Document:

exv10w3

 

EXHIBIT 10.3

THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT

     THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”) is made and
entered into as of the ___ day of June, 2005 by and between CONGRESS FINANCIAL CORPORATION
(SOUTHWEST), a Texas corporation (“Lender”), and SUPPLIES DISTRIBUTORS, INC., a Delaware
corporation (“Borrower”).

     WHEREAS, Borrower and Lender are parties to that certain Loan and Security Agreement dated as
of March 29, 2002 as amended by that certain First Amendment to Loan and Security Agreement dated
as of April 20, 2004 and by that certain Second Amendment to Loan and Security Agreement dated as
of December 21, 2004 (as amended from time to time, the “Loan Agreement”);

     WHEREAS, Borrower and Lender desire to amend the Loan Agreement in the manner provided below;

     NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:

ARTICLE I.

DEFINITIONS

     Section 1.01. Definitions. Capitalized terms used in this Amendment, to the extent
not otherwise defined herein, shall have the same meaning as in the Loan Agreement, as amended
hereby.

ARTICLE II.

AMENDMENTS

     Section 2.01. Amendment to Section 9.11(c) of the Loan Agreement. Effective as of the
date hereof, Section 9.11(c) of the Loan Agreement is hereby amended and restated in its
entirety to read as follows: “(c) the aggregate amount of all such dividends does not exceed (i)
$800,000 per year for any year other than 2005, and $1,000,000 per year for 2005, plus (ii) an
amount equal to the proceeds received by Borrower related to the liquidation of Business Supplies
Distributors Europe BV, plus (iii) an amount equal to any cash dividends received by Borrower from
Supplies Distributors SA.”

ARTICLE III.

NO WAIVER

     Section 3.01. No Waiver. Nothing contained in this Amendment shall be construed as a
waiver by Lender of any covenant or provision of the Loan Agreement, the other documents and
agreements relating hereto or thereto (hereinafter individually referred to as a “Loan
Document” and collectively referred to as the “Loan Documents”), this Amendment, or of
any other contract or instrument between Borrower and Lender, and the failure of Lender at any time
or times

 

 

hereafter to require strict performance by Borrower of any provision thereof shall not waive,
affect or diminish any right of Lender to thereafter demand strict compliance therewith. Lender
hereby reserves all rights granted under the Loan Agreement, the other Loan Documents, this
Amendment and any other contract or instrument between Borrower and Lender.

ARTICLE IV.

CONDITIONS PRECEDENT

     Section 4.01. Conditions. The effectiveness of this Amendment is subject to the
satisfaction of the following conditions precedent, unless specifically waived by Lender:

     (a) Lender shall have received, in form and substance satisfactory to Lender in its
sole discretion, (i) this Amendment, duly executed by Borrower and each of the attached
Consent, Ratification and Releases duly executed by the Guarantors, and (ii) such
additional documents, instruments and information as Lender or its legal counsel may
request;

     (b) The representations and warranties contained herein, in the Loan Agreement, as
amended hereby, and/or in the other Loan Documents shall be true and correct as of the date
hereof as if made on the date hereof;

     (c) No default shall have occurred under the Loan Agreement and be continuing and no
default shall exist under the Loan Agreement unless such default has been specifically
waived in writing by Lender; and

     (d) All corporate proceedings taken in connection with the transactions contemplated by
this Amendment and all documents, instruments and other legal matters incident thereto shall
be satisfactory to Lender and its legal counsel, Patton Boggs LLP.

ARTICLE V.

RATIFICATIONS, REPRESENTATIONS AND WARRANTIES

     Section 5.01. Ratifications. The terms and provisions set forth in this Amendment
shall modify and supersede all inconsistent terms and provisions set forth in the Loan Agreement
and except as expressly modified and superseded by this Amendment, the terms and provisions of the
Loan Agreement are ratified and confirmed and shall continue in full force and effect.

     Section 5.02. Representations and Warranties. Borrower hereby represents and warrants
to Lender that (i) the execution, delivery and performance of this Amendment and any and all other
Loan Documents executed and/or delivered in connection herewith have been authorized by all
requisite corporate action on the part of Borrower and will not violate the Articles of
Incorporation or Bylaws of Borrower, (ii) the representations and warranties contained in the Loan
Agreement, as amended hereby, and any other Loan Document are true and correct on and as of the
date hereof as though made on and as of the date hereof, (iii) Borrower is in full compliance with
all covenants and agreements contained in the Loan Agreement, as amended hereby, and (iv) Borrower
has not amended its Articles of Incorporation or Bylaws since March 29, 2002.

