, as hereby amended.
5. Simultaneously with the execution and delivery of this Agreement,
the Borrower is executing and delivering to the Bank the Facility Two Term Note.
The Facility Two Term Note is a $2,000,000 promissory note of the Borrower,
substantially in the form attached hereto as Exhibit 1. Wherever in any of the
Financing Documents or in any certificate or opinion to be delivered in
connection therewith, reference is made to a "Term Note" or to the "Term Notes",
from and after the date hereof same will be deemed to include both the Facility
One Term Note and the Facility Two Term Note. Wherever in any of the Financing
Documents or in any certificate or opinion to be delivered in connection
therewith, reference is made to a "Term Loan" or to the "Term Loans", from and
after the date hereof same will be deemed to include both the Facility One Term
Loans and the Facility Two Term Loans (each as described in the Letter
Agreement, as amended by this Agreement).
6. In order to induce the Bank to enter into this Agreement, the
Borrower agrees to pay to the Bank, at the date hereof, in respect of the
Facility Two Term Loans, a facility fee of $10,000. Said fee is in addition to,
and shall not be reduced by or applied against, any interest, fees, charges or
other amounts paid or payable with respect to the Letter Agreement and/or with
respect to any note issued thereunder.
7. In order to induce the Bank to enter into this Agreement, the
Borrower is also executing and delivering to the Bank a pledge agreement (the
"Pledge Agreement") in respect of the capital stock of Securities Corp. (as
defined above), together with the delivery of the stock certificate or
certificates representing all of the capital stock of Securities Corp., an
appropriate stock transfer power and a representation letter from Securities
Corp.
8. In order to induce the Bank to enter into this Agreement, the
Borrower also agrees to pay, promptly upon receipt of an invoice therefor, all
costs and expenses (including, without limitation, reasonable attorneys' fees)
incurred by the Bank with respect to this Agreement and/or the Facility Two Term
Loans.
9. In order to induce the Bank to enter into this Agreement, the
Borrower further represents and warrants as follows:
a. The execution, delivery and performance of this Agreement, the
Facility Two Term Note and the Pledge Agreement have been duly authorized by the
Borrower by all necessary corporate and other action, will not require the
consent of any third party and will not conflict with, violate the provisions
of, or cause a default or constitute an event which, with the passage of time or
the giving of notice or both, could cause a default on the part of the Borrower
under its charter documents or by-laws or under any contract, agreement, law,
rule, order,
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<PAGE> 39
ordinance, franchise, instrument or other document, or result in the imposition
of any lien or encumbrance (except in favor of the Bank) on any property or
assets of the Borrower.
b. The Borrower has duly executed and delivered each of this Agreement,
the Facility Two Term Note and the Pledge Agreement.
c. Each of this Agreement, the Facility Two Term Note and the Pledge
Agreement is the legal, valid and binding obligation of the Borrower,
enforceable against the Borrower in accordance with its respective terms.
d. The statements, representations and warranties made in the Letter
Agreement, in the IAR Security Agreement and/or in the Supplementary Security
Agreement continue to be correct as of the date hereof; except as amended,
updated and/or supplemented by the attached Supplemental Disclosure Schedule.
e. The covenants and agreements of the Borrower contained in the Letter
Agreement, in the IAR Security Agreement and/or in the Supplementary Security
Agreement have been complied with on and as of the date hereof.
f. No event which constitutes or which, with notice or lapse of time,
or both, could constitute, an Event of Default (as defined in the Letter
Agreement) has occurred and is continuing.
g. No material adverse change has occurred in the financial condition
of the Borrower from that disclosed in the annual financial statements of the
Borrower dated December 31, 1998, heretofore furnished to the Bank.
10. Except as expressly affected hereby, the Letter Agreement and each
of the other Financing Documents remains in full force and effect as heretofore.
11. Nothing contained herein will be deemed to constitute a waiver or a
release of any provision of any of the Financing Documents. Nothing contained
herein will in any event be deemed to constitute an agreement to give a waiver
or release or to agree to any amendment or modification of any provision of any
of the Financing Documents on any other or future occasion.
Executed, as an instrument under seal, as of the day and year first above
written.
QUANTUM BRIDGE
COMMUNICATIONS, INC.
By: /s/ Cheryl A. Reault
-----------------------------------------
Name: Cheryl A. Reault
Title: Vice President of Finance & Admin.
