ACKNOWLEDGEMENT, WAIVER AND AMENDMENT



ACKNOWLEDGEMENT, WAIVER AND AMENDMENT

TO THE 

INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT


 

This ACKNOWLEDGEMENT, WAIVER AND AMENDMENT ("Waiver") TO THE INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT is made as of July 1, 2003 by and between Datatec Industries, Inc., a former New Jersey corporation ("Customer") and IBM Credit LLC, a Delaware limited liability company, formerly IBM Credit 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);



WHEREAS, Customer requests that IBM Credit Waive such defaults; and 



WHEREAS, IBM Credit is willing to waive such defaults and amend the Agreement 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.Acknowledgement.



A.Financial Covenant Default.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 April 30, 2003, and Customer was required to maintain such financial covenants at all times.  Customer further acknowledges its actual attainment was as follows:


	 	
Covenant
	 	
Covenant Requirement
	 	
Covenant Actual

	
	
	
	
	
	

	
(i)
	
Net Profit After Tax to Net Revenue
	 	
Equal to or Greater than 0.10 percent
	 	
-3.38 percent

	
(ii)
	
Debt Service Ratio
	 	
Equal to or Greater than 1.25:1.0
	 	
-1.73:1.0





B.Payment Default.Customer acknowledges that it is in default by its failure to reduce outstanding Advances to an amount equal to or less than $25,000,000.00.



The preceding being the "Defaults".



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.



Attachment A to the Agreement is hereby amended by deleting such Attachment A in its entirety and substituting, in lieu there of, 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:



Section I.  Fees, Rates and Repayment Terms, is modified to reflect the following change(s):



(i)The Credit Line is changed to the following: (i) from June 1, 2003 through and including January 14, 2004, Twenty-five Million Dollars ($25,000,000.00); (ii) from January 15, 2004 through and including March 31, 2004, Twenty-three Million Dollars ($23,000,000.00), and (iii) from April 1, 2004 until the Termination Date, Twenty Million Dollars ($20,000,000.00);



(ii)The A/R Financing Charge is changed with the addition of the following as (F) (iii); Excess Outstandings Surcharge: Prime Rate plus 4.00%, to be charged on the aggregate Average Daily Balance in excess of Twenty-five Million Dollars ($25,000,000.00), effective from June 1, 2003 to and including August 31, 2003.



Section 5.Conditions to Effectiveness of Waiver.  The waiver set forth in Section 3 hereof shall become effective upon:



(a)the receipt by IBM Credit from Customer of this Waiver executed by Customer; and 



(b)the payment by Customer to IBM Credit of a waiver fee (the "Waiver Fee"), payable in immediately available funds, in the amount of $25,000.00.  The Waiver Fee shall be nonrefundable and shall be in addition to any other fees IBM Credit may charge Customer.



Section 6.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 Waiver, 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 7.Governing Law.This Waiver shall be governed by and interpreted in accordance with the laws which govern the Agreement.



Section 8.Counterparts.This Waiver 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 Waiver has been executed by duly authorized representatives of the undersigned as of the day and year first above written.



	
IBM Credit LLC
	
Datatec Industries, Inc.

	 	 
	
By:_______________________________________
	
By:_______________________________________

	 	 
	
Print Name:________________________________
	
Print Name:________________________________

	 	 
	
Title:______________________________________
	
Title:______________________________________






 

ATTACHMENT A, ("IWCF ATTACHMENT A") TO 

INVENTORY AND WORKING CAPITAL FINANCING AGGREMENT ("IWCF AGREEMENT")

DATED November 10, 2000


 

Customer Name:  Datatec Systems, Inc.


Effective Date of this IWCF Attachment A:June 1, 2003


I.  Fees, Rates and Repayment Terms:


	
(A)
	
Credit Line: (i) from June 1, 2003 through and including January 14, 2004, Twenty-five Million Dollars ($25,000,000.00); (ii) from January 15, 2004 through and including March 31, 2004, Twenty-three Million Dollars ($23,000,000.00), and (iii) from April 1, 2004 until the Termination Date, Twenty Million Dollars ($20,000,000.00)

	 	 
	
(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 it is 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; and,

	 	 
	 	
(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 1.75%

	 	 
	
(D)
	
Product Financing Period:  70 days

	 	 
	
(E)
	
Collateral Insurance Amount:  Five Million Dollars ($5,000,000.00)

	 	 
	
(F)
	
A/R Finance Charge:

	 	 
	 	
(i) PRO Advance Charge:   Prime Rate plus 1.75%;

	 	 
	 	
(ii) WCO Advance charge:  Prime Rate plus 1.75%;

	 	 
	 	
(iii) Excess Outstandings Surcharge:  Prime Rate plus 4.00%, to be charged on the aggregate Average Daily Balance in excess of Twenty-five Million Dollars ($25,000,000.00), effective from June 1, 2003 to and including August 31, 2003.

	 	 
	
(G)
	
Delinquency Fee Rate:  Prime Rate plus 6.500%

	 	 
	
(H)
	
Shortfall Transaction Fee:  Shortfall Amount multiplied by 0.40%

	 	 
	
(I)
	
Free Financing Period Exclusion Fee:  Product Advance multiplied by 0.25%

	 	 
	
(J)
	
Other Charges:

	 	 
	 	
(i)  Annual Renewal Fee:   $20,000.00;

	 	 
	 	
(ii)  Monthly Service Fee:   Fifteen Hundred Dollars ($1,500.00).