2

 

ARTICLE VI.

MISCELLANEOUS

     Section 6.01. Survival of Representations and Warranties. All representations and
warranties made in the Loan Agreement or any other document or documents relating thereto,
including, without limitation, any Loan Document furnished in connection with this Amendment, shall
survive the execution and delivery of this Amendment and the other Loan Documents, and no
investigation by Lender or any closing shall affect the representations and warranties or the right
of Lender to rely upon them.

     Section 6.02. Reference to Loan Agreement. Each of the Loan Documents, including the
Loan Agreement and any and all other agreements, documents or instruments now or hereafter executed
and delivered pursuant to the terms hereof or pursuant to the terms of the Loan Agreement as
amended hereby, are hereby amended so that any reference in such Loan Documents to the Loan
Agreement shall mean a reference to the Loan Agreement as amended hereby.

     Section 6.03. Expenses of Lender. As provided in the Loan Agreement, Borrower agrees
to pay all reasonable costs and expenses incurred by Lender in connection with the preparation,
negotiation and execution of this Amendment and the other Loan Documents executed pursuant hereto
and any and all amendments, modifications, and supplements thereto, including without limitation
the reasonable costs and fees of Lender’s legal counsel, and all reasonable costs and expenses
incurred by Lender in connection with the enforcement or preservation of any rights under the Loan
Agreement, as amended hereby, or any other Loan Document, including without limitation the
reasonable costs and fees of Lender’s legal counsel.

     Section 6.04. Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder
of this Amendment and the effect thereof shall be confined to the provision so held to be invalid
or unenforceable. Furthermore, in lieu of each such invalid or unenforceable provision there shall
be added automatically as a part of this Amendment a valid and enforceable provision that comes
closest to expressing the intention of such invalid or unenforceable provision.

     Section 6.05. APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED
PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN DALLAS, TEXAS AND SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.

     Section 6.06. Successors and Assigns. This Amendment is binding upon and shall inure
to the benefit of Lender and Borrower and their respective successors and assigns, except Borrower
may not assign or transfer any of its rights or obligations hereunder without the prior written
consent of Lender.

     Section 6.07. Counterparts. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original, but all of which

3

 

when taken together shall constitute one and the same instrument.

     Section 6.08. Effect of Waiver. No consent or waiver, express or implied, by Lender
to or for any breach of or deviation from any covenant or condition of the Loan Agreement shall be
deemed a consent or waiver to or of any other breach of the same or any other covenant, condition
or duty.

     Section 6.09. Headings. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of this Amendment.

     Section 6.10. NO ORAL AGREEMENTS. THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

     Section 6.11. RELEASE. BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE,
COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE WHATSOEVER THAT CAN BE
ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS LIABILITY TO REPAY THE “OBLIGATIONS” OR TO
SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM LENDER. BORROWER HEREBY VOLUNTARILY
AND KNOWINGLY RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES,
SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES,
COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED,
SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN
WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH THE BORROWER MAY NOW OR
HEREAFTER HAVE AGAINST LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY,
AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR
REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY “LOANS”, INCLUDING, WITHOUT LIMITATION, ANY
CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE
HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR
OTHER AGREEMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT.

[Remainder of Page Intentionally Left Blank; Signature Page Follows]

4

 

     IN WITNESS WHEREOF, this Amendment has been duly executed by Borrower and Lender to be
effective as of the date first above written.

	 	 	 	 	 	 	 
	LENDER:

	 	BORROWER:

	CONGRESS FINANCIAL CORPORATION
(SOUTHWEST)	 	SUPPLIES DISTRIBUTORS, INC.,
	 
	 	 	 	 	 	 
	By:

	 	 	 	By:	 	 
	 

	 	 
	 	 	 	 
	Name:

	 	 	 	Name:	 	 
	 

	 	 
	 	 	 	 
	Title:

	 	 	 	Title:	 	 
	 

	 	 
	 	 	 	 
	 
	 	 	 	 	 	 
	Address:	 	Chief Executive
Office:
	 
	 	 	 	 	 	 
	5001 LBJ Freeway, Suite 1050	 	500 North Central Expressway, 5th Floor
	Dallas, Texas 75244	 	Plano, Texas 75074

 

 

