<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report
July 2, 1996
------------
Solo Serve Corporation
----------------------
(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
0-19994 74-2048057
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(Commission File Number) (I.R.S. Employer Identification Number)
1610 Cornerway Blvd.
San Antonio, Texas 78219
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(210) 662-6262
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Page 1 of 34 Pages
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ITEM 5. OTHER EVENTS.
On June 20, 1995, the Company entered into a Loan and Security Agreement
with Congress Financial Corporation (Southwest) ("Congress") pursuant to which
Congress agreed to provide a revolving credit facility and letter of credit
accommodations in an amount up to the borrowing base as calculated pursuant to
the loan agreement, which may not exceed $15,000,000 (the "Credit Facility").
The Credit Facility is secured by a first lien on substantially all of the
assets of the Company, including inventory and accounts receivable. The
availability of loans under the Credit Facility is determined by an advance
rate formula.
In order to increase loan availability under the Credit Facility, General
Atlantic Corporation ("General Atlantic"), the Company's principal stockholder,
has furnished to Congress a letter of credit in the amount of $1,500,000 (the
"GAC L/C") to serve as additional collateral for the Credit Facility. As
consideration for General Atlantic's agreement to provide the GAC L/C, the
Company agreed to (a) pay General Atlantic the sum of $100 per year, (b)
reimburse General Atlantic for the amount, if any, which it is required to
reimburse to any issuing or confirming bank which honors any drafts under the
GAC L/C, (c) pay General Atlantic interest on any amounts drawn under the GAC
L/C at Chemical Bank's prime rate plus one percent (1%), and (d) grant General
Atlantic a second lien security interest (behind Congress) on substantially all
of the assets of the Company.
In part as a result of General Atlantic's agreement to provide the GAC
L/C, the Company and Congress entered into Amendment No. 3 to the Credit
Facility dated as of June 26, 1996 ("Amendment No. 3"). Amendment No. 3
increased the amount available to the Company under the Credit Facility by
increasing the advance rate under the Credit Facility to sixty percent (60%) of
the value of eligible inventory for any date of determination occurring from
July 1 through December 10 and fifty-five percent (55%) of the value of
eligible inventory for any other date of determination, compared to previous
allowances of fifty-two percent (52%) of the value of eligible inventory for
any date of determination occurring from September 1 through December 10 and
forty-two percent (42%) for any other date of determination.
Amendment No. 3 also amended certain financial covenants in the Credit
Facility to reduce the Company's adjusted net worth requirement from $7,500,000
for the remainder of Fiscal 1996 to $4,250,000 for the remaining term of the
Credit Facility, and increased the termination fee during the last year of the
Credit Facility from $75,000 to $150,000. Amendment No. 3 does not affect
existing covenants under the Credit Facility that require the Company to
maintain minimum working capital of $7.2 million and a $2.5 million limitation
on capital expenditures, net of insurance or other proceeds resulting from the
disposal or sale of fixed assets, for the remainder of Fiscal 1996.
Page 2 of 34 Pages
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Under the Credit Facility, Congress may establish and revise availability
reserves in its sole discretion to cover risks or events it perceives may
affect its security under the Credit Facility or the business or prospects of
the Company. As a result of the formula by which the borrowing base is
calculated, an increase in availability reserves restricts the Company's access
to borrowings under the Credit Facility. As of the date of this report, the
availability reserve under the Credit Facility was approximately $600,000.
Although no assurances can be provided, the Company believes that the
additional borrowings available as a result of Amendment No. 3 will assist the
Company in responding to vendor and factor concerns regarding its
creditworthiness. The Company continues to evaluate other measures designed to
improve operating results, some of which may also enhance liquidity. However,
the Company has continued to experience operating losses and no assurance can
be given that the Company will be successful in its efforts to improve sales
and operations and reverse recent operating trends.
Page 3 of 34 Pages
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits. The following exhibits are filed as part of this report:
Number Document
------ --------
10.1 Amendment No. 3 to Loan and Security Agreement by and between
Solo Serve Corporation and Congress Financial Corporation
(Southwest) dated as of June 26, 1996.
10.2 Letter of Credit and Security Agreement between Solo Serve
Corporation and General Atlantic Corporation dated as of June 26,
1996.
10.3 Intercreditor and Subordination Agreement between Congress
Financial Corporation (Southwest) and General Atlantic
Corporation dated as of June 26, 1996, as acknowledged and agreed
to by Solo Serve Corporation.
Page 4 of 34 Pages
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SIGNATURES
Pursuant to the requirement 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.
SOLO SERVE CORPORATION
By: /s/ David P. Dash
------------------------------
David P. Dash, President
Dated: July 2, 1996
Page 5 of 34 Pages
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
No. Description Numbered Page
- ------- ----------- -------------
<S> <C> <C>
10.1 Amendment No. 3 to Loan and Security Agreement by and between Solo 7
Serve Corporation and Congress Financial Corporation (Southwest)
dated as of June 26, 1996.
10.2 Letter of Credit and Security Agreement between Solo Serve 15
Corporation and General Atlantic Corporation dated as of June 26,
1996.
10.3 Intercreditor and Subordination Agreement between Congress Financial 21
Corporation (Southwest) and General Atlantic Corporation dated as of
June 26, 1996, as acknowledged and agreed to by Solo Serve
Corporation.
</TABLE>
Page 6 of 34 Pages
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EXHIBIT 10.1
AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT
SOLO SERVE CORPORATION
1610 Cornerway Boulevard
San Antonio, Texas 78219
June 26, 1996
Congress Financial Corporation (Southwest)
1201 Main Street
Dallas, Texas 75250
Gentlemen:
Congress Financial Corporation (Southwest) ("Lender") and Solo Serve
Corporation ("Borrower") have entered into certain financing arrangements
pursuant to the Loan and Security Agreement, dated June 20, 1995, between
Lender and Borrower, as amended by Amendment No. 1 to Loan and Security
Agreement, dated October 27, 1995 and Amendment No. 2 to Loan and Security
Agreement, dated January 31, 1996 (and as amended hereby and as the same may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced, the "Loan Agreement", together with all agreements, documents and
instruments at any time executed and/or delivered in connection therewith or
related thereto, collectively, the "Financing Agreements").
Borrower has requested that Lender agree to certain amendments to the
Loan Agreement and the other Financing Agreements, and Lender is willing to
agree to such amendments, subject to the terms and conditions contained herein.
By this Amendment, Lender and Borrower desire and intend to evidence such
amendments.
In consideration of the foregoing and the agreements and covenants
contained herein, the parties hereto agree as follows:
1. Definitions.
(a) Additional Definitions. As used herein, the
following terms shall have the respective meanings given to them below, and the
Loan Agreement is hereby amended to include, in addition and not in limitation,
each of the following definitions:
(i) "Amendment No. 3" shall mean this
Amendment No. 3 to Loan and Security Agreement between Lender and Borrower.
(ii) "GAC" shall mean General Atlantic
Corporation, a Delaware corporation, and its successors and assigns.
<PAGE> 2
(iii) "GAC L/C" shall mean the irrevocable standby
letter of credit, in form and substance satisfactory to Lender, to be obtained
by GAC for the benefit of Lender, to be issued or confirmed by a U.S. bank, in
the face amount of $1,500,000.
(b) Interpretation. All capitalized terms used herein
shall have the meanings assigned thereto in the Loan Agreement, unless
otherwise defined herein.