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<PAGE> 40
Accepted and agreed:
FLEET NATIONAL BANK
By: /s/ Irina Case
-------------------------------
Name: Irina Case
Title: Vice President
-13-
<PAGE> 41
SECOND LOAN MODIFICATION AGREEMENT
This Second Loan Modification Agreement ("this Agreement") is made as of
July 21, 2000 between Quantum Bridge Communications, Inc., a Delaware
corporation (the "Borrower") and Fleet National Bank (the "Bank"). The Bank is
the successor by merger to the entity formerly known as "Fleet National Bank"
("Old FNB"). For good and valuable consideration, receipt and sufficiency of
which are hereby acknowledged, the Borrower and the Bank act and agree as
follows:
1. Reference is made to: (i) that certain letter agreement dated April
1, 1999 between the Borrower and Old FNB, as amended by Loan Modification
Agreement dated as of November 18, 1999 (as so amended, the "Letter Agreement"),
the Bank having succeeded to the rights and obligations of Old FNB thereunder;
(ii) that certain $1,000,000 face principal amount promissory note dated April
1, 1999, as amended (as so amended, the "Facility One Term Note") made by the
Borrower and payable to the order of Old FNB, the Bank having succeeded to the
interests of Old FNB thereunder; (iii) that certain $2,000,000 face principal
amount promissory note dated November 18, 1999 (the "Facility Two Term Note")
made by the Borrower and payable to the order of Old FNB, the Bank having
succeeded to the interests of Old FNB thereunder; (iv) that certain Inventory
and Accounts Receivable Security Agreement dated April 1, 1999 (the "IAR
Security Agreement") given by the Borrower to Old FNB, the Bank having succeeded
to the interests of Old FNB thereunder; (v) that certain Supplementary Security
Agreement - Security Interest in Goods and Chattels dated April 1, 1999 (the
"Supplementary Security Agreement") given by the Borrower to Old FNB, the Bank
having succeeded to the interests of Old FNB thereunder; and (vi) that certain
$4,000,000 face principal amount promissory note of even date herewith (the
"Facility Three Term Note") made by the Borrower and payable to the order of the
Bank. The Letter Agreement, the Facility One Term Note, the Facility Two Term
Note, the IAR Security Agreement, the Supplementary Security Agreement and the
Facility Three Term Note are hereinafter collectively referred to as the
"Financing Documents". The above-mentioned November 18, 1999 Loan Modification
Agreement is hereinafter referred to as the "First Modification".
2. The Letter Agreement is hereby amended, effective as of the date
hereof:
a. By deleting the period appearing at the end of Section 1.1 of the
Letter Agreement (as heretofore amended by the First Modification) and by
substituting in its stead the following:
", and (iv) that certain $4,000,000 face principal amount promissory
note (the `Facility Three Term Note') dated July 21, 2000 issued by
the Borrower pursuant to ss.1.3C below and payable to the order of
the Bank."
b. By deleting the third sentence of the second paragraph of Section
1.2 of the Loan Agreement (as heretofore affected by the First Modification) and
by substituting in its stead the following:
<PAGE> 42
"After the occurrence and during the continuance of any Event of
Default, the Facility One Term Loans shall bear interest at a
fluctuating rate per annum which all times shall be equal to the sum
of (i) four (4%) percent per annum PLUS (ii) the per annum rate
otherwise payable under the Facility One Term Note (but in no event
in excess of the maximum rate from time to time permitted by then
applicable law)."
