<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
-------------------------
Date of Report
November 5, 1996
NeoStar Retail Group, Inc.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 0-25272 75-2559376
- ---------------------------- -------------- -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2250 William D. Tate Avenue, Grapevine, Texas 76051
- --------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 424-2000
---------------
<PAGE> 2
Item 5. Other Events
News Release
On November 5, 1996, NeoStar Retail Group, Inc., a Delaware
corporation (the "Company"), issued a news release reporting (i) that the
Company is currently engaged in discussions with Leonard Riggio, a director and
stockholder of the Company, concerning a possible financing transaction, (ii)
that it has been required to use its cash resources at a more rapid rate than
that anticipated when it filed for bankruptcy protection under Chapter 11 of
the Bankruptcy Code on September 16, 1996, (iii) that an event of default has
occurred under the terms of the DIP Loan and Security Agreement (as hereinafter
defined) and (iv) certain related matters. The news release, attached hereto
and filed herewith as Exhibit 99.1, is incorporated herein by reference.
Background
On September 16, 1996, the Company and its direct and indirect
subsidiaries, Babbage's, Inc., a Texas corporation ("Babbage's"), Software Etc.
Stores, Inc., a Delaware corporation ("Software"), Augusta Enterprises, Inc., a
Delaware corporation, and Chasada, a Pennsylvania business trust, filed
voluntary petitions under Chapter 11 of the United States Bankruptcy Code, Case
No. 396-36648-SAF-11 in the United States Bankruptcy Court, Northern District
of Texas, Dallas Division (the "Bankruptcy Court"), U.S. Bankruptcy Judge
Steven A. Felsenthal presiding.
Debtor-in-Possession Financing
In connection with the Chapter 11 filings, the Company, Babbage's and
Software, as debtors-in-possession, entered into a Loan and Security Agreement
dated September 16, 1996 (the "Original Loan and Security Agreement"), with
Foothill Capital Corporation ("Foothill"), as agent ("Agent") for itself and a
group of bank lenders (the "DIP Lenders"), as amended by the Interim Amendment
to Loan and Security Agreement dated September 16, 1996 (the "Interim
Amendment"), as further amended by Amendment Number Two to Loan and Security
Agreement dated October 2, 1996 ("Amendment No. 2"), and as further amended by
Amendment Number Three to Loan and Security Agreement dated October 18, 1996
("Amendment No. 3") (the Original Loan and Security Agreement, as amended by
the Interim Amendment, Amendment No. 2 and Amendment No. 3, is hereinafter
referred to as the "DIP Loan and Security Agreement"). On October 2, 1996, the
Joint Stipulation and Agreed Order Authorizing Final Financing, Granting Senior
Liens and Superpriority Status, Providing for Adequate Protection and Payment
of Pre-Petition Secured Indebtedness, Modifying the Automatic Stay, and
Authorizing Debtors to Enter into Agreements with DIP Lenders and Agent (the
"Final Financing Order") was entered by the Bankruptcy Court.
The DIP Loan and Security Agreement provides for a $70,000,000
debtor-in-possession ("DIP") financing. Under an Interim Financing Order
entered by the Bankruptcy Court on September 16, 1996, the Company was
authorized to obtain interim DIP financing from the DIP Lenders in an amount
not
<PAGE> 3
to exceed $70,000,000 (the "Maximum Amount") less the aggregate principal
amount of pre-petition secured indebtedness outstanding as of September 16,
1996. On October 2, 1996, the Bankruptcy Court entered the Final Financing
Order which authorized final DIP financing in the Maximum Amount, the granting
of senior liens and superpriority status and, among other things, authorized
the Company and its subsidiaries to enter into agreements with the DIP Lenders.
The DIP financing is a revolving credit facility, bearing interest at
the reference rate (prime rate) of Norwest Bank, National Association plus two
percent (2%), which interest is to be reduced to such reference rate plus one
and one-half percent (1.5%) commencing December 1, 1996 so long as no event of
default has occurred and is continuing. The proceeds of the loan are to be
used for lawful corporate purposes. The loan is secured by virtually all of
the assets of the Company and its direct and indirect subsidiaries.
Under the terms of the DIP Loan and Security Agreement, the Company has
a borrowing base ("Borrowing Base") equal to the Applicable Advance Rate
(defined below) multiplied by the value of Eligible Inventory (defined below),
less certain Agent-established reserves. The DIP Loan and Security
Agreement also provides for a $10,000,000 "over-advance" (i.e., an advance
beyond the normal Borrowing Base limitation until November 30, 1996, but
nevertheless subject to the Maximum Amount). The "Applicable Advance Rate" is
65% from the closing date through November 5, 1996; 60% from November 6, 1996
through December 3, 1996; 55% from December 4, 1996 through December 31, 1996;
50% from January 1, 1997 through July 31, 1997; 55% from August 1, 1997 through
November 4, 1997; and 50% from November 5, 1997 through January 30, 1998;
provided, however, that after December 31, 1996, the Applicable Advance Rate
may not exceed the quotient, expressed as a percentage, equal to 75% (80%
during the period August 1, 1997 through October 31, 1997) of the liquidation
value, determined by a third-party appraiser, divided by the value of the
Eligible Inventory. "Eligible Inventory" under the facility means inventory
(net of reserves for shrinkage, obsolete or slow moving merchandise, and market
adjustments) consisting of finished goods held for sale in the ordinary course
of business which is located in any of the Company's properties or is in
transit from one property to another.
The DIP Loan and Security Agreement also provides for certain fees to
be paid by the Company, including an arrangement fee; a facility fee; an unused
line fee; financial examination, documentation and appraisal fees; and a
servicing fee, as well as an early termination premium if prepayment is made
from proceeds of financing provided by a lender other than Foothill or a group
of lenders for whom Foothill is not agent.
The Company is obligated to satisfy specified financial covenants on
certain dates during the term of the facility. The required financial
covenants relate to: Tangible Net Worth, EBITDA, Total Margin, Trade Credit
and
<PAGE> 4
Reorganization Expenses (all as defined in the DIP Loan and Security
Agreement). Such financial covenants appear in Schedules 6.11 and 6.11(e)
attached to Amendment No. 2. In addition, the DIP Loan and Security
Agreement requires the Company to have a clean-up period during which no
indebtedness may be outstanding under the DIP Loan and Security Agreement
(other than letters of credit). The clean-up period is to be five (5)
consecutive days, one of which shall be December 31, 1996.
Absent a default, the DIP financing will not become due until the
earlier of (i) January 30, 1998, (ii) the effective date of an order confirming
a plan of reorganization of the Company, (iii) the conversion of the bankruptcy
cases to cases under Chapter 7, (iv) the appointment of a trustee or an examiner
with management authority in the bankruptcy cases or (v) the dismissal of the
bankruptcy cases.
The above description is qualified in its entirety by the Original Loan
and Security Agreement, the Interim Amendment, Amendment No. 2, Amendment No. 3
and the Final Financing Order, copies of which are filed herewith as Exhibit
99.2, Exhibit 99.3, Exhibit 99.4, Exhibit 99.5 and Exhibit 99.6, respectively,
and are incorporated herein by reference.
"THE SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
ACT OF 1995. This report contains forward-looking statements that involve risks
and uncertainties, including but not limited to, projections of future
operating results, the financial condition of the Company, bankruptcy court
approval of those actions requiring such approval, and other risks detailed
from time to time in the Company's Securities and Exchange Commission filings.
Item 7. Financial Statements and Exhibits
(c) Exhibits
The following exhibits are filed as part of this report:
99.1 News Release of Neostar Retail Group, Inc. dated November 5,
1996.
99.2 Loan and Security Agreement, dated September 16, 1996, among
NeoStar Retail Group, Inc., Babbage's, Inc. and Software Etc.
Stores, Inc., as Borrowers, and certain financial institutions
named therein, as the Lenders, and Foothill Capital
Corporation, as Agent including Schedules C-1, P-1, 5.10 and
6.11 attached thereto and omitting other schedules and
exhibits.
99.3 Interim Amendment to Loan and Security Agreement dated
September 16, 1996 among NeoStar Retail Group, Inc.,
Babbage's, Inc. and Software Etc. Stores, Inc., as Borrowers,
and certain financial institutions named therein, as the
Lenders, and Foothill Capital Corporation, as Agent.
99.4 Amendment Number Two to Loan and Security Agreement dated
October 2, 1996 among NeoStar Retail Group, Inc., Babbage's,
Inc. and Software Etc. Stores, Inc., as Borrowers, and certain
financial
<PAGE> 5
institutions named therein, as the Lenders, and Foothill
Capital Corporation, as Agent including Schedules P-1, 6.11
and 6.11(e) attached thereto and omitting other schedules and
exhibits.
99.5 Amendment Number Three to Loan and Security Agreement dated
October 18, 1996 among NeoStar Retail Group, Inc., Babbage's,
Inc. and Software Etc. Stores, Inc., as Borrowers, and certain
financial institutions named therein, as the Lenders, and
Foothill Capital Corporation, as Agent.
99.6 Joint Stipulation and Agreed Order Authorizing Final
Financing, Granting Senior Liens and Superpriority Status,
Providing for Adequate Protection and Payment of Pre-Petition
Secured Indebtedness, Modifying the Automatic Stay, and
Authorizing Debtors to Enter into Agreements with DIP Lenders
and Agent.
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 hereunto duly authorized.
NEOSTAR RETAIL GROUP, INC.
(Registrant)
By: /s/ OPAL P. FERRARO
----------------------------
Opal P. Ferraro
Vice President and
Chief Financial Officer
Date: November 5, 1996
<PAGE> 6
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
------- ----------- ------
<S> <C> <C>
99.1 News Release of Neostar Retail Group, Inc. dated November 5,
1996.
99.2 Loan and Security Agreement, dated September 16, 1996, among
NeoStar Retail Group, Inc., Babbage's, Inc. and Software Etc.
Stores, Inc., as Borrowers, and certain financial institutions
named therein, as the Lenders, and Foothill Capital
Corporation, as Agent including Schedules C-1, P-1, 5.10 and
6.11 attached thereto and omitting other schedules and
exhibits.
99.3 Interim Amendment to Loan and Security Agreement dated
September 16, 1996 among NeoStar Retail Group, Inc.,
Babbage's, Inc. and Software Etc. Stores, Inc., as Borrowers,
and certain financial institutions named therein, as the
Lenders, and Foothill Capital Corporation, as Agent.
99.4 Amendment Number Two to Loan and Security Agreement dated
October 2, 1996 among NeoStar Retail Group, Inc., Babbage's,
Inc. and Software Etc. Stores, Inc., as Borrowers, and certain
financial institutions named therein, as the Lenders, and
Foothill Capital Corporation, as Agent including Schedules
P-1, 6.11 and 6.11(e) attached thereto and omitting other
schedules and exhibits.
99.5 Amendment Number Three to Loan and Security Agreement dated
October 18, 1996 among NeoStar Retail Group, Inc., Babbage's,
Inc. and Software Etc. Stores, Inc., as Borrowers, and certain
financial institutions named therein, as the Lenders, and
Foothill Capital Corporation, as Agent.
99.6 Joint Stipulation and Agreed Order Authorizing Final
Financing, Granting Senior Liens and Superpriority Status,
Providing for Adequate Protection and Payment of Pre-Petition
Secured Indebtedness, Modifying the Automatic Stay, and
Authorizing Debtors to Enter into Agreements with DIP Lenders
and Agent.
</TABLE>
<PAGE> 1
EXHIBIT 99.1
[NEOSTAR LETTERHEAD]
FOR IMMEDIATE RELEASE
FOR: NEOSTAR RETAIL GROUP, INC.
Contact: Paul R. Streiber 817/424-2186
NEOSTAR RETAIL GROUP IN DISCUSSIONS TO RECEIVE FINANCING
--------------------------------
DALLAS, TX, NOVEMBER 5, 1996 -- NeoStar Retail Group, Inc.
(NASDAQ:NEOSQ), parent company of Babbage's and Software Etc., reported that
the Company is currently engaged in discussions with Leonard Riggio, a director
and stockholder of NeoStar, concerning possible financial support, such as a
subordinated debtor-in-possession ("DIP") financing or a credit enhancement
arrangement.
NeoStar also said that Riggio is having discussions with the Company's
DIP lenders and major vendors to determine if such a transaction is feasible.
NeoStar said that until Riggio satisfactorily completes his legal review and
discussions with lenders and vendors, there can be no assurance that a
financing transaction will be consummated.
Separately, NeoStar's Chairman, Thomas G. Plaskett, reported that the
Company has been required to use its cash resources at a more rapid rate than
anticipated when it commenced its Chapter 11 bankruptcy case because it has
been unable to achieve sufficient levels of trade credit on satisfactory terms.
Plaskett said that even though the consumer software retailer had
obtained a $70 million DIP financing, its suppliers have not provided trade
credit at levels necessary to ensure an adequate mix of inventory in advance of
the holiday selling season. He also said that the shortfall in trade credit
had resulted in an event of default under the terms of the DIP financing, and
that NeoStar is in discussions with its lenders concerning the default.
(more)
<PAGE> 2
2
NeoStar filed a voluntary petition to reorganize under Chapter 11 of
the U.S. Bankruptcy Code in Federal Bankruptcy Court in Dallas on September 16,
1996.
NeoStar Retail Group is the nation's leading chain of consumer software
specialty stores. The Company employs over 5,000 people and operates over 650
stores in 49 states, the District of Columbia, Puerto Rico, and Canada
primarily under the names Software Etc. and Babbage's. Virtually all of the
Company's stores are located in major regional shopping malls.
"THE SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION ACT
OF 1995. This press release contains forward-looking statements that involve
risks and uncertainties, including but not limited to, projections of future
operating results, the financial condition of the Company, bankruptcy court
approval of those actions requiring such approval, and other risks detailed
from time to time in the Company's Securities and Exchange Commission filings.
###
<PAGE> 1
EXHIBIT 99.2
======================================================================
LOAN AND SECURITY AGREEMENT
AMONG
NEOSTAR RETAIL GROUP, INC., DEBTOR-IN-POSSESSION,
BABBAGE'S, INC., DEBTOR-IN-POSSESSION AND
SOFTWARE ETC. STORES, INC., DEBTOR-IN-POSSESSION
AS BORROWERS
THE FINANCIAL INSTITUTIONS NAMED HEREIN,
AS THE LENDERS,
AND
FOOTHILL CAPITAL CORPORATION,
AS AGENT
DATED AS OF SEPTEMBER 16, 1996
======================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
1. DEFINITIONS AND CONSTRUCTION. . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . 15
1.3 Code . . . . . . . . . . . . . . . . . . . . . . . . 15
1.4 Construction . . . . . . . . . . . . . . . . . . . . 15
1.5 Schedules and Exhibits. . . . . . . . . . . . . . . 15
2. LOAN AND TERMS OF PAYMENT . . . . . . . . . . . . . . . . . 15
2.1 Revolving Advances. . . . . . . . . . . . . . . . . 15
2.2 Letters of Credit. . . . . . . . . . . . . . . . . . 22
2.3 Payments . . . . . . . . . . . . . . . . . . . . . . 25
2.4 Intentionally Omitted. . . . . . . . . . . . . . . . 26
2.5 Overadvances . . . . . . . . . . . . . . . . . . . . 26
2.6 Interest: Rates, Payments, and Calculations. . . . 26
2.7 Collection of Accounts . . . . . . . . . . . . . . . 27
2.8 Crediting Payments; Application of Collections . . . 28
2.9 Borrowers' Designated Account. . . . . . . . . . . . 28
2.10 Maintenance of Loan Account; Statements
of Obligations. . . . . . . . . . . . . . . . . . . 28
2.11 Fees. . . . . . . . . . . . . . . . . . . . . . . . 29
3. CONDITIONS; TERM OF AGREEMENT . . . . . . . . . . . . . . . 30
3.1 Conditions Precedent to the Initial Advance and
Letter of Credit. . . . . . . . . . . . . . . . . . 30
3.2 Conditions Precedent to all Advances and all
Letters of Credit. . . . . . . . . . . . . . . . . . 31
3.3 Conditions Subsequent . . . . . . . . . . . . . . . 32
3.4 Term. . . . . . . . . . . . . . . . . . . . . . . . 32
3.5 Effect of Termination. . . . . . . . . . . . . . . . 32
3.6 Early Termination by Borrowers. . . . . . . . . . . 33
3.7 Termination Upon Event of Default. . . . . . . . . . 33
4. CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . . 33
4.1 Grant of Security Interest. . . . . . . . . . . . . 33
4.2 Negotiable Collateral. . . . . . . . . . . . . . . . 33
4.3 Collection of Accounts, General Intangibles, and
Negotiable Collateral. . . . . . . . . . . . . . . . 34
4.4 Delivery of Additional Documentation Required. . . . 34
4.5 Power of Attorney. . . . . . . . . . . . . . . . . . 34
4.6 Right to Inspect. . . . . . . . . . . . . . . . . . 35
i
<PAGE> 3
5. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . 35
5.1 No Prior Encumbrances. . . . . . . . . . . . . . . . 35
5.2 Intentionally Omitted. . . . . . . . . . . . . . . . 35
5.3 Eligible Inventory. . . . . . . . . . . . . . . . . 35
5.4 Equipment . . . . . . . . . . . . . . . . . . . . . 35
5.5 Location of Inventory and Equipment. . . . . . . . . 35
5.6 Inventory Records. . . . . . . . . . . . . . . . . . 35
5.7 Location of Chief Executive Office; FEIN. . . . . . 35
5.8 Due Organization and Qualification;
Subsidiaries. . . . . . . . . . . . . . . . . . . . 35
5.9 Due Authorization; No Conflict. . . . . . . . . . . 36
5.10 Litigation. . . . . . . . . . . . . . . . . . . . . 37
5.11 No Material Adverse Change. . . . . . . . . . . . . 37
5.12 Intentionally Omitted. . . . . . . . . . . . . . . . 37
5.13 Employee Benefits . . . . . . . . . . . . . . . . . 37
5.14 Environmental Condition. . . . . . . . . . . . . . . 38
5.15 Reliance by the Lender Group; Cumulative. . . . . . 38
6. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . 38
6.1 Accounting System. . . . . . . . . . . . . . . . . . 38
6.2 Collateral Reporting. . . . . . . . . . . . . . . . 39
6.3 Financial Statements, Reports, Certificates. . . . . 39
6.4 Tax Returns. . . . . . . . . . . . . . . . . . . . . 40
6.5 Bankruptcy Documents. . . . . . . . . . . . . . . . 40
6.6 Returns. . . . . . . . . . . . . . . . . . . . . . . 40
6.7 Title to Equipment. . . . . . . . . . . . . . . . . 40
6.8 Maintenance of Equipment. . . . . . . . . . . . . . 41
6.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . . 41
6.10 Insurance. . . . . . . . . . . . . . . . . . . . . . 41
6.11 Financial Covenants. . . . . . . . . . . . . . . . . 41
6.12 No Setoffs or Counterclaims. . . . . . . . . . . . . 42
6.13 Location of Inventory and Equipment. . . . . . . . . 42
6.14 Compliance with Laws. . . . . . . . . . . . . . . . 42
6.15 Employee Benefits. . . . . . . . . . . . . . . . . . 43
6.16 Leases. . . . . . . . . . . . . . . . . . . . . . . 43
6.17 Collateral Access Agreements. . . . . . . . . . . . 44
7. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . 44
7.1 Indebtedness. . . . . . . . . . . . . . . . . . . . 44
7.2 Liens. . . . . . . . . . . . . . . . . . . . . . . . 45
7.3 Restrictions on Fundamental Changes. . . . . . . . . 45
7.4 Extraordinary Transactions and Disposal of Assets. . 45
7.5 Change Name . . . . . . . . . . . . . . . . . . . . 45
7.6 Guarantee. . . . . . . . . . . . . . . . . . . . . . 45
7.7 Restructure. . . . . . . . . . . . . . . . . . . . . 45
ii
<PAGE> 4
7.8 Prepayments. . . . . . . . . . . . . . . . . . . . . 45
7.9 Change of Control. . . . . . . . . . . . . . . . . . 46
7.10 Capital Expenditures. . . . . . . . . . . . . . . . 46
7.11 Consignments. . . . . . . . . . . . . . . . . . . . 46
7.12 Distributions. . . . . . . . . . . . . . . . . . . . 46
7.13 Accounting Methods. . . . . . . . . . . . . . . . . 46
7.14 Investments. . . . . . . . . . . . . . . . . . . . . 46
7.15 Transactions with Affiliates. . . . . . . . . . . . 46
7.16 Suspension. . . . . . . . . . . . . . . . . . . . . 46
7.17 Intentionally Omitted. . . . . . . . . . . . . . . . 46
7.18 Use of Proceeds. . . . . . . . . . . . . . . . . . . 46
7.19 Change in Location of Chief Executive Office;
Inventory and Equipment with Bailees. . . . . . . . 47
7.20 No Prohibited Transactions Under ERISA . . . . . . . 47
8. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . 48
9. THE LENDER GROUP'S RIGHTS AND REMEDIES. . . . . . . . . . . 49
9.1 Rights and Remedies. . . . . . . . . . . . . . . . . 49
9.2 Remedies Cumulative. . . . . . . . . . . . . . . . . 51
10. TAXES AND EXPENSES . . . . . . . . . . . . . . . . . . . . 52
11. WAIVERS; INDEMNIFICATION . . . . . . . . . . . . . . . . . 52
11.1 Demand; Protest; etc. . . . . . . . . . . . . . . . 52
11.2 The Lender Group's Liability for Collateral. . . . . 52
11.3 Indemnification. . . . . . . . . . . . . . . . . . . 52
11.4 Suretyship Waivers and Consents. . . . . . . . . . . 53
12. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . 56
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. . . . . . . . . 57
14. DESTRUCTION OF BORROWERS' DOCUMENTS . . . . . . . . . . . . 58
15. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS . . . . . . . . 58
15.1 Assignments and Participations. . . . . . . . . . . 58
15.2 Successors. . . . . . . . . . . . . . . . . . . . . 61
16. AMENDMENTS; WAIVERS . . . . . . . . . . . . . . . . . . . . 61
16.1 Amendments and Waivers. . . . . . . . . . . . . . . 61
16.2 No Waivers; Cumulative Remedies. . . . . . . . . . . 62
iii
<PAGE> 5
17. AGENT; THE LENDER GROUP . . . . . . . . . . . . . . . . . . 62
17.1 Appointment and Authorization of Agent. . . . . . . 62
17.2 Delegation of Duties. . . . . . . . . . . . . . . . 63
17.3 Liability of Agent-Related Persons. . . . . . . . . 63
17.4 Reliance by Agent. . . . . . . . . . . . . . . . . . 64
17.5 Notice of Default or Event of Default. . . . . . . . 64
17.6 Credit Decision. . . . . . . . . . . . . . . . . . . 65
17.7 Costs and Expenses; Indemnification. . . . . . . . . 65
17.8 Agent in Individual Capacity. . . . . . . . . . . . 66
17.9 Successor Agent. . . . . . . . . . . . . . . . . . . 66
17.10 Withholding Tax. . . . . . . . . . . . . . . . . . . 67
17.11 Collateral Matters. . . . . . . . . . . . . . . . . 68
17.12 Restrictions on Actions by Lenders;
Sharing of Payments. . . . . . . . . . . . . . . . . 69
17.13 Agency for Perfection. . . . . . . . . . . . . . . . 70
17.14 Payments by Agent to the Lenders. . . . . . . . . . 70
17.15 Concerning the Collateral and Related Loan Documents. 70
17.16 Field Audits and Examination Reports;
Confidentiality; Disclaimers by Lenders; Other
Reports and Information. . . . . . . . . . . . . . . 70
17.17 Several Obligations; No Liability. . . . . . . . . . 72
18. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . 72
18.1 Effectiveness. . . . . . . . . . . . . . . . . . . . 72
18.2 Section Headings. . . . . . . . . . . . . . . . . . 72
18.3 Interpretation. . . . . . . . . . . . . . . . . . . 72
18.4 Severability of Provisions. . . . . . . . . . . . . 72
18.5 Confidential Information. . . . . . . . . . . . . . 73
18.6 Counterparts; Telefacsimile Execution. . . . . . . . 73
18.7 Revival and Reinstatement of Obligations. . . . . . 73
18.8 Integration. . . . . . . . . . . . . . . . . . . . . 74
SCHEDULES AND EXHIBITS
Schedule C-1 Commitments
Schedule E-1 Eligible Inventory Locations
Schedule P-1 Permitted Liens
Schedule 5.8 Subsidiaries
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 6.11 Financial Covenants
Schedule 6.13 Location of Inventory and Equipment
Exhibit A-1 Form of Assignment and Acceptance
iv
<PAGE> 6
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (THIS "AGREEMENT") is entered into as
of September 16, 1996, among NEOSTAR RETAIL GROUP, INC., a Delaware corporation
operating as a debtor-in-possession ("Parent"), BABBAGE'S, INC., a Texas
corporation operating as a debtor-in-possession ("Babbage"), and SOFTWARE ETC.
STORES, INC., a Delaware corporation operating as a debtor-in-possession
("Software"), with their chief executive offices located at 2250 William D.
Tate Avenue, Grapevine, Texas 76051, on the one hand, and the financial
institutions listed on the signature pages hereof (such financial institutions,
together with their respective successors and assigns, are referred to
hereinafter each individually as a "Lender" and collectively as the "Lenders"),
and FOOTHILL CAPITAL CORPORATION, a California corporation, as agent for the
Lenders ("Agent"), on the other hand.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following
terms shall have the following definitions:
"Account Debtor" means any Person who is or who may become
obligated under, with respect to, or on account of, an Account.
"Accounts" means all currently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to a Person
arising out of the sale or lease of goods or the rendition of services by such
Person, irrespective of whether earned by performance, and any and all credit
insurance, guaranties, or security therefor.
"Advances" has the meaning set forth in Section 2.1(a).
"Affiliate" means, as applied to any Person, any other Person who
directly or indirectly controls, is controlled by, is under common control with
or is a director or officer of such Person. For purposes of this definition,
"control" means the possession, directly or indirectly, of the power to vote 5%
or more of the securities having ordinary voting power for the election of
directors or the direct or indirect power to direct the management and policies
of a Person. For purposes of this Agreement, Barnes & Noble, Inc. and its
related companies shall not be deemed Affiliates of Borrowers solely by reason
of Leonard Riggio being a director and shareholder of Parent.
"Agent" means Foothill, solely in its capacity as agent for the
Lenders, and shall include any successor agent.
1
<PAGE> 7
"Agent's Account" has the meaning set forth in Section 2.7.
"Agent Advance" has the meaning set forth in Section 2.1(g).
"Agent Loan" has the meaning set forth in Section 2.1(f).
"Agent-Related Persons" means Agent, together with its
Affiliates, and the officers, directors, employees, counsel, agents, and
attorneys-in-fact of such Persons and Affiliates.
"Agreement" has the meaning set forth in the preamble hereto.
"Applicable Advance Rate" means: 65% from the Closing Date
through November 5, 1996; 60% from November 6, 1996 through December 3, 1996;
55% from December 4, 1996 through December 31, 1996; 50% from January 1, 1997
through July 31, 1997, 55% from August 1, 1997 through November 4, 1997, 50%
from November 5, 1997 through January 30, 1998; provided, however, that the
Applicable Advance Rate shall at no time after December 31, 1996 exceed the
quotient, expressed as a percentage, equal to 75% (80% during the period of
August 1, 1997 through October 31, 1997) of the Liquidation Value based upon
the most recent third party appraisal of Borrowers' Inventory conducted by an
appraiser selected by Agent, divided by the value of Eligible Inventory on the
date of such appraisal.
"Assignee" has the meaning set forth in Section 15.1(a).
"Assignment and Acceptance" has the meaning set forth in Section
15.1(a) and shall be in the form of Exhibit A-1.
"Augusta" means Augusta Enterprises, Inc., a Delaware
corporation.
"Authorized Officer" means any officer or other employee of any
Borrower.
"Availability" means, as of the date of determination, the result
(so long as such result is a positive number) of (a) the lesser of the
Borrowing Base or the Maximum Amount, minus (b) the outstanding Obligations
that arise under Sections 2.1 and 2.2.
"Average Unused Portion of Maximum Amount" means, as of any date
of determination, (a) the Maximum Amount, less (b) the sum of (i) the average
Daily Balance of Advances that were outstanding during the immediately
preceding month, plus (ii) the average Daily Balance of the undrawn Letters of
Credit that were outstanding during the immediately preceding month.
"Babbage" has the meaning set forth in the Preamble to this
Agreement.
2
<PAGE> 8
"Bankruptcy Cases" means Borrowers' Chapter 11 cases (Nos. 396-
36648-SAF-11 NeoStar, 396-36649-SAF-11 Babbage's, and 396-36650-SAF-11
Software) in the Bankruptcy Court.
"Bankruptcy Code" means the United States Bankruptcy Code (11
U.S.C. Section 101 et seq.), as amended, or supplemented from time to time,
and any successor statute.
"Bankruptcy Court" means the United States Bankruptcy Court for
the Northern District of Texas, Dallas Division, in which the Bankruptcy Cases
are pending.
"Bankruptcy Court Order" means an order approved by the
Bankruptcy Court on or before October 15, 1996 containing substantially the
same terms as of the Interim Bankruptcy Court Order in the form and substance
acceptable to the Agent and the Lenders.
"Benefit Plan" means a "defined benefit plan" (as defined in
Section 3(35) of ERISA) for which any Borrower, any Subsidiary of any Borrower,
or any ERISA Affiliate has been an "employer" (as defined in Section 3(5) of
ERISA) within the past six years.
"Borrowers" means Parent, Babbage and Software, individually and
collectively, and jointly and severally.
"Borrowers' Books" means all of each Borrower's books and records
including: ledgers; records indicating, summarizing, or evidencing such
Borrower's properties or assets (including the Collateral) or liabilities; all
information relating to such Borrower's business operations or financial
condition; and all computer programs, disk or tape files, printouts, runs, or
other computer prepared information.
"Borrowers' Designated Account" means account number 018-368312-5
of Borrowers maintained with Borrowers' Designated Account Bank, or such other
deposit account (located within the United States) of Borrowers designated, in
writing and from time to time, by Borrowers to Agent prior to the date of the
establishment of such other deposit account.
"Borrowers' Designated Account Bank" means, as of the Closing
Date, NationsBank of Texas, National Association, whose office is located at
901 Main Street, Dallas, Texas 75202-2911, Attn: Todd Burns, CCM, 7th Floor,
and whose ABA number is 111000025, or such other financial institution (located
within the United States) that Borrowers shall designate to Agent, in writing
from time to time.
"Borrowing" means a borrowing hereunder consisting of Advances
made on the same day by the Lenders to Borrowers, or by Agent in the case of an
Agent Loan or an Agent Advance.
"Borrowing Base" has the meaning set forth in Section 2.1(a).
3
<PAGE> 9
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which national banks are authorized or required to close.
"Change of Control" shall be deemed to have occurred at such time
as: a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934), other than Leonard Riggio or Vendex
International N.V., becomes the "beneficial owner" (as defined in Rule 13d-3
under the Securities Exchange Act of 1934), directly or indirectly, of more
than 30% of the total voting power of all classes of stock then outstanding of
Parent normally entitled to vote in the election of directors.
"Chasada" means Chasada, a Pennsylvania business trust.
"Closing Date" means the date of the first to occur of the making
of the initial Advance or the issuance of the initial Letter of Credit.
"Code" means the California Uniform Commercial Code, as amended
and supplemented from time to time, and any successor statute.
"Collateral" means any and all of each Borrower's right, title
and interest in and to all of its real and personal property, including without
limitation, each of the following:
(a) Accounts,
(b) Borrowers' Books,
(c) Equipment,
(d) General Intangibles,
(e) Inventory,
(f) Negotiable Collateral,
(g) Investment Property,
(h) any money, or other assets of any Borrower that now or
hereafter come into the possession, custody, or
control of the Lender Group, and
(i) the proceeds and products, whether tangible or intangible,
of any of the foregoing, including proceeds of
insurance covering any or all of the Collateral,
and any and all Accounts, Borrowers' Books,
Equipment, General Intangibles, Inventory,
Negotiable Collateral, real property, money,
deposit accounts, or other tangible or intangible
property resulting from the sale, exchange,
collection, or other disposition of any of the
foregoing, or any portion thereof or interest
therein, and the proceeds thereof.
"Collateral Access Agreement" means a landlord waiver, mortgagee
waiver, bailee letter, or a similar acknowledgement agreement from any
warehouseman, processor, lessor, or other Person in possession of, or having a
Lien on or other interest in, any property or assets of any Borrower, in each
case in form and substance reasonably satisfactory to Agent.
4
<PAGE> 10
"Collections" means all cash, checks, notes, instruments, and
other items of payment (including insurance proceeds, proceeds of cash sales,
rental proceeds, and tax refunds).
"Commitment" means, at any time with respect to a Lender, the
principal amount set forth beside such Lender's name under the heading
"Commitment" on Schedule C-1 or on the signature page of the Assignment and
Acceptance pursuant to which such Lender became a Lender hereunder in
accordance with the provisions of Section 15.1, as such Commitment may be
adjusted from time to time in accordance with the provisions of Section 15.1,
and "Commitments" means, collectively, the aggregate amount of the commitments
of all of the Lenders.
"Daily Balance" means the amount of an Obligation owed at the end
of a given day.
"Default" means an event, condition, or default that, with the
giving of notice, the passage of time, or both, would be an Event of Default.
"Defaulting Lender" has the meaning set forth in Section
2.1(e)(ii).
"Defaulting Lenders Rate" means the Reference Rate for the first
three (3) days from and after the date the relevant payment is due and
thereafter at the interest rate then applicable to Advances.
"Disbursement Letter" means an instructional letter executed and
delivered by Borrowers to Agent regarding the extensions of credit to be made
on the Closing Date, the form and substance of which shall be satisfactory to
Agent.
"Dollars or $" means United States dollars.
"Early Termination Premium" has the meaning set forth in Section
3.6.
"EBITDA" means, with respect to any fiscal period, the sum of
Parent's net earnings (or loss) plus interest expense, taxes, amortization,
depreciation for said period as determined in accordance with GAAP,
reorganization expenses, severance expenses, and non-cash charges resulting
from GAAP adjustments caused by the filing of the Cases.
"Eligible Inventory" means Inventory of any Borrower (net of
reserves established by Agent for Inventory shrinkage, Inventory that is
obsolete or slow moving, and market adjustments) consisting of finished goods
held for sale in the ordinary course of such Borrower's business that are
located at such Borrower's premises identified on Schedule E-1 or are in
transit from one location on Schedule E-1 to another location on such schedule,
that strictly comply with each and all of the representations and warranties
respecting Inventory made by such Borrower in the Loan Documents, and that are
and at all times continue to be reasonably acceptable to Agent in all respects;
provided, however, that standards of eligibility may be fixed and revised from
time to time by Agent in Agent's reasonable credit judgment. In determining
the amount to be so included,
5
<PAGE> 11
Inventory shall be valued at Borrowers' average cost according to the perpetual
inventory report for all Inventory, on a basis consistent with Borrowers'
current and historical accounting practices. An item of a Borrower's Inventory
shall not be included in Eligible Inventory if:
(i) it is not owned solely by such Borrower or such Borrower
does not have good, valid, and marketable title thereto;
(ii) it is not located either (x) on property owned or leased
by such Borrowers, or (y) in a contract warehouse subject to a Collateral
Access Agreement executed by the warehouseman and segregated or otherwise
separately identifiable from goods of others, if any, stored at the contract
warehouse;
(iii) it is not subject to a valid and perfected first priority
security interest in favor of Agent for the benefit of the Lender Group;
(iv) it consists of goods in transit other than from (a) one
location on Schedule E-1 to another location on such schedule or (b) from a
freight forwarder directly to a location on Schedule E-1; or
(v) it is Inventory that constitutes spare parts, packaging
and shipping materials, supplies used or consumed in a Borrower's business,
Inventory subject to a security interest or lien in favor of any third Person,
bill and hold goods, samples or demonstration items, defective goods,
"seconds," Inventory that has been recalled, or Inventory acquired on
consignment and the proceeds of the sales thereof to the extent owed to the
consignor.