2. Amendments.
(a) Section 2.1(a) of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
"(a) Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to Borrower from time to
time in amounts requested by Borrower up to the amount equal to:
(i) the least of the following: (A) either the
amount equal to: (1) sixty percent (60%) for any date of determination
occurring from July 1 through December 10 of the Value of Eligible
Inventory, or (2) fifty-five percent (55%) for any other date of
determination, of the Value of Eligible Inventory or (B) the amount
equal to: (1) the percentage equal to eighty (80%) percent of the
appraised value of the Eligible Inventory expressed as a percentage of
cost of a "going out of business" sale as set forth in the most recent
appraisal delivered to Lender pursuant to Section 7.3 hereof (net of
liquidation expenses) multiplied by (2) the Value of Eligible
Inventory or (C) the Maximum Credit; less
(ii) an amount equal to the sum of (i) either (a)
forty percent (40%) for any date of determination from July 1 through
December 10 or (b) forty-five percent (45%) for any other date of
determination, of the then undrawn amounts of Letter of Credit
Accommodations issued for the purpose of purchasing Eligible
Inventory, plus (ii) one hundred percent (100%) of the face amount of
the outstanding Letter of Credit Accommodations issued for any purpose
other than as set forth in Section 2.1(a)(ii)(A) above; less
(iii) the amount equal to all Obligations
outstanding at any time and from time to time (other than Obligations
otherwise set forth in Section 2.1(a)(ii) hereof); less
(iv) any Availability Reserves."
(b) Section 2.2(c) of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
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"(c) No Letter of Credit Accommodations shall be available
unless on the date of the proposed issuance of any Letter of Credit
Accommodations, the Revolving Loans available to Borrower (subject to
the Maximum Credit, any Availability Reserves and any other
limitations imposed by Section 2.1 hereof) are equal to or greater
than: (i) if the proposed Letter of Credit Accommodation is for the
purpose of purchasing Eligible Inventory, the sum of (A) forty percent
(40%) for any date of determination from July 1 through December 10
and (B) forty-five percent (45%) for any other date of determination,
of the sum of (1) the cost of such Eligible Inventory plus (2)
freight, taxes, duty and other amounts which Lender estimates must be
paid in connection with such Inventory upon arrival and for delivery
to one of Borrower's locations for Eligible Inventory within the
United States of America and (ii) if the proposed Letter of Credit
Accommodation is for any other purpose, an amount equal to one hundred
(100%) percent of the face amount thereof and all other commitments
and obligations made or incurred by Lender with respect thereto.
Effective on the issuance of each Letter of Credit Accommodation, the
amount of Revolving Loans which might otherwise be available to
Borrower shall be reduced by the applicable amount set forth in
Section 2.2(c)(i) or Section 2.2(c)(ii)."
(c) Section 2 of the Loan Agreement is hereby amended by
adding a new Section 2.5 thereto as follows:
"2.5 GAC L/C. The GAC L/C shall remain in full force and
effect for the initial and any renewal term of this Agreement and for
a period of one hundred twenty (120) days after the date of the
termination of this Agreement and the full and final payment of all
Obligations other than contingent Obligations for which cash
collateral or other security acceptable to Lender has been furnished
to Lender. In the event of any draw by Lender on the GAC L/C, Lender
may, at its option, either apply the amount of such draw received by
Lender to the repayment of the Obligations in such order and manner as
Lender may determine (and, subject to the right of Lender to establish
an Availability Reserve in an amount equal to the funds received
pursuant to such draw) or to hold any or all of the funds received by
Lender pursuant to such draws as cash collateral, on terms and
conditions acceptable to Lender (and in such event Borrower shall
execute and deliver to Lender such other agreements with respect
thereto as Lender may require). Borrower does not have and shall not
have any property or other interest in the GAC L/C or in any funds
available or drawn thereunder. Lender may from time to time review
(a) the financial condition and credit or other applicable rating of
the bank which is the issuer and which is the U.S. confirming bank of
the GAC L/C and (b) other matters which are reasonable for Lender to
consider in connection with the GAC L/C. In the event of any change
(a) in such financial condition or credit, or other applicable rating
of such
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issuing or confirming bank or (b) involving such other matters, within
thirty (30) days after the request from Lender, Borrower shall cause
GAC to provide a replacement letter or letters of credit payable to
Lender with the same terms and for the same amounts as the GAC L/C
issued and confirmed by such other United States banks as may be
acceptable to Lender. This Section 2.5 shall survive the repayment of
the Obligations and the termination or non-renewal of this Agreement.
(d) Section 9.8 of the Loan Agreement is hereby amended
by adding a new Section 9.8(g) thereto as follows:
"(g) liens and security interests in favor of GAC to
secure the indebtedness of Borrower to GAC permitted under Section
9.9(f) below; provided, that, the priority and rights with respect
thereto of Lender and GAC are subject to an intercreditor agreement
between GAC and Lender in form and substance satisfactory to Lender."
(e) Section 9.9 of the Loan Agreement is hereby amended
by adding a new Section 9.9(f) thereto as follows:
"(f) indebtedness of Borrower to GAC pursuant to financing
arrangements and documents, agreements, and/or instruments described
on Exhibit A to Amendment No. 3; provided, that, (i) such indebtedness
is subject to an intercreditor agreement between GAC and Lender in
form and substance satisfactory to Lender, (ii) Borrower shall not,
directly or indirectly, (A) amend, modify, alter or change the terms
of such indebtedness or any agreement, document or instrument related
thereto as in effect on the date hereof, or (B) redeem, retire,
defease, purchase or otherwise acquire such indebtedness, or set aside
or otherwise deposit or invest any sums for such purpose and (iii)
Borrower shall furnish to Lender all notices or demands in connection
with such indebtedness either received by Borrower or on its behalf,
promptly after the receipt thereof, or sent by Borrower or on its
behalf, concurrently with the sending thereof, as the case may be."
(f) Section 9.11 of the Loan Agreement is hereby amended
by adding a new Section 9.11(iv) thereto as follows:
"(iv) the terms and provisions of Section 2.1(a) and 2.2(c) hereof
shall be the terms and provisions of such Sections as were in effect
immediately prior to the effectiveness of Amendment No. 3."
(g) Section 9.15 of the Loan Agreement is hereby deleted
in its entirety and replaced with the following:
"9.15 Adjusted Net Worth. Borrower shall at all times maintain
Adjusted Net Worth of not less than $4,250,000."
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<PAGE> 5
(h) Section 10.1 of the Loan Agreement is hereby amended
by adding a new Section 10.1(r) thereto as follows:
"(r)" (i) Lender receives notice from the issuer or
confirming bank of the GAC L/C that the GAC L/C will not be extended
or renewed or (ii) the GAC L/C shall otherwise not be extended or
renewed or (iii) the GAC L/C shall not remain in full force and effect
for the initial and any renewal term of this Agreement and for a
period of one hundred twenty (120) days after the date of the
termination of this Agreement and the full and final payment of all
Obligations other than contingent Obligations for which cash
collateral or other security acceptable to Lender has been furnished
to Lender or (iv) the GAC L/C shall cease to be in full force and
effect or (v) the GAC L/C shall be void or invalid or (vi) the
validity of the GAC L/C shall be contested by the issuer or confirming
bank thereof or by the applicant with respect thereto or (vii)
Borrower, or the issuer or confirming bank of the GAC L/C shall fail
to honor any draw thereunder in accordance with its terms, deny it has
any further liability or obligation thereunder or shall revoke,
terminate or purport to revoke or terminate the GAC L/C, or (viii) any
injunctive relief or restraining order is sought or granted which does
or would, if granted, limit or impair the right of Lender to draw
under the GAC L/C in accordance with the terms thereof or retain any
funds drawn thereunder."
