Exhibit 10.1

 

PROMISSORY NOTE

 

$3,000,000

 

Nassau County, New York

 

 

As of December 1, 2005

 

FOR VALUE RECEIVED, HAUPPAUGE COMPUTER WORKS, INC., a New York corporation (the
“Borrower”), HEREBY PROMISES TO PAY to the order of JPMORGAN CHASE BANK, N.A.
(the “Bank”), at its offices located at 395 North Service Road, Melville,
New York 11747, or at such other place as the Bank or any holder hereof may from
time to time designate, the principal sum of THREE MILLION DOLLARS ($3,000,000),
or such lesser amount as may constitute the outstanding balance hereof, in
lawful money of the United States, on March 31, 2006 or earlier as hereinafter
referred to, and to pay interest in like money at such office or place from the
date hereof on the unpaid principal balance of each Loan (as hereinafter
defined) at the Eurodollar Rate or the Prime Rate (as hereinafter defined and
provided for in the following paragraph) per annum, which shall be payable at
the end of each Interest Period (as hereinafter defined) until such Loan(s)
shall be due and payable (whether at maturity, by acceleration or otherwise) and
thereafter, on demand.  Interest after maturity shall be payable at a rate three
percent (3%) per annum above the Bank’s Prime Rate which rate shall be computed
for actual number of days elapsed on the basis of a 360-day year and shall be
adjusted as of the date of each such change, but in no event higher than the
maximum permitted under applicable law.  “Prime Rate” shall mean the rate of
interest as is publicly announced at the Bank’s principal office from time to
time as its Prime Rate.

 

The Borrower shall give the Bank irrevocable written notice (or telephonic
notice promptly confirmed in writing) not later than 11:00 a.m., New York, New
York time, three Business Days prior to the date of each proposed Eurodollar
Loan (as hereinafter defined) or prior to 11:00 a.m. New York, New York time on
the date of each proposed Prime Loan (as hereinafter defined).  Such notice
shall be irrevocable and shall specify (i) the amount and whether the proposed
borrowing shall be a Eurodollar Loan or a Prime Rate Loan, (ii) the initial
Interest Period if a Eurodollar Loan, and (iv) the proposed date of borrowing. 
Each borrowing of a Eurodollar Loan shall be in an amount not less than $500,000
or, if greater, whole multiples of $100,000 in excess thereof.  The Bank is
authorized to enter on the Grid Schedule attached hereto (i) the amount of each
loan made from time to time hereunder (the “Loan”), (ii) the date on which each
Loan is made, (iii) the date on which each Loan shall be due and payable to the
Bank, which date shall be March 31, 2006 (“Maturity Date”), (iv) the applicable
interest rate to be paid on each Loan which shall, at the Borrower’s option in
accordance herewith, be at (a) the Adjusted Eurodollar Rate plus one and 85/100
percent (1.85%) (the “Eurodollar Rate”) or (b) the Prime Rate minus one percent
(1.0%) (such Loans, the “Eurodollar Loan” or the “Prime Loan”), (v) the amount
of each payment made hereunder, and (vi) the outstanding principal balance of
the Loans hereunder from time to time, all of which entries, in the absence of
manifest error, shall be conclusive and binding on the Borrower; provided,
however, that the failure of the Bank to make any such entries shall not relieve
the Borrower from its obligation to pay any amount due hereunder.

 

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Prepayment

 

(a)           No prepayments shall be permitted hereunder on any Loan while the
Eurodollar Rate shall be applicable to such Loan on any date other than the last
day of the applicable Interest Period.  A Loan may be prepaid at any time while
the Prime Rate shall be applicable to such Loan upon two days prior notice.

 

(b)           The Borrower shall reimburse the Bank on demand for any loss
incurred or to be incurred by it in the reemployment of funds released by any
prepayment of the Loan made in contravention of the terms hereof.  Such loss
shall be the difference as reasonably determined by the Bank between the cost of
obtaining the funds for the Loan and any lesser amount which may be realized by
the Bank in reemploying the funds received in prepayment during the period from
the date of prepayment to the end of the current Interest Period of such Loan.

