EXHIBIT 10.57
PRIORITY FULFILLMENT SERVICES, INC.
FIRST AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This FIRST AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is entered into as
of December __, 2004, by and between Comerica Bank ("Bank") and Priority
Fulfillment Services, Inc. ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank desires
to extend credit to Borrower. This Agreement sets forth the terms on which Bank
will advance credit to Borrower, and Borrower will repay the amounts owing to
Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, all capitalized terms
shall have the definitions set forth on Exhibit A. Any term used in the Code and
not defined herein shall have the meaning given to the term in the Code.
1.2 Accounting Terms. Any accounting term not specifically defined
on Exhibit A shall be construed in accordance with GAAP and all calculations
shall be made in accordance with GAAP. The term "financial statements" shall
include the accompanying notes and schedules.
2. LOAN AND TERMS OF PAYMENT.
2.1 Credit Extensions.
(a) Promise to Pay. Borrower promises to pay to Bank, in
lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower, together with interest
on the unpaid principal amount of such Credit Extensions at rates in accordance
with the terms hereof.
(b) Revolving Advances.
(i) Amount. Subject to and upon the terms and
conditions of this Agreement (1) Borrower may request Advances in an
aggregate outstanding amount not to exceed the lesser of (A) the Committed
Revolving Line or (B) the Borrowing Base, less any amounts outstanding
under the Letter of Credit Sublimit, and (2) amounts borrowed pursuant to
this Section 2.1(b) may be repaid and reborrowed at any time prior to the
Revolving Maturity Date, at which time all Advances under this Section
2.1(b) shall be immediately due and payable. Borrower may prepay any
Advances without penalty or premium.
(ii) Form of Request. Whenever Borrower desires an
Advance, Borrower will notify Bank by facsimile transmission or telephone
no later than 3:00 p.m. Pacific time, on the Business Day that the Advance
is to be made. Each such notification shall be promptly confirmed by a
Payment/Advance Form in substantially the form of Exhibit C. Bank is
authorized to make Advances under this Agreement, based upon instructions
received from a Responsible Officer or a designee of a Responsible
Officer, or without instructions, but upon prior notice to Borrower, if in
Bank's discretion such Advances are necessary to meet Obligations which
have become due and remain unpaid. Bank shall be entitled to rely on any
telephonic notice given by a person who Bank reasonably believes to be a
Responsible Officer or a designee thereof, and Borrower shall indemnify
and hold Bank harmless for any damages or loss suffered by Bank as a
result of such reliance. Bank will credit the amount of Advances made
under this Section 2.1(b) to Borrower's deposit account.
1
(iii) Letter of Credit Sublimit. Subject to the
availability under the Committed Revolving Line, and in reliance on the
representations and warranties of Borrower set forth herein, at any time
and from time to time from the date hereof through the Business Day
immediately prior to the Revolving Maturity Date, Bank shall issue for the
account of Borrower such Letters of Credit as Borrower may request by
delivering to Bank a duly executed letter of credit application on Bank's
standard form; provided, however, that the outstanding and undrawn amounts
under all such Letters of Credit (i) shall not at any time exceed the
Letter of Credit Sublimit, and (ii) shall be deemed to constitute Advances
for the purpose of calculating availability under the Committed Revolving
Line. Any drawn but unreimbursed amounts under any Letters of Credit shall
be charged as Advances against the Committed Revolving Line. All Letters
of Credit shall be in form and substance acceptable to Bank in its sole
discretion and shall be subject to the terms and conditions of Bank's form
application and letter of credit agreement. Borrower will pay any standard
issuance and other fees that Bank notifies Borrower will be charged for
issuing and processing Letters of Credit. Unless Borrower shall have
deposited with Bank cash collateral in an amount sufficient to cover all
undrawn amounts under each such Letter of Credit and Bank shall have
agreed in writing, no Letter of Credit shall have an expiration date that
is later than the Revolving Maturity Date. If Borrower has not secured to
Bank's satisfaction its obligations with respect to any Letters of Credit
by the Revolving Maturity Date, then, effective as of such date, the
balance in any deposit accounts held by Bank and the certificates of
deposit issued by Bank in Borrower's name (and any interest paid thereon
or proceeds thereof, including any amounts payable upon the maturity or
liquidation of such certificates), shall automatically secure such
obligations to the extent of the then outstanding and undrawn Letters of
Credit. Borrower authorizes Bank to hold such balances in pledge and to
decline to honor any drafts thereon or any requests by Borrower or any
other Person to pay or otherwise transfer any part of such balances for so
long as the Letters of Credit are outstanding. The Standby Letter of
Credit is not subject to the Letter of Credit Sublimit and is not a
"Letter of Credit" for purposes of this Section 2.1(b)(iii).
(c) Equipment Advances.
(i) Subject to and upon the terms and conditions of
this Agreement, Bank agrees to make advances (each an "Equipment Advance"
and, collectively, the "Equipment Advances") to Borrower in two tranches,
Tranche A and Tranche B. Borrower may request Equipment Advances under
Tranche A at any time from the date hereof through the Tranche A
Availability End Date. Borrower may request Equipment Advances under
Tranche B at any time from the Tranche A Availability End Date through the
Tranche B Availability End Date. The aggregate outstanding amount at any
time of Tranche A Equipment Advances and Tranche B Equipment Advances
shall not exceed the Maximum Equipment Line Availability. Each Equipment
Advance shall not exceed 100% of the invoice amount of equipment and
software approved by Bank from time to time (which Borrower shall, in any
case, have purchased within 90 days of the date of the corresponding
Equipment Advance; provided that the first Equipment Advance may finance
equipment and software purchased by Borrower no earlier than July 1, 2004,
so long as the amount advanced with respect to such equipment shall not
exceed $225,000), including taxes, shipping, warranty charges, freight
discounts and installation expense (collectively, "Soft Costs"); provided
that the aggregate amount of Equipment Advances made for Soft Costs shall
not exceed 20% of the aggregate principal amount of Equipment Advances.
(ii) Interest shall accrue from the date of each
Equipment Advance at the rate specified in Section 2.3(a), and shall be
payable in accordance with Section 2.3(c). Any Equipment Advances that are
outstanding under Tranche A on the Tranche A Availability End Date shall
be payable in 30 equal monthly installments of principal, plus all accrued
interest, beginning on July ___, 2005, and continuing on the same day of
each month thereafter through December ___, 2007, at which time all
amounts due in connection with Tranche A Equipment Advance made under this
Section 2.1(c) shall be immediately due and payable. Any Equipment
Advances that are outstanding under Tranche B on the Tranche B
Availability End Date shall be payable in 30 equal monthly installments of
principal, plus all accrued interest, beginning on January ___, 2006, and
continuing on the same day of each month thereafter through June ___,
2008, at which time all amounts due in connection with Tranche B Equipment
Advance made under this Section 2.1(c) and any other amounts due under
this Agreement
2
shall be immediately due and payable. Equipment Advances, once repaid, may
not be reborrowed. Borrower may prepay any Equipment Advances without
penalty or premium.
(iii) When Borrower desires to obtain an Equipment
Advance, Borrower shall notify Bank (which notice shall be irrevocable) by
facsimile transmission to be received no later than 3:00 p.m. Pacific time
on the day on which the Equipment Advance is to be made. Such notice shall
be substantially in the form of Exhibit C. The notice shall be signed by a
Responsible Officer or its designee and include a copy of the invoice for
any Equipment to be financed.
(d) Standby Letter of Credit. Subject to the terms and
conditions of this Agreement,, and in reliance on the representations and
warranties of Borrower set forth herein, Bank shall issue for the account of
Borrower the Standby Letter of Credit. The Standby Letter of Credit shall be in
form and substance acceptable to Bank in its sole discretion and shall be
subject to the terms and conditions of Bank's form application and letter of
credit agreement. Borrower will reimburse Bank for any drawn amounts under the
Standby Letter of Credit in accordance with the terms of the Reimbursement
Agreement. All drawn amounts under the Standby Letter of Credit shall (i) accrue
interest at the rates set forth in the Reimbursement Agreement from the date
drawn until paid in full and (ii) be paid in accordance with the terms of the
Reimbursement Agreement.
(e) Equipment Term Loan.
(i) Bank has heretofore made a term loan (the "Equipment
Term Loan") to Borrower to refinance certain equipment leases and for equipment
acquisitions. The Equipment Term Loan was advanced in three tranches, herein
called "Existing Tranche A", "Existing Tranche B," and "Existing Tranche C."
(ii) Interest accrues on the Equipment Term Loan at the rate
specified in Section 2.3(a), and shall be payable in accordance with Section
2.3(c). The Existing Tranche A is payable in 15 equal installments of principal,
plus all accrued interest, beginning on January 15, 2005, and continuing on the
same day of each month thereafter until February 15, 2006, at which time all
amounts due in connection with the Existing Tranche A shall be immediately due
and payable. The Existing Tranche B is payable in 21 equal monthly installments
of principal, plus all accrued interest, beginning on January 1, 2005, and
continuing on the same day of each month thereafter through September 10, 2006,
at which time all amounts due in connection with the Existing Tranche B shall be
immediately due and payable. The Existing Tranche C is payable in 21 equal
monthly installments of principal, plus all accrued interest, beginning on
January 1, 2005 and continuing on the same day of each month thereafter through
September 10, 2006,, at which time all amounts due in connection with the
Existing Tranche C shall be immediately due and payable. The Equipment Term
Loan, once repaid, may not be reborrowed. Borrower may prepay the Equipment Term
Loan, or any portion thereof, without penalty or premium.
2.2 Overadvances. If the aggregate amount of the outstanding
Advances exceeds the lesser of the Committed Revolving Line or the Borrowing
Base at any time, Borrower shall immediately pay to Bank, in cash, the amount of
such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rates.
(i) Advances. Except as set forth in Section 2.3(b),
the Advances shall bear interest, on the outstanding daily balance
thereof, at a variable rate equal to 1.0% above the Prime Rate.
(ii) Equipment Advances. Except as set forth in Section
2.3(b), the Equipment Advances shall bear interest, on the outstanding
daily balance thereof, at a rate equal to 1.5% above the Prime Rate.
3
(iii) Equipment Term Loan. Except as set forth in
Section 2.3(b), the Equipment Term Loan shall bear interest, on the
outstanding daily balance thereof, at a rate equal to 1.5% above the Prime
Rate.
(iv) Standby Letter of Credit. Any drawn amount under
the Standby Letter of Credit shall bear interest, on the outstanding daily
balance thereof, at the rates set forth in the Reimbursement Agreement.
(b) Late Fee; Default Rate. If any payment is not made
within 10 days after the date such payment is due, Borrower shall pay Bank a
late fee equal to the lesser of (i) 5% of the amount of such unpaid amount or
(ii) the maximum amount permitted to be charged under applicable law. All
Obligations shall bear interest, from and after the occurrence and during the
continuance of an Event of Default, at a rate equal to 5 percentage points above
the interest rate applicable immediately prior to the occurrence of the Event of
Default.
(c) Payments. Interest hereunder shall be due and payable on
the 15th of each month during the term hereof. Bank shall, at its option, charge
such interest, all Bank Expenses, and all Periodic Payments against any of
Borrower's deposit accounts or against the Committed Revolving Line, in which
case those amounts shall thereafter accrue interest at the rate then applicable
hereunder. Any interest not paid when due shall be compounded by becoming a part
of the Obligations, and such interest shall thereafter accrue interest at the
rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased, effective as of the day the Prime Rate is changed, by an
amount equal to such change in the Prime Rate. All interest chargeable under the
Loan Documents shall be computed on the basis of a 360 day year for the actual
number of days elapsed.
(e) Limitation on Interest. Borrower and Bank intend to
contract in strict compliance with applicable usury law from time to time in
effect. In furtherance thereof such persons stipulate and agree that none of the
terms and provisions contained in the Loan Documents shall ever be construed to
provide for interest in excess of the maximum amount of interest permitted to be
charged by applicable usury law from time to time in effect. If, notwithstanding
the foregoing, any amount constituting interest is nonetheless charged or
collected in excess of the maximum amount of interest permitted to be charged by
applicable usury law from time to time in effect, then such excess shall, at the
option of the payee thereof, be credited on the amount of the obligations owed
to such payee or refunded by such payee to the payor thereof.
2.4 Crediting Payments. Prior to the occurrence of an Event of
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After the
occurrence of an Event of Default, the receipt by Bank of any wire transfer of
funds, check, or other item of payment shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment on
account unless such payment is of immediately available federal funds or unless
and until such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 12:00 noon Pacific time shall be
deemed to have been received by Bank as of the opening of business on the
immediately following Business Day. Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date
that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. On the Closing Date, a Facility Fee equal
to $5,000, which shall be nonrefundable.
(b) Letter of Credit Fees. On the Closing Date and on each
December 1 thereafter, a letter of credit fee pursuant to, and in accordance
with, the terms of Section 1(c) of the Reimbursement Agreement.
4
(c) Bank Expenses. On the Closing Date, all Bank Expenses
incurred through the Closing Date, and, after the Closing Date, all Bank
Expenses, as and when they become due.
2.6 Term. This Agreement shall become effective on the Closing
Date and, subject to Section 13.7, shall continue in full force and effect for
so long as any Obligations remain outstanding or Bank has any obligation to make
Credit Extensions under this Agreement. Notwithstanding the foregoing, Bank
shall have the right to terminate its obligation to make Credit Extensions under
this Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default.
