Exhibit 10.6
AMENDMENT #4 TO THE
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT
THIS AMENDMENT #4 dated as of the 30th day of September, 1997 (this
"Amendment"), hereby amends that certain Inventory and Working Capital Financing
Agreement by and between Western Micro Technology, Inc., a Delaware corporation
("Customer"), and IBM Credit Corporation, a Delaware corporation ("IBM Credit").
RECITALS
WHEREAS, the Customer and IBM Credit have entered into that certain
Inventory and Working Capital Financing Agreement dated as of December 31, 1996
(as amended, supplemented or as otherwise modified from time to time, the
"Agreement"); and
WHEREAS, Customer has requested additional financial accommodations from
IBM Credit in connection with Customer's intended acquisition of Star Management
Services, Inc.; and
WHEREAS, IBM Credit agrees to provide the special additional accommodations
solely for the purposes of such acquisition under the terms and conditions set
forth herein; and
WHEREAS, pursuant to such acquisition financing, IBM Credit and Customer
shall execute contemporaneously with the execution of this Amendment, that
certain Promissory Note, Warrant Agreement and Assumption Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Customer and IBM Credit hereby agree as follows:
Section 1. All capitalized terms not otherwise defined herein shall have the
respective meanings set forth in the Agreement.
Section 2. Modification of Agreement.
(a) The following definition shall be added to Section 1.1:
"'Acquisition Loan': any loan or advance of funds made by IBM Credit to the
Customer pursuant to section 2.9 of this Agreement."
(b) The definition of "Termination Date" shall be deleted in its entirety and
the following substituted therefor:
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"'Termination Date': shall mean September 30, 1999, or such other date as IBM
Credit and Customer may agree to in writing from time to time."
(c) The following new Section 2.9 shall be added to the Agreement:
"2.9. Acquisition Loan. IBM Credit, in its sole discretion and provided that
all conditions precedent are met to its satisfaction, agrees to make a loan in
the amount of Ten Million Dollars ($10,000,000.00) to the Customer for the
purpose of Customer's acquisition of Star Management Services, Inc. Such
Acquisition Loan shall be used solely for the acquisition and shall be payable
according to the terms and conditions of the Promissory Note of even date
herewith.
(B) When determining Available Credit and Shortfall Amounts, the aggregate of
the Acquisition Loan existing at the time of determination shall be subtracted
from Outstanding Advances.
(C) Use of Proceeds. All proceeds of the Acquisition Loan will be used by the
Customer solely to finance the acquisition of Star Management Services, Inc.
(D) Closing Fee. Upon the closing of the acquisition of Star Management
Services, Inc., Customer shall pay to IBM Credit a Closing Fee of Two Hundred
Thousand Dollars ($200,000.00) in cash or immediately available funds.
(E) Public Offering or Private Placement. In the event of a public offering or
private placement of additional shares of Customer (but excluding the private
placement of Series A preferred stock offered in conjunction with the
Acquisition Loan), any remaining principal of the Acquisition Loan and any
outstanding interest shall be immediately due and payable upon the completion of
such offering or placement.
(d) Paragraph 10.1 shall be deleted in its entirety and the following
substituted therefor:
"10.1. Term; Termination. (A) This Agreement shall remain in force until the
earlier of the Termination Date, the date specified in a written notice by the
Customer that they intend to terminate this Agreement which date shall be no
less than ninety (90) days following the receipt by IBM Credit of such written
notice, and termination by IBM Credit after the occurrence and during the
continuance of an Event of Default. Upon the date that this Agreement is
terminated, all of Customer's Obligations shall be immediately due and payable
in their entirety, even if they are not yet due under their terms.
If this Agreement is terminated pursuant to 10.1(ii) above with an effective
termination date on or prior to September 30, 1998, then Customer shall pay to
IBM Credit, in addition to any other Obligations which may be due at the time,
an early termination fee of one and one quarter percent (1.25%) of the then
current Credit Line. Such early termination fee shall be due on the effective
date of such termination.
