<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 29, 1995,
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 0-25272
NEOSTAR RETAIL GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2559376
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10741 KING WILLIAM DRIVE, DALLAS, TEXAS 75220-2414
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 401-9000
Former name, former address and former fiscal year,
if changed since last report: NONE
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 .
--- ---
Title of each class of common stock:
COMMON STOCK, PAR VALUE $.01 PER SHARE
Number of shares of Common Stock outstanding as of the close of business on
September 6, 1995:
14,889,503
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Balance Sheets at July 29, 1995
and January 28, 1995 (unaudited) . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the three and six months
ended July 29, 1995 and July 30, 1994 (unaudited) . . . . . . . 4
Consolidated Statements of Cash Flows for the six months
ended July 29, 1995 and July 30, 1994 (unaudited).. . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 6
</TABLE>
- 2 -
<PAGE> 3
NEOSTAR RETAIL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
July 29, January 28,
1995 1995
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 810 $ 19,580
Accounts receivable 1,048 1,574
Merchandise inventory 117,218 116,357
Prepaids and other 10,644 10,053
----------- ------------
Total current assets 129,720 147,564
Property and equipment, at cost, net of
accumulated depreciation and amortization 63,788 65,928
Other assets 4,457 4,467
----------- ------------
$ 197,965 $ 217,959
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 24,400 $ -
Accounts payable 65,888 86,300
Due to related parties 365 1,021
Current maturities of long-term debt 4,000 4,000
Accrued liabilities 12,060 24,847
----------- ------------
Total current liabilities 106,713 116,168
Long-term debt 14,000 16,000
Deferred credits 4,326 4,124
Stockholders' equity:
Preferred stock, $.01 par value;
1,000,000 shares authorized; none issued - -
Common stock, $.01 par value;
50,000,000 shares authorized;
shares issued and outstanding:
July 29, 1995 - 14,803,937
January 28, 1995 - 14,718,257 148 147
Additional paid-in capital 68,887 68,367
Retained earnings 3,891 13,153
----------- ------------
Total stockholders' equity 72,926 81,667
----------- ------------
$ 197,965 $ 217,959
=========== ============
</TABLE>
See accompanying notes.
- 3 -
<PAGE> 4
NEOSTAR RETAIL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
--------------------------- ---------------------------
July 29, July 30, July 29, July 30,
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 91,957 $ 89,472 $ 190,074 $ 201,107
Cost of sales 67,368 64,596 137,418 145,571
--------- --------- --------- ---------
Gross profit 24,589 24,876 52,656 55,536
Store operating expenses 28,627 27,140 57,502 53,232
General and administrative
expenses 4,528 4,451 8,932 9,098
Store closing expense 287 99 588 207
--------- --------- --------- ---------
Operating loss (8,853) (6,814) (14,366) (7,001)
Net interest expense (608) (431) (943) (734)
--------- --------- --------- ---------
Loss before income taxes (9,461) (7,245) (15,309) (7,735)
Income tax benefit (3,793) (2,807) (6,047) (2,992)
--------- --------- --------- ---------
Net loss $ (5,668) $ (4,438) $ (9,262) $ (4,743)
========= ========= ========= =========
Net loss per share $ (.38) $ (.30) $ (.63) $ (.32)
========= ========= ========= =========
Weighted average shares
outstanding 14,764 14,707 14,750 14,707
========= ========= ========= =========
</TABLE>
See accompanying notes.
- 4 -
<PAGE> 5
NEOSTAR RETAIL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six months ended
------------------------------------
July 29, July 30,
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (9,262) $ (4,743)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 6,096 5,263
Loss on disposition of property and equipment 248 126
Changes in operating assets and liabilities:
Accounts receivable 526 (288)
Merchandise inventory (861) 10,875
Prepaids and other (591) (240)
Other assets 10 246
Accounts payable (20,412) (17,454)
Due to related parties (656) (496)
Accrued liabilities (12,178) (8,289)
Deferred credits 202 350
------------ ------------
Total adjustments (27,616) (9,907)
------------ ------------
Net cash used in operating activities (36,878) (14,650)
Cash flows from investing activities:
Acquisitions of property and equipment (4,818) (7,911)
Proceeds from sales of property and equipment 5 64
------------ ------------
Net cash used in investing activities (4,813) (7,847)
Cash flows from financing activities:
Borrowings under credit facilities with banks 65,200 11,300
Repayments of borrowings
under credit facilities with banks (40,800) (3,300)
Repayment of principal of long-term debt (2,000) -
Proceeds from issuance of common stock
upon exercise of stock options 521 8
Repayment of principal of long-term debt
to related party - (500)
------------ ------------
Net cash provided by financing activities 22,921 7,508
------------ ------------
Net decrease in cash and cash equivalents (18,770) (14,989)
Cash and cash equivalents at beginning of period 19,580 18,971
------------ ------------
Cash and cash equivalents at end of period $ 810 $ 3,982
============ ============
Supplemental cash flow information:
Income taxes paid $ 3,350 $ 3,832
============ ============
Interest paid $ 958 $ 1,433
============ ============
</TABLE>
See accompanying notes.
- 5 -
<PAGE> 6
NEOSTAR RETAIL GROUP, INC.
Notes to Consolidated Financial Statements
(unaudited)
1. Basis of Presentation, Organization and Business
NeoStar Retail Group, Inc. (the "Company") was incorporated to serve as the
holding company for the business combination of Babbage's, Inc. ("Babbage's")
and Software Etc. Stores, Inc. ("Software"). The business combination was
completed on December 16, 1994, and was accounted for as a pooling of
interests. Accordingly, the merger of the equity interests has been given
retroactive effect, and the Company's consolidated financial statements for
periods prior to the business combination represent the combined financial
statements of the previously separate entities adjusted to conform to the
accounting policies adopted by the Company. Babbage's and Software became
wholly-owned subsidiaries of the Company as a result of the business
combination. The consolidated financial statements include the accounts of the
Company and all wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Babbage's and Software operate consumer software specialty retail stores.
The Company operated 736 and 671 retail locations at July 29, 1995 and July 30,
1994, respectively.
2. Unaudited Interim Consolidated Financial Statements
The accompanying consolidated financial statements are unaudited and
reflect all adjustments (which include only normal, recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
the Company's financial position as of July 29, 1995 and the results of its
operations and cash flows for the periods presented. These statements should
be read in conjunction with the audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1995.
The results of operations for the six months ended July 29, 1995 are not
necessarily indicative of results to be expected for the full year due to the
seasonality of the Company's business.
3. Financing Arrangements
The Company has a credit agreement with a bank (the "Credit Agreement") to
meet short-term working capital needs. The Credit Agreement, as amended,
includes a $30,000,000 annual revolving line of credit. Advances under this
line of credit are generally limited to 40 percent of merchandise inventory,
plus 100 percent of cash investments with maturities less than 180 days pledged
to the bank. The maturity date of any advances under this line of credit is
June 30, 1996. Amounts borrowed bear interest at the bank's prime interest
rate or at the appropriate LIBOR interest rate plus 1.75 percent, at the
Company's option.
The Credit Agreement also includes a $20,000,000 term commitment (the
"Commitment") with a maturity date of December 14, 1997, and as amended, is
secured by all of the Company's merchandise inventory and receivables from the
sale of inventory. The terms of the Commitment require quarterly payments
which commenced March 31, 1995, consisting of $1,000,000 in principal plus
accrued and unpaid interest. The remaining principal balance and all accrued
and unpaid interest will be due upon maturity. Amounts borrowed pursuant to
the Commitment bear interest at the bank's prime interest rate plus .25 percent
or at the appropriate LIBOR interest rate plus two percent, at the Company's
option.
- 6 -
<PAGE> 7
NEOSTAR RETAIL GROUP, INC.
Notes to Consolidated Financial Statements
(unaudited)
(continued)
3. Financing Arrangements (continued)
On August 28, 1995 the Company amended the Credit Agreement to remove the
$30,000,000 annual revolving line of credit, and entered into a new credit
agreement with a group of banks (the "New Credit Agreement"). All amounts
outstanding under the annual revolving line of credit under the Credit
Agreement and the related accrued interest were repaid. The New Credit
Agreement provides for a $70,000,000 revolving line of credit and is secured by
all of the Company's merchandise inventory and receivables from the sale of
inventory. Advances under the New Credit Agreement are generally limited to 45
percent of eligible inventory less amounts outstanding under the Commitment,
and less outstanding obligations under issued letters of credit. The maturity
date of any advances is August 25, 1996. Amounts borrowed bear interest at the
banks' prime interest rate plus .5 percent or at the appropriate LIBOR interest
rate plus two percent, at the Company's option.
- 7 -
<PAGE> 8
PART I - FINANCIAL INFORMATION (continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
NeoStar Retail Group, Inc. (the "Company") was incorporated to serve
as the holding company for the business combination of Babbage's, Inc.
("Babbage's") and Software Etc. Stores, Inc. ("Software"). The business
combination was completed on December 16, 1994 and was accounted for as a
pooling of interests. Accordingly, the merger of equity interests has been
given retroactive effect, and the Company's consolidated financial statements
for periods prior to the business combination represent the combined financial
statements of the previously separate entities adjusted to conform to the
accounting policies adopted by the Company. All references herein to fiscal
1996, 1995 and 1994 relate to the fiscal years ending February 3, 1996, January
28, 1995 and January 29, 1994, respectively. The following table sets forth,
for the periods indicated, certain items from the Company's statements of
operations as a percentage of net sales:
<TABLE>
<CAPTION>
Three months ended Six months ended
-------------------------- -------------------------
July 29, July 30, July 29, July 30,
1995 1994 1995 1994
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 73.3 72.2 72.3 72.4
----- ----- ----- -----
Gross profit 26.7 27.8 27.7 27.6
Store operating expenses 31.1 30.3 30.3 26.5
General and administrative
expenses 4.9 5.0 4.7 4.5
Store closing expense 0.3 0.1 0.3 0.1
----- ----- ----- -----
Operating loss (9.6)% (7.6)% (7.6)% (3.5)%
===== ===== ===== =====
</TABLE>
Three Months Ended July 29, 1995 Compared to Three Months Ended July 30, 1994
Net sales increased by $2,485,000, or three percent, in the second
quarter of fiscal 1996 compared to the second quarter of fiscal 1995. This
increase resulted from the net addition of 65 new stores, partially offset by a
decrease in comparable store sales of six percent. The decrease in comparable
store sales was due to a decline in sales of productivity software for personal
computers, as well as the continuing decline in sales of 16-bit video game
systems and software for these systems, partially offset by sales of the 32-bit
Sega Saturn. The Company believes that the declining comparable store sales of
video game systems and software is a result of the maturation of the current
16-bit video game technology first introduced in calendar 1989. The
introduction of the Sega Saturn in mid-May marked the beginning of the next
generation of video game systems. Sony Computer Entertainment of America and
Nintendo of America, Inc. have announced plans to introduce new video game
systems in September 1995 and calendar 1996, respectively.
- 8 -
<PAGE> 9
Cost of sales as a percentage of sales increased to 73.3 percent in
the second quarter of fiscal 1996 from 72.2 percent in the second quarter of
fiscal 1995 primarily because a higher percentage of sales came from lower
margin video game systems and personal computer drives. In addition, video
game systems had lower gross margins in the second quarter of fiscal 1996 than
in the same period last year.
Store operating expenses are generally fixed, and only a small portion
varies with sales. When average sales per store increase, store operating
expenses do not increase significantly and, as a result, store operating
expenses decrease as a percentage of sales. Conversely, a decrease in average
sales per store results in an increase in store operating expenses as a
percentage of sales. Average quarterly sales per store decreased six percent
compared to the second quarter of fiscal 1995, resulting in an increase in
store operating expenses as a percentage of sales.
General and administrative expenses, many of which are fixed on a per
store basis, decreased as a percentage of sales even though average quarterly
sales per store declined. This was due to certain economies of scale resulting
from the addition of new stores and productivity gains in the Company's
management and administration realized from the consolidation of certain
functions following the business combination.
Operating loss for the second quarter of fiscal 1996 was $8,853,000
compared to $6,814,000 for the second quarter of fiscal 1995. The increase of
$2,039,000 was primarily due to the increases in cost of sales and store
operating expenses as a percentage of sales.
Six Months Ended July 29, 1995 Compared to Six Months Ended July 30, 1994
Net sales decreased by $11,033,000, or five percent, in the first six
months of fiscal 1996 as compared to the first six months of fiscal 1995. This
decrease resulted from a decrease in comparable store sales of 15 percent,
partially offset by the addition of new stores.
Cost of sales as a percentage of sales decreased to 72.3 percent in
the first six months of fiscal 1996 from 72.4 percent in the first six months
of fiscal 1995 primarily due to a higher percentage of sales from personal
computer software, related accessories and books, which have higher gross
margins than video game systems and software.
Average sales per store decreased 15 percent for the first six months
of fiscal 1996 compared to the same period last year, resulting in an increase
in store operating expenses as a percentage of sales.
General and administrative expenses increased as a percentage of sales
due to the decline in average sales per store for the first six months of
fiscal 1996 as compared to the same period last year. This increase was
partially offset by certain economies of scale resulting from the addition of
new stores and productivity gains in the Company's management and
administration realized from the consolidation of certain functions following
the business combination.
Operating loss for the first six months of fiscal 1996 was $14,366,000
compared to $7,001,000 for the first six months of fiscal 1995. The increase
of $7,365,000 was primarily due to the decrease in net sales and the increase
in store operating expenses as a percentage of sales.
- 9 -
<PAGE> 10
Seasonality and Quarterly Fluctuations
The Company's business, like that of many retailers, is highly
seasonal, with its stores generating a significant portion of their annual
sales during the fourth quarter due to the importance of the Christmas selling
season. In addition, sales in any fiscal quarter may fluctuate due to periods
of high demand following the release of popular software or video game
products. Average sales per store from period to period are also affected by
the number of stores opened during each period, since sales at newly opened
stores, while still in the early stages of building customer awareness, are
typically lower than sales of more mature stores. The following table sets
forth, for the last ten fiscal quarters, the number of stores open the entire
quarter and the average net sales in each quarter for those stores:
<TABLE>
<CAPTION>
Number of Stores
Open Entire Quarter Average Quarterly Sales per Store
---------------------------- ------------------------------------------
Fiscal Quarter 1996 1995 1994 1996 1995 1994
-------------- ---- ---- ---- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
First 708 626 510 $137,731 $176,826 $189,490
Second 713 644 537 127,482 136,241 147,315
Third 669 566 149,397 170,767
Fourth 690 602 283,715 324,392
</TABLE>
The Company closed ten stores in the first six months of fiscal 1996
and four stores in the first six months of fiscal 1995.
Largely due to the seasonal concentration of sales in the fourth
quarter, the Company believes annual profitability will be heavily dependent on
fourth quarter results. The following table sets forth certain information
with respect to the Company's net sales and operating income (loss) for the
last ten fiscal quarters (in thousands):
<TABLE>
<CAPTION>
Fiscal Quarter
---------------------------------------------------------------
Fiscal Year First Second Third Fourth
------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
1996 Net sales $ 98,117 $ 91,957 $ - $ -
Operating income (loss) (5,513) (8,853) - -
1995 Net sales 111,635 89,472 102,019 200,530
Operating income (loss) (187) (6,814) (2,323) 3,058
1994 Net sales 98,126 81,031 98,881 202,369
Operating income (loss) 2,373 (3,508) 457 19,009
</TABLE>
Operating income for the fourth quarter of fiscal 1995 was reduced by
$14,961,000 due to costs incurred in connection with the business combination
of Babbage's and Software.
- 10 -
<PAGE> 11
Liquidity and Capital Resources
The Company has a credit agreement with a bank (the "Credit
Agreement") to meet short-term working capital needs. The Credit Agreement, as
amended, included a $30,000,000 annual revolving line of credit. Advances
under this line of credit were generally limited to 40 percent of merchandise
inventory, plus 100 percent of cash investments with maturities less than 180
days pledged to the bank. The maturity date of any advances under this line of
credit was June 30, 1996. Amounts borrowed bore interest at the bank's prime
interest rate or at the appropriate LIBOR interest rate plus 1.75 percent, at
the Company's option. At July 29, 1995, $24,400,000 was outstanding under this
line of credit.
The Credit Agreement includes a $20,000,000 term commitment (the
"Commitment") with a maturity date of December 14, 1997, and as amended, is
secured by all of the Company's merchandise inventory and receivables from the
sale of inventory. The terms of the Commitment require quarterly payments
which commenced March 31, 1995, consisting of $1,000,000 in principal plus
accrued and unpaid interest. The remaining principal balance and all accrued
and unpaid interest will be due upon maturity. Amounts borrowed pursuant to
the Commitment bear interest at the bank's prime interest rate plus .25 percent
or at the appropriate LIBOR interest rate plus two percent, at the Company's
option. At July 29, 1995, $18,000,000 was outstanding under the Commitment.
On August 28, 1995 the Company amended the Credit Agreement to remove
the $30,000,000 annual revolving line of credit, and entered into a new credit
agreement with a group of banks (the "New Credit Agreement"). All amounts
outstanding under the annual revolving line of credit under the Credit
Agreement and the related accrued interest were repaid. The New Credit
Agreement provides for a $70,000,000 revolving line of credit and is secured by
all of the Company's merchandise inventory and receivables from the sale of
inventory. Advances under the New Credit Agreement are generally limited to 45
percent of eligible inventory less amounts outstanding under the Commitment,
and less outstanding obligations under issued letters of credit. The maturity
date of any advances is August 25, 1996. Amounts borrowed bear interest at the
banks' prime interest rate plus .5 percent or at the appropriate LIBOR interest
rate plus two percent, at the Company's option. At September 6, 1995,
$27,000,000 was outstanding under the New Credit Agreement.
Net cash used in operating activities was $36,878,000 and $14,650,000
for the first six months of fiscal 1996 and fiscal 1995, respectively. The
increase was primarily due to the increase in the net loss, a small increase in
merchandise inventory in fiscal 1996 compared to a significant decrease in
fiscal 1995, and larger decreases in accounts payable and accrued liabilities
in fiscal 1996 as compared to fiscal 1995.
Capital expenditures in the first six months of fiscal 1996, which
totaled $4,818,000, related primarily to leasehold improvements and fixtures
for 36 new stores opened during the period and stores under construction at
July 29, 1995. The Company plans to spend approximately $6,200,000 on capital
expenditures during the remainder of the fiscal year, primarily for leasehold
improvements and fixtures for new stores. As of September 6, 1995, the Company
had 746 stores open and 46 under construction.
The Company believes that internally generated funds and the
availability of funds under the New Credit Agreement will permit it to finance
planned store openings, working capital increases and other miscellaneous
capital expenditures, and to make scheduled principal and interest payments on
its outstanding debt, through at least the end of fiscal 1996.
- 11 -
<PAGE> 12
Effects of the Business Combination
The business combination began to have an effect on the Company's
results of operations in the second quarter of fiscal 1996. General and
administrative expenses as a percentage of sales decreased in part as a result
of consolidating certain functions. The Company believes that the combined
resources and experience of Babbage's and Software will enable it to continue
to identify operating efficiencies and implement cost saving strategies,
resulting in additional positive effects on its results of operations and
financial position. Purchasing should continue to improve as a result of the
continuing integration of the best practices of both Babbage's and Software,
and the combined company should be in a better position to negotiate more
favorable terms and conditions with suppliers. Alternative merchandising
formats will be explored to identify better ways to distribute products and
provide services. As of July 29, 1995, approximately $9,323,000 of the total
costs of $14,961,000 related to the business combination had been expended.
The balance of such costs, consisting primarily of severance costs and costs
related to the elimination of duplicate facilities and related equipment, will
require cash outlays during the remainder of fiscal 1996.
- 12 -
<PAGE> 13
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) Annual Meeting
On June 1, 1995, the Company held its 1995 Annual Meeting of
Stockholders (the "1995 Annual Meeting") at its corporate offices located at
10741 King William Drive, Dallas, Texas.
(c) Matters Submitted to a Vote
The following items were voted upon at the 1995 Annual Meeting:
(1) Election of eight directors to serve until the 1996 Annual
Meeting of Stockholders;
(2) Approval of the NeoStar Retail Group, Inc. 1995 Director Stock
Option Plan; and
(3) Approval of the appointment of independent auditors for the 1996
fiscal year.
Following is the tabulation of votes with respect to each of the
foregoing matters:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-votes
--- ------- ------- ---------
<S> <C> <C> <C> <C>
Proposal I
Election of Directors
James B. McCurry 13,278,072 65,794 0 0
Daniel A. DeMatteo 13,277,779 66,087 0 0
R. Richard Fontaine 13,277,779 66,087 0 0
Jan Michiel Hessels 13,067,899 275,967 0 0
John D. Miller 13,277,779 66,087 0 0
Thomas G. Plaskett 13,219,421 124,445 0 0
Leonard Riggio 13,278,079 65,787 0 0
W. Mitt Romney 13,067,439 276,427 0 0
Proposal II
Approval of the
NeoStar Retail Group, Inc.
1995 Director Stock Option Plan 13,045,747 283,675 14,444 0
Proposal III
Appointment of Ernst & Young LLP
as Independent Auditors for
Fiscal Year 1996 13,333,629 6,885 3,352 0
</TABLE>
- 13 -
<PAGE> 14
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibits are filed as part of this report:
Number Document
------ --------
10.3 $70,000,000 Credit Agreement dated as of August 28, 1995 by and among
Babbage's, Inc., Software Etc. Stores, Inc., Certain Lenders, and
NationsBank of Texas, N.A., as Administrative Lender
10.4 Third Amendment to Amended and Restated Credit Agreement dated as of
August 28, 1995 by and among the Registrant, the lenders from time to
time thereto and NationsBank of Texas, N.A., as Administrative Lender
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which
this Report is filed.
- 14 -
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: September 6, 1995 NEOSTAR RETAIL GROUP, INC.
By: /s/ OPAL P. FERRARO
--------------------------
Opal P. Ferraro,
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
- 15 -
<PAGE> 16
INDEX TO EXHIBITS
Number Document
------ --------
10.3 $70,000,000 Credit Agreement dated as of August 28,
1995 by and among Babbage's, Inc., Software Etc.
Stores, Inc., Certain Lenders, and NationsBank of
Texas, N.A., as Administrative Lender
10.4 Third Amendment to Amended and Restated Credit
Agreement dated as of August 28, 1995 by and among the
Registrant, the lenders from time to time thereto and
NationsBank of Texas, N.A., as Administrative Lender
27.1 Financial Data Schedule
- 16 -
<PAGE> 1
EXHIBIT 10.3
================================================================================
$70,000,000
CREDIT AGREEMENT
AMONG
BABBAGES, INC.
SOFTWARE ETC. STORES, INC.
CERTAIN LENDERS
AND
NATIONSBANK OF TEXAS, N.A., AS ADMINISTRATIVE LENDER
August 28, 1995
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1
Definitions
-----------
Section 1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-------------
Section 1.2 Amendments and Renewals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-----------------------
Section 1.3 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
------------
ARTICLE 2
Advances
--------
Section 2.1 The Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
------------
Section 2.2 Manner of Borrowing and Disbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
------------------------------------
Section 2.3 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
--------
Section 2.4 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
----
Section 2.5 Prepayment and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-----------------------
Section 2.6 Reduction of Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-----------------------
Section 2.7 Non-Receipt of Funds by the Administrative Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-------------------------------------------------
Section 2.8 Payment of Principal of Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
--------------------------------
Section 2.9 Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-------------
Section 2.10 Manner of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-----------------
Section 2.11 LIBOR Lending Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
---------------------
Section 2.12 Sharing of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-------------------
Section 2.13 Calculation of LIBOR Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-------------------------
Section 2.14 Booking Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-------------
Section 2.15 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-----
Section 2.16 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
-----------------
Section 2.17 Extension of Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
--------------------------
ARTICLE 3
Conditions Precedent
--------------------
Section 3.1 Conditions Precedent to Closing, the Initial Advance and the Initial Letter of Credit . . . . . . . . . 33
-------------------------------------------------------------------------------------
Section 3.2 Conditions Precedent to All Advances and Letters of Credit . . . . . . . . . . . . . . . . . . . . . . 35
----------------------------------------------------------
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 4
Representations and Warranties
------------------------------
Section 4.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
------------------------------
Section 4.2 Survival of Representations and Warranties, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
-----------------------------------------------
ARTICLE 5
General Covenants
-----------------
Section 5.1 Preservation of Existence and Similar Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
---------------------------------------------
Section 5.2 Business; Compliance with Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
----------------------------------------
Section 5.3 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
-------------------------
Section 5.4 Accounting Methods and Financial Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
----------------------------------------
Section 5.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
---------
Section 5.6 Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
---------------------------
Section 5.7 Visits and Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
----------------------
Section 5.8 Payment of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
-----------------------
Section 5.9 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
---------------
SECTION 5.10 INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
---------
Section 5.11 Environmental Law Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
----------------------------
ARTICLE 6
Information Covenants
---------------------
Section 6.1 Monthly Borrowing Base Report and Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . 47
--------------------------------------------------------
Section 6.2 Quarterly Financial Statements and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
----------------------------------------------
Section 6.3 Annual Financial Statements and Information; Certificate of No Default . . . . . . . . . . . . . . . . 47
----------------------------------------------------------------------
Section 6.4 Borrowing Base Report and Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
------------------------------------------------
Section 6.5 Copies of Other Reports and Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
-----------------------------------
Section 6.6 Notice of Litigation, Default and Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
-----------------------------------------------
Section 6.7 ERISA Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
----------------------------
ARTICLE 7
Negative Covenants
------------------
Section 7.1 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
------------
Section 7.2 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
-----
Section 7.3 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
-----------
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 7.4 Liquidation, Disposition or Acquisition of Assets, Merger, New Subsidiaries . . . . . . . . . . . . . . 52
---------------------------------------------------------------------------
Section 7.5 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
-------------------
Section 7.6 Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
----------------------
Section 7.7 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
---------------------
Section 7.8 Total Liabilities to Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
------------------------------
Section 7.9 Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
---------------------------
Section 7.10 Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
------------------
Section 7.11 Sale or Discount of Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
-------------------------------
Section 7.12 Clean Up Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
---------------
ARTICLE 8
Default
-------
Section 8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
-----------------
Section 8.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
--------
ARTICLE 9
Changes in Circumstances
------------------------
Section 9.1 LIBOR Basis Determination Inadequate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
------------------------------------
Section 9.2 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
----------
Section 9.3 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
---------------
Section 9.4 Effect On Prime Rate Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
-----------------------------
Section 9.5 Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
----------------
ARTICLE 10
Agreement Among Lenders
-----------------------
Section 10.1 Agreement Among Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
-----------------------
Section 10.2 Lender Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
----------------------
Section 10.3 Benefits of Article . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
-------------------
ARTICLE 11
Miscellaneous
-------------
Section 11.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
-------
Section 11.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
--------
Section 11.3 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
-------
Section 11.4 Determination by the Lenders Conclusive and Binding . . . . . . . . . . . . . . . . . . . . . . . . . . 65
---------------------------------------------------
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C> <C>
Section 11.5 Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
-------
Section 11.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
----------
Section 11.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
------------
Section 11.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
------------
Section 11.9 Interest and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
--------------------
Section 11.10 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
--------
Section 11.11 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
--------------------
Section 11.12 Exception to Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
----------------------
Section 11.13 No Liability of Issuing Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
----------------------------
SECTION 11.14 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
-------------
SECTION 11.15 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
-----------
SECTION 11.16 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
--------------------
SECTION 11.17 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
----------------
</TABLE>
- iv -
<PAGE> 6
Schedules and Exhibits
Schedule 1: LIBOR Lending Offices
Schedule 2: Existing Liens
Schedule 3: Existing Litigation and Material Liabilities
Schedule 4: Subsidiaries
Schedule 5: Existing Investments
Schedule 6: Existing Indebtedness
Schedule 7: Initial Commitment Amount
Exhibit A: Promissory Note
Exhibit B: Subsidiary Guaranty
Exhibit C: Parent Guaranty
Exhibit D: Babbages Security Agreement
Exhibit E: Software Security Agreement
Exhibit F: Borrowing Base Report and Compliance Certificate
Exhibit G: Assignment Agreement
- v -
<PAGE> 7
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of August 28, 1995, among BABBAGES,
INC., a Texas corporation (Babbages"), SOFTWARE ETC. STORES, INC., a Delaware
corporation ("Software"), (Babbages and Software are sometimes collectively
referred to herein as the "Borrowers" and singularly as a "Borrower"), the
Lenders from time to time party hereto, and NATIONSBANK OF TEXAS, N.A., a
national banking association, as administrative agent for the Lenders.
BACKGROUND
The Borrowers have requested that the Lenders make a credit facility
available to the Borrowers in the maximum principal amount of $70,000,000. The
Lenders have agreed to do so, subject to the terms and conditions set forth
below.
In consideration of the mutual covenants and agreements contained
herein, and other good and valuable consideration hereby acknowledged, the
parties hereto agree as follows:
ARTICLE 1
Definitions
Section 1.1 Defined Terms. For purposes of this Agreement:
"Account" has the meaning assigned to such term in the UCC.
"Administrative Lender" means NationsBank of Texas, N.A., a national
banking association, as administrative agent for Lenders, or such successor
administrative agent appointed pursuant to Section 10.1(b) hereof.
"Advance" means any amount advanced by the Lenders to the Borrowers
pursuant to Article 2 hereof on the occasion of any borrowing, including
without limitation any Refinancing Advance.
"Affiliate" means any Person that, directly or indirectly, through one
or more Subsidiaries, Controls or is Controlled By or Under Common Control
with, either Borrower.
"Agreement" means this Credit Agreement, as amended or modified
pursuant to the terms hereof.
"Agreement Date" means the date of this Agreement.
<PAGE> 8
"Applicable Environmental Laws" means applicable laws pertaining to
health or the environment, including without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 (as amended from time
to time, "CERCLA"), the Resource Conservation and Recovery Act of 1976, as
amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act
amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984 (as
amended from time to time, "RCRA"), the Texas Water Code, and the Texas Solid
Waste Disposal Act.
"Applicable Law" means (a) in respect of any Person, all provisions of
constitutions, statutes, rules, regulations and orders of governmental bodies
or regulatory agencies applicable to such Person and its properties, including,
without limiting the foregoing, all orders and decrees of all courts and
arbitrators in proceedings or actions to which the Person in question is a
party, and (b) in respect of contracts relating to interest or finance charges
that are made or performed in the State of Texas, "Applicable Law" shall mean
the laws of the United States of America, including without limitation 12 USC
Sections 85 and 86, as amended from time to time, and any other statute of the
United States of America now or at any time hereafter prescribing the maximum
rates of interest on loans and extensions of credit, and the laws of the State
of Texas, including, without limitation, Article 5069-1.04, Title 79, Revised
Civil Statutes of Texas, 1925, as amended ("Art. 1.04"), and any other statute
of the State of Texas now or at any time hereafter prescribing maximum rates of
interest on loans and extensions of credit; provided that the parties hereto
agree that the provisions of Chapter 15, Title 79, Revised Civil Statutes of
Texas, 1925, as amended, shall not apply to Advances, this Agreement, the Notes
or any other Loan Documents.
"Art. 1.04" has the meaning specified in the definition of "Applicable
Law."
"Assignees" means any assignee of a Lender pursuant to an Assignment
Agreement and shall have the meaning ascribed thereto in Section 11.6 hereof.
"Assignment Agreement" has the meaning specified in Section 11.6(d)
hereof.
"Assignment of Claims Act" means the Assignment of Claims Act of 1940,
as amended (31 U.S.C. Section 3727).
"Augusta" means Augusta Enterprises, Inc., a Delaware corporation, and
wholly-owned direct Subsidiary of the Parent.
"Authorized Signatory" means such senior personnel of either Borrower
as may be duly authorized and designated in writing by such Borrower to execute
documents, agreements and instruments on behalf of such Borrower, and to
request Advances and Letters of Credit hereunder.
- 2 -
<PAGE> 9
"Borrowers" means, collectively, Babbages and Software, and "Borrower"
means either of them.
"Babbages Borrowing Base" means, at the time in question, an amount
equal to 45% of Eligible Inventory of Babbages.
"Babbages Security Agreement" means the security agreement relating to
the Accounts and Inventory of Babbages, substantially in the form of Exhibit D
hereto, as amended, modified, renewed, supplemented or restated from time to
time.
"Borrowing Base Report and Compliance Certificate" means a
certificate, signed by an Authorized Signatory, in substantially the form of
Exhibit F, appropriately completed.
"Business Combination Costs" means all charges related to consummation
of the reorganization provided for in the Amended and Restated Agreement and
Plan of Reorganization, dated as of September 23, 1994, among the Parent,
Babbages and Software.
"Business Day" means a day on which banks are open for the transaction
of business in Dallas, Texas and, with respect to any LIBOR Advance, in London,
England.
"Capitalized Lease Obligations" means that portion of any obligation
of the Parent, the Borrowers or any Subsidiary as lessee under a lease which at
the time would be required to be capitalized on a balance sheet prepared in
accordance with GAAP.
"Cash and Cash Equivalents" means with respect to the Parent, the
Borrowers and each other Subsidiary (i) cash (which after the occurrence of an
Event of Default shall exclude any cash proceeds of Accounts), (ii) securities
issued or directly and fully guaranteed or insured by the United States
Government or any agency or instrumentality thereof having maturities of not
more than one year from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities of six months or less from the
date of acquisition, bankers' acceptances with maturities not exceeding one
year and overnight bank deposits, in each case with any Lender or with any
domestic commercial bank having capital and surplus in excess of $500,000,000,
(iv) commercial paper rated A-1 or the equivalent thereof by Standard & Poor's
Ratings Group, a Division of McGraw-Hill, Inc., a New York corporation, or P-1
or the equivalent thereof by Moody's Investors Service, Inc. and in each case
maturing within one year after the date of acquisition and (v) mutual funds,
the investments of which are comprised solely of investments described in (i),
(ii), (iii) and (iv) immediately above.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease or transfer of all or substantially all of the Parent's or
either Borrower's assets to any Person or group (as such term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended), (ii) the
adoption of a plan relating to the liquidation or dissolution of either
Borrower, or (iii) the acquisition by any Person or group (as such term is used
in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of a
direct or indirect majority in interest (more
- 3 -
<PAGE> 10
than 50%) of the voting power of the voting stock of the Parent or either
Borrower by way of merger or consolidation or otherwise.
"Chasada" means Chasada, a Pennsylvania business trust organized
pursuant to the Deed of Trust dated as of October 26, 1993 and wholly-owned
indirect Subsidiary of the Parent.
"COBRA" shall have the meaning specified in Section 4.1(l) hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means any collateral hereafter granted by any Person to
the Administrative Lender for the benefit of the Lenders to secure the
Obligations.
"Collateral Document" means any document under which Collateral is
granted and any document related thereto.
"Combined Borrowing Base" means the Babbages Borrowing Base and the
Software Borrowing Base.
"Commitment" means $70,000,000, as reduced from time to time pursuant
to Section 2.6 hereof.
"Commitment Fee" has the meaning specified in Section 2.4(a) hereof.
"Consensual Lien" means only those Liens described in clauses (f) and
(h) of the definition of Permitted Liens.
"Control" or "Controlled By" or "Under Common Control" means
possession, directly or indirectly, of power to direct or cause the direction
of management or policies (whether through ownership of voting securities, by
contract or otherwise); provided, however, that in any event any Person which
beneficially owns, directly or indirectly, 10% or more (in number of votes) of
the securities having ordinary voting power for the election of directors of a
corporation shall be conclusively presumed to control such corporation.
"Controlled Group" means as of the applicable date, as to any Person
not an individual, all members of a controlled group of corporations and all
trades or businesses (whether or not incorporated) which are under common
control with such Person and which, together with such Person, are treated as a
single employer under Section 414(b), (c), (m) or (o) of the Code; provided,
however, that the Subsidiaries of the Parent shall be deemed to be members of
the Parent's Controlled Group.
"Debtor Relief Laws" means any applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement, insolvency,
reorganization or similar debtor relief laws affecting the rights of creditors
generally from time to time in effect.
- 4 -
<PAGE> 11
"Default" means an Event of Default and/or any of the events specified
in Section 8.1, regardless of whether there shall have occurred any passage of
time or giving of notice that would be necessary in order to constitute such
event an Event of Default.
"Default Rate" means a simple per annum interest rate equal to (a)
with respect to Prime Rate Advances the lesser of (i) the Highest Lawful Rate
or (ii) the Prime Rate Basis plus two percent or (b) with respect to LIBOR
Advances, the lesser of (i) the Highest Lawful Rate or (ii) the LIBOR Basis
plus two percent.
"Determining Lenders" means, on any date of determination, any
combination of the Lenders having at least 66-2/3% of the aggregate amount of
the Advances and participations in Reimbursement Obligations then outstanding;
provided, however, that if there are no Advances and Reimbursement Obligations
outstanding hereunder, "Determining Lenders" shall mean any combination of
Lenders whose Specified Percentages aggregate at least 67%.
"Dividend" means, as to any Person, any declaration or payment of any
dividend (other than a stock dividend) on, or the making of any distribution,
loan, advance or investment to or in any holder of, any shares of capital stock
of such Person (other than salaries and bonuses paid in the ordinary course of
business).
"Documentary Letter of Credit" means documentary or commercial letters
of credit issued by the Issuing Bank for the account of either Borrower.
"Eligible Inventory" means, at the time of any determination thereof,
each item of Inventory (excluding work-in-progress) valued at the lower of cost
or market value, as to which the following requirements have been fulfilled to
the satisfaction of the Determining Lenders:
(i) either Borrower has lawful and absolute title to such
Inventory;
(ii) Such Inventory is not subject to any Lien or Negative
Pledge in favor of any Person other than any (A) Lien of the
Administrative Lender pursuant to the Loan Documents or (B) Permitted
Lien which is not a Consensual Lien;
(iii) Such Inventory is without defect;
(iv) Such Inventory is located in the United States of
America;
(v) Such Inventory is subject to a fully perfected first
priority security interest in favor of Administrative Lender pursuant
to the Loan Documents, prior to the rights of, and enforceable as such
against, any other Person (including holders of a purchase money
security interest); and
(vi) The sale of such Inventory by Administrative Lender
(or its successors or assigns) is not subject to any Necessary
Authorization, restriction or limitation.
- 5 -
<PAGE> 12
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and any regulation promulgated thereunder.
"ERISA Event" means, with respect to the Parent and its Subsidiaries,
(a) a Reportable Event (other than a Reportable Event not subject to the
provision for 30-day notice to the PBGC under regulations issued under Section
4043 of ERISA), (b) the withdrawal of any such Person or any member of its
Controlled Group from a Plan subject to Title IV of ERISA during a plan year in
which it was a "substantial employer" as defined in Section 4001(a)(2) of
ERISA, (c) the filing of a notice of intent to terminate under Section 4041(c)
of ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC,
(e) the failure to make required contributions which could result in the
imposition of a lien under Section 412 of the Code or Section 302 of ERISA, or
(f) any other event or condition which might reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan or the imposition of any
liability under Title IV of ERISA other than PBGC premiums due but not
delinquent under Section 4007 of ERISA.
"Event of Default" means any of the events specified in Section 8.1,
provided that any requirement for notice or lapse of time has been satisfied.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of Dallas on the Business Day next
succeeding such day, provided that (a) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business
Day, and (b) if no such rate is so published on such next succeeding Business
Day, the Federal Funds Rate for such day shall be the average rate quoted to
the Administrative Lender on such day on such transactions as determined by
Administrative Lender.
"Fee Letter" shall have the meaning specified in Section 2.4(c) hereof.
"Fixed Charges" means, for any date of calculation, calculated for the
Parent and its Subsidiaries on a consolidated basis, the sum of, without
duplication, (a) interest expense (including interest expense pursuant to
Capitalized Lease Obligations), plus (b) lease expense under Operating Leases,
in each case for the applicable period immediately preceding the date of
calculation.
"Fixed Charge Coverage Ratio" means the ratio of Pretax Cash Flow to
Fixed Charges.
"GAAP" means generally accepted accounting principles applied on a
consistent basis, set forth in the Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants, or their successors
which are applicable in the circumstances as of the date in question. The
requisite that such principles be applied on a consistent basis shall
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mean that the accounting principles observed in a current period are comparable
in all material respects to those applied in a preceding period.
"Guaranty" or "Guaranteed", as applied to an obligation of another
Person, means and include (a) a guaranty, direct or indirect, in any manner, of
any part or all of such obligation, and (b) an agreement, direct or indirect,
contingent or otherwise, the practical effect of which is to assure in any way
the payment or performance (or payment of damages in the event of
nonperformance) of any part or all of such obligation, including, without
limiting the foregoing, any reimbursement obligations with respect to amounts
which may be drawn by beneficiaries of outstanding letters of credit.
"Guaranty Agreements" means the Parent Guaranty and the Subsidiary
Guaranty.
"Highest Lawful Rate" means at the particular time in question the
maximum rate of interest which, under Applicable Law, the Lenders are then
permitted to charge on the Obligations. If the maximum rate of interest which,
under Applicable Law, the Lenders are permitted to charge on the Obligations
shall change after the date hereof, the Highest Lawful Rate shall be
automatically increased or decreased, as the case may be, from time to time as
of the effective time of each change in the Highest Lawful Rate without notice
to the Borrowers. For purposes of determining the Highest Lawful Rate under
the Applicable Law of the State of Texas, the applicable rate ceiling shall be
(a) the indicated rate ceiling described in and computed in accordance with the
provisions of Section (a)(1) of Art. 1.04, or (b) if the parties subsequently
contract as allowed by Applicable Law, the quarterly ceiling or the annualized
ceiling computed pursuant to Section (d) of Art. 1.04; provided, however, that
at any time the indicated rate ceiling, the quarterly ceiling or the annualized
ceiling shall be less than 18% per annum or more than 24% per annum, the
provisions of Sections (b)(1) and (2) of said Art. 1.04 shall control for
purposes of such determination, as applicable.
"Increased Advance Costs" has the meaning specified in Section 9.3(a)
hereof.
"Increased Advance Costs Retroactive Effective Date" has the meaning
specified in Section 9.3(a) hereof.
"Increased Advance Costs Set Date" has the meaning specified in
Section 9.3(a) hereof.
"Increased Letter of Credit Costs" has the meaning specified in
Section 2.16(d) hereof.
"Increased Letter of Credit Costs Retroactive Effective Date" has the
meaning specified in Section 2.16(d) hereof.
"Increased Letter of Credit Costs Set Date" has the meaning specified
in Section 2.16(d) hereof.
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"Indebtedness" means, with respect to any Person, (a) all items,
except account payables arising in the normal course of business, which in
accordance with GAAP would be included in determining total liabilities as
shown on the liability side of a balance sheet of such Person, (b) all
obligations secured by any Lien on any property or asset owned by such Person
(other than accounts payable arising in the ordinary course of business),
whether or not the obligation secured thereby shall have been assumed, (c) to
the extent not otherwise included, all Capitalized Lease Obligations of such
Person, all obligations in respect of letters of credit, bankers' acceptances
and similar instruments, and all obligations under Interest Hedge Agreements,
(d) any "withdrawal liability" of the Parent or any Subsidiary, as such term is
defined under Part I of Subtitle E of Title IV of ERISA and (e) any Guaranty of
such Person of any obligation of another Person constituting obligations of a
type set forth above.
"Indemnified Matters" has the meaning specified in Section 5.10(a)
hereof.
"Indemnitees" has the meaning specified in Section 5.10(a) hereof.
"Initial Commitment Amount" means, with respect to each Lender, such
amount set forth opposite such Lender's name on Schedule 7 hereto.
"Intercreditor Agreement" means that certain Intercreditor Agreement,
dated as of the Agreement Date, among NationsBank of Texas, N.A., as Collateral
Agent, the Lenders and the lenders party to the Term Credit Agreement, as
amended, modified, renewed, supplemented or restated from time to time.
"Interest Hedge Agreements" shall mean any and all agreements, devices
or arrangements designed to protect at least one of the parties thereto from
the fluctuations of interest rates, exchange rates or forward rates applicable
to such party's assets, liabilities or exchange transactions, including, but
not limited to, dollar-denominated or cross-currency interest rate exchange
agreements, forward currency exchange agreements, interest rate cap or collar
protection agreements, forward rate currency or interest rate options, puts and
warrants, as the same may be amended or modified and in effect from time to
time, and any and all cancellations, buy backs, reversals, terminations or
assignments of any of the foregoing.
"Interest Period" means the period beginning on the day any LIBOR
Advance is made and ending one, two, three or six months thereafter (as either
Borrower shall select).
"Inventory" has the meaning assigned to such term in the UCC.
"Investment" means any acquisition of all or substantially all assets
of any Person, or any direct or indirect purchase or other acquisition of, or
beneficial interest in, capital stock or other securities of any other Person,
or any direct or indirect loan, advance (other than advances to employees for
moving and travel expenses, drawing accounts and similar expenditures in the
ordinary course of business) or capital contribution to, or investment in any
other Person, including without limitation the occurrence or sufferance of
Indebtedness or the purchase of
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<PAGE> 15
accounts receivable of any other Person that are not current assets or do not
arise in the ordinary course of business.
"Issuing Bank" means NationsBank of Texas, N.A. in its capacity as
issuer of the Letters of Credit.
"Law" means any statute, law, ordinance, regulation, rule, order,
writ, injunction or decree of any Tribunal.
"Lender" means each financial institution shown on the signature pages
hereof so long as such financial institution maintains a portion of the
Commitment or is owed any part of the Obligations (including the Administrative
Lender in its individual capacity), and each Assignee that hereafter becomes
party hereto pursuant to Section 11.6(d) hereof, subject to the limitations set
forth therein.
"L/C Cash Collateral Account" has the meaning specified in Section
2.16(g)(i) hereof.
"L/C Related Documents" has the meaning specified in Section
2.16(e)(i) hereof.
"Letters of Credit" mean Documentary Letters of Credit and Standby
Letters of Credit and "Letter of Credit" means any of them.
"Letter of Credit Agreement" has the meaning specified in Section
2.16(b) hereof.
"Letter of Credit Facility" means the amount of Letters of Credit the
Issuing Bank may issue as defined in Section 2.16(a) hereof.
"LIBOR Advance" means an Advance which the Borrowers request to be
made as a LIBOR Advance or which is reborrowed as a LIBOR Advance, in
accordance with the provisions of Section 2.2 hereof.
"LIBOR Basis" means a simple per annum interest rate equal to the
lesser of (a) the Highest Lawful Rate, or (b) the sum of the LIBOR Rate plus
2.00%. The LIBOR Basis shall, with respect to LIBOR Advances subject to
reserve or deposit requirements, be subject to premiums for such reserve or
deposit requirements assessed by each Lender, which are payable directly to
each Lender. Once determined, the LIBOR Basis shall remain unchanged during
the applicable Interest Period.
"LIBOR Lending Office" means, with respect to a Lender, the office
designated as its LIBOR Lending Office on Schedule 1 attached hereto, and such
other office of the Lender or any of its affiliates hereafter designated by
notice to the Borrowers and the Administrative Lender.
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"LIBOR Rate" means, for any Interest Period, the interest rate per
annum (rounded upward to the nearest one-sixteenth (1/16th) of one percent)
quoted by the Reference Lender at 9:00 a.m. (Dallas, Texas time) (or as soon
thereafter as practicable) on the date that is two Business Days before the
first day of such Interest Period as the "LIBOR Rate" applicable for loans in
an amount approximately equal to the principal amount of, and for a length of
time approximately equal to the Interest Period for, the LIBOR Advance sought
by the Borrowers.
"Lien" means, with respect to any property, any mortgage, lien,
pledge, collateral assignment, hypothecation, charge, security interest, title
retention agreement, levy, execution, seizure, attachment, garnishment or other
encumbrance of any kind in respect of such property, whether or not choate,
vested or perfected.
"Litigation" means any proceeding, claim, lawsuit, arbitration, and/or
investigation conducted or threatened by or before any Tribunal, including
without limitation, proceedings, claims, lawsuits, and/or investigations under
or pursuant to any environmental, occupational, safety and health, antitrust,
unfair competition, securities, Tax, or other Law, or under or pursuant to any
contract, agreement or other instrument.