2.7 Equipment Term Loan and Equipment Advances Following
Termination of Committed Revolving Line. In the event all Advances are paid in
full and the Committed Revolving Line is terminated prior to the payment in full
of the Equipment Term Loan and the Equipment Advances, unless Borrower complies
with the requirements of either clause (a) or (b) of this Section 2.7, this
Agreement will remain in full force and effect (except as to the availability of
the Committed Revolving Line) and Bank's security interest in the Collateral
will continue to secure Borrower's obligations under the Equipment Term Loan and
the Equipment Advances.
(a) Borrower may, at its option, pay to Bank in full all
amounts outstanding (all unpaid principal and accrued interest through the date
of payoff) under the Equipment Term Loan and the Equipment Advances, whereupon
(i) Borrower's rights to receive, and Bank's obligations to make, Equipment
Advances shall automatically terminate, (ii) Bank shall release its security
interests in the Collateral, and (iii) this Agreement shall terminate (subject
to Section 13.7 hereof); or
(b) Borrower may, at its option, concurrently with the
termination of the Committed Revolving Line, deposit with Bank (or an Affiliate
of Bank) an amount equal to the aggregate principal balance of the Equipment
Term Loan and the Equipment Advances then outstanding (the "Additional Cash
Collateral") and execute a pledge and security agreement in favor of Bank, in
form and substance satisfactory to Bank, pursuant to which Borrower shall grant
a first priority security interest in favor of Bank in the Additional Cash
Collateral. Upon receipt of the Additional Cash Collateral and executed pledge
and security agreement, Bank will release its security interest in all
Collateral other than the Additional Cash Collateral and all of the covenants
contained in Articles 6 and 7 hereof (other than 6.1, 6.2(b)-(g) and 6.4) shall
terminate and be of no further force or effect. Bank agrees that it will, from
time to time upon written request by Borrower, release its security interest on,
and distribute in accordance with Borrower's written directions, Additional Cash
Collateral in an amount equal to the amount by which the Additional Cash
Collateral exceeds the aggregate outstanding principal balance of the Equipment
Term Loan and the Equipment Advances as of the date of such request. When all
Equipment Advances, the Equipment Term Loan, and other Obligations have been
paid in full, Bank shall release its security interest in any remaining
Additional Cash Collateral.
3. CONDITIONS OF LOANS.
3.1 Conditions Precedent to Initial Credit Extension. The
obligation of Bank to make the initial Credit Extension is subject to the
condition precedent that Bank shall have received, in form and substance
satisfactory to Bank, the following:
(a) this Agreement;
(b) an officer's certificate of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;
(c) a financing statement (Form UCC-1);
(d) an intellectual property security agreement;
(e) agreement to provide insurance;
(f) payment of the fees and Bank Expenses then due specified
in Section 2.5;
5
(g) current SOS Reports indicating that except for Permitted
Liens, there are no other security interests or Liens of record in the
Collateral;
(h) current financial statements, including audited
statements for Borrower's most recently ended fiscal year, together with an
unqualified opinion, in accordance with Section 6.2;
(i) an appraisal of (i) the equipment to be purchased by
Borrower with the proceeds of the Bonds and (ii) all other Equipment of
Borrower, reflecting an aggregate orderly liquidation value of at least
$3,500,000 (or, if such appraisal reflects an aggregate orderly liquidation
value of less than $3,500,000, Borrower's compliance with Section 6.7(c)).;
(j) a guarantee executed and delivered by Guarantor;
(k) a pledge agreement executed and delivered by Guarantor
pursuant to which Guarantor pledges all of its ownership interest in Borrower
and 65% of its ownership interest in Priority Fulfillment Services of Canada,
Inc.;
(l) an officer's certificate of Guarantor with respect to
incumbency and resolutions authorizing the execution and delivery of the Loan
Documents to which Guarantor is a party;
(m) subordination agreements duly executed and delivered by
each of IBM Credit Corporation, IBM Belgium Financial Services S.A., and
Congress Financial Corporation (Southwest);
(o) true, correct and complete copies of the executed Bond
Documents;
(p) opinion from Borrower's counsel that the execution and
delivery of this Agreement, the Bond Documents and the consummation of the
transactions contemplated herein and therein do not violate any other contract
or agreement of Borrower or Guarantor; and
(q) such other documents or certificates, and completion of
such other matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation
of Bank to make each Credit Extension, including the initial Credit Extension,
is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in Section
5 shall be true and correct in all material respects on and as of the date of
such Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would exist after giving effect to such Credit
Extension (provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date). The making of each Credit Extension shall be
deemed to be a representation and warranty by Borrower on the date of such
Credit Extension as to the accuracy of the facts referred to in this Section
3.2.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower grants and pledges to
Bank a continuing security interest in the Collateral to secure prompt repayment
of any and all Obligations and to secure prompt performance by Borrower of each
of its covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in later-acquired Collateral. Notwithstanding
any termination, Bank's Lien on the Collateral shall remain in effect for so
long as any Obligations are outstanding.
6
4.2 Perfection of Security Interest. Borrower authorizes Bank to
file at any time financing statements, continuation statements, and amendments
thereto that describe the Collateral and to describe the Collateral as all
assets of Borrower of the kind pledged hereunder and which contain any other
information required by the Code for the sufficiency of filing office acceptance
of any financing statement, continuation statement, or amendment, including
whether Borrower is an organization, the type of organization and any
organizational identification number issued to Borrower, if applicable. Borrower
shall from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral and other documents that Bank may reasonably request, in
form satisfactory to Bank, to perfect and continue perfected Bank's security
interests in the Collateral and in order to fully consummate all of the
transactions contemplated under the Loan Documents. Borrower shall have
possession of the Collateral, except where expressly otherwise provided in this
Agreement or where Bank chooses to perfect its security interest by possession
in addition to the filing of a financing statement. Where Collateral is in
possession of a third party bailee, Borrower shall take such steps as Bank
reasonably requests for Bank to (i) obtain an acknowledgment, in form and
substance satisfactory to Bank, of the bailee that the bailee holds such
Collateral for the benefit of Bank, (ii) obtain "control" of any Collateral
consisting of investment property, deposit accounts, letter-of-credit rights or
electronic chattel paper (as such items and the term "control" are defined in
Revised Article 9 of the Code) by causing the securities intermediary or
depositary institution or issuing bank to execute a control agreement in form
and substance satisfactory to Bank. Borrower will not create any chattel paper
without placing a legend on the chattel paper acceptable to Bank indicating that
Bank has a security interest in the chattel paper.
4.3 Right to Inspect. Bank (through any of its officers,
employees, or agents) shall have the right, upon reasonable prior notice, from
time to time during Borrower's usual business hours but no more than twice a
year (unless an Event of Default has occurred and is continuing), to inspect
Borrower's Books and to make copies thereof and to check, test, and appraise the
Collateral in order to verify Borrower's financial condition or the amount,
condition of, or any other matter relating to, the Collateral.
4.4 Lockbox. Borrower shall notify all account debtors to make
payments with respect to its Accounts directly to the lockbox established with
Bank (the "Lockbox"). Any payments received by Borrower with respect to its
Accounts by wire transfer shall be deposited directly in Borrower's primary
deposit accounts held with Bank. Bank shall have exclusive and unrestricted
access to the Lockbox. So long as no Event of Default has occurred and is
continuing, Bank shall transfer all funds received in the Lockbox in accordance
with Borrower's instructions. During the continuation of an Event of Default,
all funds received in the Lockbox shall be applied to reduce the Obligations,
subject to the terms of Section 2.4.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants as follows except as set forth in the
Schedule:
5.1 Due Organization and Qualification. Borrower and each
Subsidiary is a corporation (or limited liability company) duly existing under
the laws of its respective Organizational Jurisdiction and qualified and
licensed to do business in any state in which the conduct of its business or its
ownership of property requires that it be so qualified, except where the failure
to do so would not reasonably be expected to cause a Material Adverse Effect.
5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement by which
Borrower is bound. Borrower is not in default under any agreement by which it is
bound, except to the extent such default would not reasonably be expected to
cause a Material Adverse Effect.
5.3 Collateral. Borrower has rights in or the power to transfer
the Collateral, and its title to the Collateral is free and clear of Liens,
adverse claims, and restrictions on transfer or pledge except for Permitted
Liens. All Collateral is located solely in the Collateral States. The Eligible
Accounts are bona fide existing obligations. The property or services giving
rise to such Eligible Accounts has been delivered or rendered to the account
debtor or its agent for immediate shipment to and unconditional acceptance by
the account debtor subject to the audit disputes and other rights of the account
debtor arising in the ordinary course of business of Borrower.
7
Borrower has not received notice of actual or imminent Insolvency Proceeding of
any account debtor whose accounts are included in any Borrowing Base Certificate
as an Eligible Account. All Inventory is in all material respects of good and
merchantable quality, free from all material defects, except for Inventory for
which adequate reserves have been made. Except as set forth in the Schedule, no
security account or deposit account (excluding the Third Party Deposit Accounts)
is maintained or invested with a Person other than Bank or Bank's affiliates.
5.4 Intellectual Property Collateral. Borrower is the sole owner
of the Intellectual Property Collateral, except for licenses granted by Borrower
to its customers in the ordinary course of business. To the best of Borrower's
knowledge, each of the Copyrights, Trademarks and Patents is valid and
enforceable, and no part of the Intellectual Property Collateral has been judged
invalid or unenforceable, in whole or in part, and no claim has been made to
Borrower that any part of the Intellectual Property Collateral violates the
rights of any third party except to the extent such claim would not reasonably
be expected to cause a Material Adverse Effect. Except as set forth in the
Schedule, sublicensing fees received or to be received by Borrower with respect
to intellectual property do not give rise to more than 5% of its gross revenue
in any given month.
5.5 Name; Location of Chief Executive Office. Except as disclosed
in the Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof, and its exact legal name is as set forth
in the first paragraph of this Agreement. The chief executive office of Borrower
is located in its Chief Executive Office.
5.6 Litigation. Except as set forth in the Schedule, there are no
actions or proceedings pending by or against Borrower or any Subsidiary before
any court or administrative agency in which a likely adverse decision would
reasonably be expected to have a Material Adverse Effect, or a material adverse
effect on Borrower's interest or Bank's security interest in the Collateral.
5.7 No Material Adverse Change in Financial Statements. All
consolidating and consolidated financial statements related to Guarantor,
Borrower and any Subsidiary that are delivered by Borrower to Bank fairly
present in all material respects Guarantor's and Borrower's consolidating and
consolidated financial condition as of the date thereof and Guarantor's and
Borrower's consolidating and consolidated results of operations for the period
then ended. There has not been a material adverse change in the consolidated
financial condition of Guarantor or the financial condition of Borrower since
the date of the most recent of such financial statements submitted to Bank,
except for ordinary seasonal fluctuations in the ordinary course of business.
5.8 Solvency, Payment of Debts. Borrower is able to pay its debts
(including trade debts) as they mature; the fair saleable value of Borrower's
assets (including goodwill minus disposition costs) exceeds the fair value of
its liabilities; and Borrower is not left with unreasonably small capital after
the transactions contemplated by this Agreement.
5.9 Compliance with Laws and Regulations. Borrower and each
Subsidiary have met the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. No event has occurred resulting
from Borrower's failure to comply with ERISA that is reasonably likely to result
in Borrower's incurring any liability that could have a Material Adverse Effect.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940.
Borrower is not engaged principally, or as one of the important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations T and U of the Board of
Governors of the Federal Reserve System). Borrower has complied in all material
respects with all the provisions of the Federal Fair Labor Standards Act.
Borrower is in compliance with all environmental laws, regulations and
ordinances except where the failure to comply is not reasonably likely to have a
Material Adverse Effect. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect. Borrower and each Subsidiary have filed or caused to be filed
all tax returns required to be filed, and have paid, or have made adequate
provision for the payment of, all taxes reflected therein except those being
contested in good faith with adequate reserves under GAAP or where the failure
to file such returns or pay such taxes would not reasonably be expected to have
a Material Adverse Effect.
5.10 Subsidiaries. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
8
5.11 Government Consents. Borrower and each Subsidiary have
obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all governmental authorities that are
necessary for the continued operation of Borrower's business as currently
conducted, except where the failure to do so would not reasonably be expected to
cause a Material Adverse Effect.
5.12 Intentionally Omitted.
5.13 Full Disclosure. No representation, warranty or other
statement made by Borrower in any certificate or written statement furnished to
Bank taken together with all such certificates and written statements furnished
to Bank contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading, it being recognized by Bank that the
projections and forecasts provided by Borrower in good faith and based upon
reasonable assumptions are not to be viewed as facts and that actual results
during the period or periods covered by any such projections and forecasts may
differ from the projected or forecasted results.
6. AFFIRMATIVE COVENANTS.
Borrower covenants that, until payment in full of all outstanding
Obligations, and for so long as Bank may have any commitment to make a Credit
Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing and Government Compliance. Borrower shall
maintain its and each of its Subsidiaries' corporate existence and good standing
in its respective Organizational Jurisdiction, shall maintain qualification and
good standing in each jurisdiction in which the failure to so qualify could have
a Material Adverse Effect, and shall furnish to Bank the organizational
identification number issued to Borrower by the authorities of the state in
which Borrower is organized, if applicable. Borrower shall meet, and shall cause
each Subsidiary to meet, the minimum funding requirements of ERISA with respect
to any employee benefit plans subject to ERISA, except where the failure to meet
such requirements would not reasonably be expected to have a Material Adverse
Effect. Borrower shall comply in all material respects with all applicable
Environmental Laws, and maintain all material permits, licenses and approvals
required thereunder where the failure to do so could have a Material Adverse
Effect. Borrower shall comply, and shall cause each Subsidiary to comply, with
all statutes, laws, ordinances and government rules and regulations to which it
is subject, and shall maintain, and shall cause each of its Subsidiaries to
maintain, in force all licenses, approvals and agreements, the loss of which or
failure to comply with which would reasonably be expected to have a Material
Adverse Effect, or a material adverse effect on the Collateral or the priority
of Bank's Lien on the Collateral.
