<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1998
------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------- -----------------
Commission file number 0-19349
-------
SOFTWARE SPECTRUM, INC.
(Exact name of registrant as specified in its charter)
Texas 75-1878002
(State or other jurisdiction of (I.R.S. Employer/Identification No.)
incorporation or organization)
2140 Merritt Drive, Garland, Texas 75041
(Address of principal executive offices) (Zip code)
(972) 840-6600
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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
--- ---
At March 13, 1998, the Registrant had outstanding 4,300,769 shares of its common
stock, par value $.01 per share.
1
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION 3
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets-
January 31, 1998 and April 30, 1997 4
Consolidated Statements of Earnings
Three and Nine Months Ended January 31, 1998
and December 31, 1996 5
Consolidated Statements of Cash Flows-
Nine Months Ended January 31, 1998 and
December 31, 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II - OTHER INFORMATION 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
2
<PAGE>
PART I - FINANCIAL INFORMATION
3
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
January 31, April 30,
1998 1997
-------- --------
<S> <C> <C>
ASSETS (Unaudited)
Current assets
Cash and cash equivalents $ 11,361 $ 7,440
Trade accounts receivable, net of
allowance for doubtful accounts 166,983 161,469
Inventories 8,169 18,285
Prepaid expenses 3,623 6,596
Other current assets 1,048 3,015
-------- --------
Total current assets 191,184 196,805
Furniture, equipment and leasehold
improvements, at cost 36,424 30,627
Less accumulated depreciation and amortization 16,081 11,440
-------- --------
20,343 19,187
Other assets, consisting primarily of goodwill, net of accumulated
amortization ($5,236 at January 31 and $2,858 at April 30) 52,263 54,449
-------- --------
$263,790 $270,441
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 6,563 $ 6,000
Trade accounts payable 141,648 145,260
Other current liabilities 13,353 13,872
-------- --------
Total current liabilities 161,564 165,132
Long-term debt, less current maturities 26,948 31,370
Shareholders' equity
Preferred stock, par value $.01;
authorized, 1,000,000 shares; issued
and outstanding, none -- --
Common stock, par value $.01;
authorized, 20,000,000 shares; issued,
4,388,878 shares at January 31 and
4,363,523 shares at April 30 44 44
Additional paid-in capital 39,357 39,040
Retained earnings 39,386 36,278
Cumulative foreign currency adjustments (2,101) (877)
-------- --------
76,686 74,485
Less treasury stock, at cost; 92,111 shares at January 31
and 34,311 shares at April 30 1,408 546
-------- --------
Total shareholders' equity 75,278 73,939
-------- --------
$263,790 $270,441
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
Three Months Ended Nine Months Ended
--------------------------- --------------------------
January 31, December 31, January 31, December 31,
1998 1996 1998 1996
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Net sales $246,595 $239,834 $653,578 $582,604
Cost of sales 219,518 213,039 579,060 515,182
-------- -------- -------- ---------
Gross margin 27,077 26,795 74,518 67,422
Selling, general and
administrative expenses 20,671 22,464 58,978 60,310
Depreciation and amortization expense 2,488 2,086 7,149 5,250
-------- -------- -------- ---------
Operating income 3,918 2,245 8,391 1,862
Interest expense, net 813 735 2,678 1,515
-------- -------- -------- ---------
Income before income taxes 3,105 1,510 5,713 347
Income tax expense 1,167 677 2,606 303
-------- -------- -------- ---------
Net income $ 1,938 $ 833 $ 3,107 $ 44
-------- -------- -------- ---------
-------- -------- -------- ---------
Earnings per share
Basic $ 0.45 $ 0.19 $ 0.72 $ 0.01
-------- -------- -------- ---------
-------- -------- -------- ---------
Diluted $ 0.45 $ 0.19 $ 0.71 $ 0.01
-------- -------- -------- ---------
-------- -------- -------- ---------
Weighted average shares outstanding
Basic 4,306 4,318 4,323 4,290
-------- -------- -------- ---------
-------- -------- -------- ---------
Diluted 4,312 4,463 4,347 4,401
-------- -------- -------- ---------
-------- -------- -------- ---------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
Nine Months Ended
---------------------------
January 31, December 31,
1998 1996
----------- ------------
<S> <C> <C>
Operating activities
Net income $ 3,107 $ 44
Adjustments to reconcile net income to
net cash provided by (used in) operating activities
Provision for bad debts 1,477 1,332
Depreciation and amortization 7,149 5,250
Deferred income taxes 380 (1,580)
Changes in operating assets and liabilities
Trade accounts receivable (8,676) (121,240)
Inventories 10,087 (7,186)
Prepaid expenses and other assets 3,349 3,614
Trade accounts payable and
other current liabilities (2,474) 105,425
---------- ----------
Net cash provided by (used in) operating activities 14,399 (14,341)
---------- ----------
Investing activities
Sales of short-term investments, net -- 8,407
Purchase of furniture, equipment and
leasehold improvements (6,273) (10,592)
Purchase of subsidiaries, net of cash acquired -- (44,163)
---------- ----------
Net cash used in investing activities (6,273) (46,348)
---------- ----------
Financing activities
Repayments of long-term debt (237,975) (108,900)
Borrowings on long-term debt 234,028 145,584
Proceeds from stock issuance including tax
benefit related to stock options exercised 318 1,266
Purchase of treasury stock (862) (8)
Other 286 31
---------- ----------
Net cash provided by (used in) financing activities (4,205) 37,973
---------- ----------
Increase (decrease) in cash and cash equivalents 3,921 (22,716)
Cash and cash equivalents at beginning of period 7,440 28,123
---------- ----------
Cash and cash equivalents at end of period $ 11,361 $ 5,407
---------- ----------
---------- ----------
Supplemental disclosure of cash paid
during the period
Income taxes $ 1,979 $ 907
Interest 3,218 1,534
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended January 31, 1998
(Unaudited)
NOTE A - BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The accompanying financial statements include the accounts of Software Spectrum,
Inc. (the "Company") and its wholly-owned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation. Certain prior
period amounts have been reclassified to conform to the current period
presentation.
In 1997, the Company changed its fiscal year-end from March 31 to April 30.
Recasting the quarterly financial information for fiscal 1997 is not cost
justified. Accordingly, the Company has elected to present comparative
information for the three and nine months ended December 31, 1996, as allowed
under the transition reporting rules of the Securities and Exchange Commission.
The Company does not have seasonal trends that would impact the comparability of
the quarters presented.
The consolidated financial statements contained herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, all adjustments necessary for a fair
presentation of the consolidated financial position as of January 31, 1998, and
the consolidated results of operations for the three and nine months ended
January 31, 1998 and December 31, 1996 and the consolidated cash flows for the
nine months ended January 31, 1998 and December 31, 1996 have been made. In
addition, all such adjustments made, in the opinion of management, are of a
normal recurring nature. The results of operations for the periods presented
are not necessarily indicative of the results to be expected for the full fiscal
year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the interim reporting rules of the
Securities and Exchange Commission. The interim consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and related notes for the year ended April 30, 1997, included in the
Company's 1997 Annual Report on Form 10-K.
NOTE B - BUSINESS ACQUISITION
On May 13, 1996, the Company acquired certain operating assets of the corporate,
government and educational ("CGE") division of Egghead, Inc. for approximately
$45 million in cash. The acquisition was accounted for using the purchase
method of accounting.
7
<PAGE>
The operating results of the acquired business have been included in the
consolidated statements of operations from the date of acquisition. Unaudited
pro forma summary consolidated results of operations of the Company and the CGE
division for the nine months ended December 31, 1996, as if the acquisition had
occurred at April 1, 1996, are approximately: net sales of $622 million, net
loss of $300,000 and loss per share of $.07. These pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
what would have occurred had the acquisition been made as of this date or of
results which may occur in the future.
NOTE C - EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share". SFAS 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is similar to the previously
reported fully diluted earnings per share. Earnings per share amounts for all
periods have been restated to conform to the requirements of SFAS 128.
The following table (in thousands except per share amounts) sets forth the
computation of basic and diluted earnings per share. Outstanding options that
were not included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the common
shares totaled approximately 232,000 and 246,000 shares for the three and nine
months ended January 31, 1998 and approximately 101,000 shares for the nine
months ended December 31, 1996. All options were included in the computation
for the three months ended December 31, 1996.
<TABLE>
Three Months Ended Nine Months Ended
--------------------------- --------------------------
January 31, December 31, January 31, December 31,
1998 1996 1998 1996
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net income $ 1,938 $ 833 $ 3,107 $ 44
-------- -------- ---------- ---------
Weighted average shares
outstanding (basic) 4,306 4,318 4,323 4,290
Effect of dilutive employee and
director stock options 6 145 24 111
-------- -------- ---------- ---------
Weighted average shares
outstanding (diluted) 4,312 4,463 4,347 4,401
-------- -------- ---------- ---------
Earnings per share (basic) $ 0.45 $ 0.19 $ 0.72 $ 0.01
-------- -------- ---------- ---------
-------- -------- ---------- ---------
Earnings per share (diluted) $ 0.45 $ 0.19 $ 0.71 $ 0.01
-------- -------- ---------- ---------
-------- -------- ---------- ---------
</TABLE>
8
<PAGE>
NOTE D - SUBSEQUENT EVENT
On March 11, 1998, the Company amended its bank financing arrangements by
restructuring its existing debt, including its $30 million term loan and $60
million revolving line of credit, as a $100 million secured revolving credit
facility (the "Amended Facility"). The Amended Facility, which is secured by
accounts receivable, inventory and a pledge of the stock of certain of the
Company's subsidiaries, permits the Company to borrow up to $100 million,
subject to availability under its borrowing base. The Amended Facility requires
the Company to maintain certain financial covenants and ratios and places
limitations on dividend payments, capital expenditures and certain other
borrowings. The Amended Facility bears interest at a variable rate and expires
in March 2001.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW:
The Company's revenues are derived from the sale of PC software products and
technology services in North America, Europe and the Asia/Pacific region.
The Company sells PC software through volume license and maintenance ("VLM")
agreements, or right to copy arrangements, and full-packaged PC software
products. With the continued increase in sales of software applications through
VLM agreements, the third month of each calendar quarter generally represents
from 40% to 60% of the Company's quarterly sales volume. In 1997, the Company
changed its fiscal year-end from March 31 to April 30 in order to better match
the Company's fiscal year- and quarter-ends with its business cycles.
Due to the cost and administrative difficulty involved, the Company has elected
not to recast its quarterly financial information for fiscal 1997. Accordingly,
this discussion focuses on the three and nine months ended January 31, 1998 and
December 31, 1996. The Company does not have seasonal trends that would impact
the comparability of the quarters presented.
The following table sets forth, for each of the periods indicated, consolidated
statements of earnings data expressed as a percentage of net sales for the
period specified.
<TABLE>
Percentage of Net Percentage of Net
Sales for Sales for
Three Months Ended Nine Months Ended
-------------------------- -------------------------
January 31, December 31, January 31, December 31,
1998 1996 1998 1996
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 89.0 88.8 88.6 88.4
----- ----- ----- -----
Gross margin 11.0 11.2 11.4 11.6
Selling, general and
administrative expenses 8.4 9.4 9.0 10.4
Depreciation and amortization 1.0 0.9 1.1 0.9
----- ----- ----- -----
Operating income 1.6 0.9 1.3 0.3
Interest expense, net 0.3 0.3 0.4 0.2
----- ----- ----- -----
Income before income taxes 1.3 0.6 0.9 0.1
Income tax expense 0.5 0.3 0.4 0.1
----- ----- ----- -----
Net income 0.8% 0.3% 0.5% 0.0%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
10
<PAGE>
NET SALES:
Increases in the Company's sales of software and technology services have
resulted from the Company's geographic expansion and the overall growth in the
software and technology services industries. For the three and nine months
ended January 31, 1998, net sales increased by 3% and 12%, respectively, over
sales for the three and nine months ended December 31, 1996. The increase for
the nine month period also reflects the impact of the May 1996 CGE acquisition,
which significantly increased the Company's market presence in North America.
For the nine months ended December 31, 1996, the pro forma combined sales of the
Company and the CGE division were $622 million.
For the three and nine months ended January 31, 1998, sales of PC software
increased 1% and 10%, respectively, over sales for the three and nine months
ended December 31, 1996. The Company serves as a designated service provider
for VLM agreements which are frequently used by customers seeking to standardize
desktop software applications and, consequently, may involve significant
quantities of unit sales for each customer at lower per unit prices than
full-packaged software products. The increased popularity of VLM agreements
has contributed to the increase in unit volume sales, as well as the
reduction in average unit prices of desktop software in recent years. Sales
of software through VLM agreements represented approximately 76% and 69% of
sales for the three and nine months ended January 31, 1998, as compared to
approximately 64% and 57% respectively for the comparable periods in the
prior year.
For the three and nine months ended January 31, 1998, revenue from technology
services provided through the Company's Technology Services Group increased by
approximately 57% and 79%, as compared to the three and nine months ended
December 31, 1996. As of January 31, 1998, the Company had technology services
offices in 23 worldwide locations. Fee-based services revenue has grown from a
relatively small base, as compared to the Company's sales of PC software.
Fee-based services represented 6% of the Company's overall sales; however,
such revenue generated 19% of the Company's gross margin dollars for the nine
months ended January 31, 1998.
The Company believes future increases in sales will depend upon the Company's
ability to maintain and increase its customer base, to continue to increase its
market share, to develop and expand its Technology Services Group and to
capitalize on continued growth in desktop technology markets around the world.
11
<PAGE>
INTERNATIONAL OPERATIONS:
For the three and nine months ended January 31, 1998, sales outside of the
United States increased 50% and 24% to $39 million and $94 million,
respectively, as compared to $26 million and $76 million for the three and nine
months ended December 31, 1996.
For the three and nine months ended January 31, 1998, the Company's operating
losses in Asia/Pacific were approximately $600,000 and $2.2 million,
respectively, reflecting a reduction from the operating losses of $1.8 million
and $3.4 million reported in the comparable periods in the prior year. In
recent quarters, the Company has adjusted its Asia/Pacific business model to
more closely mirror the lower cost, more centralized structure in the Company's
North American and European operations. Recently installed information systems
have allowed the Company to complete its consolidation efforts into its
centralized operations center in Sydney. In addition, the Company has reduced
expenses by closing smaller, non-profitable offices and reducing headcount in
the region.
Fluctuations in foreign currencies against the U.S. dollar did not have a
material effect on the Company's financial results for the nine months ended
January 31, 1998.
GROSS MARGIN:
Overall gross margin as a percentage of net sales was 11.0% and 11.4% for the
three and nine months ended January 31, 1998, respectively, as compared to 11.2%
and 11.6% for the comparable periods of the prior year.
For the three and nine months ended January 31, 1998, gross margin on the sale
of PC software declined to 9.7% and 9.8%, respectively, as compared to 10.0% and
10.2% for the three and nine months ended December 31, 1996. The percentage of
sales of software through VLM agreements significantly increased to
approximately 76% and 69% of net sales for the three and nine months ended
January 31, 1998, compared to approximately 64% and 57% of net sales in the
comparable periods in the prior year. The Company generally realizes lower
gross margin as a percent of sales on sales of software through VLM agreements,
as compared to sales of full-packaged software products. In addition, a portion
of the increase in sales in the January 1998 quarter resulted from higher levels
of year-end spending in certain of the Company's largest accounts, which receive
the most competitive pricing. The Company anticipates that VLM sales as a
percentage of total sales in the April 1998 quarter should decline from the
level experienced in the January quarter.
The decline in software margins for the three and nine months ended January
31, 1998 was partially offset by growth in revenue from fee-based services which
have substantially higher gross margins as a percent of sales than sales of
software. The contribution from these services in the three and nine months
ended January 31, 1998 represented approximately 16% and 19%, respectively, of
overall gross margin dollars, an increase from approximately 14% of gross margin
dollars for each of the comparable periods in the prior year.
12
<PAGE>
The Company believes its gross margin percentage on sales of software may
continue to decline if the volume of software product sales by the Company
through VLM agreements continues to increase or if publishers respond to
continued market pressures by reducing financial incentives available to
resellers. The Company believes that this potential decrease in product gross
margin percentage may be partially offset by anticipated increases in revenue
from its Technology Services Group.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative expenses include the costs of the Company's
sales and marketing organization and purchasing, distribution and administration
costs. The Company incurs a significant amount of marketing and advertising
costs based upon available advertising and cooperative marketing funds received
from software publishers. These funds are offset against related selling,
general and administrative expenses. For the three and nine months ended
January 31, 1998, selling, general and administrative expenses, as a percentage
of net sales, decreased to 8.4% and 9.0%, respectively, compared to 9.4% and
10.4%, respectively, for the comparable periods in the prior year. Selling,
general and administrative expenses in the prior year reflected certain
transition costs primarily associated with the CGE acquisition, including
temporary staffing, travel expense and costs associated with systems
implementation, totaling approximately $.6 million and $3.7 million for the
three and nine months ended December 31, 1996. Excluding these identified
transition costs, selling, general and administrative expenses as a percentage
of sales would have been 9.1% and 9.7% for these periods. The remaining decline
in selling, general and administrative expenses as a percentage of net sales is
primarily due to the Company's efforts to reduce its operating costs and realize
operating efficiencies in its product business as a result of the Company's
larger size.
DEPRECIATION AND AMORTIZATION:
The increase in depreciation and amortization for the three and nine months
ended January 31, 1998, as compared to the corresponding periods in the
preceding year, reflects additional depreciation on the higher level of fixed
assets and amortization of goodwill recorded in connection with the Company's
CGE acquisition. Most of the purchase price for this acquisition represents
goodwill which the Company began amortizing over a 20-year period in the June
1996 quarter.
INCOME TAX EXPENSE:
The Company's effective tax rate for the three and nine months ended January 31,
1998 was approximately 38% and 46%, respectively, as compared to approximately
45% and 87% in the comparable periods in the prior year. The effective tax rate
exceeds the federal statutory rate of 35% due primarily to the effect of the
Company's foreign operations, amortization of certain acquisition-related costs
that are non-deductible for tax purposes and state income taxes.
13
<PAGE>
LIQUIDITY AND FINANCIAL CONDITION:
At January 31, 1998, the Company had approximately $11.4 million in cash and
cash equivalents and had $25.5 million outstanding under its term loan and $8.0
million outstanding under its $60 million revolving line of credit. On March 11,
1998, the Company amended its bank financing arrangements by restructuring its
existing debt, including its $30 million term loan and $60 million revolving
line of credit, as a $100 million secured revolving credit facility (the
"Amended Facility"). The Amended Facility, which is secured by accounts
receivable, inventory and a pledge of the stock of certain of the Company's
subsidiaries, permits the Company to borrow up to $100 million, subject to
availability under its borrowing base. As of January 31, 1998, the Company would
have had approximately $45.5 million of excess borrowing availability under
the Amended Facility. The Amended Facility requires the Company to maintain
certain financial covenants and ratios and places limitations on dividend
payments, capital expenditures and certain other borrowings. The Amended
Facility bears interest at a variable rate and expires in March 2001.
On September 8, 1997, the Company announced the adoption of a Stock Repurchase
Plan. Under the Stock Repurchase Plan, the Company may purchase up to $2.5
million of the Company's Common Stock from time to time in the open market or
through privately negotiated transactions. The Company will fund any purchases
with cash or borrowings under the Company's credit facility. As of March 12,
1998 the Company had repurchased 57,800 shares of Common Stock under the Stock
Repurchase Plan for total expenditures of approximately $862,000.
The increase in trade accounts receivable from April 30, 1997 to January 31,
1998, reflects the Company's increased sales. At January 31, 1998, accounts
receivable represented approximately 64 days of sales, a reduction from 75 days
of sales outstanding at April 30, 1997. The Company generally carries inventory
adequate to meet product sales levels for a period of less than one month. The
decrease in trade accounts payable from April 30, 1997 to January 31, 1998
corresponds to the decline in inventory, offset by increased sales, and reflects
a reduction in the number of days of purchases outstanding.
For the nine months ended January 31, 1998, the Company's operating activities
provided $14.4 million of cash compared to $14.3 million of cash used in
operations in the nine months ended December 31, 1996. The increase in cash
provided by operations reflects the Company's improved profitability, reduced
inventory levels and increased collections on accounts receivable. In addition,
for the nine months ended December 31, 1996, the Company used a higher level of
cash in its operations as it financed the growth in its receivables resulting
from increased sales following the CGE acquisition.
The increase in furniture, equipment and leasehold improvements at January 31,
1998 reflects approximately $6.3 million of capital expenditures related to the
ongoing upgrade
14
<PAGE>
of the Company's computer systems and the recent expansion of its operations
centers in Garland, Texas and Dublin, Ireland.
The Company expects that its cash requirements for the remainder of the fiscal
year will be satisfied from cash flow from operations and borrowings under its
credit facility.
FACTORS THAT MAY AFFECT FUTURE RESULTS:
This Management's Discussion and Analysis of Financial Condition includes
certain forward-looking statements of the Company including future market
trends, estimates regarding the economy and the software industry in general and
key performance indicators which impact the Company. In developing any
forward-looking statements, the Company makes a number of assumptions
including expectations for continued market growth, anticipated revenue and
gross margin levels, and cost savings and efficiencies. If the industry's or
the Company's performance differs materially from these assumptions or
estimates, Software Spectrum's actual results could vary significantly
from the estimated performance reflected in any forward-looking statements.
Accordingly, forward-looking statements should not be relied upon as a
prediction of actual results. The Company's Form 10-K for the April 30, 1997
fiscal year contains certain cautionary statements that identify factors that
could cause the Company's actual results to differ materially from those in
the forward looking statements in this discussion.
INFLATION:
The Company does not believe that inflation has had a material impact on its
operations or liquidity to date.
15
<PAGE>
PART II - OTHER INFORMATION
16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: Exhibit 10.1 - Amended and Restated Credit Agreement dated
March 11, 1998 among the Company, the Chase Manhattan Bank,
as Administrative Agent, Chase Bank of Texas, National
Association, as Collateral Agent and other participating
financial institutions
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three-month period ended
January 31, 1998.
17
<PAGE>
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.
SOFTWARE SPECTRUM, INC.
Date: March 17, 1998 By: /s/ James W. Brown
-----------------------------------
James W. Brown, Vice President-
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
18
<PAGE>
EXHIBIT INDEX
Sequentially
Numbered
Pages
------------
Exhibit 10.1 Amended and Restated Credit Agreement dated March 11, 1998 among
the Company, the Chase Manhattan Bank, as Administrative Agent,
Chase Bank of Texas, National Association, as Collateral Agent
and other participating financial institutions.
Exhibit 27 Financial Data Schedule
19
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
among
SOFTWARE SPECTRUM, INC.
as Borrower,
THE CHASE MANHATTAN BANK,
as Administrative Agent
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
as Collateral Agent,
and
the lenders named herein
11 March 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 - Definitions 1
Section 1.1 Definitions 1
Section 1.2 Other Definitional Provisions 17
Section 1.3 Accounting Terms and Determinations 17
Section 1.4 Time of Day 18
ARTICLE 2 - Revolving Credit Facility 18
Section 2.1 Revolving Commitments 18
Section 2.2 Revolving Notes 18
Section 2.3 Repayment of Revolving Loans 19
Section 2.4 Use of Proceeds 19
Section 2.5 Revolving Commitment Fee 19
Section 2.6 Reduction or Termination of Revolving Commitments 19
Section 2.7 Letters of Credit 19
(a) Commitment to Issue 19
(b) Letter of Credit Request Procedure 20
(c) Letter of Credit Fees 20
(d) Funding of Drawings 20
(e) Reimbursements 21
(f) Reimbursement Obligations Absolute 21
(g) Issuer Responsibility 22
ARTICLE 3 - Interest and Fees 23
Section 3.1 Interest Rate 23
Section 3.2 Determinations of Margins and Fees 23
Section 3.3 Payment Dates 24
Section 3.4 Default Interest 24
Section 3.5 Conversions and Continuations of Accounts 25
Section 3.6 Computations 25
ARTICLE 4 - Administrative Matters 25
Section 4.1 Borrowing Procedure 25
(a) Formal Borrowing Request 25
(b) Automatic Borrowing 26
Section 4.2 Minimum Amounts 26
Section 4.3 Certain Notices 26
Section 4.4 Prepayments 27
(a) Mandatory 27
(b) Control of Cash and Application to Obligations 27
(c) Optional 28
Section 4.5 Method of Payment 28
Section 4.6 Weekly Settlement Among Banks; Pro Rata Treatment 29
Section 4.7 Sharing of Payments 30
Section 4.8 Non-Receipt of Funds by the Administrative Agent 31
<PAGE>
Section 4.9 Withholding Taxes 31
Section 4.10 Withholding Tax Exemption 31
Section 4.11 Participation and Settlement Obligations Absolute;
Failure to Fund Participation or Settlement. 32
Section 4.12 Collateral Account 32
ARTICLE 5 - Yield Protection and Illegality 33
Section 5.1 Additional Costs 33
Section 5.2 Limitation on Libor Accounts 34
Section 5.3 Illegality 35
Section 5.4 Treatment of Affected Revolving Loans 35
Section 5.5 Compensation 35
Section 5.6 Capital Adequacy 36
ARTICLE 6 - Conditions Precedent 36
Section 6.1 Effectiveness of Agreement; Initial Loan 36
(a) Resolutions 37
(b) Incumbency Certificate 37
(c) Articles of Incorporation 37
(d) Bylaws 37
(e) Governmental Certificates 37
(f) Revolving Notes 37
(g) Acknowledgment 37
(h) Collateral 37
(i) Opinion of Counsel 38
(j) Prior Agreement Interest 38
(k) Fees 38
(l) Borrowing Base Report 38
<PAGE>
(m) Projections 38
(n) Financial Statement 38
(o) Attorneys' Fees and Expenses 38
Section 6.2 All Revolving Loans and Letters of Credit 38
(a) No Default 38
(b) Representations and Warranties 38
(c) Additional Documentation 39
ARTICLE 7 - Representations and Warranties 39
Section 7.1 Corporate Existence 39
Section 7.2 Financial Statements; Projections. 39
(a) Financial Statements 39
(b) Projections 39
Section 7.3 Corporate Action; No Breach 40
Section 7.4 Operation of Business 40
Section 7.5 Litigation and Judgments 40
Section 7.6 Rights in Properties; Liens 40
Section 7.7 Enforceability 40
Section 7.8 Approvals 40
Section 7.9 Debt 41
Section 7.10 Taxes 41
Section 7.11 Margin Securities 41
Section 7.12 ERISA 41
Section 7.13 Disclosure 41
Section 7.14 Subsidiaries 42
Section 7.15 Agreements 42
Section 7.16 Compliance with Laws 42
Section 7.17 Investment Company Act 42
Section 7.18 Public Utility Holding Company Act 42
Section 7.19 Environmental Matters 42
Section 7.20 Solvency 43
Section 7.21 Benefit Received 43
Section 7.22 Material Subsidiaries 44
ARTICLE 8 - Positive Covenants 44
Section 8.1 Reporting Requirements 44
(a) Annual Financial Statements 44
(b) Quarterly Financial Statements 44
(c) Compliance Certificate 44
(d) Borrowing Base Report 44
(e) Receivable Reporting 45
(f) Annual Projections 45
(g) Management Letters 45
(h) Notice of Litigation 45
(i) Notice of Default 45
(j) ERISA Reports 45
(k) Reports to Other Creditors 46
(l) Notice of Material Adverse Effect 46
<PAGE>
(m) Proxy Statements, Etc. 46
(n) General Information 46
Section 8.2 Maintenance of Existence; Conduct of Business 46
Section 8.3 Maintenance of Properties 46
Section 8.4 Taxes and Claims 46
Section 8.5 Insurance 47
Section 8.6 Inspection Rights; Receivable Verification 47
Section 8.7 Keeping Books and Records 47
Section 8.8 Compliance with Laws 47
Section 8.9 Compliance with Agreements 47
Section 8.10 Further Assurances; Collateral Matters; Exceptions
to Perfection. 47
(a) Further Assurance and Exceptions to Perfection 48
(b) Material Subsidiary Pledge 48
(c) Borrower Pledge of Subsidiary Stock 49
Section 8.11 ERISA 49
ARTICLE 9 - Negative Covenants 49
Section 9.1 Debt 49
Section 9.2 Limitation on Liens and Restrictions on Subsidiaries 52
Section 9.3 Mergers, Etc 53
Section 9.4 Restrictions on Dividends and other Distributions 54
Section 9.5 Investments 55
Section 9.6 Limitation on Issuance of Capital Stock 57
Section 9.7 Transactions With Affiliates 57
Section 9.8 Disposition of Assets 57
Section 9.9 Lines of Business 57
Section 9.10 Prepayment of Debt 57
Section 9.11 Sale Leaseback 57
ARTICLE 10 - Financial Covenants 58
Section 10.1 Consolidated Net Worth 58
Section 10.2 Interest Coverage 58
Section 10.3 Capital Expenditure Limits 59
Section 10.4 Net Income 59
ARTICLE 11 - Default 59
Section 11.1 Events of Default 59
Section 11.2 Remedies 61
(a) Acceleration 61
(b) Termination of Revolving Commitments 62
(c) Judgment 62
(d) Foreclosure 62
(e) Rights 62
Section 11.3 Cash Collateral 62
Section 11.4 Performance by the Agents 62
Section 11.5 Setoff 63
Section 11.6 Continuance of Default. 63
<PAGE>
ARTICLE 12 - The Agents 63
Section 12.1 Appointment of Administrative Agent; Powers 63
Section 12.2 Appointment of Collateral Agent; Powers 63
Section 12.3 Immunities 63
Section 12.4 Rights of Each Agent as a Bank 64
Section 12.5 Defaults 64
Section 12.6 Indemnification 64
Section 12.7 Independent Credit Decisions 65
Section 12.8 Several Commitments 66
Section 12.9 Successor Agents 66
Section 12.10 Agent Fee. 66
Section 12.11 Lockbox and other Deposit Accounts 66
ARTICLE 13 - Miscellaneous 67
Section 13.1 Expenses 67
Section 13.2 Indemnification 68
Section 13.3 Limitation of Liability 69
Section 13.4 No Duty 69
Section 13.5 No Fiduciary Relationship 69
Section 13.6 Equitable Relief 69
Section 13.7 No Waiver; Cumulative Remedies 69
Section 13.8 Successors and Assigns 70
(a) Binding Effect 70
(b) Participations 70
(c) Assignments 70
(d) Information 71
(e) Pledge to Federal Reserve 71
Section 13.9 Survival 72
Section 13.10 Entire Agreement Amendment and Restatement 72
Section 13.11 Amendments 73
Section 13.12 Maximum Interest Rate 74
Section 13.13 Notices 74
Section 13.14 Governing Law 75
Section 13.15 Counterparts 75
Section 13.16 Severability 75
Section 13.17 Headings 75
Section 13.18 Non-Application of Chapter 346 of the Texas 75
Finance Code
Section 13.19 Construction 75
Section 13.20 Independence of Covenants 75
Section 13.21 Waiver of Jury Trial 75
Section 13.22 Standard of Reasonableness. 75
<PAGE>
EXHIBIT DESCRIPTION OF EXHIBIT
"A" Revolving Note
"B" Borrowing Base Report
"C" Assignment and Acceptance
"D" Compliance Certificate
"E" Borrower Pledge Agreement
INDEX TO SCHEDULES
SCHEDULE DESCRIPTION OF SCHEDULE
1.1 (a) Revolving Commitments
1.1 (b) Existing Letters of Credit
1.1 (c) Closing Date Adjustments
7.14 List of Subsidiaries
9.1 Debt
9.2 Existing Liens
9.5 Existing Investments
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT (the "AGREEMENT"), dated as of
March 11, 1998, is among SOFTWARE SPECTRUM, INC., a corporation duly organized
and validly existing under the laws of the State of Texas (the "BORROWER"), each
of the banks or other lending institutions which is or which may from time to
time become a signatory hereto or any successor or assignee thereof
(individually, a "BANK" and, collectively, the "BANKS"), THE CHASE MANHATTAN
BANK, individually as a Bank and as administrative agent for itself and the
other Banks (in its capacity as administrative agent, together with its
successors in such capacity "ADMINISTRATIVE AGENT") and CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION (formerly known as Texas Commerce Bank National
Association), individually as a Bank and as collateral agent for itself and the
other Banks (in its capacity as collateral agent, together with its successors
in such capacity, the "COLLATERAL AGENT").
R E C I T A L S:
The Borrower and Texas Commerce Bank National Association (now known as
Chase Bank of Texas, National Association), as agent and as the only lender,
previously entered into that certain Credit Agreement dated as of May 3, 1996
(as the same has been amended, herein referred to as the "PRIOR AGREEMENT").
Through various assignments, the interest of Chase Bank of Texas, National
Association as a Bank in the Prior Agreement has been assigned to the Banks.
Borrower, the Banks, the Collateral Agent and the Administrative Agent now
desire to enter into this Agreement to amend and restate the Prior Agreement in
its entirety.
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 DEFINITIONS. As used in this Agreement, the following terms have
the following meanings:
"ACCOUNT" means either a Base Rate Account or a Libor Account.
"ADDITIONAL COSTS" has the meaning specified in Section 5.1.
"ADJUSTED LIBOR RATE" means, for any Libor Account for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/16
of 1%) determined by the Administrative Agent to be equal to the Libor Rate for
such Libor Account for such Interest Period divided by 1 minus the Reserve
Requirement for such Libor Account for such Interest Period.
"ADJUSTMENT DATE" has the meaning set forth in Section 3.2.
<PAGE>
"ADMINISTRATIVE AGENT" has the meaning set forth in the introductory
paragraph of this Agreement.
"AFFILIATE" means, as to any Person, any other Person (a) that directly or
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, such Person; (b) that directly or indirectly
beneficially owns or holds five percent (5%) or more of any class of voting
stock of such Person; or (c) five percent (5%) or more of the voting stock of
which is directly or indirectly beneficially owned or held by the Person in
question. The term "control" means the possession, directly or indirectly, of
the power to direct or cause direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract, or
otherwise; PROVIDED, HOWEVER, in no event shall either Agent or any Bank be
deemed an Affiliate of the Borrower or any Subsidiary.
"AGENTS" means the Administrative Agent and the Collateral Agent.
"AGREEMENT" has the meaning set forth in the introductory paragraph of this
Agreement.
"ANNUAL PROJECTIONS" means Borrower's consolidated forecasted profit and
loss statement, balance sheet, and statement of cash flow prepared on a basis
consistent with Borrower's historical financial statements, together with
appropriate supporting details and a statement of underlying assumptions.
"APPLICABLE LENDING OFFICE" means for each Bank and each Type of Account,
the lending office of such Bank (or of an Affiliate of such Bank) designated for
such Account below its name on the signature pages hereof or such other office
of such Bank (or of an Affiliate of such Bank) as such Bank may from time to
time specify to the Borrower and the Administrative Agent as the office by which
its Revolving Loans subject to Accounts of such Type are to be made and
maintained.
"APPLICABLE RATE" has the meaning set forth in Section 3.1.
"APPROVED FOREIGN ACCOUNT DEBTOR" has the meaning set forth in the Eligible
Account definition.
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into
by a Bank and its assignee and accepted by the Administrative Agent pursuant to
Section 13.8, in substantially the form of Exhibit "C" hereto.
"AVAILABLE CASH" has the meaning set forth in subsection 4.4(b).
"BANK" has the meaning set forth in the introductory paragraph of this
Agreement.
"BASE MARGIN" has the meaning specified in Section 3.2.
"BASE RATE" means, for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in
effect on such day, (b) the Federal Funds Effective Rate in effect for such day
plus one-half percent (1/2%), or (c) the Base CD Rate in effect for such day
plus one percent (1%). For purposes of this Agreement, any change in the Base
Rate due to a change in the Prime Rate, Federal Funds Effective Rate or the Base
CD Rate
<PAGE>
shall be effective on the effective date of such change in the Prime
Rate, Federal Funds Effective Rate or the Base CD Rate, respectively. If for
any reason the Administrative Agent shall have determined (which determination
shall be conclusive and binding, absent manifest error) that it is unable to
ascertain the Federal Funds Effective Rate or Base CD Rate, or both, for any
reason, including the inability or failure of the Administrative Agent to obtain
sufficient quotations in accordance with the terms hereof, the Base Rate shall
be determined without regard to clause (b) or (c), or both, as appropriate,
until the circumstances giving rise to such inability no longer exist. As used
in this definition, the following terms shall have the following meanings:
"ASSESSMENT RATE" shall mean the annual assessment rate (net of refunds and
rounded upwards, if necessary, to the next 1/16 of 1%) estimated by the
Administrative Agent (in good faith, but in no event in excess of statutory or
regulatory maximums) to be payable by the Administrative Agent to the Federal
Deposit Insurance Corporation (or any successor) for insurance by such
corporation (or such successor) of time deposits made in Dollars at the
Administrative Agent's domestic offices during the current calendar year.
"BASE CD RATE" shall mean the sum of (a) the product of (i) the Three-Month
Secondary CD Rate and (ii) Statutory Reserves and (b) the Assessment Rate.
"PRIME RATE" shall mean the rate of interest per annum publicly announced
from time to time by The Chase Manhattan Bank, or its successor financial
institution, at the Principal Office as its prime rate in effect at such time.
Without notice to the Borrower or any other Person, the Prime Rate shall change
automatically from time to time as and in the amount by which said prime rate
shall fluctuate, with each such change to be effective as of the date of each
change in such prime rate. THE PRIME RATE IS A REFERENCE RATE AND DOES NOT
NECESSARILY REPRESENT THE LOWEST OR BEST RATE ACTUALLY CHARGED BY THE CHASE
MANHATTAN BANK OR SUCH SUCCESSOR FINANCIAL INSTITUTION TO ANY OF ITS CUSTOMERS.
THE CHASE MANHATTAN BANK OR ANY SUCH SUCCESSOR FINANCIAL INSTITUTION MAY MAKE
COMMERCIAL LOANS OR OTHER LOANS AT RATES OF INTEREST AT, ABOVE AND BELOW THE
PRIME RATE.
"STATUTORY RESERVES" shall mean a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentage (including without
limitation, any marginal, special, emergency or supplemental reserves) expressed
as a decimal, established by the Board of Governors of the Federal Reserve
System of the United States or any banking authority to which The Chase
Manhattan Bank is subject with respect to the Base CD Rate for new negotiable
non-personal time deposits in Dollars of over One Hundred Thousand Dollars
($100,000) with maturities approximately equal to three months. Statutory
Reserves shall be adjusted automatically on and as of the effective date of any
change in any applicable reserve percentage.
"THREE-MONTH SECONDARY CD RATE" shall mean, for any day, the secondary
market rate for three-month certificates of deposit reported as being in effect
on such day (or, if such day shall not be a Business Day, the next preceding
Business Day) by the Board of Governors of the Federal Reserve System of the
United States through the public information telephone line of the Federal
Reserve Bank of New York (which rate will,
<PAGE>
under the current practices of such Board of Governors, be published in Federal
Reserve Statistical Release H.15(519) during the week following such day), or,
if such rate shall not be so reported on such day or such next preceding
Business Day, the average of the secondary market quotations for three-month
certificates of deposit of major money center banks in New York City received at
approximately 10:00 a.m. on such day (or, if such day shall not be a Business
Day, on the next preceding Business Day) by the Administrative Agent from three
New York City negotiable certificate of deposit dealers of recognized standing
selected by the Administrative Agent.
"BASE RATE ACCOUNT" means a portion of a Revolving Loan that bears interest
at a rate based upon the Base Rate.
"BORROWER" has the meaning set forth in the introductory paragraph of this
Agreement.