 

Increased Costs

 

If at any time after the date hereof, the Board of Governors of the Federal
Reserve System or any political subdivision of the United States of America or
any other government, governmental agency or central bank shall impose or modify
any reserve or capital requirement on or in respect of loans made by or deposits
with the Bank or shall impose on the Bank any other conditions affecting
Eurodollar Loans, and the result of the foregoing is to increase the cost to
(or, in the case of Regulation D, to impose a cost on the Bank of making or
maintaining any Eurodollar Loans or to reduce the amount of any sum receivable
by the Bank in respect thereof, by an amount deemed by the Bank to be material,
then, within 30 days after notice and demand by the Bank, the Borrower shall pay
to the Bank such additional amounts as will compensate the Bank for such
increased cost or reduction; provided, that the Borrower shall not be obligated
to compensate the Bank for any increased cost resulting from the application of
Regulation D as required by the definitions of Adjusted Eurodollar Rate.  Any
such obligation by the Borrower to the Bank shall not be due and owing until the
Bank has delivered written notice to the Borrower.  Failure by the Bank to
provide such notice shall not be deemed a waiver of any of its rights
hereunder.  A certificate of the Bank claiming compensation hereunder and
setting forth the additional amounts to be paid to it hereunder and the method
by which such amounts were calculated shall be conclusive in the absence of
manifest error.

 

Indemnity

 

The Borrower shall indemnify the Bank against any net loss or expense which the
Bank may sustain or incur as a consequence of the occurrence of any default
hereunder or any loss or reasonable expense sustained or incurred in liquidating
or employing deposits from third parties acquired to effect or maintain any
Eurodollar Loan or any part thereof which the Bank may sustain or incur as a
consequence of any default in payment of the principal amount of the Loan or any
part thereof or interest accrued thereon.  The Bank shall provide to the
Borrower a statement, supported where applicable by documentary evidence,
explaining the amount of any such loss or expense, which statement shall be
conclusive absent manifest error.

 

Change In Legality

 

(a)           Notwithstanding anything to the contrary contained elsewhere in
this Note, if any change after the date hereof in any law or regulation or in
the interpretation thereof by any governmental authority charged with the
administration thereof shall make it unlawful (based on the opinion of any
counsel, whether in-house, special or general, for the Bank) for the Bank to
make or maintain any

 

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Eurodollar Loan or to give effect to its obligations as contemplated hereby with
respect to any Eurodollar Loan, then, by written notice to the Borrower by the
Bank, the Bank may require that all outstanding Eurodollar Loans made hereunder
be converted to Prime Loans, whereupon all such Eurodollar Loans shall be
automatically converted to Prime Loans as of the effective date of such notice
as provided in paragraph (b) below.

 

(b)           For purposes of this Section, a notice to the Borrower by the Bank
pursuant to paragraph (a) above shall be effective, if lawful and if any
Eurodollar Loans shall then be outstanding, on the last day of the then current
Interest Period; otherwise, such notice shall be effective on the date of
receipt by the Borrower.

 

Events of Default.

 

If the Borrower shall default in the punctual payment of any sum payable with
respect to, or in the observance or performance of any of the terms and
conditions of this Note, or any other agreement with or in favor of the Bank, or
if a default or event of default that is accelerated shall occur for any reason
under any such agreement, or in the event of default in any other material
indebtedness of the Borrower exceeding $25,000 in the aggregate, or if any
warranty, representation or statement of fact made in writing to the Bank at any
time by an officer, partner or other designated representative of the Borrower
is false or misleading in any material respect when made, or the Borrower fails
on request to furnish any financial information or permit the inspection of its
books or records, or if the Borrower shall be dissolved or shall fail to
maintain its existence in good standing, or if the usual business of the
Borrower shall be suspended or terminated, or if any levy, execution, seizure,
attachment or garnishment shall be issued, made or filed on or against any
material portion of the property of the Borrower, or if the Borrower shall
become insolvent (however defined or evidenced), make an assignment for the
benefit of creditors or make or send a notice of intended bulk transfer, or if a
committee of creditors is appointed for, or any petition or proceeding for any
relief under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, receivership, liquidation or dissolution law or statute
now or hereafter in affect (whether at law or in equity) is filed or commenced
by or against the Borrower or any material portion of its property which, as to
involuntary proceeding(s) are not dismissed within thirty (30) days, or if any
trustee or receiver is appointed for the Borrower or any such property, or if a
default or event of default shall occur under the Guaranty or the Pledge
Agreement, or if any provision of this Note, the Guaranty or the Pledge
Agreement shall, for any reason, cease to be in full force and effect in
accordance with its terms or the Borrower or the Guarantor shall so assert in
writing, or any of the foregoing events shall occur with respect to the
Guarantor or any other guarantor of the Borrower’s obligations hereunder (each
an “Event of Default”) - then and in any such event, which non-monetary Events
of Default continue unremedied for fifteen (15) days (except for voluntary
bankruptcy which is an automatic Event of Default hereunder), in addition to all
rights and remedies of the Bank under applicable law and otherwise, all such
rights and remedies cumulative, not exclusive and enforceable alternatively,
successively and concurrently, the Bank shall have the right immediately to set
off against this note and/or any liabilities of the Borrower to the Bank all
monies owed by the Bank in any capacity to the Borrower, whether or not due, and
the Bank shall be deemed to have exercised such right to set off and to have
made a charge against any such money immediately upon the occurrence of any of
the foregoing events of default even though such charge is made or entered on
the books of the Bank subsequent to those events.  Further the Bank may, at its
option, declare any and all of the amounts owing under this Note to be due and
payable, whereupon the maturity of the then unpaid balance hereof shall be
accelerated and the same, together with all interest accrued hereon, shall
forthwith become due and payable.

