UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
For the Transition Period from
to
Commission File Number
000-28275
PFSweb, Inc.
OF THE SECURITIES EXCHANGE ACT OF 1934
Delaware
75-2837058
(State of Incorporation)
(I.R.S. Employer I.D. No.)
500 North Central Expressway, Plano, Texas
75074
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (972) 881-2900
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No x
At May 6, 2004 there were 21,247,401 shares of registrant’s common stock outstanding, excluding 86,300 shares of common stock in treasury.
PFSWEB, INC. AND SUBSIDIARIES
Form 10-Q
March 31, 2004
INDEX
2
PART I. FINANCIAL INFORMATION
PFSWEB, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
3
PFSWEB, INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
4
PFSWEB, INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
5
PFSweb, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
1. OVERVIEW AND BASIS OF PRESENTATION
PFSweb Overview
PFSweb, Inc. and its subsidiaries are collectively referred to as the
“Company,” while the term “PFSweb” refers to PFSweb, Inc. and its subsidiaries
excluding Business Supplies Distributors Holdings, LLC and its subsidiaries.
PFSweb is an international provider of integrated business process
outsourcing services to major brand name companies seeking to maximize their
supply chain efficiencies and to extend their traditional and e-commerce
initiatives in the United States, Canada, and Europe. PFSweb offers such
services as professional consulting, technology collaboration, managed web
hosting and internet application development, order management, web-enabled
customer contact centers, customer relationship management, financial services
including billing and collection services and working capital solutions,
information management, option kitting and assembly services, and international
fulfillment and distribution services.
Supplies Distributors Overview
In 2001, Business Supplies Distributors Holdings, LLC (“Holdings”) formed a
wholly-owned subsidiary, Supplies Distributors, Inc. (“Supplies Distributors”).
Concurrently, Supplies Distributors formed its wholly-owned subsidiaries,
Supplies Distributors of Canada, Inc. (“SDC”) and Supplies Distributors S.A.
(“SDSA”), a Belgium Corporation. Supplies Distributors and its subsidiaries
are master distributors of various products, primarily International Business
Machines (“IBM”) products. Pursuant to a transaction management services
agreement between PFSweb and Supplies Distributors, PFSweb provides to Supplies
Distributors and its subsidiaries such services as managed web hosting and
maintenance, procurement support, web-enabled customer contact center services,
customer relationship management, financial services including billing and
collection services, information management, and international distribution
services. Additionally, IBM and Supplies Distributors and its subsidiaries have
outsourced the product demand generation function for the IBM products
distributed by Supplies Distributors and its subsidiaries. Supplies
Distributors and its subsidiaries sell their products in the United States,
Canada and Europe.
Basis of Presentation
The unaudited interim condensed consolidated financial statements as of
March 31, 2004, and for the three months ended March 31, 2004 and 2003, have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (“SEC”) and are unaudited. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
of America have been condensed or omitted pursuant to the rules and regulations
promulgated by the SEC. In the opinion of management and subject to the
foregoing, the unaudited interim condensed consolidated financial statements of
the Company include all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the Company’s financial
position as of March 31, 2004, its results of operations for the three months
ended March 31, 2004 and 2003 and its results of cash flows for the three
months ended March 31, 2004 and 2003. Results of the Company’s operations for
interim periods may not be indicative of results for the full fiscal year.
Certain prior period data has been reclassified to conform to the current
period presentation. These reclassifications had no effect on previously
reported net loss or shareholders’ equity.
2.
SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
All intercompany accounts and transactions have been eliminated in
consolidation. Accounts and transactions between PFSweb and Holdings and its
subsidiaries have been eliminated as of March 31, 2004 and December 31, 2003
and for the three months ended March 31, 2004 and 2003.
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PFSweb, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
Subordinated Loan to Affiliate
PFSweb has loaned Supplies Distributors monies in the form of a
Subordinated Demand Note (“Subordinated Note”). Under certain terms of its
senior debt facilities, the outstanding balance of the Subordinated Note cannot
be increased or decreased without prior approval of the Company’s lenders.
During the three months ended March 31, 2004, the Company’s lenders agreed to
reduce the required minimum Subordinated Note balance from $8.0 million to $7.0
million. As of March 31, 2004 and December 31, 2003, the outstanding balance of
the Subordinated Note, which is eliminated upon the consolidation of Holdings’
financial position, was $7.5 million and $8.0 million, respectively.
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities, and
the reported amounts of revenues and expenses, including allowances for the
collectibility of accounts and other receivables and the recoverability of
inventory. The recognition and allocation of certain operating expenses in
these consolidated financial statements also required management estimates and
assumptions. The Company’s estimates and assumptions are continually evaluated
based on available information and experience. Because the use of estimates is
inherent in the financial reporting process, actual results could differ from
estimates. If there is a significant unfavorable change to current conditions,
it would likely result in a material adverse impact to the Company’s business,
operating results and financial condition.
Concentration of Business and Credit Risk
The Company’s product revenue was primarily generated by sales of product
purchased under master distributor agreements with one supplier. Sales to two
customers accounted for approximately 13% and 10% of the Company’s total
product revenues for the three months ended March 31, 2004. Service fee
revenue from two clients accounted for approximately 31% and 22% of net service
fee revenue for the three months ended March 31, 2004. On a consolidated basis,
two customers/clients accounted for approximately 15% and 10% of the Company’s
total revenues for the three months ended March 31, 2004. As of March 31, 2004,
two customers/clients accounted for approximately 30% of accounts receivable.
As of December 31, 2003, two customers/clients accounted for approximately 37%
of accounts receivable.
In conjunction with Supplies Distributors’ and its subsidiaries’
financings, PFSweb has provided certain collaterized guarantees on behalf of
Supplies Distributors and its subsidiaries. Supplies Distributors’ and its
subsidiaries’ ability to obtain financing on similar terms would be
significantly impacted without these guarantees. Additionally, since Supplies
Distributors and its subsidiaries have limited personnel and physical
resources, their ability to conduct business could be materially impacted by
contract terminations by the party performing product demand generation for the
IBM products.
The Company has multiple arrangements with IBM and is dependent upon the
continuation of such arrangements. These arrangements, which are critical to
the Company’s ongoing operations, include Supplies Distributors’ and its
subsidiaries’ master distributor agreements, Supplies Distributors’ and its
subsidiaries’ working capital financing agreements, product sales to IBM
business units, a general contractor relationship through PFSweb’s largest
client, and a term master lease agreement.
Cash and Cash Equivalents
Cash equivalents are defined as short-term highly liquid investments with
original maturities of three months or less.
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PFSweb, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
Inventories
Inventories (merchandise, held for resale, all of which are finished
goods) are stated at the lower of cost or market. Supplies Distributors and its
subsidiaries assume responsibility for slow-moving inventory under certain
master distributor agreements, subject to certain termination rights, but have
the right to return product rendered obsolete by engineering changes, as
defined. The Company reviews inventory for impairment on a periodic basis, but
at a minimum, annually. Recoverability of the inventory on hand is measured by
comparison of the carrying value of the inventory to the fair value of the
inventory. The allowance for slow moving inventory was $1.7 million and $1.3
million at March 31, 2004 and December 31, 2003, respectively.
In the event PFSweb, Supplies Distributors and its subsidiaries and IBM
terminate the master distributor agreements, the parties shall mutually agree
on a plan of disposition of Supplies Distributors’ and its subsidiaries’ then
existing inventory.
Inventories include merchandise in-transit that has not been received by
the Company but that has been shipped and invoiced by Supplies Distributors’
and its subsidiaries’ vendors. The corresponding payable for inventories
in-transit is included in debt in the accompanying consolidated financial
statements.
Property and Equipment
The Company’s property held under capital leases amounted to approximately
$4.0 million and $3.1 million, net of accumulated amortization of approximately
$4.8 million and $4.6 million, at March 31, 2004 and December 31, 2003,
respectively.
Stock-Based Compensation
The Company accounts for stock options using the intrinsic-value method as
outlined under Accounting Principles Board Opinion No. 25,
Accounting for Stock
Issued to Employees
(“APB No. 25”) and related interpretations, including FASB
Interpretation No. 44,
Accounting for Certain Transactions Involving Stock
Compensation and Interpretation of APB No. 25
, issued in March 2000. Under this
method, compensation expense is recorded on the date of the grant only if the
current market price of the underlying stock exceeds the exercise price. The
exercise prices of all options granted during the three months ended March 31,
2004 and 2003 were equal to the market price of the Company’s common stock at
the date of grant. As such, no compensation cost was recognized during those
periods for stock options granted to employees. The following table shows the
pro forma effect on the Company’s net loss and loss per share as if
compensation cost had been recognized for stock options based on their fair
value at the date of the grant. The pro forma effect of stock options on the
Company’s net loss for those years may not be representative of the pro forma
effect for future years due to the impact of vesting and potential future
awards.
8
PFSweb, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
During the three months ended March 31, 2004, the Company issued an
aggregate of 708,500 options to purchase shares of common stock to officers and
employees of PFSweb.
3. COMPREHENSIVE LOSS (in thousands)
4. NET LOSS PER COMMON SHARE AND COMMON SHARE EQUIVALENT
Basic and diluted net loss per common share attributable to PFSweb, Inc. common
stock were determined based on dividing the net loss available to common
stockholders by the weighted-average number of common shares outstanding.
During the three months ended March 31, 2004 and 2003, all outstanding options
to purchase common shares were anti-dilutive and have been excluded from the
weighted diluted average share computation. As of March 31, 2004 and 2003
there were 5,051,554 and 4,724,835 options outstanding, respectively.
5.
