EXHIBIT 10.37
ACKNOWLEDGMENT, WAIVER AND AMENDMENT
TO THE
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT
This ACKNOWLEDGMENT, WAIVER AND AMENDMENT ("Waiver") TO THE INVENTORY AND
WORKING CAPITAL FINANCING AGREEMENT is made as of March 14, 2002 by and between
Datatec Industries, Inc., a Delaware corporation ("Customer") and IBM Credit
Corporation, a Delaware corporation ("IBM Credit").
RECITALS
WHEREAS, Customer and IBM Credit have entered into that certain Inventory
and Working Capital Financing Agreement dated as of November 10, 2000 (as
amended, supplemented or otherwise modified from time to time, the "Agreement");
WHEREAS, Customer is in default of one or more of its financial covenants
contained in the Agreement (as more specifically explained in Section 2 hereof);
and
WHEREAS, Customer requests that IBM Credit waive such default and amend
certain terms of the Agreement.
WHEREAS, IBM Credit is willing to waive such default and amend the
Agreement subject to the conditions set forth below.
AGREEMENT
NOW THEREFORE, in consideration of the premises set forth herein, and for
other good and valuable consideration, the value and sufficiency of which is
hereby acknowledged, the parties hereto agree that the Agreement is amended as
follows:
Section 1. Definitions. All capitalized terms not otherwise defined herein shall
have the respective meanings set forth in the Agreement.
Section 2. Acknowledgment.
Customer acknowledges that the financial covenants set forth in
Attachment A to the Agreement are applicable to the financial results of
Customer for the fiscal quarter ending July 31, 2001, and Customer was required
to maintain such financial covenants at all times. Customer further acknowledges
its actual attainment was as follows:
Covenant Covenant
Covenant Requirement Actual
---------------- ----------------- ---------------
Net Profit after Equal to or greater -9% (the "Default")
Tax to Revenue than 0.1%
Section 3. Waivers to Agreement. IBM Credit hereby waives the Default of
Customer with the terms of the Agreement to the extent such Default is set forth
in Section 2 hereof.
Section 4. Amendment. The Agreement is hereby amended as follows,
notwithstanding any other conditions precedent contained herein:
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A. As of the date hereof, IBM Credit shall not be obligated to make any
Term Loan Advances to Customer. Customer shall make payments to IBM Credit in
accordance with the terms of Section 2.4(D) of the Agreement as revised herein.
B. Section 2.4(D) is hereby amended by deleting it in its entirety and
substituting the following therefor: "(D) Customer shall pay to IBM Credit,
commencing May 30, 2002, monthly installments of $300,000 on the last business
day of every month, until such date whereby the Outstanding Term Loan amount
shall be equal to zero, and in any event shall pay in full the Outstanding Term
Loan on the Term Loan Stated Maturity Date."
C. Schedule A to the Agreement is hereby amended by deleting such Schedule
A in its entirety and substituting it, in lieu thereof, the Schedule A attached
hereto.
D. Attachment A to the Agreement is hereby amended by deleting such
Attachment A in its entirety and substituting it, in lieu thereof, the
Attachment A attached hereto ("Amended Attachment A"). Such Amended Attachment A
shall be effective as of the date specified therein. The changes contained in
the Amended Attachment A shall include, without limitation, the following:
Covenant Covenant Requirement
-------- --------------------
(i) Revenue on an Annual Basis to Greater than 5.0:1.0 and equal to or
Working Capital less than 25.0:1.0
(ii) Net Profit after Tax to Revenue Equal to or greater than 0.10 percent
(iii) Tangible Net Worth Equal to or greater than $2.5 million
(iv) Debt Service Ratio Equal or greater than 2.0:1.0
(v) Debt to Equity (Total Debt to Equity) Equal to or less than 5.0:1.0
E. Attachment C to the Agreement is hereby and amended by deleting such
Attachment C in its entirety and substituting it, in lieu thereof, the
Attachment C attached hereto.
Section 5. Conditions to Effectiveness of Waiver. The waiver set forth in
Section 3 hereof shall become effective upon:
(a) the receipt by IBM Credit from Customer of this Waiver executed by Customer;
and
(b) the payment by Customer to IBM Credit of a waiver fee (the "Waiver Fee"),
payable in immediately available funds, in the amount of $80,000, by no later
than March 18, 2002. The Waiver Fee shall be nonrefundable and shall be in
addition to any other fees IBM Credit may charge customer.
Section 6. Rights and Remedies. Except to the extent specifically waived herein
IBM Credit reserves any and all rights and remedies that IBM Credit now has or
may have in the future with respect to Customer, including any and all rights or
remedies which it may have in the future as a result of Customer's failure to
comply with its financial covenants to IBM Credit. Except to the extent
specifically waived herein neither this Waiver, any of IBM Credit's actions or
IBM Credit's failure to act shall be deemed to be a waiver of any such rights or
remedies.