"BORROWER PLEDGE AGREEMENT" means the Amended and Restated Pledge Agreement
between the Borrower and Chase Bank of Texas, National Association for the
benefit of itself and the Banks, and in the form attached as Exhibit "E", as the
same may hereafter be amended or otherwise modified from time to time.
"BORROWER SECURITY AGREEMENT" means the security agreement between the
Borrower and Texas Commerce Bank National Association (now known as Chase Bank
of Texas, National Association) for the benefit of itself and the Banks, dated
as of May 3, 1996, in the form attached as Exhibit "E" to the Prior Agreement,
as the same has been or may hereafter be amended or otherwise modified from time
to time.
"BORROWING AVAILABILITY" means, at any date of determination, the amount by
which the lesser of the Revolving Commitments or the Borrowing Base exceed the
Outstanding Revolving Credit.
"BORROWING BASE" means, at any time and calculated without duplication
based on the Borrowing Base Report most recently delivered at such time pursuant
to Section 8.1(d), an amount equal to the sum of the following:
(a) the product of the Advance Percent multiplied by the aggregate
amount of Eligible Accounts of Borrower and the Domestic Granting
Subsidiaries; PLUS
(b) one hundred percent (100%) of the market value of the assets held
in or pursuant to the Collateral Account; MINUS
(c) as long as the Borrower has the ability to borrow the Short Term
Bank Debt (Borrower agreeing to notify the Administrative Agent when it no
longer has ability to borrow the Short Term Bank Debt) or as long as any
Short Term Bank Debt is outstanding, Five Million Dollars ($5,000,000);
MINUS
(d) the aggregate amount of the reserves established by the
Administrative Agent at any time and from time to time after the Closing
Date, which it determines is necessary to protect the Bank's interests,
such determination to be made in the Administrative Agent's judgment, in
good faith
<PAGE>
and based on information which, in its judgment, supports such
determination. Any establishment of reserves shall be effective on the
date Borrower receives Administrative Agent's written notice of the amount
thereof.
As used in this definition, the term "ADVANCE PERCENT" means either (i)
eighty percent (80%); or (ii), if no Default Exists, the Borrower requests in
writing and the Borrower provides evidence to the Administrative Agent (which
the Administrative Agent has determined in its judgement and in good faith to be
satisfactory) that the average dilution percentage for the accounts of Borrower
and the Granting Subsidiaries is equal to or less than five percent (5%) for the
one hundred eighty (180) day period ending not less than thirty (30) days prior
to the date of the Borrower's request under this clause (ii), eighty-five
percent (85%); or (iii), if the Administrative Agent provides written notice to
the Borrower that it has determined to change the Advance Percent at any time
and from time to time after the Closing Date, such other percent specified in
the most recent notice as the Administrative Agent may determine is necessary to
protect its interests, such determination to be made in the Administrative
Agent's judgment, in good faith and based on the fact that the average dilution
percentage for the accounts of Borrower and the Granting Subsidiaries is greater
than ten percent (10%) for a ninety (90) day period selected by the
Administrative Agent ending not less than thirty (30) days prior to the date of
the Administrative Agent's notice under this clause (iii). Any change in the
Advance Percent shall be effective on the date five (5) days after Borrower
receives the Administrative Agent's written notice of such change. As used in
the foregoing definition, "average dilution percentage" shall be calculated for
any period in a manner acceptable to the Administrative Agent by dividing the
dilution of accounts occurring during such period by the gross sales (excluding
rebills already credited to reduce dilution) for such period and multiplying
the resulting quotient by 100. For purposes of the foregoing, "dilution" means
any reduction in the value of accounts receivable caused by returns, write-offs,
discounts, credits, allowances other than those resulting from reserves for
potential losses, and/or any other non-cash offsets asserted or assertable by
account debtors having the effect of reducing the value of accounts receivable;
provided that in calculating any such reductions in any period, the amount of
any rebill of the original account debtor which occurs within seven (7) days of
the original invoice date and the amount of any rebill of the original account
debtor which is rebilled in such period based on the original invoice date shall
(without duplication) be credited against any such reduction.
"BUSINESS DAY" means (a) any day excluding Saturday, Sunday, and any day
which either is a legal holiday under the laws of the State of Texas or the
State of New York or is a day on which banking institutions located in the State
of Texas or the State of New York are closed, and (b), with respect to all
borrowings, payments, Conversions, Continuations, Interest Periods, and notices
in connection with Revolving Loans subject to Libor Accounts, any day which is a
Business Day described in clause (a) above and which is also a day on which
dealings in Dollar deposits are carried out in the London interbank market.
"CALCULATION PERIOD" has the meaning specified in Section 3.2.
"CAPITAL EXPENDITURES" has the meaning set forth in Section 10.2.
"CAPITAL LEASE OBLIGATIONS" means, as to any Person, the obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal property, which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP. For purposes of this Agreement,
<PAGE>
the amount of such Capital Lease Obligations shall be the capitalized amount
thereof, as determined in accordance with GAAP.
"CLOSING DATE" means March 16, 1998.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated and rulings issued thereunder.
"COLLATERAL" means the property in which Liens have been granted pursuant
to the Borrower Security Agreement, the Borrower Pledge Agreement and the
Subsidiary Security Agreements, whether such Liens are now existing or hereafter
arise.
"COLLATERAL ACCOUNT" means the deposit, brokerage or investment account or
accounts established at the Collateral Agent in the name of the Collateral Agent
pursuant to Section 4.12 over which the Borrower shall have no right of
withdrawal except as provided in Section 4.12.
"COLLATERAL AGENT" has the meaning set forth in the introductory paragraph
of this Agreement.
"COLLECTION ACCOUNT" shall mean a deposit account established at the
Administrative Agent by the Borrower and controlled by the Administrative Agent
for the benefit of the Banks in which all funds received through the Lockbox
Accounts shall be deposited.
"COMMERCIAL LETTER OF CREDIT" means a Letter of Credit issued to facilitate
payment under a contract for the sale of goods.
"COMMITMENT PERCENTAGE" means, as to any Bank, the percentage equivalent of
a fraction the numerator of which is the amount of the Revolving Commitment of
such Bank and the denominator of which is the aggregate amount of the Revolving
Commitments of all of the Banks.
"COMPLIANCE CERTIFICATE" means a certificate in substantially the form of
Exhibit "D" properly completed and executed by the chief financial officer or
other executive officer of the Borrower.
"CONTINUE", "CONTINUATION", and "CONTINUED" shall refer to the continuation
pursuant to Section 3.5 of a Libor Account as a Libor Account from one Interest
Period to the next Interest Period.
"CONVERT", "CONVERSION", and "CONVERTED" shall refer to a conversion
pursuant to Section 3.5 or Article 5 of one Type of Account into the other Type
of Account.
"DAILY COLLECTION EVENT" means the occurrence of a Default or the
occurrence of any event that would cause the amount of the Borrowing
Availability to be less than Seven Million Five Hundred Thousand Dollars
($7,500,000) for any five (5) consecutive Business Days.
"DAILY COLLECTION PROCEDURE" means the procedures in place under Sections
4.4 and 8.1 for the daily collection of receivables, the application thereof to
the Obligations and the reporting thereof.
<PAGE>
"DEBT" means as to any Person at any time (without duplication): (a) all
obligations of such Person for borrowed money; (b) all obligations of such
Person evidenced by bonds, notes, debentures, or other similar instruments; (c)
all obligations of such Person to pay the deferred purchase price of property or
services, including without limitation, all obligations arising in connection
with acquisitions permitted by Section 9.4 to make deferred payments, whether
such deferred payments are in the form of consulting payments, noncompete
payments or performance based payments but excluding any such payments to the
extent they represent compensation for services actually rendered after the
acquisition; (d) all Capital Lease Obligations of such Person; (e) all Debt or
other obligations of others Guaranteed by such Person; (f) all obligations
secured by a Lien existing on property owned by such Person, whether or not the
obligations secured thereby have been assumed by such Person or are non-recourse
to the credit of such Person; (g) all reimbursement obligations of such Person
(whether contingent or otherwise) in respect of letters of credit, bankers'
acceptances, surety or other bonds, and similar instruments; and (h) all
liabilities of such Person in respect of unfunded vested benefits under any
Plan.
"DEFAULT" means an Event of Default or the occurrence of an event or
condition which with notice or lapse of time or both would become an Event of
Default.
"DEFAULT RATE" means, in respect of any principal of any Revolving Loan,
any Reimbursement Obligation, or any other amount payable by the Borrower under
any Loan Document which is not paid when due (whether at stated maturity, by
acceleration, or otherwise), a rate per annum during the period commencing on
the due date until such amount is paid in full equal to the sum of two percent
(2%) plus the Applicable Rate for Base Rate Accounts as in effect from time to
time (provided, that if such amount in default is principal of a Revolving Loan
subject to a Libor Account and the due date is a day other than the last day of
an Interest Period therefor, the "Default Rate" for such principal shall be, for
the period from and including the due date and to but excluding the last day of
the Interest Period therefor, two percent (2%) plus the interest rate for such
Revolving Loan for such Interest Period as provided in Section 3.1 hereof, and,
thereafter, the rate provided for above in this definition).
"DISBURSEMENT ACCOUNT" has the meaning set forth in subsection 4.1(a).
"DOLLARS" and "$" mean lawful money of the United States of America.
"DOMESTIC GRANTING SUBSIDIARY" means any Granting Subsidiary other than
Software Spectrum Canada.
"EBITDA" has the meaning set forth in Section 10.2.
"ELIGIBLE ACCOUNT" means an account receivable of the Borrower or a
Granting Subsidiary that satisfies the following conditions:
(a) is due and payable within one hundred twenty (120) days;
(b) has been outstanding less than one hundred twenty (120) days
past the original date of invoice;
(c) has arisen in the ordinary course of business from (i) the sale
by the Borrower or a Granting Subsidiary of goods in which the Borrower or
a Granting Subsidiary had sole ownership where such goods have been shipped
or delivered to
<PAGE>
the account debtor or (ii) the performance of services by the Borrower or a
Granting Subsidiary;
(d) represents a complete bona fide transaction which requires no
further act under any circumstances on the part of the Borrower or a
Granting Subsidiary to make such account receivable payable by the account
debtor;
(e) the goods of sale which gave rise to such account receivable were
shipped or delivered to the account debtor on an absolute sale basis and
not on consignment, a sale or return basis, a guaranteed sale basis, a bill
and hold basis, or on the basis of any similar understanding;
(f) the goods of sale which gave rise to such account receivable were
not, at the time of sale thereof, subject to any Lien, except the security
interest in favor of the Collateral Agent created by the Loan Documents;
(g) is subject to a perfected, first priority security interest in
favor of the Collateral Agent, is not subject to any other Lien and is
directed to be remitted to a Lockbox Account;
(h) is not subject to any asserted claim relating to a setoff,
counterclaim, defense, allowance, dispute, or adjustment other than normal
discounts for prompt payment, and the goods of sale which gave rise to such
accounts receivable have not been returned, rejected, repossessed, lost, or
damaged;
(i) the account debtor is not insolvent or the subject of any
bankruptcy or insolvency proceeding and has not made an assignment for the
benefit of creditors, suspended normal business operations, dissolved,
liquidated, terminated its existence, ceased to pay its debts as they
become due, or suffered a receiver or trustee to be appointed for any of
its assets or affairs;
(j) is not evidenced by chattel paper or an instrument of any kind;
(k) is owed by a Person or Persons that are citizens of or organized
under the laws of the United States or any State thereof and are not owed
by any Person located outside of the United States of America unless (i)
supported by a letter of credit issued by a bank acceptable to the
Administrative Agent or by foreign credit issuance issued by a Person
acceptable to the Administrative Agent or (ii) owed by an Approved Foreign
Account Debtor (as defined below in this definition);
(l) if the account receivable is owed by a United States Federal
Governmental Authority or any Canadian Governmental Authority, all
requirements arising under law or contract applicable to the assignment
thereof (e.g., the requirements under the Federal Assignment of Claims Act)
shall have been complied with;
(m) is not owed by an Affiliate of the Borrower or a Granting
Subsidiary; provided that for purposes of this clause (m) any mutual fund
or manager of a mutual fund who holds five percent (5%) or more but less
than ten percent (10%) of the capital stock of Borrower shall not be deemed
an Affiliate of Borrower;
<PAGE>
(n) is payable in Dollars or, with respect to Approved Foreign
Account Debtors located in Canada, Canadian dollars, but the amount of
such Canadian dollar denominated accounts must be included in the Borrowing
Base in Dollars based on the exchange rate for the exchange of Canadian
dollars to Dollars as set forth in the Wall Street Journal (or other
publication acceptable to Administrative Agent) as of the date of the
calculation of the Borrowing Base;
(o) the account receivable complies with all applicable laws, rules
and regulations, including, without limitation, usury laws;
(p) the Borrower's or the applicable Granting Subsidiary's
performance of the contract to which the account receivable relates is not
assured by a performance, completion or other bond unless the
Administrative Agent shall have waived in writing the foregoing
requirements of this clause (p) which it may do in its discretion at the
Borrower's request if the Collateral Agent's ability to collect such
account receivable is not impaired and no portion of the Borrower's or the
applicable Granting Subsidiary's performance thereunder has been
subcontracted to a third party;
(q) the account receivable has not been and is not required to be
charged or written off as uncollectible in accordance with GAAP;
(r) if the account receivable is owing by an account debtor for which
the Borrower or the applicable Granting Subsidiary must have filed a
"Notice of Business Activities Report" or similar report in a state or
states where failure to comply with such filing of notice precludes
bringing suit against the applicable account debtor, the Borrower or the
applicable Granting Subsidiary must have filed such requisite activities
report or other similar report and otherwise be in full compliance with
such legal requirement;
(s) if the account receivable arose from the sale by Software
Spectrum Canada of goods or the performance of services by Software
Spectrum Canada, then Borrower must have purchased, and Software Spectrum
Canada must have sold outright, all of Software Spectrum Canada's right,
title and interest in and to such account receivable for fair consideration
pursuant to documentation satisfactory in form and substance to the
Administrative Agent (which documentation shall include without limitation,
a purchase and sale agreement specifically identifying the account
receivable, a legal opinion from Canadian counsel relating to the
enforceability thereof, evidence of Software Spectrum Canada's power and
authority to enter into such agreement and such other documentation as the
Administrative Agent may request); and
(t) the account receivable is not an Excluded Account. The term
"EXCLUDED ACCOUNT" means an account receivable that has been identified by
the Administrative Agent (by a notice to the Borrower) as being
unacceptable for inclusion in the Borrowing Base because the Administrative
Agent has determined that the account debtor obligated on such account is
not creditworthy or that the Collateral Agent might not otherwise be able
to receive the full amount of the account within a reasonable period of
time and at a reasonable cost of collection if it sought to realize on its
security interest therein, such
<PAGE>
determination to be made in the Administrative Agent's judgment, in good
faith and based on information which, in its judgment, supports such
determination.
No account receivable owed by an account debtor to the Borrower or a
Granting Subsidiary shall be included as an Eligible Account if more than fifty
percent (50%) of the balances then outstanding on accounts receivable owed by
such account debtor and its Affiliates to the Borrower or such Granting
Subsidiary are ineligible as a result of the operation of clause (b) of this
definition. The amount of any Eligible Accounts owed by an account debtor to
the Borrower or a Granting Subsidiary shall be reduced by the amount of all
credits, charge backs and all "contra accounts" owed by the Borrower or such
Granting Subsidiary to such account debtor. The term "APPROVED FOREIGN ACCOUNT
DEBTOR" means a Person organized and doing business in Canada or any other
Person approved in writing by the Administrative Agent as an Approved Foreign
Account Debtor at the request of Borrower made from time to time. The
Administrative Agent may revoke (by notice to the Borrower) an account debtor's
designation as an Approved Foreign Account Debtor if the Administrative Agent
has determined in good faith and based on its judgement that the account debtor
is no longer entitled to such designation as a result of a deterioration of such
account debtor's creditworthiness.
"ELIGIBLE ASSIGNEE" means one or more commercial bank, savings and loan
association, savings bank, finance company, insurance company, pension fund,
mutual fund, or other financial institution (whether a corporation, partnership,
or other entity) which is qualified to make Revolving Loans hereunder and has a
combined capital and surplus of at least One Hundred Million Dollars
($100,000,000).
"ENVIRONMENTAL LAWS" means any and all federal, state, and local laws,
regulations, and requirements pertaining to health, safety, or the environment,
as such laws, regulations, and requirements may be amended or supplemented from
time to time.
"ENVIRONMENTAL LIABILITIES" means, as to any Person, all liabilities,
obligations, responsibilities, Remedial Actions, losses, damages, punitive
damages, consequential damages, treble damages, costs, and expenses, (including,
without limitation, all reasonable fees, disbursements and expenses of counsel,
expert and consulting fees and costs of investigation and feasibility studies),
fines, penalties, sanctions, and interest incurred as a result of any claim or
demand, by any Person, whether based in contract, tort, implied or express
warranty, strict liability, criminal or civil statute, including any
Environmental Law, permit, order, or agreement with any Governmental Authority
or other Person, arising from environmental, health, or safety conditions or the
Release or threatened Release of a Hazardous Material into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereunder.
"ERISA AFFILIATE" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Borrower or is under common control (within
the meaning of Section 414(c) of the Code) with the Borrower.
"EVENT OF DEFAULT" has the meaning specified in Section 11.1.
"EXISTING LETTERS OF CREDIT" has the meaning specified in Subsection 2.7
(a).
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"FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as released on the
next succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so released for any day which is a Business Day, the arithmetic
average (rounded upwards to the next 1/100th of 1%), as determined by the
Administrative Agent, of the quotations for the day of such transactions
received by the Administrative Agent from three federal funds brokers of
recognized standing selected by it.
"FISCAL QUARTERS" means the four (4) periods falling in each Fiscal Year,
each such period being three calendar months in duration with the first such
period in any Fiscal Year beginning on the first day of May and the last such
period in any Fiscal Year ending on the last day of April.
"FISCAL YEAR" means the twelve (12) month period beginning on the first day
of May and ending on the last day of April of the following year.
"FOREIGN SUBSIDIARY" means any Subsidiary which is organized under the laws
of a country or province other than the United States or a State thereof.
"FOREIGN SUBSIDIARY LIMIT" has the meaning set forth in Section 9.1
"FOREIGN SUBSIDIARY OBLIGATIONS" has the meaning set forth in Section 9.1.
"FOREIGN VENTURE" means a joint venture or partnership organized outside
the United States of America in which the Borrower or a Subsidiary has an
ownership interest (but which is not a Subsidiary) that is engaged in the same
or similar lines of business as the Borrower and the Subsidiaries.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and/or in statements of
the Financial Accounting Standards Board and/or their respective successors and
which are applicable in the circumstances as of the date in question.
Accounting principles are applied on a "consistent basis" when the accounting
principles applied in a current period are comparable in all material respects
to those accounting principles applied in a preceding period.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory, or administrative functions of or pertaining to
government.
"'GRANTING SUBSIDIARY" means any Material Subsidiary wholly and directly
owned by Borrower which is organized under the laws of the United States or one
of the States thereof and Software Spectrum Canada.
"GUARANTEE" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation (whether arising by virtue of partnership
<PAGE>
arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise), (b) arising under letters of credit or similar
documents issued for its account securing any Debt or other obligation of any
other Person, or (c) entered into for the purpose of assuring in any other
manner the obligee of such Debt or other obligation of the payment thereof or
to protect the obligee against loss in respect thereof (in whole or in part),
provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning.
"GUARANTY" means the guarantee of a Domestic Granting Subsidiary in favor
of the Collateral Agent and the Banks, in substantially the form of Exhibit "D"
to the Prior Agreement, as the same may be amended or otherwise modified from
time to time, and includes the guaranty executed by Spectrum Integrated
Services, Inc. pursuant to the Prior Agreement dated May 3, 1996.
"HAZARDOUS MATERIAL" means any substance, product, waste, pollutant,
material, chemical, contaminant, constituent, or other material which is or
becomes listed, regulated, or addressed under any Environmental Law.
"INCURRENCE TEST" has the meaning specified in Section 9.1.
"INTEREST COVERAGE RATIO" means, as of any Fiscal Quarter end, the ratio
of: (a) the sum of (i) Borrower's EBITDA MINUS (ii) the sum of the following but
only if positive: (A) all Capital Expenditures (both financed and unfinanced)
MINUS (B) if calculated for any period which includes any portion of the first
three (3) Fiscal Quarters of the Fiscal Year ending April 30, 1999, the lesser
of all Capital Expenditures made in the period of calculation and required in
order to permit Borrower to fulfill its obligations under the technical support
contract entered into in March of 1998 with a major software publisher or One
Million Five Hundred Thousand Dollars ($1,500,000) to (b) Interest Expense, all
as calculated for the four (4) Fiscal Quarter period then ending.
"INTEREST EXPENSE" has the meaning set forth in Section 10.2.
"INTEREST PERIOD" means with respect to any Libor Account, each period
commencing on the date such Account is established or Converted from a Base Rate
Account or the last day of the next preceding Interest Period with respect to
such Libor Account, and ending on the numerically corresponding day in the
first, second, third or sixth calendar month thereafter, as the Borrower may
select as provided in Section 3.5 or 4.1, except that each such Interest Period
which commences on the last Business Day of a calendar month (or on any day for
which there is no numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last Business Day of the appropriate subsequent
calendar month. Notwithstanding the foregoing: (a) each Interest Period which
would otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or if such succeeding Business Day falls in the next
succeeding calendar month, on the next preceding Business Day); (b) any Interest
Period in existence under a Revolving Loan which would otherwise extend beyond
the Revolving Termination Date shall end on the Revolving Termination Date; (c)
no more than five (5) Interest Periods shall be in effect at the same time; and
(d) no Interest Period for any Libor Account shall have a duration of less than
one (1) month and, if the Interest Period would otherwise be a shorter period,
the related Libor Account shall not be available hereunder.
<PAGE>
"LC FEE RATE" has the meaning specified in Section 3.2.
"LETTER OF CREDIT LIABILITIES" means, at any time, the aggregate face
amounts of all outstanding Letters of Credit and all unreimbursed drawings under
Letters of Credit.
"LETTERS OF CREDIT" has the meaning specified in Section 2.7(a).
"LIBOR ACCOUNT" means a portion of a Revolving Loan that bears interest at
a rate based upon the Adjusted Libor Rate.
"LIBOR RATE" means, for any Libor Account for any Interest Period therefor,
the rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%)
offered to The Chase Manhattan Bank or one of its Affiliates at approximately
11:00 a.m. London time (or as soon thereafter as practicable) two Business Days
prior to the first day of such Interest Period by leading banks in the London
interbank market of Dollar deposits in immediately available funds having a term
comparable to such Interest Period and in an amount comparable to the principal
amount of the Libor Account applicable to The Chase Manhattan Bank to which such
Interest Period relates. If The Chase Manhattan Bank is not participating in a
Libor Account during any Interest Period therefor (pursuant to Section 5.4 or
for any other reason), the Adjusted Libor Rate for such Account for such
Interest Period shall be determined by reference to the amount of the Account
which The Chase Manhattan Bank would have been allocated if it had been
participating in such Account.
"LIBOR RATE MARGIN" has the meaning specified in Section 3.2.
"LIEN" means any lien, mortgage, security interest, tax lien, financing
statement, pledge, charge, hypothecation, assignment, preference, priority, or
other encumbrance of any kind or nature whatsoever (including, without
limitation, any conditional sale or title retention agreement), whether arising
by contract, operation of law, or otherwise.
"LOAN DOCUMENTS" means this Agreement, the Revolving Notes, the Borrower
Security Agreement, the Borrower Pledge Agreement, the Guaranties, the
Subsidiary Security Agreements, the Letters of Credit, applications for Letters
of Credit, that certain Share Pledge Agreement dated May 13, 1996 between
Borrower and the Collateral Agent, all documentation evidencing or governing the
sale by Software Spectrum Canada of its accounts receivable to Borrower and all
other promissory notes, security agreements, deeds of trust, assignments,
guaranties, letters of credit, and other instruments, agreements, and other
documentation executed and delivered pursuant to or in connection with this
Agreement, as such instruments, agreements, and other documentation may be
amended or otherwise modified.
"LOCKBOX ACCOUNTS" shall mean the lockbox accounts established from time to
time pursuant to the Lockbox Agreements in which all funds received pursuant to
the Lockbox Agreements shall be deposited.
"LOCKBOX AGREEMENTS" shall mean any lockbox or other agreement entered into
by the Borrower or a Granting Subsidiary with the Collateral Agent or other
institution acceptable to the Administrative Agent pursuant to which a lockbox
and deposit account shall be established for the Borrower or a Granting
Subsidiary into which payments on the Borrower's or such Granting
<PAGE>
Subsidiary's accounts or other Collateral shall be sent and deposited, each
in form and substance satisfactory to the Administrative Agent, as the same
may be amended or otherwise modified.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse effect on the
business, condition (financial or otherwise), operations, prospects, or
properties of the Borrower and the Subsidiaries taken as a whole or (b) a
material adverse effect on the validity, perfection, priority, or ability of the
Collateral Agent to enforce the Collateral Agent's Lien on the Collateral or of
the ability of the Administrative Agent or any Bank to enforce a material
provision of the Loan Documents. In determining whether any individual event
could reasonably be expected to result in a Material Adverse Effect,
notwithstanding that such event does not itself have such effect, a Material
Adverse Effect shall be deemed to have occurred if the cumulative effect of such
event and all other then existing events could reasonably be expected to result
in a Material Adverse Effect.
"MATERIAL SUBSIDIARY" has the meaning specified in subsection 8.10.
"MAXIMUM RATE" means, at any time and with respect to any Bank, the maximum
rate of nonusurious interest under applicable law that such Bank may charge the
Borrower. The Maximum Rate shall be calculated in a manner that takes into
account any and all fees, payments, and other charges contracted for, charged,
or received in connection with the Loan Documents that constitute interest under
applicable law. Each change in any interest rate provided for herein based upon
the Maximum Rate resulting from a change in the Maximum Rate shall take effect
without notice to the Borrower at the time of such change in the Maximum Rate.
For purposes of determining the Maximum Rate under Texas law, the applicable
rate ceiling shall be the weekly ceiling described in, and computed in
accordance with, Article 5069, Vernon's Texas Civil Statutes.
"MONTHLY PAYMENT DATE" means the first day of each month, the first of
which shall be April 1, 1998.
"MULTIEMPLOYER PLAN" means a multiemployer plan defined as such in Section
3(37) of ERISA to which contributions have been made by the Borrower or any
ERISA Affiliate and which is covered by Title IV of ERISA.
"NET INCOME" has the meaning set forth in Section 10.2.
"OBLIGATED PARTY" means the Granting Subsidiaries or any other Person
(exclusive of the Borrower) who is or becomes party to any agreement that
guarantees or secures payment and performance of the Obligations or any part
thereof.
"OBLIGATION" means all obligations, indebtedness, and liabilities of the
Borrower to the Agents and the Banks, or any of them, arising pursuant to any of
the Loan Documents, pursuant to any interest rate swap, interest rate caps,
interest rate collars, or other similar agreements entered into by either Agent
or any Bank with the Borrower or any Subsidiary enabling Borrower or a
Subsidiary to fix or limit its interest expense or pursuant to any foreign
exchange, currency hedging, or other agreement entered into by either Agent or
any Bank with the Borrower or any Subsidiary enabling Borrower or a Subsidiary
to limit the market risk of holding currency in either the cash or futures
markets, whether now existing or hereafter arising, whether direct, indirect,
related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several,
or joint and several, including, without limitation, the obligation of the
Borrower to repay the Revolving
<PAGE>
Loans, the Reimbursement Obligations, interest on the Revolving Loans and
Reimbursement Obligations, and all fees, costs, and expenses (including
attorneys' fees and expenses) provided for in the Loan Documents or such
agreements enabling the Borrower to fix or limit its interest expense or
limit its market risk of holding currency.
"OUTSTANDING REVOLVING CREDIT" means, at any time of determination, the sum
of (a) the aggregate amount of Revolving Loans then outstanding; plus (b) the
aggregate amount of Letter of Credit Liabilities (or when calculated with
respect to a Bank, including either Agent as a Bank, such Bank's participation
or other interest in such Letter of Credit Liabilities); plus (c) the aggregate
amount of all accrued and unpaid interest and fees and all amounts due under
Sections 13.1 and 13.2.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"PERSON" means any individual, corporation, business trust, association,
company, partnership, joint venture, Governmental Authority, or other entity.
"PLAN" means any employee benefit plan established or maintained by the
Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA.
"PRINCIPAL OFFICE" means the principal office of the Administrative Agent,
located at 633 Third Avenue New York, New York 10017-6764.
"PRO FORMA EBITDA" has the meaning specified in Section 9.1.
"PROHIBITED TRANSACTION" means any transaction set forth in Section 406 or
407 of ERISA or Section 4975(c)(1) of the Code for which there does not exist a
statutory or administrative exemption.
"RECEIVABLE REPORTS" has the meaning set forth in subsection 8.1(e).
"REGULATION D" means Regulation D of the Board of Governors of the Federal
Reserve System as the same may be amended or supplemented from time to time.
"REGULATORY CHANGE" means, with respect to any Bank, any change after the
date of this Agreement in United States federal, state, or foreign laws or
regulations (including Regulation D) or the adoption or making after such date
of any interpretations, directives, or requests applying to a class of banks
including such Bank of or under any United States federal or state, or any
foreign, laws or regulations (whether or not having the force of law) by any
Governmental Authority or monetary authority charged with the interpretation or
administration thereof.
"REIMBURSEMENT OBLIGATION" means the obligation of the Borrower to
reimburse an Agent for any demand for payment or other drawing under a Letter of
Credit.
"RELEASE" means, as to any Person, any release, spill, emission, leaking,
pumping, injection, deposit, disposal, disbursement, leaching, or migration of
Hazardous Materials into the indoor or outdoor environment or into or out of
property owned by such Person, including,
<PAGE>
without limitation, the movement of Hazardous Materials through or in the
air, soil, surface water, ground water, or property in violation of
Environmental Laws.
"REMEDIAL ACTION" means all actions required to (a) cleanup, remove, treat,
or otherwise address Hazardous Materials in the indoor or outdoor environment,
(b) prevent the Release or threat of Release or minimize the further Release of
Hazardous Materials so that they do not migrate or endanger or threaten to
endanger public health or welfare or the indoor or outdoor environment, or (c)
perform pre-remedial studies and investigations and post-remedial monitoring and
care.
"REPORTABLE EVENT" means any of the events set forth in Section 4043 of
ERISA.
"REQUIRED BANKS" means Banks having sixty-six and two-thirds percent
(662/3%) or more of the Revolving Commitments or if the Revolving Commitments
have terminated, sixty-six and two-thirds percent (66 2/3%) or more of the
outstanding principal amount of the Revolving Loans.
"RESERVE REQUIREMENT" means, for any Libor Account for any Interest Period
therefor, the average maximum rate at which reserves (including any marginal,
supplemental, or emergency reserves) are required to be maintained during such
Interest Period under Regulation D by member banks of the Federal Reserve System
in New York City with deposits exceeding one billion Dollars against
"Eurocurrency Liabilities" as such term is used in Regulation D. Without
limiting the effect of the foregoing, the Reserve Requirement shall reflect any
other reserves required to be maintained by such member banks by reason of any
Regulatory Change against any category of liabilities which includes deposits by
reference to which the Adjusted Libor Rate is to be determined or any category
of extensions of credit or other assets which include Libor Accounts.
"REVOLVING COMMITMENT" means, as to each Bank, the obligation of such Bank
to make advances of funds and purchase participation interests in Letters of
Credit in an aggregate principal amount at any one time outstanding up to but
not exceeding the amount set forth opposite the name of such Bank on Schedule
1.1(a) under the heading "Revolving Commitment" or, if applicable, in such
Bank's most recent Assignment and Acceptance, as the same may be reduced or
terminated pursuant to Sections 2.6 or 11.2 or subsection 13.8(c). The
aggregate amount of the Revolving Commitments of all Banks equals One Hundred
Million Dollars ($100,000,000).
"REVOLVING LOANS" means, as to any Bank, the advances made by such Bank
pursuant to Section 2.1 and all advance made under Sections 2.1 and 3.1 of the
Prior Agreement which are outstanding on the Closing Date.
"REVOLVING NOTES" means the promissory notes provided for by Section 2.2
and all amendments or other modifications thereof.
"REVOLVING TERMINATION DATE" means March 11, 2001, such earlier date on
which the Revolving Commitments terminate as provided in this Agreement or such
later date on which the Revolving Commitments terminates as provided in Section
2.6.
<PAGE>
"SHORT TERM BANK DEBT" has the meaning specified in subsection 9.1 (m).
"SOFTWARE SPECTRUM CANADA" means Software Spectrum Canada, Ltd., a Canadian
corporation organized under the laws of Ontario, Canada.
"STANDBY LETTER OF CREDIT" means a Letter of Credit that is not a
Commercial Letter of Credit.
"SUBSIDIARY" means any corporation (or other entity) of which at least a
majority of the outstanding shares of stock (or other ownership interests)
having by the terms thereof ordinary voting power to elect a majority of the
board of directors (or similar governing body) of such corporation (or other
entity) (irrespective of whether or not at the time stock (or other ownership
interests) of any other class or classes of such corporation (or other entity)
shall have or might have voting power by reason of the happening of any
contingency) is at the time directly or indirectly owned or controlled by the
Borrower or one or more of the Subsidiaries or by the Borrower and one or more
of the Subsidiaries.
"SUBSIDIARY SECURITY AGREEMENT" means the security agreement between a
Domestic Granting Subsidiary and the Collateral Agent for the benefit of itself
and the Banks, in substantially the form of Exhibit "F" to the Prior Agreement,
as the same may be amended or otherwise modified and shall include the Security
Agreement executed by Spectrum Integrated Services, Inc. pursuant to the Prior
Agreement.
"TARGET" has the meaning specified in subsection 9.3 (iv).
"TYPE" means either type of Account (i.e., either a Base Rate Account or
Libor Account).
"UCC" means the Uniform Commercial Code as in effect in the State of Texas.
Section 1.2. OTHER DEFINITIONAL PROVISIONS. All definitions contained in
this Agreement are equally applicable to the singular and plural forms of the
terms defined. The words "hereof", "herein", and "hereunder" and words of
similar import referring to this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement. Unless otherwise
specified, all article and section references pertain to this Agreement. Terms
used herein that are defined in the UCC, unless otherwise defined herein, shall
have the meanings specified in the UCC.
Section 1.3. ACCOUNTING TERMS AND DETERMINATIONS. Except as otherwise
expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to either Agent and the Banks
hereunder shall be prepared, in accordance with GAAP, on a basis consistent with
those used in the preparation of the financial statements referred to in
Section 7.2 hereof. All calculations made for the purposes of determining
compliance with the provisions of this Agreement shall be made by application of
GAAP, on a basis consistent with those used in the preparation of the financial
statements referred to in Section 7.2 hereof. To enable the ready and
consistent determination of compliance by the Borrower with its obligations
under this Agreement, the Borrower will not change the manner in which either
<PAGE>
the last day of its Fiscal Year or the last days of the first three Fiscal
Quarters of its Fiscal Year is calculated. In the event any changes in
accounting principles required by GAAP or recommended by the Borrower's
certified public accountants and implemented by the Borrower occur and such
changes result in a change in the method of the calculation of financial
covenants, standards, or terms under this Agreement, then the Borrower, the
Administrative Agent, and the Banks agree to enter into negotiations in order to
amend such provisions of this Agreement so as to equitably reflect such changes
with the desired result that the criteria for evaluating such covenants,
standards, or terms shall be the same after such changes as if such changes had
not been made. Until such time as such an amendment shall have been executed
and delivered by the Administrative Agent, the Collateral Agent, the Borrower,
and the Banks, all financial covenants, standards, and terms in this Agreement
shall continue to be calculated or construed as if such changes had not
occurred.
Section 1.4. TIME OF DAY. Unless otherwise indicated, all references in
this Agreement to times of day shall be references to New York, New York time.
ARTICLE 2.
REVOLVING CREDIT FACILITY
Section 2.1. REVOLVING COMMITMENTS. Subject to the terms and conditions
of this Agreement, each Bank severally agrees to make one or more advances to
the Borrower from time to time from and including the Closing Date to but
excluding the Revolving Termination Date in an aggregate principal amount at
any time outstanding up to but not exceeding the amount of such Bank's
Revolving Commitment as then in effect; PROVIDED, HOWEVER, (a) the
Outstanding Revolving Credit applicable to a Bank (except, with respect to
the Administrative Agent as a Bank, as may otherwise result from the
operation of Section 4.6) shall not at any time exceed such Bank's Revolving
Commitment and (b) the Outstanding Revolving Credit shall not at any time
exceed the lesser of (i) the aggregate Revolving Commitments or (ii) the
Borrowing Base. Subject to the foregoing limitations, and the other terms
and provisions of this Agreement, the Borrower may borrow, prepay, and
reborrow hereunder the amount of the Revolving Commitments and may establish
Base Rate Accounts and Libor Accounts thereunder and, until the Revolving
Termination Date, the Borrower may continue libor accounts established under
the Revolving Loans or Convert Accounts established under the Revolving Loans
of one Type into Accounts of the other Type. Accounts of each Type under the
Revolving Loan made by each Bank shall be established and maintained at such
Bank's Applicable Lending Office for Revolving Loans of such Type.
Section 2.2. REVOLVING NOTES. The Revolving Loans made by a Bank shall
be evidenced by a single promissory note of the Borrower in substantially the
form of Exhibit "A" hereto, dated the date hereof, payable to the order of
such Bank in a principal amount equal to its Revolving Commitment as
originally in effect and otherwise duly completed.
<PAGE>
Section 2.3. REPAYMENT OF REVOLVING LOANS. The Borrower shall pay to the
Administrative Agent for the account of the Banks the outstanding principal
amount of all of the Revolving Loans on the Revolving Termination Date.
Section 2.4. USE OF PROCEEDS. The proceeds of the Revolving Loans shall
be used by the Borrower to pay transaction costs associated with the
negotiation and consummation of the Loan Documents, for working capital in
the ordinary course of business (including, without limitation, the
satisfaction of Reimbursement Obligations in accordance with subsection
2.7(b)) and other general corporate purposes.
Section 2.5 REVOLVING COMMITMENT FEE. The Borrower agrees to pay to the
Administrative Agent for the account of each Bank a commitment fee on the
daily average unused amount of such Bank's Revolving Commitment for the
period from and including the Closing Date to and including the Revolving
Termination Date, at a rate equal to the Commitment Fee Rate as determined in
accordance with subsection 4.2(b). For the purpose of calculating the
commitment fee hereunder, the Revolving Commitments shall be deemed utilized
by the Outstanding Revolving Credit. Accrued commitment fees under this
Section 2.5 shall be payable in arrears on the first day of April, July,
October and January of each year, beginning April 1, 1998 and on the
Revolving Termination Date.
<PAGE>
Section 2.6. REDUCTION OR TERMINATION OF REVOLVING COMMITMENTS. The
Borrower shall have the right to terminate or reduce in part the unused
portion of the Revolving Commitments at any time and from time to time,
provided that: (a) the Borrower shall give notice of each such termination or
reduction as provided in Section 4.3; and (b) each partial reduction shall be
in an aggregate amount at least equal to Five Million Dollars ($5,000,000).
The Revolving Commitments may not be reinstated after they have been
terminated or reduced.