DEBT AND CAPITAL LEASE OBLIGATIONS:
Debt and capital lease obligations consist of the following (in
thousands):
Inventory and Working Capital Financing Agreement, United States
Supplies Distributors has a short-term credit facility with IBM Credit LLC
to finance its distribution of IBM products in the United States, providing
financing for eligible IBM inventory and for certain other receivables up to
$27.5 million as of March 31, 2004 and December 31, 2003. The asset based
credit facility provides for the reduction of the maximum credit limit from
$27.5 million to $22.5 million on July 1, 2004 unless IBM Credit LLC sells a
participation interest in the facility, in which event the maximum credit limit
will be reduced to $22.5 million plus the amount of any participation interest,
but in no event more than $27.5 million through its expiration on March 29,
2005. As of March 31, 2004, Supplies Distributors had $1.2 million of available
credit under this facility. The credit facility contains cross default
provisions, various restrictions upon the ability of Holdings and Supplies
Distributors to, among others, merge, consolidate, sell assets, incur
indebtedness, make loans and payments to related parties, provide guarantees,
make investments and loans, pledge assets, make changes to capital stock
ownership structure and pay dividends, as well as financial covenants, such as
annualized revenue to working capital, net profit after tax to revenue, and
total liabilities to tangible net worth, as defined, and are secured by all of
the assets
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PFSweb, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
of Supplies Distributors, as well as collateralized guaranties of Holdings
and PFSweb. Additionally, PFSweb is required to maintain a minimum Subordinated
Note receivable balance from Supplies Distributors of $7.0 million and a
minimum shareholders’ equity of $18.0 million. Borrowings under the credit
facility accrue interest, after a defined free financing period, at prime rate
plus 1%. The facility accrues a quarterly commitment fee of 0.375% on the
unused portion of the commitment, and a monthly service fee.
Inventory and Working Capital Financing Agreement, Europe
SDSA and Supplies Distributors’ wholly-owned subsidiary Business Supplies
Distributors Europe B.V. (“BSD Europe”) have a short-term credit facility with
IBM Belgium Financial Services S.A. (“IBM Belgium”) to finance their
distribution of IBM products in Europe. The asset based credit facility with
IBM Belgium provides up to 12.5 million Euros (approximately $15.2 million) in
financing for purchasing IBM inventory and for certain other receivables
through March 29, 2005. As of March 31, 2004, SDSA and BSD Europe had 0.6
million euros ($0.7 million) of available credit under this facility. The
credit facility contains cross default provisions, various restrictions upon
the ability of Holdings, Supplies Distributors, SDSA and BSD Europe to, among
others, merge, consolidate, sell assets, incur indebtedness, make loans and
payments to related parties, provide guarantees, make investments and loans,
pledge assets, make changes to capital stock ownership structure and pay
dividends, as well as financial covenants, such as annualized revenue to
working capital, net profit after tax to revenue, and total liabilities to
tangible net worth, as defined, and are secured by all of the assets of SDSA
and BSD Europe, as well as collateralized guaranties of Holdings, Supplies
Distributors and PFSweb. Additionally, PFSweb is required to maintain a minimum
Subordinated Note receivable balance from Supplies Distributors of $7.0 million
and a minimum shareholders’ equity of $18.0 million. Borrowings under the
credit facility accrue interest, after a defined free financing period, at
Euribor plus 2.5%. SDSA and BSD Europe pay a monthly service fee on the
commitment.
Loan and Security Agreement
-
Supplies Distributors
Supplies Distributors has a loan and security agreement with Congress
Financial Corporation (Southwest) (“Congress”) to provide financing for up to
$25 million of eligible accounts receivable in the United States and Canada. As
of March 31, 2004, Supplies Distributors had $0.6 million of available credit
under this agreement. The Congress facility expires on the earlier of March 29,
2005 or the date on which the parties to the IBM master distributor agreement
shall no longer operate under the terms of such agreement and/or IBM no longer
supplies products pursuant to such agreement. Borrowings under the Congress
facility accrue interest at prime rate plus 0.25% or Eurodollar rate plus 3.0%
or on an adjusted basis, as defined. This agreement contains cross default
provisions, various restrictions upon the ability of Holdings and Supplies
Distributors to, among other things, merge, consolidate, sell assets, incur
indebtedness, make loans and payments to related parties, provide guarantees,
make investments and loans, pledge assets, make changes to capital stock
ownership structure and pay dividends, as well as financial covenants, such as
minimum net worth, as defined, and is secured by all of the assets of Supplies
Distributors, as well as collateralized guaranties of Holdings and PFSweb.
Additionally, PFSweb is required to maintain a Subordinated Note receivable
balance from Supplies Distributors of no less than $6.5 million and restricted
cash of less than $5.0 million, and is restricted with regard to transactions
with related parties, indebtedness and changes to capital stock ownership
structure. Supplies Distributors and SDC entered into blocked account
agreements with their banks and Congress whereby a security interest was
granted to Congress for all customer remittances received in specified bank
accounts. At March 31, 2004 and December 31, 2003, these bank accounts held
$0.6 million and $0.8 million, respectively, which was restricted for payment
to Congress.
On April 20, 2004, the Company amended the facility with Congress. The
amendment lowers the interest rate charged on borrowings, as defined, reduces
certain fees, and extends the expiration date to the earlier of March 29, 2007
or the date on which the parties to the IBM master distribution agreement no
longer operate under the terms of such agreement and/or IBM no longer supplies
products pursuant to such agreement.
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PFSweb, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
Loan and Security Agreement – PFSweb
Priority Fulfillment Services, Inc. and Priority Fulfillment Services of
Canada, Inc. (both wholly-owned subsidiaries of PFSweb and collectively the
“Borrowers”) have a Loan and Security Agreement with Comerica Bank (“Comerica
Agreement”). The Comerica Agreement provides for up to $5.0 million of eligible
accounts receivable financing in the United States and Canada (“Working Capital
Advances”) through March 28, 2005 and up to $2.5 million of eligible equipment
purchases (“Equipment Advances”) through September 10, 2006. Outstanding
Working Capital Advances, $0.5 million as of March 31, 2004, accrue interest at
prime rate plus 1%. Outstanding Equipment Advances, $1.4 million as of March
31, 2004, accrue interest at prime rate plus 1.5%. As of March 31, 2004, the
Borrowers had $2.6 million of available credit under the Working Capital
Advance portion of this facility. In April 2004, the Company repaid the $0.5
million of Working Capital Advances outstanding as of March 31, 2004. The
agreement contains cross default provisions, various restrictions upon the
Borrowers’ ability to, among other things, merge, consolidate, sell assets,
incur indebtedness, make loans and payments to related parties, make
investments and loans, pledge assets, make changes to capital stock ownership
structure, as well as financial covenants of a minimum tangible net worth, as
defined, of $19.0 million and a minimum liquidity ratio, as defined. The
agreement restricts the amount of the Subordinated Note to a maximum of $8.0
million. The agreement is secured by all of the assets of the Borrowers, as
well as a guarantee of PFSweb, Inc. The amendment requires the Borrowers to
maintain a minimum cash balance of $1.25 million at Comerica.
Factoring Agreement
SDSA has a factoring agreement with Fortis Commercial Finance N.V.
(“Fortis”) to provide factoring for up to 7.5 million euros (approximately $9.1
million) of eligible accounts receivables through March 29, 2005. As of March
31, 2004, SDSA had approximately 1.3 million euros ($1.6 million) of available
credit under this agreement. Borrowings under this agreement can be either cash
advances or straight loans, as defined. Cash advances accrue interest at the
fixed interest rate of Belgium banks plus .75%, or on an adjusted basis as
defined, but not lower than 6%; and straight loans accrue interest at Euribor
plus 1.3%. This agreement contains various restrictions upon the ability of
SDSA to, among other things, merge, consolidate and incur indebtedness, as well
as financial covenants, such as minimum net worth. This agreement is secured by
a guarantee of Supplies Distributors, up to a maximum of 200,000 euros.
Debt Covenants
To the extent the Company fails to comply with its covenants, including
the monthly financial covenant requirements and required level of consolidated
shareholders’ equity ($19.0 million), and the lenders accelerate the repayment
of the credit facility obligations, the Company would be required to repay all
amounts outstanding thereunder. Any acceleration of the repayment of the
credit facilities would have a material adverse impact on the Company’s
financial condition and results of operations and no assurance can be given
that the Company would have the financial ability to repay all of such
obligations. At March 31, 2004, the Company and Supplies Distributors were in
compliance with all debt covenants.
PFSweb has also provided a guarantee of the obligations of Supplies
Distributors and SDSA to IBM, excluding the trade payables that are financed by
IBM credit.
Master Lease Agreements
The Company has a Term Lease Master Agreement with IBM Credit Corporation
(“Master Lease Agreement”) that provides for leasing or financing transactions
of equipment and other assets, which generally have terms of 3 to 5 years. The
outstanding leasing transactions ($1.3 million and $0.1 million as of March 31,
2004 and December 31, 2003, respectively) are secured by the related equipment
and a letter of credit. The outstanding financing transactions ($0.7 million
and $0.8 million as of March 31, 2004 and December 31, 2003, respectively) are
secured by a letter of credit. In October 2003, the Company refinanced certain
amounts outstanding under the Master Lease Agreement with an Equipment Advance
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PFSweb, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
under the Comerica Agreement, which reduced the letter of credit security
requirement.
The Company has a master agreement with a leasing company that provided
for leasing transactions of certain equipment. The amounts outstanding under
this agreement were $1.5 million as of both March 31, 2004 and December 31,
2003, and are secured by the related equipment.
The Company enters into other leasing and financing agreements as needed
to finance the purchasing or leasing of certain equipment or other assets.
Borrowings under these agreements are generally secured by the related
equipment.
6. SEGMENT INFORMATION
The Company is organized into two operating segments. PFSweb is an
international provider of integrated business process outsourcing solutions and
operates as a service fee business. Holdings and its subsidiaries are master
distributors of primarily IBM products, and recognize revenues and costs when
product is shipped.
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our results of operations and
financial condition should be read in conjunction with the unaudited interim
condensed consolidated financial statements and related notes appearing
elsewhere in this Form 10-Q.