 

II.  Bank Account


Customer's Lockbox(es) and Special Account(s) will be maintained at the following Bank(s):


 

Name of Bank:Fleet Bank


Address:208 Harristown Road

Glen Rock, NJ  07452


Phone:


Lockbox Address:PO Box 31633, Hartford, CT 06150-0633


Special Account #:2017-208090


 

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 purposed of determining compliance with the financial Covenants.

	 
	
"EBITDA" shall mean, for any period (determined on a consolidated basis in accordance with GAAP), (a) the Consolidate 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 Consolidate 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 form such date but are renewable or extendible at the option of the debtor to a date more than twelve months from the date of determination.

	 
	
"Net Profit after Tax" shall mean Revenue plus all other income, minus all costs, including applicable taxes.

	 
	
"Revenue" shall mean the monetary expression of the aggregate of products or services transferred by an enterprise to its customers for which said customers have paid or are obligated to pay, plus other income as allowed.

	 
	
"Subordinated Debt" shall mean Customer's indebtedness to third parties as evidenced by an executed Notes Payable Subordination Agreement in favor of IBM Credit.

	 
	
"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 4/30/03
	 	


Covenant Requirement 7/31/03
	 	


Covenant Requirement 10/31/03
	 	
Covenant Requirement 1/31/04 and thereafter

	 	 	 	 	 	 	 	 	 	 
	
(i)
	
Minimum Quarterly Revenue
	 	
Equal to or Greater than $23,000,000
	 	
Equal to or Greater than $23,000,000
	 	
Equal to or Greater than $23,000,000
	 	
Equal to or Greater than $25,000,000

	
(ii)
	
Net Profit After Tax to New Revenue
	 	
Equal to or Greater than 0.10 percent
	 	
Equal to or Greater than 0.10 percent
	 	
Equal to or Greater than 0.10 percent
	 	
Equal to or Greater than 0.10 percent

	
(iii)
	
Tangible Net Worth (Total assets less Total Liabilities and Goodwill)
	 	
Equal to or Greater than $2,500,000
	 	
Equal to or Greater than $2,500,000
	 	
Equal to or Greater than $2,500,000
	 	
Equal to or Greater than $5,000,000

	
(iv)
	
Debt Service Ratio (Operating Income to Interest)
	 	
Equal to or Greater than 1.25:1.0
	 	
Equal to or Greater than 1.25:1.0
	 	
Equal to or Greater than 1.25:1.0
	 	
Equal to or Greater than 1.75:1.0

	
(v)
	
Debt to Equity (Total Debt to Equity)
	 	
Equal to or Less than 5.0:1.0
	 	
Equal to or Less than 5.0:1.0
	 	
Equal to or Less than 5.0:1.0
	 	
Equal to or Less than 5.0:1.0

	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 




 

IV.  Additional Conditions Precedent Pursuant to Section 5.1 (J) of the Agreement:


	
·

	
Executed Blocked Account Amendment;

	 	 
	
·

	
Executed Corporate Guaranty of Datatec Services, Inc.;

	 	 
	
·

	
Executed Corporate Guaranty of eDeploy.com, Inc.;

	 	 
	
·

	
Executed guaranty of any shareholder(s) owning ten (10) percent or more of the equity of Customer.  Customer shall cause guarantor(s) to submit a personal financial statement upon the request of IBM Credit.

	 	 
	
·

	
Executed Notes Payable Subordination Agreement in the amount of One Million Three Hundred  and Ninety Thousand Dollars ($1,390,000.00) from Christopher Carey.

	 	 
	
·

	
Fiscal year-end financial statements of Customer as of end of Customer's prior fiscal year audited by an independent certified public account.

	 	 
	
·

	
A Certificate of Location of Collateral whereby the Customer certifies where Customer presently keeps or sells inventory, equipment and other tangible Collateral;

	 	 
	
·

	
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;

	 	 
	
·

	
Listing of all creditors providing accounts receivable financing to Customer;

	 	 
	
·

	
A Collateral Management Report in the form of Attachment F as of the Closing Date;

	 	 
	
·

	
A Compliance Certificate as to Customer's compliance with the financial covenants set forth in Attachment A as of the last fiscal month of Customer for which financial statements have been published;

	 	 
	
·

	
An Opinion of Counsel substantially in the form and substance of Attachment H whereby the Customer's counsel states his or her opinion about the execution, delivery and performance of the Agreement and other documents by the Customer;

	 	 
	
·

	
A Corporate Secretary's Certificate substantially in the form and substance of Attachment I certifying to, among other items, the resolutions of Customer's Board of Directors authorizing borrowing by Customer;

	 	 
	
·

	
Termination or release of Uniform Commercial Code filing by another creditor as required by IBM Credit;

	 	 
	
·

	
A copy of all-risk insurance certificate pursuant to Section 7.8 (B) of the Agreement;

	 	 
	
·

	
Executed Letter of Direction;

	 	 
	
·

	
Executed Letter of Notification;

	 	 
	
·

	
Executed Acknowledgement of Payment and Termination from Finova