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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1997
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _________ to __________
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Commission File Number: 0-15938
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Farmstead Telephone Group, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 06-1205743
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
22 Prestige Park Circle
East Hartford, CT 06108
(Address of principal executive offices) (Zip Code)
(860) 610-6000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months, and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of July 31, 1997, there were 3,262,329 shares of the issuer's $.001 par
value Common Stock outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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<PAGE>
TABLE OF CONTENTS TO FORM 10-QSB
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets - June 30, 1997 and December 31, 1996....................... 3
Consolidated Statements of Operations - Three Months Ended June 30, 1997 and 1996....... 4
Consolidated Statements of Operations - Six Months Ended June 30, 1997 and 1996......... 5
Consolidated Statements of Cash Flows - Six Months Ended June 30, 1997 and 1996......... 6
Notes to Consolidated Financial Statements ............................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ...................................................................... 11
Item 2. Changes in Securities .................................................................. 11
Item 3. Defaults Upon Senior Securities ........................................................ 11
Item 4. Submission of Matters to a Vote of Security Holders .................................... 12
Item 5. Other Information ..................................................................... 12
Item 6. Exhibits and Reports on Form 8-K ....................................................... 12
Signatures ...................................................................................... 13
</TABLE>
<PAGE> 2
PART I
FARMSTEAD TELEPHONE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands, except number of shares) 1997 1996
-------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,527 $ 3,224
Accounts receivable, less allowance for doubtful accounts 4,539 3,917
Inventories 4,225 3,931
Other current assets 443 619
----------------------
Total current assets 10,734 11,691
Property and equipment, net of accumulated depreciation and
amortization 1,002 476
Investment in unconsolidated subsidiaries (Note 5) -- 117
Other assets 115 144
----------------------
Total assets $ 11,851 $ 12,428
======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings (Note 3) $ -- $ 1,903
Accounts payable 2,379 2,364
Borrowings under inventory financing agreement (Note 4) 322 --
Accrued expenses and other current liabilities 448 526
----------------------
Total current liabilities 3,149 4,793
Long-term debt (Note 3) 2,282 --
----------------------
Total liabilities 5,431 4,793
----------------------
Stockholders' equity:
Preferred stock, $0.001 par value; 2,000,000 shares
authorized; no shares issued and outstanding -- --
Common stock, $0.001 par value; 30,000,000 shares
authorized; 3,262,329 shares issued and outstanding 3 3
Additional paid-in capital 12,196 12,196
Accumulated deficit (5,779) (4,564)
----------------------
Total stockholders' equity 6,420 7,635
----------------------
Total liabilities and stockholders' equity $ 11,851 $ 12,428
======================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
FARMSTEAD TELEPHONE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1997 1996
------- -------
<S> <C> <C>
Revenues $ 6,062 $ 4,648
Cost of revenues 4,644 3,169
-------------------
Gross profit 1,418 1,479
-------------------
Operating expenses:
Selling, general and administrative expenses 1,757 1,342
Research and development expenses 47 24
-------------------
Total operating expenses 1,804 1,366
-------------------
Operating income (loss) (386) 113
Interest expense (52) (37)
Equity in losses of unconsolidated subsidiaries (7) (3)
Write-down of investments in unconsolidated
subsidiaries (Note 5) (404) --
Other income 20 132
-------------------
Income (loss) before income taxes (829) 205
Provision for income taxes 6 3
-------------------
Net income (loss) $ (835) $ 202
===================
Net income (loss) per share $ (.26) $ .09
===================
Weighted average common and common equivalent shares 3,271 2,153
===================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
FARMSTEAD TELEPHONE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1997 1996
-------- --------
<S> <C> <C>
Revenues $ 11,164 $ 8,770
Cost of revenues 8,395 6,085
---------------------
Gross profit 2,769 2,685
---------------------
Operating expenses:
Selling, general and administrative expenses 3,414 2,427
Research and development expenses 81 58
---------------------
Total operating expenses 3,495 2,485
---------------------
Operating income (loss) (726) 200
Interest expense (91) (67)
Equity in losses of unconsolidated subsidiaries (40) (15)
Write-down of investments in unconsolidated
subsidiaries (Note 5) (404) --
Other income 57 424
---------------------
Income (loss) before income taxes (1,204) 542
Provision for income taxes 11 8
---------------------
Net income (loss) $ (1,215) $ 534
=====================
Net income (loss) per share $ (.37) $ .25
=====================
Weighted average common and common equivalent
shares outstanding (000's) 3,275 2,147
=====================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
FARMSTEAD TELEPHONE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
(In thousands) 1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,215) $ 534
Adjustments to reconcile net income to net cash flows provided
by (used in) operating activities:
Depreciation and amortization 129 67
Equity in undistributed losses of unconsolidated subsidiaries 40 15
Write-down of investments in unconsolidated subsidiaries 404 --
Changes in operating assets and liabilities:
Increase in accounts receivable (887) (563)
Increase in inventories (346) (765)
(Increase) decrease in other assets 119 (325)
Increase (decrease) in accounts payable, accrued
expenses and other liabilities (136) 1,095
---------------------
Net cash provided by (used in) operating activities (1,892) 58
---------------------
Cash flows from investing activities:
Purchases of property and equipment (225) (302)
Purchases of redeemable coupons -- (840)
Redemption of coupons 75 738
Investment in unconsolidated subsidiaries -- (40)
---------------------
Net cash used in investing activities (150) (444)
---------------------
Cash flows from financing activities:
Net proceeds from bank and inventory finance borrowings 322 515
Net proceeds from long-term borrowings 38 --
Repayments of capital lease obligation (15) --
---------------------
Net cash provided by financing activities 345 515
---------------------
Net increase (decrease) in cash and cash equivalents (1,697) 129
Cash and cash equivalents at beginning of period 3,224 622
---------------------
Cash and cash equivalents at end of period $ 1,527 $ 751
=====================
Supplemental schedule of non-cash financing and investing
activities:
Purchase of equipment under capital lease obligation $ 419 $ --
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 94 $ 67
Income taxes 25 13
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
FARMSTEAD TELEPHONE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation
The interim financial statements for 1997 are presented on a consolidated
basis, consisting of the accounts of Farmstead Telephone Group, Inc. and its
majority-owned subsidiaries (the "Company"). The interim financial statements
presented herein are unaudited, however in the opinion of management reflect
all adjustments, consisting of adjustments that are of a normal recurring
nature, which are necessary for a fair statement of results for the interim
periods. For further information, refer to the financial statements and notes
thereto included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1996.
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128") was issued, which will become effective
for periods ending after December 15, 1997. SFAS No. 128 will replace the
presentation of primary earnings per share ("EPS") with a presentation of
"Basic EPS", which excludes dilution from convertible securities such as
options and warrants, and is instead computed by dividing net income (loss) by
the weighted average number of common shares outstanding during the period.
Diluted EPS will be computed similarly to fully diluted EPS pursuant to APB
Opinion No. 15, "Earnings Per Share". Had the Company implemented SFAS No. 128
for the three and six months ended June 30, 1997, and 1996 there would have
been no material change to the earnings (loss) per share data presented.
Fully-diluted earnings (loss) per share is not presented for the three
and six months ended June 30, 1997, and 1996 because the effect is immaterial
and antidilutive in all periods. The weighted average shares and per share
amounts presented for 1996 have been restated to give retroactive recognition
to the 1-for-10 reverse stock split implemented August 13, 1996.
Note 2. Property and Equipment
Included in property and equipment at June 30, 1997 is $419,000 of
capital lease property consisting principally of office furniture, equipment
and computer equipment acquired in fiscal 1997 in connection with the Company's
relocation to a new operating facility.
Note 3. Long-term Debt
As of June 30, 1997, long-term debt obligations consisted of the
following (in thousands):
Bank revolving credit agreement (a) $ 1,941
Obligation under capital lease (b) 404
-------
2,345
Less current portion (63)
-------
Long-term debt $ 2,282
=======
(a) Effective May 30, 1997, the Company entered into a two year, $3.5
million revolving loan facility with First Union Bank of Connecticut ("First
Union"), modifying and replacing its previous one year, $2.5 million facility
with First Union. Under the new facility, borrowings are advanced at 80% of
eligible accounts receivable, bear interest at First Union prime plus .5% (9%
at June 30, 1997), and are secured by all of the Company's assets excluding
inventories. The new loan agreement contains requirements as to a minimum
amount of net worth, and maintenance of debt to net worth and debt service
coverage ratios, all of which the Company is in compliance. In addition, the
agreement restricts fixed asset purchases and does not allow the payment of
cash dividends without the consent of the lender. There is no requirement to
maintain compensating balances under the agreement. As of
<PAGE> 7
June 30, 1997, the unused portion of the credit facility was $1,559,000, of
which approximately $523,000 was available under the borrowing formula. The
average and highest amounts borrowed under these credit facilities during
the six months ended June 30, 1997 were $1,655,000 and $2,282,000,
respectively. Borrowings are dependent upon the continuing generation of
collateral, subject to the credit limit.