Section 2.7. LETTERS OF CREDIT
(a) COMMITMENT TO ISSUE. The Borrower may utilize the Revolving
Commitments by requesting that the Administrative Agent issue, and the
Administrative Agent, subject to the terms and conditions of this
Agreement, shall issue, letters of credit for the Borrower's or one of
its Subsidiaries' account (such letters of credit, collectively with all
letters of credit issued by the Collateral Agent under Section 2.7 of the
Prior Agreement which are outstanding on the Closing Date and described
on Schedule 1.1 (b), being hereinafter referred to as the "LETTERS OF
CREDIT" and those Letters of Credit described on Schedule 1.1 (b) herein
the "EXISTING LETTERS OF CREDIT"); PROVIDED, HOWEVER, (i) the aggregate
amount of outstanding Letter of Credit Liabilities shall not at any time
exceed Twenty-Five Million Dollars ($25,000,000); (ii) the Outstanding
Revolving Credit shall not at any time exceed the lesser of (A) the
aggregate Revolving Commitments or (B) the Borrowing Base; and (iii) the
Outstanding Revolving Credit applicable to a Bank shall not at any time
exceed such Bank's Revolving Commitment (except, with respect to the
Administrative Agent as a Bank, as may otherwise result from the operation
of Section 4.6). Upon the date of issue of a Letter of Credit (or with
respect to all Existing Letters of Credit, on the Closing Date), the
Administrative Agent (or if applicable, the Collateral Agent) shall be
deemed, without further action by any party hereto, to have sold to each
other Bank, and each other Bank shall be deemed, without further action
by any party hereto, to have purchased a participation to the extent of
such Bank's Commitment Percentage in such Letter of Credit and the related
Letter of Credit Liabilities. The Collateral Agent shall have no
authority to issue any Letters of Credit under the terms of this Section
2.7 and, without the consent of the Administrative Agent, the Collateral
Agent shall not amend or otherwise modify any Existing Letter of Credit.
The Borrower will take all action as the Administrative Agent may
reasonably request to cause all Existing Letters of Credit to be amended
to make them payable at the Principal Office or replaced by Letters of
Credit issued by the Administrative Agent.
(b) LETTER OF CREDIT REQUEST PROCEDURE. The Borrower shall
give the Administrative Agent at least five (5) Business Days
irrevocable prior notice (effective upon receipt) specifying the
date of each Letter of Credit and the nature of the transactions
to be supported thereby. Upon receipt of such notice the Administrative
Agent shall promptly notify each other Bank of the contents thereof and
of such Bank's Commitment Percentage of the amount of the proposed
Letter of Credit in accordance with Section 4.6. Each Letter of Credit
shall have an expiration date that does not extend beyond the date thirty
(30) days prior to the Revolving Termination Date. Each Letter of Credit
shall be payable in Dollars, must support a transaction entered into in
the ordinary
<PAGE>
course of the Borrower's business, must be satisfactory in form and
substance to the Administrative Agent, and shall be issued pursuant to
such documentation as the Administrative Agent may require, including,
without limitation, the Administrative Agent's standard form letter of
credit request and reimbursement agreement; PROVIDED, that, in the event
of any conflict between the terms of such agreement and the other Loan
Documents, the terms of the other Loan Documents shall control.
(c) LETTER OF CREDIT FEES. The Borrower will pay to the
Administrative Agent for the account of each Bank a letter of credit fee
on such Bank's Commitment Percentage of the amount available for
drawings under each Letter of Credit, such letter of credit fee to be
paid in arrears on each Monthly Payment Date after the date of the
issuance thereof (or with respect to Existing Letters of Credit, after
the Closing Date) until the date of expiration or termination thereof at
a rate equal to the LC Fee Rate in effect on the date of payment (as
determined in accordance with Section 3.2). After receiving any payment
of any letter of credit fees under this clause (c), the Administrative
Agent will promptly pay to each Bank the letter of credit fees then due
such Bank. With respect to each Letter of Credit (excluding any
Existing Letter of Credit), the Borrower will also pay to the
Administrative Agent for its account only and on the date of the
issuance of the Letter of Credit an issuance fee equal to one eighth of
one percent (0.125%) of the maximum amount available to be drawn under
the Letter of Credit, plus the Administrative Agent's reasonable
expenses incurred in issuing the Letter of Credit.
(d) FUNDING OF DRAWINGS. Upon receipt from the beneficiary of
any Standby Letter of Credit of any demand for payment or other drawing
under such Letter of Credit, the Administrative Agent or, if applicable,
the Collateral Agent shall (subject to Section 4.6) promptly notify the
Borrower and each Bank as to the amount to be paid as a result of such
demand or drawing and the respective payment date. Not later than 11:00
a.m. on the applicable payment date, each Bank will make available to
the Administrative Agent, at the Principal Office, in immediately
available funds, an amount equal to such Bank's Commitment Percentage of
the amount to be paid as a result of such demand or drawing even if the
conditions to a Revolving Loan under Article 6 have not been satisfied.
Upon receipt from the beneficiary of any Commercial Letter of Credit of
any demand for payment or other drawing under such Commercial Letter of
Credit, the Administrative Agent of if applicable, the Collateral Agent
shall promptly notify the Borrower as to the amount to be paid as a
result of such demand or drawing and the respective payment date. Prior
to each Monthly Payment Date the Administrative Agent or, if applicable,
the Collateral Agent shall (subject to Section 4.6) notify each Bank as
to the amount which has been paid by it as a result of demands for
payments or other drawings under Commercial Letters of Credit since the
prior Monthly Payment Date (or since the Closing Date with respect to
the first Monthly Payment Date thereafter) for which it has not received
reimbursement under Section 2.7(e) (the "UNREIMBURSED COMMERCIAL
DRAWS"). Not later than 11:00 a.m. on the applicable Monthly Payment
Date, each Bank will make available to the Administrative Agent, at the
Principal Office, in immediately available funds, an amount equal to
such Bank's Commitment Percentage of the Unreimbursed Commercial Draws
even if the conditions to a Revolving Loan under Article 6 have not been
satisfied.
<PAGE>
(e) REIMBURSEMENTS. The Borrower shall be irrevocably and
unconditionally obligated to immediately reimburse an Agent for any
amounts paid by it upon any demand for payment or drawing under any
Letter of Credit, without presentment, demand, protest, or other
formalities of any kind. All payments on the Reimbursement Obligations
shall be made to the Administrative Agent at the Principal Office for
the account of the applicable Agent in Dollars and in immediately
available funds, without setoff, deduction, or counterclaim not later
than 3:00 p.m. on the date of the corresponding payment under the Letter
of Credit. Subject to the other terms and conditions of this Agreement,
such reimbursement may be made by the Borrower requesting a Revolving
Loan in accordance with Section 4.1 the proceeds of which shall be
credited against the Borrower's Reimbursement Obligations. The
Administrative Agent will pay to each Bank such Bank's Commitment
Percentage of all amounts received from the Borrower for application in
payment, in whole or in part, to the Reimbursement Obligation in respect
of any Letter of Credit, but only to the extent such Bank has made
payment to the Administrative Agent in respect of such Letter of Credit
pursuant to clause (d) of this Section 2.7.
(f) REIMBURSEMENT OBLIGATIONS ABSOLUTE. The Reimbursement
Obligations of the Borrower under this Agreement shall be absolute,
unconditional, and irrevocable, and shall be performed strictly in
accordance with the terms of the Loan Documents under all circumstances
whatsoever and the Borrower hereby waives any defense to the payment of
the Reimbursement Obligations based on any circumstance whatsoever,
including without limitation, in either case, the following
circumstances: (i) any lack of validity or enforceability of any Letter
of Credit or any other Loan Document; (ii) any amendment or waiver of or
any consent to departure from any Loan Document; (iii) the existence of
any claim, set-off, counterclaim, defense, or other rights which the
Borrower, any Obligated Party, or any other Person may have at any time
against any beneficiary of any Letter of Credit, the Administrative
Agent, the Collateral Agent, any Bank, or any other Person, whether in
connection with any Loan Document or any unrelated transaction; (iv) any
statement, draft, or other documentation presented under any Letter of
Credit proving to be forged, fraudulent, invalid, or insufficient in any
respect or any statement therein being untrue or inaccurate in any
respect whatsoever; or (v) payment by an Agent under any Letter of
Credit against presentation of a draft or other document that does not
comply with the terms of such Letter of Credit; PROVIDED, that
Reimbursement Obligations with respect to a Letter of Credit may be
subject to avoidance by the Borrower if the Borrower proves in a final
nonappealable judgment that it was damaged and that such damage arose
directly from the applicable Agent's willful misconduct or gross
negligence in determining whether the documentation presented under the
Letter of Credit in question complied with the terms thereof or in
performing any other express obligation the applicable Agent may have
under this Agreement or any other Loan Document in making any payment
pursuant to any Letter of Credit.
(g) ISSUER RESPONSIBILITY. In determining whether to pay under
any Letter of Credit issued by an Agent, such Agent shall be responsible
only to determine that the documents and certificates (if any) required
to be delivered under the Letter of Credit have been delivered and that
they comply on their face with the requirements of such Letter of
Credit. The Borrower assumes all risks of the acts or omissions of any
<PAGE>
beneficiary of any Letter of Credit with respect to its use of such
Letter of Credit. Except as expressly set forth in this Agreement,
neither the Administrative Agent, the Collateral Agent, any Bank, nor
any of their respective officers or directors shall have any
responsibility or liability to the Borrower or any other Person for:
(a) the failure of any draft to bear any reference or adequate reference
to any Letter of Credit, or the failure of any documents to accompany
any draft at negotiation, or the failure of any Person to surrender or
to take up any Letter of Credit or to send documents apart from drafts
as required by the terms of any Letter of Credit, or the failure of any
Person to note the amount of any instrument on any Letter of Credit, (b)
errors, omissions, interruptions, or delays in transmission or delivery
of any messages; (c) the validity, sufficiency, or genuineness of any
draft or other document, or any endorsement(s) thereon, even if any such
draft, document, or endorsement should in fact prove to be in any and
all respects invalid, insufficient, fraudulent, or forged or any
statement therein is untrue or inaccurate in any respect; or (d) payment
by an Agent to the beneficiary of any Letter of Credit against
presentation of any draft or other document that does not comply with
the terms of the Letter of Credit. The Borrower shall have a claim
against the applicable Agent, and such Agent shall be liable to the
Borrower, to the extent of any direct, but not indirect, consequential
or punitive, damages suffered by the Borrower which the Borrower proves
in a final nonappealable judgment were caused by (i) the such Agent's
willful misconduct or gross negligence in determining whether documents
presented under any Letter of Credit complied with the terms thereof or
(ii) such Agent's willful failure to pay under any Letter of Credit
after presentation to it of documentation strictly complying with the
terms and conditions of such Letter of Credit. An Agent may accept
documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary.
Section 2.8. CLOSING DATE ADVANCES AND ADJUSTMENTS. Upon fulfillment
of all of the conditions set forth in SectionS 6.1 and 6.2 and on the
Closing Date, the Banks identified as Advancing Banks in Schedule 1.1
(c) shall make available to the Administrative Agent the Dollar amount
reflected on Schedule 1.1 (c) opposite such Bank's name and the
Administrative Agent shall, upon behalf of the Borrower, transfer to The
Chase Manhattan Bank in its individual capacity the aggregate amount
thereof. Each such payment made by an Advancing Bank shall be a
Revolving Loan and a Base Rate Account. Immediately upon such payments
(i) all Revolving Loans shall be outstanding in the proportion that each
Bank's Revolving Commitment bears to the aggregate amount of all
Revolving Commitments and (ii) the Advancing Banks shall be deemed to
have purchased from the Chase Manhattan Bank and the Chase Manhattan
Bank shall be deemed to have sold a percentage of the Chase Manhattan
Bank's right, title and interest in and to the Prior Agreement
sufficient in each case so that after giving effect to such sales, each
Bank's interest in and to the rights under the Prior Agreement shall
equal its pro rata share thereof (calculated based on the Revolving
Commitments hereunder).
<PAGE>
ARTICLE 3.
INTEREST AND FEES
Section 3.1. INTEREST RATE. Subject to Section 13.12, the Borrower shall
pay to the Administrative Agent for the account of each Bank interest on the
unpaid principal amount of each Revolving Loan made by such Bank for the
period commencing on the date of such Revolving Loan to but excluding the
date such Revolving Loan is due, at a fluctuating rate per annum equal to the
applicable rate. The term "Applicable Rate" means (i) during the period that
such Revolving Loans or portions thereof are subject to a base rate account,
the Base Rate plus the Base Margin and (ii) during the period that such
Revolving Loans or portions thereof are subject to a Libor Account, the
Adjusted Libor Rate plus the Libor Rate Margin.
Section 3.2 DETERMINATIONS OF MARGINS AND FEES. The margins identified
in Section 3.1 and the fees payable under subsection 2.7(c) shall be defined
and determined as follows:
(a) "BASE MARGIN" shall mean (i) during the period commencing
on the Closing Date and ending on but not including the first Adjustment
Date (as defined below), one-quarter percent (.25%) per annum and (ii)
during each period from and including one Adjustment Date to but
excluding the next Adjustment Date (herein a "CALCULATION PERIOD"), the
percent per annum set forth in the table below in this Section 3.2 under
the heading "Base Margin" opposite the Interest Coverage Ratio which
corresponds to the Interest Coverage Ratio set forth in, and as
calculated in accordance with, the applicable Compliance Certificate.
(b) "COMMITMENT FEE RATE" shall mean (i) during the period
commencing on the Closing Date and ending on but not including the first
Adjustment Date, one-quarter percent (.25%) per annum and (ii) during
each Calculation Period, the percent per annum set forth in the table
below under the heading "Commitment Fee" opposite the Interest Coverage
Ratio which corresponds to the Interest Coverage Ratio set forth in, and
as calculated in accordance with, the applicable Compliance Certificate.
(c) "LC FEE RATE" shall mean (i) during the period commencing
on the Closing Date and ending on but not including the first Adjustment
Date, two percent (2.00%) per annum and (ii) during each Calculation
Period, the percent per annum set forth in the table below under the
heading "LC Fee" opposite the Interest Coverage Ratio which corresponds
to the Interest Coverage Ratio set forth in, and as calculated in
accordance with, the applicable Compliance Certificate.
(d) "LIBOR RATE MARGIN" shall mean (i) during the period
commencing on the Closing Date and ending on but not including the first
Adjustment Date, two percent (2.00%) per annum and (ii) during each
Calculation Period, the percent per annum set forth in the table below
under the heading Libor Margin opposite the Interest Coverage Ratio which
corresponds to the Interest Coverage Ratio set forth in, and as calculated
in accordance with, the applicable Compliance Certificate.
<TABLE>
<CAPTION>
INTEREST COVERAGE RATIO BASE MARGIN LIBOR MARGIN COMMITMENT
AND LC FEE FEE
<S> <C> <C> <C>
Greater than or equal to 4.00 0.00% 1.25% 0.125%
Greater than or equal to 3.50 but 0.00% 1.50% 0.125%
less than 4.00
Greater than or equal to 2.50 but 0.00% 1.75% 0.1875%
less than 3.50
Greater than or equal to 1.50 but 0.25% 2.00% 0.25%
less than 2.50
Less than 1.50 0.50% 2.25% 0.25%
</TABLE>
<PAGE>
Upon delivery of the Compliance Certificate pursuant to subsection
8.1(c) in connection with the financial statements of the Borrower and
the Subsidiaries required to be delivered pursuant to Section 8.1(b) at
the end of each Fiscal Quarter commencing with such Compliance
Certificate delivered at the end of the Fiscal Quarter ending on January
31, 1998 and provided no Default exists, the Base Margin, the Libor Rate
Margin, the Commitment Fee Rate and the LC Fee Rate shall automatically
be adjusted in accordance with the Interest Coverage Ratio set forth
therein and the table set forth above, such automatic adjustment to take
effect as of the first Business Day after the receipt by the
Administrative Agent of the related Compliance Certificate pursuant to
Section 8.1(c) (each such Business Day when such margins or fees change
pursuant to this sentence or the next following sentence, herein an
"ADJUSTMENT DATE"). If the Borrower fails to deliver such Compliance
Certificate which so sets forth the Interest Coverage Ratio within the
period of time required by subsection 8.1(c) or if a Default otherwise
exists: (i) the Base Margin shall automatically be adjusted to one-half
of one percent (0.50%) per annum; (ii) the Libor Rate Margin shall
automatically be adjusted to two and one-quarter of one percent (2.25%)
per annum; (iii) the Commitment Fee Rate shall automatically be adjusted
to one-quarter of one percent (0.25%); and (iv) the LC Fee Rate shall
automatically be adjusted to two and one-quarter percent (2.25%) per
annum, such automatic adjustments to take effect as of the first
Business Day after the last day on which the Borrower was required to
deliver the applicable Compliance Certificate in accordance with Section
8.1(c) or, with respect to the occurrence of any other Default, on the
date the Administrative Agent gives notice thereof to the Borrower and
to remain in effect until subsequently adjusted in accordance with the
terms hereof with the delivery of a Compliance Certificate when no
Default exists.
Section 3.3. PAYMENT DATES. Accrued interest on the Revolving Loans
shall be due and payable on each Monthly Payment Date, on the Revolving
Termination Date and in addition, with respect to Revolving Loans subject to
Libor Accounts and with respect to each such Account, on the last day of the
Interest Period with respect thereto.
Section 3.4. DEFAULT INTEREST. Notwithstanding the foregoing, the
Borrower will pay to the Administrative Agent for the account of each Bank
interest at the applicable Default Rate on any principal of any Revolving
Loan made by such Bank, any Reimbursement Obligation, and (to the fullest
extent permitted by law) any other amount payable by the Borrower under any
Loan Document to or for the account of the Administrative Agent or such Bank,
that is not paid in full when due (whether at stated maturity, by
acceleration, or otherwise), for the period from and including the due date
thereof to but excluding the date the same is paid in full. Interest payable
at the Default Rate shall be payable from time to time on demand.
<PAGE>
Section 3.5. Conversions and continuations of accounts. Subject to
Section 4.2, the borrower shall have the right from time to time to convert
all or part of any Base Rate Account into a Libor Account or to continue
Libor Accounts as Libor Accounts, provided that: (a) the Borrower shall give
the Administrative Agent notice of each such Conversion or Continuation as
provided in Section 4.3; (b) a Libor Account may only be Converted on the
last day of the Interest Period therefore; and (c) except for Conversions
into Base Rate Accounts, no Conversions or Continuations shall be made while
a Default has occurred and is continuing.
Section 3.6. COMPUTATIONS. Interest and fees payable by the Borrower
hereunder and under the other Loan Documents shall be computed as follows:
(i) with respect to Libor Accounts, commitment fees and letter of credit fees
on the basis of a year of 360 days and the actual number of days elapsed
(including the first day but excluding the last day) occurring in the period
for which payable unless such calculation would result in a usurious rate, in
which case interest and fees shall be calculated on the basis of a year of
365 or 366 days, as the case may be; and (ii) with respect to Base Rate
Accounts (A) if based on the Prime Rate, on the basis of a year of 365 or 366
days and the actual number of days elapsed (including the first day but
excluding the last day) occurring in the period for which payable or (B) if
based on the Federal Funds Effective Rate or the Base CD Rate on the basis of
a year of 360 days and the actual number of days elapsed (including the first
day but excluding the last day) occurring in the period for which payable
unless such calculation would result in a usurious rate, in which case
interest shall be calculated on the basis of a year of 365 or 366 days, as
the case may be.
ARTICLE 4.
ADMINISTRATIVE MATTERS
Section 4.1. BORROWING PROCEDURE.
(a) FORMAL BORROWING REQUEST. The Borrower shall give the
Administrative Agent, and the Administrative Agent will give the Banks,
notice of each borrowing under the Revolving Commitments in accordance
with Section 4.3, but subject to Section 4.6 and subsections 2.7 (e) and
4.1(b). Subject to the operation of Section 4.6, not later than 2:00
p.m. on the date specified for each borrowing under the Revolving
Commitment, each Bank will make available the amount of the Revolving
Loan to be made by it on such date to the Administrative Agent, at the
Principal Office, in immediately available funds, for the account of the
Borrower. The amounts received by the Administrative Agent shall,
subject to the terms and conditions of this Agreement, be made available
to the Borrower at Borrower's direction by transferring the same, in
immediately available funds by wire transfer, automated clearinghouse
debit or interbank transfer, to (a) an account of the Borrower
(designated by the Borrower) maintained with the Administrative Agent or
the Collateral Agent (each a "DISBURSEMENT ACCOUNT") or (b) any of the
other bank accounts described in or hereafter established in accordance
with the
<PAGE>
restrictions set forth in the Borrower Security Agreement or the
Subsidiary Security Agreements or (c) a Person or Persons designated by
the Borrower in writing.
(b) AUTOMATIC BORROWING. No notice of a request for a Revolving
Loan in accordance with subsection 4.1(a) or Section 4.3 hereof shall be
required to be presented by the Borrower to the Administrative Agent (i)
if no Default exists, the Daily Collection Procedure is in effect and a
check, checks or other debit shall be presented for payment against a
Disbursement Account on a Business Day when funds are not otherwise
available therein to honor such debits or (ii) if Borrower fails to pay
when due any Obligation. in either such event, the Administrative Agent
shall (in the case of clause (i)) or may without the Borrower's or any
Bank's consent (in the case of clause (ii)), but in each case subject to
Section 4.6, promptly advise the Banks of the amount of the Revolving
Loans necessary (i) to be credited to such Disbursement Account on such
day to permit such debits to be honored provided no Default exists or
(ii) to pay the amount of the Obligation due and unpaid. Except as
otherwise provided in Section 4.6 hereof, not later than 3:00 p.m. on
the day the Banks are advised of a Revolving Loan under this subsection
4.1 (b), each Bank will make available the amount of the Revolving Loan
to be made by it on such date to the Administrative Agent, at the
Principal Office, in immediately available funds, for the account of the
Borrower. The amounts so received by the Administrative Agent, shall,
subject to the terms and conditions of this Agreement, be made available
to the Borrower by crediting the same to the applicable Disbursement
Account or by utilizing the same to pay the past due Obligation, as
applicable. Revolving Loans made under this subsection 4.1(b) shall be
made as Base Rate Accounts.
Section 4.2. MINIMUM AMOUNTS. Except for prepayments pursuant to
Article 5 and Revolving Loans made pursuant to subsections 2.7 (e) and 4.1
(b) , each Base Rate Account and each prepayment of principal of a Revolving
Loan shall be in an amount at least equal to One Dollar ($1.00). Except for
Conversions pursuant to Article 5, each Libor Account shall be in a minimum
principal amount of Two Million Dollars ($2,000,000) or any larger amount in
increments of One Hundred Thousand Dollars ($100,000).
Section 4.3. CERTAIN NOTICES. Notices by the Borrower to the
Administrative Agent of terminations or reductions of Revolving Commitments,
of borrowings and prepayments of Revolving Loans, and of Conversions and
Continuations of Accounts shall be irrevocable and shall be effective only if
received by the Administrative Agent not later than 12:30 p.m. (a) on the
Business Day of the borrowing, prepayment or repayment of Revolving Loans
subject to Base Rate Accounts or of the Conversion into Base Rate Accounts
and (b) with respect to any other repayments, terminations, reductions,
borrowings, Conversions, Continuations, or prepayments, on the Business Day
which is the number of Business Days prior to the day of the relevant action
specified below:
<TABLE>
<CAPTION>
Action Number of Business Days
Prior to Action
<S> <C>
Termination or reduction of Revolving Commitments 5
Borrowing of Revolving Loans, prepayment of Revolving 3
Loans, or repayment of Revolving Loans which are, in
each case, subject to Libor Accounts, Conversions
into or Continuations as Libor Accounts
</TABLE>
<PAGE>
Any notices of the type described in this Section 4.3 which are received by
the Administrative Agent after 12:30 p.m. on a Business Day shall be deemed
to be received and shall be effective on the next Business Day. Each such
notice of termination or reduction shall specify the amount of the Revolving
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation, or prepayment shall: (a) specify the Revolving
Loans to be borrowed or prepaid or the Accounts to be Converted or Continued;
(b) the amount (subject to Section 4.2 hereof) to be borrowed, Converted,
Continued, or prepaid; (c) in the case of a Conversion, the Type of Account
to result from such Conversion; (d) in the case of a borrowing the Type of
Account or Accounts to be applicable to such borrowing and the amounts
thereof; (e) in the event a Libor Account is selected, the duration of the
Interest Period therefor; and (f) the date of borrowing, Conversion,
Continuation, or prepayment (which shall be a Business Day). Except as may
otherwise be provided by Section 4.6, the Administrative Agent shall notify
the Banks of the contents of each such notice on the date of its receipt of
the same or, if received on or after 12:30 p.m. on a Business Day, on the
next Business Day. In the event the Borrower fails to select the Type of
Account applicable to a Revolving Loan, or the duration of any Interest
Period for any Libor Account, within the time period and otherwise as
provided in this Section 4.3, such Account (if outstanding as a Libor
Account) will be automatically Converted into a Base Rate Account on the last
day of the preceding Interest Period for such Account or (if outstanding as a
Base Rate Account) will remain as, or (if not then outstanding) will be made
as, a Base Rate Account. The Borrower may not borrow any Revolving Loans
subject to a Libor Account, Convert any Base Rate Accounts into Libor
Accounts, or Continue any Libor Account as a Libor Account if the Applicable
Rate for such Libor Accounts would exceed the Maximum Rate or if a Default
exists.
Section 4.4 PREPAYMENTS.
(a) MANDATORY. If at any time the Outstanding Revolving Credit
exceeds the Borrowing Base, the Borrower shall, within one (1) Business
Day after the occurrence thereof, prepay the outstanding Revolving Loans
by the amount of the excess together with any amount due under Section
5.5 or if no Revolving Loans are outstanding and the Outstanding
Revolving Credit exceeds the Borrowing Base, immediately pledge to the
Collateral Agent cash or cash equivalents in an amount equal to the
excess as security for the Obligations.
(b) CONTROL OF CASH AND APPLICATION TO OBLIGATIONS.
Notwithstanding anything in the Borrower Security Agreement or any
Subsidiary Security Agreement to the contrary, Borrower and the
Obligated Parties have instructed all customers and other Persons making
payment on accounts receivable and other collateral to make all payments
thereon to a post office box or boxes established in accordance with the
Lockbox Agreements. The funds on deposit in the Borrower's and each
Domestic Subsidiaries Lockbox Accounts are paid to the Administrative
Agent on a daily basis by automated clearinghouse debit for credit to
the Collection Account or by wire transfer.
<PAGE>
Prior to the occurrence of a Daily Collection Event, Borrower shall have
access to and may direct the Administrative Agent on the disposition of
the funds held in the Collection Account and funds held in the Lockbox
Account owned by Software Spectrum Canada. If a Daily Collection Event
occurs and as long as the Daily Collection Procedure is in place,
notwithstanding anything in the Borrower Security Agreement or any
Subsidiary Security Agreement to the contrary, Borrower shall cause the
funds held in the Lockbox Account owned by Software Spectrum Canada
which constitute proceeds of accounts receivable purchased from Software
Spectrum Canada to be paid to the Administrative Agent on a daily basis
by automated clearinghouse debit for credit to the Collection Account or
by wire transfer, the funds deposited in the Collection Account (over
which Borrower shall have no control after the occurrence of a Daily
Collection Event) or wire transferred to Administrative Agent from the
Lockbox Accounts (the "AVAILABLE CASH") shall be applied by the
Administrative Agent for the benefit of the Banks as follows:
(1) if no Default exists, first, as a payment of the
outstanding principal amount of the Revolving Loans, second, as a
payment of accrued and unpaid interest on the Revolving Loans, and
third, to the repayment of any other Obligations which are due and
outstanding, and if after the foregoing applications, Available Cash
remains available to be disbursed, the Administrative Agent shall
deposit such remaining amount to one of Borrower's Disbursement
Accounts or transfer such funds as the Borrower shall otherwise
direct; or
(2) if a Default exists, the Available Cash shall be applied by
the Administrative Agent for the benefit of the Banks to the
Obligations in accordance with Section 4.6 hereof.
(c) OPTIONAL. Subject to Section 4.2 and the provisions of
this clause (c), the Borrower may, at any time and from time to time
without premium or penalty upon prior notice to the Administrative Agent
as specified in Section 4.3, prepay or repay any Revolving Loan in full
or in part; provided that Revolving Loans subject to a Libor Account may
be prepaid or repaid only on the last day of the Interest Period
applicable thereto unless (i) the Borrower pays to the Administrative
Agent for the account of the applicable Banks any amounts due under
Section 5.5 as a result of such prepayment or repayment or (ii) after
giving effect to such prepayment or repayment the aggregate principal
amount of the Revolving Loans being prepaid or repaid having Interest
Periods that end after such payment date shall be equal to or less than
the principal amount of such Revolving Loans after such prepayment or
repayment.
Section 4.5. METHOD OF PAYMENT. Except as otherwise expressly provided
herein, all payments of principal, interest, and other amounts to be made by
the Borrower or any Obligated Party under the Loan Documents shall be made to
the Administrative Agent at the Principal Office for the account of each
Bank's Applicable Lending Office in Dollars and in immediately available
funds, without setoff, deduction, or counterclaim, not later than 2:00 p.m.
on the date on which such payment shall become due (each such payment made
after such time on such due date to be deemed to have been made on the next
succeeding Business Day). The Borrower and each Obligated Party shall, at
the time of making each such payment, specify to the Administrative Agent the
sums payable under the Loan Documents to
<PAGE>
which such payment is to be applied (and in the event that the Borrower fails
to so specify, or if an Event of Default has occurred and is continuing, the
administrative agent may apply such payment and any proceeds of any
Collateral to the Obligations in such order and manner as it may elect in its
sole discretion, subject to Section 4.6). Except as otherwise provided in
Section 3.6, each payment received by the Administrative Agent under any Loan
Document for the account of a Bank shall be paid to such Bank by 3:00 p.m. on
the date the payment is deemed made to the Administrative Agent in
immediately available funds, for the account of such Bank's Applicable
Lending Office. Whenever any payment under any Loan Document shall be stated
to be due on a day that is not a Business Day, such payment may be made on
the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of the payment of interest and commitment
fee, as the case may be.
Section 4.6. WEEKLY SETTLEMENT AMONG BANKS; PRO RATA TREATMENT.
notwithstanding anything herein to the contrary, the arrangements between the
administrative agent and the banks with respect to making and advancing the
revolving loans and making payments under letters of credit may, in the
administrative agent's discretion, be handled on the following basis: no less
than once a week, the administrative agent will provide each bank on or before
11:00 a.m. on a business day with a statement showing, for the period of time
since the date of the most recent of such statements previously provided, the
aggregate principal amount of new revolving loans made to the borrower by the
administrative agent as a bank, the aggregate amount of drawings on letters of
credit which have not been reimbursed, the aggregate face amount of new letters
of credit issued for the account of the borrower, the amount of remittances and
payments actually collected and applied by the administrative agent to reduce
the outstanding principal balance of the revolving loans and to reimburse letter
of credit liabilities during such period and the outstanding principal balances
of the revolving loans and the aggregate letter of credit liabilities
outstanding at the end of such period. if as of the date of the delivery of
such statement, the administrative agent in its capacity as a bank holds an
interest in the revolving loans and the unreimbursed reimbursement obligations
outstanding as of such statement date in excess of its pro rata share based on
its commitment percentage, each bank shall be obligated to advance to the
administrative agent its pro-rata (based on such bank's commitment percentage)
or other share of such excess so that after giving effect to all such advances,
the banks shall hold the revolving loans and the unreimbursed reimbursement
obligations outstanding as of such statement date pro rata in accordance with
their respective commitment percentages. if as of the date of the delivery of
such statement, the administrative agent in its capacity as a bank holds an
interest in the revolving loans and the unreimbursed reimbursement obligations
outstanding as of such statement date in an amount less than its pro rata share
based on its commitment percentage, then the administrative agent in its
capacity as a bank shall be obligated to advance to the other banks such amounts
as will be necessary so that after giving effect thereto the banks shall hold
the revolving loans and the unreimbursed reimbursement obligations outstanding
as of such statement date pro rata in accordance with their respective
commitment percentages. advances made pursuant to this weekly settlement
procedure by the administrative agent or any bank must be made on or before 3:00
p.m. on the date of the bank's receipt of such statement to the administrative
agent at the principal office, in immediately available funds. until funded by
the banks in accordance with the foregoing, the administrative agent as a bank
shall be entitled to any interest on amounts it advanced to or on behalf of the
borrower as a result of the foregoing weekly settlement procedures and interest
and commitment fees
<PAGE>
shall be calculated and paid to give effect to the actual amounts outstanding
to each Bank. Between dates when the statement by the Administrative Agent is
delivered under this Section 4.6, repayments received shall be applied to the
Revolving Loans made by the Administrative Agent as a Bank. If as a result
of the foregoing such Revolving Loans are repaid in full, then to the extent
any further amounts are available for repayment on such day hereunder,
Administrative Agent shall, on such day, settle with the banks in accordance
with this Section 4.6. Except as a result of the foregoing or to the extent
otherwise provided herein: (a) each Revolving Loan shall be made by the
banks, each payment of commitment fees under Section 2.5 and letter of credit
fees under subsection 2.7(c) hereof shall be made for the account of the
Banks, and each termination or reduction of the Revolving Commitments shall
be applied to the Revolving Commitments of the Banks, pro rata according to
their respective commitment percentages; (b) the making, conversion, and
continuation of accounts of a particular type (other than conversions
provided for by Section 5.4 hereof) shall be made pro rata among the Banks
holding Accounts of such Type according to their respective Commitment
Percentages; (c) each payment and prepayment of principal of or interest on
Revolving Loans or Reimbursement Obligations by the Borrower shall be made to
the Administrative Agent for the account of the Administrative Agent or the
Banks holding such Revolving Loans or Reimbursement Obligations (or
participation interests therein) pro rata in accordance with the respective
unpaid principal amounts of such Revolving Loans or participation interests
held by the Administrative Agent or such Banks; PROVIDED that as long as no
default in the payment of interest exists, payments of interest made when the
banks are holding different types of accounts applicable to the same
Revolving Loan and result of the application of Section 5.4, shall be made to
the Banks in accordance with the amount of interest actually owed to each;
(d) proceeds of Collateral shall be shared by the agents and the Banks pro
rata in accordance with the respective unpaid principal amounts of and
interest on the Obligations then due the Agents and the Banks; and (e) the
Banks (other than the Administrative Agent) shall purchase from the
applicable Agent participations in the Letters of Credit to the extent of
their respective Commitment Percentages. If at any time payment, in whole or
in part, of any amount distributed by the Administrative Agent hereunder is
rescinded or must otherwise be restored or returned by Administrative Agent
as a preference, fraudulent conveyance or otherwise under any bankruptcy,
insolvency or similar law, then each person receiving any portion of such
amount agrees, upon demand, to return the portion of such amount it has
received to the Administrative Agent.
Section 4.7. SHARING OF PAYMENTS. If a Bank shall obtain payment of any
principal of or interest on any of the Obligations due to such Bank hereunder
directly (and not through the Administrative Agent) through the exercise of any
right of set-off, banker's lien, counterclaim, or similar right, or otherwise,
it shall promptly purchase from the other Banks participations in the
Obligations held by the other Banks in such amounts, and make such other
adjustments from time to time as shall be equitable to the end that all the
Banks shall share the benefit of such payment pro rata in accordance with the
unpaid principal of and interest on the Obligations then due to each of them.
To such end, all of the Banks shall make appropriate adjustments among
themselves (by the resale of participations sold or otherwise) if all or any
portion of such excess payment is thereafter rescinded or must otherwise be
restored. The Borrower agrees, to the fullest extent it may effectively do so
under applicable law, that any bank so purchasing a participation in the
Obligations held by the other Banks may exercise all rights of set-off, banker's
lien, counterclaim, or similar rights with respect to such participation as
fully as if such bank were a direct holder of Obligations in the amount
<PAGE>
of such participation. Nothing contained herein shall require any Bank to
exercise any such right or shall affect the right of any Bank to exercise,
and retain the benefits of exercising, any such right with respect to any
other indebtedness or obligation of the Borrower.
Section 4.8. NON-RECEIPT OF FUNDS BY THE ADMINISTRATIVE AGENT. Unless
the Administrative Agent shall have been notified by a Bank or the borrower
(the "PAYOR") prior to the date on which such Bank is to make payment to the
Administrative Agent hereunder or the Borrower is to make a payment to the
Administrative Agent for the account of one or more of the Banks, as the case
may be (such payment being herein called the "REQUIRED PAYMENT"), which
notice shall be effective upon receipt, that the Payor does not intend to
make the Required Payment to the Administrative Agent, the Administrative
Agent may assume that the Required Payment has been made and may, in reliance
upon such assumption (but shall not be required to), make the amount thereof
available to the intended recipient on such date and, if the Payor has not in
fact made the Required Payment to the Administrative Agent, (a) the recipient
of such payment shall, on demand, pay to the Administrative Agent the amount
made available to it together with interest thereon in respect of the period
commencing on the date such amount was so made available by the
Administrative Agent until the date the Administrative Agent recovers such
amount at a rate per annum equal to the Federal Funds Effective Rate for such
period and (b) the Administrative Agent shall be entitled to offset against
any and all sums to be paid to such recipient, the amount calculated in
accordance with the foregoing clause (a).
Section 4.9. WITHHOLDING TAXES. All payments by the Borrower of amounts
payable under any Loan Document shall be payable without deduction for or on
account of any present or future taxes, duties, or other charges levied or
imposed by the United States of America or by the government of any jurisdiction
outside the United States of America or by any political subdivision or taxing
authority of or in any of the foregoing through withholding or deduction with
respect to any such payments (but excluding any tax imposed on or measured by
the net income or profit of a Bank pursuant to the laws of the jurisdiction in
which it is organized or in which the principal office or Applicable Lending
Office of such Bank is located or any subdivision thereof or therein). If any
such taxes, duties, or other charges are so levied or imposed, the Borrower will
make additional payments in such amounts so that every net payment of amounts
payable by it under any Loan Document, after withholding or deduction for or on
account of any such present or future taxes, duties, or other charges, will not
be less than the amount provided for herein or therein, provided that the
Borrower may withhold to the extent required by law and shall have no obligation
to pay such additional amounts to any Bank to the extent that such taxes,
duties, or other charges are levied or imposed by reason of the failure or
inability of such Bank to comply with the provisions of Section 4.10. The
Borrower shall furnish promptly to the administrative agent for distribution to
each affected Bank, as the case may be, official receipts evidencing any such
withholding or reduction.
Section 4.10. WITHHOLDING TAX EXEMPTION. Each Bank that is not
incorporated under the laws of the United States of America or a state
thereof agrees that it will deliver to the Borrower and the Administrative
Agent two duly completed copies of United States Internal Revenue Service
Form 1001 or 4224 (or a successor form), certifying in either case that such
<PAGE>
Bank is entitled to receive payments from the Borrower under any Loan
Document without deduction or withholding of any United States federal income
taxes. Each Bank which so delivers a Form 1001 or 4224 further undertakes to
deliver to the Borrower and the Administrative Agent two (2) additional
copies of such form (or a successor form) on or before the date such form
expires or becomes obsolete or after the occurrence of any event requiring a
change in the most recent form so delivered by it, and such amendments
thereto or extensions or renewals thereof as may be reasonably requested by
the Borrower or the Administrative Agent, in each case certifying that such
Bank is entitled to receive payments from the Borrower under any Loan
Document without deduction or withholding of any United States federal income
taxes, unless an event (including without limitation any change in treaty,
law, or regulation) has occurred prior to the date on which any such delivery
would otherwise be required which renders all such forms inapplicable or
which would prevent such Bank from duly completing and delivering any such
form with respect to it and such Bank advises the Borrower and the
Administrative Agent that it is not capable of receiving such payments
without any deduction or withholding of United States federal income tax.