c. By inserting into Article I of the Letter Agreement, immediately
after Section 1.3B thereof (said Section having been inserted by the First
Modification), the following:
"1.3C. FACILITY THREE TERM LOANS; FACILITY THREE TERM NOTE. In
addition to the foregoing, subject to the terms of this letter
agreement, the Bank will make one or more loans (the `Facility Three
Term Loans') to the Borrower, as the Borrower may request, in an
aggregate principal amount up to $4,000,000, in order to finance
Qualifying Equipment and Qualifying Leasehold Improvements. A
Facility Three Term Loan shall be made, no more than once per
calendar quarter (except that more than one Facility Three Term Loan
may be made in any calendar quarter provided that each additional
Facility Three Term Loan in any one calendar quarter is in an amount
of at least $25,000), in order to finance costs of Qualifying
Equipment acquired by the Borrower within the 90 days preceding the
request for such Facility Three Term Loan and Qualifying Leasehold
Improvements installed within the 90 days preceding the request for
such Facility Three Term Loan, each such Facility Three Term Loan to
be in such amount as may be requested by the Borrower; provided that
(i) no Facility Three Term Loan will be made after the close of
business on June 29, 2001; (ii) the aggregate original principal
amounts of all Facility Three Term Loans will not exceed $4,000,000;
(iii) the aggregate original principal amounts of all Facility Three
Term Loans made in respect of Qualifying Leasehold Improvements will
not exceed $800,000 and (iv) no Facility Three Term Loan will be in
an amount in excess of 90% of the invoiced actual costs of the items
of Qualifying Equipment and Qualifying Leasehold Improvements with
respect to which such Facility Three Term Loan is made (excluding
taxes, shipping, installation charges, training fees and other `soft
costs' and excluding software except as expressly permitted by the
next following sentence); except that the Borrower may in its sole
discretion elect to deposit with the Bank and pledge to the Bank
cash equal to 10% of the original principal amount of any Facility
Three Term Loan; and if it so elects and pursuant to such election
deposits with the Bank and pledges to the Bank (by instruments
reasonably satisfactory in form and substance to the Bank) cash
equal to 10% of the original principal amount of any Facility Three
Term Loan, then the amount of such Facility Three Term Loan
(including the amount so pledged) will be 100% of said invoiced
actual costs. The Borrower may include within `Qualifying Equipment'
software (not including `shrink-wrapped' software) purchased by the
Borrower for
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<PAGE> 43
use in connection with the equipment otherwise included in
`Qualifying Equipment'; provided that the aggregate amount of the
Facility Three Term Loans used to fund the purchase of such software
will not exceed $800,000. Prior to the making of each Facility Three
Term Loan, and as a precondition thereto, the Borrower will provide
the Bank with: (i) invoices supporting the costs of the relevant
Qualifying Equipment and Qualifying Leasehold Improvements; (ii)
such evidence as the Bank may reasonably require showing that the
Qualifying Equipment has been delivered to the Borrower's North
Andover, MA premises (or elsewhere to the extent provided in the
last sentence of this paragraph), has become fully operational
(provided that the Borrower may have up to 90 days after delivery of
the Qualifying Equipment to cause same to become fully operational),
has been paid for by the Borrower and is owned by the Borrower free
of all liens and interests of any other Person (other than the
security interest of the Bank pursuant to the Security Agreement);
(iii) such evidence as the Bank may reasonably require showing that
the Qualifying Leasehold Improvements have been constructed at or
delivered to the Borrower's North Andover, MA or Andover, MA
premises, have been paid for by the Borrower and are owned by the
Borrower free of all liens and interests of any other Person (other
than the security interest of the Bank pursuant to the Security
Agreement); (iv) Uniform Commercial Code financing statements (if
needed) reflecting the relevant Qualifying Equipment and Qualifying
Leasehold Improvements with respect to which such Facility Three
Term Loan is being made; and (v) evidence satisfactory to the Bank
that the Qualifying Equipment and Qualifying Leasehold Improvements
are fully insured against casualty loss, with insurance naming the
Bank as secured party and first loss payee. Notwithstanding the
provisions of clause (ii) of the immediately preceding sentence, in
the ordinary course of the Borrower's business, the following
Qualifying Equipment need not be located at said North Andover, MA
premises: (i) personal computers used by salesmen and other
employees of the Borrower and (ii) a reasonable amount of equipment
located on a temporary basis at premises of the Borrower's customers
and on other premises for sales, demonstration and testing purposes;
provided that in any event the Borrower notifies the Bank of each
location where any material item of Qualifying Equipment shall be
kept and provides to the Bank all such Uniform Commercial Code
financing statements and other documentation, and takes all such
other action, as the Bank may reasonably request in order to create,
perfect and/or protect a first priority security interest in favor
of the Bank in all such Qualifying Equipment.