"Equipment" means all of a Person's present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts, goods
(other than consumer goods, farm products, or Inventory), wherever located,
including, (a) any assets acquired by such Person with the proceeds of any
Advance, (b) any interest of such Person in any of the foregoing, and (c) all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of
1974, 29 U.S.C. Sections 1000 et seq., amendments thereto, successor statutes,
and regulations or guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation subject to ERISA
whose employees are treated as employed by the same employer as the employees
of any Borrower under IRC Section 414(b), (b) any trade or business subject to
ERISA whose employees are treated as employed by the same employer as the
employees of any Borrower under IRC Section 414(c), (c) solely for purposes of
Section 302 of ERISA and Section 412 of the IRC, any organization subject to
ERISA that is a member of an affiliated service group of which any Borrower is
a member under IRC
6
<PAGE> 12
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any party subject to ERISA that is a party to an arrangement
with any Borrower and whose employees are aggregated with the employees of any
Borrower under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with respect to any
Benefit Plan or Multiemployer Plan, (b) the withdrawal of Parent or any
Borrower, any of their respective Subsidiaries or ERISA Affiliates from a
Benefit Plan during a plan year in which such Person was a "substantial
employer" (as defined in Section 4001(a)(2) of ERISA), (c) the providing of
notice of intent to terminate a Benefit Plan in a distress termination (as
described in Section 4041(c) of ERISA), (d) the institution by the PBGC of
proceedings to terminate a Benefit Plan or Multiemployer Plan, (e) any event or
condition (i) that provides a basis under Section 4042(a)(1), (2), or (3) of
ERISA for the termination of, or the appointment of a trustee to administer,
any Benefit Plan or Multiemployer Plan, or (ii) that may result in termination
of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the partial or
complete withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of
Parent or any Borrower, any of their respective Subsidiaries or ERISA
Affiliates from a Multiemployer Plan, or (g) providing any security to any Plan
under Section 401(a)(29) of the IRC by any Borrower or their respective
Subsidiaries or any of their ERISA Affiliates.
"Event of Default" has the meaning set forth in Section 8.
"Existing Lenders" means NationsBank of Texas, National
Association, as Administrative Lender, for itself and other financial
institutions and the other financial institutions for which it is
Administrative Lender.
"FEIN" means Federal Employer Identification Number.
"Foothill" means Foothill Capital Corporation, a California
corporation.
"Funding Date" means the date on which a Borrowing occurs.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, consistently applied.
"General Intangibles" means all of a Person's present and future
general intangibles and other personal property (including contract rights,
rights arising under common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty, franchise, or licensing agreements, infringement claims,
claims of any Borrower to transfers that are avoidable pursuant to provisions
of the Bankruptcy Code, computer programs, information contained on computer
disks or tapes, literature, reports, catalogs, deposit accounts, insurance
premium rebates, tax refunds, and tax refund claims), other than goods,
Accounts, and Negotiable Collateral.
7
<PAGE> 13
"Governing Documents" means the certificates or articles of
incorporation, by-laws, or other organizational or governing documents of any
Person.
"Governmental Authority" means any nation or government, any
state, province, or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Guarantor Collateral" means the personal property of any
Guarantor in which Liens held by the Lender Group have been granted pursuant to
the Loan Documents.
"Guarantors" means Augusta and Chasada individually and
collectively, and jointly and severally.
"Guaranties" means those certain Continuing Guaranties, each
dated as of even date herewith, executed and delivered by the respective
Guarantors.
"Hazardous Materials" means (a) substances that are defined or
listed in, or otherwise classified pursuant to, any applicable laws or
regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or any other formulation intended to define, list,
or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity,
or "EP toxicity", (b) oil, petroleum, or petroleum derived substances, natural
gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and
other wastes associated with the exploration, development, or production of
crude oil, natural gas, or geothermal resources, (c) any flammable substances
or explosives or any radioactive materials, and (d) asbestos in any form or
electrical equipment that contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of fifty (50) parts per million.
"Indebtedness" means: (a) all obligations of a Person for
borrowed money, (b) all obligations of a Person evidenced by bonds, debentures,
notes, or other similar instruments and all reimbursement or other obligations
of a Person in respect of letters of credit, bankers acceptances, interest rate
swaps, or other financial products, (c) all obligations of a Person under
capital leases, (d) all obligations or liabilities of others secured by a lien
or security interest on any property or asset of a Person, irrespective of
whether such obligation or liability is assumed, and (e) any obligation of a
Person guaranteeing or intended to guarantee (whether guaranteed, endorsed, co-
made, discounted, or sold with recourse to such Person) any indebtedness,
lease, dividend, letter of credit, or other obligation of any other Person
unless such guaranty is made by one Obligor of the obligations of another
Obligor.
"Indemnified Liabilities" has the meaning set forth in Section
11.3.
8
<PAGE> 14
"Indemnified Person" has the meaning set forth in Section 11.3.
"Insolvency Proceeding" means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or under any
other bankruptcy or insolvency law, assignments for the benefit of creditors,
formal or informal moratoria, compositions, extensions generally with
creditors, or proceedings seeking reorganization, arrangement, or other similar
relief.
"Interim Bankruptcy Court Order" means that certain Joint
Stipulation and Agreed Order Authorizing Interim Financing, Granting Senior
Liens and Superpriority Status, Providing for Adequate Protection and Payment
of Pre-Petition Secured Indebtedness, Modifying the Automatic Stay and
Authorizing Debtors to Enter into Agreements with DIP Lenders and Agent entered
by the Bankruptcy Court on or about September 17, 1996, in form and substance
acceptable to the Agent and the Lenders.
"Intangible Assets" means, with respect to any Person, that
portion of the book value of all of such Person's assets that would be treated
as intangibles under GAAP.
"Inventory" means all present and future inventory in which a
Person has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of such Person's present and
future raw materials, work in process, finished goods, and packing and shipping
materials, wherever located, and any documents of title representing any of the
above.
"Investment Property" shall have the meaning assigned thereto in
Section 9.115(a)(6) of the Texas Business and Commerce Code.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"L/C" has the meaning set forth in Section 2.2(a).
"L/C Guaranty" has the meaning set forth in Section 2.2(a).
"Lender" and "Lenders" have the respective meanings set forth in
the preamble to this Agreement, and shall include any other Person made a party
to this Agreement in accordance with the provisions of Section 15.1.
"Lender Group" means, individually and collectively, each of the
individual Lenders and Agent.
"Lender Group Expenses" means all: costs or expenses (including
taxes, and insurance premiums) required to be paid by any Obligor under any of
the Loan Documents that are paid or incurred by the Lender Group; reasonable
fees or charges paid or incurred by the Lender Group in connection with the
Lender Group's transactions with the Obligors, including, fees or charges for
9
<PAGE> 15
photocopying, notarization, telecommunication, public record searches
(including tax lien, litigation, and UCC searches), filing, recording,
publication, and appraisal (including periodic Collateral and Guarantor
Collateral appraisals); reasonable costs and expenses incurred by Agent in the
disbursement of funds to any Borrower (by wire transfer or otherwise);
reasonable charges paid or incurred by Agent resulting from the dishonor of
checks; costs and expenses paid or incurred by the Lender Group to correct any
default or enforce any provision of the Loan Documents, or in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling,
preparing for sale, or advertising to sell the Collateral or Guarantor
Collateral, or any portion thereof, irrespective of whether a sale is
consummated; reasonable costs and expenses paid or incurred by the Lender Group
in examining Borrowers' Books; costs and expenses of third party claims or any
other suit paid or incurred by the Lender Group in enforcing or defending the
Loan Documents or in connection with the transactions contemplated by the Loan
Documents or the Lender Group's relationship with the Obligors; and the
reasonable attorneys fees and expenses incurred by the Lender Group in
advising, structuring, drafting, reviewing, administering, amending,
terminating, enforcing (including attorneys fees and expenses incurred in
connection with a "workout," a "restructuring," or an Insolvency Proceeding
concerning one or more Obligors), defending, or concerning the Loan Documents,
irrespective of whether suit is brought.
"Letter of Credit" means an L/C or an L/C Guaranty, as the
context requires.
"Lien" means any interest in property securing an obligation owed
to, or a claim by, any Person other than the owner of the property, whether
such interest shall be based on the common law, statute or contract, whether
such interest shall be recorded or perfected and whether such interest shall be
contingent upon the occurrence of some future event or events or the existence
of some future circumstance or circumstances, and including the lien or
security interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, adverse
claim or charge, conditional sale or trust receipt, or from a lease,
consignment or bailment for security purposes. For the purposes of this
Agreement, a Person shall be deemed to be the owner of any property that such
Person shall have acquired or shall hold subject to a conditional sale
agreement or other arrangement (including a leasing arrangement) pursuant to
which title to the property shall have been retained by or vested in some other
Person for security purposes.
"Liquidation Value" means the net going out of business
liquidation value of a Borrower's Eligible Inventory as determined by Agent
from time to time in its reasonable discretion based upon third party
appraisals of such Inventory conducted by an appraiser selected by Agent.
"Loan Account" has the meaning set forth in Section 2.10.
"Loan Documents" means this Agreement, the Guaranties, the
Security Agreements, the Stock Pledge Agreements, the Disbursement Letter, the
Letters of Credit, the Lockbox Agreements, the Collateral Access Agreements,
any note or notes executed by any Borrower and
10
<PAGE> 16
payable to the Lender Group, and any other agreement entered into, now or in
the future, in connection with this Agreement.
"Lockbox Account" means a depositary account established pursuant
to one of the Lockbox Agreements.
"Lockbox Agreements" means those certain Blocked Depository
Account Agreements, and those certain letter agreements authorizing transfers
to Agent's designated blocked account, in each case in form and substance
satisfactory to Agent, each of which is among a Borrower, Agent, and one of the
Lockbox Banks.
"Lockbox Banks" means, as of the Closing Date, NationsBank of
Texas, National Association, and such other financial institutions as may
replace the foregoing, or be added to the foregoing, in each case upon the
direction of Borrowers and with the consent of Agent (which, prior to an Event
of Default, shall not be unreasonably withheld).
"Lockboxes" has the meaning set forth in Section 2.7.
"Material Adverse Change" means (a) a material adverse change in
the business, prospects, operations, results of operations, assets, liabilities
or condition (financial or otherwise) of any Borrower (b) the material
impairment of an Obligor's ability to perform its obligations under the Loan
Documents to which it is a party or of the Lender Group to enforce the
Obligations or realize upon the Collateral or the Guarantor Collateral, (c) a
material adverse effect on the value of the Collateral or the amount that the
Lender Group would be likely to receive (after giving consideration to delays
in payment and costs of enforcement) in the liquidation of such Collateral, or
(d) a material impairment of the priority of the Lender Group's liens or
security interests in the Collateral or Guarantor Collateral.
"Maturity Date" has the meaning set forth in Section 3.4.
"Maximum Amount" means, as of the date any determination thereof
is to be made, $70,000,000.
"Multiemployer Plan" means a "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) to which any Borrower, any of its Subsidiaries, or
any ERISA Affiliate has contributed, or was obligated to contribute, within the
past six years.
"Negotiable Collateral" means all of a Person's present and
future letters of credit, notes, drafts, instruments, certificated securities
(including the shares of stock of Subsidiaries of such Person), documents,
personal property leases (wherein a Person is the lessor), chattel paper, and
Borrowers' Books relating to any of the foregoing.
11
<PAGE> 17
"Obligations" means all loans, Advances, debts, principal,
interest (including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), contingent reimbursement obligations owing to the
Lender Group under any outstanding Letters of Credit, premiums (including Early
Termination Premiums), liabilities (including all amounts charged to Borrowers'
Loan Account pursuant hereto), obligations, fees or Lender Group Expenses
(including any fees or expenses that, but for the provisions of the Bankruptcy
Code, would have accrued) lease payments, guaranties, covenants, and duties
owing by any Borrower to the Lender Group of any kind and description (whether
pursuant to or evidenced by the Loan Documents or pursuant to any other
agreement between the Lender Group and any Borrower, and irrespective of
whether for the payment of money), whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, and
including any debt, liability, or obligation owing from any Borrower to others
that the Lender Group may have obtained by assignment or otherwise, and further
including all interest not paid when due and all Lender Group Expenses that any
Borrower is required to pay or reimburse by the Loan Documents, by law, or
otherwise.
"Obligors" means, collectively, each of the Borrowers and each of
the Guarantors, and "Obligor" means any one of them.
"Overadvance" has the meaning set forth in Section 2.5.
"Parent" has the meaning set forth in the Preamble to this
Agreement.
"Participant" has the meaning set forth in Section 15.1(e).
"Pay-Off Letter" means a letter, in form and substance reasonably
satisfactory to Agent, from Existing Lender respecting the amount necessary to
repay in full all of the obligations of Borrowers owing to Existing Lender, and
obtain a termination or release of all of the security interests or liens
existing in favor of Existing Lender in and to the properties or assets of all
of the Obligors.
"PBGC" means the Pension Benefit Guaranty Corporation as defined
in Title IV of ERISA, or any successor thereto.
"Permitted Liens" means (a) Liens held by Agent for the benefit
of the Lender Group, (b) Liens for unpaid taxes, assessments, or other
governmental charges that are not yet due and payable, (c) Liens set forth on
Schedule P-1 attached hereto, (d) purchase money Liens and Liens of lessors
under capital leases to the extent that the acquisition or lease of the
underlying asset was permitted under Section 7.10, and so long as the Lien only
secures the purchase price of the asset, (e) easements, rights of way,
reservations, covenants, conditions, restrictions, zoning variances, and other
similar encumbrances that do not materially interfere with the use or value of
the property subject thereto, (f) obligations and duties as lessee under any
lease existing on the date of this Agreement, and (g) mechanics',
materialmen's, warehousemen's, or similar Liens that arise by operation of law.
12
<PAGE> 18
"Permitted Protest" means the right of a Person to protest any
Lien, tax, rental payment, or other charge, other than any such Lien or charge
that secures the Obligations, provided that (a) a reserve with respect to such
obligation is established on the books of such Person in an amount that is
reasonably satisfactory to Agent, (b) any such protest is instituted and
diligently prosecuted by such Person in good faith, and (c) Agent is satisfied
that, while any such protest is pending, there will be no impairment of the
enforceability, validity, or priority of any of the Liens of Agent for the
benefit of the Lender Group in and to the Collateral or the Guarantor
Collateral.
"Person" means and includes natural persons, corporations,
limited liability companies, limited partnerships, general partnerships,
limited liability partnerships, joint ventures, trusts, land trusts, business
trusts, or other organizations, irrespective of whether they are legal
entities, and governments and agencies and political subdivisions thereof.
"Plan" means any employee benefit plan, program, or arrangement
within the meaning of Section 3(3) of ERISA, maintained or contributed to by
any Borrower or with respect to which it may incur liability.
"Pro Rata Share" means, with respect to a Lender, a fraction
(expressed as a percentage), the numerator of which is the amount of such
Lender's Commitment and the denominator of which is the aggregate amount of the
Commitments.
"Reference Rate" means the variable rate of interest, per annum,
most recently announced by Norwest Bank Minnesota, National Association, or any
successor thereto, as its "base rate," "prime rate" or "reference rate,"
irrespective of whether such announced rate is the best rate available from
such financial institution.
"Reportable Event" means any of the events described in Section
4043(c) of ERISA or the regulations thereunder other than a Reportable Event as
to which the provision of thirty (30) days notice to the PBGC is waived under
applicable regulations.
"Required Lenders" means, at any time, Lenders whose Pro Rata
Shares aggregate more than 66.66% of the Commitments.
"Retiree Health Plan" means an "employee welfare benefit plan"
within the meaning of Section 3(1) of ERISA that provides benefits to
individuals after termination of their employment, other than as required by
Section 601 of ERISA.
"Revolving Facility Usage" means, as of any date of
determination, the aggregate amount of Advances and undrawn or unreimbursed
Letters of Credit outstanding.
13
<PAGE> 19
"Security Agreements" means the Security Agreement from Augusta
and the Intellectual Property Security Agreements from Chasada and Software,
each dated as of even date herewith.
"Settlement" has the meaning set forth in Section 2.1(f).
"Software" has the meaning set forth in the preamble to this
Agreement.
"Solvent" means, with respect to any Person on a particular date,
that on such date (a) at fair valuations, all of the properties and assets of
such Person are greater than the sum of the debts, including contingent
liabilities, of such Person, (b) the present fair salable value of the
properties and assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize upon its
properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it
will, incur debts beyond such Person's ability to pay as such debts mature, and
(e) such Person is not engaged in business or a transaction, and is not about
to engage in business or a transaction, for which such Person's properties and
assets would constitute unreasonably small capital after giving due
consideration to the prevailing practices in the industry in which such Person
is engaged. In computing the amount of contingent liabilities at any time, it
is intended that such liabilities will be computed at the amount that, in light
of all the facts and circumstances existing at such time, represents the amount
that reasonably can be expected to become an actual or matured liability.
"Subsidiary" of a Person means a corporation, partnership,
limited liability company, or other entity in which that Person directly or
indirectly owns or controls the shares of stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
appoint other managers of such corporation, partnership, limited liability
company, or other entity.
"Tangible Net Worth" means, as of the date any determination
thereof is to be made, (a) Parent's total stockholder's equity, minus (b) the
sum of: (i) all Intangible Assets of Parent, (ii) all of Parent's prepaid
expenses, and (iii) all amounts due to Parent and its Subsidiaries from
Affiliates, plus (c) reorganization expenses and severance expenses incurred
after the filing of the Bankruptcy Cases.
"Total Margin" means Parent's total sales, minus Parent's cost of
goods sold, freight charges, other costs of sales and selling fees.
"Voidable Transfer" has the meaning set forth in Section 15.8.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein,
the term "financial statements" shall
14
<PAGE> 20
include the notes and schedules thereto. Whenever the term
"Borrower" or "Parent" is used in respect of a financial covenant or a related
definition, it shall be understood to mean a Borrower or Parent, as the case
may be, on a consolidated basis unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement that are defined
in the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the term "including" is not
limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and similar terms in this Agreement refer to
this Agreement as a whole and not to any particular provision of this
Agreement. An Event of Default shall "continue" or be "continuing" until such
Event of Default has been waived in writing by the requisite members of the
Lender Group. Section, subsection, clause, schedule, and exhibit references
are to this Agreement unless otherwise specified. Any reference in this
Agreement or in the Loan Documents to this Agreement or any of the Loan
Documents shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, and supplements, thereto
and thereof, as applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES.
(a) Amount. Subject to the terms and conditions of
this Agreement, each Lender agrees to make advances ("Advances") to Borrowers
in an amount at any one time outstanding not to exceed such Lender's Pro Rata
Share of an amount equal to the lesser of: (i) the Maximum Amount less the
aggregate amount of all undrawn or unreimbursed Letters of Credit; or (ii) the
Borrowing Base, less the aggregate amount of all undrawn or unreimbursed
Letters of Credit. For purposes of this Agreement, "Borrowing Base", as of any
date of determination, shall mean the Applicable Advance Rate times the amount
of Eligible Inventory minus the aggregate amount of reserves, if any,
established by Agent under Sections 2.1(b), 6.16, or 10, plus $10,000,000 from
the Closing Date through November 30, 1996 and zero thereafter.
The Lenders shall have no obligation to make Advances hereunder to the extent
they would cause the outstanding Obligations to exceed the Maximum Amount.
Amounts borrowed pursuant to this Section 2.1 may be repaid and, subject to the
terms and conditions of this Agreement, reborrowed at any time during the term
of this Agreement.
15
<PAGE> 21
(b) Advance Rate Adjustments and Reserves. Anything to
the contrary in Section 2.1(a) above notwithstanding, Agent may create reserves
against or reduce its advance rates based upon Eligible Inventory for: (i)
unpaid ad valorem taxes and sales taxes that may have priority over the
Lenders' security interests; and (ii) upon three (3) Business Days advance
notice to Borrowers that Agent intends to do so because Agent has reasonably
determined that there has occurred a Material Adverse Change.
(c) Procedure for Borrowing. Each Borrowing shall be
made upon a Borrower's irrevocable request therefor delivered to Agent (which
notice must be received by Agent no later than 10:00 a.m. (California time) on
the Funding Date if such advance is for $10,000,000 or less or no later than
10:00 a.m. (California time) on the Business Day immediately preceding the
requested Funding Date) if such advance is for more than $10,000,000 specifying
(i) the amount of the Borrowing; and (ii) the requested Funding Date, which
shall be a Business Day. Agent is authorized to make Advances under this
Agreement based upon telephonic or other instructions received from anyone
purporting to be an Authorized Officer, or without instructions if pursuant to
Section 2.6(d). Borrowers agree to establish and maintain Borrowers'
Designated Account with Borrowers' Designated Account Bank for the purpose of
receiving the proceeds of the Advances requested by Borrowers and made by Agent
or the Lenders hereunder. Unless otherwise agreed by Agent and any Borrower,
any Advance requested by any Borrower and made by Agent hereunder shall be made
to Borrowers' Designated Account.
(d) Agent's Election. Promptly after receipt of a
request for a Borrowing pursuant to Section 2.1(c), the Agent shall elect, in
its discretion, (i) to have the terms of Section 2.1(e) apply to such requested
Borrowing, or (ii) to make an Agent Loan pursuant to the terms of Section
2.1(f) in the amount of the requested Borrowing.
(e) Making of Advances.
(i) In the event that the Agent shall elect to
have the terms of this Section 2.1(e) apply to a requested Borrowing as
described in Section 2.1(d), then promptly after receipt of a request for a
Borrowing pursuant to Section 2.1(c), the Agent shall notify the Lenders, not
later than 1:00 p.m. (California time) on the Business Day immediately
preceding the Funding Date applicable thereto, by telephone and promptly
followed by telecopy, or other similar form of transmission, of the requested
Borrowing. Each Lender shall make the amount of such Lender's Pro Rata Share
of the requested Borrowing available to the Agent in same day funds, to such
account of the Agent as the Agent may designate, not later than 12:00 noon
(California time) on the Funding Date applicable thereto. After the Agent's
receipt of the proceeds of such Advances, upon satisfaction of the applicable
conditions precedent set forth in Section 3, the Agent shall make the proceeds
of such Advances available to Borrowers on the applicable Funding Date by
transferring same day funds equal to the proceeds of such Advances received by
the Agent to the Borrowers' Designated Deposit Account; provided, however,
that, subject to the provisions of Section 2.1(k), the Agent shall not request
any Lender to make, and no Lender shall have the obligation to make, any
Advance if the Agent shall have received written notice from any Lender, or
otherwise has
16
<PAGE> 22
actual knowledge, that (i) one or more of the applicable conditions precedent
set forth in Section 3 will not be satisfied on the requested Funding Date for
the applicable Borrowing, or (ii) the requested Borrowing would exceed the
Availability on such Funding Date.
(ii) Unless Agent receives notice from a Lender
on or prior to the Closing Date or, with respect to any Borrowing after the
Closing Date, at least one (1) Business Day prior to the date of such
Borrowing, that such Lender will not make available as and when required
hereunder to Agent for the account of Borrowers the amount of that Lender's Pro
Rata Share of the Borrowing, Agent may assume that each Lender has made or will
make such amount available to Agent in immediately available funds on the
Funding Date and Agent may (but shall not be so required), in reliance upon
such assumption, make available to Borrowers on such date a corresponding
amount. If and to the extent any Lender shall not have made its full amount
available to Agent in immediately available funds and Agent in such
circumstances has made available to Borrowers such amount, that Lender shall on
the Business Day following such Funding Date make such amount available to
Agent, together with interest at the Defaulting Lenders Rate for each day
during such period. A notice of Agent submitted to any Lender with respect to
amounts owing under this subsection shall be conclusive, absent manifest error.
If such amount is paid to Agent such payment to Agent shall constitute such
Lender's Advance on the date of Borrowing for all purposes of this Agreement.
If such amount is not paid to Agent on the Business Day following the Funding
Date, Agent will notify Borrowers of such failure to fund and, upon demand by
Agent, Borrowers shall pay such amount to Agent for Agent's account, together
with interest thereon for each day elapsed since the date of such Borrowing, at
a rate per annum equal to the interest rate applicable at the time to the
Advances composing such Borrowing. The failure of any Lender to make any
Advance on any Funding Date shall not relieve any other Lender of any
obligation hereunder to make an Advance on such Funding Date, but no Lender
shall be responsible for the failure of any other Lender to make the Advance to
be made by such other Lender on any Funding Date. Any Lender that fails to
make any Advance that it is required to make hereunder on any Funding Date and
that has not cured such failure by making such Advance within one (1) Business
Day after written demand upon it by Agent to do so, shall constitute a
"Defaulting Lender" for purposes of this Agreement until such Advance is made.
(iii) Agent shall not be obligated to transfer to
a Defaulting Lender any payments made by Borrowers to Agent for the Defaulting
Lender's benefit; nor shall a Defaulting Lender be entitled to the sharing of
any payments hereunder. Amounts payable to a Defaulting Lender shall instead
be paid to or retained by Agent. Agent may hold and, in its discretion, re-
lend to Borrowers the amount of all such payments received or retained by it
for the account of such Defaulting Lender. Solely for the purposes of voting
or consenting to matters with respect to the Loan Documents and determining Pro
Rata Shares, such Defaulting Lender shall be deemed not to be a "Lender" and
such Defaulting Lender's Commitment shall be deemed to be zero (-0-). This
section shall remain effective with respect to such Defaulting Lender until (x)
the Obligations under this Agreement shall have been declared or shall have
become immediately due and payable or (y) the requisite non-Defaulting Lenders,
Agent, and Borrowers shall have waived such Defaulting Lender's default in
writing. The operation of this section shall not be construed to
17
<PAGE> 23
increase or otherwise affect the Commitment of any non-Defaulting Lender, or
relieve or excuse the performance by any Borrower of its duties and obligations
hereunder.
(f) Making of Agent Loans.
(i) In the event the Agent shall elect to have
the terms of this Section 2.1(f) apply to a requested Borrowing as described in
Section 2.1(d), Agent shall make an Advance in the amount of such Borrowing
(any such Advance made solely by Agent pursuant to this Section 2.1(f) being
referred to as an "Agent Loan" and such Advances being referred to collectively
as "Agent Loans") available to Borrowers on the Funding Date applicable thereto
by transferring same day funds to Borrowers' Designated Deposit Account. Each
Agent Loan is an Advance hereunder and shall be subject to all the terms and
conditions applicable to other Advances, except that all payments thereon shall
be payable to Agent solely for its own account (and for the account of the
holder of any participation interest with respect to such Advance). Subject to
the provisions of Section 2.1(k), the Agent shall not make any Agent Loan if
the Agent shall have received written notice from any Lender, or otherwise has
actual knowledge, that (i) one or more of the applicable conditions precedent
set forth in Section 3 will not be satisfied on the requested Funding Date for
the applicable Borrowing, or (ii) the requested Borrowing would exceed the
Availability on such Funding Date. Agent shall not otherwise be required to
determine whether the applicable conditions precedent set forth in Section 3
have been satisfied on the Funding Date applicable thereto prior to making, in
its sole discretion, any Agent Loan.
(ii) The Agent Loans shall be secured by the
Collateral and shall constitute Advances and Obligations hereunder, and shall
bear interest at the rate applicable from time to time to Obligations pursuant
to Section 2.6 hereof.
(g) Agent Advances.
(i) Agent hereby is authorized by Borrowers and
the Lenders, from time to time in Agent's sole discretion, (1) after the
occurrence of a Default or an Event of Default (but without constituting a
waiver of such Default or Event of Default), or (2) at any time that any of the
other applicable conditions precedent set forth in Section 3 have not been
satisfied, to make Advances to Borrowers on behalf of the Lenders which Agent,
in its reasonable business judgment, deems necessary or desirable (A) to
preserve or protect the Collateral or Guarantor Collateral, or any portion
thereof, (B) to enhance the likelihood of, or maximize the amount of, repayment
of the Obligations, or (C) to pay any other amount chargeable to Borrowers
pursuant to the terms of this Agreement, including Lender Group Expenses and
the costs, fees, and expenses described in Section 10 (any of the Advances
described in this Section 2.1(g) being hereinafter referred to as "Agent
Advances"); provided, that Agent shall not make any Agent Advance to Borrowers
if the outstanding amount of Agent Advances would exceed $2,000,000 in the
aggregate at any one time.
18
<PAGE> 24
(ii) Agent Advances shall be repayable on demand
and secured by the Collateral, shall constitute Advances and Obligations
hereunder, and shall bear interest at the rate applicable from time to time to
the Obligations pursuant to Section 2.6.
(h) Settlement. It is agreed that each Lender's funded
portion of the Advances is intended by the Lenders to be equal at all times to
such Lender's Pro Rata Share of the outstanding Advances. Such agreement
notwithstanding, the Agent and the Lenders agree (which agreement shall not be
for the benefit of or enforceable by Borrowers) that in order to facilitate the
administration of this Agreement and the other Loan Documents, settlement among
them as to the Advances, the Agent Loans, and the Agent Advances shall take
place on a periodic basis in accordance with the following provisions:
(i) The Agent shall request settlement
("Settlement") with the Lenders on a weekly basis, or on a more frequent basis
if so determined by the Agent, (1) for itself, with respect to each Agent Loan
and Agent Advance, and (2) with respect to Collections received, as to each by
notifying the Lenders by telephone and promptly followed by telecopy, or other
similar form of transmission, of such requested Settlement, no later than 1:00
p.m. (California time) on the Business Date immediately preceding the date of
such requested Settlement (the "Settlement Date"). Such notice of a Settlement
Date shall include a summary statement of the amount of outstanding Advances,
Agent Loans, and Agent Advances for the period since the prior Settlement Date,
the amount of repayments received in such period, and the amounts of the
interest, fees, and other charges allocated to each Lender for such period.
Subject to the terms and conditions contained herein (including Section
2.1(h)(ii)): (y) if a Lender's balance of the Advances, Agent Loans, and Agent
Advances exceeds such Lender's Pro Rata Share of the Advances, Agent Loans, and
Agent Advances as of a Settlement Date, then Agent shall by no later than 1:00
p.m (California time) on the Settlement Date transfer in same day funds to the
account of such Lender as Lender may designate, an amount such that each such
Lender shall, upon receipt of such amount, have as of the Settlement Date, its
Pro Rata Share of the Advances, Agent Loans, and Agent Advances; and (z) if a
Lender's balance of the Advances Agent Loans, and Agent Advances is less than
such Lender's Pro Rata Share of the Advances Agent Loans, and Agent Advances as
of a Settlement Date, such Lender shall no later than 1:00 p.m. (California
time) on the Settlement Date transfer in same day funds to such account of the
Agent as the Agent may designate, an amount such that each such Lender shall,
upon transfer of such amount, have as of the Settlement Date, its Pro Rata
Share of the Advances, Agent Loans, and Agent Advances. Such amounts made
available to the Agent under clause (z) of the immediately preceding sentence
shall be applied against the amounts of the applicable Agent Loan or Agent
Advance and, together with the portion of such Agent Loan or Agent Advance
representing Foothill's Pro Rata Share thereof, shall constitute Advances of
such Lenders. If any such amount is not made available to the Agent by any
Lender on the Settlement Date applicable thereto to the extent required by the
terms hereof, the Agent shall be entitled to recover for its account such
amount on demand from such Lender together with interest thereon at the
Defaulting Lenders Rate.
19
<PAGE> 25
(ii) In determining whether a Lender's balance of
the Advances, Agent Loans, and Agent Advances is less than, equal to, or
greater than such Lender's Pro Rata Share of the Advances, Agent Loans, and
Agent Advances as of a Settlement Date, Agent shall, as part of the relevant
Settlement, apply to such balance the portion of payments actually received by
Agent with respect to principal, interest, fees payable by Borrowers and
allocable to the Lenders hereunder, and proceeds of Collateral or Guarantor
Collateral. To the extent that a net amount is owed to any such Lender after
such application, such net amount shall be distributed by Agent to that Lender
as part of such Settlement; provided, however, that the arrangement fee payable
by Borrowers under Section 2.11(a) shall be distributed to the Lenders within
three (3) Business Days following the Closing Date without regard to the
netting of amounts owing to or owed by any Lender as part of a Settlement.
(iii) Between Settlement Dates, the Agent, to the
extent no Agent Advances or Agent Loans are outstanding, may pay over to
Foothill any payments received by the Agent, which in accordance with the terms
of the Agreement would be applied to the reduction of the Advances, for
application to Foothill's Pro Rata Share of the Advances. If, as of any
Settlement Date, Collections received since the then immediately preceding
Settlement Date have been applied to Foothill's Pro Rata Share of the Advances
other than to Agent Loans or Agent Advances, as provided for in the previous
sentence, Foothill shall pay to the Agent for the accounts of the Lenders, and
Agent shall pay to the Lenders, to be applied to the outstanding Advances of
such Lenders, an amount such that each Lender shall, upon receipt of such
amount, have, as of such Settlement Date, its Pro Rata Share of the Advances.
During the period between Settlement Dates, the Agent with respect to Agent
Loans and Agent Advances, and each Lender with respect to the Advances other
than Agent Loans and Agent Advances, shall be entitled to interest at the
applicable rate or rates payable under this Agreement on the daily amount of
funds employed by the Agent or the Lenders, as applicable.
(i) Notation. The Agent shall record on its books the
principal amount of the Advances owing to each Lender, including the Agent
Loans and Agent Advances owing to the Agent, and the interests therein of each
Lender, from time to time. In addition, each Lender is authorized, at such
Lender's option, to note the date and amount of each payment or prepayment of
principal of such Lender's Advances in its books and records, including
computer records, such books and records constituting rebuttably presumptive
evidence, absent manifest error, of the accuracy of the information contained
therein.
(j) Lenders' Failure to Perform. All Advances (other
than Agent Loans and Agent Advances) shall be made by the Lenders
simultaneously and in accordance with their Pro Rata Shares. It is understood
that (i) no Lender shall be responsible for any failure by any other Lender to
perform its obligation to make any Advances hereunder, nor shall any Commitment
of any Lender be increased or decreased as a result of any failure by any other
Lender to perform its obligation to make any Advances hereunder, and (ii) no
failure by any Lender to perform its obligation to make any Advances hereunder
shall excuse any other Lender from its obligation to make any Advances
hereunder.
20
<PAGE> 26
(k) Overadvances. Agent shall not make any voluntary
Overadvances without the written consent of the Required Lenders except for
amounts charged to the Loan Account for interest, fees or Lender Group Expenses
pursuant to Section 2.1(g)(i). If the condition for borrowing under Section
3.2(d) cannot be fulfilled, the Agent may, but is not obligated to, knowingly
and intentionally continue to make Advances (including Agent Loans) to
Borrowers such failure of condition notwithstanding, so long as, at any time,
(i) the outstanding Revolving Facility Usage does not exceed the Borrowing Base
by more than the amount proposed by Agent and agreed to by the Required
Lenders, (ii) such Advances are made pursuant to a plan (proposed by Agent and
agreed to by the Required Lenders) for the elimination of the outstanding
Revolving Facility Usage in excess of the Borrowing Base, and (iii) the
outstanding Revolving Facility Usage (except for and excluding amounts charged
to the Loan Account for interest, fees, or Lender Group Expenses) does not
exceed the Maximum Amount. The foregoing provisions are for the sole and
exclusive benefit of the Agent and the Lenders and are not intended to benefit
Borrowers in any way. The Advances and Agent Loans, as applicable, that are
made pursuant to this Section 2.1(k) shall be subject to the same terms and
conditions as any other Agent Advance or Agent Loan, as applicable, except that
the rate of interest applicable thereto shall be the rates set forth in Section
2.6(b) without regard to the presence or absence of a Default or Event of
Default; provided, that the Required Lenders may, at any time, revoke Agent's
authorization contained in this Section 2.1(k) to make Overadvances (except for
and excluding amounts charged to the Loan Account for interest, fees, or Lender
Group Expenses), any such revocation to be in writing and to become effective
upon Agent's receipt thereof; provided further, however, that the making of
such Overadvances shall not constitute a waiver of such Event of Default
arising therefrom.
In the event Agent obtains actual knowledge that
Revolving Facility Usage exceeds the amount permitted by the preceding
paragraph, regardless of the amount of or reason for such excess, Agent shall
notify Lenders as soon as practicable (and prior to making any (or any further)
intentional Overadvances (except for and excluding amounts charged to the Loan
Account for interest, fees, or Lender Group Expenses) unless Agent determines
that prior notice would result in imminent harm to the Collateral or Guarantor
Collateral or its value), and Agent shall determine the terms of arrangements
that shall be implemented with Borrowers intended to reduce, within a
reasonable time, the outstanding principal amount of the Advances to Borrowers
to an amount permitted by the preceding paragraph.
Each Lender shall be obligated to settle with Agent
as provided in Section 2.1(h) for the amount of such Lender's Pro Rata Share of
any unintentional Overadvances by Agent reported to such Lender, any
intentional Overadvances made as permitted under this Section 2.1(k), and any
Overadvances resulting from the charging to the Loan Account of interest, fees,
or Lender Group Expenses.
21
<PAGE> 27
2.2 LETTERS OF CREDIT.
(a) Agreement to Cause Issuance; Amounts; Outside
Expiration Date. Subject to the terms and conditions of this Agreement, Agent
agrees to take reasonable steps to cause to be issued for the account of any of
the Borrowers letters of credit (each, an "L/C") or guarantees of payment (each
such guaranty, an "L/C Guaranty") with respect to letters of credit issued by
an issuing bank for the account of any of the Borrowers in an aggregate undrawn
and unreimbursed amount (taking into account any Letters of Credit previously
issued and outstanding and calculated after giving effect to any proposed
issuance) not to exceed the lesser of: (i) the Maximum Amount less the amount
of outstanding Advances, and (ii) $15,000,000. Letters of Credit are also
subject to the Borrowing Base limitations provided in Section 2.1(a)(ii).
