FIRST AMENDMENT AGREEMENT
Exhibit 10.1
THIS FIRST AMENDMENT AGREEMENT (this “First Amendment Agreement”) is dated as of September 9,
2005 by and among (i) VALERENT, INC., a Delaware corporation (“Valerent”), (ii) INTERNETWORK
EXPERTS, INC., a Delaware corporation (“Internetwork Experts”), (iii) I-SECTOR CORPORATION, a
Delaware corporation (“I-Sector”), and (iv) STRATASOFT, INC., a Texas corporation (“Stratasoft;”
Valerent, Internetwork Experts, I-Sector, and Stratasoft are referred to herein, individually and
collectively, as the case may be, as “Borrower”), and (v) TEXTRON FINANCIAL CORPORATION, a Delaware
corporation (”TEXTRON”).
Recitals
A. Borrower, ISECOLDSUB, INC., a Delaware corporation (“Isecoldsub”), and TEXTRON entered into
that certain Loan and Security Agreement, dated September 30, 2004 (as amended prior to the date on
which this First Amendment Agreement becomes effective, said Loan and Security Agreement is
referred to herein as the “Existing LSA” and, after giving effect to this First Amendment
Agreement, as the “Amended LSA” and the Schedule attached to the Existing LSA is referred to herein
as the “Existing Schedule” and, after giving effect to this First Amendment Agreement, as the
“Amended Schedule”) pursuant to which TEXTRON extended to Borrower a $25,000,000 secured credit
facility for floorplan financing.
B. Borrower has requested TEXTRON (i) to extend to it a multiple advance working capital
credit facility in the maximum amount of $4,000,000, (ii) to permit the extension of revolving
credit loans up to a maximum sublimit of $10,000,000 on the terms and conditions set forth below
under the Existing LSA, and (iii) to make the other changes set forth below to the Existing LSA,
the Existing Schedule and the existing Loan Documents (as such term is defined in the Existing LSA;
such existing Loan Documents are referred to herein as the “Existing Loan Documents” and, as
amended hereby, are referred to herein as the “Amended Loan Documents”).
C. Isecoldsub has been dissolved and Borrower requests that it be discharged and released from
any and all of its obligations under the Existing LSA.
D. Borrower and TEXTRON have agreed to amend the Existing LSA, the Existing Schedule and the
Existing Loan Documents on the terms and conditions as set forth below in this First Amendment
Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and other good and valuable
consideration, the receipt, adequacy, and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
1. Definitions. Capitalized terms used herein and not defined herein shall have the
meanings assigned to such terms in the Existing LSA. The Recitals to this Agreement are fully
incorporated herein by this reference thereto.
2. Discharge of Isecoldsub. Isecoldsub is hereby released and discharged from all of its
duties and obligations under the Existing LSA and Existing Schedule. The term “Borrower” in the
Existing LSA and the Existing Schedule and the other Loan Documents shall exclude Isecoldsub. The
name of Isecoldsub on the cover page of the Existing LSA and the cover page of the Existing
Schedule is hereby removed and deleted. The Borrowers hereby reconfirm their joint and several
obligations under the Existing LSA, the Existing Schedule, the Amended LSA
1
and the Amended Schedule notwithstanding the discharge and release of Isecoldsub therefrom as
provided for herein.
3. New Definitions. The following new or existing definitions are hereby added or amended
and restated, as the case may be, to or in respect of Section 1 of the Existing LSA such that the
alphabetical ordering of such defined terms is preserved:
“Deposit Accounts” has the meaning set forth in Section 9-102 of the Code.
“Earnings Before Taxes, Interest, Depreciation and Amortization” (“EBITDA”) with
respect to any period means consolidated net income of Borrower for such period determined
in accordance with GAAP plus all income taxes, interest expenses and depreciation and
amortization charges and non-cash charges or non-recurring charges previously approved by
Textron deducted in the computation thereof.”
“2005 Facility” means that certain Multiple Loan and Security Agreement between
Borrowers and TEXTRON dated as of September 9, 2005, as amended from time to time.
4. Intentionally Omitted.
5. Intentionally Omitted.
6. Existing Schedule — Second Paragraph. The second paragraph on the first page of the
Existing Schedule is amended and restated in its entirety as follows:
The only facility being extended by TEXTRON to the Borrowers hereunder is a Revolving
Credit Loan and Floorplan Loan facility as described below. To the extent that any term or
provision in the Loan and Security Agreement to which this Schedule is attached is
inconsistent with any term or provision in this Schedule, the term or provision in this
Schedule shall govern.