Forward-Looking Information
We have made forward-looking statements in this Report on Form 10-Q. These
statements are subject to risks and uncertainties, and there can be no
guarantee that these statements will prove to be correct. Forward-looking
statements include assumptions as to how we may perform in the future. When we
use words like “seek,” “strive,” “believe,” “expect,” “anticipate,” “predict,”
“potential,” “continue,” “will,” “may,” “could,” “intend,” “plan,” “target” and
“estimate” or similar expressions, we are making forward-looking statements.
You should understand that the following important factors, in addition to
those set forth above or elsewhere in this Report on Form 10-Q and our Form
10-K for the year ended December 31, 2003, could cause our results to differ
materially from those expressed in our forward-looking statements. These
factors include:
We have based these statements on our current expectations about future
events. Although we believe that the expectations reflected in our
forward-looking statements are reasonable, we cannot guarantee you that these
expectations actually will be achieved. In addition, some forward-looking
statements are based upon assumptions as to future events that may not prove to
be accurate. Therefore, actual outcomes and results may differ materially from
what is expected or forecasted in such forward-looking statements. We
undertake no obligation to update publicly any forward-looking statement for
any reason, even if new information becomes available or other events occur in
the future. There may be additional risks that we do not currently view as
material or that are not presently known.
Overview
We are an international provider of integrated business process
outsourcing solutions to major brand name companies seeking to maximize their
supply chain efficiencies and to extend their traditional business and
e-commerce initiatives. We derive our revenues from a broad range of services,
including professional consulting, technology collaboration, order management,
managed web hosting and web development,
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customer relationship management, financial services including billing and
collection services and working capital solutions, options kitting and assembly
services, information management and international fulfillment and distribution
services. We offer our services as an integrated solution, which enables our
clients to outsource their complete infrastructure needs to a single source and
to focus on their core competencies. Our distribution services are conducted at
our warehouses and include real-time inventory management and customized
picking, packing and shipping of our clients’ customer orders. We currently
provide infrastructure and distribution solutions to clients that operate in a
range of vertical markets, including technology manufacturing, computer
products, printers, cosmetics, fragile goods, high security collectibles,
pharmaceuticals, contemporary home furnishings, apparel, telecommunications and
consumer electronics, among others.
We provide these services, and earn our revenue, through two separate
business segments, which have operationally similar business models. The first
business segment is a service fee revenue model. In this segment, we do not
own the underlying inventory or the resulting accounts receivable, but provide
management services for these client-owned assets. We typically charge our
service fee revenue on a percent of shipped revenue basis or a per-transaction
basis, such as a per-minute basis for web-enabled customer contact center
services and a per-item basis for fulfillment services. Additional fees are
billed for other services. We price our services based on a variety of factors,
including the depth and complexity of the services provided, the amount of
capital expenditures or systems customization required, the length of contract
and other factors.
Many of our service fee contracts involve third-party vendors who provide
additional services such as package delivery. The costs we are charged by these
third-party vendors for these services are often passed on to our clients (and,
in many cases, our clients’ customers). Our billings for reimbursements of
these and other ‘out-of-pocket’ expenses, such as travel, shipping and handling
costs and telecommunication charges are included in gross service fee revenue.
The related reimbursable costs for pass-through expenditures are reflected as
pass-through charges and reduce total gross service fee revenue in computing
net service fee revenue.
Our second business segment is a product revenue model. In this segment,
we are a master distributor of product for IBM and certain other clients. In
this capacity, we purchase, and thus own, inventory. As a result, upon the
sale of inventory, we own the accounts receivable. This business segment
requires significant working capital requirements, for which we have senior
financing facilities to provide for up to approximately $77 million of
available financing. Our services include purchasing and reselling client
product inventory within this product revenue segment. In these arrangements,
our product revenue is recognized at the time product is shipped. Product
revenue includes freight costs billed to customers and is reduced for pass
through customer marketing programs.
Growth is a key element to us achieving our future goals, including reaching
sustainable profitability. Our growth is driven by two main elements: new
client relationships and organic growth from existing clients. On an overall
basis, we have experienced an increase in service fee revenues from existing
clients and an increase in product revenues in recent periods. However, due to
uncertainty in the United States economic climate, lead times to close new
business continue to be longer than we would ultimately desire and our closure
rate is difficult to predict.
Our expenses comprise primarily three categories: 1) cost of service fee
revenue, 2) cost of product revenue and 3) selling, general and administrative
(“SG&A”) expenses.
Cost of service fee revenue
– consists primarily of compensation and
related expenses for our web-enabled customer contact center services,
international fulfillment and distribution services and professional consulting
services, and other fixed and variable expenses directly related to providing
services under the terms of fee based contracts, including certain occupancy
and information technology costs and depreciation and amortization expenses.
Cost of product revenue
-
cost of product revenue consists of the purchase
price of product sold and freight costs, which are reduced by certain
reimbursable expenses. These reimbursable expenses include pass through
customer marketing programs, direct costs incurred in passing on any price
decreases offered by IBM to us or our customers to cover price protection and
certain special bids, the cost of products
14
provided to replace defective product returned by customers and certain
other expenses as defined under the master distributor agreements.
SG&A expenses
-
consist primarily of compensation and related expenses for
sales and marketing staff, executive, management and administrative personnel
and other overhead costs, including certain occupancy and information
technology costs and depreciation and amortization expenses. In addition,
certain direct contract costs related to our IBM and other master distributor
agreements are reflected as selling and administrative expenses.
Monitoring and controlling our available cash balances continues to be a
primary focus. Our cash and liquidity positions are important components of
our financing of both current operations and our targeted growth. During 2003
we added to our available cash and liquidity positions through two primary
transactions. First, we entered into a working capital financing agreement
with a bank that currently provides financing for up to $5 million of eligible
accounts receivable and financing for up to $2.5 million of eligible capital
expenditures. Secondly, we completed a private placement of approximately 1.6
million shares of our common stock to certain investors that provided net
proceeds of approximately $3.2 million.
Results of Operations
The following table sets forth certain historical financial information
from our unaudited interim condensed consolidated statements of operations
expressed as a percent of revenue.
Results of Operations for the Interim Periods Ended March 31, 2004 and 2003
Product Revenue.
Product revenue was $68.6 million for the three months
ended March 31, 2004, as compared to $59.7 million for the three months ended
March 31, 2003, an increase of $8.9 million, or 14.8%. The increase in product
revenue resulted primarily from the favorable impact of exchange rates on our
European and Canadian operations and increased sales volumes of many existing
products. In addition, product revenue was favorably impacted by the addition
of certain new products and increased sales prices for certain products.
Net Service Fee Revenue
. Net service fee revenue was $7.0 million for the
three months ended March 31, 2004 as compared to $6.6 million for the three
months ended March 31, 2003, an increase of $0.4 million or 5.4%. The change in
net service fee revenue is shown below ($ millions):
15
Net service fee revenue for the three months ended March 31, 2004 included
approximately $0.6 million of fees earned from clients contracts terminated
during 2004.
Cost of Product Revenue.
Cost of product revenue was $64.5 million for
the three months ended March 31, 2004, as compared to $56.4 million for the
three months ended March 31, 2003, an increase of $8.1 million or 14.3%. Cost
of product revenue as a percent of product revenue was 94.0% during the three
months ended March 31, 2004 and 94.5% during the three months ended March 31,
2003. Cost of product revenue increased from the prior period from the impact
of exchange rates on our European and Canadian operations, increased volumes of
many existing products and the addition of certain new product and additional
reserves for inventory impairment for the three months ended March 31, 2004.
The resulting gross profit margin was 6.0% for the three months ended March 31,
2004 and 5.5% for the three months ended March 31, 2003.
Cost of Net Service Fee Revenue
. Cost of net service fee revenue was $5.2
million for the three months ended March 31, 2004, as compared to $4.9 million
during the three months ended March 31, 2003, an increase of $0.3 million or
5.7%. The resulting service fee gross profit was $1.8 million, or 25.4% of net
service fee revenue, during the three months ended March 31, 2004 as compared
to $1.7 million, or 25.7% of net service fee revenue for the three months ended
March 31, 2003. As we add new service fee revenue in the future, we currently
intend to target the underlying contracts to earn an average gross profit
percentage of 30-40%.
Selling, General and Administrative Expenses
. SG&A expenses were $7.0
million for the three months ended March 31, 2004, or 9.3% of total net
revenues, as compared to $6.1 million, or 9.2% of total net revenues, for the
three months ended March 31, 2003. SG&A expenses increased from the prior year
primarily due to additional expenses incurred in preparation of complying with
the Sarbanes-Oxley Act and incremental sales and marketing expenses.
Interest Expense, net
. Interest expense was $0.4 million for the three
months ended March 31, 2004 as compared to $0.6 million for the three months
ended March 31, 2003. The decrease in interest expense is primarily due to
lower average loan balances as a result of reduced inventory levels.
Income Taxes
. For the three months ended March 31, 2004 and 2003, we recorded
a tax provision of $0.2 million and $0.1 million, respectively, primarily
associated with our subsidiary Supplies Distributors’ Canadian and European
operations. We did not record an income tax benefit associated with our
consolidated net loss in our U.S. operations. A valuation allowance has been
provided for our net deferred tax assets, which are primarily related to our
net operating loss carryforwards. We did not record an income tax benefit for
our European pre-tax losses in the current or prior period. Due to the
consolidation of Supplies Distributors and its subsidiaries, in the future we
anticipate that we will continue to record an income tax provision associated
with Supplies Distributors’ Canadian and European results of operations.
Liquidity And Capital Resources
Net cash provided by operating activities was $1.9 million for the three
months ended March 31, 2004, and primarily resulted from a $5.4 million
decrease in inventory and a $1.4 million increase in accounts payable and
accrued expenses, partially offset by cash used to fund operating losses and
increases in accounts receivable of $3.9 million and prepaid expenses, other
receivables and other current assets of $0.7 million. Net cash provided by
operating activities was $4.0 million for the three months ended March 31,
2003, and primarily resulted from a $7.2 million decrease in inventory,
partially offset by cash used to fund operating losses and an increase in
accounts receivable of $2.0 million and decrease in accounts payable and
accrued expenses of $0.9 million.
