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EXHIBIT 10.2
LETTER OF CREDIT AND SECURITY AGREEMENT
This Letter of Credit and Security Agreement (this "Agreement") is
made and entered into as of June 26, 1996, by and between General Atlantic
Corporation, a Delaware corporation ("GAC" or "Secured Party") and Solo Serve
Corporation, a Delaware corporation ("Solo Serve" or "Debtor").
WHEREAS, Congress Financial Corporation (Southwest) ("Congress") and
Solo Serve have entered into certain financing arrangements pursuant to a Loan
and Security Agreement dated June 20, 1995, between Congress and Solo Serve, as
amended by Amendment No. 1 to Loan and Security Agreement dated October 27,
1995, Amendment No. 2 to Loan and Security Agreement dated January 31, 1996,
and Amendment No. 3 to Loan and Security Agreement ("Amendment No. 3") dated
June 26, 1996 (as the same may hereinafter be amended, modified, supplemented,
extended, renewed, restated or replaced, the "Loan Agreement"); and
WHEREAS, as of the date hereof GAC owns 62.3%, on a fully diluted
basis, of the issued and outstanding shares of common stock of Solo Serve; and
WHEREAS, as part of the consideration for Congress agreeing to the
matters set forth in Amendment No. 3, Solo Serve has requested that GAC provide
for the benefit of Congress an Irrevocable Standby Letter of Credit in the face
amount of $1,500,000 (the "GAC L/C") which meets the requirements set forth in
Amendment No. 3;
WHEREAS, GAC has agreed to provide the GAC L/C subject to the terms
and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, GAC and Solo Serve hereby agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein
shall have the same meanings as in the Loan Agreement, the terms and provisions
of which are incorporated herein by this reference. For purposes of this
Agreement, the following terms shall have the respective meanings given to them
below:
1.1 "Intercreditor Agreement" shall mean that one certain
Intercreditor and Subordination Agreement dated as of June 26, 1996 by and
between Congress and GAC, the terms and provisions of which are incorporated
herein by this reference as the same may hereinafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.2 "Obligations" shall mean any and all loans, letter of credit
accommodations, reimbursement obligations and all other obligations,
liabilities and indebtedness of every
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kind, nature, description owing by Solo Serve to GAC, arising out of or as
contemplated by this Agreement, whether now existing or hereafter arising,
whether arising before, during or after the initial or any renewal term of this
Agreement or the Loan Agreement, whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured and however acquired by GAC.
1.3 "Prime Rate" shall mean the rate of interest from time to time
publicly announced by Chemical Bank or its successors at its offices in New
York, New York, as its prime or base commercial lending rate, whether or not
such announced rate is the best rate available at such bank.
2. Letter of Credit. GAC agrees to provide the GAC L/C for the
benefit of Congress.
3. Solo Serve Payments. In consideration of GAC's agreement, and
subject to the terms and conditions of the Intercreditor Agreement, Solo Serve
agrees to:
(a) Pay GAC the sum of One Hundred and No/100 Dollars ($100.00)
per year for each year that this Agreement is in effect;
(b) Reimburse GAC for (i) all customary and reasonable letter of
credit fees charged by any issuing and confirming banks with
respect to the GAC L/C and any renewals thereof or amendments
thereto, provided however, such bank fees shall not exceed
$30,000.00 for any calendar year that this Agreement is in
effect and (ii) other reasonable third party costs and
expenses incurred by GAC in connection with the furnishing of
the GAC L/C, provided however, such third party costs and
expenses shall not to exceed $10,000 for any calendar year
that this Agreement is in effect;
(c) Reimburse GAC, upon demand, an amount equal to the amount
which GAC is required to pay any issuing bank or confirming
bank with respect to any drawings under the GAC L/C; and
(d) Pay GAC interest at a rate equal to the lesser of (i) the
maximum non-usurious rate of interest permitted by applicable
law or (ii) the Prime Rate in effect from time to time plus
one per cent (1%) adjusted daily on the amount outstanding
from time to time under Section 3(c) above.
Solo Serve's obligations under this Section 3 shall survive the
termination of this Agreement.
4. Security Interest. Further, in consideration of GAC's
agreement to provide the GAC L/C and in order to secure payment and performance
of the Obligations, Solo Serve as Debtor hereby grants to GAC as Secured Party
a continuing security interest in
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and lien upon and the right of set-off against and hereby assigns to GAC as
security, the following property and interests in property, whether now owned
or hereafter acquired or existing, and wherever located (collectively, the
"Collateral"), which security interest and lien is and shall be subordinate to
the security interest and lien of Congress in the Collateral pursuant to the
Intercreditor Agreement:
4.1 Accounts;
4.2 All present and future contract rights, general intangibles
(including, but not limited to, any and all rights to payments of cash held by
factors ("Factors"), tax and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee, choses in action and other
claims), chattel paper, documents, instruments, letters of credit, bankers'
acceptances and guaranties;
4.3 All present and future monies, securities, credit balances,
deposits and deposit accounts and other property of Debtor now or hereafter
held or received by or in transit to Secured Party or its affiliates or at any
other depository or other institution from or for the account of Debtor,
whether for safekeeping, pledge, custody, transmission, collection or
otherwise, and all present and future liens, security interests, rights,
remedies, title and interest in, to and in respect of Accounts and other
collateral, including, without limitation, rights and remedies under or
relating to guaranties, contracts of suretyship, letters of credit and credit
and other insurance related to the Collateral, rights of stoppage in transmit,
replevin, repossession, reclamation and other rights and remedies of an unpaid
vendor, lienor or secured party, finished goods inventory described in
invoices, documents, contracts or instruments with respect to, or otherwise
representing or evidencing, Accounts or other collateral, including, without
limitation, returned, repossessed and reclaimed finished goods inventory, and
deposits by and property of account debtors or other persons securing the
obligations of account debtors;
4.4 Inventory;
4.5 Equipment;
4.6 Records;
4.7 All parts, accessories, attachments, special tools, additions,
replacements, substitutions and accessions to or for any or all of the
foregoing; and
4.8 All products and proceeds of the foregoing, in any form,
including, without limitation, insurance proceeds and all claims against third
parties for loss or damage to or destruction of any or all of the foregoing.