7. Existing Schedule — Definition of Eligible Receivables. The definition of “Eligible
Receivable” in the Existing Schedule is amended and restated in its entirety as follows:
“Eligible Receivables” means Receivables arising in the ordinary course of
Borrower’s business from the sale of goods or rendition of services, which TEXTRON, in its
Permitted Discretion, shall deem eligible based on such considerations as TEXTRON may from
time to time deem appropriate. Without limiting the foregoing, (a) no Receivable shall
qualify as an Eligible Receivable if (i) the account debtor has failed to pay the
Receivable within a period of ninety (90) days after invoice date, to the extent of any
amount remaining unpaid after such period; (ii) the account debtor has failed to pay more
than the percentage specified below (“Cross-Age Percentage”) of all other outstanding
Receivables owed by it to Borrower within ninety (90) days after invoice date in respect
thereof; (iii) the account debtor is an Affiliate of Borrower; (iv) the Borrower is not the
lawful and unconditional owner of the Receivable; (v) the goods relating thereto are placed
on consignment, guaranteed sale, “xxxx and hold,” “COD” or other terms pursuant to which
payment by the account debtor may be conditional; (vi) the account debtor is not located in
the United States or Canada, unless the Receivable is supported by a letter of credit,
credit insurance, or other form of guaranty or security, in each case in form and substance
satisfactory to TEXTRON; (vii) the account debtor is the
2
United States of America or any state, city, municipality, or other political
subdivision thereof, or any department, agency or instrumentality thereof, unless the
provisions of the applicable Assignment of Claims Act has been complied with,; (viii)
Borrower is or may become liable to the account debtor for goods sold or services rendered
by the account debtor to Borrower; (ix) the account debtor’s total obligations to Borrower
exceed the percentage specified below (“Concentration Limit”) of all Eligible Receivables,
to the extent of such excess; (x) the account debtor disputes liability or makes any claim
with respect thereto (up to the amount of such liability or claim), or is subject to any
insolvency or bankruptcy proceeding, or becomes insolvent, fails or goes out of a material
portion of its business; (xi) the amount thereof consists of late charges or finance
charges; (xii) the amount thereof consists of a credit balance more than ninety (90) days
after invoice date; (xiii) the face amount thereof exceeds the amount specified below
(“Proof of Shipment Threshold”), unless accompanied by evidence of shipment of the goods
relating thereto satisfactory to TEXTRON in its Permitted Discretion; (xiv) the invoice in
respect of such Receivable constitutes a progress billing on a project not yet completed,
except that the final billing at such time as the matter has been completed and delivered
to the customer may be deemed an Eligible Receivable and except that any progress or
interim billing may be deemed an Eligible Receivable if the customer has agreed in writing
to accept and pay specific interim percentage invoices; or (xv) the amount thereof is not
yet represented by an invoice or xxxx issued in the name of the applicable account debtor
and (b) no DISD Receivable shall qualify as an Eligible Receivable.
| (i) | Cross-Age Percentage: | 50% | ||||
| (ii) | Concentration Limit: | 25% | ||||
| (iii) | Proof of Shipment Threshold: | $100,000 and all invoices dated the last day of each month |
8. Existing Schedule — Definition of Minimum Working Capital. The definition of “Minimum
Working Capital” in the Existing LSA is amended and restated in its entirety as follows:
“Minimum Working Capital” at any date means an amount equal to (i) the sum of
the amount at which Borrower’s cash, Receivables and Inventory (calculated at the lower of
cost or market and determined on a first-in, first-out basis) would be shown on a
consolidated balance sheet of Borrower at such date prepared in accordance with GAAP,
provided that amounts due from Affiliates shall be excluded therefrom,
minus (ii) Adjusted Current Liabilities (as defined below in this definition) at
such date determined on a consolidated basis. “Adjusted Current Liabilities” for this
definition shall mean at any time the sum of the Credit Loans (as defined in the 2005
Facility), acounts payable, Revolving Credit Loans and Floorplan Loans payable, current
portion of long term notes payable, accrued expenses (less Stratasoft warranty reserves),
all as would be shown on a consolidated balance sheet of the Borrowers prepared in
accordance with GAAP.
3
9. Existing Schedule — Definition of Total Liabilities. The definition of “Total
Liabilities” in the Existing LSA is amended and restated in its entirety as follows:
“Total Liabilities” at any date means all accounts payable, all short-term and
long-term notes payable, loans and bonds (including, without limitation, the Credit Loans
(as defined in the 2005 Facility), the Revolving Credit Loans and Floorplan Loans but
excluding all Subordinated Debt of Borrower) and all accrued expenses and payables and all
payables as a result of discontinued operations, all determined on a consolidated basis in
accordance with GAAP.
10. Existing Schedule — Total Facility (Section 2.1): Total Facility (Section 2.1) of the
Existing Schedule is amended and restated in its entirety as follows:
Twenty-Five Million Dollars ($25,000,000), provided that the Total Facility shall
never exceed the “Borrowing Limit” as provided for under NEGATIVE COVENANTS (Section 6.2)
below and provided that the Total Facility shall be reduced on a dollar-for-dollar basis
for all outstanding principal under the 2005 Facility and all Loan Reserves (as defined in
the 2005 Facility) under the 2005 Facility.
11. Existing Schedule — Loans (Section 2.2): Loans (Section 2.2) of the Existing Schedule
is amended and restated in its entirety as follows:
Revolving Credit Loans: A working capital revolving line of credit is being
extended to Borrower (each loan under such working capital revolving line of credit is
referred to, individually, as a “Revolving Credit Loan” and, collectively, as the
“Revolving Credit Loans”) in an aggregate outstanding principal amount not to exceed
$10,000,000. No individual Revolving Credit Loan shall exceed at the time of the extension
thereof the lesser of (a) and (b) below:
(a) the remainder of (1) $10,000,000, minus (2) the aggregate outstanding
principal balance of Revolving Credit Loans previously extended to Borrower
together with Loan Reserves minus (3) the Credit Loans (as defined in the 2005
Facility) and Loan Reserves (as defined in the 2005 Facility) under the 2005
Facility; or
(b) the remainder of (1) the Total Facility, minus (2) the aggregate
outstanding principal balance of Floorplan Loans previously extended to Borrower,
minus (3) the aggregate outstanding principal balance of Revolving Credit Loans
previously extended to Borrower, minus (4) the aggregate amount of all Loan
Reserves, minus (5) 100% of the aggregate amount of all open approvals (based on
prices to be invoiced to Borrower) given by TEXTRON in its sole discretion to any
one or more manufacturers of Floorplanned Inventory other than Cisco Systems, Inc.
in respect of the acquisition by Borrower from such manufacturer or manufacturers
of Floorplanned Inventory, minus (6) 50% of the aggregate amount of open approvals
(based on prices to be invoiced to Borrower) given by TEXTRON in its sole
discretion to Cisco Systems, Inc. in respect of the acquisition by Borrower from
Cisco Systems, Inc. of Floorplanned Inventory.
