Exhibit 10.26
Christopher R. Kaup
State Bar No. 014820
Tiffany & Bosco, P.A.
FIFTH FLOOR VIAD TOWER
1850 NORTH CENTRAL AVENUE
PHOENIX, ARIZONA 85004-4546
TELEPHONE: (602) 255-6000
FACSIMILE: (602) 255-0103
Attorneys for Debtors
J. Thomas Beckett
State Bar No. 05587
R. David Grant
Utah State Bar No. 6233
Parsons Behle & Latimer
201 South Main Street
Suite 1800
Salt Lake City, Utah 84111
Telephone: (801) 532-1234
Facsimile: (801) 536-6111
Attorneys for Canopy
UNITED STATES BANKRUPTCY COURT
DISTRICT OF ARIZONA
In re: Chapter 11 Proceedings
EBIZ ENTERPRISES, INC., Case Nos. _____________ and
a Nevada corporation, _____________
Debtor. (Joint Administration Pending)
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In re:
JONES BUSINESS SYSTEMS, INC.,
a Texas corporation, STIPULATION PROVIDING FOR USE OF CASH
COLLATERAL AND ADEQUATE PROTECTION OF
Debtor. SECURED CREDITOR'S LIEN
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Debtors, EBIZ ENTERPRISES, INC. ("EBIZ") and JONES BUSINESS SYSTEMS, INC.
("JBSI") (collectively, "Debtors"), and The Canopy Group, Inc. (hereinafter
"Canopy"), stipulate and agree to entry of an Order approving the terms and
conditions of this Stipulation Providing For Use of Cash Collateral and Adequate
Protection of Secured Creditor's Lien (this "Stipulation"), as set forth herein.
Debtors also have sought, by separate Motion filed contemporaneously herewith,
to have their Bankruptcy Estates joint administered.
I. RECITALS
A. On or about _____________, Debtors filed their separate petitions for
relief under Chapter 11 of the Bankruptcy Code.
B. Debtors are operating a business involved in the manufacture and sale of
computers and computer components (the "Business"). Pursuant to Section 541 of
the Bankruptcy Code, the business, personal property (furniture, fixtures and
equipment) used therein, and accounts and accounts receivable generated
therefrom are property of Debtors' estates.
C. Debtors' purpose and intent in filing their respective Chapter 11
proceedings is to accomplish an effective reorganization of their business
affairs and operations. Canopy has entered into this Stipulation in reliance on
Debtors' intent as expressed in this paragraph.
D. Canopy is a secured creditor of Debtors holding a properly perfected
security interest in all of Debtors' accounts receivable and inventory, by
virtue of several prepetition loan arrangements pursuant to which Canopy and
Finova Capital Corporation ("Finova") advanced funds to Debtors. The debt to
Canopy consists of five components: a term loan (the "Term Loan"), a line of
credit (the "Line of Credit"), an amended and restated promissory note and two
secured convertible promissory notes (the "Notes"). Prior to the filing by
Debtors of their Bankruptcy Petitions, Canopy purchased the Term Loan and the
Line of Credit from Finova and Finova assigned its security interests and all
other rights as against Debtors and their assets to Canopy.
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E. For purposes of this Stipulation, Debtors concede that proceeds from
collection of prepetition accounts receivable and proceeds from the sale of
prepetition inventory are cash collateral of Canopy within the meaning of 11
U.S.C. ss. 363(a) ("Cash Collateral").1 Debtors further acknowledge that they
are aware of no defenses to Canopy's security interest and acknowledge the
validity and perfection of Canopy's security interest in the Cash Collateral.
F. Debtors and Canopy have entered into this Stipulation to: (i) preserve
the value of the estate assets; (ii) permit continued operations that will allow
for a distribution to general unsecured creditors; (iii) avoid protracted and
costly cash collateral litigation; (iv) provide a means for accountability of
Cash Collateral receipt and expenditure; and (v) adequately protect Canopy from
the diminution of its interest in the Cash Collateral. Debtors and Canopy
believe this Stipulation to be in the best interests of the estate and Canopy,
and respectfully request the Court approve this Stipulation according to its
terms.
II. OPERATIVE PROVISIONS - USE OF CASH COLLATERAL/ADEQUATE PROTECTION
A. The parties hereby incorporate the foregoing "Recitals" into these
"Operative Provisions" as though fully set forth.
B. Debtors shall have the right and authority to operate and manage the
Business, subject to the terms of this Stipulation.