Borrowers expressly understand and agree that Agent shall have no obligation to
arrange for the issuance by issuing banks of the letters of credit that are to
be the subject of L/C Guarantees. Borrowers and the Lender Group acknowledge
and agree that certain of the letters of credit that are to be the subject of
L/C Guarantees may be outstanding on the Closing Date. Each Letter of Credit
shall have an expiry date no later than sixty (60) days prior to the date on
which this Agreement is scheduled to terminate under Section 3.4 (without
regard to any potential renewal term) and all such Letters of Credit shall be
in form and substance acceptable to Agent in its sole discretion. If the
Lender Group is obligated to advance funds under a Letter of Credit, the amount
so advanced immediately shall be deemed to be an Advance made by the Lender
Group to Borrowers pursuant to Section 2.1 and, thereafter, shall bear interest
at the rate then applicable to such Advances under Section 2.6.
(b) Indemnification. Borrowers hereby agree to
indemnify, save, defend, and hold the Lender Group harmless from any loss,
cost, expense, or liability, including payments made by the Lender Group,
expenses, and reasonable attorneys fees incurred by the Lender Group arising
out of or in connection with any Letter of Credit. Borrowers agree to be bound
by the issuing bank's regulations and interpretations of any Letters of Credit
guaranteed by the Lender Group and opened to or for any Borrower's account or
by Agent's interpretations of any letter of credit issued by the Lender Group
to or for any Borrower's account, even though this interpretation may be
different from Borrowers' own, and Borrowers understand and agree that the
Lender Group shall not be liable for any error, negligence, or mistakes,
whether of omission or commission, in following Borrowers' instructions or
those contained in the Letter of Credit or any modifications, amendments, or
supplements thereto. Borrowers understand that the L/C Guarantees may require
the Lender Group to indemnify the issuing bank for certain costs or liabilities
arising out of claims by Borrowers against such issuing bank. Borrowers hereby
agree to indemnify, save, defend, and hold the Lender Group harmless with
respect to any loss, cost, expense (including reasonable attorneys fees), or
liability incurred by the Lender Group under any L/C Guaranty as a result of
the Lender Group's indemnification of any such issuing bank.
(c) Supporting Materials. Borrowers hereby authorize
and direct any bank that issues a letter of credit guaranteed by the Lender
Group to deliver to Agent all instruments, documents, and other writings and
property received by the issuing bank pursuant to such letter of credit, and to
accept and rely upon Agent's instructions and agreements with respect to all
matters
22
<PAGE> 28
arising in connection with such letter of credit and the related application.
Borrowers may or may not be the "applicant" or "account party" with respect to
such letter of credit.
(d) Compensation for Letters of Credit. Any and all
charges, commissions, fees, and costs incurred by the Agent relating to the
letters of credit guaranteed by the Lender Group shall be considered Lender
Group Expenses for purposes of this Agreement and immediately shall be
reimbursable by Borrowers to Agent. On the first day of each month, Borrowers
will pay the Lender Group, for the pro rata benefit of the Lenders, a fee (in
addition to the aforementioned charges, commissions, fees, and costs) equal to
2.00% per annum times the average Daily Balance of the Letters of Credit that
were outstanding during the immediately preceding month. Charges, commissions,
fees, and costs may be charged to Borrowers' Loan Account at the time the
service is rendered or the commission, fee, or cost is incurred.
(e) Cash Collateral. Immediately upon the termination
of this Agreement, Borrowers agree to either (i) provide cash collateral to be
held by Agent in an amount equal to the maximum amount of the Lender Group's
obligations under Letters of Credit, or (ii) cause to be delivered to Agent
releases of all of the Lender Group's obligations under outstanding Letters of
Credit. At Agent's discretion, any proceeds of Collateral or Guarantor
Collateral received by Agent after the occurrence and during the continuation
of an Event of Default may be held as the cash collateral required by this
Section 2.2(e).
(f) Increased Costs. If by reason of (i) any change in
any applicable law, treaty, rule, or regulation or any change in the
interpretation or application by any governmental authority of any such
applicable law, treaty, rule, or regulation, or (ii) compliance by the issuing
bank or Agent with any direction, request, or requirement (irrespective of
whether having the force of law) of any governmental authority or monetary
authority including, without limitation, Regulation D of the Board of Governors
of the Federal Reserve System as from time to time in effect (and any successor
thereto):
(A) any reserve, deposit, or similar requirement is or
shall be imposed or modified in respect of any Letters of Credit issued
hereunder, or
(B) there shall be imposed on the issuing bank or the
Lender Group any other condition regarding any letter of credit, or Letter of
Credit, as applicable, issued pursuant hereto;
and the result of the foregoing is to directly or indirectly increase the cost
to the issuing bank or the Lender Group of issuing, making, guaranteeing, or
maintaining any letter of credit, or Letter of Credit, as applicable, or to
reduce the amount receivable in respect thereof by such issuing bank or the
Lender Group, then, and in any such case, Agent may, at any time within a
reasonable period after the additional cost is incurred or the amount received
is reduced, notify Borrowers, and Borrowers shall pay on demand such amounts as
the issuing bank or Agent may specify to be necessary to compensate the issuing
bank or the Lender Group for such additional cost or reduced
23
<PAGE> 29
receipt, together with interest on such amount from the date of such demand
until payment in full thereof at the rate set forth in Section 2.6(a) or
(b)(i), as applicable. The determination by the issuing bank or Agent, as the
case may be, of any amount due pursuant to this Section 2.2(f), as set forth in
a certificate setting forth the calculation thereof in reasonable detail,
shall, in the absence of manifest or demonstrable error, be final and
conclusive and binding on all of the parties hereto.
(g) Participations.
(1) Purchase of Participations. Immediately
upon issuance of any Letter of Credit in accordance with this Section 2.2, each
Lender shall be deemed to have irrevocably and unconditionally purchased and
received without recourse or warranty, an undivided interest and participation
in the credit support or enhancement provided through the Agent to such issuer
in connection with the issuance of such Letter of Credit, equal to such
Lender's Pro Rata Share of the face amount of such Letter of Credit (including,
without limitation, all obligations of Borrowers with respect thereto, and any
security therefor or guaranty pertaining thereto).
(2) Documentation. Upon the request of any
Lender, the Agent shall furnish to such Lender copies of any Letter of Credit,
reimbursement agreements executed in connection therewith, application for any
Letter of Credit and credit support or enhancement provided through the Agent
in connection with the issuance of any Letter of Credit, and such other
documentation as may reasonably by requested by such Lender.
(3) Obligations Irrevocable. The obligations of
each Lender to make payments to the Agent with respect to any Letter of Credit
or with respect to any credit support or enhancement provided through the Agent
with respect to a Letter of Credit, and the obligations of Borrowers to make
payments to the Agent, for the account of the Lenders, shall be irrevocable,
not subject to any qualification or exception whatsoever, including, without
limitation, any of the following circumstances:
(i) any lack of validity or
enforceability of this Agreement or any of the other Loan Documents;
(ii) the existence of any claim, setoff,
defense or other right which Borrowers may have at any time against a
beneficiary named in a Letter of Credit or any transferee of any Letter of
Credit (or any Person for whom any such transferee may be acting), any Lender,
the Agent, the issuer of such Letter of Credit, or any other Person, whether in
connection with this Agreement, any Letter of Credit, the transactions
contemplated herein or any unrelated transactions (including any underlying
transactions between Borrowers or any other Person and the beneficiary named in
any Letter of Credit);
(iii) any draft, certificate or any other
document presented under the 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;
24
<PAGE> 30
(iv) the surrender or impairment of any
security for the performance or observance of any of the terms of any of the
Loan Documents; or
(v) the occurrence of any Default or
Event of Default.
2.3 PAYMENTS.
(a) Payments by Borrowers.
(i) All payments to be made by Borrowers shall
be made without set-off, recoupment, deduction, or counterclaim, except as
otherwise required by law. Except as otherwise expressly provided herein, all
payments by Borrowers shall be made to Agent for the account of the Lenders or
Agent, as the case may be, at Agent's address set forth in Section 12, and
shall be made in immediately available funds, no later than 11:00 a.m.
(California time) on the date specified herein. Any payment received by Agent
later than 11:00 a.m. (California time), at the option of Agent, shall be
deemed to have been received on the following Business Day and any applicable
interest or fee shall continue to accrue until such following Business Day.
(ii) Whenever any payment is due on a day other
than a Business Day, such payment shall be made on the following Business Day,
and such extension of time shall in such case be included in the computation of
interest or fees, as the case may be.
(iii) Unless Agent receives notice from Borrowers
prior to the date on which any payment is due to the Lenders that Borrowers
will not make such payment in full as and when required, Agent may assume that
Borrowers have made such payment in full to Agent on such date in immediately
available funds and Agent may (but shall not be so required), in reliance upon
such assumption, distribute to each Lender on such due date an amount equal to
the amount then due such Lender. If and to the extent Borrowers have not made
such payment in full to Agent, each Lender shall repay to Agent on demand such
amount distributed to such Lender, together with interest thereon at the
Reference Rate for each day from the date such amount is distributed to such
Lender until the date repaid.
(b) Apportionment, Application, and Reversal of
Payments. Except as otherwise provided with respect to Defaulting Lenders,
aggregate principal and interest payments shall be apportioned ratably among
the Lenders (according to the unpaid principal balance of the Advances to which
such payments relate held by each Lender) and payments of the fees (other than
fees designated for Agent's separate account) shall, as applicable, be
apportioned ratably among the Lenders. All payments shall be remitted to Agent
and all such payments not relating to principal or interest of specific
Advances, or not constituting payment of specific fees, and all proceeds of
Accounts or other Collateral or Guarantor Collateral received by Agent, shall
be applied, first, to pay any fees, or expense reimbursements then due to Agent
from Borrowers; second, to pay any fees or expense reimbursements then due to
the Lenders from Borrowers; third, to pay interest due
25
<PAGE> 31
in respect of all Advances, including Agent Loans and Agent Advances; fourth,
to pay or prepay principal of Agent Loans and Agent Advances; fifth, ratably to
pay principal of the Advances (other than Agent Loans and Agent Advances) and
unreimbursed obligations in respect of Letters of Credit; and sixth, ratably to
pay any other Obligations due to Agent or any Lender by Borrowers. Agent shall
promptly distribute to each Lender, pursuant to the applicable wire transfer
instructions received from each Lender in writing, such funds as it may be
entitled to receive, subject to a Settlement delay as provided for in Section
2.1(h).
2.4 INTENTIONALLY OMITTED.
2.5 OVERADVANCES. If, at any time or for any reason, the
amount of Obligations owed by Borrowers to the Lender Group pursuant to
Sections 2.1 and 2.2 is greater than either the dollar or percentage
limitations set forth in Sections 2.1 or 2.2 (an "Overadvance"), Borrowers
immediately shall pay to Agent for the benefit of the Lender Group, in cash,
the amount of such excess, which amount shall be used by Agent to reduce the
Obligations in accordance with the priority set forth in Section 2.3(b) hereof.
2.6 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) Interest Rate. All Obligations, except for undrawn
Letters of Credit, shall bear interest at a per annum rate of 2.00 percentage
points above the Reference Rate which shall be reduced to: 1.50 percentage
points above the Reference Rate commencing December 1, 1996 so long as no Event
of Default has occurred and is continuing.
(b) Default Rate. (i) All Obligations, except for
undrawn Letters of Credit, shall bear interest, from and after the occurrence
and during the continuance of an Event of Default, at a per annum rate equal to
4.00 percentage points above the Reference Rate. (ii) From and after the
occurrence and during the continuance of an Event of Default, the fee provided
in Section 2.2(d) shall be increased to a fee equal to 4.00% per annum times
the amount of the undrawn Letters of Credit that were outstanding during the
immediately preceding month.
(c) Minimum Interest. In no event shall the rate of
interest chargeable hereunder be less than 7.00% per annum, subject to the
provisions of Section 2.6(f). To the extent that interest accrued hereunder at
the rate set forth herein would be less than the foregoing minimum rate, the
interest rate chargeable hereunder for the period in question automatically
shall be deemed increased to the minimum rate.
(d) Payments. Interest hereunder shall be due and
payable, in arrears, on the first day of each month during the term hereof.
Borrowers hereby authorize Agent, at its option, without prior notice to
Borrowers, to charge such interest, all Lender Group Expenses (as and when
incurred), and all installments or other payments due under any Loan Document
to Borrowers' Loan Account, which amounts thereafter shall constitute Advances
hereunder and accrue interest at
26
<PAGE> 32
the rate then applicable hereunder. Any interest not paid when due shall be
compounded and shall thereafter accrue interest at the rate then applicable
hereunder.
(e) Computation. The Reference Rate as of the date of
this Agreement is 8.25% per annum. In the event the Reference Rate is changed
from time to time hereafter, the applicable rate of interest hereunder
automatically and immediately shall be increased or decreased by an amount
equal to such change in the Reference Rate. All interest and fees chargeable
under the Loan Documents shall be computed on the basis of a three hundred
sixty (360) day year for the actual number of days elapsed.
(f) Intent to Limit Charges to Maximum Lawful Rate. In
no event shall the interest rate or rates payable under this Agreement, plus
any other amounts paid in connection herewith, exceed the highest rate
permissible under any law that a court of competent jurisdiction shall, in a
final determination, deem applicable. Borrowers and the Lender Group, in
executing and delivering this Agreement, intend legally to agree upon the rate
or rates of interest and manner of payment stated within it; provided, however,
that, anything contained herein to the contrary notwithstanding, if said rate
or rates of interest or manner of payment exceeds the maximum allowable under
applicable law, then, ipso facto as of the date of this Agreement, Borrowers
are and shall be liable only for the payment of such maximum as allowed by law,
and payment received from Borrowers in excess of such legal maximum, whenever
received, shall be applied to reduce the principal balance of the Obligations
to the extent of such excess.
2.7 COLLECTION OF ACCOUNTS. Borrowers shall at all times
maintain lockboxes (the "Lockboxes") and, immediately after the Closing Date,
shall instruct all Account Debtors with respect to the Accounts, General
Intangibles, and Negotiable Collateral of Borrowers to remit all Collections in
respect thereof to such Lockboxes. Borrowers, Agent, and the Lockbox Banks
shall enter into the Lockbox Agreements, which among other things shall provide
for the opening of a Lockbox Account for the deposit of Collections at a
Lockbox Bank. Borrowers agree that all Collections and other amounts received
by Borrowers from any Account Debtor or any other source immediately upon
receipt shall be deposited into a Lockbox Account. No Lockbox Agreement or
arrangement contemplated thereby shall be modified by Borrowers without the
prior written consent of Agent. Upon the terms and subject to the conditions
set forth in the Lockbox Agreements, all amounts received in each Lockbox
Account shall be wired each Business Day into an account (the "Agent's
Account") maintained by Agent at a depositary selected by Agent.
2.8 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The
receipt of any Borrowers' Collections by Agent (whether from transfers to Agent
by the Lockbox Banks pursuant to the Lockbox Agreements or otherwise)
immediately shall be applied provisionally to reduce the Obligations
outstanding under Section 2.1, but shall not be considered a payment on account
unless such Collection item is a wire transfer of immediately available federal
funds and is made to the Agent's Account or unless and until such Borrowers'
Collection item is honored when presented for payment. From and after the
Closing Date, Agent shall be entitled to charge Borrowers for one (1) Business
Day of `clearance' or `float' at the rate set forth in Section 2.6(a) or
Section 2.6(b)(i), as
27
<PAGE> 33
applicable, on all Borrowers' Collections that are received by Agent
(regardless of whether forwarded by the Lockbox Banks to Agent, whether
provisionally applied to reduce the Obligations under Section 2.1, or
otherwise). This across-the-board one (1) Business Day clearance or float
charge on all Collections shall be for the account of Agent only and not for
the account of Lenders, and such clearance or float charge is acknowledged by
the parties to constitute an integral aspect of the pricing of the Lender
Group's financing of Borrowers, and shall apply irrespective of the
characterization of whether receipts are owned by Borrowers or Agent, and
whether or not there are any outstanding Advances, the effect of such clearance
or float charge being the equivalent of charging one (1) Business Day of
interest on such Collections. Should any Borrowers' Collection item not be
honored when presented for payment, then Borrowers shall be deemed not to have
made such payment, and interest shall be recalculated accordingly. Anything to
the contrary contained herein notwithstanding, any Collection item shall be
deemed received by Agent only if it is received into the Agent's Account on or
before 11:00 a.m. California time. If any Collection item is received into the
Agent's Account after 11:00 a.m. (California time) it shall be deemed to have
been received by Agent as of the opening of business on the immediately
following Business Day.
2.9 BORROWERS' DESIGNATED ACCOUNT. Agent and the Lenders are
authorized to make the Advances and to issue the Letters of Credit under this
Agreement based upon telephonic or other instructions received from anyone
purporting to be an Authorized Officer, or without instructions if pursuant to
Section 2.6(d). Borrowers agree to establish and maintain Borrowers'
Designated Account with Borrowers' Designated Account Bank for the purpose of
receiving the proceeds of the Advances requested by Borrowers and made by the
Lender Group hereunder. Unless otherwise agreed by Agent and Borrowers, any
Advance requested by Borrowers and made by the Lender Group hereunder shall be
made to Borrowers' Designated Account.
2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS.
Agent shall maintain an account on its books in the name of Borrowers (the
"Loan Account") on which Borrowers will be charged with all Advances made by
Agent or the Lenders to Borrowers or for Borrowers' account, including,
Advances, interest accrued, Lender Group Expenses, and any other payment
Obligations of Borrowers. In accordance with Section 2.8, the Loan Account
will be credited with all payments received by Agent from Borrowers or for
Borrowers' account, including all amounts received in the Agent's Account from
any Lockbox Bank. Agent shall render statements regarding the Loan Account to
Borrowers, including principal, interest, fees, and including an itemization of
all charges and expenses constituting Lender Group Expenses owing, together
with backup where appropriate, and such statements shall be conclusively
presumed to be correct and accurate and constitute an account stated between
Borrowers and the Lender Group unless, within thirty (30) days after receipt
thereof by Borrowers, Borrowers shall deliver to Agent by registered or
certified mail at its address specified in Section 12, written objection
thereto describing the error or errors contained in any such statements.
2.11 FEES. Borrowers shall pay to Agent for the ratable
benefit of the Lender Group (except as otherwise indicated) the following fees:
28
<PAGE> 34
(a) Arrangement Fee. An arrangement fee for the
account of Agent only and not for the account of Lenders in an amount equal to
.25% of the Maximum Amount which is earned, in full, on the Closing Date and is
due and payable by Borrowers on the Closing Date;
(b) Facility Fee. A facility fee in an amount equal to
1.25% of the Maximum Amount which is earned, in full, on the Closing Date and
is due and payable by Borrowers on the Closing Date;
(c) Unused Line Fee. On the first day of each month
during the term of this Agreement, a fee in an amount equal to .50% per annum
times the Average Unused Portion of the Maximum Amount;
(d) Financial Examination, Documentation, and Appraisal
Fees. Borrowers shall pay to Agent for the account of Agent: (i) a separate
fee of $650 per day per examiner, plus out-of-pocket expenses for each
financial analysis and examination (i.e., audits) of Borrowers performed by the
respective personnel employed by Agent; (ii) an appraisal fee of $1,500 per day
per appraiser, plus out-of-pocket expenses for each appraisal of the Collateral
performed by the personnel employed by Agent (it being understood and agreed
that, without limiting the generality of Agent's inspection and appraisal
rights hereunder, Agent shall have the right to have the Eligible Inventory (or
any portion thereof) appraised by a qualified appraisal company selected by
Agent from time to time, but not more frequently than quarterly prior to the
occurrence of an Event of Default, for the purpose of determining the value of
Eligible Inventory), and Borrowers' shall pay for such third party appraisals;
(iii) the actual charges paid or incurred by Agent and, if Agent elects to
employ the services of one or more third Persons to perform such financial
analyses and examinations (i.e., audits) of Borrowers or to appraise the
Collateral; and
(e) Servicing Fee. On the date hereof and on the first
day of each month during the term of this Agreement, and thereafter so long as
any Obligations are outstanding, Borrowers shall pay to Agent for the account
of Agent only and not for the account of Lenders a servicing fee in an amount
equal to $10,000 per month.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE AND LETTER OF
CREDIT. The obligation of the Lender Group to make the initial Advance or to
issue the initial Letter of Credit is subject to the fulfillment, in form and
substance to the complete satisfaction of Agent and its counsel, of each of the
following conditions on or before the Closing Date. In the event that such
conditions are not met on or before the Closing Date, then this Agreement shall
be null and void, and the Lenders and Agent shall not have any obligations,
responsibilities or liabilities hereunder.
(a) the Interim Bankruptcy Court Order shall have been
entered on or before September 18, 1996, and the Closing Date shall occur on or
before September 19, 1996;
29
<PAGE> 35
(b) Agent shall have received searches reflecting the
filing of its financing statements;
(c) Agent shall have received each of the following
documents, duly executed, and each such document shall be in full force and
effect:
(i) the Lockbox Agreements;
(ii) the Disbursement Letter;
(iii) the Pay-Off Letter, together with
UCC termination statements and other
documentation evidencing the
termination of Existing Lender's
Liens (other than Permitted Liens)
in and to the properties and assets
of Obligors;
(iv) the Guaranties; and
(v) the Security Agreements
(d) Agent shall have received a certificate from the
Secretary of each corporate Obligor attesting to the resolutions of such
Obligor's Board of Directors authorizing its execution, delivery, and
performance of this Agreement and the other Loan Documents to which such
Obligor is a party and authorizing specific officers of such Obligor to execute
same;
(e) Agent shall have received copies of each corporate
Obligor's Governing Documents, as amended, modified, or supplemented to the
Closing Date, certified by the Secretary of such Obligor;
(f) Agent shall have received a certificate of status
with respect to each Borrower, dated within fifty (50) days of the Closing
Date, by the appropriate officer of the jurisdiction of organization of such
Borrower, which certificate shall indicate that such Borrower is in good
standing in such jurisdiction;
(g) Agent shall have received certificates of status
with respect to each corporate Obligor, each dated within fifty (50) days of
the Closing Date, such certificates to be issued by the appropriate officer of
the jurisdictions in which such Obligor is required to be qualified to do
business, which certificates shall indicate that such Obligor is in good
standing in such jurisdictions;
(h) Agent shall have received a certificate of
insurance, together with the endorsements thereto, as are required by Section
6.10;
(i) Agent shall have received satisfactory opinions of
Obligors' counsel;
30
<PAGE> 36
(j) Borrowers shall have on the Closing Date (after
taking into account the repayment of all existing indebtedness owed to Existing
Lender and the replacement of all existing letters of credit issued or arranged
by Existing Lender) at least $10,000,000 in the aggregate of unrestricted cash
on hand and Availability under Section 2.1(a);
(k) all other documents and legal matters in connection
with the transactions contemplated by this Agreement shall have been delivered
or executed or recorded.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES AND ALL LETTERS OF
CREDIT. The following shall be conditions precedent to all Advances and all
Letters of Credit hereunder:
(a) the representations and warranties contained in
this Agreement and the other Loan Documents shall be true and correct in all
respects on and as of the date of such extension of credit, as though made on
and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date);
(b) no Default or Event of Default shall have occurred
and be continuing on the date of such extension of credit, nor shall either
result from the making thereof;
(c) no injunction, writ, restraining order, or other
order of any nature prohibiting, directly or indirectly, the extending of such
credit shall have been issued and remain in force by any Governmental Authority
against any Borrower, the Lender Group, or any of their Affiliates;
(d) the amount of the Obligations, after giving effect
to the requested Advance or Letter of Credit, shall not exceed the
Availability.
3.3 CONDITIONS SUBSEQUENT. As conditions subsequent to the
making of the initial Advance or the issuance of the initial Letter of Credit,
Borrowers shall perform or cause to be performed the following (the failure by
Borrowers to so perform or cause to be performed constituting an Event of
Default hereunder):
(a) as soon as available and in any event within thirty
(30) days after the Closing Date, Borrowers shall deliver to Agent the
certified copies of the policies of insurance, together with the endorsements
thereto, as are required by Section 6.10, the form and substance of which shall
be satisfactory to Agent;
(b) as soon as possible, but in any event within one
hundred twenty (120) days of Closing Date, Borrowers shall deliver to Agent an
appraisal of their Equipment located at Borrowers' distribution center in
Grapevine, Texas by an appraiser satisfactory to Agent;
31
<PAGE> 37
(c) within thirty (30) days of the Closing Date, Agent
shall have received a Collateral Access Agreement from the lessor of Borrowers'
offices and warehouse located at 2250 William D. Tate Avenue, Grapevine, Texas
76051, or if the landlord refuses to sign a Collateral Access Agreement and
Borrowers do not promptly file a motion to compel in the Bankruptcy Cases; and
(d) on or before October 15, 1996, the Bankruptcy Court
Order shall have been entered.
3.4 TERM. This Agreement shall become effective upon the
execution and delivery hereof by Borrowers, Agent and the Lenders, and shall
continue in full force and effect for a term ending on the earliest to occur
of: (a) January 30, 1998; (b) the effective date of an order confirming a plan
of reorganization of Borrowers; (c) the appointment of a trustee or an examiner
with management authority in any of the Bankruptcy Cases; (d) the conversion of
any of the Bankruptcy Cases to a case under Chapter 7 of the Bankruptcy Code;
and (e) the dismissal of any of the Bankruptcy Cases. The foregoing
notwithstanding, Agent shall have the right to terminate Agent's and Lenders'
obligations under this Agreement immediately and without notice upon the
occurrence and during the continuation of an Event of Default.
3.5 EFFECT OF TERMINATION. On the date of termination of this
Agreement, all Obligations (including contingent reimbursement obligations of
Borrowers with respect to any outstanding Letters of Credit) immediately shall
become due and payable without notice or demand. No termination of this
Agreement, however, shall relieve or discharge Borrowers of Borrowers' duties,
Obligations, or covenants hereunder, and the continuing security interests of
the Lender Group in the Collateral or Guarantor Collateral shall remain in
effect until all Obligations have been fully and finally discharged and the
Lender Group's obligation to provide additional credit hereunder is terminated.
3.6 EARLY TERMINATION BY BORROWERS. Borrowers have the
option, at any time upon sixty (60) days prior written notice to Agent, to
terminate this Agreement by paying to Agent, for the ratable benefit of the
Lender Group, in cash, the Obligations (including an amount equal to the
undrawn amount of the Letters of Credit), in full, together with a premium (the
"Early Termination Premium") equal to 1.00% times the Maximum Amount in the
event that such prepayment is made from proceeds of financing provided by a
lender other than Foothill or a group of lenders for whom Foothill is not
agent.
3.7 TERMINATION UPON EVENT OF DEFAULT. If the Lender Group
terminates this Agreement upon the occurrence of an Event of Default, in view
of the impracticability and extreme difficulty of ascertaining actual damages
and by mutual agreement of the parties as to a reasonable calculation of the
Lenders lost profits as a result thereof, Borrowers shall pay to Agent, for the
ratable benefit of the Lenders, upon the effective date of such termination, a
premium in an amount equal to the Early Termination Premium. The Early
Termination Premium shall be presumed to be the amount of damages sustained by
the Lenders as the result of the early termination and
32
<PAGE> 38
Borrowers agree that it is reasonable under the circumstances currently
existing. The Early Termination Premium provided for in this Section 3.7 shall
be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Each Borrower hereby grants
to Agent for the benefit of the Lender Group a continuing Lien in all currently
existing and hereafter acquired or arising Collateral in order to secure prompt
repayment of any and all Obligations and in order to secure prompt performance
by each Borrower of each of its covenants and duties under the Loan Documents.
The Liens of the Agent, for the benefit of the Lender Group, on the Collateral
shall attach to all Collateral without further act on the part of the Lender
Group or Borrowers. Anything contained in this Agreement or any other Loan
Document to the contrary notwithstanding, except for: (a) the sale of
Inventory to buyers in the ordinary course of business, (b) the sale of
obsolete or worn out Equipment with the proceeds paid to Agent, and (c)
settlements of Accounts in the ordinary course of business, Borrowers have no
authority, express or implied, to dispose of any item or portion of the
Collateral. Subject to Section 2.3(b), the secured claims of the Lender Group
secured by the Collateral shall be of equal priority, and ratable according to
the respective Obligations due each member of the Lender Group.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrowers, immediately upon the request of Agent, shall endorse and deliver
physical possession of such Negotiable Collateral to Agent for the benefit of
the Lender Group.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND
NEGOTIABLE COLLATERAL. At any time, Agent or Agent's designee may (a) notify
customers or Account Debtors of any Borrower that the Accounts, General
Intangibles, or Negotiable Collateral have been assigned to the Lender Group or
that the Lender Group has a security interest therein, and (b) collect the
Accounts, General Intangibles, and Negotiable Collateral directly and charge
the collection costs and expenses to the Loan Account. Each Borrower agrees
that it will hold in trust for the Lender Group, as the Lender Group's trustee,
any Collections that it receives and immediately will deliver said Collections
to Agent for the benefit of the Lender Group in their original form as received
by such Borrower.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any
time upon the request of Agent, Borrowers shall, and shall cause the Guarantors
to, execute and deliver to Agent all financing statements, continuation
financing statements, fixture filings, security agreements, chattel mortgages,
pledges, assignments, endorsements of certificates of title, applications for
title, affidavits, reports, notices, schedules of accounts, letters of
authority, and all other documents that Agent reasonably may request, in form
satisfactory to Agent, to perfect and continue perfected the Lender Group's
Liens on the Collateral or Guarantor Collateral, and in order to fully
consummate all of the transactions contemplated hereby and under the other the
Loan Documents.
33
<PAGE> 39
4.5 POWER OF ATTORNEY. Each Borrower hereby irrevocably
makes, constitutes, and appoints Agent (and any of Agent's officers, employees,
or agents designated by Agent) as such Borrower's true and lawful attorney,
with power to (a) if such Borrower refuses to, or fails timely to execute and
deliver any of the documents described in Section 4.4, sign the name of such
Borrower on any of the documents described in Section 4.4, (b) at any time that
an Event of Default has occurred and is continuing or the Lender Group deems
itself insecure (in accordance with Section 1208 of the Code), sign such
Borrower's name on any invoice or bill of lading relating to any Account,
drafts against Account Debtors, schedules and assignments of Accounts,
verifications of Accounts, and notices to Account Debtors, (c) send requests
for verification of Accounts, (d) endorse such Borrower's name on any
Collection item that may come into the possession of any member of the Lender
Group, (e) at any time that an Event of Default has occurred and is continuing,
notify the post office authorities to change the address for delivery of such
Borrower's mail to an address designated by Agent, to receive and open all mail
addressed to Borrower, and to retain all mail relating to the Collateral and
forward all other mail to such Borrower, (f) at any time that an Event of
Default has occurred and is continuing or the Lender Group deems itself
insecure (in accordance with Section 1208 of the Code), make, settle, and
adjust all claims under such Borrower's policies of insurance, subject to
landlords' rights regarding fixtures, and make all determinations and decisions
with respect to such policies of insurance, and (g) at any time that an Event
of Default has occurred and is continuing or the Lender Group deems itself
insecure (in accordance with Section 1208 of the Code), settle and adjust
disputes and claims respecting the Accounts directly with Account Debtors, for
amounts and upon terms that Agent determines to be reasonable, and Agent may
cause to be executed and delivered any documents and releases that Agent
determines to be necessary. The appointment of Agent as each Borrower's
attorney, and each and every one of Agent's rights and powers, being coupled
with an interest, is irrevocable until all of the Obligations have been fully
and finally repaid and performed and the Lender Group's obligation to extend
credit hereunder is terminated.
4.6 RIGHT TO INSPECT. Any Lender (through any of its
officers, employees, or agents) shall have the right, at any reasonable time
and from time to time hereafter to inspect Borrowers' Books and to check, test,
and appraise the Collateral in order to verify Borrowers' financial condition
or the amount, quality, value, condition of, or any other matter relating to,
the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
Each Borrower represents and warrants to the Lender Group as
follows:
5.1 NO PRIOR ENCUMBRANCES. Each Borrower has good and
indefeasible title to the Collateral, free and clear of liens, claims, security
interests, or encumbrances, except for Permitted Liens.
5.2 INTENTIONALLY OMITTED.
34
<PAGE> 40
5.3 ELIGIBLE INVENTORY. All Eligible Inventory is now and at
all times hereafter shall be of good and merchantable quality, and to the best
of each Borrower's knowledge, all Eligible Inventory is free from defects.
5.4 EQUIPMENT. All of the Equipment owned by a Borrower is
used or held for use in such Borrower's business and is fit for such purposes.
5.5 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment of Borrowers are not stored with a bailee, warehouseman, or similar
party (without Agent's prior written consent) and are located only at the
locations identified on Schedule 6.13 or otherwise permitted by Section 6.13.
5.6 INVENTORY RECORDS. Borrowers now keep, and hereafter at
all times shall keep, correct and accurate records itemizing and describing the
kind, type, quality, and quantity of their Inventory, and Borrowers' cost
therefor.
5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief
executive office of each Borrower is located at the address indicated in the
preamble to this Agreement. Parent's FEIN is 75-2559376. Babbage's FEIN is
75-1864488. Software's FEIN is 41-1598682.
5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each Obligor is duly organized and existing and in
good standing under the laws of the jurisdiction of its incorporation and
qualified and licensed to do business in, and in good standing in, any state
where the failure to be so licensed or qualified could reasonably be expected
to have a Material Adverse Change.
(b) Set forth on Schedule 5.8 is a complete and
accurate list of Parent's direct and indirect Subsidiaries, showing: (i) the
jurisdiction of their incorporation; (ii) the number of shares of each class of
common and preferred stock authorized for each of such Subsidiaries; and (iii)
the number and the percentage of the outstanding shares of each such class
owned directly or indirectly by Parent or Babbage, as the case may be. All of
the outstanding capital stock of each such Subsidiary has been validly issued
and is fully paid and non-assessable.
(c) Except as set forth on Schedule 5.8, no capital
stock (or any securities, instruments, warrants, options, purchase rights,
conversion or exchange rights, calls, commitments or claims of any character
convertible into or exercisable for capital stock) of any direct or indirect
Subsidiary of Parent is subject to the issuance of any security, instrument,
warrant, option, purchase right, conversion or exchange right, call, commitment
or claim of any right, title, or interest therein or thereto.
35
<PAGE> 41
5.9 DUE AUTHORIZATION; NO CONFLICT.
(a) The execution, delivery, and performance by each
Obligor of this Agreement and the Loan Documents to which it is a party have
been duly authorized by all necessary corporate action.
(b) The execution, delivery, and performance by each
Obligor of this Agreement and the Loan Documents to which it is a party do not
and will not (i) violate any provision of federal, state, or local law or
regulation (including Regulations G, T, U, and X of the Federal Reserve Board)
applicable to such Obligor, the Governing Documents of such Obligor, or any
order, judgment, or decree of any court or other Governmental Authority binding
on such Obligor, (ii) conflict with, result in a breach of, or constitute (with
due notice or lapse of time or both) a default under any material contractual
obligation or material lease of such Obligor, (iii) result in or require the
creation or imposition of any Lien of any nature whatsoever upon any properties
or assets of such Obligor, other than Permitted Liens, or (iv) require any
approval of stockholders or any approval or consent of any Person under any
material contractual obligation of such Obligor.
(c) Other than the filing of appropriate financing
statements, fixture filings, and mortgages, the execution, delivery, and
performance by each Obligor of this Agreement and the Loan Documents to which
such Obligor is a party do not and will not require any registration with,
consent, or approval of, or notice to, or other action with or by, any federal,
state, foreign, or other Governmental Authority or other Person.
(d) This Agreement and the Loan Documents to which each
Obligor is a party, and all other documents contemplated hereby and thereby,
when executed and delivered by such Obligor will be the legally valid and
binding obligations of such Obligor, enforceable against such Obligor in
accordance with their respective terms, except as enforcement may be limited by
equitable principles.
(e) The Liens granted by each Borrower to the Lender
Group pursuant to the Loan Documents are validly created, perfected, and first
priority Liens, subject only to Permitted Liens.
5.10 LITIGATION. There are no actions or proceedings pending
by or against any Obligor before any court or administrative agency and no
Obligor has knowledge or belief of any pending, threatened, or imminent
litigation, governmental investigations, or claims, complaints, actions, or
prosecutions involving any Obligor, except for: (a) ongoing collection matters
in which an Obligor is the plaintiff; (b) matters disclosed on Schedule 5.10
and Schedule P.1; (c) matters that involve prayers for relief that do not
exceed, in the aggregate, $250,000 at any one time; and (d) matters arising
after the date hereof that, if decided adversely to one or more Obligors, would
not be reasonably likely to have a Material Adverse Change.