The aggregate principal amount of all Revolving Credit Loans made to or for the
benefit of Borrower (including all Loan Reserves) shall not exceed at any time the lesser
4
of (1) $10,000,000 minus the Credit Loans (as defined in the 2005 Facility) and Loan
Reserves (as defined in the 2005 Facility) under the 2005 Facility or (2) the Total
Facility, minus the aggregate principal amount of all Floorplan Loans made to or for the
benefit of Borrower (including the sum of (A) 100% of the aggregate amount of all open
approvals (based on prices to be invoiced to Borrower) given by TEXTRON in its sole
discretion to any one or more manufacturers of Floorplanned Inventory other than Cisco
Systems, Inc. in respect of the acquisition by Borrower from such manufacturer or
manufacturers of Floorplanned Inventory, plus (B) 50% of the aggregate amount of all open
approvals (based on prices to be invoiced to Borrower) given by TEXTRON in its sole
discretion to Cisco Systems, Inc. in respect of the acquisition by Borrower from Cisco
Systems, Inc. of Floorplanned Inventory and outstanding at such time).
The availability of Revolving Credit Loans is subject to Operational Condition No. 6
below.
Floorplan Loans: A floorplan line of credit is being extended to Borrower
consisting of loans against (i) Floorplanned Inventory not constituting DISD Inventory and
(ii) Floorplanned Inventory consisting of DISD Inventory that qualifies as Eligible
Inventory payable as provided below (collectively “Floorplan Loans”) in an aggregate
principal amount not to exceed at any time the Total Facility. No individual Floorplan Loan
shall exceed at the time of the extension thereof the lesser of (a) and (b) below:
(a) one hundred percent (100%) of the manufacturer’s invoice price for the
Floorplanned Inventory or Eligible Inventory, as the case may be, in respect
thereof; or
(b) the remainder of (1) the Total Facility, minus (2) the aggregate
outstanding principal balance of Floorplan Loans previously extended to Borrower,
minus (3) the aggregate outstanding principal balance of Revolving Credit Loans
previously extended to Borrower, minus (4) the aggregate amount
of all Loan Reserves, minus (5) 100% of the aggregate amount of all open approvals
(based on prices to be invoiced to Borrower) given by TEXTRON in its sole
discretion to any one or more manufacturers of Floorplanned Inventory other than
Cisco Systems, Inc. in respect of the acquisition by Borrower from such
manufacturer or manufacturers of Floorplanned Inventory, minus (6) 50% of the
aggregate amount of open approvals (based on prices to be invoiced to Borrower)
given by TEXTRON in its sole discretion to Cisco Systems, Inc. in respect of the
acquisition by Borrower from Cisco Systems, Inc. of Floorplanned Inventory.
The aggregate principal amount of all Floorplan Loans made to or for the benefit of
Borrower (including the sum of (A) 100% of the aggregate amount of all open approvals
(based on prices to be invoiced to Borrower) given by TEXTRON in its sole discretion to any
one or more manufacturers of Floorplanned Inventory other than Cisco Systems, Inc. in
respect of the acquisition by Borrower from such manufacturer or manufacturers of
Floorplanned Inventory, plus (B) 50% of the aggregate amount of all open approvals (based
on prices to be invoiced to Borrower) given by TEXTRON in its sole discretion to Cisco
Systems, Inc. in respect of the acquisition by Borrower from Cisco Systems, Inc. of
Floorplanned Inventory and outstanding at such time) shall not exceed at any time the
remainder of (1) the Total Facility minus (2) aggregate
5
outstanding principal amount of the Revolving Credit Loans and the Loan Reserves (said
remainder is sometimes also referred to herein as the “Maximum Floorplan Amount”).
Without in any way limiting TEXTRON’s full discretion in granting or not granting
approvals to Cisco Systems, Inc., as contemplated above, Borrower acknowledges and agrees
that the aggregate amount of all such open approvals will not exceed $20,000,000 unless
TEXTRON expressly consents to the same in writing.
No Floorplan Loans shall be made against Eligible Inventory consisting of DISD
Inventory at such time as Borrower’s undertakings in respect of E-rate Year 6 under the
Master DISD Contract have been fully performed or if, after giving effect thereto, the
Borrowing Limit under NEGATIVE COVENANTS (SECTION 6.2) below would be breached. No
Revolving Credit Loans shall be made if, after giving effect thereto, the Borrowing Limit
under NEGATIVE COVENANTS (SECTION 6.2) below would be breached. No Revolving Credit Loans
will be made against any DISD Receivables. No Floorplan Loans shall be made against
Eligible Inventory consisting of DISD Inventory after September 9, 2005.