C. Canopy hereby consents to the use of its Cash Collateral, to the extent
and up to an amount that shall not exceed ninety-five percent (95%) of the
aggregate amount of its Cash Collateral, under the following conditions:
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(1) Assuming Court approval of this Stipulation, Debtors concede that proceeds
from collection of post-petition accounts receivable and proceeds from the sale
of post-petition inventory also will be cash collateral of Canopy and included
in the definition of "Cash Collateral" used herein.
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1. Debtors may, with the Cash Collateral, pay the reasonable costs and
expenses of the Business provided: (i) no expenditure of Cash Collateral during
any four-week period may exceed the respective amount set forth in the budget
for the Business, attached hereto as Exhibit "A," without the express prior
consent of Canopy; (ii) in the event the specific persons named in Exhibit "A"
are not employed by Debtors during any successive four-week period for which use
of Cash Collateral is authorized (e.g., having accepted employment with another
employer), Debtors may employ alternate workers to perform the tasks anticipated
to have been performed by the listed person at a rate no greater than that
authorized on Exhibit "A"; and (iii) Debtors and Canopy specifically reserve the
right to agree to a modification of the budget without additional Bankruptcy
Court approval if such modification appears to Debtors and Canopy to be
justified by the costs and benefits associated with administering the estate. In
the event that any unforeseen, additional, or emergency costs or expenses shall
arise, Debtors may make payment thereof from Cash Collateral only upon the
express consent of Canopy or further Order of this Court. If funds for such
unforeseen, additional or emergency expenses are advanced to Debtors by a
principal or insider of Debtors, reimbursement of sums so advanced may be made
from the Cash Collateral only with the consent of Canopy or an Order of this
Court;
2. Canopy shall collect any Cash Collateral paid to Debtors under the
"lockbox" arrangement provided for by the loan documentation with Debtors and
shall immediately forward or make available to Debtors ninety-five percent (95%)
of all such Cash Collateral. Canopy may, at its discretion, apply the remaining
five percent (5%) of such Collateral first to interest and then to principal due
to Canopy by Debtors;
3. In the event that ninety-five percent (95%) of all such Cash Collateral
forwarded or made available to Debtors is insufficient to pay the reasonable
costs and expenses of the Business as set forth in the budget for the Business,
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attached hereto as Exhibit "A," Canopy may advance additional funds to the
Debtors beyond the ninety-five percent (95%) of all such Cash Collateral;
4. Debtors acknowledge that, by agreeing to forward or make available to
Debtors ninety-five percent (95%) of all such Cash Collateral, without receiving
in exchange substitute collateral of equal or greater value, and potentially, by
advancing additional funds to the Debtors, Canopy is providing credit to Debtors
post-petition, and Canopy is only willing to provide credit to Debtors
post-petition on the terms contained in this Stipulation. Debtors represent that
they are unable to obtain unsecured credit allowable under section 503(b)(1) of
the Bankruptcy Code.
5. Any Cash Collateral collected by Debtors or transferred to Debtors by
Canopy shall be held by Debtors in a Debtor-in-Possession account that may, in
the exercise of Debtors' reasonable business discretion, be interest bearing
(the "Cash Collateral Account"). The Cash Collateral Account shall contain only
the Cash Collateral of Canopy, and no other estate assets shall be commingled
with the Cash Collateral proceeds;
6. Debtors, in the exercise of their reasonable business judgment, may from
time to time during the term of this Stipulation disburse to Canopy excess funds
on hand in either of the bankruptcy estates ("Excess Funds") that are undisputed
to be the Cash Collateral of Canopy. In the event there exists, or Debtors in
good faith believe there exists, a dispute or competing claim to said Excess
Funds, Debtors may give notice of their intention to disburse estate funds to
Canopy by use of a 10-day bar date notice. Nothing contained herein shall
prevent or restrict Canopy from seeking an order from this Court directing
Debtors to disburse Excess Funds in an amount greater, or at times more
frequent, than that deemed appropriate by Debtors;
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7. Debtors shall timely file the required interim financial reports and
such other accountings as are required by Local Bankruptcy Rules. Debtors shall
provide copies of said reports to Canopy by mail or delivery to counsel for
Canopy upon filing with the Court;
8. Debtors shall prepare and deliver (by hand delivery or telecopy) to
Canopy bi-weekly reports of accounts receivable and itemizations of all receipts
and disbursements in a format to be reasonably designated from time to time by
Canopy, but which may include:
a. All billing information from the prepetition and post-petition
period, including the parties billed, and the amounts of those bills;
b. A list of all accounts receivable containing the name, address and
account information of each payor, the dates of all billings and the amount(s)
still owing on such accounts;
c. A list of all funds received and expended including receipts,
invoices or evidence of payment for all expenses paid in accordance with Exhibit
"A." Canopy reserves the right to require from Debtors additional financial
reports that are reasonably related to determining and confirming Debtors'
financial condition during the term of this Stipulation.
