EXHIBIT 10.2
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
CONGRESS FINANCIAL CORPORATION (SOUTHWEST)
AS LENDER
AND
SUPPLIES DISTRIBUTORS, INC.
AS BORROWER
DATED: MARCH 29, 2002
EXHIBIT 10.2
TABLE OF CONTENTS
PAGE
SECTION 1. DEFINITIONS..................................................................................... 1
1.1 "Accounts"...................................................................................... 1
1.2 "Adjusted Eurodollar Rate"...................................................................... 2
1.3 "Agreement for Inventory Financing"............................................................. 2
1.4 "Availability Reserves"......................................................................... 2
1.5 "Blocked Accounts".............................................................................. 2
1.6 "Business Day".................................................................................. 2
1.7 "Code".......................................................................................... 2
1.8 "Collateral".................................................................................... 2
1.9 "Collateral Assignment of Note and Liens"....................................................... 3
1.10 "Deposit Account Control Agreement"............................................................. 3
1.11 "dollars" and "$"............................................................................... 3
1.12 "Eligible Accounts"............................................................................. 3
1.13 "Eligible Borrower Accounts".................................................................... 3
1.14 "Eligible Canadian Accounts".................................................................... 5
1.15 "Environmental Laws"............................................................................ 7
1.16 "Equipment"..................................................................................... 8
1.17 "ERISA"......................................................................................... 8
1.18 "ERISA Affiliate"............................................................................... 8
1.19 "Eurodollar Rate Loans"......................................................................... 8
1.20 "Eurodollar Rate"............................................................................... 8
1.21 "Event of Default".............................................................................. 8
1.22 "Excess Availability"........................................................................... 8
1.23 "Financing Agreements".......................................................................... 9
1.24 "Foreign Subsidiary"............................................................................ 9
1.25 "GAAP".......................................................................................... 9
1.26 "Guarantor"..................................................................................... 9
1.27 "Holdings"...................................................................................... 9
1.28 "IBM"........................................................................................... 9
1.29 "IBM Credit".................................................................................... 9
1.30 "IBM Loan Documents" shall have the meaning set forth in Section 4.1(q) hereof.................. 9
1.31 "IBM Master Distributor Agreement".............................................................. 9
1.32 "Information Certificate"...................................................................... 10
1.33 "Intellectual Property"........................................................................ 10
1.34 "Interest Period".............................................................................. 10
1.35 "Interest Rate"................................................................................ 10
1.36 "Intercreditor Agreement"...................................................................... 10
1.37 "Inventory".................................................................................... 11
1.38 "Loans"........................................................................................ 11
1.39 "Management Agreement"......................................................................... 11
1.40 "Maximum Credit"............................................................................... 11
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EXHIBIT 10.2
1.41 "Modified Net Worth"........................................................................... 11
1.42 "Net Amount"................................................................................... 11
1.43 "Net Worth".................................................................................... 11
1.44 "Obligations".................................................................................. 11
1.45 "Obligor"...................................................................................... 12
1.46 "Other Documents" shall have the meaning set forth in Section 4.1(r) hereof.................... 12
1.47 "Payment Account".............................................................................. 12
1.48 "Permitted Intercompany Loans"................................................................. 12
1.49 "Person" or "person"........................................................................... 13
1.50 "PFS".......................................................................................... 13
1.51 "PFS Subordinated Demand Note"................................................................. 13
1.52 "PFS Subordinated Note Documents" shall have the meaning set forth in Section 4.1(s) hereof.... 13
1.53 "PFSweb"....................................................................................... 13
1.54 "Prime Rate"................................................................................... 13
1.55 "Prime Rate Loans"............................................................................. 13
1.56 "Qualifying Subsidiary"........................................................................ 13
1.57 "Real Property"................................................................................ 13
1.58 "Receivables".................................................................................. 13
1.59 "Records"...................................................................................... 14
1.60 "Reference Bank"............................................................................... 14
1.61 "Revolving Loans".............................................................................. 14
1.62 "Revolving Loans Permanent Reserve"............................................................ 14
1.63 "Sales Force Agreement"........................................................................ 14
1.64 "Supplies Canada".............................................................................. 14
1.65 "Supplies Canada Note"......................................................................... 14
1.66 "Supplies Canada Note Documents" shall have the meaning set forth in Section 4.1(p) hereof..... 15
1.67 "Tax Distributions"............................................................................ 15
1.68 "30 Day Average Excess Availability"........................................................... 15
1.69 "UCC".......................................................................................... 15
1.70 "Value"........................................................................................ 15
SECTION 2. CREDIT FACILITIES.............................................................................. 15
2.1 Revolving Loans................................................................................ 15
2.2 Availability Reserves.......................................................................... 16
SECTION 3. INTEREST AND FEES.............................................................................. 16
3.1 Interest....................................................................................... 16
3.2 Closing Fee.................................................................................... 18
3.3 Servicing Fee.................................................................................. 18
3.4 Unused Line Fee................................................................................ 18
3.5 Changes in Laws and Increased Costs of Loans................................................... 18
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EXHIBIT 10.2
SECTION 4. CONDITIONS PRECEDENT........................................................................... 19
4.1 Conditions Precedent to Initial Loans.......................................................... 19
4.2 Conditions Precedent to All Loans.............................................................. 21
SECTION 5. GRANT and perfection of SECURITY INTEREST...................................................... 22
5.1 Grant of Security Interest..................................................................... 22
5.2 Perfection of Security Interests............................................................... 23
SECTION 6. COLLECTION AND ADMINISTRATION.................................................................. 27
6.1 Borrower's Loan Account........................................................................ 27
6.2 Statements..................................................................................... 27
6.3 Collection of Accounts......................................................................... 27
6.4 Payments....................................................................................... 28
6.5 Authorization to Make Loans.................................................................... 28
6.6 Use of Proceeds................................................................................ 29
SECTION 7. COLLATERAL REPORTING AND COVENANTS............................................................. 29
7.1 Collateral Reporting........................................................................... 29
7.2 Accounts Covenants............................................................................. 29
7.3 Inventory Covenants............................................................................ 31
7.4 Equipment and Real Property Covenants.......................................................... 31
7.5 Power of Attorney.............................................................................. 32
7.6 Right to Cure.................................................................................. 33
7.7 Access to Premises............................................................................. 33
SECTION 8. REPRESENTATIONS AND WARRANTIES................................................................. 33
8.1 Corporate Existence, Power and Authority; Subsidiaries......................................... 33
8.2 Financial Statements; No Material Adverse Change............................................... 34
8.3 Name; State of Organization; Chief Executive Office; Collateral Locations...................... 34
8.4 Priority of Liens; Title to Properties......................................................... 34
8.5 Tax Returns.................................................................................... 35
8.6 Litigation..................................................................................... 35
8.7 Compliance with Other Agreements and Applicable Laws........................................... 35
8.8 Bank Accounts.................................................................................. 35
8.9 Environmental Compliance....................................................................... 35
8.10 Employee Benefits.............................................................................. 36
8.11 Capitalization................................................................................. 37
8.12 Intellectual Property.......................................................................... 37
8.13 Accuracy and Completeness of Information....................................................... 38
8.14 Survival of Warranties; Cumulative............................................................. 38
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS............................................................. 38
9.1 Maintenance of Existence....................................................................... 38
9.2 New Collateral Locations....................................................................... 39
9.3 Compliance with Laws, Regulations, Etc......................................................... 39
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EXHIBIT 10.2
9.4 Payment of Taxes and Claims.................................................................... 40
9.5 Insurance...................................................................................... 40
9.6 Financial Statements and Other Information..................................................... 41
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc........................................ 42
9.8 Encumbrances................................................................................... 42
9.9 Indebtedness................................................................................... 43
9.10 Loans, Investments, Guarantees, Etc............................................................ 44
9.11 Dividends and Redemptions...................................................................... 45
9.12 Transactions with Affiliates................................................................... 45
9.13 Additional Bank Accounts....................................................................... 46
9.14 Net Worth...................................................................................... 46
9.15 Compliance with ERISA.......................................................................... 46
9.16 Costs and Expenses............................................................................. 47
9.17 Compliance with Other Documents................................................................ 47
9.18 Amendments to Other Documents.................................................................. 47
9.19 Ownership of Supplies Canada................................................................... 48
9.20 Further Assurances............................................................................. 48
SECTION 10. EVENTS OF DEFAULT AND REMEDIES................................................................ 48
10.1 Events of Default.............................................................................. 48
10.2 Remedies....................................................................................... 50
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW.................................. 51
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.......................... 51
11.2 Waiver of Notices.............................................................................. 52
11.3 Amendments and Waivers......................................................................... 53
11.4 Waiver of Counterclaims........................................................................ 53
11.5 Indemnification................................................................................ 53
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS.............................................................. 53
12.1 Term........................................................................................... 53
12.2 Notices........................................................................................ 55
12.3 Partial Invalidity............................................................................. 55
12.4 Successors..................................................................................... 55
12.5 Entire Agreement............................................................................... 55
12.6 NONAPPLICABILITY OF ARTICLE 5069-15.01 ET SEQ.................................................. 56
12.7 WAIVER OF CONSUMER RIGHTS...................................................................... 56
12.8 ORAL AGREEMENTS INEFFECTIVE.................................................................... 56
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EXHIBIT 10.2
INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate
Schedule 7.3 Inventory Locations
Schedule 8.4 Existing Liens
Schedule 8.8 Bank Accounts
Schedule 8.9 Environmental Compliance
Schedule 8.11(a) Capitalization
Schedule 8.12 Intellectual Property
Schedule 9.10 Existing Loans, Advances and Guarantees
v
EXHIBIT 10.2
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated March 29, 2002 is entered into
by and between Congress Financial Corporation (Southwest), a Texas corporation
("Lender"), and Supplies Distributors, Inc., a Delaware corporation
("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender enter into certain
financing arrangements with Borrower pursuant to which Lender may make loans and
provide other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code shall have the meanings given therein unless
otherwise defined in this Agreement. All references to the plural herein shall
also mean the singular and to the singular shall also mean the plural unless the
context otherwise requires. All references to Borrower and Lender pursuant to
the definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns. The words "hereof",
"herein," "hereunder," "this Agreement" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced. The
word "including" when used in this Agreement shall mean "including, without
limitation". An Event of Default shall exist or continue or be continuing until
such Event of Default is waived in accordance with Section 11.3 or is cured in a
manner satisfactory to Lender, if such Event of Default is capable of being
cured as determined by Lender. Any accounting term used herein unless otherwise
defined in this Agreement shall have the meanings customarily given to such term
in accordance with GAAP. For purposes of this Agreement, the following terms
shall have the respective meanings given to them below:
1.1 "Accounts" shall mean, all present and future rights of
Borrower and/or Supplies Canada, as applicable, to payment of a monetary
obligation, whether or not earned by performance, which is not evidenced by
chattel paper or an instrument, (a) for property that has been or is to be sold,
leased, licensed, assigned, or otherwise disposed of, (b) for services rendered
or to be rendered, (c) for a secondary obligation incurred or to be incurred, or
(d) arising out of the use of a credit or charge card or information contained
on or for use with the card.
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EXHIBIT 10.2
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each
Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded
upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent)
determined by dividing (a) the Eurodollar Rate for such Interest Period by (b) a
percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes
hereof, "Reserve Percentage" shall mean the reserve percentage, expressed as a
decimal, prescribed by any United States or foreign banking authority for
determining the reserve requirement which is or would be applicable to deposits
of United States dollars in a non-United States or an international banking
office of Reference Bank used to fund a Eurodollar Rate Loan or any Eurodollar
Rate Loan made with the proceeds of such deposit, whether or not the Reference
Bank actually holds or has made any such deposits or loans. The Adjusted
Eurodollar Rate shall be adjusted on and as of the effective day of any change
in the Reserve Percentage.
1.3 "Agreement for Inventory Financing" shall mean that certain
Agreement for Inventory Financing, dated as of March 29, 2002, by and among IBM
Credit, Holdings, Borrower, PFS, PFSweb and Inventory Financing Partners, LLC, a
Delaware limited liability company, with its principal place of business at ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇.
1.4 "Availability Reserves" shall mean, as of any date of
determination, such amounts as Lender may from time to time establish and revise
in good faith reducing the amount of Revolving Loans which would otherwise be
available to Borrower under the lending formula(s) provided for herein: (a) to
reflect events, conditions, contingencies or risks which, as determined by
Lender in good faith, do or may affect either (i) the Collateral or any other
property which is security for the Obligations or its value, (ii) the assets,
business or prospects of Borrower or any Obligor or (iii) the security interests
and other rights of Lender in the Collateral (including the enforceability,
perfection and priority thereof) or (b) to reflect Lender's good faith belief
that any collateral report or financial information furnished by or on behalf of
Borrower or any Obligor to Lender is or may have been incomplete, inaccurate or
misleading in any material respect or (c) in respect of any state of facts which
Lender determines in good faith constitutes an Event of Default or may, with
notice or passage of time or both, constitute an Event of Default.
1.5 "Blocked Accounts" shall have the meaning set forth in Section
6.3 hereof.
1.6 "Business Day" shall mean any day other than a Saturday,
Sunday, or other day on which commercial banks are authorized or required to
close under the laws of the State of Texas, and a day on which the Reference
Bank and Lender are open for the transaction of business, except that if a
determination of a Business Day shall relate to any Eurodollar Rate Loans, the
term Business Day shall also exclude any day on which banks are closed for
dealings in dollar deposits in the London interbank market or other applicable
Eurodollar Rate market.
1.7 "Code" shall mean the Internal Revenue Code of 1986, as the
same now exists or may from time to time hereafter be amended, modified,
recodified or supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.
1.8 "Collateral" shall have the meaning set forth in
Section 5 hereof.
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EXHIBIT 10.2
1.9 "Collateral Assignment of Note and Liens" shall have the
meaning set forth in Section 4.1(o) hereof.
1.10 "Deposit Account Control Agreement" shall mean an agreement in
writing, in form and substance satisfactory to Lender, by and among Lender,
Borrower or an Obligor with a deposit account at any bank and the bank at which
such deposit account is at any time maintained which provides that such bank
will comply with instructions originated by Lender directing disposition of the
funds in the deposit account without further consent by Borrower or such Obligor
and such other terms and conditions as Lender may require, including as to any
such agreement with respect to any Blocked Account, providing that all items
received or deposited in the Blocked Accounts are the property of Lender, that
the bank has no lien upon, or right to setoff against, the Blocked Accounts, the
items received for deposit therein, or the funds from time to time on deposit
therein and that the bank will wire, or otherwise transfer, in immediately
available funds, on a daily basis to the Payment Account all funds received or
deposited into the Blocked Accounts.
1.11 "dollars" and "$" shall mean lawful money of the United States
of America, unless otherwise specified.
1.12 "Eligible Accounts" shall mean Eligible Borrower Accounts and
Eligible Canadian Accounts.
1.13 "Eligible Borrower Accounts" shall mean Accounts created by
Borrower which are and continue to be acceptable to Lender based on the criteria
set forth below. In general, Accounts shall be Eligible Borrower Accounts if:
(a) such Accounts arise from the actual and bona fide
sale and delivery of goods by Borrower or rendition of services by Borrower in
the ordinary course of its business which transactions are completed in
accordance with the terms and provisions contained in any documents related
thereto;
(b) such Accounts are not unpaid more than (i) ninety
(90) days after the date of the original invoice for them, or (ii) sixty (60)
days past the original due date thereof;
(c) such Accounts comply with the terms and conditions
contained in Section 7.2(c) of this Agreement;
(d) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the account debtor may be conditional or contingent;
(e) the chief executive office or, at the Lender's
option, the principal place of business of the account debtor with respect to
such Accounts is located in the United States of America or Canada, or, at
Lender's option, if (i) either: (A) the account debtor has delivered to Borrower
an irrevocable letter of credit issued or confirmed by a bank satisfactory to
Lender and payable only in the United States of America and in U.S. dollars,
sufficient to cover such Account, in form and substance satisfactory to Lender
and, if required by Lender, the original of
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EXHIBIT 10.2
such letter of credit has been delivered to Lender or Lender's agent and the
issuer thereof notified of the assignment of the proceeds of such letter of
credit to Lender, or (B) such Account is subject to credit insurance payable to
Lender issued by an insurer and on terms and in an amount acceptable to Lender,
or (C) such Account is otherwise acceptable in all respects to Lender (subject
to such lending formula with respect thereto as Lender may determine); or (ii)
the account debtors with respect to such Accounts are foreign subsidiaries of
IBM, such Accounts are billed in United States dollars and collected in the
United States and the aggregate amount of all such Accounts, including all
accounts under clause (e)(ii) of the definition Eligible Canadian Accounts, does
not exceed $1,117,000;
(f) such Accounts do not consist of progress ▇▇▇▇▇▇▇▇,
▇▇▇▇ and hold invoices or retainage invoices, except as to ▇▇▇▇ and hold
invoices, if Lender shall have received an agreement in writing from the account
debtor, in form and substance satisfactory to Lender, confirming the
unconditional obligation of the account debtor to take the goods related thereto
and pay such invoice;
(g) the account debtor with respect to such Accounts has
not asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Accounts, which, in the case of IBM, has not been waived on terms and conditions
satisfactory to Lender (but the portion of the Accounts of such account debtor
in excess of the amount at any time and from time to time disputed, owed by
Borrower to such account debtor or claimed owed by such account debtor may be
deemed Eligible Borrower Accounts);
(h) there are no facts, events or occurrences which would
impair the validity, enforceability or collectability of such Accounts or reduce
the amount payable or delay payment thereunder;
(i) such Accounts are subject to the first priority,
valid and perfected security interest of Lender and any goods giving rise
thereto are not, and were not at the time of the sale thereof, subject to any
liens except those permitted in this Agreement;
(j) neither the account debtor nor any officer or
employee of the account debtor with respect to such Accounts is an officer,
employee or agent of or affiliated with Borrower directly or indirectly by
virtue of family membership, ownership, control, management or otherwise;
(k) the account debtors with respect to such Accounts are
not any foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is either the United States of America, any State, political
subdivision, department, agency or instrumentality thereof or Canada, including
any federal, provincial or municipal authority, agency or department thereof,
upon Lender's request, either the Federal Assignment of Claims Act of 1940 or
the applicable financial administration act or similar legislation, if any,
governing the assignment and granting of security interest in crown receivables
so as to assure the rights of Lender as the first priority security
4
EXHIBIT 10.2
holder, as applicable, in each case, as amended or any similar State or local
law, if applicable, has been complied with in a manner satisfactory to Lender;
(l) there are no proceedings or actions which are
threatened or pending against the account debtors with respect to such Accounts
which might result in any material adverse change in any such account debtor's
financial condition;
(m) such Accounts of a single account debtor or its
affiliates do not constitute more than thirty (30%) percent of all otherwise
Eligible Accounts (but the portion of the Accounts not in excess of such
percentage may be deemed Eligible Borrower Accounts);
(n) such Accounts are not owed by an account debtor who
has Accounts unpaid more than ninety (90) days after the date of the original
invoice for them or sixty (60) days past the original due date thereof which
constitute more than fifty (50%) percent of the total Accounts of such account
debtor;
(o) such Accounts are owed by account debtors whose total
indebtedness to Borrower and Supplies Canada does not exceed the credit limit
with respect to such account debtors as determined by Lender from time to time
(but the portion of the Accounts not in excess of such credit limit may be
deemed Eligible Borrower Accounts); and
(p) such Accounts are owed by account debtors deemed
creditworthy at all times by Lender, as determined by Lender.