(i) Each of Sections 12.1(c)(i), 12.1(c)(ii),
12.1(c)(iii) and 12.1(c)(iv) of the Loan Agreement is hereby deleted in its
entirety and replaced with the following:
"(i) 2% of Maximum Credit the date of Amendment No. 3
to and including the first
anniversary of the date of
Amendment No. 3
(ii) 1% of Maximum Credit after the first anniversary
of the date of Amendment No.
3 and within the current term
or within any subsequent
renewal term of this
Agreement"
3. Representations, Warranties and Covenants. In addition to the
continuing representations, warranties and covenants heretofore or hereafter
made by Borrower to Lender pursuant to the Financing Agreements, Borrower
hereby represents, warrants and covenants with and to Lender as follows (which
representations, warranties and covenants are continuing and shall survive the
execution and delivery hereof and shall be incorporated into and made a part of
the Financing Agreements):
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(a) No Event of Default exists on the date of this
Amendment (after giving effect to the amendments to the Financing Agreements
made by this Amendment).
(b) This Amendment has been duly executed and delivered
by Borrower and is in full force and effect as of the date hereof, and the
agreements and obligations of Borrower contained herein constitute legal, valid
and binding obligations of Borrower enforceable against Borrower in accordance
with their respective terms.
4. Conditions Precedent. The effectiveness of the amendments
contained herein shall be subject to the satisfaction of the following
conditions precedent in a manner satisfactory to Lender and its counsel:
(a) the receipt by Lender of an original of this
Amendment, duly authorized, executed and delivered by Borrower;
(b) no Event of Default shall have occurred and be
continuing and no event shall have occurred or condition be existing and
continuing which, with notice or passage of time or both, would constitute an
Event of Default;
(c) the receipt by Lender of an original of the GAC L/C;
(d) the receipt by Lender of a true, correct and complete
copy of each of the agreements, documents and/or instruments between Borrower
and GAC with respect to the secured indebtedness of Borrower in favor of GAC
described in the intercreditor agreement, dated on or about the date of
Amendment No. 3, between Lender and GAC, each duly authorized, executed and
delivered by the parties thereto;
(e) the receipt by Lender of an original of the
intercreditor agreement, dated on or about the date of Amendment No. 3, between
Lender and GAC with respect to the secured indebtedness of Borrower in favor of
each of Lender and GAC, duly authorized, executed and delivered by the parties
thereto; and
(f) the receipt by Lender of the certified (i)
certificate or articles of incorporation of GAC, (ii) bylaws of GAC, (iii) good
standing certificates of GAC from its state of incorporation and where
qualified to do business and (iv) resolutions of GAC in connection with the
transactions contemplated by this Amendment.
5. Effect of this Amendment. Except as modified pursuant hereto,
no other changes or modifications to the Financing Agreements are intended or
implied and in all other respects the Financing Agreements are hereby
specifically ratified, restated and confirmed by all parties hereto as of the
effective date hereof. To the extent of conflict between the terms of this
Amendment and the other Financing Agreements, the terms of this
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Amendment shall control. The Loan Agreement and this Amendment shall be read
and construed as one agreement.
6. Further Assurances. The parties hereto shall execute and
deliver such additional documents and take such additional action as may be
necessary or desirable to effectuate the provisions and purposes of this
Amendment.
7. Governing Law. The rights and obligations hereunder of each
of the parties hereto shall be governed by and interpreted and determined in
accordance with the laws of the State of Texas (without giving effect to
principles of conflicts of law).
8. Binding Effect. This Amendment shall be binding upon and
inure to the benefit of each of the parties hereto and their respective
successors and assigns.
9. Counterparts. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one
and the same agreement. In making proof of this Amendment, it shall not be
necessary to produce or account for more than one counterpart thereof signed by
each of the parties hereto.
Please sign the enclosed counterpart of this Amendment in the space
provided below, whereupon this Amendment, as so accepted by Lender, shall
become a binding agreement between Borrower and Lender.
Very truly yours,
SOLO SERVE CORPORATION
By: /s/ DAVID P. DASH
------------------------------------
Title: President
---------------------------------
AGREED:
CONGRESS FINANCIAL CORPORATION
(SOUTHWEST)
By: /s/ Edward B. Franco
----------------------------------
Title: Vice President
-------------------------------
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EXHIBIT A
GAC Borrower Agreements
Letter of Credit and Security Agreement, dated as of the date
hereof, by and between GAC and Borrower.
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<PAGE> 1
EXHIBIT 10.2
LETTER OF CREDIT AND SECURITY AGREEMENT
This Letter of Credit and Security Agreement (this "Agreement") is
made and entered into as of June 26, 1996, by and between General Atlantic
Corporation, a Delaware corporation ("GAC" or "Secured Party") and Solo Serve
Corporation, a Delaware corporation ("Solo Serve" or "Debtor").
WHEREAS, Congress Financial Corporation (Southwest) ("Congress") and
Solo Serve have entered into certain financing arrangements pursuant to a Loan
and Security Agreement dated June 20, 1995, between Congress and Solo Serve, as
amended by Amendment No. 1 to Loan and Security Agreement dated October 27,
1995, Amendment No. 2 to Loan and Security Agreement dated January 31, 1996,
and Amendment No. 3 to Loan and Security Agreement ("Amendment No. 3") dated
June 26, 1996 (as the same may hereinafter be amended, modified, supplemented,
extended, renewed, restated or replaced, the "Loan Agreement"); and
WHEREAS, as of the date hereof GAC owns 62.3%, on a fully diluted
basis, of the issued and outstanding shares of common stock of Solo Serve; and
WHEREAS, as part of the consideration for Congress agreeing to the
matters set forth in Amendment No. 3, Solo Serve has requested that GAC provide
for the benefit of Congress an Irrevocable Standby Letter of Credit in the face
amount of $1,500,000 (the "GAC L/C") which meets the requirements set forth in
Amendment No. 3;
WHEREAS, GAC has agreed to provide the GAC L/C subject to the terms
and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, GAC and Solo Serve hereby agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein
shall have the same meanings as in the Loan Agreement, the terms and provisions
of which are incorporated herein by this reference. For purposes of this
Agreement, the following terms shall have the respective meanings given to them
below:
1.1 "Intercreditor Agreement" shall mean that one certain
Intercreditor and Subordination Agreement dated as of June 26, 1996 by and
between Congress and GAC, the terms and provisions of which are incorporated
herein by this reference as the same may hereinafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.2 "Obligations" shall mean any and all loans, letter of credit
accommodations, reimbursement obligations and all other obligations,
liabilities and indebtedness of every
1
<PAGE> 2
kind, nature, description owing by Solo Serve to GAC, arising out of or as
contemplated by this Agreement, whether now existing or hereafter arising,
whether arising before, during or after the initial or any renewal term of this
Agreement or the Loan Agreement, whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured and however acquired by GAC.