16
Net cash used in investing activities for the three months ended March 31,
2004 totaled $0.9 million, primarily representing capital expenditures. Net
cash used in investing activities totaled $0.3 million for the three months
ended March 31, 2003, representing capital expenditures. Capital expenditures
have historically consisted primarily of additions to upgrade our management
information systems, including our Internet-based customer tools, other methods
of e-commerce and general expansion of and upgrades to our facilities, both
domestic and foreign. We expect to incur capital expenditures in order to
support new contracts and anticipated future growth opportunities. We
anticipate that our total investment in upgrades and additions to facilities
and information technology services for the upcoming twelve months will be
approximately $2 to $4 million, although additional capital expenditures may be
necessary to support the infrastructure requirements of new clients. A portion
of these expenditures may be financed through operating or capital leases. We
may elect to modify or defer a portion of such anticipated investments in the
event that we do not achieve the revenue necessary to support such investments.
Net cash used in financing activities was approximately $1.3 million for
the three months ended March 31, 2004, primarily representing $0.2 million of
payments on our capital lease obligations and $1.3 million of payments on debt.
Net cash used in financing activities was approximately $3.4 million for the
three months ended March 31, 2003, primarily representing $0.3 million of
payments on our capital lease obligations and $2.8 million of payments on debt.
During the three months ended March 31, 2004, our working capital
decreased to $19.3 million from $21.4 million at December 31, 2003 primarily as
a result of funding operating losses and capital expenditures. To obtain
additional financing in the future, in addition to our current cash position,
we plan to evaluate various financing alternatives including utilizing capital
or operating leases, borrowing under our own credit facility, or transferring a
portion of our subordinated loan balance due from Supplies Distributors, to
third-parties. In conjunction with certain of these alternatives, we may be
required to provide certain letters of credit to secure these arrangements. No
assurances can be given that we will be successful in obtaining any additional
financing or the terms thereof. We currently believe that our cash position,
financing available under our credit facilities and funds generated from
operations (including our anticipated revenue growth and/or cost reductions to
offset lower than anticipated revenue growth) will satisfy our presently known
operating cash needs, our working capital and capital expenditure requirements,
our lease obligations, and additional subordinated loans to our subsidiary
Supplies Distributors, Inc. (“Supplies Distributors”), if necessary, for at
least the next twelve months.
Supplies Distributors has a short-term credit facility with IBM Credit LLC
(“IBM Credit”) and its subsidiaries Supplies Distributors S.A. (“SDSA”) and
Business Supplies Distributors Europe B.V., European corporations, have a
short-term credit facility with IBM Belgium Financial Services S.A. (“IBM
Belgium”) to finance their distribution of IBM products. We have provided a
collateralized guaranty to secure the repayment of these credit facilities. As
of March 31, 2004, the asset-based credit facilities provided financing for up
to $27.5 million and up to 12.5 million Euros (approximately $15.2 million)
with IBM Credit and IBM Belgium, respectively. These agreements expire in March
2005. The agreement with IBM Credit provides for the reduction of the maximum
credit limit from $27.5 million to $22.5 million on July 1, 2004 unless IBM
Credit LLC sells a participation interest in the facility, in which event the
maximum credit limit will be reduced to $22.5 million plus the amount of any
participation interest, but in no event more than $27.5 million through its
expiration on March 29, 2005.
Supplies Distributors also has a loan and security agreement with Congress
Financial Corporation (Southwest) (“Congress”) to provide financing for up to
$25 million of eligible accounts receivables in the United States and Canada.
The Congress facility expires on the earlier of March 29, 2007 or the date on
which the parties to the IBM master distributor agreement shall no longer
operate under the terms of such agreement and/or IBM no longer supplies
products pursuant to such agreement.
SDSA has a factoring agreement with Fortis Commercial Finance N.V.
(“Fortis”) to provide factoring for up to 7.5 million Euros (approximately $9.1
million) of eligible accounts receivables through March 29, 2005. Borrowings
under this agreement can be either cash advances or straight loans, as defined.
These credit facilities contain cross default provisions, various
restrictions upon the ability of our subsidiaries Business Supplies
Distributors Holdings, LLC (Holdings”), Supplies Distributors and SDSA to,
among other things, merge, consolidate, sell assets, incur indebtedness, make
loans and payments to related
17
parties, provide guarantees, make investments and loans, pledge assets,
make changes to capital stock ownership structure and pay dividends, as well as
financial covenants, such as cash flow from operations, annualized revenue to
working capital, net profit after tax to revenue, minimum net worth and total
liabilities to tangible net worth, as defined, and are secured by all of the
assets of Supplies Distributors, as well as collateralized guaranties of
Holdings and PFSweb. Additionally, we are required to maintain a subordinated
loan to Supplies Distributors of no less than $7.0 million, maintain restricted
cash of less than $5.0 million, are restricted with regard to transactions with
related parties, indebtedness and changes to capital stock ownership structure
and a minimum shareholders’ equity of at least $19.0 million. Furthermore, we
are obligated to repay any over-advance made to Supplies Distributors or SDSA
under these facilities if Supplies Distributors or SDSA is unable to do so. We
have also provided a guarantee of the obligations of Supplies Distributors and
SDSA to IBM, excluding the trade payables that are financed by IBM credit.
Priority Fulfillment Services, Inc. and Priority Fulfillment Services of
Canada, Inc., (both wholly-owned subsidiaries of PFSweb and collectively the
“Borrowers”) have a Loan and Security Agreement (the “Agreement”) with Comerica
Bank (“Comerica”). The Agreement provides for up to $5.0 million of eligible
accounts receivable financing in the U.S. and Canada through March 28, 2005,
and up to $2.5 million of eligible equipment purchases through September 10,
2006. We entered this Agreement to supplement our existing cash position, and
provide funding for our future operations, including our targeted growth. The
Agreement contains cross default provisions, various restrictions upon the
Borrowers’ ability to, among other things, merge, consolidate, sell assets,
incur indebtedness, make loans and payments to related parties, make
investments and loans, pledge assets, make changes to capital stock ownership
structure, as well as financial covenants of a minimum tangible net worth, as
defined, and a minimum liquidity ratio, as defined. The Agreement also limits
our ability to increase the subordinated loan to Supplies Distributors without
the lender’s approval. The Agreement is secured by all of the assets of the
Borrowers, as well as a guarantee of PFSweb.
The following is a schedule of our total contractual cash and other
obligations, which is comprised of operating leases, debt and capital leases,
including interest (in millions):
In support of certain debt instruments and leases, as of March 31, 2004,
we had $1.1 million of cash restricted as collateral for a letter of credit.
The letter of credit automatically decreases at certain dates through its
expiration in March 2007. In addition, as described above, we have provided
collateralized guarantees to secure the repayment of certain Supplies
Distributors’ credit facilities. Many of the debt facilities include both
financial and non-financial covenants, and also include cross default
provisions applicable to other agreements. To the extent we fail to comply with
our debt covenants, including the monthly financial covenant requirements and
our required level of shareholders’ equity, and the lenders accelerate the
repayment of the credit facility obligations, we would be required to repay all
amounts outstanding thereunder. Any requirement to accelerate the repayment of
the credit facility obligations would have a material adverse impact on our
financial condition and results of operations. We can provide no assurance that
we will have the financial ability to repay all of such obligations. As of
March 31, 2004, we were in compliance with all debt covenants and we believe
that we will maintain such compliance throughout calendar year 2004. We do not
have any other material financial commitments.
We currently believe that we are still operating with and incurring costs
applicable to excess physical capacity in our North American and European
operations. We believe that based on our current cost structure, as we add
revenue, we will be able to cover our reduced infrastructure costs and reach
profitability. We currently estimate that the net service fee revenue needed to
leverage our existing infrastructure and cost structure and reach profitability
is approximately between $12 million to $13 million per quarter. No assurance
can be given that we can achieve such operating levels, or that, if achieved,
we
18
will be profitable in any particular fiscal period. We will reevaluate the
carrying value of certain of the excess long-lived warehouse operation and
information technology infrastructure assets for impairment in 2004, in
conjunction with our future operating plans, and determine if additional asset
impairment costs should be recognized.
In the future, we may attempt to acquire other businesses or seek an
equity or strategic partner to generate capital or expand our services or
capabilities in connection with our efforts to grow our business. Acquisitions
involve certain risks and uncertainties and may require additional financing.
Therefore, we can give no assurance with respect to whether we will be
successful in identifying businesses to acquire or an equity or strategic
partner, whether we or they will be able to obtain financing to complete a
transaction, or whether we or they will be successful in operating the acquired
business.
Seasonality
The seasonality of our business is dependent upon the seasonality of our
clients’ business and their sale of their products. Accordingly, our management
must rely upon the projections of our clients in assessing quarterly
variability. We believe that with our current client mix, our service fee
business activity will be at its lowest in the quarter ended March 31 and at
its highest in the quarter ended June 30. We expect our Supplies Distributors
business to be seasonally strong in the December quarter of each year.
We believe that results of operations for a quarterly period may not be
indicative of the results for any other quarter or for the full year.
Inflation
Management believes that inflation has not had a material effect on our
operations.
Critical Accounting Policies
A description of critical accounting policies is included in Note 2 to the
accompanying unaudited interim condensed consolidated financial statements.
For other significant accounting policies, see Note 2 to the consolidated
financial statements in our December 31, 2003 Annual Report on Form 10-K.
19
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
We are exposed to various market risks including interest rates on its
financial instruments and foreign exchange rates.