36
<PAGE> 42
5.11 NO MATERIAL ADVERSE CHANGE. All financial statements
relating to any Obligor that have been delivered by Borrowers to the Lender
Group have been prepared in accordance with GAAP (except, in the case of
unaudited financial statements, for the lack of footnotes and being subject to
year-end audit adjustments) and fairly present such Obligor's financial
condition as of the date thereof and such Obligor's results of operations for
the period then ended. Except for the filing of the Bankruptcy Cases, there
has not been a Material Adverse Change since the date of the latest financial
statements submitted to the Lender Group on or before the Closing Date.
5.12 INTENTIONALLY OMITTED.
5.13 EMPLOYEE BENEFITS. Except as provided in Schedule 5.13,
each Plan (other than a Multiemployer Plan) is in compliance in all material
respects with the applicable provisions of ERISA and the IRC, except where
failure to comply could not reasonably be expected to have a material adverse
effect on the financial condition of Borrowers. Each Plan intended to be
qualified under Section 401(a) of the IRC (other than a Multiemployer Plan) has
been determined by the Internal Revenue Service to be so qualified, and the
trusts created thereunder have been determined to be exempt from tax under
Section 501 of the IRC, and, to the best knowledge of Borrowers, nothing has
occurred that would cause the loss of such qualification or tax-exempt status.
There are no outstanding liabilities under Title IV of ERISA with respect to
any Plan maintained or sponsored by Borrowers or any ERISA Affiliate, nor with
respect to any Plan to which Borrowers or any ERISA Affiliate contributes or is
obligated to contribute which could reasonably be expected to have a material
adverse effect on the financial condition of Borrowers. No Benefit Plan
subject to Title IV of ERISA has any unfunded benefit liability under Section
4001(a)(18) of ERISA (an "Unfunded Benefit Liability") which could reasonably
be expected to have a material adverse effect on the financial condition of
Borrowers. Neither Borrowers nor any ERISA Affiliate has transferred any
Unfunded Benefit Liability to a person other than Borrowers or an ERISA
Affiliate or has otherwise engaged in a transaction that could be subject to
Sections 4069 or 4212(c) of ERISA which could reasonably be expected to have a
material adverse effect on the financial condition of Borrowers. Neither
Borrowers nor any ERISA Affiliate has incurred nor reasonably expects to incur
(x) any liability (and no event has occurred which, with the giving of notice
under Section 4219 of ERISA, would result in such liability) under Sections
4201 or 4243 of ERISA with respect to a Multiemployer Plan, or (y) any
liability under Title IV of ERISA (other than premiums due but not delinquent
under Section 4007 of ERISA) with respect to a Benefit Plan, which could, in
either event, reasonably be expected to have a material adverse effect on the
financial condition of Borrowers. No application for a funding waiver or an
extension of any amortization period pursuant to Section 412 of the IRC has
been made with respect to any Benefit Plan. No ERISA Event has occurred or is
reasonably expected to occur with respect to any Plan which could reasonably be
expected to have a material adverse effect on the financial condition of
Borrowers.
5.14 ENVIRONMENTAL CONDITION. None of any Obligor's properties
or assets has ever been used by such Obligor or, to the best of Borrowers'
knowledge, by previous owners or operators in the disposal of, or to produce,
store, handle, treat, release, or transport, any Hazardous
37
<PAGE> 43
Materials. None of any Obligor's properties or assets has ever been designated
or identified in any manner pursuant to any environmental protection statute as
a Hazardous Materials disposal site, or a candidate for closure pursuant to any
environmental protection statute. No lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned or operated by any Obligor. No Obligor has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal or state governmental agency concerning any action or omission by
such Obligor resulting in the releasing or disposing of Hazardous Materials
into the environment.
5.15 RELIANCE BY THE LENDER GROUP; CUMULATIVE. Each warranty
and representation contained in this Agreement automatically shall be deemed
repeated with each extension of credit hereunder and shall be conclusively
presumed to have been relied on by the Lender Group regardless of any
investigation made or information possessed by the Lender Group. The
warranties and representations set forth herein shall be cumulative and in
addition to any and all other warranties and representations that any Obligor
now or hereafter shall give, or cause to be given, to the Lender Group.
6. AFFIRMATIVE COVENANTS.
Each Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, and unless the Lender Group shall otherwise consent in writing,
each Borrower shall do all of the following:
6.1 ACCOUNTING SYSTEM. Maintain a standard and modern system
of accounting in accordance with GAAP with ledger and account cards or computer
tapes, disks, printouts, and records pertaining to the Collateral which contain
information as from time to time may be requested by Agent. Each Borrower also
shall keep a modern inventory reporting system that shows all additions, sales,
claims, returns, and allowances with respect to its Inventory.
6.2 COLLATERAL REPORTING. Provide all Lenders with the
following documents at the following times in form satisfactory to Agent: (a)
on a weekly basis on Tuesday of each week for the week ending on the prior
Saturday, a consolidated sales report for the prior week, (b) on a weekly basis
on Tuesday of each week for the week ending on the prior Saturday, a detailed
calculation of the Borrowing Base together with a reconciliation to the
detailed calculation of the Borrowing Base previously provided to Agent, (c) on
a daily basis, a rollforward of the Borrowing Base, (d) on a weekly basis on
Tuesday of each week for the week ending the prior Saturday, a summary of
Borrowers' total trade accounts payable, (e) on a monthly basis on or before
the tenth (10th) day after the end of each month for the last day of the prior
fiscal month, an accounts payable aging by terms and on or before October 31,
1996 an accounts payable aging by terms for October 19, 1996; (f) on a weekly
basis on Thursday of each week for the prior Saturday, Inventory reports
specifying Borrower's cost of Inventory by category, with additional detail
showing additions to and deletions from the Inventory, (g) such other reports
as to the Collateral or the financial condition of any Borrower as Agent may
request from time to time, and (h) on a weekly basis on
38
<PAGE> 44
Tuesday of each week a report of unpaid ad valorem and sales taxes, that may
have priority over the Lenders' security interests.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to
all Lenders: (a) as soon as available, but in any event within thirty (30) days
after the end of each fiscal month during each of Parent's fiscal years, a
company prepared balance sheet, income statement, and cash flow statement
covering Parent's operations during such period; and (b) as soon as available,
but in any event within ninety (90) days after the end of each of Parent's
fiscal years, financial statements of Parent for each such fiscal year, audited
by independent certified public accountants reasonably acceptable to Agent and
certified, without any qualifications (other than those necessitated by virtue
of the Bankruptcy Cases), by such accountants to have been prepared in
accordance with GAAP. Borrowers shall request their accountants to deliver to
Agent, concurrently with the completion of the above described annual
statements, a certificate of such accountants addressed to Agent stating that
such accountants do not have knowledge of the existence of any Default or Event
of Default. Such audited financial statements shall include a balance sheet,
profit and loss statement, and cash flow statement, and, if prepared, such
accountants' letter to management.
Together with the above, Borrowers also shall deliver to
all Lenders Parent's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and
Form 8-K Current Reports, and any other filings made by Parent with the
Securities and Exchange Commission, as soon as the same are filed, or any other
information that is provided by Parent to its shareholders, and any other
report reasonably requested by the Lender Group relating to the Collateral or
Guarantor Collateral or the financial condition of any Obligor.
Each month, together with the financial statements
provided pursuant to Section 6.3(a), each Borrower shall deliver to all Lenders
a certificate addressed to the Lender Group and signed by its chief financial
officer to the effect that: (i) all reports, statements, or computer prepared
information of any kind or nature delivered or caused to be delivered to Agent
hereunder have been prepared in accordance with GAAP (except, in the case of
unaudited financial statements, for the lack of footnotes and being subject to
year-end audit adjustments) and fairly present the financial condition of such
Borrower, (ii) the representations and warranties contained in this Agreement
and the other Loan Documents are true and correct in all material respects on
and as of the date of such certificate, as though made on and as of such date
(except to the extent that such representations and warranties relate solely to
an earlier date), (iii) for each month that also is the date on which a
financial covenant in Section 6.11 or Section 7.10 is to be tested, a
certificate demonstrating in reasonable detail compliance at the end of such
period with the applicable financial covenants contained in Section 6.11 or
Section 7.10, as applicable, and (iv) on the date of delivery of such
certificate to Agent there does not exist any condition or event that
constitutes a Default or Event of Default (or, in each case, to the extent of
any non-compliance, describing such non-compliance as to which he or she may
have knowledge and what action Borrowers or the relevant Guarantor has taken,
is taking, or proposes to take with respect thereto).
39
<PAGE> 45
Borrowers (and, if applicable, Parent) shall have issued
written instructions to its independent certified public accountants
authorizing them to communicate with Agent and to release to Agent whatever
financial information concerning the Obligors that Agent may request.
Borrowers (and Parent, if applicable) hereby irrevocably authorize and direct
all auditors, accountants, or other third parties to deliver to Agent, at
Borrowers' expense, copies of Borrowers' and any Guarantor's financial
statements, papers related thereto, and other accounting records of any nature
in their possession, and to disclose to Agent any information they may have
regarding Borrowers' or any Guarantor's business affairs and financial
conditions.
6.4 TAX RETURNS. Cause to be delivered to Agent copies of
Parent's future federal income tax returns, and any amendments thereto, within
thirty (30) days of the filing thereof with the Internal Revenue Service.
6.5 BANKRUPTCY DOCUMENTS. Promptly deliver to all Lenders
copies of each of the following: (a) any documents provided by Borrowers to
any committee appointed under the Bankruptcy Code, and (b) any reports or other
documents provided by Borrowers to the Office of the United States Trustee.
6.6 RETURNS. Returns and allowances, if any, as between any
Borrower and its customers shall be on the same basis and in accordance with
the usual customary practices of such Borrower, as they exist at the time of
the execution and delivery of this Agreement.
6.7 TITLE TO EQUIPMENT. Upon Agent's request, each Borrower
immediately shall deliver to Agent, properly endorsed, any and all evidences of
ownership of, certificates of title, or applications for title to any items of
Equipment.
6.8 MAINTENANCE OF EQUIPMENT. Maintain its Equipment in good
operating condition and repair (ordinary wear and tear excepted), and make all
necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved.
6.9 TAXES. Except for Permitted Protests, all assessments and
taxes, whether real, personal, or otherwise, due or payable by, or imposed,
levied, or assessed against any Obligor or any of its property shall be paid in
full, before delinquency or before the expiration of any extension period.
Except for Permitted Protests, Borrowers shall make, and cause each Guarantor
to make, due and timely payment or deposit of all federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute
and deliver, and cause each Guarantor to execute and deliver, to Agent, on
demand, appropriate certificates attesting to the payment thereof or deposit
with respect thereto. Borrowers will make, and will cause each Guarantor to
make, timely payment or deposit of all tax payments and withholding taxes
required of it by applicable laws, including those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish or cause to be furnished to Agent proof
satisfactory to Agent indicating that Borrowers or such Guarantor has made such
payments or deposits.
40
<PAGE> 46
6.10 INSURANCE.
(a) Borrowers, at their expense, shall, and shall cause
each Guarantor to, keep the Collateral, the Guarantor Collateral, and the
Obligors' real property insured against loss or damage by fire, theft,
explosion, sprinklers, and all other hazards and risks, and in such amounts, as
are ordinarily insured against by other owners in similar businesses.
Borrowers also shall, and shall cause the Guarantors to, maintain business
interruption, public liability, product liability, and property damage
insurance relating to Borrowers' or the Guarantors' ownership and use of the
Collateral and Guarantor Collateral and such real property, as well as
insurance against larceny, embezzlement, and criminal misappropriation.
(b) All such policies of insurance shall be in such
form, with such companies, and in such amounts as may be reasonably
satisfactory to Agent. All such policies of insurance (except those of public
liability and property damage in respect of real property) shall contain a
lender's loss payable endorsement in a form satisfactory to Agent, showing
Agent as sole loss payee thereof, and shall contain a waiver of warranties, and
shall specify that the insurer must give at least ten (10) days prior written
notice to Agent before canceling its policy for any reason. Borrowers shall,
and shall cause the Guarantors to, deliver to Agent certified copies of such
policies of insurance and evidence of the payment of all premiums therefor.
All proceeds payable under any such policy shall be payable to Agent for the
benefit of the Lender Group to be applied on account of the Obligations.
6.11 FINANCIAL COVENANTS. Parent shall:
(a) Tangible Net Worth. Maintain Tangible Net Worth of
not less than the amounts set forth on Schedule 6.11, as determined at the end
of each fiscal month;
(b) EBITDA. Maintain EBITDA of not less than the
amounts set forth on Schedule 6.11. For the period ending October 5, 1996 the
test shall be for five (5) weeks, for the period ending November 2, 1996 the
test shall be for fiscal nine (9) weeks, and for the period ending November 30,
1996 and all subsequent periods, the test shall be for the thirteen (13) weeks
then ended.
(c) Total Margin. Maintain Total Margin of not less
than the amounts set forth on Schedule 6.11. For the period ending October 5,
1996 the test shall be for five (5) weeks, for the period ending November 2,
1996 the test shall be for fiscal nine (9) weeks, and for the period ending
November 30, 1996 and all subsequent periods, the test shall be for the
thirteen (13) weeks.
(d) Trade Credit. Obtain credit from suppliers during
the Cases, as tested by the Dollar amount of trade accounts payable which are
within their terms, of not less than the amounts set forth on Schedule 6.11;
41
<PAGE> 47
(e) Reorganization Expenses. Not pay cumulative
reorganization expenses in the Cases, excluding non-cash items, in excess of
$3,500,000;
(f) Clean Up Period. Not have any outstanding
Obligations (other than Letters of Credit) for five (5) consecutive days in
1996 one of which shall be December 31, 1996 and in 1997 one of which shall be
December 31, 1997.
6.12 NO SETOFFS OR COUNTERCLAIMS. All payments hereunder and
under the other Loan Documents made by or on behalf of Borrowers shall be made
without setoff or counterclaim and free and clear of, and without deduction or
withholding for or on account of, any federal, state, or local taxes.
6.13 LOCATION OF INVENTORY AND EQUIPMENT. Keep its Inventory
and Equipment only at the locations identified on Schedule 6.13; provided,
however, that Borrowers may amend Schedule 6.13 so long as such amendment
occurs by written notice to Agent not less than thirty (30) days prior to the
date on which such Inventory or Equipment is moved to such new location, so
long as such new location is within the continental United States, and so long
as, at the time of such written notification, Borrowers provide any financing
statements or fixture filings necessary to perfect and continue perfected the
Liens of the Lender Group on such assets and also provides to Agent a
Collateral Access Agreement.
6.14 COMPLIANCE WITH LAWS. Borrowers shall, and shall cause
each Guarantor to, comply with the requirements of all applicable laws, rules,
regulations, and orders of any governmental authority, including the Fair Labor
Standards Act and the Americans With Disabilities Act, other than laws, rules,
regulations, and orders the non-compliance with which, individually or in the
aggregate, would have or could reasonably be expected to have a Material
Adverse Change.
6.15 EMPLOYEE BENEFITS.
(a) Promptly, and in any event within ten (10) Business
Days after Parent or any of its Subsidiaries knows or has reason to know that
an ERISA Event has occurred that reasonably could be expected to result in a
Material Adverse Change, a written statement of the chief financial officer of
a Borrower describing such ERISA Event and any action that is being taking with
respect thereto by Parent, any such Subsidiary or ERISA Affiliate, and any
action taken or threatened by the IRS, Department of Labor, or PBGC. Parent or
such Subsidiary, as applicable, shall be deemed to know all facts known by the
administrator of any Benefit Plan of which it is the plan sponsor, (ii)
promptly, and in any event within three (3) Business Days after the filing
thereof with the IRS, a copy of each funding waiver request filed with respect
to any Benefit Plan and all communications received by Parent, any of its
Subsidiaries or, to the knowledge of Borrowers, any ERISA Affiliate with
respect to such request, and (iii) promptly, and in any event within three (3)
Business Days after receipt by Parent, any of its Subsidiaries or, to the
knowledge of Borrowers,
42
<PAGE> 48
any ERISA Affiliate, of the PBGC's intention to terminate a Benefit Plan or to
have a trustee appointed to administer a Benefit Plan, copies of each such
notice.
(b) Borrowers will cause to be delivered to Agent, upon
Agent's request, each of the following: (i) a copy of each Plan (or, where any
such plan is not in writing, complete description thereof) (and if applicable,
related trust agreements or other funding instruments) and all amendments
thereto, all written interpretations thereof and written descriptions thereof
that have been distributed to employees or former employees of Borrowers or
their Subsidiaries; (ii) the most recent determination letter issued by the IRS
with respect to each Benefit Plan; (iii) for the three most recent plan years,
annual reports on Form 5500 Series required to be filed with any governmental
agency for each Benefit Plan; (iv) all actuarial reports prepared for the last
three plan years for each Benefit Plan; (v) a listing of all Multiemployer
Plans, with the aggregate amount of the most recent annual contributions
required to be made by Borrowers or any ERISA Affiliate to each such plan and
copies of the collective bargaining agreements requiring such contributions;
(vi) any information that has been provided to Borrowers or any ERISA Affiliate
regarding withdrawal liability under any Multiemployer Plan; and (vii) the
aggregate amount of the most recent annual payments made to former employees of
Parent or its Subsidiaries under any Retiree Health Plan.
6.16 LEASES. Except for leases rejected by a Borrower in its
Bankruptcy Case and amounts arising prior to the filing of the Cases, pay, or
cause to be paid, when due all rents and other amounts payable under any leases
to which an Obligor is a party or by which an Obligor's properties and assets
are bound, unless such payments are the subject of a Permitted Protest.
Borrowers shall provide Agent with a monthly report specifying the status of
Obligors' rental payments. To the extent that an Obligor fails timely to make
payment of such rents and other amounts payable when due under its leases,
Agent shall be entitled, in its discretion, and without the necessity of
declaring an Event of Default, to reserve an amount equal to such unpaid
amounts against the Borrowing Base. To the extent that Agent does not receive
Collateral Access Agreements for all of Borrowers' locations on Schedule E-2
within ninety (90) days of the date hereof, Agent shall be entitled, in its
reasonable discretion, to establish reserves against the Borrowing Base.
6.17 COLLATERAL ACCESS AGREEMENTS. Borrowers shall use their
best efforts to obtain and deliver to Agent Collateral Access Agreements for
all of Borrowers' locations set forth on Schedule E-2. The failure to obtain
any such Collateral Access Agreement after using best efforts shall not
constitute an Event of Default.
7. NEGATIVE COVENANTS.
Borrowers covenant and agree that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, neither Borrowers nor any other Obligor will do any of the
following:
43
<PAGE> 49
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee,
or otherwise become or remain, directly or indirectly, liable with respect to
any Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth in the latest financial
statements of Borrowers submitted to Agent on or prior to the Closing Date; and
(c) Indebtedness secured by Permitted Liens.
7.2 LIENS. Create, incur, assume, or permit to exist,
directly or indirectly, any Lien on or with respect to any of its property or
assets, of any kind, whether now owned or hereafter acquired, or any income or
profits therefrom, except for Permitted Liens.
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any
acquisition, merger, consolidation, reorganization, or recapitalization, or
reclassify its capital stock, or liquidate, wind up, or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, assign, lease,
transfer, or otherwise dispose of, in one transaction or a series of
transactions, all or any substantial part of its business, property, or assets,
whether now owned or hereafter acquired, or acquire by purchase or otherwise
all or substantially all of the properties, assets, stock, or other evidence of
beneficial ownership of any Person.
7.4 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Enter
into any transaction not in the ordinary and usual course of such Obligor's
business, including the sale, lease, or other disposition of, moving,
relocation, or transfer, whether by sale or otherwise, of any of such Obligor's
properties or assets other than: (a) sales of such Obligor's Inventory to
buyers in the ordinary course of such Obligor's business as currently
conducted; (b) the sale of such Obligor's obsolete or worn out Equipment with
the proceeds paid to Agent; and (c) closing of stores and rejection of leases
and executory contracts pursuant to an order of the Bankruptcy Court.
7.5 CHANGE NAME. Change any Borrower's name, FEIN, corporate
structure (within the meaning of Section 9402(7) of the Code) or identity, or
add any new fictitious name.
7.6 GUARANTEE. Guarantee or otherwise become in any way
liable with respect to the obligations of any third Person, except by
endorsement of instruments or items of payment for deposit to the account of
Borrower or which are transmitted or turned over to Agent.
7.7 RESTRUCTURE. Make any change in its financial structure,
the principal nature of its business operations, or the date of its fiscal
year.
44
<PAGE> 50
7.8 PREPAYMENTS.
(a) Except in connection with a refinancing permitted
by Section 7.1(d) or in connection with the cancellation of a real property
lease, prepay, redeem, retire, defease, purchase, or otherwise acquire any
Indebtedness of any Obligor owing to any third Person, other than the
Obligations in accordance with this Agreement; or
(b) directly or indirectly, amend, modify, alter,
increase, or change any of the terms or conditions of any agreement,
instrument, document, indenture, or other writing evidencing or concerning
Indebtedness permitted under Sections 7.1(b), (c), or (d).
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control or have either Babbage or Software cease to
be wholly-owned by Parent.
7.10 CAPITAL EXPENDITURES. Make any capital expenditure in
excess of $500,000 for any individual transaction or where the aggregate amount
of such capital expenditures for all Obligors in any fiscal year is in excess
of $3,000,000.
7.11 CONSIGNMENTS. Consign any Borrower's Inventory or sell
any Borrower's Inventory on bill and hold, sale or return, sale on approval, or
other conditional terms of sale.
7.12 DISTRIBUTIONS. Make any distribution or declare or pay
any dividends (in cash or other property, other than capital stock) on, or
purchase, acquire, redeem, or retire any of such Obligor's capital stock, of
any class, whether now or hereafter outstanding except for distributions from
Chasada to Augusta and from Augusta to Babbage.
7.13 ACCOUNTING METHODS. Modify or change its method of
accounting except as may be necessary to comply with GAAP.
7.14 INVESTMENTS. Directly or indirectly make, acquire, or
incur any liabilities (including contingent obligations) for or in connection
with (a) the acquisition of the securities of (whether debt or equity), or
other interests in, a Person, (b) loans, advances, capital contributions, or
transfers of property to a Person, or (c) the acquisition of all or
substantially all of the properties or assets of a Person.
7.15 TRANSACTIONS WITH AFFILIATES. Directly or indirectly
enter into or permit to exist any material transaction with any Affiliate of
such Obligor except for transactions that are in the ordinary course of such
Obligor's business, upon fair and reasonable terms, that are fully disclosed to
Agent, and that are no less favorable to such Obligor than would be obtained in
an arm's length transaction with a non-Affiliate.
7.16 SUSPENSION. Suspend or go out of a substantial portion of
its business.
45
<PAGE> 51
7.17 INTENTIONALLY OMITTED.
7.18 USE OF PROCEEDS. Use the proceeds of the Advances made
hereunder for any purpose other than: (a) on the Closing Date, (i) to repay the
outstanding principal, accrued interest, and accrued fees and expenses of
Borrowers owing to Existing Lenders after entry of the Bankruptcy Court Order,
and (ii) to pay transactional costs and expenses incurred in connection with
this Agreement; and (b) thereafter, consistent with the terms and conditions
hereof, for its lawful and permitted corporate purposes.
7.19 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY
AND EQUIPMENT WITH BAILEES. Without thirty (30) days prior written
notification to Agent, relocate its chief executive office to a new location,
unless, at the time of such written notification, such Obligor provides any
financing statements or fixture filings necessary to perfect and continue
perfected the Liens of the Lender Group and also provides to Agent a Collateral
Access Agreement. The Inventory and Equipment of Borrowers shall not at any
time now or hereafter be stored with a bailee, warehouseman, or similar party
without Agent's prior written consent.
7.20 NO PROHIBITED TRANSACTIONS UNDER ERISA. Directly or
indirectly:
(a) Engage, or permit Parent or any Subsidiary of
Parent to engage, in any prohibited transaction which is reasonably likely to
result in a civil penalty or excise tax described in Sections 406 of ERISA or
4975 of the IRC for which a statutory or class exemption is not available or a
private exemption has not been previously obtained from the Department of
Labor;
(b) permit to exist with respect to any Benefit Plan
any accumulated funding deficiency (as defined in Sections 302 of ERISA and 412
of the IRC), whether or not waived;
(c) fail, or permit Parent or any Subsidiary of Parent
to fail, to pay timely required contributions or annual installments due with
respect to any waived funding deficiency to any Benefit Plan;
(d) terminate, or permit Parent or any Subsidiary of
Parent to terminate, any Benefit Plan where such event would result in any
liability of Parent, any of its Subsidiaries or any ERISA Affiliate under Title
IV of ERISA;
(e) fail, or permit Parent or any Subsidiary of Parent
to fail, to make any required contribution or payment to any Multiemployer
Plan;
(f) fail, or permit Parent or any Subsidiary of Parent
to fail, to pay any required installment or any other payment required under
Section 412 of the IRC on or before the due date for such installment or other
payment;
46
<PAGE> 52
(g) amend, or permit Parent or any Subsidiary of Parent
to amend, a Plan resulting in an increase in current liability for the plan
year such that Parent, any Subsidiary of Parent, or any ERISA Affiliate is
required to provide security to such Plan under Section 401(a)(29) of the IRC;
or
(h) withdraw, or permit Parent or any Subsidiary of
Parent to withdraw, from any Multiemployer Plan where such withdrawal is
reasonably likely to result in any liability of any such entity under Title IV
of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrowers, any of their
Subsidiaries or any ERISA Affiliate in excess of $250,000.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event
of default (each, an "Event of Default") under this Agreement:
8.1 If Borrowers fail to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of principal,
interest, fees and charges due the Lender Group, reimbursement of Lender Group
Expenses, or other amounts constituting Obligations);
8.2 If any Borrower fails or neglects to perform, keep, or
observe any term, provision, condition, covenant, or agreement contained in
Section 6.2 which failure or neglect continues for three (3) days, or in the
case of Sections 6.3, 6.4, 6.13, 6.15, or 6.16 which failure or neglect
continues for ten (10) or more days, or any other term, provision, condition,
covenant, or agreement contained in this Agreement, in any of the Loan
Documents, or in any other present or future agreement between such Borrower
and the Lender Group;
8.3 If there is a Material Adverse Change;
8.4 If the Interim Bankruptcy Court Order or the Bankruptcy
Court Order is revoked, reversed, modified, amended, or stayed pending appeal
or if an Event of Default occurs and is continuing in either of such orders;
8.5 If any Obligor is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any material part of
its business affairs;
8.6 If a notice of Lien, levy, or assessment is filed of
record with respect to any of an Obligor's properties or assets by the United
States Government, or any department, agency, or instrumentality thereof, or by
any state, county, municipal, or governmental agency, or if any taxes or debts
owing at any time hereafter to any one or more of such entities becomes a Lien,
whether
47
<PAGE> 53
choate or otherwise, upon any of an Obligor's properties or assets and the same
is not paid on the payment date thereof;
8.7 If a judgment or other claim becomes a Lien upon any
material portion of a Borrower's assets and such judgment is not stayed,
satisfied or released within thirty (30) days of the date thereof.
8.8 If there is a default in any material agreement to which
any Borrower is a party and if the other parties thereto have obtained relief
from the automatic stay under Section 362 of the Bankruptcy Code which might
have a material adverse effect on the Collateral or such Borrower's business;
8.9 If any Obligor makes any payment on account of
Indebtedness that has been contractually subordinated in right of payment to
the payment in respect of the Obligations, except to the extent such payment is
permitted by the terms of the subordination provisions applicable to such
Indebtedness;
8.10 If any material misstatement or material misrepresentation
exists now or hereafter in any warranty, representation, statement, or report
made to the Lender Group by an Obligor or any officer, employee, agent, or
director thereof, or if any such warranty or representation is withdrawn; or
8.11 If (a) with respect to any Plan, there shall occur any of
the following which could reasonably be expected to have a material adverse
effect on the financial condition of any Borrower: (i) other than with respect
to any Multiemployer Plan, the violation of any of the provisions of ERISA;
(ii) other than with respect to any Multiemployer Plan, the loss by a Plan
intended to be a Qualified Plan of its qualification under Section 401(a) of
the IRC; (iii) the incurrence of liability under Title IV of ERISA; (iv) a
failure to make full payment when due of all amounts which, under the
provisions of any Plan or applicable law, any Borrower or any ERISA Affiliate
is required to make; (v) the filing of a notice of intent to terminate a Plan
under Sections 4041 or 4041A of ERISA; (vi) a complete or partial withdrawal of
any Borrower or an ERISA Affiliate from any Plan; (vii) the receipt of a notice
by the plan administrator of a Benefit Plan that the PBGC has instituted
proceedings to terminate such Plan or appoint a trustee to administer such
Plan; (viii) a commencement or increase of contributions to, or the adoption of
or the amendment of, a Plan; and (ix) the assessment against any Borrower or
any ERISA Affiliate of a tax under Section 4980B of the IRC; or (b) the
Unfunded Benefit Liability of all of the Benefit Plans of any Borrower and its
ERISA Affiliates shall, in the aggregate, exceed $250,000.
8.12 If the obligation of any Guarantor under any Loan Document
is limited or terminated by operation of law or by such Guarantor thereunder,
or any such Guarantor becomes the subject of an Insolvency Proceeding.
48
<PAGE> 54
9. THE LENDER GROUP'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence and during the
continuation of an Event of Default, Agent may, pursuant to Sections 17.4 and
17.5, do one or more of the following on behalf of the Lender Group, all of
which are authorized by Borrowers:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due
and payable;
(b) Cease advancing money or extending credit to or for
the benefit of Borrowers under this Agreement, under any of the Loan Documents,
or under any other agreement between any Borrower and the Lender Group;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of the Lender Group, but
without affecting the Lender Group's rights in and Liens on the Collateral or
Guarantor Collateral and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Agent considers advisable, and
in such cases, Agent will credit Borrowers' Loan Account with only the net
amounts received by Agent in payment of such disputed Accounts after deducting
all Lender Group Expenses incurred or expended in connection therewith;
(e) Cause Borrowers to hold all of their returned
Inventory in trust for the Lender Group;
(f) Without notice to or demand upon any Obligor, make
such payments and do such acts as Agent considers necessary or reasonable to
protect the Lender Group's Liens on the Collateral. Borrowers agree to
assemble the Collateral at their respective locations if Agent so requires, and
to make the Collateral available to Agent as Agent may designate. Borrowers
authorize Agent to enter the premises where the Collateral is located, to take
and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any Lien or charge that in Agent's
determination appears to conflict with the Lender Group's Liens and to pay all
expenses incurred in connection therewith. With respect to any of Borrowers'
owned premises, Borrowers hereby grant Agent a license to enter into possession
of such premises and to occupy the same, without charge, for up to one hundred
twenty (120) days in order to exercise any of the Lender Group's rights or
remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to any Borrower (such notice being
expressly waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the meaning of Section 9505 of the Code),
set off and apply to the Obligations any and all (i) balances and deposits of
any Borrower held by the Lender Group (including any amounts received in the
49
<PAGE> 55
Lockbox Accounts), or (ii) indebtedness at any time owing to or for the credit
or the account of any Borrower held by the Lender Group;
(h) Hold, as cash collateral, any and all balances and
deposits of any Borrower held by the Lender Group, and any amounts received in
the Lockbox Accounts, to secure the full and final repayment of all of the
Obligations;
(i) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Agent hereby is granted a license or other right
to use, without charge, any Borrower's labels, patents, copyrights, rights of
use of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral or Guarantor Collateral, in completing production of, advertising
for sale, and selling any Collateral and Borrowers' rights under all licenses
and all franchise agreements, if permitted, shall inure to the Lender Group's
benefit;
(j) Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including any Borrower's premises) as
Agent determines is commercially reasonable. It is not necessary that the
Collateral be present at any such sale;
(k) Agent shall give notice of the disposition of the
Collateral as follows:
(1) Agent shall give each Borrower with rights
in the Collateral that is being disposed of and each holder of a security
interest in the Collateral who has filed with Agent a written request for
notice, a notice in writing of the time and place of public sale, or, if the
sale is a private sale or some other disposition other than a public sale is to
be made of the Collateral, then the time on or after which the private sale or
other disposition is to be made;
(2) The notice shall be personally delivered or
mailed, postage prepaid, to the applicable Borrower as provided in Section 12,
at least five (5) days before the date fixed for the sale, or at least five (5)
days before the date on or after which the private sale or other disposition is
to be made; no notice needs to be given prior to the disposition of any portion
of the Collateral that is perishable or threatens to decline speedily in value
or that is of a type customarily sold on a recognized market;
(3) If the sale is to be a public sale, Agent
also shall give notice of the time and place by publishing a notice one time at
least five (5) days before the date of the sale in a newspaper of general
circulation in the county in which the sale is to be held;
(l) The Lender Group may credit bid and purchase at any
public sale; and
50
<PAGE> 56
(m) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrowers. Any excess
will be returned, without interest and subject to the rights of third Persons,
by Agent to Borrowers.
9.2 REMEDIES CUMULATIVE. The rights and remedies of the
Lender Group under this Agreement, the Loan Documents, and all other agreements
shall be cumulative. The Lender Group shall have all other rights and remedies
not inconsistent herewith as provided under the Code, the Bankruptcy Code, by
law, or in equity. No exercise by the Lender Group of one right or remedy
shall be deemed an election, and no waiver by the Lender Group of any Event of
Default shall be deemed a continuing waiver. No delay by the Lender Group
shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
Except for Permitted Protests, if any Obligor fails to pay any
monies (whether taxes, assessments, insurance premiums, or, in the case of
leased properties or assets, rents or other amounts payable under such leases)
due to third Persons, or fails to make any deposits or furnish any required
proof of payment or deposit, all as required under the terms of this Agreement,
then, Agent, in its discretion and upon notice to the Obligors, may do any or
all of the following: (a) make payment of the same or any part thereof; (b)
set up such reserves in Borrowers' Loan Account as Agent deems necessary to
protect the Lender Group from the exposure created by such failure; or (c)
obtain and maintain insurance policies of the type described in Section 6.10,
and take any action with respect to such policies as Agent deems prudent. Any
such amounts paid by Agent shall constitute Lender Group Expenses. Any such
payments made by Agent shall not constitute an agreement by the Lender Group to
make similar payments in the future or a waiver by the Lender Group any Event
of Default under this Agreement. Agent need not inquire as to, or contest the
validity of, any such expense, tax, Lien and the receipt of the usual official
notice for the payment thereof shall be conclusive evidence that the same was
validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Each Borrower waives demand,
protest, notice of protest, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees at any time held by the Lender Group
on which any Borrower may in any way be liable.
11.2 THE LENDER GROUP'S LIABILITY FOR COLLATERAL. So long as
the Lender Group complies with its obligations, if any, under Section 9207 of
the Code, the Lender Group shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency,
51
<PAGE> 57
or other Person. All risk of loss, damage, or destruction of the Collateral
shall be borne by Borrowers.
11.3 INDEMNIFICATION. Borrowers shall pay, indemnify, defend,
and hold the Agent-Related Persons, each Lender, each Participant, and each of
their respective officers, directors, employees, counsel, agents, and
attorneys-in-fact (each, an "Indemnified Person") harmless (to the fullest
extent permitted by law) from and against any and all claims, demands, suits,
actions, investigations, proceedings, and damages, and all reasonable attorneys
fees and disbursements and other costs and expenses actually incurred in
connection therewith (as and when they are incurred and irrespective of whether
suit is brought), at any time asserted against, imposed upon, or incurred by
any of them in connection with or as a result of or related to the execution,
delivery, enforcement, performance, and administration of this Agreement and
any other Loan Documents or the transactions contemplated herein, and with
respect to any investigation, litigation, or proceeding related to this
Agreement, any other Loan Document, or the use of the proceeds of the credit
provided hereunder (irrespective of whether any Indemnified Person is a party
thereto), or any act, omission, event or circumstance in any manner related
thereto (all the foregoing, collectively, the "Indemnified Liabilities"). No
Borrower shall have any obligation to any Indemnified Person under this Section
11.3 with respect to any Indemnified Liability that a court of competent
jurisdiction determines to have resulted from the gross negligence or willful
misconduct of such Indemnified Person. This provision shall survive the
termination of this Agreement and the repayment of the Obligations.