1.3 "Prime Rate" shall mean the rate of interest from time to time
publicly announced by Chemical Bank or its successors at its offices in New
York, New York, as its prime or base commercial lending rate, whether or not
such announced rate is the best rate available at such bank.
2. Letter of Credit. GAC agrees to provide the GAC L/C for the
benefit of Congress.
3. Solo Serve Payments. In consideration of GAC's agreement, and
subject to the terms and conditions of the Intercreditor Agreement, Solo Serve
agrees to:
(a) Pay GAC the sum of One Hundred and No/100 Dollars ($100.00)
per year for each year that this Agreement is in effect;
(b) Reimburse GAC for (i) all customary and reasonable letter of
credit fees charged by any issuing and confirming banks with
respect to the GAC L/C and any renewals thereof or amendments
thereto, provided however, such bank fees shall not exceed
$30,000.00 for any calendar year that this Agreement is in
effect and (ii) other reasonable third party costs and
expenses incurred by GAC in connection with the furnishing of
the GAC L/C, provided however, such third party costs and
expenses shall not to exceed $10,000 for any calendar year
that this Agreement is in effect;
(c) Reimburse GAC, upon demand, an amount equal to the amount
which GAC is required to pay any issuing bank or confirming
bank with respect to any drawings under the GAC L/C; and
(d) Pay GAC interest at a rate equal to the lesser of (i) the
maximum non-usurious rate of interest permitted by applicable
law or (ii) the Prime Rate in effect from time to time plus
one per cent (1%) adjusted daily on the amount outstanding
from time to time under Section 3(c) above.
Solo Serve's obligations under this Section 3 shall survive the
termination of this Agreement.
4. Security Interest. Further, in consideration of GAC's
agreement to provide the GAC L/C and in order to secure payment and performance
of the Obligations, Solo Serve as Debtor hereby grants to GAC as Secured Party
a continuing security interest in
2
<PAGE> 3
and lien upon and the right of set-off against and hereby assigns to GAC as
security, the following property and interests in property, whether now owned
or hereafter acquired or existing, and wherever located (collectively, the
"Collateral"), which security interest and lien is and shall be subordinate to
the security interest and lien of Congress in the Collateral pursuant to the
Intercreditor Agreement:
4.1 Accounts;
4.2 All present and future contract rights, general intangibles
(including, but not limited to, any and all rights to payments of cash held by
factors ("Factors"), tax and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee, choses in action and other
claims), chattel paper, documents, instruments, letters of credit, bankers'
acceptances and guaranties;
4.3 All present and future monies, securities, credit balances,
deposits and deposit accounts and other property of Debtor now or hereafter
held or received by or in transit to Secured Party or its affiliates or at any
other depository or other institution from or for the account of Debtor,
whether for safekeeping, pledge, custody, transmission, collection or
otherwise, and all present and future liens, security interests, rights,
remedies, title and interest in, to and in respect of Accounts and other
collateral, including, without limitation, rights and remedies under or
relating to guaranties, contracts of suretyship, letters of credit and credit
and other insurance related to the Collateral, rights of stoppage in transmit,
replevin, repossession, reclamation and other rights and remedies of an unpaid
vendor, lienor or secured party, finished goods inventory described in
invoices, documents, contracts or instruments with respect to, or otherwise
representing or evidencing, Accounts or other collateral, including, without
limitation, returned, repossessed and reclaimed finished goods inventory, and
deposits by and property of account debtors or other persons securing the
obligations of account debtors;
4.4 Inventory;
4.5 Equipment;
4.6 Records;
4.7 All parts, accessories, attachments, special tools, additions,
replacements, substitutions and accessions to or for any or all of the
foregoing; and
4.8 All products and proceeds of the foregoing, in any form,
including, without limitation, insurance proceeds and all claims against third
parties for loss or damage to or destruction of any or all of the foregoing.
3
<PAGE> 4
Notwithstanding anything to the contrary contained in Sections 4.5 and
4.7 above, the types or items of Collateral described in such Sections shall
not include any such types or items of Collateral which are, on the date of the
execution of this Agreement, subject to a lien or security interest itemized on
Schedule 8.4(a) to the Loan Agreement if: (a) the valid grant of a security
interest or lien to Secured Party in such items of Collateral is prohibited by
the terms of the agreement between Debtor and the holder of such lien or
security interest and (b) any obligations are owing by Debtor to the holder of
such lien or security interest.
5. Default and Remedies. Subject to the terms of the
Intercreditor Agreement, upon the failure of Solo Serve to comply with any of
its obligations hereunder as and when due or upon the occurrence of an Event of
Default under the Loan Agreement, GAC shall be entitled to exercise all the
rights and remedies of a secured party under the Uniform Commercial Code of the
State of Texas.
6. Term. This Agreement shall become effective as of the date
hereof and shall continue in full force and effect until the earlier of: (a)
the expiration of the GAC L/C by its own terms or (b) 120 days after the
termination of the Loan Agreement, provided, however the payment obligations of
Solo Serve and the liens and security interests granted herein shall remain in
full force and effect until the Obligations are irrevocably and indefeasibly
paid in full.
7. Notices. All notices, requests and demands hereunder shall be
in writing and (a) made to Secured Party at its address set forth below and to
Debtor at its chief executive office set forth below, or to such other address
as either party may designate by written notice to the other in accordance with
this provision, and (b) deemed to have been given or made: if delivered in
person, immediately upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon confirmation of receipt; if by
nationally recognized overnight courier service with instructions to deliver
the next business day, one (1) business day after sending; and if by certified
mail, return receipt requested, five (5) days after mailing.
8. Partial Invalidity. If any provision of this Agreement is
held to be invalid or unenforceable, such invalidity or unenforceability shall
not invalidate this Agreement as a whole, but this Agreement shall be construed
as though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
9. Successors. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by Secured Party, Debtor and their respective
successors and assigns, except that Debtor may not assign its rights under this
Agreement or any other document referred to herein without the prior written
consent of Secured Party.
4
<PAGE> 5
10. Entire Agreement. This Agreement and any instruments or
documents delivered or to be delivered in connection herewith or therewith
represent the entire agreement and understanding concerning the subject matter
hereof and thereof between the parties hereto, and supersedes all other prior
agreements, understandings, negotiations and discussions, representations,
warranties, commitments, proposals, offers and contracts concerning the subject
matter hereof, whether oral or written.
11. Nonapplicability of Article 5069-15.01 et. seq. Debtor and
Secured Party hereby agree that, except for Section 15.10(b) thereof, the
provisions of Tex. Rev. Civ. Stat. Ann. art. 5069-15.01 et seq.(Vernon 1987)
(regulating certain revolving credit loans and revolving tri-party accounts)
shall not apply to this Agreement.
12. Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT AND ANY
DISPUTE ARISING OUT OF THE RELATIONSHIP BETWEEN THE PARTIES HERETO, WHETHER IN
CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE INTERNAL LAWS OF
THE STATE OF TEXAS (WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW).
13. Subordination. THE RIGHTS OF GAC HEREUNDER ARE SUBJECT TO THE
TERMS AND CONDITIONS OF THE INTERCREDITOR AGREEMENT, AND ARE SUBORDINATE IN
RIGHT OF PAYMENT TO THE PAYMENT OF THE SENIOR DEBT (AS DEFINED IN THE
INTERCREDITOR AGREEMENT).
EXECUTED the date and year first above written.