Section 7. Governing Law. This Waiver shall be governed by and interpreted in
accordance with the laws which govern the Agreement.
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Section 8. Counterparts. This Waiver may be executed in any number of
counterparts, each of which shall be an original and all of which shall
constitute one agreement.
IN WITNESS WHEREOF, this Waiver has been executed by duly authorized
representatives of the undersigned as of the day and year first above written.
IBM Credit Corporation Datatec Industries, Inc.
By:/s/ Xxxxxx X. Xxxxxxxx By: /s/ Xxxxx Xxxx
------------------------------------ ----------------------------------
Print Name: Xxxxxx X. Xxxxxxxx Print Name: Xxxxx Xxxx
--------------------------- --------------------------
Title:Manager Special Handling Title:Chairman & CEO
--------------------------------- -------------------------------
Date: 3/15/02 Date: 3/15/02
--------------------------------- -------------------------------
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SCHEDULE A
(A) Term Loan Commitment : Three Million Dollars ($3,000,000.00);
(B) Term Loan Finance Charge: Prime Rate plus 4.25%;
(C) Term Loan Minimum Draw Amount: No additional draws will be permitted;
(D) Term Loan Minimum Prepayment Amount: Two Hundred Fifty Thousand Dollars
($250,000.00);
(E) Term Loan Stated Maturity Date: February 28, 2003;
(F) Term Loan Finance Charges are due monthly and as set forth in Section 2.5
of the Agreement;
(G) Term Loan Principal Payment Schedule: as set forth in Section 2.4 (D) of
the Agreement.
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ATTACHMENT A, ("IWCF ATTACHMENT A") TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
DATED NOVEMBER 10, 2000
Customer Name: Datatec Systems, Inc.
Effective Date of this IWCF Attachment A: Xxxxx 00, 0000
X. FEES, RATES AND REPAYMENT TERMS:
(A) Credit Line: Sixteen Million Dollars ($16,000,000.00);
(B) Borrowing Base:
(i) 85% of the amount of the Customer's Eligible Accounts other than
Concentration Accounts as of the date of determination as reflected
in the Customer's most recent Collateral Management Report;
(ii) a percentage, determined from time to time by IBM Credit in its
sole discretion, of the amount of Customer's Concentration Accounts
for a specific Concentration Account Debtor as of the date of
determination as reflected in the Customer's most recent Collateral
Management Report; unless otherwise notified by IBM Credit, in
writing, the percentage for Concentration Accounts for a specific
Concentration Account Debtor shall be the same as the percentage set
forth in paragraph (i) of the Borrowing Base; provided that the
advance on Eligible Accounts from International Business Machines
Corporation as Concentration Account Debtor is 95%
(iii) 100% of the Customer's inventory in the Customer's possession
as of the date of determination as reflected in the Customer's most
recent Collateral Management Report constituting Products (other than
service parts) financed through a Product Advance by IBM Credit,
provided, however, IBM Credit has a first priority security interest
in such Products and such Products are new and in un-opened boxes.
The value to be assigned to such inventory shall be based upon the
Authorized Supplier's invoice price to Customer for Products net of
all applicable price reduction credits.
(iv) up to 35% of the value of Customer's inventory in the Customer's
possession as of the date of determination as reflected and
identified in the Customer's most recent Collateral Management Report
constituting Products designated by Customer as "Cable" and not
financed through a Product Advance by IBM Credit, provided, however,
IBM Credit has a first priority security interest in such Products
and such Products are new and in un-opened boxes. The value to be
assigned to such inventory shall be determined by commercially
reasonable methods, in IBM's sole discretion.
(v) up to 25% of the value of Customer's inventory in the Customer's
possession as of the date of determination as reflected in the
Customer's most recent Collateral Management Report constituting
Products not financed through a Product Advance by IBM Credit,
provided, however, IBM Credit has a first priority security interest
in such Products and such Products are new and in un-opened boxes.
The value to be assigned to such inventory shall be determined by
commercially reasonable methods, in IBM's sole discretion.