The reference in Section 2.3(b) of the Loan and Security Agreement to “approvals given
by TEXTRON to a manufacturer or vendor of Floorplanned Inventory” shall have the meaning
set forth above with respect to open approvals given to manufacturers other than Cisco
Systems, Inc. and open approvals given to Cisco Systems, Inc.
All collections received on any DISD Receivables on and after the Closing Date shall
be applied to the outstanding principal balance of the Credit Loans (as defined in the 2005
Facility), to cash collateralize all Loan Reserves (as defined in the 2005 Facility) under
the 2005 Facility and to any other Obligations under the 2005 Facility (other than
Obligations arising under this Loan and Security Agreement) and then will be applied to the
outstanding Obligations hereunder. All other proceeds of Collateral will be applied first
to the outstanding Obligations under and as defined in this Loan and Security Agreement and
then to the outstanding Obligations under the 2005 Facility.
12. Existing Schedule — Interest and Fees (Section 2.6 and 2.7): Interest and Fees
(Section 2.6 and 2.7) of the Existing Schedule is amended and restated in its entirety as follows:
Interest Rate:
Revolving Interest Rate. Borrower shall pay TEXTRON interest on the daily
outstanding balance of Borrower’s Revolving Credit Loans at a per annum rate one-half
of one percentage point (0.50%) in excess of the Base Rate (“Revolving Interest Rate”).
Floorplan Credit Line Interest. Amounts financed under the Floorplan Credit
Line in respect of Floorplanned Inventory shall not accrue interest until the
expiration of any manufacturer interest free period and thereafter shall bear interest
at the per annum rate of one-half (0.5%) percent in excess of the Base Rate until
maturity. Interest shall be due and payable on demand and accrued and unpaid interest
in respect of each Floorplan Loan shall be due and payable, in any case, on the
maturity date thereof. All Floorplan Loans shall mature and be due and payable sixty
(60) days from the date made or such earlier date as provided for in Exhibit A to this
6
Agreement, provided that TEXTRON may increase or decrease such maturity date so as to
conform it to TEXTRON’s common due date program of the 1st, 10th
and 20th day of each month; in any case, such maturity date may be extended
as provided for below or as provided for in Section 2.10(a) of this Agreement.
Interest on any amount past due under the Floorplan Credit Line pursuant to Section
2.6(b) shall accrue from the maturity date or any extended maturity date in respect
thereof at a per annum rate of four percent (4.0%) in excess of the Base Rate. The
Borrower may ask for an extension of any aforesaid maturity date for a maximum of 30
days subject to TEXTRON’s review of Borrower’s collateral reports and its
determination, in its PERMITTED DISCRETION, that sufficient collateral coverage exists
for any such extension. If TEXTRON shall permit such extension, interest shall accrue
on any Obligations in respect of such Floorplan Loan at the rate of two and one-half
(2.5%) percent in excess of the Base Rate (on the average daily balance of such Loan)
until the extended maturity date with respect thereto. Thereafter, interest shall
accrue on such Floorplan Loan at a per annum rate of four percent (4.0%) in excess of
the Base Rate.
Floating Rate. In all applications, unless a fixed interest rate is specified,
the interest rate chargeable hereunder shall be increased or decreased as the case may
be, without notice or demand of any kind, upon the announcement of any change in the
Base Rate. Each change in the Base Rate shall be effective immediately. In all
applications unless specified otherwise, interest charges and all other fees and
charges shall be computed on the basis of a year of 360 days and actual days elapsed
and shall be payable to TEXTRON in arrears on the first Business Day of each month.
Default Interest Rate on Revolving Credit Loans. Base Rate plus four
percentage points (4%).
TEXTRON Right to Vary Terms. From time to time TEXTRON may offer different
terms to Borrower after notice with respect to the Revolving Credit Loans and/or
Floorplan Loans. Such terms will become effective at the end of any notice period in
respect thereof provided by TEXTRON. Borrower will receive from TEXTRON weekly
transaction confirmations and monthly statements which will reflect all applicable
terms.
Amount of Fees:
Examination Fee. Borrower shall pay TEXTRON an examination fee equal to the
actual fees and costs and expenses accrued by the field examiners (the“Examination
Fee”), which shall be deemed fully earned on the date such payment is due.
13. Existing Schedule — Insurance (Section 3.4); States Qualified to be Business (Section
5.1); Existing Locations (Section 5.16): Insurance (Section 3.4) of the Existing Schedule is
amended and restated in its entirety as follows:
Insurance required in the amount equal to the amount of Inventory and other assets
listed on the most recent quarterly financial report of Borrower but, to the extent that
inventory and asset levels of Borrower exceed such amount (on a consistent basis as
determined by TEXTRON in its sole discretion), the insurance shall be increased to amounts
sufficient to cover the higher inventory levels.