F. Upon receipt of the accountings described in the preceding
paragraphs, Canopy shall have the right to inspect the books and records of
Debtors from which such accounts were made. Such inspection may be made upon
48-hour request by Canopy to Debtors and to Counsel for Debtors. Such
inspections shall be conducted at Debtors' place of business at a mutually
agreed time so as not to unduly interfere with Debtors' administration of the
estate.
G. In order to adequately protect Canopy from a diminution in the
value of its collateral, which will necessarily occur as Debtors utilize Cash
Collateral, and to provide security for any additional advances made to Debtors
by Canopy, Debtors: (i) confirm the validity of Canopy's security interest to
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the fullest extent described in their agreements with Canopy; and (ii) have
agreed and consent to and hereby do grant to Canopy to secure the loans owing by
the Debtors to Canopy to the extent of the Cash Collateral advanced by Canopy to
the Debtors and not repaid by the Debtors, and any additional post-petition
advances, in addition to the security interest already held by Canopy, a first
position security interest in the accounts receivable of Debtors, if any,
generated post-petition, all inventory acquired by Debtors post-petition and in
the proceeds of same. In determining the amount of cash collateral advanced by
Canopy to the Debtors and not repaid by the Debtors, only Cash Collateral
collected by Canopy under the "lockbox" arrangement that is paid on
post-petition accounts receivable and inventory will be applied to reduce
post-petition advances of Cash Collateral. Debtors and Canopy agree the loans
owing by the Debtors to Canopy to the extent of the Cash Collateral advanced by
Canopy to the Debtors and not repaid by the Debtors, and any additional
post-petition advances, will have priority over any or all administrative
expenses of the kind specified in section 503(b) or 507(b) of the Bankruptcy
Code, and Debtors agree and grant a security interest in the property of the
estate that is not otherwise subject to a lien, as provided in section 364(c)(2)
of the Bankruptcy Code, and Debtors agree and grant a security interest in the
property of the estate that is subject to a lien junior to such lien, as
provided in section 364(c)(3) of the Bankruptcy Code, to secure the loans owing
by the Debtors to Canopy to the extent of the Cash Collateral advanced by Canopy
to the Debtors and not repaid by the Debtors, and any additional post-petition
advances. However, the liens granted to Canopy shall be subject to the following
carve-out expenses (the "Carve-Out Amounts") and shall not attach to the
property of Debtors to the extent of:
(1) The fees payable or which may become payable to the United States
Trustee, pursuant to 228 U.S.C. ss. 1930;
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(2) The fees payable or which may become payable to the Clerk of the Court;
and
(3) The unpaid reasonable fees and expenses actually incurred, on or after
the date of the filing by Debtors of their petitions for relief under Chapter 11
of the Bankruptcy Code and as shall be approved from time to time by the Order
of the Court, by any attorneys, accountants and other professionals retained by
the Bankruptcy Estate, pursuant to 11 U.S.C. ss.ss. 327 & 1103, in an amount not
to exceed the aggregate amount of $150,000.00.
H. Any payments received by Canopy from Debtors, including the five percent
(5%) of the Cash Collateral to be retained by Canopy, shall be applied to reduce
first the accrued but unpaid interest, next to the principal amount of the
prepetition debt, and last to any other sum due pursuant to debt instruments.
III. OPERATIVE PROVISIONS - GENERAL
A. This Stipulation shall remain in effect until the earlier of: (i) the
close of business on the fifth (5th) business day following the receipt by
Counsel for Debtors of a Notice of Default and Termination from Canopy
describing with particularity the nature of Debtors' breach of the terms of this
Stipulation, if Debtors fail to cure that breach prior to that date and time;
(ii) further Order of this Court modifying the terms hereof; (iii) confirmation
of a Plan of Reorganization in both of the above captioned cases; (iv) the date
of the entry of an Order by this Court converting either of the above captioned
cases to a case under Chapter 7 of the Bankruptcy Code; or (v) dismissal of
either of the above captioned cases.