6.2 Financial Statements, Reports, Certificates. Borrower shall
deliver to Bank:
(a) as soon as available, but in any event within 35 days
after the end of each calendar month, a company prepared consolidated and
consolidating balance sheet and income statement of Guarantor covering
Borrower's operations during such period, in a form reasonably acceptable to
Bank and certified by a Responsible Officer;
(b) as soon as available, but in any event within 90 days
after the end of Guarantor's fiscal year, audited consolidated and unaudited
consolidating financial statements of Guarantor prepared in accordance with
GAAP, consistently applied, together with an opinion which is unqualified or
otherwise consented to in writing by Bank on such consolidated financial
statements of an independent certified public accounting firm reasonably
acceptable to Bank;
(c) as soon as available, but in any event within 90 days
after the end of BSD's fiscal year, audited consolidated and unaudited
consolidating financial statements of BSD prepared in accordance with GAAP,
consistently applied, together with an opinion which is unqualified or otherwise
consented to in writing by Bank on such consolidated financial statements of an
independent certified public accounting firm reasonably acceptable to Bank;
9
(d) as soon as available, but in any event within 45 days
after the end of Guarantor's fiscal quarter, all reports on Form 10-Q filed by
Guarantor with the Securities and Exchange Commission;
(e) as soon as available, but in any event within 90 days
after the end of Guarantor's fiscal year, all reports on Form 10-K filed by
Guarantor with the Securities and Exchange Commission;
(f) if applicable, copies of all other statements, reports
and notices sent or made available generally by Borrower or Guarantor to its
security holders or to any holders of Subordinated Debt;
(g) promptly upon receipt of notice thereof, a report of any
legal actions pending or threatened against Borrower or any Subsidiary that
could result in damages or costs to Borrower or any Subsidiary of $250,000 or
more;
(h) such budgets, sales projections, operating plans or
other financial information generally prepared by Borrower in the ordinary
course of business as Bank may reasonably request from time to time;
(i) within 30 days of the last day of each fiscal quarter, a
report signed by Borrower, in form reasonably acceptable to Bank, listing any
applications or registrations that Borrower has made or filed in respect of any
Patents, Copyrights or Trademarks and the status of any outstanding applications
or registrations, as well as any material change in Borrower's Intellectual
Property Collateral, including but not limited to any subsequent ownership right
of Borrower in or to any Trademark, Patent or Copyright not specified in
Exhibits A, B, and C of the Intellectual Property Security Agreement delivered
to Bank by Borrower in connection with this Agreement;
(j) within 30 days after the last day of each month,
Borrower shall deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in substantially the form of Exhibit D hereto, together with
aged listings by invoice date of accounts receivable and accounts payable;
(k) within 35 days after the last day of each month,
Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit E hereto;
(l) on or before January 31 of each year, a preliminary
draft of Borrower's financial projections (including income statement and
balance sheet) for the following fiscal year;
(m) on or before February 28 of each year, a copy of
Borrower's financial projections (including income statement and balance sheet)
for the following fiscal year, as approved by Borrower's Board of Directors;
(n) as soon as possible and in any event within 3 calendar
days after becoming aware of the occurrence or existence of an Event of Default
hereunder, a written statement of a Responsible Officer setting forth details of
the Event of Default, and the action which Borrower has taken or proposes to
take with respect thereto; and
(o) Bank shall have a right from time to time, upon
reasonable prior notice, hereafter to audit Borrower's Accounts and appraise
Collateral at Borrower's expense, provided that such audits will be conducted no
more often than every 6 months unless an Event of Default has occurred and is
continuing.
6.3 Inventory; Returns. Borrower shall keep all Inventory in good
and merchantable condition, free from all material defects except for Inventory
for which adequate reserves have been made. Returns and allowances, if any, as
between Borrower and its account debtors shall be on the same basis and in
accordance with the usual customary practices of Borrower, as they exist on the
Closing Date. Borrower shall promptly notify Bank of all returns and recoveries
and of all disputes and claims involving more than $100,000.
10
6.4 Taxes. Borrower shall make, and cause each Subsidiary to make,
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, including, but not
limited to, those laws concerning income taxes, F.I.C.A., F.U.T.A. and state
disability, and will execute and deliver to Bank, on demand, proof satisfactory
to Bank indicating that Borrower or a Subsidiary has made such payments or
deposits and any appropriate certificates attesting to the payment or deposit
thereof; provided that Borrower or a Subsidiary need not make any payment if the
amount or validity of such payment is contested in good faith by appropriate
proceedings and is reserved against (to the extent required by GAAP) by
Borrower.
6.5 Insurance.
(a) Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as ordinarily insured against by
other owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain liability
and other insurance in amounts and of a type that are customary to businesses
similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as reasonably satisfactory to Bank. All
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee, and all liability insurance policies shall show Bank as an additional
insured and specify that the insurer must give at least 20 days notice to Bank
before canceling its policy for any reason. Upon Bank's request, Borrower shall
deliver to Bank certified copies of the policies of insurance and evidence of
all premium payments. If no Event of Default has occurred and is continuing,
proceeds payable under any casualty policy will, at Borrower's option, be
payable to Borrower to replace the property subject to the claim, provided that
any such replacement property shall be deemed Collateral in which Bank has been
granted a first priority security interest. If an Event of Default has occurred
and is continuing, all proceeds payable under any such policy shall, at Bank's
option, be payable to Bank to be applied on account of the Obligations.
6.6 Primary Depository. Except for those accounts specified on the
Schedule that support existing letters of credit issued at the application of
Borrower and the Third Party Deposit Accounts, all primary depository, operating
and investment accounts of Borrower shall be maintained with Bank or Bank's
Affiliates.
6.7 Financial Covenants. Borrower shall at all times maintain the
following financial ratios and covenants, measured as of the last day of each
calendar month unless stated otherwise:
(a) Liquidity Ratio. A ratio of Cash (including all Cash held
in a sinking fund with Bank for repayment of the Bonds) plus Eligible Accounts
to the remainder of (i) all Indebtedness to Bank minus (ii) 65% of the aggregate
original acquisition cost of the Equipment purchased by Borrower with Bond
proceeds and Equipment Advances of at least 1.25 to 1.00.
(b) Minimum Cash. A balance of Cash at Bank and Cash at Bank's
affiliates covered by a control agreement (including all Cash held in a sinking
fund with Bank for repayment of the Bonds) of not less than $1,250,000; provided
that in the event the appraisal of Equipment described in Section 3.1(j)
reflects an aggregate orderly liquidation value of less than $3,500,000 (such
deficiency, herein called a "Shortfall"), the $1,250,000 minimum cash
requirement shall be automatically increased by the amount of the Shortfall. For
example, if the appraisal reflects an aggregate orderly liquidation value of
$3,000,000, Borrower will be required to maintain Cash at Bank and Cash at
Bank's affiliates of not less than $1,750,000.
(c) Tangible Net Worth. A consolidated Tangible Net Worth of
Guarantor not less than the greater of (i) $20,000,000 or (ii) $2,000,000 plus
the amount of Tangible Net Worth of Guarantor required to be maintained pursuant
to the terms of the loan documents between Borrower and IBM Belgium Financial
Services S.A., Congress Financial Corporation (Southwest) or IBM Credit
Corporation, as from time to time amended, modified or restated.
11
(d) EBITDA. For each month ending during the period beginning
December 2004 through and including May 2005, the variance, if negative (but
expressed as a positive number), between Borrower's EBITDA for the Applicable
Period and (i) for the period ending December 2004, $1,669,000, and (ii) for
each period thereafter, the EBITDA set forth in the Approved Projections for
such period shall not exceed the Allowed Variance. Beginning with June 2005 and
each month thereafter, the variance, if negative (but expressed as a positive
number), between Borrower's EBITDA for the twelve consecutive month period
ending on the date of calculation and the EBITDA set forth in the Approved
Projections for such twelve consecutive month period shall not exceed
$2,400,000. As used herein, "EBITDA" shall mean, for any period of calculation,
Borrower's earnings for such period before interest and taxes plus depreciation,
amortization and non-cash stock compensation accruals to the extent deducted in
the calculation of such earnings. "Applicable Period" shall mean, as of any date
of calculation, the period beginning on June 1, 2004, through and including such
date of calculation. "Allowed Variance" means, for any date of calculation,
$200,000 multiplied by the number of months included in the Applicable Period
for such date of calculation. "Approved Projections" means for any period of
time, the projections for such period that have been approved by Borrower's
Board of Directors and delivered to Bank. Borrower shall deliver to Bank (i) a
preliminary draft of the projections for the next fiscal year of Borrower by
January 31 of each year and (ii) the updated projections approved by Borrower's
Board of Directors for the next fiscal year not later than February 28 of each
year.
6.8 Registration of Intellectual Property Rights.
(a) Borrower shall register or cause to be registered on an
expedited basis (to the extent not already registered) with the United States
Patent and Trademark Office or the United States Copyright Office, as the case
may be, those registerable intellectual property rights now owned or hereafter
developed or acquired by Borrower, to the extent that Borrower, in its
reasonable business judgment, deems it appropriate to so protect such
intellectual property rights.
(b) Borrower shall promptly give Bank written notice of any
applications or registrations of intellectual property rights filed with the
United States Patent and Trademark Office, including the date of such filing and
the registration or application numbers, if any.
(c) Borrower shall (i) give Bank not less than 30 days prior
written notice of the filing of any applications or registrations with the
United States Copyright Office, including the title of such intellectual
property rights to be registered, as such title will appear on such applications
or registrations, and the date such applications or registrations will be filed,
and (ii) prior to the filing of any such applications or registrations, shall
execute such documents as Bank may reasonably request for Bank to maintain its
perfection in such intellectual property rights to be registered by Borrower,
and upon the request of Bank, shall file such documents simultaneously with the
filing of any such applications or registrations. Upon filing any such
applications or registrations with the United States Copyright Office, Borrower
shall promptly provide Bank with (i) a copy of such applications or
registrations, without the exhibits, if any, thereto, (ii) evidence of the
filing of any documents requested by Bank to be filed for Bank to maintain the
perfection and priority of its security interest in such intellectual property
rights, and (iii) the date of such filing.
(d) Borrower shall execute and deliver such additional
instruments and documents from time to time as Bank shall reasonably request to
perfect and maintain the priority of Bank's security interest in the
Intellectual Property Collateral.
(e) Borrower shall (i) protect, defend and maintain the
validity and enforceability of the trade secrets, Trademarks, Patents and
Copyrights, (ii) use commercially reasonable efforts to detect infringements of
the Trademarks, Patents and Copyrights and promptly advise Bank in writing of
material infringements detected and (iii) not allow any material Trademarks,
Patents or Copyrights to be abandoned, forfeited or dedicated to the public
without the written consent of Bank, which shall not be unreasonably withheld.
(f) Bank may audit Borrower's Intellectual Property Collateral
to confirm compliance with this Section 6.8, provided such audit may not occur
more often than twice per year, unless an Event of Default has occurred and is
continuing. Bank shall have the right, but not the obligation, to take, at
Borrower's sole expense,
12
any actions that Borrower is required under this Section 6.8 to take but which
Borrower fails to take, after 15 days' notice to Borrower.
(g) Borrower shall reimburse and indemnify Bank for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this Section 6.8.
6.9 Chase Lockbox. Borrower shall use its best efforts to obtain a
control agreement in favor of Bank that is executed by Chase Bank on the lockbox
and related deposit account of Borrower held with Chase Bank.
6.10 Further Assurances. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
6.11 Weekly Reporting. During any period of time that the Adjusted
Tangible Net Worth of Guarantor is less than $21,000,000, Borrower shall deliver
the information described in Section 6.2(j) on the second Business Day of each
calendar week for the immediately preceding calendar week.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until the outstanding Obligations are paid in full or for so
long as Bank may have any commitment to make any Credit Extensions, Borrower
will not do any of the following without Bank's prior written consent, which
shall not be unreasonably withheld:
7.1 Dispositions. Convey, sell, lease, license, transfer or
otherwise dispose of (collectively, to "Transfer"), or permit any of its
Subsidiaries to Transfer, all or any part of its business or property, other
than Permitted Transfers.
7.2 Change in Name, Location or Executive Office, Change in
Business; Change in Fiscal Year; Change in Control. Change its name,
Organizational Jurisdiction, or relocate its chief executive office without 30
days prior written notification to Bank; engage in any business, or permit any
of its Subsidiaries to engage in any business, other than or reasonably related
or incidental to the businesses currently engaged in by Borrower; change its
fiscal year end; have a Change in Control.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of
its Subsidiaries to merge or consolidate, with or into any other business
organization (other than mergers or consolidations of a Subsidiary into another
Subsidiary or into Borrower or Guarantor), or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person (other than acquisitions by Borrower, Guarantor or a
Subsidiary of an existing Subsidiary's capital stock or property) except where
(i) such transactions do not in the aggregate exceed $250,000 and (ii) no Event
of Default has occurred, is continuing or would exist after giving effect to the
transactions.
7.4 Indebtedness. Create, incur, assume, guarantee or be or remain
liable with respect to any Indebtedness, or permit any Subsidiary so to do,
other than Permitted Indebtedness, or prepay any Indebtedness or take any
actions which impose on Borrower an obligation to prepay any Indebtedness,
except Indebtedness to Bank, if either before or after giving effect to such
prepayment, an Event of Default has occurred and is continuing.