General criteria for Eligible Borrower Accounts may be established and revised
from time to time by Lender in good faith. Any Accounts which are not Eligible
Borrower Accounts shall nevertheless be part of the Collateral.
1.14 "Eligible Canadian Accounts" shall mean Accounts created by
Supplies Canada which are and continue to be acceptable to Lender based on the
criteria set forth below. In general, Accounts shall be Eligible Canadian
Accounts if:
(a) such Accounts arise from the actual and bona fide
sale and delivery of goods by Supplies Canada or rendition of services by
Supplies Canada in the ordinary course of its business which transactions are
completed in accordance with the terms and provisions contained in any documents
related thereto;
(b) such Accounts are not unpaid more than (i) ninety
(90) days after the date of the original invoice for them, or (ii) sixty (60)
days past the original due date thereof;
(c) such Accounts comply with the terms and conditions
contained in Section 7.2(c) of this Agreement;
(d) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the account debtor may be conditional or contingent;
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EXHIBIT 10.2
(e) the chief executive office or, at the Lender's
option, the principal place of business of the account debtor with respect to
such Accounts is located in the United States of America or Canada, or, at
Lender's option, if (i) either: (A) the account debtor has delivered to Supplies
Canada an irrevocable letter of credit issued or confirmed by a bank
satisfactory to Lender and payable only in the United States of America and in
U.S. dollars or Canadian dollars, sufficient to cover such Account, in form and
substance satisfactory to Lender and, if required by Lender, the original of
such letter of credit has been delivered to Lender or Lender's agent and the
issuer thereof notified of the assignment of the proceeds of such letter of
credit to Lender, or (B) such Account is subject to credit insurance payable to
Lender issued by an insurer and on terms and in an amount acceptable to Lender,
or (C) such Account is otherwise acceptable in all respects to Lender (subject
to such lending formula with respect thereto as Lender may determine); or (ii)
the account debtor with respect to such Accounts is a foreign subsidiary of IBM,
such Accounts are billed in United States dollars or Canadian dollars and
collected in the United States or Canada and the aggregate amount of all such
Accounts, together with all accounts under clause (e)(ii) of the definition
Eligible Borrower Accounts, does not exceed $1,117,000;
(f) such Accounts do not consist of progress ▇▇▇▇▇▇▇▇,
▇▇▇▇ and hold invoice or retainage invoices, except as to ▇▇▇▇ and hold
invoices, if Lender shall have received an agreement in writing from the account
debtor, in form and substance satisfactory to Lender, confirming the
unconditional obligation of the account debtor to take the goods related thereto
and pay such invoice;
(g) the account debtor with respect to such Accounts has
not asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right to setoff against such
Accounts, which, in the case of IBM, has not been waived on terms and conditions
satisfactory to Lender (but the portion of the Accounts of such account debtor
in excess of the amount at any time and from time to time disputed, owed by
Borrower to such account debtor or claimed owed by such account debtor may be
deemed Eligible Canadian Accounts);
(h) there are no facts, events or occurrence which would
impair the validity, enforceability or collectability of such Accounts or reduce
the amount payable or delay payment thereunder;
(i) such Accounts are subject to the first priority,
valid and perfected security interest of Borrower, which first priority, valid
and perfected security interest of Borrower has in turn been validly assigned to
Lender pursuant to the Collateral Assignment of Notes and Liens, and any goods
giving rise thereto are not, and were not at the time of sale thereof, subject
to any liens except those permitted in this Agreement;
(j) neither the account debtor nor the officer or
employee of the account debtor with respect to such Accounts is an officer,
employee or agent of or affiliated with Supplies Canada or Borrower directly or
indirectly by virtue of family membership, ownership, control, management or
otherwise;
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EXHIBIT 10.2
(k) the account debtors with respect to such Accounts are
not any foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is either the United States of America, any State, political
subdivision, department, agency or instrumentality thereof or Canada, including
any federal, provincial or municipal authority, agency or department thereof,
upon Lender's request, either the Federal Assignment of Claims Act of 1940 or
the applicable financial administration act or similar legislation, if any,
governing the assignment and granting of security interest in crown receivables
so as to assure the rights of Lender as the first priority security holder, as
applicable, in each case as amended or any similar State or local law, if
applicable, has been complied with in a manner satisfactory to Lender;
(l) there are not proceedings or actions which are
threatened or pending against the account debtors with respect to such Accounts
which might result in any material adverse change in any such account debtor's
financial condition;
(m) such Accounts of a single account debtor or its
affiliates do not constitute more than thirty (30%) percent of all otherwise
Eligible Accounts (but the portion of the Accounts not in excess of such
percentage may be deemed Eligible Canadian Accounts;
(n) such Accounts are not owned by an account debtor who
has Accounts unpaid more than ninety (90) days after the date of the original
invoice for them or sixty (60) days past the original due date thereof which
constitute more than fifty (50%) percent of the total Accounts of such account
debtor;
(o) such Accounts are owed by account debtors whose total
indebtedness to Supplies Canada and Borrower do not exceed the credit limit with
respect to such account debtors as determined by Lender from time to time (but
the portion of the Accounts not in excess of such credit limit may be deemed
Eligible Canadian Accounts); and
(p) such Accounts are owed by account debtors deemed
creditworthy at all times by Lender, as determined by Lender.
General criteria for Eligible Canadian Accounts may be established and revised
from time to time by Lender in good faith.
1.15 "Environmental Laws" shall mean all foreign, Federal, State
and local laws (including common law), legislation, rules, codes, licenses,
permits (including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between Borrower and any
governmental authority, (a) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, (b) relating to the exposure to, or the use, storage,
recycling, treatment, generation, manufacture, processing, distribution,
transportation, handling, labeling, production, release or disposal, or
threatened release, of Hazardous Materials, or (c) relating to all laws with
regard to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Materials. The term "Environmental
7
EXHIBIT 10.2
Laws" includes (i) the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Federal Superfund Amendments and
Reauthorization Act, the Federal Water Pollution Control Act of 1972, the
Federal Clean Water Act, the Federal Clean Air Act, the Federal Resource
Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste
Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic
Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act,
and the Federal Safe Drinking Water Act of 1974, (ii) applicable state
counterparts to such laws, and (iii) any common law or equitable doctrine that
may impose liability or obligations for injuries or damages due to, or
threatened as a result of, the presence of or exposure to any Hazardous
Materials.
1.16 "Equipment" shall mean all of Borrower's now owned and
hereafter acquired equipment, wherever located, including machinery, data
processing and computer equipment (whether owned or licensed and including
embedded software), vehicles, tools, furniture, fixtures, all attachments,
accessions and property now or hereafter affixed thereto or used in connection
therewith, and substitutions and replacements thereof, wherever located.
1.17 "ERISA" shall mean the United States Employee Retirement
Income Security Act of 1974, as the same now exists or may hereafter from time
to time be amended, modified, recodified or supplemented, together with all
rules, regulations and interpretations thereunder or related thereto.
1.18 "ERISA Affiliate" shall mean any person required to be
aggregated with Borrower or any of its Subsidiaries under Sections 414(b),
414(c), 414(m) or 414(o) of the Code.
1.19 "Eurodollar Rate Loans" shall mean any Loans or portion
thereof on which interest is payable based on the Adjusted Eurodollar Rate in
accordance with the terms hereof.
1.20 "Eurodollar Rate" shall mean with respect to the Interest
Period for a Eurodollar Rate Loan, the interest rate per annum equal to the
arithmetic average of the rates of interest per annum (rounded upwards, if
necessary, to the next one-sixteenth (1/16) of one (1%) percent) at which
Reference Bank is offered deposits of United States dollars in the London
interbank market (or other Eurodollar Rate market selected by Borrower and
approved by Lender) on or about 9:00 a.m. (New York time) two (2) Business Days
prior to the commencement of such Interest Period in amounts substantially equal
to the principal amount of the Eurodollar Rate Loans requested by and available
to Borrower in accordance with this Agreement, with a maturity of comparable
duration to the Interest Period selected by Borrower.
1.21 "Event of Default" shall mean the occurrence or existence of
any event or condition described in Section 10.1 hereof.
1.22 "Excess Availability" shall mean the amount, as determined by
Lender, calculated at any time, equal to: (a) the lesser of (i) the amount of
the Revolving Loans available to Borrower as of such time based on the
applicable lending formulas multiplied by the Net Amount of Eligible Accounts,
as determined by Lender, and subject to the sublimits and Availability Reserves
from time to time established by Lender hereunder and (ii) the Maximum Credit,
minus
8
EXHIBIT 10.2
(b) the sum of: (i) the amount of all then outstanding and unpaid Obligations,
plus (ii) the aggregate amount of all trade payables of Borrower which are more
than sixty (60) days past due as of such time plus (iii) the amount of checks
issued by Borrower to pay trade payables, but not yet sent and the book
overdraft of Borrower; provided, however, that in determining Excess
Availability for purposes of Section 9.4, only the amount, if any, by which such
book overdraft exceeds $100,000 shall be included in this clause (iii).
1.23 "Financing Agreements" shall mean, collectively, this
Agreement and all notes, guarantees, security agreements and other agreements,
documents and instruments now or at any time hereafter executed and/or delivered
by Borrower or any Obligor in connection with this Agreement, as well as such
documents now or hereafter executed and/or delivered by Supplies Canada in
connection with its borrowings from Borrower, to the extent assigned from
Borrower to Lender, as any of the foregoing now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
1.24 "Foreign Subsidiary" shall mean any wholly-owned subsidiary of
Borrower that is organized under the laws of any jurisdiction other than the
United States, any state or territory thereof or the District of Columbia.
1.25 "GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Sections 9.14 and 9.15 hereof, GAAP shall be determined on the
basis of such principles in effect on the date hereof and consistent with those
used in the preparation of the audited financial statements delivered to Lender
prior to the date hereof.
1.26 "Guarantor" shall mean individually, collectively and jointly
and severally, PFS, Holdings and PFSWeb.
1.27 "Holdings" shall mean Business Supplies Distributors Holdings,
LLC, a Delaware limited liability company.
1.28 "IBM" shall mean International Business Machines Corporation,
a New York corporation, with its principal place of business at ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, and unless otherwise indicated by the context, its
subsidiaries.
1.29 "IBM Credit" shall mean IBM Credit Corporation, a Delaware
corporation, with a place of business at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
1.30 "IBM Loan Documents" shall have the meaning set forth in
Section 4.1(p) hereof.
1.31 "IBM Master Distributor Agreement"shall mean that certain
Master Distributor Agreement, dated as of August 14, 2001, by and between IBM,
PFS and Borrower.
9
EXHIBIT 10.2
1.32 "Information Certificate" shall mean the Information
Certificate of Borrower, Supplies Canada and each Guarantor, collectively,
constituting Exhibit A hereto containing material information with respect to
Borrower, Supplies Canada, each Guarantor, each of their respective businesses
and assets provided by or on behalf of Borrower to Lender in connection with the
preparation of this Agreement and the other Financing Agreements and the
financing arrangements provided for herein.
1.33 "Intellectual Property" shall mean Borrower's now owned and
hereafter arising or acquired: patents, patent rights, patent applications,
copyrights, works which are the subject matter of copyrights, copyright
registrations, trademarks, trade names, trade styles, trademark and service ▇▇▇▇
applications, and licenses and rights to use any of the foregoing; all
extensions, renewals, reissues, divisions, continuations, and
continuations-in-part of any of the foregoing; all rights to ▇▇▇ for past,
present and future infringement of any of the foregoing; inventions, trade
secrets, formulae, processes, compounds, drawings, designs, blueprints, surveys,
reports, manuals, and operating standards; goodwill (including any goodwill
associated with any trademark or the license of any trademark); customer and
other lists in whatever form maintained; trade secret rights, copyright rights,
rights in works of authorship, domain names and domain name registration;
software and contract rights relating to computer software programs, in whatever
form created or maintained.
1.34 "Interest Period" shall mean for any Eurodollar Rate Loan, a
period of approximately one (1), two (2), or three (3) months duration as
Borrower may elect, the exact duration to be determined in accordance with the
customary practice in the applicable Eurodollar Rate market; provided, that,
Borrower may not elect an Interest Period which will end after the last day of
the then-current term of this Agreement.
1.35 "Interest Rate" shall mean, as to Prime Rate Loans, a rate of
one quarter-of one percent (.25%) per annum in excess of the Prime Rate and, as
to Eurodollar Rate Loans, a rate of three percent (3%) per annum in excess of
the Adjusted Eurodollar Rate (based on the Eurodollar Rate applicable for the
Interest Period selected by Borrower as in effect three (3) Business Days after
the date of receipt by Lender of the request of Borrower for such Eurodollar
Rate Loans in accordance with the terms hereof, whether such rate is higher or
lower than any rate previously quoted to Borrower); provided, that, the Interest
Rate shall mean the rate of two and one-quarter percent (2.25%) per annum in
excess of the Prime Rate as to Prime Rate Loans and the rate of five percent
(5%) per annum in excess of the Adjusted Eurodollar Rate as to Eurodollar Rate
Loans, at Lender's option, without notice, (a) for the period (i) from and after
the date of termination or non-renewal hereof until Lender has received full and
final payment of all obligations (notwithstanding entry of a judgment against
Borrower) and (ii) from and after the date of the occurrence of an Event of
Default for so long as such Event of Default is continuing as determined by
Lender, and (b) on the Revolving Loans at any time outstanding in excess of the
amounts available to Borrower under Section 2 (whether or not such excess(es),
arise or are made with or without Lender's knowledge or consent and whether made
before or after an Event of Default).
1.36 "Intercreditor Agreement" is defined in Section 4.1(h) hereof.
10
EXHIBIT 10.2
1.37 "Inventory" shall mean all of Borrower's now owned and
hereafter existing or acquired raw materials, work in process, finished goods
and all other inventory of whatsoever kind or nature, wherever located.
1.38 "Loans" shall mean the Revolving Loans.
1.39 "Management Agreement" shall mean (i) that certain IBM
Transaction Management Services Agreement, dated as of August 14, 2001, as
amended by that certain Amendment No. 1 IBM Transaction Management Services
Agreement; and (ii) that certain Statement of Work for: IBM Transaction
Management Services dated as of August 14, 2001 by and between PFS, its
subsidiaries and affiliates and Borrower and its subsidiaries and affiliates, in
each case, as amended from time to time in accordance with the provisions
hereof.
1.40 "Maximum Credit" shall mean the amount of $25,000,000.
1.41 "Modified Net Worth" shall mean as to any Person, at any time,
in accordance with GAAP, on a consolidated basis for such Person and its
subsidiaries (if any), the amount equal to (i) the Net Worth of such Person,
minus (ii) the balance of currency translation and transaction adjustments
included in shareholders' equity such as accumulated other comprehensive income
(loss) or unrealized gain (loss) on investment.
1.42 "Net Amount" shall mean with respect to Eligible Borrower
Accounts and/or Eligible Canadian Accounts, as the case may be, the gross amount
of Eligible Accounts less (a) at Lender's discretion and upon notice to
Borrower, sales, excise, goods and services, value added or similar taxes
included in the amount thereof and (b) returns, discounts, claims, credits and
allowances of any nature at any time issued, owing, granted, outstanding,
available or claimed with respect thereto.
1.43 "Net Worth" shall mean as to any Person, at any time, in
accordance with GAAP, on a consolidated basis for such Person and its
subsidiaries (if any), the amount equal to (i) the aggregate net book value of
all assets of such Person and its subsidiaries, calculating the book value of
inventory for this purpose on a weighted average cost basis or, at Lender's
request, on a first-in-first-out basis, after deducting from such book values
all appropriate reserves in accordance with GAAP (including all reserves for
doubtful receivables, obsolescence, depreciation and amortization), minus (ii)
the aggregate amount of the indebtedness or other liabilities of such Person and
its subsidiaries (including tax and other proper accruals).
1.44 "Obligations" shall mean any and all Revolving Loans and all
other obligations, liabilities and indebtedness of every kind, nature and
description owing by Borrower to Lender and/or its affiliates, including
principal, interest, charges, fees, costs and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise, whether arising
under this Agreement or otherwise, whether now existing or hereafter arising,
whether arising before, during or after the initial or any renewal term of this
Agreement or after the commencement of any case with respect to Borrower under
the United States Bankruptcy Code or any similar statute (including the payment
of interest and other amounts which would accrue and become due but for the
commencement of such case, whether or not such amounts are allowed or allowable
in
11
EXHIBIT 10.2
whole or in part in such case), whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, and however acquired by Lender.
1.45 "Obligor" shall mean any guarantor, endorser, acceptor, surety
or other person liable on or with respect to the Obligations or who is the owner
of any property which is security for the Obligations, other than Borrower.
1.46 "Other Documents" shall have the meaning set forth in Section
4.1(q) hereof.
1.47 "Payment Account" shall mean account no. ▇▇▇-▇▇▇-▇▇▇ of Lender
at JPMorgan Chase Bank or such other account of Lender as Lender may from time
to time designate to Borrower as the Payment Account for purposes of this
Agreement and the other Financing Agreements.