The Facility Three Term Loans will be evidenced by the Facility
Three Term Note. Interest on the Facility Three Term Loans shall be
payable at the times and at the rate provided for in the Facility
Three Term Note. After the occurrence and during the continuance of
any Event of Default, the
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<PAGE> 44
Facility Three Term Loans shall bear interest at a fluctuating rate
per annum which at all times shall be equal to the sum of (i) four
(4%) percent per annum PLUS (ii) the per annum rate otherwise
payable under the Facility Three Term Note (but in no event in
excess of the maximum rate from time to time permitted by then
applicable law). The Borrower hereby irrevocably authorizes the Bank
to make or cause to be made, on a schedule attached to the Facility
Three Term Note or on the books of the Bank, at or following the
time of making each Facility Three Term Loan and of receiving any
payment of principal of a Facility Three Term Loan, an appropriate
notation reflecting such transaction and the then aggregate unpaid
principal balance of the Facility Three Term Loans. The amount so
noted shall constitute PRIMA FACIE evidence as to the amount owed by
the Borrower with respect to principal of the Facility Three Term
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 Facility Three Term Note.
1.3D. PRINCIPAL REPAYMENT OF FACILITY THREE TERM LOANS. The Borrower
shall repay principal of the Facility Three Term Loans in 35 equal
consecutive monthly installments, commencing on July 1, 2001 and
continuing on the first day of each month thereafter through and
including May 1, 2004 (each such monthly installment to be in an
amount equal to 1/36th of the aggregate principal amount of the
Facility Three Term Loans outstanding at the close of business on
June 29, 2001), PLUS a 36th and final installment payment due on
June 1, 2004 in an amount equal to the then outstanding principal
balance of all Facility Three Term Loans and all interest then
accrued but unpaid thereon. The Borrower may prepay, at any time or
from time to time, without premium or penalty, the whole or any
portion of the Facility Three Term Loans; provided that each such
principal prepayment shall be accompanied by payment of all interest
under the Facility Three Term Note accrued but unpaid to the date of
payment. Any partial prepayment of principal of the Facility Three
Term Loans will be applied to installments of principal of the
Facility Three Term Loans thereafter coming due, in inverse order of
normal maturity. Amounts paid or prepaid on the Facility Three Term
Loans will not be available for reborrowing."
d. By deleting from the third paragraph of Section 1.4 of the Loan
Agreement the words "One Federal Street" and by substituting in their stead the
following:
"100 Federal Street"
e. By deleting in their entireties Sections 3.7, 3.7A and 3.7B of the
Letter Agreement (each of said Sections having been amended or inserted by the
First Modification) and by substituting in their stead the following:
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<PAGE> 45
"3.7. CAPITAL BASE. The Borrower will maintain at all times
(commencing with the Borrower's results as at June 30, 2000), a
consolidated Capital Base which shall not be less than $15,000,000.
3.7A. LIQUIDITY. The Borrower will maintain, as at the end of each
month (commencing with the Borrower's results as at June 30, 2000),
a Quick Ratio which shall not be less than 2.0 to 1. As determined
at any date, the `Quick Ratio' is the ratio of (x) the Borrower's
then Net Quick Assets to (y) outstanding Adjusted Current
Liabilities.
3.7B. LEVERAGE. The Borrower will maintain, as at the end of each
month (commencing with the Borrower's results as at June 30, 2000),
a Leverage Ratio which shall not be greater than 0.75 to 1. As
determined at any date, the `Leverage Ratio' is the ratio of (x)
Adjusted Debt outstanding at that date to (y) the Borrower's then
consolidated Capital Base."
f. By inserting into Section 4.7 of the Letter Agreement, immediately
after the first sentence of such Section, the following:
"In addition the formation of Securities Corp. (as contemplated by
the immediately preceding sentence), the Borrower may also form and
maintain a United Kingdom Subsidiary and a foreign sales
corporation; provided that, in any event, the Borrower remains in
compliance with the limitation set forth in clause (vii) of the
first sentence of ss.4.5."
g. By changing the notice address of the Bank, pursuant to Section 6.6
of the Letter Agreement, to the following:
"Fleet National Bank
Technology & Communications Group
100 Federal Street
Mail Code: MA DE 10009G
Boston, MA 02110
Attention: Irina V. Case, Vice President"
h. By inserting into Section 7.1 of the Letter Agreement, immediately
after the definition of "Facility One Term Loan" (such definition having been
inserted by the First Modification), the following:
"`Facility Three Term Loan' - Any loan made pursuant to ss.1.3C."