(b) In May 1997, the Company entered into a five year, noncancelable
lease agreement for $419,000 of office furniture, equipment and computer
equipment acquired in connection with the Company's relocation to a new
operating facility. Monthly lease payments under the lease are $9,589, with a
$1.00 purchase option at the end of the lease. The effective interest rate on
the capitalized lease obligation at June 30, 1997 was 13.29%. As of June 30,
1997 the future minimum annual lease payments are as follows (in thousands):
<TABLE>
<C> <C>
Year ending December 31:
1997 $ 58
1998 115
1999 115
2000 115
2001 115
Thereafter 29
------
Total minimum lease payments 547
Less amount representing interest (143)
------
Present value of net minimum lease payments
under capital lease $ 404
======
</TABLE>
Note 4. Inventory Financing Agreement
On June 6, 1997, the Company entered into a $2 million line of credit
agreement with AT&T Commercial Finance Corporation ("AT&T-CFC") which expires
April 30, 1998. The credit line is used to finance the acquisition of
inventory manufactured by Lucent Technologies, Inc. ("Lucent"), and borrowings
are secured by all of the Company's inventories. Under the terms of this
agreement, advances to finance products purchased directly from Lucent are
repayable, interest-free, in either two or three equal monthly installments,
depending upon the product purchased. Advances to finance Lucent products
purchased from other vendors ("Other Eligible Inventory") are repayable in
two equal monthly installments, bear interest at prime plus 1.5%, and are
subject to a $500,000 borrowing limit. For products purchased directly from
Lucent the ratio of total collateral available to AT&T-CFC after deduction of
any senior liens, to total AT&T-CFC indebtedness cannot exceed 1.5 to 1. The
ratio of Other Eligible Inventory to advances on Other Eligible Inventory must
be at least 2 to 1. As of June 30, 1997, the Company's borrowings under this
credit arrangement were $322,000.
Note 5. Investment in Unconsolidated Subsidiaries
In June 1997, due principally to fiscal year 1997 operating losses at
Beijing Antai Communication Equipment Co., LTD. ("ATC"), and a shift in the
Company's focus to domestic business development, the Company established a
full reserve against both the $77,000 balance of its investment in, and its
$265,000 accounts receivable from, ATC, which aggregated a $342,000 non-cash
charge against earnings. In June 1997, the Company also wrote down $52,000 of
inventory located at TeleSolutions, Inc., and accrued $10,000 of estimated
closing costs.
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net Loss
The Company recorded a net loss of $835,000 for the three months ended
June 30, 1997, as compared to net income of $202,000 for the comparable 1996
period. The decline in earnings was attributable to several factors. Due to the
unprofitable operations of the Company's foreign affiliates, ATC and
TeleSolutions, the Company established a full valuation reserve in the current
period against all associated assets, including inventory located overseas. The
combination of these operating losses and one-time, non-cash asset write-downs
negatively impacted operating results by approximately $411,000. The net loss
for the current period was also attributable to the unprofitable operations of
the Cobotyx voice processing products division and Farmstead Asset Management
Services, LLC ("FAMS"), due to lower revenues from the comparable prior year
period. In addition, the Company recorded approximately $310,000 more income in
1996 from the AT&T coupon rebate program than it did in 1997.
This rebate program ended effective May 31, 1997.
The Company recorded a net loss of $1,215,000 for the six months ended
June 30, 1997, as compared to net income of $534,000 for the comparable 1996
period. The combination of the operating losses of the foreign affiliates and
the above mentioned asset write-downs negatively impacted year to date
operating results by approximately $444,000. The net loss for the current six
month period was also attributable to the unprofitable operations of the
Cobotyx voice processing products division and FAMS, due to lower revenues from
the comparable prior year period. In addition, the Company recorded
approximately $600,000 more income in 1996 from the AT&T coupon rebate program
than it did in 1997.
Revenues
Revenues for the three months ended June 30, 1997 were $6,062,000, an
increase of $1,414,000 or 30% from the comparable 1996 period. The increase was
attributable to the Company's telephone equipment products and services, which
were up by 44% over the comparable prior year period, due to sales of new
products under the Company's Platinum Dealer Program with Lucent Technologies,
increased secondary market equipment sales, and increased service revenues.
Voice processing product revenues decreased by 14% from the comparable prior
year period as a result of lower dealer and international sales. Revenues from
FAMS decreased by 46% from the comparable prior year period due to lower
consignment sales revenue. Revenues from telephone equipment sales and services
accounted for 90% of consolidated revenues for the three months ended June 30,
1997 (81% in the comparable 1996 period), while revenues from voice processing
product sales and services accounted for 6% of consolidated revenues in 1997
(10% in 1996). FAMS accounted for 4% of consolidated second quarter 1997
revenues (9% in the comparable 1996 period).
Revenues for the six months ended June 30, 1997 were $11,164,000, an
increase of $2,394,000 or 27% from the comparable 1996 period. The increase was
attributable to the Company's telephone equipment products and services, which
were up by 37% over the comparable prior year period, due to sales of new
products under the Company's Platinum Dealer Program with Lucent Technologies,
increased secondary market equipment sales, and increased service revenues.
Voice processing product revenues decreased by 26% from the comparable prior
year period as a result of lower dealer and international sales. Revenues from
FAMS decreased by 2% from the comparable prior year period due to lower
consignment sales revenue. Revenues from telephone equipment sales and services
accounted for 89% of consolidated revenues for the six months ended June 30,
1997 (82% in the comparable 1996 period), while revenues from voice processing
product sales and services accounted for 7% of consolidated revenues in 1997
(13% in 1996). Revenues from FAMS, which commenced operations at the end of
February 1996, accounted for 4% of consolidated year to date 1997 revenues (5%
in the comparable 1996 period).
Cost of Revenues and Gross Profit
Cost of revenues for the three months ended June 30, 1997 were
$4,644,000, an increase of $1,475,000 or 47% from the comparable 1996 period.
The gross profit margin was 23% of revenues during 1997, as compared to
<PAGE> 9
32% of revenues for the comparable 1996 period. The decrease was attributable
principally to (i) product sales mix, particularly increased sales of new
equipment to end users and to the Company's associate dealers at lower profit
margins than the Company realizes from sales of secondary market equipment,
(ii) lower profit margins on service revenues and (iii) lower product purchase
rebates earned from the utilization of AT&T coupons during the current period,
which accounted for 5 percentage points of the difference in gross profit
margin between the two periods.
Cost of revenues for the six months ended June 30, 1997 were $8,395,000,
an increase of $2,310,000 or 38% from the comparable 1996 period. The gross
profit margin was 25% of revenues during 1997, as compared to 31% of revenues
for the comparable 1996 period. The decrease was attributable principally to
(i) product sales mix, particularly increased sales of new equipment to end
users and to the Company's associate dealers at lower profit margins than the
Company realizes from sales of secondary market equipment, (ii) lower profit
margins on service revenues and (iii) lower product purchase rebates earned
from the utilization of AT&T coupons during the period, which accounted for 4
percentage points of the difference in gross profit margin between the two
periods.
On May 31, 1997, the AT&T coupon redemption program expired, however this
will not have a material effect on future profit margins. The Company is not
currently aware of any other market conditions which would cause gross profit
margins to significantly fluctuate from current levels.
Operating Expenses
Operating expenses were 30% and 29% respectively, of revenues for the
three months ended June 30, 1997 and 1996. Operating expenses were 31% and 28%
respectively, of revenues for the six months ended June 30, 1997 and 1996.
Selling, general & administrative ("SG&A") expenses for the three months
ended June 30, 1997 were $1,757,000, an increase of $415,000 or 31% over the
comparable 1996 period. SG&A expenses for the six months ended June 30, 1997
were $3,414,000, an increase of $987,000 or 41% over the comparable 1996
period. SG&A expense was 29% of revenues for both the three months ended June
30, 1997 and 1996, and was 31% and 28% respectively, of revenues in the six
month periods ended June 30, 1997 and 1996. The increase in SG&A dollars was
principally attributable to (i) higher levels of employment and associated
employee costs, as the Company increased its sales, customer and technical
support capabilities in connection with becoming a dealer and distributor for
new Lucent products, and began developing a network of associate dealers, and
(ii) higher facility occupancy costs, including increased depreciation expense
from fixed assets acquired in connection with the Company's relocation to its
new headquarters in East Hartford, Connecticut.
Other Income and Expenses
Other income for the three and six months ended June 30, 1997 was $20,000
and $57,000, respectively, as compared to $132,000 and $424,000 for the
respective three and six month periods ended June 30, 1996. Other income in the
current year periods consisted principally of interest earned on the Company's
invested cash. Included in other income for the three and six months ended June
30, 1996 was $130,000 and $410,000, respectively of rebates from AT&T under a
coupon redemption program.
Liquidity and Capital Resources
Working capital at June 30, 1997 was $7,585,000, a 10% increase from the
$6,898,000 of working capital at December 31, 1996. The working capital ratio
at June 30, 1997 was approximately 3.4 to 1 as compared to 2.4 to 1 at December
31, 1996. The increase in working capital was attributable to the
reclassification to long-term liabilities from current liabilities of the
Company's borrowings under its revolving credit facility which, in May 1997,
was replaced with a two year loan agreement.
Operating activities used $1,892,000 during the six months ended June 30,
1997, principally from an $887,000 increase in accounts receivable, a $346,000
increase in inventories, and as a result of the operating loss for the period.
<PAGE> 10
Investing activities used $150,000 during the six months ended June 30,
1997, principally in the purchase of property and equipment. During the current
period, the Company purchased approximately $644,000 of office furniture and
equipment, computer equipment, and leasehold improvements, principally in
conjunction with the Company's relocation to its new headquarters in East
Hartford, Connecticut. In May 1997, the Company entered into a five year,
noncancelable lease agreement for the financing of $419,000 of these purchases.
Under the lease agreement, which is being accounted for as a capital lease,
monthly lease payments are $9,589, with a $1.00 buyout option at the end of the
lease.