CONSENT, RATIFICATION AND RELEASE

     Each of the undersigned hereby consents to the terms of the within and foregoing Amendment,
confirms and ratifies the terms of that certain Secured Guarantee dated March 29, 2002 and that
certain General Security Agreement dated March 29, 2002 each as amended from time to time and as
executed by the undersigned for the benefit of Lender (the “Guaranty Documents”), and
acknowledges that the Guaranty Documents are in full force and effect and ratifies the same, that
the undersigned has no defense, counterclaim, set-off or any other claim to diminish the
undersigned’s liability under such documents, that the undersigned’s consent is not required to the
effectiveness of the within and foregoing Amendment, and that no consent by the undersigned is
required for the effectiveness of any future amendment, modification, forbearance or other action
with respect to the Obligations, the Collateral, or any of the other Loan Documents. THE
UNDERSIGNED HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES LENDER, ITS
PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS,
ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN,
ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW
OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED,
WHICH THE UNDERSIGNED MAY NOW OR HEREAFTER HAVE AGAINST LENDER, ITS PREDECESSORS, AGENTS,
EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF
CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY “LOANS”,
INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR
RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND
REMEDIES UNDER THE LOAN AGREEMENT OR OTHER AGREEMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS
AMENDMENT.

	 	 	 	 	 
	 	 	PRIORITY FULFILLMENT SERVICES, INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	BUSINESS SUPPLIES DISTRIBUTORS HOLDINGS, LLC
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 

 

 

CONSENT, RATIFICATION AND RELEASE

     The undersigned hereby consents to the terms of the within and foregoing Amendment, confirms
and ratifies the terms of that certain Guarantee dated March 29, 2002 as amended from time to time
and as executed by the undersigned for the benefit of Lender (the “Guaranty Documents”),
and acknowledges that the Guaranty Documents are in full force and effect and ratifies the same,
that the undersigned has no defense, counterclaim, set-off or any other claim to diminish the
undersigned’s liability under such documents, that the undersigned’s consent is not required to the
effectiveness of the within and foregoing Amendment, and that no consent by the undersigned is
required for the effectiveness of any future amendment, modification, forbearance or other action
with respect to the Obligations, the Collateral, or any of the other Loan Documents. THE
UNDERSIGNED HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES LENDER, ITS
PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS,
ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN,
ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW
OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED,
WHICH THE UNDERSIGNED MAY NOW OR HEREAFTER HAVE AGAINST LENDER, ITS PREDECESSORS, AGENTS,
EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF
CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY “LOANS”,
INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR
RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND
REMEDIES UNDER THE LOAN AGREEMENT OR OTHER AGREEMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS
AMENDMENT.

	 	 	 	 	 
	 	 	PFSWEB, INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:exv10w4

 

EXHIBIT 10.4

AMENDMENT NO. 6

TO

AGREEMENT FOR INVENTORY FINANCING

     This Amendment No. 6 (“Amendment”) to the Agreement for Inventory Financing is made as of June 22, 2005 by
and among IBM Credit LLC, a Delaware limited liability company, formerly IBM Credit Corporation (“IBM Credit”),
Business Supplies Distributors Holdings, LLC, a limited liability company duly organized under the laws
of the state of Delaware (“Holdings”), Supplies Distributors, Inc. (formerly known as BSD Acquisition Corp.),
a corporation duly organized under the laws of the state of Delaware (“Borrower”), Priority Fulfillment Services,
Inc., a corporation duly organized under the laws of the state of Delaware (“PFS”) and PFSweb, Inc.,
a corporation duly organized under the laws of the state of Delaware (“PFSweb”) (Borrower, Holdings, PFS, PFSweb,
and any other entity that executes this Agreement or any Other Document, including without limitation all
Guarantors, are each individually referred to as a “Loan Party” and collectively referred to as “Loan Parties”).

RECITALS:

     A. Each Loan Party and IBM Credit have entered into that certain Agreement for Inventory
Financing dated as of March 29, 2002 (as amended, supplemented or otherwise modified from time to
time, the “Agreement”); and

     B. The parties have agreed to modify the Agreement as more specifically set forth below,
upon and subject to the terms and conditions set forth herein.

AGREEMENT

     NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, Borrower, the other
Loan Parties and IBM Credit hereby agree as follows:

Section 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set
forth in the Agreement.

Section 2. Amendment.