 

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Definitions

 

A.            Adjusted Eurodollar Rate

 

“Adjusted Eurodollar Rate” shall mean, with respect to any Eurodollar Loan for
any Interest Period, an interest rate per annum (rounded upwards, if necessary,
to the next 1/8 of 1%) equal to (i) the Eurodollar Rate in effect for such
Interest Period and (ii) Statutory Reserves.

 

“Eurodollar Rate” shall mean, with respect to any Eurodollar Loan for any
Interest Period, the rate (rounded upwards, if necessary, to the next 1/8 of 1%)
at which dollar deposits approximately equal in principal amount to the Bank’s
Eurodollar Loan and for the maturity equal to the applicable Interest Period are
offered by the Bank in immediately available funds in an Interbank Market for
Eurodollars at approximately 11:00 a.m., New York City time, two Business Days
prior to the commencement of such Interest Period.

 

B.            Assessment Rate

 

“Assessment Rate” shall mean for any date the annual rate (rounded upwards, if
necessary, to the next higher 1/100 of 1%) most recently estimated by the Bank
as the then current net annual assessment rate that will be employed for
determining amounts payable by the Bank to the Federal Deposit Insurance
Corporation (or any successor) for insurance by such Corporation (or such
successor) of time deposits made in dollars at the Bank’s domestic offices.

 

C.            Business Day

 

“Business Day” shall mean any day other than a Saturday, Sunday or other day on
which the Bank is authorized or required by law or regulation to close, and
which is a day on which transactions in dollar deposits are being carried out in
London, England for Eurodollar Loans and New York City for Prime Loans.

 

D.            Eurodollar Loan

 

“Eurodollar Loan” shall mean a Loan bearing interest at the Eurodollar Rate plus
1.85%.

 

E.             Guarantor

 

“Guarantor” shall mean Hauppauge Digital, Inc., a Delaware corporation.

 

F.             Guaranty

 

“Guaranty” shall mean the Guaranty, dated as of the date hereof, by the
Guarantor wherein the Guarantor guaranteed the obligations of the Borrower owing
to the Bank, as amended, restated, supplemented or otherwise modified, from time
to time.

 

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G.            Interest Period

 

(i) For Eurodollar Loans, Interest Period shall mean the period commencing on
the date of such Loan and ending 1 month after the date of such Loan (as
selected by the Borrower and recorded on the Grid Schedule attached hereto),
provided that.   upon the expiration of the first Interest Period and each
Interest Period thereafter, each Eurodollar Loan will be automatically continued
with an Interest Period of the same duration, unless the Borrower shall notify
the Bank that it intends to convert a Eurodollar Loan to a Prime Loan or if the
Bank is prohibited from making Eurodollar Loans, in accordance with provisions
set forth in this Note.

 

(ii) For Prime Loans, Interest Period shall mean the last day of each calendar
month during the term hereof and on the date on which an Prime Loan is converted
to a Eurodollar Loan.

 

No Interest Period shall extend past the Maturity Date.  In addition, if any
Interest Period would end on a day which shall not be a Business Day, such
Interest Period shall be extended to the next succeeding Business Day.

 

H.            Prime Loan

 

“Prime Loan” shall mean a Loan bearing interest at the Prime Rate.

 

I.              Pledge Agreement

 

“Pledge Agreement” shall mean the Share Pledge Agreement, dated as of the date
hereof, between the Guarantor and the Bank, as amended, restated, supplemented
or modified, from time to time.

 

J.             Statutory Reserves

 

“Statutory Reserves” shall mean a fraction (expressed as a decimal, the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including, without
limitation, any marginal, special emergency or supplemental reserves) expressed
as a decimal established by the Board of Governors of the Federal Reserve System
and any other banking authority to which the Bank is subject for Eurocurrency
Liabilities as defined in Regulation D.  Eurodollar Loans shall be deemed to
constitute Eurocurrency Liabilities and as such shall be deemed to be subject to
such reserve requirements without benefit of or credit for proration, exceptions
or offsets which may be available from time to time to the Bank under such
Regulation D.  Statutory Reserves shall be adjusted automatically on and as of
the effective date of any change in any reserve percentage.