"Loan Documents" means this Agreement, the Notes, the Guaranty
Agreements, the Security Agreements, the Fee Letter, the Intercreditor
Agreement, and any other document or agreement executed or delivered from time
to time by the Parent, the Borrowers, any Subsidiary or any other Person in
connection herewith or as security for the Obligations.
"Material Adverse Change or Effect" means any act or circumstance or
event that (a) causes a Default, (b) otherwise could reasonably be expected to
be material and adverse to the business, assets, liabilities, financial
condition, results of operations, business or prospects of the Parent or either
Borrower, or (c) in any manner whatsoever does or could reasonably be expected
to materially and adversely affect the validity or enforceability of any Loan
Documents.
"Maturity Date" means August 25, 1996, or the earlier date of
termination in whole of the Commitment pursuant to Section 2.6 or 8.2 hereof,
or such later date as established pursuant to Section 2.17 hereof.
"Maximum Amount" means the maximum amount of interest which, under
Applicable Law, the Lenders are permitted to charge on the Obligations.
"Multiemployer Plan" means, as to any Person, at any time, a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to
which such Person or any member of its Controlled Group is making, or is
obligated to make contributions or has made, or been obligated to make,
contributions.
"NationsBank" means NationsBank of Texas, N.A., a national banking
association.
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"Necessary Authorization" means any right, franchise, license, permit,
consent, approval or authorization from, or any filing or registration with,
any governmental or other regulatory authority or any Person necessary or
appropriate to enable either Borrower or any Subsidiary to maintain and operate
its business and properties.
"Negative Pledge" means any agreement, contract or other arrangement
whereby the Parent, either Borrower or any other Subsidiary is prohibited from,
or would otherwise be in default as a result of, creating, assuming, incurring
or suffering to exist, directly or indirectly, any Lien on any of its assets.
"Net Worth" means, for the Parent and its Subsidiaries, on a
consolidated basis, determined in accordance with GAAP, the sum of: (i) capital
stock taken at stated or par value, plus (ii) capital surplus plus (iii)
retained earnings less treasury stock.
"Note" means each Promissory Note of the Borrowers evidencing Advances
hereunder, substantially in the form of Exhibit A hereto, together with any
extension, renewal or amendment thereof, or substitution therefor.
"Notice of Issuance" has the meaning specified in Section 2.16(b)
hereof.
"Obligations" means (a) all obligations of any nature (whether matured
or unmatured, fixed or contingent, including the Reimbursement Obligations) of
the Parent, either Borrower or any Subsidiary to the Lenders under the Loan
Documents as they may be amended from time to time, and (b) all obligations of
the Parent, either Borrower or any Subsidiary for losses, damages, expenses or
any other liabilities of any kind that any Lender may suffer by reason of a
breach by the Parent, either Borrower or any Subsidiary of any obligation,
covenant or undertaking with respect to any Loan Document.
"Obligor" means any Person that has or will execute a Loan Document.
"Operating Lease" means any operating lease, as defined in the
Financial Accounting Standard Board Statement of Financial Accounting Standards
No. 13, dated November, 1976 or otherwise in accordance with GAAP.
"Parent" means NeoStar Retail Group, Inc., a Delaware corporation,
which owns 100% of the issued and outstanding capital stock of each Borrower.
"Parent Guaranty" means that certain Guaranty Agreement executed by
the Parent, substantially in the form of Exhibit C hereto, as amended,
modified, renewed, supplemented or restated from time to time.
"Participant" has the meaning specified in Section 11.6(c) hereof.
"Participation" has the meaning specified in Section 11.6(c) hereof.
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<PAGE> 18
"Payment Date" means the last day of the Interest Period for any LIBOR
Advance.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Liens" means, as applied to any Person:
(a) Any Lien in favor of the Lenders to secure the Obligations
hereunder;
(b) (i) Liens on real estate for ad valorem taxes not yet
delinquent, (ii) Liens created by lease agreements or statute, rule or
regulation to secure the payments of rental amounts and other sums not yet due
thereunder, (iii) Liens on leasehold interests created by the lessor in favor
of any mortgagee of the leased premises, and (iv) Liens for taxes, assessments,
governmental charges, levies or claims that are being diligently contested in
good faith by appropriate proceedings and for which adequate reserves shall
have been set aside on such Person's books, but only so long as no foreclosure,
restraint, sale or similar proceedings have been commenced with respect
thereto;
(c) Liens of carriers, warehousemen, mechanics, laborers and
materialmen and other similar Liens incurred in the ordinary course of business
for sums not yet due or being contested in good faith, if such reserve or
appropriate provision, if any, as shall be required by GAAP shall have been
made therefor;
(d) Liens incurred in the ordinary course of business in
connection with worker's compensation, unemployment insurance or similar
legislation;
(e) Easements, right-of-way, restrictions and other similar
encumbrances on the use of real property which do not interfere with the
ordinary conduct of the business of such Person;
(f) Liens created to secure the purchase price of assets acquired
by such Person or created to secure Indebtedness permitted by Section 7.1(c)
hereof, which is incurred solely for the purpose of financing the acquisition
of such assets and incurred at the time of acquisition, so long as each such
Lien shall at all times be confined solely to the asset or assets so acquired
(and proceeds thereof), and refinancings thereof so long as any such Lien
remains solely on the asset or assets acquired and the amount of Indebtedness
related thereto is not increased;
(g) Liens in respect of judgments or awards for which appeals or
proceedings for review are being prosecuted and in respect of which a stay of
execution upon any such appeal or proceeding for review shall have been
secured, provided that (i) such Person shall have established adequate reserves
for such judgments or awards, (ii) such judgments or awards shall be fully
insured and the insurer shall not have denied coverage, or (iii) such judgments
or awards shall have been bonded to the satisfaction of the Determining
Lenders; and
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<PAGE> 19
(h) Any Liens which are described on Schedule 2 hereto, and Liens
resulting from the refinancing of the related Indebtedness, provided that the
Indebtedness secured thereby shall not be increased and the Liens shall not
cover additional assets of either Borrower.
"Person" means an individual, corporation, partnership, trust or
unincorporated organization, or a government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan as defined in Section 3(3) of
ERISA (including a Multiemployer Plan) pursuant to which any employees of the
Parent, its Subsidiaries or any member of their Controlled Group participate.
"Pretax Cash Flow" means, for any period, determined in accordance
with GAAP on a consolidated basis for the Parent and its Subsidiaries, the sum
of (a) Pretax Net Income (excluding therefrom, to the extent included in
determining Pretax Net Income, any items of extraordinary gain, including net
gains on the sale of assets other than asset sales in the ordinary course of
business, and adding thereto, to the extent included in determining Pretax Net
Income, any items of extraordinary loss, including the Business Combination
Costs not to exceed $15,000,000), plus (b) interest expense (including interest
expense pursuant to Capital Leases) plus (c) lease expense pursuant to
Operating Leases.
"Pretax Net Income" means net profit (or loss) before taxes of the
Parent and its Subsidiaries, on a consolidated basis, determined in accordance
with GAAP.
"Prime Rate" means, at any time, the prime interest rate announced or
published by the Reference Lender from time to time as its reference rate for
the determination of interest rates for loans of varying maturities in United
States dollars to United States residents of varying degrees of
creditworthiness and being quoted at such time by the Reference Lender as its
"prime rate;" it being understood that such rate may not be the lowest rate of
interest charged by the Reference Lender.
"Prime Rate Advance" means any Advance bearing interest at the Prime
Rate Basis.
"Prime Rate Basis" means, for any day, a per annum interest rate equal
to the lesser of (a) the Highest Lawful Rate on such day, or (b) the higher of
(i) the sum of (A) 0.50% plus (B) the Federal Funds Rate on such day or (ii)
the Prime Rate on such day. The Prime Rate Basis shall be adjusted
automatically as of the opening of business on the effective date of each
change in the Prime Rate to account for such change.
"Quarterly Date" means the last day of each April, July, October and
January, beginning October 31, 1995.
"Reference Lender" means NationsBank.
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<PAGE> 20
"Refinancing Advance" means any LIBOR Advance which is used to pay the
principal amount (or any portion thereof) of a LIBOR Advance at the end of its
Interest Period and which, after giving effect to such application, does not
result in an increase in the aggregate amount of outstanding LIBOR Advances.
"Reimbursement Obligations" means, in respect of any Letter of Credit
as at any date of determination, the sum of (a) the maximum aggregate amount
which is then available to be drawn under such Letter of Credit plus (b) the
aggregate amount of all drawings under such Letter of Credit and not
theretofore reimbursed by the Borrowers.
"Release Date" means the date on which the Notes have been paid, all
other Obligations due and owing have been paid and performed in full, and the
Commitment has been terminated, no Letters of Credit are outstanding and all
obligations under the Term Credit Agreement have been paid in full.
"Reportable Event" has the meaning set forth in Section 4043(b) of
ERISA.
"Restricted Payments" means, collectively, (i) Dividends and (ii)
treasury stock purchases.
"Rights" means rights, remedies, powers and privileges.
"Security Agreements" means the Babbages Security Agreement and the
Software Security Agreement.
"Software Borrowing Base" means, at the time in question, an amount
equal to 45% of Eligible Inventory of Software.
"Software Security Agreement" means the security agreement relating to
the Accounts and Inventory of Software, substantially in the form of Exhibit E
hereto, as amended, modified, renewed, supplemented or restated from time to
time.
"Solvent" means, with respect to any Person, that the fair value of
the assets of such Person (both at fair valuation and at present fair saleable
value) is, on the date of determination, greater than the total amount of
liabilities (including contingent and unliquidated liabilities) of such Person
as of such date and that, as of such date, such Person is able to pay all
liabilities of such Person as such liabilities mature and such Person does not
have unreasonably small capital with which to carry on its business. In
computing the amount of contingent or unliquidated liabilities at any time,
such liabilities will be computed at the amount which, in light of all the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability discounted to
present value at rates believed to be reasonable by such Person.
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<PAGE> 21
"Special Counsel" means the law firm of Donohoe, Jameson & Carroll,
P.C., or such other legal counsel as the Administrative Lender may select.
"Specified Percentage" means, as to any Lender, the percentage
indicated beside its name on the signature pages hereof, or if applicable,
specified in its most recent Assignment Agreement.
"Standby Letters of Credit" means standby letters of credit issued by
the Issuing Bank for the account of either Borrower.
"Subsidiary" means (a) any corporation of which 50% or more of the
outstanding stock (other than directors' qualifying shares) having ordinary
voting power to elect a majority of its board of directors, regardless of the
existence at the time of a right of the holders of any class of securities of
such corporation to exercise such voting power by reason of the happening of
any contingency, is at the time owned by the Parent, directly or through one or
more intermediaries, and (b) any other entity which is Controlled or then
capable of being Controlled by the Parent, directly or through one or more
intermediaries.
"Subsidiary Guaranty" means those certain Guaranty Agreements executed
by each Subsidiary of the Parent other than Babbages and Software,
substantially in the form of Exhibit B hereto, as amended, modified, renewed,
supplemented or restated from time to time.
"Taxes" has the meaning specified in Section 2.15(a) hereof.
"Term Credit Agreement" means that certain Credit Agreement, dated as
of December 21, 1994, among the Parent, the lenders party thereto and
NationsBank of Texas, N.A., as Administrative Lender, which provided for a term
loan to the Parent in the original principal amount of $20,000,000 of which
$18,000,000 is outstanding as of the Agreement Date, as amended, modified or
supplemented from time to time.
"Total Liabilities" means, as of any date of determination, determined
for the Parent and its Subsidiaries on a consolidated basis, the total
liabilities of the Parent and its Subsidiaries which would be shown on a
consolidated balance sheet of the Parent and its Subsidiaries prepared in
accordance with GAAP.
"Tribunal" means any state, commonwealth, federal, foreign,
territorial, or other court or government body, subdivision, agency,
department, commission, board, bureau or instrumentality of a governmental
body.
"UCC" means the Uniform Commercial Code of Texas, as amended from time
to time.
"Unused Portion" means an amount equal to the result of (i) the
Revolving Credit Commitment minus (ii) the sum of (A) the outstanding Revolving
Credit Advances plus (B) outstanding Reimbursement Obligations in respect of
the Letters of Credit.
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Section 1.2 Amendments and Renewals. Each definition of an
agreement in this Article 1 shall include such agreement as amended to date,
and as amended or renewed from time to time in accordance with its terms, but
only with the prior written consent of the Determining Lenders or all Lenders
as provided in Section 11.11 hereof.
Section 1.3 Construction. The terms defined in this Article 1
(except as otherwise expressly provided in this Agreement) for all purposes
shall have the meanings set forth in Section 1.1 hereof, and the singular shall
include the plural, and vice versa, unless otherwise specifically required by
the context. All accounting terms used in this Agreement which are not
otherwise defined herein shall be construed in accordance with GAAP on a
consolidated basis for the Parent and its Subsidiaries, unless otherwise
expressly stated herein.
ARTICLE 2
Advances
Section 2.1 The Advances.
(a) Each Lender severally agrees, upon the terms and subject to
the conditions of this Agreement, to make Advances to the Borrowers from time
to time in an aggregate amount not to exceed its Specified Percentage of the
Commitment less its Specified Percentage of the aggregate amount of all
Reimbursement Obligations then outstanding (assuming compliance with all
conditions to drawing) for the purposes set forth in Section 5.9 hereof.
Subject to Section 2.9 hereof, Advances may be repaid and then reborrowed.
Notwithstanding any provision in any Loan Document to the contrary, in no event
shall (i) the principal amount of all outstanding Advances made to Babbages and
outstanding Reimbursement Obligations with respect to Letters of Credit issued
for the account of Babbages exceed the lesser of (A) the Commitment and (B) the
Babbages Borrowing Base, (ii) the principal amount of all outstanding Advances
made to Software and the outstanding Reimbursement Obligations with respect to
Letters of Credit issued for the account of Software exceed the lesser of (A)
the Commitment and (B) the Software Borrowing Base, and (iii) the principal
amount of all outstanding Advances and Reimbursement Obligations exceed the
lesser of (A) the Commitment and (B) the sum of (1) the Combined Borrowing Base
minus (2) all obligations outstanding under the Term Credit Agreement. On the
Maturity Date unless sooner paid as provided herein, the outstanding Advances
shall be repaid in full.
(b) Any Advance shall, at the option of the Borrowers as provided
in Section 2.2 hereof (and, in the case of LIBOR Advances, subject to
availability and to the provisions of Article 9 hereof), be made as a Prime
Rate Advance or a LIBOR Advance; provided that there shall not be outstanding
to any Lender, at any one time, more than six LIBOR Advances.
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Section 2.2 Manner of Borrowing and Disbursement.
(a) In the case of Prime Rate Advances, either Borrower, through
an Authorized Signatory, shall give the Administrative Lender prior to 11:00
a.m., Dallas, Texas time, on the date of any proposed Prime Rate Advance
irrevocable written notice, or irrevocable telephonic notice followed
immediately by written notice (provided, however, that such Borrower's failure
to confirm any telephonic notice in writing shall not invalidate any notice so
given), of its intention to borrow or reborrow a Prime Rate Advance hereunder.
Such notice of borrowing shall specify the requested funding date, which shall
be a Business Day, and the amount of the proposed aggregate Prime Rate Advances
to be made by Lenders.
(b) In the case of LIBOR Advances, either Borrower, through an
Authorized Signatory, shall give the Administrative Lender at least three
Business Days' irrevocable written notice, or irrevocable telephonic notice
followed immediately by written notice (provided, however, that such Borrower's
failure to confirm any telephonic notice in writing shall not invalidate any
notice so given), of its intention to borrow or reborrow a LIBOR Advance
hereunder. Notice shall be given to the Administrative Lender prior to 11:00
a.m., Dallas, Texas time, in order for such Business Day to count toward the
minimum number of Business Days required. LIBOR Advances shall in all cases be
subject to availability and to Article 9 hereof. For LIBOR Advances, the
notice of borrowing shall specify the requested funding date, which shall be a
Business Day, the amount of the proposed aggregate LIBOR Advances to be made by
Lenders and the Interest Period selected by such Borrower, provided that no
such Interest Period shall extend past the Maturity Date.
(c) Subject to Sections 2.1 and 2.9 hereof, at least three
Business Days prior to each Payment Date for a LIBOR Advance, either Borrower,
through an Authorized Signatory, shall give the Administrative Lender
irrevocable written notice, or irrevocable telephonic notice followed
immediately by written notice (provided, however, that such Borrower's failure
to confirm any telephonic notice in writing shall not invalidate any notice so
given), specifying whether all or a portion of such LIBOR Advance outstanding
on the Payment Date (i) is to be repaid and then reborrowed in whole or in part
as a LIBOR Advance, (ii) is to be repaid and then reborrowed in whole or in
part as a Prime Rate Advance, or (iii) is to be repaid and not reborrowed;
provided, however, notwithstanding anything in this Agreement to the contrary,
if on any Payment Date a Default shall exist, such LIBOR Advance may only be
reborrowed as a Prime Rate Advance. Notice shall be given to the
Administrative Lender prior to 11:00 a.m., Dallas, Texas time, in order for
such Business Day to count toward the minimum number of Business Days required.
Upon such Payment Date, such LIBOR Advance shall, subject to the provisions
hereof, be so repaid and, as applicable, reborrowed.
(d) Subject to Sections 2.1 and 2.9 hereof, upon irrevocable prior
written notice prior to 11:00 a.m., Dallas time, on the date of any proposed
repayment of all or a portion of the Prime Rate Advances (or three Business
Days if either Borrower wishes to reborrow a Prime Rate Advance as a LIBOR
Advance), through an Authorized Signatory, or irrevocable telephonic notice
followed immediately by written notice (provided, however, that such Borrower's
failure
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to confirm any telephonic notice in writing shall not invalidate any notice so
given), such Borrower may (i) repay all or a portion of the Prime Rate Advances
and (ii) reborrow all or a portion of the principal amount thereof as one or
more LIBOR Advances or Prime Rate Advances; provided, however, notwithstanding
anything in this Agreement to the contrary, if on the date of such proposed
repayment a Default shall exist, such Prime Rate Advance may only be reborrowed
as a Prime Rate Advance.
(e) The aggregate amount of Prime Rate Advances to be made by the
Lenders on any day shall be in a principal amount which is at least $500,000
and which is an integral multiple of $100,000; provided, however, that such
amount may equal the unused amount of the Commitment. The aggregate amount of
LIBOR Advances having the same Interest Period and to be made by the Lenders on
any day shall be in a principal amount which is at least $1,000,000 and which
is an integral multiple of $100,000.
(f) The Administrative Lender shall, prior to 12:00 noon, Dallas,
Texas time, notify the Lenders of each notice received from either Borrower
pursuant to this Section. Failure of a Borrower to give any notice in
accordance with Sections 2.2(c) and (d) hereof (if with respect to clause (d),
such repayment is to be reborrowed as one or more LIBOR Advances) shall result
in a repayment of any such existing Advance on the applicable Payment Date by a
Refinancing Advance which is a Prime Rate Advance. Each Lender shall, not
later than 1:00 p.m., Dallas, Texas time, on the date of any Advance that is
not a Refinancing Advance, deliver to the Administrative Lender, at its address
set forth herein, such Lender's Specified Percentage of such Advance in
immediately available funds in accordance with the Administrative Lender's
instructions. Prior to 2:00 p.m., Dallas, Texas time, on the date of any
Advance hereunder, the Administrative Lender shall, subject to satisfaction of
the conditions set forth in Article 3, disburse the amounts made available to
the Administrative Lender by the Lenders by (i) transferring such amounts by
wire transfer pursuant to the appropriate Borrower's instructions, or (ii) in
the absence of such instructions, crediting such amounts to the account of such
Borrower maintained with the Administrative Lender. All Advances shall be made
by each Lender according to its Specified Percentage.
Section 2.3 Interest.
(a) On Prime Rate Advances.
(i) The Borrowers shall jointly and severally pay
interest on the outstanding unpaid principal amount of the Prime Rate
Advances outstanding from time to time, until such Prime Rate Advances
are due (whether at maturity, by reason of acceleration, by scheduled
reduction, or otherwise) or repaid at a simple interest rate per annum
equal to the Prime Rate Basis for the Prime Rate Advances as in effect
from time to time, provided that interest on the Prime Rate Advances
shall not exceed the Maximum Amount. If at any time the Prime Rate
Basis would exceed the Highest Lawful Rate, interest payable on the
Prime Rate Advances shall be limited to the Highest Lawful Rate, but
the Prime Rate Basis shall not thereafter be reduced below the Highest
Lawful Rate
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until the total amount of interest accrued on the Prime Rate Advances
equals the amount of interest that would have accrued if the Prime
Rate Basis had been in effect at all times.
(ii) Interest on the Prime Rate Advances shall be computed
on the basis of a year of 365 or 366 days, as applicable, for the
number of days actually elapsed, and shall be payable in arrears on
each Quarterly Date and on the Maturity Date.
(b) On LIBOR Advances.
(i) The Borrowers shall jointly and severally pay
interest on the unpaid principal amount of each LIBOR Advance, from
the date such Advance is made until it is due (whether at maturity, by
reason of acceleration, by scheduled reduction, or otherwise) or
repaid, at a rate per annum equal to the LIBOR Basis for such Advance.
The Administrative Lender, whose determination shall be controlling in
the absence of manifest error, shall determine the LIBOR Basis on the
second Business Day prior to the applicable funding date and shall
notify the Borrowers and the Lenders of such LIBOR Basis.
(ii) Subject to Section 11.9 hereof, interest on each
LIBOR Advance shall be computed on the basis of a 360-day year for the
actual number of days elapsed, and shall be payable in arrears on the
applicable Payment Date and on the Maturity Date; provided, however,
that if the Interest Period for such Advance exceeds three months,
interest shall also be due and payable in arrears on each Quarterly
Date during such Interest Period.
(c) Interest if No Notice of Selection of Interest Rate Basis. If
a Borrower fails to give the Administrative Lender timely notice of its
selection of a LIBOR Basis or an Interest Period for a LIBOR Advance, or if for
any reason a determination of a LIBOR Basis for any Advance is not timely
concluded due to the fault of such Borrower, the Prime Rate Basis shall apply
to the applicable Advance.
(d) Interest After an Event of Default. (i) After an Event of
Default (other than an Event of Default specified in Section 8.1(f) or (g)
hereof) and during any continuance thereof, at the option of Determining
Lenders, and (ii) after an Event of Default specified in Section 8.1(f) or (g)
hereof and during any continuance thereof, automatically and without any action
by the Administrative Lender or any Lender, the Obligations shall bear interest
at a rate per annum equal to the Default Rate. Such interest shall be payable
on the earlier of demand or the Maturity Date, and shall accrue until the
earlier of (i) waiver or cure (to the satisfaction of the Determining Lenders)
of the applicable Event of Default, (ii) agreement by the Lenders to rescind
the charging of interest at the Default Rate, or (iii) payment in full of the
Obligations. The Lenders shall not be required to accelerate the maturity of
the Advances, to exercise any other rights or remedies under the Loan
Documents, or to give notice to the Borrowers of the decision to charge
interest at the Default Rate. The Lenders will undertake to notify the
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Borrowers, after the effective date, of the decision to charge interest at the
Default Rate pursuant to clause (i) of the first sentence above.
Section 2.4 Fees.
(a) Commitment Fee. Subject to Section 11.9 hereof, the Borrowers
jointly and severally agree to pay to the Administrative Lender, for the
ratable account of the Lenders, a commitment fee equal to 0.25% per annum of
the daily average Unused Portion. The commitment fee shall be payable in
arrears on each Quarterly Date and on the Maturity Date.
(b) Closing Fees. Subject to Section 11.9 hereof, the Borrowers
jointly and severally agree to pay to the Administrative Lender, for the
account of the Lenders, a closing fee at the following percentages based on the
amount of each Lender's portion of the Commitment as follows:
Amount of Commitment Closing Fee
-------------------- -----------
$25,000,000 or greater .30%
At least $10,000,000 but less than $25,000,000 .20%
Such fee shall be payable on the Agreement Date, fully earned when due and,
subject to Section 11.9 hereof, nonrefundable when paid. Notwithstanding the
amount of each Lender's portion of the Commitment, the percentage amount used
to determine the closing fee of each Lender will be based upon each Lender's
Initial Commitment Amount (e.g., if a Lender's Initial Commitment Amount was
$25,000,000, but the amount of such Lender's portion of the Commitment is
$20,000,000, such Lender's facility fees shall be equal to the product of .30%
multiplied by $20,000,000).
(c) Other Fees. Subject to Section 11.9 hereof, the Borrowers
jointly and severally agree to pay to the Administrative Lender, for the
account of the Administrative Lender, the fees provided for in the letter
agreement (the "Fee Letter"), dated as of the Agreement Date, between the
Borrowers and the Administrative Lender on the dates and in the amounts
specified therein.
Section 2.5 Prepayment and Payments.
(a) Voluntary LIBOR Advance Prepayments. Upon two Business Days'
prior telephonic notice (to be promptly followed by written notice) by an
Authorized Signatory to the Administrative Lender, LIBOR Advances may be
voluntarily prepaid but only so long as the Borrowers concurrently reimburse
the Lenders in accordance with Section 2.9 hereof. Any notice of prepayment
shall be irrevocable.
(b) Mandatory Prepayment and Repayment. On or before the date of
any reduction of the Commitment, the Borrowers shall jointly and severally
prepay or repay outstanding
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Advances in an amount necessary to reduce the sum of outstanding Advances and
Reimbursement Obligations to an amount less than or equal to the (x) Commitment
as so reduced or (y) the Combined Borrowing Base. To the extent required by
the preceding sentence, the Borrowers shall first prepay all Prime Rate
Advances and shall thereafter prepay LIBOR Advances. To the extent that any
prepayment requires that a LIBOR Advance be repaid on a date other than the
last day of its Interest Period, the Borrowers shall jointly and severally
reimburse each Lender in accordance with Section 2.9 hereof.
(c) Prepayments and Payments, Generally. Any prepayment of a
LIBOR Advance shall be accompanied by interest accrued on the principal amount
being prepaid. Any voluntary partial payment of a Prime Rate Advance shall be
in a principal amount which is at least $100,000 or an integral multiple
thereof.
Section 2.6 Reduction of Commitment.
(a) Voluntary Reduction. The Borrowers shall have the right, upon
not less than 10 Business Days' notice by an Authorized Signatory to the
Administrative Lender (if telephonic, to be confirmed by telex or in writing on
or before the date of reduction or termination), which shall promptly notify
the Lenders, to terminate or reduce the Commitment, in whole or in part. Each
partial termination shall be in an aggregate amount which is at least
$5,000,000 and which is an integral multiple of $100,000, and no voluntary
reduction in the Commitment shall cause any LIBOR Advance to be repaid prior to
the last day of its Interest Period.
(b) General Requirements. Upon any reduction of the Commitment
pursuant to this Section, the Borrowers shall immediately make a repayment of
applicable Advances in accordance with Section 2.5(b) hereof. The Borrowers
shall jointly and severally reimburse each Lender for any loss or out-of-pocket
expense incurred by each Lender in connection with any such payment, as set
forth in Section 2.9 hereof to the extent applicable. The Borrowers shall not
have any right to rescind any termination or reduction. Once reduced, the
Commitment may not be increased or reinstated.
Section 2.7 Non-Receipt of Funds by the Administrative Lender.
Unless the Administrative Lender shall have been notified by a Lender prior to
the date of any proposed Advance (which notice shall be effective upon receipt)
that such Lender does not intend to make the proceeds of such Advance available
to the Administrative Lender, the Administrative Lender may assume that such
Lender has made such proceeds available to the Administrative Lender on such
date, and the Administrative Lender may in reliance upon such assumption (but
shall not be required to) make available to the Borrowers a corresponding
amount. If such corresponding amount is not in fact made available to the
Administrative Lender by such Lender, the Administrative Lender shall be
entitled to recover such amount on demand from such Lender (or, if such Lender
fails to pay such amount forthwith upon such demand, from the Borrowers)
together with interest thereon in respect of each day during the period
commencing on the date such amount was available to the Borrowers and ending on
(but excluding) the date the Administrative Lender receives such amount from
the Lender, with interest thereon at a per
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annum rate equal to the lesser of (i) the Highest Lawful Rate or (ii) the
Federal Funds Rate. No Lender shall be liable for any other Lender's failure
to fund an Advance hereunder.
Section 2.8 Payment of Principal of Advances. The Borrowers
jointly and severally agree to pay the principal amount of the Advances to the
Administrative Lender for the account of the Lenders as follows:
(a) Prime Rate Advances. The unpaid principal amount of the Prime
Rate Advances shall be due and payable on the Maturity Date.
(b) LIBOR Advances. The principal amount of each LIBOR Advance
hereunder shall be due and payable on its Payment Date, which principal payment
may be made by means of a Refinancing Advance.
(c) Commitment Reduction. On the date of any reduction of the
Commitment pursuant to Section 2.6 hereof, including the Maturity Date, the
aggregate amount of the Advances outstanding on such date of reduction in
excess of the Commitment as reduced minus all outstanding Reimbursement
Obligations shall be due and payable, which principal payment may not be made
by means of Refinancing Advances.
(d) Maturity Dates. To the extent not otherwise required to be
paid earlier as provided herein, the principal amount of the Advances, all
accrued interest and fees thereon, and all other Obligations related thereto,
shall be due and payable in full on the Maturity Date.
Section 2.9 Reimbursement. Whenever any Lender shall sustain or
incur any losses or reasonable out-of-pocket expenses in connection with (a)
failure by either Borrower to borrow any LIBOR Advance after having given
notice of its intention to borrow in accordance with Section 2.2 hereof
(whether by reason of a Borrower's election not to proceed or the
non-fulfillment of any of the conditions set forth in Article 3 hereof), or (b)
any prepayment for any reason of any LIBOR Advance in whole or in part
(including a prepayment pursuant to Section 9.3(b) hereof), the Borrowers
jointly and severally agree to pay to any such Lender, upon its demand, an
amount sufficient to compensate such Lender for all such losses and
out-of-pocket expenses, subject to Section 11.9 hereof. Such Lender's good
faith determination of the amount of such losses or out-of-pocket expenses,
calculated in its usual fashion, absent material error, shall be controlling.
Such losses shall include, without limiting the generality of the foregoing,
lost profits and reasonable expenses incurred by such Lender in connection with
the re-employment of funds prepaid, repaid, converted or not borrowed,
converted or paid, as the case may be. Upon request of the Borrowers, such
Lender shall provide a certificate setting forth the amount to be paid to it by
the Borrowers hereunder and calculations therefor.
Section 2.10 Manner of Payment.
(a) Each payment (including prepayments) by the Borrowers of the
principal of or interest on the Advances, fees, and any other amount owed under
this Agreement or any other
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Loan Document shall be made not later than 12:00 noon (Dallas, Texas time) on
the date specified for payment under this Agreement to the Administrative
Lender at the Administrative Lender's office, in lawful money of the United
States of America constituting immediately available funds.
(b) If any payment under this Agreement or any other Loan Document
shall be specified to be made upon a day which is not a Business Day, it shall
be made on the next succeeding day which is a Business Day, unless, with
respect to a payment due in respect of a LIBOR Advance, such Business Day falls
in another calendar month, in which case payment shall be made on the preceding
Business Day. Any extension of time shall in such case be included in
computing interest and fees, if any, in connection with such payment.
(c) The Borrowers jointly and severally agree to pay principal,
interest, fees and all other amounts due under the Loan Documents without
deduction for set-off or counterclaim or any deduction whatsoever.
(d) If some but less than all amounts due from the Borrowers are
received by the Administrative Lender, the Administrative Lender shall apply
such amounts in the following order of priority: (i) to the payment of the
Administrative Lender's expenses incurred on behalf of the Lenders then due and
payable, if any; (ii) to the payment of all other fees then due and payable;
(iii) to the payment of interest then due and payable on the Advances; (iv) to
the payment of all other amounts not otherwise referred to in this clause (d)
then due and payable under the Loan Documents; and (v) to the payment of
principal then due and payable on the Advances.
(e) Each payment by the Borrowers in respect of obligations
relating to the Advances (whether for principal, interest, fees or otherwise)
shall be made to the Administrative Lender for the account of the Lenders pro
rata in accordance with their respective Specified Percentages.
Section 2.11 LIBOR Lending Offices. Each Lender's initial LIBOR
Lending Office is set forth opposite its name in Schedule 1 attached hereto.
Each Lender shall have the right at any time and from time to time to designate
a different office of itself or of any Affiliate as such Lender's LIBOR Lending
Office, and to transfer any outstanding LIBOR Advance to such LIBOR Lending
Office. No such designation or transfer shall result in any liability on the
part of the Borrowers for increased costs or expenses resulting solely from
such designation or transfer (except any such transfer which is made by a
Lender pursuant to Section 9.2 or 9.3 hereof, or otherwise for the purpose of
complying with Applicable Law). Increased costs for expenses resulting from a
change in law occurring subsequent to any such designation or transfer shall be
deemed not to result solely from such designation or transfer.
Section 2.12 Sharing of Payments. Any Lender obtaining a payment
(whether voluntary or involuntary, due to the exercise of any right of set-off,
or otherwise) on account of its Advances in excess of its Specified Percentage
of all payments made by the Borrowers with respect to Advances shall purchase
from each other Lender such participation in the Advances
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made by such other Lender as shall be necessary to cause such purchasing Lender
to share the excess payment pro rata according to Specified Percentages with
each other Lender; provided, however, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Lender, the purchase shall
be rescinded and the purchase price restored to the extent of such recovery,
but without interest. The Borrowers agree that any Lender so purchasing a
participation from another Lender pursuant to this Section, to the fullest
extent permitted by law, may exercise all its rights of payment (including the
right of set-off) with respect to such participation as fully as if such Lender
were the direct creditor of the Borrowers in the amount of such participation.
Section 2.13 Calculation of LIBOR Rate. The provisions of this
Agreement relating to calculation of the LIBOR Rate are included only for the
purpose of determining the rate of interest or other amounts to be paid
hereunder that are based upon such rate, it being understood that each Lender
shall be entitled to fund and maintain its funding of all or any part of a
LIBOR Advance as it sees fit.
Section 2.14 Booking Loans. Any Lender may make, carry or
transfer Advances at, to or for the account of any of its branch offices or the
office of any Affiliate. No such action shall result in any liability on the
part of the Borrowers from such action (except any such action which is made by
a Lender pursuant to Section 9.2 or 9.3 hereof, or otherwise for the purpose of
complying with Applicable Law).
Section 2.15 Taxes.
(a) Any and all payments by the Borrowers hereunder shall be made,
in accordance with Section 2.10, free and clear of and without deduction for
any and all present or future taxes, levies, imposts, deductions, charges and
withholdings, and all liabilities with respect thereto, excluding, in the case
of each Lender and the Administrative Lender, taxes imposed on, based upon or
measured by its overall net income, net worth or capital, and franchise taxes,
doing business taxes or minimum taxes imposed on it, (i) by the jurisdiction
under the laws of which such Lender or the Administrative Lender (as the case
may be) is organized and in which it has its applicable lending office or any
political subdivision thereof; (ii) by any other jurisdiction, or any political
subdivision thereof, other than those imposed by reason of (A) an asserted
relation of such jurisdiction to the transactions contemplated by this
Agreement, (B) the activities of the Borrowers in such jurisdiction, or (C) the
activities in connection with the transactions contemplated by this Agreement
of a Lender or the Administrative Lender; (iii) by reason of failure by the
Lender or the Administrative Lender to comply with the requirements of
paragraph (e) of this Section 2.15; and (iv) in the case of any Lender, any
Taxes in the nature of transfer, stamp, recording or documentary taxes
resulting from a transfer (other than as a result of foreclosure) by such
Lender of all or any portion of its interest in this Agreement, the Notes or
any other Loan Documents (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes"). If the Borrowers shall be required by law to deduct any Taxes
from or in respect of any sum payable hereunder to any Lender or the
Administrative Lender, (x) the sum payable shall be increased as may be
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necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.15) such Lender or
the Administrative Lender (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made, (y) the Borrowers
shall make such deductions and (z) the Borrowers shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law.
(b) In addition, the Borrowers jointly and severally agree to pay
any and all stamp and documentary taxes and any and all other excise and
property taxes, charges and similar levies (other than Taxes described in
clause (iv) of the first sentence of Section 2.15(a)) that arise from any
payment made hereunder or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement or any other Loan Document
(hereinafter referred to as "Other Taxes").
(c) The Borrowers will jointly and severally indemnify each Lender
and the Administrative Lender for the full amount of Taxes and Other Taxes
(including, without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 2.15) paid by such Lender or
the Administrative Lender (as the case may be) and all liabilities (including
penalties, additions to tax, interest and reasonable expenses) arising
therefrom or with respect thereto whether or not such Taxes or Other Taxes were
correctly or legally asserted, other than penalties, additions to tax, interest
and expenses arising as a result of gross negligence on the part of such Lender
or the Administrative Lender, provided, however, that the Borrowers shall have
no obligation to indemnify such Lender or the Administrative Lender unless and
until such Lender or the Administrative Lender shall have delivered to the
Borrowers a certificate setting forth in reasonable detail the basis of the
Borrowers' obligation to indemnify such Lender or the Administrative Lender
pursuant to this Section 2.15. This indemnification shall be made within 30
days from the date such Lender or the Administrative Lender (as the case may
be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the
Borrowers will furnish to the Administrative Lender the original or a certified
copy of a receipt evidencing payment thereof. If no Taxes are payable in
respect of any payment hereunder, the Borrowers will furnish to the
Administrative Lender a certificate from each appropriate taxing authority, or
an opinion of counsel acceptable to the Administrative Lender, in either case
stating that such payment is exempt from or not subject to Taxes, provided,
however, that such certificate or opinion need only be given if: (i) the
Borrowers make any payment from any account located outside the United States,
or (ii) the payment is made by a payor that is not a United States Person. For
purposes of this Section 2.15 the terms "United States" and "United States
Person" shall have the meanings set forth in Section 7701 of the Code.
(e) Each Lender which is not a United States Person hereby agrees
that:
(i) it shall, no later than the Agreement Date (or, in
the case of a Lender which becomes a party hereto pursuant toSection
11.6 after the Agreement Date, the
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date upon which such Lender becomes a party hereto) deliver to the
Borrowers through the Administrative Lender, with a copy to the
Administrative Lender:
(A) if any lending office is located in the United States
of America, two (2) accurate and complete signed
originals of Internal Revenue Service Form 4224 or
any successor thereto (Form 4224"),
(B) if any lending office is located outside the United
States of America, two (2) accurate and complete
signed originals of Internal Revenue Service Form
1001 or any successor thereto (Form 1001").
in each case indicating that such Lender is on the date of delivery
thereof entitled to receive payments of principal, interest and fees
for the account of such lending office or lending offices under this
Agreement free from withholding of United States Federal income tax;
(ii) if at any time such Lender changes its lending office
or lending offices or selects an additional lending office it shall,
at the same time or reasonably promptly thereafter but only to the
extent the forms previously delivered by it hereunder are no longer
effective, deliver to the Borrowers through the Administrative Lender,
with a copy to the Administrative Lender, in replacement for the forms
previously delivered by it hereunder:
(A) if such changed or additional lending office is
located in the United States of America, two (2)
accurate and complete signed originals of Form 4224;
or
(B) otherwise, two (2) accurate and complete signed
originals of Form 1001, in each case indicating that
such Lender is on the date of delivery thereof
entitled to receive payments of principal, interest
and fees for the account of such changed or
additional lending office under this Agreement free
from withholding of United States Federal income tax;
(iii) it shall, before or promptly after the occurrence of
any event (including the passing of time but excluding any event
mentioned in clause (ii) above) requiring a change in the most recent
Form 4224 or Form 1001 previously delivered by such Lender and if the
delivery of the same be lawful, deliver to the Borrowers through the
Administrative Lender with a copy to the Administrative Lender, two
(2) accurate and complete original signed copies of Form 4224 or Form
1001 in replacement for the forms previously delivered by such Lender;
(iv) it shall, promptly upon the request of the Borrowers
to that effect, deliver to the Borrowers such other forms or similar
documentation as may be required from
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time to time by any applicable law, treaty, rule or regulation in
order to establish such Lender's tax status for withholding purposes;
and
(v) it shall notify the Borrowers within 30 days after
any event (including an amendment to, or a change in any applicable
law or regulation or in the written interpretation thereof by any
regulatory authority or any judicial authority, or by ruling
applicable to such Lender of any governmental authority charged with
the interpretation or administration of any law) shall occur that
results in such Lender no longer being capable of receiving payments
without any deduction or withholding of United States federal income
tax.
(f) Without prejudice to the survival of any other agreement of
the Borrowers hereunder, the agreements and obligations of the Borrowers
contained in this Section 2.15 shall survive the payment in full of principal
and interest hereunder.
(g) Any Lender claiming any additional amounts payable pursuant to
this Section 2.15 shall use its reasonable best efforts (consistent with its
internal policy and legal and regulatory restrictions) to change the
jurisdiction of its lending office, if the making of such a change would avoid
the need for, or reduce the amount of, any such additional amounts which may
thereafter accrue and would not, in the reasonable judgment of such Lender, be
disadvantageous to such Lender.
(h) Each Lender (and the Administrative Lender with respect to
payments to the Administrative Lender for its own account) agrees that (i) it
will take all reasonable actions by all usual means to maintain all exemptions,
if any, available to it from United States withholding taxes (whether available
by treaty, existing administrative waiver, by virtue of the location of any
Lender's lending office) and (ii) otherwise cooperate with the Borrowers to
minimize amounts payable by the Borrowers under this Section 2.15; provided,
however, the Lenders and the Administrative Lender shall not be obligated by
reason of this Section 2.15(h) to contest the payment of any Taxes or Other
Taxes or to disclose any information regarding its tax affairs or tax
computations or reorder its tax or other affairs or tax or other planning.
Subject to the foregoing, to the extent the Borrowers pay sums pursuant to this
Section 2.15 and the Lender or the Administrative Lender receives a refund of
any or all of such sums, such refund shall be applied to reduce any amounts
then due and owing under this Agreement or, to the extent that no amounts are
due and owing under this Agreement at the time such refunds are received, the
party receiving such refund shall promptly pay over all such refunded sums to
the Borrowers, provided that no Default or Event of Default is in existence at
such time.
Section 2.16 Letters of Credit.
(a) The Letter of Credit Facility. The Borrowers may request the
Issuing Bank, on the terms and conditions hereinafter set forth, to issue, and
the Issuing Bank shall, if so requested, and provided that all terms and
conditions to the issuance set forth in Article 3 hereof are satisfied, issue,
letters of credit (the "Letters of Credit") for the account of either Borrower
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from time to time on any Business Day from the date of the initial Advance
until the Maturity Date in an aggregate maximum amount (assuming compliance
with all conditions to drawing) not to exceed, at any time outstanding, the
lesser of (i) $5,000,000 (the "Letter of Credit Facility"), and (ii) the (A)
lesser of the Combined Borrowing Base or the Commitment minus (B) the aggregate
principal amount of Advances then outstanding. No Letter of Credit shall have
an expiration date (including all rights of renewal) later than the earlier of
(i) the Maturity Date or (ii) one year after the date of issuance thereof.
Immediately upon the issuance of each Letter of Credit, the Issuing Bank shall
be deemed to have sold and transferred to each Lender, and each Lender shall be
deemed to have purchased and received from the Issuing Bank, in each case
irrevocably and without any further action by any party, an undivided interest
and participation in such Letter of Credit, each drawing thereunder and the
obligations of the Borrower under this Agreement in respect thereof in an
amount equal to the product of (x) such Lender's Specified Percentage times (y)
the maximum amount available to be drawn under such Letter of Credit (assuming
compliance with all conditions to drawing). Within the limits of the Letter of
Credit Facility, and subject to the limits referred to above, the Borrowers may
request the issuance of Letters of Credit under this Section 2.16(a), repay any
Advances resulting from drawings thereunder pursuant to Section 2.16(c) and
request the issuance of additional Letters of Credit under this Section
2.16(a).
(b) Request for Issuance. Each Letter of Credit shall be issued
upon notice, given not later than 11:00 a.m. (Dallas time) on the third
Business Day prior to the date of the proposed issuance of such Letter of
Credit, by the Borrowers to the Issuing Bank. Each Letter of Credit shall be
issued upon notice given in accordance with the terms of any separate agreement
between the Borrowers and the Issuing Bank in form and substance reasonably
satisfactory to the Borrowers and the Issuing Bank providing for the issuance
of Letters of Credit pursuant to this Agreement and containing terms and
conditions not inconsistent with this Agreement (a "Letter of Credit
Agreement"), provided that if any such terms and conditions are inconsistent
with this Agreement, this Agreement shall control. Each such notice of
issuance of a Letter of Credit by the Borrowers (a "Notice of Issuance") shall
be by telex, telecopier or cable, specifying therein, in the case of a Letter
of Credit, the requested (A) date of such issuance (which shall be a Business
Day), (B) maximum amount of such Letter of Credit, (C) expiration date of such
Letter of Credit, (D) name and address of the beneficiary of such Letter of
Credit, (E) form of such Letter of Credit and (F) such other information as
shall be required pursuant to the relevant Letter of Credit Agreement. If the
requested terms of such Letter of Credit are acceptable to the Issuing Bank in
its reasonable discretion, the Issuing Bank will, upon fulfillment of the
applicable conditions set forth in Article 3 hereof, make such Letter of Credit
available to the applicable Borrower at its office referred to in Section 11.1
or as otherwise agreed with such Borrower in connection with such issuance.
(c) Drawing and Reimbursement. The payment by the Issuing Bank of
a draft drawn under any Letter of Credit shall constitute for all purposes of
this Agreement the making by the Issuing Bank of an Advance to the Borrower on
for whose account the Letter of Credit was issued, which shall bear interest at
the Prime Rate Basis, in the amount of such draft (but without any requirement
for compliance with the conditions set forth in Article 3 hereof). In
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the event that a drawing under any Letter of Credit is not reimbursed by the
Borrowers by 11:00 a.m. (Dallas time) on the first Business Day after such
drawing, the Issuing Bank shall promptly notify Administrative Lender and each
other Lender. Each such Lender shall, on the first Business Day following such
notification, make an Advance, which shall bear interest at the Prime Rate
Basis, and shall be used to repay the applicable portion of the Issuing Bank's
Advance with respect to such Letter of Credit, in an amount equal to the amount
of its participation in such drawing for application to reimburse the Issuing
Bank (but without any requirement for compliance with the applicable conditions
set forth in Article 3 hereof) and shall make available to the Administrative
Lender for the account of the Issuing Bank, by deposit at the Administrative
Lender's office, in same day funds, the amount of such Advance. In the event
that any Lender fails to make available to the Administrative Lender for the
account of the Issuing Bank the amount of such Advance, the Issuing Bank shall
be entitled to recover such amount on demand from such Lender together with
interest thereon at a rate per annum equal to the lesser of (i) the Highest
Lawful Rate or (ii) the Federal Funds Rate.