7
States qualified to be business (Section 5.1) of the Existing Schedule is amended and
restated in its entirety as follows:
States Qualified to Do Business (Section 5.1):
All Borrowers — Texas
InterNetwork Experts, Inc. — New Mexico, Oregon and Washington
InterNetwork Experts, Inc. — New Mexico, Oregon and Washington
Locations (Section 5.16) of the Existing Schedule is amended and restated in its entirety as
follows:
| Locations (Section 5.16): | ||
| 0000 Xxxxxxxxx Xxxxxxx | ||
| Xxxxxxx, XX 00000 | ||
| 0000 Xxxxxxx Xxxxx, Xxxxx 000 | ||
| Xxxxxxxxxx, XX 00000 (Sales Office) | ||
| 000 Xxxxxxxxx Xxxx, Xxxxx 000 | ||
| Xxxxxxxxxxx, XX 00000 | ||
| 0000 Xxxxxx Xxxx | ||
| Xxxxxx, Xx 00000 (San Antonio, TX Sales Office) |
||
| (Austin , TX Sales Office) | ||
| (Portland, OR Sales Office) | ||
| (Seattle, WA Sales Office) | ||
| (Canada Sales Office) |
14. Existing Schedule — Affirmative Covenants (Section 6.1): Under Financial
Covenants (Section 6.1.13) of Affirmative Covenants (Section 6.1) of the Existing Schedule, the
following covenants are amended and restated in their entirety:
Current Ratio. Borrower shall maintain a ratio of Current Assets to
Current Liabilities (each determined on a consolidated basis under GAAP) of not
less than 1.25 to 1.0 as of the end of each fiscal quarter occurring after the
Closing Date except that Borrower shall maintain a ratio of Current Assets to
Current Liabilities (each determined on a consolidated basis under GAAP) of not
less than 1.15 to 1.0 for, but only for, the fiscal quarter ending on September
30, 2005.
Minimum Tangible Capital Funds. Borrower shall have maintained Tangible
Capital Funds of not less than Two Million Two Hundred Thousand Dollars
($2,200,000) as of the end of each fiscal quarter occurring prior to the Closing
Date. Borrower shall maintain Tangible Capital Funds of not less than Nine Million
Five Hundred Thousand Dollars ($9,500,000) as of the end of each fiscal quarter
occurring from and after the Closing Date and prior to September 30, 2005.
Borrower shall maintain Tangible Capital Funds of not less than Ten Million Five
Hundred Thousand Dollars ($10,500,000) as of the end of each fiscal quarter
occurring on and after September 30, 2005.
8
EBITDA. Borrower shall, for each fiscal quarter ending after the Closing
Date and on or prior to September 30, 2005, cause Earnings Before Interest Taxes
Depreciation and Amortization determined for such fiscal quarter to exceed
$100,000. Borrower shall, for each fiscal quarter ending after September 30, 2005,
cause Earnings Before Interest Taxes Depreciation and Amortization determined for
such fiscal quarter to exceed $300,000.
The “Minimum Cash on Hand” covenant is deleted.
Accounts. Borrower shall not transfer or move its depository, operating
and investment accounts from Amegy Bank National Association without the prior
written consent of TEXTRON (which consent will not unreasonably be withheld) and it
shall maintain not less than 85% of its cash and other liquid assets in such
accounts. Borrower shall deliver account control agreements in form and substance
acceptable to Lender from each financial institution at which Borrower maintains an
account (including, without limitation, Amegy Bank National Association). As
contemplated in Section 2.10(c) of this Agreement, each Borrower will direct and
otherwise cause all of its Receivables to be paid into the Blocked Account or
pursuant to the Dominion of Funds Agreement referred to below.
15. Existing Schedule — Negative Covenants (Section 6.2): Affiliate Transaction and
Borrowing Limit under Negative Covenants (Section 6.2) of the Existing Schedule are amended and
restated in its entirety as follows:
Affiliate Transaction (6.2.12): The Borrower leases office space from Allstar
Equites, Inc., a Texas corporation (“Equities”), a company wholly-owned by Xxxxx Xxxx. The
current lease was executed on February 1, 2002, has an expiration date of January 31, 2007
and has rental rates of $37,000 per month.
Borrowing Limit The aggregate outstanding principal amount of all Credit
Loans (as defined in the 2005 Facility), Revolving Credit Loans and Floorplan Loans shall
not, at any time, exceed the sum of
(a) 30% of the aggregate net invoice prices of all Eligible DISD Receivables
(as defined in the 2005 Facility), provided that upon the later of the payment in
full of all obligations in respect of the 2005 Facility or the termination of the
2005 Facility, this subclause (a) shall be deemed to be $0, plus
(b) 80% of the aggregate net invoice prices of all Eligible Receivables plus
(c) (i) for so long as the Borrower is discharging its undertakings in respect
of the Master DISD Contract or any DISD Receivable is owing to it, 90% of the
invoice price of (1) all Floorplanned Inventory and (2) all DISD Inventory that is
Eligible Inventory, provided that the sum of the amounts in clauses (1) and (2)
above shall be limited to the lesser of $10,000,000 or 35% of the net invoice
prices of all outstanding Eligible Receivables and (ii) after the Borrower has
discharged its undertakings in respect of the Master DISD Contract and all DISD
Receivables owing to it have been paid, the least of (1) 90% of the invoice price
9
of all Floorplanned Inventory, (2) 35% of the net invoice prices of all
outstanding Eligible Receivables and (3) $10,000,000. Borrower shall, within two
(2) Business Days of the aggregate outstanding principal amount of the Credit Loans
(as defined in the 2005 Facility), Floorplan Loans and Revolving Credit Loans
exceeding at any time the aforesaid sum, prepay the Credit Loans, the Floorplan
Loans and/or the Revolving Credit Loans in an aggregate principal amount sufficient
so that this covenant shall not be violated.
Clause (x) of the definition of “Floorplan Collateral Coverage Reconciliation” in this
Agreement shall be determined as provided for in clause (b) above.