7.5 Encumbrances. Create, incur, assume or allow any Lien with
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens, or covenant to any other
Person that Borrower in the future will refrain from creating, incurring,
assuming or allowing any Lien with respect to any of Borrower's property.
13
7.6 Distributions. Pay any dividends or make any other distribution
or payment on account of or in redemption, retirement or purchase of any capital
stock, except that Subsidiaries may pay dividends and make such distributions or
payments to Borrower and Borrower may (i) repurchase the stock of former
employees pursuant to stock repurchase agreements as long as an Event of Default
does not exist prior to such repurchase or would not exist after giving effect
to such repurchase, and (ii) repurchase the stock of former employees pursuant
to stock repurchase agreements by the cancellation of indebtedness owed by such
former employees to Borrower regardless of whether an Event of Default exists.
7.7 Investments. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments, or maintain or invest any of its securities
accounts or deposit accounts with a Person other than Bank or Bank's affiliates
(excluding those existing accounts specified in the Schedule and the Third Party
Deposit Accounts) unless such Person has entered into a control agreement with
Bank, in form and substance satisfactory to Bank, or suffer or permit any
Subsidiary (other than Business Supplies Distributors Holdings, LLC and its
Subsidiaries with respect to their existing Indebtedness owed to IBM Credit
Corporation, IBM Belgium Financial Services S.A. and Congress Financial
Corporation (Southwest)) to be a party to, or be bound by, an agreement that
restricts such Subsidiary from paying dividends or otherwise distributing
property to Borrower.
7.8 Transactions with Affiliates. Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrower
except for (a) the transaction management fees charged to Supplies Distributors,
Inc. and its Subsidiaries by Borrower and its Subsidiaries, (b) interest
expenses on intercompany Indebtedness owed to Borrower or Guarantor, (c)
intercompany tax payments, (d) Permitted Investments, (e) Permitted
Indebtedness, and (f) transactions that are in the ordinary course of Borrower's
business, upon fair and reasonable terms that are no less favorable to Borrower
than would be obtained in an arm's length transaction with a non-affiliated
Person.
7.9 Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
material provision affecting Bank's rights contained in any documentation
relating to the Subordinated Debt without Bank's prior written consent, which
consent shall not be unreasonably withheld or delayed.
7.10 Inventory and Equipment. Store the Inventory or the Equipment
with a bailee, warehouseman, or similar third party unless the third party has
been notified of Bank's security interest and Bank (a) has received an
acknowledgment from the third party that it is holding or will hold the
Inventory or Equipment for Bank's benefit or (b) is in possession of the
warehouse receipt, where negotiable, covering such Inventory or Equipment.
Except for Inventory sold in the ordinary course of business and except for such
other locations as Bank may approve in writing, Borrower shall keep the
Inventory and Equipment only at the location set forth in Section 10 of the
Schedule, and such other locations of which Borrower gives Bank prior written
notice and as to which Bank files a financing statement where needed to perfect
its security interest.
7.11 No Investment Company. Become or be controlled by an
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Credit Extension for such
purpose.
7.12 Capital Expenditures. Make capital expenditures in an aggregate
amount (including capital expenditures made by Borrower's Subsidiaries) greater
than (i) $4,000,000 (excluding capital expenditures financed with Bond Proceeds
and the Equipment Advances) in each of Borrower's fiscal years 2004 and 2005,
and (ii) $3,000,000 in Borrower's fiscal year 2006, and each fiscal year
thereafter. As used herein, the term "capital expenditures" does not include (i)
any software that is internally developed by Borrower, whether or not Borrower
capitalizes the development costs, and (ii) any equipment ordered, but not yet
accepted or paid for, by Borrower.
7.13 Outgoing Wires. During any period in which the ratio of
Liquidity Ratio set forth in Section 6.7(a) is less than 2.0 to 1.0, Borrower
will not wire any funds from its deposit accounts other than wire transfers to
the account debtors and freight providers listed on the Schedule, without the
prior approval of Bank. It
14
being understood that as of the end of each fiscal quarter, Borrower may amend
or modify the list of account debtors and freight providers set forth on the
attached Schedule by written notice to Bank.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay any of the Obligations
when due;
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under Section
6.2(j), 6.2(l) or 6.7 or violates any of the covenants contained in Article 7 of
this Agreement; or
(b) If Borrower fails or neglects to perform or observe any
other material term, provision, condition, covenant contained in this Agreement,
in any of the Loan Documents, or in any other present or future agreement
between Borrower and Bank and as to any default under such other term,
provision, condition or covenant that can be cured, has failed to cure such
default within 10 days after Borrower receives notice thereof or any officer of
Borrower becomes aware thereof; provided, however, that if the default cannot by
its nature be cured within the 10 day period or cannot after diligent attempts
by Borrower be cured within such 10 day period, and such default is likely to be
cured within a reasonable time, then Borrower shall have an additional
reasonable period (which shall not in any case exceed 30 days) to attempt to
cure such default, and within such reasonable time period the failure to have
cured such default shall not be deemed an Event of Default but no Credit
Extensions will be made;
8.3 Defective Perfection. If Bank shall receive at any time
following the Closing Date an SOS Report indicating that except for Permitted
Liens, Bank's security interest in the Collateral is not prior to all other
security interests or Liens of record reflected in the report;
8.4 Material Adverse Change. If there occurs a material adverse
change in Borrower's business or financial condition, or if there is a material
impairment of the prospect of repayment of any portion of the Obligations or a
material impairment of the value or priority of Bank's security interests in the
Collateral;
8.5 Attachment. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within 10 days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be made during such cure period);
8.6 Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 45 days (provided that no
Credit Extensions will be made prior to the dismissal of such Insolvency
Proceeding);
8.7 Other Agreements. If there is a default or other failure to
perform in any agreement to which Borrower is a party with a third party or
parties resulting in a right by such third party or parties, whether or not
exercised, to accelerate the maturity of any Indebtedness in an amount in excess
of $250,000 or that could have a Material Adverse Effect;
15
8.8 Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent the payment is allowed under any
subordination agreement entered into with Bank;
8.9 Judgments. If a judgment or judgments for the payment of money
in an amount, individually or in the aggregate, of at least $500,000 shall be
rendered against Borrower and shall remain unsatisfied and unstayed for a period
of 10 days (provided that no Credit Extensions will be made prior to the
satisfaction or stay of the judgment); or
8.10 Misrepresentations. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to Bank by any Responsible
Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document.
8.11 Guaranty. If any guaranty of all or a portion of the
Obligations (a "Guaranty) ceases for any reason to be in full force and effect,
or any guarantor fails to perform any obligation under any Guaranty or a
security agreement securing any Guaranty (collectively, the "Guaranty
Documents"), or any event of default occurs under any Guaranty Document or any
guarantor revokes or purports to revoke a Guaranty, or any material
misrepresentation or material misstatement exists now or hereafter in any
warranty or representation set forth in any Guaranty Document or in any
certificate delivered to Bank in connection with any Guaranty Document, or if
any of the circumstances described in Sections 8.3 through 8.9 occur with
respect to Guarantor or any other guarantor.
9. BANK'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.6, all Obligations shall become immediately due and payable without
any action by Bank);
(b) Demand that Borrower (i) deposit cash with Bank in an
amount equal to the amount of any Letters of Credit remaining undrawn, as
collateral security for the repayment of any future drawings under such Letters
of Credit, and (ii) pay in advance all Letter of Credit fees scheduled to be
paid or payable over the remaining term of the Letters of Credit, and Borrower
shall promptly deposit and pay such amounts.
(c) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(d) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(e) Make such payments and do such acts as Bank considers
necessary or reasonable to protect its security interest in the Collateral.
Borrower agrees to assemble the Collateral if Bank so requires, and to make the
Collateral available to Bank as Bank may designate. Borrower authorizes Bank to
enter the premises where the Collateral is located, to take and maintain
possession of the Collateral, or any part of it, and to pay, purchase, contest,
or compromise any encumbrance, charge, or lien which in Bank's determination
appears to be prior or superior to its security interest and to pay all expenses
incurred in connection therewith. With respect to any of Borrower's owned
premises, Borrower hereby grants Bank a license to enter into possession of such
premises and to occupy the same, without charge, in order to exercise any of
Bank's rights or remedies provided herein, at law, in equity, or otherwise;
(f) Set off and apply to the Obligations any and all (i)
balances and deposits of Borrower held by Bank, and (ii) indebtedness at any
time owing to or for the credit or the account of Borrower held by Bank;
16
(g) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a license or other right, solely
pursuant to the provisions of this Section 9.1, to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section 9.1, Borrower's
rights under all licenses and all franchise agreements shall inure to Bank's
benefit;
(h) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply any proceeds to the Obligations
in whatever manner or order Bank deems appropriate. Bank may sell the Collateral
without giving any warranties as to the Collateral. Bank may specifically
disclaim any warranties of title or the like. This procedure will not be
considered adversely to affect the commercial reasonableness of any sale of the
Collateral. If Bank sells any of the Collateral upon credit, Borrower will be
credited only with payments actually made by the purchaser, received by Bank,
and applied to the indebtedness of the purchaser. If the purchaser fails to pay
for the Collateral, Bank may resell the Collateral and Borrower shall be
credited with the proceeds of the sale;
(i) Bank may credit bid and purchase at any public sale;
(j) Apply for the appointment of a receiver, trustee,
liquidator or conservator of the Collateral, without notice and without regard
to the adequacy of the security for the Obligations and without regard to the
solvency of Borrower, any guarantor or any other Person liable for any of the
Obligations; and
(k) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
Bank may comply with any applicable state or federal law requirements in
connection with a disposition of the Collateral and compliance will not be
considered adversely to affect the commercial reasonableness of any sale of the
Collateral.
9.2 Power of Attorney. Effective only upon the occurrence and during
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank's designated officers, or employees) as Borrower's true
and lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims
under and decisions with respect to Borrower's policies of insurance; (f) settle
and adjust disputes and claims respecting the accounts directly with account
debtors, for amounts and upon terms which Bank determines to be reasonable; (g)
to modify, in its sole discretion, any intellectual property security agreement
entered into between Borrower and Bank without first obtaining Borrower's
approval of or signature to such modification by amending Exhibits A, B, and C,
thereof, as appropriate, to include reference to any right, title or interest in
any Copyrights, Patents or Trademarks acquired by Borrower after the execution
hereof or to delete any reference to any right, title or interest in any
Copyrights, Patents or Trademarks in which Borrower no longer has or claims to
have any right, title or interest; (h) to file, in its sole discretion, one or
more financing or continuation statements and amendments thereto, relative to
any of the Collateral without the signature of Borrower where permitted by law;
and (i) to transfer the Intellectual Property Collateral into the name of Bank
or a third party to the extent permitted under the California Uniform Commercial
Code; provided Bank may exercise such power of attorney to sign the name of
Borrower on any of the documents described in clauses (g), (h) and (i) above
regardless of whether an Event of Default has occurred. The appointment of Bank
as Borrower's attorney in fact, and each and every one of Bank's rights and
powers, being coupled with an interest, is irrevocable until all of the
Obligations have been fully repaid and performed and Bank's obligation to
provide advances hereunder is terminated.
9.3 Accounts Collection. At any time after the occurrence and during
the continuation of an Event of Default, Bank may notify any Person owing funds
to Borrower of Bank's security interest in such funds and
17
verify the amount of such Account. Borrower shall collect all amounts owing to
Borrower for Bank, receive in trust all payments as Bank's trustee, and
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Bank may do any or all of the following
after reasonable notice to Borrower: (a) make payment of the same or any part
thereof; (b) set up such reserves under the Revolving Facility as Bank deems
necessary to protect Bank from the exposure created by such failure; or (c)
obtain and maintain insurance policies of the type discussed in Section 6.5 of
this Agreement, and take any action with respect to such policies as Bank deems
prudent. Any amounts so paid or deposited by Bank shall constitute Bank
Expenses, shall be immediately due and payable, and shall bear interest at the
then applicable rate hereinabove provided, and shall be secured by the
Collateral. Any payments made by Bank shall not constitute an agreement by Bank
to make similar payments in the future or a waiver by Bank of any Event of
Default under this Agreement.
9.5 Bank's Liability for Collateral. Bank has no obligation to clean
up or otherwise prepare the Collateral for sale. All risk of loss, damage or
destruction of the Collateral shall be borne by Borrower.
9.6 No Obligation to Pursue Others. Bank has no obligation to
attempt to satisfy the Obligations by collecting them from any other person
liable for them and Bank may release, modify or waive any collateral provided by
any other Person to secure any of the Obligations, all without affecting Bank's
rights against Borrower. Borrower waives any right it may have to require Bank
to pursue any other Person for any of the Obligations.
9.7 Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given. Borrower expressly agrees that this Section 9.7
may not be waived or modified by Bank by course of performance, conduct,
estoppel or otherwise.
9.8 Demand; Protest. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower: Priority Fulfillment Services, Inc.
500 N. Central Expressway, 5th Floor
Plano, Texas 75074
Attn: Thomas J. Madden
FAX: (972) 633-3952
If to Bank: Comerica Bank
2321 Rosecrans Ave., Suite 5000
El Segundo, CA 90245
Attn: Manager
18
FAX: (310) 297-2290
with a copy to: Comerica Bank
801 E. Campbell Road, Suite 142
Richardson, Texas 75081
Attn: Stu Bell
FAX: (214) 570-7979
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. This Agreement shall be
governed by, and construed in accordance with, the internal laws of the State of
California, without regard to principles of conflicts of law. Each of Borrower
and Bank hereby submits to the exclusive jurisdiction of the state and Federal
courts located in the County of Santa Clara, State of California. BANK AND
BORROWER EACH ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL
ONE, BUT THAT IT MAY BE WAIVED. EACH OF THEM, AFTER CONSULTING OR HAVING HAD THE
OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY
LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY RELATED INSTRUMENT
OR LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR
ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTION
OF ANY OF THEM. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN
ANY RESPECT OR RELINQUISHED BY BANK OR BORROWER, EXCEPT BY A WRITTEN INSTRUMENT
EXECUTED BY EACH OF THEM.