(d) Increased Costs. If any change in any law or regulation or in
the interpretation thereof by any court or administrative or governmental
authority charged with the administration thereof shall either (i) impose,
modify or deem applicable any reserve, special deposit or similar requirement
against letters of credit or guarantees issued by, or assets held by, or
deposits in or for the account of, the Issuing Bank or any Lender or (ii)
impose on the Issuing Bank or any Lender any other condition regarding this
Agreement or such Lender or any Letter of Credit, and the result of any event
referred to in the preceding clause (i) or (ii) shall be to increase the cost
to the Issuing Bank of issuing or maintaining any Letter of Credit or to any
Lender of purchasing any participation therein or making any Advance pursuant
to Section 2.16(c) ("Increased Letter of Credit Costs"), then, upon demand by
the Issuing Bank or such Lender, the Borrowers shall, jointly and severally,
subject to Section 11.9 hereof, pay to the Issuing Bank or such Lender, from
time to time as specified by the Issuing Bank or such Lender, additional
amounts that shall be sufficient to compensate the Issuing Bank or such Lender
for such Increased Letter of Credit Costs. Notwithstanding the foregoing, any
demand for Increased Letter of Credit Costs shall not include any Letter of
Credit Costs with respect to any period more than 180 days prior to the date
that the Issuing Bank or any Lender gives notice to the Borrowers of such
Increased Letter of Credit Costs unless the effective date of the condition
which results in the right to receive Increased Letter of Credit Costs is
retroactive (the "Increased Letter of Credit Costs Retroactive Effective
Date"). If any Increased Letter of Credit Costs has an Increased Costs Letter
of Credit Retroactive Effective Date and Issuing Bank or any Lender demands
compensation within 180 days after the date setting the Increased Letter of
Credit Costs Effective Date (the "Increased Letter of Credit Costs Set Date"),
the Issuing Bank or such Lender, as appropriate, shall have the right to
receive such Increased Letter of Credit Costs from the Increased Letter of
Credit Retroactive Effective Date. If the Issuing Bank or a Lender does not
demand such Increased Letter of Credit Costs within 180 days after the
Increased Letter of Credit Costs Set Date, the Issuing Bank or such Lender, as
appropriate, may not receive payment of Increased Letter of Credit Costs with
respect to any period more than 180 days prior to such demand. A certificate
as to the amount of such Increased Letter of Credit Costs submitted to the
Borrowers by the Issuing Bank or such Lender, shall include in
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reasonable detail the basis for the demand for additional compensation and
shall be controlling for all purposes, absent manifest error. The obligations
of the Borrowers under this Section 2.16(d) shall survive termination of this
Agreement. The Issuing Bank or any Lender claiming any additional compensation
under this Section 2.16(d) shall use reasonable efforts (consistent with legal
and regulatory restrictions) to reduce or eliminate any such additional
compensation which may thereafter accrue and which efforts would not, in the
sole discretion of the Issuing Bank or such Lender, be otherwise
disadvantageous.
(e) Obligations Absolute. The obligations of the Borrowers under
this Agreement with respect to any Letter of Credit, any Letter of Credit
Agreement and any other agreement or instrument relating to any Letter of
Credit or any Advance pursuant to Section 2.16(c) shall be unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement, such Letter of Credit Agreement and such other agreement or
instrument under all circumstances, including, without limitation, the
following circumstances:
(i) any lack of validity or enforceability of this
Agreement, any other Loan Document, any Letter of Credit Agreement,
any Letter of Credit or any other agreement or instrument relating
thereto (collectively, the "L/C Related Document");
(ii) (A) any change in the time, manner or place of
payment of, or in any other term of, all or any of the Obligations of
the Borrowers in respect of the Letters of Credit or any Advance
pursuant toSection 2.16(c) or (B) any other amendment or waiver of or
any consent to departure from all or any of the L/C Related Documents;
(iii) the existence of any claim, set-off, defense or other
right that the Borrowers may have at any time against any beneficiary
or any transferee of a Letter of Credit (or any Persons for whom any
such beneficiary or any such transferee may be acting), the Issuing
Bank, any Lender or any other Person, whether in connection with this
Agreement, the transactions contemplated hereby or by the L/C Related
Documents or any unrelated transaction;
(iv) any statement or any other document presented under a
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;
(v) payment by the Issuing Bank under a Letter of Credit
against presentation of a draft or certificate that does not comply
with the terms of the Letter of Credit, except for any payment made
upon the Issuing Bank's gross negligence or willful misconduct;
(vi) any exchange, release or non-perfection of any
collateral, or any release or amendment or waiver of or consent to
departure from any guarantee, for all or any of the Obligations of the
Borrowers in respect of the Letters of Credit or any Advance pursuant
to Section 2.16(c); or
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(vii) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing, including, without
limitation, any other circumstance that might otherwise constitute a
defense available to, or a discharge of, the Borrowers or a guarantor,
other than the Issuing's Bank gross negligence or wilful misconduct.
(f) Compensation for Letters of Credit.
(i) Credit Fee.
A. Standby Letters of Credit. Subject to
Section 11.9 hereof, the Borrowers shall jointly and severally
pay to the Administrative Lender for the pro rata account of
each Lender, a letter of credit fee (which shall be payable
quarterly in arrears on each Quarterly Date and on the
Maturity Date) in an amount equal to a rate per annum equal to
the product of (x) 2.00% times (y) the average daily amount
available for drawings under all outstanding Standby Letters
of Credit (computed on the basis of a 365 or 366-day year, as
appropriate).
B. Documentary Letters of Credit. Subject to
Section 11.9 hereof, the Borrowers shall jointly and severally
pay to the Administrative Lender, for the pro rata account of
each Lender, a letter of credit for (which shall be payable
quarterly in arrears on each Quarterly Date and on the
Maturity Date) in an amount equal to a rate per annum equal to
the product of (x) 0.75% times (y) the average daily amount
available for drawings under all outstanding Documentary
Letters of Credit (computed on the basis of a 365 or 366-day
year, as appropriate).
(ii) Issuance Fee.
A. Standby Letters of Credit. Subject to
Section 11.9 hereof, the Borrowers shall jointly and severally
pay to the Administrative Lender for the sole account of the
Issuing Bank an issuance fee (which shall be payable on the
date of issuance of each Standby Letter of Credit) in an
amount equal to a rate per annum equal to the product of (x)
0.125% times (y) the face amount of the Standby Letter of
Credit being issued.
B. Documentary Letters of Credit. Subject to
Section 11.9 hereof, the Borrowers shall jointly and severally
pay to the Administrative Lender for the sole account of the
Issuing Bank an issuance fee (which shall be payable on the
date of issuance of each Documentary Letter of Credit) in an
amount equal to $250 for each Documentary Letter of Credit
being issued.
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(g) L/C Cash Collateral Account.
(i) Upon the occurrence of an Event of Default and demand
by the Administrative Lender pursuant to Section 8.2(c), the Borrowers
will jointly and severally promptly pay to the Administrative Lender
in immediately available funds an amount equal to the maximum amount
then available to be drawn under the Letters of Credit then
outstanding. Any amounts so received by the Administrative Lender
shall be deposited by the Administrative Lender in a deposit account
maintained by the Issuing Bank (the "L/C Cash Collateral Account").
(ii) As security for the payment of all Reimbursement
Obligations and for any other Obligations, the Borrowers hereby grant,
convey, assign, pledge, set over and transfer to the Administrative
Lender (for the benefit of the Issuing Bank and Lenders), and creates
in the Administrative Lender's favor (for the benefit of the Issuing
Bank and Lenders) a Lien in, all money, instruments and securities at
any time held in or acquired in connection with the L/C Cash
Collateral Account, together with all proceeds thereof. The L/C Cash
Collateral Account shall be under the sole dominion and control of the
Administrative Lender and the Borrowers shall have no right to
withdraw or to cause the Administrative Lender to withdraw any funds
deposited in the L/C Cash Collateral Account. At any time and from
time to time, upon the Administrative Lender's request, the Borrowers
promptly shall execute and deliver any and all such further
instruments and documents, including UCC financing statements, as may
be necessary, appropriate or desirable in the Administrative Lender's
judgment to obtain the full benefits (including perfection and
priority) of the security interest created or intended to be created
by this paragraph (ii) and of the rights and powers herein granted.
The Borrowers shall not create or suffer to exist any Lien on any
amounts or investments held in the L/C Cash Collateral Account other
than the Lien granted under this paragraph (ii) and Liens arising by
operation of Law and not by contract which secure amounts not yet due
and payable.
(iii) The Administrative Lender shall (A) apply any funds
in the L/C Cash Collateral Account on account of Reimbursement
Obligations when the same become due and payable if and to the extent
that the Borrowers shall fail directly to pay such Reimbursement
Obligations and (B) after the Release Date, apply any proceeds
remaining in the L/C Cash Collateral Account first to pay any unpaid
Obligations then outstanding hereunder and then to refund any
remaining amount to the Borrowers.
(iv) The Borrowers, no more than once in any calendar
month, may direct the Administrative Lender to invest the funds held
in the L/C Cash Collateral Account (so long as the aggregate amount of
such funds exceeds any relevant minimum investment requirement) in (A)
direct obligations of the United States or any agency thereof, or
obligations guaranteed by the United States or any agency thereof and
(B) one or more other types of investments permitted by the
Determining Lenders, in each case with such maturities as the
Borrowers, with the consent of the Determining Lenders, may specify,
pending application of such funds on account of Reimbursement
Obligations or on
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account of other Obligations, as the case may be. In the absence of
any such direction from the Borrowers, the Administrative Lender shall
invest the funds held in the L/C Cash Collateral Account (so long as
the aggregate amount of such funds exceeds any relevant minimum
investment requirement) in one or more types of investments with the
consent of the Determining Lenders with such maturities as the
Borrowers, with the consent of the Determining Lenders, may specify,
pending application of such funds on account of Reimbursement
Obligations or on account of other Obligations, as the case may be.
All such investments shall be made in the Administrative Lender's name
for the account of the Lenders, subject to the ownership interest
therein of the Borrowers. The Borrowers recognize that any losses or
taxes with respect to such investments shall be borne solely by the
Borrowers, and the Borrowers agree to hold the Administrative Lender
and the Lenders harmless from any and all such losses and taxes.
Administrative Lender may liquidate any investment held in the L/C
Cash Collateral Account in order to apply the proceeds of such
investment on account of the Reimbursement Obligations (or on account
of any other Obligation then due and payable, as the case may be)
without regard to whether such investment has matured and without
liability for any penalty or other fee incurred (with respect to which
the Borrowers hereby agree to reimburse the Administrative Lender) as
a result of such application.
(v) After the establishment of the L/C Cash Collateral
Account pursuant to Section 2.16(h)(i) hereof, the Borrowers shall
jointly and severally pay to the Administrative Lender the fees
customarily charged by the Issuing Bank with respect to the
maintenance of accounts similar to the L/C Cash Collateral Account.
Section 2.17 Extension of Maturity Date. The Borrowers may notify
the Administrative Lender in writing by June 1 of each year while this
Agreement is in effect, commencing June 1, 1996, of its desire to extend the
Maturity Date for an additional 12 months beyond the then present Maturity
Date. Extension of the Maturity Date shall be at the sole option and
discretion of the Lenders, and the decision to extend the Maturity Date shall
require the consent of all Lenders. If the Borrowers or the Administrative
Lender fail to give notice within the time prescribed above or if the Lenders
fail to agree to extend the Maturity Date, the Maturity Date shall be the then
present Maturity Date. An extension of the Maturity Date pursuant to this
Section 2.17 shall not require any renewal Note or amendment of a supplement to
this Agreement or any other Loan Document unless otherwise determined by the
Administrative Lender.
ARTICLE 3
Conditions Precedent
Section 3.1 Conditions Precedent to Closing, the Initial Advance
and the Initial Letter of Credit. The obligation of each Lender to make any
Advance and the obligations of the Issuing Bank to issue Letters of Credit is
subject to receipt by the Administrative Lender of each
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of the following, in form and substance satisfactory to each Lender, with a
copy (except for the Notes) for each Lender:
(a) A loan certificate of each Borrower certifying as to the
accuracy of its representations and warranties in the Loan Documents,
certifying that no Default has occurred, and including a certificate of
incumbency with respect to each Authorized Signatory, and including (i) a copy
of the Articles or Certificate of Incorporation of each Borrower, certified to
be true, complete and correct by the secretary of state of its state of
incorporation, (ii) a copy of the By-Laws of each Borrower, as in effect on the
Agreement Date, (iii) a copy of the resolutions of each Borrower authorizing it
to execute, deliver and perform this Agreement, the Notes and the other Loan
Documents to which it is a party, and (iv) a copy of a certificate of good
standing and a certificate of existence for its state of incorporation and each
state in which it is qualified to do business;
(b) A loan certificate of each Subsidiary certifying as to the
accuracy of its representations and warranties in the Loan Documents,
certifying that no Default has occurred, and including a certificate of
incumbency with respect to each Authorized Signatory, and including (i) a copy
of the Articles or Certificate of Incorporation of each Subsidiary, certified
to be true, complete and correct by the secretary of state of its state of
incorporation, (ii) a copy of the By-Laws of each Subsidiary, as in effect on
the Agreement Date, (iii) a copy of the resolutions of each Subsidiary
authorizing it to execute, deliver and perform this Agreement, the Notes and
the other Loan Documents to which it is a party, and (iv) a copy of a
certificate of good standing and a certificate of existence for its state of
incorporation and each state in which it is qualified to do business;
(c) A loan certificate of the Parent certifying as to the accuracy
of its representations and warranties in the Loan Documents, certifying that no
Default has occurred, and including a certificate of incumbency with respect to
each Authorized Signatory, and including (i) a copy of the Articles or
Certificate of Incorporation of Parent, certified to be true, complete and
correct by the secretary of state of its state of incorporation, (ii) a copy of
the By-Laws of the Parent, as in effect on the Agreement Date, (iii) a copy of
the resolutions of the Parent authorizing it to execute, deliver and perform
this Agreement, the Notes and the other Loan Documents to which it is a party,
and (iv) a copy of a certificate of good standing and a certificate of
existence for its state of incorporation and each state in which it is
qualified to do business;
(d) a duly executed Note payable to the order of each Lender and
in an amount for each Lender equal to its Specified Percentage of the
Commitment;
(e) UCC-11 searches in appropriate jurisdictions where Collateral
is located;
(f) opinion of counsel to the Parent, each Borrower and each other
Subsidiary addressed to the Lenders and in form and substance satisfactory to
the Lenders, dated the Agreement Date, and covering the matters set forth in
Sections 4.1(a), (b), (c), (h), (m), (n) and
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(p) and such other matters incident to the transactions contemplated hereby as
the Administrative Lender or Special Counsel may reasonably request;
(g) reimbursement for the Administrative Lender for Special
Counsel's reasonable and customary fees (on an hourly basis) and expenses
rendered through the date hereof;
(h) evidence that all corporate proceedings of the Parent, each
Borrower and the other Subsidiaries taken in connection with the transactions
contemplated by this Agreement and the other Loan Documents shall be reasonably
satisfactory in form and substance to the Lenders and Special Counsel; and the
Lenders shall have received copies of all documents or other evidence which the
Administrative Lender, Special Counsel or any Lender may reasonably request in
connection with such transactions;
(i) any fees required to be paid pursuant to the Fee Letter;
(j) duly executed and completed Security Agreements, dated as of
the Agreement Date, and related financing statements;
(k) duly executed Guaranty Agreements, dated as of the Agreement
Date;
(l) duly executed Intercreditor Agreement;
(m) duly executed amendment to the Term Credit Agreement and all
documents related thereto;
(n) duly executed landlord waivers with respect to the
distribution centers and warehouses of the Borrowers; and
(o) in form and substance reasonably satisfactory to the Lenders
and Special Counsel, such other documents, instruments and certificates as the
Administrative Lender or any Lender may reasonably require in connection with
the transactions contemplated hereby, including without limitation, a Borrowing
Base Report and Compliance Certificate, appropriately completed, the status,
organization or authority of the Parent, each Borrower or any other Subsidiary,
and the enforceability of the Obligation.
Section 3.2 Conditions Precedent to All Advances and Letters of
Credit. The obligation of each Lender to make each Advance hereunder and the
obligation of the Issuing Bank to issue each Letter of Credit is subject to
fulfillment of the following conditions immediately prior to or
contemporaneously with each such Advance or Letter of Credit:
(a) With respect to Advances other than Refinancing Advances and
each issuance of a Letter of Credit, all of the representations and warranties
under this Agreement, which, pursuant to Section 4.2 hereof, are made at and as
of the time of such Advance, shall be true
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and correct at such time in all material respects, both before and after giving
effect to the application of the proceeds of such Advance or Letter of Credit;
(b) The incumbency of the Authorized Signatories shall be as
stated in the certificate of incumbency delivered in the Borrowers' loan
certificates pursuant to Section 3.1(a) or as subsequently modified and
reflected in a certificate of incumbency delivered to the Administrative
Lender. The Lenders may, without waiving this condition, consider it fulfilled
and a representation by the Borrowers made to such effect if no written notice
to the contrary, dated on or before the date of such Advance or Letter of
Credit, is received by the Administrative Lender from the Borrowers prior to
the making of such Advance or Letter of Credit;
(c) There shall not exist a Default hereunder, with respect to
Advances other than Refinancing Advances and with respect to the issuance of
each Letter of Credit, or an Event of Default, with respect to any Refinancing
Advance, and, with respect to each Advance other than a Refinancing Advance,
the Administrative Lender shall have received written or telephonic
certification thereof by an Authorized Signatory (which certification, if
telephonic, shall be followed promptly by written certification);
(d) The aggregate Advances and Letters of Credit, after giving
effect to such proposed Advance or Letter of Credit, shall not exceed the
maximum principal amount then permitted to be outstanding hereunder; and
(e) The Administrative Lender shall have received all such other
certificates, reports, statements, opinions of counsel or other documents as
the Administrative Lender or any Lender may reasonably request.
ARTICLE 4
Representations and Warranties
Section 4.1 Representations and Warranties. The Borrowers hereby
represent and warrant to each Lender as follows:
(a) Organization; Power; Qualification. As of the Agreement Date,
the respective jurisdiction of incorporation and percentage ownership by the
Parent and each Subsidiary listed on Schedule 4 are true and correct. The
Parent and each Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of its state of organization. The Parent
and its Subsidiaries has the corporate power and authority to own its
properties and to carry on its business as now being and hereafter proposed to
be conducted. Each of the Parent and its Subsidiaries is authorized to do
business, duly qualified and in good standing in all jurisdictions where
required, and no qualification or authorization is necessary in any other
jurisdictions in which the character of its properties or the nature of its
business requires such
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qualification or authorization except where the failure to be so qualified or
authorized would not have a Material Adverse Effect.
(b) Authorization. The Borrowers have corporate power and have
taken all necessary corporate action to authorize them to borrow hereunder.
Each of the Parent and its Subsidiaries has corporate power and has taken all
necessary corporate action to execute, deliver and perform the Loan Documents
to which it is party in accordance with the terms thereof, and to consummate
the transactions contemplated thereby. Each Loan Document has been duly
executed and delivered by the Parent or the Subsidiary executing it. Each of
the Loan Documents to which the Parent and/or its Subsidiaries are a party is a
legal, valid and binding respective obligation of the Parent or such
Subsidiary, as applicable, enforceable in accordance with its terms, subject,
to enforcement of remedies, to the following qualifications: (i) equitable
principles generally, and (ii) Debtor Relief Laws (insofar as any such law
relates to the bankruptcy, insolvency or similar event of the Parent or any
Subsidiary).
(c) Compliance with Other Loan Documents and Contemplated
Transactions. The execution, delivery and performance by the Parent and its
Subsidiaries of the Loan Documents to which they are respectively a party, and
the consummation of the transactions contemplated thereby, do not and will not
(i) require any consent or approval not already obtained, (ii) violate any
Applicable Law, (iii) conflict with, result in a breach of, or constitute a
default under the certificate of incorporation or by-laws of the Parent or any
Subsidiary, (iv) conflict with, result in a breach of, or constitute a default
under any Necessary Authorization, indenture, agreement or other instrument, to
which the Parent or any Subsidiary is a party or by which they or their
respective properties may be bound which could reasonably be expected to have a
Material Adverse Effect, or (v) result in or require the creation or imposition
of any Lien upon or with respect to any property now owned or hereafter
acquired by the Parent or any Subsidiary, except Permitted Liens.
(d) Business. The Parent and its Subsidiaries are engaged
primarily in the business of retail sales of software and related merchandise
and activities related thereto.
(e) Licenses, etc. All Necessary Authorizations have been duly
obtained, and are in full force and effect without any known conflict with the
rights of others and free from any unduly burdensome restrictions, unless the
failure to obtain or have in effect such Necessary Authorizations would not
result in a Material Adverse Effect. The Parent and its Subsidiaries are and
will continue to be in compliance in all material respects with all provisions
thereof. No circumstance exists which might impair the utility of the
Necessary Authorization or the right to renew such Necessary Authorization the
effect of which would have a Material Adverse Effect. No Necessary
Authorization is the subject of any pending or, to the best of the Borrowers'
knowledge, threatened challenge, suspension, cancellation or revocation.
(f) Compliance with Law. The Parent and its Subsidiaries are in
compliance in all respects with all Applicable Laws, except where the failure
to so comply would not have a Material Adverse Effect, taken as a whole.
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(g) Title to Properties. The Parent and its Subsidiaries have
good and indefeasible title to, or a valid leasehold interest in, all of their
material assets. None of their assets are subject to any Liens, except
Permitted Liens. No effective financing statement or other Lien filing (except
relating to Permitted Liens) is on file in any state or jurisdiction that names
the Parent or any of its Subsidiaries as debtor or covers (or purports to
cover) any assets of the Parent or any of its Subsidiaries. The Parent and its
Subsidiaries have not signed any such financing statement or filing, nor any
security agreement authorizing any Person to file any such financing statement
or filing (except relating to Permitted Liens).
(h) Litigation. Except as reflected on Schedule 3 hereto, there
is no action, suit or proceeding pending against, or, to the Borrowers' current
actual knowledge, threatened against the Parent or any Subsidiary, or in any
other manner relating directly and adversely to the Parent or any of its
Subsidiaries, or any of their properties, in any court or before any arbitrator
of any kind or before or by any governmental body in which the amount claimed
(in excess of applicable insurance) exceeds $250,000.
(i) Taxes. All federal, state and other tax returns of the Parent
and its Subsidiaries required by law to be filed have been duly filed or
extensions have been timely filed, and all federal, state and other taxes,
assessments and other governmental charges or levies upon the Parent, its
Subsidiaries or any of their properties, income, profits and assets, which are
due and payable, have been paid, unless the same are being diligently contested
in good faith by appropriate proceedings, with adequate reserves established
therefor, and no Lien (other than a Permitted Lien) has attached and no
foreclosure, distraint, sale or similar proceedings have been commenced. The
charges, accruals and reserves on the books of the Parent and its Subsidiaries
in respect of their taxes are, in the judgment of the Parent, adequate.
(j) Financial Statements; Material Liabilities. Parent has
furnished or caused to be furnished to the Lenders copies of its January 28,
1995 annual audited financial statements and April 29, 1995 quarterly financial
statements, which are prepared in good faith and complete in all material
respects and present fairly in accordance with GAAP the financial position of
the Parent and its Subsidiaries and as at such dates and the results of
operations for the periods then ended. Neither the Parent and its Subsidiaries
have no material liabilities, contingent or otherwise, nor material losses,
except as set forth in the said January 28, 1995 annual audited financial
statements and April 29, 1995 quarterly financial statements.
(k) No Adverse Change. Since January 28, 1995, no event or
circumstance has occurred or arisen that could be classified as a Material
Adverse Effect.
(l) ERISA. None of the Parent or its Controlled Group maintains
or contributes to any Plan other than those disclosed to the Administrative
Lender in writing. Each such Plan (other than any Multiemployer Plan) is in
compliance in all material respects with the applicable provisions of ERISA,
the Code, and any other applicable Federal or state law, rule or regulation.
With respect to each Plan (other than any Multiemployer Plan) of the Parent and
each member of its Controlled Group, all reports required under ERISA or any
other Applicable
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Law to be filed with any governmental authority, the failure of which to file
could reasonably result in liability of the Parent or any member of its
Controlled Group have been duly filed. All such reports are true and correct
in all material respects as of the date given. No Plan of the Parent or any
member of its Controlled Group has been terminated under Section 4041(c) of
ERISA nor has any accumulated funding deficiency (as defined in Section 412(a)
of the Code) been incurred (without regard to any waiver granted under Section
412 of the Code), nor has any funding waiver from the Internal Revenue Service
been received or requested. None of the Parent or any member of its Controlled
Group has failed to make any contribution or pay any amount due or owing as
required under the terms of any such Plan, or by Section 412 of the Code or
Section 302 of ERISA by the due date under Section 412 of the Code and Section
302 of ERISA. There has been no ERISA Event or any event requiring disclosure
under Section 4041(c)(3)(C) or 4063(a) of ERISA with respect to any Plan or its
related trust of the Parent or any member of its Controlled Group since the
effective date of ERISA. The present value of the benefit liabilities, as
defined in Title IV of ERISA, of each Plan subject to Title IV of ERISA (other
than a Multiemployer Plan) of the Parent and each member of its Controlled
Group does not exceed the present value of the assets of each such Plan as of
the most recent valuation date using each such Plan's actuarial assumptions at
such date. There are no pending, or to the best of the Borrowers' knowledge
threatened, claims, lawsuits or actions (other than routine claims for benefits
in the ordinary course) asserted or instituted against, and neither the Parent
nor any member of its Controlled Group has knowledge of any threatened
litigation or claims against, the assets of any Plan or its related trust or
against any fiduciary of a Plan with respect to the operation of such Plan.
None of the Parent or, to the best of the Borrowers' knowledge, any member of
its Controlled Group has engaged in any prohibited transactions, within the
meaning of Section 406 of ERISA or Section 4975 of the Code. None of the
Parent or any member of its Controlled Group has withdrawn from any
Multiemployer Plan, nor has incurred or reasonably expects to incur (A) any
liability under Title IV of ERISA (other than premiums due under Section 4007
of ERISA to the PBGC), (B) any withdrawal liability (and no event has occurred
which with the giving of notice under Section 4219 of ERISA would result in
such liability) under Section 4201 of ERISA as a result of a complete or
partial withdrawal (within the meaning of Section 4203 or 4205 of ERISA) from a
Multiemployer Plan, or (C) any liability under Section 4062 of ERISA to the
PBGC or to a trustee appointed under Section 4042 of ERISA. None of the
Parent, any member of its Controlled Group, or any organization to which the
Parent or any member of its Controlled Group is a successor or parent
corporation within the meaning of ERISA Section 4069(b), has engaged in a
transaction within the meaning of ERISA Section 4069. None of the Parent or
any member of its Controlled Group maintains or has established any Plan, which
is a welfare benefit plan within the meaning of Section 3(1) of ERISA and which
provides for continuing benefits or coverage for any participant or any
beneficiary of any participant after such participant's termination of
employment, except as may be required by the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"). Each of Parent and its
Controlled Group which maintains a Plan which is a welfare benefit plan within
the meaning of Section 3(1) of ERISA has complied in all material respects with
any applicable notice and continuation requirements of COBRA and the
regulations thereunder. None of the Parent or any member of its Controlled
Group maintains, has
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established, or has ever participated in a multiemployer welfare benefit
arrangement within the meaning of Section 3(40)(A) of ERISA.
(m) Compliance with Regulations G, T, U and X. The Borrowers are
not engaged principally or as one of their important activities in the business
of extending credit for the purpose of purchasing or carrying any margin stock
within the meaning of Regulations G, T, U and X of the Board of Governors of
the Federal Reserve System, and no part of the proceeds of the Advances or
Letters of Credit will be used to purchase or carry any margin stock or to
extend credit to others for the purpose of purchasing or carrying any margin
stock. No assets of the Parent and its Subsidiaries are margin stock. None of
the Parent and its Subsidiaries nor any agent acting on their behalf, have
taken or will knowingly take any action which might cause this Agreement or any
other Loan Documents to violate any regulation of the Board of Governors of the
Federal Reserve System or to violate the Securities Exchange Act of 1934, in
each case as in effect now or as the same may hereafter be in effect.
(n) Governmental Regulation. The Parent and its Subsidiaries are
not required to obtain any Necessary Authorization that has not already been
obtained from, or effect any material filing or registration that has not
already been effected with, any federal, state or local regulatory authority in
connection with the execution and delivery of this Agreement or any other Loan
Document, or the performance thereof, in accordance with their respective
terms, including any borrowings hereunder; provided, however, an assignment of
Accounts will need to be filed pursuant to the Assignment of Claims Act with
respect to Accounts in which the account debtor in respect thereof is the
United States or any department, or agency or instrumentality thereof, and
certain other filings and assignments may be necessary to comply with
governmental rules concerning Accounts in which the account debtor in respect
thereof is any state of the United States or any county, city, town,
municipality or division of such State.
(o) Absence of Default. The Parent and its Subsidiaries are in
compliance in all material respects with all of the provisions of their
certificate of incorporation and by-laws, and no event has occurred or failed
to occur, which has not been remedied or waived, the occurrence or
non-occurrence of which constitutes, or which with the passage of time or
giving of notice or both would constitute, (i) an Event of Default or (ii) a
default by the Parent or any of its Subsidiaries under any material indenture,
agreement or other instrument, or any judgment, decree or order to which the
Parent or any of its Subsidiaries or by which they or any of their material
properties is bound.
(p) Investment Company Act. The Parent and the Borrowers are not
required to register under the provisions of the Investment Company Act of
1940, as amended. Neither the entering into or performance by the Borrowers of
this Agreement nor the issuance of the Notes violates any provision of such act
or requires any consent, approval, or authorization of, or registration with,
the Securities and Exchange Commission or any other governmental or public body
of authority pursuant to any provisions of such act.
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<PAGE> 47
(q) Environmental Matters. Neither the Parent nor any Subsidiary
has any current actual knowledge that any substance deemed hazardous by any
Applicable Environmental Law, has been installed (i) on any real property fee
title to which is now owned by the Parent or any of its Subsidiaries or (ii) by
Parent or any of its Subsidiaries on any real property leased by the Parent or
any of its Subsidiaries, in either case in a manner which does not comply with
Applicable Environmental Laws. The Parent and its Subsidiaries are not in
material violation of or subject to any existing, pending or, to the best of
the Borrowers' knowledge, threatened investigation or inquiry by any
governmental authority or to any material remedial obligations under any
Applicable Environmental Laws. The Parent and its Subsidiaries have not
obtained and are not required to obtain any permits, licenses or similar
authorizations other than certificates of occupancy and building permits to
construct, occupy, operate or use any buildings, improvements, fixtures, and
equipment forming a part of any real property owned or leased by the Parent or
any Subsidiary by reason of any Applicable Environmental Laws. The Parent and
its Subsidiaries undertook, at the time of acquisition of fee title to any real
property, reasonable inquiry into the previous ownership and uses of such real
property consistent with good commercial or customary practice. The Parent and
its Subsidiaries have taken reasonable steps to determine, and the Parent and
its Subsidiaries have no current actual knowledge, that any hazardous
substances or solid wastes have been disposed of or otherwise released (i) on
or to the real property fee title to which is owned by the Borrowers or any of
its Subsidiaries or (ii) by Parent or any of its Subsidiaries on or to any real
property leased by Parent or any of its Subsidiaries, all within the meaning of
the Applicable Environmental Laws.
(r) Certain Fees. Except as set forth in the Fee Letter, no
broker's, finder's or other fee or commission will be payable by the Borrowers
with respect to the making of the Commitment or the Advances hereunder or the
issuance of the Letters of Credit. The Borrowers jointly and severally agree
to indemnify and hold harmless the Administrative Lender and each Lender from
and against any claims, demand, liability, proceedings, costs or expenses
asserted with respect to or arising in connection with any such fees or
commissions.
(s) Necessary Authorizations. No event has occurred which permits
(or with the passage of time would permit) the revocation or termination of any
Necessary Authorization, or which could result in the imposition of any
restriction thereon of such a nature that could reasonably be expected to be
classified as a Material Adverse Effect.
(t) Patents, Etc. The Parent and its Subsidiaries have
collectively obtained or applied for all patents, trademarks, service marks,
trade names, copyrights, licenses and other rights, free from burdensome
restrictions, that are necessary for the operation of their business as
presently conducted and as proposed to be conducted. Nothing has come to the
current actual knowledge of the Parent or any of its Subsidiaries to the effect
that (i) any process, method, part or other material presently contemplated to
be employed by the Parent or any Subsidiary may infringe any patent, trademark,
service mark, trade name, copyright, license or other right owned by any other
Person, or (ii) there is pending or overtly threatened any claim or litigation
against or affecting the Parent or any Subsidiary contesting its right to sell
or use any such
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<PAGE> 48
process, method, part or other material, which if determined adversely to the
Borrowers or any Subsidiary could reasonably be expected to be classified as a
Material Adverse Effect.
(u) Disclosure. Neither this Agreement nor any other document,
certificate or statement which has been furnished to any Lender by or on behalf
of the Parent or any Subsidiary in connection herewith contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statement contained herein and therein not misleading at the
time it was furnished. There is no fact known to the Borrowers and not known
to the public generally that could reasonably be expected to materially
adversely affect the assets or business of the Parent and its Subsidiaries, or
in the future could reasonably be expected (so far as the Borrowers can now
foresee) to have a Material Adverse Effect, which has not been set forth in
this Agreement or in the documents, certificates and statements furnished to
the Lenders by or on behalf of the Parent and its Subsidiaries prior to the
date hereof in connection with the transaction contemplated hereby.
(v) Solvency. The Parent and each Borrower is, and Parent and its
Subsidiaries on a consolidated basis are, Solvent.
(w) Consolidated Business Entity. The Parent and its Subsidiaries
are engaged in the business set forth in Section 4.1(d) hereof. These
operations require financing on a basis such that the credit supplied can be
made available from time to time to the Parent and various Subsidiaries, as
required for the continued successful operation of the Parent and its
Subsidiaries as a whole. The Borrowers have requested Lenders to make credit
available hereunder primarily for the purpose of financing the operations of
the Parent and its Subsidiaries. The Parent and its Subsidiaries expect to
derive benefit (and the boards of directors of the Parent and its Subsidiaries
have determined that they may respectively reasonably expect to derive
benefit), directly or indirectly, from the credit extended by Lenders
hereunder, both in their separate capacities and as members of the group of
companies, since the successful operation and condition of the Parent and its
Subsidiaries is dependent on the continued successful performance of the
functions of the group as a whole.
(x) Leases. The Parent and all Subsidiaries enjoy peaceful and
undisturbed possession of all leases necessary for the operation of their
respective businesses, properties and assets, and all such leases are valid and
subsisting and in full force and effect without default beyond any applicable
grace or cure period.
Section 4.2 Survival of Representations and Warranties, etc. All
representations and warranties made under this Agreement and the other Loan
Documents shall be deemed to be made at and as of the Agreement Date and at and
as of the date of each Advance and Letters of Credit, and each shall be true
and correct when made, except to the extent (a) previously fulfilled in
accordance with the terms hereof, (b) applicable to a specific date or
otherwise subsequently inapplicable, or (c) previously waived in writing by the
Determining Lenders with respect to any particular factual circumstance. All
such representations and warranties shall survive, and not be waived by, the
execution hereof by any Lender, any investigation or inquiry
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<PAGE> 49
by any Lender, or by the making of any Advance or issuance of any Letter of
Credit under this Agreement.
ARTICLE 5
General Covenants
So long as any of the Obligations are outstanding and unpaid or the
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled):
Section 5.1 Preservation of Existence and Similar Matters. The
Parent shall, and shall cause each Subsidiary to:
(a) preserve and maintain, or timely obtain and thereafter
preserve and maintain, its existence, rights, franchises, licenses,
authorizations, consents, privileges and all other Necessary Authorizations
from federal, state and local governmental bodies and any tribunal (regulatory
or otherwise), the loss of which could have a Material Adverse Effect; and
(b) qualify and remain qualified and authorized to do business in
each jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization, unless the failure to do
so could not have a Material Adverse Effect.
Section 5.2 Business; Compliance with Applicable Law. The Parent
and its Subsidiaries shall (a) engage primarily in the businesses set forth in
Section 4.1(d) hereof, and (b) comply in all material respects with the
requirements of all Applicable Law.
Section 5.3 Maintenance of Properties. The Parent shall, and
shall cause each Subsidiary to, maintain or cause to be maintained all its
properties (whether owned or held under lease) in reasonably good repair,
working order and condition, taken as a whole, and from time to time make or
cause to be made all appropriate (in the reasonable judgment of the Borrowers)
repairs, renewals, replacements, additions, betterments and improvements
thereto.
Section 5.4 Accounting Methods and Financial Records. The Parent
shall maintain a system of accounting established and administered in
accordance with GAAP, and the Parent shall, and shall cause each Subsidiary to,
keep adequate records and books of account in which complete entries will be
made and all transactions reflected in accordance with GAAP with respect to the
Parent and on a tax basis with respect to the Subsidiaries, and keep accurate
and complete records of its respective assets. The Parent and each of its
Subsidiaries shall maintain a fiscal year ending on the Saturday nearest to
January 31 of each year.
Section 5.5 Insurance. The Parent shall, and shall cause each
Subsidiary to, maintain insurance from responsible companies in such amounts
and against such risks as shall be customary and usual in the industry for
companies of similar size and capability. Each insurance
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policy shall provide for at least 30 days' prior notice to the Administrative
Lender of any proposed termination or cancellation of such policy, whether on
account of default or otherwise.
Section 5.6 Payment of Taxes and Claims. The Parent shall, and
shall cause each Subsidiary to, pay and discharge all taxes, assessments and
governmental charges or levies imposed upon it or its income or properties
prior to the date on which penalties attach thereto, and all lawful material
claims for labor, materials and supplies which, if unpaid, might become a Lien
upon any of its properties; except that no such tax, assessment, charge, levy
or claim need be paid which is being diligently contested in good faith by
appropriate proceedings and for which adequate reserves shall have been set
aside on the appropriate books, but only so long as no Lien (other than a
Permitted Lien) shall attach with respect thereto and no foreclosure,
distraint, sale or similar proceedings shall have been commenced. The Parent
shall, and shall cause each Subsidiary to, timely file all information returns
(or extensions of such filing deadlines) required by federal, state or local
tax authorities.
Section 5.7 Visits and Inspections. The Parent shall, and shall
cause each Subsidiary to, promptly permit representatives of the Administrative
Lender or any Lender from time to time after notice by the Administrative
Lender or any Lender no later than the previous Business Day to (a) visit and
inspect the properties of the Parent and Subsidiary as often as the
Administrative Lender or any Lender shall reasonably deem advisable, (b) audit,
inspect and make extracts from and copies of the Parent's and each Subsidiary's
books and records, and (c) discuss with the Parent's and each Subsidiary's
directors, officers, employees and auditors its business, assets, liabilities,
financial positions, results of operations and business prospects. The
Borrowers shall pay the reasonable expenses related to inspections and audits
performed by the Administrative Lender or any Lender. Prior to the occurrence
of an Event of Default, all such visits and inspections shall be conducted
during normal business hours and shall not be conducted more often than once
per fiscal quarter. Following the occurrence and during the continuance of an
Event of Default, such visits and inspections shall be conducted at any time
requested by the Administrative Lender or any Lender without any requirement
for advance notice.
Section 5.8 Payment of Indebtedness. Subject to Section 5.6
hereof, the Parent shall, and shall cause each Subsidiary to, pay its
Indebtedness when and as the same becomes due, other than amounts (other than
the Obligations) duly and diligently disputed in good faith.
Section 5.9 Use of Proceeds. The Borrowers shall use the
proceeds of Advances and Letters of Credit for the refinancing of certain
Indebtedness and for working capital and for other general corporate purposes.
SECTION 5.10 INDEMNITY.
(a) THE BORROWERS JOINTLY AND SEVERALLY AGREE TO DEFEND, PROTECT,
INDEMNIFY AND HOLD HARMLESS THE ADMINISTRATIVE LENDER, EACH LENDER, EACH OF
THEIR RESPECTIVE AFFILIATES, AND EACH OF
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THEIR RESPECTIVE (INCLUDING SUCH AFFILIATES') OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS, ATTORNEYS, SHAREHOLDERS AND CONSULTANTS (INCLUDING, WITHOUT LIMITATION,
THOSE RETAINED IN CONNECTION WITH THE SATISFACTION OR ATTEMPTED SATISFACTION OF
ANY OF THE CONDITIONS SET FORTH HEREIN) OF EACH OF THE FOREGOING (COLLECTIVELY,
"INDEMNITEES") FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS, REASONABLE COSTS,
REASONABLE EXPENSES AND REASONABLE DISBURSEMENTS OF ANY KIND OR NATURE
WHATSOEVER (INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND
DISBURSEMENTS OF COUNSEL FOR SUCH INDEMNITEES IN CONNECTION WITH ANY
INVESTIGATIVE, ADMINISTRATIVE OR JUDICIAL PROCEEDING, WHETHER OR NOT SUCH
INDEMNITEES SHALL BE DESIGNATED A PARTY THERETO), IMPOSED ON, INCURRED BY, OR
ASSERTED AGAINST SUCH INDEMNITEES (WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL
AND WHETHER BASED ON ANY FEDERAL, STATE, OR LOCAL LAWS AND REGULATIONS, UNDER
COMMON LAW OR AT EQUITABLE CAUSE, OR ON CONTRACT, TORT OR OTHERWISE, ARISING
FROM OR CONNECTED WITH THE PAST, PRESENT OR FUTURE OPERATIONS OF THE BORROWERS
OR ITS PREDECESSORS IN INTEREST, OR THE PAST, PRESENT OR FUTURE ENVIRONMENTAL
CONDITION OF PROPERTY OF THE BORROWERS), IN ANY MANNER RELATING TO OR ARISING
OUT OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR ANY ACT, EVENT OR
TRANSACTION OR ALLEGED ACT, EVENT OR TRANSACTION RELATING OR ATTENDANT THERETO,
THE MANAGEMENT OF THE ADVANCES, INCLUDING IN CONNECTION WITH, OR AS A RESULT,
IN WHOLE OR IN PART, OF ANY NEGLIGENCE OF ADMINISTRATIVE LENDER OR ANY LENDER
(OTHER THAN THOSE MATTERS RAISED EXCLUSIVELY BY A PARTICIPANT AGAINST THE
ADMINISTRATIVE LENDER OR ANY LENDER AND NOT THE BORROWERS), OR THE USE OR
INTENDED USE OF THE PROCEEDS OF THE ADVANCES OR LETTERS OF CREDIT HEREUNDER, OR
IN CONNECTION WITH ANY INVESTIGATION OF ANY POTENTIAL MATTER COVERED HEREBY,
BUT EXCLUDING (I) ANY CLAIM OR LIABILITY THAT ARISES AS THE RESULT OF THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY INDEMNITEE, AS FINALLY JUDICIALLY
DETERMINED BY A COURT OF COMPETENT JURISDICTION, AND (II) MATTERS RAISED BY ONE
LENDER AGAINST ANOTHER LENDER OR BY ANY SHAREHOLDERS OF A LENDER AGAINST A
LENDER OR ITS MANAGEMENT (COLLECTIVELY, "INDEMNIFIED MATTERS"). TO THE EXTENT
THAT ANY INDEMNIFIED MATTER INVOLVES ONE OR MORE INDEMNITEES, SUCH INDEMNITEES
SHALL USE THE SAME LEGAL COUNSEL UNLESS ANY INDEMNITEE IN ITS REASONABLE
DISCRETION DETERMINES THAT CONFLICTS EXIST OR MAY ARISE IN CONNECTION WITH SUCH
REPRESENTATION.
(b) IN ADDITION, THE BORROWERS SHALL JOINTLY AND SEVERALLY
PERIODICALLY, UPON REQUEST, REIMBURSE EACH INDEMNITEE FOR ITS
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REASONABLE LEGAL AND OTHER ACTUAL REASONABLE EXPENSES (INCLUDING THE REASONABLE
COST OF ANY INVESTIGATION AND PREPARATION) INCURRED IN CONNECTION WITH ANY
INDEMNIFIED MATTER; THE REIMBURSEMENT, INDEMNITY AND CONTRIBUTION OBLIGATIONS
UNDER THIS SECTION SHALL BE IN ADDITION TO ANY LIABILITY WHICH THE BORROWERS
MAY OTHERWISE HAVE, SHALL EXTEND UPON THE SAME TERMS AND CONDITIONS TO EACH
INDEMNITEE, AND SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF ANY
SUCCESSORS, ASSIGNS, HEIRS AND PERSONAL REPRESENTATIVES OF THE BORROWERS, THE
ADMINISTRATIVE LENDER, THE LENDERS AND ALL OTHER INDEMNITEES. THIS SECTION
SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT AND PAYMENT OF THE OBLIGATIONS.
Section 5.11 Environmental Law Compliance. The use which the
Parent or any Subsidiary intends to make of any real property which is owned or
leased by it will not result in the disposal or other release of any hazardous
substance or solid waste on or to such real property which is in violation of
Applicable Environmental Laws. As used herein, the terms "hazardous substance"
and "release" as used in this Section shall have the meanings specified in
CERCLA (as defined in the definition of Applicable Environmental Laws), and the
terms "solid waste" and "disposal" shall have the meanings specified in RCRA
(as defined in the definition of Applicable Environmental Laws); provided,
however, that if CERCLA or RCRA is amended so as to broaden or lessen the
meaning of any term defined thereby, such broader or lesser meaning shall apply
subsequent to the effective date of such amendment; and provided further, to
the extent that any other law applicable to the Parent, any Subsidiary or any
of their properties establishes a meaning for "hazardous substance," "release,"
"solid waste," or "disposal" which is broader or lesser than that specified in
either CERCLA or RCRA, such broader or lesser meaning shall apply. The
Borrowers jointly and severally agree to indemnify and hold the Administrative
Lender and each Lender harmless from and against, and to reimburse them with
respect to, any and all claims, demands, causes of action, loss, damage,
liabilities, reasonable costs and reasonable expenses (including reasonable
attorneys' fees and courts costs) of any kind or character, known or unknown,
fixed or contingent, asserted against or incurred by any of them at any time
and from time to time by reason of or arising out of (a) the failure of the
Parent or any Subsidiary to perform any of their obligations hereunder
regarding asbestos or Applicable Environmental Laws, (b) any violation on or
before the Release Date of any Applicable Environmental Law in effect on or
before the Release Date, and (c) any act, omission, event or circumstance
existing or occurring on or prior to the Release Date (including without
limitation the presence on such real property or release from such real
property of hazardous substances or solid wastes disposed of or otherwise
released on or prior to the Release Date), resulting from or in connection with
the ownership of the real property, regardless of whether the act, omission,
event or circumstance constituted a violation of any Applicable Environmental
Law at the time of its existence or occurrence; provided that, the Borrowers
shall not be under any obligation to indemnify the Administrative Lender or any
Lender to the extent that any such liability arises as the result of the
negligence or willful misconduct of such Person, as finally judicially
determined by a court of competent jurisdiction.
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The provisions of this paragraph shall survive the Release Date and shall
continue thereafter in full force and effect.
ARTICLE 6
Information Covenants
So long as any of the Obligations are outstanding and unpaid or the
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled), the Borrowers shall furnish or cause to be furnished to
each Lender:
Section 6.1 Monthly Borrowing Base Report and Compliance
Certificate. Within 20 days after the end of each fiscal month, the Borrowing
Base Report and Compliance Certificate for the last day of such fiscal month
completed as provided therein, and, at such time if any that the aggregate
Accounts of the Borrowers exceed $1,000,000, together with a schedule showing
for such month an aging of Accounts of the Borrowers in categories of 0 - 30
days, 31 - 60 days, 61 - 90 days and 91 days or more from invoice date.
Section 6.2 Quarterly Financial Statements and Information.
Within 45 days after the end of each fiscal quarter, a consolidated balance
sheet of the Parent and its Subsidiaries as at the end of such fiscal quarter
and the related consolidated statement of income for such fiscal quarter and
for the elapsed portion of the year ended with the last day of such fiscal
quarter, and consolidated statement of cash flow for the elapsed portion of the
year ended with the last day of such fiscal quarter all of which shall be
certified by the president or chief financial officer or other officer of the
Parent acceptable to the Administrative Lender, to be, in his or her opinion
acting solely in his or her capacity as an officer of the Parent, complete and
correct in all material respects and to present fairly, in accordance with
GAAP, the financial position and results of operations of the Parent and its
Subsidiaries as at the end of and for such fiscal quarter, and for the elapsed
portion of the year ended with the last day of such fiscal quarter, subject
only to normal year-end adjustments.
Section 6.3 Annual Financial Statements and Information;
Certificate of No Default.