Interest Rate Risk
Our interest rate risk is limited to our outstanding balances on our
inventory and working capital financing agreements, loan and security
agreements and factoring agreement for the financing of inventory, accounts
receivable and certain other receivables, which amounted to $55.1 million at
March 31, 2004. A 100 basis point movement in interest rates would result in
approximately $0.2 million annualized increase or decrease in interest expense
based on the outstanding balance of these agreements at March 31, 2004.
Foreign Exchange Risk
Currently, our foreign currency exchange rate risk is primarily limited to
the Canadian Dollar and the Euro. In the future, our foreign currency exchange
risk may also include other currencies applicable to certain of our
international operations. We may, from time to time, employ derivative
financial instruments to manage our exposure to fluctuations in foreign
currency rates. To hedge our net investment and intercompany payable or
receivable balances in foreign operations, we may enter into forward currency
exchange contracts. We do not hold or issue derivative financial instruments
for trading purposes or for speculative purposes.
ITEM 4. Controls and Procedures
We maintain a system of controls and procedures designed to provide
reasonable assurance as to the reliability of the financial statements and
other disclosures included in this report, as well as to safeguard assets from
unauthorized use or disposition. We evaluated the effectiveness of the design
and operation of our disclosure controls and procedures under the supervision
and with the participation of management, including our Chief Executive Officer
and Principal Financial and Accounting Officer, within 90 days prior to the
filing date of this report. Based upon the evaluation, our Chief Executive
Officer and Principal Financial and Accounting Officer concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information required to be included in our periodic Securities and
Exchange Commission filings. No significant changes were made to our internal
controls or other factors that could significantly affect these controls
subsequent to the date of their evaluation.
20
Table of Contents
Three Months Ended
March 31,
2004
2003
$
68,570
$
59,719
8,743
7,248
1,781
640
6,962
6,608
75,532
66,327
64,453
56,407
5,193
4,913
69,646
61,320
5,886
5,007
7,023
6,112
(1,137
)
(1,105
)
428
608
(1,565
)
(1,713
)
202
61
$
(1,767
)
$
(1,774
)
$
(0.08
)
$
(0.10
)
21,186
18,416
Table of Contents
Three Months Ended
March 31,
2004
2003
$
(1,767
)
$
(1,774
)
1,126
1,189
39
151
354
13
(49
)
—
(3,927
)
(2,030
)
5,442
7,224
(673
)
134
1,362
(885
)
1,907
4,022
(956
)
(267
)
83
—
(873
)
(267
)
(216
)
(272
)
185
(342
)
33
28
(1,274
)
(2,821
)
(1,272
)
(3,407
)
(17
)
(85
)
(255
)
263
14,743
8,595
$
14,488
$
8,858
$
1,298
$
64
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Three Months Ended
March 31,
2004
2003
$
(1,767
)
$
(1,774
)
(281
)
288
$
(2,048
)
$
(1,486
)
March 31,
December 31,
2004
2003
$
23,836
$
26,034
11,303
11,526
13,490
13,146
1,929
3,514
4,283
2,296
4,010
3,080
244
251
59,095
59,847
55,671
57,085
$
3,424
$
2,762
Table of Contents
Table of Contents
Table of Contents
Three Months
Three Months
Ended
Ended
March 31,
March 31,
2004
2003
$
9,224
$
8,528
68,570
59,719
(2,262
)
(1,920
)
$
75,532
$
66,327
$
(2,821
)
$
(2,200
)
1,677
1,088
7
7
$
(1,137
)
$
(1,105
)
$
1,119
$
1,182
14
14
(7
)
(7
)
$
1,126
$
1,189
$
956
$
267
—
—
—
—
$
956
$
267
March 31,
December 31,
2004
2003
$
43,951
$
43,629
76,048
77,878
(13,380
)
(13,148
)
$
106,619
$
108,359
Table of Contents
•
our ability to retain and expand relationships with existing clients
and attract and implement new clients;
•
our reliance on the fees generated by the transaction volume or product sales of our clients;
•
our reliance on our clients’ projections or transaction volume or product sales;
•
our dependence upon our agreements with IBM;
•
our client mix, their business volumes and the seasonality of their business;
•
our ability to finalize pending contracts;
•
the impact of strategic alliances and acquisitions;
•
trends in the market for our services;
•
trends in e-commerce;
•
whether we can continue and manage growth;
•
changes in the trend toward outsourcing;
•
increased competition;
•
our ability to generate more revenue and achieve sustainable profitability;
•
effects of changes in profit margins;
•
the customer and supplier concentration of our business;
•
the unknown effects of possible system failures and rapid changes in technology;
•
trends in government regulation both foreign and domestic;
•
foreign currency risks and other risks of operating in foreign countries;
•
potential litigation;
•
our dependency on key personnel;
•
our ability to raise additional capital or obtain additional financing; and
•
our ability or the ability of our subsidiaries to borrow under
current financing arrangements and maintain compliance with debt
covenants.
Table of Contents
Table of Contents
Three Months Ended
March 31,
2004
2003
(Unaudited)
(Unaudited)
90.8
%
90.0
%
11.6
10.9
(2.4
)
(0.9
)
9.2
10.0
100.0
100.0
94.0
94.5
74.6
74.3
92.2
92.5
7.8
7.5
9.3
9.2
(1.5
)
(1.7
)
0.5
0.9
(2.0
)
(2.6
)
0.3
0.1
(2.3
)%
(2.7
)%
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits:
21
22
Exhibit No.
Description of Exhibits
Amended and Restated Certificate of Incorporation
Amended and Restated Bylaws
Amendment to Agreement for Inventory Financing by and among
Business Supplies Distributors Holdings, LLC, Supplies
Distributors, Inc., Priority Fulfillment Services, Inc.,
PFSweb, Inc., and IBM Credit LLC
Amendment 4 to Amended and Restated Platinum Plan Agreement
(with Invoice Discounting) by and among Supplies Distributors,
S.A., Business Supplies Distributors B.V., PFSweb B.V., and
IBM Belgium Financial Services S.A.
Third Amended and Restated Notes Payable Subordination
Agreement by and between Priority Fulfillment Services, Inc.,
Supplies Distributors, Inc. and IBM Credit Corporation
First Amendment to Loan and Security Agreement by and between
Congress Financial Corporation (Southwest), as Lender and
Supplies Distributors, Inc., as Borrower.
Form of Modification to Executive Severance Agreement.
Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Certifications of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Table of Contents
*
Incorporated by reference from PFSweb, Inc. Registration Statement on
Form S-1 (Commission File No. 333-87657).
**
Filed herewith
b)
Reports on Form 8-K:
Form 8-K filed on February 23, 2004 reporting Item 12, Results of
Operations and Financial Condition, that on February 23, 2004, PFSweb,
Inc. issued a press release announcing its financial results for the
quarter and fiscal year ended December 31, 2003.
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 17, 2004
23
PFSweb, Inc.
By:
/s/ Thomas J. Madden
Thomas J. Madden
Chief Financial Officer,
Chief Accounting Officer,
Executive Vice President
Table of Contents
INDEX TO EXHIBITS
Exhibit
No.
Description of Exhibits
Amended and Restated Certificate of Incorporation
Amended and Restated Bylaws
Amendment to Agreement for Inventory Financing by and among
Business Supplies Distributors Holdings, LLC, Supplies
Distributors, Inc., Priority Fulfillment Services, Inc.,
PFSweb, Inc., and IBM Credit LLC
Amendment 4 to Amended and Restated Platinum Plan Agreement
(with Invoice Discounting) by and among Supplies
Distributors, S.A., Business Supplies Distributors B.V.,
PFSweb B.V., and IBM Belgium Financial Services S.A.
Third Amended and Restated Notes Payable Subordination
Agreement by and between Priority Fulfillment Services,
Inc., Supplies Distributors, Inc. and IBM Credit
Corporation
First Amendment to Loan and Security Agreement by and
between Congress Financial Corporation (Southwest), as
Lender and Supplies Distributors, Inc., as Borrower.
Form of Modification to Executive Severance Agreement.
Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
Certifications of Chief Executive Officer and Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
| * | Incorporated by reference from PFSweb, Inc. Registration Statement on Form S-1 (Commission File No. 333-87657). | |||
| ** | Filed herewith | |||
24
EXHIBIT 10.1
AMENDMENT NO. 4
TO
AGREEMENT FOR INVENTORY FINANCING
This Amendment No. 4 ("Amendment") to the Agreement for Inventory Financing is made as of March 29, 2004 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
D. 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, the Agreement is hereby amended as follows:
A. Section 1 of the Agreement is hereby amended by inserting the following definitions in the appropriate alphabetical order:
" `Credit Reduction Date': shall mean the date that is the earlier of (a) July 1, 2004 and (b) the date IBM Credit delivers a Participation Notice."
" `Participation': sale by IBM Credit to another financial institution of an undivided interest, of certain Obligations owed by Borrower to IBM Credit pursuant to a Participation Agreement."
" "Participation Agreement': an agreement in form and substance satisfactory to IBM Credit whereby IBM Credit sells a Participation to another financial institution."
" `Participation Notice': a written notice sent by IBM Credit to Borrower that an undivided interest of certain obligations owed by Borrower to IBM Credit has been sold by IBM Credit to a financial institution pursuant to a Participation Agreement."
B. Section 1 of the Agreement is hereby amended by amending the definition of "Amended and Restated Notes Payable Subordination Agreement" to read in its entirety as follows:
" `Amended and Restated Notes Payable Subordination Agreement': the Third Amended and Restated Notes Payable Subordination Agreement dated March 29, 2004 executed by PFS in favor of IBM Credit."
C. Section 1 of the Agreement is hereby amended by amending the definition of "Termination Date" to read in its entirety as follows:
" `Termination Date': shall mean March 29, 2005 or such other date as IBM Credit and the Borrower may agree to from time to time in writing."
D. Section 1 of the Agreement is hereby amended by amending the definition of "Shortfall Amount" to read in its entirety as follows:
" `Shortfall Amount`: as defined in Section 2.6."