16. Existing Schedule — Default and Remedies (Section 7): Additional Events of Default are
added to “Default and Remedies (Section 7)” of the Existing Schedule as set forth below:
Material Adverse Change. If any DISD Receivables are reduced or disallowed in any
amount by the DISD and/or USAC (other than any reductions or disallowances that are made in the
ordinary course of business and in amounts and for reasons that are consistent with past Master
DISD Contract practices and procedures).
2005 Facility. Any Event of Default (as defined in the 2005 Facility) shall exist or any
event shall exist which, with the lapse of time or giving of notice or both, could become an “Event
of Default” under the 2005 Facility.
All Events of Default set forth in the Existing Schedule, as amended hereby, are added to Section 7
of the Existing LSA.
17. Existing Schedule — Term (Section 9.2(a)): Term (Section 9.2(a)) of the Existing
Schedule is amended and restated in its entirety as set forth below:
TERM (SECTION 9.2(a)):
Subject to the following paragraphs, the term of this Agreement shall be two (2) years
(the “Term”) and shall terminate on September 9, 2007, unless terminated earlier as
provided in Section 7 or 9.2 of this Agreement.
The Floorplan Facility set forth in LOANS (Section 2.2) above is fully discretionary on the
part of TEXTRON and is not and does not constitute a committed line of credit or other
committed facility. TEXTRON may cease making Floorplan Loans hereunder in its sole
discretion at any time. All Floorplan Loans will mature hereunder as provided for in
INTEREST AND FEES (SECTION 2.6 and 2.7) above. For the avoidance of doubt, if the
Floorplan Facility shall have not been previously terminated, as provided above and in this
Agreement, it shall terminate at the end of the Term (without the need of any action on
the part of TEXTRON or any other Person) and all Obligations in respect of the Floorplan
Loans (including, without limitation, all principal, accrued and unpaid interest and fees
and expenses) shall immediately become due and payable.
The Revolving Credit Facility set forth in Loans (Section 2.2) above shall terminate at the
end of the Term (without the need of any action on the part of TEXTRON or any other Person)
and all Obligations in respect of the Revolving Credit Loans (including, without
limitation, all principal, accrued and unpaid interest and fees and expenses) shall
immediately become due and payable.
10
18. Existing Schedule — Termination Fee (Section 9.2(d)): Termination Fee (Section
9.2(d)) of the Existing Schedule is amended and restated in its entirety as set forth below:
TERMINATION FEE (Section 9.2 (d)):
Intentionally Omitted.
19. Existing Schedule — Disbursement (Section 9.11): Disbursement (Section 9.11) of the
Existing Schedule is amended and restated in its entirety as set forth below:
DISBURSEMENT (SECTION 9.11):
Unless and until Borrower otherwise directs TEXTRON in writing, all Revolving Credit Loans
shall be wired to Borrower’s following operating account:
Amegy Bank National Association, Five Post Oak Park, 0000 Xxxx Xxx Xxxxxxx, Xxxxxxx, Xxxxx
00000 and deposit account # 0000000.
20. Existing Schedule — Operational Conditions: Operational Conditions of the Existing
Schedule are amended and restated in its entirety as set forth below:
Operational Conditions
| 1. | Collateral Audits to be performed every calendar quarter. | |||||
| 2. | Covenants to be monitored on a quarterly basis. | |||||
| 3. | Certificate of Corporate Borrowing Resolution on each of the Borrowers. | |||||
| 4. | First priority broad lien and UCC filing on all Collateral of Borrowers (excluding Stratasoft Patents with respect to which there is a senior secured party). | |||||
| 5. | Evidence of casualty insurance in an amount equal to the inventory and other assets shown on the most recent fiscal quarterly balance sheet with a lenders loss payable endorsement favoring TEXTRON. | |||||
| 6. | No Revolving Credit Loan shall be made unless and until the Borrower, TEXTRON and Amegy Bank National Association have entered into a lockbox agreement (providing for, among other things, the establishment of a post office lockbox and lockbox depository account) and blocked account agreement in respect of the lockbox depository account which are in form and substance satisfactory to TEXTRON. | |||||
| 7. | Said lockbox agreement and said blocked account agreement shall, among other things, provide for the following: Borrower shall not at any time have access to the post office lockbox (only Amegy Bank National Association shall have access to such post office lockbox) and Borrower shall not have access to or the right to remove funds from the lockbox depository account (and Amegy Bank National Association will not deliver such funds to Borrower but rather to TEXTRON pursuant to wire instructions received from TEXTRON). | |||||
| 8. | Subordination of all debt of Borrower held by shareholders (other than shareholders holding publicly traded stock of I-Sector Corporation). |
11
| 9. | Borrower not to consent to any amendment or modification to Dominion of Funds Agreement made as of June 20, 2005 or Amended and Restated Letter Agreement dated June 20, 2005 without written consent of TEXTRON | |||||
| 10. | All remittances of funds under the Dominion of Funds Agreement to Borrower to be made directly to TEXTRON; any of such funds disgorged by TEXTRON pursuant to Section 12 of said Dominion of Funds Agreement to be promptly reimbursed to TEXTRON by Borrower upon demand therefor. |
21. Existing Schedule — Reporting Requirements: Reporting Requirements of the Existing
Schedule are amended and restated in its entirety as set forth below:
Reporting Requirements
| 1. | Monthly consolidated internally prepared financial statements within 30 days after each month’s end beginning with the June, 2005 reporting. | |||||
| 2. | Quarterly consolidated prepared financial statements (on Form 10-Q) within 45* days after each fiscal quarter’s end. | |||||
| 3. | Annual projections of monthly income statements, balance sheets and cash flow statements for the following year within 60 days prior to fiscal year’s end and as available as updated during any fiscal year. | |||||
| 4. | Annual CPA audited consolidating and consolidated financial statements (on Form 10-K with annual reports) within 90* days after fiscal year’s end. | |||||
| 5. | All filings with, and correspondence to, SEC by I-Sector Corporation (including, without limitation, all reports on Form 8-K but excluding routine correspondence), including, without limitation, any financial statements, reports, notices, and proxy statements. | |||||
| 6. | Prompt reports of any legal actions pending or threatened against Borrower in which damages equal to or more than $100,000 are claimed or prayed for. | |||||
| 7. | Such other budgets, sales projections, operating plans, Master DISD Contract information or other financial information requested by TEXTRON. |
*If I-Sector Corporation qualifies as an “accelerated” filer under applicable SEC
rules and regulations so that quarterly and annual reports on Forms 10-Q and 10-K,
respectively, are required to be filed sooner than 45 days after each fiscal
quarter’s end and sooner than 90 days after each fiscal year’s end, as the case may
be, then the 45 days and 90 days set forth above shall automatically become such
shorter time periods.