SOLO SERVE CORPORATION
By: /s/ DAVID P. DASH
-----------------------------------
Its: President
----------------------------------
Chief Executive Office:
1610 Cornerway Blvd.
San Antonio, Texas 78219
5
<PAGE> 6
GENERAL ATLANTIC CORPORATION
By: /s/ Julie Lefkowitz
-----------------------------------
Its: Vice President
----------------------------------
Address before July 1, 1996:
Attn: Ms. Julie Lefkowitz
125 E. 56th Street
New York, N.Y. 10022
Address on and after July 1, 1996:
Attn: Ms. Julie Lefkowitz
118 E. 57th Street
New York, N.Y. 10022
6
<PAGE> 1
EXHIBIT 10.3
INTERCREDITOR AND SUBORDINATION AGREEMENT
THIS INTERCREDITOR AND SUBORDINATION AGREEMENT (this "Intercreditor
Agreement") dated as of June 26, 1996 is by and between CONGRESS FINANCIAL
CORPORATION (SOUTHWEST), a Texas corporation ("Senior Creditor" as hereinafter
further defined) and GENERAL ATLANTIC CORPORATION, a Delaware corporation
("Junior Creditor" as hereinafter further defined). Senior Creditor and Junior
Creditor are sometimes individually referred to herein as a "Creditor" and
collectively as "Creditors."
W I T N E S S E T H:
WHEREAS, Junior Creditor has entered or is about to enter into
financing arrangements with Solo Serve Corporation, a Delaware corporation
("Debtor" as hereinafter further defined), pursuant to which Junior Creditor
has made or may make loans or provide other financial accommodations to Debtor
secured by certain assets and properties of Debtor; and
WHEREAS, Senior Creditor has entered into financing arrangements with
Debtor, pursuant to which Senior Creditor may, upon certain terms and
conditions, make loans and provide other financial accommodations to Debtor
secured by certain assets and properties of Debtor; and
WHEREAS, Creditors desire to enter into this Intercreditor Agreement
to (i) confirm the relative priority of the security interests of each Creditor
in the assets and properties of Debtor, (ii) provide for the orderly sharing
among Creditors, in accordance with such priorities, of proceeds of such assets
and properties upon any foreclosure thereon or other disposition thereof, and
(iii) agree upon the terms of the subordination of the obligations of Debtor to
Junior Creditor and related matters;
NOW THEREFORE, in consideration of the mutual benefits accruing to
Creditors hereunder and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto do hereby agree
as follows:
1. DEFINITIONS
As used above and in this Intercreditor Agreement, the following terms
shall have the meanings ascribed to them below:
1.1 "Agreements" shall mean, collectively, the Senior Creditor
Agreements and the Junior Creditor Agreements.
1.2 "Collateral" shall mean all of the property and interests in
property, real or personal, tangible or intangible, now owned or hereafter
acquired by Debtor in or upon which either
<PAGE> 2
or both of Creditors at any time has a Lien, and including, without limitation,
all proceeds of such property and interests in property.
1.3 "Creditors" shall mean, collectively, Senior Creditor and
Junior Creditor and their respective successors and assigns.
1.4 "Debtor" shall mean Solo Serve Corporation, a Delaware
corporation and its successors and assigns, including, without limitation, a
receiver, trustee or debtor-in-possession on behalf of such person or on behalf
of any such successor or assign.
1.5 "Junior Creditor" shall mean General Atlantic Corporation, a
Delaware corporation and its successors and assigns.
1.6 "Junior Creditor Agreements" shall mean, collectively, the
Letter of Credit and Security Agreement, dated as of the date hereof, by and
between Junior Creditor and Debtor and all financing statements, agreements,
documents and instruments at any time executed and/or delivered by Debtor or
any other person to, with or in favor of Junior Creditor in connection
therewith or related thereto, as all of the foregoing now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.7 "Junior Debt" shall mean all obligations, liabilities and
indebtedness of every kind, nature and description owing by Debtor to Junior
Creditor, including principal, interest, charges, fees, premiums, indemnities
and expenses, however evidenced, whether as principal, surety, endorser,
guarantor or otherwise, whether arising under the Junior Creditor Agreements or
otherwise, whether now existing or hereafter arising, whether arising before,
during or after the initial or any renewal term of the Junior Creditor
Agreements or after the commencement of any case with respect to Debtor under
the U.S. Bankruptcy Code or any similar statute (and including, without
limitation, any principal, interest, fees, costs, expenses and other amounts,
whether or not such amounts are allowable in whole or in part, in any such case
or similar proceeding), whether direct or indirect, absolute or contingent,
joint or several, due or not due, primary or secondary, liquidated or
unliquidated, secured or unsecured, and whether arising directly or howsoever
acquired by Junior Creditor.
1.8 "Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, deposit arrangement, security interest, encumbrance
(including, but not limited to, easements, rights of way and the like), lien
(statutory or other), security agreement or transfer intended as security,
including without limitation, any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease or any
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financing lease having substantially the same economic effect as any of the
foregoing.
1.9 "Loan and Security Agreement" shall mean the Loan and Security
Agreement, dated June 20, 1995, by and between Senior Creditor and Debtor, as
amended to date, and as may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
1.10 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including, without limitation, any
corporation which elects subchapter S status under the Internal Revenue Code of
1986, as amended), business trust, unincorporated association, joint stock
company, trust, joint venture, or other entity or any government or any agency
or instrumentality or political subdivision thereof.
1.11 "Senior Creditor" shall mean Congress Financial Corporation
(Southwest), a Texas corporation, and its successors and assigns.
1.12 "Senior Creditor Agreements" shall mean, collectively, the
Loan and Security Agreement and all financing statements, agreements, documents
and instruments at any time executed and/or delivered by Debtor or any other
person to, with or in favor of Senior Creditor in connection therewith or
related thereto, as all of the foregoing now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
1.13 "Senior Debt" shall mean any and all obligations, liabilities
and indebtedness of every kind, nature and description owing by Debtor to
Senior Creditor and/or its affiliates or participants, including principal,
interest, charges, fees, premiums, indemnities and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise, whether arising
under Senior Creditor Agreements or otherwise, whether now existing or
hereafter arising, whether arising before, during or after the initial or any
renewal term of the Senior Creditor Agreements or after the commencement of any
case with respect to Debtor under the U.S. Bankruptcy Code or any similar
statute (and including, without limitation, any principal, interest, fees,
costs, expenses and other amounts, whether or not such amounts are allowable in
whole or in part in any such case or similar proceeding), whether direct or
indirect, absolute or contingent, joint or several, due or not due, primary or
secondary, liquidated or unliquidated, secured or unsecured, and whether
arising directly or howsoever acquired by Senior Creditor.
1.14 All terms defined in the Uniform Commercial Code as in effect
in the State of Texas, unless otherwise defined herein shall have the meanings
set forth therein. All references to any
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<PAGE> 4
term in the plural shall include the singular and all references to any term in
the singular shall include the plural.
2. SECURITY INTERESTS; PRIORITIES; REMEDIES
2.1 Each Creditor hereby acknowledges that the other Creditor has
been granted a Lien upon the Collateral.
2.2 Notwithstanding the order or time of attachment, or the order,
time or manner of perfection, or the order or time of filing or recordation of
any document or instrument, or other method of perfecting a security interest
in favor of each Creditor in any Collateral, and notwithstanding any
conflicting terms or conditions which may be contained in any of the
Agreements, the Liens upon the Collateral of Senior Creditor have and shall
have priority over the Liens upon the Collateral of Junior Creditor and such
Liens of Junior Creditor are and shall be, in all respects, subject and
subordinate to the Liens of Senior Creditor therein to the full extent of the
Senior Debt.