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If this Agreement is terminated pursuant to 10.1(ii) above with an effective
termination date after September 30, 1998 and on or prior to September 30, 1999,
then Customer shall pay to IBM Credit, in addition to any other Obligations
which may be due at the time, an early termination fee of one half percent
(0.50%) of the then current Credit Line. Such early termination fee shall be due
on the effective date of such termination."
(e) 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.
(f) Item 6 under the definition of Permitted Indebtedness in section 1.1 of the
Agreement shall be deleted in its entirety and the following substituted
therefor:
(6) Additional Indebtedness in the amount of $15,700,000.00 incurred in
connection with Customer's acquisition of Star Management Services, Inc.
provided the holder of such Indebtedness has subordinated its interest to that
of IBM Credit, and any other Indebtedness consented to by IBM Credit in writing
prior to incurring such Indebtedness.
(g) Attachment B to the Agreement is hereby amended by deleting such Attachment
B in its entirety and substituting, in lieu thereof, the Attachment B attached
hereto.
Section 3. Representations and Warranties. Customer makes to IBM Credit the
following representations and warranties all of which are material and are made
to induce IBM Credit to enter into this Amendment:
Section 3.1. Accuracy and Completeness of Warranties and Representations. All
representations made by Customer in the Agreement were true and accurate and
complete in every respect as of the date made, and, as amended by this
Amendment, all representations made by Customer in the Agreement are true,
accurate and complete in every material respect as of the date hereof, and do
not fail to disclose any material fact necessary to make such warranties and
representations not misleading.
Section 3.2. Violation of Other Agreements. The execution and delivery of this
Amendment and the performance and observance of the covenants to be performed
and observed hereunder do not violate or cause Customer not to be in compliance
with the terms of any agreement to which Customer is a party.
Section 3.3. Litigation. Except as has been disclosed by Customer to IBM
Credit in writing, there is no litigation, proceeding, investigation or labor
dispute pending or threatened against Customer, which if adversely determined,
would materially adversely affect Customer's ability to perform Customer's
obligations under the Agreement and the other documents, instruments and
agreements executed in connection therewith or pursuant hereto.
Section 3.4. Enforceability of Amendment. This Amendment has been duly
authorized, executed and delivered by Customer and is enforceable against
Customer in accordance with its terms.
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Section 4. Ratification of Agreement. Except as specifically amended hereby, all
of the provisions of the Agreement shall remain unamended and in full force and
effect. Customer hereby ratifies, confirms and agrees that the Agreement, as
amended hereby, represents a valid and enforceable obligation of Customer's, and
is not subject to any claims, offsets or defense.
Section 5. Governing Law. This Amendment shall be governed by and interpreted in
accordance with the laws of the State of New York.
Section 6. 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 duly executed by the authorized
officers of the undersigned as of the day and year first above written.
WESTERN MICRO TECHNOLOGY, INC. IBM CREDIT CORPORATION
By /s/ Xxxxx X. Xxxxx By /s/ Xxxxxx X. Xxxxx
----------------------------- --------------------------------
Name Xxxxx X. Xxxxx Name Xxxxxx X. Xxxxx
--------------------------- ------------------------------
Title CFO Title Remarketer Loan Manager
-------------------------- -----------------------------
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ATTACHMENT A, EFFECTIVE DATE September,30 1997 ("IWCF ATTACHMENT A")
TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
DATED December 31, 1996
Customer: Western Micro Technology, Inc.
I. Fees, Rates and Repayment Terms:
(A) Credit Line: Seventy Five Million Dollars ($75,000,000.00);
(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.
Notwithstanding the terms of Section 3.1 (W) of the Agreement, Accounts
arising from IBM incentive payments, rebates, discounts and refunds which
are (a) verifiable by Authorized Suppliers, and (b) payable by Authorized
Suppliers by check to the lockbox will be deemed to be Eligible Accounts.