Financing activities generated $345,000 during the six months ended June
30, 1997, principally from $322,000 of advances under an inventory finance
agreement. On June 6, 1997, the Company entered into a $2 million line of
credit agreement with AT&T Commercial Finance Corporation ("AT&T-CFC") which
expires April 30, 1998. The credit line is used to finance the acquisition of
inventory manufactured by Lucent Technologies, Inc. ("Lucent"), and borrowings
are secured by all of the Company's inventories. Under the terms of this
agreement, advances to finance products purchased directly from Lucent are
repayable, interest-free, in either two or three equal monthly installments,
depending upon the product purchased. Advances to finance Lucent products
purchased from other vendors ("Other Eligible Inventory") are repayable in two
equal monthly installments, bear interest at prime plus 1.5%, and are subject
to a $500,000 borrowing limit. For products purchased directly from Lucent
the ratio of total collateral available to AT&T-CFC after deduction of any
senior liens, to total AT&T-CFC indebtedness must be at least 1.5 to 1. The
ratio of Other Eligible Inventory to advances on Other Eligible Inventory
must be at least 2 to 1. As of June 30, 1997, the Company's borrowings under
this credit arrangement were $322,000.
Effective May 30, 1997, the Company entered into a two year, $3.5
million revolving loan facility with First Union Bank of Connecticut ("First
Union"), modifying and replacing its previous one year, $2.5 million facility
with First Union. Under the new facility, borrowings are advanced at 80% of
eligible accounts receivable, bear interest at First Union prime plus .5% (9%
at June 30, 1997), and are secured by all of the Company's assets excluding
inventories. The new loan agreement contains requirements as to a minimum
amount of net worth, and maintenance of debt to net worth and debt service
coverage ratios, all of which the Company is in compliance. In addition, the
agreement restricts fixed asset purchases and does not allow the payment of
cash dividends without the consent of the lender. There is no requirement to
maintain compensating balances under the agreement. As of June 30, 1997, the
unused portion of the credit facility was $1,559,000, of which approximately
$523,000 was available under the borrowing formula. The average and highest
amounts borrowed under these credit facilities during the six months ended June
30, 1997 were $1,655,000 and $2,282,000, respectively. Borrowing are dependent
upon the continuing generation of collateral, subject to the credit limit.
The Company believes that it has sufficient capital resources, in the
form of cash and availability under its credit facilities, to satisfy its
present working capital requirements.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None.
<PAGE> 11
Item 4. Submission of Matters to a Vote of Security Holders
The proposals voted upon at the Company's Annual Meeting of Stockholders,
held June 11, 1997, along with the voting results, were as follows:
(1) Election of Directors: All nominees were elected. The results of
balloting was as follows:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
------- --------- --------------
<S> <C> <C>
George J. Taylor, Jr. 2,928,875 60,462
Robert G. LaVigne 2,920,595 68,742
Harold L. Hansen 2,920,695 68,642
Hugh M. Taylor 2,920,140 69,197
Joseph J. Kelley 2,920,060 69,277
</TABLE>
(2) Proposal to ratify the appointment of Deloitte & Touche LLP as
independent auditors of the Company for the year ending December 31, 1997: The
proposal was approved with 2,939,068 votes for, 42,686 votes against, and 7,583
abstentions.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The following exhibits are filed herewith:
10.1 Letter agreement dated as of May 30, 1997 by and among Farmstead
Telephone Group, Inc. (the "Borrower"), Farmstead Asset Management
Services, LLC (the "Guarantor") and First Union Bank of Connecticut
(successor-in-interest to Affiliated Business Credit Corporation)
(the "Lender"), amending the Commercial Revolving Loan and Security
Agreement dated June 5, 1995, as amended, between Borrower and
Lender.
10.2 Third Amended and Restated Revolving Promissory Note, dated June 6,
1997, in the amount of $3,500,000.
10.3 Agreement for Wholesale Financing, dated June 6, 1997, and related
letter agreement dated June 3, 1997.
(b) Reports on Form 8-K: None.
<PAGE> 12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
FARMSTEAD TELEPHONE GROUP, INC.
Dated: August 11, 1997 /s/ Robert G. LaVigne
-----------------------------------------
Robert G. LaVigne
Vice President - Finance, Chief Financial
Officer
<PAGE> 13
Exhibit 10.1
As of May 30, 1997
First Union Bank of Connecticut
205 Church Street
New Haven, CT 06510
Gentlemen:
This letter sets forth our agreements with respect to the
obligations described below of Farmstead Telephone Group, Inc. (the
"Borrower") and Farmstead Asset Management Services, LLC (the "Guarantor")
to First Union Bank of Connecticut (successor-in-interest to Affiliated
Business Credit Corporation) ("First Union").
The Borrower acknowledges that it is unconditionally indebted to
First Union with respect to the demand revolving loan (the "Revolving
Loan") extended by First Union to Borrower in the original principal
amount of up to $2,500,000 which is evidenced by, among other things, a
Commercial Revolving Loan and Security Agreement dated June 5, 1995, as
amended by letter agreements between Borrower and First Union dated March
11, 1996, May 1, 1996 and September 6, 1996 (collectively, the "Loan
Agreement") and a $2,500,000 Second Amended and Restated Revolving
Promissory Note dated September 6, 1996 (the "Second Amended and Restated
Revolving Promissory Note"), the current principal balance of which as of
May 22, 1997 is $1,866,874.11, plus interest accrued and accruing thereon
and costs and expenses of collection, including without limitation,
attorneys' fees (collectively, the "Indebtedness"). Additionally, the
Borrower acknowledges that it has no defense, offset, counterclaim or
right of recoupment to its obligations with respect to the Indebtedness
and further that it has no other claim whatsoever against First Union
(whether arising in contract, tort or otherwise) with respect to the
Indebtedness or any other matter whatsoever.
All indebtedness, liabilities and obligations of the Borrower to
First Union, whenever and however arising, including without limitation,
the obligations arising under the Loan Agreement and the Second Amended
and Restated Revolving Promissory Note, have been unconditionally, jointly
and severally guaranteed by the Guarantor pursuant to a Guaranty Agreement
dated March 11, 1996 (the "Guaranty"). The Guarantor acknowledges that it
has no defense, offset, counterclaim or right of recoupment to its
obligations with respect to the Guaranty and further that it has no other
claim whatsoever against First Union (whether arising in contract, tort or
otherwise) with respect to the Guaranty or any other matter whatsoever.
The Borrower and the Guarantor (collectively, the "Obligors") have
requested that First Union (a) agree that the Indebtedness not be due and
payable on demand, (b) increase the maximum aggregate amount of advances
permitted to be outstanding at any one time under the Revolving Loan from
$2,500,000 to $3,500,000, (c) permit the Borrower to enter into that
certain Agreement for Wholesale Financing with AT&T Commercial Finance
Corporation in the form attached hereto as Exhibit A, and (d) permit the
Borrower to enter into a certain agreement with ICON Capital Corp. in the
form attached hereto as Exhibit B (the "Accommodations"). Capitalized
terms used herein that are not defined herein have the meanings ascribed
to them in the Loan Agreement.
First Union has agreed to extend the Accommodations but only on the
following terms and conditions:
1. As an inducement to and in consideration of First Union's
agreements contained herein, the Obligors represent, warrant and
acknowledge to First Union that (a) all representations and warranties
contained in the Loan Agreement, as modified by the Schedules attached
hereto which are hereby attached to the Loan Agreement in lieu of the
schedules currently attached thereto, and in the other documents executed
in connection with the Indebtedness (collectively, including without
limitation the Loan Agreement, the "Loan Documents") are true and correct
on and as of the date hereof and are incorporated herein by reference and
hereby remade; (b) the resolutions previously adopted by the Board of
Directors of the Borrower and the members of the Guarantor and provided to
First Union have not in any way been rescinded or modified and are now in
full force and effect, except to the extent that they have been modified
or supplemented to authorize this Agreement and the transactions described
herein; (c) no event of default has occurred or is continuing under any of
the Loan Documents and no condition exists which would constitute an event
of default thereunder but for the giving of notice or passage of time, or
both; and (d) the consummation of the transactions contemplated hereby is
not prevented or limited by, nor does it conflict with or result in a
breach of the terms, conditions or provisions of, any evidence of
indebtedness, agreement or instrument of whatever nature to which either
the Borrower or the Guarantor is a party or by which either of them is
bound, does not constitute a default under any of the foregoing, and does
not violate any federal, state or local law, regulation or order of any
court or agency which is binding upon the Borrower or the Guarantor.
2. The Loan Agreement is hereby amended as follows:
(a) By deleting all references in the Loan Agreement to the
Indebtedness being due and payable on demand, it being agreed that the
Indebtedness shall not be due and payable on demand and shall only be due
and payable upon the occurrence of an Event of Default unless the same
shall have been waived or cured during any applicable cure period.
(b) By deleting all references in the Loan Agreement
to "$2,500,000" in their entirety and substituting "$3,500,000" therefor.
(c) By deleting the definition of Borrowing Base and
substituting therefor the following definition:
""Borrowing Base" shall mean an amount equal to the lesser of:
(i) (i) THREE MILLION FIVE HUNDRED THOUSAND DOLLARS
($3,500,000), or (ii) an amount equal to the aggregate of (1)
eighty percent (80%) of Eligible Accounts (not including AT&T
Coupons (as defined below)), plus (2) the lesser of (A) ONE
HUNDRED FIFTY THOUSAND DOLLARS ($150,000), or (B) fifty percent
(50%) of the amount due to Borrower from American Telephone &
Telegraph Company ("AT&T") in connection with the coupons issued
in the so-called SPIRIT Communications System Class Action
Settlement ("AT&T Coupons") (it being expressly agreed and
understood that only the amount by which AT&T's obligations with
respect to AT&T Coupons together with all accounts due from AT&T
to Borrower exceeds the then amount due from Borrower to AT&T
shall be eligible pursuant to this subsection (2)(B)."