 

Miscellaneous

 

The Borrower hereby gives to the Bank a lien on, security interest in and right
of set-off against all moneys, securities and other property of the Borrower and
the proceeds thereof, now or hereafter

 

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delivered to, remaining with or in transit in any manner to the Bank, its
correspondents, affiliates or its agents from or for the Borrower, whether for
safekeeping, custody, pledge, transmission, collection or otherwise or coming
into possession, control or custody of the Bank in any way, and also, any
balance of any deposit accounts and credits of the Borrower with, and any and
all claims of the Borrower against the Bank at any time existing, as collateral
security for the payment of this Note and of all other liabilities and
obligations now or hereafter owed by the Borrower to the Bank, contracted with
or acquired by the Bank, whether joint, several, absolute, contingent, secured,
unsecured, matured or unmatured (all of which are hereafter collectively called
“Liabilities”), hereby authorizing the Bank at any time or times, without prior
notice, to apply such balances, credits or claims, or any part thereof, to such
Liabilities in such amounts as it may select, whether contingent, unmatured or
otherwise and whether any collateral security therefor is deemed adequate or
not.  The collateral security described herein shall be in addition to any
collateral security described in any separate agreement executed by the
Borrower, including, without limitation, the Pledge Agreement.

 

Notices

 

Any notices, requests and demand to or upon the respective parties hereto to be
effective shall be in writing (or by telex, fax or similar electronic transfer
confirmed in writing), and, unless otherwise expressly provided herein, shall be
deemed to have been duly given or made (a) when delivered by hand or (b) if
given by mail, on the third business day after deposited in the mails by
certified mail, return receipt requested, or (c) if by telex, fax or similar
electronic transfer, when sent and receipt has been confirmed, addressed as
follows:

 

(i)            if to the Bank to:

 

JPMorgan Chase Bank, N.A.

395 North Service Road, Suite 302

Melville, New York 10004-1699

Telephone #          (631) 755-5078

Fax #                       (631) 755-0137

Attention:              Christopher Jantzen, Vice President

 

(ii)           if to the Borrower to:

 

Hauppauge Computer Works, Inc.

91 Cabot Court

Hauppauge, NY 11788

Telephone #          (631) 434-1600

Fax #                       (631) 434-3198

Attention:              Gerald Tucciarone, Assistant Secretary

 

(iii)          As to each such party at such other address as such party shall
have designated to the other in a written notice comply with the provisions
hereof.

 

The Borrower hereby waives diligence, demand, presentment, protest and notice of
any kind, and assents to extensions of the time of payment, release, surrender
or substitution of security, or forbearance or other indulgence, without notice.

 

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This Note may not be changed, modified or terminated orally, but only by an
agreement in writing signed by the party to be charged and consented to in
writing by the party hereof.

 

In the event the Bank or any holder hereof shall refer this Note to an attorney
for collection, the Borrower agrees to pay, in addition to unpaid principal and
interest, all the costs and expenses incurred in attempting or effecting
collection hereunder, including reasonable attorney’s fees, whether or not suit
is instituted.

 

In the event of any litigation with respect to this Note, THE BORROWER WAIVES
THE RIGHT TO A TRIAL BY JURY and all rights of setoff and rights to interpose
counter-claims and cross-claims.  The Borrower hereby irrevocably consents to
the jurisdiction of the courts of the State of New York and of any Federal court
located in such State in connection with any action or proceeding arising out of
or relating to this Note.  This Note shall be governed by and construed in
accordance with the laws of the State of New York applicable to contract made
and to be performed in such State, and shall be binding upon the successors and
assigns of the Borrower and inure to the benefit of the Bank, its successors,
endorsees and assigns.

 

If any term or provision of this Note shall be held invalid, illegal or
unenforceable the validity of all other terms and provisions hereof shall in no
way be affected thereby.

 

DATED: December 1, 2005

 

HAUPPAUGE COMPUTER WORKS, INC.

 

 

 

 

 

 

 

 

By:

/s/ Gerald Tucciarone

 

 

 

Name: Gerald Tucciarone

 

 

Title: Assistant Secretary

 

ACKNOWLEDGMENT

 

STATE OF NEW YORK

)

 

 

)

SS:

COUNTY OF NASSAU

)

 

 

On the 1st day of December in the year 2005 before me, the undersigned,
personally appeared Gerald Tucciarone, personally known to me or proved to me on
the basis of satisfactory evidence to be the individual whose name is subscribed
to the within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person upon behalf of which the individual acted, executed the instrument.

 

 

 

 

/s/ Fred S. Skolnik

 

 

Notary Public

 

 

 

 

 

[NOTARY STAMP]

 

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GRID SCHEDULE

 

 

 

 

 

APPLICABLE

 

 

 

INTEREST

 

DATE

 

TYPE

 

INTEREST RATE

 

AMOUNT

 

PERIOD

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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