(ii) 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. The value to be
assigned to such inventory shall be based upon the Authorized Supplier's
invoice price to Customer for Financed Products net of all applicable price
reduction credits;
(iii) 50% of the value of other inventory in which IBM Credit has a first
priority security interest and ordered from parties other than Authorized
Suppliers which are on such parties' current price list, UP TO a maximum
collateral value of $6,000,000.00, from date of closing through 12/31/97.
Thereafter, 30% of the value of other inventory in which IBM Credit has a
first priority security interest and ordered from parties other than
Authorized Suppliers which are on such parties' current price list, UP TO a
maximum collateral value of $6,000,000.00. The value to be assigned to such
inventory shall be based upon the supplier's invoice price to Customer for
such products net of all applicable price reduction credits;
(iv) 20% of the value of Customer's IBM emergency parts inventory. The
value to be assigned to such inventory shall be based upon the suppliers
invoice price to Customer for such products net of all applicable price
reduction credits;
(v) 75% of used equipment purchased from IBM Credit;
(vi) 75% of verifiable prepaid expenses to IBM Credit End User Financing
for used equipment.
Page 1 of 7
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING Agreement ("IWCF AGREEMENT")
I. Fees, Rates and Repayment Terms (continued):
(C) Product Financing Charge: Prime Rate plus 1. 625%
(D) Product Financing Period: 75 days
(E) Collateral Insurance Amount: Twenty Five Million Dollars
($25,000,000.00) (Such insurance shall also include coverage against
earthquake peril for at least 30% of the value of inventory stored in
California)
(F) A/R Finance Charge:
(i) PRO Advance Charge: Prime Rate plus 1.875%
(ii) WCO Advance Charge: Prime Rate plus 1.875%
(iii) Takeout Advance Charge: Prime Rate plus 1.625%
(G) Delinquency Fee Rate: Prime Rate plus 6.5000%
(H) Shortfall Transaction Fee: Shortfall Amount multiplied by O.30%
(I) Free Financing Period Exclusion Fees: Product Advance multiplied by
0.40%
(J) Other Charges:
(i) Application Processing Fee: $ 0.00
(ii) Monthly Service Fee: $1,500.00
(iii) Closing Fee: $ 0.00
(iv) Commitment Fee: $ 0.00
Page 2 of 7
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:______________________Silicon Valley Bank__________________________
Address:___________________________3003 Tasman Drive____________________________
___________________________________Santa Xxxxx, CA 95054________________________
Phone:__________________________________________________________________________
Lockbox Address:________________________________________________________________
Special Account #:______________________________________________________________
Name of Bank:___________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
Phone:__________________________________________________________________________
Lockbox Address:________________________________________________________________
Special Account #:______________________________________________________________
Name of Bank:___________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
Phone:__________________________________________________________________________
Lockbox Address:________________________________________________________________
Special Account #:______________________________________________________________
Page 3 of 7
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).
Current shall mean within the on-going twelve month period.
Current Assets shall mean assets that are cash or expected to become cash
within the on-going twelve months.
Current Liabilities shall mean payment obligations resulting from past or
current transactions that require settlement within the on-going twelve
month period. All indebtedness to IBM Credit shall be considered a Current
Liability for purposes of determining compliance with the Financial
Covenants.
Long Term shall mean beyond the on-going 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.
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 a Note Purchase Agreement executed in September, 1997 and an
associated Subordination and Intercreditor Agreement in favor of IBM
Credit.
Page 4 of 7
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
identified ID Customer's financial statements (except for
those assets identified in Attachment B, Section VIII or
otherwise mutually agreed to Ln writing by Customer and IBM
Credit); and
(b) all accounts receivable from employees, officers, directors,
stockholders and affiliates; and
(c) all callable/redeemable preferred stock (with the exception
of preferred stock redeemable for other equity securities,
and up to $21.6 million of that preferred stock issued
concurrent with Customer's acquisition of Star Management
Services, Inc.)
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.