2.3 The lien priorities provided in Section 2.2 shall not be
altered or otherwise affected by any amendment, modification, supplement,
extension, renewal, restatement or refinancing of either the Senior Debt or the
Junior Debt, nor by any action or inaction which any Creditor may take or fail
to take in respect of the Collateral.
2.4 Each Creditor shall be solely responsible for perfecting and
maintaining the perfection of its Lien in and to each item constituting the
Collateral in which such Creditor has been granted a Lien. The foregoing
provisions of this Agreement are intended solely to govern the respective lien
priorities as between the Creditors and shall not impose on Senior Creditor any
obligations in respect of the disposition of proceeds of foreclosure on any
Collateral which would conflict with prior perfected claims therein in favor of
any other person or any order or decree of any court or other governmental
authority or any applicable law. Junior Creditor agrees that it will not
contest the validity, perfection, priority or enforceability of the Liens upon
the Collateral of Senior Creditor and that as between Senior Creditor and
Junior Creditor, the terms of this Intercreditor Agreement shall govern even if
part or all of the Senior Debt or the Liens securing payment and performance
thereof are avoided, disallowed, set aside or otherwise invalidated in any
judicial proceeding or otherwise.
2.5 Senior Creditor shall have the exclusive right to manage,
perform and enforce the terms of the Senior Creditor Agreements with respect to
the Collateral, to exercise and enforce all privileges and rights thereunder
according to its discretion and the exercise of its business judgment,
including, without limitation, the exclusive right to take or retake control
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<PAGE> 5
or possession of such Collateral and to hold, prepare for sale, process, sell,
lease, dispose of, or liquidate such Collateral.
2.6 Notwithstanding anything to the contrary contained in any of
the Agreements, only Senior Creditor shall have the right to restrict or
permit, or approve or disapprove, the sale, transfer or other disposition of
Collateral. Junior Creditor shall, immediately upon the request of Senior
Creditor, release or otherwise terminate its Liens on the Collateral to the
extent such Collateral is sold or otherwise disposed of either by Senior
Creditor, its agents, or Debtor with the consent of Senior Creditor and Junior
Creditor shall immediately deliver such release documents as Senior Creditor
may require in connection therewith.
2.7 Notwithstanding any rights or remedies available to a Creditor
under any of the Agreements, applicable law or otherwise, Junior Creditor shall
not, directly or indirectly, (a) seek to collect from Debtor (including,
without limitation, from or by way of any Collateral) any of the Junior Debt or
exercise any of its rights or remedies upon a default or event of default by
Debtor under the Junior Creditor Agreements or otherwise, or (b) seek to
foreclose or realize upon (judicially or non-judicially) its Lien on any
Collateral or assert any claims or interests therein (including, without
limitation, by setoff or notification of account debtors), or (c) commence any
action or proceeding against Debtor or its properties under the U.S. Bankruptcy
Code or any state insolvency law or similar present or future statute, law or
regulation or any proceedings for voluntary liquidation, dissolution or other
winding up of Debtor's business, or the appointment of any trustee, receiver or
liquidator for Debtor or any part of its properties or any assignment for the
benefit of creditors or any marshalling of assets of Debtor, or (d) take any
other action against Debtor and the Collateral. The foregoing shall not in any
way limit or impair the right of Junior Creditor from (i) filing a proof of
claim in any bankruptcy case or from (ii) bidding for and purchasing Collateral
at any private or judicial foreclosure upon such Collateral initiated by Senior
Creditor.
3. SUBORDINATION OF JUNIOR DEBT
3.1 Subordination. Except as specifically set forth in Section
3.2 below, Junior Creditor hereby subordinates its right to payment and
satisfaction of the Junior Debt and the payment thereof, directly or
indirectly, by any means whatsoever, is deferred, to the indefeasible payment
and satisfaction in full of all Senior Debt.
3.2 Permitted Payments. Senior Creditor hereby agrees that,
notwithstanding anything to the contrary contained in Section 3.1, unless and
until the occurrence of an event of
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<PAGE> 6
default or an event which with notice or passage of time or both would
constitute an event of default under the Senior Creditor Agreements, Debtor may
make and Junior Creditor may receive and retain from Debtor regularly scheduled
payments, on an unaccelerated basis, in respect of the Junior Debt in
accordance with the terms of the Junior Creditor Agreements as in effect on the
date hereof (but not any prepayments, non-mandatory payments or any payments
pursuant to acceleration or claims of breach or to acquire any Junior Debt or
otherwise).
3.3 Distributions.
(a) In the event of any distribution, division, or
application, partial or complete, voluntary or involuntary, by operation of law
or otherwise, of all or any part of the assets of Debtor or the proceeds
thereof to the creditors of Debtor or readjustment of the obligations and
indebtedness of Debtor, whether by reason of liquidation, bankruptcy,
arrangement, receivership, assignment for the benefit of creditors, marshalling
of assets of Debtor or any other action or proceeding involving the
readjustment of all or any part of the indebtedness or other obligations of
Debtor or the application of the assets of Debtor to the payment or liquidation
thereof, or upon the dissolution or other winding up of Debtor's business, or
upon the sale of all or substantially all of Debtor's assets, then, and in any
such event, (i) Senior Creditor shall first receive indefeasible payment in
full in cash of all of the Senior Debt prior to the payment of all or any part
of the Junior Debt, and (ii) Senior Creditor shall be entitled to receive any
payment or distribution of any kind or character, whether in cash, securities
or other property, which be payable or deliverable in respect of any or all of
the Junior Debt.
(b) In order to enable Senior Creditor to enforce its
rights under Section 3.3(a) above, Senior Creditor is hereby irrevocably
authorized and empowered (in its own name or in the name of Junior Creditor or
otherwise), but shall have no obligation to, enforce claims comprising any of
the Junior Debt by proof of debt, proof of claim, suit or otherwise and take
generally any action which Junior Creditor might otherwise be entitled to take,
as Senior Creditor may deem necessary or advisable for the enforcement of its
rights or interests hereunder.
(c) To the extent necessary for Senior Creditor to
realize the benefits of the subordination of the Junior Debt provided for
herein (including the right to receive any payment and distributions which
might otherwise be payable or deliverable in respect of the Junior Debt in any
proceeding described in Section 3.3(a) or otherwise), Junior Creditor shall
execute and deliver to Senior Creditor such instruments or documents (together
with such assignments or endorsements as Senior
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<PAGE> 7
Creditor shall deem necessary), as may be reasonably requested by Senior
Creditor.
3.4 Payments Received by Junior Creditor. Except for payments
received by Junior Creditor as provided in Section 3.2 above, should any
payment or distribution or security or instrument or proceeds thereof be
received by Junior Creditor in respect of the Junior Debt, Junior Creditor
shall receive and hold the same in trust, as trustee, for the benefit of Senior
Creditor, segregated from other funds and property of Junior Creditor and shall
forthwith deliver the same to Senior Creditor (together with any endorsement or
assignment of Junior Creditor where necessary), for application to any of the
Senior Debt. In the event of the failure of the Junior Creditor to make any
such endorsement or assignment to Senior Creditor, Senior Creditor, or any of
its officers or employees, are hereby irrevocably authorized on behalf of
Junior Creditor to make the same.
