Exhibit 10.1

 

COMPUTER SOFTWARE INNOVATIONS, INC.

1661 E. Main Street, Suite A

Easley, SC 29642

 

August 30, 2005

 

RBC Centura Bank

531 South Main Street, 2nd Floor

Greenville, SC 29601

 

Attention: Mr. Charles Arndt

 

  Re: Loan Agreement (Revolving Line of Credit) (the “Loan Agreement”)

Dated March 14, 2005 between

RBC Centura Bank (the “Bank”) and

Computer Software Innovations, Inc. (“CSI”)

 

Dear Mr. Arndt:

 

This letter is being provided to you in connection with the above-referenced
Loan Agreement between the Bank and CSI.

 

Net Worth Covenant

 

Under Article VIII of the Loan Agreement and the Bank’s Commitment Letter to CSI
dated February 22, 2005 (the “Commitment Letter”), CSI agreed to observe certain
financial covenants, including, but not limited to, a covenant that at the
closing of the Revolving Line of Credit under the Loan Agreement, CSI would have
a minimum tangible net worth of $600,000, inclusive of subordinated debt to CSI
shareholders specifically subordinate to the Bank (the “Net Worth Covenant”).
Previously, we indicated that we had been advised by our accountants that due to
the classification of certain outstanding warrants to Barron Partners, LP, CSI
was perhaps out of compliance with the Net Worth Covenant. By way of background,
in February of 2005, CSI issued, as part of a preferred stock financing, two
warrants to Barron Partners, LP representing the right to purchase a total of
7,217,736 shares of CSI common stock. The warrants have a term of five years.
CSI used a fair value option pricing model to value the stock warrants. Pursuant
to EITF00-19, “Accounting for Derivative Financial Instruments Indexed to and
Potentially Settled in, a Company’s Own Stock,” the value of these warrants has
been recorded as a liability in the current liability section of the
consolidated balance sheet until CSI has obtained an effective registration
statement for the warrants. Upon effectiveness of the registration statement,
the value of the shares may be recorded as additional paid-in capital. Due to
this accounting treatment, pending completion of the registration statement,
CSI’s tangible net worth as reflected in its quarterly unaudited financial
statements of June 30, 2005 is less than $600,000.

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Our counsel is in the process of completing the registration statement, which we
anticipate will resolve this issue in the third quarter of 2005. We are also in
negotiations with Barron to modify the warrant related provisions which
triggered the unanticipated accounting treatment of the warrants described
above. In light of the foregoing, we respectfully request that the Bank extend
its waiver of current compliance with the aforementioned Net Worth Covenant. In
consideration of this waiver extension, CSI agrees with the Bank that it shall
be required to comply with the Net Worth Covenant by November 30, 2005 and,
except as otherwise specifically provided in the Loan Agreement or the
Commitment Letter, to thereafter maintain a minimum net worth of $600,000,
inclusive of subordinated debt to CSI shareholders through the term of the Loan,
tested on a quarterly basis.

 

Consent Regarding Joint Defense Costs

 

As previously disclosed to you and in our public filings with the Securities and
Exchange Commission, on April 4, 2005, Integrated Tek Solutions, Inc. filed a
lawsuit (the “Lawsuit”) against CSI in the Supreme Court of the State of New
York, County of New York, alleging breach of contract, fraud, negligent
representation and promissory estoppel. We received notice of the suit on April
14, 2005. The action arises out of a letter of intent pursuant to which a
predecessor to the plaintiff, Yasup, LLC, and Computer Software Innovations,
Inc., a South Carolina corporation (“CSI – South Carolina”) conducted
negotiations relating to a potential acquisition of CSI – South Carolina’s stock
by Yasup, LLC. Until it merged into CSI in February 2005, CSI – South Carolina
was a privately held South Carolina corporation. We received an amended
complaint on June 3, 2005, which pleading added several new defendants. Some of
our officers and directors are named as individual defendants in the suit. These
include Nancy K. Hedrick, CEO and director; Joe G. Black, former CFO; Thomas P.
Clinton, Vice President of Sales and Director; Beverly N. Hawkins, Secretary and
Vice President of Support Services; and William J. Buchanan, Treasurer and Vice
President of Engineering (collectively, the “Individual Defendants”). Ms.
Hedrick and Ms. Hawkins and Messrs. Black, Clinton and Buchanan were also
officers, directors and shareholder of CSI – South Carolina.

 

On August 15, 2005, we filed and served responsive pleadings consisting of a
Verified Answer, and will proceed with discovery. We maintain that the
plaintiff’s claims are without merit, and intend to vigorously defend the
action.

 

To date, legal counsel for CSI has also represented the five individual
defendants who are officers, directors and/or stockholders of CSI. Although the
incremental cost to CSI of representing such individual defendants in addition
to CSI is not believed to be material, CSI wishes to receive assurance from the
Bank that the joint defense of CSI and such individual defendants will not be
deemed to trigger any default or other impact under the Loan Agreement, in
particular paragraphs “M. Loans,’’ and “N. Loans to Officers” contained in the
Commitment Letter. Accordingly, CSI asks that the Bank consent to the past and
continuing payment by CSI of the joint defense costs of both CSI and the
Individual Defendants with respect to the Lawsuit (the “Consent”).

 

* * * *

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If the foregoing requests for (i) an extension of the waiver of compliance with
the Net Worth Covenant until November 30, 2005 and (ii) the Consent, are
acceptable to the Bank, please so indicate by signing below and returning a copy
of this letter to me. Thank you in advance for your cooperation and attention to
this matter. Please call me if you have any questions concerning the foregoing.

 

 

Yours very truly,

/s/ Nancy K. Hedrick

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Nancy K. Hedrick President and CEO

 

ACCEPTED AND AGREED TO this 30th day of August, 2005. RBC Centura Bank By:  

/s/ Charles Arndt

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    Charles Arndt     Market Executive-South Carolina Markets