E. Section 2.1 of the Agreement is hereby amended by inserting the following sentence at the end of this section:
"Notwithstanding the foregoing, Borrower agrees that if the Credit Line has been increased due to a Participation, and thereafter the amount of any Participation is reduced or any Participation Agreement expires or is terminated for any reason, including, without limitation, through or as a result of any actions or failure on the part of IBM Credit, including, without limitation, any breach of IBM Credit's legal or contractual obligations, 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. Nothing herein shall impose any obligation on IBM Credit to sell participations in any Obligations hereunder or to enter into any Participation Agreement and IBM Credit shall have no liability for its failure to do so."
F. Section 8.6 of the Agreement is hereby amended by amending this Section to read in its entirety as follows:
"8.6. RESTRICTED PAYMENTS. Borrower will not, directly or indirectly make any of the following payments ("Restricted Payments") without prior written consent from IBM Credit, which shall not be unreasonably withheld: (i) declare or pay any dividend (other than dividends payable solely in common stock of Borrower and cash dividends not to exceed Eight Hundred Thousand Dollars ($800,000) to be paid in fiscal year 2004 for which consent is hereby given) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of capital stock of Borrower or any warrants, options or rights to purchase any such capital stock or Equity Interests, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of Borrower; or (ii) make any optional payment or prepayment on or redemption (including, without limitation, by making payments to a sinking or analogous fund) or repurchase of any Indebtedness (other than the Obligations or payments of the revolving loans made by Congress made in the ordinary course administration thereof pursuant to the Congress Credit Agreement)), except as permitted by the Amended and Restated Notes Payable Subordination Agreement."
G. 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. The changes contained in the new Attachment A include, without limitation, the following:
Section II (A) of Attachment A is hereby amended by amending the Credit Line to read in its entirety as follows:
(A) Credit Line: (i) Twenty Seven Million Five Hundred Thousand Dollars ($27,500,000) 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 Twenty Seven Million Five Hundred Thousand Dollars ($27,500,000). 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 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
SECTION 3. CONDITIONS OF EFFECTIVENESS OF AMENDMENT. This Amendment shall become effective upon the receipt by IBM Credit of (i) this Amendment shall have been authorized, executed and delivered by each of the parties hereto and IBM Credit shall have received a copy of a fully executed Amendment, (ii) the Third Amended and Restated Notes Payable Subordination Agreement executed by PFS, and (iii) an amendment to the Subordinated Demand Note dated March 29, 2002 issued in favor of IBM Credit and Congress Financial Corporation (Southwest) to change the amount of the Subordinated Demand Note to Seven Million Dollars ($7,000,000). .
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 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.
By:________________________________ By:_____________________________________
Print Name:________________________ Print Name:_____________________________
Title:_____________________________ Title:__________________________________
BUSINESS SUPPLIES DISTRIBUTORS PRIORITY FULFILLMENT SERVICES, INC.
HOLDINGS, LLC
By: __________________ as Managing
Member
By:________________________________ By:_____________________________________
Print Name:________________________ Print Name:_____________________________
Title:_____________________________ Title:__________________________________
PFSWEB, INC.
By:_____________________________________
Print Name:_____________________________
Title:__________________________________
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ATTACHMENT A ("ATTACHMENT A") TO AGREEMENT FOR INVENTORY FINANCING ("AGREEMENT") DATED MARCH 29, 2002
EFFECTIVE DATE OF THIS ATTACHMENT A: March 26, 2004
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
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SECTION II. FEES, RATES AND REPAYMENT TERMS:
(A) Credit Line: (i) Twenty Seven Million Five Hundred Thousand Dollars ($27,500,000) 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 Twenty Seven Million Five Hundred Thousand Dollars ($27,500,000).
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,
(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 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:
Covenant Covenant Requirement
(i) Revenue on an Annual Basis* (i.e. Greater than Zero and
the current fiscal year-to-date Equal to or Less than
Revenue annualized) to Working 43.0:1.0
Capital
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* 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 Greater than Zero and Equal to or Worth*** 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. Greater than Zero and Equal to or
the current fiscal year-to-date Less than 43.0:1.0
Revenue annualized) to Working
Capital
(ii) Net Profit after Tax to Revenue* Equal to or Greater than 0.15
percent
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*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 Greater than Zero and Equal to Worth 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 $18,000,000.00 03/31/03 and
Worth thereafter
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EXHIBIT 10.2
AMENDMENT 4
TO
AMENDED AND RESTATEDPLATINUM PLAN AGREEMENT (WITH INVOICE DISCOUNTING)
This Amendment 4 ("Amendment") dated March 29, 2004 is made to the AMENDED
AND RESTATED PLATINUM PLAN AGREEMENT (WITH INVOICE DISCOUNTING) by and among IBM
BELGIUM FINANCIAL SERVICES S.A., with a registered number of R.C. Brussels
451.673 with an address of Avenue du Bourget 42, BE- 1130 Brussels VAT BE
424300467 ("IBM GF" or "US"), SUPPLIERS DISTRIBUTORS S.A. with a registered
number of RC Liege 208795 with an address of Rue Louis Bleriot 5, B-4460
Grace-Hollogne, Belgium ("SDSA"), and BUSINESS SUPPLIES DISTRIBUTORS EUROPE BV a
Netherlands company registered in Maastricht with a Netherlands trade
registration number of HR Maastricht 14062763 with an address of Dalderhaag 13,
6136 Sittard, The Netherlands ("BSDE") (SDSA and BSDE collectively, "YOU"), PFS
WEB B.V a Netherlands company registered in Maastricht under the number 17109541
with a Belgian trade registration number of R.C. Liege 204162 ("PFS WEB B.V.")
(SDSA, BSDE and PFS Web B.V. collectively, the "LOAN PARTIES")
RECITALS:
A. The Loan Parties and IBM GF have entered into that certain AMENDED AND RESTATED PLATINUM PLAN AGREEMENT (WITH INVOICE DISCOUNTING) dated as of March 29, 2002 (as amended and modified from time to time, the "Agreement");
B. The Loan Parties have requested and IBM GF has agreed to extend the Agreement for twelve months;
C. The Loan Parties agree to certain financial covenants revisions by IBM GF; and
D. 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, IBM GF and the Loan Parties 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 Section 4 hereof, the Agreement is hereby amended as follows:
A. The Agreement is hereby amended as follows:
(a) Section 1.1 is hereby amended by adding the following definition:
"TERMINATION DATE": means March 29, 2005 or such other date as to which IBM GF and the Loan Parties may agree from time to time.
(b) Section 8.2.7 is hereby amended by deleting it in its entirety and substituting, in lieu thereof, the following:
"FINANCIAL COVENANTS
SDSA Amd 2 Ameded & Restated Plat Plan Page 1 of 5
You agree to comply with the Financial Covenants, if any, set out in the relevant supplements or the Schedule. You also agree that you will not, without our consent, make any of the following payments ("Restricted Payments") without our prior written consent (i) declare or pay any dividend (other than dividends payable solely in common stock of BSDE and/or SDSA and the aggregate amount of such dividends under this Agreement and the AIF does not cause you or Holdings to violate such Financial Covenants or exceed Eight Hundred Thousand Dollars ($800,000), without duplication, to be paid in fiscal year 2004 for which consent is hereby given) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of capital stock of BSDE and/or SDSA or any warrants, options or rights to purchase any such capital stock or Equity Interests, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of BSDE and/or SDSA ; or (ii) make any optional payment or prepayment on or redemption (including, without limitation, by making payments to a sinking or analogous fund) or repurchase of any Indebtedness (other than the Obligations)), except as permitted by the Amended and Restated Notes Payable Subordination Agreement.
(c) Section 10.1 is hereby amended by deleting it in its entirety and substituting, in lieu thereof, the following:
"This Agreement will remain in force until the Termination Date. However following the occurrence of an Event of Default that we have not waived in writing we may by notice with immediate effect terminate this Agreement. Upon any termination of this Agreement we shall have all the rights and remedies set out in Clause 9.2 until the complete discharge of all the Loan Parties' obligations to us. Any such termination shall not affect any right we have in relation to the IBM Reimbursables and IBM Receivables or the Receivables Rights and the Supplier Obligations and the Product Rights.
B. The Schedule to the Agreement is hereby amended by deleting such Schedule in its entirety and substituting, in lieu thereof, the Schedule attached hereto. Such new Schedule shall be effective as of the date specified in the new Schedule. The changes contained in the new Schedule include, without limitation, the following:
CREDIT LINE: (euro)12,500,000
VAT RECEIVABLES: Deleted from Collateral Valuation
PREPAYMENT PERCENTAGE: (i) 80% of Eligible IBM Reimbursables (1) and (ii) 80% or Eligible IBM Receivables
COLLATERAL VALUE OF STOCK-IN-TRADE: (A) 100% of paid for IBM Printing Systems
Division inventory (other than (a) machines which IBM Printing Systems Division
has declared obsolete at least 60 days prior to the date of determination and
(b) service parts) which (i) we have purchased the associated Supplier Invoice
from the Authorised Supplier on or after the Closing Date (ii) purchased
directly from IBM prior to the Closing Date and not subject to retention of
title, provided, however, we have a first priority security interest in such
inventory, (iii) is repurchasable under a repurchase agreement with the
Authorized Supplier and (iv) is secured and managed through a pledge with
Disposition, with coverage percentage acceptable to us (such acceptable
percentage to be determined by us within 60 days of the date this
SDSA Amd 2 Ameded & Restated Plat Plan Page 2 of 5
Schedule is executed)The value to be assigned to such inventory shall be based upon the Supplier Invoice net of all applicable credit notes.
FINANCIAL COVENANT DEFINITIONS: Changed for net Profit After Tax, Revenue and Working Capital Turnover.