3.5 Instrument Legend and Notation. Any instrument at any time
evidencing the Junior Debt, or any portion thereof, shall be permanently marked
on its face with a legend conspicuously indicating that payment thereof is
subordinate in right of payment to the Senior Debt and subject to the terms and
conditions of this Intercreditor Agreement, and (a) after being so marked
certified copies thereof shall be delivered to Senior Creditor and (b) an
original of any such instrument shall be immediately delivered to Senior
Creditor upon Senior Creditor's request, at any time on or after the occurrence
of an event of default under the Senior Creditor Agreements. In the event any
legend or endorsement is omitted, Senior Creditor or any of its officers or
employees, are hereby irrevocably authorized on behalf of Junior Creditor to
make the same. No specific legend, further assignment or endorsement or
delivery of notes, guarantees or instruments shall be necessary to subject any
Junior Debt to the subordination thereof contained in this Agreement.
4. COVENANTS, REPRESENTATIONS AND WARRANTIES
4.1 Additional Covenants. Junior Creditor and Debtor agree in
favor of Senior Creditor that:
(a) except as specifically set forth in Section 3.2
above, Debtor shall not, directly or indirectly, make and Junior Creditor shall
not, directly or indirectly, accept or receive any payment of principal or
interest or any prepayment or non-mandatory payment or any payment pursuant to
acceleration or claims of breach or any payment to acquire Junior Debt or
otherwise in respect of any Junior Debt;
(b) Junior Creditor and Debtor shall not amend, modify,
alter or change in any material respect the terms of any
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<PAGE> 8
of the Junior Creditor Agreements or any other arrangements related to the
Junior Debt;
(c) Junior Creditor shall not sell, assign, pledge,
encumber or otherwise dispose of any of the Junior Debt and guarantees, if any
or subordinate any of the Junior Debt to any indebtedness of Debtor other than
the Senior Debt;
(d) Junior Creditor and Debtor shall, at any time or
times upon the request of Senior Creditor, promptly furnish to Senior Creditor
a true, correct and complete statement of the outstanding Junior Debt;
(e) Junior Creditor and Debtor shall execute and deliver
to Senior Creditor such additional agreements, documents and instruments and
take such further actions as may be necessary or desirable in the opinion of
Senior Creditor to effectuate the provisions and purposes of this Intercreditor
Agreement.
4.2 Additional Representations and Warranties. Junior Creditor
and Debtor represent and warrant to Senior Creditor that:
(a) as of the date hereof, the total principal amount of
the Junior Debt is $100.00 plus reimbursement of letter of credit fees incurred
by Junior Creditor under the Junior Creditor Agreements as in effect on the
date hereof, which fees shall not exceed $30,000 for any calendar year that the
Junior Creditor Agreements are in effect;
(b) as of the date hereof, no default or event of
default, or event which with notice or passage of time or both would constitute
an event of default exists or has occurred under the Junior Creditor
Agreements;
(c) Junior Creditor is the exclusive legal and beneficial
owner of all of the Junior Debt;
(d) none of the Junior Debt is subject to any lien,
security interest, financing statements, subordination, assignment or other
claim, except in favor of Senior Creditor;
(e) this Intercreditor Agreement constitutes the legal,
valid and binding obligations of Junior Creditor, enforceable in accordance
with its terms.
4.3 Waivers. Notice of acceptance hereof, the making of loans,
advances and extensions of credit or other financial accommodations to, and the
incurring of any expenses by or in respect of, Debtor by Senior Creditor, and
presentment, demand, protest, notice of protest, notice of nonpayment or
default and all other notices to which Junior Creditor and Debtor are or may
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<PAGE> 9
be entitled are hereby waived (except as expressly provided for herein or as to
Debtor, in the Senior Creditor Agreements). Junior Creditor also waives notice
of, and hereby consents to, (a) any amendment, modification, supplement,
renewal, restatement or extensions of time of payment of or increase or
decrease in the amount of any of the Senior Debt or to the Senior Creditor
Agreements or any Collateral, (b) the taking, exchange, surrender and releasing
of Collateral or guarantees now or at any time held by or available to Senior
Creditor for the Senior Debt or any other person at any time liable for or in
respect of the Senior Debt, (c) the exercise of, or refraining from the
exercise of any rights against Debtor or any other obligor or any Collateral,
(d) the settlement, compromise or release of, or the waiver of any default with
respect to, any of the Senior Debt, and/or (e) Senior Creditor's election, in
any proceeding instituted under the U.S. Bankruptcy Code. Any of the foregoing
shall not, in any manner, affect the terms hereof or impair the obligations of
Junior Creditor hereunder. All of the Senior Debt shall be deemed to have been
made or incurred in reliance upon this Intercreditor Agreement.
4.4 Subrogation; Marshalling. Junior Creditor shall not be
subrogated to, or be entitled to any assignment of any Senior Debt or Junior
Debt or of any Collateral or guarantees or evidence of any thereof until all of
the Senior Debt is indefeasibly paid and satisfied in full. Junior Creditor
hereby waives any and all rights to have any Collateral or any part thereof
granted to Senior Creditor marshalled upon any foreclosure or other disposition
of such collateral by Senior Creditor or Debtor.
4.5 No Offset. In the event Junior Creditor at any time incurs
any obligation to pay money to Debtor, Junior Creditor hereby irrevocably
agrees that it shall pay such obligation in cash or cash equivalents in
accordance with the terms of the contract governing such obligation and shall
not deduct from or setoff against any amounts owed by the Junior Creditor to
Debtor in connection with any such transaction any amounts such of Junior
Creditor claims are due to it with respect to the Junior Debt.
5. MISCELLANEOUS
5.1 Amendments. Any waiver, permit, consent or approval by any
Creditor of or under any provision, condition or covenant to this Intercreditor
Agreement must be in writing and shall be effective only to the extent it is
set forth in writing and as to the specific facts or circumstances covered
thereby. Any amendment of this Intercreditor Agreement must be in writing and
signed by each of the parties to be bound thereby.
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5.2 Successors and Assigns.
(a) This Intercreditor Agreement shall be binding upon
the parties hereto and their respective successors and assigns and shall inure
to the benefit of each of Creditors and its respective successors, participants
and assigns.
(b) Senior Creditor reserves the right to grant
participations in, or otherwise sell, assign, transfer or negotiate all or any
part of, or any interest in, the Senior Debt and the Collateral securing same;
provided, that, Junior Creditor shall not be obligated to give any notices to
or otherwise in any manner deal directly with any participant in the Senior
Debt and no participant shall be entitled to any rights or benefits under this
Intercreditor Agreement except through Senior Creditor. In connection with any
participation or other transfer or assignment, Senior Creditor (i) may disclose
to such assignee, participant or other transferee or assignee all documents and
information which Senior Creditor now or hereafter may have relating to the
Senior Debt or the Collateral and (ii) shall disclose to such participant or
other transferee or assignee the existence and terms and conditions of this
Intercreditor Agreement.
(c) In connection with any assignment or transfer of any
or all of the Senior Debt, or any or all rights of Senior Creditor in the
property of Debtor (other than pursuant to a participation), Junior Creditor
agrees to execute and deliver an agreement containing terms substantially the
same as those contained herein in favor of any such assignee or transferee and,
in addition, will execute and deliver an agreement containing terms
substantially identical to those contained herein in favor of any third person
who succeeds to or replaces any or all of Senior Creditor's financing of
Debtor, whether such successor financing or replacement occurs by transfer,
assignment, "takeout" or any other means or vehicle.