     Subject to the satisfaction of the conditions precedents set forth in Section 3 hereof,
Attachment A to the Agreement for Inventory Financing is hereby amended by deleting such Attachment
A in its entirety and substituting, in lieu thereof, the Attachment A attached hereto. Such new
Attachment A shall be effective as of the date specified in the new Attachment A. The changes
contained in the new Attachment A include, without limitation, the following:

     The Credit Line is increased from Twenty Seven Million Five Hundred Thousand Dollars
($27,500,000.00) to Thirty Million Five Hundred Thousand Dollars ($30,500,000.00);

Section 3. Conditions of Effectiveness of Amendment. This Amendment shall become effective upon the receipt by IBM Credit of this Amendment that shall have been authorized,
executed and
delivered by each of the parties hereto and IBM Credit shall have received a copy of such fully
executed Amendment.

Section 4. Representations and Warranties. Each Loan Party 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 4.1 Accuracy and Completeness of Warranties and Representations. All representations
made by the Loan Party 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 the Loan Party in the

Page 1 of 3

 

 

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 representations not misleading.

Section 4.2 Violation of Other Agreements and Consent. The execution and delivery of this Amendment and the performance and observance of the covenants to be performed and
observed
hereunder (a) do not violate or cause any Loan Party not to be in compliance with the terms of any
agreement to which such Loan Party is a party, and (b) require the consent of any Person.

Section 4.3 Litigation. Except as has been disclosed by the Loan Party to IBM Credit in
writing, there is no litigation, proceeding, investigation or labor dispute pending or threatened
against any Loan Party, which, if adversely determined, would materially adversely affect the Loan
Party’s ability to perform such Loan Party’s obligations under the Agreement and the other
documents, instruments and agreements executed in connection therewith or pursuant hereto.

Section 4.4 Enforceability of Amendment. This Amendment has been duly authorized, executed and
delivered by each Loan Party and is enforceable against each Loan Party in accordance with its
terms.

Section 5. Ratification of Agreement. Except as specifically amended hereby, all of the
provisions of the Agreement shall remain unamended and in full force and effect. Each Loan Party
hereby ratifies, confirms and agrees that the Agreement, as amended hereby, represents a valid and
enforceable obligation of such Loan Party, and is not subject to any claims, offsets or
defenses.

Section 6. Ratification of Guaranty and Notes Payable Subordination Agreement. Each of Holdings, PFSweb and PFS hereby ratify and confirm their respective guaranties in favor of
IBM
Credit and agree that such guaranties remain in full force and effect and that the term
“Liabilities”, as used therein include, without limitation the indebtedness liabilities and
obligations of the Borrower under the Agreement as amended hereby.

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

Section 8. 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, each Loan Party has read this entire Amendment, and has caused its
authorized representatives to execute this Amendment and has caused its corporate seal, if any, to
be affixed hereto as of the date first written above.

	 	 	 
	IBM Credit LLC

	 	Supplies Distributors, Inc.
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	 
	[PLEASE PRINT NAME & TITLE]

	 	[PLEASE PRINT NAME & TITLE]
	 
	 	 
	PRIORITY FULFILLMENT SERVICES, INC.

	 	PFSweb, Inc.
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	 
	[PLEASE PRINT NAME & TITLE]

	 	[PLEASE PRINT NAME & TITLE]

Page 2 of 3

 

 

	 	 	 
	 

	 	Business Supplies Distributors Holdings, LLC,
	 
	 	 
	 

	 	 
	 

	 	By
                   
                   
                     as Managing Member
	 
	 	 
	 

	 	 
	 

	 	[PLEASE PRINT NAME & TITLE]

Page 3 of 3

 

 

ATTACHMENT A (“ATTACHMENT A”) TO

AGREEMENT FOR INVENTORY FINANCING (“AGREEMENT”) DATED MARCH 29, 2002

By and among IBM Credit LLC, Business Supplies Distributors Holdings, LLC, Supplies

Distributors, Inc., Priority Fulfillment Services, Inc., and PFSweb, Inc.,

EFFECTIVE DATE OF THIS ATTACHMENT A: June 22, 2005

SECTION I. BORROWER/LOAN PARTIES:

	 	 	 
	(A)
BORROWER:	 	ORGANIZATION
NO. (Assigned by State of Org).
	 