(d) By deleting the definition of Prime Rate and
Substituting therefor the following definition:
"Prime Rate" shall mean that rate announced by the Lender
from time to time as its Prime Rate and is one of several
interest rate bases used by Lender. Lender lends at rates both
above and below Lender's Prime Rate, and Borrower acknowledges
that Lender's Prime Rate is not represented or intended to be
the lowest or most favorable rate of interest offered by Lender."
(e) By deleting Section 3.1a and substituting therefor the
following:
"(a) Interest Rate. So long as no Defaulting Event has
occurred, the Revolving Loan shall bear interest (from the date
made through and including the date of payment in full), at a
floating rate per annum equal to one-half of one percentage
point (.5%) above the Prime Rate."
(f) By deleting Section 6.21 and substituting therefor the
following:
"Section 6.21 Sale and Lease of Assets. Sell or lease any
assets, except for sales or leases or rentals of inventory in
the ordinary course of business consistent with past practices
and on an arms-length basis; provided, however, that Borrower
may become obligated as lessee under leases covering equipment
having an aggregate cost not to exceed $750,000 in fiscal year
1997 and $250,000 in any fiscal year thereafter."
(g) By adding the following to the Loan Agreement immediately
following Section 6.26 and immediately preceding Article VII on page 26:
"C. Financial Covenants.
"Borrower agrees and covenants that from the date hereof until
the payment and performance in full of the Obligations, and until
termination of this Agreement, Borrower shall not:"
"Section 6.27 Tangible Net Worth. Permit its Tangible Net
Worth to be less than (a) $6,000,000 at May 30, 1997 and at any
time through and including December 30, 1997, and (b) $6,400,000
at any time thereafter. As used herein, "Tangible Net Worth"
shall mean at any time the sum of (i) book value of total assets,
minus (ii) total liabilities, minus (iii) all assets which are
classified as intangible assets in accordance with generally
accepted accounting principles, minus (iv) debt due from any
shareholders of Borrower or other affiliates of Borrower, plus
(v) all debt that has been subordinated to the Lender by express
written agreement between the Lender and the holder of such debt.
6.28 Maximum Leverage. Permit its Maximum Leverage to be
greater than 1.5 to 1.0 at June 30, 1997 and at the end of each
and every fiscal quarter thereafter. As used herein, "Maximum
Leverage" shall mean at any time the ratio of Borrower's total
liabilities (minus all debt that has been subordinated to the
Lender by express written agreement between the Lender and the
holder of such debt) to its Tangible Net Worth (as defined in
Section 6.27 hereof).
6.29 Debt Service Coverage Ratio. At December 31, 1997 and at
the end of each and every three (3) month period thereafter,
permit its Debt Service Coverage Ratio for the immediately
preceding twelve (12) month period to be less than 1.2 to 1.0. As
used herein, "Debt Service Coverage Ratio" shall mean that
quotient equal to: (a) the sum of (i) earnings before interest
and income tax expense plus depreciation and amortization during
such twelve (12) month period, plus (ii) the amount of increases
to debt that has been subordinated to the Lender by express
written agreement between the Lender and the holder of such debt
during such twelve (12) month period, plus (iii) unrestricted
cash proceeds of additional equity received during such twelve
(12) month period, minus (iii) all unfinanced expenditures of
cash for the purchase of capital assets during such twelve (12)
month period, minus (iv) distributions to Borrower's shareholders
during such twelve (12) month period, plus/minus (v)
undistributed income/loss of unconsolidated subsidiaries and/or
affiliates during such twelve (12) month period, minus (vi)
reductions during such twelve (12) month period (by virtue of the
payment of dividends, redemptions or otherwise) in any equity,
divided by (b) the sum of (i) the scheduled repayment of long
term indebtedness paid during such preceding twelve (12) month
period, including but not limited to, amounts paid during such
preceding twelve (12) month period under capital leases, plus
(ii) interest expensed during such preceding twelve (12) month
period."
(h) By deleting Section 8.1(d) and substituting therefor the
following:
"(d) loss, theft or destruction of any Collateral in excess of
Two Hundred Fifty Thousand ($250,000) Dollars in value which is
not covered by insurance with Lender's loss payee endorsement as
required herein;"
(i) By deleting the reference to "May 31, 1997" in Section
12.1(a)and substituting "May 30, 1999" therefor.
(j) "All references to "Minimum Balance" and "Minimum Interest
Amount" are deleted and Section 12.1(b) is deleted and the following is
substituted therefor:
(b) Termination Fee. In the event that: (a) the Borrower
attempts to breach this Agreement by terminating this Agreement
upon less than 60 days notice during the Term (or upon less than
60 days notice during a Renewal Term), or (b) this Agreement is
terminated as a result of the occurrence of an Event of Default
or a Defaulting Event, immediately upon such termination and in
addition to and any other payments Borrower is required to make
hereunder, Borrower shall pay to Lender a fee equal to $2,500.
(k) "Notwithstanding anything to the contrary contained in the
Loan Agreement, there shall be no dollar limit on the amount the Borrower
is permitted to invest in the Guarantor, and any default arising by virtue
of any failure by the Borrower to comply with any such limit in the past
is hereby waived."
3. Contemporaneously herewith, (a) the Borrower shall execute and
deliver to First Union a $3,500,000 Third Amended and Restated Revolving
Promissory Note (the "Third Amended and Restated Revolving Promissory Note"),
which shall supersede and replace the Second Amended and Restated Revolving
Promissory Note, (b) the Borrower and the Guarantor shall execute and deliver
to First Union resolutions authorizing this Agreement and the transactions
described herein, and (c) the Borrower shall deliver to First Union
intercreditor agreements from AT&T Commercial Finance Corporation and ICON
Capital Corp. (collectively, the "Intercreditor Agreements"), all of which
shall be in form and content satisfactory to First Union."
4. All references in the Loan Agreement to the Second Amended and
estated Revolving Promissory Note are hereby deleted and replaced with
"Third Amended and Restated Revolving Promissory Note". The copy of the
Second Amended and Restated Revolving Promissory Note attached to the Loan
Agreement as Exhibit A is hereby deleted and a copy of the Third Amended
and Restated Revolving Promissory Note is attached in lieu thereof.
5. The Borrower acknowledges and agrees that all indebtedness,
liabilities and obligations of the Borrower to First Union, including
without limitation, the Indebtedness evidenced by the Third Amended and
Restated Revolving Promissory Note, shall (except as set forth in the
Intercreditor Agreements) continue to be secured by a first lien on and
security interest in all of the Borrower's assets."
6. The Guarantor hereby consents to the Accommodations and further
acknowledges and affirms that the Guaranty shall continue to secure all
indebtedness, liabilities and obligations of the Borrower to First Union,
including without limitation, the Indebtedness evidenced by the Third
Amended and Restated Revolving Promissory Note, and shall continue to be
secured by a first lien on and security interest in all of the Guarantor's
assets."
7. "This Agreement and the other Loan Documents constitute the entire
understanding and agreement among the parties hereto and supersede any
prior or contemporaneous oral understanding with respect to the subject
matter hereof. Except as expressly modified herein, the Loan Documents
remain unmodified and in full force and effect in accordance with their
terms. To the extent that there is a conflict between this Agreement and
the Loan Documents, the terms of this Agreement shall prevail."
If the foregoing is in accordance with your agreement, please indicate
the same by signing below."
WITNESSED: "Very truly yours,
_________________________ FARMSTEAD TELEPHONE GROUP, INC.
_________________________
By: /s/ Robert G. LaVigne
--------------------------------
Its Vice President
_________________________ FARMSTEAD ASSET MANAGEMENT
SERVICES, LLC
By: Farmstead Telephone
Group,Inc.
a member
By: /s/ Robert G. LaVigne
---------------------
Its Vice President
Reviewed and Agreed to:
FIRST UNION BANK OF CONNECTICUT
By: /s/ John J. Frost
-----------------
Its Vice President
STATE OF CONNECTICUT )
) ss: East Hartford
COUNTY OF HARTFORD )
On this the ____ day of June, 1997 before me, the undersigned officer,
personally appeared _____________, who acknowledged that he is the __________
of Farmstead Telephone Group, Inc., a Delaware corporation, and that he as
such officer, being authorized so to do, executed the foregoing instrument
for the purposes therein contained, as his and its free act and deed.
IN WITNESS WHEREOF, I hereunto set my hand.
________________________________
Notary Public
My Commission Expires:
STATE OF CONNECTICUT )
ss:
COUNTY OF HARTFORD )
On this the ______ day of June, 1997, before me, the undersigned
officer, personally appeared _____________________, who acknowledged that he
is the ________________________ of Farmstead Telephone Group, Inc., a member
of Farmstead Asset Management Services, LLC, a Delaware limited liability
company, and that he as such officer, being authorized so to do, executed the
foregoing instrument for the purposes therein contained, as his, the member's
and the limited liability company's free act and deed.
IN WITNESS WHEREOF, I hereunto set my hand.
____________________________
Notary Public
My Commission Expires:
STATE OF CONNECTICUT )
ss:
COUNTY OF HARTFORD )
On this the ______ day of June, 1997, before me, the undersigned
officer, personally appeared _____________________, who acknowledged that he
is the ____________ of First Union Bank of Connecticut, and that he as such
officer, being authorized so to do, executed the foregoing instrument for
the purposes therein contained, as his and its free act and deed."