(C) Product Financing Charge: Prime Rate plus 0.25%
(D) Product Financing Period: 70 days
(E) Collateral Insurance Amount: Five Million Dollars ($5,000,000.00)
(F) AIR Finance Charge:
(i) PRO Advance Charge: Prime Rate plus 4.0%
(ii) WCO Advance Charge: Prime Rate plus 4.25%
(iii) Takeout Advance Charge: Prime Rate plus 0.25%
(G) Delinquency Fee Rate: Prime Rate plus 6.500%
(H) Shortfall Transaction Fee: Shortfall Amount multiplied by 0.30%
(I) Free Financing Period Exclusion Fee: Product Advance multiplied by 0.25%
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(J) Other Charges:
(i) Application Processing Fee: $25,000.00
(ii) Monthly Service Fee: $1,250.00 payable annually in one lump
sum of $15,000.00
(iii) Closing Fee: $50,000.00
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II. BANK ACCOUNT
Customer's Lockbox(es) and Special Account(s) will be maintained at the
following Bank(s):
Name of Bank:
Address:
Phone:
Lockbox Address:
Special Account #:
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Name of Bank:
Address:
Phone:
Lockbox Address:
Special Account #:
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Name of Bank:
Address:
Phone:
Lockbox Address:
Special Account #:
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Name of Bank:
Address:
Phone:
Lockbox Address:
Special Account #:
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III. FINANCIAL COVENANTS:
Definitions: The following terms shall have the following respective meanings in
this Attachment. All amounts shall be determined in accordance with generally
accepted accounting principles (GAAP).
"Consolidated Net Income" shall mean, for any period, the net income
(or loss), after taxes, of Customer on a consolidated basis for such
period determined in accordance with GAAP.
"Current" shall mean within the ongoing twelve month period.
"Current Assets" shall mean assets that are cash or expected to
become cash within the ongoing twelve months.
"Current Liabilities" shall mean payment obligations resulting from
past or current transactions that require settlement within the
ongoing twelve month period. All indebtedness to IBM Credit shall be
considered a Current Liability for purposes of determining
compliance with the Financial Covenants.
"EBITDA" shall mean, for any period (determined on a consolidated
basis in accordance with GAAP), (a) the Consolidated Net Income of
Customer for such period, plus (b) each of the following to the
extent reflected as an expense in the determination of such
Consolidated Net Income: (i) the Customer's provisions for taxes
based on income for such period; (ii) Interest Expense for such
period; and (iii) depreciation and amortization of tangible and
intangible assets of Customer for such period.
"Fixed Charges" shall mean, for any period, an amount equal to the
sum, without duplication, of the amounts for such as determined for
the Customer on a consolidated basis, of (i) scheduled repayments of
principal of all Indebtedness (as reduced by repayments thereon
previously made), (ii) Interest Expense, (iii) capital expenditures
(iv) dividends, (v) leasehold improvement expenditures and (vi) all
provisions for U.S. and non U.S. Federal, state and local taxes.
"Fixed Charge Coverage Ratio" shall mean the ratio as of the last
day of any fiscal period of (i) EBITDA as of the last day of such
fiscal period to (ii) Fixed Charges.
"Interest Expense" shall mean, for any period, the aggregate
consolidated interest expense of Customer during such period in
respect of Indebtedness determined on a consolidated basis in
accordance with GAAP, including, without limitation, amortization of
original issue discount on any Indebtedness and of all fees payable
in connection with the incurrence of such Indebtedness (to the
extent included in interest expense), the interest portion of any
deferred payment obligation and the interest component of any
capital lease obligations.
"Long Term" shall mean beyond the ongoing twelve month period.
"Long Term Assets" shall mean assets that take longer than a year to
be converted to cash. They are divided into four categories:
tangible assets, investments, intangibles and other.
"Long Term Debt" shall mean payment obligations of indebtedness
which mature more than twelve months from the date of determination,
or mature within twelve months from such date but are renewable or
extendible at the option of the debtor to a date more than twelve
months from the date of determination.
"Net Profit after Tax" shall mean Revenue plus all other income,
minus all costs, including applicable taxes.
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"Revenue" shall mean the monetary expression of the aggregate of
products or services transferred by an enterprise to its customers
for which said customers have paid or are obligated to pay, plus
other income as allowed.
"Subordinated Debt" shall mean Customer's indebtedness to third
parties as evidenced by an executed Notes Payable Subordination
Agreement in favor of IBM Credit.
"Tangible Net Worth" shall mean:
Total Net Worth minus;
(a) goodwill, organizational expenses, pre-paid expenses,
deferred charges, research and development expenses,
software development costs, leasehold expenses, trademarks,
trade names, copyrights, patents, patent applications,
privileges, franchises, licenses and rights in any thereof,
and other similar intangibles (but not including contract
rights) and other current and non-current assets as
identified in Customer's financial statements;
(b) all accounts receivable from employees, officers,
directors, stockholders and affiliates; and
(c) all callable/redeemable preferred stock.
"Total Assets" shall mean the total of Current Assets and Long Term
Assets.
"Total Liabilities" shall mean the Current Liabilities and Long Term
Debt less Subordinated Debt, resulting from past or current
transactions, that require settlement in the future.
"Total Net Worth" (the amount of owner's or stockholder's ownership
in an enterprise) is equal to Total Assets minus Total Liabilities.
"Working Capital" shall mean Current Assets minus Current
Liabilities.