Section 4.11. PARTICIPATION AND SETTLEMENT OBLIGATIONS ABSOLUTE; FAILURE
TO FUND PARTICIPATION OR SETTLEMENT. The obligations of a Bank to fund its
participation in the Letters of Credit in accordance with the terms hereof
and to settle with the Administrative Agent in accordance with Section 4.6
shall be absolute, unconditional, and irrevocable and shall be performed
strictly in accordance with the terms of the Loan Documents under all
circumstances whatsoever, including without limitation, the following
circumstances: (a) any lack of validity of any Loan Document; (b) the
occurrence of any Default; (c) the existence of any claim, set-off,
counterclaim, defenses, or other rights which such Bank, the Borrower, any
Obligated Party, or any other Person may have; (d) the occurrence of any
event that has or could reasonably be expected to have a Material Adverse
Effect; (e) the failure of any condition to a Revolving Loan or the issuance
of a Letter of Credit Loan under Article 6 to be satisfied; (f) the fact that
after giving effect to the funding of the participation the Outstanding
Revolving Credit may exceed the Borrowing Base; or (g) any other circumstance
whatsoever, whether or not similar to any of the foregoing; provided that,
the obligations of a Bank to fund its participation in a letter of credit or
to fund a settlement under Section 4.6 may be subject to avoidance by a Bank
if such Bank proves in a final nonappealable judgment that it was damaged and
that such damage arose directly from the Administrative Agent's willful
misconduct or gross negligence in determining whether (i) the conditions set
forth in article 6 to the issuance of the letter of credit or the making of a
revolving loan in question were satisfied at the time of such issuance or
revolving loan or (ii) with respect to a letter of credit the documentation
presented under the letter of credit in question complied with the terms
thereof. If a Bank fails to fund its participation in a letter of credit or
fund a settlement under Section 4.6 as required hereby, such Bank shall,
subject to the foregoing proviso, remain obligated to pay to the
Administrative Agent the amount it failed to fund on demand together with
interest thereon in respect of the period commencing on the date such amount
should have been funded until the date the amount was actually funded to the
Administrative Agent at a rate per annum equal to the Federal Funds Effective
Rate for such period and the Administrative Agent shall be entitled to offset
against any and all sums to be paid to such Bank hereunder the amount due the
Administrative Agent under this sentence.
<PAGE>
Section 4.12. COLLATERAL ACCOUNT. No assets are required to be held in
or subject to the Collateral Account on the Closing Date. However, in order
to create additional availability under the Borrowing Base or to otherwise
comply with its obligations under Section 4.4(a)(i), the Borrower has the
option of creating (or shall create if required under Section 4.4(a)(i)) the
Collateral Account and deposit cash or other assets therein. The cash
deposited in the Collateral Account may be invested by the Administrative
Agent as directed by Borrower in accordance with the Administrative Agent's
standard investment agreements and Section 9.5 hereof. All interest and
other income earned on the assets held in or subject to the Collateral
Account shall be redeposited therein. As long as the Outstanding Revolving
Credit is supported through the Borrowing Base by the value of the assets
held in the Collateral Account or as long as a Default exists, the
Administrative Agent shall have no obligation to release its Lien in the
Collateral Account or the assets held therein or pursuant thereto except as
provided in the next sentence. If at any time the Borrowing Base exceeds the
Outstanding Revolving Credit and No default exists, within five (5) days of
Administrative Agent's receipt of Borrower's written request, the
Administrative Agent shall release from the Collateral Account and the Liens
relating thereto, so much of the assets held in the Collateral Account that
have a market value equal to the amount of the excess and it shall not be
necessary for the Administrative Agent to obtain any further consent or
agreement from any Bank for such release.
ARTICLE 5.
YIELD PROTECTION AND ILLEGALITY
Section 5.1. ADDITIONAL COSTS.
(a) The Borrower shall pay directly to each Bank from time to
time such amounts as such Bank may determine to be necessary to
compensate it for any reasonable costs incurred by such Bank which such
Bank determines in good faith are attributable to its making or
maintaining of any Revolving Loans subject to Libor Accounts or Letters
of Credit hereunder or its obligation to make any of such Revolving
Loans hereunder or issue or participate in any Letter of Credit, or any
reduction in any amount receivable by such Bank hereunder in respect of
any such Revolving Loans or Letters of Credit or such obligation (such
increases in costs and reductions in amounts receivable being herein
called "ADDITIONAL COSTS"), resulting from any Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to
such Bank under this Agreement or its Revolving Notes in respect of
any of such Revolving Loans (other than franchise taxes and taxes
imposed on the overall net income of such Bank or its Applicable
Lending Office for any of such Revolving Loans by the United States
of America or the jurisdiction in which such Bank has its principal
office or such Applicable Lending Office);
(ii) imposes or modifies any reserve, special deposit,
minimum capital, capital ratio, or similar requirement relating to
any extensions of credit or other assets of, or any deposits with
or other liabilities or commitments of, such
<PAGE>
Bank (including any of such Revolving Loans or any deposits
referred to in the definition of "Libor Rate" in Section 1.1 hereof
but excluding any Reserve Requirement already taken into account in
calculating the Adjusted Libor Rate); or
(iii) imposes any other condition affecting this Agreement or
the Revolving Notes or any of such extensions of credit or
liabilities or commitments.
Each Bank will notify the Borrower (with a copy to the Administrative
Agent) of any event occurring after the date of this Agreement which
will entitle such Bank to compensation pursuant to this subsection
5.1(a) as promptly as practicable after it obtains knowledge thereof and
determines to request such compensation, and will designate a different
Applicable Lending Office for the Revolving Loans affected by such event
if such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the sole opinion of such Bank,
violate any law, rule, or regulation or be in any way disadvantageous to
such Bank. Each Bank will furnish the Borrower with a certificate
setting forth the basis and the amount of each request of such Bank for
compensation under this subsection 5.1(a). If any Bank requests
compensation from the Borrower under this subsection 5.1(a), the
Borrower may, by notice to such Bank (with a copy to the Administrative
Agent) suspend the obligation of such Bank to issue or participate in
Letters of Credit or to make Revolving Loans subject to Libor Accounts
or Continue Libor Accounts as Libor Accounts or Convert Base Rate
Accounts into Libor Accounts until the Regulatory Change giving rise to
such request ceases to be in effect (in which case the provisions of
Section 5.4 hereof shall be applicable with respect to such Libor
Accounts).
(b) Without limiting the effect of the foregoing provisions of
this Section 5.1, in the event that, by reason of any Regulatory Change,
any Bank either (i) incurs Additional Costs based on or measured by the
excess above a specified level of the amount of a category of deposits
or other liabilities of such Bank which includes deposits by reference
to which the interest rate on the Revolving Loans subject to Libor
Accounts is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Bank which includes
Revolving Loans subject to Libor Accounts or (ii) becomes subject to
restrictions on the amount of such a category of liabilities or assets
which it may hold, then, if such Bank so elects by notice to the
Borrower (with a copy to the Administrative Agent), the obligation of
such Bank to make Revolving Loans subject to Libor Accounts or Continue
Libor Accounts as Libor Accounts or Convert Base Rate Accounts into
Libor Accounts hereunder shall be suspended until the Regulatory Change
giving rise to such request ceases to be in effect (in which case the
provisions of Section 5.4 hereof shall be applicable).
(c) Determinations and allocations by any Bank for purposes of
this Section 5.1 of the effect of any Regulatory Change on its costs of
maintaining its obligation to make Revolving Loans or issue or
participate in Letters of Credit or of making or maintaining Revolving
Loans or issuing or participating in Letters of Credit or on amounts
receivable by it in respect of Revolving Loans or Letters of Credit, and
of the
<PAGE>
additional amounts required to compensate such Bank in respect of any
Additional Costs, shall, absent manifest error, be conclusive, provided
that such determinations and allocations are made on a reasonable basis.
Section 5.2. LIMITATION ON LIBOR ACCOUNTS. anything herein to the
contrary notwithstanding, if with respect to any Libor Accounts under a
Revolving Loan for any Interest Period therefor:
(a) The Administrative Agent determines (which determination
shall be conclusive) that quotations of interest rates for the relevant
deposits referred to in the definition of "Libor Rate" in Section 1.1
hereof are not being provided in the relative amounts or for the
relative maturities for purposes of determining the rate of interest for
the Revolving Loans subject to such Libor Accounts as provided in this
Agreement; or
(b) Required Banks determine (which determination shall be
conclusive) and notify the Administrative Agent that the relevant rates
of interest referred to in the definition of "Adjusted Libor Rate" in
Section 1.1 hereof on the basis of which the rate of interest for such
Revolving Loans for such Interest Period is to be determined do not
accurately reflect the cost to the Banks of making or maintaining such
Revolving Loans for such Interest Period;
then the Administrative Agent shall give the Borrower prompt notice thereof
specifying the relevant Libor Account and the relevant amounts or periods,
and so long as such condition remains in effect, the Banks shall be under no
obligation to make additional Revolving Loans subject to a Libor Account or
to Convert Base Rate Accounts into Libor Accounts and the Borrower shall, on
the last day(s) of the then current Interest Period(s) for the outstanding
Libor Accounts, either prepay the Revolving Loans subject to such Libor
Accounts or Convert such Libor Accounts into Base Rate Accounts in accordance
with the terms of this Agreement. Determinations made under this Section 5.2
shall be made on a reasonable basis.
Section 5.3. ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its
Applicable Lending Office to (a) honor its obligation to make Revolving Loans
subject to a Libor Account hereunder or (b) maintain Revolving Loans subject
to a Libor Account hereunder, then such Bank shall promptly notify the
Borrower (with a copy to the Administrative Agent) thereof and such Bank's
obligation to make or maintain Revolving Loans subject to a Libor Account and
to Convert Base Rate Accounts into Libor Accounts hereunder shall be
suspended until such time as such Bank may again make and maintain Revolving
Loans subject to a Libor Account (in which case the provisions of Section 5.4
hereof shall be applicable).
Section 5.4. TREATMENT OF AFFECTED REVOLVING LOANS. if the accounts
applicable to a revolving loan of any bank (hereinafter called "affected
accounts") are to be converted pursuant to section 5.1 or 5.3 hereof, the bank's
affected accounts shall be automatically converted into base rate accounts on
the last day(s) of the then current interest period(s)
<PAGE>
(or, in the case of a Conversion required by subsection 5.1(b) or Section 5.3
hereof, on such earlier date as such Bank may specify to the Borrower with a
copy to the Administrative Agent) and, unless and until such Bank gives
notice as provided below that the circumstances specified in Section 5.1 or
5.3 hereof which gave rise to such Conversion no longer exist: (a) to the
extent that such Bank's Affected Accounts have been so Converted, all
payments and prepayments of principal which would otherwise be applied to
such Bank's Affected Accounts shall be applied instead to its Base Rate
Accounts; and (b) all Accounts which would otherwise be established or
Continued by such Bank as Libor Accounts shall be made as or Converted into
Base Rate Accounts and all Accounts of such Bank which would otherwise be
Converted into Libor Accounts shall be Converted instead into (or shall
remain as) Base Rate Accounts. If such Bank gives notice to the Borrower
(with a copy to the Administrative Agent) that the circumstances specified in
Section 5.1 or 5.3 hereof which gave rise to the Conversion of such Bank's
Affected Accounts pursuant to this Section 5.4 no longer exist (which such
Bank agrees to do promptly upon such circumstances ceasing to exist) at a
time when Libor Accounts are outstanding, such Bank's Base Rate Accounts
shall be automatically Converted, on the first day(s) of the next succeeding
Interest Period(s) for such outstanding Libor Accounts to the extent
necessary so that, after giving effect thereto, all Accounts held by the
Banks holding Libor Accounts and by such Bank are held pro rata (as to
principal amounts, Types, and Interest Periods) in accordance with their
respective Commitment Percentages.
Section 5.5. COMPENSATION. The borrower shall pay to the
Administrative Agent for the account of each Bank, upon the request of such
Bank, such amount or amounts as shall be sufficient (in the reasonable
opinion of such Bank) to compensate it for any actual loss, cost, or expense
incurred by it as a result of:
(a) Any payment or prepayment of a Revolving Loan subject to a
Libor Account or Conversion of a Libor Account for any reason
(including, without limitation, the repayment of such a Revolving Loan
held by the Administrative Agent as a Bank resulting from the operation
of Section 4.6 or the repayment of such a Revolving Loan resulting from
the acceleration of the outstanding Revolving Loans pursuant to
subsection 11.2(a)) on a date other than the last day of an Interest
Period for the applicable Libor Account; or
(b) Any failure by the Borrower for any reason (including,
without limitation, the failure of any conditions precedent specified in
Article 6 to be satisfied) to borrow or prepay a Revolving Loan subject
to a Libor Account, or Convert a Base Rate Account to a Libor Account on
the date for such borrowing, Conversion, or prepayment specified in the
relevant notice of borrowing, prepayment, or Conversion under this
Agreement.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which otherwise would have accrued on the principal amount so paid or Converted
or not borrowed for the period from the date of such payment, Conversion, or
failure to borrow to the last day of the Interest Period for such Libor Account
(or, in the case of a failure to borrow, the Interest Period for such Libor
Account which would have commenced on the date specified for such borrowing) at
the applicable rate of interest for such Libor Account provided for herein over
(ii) the interest component of the
<PAGE>
amount such Bank would have bid in the London interbank market for Dollar
deposits of leading banks and amounts comparable to such principal amount and
with maturities comparable to such period.
Section 5.6. CAPITAL ADEQUACY. If after the date hereof, any Bank
shall have determined that any Regulatory Change has or would have the effect
of reducing the rate of return on such Bank's (or its parent's) capital as a
consequence of its obligations hereunder or the transactions contemplated
hereby to a level below that which such Bank (or its parent) could have
achieved but for such adoption, implementation, change, or compliance (taking
into consideration such Bank's policies with respect to capital adequacy) by
an amount deemed by such Bank to be material, then from time to time, within
ten (10) Business Days after demand by such Bank (with a copy to the
Administrative Agent), the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank (or its parent) for such
reduction. A certificate of such Bank claiming compensation under this
Section and setting forth the additional amount or amounts to be paid to it
hereunder shall be conclusive, provided that the determination thereof is
made on a reasonable basis. In determining such amount or amounts, such Bank
may use any reasonable averaging and attribution methods.
ARTICLE 6.
CONDITIONS PRECEDENT
Section 6.1. EFFECTIVENESS OF AGREEMENT; INITIAL LOAN. The
effectiveness of this Agreement and the obligation of each Bank to make its
initial Revolving Loan and the obligations of the Administrative Agent to
issue the initial Letter of Credit in each case, hereunder, are subject to
the condition precedent that the Administrative Agent shall have received on
or before March 16, 1998 all of the following, each dated (unless otherwise
indicated) the date hereof, in form and substance satisfactory to the
Administrative Agent:
(a) RESOLUTIONS. Resolutions of the Board of Directors (or other
similar authorizing documents) of the Borrower and each Domestic
Granting Subsidiary certified by its Secretary or an Assistant Secretary
(or other similar officer) which authorize its execution, delivery, and
performance of the Loan Documents to which it is or is to be a party.
<PAGE>
(b) INCUMBENCY CERTIFICATE. A certificate of incumbency
certified by the Secretary or an Assistant Secretary (or similar
officer) of the Borrower and each Domestic Granting Subsidiary
certifying the name of each of its officers (i) who are authorized to
sign the Loan Documents to which it is or is to be a party (including
the certificates contemplated herein) together with specimen signatures
of each such officers and (ii) who will, until replaced by other
officers duly authorized for that purpose, act as its representative for
the purposes of signing documentation and giving notices and other
communications in connection with the Loan Documents.
(c) ARTICLES OF INCORPORATION. The articles of incorporation
(or similar governing document) of the Borrower and each Domestic
Granting Subsidiary certified by the Secretary of State of the state of
its incorporation (or the other appropriate governmental officials of
its jurisdiction of organization) and dated a current date.
(d) BYLAWS. The bylaws (or similar governing document) of the
Borrower and each Domestic Granting Subsidiary certified by its
Secretary or an Assistant Secretary.
(e) GOVERNMENTAL CERTIFICATES. Certificates of the appropriate
government officials of the state of incorporation (or the other
appropriate governmental officials of its jurisdiction of organization)
of the Borrower and each Domestic Granting Subsidiary as to its
existence and good standing and certificates of the appropriate
government officials of each jurisdiction in which the Borrower and each
such Subsidiary is required to qualify to do business and where failure
to so qualify could reasonably be expected to have a Material Adverse
Effect, as to the Borrower's and each such Subsidiary's qualification to
do business and good standing in such jurisdiction, all dated a current
date.
(f) REVOLVING NOTES. The Revolving Notes executed by the
Borrower.
(g) ACKNOWLEDGMENT. The acknowledgment to this Agreement
executed by Spectrum Integrated Services, Inc.
(h) COLLATERAL. Copies of the Lockbox Agreements and except as
set forth in Section 8.10(d), such executed documentation as the
Collateral Agent may deem necessary to perfect or protect its Liens,
including, without limitation, financing statements under the UCC and
other applicable documentation under the laws of any jurisdiction with
respect to the perfection of Liens.
<PAGE>
(i) OPINION OF COUNSEL. Favorable opinions of legal counsel to
the Borrower and the Domestic Granting Subsidiaries, as to such matters
as the Administrative Agent may reasonably request.
(j) PRIOR AGREEMENT INTEREST. All unpaid interest and fees
accrued under the Prior Agreement through the Closing Date and all other
fees, expenses and other charges outstanding thereunder (including all
amounts due under Section 6.5 thereof arising as a result of the
termination of all interest periods thereunder on the Closing Date).
(k) FEES. The fees due on the Closing Date as described in the
letter dated February 10, 1998 from The Chase Manhattan Bank and Chase
Bank of Texas, National Association to the Borrower.
(l) BORROWING BASE REPORT. An initial Borrowing Base Report in
the form of Exhibit "B" hereto, together with the accounts receivable
aging required thereby, verifying that the Borrowing Availability
Calculated as of January 31, 1998 is greater than or equal to Ten
Million Dollars ($10,000,000).
(m) PROJECTIONS. The Borrower's forecasted consolidated
balance sheet and profit and loss statement, prepared as of the last day
of and for (i) each Fiscal Quarter during the Fiscal Years ending during
the years 1998 and 1999 and (ii) each of the Fiscal Years ending during
the years 2000 and 2001, each prepared on a basis consistent with
Borrower's historical financial statements (together with appropriate
supporting details and a narrative statement of underlying assumptions).
(n) FINANCIAL STATEMENT. The unaudited consolidated financial
statements of the Borrower and the Subsidiaries for the nine (9) month
period ended January 31, 1998, which shall reflect an EBITDA for
Borrower of not less than Fourteen Million Dollars ($14,000,000) for
such period.
(o) ATTORNEYS' FEES AND EXPENSES. Evidence that the costs and
expenses (including attorneys' fees) referred to in Section 13.1, to the
extent incurred, shall have been paid in full by the Borrower.
Section 6.2. ALL REVOLVING LOANS AND LETTERS OF CREDIT. The obligation
of each Bank to make any Revolving Loan (including the initial Revolving
Loan) and the obligation of the Administrative Agent to issue any Letter of
Credit is subject to the following additional conditions precedent:
<PAGE>
(a) NO DEFAULT. No default shall have occurred and be
continuing, or would result from such revolving Loan or Letter of Credit;
(b) REPRESENTATIONS AND WARRANTIES. All of the representations
and warranties contained in Article 7 hereof and in the other Loan
Documents shall be true and correct on and as of the date of such Revolving
Loan or Letter of Credit with the same force and effect as if such
representations and warranties had been made on and as of such date except
to the extent that such representations and warranties relate specifically
to another date; and
(c) ADDITIONAL DOCUMENTATION. The Administrative Agent shall
have received such additional approvals, opinions, or documents as the
Administrative Agent may reasonably request.
Each notice of borrowing by the Borrower hereunder, and each request for the
issuance of a Letter of Credit, shall constitute a representation and warranty
by the Borrower that the conditions precedent set forth in subsections 6.2(a)
and (b) have been satisfied (both as of the date of such notice and, unless the
Borrower otherwise notifies the Administrative Agent prior to the date of such
borrowing or Letter of Credit, as of the date of such borrowing or Letter of
Credit).
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
To induce the Agents and the Banks to enter into this Agreement, the
Borrower represents and warrants to the Agents and the Banks:
Section 7.1. CORPORATE EXISTENCE. The Borrower and each Subsidiary
(a) is a corporation or other entity (as reflected on Schedule 8.14) duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation or organization, (b) has all requisite
power and authority to own its assets and carry on its business as now being
or as proposed to be conducted, and (c) is qualified to do business in all
jurisdictions in which the nature of its business makes such qualification
necessary and where failure to so qualify would have a Material Adverse
Effect. The Borrower and each Subsidiary has the corporate power and
authority to execute, deliver, and perform their respective obligations under
the Loan Documents to which it is or may become a party.
Section 7.2 FINANCIAL STATEMENTS; PROJECTIONS.
(a) FINANCIAL STATEMENTS. The borrower has delivered to the
Administrative Agent and the Banks audited consolidated financial statements
of the Borrower and the Subsidiaries as at and for the Fiscal Year ended
April 30, 1997 and unaudited consolidated financial statements of the
borrower and the Subsidiaries for the nine (9) month period ended
<PAGE>
January 31, 1998. Such financial statements, have been prepared in
accordance with GAAP, and present fairly, on a consolidated basis, the
financial condition of the Borrower and the Subsidiaries as of the respective
dates indicated therein and the results of operations for the respective
periods indicated therein. Neither the Borrower nor any of the Subsidiaries
has any material contingent liabilities, liabilities for taxes, unusual
forward or long-term commitments, or unrealized or anticipated losses from
any unfavorable commitments except as referred to or reflected in such
financial statements. There has been no material adverse change in the
business, condition (financial or otherwise), operations, prospects, or
properties of the Borrower and the Subsidiaries taken as a whole since the
effective date of the most recent financial statements referred to in this
section.
(b) PROJECTIONS. The projections described in Section 6.1(m)
were prepared by Borrower based on the most recent financial statements of
Borrower in light of the past operations of Borrower and were prepared on a
basis consistent with GAAP, with only such adjustments thereto as would be
required in accordance with GAAP. The projections described in Section
6.1(m) represent, as of the date thereof, the good faith estimate of Borrower
and its senior management concerning the projected performance of Borrower's
business based on the supporting details and assumptions set forth in such
projections after giving effect to the transactions contemplated hereby.
Section 7.3. CORPORATE ACTION; NO BREACH. The execution, delivery,
and performance by the Borrower and each Subsidiary of the Loan Documents to
which each is or may become a party and compliance with the terms and
provisions hereof and thereof have been duly authorized by all requisite
action on the part of the Borrower and each Subsidiary and do not and will
not (a) violate or conflict with, or result in a breach of, or require any
consent under (i) the articles of incorporation, bylaws or other governing
documents of the Borrower or any of the Subsidiaries, (ii) any applicable
law, rule, or regulation or any order, writ, injunction, or decree of any
Governmental Authority or arbitrator or (iii) any material agreement or
instrument to which the Borrower or any Subsidiary is a party or by which any
of them or any of their property is bound or subject, or (b) constitute a
default under any such agreement or instrument, or result in the creation or
imposition of any Lien (except as provided herein) upon any of the revenues
or assets of the Borrower or any Subsidiary.
Section 7.4. OPERATION OF BUSINESS. The Borrower and each of the
Subsidiaries possess all licenses, permits, franchises, patents, copyrights,
trademarks, and trade names, or rights thereto, necessary to conduct their
respective businesses substantially as now conducted and as presently
proposed to be conducted except those that the failure to so possess could
not reasonably be expected to have a Material Adverse Effect, and the
Borrower and each of its Subsidiaries are not in violation of any valid
rights of others with respect to any of the foregoing except violations that
could not reasonably be expected to have a Material Adverse Effect.
Section 7.5. LITIGATION AND JUDGMENTS. Except as disclosed in the
Borrower's most recent Annual Report on Form 10K filed prior to the Closing Date
under the Securities Exchange Act of 1934, as amended, there is no action, suit,
investigation, or proceeding before
<PAGE>
or by any Governmental Authority or arbitrator pending, or to the knowledge
of the Borrower, threatened against or affecting the Borrower or any
Subsidiary, that would, if adversely determined, have a Material Adverse
Effect. There are no outstanding judgments against the Borrower or any
Subsidiary. Neither borrower nor any Subsidiary has any fee ownership
interest in any real property.
Section 7.6. RIGHTS IN PROPERTIES; LIENS. The Borrower and each
Subsidiary have good title to or valid leasehold interests in their
respective properties and assets, real and personal, including the
properties, assets, and leasehold interests reflected in the financial
statements described in Section 7.2, and none of the properties, assets, or
leasehold interests of the Borrower or any Subsidiary is subject to any Lien,
except as permitted by Section 9.2.
Section 7.7. ENFORCEABILITY. The Loan Documents to which the
Borrower or any Subsidiary is a party, when delivered, shall constitute the
legal, valid, and binding obligations of the Borrower or the Subsidiary, as
applicable, enforceable against the Borrower or the applicable Subsidiary in
accordance with their respective terms, except as limited by bankruptcy,
insolvency, or other laws of general application relating to the enforcement
of creditors' rights and general principles of equity.
Section 7.8. APPROVALS. All authorizations, approvals, and consents
of, and all filings or registrations with, any Governmental Authority or
third party necessary for the execution, delivery, or performance by the
Borrower or any Subsidiary of the Loan Documents to which each is or may
become a party or for the validity or enforceability thereof have been
obtained or made.
Section 7.9. DEBT. The Borrower and the subsidiaries have no Debt,
except as permitted by Section 9.1.
Section 7.10. TAXES. The Borrower and each Subsidiary have filed all
material tax returns (federal, state, and local) required to be filed,
including all income, franchise, employment, property, and sales tax returns,
and have paid all of their respective liabilities for taxes, assessments,
Governmental charges, and other levies that are due and payable other than
those permitted to remain unpaid under the terms of Section 8.4. Except for
routine sales and income tax audits for open tax years, none of which are
expected to have a Material Adverse Effect or which are otherwise expected to
result in a material liability, the Borrower knows of no pending
investigation of the Borrower or any Subsidiary by any taxing Authority.
Borrower knows of no pending but unassessed tax liability of the Borrower or
any Subsidiary.
Section 7.11. MARGIN SECURITIES. Neither the Borrower nor any
Subsidiary is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations G, T, U, or X of the Board of
Governors of the Federal Reserve System), and no part of the proceeds of
<PAGE>
any Revolving Loan will be used to purchase or carry any margin stock or to
extend credit to others for the purpose of purchasing or carrying margin
stock.
Section 7.12. ERISA. The Borrower and each Subsidiary are in
compliance with all applicable provisions of ERISA except for such events of
noncompliance that will not have a Material Adverse Effect. Neither a
Reportable Event nor a Prohibited Transaction has occurred and is continuing
with respect to any Plan. No notice of intent to terminate a Plan has been
filed, nor has any Plan been terminated. No circumstances exist which
constitute grounds entitling the PBGC to institute proceedings to terminate,
or appoint a trustee to administer, a Plan, nor has the PBGC instituted any
such proceedings. Neither the Borrower nor any ERISA Affiliate has
completely or partially withdrawn from a Multiemployer Plan. The Borrower
and each ERISA Affiliate have met their minimum funding requirements under
ERISA with respect to all of their Plans except for those instances of
noncompliance with such requirements that will not have a Material Adverse
Effect. The present value of all vested benefits under each Plan do not
exceed the fair market value of all Plan assets allocable to such benefits,
as determined on the most recent valuation date of the Plan and in accordance
with ERISA, by an amount that will have a Material Adverse Effect. Neither
the Borrower nor any ERISA affiliate has incurred any liability to the PBGC
under ERISA.
Section 7.13. DISCLOSURE. All factual information furnished by or on
behalf of the Borrower in writing to the Agents or any Bank (including,
without limitation, all information contained in the Loan Documents) for
purposes of or in connection with this Agreement, the other Loan Documents or
any transaction contemplated herein or therein is, and all other such factual
information hereafter furnished by or on behalf of the Borrower to the Agents
or any Bank, will be true and accurate in all material respects on the date
as of which such information is dated or certified and not incomplete by
omitting to state any fact necessary to make such information not misleading
in any material respect at such time in light of the circumstances under
which such information was provided.
Section 7.14. SUBSIDIARIES. As of the Closing Date, the Borrower has
no Subsidiaries other than those listed on Schedule 7.14 hereto. Schedule
7.14 sets forth the type of each Subsidiary listed thereon, the jurisdiction
of incorporation or organization of each such Subsidiary, the percentage of
the Borrower's ownership of the outstanding voting stock (or other ownership
interests) of each such Subsidiary and with respect to each such Subsidiary
that is a corporation, the authorized, issued, and outstanding capital stock
of each such Subsidiary. All of the outstanding capital stock of each
Subsidiary listed on Schedule 7.14 has been validly issued, is fully paid,
and is nonassessable. There are no outstanding subscriptions, options,
warrants, calls, or rights (including preemptive rights) to acquire, and no
outstanding securities or instruments convertible into, capital stock of any
Subsidiary listed on Schedule 7.14. No certificates have been issued to
evidence the capital stock Borrower owns of Software Spectrum B.V.
Section 7.15. AGREEMENTS. Neither the Borrower nor any Subsidiary is a
party to any indenture, loan, or credit agreement, or to any lease or other
agreement or instrument, or subject to any charter or corporate restriction
that could reasonably be expected to have a
<PAGE>
material adverse effect. neither the Borrower nor any Subsidiary is in
default in any respect in the performance, observance, or fulfillment of any
of the obligations, covenants, or conditions contained in any Agreement or
instrument to which it is a party other than defaults which will not have a
material adverse effect.
Section 7.16. COMPLIANCE WITH LAWS. Neither the Borrower nor any
Subsidiary is in violation of any law, rule, regulation, order, or decree of
any Governmental Authority or arbitrator other than violations which will not
have a Material Adverse Effect.
Section 7.17. INVESTMENT COMPANY ACT. Neither the Borrower nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
Section 7.18. PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower
nor any Subsidiary is a "holding company" or a "subsidiary company" of a
"holding company" or an "affiliate" of a "holding company" or a "public
utility" within the meaning of the Public Utility Holding Company Act of
1935, as amended.
Section 7.19. ENVIRONMENTAL MATTERS. Except for those matters which
will not have a Material Adverse Effect:
(a) The Borrower, each Subsidiary, and all of their respective
properties, assets, and operations are in full compliance with all
Environmental Laws. The Borrower is not aware of, nor has the Borrower
received written notice of, any past, present, or future conditions,
events, activities, practices, or incidents which may interfere with or
prevent the compliance or continued compliance of the Borrower and the
Subsidiaries with all Environmental Laws;
(b) The Borrower and each Subsidiary have obtained all permits,
licenses, and authorizations that are required under applicable
Environmental Laws, and all such permits are in good standing and the
Borrower and its Subsidiaries are in compliance with all of the terms and
conditions of such permits;
<PAGE>
(c) No Hazardous Materials have been used, generated, stored,
transported, disposed of on, or Released from any of the properties or
assets of the Borrower or any Subsidiary, and to the knowledge of Borrower,
no Hazardous Materials are present at such properties, except in compliance
with Environmental Laws. The use which the Borrower and the Subsidiaries
make and intend to make of their respective properties and assets will not
result in the use, generation, storage, transportation, accumulation,
disposal, or Release of any Hazardous Material on, in, or from any of their
properties or assets except in compliance with Environmental Laws;
(d) Neither the Borrower nor any of the Subsidiaries nor any of
their respective currently or previously owned or leased properties or
operations is subject to any outstanding or, to the best of its knowledge,
threatened order from or agreement with any Governmental Authority or other
Person or subject to any judicial or administrative proceeding with respect
to (i) failure to comply with Environmental Laws, (ii) Remedial Action, or
(iii) any Environmental Liabilities arising from a Release or threatened
Release;
(e) Neither the Borrower nor any of the Subsidiaries is a
treatment, storage, or disposal facility requiring a permit under the
Resource Conservation and Recovery Act, 42 U.S.C. section 6901 ET SEQ.,
regulations thereunder or any comparable provision of state law. The
Borrower and the Subsidiaries are in compliance with all applicable
financial responsibility requirements of all Environmental Laws;
(f) Neither the Borrower nor any of the Subsidiaries has filed
or failed to file any notice required under applicable Environmental Law
reporting a Release; and
(g) No Lien arising under any Environmental Law has attached to
any property or revenues of the Borrower or the Subsidiaries.
Section 7.20. SOLVENCY. Each of Borrower and each Granting Subsidiary,
both individually and on a consolidated basis: (A) owns and will own assets the
fair saleable value of which are (I) greater than the total amount of its
liabilities (including contingent liabilities) and (II) greater than the amount
that will be required to pay probable liabilities of then existing debts as they
become absolute and matured considering all financing alternatives and potential
asset sales reasonably available to it; (B) has capital that is not unreasonably
small in relation to its business as presently conducted; and (C) does not
intend to incur and does not believe that it will incur debts beyond its ability
to pay such debts as they become due.
<PAGE>
Section 7.21. BENEFIT RECEIVED. Borrower and the Subsidiaries will
receive reasonably equivalent value in exchange for the obligations incurred
under the Loan Documents to which each is a party. Borrower and Subsidiaries
will derive substantial benefit from the credit extended pursuant hereto in an
amount at least equal to its obligations under the Loan Documents to which it is
a party.
Section 7.22. MATERIAL SUBSIDIARIES. As of the Closing Date, Software
Spectrum B.V. and Spectrum Integrated Services, Inc. are the only Material
Subsidiaries.
ARTICLE 8
POSITIVE COVENANTS
The Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Bank has any Revolving Commitment hereunder,
the Borrower will perform and observe the following positive covenants:
Section 8.1. REPORTING REQUIREMENTS. The Borrower will furnish to the
Administrative Agent and each Bank:
(a) ANNUAL FINANCIAL STATEMENTS. As soon as available, and in
any event within ninety-one (91) days after the end of each Fiscal Year of
the Borrower, beginning with the Fiscal Year ending on April 30, 1998, (i)
a copy of the annual audit report of the Borrower and the Subsidiaries for
such Fiscal Year containing, on a consolidated basis, balance sheets and
statements of income, retained earnings, and cash flow as at the end of
such Fiscal Year and for the Fiscal Year then ended, in each case setting
forth in comparative form the figures for the preceding Fiscal Year, all in
reasonable detail and audited and certified on an unqualified basis by
independent certified public accountants of recognized standing acceptable
to the Administrative Agent, to the effect that such report has been
prepared in accordance with GAAP;
<PAGE>
(b) QUARTERLY FINANCIAL STATEMENTS. As soon as available, and
in any event within forty-six (46) days after the end of each Fiscal
Quarter beginning with the Fiscal Quarter ending January 31, 1998, a copy
of an unaudited financial report of the Borrower and the Subsidiaries as of
the end of such Fiscal Quarter and for the portion of the Fiscal Year then
ended containing, on a consolidated and (except with respect to the
statement of cash flow) consolidating basis, a balance sheet and statements
of income, retained earnings, and cash flow, in each case (except in the
case of the consolidating statements) setting forth in comparative form the
figures for the corresponding periods of the preceding Fiscal Year, All in
reasonable detail certified by the chief financial officer or chief
operating officer of the Borrower to have been prepared in accordance with
GAAP and to fairly present (subject to year-end audit adjustments) the
financial condition and results of operations of the Borrower and the
Subsidiaries, on a consolidated and consolidating basis, at the date and
for the periods indicated therein;
(c) COMPLIANCE CERTIFICATE. Accompanying the financial
statements required to be delivered under Subsections 8.1 (a) and 8.1 (b),
a Compliance Certificate;
(d) BORROWING BASE REPORT. As soon as available, and in any
event within twenty (20) days after the end of each month (the last day of
each month a "REPORT DATE"), a Borrowing Base Report in substantially the
form of Exhibit "B" hereto together with an accounts receivable aging
report (reflecting all journal entries and adjustments including all
customer credits and debits), a report showing all contra calculations,
specifying, among other items, the accounts payable balances owed to its
top ten vendors, an inventory designations report, a collections report and
lockbox statements (all the foregoing herein the "RECEIVABLES REPORTS")
collectively for the Borrower and each Granting Subsidiary any portion of
whose accounts are included as Eligible Accounts as of the applicable
Report Date;
(e) RECEIVABLE REPORTING. If a Daily Collection Event occurs
and the Administrative Agent requests, the Borrower shall furnish to the
Administrative Agent the Receivables Reports (i) once each week if the
Borrowing Availability is in excess of Five Million Dollars ($5,000,000) as
of any date of determination or (ii) on each Business Day if the Borrowing
Availability at any time drops below Five Million Dollars ($5,000,000) for
any three (3) consecutive Business Days as determined by the Administrative
Agent. Once Daily Collection Procedures have been established, they shall
remain in effect until the Administrative Agent determines in its
discretion that they are no longer necessary. The Receivables Reports
delivered under this clause (e) shall be prepared as of the preceding
Business Day prior to the date of the delivery of such reports, or in the
case of weekly reporting, for the period since the last weekly report;
<PAGE>
(f) ANNUAL PROJECTIONS. As soon as available and in any event
prior to the beginning of each Fiscal Year through the Fiscal Year
beginning May 1, 2000, the Borrower will deliver Annual Projections on a
Fiscal Quarter by Fiscal Quarter basis for the forthcoming Fiscal Year and
a proforma projection of the borrower's compliance with the financial
covenants in this Agreement for the same period;
(g) MANAGEMENT LETTERS. Promptly upon receipt thereof, a copy
of any management letter or written report submitted to (i) the Borrower or
any Granting Subsidiary by independent certified public accountants with
respect to any matter relating to the business, condition (financial or
otherwise), operations, prospects, or properties of the Borrower or any
Subsidiary and (ii) any other Subsidiary by independent certified public
accountants with respect to any matter that could reasonably be expected to
have a Material Adverse Effect;
(h) NOTICE OF LITIGATION. Promptly after the commencement
thereof, notice of all actions, suits, and proceedings before any
Governmental Authority or arbitrator affecting the Borrower or any
Subsidiary which, if determined adversely to the Borrower or such
Subsidiary, could reasonably be expected to have a Material Adverse Effect;
(i) NOTICE OF DEFAULT. As soon as possible and in any event
within five (5) Business Days after an officer of the Borrower has
knowledge of the occurrence of each Default, a written notice setting forth
the details of such Default and the action that the borrower has taken and
proposes to take with respect thereto;
(j) ERISA REPORTS. If requested by the Administrative Agent,
promptly after the filing or receipt thereof, copies of all reports,
including annual reports, and notices which the Borrower or any Subsidiary
files with or receives from the PBGC or the U.S. Department of Labor under
ERISA; and as soon as possible and in any event within five (5) Business
Days after the Borrower or any Subsidiary knows or has reason to know that
any Reportable Event or Prohibited Transaction has occurred with respect to
any Plan or that the PBGC or the Borrower or any Subsidiary has instituted
or will institute proceedings under Title IV of ERISA to terminate any Plan
which in each case could reasonably be expected to have a Material Adverse
Effect, a certificate of the chief financial officer of the Borrower
setting forth the details as to such Reportable Event or Prohibited
Transaction or Plan termination and the action that the Borrower proposes
to take with respect thereto;
(k) REPORTS TO OTHER CREDITORS. Promptly after the furnishing
thereof, copies of any statement or report furnished to any other party
pursuant to the terms of any indenture, loan, or credit or similar
agreement and not otherwise required to be furnished to the Administrative
Agent and the Banks pursuant to any other clause of this Section;
<PAGE>
(l) NOTICE OF MATERIAL ADVERSE EFFECT. As soon as possible and
in any event within five (5) Business Days after an officer of the Borrower
has knowledge of the occurrence thereof, written notice of any matter that
could reasonably be expected to have a Material Adverse Effect;
(m) PROXY STATEMENTS, ETC. As soon as available, one copy of
each financial statement, report, notice or proxy statement sent by the
Borrower or any Subsidiary to its stockholders generally and one copy of
each regular, periodic, or special report, registration statement, or
prospectus filed by the Borrower or any Subsidiary with any securities
exchange or the Securities and Exchange Commission or any successor agency;
and
(n) GENERAL INFORMATION. Promptly, such other information
concerning the Borrower or any Subsidiary as the Administrative Agent or
any Bank may from time to time reasonably request.