Page 5 of 7
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 at all times:
a) Times (x) Interest Earned :
- 2.0x from closing through 12/31/97
- 2.25x for each fiscal quarter thereafter
b) Current Ratio :
- O.90 from closing through 12/31/97
- 1.00 each fiscal quarter during 1998
- 1.05 each fiscal quarter during 1999
c) Net Profit after Tax to Revenue :
=> O.8% from closing through 12/31/97
=> 0.8% for first quarter for fiscal 1998
=> O.9% during each remaining quarter for fiscal 1998
=> 1.4% during each quarter for fiscal 1999
d) Tangible Net Worth will be no less than negative twenty seven million
dollars (-$27,000,000.00) from closing through 5/31/98 and will be
greater than or equal to five million dollars ($5,000,000.00) from
6/1/98 forward;
NOTE: "closing" above refers to the closing of the acquisition of Star
Management Services, Inc. by Customer.
Page 6 of 7
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING Agreement ("IWCF AGREEMENT")
IV. The continued effectiveness of the following Conditions Precedent Pursuant
to Section 5.1 (K) of the Agreement:
. Executed Waiver of Landlord Lien for all premises in which a landlord
has the right of levy for rent;
. 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;
Page 7 of 7
ATTACHMENT B
I. LIENS.
See Attached Schedule 1
(excludes IBM Credit Corporation liens)
II. LOCATIONS OF OFFICES, RECORDS AND INVENTORY.
(A) Principal Place of Business and Chief Executive Xxxxxx
Xxxxxxxxx Xxxxxx
000 X. Xxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
(B) Locations of Assets, Inventory and Equipment (including warehouses)
LOCATION LEASE (YES/NO)
WAREHOUSE/INVENTORY LOCATIONS:
-----------------------------
1) 00000 Xxxxxxxxxx, Xxxxxxx, XX 00000 YES
2) 10 Xxxxxxx, Xxxxxx, XX 00000 YES
3) 000 Xxxxx Xx., Xxxx Xxxxx, XX 00000 YES
4) 000 Xxxxxxxxxx Xxxxxx Xxxxxxx, Xxxxxx, XX 00000 YES
5) 000 Xxxxxxx Xx., Xxxxxxxxxx, XX 00000 YES
6) 0000 Xxxxx Xxxx Xxxxxxx Xxxxxx XX
Xxxxxxxx, XX 00000 (Melita)
7) 000 Xxxxxxxxxx Xxxxxxx XX
Xxxxxx, XX 00000
EQUIPMENT/SALES LOCATIONS:
-------------------------
1) 000 X. Xxxxxxxx Xxx., Xxxxxxxx, XX 00000 YES
2) 00000 Xxxxxxx Xxxxxx Xxxx XX
Xxxxxxxxxx, XX 00000
3) 0 Xxxxx Xxxx XX
Xxxxx, XX 00000
4) 000 Xxxxxxx Xxxxxx XX
Xxxxxxxx, XX 00000
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5) 000 Xxxx Xxxxx Xxxxx XX
Xxxxxxxxx, XX 00000
6) 000 Xxxxxx Xxxx Xxxxx XX
Xxxxxxxx, XX 00000
7) 000 Xxxxx Xxx XX
Xxxxxxxxxx, XX 00000
8) 0000 Xxxxxxxx Xxxxx XX
Xxxxxxxxx, XX 00000
9) 0000 Xxxxxx Xxxx Xxxxx #000 XXX
Xxxxxxxx Xxxx, XX 00000
10) 00000 Xxxxxx Xxxx XX
Xxxxxxx Xxxxxxxx, XX 00000
11) 0-00 Xxxxxx Xxxxx XX
Xxxxxxxx, XX 00000
12) 00 Xxxxx Xxx. XX
Xxxx Xxxxx, XX 00000
13) 00 Xxxxx Xxxxxx XX
Xxxxxxxxx, XX 00000
14) 0000 Xxxxxxxx Xx. XX
Xxxxxxxxx, XX 00000
15) 0000 Xxxxxxxx Xxxxx XX
Xxxxxxx, XX 00000
16) 000 Xxxxxxxxxx Xxxx XX
Xxxxxxxxxxx, XX 00000
17) 0000 Xxxxxxx Xxxxx XX
Xxxxxxxxx, XX 00000
18) 000 X. Xxxxxxxxx Xxxx XX
Xxxxxxxxxxx, XX 00000
19) 00000 XX Xxxxxxx Xxxx XX
Xxxxxxxxx, XX 00000
20) 0000X Xxxxxxxxx Xxxxx XX
Xxx Xxxxxxx, XX 00000
21) 0000 00xx Xxx. XX XX
Xxx Xxxxxx, XX 00000
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III. FICTITIOUS NAMES.