	Supplies
Distributors, Inc.
	 	3416326
	 
	 	 
	(B) ADDITIONAL
LOAN PARTIES:
	 	 
	 
	 	 
	Business Supplies Distributors Holdings, LLC
	 	3410894
	Priority
Fulfillment Services, Inc.
	 	2606094
	PFSweb, Inc.
	 	3062550

SECTION II. FEES, RATES AND REPAYMENT TERMS:

	 	(A)	 	Credit Line: (i) Thirty Million Five Hundred Thousand Dollars ($30,500,000) for the
period from the date hereof until the Credit Reduction Date and (ii) on and after the
Credit Reduction Date, the Credit Line shall be Twenty Two Million Five Hundred Thousand
Dollars ($22,500,000). Notwithstanding the foregoing if on or after the Credit Reduction
Date, IBM Credit sells a Participation to another financial institution pursuant to a
Participation Agreement and sends a Participation Notice (including, without limitation,
any Participation Notice sent on the Credit Reduction Date) to Borrower, then the Credit
Line will be increased (effective as of the date set forth in the Participation Notice) by
the amount set forth in Participation Notice (so long as the Participation Agreement
remains in full force and effect) but in no event shall the Credit Line exceed Thirty
Million Five Hundred Thousand Dollars ($30,500,000).
	 
	 	 	 	In the event that the amount of any Participation is reduced or any Participation Agreement
expires or is terminated for any reason, the Credit Line shall be reduced, upon forty-five
(45) days written notice by IBM Credit to Borrower, by an amount equal to the amount that is
no longer subject to a Participation Agreement as determined by IBM Credit pursuant to
Section 2.1 of the Agreement
	 
	 	(B)	 	Borrowing Base:
	 
	 	 	 	(i)100% of the Borrower’s inventory in the Borrower’s possession as of the date of
determination as reflected in the Borrower’s most recent Collateral Management Report constituting
Products (other than service parts) financed through a Product Advance by IBM Credit, so long as
(1) IBM Credit has a first priority security interest in such Products; (2) such Products are in
new and un-opened boxes, and (3) Borrower provides a detailed listing of inventory to IBM Credit
and Authorized Supplier provides a quarterly evaluation of such inventory. The value to be
assigned to such inventory shall be based upon the Authorized Supplier’s evaluation of the
inventory, acceptable to IBM Credit in its sole discretion,

Page 1 of 4

 

 

	 	 	 	(ii) 80% of price protection payments, credits, discounts, incentive payments, rebated
and refunds relating to IBM Products (“Accounts”) in the aggregate not to exceed Two Million
Five Hundred Thousand Dollars ($2,500,000.00) provided that (i) Borrower obtains (and
provides to IBM Credit along with the monthly Collateral Management Report required under
Section 7.1 (O)) from IBM written confirmation (a) acknowledging the obligation of IBM to
pay such amount or that they have received the billing from the Borrower, (b) stating the
date the amount is due to be paid and (c) IBM waiving its right to setoff such amounts owed
to Borrower with any amount Borrower may owe to IBM, (ii) such Accounts do not remain unpaid
for more than sixty (60) days from the date the obligation of IBM occurred; and (iii) such
Accounts are delivered directly to IBM Credit.
	 
	 	(C)	 	Product Financing Charge: Prime Rate plus 1.0%
	 
	 	(D)	 	Product Financing Period: 90 days
	 
	 	(E)	 	Collateral Insurance Amount: Twenty Seven Million Five Hundred Thousand Dollars
($27,500,000.00)
	 
	 	(F)	 	PRO Finance Charge:                      Prime Rate Plus 1.0%
	 
	 	(G)	 	Delinquency Fee Rate:                      Prime Rate Plus 6.500%
	 
	 	(I)	 	Free Financing Period Exclusion Fee: Product Advance multiplied by 0.25%
	 
	 	(J)	 	Other Charges:
	 
	 	 	 	(i) Monthly Service Fee:                      $1,000.00
	 
	 	 	 	(ii) Annual Renewal Fee:                      $15,000.00

SECTION III. FINANCIAL COVENANTS:

(A) 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 Borrower 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, restricted cash applicable to cash
received into a lockbox from collections of trade accounts receivable 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 and Congress shall be considered a Current Liability for
purposes of determining compliance with the Financial Covenants. All subordinated
indebtedness shall not be considered current liabilities.