11.4 SURETYSHIP WAIVERS AND CONSENTS. Each Borrower
acknowledges that the obligations of such Borrower undertaken herein might be
construed to consist, at least in part, of the guaranty of obligations of
Persons or entities other than such Borrower (including the other Borrower
party hereto or the other Obligors) and, in full recognition of that fact, each
Borrower consents and agrees that the Lender Group may, at any time and from
time to time, without notice or demand, whether before or after any actual or
purported termination, repudiation or revocation of this Agreement by any one
or more Borrowers, and without affecting the enforceability or continuing
effectiveness hereof as to each Borrower: (a) supplement, restate, modify,
amend, increase, decrease, extend, renew, accelerate or otherwise change the
time for payment or the terms of the Obligations or any part thereof, including
any increase or decrease of the rate(s) of interest thereon; (b) supplement,
restate, modify, amend, increase, decrease or waive, or enter into or give any
agreement, approval or consent with respect to, the Obligations or any part
thereof, or any of the Loan Documents or any additional security or guaranties,
or any condition, covenant, default, remedy, right, representation or term
thereof or thereunder; (c) accept new or additional instruments, documents or
agreements in exchange for or relative to any of the Loan Documents or the
Obligations or any part thereof; (d) accept partial payments on the
Obligations; (e) receive and hold additional security or guaranties for the
Obligations or any part thereof; (f) release, reconvey, terminate, waive,
abandon, fail to perfect, subordinate, exchange, substitute, transfer or
enforce any security or guaranties, and apply any security and direct the order
or manner of sale thereof as the Lender Group in its sole and absolute
discretion may determine; (g) release any Person from any personal liability
with respect to the Obligations or any part thereof; (h) settle, release on
terms
52
<PAGE> 58
satisfactory to the Lender Group or by operation of applicable laws or
otherwise liquidate or enforce any Obligations and any security therefor or
guaranty thereof in any manner, consent to the transfer of any security and bid
and purchase at any sale; or (i) consent to the merger, change or any other
restructuring or termination of the corporate or partnership existence of any
Borrower or any other Person, and correspondingly restructure the Obligations,
and any such merger, change, restructuring or termination shall not affect the
liability of any Borrower or the continuing effectiveness hereof, or the
enforceability hereof with respect to all or any part of the Obligations.
Upon the occurrence and during the continuance of any Event of
Default, the Lender Group may enforce this Agreement independently as to each
Borrower and independently of any other remedy or security Lender Group at any
time may have or hold in connection with the Obligations, and it shall not be
necessary for Lender Group to marshal assets in favor of any Borrower or any
other Person or to proceed upon or against or exhaust any security or remedy
before proceeding to enforce this Agreement. Each Borrower expressly waives
any right to require Lender Group to marshal assets in favor of any Borrower or
any other Person or to proceed against any other Borrower or any collateral
provided by any Person, and agrees that Lender Group may proceed against
Borrowers or any collateral in such order as it shall determine in its sole and
absolute discretion.
The Lender Group may file a separate action or actions against
any Borrower, whether action is brought or prosecuted with respect to any
security or against any other Person, or whether any other Person is joined in
any such action or actions. Each Borrower agrees that the Lender Group and any
Borrower and any Affiliate of any Borrower may deal with each other in
connection with the Obligations or otherwise, or alter any contracts or
agreements now or hereafter existing between any of them, in any manner
whatsoever, all without in any way altering or affecting the continuing
efficacy of this Agreement.
The Lender Group's rights hereunder shall be reinstated and
revived, and the enforceability of this Agreement shall continue, with respect
to any amount at any time paid on account of the Obligations which thereafter
shall be required to be restored or returned by the Lender Group, all as though
such amount had not been paid. The rights of the Lender Group created or
granted herein and the enforceability of this Agreement at all times shall
remain effective to cover the full amount of all the Obligations even though
the Obligations, including any part thereof or any other security or guaranty
therefor, may be or hereafter may become invalid or otherwise unenforceable as
against any Borrower and whether or not any other Borrower shall have any
personal liability with respect thereto.
To the maximum extent permitted by applicable law, each Borrower
expressly waives any and all defenses now or hereafter arising or asserted by
reason of (a) any disability or other defense of any other Borrower with
respect to the Obligations, (b) the unenforceability or invalidity of any
security or guaranty for the Obligations or the lack of perfection or
continuing perfection or failure of priority of any security for the
Obligations, (c) the cessation for any cause whatsoever of the liability of any
other Borrower (other than by reason of the full payment and performance of all
53
<PAGE> 59
Obligations), (d) any failure of the Lender Group to marshal assets in favor
of any Borrower or any other Person, (e) any failure of the Lender Group to
give notice of sale or other disposition of collateral to any Borrower or any
other Person or any defect in any notice that may be given in connection with
any sale or disposition of collateral, (f) any failure of the Lender Group to
comply with applicable law in connection with the sale or other disposition of
any collateral or other security for any Obligation, including any failure of
the Lender Group to conduct a commercially reasonable sale or other disposition
of any collateral or other security for any Obligation, (g) any act or omission
of the Lender Group or others that directly or indirectly results in or aids
the discharge or release of any Borrower or the Obligations or any security or
guaranty therefor by operation of law or otherwise, (h) any law which provides
that the obligation of a surety or guarantor must neither be larger in amount
nor in other respects more burdensome than that of the principal or which
reduces a surety's or guarantor's obligation in proportion to the principal
obligation, (i) any failure of the Lender Group to file or enforce a claim in
any bankruptcy or other proceeding with respect to any Person, (j) the election
by the Lender Group of the application or non-application of Section 1111(b)(2)
of the United States Bankruptcy Code, (k) any extension of credit or the grant
of any lien under Section 364 of the United States Bankruptcy Code, (l) any use
of cash collateral under Section 363 of the United States Bankruptcy Code, (m)
any agreement or stipulation with respect to the provision of adequate
protection in any bankruptcy proceeding of any Person, (n) the avoidance of any
lien in favor of the Lender Group for any reason, or (o) any action taken by
the Lender Group that is authorized by this section or any other provision of
any Loan Document. Until such time as all of the Obligations have been fully,
finally, and indefeasibly paid in full in cash: (i) each Borrower hereby
waives and postpones any right of subrogation it has or may have as against any
other Borrower with respect to the Obligations; and (ii) in addition, each
Borrower also hereby waives and postpones any right to proceed or to seek
recourse against or with respect to any property or asset of any other
Borrower. Each Borrower expressly waives all setoffs and counterclaims and all
presentments, demands for payment or performance, notices of nonpayment or
nonperformance, protests, notices of protest, notices of dishonor and all other
notices or demands of any kind or nature whatsoever with respect to the
Obligations, and all notices of acceptance of this Agreement or of the
existence, creation or incurring of new or additional Obligations.
In the event that all or any part of the Obligations at any time
are secured by any one or more deeds of trust or mortgages or other instruments
creating or granting liens on any interests in real property, each Borrower
authorizes the Agent on the Lender Group's behalf, upon the occurrence of and
during the continuance of any Event of Default, at its sole option, without
notice or demand and without affecting the obligations of any Borrower, the
enforceability of this Agreement, or the validity or enforceability of any
Liens of the Lender Group on any Collateral, to foreclose any or all of such
deeds of trust or mortgages or other instruments by judicial or nonjudicial
sale.
To the fullest extent permitted by applicable law, each Borrower
expressly waives any defenses to the enforcement of this Agreement or any
rights of the Lender Group created or granted hereby or to the recovery by the
Lender Group against any Borrower or any other Person liable therefor of any
deficiency after a judicial or nonjudicial foreclosure or sale, even though
such a
54
<PAGE> 60
foreclosure or sale may impair the subrogation rights of Borrowers and may
preclude Borrowers from obtaining reimbursement or contribution from other
Borrowers. To the fullest extent permitted by applicable law, each Borrower
expressly waives any suretyship defenses or benefits that it otherwise might or
would have under applicable law. WITHOUT LIMITING THE GENERALITY OF ANY OTHER
WAIVER OR OTHER PROVISION SET FORTH IN THIS SECTION, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, EACH BORROWER WAIVES ALL RIGHTS AND DEFENSES
ARISING OUT OF AN ELECTION OF REMEDIES BY THE LENDER GROUP, EVEN THOUGH THAT
ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH RESPECT TO
SECURITY FOR THE OBLIGATIONS, HAS DESTROYED SUCH BORROWER'S RIGHTS OF
SUBROGATION AND REIMBURSEMENT AGAINST THE OTHER BORROWER BY THE OPERATION LAW
OR OTHERWISE.
Borrowers and each of them warrant and agree that each of the
waivers and consents set forth herein are made after consultation with legal
counsel and with full knowledge of their significance and consequences, with
the understanding that events giving rise to any defense or right waived may
diminish, destroy or otherwise adversely affect rights which Borrowers
otherwise may have against other Borrowers, the Lender Group or others, or
against Collateral. If any of the waivers or consents herein are determined to
be contrary to any applicable law or public policy, such waivers and consents
shall be effective to the maximum extent permitted by law.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other Loan Document
shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid)
shall be personally delivered or sent by registered or certified mail, postage
prepaid, return receipt requested, or by overnight courier, or telefacsimile,
to the relevant party at its address set forth below:
IF TO BORROWERS: NEOSTAR RETAIL GROUP, INC.,
BABBAGE'S, INC. AND
SOFTWARE ETC. STORES, INC.
2250 William D. Tate Avenue
Grapevine, Texas 76051
Attn: Opal P. Ferraro,
Chief Financial Officer
Fax No. (817) 424-2002
55
<PAGE> 61
WITH COPIES TO: COX & SMITH INCORPORATED
112 East Pecan Street
Suite 1800
San Antonio, Texas 78205
Attn: Daniel G. Webster, III, Esq.
Fax No. (210) 226-8395
IF TO AGENT OR TO THE
LENDER GROUP IN CARE OF
AGENT: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. (310) 575-3435
WITH COPIES TO: BUCHALTER, NEMER, FIELDS & YOUNGER
601 South Figueroa Street, Suite 2400
Los Angeles, California 90017-5704
Attn: Robert C. Colton, Esq.
Fax No. (213) 896-0400
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given
to all other parties. All notices or demands sent in accordance with this
Section 12, other than notices by the Lender Group in connection with Sections
9504 or 9505 of the Code, shall be effective on the date of actual receipt.
Each Borrower acknowledges and agrees that notices sent by the Lender Group in
connection with Sections 9504 or 9505 of the Code shall be deemed sent when
deposited in the mail or transmitted by telefacsimile or other similar method
set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT
OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT
HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR
THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS
OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE BANKRUPTCY
56
<PAGE> 62
COURT OR, AT THE SOLE OPTION OF THE LENDER GROUP, IN ANY OTHER COURT IN WHICH
THE LENDER GROUP SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS
SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH BORROWER AND
THE LENDER GROUP WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY
RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT
TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 13. EACH BORROWER AND THE LENDER GROUP HEREBY WAIVES ITS RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH BORROWER AND THE LENDER GROUP
REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS
A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWERS' DOCUMENTS.
All documents, schedules, invoices, agings, or other papers
delivered to the Lender Group may be destroyed or otherwise disposed of by the
Lender Group four (4) months after they are delivered to or received by the
Lender Group, unless a Borrower requests, in writing, the return of said
documents, schedules, or other papers and makes arrangements, at such
Borrower's expense, for their return.
15. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
15.1 ASSIGNMENTS AND PARTICIPATIONS.
(a) Any Lender may, with the written consent of Agent,
assign and delegate to one or more assignees (each an "Assignee") all, or any
ratable part of all, of the Obligations, the Commitments and the other rights
and obligations of such Lender hereunder and under the other Loan Documents, in
a minimum amount of $5,000,000; provided, however, that Borrowers and Agent may
continue to deal solely and directly with such Lender in connection with the
interest so assigned to an Assignee until (i) written notice of such
assignment, together with payment instructions, addresses and related
information with respect to the Assignee, shall have been given to Borrowers
and Agent by such Lender and the Assignee; (ii) such Lender and its Assignee
shall have delivered to Borrowers and Agent an Assignment and Acceptance
("Assignment and Acceptance"); and (iii) the assignor Lender or Assignee has
paid to Agent for Agent's sole and separate account a processing fee in the
amount of $2,500. Anything contained
57
<PAGE> 63
herein to the contrary notwithstanding, the consent of Borrowers and Agent
shall not be required (and payment of any fees shall not be required) if such
assignment is in connection with any merger, consolidation, sale, transfer, or
other disposition of all or any substantial portion of the business or loan
portfolio of such Lender.
(b) From and after the date that Agent notifies the
assignor Lender that it has received an executed Assignment and Acceptance and
payment of the above-referenced processing fee, (i) the Assignee thereunder
shall be a party hereto and, to the extent that rights and obligations
hereunder have been assigned to it pursuant to such Assignment and Acceptance,
shall have the rights and obligations of a Lender under the Loan Documents, and
(ii) the assignor Lender shall, to the extent that rights and obligations
hereunder and under the other Loan Documents have been assigned by it pursuant
to such Assignment and Acceptance, relinquish its rights and be released from
its obligations under this Agreement (and in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's
rights and obligations under this Agreement and the other Loan Documents, such
Lender shall cease to be a party hereto and thereto), and such assignment shall
effect a novation between Borrowers and the Assignee.
(c) By executing and delivering an Assignment and
Acceptance, the assigning Lender thereunder and the Assignee thereunder confirm
to and agree with each other and the other parties hereto as follows: (1)
other than as provided in such Assignment and Acceptance, such assigning Lender
makes no representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in connection with
this Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or any other Loan Document
furnished pursuant hereto; (2) such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of any Borrower or the performance or observance by any Borrower of any of its
obligations under this Agreement or any other Loan Document furnished pursuant
hereto; (3) such Assignee confirms that it has received a copy of this
Agreement, together with such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (4) such Assignee will, independently and without
reliance upon Agent, such assigning Lender or any other Lender, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (5) such Assignee appoints and authorizes Agent to take such
action as agent on its behalf and to exercise such powers under this Agreement
as are delegated to Agent by the terms hereof, together with such powers as are
reasonably incidental thereto; and (6) such Assignee agrees that it will
perform in accordance with their terms all of the obligations which by the
terms of this Agreement are required to be performed by it as a Lender.
(d) Immediately upon each Assignee's making its
processing fee payment under the Assignment and Acceptance, this Agreement
shall be deemed to be amended to the extent, but only to the extent, necessary
to reflect the addition of the Assignee and the resulting
58
<PAGE> 64
adjustment of the Commitments arising therefrom. The Commitment allocated to
each Assignee shall reduce such Commitments of the assigning Lender pro tanto.
(e) Any Lender may at any time, with the written
consent of Agent, which consent shall not be unreasonably withheld, sell to one
or more Persons (a "Participant") participating interests in the Obligations,
the Commitment, and the other rights and interests of that Lender (the
"Originating Lender") hereunder and under the other Loan Documents; provided,
however, that (i) the Originating Lender's obligations under this Agreement
shall remain unchanged, (ii) the Originating Lender shall remain solely
responsible for the performance of such obligations, (iii) Borrowers and Agent
shall continue to deal solely and directly with the Originating Lender in
connection with the Originating Lender's rights and obligations under this
Agreement and the other Loan Documents, (iv) no Lender shall transfer or grant
any participating interest under which the Participant has the sole and
exclusive right to approve any amendment to, or any consent or waiver with
respect to, this Agreement or any other Loan Document, except to the extent
such amendment to, or consent or waiver with respect to this Agreement or of
any other Loan Document would (A) extend the final maturity date of the
Obligations hereunder in which such participant is participating; (B) reduce
the interest rate applicable to the Obligations hereunder in which such
Participant is participating; (C) release all or a material portion of the
Collateral or Guaranties (except to the extent expressly provided herein or in
any of the Loan Documents) supporting the Obligations hereunder in which such
Participant is participating; (D) postpone the payment of, or reduce the amount
of, the interest or fees payable to such Participant through such Lender; or
(E) change the amount or due dates of scheduled principal repayments or
prepayments or premiums; (v) all amounts payable by Borrowers hereunder shall
be determined as if such Lender had not sold such participation; except that,
if amounts outstanding under this Agreement are due and unpaid, or shall have
been declared or shall have become due and payable upon the occurrence of an
Event of Default, each Participant shall be deemed to have the right of set-off
in respect of its participating interest in amounts owing under this Agreement
to the same extent as if the amount of its participating interest were owing
directly to it as a Lender under this Agreement; (vi) in the case of Foothill,
Foothill, together with its parents, Subsidiaries, and Affiliates, retain for
their own account, at all times, aggregate Commitments constituting not less
than $10,000,000. The rights of any Participant shall only be derivative
through the Lender with whom such Participant participates and no Participant
shall have any direct rights as to the other Lenders, Agent, Borrowers, the
Guarantors, the Collections, the Collateral, the Guarantor Collateral, or
otherwise in respect of the Advances. No Participant shall have the right to
participate directly in the making of decisions by the Lenders among
themselves. The provisions of this Section 15.1(e) are solely for the benefit
of the Lender Group, and Borrowers shall have no rights as third party
beneficiaries of any of the provisions in this Paragraph.
(f) In connection with any such assignment or
participation or proposed assignment or participation, a Lender may disclose
all documents and information which it now or hereafter may have relating to
any Borrower or such Borrower's business.
59
<PAGE> 65
(g) Notwithstanding any other provision in this
Agreement, any Lender may at any time create a security interest in, or pledge,
all or any portion of its rights under and interest in this Agreement in favor
of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S.
Treasury Regulation 31 CFR Section 203.14, and such Federal Reserve Bank may
enforce such pledge or security interest in any manner permitted under
applicable law.
15.2 SUCCESSORS. This Agreement shall bind and inure to the
benefit of the respective successors and assigns of each of the parties;
provided, however, that no Borrower may assign this Agreement or any rights or
duties hereunder without the Lenders' prior written consent and any prohibited
assignment shall be absolutely void. No consent to assignment by the Lenders
shall release any Borrower from its Obligations. A Lender may assign this
Agreement and its rights and duties hereunder pursuant to Section 15.1 and,
except as expressly required pursuant to Section 15.1, no consent or approval
by any Borrower is required in connection with any such assignment.
16. AMENDMENTS; WAIVERS.
16.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any
provision of this Agreement or any other Loan Document, and no consent with
respect to any departure by any Borrower therefrom, shall be effective unless
the same shall be in writing and signed by the Lenders holding a majority of
the Commitments, including Agent, and Borrowers and then any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no such waiver, amendment, or
consent shall, unless in writing and signed by all the Lenders and Borrowers
and acknowledged by Agent, do any of the following:
(a) increase or extend the Commitment of any Lender;
(b) postpone or delay any date fixed by this Agreement
or any other Loan Document for any payment of principal, interest, fees or
other amounts due to the Lenders (or any of them) hereunder or under any other
Loan Document;
(c) reduce the principal of, or the rate of interest
specified herein on any Loan, or any fees or other amounts payable hereunder or
under any other Loan Document;
(d) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Advances which is required for the
Lenders or any of them to take any action hereunder;
(e) increase the advance rate with respect to Advances
(except for the restoration of an advance rate after the prior reduction
thereof), or change Section 2.1(b);
60
<PAGE> 66
(f) amend this Section or any provision of the
Agreement providing for consent or other action by all Lenders;
(g) release Collateral other than as permitted by
Section 17.11;
(h) change the definition of "Required Lenders";
(i) release any Borrower from any Obligation for the
payment of money; or
(j) amend any of the provisions of Article 17.
and, provided further, that no amendment, waiver or consent shall, unless in
writing and signed by Agent affect the rights or duties of Agent under this
Agreement or any other Loan Document; and, provided further, that the
limitation contained in clause (e) above shall not be deemed to limit the
ability of Agent to make Advances or Agent Loans, as applicable, in accordance
with the provisions of Sections 2.1(f), (g), or (k). The foregoing
notwithstanding, any amendment, modification, waiver, consent, termination, or
release of or with respect to any provision of this Agreement or any other Loan
Document that relates only to the relationship of the Lender Group among
themselves, and that does not affect the rights or obligations of Borrowers,
shall not require consent by or the agreement of Borrowers.
16.2 NO WAIVERS; CUMULATIVE REMEDIES. No failure by Agent or
any Lender to exercise any right, remedy, or option under this Agreement, any
other Loan Document, or any present or future supplement hereto or thereto, or
in any other agreement between or among Borrowers and Agent and/or any Lender,
or delay by Agent or any Lender in exercising the same, will operate as a
waiver thereof. No waiver by Agent or any Lender will be effective unless it
is in writing, and then only to the extent specifically stated. No waiver by
Agent or the Lenders on any occasion shall affect or diminish Agent's and each
Lender's rights thereafter to require strict performance by Borrowers of any
provision of this Agreement. Agent's and each Lender's rights under this
Agreement and the other Loan Documents will be cumulative and not exclusive of
any other right or remedy which Agent or any Lender may have.
17. AGENT; THE LENDER GROUP.
17.1 APPOINTMENT AND AUTHORIZATION OF AGENT. Each Lender
hereby irrevocably designates and appoints Foothill as its Agent under this
Agreement and the other Loan Documents and each Lender hereby irrevocably
authorizes Agent to take such action on its behalf under the provisions of this
Agreement and each other Loan Document and to exercise such powers and perform
such duties as are expressly delegated to it by the terms of this Agreement or
any other Loan Document, together with such powers as are reasonably incidental
thereto. Agent agrees to act as such on the express conditions contained in
this Article 17. The provisions of this Article 17 are solely for the benefit
of Agent and the Lenders; provided, however, that the provisions of
61
<PAGE> 67
Section 17.10 and 17.16(d) also shall be for the benefit of Borrowers. Except
as provided in the preceding sentences, Borrowers shall have no rights as a
third party beneficiary of any of the provisions contained herein or as
required by applicable law. Any provision to the contrary contained elsewhere
in this Agreement or in any other Loan Document notwithstanding, Agent shall
not have any duties or responsibilities, except those expressly set forth
herein or as required by applicable law, nor shall Agent have or be deemed to
have any fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any other Loan Document or otherwise exist against
Agent. Except as expressly otherwise provided in this Agreement, Agent shall
have and may use its sole discretion with respect to exercising or refraining
from exercising any discretionary rights or taking or refraining from taking
any actions which Agent is expressly entitled to take or assert under or
pursuant to this Agreement and the other Loan Documents, including, making the
determinations contemplated by Section 2.1(b). Without limiting the generality
of the foregoing, or of any other provision of the Loan Documents that provides
rights or powers to Agent, Lenders agree that Agent shall have the right to
exercise the following powers as long as this Agreement remains in effect: (a)
maintain, in accordance with its customary business practices, ledgers and
records reflecting the status of the Advances, the Collateral or Guarantor
Collateral, the Collections, and related matters; (b) execute and/or file any
and all financing or similar statements or notices, amendments, renewals,
supplements, documents, instruments, proofs of claim for Lenders, notices and
other written agreements with respect to the Loan Documents; (c) make Advances
for itself or on behalf of Lenders as provided in the Loan Documents; (d)
exclusively receive, apply, and distribute the Collections as provided in the
Loan Documents; (e) open and maintain such bank accounts and lock boxes as
Agent deems necessary and appropriate in accordance with the Loan Documents for
the foregoing purposes with respect to the Collateral or Guarantor Collateral
and the Collections; (f) perform, exercise, and enforce any and all other
rights and remedies of the Lender Group with respect to Borrowers, the
Guarantors, the Advances, the Collateral, the Guarantor Collateral, the
Collections, or otherwise related to any of same as provided in the Loan
Documents; and (g) incur and pay such Lender Group Expenses as Agent may deem
necessary or appropriate for the performance and fulfillment of its functions
and powers pursuant to the Loan Documents.
17.2 DELEGATION OF DUTIES. Except as otherwise provided in
this Section, Agent may execute any of its duties under this Agreement or any
other Loan Document by or through agents, employees or attorneys-in-fact and
shall be entitled to advice of counsel chosen by Agent concerning all matters
pertaining to such duties. Agent shall not be responsible for the negligence
or misconduct of any agent or attorney-in-fact that it selects as long as such
selection was made in compliance with this Section and without gross negligence
or willful misconduct.
17.3 LIABILITY OF AGENT-RELATED PERSONS. None of the
Agent-Related Persons shall (i) be liable for any action taken or omitted to be
taken by any of them under or in connection with this Agreement or any other
Loan Document or the transactions contemplated hereby (except for its own gross
negligence or willful misconduct), or (ii) be responsible in any manner to any
of the Lenders for any recital, statement, representation or warranty made by
any Borrower, any Obligor, or any Subsidiary or Affiliate of any Borrower, any
Obligor, or any officer or director thereof,
62
<PAGE> 68
contained in this Agreement or in any other Loan Document, or in any
certificate, report, statement or other document referred to or provided for
in, or received by Agent under or in connection with, this Agreement or any
other Loan Document, or the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document, or
for any failure of any Borrower, any Obligor, or any other party to any Loan
Document to perform its obligations hereunder or thereunder. No Agent-Related
Person shall be under any obligation to any Lender to ascertain or to inquire
as to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Loan Document, or to inspect the
properties, books or records of any Borrower, any Obligor, or any of Borrowers'
or Obligors' Subsidiaries or Affiliates.
17.4 RELIANCE BY AGENT. Agent shall be entitled to rely, and
shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or
telephone message, statement or other document or conversation believed by it
to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons, and upon advice and statements of legal counsel (including
counsel to any Borrower or counsel to any Lender), independent accountants and
other experts selected by Agent. Agent shall be fully justified in failing or
refusing to take any action under this Agreement or any other Loan Document
unless it shall first receive such advice or concurrence of the Required
Lenders or all Lenders, as applicable, if required by this Agreement and until
such instructions are received, Agent shall act, or refrain from acting, as it
deems advisable so long as it is not grossly negligent or guilty of wilful
misconduct. If Agent so requests, it shall first be indemnified to its
reasonable satisfaction by Lenders against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action. Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement or any other Loan Document in
accordance with a request or consent of the Required Lenders or all Lenders, as
applicable, if required by this Agreement and such request and any action taken
or failure to act pursuant thereto shall be binding upon all of the Lenders.
17.5 NOTICE OF DEFAULT OR EVENT OF DEFAULT. Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default, except with respect to defaults in the payment of principal, interest,
fees, and expenses required to be paid to Agent for the account of Agent or the
Lenders, except with respect to actual knowledge of the existence of an
Overadvance, and except with respect to Events of Default of which Agent has
actual knowledge, unless Agent shall have received written notice from a Lender
or any Borrower referring to this Agreement, describing such Default or Event
of Default, and stating that such notice is a "notice of default." Agent
promptly will notify the Lenders of its receipt of any such notice or of any
Event of Default of which Agent has, or is deemed to have, actual knowledge.
If any Lender obtains actual knowledge of any Event of Default, such Lender
promptly shall notify the other Lenders and Agent of such Event of Default.
Subject to Section 17.4, Agent shall take such action with respect to such
Default or Event of Default and exercise remedies on behalf of the Lender Group
as either: (a) Agent determines upon five (5) days written notice to Lenders or
(b) as may be requested by the Required Lenders; provided, however, that:
63
<PAGE> 69
(a) Agent may not declare the Obligations immediately
due and payable solely by reason of an Event of Default under Section 8.3
unless all Lenders request Agent to do so; and
(b) At all times, once Agent, Required Lenders or all
Lenders, as the case may be, have approved the exercise of a particular remedy
or pursuit of a course of action, Agent may, but shall not be obligated to,
take all other actions reasonably incidental thereto.
17.6 CREDIT DECISION. Each Lender acknowledges that none of
the Agent-Related Persons has made any representation or warranty to it, and
that no act by Agent hereinafter taken, including any review of the affairs of
any Borrower and its Subsidiaries or Affiliates, shall be deemed to constitute
any representation or warranty by any Agent-Related Person to any Lender. Each
Lender represents to Agent that it has, independently and without reliance upon
any Agent-Related Person and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition and
creditworthiness of Borrowers and any other Person (other than the Lender
Group) party to a Loan Document, and all applicable bank regulatory laws
relating to the transactions contemplated hereby, and made its own decision to
enter into this Agreement and to extend credit to Borrowers. Each Lender also
represents that it will, independently and without reliance upon any Agent-
Related Person and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement and the other
Loan Documents, and to make such investigations as it deems necessary to inform
itself as to the business, prospects, operations, property, financial and other
condition and creditworthiness of Borrowers, Obligors, and any other Person
(other than the Lender Group) party to a Loan Document. Except for notices,
reports and other documents expressly herein required to be furnished to the
Lenders by Agent, Agent shall not have any duty or responsibility to provide
any Lender with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of Borrowers, Obligors, and any other Person party to a Loan
Document that may come into the possession of any of the Agent-Related Persons.
17.7 COSTS AND EXPENSES; INDEMNIFICATION. Agent may incur and
pay Lender Group Expenses to the extent Agent deems reasonably necessary or
appropriate for the performance and fulfillment of its functions, powers, and
obligations pursuant to the Loan Documents, including without limiting the
generality of the foregoing, but subject to any requirements of the Loan
Documents that it obtain any applicable consents or engage in any required
consultation, court costs, reasonable attorneys fees and expenses, costs of
collection by outside collection agencies and auctioneer fees and costs of
security guards or insurance premiums paid to maintain the Collateral or
Guarantor Collateral, whether or not Borrowers are obligated to reimburse Agent
or Lenders for such expenses pursuant to the Loan Agreement or otherwise.
Agent is authorized and directed to deduct and retain sufficient amounts from
Collections to reimburse Agent for such out-of-pocket costs and expenses prior
to the distribution of any amounts to Lenders. In the event Agent is not
reimbursed for such costs and expenses from Collections,
64
<PAGE> 70
each Lender hereby agrees that it is and shall be obligated to pay to or
reimburse Agent for the amount of such Lender's Pro Rata Share thereof.
Whether or not the transactions contemplated hereby are consummated, the
Lenders shall indemnify upon demand the Agent-Related Persons (to the extent
not reimbursed by or on behalf of Borrowers and without limiting the obligation
of Borrower to do so), according to their Pro Rata Shares, from and against any
and all Indemnified Liabilities; provided, however, that no Lender shall be
liable for the payment to the Agent-Related Persons of any portion of such
Indemnified Liabilities resulting solely from such Person's gross negligence,
bad faith, or willful misconduct. Without limitation of the foregoing, each
Lender shall reimburse Agent upon demand for its ratable share of any costs or
out-of-pocket expenses (including attorney fees and expenses) incurred by Agent
in connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any
document contemplated by or referred to herein, to the extent that Agent is not
reimbursed for such expenses by or on behalf of Borrowers. The undertaking in
this Section shall survive the payment of all Obligations hereunder and the
resignation or replacement of Agent.
17.8 INTENTIONALLY OMITTED.
17.9 SUCCESSOR AGENT. Agent may resign as Agent upon forty
five (45) days notice to the Lenders. If Agent resigns under this Agreement,
the Required Lenders shall appoint a successor Agent for the Lenders. If no
successor Agent is appointed prior to the effective date of the resignation of
Agent, Agent may appoint, after consulting with the Lenders and Borrowers, a
successor Agent. In any such event, upon the acceptance of its appointment as
successor Agent hereunder, such successor Agent shall succeed to all the
rights, powers and duties of the retiring Agent and the term "Agent" shall mean
such successor Agent and the retiring Agent's appointment, powers and duties as
Agent shall be terminated. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Section 17 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement. If no successor Agent has accepted appointment as Agent by the date
which is forty five (45) days following a retiring Agent's notice of
resignation, the retiring Agent's resignation shall nevertheless thereupon
become effective and the Lender(s) with the largest Commitment shall perform
all of the duties of Agent hereunder until such time, if any, as the Lenders
appoint a successor Agent as provided for above.
17.10 WITHHOLDING TAX.
(a) If any Lender is a "foreign corporation,
partnership or trust" within the meaning of the IRC and such Lender claims
exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or
1442 of the IRC, such Lender agrees with and in favor of Agent and Borrowers,
to deliver to Agent and Borrower:
(i) if such Lender claims an exemption from, or
a reduction of, withholding tax under a United States tax treaty, properly
completed IRS Forms 1001 and W-8
65
<PAGE> 71
before the payment of any interest in the first calendar year and before the
payment of any interest in each third succeeding calendar year during which
interest may be paid under this Agreement;
(ii) if such Lender claims that interest paid
under this Agreement is exempt from United States withholding tax because it is
effectively connected with a United States trade or business of such Lender,
two properly completed and executed copies of IRS Form 4224 before the payment
of any interest is due in the first taxable year of such Lender and in each
succeeding taxable year of such Lender during which interest may be paid under
this Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required
under the IRC or other laws of the United States as a condition to exemption
from, or reduction of, United States withholding tax.
Such Lender agrees to promptly notify Agent and Borrowers of any change in
circumstances which would modify or render invalid any claimed exemption or
reduction.
(b) If any Lender claims exemption from, or reduction
of, withholding tax under a United States tax treaty by providing IRS Form 1001
and such Lender sells, assigns, grants a participation in, or otherwise
transfers all or part of the Obligations of Borrowers to such Lender, such
Lender agrees to notify Agent of the percentage amount in which it is no longer
the beneficial owner of Obligations of Borrowers to such Lender. To the extent
of such percentage amount, Agent will treat such Lender's IRS Form 1001 as no
longer valid.
(c) If any Lender claiming exemption from United States
withholding tax by filing IRS Form 4224 with Agent sells, assigns, grants a
participation in, or otherwise transfers all or part of the Obligations of
Borrowers to such Lender, such Lender agrees to undertake sole responsibility
for complying with the withholding tax requirements imposed by Sections 1441
and 1442 of the IRC.
(d) If any Lender is entitled to a reduction in the
applicable withholding tax, Agent may withhold from any interest payment to
such Lender an amount equivalent to the applicable withholding tax after taking
into account such reduction. If the forms or other documentation required by
subsection (a) of this Section are not delivered to Agent, then Agent may
withhold from any interest payment to such Lender not providing such forms or
other documentation an amount equivalent to the applicable withholding tax.
(e) If the IRS or any other Governmental Authority of
the United States or other jurisdiction asserts a claim that Agent did not
properly withhold tax from amounts paid to or for the account of any Lender
(because the appropriate form was not delivered, was not properly executed, or
because such Lender failed to notify Agent of a change in circumstances which
rendered the exemption from, or reduction of, withholding tax ineffective, or
for any other reason) such Lender shall indemnify Agent fully for all amounts
paid, directly or indirectly, by Agent as tax
66
<PAGE> 72
or otherwise, including penalties and interest, and including any taxes imposed
by any jurisdiction on the amounts payable to Agent under this Section,
together with all costs and expenses (including attorneys fees and expenses).
The obligation of the Lenders under this subsection shall survive the payment
of all Obligations and the resignation of Agent.
17.11 COLLATERAL MATTERS.
(a) The Lenders hereby irrevocably authorize Agent, at
its option and in its sole discretion, to release any Lien on any Collateral or
Guarantor Collateral (i) upon the termination of the Commitments and payment
and satisfaction in full by Borrowers of all Obligations; (ii) constituting
property being sold or disposed of if a release is required or desirable in
connection therewith and if Borrowers certify to Agent that the sale or
disposition is permitted under Section 7.4 of this Agreement or the other Loan
Documents (and Agent may rely conclusively on any such certificate, without
further inquiry); (iii) constituting property in which the relevant Obligor
owned no interest at the time the security interest was granted or at any time
thereafter; or (iv) constituting property leased to an Obligor under a lease
that has expired or been terminated in a transaction permitted under this
Agreement. Except as provided above, Agent will not release any Lien on any
Collateral or Guarantor Collateral without the prior written authorization of
the Lenders. Upon request by Agent or Borrowers at any time, the Lenders will
confirm in writing Agent's authority to release any such Liens on particular
types or items of Collateral or Guarantor Collateral pursuant to this Section
17.11; provided, however, that (i) Agent shall not be required to execute any
document necessary to evidence such release on terms that, in Agent's opinion,
would expose Agent to liability or create any obligation or entail any
consequence other than the release of such Lien without recourse,
representation, or warranty, and (ii) such release shall not in any manner
discharge, affect or impair the Obligations or any Liens (other than those
expressly being released) upon (or obligations of the Obligors in respect of)
all interests retained by the Obligors, including, the proceeds of any sale,
all of which shall continue to constitute part of the Collateral or Guarantor
Collateral.
(b) Agent shall have no obligation whatsoever to any of
the Lenders to assure that the Collateral or Guarantor Collateral exists or is
owned by any Obligor is cared for, protected or insured or has been encumbered,
or that the Liens of the Lender Group have been properly or sufficiently or
lawfully created, perfected, protected or enforced or are entitled to any
particular priority, or to exercise at all or in any particular manner or under
any duty of care, disclosure or fidelity, or to continue exercising, any of the
rights, authorities and powers granted or available to Agent pursuant to any of
the Loan Documents, it being understood and agreed that in respect of the
Collateral or Guarantor Collateral, or any act, omission or event related
thereto, subject to the terms and conditions contained herein, Agent may act in
any manner it may deem appropriate, in its sole discretion given Agent's own
interest in the Collateral or Guarantor Collateral in its capacity as one of
the Lenders and that Agent shall have no other duty or liability whatsoever to
any Lender as to any of the foregoing, except as otherwise provided herein.