Section 8.2. MAINTENANCE OF EXISTENCE; CONDUCT OF BUSINESS. The Borrower
will, and will cause each Subsidiary to, preserve and maintain (I) its corporate
existence (except as permitted by Section 9.3) and (II) all of its leases,
privileges, licenses, permits, franchises, qualifications, and rights that are
necessary or desirable in the ordinary conduct of its business. The Borrower
will, and will cause each Subsidiary to, conduct its business in an orderly and
efficient manner in accordance with good business practices.
Section 8.3. MAINTENANCE OF PROPERTIES. The Borrower will, and will
cause each Subsidiary to, maintain, keep, and preserve all of its material
properties necessary in the conduct of its business in good working order and
condition (exclusive of ordinary wear and tear).
Section 8.4. TAXES AND CLAIMS. The Borrower will, and will cause each
Subsidiary to, pay or discharge at or before maturity or before becoming
delinquent (A) all taxes, levies, assessments, and governmental charges imposed
on it or its income or profits or any of its property, and (B) all valid and
lawful claims for labor, material, and supplies, which, if unpaid, might become
a Lien upon any of its property; PROVIDED, however, that neither the Borrower
nor any Subsidiary shall be required to pay or discharge any tax, levy,
assessment, or governmental charge which (I) is being contested in good faith by
appropriate proceedings diligently pursued and for which adequate reserves have
been established or (II) does not exceed One Million Dollars ($1,000,000) in the
aggregate or in any individual case and will not, if left unpaid, result in a
Lien on the property of Borrower or any Subsidiary.
Section 8.5. INSURANCE. The Borrower will, and will cause each
Subsidiary to, maintain insurance with financially sound and reputable insurance
companies in such amounts and covering such risks as are usually carried by
corporations engaged in similar businesses and owning similar properties in the
same general areas in which the Borrower
<PAGE>
and the Subsidiaries operate, provided that in any event the Borrower will
maintain and cause each Subsidiary to maintain workmen's compensation insurance
(or alternate comparable coverage as required by law), property insurance,
comprehensive general liability insurance and products liability insurance
reasonably satisfactory to the Collateral Agent. Each general liability
insurance policy shall name the administrative agent as additional insured, each
insurance policy covering Collateral shall name the Collateral Agent as loss
payee and shall provide that such policy will not be canceled or materially
changed without thirty (30) days prior written notice to the Collateral Agent.
Section 8.6 INSPECTION RIGHTS; RECEIVABLE VERIFICATION. Upon reasonable
notice (which may be telephonic notice), at any other reasonable time and as
often as the Administrative Agent may request, Borrower will, and will cause
each Subsidiary to permit any authorized representative designated by the
Administrative Agent, together with any authorized representative of any Bank
desiring to accompany the Administrative Agent to (a) visit and inspect the
properties and financial records of the Borrower and the Subsidiaries (including
those records relating to the existence and condition of the accounts
receivable), (B) make extracts from such financial records, and (C) discuss the
affairs, finances and condition of the Borrower and the Subsidiaries with its
officers and employees and the borrower's independent public accountants. The
Administrative Agent shall also have the right to verify with any and all
customers of the Borrower and any Obligated Party the existence and condition of
the accounts receivable, as often as the Administrative Agent may require. When
no Default exists, the Administrative Agent shall provide the Borrower prior
notice of its intent to conduct such verifications with customers and shall
identify the customers to be contacted. When a Default exists, the
Administrative Agent may conduct verifications with customers without any notice
to the Borrower or any Obligated Party.
Section 8.7. KEEPING BOOKS AND RECORDS. The Borrower will, and will
cause each Subsidiary to, maintain proper books of record and account in which
full, true, and correct entries in conformity with GAAP shall be made of all
dealings and transactions in relation to its business and activities.
Section 8.8. COMPLIANCE WITH LAWS. The Borrower will, and will cause
each Subsidiary to, comply in all material respects with all applicable laws
(including, without limitation, all Environmental Laws), rules, regulations,
orders, and decrees of any Governmental Authority or Arbitrator.
Section 8.9. COMPLIANCE WITH AGREEMENTS. The Borrower will, and will
cause each Subsidiary to, comply in all material respects with all agreements,
contracts, and instruments binding on it or affecting its properties or
business.
Section 8.10. FURTHER ASSURANCES; COLLATERAL MATTERS; EXCEPTIONS TO
PERFECTION.
(a) Further Assurance and Exceptions to Perfection. The Borrower
will, and will cause each Subsidiary to, execute and deliver such further
documentation and take
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such further action as may be requested by the Administrative Agent to
carry out the provisions and purposes of the Loan Documents and to create,
preserve, and perfect the Liens of the Administrative Agent for the benefit
of itself and the Banks in the Collateral; provided that prior to the
occurrence of a Default neither Borrower nor any Granting Subsidiary shall
be required to:
(i) obtain any landlord or mortgage waivers or
subordinations agreements except (A) from the landlord of Borrower's
inventory distribution center in Louisville, Kentucky and (B) Borrower
must obtain by May 15,1998 an access agreement in a form satisfactory
to the Administrative Agent from the landlord of the Borrower's
corporate headquarters; or
(ii) obtain any documentation from any third party in
possession of any inventory or otherwise perfect or protect the
Collateral Agent's Lien therein as long as the aggregate book value of
such inventory of Borrower and the Granting Subsidiaries does not
exceed Two Million Five Hundred Thousand Dollars ($2,500,000) in the
aggregate; or
(iii) obtain the consent or authorization from any third
party who has entered into a reseller, volume licensing, maintenance
or similar agreement with Borrower or a Granting Subsidiary or who may
otherwise have intellectual property rights in any inventory of
Borrower or a Granting Subsidiary.
If a Default occurs, the Borrower shall notify the Administrative
Agent and shall take such action as the Administrative Agent may request to
perfect and protect the Liens of the Collateral Agent in the applicable
Collateral. If a Default has not occurred but the book value of inventory
of Borrower and the Granting Subsidiaries held by third parties exceeds Two
Million Five Hundred Thousand Dollars ($2,500,000) in the aggregate, then
the Borrower shall notify the Administrative Agent and shall take such
action as the Administrative Agent may request to perfect and protect the
Liens of the Collateral Agent in the inventory at each location where the
book value of the inventory at such location equals or exceeds Five Hundred
Thousand Dollars ($500,000).
(b) MATERIAL SUBSIDIARY PLEDGE. Upon the creation or acquisition of
any Material Subsidiary who is organized under the laws of the United
States or a State thereof or if any existing Subsidiary who is organized
under the laws of the United States or a State thereof becomes a Material
Subsidiary, the Borrower shall cause such Material Subsidiary to execute
and deliver a Guaranty, a Subsidiary Security Agreement and such other
documentation as the Administrative Agent may request to cause such
Material Subsidiary to evidence, perfect, or otherwise implement the
guaranty and security for repayment of the Obligations contemplated by a
Guaranty and Subsidiary Security Agreement. As used herein, "MATERIAL
SUBSIDIARY" means, at any date of determination, any Subsidiary (i) whose
consolidated net worth equals or exceeds five percent (5%) of the
consolidated net worth of the Borrower, or (ii) the book value of whose
total assets equals or exceeds five percent (5%) of the book value of the
total assets of Borrower and the Subsidiaries determined on a consolidated
basis, or (iii) whose revenue for the most recently completed Fiscal Year
equals or exceeds five percent (5%) of the revenue of Borrower and the
Subsidiaries determined on a consolidated basis for such Fiscal Year. In
calculating revenue under the foregoing clause (iii) for a Fiscal Year, if
a Subsidiary
<PAGE>
acquires the assets of a Target either directly or through a merger, the
revenue of the Target for the period during such Fiscal Year prior to the
acquisition shall be added to the revenue of the Borrower and such
Subsidiary for purposes of determining compliance with subsection 9.3 (iv)
(e). Borrower shall promptly advise the Administrative Agent when a
Material Subsidiary is created or acquired or if any existing Subsidiary
becomes a Material Subsidiary.
(c) BORROWER PLEDGE OF SUBSIDIARY STOCK. If any Material Subsidiary
owned directly by Borrower is created or acquired after the Closing Date,
the Borrower shall execute and deliver to the Administrative Agent an
amendment to the Borrower Pledge Agreement describing as collateral
thereunder the stock of or other ownership interests in the new Material
Subsidiary and the Borrower shall deliver the certificates representing
such stock or other interests to the Collateral Agent together with undated
stock or other powers duly executed in blank; provided, however, that with
respect to any Foreign Subsidiary, such Collateral shall include no more
than sixty-six and two-thirds percent (66 2/3%) of the outstanding stock or
other ownership interests of such Foreign Subsidiary. If Borrower has
pledged the stock of or other ownership interests in a Foreign Subsidiary
pursuant to the Prior Agreement but such Subsidiary is not a Material
Subsidiary, then Borrower shall have no obligation to cause any further
shares of or other ownership interests in such Foreign Subsidiary to be
pledged unless such Foreign Subsidiary becomes a Material Subsidiary.
Section 8.11. ERISA. The Borrower will, and will cause each Subsidiary
to, comply with all minimum funding requirements and all other requirements of
ERISA, if applicable, so as not to give rise to any liability which will have a
Material Adverse Effect.
ARTICLE 9
NEGATIVE COVENANTS
The Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Bank has any Revolving Commitment hereunder,
the Borrower will perform and observe the following negative covenants:
Section 9.1. DEBT. The Borrower will not, and will not permit any
Subsidiary to, incur, create, assume, or permit to exist any Debt, except:
(a) Debt to the Agents and Banks pursuant to the Loan Documents,
existing Debt described on Schedule 9.1 and any extensions, renewals or
refinancings of such existing Debt so long as (i) the principal amount of
such Debt after such renewal, extension or refinancing shall not exceed the
principal amount of such Debt which was outstanding immediately prior to
such renewal, extension or refinancing, (ii) such Debt shall not be secured
by any assets other than assets securing such Debt, if any, prior to such
renewal, extension or refinancing; and (iii) to the extent any such Debt is
<PAGE>
subordinated to the Obligations, such Debt must be subordinated to the
Obligations on substantially the same terms;
(b) Intercompany Debt owed by a Subsidiary to Borrower or owed
by a Subsidiary to its parent incurred in accordance with the restrictions
set forth in Section 9.5; PROVIDED that (i) the obligations of each obligor
of such Debt must be subordinated in right of payment to any liability such
obligor may have for the Obligations from and after such time as any
portion of the Obligations shall become due and payable (whether at stated
maturity, by acceleration or otherwise) and (ii) such Debt must be incurred
in the ordinary course of business and on terms customary for intercompany
borrowings among Borrower and the Subsidiaries or must be made on such
other terms and provisions as the Administrative Agent may reasonably
require;
(c) Debt (including Capital Lease Obligations) not to exceed
Five Million Dollars ($5,000,000.00) in the aggregate at any time
outstanding secured by purchase money liens permitted by Section 9.2;
(d) Guaranties incurred in the ordinary course of business with
respect to surety and appeal bonds, performance and return-of-money bonds,
and other similar obligations not exceeding at any time outstanding Four
Million Dollars ($4,000,000) in aggregate liability;
(e) Guarantees of (i) trade accounts payable owed by the
Subsidiaries and arising in the ordinary course of business and (ii) Debt
of Subsidiaries and Foreign Ventures; PROVIDED THAT: (A) the Debt
Guaranteed is otherwise permitted hereunder; (B) no Default exists or would
result from such Guarantee; (C) the sum of the aggregate outstanding
principal amount of the Debt of Foreign Subsidiaries and Foreign Ventures
Guaranteed (including without limitation, such Debt supported by letters of
credit issued for the account of Borrower or a Subsidiary) plus the
aggregate outstanding principal amount of the loans, advances, other
extensions of credit made to and investments and contributions in Foreign
Subsidiaries and Foreign Ventures by Borrower and the Subsidiaries
(including in all cases those outstanding on the Closing Date) minus the
aggregate amount of all loans, advances and other extensions of credit to,
and contributions and investments in, Software Spectrum Canada in an
aggregate amount at any time not to exceed the gross Dollar amount (such
Dollar amount being calculated based on the exchange rate for the exchange
of Canadian Dollars to Dollars as set forth in the Wall Street Journal, or
other publication acceptable to Administrative Agent, as of the date of
determination) of the accounts receivables of Software Spectrum Canada
(such sum, the "FOREIGN SUBSIDIARY OBLIGATIONS") shall not at any time
exceed the Foreign Subsidiary Limit after giving effect to such Guarantee;
and (D) Borrower shall have provided the Administrative Agent evidence of
its compliance with the foregoing clause (c). The term "FOREIGN SUBSIDIARY
LIMIT" means at any time a Dollar amount equal to the sum of (i) Thirty
Million Dollars ($30,000,000) plus (ii) Ten Million Dollars ($10,000,000),
but the Foreign Subsidiary Limit shall be increased by this clause (ii)
only if at the time of determination and after giving effect to the
Guarantee, loan, advance, other extension of credit, investment or
contribution in question, the average daily
<PAGE>
balance of the sum of Borrower's cash, cash equivalents and the Borrowing
Availability for the preceding thirty (30) days and calculated as if the
guarantee, loan, advance, other extension of credit, investment or
contribution in question occurred on the first day of said period, equals
or exceeds Fifteen Million Dollars ($15,000,000);
(f) Debt arising in connection with foreign exchange or currency
hedging transactions entered into in the ordinary course of business to
enable Borrower or a Subsidiary to limit the market risk of holding
currency in either the cash or futures market;
(g) Debt arising in connection with interest rate swap, cap,
collar or similar agreements entered into in the ordinary course of
business to fix or limit Borrower's or any Subsidiaries' interest expense;
(h) Debt of Subsidiaries the principal amount of which is
secured in full by Letters of Credit;
(i) Debt of Borrower which is subordinated to the Obligations on
terms and conditions that the Required Banks have determined on a
reasonable basis to be satisfactory to them and with the approval of such
terms and conditions not to be unreasonably withheld; provided no Default
exists or would result therefrom as of the date of the incurrence thereof;
(j) Debt, in addition to that permitted by Subsection 9.1(c),
incurred to finance the purchase of substantially all the assets or stock
of another Person in, or assumed in connection with, a transaction
otherwise permitted hereby; provided, that (i) the aggregate amount of such
Debt incurred or assumed in any Fiscal Year shall not exceed Ten Million
Dollars ($10,000,000), (ii) no Default exists or would result therefrom as
of the date of the incurrence thereof, and (iii) the Incurrence Test is
satisfied as of the date of the incurrence thereof;
(k) Trade accounts payable arising in the ordinary course of
business that are not past due by more than one hundred twenty (120) days
or that are past due by more than one hundred twenty (120) days but are
being contested in good faith by appropriate proceedings diligently
pursued;
(l) Unsecured Debt, in addition to the Debt permitted by clauses
(a) through (k) of this section 9.1, incurred to finance working capital
requirements and owed to key vendors; provided that (A) the aggregate
amount of the Debt incurred under the permissions of this clause (l) shall
not exceed Twenty Million Dollars ($20,000,000) at any time outstanding;
(B) as of the date of the incurrence of any Debt under this clause (l), no
Default exists or would result therefrom; and (C) as of the date of the
incurrence of
<PAGE>
any Debt under this clause (l), the Incurrence Test is satisfied and the
Borrower shall have provided the Administrative Agent evidence thereof; and
(m) Unsecured Debt with overnight or other short term
maturities, in addition to the debt permitted by clauses (a) through (l) of
this Section 9.1, incurred to finance working capital requirements and owed
to commercial banks (the "SHORT TERM BANK DEBT"); provided that (A) the
aggregate amount of the Short Term Bank Debt incurred under the permissions
of this clause (m) shall not exceed Five Million Dollars ($5,000,000) at
any time outstanding and (B) as of the date of the incurrence of any Debt
under this clause (m), no Default exists or would result therefrom.
The term "INCURRENCE TEST" means, as of any date and with respect to the
incurrence of any Debt, that as of such date the ratio of the Borrower's total
Debt (excluding trade accounts payable) to its Pro Forma EBITDA for the most
recently completed twelve months ending prior to the calculation of the
Incurrence Test is equal to or less than 4.75 to 1.0, calculated as of the
proposed date of the incurrence of the Debt in question and including in "total
Debt" the Debt to be incurred. The term "PRO FORMA EBITDA" means, for any
period, the total of the following calculated without duplication for such
period: (a) Borrower's EBITDA plus (b) if calculated with respect to Debt to be
incurred under clause (j) of this Section 9.1 or after any such Debt is
incurred, the EBITDA of the Person to be or who has been acquired or whose
assets are to be or have been acquired or, as applicable, the EBITDA of such
Person attributable to the assets to be or which have been acquired, but, in
each case only to the extent such EBITDA can be established in a manner
satisfactory to the Administrative Agent based on financial statements prepared
on a basis consistent with GAAP.
Section 9.2 LIMITATION ON LIENS AND RESTRICTIONS ON SUBSIDIARIES. The
Borrower will not, and will not permit any Subsidiary to, incur, create, assume,
or permit to exist any Lien upon any of its property, assets, or revenues,
whether now owned or hereafter acquired, except the following, none of which
shall encumber the Collateral other than those Liens described in clauses (b),
(d), (e) AND (h):
(a) Existing Liens disclosed on Schedule 9.2 hereto and any
extensions of the period of existence thereof;
(b) Liens in favor of the Collateral Agent for the benefit of
itself and the Banks pursuant to the Loan Documents;
(c) Encumbrances consisting of minor easements, zoning
restrictions, or other restrictions on the use of real property that do not
(individually or in the aggregate) materially affect the value of the
assets encumbered thereby or materially impair the ability of the borrower
or the Subsidiaries to use such assets in their respective businesses, and
none of which is violated in any material respect by existing or proposed
structures or land use;
<PAGE>
(d) Liens (other than Liens relating to Environmental
Liabilities or ERISA) for taxes, assessments, or other governmental charges
(i) that are not delinquent, (ii) which secure obligations in an amount,
when added to the amounts secured by the liens described in the first
phrase of clause (e) (ii) below, is less than One Million Dollars
($1,000,000), in the aggregate or in any individual case, as long as the
holder of such Lien has not taken any action which is not stayed or
enjoined to enforce such Lien or (iii) which are being contested in good
faith and for which adequate reserves have been established;
(e) Liens of mechanics, materialmen, warehousemen, carriers,
landlords, or other similar statutory Liens securing obligations that are
incurred in the ordinary course of business and which (i) secure
obligations that are not yet due, (ii) are being contested in good faith
and for which adequate reserves have been established or (iii) which secure
obligations in an amount, when added to the amounts secured by the Liens
described in the first phrase of clause (d) (ii) above, is less than One
Million Dollars ($1,000,000), in the aggregate or in any individual case,
as long as the holder of such Lien has not taken any action which is not
stayed or enjoined to enforce such Lien;
(f) Liens resulting from good faith deposits to secure payments
of workmen's compensation or other social security programs or to secure
the performance of tenders, statutory obligations, surety and appeal bonds,
bids, and contracts (other than for payment of Debt);
(g) LIens for purchase money obligations and Capital Lease
Obligations which do not encumber the Collateral; PROVIDED that: (i) the
Debt secured by any such Lien is permitted under Section 9.1; (ii) any such
Lien encumbers only the asset so purchased; (iii) no Default exists or
would result as of the date the Lien is created; and (iv) the Debt secured
thereby does not exceed an amount equal to the purchase price of the asset
purchased;
(h) Liens related to any attachment or judgment not constituting
an Event of default; and
(i) Liens arising from filing UCC financing statements regarding
leases permitted by this Agreement.
Neither the Borrower nor any Subsidiary shall enter into or assume any agreement
(other than the Loan Documents) prohibiting the creation or assumption of any
Lien upon its properties or assets, whether now owned or hereafter acquired;
PROVIDED that, in connection with the creation of purchase money Liens, the
Borrower or the Subsidiary may agree that it will not permit any other Liens to
encumber the asset subject to such purchase money Lien. Except as provided
herein, the Borrower will not and will not permit any Subsidiaries directly or
indirectly to create or otherwise cause or suffer to exist or become effective
any consensual encumbrance or restriction of any kind on the ability of any
Subsidiary to: (1) pay dividends or make any other distribution on any of such
Subsidiary's capital stock owned by the Borrower or any Subsidiary;
<PAGE>
(2) subject to subordination provisions, pay any Debt owed to the Borrower or
any other Subsidiary; (3) make loans or advances to the Borrower or any other
Subsidiary; or (4) transfer any of its property or assets to the Borrower or any
other Subsidiary.
Section 9.3. MERGERS, ETC. The Borrower will not, and will not permit
any Subsidiary to, become a party to a merger or consolidation, or purchase or
otherwise acquire all or a substantial part of the business or assets of any
Person or any shares or other evidence of beneficial ownership of any Person, or
wind-up, dissolve, or liquidate itself; PROVIDED THAT, (i) the Borrower and the
Subsidiaries may acquire assets or shares or other evidence of beneficial
ownership of a Person in accordance with the restrictions set forth in Section
9.5; (ii) any Subsidiary may merge into or consolidate with Borrower or any
other Subsidiary if the surviving Person assumes the obligations of the
applicable Subsidiary under the Loan Documents and is solvent as contemplated
under Section 7.20 hereunder after giving effect to such merger or
consolidation, except that any domestic granting Subsidiary may not be merged
into or consolidated with a foreign Subsidiary; (iii) the Borrower or any
Subsidiary (the "ACQUIRING COMPANY") may acquire all or substantially all of the
assets of any Subsidiary (a "TRANSFERRING SUBSIDIARY") if the acquiring company
assumes all the Transferring Subsidiary's liabilities, including without
limitation, all liabilities of the Transferring Subsidiary under the loan
documents to which it is a party and if all of the capital stock of the
Transferring Subsidiary is owned directly or indirectly by the Acquiring Company
(and, following such assignment and assumption, such Transferring Subsidiary may
wind up, dissolve and liquidate); and (iv) Borrower or a Subsidiary may acquire
(directly or through a merger in which the borrower or Subsidiary is the
surviving Person) one hundred percent (100%) of the equity interests issued by a
Person or all or a substantial part of a Person's assets (a Person who is, or
whose assets are, to be acquired under this subsection 9.3 (iv), herein a
"TARGET") if such transaction is approved by the required banks (with the
determination by a bank whether to approve such a transaction not to be
unreasonably withheld) or if all of the following conditions are satisfied:
(a) No Default exists or would result therefrom;
(b) The Target is involved in the type of business activities
described in Section 9.9;
(c) If the proposed acquisition is an acquisition of the stock of a
Target, the acquisition will be structured so that the Target will become a
wholly-owned Subsidiary directly owned by Borrower. If the proposed
acquisition is an acquisition of assets, the acquisition will be structured
so that Borrower or a wholly-owned Subsidiary directly owned by Borrower
will acquire all or substantially all of the assets of the Target;
(d) The Purchase Price for the proposed acquisition does not exceed
Five Million Dollars ($5,000,000) and the sum of the Purchase Price for
the proposed acquisition plus the aggregate amount of the Purchases Prices
paid in the same Fiscal Year for all other acquisitions under the
permissions of this Section 9.3 does not exceed Ten Million Dollars
($10,000,000) (the term "PURCHASE PRICE" means, as of any date of
determination and with respect to a proposed acquisition, the purchase
price to be paid for the Target or its assets, including all cash
consideration paid (whether classified as purchase price, noncompete or
consulting payments or otherwise), the Dollar amount of
<PAGE>
all Debt to be paid or assumed by the purchaser and the Dollar value of all
other assets to be transferred by the purchaser in connection with such
acquisition to the seller (including any stock issued to the seller) all
valued in accordance with the applicable purchase agreement).
(e) The obligations arising under subsection 8.10(b) shall be
fulfilled simultaneously with the closing of the acquisition in question.
Section 9.4. RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS. The
Borrower will not and will not permit any Subsidiary to directly or indirectly
declare, order, pay, make or set apart any sum for (a) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
of the Borrower or any Subsidiary now or hereafter outstanding, except a
dividend payable solely in shares of stock; (b) any redemption, conversion,
exchange, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class of stock
of the Borrower or any Subsidiary now or hereafter outstanding; or (c) any
payment made to retire, or to obtain the surrender of, any outstanding warrants,
options, or other rights to acquire shares of any class of stock of the Borrower
or any of its Subsidiaries now or hereafter outstanding; EXCEPT THAT:
(i) Subsidiaries of the Borrower may make, declare, and pay
dividends and make other distributions to Borrower or to other
Subsidiaries with respect to their common or ordinary stock in the
ordinary course of business and to allow Borrower to pay dividends
permitted hereunder;
(ii) prior to January 31, 1999, Borrower may repurchase its
capital stock in one or more transactions pursuant to its stock
repurchase program in existence on the Closing Date if as the time of
each such purchase and after giving effect thereto no Default exists
or would result therefrom and the aggregate purchase price paid for
all such repurchases since the Closing Date (including the repurchase
in question) shall not exceed One Million Seven Hundred Fifty Thousand
Dollars ($1,750,000); and
(iii) Borrower may pay cash dividends or repurchase its
capital stock in excess of the amount set forth in clauses (ii) above;
provided (1) after giving effect to the dividends paid or the stock
repurchased, no Default exists or would result therefrom, (2) after
giving effect to the dividends paid or the stock repurchased, the
average daily balance of the sum of Borrower's cash, cash equivalents
and the Borrowing Availability for the thirty (30) days preceding the
date of payment and calculated as if the dividend had been paid or the
stock repurchased on the first (1st) day of such period equals or
exceeds Fifteen Million Dollars ($15,000,000), and (3) after giving
effect to the dividends paid or the stock repurchased, the aggregate
amount dividended plus the aggregate purchase price of the stock
repurchased under this clause (iii) in any twelve (12) month period
shall not exceed an amount equal to fifty percent (50%) of the Excess
Cash Flow for the most recently completed twelve (12) month period
ended prior to the date the dividend is paid or the stock repurchased.
For purposes of the foregoing, "EXCESS CASH FLOW" means, for any
twelve (12) month period, the total of the following for the Borrower
and its Subsidiaries on a consolidated basis, each calculated for such
period (without duplication): (a) EBITDA; LESS (b) any
<PAGE>
income or franchise taxes included in the determination of Net Income but
excluding any deferred tax so included; LESS (c) the unfinanced portion of
Capital Expenditures (including those funded with advances under the
Revolving Loan); LESS (d) scheduled amortization of Debt actually paid;
LESS (e) Interest Expense; LESS (f) dividends and other distributions paid
on the capital stock of the Borrower; LESS (g) all repurchases by Borrower
of its capital stock.
Section 9.5. INVESTMENTS. The Borrower will not, and will not permit any
Subsidiary to, make or permit to remain outstanding any advance, loan, other
extension of credit, or capital contribution to or investment in any Person, or
purchase or own any stock, bonds, notes, debentures, or other securities of any
Person, or be or become a joint venturer with or partner of any Person, except:
(a) readily marketable direct obligations of the United States
of America or any agency thereof with maturities of one year or less from
the date of acquisition and any other securities issued or guaranteed as to
timely payment by any governmental agency of the United States of America;
(b) fully insured certificates of deposit with maturities of one
year or less from the date of acquisition issued by either Agent or any
commercial bank operating in the United States of America having capital
and surplus in excess of Five Billion Dollars ($5,000,000,000);
(c) commercial paper or bonds of a domestic issuer if at the
time of purchase such paper or bonds are rated in one of the two highest
rating categories of Standard and Poor's Corporation or Moody's Investors
Service, Inc.;
(d) loans and advances to employees for business expenses
incurred in the ordinary course of business;
(e) existing investments described on Schedule 9.5 hereto;
(f) loans, advances and other extensions of credit to Domestic
Granting Subsidiaries made in accordance with the restrictions set forth in
Section 9.1 (b); PROVIDED THAT, at the time any such loan, advance or other
extension of credit is made, no Default exists or would result therefrom;
(g) loans, advances and other extensions of credit to Foreign
Subsidiaries and Foreign Ventures made in accordance with the restrictions
set forth in Section 9.1(b); PROVIDED THAT, (i) at the time of any such
advance, loan or other extension of credit, no Default exists or would
result therefrom, (ii) after giving effect to the loan, advance or
extension of credit, the Foreign Subsidiary Obligations shall at no time
exceed the
<PAGE>
Foreign Subsidiary Limit and (iii) Borrower shall have provided the
Administrative Agent evidence of its compliance with clause (ii) preceding
on the date of the proposed loan, advance or other extension of credit;
(h) capital contributions and investments in Domestic Granting
Subsidiaries as long as at the time a capital contribution or investment is
made, no Default exists or would result therefrom and Borrower complies
with its obligations under Section 8.10 hereof and under Section 2.4 of the
Borrower Pledge Agreement;
(i) capital contributions and investments in Foreign Subsidiaries
and Foreign Ventures; PROVIDED THAT, (i) at the time any such capital
contribution or investment is made, no Default exists or would result
therefrom; (ii) after giving effect to such capital contribution or
investment, the Foreign Subsidiary Obligations shall not exceed the Foreign
Subsidiary Limit; (iii) Borrower complies with its obligations under
Section 8.10 hereof and under Section 2.4 of the Borrower Pledge Agreement;
and (iv) Borrower shall have provided the Administrative Agent evidence of
its compliance with clause (ii) preceding on the date of the proposed
equity investment;
(j) investments by Foreign Subsidiaries which are held or made
outside the United States of America of the same or similar quality as the
investments described in clauses (a), (b) and (c) of this Section 9.5;
(k) Guarantees permitted by Section 9.1;
(l) purchases by Borrower of its capital stock permitted by Section
9.4; and
(m) the acquisition of all the shares or other beneficial ownership
of a Person in accordance with subsection 9.3(iv).
Section 9.6. LIMITATION ON ISSUANCE OF CAPITAL STOCK. Except as permitted
by Section 9.4 and except for issuances, sales, assignments or other disposition
to Borrower, or to a Subsidiary which is the parent of the issuer, the borrower
will not permit any Subsidiary to, at any time issue, sell, assign, or otherwise
dispose of (a) any of its capital stock, (b) any securities exchangeable for or
convertible into or carrying any rights to acquire any of its capital stock, or
(c) any option, warrant, or other right to acquire any of its capital stock.
Section 9.7. TRANSACTIONS WITH AFFILIATES. The Borrower will not, and
will not permit any Subsidiary to, enter into any transaction, including,
without limitation, the purchase, sale, or exchange of property or the rendering
of any service, with any Affiliate of the Borrower or such Subsidiary, except in
the ordinary course of and pursuant to the reasonable requirements of the
Borrower's or such Subsidiary's business and upon fair and reasonable terms no
less
<PAGE>
favorable to the Borrower or such Subsidiary than would be obtained in a
comparable arms-length transaction with a Person not an Affiliate of the
Borrower or such Subsidiary.
Section 9.8 DISPOSITION OF ASSETS. The Borrower will not, and will not
permit any Subsidiary to, sell, lease, assign, transfer, or otherwise dispose of
any of its assets, except (a) dispositions of inventory in the ordinary course
of business; (b) dispositions of unnecessary, obsolete or worn out equipment;
(c) the disposition of assets which are simultaneously with such disposition
leased back if no Default exists or would result therefrom and the aggregate
book value of the assets disposed of under the permissions of this clauses (c)
does not exceed Five Hundred Thousand Dollars ($500,000) in the aggregate during
any twelve (12) month period; (d) the sale by Software Spectrum Canada to
Borrower for fair consideration of Software Spectrum Canada's accounts
receivable; and (e) other dispositions of assets (other than accounts
receivable) for fair consideration if no default exists or would result
therefrom and the aggregate book value of the assets disposed of does not exceed
Five Hundred Thousand Dollars ($500,000) in the aggregate during any twelve (12)
month period.
Section 9.9. LINES OF BUSINESS. The Borrower will not, and will not
permit any Subsidiary to, engage in any line or lines of business activity
other than the businesses in which they are engaged on the date hereof and
any businesses which are similar or related to the businesses in which they
are engaged on the date hereof.
Section 9.10. PREPAYMENT OF DEBT. The Borrower will not, and will not
permit any Subsidiary to prepay any Debt other than (a) the Obligations; (b)
Debt of Foreign Subsidiaries Guaranteed by Borrower; and (c) Debt, other than
Debt of the types described in clauses (a) and (b) of this Section 9.10;
provided that the aggregate amount of such other Debt prepaid in any Fiscal Year
shall not exceed Five Hundred Thousand Dollars ($500,000).
Section 9.11. SALE LEASEBACK. The Borrower will not, and will not permit
any Subsidiary to, enter into any arrangement with any Person pursuant to which
it leases from such Person real or personal property that has been or is to be
sold or transferred, directly or indirectly, by it to such Person, excluding
however, property sold pursuant to the permissions of subsection 9.8 (c).
ARTICLE 10.
FINANCIAL COVENANTS
The Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Bank has any Revolving Commitment hereunder,
the Borrower will perform and observe the following financial covenants:
Section 10.1. CONSOLIDATED NET WORTH. The Borrower will at all times
maintain the sum of (a) all amounts which, in conformity with GAAP, would be
included as stockholders'
<PAGE>
equity on a consolidated balance sheet of the Borrower and the Subsidiaries;
MINUS (b) the amount at which shares of capital stock of the Borrower is
contained among the assets on the balance sheet of the Borrower and the
Subsidiaries in an amount not less than Seventy-Two Million Dollars
($72,000,000).
Section 10.2. INTEREST COVERAGE. Borrower shall not permit the ratio of
(a) the sum of the Borrower's EBITDA minus the unfinanced portion of all Capital
Expenditures (including all Capital Expenditures financed with proceeds of
Revolving Loans) to (b) Interest Expense, all calculated for the four (4) Fiscal
Quarter period ending on the last day of each Fiscal Quarter to be less than (i)
1.50 to 1.00 as of April 30, 1998 and July 31, 1998; (ii) 1.40 to 1.00 as of
October 31, 1998 and January 31, 1999; and (iii) 1.50 to 1.00 as of each Fiscal
Quarter end ending after January 31, 1999. As used herein the following terms
have the following meanings:
"CAPITAL EXPENDITURES" means, for any period, all expenditures of the
Borrower and the Subsidiaries which are classified as capital expenditures
in accordance with GAAP including all such expenditures associated with
Capital Lease Obligations.
"EBITDA" means, for any period and any Person, the total of the
following each calculated without duplication on a consolidated basis for
such period: (a) Net Income; PLUS (b) any provision for (or less any
benefit from) income or franchise taxes included in determining Net Income;
PLUS (c) Interest Expense deducted in determining Net Income; PLUS (d)
amortization and depreciation expense deducted in determining Net Income.
"INTEREST EXPENSE" means, for any period, the aggregate of all
interest paid or accrued by Borrower and the Subsidiaries, including all
interest, fees and costs payable with respect to the Obligations or other
Debt and the interest portion of Capital Leases Obligations, all as
determined in accordance with GAAP on a consolidated basis.
"NET INCOME" means, for any period and any Person, such Person's
consolidated net income (or loss) determined in conformity with GAAP, but
excluding: (a) the income of any other Person (other than its subsidiaries)
in which such Person or any of its subsidiaries has an ownership interest,
unless received by such Person or its subsidiary in a cash distribution;
(b) any after-tax gains attributable to fixed asset dispositions; provided
that, in connection with any fixed asset disposition in the ordinary course
of business, if the gain realized therefrom is in an amount equal to or
less than Fifty Thousand Dollars ($50,000), then such gain shall not be
excluded from the calculation of net income during such period but if the
gain from any such fixed asset disposition exceeds Fifty Thousand Dollars
($50,000), the total amount of the related after-tax gain shall be excluded
from the calculation of net income; and (c) to the extent not included in
clauses (a) and (b) above, any after-tax extraordinary or non-cash gains.
<PAGE>
Section 10.3. CAPITAL EXPENDITURE LIMITS. The Borrower shall not permit
the aggregate amount of all Capital Expenditures (a) for the Fiscal Year ended
April 30, 1998 to exceed Ten Million Dollars ($10,000,000.00); and (b) for each
Fiscal Year thereafter to exceed Twelve Million Dollars ($12,000,000.00) per
Fiscal Year.
Section 10.4. NET INCOME. The Borrower shall not permit its Net Income
(a) to be less than a negative Three Million Dollars ($-3,000,000) in the
aggregate for any two consecutive Fiscal Quarters and (b) to be less than a
negative Two Million Five Hundred Thousand Dollars ($-2,500,000) for any Fiscal
Quarter.
ARTICLE 11.
DEFAULT
Section 11.1. EVENTS OF DEFAULT. Each of the following shall be deemed an
"Event of Default":
(a) The Borrower shall fail to pay (i) when due any principal,
interest, fees or Reimbursement Obligations under any Loan Document or any
part thereof; and (ii) within five (5) Business Days of the date due any
other Obligation or any part thereof.
(b) Any representation, warranty, or certification made or
deemed made by the Borrower or any Obligated Party (or any of their
respective officers) in any Loan Document or in any certificate, report,
notice, or financial statement furnished at any time in connection with any
Loan Document shall be false, misleading, or erroneous in any material
respect when made or deemed to have been made.
(c) The Borrower shall fail to perform, observe, or comply
with any covenant, agreement, or term contained in clauses (a) through (f)
and (i) of Section 8.1, clause (i) of the first sentence of Section 8.2,
Sections 8.5 or 8.6, Article 9 or Article 10 of this Agreement or Sections
2.4 or 2.5 of the Borrower Pledge Agreement or Article IV of the Borrower
Security Agreement or of any section of any Lockbox Agreement. Any
Domestic Granting Subsidiary shall fail to perform, observe, or comply with
any covenant, agreement, or term contained in Section IV of the Subsidiary
Security Agreement or of any section of any Lockbox Agreement to which it
is a party or paragraph 11 of the Guaranty to which it is a party.
(d) The Borrower or any Obligated Party shall fail to perform,
observe, or comply with any covenant, agreement, or term contained in any
Loan Document (other than covenants to pay the Obligations and the
covenants described in subsection 11.1(c)) and such failure shall continue
for a period of fifteen (15) Business Days after the earlier of (i) the
date the Administrative Agent or any Bank provides the Borrower with notice
<PAGE>
thereof or (ii) the date the Borrower should have notified the
Administrative Agent thereof in accordance with subsection 8.1(h).
(e) The Borrower, any Subsidiary, or any Obligated Party shall
(i) apply for or consent to the appointment of, or the taking of possession
by, a receiver, custodian, trustee, examiner, liquidator, or the like of
itself or of all or a substantial part of its property, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a voluntary
case under the United States Bankruptcy Code (as now or hereafter in
effect, the "Bankruptcy Code"), (iv) institute any proceeding or file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, liquidation, dissolution, winding-up, or
composition or readjustment of debts, (v) fail to controvert in a timely
and appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Bankruptcy Code, (vi) admit in
writing its inability to, or be generally unable to pay its debts as such
debts become due, or (vii) take any corporate action for the purpose of
effecting any of the foregoing.