"IN WITNESS WHEREOF, I hereunto set my hand.
Notary Public
My Commission Expires:
STATE OF CONNECTICUT )
COUNTY OF NEW HAVEN )
) ss:
On this the __________day of June, 1997, before me, the undersigned
officer, personally appeared ____________________, who acknowledged that
he is the _________________ of First Union Bank of Connecticut, and that
he as such officer, being authorized so to do, executed the foregoing
instrument for the purposes therein contained, as his and its free act and
deed.
IN WITNESS WHEREOF, I hereunto set my hand.
Notary Public
My Commission Expires:
Exhibit 10.2
THIRD AMENDED AND RESTATED
REVOLVING PROMISSARY NOTE
$3,500,000 June 6, 1997
For value received, the undersigned, FARMSTEAD TELEPHONE GROUP,
INC., a Delaware corporation ("Maker"), promises to pay to FIRST UNION
BANK OF CONNECTICUT (SUCCESSOR-IN-INTEREST TO AFFILIATED BUSINESS CREDIT
CORPORATION), or order ("Lender") at its office at 205 Church Street, New
Haven, Connecticut 06510, or at such other place as the holder hereof
(including Lender, hereinafter referred to as "Holder") may designate, the
sum of up to THREE MILLION FIVE HUNDRED THOUSAND DOLLARS ($3,500,000),
together with interest on the unpaid balance of this Note, beginning as
of the date hereof, before or after maturity or judgment, at the rate of
one half of one percentage point (.5%) per annum above the Prime Rate on a
floating basis, which rate shall be computed daily and payable monthly in
arrears on the basis of a Three Hundred Sixty (360) day year and actual
days elapsed, together with all taxes levied or assessed on this Note or
the debt evidenced hereby against the Holder, and together with all costs,
expenses and attorneys' and other professional fees incurred in any action
to collect this Note or to enforce, preserve, realize or foreclose any
mortgage, security agreement or other agreement securing this Note or to
preserve, enforce, protect or sustain the lien of said mortgage, security
agreement or other agreement or in any litigation or controversy arising
from or connected with said mortgage, security agreement or other
agreement or this Note. The term "Prime Rate" as used herein shall mean
that rate announced by the Lender from time to time as its Prime Rate and
is one of several interest rate bases used by Lender. Lender lends at
rates both above and below Lender's Prime Rate, and Maker acknowledges
that Lender's Prime Rate is not represented or intended to be the lowest
or most favorable rate of interest offered by Lender. Any change in the
interest rate because of a change in the Prime Rate shall become
effective, without notice or demand, immediately following any change in
the Prime Rate.
The principal amount of this Note shall be advanced, at the sole
discretion of Holder, pursuant to a Commercial Revolving Loan and Security
Agreement between Maker and Lender dated June 5, 1995, as amended by
letter agreements between Maker and Lender dated March 11, 1996, May 1,
1996, September 6, 1996 and of even date herewith (collectively, the
"CRLSA") and is subject in all respects to the terms and conditions of the
CRLSA, including, but not limited to, the repayment terms and the
termination date set forth in the CRLSA. Advances and payments on this
Note may be evidenced by borrowing certificates, a grid (if any) attached
to this Note or similar certificates or documents, or by an internal
ledger account of Lender which shall set forth, among other things, the
principal amount of any advances and payments thereof. Interest shall be
paid on the first business day of each and every month commencing on July
1, 1997. Holder may, in its sole discretion, charge any amounts due
hereunder to Maker's revolving loan account maintained with Holder
pursuant to the CRLSA.
Maker agrees that (i) if any installment of interest, principal or
other sum due hereunder is not paid when it is due under this Note, the
CRLSA or under any instrument evidencing any other obligation of Maker to
Holder; or (ii) if Maker or Holder shall terminate the CRLSA; or (iii) if
Maker or any guarantor of any obligation of Maker hereunder shall make an
assignment for the benefit of creditors or suffer or permit the
appointment of a receiver for any part of its property or suffer or permit
the filing by or against it of any petition for ajudication, arrangement,
reorganization or the like under any bankruptcy or insolvency law; or (iv)
if an Event or Default shall occur under the CRLSA or any mortgage,
security agreement or any other agreement securing this Note, any other
note by maker to Holder, or in the performance of any other obligation to
Holder or any other entity or person; or (v) if there shall be any
material adverse change from the present condition or affairs (financial
or otherwise) of Maker or any of the guarantors of the obligations of
Maker, that in Holder's reasonable opinion materially impairs its security
or increases its risk; then an Event of Default shall have occurred
hereunder and, upon the happening of any such event, the entire
indebtedness with accrued interest thereon due under this Note shall, at
the option of Holder, be immediately due and payable without notice.
Failure to exercise such option shall not constitute a waiver of the right
to exercise the same in the event of any subsequent default. Upon the
occurrence and during the continuance of such an Event of Default, the
interest rate on this Note shall automatically increase without notice to
a floating per annum rate equal to two percentage points (2.0%) above the
rate otherwise in effect hereunder.
In the event of Maker's failure to pay any installment of interest
and/or to pay any other sum due hereunder or under the CRLSA for more than
ten (10) days after the date it is due and payable, without in any way
affecting Holder's right to declare an event of default to have occurred,
a late charge equal to five Percent (5%) of such late payment shall be
assessed against Maker and shall be due and payable immediately.
Notwithstanding any provisions of this Note, it is the understanding
and agreement of Maker and Holder (and any guarantors of Maker's
liabilities) that the maximum rate of interest to be paid by Maker (or
guarantors of Maker's liabilities) to Holder shall not exceed the highest
or the maximum rate of interest permissible to be charged by a commercial
lender such as Lender to a commercial borrower such as Maker under the
laws of the State of Connecticut. Any amount paid in excess of such rate
shall be considered to have been payments in reduction of principal.
Maker, and each and all guarantors of this Note hereby give Holder a
lien and right of setoff for all Maker's liabilities upon and against all
the deposits, credits, collateral and property of Maker and guarantors,
now or hereafter in the possession or control of Holder or in transit to
it. Holder may, upon the occurrence of an event of default hereunder or
upon demand for payment of any demand indebtedness owing from Maker to
Holder, apply or set off the same, or any part thereof, to any liability
of Maker even though unmatured.
Failure by Holder to insist upon the strict performance by Maker of
any terms and provisions herein shall not be deemed to be a waiver of any
terms and provisions herein shall not be deemed to be a waiver of any
terms and provisions herein, and Holder shall retain the right thereafter
to insist upon strict performance by Maker of any and all terms and
provisions of this Note or any document securing the repayment of this
Note.
MAKER HEREBY WAIVES TRIAL BY JURY IN ANY COURT AND IN ANY SUIT,
ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY
WAY RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS NOTE IS A PART
AND/OR THE ENFORCEMENT OF ANY OF HOLDER'S RIGHTS AND REMEDIES, INCLUDING
WITHOUT LIMITATION, TORT CLAIMS. MAKER ACKNOWLEDGES THAT IT MAKES THIS
WAIVER KNOWLINGLY, VOLUNTARILY AND WITHOUT DURESS AND ONLY AFTER
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
MAKER FURTHER ACKNOWLEDGES THAT LENDER HAS NOT AGREED WITH OR REPRESENTED
TO MAKER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED
IN ALL INSTANCES.
MAKER AND EACH AND ALL GUARANTORS OF THIS NOTE ACKNOWLEDGE THAT THE
LOAN EVIDENCED BY THIS NOTE IS A COMMERCIAL TRANSACTION AND WAIVES ITS
RIGHTS TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL
STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR FEDERAL LAW WITH RESPECT
TO ANY PREJUDGMENT REMEDY WHICH HOLDER MAY DESIRE TO USE, AND FURTHER
WAIVES ITS RIGHTS TO REQUEST THAT HOLDER POST A BOND, WITH OR WITHOUT
SURETY, TO PROTECT SAID MAKER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY
PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY HOLDER. Maker further, waive
diligence, demand, presentment for payment, notice of nonpayment, protest
and notice of protest, and notice of any renewals or extensions of this
Note, and all rights under any statute of limitations, and all guarantors
agree that the time for payment of this Note may be extended at Holder's
sole discretion, without impairing their liability thereon, and further
consent to the release of all or any part of the security for the payment
hereof, at the discretion of Holder, or the release of any party liable
for this obligation without affecting the liability of the other parties
hereto. MAKER ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWLINGLY,
VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER CONSIDERATION OF THE
RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS. MAKER FURTHER
ACKNOWLEDGES THAT LENDER HAS NOT AGREED WITH OR REPRESENTED TO MAKER THAT
THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.
This Note shall be governed by and construed in accordance with the
laws of the State of Connecticut (but not its conflicts of law
provisions).
FARMSTEAD TELEPHONE GROUP, INC.
By: /s/ Robert G. LaVigne
-------------------------------
Its Vice President
EXHIBIT 10.3
IFD-002
(8/91)
Agreement for
Wholesale Financing
Date: June 6, 1997
TO: AT&T COMMERCIAL FINANCE CORPORATION ("AT&T"), which has its principal
place of business in Morristown, New Jersey.