67
<PAGE> 73
17.12 RESTRICTIONS ON ACTIONS BY LENDERS; SHARING OF PAYMENTS.
(a) Each of the Lenders agrees that it shall not,
without the express consent of Agent, and that it shall, to the extent it is
lawfully entitled to do so, upon the request of Agent, set off against the
Obligations, any amounts owing by such Lender to any Obligor or any accounts of
an Obligor now or hereafter maintained with such Lender. Each of the Lenders
further agrees that it shall not, unless specifically requested to do so by
Agent, take or cause to be taken any action, including, the commencement of any
legal or equitable proceedings, to foreclose any Lien on, or otherwise enforce
any security interest in, any of the Collateral or Guarantor Collateral the
purpose of which is, or could be, to give such Lender any preference or
priority against the other Lenders with respect to the Collateral or Guarantor
Collateral.
(b) Subject to Section 17.8, if, at any time or times
any Lender shall receive (i) by payment, foreclosure, setoff or otherwise, any
proceeds of Collateral or Guarantor Collateral or any payments with respect to
the Obligations of Borrower to such Lender arising under, or relating to, this
Agreement or the other Loan Documents, except for any such proceeds or payments
received by such Lender from Agent pursuant to the terms of this Agreement, or
(ii) payments from Agent in excess of such Lender's ratable portion of all such
distributions by Agent, such Lender shall promptly (1) turn the same over to
Agent, in kind, and with such endorsements as may be required to negotiate the
same to Agent, or in same day funds, as applicable, for the account of all of
the Lenders and for application to the Obligations in accordance with the
applicable provisions of this Agreement, or (2) purchase, without recourse or
warranty, an undivided interest and participation in the Obligations owed to
the other Lenders so that such excess payment received shall be applied ratably
as among the Lenders in accordance with their Pro Rata Shares; provided,
however, that if all or part of such excess payment received by the purchasing
party is thereafter recovered from it, those purchases of participations shall
be rescinded in whole or in part, as applicable, and the applicable portion of
the purchase price paid therefor shall be returned to such purchasing party,
but without interest except to the extent that such purchasing party is
required to pay interest in connection with the recovery of the excess payment.
17.13 AGENCY FOR PERFECTION. Agent and each Lender hereby
appoints each other Lender as agent for the purpose of perfecting the Liens of
the Lender Group in assets which, in accordance with Division 9 of the UCC can
be perfected only by possession. Should any Lender obtain possession of any
such Collateral or Guarantor Collateral, such Lender, shall notify Agent
thereof, and, promptly upon Agent's request therefor shall deliver such
Collateral or Guarantor Collateral to Agent or in accordance with Agent's
instructions.
17.14 PAYMENTS BY AGENT TO THE LENDERS. All payments to be made
by Agent or the Lenders shall be made by bank wire transfer or internal
transfer of immediately available funds pursuant to the instructions set forth
on Schedule C-1, or pursuant to such other wire transfer instructions as each
party may designate for itself by written notice to Agent.
68
<PAGE> 74
Concurrently with each such payment, Agent shall identify whether such payment
(or any portion thereof) represents principal, premium or interest on revolving
advances or otherwise.
17.15 CONCERNING THE COLLATERAL AND RELATED LOAN DOCUMENTS.
Each member of the Lender Group authorizes and directs Agent to enter into this
Agreement and the other Loan Documents relating to the Collateral or Guarantor
Collateral, for the ratable benefit (subject to Sections 2.3(b) and 4.1) of the
Lender Group. Each member of the Lender Group agrees that any action taken by
Agent, Required Lenders, or all Lenders, as applicable, in accordance with the
terms of this Agreement or the other Loan Documents relating to the Collateral
or Guarantor Collateral and the exercise by Agent, Required Lenders, or all
Lenders, as applicable, of their respective powers set forth therein or herein,
together with such other powers that are reasonably incidental thereto, shall
be binding upon all of the Lenders.
17.16 FIELD AUDITS AND EXAMINATION REPORTS; CONFIDENTIALITY;
DISCLAIMERS BY LENDERS; OTHER REPORTS AND INFORMATION. By signing this
Agreement, each Lender:
(a) is deemed to have requested that Agent furnish such
Lender, promptly after it becomes available, a copy of each field audit or
examination report (each a "Report" and collectively, "Reports") prepared by
Agent, and Agent shall so furnish each Lender with such Reports;
(b) expressly agrees and acknowledges that Agent (i)
does not make any representation or warranty as to the accuracy of any Report,
and (ii) shall not be liable for any information contained in any Report;
(c) expressly agrees and acknowledges that the Reports
are not comprehensive audits or examinations, that Agent or other party
performing any audit or examination will inspect only specific information
regarding Borrowers and will rely significantly upon Borrowers' books and
records, as well as on representations of Borrowers' personnel;
(d) agrees to keep all Reports and other material
information obtained by it pursuant to the requirements of this Agreement in
accordance with its reasonable customary procedures for handling confidential
information; it being understood and agreed by Borrowers that in any event such
Lender may make disclosures (a) reasonably required by any bona fide potential
or actual Assignee, transferee, or Participant in connection with any
contemplated or actual assignment or transfer by such Lender of an interest
herein or any participation interest in such Lender's rights hereunder, (b) of
information that has become public by disclosures made by Persons other than
such Lender, its Affiliates, assignees, transferees, or participants, or (c) as
required or requested by any court, governmental or administrative agency,
pursuant to any subpoena or other legal process, or by any law, statute,
regulation, or court order; provided, however, that, unless prohibited by
applicable law, statute, regulation, or court order, such Lender shall notify
Borrowers of any request by any court, governmental or administrative agency,
or
69
<PAGE> 75
pursuant to any subpoena or other legal process for disclosure of any such non-
public material information concurrent with, or where practicable, prior to the
disclosure thereof; and
(e) without limiting the generality of any other
indemnification provision contained in this Agreement, agrees: (i) to hold
Agent and any such other Lender preparing a Report harmless from any action the
indemnifying or Lender may take or conclusion the indemnifying Lender may reach
or draw from any Report in connection with any loans or other credit
accommodations that the indemnifying Lender has made or may make to Borrowers,
or the indemnifying Lender's participation in, or the indemnifying Lender's
purchase of, a loan or loans of Borrower; and (ii) to pay and protect, and
indemnify, defend and hold Agent and any such other Lender preparing a Report
harmless from and against, the claims, actions, proceedings, damages, costs,
expenses and other amounts (including, attorney costs) incurred by Agent and
any such other Lender preparing a Report as the direct or indirect result of
any third parties who might obtain all or part of any Report through the
indemnifying Lender.
In addition to the foregoing: (x) Any Lender may from time to time request of
Agent in writing that Agent provide to such Lender a copy of any report or
document provided by Borrowers or any Obligor to Agent, and, upon receipt of
such request, Agent shall provide a copy of same to such Lender promptly upon
receipt thereof; (y) To the extent that Agent is entitled, under any provision
of the Loan Documents, to request additional reports or information from
Borrowers, any Lender may, from time to time, reasonably request Agent to
exercise such right as specified in such Lender's notice to Agent, whereupon
Agent promptly shall request of Borrowers or any Obligor the additional reports
or information specified by such Lender, and, upon receipt thereof, Agent
promptly shall provide a copy of same to such Lender; and (z) Any time that
Agent renders to Borrowers a statement regarding the Loan Account, Agent shall
send a copy of such statement to each Lender.
17.17 SEVERAL OBLIGATIONS; NO LIABILITY. Notwithstanding that
certain of the Loan Documents now or hereafter may have been or will be
executed only by or in favor of Agent in its capacity as such, and not by or in
favor of the Lenders, any and all obligations on the part of Agent (if any) to
make any Advances shall constitute the several (and not joint) obligations of
the respective Lenders on a ratable basis, according to their respective
Commitments, to make an amount of such Advances not to exceed, in principal
amount, at any one time outstanding, the amount of their respective
Commitments. Nothing contained herein shall confer upon any Lender any
interest in, or subject any Lender to any liability for, or in respect of, the
business, assets, profits, losses, or liabilities of any other Lender. Each
Lender shall be solely responsible for notifying its Participants of any
matters relating to the Loan Documents to the extent any such notice may be
required, and no Lender shall have any obligation, duty, or liability to any
Participant of any other Lender. Except as provided in Section 17.7, no member
of the Lender Group shall have any liability for the acts of any other member
of the Lender Group. No Lender shall be responsible to Borrowers or any other
Person for any failure by any other Lender to fulfill its obligations to make
Advances, nor to advance for it or on its behalf in connection with its
70
<PAGE> 76
Commitment, nor to take any other action on its behalf hereunder or in
connection with the financing contemplated herein.
18. GENERAL PROVISIONS.
18.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrowers and the Lender Group.
18.2 SECTION HEADINGS. Headings and numbers have been set
forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to this entire
Agreement.
18.3 INTERPRETATION. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against the
Lender Group or Borrowers, whether under any rule of construction or otherwise.
On the contrary, this Agreement has been reviewed by all parties and shall be
construed and interpreted according to the ordinary meaning of the words used
so as to fairly accomplish the purposes and intentions of all parties hereto.
18.4 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
18.5 CONFIDENTIAL INFORMATION. Lenders will keep proprietary,
non-public and confidential information of Parent and Borrowers (the
"Confidential Information") strictly confidential, and will not use such
Confidential Information in any way which is detrimental to Parent or
Borrowers; provided, however, Lenders may release or disclose any of such
Confidential Information to the following parties: Lenders' directors,
officers, employees, accountants and attorneys and potential co-lenders or
participating lenders and their respective directors, officers, employees,
accountants and attorneys (collectively the "Authorized Parties"). Lenders
will inform the Authorized Parties of the confidential nature of the
Confidential Information and cause them to treat such information in the
strictest confidence. The term "Confidential Information" does not include
information which (i) Lenders of any of their Authorized Parties is compelled
to disclose by judicial or administrative process or, in the opinion of
Lenders' counsel, by other mandatory requirements of law, (ii) becomes
generally available to the public other than as a result of a disclosure by
Lenders or any of Lenders' Authorized Parties, (iii) is known to Lenders prior
to its disclosure by Parent or Borrower to Lenders or any of Lenders'
Authorized Parties, or (iv) becomes available to Lenders on a non-confidential
basis from a source other than Parent or Borrowers, provided that such source
is not bound by a confidentiality agreement or other contractual, legal or
fiduciary obligation of confidentiality to Parent or Borrowers or other party
with respect to such information.
18.6 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in any number of counterparts and by different parties on separate
counterparts, each of which, when
71
<PAGE> 77
executed and delivered, shall be deemed to be an original, and all of which,
when taken together, shall constitute but one and the same Agreement. Delivery
of an executed counterpart of this Agreement by telefacsimile shall be equally
as effective as delivery of a manually executed counterpart of this Agreement.
Any party delivering an executed counterpart of this Agreement by telefacsimile
also shall deliver a manually executed counterpart of this Agreement but the
failure to deliver a manually executed counterpart shall not affect the
validity, enforceability, and binding effect of this Agreement.
18.7 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Obligations by any Borrower or any Obligor or the
transfer by either or both of such parties to the Lender Group of any property
of either or both of such parties should for any reason subsequently be
declared to be void or voidable under any state or federal law relating to
creditors' rights, including provisions of the Bankruptcy Code relating to
fraudulent conveyances, preferences, and other voidable or recoverable payments
of money or transfers of property (collectively, a "Voidable Transfer"), and if
the Lender Group is required to repay or restore, in whole or in part, any such
Voidable Transfer, or elects to do so upon the reasonable advice of its
counsel, then, as to any such Voidable Transfer, or the amount thereof that the
Lender Group is required or elects to repay or restore, and as to all
reasonable costs, expenses, and attorneys fees of the Lender Group related
thereto, the liability of Borrowers or such Guarantor automatically shall be
revived, reinstated, and restored and shall exist as though such Voidable
Transfer had never been made.
72
<PAGE> 78
18.8 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in Los Angeles, California.
NEOSTAR RETAIL GROUP, INC.,
a Delaware corporation
By: /s/ OPAL FERRARO
----------------------
Title: Vice President
----------------------
BABBAGE'S, INC.,
a Texas corporation
By: /s/ OPAL FERRARO
----------------------
Title: Vice President
----------------------
SOFTWARE ETC. STORES, INC.,
a Delaware corporation
By: /s/ OPAL FERRARO
----------------------
Title: Vice President
----------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation, as
Agent and a Lender
By: /s/ PATRICIA MCLOUGLIN
----------------------
Title: Senior Vice President
----------------------
NATIONSBANK OF TEXAS NATIONAL
ASSOCIATION, a national
banking association
By: /s/ FRANK IZZO
----------------------
Title: Senior Vice President
----------------------
73
<PAGE> 79
BANKERS TRUST COMPANY,
a New York banking corporation
By: /s/ ROBERT W. HEVNER
----------------------
Title: Vice President
----------------------
GUARANTY FEDERAL BANK F.S.B.,
a federal savings bank
By: /s/ ROBERT S. HAYS
----------------------
Title: Vice President
----------------------
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR, a French banking
corporation
By: /s/ DAVID H. LERNER
----------------------
Title: Vice President
----------------------
By: /s/ MARK A. HARRINGTON
----------------------
Title: Vice President
----------------------
74
<PAGE> 80
SCHEDULE C-1
COMMITMENTS
<TABLE>
<CAPTION>
Lender Commitment
- ------ ----------
<S> <C>
Foothill Capital $20,000,000
Corporation
NationsBank of Texas, $30,789,616
National Association
Bankers Trust Company $ 7,203,894
Guaranty Federal Bank $ 7,203,894
F.S.B.
Banque Francaise du $ 4,802,596
Commerce Exterieur
</TABLE>
75
<PAGE> 81
SCHEDULE P-1
PERMITTED LIENS
NEOSTAR RETAIL GROUP, INC.
BABBAGE'S, INC.
SOFTWARE ETC. STORES, INC.
1. Property subject to lien: Xerox 5390 copier
Lienholder: Xerox Financing Corp.
Amount of debt secured: $265,320
2. Property subject to lien: Leased computer equipment
Lienholder: Verifone Financing, Inc., Portland, Oregon
Amount of debt secured: $373,032
3. Property subject to lien: Leased warehouse equipment, including
forklift trucks, exide batteries, orderpicker trucks, walkie rider,
exide chargers, battery changing equipment, wire guidance system, and
epoxy floor coating.
Lienholder: Raymond Leasing Corporation
Amount of debt secured: approximately $402,000
4. Property subject to contested mechanic's lien claim: Warehouse
equipment, including conveyor system, crossbelt sorter and related
equipment
Lienholder: Western Atlas, Inc.
Amount of claim: $2,758,578.08
5. Property subject to contested mechanic's lien claim: Warehouse
equipment, including high bay pallet storage racks, high density pallet
flow racks, pick module structures, shelving and related equipment.
Lienholder: UNARCO Material Handling, Inc.
Amount of claim: $603,034.87
<PAGE> 82
SCHEDULE 5.10
1. Point Group Corporation v. Neostar Retail group, Inc., Software Etc.,
Inc., and Babbages, Inc., Court File No. 96-10972, pending in the
Fourth Judicial District, State of Minnesota, County of Hennepin. The
Complaint alleges that Defendants allegedly owe $602,390.04 of which
$268,060.98 is for product shipped to Babbages and $334,329.067 is for
product shipped to Software, Etc. The Complaint alleges Breach of
Contract, Conversion and Unjust Enrichment against all Defendants,
seeks an accounting against all Defendants, and alleges fraud by
Neostar.
2. Ingram Micro Inc. v. Neostar Retail Group, Inc., Case No. 766422,
pending in the Superior Court for the State of California, for the
Count of Orange. The Complaint asserts damages of up to $3,919,807.17
for an alleged breach of contract, open book account and for goods sold
and delivered.
3. Navarre Corporation v. Babbages, Inc., Software Etc. Stores, Inc. and
NeoStar Retail Group, Inc. pending in the Fourth Judicial District,
State of Minnesota, County of Hennepin. Complaint alleges that
Defendants allegedly owe $905,000 of which $219,000 is for product
shipped to Babbages and $686,000 is for product shipped to Software,
Etc. The Complaint alleges Breach of Contract, and a claim on an open
and running account.
<PAGE> 83
SCHEDULE 6.11
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
COVENANT PROJECTIONS
---------------------------------------------------------------------------------------------------
5-OCT-96 2-NOV-96 30-NOV-96 4-JAN-97 1-FEB-97 1-MAR-97
---------------------------------------------------------------------------------------------------
- -----------------------
TOTAL MARGIN TEST
- -----------------------
---------------------------------------------------------------------------------------------------
MINIMUM TOTAL MARGIN $5,560,782 $11,540,975 $20,974,210 $41,561,029 $45,008,707 $40,865,102
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
5-OCT-96 2-NOV-96 30-NOV-96 4-JAN-97 1-FEB-97 1-MAR-97
---------------------------------------------------------------------------------------------------
- -----------------------
EBITDA TEST
- -----------------------
---------------------------------------------------------------------------------------------------
MINIMUM EBITDA ($3,432,270) ($6,354,966) ($4,685,194) $18,052,220 $22,914,649 $20,479,021
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
5-OCT-96 2-NOV-96 30-NOV-96 4-JAN-97 1-FEB-97 1-MAR-97
---------------------------------------------------------------------------------------------------
- -----------------------
NET WORTH TEST
- -----------------------
---------------------------------------------------------------------------------------------------
MINIMUM NET WORTH $11,304,822 $7,830,363 $8,523,561 $26,598,034 $27,428,027 $25,800,127
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
5-OCT-96 19-OCT-96 2-NOV-96 30-NOV-96 1-FEB-97 1-MAR-97
---------------------------------------------------------------------------------------------------
- -----------------------
VENDOR FINANCING TEST
- -----------------------
---------------------------------------------------------------------------------------------------
MINIMUM VENDOR FINANCING $14,550,559 $20,308,023 $25,415,402 $44,087,160 $19,633,813 $21,465,032
---------------------------------------------------------------------------------------------------
COVENANT PROJECTIONS
----------------------------------------------------------------------------------------------------
5-APR-97 3-MAY-97 31-MAY-97 5-JUL-97 2-AUG-97 30-AUG-97
----------------------------------------------------------------------------------------------------
- -----------------------
TOTAL MARGIN TEST
- -----------------------
----------------------------------------------------------------------------------------------------
MINIMUM TOTAL MARGIN $21,830,256 $17,087,958 $15,862,075 $14,099,316 $13,328,239 $13,126,252
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
5-APR-97 3-MAY-97 31-MAY-97 5-JUL-97 2-AUG-97 30-AUG-97
----------------------------------------------------------------------------------------------------
- -----------------------
EBITDA TEST
- -----------------------
----------------------------------------------------------------------------------------------------
MINIMUM EBITDA $2,339,875 ($1,488,621) ($3,432,077) ($5,702,253) ($6,979,507) ($6,970,582)
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
5-APR-97 3-MAY-97 31-MAY-97 5-JUL-97 2-AUG-97 30-AUG-97
----------------------------------------------------------------------------------------------------
- -----------------------
NET WORTH TEST
- -----------------------
----------------------------------------------------------------------------------------------------
MINIMUM NET WORTH $25,951,836 $23,410,968 $20,199,542 $18,302,874 $14,705,684 $11,448,707
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
5-APR-97 3-MAY-97 31-MAY-97 5-JUL-97 2-AUG-97 30-AUG-97
----------------------------------------------------------------------------------------------------
- -----------------------
VENDOR FINANCING TEST
- -----------------------
----------------------------------------------------------------------------------------------------
MINIMUM VENDOR FINANCING $14,986,520 $12,084,327 $17,084,914 $15,627,857 $15,752,396 $19,402,185
----------------------------------------------------------------------------------------------------
COVENANT PROJECTIONS
-----------------------------------------------------------------------------------
4-OCT-97 1-NOV-97 29-NOV-97 3-JAN-98 30-JAN 98
-----------------------------------------------------------------------------------
- -----------------------
TOTAL MARGIN TEST
- -----------------------
-----------------------------------------------------------------------------------
MINIMUM TOTAL MARGIN $13,050,331 $13,340,516 $17,926,250 $36,028,739 $40,903,130
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
4-OCT-97 1-NOV-97 29-NOV-97 3-JAN-98 30-JAN 98
-----------------------------------------------------------------------------------
- -----------------------
EBITDA TEST
- -----------------------
-----------------------------------------------------------------------------------
MINIMUM EBITDA ($7,197,188) ($6,689,135) ($1,585,340) $17,448,968 $23,112,812
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
4-OCT-97 1-NOV-97 29-NOV-97 3-JAN-98 30-JAN-98
-----------------------------------------------------------------------------------
- -----------------------
NET WORTH TEST
- -----------------------
-----------------------------------------------------------------------------------
MINIMUM NET WORTH $9,277,132 $5,949,026 $7,080,914 $23,619,177 $25,569,123
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
4-OCT-97 1-NOV-97 29-NOV-97 3-JAN-98 30-JAN 98
-----------------------------------------------------------------------------------
- -----------------------
VENDOR FINANCING TEST
- -----------------------
-----------------------------------------------------------------------------------
MINIMUM VENDOR FINANCING $18,703,190 $34,319,674 $40,625,490 $39,080,220 $21,796,082
-----------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 99.3
INTERIM AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Interim Amendment ("Amendment") is entered into as of September
16, 1996 among NEOSTAR RETAIL GROUP, INC., BABBAGE'S, INC. and SOFTWARE ETC.
STORES, INC., on the one hand, and the financial institutions listed on the
signature pages hereof, and FOOTHILL CAPITAL CORPORATION, as Agent for the
Lenders, on the other hand.
RECITALS
A. This Amendment amends that certain Loan and Security
Agreement, of even date herewith, among the parties set forth above (the
"Agreement").
B. All terms defined in the Agreement that are not defined in
this Amendment shall have the meanings set forth in the Agreement.
C. Borrowers, Lenders and Agent desire to amend the Agreement
during the period commencing upon entry of the Interim Bankruptcy Court Order
and ending upon entry of the Bankruptcy Court Order as provided in this
Amendment.
The parties hereby amend the Agreement as follows effective during the
period commencing upon entry of the Interim Bankruptcy Court Order and ending
upon entry of the Bankruptcy Court Order and payment to the Existing Lenders in
accordance with Section 7.18 of the Agreement:
1. DEFINITIONS AND CONSTRUCTION.
"Maximum Amount" means, as of the date any determination
thereof is to be made, $70,000,000 less Borrowers' outstanding obligations to
Existing Lenders under the Pre-Chapter 11 Loan Documents; provided, however,
for purposes of Section 2.11 (a) and (b) of the Agreement, "Maximum Amount"
means, as of the date any determination thereof is to be made, $70,000,000.
"Pre-Chapter 11 Loan Documents" means the various loan
agreements, security agreements and related documents among the Existing
Lenders and Obligors.
2. LOAN AND TERMS OF PAYMENT.
I.C.2.1 REVOLVING ADVANCES. Until such time as
Foothill's Pro Rata Share of the Obligations is equal to 28.57% of the
outstanding Obligations, together with the outstanding obligations under the
Pre-Chapter 11 Loan Documents, Foothill shall make all Advances to Borrowers
and be responsible for Letters of Credit, and shall not request Settlement with
other Lenders.
1
<PAGE> 2
3. CONDITIONS; TERM OF AGREEMENT.
I.C.3.1 (c)(iii) shall not be applicable.
7. NEGATIVE COVENANTS.
7.18 USE OF PROCEEDS. Advances made under the Agreement
may not be used to repay the outstanding principal balance of Borrowers'
obligations owing to Existing Lenders under the Pre-Chapter 11 Loan Documents
until: (a) the Bankruptcy Court Order has been entered, and (b) Agent has
received the Pay-Off Letter. Agent shall automatically repay in full Borrowers'
obligations owed to Existing Lenders under the Pre-Chapter 11 Loan Documents
once both conditions set forth in the preceding sentence have been met.
8. SCHEDULE P-1 PERMITTED LIENS.
Permitted Liens includes the Liens of Existing Lenders.
9. Except as expressly amended in this Amendment the Agreement
shall be in full force and effect and shall not be amended or otherwise
modified.
IN WITNESS WHEREOF, the parties hereto have cause this Amendment to be
executed in Dallas, Texas.
NEOSTAR RETAIL GROUP, INC.
By: /s/ OPAL FERRARO
-----------------------------
Title: Vice President
--------------------------
BABBAGE'S, INC.
By: /s/ OPAL FERRARO
-----------------------------
Title: Vice President
--------------------------
SOFTWARE ETC. STORES, INC.
By: /s/ OPAL FERRARO
-----------------------------
Title: Vice President
--------------------------
2
<PAGE> 3
FOOTHILL CAPITAL CORPORATION,
as Agent an a Lender
By: /s/ PATRICIA MCLOUGLIN
------------------------------------
Title: Senior Vice President
---------------------------------
NATIONSBANK OF TEXAS,
NATIONAL ASSOCIATION
By: /s/ FRANK IZZO
------------------------------------
Title: Senior Vice President
---------------------------------
BANKERS TRUST COMPANY
By: /s/ ROBERT W. HEVNER
------------------------------------
Title: Vice President
---------------------------------
GUARANTY FEDERAL BANK, F.S.B.
By: /s/ ROBERT S. HAYS
------------------------------------
Title: Vice President
---------------------------------
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR
By: /s/ DAVID H. LERNER
------------------------------------
Title: Vice President & Regional Manager
---------------------------------
By: /s/ MARK A. HARRINGTON
------------------------------------
Title: Vice President
---------------------------------
3
<PAGE> 1
EXHIBIT 99.4
AMENDMENT NUMBER TWO TO LOAN AND SECURITY AGREEMENT
This Amendment Number Two to Loan and Security Agreement ("Amendment")
is entered into as of October 2, 1996, by and among NEOSTAR RETAIL GROUP, INC.,
operating as a debtor-in-possession, BABBAGE'S, INC., operating as a debtor-in-
possession, and SOFTWARE, ETC. STORES, INC., operating as a
debtor-in-possession (jointly "Borrowers"), on the one hand, and the financial
institutions listed on the signature pages hereof (jointly "Lenders"), and
FOOTHILL CAPITAL CORPORATION, as Agent for the Lenders, on the other hand, in
light of the following:
A. Borrowers, Lenders and Agent have previously entered into that
certain Loan and Security Agreement, dated as of September 16, 1996 (as amended
by that certain Interim Amendment to Loan and Security Agreement dated
September 16, 1996, the "Agreement").
B. Borrowers, Lenders and Agent desire to further amend the
Agreement as provided for and on the conditions herein.
NOW, THEREFORE, Borrowers, Lenders and Agent hereby amend the
Agreement as follows:
1. DEFINITIONS. All initially capitalized terms used in this
Amendment shall have the meanings given to them in the Agreement unless
specifically defined herein.
2. AMENDMENTS.
(a) Section 1.1 of the Agreement is amended by changing
the definitions of "General Intangibles" and "Voidable Transfer" to read as
follows:
"General Intangibles" means all of a Person's
present and future general intangibles and other
personal property (including contract rights, rights
arising under common law, statutes, or regulations,
choses or things in action, goodwill, patents, trade
names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer
lists, monies due or recoverable from pension funds,
route lists, rights to payment and other rights under
any royalty, franchise, or licensing agreements,
infringement claims, computer programs, information
contained on computer disks or tapes, literature,
reports, catalogs, deposit accounts, insurance
premium rebates, tax refunds, and tax refund claims
other than claims of any Borrower to transfers that
are avoidable pursuant to provisions of the
Bankruptcy Code), Accounts, and Negotiable
Collateral.
"Voidable Transfer" has the meaning set forth
in Section 18.7.
AMENDMENT NUMBER TWO TO
LOAN AND SECURITY AGREEMENT - Page 1
<PAGE> 2
(b) Section 1.1 of the Agreement is hereby amended by
adding the definition of "Amendment No. 2" in its entirety to read as follows:
"Amendment No. 2" means that certain
Amendment Number Two to Loan and Security Agreement,
dated as of October 2, 1996, by and between Borrowers
and Lenders.
(c) Section 2.1(b) of the Agreement is hereby amended to
read as follows:
(b) Advance Rate Adjustments and
Reserves. Anything to the contrary in Section 2.1(a)
above notwithstanding, Agent may create reserves
against or reduce its advance rates based upon
Eligible Inventory for: (i) unpaid ad valorem taxes
and sales taxes that may have priority over the
Lenders' security interests; (ii) the Unpaid Amounts
of the Carve-Out Amount as provided in the Bankruptcy
Court Order; and (iii) upon three (3) Business Days'
advance notice to Borrowers that Agent intends to do
so because Agent has reasonably determined that there
has occurred a Material Adverse Change.
(d) Section 2.11 (f) is hereby added to the Agreement in
its entirety to read as follows:
(f) Waiver Fee. A waiver fee for each waiver
of the financial covenant(s) set forth in Section
6.11 that the Lenders, at their option, determine to
grant, such fees not to exceed $175,000 per quarter,
exclusive of a $175,000 waiver fee, which will be
charged for the amendments to and waivers of the
financial covenants as contemplated by Amendment No.
2. The first waiver fee following the transaction
contemplated by Amendment No. 2 will be payable with
the first waiver that the Lenders determine to grant.
Notwithstanding the foregoing, the waiver fee will
not be payable in connection with a waiver or
amendment to the financial covenants set forth in
Section 6.11, so long as the waiver or amendment is
necessitated as a response to the Borrowers' closing
of more than two hundred (200) stores.
(e) Sections 4.5(b), (f), and (g) of the Agreement are
hereby amended to read as follows:
(b) At any time that an Event of Default
has occurred and is continuing, sign such Borrower's
name on any invoice or bill of lading relating to any
Account, drafts against Account Debtors, schedules
and assignments of Accounts, verifications of
Accounts, and notices to Account Debtors,
AMENDMENT NUMBER TWO TO
LOAN AND SECURITY AGREEMENT - Page 2
<PAGE> 3
(f) At any time that an Event and Default has
occurred and is continuing, make, settle, and adjust
all claims under such Borrower's policies of
insurance, subject to landlord's rights regarding
fixtures, and make all determinations and decisions
with respect to such policies of insurance, and
(g) At any time that any Event of Default has
occurred and is continuing, settle and adjust
disputes and claims respecting the Accounts directly
with Account Debtors, for amounts and upon terms that
Agent determines to be reasonable, and Agent may
cause to be executed and delivered any documents and
releases that Agent determines to be necessary.
(f) Section 6.11(e) of the Agreement is hereby amended to
read as follows:
(e) Reorganization Expenses. Not pay
cumulative reorganization expenses in the Cases,
excluding non-cash items, in excess of $3,850,000, as
itemized in Schedule 6.11(e) attached hereto;
(g) Section 6.16 of the Agreement is hereby amended by
deleting the last sentence thereof.
(h) Section 6.17 of the Agreement is hereby deleted in
its entirety.
(i) Section 8.12 of the Agreement is hereby amended to
read as follows:
8.12 If the obligation of any Guarantor
under any Loan Document is limited or terminated by
operation of law or by such Guarantor thereunder.
(j) Sections 9.1(k)(1) and (2) of the Agreement are
hereby amended to read as follows:
(1) Agent shall give each Borrower with
rights in the Collateral that is being disposed of,
each holder of a security interest in the Collateral
who has filed with Agent a written request for notice
and the Unsecured Creditors' Committee, a notice in
writing of the time and place of public sale, or, if
the sale is a private sale or some other disposition
other than a public sale is to be made of the
Collateral, then the time on or after which the
private sale or other disposition is to be made;
(2) The notice shall be personally
delivered or mailed, postage prepaid, to (i) the
applicable Borrower as provided in Section 12, at
least five (5) days before the date fixed for the
sale, or at least five (5) days
AMENDMENT NUMBER TWO TO
LOAN AND SECURITY AGREEMENT - Page 3
<PAGE> 4
before the date on or after which the private sale or
other disposition is to be made and (ii) the
Unsecured Creditors' Committee c/o Traub, Bonacquist
& Fox, 2415 Jefferson Point Dr., Arlington, Texas
76006-0622, Attention: Susan F. Balaschak, Esq., at
least three (3) Business Days before the date fixed
for the sale, or at least three (3) Business Days
before the date on or after which the private sale or
other disposition is to be made; no notice needs to
be given prior to the disposition of any portion of
the Collateral that is perishable or threatens to
decline speedily in value or that is of a type
customarily sold on a recognized market;
(k) Schedule 6.11 to the Agreement is amended in its
entirety and replaced by Schedule 6.11 attached to this Amendment.
(l) Schedule 6.11(e) attached to this Amendment is hereby
incorporated in its entirety into the Agreement as Schedule 6.11(e)
(Professional Fees and Reorganization Expenses) thereto.
3. REPRESENTATIONS AND WARRANTIES. Each Borrower hereby affirms
to the Lender Group that all of such Borrower's representations and warranties
set forth in the Agreement are true, complete and accurate in all respects as
of the date hereof.
4. NO DEFAULTS. Borrowers hereby affirm to the Lender Group that
no Event of Default has occurred and is continuing as of the date hereof.
5. CONDITIONS PRECEDENT. The effectiveness of this Amendment is
expressly conditioned upon the following, each of which shall be a condition
precedent hereto:
(a) Payment by Borrowers to Agent of an amendment fee in
the aggregate amount of $175,000, such fee to be charged to Borrowers' loan
account pursuant to Section 2.6(d) of the Agreement;
(b) Receipt by Agent of an executed copy of this
Amendment;
(c) Entry by the Bankruptcy Court of the Bankruptcy Court
Order; and
(d) Receipt by Agent of a copy of the support letter from
the Unsecured Creditors' Committee ("Committee") to the Borrowers for
presentation to the Borrowers' trade creditors to the effect that (i) the
Committee supports the Agreement, as amended, and (ii) the Committee believes
the Agreement, as amended, is fair and reasonable for the Borrowers.
6. COSTS AND EXPENSES. Borrowers shall pay to Agent all of
Agent's out-of-pocket costs and expenses (including, without limitation, the
fees and expenses of its counsel, which counsel may include any local counsel
deemed necessary) arising in connection with the preparation, execution, and
delivery of this Amendment and all related documents.
AMENDMENT NUMBER TWO TO
LOAN AND SECURITY AGREEMENT - Page 4
<PAGE> 5
7. LIMITED EFFECT. In the event of a conflict between the terms
and provisions of this Amendment and the terms and provisions of the Agreement,
the terms and provisions of this Amendment shall govern. In all other
respects, the Agreement, as amended and supplemented hereby, shall remain in
full force and effect.
8. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed
in any number of counterparts and by different parties on separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original. All such counterparts, taken together, shall constitute but
one and the same Amendment. This Amendment shall become effective upon the
execution of a counterpart of this Amendment by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first set forth above.
NEOSTAR RETAIL GROUP, INC.,
a Delaware corporation
By: /s/ OPAL FERRARO
---------------------------------------------
Title: Vice President
------------------------------------------
BABBAGE'S, INC.,
a Texas corporation
By: /s/ OPAL FERRARO
---------------------------------------------
Title: Vice President
------------------------------------------
SOFTWARE ETC. STORES, INC.,
a Delaware corporation
By: /s/ OPAL FERRARO
---------------------------------------------
Title: Vice President
------------------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation,
as Agent and a Lender
By: /s/ KURT R. MARSDEN
---------------------------------------------
Title: Assistant Vice President
------------------------------------------
AMENDMENT NUMBER TWO TO
LOAN AND SECURITY AGREEMENT -Page 5
<PAGE> 6
NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION,
a national banking association
By: /s/ WILLIAM E. LIVINGSTONE IV
----------------------------------------
Title: Senior Vice President
-------------------------------------
BANKERS TRUST COMPANY,
a New York banking corporation
By: /s/ MATTHEW SAVITZ
----------------------------------------
Title:
-------------------------------------
GUARANTY FEDERAL BANK F.S.B.,
a federal savings bank
By: /s/ ROBERT S. HAYS
----------------------------------------
Title: Vice President
-------------------------------------
BANQUE FRANCAISE DU COMMERCE EXTERIEUR,
a French banking corporation
By: /s/ TIMOTHY L. POLVADO
----------------------------------------
Title: Assistant Vice President
-------------------------------------
By: /s/ MARK A. HARRINGTON
----------------------------------------
Title: Vice President and Regional Manager
-------------------------------------
AMENDMENT NUMBER TWO TO
LOAN AND SECURITY AGREEMENT- Page 6
<PAGE> 7
Each of the undersigned has executed a Continuing Guaranty in favor of
the Lender Group respecting the obligations of the Borrowers owing to the
Lender Group. Each of the undersigned acknowledges the terms of the above
Amendment and reaffirms and agrees that: (a) its Continuing Guaranty remains in
full force and effect; (b) nothing in such Continuing Guaranty obligates the
Lender Group to notify the undersigned of any changes in the financial
accommodations made available to the Borrowers or to seek reaffirmations of the
Continuing Guaranty; and (c) no requirement to so notify the undersigned or to
seek reaffirmations in the future shall be implied by the execution of this
reaffirmation.
