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 _02, 2001 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, 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 January 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 Tax to Revenue Equal to or Greater than Net Loss
0.0 percent
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,
notwithstanding any other conditions precedent contained herein:
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) Product Financing Charge is increased from Prime Rate plus 0.25%
to Prime Rate plus 3.00%;
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(b) WCO Advance Charge is increased from Prime Rate plus 0.25% to
Prime Rate plus 3.00%;
(c) PRO Advance Charge is increased from Prime Rate plus 0.25% to
Prime Rate plus 3.00%;
(d) Credit Line is decreased from Eighteen Million Dollars
($18,000,000.00) to Fourteen Million Dollars ($14,000,000.00);
(e) 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, fiscal Covenant
Requirement, fiscal quarters ending Requirement,
quarters ending October 2001 and fiscal
Covenant April/July 2001 thereafter quarters
---------- ------------------- ------------------- ending April
2002 and
----------
thereafter
----------
(i) Revenue on an Annual Basis Greater than Zero and Equal to or Greater than Zero and Equal to Greater than Zero and
to Working Capital Less than 25.0 :1.0 or Less than 25.0 :1.0 Equal to or Less than
25.0 :1.0
(ii) Net Profit after Tax to Equal to or Greater than 0.10 Equal to or Greater
Revenue percent than 0.10 percent
(iii) Tangible Net Worth Equal to or Greater than $2.5 Equal to or Greater
Million than $5.0 Million
B. Schedule A of the Agreement is hereby amended by increasing the
Term Loan Finance Charge from Prime Rate plus 0.75% to Prime Rate plus 3.50%.
C. Section 2.4. of the Agreement is hereby amended by deleting
2.4.(E) in its entirety and substituting in lieu thereof the following;
" (E) In the event of, and within three (3) days after (i) a public offering or
private placement of shares of Customer or any of Customer's subsidiaries or
(ii) an offering of public or private debt by Customer or any of Customer's
subsidiaries, Customer shall make a mandatory prepayment of $750,000 on the term
loan.
Section 5. Conditions to Effectiveness of Waiver. The waiver set forth in
Section 3 hereof shall become effective upon the receipt by IBM Credit from
Customer of:
(i) This Amendment executed by Customer;
(ii) A waiver fee, in immediately available funds, equal to Ninety Four Thousand
and Five Hundred Dollars ($94,500.00). Such waiver fee payable to IBM Credit
hereunder shall be nonrefundable and shall be in addition to any other fees IBM
Credit may charge Customer;
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(iii) An executed collateralized guaranty of Customer from its parent company,
Datatec Systems, Inc., in form and substance satisfactory to IBM Credit in its
sole discretion;
(iv) An executed collateralized guaranty of Customer from its affiliate,
X-Xxxxxx.xxx, Inc., in form and substance satisfactory to IBM Credit in its sole
discretion; and
Section 6. Additional Requirements.
(a) Customer hereby restates and affirms the provisions of Section
7.1.(C) of the Agreement that ~as soon as available and in any
event within thirty (30) days after the end of each fiscal month
of Customer, Customer shall provide; (i) Financial Statements as
of the end of such period and for the fiscal year to date,
together with a comparison to the Financial Statements for the
same periods in the prior year, all in reasonable detail and duly
certified (subject to normal year-end audit adjustments and except
for the absence of footnotes) by the chief executive officer or
chief financial officer of Customer as having been prepared in
accordance with GAAP; and (ii) a Compliance Certificate along with
a schedule, in substantially the form of Attachment C hereto, of
the calculations used in determining, as of the end of such fiscal
month, whether Customer is in compliance with the financial
covenants set forth in Attachment A;
(b) Customer shall provide to IBM Credit on the fifth and twentieth
day (or if such day is not a Business Day, on the following
Business Day) of each month a Collateral Management Report in form
and detail satisfactory to IBM Credit. Such Collateral Management
Report shall be as of a date no earlier than the last day of the
immediately preceding month or the fifteenth of the current month
respectively.
Section 7. 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 Credit's actions
or IBM Credit's failure to act shall be deemed to be a waiver of any such rights
or remedies.
Section 8. Governing Law. This Amendment shall be governed by and interpreted in
accordance with the laws which govern the Agreement.
Section 9. 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 Datatec Industries, Inc.
By: /s/ Xxxxxxx Xxxxx By: /s/ Xxxxx Xxxx
--------------------------------------- -------------------------------------
Print Name: Xxxxxxx Xxxxx Print Name: Xxxxx Xxxx
------------------------------- ------------------------------
Title: Region Credit Manager Title: Chairman of the Board/CEO
------------------------------------ ----------------------------------
ATTACHMENT A, ("IWCF ATTACHMENT A") TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
DATED ___________, ____
Customer Name: Datatec Industries, Inc.
Effective Date of this IWCF Attachment A: ______________, 20__
I. Fees, Rates and Repayment Terms:
(A) Credit Line: Fourteen Million Dollars ($14,000,000.00);
(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 3.00%
(D) Product Financing Period: 70 days
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(E) Collateral Insurance Amount: Five Million Dollars
($5,000,000.00)
(F) A/R Finance Charge:
(i) PRO Advance Charge: Prime Rate plus 3.00%
(ii) WCO Advance Charge: Prime Rate plus 3.00%
(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%
(J) Other Charges:
(i) Application Processing Fee: $25,000.00
(ii) Annual Renewal Fee: $20,000.00
(iii) Covenant Recasting Fee: $25,000.00
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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 #:
--------------------------------------------------------------------------------
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 #:
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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 (i.e. the current Greater than Zero and
fiscal year-to-date Revenue annualized) Equal to or Less than 25.0 :1.0
to Working Capital
(ii) Net Profit after Tax to Revenue Equal to or Greater than 0.10
percent effective quarter
ending 10/31/01 and thereafter
(iii) Minimum Tangible Net Worth Equal to or Greater than
$2,500 K by quarter ended
10/31/01 and $5,000 K
effective fye 4/30/02 and
thereafter
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IV. Additional Conditions Precedent Pursuant to Section 5.1 (J) of the
Agreement:
o Executed Blocked Account Amendment;
o Executed Collateralized Guaranty of Datatec Systems, Inc.;
o Executed Collateralized Guaranty of X-Xxxxxx.xxx, Inc.;
o Executed Corporate Guaranty of HH Communications, Inc.;
o Fiscal year-end financial statements of Datatec Systems, Inc. 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 A copy of an all-risk insurance certificate pursuant to Section 7.8 (B) of
the Agreement;
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IWCF ATTACHMENT B TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
Customer: Datatec Industries, Inc.
I. Liens:
II. Locations of Offices, Records and Inventory:
(A) Principal Place of Business and Chief
Executive Office:
(B) Locations of Assets, Inventory and Equipment
(including warehouses):
Location Leased (Y/N)
-------- ------------
III. Fictitious Names:
IV. Organization:
(A) Subsidiaries:
Name Jurisdiction Owner % Owned
---- ------------ ----- -------
(B) Affiliates:
Name Capacity
---- --------
V. Judgments:
VI. Environmental Matters:
VII. Indebtedness:
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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) Annualized Revenue Greater than Zero and
to Working Capital Equal to or Less than 25.0 :1.0
effective quarter ending
10/31/01 and thereafter
(ii) Net Profit after Tax Equal to or Greater than 0.10
to Revenue percent effective quarter
ending 10/31/01and thereafter
(iii) MinimumTangible Net Equal to or Greater than
Worth $2,500 K effective quarter
ending 10/31/01 and equal to
or greater than $5,000 K by
fiscal year ending 4/30/02
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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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