1.48 "Permitted Intercompany Loans" shall mean loans, advances,
transfers and investments by Borrower in, with or to a Qualifying Subsidiary;
provided that (i) each of Borrower and such Qualifying Subsidiary is solvent
after giving effect thereto, (ii) each of Borrower and such Qualifying
Subsidiary has received reasonable equivalent value in exchange for the
transfers made and obligations incurred by it in connection therewith, (iii)
loans, transfers or advances to or investments (excluding accumulated earnings)
in any Qualifying Subsidiary do not exceed in the aggregate the amount set forth
below for such Qualifying Subsidiary:
--------------------------------------------------------------------------------
Supplies Canada $5,000,000
--------------------------------------------------------------------------------
Supplies Distributors, S.A. $8,500,000
--------------------------------------------------------------------------------
Business Supplies Distributors Europe B.V. $1,500,000
--------------------------------------------------------------------------------
Any other Qualifying Subsidiary $0 (or such other amount as
Lender shall designate in
writing at the time it consents
to the designation of such
subsidiary as a Qualifying
Subsidiary)
--------------------------------------------------------------------------------
(iv) each such loan, transfer, advance or investment to Supplies Canada shall be
evidenced by a demand promissory note made by Supplies Canada and secured by a
valid and perfected lien on the assets of Supplies Canada (and not capitalized
into equity except as permitted pursuant to Section 9.10 hereof), and the
Borrowers rights with respect thereto shall have been collaterally assigned to
Lender, all on terms and conditions and pursuant to documents satisfactory to
Lender; and (v) no Event of Default shall have occurred and be continuing at the
time thereof, or after giving effect thereto.
12
EXHIBIT 10.2
As used herein, "solvent" shall mean that Borrower and the
applicable Qualifying Subsidiary are each able to pay its respective debts as
they mature and has (and has reason to believe it will continue to have)
sufficient capital (and not unreasonably small capital) to carry on its
respective business and all businesses in which it is about to engage. The
assets and properties of each of Borrower and such Qualifying Subsidiary at a
fair valuation and at their present fair salable value are, and will be, greater
than the indebtedness of each of Borrower and such Qualifying Subsidiary, as
applicable, and including subordinated and contingent liabilities computed at
the amount which, to the best of such entity's knowledge, represents an amount
which can reasonably be expected to become an actual or matured liability.
1.49 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including any corporation which elects
subchapter S status under the Internal Revenue Code of 1986, as amended),
limited liability company, limited liability partnership, business trust,
unincorporated association, joint stock corporation, trust, joint venture or
other entity or any government or any agency or instrumentality or political
subdivision thereof.
1.50 "PFS" shall mean Priority Fulfillment Services, Inc., a
Delaware corporation, with its principal place of business at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇.
1.51 "PFS Subordinated Demand Note" shall have the meaning set
forth in Section 9.9(e) hereof.
1.52 "PFS Subordinated Note Documents" shall have the meaning set
forth in Section 4.1(r) hereof.
1.53 "PFSweb" shall mean PFSweb, Inc., a Delaware corporation, with
its principal place of business at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇.
1.54 "Prime Rate" shall mean the rate from time to time publicly
announced by First Union National Bank, or its successors, at its office in
Charlotte, North Carolina, as its prime rate, whether or not such announced rate
is the best rate available at such bank.
1.55 "Prime Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Prime Rate in accordance with the terms
thereof.
1.56 "Qualifying Subsidiary"shall mean Supplies Canada, Supplies
Distributors, S.A., and Business Supplies Distributors Europe B.V., so long as
they are wholly-owned subsidiaries of Borrower, and such other wholly-owned
subsidiaries of Borrower as Lender shall consent to in writing from time to
time.
1.57 "Real Property" shall mean all now owned and hereafter
acquired real property of Borrower, including leasehold interests, together with
all buildings, structures, and other improvements located thereon and all
licenses, easements and appurtenances relating thereto, wherever located.
1.58 "Receivables" shall mean all of the following now owned or
hereafter arising or acquired property of Borrower: (a) all Accounts; (b) all
interest, fees, late charges, penalties,
13
EXHIBIT 10.2
collection fees and other amounts due or to become due or otherwise payable in
connection with any Account; (c) all payment intangibles of Borrower; (d)
letters of credit, indemnities, guarantees, security or other deposits and
proceeds thereof issued payable to Borrower or otherwise in favor of or
delivered to Borrower in connection with any Account; or (e) all other accounts,
contract rights, chattel paper, instruments, notes, general intangibles and
other forms of obligations owing to Borrower, whether from the sale and lease of
goods or other property, licensing of any property (including Intellectual
Property or other general intangibles), rendition of services or from loans or
advances by Borrower or to or for the benefit of any third person (including
loans or advances to any affiliates or subsidiaries of Borrower) or otherwise
associated with any Accounts, Inventory or general intangibles of Borrower
(including, without limitation, choses in action, causes of action, tax refunds,
tax refund claims, any funds which may become payable to Borrower in connection
with the termination of any Plan or other employee benefit plan and any other
amounts payable to Borrower from any Plan or other employee benefit plan, rights
and claims against carriers and shippers, rights to indemnification, business
interruption insurance and proceeds thereof, casualty or any similar types of
insurance and any proceeds thereof and proceeds of insurance covering the lives
of employees on which Borrower is a beneficiary).
1.59 "Records" shall mean all of Borrower's present and future
books of account of every kind or nature, purchase and sale agreements,
invoices, ledger cards, bills of lading and other shipping evidence, statements,
correspondence, memoranda, credit files and other data relating to the
Collateral or any account debtor, together with the tapes, disks, diskettes and
other data and software storage media and devices, file cabinets or containers
in or on which the foregoing are stored (including any rights of Borrower with
respect to the foregoing maintained with or by any other person).
1.60 "Reference Bank" shall mean First Union National Bank, or such
other bank as Lender may from time to time designate.
1.61 "Revolving Loans" shall mean the loans now or hereafter made
by Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
1.62 "Revolving Loans Permanent Reserve" shall mean an amount equal
to $1,000,000.
1.63 "Sales Force Agreement" shall mean that certain Sales Force
Services Agreement, dated as of August 20, 2001, by and between Borrower and
Global Marketing Services, Inc., an Arizona corporation, having an address at
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇.
1.64 "Supplies Canada" shall mean Supplies Distributors of Canada,
Inc., a corporation organized under the laws of Ontario, Canada.
1.65 "Supplies Canada Note" shall have the meaning set forth in
Section 4.1(n) hereof.
14
EXHIBIT 10.2
1.66 "Supplies Canada Note Documents" shall have the meaning set
forth in Section 4.1(o) hereof.
1.67 "Tax Distributions" shall mean cash distributions from
Borrower to Holdings and the corresponding distribution to the members of
Holdings that, in any fiscal year, do not exceed Borrower's income, multiplied
by the maximum combined state and federal income tax rate applicable to the
members of Holdings. Tax Distributions may be paid in four (4) estimated
quarterly installments contemporaneously with the obligations of the members of
Holdings to pay estimated taxes based upon Holdings' projected taxable income
for each such quarter. If the actual annual income for Holdings exceeds the sum
of the quarterly estimations of income, then contemporaneously with the filing
of the members of Holdings' annual federal and state income tax returns, a
distribution in the amount of the difference between the projected and actual
income multiplied by the above defined rate will be made to the members of
Holdings. If the actual income for Holdings is less than the sum of the
quarterly estimations of income, then the difference between the actual and
estimated income multiplied by the above defined rate will be withheld from
future tax distributions.
1.68 "30 Day Average Excess Availability" shall mean the average of
the Excess Availability, as determined by Lender and calculated at any time, for
each of the immediately preceding thirty (30) consecutive days.
1.69 "UCC" shall mean the Uniform Commercial Code as in effect in
the State of Texas and any successor statute, as in effect from time to time
(except that terms used herein which are defined in the Uniform Commercial Code
as in effect in the State of Texas on the date hereof shall continue to have the
same meaning notwithstanding any replacement or amendment of such statute except
as Lender may otherwise determine).
1.70 "Value" shall mean, as determined by Lender in good faith,
with respect to Inventory, the lower of (a) cost computed on a weighted average
cost basis or, at Lender's request, on a first-in-first-out basis in accordance
with GAAP or (b) market value.
SECTION 2. CREDIT FACILITIES
2.1 Revolving Loans.
(a) Subject to and upon the terms and conditions
contained herein, Lender agrees to make Revolving Loans to Borrower from time to
time in amounts requested by Borrower up to the amount equal to the sum of:
(i) eighty-five percent (85%) of the Net Amount
of Eligible Borrower Accounts, plus
(ii) the lesser of (A) eighty-five percent (85%)
of the Net Amount of Eligible Canadian Accounts, or (B) $3,000,000,
less
(iii) the Revolving Loans Permanent Reserve, less
15
EXHIBIT 10.2
(iv) any Availability Reserves.
(b) Lender may, in its discretion, from time to time,
upon not less than five (5) days prior notice to Borrower, reduce the lending
formula with respect to Eligible Accounts to the extent that Lender determines
in good faith that: the dilution with respect to the Accounts for any period
(based on the ratio of (i) the aggregate amount of reductions in Accounts other
than as a result of payments in cash to (ii) the aggregate amount of total
sales) has increased in any material respect or may be reasonably anticipated to
increase in any material respect above historical levels. In determining whether
to reduce the lending formula(s), Lender may consider events, conditions,
contingencies or risks which are also considered in determining Eligible
Accounts or in establishing Availability Reserves.
(c) Except in Lender's discretion, the aggregate amount
of the Loans outstanding at any time shall not exceed the Maximum Credit. In the
event that the outstanding amount of any component of the Loans exceed the
amounts available under the lending formulas, or the Maximum Credit, as
applicable, such event shall not limit, waive or otherwise affect any rights of
Lender in that circumstance or on any future occasions and Borrower shall, upon
demand by Lender, which may be made at any time or from time to time,
immediately repay to Lender the entire amount of any such excess(es) for which
payment is demanded.
2.2 Availability Reserves. All Revolving Loans otherwise available
to Borrower pursuant to the lending formulas and subject to the Maximum Credit
and other applicable limits hereunder shall be subject to Lender's continuing
right to establish and revise Availability Reserves.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the
outstanding principal amount of the non-contingent Obligations at the Interest
Rate. All interest accruing hereunder on and after the date of any Event of
Default or termination or non-renewal hereof shall be payable on demand.
(b) Borrower may from time to time request that Prime
Rate Loans be converted to Eurodollar Rate Loans or that any existing Eurodollar
Rate Loans continue for an additional Interest Period. Such request from
Borrower shall specify the amount of the Prime Rate Loans which will constitute
Eurodollar Rate Loans (subject to the limits set forth below) and the Interest
Period to be applicable to such Eurodollar Rate Loans. Subject to the terms and
conditions contained herein, three (3) Business Days after receipt by Lender of
such a request from Borrower, such Prime Rate Loans shall be converted to
Eurodollar Rate Loans or such Eurodollar Rate Loans shall continue, as the case
may be, provided, that, (i) no Event of Default, or event which with notice or
passage of time or both would constitute an Event of Default exists or has
occurred and is continuing, (ii) no party hereto shall have sent any notice of
termination or non-renewal of this Agreement, (iii) Borrower shall have complied
with such customary
16
EXHIBIT 10.2
procedures as are established by Lender and specified by Lender to Borrower from
time to time for requests by Borrower for Eurodollar Rate Loans, (iv) no more
than four (4) Interest Periods may be in effect at any one time, (v) the
aggregate amount of the Eurodollar Rate Loans must be in an amount not less than
$5,000,000 or an integral multiple of $1,000,000 in excess thereof, (vi) the
maximum amount of the Eurodollar Rate Loans at any time requested by Borrower
shall not exceed the amount equal to eighty (80%) percent of the lowest
principal amount of the Revolving Loans which it is anticipated will be
outstanding during the applicable Interest Period, as determined by Lender (but
with no obligation of Lender to make such Revolving Loans) and (vii) Lender
shall have determined that the Interest Period or Adjusted Eurodollar Rate is
available to Lender through the Reference Bank and can be readily determined as
of the date of the request for such Eurodollar Rate Loan by Borrower. Any
request by Borrower to convert Prime Rate Loans to Eurodollar Rate Loans or to
continue any existing Eurodollar Rate Loans shall be irrevocable.
Notwithstanding anything to the contrary contained herein, Lender and Reference
Bank shall not be required to purchase United States Dollar deposits in the
London interbank market or other applicable Eurodollar Rate market to fund any
Eurodollar Rate Loans, but the provisions hereof shall be deemed to apply as if
Lender and Reference Bank had purchased such deposits to fund the Eurodollar
Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert
to Prime Rate Loans upon the last day of the applicable Interest Period, unless
Lender has received and approved a request to continue such Eurodollar Rate Loan
at least three (3) Business Days prior to such last day in accordance with the
terms hereof. Any Eurodollar Rate Loans shall, at Lender's option, upon notice
by Lender to Borrower, convert to Prime Rate Loans in the event that (i) an
Event of Default or event which, with the notice or passage of time, or both,
would constitute an Event of Default, shall exist, (ii) this Agreement shall
terminate or not be renewed, or (iii) the aggregate principal amount of the
Prime Rate Loans which have previously been converted to Eurodollar Rate Loans
or existing Eurodollar Rate Loans continued, as the case may be, at the
beginning of an Interest Period shall at any time during such Interest Period
exceed either (A) the aggregate principal amount of the Loans then outstanding,
or (B) the Revolving Loans then available to Borrower under Section 2 hereof.
Borrower shall pay to Lender, upon demand by Lender (or Lender may, at its
option, charge any loan account of Borrower) any amounts required to compensate
Lender, the Reference Bank or any participant with Lender for any loss
(including loss of anticipated profits), cost or expense incurred by such
person, as a result of the conversion of Eurodollar Rate Loans to Prime Rate
Loans pursuant to any of the foregoing.
(d) Interest shall be payable by Borrower to Lender
monthly in arrears not later than the first day of each calendar month and shall
be calculated on the basis of a three hundred sixty (360) day year and actual
days elapsed. The interest rate on non-contingent Obligations (other than
Eurodollar Rate Loans) shall increase or decrease by an amount equal to each
increase or decrease in the Prime Rate effective on the first day of the month
after any change in such Prime Rate is announced based on the Prime Rate in
effect on the last day of the month in which any such change occurs. In no event
shall charges constituting interest payable by Borrower to Lender exceed the
maximum amount or the rate permitted under any applicable law or regulation, and
if any such part or provision of this Agreement is in contravention of any such
law or regulation, such part or provision shall be deemed amended to conform
thereto.
17
EXHIBIT 10.2
3.2 Closing Fee. Borrower shall pay to Lender as a closing fee the
amount of $125,000, which shall be fully earned as of and payable on the date
hereof.
3.3 Servicing Fee. Borrower shall pay to Lender monthly a
servicing fee in an amount equal to $2,000 in respect of Lender's services for
each month (or part thereof) while this Agreement remains in effect and for so
long thereafter as any of the Obligations are outstanding, which fee shall be
fully earned as of and payable in advance on the date hereof and on the first
day of each month hereafter.
3.4 Unused Line Fee. Borrower shall pay to Lender monthly an
unused line fee at a rate equal (.375%) per annum calculated upon the amount by
which $20,000,000 exceeds the average daily principal balance of the outstanding
Revolving Loans during the immediately preceding month (or part thereof) while
this Agreement is in effect and for so long thereafter as any of the Obligations
are outstanding, which fee shall be payable on the first day of each month in
arrears.
3.5 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained
herein, all Eurodollar Rate Loans shall, upon notice by Lender to Borrower,
convert to Prime Rate Loans in the event that (i) any change in applicable law
or regulation (or the interpretation or administration thereof) shall either (A)
make it unlawful for Lender, Reference Bank or any participant to make or
maintain Eurodollar Rate Loans or to comply with the terms hereof in connection
with the Eurodollar Rate Loans, or (B) shall result in the increase in the costs
to Lender, Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans by an amount deemed by Lender to be material, or (C)
reduce the amounts received or receivable by Lender in respect thereof, by an
amount deemed by Lender to be material or (ii) the cost to Lender, Reference
Bank or any participant of making or maintaining any Eurodollar Rate Loans shall
otherwise increase by an amount deemed by Lender to be material. Borrower shall
pay to Lender, upon demand by Lender (or Lender may, at its option, charge any
loan account of Borrower) any amounts required to compensate Lender, the
Reference Bank or any participant with Lender for any loss (including loss of
anticipated profits), cost or expense incurred by such person as a result of the
foregoing, including, without limitation, any such loss, cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by such person to make or maintain the Eurodollar Rate Loans or any
portion thereof. A certificate of Lender setting forth the basis for the
determination of such amount necessary to compensate Lender as aforesaid shall
be delivered to Borrower and shall be conclusive, absent manifest error.