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<PAGE> 46
i. By inserting into Section 7.1 of the Letter Agreement, immediately
after the definition of "Facility One Term Note" (such definition having been
inserted by the First Modification), the following:
"`Facility Three Term Note' - As defined inss.1.1."
j. By inserting into the definition of "Loan Documents" appearing in
Section 7.1 of the Letter Agreement, immediately after the words "the Facility
Two Term Note," (such words having been inserted by the First Modification), the
following:
"the Facility Three Term Note,"
k. By deleting the PROVISO appearing at the end of the definition of
"Qualifying Equipment" contained in Section 7.1 of the Letter Agreement and by
substituting in its stead the following:
"; provided that (A) the aggregate principal amount of the Facility
One Term Loans made with respect to the costs of the software so
included will be limited to $300,000, (B) the aggregate principal
amount of the Facility Two Term Loans made with respect to the costs
of the software so included will be limited to $400,000 and (C) the
aggregate principal amount of Facility Three Term Loans made with
respect to the costs of the software so included will be limited to
$800,000. Notwithstanding clause (ii) of the first sentence of this
definition, Qualifying Equipment financed by Facility Three Term
Loans may be kept either at the Borrower's Andover, MA premises or
at the Borrower's North Andover, MA premises."
l. By inserting into the definition of "Qualifying Leasehold
Improvements", immediately after the words "North Andover, MA premises", the
following:
"or the Borrower's Andover, MA premises"
m. By deleting from Section 7.1 of the Letter Agreement the definitions
of "Term Loans" and "Term Notes" appearing in such Section (said definitions
having been inserted by the First Modification) and by substituting in their
stead the following:
"`Term Loans' - Collectively, the Facility One Term Loans, the
Facility Two Term Loans and the Facility Three Term Loans.
`Term Notes' - Collectively, the Facility One Term Note, the
Facility Two Term Note and the Facility Three Term Note."
3. The Facility One Term Note is hereby modified:
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<PAGE> 47
a. By deleting the second sentence of the second grammatical paragraph
of the text of the Facility One Term Note and by substituting in its stead the
following:
"After the occurrence and during the continuance of any Event of
Default (as defined in the Letter Agreement), interest will, at the
option of the Bank, accrue and be payable under this note at a
fluctuating rate per annum which at all times shall be equal to the
sum of (i) four (4%) percent per annum PLUS (ii) the per annum rate
otherwise payable under this note (but in no event in excess of the
maximum rate permitted by then applicable law)."
b. By deleting from the fifth grammatical paragraph of the text of the
Facility One Term Note the words "One Federal Street" and by substituting in
their stead the following:
"100 Federal Street"
4. The Facility Two Term Note is hereby amended by deleting from the
fifth grammatical paragraph of the text of the Facility Two Term Note the words
"One Federal Street" and by substituting in their stead the following:
"100 Federal Street"
5. Wherever in any Financing Document, or in any certificate or opinion
to be delivered in connection therewith, reference is made to a "letter
agreement" or to the "Letter Agreement", from and after the date hereof same
will be deemed to refer to the Letter Agreement, as hereby amended. Wherever in
any of the Financing Documents, or in any certificate or opinion to be delivered
in connection therewith, reference is made to the "Facility One Term Note", from
and after the date hereof same will be deemed to refer to the Facility One Term
Note, as hereby amended. Wherever in any of the Financing Documents, or in any
certificate or opinion to be delivered in connection therewith, reference is
made to the "Facility Two Term Note", from and after the date hereof same will
be deemed to refer to the Facility Two Term Note, as hereby amended.
6. Simultaneously with the execution and delivery of this Agreement,
the Borrower is executing and delivering to the Bank the Facility Three Term
Note. The Facility Three Term Note is a $4,000,000 promissory note of the
Borrower, substantially in the form attached hereto as Exhibit 1. Wherever in
any of the Financing Documents or in any certificate or opinion to be delivered
in connection therewith, reference is made to a "Term Note" or to the "Term
Notes", from and after the date hereof same will be deemed to include each of
the Facility One Term Note (as amended hereby), the Facility Two Term Note (as
amended hereby) and the Facility Three Term Note. Wherever in any of the
Financing Documents or in any certificate or opinion to be delivered in
connection therewith, reference is made to a "Term Loan" or to the "Term Loans",
from and after the date hereof same will be deemed to include each of the
Facility One Term Loans, the Facility Two Term Loans and the Facility Three Term
Loans (each as described in the Letter Agreement, as amended by this Agreement).
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<PAGE> 48
7. In order to induce the Bank to enter into this Agreement, the
Borrower agrees to pay to the Bank, at the date hereof, in respect of the
Facility Three Term Loans, a facility fee of $20,000. Said fee is in addition
to, and shall not be reduced by or applied against, any interest, fees, charges
or other amounts paid or payable with respect to the Letter Agreement and/or
with respect to any note issued thereunder.