FINANCIAL COVENANTS
SDSA and BSDE will be required, on a consolidated basis, to maintain the following financial ratios, percentages and amounts on a year to date basis as of the last day of the fiscal period under review (quarterly and annually) by us and IBM Credit:
Covenant Covenant Requirement
(i) Debt to Tangible Net Worth Greater than Zero and Less than
7.0:1.0
(ii) Net Profit after Tax to Greater than 0.10 percent
Revenue
(iii) Working Capital Turnover (WCTO) Greater than Zero and Less than
43.0:1.0
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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 and annually) by IBM Credit:
Covenant
Covenant Requirement Date as of
-------- ----------- ----------
(i) Minimum Tangible
Net Worth $18,000,000.00 03/31/04 and
beyond
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SECTION 3. CONDITIONS OF EFFECTIVENESS OF CONSENT AND AMENDMENT. This Amendment shall have been authorized, executed and delivered by each of the parties hereto and IBM GF shall have received a copy of a fully executed Amendment.
SECTION 4. REPRESENTATIONS AND WARRANTIES. Each Loan Party makes to IBM GF the following representations and warranties all of which are material and are made to induce IBM GF 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 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. 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 any Loan Party not to be in compliance with the terms of any agreement to which such Loan Party is a party.
SECTION 4.3 LITIGATION. Except as has been disclosed by the Loan Party to IBM GF 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.
SDSA Amd 2 Ameded & Restated Plat Plan Page 3 of 5
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. Each of Holdings, SDI, PFSweb and PFS hereby ratify and confirm their respective guaranties in favor of IBM GF 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 SDSA and BSDE under the Agreement as amended hereby. SDI hereby ratifies and confirms its Notes Payable Subordination Agreement executed by SDI on March 29, 2002 and confirms such Notes Payable Subordination Agreement remains in full force and effect.
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 BELGIUM FINANCIAL SERVICES S.A. SUPPLIERS DISTRIBUTORS S.A. By:________________________________ By:_____________________________________ Print Name:________________________ Print Name:_____________________________ Title:_____________________________ Title:__________________________________ BUSINESS SUPPLIES DISTRIBUTORS PFS WEB B.V. EUROPE BV By:________________________________ By:_____________________________________ Print Name:________________________ Print Name:_____________________________ Title:_____________________________ Title:__________________________________ |
THE FOLLOWING PARTIES AGREE TO SECTION 6 AS APPLICABLE TO THEM.
SUPPLIES DISTRIBUTORS, INC. PRIORITY FULFILLMENT SERVICES, INC. By:________________________________ By:_____________________________________ Print Name:________________________ Print Name:_____________________________ Title:_____________________________ Title:__________________________________ SDSA Amd 2 Ameded & Restated Plat Plan Page 4 of 5 |
BUSINESS SUPPLIES DISTRIBUTORS
HOLDINGS, LLC
By:________________________________
Print Name:________________________
Title:_____________________________
SDSA Amd 2 Ameded & Restated Plat Plan Page 5 of 5
EXHIBIT 10.3
IBM CREDIT LLC
THIRD AMENDED AND RESTATED
NOTES PAYABLE SUBORDINATION AGREEMENT
IBM CREDIT LLC
North Castle Drive
Armonk, NY 10504
Ladies and/or Gentlemen:
This Third Amended and Restated Notes Payable Subordination Agreement amends and restates in its entirety the Amended and Restated Notes Payable Subordination Agreement dated November 13, 2002 executed by Priority Fulfillment Services, Inc. ("PFS"). Supplies Distributors, Inc., with its principal place of business at 500 North Central Expressway, Plano, TX 75074 ("SDI"), is/may become further indebted to PFS. PFS represents that no part of said indebtedness has been assigned to or subordinated in favor of any other person, firm or corporation, other than pursuant to the Notes Payable Subordination Agreement, dated as of March 29, 2002 by and between PFS and Congress Financial Corporation (Southwest) ("Congress") ("Notes Payable Subordination Agreement") and that PFS does not hold any security therefor. Capitalized terms used herein without definition shall have the meaning ascribed thereto in the Financing Agreement referred to below.
To induce IBM Credit to continue financing SDI under the terms of the
Agreement for Inventory Financing dated March 29, 2002 with SDI (as amended,
modified, and supplemented from time to time, the "Financing Agreement") and in
consideration of any loans, advances, payments, extensions or credit (including
the extension or renewal, in whole or in part, of any antecedent or other debt),
benefits or financial accommodations heretofore or hereafter made, granted or
extended by IBM Credit or which IBM Credit has or will become obligated to make,
grant or extend to or for the account of SDI whether under the Financing
Agreement or otherwise, and in consideration of any obligations heretofore or
hereafter incurred by SDI to IBM Credit, whether under the Financing Agreement
or otherwise, PFS agrees to make the payment of the indebtedness referred to in
the first paragraph hereof and any and all other present or future indebtedness
of SDI to PFS together with any and all interest accrued thereon (collectively
the "Secondary Obligations") subject and subordinate to the prior indefeasible
payment in full of any and all debts, obligations and liabilities of SDI to IBM
Credit, whether absolute or contingent, due or to become due, now existing or
hereafter arising and whether direct or acquired by IBM Credit by transfer,
assignment or otherwise (collectively the "Primary Obligations") and that SDI
shall make no payments to PFS until the Primary Obligations have been
indefeasibly paid in full as acknowledged in writing by IBM Credit.
Notwithstanding the foregoing, SDI may make payments in respect of the Secondary
Obligations provided that (i) no Default or Event of Default exists immediately
prior to the payment of the Secondary Obligations and that no Default or Event
of Default will occur after any payment in respect of the Secondary Obligations
(ii) any such payment shall not cause the total amount of the Secondary
Obligations to be less than Seven Million Dollars ($7,000,000), and (iii) such
payment would be permitted under the Notes Payable Subordination Agreement.
Except as provided above, PFS agrees not to ask, demand, sue for, take or
receive payment or security for all or any part of the Secondary Obligations
until and unless all of the Primary Obligations shall have been fully paid and
discharged.
Upon any distribution of any assets of SDI whether by reason of sale, reorganization, liquidation, dissolution, arrangement, bankruptcy, receivership, assignment for the benefit of creditors, foreclosure or otherwise, IBM Credit shall be entitled to receive payment in full of the Primary Obligations prior to the payment of any part of the Secondary Obligations. To enable IBM Credit to enforce its rights hereunder in any such proceeding or upon the happening of any such event, IBM Credit or any person whom IBM Credit may from time to time designate is hereby irrevocably appointed attorney-in-fact for PFS with full power to act in the place and stead of PFS including the right to make, present, file and vote proofs of claim against SDI on account of all or any part of said Secondary Obligations as IBM Credit may deem advisable and to receive and collect any and all payments made thereon and to apply the same on
account of the Primary Obligations. PFS will execute and deliver to such instruments as IBM Credit may require to enforce each of the Secondary Obligations, to effectuate said power of attorney and to effect collection of any and all dividends or other payments which may be made at any time on account thereof.
While this instrument remains in effect, PFS will not assign to or subordinate in favor of any other person, firm or corporation, (except for Congress subject to terms of the Intercreditor Agreement dated the date hereof between Congress and IBM Credit) any right, claim or interest in or to the Secondary Obligations or commence or join with any other creditor in commencing any bankruptcy, reorganization or insolvency proceeding against SDI. IBM Credit may at any time, in its discretion, renew or extend the time of payment of all or any portion of the Primary Obligations or waive or release any collateral which may be held therefor and IBM Credit may enter into such agreements with SDI as IBM Credit may deem desirable without notice to or further assent from PFS and without adversely affecting IBM Credit's rights hereunder in any manner whatsoever.
In furtherance of the foregoing and as collateral security for the payment and discharge in full of any and all of the Primary Obligations, PFS hereby transfers and assigns to IBM Credit the Secondary Obligations and all collateral security therefor to which PFS now is or may at any time be entitled and all rights under all guarantees thereof and agrees to deliver to IBM Credit endorsed in blank all notes or other instruments now or hereafter evidencing said Secondary Obligations. IBM Credit may file one or more financing statements concerning any security interest hereby created without the signature of PFS appearing thereon.
The within instrument is and shall be deemed to be a continuing subordination and shall be and remain in full force and effect until all Primary Obligations have been performed and paid in full and IBM Credit's commitment, if any, under the Financing Agreement has been terminated.
Dated March 29, 2004.
PRIORITY FULFILLMENT SERVICES, INC.
By:_________________________________________
Name: Thomas J. Madden
Title: CFO
500 North Central Expressway
Plano, TX 75074
To: IBM Credit Corporation
SDI hereby acknowledge notice of the within and foregoing subordination and agree to be bound by all the terms, provisions and conditions thereof. SDI further agrees not to repay all or any part of the Secondary Obligations, or to issue any note or other instrument evidencing the same or to grant any collateral security therefor without IBM Credit's prior written consent.
SUPPLIES DISTRIBUTORS, INC.
By:_________________________________________
Name: Joseph Farrell
Title: President / CEO
ACCEPTED:
IBM CREDIT LLC
By:
Name: Thomas Harahan
Title: Manager, Credit
ACKNOWLEDGMENT OF SUBORDINATION
____________________ )
)SS
____________________ )
|
On the ___th day of March, 2004, appeared before me ______________________ to me known to be the individual described in and who executed the foregoing instrument, and who acknowledged to me that the same was executed as his or her free and voluntary act for the uses and purposes therein set forth.
My Commission Expires:
_____________, _____
EXHIBIT 10.4
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment") is made and entered into as of the 20th day of April, 2004 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 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 1 of the Loan Agreement. Effective as of the date hereof, the definitions of "Interest Rate" and "Revolving Loans Permanent Reserve" contained in Section 1 of the Loan Agreement are hereby amended and restated in their entirety to read as follows:
"`Interest Rate' shall mean,
(a) Subject to clause (b) of this definition below:
(i) as to Prime Rate Loans, a rate per annum equal to the sum of the "Applicable Prime Rate Margin" if the Excess Availability for the Borrower is at or within the amounts indicated for such percentage (set forth below), plus the Prime Rate,
(ii) as to Eurodollar Rate Loans, a rate per annum equal to the sum of the corresponding "Applicable Eurodollar Rate Margin" if the Excess Availability is at or within the amounts indicated from such percentage (set forth below), plus the Adjusted Eurodollar Rate (in each case, based on the Eurodollar Rate applicable for the Interest Period selected by Borrower, as in effect three (3) Business Days after the date of
First Amendment to Loan and Security Agreement
receipt by Lender of the request of Borrower for such Eurodollar Rate Loans in accordance with the terms hereof, whether such rate is higher or lower than any rate previously quoted to Borrower).