(b) If any payments or prepayments in respect of the
Eurodollar Rate Loans are received by Lender other than on the last day of the
applicable Interest Period (whether pursuant to acceleration, upon maturity or
otherwise), including any payments pursuant to the application of collections
under Section 6.3 or any other payments made with the proceeds of Collateral,
Borrower shall pay to Lender upon demand by Lender (or Lender may, at its
option, charge any loan account of Borrower) any amounts required to compensate
Lender, the Reference Bank or any participant with Lender for any additional
loss (including loss of anticipated profits), cost or expense incurred by such
person as a result of such prepayment or payment, including,
18
EXHIBIT 10.2
without limitation, any loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such person
to make or maintain such Eurodollar Rate Loans or any portion thereof.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans. Each of the following
is a condition precedent to Lender making the initial Loans:
(a) Lender shall have received, in form and substance
satisfactory to Lender, all releases, terminations and such other documents as
Lender may request to evidence and effectuate the termination by the existing
lender or lenders to Borrower of their respective financing arrangements with
Borrower and the termination and release by it or them, as the case may be, of
any interest in and to any assets and properties of Borrower and each Obligor,
duly authorized, executed and delivered by it or each of them, including, but
not limited to, (i) UCC termination statements for all UCC financing statements
previously filed by it or any of them or their predecessors, as secured party
and Borrower or any Obligor, as debtor, (ii) satisfactions and discharges of any
mortgages, deeds of trust or deeds to secure debt by Borrower or any Obligor in
favor of such existing lender or lenders, in form acceptable for recording in
the appropriate government office, and (iii) in the case of IBM Credit, a payoff
letter relating to the termination of its existing accounts receivable financing
arrangement with Borrower;
(b) all requisite corporate action and proceedings in
connection with this Agreement and the other Financing Agreements shall be
satisfactory in form and substance to Lender, and Lender shall have received all
information and copies of all documents, including records of requisite
corporate action and proceedings which Lender may have requested in connection
therewith, such documents where requested by Lender or its counsel to be
certified by appropriate corporate officers or governmental authorities;
(c) no material adverse change shall have occurred in the
assets, business or prospects of Borrower since the date of Lender's latest
field examination and no change or event shall have occurred which would impair
the ability of Borrower or any Obligor to perform its obligations hereunder or
under any of the other Financing Agreements to which it is a party or of Lender
to enforce the Obligations or realize upon the Collateral;
(d) Lender shall have completed a field review of the
Records and such other information with respect to the Collateral as Lender may
require to determine the amount of Revolving Loans available to Borrower, the
results of which shall be satisfactory to Lender, not more than five (5)
business days prior to the date hereof;
(e) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and other
agreements from third persons which Lender may deem necessary or desirable in
order to permit, protect and perfect its security interests in and liens upon
the Collateral or to effectuate the provisions or purposes of this Agreement and
the other Financing Agreements, including acknowledgments by lessors, mortgagees
and
19
EXHIBIT 10.2
warehousemen of Lender's security interests in the Collateral, waivers by such
persons of any security interests, liens or other claims by such persons to the
Collateral and agreements permitting Lender access to, and the right to remain
on, the premises to exercise its rights and remedies and otherwise deal with the
Collateral;
(f) Lender shall have received evidence of insurance and
loss payee or additional insured, as applicable, endorsements required hereunder
and under the other Financing Agreements, in form and substance satisfactory to
Lender, and certificates of insurance policies and/or endorsements naming Lender
as loss payee or additional insured, as applicable;
(g) Lender shall have received, in form and substance
satisfactory to Lender, such opinion letters of counsel to Borrower and
Guarantors with respect to the Financing Agreements and such other matters as
Lender may request;
(h) Lender shall have received, in form and substance
satisfactory to Lender, the intercreditor agreement between Lender and IBM
Credit (the "Intercreditor Agreement") as acknowledged and agreed to by Borrower
and each Guarantor, providing for such parties' relative rights and priorities
with respect to the assets and properties of Borrower and related matters, duly
authorized, executed and delivered by IBM Credit, Borrower and each Guarantor;
(i) the Excess Availability as determined by Lender, as
of the date hereof, shall be not less than $1,000,000 after giving effect to the
initial Loans made or to be made;
(j) Lender shall have received, in form and substance
satisfactory to Lender, a guaranty agreement executed by each Guarantor;
(k) Lender shall have received a certificate executed by
a duly appointed executive officer of Borrower, setting forth in reasonable
detail the sources and uses of funds in the transaction contemplated herein;
(l) Lender shall have received, in form and substance
satisfactory to Lender, certificates regarding solvency of Borrower and each
Guarantor, executed by a duly appointed executive officer of Borrower and each
Guarantor, respectively;
(m) Lender shall have received, in form and substance
satisfactory to Lender, a pledge of one hundred percent (100%) of the common
stock of Borrower, and a pledge of sixty-five percent (65%) of the common stock
of Supplies Canada;
(n) Lender shall have received, in form and substance
satisfactory to Lender, a collateral assignment of notes and liens (the
"Collateral Assignment of Note and Liens") in connection with that certain
promissory note executed by Supplies Canada in favor of Borrower (the "Supplies
Canada Note");
(o) Lender shall have received copies, in form and
substance satisfactory to Lender, certified by an executive officer of Borrower
as being true, complete and accurate, of the Supplies Canada Note and each of
the other documents in connection with the Supplies Canada
20
EXHIBIT 10.2
borrowings from Borrower, each duly executed by each of the parties thereto
(each referred herein to as the "Supplies Canada Note Documents");
(p) Lender shall have received copies, in form and
substance satisfactory to Lender, certified by an executive officer of Borrower
as being true, complete and accurate, of the Agreement for Inventory Financing
and each of the other documents in connection therewith from Borrower each duly
executed by each of the parties thereto (each referred to herein as the "IBM
Loan Documents");
(q) Lender shall have received copies, in form and
substance satisfactory to Lender, certified by an executive officer of Borrower
as being true, complete and accurate, of the IBM Master Distributor Agreement,
the Sales Force Agreement, and the Management Agreement from Borrower, each duly
executed by each of the parties thereto (each referred to herein as the "Other
Documents");
(r) Lender shall have received copies, in form and
substance satisfactory to Lender, certified by an executive officer of Borrower
as being true, complete and accurate, of the PFS Subordinated Demand Note and
each of the other documents in connection with such subordinated debt, each duly
executed by each of the parties thereto (each referred to herein as the "PFS
Subordinated Note Documents");
(s) Lender shall have received, in form and substance
satisfactory to Lender, an inducement letter executed by PFSweb and PFS in favor
of Lender as acknowledged and agreed to by Borrower;
(t) Lender shall have received, in form and substance
satisfactory to Lender, a Subordination Agreement and a Collateral Management
Agreement between Lender and PFS, as acknowledged and agreed to by Borrower; and
(u) the other Financing Agreements (including, without
limitation, a Security Agreement from each Guarantor (other than PFSweb), the
Collateral Assignment of Notes and Liens and the Blocked Account Agreement) and
all instruments and documents hereunder and thereunder shall have been duly
executed and delivered to Lender, in form and substance satisfactory to Lender.
4.2 Conditions Precedent to All Loans. Each of the following is an
additional condition precedent to Lender making Loans to Borrower, including the
initial Loans and any future Loans:
(a) all representations and warranties contained herein
and in the other Financing Agreements shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date of the making of each such Loan and after giving
effect thereto; and
(b) no Event of Default and no event or condition which,
with notice or passage of time or both, would constitute an Event of Default,
shall exist or have occurred and be continuing on and as of the date of the
making of such Loan and after giving effect thereto.
21
EXHIBIT 10.2
SECTION 5. GRANT AND PERFECTION OF SECURITY INTEREST
5.1 Grant of Security Interest. To secure payment and performance
of all Obligations, Borrower hereby grants to Lender a continuing security
interest in, a lien upon, and a right of set off against, and hereby assigns to
Lender as security, all personal and real property and fixtures, and interests
in property and fixtures, of Borrower, whether now owned or hereafter acquired
or existing, and wherever located (together with all other collateral security
for the Obligations at any time granted to or held or acquired by Lender,
collectively, the "Collateral"):
(a) all Accounts;
(b) all general intangibles, including, without
limitation, all Intellectual Property;
(c) all goods, including, without limitation, Inventory
and Equipment;
(d) all Real Property and fixtures;
(e) all chattel paper, including, without limitation, all
tangible and electronic chattel paper;
(f) all instruments, including, without limitation, all
promissory notes;
(g) all documents;
(h) all deposit accounts;
(i) all letters of credit, banker's acceptances and
similar instruments and including all letter-of-credit rights;
(j) all supporting obligations and all present and future
liens, security interests, rights, remedies, title and interest in, to and in
respect of Receivables and other Collateral, including (i) rights and remedies
under or relating to guaranties, contracts of suretyship, letters of credit and
credit and other insurance related to the Collateral, (ii) rights of stoppage in
transit, replevin, repossession, reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, (iii) goods described in invoices,
documents, contracts or instruments with respect to, or otherwise representing
or evidencing, Receivables or other Collateral, including returned, repossessed
and reclaimed goods, and (iv) deposits by and property of account debtors or
other persons securing the obligations of account debtors;
(k) all (i) investment property (including securities,
whether certificated or uncertificated, securities accounts, security
entitlements, commodity contracts or commodity accounts) and (ii) monies, credit
balances, deposits and other property of Borrower now or hereafter held or
received by or in transit to Lender or at any other depository or other
institution from or for the account of Borrower, whether for safekeeping,
pledge, custody, transmission, collection or otherwise;
22
EXHIBIT 10.2
(l) all commercial tort claims, including, without
limitation, those identified in the Information Certificate;
(m) to the extent not otherwise described above, all
Receivables;
(n) all Records; and
(o) all products and proceeds of the foregoing, in any
form, including insurance proceeds and all claims against third parties for loss
or damage to or destruction of or other conversion of any kind or nature of any
or all of the other Collateral.
5.2 Perfection of Security Interests.
(a) Borrower irrevocably and unconditionally authorizes
Lender (or its agent) to file at any time and from time to time such financing
statements with respect to the Collateral naming Lender or its designee as the
secured party and Borrower as debtor, as Lender may require, and including any
other information with respect to Borrower or otherwise required by part 5 of
Article 9 of the Uniform Commercial Code of such jurisdiction as Lender may
determine, together with any amendment and continuations with respect thereto,
which authorization shall apply to all financing statements filed on, prior to
or after the date hereof. Borrower hereby ratifies and approves all financing
statements naming Lender or its designee as secured party and Borrower, as
debtor with respect to the Collateral (and any amendments with respect to such
financing statements) filed by or on behalf of Lender prior to the date hereof
and ratifies and confirms the authorization of Lender to file such financing
statements (and amendments, if any). Borrower hereby authorizes Lender to adopt
on behalf of Borrower any symbol required for authenticating any electronic
filing. In the event that the description of the Collateral in any financing
statement naming Lender or its designee as the secured party and Borrower as
debtor includes assets and properties of Borrower that do not at any time
constitute Collateral, whether hereunder, under any of the other Financing
Agreements or otherwise, the filing of such financing statement shall
nonetheless be deemed authorized by such Borrower to the extent of the
Collateral included in such description and it shall not render the financing
statement ineffective as to any of the Collateral or otherwise affect the
financing statement as it applies to any of the Collateral. In no event shall
Borrower at any time file, or permit or cause to be filed, any correction
statement or termination statement with respect to any financing statement (or
amendment or continuation with respect thereto) naming Lender or its designee as
secured party and Borrower as debtor.
(b) Borrower does not have any chattel paper (whether
tangible or electronic) or instruments as of the date hereof, except as set
forth in the Information Certificate. In the event that Borrower shall be
entitled to or shall receive any chattel paper or instrument after the date
hereof, Borrower shall promptly notify Lender thereof in writing. Promptly upon
the receipt thereof by or on behalf of Borrower (including by any agent or
representative), Borrower shall deliver, or cause to be delivered to Lender, all
tangible chattel paper and instruments that such Borrower has or may at any time
acquire, accompanied by such instruments of transfer or assignment duly executed
in blank as Lender may from time to time specify, in each case except as Lender
may otherwise agree. At Lender's option, Borrower shall, or Lender may at any
time
23
EXHIBIT 10.2
on behalf of Borrower, cause the original of any such instrument or chattel
paper to be conspicuously marked in a form and manner acceptable to Lender with
the following legend referring to chattel paper or instruments as applicable:
"This [chattel paper][instrument] is subject to the security interest of
Congress Financial Corporation and any sale, transfer, assignment or encumbrance
of this [chattel paper][instrument] violates the rights of such secured party."
(c) In the event that Borrower shall at any time hold or
acquire an interest in any electronic chattel paper or any "transferable record"
(as such term is defined in Section 201 of the Federal Electronic Signatures in
Global and National Commerce Act or in Section 16 of the Uniform Electronic
Transactions Act as in effect in any relevant jurisdiction), Borrower shall
promptly notify Lender thereof in writing. Promptly upon Lender's request,
Borrower shall take, or cause to be taken, such actions as Lender may request to
give Lender control of such electronic chattel paper under Section 9-105 of the
UCC and control of such transferable record under Section 201 of the Federal
Electronic Signatures in Global and National Commerce Act or, as the case may
be, Section 16 of the Uniform Electronic Transactions Act, as in effect in such
jurisdiction.
(d) Borrower does not have any deposit accounts as of the
date hereof, except as set forth in the Information Certificate. Borrower shall
not, directly or indirectly, after the date hereof open, establish or maintain
any deposit account unless each of the following conditions is satisfied: (i)
Lender shall have received not less than five (5) Business Days prior written
notice of the intention of Borrower to open or establish such account which
notice shall specify in reasonable detail and specificity acceptable to Lender
the name of the account, the owner of the account, the name and address of the
bank at which such account is to be opened or established, the individual at
such bank with whom Borrower is dealing and the purpose of the account, (ii) the
bank where such account is opened or maintained shall be acceptable to Lender,
and (iii) on or before the opening of such deposit account, Borrower shall as
Lender may specify either (A) deliver to Lender a Deposit Account Control
Agreement with respect to such deposit account duly authorized, executed and
delivered by Borrower and the bank at which such deposit account is opened and
maintained or (B) arrange for Lender to become the customer of the bank with
respect to the deposit account on terms and conditions acceptable to Lender. The
terms of this subsection (d) shall not apply to deposit accounts specifically
and exclusively used for payroll, payroll taxes and other employee wage and
benefit payments to or for the benefit of Borrower's salaried employees.
(e) Borrower does not own or hold, directly or
indirectly, beneficially or as record owner or both, any investment property, as
of the date hereof, or have any investment account, securities account,
commodity account or other similar account with any bank or other financial
institution or other securities intermediary or commodity intermediary as of the
date hereof, in each case except as set forth in the Information Certificate.
(i) in the event that Borrower shall be entitled
to or shall at any time after the date hereof hold or acquire any
certificated securities, Borrower shall promptly endorse, assign and
deliver the same to Lender (except for any certificated securities
relating to either Supplies Distributors S.A. or Business Supplies
Distributors Europe
24
EXHIBIT 10.2
B.V.), accompanied by such instruments of transfer or assignment duly
executed in blank as Lender may from time to time specify. If any
securities, now or hereafter acquired by Borrower are uncertificated
and are issued to Borrower or its nominee directly by the issuer
thereof, Borrower shall immediately notify Lender thereof and shall as
Lender may specify, either (A) cause the issuer to agree to comply with
instructions from Lender as to such securities, without further consent
of Borrower or such nominee, or (B) arrange for Lender to become the
registered owner of the securities.
(ii) Borrower shall not, directly or indirectly,
after the date hereof open, establish or maintain any investment
account, securities account, commodity account or any other similar
account (other than a deposit account) with any securities intermediary
or commodity intermediary unless each of the following conditions is
satisfied: (A) Lender shall have received not less than five (5)
Business Days prior written notice of the intention of Borrower to open
or establish such account which notice shall specify in reasonable
detail and specificity acceptable to Lender the name of the account,
the owner of the account, the name and address of the securities
intermediary or commodity intermediary at which such account is to be
opened or established, the individual at such intermediary with whom
Borrower is dealing and the purpose of the account, (B) the securities
intermediary or commodity intermediary (as the case may be) where such
account is opened or maintained shall be acceptable to Lender, and (C)
on or before the opening of such investment account, securities account
or other similar account with a securities intermediary or commodity
intermediary, Borrower shall as Lender may specify either (1) execute
and deliver, and cause to be executed and delivered to Lender, an
investment property control agreement in form and substance
satisfactory to Lender with respect thereto duly authorized, executed
and delivered by Borrower and such securities intermediary or commodity
intermediary or (2) arrange for Lender to become the entitlement holder
with respect to such investment property on terms and conditions
acceptable to Lender.
(f) Borrower is not the beneficiary or otherwise entitled
to any right to payment under any letter of credit, banker's acceptance or
similar instrument as of the date hereof, except as set forth in the Information
Certificate. In the event that Borrower shall be entitled to or shall receive
any right to payment under any letter of credit, banker's acceptance or any
similar instrument, whether as beneficiary thereof or otherwise after the date
hereof, Borrower shall promptly notify Lender thereof in writing. Borrower shall
immediately, as Lender may specify, either (i) deliver, or cause to be delivered
to Lender, with respect to any such letter of credit, banker's acceptance or
similar instrument, the written agreement of the issuer and any other nominated
person obligated to make any payment in respect thereof (including any
confirming or negotiating bank), in form and substance satisfactory to Lender,
consenting to the assignment of the proceeds of the letter of credit to Lender
by Borrower and agreeing to make all payments thereon directly to Lender or as
Lender may otherwise direct or (ii) cause Lender to become, at Borrower's
expense, the transferee beneficiary of the letter of credit, banker's acceptance
or similar instrument (as the case may be).
(g) Borrower does not have any commercial tort claims as
of the date hereof, except as set forth in the Information Certificate. In the
event that Borrower shall at any time
25
EXHIBIT 10.2
after the date hereof have any commercial tort claims, Borrower shall promptly
notify Lender thereof in writing, which notice shall (i) set forth in reasonable
detail the basis for and nature of such commercial tort claim and (ii) include
the express grant by Borrower to Lender of a security interest in such
commercial tort claim (and the proceeds thereof). In the event that such notice
does not include such grant of a security interest, the sending thereof by
Borrower to Lender shall be deemed to constitute such grant to Lender. Upon the
sending of such notice, any commercial tort claim described therein shall
constitute part of the Collateral and shall be deemed included therein. Without
limiting the authorization of Lender provided in Section 5.2(a) hereof or
otherwise arising by the execution by Borrower of this Agreement or any of the
other Financing Agreements, Lender is hereby irrevocably authorized from time to
time and at any time to file such financing statements naming Lender or its
designee as secured party and Borrower as debtor, or any amendments to any
financing statements, covering any such commercial tort claim as Collateral. In
addition, Borrower shall promptly upon Lender's request, execute and deliver, or
cause to be executed and delivered, to Lender such other agreements, documents
and instruments as Lender may require in connection with such commercial tort
claim.
(h) Borrower does not have any goods, documents of title
or other Collateral in the custody, control or possession of a third party as of
the date hereof (excluding Inventory is such custody, control and possession in
the ordinary course of business), except as set forth in the Information
Certificate and except for goods located in the United States or Canada in
transit to a location of Borrower permitted herein in the ordinary course of
business of Borrower in the possession of the carrier transporting such goods.
In the event that any goods, documents of title or other Collateral are at any
time after the date hereof in the custody, control or possession of any other
person not referred to in the Information Certificate or such carriers, Borrower
shall promptly notify Lender thereof in writing. Promptly upon Lender's request,
Borrower shall deliver to Lender a collateral access agreement in form and
substance satisfactory to Lender duly authorized, executed and delivered by such
person and Borrower.
(i) Borrower shall take any other actions reasonably
requested by Lender from time to time to cause the attachment, perfection and
first priority of, and the ability of Lender to enforce, the security interest
of Lender in any and all of the Collateral, including, without limitation, (i)
executing, delivering and, where appropriate, filing financing statements and
amendments relating thereto under the UCC or other applicable law, to the
extent, if any, that Borrower's signature thereon is required therefor, (ii)
causing Lender's name to be noted as secured party on any certificate of title
for a titled good if such notation is a condition to attachment, perfection or
priority of, or ability of Lender to enforce, the security interest of Lender in
such Collateral, (iii) complying with any provision of any statute, regulation
or treaty of the United States as to any Collateral if compliance with such
provision is a condition to attachment, perfection or priority of, or ability of
Lender to enforce, the security interest of Lender in such Collateral, (iv)
obtaining the consents and approvals of any Governmental Authority or third
party, including, without limitation, any consent of any licensor, lessor or
other person obligated on Collateral, and taking all actions required by any
earlier versions of the UCC or by other law, as applicable in any relevant
jurisdiction.