The undersigned entity or person ("Dealer") agrees as follows:
1. Discretionary Financing. Dealer desires that AT&T finance the
acquisition of inventory by paying the manufacturer, distributor or
other seller thereof ("Vendor," collectively, the "Vendors"), and/or
issue letters of credit, and/or otherwise provide financing to or for
the benefit of Dealer. AT&T SHALL HAVE THE SOLE AND ABSOLUTE DISCRETION
whether or not to advance funds, and the amounts advanced by AT&T, at
any time, and from time to time, shall be such sums as AT&T may
determine in AT&T'S SOLE AND ABSOLUTE DISCRETION. In addition to, and
not in diminution of, the foregoing and the other rights and remedies of
AT&T hereunder, any failure by Dealer to fully and faithfully perform
and observe all provisions of this Agreement for Wholesale Financing
("Agreement") shall constitute grounds for AT&T to refuse to extend any
further credit to Dealer and/or reduce the amounts of credit made
available to Dealer.
2. Financing Acquisition of Inventory; Dealer's Obligations. If AT&T is
notified in any manner by any Vendor that Dealer desires AT&T to finance
the acquisition of any inventory, AT&T may rely upon such notice as a
request from Dealer to finance the acquisition of such inventory. Any
invoice or other Vendor document relating to any inventory that
indicates AT&T has financed the acquisition of inventory shall be
conclusive evidence against Dealer that AT&T has financed the
acquisition of such inventory. In any event, and under all
circumstances, Dealer shall be indebted and obligated to AT&T for all
commitments for the financing of inventory of Dealer and payments by
AT&T to any Vendor for inventory of Dealer. All such commitments and
payments shall constitute Indebtedness (as defined in Section 4 of this
Agreement), secured by the Collateral (as defined in Section 3 of this
Agreement). AT&T may, but shall not be required to, forward a statement
with respect to inventory it has financed for Dealer. Dealer shall be
bound by the contents of such statement if Dealer does not notify AT&T
in writing of any correction with respect to any data shown thereon
within twenty-five (25) days of the date of such statement.
Dealer understands and agrees that AT&T, at its election, may deal
with Vendors on the basis of electronic data interchange or other forms
of electronic transmissions of data whereby paper-based invoices and
other documents are not created. Dealer understands and agrees that
AT&T's statements of inventory for which AT&T has provided any financing
or extension of credit and amounts due with respect thereto, or
summaries or extracts thereof, shall be conclusive as to, and binding
upon, Dealer if such statements are prepared by AT&T in the ordinary
course of its business activities.
3. Dealer's Grant of Security Interest. Dealer hereby grants to AT&T a
security interest ("Security Interest") in all of Dealer's inventory,
equipment, fixtures, accounts, contract rights, leases, chattel paper,
documents, instruments, general intangibles, documents of title, letters
of credit and books and records relating to the foregoing, wherever
located and whether now or hereafter owned or acquired by Dealer,
whether or not affixed to realty, and in all proceeds and products of
all of the foregoing, including, without limitation, amounts payable
under any insurance policy, and in all returned and repossessed goods,
all parts, accessories, attachments, additions, replacements,
substitutions and accessions thereto or therefor, and in all increases
or profits received therefrom (collectively, the "Collateral").
4. Indebtedness Secured. The Security Interest secures payment of any
and all indebtedness of Dealer to AT&T ("Indebtedness"), whether such
Indebtedness is now existing or hereafter incurred, of every kind and
character, direct or indirect, and whether such Indebtedness is incurred
under this Agreement or otherwise, and whether any Indebtedness is from
time to time reduced and thereafter increased, or entirely extinguished
and thereafter reincurred.
5. Payments. All amounts outstanding with respect to inventory shall be
due and payable as set forth in AT&T's statements and billings with
respect thereto. From time to time, Dealer and AT&T may agree to
Program Schedule(s) with respect to inventory and certain terms and
conditions relating thereto; provided, however, if no applicable
Program Schedule has been agreed to by AT&T with respect to any
inventory financed by AT&T, or if an Event of Default (as defined in
Section 8 of this Agreement) occurs, all Indebtedness outstanding with
respect to a unit of inventory shall be due and payable immediately
upon the earlier of (a) the sale, lease or other disposition of such
inventory; or (b) the passage of sixty (60) days from AT&T's financing
of such inventory; provided, further, that if an Event of Default
occurs, in addition to the foregoing, all remedies set forth in Section
9 of this Agreement shall be available to AT&T (including, but not
limited to, the right, notwithstanding the preceding, to declare all or
any part of the Indebtedness to be immediately due and payable).
In no event shall Dealer, upon demand by AT&T for payment of the
Indebtedness, by acceleration of the maturity thereof or otherwise, be
obligated to pay any interest or other amount in excess of the maximum
amounts permitted by applicable law. AT&T will provide Dealer with
monthly (or at such other interval as AT&T may elect) billings of
Indebtedness due or to become due. Amounts reflected in such billings
are due upon receipt by Dealer or as otherwise indicated in such
billings; provided, however, Dealer shall be responsible for all
Indebtedness when due, whether or not any billing is sent or received.
Dealer recognizes and acknowledges that this Agreement and all matters
hereunder are intended to comply strictly with applicable usury laws
such that no amounts due under this Agreement deemed interest which are
contracted for, charged or collected shall exceed the maximum
nonusurious interest rate or amount. Any amounts collected hereunder in
excess of any maximum lawful amount shall be applied against
Indebtedness remaining to be paid or, if no Indebtedness remains to be
paid, refunded to Dealer.
AT&T shall have the right, at any time, to apply and reapply all
payments made by Dealer to any part or portion of the Indebtedness as
AT&T shall determine in its sole and absolute discretion, including,
without limitation, application or reapplication of payments for
inventory financed hereunder on a first-financed, first-paid basis.
6. Representations and Warranties of Dealer. Dealer represents and
warrants and shall continuously represent and warrant that: (a) Dealer
is the owner of the Collateral; (b) AT&T's Security Interest shall be
valid, enforceable and continuing and AT&T shall have a first lien and
first priority security interest in all inventory for which AT&T has
provided any financing or extension of credit, and in all cash proceeds
thereof in any form; (c) Dealer is authorized to enter into this
Agreement and is not thereby violating its charter or by-laws, any law
or regulation, or any agreement with third parties, and has taken all
such actions as may be necessary or appropriate to make this Agreement
legally binding upon it; (d) all information supplied by Dealer in any
financial, credit or accounting statement or application for credit
prior to, contemporaneously with, or subsequent to the execution of this
Agreement, is true, correct, valid, genuine and fairly represents
Dealer's financial condition; (e) Dealer is engaged in business
operations and Dealer's principal place of business is at the location
specified on the reverse hereof. Dealer's records concerning the
Collateral are kept at the principal place of business specified on the
reverse hereof, and all trade names, division names, or other names
under which Dealer transacts any part of its business are specified in
an appropriate schedule annexed hereto and made a part thereof; and (f)
all Collateral will be kept at the Dealer's principal place of business
specified on the reverse hereof and at any addresses listed on a
schedule to this Agreement, and at such additional addresses as Dealer
shall advise AT&T from time to time in writing prior to commencing any
business activities thereat.
7. Additional Covenants of Dealer. Dealer covenants and agrees: (a) to
defend at Dealer's own cost any action, proceeding or claim affecting
the Collateral; (b) not to transfer, deliver or alienate any Collateral
except in the ordinary course of Dealer's business and except for liens
granted to First Union Bank of Connecticut and ICON Funding Corporation;
(c) to keep accurate and complete records of the Collateral and to keep
the Collateral in good condition and repair, and not to subject any
Collateral to waste or use any Collateral in violation of any provision
of this Agreement or of any applicable law or regulation or of any
policy of insurance regarding the Collateral; (d) not to acquire by
secured financing obtained from any other person or entity, inventory
within any of the product lines of inventory for which AT&T has provided
financing or extended credit without AT&T's prior written consent; (e)
not to change its name or to merge or consolidate with any other firm or
corporation without AT&T's prior written consent; and not to change
Dealer's principal place of business without AT&T's prior written
consent; (f) to pay promptly when due all taxes, assessments, fees and
other public or private charges imposed, levied or assessed against the
Collateral or this Agreement; (g) to insure all Collateral against
risks, in coverage, form, amount and by insurer satisfactory to AT&T and
to promptly deliver each policy to AT&T with a standard long form
endorsement showing AT&T and its assigns as loss payee, as respective
interests may appear (all such policies shall provide for prior written
notification to AT&T before amendment or cancellation); (h) that AT&T,
or its designee or agent, may enter upon Dealer's premises or wherever
the Collateral may be located at any time to inspect, appraise or verify
the Collateral and to inspect Dealer's books and records; (i) the
Security Interest and Indebtedness shall not be diminished or impaired
by any payment to the Vendor, by or on behalf of Dealer, for any
inventory financed by AT&T; (j) to furnish to AT&T financial statements
concerning Dealer's business, in such form, concerning such matter, and
at such intervals as AT&T may request; (k) not to place any collateral
in a warehouse that issues a negotiable document with respect thereto
without the prior written consent of AT&T; (l) to execute and deliver
to AT&T such financing statements and other documents relating to the
perfection of the Security Interest and do such other things relating to
the Collateral and the Security Interest as AT&T reasonably may request
from time to time; and (m) to observe and perform all covenants set
forth on any Schedule of Additional Covenants now or hereafter executed
and delivered by Dealer.
