Exbibit 10.7
PROMISSORY NOTE
TO: SMTC MANUFACTURING CORPORATION OF NORTH CAROLINA
NOTE DATE: JANUARY 8, 2001
FOR VALUE RECEIVED the undersigned promises to pay to SMTC MANUFACTURING
CORPORATION OF NORTH CAROLINA ("SMTC") the principal sum of $6,052,824.04 in
lawful money of the United States, together with interest on the outstanding
principal amount thereof accruing from January 8, 2001, provided that and if the
undersigned makes a first installment in the amount of $250,000 on or before
January 15, 2001, then no interest will accrue on the amount of such installment
from January 8 to January 15, 2001. Such first installment will be applied
entirely toward the principal amount owing. All future payments will be
amortized over a 50-week period beginning on January 8, 2001. Each
installment will be wire transferred on the first day of each week that is a
business day in Toronto, Ontario and St. Louis, Missouri to the account and bank
designated in writing by SMTC from time to time.
Interest will be calculated at a rate equal to 12% per annum both before and
after maturity, default and judgment and until actual payment. The payment
schedule is outlined below and all dates are for calendar year 2001. The amounts
set forth below represent blended payments of principal and interest.
1) The first installment on or before January 15th in the amount of
$250,000.00.
2) Seven (7) weekly installments from January 15-February
26th, in the amounts of $50,000.00 each.
3) Forty-two (42)weekly installments from March 5th-December 17th in
the amounts of $125,000.00 each.
4) One (1) final "balloon" payment of $603,631 on December 24th, 2001.
It is understood that changes to the payment schedule set forth above may occur
based solely on the conditions outlined in SMTC's letter of January 16, 2001,
which modifies the payments based solely on some future purchases, and in the
Addendum attached to this note. Failure on the part of the undersigned to make
any single payment on the date outlined in this note will put the undersigned in
default of the entire promissory note and make the full amount both past due
(inclusive or interest) and not yet due immediately owing and payable to SMTC.
The undersigned expressly waives presentment for payment, notice of non-payment,
protest, notice of protest and notice of dishonour of or with respect to this
note.
The undersigned may prepay this note in whole or in part at any time. Each
prepayment will be applied first to accrued interest and second, if any is
remaining, to the reduction of the principal amount outstanding at the time of
such prepayment. Any prepayment less than the full amount of principal and
interest outstanding at the time of such prepayment may have the effect of
reducing the
term of this note and the number of installments required to repay
the full amount due under this note, but shall not otherwise alter the
obligation of the undersigned to make payments in accordance with the payment
schedule set forth above.
This note will be governed by, and construed in accordance with, the laws of the
Province of Ontario, Canada.
DATED AT ______ AS OF THE 8TH DAY OF JANUARY, 2001.
NX NETWORKS, INC.
BY: /S/ STEVE ROBERTS
NAME: STEVE ROBERTS
TITLE: COO
ADDENDUM TO PROMISSORY NOTE
This addendum to the promissory note dated as of January 8, 2001 given by NX
Networks Inc. in favour of SMTC Manufacturing Corporation of North Carolina (the
"NOTE"), allows for the following to occur:
Provided that NX Networks Inc. fulfils its obligation to make all 50 Note
payments in the amounts and on the dates as outlined in the Note, SMTC will
reduce the final "balloon" payment (which currently calls for a payment in the
amount of $603,631.88 on December 24, 2001) by an amount equal to the difference
between the amount of interest that is payable under the Note (based on an
interest rate of 12% per annum) and the amount of interest that would have been
charged over the term of the Note (based on the payment schedule set forth in
the Note) had the Note been drawn up with an interest rate of 9.75% per annum.
Should NX Networks Inc. fail to make any of these payments and/or fail to make
any other payments for future purchases within the terms of payment offered by
SMTC, then this Addendum becomes null and void.
It is understood that that the principal amount of the Note has been calculated
by SMTC based upon support material and back-up documentation (excel
spreadsheets) "Support Materials" provided by it to Nx Networks in an e-mail of
February 7, 2001. On or before February 28, 2001, Nx Networks shall identify to
SMTC any areas of dispute as to the amount of the Note, based upon Nx Networks'
review of the Support Material provided by SMTC; provided, however, that Nx
Networks may only dispute the amount of the Note based upon: (1) quantity of
materials, (2) the cost to SMTC of the materials or (3) whether the materials
were purchased for use in the manufacture of products for Nx Networks. In the
event Nx Networks identifies such a discrepancy between the Support Material and
the amount of the Note with which SMTC concurs, an appropriate adjustment will
be made to the Note (including a reallocation of interest paid to date). If Nx
Networks identifies such a discrepancy between the Support Materials and the
amount of the Note with which SMTC does not concur, then Nx Networks will
continue to pay the Note until the dispute is resolved, which may be in a court
of law. At the time the dispute is resolved, an appropriate adjustment will be
made to the Note (including a reallocation of interest paid to date) if the
resolution evidences a discrepancy between the Support Material and the amount
of the Note.
[SMTC Letterhead]
January 16, 2001
Mr. P. Kendrick
Vice President and Chief Financial Officer
NX Networks Inc.