8. In order to induce the Bank to enter into this Agreement, the
Borrower also agrees to pay, promptly upon receipt of an invoice therefor, all
costs and expenses (including, without limitation, reasonable attorneys' fees)
incurred by the Bank with respect to this Agreement and/or the Term Loans. If
such fees and expenses are not promptly paid, the Borrower authorizes and
directs the Bank to charge the Borrower's operating account for payment of same.
9. In order to induce the Bank to enter into this Agreement, the
Borrower further represents and warrants as follows:
a. The execution, delivery and performance of this Agreement and the
Facility Three Term Note have been duly authorized by the Borrower by all
necessary corporate and other action, will not require the consent of any third
party and will not conflict with, violate the provisions of, or cause a default
or constitute an event which, with the passage of time or the giving of notice
or both, could cause a default on the part of the Borrower under its charter
documents or by-laws or under any contract, agreement, law, rule, order,
ordinance, franchise, instrument or other document, or result in the imposition
of any lien or encumbrance (except in favor of the Bank) on any property or
assets of the Borrower.
b. The Borrower has duly executed and delivered each of this Agreement
and the Facility Three Term Note.
c. Each of this Agreement and the Facility Three Term Note is the
legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its respective terms.
d. The statements, representations and warranties made in the Letter
Agreement, in the IAR Security Agreement and/or in the Supplementary Security
Agreement continue to be correct as of the date hereof; except as amended,
updated and/or supplemented by the attached Supplemental Disclosure Schedule.
e. The covenants and agreements of the Borrower contained in the Letter
Agreement, in the IAR Security Agreement and/or in the Supplementary Security
Agreement have been complied with on and as of the date hereof.
f. No event which constitutes or which, with notice or lapse of time,
or both, could constitute, an Event of Default (as defined in the Letter
Agreement) has occurred and is continuing.
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<PAGE> 49
g. No material adverse change has occurred in the financial condition
of the Borrower from that disclosed in the monthly financial statements of the
Borrower heretofore most recently furnished to the Bank. The Borrower hereby
represents and warrants to the Bank that all financial statements and reports
heretofore delivered to the Bank were complete and accurate as at the respective
dates thereof and that the most recent projections of the Borrower heretofore
delivered to the Bank in connection with this Agreement remain reasonable at the
date hereof.
-9-
<PAGE> 50
10. Except as expressly affected hereby, the Letter Agreement and each
of the other Financing Documents remains in full force and effect as heretofore.
All of the Borrower's obligations, indebtedness and liabilities as evidenced by
or otherwise arising under the Financing Documents, except as expressly modified
in this Agreement, are, by the Borrower's execution of this Agreement, ratified
and confirmed in all respects by the Borrower and the Borrower agrees that same
run in favor of the Bank. In addition, by the Borrower's execution of this
Agreement, the Borrower represents and warrants that no counterclaim, right of
set-off or defense of any kind exists or is outstanding with respect to such
obligations, indebtedness and liabilities. The Borrower acknowledges that the
security interests created by the IAR Security Agreement and the Supplementary
Security Agreement run in favor of the Bank and constitute valid liens on the
Collateral (as defined in the Letter Agreement) and agrees that the Borrower
shall take no action to impair or invalidate such security interests. The
Borrower acknowledges that the obligations secured by such security interests
include, without limitation, the Facility One Term Note (as amended by this
Agreement), the Facility Two Term Note (as amended by this Agreement), the
Facility Three Term Note and the Letter Agreement (as amended by this
Agreement).
11. Nothing contained herein will be deemed to constitute a waiver or a
release of any provision of any of the Financing Documents. Nothing contained
herein will in any event be deemed to constitute an agreement to give a waiver
or release or to agree to any amendment or modification of any provision of any
of the Financing Documents on any other or future occasion.
Executed, as an instrument under seal, as of the day and year first above
written.
QUANTUM BRIDGE
COMMUNICATIONS, INC.
By: /s/ Cheryl A. Reault
-------------------------------------
Name: Cheryl A. Reault
Title: Vice President of Finance and
Administration
Accepted and agreed:
FLEET NATIONAL BANK
By: /s/ Irina Case
--------------------------
Name: Irina Case
Title: Vice President
-10-