12. REFERENCE PROVISION. If and only if the jury trial waiver set forth in
Section 11 of this Agreement is invalidated for any reason by a court of law,
statute or otherwise, the reference provisions set forth below shall be
substituted in place of the jury trial waiver. So long as the jury trial waiver
remains valid, the reference provisions set forth in this Section shall be
inapplicable.
a. Each controversy, dispute or claim (each, a "Claim") between the
parties arising out of or relating to this Agreement, any security agreement
executed by Borrower in favor of Bank, any note executed by Borrower in favor of
Bank or any other document, instrument or agreement executed by Borrower with or
in favor of Bank (collectively in this Section, the "Loan Documents"), other
than (i) all matters in connection with nonjudicial foreclosure of security
interests in real or personal property; or (ii) the appointment of a receiver or
the exercise of other provisional remedies (any of which may be initiated
pursuant to applicable law) that are not settled in writing within fifteen (15)
days after the date on which a party subject to the Loan Documents gives written
notice to all other parties that a Claim exists (the "Claim Date") shall be
resolved by a reference proceeding in California in accordance with the
provisions of Section 638 et seq. of the California Code of Civil Procedure, or
their successor sections ("CCP"), which shall constitute the exclusive remedy
for the resolution of any Claim concerning the Loan Documents, including whether
such Claim is subject to the reference proceeding. Except as set forth in this
section, the parties waive the right to initiate legal proceedings against each
other concerning each such Claim. Venue for these proceedings shall be in the
Superior Court in the County where the real property, if any, is located or in a
County where venue is otherwise appropriate under state law (the "Court"). By
mutual agreement, the parties shall select a retired Judge of the Court to serve
as referee, and if they cannot so agree within fifteen (15) days after the Claim
Date, the Presiding Judge of the Court (or his or her representative) shall
promptly select the referee. A request for appointment of a referee may be heard
on an ex parte or expedited basis. The referee shall be appointed to sit as a
temporary judge, with all the powers for a temporary judge, as authorized by
law, and upon selection should take and subscribe to the oath of office as
provided for in Rule 244 of the California Rules of Court (or any subsequently
enacted Rule). Each party shall have one peremptory challenge pursuant to CCP
Section 170.6. Upon being selected, the referee shall (a) be requested to set
the matter for a status and trial-setting conference within fifteen (15) days
after the date of selection and (b) if practicable, try any and all issues of
law or fact and report a statement of decision upon them within ninety (90) days
of the date of selection. The referee will have power to expand or limit the
amount of discovery a party may employ. Any decision rendered by the referee
will be final, binding and conclusive, and judgment shall be entered pursuant to
CCP Section 644 in any court in the State of
19
California having jurisdiction. The parties shall complete all discovery no
later than fifteen (15) days before the first trial date established by the
referee. The referee may extend such period in the event of a party's refusal to
provide requested discovery for any reason whatsoever, including, without
limitation, legal objections raised to such discovery or unavailability of a
witness due to absence or illness. No party shall be entitled to "priority" in
conducting discovery. Either party may take depositions upon seven (7) days
written notice, and shall respond to requests for production or inspection of
documents within ten (10) days after service. All disputes relating to discovery
which cannot be resolved by the parties shall be submitted to the referee whose
decision shall be final and binding upon the parties. Pending appointment of the
referee as provided herein, the Superior Court is empowered to issue temporary
and/or provisional remedies, as appropriate.
b. Except as expressly set forth herein, the referee shall determine
the manner in which the reference proceeding is conducted including the time and
place of all hearings, the order of presentation of evidence, and all other
questions that arise with respect to the course of the reference proceeding.
Except for trial, all proceedings and hearings conducted before the referee
shall be conducted without a court reporter unless a party requests a court
reporter. The party making such a request shall have the obligation to arrange
for and pay for the court reporter. Subject to the referee's power to award
costs to the prevailing party, the parties shall equally bear the costs of the
court reporter at the trial and the referee's expenses.
c. The referee shall determine all issues in accordance with
existing California case and statutory law. California rules of evidence
applicable to proceedings at law will apply to the reference proceeding. The
referee shall be empowered to enter equitable as well as legal relief, to
provide all temporary and/or provisional remedies and to enter equitable orders
that shall be binding upon the parties. At the close of the reference
proceeding, the referee shall issue a single judgment at disposing of all the
claims of the parties that are the subject of the reference. The parties reserve
the right (i) to contest or appeal from the final judgment or any appealable
order or appealable judgment entered by the referee and (ii) to obtain findings
of fact, conclusions of laws, a written statement of decision, and (iii) to move
for a new trial or a different judgment, which new trial, if granted, shall be a
reference proceeding under this provision.
d. If the enabling legislation which provides for appointment of a
referee is repealed (and no successor statute is enacted), any dispute between
the parties that would otherwise be determined by the reference procedure herein
described will be resolved and determined by arbitration conducted by a retired
judge of the Court, in accordance with the California Arbitration Act
Section 1280 through Section 1294.2 of the CCP as amended from time to time. The
limitations with respect to discovery as set forth in this Section shall apply
to any such arbitration proceeding.
13. GENERAL PROVISIONS.
13.1 Successors and Assigns. This Agreement shall bind and inure to
the benefit of the respective successors and permitted assigns of each of the
parties and shall bind all persons who become bound as a debtor to this
Agreement; provided, however, that neither this Agreement nor any rights
hereunder may be assigned by Borrower without Bank's prior written consent,
which consent may be granted or withheld in Bank's sole discretion. Bank shall
have the right without the consent of or notice to Borrower to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Bank's obligations, rights and benefits hereunder.
13.2 Indemnification. Borrower shall defend, indemnify and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement, except
for obligations, demands, claims and liabilities caused by Bank's gross
negligence or willful misconduct; and (b) all losses or Bank Expenses in any way
suffered, incurred, or paid by Bank, its officers, employees and agents as a
result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
INCLUDING ANY OBLIGATIONS, DEMANDS, CLAIMS, LIABILITIES AND LOSSES RESULTING
FROM BANK'S OWN NEGLIGENCE OR ARISING OUT OF ANY CLAIM OR THEORY OF STRICT
LIABILITY, except for losses caused by Bank's gross negligence or willful
misconduct.
13.3 Time of Essence. Time is of the essence for the performance of
all obligations set forth in this Agreement.
20
13.4 Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
13.5 Amendments in Writing, Integration. All amendments to or
terminations of this Agreement must be in writing. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties hereto with respect to the subject matter of this Agreement, if any, are
merged into this Agreement and the Loan Documents.
13.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
13.7 Survival. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 13.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
13.8 Confidentiality. In handling any confidential information, Bank
and all employees and agents of Bank shall exercise the same degree of care that
Bank exercises with respect to its own proprietary information of the same types
to maintain the confidentiality of any non-public information thereby received
or received pursuant to this Agreement except that disclosure of such
information may be made (i) to the subsidiaries or affiliates of Bank in
connection with their present or prospective business relations with Borrower,
(ii) to prospective transferees or purchasers of any interest in the Loans,
provided that they have entered into a comparable confidentiality agreement in
favor of Borrower and have delivered a copy to Borrower, (iii) as required by
law, regulations, rule or order, subpoena, judicial order or similar order, (iv)
as may be required in connection with the examination, audit or similar
investigation of Bank and (v) as Bank may determine in connection with the
enforcement of any remedies hereunder. Confidential information hereunder shall
not include information that either: (a) is in the public domain or in the
knowledge or possession of Bank when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank through no fault of Bank; or (b) is
disclosed to Bank by a third party, provided Bank does not have actual knowledge
that such third party is prohibited from disclosing such information.
13.9 Restatement. This Agreement restates, amends and continues in
its entirety that certain Loan and Security Agreement dated as of March 28, 2003
(as heretofore amended, the "Original Agreement"), among Borrower, Priority
Fulfillment Services of Canada, Inc. ("PFS Canada"), and Bank, and all of the
terms and provisions hereof shall supersede the terms and provisions thereof.
This Agreement renews, extends, and continues all liens, rights and security
interests on any property of Borrower existing by virtue of the Original
Agreement, but the terms and provisions and conditions of such liens, rights,
and security interests shall hereafter be governed in all respects by this
Agreement. Inasmuch as Borrower and PFS Canada were jointly and severally liable
for all obligations under the Original Agreement, Borrower hereby irrevocably
and unconditionally assumes and promises to perform all duties, responsibilities
and obligations of PFS Canada arising out of or pursuant to the Original
Agreement or any other Loan Document (as defined in the Original Agreement). PFS
Canada is hereby released from all obligations and liabilities to Bank under the
Original Agreement.
THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
21
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.
PRIORITY FULFILLMENT SERVICES, INC.
By:___________________________________
Title:________________________________
COMERICA BANK
By:___________________________________
Title:________________________________
22
EXHIBIT A
DEFINITIONS
"Accounts" means all presently existing and hereafter arising accounts, contract
rights, and all other forms of obligations owing to Borrower arising out of the
sale or lease of goods (including, without limitation, the licensing of software
and other technology) or the rendering of services by Borrower and any and all
credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower and Borrower's Books relating
to any of the foregoing.
"Advance" or "Advances" means a cash advance or cash advances under the
Revolving Facility.
"Affiliate" means, with respect to any Person, any Person that owns or controls
directly or indirectly such Person, any Person that controls or is controlled by
or is under common control with such Person, and each of such Person's senior
executive officers, directors, and partners.
"Bank Expenses" means all reasonable costs or expenses (including reasonable
attorneys' fees and expenses, whether generated in-house or by outside counsel)
incurred in connection with the preparation, negotiation, administration, and
enforcement of the Loan Documents; reasonable Collateral audit fees; and Bank's
reasonable attorneys' fees and expenses (whether generated in-house or by
outside counsel) incurred in amending, enforcing or defending the Loan Documents
(including fees and expenses of appeal), incurred before, during and after an
Insolvency Proceeding, whether or not suit is brought.
"Bonds" means the $5,000,000 Mississippi Business Finance Corporation Taxable
Variable Rate Demand Limited Obligation Revenue Bonds, Series 2004 (Priority
Fulfillment Services, Inc. Project).
"Bond Documents" means all documents, instruments and agreements executed by
Borrower in connection with the issuance of the Bonds.
"Borrower's Books" means all of Borrower's books and records including: ledgers;
records concerning Borrower's assets or liabilities, the Collateral, business
operations or financial condition; and all computer programs, or tape files, and
the equipment, containing such information.
"Borrowing Base" means an amount equal to 80% of Eligible Accounts, as
determined by Bank with reference to the most recent Borrowing Base Certificate
delivered by Borrower.
"BSD" means Business Supplies Distributors Holdings, LLC, a Delaware limited
liability company.
"Business Day" means any day that is not a Saturday, Sunday, or other day on
which banks in the State of California are authorized or required to close.
"Cash" means unrestricted cash and cash equivalents.
"Change in Control" shall mean a transaction in which any "person" or "group"
(within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934) becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of a sufficient number
of shares of all classes of stock then outstanding of Borrower ordinarily
entitled to vote in the election of directors, empowering such "person" or
"group" to elect a majority of the Board of Directors of Borrower, who did not
have such power before such transaction.
"Chief Executive Office" means 500 North Central Expressway, 5th Floor, Plano,
Texas 75074, where Borrower's chief executive office is located.
"Closing Date" means the date of this Agreement.
1
"Code" means the California Uniform Commercial Code as amended or supplemented
from time to time.
"Collateral" means the property described on Exhibit B attached hereto and all
Negotiable Collateral and Intellectual Property Collateral to the extent not
described on Exhibit B, except to the extent any such property (i) is
nonassignable by its terms without the consent of the licensor thereof or
another party (but only to the extent such prohibition on transfer is
enforceable under applicable law, including, without limitation, Sections 9406
and 9408 of the Code), or (ii) the granting of a security interest therein is
contrary to applicable law, provided that upon the cessation of any such
restriction or prohibition, such property shall automatically become part of the
Collateral.
"Collateral State" means the state or states where the Collateral is located,
which are Texas, Tennessee, and Mississippi.
"Committed Revolving Line" means a Credit Extension of up to $5,000,000
(inclusive of any amounts outstanding under the Letter of Credit Sublimit).
"Contingent Obligation" means, as applied to any Person (other than as between
Borrowers, Guarantor or any Subsidiary), any direct or indirect liability,
contingent or otherwise, of that Person with respect to (i) any indebtedness,
lease, dividend, letter of credit or other obligation of another, including,
without limitation, any such obligation directly or indirectly guaranteed,
endorsed, co-made or discounted or sold with recourse by that Person, or in
respect of which that Person is otherwise directly or indirectly liable; (ii)
any obligations with respect to undrawn letters of credit issued for the account
of that Person; and (iii) all obligations arising under any interest rate,
currency or commodity swap agreement, interest rate cap agreement, interest rate
collar agreement, or other agreement or arrangement designated to protect a
Person against fluctuation in interest rates, currency exchange rates or
commodity prices; provided, however, that the term "Contingent Obligation" shall
not include endorsements for collection or deposit in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determined amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof as
determined by such Person in good faith; provided, however, that such amount
shall not in any event exceed the maximum amount of the obligations under the
guarantee or other support arrangement.