13595 Dulles Technology Drive WITHOUT PREJUDICE
Herndon, Virginia
20171
Dear Mr. Kendrick
As we discussed last evening we need to have a documented plan, agreed to and
signed off, for the repayment of all past due monies owed, inclusive of
inventories, WIP, and finished products. It also has to outline how we will
operate in the future with respect to new purchases by NX Networks Inc. I
believe that through these discussions we both fully understand and agree to the
following. NX Networks Inc. does not wish to pay for product that is already at
the sub assembly level or even finished state in a Promissory Note, and then be
asked to pay C.O.D. for these same future purchases. On the other hand SMTC
Manufacturing of North Carolina, while willing to continue to produce product
for NX Networks Inc., will not incur any further risk in the form of offering
credit terms for these purchases. In addition they expect to paid for all past
due monies owed in an interest bearing Promissory Note within this year.
With this in mind it is my suggestion that the following occur. There is an
immediate need to agree to the terms of the Promissory Note and have this signed
and returned. The amount of this Note is $6,052,820.04. I have provided the
backup material to support this figure, as well as the amortization schedule, in
an addendum to this letter. This amount will be further reduced by the amount of
$250,000.00 when we receive confirmation of your most current payment. The
payments, as per your request, would begin at $50,000.00 per week for the weeks
beginning January 15 through to and inclusive of February 26. Payments would
then increase to $125,000.00 per week for 42 weeks beginning with March 5, 2001
and ending December 17, 2001. One final "balloon payment would be made on
December 24th, 2001 in the amount of $603,631.88. All payments will be wire
transferred on the first common business day of both Toronto, Ontario and St
Louis, Missouri to the account and bank designated in writing by SMTC from time
to time.
With respect to future purchases these would be on a C.O.D. basis, until SMTC at
their sole discretion decides to re-evaluate your financial situation and to
consider offering credit terms. Having said this and trying to work through the
issue of some of these purchases potentially being already partially invoiced
and included in the Promissory Note, let me suggest the following.
New Purchases
All new orders will be compared against the various and sundry components which
may already be included in the Promissory Note. Where it is deemed that there is
no commonality of semi components or raw materials then it will be the
responsibility of SMTC to source the raw materials and produce the finished
products. Where the costs associated with the procurement of these raw materials
are in excess of $100,000.00, then NX Networks may be asked to make a
prepayment to cover these costs prior to the materials being purchased. This
will be at the sole discretion of SMTC. Regardless, payment terms for all such
purchases will be made by NX Networks Inc. on a C.O.D. basis
For those orders in which there are some raw materials and or sub assemblies
already included in the Promissory Note the following will occur. An evaluation
of all other materials required in the manufacturing process will be done and
where it is deemed necessary to procure additional material in an amount that
exceeds $100,000.00 then NX Networks may be asked to make a prepayment to cover
the cost prior to the materials being purchased. Again this would be at the sole
discretion of SMTC.
Once the products under this second scenario had been manufactured and are
available for shipment then the value of the materials already included in the
Note would be compared with that weeks' Note installment. Where the value of the
materials already in the Note was greater than that weeks' Note installment then
no Note payment would be made for that one week. The Note however would be
reduced by this same material value. Assuming a weekly Note installment of
$125,000.00, an example of this would be.
Total New Order Value: $200,000.00
Existing Materials Used: $75,000.00
(already in Note)
Sub Assemblies Used: $80,000.00
(already in Note)
New Materials and Labour: $45,000.00
NX Networks would make a C.O.D. payment in the amount of $200,000.00 and forgo
that week's Note Payment. The Note would be reduced upon receipt of the
$200,000.00 by $155,000.00.
Where the value of the materials was less than the Note installment then NX
Networks Inc. would make up the difference in their weekly payment. . Assuming a
weekly Note installment of $125,000.00, an example of this would be.
Total New Order Value: $200,000.00
Existing Materials Used: $50,000.00
(already in Note)
Sub Assemblies Used: $50,000.00
(already in Note)
New Materials and Labour: $100,000.00
Nx Networks would make a C.O.D. payment in the amount of $200,000.00 and make a
payment toward the Note of $25,000.00. The Note would be reduced by this
$25,000.00 payment and further reduced by the $100,000.00 of materials and sub
assemblies already produced, once the $200,000.00 had been received and
deposited.
I trust that this clearly outlines the path for moving forward. I have included
with this letter a copy of the Promissory Note which requires your signature or
that of another Officer of the Company. As we have previously discussed the term
of this repayment plan is clearly longer than we would have believed to be
required. It is also understood and expected that NX Networks Inc. will make
commercially reasonable effort to repay this Note in a more timely manner than
currently agreed to, should additional financing or capital infusions become
available over the term of the Note, that would be considered in excess of NX
Networks reasonably forecasted capital needs. It is also understood that NX
Networks will not give any preferential treatment to any other significant
creditors by reducing their debt obligations to that creditor in a more timely
manner.
Should you have any questions please contact me as in order for SMTC to move
forward on the production of any further orders we will require your agreement
to this letter and the signing off of the enclosed Promissory Note.
Yours truly
/s/
Dirk Mooney
Credit Relations Manager