26
EXHIBIT 10.2
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or more
loan account(s) on its books in which shall be recorded (a) all Loans and other
Obligations and the Collateral, (b) all payments made by or on behalf of
Borrower and (c) all other appropriate debits and credits as provided in this
Agreement, including fees, charges, costs, expenses and interest. All entries in
the loan account(s) shall be made in accordance with Lender's customary
practices as in effect from time to time.
6.2 Statements. Lender shall render to Borrower each month a
statement setting forth the balance in the Borrower's loan account(s) maintained
by Lender for Borrower pursuant to the provisions of this Agreement, including
principal, interest, fees, costs and expenses. Each such statement shall be
subject to subsequent adjustment by Lender but shall, absent manifest errors or
omissions, be considered correct and deemed accepted by Borrower and
conclusively binding upon Borrower as an account stated except to the extent
that Lender receives a written notice from Borrower of any specific exceptions
of Borrower thereto within thirty (30) days after the date such statement has
been mailed by Lender. Until such time as Lender shall have rendered to Borrower
a written statement as provided above, the balance in Borrower's loan account(s)
shall be presumptive evidence of the amounts due and owing to Lender by
Borrower.
6.3 Collection of Accounts.
(a) Borrower shall establish and maintain, at its
expense, blocked accounts or lockboxes and related blocked accounts (in either
case, "Blocked Accounts"), as Lender may specify, with such banks as are
acceptable to Lender into which Borrower shall promptly deposit and direct its
account debtors to directly remit all payments on Receivables and all payments
constituting proceeds of Inventory (except to the extent required by the IBM
Loan Documents to be remitted directly to IBM Credit and consistent with the
Intercreditor Agreement) or other Collateral in the identical form in which such
payments are made, whether by cash, check or other manner. Borrower shall
deliver, or cause to be delivered to Lender a Depository Account Control
Agreement duly authorized, executed and delivered by each bank where a Blocked
Account is maintained as provided in Section 5.2 hereof or at any time and from
time to time Lender may become the bank's customer with respect to any of the
Blocked Accounts and promptly upon Lender's request, Borrower shall execute and
deliver such agreements and documents as Lender may require in connection
therewith. Borrower agrees that all payments made to such Blocked Accounts or
other funds received and collected by Lender, whether in respect of the
Receivables or as proceeds of Inventory or other Collateral or otherwise shall
be treated as payments to Lender in respect of the Obligations and therefore
shall constitute the property of Lender to the extent of the then outstanding
Obligations.
(b) For purposes of calculating the amount of the Loans
available to Borrower, such payments will be applied (conditional upon final
collection) to the Obligations on the business day of receipt by Lender of
immediately available funds in the Payment Account provided such payments and
notice thereof are received in accordance with Lender's usual and customary
practices as in effect from time to time and within sufficient time to credit
Borrower's loan account on such day, and if not, then on the next business day.
For the purposes of
27
EXHIBIT 10.2
calculating interest on the Obligations, such payments or other funds received
will be applied (conditional upon final collection) to the Obligations one (1)
day following the date of receipt of immediately available funds by Lender in
the Payment Account provided such payments or other funds and notice thereof are
received in accordance with Lender's usual and customary practices as in effect
from time to time and within sufficient time to credit Borrower's loan account
on such day, and if not, then on the next business day.
(c) Borrower and all of its affiliates, subsidiaries,
shareholders, directors, employees or agents shall, acting as trustee for
Lender, receive, as the property of Lender, any monies, checks, notes, drafts or
any other payment relating to and/or proceeds of Accounts or other Collateral
which come into their possession or under their control and immediately upon
receipt thereof, shall deposit or cause the same to be deposited in the Blocked
Accounts, or remit the same or cause the same to be remitted, in kind, to
Lender. In no event shall the same be commingled with Borrower's own funds.
Borrower agrees to reimburse Lender, on demand for any amounts owed or paid to
any bank at which a Blocked Account is established or any other bank or person
involved in the transfer of funds to or from the Blocked Accounts arising out of
Lender's payments to or indemnification of such bank or person. The obligation
of Borrower to reimburse Lender for such amounts pursuant to this Section 6.3
shall survive the termination or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment
Account as provided in Section 6.3 or such other place as Lender may designate
from time to time. Lender may apply payments received or collected from Borrower
or for the account of Borrower (including the monetary proceeds of collections
or of realization upon any Collateral) to such of the Obligations, whether or
not then due, in such order and manner as Lender determines. At Lender's option,
all principal, interest, fees, costs, expenses and other charges provided for in
this Agreement or the other Financing Agreements may be charged directly to the
loan account(s) of Borrower. Borrower shall make all payments to Lender on the
Obligations free and clear of, and without deduction or withholding for or on
account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts,
fees, deductions, withholding, restrictions or conditions of any kind. If after
receipt of any payment of, or proceeds of Collateral applied to the payment of,
any of the Obligations, Lender is required to surrender or return such payment
or proceeds to any Person for any reason, then the Obligations intended to be
satisfied by such payment or proceeds shall be reinstated and continue and this
Agreement shall continue in full force and effect as if such payment or proceeds
had not been received by Lender. Borrower shall be liable to pay to Lender and
does hereby indemnify and hold Lender harmless for the amount of any payments or
proceeds surrendered or returned. This Section 6.4 shall remain effective
notwithstanding any contrary action which may be taken by Lender in reliance
upon such payment or proceeds. This Section 6.4 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the
Loans based upon telephonic or other instructions received from anyone
purporting to be an officer of Borrower or other authorized person or, at the
discretion of Lender, if such Loans are necessary to satisfy any Obligations.
All requests for Loans hereunder shall specify the date on which the requested
advance is to be made (which day shall be a business day) and the amount of the
28
EXHIBIT 10.2
requested Loan. Requests received after 11:00 a.m. Dallas, Texas time on any day
shall be deemed to have been made as of the opening of business on the
immediately following business day. All Loans under this Agreement shall be
conclusively presumed to have been made to, and at the request of and for the
benefit of, Borrower when deposited to the credit of Borrower or otherwise
disbursed or established in accordance with the instructions of Borrower or in
accordance with the terms and conditions of this Agreement.
6.6 Use of Proceeds. Borrower shall use the initial proceeds of
the Loans provided by Lender to Borrower hereunder only for: (a) payments to
each of the persons listed in the disbursement direction letter furnished by
Borrower to Lender on or about the date hereof and (b) costs, expenses and fees
in connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements. All other Loans made by Lender to
Borrower pursuant to the provisions hereof shall be used by Borrower only for
general operating, working capital and other proper corporate purposes of
Borrower not otherwise prohibited by the terms hereof. None of the proceeds will
be used, directly or indirectly, for the purpose of purchasing or carrying any
margin security or for the purposes of reducing or retiring any indebtedness
which was originally incurred to purchase or carry any margin security or for
any other purpose which might cause any of the Loans to be considered a "purpose
credit" within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall provide Lender with the
following documents with respect to its Accounts and the Accounts of Supplies
Canada, in a form satisfactory to Lender: (a) on a regular basis as required by
Lender, a schedule of Accounts, sales made, credits issued and cash received;
(b) on a monthly basis or more frequently as Lender may request, agings of
accounts payable, (c) upon Lender's request, (i) copies of customer statements
and credit memos, remittance advices and reports, and copies of deposit slips
and bank statements, (ii) copies of shipping and delivery documents, and (iii)
copies of purchase orders, invoices and delivery documents for Equipment
acquired by Borrower; (d) agings of accounts receivable on a monthly basis or
more frequently as Lender may request; and (e) copies of such documents as
required by this Section 7.1 received by Borrower from Supplies Canada, upon
delivery to Borrower, and (f) such other reports as to the Collateral as Lender
shall request from time to time. If any of Borrower's records or reports of the
Collateral are prepared or maintained by an accounting service, contractor,
shipper or other agent, Borrower hereby irrevocably authorizes such service,
contractor, shipper or agent to deliver such records, reports, and related
documents to Lender and to follow Lender's instructions with respect to further
services at any time that an Event of Default exists or has occurred and is
continuing.
7.2 Accounts Covenants.
(a) Borrower shall notify Lender promptly of: (i) any
material delay in Borrower's performance of any of its obligations to any
account debtor or the assertion of any claims, offsets, defenses or
counterclaims by any account debtor, or any disputes with account debtors, or
any settlement, adjustment or compromise thereof, (ii) all material adverse
29
EXHIBIT 10.2
information relating to the financial condition of any account debtor and (iii)
any event or circumstance which, to Borrower's knowledge would cause Lender to
consider any then existing Accounts as no longer constituting Eligible Accounts.
No credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor without Lender's consent,
except in the ordinary course of Borrower's business in accordance with
practices and policies previously disclosed in writing to Lender. So long as no
Event of Default exists or has occurred and is continuing, Borrower shall
settle, adjust or compromise any claim, offset, counterclaim or dispute with any
account debtor. At any time that an Event of Default exists or has occurred and
is continuing, Lender shall, at its option, have the exclusive right to settle,
adjust or compromise any claim, offset, counterclaim or dispute with account
debtors or grant any credits, discounts or allowances.
(b) Without limiting the obligation of Borrower to
deliver any other information to Lender, Borrower shall promptly report to
Lender any return of Inventory by any one account debtor if the inventory so
returned in such case has a value in excess of $200,000. At any time that
Inventory is returned, reclaimed or repossessed, the Account (or portion
thereof) which arose from the sale of such returned, reclaimed or repossessed
Inventory shall not be deemed an Eligible Account. In the event any account
debtor returns Inventory when an Event of Default exists or has occurred and is
continuing, Borrower shall, upon Lender's request, (i) hold the returned
Inventory in trust for Lender, (ii) segregate all returned Inventory from all of
its other property, (iii) dispose of the returned Inventory solely according to
Lender's instructions, and (iv) not issue any credits, discounts or allowances
with respect thereto without Lender's prior written consent.
(c) With respect to each Account: (i) the amounts shown
on any invoice delivered to Lender or schedule thereof delivered to Lender shall
be true and complete, (ii) no payments shall be made thereon except payments
immediately delivered to Lender pursuant to the terms of this Agreement, (iii)
no credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor except as reported to Lender in
accordance with this Agreement and except for credits, discounts, allowances or
extensions made or given in the ordinary course of Borrower's business in
accordance with practices and policies previously disclosed to Lender, (iv)
there shall be no setoffs, deductions, contras, defenses, counterclaims or
disputes existing or asserted with respect thereto except as reported to Lender
in accordance with the terms of this Agreement, (v) none of the transactions
giving rise thereto will violate any applicable State or Federal laws or
regulations, all documentation relating thereto will be legally sufficient under
such laws and regulations and all such documentation will be legally enforceable
in accordance with its terms.
(d) Lender shall have the right at any time or times, in
Lender's name or in the name of a nominee of Lender, to verify the validity,
amount or any other matter relating to any Receivables or other Collateral, by
mail, telephone, facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to
Lender, with appropriate endorsement and assignment, with full recourse to
Borrower, all chattel paper and instruments which Borrower now owns or may at
any time acquire immediately upon Borrower's receipt thereof, except as Lender
may otherwise agree.
30
EXHIBIT 10.2
(f) Lender may, at any time or times that an Event of
Default exists or has occurred and is continuing, (i) notify any or all account
debtors that the Accounts have been assigned to Lender and that Lender has a
security interest therein and Lender may direct any or all accounts debtors to
make payment of Accounts directly to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence of its agents or attorneys with
respect thereto and (iv) take whatever other action Lender may deem necessary or
desirable for the protection of its interests. At any time that an Event of
Default exists or has occurred and is continuing, at Lender's request, all
invoices and statements sent to any account debtor shall state that the Accounts
and such other obligations have been assigned to Lender and are payable directly
and only to Lender and Borrower shall deliver to Lender such originals of
documents evidencing the sale and delivery of goods or the performance of
services giving rise to any Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a)
Borrower shall at all times maintain inventory records reasonably satisfactory
to Lender, keeping correct and accurate records itemizing and describing the
kind, type, quality and quantity of Inventory, Borrower's cost therefor and
daily withdrawals therefrom and additions thereto; (b) Borrower shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request on or after an Event of Default, and promptly
following such physical inventory shall supply Lender with a report in the form
and with such specificity as may be reasonably satisfactory to Lender concerning
such physical count; (c) Borrower shall not remove any Inventory from the
locations set forth on Schedule 7.3 hereof or permitted herein, without the
prior written consent of Lender, except for sales of Inventory in the ordinary
course of Borrower's business and except to move Inventory directly from one
location set forth or permitted herein to another such location; (d) Borrower
shall produce, use, store and maintain the Inventory with all reasonable care
and caution and in accordance with applicable standards of any insurance and in
conformity with applicable laws (including the requirements of the Federal Fair
Labor Standards Act of 1938, as amended and all rules, regulations and orders
related thereto); (e) none of the Inventory or other Collateral constitutes farm
products or the proceeds thereof; (f) Borrower assumes all responsibility and
liability arising from or relating to the production, use, sale or other
disposition of the Inventory; (g) Borrower shall not sell Inventory to any
customer on approval, or any other basis which entitles the customer to return
or may obligate Borrower to repurchase such Inventory; and (h) Borrower shall
keep the Inventory in good and marketable condition.
7.4 Equipment and Real Property Covenants. With respect to the
Equipment: (a) upon Lender's request, Borrower shall, at its expense, at any
time or times as Lender may request on or after an Event of Default, deliver or
cause to be delivered to Lender written reports or appraisals as to the
Equipment and/or Realty Property in form, scope and methodology acceptable to
Lender and by an appraiser acceptable to Lender, addressed to Lender and upon
which Lender is expressly permitted to rely; (b) Borrower shall keep the
Equipment in good
31
EXHIBIT 10.2
order, repair, running and marketable condition (ordinary wear and tear
excepted); (c) Borrower shall use the Equipment and Real Property with all
reasonable care and caution and in accordance with applicable standards of any
insurance and in conformity with all applicable laws; (d) the Equipment is and
shall be used in Borrower's business and not for personal, family, household or
farming use; (e) Borrower shall not remove any Equipment from the locations set
forth or permitted herein, except to the extent necessary to have any Equipment
repaired or maintained in the ordinary course of the business of Borrower or to
move Equipment directly from one location set forth or permitted herein to
another such location and except for the movement of motor vehicles used by or
for the benefit of Borrower in the ordinary course of business; (f) the
Equipment is now and shall remain personal property and Borrower shall not
permit any of the Equipment to be or become a part of or affixed to real
property; and (g) Borrower assumes all responsibility and liability arising from
the use of the Equipment and Real Property.
7.5 Power of Attorney. Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name,
to: (a) at any time an Event of Default or event which with notice or passage of
time or both would constitute an Event of Default exists or has occurred and is
continuing (i) demand payment on Receivables or other proceeds of Inventory or
other Collateral, (ii) enforce payment of Receivables by legal proceedings or
otherwise, (iii) exercise all of Borrower's rights and remedies to collect any
Receivables or other Collateral, (iv) sell or assign any Receivables upon such
terms, for such amount and at such time or times as the Lender deems advisable,
(v) settle, adjust, compromise, extend or renew an Account, (vi) discharge and
release any Receivables, (vii) prepare, file and sign Borrower's name on any
proof of claim in bankruptcy or other similar document against an account debtor
or other Obligor in respect of any Receivables or other Collateral, (viii)
notify the post office authorities to change the address for delivery of
remittances from account debtors or other Obligors in respect of the Receivables
or other proceeds of Collateral to an address designated by Lender, and open and
dispose of all mail addressed to Borrower and handle and store all mail relating
to the Collateral, and (ix) do all acts and things which are necessary, in
Lender's determination, to fulfill Borrower's obligations under this Agreement
and the other Financing Agreements and (b) at any time to (i) take control in
any manner of any item of payment in respect of Receivables or constituting
Collateral or otherwise received in or for deposit in the Blocked Accounts or
otherwise received by Lender, (ii) have access to any lockbox or postal box into
which remittances from account debtors or other Obligors in respect of
Receivables or other proceeds of Collateral are sent or received, (iii) endorse
Borrower's name upon any items of payment in respect of Receivables constituting
Collateral or otherwise received by Lender and deposit the same in the Lender's
account for application to the Obligations, (iv) endorse Borrower's name upon
any chattel paper, document, instrument, invoice, or similar document or
agreement relating to any Receivable or any goods pertaining thereto or any
other Collateral, including any warehouse or other receipts, or bills of lading
and other negotiable or non-negotiable documents, and (v) sign Borrower's name
on any verification of Receivables and notices thereof to account debtors or any
secondary obligors or other obligors in respect thereof. Borrower hereby
releases Lender and its officers, employees and designees from any liabilities
arising from any act or acts under this power of attorney and in furtherance
thereof, whether of omission or commission,
32
EXHIBIT 10.2
except as a result of Lender's own gross negligence or willful misconduct as
determined pursuant to a final non-appealable order of a court of competent
jurisdiction.
7.6 Right to Cure. Lender may, at its option, (a) cure any default
by Borrower under any agreement with a third party that affects the Collateral,
its value or the ability of Lender to collect, sell or otherwise dispose of the
Collateral or the rights and remedies of Lender therein or the ability of
Borrower or any Obligor to perform its obligations hereunder or under any of the
other Financing Agreements, (b) pay or bond on appeal any judgment entered
against Borrower, (c) discharge taxes, liens, security interests or other
encumbrances at any time levied on or existing with respect to the Collateral
and (d) pay any amount, incur any expense or perform any act which, in Lender's
judgment, is necessary or appropriate to preserve, protect, insure or maintain
the Collateral and the rights of Lender with respect thereto. Lender may add any
amounts so expended to the Obligations and charge Borrower's account therefor,
such amounts to be repayable by Borrower on demand. Lender shall be under no
obligation to effect such cure, payment or bonding and shall not, by doing so,
be deemed to have assumed any obligation or liability of Borrower or any
Obligor. Any payment made or other action taken by Lender under this Section
shall be without prejudice to any right to assert an Event of Default hereunder
and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by Lender,
at the cost and expense of Borrower, (a) Lender or its designee shall have
complete access to all of Borrower's premises during normal business hours and
after notice to Borrower, or at any time and without notice to Borrower if an
Event of Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrower's books
and records, including the Records, and (b) Borrower shall promptly furnish to
Lender such copies of such books and records or extracts therefrom as Lender may
request, and (c) use during normal business hours such of Borrower's personnel,
equipment, supplies and premises as may be reasonably necessary for the
foregoing and if an Event of Default exists or has occurred and is continuing
for the collection of Receivables and realization of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans by Lender to
Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries.