"Copyrights" means any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof, whether published or unpublished and whether or not the
same also constitutes a trade secret, now or hereafter existing, created,
acquired or held.
"Credit Extension" means each Advance, Equipment Advance, the Equipment Term
Loan, or any other extension of credit by Bank to or for the benefit of Borrower
hereunder.
"Designated Account Debtor" means that certain account debtor named as the
"Designated Account Debtor" by Borrower and Bank in a separate letter agreement
of even date herewith, as from time to time amended or modified.
"Eligible Accounts" means those Accounts that arise in the ordinary course of
Borrower's business that comply with all of Borrower's representations and
warranties to Bank set forth in Section 5.3; provided, that Bank may change the
standards of eligibility by giving Borrower 30 days prior written notice. Unless
otherwise agreed to by Bank, Eligible Accounts shall not include the following
(all references to percentages shall mean in dollar amount):
(a) Accounts that the account debtor has failed to pay in full within 90 days
of invoice date;
(b) Accounts with respect to an account debtor, 25% of whose Accounts the
account debtor has failed to pay within 90 days of invoice date;
(c) Accounts with respect to which the account debtor is an officer, employee,
or agent of Borrower;
(d) Accounts arising from the sale of goods by Borrower and with respect to
which such goods are placed on consignment, guaranteed sale, sale or
return, sale on approval, bill and hold, demo or promotional, or other
terms by reason of which the payment by the account debtor may be
conditional;
2
(e) Accounts with respect to which the account debtor is an Affiliate of
Borrower;
(f) Accounts with respect to which the account debtor does not have its
principal place of business in the United States, except for Eligible
Foreign Accounts;
(g) Accounts with respect to which the account debtor is the United States or
any department, agency, or instrumentality of the United States, except
for Accounts of the United States if the payee has assigned its payment
rights to Bank and the assignment has been acknowledged under the
Assignment of Claims Act of 1940 (31 U.S.C. 3727);
(h) Accounts with respect to which Borrower is liable to the account debtor
for goods sold or services rendered by the account debtor to Borrower, but
only to the extent of any amounts owing to the account debtor against
amounts owed to Borrower (excluding amounts owed to account debtors for
money received in Third Party Deposit Accounts and money received or to be
received in settlement of credit card account receivables of Borrower's
account debtors);
(i) Accounts with respect to an account debtor (other than IBM and the
Designated Account Debtor), including Subsidiaries and Affiliates, whose
total obligations to Borrower exceed 25% of all Accounts, to the extent
such obligations exceed the aforementioned percentage, except as approved
in writing by Bank;
(j) Accounts with respect to which IBM is the account debtor, to the extent
that its total obligations to Borrower exceed 40% of all Accounts, except
as approved in writing by Bank;
(k) Accounts with respect to which the Designated Account Debtor is the
account debtor, to the extent that its total obligations to Borrower
exceed 35% of all Accounts, except as approved in writing by Bank;
(l) Accounts with respect to which the account debtor disputes liability or
makes any claim with respect thereto as to which Bank believes, in its
sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to
any Insolvency Proceeding, or becomes insolvent, or goes out of business;
(m) Credit card Accounts; and
(n) Accounts the collection of which Bank reasonably determines after inquiry
and consultation with Borrower to be doubtful.
"Eligible Foreign Accounts" means Accounts with respect to which the account
debtor does not have its principal place of business in the United States and
that are (i) supported by one or more letters of credit in an amount and of a
tenor, and issued by a financial institution, acceptable to Bank, (ii) insured
by EXIM Bank, (iii) generated by an account debtor with its principal place of
business in Canada, provided that the Bank has perfected its security interest
in the appropriate Canadian province, or (iv) approved by Bank on a case-by-case
basis.
"Environmental Laws" means all laws, rules, regulations, orders and the like
issued by any federal state, local foreign or other governmental or
quasi-governmental authority or any agency pertaining to the environment or to
any hazardous materials or wastes, toxic substances, flammable, explosive or
radioactive materials, asbestos or other similar materials.
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"Equipment Advance" has the meaning set forth in Section 2.1(c).
"Equipment Term Loan" has the meaning assigned in Section 2.1(e).
3
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
and the regulations thereunder.
"Event of Default" has the meaning assigned in Article 8.
"GAAP" means generally accepted accounting principles, consistently applied, as
in effect from time to time.
"Guarantor" means PFSweb, Inc., a Delaware corporation.
"Indebtedness" means (a) all indebtedness for borrowed money or the deferred
purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations, and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against any Person
or entity under any provision of the United States Bankruptcy Code, as amended,
or under any other bankruptcy or insolvency law, including assignments for the
benefit of creditors, formal or informal moratoria, compositions, extension
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Intellectual Property Collateral" means all of Borrower's right, title, and
interest in and to the following to the extent freely assignable:
(a) Copyrights, Trademarks and Patents;
(b) Any and all trade secrets, and any and all intellectual property rights in
computer software and computer software products now or hereafter
existing, created, acquired or held;
(c) Any and all design rights which may be available to Borrower now or
hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and future
infringement of any of the rights included above, with the right, but not
the obligation, to sue for and collect such damages for said use or
infringement of the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights, Patents or
Trademarks, and all license fees and royalties arising from such use to
the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the Copyrights,
Trademarks or Patents; and
(g) All proceeds and products of the foregoing, including without limitation
all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
"Inventory" means all present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as is
temporarily out of its custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any documents
of title representing any of the above, and Borrower's Books relating to any of
the foregoing. Inventory does not include any of the foregoing which is now or
hereafter held by, or in the possession of, Borrower for or on behalf of its
customers.
"Investment" means any beneficial ownership of (including stock, partnership or
limited liability company interest or other securities) any Person, or any loan,
advance or capital contribution to any Person.
4
"IRC" means the Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
"Letter of Credit" means a commercial or standby letter of credit or similar
undertaking issued by Bank at Borrower's request in accordance with Section
2.1(b)(iii).
"Letter of Credit Sublimit" means a sublimit for Letters of Credit under the
Committed Revolving Line not to exceed $2,500,000.
"Lien" means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or notes executed
by Borrower, and any other document, instrument or agreement entered into
between Borrower and Bank in connection with this Agreement, all as amended or
extended from time to time.
"Material Adverse Effect" means a material adverse effect on (i) the business
operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maximum Equipment Line Availability" means $1,000,000.
"Negotiable Collateral" means all of Borrower's present and future letters of
credit of which it is a beneficiary, drafts, instruments (including promissory
notes), securities, documents of title, and chattel paper, and Borrower's Books
relating to any of the foregoing.
"Obligations" means all debt, principal, interest, Bank Expenses and other
amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.
"Organizational Jurisdiction" means (a) with respect to Borrower, Delaware, the
state under whose laws Borrower is organized, and (b) with respect to each
Subsidiary, the jurisdiction indicated opposite such Subsidiary's name on the
Schedule.
"Patents" means all patents, patent applications and like protections including
without limitation improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same.
"Periodic Payments" means all installments or similar recurring payments that
Borrower may now or hereafter become obligated to pay to Bank pursuant to the
terms and provisions of any instrument, or agreement now or hereafter in
existence between Borrower and Bank.
"Permitted Indebtedness" means (without duplication):
(a) Indebtedness of Borrower in favor of Bank arising under this Agreement or
any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in the Schedule;
(c) Indebtedness not to exceed (i) $4,000,000 in the aggregate in each of
Borrower's fiscal years 2004 and 2005 and (ii) $3,000,000 in the aggregate
in Borrower's fiscal year 2006 and in each fiscal year thereafter, secured
by a lien described in clause (c) of the defined term "Permitted Liens,"
provided such Indebtedness does not exceed the lesser of the cost or fair
market value of the equipment financed with such Indebtedness;
(d) Subordinated Debt and the Indebtedness described in clause (h) of
Permitted Investments (but without duplication thereof);
5
(e) Indebtedness to or for the benefit of trade creditors incurred in the
ordinary course of business
(f) Indebtedness arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement or
other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity
prices, provided that such agreements and arrangements are with
counterparties and on terms reasonably satisfactory to Bank;
(g) Indebtedness of Borrower under (i) the Reimbursement Agreement; (ii) that
certain Loan Agreement dated as of November 1, 2004, between Borrower and
the Mississippi Business Finance Corporation, and (iii) the other
documents executed by Borrower in connection with the Bonds.
(h) Indebtedness evidenced by the Subordinated Demand Note;
(i) Indebtedness of PFSM, LLC owing to Borrower for the acquisition of
equipment by PFSM, LLC, provided (i) such Indebtedness does not exceed the
lesser of the cost or fair market value of the equipment financed with
such Indebtedness, (ii) the aggregate principal amount of Indebtedness
incurred by PFSM, LLC pursuant to this clause when added to the aggregate
amount of Investments made by Borrower pursuant to clause (g) of the
definition of Permitted Investments does not exceed $450,000 in any fiscal
year, and (iii) at the time of incurrence of such Indebtedness and after
giving effect thereto, no Event of Default has occurred and is continuing;
(j) Indebtedness described in clause (g) of Permitted Investments (but without
duplication thereof);
(k) Indebtedness described in clause (f) of Permitted Investments (but without
duplication thereof);
(l) Intercompany Indebtedness incurred in connection with the allocation of
certain expenses (such as expenses incurred for reports filed with the
Securities and Exchange Commission) to PFSweb, Inc., provided that the
aggregate amount (excluding any intercompany Indebtedness incurred to pay
expenses in connection with a stock offering by PFSweb, Inc.) of such
allocated expenses does not exceed $100,000 in any fiscal year; and
(m) Extensions, refinancings and renewals of any items of Permitted
Indebtedness, provided with respect to such Permitted Indebtedness (other
than trade payables) that the principal amount is not increased or the
terms modified to impose materially more burdensome terms upon Borrower or
its Subsidiary, as the case may be.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the Schedule;
(b) (i) Marketable direct obligations issued or unconditionally guaranteed by
the United States of America or any agency or any State thereof maturing
within one year from the date of acquisition thereof, (ii) commercial
paper maturing no more than one year from the date of creation thereof and
currently having rating of at least A-2 or P-2 from either Standard &
Poor's Corporation or Moody's Investors Service, (iii) Bank's certificates
of deposit maturing no more than one year from the date of investment
therein, and (iv) Bank's money market accounts;
(c) Repurchases of stock from former employees or directors of Borrower under
the terms of applicable repurchase agreements (i) in an aggregate amount
not to exceed $100,000 in any fiscal year, provided that no Event of
Default has occurred, is continuing or would exist after giving effect to
the repurchases, or (ii) in any amount where the consideration for the
repurchase is the cancellation of indebtedness owed by such former
employees to Borrower regardless of whether an Event of Default exists;
(d) Investments accepted in connection with Permitted Transfers;
6
(e) Advances by Borrower to Supplies Distributors, Inc. pursuant to the
Subordinated Demand Note, so long as (1) the aggregate outstanding
principal amount of such Indebtedness does not exceed $8,005,000
(excluding accrued and unpaid interest) at any time, and (2) before and
after giving effect to such advances no Event of Default has occurred and
is continuing;
(f) Investments in or advances to PFSweb B.V. by Borrower not to exceed
$1,000,000 in the aggregate in any fiscal year (excluding accrued
interest), so long as before and after giving effect to such Investments
or advances, no Event of Default has occurred and is continuing;
(g) Investments in or advances to Priority Fulfillment Services of Canada,
Inc. by Borrower not to exceed $1,000,000 in the aggregate in any fiscal
year (excluding accrued interest), so long as before and after giving
effect to such Investments or advances, no Event of Default has occurred
and is continuing;
(h) Investments by Borrower in PFSM, LLC for the acquisition of equipment by
PFSM, LLC, provided (i) each such Investment does not exceed the lesser of
the cost or fair market value of the equipment acquired with such
Investment, (ii) the aggregate amount of Investments made by Priority
pursuant to this clause when added to the Indebtedness incurred by PFSM,
LLC pursuant to clause (i) of the definition of Permitted Indebtedness
does not exceed $450,000 in any fiscal year, and (iii) at the time of each
such Investment and after giving effect thereto, no Event of Default has
occurred and is continuing;
(i) Investments by Borrower in Supplies Distributors, Inc. in an amount not to
exceed the aggregate cash dividends paid to Borrower by Supplies
Distributors, Inc. after the date hereof, so long as at the time of and
after giving effect to each such Investment, no Event of Default has
occurred and is continuing;
(j) Investments of Subsidiaries in or to other Subsidiaries or Borrower and
Investments by Borrower in Subsidiaries (not described in clauses (a),
(d), (e), (f), (g), (h) and (i) above), not to exceed $100,000 in the
aggregate in any fiscal year (excluding increases in Borrower's Investment
in existing Subsidiaries that arise solely as a result of earnings by such
Subsidiaries that are not distributed to Borrower);
(k) Investments not to exceed $100,000 outstanding at any time in the
aggregate consisting of (i) travel advances and employee relocation loans
and other employee loans and advances in the ordinary course of business,
and (ii) loans to employees, officers or directors relating to the
purchase of equity securities of Borrower or its Subsidiaries pursuant to
employee stock purchase plan agreements approved by Borrower's Board of
Directors;
(l) Investments (including debt obligations) received in connection with the
bankruptcy or reorganization of customers or suppliers and in settlement
of delinquent obligations of, and other disputes with, customers or
suppliers arising in the ordinary course of Borrower's business;
(m) Investments consisting of notes receivable of, or prepaid royalties and
other credit extensions, to customers and suppliers who are not
Affiliates, in the ordinary course of business, provided that this
subparagraph (h) shall not apply to Investments of Borrower in any
Subsidiary;
(n) Capitalization of intercompany Indebtedness that is outstanding on the
date of this Agreement; and
(o) Joint ventures or strategic alliances in the ordinary course of Borrower's
business consisting of the non-exclusive licensing of technology, the
development of technology or the providing of technical support, provided
that any cash Investments by Borrower do not exceed $100,000 in the
aggregate in any fiscal year.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the Schedule
(excluding Liens to be satisfied with the proceeds of the Advances) or
arising under this Agreement or the other Loan Documents;
7
(b) Liens for taxes, fees, assessments or other governmental charges or
levies, either not delinquent or being contested in good faith by
appropriate proceedings and for which Borrower maintains adequate
reserves, provided the same have no priority over any of Bank's security
interests;
(c) Liens not to exceed (i) $4,000,000 in the aggregate in each of Borrower's
fiscal years 2004 and 2005, and (ii) $3,000,000 beginning with Borrower's
2005 fiscal year and each fiscal year thereafter (1) upon or in any
Equipment acquired or held by Borrower or any of its Subsidiaries to
secure the purchase price of such Equipment or indebtedness incurred
solely for the purpose of financing the acquisition or lease of such
Equipment, or (2) existing on such Equipment at the time of its
acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such Equipment;
(d) Liens incurred in connection with the extension, renewal or refinancing of
the indebtedness secured by Liens of the type described in clauses (a)
through (c) above, provided that any extension, renewal or replacement
Lien shall be limited to the property encumbered by the existing Lien and
the principal amount of the indebtedness being extended, renewed or
refinanced does not increase;
(e) Liens arising from judgments, decrees or attachments in circumstances not
constituting an Event of Default under Sections 8.5 or 8.9;
(f) Liens securing the Bonds;
(g) Liens in favor of other financial institutions arising in connection with
Borrower's deposit accounts held at such institutions, provided that Bank
has a perfected security interest in the amounts held in such deposit
accounts other than the deposit accounts listed in the Schedule and any
Third Party Deposit Account; and
(h) Other Liens not described above arising in the ordinary course of business
and not having or not reasonably likely to have a Material Adverse Effect
on Borrower and its Subsidiaries taken as a whole.