B. Debtors agree that, in the event Debtors seek other Debtor-In-Possession
financing under section 364 of the Bankruptcy Code, Canopy will have a first
right of refusal for thirty days to provide the Debtor-In-Possession financing
on the same terms as offered by the alternate lender. Further, to the extent
Debtors receive financing from any source other than Canopy, whether through a
debt instrument or equity or other vehicle, such as a rights offering, prior to
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confirmation of any Plan of Reorganization, Debtors agree that Canopy will have
the right, but not the obligation to participate in providing such financing, in
such amount as Canopy desires. In the event that Canopy chooses not to provide
all of the Debtors' Debtor-in-Possession or other financing, and the Debtors
obtain financing from another source prior to confirmation, any security
interest in collateral or other rights granted to the alternate financier, other
than the right to repayment, to the extent they have not already been granted to
Canopy, will be granted to Canopy by the Debtors, and Canopy and the Debtors
agree that all such rights and collateral will be shared pro rata between Canopy
and the new financier to serve as security for the repayment of new financing,
as well as any amounts due and owing by the Debtors to Canopy under the terms of
this Stipulation to the extent of the Cash Collateral advanced by Canopy to the
Debtors and not repaid by the Debtors, and any additional post-petition
advances.
C. Debtors shall comply with the Debtor-in-Possession account and
reporting requirements of the guidelines promulgated by the Office of the United
States Trustee. However, to the extent the administrative activity in the
jointly administered estates is provided for the benefit of each estate and is
not readily susceptible of segregation, such activity may be consolidated and
performed in the EBIZ estate, and paid from the Debtor-in-Possession accounts
and reported as activity of that estate.
D. Debtors will not file or propose any Plan of Reorganization (including,
but not limited to, any amendment or modification of a Plan of Reorganization,
whether before or after confirmation), which does not incorporate all the terms
of this Stipulation. In the event of any inconsistency between this Stipulation
and any Plan of Reorganization filed or proposed by Debtors, the terms of this
Stipulation will control, and any such inconsistent provisions of any Plan of
Reorganization or any confirmation order thereon will be null and void.
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E. All notices, requests, demands, payment of monies or other
communications hereunder shall be in writing and shall be addressed as follows:
(i) in the case of Debtor - c/o Christopher Kaup, Esq., Tiffany & Bosco, P.A.,
1850 North Central, 5th Floor, Phoenix, Arizona 85004 (telecopy 602-255-0103);
and (ii) in the case of Canopy - c/o J. Thomas Beckett, Esq. and R. David Grant,
Esq., Parsons Behle & Latimer, 201 South Main Street, Suite 1800, Salt Lake
City, Utah, 84111 (telecopy (801) 536-6111).
F. Any party may designate another address in writing. All notices
hereunder shall be considered received and effective on the earliest of the
following (the "Receipt Date"): (i) three (3) days after deposit in the U.S.
Mail, postage prepaid, registered or certified mail, return receipt requested;
(ii) 24 hours after delivery, if sent by facsimile transmission; (iii) upon
delivery, if delivered in person, to the address set forth above; or (iii) upon
delivery, if sent by commercial express service, such as Federal Express, except
that notices of change of address, shall be effective ten (10) days after the
Receipt Date. Any Receipt Date that occurs on a weekend or a legal holiday will
be deemed extended to the first business day thereafter occurring. Any matter
sent by the methods and directed to the addressor and/or telecopy number
described above (if telecopy notice reflecting successful delivery exists) shall
be conclusively presumed to have been received.
G. Except as expressly set forth herein, this Stipulation and any Order
entered in connection with this Stipulation shall not operate as an adjudication
of adequate protection or any other related rights asserted by any party in
interest under 11 U.S.C. ss.ss. 361, 362, or 363. Further, this Court shall not
prevent Canopy from moving for or obtaining any appropriate relief in this case,
including the request of additional adequate protection of its interests.
H. Nothing in this Stipulation will be deemed or construed as an admission
or waiver by any party regarding the validity or propriety of the above
captioned Chapter 11 cases or regarding any issue or fact therein, including
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(except as expressly set forth herein) but not limited to adequate protection,
valuation, any matter(s) pertinent to the assumption or rejection of any
executory contract(s) or any matter(s) pertinent to the granting or denial of
stay relief with respect to the Business and/or its rents, issues and profits.
This Stipulation has been made for the limited purpose concerning the use of the
Debtors' inventory and accounts receivable to facilitate administration of
Debtors' estates, to provide adequate protection for the diminution of Canopy's
collateral and to provide a basis for post-petition financing, and the scope of
this Stipulation is limited to its express provisions.
I. This Stipulation may be executed in counterparts, all of which together
shall constitute one complete Stipulation. Signatures sent by facsimile
transmission shall be effective in all respects as originals.
DATED this ____ day of August, 2001.
TIFFANY & BOSCO, P.A.
By: /s/ Christopher R. Kaup
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Christopher R. Kaup, Esq.
Fifth Floor Viad Tower
1850 North Central Avenue
Phoenix, Arizona 85004-4546
Attorneys for Debtors
THE CANOPY GROUP INC
By: /s/ Darcy Mott
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Darcy Mott, VP Finance, Treasurer
and Chief Financial Officer
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