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Notwithstanding anything to the contrary contained in Sections 4.5 and
4.7 above, the types or items of Collateral described in such Sections shall
not include any such types or items of Collateral which are, on the date of the
execution of this Agreement, subject to a lien or security interest itemized on
Schedule 8.4(a) to the Loan Agreement if: (a) the valid grant of a security
interest or lien to Secured Party in such items of Collateral is prohibited by
the terms of the agreement between Debtor and the holder of such lien or
security interest and (b) any obligations are owing by Debtor to the holder of
such lien or security interest.
5. Default and Remedies. Subject to the terms of the
Intercreditor Agreement, upon the failure of Solo Serve to comply with any of
its obligations hereunder as and when due or upon the occurrence of an Event of
Default under the Loan Agreement, GAC shall be entitled to exercise all the
rights and remedies of a secured party under the Uniform Commercial Code of the
State of Texas.
6. Term. This Agreement shall become effective as of the date
hereof and shall continue in full force and effect until the earlier of: (a)
the expiration of the GAC L/C by its own terms or (b) 120 days after the
termination of the Loan Agreement, provided, however the payment obligations of
Solo Serve and the liens and security interests granted herein shall remain in
full force and effect until the Obligations are irrevocably and indefeasibly
paid in full.
7. Notices. All notices, requests and demands hereunder shall be
in writing and (a) made to Secured Party at its address set forth below and to
Debtor at its chief executive office set forth below, or to such other address
as either party may designate by written notice to the other in accordance with
this provision, and (b) deemed to have been given or made: if delivered in
person, immediately upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon confirmation of receipt; if by
nationally recognized overnight courier service with instructions to deliver
the next business day, one (1) business day after sending; and if by certified
mail, return receipt requested, five (5) days after mailing.
8. Partial Invalidity. If any provision of this Agreement is
held to be invalid or unenforceable, such invalidity or unenforceability shall
not invalidate this Agreement as a whole, but this Agreement shall be construed
as though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
9. Successors. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by Secured Party, Debtor and their respective
successors and assigns, except that Debtor may not assign its rights under this
Agreement or any other document referred to herein without the prior written
consent of Secured Party.
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10. Entire Agreement. This Agreement and any instruments or
documents delivered or to be delivered in connection herewith or therewith
represent the entire agreement and understanding concerning the subject matter
hereof and thereof between the parties hereto, and supersedes all other prior
agreements, understandings, negotiations and discussions, representations,
warranties, commitments, proposals, offers and contracts concerning the subject
matter hereof, whether oral or written.
11. Nonapplicability of Article 5069-15.01 et. seq. Debtor and
Secured Party hereby agree that, except for Section 15.10(b) thereof, the
provisions of Tex. Rev. Civ. Stat. Ann. art. 5069-15.01 et seq.(Vernon 1987)
(regulating certain revolving credit loans and revolving tri-party accounts)
shall not apply to this Agreement.
12. Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT AND ANY
DISPUTE ARISING OUT OF THE RELATIONSHIP BETWEEN THE PARTIES HERETO, WHETHER IN
CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE INTERNAL LAWS OF
THE STATE OF TEXAS (WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW).
13. Subordination. THE RIGHTS OF GAC HEREUNDER ARE SUBJECT TO THE
TERMS AND CONDITIONS OF THE INTERCREDITOR AGREEMENT, AND ARE SUBORDINATE IN
RIGHT OF PAYMENT TO THE PAYMENT OF THE SENIOR DEBT (AS DEFINED IN THE
INTERCREDITOR AGREEMENT).
EXECUTED the date and year first above written.
SOLO SERVE CORPORATION
By: /s/ DAVID P. DASH
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Its: President
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Chief Executive Office:
1610 Cornerway Blvd.
San Antonio, Texas 78219
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GENERAL ATLANTIC CORPORATION
By: /s/ Julie Lefkowitz
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Its: Vice President
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Address before July 1, 1996:
Attn: Ms. Julie Lefkowitz
125 E. 56th Street
New York, N.Y. 10022
Address on and after July 1, 1996:
Attn: Ms. Julie Lefkowitz
118 E. 57th Street
New York, N.Y. 10022
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