CHASADA
By: /s/ OPAL FERRARO
----------------------------------
Title: Chairman
-------------------------------
AUGUSTA ENTERPRISES, INC.
By: /s/ OPAL FERRARO
----------------------------------
Title: Chairman
-------------------------------
AMENDMENT NUMBER TWO TO
LOAN AND SECURITY AGREEMENT-Page 7
<PAGE> 8
SCHEDULE P-1
PERMITTED LIENS
NEOSTAR RETAIL GROUP, INC.
BABBAGE'S, INC.
SOFTWARE ETC. STORES, INC.
1. Property subject to lien: Xerox 5390 copier.
Lienholder: Xerox Financing Corp.
Amount of debt secured: $265,320
2. Property subject to lien: Leased computer equipment.
Lienholder: Verifone Financing, Inc., Portland, Oregon
Amount of debt secured: $373,032
3. Property subject to lien: Leased warehouse equipment, including
forklift trucks, exide batteries, orderpicker trucks, walkie rider,
exide chargers, battery changing equipment, wire guidance system, and
epoxy floor coating.
Lienholder: Raymond Leasing Corporation
Amount of debt secured: approximately $402,000
4. Property subject to contested mechanic's lien claim: Warehouse
equipment, including conveyor system, crossbelt sorter and related
equipment.
Lienholder: Western Atlas, Inc.
Amount of claim: $2,758,578.08
5. Property subject to contested mechanic's lien claim: Warehouse
equipment, including high bay pallet storage racks, high density pallet
flow racks, pick module structures, shelving and related equipment.
Lienholder: UNARCO Material Handling, Inc.
Amount of claim: $603,034.87
6. Reclamation claims of trade creditors.
<PAGE> 9
SCHEDULE 6.11
FINANCIAL COVENANTS
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Schedule 6.11
--------------------------------------------------------------------------------------------------
5-Oct-96 2-Nov-96 30-Nov-96 4-Jan-97 1-Feb-97 1-Mar-97
--------------------------------------------------------------------------------------------------
- ----------------------
TOTAL MARGIN TEST
- ----------------------
--------------------------------------------------------------------------------------------------
Minimum Total Margin $ 5,560,782 $10,183,213 $18,044,242 $37,255,826 $40,007,739 $36,324,535
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
5-Oct-96 2-Nov-96 30-Nov-96 4-Jan-97 1-Feb-97 1-Mar-97
--------------------------------------------------------------------------------------------------
- ----------------------
EBITDA TEST
- ----------------------
--------------------------------------------------------------------------------------------------
Minimum EBITDA ($3,432,270) ($9,510,445) ($6,351,167) $16,567,814 $19,797,377 $17,789,299
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
5-Oct-96 2-Nov-96 30-Nov-96 4-Jan-97 1-Feb-97 1-Mar-97
--------------------------------------------------------------------------------------------------
- ----------------------
NET WORTH TEST
- ----------------------
--------------------------------------------------------------------------------------------------
Minimum Net Worth $11,304,822 $ 7,830,363 $ 8,523,561 $25,340,507 $26,093,647 $24,693,895
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
5-Oct-96 19-Oct-96 2-Nov-96 30-Nov-96 1-Feb-97 1-Mar-97
--------------------------------------------------------------------------------------------------
- ----------------------
TRADE CREDIT TEST
- ----------------------
--------------------------------------------------------------------------------------------------
Minimum Trade Credit $ 1,000,000 $ 6,000,000 $20,000,000 $30,000,000 $17,179,586 $18,781,903
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
5-Apr-97 3-May-97 31-May-97 5-Jul-97 2-Aug-97 30-Aug-97
--------------------------------------------------------------------------------------------------
- ----------------------
TOTAL MARGIN TEST
- ----------------------
--------------------------------------------------------------------------------------------------
Minimum Total Margin $19,404,672 $15,189,296 $14,099,622 $12,532,726 $11,847,323 $11,667,779
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
5-Apr-97 3-May-97 31-May-97 5-Jul-97 2-Aug-97 30-Aug-97
--------------------------------------------------------------------------------------------------
- ----------------------
EBITDA TEST
- ----------------------
---------------------------------------------------------------------------------------------------
Minimum EBITDA $ 1,698,763 ($ 2,058,172) ($5,238,372) ($9,377,204) ($11,467,254) ($10,896,071)
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
5-Apr-97 3-May-97 31-May-97 5-Jul-97 2-Aug-97 30-Aug-97
---------------------------------------------------------------------------------------------------
- ----------------------
NET WORTH TEST
- ----------------------
---------------------------------------------------------------------------------------------------
Minimum Net Worth $24,876,384 $22,665,839 $19,859,615 $18,222,439 $14,705,684 $11,448,707
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
5-Apr-97 3-May-97 31-May-97 5-Jul-97 2-Aug-97 30-Aug-97
---------------------------------------------------------------------------------------------------
- ----------------------
TRADE CREDIT TEST
- ----------------------
---------------------------------------------------------------------------------------------------
Minimum Trade Credit $13,113,205 $10,573,786 $14,949,300 $13,674,375 $13,783,347 $16,976,911
---------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------
4-Oct-97 1-Nov-97 29-Nov-97 3-Jan-98 31-Jan-98
----------------------------------------------------------------------------------
- ----------------------
TOTAL MARGIN TEST
- ----------------------
----------------------------------------------------------------------------------
Minimum Total Margin $11,600,295 $11,858,238 $15,934,445 $32,025,546 $36,358,337
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
4-Oct-97 1-Nov-97 29-Nov-97 3-Jan-98 31-Jan-98
----------------------------------------------------------------------------------
- ----------------------
EBITDA TEST
- ----------------------
----------------------------------------------------------------------------------
Minimum EBITDA ($11,341,465) ($10,584,693) ($1,990,227) $15,819,764 $20,424,722
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
4-Oct-97 1-Nov-97 29-Nov-97 3-Jan-98 31-Jan-98
----------------------------------------------------------------------------------
- ----------------------
NET WORTH TEST
- ----------------------
----------------------------------------------------------------------------------
Minimum Net Worth $9,277,132 $5,949,026 $7,080,914 $23,397,209 $25,163,108
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
4-Oct-97 1-Nov-97 29-Nov-97 3-Jan-98 31-Jan-98
----------------------------------------------------------------------------------
- ----------------------
TRADE CREDIT TEST
- ----------------------
----------------------------------------------------------------------------------
Minimum Trade Credit $16,365,291 $30,029,715 $37,675,694 $36,241,469 $20,030,005
----------------------------------------------------------------------------------
</TABLE>
<PAGE> 10
SCHEDULE 6.11(E)
PROFESSIONAL FEES & REORGANIZATION EXPENSES
<TABLE>
<CAPTION>
PROFESSIONAL RETAINER ADDITIONAL TOTAL
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Price Waterhouse $250,000 $ 600,000 $ 850,000
Ernst & Young* $ 50,000 $ 150,000 $ 200,000
Coopers & Lybrand $ 0 $ 250,000 $ 250,000
Traub, Bonacquist & Fox $ 0 $ 600,000 $ 600,000***
Cox & Smith** $500,000 $1,300,000 $1,800,000
Equity $ 0 $ 100,000 $ 100,000
Committee Expenses $ 0 $ 50,000 $ 50,000
-------- ---------- -----------
Totals: $800,000 $2,700,000 $3,850,000
</TABLE>
* Not a Reorganization Expense.
** A portion of fees will not be Reorganization Expenses. The total of
fees failing to qualify as Reorganization Expenses payable to Cox &
Smith and to Ernst & Young shall not exceed $350,000.
*** Further limitations:
1. Total fees and expenses for Committee Expenses and to Traub,
Bonacquist & Fox and to Coopers & Lybrand (collectively, the
"Committee Group") shall not exceed, in the aggregate,
$900,000, subject to the terms and restrictions of the Final
Financing Order.
2. As a sub-limit within the limit in Item 1, above, the total
fees and expenses of the Committee Group to investigate the
claims and liens of the pre-petition lender group will not
exceed $75,000, in the aggregate.
3. The Final Financing Order will provide that the Committee
Group and each of the professionals referenced above may not
seek payment of their respective fees and
Schedule 6.11(e)
<PAGE> 11
expenses in excess of their individual caps as set forth in this
Schedule 6.11(e), except as specifically provided in Item 1
above, and shall not have any right to any amounts from other
professionals who have not used the full amount of their
individual caps or "carve out" amounts set forth in this Schedule
6.11(e).
Schedule 6.11(e)
<PAGE> 1
EXHIBIT 99.5
AMENDMENT NUMBER THREE TO LOAN AND SECURITY AGREEMENT
This Amendment Number Three to Loan and Security Agreement
("Amendment") is entered into as of October 18, 1996, by and among NEOSTAR
RETAIL GROUP, INC., operating as a debtor-in-possession, BABBAGE'S, INC.,
operating as a debtor-in-possession, and SOFTWARE, ETC. STORES, INC., operating
as a debtor-in-possession (jointly "Borrowers"), on the one hand, and FOOTHILL
CAPITAL CORPORATION, a California corporation, BANKERS TRUST COMPANY, a New
York banking corporation, and NATIONSBANK OF TEXAS, N.A., a national banking
association (the "Banks") on the other hand, in light of the following:
A. Borrowers, Banks and other financial institutions have
previously entered into that certain Loan and Security Agreement, dated as of
September 16, 1996 (as amended by that certain Interim Amendment to Loan and
Security Agreement dated September 16, 1996, and as further amended by the
Amendment Number Two to Loan and Security Agreement, dated October 2, 1996 (the
"Agreement").
B. As provided in Section 16.1 of the Agreement, the holders of a
majority of the Committments are empowered to amend certain provisions of the
Agreement.
C. The Banks hold a majority of the Committments to the Loan.
D. Borrowers and Banks desire to further amend the Agreement as
provided for and on the conditions herein.
NOW, THEREFORE, Borrowers, Lenders and Agent hereby amend the
Agreement as follows:
1. DEFINITIONS. All initially capitalized terms used in this
Amendment shall have the meanings given to them in the Agreement unless
specifically defined herein.
2. AMENDMENTS.
(a) Section 3.3(c) of the Agreement is amended to read
as follows:
no later than October 31, 1996 Agent shall have
received a Collateral Access Agreement from the
lessor of Borrowers' offices and warehouse located at
2250 William D. Tate Avenue, Grapevine, Texas 76051,
or if the landlord refuses to sign a Collateral
Access Agreement, Borrowers shall promptly file a
motion to compel in the Bankruptcy Cases; and
<PAGE> 2
3. REPRESENTATIONS AND WARRANTIES. Each Borrower hereby affirms
to the Lender Group that all of such Borrower's representations and warranties
set forth in the Agreement are true, complete and accurate in all respects as
of the date hereof.
4. NO DEFAULTS. Borrowers hereby affirm to the Lender Group that
no Event of Default has occurred and is continuing as of the date hereof.
5. LIMITED EFFECT. In the event of a conflict between the terms
and provisions of this Amendment and the terms and provisions of the Agreement,
the terms and provisions of this Amendment shall govern. In all other
respects, the Agreement, as amended and supplemented hereby, shall remain in
full force and effect.
6. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed
in any number of counterparts and by different parties on separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original. All such counterparts, taken together, shall constitute but
one and the same Amendment. This Amendment shall become effective upon the
execution of a counterpart of this Amendment by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first set forth above.
BORROWERS:
NEOSTAR RETAIL GROUP, INC.,
a Delaware corporation
By: /s/ OPAL FERRARO
----------------------------------------
Title: Vice President
-------------------------------------
BABBAGE'S, INC.,
a Texas corporation
By: /s/ OPAL FERRARO
----------------------------------------
Title: Vice President
-------------------------------------
SOFTWARE ETC. STORES, INC.,
a Delaware corporation
By: /s/ OPAL FERRARO
----------------------------------------
Title: Vice President
-------------------------------------
AMENDMENT NUMBER THREE TO
LOAN AND SECURITY AGREEMENT - PAGE 2
<PAGE> 3
BANKS:
FOOTHILL CAPITAL CORPORATION,
a California corporation,
By: /s/ CATHERINE C. BURKE
----------------------------------------
Title: Vice President
-------------------------------------
NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION,
a national banking association
By: /s/ WILLIAM E. LIVINGSTONE IV
----------------------------------------
Title: Senior Vice President
-------------------------------------
AMENDMENT NUMBER THREE TO
LOAN AND SECURITY AGREEMENT - PAGE 3
<PAGE> 4
Each of the undersigned has executed a Continuing Guaranty in favor of
the Lender Group respecting the obligations of the Borrowers owing to the
Lender Group. Each of the undersigned acknowledges the terms of the above
Amendment and reaffirms and agrees that: (a) its Continuing Guaranty remains in
full force and effect; (b) nothing in such Continuing Guaranty obligates the
Lender Group to notify the undersigned of any changes in the financial
accommodations made available to the Borrowers or to seek reaffirmations of the
Continuing Guaranty; and (c) no requirement to so notify the undersigned or to
seek reaffirmations in the future shall be implied by the execution of this
reaffirmation.
CHASADA
By: /s/ OPAL FERRARO
----------------------------------------
Title: Chairman
-------------------------------------
AUGUSTA ENTERPRISES, INC.
By: /s/ OPAL FERRARO
----------------------------------------
Title: Chairman
-------------------------------------
AMENDMENT NUMBER THREE TO
LOAN AND SECURITY AGREEMENT - PAGE 4
<PAGE> 1
EXHIBIT 99.6
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
IN RE: )
)
NEOSTAR RETAIL GROUP, INC., ) CASE NO. 396-36648-SAF-11
) THROUGH
BABBAGE'S, INC., ) CASE NO. 396-36652-RCM-11
)
SOFTWARE ETC. STORES, INC., ) (CHAPTER 11)
)
AUGUSTA ENTERPRISES, INC., AND )
)
CHASADA, ) ADMINISTRATIVELY CONSOLIDATED
)
DEBTORS. )
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL
FINANCING, GRANTING SENIOR LIENS AND SUPERPRIORITY
STATUS, PROVIDING FOR ADEQUATE PROTECTION AND PAYMENT
OF PRE-PETITION SECURED INDEBTEDNESS,
MODIFYING THE AUTOMATIC STAY, AND AUTHORIZING DEBTORS TO
ENTER INTO AGREEMENTS WITH DIP LENDERS AND AGENT
THIS MATTER came before the Court on October 2, 1996, upon the Motion
of NeoStar Retail Group, Inc. ("Parent"), Babbage's, Inc. ("Babbage's"),
Software Etc. Stores, Inc. ("Software"), Augusta Enterprises, Inc. ("Augusta"),
and Chasada, Debtors and Debtors-in-Possession (collectively, the "Debtors"),
dated September 16, 1996 (the "Financing Motion"), seeking, inter alia, (i)
authority pursuant to Sections 364(c)(1), 364(c)(2), 364(c)(3), and 364(d)(l)
of the United States Bankruptcy Code, 11 U.S.C. Sections 101, et seq. (the
"Code"), and Rules 4001 and 9014 of the Federal Rules of Bankruptcy Procedure
(the "Bankruptcy Rules") for the Debtors to obtain post-petition loans and
advances of up to the
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL FINANCING, ETC. - PAGE 1
<PAGE> 2
aggregate outstanding amount from time to time of $70,000,000 inclusive of the
amount of all pre-petition indebtedness owed from time to time by the Debtors
to the Pre-Petition Lenders (as hereinafter defined) and the Pre-Petition Agent
(as hereinafter defined), from Foothill Capital Corporation, as agent (the
"Agent") for itself ("Foothill"), NationsBank of Texas, N.A. ("NationsBank"),
Bankers Trust Company ("BT"), Guaranty Federal Bank F.S.B. ("Guaranty"), and
Banque Francaise du Commerce Exterieur ("BFCE") (hereinafter collectively
referred to as the "DIP Lenders"), the DIP Lenders, secured by (A) a Section
364(d)(1) priming, first lien on the Collateral (as hereinafter defined) senior
to the liens and security interests of the Pre-Petition Lenders, and (B)
first-priority security interests in and liens upon all of the Collateral (as
hereinafter defined) pursuant to Sections 364(c)(2) and 364(c)(3) of the Code,
(ii) authority for the Debtors to execute, deliver, and perform under the loan,
financing, and security agreements by and among the Debtors, the Agent, and the
DIP Lenders, pursuant to the terms of the Loan Documents (as defined
hereinafter), but only the loan and security agreement, as amended, was filed
as an Addendum to the Financing Motion (the "Addendum"), and incorporated
herein for all purposes, (iii) approval of the terms and conditions of the
loan, financing, and security agreements by and among the Debtors, the Agent,
and the DIP Lenders as so executed and delivered, (iv) the modification of the
automatic stay to the extent provided below, (v) granting of adequate
protection to the Pre-Petition Lenders and the Pre-Petition Agent (i.e.,
"NationsBank") of their collateral within the meaning of Section 364(d)(1)(B)
of the Code, (vi) the granting of superpriority status to the Lender Debt (as
hereinafter defined) of the Agent and the DIP Lenders pursuant to Section
364(c)(1) of the Code, and (vii) authorizing the Debtors to use the financing
provided hereunder to satisfy the obligations of the Debtors to the Pre-
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL FINANCING, ETC. - PAGE 2
<PAGE> 3
Petition Lender Group (as defined hereinafter). The Debtors have represented
to the Court that they will comply with the terms of this Joint Stipulation and
Agreed Order Authorizing Final Financing, Granting Senior Liens and
Superpriority Status, Providing for Adequate Protection and Payment of
Pre-Petition Secured Indebtedness, Modifying the Automatic Stay, and
Authorizing Debtors to Enter into Agreements with DIP Lenders and Agent (this
"Final Financing Order"). The Court finds notice to have been sufficient and
appropriate under the particular circumstances of this case. The parties
hereto have stipulated and agreed as follows, and based upon the pleadings and
the proffers of evidence and representations of counsel, the Court hereby
adopts said stipulation and agreement as findings of fact and conclusions of
law to permit financing of the Debtors on a final basis:
I. FINDINGS OF FACT
1. Appropriate notice and opportunity for hearing have been given
for the Financing Motion in accordance with the provisions of Sections 102,
361, 362, 363, and 364 of the Code, and Bankruptcy Rules 2002, 4001(c) and (d),
and 9006. This is a core proceeding as defined in 28 U.S.C. Sections
157(b)(2)(A),(D),(G),(K),(M), and (O).
2. The Debtors filed their Voluntary Petitions for reorganization
under Chapter 11 of the Code on September 16, 1996 (such date, and the specific
time of filing on such date, being referred to as the "Petition Date"), and
thereafter continued in the management and possession of their business and
properties as Debtors-in-Possession pursuant to Sections 1107 and 1108 of the
Code.
3. The DIP Lenders and the Agent have agreed to provide
post-petition loans and advances to or for the benefit of the Debtors pursuant
to the terms of certain loan, financing, and security agreements executed and
delivered by the Debtors with, to, or in favor of the DIP Lenders and the
Agent, including, without limitation, the Uniform Commercial Code financing
statements filed by the Agent against the Debtors (all of such loan documents,
security agreements, and financing statements, and all other related
agreements, documents, notes, instruments, and guarantees creating or
evidencing indebtedness of the Debtors to the DIP Lenders and the Agent or
granting collateral security of the Debtors in favor of the Agent, as the same
now exist or may hereafter be amended (including the amendments), modified,
supplemented, ratified, assumed, extended, renewed, restated, or replaced,
being referred to herein collectively as the "Loan Documents").
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL FINANCING, ETC. - PAGE 3
<PAGE> 4
4. Without the proposed financing, the Debtors will not have the
funds necessary to pay their post-petition payroll, payroll taxes, inventory
suppliers, overhead, and other expenses necessary for the continued operation
of the Debtors' business and the management and preservation of the Debtors'
assets and properties. The Debtors' operations require the financing solely to
fund the Debtors' working capital needs, and standby letters of credit and
documentary letters of credit, and for other general corporate purposes.
5. The Debtors have requested that the DIP Lenders make loans and
advances to or for the benefit of the Debtors to provide funds to be used for
such purposes described in Paragraph 4 above.
6. All such loans and advances by the DIP Lenders and the Agent
will benefit the Debtors and their estates.
7. The DIP Lenders are willing to make such loans and advances on
a secured basis as more particularly described herein and subject to the terms
and conditions contained herein and in the Loan Documents.
8. The ability of the Debtors to continue in business and remain
viable entities and thereafter reorganize under Chapter 11 of the Code depends
upon obtaining such financing from the DIP Lenders.
9. The relief requested in the Financing Motion is necessary,
essential, and appropriate for the continued operation of the Debtors' business
and the management and preservation of their assets and properties.
10. The Debtors are unable to obtain unsecured credit allowable
under Section 503(b)(1) of the Code, or pursuant to Sections 364(a) and (b) of
the Code.
11. No practical source of financing exists other than the DIP
Lenders. The Debtors acknowledge that (i) all of their cash is "cash
collateral" of the Pre-Petition Lender Group under Section 363(a) of the Code
(the "Cash Collateral"), and (ii) the Pre-Petition Lender Group does not
consent to the Debtors' use of such "cash collateral," except in accordance
with the terms of this Final Financing Order. Moreover, the uncertainty of the
Debtors' ability to obtain the use of Cash Collateral over the objections of
the Pre-Petition Lender Group would lead to uncertainty on the part of trade
creditors and would not be beneficial to the Debtors' reorganization efforts.
The Debtors' only means of obtaining funding is a debtor-in-possession loan
facility pursuant to Section 364 of the Code.
12. The Financing Motion (seeking Interim and Final Financing
therein) was filed on September 16, 1996, and the Debtors have provided actual
notice of the terms of the Financing Motion to (i) the Office of the United
States Trustee, (ii) the attorneys for (A) NationsBank as agent (the
"Pre-Petition Agent") under the pre-petition revolving and term loan facility,
by and among the Debtors, the Pre-Petition Agent and NationsBank, BT, Guaranty,
and BFCE, as lenders (collectively, the "Pre-Petition Lenders"), and (B) the
Pre-Petition Lenders, (iii) the 20
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL FINANCING, ETC. - PAGE 4
<PAGE> 5
largest unsecured creditors of each of the Debtors, (iv) the Official Unsecured
Creditors' Committee in the above referenced cases (the "Cases"), (v) the
Comptroller of the State of Texas, (vi) all other interested third parties in
possession of any of the Debtors' inventory, (vii) all factors and vendors as
of the Petition Date who have deposits or other security that exceed the amount
owed to such factor and/or vendor; and (viii) all parties in interest who had
requested such supplementary information. All of the obligations due and owing
to the Pre-Petition Agent and the Pre-Petition Lenders (collectively, together
with their successors, participants, assignees, if any, the "Pre-Petition
Lender Group") shall be referred to as the "Pre-Petition Secured
Indebtedness").
13. On September l6, 1996, this Court authorized the Debtors to
incur interim financing pursuant to the Loan Documents, and the Court entered a
certain Joint Stipulation and Agreed Order Authorizing Interim Financing
Granting Senior Liens and Superpriority Status, Providing For Adequate
Protection and Payment of Pre-Petition Secured Indebtedness, Modifying the
Automatic Stay, and Authorizing Debtors to Enter Into Agreements With DIP
Lenders and Agent (the "Interim Financing Order"). Pursuant to the terms of
the Interim Financing Order, the Debtors were authorized to execute the Loan
Documents and the Debtors were authorized to borrow from the DIP Lenders, on an
interim basis, an amount not to exceed $70,000,000 less the aggregate principal
amount of the Pre-Petition Secured Indebtedness outstanding as of the Petition
Date. The DIP Lenders thereafter made advances to the Debtors through and
including October 2, 1996. By virtue of the Interim Financing Order, the Agent
and the DIP Lenders are entitled to all of the rights, priorities, liens, and
protections provided to the Agent and the DIP Lenders under the terms of the
Interim Financing Order.
14. The Court scheduled the hearing on the Financing Motion (as to
the Final Financing sought therein) for October 2, 1996 at l:30 p.m.
15. No objections were timely filed to the Financing Motion or
such objections are otherwise resolved in this Final Financing Order and the
Amendment Number Two to the Loan and Security Agreement dated October 2, 1996
(the "Amendment"), by and among Foothill as Agent and on behalf of itself and
the DIP Lenders, and the Debtors. A copy of the Amendment is attached hereto
and is incorporated herein for all purposes.
16. On September 17, 1996, an Official Committee of Unsecured
Creditors (the "Creditors' Committee") was appointed in the Cases.
17. This Final Financing Order is subject to, and the Agent and
the DIP Lenders are entitled to the benefits of, the provisions of Section
364(e) of the Code. This Court has jurisdiction over this proceeding and the
parties and property affected hereby pursuant to 28 U.S.C. Sections
157(b)(2)(A), (D), (G), and (M) and 1334.
18. The terms of the Loan Documents by and among the Debtors, the
Agent, and the DIP Lenders, pursuant to which post-petition loans and advances
may be made to or for the benefit of the Debtors by the DIP Lenders, have been
negotiated at arms' length and in good faith as that term is used in Section
364(e) of the Code and are in the best interests of the Debtors.
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL FINANCING, ETC. - PAGE 5
<PAGE> 6
The Agent and the DIP Lenders shall be given all the protections of entities
that have extended credit in good faith under Section 364(e) of the Code.
19. Good, adequate, and sufficient cause has been shown to justify
the granting of the relief requested herein.
WHEREUPON, this Court makes the following conclusions of law:
II. CONCLUSIONS OF LAW
A. The Agent and the DIP Lenders are entitled to the liens and
protections of good-faith lenders under Sections 364(c)(1), (c)(2), and (c)(3),
364(d)(1), and 364(e) of the Code, as provided herein.
B. The Pre-Petition Lender Group, as the holders of secured
claims against the Debtors, are entitled to adequate protection of their
interests in the collateral under Section 364(d)(1)(B) of the Code, as provided
herein.
C. The entry of this Final Financing Order is in the best
interests of the Debtors, their respective creditors, and their bankruptcy
estates.
D. Good and sufficient notice of the Financing Motion, with
respect to the request therein for the entry of this Final Financing Order, and
of the hearing thereon has been provided in accordance with Sections 102(1),
364(c)(1), (2), and (3), and 364(d)(1) of the Code and Bankruptcy Rules 2002
and 4001, and any requests for other and further notice shall be and are hereby
dispensed with and waived.
E. The relief granted by this Court pursuant to this Final
Financing Order is necessary to the continued operation of the Debtors'
business and is in the best interests of the Debtors' estates.
III. ORDERS OF THE COURT
BASED UPON THE FOREGOING, it is therefore ORDERED as follows:
1. The Financing Motion (as to the Final Financing sought
therein), as modified herein, is granted, and it is hereby approved.
2. The Debtors are hereby authorized and empowered to borrow from
the DIP Lenders and the Agent on a revolving basis in accordance with the Loan
Documents, pursuant to the terms of this Final Financing Order and the terms
and conditions set forth in the Loan Documents, in such amount or amounts as
may be made available to or for the benefit of the Debtors from the DIP Lenders
and the Agent, which shall for such period not exceed $70,000,000 outstanding
at any one time, inclusive of the aggregate principal amount of the
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL FINANCING, ETC. - PAGE 6
<PAGE> 7
Pre-Petition Secured Indebtedness outstanding as of the Petition Date subject
to the terms of the Loan Documents.
3. During the term of this Final Financing Order, the Debtors
shall use the proceeds of the loans solely (i) to fund the Debtors' working
capital needs and standby letters of credit and documentary letters of credit,
(ii) to fund other general corporate purposes, and (iii) to pay the
Pre-Petition Secured Indebtedness, all as provided under the Loan Documents.
4. The Debtors are authorized and directed to execute, deliver,
perform, and comply with the terms and conditions of the Loan Documents,
pursuant to which the Debtors agree to be bound, and the Debtors shall agree to
perform and comply with the terms and conditions of the Loan Documents.
5. The terms and conditions of the Loan Documents shall be
sufficient and conclusive evidence of the borrowing arrangements by and among
the Debtors, the Agent, and the DIP Lenders, and of the Debtors' agreement to
the terms and conditions of the Loan Documents, for all purposes, including the
payment of all interest, closing fees, commitment fees, servicing fees, letter
of credit fees, facility fees, additional commitment fees, early termination
fees, and other fees and expenses as more fully set forth in the Loan
Documents.
6. Nothing herein shall determine the extent, validity, priority,
perfection, and enforceability of the pre-petition liens, the Pre-Petition
Secured Indebtedness, or any other claims of the Pre-Petition Agent, on behalf
of itself and the Pre-Petition Lenders, whatsoever against the Debtors, except
that the Agent and the DIP Lenders shall have a Section 364(d)(1) first priming
lien on all of the Collateral senior to all of the liens and security interests
of the Pre-Petition Lender Group to secure the Lender Debt (as hereinafter
defined).
7. Pursuant to Sections 364(d)(l) and 364(c)(2) and (3) of the
Code in connection with the Lender Debt and to secure the prompt payment and
performance of any and all obligations, liabilities, and indebtedness of the
Debtors to the Agent, on behalf of itself and the DIP Lenders, of whatever kind
or nature or description, consisting of all post-petition obligations,
liabilities, and indebtedness of the Debtors arising under the Loan Documents,
the Agent and the DIP Lenders shall have and are hereby granted, effective on
and after the date of this Final Financing Order, valid and perfected
first-priority security interests and liens, superior to all other creditors of
the estates of the Debtors, except as set forth in Paragraph 8 below, in and
upon all of the properties and assets of the Debtors, real or personal,
including, but not limited to, those assets described in the Loan Documents and
hereafter-acquired property of the Debtors and their respective bankruptcy
estates, whether acquired before or after the filing of the petitions
commencing the Debtors' Cases, whether now owned and existing or hereafter
acquired, created, or arising, and all products and proceeds thereof
(including, without limitation, claims of the Debtors against third parties for
loss or damage to such property), including all accessions thereto,
substitutions and replacements therefor, and wherever (collectively, the
"Collateral") except as noted hereafter. The Collateral shall not include
avoidance actions under Chapter 5 of the Code, or any recoveries or proceeds
thereof.
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL FINANCING, ETC. - PAGE 7
<PAGE> 8
8. Notwithstanding anything to the contrary set forth in
Paragraph 7 above but subject to Paragraph 22 below, the security interests in
and liens of the Agent and the DIP Lenders upon the Collateral shall not have
priority over the (i) prior liens on the Debtors' property described on an
Exhibit to the Addendum and incorporated herein for all purposes (including
such property listed thereon and such proceeds thereof), provided, that (a)
such liens are valid, perfected, and non-avoidable in accordance with
applicable law, and (b) the foregoing is without prejudice to the rights of the
Debtors, any Creditors' Committee in any of the Cases, or any other party in
interest, including the Agent and the DIP Lenders, to object to the validity,
priority, or extent of such liens, or the allowance of such debts secured
thereby, described on an Exhibit to the Addendum, or institute any actions or
adversary proceedings with respect thereto; (ii) the quarterly fees payable to
the United States Trustee pursuant to 28 U.S.C. Section 1930; and (iii) the
Residual Retainers (as defined in paragraph 20 below). Furthermore,
notwithstanding anything in this Final Financing Order to the contrary, the
relief granted herein is without prejudice to any rights of the Texas
Comptroller of Public Accounts (the "TCPA") to funds which do not constitute
property of the estates of the Debtors but which qualify as tax trust funds.
The TCPA is not precluded from pursuing such funds against any entity that may
have received them, if any, by this Final Financing Order, nor is any party in
interest precluded from contesting any action of the TCPA to recover such
alleged trust funds.
9. The Agent and the DIP Lenders shall have all rights and
remedies with respect to the Debtors, the Lender Debt (as defined hereinafter),
and the Collateral as are set forth in the Loan Documents and this Final
Financing Order.
10. The Loan Documents shall be subject to termination at the
Agent's and DIP Lenders' option as to any future loans, advances, and other
credit accommodations permitted to be made or provided by the Agent and the DIP
Lenders to the Debtors immediately upon such written notice as provided in the
Loan Documents following the occurrence of any Event of Default (as hereinafter
defined) or immediately upon the expiration or termination of the Debtors'
authorization to borrow from the Agent, on behalf of itself and the DIP
Lenders, pursuant to this Final Financing Order and the Loan Documents.
11. This Final Financing Order shall be sufficient and conclusive
evidence of the priority, perfection, attachment, and validity of all of the
security interests in and liens upon the Collateral, and the liens and security
interests granted and created herein shall, by virtue of this Final Financing
Order, constitute valid and perfected security interests without the necessity
of creating, filing, recording, or serving any financing statements or other
documents that might otherwise be required under federal or state law in any
jurisdiction or the taking of any other action to validate or perfect (i) the
security interests and liens granted to the Agent and the DIP Lenders in this
Final Financing Order and the Loan Documents; and (ii) the replacement liens
and security interests granted to the Pre-Petition Lender Group as provided in
Paragraph 22 below until the Pre-Petition Second Indebtedness is paid in full.
Such security interests and liens granted to the Agent and the DIP Lenders
shall be prior and senior to all security interests, liens, claims, and
encumbrances of all other creditors in and to such property, except as
otherwise set forth in Paragraph 8 of Part III of this Final Financing Order.
By virtue of the terms of this Final Financing Order, to the extent that the
DIP Lenders and the Agent have pre-filed Uniform
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL FINANCING, ETC. - PAGE 8
<PAGE> 9
Commercial Code financing statements under the names of one or more of the
Debtors, such filings shall be deemed to perfect their liens and security
interests as to the Debtors and Debtors-in-Possession, without further action
by the Agent or the DIP Lenders. If the Agent and the DIP Lenders shall, in
their discretion, elect for any reason to file any such financing statements or
other documents with respect to such security interests and liens, the Debtors
are authorized and directed to execute, or cause to be executed, all such
financing statements or other documents upon the Agent's and the DIP Lenders'
reasonable request, and the filing, recording, or service (as the case may be)
of such financing statements or similar documents shall be deemed to have been
made at the time of and on the Petition Date, and the signature(s) of any
person(s) designated by the Debtors, whether by letter to the Agent and the DIP
Lenders or by appearing on any one or more of the agreements or other documents
respecting the security interest and lien of the Agent and the DIP Lenders in
and upon the Collateral, shall bind the Debtors and their respective estates.
The Agent and the DIP Lenders may, in their discretion, file a certified copy
of this Final Financing Order in any filing or recording office in any county
or other jurisdiction in which the Debtors have real or personal property, and,
in such event, the subject filing or recording officer is authorized and
directed to file or record such certified copy of this Final Financing Order.
12. The Debtors are hereby authorized and directed to perform all
acts, and execute and comply with the terms of such other documents,
instruments, and agreements in addition to the above Loan Documents, as the
Agent and the DIP Lenders may reasonably require as evidence of and for the
protection of the Lender Debt and the Collateral or which may be otherwise
deemed necessary by the Agent and the DIP Lenders to effectuate the terms and
conditions of this Final Financing Order and the Loan Documents, each of such
documents, instruments, and agreements being included in the definition of
"Loan Documents" contained herein.
13. The Debtors are authorized and directed, at the Agent's
request, to remit immediately to the Agent and the DIP Lenders all payments
received from their account debtors and other parties now or hereafter
obligated to pay the Debtors for inventory or other property of the estates or
for services rendered by the Debtors in accordance with the Loan Documents.
The Agent and the DIP Lenders are authorized to apply such payments and
proceeds received by the Agent and the DIP Lenders to the Lender Debt as set
forth in this Final Financing Order and the Loan Documents, and the Automatic
Stay is modified to the extent necessary to permit the same.
14. The Debtors are authorized and directed, at the Agent's and
the DIP Lenders' request, (a) to continue the existing collection account
agreements, lock-box account agreements, and concentration account agreements
as set forth in the Loan Documents with NationsBank, or such other banks
mutually acceptable to the Agent and the Debtors (collectively, the "Bank"),
and, consistent with the Loan Documents, establish and maintain all of their
debtor-in-possession disbursement accounts with NationsBank, or such other
bank or banks as may be mutually acceptable to the Agent and the Debtors,
except for their payroll and medical benefit accounts (the "Bank Accounts"),
with payroll withholding to be deposited directly into a separate payroll
disbursement account; (b) to exercise their reasonable best efforts to collect
all proceeds of the Collateral; (c) to immediately transfer all proceeds of the
Collateral received by the Debtors into
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL FINANCING, ETC. - PAGE 9
<PAGE> 10
the lock-boxes or collection accounts established for the benefit of the Agent
and the DIP Lenders for subsequent transfer to the concentration account
established for the benefit of the Agent and the DIP Lenders and further
application in accordance with the terms of the Loan Documents; and (d) to
instruct all account debtors and other parties, now or hereafter obligated to
pay the Debtors for goods and services provided by the Debtors to them, or for
inventory or other property of the estates of the Debtors in which the Agent
and the DIP Lenders have a security interest or lien, to remit such payments to
the lock-boxes or the collection accounts, or, at the Agent's and the DIP
Lenders' election, directly to the Agent and the DIP Lenders; and (e) to enter
into such agreements as may be necessary to effectuate such arrangements. By
this Final Financing Order, the Agent and the DIP Lenders are granted a first-
priority, perfected security interest in and lien on the Bank Accounts and all
deposits therein, together with all funds in the lockbox, collection accounts,
and disbursement accounts (except for the payroll and medical benefit
disbursement accounts).