(f) A proceeding or case shall be commenced, without the
application, approval, or consent of the Borrower, any Subsidiary, or any
Obligated Party, in any court of competent jurisdiction, seeking (i) its
reorganization, liquidation, dissolution, arrangement, or winding-up, or
the composition or readjustment of its debts, (ii) the appointment of a
receiver, custodian, trustee, examiner, liquidator, or the like of the
Borrower or such Subsidiary or Obligated Party or of all or any substantial
part of its property, or (iii) similar relief in respect of the Borrower or
such Subsidiary or Obligated Party under any law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or adjustment of
debts, and such proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall be
entered and continue unstayed and in effect, for a period of sixty (60) or
more days, or an order for relief against the Borrower, any Subsidiary, or
any Obligated Party shall be entered in an involuntary case under the
Bankruptcy Code.
(g) The Borrower, any Subsidiary, or any Obligated Party shall
fail to discharge within a period of thirty (30) days after the
commencement thereof any attachment, sequestration, forfeiture, or similar
proceeding or proceedings involving an aggregate amount in excess of One
Million Dollars ($1,000,000), against any of its assets or properties.
<PAGE>
(h) A final judgment or judgments for the payment of money in
an amount in the aggregate in excess of One Million Dollars ($1,000,000)
shall be rendered by a court or courts against the Borrower, any
Subsidiaries, or any Obligated Party and the same shall not be discharged
(or provision shall not be made for such discharge), or a stay of execution
thereof shall not be procured, within thirty (30) days from the date of
entry thereof, and the Borrower or the relevant Subsidiary or Obligated
Party shall not, within said period of thirty (30) days, or such longer
period during which execution of the same shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such appeal.
(i) The Borrower, any Subsidiary, or any Obligated Party shall
fail to pay when due any principal of or interest on any Debt (excluding
accounts payable permitted by clause (k) of Section 9.1) if the aggregate
principal amount of the affected Debt equals or exceeds One Million Dollars
($1,000,000) (other than the Obligations), or the maturity of any such Debt
shall have been accelerated, or any such Debt shall have been required to
be prepaid prior to the stated maturity thereof or any event shall have
occurred with respect to any such Debt that permits (or, with the giving of
notice or lapse of time or both, would permit) any holder or holders of
such Debt or any Person acting on behalf of such holder or holders to
accelerate the maturity thereof or require any such prepayment.
(j) Any Loan Document shall cease to be in full force and
effect or shall be declared null and void or the validity or enforceability
thereof shall be contested or challenged by the Borrower, any Subsidiary,
or any Obligated party or the Borrower or any Obligated Party shall deny
that it has any further liability or obligation under any of the Loan
Documents, or any lien or security interest created by the Loan Documents
shall for any reason (other than the negligence of the Agents or the
release thereof in accordance with the Loan Documents) cease to be a valid,
first priority perfected security interest in and lien upon any of the
Collateral purported to be covered thereby.
(k) Any of the following events shall occur or exist with
respect to the Borrower or any ERISA Affiliate: (i) any Prohibited
Transaction involving any Plan; (ii) any Reportable Event with respect to
any Plan; (iii) the filing under Section 4041 of ERISA of a notice of
intent to terminate any Plan or the termination of any Plan; (iv) any event
or circumstance that might constitute grounds entitling the PBGC to
institute proceedings under Section 4042 of ERISA for the termination of,
or for the appointment of a trustee to administer, any Plan, or the
institution by the PBGC of any such proceedings; or (v) complete or partial
withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer Plan or
the reorganization, insolvency, or termination of any Multiemployer Plan;
and in each case above, such event or condition, together with all other
events or conditions, if any, have subjected or could in the reasonable
opinion of Required Banks subject the Borrower to any tax, penalty, or
other liability to a Plan, a Multiemployer Plan, the PBGC, or otherwise (or
any combination thereof) which in the aggregate exceed or could reasonably
be expected to exceed One Million Dollars ($1,000,000).
<PAGE>
(l) A change shall occur in the financial condition of
Borrower, any of the Subsidiaries or in the value of the Collateral, which
does, or would reasonably be expected to, have a Material Adverse Effect.
Section 11.2. REMEDIES. If any Event of Default shall occur and be
continuing, the administrative agent may (and if directed by Required Banks,
shall) do any one or more of the following:
(a) ACCELERATION. By notice to the Borrower, declare all
outstanding principal of and accrued and unpaid interest on the Revolving
Notes and all other amounts payable by the Borrower under the Loan
Documents immediately due and payable, and the same shall thereupon become
immediately due and payable, without further notice, demand, presentment,
notice of dishonor, notice of acceleration, notice of intent to accelerate,
protest, or other formalities of any kind, all of which are hereby
expressly waived by the Borrower.
(b) TERMINATION OF REVOLVING COMMITMENTS. Terminate the
Revolving Commitments, including, without limitation, the obligation of the
administrative agent to issue Letters of Credit, without notice to the
Borrower.
(c) JUDGMENT. Reduce any claim to judgment.
(d) FORECLOSURE. Direct the Collateral Agent to foreclose or
otherwise enforce any Lien granted to the Collateral Agent for the benefit
of itself and the banks to secure payment and performance of the
obligations in accordance with the terms of the Loan Documents.
(e) RIGHTS. Exercise (or direct the Collateral Agent to
exercise) any and all rights and remedies afforded by the laws of the State
of Texas or any other jurisdiction, by any of the Loan Documents, by
equity, or otherwise.
Provided, however, that upon the occurrence of an Event of Default under
subsection 11.1(a), (e) or (f), the Revolving Commitment of all of the Banks
shall automatically terminate (including, without limitation, the obligation of
the Administrative Agent to issue Letters of Credit), and the outstanding
principal of and accrued and unpaid interest on the Revolving Notes and all
other amounts payable by the Borrower under the Loan Documents shall thereupon
become immediately due and payable without notice, demand, presentment, notice
of dishonor, notice of acceleration, notice of intent to accelerate, protest, or
other formalities of any kind, all of which are hereby expressly waived by the
Borrower.
Section 11.3. CASH COLLATERAL. If an Event of Default shall have
occurred and be continuing the Borrower shall, if requested by the
Administrative Agent or Required Banks,
<PAGE>
pledge to the collateral agent as security for the obligations an amount in
immediately available funds equal to the then outstanding letter of
credit liabilities, such funds to be held in the collateral account at the
collateral agent without any right of withdrawal by the borrower.
Section 11.4. PERFORMANCE BY THE AGENTS. If the borrower shall fail to
perform any covenant or agreement in accordance with the terms of the loan
documents, either or both of the agents may, at the direction of required
banks, perform or attempt to perform such covenant or agreement on behalf of
the borrower. in such event, the borrower shall, at the request of either
agent, promptly pay any amount expended by either of the agents or the banks
in connection with such performance or attempted performance to such agent at
the principal office, together with interest thereon at the applicable
default rate from and including the date of such expenditure to but excluding
the date such expenditure is paid in full. notwithstanding the foregoing, it
is expressly agreed that neither agent nor any bank shall have any liability
or responsibility for the performance of any obligation of the borrower under
any loan document. the collateral agent may be obligated to pay certain
amounts to the financial institutions party to the lockbox agreements from
time to time, including without limitations, fees owed to such financial
institutions arising from their lock box and other deposit account services
and amounts sufficient to reimburse such financial institutions for the
amount of any item deposited in the related account which is returned unpaid.
in the event the collateral agent is required to pay any such amounts, the
collateral agent shall notify the borrower and the borrower shall promptly
pay any amount so expended by the collateral agent to the collateral agent
together with interest at the default rate from and including the date of
such expenditure to but excluding the date that such expenditure is paid in
full and if the borrower fails to make such payment, administrative agent
shall have the option of automatically making a revolving loan in the amount
so expended as a base rate account.
Section 11.5. SETOFF. If an event of default shall have occurred and
be continuing, each bank is hereby authorized at any time and from time to
time, without notice to the borrower (any such notice being hereby expressly
waived by the borrower), to set off and apply any and all deposits (general,
time, demand, provisional, or final) at any time held and other indebtedness
at any time owing by such bank to or for the credit or the account of the
borrower against any and all of the obligations, irrespective of whether or
not the administrative agent or such bank shall have made any demand under
such loan documents and although such obligations may be unmatured. each
bank agrees promptly to notify the borrower (with a copy to the
administrative agent) after any such setoff and application; provided, that
the failure to give such notice shall not affect the validity of such setoff
and application. the rights and remedies of each bank hereunder are in
addition to other rights and remedies (including, without limitation, other
rights of setoff) which such bank may have.
<PAGE>
Section 11.6. CONTINUANCE OF DEFAULT. For purposes of all Loan
Documents, a default shall be deemed to have continued and exist until the
Administrative Agent shall have actually received evidence which it in good
faith deems satisfactory that such Default shall have been remedied.
ARTICLE 12.
THE AGENTS
Section 12.1. APPOINTMENT OF ADMINISTRATIVE AGENT; POWERS. Each Bank
hereby appoints and authorizes The Chase Manhattan Bank to act as its
Administrative Agent hereunder and under the other Loan Documents with such
powers as are specifically delegated to the Administrative Agent by the terms
of the Loan Documents, together with such other powers as are reasonably
incidental thereto.
Section 12.2. APPOINTMENT OF COLLATERAL AGENT; POWERS. Each Bank
hereby appoints and authorizes Chase Bank of Texas, National Association
(formerly known as Texas Commerce Bank National Association) to act as its
Collateral Agent hereunder and under the other Loan Documents (and hereby
continues the agency created under the Prior Agreement) with such powers as
are specifically delegated to the Collateral Agent by the terms of the loan
documents, together with such other powers as are reasonably incidental
thereto.
Section 12.3. IMMUNITIES. Neither of the Agents nor any of their
Affiliates, officers, directors, employees, attorneys, or Agents shall be
liable for any action taken or omitted to be taken by any of them hereunder
or otherwise in connection with any Loan Document or any of the other loan
documents except for its or their own gross negligence or willful misconduct.
Without limiting the generality of the preceding sentence, the Agents (i)
shall have no duties or responsibilities except those expressly set forth in
the Loan Documents, and shall not by reason of any Loan Document be a trustee
or fiduciary for any Bank; (ii) shall not be required to initiate any
litigation or collection proceedings under any Loan Document except to the
extent requested by Required Banks; (iii) shall not be responsible to the
Banks for any recitals, statements, representations, or warranties contained
in any Loan Document, or any certificate or other documentation referred to
or provided for in, or received by any of them under, any Loan Document, or
for the value, validity, effectiveness, enforceability, or sufficiency of any
Loan Document or any other documentation referred to or provided for therein
or for any failure by any Person to perform any of its obligations
thereunder; (iv) may consult with legal counsel (including counsel for the
Borrower), independent public accountants, and other experts selected by it
and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants, or
experts; and (v) shall incur no liability under or in respect of any loan
document by acting upon any notice, consent, certificate, or other instrument
or writing believed by it to be genuine and signed or sent by the proper
party or parties. As to any matters not expressly provided for by any loan
document, the Agents shall in all cases be fully protected in acting, or in
refraining from acting, hereunder in accordance with instructions signed by
Required Banks, and such instructions of Required Banks and any
<PAGE>
action taken or failure to act pursuant thereto shall be binding on all of
the Banks; provided, however, that the Agents shall not be required to take
any action which exposes it to personal liability or which is contrary to any
Loan Document or applicable law.
Section 12.4. RIGHTS OF EACH AGENT AS A BANK. With respect to
Revolving Commitment, the Revolving Loans made by them and the Revolving
Notes issued to them, Chase Bank of Texas, National Association and the Chase
Manhattan Bank (and any successor acting as either the Administrative Agent
or the Collateral Agent) in their capacity as the Banks hereunder shall each
have the same rights and powers hereunder as any other Bank and may exercise
the same as though it were not acting as an Agent, and the term "Bank" or
"Banks" shall, unless the context otherwise indicates, include the Agents in
the individual capacity of each. The Agents and their affiliates may
(without having to account therefor to any Bank) accept deposits from, lend
money to, act as trustee under indentures of, provide Merchant Banking
Services to, and generally engage in any kind of banking, trust, or other
business with the Borrower, any of its Subsidiaries, any Obligated Party, and
any other Person who may do business with or own securities of the Borrower,
any Subsidiary, or any Obligated Party, all as if they were not acting as the
Agents and without any duty to account therefor to the Banks.
Section 12.5. DEFAULTS. The Agents shall not be deemed to have
knowledge or notice of the occurrence of a default (other than, with respect
to the Administrative Agent only, the non-payment of principal of or interest
on the Revolving Loans or of commitment fees) unless the Agents have received
notice from a Bank or the Borrower specifying such Default and stating that
such notice is a "Notice of Default." In the event that either Agent
receives such a notice of the occurrence of a Default, such Agent shall give
prompt notice thereof to the Banks (and shall give each Bank prompt notice of
each non-payment). Each Agent shall (subject to Section 12.3) take such
action with respect to such default as shall be directed by Required Banks,
provided that unless and until an Agent shall have received such directions,
such Agent may (but shall not be obligated to) take such action, or refrain
from taking such action, with respect to such default as it shall deem
advisable and in the best interest of the Banks.
Section 12.6. INDEMNIFICATION. THE BANKS HEREBY AGREE TO INDEMNIFY
EACH AGENT FROM AND HOLD EACH AGENT HARMLESS AGAINST (TO THE EXTENT NOT
REIMBURSED UNDER SECTIONS 13.1 AND 13.2, BUT WITHOUT LIMITING THE OBLIGATIONS
OF THE BORROWER UNDER SECTIONS 13.1 AND 13.2), RATABLY IN ACCORDANCE WITH
THEIR RESPECTIVE COMMITMENT PERCENTAGES, ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES,
SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES AND EXPENSES), AND
DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON,
INCURRED BY, OR ASSERTED AGAINST EITHER AGENT IN ANY WAY RELATING TO OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY ACTION TAKEN OR OMITTED TO BE
TAKEN BY EITHER AGENT UNDER OR IN RESPECT OF ANY OF THE LOAN DOCUMENTS;
PROVIDED, THAT NO BANK SHALL BE LIABLE TO AN AGENT FOR ANY PORTION OF THE
FOREGOING TO THE EXTENT CAUSED BY SUCH AGENT'S
<PAGE>
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING,
IT IS THE EXPRESS INTENTION OF THE BANKS THAT EACH AGENT SHALL BE INDEMNIFIED
HEREUNDER FROM AND HELD HARMLESS AGAINST ALL OF SUCH LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES,
SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES AND EXPENSES), AND
DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF EITHER AGENT. WITHOUT
LIMITING ANY OTHER PROVISION OF THIS SECTION, EACH BANK AGREES TO REIMBURSE
EACH AGENT PROMPTLY UPON DEMAND FOR ITS PRO RATA SHARE (CALCULATED ON THE
BASIS OF THE COMMITMENT PERCENTAGES) OF ANY AND ALL OUT-OF-POCKET EXPENSES
(INCLUDING ATTORNEYS' FEES AND EXPENSES) INCURRED BY EITHER AGENT IN
CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION,
MODIFICATION, AMENDMENT, OR ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL
PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS OR
RESPONSIBILITIES UNDER, THE LOAN DOCUMENTS, TO THE EXTENT THAT AN AGENT IS
NOT REIMBURSED FOR SUCH EXPENSES BY THE BORROWER.
Section 12.7. INDEPENDENT CREDIT DECISIONS. Each Bank agrees that it
has independently and without reliance on either Agent or any other Bank, and
based on such documentation and information as it has deemed appropriate,
made its own credit analysis of the Borrower and decision to enter into any
Loan Document and that it will, independently and without reliance upon
either Agent or any other Bank, and based upon such documents and information
as it shall deem appropriate at the time, continue to make its own analysis
and decisions in taking or not taking action under any Loan Document. Except
as otherwise specifically set forth herein, the Agents shall not be required
to keep themselves informed as to the performance or observance by the
Borrower or any obligated party of any Loan Document or to inspect the
properties or books of the Borrower or any obligated party. Except for
notices, reports, and other documents and information expressly required to
be furnished to the Banks by either Agent hereunder or under the other loan
documents, the Agents shall not have any duty or responsibility to provide
any Bank with any credit or other financial information concerning the
affairs, financial condition, or business of the Borrower or any obligated
party (or any of their Affiliates) which may come into the possession of the
Agents or any of their Affiliates.
Section 12.8. SEVERAL COMMITMENTS. The Revolving Commitments and other
obligations of the Banks under any Loan Document are several. The default by
any Bank in making a revolving loan in accordance with its Revolving
Commitment shall not relieve the other Banks of their obligations under any
Loan Document. In the event of any default by any Bank in making any
Revolving Loan, each nondefaulting Bank shall be obligated to make its
Revolving Loan but shall not be obligated to advance the amount which the
defaulting Bank was required to advance hereunder. No Bank shall be
responsible for any act or omission of any other Bank.
<PAGE>
Section 12.9. SUCCESSOR AGENTS. Subject to the appointment and
acceptance of successor Agent as provided below, either Agent may resign at
any time by giving notice thereof to the Banks and the Borrower, and either
Agent may be removed at any time by Required Banks if it has breached its
obligations under the Loan Documents. Upon any such resignation or removal,
Required Banks will have the right to appoint a successor to the retiring
Agent with the Borrower's consent, which shall not be unreasonably withheld.
If no successor to the retiring Agent shall have been so appointed by
Required Banks and shall have accepted such appointment within thirty (30)
days after the retiring Agent's giving of notice of resignation or the
Required Banks' removal of the retiring Agent, then the retiring Agent may,
on behalf of the Banks, appoint a successor, which shall be a commercial Bank
organized under the laws of the United States of America or any state thereof
and having combined capital and surplus of at least One Hundred Million
Dollars ($100,000,000). Upon the acceptance of its appointment as successor,
such successor shall thereupon succeed to and become vested with all rights,
powers, privileges, immunities, contractual obligations, and duties of the
resigning or removed Agent including all obligations under any letters of
credit, and the resigning or removed Agent shall be discharged from its
duties and obligations under the Loan Documents, including, without
limitation, its obligations under all Letters of Credit. After any Agent's
resignation or removal as an Agent, the provisions of this Article 12 shall
continue in effect for its benefit in respect of any actions taken or omitted
to be taken by it while it was an Agent.
Section 12.10. AGENT FEE. The Borrower agrees to pay to the
Administrative Agent, on each anniversary of the Closing Date, the
administrative fee set forth in the letter dated February 10, 1998 from the
Chase Manhattan Bank and Chase Bank of Texas, National Association to the
Borrower.
Section 12.11. LOCKBOX AND OTHER DEPOSIT ACCOUNTS. The Collateral Agent
will act as Agent for the purpose of perfecting the security interest granted
to the Collateral Agent in the Lockbox Agreements applicable to the Borrower
and the Domestic Granting Subsidiaries, the Lockbox Accounts applicable to
the Borrower and the Domestic Granting Subsidiaries, all the other bank
accounts of the Borrower and the domestic granting subsidiaries (the "BANK
ACCOUNTS") established at the Collateral Agent and all other collateral held
in or pursuant to such accounts. In such capacity the Collateral Agent will
maintain possession of the monies, checks and other instruments sent to the
post office boxes established under the Lockbox Agreements (the "POST OFFICE
BOXES"), deposited in the Lockbox Account and held in the Bank Accounts
except as permitted by this Section 12.11 and except that the collateral
Agent may, in connection with making deposits to the Lockbox Accounts and the
Bank accounts, deliver checks and other instruments for collection in the
ordinary course. The Collateral Agent agrees to deposit all monies, checks
and other instruments it receives in the post office boxes directly to the
related Lockbox Account. Except as permitted by this agreement, collateral
Agent agrees that it will not exercise any right of setoff against the funds
credited to the Lockbox Account, the Bank accounts or the monies or
instruments relating thereto or held therein or with respect to any other
collateral except on behalf of the Banks and will not otherwise apply the
collateral to satisfy any indebtedness other than the Obligations.
(A) CONTROL; TRANSFERS FROM THE LOCKBOX ACCOUNT AND THE POST
OFFICE BOX. Withdrawals from the Lockbox Accounts and the Post Office
Boxes are restricted and
<PAGE>
may be made at the Collateral Agent's election only or otherwise in
accordance with this Agreement notwithstanding anything in the
Borrower Security Agreement or any Subsidiary Security Agreement to
the contrary. Borrower and Collateral Agent understand and agree
that the Collateral Agent has exclusive control over transfers from
the Lockbox Accounts and the Post Office Boxes. Borrower and
Collateral Agent acknowledge that Borrower has no right to direct
such transfers or otherwise give Collateral Agent instructions at any
time. Collateral Agent shall automatically (without the necessity of
further instruction or agreement) transfer to the Collection
Account, in immediately available funds by wire transfer, on each
and every weekday that Collateral Agent is open for business by
12:30 p.m., the amount of the collected funds credited to the
Lockbox Accounts at the time such transfer is made by Collateral
Agent on such day. Borrower agrees that Collateral Agent is
authorized to immediately deliver all collected funds to the
Collection Account.
(B) WITHDRAWAL FROM BANK ACCOUNTS. The Borrower agrees that at
any time after a Daily Collection Event, the Collateral Agent shall
have the right to withdraw the funds credited to the Bank Accounts
and the right to possession of the moneys and the instruments
relating thereto that are held therein.
(C) CHARGES TO ACCOUNTS. Any and all fees, costs, charges and
expenses incurred in connection with the Lockbox Agreement or the opening,
operating and maintaining of the Post Office Boxes, the Lockbox
Accounts or the Bank Accounts, shall be liabilities of Borrower charged
to one or more of the Bank Accounts. If any items previously credited
to a Lockbox Account or any Bank Account are returned to the Collateral
Agent, Collateral Agent may charge one or more of the Bank Accounts or
the Lockbox Accounts with the full amount of such return items, plus
any returned item fees charged by or to the Collateral Agent.
(D) MONTHLY STATEMENTS. Monthly statements for the Lockbox Accounts
and the Bank Accounts shall be rendered by Collateral Agent and mailed
to Borrower and the Administrative Agent. Collateral Agent shall
deliver such other account information as Borrower or the
Administrative Agent may reasonably request from time to time.
<PAGE>
ARTICLE 13.
MISCELLANEOUS
Section 13.1. EXPENSES. The Borrower hereby agrees to pay on demand:
(a) all costs and expenses of either Agent arising in connection with the
preparation, negotiation, execution, and delivery of the Loan Documents
executed and delivered on the Closing Date, including, without limitation,
the fees and expenses of legal counsel for either Agent charged in accordance
with that certain letter dated February 12, 1998 from the legal counsel for
the Administrative Agent to the Administrative Agent; (b) all costs and
expenses of either Agent arising in connection with (i) the preparation,
negotiation, execution, and delivery of any of the Loan Documents executed
and delivered after the Closing Date and any and all amendments or other
modifications to the Loan Documents and (ii) the syndication of the revolving
Loans, including in all instances, without limitation, the fees and expenses
of legal counsel for either Agent; (c) all fees, costs, and expenses of
either Agent arising in connection with any letter of credit, including the
Administrative Agent's customary fees for amendments, transfers, and drawings
on Letters of Credit; (d) all costs and expenses of either Agent and the
Banks in connection with any Default and the enforcement of any Loan
Document, including, without limitation, the fees and expenses of legal
counsel for either Agent and the Banks; (e) all transfer, stamp, documentary,
or other similar taxes, assessments, or charges levied by any governmental
Authority in respect of any Loan Document; (f) all costs, expenses,
assessments, and other charges incurred in connection with any filing,
registration, recording, or perfection of any security interest or Lien
contemplated by any Loan Document; and (g) all other costs and expenses
incurred by either Agent in connection with any Loan Document including,
without limitation, all costs, expenses, and other charges incurred in
connection with any inspection conducted under Section 8.6 or any other audit
or appraisal in respect of the collateral.
Section 13.2. INDEMNIFICATION. THE BORROWER SHALL INDEMNIFY EACH AGENT
AND EACH BANK AND EACH AFFILIATE (INCLUDING WITHOUT LIMITATION, CHASE
SECURITIES, INC.) THEREOF AND THEIR RESPECTIVE OFFICERS, DIRECTORS,
EMPLOYEES, ATTORNEYS, AND AGENTS FROM, AND HOLD EACH OF THEM HARMLESS
AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES,
JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS' FEES AND
EXPENSES) TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR
INDIRECTLY ARISE FROM OR RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY,
PERFORMANCE, ADMINISTRATION, OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B)
ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY
THE BORROWER OR ANY OBLIGATED PARTY OF ANY REPRESENTATION, WARRANTY,
COVENANT, OR OTHER AGREEMENT CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE
PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL, REMOVAL, OR CLEANUP OF ANY
HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN, OR AFFECTING ANY OF THE
PROPERTIES OR ASSETS OF THE BORROWER OR ANY SUBSIDIARY, (E) THE
<PAGE>
USE OR PROPOSED USE OF ANY LETTER OF CREDIT OR ANY PAYMENT OR FAILURE TO PAY
WITH RESPECT TO ANY LETTER OF CREDIT, (G) ANY AND ALL TAXES, LEVIES,
DEDUCTIONS, AND CHARGES IMPOSED ON THE AGENT OR ANY BANK IN RESPECT OF ANY
LETTER OF CREDIT, OR (G) ANY INVESTIGATION, LITIGATION, OR OTHER PROCEEDING,
INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION, OR
OTHER PROCEEDING RELATING TO ANY OF THE FOREGOING; PROVIDED THAT THE PERSON
ENTITLED TO BE INDEMNIFIED UNDER THIS Section SHALL NOT BE INDEMNIFIED FROM
OR HELD HARMLESS AGAINST ANY LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES,
JUDGMENTS, DISBURSEMENTS, COSTS, OR EXPENSES ARISING OUT OF OR RESULTING FROM
ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITING ANY PROVISION
OF ANY LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT
EACH PERSON TO BE INDEMNIFIED UNDER THIS Section SHALL BE INDEMNIFIED FROM
AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES,
PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING
ATTORNEYS' FEES AND EXPENSES) ARISING OUT OF OR RESULTING FROM THE SOLE OR
CONTRIBUTORY NEGLIGENCE OF SUCH PERSON.
Section 13.3. LIMITATION OF LIABILITY. None of either Agent, any bank,
or any affiliate, officer, director, employee, attorney, or Agent thereof
shall have any liability with respect to, and the Borrower and, by the
execution of the Loan Documents to which it is a party each Obligated Party,
hereby waives, releases, and agrees not to sue any of them upon, any claim
for any special, indirect, incidental, consequential, or punitive damages
suffered or incurred by the Borrower or any Obligated Party in connection
with, arising out of, or in any way related to any of the Loan Documents, or
any of the transactions contemplated by any of the Loan Documents.
Section 13.4. NO DUTY. All attorneys, accountants, appraisers, and
other professional persons and consultants retained by either Agent or any
Bank shall have the right to act exclusively in the interest of the Agents
and the Banks and shall have no duty of disclosure, duty of loyalty, duty of
care, or other duty or obligation of any type or nature whatsoever to the
Borrower or any of the Borrower's shareholders or any other person.
Section 13.5. NO FIDUCIARY RELATIONSHIP. The relationship between the
Borrower and the Obligated Parties on the one hand and each Agent and each
Bank on the other is solely that of debtor and creditor, and neither an Agent
nor any Bank has any fiduciary or other special relationship with the
Borrower or any Obligated Parties, and no term or condition of any of the
Loan Documents shall be construed so as to deem the relationship between the
Borrower and the Obligated Parties on the one hand and each Agent and each
Bank on the other to be other than that of debtor and creditor.
Section 13.6. EQUITABLE RELIEF. The Borrower recognizes that in the
event the Borrower or any Obligated Party fails to pay, perform, observe, or
discharge any or all of the obligations under the Loan Documents, any remedy
at law may prove to be inadequate relief
<PAGE>
to the agents and the Banks. The Borrower therefore agrees that the Agents
and the Banks, if either Agent or the Required Banks so request, shall be
entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.
Section 13.7. NO WAIVER; CUMULATIVE REMEDIES. No failure on the part
of either Agent or any Bank to exercise and no delay in exercising, and no
course of dealing with respect to, any right, power, or privilege under any
loan document shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power, or privilege under any loan document
preclude any other or further exercise thereof or the exercise of any other
right, power, or privilege. The rights and remedies provided for in the loan
documents are cumulative and not exclusive of any rights and remedies
provided by law.
Section 13.8 SUCCESSORS AND ASSIGNS.
(a) BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
successors and assigns. The Borrower may not assign or transfer any of
its rights or obligations hereunder without the prior written consent of
the Administrative Agent and all of the Banks.
(b) PARTICIPATIONS. Any Bank may sell participations to one
or more banks or other institutions in or to all or a portion of its
rights and obligations under the Loan Documents (including, without
limitation, all or a portion of its Revolving Commitment, the
Revolving Loans owing to it and the Letter of Credit Liabilities
which it has made or in which it has a participating interest);
PROVIDED, HOWEVER, that (i) such Bank's obligations under the Loan
Documents (including, without limitation, its Revolving Commitment)
shall remain unchanged, (ii) such Bank shall remain solely
responsible to the Borrower for the performance of such
obligations, (iii) such Bank shall remain the holder of its
Revolving Notes and owner of its participation or other interests in
Letter of Credit Liabilities for all purposes of any Loan Document,
(iv) the Borrower shall continue to deal solely and directly with
such Bank in connection with such Bank's rights and obligations
under the Loan Documents, and (v) such Bank shall not sell a
participation that conveys to the participant the right to vote or
give or withhold consents under any Loan Document, other than the
right to vote upon or consent to (1) any increase of such Bank's
Revolving Commitment, (2) any reduction of the principal amount of,
or interest to be paid on, the Revolving Loans or other Obligations
of such Bank, (3) any reduction of any commitment fee, letter of
credit fee, or other amount payable to such Bank under any Loan
Document, (4) any postponement of any date for the payment of any
amount payable in respect of the Revolving Loans or other
Obligations of such Bank, or (5) the release of Borrower, any Obligated
Party or any Collateral.
(c) ASSIGNMENTS. The Borrower and each of the Banks agree
that any Bank (the "ASSIGNING BANK") may at any time assign to an
Eligible Assignee (each an "ASSIGNEE") all, or a proportionate part of
all, of its rights and obligations under the Loan
<PAGE>
Documents (including, without limitation, its Revolving Commitment,
Revolving Loans and participation interests); PROVIDED, HOWEVER,
that (i) each such assignment shall be of a consistent, and not a
varying, percentage of all of the assigning Bank's rights and
obligations under the Loan Documents, (ii) except in the case of an
assignment of all of a Bank's rights and obligations under the Loan
Documents, the amount of the Revolving Commitment of the Assigning
Bank being assigned pursuant to each assignment (determined as of
the date of the Assignment and Acceptance with respect to such
assignment) shall in no event be less than Five Million Dollars
($5,000,000), (iii) the parties to each such assignment shall
execute and deliver to the Administrative Agent for its acceptance
and recording in the Register (as defined below), an Assignment and
Acceptance, together with the Revolving Notes subject to such
assignment, and a processing and recordation fee of Three Thousand
Dollars ($3,000) payable by the assignor or assignee (and not the
Borrower); provided that such fee shall not be payable to the
Administrative Agent if the Assigning Bank is making an assignment to
one of its Affiliates; and (iv) the Borrower and the Administrative
Agent must consent to such assignment, which consent shall not be
unreasonably withheld, with such consents to be evidenced by the
Borrower's and the Administrative Agent's execution of the Assignment
and Acceptance; provided that Borrower's consent will not be necessary
if the Assigning Bank is making an assignment to one of its
Affiliates. Upon such execution, delivery, acceptance, and
recording, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least
five (5) Business Days after the execution thereof, or, if so
specified in such Assignment and Acceptance, the date of acceptance
thereof by the Administrative Agent, (x) the assignee thereunder
shall be a party hereto as a "Bank" and, to the extent that rights
and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, have the rights and obligations of a
Bank hereunder and under the Loan Documents, and (y) the Bank that
is an assignor thereunder shall, to the extent that rights and
obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from
its obligations under the Loan Documents (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of a
Bank's rights and obligations under the Loan Documents, such Bank shall
cease to be a party thereto). The Administrative Agent shall
maintain at its Principal Office a copy of each Assignment and
Acceptance delivered to and accepted by it and a register for the
recordation of the names and addresses of the Banks and the
Revolving Commitment of, and principal amount of the Revolving
Loans owing to and Letter of Credit Liabilities participated in by,
each Bank from time to time (the "REGISTER"). The entries in the
Register shall be conclusive and binding for all purposes, absent
manifest error, and the Borrower, the Administrative Agent, and the
Banks may treat each Person whose name is recorded in the Register
as a Bank hereunder for all purposes under the Loan Documents. The
Register shall be available for inspection by the Borrower or any
Bank at any reasonable time and from time to time upon reasonable
prior notice. Upon its receipt of an Assignment and Acceptance
executed by an Assigning Bank and Assignee's representing that it
is an Eligible Assignee, together with any Revolving Notes subject
to such assignment, the Administrative Agent shall, if such
Assignment and Acceptance has been completed and is in substantially the
form of Exhibit "C" hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the
Register, and (iii) give prompt written notice thereof to the
Borrower. Within five (5) Business Days after its receipt of such
notice the Borrower, at its expense, shall execute and deliver to
the Administrative Agent in exchange for the surrendered Revolving
Notes new Revolving Notes to the order of such
<PAGE>
Eligible Assignee in an amount equal to the Revolving Commitments
assumed by it pursuant to such Assignment and Acceptance and, if
the assigning Bank has retained a Revolving Commitment, Revolving
Notes to the order of the assigning Bank in an amount equal to the
Revolving Commitment retained by it hereunder (each such promissory
note shall constitute a "Revolving Note" for purposes of the Loan
Documents). Such new Revolving Notes shall be in an aggregate
principal amount of the surrendered Revolving Notes, shall be dated
the effective Date of such Assignment and Acceptance, and shall
otherwise be in substantially the form of Exhibit "A" hereto.
(d) INFORMATION. Any Bank may, in connection with any
assignment or participation or proposed assignment or participation
pursuant to this Section, disclose to the assignee or participant or
proposed assignee or participant, any information relating to the
Borrower or its Subsidiaries furnished to such Bank by or on behalf of
the Borrower or its Subsidiaries.
(e) PLEDGE TO FEDERAL RESERVE. Notwithstanding anything in this
Section 13.8 to the contrary, any bank may, in the ordinary course of
its business, pledge its notes to any United States Federal Reserve Bank
to secure advances made by such federal reserve bank to such bank.
Section 13.9. SURVIVAL. ALL REPRESENTATIONS AND WARRANTIES MADE IN ANY
LOAN DOCUMENT OR IN ANY DOCUMENT, STATEMENT, OR CERTIFICATE FURNISHED IN
CONNECTION WITH ANY LOAN DOCUMENT SHALL SURVIVE THE EXECUTION AND DELIVERY OF
THE LOAN DOCUMENTS AND NO INVESTIGATION BY EITHER AGENT OR ANY BANK OR ANY
CLOSING SHALL AFFECT THE REPRESENTATIONS AND WARRANTIES OR THE RIGHT OF
EITHER AGENT OR ANY BANK TO RELY UPON THEM. WITHOUT PREJUDICE TO THE
SURVIVAL OF ANY OTHER OBLIGATION OF THE BORROWER HEREUNDER, THE OBLIGATIONS
OF THE BORROWER UNDER ARTICLE 5 AND SectionS 13.1 AND 13.2 SHALL SURVIVE
REPAYMENT OF THE REVOLVING NOTES AND TERMINATION OF THE REVOLVING COMMITMENTS
AND THE LETTERS OF CREDIT.
Section 13.10. ENTIRE AGREEMENT AMENDMENT AND RESTATEMENT. THIS
AGREEMENT, THE REVOLVING NOTES, AND THE OTHER LOAN DOCUMENTS REFERRED TO
HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND
SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER
HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES
HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO.
This agreement amends and restates in its entirety the prior agreement. the
execution of this agreement, the revolving notes and the other Loan Documents
executed in connection herewith does not extinguish the commitment under or
the indebtedness outstanding in connection with the prior agreement nor does
it constitute a novation with respect to such commitment or such
indebtedness. the Borrower, Agents and the Banks ratify and confirm each of
the Loan Documents entered into prior to the Closing Date (but excluding the
prior agreement) and agree that such Loan Documents continue to be legal,
valid, binding and enforceable in accordance with their respective terms.
Borrower represents and warrants that as of the Closing Date there are no
claims or offsets against or defenses or counterclaims to its
<PAGE>
obligations under the prior agreement or any of the other Loan Documents. To
induce the Banks and Agents to enter into this agreement, Borrower waives any
and all such claims, offsets, defenses or counterclaims, whether known or
unknown, arising prior to the Closing Date and relating to the Loan Documents
or the transactions contemplated hereby or thereby. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING AND NOTWITHSTANDING ANY LOAN DOCUMENT TO THE
CONTRARY, BORROWER, AGENTS AND THE BANKS AGREE AND ACKNOWLEDGE THAT:
(i) THE TERM "CREDIT AGREEMENT" AS USED IN EACH LOAN
DOCUMENT MEANS THIS AGREEMENT;
(ii) THE TERM "GUARANTEED INDEBTEDNESS" AS USED IN EACH
GUARANTY INCLUDES THE OBLIGATIONS AS DEFINED HEREIN;
(iii) THE TERM "OBLIGATIONS" AS USED IN THE BORROWER SECURITY
AGREEMENT MEANS THE OBLIGATIONS AS DEFINED HEREIN;
(iv) ANY REFERENCE TO TEXAS COMMERCE BANK NATIONAL
ASSOCIATION IN ANY LOAN DOCUMENT EXECUTED PRIOR TO THE CLOSING DATE
SHALL MEAN A REFERENCE TO CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
FORMERLY KNOWN AS TEXAS COMMERCE BANK NATIONAL ASSOCIATION; AND
(v) ANY REFERENCE TO THE AGENT IN ANY LOAN DOCUMENT
EXECUTED PRIOR TO THE CLOSING DATE SHALL MEAN A REFERENCE TO THE
COLLATERAL AGENT.