(a) Within 90 days after the end of each fiscal year, a copy of
(i) the consolidated balance sheets of the Parent and its Subsidiaries, as of
the end of the current and prior fiscal years, and (ii) the consolidated
statements of earnings and consolidated statements of changes in shareholders'
equity, and statements of changes in cash of the Parent and its Subsidiaries as
of and through the end of such fiscal year, all of which are prepared in
accordance with GAAP, and certified by independent certified public accounts
acceptable to the Lenders (provided, however, any big six public accounting
firm shall be acceptable to the Lenders), whose opinion shall be in scope and
substance in accordance with generally accepted auditing standards and shall be
unqualified.
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(b) Simultaneously with the delivery of the statements required by
this Section 6.3, a letter from the Parent's public accountants stating that in
connection with their audit nothing came to their attention that caused them to
believe that the Parent or a Subsidiary failed to comply with the terms,
covenants, provisions or conditions of this Agreement insofar as they relate to
accounting matters.
(c) As soon as available, but in any event within 90 days
following the end of each fiscal year, a copy of the annual consolidated
operating budget of the Parent and its Subsidiaries for the succeeding fiscal
year.
Section 6.4 Borrowing Base Report and Compliance Certificate. At
the time financial statements are furnished pursuant to Sections 6.2 and 6.3
hereof, the Borrowing Base Report and Compliance Certificate, completed as
provided therein.
Section 6.5 Copies of Other Reports and Notices.
(a) Promptly upon their becoming available, a copy of (i) all
material reports or letters submitted to the Parent or any Subsidiary by
accountants in connection with any annual, interim or special audit, including
without limitation any report prepared in connection with the annual audit
referred to in Section 6.3 hereof, and any other comment letter submitted to
management in connection with any such audit, (ii) each financial statement,
report, notice or proxy statement sent by the Parent or any Subsidiary to
stockholders generally, (iii) each regular, periodic or other report and any
registration statement (other than statements on Form S-8) or prospectus (or
material written communication in respect of any thereof) filed by the Parent
or any Subsidiary with any securities exchange, with the Securities and
Exchange Commission or any successor agency, and (iv) all press releases
concerning material financial aspects of the Parent or any Subsidiary;
(b) Promptly upon becoming aware that (i) the holder(s) of any
note(s) or other evidence of indebtedness or other security of the Parent or
any Subsidiary in excess of $250,000 in the aggregate has given notice or taken
any action with respect to a breach, failure to perform, claimed default or
event of default thereunder, (ii) any occurrence or non-occurrence of any event
which constitutes or which with the passage of time or giving of notice or both
could constitute a material breach by the Parent or any Subsidiary under any
material agreement or instrument to which the Parent or any Subsidiary is a
party or by which any of their properties may be bound, or (iii) any event,
circumstance or condition which could reasonably be expected to be classified
as a Material Adverse Effect, a written notice specifying the details thereof
(or the nature of any claimed default or event of default) and what action is
being taken or is proposed to be taken with respect thereto;
(c) Promptly upon becoming aware that any party to any Capitalized
Lease Obligations or any other lease obligations, in each case, in excess of
$250,000, has given notice or taken any action with respect to a breach,
failure to perform, claimed default or event of default thereunder, a written
notice specifying the details thereof (or the nature of any claimed
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default or event of default) and what action is being taken or is proposed to
be taken with respect thereto;
(d) Promptly upon receipt thereof, information with respect to and
copies of any notices received from any federal, state or local regulatory
agencies or any tribunal relating to any order, ruling, law, information or
policy that relates to a breach of or noncompliance with any Law, or might
result in the payment of money by the Parent or any Subsidiary in an amount of
$250,000 or more in the aggregate, or otherwise have a Material Adverse Effect,
or result in the loss or suspension of any Necessary Authorization;
(e) Promptly upon receipt from any governmental agency, or any
government, political subdivision or other entity, any material notice,
correspondence, hearing, proceeding or order regarding or affecting the Parent,
any Subsidiary, or any of their properties or businesses; and
(f) From time to time and promptly upon each request, such data,
certificates, reports, statements, documents or further information regarding
the assets, business, liabilities, financial position, projections, results of
operations or business prospects of the Parent and its Subsidiaries, as the
Administrative Lender or any Lender may reasonably request.
Section 6.6 Notice of Litigation, Default and Other Matters.
Prompt notice of the following events after either Borrower has knowledge or
notice thereof:
(a) The commencement of all proceedings and investigations by or
before any governmental body, and all actions and proceedings in any court or
before any arbitrator involving claims for damages (including punitive damages)
in excess of $250,000 (after deducting the amount with respect to the Parent or
any Subsidiary is insured), against or in any other way relating directly to
the Parent, any Subsidiary, or any of their properties or businesses;
(b) Promptly upon the happening of any condition or event of which
either Borrower has current actual knowledge which constitutes a Default or
Event of Default, a written notice specifying the nature and period of
existence thereof and what action is being taken or is proposed to be taken
with respect thereto; and
(c) Any material adverse change with respect to the business,
assets, liabilities, financial position, results of operations or prospective
business of the Parent or any Subsidiary, other than changes in the ordinary
course of business which have not had and are not likely to have a Material
Adverse Effect.
Section 6.7 ERISA Reporting Requirements.
(a) Promptly and in any event (i) within 30 days after the Parent
or any member of its Controlled Group has current actual knowledge that any
ERISA Event described in clause (a)
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of the definition of ERISA Event or any event described in Section 4063(a) of
ERISA with respect to any Plan of the Parent or any member of its Controlled
Group has occurred, and (ii) within 10 days after the Parent or any member of
its Controlled Group has current actual knowledge that any other ERISA Event
with respect to any Plan of the Parent or any member of its Controlled Group
has occurred or a request for a minimum funding waiver under Section 412 of the
Code with respect to any Plan of the Parent or any member of its Controlled
Group, a written notice describing such event and describing what action is
being taken or is proposed to be taken with respect thereto, together with a
copy of any notice of event that is given to the PBGC;
(b) Promptly and in any event within three Business Days after
receipt thereof by the Parent or any member of its Controlled Group from the
PBGC, copies of each notice received by the Parent or any member of its
Controlled Group of the PBGC's intention to terminate any Plan or to have a
trustee appointed to administer any Plan;
(c) If requested by the Administrative Lender, promptly and in any
event within 30 days after the filing thereof by the Parent or any member of
its Controlled Group with the United States Department of Labor or the Internal
Revenue Service, copies of each annual report (including Schedule B thereto, if
applicable) with respect to each Plan of which Parent or any member of its
Controlled Group is the "plan sponsor";
(d) Promptly, and in any event within 10 Business Days after
receipt thereof, a copy of any correspondence the Parent or any member of its
Controlled Group receives from the Plan Sponsor (as defined by Section
4001(a)(10) of ERISA) of any Plan concerning potential withdrawal liability
pursuant to Section 4219 or 4202 of ERISA, and a statement from the chief
financial officer of the Parent or such member of its Controlled Group setting
forth details as to the events giving rise to such potential withdrawal
liability and the action which the Parent or such member of its Controlled
Group is taking or proposes to take with respect thereto;
(e) Notification within 30 days of any material increases in the
benefits of any existing Plan which is not a Multiemployer Plan, or the
establishment of any new Plans, or the commencement of contributions to any
Plan to which the Parent or any member of its Controlled Group was not
previously contributing which would in either case result in a material
liability to the Parent or any Borrower;
(f) Notification within three Business Days after the Parent or
any member of its Controlled Group knows that the Parent or any such member of
its Controlled Group has filed or intends to file a notice of intent to
terminate any Plan under a distress termination within the meaning of Section
4041(c) of ERISA and a copy of such notice; and
(g) Within three Business Days after receipt of written notice of
commencement thereof, notice of all actions, suits and proceedings before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting the Parent or any Borrower or
any member of its Controlled Group with respect to any
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Plan, except those which, in the aggregate, if adversely determined could not
have a Material Adverse Effect.
ARTICLE 7
Negative Covenants
So long as any of the Obligations are outstanding and unpaid or the
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled):
Section 7.1 Indebtedness. The Parent shall not, and shall not
permit any Subsidiary to, create, assume, incur or otherwise become or remain
obligated in respect of, or permit to be outstanding, or suffer to exist any
Indebtedness, except:
(a) Indebtedness under the Loan Documents;
(b) Accounts payable and accrued liabilities incurred in the
ordinary course of business;
(c) (i) Indebtedness related to the construction and equipping of
the Borrowers' corporate headquarters and distribution facilities (including
with respect to Capitalized Lease Obligations) not to exceed $5,000,000 in
aggregate principal amount, provided such Indebtedness shall be subordinated to
the Obligations and all obligations under the Term Credit Agreement upon terms
satisfactory to the Lenders and (ii) other Indebtedness related to the
construction and equipping of the Borrowers' corporate headquarters and
distribution facilities (including with respect to Capitalized Leases) not to
exceed $15,000,000 in aggregate principal amount;
(d) Interest hedging obligations under Interest Hedge Agreements
entered into with the Administrative Lender or any of its Affiliates;
(e) Indebtedness existing on the Agreement Date which is described
on Schedule 6 hereto, including renewals (but no increases) thereof;
(f) Indebtedness in respect of endorsement of negotiable
instruments in the ordinary course of business;
(g) Indebtedness between the Parent and a Subsidiary, a Subsidiary
and the Parent, and a Subsidiary and a Subsidiary; and
(h) Other Indebtedness not to exceed $1,000,000 in aggregate
principal amount.
Section 7.2 Liens. The Parent shall not, and shall not permit
any Subsidiary to, create, assume, incur, permit or suffer to exist, directly
or indirectly, any Lien on any of its
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assets, whether now owned or hereafter acquired, except Permitted Liens. The
Borrowers shall not, and shall not permit any Subsidiary to, agree with any
other Person that it shall not create, assume, incur, permit or suffer to exist
or to be created, assumed, incurred or permitted to exist, directly or
indirectly, any Lien on any of its assets.
Section 7.3 Investments. The Parent shall not, and shall not
permit any Subsidiary to, make any Investment, except that the Borrowers may
purchase or otherwise acquire and own:
(a) Cash and Cash Equivalents;
(b) Accounts receivable that arise in the ordinary course of
business and are payable on standard terms;
(c) Investments in existence on the Agreement Date which are
described on Schedule 5 hereto; and
(d) Investments in Subsidiaries that have executed a Subsidiary
Guaranty.
Section 7.4 Liquidation, Disposition or Acquisition of Assets,
Merger, New Subsidiaries. The Parent shall not, and shall not permit any
Subsidiary to, at any time:
(a) liquidate or dissolve itself (or suffer any liquidation or
dissolution) or otherwise wind up;
(b) sell, lease, abandon, transfer or otherwise dispose of assets
(excluding dispositions in the ordinary course of business and dispositions of
obsolete assets);
(c) enter into any merger or consolidation unless (i) with respect
to a merger or consolidation, a Borrower shall be the surviving corporation,
unless the merger or consolidation involves a Subsidiary and not a Borrower,
such Subsidiary shall be the surviving corporation, (ii) such transaction shall
not be utilized to circumvent compliance with any term or provision herein and
(iii) no Default or Event of Default shall then be in existence or occur as a
result of such transaction; or
(d) create or acquire any Subsidiary unless such Subsidiary shall
have complied with the requirements of Section 7.3(d) hereof.
Section 7.5 Restricted Payments. The Parent shall not, and shall
not permit any Subsidiary to, directly or indirectly declare, pay or make any
Restricted Payments; provided, however, a Subsidiary may declare or pay
Dividends to the Parent.
Section 7.6 Affiliate Transactions. The Parent shall not, and
shall not permit any Subsidiary to, at any time engage in any transaction with
an Affiliate on terms materially less advantageous to the Parent or Subsidiary
than would be the case if such transaction had been
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<PAGE> 59
effected with a non-Affiliate (other than advances to employees in the ordinary
course of business).
Section 7.7 Compliance with ERISA. The Parent shall not, and
shall not permit any Subsidiary to, directly or indirectly, or permit any
member of its Controlled Group to directly or indirectly, (a) terminate any
Plan so as to result in any material (in the opinion of the Determining
Lenders) liability to the Parent or any member of its Controlled Group, (b)
permit to exist any ERISA Event, or any other event or condition which presents
the risk of a material (in the opinion of the Determining Lenders) liability of
the Parent or any member of its Controlled Group taken as a whole, (c) make a
complete or partial withdrawal (within the meaning of Section 4201 of ERISA)
from any Multiemployer Plan so as to result in any material (in the opinion of
the Determining Lenders) liability to the Parent or any member of its
Controlled Group, (d) enter into any new Plan or modify any existing Plan so as
to increase its obligations thereunder except in the ordinary course of
business consistent with past practice which could result in any material (in
the opinion of the Determining Lenders) liability to the Parent or any member
of its Controlled Group, or (e) permit the present value of all benefit
liabilities, as defined in Title IV of ERISA, under each Plan of the Parent or
any member of its Controlled Group (using the actuarial assumptions utilized by
each such Plan) to exceed the fair market value of Plan assets allocable to
such benefits.
Section 7.8 Total Liabilities to Net Worth. The Parent shall
not permit the ratio of Total Liabilities to Net Worth, determined as of the
end of each fiscal quarter of the Parent, to exceed the ratio set forth below
opposite the month in which such fiscal quarter ends:
Fiscal Quarter
--------------
October, 1995 3.50 to 1
January, 1996 2.50 to 1
April, 1996 2.00 to 1
July, 1996 1.75 to 1
Section 7.9 Fixed Charge Coverage Ratio. The Parent shall not
permit the Fixed Charge Coverage Ratio, determined as of the end of each fiscal
quarter of the Parent, calculated for the four fiscal quarters preceding the
date of determination, to be less than the ratio set forth below opposite the
month in which such fiscal quarter ends:
Fiscal Quarter
--------------
October, 1995 .75 to 1
January, 1996 1.10 to 1
April, 1996 1.10 to 1
July, 1996 1.10 to 1
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Section 7.10 Sale and Leaseback. The Parent shall not, and shall
not permit any Subsidiary to, enter into any arrangement whereby it sells or
transfers any of its assets, and thereafter rents or leases such assets, except
with respect to the Borrowers' corporate headquarters and distribution
facilities.
Section 7.11 Sale or Discount of Receivables. The Parent shall
not, and shall not permit any Subsidiary to, directly or indirectly, sell, with
or without recourse, for discount or otherwise, any notes or accounts
receivable.
Section 7.12 Clean Up Period. The Borrowers shall not permit any
Advances to be outstanding during a consecutive 30-day period designated in
writing to the Administrative Lender between December 1, 1995 and February 15,
1996.
ARTICLE 8
Default
Section 8.1 Events of Default. Each of the following shall
constitute an Event of Default, whatever the reason for such event, and whether
voluntary, involuntary, or effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
governmental or non-governmental body:
(a) Any representation or warranty made under any Loan Document
shall prove to have been incorrect or misleading in any material respect when
made;
(b) The Borrowers shall default in the payment of any principal or
interest under any Note or any fees payable hereunder or any other costs, fees,
expenses or other amounts payable hereunder or under the other Loan Documents,
when due;
(c) The Parent or any Subsidiary shall default in the performance
or observance of any agreement or covenant contained in Section 5.1 or Article
7 hereof;
(d) The Parent or any Subsidiary shall default in the performance
or observance of any other agreement or covenant contained in this Agreement
not specifically referred to elsewhere in this Section 8.1, and such default
shall not be cured within a period of 30 days after the earlier of notice from
the Administrative Lender thereof or actual notice thereof by the Parent or
such Subsidiary;
(e) There shall occur any default or breach in the performance or
observance of any agreement or covenant (after the expiration of any applicable
grace period) in any of the Loan Documents (other than this Agreement);
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<PAGE> 61
(f) There shall be entered a decree or order by a court having
jurisdiction in the premises constituting an order for relief in respect of the
Parent or any Subsidiary under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other applicable Federal or state
bankruptcy law or other similar law, or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or similar official of the Parent or
any Subsidiary, or of any substantial part of their respective properties, or
ordering the winding-up or liquidation of the affairs of the Parent or any
Subsidiary, and any such decree or order shall continue unstayed and in effect
for a period of 60 consecutive days;
(g) The Parent or any Subsidiary shall file a petition, answer or
consent seeking relief under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other applicable Federal or state
bankruptcy law or other similar law, or the Parent or any Subsidiary shall
consent to the institution of proceedings thereunder or to the filing of any
such petition or to the appointment or taking of possession of a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar
official of the Parent or any Subsidiary or of any substantial part of their
respective properties, or the Parent or any Subsidiary shall fail generally to
pay its debts as they become due, or the Parent or any Subsidiary shall take
any action in furtherance of any such action;
(h) A final judgment or judgments shall be entered by any court
against the Parent or any Subsidiary for the payment of money which exceeds
$250,000 in the aggregate, or a warrant of attachment or execution or similar
process shall be issued or levied against property of the Parent or any
Subsidiary which, together with all other such property of the Parent and its
Subsidiaries subject to other such process, exceeds in value $250,000 in the
aggregate, and if such judgment or award is not insured or, within 30 days
after the entry, issue or levy thereof, such judgment, warrant or process shall
not have been paid or discharged or stayed pending appeal, or if, after the
expiration of any such stay, such judgment, warrant or process shall not have
been paid or discharged;
(i) With respect to any Plan of the Parent or any member of its
Controlled Group: (i) the Parent, any such member, or any other
party-in-interest or disqualified person shall engage in transactions which in
the aggregate would reasonably result in a direct or indirect liability to the
Borrowers or any member of its Controlled Group in excess of $250,000 under
Section 409 or 502 of ERISA or Section 4975 of the Code; (ii) the Parent or any
member of its Controlled Group shall incur any accumulated funding deficiency,
as defined in Section 412 of the Code, in the aggregate in excess of $250,000,
or request a funding waiver from the Internal Revenue Service for contributions
in the aggregate in excess of $250,000; (iii) the Parent or any member of its
Controlled Group shall incur any withdrawal liability in the aggregate in
excess of $250,000 as a result of a complete or partial withdrawal within the
meaning of Section 4203 or 4205 of ERISA, or any other liability with respect
to a Plan in excess of $250,000, unless the amount of such liability has been
funded within the Plan or pursuant to one or more insurance contracts; (iv) the
Parent or any member of its Controlled Group shall fail to make a required
contribution by the due date under Section 412 of the Code or Section 302 of
ERISA which would result in the imposition of a lien under Section 412 of the
Code or Section 302 of
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<PAGE> 62
ERISA; (v) the Parent, any member of its Controlled Group or any Plan sponsor
shall notify the PBGC of an intent to terminate, or the PBGC shall institute
proceedings to terminate, or the PBGC shall institute proceedings to terminate,
any Plan subject to Title IV of ERISA; (vi) a Reportable Event shall occur with
respect to a Plan subject to Title IV of ERISA, and within 15 days after the
reporting of such Reportable Event to the Administrative Lender, the
Administrative Lender shall have notified the Borrowers in writing that the
Determining Lenders have made a determination that, on the basis of such
Reportable Event, there are reasonable grounds for the termination of such Plan
by the PBGC or for the appointment by the appropriate United States District
Court of a trustee to administer such Plan and as a result thereof an Event of
Default shall have occurred hereunder; (vii) a trustee shall be appointed by a
court of competent jurisdiction to administer any Plan or the assets thereof;
(viii) the benefits of any Plan shall be increased, or the Parent or any member
of its Controlled Group shall begin to maintain, or begin to contribute to, any
Plan, without the prior written consent of the Determining Lenders; or (ix) any
ERISA Event with respect to a Plan subject to Title IV of ERISA shall have
occurred, and 30 days thereafter (A) such ERISA Event, other than such event
described in clause (f) of the definition of ERISA Event herein, (if
correctable) shall not have been corrected and (B) the then present value of
such Plan's benefit liabilities, as defined in Title IV of ERISA, shall exceed
the then current value of assets accumulated in such Plan; provided, however,
that the events listed in subsections (v) through (ix) shall constitute Events
of Default only if, as of the date thereof or any subsequent date, the amount
of liability that the Parent or any member of its Controlled Group reasonably
is likely to incur in the aggregate under Section 4062, 4063, 4064, 4219 or
4023 of ERISA or any other provision of law with respect to all such Plans,
computed by the actuary of the Plan taking into account any applicable rules
and regulations of the PBGC at such time, and based on the actuarial
assumptions used by the Plan, resulting from or otherwise associated with such
event exceeds $250,000;
(j) All or any material portion of the Collateral or the Loan
Documents shall be the subject of any proceeding instituted by any Person other
than a Lender (except in connection with any Lender's exercise of any remedies
under the Loan Documents), or there shall exist any litigation with respect to
all or any material portion of the Collateral or the Loan Documents, or any
Person shall challenge in any manner whatsoever the validity or enforceability
of all or any portion of the Loan Documents or the Collateral;
(k) The Parent or any Subsidiary shall default in the payment of
any Indebtedness or any lease obligations in an aggregate amount of $250,000 or
more beyond any grace period provided with respect thereto, or shall default in
the performance of any agreement or instrument under which such Indebtedness is
created or evidenced beyond any applicable grace period, if the effect of such
default is to permit or cause the holder of such Indebtedness (or a trustee on
behalf of any such holder) to cause such Indebtedness to become due prior to
its date of maturity;
(l) Any lease of the Parent or any Subsidiary shall terminate or
cease to be effective, and termination or cessation thereof, together with all
other leases, if any, which have been terminated or cease to be effective,
could reasonably be expected to have a Material Adverse
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<PAGE> 63
Effect; provided, however, that termination or cessation of a lease shall not
constitute an Event of Default if another lease reasonably satisfactory to each
Lender is contemporaneously substituted therefor;
(m) Any material provision of any Loan Document shall for any
reason cease to be valid and binding on or enforceable against any party to it
(other than the Administrative Lender or any Lender) in all material respects,
or any such party shall so state in writing;
(n) Any Collateral Document shall for any reason (other than
pursuant to the terms thereof) cease to create a valid and perfected first
priority Lien in any material portion of any Collateral;
(o) A Change of Control shall have occurred or the Parent shall
fail to own 100% of the issued and outstanding capital stock of the Borrowers;
or
(p) The Administrative Lender shall receive from any landlord of
either Borrower that has executed a landlord subordination or agreement written
notice by such landlord of termination of such landlord's lease with such
Borrower or the exercise of such landlord's rights to possession of property of
such Borrower thereunder.
Section 8.2 Remedies. If an Event of Default shall have occurred
and shall be continuing:
(a) With the exception of an Event of Default specified in Section
8.1(f) or (g) hereof, the Administrative Lender shall, upon the direction of
the Determining Lenders, terminate the Commitment and/or declare the principal
of and interest on the Advances and all Obligations and other amounts owed
under the Loan Documents to be forthwith due and payable without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived
by the Borrowers, anything in the Loan Documents to the contrary
notwithstanding.
(b) Upon the occurrence of an Event of Default specified in
Section 8.1(f) or (g) hereof, such principal, interest and other amounts shall
thereupon and concurrently therewith become due and payable and the Commitment
shall forthwith terminate, all without any action by the Administrative Lender,
any Lender or any holders of the Notes and without presentment, demand, protest
or other notice of any kind, all of which are expressly waived by the
Borrowers, anything in the Loan Documents to the contrary notwithstanding.
(c) If any Letter of Credit shall be then outstanding, the
Administrative Lender may demand upon the Borrowers to, and forthwith upon such
demand, the Borrowers shall, pay to the Administrative Lender in same day funds
at the office of the Administrative Lender in such demand for deposit in the
L/C Cash Collateral Account, an amount equal to the maximum amount available to
be drawn under the Letters of Credit then outstanding.
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(d) The Administrative Lender, and the Lenders may exercise all of
the post-default rights granted to them under the Loan Documents or under
Applicable Law.
(e) The rights and remedies of the Administrative Lender and the
Lenders hereunder shall be cumulative, and not exclusive.
ARTICLE 9
Changes in Circumstances
Section 9.1 LIBOR Basis Determination Inadequate. If with
respect to any proposed LIBOR Advance for any Interest Period, any Lender
determines that (i) deposits in dollars (in the applicable amount) are not
being offered to that Lender in the relevant market for such Interest Period or
(ii) the LIBOR Basis for such proposed LIBOR Advance does not adequately cover
the cost to such Lender of making and maintaining such proposed LIBOR Advance
for such Interest Period, such Lender shall forthwith give notice thereof to
the Borrowers, whereupon until such Lender notifies the Borrowers that the
circumstances giving rise to such situation no longer exist, the obligation of
such Lender to make LIBOR Advances shall be suspended.
Section 9.2 Illegality. If any applicable law, rule or
regulation, or any change therein or adoption thereof, or interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Lender (or its LIBOR Lending Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency, shall make it unlawful or impossible for
such Lender (or its LIBOR Lending Office) to make, maintain or fund its LIBOR
Advances, such Lender shall so notify the Borrowers and the Administrative
Lender. Before giving any notice to the Borrowers pursuant to this Section,
the notifying Lender shall designate a different LIBOR Lending Office or other
lending office if such designation will avoid the need for giving such notice
and will not, in the sole judgment of the Lender, be disadvantageous to the
Lender. Upon receipt of such notice, notwithstanding anything contained in
Article 2 hereof, the Borrowers shall jointly and severally repay in full the
then outstanding principal amount of each LIBOR Advance owing to the notifying
Lender, together with accrued interest thereon, on either (a) the last day of
the Interest Period applicable to such Advance, if the Lender may lawfully
continue to maintain and fund such Advance to such day, or (b) immediately, if
the Lender may not lawfully continue to fund and maintain such Advance to such
day. Concurrently with repaying each affected LIBOR Advance owing to such
Lender if the Borrowers do not terminate this Agreement, notwithstanding
anything contained in Article 2 hereof, the Borrowers shall borrow a Prime Rate
Advance from such Lender, and such Lender shall make such Prime Rate Advance,
in an amount such that the outstanding principal amount of the Advances owing
to such Lender shall equal the outstanding principal amount of the Advances
owing immediately prior to such repayment.
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Section 9.3 Increased Costs.
(a) If any applicable law, rule or regulation, or any change in or
adoption of any law, rule or regulation, or any interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof or
compliance by any Lender (or its LIBOR Lending Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or compatible agency:
(i) shall subject a Lender (or its LIBOR Lending Office)
to any Tax (net of any tax benefit engendered thereby) with respect to
its LIBOR Advances or its obligation to make such Advances, or shall
change the basis of taxation of payments to a Lender (or to its LIBOR
Lending Office) of the principal of or interest on its LIBOR Advances
or in respect of any other amounts due under this Agreement, as the
case may be, or its obligation to make such Advances (except for
changes in the rate of tax on the overall net income, net worth or
capital of the Lender and franchise taxes, doing business taxes or
minimum taxes imposed upon such Lender); or
(ii) shall impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board of Governors
of the Federal Reserve System), special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by, a Lender's LIBOR Lending Office or shall impose on the
Lender (or its LIBOR Lending Office) or on the United States market
for certificates of deposit or the London interbank market any other
condition affecting its LIBOR Advances or its obligation to make such
Advances;
and the result of any of the foregoing is to increase the cost to a Lender (or
its LIBOR Lending Office) of making or maintaining any LIBOR Advances, or to
reduce the amount of any sum received or receivable by a Lender (or its LIBOR
Lending Office) with respect thereto, by an amount deemed by a Lender to be
material ("Increased Advance Costs"), then, within 15 days after demand by a
Lender, the Borrowers jointly and severally agree to pay to such Lender such
additional amount as will compensate such Lender for such increased costs or
reduced amounts, subject to Section 11.9 hereof. The affected Lender will as
soon as practicable notify the Borrowers of any event of which it has
knowledge, occurring after the date hereof, which will entitle such Lender to
compensation pursuant to this Section and will designate a different LIBOR
Lending Office or other lending office if such designation will avoid the need
for, or reduce the amount of, such compensation and will not, in the sole
judgment of the affected Lender made in good faith, be disadvantageous to such
Lender. Notwithstanding the foregoing, any Lender's demand for Increased
Advance Costs shall not include any Increased Advance Costs with respect to any
period more than 180 days prior to the date that such Lender gives notice to
the Borrowers of such Increased Advance Costs unless the effective date of the
condition which results in the right to receive Increased Advance Costs is
retroactive (the "Increased Advance Costs Retroactive Effective Date"). If any
increased Advance Costs has and Increased Advance Costs Retroactive Effective
Date and any Lender demands compensation within 180 days after the date setting
the Increased Advance Costs Retroactive Effective Date
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(the "Increased Advance Costs Set Date"), such Lender shall have the right to
receive such Increased Advance Costs from the Increased Advance Costs
Retroactive Effective Date. If a lender does not demand such Increased Advance
costs within 180 days after the Increased Advance Costs Set Date, such Lender
may not receive payment of Increased Advance Costs with respect to any period
more than 180 days prior to such demand.
(b) A certificate of any Lender claiming compensation under this
Section and setting forth the additional amounts to be paid to it hereunder and
calculations therefor shall be controlling in the absence of manifest error.
In determining such amount, a Lender may use any reasonable averaging and
attribution methods. If a Lender demands compensation under this Section, the
Borrowers may at any time, upon at least five Business Days' prior notice to
the Lender, after reimbursement to the Lender by the Borrowers in accordance
with this Section of all costs incurred, prepay in full the then outstanding
LIBOR Advances of the Lender, together with accrued interest thereon to the
date of prepayment, along with any reimbursement required under Section 2.9
hereof. Concurrently with prepaying such LIBOR Advances, the Borrowers shall
borrow a Prime Rate Advance from the Lender, and the Lender shall make such
Prime Rate Advance, in an amount such that the outstanding principal amount of
the Advances owing to such Lender shall equal the outstanding principal amount
of the Advances owing immediately prior to such prepayment.
Section 9.4 Effect On Prime Rate Advances. If notice has been
given pursuant to Section 9.1, 9.2 or 9.3 hereof suspending the obligation of a
Lender to make LIBOR Advances, or requiring LIBOR Advances of a Lender to be
repaid or prepaid, then, unless and until the Lender notifies the Borrowers
that the circumstances giving rise to such repayment no longer apply, all
Advances which would otherwise be made by such Lender as LIBOR Advances shall
be made instead as Prime Rate Advances.
Section 9.5 Capital Adequacy. If either (a) the introduction of
or any change in or in the interpretation of any law, rule or regulation or (b)
compliance by a Lender with any law, rule or regulation or any guideline or
request from any central bank or other governmental authority (whether or not
having the force of law) affects or would affect the amount of capital required
or expected to be maintained by a Lender or any corporation controlling such
Lender, and such Lender determines that the amount of such capital is increased
by or based upon the existence of such Lender's commitment or Advances
hereunder and other commitments or advances of such Lender of this type, then,
upon demand by such Lender, subject to Section 11.9, the Borrowers shall
immediately jointly and severally pay to such Lender, from time to time as
specified by such Lender, additional amounts sufficient to compensate such
Lender with respect to such circumstances, to the extent that such Lender
reasonably determines in good faith such increase in capital to be allocable to
the existence of such Lender's Commitments hereunder. A certificate as to such
amounts submitted to the Borrowers by a Lender hereunder, shall, in the absence
of manifest error, be conclusive and binding for all purposes.
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ARTICLE 10
Agreement Among Lenders
Section 10.1 Agreement Among Lenders. The Lenders agree among
themselves that:
(a) Administrative Lender. Each Lender hereby appoints the
Administrative Lender as its nominee in its name and on its behalf, to receive
all documents and items to be furnished hereunder; to act as nominee for and on
behalf of all Lenders under the Loan Documents; to, except as otherwise
expressly set forth herein, take such action as may be requested by the
Determining Lenders, provided that, unless and until the Administrative Lender
shall have received such requests, the Administrative Lender may take such
administrative action, or refrain from taking such administrative action, as it
may deem advisable and in the best interests of the Lenders; to arrange the
means whereby the proceeds of the Advances of the Lenders are to be made
available to the Borrowers; to distribute promptly to each Lender information,
requests and documents received from the Borrowers, and each payment (in like
funds received) with respect to any of such Lender's Advances, fee or other
amount; and to deliver to the Borrowers requests, demands, approvals and
consents received from the Lenders. The Administrative Lender agrees to (i)
promptly distribute to each Lender, at such Lender's address set forth below
information, requests and documents received from the Borrowers and (ii) on the
date of receipt by the Administrative lender, provided receipt is by 2:00 p.m.,
Dallas, Texas time (or on the next succeeding Business Day, if receipt is after
2:00 p.m., Dallas, Texas time), distribute to each Lender, at such Lender's
address set forth below, payments received from the Borrowers.
(b) Replacement of Administrative Lender. Should the
Administrative Lender or any successor Administrative Lender ever cease to be a
Lender hereunder, or should the Administrative Lender or any successor
Administrative Lender ever resign as Administrative Lender, or should the
Administrative Lender or any successor Administrative Lender ever be removed
with or without cause by the Determining Lenders, then the Lender appointed by
the other Lenders shall forthwith become the Administrative Lender, and the
Borrowers and the Lenders shall execute such documents as any Lender may
reasonably request to reflect such change at no cost to the Borrowers. Any
resignation or removal of the Administrative Lender or any successor
Administrative Lender shall become effective upon the appointment by the
Lenders of a successor Administrative Lender; provided, however, that if the
Lenders fail for any reason to appoint a successor within 60 days after such
removal or resignation, the Administrative Lender or any successor
Administrative Lender (as the case may be) shall thereafter have no obligation
to act as Administrative Lender hereunder.
(c) Expenses. Each Lender shall pay its pro rata share, based on
its Specified Percentage, of any expenses paid by the Administrative Lender
directly and solely in connection with any of the Loan Documents for which the
Borrowers are obligated to pay thereunder if Administrative Lender does not
receive reimbursement therefor from other sources within 60 days after the date
incurred. Any amount so paid by the Lenders to the Administrative Lender shall
be returned by the Administrative Lender pro rata to each paying Lender to the
extent later
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paid by the Borrowers or any other Person on the Borrowers' behalf to the
Administrative Lender.
(d) Delegation of Duties. The Administrative Lender may execute
any of its duties hereunder by or through officers, directors, employees,
attorneys or agents, and shall be entitled to (and shall be protected in
relying upon) advice of counsel concerning all matters pertaining to its duties
hereunder.
(e) Reliance by Administrative Lender. The Administrative Lender
and its officers, directors, employees, attorneys and agents shall be entitled
to rely and shall be fully protected, absent gross negligence or wilful
misconduct, in relying on any writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telex or teletype message,
statement, order, or other document or conversation reasonably believed by it
or them in good faith to be genuine and correct and to have been signed or made
by the proper Person and, with respect to legal matters, upon opinions of
counsel selected the Administrative Lender. The Administrative Lender may, in
its reasonable judgment, deem and treat the payee of any Note as the owner
thereof for all purposes hereof.
(f) Limitation of Administrative Lender's Liability. Neither the
Administrative Lender nor any of its officers, directors, employees, attorneys
or agents shall be liable for any action taken or omitted to be taken by it or
them hereunder in good faith and believed by it or them to be within the
discretion or power conferred to it or them by the Loan Documents or be
responsible for the consequences of any error of judgment, except for its or
their own gross negligence or wilful misconduct. Except as aforesaid, the
Administrative Lender shall be under no duty to enforce any rights with respect
to any of the Advances, or any security therefor. The Administrative Lender
shall not be compelled to do any act hereunder or to take any action towards
the execution or enforcement of the powers hereby created or to prosecute or
defend any suit in respect hereof, unless indemnified to its satisfaction
against loss, cost, liability and expense. The Administrative Lender shall not
be responsible in any manner to any Lender for the effectiveness,
enforceability, genuineness, validity or due execution of any of the Loan
Documents, or for any representation, warranty, document, certificate, report
or statement made herein or furnished in connection with any Loan Documents, or
be under any obligation to any Lender to ascertain or to inquire as to the
performance or observation of any of the terms, covenants or conditions of any
Loan Documents on the part of the Borrowers. To the extent not reimbursed by
the Borrowers, each Lender hereby severally indemnifies and holds harmless the
Administrative Lender, pro rata according to its Specified Percentage, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and/or disbursements of any kind or
nature whatsoever which may be imposed on, asserted against, or incurred by the
Administrative Lender in any way with respect to any Loan Documents or any
action taken or omitted by the Administrative Lender under the Loan Documents
(including any negligent action of the Administrative Lender), except to the
extent the same result from gross negligence or wilful misconduct by the
Administrative Lender.
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(g) Liability Among Lenders. No Lender shall incur any liability
(other than the sharing of expenses and other matters specifically set forth
herein and in the other Loan Documents) to any other Lender, except for acts or
omissions in bad faith.
(h) Rights as Lender. With respect to its commitment hereunder,
the Advances made by it and the Notes issued to it, the Administrative Lender
shall have the same rights as a Lender and may exercise the same as though it
were not the Administrative Lender, and the term "Lender" or "Lenders" shall,
unless the context otherwise indicates, include the Administrative Lender in
its individual capacity. The Administrative Lender or any Lender may accept
deposits from, act as trustee under indentures of, and generally engage in any
kind of business with, the Borrowers and any of its Affiliates, and any Person
who may do business with or own securities of the Borrowers or any of its
Affiliates, all as if the Administrative Lender were not the Administrative
Lender hereunder and without any duty to account therefor to the Lenders.
Section 10.2 Lender Credit Decision. Each Lender acknowledges
that it has, independently and without reliance upon the Administrative Lender
or any other Lender and based upon the financial statements referred to in
Sections 4.1(j), 6.1, 6.2 and 6.3 hereof, and such other documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Administrative Lender or any
other Lender and based upon 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 this Agreement and the other Loan Documents.
Section 10.3 Benefits of Article. None of the provisions of this
Article shall inure to the benefit of any Person other than Lenders;
consequently, no Person shall be entitled to rely upon, or to raise as a
defense, in any manner whatsoever, the failure of the Administrative Lender or
any Lender to comply with such provisions.
ARTICLE 11
Miscellaneous
Section 11.1 Notices.
(a) All notices and other communications under this Agreement
shall be in writing (except in those cases where giving notice by telephone is
expressly permitted) and shall be deemed to have been given on the date
personally delivered or sent by telecopy (answerback received), or three days
after deposit in the mail, designated as certified mail, return receipt
requested, postage-prepaid, or one day after being entrusted to a reputable
commercial overnight delivery service, or one day after being delivered to the
telegraph office or sent out by telex addressed to the party to which such
notice is directed at its address determined as provided in
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this Section. All notices and other communications under this Agreement shall
be given to the parties hereto at the following addresses:
(i) If to the Borrowers, at:
Babbages, Inc.
Software Etc. Stores, Inc.
10741 King William Drive
Dallas, Texas 75220
Attention: Opal P. Ferraro
(ii) If to the Administrative Lender, at:
NationsBank of Texas, N.A.
901 Main Street, 7th Floor
Dallas, Texas 75202
Attention: Frank Izzo, Vice President
(iii) If to a Lender, at its address shown below its name
on the signature pages hereof, or if applicable, set
forth in its Assignment Agreement.
(b) Any party hereto may change the address to which notices shall
be directed by giving 10 days' written notice of such change to the other
parties.
Section 11.2 Expenses. The Borrowers shall jointly and severally
promptly pay:
(a) all reasonable out-of-pocket expenses of the Administrative
Lender in connection with the preparation, negotiation, execution and delivery
of this Agreement and the other Loan Documents, the transactions contemplated
hereunder and thereunder, and the making of Advances hereunder, including
without limitation the reasonable fees and disbursements of Special Counsel;
(b) all reasonable out-of-pocket expenses and reasonable
attorneys' fees of the Administrative Lender in connection with the
administration of the transactions contemplated in this Agreement and the other
Loan Documents and the preparation, negotiation, execution and delivery of any
waiver, amendment or consent by the Administrative Lender relating to this
Agreement or the other Loan Documents; and
(c) all costs, out-of-pocket expenses and attorneys' fees of the
Administrative Lender and each Lender incurred for enforcement, collection,
restructuring, refinancing and "work-out", or otherwise incurred in obtaining
performance under the Loan Documents, which in each case shall include without
limitation fees and expenses of consultants, counsel for the Administrative
Lender and any Lender, and administrative fees for the Administrative Lender.
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Section 11.3 Waivers. The rights and remedies of the Lenders
under this Agreement and the other Loan Documents shall be cumulative and not
exclusive of any rights or remedies which they would otherwise have. No
failure or delay by the Administrative Lender or any Lender in exercising any
right shall operate as a waiver of such right. The Lenders expressly reserve
the right to require strict compliance with the terms of this Agreement in
connection with any funding of a request for an Advance or the issuance of a
Letter of Credit. In the event that any Lender decides to fund an Advance at a
time when the Borrowers are not in strict compliance with the terms of this
Agreement, such decision by such Lender shall not be deemed to constitute an
undertaking by the Lender to fund any further requests for Advances or issue
any additional Letters of Credit or preclude the Lenders from exercising any
rights available under the Loan Documents or at law or equity. Any waiver or
indulgence granted by the Lenders shall not constitute a modification of this
Agreement, except to the extent expressly provided in such waiver or
indulgence, or constitute a course of dealing by the Lenders at variance with
the terms of the Agreement such as to require further notice by the Lenders of
the Lenders' intent to require strict adherence to the terms of the Agreement
in the future. Any such actions shall not in any way affect the ability of the
Administrative Lender or the Lenders, in their discretion, to exercise any
rights available to them under this Agreement or under any other agreement,
whether or not the Administrative Lender or any of the Lenders are a party
thereto, relating to the Borrowers.
Section 11.4 Determination by the Lenders Conclusive and Binding.
Any calculation or material determination required or expressly permitted to be
made by the Administrative Lender or any Lender under this Agreement shall be
made in its reasonable judgment and in good faith, and shall when made, absent
manifest error, be controlling.
Section 11.5 Set-Off. In addition to any rights now or hereafter
granted under Applicable Law and not by way of limitation of any such rights,
upon the occurrence of an Event of Default, each Lender and any subsequent
holder of any Note, and any assignee or participant in any Note is hereby
authorized by the Borrowers at any time or from time to time, without notice to
the Borrowers or any other Person, any such notice being hereby expressly
waived, to set-off, appropriate and apply any deposits (general or special
(except trust and escrow accounts), time or demand, including without
limitation Indebtedness evidenced by certificates of deposit, in each case
whether matured or unmatured) and any other Indebtedness at any time held or
owing by such Lender or holder to or for the credit or the account of the
Borrowers, against and on account of the Obligations and other liabilities of
the Borrowers to such Lender or holder, irrespective of whether or not (a) the
Lender or holder shall have made any demand hereunder, or (b) the Lender or
holder shall have declared the principal of and interest on the Advances and
other amounts due hereunder to be due and payable as permitted by Section 8.2.
Any sums obtained by any Lender or by any assignee, participant or subsequent
holder of any Note shall be subject to pro rata treatment of all Obligations
and other liabilities hereunder.
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Section 11.6 Assignment.
(a) The Borrowers may not assign or transfer any of their
respective rights or obligations hereunder or under the other Loan Documents
without the prior written consent of the Lenders.
(b) No Lender shall be entitled to assign its interest in this
Agreement, its Notes or its Advances or its Reimbursement Obligations, except
as hereinafter set forth.
(c) Lender may at any time sell participations in all or any part
of its Advances (collectively, "Participations") to any banks or other
financial institutions ("Participants") provided that such Participation shall
not confer on any Person (other than the parties hereto) any right to vote on,
approve or sign amendments or waivers, or any other independent benefit or any
legal or equitable right, remedy or other claim under this Agreement or any
other Loan Documents, other than the right to vote on, approve, or sign
amendments or waivers or consents with respect to items that would result in
(i) any increase in the commitment of any Participant; or (ii)(A) the extension
of the date of maturity of, or (B) the extension of the due date for any
payment of principal, interest or fees respecting, or (C) the reduction of the
amount of any installment of principal or interest on or the change or
reduction of any mandatory reduction required hereunder, or (D) a reduction of
the rate of interest on, the Advances, the Letters of Credit, or the
Reimbursement Obligations; or (iii) the release of security for the
Obligations, including without limitation any guarantee; or (iv) the reduction
of any fees payable hereunder. Notwithstanding the foregoing, the Borrowers
agree that the Participants shall be entitled to the benefits of Article 9 and
Section 11.5 hereof as though they were Lenders and the Lenders may provide
copies of all financial information received from the Borrowers to such
Participants. To the fullest extent it may effectively do so under Applicable
Law, the Borrowers agree that any Participant may exercise any and all rights
of banker's lien, set-off and counterclaim with respect to this Participation
as fully as if such Participant were the holder of the Advances in the amount
of its Participation.
(d) Each Lender may assign to one or more financial institutions
organized or licensed under the laws of the United States, or any state
thereof, or under the laws of any other country that is a member of the
Organization for Economic Cooperation and Development, or a political
subdivision of any such country, which is engaged in making, purchasing or
otherwise investing in commercial loans in the ordinary course of its business
(each, an "Assignee") its rights and obligations under this Agreement and the
other Loan Documents; provided, however, that (i) each such assignment shall be
subject to the prior written consent of the Administrative Lender and the
Borrowers, which consent shall not be unreasonably withheld (provided, however,
notwithstanding anything herein to the contrary, no consent of the Borrowers is
required for any assignment during any time that an Event of Default pursuant
to Section 8.1(b) hereof has occurred and is continuing), (ii) each such
assignment shall be a minimum amount of $5,000,000, and shall be in an amount
which is an integral multiple of $1,000,000, (iii) the applicable Lender,
Administrative Lender and applicable Assignee shall execute and deliver to the
Administrative Lender an Assignment and Acceptance Agreement (an "Assignment
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Agreement") in substantially the form of Exhibit G hereto, together with the
Notes subject to such assignment, and (iv) the Assignee executing the
Assignment as the case may be, shall deliver to the Administrative Lender a
processing fee of $3,500. Upon such execution, delivery and acceptance from
and after the effective date specified in each Assignment, which effective date
shall be at least three Business Days after the execution thereof, (A) the
Assignee thereunder shall be party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment,
have the rights and obligations of a Lender hereunder and (B) the applicable
Lender shall, to the extent that rights and obligations hereunder have been
assigned by it pursuant to such Assignment, relinquish such rights and be
released from such obligations under this Agreement.
(e) Notwithstanding anything in clause (d) above to the contrary,
any Lender may assign and pledge all or any portion of its Advances and Notes
to any Federal Reserve Bank as collateral security pursuant to Regulation A of
F.R.S. Board and any Operating Circular issued by such Federal Reserve Bank;
provided, however, that no such assignment under this clause (e) shall release
the assignor Lender from its obligations hereunder.
(f) Upon its receipt of an Assignment Agreement executed by a
Lender and an Assignee, and any Note subject to such assignment, the Borrowers
shall, within five Business Days after its receipt of such Assignment
Agreement, at no expense to the Borrowers, execute and deliver to the
Administrative Lender in exchange for the surrendered Note new Notes to the
order of such Assignee in an amount equal to the portion of the Advances and
Commitment assigned to it pursuant to such Assignment Agreement and new Notes
to the order of the assigning Lender in an amount equal to the portion of the
Advances and Commitment retained by it hereunder. Such new Notes shall be in
an aggregate principal amount equal to the aggregate principal amount of such
surrendered Note, shall be dated the effective date of such Assignment
Agreement and shall otherwise be in substantially the form of Exhibit A hereto.
(g) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
11.6, disclose to the assignee or Participant or proposed assignee or
participant, any information relating to the Borrowers furnished to such Lender
by or on behalf of the Borrowers.
(h) Except as specifically set forth in this Section 11.6, nothing
in this Agreement or any other Loan Documents, expressed or implied, is
intended to or shall confer on any Person other than the respective parties
hereto and thereto and their successors and assignees permitted hereunder and
thereunder any benefit or any legal or equitable right, remedy or other claim
under this Agreement or any other Loan Documents.
(i) Notwithstanding anything in this Section 11.6 to the contrary,
no Assignee or Participant shall be entitled to receive any greater payment
under Section 2.15 or Section 9.3 than such assigning or participating Lender
would have been entitled to receive with respect to the interest assigned or
participated to such Assignee or Participant.