15. If at any time the Bank Accounts terminate, the Debtors are
authorized and directed, at the Agent's and the DIP Lenders' request, to remit
immediately to the Agent and the DIP Lenders all payments received from their
account debtors and other parties then or thereafter obligated to pay the
Debtors for inventory or other property of the estates or for services rendered
by the Debtors. The Agent and the DIP Lenders are authorized to apply such
payments and proceeds received by the Agent and the DIP Lenders to the Lender
Debt as set forth in this Final Financing Order and the Loan Documents.
16. The Debtors are authorized and directed, without further order
of this Court, to pay or reimburse the DIP Lenders and the Agent promptly for
all present and future reasonable fees, costs and expenses charged, paid, or
incurred by the DIP Lenders and the Agent to effectuate the financing
transactions as provided in this Final Financing Order and the Loan Documents,
all of which unpaid fees, commissions, costs, and expenses shall be and are
included as part of the principal amount of the Lender Debt. The Agent shall
provide to the counsel to the Creditors' Committee copies of all invoices
representing such fees and expenses.
17. The parties hereto have stipulated that in making decisions to
permit advances under the Loan Documents or the collection of the Lender Debt
of the Debtors, the DIP Lenders and the Agent shall not be deemed to be in
control of the operations of the Debtors or to be acting as a "responsible
person" or "owner or operator" with respect to the operation or management of
the Debtors (as such terms, or any similar terms, are used in the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, or any
similar Federal or state statute) by virtue of the interests, rights, and
remedies granted to or conferred upon the DIP Lenders and the Agent under the
Loan Documents or this Final Financing Order, including, without limitation,
such rights and remedies as may be exercisable by the DIP Lenders and the Agent
in the making (or causing to be made), administration, or collection of the
loans, advances, and other financial accommodations to be provided thereunder.
18. The automatic stay arising under Section 362 of the Code is
vacated and modified to the extent necessary to permit (i) the Agent and the
DIP Lenders to implement the financing of the Debtors and the provisions of the
Loan Documents and this Final Financing Order, and (ii)
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL FINANCING, ETC. - PAGE 10
<PAGE> 11
the Debtors to satisfy the Pre-Petition Secured Indebtedness owed by the
Debtors to the Pre-Petition Lender Group, without prejudice to the rights of
the Debtors, the Creditor's Committee, or any party in interest to file a
complaint (to the extent that such party obtains standing from the Court to do
so to the extent required by law) with respect to, or otherwise object, to the
validity, priority, and extent of the Pre-Petition Secured Indebtedness of the
Pre-Petition Lender Group and to the extent, priority and validity of the liens
with respect thereto.
19. The Debtors are authorized and directed to provide to the
Agent and the DIP Lenders, unless there is a written waiver by the Agent and
the DIP Lenders, all of the documentation, reports, schedules, assignments,
financial statements, insurance policies, and endorsements, access, inspection,
audits, information, and other rights that the Debtors are required to provide
to the Agent and the DIP Lenders under the Loan Documents.
20. Any and all funds advanced by the Agent and the DIP Lenders
post-petition to or on behalf of the Debtors and the "Obligations" (as defined
in the Loan Documents, specifically excluding any and all obligations relating
to the Pre-Petition Secured Indebtedness of the Pre-Petition Lender Group)
shall be defined hereinafter as the "Lender Debt" and shall be treated as
advances hereunder and under existing Loan Documents and other documentation
among the Agent, the DIP Lenders and the Debtors (and shall accrue interest as
provided thereunder). To secure the repayment of the Lender Debt, the Agent
and the DIP Lenders are hereby granted, pursuant to Section 364(c)(1) of the
Code, an allowed superpriority claim having priority in right of payment over
any and all other unsecured obligations, liabilities, and indebtedness of the
Debtors, now in existence or hereafter incurred by the Debtors and over any and
all administrative expenses or priority claims of the kind specified in, or
ordered pursuant to, Sections 105, 326, 330, 331, 503(b), 506(c), and 507(a)
and (b) of the Code subject to (A) the Trustee Fees (as defined in Paragraph 21
below), and (B) the allowed fees and expenses of (x) the Creditors' Committee
and the professionals retained by the Creditors' Committee in an amount not to
exceed the Creditors' Committee Carve-Out Amount (as hereinafter defined), (y)
the professionals retained by the Debtors in an amount not to exceed the
Debtors' Carve-Out Amount (as hereinafter defined), and (z) the Equity Holders'
Committee, if any, and the professionals retained by same, if any, in an amount
not in excess of the Equity Holders' Carve Out Amount (as hereinafter defined),
in each case to the extent that such payments fall within the Professional Fees
Exception and are in amounts not to exceed such respective carve-outs set forth
below. The term "Debtors' Carve-Out Amount" means an amount, inclusive of the
amount of the Retainers (as hereinafter defined) in excess of the amount of the
Residual Retainers, which shall not exceed $2,850,000 in the aggregate;
notwithstanding anything else contained herein, upon an Event of Default (as
hereinafter defined), the Debtors' Carve-Out Amount shall be fixed at the then
Debtors' Carve-Out Amount incurred and outstanding (up to $2,850,000) on the
date of such Event of Default. The term "Creditors' Committee Carve-Out
Amount" means an amount not to exceed $900,000 in the aggregate;
notwithstanding anything else contained herein, upon an Event of Default, the
Creditors' Committee Carve-Out Amount shall be fixed at the Creditors'
Committee Carve-Out Amount incurred and outstanding (up to $900,000) on such
date of such Event of Default. The term "Equity Holders' Carve-Out Amount"
means an amount not to exceed $100,000 in the aggregate; notwithstanding
anything else contained herein, upon an Event of Default, the Equity Holders'
Carve-Out Amount shall be fixed at the Equity Holders
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL FINANCING, ETC. - PAGE 11
<PAGE> 12
Carve-Out Amount incurred and outstanding (up to $100,000) on such date of such
Event of Default. (In consideration of the foregoing, each of the following
professionals or constituencies have agreed to, and by the terms of this Final
Financing Order shall hereafter, limit their fees and expenses, inclusive of
their respective retainers, if any, to the following amounts: Price
Waterhouse, Ernst & Young, and Cox & Smith, collectively $2,850,000; Coopers &
Lybrand, Traub, Bonacquist & Fox and the Committee, collectively $900,000; and
the Equity Committee, if appointed, and their professionals, if retained
$100,000; provided, further, that such professionals and constituencies shall
have no right to seek payment of their fees and expenses from any excess
amounts from other professionals or constituencies who have not used the full
amount of such amounts set forth above.) All fees and expenses paid to (x) the
Debtors' counsel after giving credit to the retainers, (y) to the other Court
retained professionals for the Debtors (after giving credit to their respective
retainers), the Creditors' Committee or the Equity Holders' Committee, or to
(z) the Creditors' Committee or Equity Holders' Committee (collectively, the
"Professionals") on an interim or a final basis, shall be applied and reduce
the available Debtor Carve-Out Amount, the Creditors' Committee Carve-Out
Amount, or the Equity Holders' Carve-Out Amount, respectively, then in effect.
Any such exceptions to the superpriority claim of the Agent and DIP Lenders
will only be allowed to the extent that (i) the fees are allowed and awarded by
the Court pursuant to Sections 326, 330 or 331 of the Code; (ii) they are
consistent with the budgetary requirements under the Loan Documents; (iii) the
professionals retained by the Debtors have first drawn down and have reduced
their respective retainers (i.e., the Debtors' counsel, Cox & Smith
Incorporated, $500,000 on the Petition Date; and the Debtors' financial
advisors, Price Waterhouse, L.L.P. ($250,000) and the Debtors' accountants,
Ernst & Young, L.L.P., ($50,000) on the Petition Date, collectively, the
"Retainers") to $100,000, $50,000, and $25,000, respectively (collectively, the
"Residual Retainers"); (iv) the allowed fees and expenses were incurred prior
to an Event of Default under the Loan Documents or Final Financing Order and
such Event of Default is continuing; and (v) such fees and expenses are not
subject to the further limitations set forth in the following sentence
(collectively, the "Professional Fees Exception"). The Agent and the DIP
Lenders shall not be responsible for the funding, financing, payment or
reimbursement of any fees or disbursements of any of the Professionals, under
the Loan Documents or otherwise incurred in connection with the assertion or
joinder in, or review or analysis of, any claim, counter-claim, action,
proceeding, application, motion, objection, defense or other contested matter,
the purpose of which is to seek any order, judgment, determination or similar
relief: (i) invalidating, setting aside, avoiding, subordinating in whole or
in part the Lender Debt, or the Pre-Petition Secured Indebtedness, or the
Agent's and the DIP Lenders' liens and security interests, or the Pre-Petition
Lender Group's liens and security interests, in any of the Collateral; or (ii)
preventing, hindering, or delaying, whether directly or indirectly, the
Agent's, or the DIP Lenders' assertion, enforcement, or realization upon any
Collateral; provided, however, only $75,000 of the Creditors' Committee
Carve-Out may be used by the Committee and their professionals for the limited
purpose of investigating the claims and liens of the Pre-Petition Lender Group.
To the extent that the Debtors do not currently satisfy accrued but unpaid fees
and expenses of the Professionals otherwise payable pursuant to the
Professional Fees Exception (the "Unpaid Amounts"), the Agent and the DIP
Lenders shall have the right to establish a reserve, which shall reduce the
Debtors' loan availability pursuant to the Loan Documents in the amount equal
to the Unpaid Amounts. Except as provided for above, nothing in this paragraph
shall be construed to obligate the Agent and the DIP Lenders, in any
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL FINANCING, ETC. - PAGE 12
<PAGE> 13
way, to pay compensation or expense reimbursements to the Professionals or to
assure that the Debtors have sufficient funds on hand to pay such compensation
or expense reimbursement, and the Agent and the DIP Lenders shall not be deemed
to have subordinated any security interest in or lien upon any of the
Collateral in favor of any Professional, nor shall anything in this Final
Financing Order be construed to limit the applications of the Professionals to
seek payments of amounts beyond or outside the Professional Fees Exception from
any unencumbered assets of the Debtors' estates. Moreover, no costs or
expenses of administration that have been or may be incurred in these Cases, or
in any proceeding related hereto, and no pre-petition priority claims are or
will be prior to or on a parity with secured claims of the Agent and the DIP
Lenders against the Debtors and their estates arising out of the Lender Debt
and the Lender and the Agent's and the DIP Lenders' liens and security
interests described herein. The Professional Fees Exception relates only to
the administrative priority of the Agent's and the DIP Lenders' administrative
claims, and does not effect, diminish, prime, or surcharge the priority of (i)
the Agent's and the DIP Lenders' security interests and liens on the
Collateral; or (ii) the Pre-Petition Lender Group's liens and security
interests in its collateral until the Pre-Petition Security Indebtedness is
satisfied; except that so long as the above conditions are satisfied for the
making of payments under the Professional Fees Exception, such payments may be
made from cash or cash equivalents constituting Collateral notwithstanding the
liens and security interests of the Agent and the DIP Lenders therein (or of
the Pre-Petition Lender Group as to their collateral), and the Agent and the
DIP Lenders (together with the Pre-Petition Lender Group) authorize the making
of such payments in such circumstances free of their liens and security
interests, but reserving the right to object to the reasonableness of such fees
and expenses. Nothing herein in this Paragraph 20 shall constitute a waiver of
any parties' right to object to the appointment of the Equity Committee or its
retention of professionals. Further, if there is neither an Equity Committee
appointed nor professionals retained by such committee, the DIP Lenders and the
Agent agree that the Creditors' Committee and its professionals may increase
the Creditors' Committee Carve-Out Amount ($900,000) by the amount of the
Equity Holders' Carve-Out Amount ($100,000).
21. The Agent's and the DIP Lenders' Section 364(c)(1)
superpriority claim shall be subject to the fees and expenses of the Office of
the United States Trustee and the Clerk of the United States Bankruptcy Court
for the Northern District of Texas, Dallas Division (collectively, the "Trustee
Fees"). Except as provided in this Paragraph 21, or as otherwise provided
under Paragraph 20 above, no other claim having priority superior or pari passu
to that granted by this Final Financing Order to the Agent and the DIP Lenders
shall be allowed until all Lender Debt has been indefeasibly paid and the
Agent's and the DIP Lenders' obligations under the Loan Documents have
terminated.
22. The Pre-Petition Lenders and the Pre-Petition Agent, (together
with their successors, participants, and assignees, if any, collectively
hereinafter "the "Pre-Petition Lender Group") claim a pre-petition and/or
post-petition security interest in or lien on some or all of the Collateral.
This Court has not made, and does not hereby make, any finding as to the
validity, perfection, fully secured status, or non-avoidability of the
pre-petition claims, security interests, or liens of the Pre-Petition Lender
Group, and the provisions of this paragraph of this Final Financing Order do
not bar the subsequent assertion, if and as appropriate, of any avoiding
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL FINANCING, ETC. - PAGE 13
<PAGE> 14
powers of the Trustee(s), Debtors-in-possession, or Creditors' Committee (as
may be allowed by law) in these cases with respect to any pre-petition claims
of the Pre-Petition Lender Group or any transfers by the Debtors on account
thereof. The Agent and the DIP Lenders are not willing to provide the
financing hereunder unless the Agent and the DIP Lenders have a first-priority
security interest in and lien on the Collateral (subject only to certain
Permitted Liens as provided hereinabove), with priority over that of any
security interests or liens of the Pre-Petition Lender Group. Pursuant to
Section 364(d)(1)(A) of the Code, this Court finds that the Debtors are not
able to obtain the post-petition credit they need without granting the Agent
and the DIP Lenders senior security interests in and liens on the Collateral.
In order to grant the Agent and the DIP Lenders such senior security interests
and liens, pursuant to Section 364(d)(1)(B) of the Code, this Court must find
that the interest of the Pre-Petition Lender Group in their collateral is
adequately protected. Pursuant to Section 361 of the Code, this Court hereby
allows the interest of the Pre-Petition Lender Group in the collateral that
existed on the Petition Date in the Cases, together with all proceeds,
products, rents, and profits of such collateral, to continue until the
Post-Petition Secured Indebtedness is paid in full, but nonetheless subject and
subordinate to the security interests and liens of the Agent and the DIP
Lenders provided for herein, and this Court further (i) grants the Pre-Petition
Lender Group a replacement lien (to the same extent and in the same status as
their lien with respect to the Pre-Petition Secured Indebtedness) in all assets
of the Debtors, including but not limited to, assets acquired by the Debtors
post-petition, which replacement lien shall continue until the Post-Petition
Secured Indebtedness is paid in full, but nonetheless shall at all times be
junior in priority to the security interests and liens of the Agent and the DIP
Lenders, and (ii) orders that the Debtors shall pay the Pre-Petition Secured
Indebtedness to the Pre-Petition Lender Group. The Court finds that such
continuing and replacement liens and other relief provided herein in this
Paragraph 22 constitute adequate protection of the interest of the Pre-Petition
Lender Group in their collateral within the meaning of Section 364(d)(1)(B) of
the Code during the term of this Final Financing Order. To the extent that any
applicable non-bankruptcy law otherwise would restrict the granting, scope,
enforceability, attachment, or perfection of the liens authorized or created by
this paragraph, or otherwise would impose filing or registration requirements
with respect to such replacement liens, such law hereby is preempted to the
maximum extent permitted by the Code, otherwise applicable federal law, and the
judicial power of the United States Bankruptcy Court (provided that the
Pre-Petition Lender Group may still take such steps as they wish to perfect
their replacement security interests and liens under otherwise applicable
non-bankruptcy law without the benefits of this provision of this Order and
without modifying the priorities provided for herein). The Pre-Petition Lender
Group hereby is directed to execute and deliver all such agreements,
instruments, notices and other documents as are reasonably necessary and/or
appropriate to evidence and/or effectuate the release of its security interests
in and liens on the Collateral in accordance with this Final Financing Order,
upon the payment of the Pre-Petition Secured Indebtedness.
23. No operating costs or costs or expenses of administration that
have been or may be incurred in the Cases, or in any subsequent Chapter 7 cases
of the Debtors or other proceedings or cases related hereto, shall be charged
either against the Agent or the DIP Lenders (or their claims or the
Collateral), or the Pre-Petition Lender Group or their collateral, pursuant to
Section 506(c) of the Code or otherwise, without the prior express written
consent of the Agent
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL FINANCING, ETC. - PAGE 14
<PAGE> 15
and the DIP Lenders (or the Pre-Petition Lender Group), and no such consent
shall be inferred from any other action, inaction, or acquiescence by the Agent
or the DIP Lenders (or the Pre-Petition Lender Group). No obligations incurred
or payments or other transfers made by or on behalf of the Debtors on account
of the financing arrangements with the Agent and the DIP Lenders shall be
avoidable or recoverable from the Agent and the DIP Lenders under Sections 547,
548, 550, or 553 or any other provision of the Code.
24. The Debtors shall not sell, transfer, lease, encumber, or
otherwise dispose of any material portion of the Collateral without the prior
consent of the Agent, and no such consent shall be inferred except with respect
to sales of the Debtors' inventory in the ordinary course of their business.
25. In the event of the occurrence of any of the following: (a)
the violation of any of the terms of this Final Financing Order by the Debtors,
(b) the termination or non-renewal of the Loan Documents as provided for in the
Loan Documents, (c) conversion of any one of the Cases of the Debtors to a case
under Chapter 7 of the Code, (d) the appointment of a Trustee pursuant to
Section 1104(a)(1) or (a)(2) of the Code in any of these Cases, (e) appointment
of an examiner with expanded powers in any of the Cases, (f) dismissal of any
of the Cases, (g) the entry of any order modifying, reversing, revoking,
staying, rescinding, vacating, or amending this Final Financing Order without
the express prior written consent of the Agent and the DIP Lenders (and no such
consent shall be inferred from any other action, inaction, or acquiescence by
the DIP Lenders or the Agent), (h) the filing of a plan of reorganization by
the Debtors that does not provide for the indefeasible payment in full of the
Lender Debt on confirmation, or (i) an Event of Default under the Loan
Documents (any of the foregoing being referred to in this Final Financing
Order, individually, as an "Event of Default" and, collectively, as "Events of
Default"); then (unless such Event of Default is (A) cured by the Debtors prior
to the acceleration of the Lender Debt, to the extent such Event of Default is
even capable of being cured; or (B) specifically waived in writing by the Agent
and the DIP Lenders, which waiver shall not be inferred from any other action,
inaction, or acquiescence by the DIP Lenders or the Agent) upon or after the
occurrence of any of the foregoing, and at all times thereafter, after giving
such notice as provided in the Loan Documents, served by overnight delivery
service or telefax upon the Debtors, the Debtors' counsel, counsel to the
Creditors' Committee at the address set forth in the signature block below, a
Trustee, if appointed, and the United States Trustee: (1) all of the Lender
Debt shall become immediately due and payable, (2) the Debtors shall not use
the Agent's and the DIP Lenders' cash collateral within the meaning of Section
363 without further order of the Court, (3) the Automatic Stay provided for
pursuant to Section 362 of the Code shall be automatically and completely
vacated as to the Agent and the DIP Lenders without further order of the Court,
and (4) the Agent and the DIP Lenders without further notice, hearing, or
approval of the Court shall be and are hereby authorized, in their discretion,
to take any and all actions and remedies that the Agent and the DIP Lenders may
deem appropriate to proceed against, take possession of, protect, and realize
upon the Collateral and any other property of the estates of the Debtors upon
which the Agent and the DIP Lenders have been or may hereafter be granted liens
and security interests to obtain repayment of the Lender Debt. The Agent and
the DIP Lenders shall have no obligation to lend or advance any additional
funds to the Debtors or provide other financial accommodations to the Debtors
upon or after the occurrence of an Event
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL FINANCING, ETC. - PAGE 15
<PAGE> 16
of Default. Any notices of defaults or Events of Default provided by the Agent
and the DIP Lenders to the Debtors, or provided by the Debtors to the Agent and
the DIP Lenders, shall also be sent to the counsel to the Creditors' Committee.
26. Unless an Event of Default set forth in Paragraph 25 above
occurs sooner, upon the expiration of the Debtors' authority to borrow from the
Agent and the DIP Lenders and obtain other credit accommodations from the Agent
and the DIP Lenders pursuant to this Final Financing Order, all of the Lender
Debt shall immediately become due and payable, and the Agent and the DIP
Lenders shall be automatically and completely relieved from the effect of any
stay, including, without limitation, any stay under Section 362 of the Code or
any other restriction on the enforcement of the liens and security interests or
any other rights granted to the Agent or the DIP Lenders pursuant to the terms
and conditions of the Loan Documents or this Final Financing Order, and the
Agent and the DIP Lenders shall be and are hereby authorized, in their
discretion, to take any and all actions and remedies that the Agent and the DIP
Lenders may deem appropriate and to proceed against, take possession of,
protect, and realize upon the Collateral and any other property of the estate
of the Debtors upon which they now have been or may hereafter be granted liens
and security interests to obtain repayment of the Lender Debt including,
without limitation, all such actions and remedies set forth in the Loan
Documents (except if the authority of the Debtors to borrow from the Agent and
the DIP Lenders shall be extended by a subsequent Order of the Court with the
prior written consent of the DIP Lenders and the Agent, which consent shall not
be inferred from any other action, inaction, or acquiescence by the Agent or
the DIP Lenders). Upon and after the occurrence of an Event of Default and
provided such notice has been given pursuant to the Loan Documents, the Agent
and the DIP Lenders, in their discretion, in connection with a liquidation of
any of the Collateral may use any real property, equipment, leases, trademarks,
tradenames, copyrights, licenses, patents, or any other assets of the Debtors
that are owned by the Debtors or owned by or subject to a lien of any third
party and which are used by the Debtors in their business without the payment
of fees or rentals to the Debtors or such third parties, without prejudice to
any secured lender's rights to foreclose, repossess, or exercise other remedies
as a secured party subject to further order of this Court.
27. Until all of the Lender Debt shall have been indefeasibly paid
and satisfied in full and without further order of the Court:
(a) The Debtors shall use the loan proceeds and all cash and cash
equivalents in accordance with the terms of the budgetary requirements under
the Loan Documents;
(b) No other party shall foreclose or otherwise seek to enforce
any junior lien or other right such other party may have in and to any property
of the estates of the Debtors upon which the Agent holds or asserts a senior
lien or security interest, i.e., the Collateral defined at Paragraph 7 above;
and
(c) No Debtor shall, without prior written consent from the Agent
and the DIP Lenders and Court approval, engage in any transaction that is not
in the ordinary course of the Debtors' business; provided no consent by the
Agent or the DIP Lenders shall be necessary if the
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL FINANCING, ETC. - PAGE 16
<PAGE> 17
Agent's and DIP Lenders' interests are first adequately protected as determined
by the Court or if such transaction is permitted by the Loan Documents.
28. The Debtors shall be bound to provide to the Agent and the DIP
Lenders, and are hereby authorized by the Court to execute and deliver, any and
all documents or instruments to effect the purposes of this Final Financing
Order.
29. Upon the indefeasible payment in full of all Lender Debt to
the Agent and the DIP Lenders, and upon termination of any and all obligations
of Agent and the DIP Lenders to make any financial accommodations (including
letters of credit) available to the Debtors, the DIP Lenders, the Agent and the
Debtors shall be released from any and all obligations pursuant to the terms of
this Final Financing Order and/or the Loan Documents (other than their
obligations to execute and to deliver to the Debtors appropriate releases of
their liens on the Collateral).
30. The Debtors shall continue to maintain, insure, and otherwise
preserve and protect the Collateral as provided in the Loan Documents.
31. The Debtors shall be responsible for discharging currently all
of their post-petition obligations to all taxing authorities, or currently
escrowing sufficient amounts for same as provided in the Loan Documents.
32. All post-petition advances under the Loan Documents are made
in reliance on this Final Financing Order, and there shall not at any time be
entered in the Cases any other order which (a) authorizes the use of cash
collateral within the meaning of Section 363 of the Debtors in which the Agent
and the DIP Lenders have an interest, or the sale, lease, or other disposition
of property of the estate of the Debtors in which the Agent and the DIP Lenders
have a lien or security interest, (b) authorizes the obtaining of credit or the
incurring of indebtedness secured by a lien or security interest that is equal
or senior to a lien or security interest in property in which the Agent and the
DIP Lenders hold liens or security interests, or (c) grants to any claim a
priority administrative claim status that is equal or superior to the
superpriority status granted to the Agent and the DIP Lenders herein; unless,
in each instance (i) the Agent and the DIP Lenders shall have given their
express prior written consent thereto, no such consent being inferred from any
other action, inaction, or acquiescence by the Agent or the DIP Lenders, or
(ii) such other order requires that the Lender Debt shall first be indefeasibly
paid in full, including, without limitation, all debts and obligations of the
Debtors to the Agent which arise or result from the obligations, loans,
security interests, and liens authorized herein. The security interest and
liens granted to the Agent and the DIP Lenders hereunder shall not be (i)
subject to any lien or security interest that is avoided and preserved for the
benefit of the Debtors' estates under Section 551 of the Code, (ii) surcharged,
or (iii) subordinated to or made pari passu with any other lien or security
interest under Section 364(d) of the Code or otherwise. The security interests
and liens granted to the Agent and the DIP Lenders hereunder and the rights of
the Agent and the DIP Lenders pursuant to this Final Financing Order with
respect to the Lender Debt and the Collateral shall not be altered, modified,
extended, impaired, or affected by any plan of reorganization of the Debtors
and, if the Agent and the DIP Lenders shall give their express prior written
consent that the Lender Debt shall not be repaid in full upon confirmation
thereof (which consent shall
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL FINANCING, ETC. - PAGE 17
<PAGE> 18
not be inferred from any other action, inaction, or acquiescence by the DIP
Lenders or the Agent), shall continue after confirmation and consummation of
any such plan.
33. The provisions of this Final Financing Order and any actions
taken pursuant hereto Shall survive entry of any order that may be entered
converting any one or all of the Cases to Chapter 7 cases or any order that may
be entered confirming or consummating any plan or plans of reorganization of
the Debtors, and the terms and provisions of this Final Financing Order as well
as the priorities in payment, liens, and security interests granted pursuant to
this Final Financing Order and the Loan Documents shall continue in these or
any superseding case(s) under the Code, and such priorities in payment, liens
and security interests shall maintain their priority as provided by this Final
Financing Order until all Lender Debt is indefeasibly satisfied and discharged
and the Agent and DIP Lenders shall have no further obligation or financial
accommodation (including any issued and outstanding letters of credit) to the
Debtors; provided, that, all obligations and duties of the Agent and the DIP
Lenders hereunder, under the Loan Documents, or otherwise with respect to any
future loans and advances or otherwise shall terminate immediately upon the
earlier of the date of any Event of Default unless the Agent and the DIP
Lenders have given their express prior written consent thereto, no such consent
being inferred from any other action, inaction, or acquiescence by the DIP
Lenders or the Agent.
34. The provisions of this Final Financing Order shall inure to
the benefit of the Debtors, the DIP Lenders, the Agent, and the Pre-Petition
Lender Group, and they shall be binding upon the Debtors and their respective
successors and assigns, including any Trustees or other fiduciaries hereafter
appointed as legal representatives of the Debtors or with respect to property
of the estates of the Debtors, whether under Chapter 11 of the Code or any
subsequent Chapter 7 cases, and shall also be binding upon all creditors of the
Debtors and other parties in interest.
35. Nothing contained herein shall preclude the Agent and the DIP
Lenders, or the Pre-Petition Lender Group, from making appropriate application
or request to the Court for such other relief as shall be necessary to protect
adequately such parties' respective interest, including, without limitation,
asking the Court to lift the Automatic Stay as against such parties for "cause"
for reasons in addition to any Debtors' violation of the terms of this Final
Financing Order or the Loan Documents.
36. If an order is entered, whether sua sponte by the Court or
otherwise, dismissing or converting the Debtors' Cases, such order shall
recognize that such dismissal or conversion shall not affect or diminish the
Agent's and the DIP Lenders' rights, priorities, or remedies hereunder. If any
or all of the provisions of this Final Financing Order are hereafter modified,
vacated, or stayed, such modification, vacation, or stay shall not affect (a)
the validity of any obligation, indebtedness, or liability incurred by the
Debtors to the Agent or the DIP Lenders before the effective date of such
modification, vacation, or stay, or (b) the validity or enforceability of any
security interest, lien, priority, or other protection authorized or created
hereby or pursuant to the Loan Documents. Notwithstanding any such
modification, vacation, or stay, any indebtedness, obligations, or liabilities
incurred by the Debtors to the Agent or the DIP Lenders before the effective
date of such modification, vacation, or stay shall be governed in all respects
by the
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL FINANCING, ETC. - PAGE 18
<PAGE> 19
original provisions of this Final Financing Order, and the Agent and the DIP
Lenders shall be entitled to all the rights, remedies, privileges, and benefits
granted herein and pursuant to the Loan Documents with respect to all such
indebtedness, obligations, or liabilities. The obligations and indebtedness of
the Debtors to the Agent and the DIP Lenders under the Loan Documents or this
Final Financing Order shall not be discharged by the entry of an order
confirming a plan or plans of reorganization in the Cases, and, pursuant to
Section 1141(d)(4) of the Code, unless and until the Agent and the DIP Lenders
are indefeasibly paid in full and all obligations of Agent and DIP Lenders to
make loans or other financial accommodations (including issued and outstanding
letters of credit) are terminated prior to or concurrently with the entry of
such order; the Debtors having waived such discharge with the approval of the
Court.
37. The Debtors irrevocably waive any right to seek any
modifications or extensions of this Final Financing Order without the prior
written consent of the Agent, the DIP Lenders, and the Pre-Petition Lender
Group.
38. To the extent the terms and conditions of the Loan Documents
are in conflict with the terms and conditions of this Final Financing Order,
the terms and conditions of this Final Financing Order shall control. To the
extent the terms and conditions of the Interim Financing Order are in conflict
with the Final Financing Order, the terms and conditions of this Final
Financing Order shall control, but the Agent, the DIP Lenders, and the
Pre-Petition Lender Group shall nonetheless be entitled to all of the
protections, liens, rights, and priorities in the Interim Financing Order
39. The terms of the post-petition financing arrangements by and
among the Debtors and (i) the DIP Lenders and the Agent, and (ii) the
Pre-Petition Lender Group, were negotiated in good faith and at arms' length by
and among all of such parties. Any loans, advances or other financial
accommodations made to or for the benefit of the Debtors by the Agent and the
DIP Lenders pursuant to the Loan Documents are deemed to have been extended in
good faith, as the term is used in Section 364(e) of the Code, and shall be
entitled to the full protections of Section 364(e) of the Code in the event
that this Final Financing Order or any provision hereof is vacated, reversed,
or modified, on appeal or otherwise.
40. Except as otherwise provided in this paragraph, the terms of
this Final Financing Order shall be valid and binding upon the Debtors, all
creditors of the Debtors, and all other parties in interest from and after the
date of the signing of this Final Financing Order by this Court. In the event
this Court modifies any of the provisions of this Final Financing Order and the
Loan Documents following such further hearing, such modifications shall not
affect the rights and priorities of the Agent and the DIP Lenders pursuant to
this Final Financing Order with respect to the Collateral and any portion of
the Lender Debt that arises, is incurred or is advanced before such
modifications, and this Final Financing Order shall remain in full force and
effect.
41. Notwithstanding anything to the contrary stated herein (or in
the Loan Documents), the term of this final post-petition financing shall
expire, and all Lender Debt shall be due and payable, on the earliest of (i)
January 31, 1998, (ii) the "Effective Date" of the joint
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL FINANCING, ETC. - PAGE 19
<PAGE> 20
plan of reorganization of the Debtors, or (iii) such other dates set forth
within the meaning of Maturity Date (as defined in the Loan Documents).
42. The Debtors' counsel shall serve a copy of this Final
Financing Order (without the Amendment attached thereto, unless the Debtors'
counsel receives such request) on all of the following parties: (i) the Office
of the United States Trustee, (ii) the attorneys for the DIP Lenders and the
Agent, (iii) attorneys for the Pre-Petition Lenders and the Pre-Petition Agent;
(iv) all creditors known to Debtors who may have liens against the Debtors'
assets, (iv) the United States Internal Revenue Service, (v) the United States
Environmental Protection Agency, (vi) the Texas Attorney General's Office -
Sales Tax Division; (vii) the 20 largest unsecured creditors of each of the
Debtors, (viii) all other interested third parties in possession of any of the
Debtors' inventory (excluding landlords and shippers), (ix) all factors and
vendors as of the Petition Date who have deposits or other security that
exceeds the amount owed to such factor and/or vendor, and (x) all parties in
interest who have filed a notice of appearance in the Debtors' Cases and who
request such supplementary information.
43. This Final Financing Order shall be effective upon signature
by the Court, without the necessity of entry into the docket sheet of this
case.
44. This Court hereby expressly retains jurisdiction over all
persons and entities, co extensive with the powers granted to the United States
Bankruptcy Court under the Code, to enforce the terms of this Final Financing
Order and to adjudicate any and all disputes in connection therewith.
SIGNED this 2nd day of October, 1996
/s/ STEVEN A FELSENTHAL
----------------------------------------
THE HONORABLE STEVEN A. FELSENTHAL
UNITED STATES BANKRUPTCY JUDGE
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL FINANCING, ETC. - PAGE 20
<PAGE> 21
AGREED AS TO FORM AND SUBSTANCE:
COX & SMITH INCORPORATED
By: /s/ DEBORAH WILLIAMSON
-------------------------------------
Deborah Williamson, Esq.
Texas State Bar No. 21617500
Patrick L. Huffstickler, Esq.
Texas State Bar No. 10199250
112 E. Pecan Street, Suite 1800
San Antonio, Texas 78205
(210) 554-5500
FAX: (210) 226-8395
ATTORNEYS FOR DEBTORS
TRAUB, BONACQUIST & FOX, L.L.P.
By: /s/ SUSAN BALASCHAK
-------------------------------------
Paul Traub, Esq. (3752)
Susan Balaschak, Esq.
Texas State Bar No. 00795019
Michael S. Fox, Esq.
MF2612
489 Fifth Avenue
New York, New York 10017
(212) 476-4770
FAX: (212) 476-4787
-and
Traub, Bonacquist & Fox, L.L.P.
Bank of America Building
2000 E. Lamar Blvd., Suite 600
Arlington, Texas 76006
(817) 588-3072
FAX: (817) 588-3073
COUNSEL FOR THE
OFFICIAL COMMITTEE
OF UNSECURED CREDITORS
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL FINANCING, ETC. - PAGE 21
<PAGE> 22
HUGHES & LUCE, L.L.P.
By: /s/ DAVID WEITMAN
-------------------------------------
David Weitman, Esq.
Texas State Bar No. 21116200
George P. Roach, Esq.
Texas State Bar No. 00791538
1717 Main Street, Suite 2800
Dallas, Texas 75201
(214) 939-5500
FAX: (214) 939-6100
ATTORNEYS FOR
FOOTHILL CAPITAL CORPORATION
AS AGENT FOR ITSELF,
NATIONSBANK OF TEXAS, N.A.,
BANKERS TRUST COMPANY, GUARANTY
FEDERAL BANK, F.S.B., AND BANQUE
FRANCAISE DU COMMERCE EXTERIEUR
IN THEIR CAPACITIES AS DIP LENDERS
HAYNES & BOONE, L.L.P.
By: /s/ MARK R. MULLIN
-------------------------------------
Robin Phelan, Esq.
Texas State Bar No. 15903000
Susan Ernst, Esq.
Texas State Bar No. 18519600
Mark R. Mullin
Texas State Bar No. 14653520
901 Main Street, Suite 3100
Dallas, Texas 75202
(214) 651-5612
FAX: (214) 651-5940
ATTORNEYS FOR
NATIONSBANK OF TEXAS, N.A.
AS AGENT FOR ITSELF,
BANKERS TRUST COMPANY, GUARANTY
FEDERAL BANK, F.S.B., AND BANQUE
FRANCAISE DU COMMERCE EXTERIEUR
IN THEIR CAPACITIES AS
PRE-PETITION LENDERS
JOINT STIPULATION AND AGREED ORDER AUTHORIZING FINAL FINANCING, ETC. - PAGE 22