Section 13.11. AMENDMENTS; REPLACEMENT OF AFFECTED BANK. No amendment
or waiver of any provision of any loan document to which the Borrower is a
party, nor any consent to any departure by the Borrower therefrom, shall in
any event be effective unless the same shall be agreed or consented to by
Required Banks and the Borrower, and each such waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which given; provided, that no amendment, waiver, or consent shall, unless in
writing and signed by all of the Banks and the Borrower, do any of the
following: (a) increase the revolving commitments of the Banks, change the
definitions of the borrowing base, advance percent or eligible account or
otherwise amend the agreement to delete the requirements that the revolving
loans be governed by a borrowing base; (b) reduce the principal of, or
interest on, the revolving notes, the reimbursement obligations, or any fees
or other amounts payable hereunder; (c) postpone any date fixed for any
payment of principal (including without limitation, any payment or prepayment
required by Section 4.4) of, or interest on, the revolving notes, the
reimbursement obligations, or any fees or other amounts payable hereunder;
(d) waive or amend any of the conditions specified in Article 6 (except that
any event of default or default may be waived as otherwise provided herein);
(e) change the percentage of the revolving commitments or of the aggregate
unpaid principal amount of the revolving notes or the letter of credit
liabilities or the number of Banks which shall be required for the Banks or
any of them to take any action under any loan document; (f) change any
provision contained in this Section 13.11; or (g) release any collateral or
release the Borrower or any Obligated Party from liability. Notwithstanding
anything to the contrary contained in this section, no amendment waiver, or
consent shall be made with respect to Section 2.7 or Article 12 hereof
without the prior written consent of the Agents. Within thirty (30) days of
a Bank becoming a nonconsenting Bank (as defined below in this Section 13.11)
<PAGE>
or within thirty (30) days of the Administrative Agent becoming aware that a
Bank has become insolvent, or its assets subject to a receiver, liquidator,
trustee, custodian or other similar person or it or its assets are otherwise
subject to insolvency proceedings, the Administrative Agent may, at its
option notify such Bank (the "affected Bank") of its intention to obtain, at
(in the case of a nonconsenting Bank only) Borrower's expense, a replacement
Bank ("replacement Bank" and which may be the Administrative Agent) to
purchase the affected Bank's revolving loans and its obligations under the
Loan Documents. The Administrative Agent shall, within thirty (30) days
following the delivery of such notice cause the replacement Bank to purchase
the revolving loans of the affected Bank and assume the affected Bank's
obligations hereunder in accordance with the terms of an assignment and
acceptance for cash in an aggregate amount equal to the aggregate unpaid
principal of the revolving loans held by such Bank, all unpaid interest and
commitment fees accrued thereon, and all other obligations owed to such Bank.
Neither the Agents nor any Bank shall have any obligation to find a
replacement Bank. In the event that (x) the Borrower or Administrative Agent
has requested that the Banks consent to a departure or waiver of any
provisions of the Loan Documents or agree to any other modification thereof,
(y) the consent, waiver or other modification in question requires the
agreement of all Banks in accordance with the terms of this Section 13.11 and
(z) Banks holding at least sixty-six and two-thirds percent (66 2/3%) of the
aggregate revolving commitments have agreed to such consent, waiver or other
modification, then any Bank who does not agree to such consent, waiver or
other modification shall be deemed a "nonconsenting Bank".
Section 13.12. MAXIMUM INTEREST RATE.
(a) No interest rate specified in any Loan Document shall at
any time exceed the Maximum Rate. If at any time the interest rate (the
"CONTRACT RATE") for any Obligation shall exceed the Maximum Rate,
thereby causing the interest accruing on such Obligation to be limited
to the Maximum Rate, then any subsequent reduction in the Contract Rate
for such Obligation shall not reduce the rate of interest on such
Obligation below the Maximum Rate until the aggregate amount of interest
accrued on such Obligation equals the aggregate amount of interest which
would have accrued on such Obligation if the Contract Rate for such
Obligation had at all times been in effect.
(b) No provision of any Loan Document shall require the
payment or the collection of interest in excess of the maximum amount
permitted by applicable law. If any excess of interest in such respect
is hereby provided for, or shall be adjudicated to be so provided, in
any Loan Document or otherwise in connection with this loan transaction,
the provisions of this Section shall govern and prevail and neither the
Borrower nor the sureties, guarantors, successors, or assigns of the
Borrower shall be obligated to pay the excess amount of such interest or
any other excess sum paid for the use, forbearance, or detention of sums
loaned pursuant hereto. In the event any Bank ever receives, collects,
or applies as interest any such sum, such amount which would be in
excess of the maximum amount permitted by applicable law shall be
applied as a payment and reduction of the principal of the Obligations,
and, if the principal of the Obligations has been paid in full, any
remaining excess shall forthwith be paid to the Borrower. In
determining whether or not the interest paid or payable exceeds the
<PAGE>
Maximum Rate, the Borrower and each Bank shall, to the extent permitted by
applicable law, (a) characterize any non-principal payment as an
expense, fee, or premium rather than as interest, (b) exclude voluntary
prepayments and the effects thereof, and (c) amortize, prorate,
allocate, and spread in equal or unequal parts the total amount of
interest throughout the entire contemplated term of the Obligations so
that interest for the entire term does not exceed the Maximum Rate.
Section 13.13. NOTICES. All notices and other communications provided
for in any loan document to which the Borrower or any Obligated Party is a
party shall be given or made in writing and telecopied, mailed by certified
mail return receipt requested, or delivered to the intended recipient at the
"address for notices" specified below its name on the signature pages hereof
and, if to an Obligated Party, at the address for notices for the Borrower,
or, as to any party, at such other address as shall be designated by such
party in a notice to each other party given in accordance with this section.
Except as otherwise provided in any loan document, all such communications
shall be deemed to have been duly given when transmitted by telecopy, subject
to telephone confirmation of receipt, or when personally delivered or, in the
case of a mailed notice, three (3) business days after being duly deposited
in the mails, in each case given or addressed as aforesaid; provided,
however, notices to the Administrative Agent pursuant to Section 2.7 or 4.3
shall not be effective until received by the Administrative Agent.
Section 13.14. GOVERNING LAW. This agreement shall be governed by and
construed in accordance with the laws of the state of texas and the
applicable laws of the United States of America.
Section 13.15. COUNTERPARTS. This agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same agreement.
Section 13.16. SEVERABILITY. Any provision of any loan document held
by a court of competent jurisdiction to be invalid or unenforceable shall not
impair or invalidate the remainder of any loan document and the effect
thereof shall be confined to the provision held to be invalid or illegal.
Section 13.17. HEADINGS. The headings, captions, and arrangements
used in this agreement are for convenience only and shall not affect the
interpretation of this agreement.
Section 13.18. NON-APPLICATION OF CHAPTER 346 OF THE TEXAS FINANCE
CODE. The provisions of chapter 346 of the texas finance code are
specifically declared by the parties hereto not to be applicable to any loan
documents or to the transactions contemplated thereby.
<PAGE>
Section 13.19. CONSTRUCTION. Each of the Borrower, each obligated
party (by its execution of the Loan Documents to which its is a party), each
Agent, and each Bank acknowledges that each of them has had the benefit of
legal counsel of its own choice and has been afforded an opportunity to
review the Loan Documents with its legal counsel and that the Loan Documents
shall be construed as if jointly drafted by the parties thereto.
Section 13.20. INDEPENDENCE OF COVENANTS. All covenants under the loan
documents shall be given independent effect so that if a particular action or
condition is not permitted by any of such covenants, the fact that it would
be permitted by an exception to, or be otherwise within the limitations of,
another covenant shall not avoid the occurrence of a default if such action
is taken or such condition exists.
Section 13.21. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF
OR RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
THEREBY OR THE ACTIONS OF THE EITHER AGENT OR ANY BANK IN THE NEGOTIATION,
ADMINISTRATION, OR ENFORCEMENT THEREOF.
Section 13.22. STANDARD OF REASONABLENESS. If this agreement or any
other loan document requires an Agent or a Bank to act reasonably or to not
unreasonably withhold a consent or approval, the reasonableness of the
action taken or withheld shall be determined based on what an asset based
lender would do in a similar situation.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
BORROWER:
SOFTWARE SPECTRUM, INC.
By: /s/ Robert D. Graham
Name: Robert D. Graham
Title: Vice President and General Counsel
Address for Notices:
2140 Merritt Drive
Garland, Texas 75041
Fax No.: 214-864-5120
Telephone No.: 214-840-6600
Attention: Chief Financial Officer
<PAGE>
ADMINISTRATIVE AGENT:
THE CHASE MANHATTAN BANK, individually
as a Bank and as the Administrative Agent
By: /s/ Jeffrey S. Ackerman
Jeffrey Ackerman
Vice President
ADDRESS FOR NOTICES:
Asset Based Lending
600 5th Avenue, 4th Floor
New York, New York 10020-2302
Attention: Credit Deputy
Fax No.: 212-332-4297
Telephone No.: 212-332-4713
LENDING OFFICE FOR BASE RATE
ACCOUNTS AND LIBOR ACCOUNTS:
600 5th Avenue, 4th Floor
New York, New York 10020-2302
<PAGE>
COLLATERAL AGENT:
CHASE BANK OF TEXAS, NATIONAL
a Bank and as the Collateral Agent
By: /s/ Jeffrey A. Stern
Jeffrey A. Stern,
Vice President
ADDRESS FOR NOTICES:
1111 Fannin, 9th Floor, MS46
Houston, Texas 77002
Fax No.: 713-750-3810
Telephone No.: 713-750-2784
Attention: Loan Syndication Services
re: Software Spectrum
With a copy to:
P.O. Box 660197
2200 Ross Avenue
Dallas, Texas 75266-0197
Fax No.: 214-922-2608
Telephone No.: 214-922-2997
Attention: Corporate Banking Group
LENDING OFFICE FOR BASE RATE
ACCOUNTS AND LIBOR ACCOUNTS:
1111 Fannin
Houston, Texas 77002
<PAGE>
OTHER BANKS:
NATIONAL CITY BANK, KENTUCKY
By: /s/ Randall J. Rawe
Name: Randall J. Rawe
Title: Senior Vice President
ADDRESS FOR NOTICES:
101 South Fifth Street, 31-T08J
Louisville, Kentucky 40202
Fax No.: 502-581-5122
Telephone No.: 502-581-6352
Attention: Donald R. Pullen
LENDING OFFICE FOR BASE RATE
ACCOUNTS AND LIBOR ACCOUNTS:
101 South Fifth Street, 31-T08J
Louisville, Kentucky 40202
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Donald J. Mitchell
Name: Donald J. Mitchell
Title: Vice President
ADDRESS FOR NOTICES:
201 E. 5th St., 2nd Floor
Cincinnati, OH 45201
Telephone: 513-651-8626
Fax No.: 513-651-7505
Attention: Don Mitchell
LENDING OFFICE FOR BASE RATE
ACCOUNTS AND LIBOR ACCOUNTS:
201 E. 5th St., 2nd Floor
Cincinnati, OH 45201
<PAGE>
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ Mike Barankowski
Name: Mike Barankowski
Title: Vice President
ADDRESS FOR NOTICES:
Commercial Finance Division
100 West Washington, 1st Floor
Phoenix, AZ 85003
Telephone: 602-378-6017
Fax: 602-378-6030
Attention: Mike Baranowski
LENDING OFFICE FOR BASE RATE
ACCOUNTS AND LIBOR ACCOUNTS:
Commercial Finance Division
100 West Washington, 1st Floor
Phoenix, AZ 85003
<PAGE>
ACKNOWLEDGMENT
The undersigned hereby consents and agrees to this Agreement and hereby
ratifies and confirms each of the Loan Documents to which it is a party
entered into prior to the Closing Date, and agrees that such Loan Documents
continue to be legal, valid, binding and enforceable in accordance with their
respective terms. The undersigned represents and warrants that as of the
Closing Date, there are no claims or offsets against or defenses or
counterclaims to its obligations under any Loan Document. TO INDUCE THE
BANKS AND AGENTS TO ENTER INTO THIS AGREEMENT, EACH OF THE UNDERSIGNED WAIVES
ANY AND ALL CLAIMS, OFFSETS, DEFENSES OR COUNTERCLAIMS, WHETHER KNOWN OR
UNKNOWN, ARISING PRIOR TO THE CLOSING DATE AND RELATING TO THE LOAN DOCUMENTS
OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. Without limiting the
generality of the foregoing and notwithstanding anything in any Loan Document
to the contrary, the undersigned agrees and acknowledges that (i) the term
"CREDIT AGREEMENT" as used in each Loan Document to which it is a party means
this Agreement; (ii) the term "GUARANTEED INDEBTEDNESS" as used in its
Guaranty includes the Obligations as defined herein; (iii) any reference to
Texas Commerce Bank National Association in any Loan Document executed prior
to the Closing Date shall mean a reference to Chase Bank of Texas, National
Association, formerly known as Texas Commerce Bank National Association; and
(iv) any reference to the Agent in any Loan Document executed prior to the
Closing Date shall mean a reference to the Collateral Agent.
Witness due execution hereof by the undersigned as of the date first
written above.
SPECTRUM INTEGRATED SERVICES, INC.
By: /s/ Robert D. Graham
Name: Robert D. Graham
Title: Vice President, Secretary,
and Treasurer
<PAGE>
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION OF EXHIBIT
"A" Revolving Note
"B" Borrowing Base Report
"C" Assignment and Acceptance
"D" Compliance Certificate
"E" Borrower Pledge Agreement
INDEX TO SCHEDULES
SCHEDULE DESCRIPTION OF SCHEDULE
1.1 (a) Revolving Commitments
1.1 (b) Existing Letters of Credit
1.1 (c) Closing Date Adjustments
7.14 List of Subsidiaries
9.1 Debt
9.2 Existing Liens
9.5 Existing Investments
<PAGE>
EXHIBIT "A"
TO
SOFTWARE SPECTRUM, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
REVOLVING NOTE
<PAGE>
REVOLVING NOTE
$ Dallas, Texas ___________, 1998
FOR VALUE RECEIVED, the undersigned, SOFTWARE SPECTRUM, INC., a Texas
corporation (the "Borrower"), hereby promises to pay to the order
of_____________ (the "Bank"), at the Principal Office of the Administrative
Agent, in lawful money of the United States of America and in immediately
available funds, the principal amount of
Dollars ($_____________) or such lesser amount as shall equal the
aggregate unpaid principal amount of the Revolving Loans made by the Bank to
the Borrower under the Credit Agreement referred to below, on the dates and
in the principal amounts provided in the Credit Agreement, and to pay
interest on the unpaid principal amount of each such Revolving Loan, at such
office, in like money and funds, for the period commencing on the date of
such Revolving Loan until such Revolving Loan shall be paid in full, at the
rates per annum and on the dates provided in the Credit Agreement.
The Borrower hereby authorizes the Bank to record in its records the
amount of each Revolving Loan and Type of Accounts established under each
Revolving Loan and all Continuations, Conversions and payments of principal
in respect thereof, which records shall, in the absence of manifest error, be
conclusive; PROVIDED, HOWEVER, that the failure to make such notation with
respect to any such Revolving Loan or payment shall not limit or otherwise
affect the obligations of the Borrower under the Credit Agreement or this
Revolving Note.
This Revolving Note is (a) one of the Revolving Notes referred to in the
Amended and Restated Credit Agreement dated as of March 11, 1998, among the
Borrower, the Bank, the other banks named therein, The Chase Manhattan Bank,
as administrative agent for such banks ("Administrative Agent") and Chase
Bank of Texas, National Association, as collateral agent for such banks (such
Amended and Restated Credit Agreement, as the same may be amended or
otherwise modified from time to time, herein the "Credit Agreement"), (b)
modifies in its entirety certain of the notes executed pursuant to Prior
Agreement (but does not extinguish the indebtedness evidenced thereby) and
(c) evidences a portion of the loans made under the Prior Agreement and
previously evidenced by such notes.
The Credit Agreement, among other things, contains provisions for
acceleration of the maturity of this Revolving Note upon the happening of
certain stated events and for prepayments of Revolving Loans prior to the
maturity of this Revolving Note upon the terms and conditions specified in the
Credit Agreement. Capitalized terms used in this Revolving Note have the
respective meanings assigned to them in the Credit Agreement unless otherwise
defined herein.
This Revolving Note shall be governed by and construed in accordance with
the laws of the State of Texas and the applicable laws of the United States of
America.
The Borrower and each surety, guarantor, endorser and other party ever
liable for payment of any sums of money payable on this Revolving Note jointly
and severally waive
<PAGE>
notice, presentment, demand for payment, protest, notice of
protest and non-payment or dishonor, notice of acceleration, notice of intent to
accelerate, notice of intent to demand, diligence in collecting, grace and all
other formalities of any kind, and consent to all extensions without notice for
any period or periods of time and partial payments, before or after maturity,
and any impairment of any collateral securing this Revolving Note, all without
prejudice to the holder. The holder shall similarly have the right to deal in
any way, at any time, with one or more of the foregoing parties without notice
to any other party, and to grant any such party any extensions of time for
payment of any of said indebtedness, or to release any such party or to release
or substitute part or all of the collateral securing this Revolving Note, or to
grant any other indulgences or forbearances whatsoever, without notice to any
other party and without in any way affecting the personal liability of any party
hereunder.
SOFTWARE SPECTRUM, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT "B"
TO
SOFTWARE SPECTRUM, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
BORROWING BASE CERTIFICATE
<PAGE>
BORROWING BASE CERTIFICATE
TO: THE CHASE MANHATTAN BANK,
as administrative agent
633 Third Avenue
New York, New York 10017-6764
with a copy to each Bank
Ladies/Gentlemen:
This Borrowing Base Report for the month ending ____________________,
19___, is executed and delivered by SOFTWARE SPECTRUM, INC. (the "Borrower") to
THE CHASE MANHATTAN BANK (the "Administrative Agent"), pursuant to that certain
Amended and Restated Credit Agreement (the "Credit Agreement") dated as of March
11, 1998, among the Borrower, the Administrative Agent, Chase Bank of Texas,
National Association, as Collateral Agent, and the banks named therein. All
terms used herein shall have the meanings assigned to them in the Credit
Agreement.
The Borrower represents and warrants to the Administrative Agent and the
Banks that all information contained herein is true, correct, and complete, and
that the total Eligible Accounts referred to below represent the Eligible
Accounts that qualify for purposes of determining the Borrowing Base under the
Credit Agreement. The Borrower further represents and warrants to the Lender
that attached are the following Receivable Reports, all for the Borrower and the
Granting Subsidiaries for the month ending ____________, 19__: (A) a list of
all accounts receivable showing all accounts aged in 30, 60, 90 and 120 day
intervals (reflecting all journal entries and adjustments, including all
customer credits and debits), (B) all contra calculations, specifying, among
other items, the accounts payable balances owed to its top ten vendors, (C) a
collections report, (D) the lockbox statements, and (E) inventory designations.
1. Accounts Receivable of Borrower and Domestic
Granting Subsidiaries as of the date of the
last submitted $___________
Borrowing Base
(a) + Sales $___________
(b) - Collections $___________
(c) - Credits $___________
(d) Gross Accounts Receivable of Borrower
and Domestic Granting Subsidiaries as of
_____________(detail of the conversion
calculation of Canadian dollar accounts to $___________
U.S. dollars to be attached as a schedule)
<PAGE>
Accounts Receivable Aging of Borrower and Domestic Granting
Subsidiaries as of ___________
<TABLE>
<CAPTION>
Domestic
Total A/R Current 31-60 61-90 91-120 Over 120
- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ $ $ $ $ $
</TABLE>
2. Less: Ineligible Accounts of Borrower and the
Domestic Granting Subsidiaries (determined
pursuant to the definition of Eligible
Account in the Credit Agreement, without
duplication)
(a) Accounts not due and payable within 120 $
days
(b) Accounts outstanding for more than 120
days past the original date of invoice $
(c) Accounts created outside of the ordinary
course of business $
(d) Accounts relating to unenforceable
contracts or contracts which do not represent $
complete bona fide transactions
(e) Accounts from sales on bill-and-hold,
guaranteed sale, sale-and-return, or similar $
basis
(f) Accounts subject to, or arising from the
sale of goods subject to, a Lien other than
Liens held by the Collateral Agent. $
(g) Accounts as to which the Collateral
Agent does not have first priority Lien or
which are not directed to be remitted to a $
Lockbox Account
(h) Accounts subject to set-off, dispute, $
etc.
(i) Accounts owed by account debtors subject
to bankruptcy or that are insolvent $
(j) Accounts evidenced by chattel paper or $
instruments
(k) Accounts owed by foreign account debtors
(other than Approved Foreign Account Debtors)
not supported by an acceptable letter of $
credit or insurance
(l) Any U.S. Federal or Canadian Government
Accounts unless the applicable assignment of
claims laws shall have been complied with $
(m) Accounts owed by Affiliates etc. $
(n) Accounts not payable in Dollars or $
Canadian dollars
(o) Accounts that do not comply with laws, $
etc
(p) Accounts backed by performance,
completion or other bonds or performance $
subcontracted (unless waived in writing by
the Administrative Agent)
(q) Accounts written off per GAAP $
<PAGE>
(r) Accounts for which required notices
have not been filed $
(s) Excluded Accounts $
(t) Accounts subject to 50% past due rule $
(u) Contra accounts owed to the account $
debtors
3. Total Ineligible Accounts of Borrower and the
Domestic Granting Subsidiaries (total of 2(a) $
through (u))
4. Total Eligible Accounts of Borrower and the
Domestic Granting Subsidiaries (1(d) minus 3) $___________
5. Advance Percent of line 4 $___________
6. Accounts Receivable of Software Spectrum
Canada as of the date of the last submitted $___________
Borrowing Base
(a) + Sales $___________
(b) - Collections $___________
(c) - Credits $___________
(d) Gross Accounts Receivable of Software
Spectrum Canada as of _____________ (detail
of conversion calculation to U.S. dollars to $___________
be attached as a schedule)
Accounts Receivable Aging of Software Spectrum Canada as of ___________
<TABLE>
<CAPTION>
Total A/R Current 31-60 61-90 91-120 Over 120
- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ $ $ $ $ $
</TABLE>
7. Less: Ineligible Accounts of Software
Spectrum Canada
(a) Accounts not due and payable within 120 $___________
days
(b) Accounts outstanding for more than 120
days past the original date of invoice $___________
(c) Accounts created outside of the ordinary
course of $___________
business
(d) Accounts relating to unenforceable
contracts or contracts which do not represent $___________
complete bona fide transactions
(e) Accounts from sales on bill-and-hold,
guaranteed sale, sale-and-return, or similar $___________
basis
(f) Accounts subject to, or arising from the
sale of goods subject to, a Lien other than
Liens held by the Collateral Agent. $___________
(g) Accounts as to which the Collateral
Agent does not have first priority Lien or
which are not directed to be remitted to a $___________
Lockbox Account
<PAGE>
(h) Accounts subject to set-off, dispute, $___________
etc.
(i) Accounts owed by account debtors subject
to bankruptcy or that are insolvent $___________
(j) Accounts evidenced by chattel paper or $___________
instruments
(k) Accounts owed by foreign account debtors
(other than Approved Foreign Account Debtors)
not supported by an acceptable letter of $___________
credit or insurance
(l) Any U.S. Federal or Canadian Government
Accounts unless the applicable assignment of
claims laws shall have been complied with $___________
(m) Accounts owed by Affiliates etc. $___________
(n) Accounts not payable in Dollars or $___________
Canadian dollars
(o) Accounts that do not comply with laws, $___________
etc.
(p) Accounts backed by performance,
completion or other bonds or performance $___________
subcontracted (unless waived in writing by
the Administrative Agent)
(q) Accounts written off per GAAP $___________
(r) Accounts for which required notices have
not been filed $___________
(s) Excluded Accounts $___________
(t) Accounts subject to 50% past due rule $___________
(u) Contra accounts owed to the account $___________
debtors
(v) Accounts not purchased by Borrower $___________
8. Total Software Spectrum Canada Ineligible
Accounts (total 7(a) through (v)) $___________
9. Total Eligible Accounts relating to Software
Spectrum Canada $___________
(6 minus 8)
10. Advance Percent of Line 9 $___________
11. Market value of cash and cash equivalents
held in Cash Collateral Account (market value $___________
detailed on Schedule 2 hereto)
12. Short Term Bank Debt (if available or ($5,000,000)
outstanding)
13. Reserves ($_________)
14. Borrowing Base: Line 5 plus Line 10 plus $____________
line 11 minus
line 12 minus line 13
15. Outstanding Revolving Credit
(a) Revolving Loans $___________
(b) Letter of Credit Liabilities $___________
<PAGE>
(c) Accrued and unpaid interest and fees and
other amounts due $___________
(d) TOTAL $____________
16. Borrowing Availability [(the lesser of the
amount of the Revolving Commitments or line $____________
14 minus line 15(d)]
The Borrower represents and warrants to the Banks that the representations
and warranties of the Borrower contained in Article 7 of the Credit Agreement
and the other Loan Documents are true and correct on and as of the date of this
Borrowing Base Report as if made on and as of the date hereof except to the
extent that such representations and warranties speak to a specific date, and
that no Default has occurred and is continuing.
Date: __________, _____.
BORROWER:
SOFTWARE SPECTRUM, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT C
TO
SOFTWARE SPECTRUM, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
ASSIGNMENT AND ACCEPTANCE
ASSIGNMENT AND ACCEPTANCE
Dated _______________, ____
Reference is made to the Amended and Restated Credit Agreement dated as of
March 11, 1998 (as the same may be amended and in effect from time to time, the
"Credit Agreement"), among Software Spectrum, Inc., a Texas corporation (the
"Borrower"), the banks named therein (the "Banks"), The Chase Manhattan Bank, as
administrative agent for the Banks (the "Administrative Agent"), and Chase Bank
of Texas, National Association (formerly known as Texas Commerce Bank National
Association), as collateral agent for the Banks (the "Collateral Agent" and the
Administrative Agent and the Collateral Agent, collectively, the "Agents").
Capitalized terms used herein and not otherwise defined shall have the meanings
assigned to such terms in the Credit Agreement. This Assignment and Acceptance
is being executed pursuant to Section 13.8 the Credit Agreement.
_______________________________ (the "Assignor") and
_________________________ (the "Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee without
recourse, representation or warranty except as specifically set forth
herein, and the Assignee hereby purchases and assumes from the
Assignor, a ___________% interest in and to all the Assignor's rights
and obligations under the Credit Agreement and the other Loan
Documents as of the Effective Date (as defined below) (including,
without limitation, such percentage interest in the Revolving
Commitment of the Assignor on the Effective Date and such percentage
interest in the Revolving Loans owing to, and Letter of Credit
Liabilities (including participations purchased pursuant to the Credit
Agreement) held by, the Assignor outstanding on the Effective Date
together with such percentage interest in all unpaid interest and fees
accrued from the Effective Date). After giving effect to the
Assignment contemplated hereby, Assignor's Revolving Commitment equals
$______________ and Assignee's Revolving Commitment equals
$________________.
2. The Assignor (i) represents that as of the date hereof, its Revolving
Commitment is $_____________, the outstanding principal balance of its
Revolving Loans is $_____________, and the outstanding Letter of
Credit Liabilities (including participations purchased pursuant to the
Credit Agreement) held by it is $____________, (all as unreduced by
any assignments which have not yet become effective); (ii) makes no
representation or warranty and assumes no
<PAGE>
responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit
Agreement or any other Loan Document or the execution,
legality, validity, enforceability, genuineness, sufficiency or
value of the Credit Agreement or any other Loan Document, other than that
it is the legal and beneficial owner of the interest being assigned by it
hereunder and that such interest is free and clear of any adverse claim;
(iii) makes no representation or warranty and assumes no responsibility
with respect to the financial condition of the Borrower or any Obligated
Party or the performance or observance by the Borrower or any Obligated
Party of any of their obligations under the Agreement or any other Loan
Document; and (iv) attaches the Revolving Notes held by Assignor and
requests that the Agent exchange such Revolving Notes
for new Revolving Notes payable to the order of (A) Assignee in amounts
equal to the Revolving Commitments assumed by the Assignee pursuant
hereto and the outstanding principal amount of the Revolving Loans
assigned to Assignee pursuant hereto, as applicable, and (B) the Assignor
in amounts equal to the Revolving Commitments and Revolving Loans retained
by the Assignor under the
<PAGE>
Credit Agreement, as specified above.
3. The Assignee (i) represents and warrants that it is legally authorized
to enter in this Assignment and Acceptance; (ii) confirms that it has
received a copy of the Credit Agreement, together with copies of the most
recent financial statements delivered pursuant to Section 8.1 thereof,
and such other documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into this Assignment
and Acceptance; (iii) agrees that it will, independently and without
reliance upon the Agents, the Assignor, or any other Bank and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under the Credit Agreement and the other Loan Documents; (iv)
confirms that it is eligible to be an Assignee; (v) appoints authorizes
the Agents to take such action on its behalf and to exercise such powers
under the Loan Documents as are delegated to the Agents by the terms
thereof, together with such powers as are reasonably incidental thereto;
(vi) agrees that it will perform in accordance with their terms all
obligations which by the terms of the Credit Agreement and the other
Loan Documents are required to be performed by it as a Bank; [and (vii)
attaches the forms prescribed by the Internal Revenue Service of the
United States certifying as to the Assignee's exemption from United States
withholding taxes with respect to all payments to be made to the Assignee
under the Credit Agreement or such other documents as are necessary to
indicate that all such payments are subject to such tax at a rate reduced
by an applicable tax treaty].(1)
4. The effective date for this Assignment and Acceptance shall be
_______________, 19__ (the "Effective Date").(2)
Following the execution of this Assignment and Acceptance, it will
be delivered to the Administrative Agent for acceptance and recording
by the Administrative Agent.
- -----------------
(1) If the Assignee is organized under the laws of a jurisdiction outside
the United States.
(2) Such date shall be at least Five (5) Business Days after the execution
of this Assignment and Acceptance and delivery thereof to the Administrative
Agent.
<PAGE>
5. Upon such acceptance and recording, from and after the Effective
Date, (i) the Assignee shall be a party to the Credit Agreement and, to
the extent provided in this Assignment and Acceptance, shall have the
rights and obligations of a Bank thereunder and under the other Loan
Documents and (ii) the Assignor shall, to the extent provided in this
Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Credit Agreement and the other Loan Documents.
6. Upon such acceptance and recording, from and after the Effective Date,
the Administrative Agent shall make all payments in respect of the
interest assigned hereby (including payments of principal, interest, fees,
and other amounts) to the Assignee. The Assignor and Assignee shall make
all appropriate adjustments in payments under the Credit Agreement and the
Revolving Notes for periods prior to the Effective Date directly between
themselves.
7. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the laws of the State of New York and applicable laws of
the United States of America.
[NAME OF ASSIGNOR]
By:
Name:
Title:
[NAME OF ASSIGNEE]
By:
Name:
Title:
ACCEPTED BY:
THE CHASE MANHATTAN BANK,
as Administrative Agent
Name:
Title:
SOFTWARE SPECTRUM, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT "D"
to
SOFTWARE SPECTRUM, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
COMPLIANCE CERTIFICATE
<PAGE>
COMPLIANCE CERTIFICATE
for the
quarter ending ,
-------- -- ----
To: The Chase Manhattan Bank,
as administrative agent
633 Third Avenue
New York, New York 10017-6764
and each Bank
Ladies and Gentlemen:
This Compliance Certificate (the "CERTIFICATE") is being delivered pursuant
to Section 8.1(c) of that certain Amended and Restated Credit Agreement (as
amended, the "AGREEMENT") dated as of March 11, 1998 among SOFTWARE SPECTRUM,
INC. (the "BORROWER"), THE CHASE MANHATTAN BANK, as administrative agent, CHASE
BANK OF TEXAS, NATIONAL ASSOCIATION, as collateral agent and the Banks named
therein. All capitalized terms, unless otherwise defined herein, shall have the
same meanings as in the Agreement. All the calculations set forth below shall
be made pursuant to the terms of the Agreement.
The undersigned, an authorized financial officer of the Borrower, does
hereby certify to the Agent and the Banks that:
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1. DEFAULT.
No Default has occurred and is continuing or if
a Default has occurred and is continuing, I
have described on the attached Exhibit "A" the
nature thereof and the steps taken or proposed
to remedy such Default.
Compliance
2. SECTION 8.1 - FINANCIAL STATEMENTS AND RECORDS ----------
(a) Annual audited financial statements
of Borrower on or before 91 days after the end
of each Fiscal Year. Yes No N/A
(b) Quarterly unaudited financial
statements of Borrower on a consolidated and
consolidating basis within 46 days of each
Fiscal Quarter end. Yes No N/A
(c) Borrowing Base Report together with
the Receivables Reports within 20 days of each
month end or within 20 days of any other date
required by the Administrative Agent. Yes No N/A
(d) If Daily Collection Event occurs,
Receivable Reports Yes No N/A
(i) weekly or
(ii) daily
(e) Projections within 30 days before the
start of each Fiscal Year. Yes No N/A
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3. SECTION 8.10 - COLLATERAL MATTERS
(a) Aggregate book value of inventory held by $
third parties
(b) Limit $2,500,000
(c) Collateral perfection/protection required Yes No
(d) Material Subsidiary created or acquired? Yes No
(e) If line (d) is yes, have 8.10(b) and (c)
collateral measures been taken? Yes No
4. SECTION 9.1 - DEBT
No Additional Debt except:
(a) Purchase money not to exceed: $5,000,000 Yes No
Actual Outstanding:____________________
(b) Guaranties of surety and other bonds not $
to exceed: $4,000,000 Yes No
Actual Outstanding:____________________ $
(c) Outstanding Guaranties of permitted Debt
of Foreign Subs and Foreign Ventures $ Yes No
(d) Outstanding Loans, advances, other
extensions of credit, investments and
contributions to Foreign Subs (excluding
Software Spectrum Canada) and Foreign Ventures $ Yes No
(e) Total Foreign Subsidiary Obligations (line
4(c) plus 4(d)) $
(f) Foreign Subsidiary Limit
(i) $30,000,000 plus
(ii) if 9.1(e)(ii) test satisfied $10,000,000 $
(g) Gross accounts of Software Spectrum Canada $
(h) Loans etc. outstanding to Software
Spectrum Canada (not to exceed line (g))
(i) Acquisition Debt incurred in any Fiscal
Year not to exceed $ $10,000,000 Yes No
Actual incurred in current Fiscal Year
(note: Incurrence Test must also be met)
(j) Unsecured Vendor Debt not to exceed $ $20,000,000 Yes No
Actual Outstanding:____________________
(note: Incurrence Test must also be met) Yes No
(k) Unsecured Short Term Bank Debt not to $ $5,000,000
exceed
Actual Outstanding:____________________
5. SECTION 9.3 - MERGERS, ETC.
(a) Has acquisition been consummated since
last Compliance Certificate? Yes No
(b) If line (a) yes, Purchase Price $
(c) Aggregate Purchase Prices from prior
acquisitions under 9.3 in current Fiscal Year $
(d) Purchase Price Limit per transaction $5,000,000 Yes No
(e) Aggregate Purchase Price Limit per Fiscal
Year $10,000,000 N/A
(f) Were the conditions in clauses (a) through Yes No N/A
(e) of Section 9.3(iv) satisfied with respect
to each acquisition? Yes No N/A
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6. SECTION 9.4 - DIVIDENDS
(a) Stock repurchases pursuant to stock
repurchase program not to exceed $1,750,000
Actual Repurchases since Closing Date: $ Yes No
(b) Attach as schedule evidence of compliance Yes No N/A
with Section 9.4 (iii) with respect to
dividends and other stock repurchases. Yes No N/A
7. SECTION 9.8 - DISPOSITION ASSETS
(a) Book Value of asset disposed of in sale
leaseback transaction within the last 12 months $
Actual not to exceed: $500,000 Yes No N/A
(b) Book value of assets disposed of within
the last 12 months $
Actual not to exceed: $500,000 Yes No N/A
8. SECTION 9.10 - PREPAYMENT OF DEBT
No prepayment of Debt except:
(a) Obligations
(b) Foreign Sub Debt Guaranteed
(c) Prepayment of other Debt limited in any $500,000
Fiscal Year to:
(d) Aggregate amount of other Debt so prepaid
in current Fiscal Year $ Yes No N/A
9. SECTION 10.1 - CONSOLIDATED NET WORTH
(a) Required Consolidated Net Worth $72,000,000
(b) Actual Consolidated Net Worth
(i) shareholders equity $
(ii) treasury stock $
(iii) 9(a) minus 9(b) $ Yes No N/A
10. SECTION 10.2 - INTEREST COVERAGE
(a) Net Income for applicable period $
(b) Plus net provisions for tax $
(c) Plus Interest Expense $
(d) Plus amortization $
(e) Plus depreciation $
(f) Borrower EBITDA: 10(a) plus 10(b), 10(c), $
10(d) and 10(e) $
(g) Unfinanced Capital Expenditures $
(h) (line 10(f) plus line 10(g)) $
(i) Interest Expense $
(j) Interest Coverage (line 10(h) divided by ___:1.00
line 10(i))
(k) Minimum Interest Coverage ___:1.00 Yes No
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11. SECTION 10.3 - CAPITAL EXPENDITURE LIMITS
(a) Capital Expenditure limit for the
period $
(b) Actual Capital Expenditures $ Yes No
12. SECTION 10.4 - NET INCOME
(a) Net Income (most recent Fiscal Quarter) $
(b) less than -$2,500,000? Yes No
(c) Net Income (previous Fiscal Quarter) $
(d) 12(a) plus 12(c) less than -$3,000,000? Yes No
13. DETERMINATION OF MARGIN AND FEES
(a) Borrower EBITDA: From 10(f) $
(b) All Capital Expenditures (financed and
unfinanced) $
(c) Actual technical support contract Capital
Expenditures not to exceed $1,500,000 incurred
in the period through the Fiscal Quarter ending
January 31, 1999 $
(d) (line 13(a) minus the positive sum of (i)
line 13(b) minus (ii), if calculated for a
period prior to February 1, 1999, line 13(c)) $
(e) Interest Expense
(f) Interest Coverage Ratio (line 13(d) ___:1.00
divided by line 13(e))
(g) Adjustment to margin and fees required by
Section 3.2? Yes No
(h) If adjustment required, set forth below
new margins and fees in accordance with Section 3.2:
(i) Base Margin _______%
(ii) Libor Rate Margin and LC Fee _______%
(iii) Commitment Fee _______%
14. ATTACHED SCHEDULES
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Attached hereto as schedules are the calculations supporting the computation
set forth above in this Certificate. All information contained herein and on
the attached schedules is true and correct.
15. FINANCIAL STATEMENTS
The unaudited financial statements attached hereto were prepared in accordance
with GAAP (or the generally accepted accounting principles of the jurisdiction
of organization of the applicable Person) and fairly present (subject to year
end audit adjustments) the financial conditions and the results of the
perations of the Persons reflected thereon, at the date and for the periods
indicated therein.
IN WITNESS WHEREOF, the undersigned has executed this Certificate effective
this day of , .
------- ------------ -------
SOFTWARE SPECTRUM, INC.
By:
Name:
Title:
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EXHIBIT "E"
TO
SOFTWARE SPECTRUM, INC.
CREDIT AGREEMENT
PLEDGE AGREEMENT
<PAGE>
AMENDED AND RESTATED PLEDGE AGREEMENT
THIS AMENDED AND RESTATED PLEDGE AGREEMENT (the "Agreement") dated as of
March 11, 1998 is by and between SOFTWARE SPECTRUM, INC., a Texas corporation
("Pledgor") and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION (formerly known as
Texas Commerce Bank National Association), as collateral agent for itself and
the other Banks (the "Secured Party").
RECITALS:
13.23. PLEDGOR AND SECURED PARTY HAVE ENTERED INTO THAT CERTAIN PLEDGE
AGREEMENT DATED MAY 3, 1996 (AS THE SAME MAY HAVE BEEN MODIFIED, THE "PRIOR
PLEDGE AGREEMENT") PURSUANT TO THE TERMS OF THAT CERTAIN CREDIT AGREEMENT
DATED MAY 3, 1996 AMONG PLEDGOR, SECURED PARTY AND CERTAIN LENDERS NAMED
THEREIN (SUCH CREDIT AGREEMENT, AS THE SAME HAS BEEN AMENDED OR OTHERWISE
MODIFIED, THE "PRIOR CREDIT AGREEMENT").
B. Pledgor, certain lenders, Secured Party as collateral agent and The
Chase Manhattan Bank, as administrative agent have entered into that certain
Amended and Restated Credit Agreement of even date herewith, which amended and
restated the Prior Credit Agreement in it entirety (such Credit Agreement, as
the same may be amended or otherwise modified from time to time, the "Credit
Agreement"; terms defined in the Credit Agreement and not otherwise defined
herein being used herein as defined therein).