8. Events of Default. Each of the following shall constitute an "Event
of Default" under this Agreement; (a) nonpayment when due of any
Indebtedness, whether under this Agreement, any other agreement with
AT&T, or otherwise due or owing to AT&T by Dealer; (b) Dealer's breach
of any representation, warranty, covenant, provision, term or condition
of this Agreement, any Program Schedule, any Schedule of Additional
Covenants or any other agreement between Dealer and AT&T; (c) the filing
by or against Dealer of a request, petition or pleading for liquidation,
reorganization, arrangement, adjustment of debts, adjudication
asabankrupt, relief as a debtor or other relief under the bankruptcy,
insolvency or similar laws of the United States or any state or
territory thereof or any foreign country; (d) Dealer becomes insolvent,
ceases to do business as a going concern or admits an inability to pay
debts as they become due or, generally, is not paying debts as they
become due; (e) Dealer is in default of any obligation to any person or
entity when such obligation is secured by any Collateral; (f) Dealer has
given AT&T materially false information regarding Dealer's financial
condition; (g) any Collateral is attached, seized or repossessed, or a
trustee, receiver or custodial of any of Dealer's property is appointed
or Dealer makes any assignment for the benefit of creditors; (h) the
making or sending of notice of any bulk sale or the transfer, assignment
or delivery of a major part of the inventory of Dealer without the prior
written consent of AT&T; (i) the existence of any formal or informal
proceeding for settlement of claims against, or winding up of affairs
of, Dealer; (j) the entry of judgment against Dealer in excess of
$100,000 that has become enforceable under applicable law (other than a
judgment that is fully insured) if within twenty (20) days thereafter
such judgment is not satisfied, vacated, bonded or stayed pending
appeal; or (k) any event specified in subparagraphs (a) through (j)
hereof occurs with respect to any guarantor of Dealer's obligations to
AT&T, or any guaranty provided to AT&T in connection with any
indebtedness is terminated or breached.
9. Remedies. Upon the existence or occurrence of an Event of Default,
and at any time thereafter so long as such Event of Default is
continuing, AT&T (a) at its sole election, may declare all or any part
of the Indebtedness to be immediately due and payable without demand or
notice of any kind (the provisions of this clause (a) are not intended
in any way to affect rights of AT&T with respect to any Indebtedness
that may now or hereafter be payable on demand); (b) shall have all of
the rights and remedies of a secured party under the Uniform Commercial
Code and any other applicable laws, including, without limitation, the
right to any deficiency remaining after sale or other disposition of any
Collateral; (c)(i) may require Dealer to assemble all or any portion of
the Collateral and return it to AT&T at a place designated by AT&T,
and/or (ii) by itself or its agent, without notice to anyone and without
judicial process of any kind, may enter any premises or upon any land
owned, leased or otherwise under the real or apparent control of Dealer
or any agent of Dealer, and AT&T may repossess the Collateral or any
part thereof; and/or (d) may notify any or all account debtors and may
demand, collect, enforce and sue on any of Dealer's accounts, contract
rights, leases, chattel paper, general intangibles, instruments, letters
of credit, documents or other Collateral (in either Dealer's or AT&T's
name, at AT&T's election) and all payment from and on the Collateral
shall be applied to the Indebtedness in such order and in any manner as
AT&T, in its sole and absolute discretion, may determine. AT&T may
compromise, settle or discharge such Collateral without thereby
releasing or discharging any Indebtedness. AT&T may endorse Dealer's
name on all checks or other Instruments constituting or relating to the
Collateral.
A public or private sale of any Collateral is a commercially
reasonable disposition thereof. A disposition of Collateral or interest
in Collateral pursuant to a Vendor repurchase agreement shall
constitute a commercially reasonable disposition thereof.
Without in any way requiring notice to be given, Dealer agrees that
any notice by AT&T of the sale or other disposition of any Collateral
shall constitute reasonable notice to Dealer if such notice is mailed to
the Dealer, at the address specified below or to such other address as
Dealer may specify in writing to AT&T, by regular or certified mail,
postage prepaid, or by reputable overnight delivery service, posted or
dispatched at least ten (10) days prior to such action.
Dealer agrees to pay on demand all costs and expenses incurred by
AT&T in enforcing this Agreement, in realizing upon or protecting any
Collateral and in enforcing or collecting any Indebtedness or any
guaranty thereof, including without limitation, if AT&T retains legal
counsel for advice, suit, appeal, insolvency or bankruptcy proceedings,
the attorneys' fees and disbursements of such legal counsel. All such
sums shall constitute Indebtedness hereunder secured by the Collateral.
10. Selection of Inventory; Risk of Loss; Indemnity. Dealer is solely
responsible for the selection of inventory. AT&T shall have no
responsibility, risk or liability as to the existence, delivery, amount
or number, description, quality, character, suitability, condition or
performance of any inventory or other Collateral. AT&T HAS NOT MADE AND
DOES NOT NOW MAKE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
WITH RESPECT TO THE INVENTORY, AND HEREBY EXPRESSLY DISCLAIMS ANY AND
ALL WARRANTIES OF MERCHANTABILITY OR FITNESS OF THE INVENTORY FOR A
PARTICULAR PURPOSE. Any claims that Dealer may at any time possess
against any Vendor or any other person or entity with respect to
inventory shall not be asserted against AT&T and shall not diminish,
excuse or impair any Indebtedness or the Security Interest. Dealer
hereby indemnifies AT&T and holds AT&T harmless from and against all
claims and/or defenses asserted by any Vendor or buyer of any inventory
or any other Collateral for any reason. As between AT&T and Dealer, all
risk of loss with respect to the Collateral is, and shall remain, at all
times with Dealer.
11. Waiver of Jury Trial. DEALER AND AT&T HEREBY WAIVE THE RIGHT TO A
TRIAL BY JURY IN ANY COURT AND IN ANY ACTION OR PROCEEDING WHETHER IN
TORT, CONTRACT OR OTHERWISE, IN WHICH DEALER OR AT&T, OR ANY SUCCESSOR
OR ASSIGN OF EITHER OF THE FOREGOING, ARE PARTIES AS TO ALL MATTERS AND
THINGS ARISING OUT OF OR RELATING, DIRECTLY OR INDIRECTLY, TO THIS
AGREEMENT AND THE RELATIONS BETWEEN THE PARTIES HEREUNDER.
12. AT&T Insecurity. Whenever AT&T in good faith believes that the
prospect of Dealer's payment or performance hereunder is impaired, or
that any Collateral is at risk, AT&T shall be entitled to exercise any
one or more of the remedies provided in Section 9 of this Agreement.
13. Choice of Law. THE VALIDITY, INTERPRETATION, ENFORCEABILITY AND
OTHER LEGAL QUESTIONS RELATING TO THIS AGREEMENT, AND THE EXISTENCE AND
VALIDITY OF ANY CLAIMS OR DEFENSES CONCERNING OR RELATING THERETO, SHALL
IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAW PROVISION) OF THE STATE OF
NEW JERSEY. IN ADDITION, DEALER CONSENTS TO THE JURISDICTION OF STATE
AND FEDERAL COURTS LOCATED IN THE STATE OF NEW JERSEY TO ADJUDICATE ALL
MATTERS CONCERNING OR RELATING TO THIS AGREEMENT.
14. Additional Provisions.
(a) If an Event of Default has occurred and is continuing, Dealer
hereby irrevocably appoints AT&T as Dealer's attorney-in-fact to
execute such financing statements or other documents relating to
the Collateral in Dealer's name, to supply any omitted
information and correct errors in any documents executed by
Dealer or on Dealer's behalf and to endorse all checks or other
instruments constituting or relating to the Collateral and
to execute, endorse or assign all papers and documents concerning
or relating to the Collateral. This power of attorney shall be
durable and irrevocable and shall survive any legal disability of
Dealer. If an Event of Default has occurred and is continuing,
where permitted by law, AT&T may file financing statements signed
only by AT&T to perfect the Security Interest. A carbon,
photographic or other reproduction of this security
agreement is sufficient as a financing statement.
(b) Upon Dealer's failure to perform any of its obligations or
duties hereunder, AT&T may, but shall not be required to, perform
any such obligations or duties, including, without limitation,
the payment of taxes, assessments or other charges or expenses
and the placement of insurance with respect to the Collateral.
Dealer shall pay on demand all such costs, charges or expenses so
incurred by AT&T and all such sums shall constitute Indebtedness
hereunder secured by the Collateral.
(c) AT&T, or its designee or agent, shall have the right to
inspect, verify and appraise the Collateral, or any part thereof,
and to verify its condition and Dealer agrees to furnish all
assistance and perform such acts as AT&T may reasonably request
in connection therewith. If such inspection, verification or
appraisal of the Collateral is conducted by AT&T upon the
existence or occurrence of any Event of Default hereunder, or at
any time thereafter, Dealer agrees to pay on demand all of AT&T's
expenses therefor. All such sums shall constitute Indebtedness
hereunder secured by the Collateral.
(d) AT&T is authorized to provide to others any information
supplied by Dealer or relating to Dealer and not marked
"confidential" by Dealer, and any public financial and credit
information relating to Dealer, without regard to the source of
such information.
(e) No delay or omission by AT&T in exercising any right or remedy
hereunder shall operate as a waiver thereof or of any other right
or remedy; and no single or partial exercise of any right or
remedy shall preclude any other or further exercise thereof or
the exercise of any other right or remedy. All rights and
remedies of AT&T hereunder are cumulative and not alternative.
(f) The terms "Dealer" and "AT&T" as used herein shall include the
successors or assigns of those parties. In the event more than
one person or entity executes this Agreement as a Dealer, the
term Dealer as used herein, and the provisions of this Agreement,
shall be binding upon each such person or entity, jointly and
severally.
(g) This Agreement constitutes the entire agreement between the
parties concerning the subject matter hereof and no modification,
rescission, waiver, release or amendment of any provision of this
Agreement shall be effective unless made in a writing executed by
Dealer and AT&T.