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Section 11.7 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but
all such separate counterparts shall together constitute but one and the same
instrument.
Section 11.8 Severability. Any provision of this Agreement which
is for any reason prohibited or found or held invalid or unenforceable by any
court or governmental agency shall be ineffective to the extent of such
prohibition or invalidity or unenforceability without invalidating the
remaining provisions hereof in such jurisdiction or affecting the validity or
enforceability of such provision in any other jurisdiction.
Section 11.9 Interest and Charges. It is not the intention of any
parties to this Agreement to make an agreement in violation of the laws of any
applicable jurisdiction relating to usury. Regardless of any provision in any
Loan Documents, no Lender shall ever be entitled to receive, collect or apply,
as interest on the Obligations, any amount in excess of the Maximum Amount. If
any Lender or participant ever receives, collects or applies, as interest, any
such excess, such amount which would be excessive interest shall be deemed a
partial repayment of principal and treated hereunder as such; and if principal
is paid in full, any remaining excess shall be paid to the Borrowers. In
determining whether or not the interest paid or payable, under any specific
contingency, exceeds the Maximum Amount, the Borrowers and the Lenders shall,
to the maximum extent permitted under Applicable Law, (a) characterize any
nonprincipal payment as an expense, fee or premium rather than as interest, (b)
exclude voluntary prepayments and the effect thereof, and (c) amortize,
prorate, allocate and spread in equal parts, the total amount of interest
throughout the entire contemplated term of the Obligations so that the interest
rate is uniform throughout the entire term of the Obligations; provided,
however, that if the Obligations are paid and performed in full prior to the
end of the full contemplated term thereof, and if the interest received for the
actual period of existence thereof exceeds the Maximum Amount, the Lenders
shall refund to the Borrowers the amount of such excess or credit the amount of
such excess against the total principal amount of the Obligations owing, and,
in such event, the Lenders shall not be subject to any penalties provided by
any laws for contracting for, charging or receiving interest in excess of the
Maximum Amount. This Section shall control every other provision of all
agreements pertaining to the transactions contemplated by or contained in the
Loan Documents.
Section 11.10 Headings. Headings used in this Agreement are for
convenience only and shall not be used in connection with the interpretation of
any provision hereof.
Section 11.11 Amendment and Waiver. The provisions of this
Agreement may not be amended, modified or waived except by the written
agreement of the Borrowers and the Determining Lenders; provided, however, that
no such amendment, modification or waiver shall be made (a) without the consent
of all Lenders, if it would (i) increase the Specified Percentage or commitment
of any Lender, or (ii) extend the date of maturity of, extend the due date for
any payment of principal or interest on, reduce the amount of any installment
of principal or interest on, or reduce the rate of interest on, any Advance,
the Reimbursement Obligations or other amount owing under any Loan Documents,
or (iii) release any security for or guaranty of the
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Obligations (except pursuant to this Agreement), or (iv) reduce the fees
payable hereunder, or (v) revise this Section 11.11, or (vi) waive the date for
payment of any of the Obligations, or (vii) amend the definition of Determining
Lenders; or (viii) release any obligor under any Loan Document; or (b) without
the consent of the Administrative Lender, if it would alter the rights, duties
or obligations of the Administrative Lender. Neither this Agreement nor any
term hereof may be amended orally, nor may any provision hereof be waived
orally but only by an instrument in writing signed by the Administrative Lender
and, in the case of an amendment, by the Borrowers.
Section 11.12 Exception to Covenants. Neither the Parent nor any
Subsidiary shall be deemed to be permitted to take any action or fail to take
any action which is permitted as an exception to any of the covenants contained
herein or which is within the permissible limits of any of the covenants
contained herein if such action or omission would result in the breach of any
other covenant contained herein.
Section 11.13 No Liability of Issuing Bank. The Borrowers assume
all risks of the acts or omissions of any beneficiary or transferee of any
Letter of Credit with respect to its use of such Letter of Credit. Neither the
Issuing Bank nor any Lender nor any of their respective officers or directors
shall be liable or responsible for: (a) the use that may be made of any Letter
of Credit or any acts or omissions of any beneficiary or transferee in
connection therewith; (b) the validity, sufficiency or genuineness of
documents, or of any endorsement thereon, even if such documents should prove
to be in any or all respects invalid, insufficient, fraudulent or forged; (c)
payment by the Issuing Bank against presentation of documents that do not
comply with the terms of a Letter of Credit, including failure of any documents
to bear any reference or adequate reference to the Letter of Credit, except for
any payment made upon the Issuing Bank's gross negligence or willful
misconduct; or (d) any other circumstances whatsoever in making or failing to
make payment under any Letter of Credit, except that the Borrowers shall have a
claim against the Issuing Bank, and the Issuing Bank shall be liable to the
Borrowers, to the extent of any direct, but not consequential, damages suffered
by the Borrowers that the Borrowers prove were caused by (i) the Issuing Bank's
willful misconduct or gross negligence in determining whether documents
presented under any Letter of Credit comply with the terms of the Letter of
Credit or (ii) the Issuing Bank's willful failure to make lawful payment under
a Letter of Credit after the presentation to it of a draft and certificates
strictly complying with the terms and conditions of the Letter of Credit. In
furtherance and not in limitation of the foregoing, the Issuing Bank 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 11.14 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF TEXAS; PROVIDED, HOWEVER, THAT PURSUANT TO ARTICLE 5069-15.10(b),
TITLE 79, REVISED CIVIL STATUTES OF TEXAS, 1925, AS AMENDED, IT IS AGREED THAT
THE PROVISIONS OF CHAPTER 15, TITLE 79, REVISED CIVIL STATUTES OF TEXAS, 1925,
AS
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AMENDED, SHALL NOT APPLY TO THE ADVANCES, THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS. THE LOAN DOCUMENTS ARE PERFORMABLE IN DALLAS, DALLAS COUNTY, TEXAS.
SECTION 11.15 ARBITRATION.
(a) ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM
BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING
ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW). THE RULES OF PRACTICE AND PROCEDURE FOR
THE ARBITRATION OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION
SERVICES, INC. ("JAMS"), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT
OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY
ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS
AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(b) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY
OF BORROWERS' DOMICILE AT TIME OF THIS AGREEMENT'S EXECUTION AND ADMINISTERED
BY JAMS WHO WILL APPOINT AN ARBITRATOR; IF JAMS IS UNABLE OR LEGALLY PRECLUDED
FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION
WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE
DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF
CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN
ADDITIONAL 60 DAYS.
(c) RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (II) BE A
WAIVER BY ANY LENDER OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR
ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF ANY LENDER
HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF,
OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO
OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED
TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER.
SUBJECT TO
- 70 -
<PAGE> 77
THE TERMS OF THIS AGREEMENT, A LENDER MAY EXERCISE SUCH SELF HELP RIGHTS,
FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES
BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT
PURSUANT TO THIS AGREEMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR
THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR
ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
SECTION 11.16 WAIVER OF JURY TRIAL. EACH OF THE BORROWERS, THE
ADMINISTRATIVE LENDER AND THE LENDERS HEREBY KNOWINGLY VOLUNTARILY, IRREVOCABLY
AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS
PROVISION IS A MATERIAL INDUCEMENT TO EACH LENDER ENTERING INTO THIS AGREEMENT
AND MAKING ANY ADVANCES HEREUNDER.
SECTION 11.17 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER
WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
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<PAGE> 78
IN WITNESS WHEREOF, this Credit Agreement is executed as of the date
first set forth above.
BORROWERS: BABBAGES, INC.
By: /s/ OPAL P. FERRARO
-----------------------------------
Opal P. Ferraro
Vice President & Treasurer
SOFTWARE ETC. STORES, INC.
By: /s/ OPAL P. FERRARO
-----------------------------------
Opal P. Ferraro
Vice President & Treasurer
ADMINISTRATIVE LENDER: NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender
By: /s/ FRANK IZZO
-----------------------------------
Frank Izzo
Vice President
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<PAGE> 79
LENDERS: NATIONSBANK OF TEXAS, N.A.,
as a Lender
Specified Percentage:
42.857144%
By: /s/ FRANK IZZO
-----------------------------------
Frank Izzo
Vice President
901 Main Street, 7th Floor
Dallas, Texas 75202
Attn: Frank Izzo
Vice President
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<PAGE> 80
BANK ONE, TEXAS, N.A.
Specified Percentage:
21.428571%
By: /s/ W. RUSS LESSMANN
-----------------------------------
Name: W. Russ Lessmann
------------------------------
Title: Vice President
-----------------------------
1717 Main Street, 3rd Floor
Dallas, Texas 75201
Attn: W. Russ Lessmann
Vice President
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<PAGE> 81
GUARANTY FEDERAL BANK F.S.B.
Specified Percentage:
21.428571%
By: /s/ ROBERT S. HAYS
-----------------------------------
Name: Robert S. Hays
------------------------------
Title: Vice President, Commercial
Lending
-----------------------------
8333 Douglas Avenue
Dallas, Texas 75225
Attn: Robert S. Hays
Vice President, Commercial Lending
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<PAGE> 82
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR
Specified Percentage:
14.285714%
By: /s/ IAIN WHYTE
-----------------------------------
Name: Iain Whyte
------------------------------
Title:
-----------------------------
333 Clay Street, Suite 4340
Houston, Texas 77002
Attn: Iain Whyte
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<PAGE> 83
EXHIBIT A
PROMISSORY NOTE
Dallas, Texas $_________ August 28, 1995
BABBAGES, INC., a Texas corporation ("Babbages"), and SOFTWARE ETC. STORES,
INC., a Delaware corporation ("Software"), (Babbages and Software are
collectively referred to herein as the "Borrowers"), for value received, jointly
and severally promise to pay to the order of ________________ ("Lender"), at the
principal office of _____________________________, in lawful money of the United
States of America, the principal sum of ____________ DOLLARS ($_____________)
or such lesser sum as shall be due and payable from time to time hereunder, as
hereinafter provided. All terms used but not defined herein shall have the
meanings set forth in the Credit Agreement described below.
Principal of and interest on the unpaid principal balance of Advances under
this Note from time to time outstanding shall be due and payable as set forth in
the Credit Agreement.
This Note is issued pursuant to and evidences Advances under a Credit
Agreement, dated as of August 28, 1995, among the Borrowers, NationsBank of
Texas, N.A., as Administrative Lender, and the lenders parties thereto (as
amended, restated, supplemented, renewed, extended or otherwise modified from
time to time, "Credit Agreement"), to which reference is made for a statement of
the rights and obligations of the Lender and the duties and obligations of the
Borrowers in relation thereto; but neither this reference to the Credit
Agreement nor any provision thereof shall affect or impair the absolute and
unconditional obligation of the Borrowers to pay the principal sum of and
interest on this Note when due.
The Borrowers and all endorsers, sureties and guarantors of this Note
hereby severally waive demand, presentment for payment, protest, notice of
protest, notice of acceleration, notice of intention to accelerate the maturity
of this Note, and all other notices of any kind, diligence in collecting, the
bringing of any suit against any party and any notice of or defense on account
of any extensions, renewals, partial payments or changes in any manner of or in
this Note or in any of its terms, provisions and covenants, or any releases or
substitutions of any security, or any delay, indulgence or other act of any
trustee or any holder hereof, whether before or after maturity.
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT
<PAGE> 84
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
BABBAGES, INC.
By: _______________________________
Opal P. Ferraro
Vice President & Treasurer
SOFTWARE ETC. STORES, INC.
By: _______________________________
Opal P. Ferraro
Vice President & Treasurer
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<PAGE> 85
EXHIBIT B
GUARANTY
THIS GUARANTY is entered into as of August 28, 1995 by __________________,
a ______________________ corporation ("Guarantor"), in favor of NationsBank of
Texas, N.A., as Administrative Lender ("Administrative Lender") pursuant to the
Credit Agreement dated as of August 28, 1995 (such agreement, together with all
amendments and restatements thereof, the "Credit Agreement"), among Babbages,
Inc., a Texas corporation ("Babbages"), Software Etc. Stores, Inc., a Delaware
corporation ("Software") (Babbages and Software are singly, a "Borrower", and
collectively, the "Borrowers"), Administrative Lender, the lenders party to
Credit Agreement ("Lenders") and Issuing Bank.
RECITALS:
Pursuant to the Credit Agreement and the other Loan Documents, Borrowers
may from time to time be indebted to Administrative Lender, Lenders and Issuing
Bank. Administrative Lender and Lenders are not willing to make Advances and
Issuing Bank is not willing to issue Letters of Credit under the Credit
Agreement or otherwise extend credit to Borrower unless Guarantor
unconditionally guarantees payment of all present and future indebtedness and
obligations of each Borrower to Administrative Lender, Lenders and Issuing Bank.
Each Borrower is a wholly-owned subsidiary of NeoStar Retail Group, Inc.
Guarantor is a wholly-owned subsidiary of Babbages and Guarantor will directly
and indirectly benefit from Lenders' making loans to and Issuing Bank issuing
Letters of Credit for the account of each Borrower.
AGREEMENT:
NOW, THEREFORE, as an inducement to Lenders and Issuing Bank to enter into
the Credit Agreement and to make loans to and issue Letters of Credit for the
account of each Borrower thereunder, and to extend such additional credit as
Administrative Lender, Lenders and Issuing Bank may from time to time agree to
extend, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
Guarantor hereby unconditionally guarantees to Administrative Lender,
Lenders and Issuing Bank the prompt payment at the time provided in Section 5 of
this Guaranty, and at all times thereafter, of the Guaranteed Indebtedness
(hereinafter defined), this guaranty being upon the following terms and
conditions:
1. Definitions. Unless defined herein, all capitalized terms have the
meanings ascribed to such terms in the Credit Agreement. As used herein, the
following terms are defined as follows:
<PAGE> 86
"Borrower" includes, without limitation, each of Babbages and Software,
each of Babbages and Software as a debtor-in-possession, and any receiver,
trustee, liquidator, conservator, custodian, or similar party appointed for
either Babbages or Software or all or substantially all of its assets
pursuant to any Debtor Relief Law.
"Guaranteed Indebtedness" means any and all obligations now or hereafter
existing of each Borrower, each other Obligor and any other Person under
the Credit Agreement and the other Loan Documents (including but not
limited to all Reimbursement Obligations), including any extensions,
modifications, substitutions, amendments and renewals thereof, whether for
principal, interest, fees, premium, expenses, indemnification or otherwise
(all such obligations of each Borrower and each other Obligor being the
"Obligations"), together with all amounts which constitute part of the
Obligations and would be owed by each Borrower or any other Obligor to
Administrative Lender, Lenders and Issuing Bank under any Loan Document,
but for the fact that they are unenforceable or not allowable due to the
existence of a bankruptcy, reorganization or similar proceeding involving
either Borrower, any other Obligor or any other Person (including all such
amounts which would become due but for the operation of the automatic stay
under Section 362(a) of the United States Bankruptcy Code, 11 U.S.C.
Section 362(a), and the operation of Sections 502(b) and 506(b) of the
United States Bankruptcy Code, 11 U.S.C. Section 502(b) and Section 506(b)
or any analogous stay under any foreign Law), and any and all costs,
attorneys' fees, and expenses incurred by Administrative Lender, each
Lender and Issuing Bank by reason of either Borrower's, Guarantor's or any
other Obligor's default in payment of any of the foregoing indebtedness.
"Maximum Guaranteed Indebtedness" means, with respect to Guarantor as of
the date of determination, the lesser of (a) the Guaranteed Indebtedness,
and (b) the maximum amount for which Guarantor may be liable under this
Guaranty without such amount and Guarantor's obligations under this
Guaranty with respect to such amount being deemed a fraudulent transfer, as
determined by a bankruptcy or similar court.
2. Maximum Guaranteed Indebtedness. Notwithstanding any contrary provision
herein or in any other Loan Document, Guarantor's maximum liability hereunder
shall not exceed the Maximum Guaranteed Indebtedness. Guarantor agrees that the
Guaranteed Indebtedness may at any time exceed the aggregate Maximum Guaranteed
Indebtedness of all Obligers (excluding Borrowers) on all or any part of the
Guaranteed Indebtedness, without affecting or impairing the obligation of
Guarantor.
3. Continuing Guaranty. This instrument shall be an absolute and continuing
guaranty of payment, and the circumstances that at any time or from time to time
the Guaranteed Indebtedness may be paid in full shall not affect the obligation
of Guarantor with respect to indebtedness or obligations of either Borrower to
Administrative Lender, Lenders or Issuing Bank thereafter incurred pursuant to
the Credit Agreement or any other Loan Document.
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<PAGE> 87
4. Other Debt. If Guarantor becomes liable for any indebtedness owing by
either Borrower to Administrative Lender, any Lender or Issuing Bank by
endorsement or otherwise, other than this Guaranty, such liability shall not be
in any manner impaired or affected hereby, and the Rights of Administrative
Lender, Lenders and Issuing Bank hereunder shall be cumulative of any and all
other Rights which Administrative Lender, Lenders and Issuing Bank may ever have
against Guarantor. The exercise by Administrative Lender, any Lender or Issuing
Bank of any Right or remedy hereunder or under any other instrument shall not
preclude the concurrent or subsequent exercise of any other Right or remedy.
5. Payment. If an Event of Default exists, Guarantor shall, on demand by
Administrative Lender and without further notice of dishonor, without any notice
having been given to Guarantor previous to such demand of acceptance by
Administrative Lender, Lenders and Issuing Bank of this Guaranty, and without
any notice having been given to Guarantor previous to such demand of the
creating or incurring of the Guaranteed Indebtedness, pay the entire amount of
the Guaranteed Indebtedness to Administrative Lender at the address of
Administrative Lender specified in the Credit Agreement or in such notice, and
it shall not be necessary for Administrative Lender, in order to enforce such
payment by Guarantor, first to institute suit or exhaust its remedies against
either Borrower or any other Obligor, or to enforce its Rights against any
security which shall ever have been given to secure the Guaranteed Indebtedness,
this Guaranty being a guaranty of payment and not of collection, and in no way
conditional or contingent. Guarantor hereby irrevocably and unconditionally
covenants and agrees that it is liable for the Guaranteed Indebtedness as
primary obligor.
6. Obligation Not Impaired. Guarantor hereby agrees that its obligations
under the terms of this Guaranty shall not be released, diminished, impaired,
reduced, or affected by the occurrence of any one or more of the following
events: (a) the taking or accepting of any other security or guaranty for any or
all of the Guaranteed Indebtedness; (b) any release, surrender, exchange,
subordination, or loss of any security at any time existing in connection with
any or all of the Guaranteed Indebtedness; (c) the modification of, amendment
to, or waiver of compliance with any terms of the Credit Agreement or any other
Loan Document without the notification of Guarantor (the right to such
notification being herein specifically waived by Guarantor); (d) the insolvency,
bankruptcy, or lack of corporate or other power of either Borrower or any other
Obligor, whether now existing or hereafter occurring; (e) any renewal,
extension, and/or rearrangement of the payment of any or all of the Guaranteed
Indebtedness, either with or without notice to or consent of Guarantor, or any
adjustment, indulgence, forbearance, or compromise that may be granted or given
by Administrative Lender, any Lender or Issuing Bank to Borrower, Guarantor or
other Obligor; (f) any neglect, delay, omission, failure, or refusal of
Administrative Lender, any Lender or Issuing Bank to take or prosecute any
action for the collection of any of the Guaranteed Indebtedness or to foreclose
or take or prosecute any action in connection with any instrument or agreement
evidencing or securing all or any part of the Guaranteed Indebtedness; (g) any
failure of Administrative Lender, any Lender or Issuing Bank to notify Guarantor
of any renewal, extension, or assignment of the Guaranteed Indebtedness or any
part thereof, or the release of any security, or of any other action taken or
refrained from being taken by Administrative Lender, any Lender or Issuing
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<PAGE> 88
Bank, it being understood that none of Administrative Lender, any Lender or
Issuing Bank shall be required to give Guarantor any notice of any kind under
any circumstances whatsoever with respect to or in connection with the
Guaranteed Indebtedness; (h) the unenforceability of all or any part of the
Guaranteed Indebtedness against either Borrower or any other Obligor by reason
of the fact that the Guaranteed Indebtedness, and/or the interest paid or
payable with respect thereto, exceeds the amount permitted by Law, the act of
creating the Guaranteed Indebtedness, or any part thereof, is ultra vires, or
the officers creating same acted in excess of their authority, or for any other
reason; or (i) any payment by either Borrower to Administrative Lender, any
Lender or Issuing Bank is held to constitute a preference under any Debtor
Relief Law or if for any other reason Administrative Lender, any Lender or
Issuing Bank is required to refund such payment or pay the amount thereof to
another Person.
7. Waivers. Guarantor hereby waives all Rights by which it might be
entitled to require suit on an accrued right of action in respect of any of the
Guaranteed Indebtedness or require suit against either Borrower or others,
whether arising pursuant to Section 34.02 of the Texas Business and Commerce
Code, as amended, Section 17.001 of the Texas Civil Practice and Remedies Code,
as amended, and Rule 31 of the Texas Rules of Civil Procedure, as amended, or
otherwise.
8. Guarantor Insolvency. Should Guarantor become insolvent, fail to pay its
debts generally as they become due, voluntarily seek, consent to, or acquiesce
in the benefits of any Debtor Relief Law or become a party to or be made the
subject of any proceeding provided for by any Debtor Relief Law (other than as a
creditor or claimant) that could suspend or otherwise adversely affect the
Rights of Administrative Lender, Lenders and Issuing Bank granted hereunder,
then, the Guaranteed Indebtedness shall be, as between Guarantor and
Administrative Lender, Lenders and Issuing Bank, a fully matured, due, and
payable obligation of Guarantor to Administrative Lender, Lenders and Issuing
Bank (without regard to whether either Borrower or any other Obligor is then in
default under the Credit Agreement or any other Loan Document or whether any
part of the Obligation is then due and owing by either Borrower or any other
Obligor to Administrative Lender, Lenders and Issuing Bank), payable in full by
Guarantor to Administrative Lender upon demand, which shall be the estimated
amount owing in respect of the contingent claim created hereunder.
9. Representations and Warranties. Guarantor represents and warrants to
Administrative Lender, Lenders and Issuing Bank that:
(a) Guarantor is a corporation duly organized and validly existing
under the Laws of the State of Delaware;
(b) Guarantor is qualified to do business in all jurisdictions where
the nature of its business or Properties require such qualification;
(c) the board of directors of Guarantor has duly authorized the
execution, delivery, and performance of this Guaranty and the other Loan
Documents to be executed
-4-
<PAGE> 89
by Guarantor and no consent of any shareholder of Guarantor is required to
authorize such execution, delivery or performance;
(d) Guarantor has full legal right, power, and authority to execute,
deliver, and perform under this Guaranty and the Loan Documents to be
executed and delivered by it;
(e) this Guaranty and the other Loan Documents to be executed by
Guarantor constitute the legal, valid, and binding obligations of Guarantor
enforceable in accordance with their terms (subject as to enforcement of
remedies to any applicable Debtor Relief Laws);
(f) the execution or delivery of any Loan Documents to be executed by
Guarantor and performance thereunder, does not conflict with, or result in
a breach of the terms, conditions, or provisions of, or constitute a
default under, or result in any violation of, or result in the creation of
any Lien upon any properties of Guarantor (other than the creation of Liens
pursuant to the Loan Documents) under, or require any consent (other than
consents already obtained), approval, or other action by, notice to, or
filing with any Tribunal or Person pursuant to, the corporate governance
documents of Guarantor, any award of any arbitrator, or any agreement,
instrument, or Law to which Guarantor or any of its properties is subject;
(g) Guarantor and each of its Subsidiaries are in compliance in all
respects with all Laws, except where the failure to so comply would not
result in a Material Adverse Change, either as to Guarantor or any
Subsidiary of Guarantor, or taken as a whole;
(h) the financial statements of Guarantor and its Subsidiaries dated
April 29, 1995 delivered to Administrative Lender fairly present its
financial condition and the results of operations as of the dates and for
the periods shown, all in accordance with GAAP and such financial
statements reflect all material liabilities, direct and contingent, of
Guarantor that are required to be disclosed in accordance with GAAP;
(i) shown on Schedule 3 to the Credit Agreement is all Litigation
(other than Litigation involving counterclaims against Guarantor as part of
Litigation initiated by Guarantor for collection of an account) that is
pending and, to Guarantor's best knowledge, threatened against Guarantor on
the date hereof. There is no pending or, to Guarantor's best knowledge,
threatened Litigation against Guarantor that could constitute a Material
Adverse Change;
(j) Guarantor is Solvent and has not entered into the transactions
related to the Loan Documents with the intent to hinder, delay or defraud
any existing or future creditor of Guarantor;
-5-
<PAGE> 90
(k) there is no pending or, to Guarantor's best knowledge, threatened
Litigation or any claim related to the release of any toxic or hazardous
waste or substance or alleged violation of any federal, state or local
environmental, health or safety law against Guarantor that could constitute
a Material Adverse Change as to Guarantor;
(l) the value of the consideration received and to be received by
Guarantor is reasonably worth at least as much as the liability and
obligation of Guarantor hereunder, and such liability and obligation may
reasonably be expected to benefit Guarantor directly or indirectly;
(m) Guarantor is familiar with, and has independently reviewed books
and records regarding, the financial condition of each Borrower and is
familiar with the value of any and all collateral intended to be created as
security for the payment of the Guaranteed Indebtedness;
(n) neither Administrative Lender, Lenders or Issuing Bank nor any of
their officers or agents have made any representation, warranty or
statement to Guarantor in order to induce Guarantor to execute this
Guaranty; and
(o) each representation and warranty in Article 4 of the Credit
Agreement is true and correct as to Guarantor and each Subsidiary of
Guarantor (including each Borrower).
10. Affirmative Covenants. So long as any Advance under the Credit
Agreement or any portion of the Obligation (including but not limited to any
Reimbursement Obligation) is outstanding, or either Borrower or any other
Obligor owes any amount under any Loan Document, or any Lender has any
obligation to extent credit or Issuing Bank has any obligation to issue or
maintain any Letter of Credit, Guarantor:
(a) shall furnish to Administrative Lender:
(i) As soon as available and in any event within forty-five days
after the end of each of Guarantor's fiscal quarters, consolidated
balance sheets of Guarantor as of the end of such quarter, and
consolidated statements of income, and a consolidated statement of
changes in cash flow of Guarantor and its Subsidiaries for such quarter
and for the portion of the fiscal year ending with such quarter, setting
forth, in comparative form, figures for the corresponding periods in the
previous fiscal year, all in reasonable detail, and certified by an
authorized officer of Guarantor as prepared in accordance with GAAP, and
fairly presenting the financial condition and results of operations of
Guarantor and its Subsidiaries;
-6-
<PAGE> 91
(ii) As soon as available and in any event within ninety days after
the end of each fiscal year of Guarantor, a consolidated balance sheet
of Guarantor and its Subsidiaries as at the end of such fiscal year, and
consolidated statements of income and changes in cash flow of Guarantor
and its Subsidiaries for such fiscal year, all in reasonable detail,
prepared in accordance with GAAP, and accompanied by an unqualified
opinion of the auditor, which opinion shall state that said financial
statements were prepared in accordance with GAAP, that the examination
by the auditor in connection with such financial statements was made in
accordance with generally accepted auditing standards, and that said
financial statements present fairly the financial condition and results
of operations of Guarantor and its Subsidiaries;
(iii) Promptly upon receipt thereof, copies of all material reports
or letters submitted to Guarantor by Auditor or any other accountants in
connection with any annual, interim, or special audit, including without
limitation the comment letter submitted to management in connection with
any such audit;
(iv) Promptly upon becoming aware, written notice of any actual or
potential contingent liabilities, including Litigation, against
Guarantor involving liability in an amount which must be disclosed in
either Borrower's or Guarantor's financial statements or filings with
the Securities and Exchange Commission;
(v) Promptly after filing or receipt thereof by an officer of
Guarantor, copies of all reports and notices that Guarantor or any of
its Subsidiaries furnishes to or receives from any holders of any Debt
or Contingent Liability, if any information or dispute referred to
therein could result in a Default or an Event of Default; and
(vi) Promptly upon request, such other information concerning the
condition or operations of any of Guarantor, its Subsidiaries, and its
Affiliates, financial or otherwise, as Administrative Lender may from
time to time reasonably request.
(b) (i) shall cause to be done all things necessary to preserve and keep
in full force and effect Guarantor's existence as a corporation;
(ii) shall comply with the requirements of all applicable Laws and
orders (including but not limited to ERISA and environmental laws) of
Tribunals or other governmental authorizations necessary to the
ownership of Guarantor's Properties or to the conduct of its business if
the result of failure to so comply would result in a Material Adverse
Change as to Guarantor;
-7-
<PAGE> 92
(iii) comply with, and cause each Subsidiary of Guarantor to comply
with, the provisions of the Credit Agreement and the other Loan
Documents applicable to it; and
(iv) will, on request of Administrative Lender, promptly correct
any defect, error or omission which may be discovered in the contents of
any of the Loan Documents to which it is a party or in the execution or
acknowledgment thereof, and will execute, acknowledge and deliver such
further instruments and do such further acts as may be necessary or as
may be requested by Administrative Lender to carry out more effectively
the purposes of this Guaranty and the Loan Documents to which it is a
party.
11. Setoff. Guarantor grants to Administrative Lender, each Lender and
Issuing Bank a right of setoff and Lien upon each deposit account (time, demand,
special and other) of Guarantor maintained with Administrative Lender, each
Lender and Issuing Bank and each of their Affiliates to secure performance of
Guarantor's obligations hereunder. If an Event of Default exists, Administrative
Lender, Lender and Issuing Bank may setoff and otherwise apply any and all
amounts in any such deposit account to all amounts due hereunder.
12. Benefit; Binding Obligation. This Guaranty is for the benefit of
Administrative Lender, Lenders and Issuing Bank and their successors and
assigns, and in the event of an assignment of the Guaranteed Indebtedness, or
any part thereof, the Rights and benefits hereunder, to the extent applicable to
the Guaranteed Indebtedness so assigned, may be transferred with such
indebtedness. This Guaranty is binding not only on Guarantor, but on its
successors and assigns.
13. Defenses. The Guaranteed Indebtedness shall not be reduced, discharged,
or released because or by reason of any existing or future offset, claim or
defense of either Borrower or any other Person against Administrative Lender,
Lenders or Issuing Bank or against payment of the Guaranteed Indebtedness,
whether such offset, claim, or defense arises in connection with the Guaranteed
Indebtedness or otherwise.
14. Change of Obligor Status. Should the status of either Borrower or any
other Obligor change through merger, consolidation, or otherwise, this Guaranty
shall continue and shall cover Guaranteed Indebtedness under the new status.
15. Fees. Guarantor agrees to pay reasonable attorneys' fees and collection
costs if this Guaranty is placed in the hands of an attorney for collection.
16. Notices. All notices, communications and materials to be given or
delivered pursuant to this Guaranty shall be given or delivered, if to
Administrative Lender, at its address specified in the Credit Agreement, and, if
to Guarantor, at:
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<PAGE> 93
________________________________
10741 King William Drive
Dallas, Texas 75220
Attention: Opal P. Ferraro
Telephone: (214) 401-9000
Telecopier: (214) 401-9002
All notices shall be given in accordance with Section 11.1 of the Credit
Agreement.
17. Governing Law. This Guaranty shall be governed by and construed
according to the substantive Laws of the State of Texas. The unenforceability or
invalidity, as determined by a court of competent jurisdiction, of any provision
of this Guaranty shall not render unenforceable or invalid any other provision
of this Guaranty.
18. LOAN DOCUMENTS. THIS GUARANTY AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
-9-
<PAGE> 94
EXECUTED as of August 28, 1995.
___________________________________
By: _______________________________
Title: ____________________________
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<PAGE> 95
EXHIBIT C
GUARANTY
THIS GUARANTY is entered into as of August 28, 1995 by NeoStar Retail
Group, Inc., a Delaware corporation ("Guarantor"), in favor of NationsBank of
Texas, N.A., as Administrative Lender ("Administrative Lender") pursuant to the
Credit Agreement dated as of August 28, 1995 (such agreement, together with all
amendments and restatements thereof, the "Credit Agreement"), among Babbages,
Inc., a Texas corporation ("Babbages"), Software Etc. Stores, Inc., a Delaware
corporation ("Software") (Babbages and Software are singly, a "Borrower", and
collectively, the "Borrowers"), Administrative Lender, the lenders party to
Credit Agreement ("Lenders") and Issuing Bank.
RECITALS:
Pursuant to the Credit Agreement and the other Loan Documents, Borrowers
may from time to time be indebted to Administrative Lender, Lenders and Issuing
Bank. Administrative Lender and Lenders are not willing to make Advances and
Issuing Bank is not willing to issue Letters of Credit under the Credit
Agreement or otherwise extend credit to Borrower unless Guarantor
unconditionally guarantees payment of all present and future indebtedness and
obligations of each Borrower to Administrative Lender, Lenders and Issuing Bank.
Each Borrower is a wholly-owned subsidiary of Guarantor and Guarantor will
directly and indirectly benefit from Lenders' making loans to and Issuing Bank
issuing Letters of Credit for the account of each Borrower.
AGREEMENT:
NOW, THEREFORE, as an inducement to Lenders and Issuing Bank to enter into
the Credit Agreement and to make loans to and issue Letters of Credit for the
account of each Borrower thereunder, and to extend such additional credit as
Administrative Lender, Lenders and Issuing Bank may from time to time agree to
extend, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
Guarantor hereby unconditionally guarantees to Administrative Lender,
Lenders and Issuing Bank the prompt payment at the time provided in Section 5 of
this Guaranty, and at all times thereafter, of the Guaranteed Indebtedness
(hereinafter defined), this guaranty being upon the following terms and
conditions:
1. Definitions. Unless defined herein, all capitalized terms have the
meanings ascribed to such terms in the Credit Agreement. As used herein, the
following terms are defined as follows:
<PAGE> 96
"Borrower" includes, without limitation, each of Babbages and Software,
each of Babbages and Software as a debtor-in-possession, and any receiver,
trustee, liquidator, conservator, custodian, or similar party appointed for
either Babbages or Software or all or substantially all of its assets
pursuant to any Debtor Relief Law.
"Guaranteed Indebtedness" means any and all obligations now or hereafter
existing of each Borrower, each other Obligor and any other Person under
the Credit Agreement and the other Loan Documents (including but not
limited to all Reimbursement Obligations), including any extensions,
modifications, substitutions, amendments and renewals thereof, whether for
principal, interest, fees, premium, expenses, indemnification or otherwise
(all such obligations of each Borrower and each other Obligor being the
"Obligations"), together with all amounts which constitute part of the
Obligations and would be owed by each Borrower or any other Obligor to
Administrative Lender, Lenders and Issuing Bank under any Loan Document,
but for the fact that they are unenforceable or not allowable due to the
existence of a bankruptcy, reorganization or similar proceeding involving
either Borrower, any other Obligor or any other Person (including all such
amounts which would become due but for the operation of the automatic stay
under Section 362(a) of the United States Bankruptcy Code, 11 U.S.C.
Section 362(a), and the operation of Sections 502(b) and 506(b) of the
United States Bankruptcy Code, 11 U.S.C. Section 502(b) and Section 506(b)
or any analogous stay under any foreign Law), and any and all costs,
attorneys' fees, and expenses incurred by Administrative Lender, each
Lender and Issuing Bank by reason of either Borrower's, Guarantor's or any
other Obligor's default in payment of any of the foregoing indebtedness.
"Maximum Guaranteed Indebtedness" means, with respect to Guarantor as of
the date of determination, the lesser of (a) the Guaranteed Indebtedness,
and (b) the maximum amount for which Guarantor may be liable under this
Guaranty without such amount and Guarantor's obligations under this
Guaranty with respect to such amount being deemed a fraudulent transfer, as
determined by a bankruptcy or similar court.
2. Maximum Guaranteed Indebtedness. Notwithstanding any contrary provision
herein or in any other Loan Document, Guarantor's maximum liability hereunder
shall not exceed the Maximum Guaranteed Indebtedness. Guarantor agrees that the
Guaranteed Indebtedness may at any time exceed the aggregate Maximum Guaranteed
Indebtedness of all Obligors (excluding Borrowers) on all or any part of the
Guaranteed Indebtedness, without affecting or impairing the obligation of
Guarantor.
3. Continuing Guaranty. This instrument shall be an absolute and continuing
guaranty of payment, and the circumstances that at any time or from time to time
the Guaranteed Indebtedness may be paid in full shall not affect the obligation
of Guarantor with respect to
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indebtedness or obligations of either Borrower to Administrative Lender, Lenders
or Issuing Bank thereafter incurred pursuant to the Credit Agreement or any
other Loan Document.
4. Other Debt. If Guarantor becomes liable for any indebtedness owing by
either Borrower to Administrative Lender, any Lender or Issuing Bank by
endorsement or otherwise, other than this Guaranty, such liability shall not be
in any manner impaired or affected hereby, and the Rights of Administrative
Lender, Lenders and Issuing Bank hereunder shall be cumulative of any and all
other Rights which Administrative Lender, Lenders and Issuing Bank may ever have
against Guarantor. The exercise by Administrative Lender, any Lender or Issuing
Bank of any Right or remedy hereunder or under any other instrument shall not
preclude the concurrent or subsequent exercise of any other Right or remedy.
5. Payment. If an Event of Default exists, Guarantor shall, on demand by
Administrative Lender and without further notice of dishonor, without any notice
having been given to Guarantor previous to such demand of acceptance by
Administrative Lender, Lenders and Issuing Bank of this Guaranty, and without
any notice having been given to Guarantor previous to such demand of the
creating or incurring of the Guaranteed Indebtedness, pay the entire amount of
the Guaranteed Indebtedness to Administrative Lender at the address of
Administrative Lender specified in the Credit Agreement or in such notice, and
it shall not be necessary for Administrative Lender, in order to enforce such
payment by Guarantor, first to institute suit or exhaust its remedies against
either Borrower or any other Obligor, or to enforce its Rights against any
security which shall ever have been given to secure the Guaranteed Indebtedness,
this Guaranty being a guaranty of payment and not of collection, and in no way
conditional or contingent. Guarantor hereby irrevocably and unconditionally
covenants and agrees that it is liable for the Guaranteed Indebtedness as
primary obligor.
6. Obligation Not Impaired. Guarantor hereby agrees that its obligations
under the terms of this Guaranty shall not be released, diminished, impaired,
reduced, or affected by the occurrence of any one or more of the following
events: (a) the taking or accepting of any other security or guaranty for any or
all of the Guaranteed Indebtedness; (b) any release, surrender, exchange,
subordination, or loss of any security at any time existing in connection with
any or all of the Guaranteed Indebtedness; (c) the modification of, amendment
to, or waiver of compliance with any terms of the Credit Agreement or any other
Loan Document without the notification of Guarantor (the right to such
notification being herein specifically waived by Guarantor); (d) the insolvency,
bankruptcy, or lack of corporate or other power of either Borrower or any other
Obligor, whether now existing or hereafter occurring; (e) any renewal,
extension, and/or rearrangement of the payment of any or all of the Guaranteed
Indebtedness, either with or without notice to or consent of Guarantor, or any
adjustment, indulgence, forbearance, or compromise that may be granted or given
by Administrative Lender, any Lender or Issuing Bank to Borrower, Guarantor or
other Obligor; (f) any neglect, delay, omission, failure, or refusal of
Administrative Lender, any Lender or Issuing Bank to take or prosecute any
action for the collection of any of the Guaranteed Indebtedness or to foreclose
or take or prosecute any action in connection with any instrument or agreement
evidencing or securing all or any part of the Guaranteed Indebtedness; (g) any
failure of Administrative Lender, any
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<PAGE> 98
Lender or Issuing Bank to notify Guarantor of any renewal, extension, or
assignment of the Guaranteed Indebtedness or any part thereof, or the release of
any security, or of any other action taken or refrained from being taken by
Administrative Lender, any Lender or Issuing Bank, it being understood that none
of Administrative Lender, any Lender or Issuing Bank shall be required to give
Guarantor any notice of any kind under any circumstances whatsoever with respect
to or in connection with the Guaranteed Indebtedness; (h) the unenforceability
of all or any part of the Guaranteed Indebtedness against either Borrower or any
other Obligor by reason of the fact that the Guaranteed Indebtedness, and/or the
interest paid or payable with respect thereto, exceeds the amount permitted by
Law, the act of creating the Guaranteed Indebtedness, or any part thereof, is
ultra vires, or the officers creating same acted in excess of their authority,
or for any other reason; or (i) any payment by either Borrower to Administrative
Lender, any Lender or Issuing Bank is held to constitute a preference under any
Debtor Relief Law or if for any other reason Administrative Lender, any Lender
or Issuing Bank is required to refund such payment or pay the amount thereof to
another Person.
7. Waivers. Guarantor hereby waives all Rights by which it might be
entitled to require suit on an accrued right of action in respect of any of the
Guaranteed Indebtedness or require suit against either Borrower or others,
whether arising pursuant to Section 34.02 of the Texas Business and Commerce
Code, as amended, Section 17.001 of the Texas Civil Practice and Remedies Code,
as amended, and Rule 31 of the Texas Rules of Civil Procedure, as amended, or
otherwise.
8. Guarantor Insolvency. Should Guarantor become insolvent, fail to pay its
debts generally as they become due, voluntarily seek, consent to, or acquiesce
in the benefits of any Debtor Relief Law or become a party to or be made the
subject of any proceeding provided for by any Debtor Relief Law (other than as a
creditor or claimant) that could suspend or otherwise adversely affect the
Rights of Administrative Lender, Lenders and Issuing Bank granted hereunder,
then, the Guaranteed Indebtedness shall be, as between Guarantor and
Administrative Lender, Lenders and Issuing Bank, a fully matured, due, and
payable obligation of Guarantor to Administrative Lender, Lenders and Issuing
Bank (without regard to whether either Borrower or any other Obligor is then in
default under the Credit Agreement or any other Loan Document or whether any
part of the Obligation is then due and owing by either Borrower or any other
Obligor to Administrative Lender, Lenders and Issuing Bank), payable in full by
Guarantor to Administrative Lender upon demand, which shall be the estimated
amount owing in respect of the contingent claim created hereunder.
9. Representations and Warranties. Guarantor represents and warrants to
Administrative Lender, Lenders and Issuing Bank that:
(a) Guarantor is a corporation duly organized and validly existing
under the Laws of the State of Delaware;
(b) Guarantor is qualified to do business in all jurisdictions where
the nature of its business or Properties require such qualification;
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<PAGE> 99
(c) the board of directors of Guarantor has duly authorized the
execution, delivery, and performance of this Guaranty and the other Loan
Documents to be executed by Guarantor and no consent of any shareholder of
Guarantor is required to authorize such execution, delivery or performance;
(d) Guarantor has full legal right, power, and authority to execute,
deliver, and perform under this Guaranty and the Loan Documents to be
executed and delivered by it;
(e) this Guaranty and the other Loan Documents to be executed by
Guarantor constitute the legal, valid, and binding obligations of Guarantor
enforceable in accordance with their terms (subject as to enforcement of
remedies to any applicable Debtor Relief Laws);
(f) the execution or delivery of any Loan Documents to be executed by
Guarantor and performance thereunder, does not conflict with, or result in
a breach of the terms, conditions, or provisions of, or constitute a
default under, or result in any violation of, or result in the creation of
any Lien upon any properties of Guarantor (other than the creation of Liens
pursuant to the Loan Documents) under, or require any consent (other than
consents already obtained), approval, or other action by, notice to, or
filing with any Tribunal or Person pursuant to, the corporate governance
documents of Guarantor, any award of any arbitrator, or any agreement,
instrument, or Law to which Guarantor or any of its properties is subject;
(g) Guarantor is engaged primarily in the business of holding the
capital stock of each Borrower and activities directly related thereto;
(h) Guarantor and each of its Subsidiaries (including each Borrower)
are in compliance in all respects with all Laws, except where the failure
to so comply would not result in a Material Adverse Change, either as to
Guarantor or any Subsidiary of Guarantor, or taken as a whole;
(i) the financial statements of Guarantor and its Subsidiaries dated
April 29, 1995 delivered to Administrative Lender fairly present its
financial condition and the results of operations as of the dates and for
the periods shown, all in accordance with GAAP and such financial
statements reflect all material liabilities, direct and contingent, of
Guarantor that are required to be disclosed in accordance with GAAP;
(j) shown on Schedule 3 to the Credit Agreement is all Litigation
(other than Litigation involving counterclaims against Guarantor as part of
Litigation initiated by Guarantor for collection of an account) that is
pending and, to Guarantor's best knowledge, threatened against Guarantor on
the date hereof. There is no pending or, to Guarantor's best knowledge,
threatened Litigation against Guarantor that could constitute a Material
Adverse Change;
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<PAGE> 100
(k) Guarantor is Solvent and has not entered into the transactions
related to the Loan Documents with the intent to hinder, delay or defraud
any existing or future creditor of Guarantor;
(l) there is no pending or, to Guarantor's best knowledge, threatened
Litigation or any claim related to the release of any toxic or hazardous
waste or substance or alleged violation of any federal, state or local
environmental, health or safety law against Guarantor that could constitute
a Material Adverse Change as to Guarantor;
(m) the value of the consideration received and to be received by
Guarantor is reasonably worth at least as much as the liability and
obligation of Guarantor hereunder, and such liability and obligation may
reasonably be expected to benefit Guarantor directly or indirectly;
(n) Guarantor is familiar with, and has independently reviewed books
and records regarding, the financial condition of each Borrower and is
familiar with the value of any and all collateral intended to be created as
security for the payment of the Guaranteed Indebtedness;
(o) neither Administrative Lender, Lenders or Issuing Bank nor any of
their officers or agents have made any representation, warranty or
statement to Guarantor in order to induce Guarantor to execute this
Guaranty; and
(p) each representation and warranty in Article 4 of the Credit
Agreement is true and correct as to Guarantor and each Subsidiary of
Guarantor (including each Borrower).
10. Affirmative Covenants. So long as any Advance under the Credit
Agreement or any portion of the Obligation (including but not limited to any
Reimbursement Obligation) is outstanding, or either Borrower or any other
Obligor owes any amount under any Loan Document, or any Lender has any
obligation to extend credit or Issuing Bank has any obligation to issue or
maintain any Letter of Credit, Guarantor:
(a) shall furnish to Administrative Lender:
(i) As soon as available and in any event within forty-five days
after the end of each of Guarantor's fiscal quarters, consolidated
balance sheets of Guarantor as of the end of such quarter, and
consolidated statements of income, and a consolidated statement of
changes in cash flow of Guarantor and its Subsidiaries for such quarter
and for the portion of the fiscal year ending with such quarter, setting
forth, in comparative form, figures for the corresponding periods in the
previous fiscal year, all in reasonable detail, and certified by an
authorized officer of Guarantor as prepared in accordance with GAAP, and
fairly
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<PAGE> 101
presenting the financial condition and results of operations of
Guarantor and its Subsidiaries;
(ii) As soon as available and in any event within ninety days after
the end of each fiscal year of Guarantor, a consolidated balance sheet
of Guarantor and its Subsidiaries as at the end of such fiscal year, and
consolidated statements of income and changes in cash flow of Guarantor
and its Subsidiaries for such fiscal year, all in reasonable detail,
prepared in accordance with GAAP, and accompanied by an unqualified
opinion of the auditor, which opinion shall state that said financial
statements were prepared in accordance with GAAP, that the examination
by the auditor in connection with such financial statements was made in
accordance with generally accepted auditing standards, and that said
financial statements present fairly the financial condition and results
of operations of Guarantor and its Subsidiaries;
(iii) Promptly upon receipt thereof, copies of all material reports
or letters submitted to Guarantor by Auditor or any other accountants in
connection with any annual, interim, or special audit, including without
limitation the comment letter submitted to management in connection with
any such audit;
(iv) Promptly upon becoming aware, written notice of any actual or
potential contingent liabilities, including Litigation, against
Guarantor involving liability in an amount which must be disclosed in
either Borrower's or Guarantor's financial statements or filings with
the Securities and Exchange Commission;
(v) Promptly after filing or receipt thereof by an officer of
Guarantor, copies of all reports and notices that Guarantor or any of
its Subsidiaries furnishes to or receives from any holders of any Debt
or Contingent Liability, if any information or dispute referred to
therein could result in a Default or an Event of Default; and
(vi) Promptly upon request, such other information concerning the
condition or operations of any of Guarantor, its Subsidiaries, and its
Affiliates, financial or otherwise, as Administrative Lender may from
time to time reasonably request.