C. Secured Party and the Banks have conditioned their obligations under
the Credit Agreement upon the execution and delivery of this Agreement by
Pledgor.
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE 1
SECURITY INTEREST AND PLEDGE
SECTION 1. SECURITY INTEREST AND PLEDGE. As collateral security for
the prompt payment in full when due of the Obligations (whether at stated
maturity, by acceleration, or otherwise), Pledgor hereby pledges and grants
to Secured Party a first priority security interest in the following property
(such property being hereinafter sometimes called the "Collateral"):
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(a) all of Pledgor's right, title and interest in and to the
capital stock or other ownership interests specifically described on
SCHEDULE 1 hereto (the issuers of such stock or other interests herein
the "Foreign Subsidiaries") and so much of Pledgor's right, title and
interest in any other capital stock or other ownership interests in the
Foreign Subsidiaries, whether now owned or hereafter acquired, as is
necessary so that not more than and not less than sixty-six and
two-thirds percent (66 2/3%) of the capital stock or other ownership
interest in each such Foreign Subsidiary is pledged in total hereunder;
(b) all of Pledgor's right, title and interest in all shares of
capital stock of Spectrum Integrated Services, Inc. a Texas corporation,
whether now owned or hereafter acquired, including without limitation, the
shares of capital stock of Spectrum Integrated Services, Inc. described on
SCHEDULE 1;
(c) all of Pledgor's right, title and interest in (i) all advances
made by Pledgor to Software Spectrum Canada, Ltd.; (ii) that certain
promissory note dated March 11, 1998 executed by Software Spectrum Canada,
Ltd. payable to the order of Pledgor (the "Canadian Note"); (iii) that
certain Purchase and Sale Agreement dated March 11, 1998 between Pledgor
and Software Spectrum Canada, Ltd., as the same may be amended or
otherwise modified from time to time (the "Purchase Agreement"); (iv) all
Purchase Confirmations (herein so called) delivered under the terms of the
Purchase Agreement and all accounts receivable purchased under the terms
thereof (which Pledgor confirms are its "Accounts", as such term is
defined in the Borrower Security Agreement, pledged to Secured Party under
the terms of the Borrower Security Agreement); (v) the restricted account
agreement entered into among Pledgor, Software Spectrum Canada, Ltd. and
The Bank of Nova Scotia relating to Software Spectrum Canada, Ltd.'s
lockbox and deposit accounts; and (vi) all financing statements and other
documentation executed and delivered in connection with the foregoing
documents (all the documentation described in the forgoing clauses (i)
through (vi), herein the "Canadian Purchase Documents");
(d) all general intangibles relating to any of the foregoing and
all products, proceeds, revenues, interest payments, principal payments,
distributions, dividends, stock dividends, securities and other property,
rights and interests that Pledgor receives or is at any time entitled to
receive on account of the same; and
(e) the property of Borrower and each Granting Subsidiary described
on SCHEDULE 2 hereto which is hereby pledged to secure the Obligations in
accordance with, and in all respects subject to, the terms of the Borrower
Security Agreement and each Subsidiary Security Agreement.
ARTICLE 2
AFFIRMATIVE AND NEGATIVE COVENANTS
Pledgor covenants and agrees with Secured Party that:
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SECTION 2.1 DELIVERY. Prior to or concurrently with the execution and
delivery of this Agreement, Pledgor shall deliver to Secured Party all
certificate(s) identified in SCHEDULE 1 hereof, accompanied by undated stock
powers duly executed in blank. Upon the execution and delivery of the
Canadian Note by Software Spectrum Canada, LTD., Pledgor shall deliver to
Secured Party the Canadian Note duly endorsed payable to the order of the
Secured Party. Pledgor shall deliver to Secured Party each Purchase
Confirmation created under the terms of the Purchase Agreement as soon as it
is executed or in any event within thirty (30) days of its execution.
SECTION 2.2 ENCUMBRANCES. Pledgor shall not create, permit, or suffer
to exist, and shall defend the Collateral against, any Lien, security
interest, or other encumbrance on the Collateral except the pledge and
security interest of Secured Party hereunder, and Pledgor shall defend
Pledgor's rights in the Collateral and Secured Party's security interest in
the Collateral against the claims of all Persons.
SECTION 2.3 SALE OR MODIFICATION OF COLLATERAL. Pledgor shall not
sell, assign, or otherwise dispose of the Collateral or any part thereof
without the prior written consent of Secured Party. Pledgor shall not amend
or otherwise modify the Canadian Purchase Documents or exercise any rights or
remedies under the terms thereof without the prior written consent of Secured
Party except that Pledgor may purchase accounts receivable of Software
Spectrum Canada LTD. under the terms thereof in the ordinary course of
business and may from time to time credit the outstanding balance of the
Canadian Note for the Dollar equivalent amount of accounts receivable so
purchased.
SECTION 2.4 DISTRIBUTIONS. If Pledgor shall become entitled to receive
or shall receive: (i) any stock certificate (including, without limitation,
any certificate representing a stock dividend or a distribution in connection
with any reclassification, increase, or reduction of capital or issued in
connection with any reorganization), option or rights, whether as an addition
to, in substitution of, or in exchange for any Collateral; (ii) any sums paid
in respect of the Collateral upon the liquidation or dissolution of the
issuer thereof; (iii) any other distribution of capital made on or in respect
of the Collateral or any other property distributed upon or in respect of the
Collateral pursuant to any recapitalization or reclassification of the
capital of the issuer thereof or pursuant to any reorganization of the issuer
thereof; or (iv), subject to the right of Pledgor to receive cash dividends,
principal and interest under Section 3.3 hereof, any other Collateral the
possession of which is necessary to perfect the security interest of Secured
Party therein, then Pledgor agrees to accept the same as Secured Party's
agent and to hold the same in trust for Secured Party, and to deliver the
same forthwith to Secured Party in the exact form received, with the
appropriate endorsement of Pledgor when necessary and/or appropriate undated
stock powers duly executed in blank, to be held by Secured Party as
additional Collateral for the obligations, subject to the terms hereof. All
sums of money and property so paid or distributed in respect of the
Collateral that are received by Pledgor shall, until paid or delivered to
Secured Party, be held by Pledgor in trust as additional security for the
Obligations. Notwithstanding anything herein to the contrary, Pledgor shall
not be required to deliver to Secured Party any stock certificates issued by
any
<PAGE>
subsidiary that is not a Material Subsidiary which are acquired by Pledgor
after the date hereof until such Subsidiary becomes a Material Subsidiary or
a Default occurs and the Secured Party requests.
SECTION 2.5 DIRECTOR CONSENTS. Borrower agrees to cause the directors
of each issuer of the stock described on SCHEDULE 1 to pass resolutions to
authorize the pledge and other transfers contemplated hereby both as of the
date of this Agreement (unless such resolutions have been passed under the
terms of the Prior PLedge Agreement) and on any date the Secured Party
exercises its rights under Section 4.1 of this Agreement.
SECTION 2.6 ADDITIONAL SECURITIES. Except for issuances to Pledgor
which, to the extent required by Section 2.4, are pledged and delivered to
Secured Party hereunder, Pledgor shall not consent to or approve the issuance
of any additional shares of any class of capital stock of any issuer of the
Collateral, or any securities convertible into, or exchangeable for, any such
shares or any warrants, options, rights, or other commitments entitling any
Person to purchase or otherwise acquire any such shares.
ARTICLE 3
RIGHTS OF SECURED PARTY AND PLEDGOR
SECTION 3.1 POWER OF ATTORNEY. Pledgor hereby irrevocably constitutes
and appoints Secured Party and any officer or agent thereof, with full power
of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead and in the name of
Pledgor or in its own name, in Secured Party's discretion, to take, after the
occurrence and during the continuance of an event of default, any and all
action and to execute any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Agreement and,
without limiting the generality of the foregoing, hereby gives Secured Party
the power and right on behalf of Pledgor and in its own name to do, after the
occurrence and during the continuance of an event of default, any of the
following without notice to or the consent of Pledgor:
<PAGE>
(a) to demand, sue for, collect, or receive in the name of Pledgor
or in its own name, any money or property at any time payable or
receivable on account of or in exchange for any of the Collateral and, in
connection therewith, endorse checks, notes, drafts, acceptances, money
orders, or any other instruments for the payment of money under the
Collateral;
(b) to pay or discharge taxes, Liens, security interests, or other
encumbrances levied or placed on or threatened against the Collateral;
(c)(i) to direct account debtors and any other parties liable for
any payment under any of the Collateral to make payment of any and all
monies due and to become due thereunder directly to Secured Party or as
Secured Party shall direct; (ii) to receive payment of and receipt for any
and all monies, claims, and other amounts due and to become due at any
time in respect of or arising out of any Collateral; (iii) to sign and
endorse any drafts, assignments, proxies, stock powers, verifications,
notices, and other documents relating to the Collateral; (iv) to commence
and prosecute any suit, actions or proceedings at law or in equity in any
court of competent jurisdiction to collect the Collateral or any part
thereof and to enforce any other right in respect of any Collateral; (v)
to participate in the defense of, or if Pledgor fails to defend, to defend
any suit, action, or proceeding brought against Pledgor with respect to
any Collateral; (vi) to settle, compromise, or adjust any suit, action, or
proceeding described in clauses (iv) or (v) above, if, in the case of
clauses (v), Secured Party is conducting the applicable defense and, in
connection therewith, to give such discharges or releases as Secured Party
may deem appropriate; (vii) to exchange any of the Collateral for other
property upon any merger, consolidation, reorganization, recapitalization,
or other readjustment of the issuer thereof and, in connection therewith,
deposit any of the Collateral with any committee, depositary, transfer
agent, registrar, or other designated agency upon such terms as Secured
Party may determine; (viii) to add or release any guarantor, indorser,
surety, or other party to any of the Collateral; (ix) to renew, extend, or
otherwise change the terms and conditions of any of the Collateral; (x) to
insure any of the Collateral; and (xi) to sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the Collateral as
fully and completely as though Secured Party were the absolute owner
thereof for all purposes, and to do, at Secured Party's option and
Pledgor's expense, at any time, or from time to time, all acts and things
which Secured Party deems necessary to protect, preserve, or realize upon
the Collateral and Secured Party's security interest therein.
THIS POWER OF ATTORNEY IS A POWER COUPLED WITH AN INTEREST AND SHALL BE
IRREVOCABLE. Secured Party shall be under no duty to exercise or withhold
the exercise of any of the rights, powers, privileges and options expressly
or implicitly granted to Secured Party in this Agreement, and Secured Party
shall not be liable for any failure to do so or any delay in doing so.
Secured Party shall not be liable for any act or omission or for any error of
judgment or any mistake of fact or law in its individual capacity or in its
capacity as attorney-in-fact except acts or omissions resulting from its
willful misconduct. This power
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of attorney is conferred on Secured Party solely to protect, preserve and
realize upon its security interest in the Collateral.
Section 3.2. VOTING RIGHTS. Unless and until an Event of Default
shall have occurred and is continuing, Pledgor shall be entitled to exercise
any and all voting rights pertaining to equity interests pledged as
Collateral or any part thereof for any purpose not inconsistent with the
terms of this Agreement or the Credit Agreement. Secured Party shall execute
and deliver to the Pledgor all such proxies and other instruments as Pledgor
may reasonably request for the purpose of enabling Pledgor to exercise the
voting rights which it is entitled to exercise pursuant to this Section.
Section 3.3. DIVIDENDS; INTEREST AND PRINCIPAL. Unless and until an
Event of Default shall have occurred and is continuing, Pledgor shall be
entitled to receive and retain any dividends on any equity interests pledged
as Collateral paid in cash out of earned surplus to the extent and only to
the extent that such dividends are permitted by the Credit Agreement and any
interest and principal payments on the Canadian Note. Collections on
accounts receivable purchased under the Purchase Agreement shall be Accounts
(as defined in the Borrower Security Agreement) of Pledgor and collected in
accordance with the terms of the Credit Agreement and the Borrower Security
Agreement.
Section 3.4. SECURED PARTY'S DUTY OF CARE. Other than the exercise of
reasonable care in the physical custody of the Collateral while held by
Secured Party hereunder, Secured Party shall have no responsibility for or
obligation or duty with respect to all or any part of the Collateral or any
matter or proceeding arising out of or relating thereto, including, without
limitation, any obligation or duty to collect any sums due in respect thereof
or to protect or preserve any rights against prior parties or any other
rights pertaining thereto, it being understood and agreed that Pledgor shall
be responsible for preservation of all rights in the Collateral. Without
limiting the generality of the foregoing, Secured Party shall be conclusively
deemed to have exercised reasonable care in the custody of the Collateral if
Secured Party takes such action, for purposes of preserving rights in the
Collateral, as Pledgor may reasonably request in writing, but no failure or
omission or delay by Secured Party in complying with any such request by
Pledgor, and no refusal by Secured Party to comply with any such request by
Pledgor, shall be deemed to be a failure to exercise reasonable care.
<PAGE>
Section 3.5. ASSIGNMENT BY SECURED PARTY. Subject to the terms of the
Credit Agreement, Secured Party may at any time and from time to time assign
the Obligations and any portion thereof and/or the Collateral and any portion
thereof, and the assignee shall be entitled to all of the rights and remedies
of Secured Party under this Agreement in relation thereto.
ARTICLE 4
DEFAULT
Section 4.1. RIGHTS AND REMEDIES. If any Event of Default shall occur
and be continuing, Secured Party shall have the following rights and remedies:
(a) In addition to all other rights and remedies granted to Secured
Party in this Agreement and in any other instrument or agreement securing,
evidencing, or relating to the Obligations, Secured Party shall have all
of the rights and remedies of a secured party under the Uniform Commercial
Code as adopted by the State of Texas or of a creditor with a lien or
charge on the Collateral under the laws of the jurisdiction of the
organization of the issuer of any of the Collateral. Without limiting the
generality of the foregoing, Secured Party may (i) without demand or
notice to Pledgor, collect, receive, or take possession of the Collateral
or any part thereof, (ii) sell or otherwise dispose of the Collateral, or
any part thereof, in one or more parcels at public or private sale or
sales, at Secured Party's offices or elsewhere, for cash, on credit, or
for future delivery and/or (iii) bid and become a purchaser at any sale
free of any right or equity of redemption in Pledgor, which right or
equity is hereby expressly waived and released by Pledgor. Upon the
request of Secured Party, Pledgor shall assemble the Collateral and make
it available to Secured Party at any place designated by Secured Party
that is reasonably convenient to Pledgor and Secured Party. Pledgor
agrees that Secured Party shall not be obligated to give more than ten
(10) days prior written notice of the time and place of any public sale or
of the time after which any private sale may take place and that such
notice shall constitute reasonable notice of such matters. Secured Party
shall not be obligated to make any sale of the Collateral regardless of
notice of sale having been given. Secured Party may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned. Pledgor shall be liable for all
reasonable expenses of retaking, holding, preparing for sale, or the like,
and all reasonable attorneys' fees and other expenses incurred by Secured
Party in connection with the collection of the Obligations and the
enforcement of Secured Party's rights under this Agreement, all of which
expenses and fees shall constitute additional Obligations secured by this
Agreement. Secured Party may apply the Collateral against the Obligations
in accordance with the Credit Agreement. Pledgor shall remain liable for
any deficiency if the proceeds of any sale or disposition of the
Collateral are insufficient to pay the Obligations. Pledgor waives all
rights of marshaling in respect of the Collateral.
<PAGE>
(b) Secured Party may cause any or all of the Collateral held by
it to be transferred into the name of Secured Party or the name or names
of Secured Party's nominee or nominees.
(c) Secured Party may collect or receive all money or property at
any time payable or receivable on account of or in exchange for any of the
Collateral, but shall be under no obligation to do so.
(d) Secured Party shall have the right, but shall not be obligated
to, exercise or cause to be exercised all voting, consensual and other
powers of ownership pertaining to the Collateral, and Pledgor shall
deliver to Secured Party, if requested by Secured Party, irrevocable
proxies with respect to the Collateral in form satisfactory to Secured
Party. Notwithstanding the Articles of Incorporation of Software Spectrum
B.V., Pledgor, as the sole shareholder of Software Spectrum B.V., hereby
grants its approval for the pledge contemplated hereby and for Secured
Party to exercise the voting rights in respect of the Collateral issued by
Software Spectrum B.V. under the terms of this Section 4.1(d).
(e) Pledgor hereby acknowledges and confirms that Secured Party
may be unable to effect a public sale of any or all of the Collateral by
reason of certain prohibitions contained in the Securities Act of 1933, as
amended, and applicable state or foreign securities laws and may be
compelled to resort to one or more private sales thereof to a restricted
group of purchasers who will be obligated to agree, among other things, to
acquire any shares of the Collateral for their own respective accounts for
investment and not with a view to distribution or resale thereof. Pledgor
further acknowledges and confirms that any such private sale may result in
prices or other terms less favorable to the seller than if such sale were
a public sale and, notwithstanding such circumstances, agrees that any
such private sale shall be deemed to have been made in a commercially
reasonable manner, and Secured Party shall be under no obligation to take
any steps in order to permit the Collateral to be sold at a public sale.
Secured Party shall be under no obligation to delay a sale of any of the
Collateral for any period of time necessary to permit any issuer thereof
to register such Collateral for public sale under the Securities Act of
1933, as amended, or under applicable state or foreign securities laws.
(f) On any sale of the Collateral, Secured Party is hereby
authorized to comply with any limitation or restriction with which
compliance is necessary, in the view of Secured Party's counsel, in order
to avoid any violation of applicable law or in order to obtain any
required approval of the purchaser or purchasers by any applicable
governmental authority.
<PAGE>
(g) On any sale of the Collateral, Secured Party shall not be
required to make the announcements referred to in Article 3:249 and 3:252
of the Dutch Civil Code.
ARTICLE 5
MISCELLANEOUS
SECTION 5.1. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of Pledgor and Secured Party and their
successors and assigns, except that Pledgor may not assign any of its rights
or obligations under this Agreement without the prior written consent of the
Banks.
SECTION 5.2. AMENDMENT AND RESTATEMENT; AMENDMENT; ENTIRE AGREEMENT.
This Agreement amends and restates in its entirety the Prior Pledge Agreement
but does not extinguish the Liens created thereby, which Liens continue under
the terms hereof unimpaired. THIS AGREEMENT EMBODIES THE FINAL, ENTIRE
AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL PRIOR
COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN
OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR
VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR
DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE
PARTIES HERETO. The provisions of this Agreement may be amended or waived
only in accordance with the Credit Agreement and by an instrument in writing
signed by the parties hereto.
SECTION 5.3. NOTICES. All notices and other communications provided
for in this Agreement shall be given or made in accordance with the Credit
Agreement.
SECTION 5.4. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas and the
applicable laws of the United States of America.
SECTION 5.5. HEADINGS. The headings, captions and arrangements used in
this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
<PAGE>
SECTION 5.6. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same agreement.
SECTION 5.7. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this
Agreement, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
SECTION 5.8. ADDITIONAL PLEDGE AGREEMENTS. As a result of its
obligations under Section 8.10 of the Credit Agreement, Pledgor may be
required to execute additional deeds of pledge, pledge agreements or other
documentation (the "Additional Pledge Documents") as the Secured Party may
request to ensure that this Agreement creates in favor of Secured Party an
enforceable first priority pledge of the Collateral under the laws of each
jurisdiction in which each issuer of the stock pledged hereunder is
organized. Pledgor and Secured Party agree that unless specifically set
forth in the applicable Additional Pledge Documents, the Additional Pledge
Documents shall be in addition to and not in substitution for this Agreement
or any provision hereof and in the event of any conflict between this
Agreement and any Additional Pledge Documents, the provisions of this
Agreement shall control.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first written above.
PLEDGOR:
SOFTWARE SPECTRUM, INC.
By:
SECURED PARTY:
CHASE BANK OF TEXAS, NATIONAL
By:
Jeffrey A. Stern, Vice President
<PAGE>
Schedule 1
to
PLEDGE AGREEMENT
<TABLE>
<CAPTION>
Subsidiary Par Value No. of Certificate No.
Shares
<S> <C> <C> <C> <C> <C>
1. Software Spectrum Australia Ordinary Shares $1.00 75,668 3
Pty, Ltd.
2. Software Spectrum Ontario, Common Shares None 666 C-2
Canada, Ltd. Canada
3. Software Spectrum Ireland Ordinary Shares IRL 1 93,333 5
Limited
4. Software Spectrum Netherlands Shares of Capital One Thousand 26 (uncertificated)
B.V. Stock Dutch Guilders
(NGL 1,000)
5. Spectrum Integrated Common Stock $.01 518,880 1
Services,Inc. Texas
</TABLE>
<PAGE>
Schedule 2
to
PLEDGE AGREEMENT
All right, title and interest of Borrower and each Domestic Granting
Subsidiary (collectively the "Debtor") in and to the following whether now owned
or hereafter arising or acquired (such property being hereinafter sometimes
called the "COLLATERAL"):
(a) all Accounts;
(b) all Inventory;
(c) all Cash and Cash Equivalent Collateral;
(d) all instruments, documents, chattel paper and General Intangibles
evidencing or otherwise relating to the Accounts, Inventory and the
Cash and Cash Equivalent Collateral;
(f) all products and Proceeds of the foregoing.
As used above, the following terms shall have the following meaning:
"ACCOUNT" means any "account", as such term is defined in Section 9.106 of
the UCC, whether now owned or hereafter acquired by the Debtor, and, in any
event, shall include, without limitation, each of the following, whether now
owned or hereafter acquired by the Debtor: (a) all rights of the Debtor to
payment for goods sold or leased or services rendered, whether or not earned by
performance; (b) all accounts receivable of the Debtor; (c) all security
pledged, assigned, or granted to or held by the Debtor to secure any of the
foregoing; (d) all letters of credit securing, guaranties of, or
indemnifications with respect to, any of the foregoing; and (e) all rights of
the Debtor as an unpaid seller of goods or services, including, but not limited
to, all rights of stoppage in transit, replevin, reclamation and resale.
"CASH AND CASH EQUIVALENT COLLATERAL" means all of the following whether
now owned or hereafter acquired by Borrower: (a) the deposit, brokerage,
investment or other account or accounts established at Secured Party by Borrower
pursuant to Section 5.13 of the Credit Agreement (the "Collateral Account"); (b)
all money deposited in, held pursuant to or credited to the Collateral Account;
(c) all financial assets and securities held in or subject to the Collateral
Account or otherwise held by Secured Party as collateral pursuant to the
provisions of Section 5.13 of the Credit Agreement; (d) all securities
entitlements carried in or relating to the Collateral Account and all other
investment property, money, securities (both certificated and uncertificated)
and instruments held by Secured Party in, which are issued to Borrower out of,
which are otherwise subject to or which otherwise relate to the Collateral
Account.
"GENERAL INTANGIBLES" means any "general intangibles", as such term is
defined in Section 9.106 of the UCC, whether now owned or hereafter acquired by
the Debtor and, in any event,
<PAGE>
shall include, without limitation, each of the following, whether now owned
or hereafter acquired by the Debtor: (a) to the extent assignable or to
the extent a consent to assignment has been obtained, all of the
Debtor's books, records, data, plans, manuals, computer software,
computer tapes, computer disks, computer programs, source codes, object
codes and all rights of the Debtor to retrieve data and other
information from third parties; (b) to the extent assignable or to the
extent a consent to assignment has been obtained, all of the Debtor's
contract rights, including without limitation, all right, title and
interest of Debtor in and to any reseller, volume licensing, maintenance
or similar agreement relating to Inventory; (c) all rights of the Debtor
to payment under letters of credit and similar agreements; (d) all
choses in action and causes of action of the Debtor (whether arising in
contract, tort, or otherwise and whether or not currently in litigation)
and all judgments in favor of the Debtor; (e) all rights and claims of
the Debtor under warranties and indemnities; and (f) all rights of the
Debtor under any insurance, surety, or similar contract or arrangement.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory, or administrative functions of or pertaining to
government.
"INVENTORY" means any "inventory", as such term is defined in Section
9.109(4) of the UCC, whether now owned or hereafter acquired by the Debtor, and,
in any event, shall include, without limitation, each of the following, whether
now owned or hereafter acquired by the Debtor: (a) all goods and other personal
property of the Debtor that are held for sale or lease or to be furnished under
any contract of service; (b) all raw materials, work-in-process, finished goods,
inventory, supplies and materials of the Debtor; (c) all wrapping, packaging,
advertising and shipping materials of the Debtor; and (d) all goods that have
been returned to, repossessed by, or stopped in transit by the Debtor.
"PERSON" means any individual, corporation, business trust, association,
company, partnership, joint venture, Governmental Authority, or other entity.
"PROCEEDS" means any "proceeds", as such term is defined in Section 9.306
of the UCC and, in any event, shall include, but not be limited to: (a) any and
all proceeds of any insurance, indemnity, warranty, or guaranty payable to the
Debtor from time to time with respect to any of the Collateral; (b) any and all
payments (in any form whatsoever) made or due and payable to the Debtor from
time to time in connection with any requisition, confiscation, condemnation,
seizure, or forfeiture of all or any part of the Collateral by any Governmental
Authority (or any Person acting under color of Governmental Authority); (c) all
instruments, documents, chattel paper and General Intangibles received or
arising in connection with a disposition of the Collateral; and (d) any and all
other amounts from time to time paid or payable under or in connection with any
of the Collateral.
"UCC" means the Uniform Commercial Code as in effect in the State of
Texas; PROVIDED, that if by mandatory provisions of law, the perfection or
effect of perfection or non-perfection of the security interest created
hereunder in any Collateral is governed by the Uniform Commercial Code as in
effect on or after the date hereof in any other jurisdiction, "UCC" means the
Uniform Commercial Code as in effect in such other jurisdiction for purposes
of the provision hereof relating to such perfection or the effect of
perfection or non-perfection.
<PAGE>
SCHEDULE 1.1 (a)
TO
SOFTWARE SPECTRUM, INC.
CREDIT AGREEMENT
REVOLVING COMMITMENTS
Bank Revolving
---- Commitment
----------
a. The Chase Manhattan Bank $12,500,000
b. Chase Bank of Texas, National Association $12,500,000
c. Wells Fargo Bank, National Association $25,000,000
d. National City Bank, Kentucky $25,000,000
e. PNC Bank, National Association $25,000,000
------------
Total $100,000,000
<PAGE>
SCHEDULE 1.1 (b)
TO
SOFTWARE SPECTRUM, INC.
CREDIT AGREEMENT
EXISTING LETTERS OF CREDIT
<TABLE>
<CAPTION>
Expiration
Number Type Value Date Date Amount
- ------ ---- ---------- ---------- ------
<S> <C> <C> <C> <C>
D463088 IRREV SBY 07/08/96 04/03/99 $4,000,000
D463093 IRREV SBY 07/08/96 04/03/99 4,200,000
D470765 IRREV SBY 05/30/97 04/03/99 45,598
</TABLE>
<PAGE>
SCHEDULE 1.1 (c)
TO
SOFTWARE SPECTRUM, INC.
CREDIT AGREEMENT
CLOSING DATE ADJUSTMENTS
Advancing Banks Amount
--------------- ------
a. Chase Bank of Texas, National Association $3,187,500
b. Wells Fargo Bank, National Association $6,375,000
c. National City Bank, Kentucky $6,375,000
d. PNC Bank, National Association $6,375,000
<PAGE>
SCHEDULE 7.14
TO
SOFTWARE SPECTRUM, INC.
CREDIT AGREEMENT
LIST OF SUBSIDIARIES
1. SOFTWARE SPECTRUM CANADA, LTD.
TYPE: Corporation
JURISDICTION OF ORGANIZATION/INCORPORATION: Ontario, Canada
PERCENTAGE OWNERSHIP BY BORROWER: 100%
AUTHORIZED STOCK: unlimited
ISSUED AND OUTSTANDING: 1,001 common shares
2. SOFTWARE SPECTRUM HOLDINGS PTY, LTD.
TYPE: Corporation
JURISDICTION OF ORGANIZATION/INCORPORATION: Australia
PERCENTAGE OWNERSHIP BY BORROWER: 100%
AUTHORIZED STOCK: One(1) Redeemable Preference Subscriber Share, 100,000
Class A Shares, 100,000 Class B shares, 100,000 Class C
shares, 100,000 Class D shares, 100,000 Class E shares,
100,000 Class F shares, 100,000 Class G shares, 100,000
Class H shares, 100,000 Class I shares, 50,000 Class J
Redeemable preference shares, 49,999 Class K Redeemable
preference shares and 1,000,000 ordinary shares.
ISSUED AND OUTSTANDING: 113,503 ordinary shares
3. SOFTWARE SPECTRUM LIMITED
TYPE: Corporation
JURISDICTION OF ORGANIZATION/INCORPORATION: Ireland
PERCENTAGE OWNERSHIP BY BORROWER: 100%
AUTHORIZED STOCK: 500,000 ordinary shares
ISSUED AND OUTSTANDING: 500,000 ordinary shares
4. SOFTWARE SPECTRUM B.V.
TYPE: corporation
JURISDICTION OR ORGANIZATION/INCORPORATION: Netherlands
PERCENTAGE OWNERSHIP BY BORROWER: 100%
AUTHORIZED STOCK: 200 ordinary shares
ISSUED AND OUTSTANDING: 40 ordinary shares
5. SPECTRUM INTEGRATED SERVICES, INC.
<PAGE>
TYPE: Corporation
JURISDICTION OF ORGANIZATION/INCORPORATION: Texas
PERCENTAGE OWNERSHIP BY BORROWER: 100%
AUTHORIZED STOCK: 1,000,000 shares (common)
ISSUED AND OUTSTANDING: 518,880 shares (common)
6. 731621 ONTARIO, LTD.
TYPE: Corporation
JURISDICTION OF ORGANIZATION/INCORPORATION: Ontario, Canada
PERCENTAGE OWNERSHIP BY BORROWER: 100% (indirectly through Software
Spectrum Canada, Ltd.)
AUTHORIZED STOCK: 100 shares
ISSUED AND OUTSTANDING: 100 shares
7. SOFTWARE SPECTRUM (NZ) LTD.
TYPE: Corporation
JURISDICTION OF ORGANIZATION/INCORPORATION: New Zealand
PERCENTAGE OWNERSHIP BY BORROWER: 100% (indirectly through Software
Spectrum Holdings Pty, Ltd. and
Software Spectrum Pty, Ltd.)
AUTHORIZED STOCK: N/A
ISSUED AND OUTSTANDING: 100 shares
8. SOFTWARE SPECTRUM PTY LIMITED
TYPE: Corporation
JURISDICTION OF ORGANIZATION/INCORPORATION: Australia
PERCENTAGE OWNERSHIP BY BORROWER: 100% (indirectly through Software
Spectrum Holdings Pty, Ltd.)
AUTHORIZED STOCK: 500,000 ordinary shares; 100,000 Class A shares;
100,000 Class B shares, 100,000 Class C shares; 100,000
Class D shares; 100,000 Redeemable Preference Shares
ISSUED AND OUTSTANDING: 3 ordinary shares
9. SOFTWARE SPECTRUM (UK) LIMITED
TYPE: Corporation
JURISDICTION OF ORGANIZATION/INCORPORATION: United Kingdom
PERCENTAGE OWNERSHIP BY BORROWER: 100%
AUTHORIZED STOCK: 1,000 shares
ISSUED AND OUTSTANDING: 2
10. SOFTWARE SPECTRUM
TYPE: Corporation
<PAGE>
JURISDICTION OF ORGANIZATION/INCORPORATION: Hong Kong
PERCENTAGE OWNERSHIP BY BORROWER: 100% (indirectly through Software
Spectrum Holdings Pty. Ltd. and Software
Spectrum Pty, Limited)
AUTHORIZED STOCK: 100,000 shares
ISSUED AND OUTSTANDING: 100 ordinary shares
11. ESSENTIALLY SOFTWARE SPECTRUM PTE.
TYPE: Corporation
JURISDICTION OF ORGANIZATION/INCORPORATION: Singapore
PERCENTAGE OWNERSHIP BY BORROWER: 100% (indirectly through Software
Spectrum Holdings Pty. Ltd. and Software
Spectrum Pty, Limited)
AUTHORIZED STOCK: 100,000 shares
ISSUED AND OUTSTANDING: 100 ordinary shares
12. SOFTWARE SPECTRUM GMBH
TYPE: Corporation
JURISDICTION OF ORGANIZATION/INCORPORATION: Germany
PERCENTAGE OWNERSHIP BY BORROWER: 100%
AUTHORIZED STOCK: 50,000 shares
ISSUED AND OUTSTANDING: 50,000
<PAGE>
SCHEDULE 9.1
TO
SOFTWARE SPECTRUM, INC.
CREDIT AGREEMENT
DEBT
<TABLE>
<CAPTION>
A. SOFTWARE SPECTRUM, INC.
<S> <C> <C>
Deborah Neese
P.O. Box 4697
Seattle, WA 98104 Balance Outstanding $42,000 USD
City of Philadelphia Performance Bond $142,414 USD
County of Montgomery Performance Bond $167,615 USD
Software Spectrum has guaranteed the indebtedness Software Spectrum BV has
incurred or may incur to Ingram Micro, a supplier. Existing credit lines
and outstanding borrowings are as follows:
<CAPTION>
Outstanding
Credit Line Borrowing
<S> <C> <C> <C>
UK 115,000 GBP 18,208 GBP
France 300,000 FRF 46,487 FRF
Belgium 1,400,000 BEF 73,593 BEF
Germany 200,000 DEM 368,034 DEM
Spain 5,000,000 ESP 0 ESP
Italy 80,000,000 ITL 0 ITL
Norway 100,000 NOK 0 NOK
Sweden 500,000 SEK 6,014 SEK
Netherlands Not specified 22,188 NLG
B. SOFTWARE SPECTRUM B.V.
Bank of America has issued
VAT guarantees on behalf of
Software Spectrum B.V. to
Taxing Authorities, leasing
companies or our Audit Firm
in the following European
countries for the following
amounts. These guaranties
are secured by Cash
Collateral Accounts (refer
to Investments Schedule).
<CAPTION>
<S> <C> <C> <C> <C>
Belgium Balance of Guaranty 1,400,000 BEC VAT
France Balance of Guaranty 186,000 FRF VAT
Switzerland Balance of Guaranty 20,000 CHF VAT
BMW Finance (GB) Ltd. Balance of Guaranty 36,868 GBP Car Lease
BMW Germany Balance of Guaranty 35,000 DEM Car Lease
BMW Germany Balance of Guaranty 25,000 DEM Car Lease
Grant Thornton Balance of Guaranty 50,000 USD Audit Firm
</TABLE>
C. SOFTWARE SPECTRUM (NZ) LTD.
Bank of New Zealand
125 Queen Street
Auckland, New Zealand Balance Outstanding- $4,000,000 USD
Revolver
<PAGE>
<TABLE>
<CAPTION>
<S><C>
D. SOFTWARE SPECTRUM PTY LTD.
The Chase Manhattan Bank, N.A.
AAP Centre
259 George Street
Sydney, NSW, Australia Balance Outstanding-Revolver $4,000,000 USD
AMR Finance Phone System
38 South St. Rydalmere, 2116 Capital Lease Balance $3,774 AUS
Konica Finance Fax Machine
7 Greenhill Road, S.A. 5061 Capital Lease Balance $378 AUS
Konica Finance Photocopier
7 Greenhill Road, S.A. 5061 Capital Lease Balance $428 AUS
Canon Finance Fax Machine
l Thoms Holt Drive, N. Ryde Capital Lease Balance $1,753 AUS
Esanda Finance Computer Equipment
116 Miller St. North Sydney Capital Lease Balance $29,247 AUS
CBFC Limited Car
5 Hunter St. Sydney 2000 Capital Lease Balance $11,667 AUS
Toyota Finance
55 Lavender St., Milson Car
Point Capital Lease Balance $36,759 AUS
NSW 2061
</TABLE>
<PAGE>
SCHEDULE 9.2
TO
SOFTWARE SPECTRUM, INC.
CREDIT AGREEMENT
EXISTING LIENS
A. Liens disclosed pursuant to the following financing statements:
- --------------------------------------------------------------------------------
Secured Party File No. File Date Collateral
- --------------------------------------------------------------------------------
Jurisdiction: Texas Secretary of State
- --------------------------------------------------------------------------------
Fleet Credit Corporation 90243699 11/19/90 Copiers
- --------------------------------------------------------------------------------
Lasalle Northwest National Banks 95184967 09/25/95 Computer equipment
- --------------------------------------------------------------------------------
Jurisdiction: Dallas County, Texas
- --------------------------------------------------------------------------------
Fleet Credit Corporation Vol. 90237, 12/05/90 Copiers
P. 3008
- --------------------------------------------------------------------------------
B. Liens in the cash collateral accounts disclosed on Schedule 9.5.
<PAGE>
SCHEDULE 9.5
TO
SOFTWARE SPECTRUM, INC.
CREDIT AGREEMENT
EXISTING INVESTMENTS
<TABLE>
<CAPTION>
<S><C>
- -----------------------------------------------------------------------------------------------------------------------
COUNTRY BANK ACCOUNT TYPE US $ AMOUNT PURPOSE
- -----------------------------------------------------------------------------------------------------------------------
1. CANADA CIBC GIC Contract $ 21,068.90 Non-Resident Tax Bond
CIBC GIC Contract $ 24,580.38 Guarantee for Corp. Credit Card
- -----------------------------------------------------------------------------------------------------------------------
2. US Fidelity Money Market $ $7,500,000.00 Overnight Investment of Excess Cash
Investments Mutual Fund
- -----------------------------------------------------------------------------------------------------------------------
3. EUROPE B of A Restricted Cash $ 60,618.22 Cash Collateral for Auto Lease Guarantee
B of A Restricted Cash $ 50,000.00 VAT Cash Collateral Account-Italy
(Grant Thornton)
B of A Restricted Cash $ 37,379.98 VAT Cash Collateral Account- Belgium
B of A Restricted Cash $ 30,541.37 VAT Cash Collateral Account-France
B of A Restricted Cash $ 19,278.44 Cash Collateral for Auto Lease Guarantee
B of A Restricted Cash $ 13,770.31 Cash Collateral for Auto Lease Guarantee
B of A Restricted Cash $ 13,648.15 VAT Cash Collateral Account- Switzerland
ABN AMRO Restricted Cash $ 55,000.00 VAT Cash Collateral Account-Netherlands
ABN AMRO Restricted Cash $ 5,000.00 Cash Collateral for Hague Rent Payments
- -----------------------------------------------------------------------------------------------------------------------
4. AUSTRALIA Chase Bank Treasury Call $ -- Overnight Investment of Excess Cash
Australia Deposits
- -----------------------------------------------------------------------------------------------------------------------
5. NEW ZEALAND Bank of Overnight Cash $ -- Overnight Investment of Excess Cash
New Zealand Accounts
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $ 7,830,885.75
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 11,361
<SECURITIES> 0
<RECEIVABLES> 169,516
<ALLOWANCES> 2,533
<INVENTORY> 8,169
<CURRENT-ASSETS> 191,184
<PP&E> 36,424
<DEPRECIATION> 16,081
<TOTAL-ASSETS> 263,790
<CURRENT-LIABILITIES> 161,564
<BONDS> 26,948
0
0
<COMMON> 44
<OTHER-SE> 75,234
<TOTAL-LIABILITY-AND-EQUITY> 263,790
<SALES> 653,578
<TOTAL-REVENUES> 653,578
<CGS> 579,060
<TOTAL-COSTS> 579,060
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,477
<INTEREST-EXPENSE> 2,803
<INCOME-PRETAX> 5,713
<INCOME-TAX> 2,606
<INCOME-CONTINUING> 3,107
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,107
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.71
</TABLE>