Borrower is a corporation duly organized and in good standing under the laws of
its state of incorporation and is duly qualified as a foreign corporation and in
good standing in all states or other jurisdictions where the nature and extent
of the business transacted by it or the ownership of assets makes such
qualification necessary, except for those jurisdictions in which the failure to
so qualify would not have a material adverse effect on Borrower's financial
condition, results of operation or business or the rights of Lender in or to any
of the Collateral. The execution, delivery and performance of this Agreement,
the other Financing Agreements and the transactions contemplated hereunder and
thereunder are all within Borrower's corporate powers, have been
33
EXHIBIT 10.2
duly authorized and are not in contravention of law or the terms of Borrower's
certificate/articles of incorporation, by-laws, or other organizational
documentation, or any indenture, agreement or undertaking to which Borrower is a
party or by which Borrower or its property are bound. This Agreement and the
other Financing Agreements constitute legal, valid and binding obligations of
Borrower enforceable in accordance with their respective terms. Borrower does
not have any subsidiaries except as set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All
financial statements relating to Borrower which have been or may hereafter be
delivered by Borrower to Lender have been prepared in accordance with GAAP and
fairly present the financial condition and the results of operation of Borrower
as at the dates and for the periods set forth therein. Except as disclosed in
any interim financial statements furnished by Borrower to Lender prior to the
date of this Agreement, there has been no material adverse change in the assets,
liabilities, properties and condition, financial or otherwise, of Borrower,
since the date of the most recent audited financial statements furnished by
Borrower to Lender prior to the date of this Agreement.
8.3 Name; State of Organization; Chief Executive Office;
Collateral Locations.
(a) The exact legal name of Borrower is as set forth on
the signature page of this Agreement. Borrower has not, during the past five
years, been known by or used any other corporate or fictitious name or been a
party to any merger or consolidation, or acquired all or substantially all of
the assets of any Person, or acquired any of its property or assets out of the
ordinary course of business, except as set forth in the Information Certificate.
(b) Borrower is an organization of the type and organized
in the jurisdiction set forth in the Information Certificate. The Information
Certificate accurately sets forth the organizational identification number of
Borrower or accurately states that Borrower has none and accurately sets forth
the federal employer identification number of Borrower.
(c) The chief executive office and mailing address of
Borrower and Borrower's Records concerning Accounts are currently located and
for the past five years have only been located at the address identified as such
in the Information Certificate and its only other places of business and the
only other locations of Collateral, if any, during such time periods are the
addresses set forth in the Information Certificate, subject to the rights of
Borrower to establish new locations in accordance with Section 9.2 below. The
Information Certificate correctly identifies any of such locations which are not
owned by Borrower and sets forth the owners and/or operators thereof.
8.4 Priority of Liens; Title to Properties. The security interests
and liens granted to Lender under this Agreement and the other Financing
Agreements constitute valid and perfected first priority liens and security
interests in and upon the Collateral subject only to the liens indicated on
Schedule 8.4 hereto and the other liens permitted under Section 9.8 hereof.
Borrower has good and marketable fee simple title to or valid leasehold in all
of its Real Property and good, valid and merchantable title to all of its other
properties and assets subject to no liens, mortgages, pledges, security
interests, encumbrances or charges of any kind, except those granted
34
EXHIBIT 10.2
to Lender and such others as are specifically listed on Schedule 8.4 hereto or
permitted under Section 9.8 hereof.
8.5 Tax Returns. Borrower has filed, or caused to be filed, in a
timely manner all tax returns, reports and declarations which are required to be
filed by it (without requests for extension except as previously disclosed in
writing to Lender). All information in such tax returns, reports and
declarations is complete and accurate in all material respects. Borrower has
paid or caused to be paid all taxes due and payable or claimed due and payable
in any assessment received by it, except taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower and with respect to which adequate reserves have been set
aside on its books. Adequate provision has been made for the payment of all
accrued and unpaid Federal, State, county, local, foreign and other taxes
whether or not yet due and payable and whether or not disputed.
8.6 Litigation. Except as set forth on the Information
Certificate, there is no present investigation by any governmental agency
pending, or to the best of Borrower's knowledge threatened, against or affecting
Borrower, its assets or business and there is no action, suit, proceeding or
claim by any Person pending, or to the best of Borrower's knowledge threatened,
against Borrower or its assets or goodwill, or against or affecting any
transactions contemplated by this Agreement, which if adversely determined
against Borrower would result in any material adverse change in the assets,
business or prospects of Borrower or would impair the ability of Borrower to
perform its obligations hereunder or under any of the other Financing Agreements
to which it is a party or of Lender to enforce any Obligations or realize upon
any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws. Borrower
is not in default in any material respect under, or in violation in any material
respect of any of the terms of, any agreement, contract, instrument, lease or
other commitment to which it is a party or by which it or any of its assets are
bound and Borrower is in compliance in all material respects with all applicable
provisions of laws, rules, regulations, licenses, permits, approvals and orders
of any foreign, Federal, State or local governmental authority.
8.8 Bank Accounts. All of the deposit accounts, investment
accounts or other accounts in the name of or used by Borrower maintained at any
bank or other financial institution are set forth on Schedule 8.8 hereto,
subject to the right of Borrower to establish new accounts in accordance with
Section 9.13 below.
8.9 Environmental Compliance.
(a) Except as set forth on Schedule 8.9 hereto, Borrower
has not generated, used, stored, treated, transported, manufactured, handled,
produced or disposed of any Hazardous Materials, on or off its premises (whether
or not owned by it) in any manner which at any time violates any applicable
Environmental Law or any license, permit, certificate, approval or similar
authorization thereunder and the operations of Borrower complies in all material
respects with all Environmental Laws and all licenses, permits, certificates,
approvals and similar authorizations thereunder.
35
EXHIBIT 10.2
(b) Except as set forth on Schedule 8.9 hereto, there has
been no investigation, proceeding, complaint, order, directive, claim, citation
or notice by any governmental authority or any other person nor is any pending
or to the best of Borrower's knowledge threatened, with respect to any
non-compliance with or violation of the requirements of any Environmental Law by
Borrower or the release, spill or discharge, threatened or actual, of any
Hazardous Material or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials or any
other environmental, health or safety matter, which affects Borrower or its
business, operations or assets or any properties at which Borrower has
transported, stored or disposed of any Hazardous Materials.
(c) Borrower does not have any material liability
(contingent or otherwise) in connection with a release, spill or discharge,
threatened or actual, of any Hazardous Materials or the generation, use,
storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials.
(d) Borrower has all licenses, permits, certificates,
approvals or similar authorizations required to be obtained or filed in
connection with the operations of Borrower under any Environmental Law and all
of such licenses, permits, certificates, approvals or similar authorizations are
valid and in full force and effect.
8.10 Employee Benefits.
(a) Borrower has not engaged in any transaction in
connection with which Borrower or any of its ERISA Affiliates could be subject
to either a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax
imposed by Section 4975 of the Code, including any accumulated funding
deficiency described in Section 8.10(c) hereof and any deficiency with respect
to vested accrued benefits described in Section 8.10(d) hereof.
(b) No liability to the Pension Benefit Guaranty
Corporation has been or is expected by Borrower to be incurred with respect to
any employee benefit plan of Borrower or any of its ERISA Affiliates. There has
been no reportable event (within the meaning of Section 4043(b) of ERISA) or any
other event or condition with respect to any employee pension benefit plan of
Borrower or any of its ERISA Affiliates which presents a risk of termination of
any such plan by the Pension Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which
Borrower or any of its ERISA Affiliates is required under Section 302 of ERISA
and Section 412 of the Code to have paid under the terms of each employee
benefit plan as contributions to such plan as of the last day of the most recent
fiscal year of such plan ended prior to the date hereof, and no accumulated
funding deficiency (as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, exists with respect to any employee benefit plan,
including any penalty or tax described in Section 8.10(a) hereof and any
deficiency with respect to vested accrued benefits described in Section 8.10(d)
hereof.
(d) The current value of all vested accrued benefits
under all employee benefit plans maintained by Borrower that are subject to
Title IV of ERISA does not exceed the current
36
EXHIBIT 10.2
value of the assets of such plans allocable to such vested accrued benefits,
including any penalty or tax described in Section 8.10(a) hereof and any
accumulated funding deficiency described in Section 8.10(c) hereof. The terms
"current value" and "accrued benefit" have the meanings specified in ERISA.
(e) Neither Borrower nor any of its ERISA Affiliates is
or has ever been obligated to contribute to any "multiemployer plan" (as such
term is defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of
ERISA.
8.11 Capitalization.
(a) All of the issued and outstanding shares of capital
stock of Borrower, each Guarantor, other than PFSweb, and each other subsidiary
of Borrower or any Guarantor are directly and beneficially owned and held by the
entity referenced in Schedule 8.11(a) and all of such shares have been duly
authorized and are fully paid and non-assessable, free and clear of all claims,
liens, pledges and encumbrances of any kind, except as disclosed in writing to
Lender. The numeric amount of all issued and outstanding shares of capital stock
of PFSweb is set forth on Schedule 8.11(a) hereto.
(b) Borrower and Guarantors are each solvent and will
continue to be solvent after the creation of the Obligations, the security
interests of Lender and the other transaction contemplated hereunder, are each
able to pay its respective debts as they mature and has (and has reason to
believe it will continue to have) sufficient capital (and not unreasonably small
capital) to carry on its respective business and all businesses in which it is
about to engage. The assets and properties of Borrower and each Guarantor at a
fair valuation and at their present fair salable value are, and will be, greater
than the indebtedness of Borrower and such Guarantor, as applicable, and
including subordinated and contingent liabilities computed at the amount which,
to the best of such entity's knowledge, represents an amount which can
reasonably be expected to become an actual or matured liability.
8.12 Intellectual Property. Borrower owns or licenses or otherwise
has the right to use all Intellectual Property necessary for the operation of
its business as presently conducted or proposed to be conducted. As of the date
hereof, Borrower does not have any Intellectual Property registered, or subject
to pending applications, in the United States Patent and Trademark Office or any
similar office or agency in the United States, any State thereof, any political
subdivision thereof or in any other country, other than those described in
Schedule 8.12 hereto and has not granted any licenses with respect thereto other
than as set forth in Schedule 8.12 hereto. No event has occurred which permits
or would permit after notice or passage of time or both, the revocation,
suspension or termination of such rights. To the best of Borrower's knowledge,
no slogan or other advertising device, product, process, method, substance or
other Intellectual Property or goods bearing or using any Intellectual Property
presently contemplated to be sold by or employed by Borrower infringes any
patent, trademark, servicemark, tradename, copyright, license or other
Intellectual Property owned by any other Person presently and no claim or
litigation is pending or threatened against or affecting Borrower contesting its
right to sell or use any such Intellectual Property. Schedule 8.12 hereto sets
forth all of the agreements or other arrangements of Borrower pursuant to which
Borrower has a license or other right to use
37
EXHIBIT 10.2
any trademarks, logos, designs, representations or other Intellectual Property
owned by another person as in effect on the date hereof and the dates of the
expiration of such agreements or other arrangements of Borrower as in effect on
the date hereof.
8.13 Accuracy and Completeness of Information. All information
furnished by or on behalf of Borrower in writing to Lender in connection with
this Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including all information on the Information
Certificate is true and correct in all material respects on the date as of which
such information is dated or certified and does not omit any material fact
necessary in order to make such information not misleading. No event or
circumstance has occurred which has had or could reasonably be expected to have
a material adverse affect on the business, assets or prospects of Borrower,
which has not been fully and accurately disclosed to Lender in writing.
8.14 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence.
(a) Borrower shall at all times preserve, renew and keep
in full, force and effect its corporate existence and rights and franchises with
respect thereto and maintain in full force and effect all permits, licenses,
trademarks, tradenames, approvals, authorizations, leases and contracts
necessary to carry on the business as presently or proposed to be conducted.
(b) Borrower shall not change its name unless each of the
following conditions is satisfied: (i) Lender shall have received not less than
thirty (30) days' prior written notice from Borrower of such proposed change in
its corporate name, which notice shall accurately set forth the new name; and
(ii) Lender shall have received a copy of the amendment to the Certificate of
Incorporation of Borrower providing for the name change certified by the
Secretary of State of the jurisdiction of incorporation of Borrower as soon as
it is available.
(c) Borrower shall not change its chief executive office
or its mailing address or organizational identification number (or if it does
not have one, shall not acquire one) unless Lender shall have received not less
than thirty (30) days' prior written notice from Borrower of such proposed
change, which notice shall set forth such information with respect thereto as
Lender may require and Lender shall have received such agreements as Lender may
reasonably require in connection therewith. Borrower shall not change its type
of organization, jurisdiction of organization or other legal structure.
38
EXHIBIT 10.2
9.2 New Collateral Locations. Borrower may open any new location
(it being understood that any location set forth on Schedule 7.3 shall not be
considered a "new location" for purposes of this Section 9.2) within the
continental United States provided Borrower (a) gives Lender thirty (30) days
prior written notice of the intended opening of any such new location and (b)
executes and delivers, or causes to be executed and delivered, to Lender such
agreements, documents, and instruments as Lender may deem reasonably necessary
or desirable to protect its interests in the Collateral at such location,
including UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc.
(a) Borrower shall, at all times, comply in all material
respects with all laws, rules, regulations, licenses, permits, approvals and
orders applicable to it and duly observe all requirements of any Federal, State
or local governmental authority, including the Employee Retirement Security Act
of 1974, as amended, the Occupational Safety and Health Act of 1970, as amended,
the Fair Labor Standards Act of 1938, as amended, and all statutes, rules,
regulations, orders, permits and stipulations relating to environmental
pollution and employee health and safety, including all of the Environmental
Laws.
(b) Borrower shall establish and maintain, at its
expense, a system to assure and monitor its continued compliance with all
Environmental Laws in all of its operations, which system shall include annual
reviews of such compliance by employees or agents of Borrower who are familiar
with the requirements of the Environmental Laws. Copies of all environmental
surveys, audits, assessments, feasibility studies and results of remedial
investigations shall be promptly furnished, or caused to be furnished, by
Borrower to Lender. Borrower shall take prompt and appropriate action to respond
to any non-compliance with any of the Environmental Laws and shall regularly
report to Lender on such response.
(c) Borrower shall give both oral and written notice to
Lender immediately upon Borrower's receipt of any notice of, or Borrower's
otherwise obtaining knowledge of, (i) the occurrence of any event involving the
release, spill or discharge, threatened or actual, of any Hazardous Material or
(ii) any investigation, proceeding, complaint, order, directive, claims,
citation or notice with respect to: (A) any non-compliance with or violation of
any Environmental Law by Borrower or (B) the release, spill or discharge,
threatened or actual, of any Hazardous Material or (C) the generation, use,
storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials or (D) any other environmental, health or
safety matter, which affects Borrower or its business, operations or assets or
any properties at which Borrower transported, stored or disposed of any
Hazardous Materials.
(d) Without limiting the generality of the foregoing,
whenever Lender reasonably determines that there is non-compliance, or any
condition which requires any action by or on behalf of Borrower in order to
avoid any material non-compliance, with any Environmental Law, Borrower shall,
at Lender's request and Borrower's expense: (i) cause an independent
environmental engineer acceptable to Lender to conduct such tests of the site
where Borrower's non-compliance or alleged non-compliance with such
Environmental Laws has occurred as to such non-compliance and prepare and
deliver to Lender a report as to such non-compliance setting forth the results
of such tests, a proposed plan for responding to any
39
EXHIBIT 10.2
environmental problems described therein, and an estimate of the costs thereof
and (ii) provide to Lender a supplemental report of such engineer whenever the
scope of such non-compliance, or Borrower's response thereto or the estimated
costs thereof, shall change in any material respect.
(e) Borrower shall indemnify and hold harmless Lender,
its directors, officers, employees, agents, invitees, representatives,
successors and assigns, from and against any and all losses, claims, damages,
liabilities, costs, and expenses (including attorneys' fees and legal expenses)
directly or indirectly arising out of or attributable to the use, generation,
manufacture, reproduction, storage, release, threatened release, spill,
discharge, disposal or presence of a Hazardous Material, including the costs of
any required or necessary repair, cleanup or other remedial work with respect to
any property of Borrower and the preparation and implementation of any closure,
remedial or other required plans. All representations, warranties, covenants and
indemnifications in this Section 9.3 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
9.4 Payment of Taxes and Claims. Borrower shall duly pay and
discharge all taxes, assessments, contributions and governmental charges upon or
against it or its properties or assets, except for taxes the validity of which
are being contested in good faith by appropriate proceedings diligently pursued
and available to Borrower and with respect to which adequate reserves have been
set aside on its books. Borrower shall be liable for any tax or penalties
imposed on Lender as a result of the financing arrangements provided for herein
and Borrower agrees to indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand the amount thereof, and until paid
by Borrower such amount shall be added and deemed part of the Loans, provided,
that, nothing contained herein shall be construed to require Borrower to pay any
income or franchise taxes attributable to the income of Lender from any amounts
charged or paid hereunder to Lender. The foregoing indemnity shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
9.5 Insurance. Borrower shall, at all times, maintain with
financially sound and reputable insurers insurance with respect to the
Collateral against loss or damage and all other insurance of the kinds and in
the amounts customarily insured against or carried by corporations of
established reputation engaged in the same or similar businesses and similarly
situated. Said policies of insurance shall be satisfactory to Lender as to form,
amount and insurer. Borrower shall furnish certificates, policies or
endorsements to Lender as Lender shall require as proof of such insurance, and,
if Borrower fails to do so, Lender is authorized, but not required, to obtain
such insurance at the expense of Borrower. All policies shall provide for at
least thirty (30) days prior written notice to Lender of any cancellation or
reduction of coverage and that Lender may act as attorney for Borrower in
obtaining, and at any time an Event of Default exists or has occurred and is
continuing, adjusting, settling, amending and canceling such insurance. Borrower
shall cause Lender to be named as a loss payee and an additional insured (but
without any liability for any premiums) under such insurance policies and
Borrower shall obtain non-contributory lender's loss payable endorsements to all
insurance policies in form and substance satisfactory to Lender. Such lender's
loss payable endorsements shall specify that the proceeds of such insurance
shall be payable to Lender as its interests may appear and further specify that
Lender shall be paid regardless of any act or omission by Borrower or any of its
affiliates. At its option, Lender may apply any insurance proceeds received by
Lender at any time to the cost of
40
EXHIBIT 10.2
repairs or replacement of Collateral and/or to payment of the Obligations,
whether or not then due, in any order and in such manner as Lender may determine
or hold such proceeds as cash collateral for the Obligations.