The Company operates only under one name but has used certain names (which
it claims no rights to) including STAR Technologies, International Data
Products, International Parts, Star Data Systems, Business Partner
Solutions and Sirius Investments, Inc.
IV. ORGANIZATION.
(A) Subsidiaries
Name Jurisdiction Owner Percent
Owned
1) Savoir Technology, Group, DE Western Micro Technology, 100%
Inc. Inc.
2) WMT Acquisition Corp. CA Western Micro Technology, 100%
Inc.
3) Star Management Services, DE Western Micro Technology, 100%
Inc. Inc.
4) Sirius Investment, Inc. NV Star Management Services, 100%
Inc.
5) Star Data Systems, Inc. (dba TX Sirius Investments, Inc. 100%
Business Partner Solutions)
6) INET Systems, Inc. TX Star Data Systems, Inc. 100%
7) Star Data International, Inc. Virgin Islands Star Data Systems, Inc. 100%
B) Affiliates
Name Capacity
NONE
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V. JUDGMENTS OR LITIGATION.
The Company has no outstanding judgements or pending material litigation
not previously disclosed with the following exception:
* Case #768518 filed in Santa Xxxxx Superior Court
Worldcom Network Systems, Inc. vs. Western Micro Technology, Inc.
Amount = $30,636.52
VI. ENVIRONMENTAL MATTERS.
The Company has no material Environmental Matters not previously
disclosed.
VII. INDEBTEDNESS.
The Company has no indebtedness other than CanPartners Investments IV, LLC
and Xxxxxx Xxxxxxx Inc., trade creditors, creditors involved in the normal
course of doing business and various immaterial office machine (i.e.
copiers and faxes) financings.
VIII. ASSETS TO BE INCLUDED IN TOTAL NET WORTH PURSUANT TO ATTACHMENT A SECTION
III
There are no modifications to the Total Net Worth formula described in
Attachment A, Section III.
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SCHEDULE 1
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WESTERN MICRO TECHNOLOGY, INC.
------------------------------
Schedule of
U.C.C. Filings
1. The CIT Group/Equipment Financing, Inc.
---------------------------------------
UCC-1 financing statement filed 2/11/94 (California) --
certain identified equipment and furnishings
2. Paramount Equipment
-------------------
Assigned to Citicorp Dealer Finance -- UCC-1 financing statement filed
3/14/94 (California) -- Mitsubishi
3. The CIT Group/Equipment Financing, Inc.
---------------------------------------
UCC-1 financing statement filed 2/3/95 (California) -- certain identified
items of equipment
4. NTFC Capital Corporation
------------------------
UCC-1 financing statement filed 8/29/95 (California) -- certain leased
equipment and cabling
5. Vanguard Financial Service Corporation
--------------------------------------
UCC-1 financing statement filed 12/5/95 (California) -- Northern Telecom
phone system
6. Sanwa Business Credit Corporation
---------------------------------
UCC-1 financing statement filed 7/31/96 (California) -- 1996 Mitsubishi
Order Picker
7. The CIT Group/Equipment Financing, Inc.
---------------------------------------
UCC-1 financing statement filed 3/20/97 (California) -- certain identified
equipment
8. Vanguard Financial Service Corporation
--------------------------------------
UCC-1 financing statement filed 12/6/95 (Illinois) -- Northern Telecom
phone system