To the extent the foregoing is inconsistent with the reporting requirements under
Section 9.1(b) of the Agreement, the foregoing provisions shall govern; otherwise
the reporting requirements of Section 9.1(b) shall continue in full force and
effect as provided in this Agreement.
22. Existing Schedule — Collateral Reporting and Other Requirements: Collateral Reporting
and Other Requirements of the Existing Schedule are amended and restated in its entirety as set
forth below:
Collateral Reporting and Other Requirements
| 1. | Weekly collateral reports of Receivables, DISD Receivables, Inventory, DISD Inventory, accounts payable together with a borrowing base certificate |
12
| showing the calculations set forth in LOANS (SECTION 2.2) and NEGATIVE COVENANTS (SECTION 6.2) — Borrowing Limit above, within 2 days of each week’s end if any Revolving Credit Loans shall be outstanding. | ||||||
| 2. | Annual insurance renewals | |||||
| 3. | Continuing program and repurchase agreements with all manufacturers and vendors on basis of 100% repurchase price of new, unopened and unaltered inventory within 180 days after invoice date |
Other Requirements
| 1. Borrowers shall have executed and delivered a Secured Revolving Credit Note in the stated principal amount of $10,000,000 to TEXTRON. |
23. Conditions To Effectiveness. This First Amendment Agreement shall become effective (the
“First Amendment Effective Date”) on the date on which all of the following conditions precedent
have either been satisfied in the sole determination of TEXTRON or waived in TEXTRON’s sole
determination:
23.1 This First Amendment Agreement shall have been executed and delivered by Borrower.
23.2 Borrower shall have executed and delivered to TEXTRON a Secured Revolving Credit Note in form
and substance satisfactory to TEXTRON.
23.3 Borrower shall have executed and delivered to TEXTRON a Certificate of Resolution in form and
substance satisfactory to TEXTRON authorizing Borrower to enter into this First Amendment Agreement
and the other documents and agreements related thereto.
23.4 Borrower shall have delivered an Officer’s Certificate in form and substance satisfactory to
TEXTRON.
23.5 No Event of Default shall exist under the Existing LSA or, after giving effect to this First
Amendment Agreement, under the Amended LSA.
23.6 Borrower shall have paid the costs, expenses, and fees described in Section 30 below.
23.7 De Xxxx Xxxxxx Financial Services shall have executed a participation agreement with TEXTRON
in form and substance satisfactory to TEXTRON.
23.8 All actions taken in connection with the execution of this First Amendment Agreement and all
documents and papers relating hereto shall be satisfactory to TEXTRON and its counsel.
24. Reaffirmation of Representations and Warranties. As an inducement to TEXTRON to enter
into this First Amendment Agreement, Borrower represents and warrants to TEXTRON that all of the
representations and warranties set forth in the Existing LSA are true and correct on the date
hereof as if made on the date hereof.
13
25. Additional Representations and Warranties by Borrower. Borrower represents and
warrants to TEXTRON that:
25.1 The execution and delivery by Borrower of this First Amendment Agreement, and the
performance by Borrower of its obligations hereunder and under the Amended LSA and Amended Loan
Documents, have been duly authorized and approved by all necessary corporate action by Borrower and
its respective directors, officers, and stockholders, as the case may be.
25.2 The execution and delivery by Borrower of this First Amendment Agreement, and the
performance by Borrower of its obligations hereunder and under the Amended LSA and the Amended Loan
Documents, do not and will not (i) conflict with, (ii) result in any violation of or default (with
or without notice or lapse of time or both) under, (iii) give rise to a right of termination,
cancellation, or acceleration under, (iv) result in the creation or imposition of any lien,
security interest, or other encumbrance under, or (v) result in the loss of a material benefit
under or with respect to (1) any provision of the organizational documents of Borrower, (2) any
provision of applicable law, (3) any order of any court or other agency of government, or (4) any
provision of any indenture, agreement or other instrument to which Borrower is a party or by which
any of its properties or assets is bound.
25.3 This First Amendment Agreement and related documents have been duly executed and
delivered by Borrower and this First Amendment Agreement and the Amended LSA and Amended Loan
Documents constitute legal, valid and binding obligations of Borrower, enforceable in accordance
with their respective terms.