"Permitted Transfer" means the conveyance, sale, lease, transfer or disposition
by Borrower or any Subsidiary of:
(a) Inventory in the ordinary course of business;
(b) licenses and similar arrangements for the use of the property of Borrower
or its Subsidiaries in the ordinary course of business;
(c) worn-out or obsolete Equipment;
(d) any Equipment under a sale-leaseback transaction approved by Bank;
(e) any transfer of assets made by Borrower to PFSweb B.V. in connection with
the reincorporation of PFSweb B.V. under the laws of Belgium, provided
that such assets were originally transferred to such Borrower by PFSweb
B.V. in connection with its reincorporation; or
(f) other assets of Borrower or its Subsidiaries the gross sales proceeds of
which do not in the aggregate exceed $250,000 during any fiscal year.
"Person" means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most recently
announced by Bank, as its "prime rate," whether or not such announced rate is
the lowest rate available from Bank.
8
"Reimbursement Agreement" means that certain Reimbursement Agreement dated as of
November 1, 2004, between Borrower and Bank, as from time to time amended or
modified, which was executed in connection with the Bonds.
"Responsible Officer" means each of the Chief Executive Officer, the Chief
Operating Officer, the Chief Financial Officer and the Corporate Controller of
Borrower.
"Revolving Facility" means the facility under which Borrower may request Bank to
issue Advances, as specified in Section 2.1(b) hereof.
"Revolving Maturity Date" means March 2, 2007.
"Schedule" means the schedule of exceptions attached hereto and approved by
Bank, if any.
"SOS Reports" means the official reports from the Secretaries of State or other
applicable governmental official of each Collateral State, Chief Executive
Office and the Organizational Jurisdiction and other applicable federal, state
or local government offices identifying all current security interests filed in
the Collateral and Liens of record as of the date of such report.
"Standby Letter of Credit" means a letter of credit to be issued in connection
with the Bonds on December 29, 2004, for the account of Borrower in the stated
amount of $5,061,643.84 and for the benefit of U.S. Bank National Association,
as Trustee.
"Subordinated Debt" means any debt incurred by Borrower that is subordinated in
writing to the debt owing by Borrower to Bank on terms reasonably acceptable to
Bank (and identified as being such by Borrower and Bank), including all
obligations owing by Borrower to IBM Belgium Financial Services S.A., Congress
Financial Corporation (Southwest) or IBM Credit Corporation that is expressly
subordinated by the Subordination Agreements of even date herewith, as from time
to time amended, modified or restated.
"Subordinated Demand Note" means the promissory note dated November 12, 2002, in
the stated principal amount of $8,000,000, from Supplies Distributor, Inc. to
Borrower, which has been subordinated to all obligations of Supplies
Distributors, Inc. owed to IBM Credit Corporation, Congress Financial
Corporation (Southwest) and IBM Belgium Financial Services S.A.
"Subsidiary" means any corporation, partnership or limited liability company or
joint venture in which (i) any general partnership interest or (ii) more than
50% of the stock, limited liability company interest or joint venture of which
by the terms thereof ordinary voting power to elect the Board of Directors,
managers or trustees of the entity, at the time as of which any determination is
being made, is owned by Borrower, either directly or through an Affiliate.
"Tangible Net Worth" means at any date as of which the amount thereof shall be
determined (a) the consolidated shareholder equity of Guarantor (excluding
foreign currency translation accounts), minus (b) goodwill.
"Third Party Deposit Accounts" means those deposit accounts now existing or
hereafter established by Borrower for deposits of funds received by Borrower on
behalf of its account debtors in payment of such account debtors' receivables,
provided that such deposit accounts are titled to clearly indicate that Borrower
maintains such deposit accounts on behalf of its account debtors.
"Trademarks" means any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Borrower connected with
and symbolized by such trademarks.
"Tranche A" has the meaning assigned in Section 2.1(c)(i).
"Tranche B" has the meaning assigned in Section 2.1(c)(i).
9
"Tranche A Equipment Advance" or "Tranche A Equipment Advances" means any
Equipment Advances(s) made under Tranche A.
"Tranche B Equipment Advance" or "Tranche B Equipment Advances" means any
Equipment Advances(s) made under Tranche B.
"Tranche A Availability End Date" means June ___, 2005.
"Tranche B Availability End Date" means December ___, 2005.
10
DEBTOR PRIORITY FULFILLMENT SERVICES, INC.
SECURED PARTY: COMERICA BANK
EXHIBIT B
COLLATERAL DESCRIPTION ATTACHMENT
TO FIRST AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
All personal property of Borrower (herein referred to as "Borrower" or "Debtor")
whether presently existing or hereafter created or acquired, and wherever
located, including, but not limited to:
(a) all accounts (including health-care-insurance receivables), chattel paper
(including tangible and electronic chattel paper), deposit accounts (other
than the Third Party Deposit Accounts), documents (including negotiable
documents), equipment (including all accessions and additions thereto),
general intangibles (including payment intangibles and software), goods
(including fixtures), instruments (including promissory notes), inventory
(including all goods held for sale or lease or to be furnished under a
contract of service, and including returns and repossessions), investment
property (including securities and securities entitlements), letter of
credit rights, money, and all of Debtor's books and records with respect
to any of the foregoing, and the computers and equipment containing said
books and records;
(b) all common law and statutory copyrights and copyright registrations,
applications for registration, now existing or hereafter arising, in the
United States of America or in any foreign jurisdiction, obtained or to be
obtained on or in connection with any of the foregoing, or any parts
thereof or any underlying or component elements of any of the foregoing,
together with the right to copyright and all rights to renew or extend
such copyrights and the right (but not the obligation) of Secured Party to
sue in its own name and/or in the name of the Debtor for past, present and
future infringements of copyright;
(c) all trademarks, service marks, trade names and service names and the
goodwill associated therewith, together with the right to trademark and
all rights to renew or extend such trademarks and the right (but not the
obligation) of Secured Party to sue in its own name and/or in the name of
the Debtor for past, present and future infringements of trademark;
(d) all (i) patents and patent applications filed in the United States Patent
and Trademark Office or any similar office of any foreign jurisdiction,
and interests under patent license agreements, including, without
limitation, the inventions and improvements described and claimed therein,
(ii) licenses pertaining to any patent whether Debtor is licensor or
licensee, (iii) income, royalties, damages, payments, accounts and
accounts receivable now or hereafter due and/or payable under and with
respect thereto, including, without limitation, damages and payments for
past, present or future infringements thereof, (iv) right (but not the
obligation) to sue in the name of Debtor and/or in the name of Secured
Party for past, present and future infringements thereof, (v) rights
corresponding thereto throughout the world in all jurisdictions in which
such patents have been issued or applied for, and (vi) reissues,
divisions, continuations, renewals, extensions and continuations-in-part
with respect to any of the foregoing;
(e) All ownership interest of Debtor in Supplies Distributors Holdings, LLC
and PFSM, LLC, together with all dividends and other distributions at any
time made with respect to such ownership interests; and
(f) any and all cash proceeds and/or noncash proceeds of any of the foregoing,
including, without limitation, insurance proceeds, and all supporting
obligations and the security therefor or for any right to payment. All
terms above have the meanings given to them in the California Uniform
Commercial Code, as amended or supplemented from time to time, including
revised Division 9 of the Uniform Commercial Code-Secured Transactions,
added by Stats. 1999, c.991 (S.B. 45), Section 35, operative July 1, 2001.
11
EXHIBIT C
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: [_______________] DATE:_________________
FAX #: [_______________] TIME:_________________
FROM: PRIORITY FULFILLMENT SERVICES, INC.
CLIENT NAME (BORROWER)
REQUESTED BY:__________________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:__________________________________________________________
PHONE NUMBER:__________________________________________________________________
FROM ACCOUNT # ______________________ TO ACCOUNT # ____________________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
$__________________________________________
PRINCIPAL INCREASE (ADVANCE) $__________________________________________
PRINCIPAL PAYMENT (ONLY) $__________________________________________
INTEREST PAYMENT (ONLY) $__________________________________________
PRINCIPAL AND INTEREST (PAYMENT) $__________________________________________
OTHER INSTRUCTIONS:_____________________________________________________________
________________________________________________________________________________
All representations and warranties of Borrower stated in the First Amended and
Restated Loan and Security Agreement are true, correct and complete in all
material respects as of the date of the telephone request for an Advance
confirmed by this Borrowing Certificate; provided, however, that those
representations and warranties expressly referring to another date shall be
true, correct and complete in all material respects as of such date.
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
__________________________________________ ________________________________
Authorized Requester Phone #
_________________________________________ ________________________________
Received By (Bank) Phone #
__________________________________________
Authorized Signature (Bank)
12
EXHIBIT D
BORROWING BASE CERTIFICATE
Borrower: Priority Fulfillment Services, Inc. Lender: ________ Bank
Commitment Amount: $5,000,000
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of ___ $___________
2. Additions (please explain on reverse) $___________
3. TOTAL ACCOUNTS RECEIVABLE $___________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $___________
5. Balance of 25% over 90 day accounts $___________
6. Concentration Limits
7. Foreign Accounts $___________
8. Governmental Accounts $___________
9. Contra Accounts $___________
10. Demo Accounts $___________
11. Intercompany/Employee Accounts $___________
12. Credit Card Accounts $___________
13. Other (please explain on reverse) $___________
14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $___________
15. Eligible Accounts (#3 minus #14) $___________
16. LOAN VALUE OF ACCOUNTS (80% of #15) $___________
BALANCES
17. Maximum Loan Amount $5,000,000
18. Total Funds Available [Lesser of #17 or #16] $___________
19. Present balance owing on Line of Credit $___________
20. Outstanding under Sublimit (Letters of Credit) $___________
21. RESERVE POSITION (#18 minus #19 and #20) $___________
The undersigned represents and warrants that the foregoing is true, complete and
correct in all material respects, and that the information reflected in this
Borrowing Base Certificate complies with the representations and warranties set
forth in the First Amended and Restated Loan and Security Agreement between the
undersigned and Comerica Bank.
PRIORITY FULFILLMENT SERVICES, INC.
By:_________________________________________________________
Authorized Signer
13
EXHIBIT E
COMPLIANCE CERTIFICATE
TO: COMERICA BANK
FROM: PRIORITY FULFILLMENT SERVICES, INC.
The undersigned authorized officer of PRIORITY FULFILLMENT SERVICES, INC. hereby
certifies that in accordance with the terms and conditions of the First Amended
and Restated Loan and Security Agreement between Borrower and Bank (the
"Agreement"), (i) Borrower is in complete compliance for the period ending
_______________ with all required covenants, including without limitation the
ongoing registration of intellectual property rights in accordance with Section
6.8, except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
REPORTING COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ------ -------------
Monthly financial statements Monthly within 35 days Yes No
Annual (CPA Audited) of Guarantor FYE within 90 days Yes No
Annual (CPA Audited) of BSD FYE within 90 days Yes No
10K of Guarantor FYE within 90 days Yes No
10Q of Guarantor Quarterly within 45 days Yes No
A/R & A/P Agings, Borrowing Base Cert. Monthly within 30 days* Yes No
A/R Audit Annual Yes No
IP Report Quarterly within 30 days Yes No
Tangible Net Worth
$21,000,000 $________ Yes No
*Weekly during any period that Adjusted Tangible Net Worth is less than
$21,000,000
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ------ -------------
Maintain on a Monthly Basis:
Liquidity Ratio 1.25:1.00 ____:1.00 Yes No
EBITDA SEE SECTION 6.7(d) $________ Yes No
Minimum Tangible Net Worth > of $20,000,000 or $________ Yes No
$2,000,000 plus IBM et
al requirement
Minimum Cash $1,250,000* $________ Yes No
*subject to adjustment based on appraisal of Equipment
COMMENTS REGARDING EXCEPTIONS: See Attached.