Customer will be required to maintain the following financial ratios,
percentages and amounts as of the last day of the fiscal period under review by
IBM Credit:
Covenant Covenant Requirement
-------- --------------------
(i) Revenue on an Annual Basis to Working Greater than 5.0:1.0 and equal
Capital to or less than 25.0:1.0
(ii) Net Profit after Tax to Revenue Equal to or greater than 0.10
percent
(iii) Tangible Net Worth Equal to or greater than
$2.5 million
(iv) Debt Service Ratio Equal or greater than 2.0:1.0
(v) Debt to Equity (Total Debt to Equal to or less than 5.0:1.0
Equity)
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IV. ADDITIONAL CONDITIONS PRECEDENT PURSUANT TO SECTION 5.1 (J) OF THE
AGREEMENT:
o Executed Blocked Account Amendment;
o Executed Corporate Guaranty of Datatec Services, Inc.;
o Executed Corporate Guaranty of xXxxxxx.xxx, Inc.;
o Executed guaranty of any shareholder(s) owning ten (10) percent or
more of the equity of Customer. Customer shall cause guarantor(s)
to submit a personal financial statement upon the request of IBM
Credit;
o Executed Notes Payable Subordination Agreement in the amount of One
Million Three Hundred and Ninety Thousand Dollars ($1,390,000.00)
from Xxxxxxxxxxx Xxxxx;
o Fiscal year-end financial statements of Customer as of end of
Customer's prior fiscal year audited by an independent certified
public accountant;
o A Certificate of Location of Collateral whereby the Customer
certifies where Customer presently keeps or sells inventory,
equipment and other tangible Collateral;
o Subordination or Intercreditor Agreements from all creditors having
a lien which is superior to IBM Credit in any assets that IBM
Credit relies on to satisfy Customer's obligations to IBM Credit;
o Listing of all creditors providing accounts receivable financing to
Customer;
o A Collateral Management Report in the form of Attachment F as of
the Closing Date;
o A Compliance Certificate as to Customer's compliance with the
financial covenants set forth in Attachment A as of the last fiscal
month of Customer for which financial statements have been
published;
o An Opinion of Counsel substantially in the form and substance of
Attachment H whereby the Customer's counsel states his or her
opinion about the execution, delivery and performance of the
Agreement and other documents by the Customer;
o A Corporate Secretary's Certificate substantially in the form and
substance of Attachment I certifying to, among other items, the
resolutions of Customer's Board of Directors authorizing borrowing
by Customer;
o Termination or release of Uniform Commercial Code filing by another
creditor as required by IBM Credit;
o A copy of an all-risk insurance certificate pursuant to Section 7.8
(B) of the Agreement;
o Executed Letter of Direction;
o Executed Letter of Notification;
o Executed Acknowledgment of Payment and Termination from Finova;
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IWCF ATTACHMENT C
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
COMPLIANCE CERTIFICATE
TO: IBM CREDIT CORPORATION
______________________
______________________
The undersigned authorized officers of ____________________________
("Customer"), hereby certify on behalf of the Customer, with respect to the
Inventory and Working Capital Financing Agreement executed by and between
___________ and IBM Credit Corporation ("IBM Credit") on _________, 20__, as
amended from time to time (the "Agreement"), that (A) ______________ has been in
compliance for the period from _________, 20__ to ___________________, 20__ with
the financial covenants set forth in Attachment A to the Agreement, as
demonstrated below, and (B) no Default has occurred and is continuing as of the
date hereof, except, in either case, as set forth below. All capitalized terms
used herein and not otherwise defined shall have the meanings assigned to them
in the Agreement.
I. FINANCIAL COVENANTS:
COVENANT COVENANT REQUIREMENT COVENANT ACTUAL
-------- -------------------- ---------------
(i) Revenue on an Annual Basis Greater than 5.0:1.0 and equal
to Working Capital to or less than 25.0:1.0
(ii) Net Profit after Tax to Equal to or greater than 0.10
Revenue percent
(iii) Tangible Net Worth Equal to or greater than $2.5
million
(iv) Debt Service Ratio Equal or greater than 2.0:1.0
(v) Debt to Equity (Total Debt to Equal to or less than 5.0:1.0
Equity)
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IWCF ATTACHMENT C
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
(Continued)
II. CALCULATION OF TANGIBLE NET WORTH:
Total Assets MINUS Total Liabilities
LESS:
goodwill
organizational expenses
prepaid expenses
deferred charges, etc.
leasehold expenses
all other
callable/redeemable preferred stock
officer, employee, director, stockholder
and affiliate receivables
Total Tangible Net Worth
Attached hereto are Financial Statements as of and for the end of the fiscal
__________________ ended on the applicable date, as required by Section 7.1 of
the Inventory and Working Capital Financing Agreement.
Submitted by:
_______________________________
(Customer Name)
By:_____________________________
Print Name:_____________________
Title:__________________________
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