25.4 No Borrower is required to give any notice to, make any filing with, or obtain any
authorization, consent, permit, certificate, or approval of any governmental authority or third
party in order to consummate or perform the transactions contemplated by this First Amendment
Agreement.
25.5 All liens and security interests granted pursuant to the Existing LSA are first priority,
perfected liens and security interests in, to, and against the Collateral.
25.6 No Event of Default or any event which, with the lapse of time or the giving of notice or
both, could become an Event of Default exists.
26. Existing Loan Documents. All of the Existing Loan Documents are hereby amended
and conformed to the amendments and modifications set forth in this First Amendment Agreement
without the requirement of any further formal documentation. For the avoidance of doubt, the
defined term “Loan Documents” in the Existing LSA shall mean and include this First Amendment
Agreement.
27. Further Assurances.
27.1 Borrower shall promptly execute and deliver to TEXTRON such further documents,
agreements, instruments, certificates, and assurances and take such further action as TEXTRON from
time to time may reasonably request in order to carry out the intent and purpose of this First
Amendment Agreement and to establish and protect the rights and remedies created or intended to be
created in favor of TEXTRON under the Amended LSA and Amended Loan Documents.
14
27.2 Without limiting the generality of Section 27.1 above, Borrower shall, upon request of
TEXTRON, furnish to TEXTRON such further information, execute and deliver to TEXTRON such documents
and instruments and do such other acts and things, as TEXTRON may at any time reasonably request
relating to the perfection or protection of the liens and security interests contemplated by this
First Amendment Agreement and the Existing LSA, as amended pursuant to this First Amendment
Agreement.
28. No Other Modifications; No Novation. Except as specifically modified by this
First Amendment Agreement, the Existing LSA and the other Existing Loan Documents remain unmodified
and in full force and effect. Borrower hereby ratifies and confirms all of its obligations,
liabilities, and indebtedness under the Existing LSA and the Existing Loan Documents, as amended by
this First Amendment Agreement. Nothing contained in this First Amendment Agreement shall be
construed to extinguish, release, terminate, discharge, effect a novation of, or otherwise impair
any of the obligations, indebtedness, and liabilities of any Borrower under the Existing LSA or the
Existing Loan Documents, or any of the liens and security interests created thereby. Each of
Valerent, Internetwork Experts, I-Sector, and Stratasoft hereby acknowledges and agrees that all of
the obligations and liabilities of each of them, as Borrower, hereunder and under the Amended LSA
and Amended Loan Documents are joint and several obligations and liabilities.
29. Counterparts. This First Amendment Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
30. Expenses. Borrower shall pay upon demand all costs, expenses, and fees
(including, without limitation, attorneys’ fees) incurred by TEXTRON and Amegy Bank National
Association, as participant, in connection with the preparation and execution of this First
Amendment Agreement and the consummation of the transactions contemplated hereby.
31. Binding Effect. This First Amendment Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective heirs, personal representatives, successors
and assigns.
32. Severability. If any provision (or any part of any provision) contained in this
First Amendment Agreement shall for any reason be held to be invalid, illegal, or unenforceable in
any respect, then such invalidity, illegality, or unenforceability shall not affect any other
provision (or remaining part of the affected provision) of this First Amendment Agreement, and this
First Amendment Agreement shall be construed as if such invalid, illegal, or unenforceable
provision (or part thereof) had never been contained herein, but only to the extent such provision
(or part thereof) is invalid, illegal, or unenforceable.
33. Governing Law. This First Amendment Agreement shall be governed by and construed
in accordance with the internal laws of the State of Rhode Island, without giving effect to its
conflicts of laws provisions.
34. Survival. The representations, warranties, and covenants contained in this First
Amendment Agreement shall survive the execution and delivery hereof.
35. Entire Agreement; Amendment; Waiver. The Existing LSA and Existing Loan
Documents, as amended pursuant to this First Amendment Agreement and the other documents executed
in connection herewith, contain the entire understanding and agreement among the
15
parties hereto with respect to the subject matter thereof, and supersede all prior
discussions, understandings, and agreements (whether oral or written) between them with respect
hereto and thereto. No amendment to, or modification or waiver of, any of the terms of this First
Amendment Agreement shall be valid unless in writing and signed by the party against whom
enforcement of such amendment, modification or waiver is sought.
16
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment Agreement dated as
of September 9, 2005.
Borrower: I-Sector Corporation
|
||
By
/s/
Xxxxx X. Xxxx
(Seal) Name Xxxxx X. Xxxx Title Chairman & CEO |
||
(Notary Seal)
|
||
Borrower: Internetwork Experts, Inc.
|
||
By /s/
Xxxxx X. Xxxx
(Seal) Name Xxxxx X. Xxxx Title Chairman & CEO |
||
(Notary Seal)
|
||
Borrower: Valerent, Inc.
|
||
By /s/
Xxxxx X. Xxxx
(Seal) Name Xxxxx X. Xxxx Title Chairman & CEO |
||
(Notary Seal)
|
||
17
Borrower: STRATASOFT, INC.
|
||
By /s/
Xxxxx X. Xxxx
(Seal) Name Xxxxx X. Xxxx Title Chairman & Secretary |
||
(Notary Seal) |
||
Lender and
|
||
Secured Party: TEXTRON FINANCIAL |
||
CORPORATION
|
||
By
/s/ Xxxxx X. Xxxxxxxx
(Seal) Name Xxxxx X. Xxxxxxxx Title Division President |
||
18
