ACKNOWLEDGMENT, WAIVER AND AMENDMENT
TO
FINANCING AGREEMENT
This ACKNOWLEDGMENT, WAIVER AND AMENDMENT ("Amendment") TO THE INVENTORY
AND WORKING CAPITAL FINANCING AGREEMENT is made as of May 15, 2000 by and
between Information Technology Services, Inc., a New York corporation
("Customer"), and IBM Credit Corporation, a Delaware Corporation ("IBM Credit").
RECITALS:
WHEREAS, Customer and IBM Credit have entered into that certain Inventory
or Working Capital Financing Agreement dated as of September 24, 1996 (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, IBM Credit is willing to waive such defaults 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 March 31, 2000 and Customer was required to maintain such
financial covenants at all times. Customer further acknowledges its actual
attainment was as follows:
Covenant Covenant Requirement Covenant Actual
-------- -------------------- ---------------
(a) Revenue on an Annual Basis to Working Greater than Zero and
Capital Equal to or Less than 15.00:1.00 5.55:1.00
(b) Net Profit after Tax to Revenue Equal to or Greater than
$350,000 -$1,244,000
(c) Total Liabilities to Tangible Net Worth Greater than Zero and
Equal to or Less than 3.00:1.00 0.59:1.00
Section 3. Waivers to Agreement. IBM Credit hereby waives the defaults of
Customer with the terms of the Agreement to the extent such defaults are set
forth in Section 2 hereof.
Section 4. Amendment. The Agreement is hereby amended as follows:
A. Attachment A to the Agreement is hereby amended by deleting such Attachment A
in its entirety and substituting, in lieu thereof, the Attachment A attached
hereto. Such new Attachment A shall be effective as of the date specified in the
new Attachment A. The changes contained in the new Attachment A include, without
limitation, the following:
(a) A new sub-section (iv) under Borrowing Base:
(iv) Less an amount equal to twenty percent (20%) of outstandings
under the Credit Line at all times;
(b) Credit Line is decreased from Twenty-Seven Million Five Hundred
Thousand Dollars ($27,500,000) to Twenty-Two Million Five Hundred
Thousand Dollars ($22,500,000);
(c) Customer shall be required to maintain the following financial
percentage(s) and ratio(s) as of the last day of the fiscal period
under review by IBM Credit:
Covenant Covenant Requirement Covenant Requirement Covenant Requirement
-------- for the Fiscal Quarter For the Fiscal Quarter For the Fiscal Year
Ending 06/30/00 Ending 09/30/00 Ending 12/31/00 and at
--------------- --------------- all times thereafter
--------------------
(i) Revenue on an Greater than Zero and Equal Greater than Zero and Greater than Zero and
Annual Basis to to or Less than 15.00:1.00 Equal to or Less than Equal to or Less Than
Working Capital 15.00:1.00 15.00:1.00
(ii) Net Profit after Equal to or Greater than Equal to or Greater Equal to or Greater
Tax to Revenue -$500,000 than -$500,000 than $0
(iii) Total Liabilities to Greater than Zero and Equal Greater than Zero and Greater than Zero and
Tangible Net to or Less than 3.00:1.00 Equal to or Less than Equal to or Less than
Worth 3.00:1.00 3.00:1.00
Section 5. 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 Amendment, any of IBM's Credit's
actions or IBM's Credit's failure to act shall be deemed to be a waiver of any
such rights or remedies.
Section 6. Governing Law. This Amendment shall be governed by and interpreted in
accordance with the laws which govern the Agreement.
Section 7. Counterparts. This Amendment 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 Amendment has been executed by duly authorized
representatives of the undersigned as of the day and year first above written.
IBM CREDIT CORPORATION INFORMATION TECHNOLOGY SERVICES, INC.
By: /s/ Xxxx Xxxxx By: /s/ Xxxxxx X. Xxxxxxx
-------------- ---------------------
Print Name: Xxxx Xxxxx Print Name: Xxxxxx X. Xxxxxxx
Title: Region Loan Manager Title: VP - Finance/CFO
ATTACHMENT A, EFFECTIVE DATE APRIL 1, 2000 ("IWCF ATTACHMENT A")
TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT
("IWCF AGREEMENT")
DATED September 24, 1996
Customer: Information Technology Services, Inc.
I. Fees, Rates and Repayment Terms:
(A) Credit Line: Twenty-Two Million Five Hundred Thousand Dollars
($22,500,000.00)
(B) Borrowing Base:
(i) 85% of the amount of the Customer's Eligible 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;
Notwithstanding the terms of Section 3.1(W) of the Agreement,
Accounts arising from incentive payments, rebates, discounts and
refunds which are (i) verifiable by Authorized Suppliers; and
(ii) payable by Authorized Suppliers by check to the Lockbox will
be deemed to be Eligible Accounts.
(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 in new and in unopened 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) Less an amount equal to twenty percent (20%) of outstandings
under the credit line at all times;
(C) Product Financing Charge: Prime Rate
(D) Product Financing Period: 90 days
(E) Collateral Insurance Amount: Seven Million Dollars ($7,000,000.00)
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
I. Fees, Rates and Repayment Terms (continued):
(F) A/R Finance Charge:
(i) PRO Advance Charge: Prime Rate plus 0.25%
(ii) WCO 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 0.40%
(J) Other Charges:
(i) Application Processing Fee: $__N/A ___.00
(ii) Monthly Service Fee: $ ____1,500.00
(iii) Closing Fee: $__N/A ___.00
(iv) Commitment Fee: $__N/A ___.00
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
II. Bank Account
(A) Customer's Lockbox(es) and Special Account(s) will be maintained at the
following Bank(s):
Name of Bank: The Chase Manhattan Bank
Address: 0 Xxxxx Xxxxxxxxx Xxxxx
Xxx Xxxx, XX 00000
Phone: (000) 000-0000
Lockbox Address:
Special Account #: 000-0-000000
Name of Bank:
Address:
Phone:
Lockbox Address:
Special Account #:
Name of Bank:
Address:
Phone:
Lockbox Address:
Special Account #:
Name of Bank:
Address:
Phone:
Lockbox Address:
Special Account #:
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants:
Definitions: The following terms shall have the following respective meanings in
this Attachment A. 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.
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants (continued):
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 or 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 into 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.
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.
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants (continued):
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 defined in Customer's
financial statements; and
(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.
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants (continued):
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:
(a) Revenue on an annual basis (i.e., the current fiscal year-to-date
Revenue annualized) to Working Capital ratio greater than zero and
equal to or less than 15.0:1.0;
(b) Net Profit after Tax equal to or greater than:
- Negative Five Hundred Thousand Dollars (-$500,000.00) for the
quarterly period ending June 30, 2000;
- Negative Five Hundred Thousand Dollars (-$500,000.00) for the
quarterly period ending September 30, 2000;
- Zero for each quarter thereafter;
(c) Total Liabilities to Tangible Net Worth ratio greater than zero and
equal to or less than 3.0:1.0.
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
IV. Additional Conditions Precedent Pursuant to Section 5.1(K) of the
Agreement:
THIS STATEMENT AND ANY OF THE FOLLOWING DOCUMENTS THAT DO NOT APPLY MUST BE
DELETED.
- Executed Contingent Blocked Account Amendment;
- Executed Corporate Guaranty of Syscomm International, Inc.;
- 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;
- 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;
- A copy of an all-risk insurance certificate pursuant to Section 7.8
(B) of the Agreement.