(b) (i) shall cause to be done all things necessary to preserve and
keep in full force and effect Guarantor's existence as a corporation;
(ii) shall comply with the requirements of all applicable Laws and
orders (including but not limited to ERISA and environmental laws) of
Tribunals or other governmental authorizations necessary to the
ownership of
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Guarantor's Properties or to the conduct of its business if the result
of failure to so comply would result in a Material Adverse Change as to
Guarantor;
(iii) comply with, and cause each Subsidiary of Guarantor to comply
with, the provisions of the Credit Agreement and the other Loan
Documents applicable to it; and
(iv) will, on request of Administrative Lender, promptly correct
any defect, error or omission which may be discovered in the contents of
any of the Loan Documents to which it is a party or in the execution or
acknowledgment thereof, and will execute, acknowledge and deliver such
further instruments and do such further acts as may be necessary or as
may be requested by Administrative Lender to carry out more effectively
the purposes of this Guaranty and the Loan Documents to which it is a
party.
11. Setoff. Guarantor grants to Administrative Lender, each Lender and
Issuing Bank a right of setoff and Lien upon each deposit account (time, demand,
special and other) of Guarantor maintained with Administrative Lender, each
Lender and Issuing Bank and each of their Affiliates to secure performance of
Guarantor's obligations hereunder. If an Event of Default exists, Administrative
Lender, Lender and Issuing Bank may setoff and otherwise apply any and all
amounts in any such deposit account to all amounts due hereunder.
12. Benefit; Binding Obligation. This Guaranty is for the benefit of
Administrative Lender, Lenders and Issuing Bank and their successors and
assigns, and in the event of an assignment of the Guaranteed Indebtedness, or
any part thereof, the Rights and benefits hereunder, to the extent applicable to
the Guaranteed Indebtedness so assigned, may be transferred with such
indebtedness. This Guaranty is binding not only on Guarantor, but on its
successors and assigns.
13. Defenses. The Guaranteed Indebtedness shall not be reduced, discharged,
or released because or by reason of any existing or future offset, claim or
defense of either Borrower or any other Person against Administrative Lender,
Lenders or Issuing Bank or against payment of the Guaranteed Indebtedness,
whether such offset, claim, or defense arises in connection with the Guaranteed
Indebtedness or otherwise.
14. Change of Obligor Status. Should the status of either Borrower or any
other Obligor change through merger, consolidation, or otherwise, this Guaranty
shall continue and shall cover Guaranteed Indebtedness under the new status.
15. Fees. Guarantor agrees to pay reasonable attorneys' fees and collection
costs if this Guaranty is placed in the hands of an attorney for collection.
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16. Notices. All notices, communications and materials to be given or
delivered pursuant to this Guaranty shall be given or delivered, if to
Administrative Lender, at its address specified in the Credit Agreement, and, if
to Guarantor, at:
NeoStar Retail Group, Inc.
10741 King William Drive
Dallas, Texas 75220
Attention: Opal P. Ferraro
Telephone: (214) 401-9000
Telecopier: (214) 401-9002
All notices shall be given in accordance with Section 11.1 of the Credit
Agreement.
17. Governing Law. This Guaranty shall be governed by and construed
according to the substantive Laws of the State of Texas. The unenforceability or
invalidity, as determined by a court of competent jurisdiction, of any provision
of this Guaranty shall not render unenforceable or invalid any other provision
of this Guaranty.
18. LOAN DOCUMENTS. THIS GUARANTY AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
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<PAGE> 104
EXECUTED as of August 28, 1995.
NEOSTAR RETAIL GROUP, INC.
By: ______________________________
Title: ___________________________
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<PAGE> 105
EXHIBIT D
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITY AGREEMENT
dated as of August 28, 1995
Between
BABBAGES, INC.
as Debtor
and
NATIONSBANK OF TEXAS, N.A.
as Administrative Lender
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 106
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I. GRANT
1.1 Assignment and Grant of Security............................................ 1
1.2 Description of Obligations.................................................. 3
1.3 Debtor Remains Liable....................................................... 3
1.4 Delivery of Instrument Collateral........................................... 3
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties.............................................. 4
ARTICLE III. COVENANTS
3.1 Further Assurances.......................................................... 5
3.2 Inventory................................................................... 7
3.3 Insurance................................................................... 7
3.4 Place of Perfection; Records; Collection of Receivables and Instruments..... 8
3.5 Transfers and Other Liens................................................... 8
3.6 Administrative Lender Appointed Attorney-in-Fact............................ 8
ARTICLE IV. RIGHTS AND POWERS OF ADMINISTRATIVE LENDER
4.1 Administrative Lender May Perform........................................... 9
4.2 Administrative Lender's Duties.............................................. 9
4.3 Remedies.................................................................... 10
4.4 Further Approvals Required.................................................. 12
4.5 INDEMNITY AND EXPENSES...................................................... 12
ARTICLE V. MISCELLANEOUS
5.1 Cumulative Rights........................................................... 13
5.2 Modifications; Amendments; Schedules; Etc. ................................. 13
5.3 Continuing Security Interest................................................ 13
5.4 MANDATORY ARBITRATION....................................................... 13
5.5 GOVERNING LAW; TERMS........................................................ 14
5.6 WAIVER OF JURY TRIAL........................................................ 14
5.7 Administrative Lender's Right to Use Agents................................. 15
5.8 No Interference, Compensation or Expense.................................... 15
5.9 Waivers of Rights Inhibiting Enforcement.................................... 15
5.10 Notices and Deliveries...................................................... 15
(a) Manner of Delivery...................................................... 15
</TABLE>
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<TABLE>
<S> <C> <C>
(b) Addresses............................................................ 15
(c) Effectiveness........................................................ 16
5.11 Successors and Assigns................................................... 16
5.12 Loan Document............................................................ 16
5.13 Definitions.............................................................. 16
5.14 Severability............................................................. 16
5.15 Obligations Not Affected................................................. 17
5.16 Counterparts............................................................. 17
5.17 ENTIRE AGREEMENT......................................................... 17
</TABLE>
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SCHEDULES:
Schedule 1 -- Inventory Locations
Schedule 2 -- Filing Locations
Schedule 3 -- Trade and Assumed Names
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<PAGE> 109
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of August 28, 1995 (this "Agreement"), made by
Babbages, Inc., a Texas corporation ("Debtor"), in favor of NationsBank of
Texas, N.A., a national banking association as administrative lender
("Administrative Lender") for NationsBank of Texas, N.A. and each other lender a
party to the Credit Agreement described below and Issuing Bank (singly, a
"Secured Party" and collectively, the "Secured Parties").
BACKGROUND.
Secured Parties, Debtor and Software Etc. Stores, Inc., a Delaware
corporation ("Software"), have entered into the Credit Agreement dated as of
August 28, 1995 (as amended or restated from time to time, the "Credit
Agreement"), which provides for a line of credit from Secured Parties and a
letter of credit facility from Issuing Bank. It is the intention of the parties
hereto that this Agreement create a first priority security interest securing
the payment of the obligations set forth in Section 1.2. It is a condition
precedent to the effectiveness of the Credit Agreement that Debtor shall have
executed and delivered this Security Agreement.
AGREEMENT.
NOW, THEREFORE, in consideration of the premises set forth herein and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and in order to induce Secured Parties to make the Advances
and Issuing Bank to issue Letters of Credit under the Credit Agreement, Debtor
hereby agrees with Secured Parties as follows:
ARTICLE I. GRANT
1.1 Assignment and Grant of Security. Debtor hereby assigns and pledges to
Administrative Lender, for its benefit and the ratable benefit of Secured
Parties, and hereby grants to Administrative Lender, for its benefit and the
ratable benefit of Secured Parties, a security interest in, the entire right,
title and interest of Debtor, in and to all of the following assets of Debtor,
whether now owned or hereafter acquired ("Collateral"):
(a) all inventory in all of its forms, wherever located, now or hereafter
existing, including, but not limited to, (i) all raw materials and work in
process therefor, finished goods thereof, and materials used or consumed in the
manufacture or production thereof, (ii) goods in which Debtor has an interest in
mass or a joint or other interest or right of any kind (including, without
limitation, goods in which Debtor has an interest or right as consignee), and
(iii) goods which are returned to or repossessed by Debtor, and all accessions
thereto and products thereof and documents therefor (any and all such inventory,
accessions, products and documents being the "Inventory");
<PAGE> 110
(b) all agreements with each manufacturer, vendor, sales agent, sales
representative and each other Person pursuant to which Debtor receives,
maintains, sells, leases or otherwise disposes of Inventory, including all
agreements permitting the use of each such Person's name, logo, trademarks,
trade names and advertising;
(c) all accounts, contract rights, deposit accounts, tax refunds and other
obligations of any kind owing to Debtor, now or hereafter existing, arising out
of or in connection with the sale or lease of goods or the rendering of
services, and all rights now or hereafter existing in and to all security
agreements, leases, and other contracts securing or otherwise relating to any
such accounts, contract rights, deposit accounts, tax refunds or obligations
(any and all such accounts, contract rights, deposit accounts, tax refunds and
obligations being the "Receivables");
(d) all instruments and letters of credit (each as defined in the Uniform
Commercial Code), and (whether or not included in such definitions) all
promissory notes, drafts, bills of exchange and trade acceptances arising out of
or in connection with the sale or lease of goods or the rendering of services
("Instruments");
(e) all documents, warehouse receipts, bills of lading, including, without
limitation, documents of title (as defined in the Uniform Commercial Code) or
other receipts covering, evidencing or representing any property described in
this Section 1.1 ("Documents");
(f) all rights, claims and benefits of Debtor against any Person arising
out of, relating to or in connection with any property described in this Section
1.1 purchased by Debtor, including, without limitation, any such rights, claims
or benefits against any Person storing or transporting any property described in
this Section 1.1;
(g) the balance of every deposit account of Debtor under control of
Administrative Lender and each Secured Party and each of their respective
Affiliates and any other claim of Debtor against Administrative Lender, Secured
Parties or their respective Affiliates, now or hereafter existing, liquidated or
unliquidated, and all money, Instruments, securities, Documents, Chattel Paper,
credits, claims, demands, income, and any other property, rights and interests
of Debtor which at any time shall come into the possession or custody or under
the control of Administrative Lender or any Secured Party or any of their
respective agents, affiliates or correspondents, for any purpose, and the
proceeds of any thereof (Administrative Lender, each Secured Party or their
respective Affiliates shall be deemed to have possession of any of the
Collateral in transit to or set apart for it or any of its agents, affiliates or
correspondents. The holder of any participation in the Obligations shall have a
right of setoff with respect to any obligation of such holder to Debtor to
satisfy the Obligations);
(h) all property similar to the above hereafter acquired by Debtor;
(i) all accessions to, substitutions for and replacements, proceeds and
products of any and all of the foregoing Collateral (including, without
limitation, proceeds which constitute property of the types described in this
Section 1.1) and, to the extent not otherwise included, all
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(i) payments under insurance (whether or not Administrative Lender or a Secured
Party is the loss payee thereof), or any indemnity, warranty or guaranty,
payable by reason of loss or damage to or otherwise with respect to any of the
foregoing Collateral and (ii) cash; and
(j) to the extent not otherwise included, all proceeds and products of the
foregoing.
1.2 Description of Obligations. This Agreement creates an enforceable
security interest securing the payment and performance of the Obligations,
including, but not limited to any and all obligations now or hereafter existing
of Debtor and each other Obligor under the Credit Agreement and other Loan
Documents, including any extensions, restatements, amendments and renewals
thereof, whether for principal, interest, fees, premium, expenses,
indemnification or otherwise (all such obligations of Debtor and each other
Obligor being the "Obligations"). Without limiting the generality of the
foregoing, to the fullest extent not prohibited by applicable Laws, this
Agreement secures the payment of all amounts which constitute part of the
Obligations and would be owed by Debtor and each other Obligor to Administrative
Lender and Secured Parties under any Loan Document, but for the fact that they
are unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving Debtor or any other Person
(including such amounts which would become due, or that would have secured but
for, the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding of Debtor or any other Obligor).
1.3 Debtor Remains Liable. Anything herein to the contrary notwithstanding,
(a) Debtor shall remain liable under the contracts and agreements included in
the Collateral to the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by Administrative Lender or any Secured Party of any
of the Rights hereunder shall not release Debtor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) neither Administrative Lender nor any Secured Party shall have any
obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement, nor shall Administrative Lender or any
Secured Party be obligated to perform any of the obligations or duties of Debtor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
1.4 Delivery of Instrument Collateral. After the occurrence of an Event of
Default, all certificates or instruments representing or evidencing the
Collateral and which are issued in the name of Debtor shall be delivered to and
held by or on behalf of Administrative Lender pursuant hereto and shall be in
suitable form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
reasonably satisfactory to Administrative Lender. If an Event of Default exists,
Administrative Lender shall have the right, at any time during such time in its
reasonable discretion and without notice to Debtor, to (a) require the issuance
in the name of Debtor and delivery to Administrative Lender of certificates or
instruments evidencing the interest owned by Debtor in the issuer of such
certificate or instrument and (b) transfer to or to register in the name of
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Administrative Lender or any of its nominees any or all of the Collateral. In
addition, Administrative Lender shall have the right at any time if an Event of
Default exists to exchange certificates or instruments representing or
evidencing Collateral for certificates or instruments of smaller or larger
denominations.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties. Debtor represents and warrants, with
respect to itself and the Collateral, as follows:
(a) All of the Inventory pledged by Debtor hereunder is located at the
places specified on Schedule 1 hereto (as supplemented from time to time by
Debtor by written notice to Administrative Lender) or Inventory in transit to a
place specified on Schedule 1 hereto (as supplemented from time to time by
Debtor by written notice to Administrative Lender) or Inventory in transit (i)
for sale to a third-party purchaser that upon such sale will become the obligor
under a Receivable and (ii) pursuant to a sale in the ordinary course of
Debtor's business. The chief place of business and chief executive office of
Debtor, and the office where Debtor keeps all of its records concerning the
Receivables, are located at 10741 King William Drive, Dallas, Texas 75220. All
promissory notes or other Instruments evidencing the Receivables have been
delivered and pledged to Administrative Lender duly endorsed and accompanied by
such duly executed instruments of transfer or assignment as are reasonably
necessary for such pledge, to be held as pledged collateral. Debtor has
possession and control of the Inventory pledged by it hereunder. The record
owners of the real estate upon which the Inventory is located are indicated on
Schedule 1.
(b) Debtor is the legal and beneficial owner of the Collateral pledged by
it free and clear of any Lien, security interest, option or other charge or
encumbrance except for the security interest created by this Agreement and
Permitted Liens. No effective financing statement or other similar document used
to perfect and preserve a security interest under the Laws of any jurisdiction
covering all or any part of the Collateral is on file in any recording office,
except (i) such as may have been filed in favor of Administrative Lender
relating to this Agreement, and (ii) financing statements for which Debtor will
provide to Administrative Lender on the Effective Date proper original executed
termination statements. As of the date hereof, Debtor (including any corporate
or partnership predecessor) has no trade names and has not existed or operated
under any name other than as indicated on Schedule 3, since August 28, 1990.
(c) This Agreement and the pledge of the Collateral pursuant hereto creates
a valid and, upon filing of financing statements in the Uniform Commercial Code
records described on Schedule 2, perfected first priority security interest in
the Collateral (other than Chattel Paper not in the possession of a Secured
Party), securing the payment of the Obligations, and all filings and other
actions necessary or desirable to perfect and protect such security interest and
such priority have been duly taken (or will be taken).
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(d) No consent of any other Person (including but not limited to any Person
described in Section 1.1 (b)) and no authorization, approval or other action by,
and no notice to or filing with, any Tribunal is required (i) for the pledge by
Debtor of the Collateral pledged by it hereunder, for the grant by Debtor of the
security interest granted hereby or for the execution, delivery or performance
of this Agreement by Debtor, (ii) for the perfection or maintenance of the
pledge, assignment and security interest created hereby (including the first
priority nature of such pledge, assignment and security interest) or (iii) for
the exercise by Administrative Lender of the Rights provided for in this
Agreement or the remedies in respect of the Collateral pursuant to this
Agreement.
(e) Debtor has delivered to Administrative Lender a complete and correct
copy of all insurance policies covering or related to Collateral for which
Debtor is an insured or for which Debtor is a loss payee.
(f) To the best of Debtor's knowledge, all Inventory of Debtor produced by
Debtor in the United States of America has been produced in compliance with the
Fair Labor Standards Act.
(g) Debtor's federal taxpayer identification number is 75-1864488.
(h) The value of the consideration received and to be received by Debtor is
reasonably worth at least as much as the liability and obligation of Debtor
hereunder, and such liability and obligation may reasonably be expected to
benefit Debtor directly or indirectly; Debtor is familiar with, and has
independently reviewed books and records regarding, the financial condition of
each other Obligor and is familiar with the value of any and all collateral
intended to be created as security for the payment of the Obligation; however,
Debtor is not relying on such financial condition or the collateral as an
inducement to enter into this Agreement; and none of any Secured Party or any
other Person has made any representation, warranty or statement to Debtor in
order to induce Debtor to execute this Agreement.
(i) There are no conditions precedent to the effectiveness of this
Agreement that have not been satisfied or waived.
ARTICLE III. COVENANTS
3.1 Further Assurances. (a) Debtor will use its best efforts to assure
that, with respect to each agreement intended to be Collateral entered into by
Debtor after the Effective Date, each such agreement either has no restriction
on the grant of a security interest in favor of Administrative Lender with
respect to such agreement or Debtor shall obtain the necessary consent to or
waiver of such restriction from any Person so as to enable Debtor to effectively
grant to Administrative Lender such security interest under this Agreement.
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(b) Debtor agrees that from time to time, at the expense of Debtor, Debtor
will promptly execute and deliver all further instruments and documents, and
take all further action, that may be reasonably necessary or desirable, or that
Administrative Lender may reasonably request, in order to perfect and protect
any pledge, assignment or security interest granted or purported to be granted
hereby, and the priority thereof, or to enable Administrative Lender to exercise
and enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, upon written request by
Administrative Lender, Debtor will: (i) mark conspicuously each of its records
pertaining to the Instruments with the following legend:
THIS INSTRUMENT IS SUBJECT TO A SECURITY INTEREST AND LIEN PURSUANT TO
A SECURITY AGREEMENT DATED AUGUST 28, 1995 (AS THE SAME MAY BE
MODIFIED OR RESTATED) MADE BY BABBAGES, INC., IN FAVOR OF NATIONSBANK
OF TEXAS, N.A., AS ADMINISTRATIVE LENDER, AND CERTAIN OTHER LENDERS.
or such other legend, in form and substance satisfactory to and as specified by
Administrative Lender, indicating that such Collateral is subject to the pledge,
assignment and security interest granted hereby; (ii) if any Collateral shall be
evidenced by a promissory note or other Instrument and be in an amount in excess
of $10,000, upon the occurrence of an Event of Default, deliver and pledge to
Administrative Lender hereunder such note or Instrument duly indorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance reasonably satisfactory to Administrative Lender; and (iii)
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be reasonably necessary
or desirable, or as Administrative Lender may reasonably request, in order to
perfect and preserve the pledge, assignment and security interest granted (and
the priority thereof) or purported to be granted hereby.
(c) Debtor hereby authorizes Administrative Lender to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Collateral without the signature of Debtor where permitted by
Law. A photocopy or other reproduction of this Agreement or any financing
statement covering the Collateral or any part thereof shall be sufficient as a
financing statement where permitted by Law.
(d) Debtor will furnish to Administrative Lender from time to time
statements and schedules further identifying and describing the Collateral
(including information in connection with the protection, preservation,
maintenance or enforcement of the security interest) and such other reports and
information in connection with the Collateral as Administrative Lender may
reasonably request, all in reasonable detail.
(e) Upon the occurrence of an Event of Default, Debtor shall not establish
or maintain any deposit or similar bank account not with the Administrative
Lender into which are deposited any Receivables or other Collateral or proceeds
of Collateral unless Administrative Lender receives prior written notice
thereof, Debtor executes and delivers to Administrative Lender
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assignments of such account in such form as Administrative Lender may request
and the financial institution in which such account will be maintained delivers
to Administrative Lender acknowledgments of the assignment of such account in
form and substance reasonably satisfactory to Administrative Lender.
3.2 Inventory.
(a) Debtor shall keep the Inventory pledged by it hereunder (other than
Inventory sold in the ordinary course of business) at the places therefor
specified in Section 2.1(a) or, upon thirty days' prior written notice to
Administrative Lender, at such other places in such jurisdiction where all
action required by Section 3.1 shall have been taken with respect to the
Inventory.
(b) Debtor shall pay promptly when due or before penalty all property and
other taxes, assessments and governmental charges or levies imposed upon, and
all claims (including claims for labor, materials and supplies) against, the
Collateral pledged by it hereunder, except such taxes as are being contested in
good faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP, except where the failure to file such
returns, pay such taxes or establish such reserves does not involve unpaid or
allegedly unpaid amounts, in aggregate, in excess of $250,000. Debtor shall
comply with all requirements of the Fair Labor Standards Act.
3.3 Insurance. Debtor shall, at its own expense, maintain insurance with
respect to the Collateral in accordance with the terms set forth in Section 5.5
of the Credit Agreement. If Debtor fails to perform or observe any applicable
covenants as to insurance on any of such Collateral, Administrative Lender may
at its own option obtain insurance on only Administrative Lender's interest in
such Collateral, any premium thereby paid by Administrative Lender to become
part of the Obligations, bear interest prior to the existence of an Event of
Default, at the then applicable Prime Rate Basis, and during the existence of an
Event of Default, at the lesser of (a) the Prime Rate Basis, plus 2% and (b) the
Highest Lawful Rate. In the event Administrative Lender maintains such
substitute insurance, the additional premium for such insurance shall be due on
demand and payable by Debtor to Administrative Lender in accordance with any
notice delivered to Debtor by Administrative Lender. Debtor hereby grants
Administrative Lender a security interest in any refunds of unearned premiums in
connection with any cancellation, adjustment or termination of any policy of
insurance required by Administrative Lender and in all proceeds of such
insurance and hereby appoints Administrative Lender its attorney-in-fact to
endorse any check or draft that may be payable to Debtor in order to collect
such refunds or proceeds. Any such sums collected by Administrative Lender shall
be credited, except to the extent applied to the purchase by Administrative
Lender of similar insurance, to any amounts then owing on the Obligations in
accordance with the Credit Agreement.
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3.4 Place of Perfection; Records; Collection of Receivables and
Instruments.
(a) Debtor shall keep its chief place of business and chief executive
office and the office where it keeps its records concerning the Receivables, at
the location therefor specified in Section 2.1(a) or at such other location as
Debtor shall have given written notice thereof to Administrative Lender no later
than thirty days prior to the moving thereto. Debtor will hold and preserve such
records and will permit representatives of Administrative Lender at any time
upon reasonable notice during normal business hours to inspect and make
abstracts from and copies of such records. After the occurrence of an Event of
Default, Debtor shall deliver to Administrative Lender all Instruments in an
amount in excess of $10,000 to be held by Administrative Lender as collateral.
(b) Except as otherwise provided in this Section 3.4(b), Debtor shall
continue to collect, at its own expense, all amounts due or to become due Debtor
under the Receivables and Instruments. In connection with such collections,
Debtor may take (and, at Administrative Lender's direction, shall take) such
action as Debtor or Administrative Lender may deem reasonably necessary or
advisable to enforce collection of the Receivables and Instruments; provided,
however, that Administrative Lender shall have the right (without notice to
Debtor) to notify the account debtors or obligors under any Receivables and
Instruments of the assignment of such Receivables and Instruments to
Administrative Lender and to direct such account debtors or obligors to make
payment of all amounts due or to become due to Debtor thereunder directly to
Administrative Lender and, at the expense of Debtor, to enforce collection of
any such Receivables and Instruments, and to adjust, settle or compromise the
amount or payment thereof, in the same manner and to the same extent as Debtor
might have done. All amounts and proceeds (including Instruments) received by
Debtor in respect of the Receivables and Instruments shall be received in trust
for the benefit of Administrative Lender hereunder, and if an Event of Default
exists, shall be segregated from other funds of Debtor and shall be forthwith
paid over to Administrative Lender in the same form as so received (with any
necessary indorsement) to be held as cash collateral and applied as provided
herein. Debtor shall not adjust, settle or compromise the amount or payment of
any Receivable or Instrument, release wholly or partly any account debtor or
obligor thereof, or allow any credit or discount thereon except in accordance
with Debtor's historical operating procedure.
3.5 Transfers and Other Liens. Debtor shall not (a) sell, assign (by
operation of Law or otherwise) or otherwise dispose of, or grant any option with
respect to, any of the Collateral, except as permitted under the Credit
Agreement and this Agreement, or (b) create or permit to exist any Lien,
security interest, option or other charge or encumbrance upon or with respect to
any of the Collateral, except for the security interest under this Agreement
(and except as provided for in the Credit Agreement). Debtor may sell Inventory
in the ordinary course of business.
3.6 Administrative Lender Appointed Attorney-in-Fact. Debtor hereby
irrevocably appoints Administrative Lender Debtor's attorney-in-fact, with full
authority in the place and stead of Debtor and in the name of Debtor or
otherwise to, after the occurrence of an Event of
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Default, take any action and to execute any instrument which Administrative
Lender may deem reasonably necessary or advisable to accomplish the purposes of
this Agreement, including, without limitation:
(a) to obtain and adjust insurance required to be paid to Administrative
Lender pursuant to Section 3.3,
(b) to ask, demand, collect, sue for, recover, compromise, receive and give
acquittance and receipts for moneys due and to become due under or in connection
with the Collateral,
(c) to receive, indorse, and collect any drafts or other Instruments,
documents and Chattel Paper, in connection therewith, and
(d) to file any claims or take any action or institute any proceedings
which Administrative Lender may deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce compliance with the terms and
conditions of any Collateral or the rights of Administrative Lender with respect
to any of the Collateral.
(e) DEBTOR HEREBY IRREVOCABLY APPOINTS ADMINISTRATIVE LENDER DEBTOR'S
ATTORNEY-IN-FACT TO, AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT, PERFORM ALL
OBLIGATIONS OF DEBTOR UNDER THIS AGREEMENT (PROVIDED ADMINISTRATIVE LENDER HAS
NO DUTY TO PERFORM ANY SUCH OBLIGATION) AND TO EXERCISE ALL OF ADMINISTRATIVE
LENDER'S RIGHTS HEREUNDER. EACH POWER OF ATTORNEY HEREIN GRANTED IS COUPLED WITH
AN INTEREST AND IS IRREVOCABLE PRIOR TO FINAL PAYMENT IN FULL OF THE
OBLIGATIONS.
ARTICLE IV. RIGHTS AND POWERS OF ADMINISTRATIVE LENDER
4.1 Administrative Lender May Perform. If Debtor fails to perform any
agreement contained herein, Administrative Lender may itself perform, or cause
performance of, such agreement, and the reasonable expenses of Administrative
Lender incurred in connection therewith shall be payable by Debtor under Section
4.5.
4.2 Administrative Lender's Duties. The powers conferred on Administrative
Lender hereunder are solely to protect its interest in the Collateral and shall
not impose any duty upon it or any Administrative Lender to exercise any such
powers. Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, neither Administrative
Lender nor any Secured Party shall have any duty as to any Collateral, as to
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
Administrative Lender or any Secured Party has or is deemed to have knowledge of
such matters, or as to the taking of any
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necessary steps to preserve rights against prior parties or any other rights
pertaining to any reasonable care in the custody and preservation of any
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which Administrative Lender accords its own
property. Except as provided in this Section 4.2, neither Administrative Lender
nor any Secured Party shall have any duty or liability to protect or preserve
any Collateral or to preserve rights pertaining thereto. Nothing contained in
this Agreement shall be construed as requiring or obligating Administrative
Lender or any Secured Party, and neither Administrative Lender nor any Secured
Party shall be required or obligated, to (a) present or file any claim or notice
or take any action, with respect to any Collateral or in connection therewith or
(b) notify Debtor of any decline in the value of any Collateral.
4.3 Remedies. If any Event of Default exists:
(a) Administrative Lender may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party on default under the
Uniform Commercial Code in effect in the State of Texas at that time (the "UCC")
(whether or not the Uniform Commercial Code applies to the affected Collateral),
and also may (i) require Debtor to, and Debtor hereby agrees that it will at its
expense and upon request of Administrative Lender forthwith, assemble all or
part of the Collateral as directed by Administrative Lender and make it
available to Administrative Lender at a place to be designated by Administrative
Lender which is reasonably convenient to both parties or (ii) without notice,
except as specified below, sell the Collateral or any portion thereof in one or
more parcels at public or private sale, at any of Administrative Lender's
offices or elsewhere, for cash, on credit or for future delivery, and upon such
other terms as Administrative Lender may deem commercially reasonable. Debtor
agrees that, to the extent notice of sale shall be required by Law, ten days'
prior notice to Debtor of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification. Administrative Lender shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Administrative Lender
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.
(b) All cash proceeds received by Administrative Lender upon any sale of,
collection of, or other realization upon, all or any part of the Collateral
shall be applied as follows:
First: To the payment of all reasonable out-of-pocket costs and expenses
incurred in connection with the sale of, collection of or other realization
upon Collateral, including reasonable attorneys' fees and disbursements;
Second: To the payment of the Obligations in such order and in such manner
consistent with applicable Laws as Administrative Lender in its reasonable
discretion shall decide (with Debtor remaining liable for any deficiency);
and
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Third: To the extent of the balance (if any) of such proceeds, to Debtor or
other Person legally entitled thereto.
(c) All payments received by Debtor under or in connection with any
Collateral shall be received in trust for the benefit of Administrative Lender,
shall be segregated from other funds of Debtor and shall be forthwith paid over
to Administrative Lender in the same form as so received (with any necessary
indorsement).
(d) Without limiting the generality of the foregoing or limiting in any way
the rights of Administrative Lender or any Secured Party under the Loan
Documents or otherwise under applicable Law, at any time after (i) the entire
principal balance of any Note shall have become due and payable (whether at
maturity, by acceleration or otherwise) and (ii) Administrative Lender shall
have provided to Borrower not less than ten days prior notice of Administrative
Lender's intention to apply for a receiver, to the extent not prohibited by
applicable Law, Administrative Lender shall be entitled to apply for and have a
receiver appointed under state or federal law by a court of competent
jurisdiction in any action taken by Administrative Lender to enforce its rights
and remedies hereunder and under the Loan Documents in order to manage, protect,
preserve, sell and otherwise dispose of all or any portion of the Collateral and
continue the operation of the business of Debtor, and to collect all revenues
and profits thereof and apply the same to the payment of all expenses and other
charges of such receivership, including the compensation of the receiver, and to
the payment of the Obligations until a sale or other disposition of such
Collateral shall be finally made and consummated. TO THE EXTENT NOT PROHIBITED
BY APPLICABLE LAW, DEBTOR HEREBY IRREVOCABLY CONSENTS TO AND WAIVES ANY RIGHT TO
OBJECT TO OR OTHERWISE CONTEST THE APPOINTMENT OF RECEIVER AS PROVIDED ABOVE.
DEBTOR (I) GRANTS SUCH WAIVER AND CONSENT KNOWINGLY AFTER HAVING DISCUSSED THE
IMPLICATIONS THEREOF WITH COUNSEL, (II) ACKNOWLEDGES THAT (A) THE UNCONTESTED
RIGHT TO HAVE A RECEIVER APPOINTED FOR THE FOREGOING PURPOSES IS CONSIDERED
ESSENTIAL BY ADMINISTRATIVE LENDER AND SECURED PARTIES IN CONNECTION WITH THE
ENFORCEMENT OF THEIR RIGHTS AND REMEDIES HEREUNDER AND UNDER THE LOAN DOCUMENTS,
AND (B) THE AVAILABILITY OF SUCH APPOINTMENT AS A REMEDY UNDER THE FOREGOING
CIRCUMSTANCES WAS A MATERIAL FACTOR IN INDUCING SECURED PARTIES TO MAKE THE
ADVANCES AND ISSUING BANK TO ISSUE LETTERS OF CREDIT; AND (III) TO THE EXTENT
NOT PROHIBITED BY APPLICABLE LAW, AGREES TO ENTER INTO ANY AND ALL STIPULATIONS
IN ANY LEGAL ACTIONS, OR AGREEMENTS OR OTHER INSTRUMENTS IN CONNECTION WITH THE
FOREGOING AND TO COOPERATE FULLY WITH ADMINISTRATIVE LENDER AND SECURED PARTIES
IN CONNECTION WITH THE ASSUMPTION AND EXERCISE OF CONTROL BY THE RECEIVER OVER
ALL OR ANY PORTION OF THE COLLATERAL. ADMINISTRATIVE LENDER ACKNOWLEDGES AND
AGREES THAT NOTHING IN THIS SECTION 4.3(e) SHALL BE DEEMED TO CONSTITUTE A
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WAIVER OF DEBTOR'S RIGHT TO FILE FOR PROTECTION UNDER ANY DEBTOR RELIEF LAW AT
ANY TIME PRIOR TO THE APPOINTMENT OF A RECEIVER.
4.4 Further Approvals Required.
(a) In connection with the exercise by Administrative Lender of its Rights
hereunder that effects the disposition of or use of any Collateral, it may be
necessary to obtain the prior consent or approval of Tribunals, parties to
licenses in favor of Debtor and other Persons to a transfer or assignment of
Collateral.
(b) Debtor hereby agrees to execute, deliver, and file, and hereby appoints
Administrative Lender as its attorney-in-fact to, if an Event of Default exists,
execute, deliver, and file on Debtor's behalf and in Debtor's name, all
applications, certificates, filings, instruments, and other documents (including
without limitation any application for an assignment or transfer of control or
ownership) that may be necessary, in Administrative Lender's reasonable opinion,
to obtain such consents, waivers, or approvals. Debtor further agrees to use its
best efforts to obtain the foregoing consents, waivers, and approvals, including
receipt of consents, waivers, and approvals under applicable agreements. Debtor
acknowledges that there is no adequate remedy at Law for failure by it to comply
with the provisions of this Section 4.4(b) and that such failure would not be
adequately compensable in damages, and therefore agrees, to the fullest extent
not prohibited by applicable Laws, that this Section 4.4(b) may be specifically
enforced.
4.5 INDEMNITY AND EXPENSES. (a) DEBTOR AGREES TO INDEMNIFY ADMINISTRATIVE
LENDER AND EACH OTHER SECURED PARTY FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES
AND LIABILITIES (INCLUDING REASONABLE ATTORNEYS' FEES) GROWING OUT OF OR
RESULTING FROM THIS AGREEMENT (INCLUDING, WITHOUT LIMITATION, ENFORCEMENT OF
THIS AGREEMENT), EXCEPT CLAIMS, LOSSES OR LIABILITIES RESULTING FROM
ADMINISTRATIVE LENDER'S OR SUCH SECURED PARTY'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
(b) Debtor will upon demand pay to Administrative Lender the amount of any
and all reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, which Administrative Lender may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the Rights of Administrative Lender hereunder or (iv) the failure by
Debtor to perform or observe any of the provisions hereof. Any payments so made
shall be a part of the Obligation, shall be payable upon demand, and shall bear
interest (i) if no Event of Default exists, at the Prime Rate Basis, and (ii) if
an Event of Default exists, at the lesser of (A) the Prime Rate Basis plus 2%
and (B) the Highest Lawful Rate.
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ARTICLE V. MISCELLANEOUS
5.1 Cumulative Rights. All Rights of Administrative Lender and Secured
Parties under the Loan Documents are cumulative of each other and of every other
Right which Administrative Lender and Secured Parties may otherwise have at Law
or in equity or under any other contract or other writing for the enforcement of
the security interest herein or the collection of the Obligations. The exercise
of one or more Rights shall not prejudice or impair the concurrent or subsequent
exercise of other Rights.
5.2 Modifications; Amendments; Schedules; Etc. No amendment or waiver of
any provision of this Agreement, and no consent to any departure by Debtor here
from, shall in any event be effective unless the same shall be in writing and
signed by Administrative Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. Upon any change in any material information disclosed on any schedule,
Debtor shall promptly prepare and deliver to Administrative Lender a replacement
schedule, indicating its effective date, in form and substance reasonably
satisfactory to Administrative Lender and amendments to and additional financing
statements as Administrative Lender may reasonably require to preserve and
perfect a first priority security interest in the Collateral.
5.3 Continuing Security Interest. This Agreement shall create a continuing
security interest in the Collateral and shall (a) remain in full force and
effect until the later of (i) the final payment in full of the Obligations and
all amounts payable under this Agreement and (ii) the expiration or termination
of the obligations of Secured Parties to extend credit to Debtor, (b) be binding
upon Debtor, its successors and assigns, and (c) inure to the benefit of, and be
enforceable by, Administrative Lender and its successors, transferees and
assigns. Upon any such termination, Administrative Lender will, at Debtor's
expense, execute and deliver to Debtor such documents as such Debtor shall
reasonably request to evidence such termination.
5.4 MANDATORY ARBITRATION. (a) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG
THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM
BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING
ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR
THE ARBITRATION OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION
SERVICES, INC. ("JAMS"), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT
OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY
ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO
THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING,
TO COMPEL
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ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY
COURT HAVING JURISDICTION OVER SUCH ACTION.
(b) Special Rules. The arbitration shall be conducted in Dallas, Texas and
administered by JAMS who will appoint an arbitrator; if JAMS is unable or
legally precluded from administering the arbitration, then the American
Arbitration Association will serve. All arbitration hearings will be commenced
within thirty days of the demand for arbitration; further, the arbitrator shall
only, upon a showing of cause, be permitted to extend the commencement of such
hearing for up to an additional thirty days.
(c) Reservations of Rights. Nothing in this Agreement or any other Loan
Document shall be deemed to (i) limit the applicability of any otherwise
applicable statutes of limitation or repose and any waivers contained in this
Agreement; or (ii) be a waiver by Administrative Lender of the protection
afforded to it by 12 U.S.C. Section 91 or any substantially equivalent state
law; or (iii) limit the right of Administrative Lender hereto (A) to exercise
self help remedies such as (but not limited to) setoff, or (B) to foreclose
against any real or personal property collateral, or (C) to obtain from a court
provisional or ancillary remedies such as (but not limited to) injunctive relief
or the appointment of a receiver. Administrative Lender may exercise such self
help rights, foreclose upon such property, or obtain such provisional or
ancillary remedies before, during or after the pendency of any arbitration
proceeding brought pursuant to this Agreement. At Administrative Lender's
option, foreclosure under a deed of trust or mortgage may be accomplished by any
of the following: the exercise of a power of sale under the deed of trust or
mortgage, or by judicial sale under the deed of trust or mortgage, or by
judicial foreclosure. Neither this exercise of self help remedies nor the
institution or maintenance of an action for foreclosure or provisional or
ancillary remedies shall constitute a waiver of the right of any party,
including the claimant in any such action, to arbitrate the merits of the
controversy or claim occasioning resort to such remedies.
5.5 GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THAT THE
VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES
HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF TEXAS. UNLESS OTHERWISE DEFINED HEREIN OR
IN THE CREDIT AGREEMENT, TERMS USED IN ARTICLE 9 OF THE UCC ARE USED HEREIN AS
THEREIN DEFINED.
5.6 WAIVER OF JURY TRIAL. ADMINISTRATIVE LENDER AND DEBTOR HEREBY WAIVE
TRIAL BY JURY IN ANY JUDICIAL PROCEEDINGS INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER (WHETHER IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED
HEREUNDER.
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5.7 Administrative Lender's Right to Use Agents. Administrative Lender may
exercise its Rights under this Agreement through an agent or other designee.
5.8 No Interference, Compensation or Expense. Administrative Lender may
exercise its Rights under this Agreement without payment of any rent, license
fee or compensation of any kind to Debtor.
5.9 Waivers of Rights Inhibiting Enforcement. Debtor waives (a) any claim
that, as to any part of the Collateral, a public sale, should Administrative
Lender elect so to proceed, is, in and of itself, not a commercially reasonable
method of sale for such Collateral, (b) except as otherwise provided in this
Agreement, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE OR JUDICIAL HEARING
IN CONNECTION WITH ADMINISTRATIVE LENDER'S DISPOSITION OF ANY OF THE COLLATERAL
INCLUDING ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR
REMEDIES and (c) all rights of redemption, appraisal or valuation.
5.10 Notices and Deliveries.
(a) Manner of Delivery. All notices, communications and materials to be
given or delivered pursuant to this Agreement shall, except in those cases where
giving notice by telephone is expressly permitted, be given or delivered in
writing. All written notices, communications and materials shall be sent by
registered or certified mail, postage prepaid, return receipt requested, by
telecopier, by recognized overnight courier or delivered by hand. In the event
of a discrepancy between any telephonic notice and any written confirmation
thereof, such written confirmation shall be deemed the effective notice except
to the extent Administrative Lender or Debtor has acted in reliance on such
telephonic notice.
(b) Addresses. All notices, communications and materials to be given or
delivered pursuant to this Agreement shall be given or delivered at the
following respective addresses and telecopier and telephone numbers and to the
attention of the following individuals or departments:
(i) if to Debtor, to it at:
Babbages, Inc.
10741 King William Drive
Dallas, Texas 75220
Telephone No.: (214) 401-9000
Telecopier No.: (214) 401-9002
Attention: Opal P. Ferraro
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(ii) if to Administrative Lender, to it at:
NationsBank of Texas, N.A.
NationsBank Plaza
901 Main Street
7th Floor
Dallas, Texas 75202
Telephone No.: (214) 508-0310
Telecopier No.: (214) 508-0388
Attention: Commercial Banking
or at such other address or, telecopier or telephone number or to the attention
of such other individual or department as the party to which such information
pertains may hereafter specify for the purpose in a notice to the other
specifically captioned "Notice of Change of Address".
(c) Effectiveness. Each notice, communication and any material to be given
or delivered to Administrative Lender or Debtor pursuant to this Agreement shall
be effective or deemed delivered or furnished (i) if sent by certified mail,
return receipt requested, on the fifth Business Day after such notice,
communication or material is deposited in the mail, addressed as above provided,
(ii) if sent by telecopier, when such notice, communication or material is
transmitted to the appropriate number determined as above provided in this
Section 5.10 and the appropriate receipt is received or otherwise acknowledged,
(iii) if sent by hand delivery or overnight courier, when left at the address of
the addressee addressed as above provided, and (iv) if given by telephone, when
communicated to the individual or any member of the department specified as the
individual or department to whose attention notices, communications and
materials are to be given or delivered except that notices of a change of
address, telecopier or telephone number or individual or department to whose
attention notices, communications and materials are to be given or delivered
shall not be effective until received.
5.11 Successors and Assigns. All of the provisions of this Agreement shall
be binding and inure to the benefit of the parties thereto and their respective
successors and assigns.
5.12 Loan Document. This Agreement is a Loan Document executed pursuant to
the Credit Agreement and shall (unless otherwise expressly indicated herein) be
construed, administered and applied in accordance with the terms and provisions
thereof.
5.13 Definitions. Capitalized terms not otherwise defined herein have the
meaning specified in the Credit Agreement and, to the extent of any conflict,
terms as defined in the Credit Agreement shall control (provided, that a more
expansive or explanatory definition shall not be deemed a conflict).
5.14 Severability. If any provision of any Loan Document is held to be
illegal, invalid, or unenforceable under present or future Laws during the term
thereof, such provision shall be
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<PAGE> 125
fully severable, the appropriate Loan Document shall be construed and enforced
as if such illegal, invalid, or unenforceable provision had never comprised a
part thereof, and the remaining provisions thereof shall remain in full force
and effect and shall not be affected by the illegal, invalid, or unenforceable
provision or by its severance therefrom. Furthermore, in lieu of such illegal,
invalid, or unenforceable provision there shall be added automatically as a part
of such Loan Document a legal, valid, and enforceable provision as similar in
terms to the illegal, invalid, or unenforceable provision as may be possible.
5.15 Obligations Not Affected. To the fullest extent permitted by
applicable Law, the obligations of Debtor under this Agreement shall remain in
full force and effect without regard to, and shall not be impaired or affected
by:
(a) any amendment or modification or addition or supplement to any Loan
Document, any instrument delivered in connection therewith or any assignment or
transfer thereof;
(b) any exercise, non-exercise, or waiver by Administrative Lender or any
Secured Party of any Right, remedy, power or privilege under or in respect of,
or any release of any guaranty, any collateral or the Collateral (except with
respect to Collateral released by Administrative Lender from the Lien of this
Agreement) or any part thereof provided pursuant to, this Agreement or any Loan
Document;
(c) any waiver, consent, extension, indulgence or other action or inaction
in respect of this Agreement or any Loan Document or any assignment or transfer
of any thereof; or
(d) any bankruptcy, insolvency, reorganization, arrangement, readjustment,
composition, liquidation or the like of Debtor, or any other Person, whether or
not Debtor shall have notice or knowledge of any of the foregoing.
5.16 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.
5.17 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE OTHER LOAN
DOCUMENTS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
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<PAGE> 126
IN WITNESS WHEREOF, Debtor and Administrative Lender have caused this
Agreement to be duly executed and delivered as of the date first above written.
DEBTOR:
BABBAGES, INC.
By: _______________________________
Opal P. Ferraro
Vice President & Treasurer
ADMINISTRATIVE LENDER:
NATIONSBANK OF TEXAS, N.A.
By: _______________________________
Frank Izzo, Vice President
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<PAGE> 127
EXHIBIT E
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITY AGREEMENT
dated as of August 28, 1995
Between
SOFTWARE ETC. STORES, INC.
as Debtor
and
NATIONSBANK OF TEXAS, N.A.
as Administrative Lender
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 128
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I. GRANT
1.1 Assignment and Grant of Security............................................ 1
1.2 Description of Obligations.................................................. 3
1.3 Debtor Remains Liable....................................................... 3
1.4 Delivery of Instrument Collateral........................................... 3
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties.............................................. 4
ARTICLE III. COVENANTS
3.1 Further Assurances.......................................................... 5
3.2 Inventory................................................................... 7
3.3 Insurance................................................................... 7
3.4 Place of Perfection; Records; Collection of Receivables and Instruments..... 8
3.5 Transfers and Other Liens................................................... 8
3.6 Administrative Lender Appointed Attorney-in-Fact............................ 8
ARTICLE IV. RIGHTS AND POWERS OF ADMINISTRATIVE LENDER
4.1 Administrative Lender May Perform........................................... 9
4.2 Administrative Lender's Duties.............................................. 9
4.3 Remedies.................................................................... 10
4.4 Further Approvals Required.................................................. 12
4.5 INDEMNITY AND EXPENSES...................................................... 12
ARTICLE V. MISCELLANEOUS
5.1 Cumulative Rights........................................................... 13
5.2 Modifications; Amendments; Schedules; Etc. ................................. 13
5.3 Continuing Security Interest................................................ 13
5.4 MANDATORY ARBITRATION....................................................... 13
5.5 GOVERNING LAW; TERMS........................................................ 14
5.6 WAIVER OF JURY TRIAL........................................................ 14
5.7 Administrative Lender's Right to Use Agents................................. 15
5.8 No Interference, Compensation or Expense.................................... 15
5.9 Waivers of Rights Inhibiting Enforcement.................................... 15
5.10 Notices and Deliveries...................................................... 15
(a) Manner of Delivery...................................................... 15
</TABLE>
-i-
<PAGE> 129
<TABLE>
<S> <C> <C>
(b) Addresses............................................................... 15
(c) Effectiveness........................................................... 16
5.11 Successors and Assigns...................................................... 16
5.12 Loan Document............................................................... 16
5.13 Definitions................................................................. 16
5.14 Severability................................................................ 16
5.15 Obligations Not Affected.................................................... 17
5.16 Counterparts................................................................ 17
5.17 ENTIRE AGREEMENT............................................................ 17
</TABLE>
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SCHEDULES:
Schedule 1 -- Inventory Locations
Schedule 2 -- Filing Locations
Schedule 3 -- Trade and Assumed Names
-iii-
<PAGE> 131
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of August 28, 1995 (this "Agreement"), made by
Software Etc. Stores, Inc., a Delaware corporation ("Debtor"), in favor of
NationsBank of Texas, N.A., a national banking association as administrative
lender ("Administrative Lender") for NationsBank of Texas, N.A. and each other
lender a party to the Credit Agreement described below and Issuing Bank (singly,
a "Secured Party" and collectively, the "Secured Parties").