9.6 Financial Statements and Other Information.
(a) Borrower shall keep proper books and records in which
true and complete entries shall be made of all dealings or transactions of or in
relation to the Collateral and the business of Borrower and its subsidiaries (if
any) in accordance with GAAP and Borrower shall furnish or cause to be furnished
to Lender: (i) within forty-five (45) days after the end of each fiscal month,
monthly unaudited consolidated financial statements, and, if Borrower has any
subsidiaries, unaudited consolidating financial statements (including in each
case balance sheets, statements of income and loss, and, at Lender's request,
statements of cash flow, and statements of shareholders' equity), all in
reasonable detail, fairly presenting the financial position and the results of
the operations of Borrower and its subsidiaries as of the end of and through
such fiscal month; (ii) within ninety (90) days after the end of each fiscal
year, audited consolidated financial statements of Holdings and its subsidiaries
(including consolidating financial statements of Borrower and its subsidiaries)
(including in each case balance sheets, statements of income and loss,
statements of cash flow and statements of shareholders' equity), and the
accompanying notes thereto, all in reasonable detail, fairly presenting the
financial position and the results of the operations of Borrower and its
subsidiaries as of the end of and for such fiscal year, together with the
unqualified opinion of independent certified public accountants, which
accountants shall be an independent accounting firm selected by Borrower and
reasonably acceptable to Lender, that such financial statements have been
prepared in accordance with GAAP, and present fairly the results of operations
and financial condition of Borrower and its subsidiaries as of the end of and
for the fiscal year then ended; (iii) simultaneously with the delivery of the
financial statements as required by subsection (iv) above, the calculation of
the level of Tax Distributions for such fiscal year, and (iv) simultaneously
with the delivery of the financial statements required by subsection (i) above
for the third, sixth and ninth months of each fiscal year of Borrower or as
required by subsection (ii) above for each fiscal year of Borrower, copies of
all compliance certificates delivered to IBM Credit for the fiscal quarter or
year then ended and copies of all amendments to or other modifications of the
Management Agreement effected during such period.
(b) Borrower shall promptly notify Lender in writing of
the details of (i) any loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or any other property which is security for the
Obligations or which would result in any material adverse change in Borrower's
business, properties, assets, goodwill or condition, financial or otherwise and
(ii) the occurrence of any Event of Default or event which, with the passage of
time or giving of notice or both, would constitute an Event of Default.
(c) Borrower shall promptly after the sending or filing
thereof furnish or cause to be furnished to Lender copies of all reports which
Borrower sends to its stockholders generally and copies of all reports and
registration statements which Borrower files with the Securities and Exchange
Commission, any national securities exchange or the National Association of
Securities Dealers, Inc.
41
EXHIBIT 10.2
(d) Borrower shall furnish or cause to be furnished to
Lender such budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrower, as Lender may, from time to time,
reasonably request. Lender is hereby authorized to deliver a copy of any
financial statement or any other information relating to the business of
Borrower to any court or other government agency or to any participant or
assignee or prospective participant or assignee so long as such Assignee or
participant (or prospective assignee or participant) shall have first agreed in
writing to treat such information as confidential. Borrower hereby irrevocably
authorizes and directs all accountants or auditors to deliver to Lender, at
Borrower's expense, copies of the financial statements of Borrower and any
reports or management letters prepared by such accountants or auditors on behalf
of Borrower and to disclose to Lender such information as they may have
regarding the business of Borrower. Any documents, schedules, invoices or other
papers delivered to Lender may be destroyed or otherwise disposed of by Lender
one (1) year after the same are delivered to Lender, except as otherwise
designated by Borrower to Lender in writing.
(e) Borrower shall furnish or cause to be furnished to
Lender a copy of Borrower's and Holding's U.S. Income Tax Returns and related
Schedules K-1, promptly after the filing thereof.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc.
Borrower shall not, directly or indirectly, (a) merge into or with or
consolidate with any other Person or permit any other Person to merge into or
with or consolidate with it, or (b) sell, assign, lease, transfer, abandon or
otherwise dispose of any stock or indebtedness to any other Person or any of its
assets to any other Person (except for (i) sales of Inventory in the ordinary
course of business and (ii) the disposition of worn-out or obsolete Equipment or
Equipment no longer used in the business of Borrower so long as (A) if an Event
of Default exists or has occurred and is continuing, any proceeds are paid to
Lender and (B) such sales do not involve Equipment having an aggregate fair
market value in excess of $100,000 for all such Equipment disposed of in any
fiscal year of Borrower), or (c) form or acquire any subsidiaries, or (d) wind
up, liquidate or dissolve or (e) agree to do any of the foregoing.
9.8 Encumbrances. Borrower shall not create, incur, assume or
suffer to exist any security interest, mortgage, pledge, lien, charge or other
encumbrance of any nature whatsoever on any of its assets or properties,
including the Collateral, except: (a) the liens and security interests of
Lender; (b) liens securing the payment of taxes, either not yet overdue or the
validity of which are being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower and with respect to which adequate
reserves have been set aside on its books; (c) non-consensual statutory liens
(other than liens securing the payment of taxes) arising in the ordinary course
of Borrower's business to the extent: (i) such liens secure indebtedness which
is not overdue or (ii) such liens secure indebtedness relating to claims or
liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower, in each
case prior to the commencement of foreclosure or other similar proceedings and
with respect to which adequate reserves have been set aside on its books; (d)
zoning restrictions, easements, licenses, covenants and other restrictions
affecting the use of real property which do not interfere in any material
respect with the use of such real property or
42
EXHIBIT 10.2
ordinary conduct of the business of Borrower as presently conducted thereon or
materially impair the value of the real property which may be subject thereto;
(e) purchase money security interests in Equipment (including capital leases)
and purchase money mortgages on real estate not to exceed $250,000 in the
aggregate at any time outstanding so long as such security interests and
mortgages do not apply to any property of Borrower other than the Equipment or
real estate so acquired, and the indebtedness secured thereby does not exceed
the cost of the Equipment or real estate so acquired, as the case may be; (f)
the liens and security interests of IBM Credit on the assets of Borrower to
secure the indebtedness of Borrower to IBM Credit permitted under Section 9.9
hereof, which liens and security interests are subject to the Intercreditor
Agreement; and (g) the security interests and liens set forth on Schedule 8.4
hereto.
9.9 Indebtedness. Borrower shall not incur, create, assume, become
or be liable in any manner with respect to, or permit to exist, any obligations
or indebtedness, except:
(a) the Obligations;
(b) trade obligations and normal accruals in the ordinary
course of business not yet due and payable, or with respect to which Borrower is
contesting in good faith the amount or validity thereof by appropriate
proceedings diligently pursued and available to Borrower and with respect to
which adequate reserves have been set aside on its books;
(c) pursuant to any currency swap agreement designed to
alter the risks which may arise from fluxuations in currency values;
(d) purchase money indebtedness (including capital
leases) to the extent not incurred or secured by liens (including capital
leases) in violation of any other provision of this Agreement;
(e) indebtedness of Borrower to IBM Credit evidenced by
that certain Agreement for Inventory Financing, as the same may be amended in
accordance with the Intercreditor Agreement, issued by Borrower payable to IBM
Credit, which indebtedness is subject to the Intercreditor Agreement;
(f) unsecured indebtedness of Borrower to Holdings in an
aggregate amount not to exceed $1,000,000 plus accrued interest;
(g) indebtedness of Borrower to PFS evidenced by that
certain Subordinated Demand Note, dated September, 2001, issued by Borrower
payable to PFS (the "PFS Subordinated Demand Note") which indebtedness is
subject and subordinate in right of payment to the right of Lender to receive
the prior final payment and satisfaction in full of all of the Obligations, and
refinancings or replacements thereof subordinated at least to the same extent
and otherwise on terms and conditions acceptable to Lender in its discretion;
provided, that: (i) the principal amount of such indebtedness shall be
satisfactory to Lender in its sole discretion, (ii) Borrower may make any
payments in respect of such indebtedness in accordance with the terms of such
agreement or instrument as in effect on the date hereof, provided, that, (A) no
Event of Default, or event which with notice or passage of time or both would
constitute an
43
EXHIBIT 10.2
Event of Default, shall exist or have occurred and be continuing, or would occur
as a result of any such payment; (B) any such payment shall not cause the total
principal amount of such indebtedness to be less than $6,500,000; and (C) the
aggregate amount of Revolving Loans at the time of any such payment shall not
exceed the amounts available to Borrower in accordance with Section 2.1 hereof,
(iii) Borrower shall not, directly or indirectly, (A) amend, modify, alter or
change any terms of such indebtedness or any agreement, document or instrument
related thereto, or (B) redeem, retire, defease, purchase or otherwise acquire
such indebtedness, or set aside or otherwise deposit or invest any sums for such
purpose, and (iv) Borrower shall furnish to Lender all notices, demands or other
materials concerning such indebtedness either received by Borrower or on its
behalf, promptly after receipt thereof, or sent by Borrower or on its behalf,
concurrently with the sending thereof, as the case may be; and
(h) unsecured indebtedness of Borrower for borrowed money
incurred after the date hereof owing to any person other than any shareholder,
officer, director, agent, employee or affiliate of Borrower on commercially
reasonable rates and terms pursuant to an arm's length transaction; provided,
that, (i) Lender shall have received not less than five (5) business days prior
written notice of the intention to incur such indebtedness, which notice shall
set forth in reasonable detail satisfactory to Lender, the amount of such
indebtedness, the person to whom such indebtedness will be owed, the interest
rate, the schedule of repayments and maturity date with respect thereto and such
other information as Lender may reasonably request with respect thereto, (ii)
Lender shall have received true, correct and complete copies of all agreements,
documents and instruments evidencing or otherwise related to such indebtedness,
(iii) the aggregate amount of such indebtedness at any time outstanding shall
not exceed $15,000,000, (iv) on and before the date of incurring such
indebtedness and after giving effect thereto, no Event of Default, or event
which with the passage of time or both would constitute an Event of Default,
shall exist or have occurred and be continuing, (v) Borrower may only make
regularly scheduled payments of principal and interest in respect of such
indebtedness in accordance with the terms of the agreement or instrument
evidencing or giving rise to such indebtedness as in effect on the date of the
execution thereof, and (vi) Borrower shall not, directly or indirectly, (A) make
any prepayments or other non-mandatory payments in respect of such indebtedness,
or (B) amend, modify, alter or change the terms of such indebtedness or any
agreement, document or instrument related thereto, or (C) redeem, retire,
defease, purchase or otherwise acquire such indebtedness, or set aside or
otherwise deposit or invest any sums for such purpose, and (vii) Borrower shall
furnish to Lender all notices, demands or other materials in connection with
such indebtedness either received by Borrower or on its behalf, promptly after
the receipt thereof, or sent by Borrower or on its behalf, concurrently with the
sending thereof, as the case may be.
9.10 Loans, Investments, Guarantees, Etc. Borrower shall not,
directly or indirectly, make any loans or advance money or property to any
person, or invest in (by capital contribution, dividend or otherwise) or
purchase or repurchase the stock or indebtedness or all or a substantial part of
the assets or property of any person, or guarantee, assume, endorse, or
otherwise become responsible for (directly or indirectly) the indebtedness,
performance, obligations or dividends of any Person or agree to do any of the
foregoing, except: (a) the endorsement of instruments for collection or deposit
in the ordinary course of business; (b) investments in: (i) short-term direct
obligations of the United States Government, (ii) negotiable certificates of
deposit issued by any bank satisfactory to Lender, payable to the order of the
Borrower or to bearer and delivered to
44
EXHIBIT 10.2
Lender, and (iii) commercial paper rated A1 or P1; provided, that, as to any of
the foregoing, unless waived in writing by Lender, Borrower shall take such
actions as are deemed necessary by Lender to perfect the security interest of
Lender in such investments; (c) Permitted Intercompany Loans; (d) the
capitalization into equity of any amounts owing to Borrower pursuant to any
Permitted Intercompany Loan, provided that, in the case of amounts owing by
Supplies Canada, Borrower may only capitalize such amount as are in excess of
the greater of: (i) the Net Amount of Eligible Canadian Accounts included in the
lending formula pursuant to Section 2.1 hereof; or (ii) the portion of such
Permitted Intercompany Loans comprised of cash advances or other advances made
directly or indirectly from the proceeds of Revolving Loans; (e) pursuant to
that certain Guarantee and Indemnity by Borrower in favor of N.V. Fortis
Commercial Finance guarantying the obligations of Supplies Distributors S.A. in
a maximum amount of 200,000 euros; and (f) the loans, advances and guarantees
set forth on Schedule 9.10 hereto; provided, that, as to such loans, advances
and guarantees, (i) Borrower shall not, directly or indirectly, (A) amend,
modify, alter or change the terms of such loans, advances or guarantees or any
agreement, document or instrument related thereto, or (B) as to such guarantees,
redeem, retire, defease, purchase or otherwise acquire the obligations arising
pursuant to such guarantees, or set aside or otherwise deposit or invest any
sums for such purpose, and (ii) Borrower shall furnish to Lender all notices or
demands in connection with such loans, advances or guarantees or other
indebtedness subject to such guarantees either received by Borrower or on its
behalf, promptly after the receipt thereof, or sent by Borrower or on its
behalf, concurrently with the sending thereof, as the case may be.
9.11 Dividends and Redemptions. Borrower shall not, directly or
indirectly, declare or pay any dividends on account of any shares of class of
capital stock of Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of capital stock
(or set aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make any
other distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing unless after giving effect to the
dividend as of its declaration date, (a) Excess Availability and the 30 Day
Average Excess Availability shall be not less than $100,000, (b) no Event of
Default shall exist after giving effect to the transactions contemplated herein
and such declaration and (c) the aggregate amount of all such dividends does not
exceed $600,000 per year. Notwithstanding the foregoing, Borrower may make Tax
Distributions.
9.12 Transactions with Affiliates. Borrower shall not, directly or
indirectly, (a) purchase, acquire or lease any property from, or sell, transfer
or lease any property to, any officer, director, agent or other person
affiliated with Borrower, except in the ordinary course of and pursuant to the
reasonable requirements of Borrower's business and upon fair and reasonable
terms no less favorable to the Borrower than Borrower would obtain in a
comparable arm's length transaction with an unaffiliated person or (b) make any
payments of management, consulting or other fees for management or similar
services, or of any indebtedness owing to any officer, employee, shareholder,
director or other person affiliated with Borrower except (i) reasonable
compensation to officers, employees and directors for services rendered to
Borrower in the ordinary course of business; (ii) in accordance with the
Management Agreement attached
45
EXHIBIT 10.2
hereto as Exhibit 9.12; or (iii) Permitted Intercompany Loans, to the extent
permitted under Section 9.10 hereof.
9.13 Additional Bank Accounts. Borrower shall not, directly or
indirectly, open, establish or maintain any deposit account, investment account
or any other account with any bank or other financial institution, other than
the Blocked Accounts and the accounts set forth in Schedule 8.8 hereto, except:
(a) as to any new or additional Blocked Accounts and other such new or
additional accounts which contain any Collateral or proceeds thereof, with the
prior written consent of Lender and subject to such conditions thereto as Lender
may establish and (b) as to any accounts used by Borrower to make payments of
payroll, taxes or other obligations to third parties, after prior written notice
to Lender.
9.14 Net Worth
(a) Borrower shall, at all times, maintain Net Worth of
not less than zero.
(b) Borrower shall, at all times, maintain a Modified Net
Worth of not less than the following amounts during the corresponding time
periods set forth below:
PERIOD MINIMUM NET WORTH
--------------------------------------------------------------------------------
for the period commencing on the date $ 950,000
hereof through and including March 29, 2003
--------------------------------------------------------------------------------
for the period commencing on March 29, $1,100,000
2003 and at all times thereafter
--------------------------------------------------------------------------------
9.15 Compliance with ERISA.
(a) Borrower shall not with respect to any "employee
benefit plans" maintained by Borrower or any of its ERISA Affiliates: (i)
terminate any of such employee benefit plans so as to incur any liability to the
Pension Benefit Guaranty Corporation established pursuant to ERISA, (ii) allow
or suffer to exist any prohibited transaction involving any of such employee
benefit plans or any trust created thereunder which would subject Borrower or
such ERISA Affiliate to a tax or penalty or other liability on prohibited
transactions imposed under Section 4975 of the Code or ERISA, (iii) fail to pay
to any such employee benefit plan any contribution which it is obligated to pay
under Section 302 of ERISA, Section 412 of the Code or the terms of such plan,
(iv) allow or suffer to exist any accumulated funding deficiency, whether or not
waived, with respect to any such employee benefit plan, (v) allow or suffer to
exist any occurrence of a reportable event or any other event or condition which
presents a material risk of termination by the Pension Benefit Guaranty
Corporation of any such employee benefit plan that is a single employer plan,
which termination could result in any liability to the Pension Benefit
46
EXHIBIT 10.2
Guaranty Corporation or (vi) incur any withdrawal liability with respect to any
multiemployer pension plan.
(b) As used in this Section 9.15, the terms "employee
benefit plans", "accumulated funding deficiency" and "reportable event" shall
have the respective meanings assigned to them in ERISA, and the term "prohibited
transaction" shall have the meaning assigned to it in Section 4975 of the Code
and ERISA.
9.16 Costs and Expenses.
(a) Borrower shall pay to Lender on demand all costs,
expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including: (a) all costs and
expenses of filing or recording (including Uniform Commercial Code financing
statement filing taxes and fees, documentary taxes, intangibles taxes and
mortgage recording taxes and fees, if applicable); (b) all insurance premiums,
appraisal fees and search fees; (c) costs and expenses of remitting loan
proceeds, collecting checks and other items of payment, and establishing and
maintaining the Blocked Accounts, together with Lender's customary charges and
fees with respect thereto; (d) costs and expenses of preserving and protecting
the Collateral; (e) costs and expenses paid or incurred in connection with
obtaining payment of the Obligations, enforcing the security interests and liens
of Lender, selling or otherwise realizing upon the Collateral, and otherwise
enforcing the provisions of this Agreement and the other Financing Agreements or
defending any claims made or threatened against Lender arising out of the
transactions contemplated hereby and thereby (including preparations for and
consultations concerning any such matters); (f) all out-of-pocket expenses and
costs heretofore and from time to time hereafter incurred by Lender during the
course of periodic field examinations of the Collateral and Borrower's
operations, plus a per diem charge at the rate of $750.00 per person per day for
Lender's examiners in the field and office; and (g) the fees and disbursements
of counsel (including legal assistants) to Lender in connection with any of the
foregoing.