(h) Terms used in this Agreement, unless otherwise defined herein,
shall have the meanings ascribed to them in the Uniform
Commercial Code adopted in New Jersey.
(i) AT&T may assign this Agreement, but Dealer must have AT&T's
prior written consent to assign this Agreement. If assigned,
this Agreement shall be for the benefit of each assignee or other
successor in interest of each party and shall be binding upon
them.
(j) If after receipt of any payment AT&T is for any reason
compelled to surrender any payment to any person or entity
because such payment is determined to be void or voidable, or for
any other reason, this Agreement shall continue in full force and
effect notwithstanding any contrary action that may have been
taken by AT&T, which shall be without prejudice to AT&T's rights
under this Agreement and shall at all times be deemed to have
been conditioned upon such payment having become complete, final
and irrevocable. No refinancing, consolidation, renewal,
forbearance or other change of, or with respect to, any
Indebtedness shall constitute a novation or result in any
impairment of the (i) Security Interest, or (ii) effect,
perfection or priority of the Security Interest.
(k) If any provision of this Agreement shall be adjudged by any
court of competent jurisdiction to be invalid, such judgment
shall not affect, impair or invalidate the remainder hereof, but
shall be confined in its operation to the specific provision of
this Agreement so invalidated.
IN WITNESS WHEREOF, this Agreement for Wholesale Financing has been duly
executed by and on behalf of the undersigned as of the date specified on
the front page hereof.
Witness
Attest:__________________ and Dealer: Farmstead Telephone Group, Inc.
-------------------------------
(Corporate, Partnership or Sole
Proprietor's Name)
By: /s/ Robert G. LaVigne
[Corporate Seal] Title: Vice President
Dealer's Principal Place of Business is:
AT&T COMMERCIAL FINANCE CORPORATION 22 Prestige Park Circle
--------------------------------
Street Address
By: East Hartford, CT 06108-3728
- ----------------------------- --------------------------------
Authorized Representative City State Zip Code
--------------------------------
County
[Any additional Dealer locations
are shown on an attachment hereto]
Mr. Robert LaVigne Exhibit 10.3
Chief Financial Officer
Farmstead Telephone Group, Inc.
22 Prestige Park Circle
East Hartford, CT 06108-3728
Cc: Neil Sullivan
Mike Klug
Re: Approval of Line of Credit with AT&T Commercial Finance Corporation
Dear Mr. LaVigne:
AT&T Commercial Finance Corporation ("AT&T-CFC") is pleased to
advise you of our commitment to offer Farmstead Telephone Group, Inc.
(the "Borrower") a line of credit in an amount not to exceed
$2,000,000.00 (the "Line of Credit"). This commitment is made subject
to the following terms and conditions;
1. Amount of Line of Credit
The Line of Credit shall be in a maximum amount of $2,000,000.00 (as
described above). AT&T-CFC may from time to time finance sums above the
committed line at its sole discretion. Further, any such additional
advances are not intended to be and should not be construed as a
permanent commitment above the approved line and are subject to
immediate repayment, at our sole option, upon notice by AT&T-CFC. There
shall be no minimum extension of credit required of AT&T-CFC under this
commitment. All extensions of credit shall be made in the sole and
complete discretion of AT&T-CFC. The outstanding balance under the Line
of Credit shall be computed by adding the principal outstanding amount
and the amount of unpurchased approvals.
2. Line of Credit Utilization
AT&T-CFC will set aside up to $500,000 of Farmstead's line of credit.
This portion of the Line of Credit will be used to finance Borrower's
open account inventory purchases (Other Eligible Inventory).
3. Other Eligible Inventory
AT&T-CFC will finance Other Eligible Inventory as follows:
* Repayment terms shall be 1/2 30, 1/2 60 from the advance date
* Rate of Prime plus 1.5 percent ADB
* Advances shall be in AT&T-CFC's sole discretion and shall be made
directly to Farmstead on a per invoice basis upon AT&T-CFC's receipt
of all appropriate support documentation.
* Advance rate shall be up to 50 percent of the wholesale value of the
invoice.
* AT&T-CFC reserves to right to approve vendors for advances on Other
Eligible Inventory
* There shall be a .10 percent of invoice amount transaction fee per
advance
* Acceptability of Other Eligible Inventory to be determined by
prefunding audit
* No minimum balance requirement
4. Duration of Line of Credit
The term of the Line of Credit shall commence on June 1, 1997 and shall
continue through April 30, 1998 ("Expiration") at which time the Line of
Credit shall terminate and expire. AT&T-CFC will annually review the
line for renewal based on our receipt and satisfactory review of your
next fiscal year end financial statement. AT&T-CFC may, in its sole and
absolute discretion extend the Line of Credit for such additional
periods of time and under such terms and conditions as AT&T-CFC
determines to be appropriate. No advances will be made by AT&T-CFC until
AT&T-CFC actually receives executed copies of any and all documentation
required by AT&T-CFC.
5. Early Termination
The Line of Credit may be terminated by AT&T-CFC at any time prior to
the Expiration specified above if;
a.) The Borrower fails to execute and/or deliver any and all
financing documents required by AT&T-CFC, which financing
documents shall include, but shall not be limited to, an
Agreement for Wholesale Financing.
b.) The Borrower is in breach of any of the provisions of any
of the financing documents required by AT&T-CFC or is in default
under any such document.
c.) There has occurred any adverse change in the financial
condition or business prospects of the Borrower or any guarantor
of the Borrower's indebtedness to AT&T-CFC or if AT&T-CFC shall
learn of any misrepresentation or omission of a fact or
circumstance by the Borrower (or any guarantor of the Borrower's)
indebtedness to AT&T-CFC) or if AT&T-CFC shall learn of any
misrepresentation or omission of a fact or circumstance by the
Borrower (or any guarantor) that AT&T-CFC deems to be material.
The Borrower and all guarantors shall be obligated to notify
AT&T-CFC in writing of any change in either of their financial
condition, structure, ownership, or business prospects.
5. No Assignment
This commitment may not be assigned by the Borrower without the prior
written consent of AT&T-CFC, which consent shall be granted or withheld
in the sole and absolute discretion of AT&T-CFC.
6. Conditions
i) This commitment for a Line of Credit is subject to receiving
a satisfactory intercreditor agreement from First Union Bank
N.A.
ii) Collateral Covenants
a) The ratio of total collateral available to AT&T-CFC after
deduction of senior liens, to total AT&T-CFC indebtedness must be
at least 1.5 to 1.
b) The ratio of Other Eligible Inventory to advances on Other
Eligible Inventory must be at least 2 to 1.
In the event of a short fall of either collateral coverage ratio, an
immediate paydown shall be required such that Farmstead would thereafter
be in compliance with both ratios.
We look forward to working with you.
Sincerely,
Alan Babp
Portfolio Manager
Accepted: Robert G. LaVigne
(Name)
Vice President/CFO
(Title)
June 6, 1997
(Date)
Schedule of Additional Covenant (s)
Terms defined in the Agreement for Wholesale Financing between AT&T
and Dealer (the "Agreement") and not otherwise defined herein have those
meanings assigned to them in the Agreement. Notwithstanding anything
contained in the Agreement or otherwise to the contrary, Dealer hereby
covenants and agrees that at all times Dealer will maintain on its
premises or otherwise in its possession, or under its custody or control,
Collateral subject to the first lien and first priority security interest
of AT&T, having an actual value from time to time equal to at least one
hundred fifity percent (150%) of the Indebtedness outstanding from time to
time. Within fifteen (15) days after the end of each month, Dealer shall
provide AT&T with evidence satisfactory to At&T in all respects that
Dealer is in compliance with this covenant, and Indebtedness outstanding
from time to time to an amount whereby Dealer shall be in compliance wit
this covenant at all times.
Notwithstanding anything contained in the Agreement or otherwise to
the contrary, Dealer hereby covenants and agrees that at all times Dealer
will maintain on its premises or otherwise in its possession, or under its
custody or control, Inventory purchased on open account from vendors not
financed by AT&T ("Other Eligible Inventory Collateral") subject to the
first lien and first priority security interest of AT&T, having an actual
value from time to time equal to a t least two hundred (200%) of the Other
Eligible Inventory Indebtedness outstanding from time to time. Within
five (5) days after the end of each month, Dealer shall provide AT&T with
evidence satisfactory to AT&T in all respects that Dealer is in compliance
wit this covenant, and from time to time Dealer shall pay AT&T such
amounts as are necessary to reduce the Indebtedness outstanding from time
to time to an amount whereby Dealer shall be in compliance with this
covenant at all times.
Date: June 6, 1997
Farmstead Telephone Group, Inc.
By: Robert G. LaVigne
Title: Vice President
22 Prestige Park Circle
East Hartford, CT 06108
AT&T COMMERCIAL FINANCE CORPORATION
By: _______________________________________
Title: ____________________________________
44 Whippany Road
Morristown, NJ 07962
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<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,527
<SECURITIES> 0
<RECEIVABLES> 4,539
<ALLOWANCES> 0
<INVENTORY> 4,225
<CURRENT-ASSETS> 10,734
<PP&E> 1,002
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,851
<CURRENT-LIABILITIES> 3,149
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 6,417
<TOTAL-LIABILITY-AND-EQUITY> 11,851
<SALES> 11,164
<TOTAL-REVENUES> 11,164
<CGS> 8,395
<TOTAL-COSTS> 8,395
<OTHER-EXPENSES> 363
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91
<INCOME-PRETAX> (1,204)
<INCOME-TAX> 11
<INCOME-CONTINUING> (1,215)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (1,215)
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