BACKGROUND.
Secured Parties, Debtor and Software Etc. Stores, Inc., a Delaware
corporation ("Software"), have entered into the Credit Agreement dated as of
August 28, 1995 (as amended or restated from time to time, the " Credit
Agreement"), which provides for a line of credit from Secured Parties and a
letter of credit facility from Issuing Bank. It is the intention of the parties
hereto that this Agreement create a first priority security interest securing
the payment of the obligations set forth in Section 1.2. It is a condition
precedent to the effectiveness of the Credit Agreement that Debtor shall have
executed and delivered this Security Agreement.
AGREEMENT.
NOW, THEREFORE, in consideration of the premises set forth herein and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and in order to induce Secured Parties to make the Advances
and Issuing Bank to issue Letters of Credit under the Credit Agreement, Debtor
hereby agrees with Secured Parties as follows:
ARTICLE I. GRANT
1.1 Assignment and Grant of Security. Debtor hereby assigns and pledges to
Administrative Lender, for its benefit and the ratable benefit of Secured
Parties, and hereby grants to Administrative Lender, for its benefit and the
ratable benefit of Secured Parties, a security interest in, the entire right,
title and interest of Debtor, in and to all of the following assets of Debtor,
whether now owned or hereafter acquired ("Collateral"):
(a) all inventory in all of its forms, wherever located, now or hereafter
existing, including, but not limited to, (i) all raw materials and work in
process therefor, finished goods thereof, and materials used or consumed in the
manufacture or production thereof, (ii) goods in which Debtor has an interest in
mass or a joint or other interest or right of any kind (including, without
limitation, goods in which Debtor has an interest or right as consignee), and
(iii) goods which are returned to or repossessed by Debtor, and all accessions
thereto and products thereof and documents therefor (any and all such inventory,
accessions, products and documents being the "Inventory");
<PAGE> 132
(b) all agreements with each manufacturer, vendor, sales agent, sales
representative and each other Person pursuant to which Debtor receives,
maintains, sells, leases or otherwise disposes of Inventory, including all
agreements permitting the use of each such Person's name, logo, trademarks,
trade names and advertising;
(c) all accounts, contract rights, deposit accounts, tax refunds and other
obligations of any kind owing to Debtor, now or hereafter existing, arising out
of or in connection with the sale or lease of goods or the rendering of
services, and all rights now or hereafter existing in and to all security
agreements, leases, and other contracts securing or otherwise relating to any
such accounts, contract rights, deposit accounts, tax refunds or obligations
(any and all such accounts, contract rights, deposit accounts, tax refunds and
obligations being the "Receivables");
(d) all instruments and letters of credit (each as defined in the Uniform
Commercial Code), and (whether or not included in such definitions) all
promissory notes, drafts, bills of exchange and trade acceptances arising out of
or in connection with the sale or lease of goods or the rendering of services
("Instruments");
(e) all documents, warehouse receipts, bills of lading, including, without
limitation, documents of title (as defined in the Uniform Commercial Code) or
other receipts covering, evidencing or representing any property described in
this Section 1.1 ("Documents");
(f) all rights, claims and benefits of Debtor against any Person arising
out of, relating to or in connection with any property described in this Section
1.1 purchased by Debtor, including, without limitation, any such rights, claims
or benefits against any Person storing or transporting any property described in
this Section 1.1;
(g) the balance of every deposit account of Debtor under control of
Administrative Lender and each Secured Party and each of their respective
Affiliates and any other claim of Debtor against Administrative Lender, Secured
Parties or their respective Affiliates, now or hereafter existing, liquidated or
unliquidated, and all money, Instruments, securities, Documents, Chattel Paper,
credits, claims, demands, income, and any other property, rights and interests
of Debtor which at any time shall come into the possession or custody or under
the control of Administrative Lender or any Secured Party or any of their
respective agents, affiliates or correspondents, for any purpose, and the
proceeds of any thereof (Administrative Lender, each Secured Party or their
respective Affiliates shall be deemed to have possession of any of the
Collateral in transit to or set apart for it or any of its agents, affiliates or
correspondents. The holder of any participation in the Obligations shall have a
right of setoff with respect to any obligation of such holder to Debtor to
satisfy the Obligations);
(h) all property similar to the above hereafter acquired by Debtor;
(i) all accessions to, substitutions for and replacements, proceeds and
products of any and all of the foregoing Collateral (including, without
limitation, proceeds which constitute property of the types described in this
Section 1.1) and, to the extent not otherwise included, all
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(i) payments under insurance (whether or not Administrative Lender or a Secured
Party is the loss payee thereof), or any indemnity, warranty or guaranty,
payable by reason of loss or damage to or otherwise with respect to any of the
foregoing Collateral and (ii) cash; and
(j) to the extent not otherwise included, all proceeds and products of the
foregoing.
1.2 Description of Obligations. This Agreement creates an enforceable
security interest securing the payment and performance of the Obligations,
including, but not limited to any and all obligations now or hereafter existing
of Debtor and each other Obligor under the Credit Agreement and other Loan
Documents, including any extensions, restatements, amendments and renewals
thereof, whether for principal, interest, fees, premium, expenses,
indemnification or otherwise (all such obligations of Debtor and each other
Obligor being the "Obligations"). Without limiting the generality of the
foregoing, to the fullest extent not prohibited by applicable Laws, this
Agreement secures the payment of all amounts which constitute part of the
Obligations and would be owed by Debtor and each other Obligor to Administrative
Lender and Secured Parties under any Loan Document, but for the fact that they
are unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving Debtor or any other Person
(including such amounts which would become due, or that would have secured but
for, the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding of Debtor or any other Obligor).
1.3 Debtor Remains Liable. Anything herein to the contrary notwithstanding,
(a) Debtor shall remain liable under the contracts and agreements included in
the Collateral to the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by Administrative Lender or any Secured Party of any
of the Rights hereunder shall not release Debtor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) neither Administrative Lender nor any Secured Party shall have any
obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement, nor shall Administrative Lender or any
Secured Party be obligated to perform any of the obligations or duties of Debtor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
1.4 Delivery of Instrument Collateral. After the occurrence of an Event of
Default, all certificates or instruments representing or evidencing the
Collateral and which are issued in the name of Debtor shall be delivered to and
held by or on behalf of Administrative Lender pursuant hereto and shall be in
suitable form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
reasonably satisfactory to Administrative Lender. If an Event of Default exists,
Administrative Lender shall have the right, at any time during such time in its
reasonable discretion and without notice to Debtor, to (a) require the issuance
in the name of Debtor and delivery to Administrative Lender of certificates or
instruments evidencing the interest owned by Debtor in the issuer of such
certificate or instrument and (b) transfer to or to register in the name of
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Administrative Lender or any of its nominees any or all of the Collateral. In
addition, Administrative Lender shall have the right at any time if an Event of
Default exists to exchange certificates or instruments representing or
evidencing Collateral for certificates or instruments of smaller or larger
denominations.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties. Debtor represents and warrants, with
respect to itself and the Collateral, as follows:
(a) All of the Inventory pledged by Debtor hereunder is located at the
places specified on Schedule 1 hereto (as supplemented from time to time by
Debtor by written notice to Administrative Lender) or Inventory in transit to a
place specified on Schedule I hereto (as supplemented from time to time by
Debtor by written notice to Administrative Lender) or Inventory in transit (i)
for sale to a third-party purchaser that upon such sale will become the obligor
under a Receivable and (ii) pursuant to a sale in the ordinary course of
Debtor's business. The chief place of business and chief executive office of
Debtor, and the office where Debtor keeps all of its records concerning the
Receivables, are located at 10741 King William Drive, Dallas, Texas 75220. All
promissory notes or other Instruments evidencing the Receivables have been
delivered and pledged to Administrative Lender duly endorsed and accompanied by
such duly executed instruments of transfer or assignment as are reasonably
necessary for such pledge, to be held as pledged collateral. Debtor has
possession and control of the Inventory pledged by it hereunder. The record
owners of the real estate upon which the Inventory is located are indicated on
Schedule 1.
(b) Debtor is the legal and beneficial owner of the Collateral pledged by
it free and clear of any Lien, security interest, option or other charge or
encumbrance except for the security interest created by this Agreement and
Permitted Liens. No effective financing statement or other similar document used
to perfect and preserve a security interest under the Laws of any jurisdiction
covering all or any part of the Collateral is on file in any recording office,
except (i) such as may have been filed in favor of Administrative Lender
relating to this Agreement, and (ii) financing statements for which Debtor will
provide to Administrative Lender on the Effective Date proper original executed
termination statements. As of the date hereof, Debtor (including any corporate
or partnership predecessor) has no trade names and has not existed or operated
under any name other than as indicated on Schedule 3, since August 28, 1990.
(c) This Agreement and the pledge of the Collateral pursuant hereto creates
a valid and, upon filing of financing statements in the Uniform Commercial Code
records described on Schedule 2, perfected first priority security interest in
the Collateral (other than Chattel Paper not in the possession of a Secured
Party), securing the payment of the Obligations, and all filings and other
actions necessary or desirable to perfect and protect such security interest and
such priority have been duly taken (or will be taken).
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(d) No consent of any other Person (including but not limited to any Person
described in Section 1.1(b)) and no authorization, approval or other action by,
and no notice to or filing with, any Tribunal is required (i) for the pledge by
Debtor of the Collateral pledged by it hereunder, for the grant by Debtor of the
security interest granted hereby or for the execution, delivery or performance
of this Agreement by Debtor, (ii) for the perfection or maintenance of the
pledge, assignment and security interest created hereby (including the first
priority nature of such pledge, assignment and security interest) or (iii) for
the exercise by Administrative Lender of the Rights provided for in this
Agreement or the remedies in respect of the Collateral pursuant to this
Agreement.
(e) Debtor has delivered to Administrative Lender a complete and correct
copy of all insurance policies covering or related to Collateral for which
Debtor is an insured or for which Debtor is a loss payee.
(f) To the best of Debtor's knowledge, all Inventory of Debtor produced by
Debtor in the United States of America has been produced in compliance with the
Fair Labor Standards Act.
(g) Debtor's federal taxpayer identification number is 41-1598682.
(h) The value of the consideration received and to be received by Debtor is
reasonably worth at least as much as the liability and obligation of Debtor
hereunder, and such liability and obligation may reasonably be expected to
benefit Debtor directly or indirectly; Debtor is familiar with, and has
independently reviewed books and records regarding, the financial condition of
each other Obligor and is familiar with the value of any and all collateral
intended to be created as security for the payment of the Obligation; however,
Debtor is not relying on such financial condition or the collateral as an
inducement to enter into this Agreement; and none of any Secured Party or any
other Person has made any representation, warranty or statement to Debtor in
order to induce Debtor to execute this Agreement.
(i) There are no conditions precedent to the effectiveness of this
Agreement that have not been satisfied or waived.
ARTICLE III. COVENANTS
3.1 Further Assurances. (a) Debtor will use its best efforts to assure
that, with respect to each agreement intended to be Collateral entered into by
Debtor after the Effective Date, each such agreement either has no restriction
on the grant of a security interest in favor of Administrative Lender with
respect to such agreement or Debtor shall obtain the necessary consent to or
waiver of such restriction from any Person so as to enable Debtor to effectively
grant to Administrative Lender such security interest under this Agreement.
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(b) Debtor agrees that from time to time, at the expense of Debtor, Debtor
will promptly execute and deliver all further instruments and documents, and
take all further action, that may be reasonably necessary or desirable, or that
Administrative Lender may reasonably request, in order to perfect and protect
any pledge, assignment or security interest granted or purported to be granted
hereby, and the priority thereof, or to enable Administrative Lender to exercise
and enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, upon written request by
Administrative Lender, Debtor will: (i) mark conspicuously each of its records
pertaining to the Instruments with the following legend:
THIS INSTRUMENT IS SUBJECT TO A SECURITY INTEREST AND LIEN PURSUANT TO
A SECURITY AGREEMENT DATED AUGUST 28, 1995 (AS THE SAME MAY BE MODIFIED
OR RESTATED) MADE BY SOFTWARE ETC. STORES, INC., IN FAVOR OF NATIONSBANK
OF TEXAS, N.A. AS ADMINISTRATIVE LENDER, AND CERTAIN OTHER LENDERS.
or such other legend, in form and substance satisfactory to and as specified by
Administrative Lender, indicating that such Collateral is subject to the pledge,
assignment and security interest granted hereby; (ii) if any Collateral shall be
evidenced by a promissory note or other Instrument and be in an amount in excess
of $10,000, upon the occurrence of an Event of Default, deliver and pledge to
Administrative Lender hereunder such note or Instrument duly indorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance reasonably satisfactory to Administrative Lender; and (iii)
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be reasonably necessary
or desirable, or as Administrative Lender may reasonably request, in order to
perfect and preserve the pledge, assignment and security interest granted (and
the priority thereof) or purported to be granted hereby.
(c) Debtor hereby authorizes Administrative Lender to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Collateral without the signature of Debtor where permitted by
Law. A photocopy or other reproduction of this Agreement or any financing
statement covering the Collateral or any part thereof shall be sufficient as a
financing statement where permitted by Law.
(d) Debtor will furnish to Administrative Lender from time to time
statements and schedules further identifying and describing the Collateral
(including information in connection with the protection, preservation,
maintenance or enforcement of the security interest) and such other reports and
information in connection with the Collateral as Administrative Lender may
reasonably request, all in reasonable detail.
(e) Upon the occurrence of an Event of Default, Debtor shall not establish
or maintain any deposit or similar bank account not with the Administrative
Lender into which are deposited any Receivables or other Collateral or proceeds
of Collateral unless Administrative Lender
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receives prior written notice thereof, Debtor executes and delivers to
Administrative Lender assignments of such account in such form as Administrative
Lender may request and the financial institution in which such account will be
maintained delivers to Administrative Lender acknowledgments of the assignment
of such account in form and substance reasonably satisfactory to Administrative
Lender.
3.2 Inventory.
(a) Debtor shall keep the Inventory pledged by it hereunder (other than
Inventory sold in the ordinary course of business) at the places therefor
specified in Section 2.1(a) or, upon thirty days' prior written notice to
Administrative Lender, at such other places in such jurisdiction where all
action required by Section 3.1 shall have been taken with respect to the
Inventory.
(b) Debtor shall pay promptly when due or before penalty all property and
other taxes, assessments and governmental charges or levies imposed upon, and
all claims (including claims for labor, materials and supplies) against, the
Collateral pledged by it hereunder, except such taxes as are being contested in
good faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP, except where the failure to file such
returns, pay such taxes or establish such reserves does not involve unpaid or
allegedly unpaid amounts, in aggregate, in excess of $250,000. Debtor shall
comply with all requirements of the Fair Labor Standards Act.
3.3 Insurance. Debtor shall, at its own expense, maintain insurance with
respect to the Collateral in accordance with the terms set forth in Section 5.5
of the Credit Agreement. If Debtor fails to perform or observe any applicable
covenants as to insurance on any of such Collateral, Administrative Lender may
at its own option obtain insurance on only Administrative Lender's interest in
such Collateral, any premium thereby paid by Administrative Lender to become
part of the Obligations, bear interest prior to the existence of an Event of
Default, at the then applicable Prime Rate Basis, and during the existence of an
Event of Default, at the lesser of (a) the Prime Rate Basis, plus 2% and (b) the
Highest Lawful Rate. In the event Administrative Lender maintains such
substitute insurance, the additional premium for such insurance shall be due on
demand and payable by Debtor to Administrative Lender in accordance with any
notice delivered to Debtor by Administrative Lender. Debtor hereby grants
Administrative Lender a security interest in any refunds of unearned premiums in
connection with any cancellation, adjustment or termination of any policy of
insurance required by Administrative Lender and in all proceeds of such
insurance and hereby appoints Administrative Lender its attorney-in-fact to
endorse any check or draft that may be payable to Debtor in order to collect
such refunds or proceeds. Any such sums collected by Administrative Lender shall
be credited, except to the extent applied to the purchase by Administrative
Lender of similar insurance, to any amounts then owing on the Obligations in
accordance with the Credit Agreement.
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3.4 Place of Perfection; Records; Collection of Receivables and
Instruments.
(a) Debtor shall keep its chief place of business and chief executive
office and the office where it keeps its records concerning the Receivables, at
the location therefor specified in Section 2.1(a) or at such other location as
Debtor shall have given written notice thereof to Administrative Lender no later
than thirty days prior to the moving thereto. Debtor will hold and preserve such
records and will permit representatives of Administrative Lender at any time
upon reasonable notice during normal business hours to inspect and make
abstracts from and copies of such records. After the occurrence of an Event of
Default, Debtor shall deliver to Administrative Lender all Instruments in an
amount in excess of $10,000 to be held by Administrative Lender as collateral.
(b) Except as otherwise provided in this Section 3.4(b), Debtor shall
continue to collect, at its own expense, all amounts due or to become due Debtor
under the Receivables and Instruments. In connection with such collections,
Debtor may take (and, at Administrative Lender's direction, shall take) such
action as Debtor or Administrative Lender may deem reasonably necessary or
advisable to enforce collection of the Receivables and Instruments; provided,
however, that Administrative Lender shall have the right (without notice to
Debtor) to notify the account debtors or obligors under any Receivables and
Instruments of the assignment of such Receivables and Instruments to
Administrative Lender and to direct such account debtors or obligors to make
payment of all amounts due or to become due to Debtor thereunder directly to
Administrative Lender and, at the expense of Debtor, to enforce collection of
any such Receivables and Instruments, and to adjust, settle or compromise the
amount or payment thereof, in the same manner and to the same extent as Debtor
might have done. All amounts and proceeds (including Instruments) received by
Debtor in respect of the Receivables and Instruments shall be received in trust
for the benefit of Administrative Lender hereunder, and if an Event of Default
exists, shall be segregated from other funds of Debtor and shall be forthwith
paid over to Administrative Lender in the same form as so received (with any
necessary indorsement) to be held as cash collateral and applied as provided
herein. Debtor shall not adjust, settle or compromise the amount or payment of
any Receivable or Instrument, release wholly or partly any account debtor or
obligor thereof, or allow any credit or discount thereon except in accordance
with Debtor's historical operating procedure.
3.5 Transfers and Other Liens. Debtor shall not (a) sell, assign (by
operation of Law or otherwise) or otherwise dispose of, or grant any option with
respect to, any of the Collateral, except as permitted under the Credit
Agreement and this Agreement, or (b) create or permit to exist any Lien,
security interest, option or other charge or encumbrance upon or with respect to
any of the Collateral, except for the security interest under this Agreement
(and except as provided for in the Credit Agreement). Debtor may sell Inventory
in the ordinary course of business.
3.6 Administrative Lender Appointed Attorney-in-Fact. Debtor hereby
irrevocably appoints Administrative Lender Debtor's attorney-in-fact, with full
authority in the place and stead of Debtor and in the name of Debtor or
otherwise to, after the occurrence of an Event of
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Default, take any action and to execute any instrument which Administrative
Lender may deem reasonably necessary or advisable to accomplish the purposes of
this Agreement, including, without limitation:
(a) to obtain and adjust insurance required to be paid to Administrative
Lender pursuant to Section 3.3,
(b) to ask, demand, collect, sue for, recover, compromise, receive and give
acquittance and receipts for moneys due and to become due under or in connection
with the Collateral,
(c) to receive, indorse, and collect any drafts or other Instruments,
documents and Chattel Paper, in connection therewith, and
(d) to file any claims or take any action or institute any proceedings
which Administrative Lender may deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce compliance with the terms and
conditions of any Collateral or the rights of Administrative Lender with respect
to any of the Collateral.
(e) DEBTOR HEREBY IRREVOCABLY APPOINTS ADMINISTRATIVE LENDER DEBTOR'S
ATTORNEY-IN-FACT TO, AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT, PERFORM ALL
OBLIGATIONS OF DEBTOR UNDER THIS AGREEMENT (PROVIDED ADMINISTRATIVE LENDER HAS
NO DUTY TO PERFORM ANY SUCH OBLIGATION) AND TO EXERCISE ALL OF ADMINISTRATIVE
LENDER'S RIGHTS HEREUNDER. EACH POWER OF ATTORNEY HEREIN GRANTED IS COUPLED WITH
AN INTEREST AND IS IRREVOCABLE PRIOR TO FINAL PAYMENT IN FULL OF THE
OBLIGATIONS.
ARTICLE IV. RIGHTS AND POWERS OF ADMINISTRATIVE LENDER
4.1 Administrative Lender May Perform. If Debtor fails to perform any
agreement contained herein, Administrative Lender may itself perform, or cause
performance of, such agreement, and the reasonable expenses of Administrative
Lender incurred in connection therewith shall be payable by Debtor under Section
4.5.
4.2 Administrative Lender's Duties. The powers conferred on Administrative
Lender hereunder are solely to protect its interest in the Collateral and shall
not impose any duty upon it or any Administrative Lender to exercise any such
powers. Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, neither Administrative
Lender nor any Secured Party shall have any duty as to any Collateral, as to
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
Administrative Lender or any Secured Party has or is deemed to have knowledge of
such matters, or as to the taking of any
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necessary steps to preserve rights against prior parties or any other rights
pertaining to any reasonable care in the custody and preservation of any
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which Administrative Lender accords its own
property. Except as provided in this Section 4.2, neither Administrative Lender
nor any Secured Party shall have any duty or liability to protect or preserve
any Collateral or to preserve rights pertaining thereto. Nothing contained in
this Agreement shall be construed as requiring or obligating Administrative
Lender or any Secured Party, and neither Administrative Lender nor any Secured
Party shall be required or obligated, to (a) present or file any claim or notice
or take any action, with respect to any Collateral or in connection therewith or
(b) notify Debtor of any decline in the value of any Collateral.
4.3 Remedies. If any Event of Default exists:
(a) Administrative Lender may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party on default under the
Uniform Commercial Code in effect in the State of Texas at that time (the "UCC")
(whether or not the Uniform Commercial Code applies to the affected Collateral),
and also may (i) require Debtor to, and Debtor hereby agrees that it will at its
expense and upon request of Administrative Lender forthwith, assemble all or
part of the Collateral as directed by Administrative Lender and make it
available to Administrative Lender at a place to be designated by Administrative
Lender which is reasonably convenient to both parties or (ii) without notice,
except as specified below, sell the Collateral or any portion thereof in one or
more parcels at public or private sale, at any of Administrative Lender's
offices or elsewhere, for cash, on credit or for future delivery, and upon such
other terms as Administrative Lender may deem commercially reasonable. Debtor
agrees that, to the extent notice of sale shall be required by Law, ten days'
prior notice to Debtor of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification. Administrative Lender shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Administrative Lender
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.
(b) All cash proceeds received by Administrative Lender upon any sale of,
collection of, or other realization upon, all or any part of the Collateral
shall be applied as follows:
First: To the payment of all reasonable out-of-pocket costs and expenses
incurred in connection with the sale of, collection of or other realization
upon Collateral, including reasonable attorneys' fees and disbursements;
Second: To the payment of the Obligations in such order and in such manner
consistent with applicable Laws as Administrative Lender in its reasonable
discretion shall decide (with Debtor remaining liable for any deficiency);
and
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Third: To the extent of the balance (if any) of such proceeds, to Debtor or
other Person legally entitled thereto.
(c) All payments received by Debtor under or in connection with any
Collateral shall be received in trust for the benefit of Administrative Lender,
shall be segregated from other funds of Debtor and shall be forthwith paid over
to Administrative Lender in the same form as so received (with any necessary
indorsement).
(d) Without limiting the generality of the foregoing or limiting in any way
the rights of Administrative Lender or any Secured Party under the Loan
Documents or otherwise under applicable Law, at any time after (i) the entire
principal balance of any Note shall have become due and payable (whether at
maturity, by acceleration or otherwise) and (ii) Administrative Lender shall
have provided to Borrower not less than ten days prior notice of Administrative
Lender's intention to apply for a receiver, to the extent not prohibited by
applicable Law, Administrative Lender shall be entitled to apply for and have a
receiver appointed under state or federal law by a court of competent
jurisdiction in any action taken by Administrative Lender to enforce its rights
and remedies hereunder and under the Loan Documents in order to manage, protect,
preserve, sell and otherwise dispose of all or any portion of the Collateral and
continue the operation of the business of Debtor, and to collect all revenues
and profits thereof and apply the same to the payment of all expenses and other
charges of such receivership, including the compensation of the receiver, and to
the payment of the Obligations until a sale or other disposition of such
Collateral shall be finally made and consummated. TO THE EXTENT NOT PROHIBITED
BY APPLICABLE LAW, DEBTOR HEREBY IRREVOCABLY CONSENTS TO AND WAIVES ANY RIGHT TO
OBJECT TO OR OTHERWISE CONTEST THE APPOINTMENT OF RECEIVER AS PROVIDED ABOVE.
DEBTOR (I) GRANTS SUCH WAIVER AND CONSENT KNOWINGLY AFTER HAVING DISCUSSED THE
IMPLICATIONS THEREOF WITH COUNSEL, (II)ACKNOWLEDGES THAT (A) THE UNCONTESTED
RIGHT TO HAVE A RECEIVER APPOINTED FOR THE FOREGOING PURPOSES IS CONSIDERED
ESSENTIAL BY ADMINISTRATIVE LENDER AND SECURED PARTIES IN CONNECTION WITH THE
ENFORCEMENT OF THEIR RIGHTS AND REMEDIES HEREUNDER AND UNDER THE LOAN DOCUMENTS,
AND (B) THE AVAILABILITY OF SUCH APPOINTMENT AS A REMEDY UNDER THE FOREGOING
CIRCUMSTANCES WAS A MATERIAL FACTOR IN INDUCING SECURED PARTIES TO MAKE THE
ADVANCES AND ISSUING BANK TO ISSUE LETTERS OF CREDIT; AND (III) TO THE EXTENT
NOT PROHIBITED BY APPLICABLE LAW, AGREES TO ENTER INTO ANY AND ALL STIPULATIONS
IN ANY LEGAL ACTIONS, OR AGREEMENTS OR OTHER INSTRUMENTS IN CONNECTION WITH THE
FOREGOING AND TO COOPERATE FULLY WITH ADMINISTRATIVE LENDER AND SECURED PARTIES
IN CONNECTION WITH THE ASSUMPTION AND EXERCISE OF CONTROL BY THE RECEIVER OVER
ALL OR ANY PORTION OF THE COLLATERAL. ADMINISTRATIVE LENDER ACKNOWLEDGES AND
AGREES THAT NOTHING IN THIS SECTION 4.3(e) SHALL BE DEEMED TO CONSTITUTE A
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WAIVER OF DEBTOR'S RIGHT TO FILE FOR PROTECTION UNDER ANY DEBTOR RELIEF LAW AT
ANY TIME PRIOR TO THE APPOINTMENT OF A RECEIVER.
4.4 Further Approvals Required.
(a) In connection with the exercise by Administrative Lender of its Rights
hereunder that effects the disposition of or use of any Collateral, it may be
necessary to obtain the prior consent or approval of Tribunals, parties to
licenses in favor of Debtor and other Persons to a transfer or assignment of
Collateral.
(b) Debtor hereby agrees to execute, deliver, and file, and hereby appoints
Administrative Lender as its attorney-in-fact to, if an Event of Default exists,
execute, deliver, and file on Debtor's behalf and in Debtor's name, all
applications, certificates, filings, instruments, and other documents (including
without limitation any application for an assignment or transfer of control or
ownership) that may be necessary, in Administrative Lender's reasonable opinion,
to obtain such consents, waivers, or approvals. Debtor further agrees to use its
best efforts to obtain the foregoing consents, waivers, and approvals, including
receipt of consents, waivers, and approvals under applicable agreements. Debtor
acknowledges that there is no adequate remedy at Law for failure by it to comply
with the provisions of this Section 4.4(b) and that such failure would not be
adequately compensable in damages, and therefore agrees, to the fullest extent
not prohibited by applicable Laws, that this Section 4.4(b) may be specifically
enforced.
4.5 INDEMNITY AND EXPENSES, (a) DEBTOR AGREES TO INDEMNIFY ADMINISTRATIVE
LENDER AND EACH OTHER SECURED PARTY FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES
AND LIABILITIES (INCLUDING REASONABLE ATTORNEYS' FEES) GROWING OUT OF OR
RESULTING FROM THIS AGREEMENT (INCLUDING, WITHOUT LIMITATION, ENFORCEMENT OF
THIS AGREEMENT), EXCEPT CLAIMS, LOSSES OR LIABILITIES RESULTING FROM
ADMINISTRATIVE LENDER'S OR SUCH SECURED PARTY'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
(b) Debtor will upon demand pay to Administrative Lender the amount of any
and all reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, which Administrative Lender may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the Rights of Administrative Lender hereunder or (iv) the failure by
Debtor to perform or observe any of the provisions hereof. Any payments so made
shall be a part of the Obligation, shall be payable upon demand, and shall bear
interest (i) if no Event of Default exists, at the Prime Rate Basis, and (ii) if
an Event of Default exists, at the lesser of (A) the Prime Rate Basis plus 2%
and (B) the Highest Lawful Rate.
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ARTICLE V. MISCELLANEOUS
5.1 Cumulative Rights. All Rights of Administrative Lender and Secured
Parties under the Loan Documents are cumulative of each other and of every other
Right which Administrative Lender and Secured Parties may otherwise have at Law
or in equity or under any other contract or other writing for the enforcement of
the security interest herein or the collection of the Obligations. The exercise
of one or more Rights shall not prejudice or impair the concurrent or subsequent
exercise of other Rights.
5.2 Modifications; Amendments; Schedules; Etc. No amendment or waiver of
any provision of this Agreement, and no consent to any departure by Debtor here
from, shall in any event be effective unless the same shall be in writing and
signed by Administrative Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. Upon any change in any material information disclosed on any schedule,
Debtor shall promptly prepare and deliver to Administrative Lender a replacement
schedule, indicating its effective date, in form and substance reasonably
satisfactory to Administrative Lender and amendments to and additional financing
statements as Administrative Lender may reasonably require to preserve and
perfect a first priority security interest in the Collateral.
5.3 Continuing Security Interest. This Agreement shall create a continuing
security interest in the Collateral and shall (a) remain in full force and
effect until the later of (i) the final payment in full of the Obligations and
all amounts payable under this Agreement and (ii) the expiration or termination
of the obligations of Secured Parties to extend credit to Debtor, (b) be binding
upon Debtor, its successors and assigns, and (c) inure to the benefit of, and be
enforceable by, Administrative Lender and its successors, transferees and
assigns. Upon any such termination, Administrative Lender will, at Debtor's
expense, execute and deliver to Debtor such documents as such Debtor shall
reasonably request to evidence such termination.
5.4 MANDATORY ARBITRATION. (a) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG
THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM
BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING
ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR
THE ARBITRATION OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION
SERVICES, INC. ("JAMS"), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT
OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY
ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO
THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING,
TO COMPEL
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ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY
COURT HAVING JURISDICTION OVER SUCH ACTION.
(b) Special Rules. The arbitration shall be conducted in Dallas, Texas and
administered by JAMS who will appoint an arbitrator; if JAMS is unable or
legally precluded from administering the arbitration, then the American
Arbitration Association will serve. All arbitration hearings will be commenced
within thirty days of the demand for arbitration; further, the arbitrator shall
only, upon a showing of cause, be permitted to extend the commencement of such
hearing for up to an additional thirty days.
(c) Reservations of Rights. Nothing in this Agreement or any other Loan
Document shall be deemed to (i) limit the applicability of any otherwise
applicable statutes of limitation or repose and any waivers contained in this
Agreement; or (ii) be a waiver by Administrative Lender of the protection
afforded to it by 12 U.S.C. Section 91 or any substantially equivalent state
law; or (iii) limit the right of Administrative Lender hereto (A) to exercise
self help remedies such as (but not limited to) setoff, or (B) to foreclose
against any real or personal property collateral, or (C) to obtain from a court
provisional or ancillary remedies such as (but not limited to) injunctive relief
or the appointment of a receiver. Administrative Lender may exercise such self
help rights, foreclose upon such property, or obtain such provisional or
ancillary remedies before, during or after the pendency of any arbitration
proceeding brought pursuant to this Agreement. At Administrative Lender's
option, foreclosure under a deed of trust or mortgage may be accomplished by any
of the following: the exercise of a power of sale under the deed of trust or
mortgage, or by judicial sale under the deed of trust or mortgage, or by
judicial foreclosure. Neither this exercise of self help remedies nor the
institution or maintenance of an action for foreclosure or provisional or
ancillary remedies shall constitute a waiver of the right of any party,
including the claimant in any such action, to arbitrate the merits of the
controversy or claim occasioning resort to such remedies.
5.5 GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THAT THE
VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES
HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF TEXAS. UNLESS OTHERWISE DEFINED HEREIN OR
IN THE CREDIT AGREEMENT, TERMS USED IN ARTICLE 9 OF THE UCC ARE USED HEREIN AS
THEREIN DEFINED.
5.6 WAIVER OF JURY TRIAL. ADMINISTRATIVE LENDER AND DEBTOR HEREBY WAIVE
TRIAL BY JURY IN ANY JUDICIAL PROCEEDINGS INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER (WHETHER IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED
HEREUNDER.
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5.7 Administrative Lender's Right to Use Agents. Administrative Lender may
exercise its Rights under this Agreement through an agent or other designee.
5.8 No Interference, Compensation or Expense. Administrative Lender may
exercise its Rights under this Agreement without payment of any rent, license
fee or compensation of any kind to Debtor.
5.9 Waivers of Rights Inhibiting Enforcement. Debtor waives (a) any claim
that, as to any part of the Collateral, a public sale, should Administrative
Lender elect so to proceed, is, in and of itself, not a commercially reasonable
method of sale for such Collateral, (b) except as otherwise provided in this
Agreement, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE OR JUDICIAL HEARING
IN CONNECTION WITH ADMINISTRATIVE LENDER'S DISPOSITION OF ANY OF THE COLLATERAL
INCLUDING ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR
REMEDIES and (c) all rights of redemption, appraisal or valuation.
5.10 Notices and Deliveries.
(a) Manner of Delivery. All notices, communications and materials to be
given or delivered pursuant to this Agreement shall, except in those cases where
giving notice by telephone is expressly permitted, be given or delivered in
writing. All written notices, communications and materials shall be sent by
registered or certified mail, postage prepaid, return receipt requested, by
telecopier, by recognized overnight courier or delivered by hand. In the event
of a discrepancy between any telephonic notice and any written confirmation
thereof, such written confirmation shall be deemed the effective notice except
to the extent Administrative Lender or Debtor has acted in reliance on such
telephonic notice.
(b) Addresses. All notices, communications and materials to be given or
delivered pursuant to this Agreement shall be given or delivered at the
following respective addresses and telecopier and telephone numbers and to the
attention of the following individuals or departments:
(i) if to Debtor, to it at:
Software Etc. Stores, Inc.
10741 King William Drive
Dallas, Texas 75220
Telephone No.: (214) 401-9000
Telecopier No.: (214) 401-9002
Attention: Opal P. Ferraro
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(ii) if to Administrative Lender, to it at:
NationsBank of Texas, N.A.
NationsBank Plaza
901 Main Street
7th Floor
Dallas, Texas 75202
Telephone No.: (214) 508-0310
Telecopier No.: (214) 508-0388
Attention: Commercial Banking
or at such other address or, telecopier or telephone number or to the attention
of such other individual or department as the party to which such information
pertains may hereafter specify for the purpose in a notice to the other
specifically captioned "Notice of Change of Address".
(c) Effectiveness. Each notice, communication and any material to be given
or delivered to Administrative Lender or Debtor pursuant to this Agreement shall
be effective or deemed delivered or furnished (i) if sent by certified mail,
return receipt requested, on the fifth Business Day after such notice,
communication or material is deposited in the mail, addressed as above provided,
(ii) if sent by telecopier, when such notice, communication or material is
transmitted to the appropriate number determined as above provided in this
Section 5.10 and the appropriate receipt is received or otherwise acknowledged,
(iii) if sent by hand delivery or overnight courier, when left at the address of
the addressee addressed as above provided, and (iv) if given by telephone, when
communicated to the individual or any member of the department specified as the
individual or department to whose attention notices, communications and
materials are to be given or delivered except that notices of a change of
address, telecopier or telephone number or individual or department to whose
attention notices, communications and materials are to be given or delivered
shall not be effective until received.
5.11 Successors and Assigns. All of the provisions of this Agreement shall
be binding and inure to the benefit of the parties thereto and their respective
successors and assigns.
5.12 Loan Document. This Agreement is a Loan Document executed pursuant to
the Credit Agreement and shall (unless otherwise expressly indicated herein) be
construed, administered and applied in accordance with the terms and provisions
thereof.
5.13 Definitions. Capitalized terms not otherwise defined herein have the
meaning specified in the Credit Agreement and, to the extent of any conflict,
terms as defined in the Credit Agreement shall control (provided, that a more
expansive or explanatory definition shall not be deemed a conflict).
5.14 Severability. If any provision of any Loan Document is held to be
illegal, invalid, or unenforceable under present or future Laws during the term
thereof, such provision shall be
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fully severable, the appropriate Loan Document shall be construed and enforced
as if such illegal, invalid, or unenforceable provision had never comprised a
part thereof, and the remaining provisions thereof shall remain in full force
and effect and shall not be affected by the illegal, invalid, or unenforceable
provision or by its severance therefrom. Furthermore, in lieu of such illegal,
invalid, or unenforceable provision there shall be added automatically as a part
of such Loan Document a legal, valid, and enforceable provision as similar in
terms to the illegal, invalid, or unenforceable provision as may be possible.
5.15 Obligations Not Affected. To the fullest extent permitted by
applicable Law, the obligations of Debtor under this Agreement shall remain in
full force and effect without regard to, and shall not be impaired or affected
by:
(a) any amendment or modification or addition or supplement to any Loan
Document, any instrument delivered in connection therewith or any assignment or
transfer thereof;
(b) any exercise, non-exercise, or waiver by Administrative Lender or any
Secured Party of any Right, remedy, power or privilege under or in respect of,
or any release of any guaranty, any collateral or the Collateral (except with
respect to Collateral released by Administrative Lender from the Lien of this
Agreement) or any part thereof provided pursuant to, this Agreement or any Loan
Document;
(c) any waiver, consent, extension, indulgence or other action or inaction
in respect of this Agreement or any Loan Document or any assignment or transfer
of any thereof; or
(d) any bankruptcy, insolvency, reorganization, arrangement, readjustment,
composition, liquidation or the like of Debtor, or any other Person, whether or
not Debtor shall have notice or knowledge of any of the foregoing.
5.16 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.
5.17 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE OTHER LOAN
DOCUMENTS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
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IN WITNESS WHEREOF, Debtor and Administrative Lender have caused this
Agreement to be duly executed and delivered as of the date first above written.
DEBTOR:
SOFTWARE ETC. STORES, INC.
By: _______________________________
Opal P. Ferraro
Vice President & Treasurer
ADMINISTRATIVE LENDER:
NATIONSBANK OF TEXAS, N.A.
By: _______________________________
Frank Izzo, Vice President
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EXHIBIT 10.4
THIRD AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Third Amendment"), dated as of August 28, 1995, is entered into among NEOSTAR
RETAIL GROUP, INC., a Delaware corporation ("Borrower"), the banks listed on
the signature pages hereof (collectively, the "Lenders"), and NATIONSBANK OF
TEXAS, N.A., as Administrative Lender (in said capacity, the "Administrative
Lender").
A. Borrower, Lenders and Administrative Lender heretofore entered
into that certain Amended and Restated Credit Agreement, dated as of December
21, 1994, as amended by that certain First Amendment to Amended and Restated
Credit Agreement, dated as of December 31, 1994, and by that certain Second
Amendment to Amended and Restated Credit Agreement, dated as of April 28, 1995
(said Amended and Restated Credit Agreement, as amended, the "Credit
Agreement"; the terms defined in the Credit Agreement and not otherwise defined
herein shall be used herein as defined in the Credit Agreement).
B. Borrower, Lenders and Administrative Lender desire to amend
the Credit Agreement.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, Borrower,
Lenders and Administrative Lender covenant and agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
(a) The definitions of the following terms are hereby deleted from
paragraph 1 of the Credit Agreement:
"Advance"
"Advance Request"
"Annual Advance"
"Annual Commitment"
"Annual Commitment Period"
"Annual Maturity Date"
"Annual Note"
"Application and Agreement"
"Borrowing Base"
"Borrowing Base Report and Compliance Certificate"
"Clean-Up Period"
"Commercial Letters of Credit"
"Commitments"
"Consolidated Borrower"
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"Debenture"
"Eligible Investments"
"Existing Letters of Credit"
"Funded Debt"
"Inventory Summary"
"Letters of Credit"
"Leverage Ratio"
"Net Earnings Available for Fixed Charges"
"Norwest Agreement"
"Notes"
"Standby Letters of Credit"
"Tangible Net Worth"
(b) The following definitions are hereby added to paragraph 1 of
the Credit Agreement:
"Account" has the meaning assigned to such term in the UCC.
"Affiliate" means any Person that, directly or indirectly,
through one or more Subsidiaries, Controls or is Controlled By or
Under Common Control with, Borrower.
"Applicable Environmental Laws" means applicable laws
pertaining to health or the environment, including without limitation,
the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986 (as amended from time to time, "CERCLA"),
the Resource Conservation and Recovery Act of 1976, as amended by the
Used Oil Recycling Act of 1980, the Solid Waste Disposal Act
amendments of 1980, and the Hazardous and Solid Waste Amendments of
1984 (as amended from time to time, "RCRA"), the Texas Water Code, and
the Texas Solid Waste Disposal Act.
"Applicable Law" means (a) in respect of any Person, all
provisions of constitutions, statutes, rules, regulations and orders
of governmental bodies or regulatory agencies applicable to such
Person and its properties, including, without limiting the foregoing,
all orders and decrees of all courts and arbitrators in proceedings or
actions to which the Person in question is a party, and (b) in respect
of contracts relating to interest or finance charges that are made or
performed in the State of Texas, "Applicable Law" shall mean the laws
of the United States of America, including without limitation 12 USC
Sections 85 and 86, as amended from time to time, and any other
statute of the United States of America now or at any time hereafter
prescribing the maximum rates of interest on loans and extensions of
credit, and the laws of the State of Texas, including, without
limitation, Article 5069-1.04, Title 79, Revised Civil Statutes of
Texas, 1925, as amended ("Art. 1.04"), and any other statute of the
State of Texas now or at any time hereafter prescribing maximum rates
of interest on loans and extensions of credit; provided that the
parties hereto agree that the provisions of Chapter 15, Title 79,
Revised
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Civil Statutes of Texas, 1925, as amended, shall not apply to
Advances, this Agreement, the Notes or any other Loan Papers.
"Authorized Signatory" means such senior personnel of Borrower
as may be duly authorized and designated in writing by Borrower to
execute documents, agreements and instruments on behalf of Borrower,
and to request Term Advances hereunder.
"Business Combination Costs" means all charges related to
consummation of the reorganization provided for in the Amended and
Restated Agreement and Plan of Reorganization, dated as of September
23, 1994, among Borrower, Babbages, Inc., and Software Etc. Stores,
Inc.
"Business Day" means a day on which banks are open for the
transaction of business in Dallas, Texas.
"Capitalized Lease Obligations" means that portion of any
obligation of Borrower or any Subsidiary as lessee under a lease which
at the time would be required to be capitalized on a balance sheet
prepared in accordance with GAAP.
"Cash and Cash Equivalents" means with respect to Borrower and
each Subsidiary (i) cash (which after the occurrence of an Event of
Default shall exclude any cash proceeds of Accounts), (ii) securities
issued or directly and fully guaranteed or insured by the United
States Government or any agency or instrumentality thereof having
maturities of not more than one year from the date of acquisition,
(iii) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case with any Lender or with any
domestic commercial bank having capital and surplus in excess of
$500,000,000, (iv) commercial paper rated A-1 or the equivalent
thereof by Standard & Poor's Ratings Group, a Division of McGraw-Hill,
Inc., a New York corporation, or P-1 or the equivalent thereof by
Moody's Investors Service, Inc. and in each case maturing within one
year after the date of acquisition and (v) mutual funds, the
investments of which are comprised solely of investments described in
(i), (ii), (iii) and (iv) immediately above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means any collateral hereafter granted by any
Person to the Administrative Lender for the benefit of the Lenders to
secure the obligations of any Loan Party under the Loan Papers.
"Collateral Document" means any document under which
Collateral is granted and any document related thereto.
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"Compliance Certificate" means a certificate, signed by an
Authorized Signatory in substantially the form of Exhibit B,
appropriately completed.
"Control" or "Controlled By" or "Under Common Control" means
possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of
voting securities, by contract or otherwise); provided, however, that
in any event any Person which beneficially owns, directly or
indirectly, 10% or more (in number of votes) of the securities having
ordinary voting power for the election of directors of a corporation
shall be conclusively presumed to control such corporation.
"Controlled Group" means as of the applicable date, as to any
Person not an individual, all members of a controlled group of
corporations and all trades or businesses (whether or not
incorporated) which are under common control with such Person and
which, together with such Person, are treated as a single employer
under Section 414(b), (c), (m) or (o) of the Code; provided, however,
that the Subsidiaries of Borrower shall be deemed to be members of
Borrower's Controlled Group.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and any regulation promulgated
thereunder.
"ERISA Event" means, with respect to Borrower and its
Subsidiaries, (a) a Reportable Event (other than a Reportable Event
not subject to the provision for 30-day notice to the PBGC under
regulations issued under Section 4043 of ERISA), (b) the withdrawal of
any such Person or any member of its Controlled Group from a Plan
subject to Title IV of ERISA during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA, (c)
the filing of a notice of intent to terminate under Section 4041(c) of
ERISA, (d) the institution of proceedings to terminate a Plan by the
PBGC, (e) the failure to make required contributions which could
result in the imposition of a lien under Section 412 of the Code or
Section 302 of ERISA, or (f) any other event or condition which might
reasonably be expected to constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Plan or the imposition of any liability under Title IV
of ERISA other than PBGC premiums due but not delinquent under Section
4007 of ERISA.
"Investment" means any acquisition of all or substantially all
assets of any Person, or any direct or indirect purchase or other
acquisition of, or beneficial interest in, capital stock or other
securities of any other Person, or any direct or indirect loan,
advance (other than advances to employees for moving and travel
expenses, drawing accounts and similar expenditures in the ordinary
course of business) or capital contribution to, or investment in any
other Person, including without limitation the occurrence or
sufferance of Debt or the purchase of accounts receivable of any other
Person that are not current assets or do not arise in the ordinary
course of business.
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<PAGE> 5
"Material Adverse Effect" means any act or circumstance or
event that (a) causes a Default, (b) otherwise could reasonably be
expected to be material and adverse to the business, assets,
liabilities, financial condition, results of operations, business or
prospects of Borrower or any Subsidiary, or (c) in any manner
whatsoever does or could reasonably be expected to materially and
adversely affect the validity or enforceability of any Loan Papers.
"Multiemployer Plan" means, as to any Person, at any time, a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA
and to which such Person or any member of its Controlled Group is
making, or is obligated to make contributions or has made, or been
obligated to make, contributions.