5.3 Insolvency. This Intercreditor Agreement shall be applicable
both before and after the filing of any petition by or against Debtor under the
U.S. Bankruptcy Code and all converted or succeeding cases in respect thereof,
and all references herein to Debtor shall be deemed to apply to a trustee for
Debtor and Debtor as debtor-in-possession. The relative rights of Senior
Creditor and Junior Creditor to repayment of the Senior Debt and the Junior
Debt, respectively, and in or to any distributions from or in respect of Debtor
or any Collateral or proceeds of Collateral, shall continue after the filing
thereof on the same basis as prior to the date of the petition, subject to any
court order approving the financing of, or use of cash collateral by, Debtor as
debtor-in-possession.
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5.4 Bankruptcy Financing. If Debtor shall become subject to a
proceeding under the U.S. Bankruptcy Code and if Senior Creditor desires to
permit the use of cash collateral or to provide financing to Debtor under
either Section 363 or Section 364 of the U.S. Bankruptcy Code, Junior Creditor
agrees as follows: (a) adequate notice to Junior Creditor shall have been
provided for such financing or use of cash collateral if Junior Creditor
receives notice two (2) business days prior to the entry of the order approving
such financing or use of cash collateral and (b) no objection will be raised by
Junior Creditor to any such financing or use of cash collateral on the ground
of a failure to provide "adequate protection" for Junior Creditor's junior
Liens on the Collateral or any other grounds, provided Junior Creditor retains
a Lien on the post-petition Collateral with the same priority as existed prior
to the commencement of the proceeding under the U.S. Bankruptcy Code. For
purposes of this Section, notice of a proposed financing or use of cash
collateral shall be deemed given when given, in the manner prescribed by
Section 5.5 hereof, to Junior Creditor.
5.5 Notices. All notices, requests and demands to or upon the
respective parties hereto shall be in writing and shall be deemed duly given,
made or received: if delivered in person, immediately upon delivery; if by
telex, telegram or facsimile transmission, immediately upon sending and upon
confirmation of receipt; if by nationally recognized overnight courier service
with instructions to deliver the next business day, one (1) business day after
sending; and if mailed by certified mail, return receipt requested, five (5)
days after mailing to the parties at their addresses set forth below (or to
such other addresses as the parties may designate in accordance with the
provisions of this Section):
To Senior Creditor: Congress Financial Corporation
(Southwest)
1201 Main Street, Ste. 1625
Dallas, Texas 75202
Attention: Mr. Edward B. Franco
Vice President
To Junior Creditor: General Atlantic Corporation
(before July 1, 1996) 125 East 56th Street
New York, New York 10022
Attention: Ms. Julie Lefkowitz
To Junior Creditor: General Atlantic Corporation
(on or after 118 East 57th Street
July 1, 1996) New York, New York 10022
Attention: Ms. Julie Lefkowitz
Either Creditor may change the address(es) to which all notices, requests and
other communications are to be sent by giving
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written notice of such address change to the other Creditor in conformity with
this Section 5.5, but such change shall not be effective until notice of such
change has been received by the other Creditors.
5.6 Counterparts. This Intercreditor Agreement may be executed in
any number of counterparts, each of which shall be an original with the same
force and effect as if the signatures thereto and hereto were upon the same
instrument.
5.7 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND EFFECT OF THIS
INTERCREDITOR AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
TEXAS (WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW).
5.8 CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF
THE DISTRICT COURT OF THE STATE OF TEXAS AND THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS AND WAIVES TRIAL BY JURY IN ANY ACTION OR
PROCEEDING WITH RESPECT TO THIS INTERCREDITOR AGREEMENT.
5.9 Complete Agreement. This written Intercreditor Agreement is
intended by the parties as a final expression of their agreement and is
intended as a complete statement of the terms and conditions of their
agreement.
5.10 No Third Parties Benefitted. Except as expressly provided in
Section 5.2, this Intercreditor Agreement is solely for the benefit of the
Creditors and their respective successors, participants and assigns, and no
other person shall have any right, benefit, priority or interest under, or
because of the existence of, this Intercreditor Agreement.
5.11 Disclosures; Non-Reliance. Each Creditor has the means to,
and shall in the future remain, fully informed as to the financial condition
and other affairs of Debtor and no Creditor shall have any obligation or duty
to disclose any such information to any other Creditor. Except as expressly
set forth in this Intercreditor Agreement, the parties hereto have not
otherwise made to each other nor do they hereby make to each other any
warranties, express or implied, nor do they assume any liability to each other
with respect to: (a) the enforceability, validity, value or collectability of
any of the Junior Debt or Senior Debt or any guarantee or security which may
have been granted to any of them in connection therewith, (b) Debtor's title to
or right to transfer any of the Collateral, or (c) any other matter except as
expressly set forth in this Intercreditor Agreement.
5.12 Term. This Intercreditor Agreement is a continuing agreement
and shall remain in full force and effect until the
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indefeasible satisfaction in full of all Senior Debt and the termination of the
financing arrangements between Senior Creditor and Debtor.
IN WITNESS WHEREOF, the parties have caused this Intercreditor
Agreement to be duly executed as of the day and year first above written.
CONGRESS FINANCIAL CORPORATION
(SOUTHWEST)
By: /s/ Edward B. Franco
-----------------------------------
Title: Vice President
--------------------------------
GENERAL ATLANTIC CORPORATION
By: /s/ Julie Lefkowitz
-----------------------------------
Title: Vice President
--------------------------------
The undersigned hereby acknowledges and agrees to the foregoing terms
and provisions. By its signature below, the undersigned agrees that it will,
together with its successors and assigns, be bound by the provisions hereof;
provided, that, nothing in the foregoing Intercreditor Agreement shall amend,
modify, change or supersede the respective terms of any Creditor's Agreements
with the undersigned. In the event of any conflict or inconsistencies between
the terms of the foregoing Intercreditor Agreement and the Senior Creditor
Agreements or the Junior Creditor Agreements, the terms of the Senior Creditor
Agreements or the Junior Creditor Agreements, as the case may be, shall govern
as between the Creditor involved and the undersigned.
The undersigned agrees that any Creditor holding Collateral does so as
bailee (under the UCC) for the other and is hereby authorized to and may turn
over to such other Creditor upon request therefor any such Collateral, after
all obligations and indebtedness of the undersigned to the bailee Creditor have
been fully paid and performed.
The undersigned acknowledges and agrees that: (i) although it may sign
this Intercreditor Agreement it is not a party hereto and does not and will not
receive any right, benefit, priority or interest under or because of the
existence of the foregoing Intercreditor Agreement, (ii) in the event of a
breach by the undersigned or Junior Creditor of any of the terms and provisions
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contained in the foregoing Intercreditor Agreement, such a breach shall
constitute an "Event of Default" as defined in and under the Senior Creditor
Agreements and (iii) it will execute and deliver such additional documents and
take such additional action may be necessary or desirable in the opinion of
any Creditor to effectuate the provisions and purposes of the foregoing
Intercreditor Agreement.
SOLO SERVE CORPORATION
By: /s/ DAVID P. DASH
-----------------------------------
Title: President
--------------------------------
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