BANK USE ONLY
Received by:___________________________
Sincerely, AUTHORIZED SIGNER
Date:__________________________________
Verified:______________________________
______________________________________ AUTHORIZED SIGNER
SIGNATURE
Date:__________________________________
______________________________________
TITLE
Compliance Status Yes No
______________________________________
DATE
14
SCHEDULE OF EXCEPTIONS
Permitted Indebtedness (Exhibit A)
Permitted Investments (Exhibit A)
Permitted Liens (Exhibit A)
Prior Names (Section 5.5)
Litigation (Section 5.6)
Outgoing Wires (Section 7.13)
15
CORPORATION RESOLUTIONS AND INCUMBENCY CERTIFICATION
AUTHORITY TO PROCURE LOANS
I certify that I am the duly elected and qualified Secretary of Priority
Fulfillment Services, Inc. (the "Corporation"); that the following is a true and
correct copy of resolutions duly adopted by the Board of Directors of the
Corporation in accordance with its bylaws and applicable statutes.
COPY OF RESOLUTIONS:
Be it Resolved, That:
1. Any one (1) of the following __________________________ (insert titles
only) of the Corporation is authorized, for, on behalf of, and in the name
of the Corporation to:
(a) Negotiate and procure loans, letters of credit and other credit or
financial accommodations from Comerica Bank ("Bank"), including,
without limitation, that certain First Amended and Restated Loan and
Security Agreement dated as of December ________, 2004, as it may
subsequently be amended from time to time.
(b) Discount with the Bank, commercial or other business paper belonging
to the Corporation made or drawn by or upon third parties, without
limit as to amount;
(c) Purchase, sell, exchange, assign, endorse for transfer and/or
deliver certificates and/or instruments representing stocks, bonds,
evidences of Indebtedness or other securities owned by the
Corporation, whether or not registered in the name of the
Corporation;
(d) Give security for any liabilities of the Corporation to the Bank by
grant, security interest, assignment, lien, deed of trust or
mortgage upon any real or personal property, tangible or intangible
of the Corporation;
(e) Issue a warrant or warrants to purchase the Corporation's capital
stock; and
(f) Execute and deliver in form and content as may be required by the
Bank any and all notes, evidences of Indebtedness, applications for
letters of credit, guaranties, subordination agreements, loan and
security agreements, financing statements, assignments, liens, deeds
of trust, mortgages, trust receipts and other agreements,
instruments or documents to carry out the purposes of these
Resolutions, any or all of which may relate to all or to
substantially all of the Corporation's property and assets.
2. Said Bank be and it is authorized and directed to pay the proceeds of any
such loans or discounts as directed by the persons so authorized to sign,
whether so payable to the order of any of said persons in their individual
capacities or not, and whether such proceeds are deposited to the
individual credit of any of said persons or not;
3. Any and all agreements, instruments and documents previously executed and
acts and things previously done to carry out the purposes of these
Resolutions are ratified, confirmed and approved as the act or acts of the
Corporation.
4. These Resolutions shall continue in force, and the Bank may consider the
holders of said offices and their signatures to be and continue to be as
set forth in a certified copy of these Resolutions delivered to the Bank,
until notice to the contrary in writing is duly served on the Bank (such
notice to have no effect on any action previously taken by the Bank in
reliance on these Resolutions).
5. Any person, corporation or other legal entity dealing with the Bank may
rely upon a certificate signed by an officer of the Bank to effect that
these Resolutions and any agreement, instrument or document executed
pursuant to them are still in full force and effect and binding upon the
Corporation.
6. The Bank may consider the holders of the offices of the Corporation and
their signatures, respectively, to be and continue to be as set forth in
the Certificate of the Secretary of the Corporation until notice to the
contrary in writing is duly served on the Bank.
I further certify that the above Resolutions are in full force and effect
as of the date of this Certificate; that these Resolutions and any
borrowings or financial accommodations under these Resolutions have been
properly noted in the corporate books and records, and have not been
rescinded, annulled, revoked or modified; that neither the foregoing
Resolutions nor any actions to be taken pursuant to them are or will be in
contravention of any provision of the articles of incorporation or bylaws
of the Corporation or of any agreement, indenture or other instrument to
which the Corporation is a party or by which it is bound; and that neither
the articles of incorporation nor bylaws of the Corporation nor any
agreement, indenture or other instrument to which the Corporation is a
party or by which it is bound require the vote or consent of shareholders
of the Corporation to authorize any act, matter or thing described in the
foregoing Resolutions.
1
I further certify that the following named persons have been duly elected to the
offices set opposite their respective names, that they continue to hold these
offices at the present time, and that the signatures which appear below are the
genuine, original signatures of each respectively:
(PLEASE SUPPLY GENUINE SIGNATURES OF AUTHORIZED SIGNERS BELOW)
NAME (TYPE OR PRINT) TITLE SIGNATURE
___________________________ ____________________ _____________________
___________________________ ____________________ _____________________
___________________________ ____________________ _____________________
___________________________ ____________________ _____________________
___________________________ ____________________ _____________________
___________________________ ____________________ _____________________
___________________________ ____________________ _____________________
In Witness Whereof, I have affixed my name as Secretary and have caused the
corporate seal (where available) of said Corporation to be affixed on December
_____________, 2004.
_______________________
Secretary
***
The Above Statements are Correct. _______________________________________
SIGNATURE OF OFFICER OR DIRECTOR OR, IF NONE.
A SHAREHOLDER OTHER THAN SECRETARY WHEN
SECRETARY IS AUTHORIZED TO SIGN ALONE.
Failure to complete the above when the Secretary is authorized to sign alone
shall constitute a certification by the Secretary that the Secretary is the sole
Shareholder, Director and Officer of the Corporation.
2
COMERICA BANK
MEMBER FDIC
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
(REVOLVER)
Name(s): PRIORITY FULFILLMENT SERVICES, INC. Date:
$ credited to deposit account No. ___________ when Advances are
requested or disbursed to Borrower by cashiers check or wire
transfer
Amounts paid to others on your behalf:
$ to Comerica Bank for Loan Fee
$ to Comerica Bank for Document Fee
$ to Comerica Bank for accounts receivable audit (estimate)
$ to Bank counsel fees and expenses
$ to _______________
$ to _______________
$ TOTAL (AMOUNT FINANCED)
Upon consummation of this transaction, this document will also serve as the
authorization for Comerica Bank to disburse the loan proceeds as stated above.
_______________________________ _______________________________
Signature Signature
1
COMERICA BANK
MEMBER FDIC
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
(TERM LOAN)
Name(s): PRIORITY FULFILLMENT SERVICES, INC. Date:
$ credited to deposit account No. ___________ when Advances are
requested or disbursed to Borrower by cashiers check or wire
transfer
Amounts paid to others on your behalf:
$ to Comerica Bank for Loan Fee
$ to Comerica Bank for Document Fee
$ to Comerica Bank for accounts receivable audit (estimate)
$ to Bank counsel fees and expenses
$ to _______________
$ to _______________
$ TOTAL (AMOUNT FINANCED)
Upon consummation of this transaction, this document will also serve as the
authorization for Comerica Bank to disburse the loan proceeds as stated above.
_____________________________ _________________________
Signature Signature
1
AGREEMENT TO PROVIDE INSURANCE
TO: COMERICA BANK Date: ________________________
Attn: Deni M. Snider, MC 4770
75 E. Trimble Road Borrower: PRIORITY FULFILLMENT
San Jose, CA 95131 SERVICES, INC.
In consideration of a loan in the amount of [_______________], secured
by all tangible personal property including inventory and equipment.
I/We agree to obtain adequate insurance coverage to remain in force
during the term of the loan.
I/We also agree to advise the below named agent to add Comerica Bank as
lender's loss payable on the new or existing insurance policy, and to
furnish Bank at above address with a copy of said policy/endorsements
and any subsequent renewal policies.
I/We understand that the policy must contain:
1. Fire and extended coverage in an amount sufficient to cover:
(a) The amount of the loan, OR
(b) All existing encumbrances, whichever is greater,
But not in excess of the replacement value of the improvements
on the real property.
2. Lender's "Loss Payable" Endorsement Form 438 BFU in favor of
Comerica Bank, or any other form acceptable to Bank.
INSURANCE INFORMATION
Insurance Co./Agent Telephone No.:
Agent's Address:
Signature of Obligor: ______________________________
Signature of Obligor: ______________________________
FOR BANK USE ONLY
INSURANCE VERIFICATION: Date:_______________________
Person Spoken to:___________________________________
Policy Number:______________________________________
Effective From: ______________To: __________________
Verified by: _______________________________________
1
COMERICA BANK
CALIFORNIA'S BUSINESS BANKS AUTOMATIC DEBIT AUTHORIZATION
MEMBER FDIC
To: COMERICA BANK
Re: LOAN # ___________________________________
You are hereby authorized and instructed to charge account No. ______________ in
the name of PRIORITY FULFILLMENT SERVICES, INC. for principal, interest and
other payments due on above referenced loan as set forth below and credit the
loan referenced above.
____ Debit each interest payment as it becomes due according to the
terms of the First Amended and Restated Loan and Security Agreement
and any renewals or amendments thereof.
____ Debit each principal payment as it becomes due according to
the terms of the First Amended and Restated Loan and Security
Agreement and any renewals or amendments thereof.
____ Debit each payment for Bank Expenses as it becomes due
according to the terms of the First Amended and Restated Loan and
Security Agreement and any renewals or amendments thereof.
This Authorization is to remain in full force and effect until revoked in
writing.
Borrower Signature Date
------------------ ----
____________________________________ ____________________________
____________________________________ ____________________________
1
EXHIBIT A to UCC Financing Statement
Secured Party: Comerica Bank
Debtor: Priority Fulfillment Services, Inc.
COLLATERAL DESCRIPTION ATTACHMENT
TO FIRST AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
All personal property of Borrower (herein referred to as "Borrower" or "Debtor")
whether presently existing or hereafter created or acquired, and wherever
located, including, but not limited to:
(a) all accounts (including health-care-insurance receivables), chattel paper
(including tangible and electronic chattel paper), deposit accounts (other
than the Third Party Deposit Accounts), documents (including negotiable
documents), equipment (including all accessions and additions thereto),
general intangibles (including payment intangibles and software), goods
(including fixtures), instruments), goods (including fixtures),
instruments (including promissory notes), inventory (including all goods
held for sale or lease or to be furnished under a contract of service, and
including returns and repossessions), investment property (including
securities and securities entitlements), letter of credit rights, money,
and all of Debtor's books and records with respect to any of the
foregoing, and the computers and equipment containing said books and
records;
(b) all common law and statutory copyrights and copyright registrations,
applications for registration, now existing or hereafter arising, in the
United States of America or in any foreign jurisdiction, obtained or to be
obtained on or in connection with any of the foregoing, or any parts
thereof or any underlying or component elements of any of the foregoing,
together with the right to copyright and all rights to renew or extend
such copyrights and the right (but not the obligation) of Secured Party to
sue in its own name and/or in the name of the Debtor for past, present and
future infringements of copyright;
(c) all trademarks, service marks, trade names and service names and the
goodwill associated therewith, together with the right to trademark and
all rights to renew or extend such trademarks and the right (but not the
obligation) of Secured Party to sue in its own name and/or in the name of
the Debtor for past, present and future infringements of trademark;
(d) all (i) patents and patent applications filed in the United States Patent
and Trademark Office or any similar office of any foreign jurisdiction,
and interests under patent license agreements, including, without
limitation, the inventions and improvements described and claimed therein,
(ii) licenses pertaining to any patent whether Debtor is licensor or
licensee, (iii) income, royalties, damages, payments, accounts and
accounts receivable now or hereafter due and/or payable under and with
respect thereto, including, without limitation, damages and payments for
past, present or future infringements thereof, (iv) right (but not the
obligation) to sue in the name of Debtor and/or in the name of Secured
Party for past, present and future infringements thereof, (v) rights
corresponding thereto throughout the world in all jurisdictions in which
such patents have been issued or applied for, and (vi) reissues,
divisions, continuations, renewals, extensions and continuations-in-part
with respect to any of the foregoing;
(e) all ownership interests of Debtor in Supplies Distributors Holdings, LLC
and PFSM, LLC, together with all dividends and other distributions at any
time made with respect to such ownership interest; and
(f) any and all cash proceeds and/or noncash proceeds of any of the foregoing,
including, without limitation, insurance proceeds, and all supporting
obligations and the security therefor or for any right to payment. All
terms above have the meanings given to them in the California Uniform
Commercial Code, as amended or supplemented from time to time, including
revised Division 9 of the Uniform Commercial Code-Secured Transactions,
added by Stats. 1999, c.991 (S.B. 45), Section 35, operative July 1, 2001.
As used herein, the term "Third Party Deposit Accounts" means these deposit
accounts now existing or hereafter established by Debtor for deposits of funds
received by Debtor on behalf of its account debtors in payment of such account
debtors' receivables; provided that such deposit accounts are titled to clearly
indicate that Borrower maintains such deposit accounts on behalf of its account
debtors.
1