“EBITDA” shall mean, for any period (determined on a consolidated basis in accordance with
GAAP), (a) the Consolidated Net Income of Borrower for such period, plus (b) each of the
following to the extent reflected as an expense in the determination of such Consolidated
Net Income: (i) the Borrower’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 Borrower 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 Borrower on a consolidated
basis, of (i) scheduled repayments of principal of all Indebtedness (as reduced by
repayments thereon previously

Page 2 of 4

 

 

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 Borrower during such period in respect of Indebtedness determined on a consolidated
basis in accordance with GAAP, including, without limitation, amortization of original
issue discount on any Indebtedness and of all fees payable in connection with the
incurrence of such Indebtedness (to the extent included in interest expense), the interest
portion of any deferred payment obligation and the interest component of any capital lease
obligations.

“Long Term” shall mean beyond the ongoing twelve month period.

“Long Term Assets” shall mean assets that take longer than a year to be converted to cash.
They are divided into four categories: tangible assets, investments, intangibles and other.

“Long Term Debt” shall mean payment obligations of indebtedness which mature more than
twelve months from the date of determination, or mature within twelve months from such date
but are renewable or extendible at the option of the debtor to a date more than twelve
months from the date of determination.

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

“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 Borrower’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 goodwill.

“Total Assets” shall mean the total of Current Assets and Long Term Assets. For the purpose
of calculating Total Assets for Borrower, the accumulated earnings and foreign currency
translation adjustments applicable to Borrower’s Canadian and European subsidiaries are
excluded.

“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. For the purpose of calculating Total Net
Worth of Borrower, following shall be excluded (i) accumulated earnings and foreign
currency translation adjustments applicable to Borrower’s Canadian and European
subsidiaries and (ii) all income and losses applicable to foreign currency adjustments for
each period but not excluding such foreign currency adjustments for annual periods that
must comply with GAAP.

“Working Capital” shall mean Current Assets minus Current Liabilities.

     (B) 1. Borrower will be required to maintain the following financial ratios, percentages and
amounts as of the last day of the fiscal period under review (quarterly, annually) by IBM
Credit:

Page 3 of 4

 

 

	 	 	 	 	 
	 	 	Covenant	 	Covenant Requirement
	(i)

	 	Revenue on an Annual Basis* (i.e. the current fiscal year-to-date Revenue
annualized) to Working Capital
	 	Greater than Zero and
Equal to or Less than 43.0:1.0
	 

	 	* Annualized Revenue from intercompany sales
are excluded from this
calculation.	 	 
	(ii)

	 	Net Profit after Tax to Revenue**
	 	Equal to or Greater than 0.20 percent
	 
	 	 	 	 
	 

	 	**Excluding all income and losses applicable to (a) 100% ownership in
Canadian and European subsidiaries and (b) foreign currency adjustments for each
period but not excluding such foreign currency adjustments for annual periods that
must comply with GAAP and excluding revenue from intercompany sales.	 	 
	(iii)

	 	Total Liabilities to Tangible Net Worth***
	 	Greater than Zero and Equal to or
Less than 7.0:1.0
	 
	 	 	 	 
	 

	 	***Accumulated earnings and foreign currency translation adjustments
applicable to Borrower’s Canadian and European subsidiaries are excluded
from calculation of Borrower’s Total Assets and Total Net Worth.	 	 

2. Business Supplies Distributors Holdings, LLC will be required to maintain the
following financial ratios, percentages and amounts as of the last day of the
fiscal period under review (quarterly, annually) by IBM Credit:

	 	 	 	 	 
	 	 	Covenant	 	Covenant Requirement
	(i)

	 	Revenue on an Annual Basis (i.e. the current
fiscal year-to-date Revenue annualized)
to Working Capital
	 	Greater than Zero and
Equal to or Less than 43.0:1.0
	(ii)

	 	Net Profit after Tax to Revenue*
	 	Equal to or Greater than 0.15 percent
	 
	 	 	 	 
	 

	 	*Excluding all (a) income and losses applicable to foreign currency
adjustments for each period but not excluding such foreign currency
adjustments for annual periods that must comply with GAAP and (b) revenue
from intercompany sales.	 	 
	(iii)

	 	Total Liabilities to Tangible Net Worth
	 	Greater than Zero and Equal to or
Less than 8.0:1.0

3. PFSweb, Inc. will be required to maintain the following financial ratios,
percentages and amounts as of the last day of the fiscal period under review
(quarterly, annually) by IBM Credit:

	 	 	 	 	 
	 	 	Covenant	 	 
	Covenant	 	Requirement	 	As of Date
	Minimum Tangible Net Worth

	 	$18,000,000.00
	 	03/31/03 and thereafter

Page 4 of 4

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