"Necessary Authorization" means any right, franchise, license,
permit, consent, approval or authorization from, or any filing or
registration with, any governmental or other regulatory authority or
any Person necessary or appropriate to enable the Borrower or any
Subsidiary to maintain and operate its business and properties.
"Obligor" means any Person executing a Loan Paper.
"Operating Lease" means any operating lease, as defined in the
Financial Accounting Standard Board Statement of Financial Accounting
Standards No. 13, dated November, 1976 or otherwise in accordance with
GAAP.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Permitted Liens" means, as applied to any Person:
(i) Any Lien in favor of the Lenders to secure the
obligations hereunder;
(ii) (a) Liens on real estate for ad valorem taxes not yet
delinquent, (b) Liens created by lease agreements or statute, rule or
regulation to secure the payments of rental amounts and other sums not
yet due thereunder, (c) Liens on leasehold interests created by the
lessor in favor of any mortgagee of the leased premises, and (d) Liens
for taxes, assessments, governmental charges, levies or claims that
are being diligently contested in good faith by appropriate
proceedings and for which adequate reserves shall have been set aside
on such Person's books, but only so long as no foreclosure, restraint,
sale or similar proceedings have been commenced with respect thereto;
(iii) Liens of carriers, warehousemen, mechanics, laborers
and materialmen and other similar Liens incurred in the ordinary
course of business for sums not yet due or being contested in good
faith, if such reserve or appropriate provision, if any, as shall be
required by GAAP shall have been made therefor;
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<PAGE> 6
(iv) Liens incurred in the ordinary course of business in
connection with worker's compensation, unemployment insurance or
similar legislation;
(v) Easements, right-of-way, restrictions and other
similar encumbrances on the use of real property which do not
interfere with the ordinary conduct of the business of such Person;
(vi) Liens created to secure the purchase price of assets
acquired by such Person or created to secure Debt permitted
by paragraph 10(a)(iii) hereof, which is incurred solely for the
purpose of financing the acquisition of such assets and incurred at
the time of acquisition, so long as each such Lien shall at all times
be confined solely to the asset or assets so acquired (and proceeds
thereof), and refinancings thereof so long as any such Lien remains
solely on the asset or assets acquired and the amount of Debt related
thereto is not increased;
(vii) Liens in respect of judgments or awards for which
appeals or proceedings for review are being prosecuted and in respect
of which a stay of execution upon any such appeal or proceeding for
review shall have been secured, provided that (a) such Person shall
have established adequate reserves for such judgments or awards, (b)
such judgments or awards shall be fully insured and the insurer shall
not have denied coverage, or (c) such judgments or awards shall have
been bonded to the satisfaction of the Required Lenders; and
(viii) Any Liens which are described on Schedule 1 hereto,
and Liens resulting from the refinancing of the related Debt, provided
that the Debt secured thereby shall not be increased and the Liens
shall not cover additional assets of Borrower or any Subsidiary.
"Plan" means an employee benefit plan as defined in Section
3(3) of ERISA (including a Multiemployer Plan) pursuant to which any
employees of Borrower, its Subsidiaries or any member of their
Controlled Group participate.
"Release Date" means the date on which the Term Notes have
been paid, all other obligations due and owing hereunder have been
paid and performed in full, and the Term Commitment has been
terminated.
"Reportable Event" has the meaning set forth in Section
4043(b) of ERISA.
"Restricted Payments" means, collectively, (i) Dividends and
(ii) treasury stock purchases.
"Security Agreement" means any security agreement relating to
the Accounts and Inventory of each Subsidiary of the Borrower,
substantially in the form of Exhibit F hereto, as amended, modified,
renewed, supplemented or restated from time to time.
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<PAGE> 7
"Subsidiary Credit Agreement" means that certain Credit
Agreement dated as of August 28, 1995, among Babbages, Software,
NationsBank of Texas, N.A., as Administrative Lender, and the Lenders
party thereto, as amended, modified, supplemented or stated from time
to time.
"Tribunal" means any state, commonwealth, federal, foreign,
territorial or other court or government body, subdivision, agency,
department, commission, board, bureau or instrumentality of a
governmental body.
(c) The following definitions set forth in paragraph 1 of the
Credit Agreement are hereby amended to read in their entirety as follows:
"Debt" means, with respect to any Person, (a) all items,
except account payables arising in the normal course of business,
which in accordance with GAAP would be included in determining total
liabilities as shown on the liability side of a balance sheet of such
Person, (b) all obligations secured by any Lien on any property or
asset owned by such Person (other than accounts payable arising in the
ordinary course of business), whether or not the obligation secured
thereby shall have been assumed, (c) to the extent not otherwise
included, all Capitalized Lease Obligations of such Person, all
obligations in respect of letters of credit, bankers' acceptances and
similar instruments, and all obligations under Interest Rate Swap
Agreements, (d) any "withdrawal liability" of Borrower or any
Subsidiary, as such term is defined under Part I of Subtitle E of
Title IV of ERISA and (e) any guaranty of such Person of any
obligation of another Person constituting obligations of a type set
forth above.
"Fixed Charges" means, for any date of calculation, calculated
for Borrower and its Subsidiaries on a consolidated basis, the sum of,
without duplication, (i) interest expense (including interest expense
pursuant to Capitalized Lease Obligations), plus (ii) lease expense
under Operating Leases, in each case for the applicable period
immediately preceding the date of calculation.
"Fixed Charge Coverage Ratio" means the ratio of Pretax Cash
Flow to Fixed Charges.
"Loan Papers" means this Agreement, each Term Note, each
Guaranty, each Security Agreement, and all other documents,
instruments, agreements or certificates executed or delivered by any
Person in connection with this Agreement.
"Net Worth" means, for Borrower and its Subsidiaries, on a
consolidated basis, determined in accordance with GAAP, the sum of:
(i) capital stock taken at stated or par value, plus (ii) capital
surplus plus (iii) retained earnings less treasury stock.
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<PAGE> 8
"Pretax Cash Flow" means, for any period, determined in
accordance with GAAP on a consolidated basis for Borrower and its
Subsidiaries, the sum of (a) Pretax Net Income (excluding therefrom,
to the extent included in determining Pretax Net Income, any items of
extraordinary gain, including net gains on the sale of assets other
than asset sales in the ordinary course of business, and adding
thereto, to the extent included in determining Pretax Net Income, any
items of extraordinary loss, including the Business Combination Costs
not to exceed $15,000,000, plus (b) interest expense (including
interest expense pursuant to Capital Leases) plus (c) lease expense
pursuant to Operating Leases.
"Pretax Net Income" means net profit (or loss) before taxes of
Borrower and its Subsidiaries, on a consolidated basis, determined in
accordance with GAAP.
"Required Lenders" mean any combination of Lenders having
Specified Percentages of at least 66-2/3%.
"Total Liabilities" means, as of any date of determination,
determined for Borrower and its Subsidiaries on a consolidated basis
(i) indebtedness for borrowed money, (ii) obligations evidenced by
bonds, debentures, notes or other similar instruments, (iii)
obligations to pay the deferred purchase price of property or services
other than trade payables incurred in the ordinary course of business,
and (iv) Capitalized Lease Obligations.
(d) Paragraphs 2 and 4 of the Credit Agreement are hereby amended
to read in their entirety as follows:
"Intentionally Omitted"
(e) Paragraph 5 of the Credit Agreement is hereby deleted in its
entirety.
(f) Paragraph 6 of the Credit Agreement is hereby renumbered as
paragraph 5 and is hereby amended to read in its entirety as follows:
5. Yield Protection. If at any time and from time to
time, any Lender determines that the adoption or modification of any
applicable law, rule or regulation regarding taxation, such Lender's
required levels of reserves, deposits, insurance or capital (including
any allocation of capital requirements or conditions), or similar
requirements, or any interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with
the interpretation, administration or compliance of such Lender with
any of such requirements (each such adoption or modification and each
interpretation or administration being herein called a "Regulatory
Modification"), has or would have the effect of (a) increasing such
Lender's costs relating to the Term Commitment, or (b) reducing the
yield or rate of return of such Lender on the Term Commitment, to a
level below that which such Lender could
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<PAGE> 9
have achieved but for the adoption or modification of any such
requirements, Borrower shall, within 10 days of any request by such
Lender, pay to such Lender such additional amounts as (in such
Lender's sole judgment, after good faith and reasonable computation)
will compensate such Lender for such increase in costs or reduction in
yield or rate of return of such Lender ("Additional Costs"). No
failure by any Lender to immediately demand payment of any Additional
Costs payable hereunder shall constitute a waiver of such Lender's
right to demand payment of such Additional Costs at any subsequent
time; provided, however, that such Lender's demand for Additional
Costs shall not include any such Additional Costs with respect to
periods more than 90 days prior to such demand, unless the effective
date of the Regulatory Modification which causes a right to Additional
Costs is retroactive ("Retroactive Effective Date"). If any such
event has a Retroactive Effective Date and any Lender demands
compensation within 90 days after the date setting the Retroactive
Effective Date (the "Set Date"), such Lender shall have the right to
receive such Additional Costs from the Retroactive Effective Date. If
any Lender does not demand such Additional Costs within 90 days after
the Set Date, such Lender may not receive compensation with respect to
periods more than 90 days prior to such demand. With respect to any
proposed Regulatory Modification which is not (at any date of
determination) then effective, each Lender will endeavor to estimate
and advise Borrower of the Additional Cost which may result from the
effectiveness of such proposed Regulatory Modification and the
anticipated date of such effectiveness; provided that such Lender's
failure to so advise Borrower, or any inaccuracy in such estimate,
shall not constitute a waiver of such Lender's right to demand payment
of such Additional Costs at any subsequent time, subject to the other
provisions of this paragraph 5. Nothing herein contained shall be
construed or so operate as to require Borrower to pay any interest,
fees, costs or charges greater than is permitted by applicable law.
(g) Paragraph 7 of the Credit Agreement is hereby renumbered as
paragraph 6 and is hereby amended to read in its entirety as follows:
6. Conditions Precedent. The obligation of each Lender
to make any Term Advance under this Agreement is subject to the
following conditions precedent:
(i) the Term Notes duly executed by Borrower;
(ii) the Guaranty duly executed by each Subsidiary;
(iii) the Security Agreements, duly executed by
Babbages, Inc., and Software Etc. Stores, Inc., respectively;
(iv) an Officer's Certificate of the secretary or
assistant secretary of Borrower and each Subsidiary
substantially in the form attached as Exhibit D;
(v) a legal opinion of counsel to Borrower and
each Subsidiary;
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(vi) no material adverse change shall have
occurred in the business or financial condition of Borrower;
(vii) the representations and warranties contained
in paragraph 8 shall be true in all material respects on the
date of such Advance with the same force and effect as though
made on and as of such date; and
(viii) no Event of Default or event which, with the
giving of notice or the passage of time, or both, would
constitute an Event of Default shall have occurred and be
continuing.
(h) Paragraph 7 of the Credit Agreement (after giving effect to
this Third Amendment) is hereby replaced with paragraph 7 set forth on Exhibit
A hereto.
(i) The introductory paragraph of paragraph 8 of the Credit
Agreement is hereby amended to read in its entirety as follows:
"In order to induce each Lender to make Term Advances,
Borrower represents and warrants to each Lender as follows:"
(j) Paragraph 8(i) is hereby amended to replace the reference to
paragraph 10(c) of the Credit Agreement with paragraph 10(b).
(k) Paragraph 9 of the Credit Agreement is hereby deleted in its
entirety and replaced with paragraph 9 set forth on Exhibit B hereto.
(l) Paragraph 10 of the Credit Agreement is hereby deleted in its
entirety and replaced with paragraph 10 set forth on Exhibit C hereto.
(m) Paragraph 11(a) of the Credit Agreement is hereby amended to
read in its entirety as follows:
(a) Payment. Borrower shall fail or refuse to pay when
due any principal or interest upon the Term Notes or any other amounts
due pursuant to the this Agreement or the Term Notes;
(n) Paragraph 11(c) of the Credit Agreement is hereby amended to
read in its entirety as follows:
(c) Negative Covenants. Default shall occur in the
performance of any covenant or agreement of the Borrower contained in
paragraph 9(a), paragraph 9(i) or paragraph 10;
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(o) Paragraph 11(d) of the Credit Agreement is hereby amended to
read in its entirety as follows:
(d) Other Covenants. Default shall occur in the
performance or breach of any covenant or agreement of Borrower
contained herein (other than with respect to paragraph 9(a), paragraph
9(i) or paragraph 10), or in any other instrument or document executed
or delivered to any Lender in connection herewith and the continuance
of such default for a period of 15 days after notice thereof from any
Lender to Borrower.
(p) Paragraph 11(f) is hereby amended to delete the "or" at the
end thereof.
(q) Paragraphs 11(g), (h), (i) and (j) are hereby amended to
replace the "." at the end thereof with ";".
(r) The following paragraph 11(k) is hereby added to the Credit
Agreement:
(j) All or any material portion of the Collateral or the
Loan Papers shall be the subject of any proceeding instituted by any
Person other than a Lender (except in connection with any Lender's
exercise of any remedies under the Loan Papers), or there shall exist
any litigation with respect to all or any material portion of the
Collateral or the Loan Papers, or any Person shall challenge in any
manner whatsoever the validity or enforceability of all or any portion
of the Loan Papers or the Collateral;
(s) The following paragraph 11(l) is hereby added to the Credit
Agreement:
(l) Any Collateral Document shall for any reason (other
than pursuant to the terms thereof) cease to create a valid and
perfected first priority Lien in any material portion of any
Collateral; or
(t) The following paragraph 11(m) is hereby added to the Credit
Agreement:
(m) A Default or Event of Default shall have occurred
under the Subsidiary Credit Agreement.
(u) Paragraph 12 of the Credit Agreement is hereby amended to
change any reference therein to "Notes" and "Commitments" to "Term Notes" and
"Term Commitment", respectively.
(v) Paragraph 15 of the Credit Agreement is hereby amended to read
in its entirety as follows:
"Intentionally Omitted"
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<PAGE> 12
(w) Exhibits A, B, C and E of the Credit Agreement are hereby
amended to read as follows:
"Intentionally Omitted"
(x) Exhibit B to the Credit Agreement is hereby replaced with
Exhibit D attached hereto.
(y) Exhibit F to the Credit Agreement is hereby replaced with
Exhibit E attached hereto.
2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By
its execution and delivery hereof, Borrower represents and warrants that, as of
the date hereof and after giving effect to the amendments contemplated by the
foregoing Section 1:
(a) the representations and warranties contained in the Credit
Agreement are true and correct on and as of the date hereof as if made on and
as of such date;
(b) no event has occurred and is continuing which constitutes an
Event of Default, or which, with the giving of notice or the passage of time or
both, would constitute an Event of Default shall have occurred and be
continuing;
(c) Borrower has full power and authority to execute and deliver
this Third Amendment, and this Third Amendment and the Credit Agreement, as
amended hereby, constitute the legal, valid and binding obligations of
Borrower, enforceable in accordance with their respective terms, except as
enforceability may be limited by applicable debtor relief laws and by general
principles of equity (regardless of whether enforcement is sought in a
proceeding inequity or at law) and except as rights to indemnity may be limited
by federal or state securities laws; and
(d) no authorization, approval consent, or other action by, notice
to, or filing with, any governmental authority or other Person (including the
Board of Directors of Borrower or any Subsidiary that executed a Guaranty), is
required for the execution, delivery or performance by Borrower of this Third
Amendment or the acknowledgement of this Third Amendment by any Subsidiary that
executed a Guaranty.
3. CONDITIONS OF EFFECTIVENESS. This Third Amendment shall be
effective as of August 28, 1995, subject to the following:
(a) Administrative Lender shall have received counterparts of this
Third Amendment duly executed by each Lender;
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<PAGE> 13
(b) Administrative Lender shall have received counterparts of this
Third Amendment duly executed by Borrower and acknowledged by each Subsidiary
that executed a Guaranty; and
(c) Administrative Lender shall have received a Security
Agreement, fully-executed by each Subsidiary; and
(d) That certain Credit Agreement, dated as of August 28, 1995,
among Babbages, Inc., Software Etc. Stores, Inc., the lenders party thereto,
and NationsBank of Texas, N.A., as Administrative Lender, shall have closed and
funded and all amounts owing to NationsBank of Texas, N.A. hereunder in respect
of the Annual Commitment shall have been paid in full.
4. SUBSIDIARIES ACKNOWLEDGMENT. By signing below, each of the
Subsidiaries executing a Guaranty (i) acknowledges, consents and agrees to the
execution, delivery and performance by Borrower of this Third Amendment, (ii)
acknowledges and agrees that its obligations in respect of its Guaranty are not
released, diminished, waived, modified, impaired or affected in any manner by
this Third Amendment or any of the provisions contemplated herein, (iii)
ratifies and confirms its obligations under its Guaranty, and (iv) acknowledges
and agrees that it has no claims or offsets against, or defenses or
counterclaims to, its Guaranty.
5. ANNUAL COMMITMENT. Upon the effectiveness of this Third
Amendment, Lender (i) acknowledges that (A) the Annual Commitment has
terminated and all amounts owing by Borrower in respect thereof have been paid
in full and (B) the outstanding principal amount of the Term Note is
$18,000,000 and (ii) agrees to promptly return the Annual Note to Borrower
marked "Paid in Full".
6. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this Third Amendment, each reference
in the Credit Agreement to "this Agreement", "hereunder", or words of like
import shall mean and be a reference to the Credit Agreement, as affected and
amended by this Third Amendment.
(b) The Credit Agreement, as amended by this Third Amendment, and
all other Loan Papers shall remain in full force and effect and are hereby
ratified and confirmed.
7. COSTS, EXPENSES AND TAXES. Borrower agrees to pay on demand
all costs and expenses of Administrative Lender in connection with the
preparation, reproduction, execution and delivery of the Third Amendment and
the other instruments and documents to be delivered hereunder (including the
reasonable fees and out-of-pocket expenses of counsel for Administrative Lender
with respect thereto and with respect to advising Administrative Lender as to
its rights and responsibilities under the Credit Agreement, as amended by this
Third Amendment).
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8. EXECUTION IN COUNTERPARTS. This Third Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
9. GOVERNING LAW; BINDING EFFECT. This Third Amendment shall be
governed by and construed in accordance with the laws of the State of Texas and
shall be binding upon Borrower and each Lender and their respective successors
and assigns.
10. HEADINGS. Section headings in this Third Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Third Amendment for any other purpose.
11. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS
THIRD AMENDMENT, AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AS TO THE SUBJECT MATTER THEREIN AND HEREIN AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
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<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this Third
Amendment as of the date first above written.
NEOSTAR RETAIL GROUP, INC.
By: /s/ OPAL P. FERRARO
-----------------------------------
Title: Vice President & Treasurer
----------------------------
NATIONSBANK OF TEXAS, N.A.
as Administrative Lender and as a Lender
By: /s/ FRANK IZZO
-----------------------------------
Title: Vice President
----------------------------
ACKNOWLEDGED AND AGREED:
SOFTWARE ETC. STORES, INC.
By: /s/ OPAL P. FERRARO
------------------------------------
Title: Vice President & Treasurer
-----------------------------
BABBAGES, INC.
By: /s/ OPAL P. FERRARO
------------------------------------
Title: Vice President & Treasurer
-----------------------------
AUGUSTA ENTERPRISES, INC.
By: /s/ OPAL P. FERRARO
------------------------------------
Title: Vice President & Treasurer
-----------------------------
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<PAGE> 16
CHASADA
By: /s/ OPAL P. FERRARO
------------------------------------
Title: Vice President & Treasurer
-----------------------------
- 16 -
<PAGE> 17
EXHIBIT A
7. Information Covenants. So long as the Term Notes are unpaid
and so long as any of the obligations hereunder are outstanding and unpaid or
the Term Commitment is outstanding (whether or not the conditions to borrowing
have been or can be fulfilled), the Borrower shall furnish or cause to be
furnished to each Lender:
(a) Quarterly Financial Statements and Information. Within 45
days after the end of each fiscal quarter, a consolidated balance sheet of
Borrower and its Subsidiaries as at the end of such fiscal quarter and the
related consolidated statement of income for such fiscal quarter and for the
elapsed portion of the year ended with the last day of such fiscal quarter, and
consolidated statement of cash flow for the elapsed portion of the year ended
with the last day of such fiscal quarter all of which shall be certified by the
president or chief financial officer or other officer of Borrower acceptable to
the Administrative Lender, to be, in his or her opinion acting solely in his or
her capacity as an officer of Borrower, complete and correct in all material
respects and to present fairly, in accordance with GAAP, the financial position
and results of operations of Borrower and its Subsidiaries as at the end of and
for such fiscal quarter, and for the elapsed portion of the year ended with the
last day of such fiscal quarter, subject only to normal year-end adjustments.
(b) Annual Financial Statements and Information; Certificate of
No Default.
(i) Within 90 days after the end of each fiscal year, a
copy of (i) the consolidated balance sheets of Borrower and its
Subsidiaries, as of the end of the current and prior fiscal years, and
(ii) the consolidated statements of earnings and consolidated
statements of changes in shareholders' equity, and statements of
changes in cash of Borrower and its Subsidiaries as of and through the
end of such fiscal year, all of which are prepared in accordance with
GAAP, and certified by independent certified public accounts
acceptable to the Lenders (provided, however, any big six public
accounting firm shall be acceptable to the Lenders), whose opinion
shall be in scope and substance in accordance with generally accepted
auditing standards and shall be unqualified.
(ii) Simultaneously with the delivery of the statements
required by this paragraph 7(b), a letter from Borrower's public
accountants stating that in connection with their audit nothing came
to their attention that caused them to believe that Borrower or any
Subsidiary failed to comply with the terms, covenants, provisions or
conditions of this Agreement insofar as they relate to accounting
matters.
(iii) As soon as available, but in any event within 90 days
following the end of each fiscal year, a copy of the annual
consolidated operating budget of Borrower and its Subsidiaries for the
succeeding fiscal year.
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<PAGE> 18
(c) Borrowing Base Report and Compliance Certificate. At the time
financial statements are furnished pursuant to paragraphs 7(a) and (b) hereof,
the Compliance Certificate, completed as provided therein.
(d) Copies of Other Reports and Notices.
(i) Promptly upon their becoming available, a copy of (a)
all material reports or letters submitted to Borrower or any
Subsidiary by accountants in connection with any annual, interim or
special audit, including without limitation any report prepared in
connection with the annual audit referred to in paragraph 7(b) hereof,
and any other comment letter submitted to management in connection
with any such audit, (b) each financial statement, report, notice or
proxy statement sent by Borrower or any Subsidiary to stockholders
generally, (c) each regular, periodic or other report and any
registration statement (other than statements on Form S-8) or
prospectus (or material written communication in respect of any
thereof) filed by Borrower or any Subsidiary with any securities
exchange, with the Securities and Exchange Commission or any successor
agency, and (d) all press releases concerning material financial
aspects of Borrower or any Subsidiary;
(ii) Promptly upon becoming aware that (a) the holder(s)
of any note(s) or other evidence of indebtedness or other security of
Borrower or any Subsidiary in excess of $250,000 in the aggregate has
given notice or taken any action with respect to a breach, failure to
perform, claimed default or event of default thereunder, (b) any
occurrence or non-occurrence of any event which constitutes or which
with the passage of time or giving of notice or both could constitute
a material breach by Borrower or any Subsidiary under any material
agreement or instrument to which Borrower or any Subsidiary is a party
or by which any of their properties may be bound, or (c) any event,
circumstance or condition which could reasonably be expected to be
classified as a Material Adverse Effect, a written notice specifying
the details thereof (or the nature of any claimed default or event of
default) and what action is being taken or is proposed to be taken
with respect thereto;
(iii) Promptly upon becoming aware that any party to any
Capitalized Lease Obligations or any other lease obligations, in each
case, in excess of $250,000, has given notice or taken any action with
respect to a breach, failure to perform, claimed default or event of
default thereunder, a written notice specifying the details thereof
(or the nature of any claimed default or event of default) and what
action is being taken or is proposed to be taken with respect thereto;
(iv) Promptly upon receipt thereof, information with
respect to and copies of any notices received from any federal, state
or local regulatory agencies or any tribunal relating to any order,
ruling, law, information or policy that relates to a breach of or
noncompliance with any Law, or might result in the payment of money by
Borrower or any Subsidiary in an amount of $250,000 or more in the
aggregate, or otherwise have
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<PAGE> 19
a Material Adverse Effect, or result in the loss or suspension of any
Necessary Authorization;
(v) Promptly upon receipt from any governmental agency,
or any government, political subdivision or other entity, any material
notice, correspondence, hearing, proceeding or order regarding or
affecting Borrower, any Subsidiary, or any of their properties or
businesses; and
(vi) From time to time and promptly upon each request,
such data, certificates, reports, statements, documents or further
information regarding the assets, business, liabilities, financial
position, projections, results of operations or business prospects of
Borrower and its Subsidiaries, as the Administrative Lender or any
Lender may reasonably request.
(e) Notice of Litigation, Default and Other Matters. Prompt
notice of the following events after Borrower has knowledge or notice thereof:
(i) The commencement of all proceedings and
investigations by or before any governmental body, and all actions and
proceedings in any court or before any arbitrator involving claims for
damages (including punitive damages) in excess of $250,000 (after
deducting the amount with respect to Borrower or any Subsidiary is
insured), against or in any other way relating directly to Borrower,
any Subsidiary, or any of their properties or businesses;
(ii) Promptly upon the happening of any condition or event
of which Borrower has current actual knowledge which constitutes a
Default or Event of Default, a written notice specifying the nature
and period of existence thereof and what action is being taken or is
proposed to be taken with respect thereto; and
(iii) Any material adverse change with respect to the
business, assets, liabilities, financial position, results of
operations or prospective business of Borrower or any Subsidiary,
other than changes in the ordinary course of business which have not
had and are not likely to have a Material Adverse Effect.
(f) ERISA Reporting Requirements.
(i) Promptly and in any event (a) within 30 days after
Borrower or any member of its Controlled Group has current actual
knowledge that any ERISA Event described in clause (a) of the
definition of ERISA Event or any event described in Section 4063(a) of
ERISA with respect to any Plan of Borrower or any member of its
Controlled Group has occurred, and (b) within 10 days after the
Borrower or any member of its Controlled Group has current actual
knowledge that any other ERISA Event with respect to any Plan of
Borrower or any member of its Controlled Group has occurred or a
request for a minimum funding waiver under Section 412 of the Code
with
- 22 -
<PAGE> 20
respect to any Plan of Borrower or any member of its Controlled Group,
a written notice describing such event and describing what action is
being taken or is proposed to be taken with respect thereto, together
with a copy of any notice of event that is given to the PBGC;
(ii) Promptly and in any event within three Business Days
after receipt thereof by Borrower or any member of its Controlled
Group from the PBGC, copies of each notice received by Borrower or any
member of its Controlled Group of the PBGC's intention to terminate
any Plan or to have a trustee appointed to administer any Plan;
(iii) If requested by the Administrative Lender, promptly
and in any event within 30 days after the filing thereof by Borrower
or any member of its Controlled Group with the United States
Department of Labor or the Internal Revenue Service, copies of each
annual report (including Schedule B thereto, if applicable) with
respect to each Plan of which Borrower or any member of its Controlled
Group is the "plan sponsor";
(iv) Promptly, and in any event within 10 Business Days
after receipt thereof, a copy of any correspondence Borrower or any
member of its Controlled Group receives from the Plan Sponsor (as
defined by Section 4001(a)(10) of ERISA) of any Plan concerning
potential withdrawal liability pursuant to Section 4219 or 4202 of
ERISA, and a statement from the chief financial officer of Borrower or
such member of its Controlled Group setting forth details as to the
events giving rise to such potential withdrawal liability and the
action which Borrower or such member of its Controlled Group is taking
or proposes to take with respect thereto;
(v) Notification within 30 days of any material increases
in the benefits of any existing Plan which is not a Multiemployer
Plan, or the establishment of any new Plans, or the commencement of
contributions to any Plan to which Borrower or any member of its
Controlled Group was not previously contributing which would in either
case result in a material liability to Borrower;
(vi) Notification within three Business Days after
Borrower or any member of its Controlled Group knows that Borrower or
any such member of its Controlled Group has filed or intends to file a
notice of intent to terminate any Plan under a distress termination
within the meaning of Section 4041(c) of ERISA and a copy of such
notice; and
(vii) Within three Business Days after receipt of written
notice of commencement thereof, notice of all actions, suits and
proceedings before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign,
affecting Borrower or any member of its Controlled Group with respect
to any Plan, except those which, in the aggregate, if adversely
determined could not have a Material Adverse Effect.
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<PAGE> 21
EXHIBIT B
9. Affirmative Covenants. Until payment in full of the Term Note
and so long as any of the obligations hereunder are outstanding and unpaid or
the Term Commitment is outstanding (whether or not the conditions to borrowing
have been or can be fulfilled):
(a) Preservation of Existence and Similar Matters. Borrower
shall, and shall cause each Subsidiary to:
(i) preserve and maintain, or timely obtain and
thereafter preserve and maintain, its existence, rights, franchises,
licenses, authorizations, consents, privileges and all other Necessary
Authorizations from federal, state and local governmental bodies and
any tribunal (regulatory or otherwise), the loss of which could have a
Material Adverse Effect; and
(ii) qualify and remain qualified and authorized to do
business in each jurisdiction in which the character of its properties
or the nature of its business requires such qualification or
authorization, unless the failure to do so could not have a Material
Adverse Effect.
(b) Business; Compliance with Applicable Law. Borrower and its
Subsidiaries shall (i) engage primarily in the business of retail sales of
software and related merchandise and activities related thereto, and (ii)
comply in all material respects with the requirements of all Applicable Law.
(c) Maintenance of Properties. Borrower shall, and shall cause
each Subsidiary to, maintain or cause to be maintained all its properties
(whether owned or held under lease) in reasonably good repair, working order
and condition, taken as a whole, and from time to time make or cause to be made
all appropriate (in the reasonable judgment of the Borrower) repairs, renewals,
replacements, additions, betterments and improvements thereto.
(d) Accounting Methods and Financial Records. Borrower shall
maintain a system of accounting established and administered in accordance with
GAAP, and Borrower shall, and shall cause each Subsidiary to, keep adequate
records and books of account in which complete entries will be made and all
transactions reflected in accordance with GAAP with respect to Borrower and on
a tax basis with respect to the Subsidiaries, and keep accurate and complete
records of its respective assets. Borrower and each of its Subsidiaries shall
maintain a fiscal year ending on the Saturday nearest to January 31 of each
year.
(e) Insurance. Borrower shall, and shall cause each Subsidiary
to, maintain insurance from responsible companies in such amounts and against
such risks as shall be customary and usual in the industry for companies of
similar size and capability. Each insurance policy shall provide for at least
30 days' prior notice to the Administrative Lender of any proposed termination
or cancellation of such policy, whether on account of default or otherwise.
<PAGE> 22
(f) Payment of Taxes and Claims. Borrower shall, and shall cause
each Subsidiary to, pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or its income or properties prior to the date
on which penalties attach thereto, and all lawful material claims for labor,
materials and supplies which, if unpaid, might become a Lien upon any of its
properties; except that no such tax, assessment, charge, levy or claim need be
paid which is being diligently contested in good faith by appropriate
proceedings and for which adequate reserves shall have been set aside on the
appropriate books, but only so long as no Lien (other than a Permitted Lien)
shall attach with respect thereto and no foreclosure, distraint, sale or
similar proceedings shall have been commenced. Borrower shall, and shall cause
each Subsidiary to, timely file all information returns (or extensions of such
filing deadlines) required by federal, state or local tax authorities.
(g) Visits and Inspections. Borrower shall, and shall cause each
Subsidiary to, promptly permit representatives of the Administrative Lender or
any Lender from time to time after notice by the Administrative Lender or any
Lender no later than the previous Business Day to (i) visit and inspect the
properties of Borrower and Subsidiary as often as the Administrative Lender or
any Lender shall reasonably deem advisable, (ii) audit, inspect and make
extracts from and copies of Borrower's and each Subsidiary's books and records,
and (iii) discuss with Borrower's and each Subsidiary's directors, officers,
employees and auditors its business, assets, liabilities, financial positions,
results of operations and business prospects. Borrower shall pay the
reasonable expenses related to inspections and audits performed by the
Administrative Lender or any Lender. Prior to the occurrence of an Event of
Default, all such visits and inspections shall be conducted during normal
business hours and shall not be conducted more often than once per fiscal
quarter. Following the occurrence and during the continuance of an Event of
Default, such visits and inspections shall be conducted at any time requested
by the Administrative Lender or any Lender without any requirement for advance
notice.
(h) Payment of Debt. Subject to paragraph 9(f) hereof, Borrower
shall, and shall cause each Subsidiary to, pay its Debt when and as the same
becomes due, other than amounts (other than the obligations hereunder) duly and
diligently disputed in good faith.
(i) Use of Proceeds. Borrower shall use the proceeds of Term
Advances for the refinancing of certain Debt and for working capital and for
other general corporate purposes.
(j) INDEMNITY.
(i) BORROWER AGREES TO DEFEND, PROTECT, INDEMNIFY AND
HOLD HARMLESS THE ADMINISTRATIVE LENDER, EACH LENDER, EACH OF THEIR
RESPECTIVE AFFILIATES, AND EACH OF THEIR RESPECTIVE (INCLUDING SUCH
AFFILIATES') OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS,
SHAREHOLDERS AND CONSULTANTS (INCLUDING, WITHOUT LIMITATION, THOSE
RETAINED IN CONNECTION WITH THE SATISFACTION OR ATTEMPTED SATISFACTION
OF ANY OF THE CONDITIONS SET FORTH HEREIN) OF EACH OF THE FOREGOING
- 2 -
<PAGE> 23
(COLLECTIVELY, "INDEMNITEES") FROM AND AGAINST ANY AND ALL
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, CLAIMS, REASONABLE COSTS, REASONABLE EXPENSES AND
REASONABLE DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER (INCLUDING,
WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL
FOR SUCH INDEMNITEES IN CONNECTION WITH ANY INVESTIGATIVE,
ADMINISTRATIVE OR JUDICIAL PROCEEDING, WHETHER OR NOT SUCH INDEMNITEES
SHALL BE DESIGNATED A PARTY THERETO), IMPOSED ON, INCURRED BY, OR
ASSERTED AGAINST SUCH INDEMNITEES (WHETHER DIRECT, INDIRECT OR
CONSEQUENTIAL AND WHETHER BASED ON ANY FEDERAL, STATE, OR LOCAL LAWS
AND REGULATIONS, UNDER COMMON LAW OR AT EQUITABLE CAUSE, OR ON
CONTRACT, TORT OR OTHERWISE, ARISING FROM OR CONNECTED WITH THE PAST,
PRESENT OR FUTURE OPERATIONS OF THE BORROWER OR ITS PREDECESSORS IN
INTEREST, OR THE PAST, PRESENT OR FUTURE ENVIRONMENTAL CONDITION OF
PROPERTY OF THE BORROWER), IN ANY MANNER RELATING TO OR ARISING OUT OF
THIS AGREEMENT, THE OTHER LOAN PAPERS, OR ANY ACT, EVENT OR
TRANSACTION OR ALLEGED ACT, EVENT OR TRANSACTION RELATING OR ATTENDANT
THERETO, THE MANAGEMENT OF THE ADVANCES, INCLUDING IN CONNECTION WITH,
OR AS A RESULT, IN WHOLE OR IN PART, OF ANY NEGLIGENCE OF
ADMINISTRATIVE LENDER OR ANY LENDER (OTHER THAN THOSE MATTERS RAISED
EXCLUSIVELY BY A PARTICIPANT AGAINST THE ADMINISTRATIVE LENDER OR ANY
LENDER AND NOT THE BORROWER), OR THE USE OR INTENDED USE OF THE
PROCEEDS OF THE ADVANCES OR LETTERS OF CREDIT HEREUNDER, OR IN
CONNECTION WITH ANY INVESTIGATION OF ANY POTENTIAL MATTER COVERED
HEREBY, BUT EXCLUDING (A) ANY CLAIM OR LIABILITY THAT ARISES AS THE
RESULT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY
INDEMNITEE, AS FINALLY JUDICIALLY DETERMINED BY A COURT OF COMPETENT
JURISDICTION, AND (B) MATTERS RAISED BY ONE LENDER AGAINST ANOTHER
LENDER OR BY ANY SHAREHOLDERS OF A LENDER AGAINST A LENDER OR ITS
MANAGEMENT (COLLECTIVELY, "INDEMNIFIED MATTERS"). TO THE EXTENT THAT
ANY INDEMNIFIED MATTER INVOLVES ONE OR MORE INDEMNITEES, SUCH
INDEMNITEES SHALL USE THE SAME LEGAL COUNSEL UNLESS ANY INDEMNITEE IN
ITS REASONABLE DISCRETION DETERMINES THAT CONFLICTS EXIST OR MAY ARISE
IN CONNECTION WITH SUCH REPRESENTATION.
(ii) IN ADDITION, BORROWER SHALL PERIODICALLY, UPON
REQUEST, REIMBURSE EACH INDEMNITEE FOR ITS REASONABLE LEGAL AND OTHER
ACTUAL REASONABLE EXPENSES (INCLUDING THE REASONABLE COST OF ANY
INVESTIGATION AND PREPARATION)
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<PAGE> 24
INCURRED IN CONNECTION WITH ANY INDEMNIFIED MATTER; THE
REIMBURSEMENT, INDEMNITY AND CONTRIBUTION OBLIGATIONS UNDER THIS
SECTION SHALL BE IN ADDITION TO ANY LIABILITY WHICH THE BORROWERS MAY
OTHERWISE HAVE, SHALL EXTEND UPON THE SAME TERMS AND CONDITIONS TO
EACH INDEMNITEE, AND SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF
ANY SUCCESSORS, ASSIGNS, HEIRS AND PERSONAL REPRESENTATIVES OF
BORROWER, THE ADMINISTRATIVE LENDER, THE LENDERS AND ALL OTHER
INDEMNITEES. THIS SECTION SHALL SURVIVE ANY TERMINATION OF THIS
AGREEMENT AND PAYMENT OF THE OBLIGATIONS.
(k) Environmental Law Compliance. The use which Borrower or any
Subsidiary intends to make of any real property which is owned or leased by it
will not result in the disposal or other release of any hazardous substance or
solid waste on or to such real property which is in violation of Applicable
Environmental Laws. As used herein, the terms "hazardous substance" and
"release" as used in this Section shall have the meanings specified in CERCLA
(as defined in the definition of Applicable Environmental Laws), and the terms
"solid waste" and "disposal" shall have the meanings specified in RCRA (as
defined in the definition of Applicable Environmental Laws); provided, however,
that if CERCLA or RCRA is amended so as to broaden or lessen the meaning of any
term defined thereby, such broader or lesser meaning shall apply subsequent to
the effective date of such amendment; and provided further, to the extent that
any other law applicable to Borrower, any Subsidiary or any of their properties
establishes a meaning for "hazardous substance," "release," "solid waste," or
"disposal" which is broader or lesser than that specified in either CERCLA or
RCRA, such broader or lesser meaning shall apply. Borrower agrees to indemnify
and hold the Administrative Lender and each Lender harmless from and against,
and to reimburse them with respect to, any and all claims, demands, causes of
action, loss, damage, liabilities, reasonable costs and reasonable expenses
(including reasonable attorneys' fees and courts costs) of any kind or
character, known or unknown, fixed or contingent, asserted against or incurred
by any of them at any time and from time to time by reason of or arising out of
(i) the failure of Borrower or any Subsidiary to perform any of their
obligations hereunder regarding asbestos or Applicable Environmental Laws, (ii)
any violation on or before the Release Date of any Applicable Environmental Law
in effect on or before the Release Date, and (iii) any act, omission, event or
circumstance existing or occurring on or prior to the Release Date (including
without limitation the presence on such real property or release from such real
property of hazardous substances or solid wastes disposed of or otherwise
released on or prior to the Release Date), resulting from or in connection with
the ownership of the real property, regardless of whether the act, omission,
event or circumstance constituted a violation of any Applicable Environmental
Law at the time of its existence or occurrence; provided that, Borrower shall
not be under any obligation to indemnify the Administrative Lender or any
Lender to the extent that any such liability arises as the result of the
negligence or willful misconduct of such Person, as finally judicially
determined by a court of competent jurisdiction. The provisions of this
paragraph shall survive the Release Date and shall continue thereafter in full
force and effect.
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<PAGE> 25
EXHIBIT C
10. Negative Covenants. Until payment in full of the Term Note
and so long as any of the obligations hereunder are outstanding and unpaid or
the Term Commitment is outstanding (whether or not the conditions to borrowing
have been or can be fulfilled):
(a) Debt. Borrower shall not, and shall not permit any Subsidiary
to, create, assume, incur or otherwise become or remain obligated in respect
of, or permit to be outstanding, or suffer to exist any Debt, except:
(i) Debt under the Loan Papers;
(ii) Accounts payable and accrued liabilities incurred in
the ordinary course of business;
(iii) Debt related to the construction and equipping of the
Borrower's corporate headquarters and distribution facilities
(including with respect to Capitalized Lease Obligations) not to
exceed $20,000,000 in aggregate principal amount, provided such Debt
which is for the purpose of equipping of Borrower's corporate
headquarters and distribution facilities shall be subordinated to the
Obligations and all obligations under the Term Credit Agreement upon
terms satisfactory to the Lenders;
(iv) Interest hedging obligations under Interest Rate Swap
Agreements entered into with the Administrative Lender or any of its
Affiliates;
(v) Debt which is described on Schedule 2 hereto,
including renewals (but no increases) thereof;
(vi) Debt in respect of endorsement of negotiable
instruments in the ordinary course of business;
(vii) Debt between Borrower and a Subsidiary, a Subsidiary
and Borrower and a Subsidiary and a Subsidiary;
(ix) Debt under the Subsidiary Credit Agreement; and
(xi) Other Debt not to exceed $1,000,000 in aggregate
principal amount.
(b) Liens. Borrower shall not, and shall not permit any
Subsidiary to, create, assume, incur, permit or suffer to exist, directly or
indirectly, any Lien on any of its assets, whether now owned or hereafter
acquired, except Permitted Liens. Borrower shall not, and shall not permit any
Subsidiary to, agree with any other Person that it shall not create, assume,
incur, permit or suffer to exist or to be created, assumed, incurred or
permitted to exist, directly or indirectly, any Lien on any of its assets.
<PAGE> 26
(c) Investments. Borrower shall not, and shall not permit any
Subsidiary to, make any Investment, except that Borrower may purchase or
otherwise acquire and own:
(i) Cash and Cash Equivalents;
(ii) Accounts receivable that arise in the ordinary course
of business and are payable on standard terms;
(iii) Investments in existence on the Schedule 3 hereto;
and
(iv) Investments in Subsidiaries that have executed a
Guaranty and Security Agreement.
(d) Liquidation, Disposition or Acquisition of Assets, Merger, New
Subsidiaries. Borrower shall not, and shall not permit any Subsidiary to, at
any time:
(i) liquidate or dissolve itself (or suffer any
liquidation or dissolution) or otherwise wind up;
(ii) sell, lease, abandon, transfer or otherwise dispose
of assets (excluding dispositions in the ordinary course of business
and dispositions of obsolete assets);
(iii) enter into any merger or consolidation unless (a)
with respect to a merger or consolidation, Borrower shall be the
surviving corporation, unless the merger or consolidation involves a
Subsidiary and not Borrower, such Subsidiary shall be the surviving
corporation, (b) such transaction shall not be utilized to circumvent
compliance with any term or provision herein and (c) no Default or
Event of Default shall then be in existence or occur as a result of
such transaction; or
(iv) create or acquire any Subsidiary unless such
Subsidiary shall have complied with the requirements of paragraph
10(c)(iv) hereof.
(e) Restricted Payments. Borrower shall not, and shall not permit
any Subsidiary to, directly or indirectly declare, pay or make any Restricted
Payments; provided, however, a Subsidiary may declare or pay Dividends to
Borrower.
(f) Affiliate Transactions. Borrower shall not, and shall not
permit any Subsidiary to, at any time engage in any transaction with an
Affiliate on terms materially less advantageous to Borrower or Subsidiary than
would be the case if such transaction had been effected with a non-Affiliate
(other than advances to employees in the ordinary course of business).
(g) Compliance with ERISA. Borrower shall not, and shall not
permit any Subsidiary to, directly or indirectly, or permit any member of its
Controlled Group to directly or indirectly, (i) terminate any Plan so as to
result in any material (in the opinion of the Required Lenders)
- 2 -
<PAGE> 27
liability to Borrower or any member of its Controlled Group, (ii) permit to
exist any ERISA Event, or any other event or condition which presents the risk
of a material (in the opinion of the Required Lenders) liability of Borrower or
any member of its Controlled Group taken as a whole, (iii) make a complete or
partial withdrawal (within the meaning of Section 4201 of ERISA) from any
Multiemployer Plan so as to result in any material (in the opinion of the
Required Lenders) liability to Borrower or any member of its Controlled Group,
(iv) enter into any new Plan or modify any existing Plan so as to increase its
obligations thereunder except in the ordinary course of business consistent
with past practice which could result in any material (in the opinion of the
Required Lenders) liability to Borrower or any member of its Controlled Group,
or (v) permit the present value of all benefit liabilities, as defined in Title
IV of ERISA, under each Plan of Borrower or any member of its Controlled Group
(using the actuarial assumptions utilized by each such Plan) to exceed the fair
market value of Plan assets allocable to such benefits.
(h) Total Liabilities to Net Worth. Borrower shall not permit the
ratio of Total Liabilities to Net Worth, determined as of the end of each
fiscal quarter of Borrower, to exceed the ratio set forth below opposite the
month in which such fiscal quarter ends:
Fiscal Quarter
--------------
October, 1995 3.50 to 1
January, 1996 2.50 to 1
April, 1996 2.00 to 1
July, 1996 1.75 to 1
(i) Fixed Charge Coverage Ratio. Borrower shall not permit the
Fixed Charge Coverage Ratio, determined as of the end of each fiscal quarter of
Borrower, calculated for the four fiscal quarters preceding the date of
determination, to be less than the ratio set forth below opposite the month in
which such fiscal quarter ends:
Fiscal Quarter
--------------
October, 1995 .75 to 1
January, 1996 1.10 to 1
April, 1996 1.10 to 1
July, 1996 1.10 to 1
(j) Sale and Leaseback. Borrower shall not, and shall not permit
any Subsidiary to, enter into any arrangement whereby it sells or transfers any
of its assets, and thereafter rents or leases such assets [EXCEPT WITH RESPECT
TO THE BORROWERS' CORPORATE HEADQUARTERS AND DISTRIBUTION FACILITIES].
- 3 -
<PAGE> 28
(k) Sale or Discount of Receivables. Borrower shall not, and
shall not permit any Subsidiary to, directly or indirectly, sell, with or
without recourse, for discount or otherwise, any notes or accounts receivable.
(l) Current Maturities Coverage Ratio. Borrow shall not permit the
Current Maturities Coverage Ratio, as of the last day of each fiscal quarter of
Borrower, to be less than 1.25 to 1.
- 4 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> JUL-29-1995
<CASH> 810
<SECURITIES> 0
<RECEIVABLES> 1,048
<ALLOWANCES> 0
<INVENTORY> 117,218
<CURRENT-ASSETS> 129,720
<PP&E> 113,861
<DEPRECIATION> 50,073
<TOTAL-ASSETS> 197,965
<CURRENT-LIABILITIES> 106,713
<BONDS> 14,000
<COMMON> 148
0
0
<OTHER-SE> 72,778
<TOTAL-LIABILITY-AND-EQUITY> 197,965
<SALES> 190,074
<TOTAL-REVENUES> 190,074
<CGS> 137,418
<TOTAL-COSTS> 137,418
<OTHER-EXPENSES> 67,022
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 943
<INCOME-PRETAX> (15,309)
<INCOME-TAX> 6,047
<INCOME-CONTINUING> (9,262)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,262)
<EPS-PRIMARY> (.63)
<EPS-DILUTED> (.63)
</TABLE>