Applicable Prime Applicable Eurodollar
Excess Availability Rate Margin Rate Margin
------------------- ----------- -----------
$3,000,001 or more 0% 2.25%
$1,000,000 to $3,000,000 0% 2.50%
less than $1,000,000 .25% 2.75%
|
(b) Notwithstanding anything to the contrary contained in clause (a) of this definition, the Interest Rate shall mean the rate of two and one-quarter percent (2.25%) per annum in excess of the Prime Rate as to Prime Rate Loans and the rate of five percent (5.00%) per annum in excess of the Adjusted Eurodollar Rate as to Eurodollar Rate Loans, at Lender's option, without notice, (i) either (A) for the period on and after the date of termination or non-renewal hereof until such time as all Obligations are indefeasibly paid and satisfied in full in immediately available funds, or (B) for the period from and after the date of the occurrence of any Event of Default, and for so long as such Event of Default is continuing as determined by Lender and (ii) on the Revolving Loans to at any time outstanding in excess of the amounts available to Borrower under Section 2 (whether or not such excess(es) arise or are made with or without Lender's knowledge or consent and whether made before or after an Event of Default).
`Revolving Loans Permanent Reserve' shall mean the applicable amount during the corresponding time period as set forth below:
April 1, 2004 through and $500,000 including April 30, 2004 May, 2004 through and $450,000 including May 31, 2004 June 1, 2004 through and $400,000 including June 30, 2004 July 1, 2004 through and $350,000 including July 31, 2004 August 1, 2004 through and $300,000 including August 31, 2004 September 1, 2004 through and $250,000 including September 30, 2004 |
First Amendment to Loan and Security Agreement 2
October 1, 2004 through and $200,000 including October 31, 2004 November 1, 2004 through and $150,000 including November 30, 2004 December 1, 2004 through and $100,000 including December 31, 2004 January 1, 2005 and thereafter $ 0" |
Section 2.02. Amendment to Section 3.3 of the Loan Agreement. Effective as of the date hereof, Section 3.3 of the Loan Agreement is hereby amended by deleting the amount "$2,000" contained therein and replacing such amount with "$1,000".
Section 2.03. "Amendment to Section 3.4 of the Loan Agreement. Effective as of the date hereof, Section 3.4 of the Loan Agreement is hereby amended by deleting the amount "$20,000,000" contained therein and replacing such amount with "$15,000,000".
Section 2.04. Amendment to Section 9.14 of the Loan Agreement. Effective as of the date hereof, Section 9.14 of the Loan Agreement is hereby amended and restated in its entirety as follows:
"9.14 Net Worth
(a) Borrower shall maintain, as of the last day of each fiscal quarter, Net Worth of not less than zero.
(b) Borrower shall maintain, as of the last day of each fiscal quarter, a Modified Net Worth of not less than $1,100,000."
Section 2.05. Amendment to Section 12.1(a)(i) of the Loan Agreement. Effective as of the date hereof, Section 12.1(a)(i) of the Loan Agreement is hereby amended and restated in its entirety as follows:
"(i) March 29, 2007, or"
Section 2.06. Amendment to Section 12.1(c) of the Loan Agreement. Effective as of the date hereof, Section 12.1(c) of the Loan Agreement is hereby amended and restated in its entirety as follows:
"(c) If for any reason this Agreement is terminated prior to the end of the then current term or renewal term of this Agreement, in view of the impracticality and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of Lender's lost profits as a result
First Amendment to Loan and Security Agreement 3
thereof, Borrower agrees to pay to Lender, upon the effective date of such termination, an early termination fee in the amount set forth below if such termination is effective in the period indicated:
Amount Period
(1) 1.0% of Maximum Credit From April 20, 2004 to and including
March 29, 2005
(2) 0.5% of Maximum Credit From March 30, 2005 to and including
March 29, 2006
(3) 0.25 % of Maximum From March 30, 2006 and
Credit thereafter
|
Such early termination fee shall be presumed to be the amount of damages sustained by Lender as a result of such early termination and Borrower agrees that it is reasonable under the circumstances currently existing. In addition, Lender shall be entitled to such early termination fee upon the occurrence of any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if Lender does not exercise its right to terminate this Agreement, but elects, at its option, to provide financing to Borrower or permit the use of cash collateral under the United States Bankruptcy Code. The early termination fee provided for in this Section 12.1 shall be deemed included in the Obligations. Notwithstanding anything contained herein to the contrary, the early termination fee shall not apply to any early termination as the result of a complete refinancing of the Loans by First Union National Bank."
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
First Amendment to Loan and Security Agreement 4
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) Borrower shall pay to Lender an amendment fee in the amount of $30,000, which shall be fully earned as of and payable on the date hereof;
(c) 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;
(d) 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
(e) 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.
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,
First Amendment to Loan and Security Agreement 5
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 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,
First Amendment to Loan and Security Agreement 6
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]
First Amendment to Loan and Security Agreement 7
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 SUPPLIES DISTRIBUTORS, INC., (SOUTHWEST) 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 |
First Amendment to Loan and Security Agreement
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:__________________________________
First Amendment to Loan and Security Agreement
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:__________________________________
First Amendment to Loan and Security Agreement
EXHIBIT 10.5
PFSweb, Inc.
500 North Central Expressway
Plano, TX 75074
[date]
[name of Executive]
c/o 500 North Central Expressway
Plano, TX 75074
Dear [name]:
This will confirm our agreement regarding that certain Executive Severance Agreement (the "Agreement") dated [date] between you (the "Executive") and PFSweb, Inc. (the "Company"). Effective as of the date hereof, the Agreement is hereby amended as follows:
The definition of "Qualifying Termination" is amended by adding the following thereto:
"In addition, a "Qualifying Termination" shall be deemed to occur if
(a) the Executive shall serve as a member of the Board, and (i) upon the
expiration of the Executive's term of office as such member, the Board (or any
nominating committee of the Board) shall determine not to, or shall fail to,
re-nominate the Executive to serve as a member of the Board (unless the
Executive shall consent thereto) other than in connection with a Termination for
Cause or (ii) in accordance with the Company's bylaws, the Board shall approve
the removal of the Executive as a member of the Board, other than in connection
with a Termination for Cause, or (b) the Board shall authorize and approve a
material and adverse change in the Executive's position, title and office(unless
the Executive shall consent thereto); provided, however, the foregoing shall not
apply if the Executive shall serve as Chief Executive Officer and Chairman of
the Board, and the Board shall determine that such Executive shall continue to
serve as Chief Executive Officer and as a member of the Board, but shall not
serve as Chairman, as the result of (i) any change in law, rule, regulation or
listing standard of the primary securities exchange upon which the Company's
common stock is then traded restricting or prohibiting the holding of both
offices by one individual or requiring disclosure as to the reason why the Board
believes the holding of both offices by one individual is appropriate or (ii)
the public announcement by two or more of the leading providers of proxy voting
and corporate governance services that they will recommend withholding votes or
casting negative votes at annual shareholder meetings of companies whose offices
of chief executive officer and chairman are held by the same individual."
Please acknowledge your agreement to the foregoing in the space provided below.
Very truly yours,
PFSweb, Inc.
Title:
Agreed:
EXHIBIT 31.1
CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER
I, Mark Layton, certify that:
1. I have reviewed this report on Form 10-Q of PFSweb, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the periods covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operation and cash flows of the registrant
as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
5. The registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of registrant’s board of
directors (or persons performing the equivalent function):
PURSUANT TO 18 U.S.C. SECTION 1350
a)
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b)
Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c)
Disclosed in this report any change in the registrant’s internal control
over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting.
a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize, and report financial information; and
b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
May 17, 2004
/s/ Mark C. Layton
Chief Executive Officer
25
EXHIBIT 31.2
CERTIFICATIONS OF PRINCIPAL FINANCIAL OFFICER
I, Tom Madden, certify that:
1. I have reviewed this report on Form 10-Q of PFSweb, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the periods covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operation and cash flows of the registrant
as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
5. The registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of registrant’s board of
directors (or persons performing the equivalent function):
PURSUANT TO 18 U.S.C. SECTION 1350
a)
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b)
Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c)
Disclosed in this report any change in the registrant’s internal control
over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting.
a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize, and report financial information; and
b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
May 17, 2004
/s/ Thomas J. Madden
Chief Financial Officer
26
EXHIBIT 32.1
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a)
and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of
the undersigned officers of PFSweb, Inc. (the “Company”), does hereby certify
that:
The Quarterly Report on Form 10-Q for the period ended March 31, 2004 (the
“Form 10-Q”) of the Company fully complies with the requirements of Section
13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the
information contained in the Form 10-K fairly presents, in all material
respects, the financial condition and results of operations of the Company as
of, and for, the periods presented in the Form 10-K.
The foregoing certification is being furnished as an exhibit to the Form 10-Q
pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the
Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63
of Title 18, United States Code) and, accordingly, is not being filed as part
of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of
1934, as whether made before or after the date hereof, regardless of any
general incorporation language in such filing.
A signed original of this written statement required by Section 906 has been
provided to PFSweb, Inc. and will be retained by PFSweb, Inc. and furnished to
the Securities and Exchange Commission or its staff upon request.
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
May 17, 2004
/s/ Mark C. Layton
Mark C. Layton
Chief Executive Officer
May 17, 2004
/s/ Thomas J. Madden
Thomas J. Madden
Chief Financial Officer
27