(b) costs and expenses and fees for insurance premiums,
environmental audits, surveys, assessments, engineering reports and inspections,
appraisal fees and search fees;
9.17 Compliance with Other Documents. Borrower shall comply with
the terms of the IBM Master Distributor Agreement, the Sales Force Agreement,
the Management Agreement, and the Agreement for Inventory Financing in
accordance with the terms as set forth therein.
9.18 Amendments to Other Documents. Borrower shall not modify or
amend the terms of the Supplies Canada Note, the PFS Subordinated Demand Note,
the IBM Master Distributor Agreement, the Sales Force Agreement, the Management
Agreement (except for any modification thereto that does not adversely affect
any interest of Borrower or Lender or any amendment to Appendix D -- Service Fee
Agreement), or the Agreement for Inventory
47
EXHIBIT 10.2
Financing, each as in effect on the date hereof, except with the prior written
consent of Lender, which consent shall not be unreasonably withheld.
9.19 Ownership of Supplies Canada. Borrower shall continue to own
and control one hundred percent (100%) of the capital stock of Supplies Canada.
9.20 Further Assurances. At the request of Lender at any time and
from time to time, Borrower shall, at its expense, duly execute and deliver, or
cause to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Lender may
at any time and from time to time request a certificate from an officer of
Borrower representing that all conditions precedent to the making of Loans and
providing Letter of Credit Accommodations contained herein are satisfied. In the
event of such request by Lender, Lender may, at its option, cease to make any
further Loans or provide any further Letter of Credit Accommodations until
Lender has received such certificate and, in addition, Lender has determined
that such conditions are satisfied. Where permitted by law, Borrower hereby
authorizes Lender to execute and file one or more UCC financing statements
signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or
more of the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) Borrower fails to pay when due any of the Obligations
or fails to perform any of the terms, covenants, conditions or provisions
contained in this Agreement or any of the other Financing Agreements;
(b) any representation, warranty or statement of fact
made by Borrower to Lender in this Agreement, the other Financing Agreements or
any other agreement, schedule, confirmatory assignment or otherwise shall when
made or deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform
any of the terms, covenants, conditions or provisions of any guarantee,
endorsement or other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered
against Borrower or any Obligor in excess of $200,000 in any one case or in
excess of $300,000 in the aggregate and shall remain undischarged or unvacated
for a period in excess of thirty (30) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against Borrower or
any Obligor or any of their assets;
48
EXHIBIT 10.2
(e) any Obligor (being a natural person or a general
partner of an Obligor which is a partnership) dies or Borrower or any Obligor,
which is a partnership, limited liability company, limited liability partnership
or a corporation, dissolves or suspends or discontinues doing business;
(f) Borrower or any Obligor becomes insolvent (however
defined or evidenced), makes an assignment for the benefit of creditors, makes
or sends notice of a bulk transfer or calls a meeting of its creditors or
principal creditors;
(g) a case or proceeding under the bankruptcy laws of the
United States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within thirty (30)
days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the
United States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property; or
(i) any default by Borrower or any Obligor under any
agreement, document or instrument relating to any indebtedness for borrowed
money owing to any person other than Lender, or any capitalized lease
obligations, contingent indebtedness in connection with any guarantee, letter of
credit, indemnity or similar type of instrument in favor of any person other
than Lender, in any case in an amount in excess of $500,000, which default
continues for more than the applicable cure period, if any, with respect
thereto, or any default by Borrower or any Obligor under any material contract,
lease, license or other obligation to any person other than Lender, which
default continues for more than the applicable cure period, if any, with respect
thereto;
(j) any change in the controlling ownership of Borrower;
(k) the indictment or threatened indictment of Borrower
or any Obligor under any criminal statute, or commencement or threatened
commencement of criminal or civil proceedings against Borrower or any Obligor,
pursuant to which statute or proceedings the penalties or remedies sought or
available include forfeiture of any of the property of Borrower or such Obligor;
(l) there shall be a material adverse change in the
business, assets or prospects of Borrower or any Obligor after the date hereof;
49
EXHIBIT 10.2
(m) there shall be an event of default under any of the
other Financing Agreements (including, without limitation, the Supplies Canada
Note Documents);
(n) the Supplies Canada Note Documents are terminated;
(o) IBM ceases to supply products to Borrower in
accordance with the terms of the IBM Master Distributor Agreement; or
(p) the IBM Master Distributor Agreement, the Sales Force
Agreement, the Management Agreement, or the Inventory and Working Capital
Agreement expires or is terminated.
10.2 Remedies.
(a) At any time an Event of Default exists or has
occurred and is continuing, Lender shall have all rights and remedies provided
in this Agreement, the other Financing Agreements, the Uniform Commercial Code
and other applicable law, all of which rights and remedies may be exercised
without notice to or consent by Borrower or any Obligor, except as such notice
or consent is expressly provided for hereunder or required by applicable law.
All rights, remedies and powers granted to Lender hereunder, under any of the
other Financing Agreements, the Uniform Commercial Code or other applicable law,
are cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event
of Default exists or has occurred and is continuing, Lender may, in its
discretion and without limitation, (i) accelerate the payment of all Obligations
and demand immediate payment thereof to Lender (provided, that, upon the
occurrence of any Event of Default described in Sections 10.1(g) and 10.1(h),
all Obligations shall automatically become immediately due and payable), (ii)
with or without judicial process or the aid or assistance of others, enter upon
any premises on or in which any of the Collateral may be located and take
possession of the Collateral or complete processing, manufacturing and repair of
all or any portion of the Collateral, (iii) require Borrower, at Borrower's
expense, to assemble and make available to Lender any part or all of the
Collateral at any place and time designated by Lender, (iv) collect, foreclose,
receive, appropriate, setoff and realize upon any and all Collateral, (v) remove
any or all of the Collateral from any premises on or in which the same may be
located for the purpose of effecting the sale, foreclosure or other disposition
thereof or for any other purpose, (vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including entering into contracts
with respect thereto, public or private sales at any exchange, broker's board,
at any office of Lender or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with the Lender having
the right to purchase the whole or any part of the Collateral at any such public
sale, all of the foregoing being free from any right or equity of redemption of
Borrower, which
50
EXHIBIT 10.2
right or equity of redemption is hereby expressly waived and released by
Borrower and/or (vii) terminate this Agreement. If any of the Collateral is sold
or leased by Lender upon credit terms or for future delivery, the Obligations
shall not be reduced as a result thereof until payment therefor is finally
collected by Lender. If notice of disposition of Collateral is required by law,
five (5) days prior notice by Lender to Borrower designating the time and place
of any public sale or the time after which any private sale or other intended
disposition of Collateral is to be made, shall be deemed to be reasonable notice
thereof and Borrower waives any other notice. In the event Lender institutes an
action to recover any Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, Borrower waives the posting of any bond which might
otherwise be required.
(c) Lender may apply the cash proceeds of Collateral
actually received by Lender from any sale, lease, foreclosure or other
disposition of the Collateral to payment of the Obligations, in whole or in part
and in such order as Lender may elect, whether or not then due. Borrower shall
remain liable to Lender for the payment of any deficiency with interest at the
highest rate provided for herein and all costs and expenses of collection or
enforcement, including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence
of an Event of Default or an event which with notice or passage of time or both
would constitute an Event of Default, Lender may, at its option, without notice,
(i) cease making Loans or reduce the lending formulas or amounts of Revolving
Loans available to Borrower and/or (ii) terminate any provision of this
Agreement providing for any future Loans to be made by Lender to Borrower.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of Texas (without
giving effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to
the non-exclusive jurisdiction of the State of Texas and the United States
District Court for the Northern District of Texas and waive any objection based
on venue or forum non conveniens with respect to any action instituted therein
arising under this Agreement or any of the other Financing Agreements or in any
way connected with or related or incidental to the dealings of the parties
hereto in respect of this Agreement or any of the other Financing Agreements or
the transactions related hereto or thereto, in each case whether now existing or
hereafter arising, and whether in contract, tort, equity or otherwise, and agree
that any dispute with respect to any such matters shall be heard only in the
courts described above (except that Lender shall have the right to bring any
action or proceeding against Borrower or its property in the courts of any other
jurisdiction which
51
EXHIBIT 10.2
Lender deems necessary or appropriate in order to realize on the Collateral or
to otherwise enforce its rights against Borrower or its property).
(c) Borrower hereby waives personal service of any and
all process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
five (5) days after the same shall have been so deposited in the U.S. mails, or,
at Lender's option, by service upon Borrower in any other manner provided under
the rules of any such courts. Within thirty (30) days after such service,
Borrower shall appear in answer to such process, failing which Borrower shall be
deemed in default and judgment may be entered by Lender against Borrower for the
amount of the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (I) ARISING UNDER
THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (II) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN
RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER
AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT
BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower
(whether in tort, contract, equity or otherwise) for losses suffered by Borrower
in connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender, that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit of
the rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.
11.2 Waiver of Notices. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on Borrower which Lender may elect to give shall entitle Borrower
to any other or further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any
provision hereof shall be amended, modified, waived or discharged orally or by
course of conduct, but only by a written
52
EXHIBIT 10.2
agreement signed by an authorized officer of Lender, and as to amendments, as
also signed by an authorized officer of Borrower. Lender shall not, by any act,
delay, omission or otherwise be deemed to have expressly or impliedly waived any
of its rights, powers and/or remedies unless such waiver shall be in writing and
signed by an authorized officer of Lender. Any such waiver shall be enforceable
only to the extent specifically set forth therein. A waiver by Lender of any
right, power and/or remedy on any one occasion shall not be construed as a bar
to or waiver of any such right, power and/or remedy which Lender would otherwise
have on any future occasion, whether similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to
interpose any claims, deductions, setoffs or counterclaims of any nature (other
then compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 Indemnification. BORROWER SHALL INDEMNIFY AND HOLD LENDER, AND
ITS DIRECTORS, AGENTS, EMPLOYEES AND COUNSEL, HARMLESS FROM AND AGAINST ANY AND
ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES, COSTS OR EXPENSES IMPOSED ON, INCURRED
BY OR ASSERTED AGAINST ANY OF THEM IN CONNECTION WITH ANY LITIGATION,
INVESTIGATION, CLAIM OR PROCEEDING COMMENDED OR THREATENED RELATED TO THE
NEGOTIATION, PREPARATION, EXECUTION, DELIVERY, ENFORCEMENT, PERFORMANCE OR
ADMINISTRATION OF THIS AGREEMENT, ANY OTHER FINANCING AGREEMENTS, OR ANY
UNDERTAKING OR PROCEEDING RELATED TO ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY
OR ANY ACT, OMISSION, EVENT OR TRANSACTION RELATED OR ATTENDANT THERETO,
INCLUDING AMOUNTS PAID IN SETTLEMENT, COURT COSTS, AND THE FEES AND EXPENSES OF
COUNSEL. TO THE EXTENT THAT THE UNDERTAKING TO INDEMNIFY, PAY AND HOLD HARMLESS
SET FORTH IN THIS SECTION MAY BE UNENFORCEABLE BECAUSE IT VIOLATES ANY LAW OR
PUBLIC POLICY, BORROWER SHALL PAY THE MAXIMUM PORTION WHICH IT IS PERMITTED TO
PAY UNDER APPLICABLE LAW TO LENDER IN SATISFACTION OF INDEMNIFIED MATTERS UNDER
THIS SECTION. THE FOREGOING INDEMNITY SHALL SURVIVE THE PAYMENT OF THE
OBLIGATIONS AND THE TERMINATION OR NON-RENEWAL OF THIS AGREEMENT.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements
shall become effective as of the date set forth on the first page hereof and
shall continue in full force and effect for a term ending on the earlier to
occur of (i) the date three (3) years from the date hereof, or (ii) the date on
which the parties to the IBM Master Distributor Agreement shall no longer
operate under the terms of such agreement and/or IBM no longer supplies products
pursuant to such
53
EXHIBIT 10.2
agreement to Borrower (the "Renewal Date"), and from year to year thereafter,
unless sooner terminated pursuant to the terms hereof; provided, that, Lender
may, at its option, extend the Renewal Date giving Borrower notice at least
sixty (60) days prior to the Renewal Date. Lender or Borrower (subject to
Lender's right to extend the Renewal Date as provided above) may terminate this
Agreement and the other Financing Agreements effective on the Renewal Date or on
the anniversary of the Renewal Date in any year by giving to the other party at
least sixty (60) days prior written notice; provided, that, this Agreement and
all other Financing Agreements must be terminated simultaneously. Upon the
effective date of termination or non-renewal of the Financing Agreements,
Borrower shall pay to Lender, in full, all outstanding and unpaid Obligations
and shall furnish cash collateral to Lender in such amounts as Lender determines
are reasonably necessary to secure Lender from loss, cost, damage or expense,
including attorneys' fees and legal expenses, in connection with any contingent
Obligations, checks or other payments provisionally credited to the Obligations
and/or as to which Lender has not yet received final and indefeasible payment.
Such payments in respect of the Obligations and cash collateral shall be
remitted by wire transfer in Federal funds to such bank account of Lender, as
Lender may, in its discretion, designate in writing to Borrower for such
purpose. Interest shall be due until and including the next business day, if the
amounts so paid by Borrower to the bank account designated by Lender are
received in such bank account later than 12:00 noon, Dallas, Texas time.
(b) No termination of this Agreement or the other
Financing Agreements shall relieve or discharge Borrower of its respective
duties, obligations and covenants under this Agreement or the other Financing
Agreements until all Obligations have been fully and finally discharged and
paid, and Lender's continuing security interest in the Collateral and the rights
and remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
(c) If for any reason this Agreement is terminated prior
to the end of the then current term or renewal term of this Agreement, in view
of the impracticality and extreme difficulty of ascertaining actual damages and
by mutual agreement of the parties as to a reasonable calculation of Lender's
lost profits as a result thereof, Borrower agrees to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount set
forth below if such termination is effective in the period indicated:
Amount Period
------ ------
(1) 2.0% of Maximum Credit From the date hereof to and including March
29, 2003
(2) 1.0% of Maximum Credit From March 30, 2003 to and including March
29, 2004
(3) .50% of Maximum Credit From March 30, 2004 and thereafter
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the
54
EXHIBIT 10.2
circumstances currently existing. In addition, Lender shall be entitled to such
early termination fee upon the occurrence of any Event of Default described in
Sections 10.1(g) and 10.1(h) hereof, even if Lender does not exercise its right
to terminate this Agreement, but elects, at its option, to provide financing to
Borrower or permit the use of cash collateral under the United States Bankruptcy
Code. The early termination fee provided for in this Section 12.1 shall be
deemed included in the Obligations. Notwithstanding anything contained herein to
the contrary, the early termination fee shall not apply to any early termination
as the result of a complete refinancing of the Loans by First Union National
Bank.
12.2 Notices. All notices, requests and demands hereunder shall be
in writing and (a) made to Lender at its address set forth below and to Borrower
at its chief executive office set forth below, or to such other address as
either party may designate by written notice to the other in accordance with
this provision, and (b) deemed to have been given or made: if delivered in
person, immediately upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon confirmation of receipt; if by
nationally recognized overnight courier service with instructions to deliver the
next business day, one (1) business day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
12.3 Partial Invalidity. If any provision of this Agreement is held
to be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other Financing Agreements and
any other document referred to herein or therein shall be binding upon and inure
to the benefit of and be enforceable by Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrower, assign its rights and delegate its obligations under
this Agreement and the other Financing Agreements and further may assign, or
sell participations in, all or any part of the Loans, the Letter of Credit
Accommodations or any other interest herein to another financial institution or
other person, in which event, the assignee or participant shall have, to the
extent of such assignment or participation, the same rights and benefits as it
would have if it were the Lender hereunder, except as otherwise provided by the
terms of such assignment or participation.
12.5 Entire Agreement. This Agreement, the other Financing
Agreements, any supplements hereto or thereto, and any instruments or documents
delivered or to be delivered in connection herewith or therewith represents the
entire agreement and understanding concerning the subject matter hereof and
thereof between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written. In the event of any inconsistency between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this
Agreement shall govern.
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EXHIBIT 10.2
12.6 NONAPPLICABILITY OF ARTICLE 5069-15.01 ET SEQ. BORROWER AND
LENDER HEREBY AGREE THAT, EXCEPT FOR SECTION 15.10(B) THEREOF, THE PROVISIONS OF
TEX. REV. CIV. STAT. ▇▇▇. ART. 5069-15.01 ET SEQ. (▇▇▇▇▇▇ 1987) (REGULATING
CERTAIN REVOLVING CREDIT LOANS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY
TO THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS.
12.7 WAIVER OF CONSUMER RIGHTS. BORROWER HEREBY WAIVES ITS RIGHTS
UNDER THE DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION ACT, SECTION 17.41 ET.
SEQ. BUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND
PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF THE BORROWER'S OWN
SELECTION, BORROWER VOLUNTARILY CONSENTS TO THIS WAIVER. BORROWER EXPRESSLY
WARRANTS AND REPRESENTS THAT THE BORROWER (a) IS NOT IN A SIGNIFICANTLY
DISPARATE BARGAINING POSITION RELATIVE TO LENDER, AND (b) HAS BEEN REPRESENTED
BY LEGAL COUNSEL IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT.
BORROWER HAS READ AND UNDERSTANDS
SECTION 12.7: ___________________(INITIALS OF
AUTHORIZED OFFICER OF BORROWER)
12.8 ORAL AGREEMENTS INEFFECTIVE. THIS AGREEMENT AND THE OTHER
FINANCING AGREEMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND THE
SAME MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
BORROWER AND LENDER EACH
READ AND UNDERSTAND THIS
SECTION 12.8:
________________ (INITIALS OF AUTHORIZED OFFICER OF BORROWER)
________________ (INITIALS OF AUTHORIZED OFFICER OF LENDER)
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Lender and Borrower have caused these present to be
duly executed as of the day and year first above written
LENDER
CONGRESS FINANCIAL CORPORATION
(SOUTHWEST)
By:_________________________________________
▇▇▇▇ ▇▇▇▇▇
Senior Vice President
Address:
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
BORROWER
SUPPLIES DISTRIBUTORS, INC.
By:_________________________________________
▇▇▇ ▇▇▇▇▇▇▇
President and Chief Executive Officer
Address:
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