Exhibit 10.29
AGREEMENT TO PROVIDE LETTER OF CREDIT
AND FINANCIAL ACCOMMODATIONS
PHOENIX, ARIZONA
NOVEMBER __, 2001
This agreement to provide letter of credit and financial accommodations
(the "Agreement"), effective October __, 2001, is made between and among EBIZ
ENTERPRISES, INC. ("EBIZ") and XXXXX BUSINESS SYSTEMS, INC. ("JBSI")
(collectively, "Debtors"), and THE CANOPY GROUP, INC. ("Lender").
RECITALS
A. On or about September 7, 2001, Debtors filed their separate petitions
for relief under Chapter 11 of the Bankruptcy Code ("Bankruptcy Petitions").
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 Bankruptcy
Petitions is to accomplish an effective reorganization of their business affairs
and operations. Lender has entered into this Agreement in reliance on Debtors'
intent as expressed in this paragraph.
D. Lender is a secured creditor of Debtors, holding a properly perfected
security interest in all of Debtors' personal property, by virtue of several
prepetition loan arrangements pursuant to which Lender and Finova Capital
Corporation advanced funds to Debtors. The debt to Lender consists of four
components: a term loan (the "TERM LOAN"), a line of credit (the "LINE OF
CREDIT"), and two secured convertible promissory notes (the "NOTES"). The Term
Loan, the Line of Credit and the Notes are collectively referred to hereinafter
as the "CANOPY AGREEMENTS." Prior to the filing by Debtors of their Bankruptcy
Petitions, Lender 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.
E. Debtors and Lender entered into a Stipulation Providing for Use of Cash
Collateral and Adequate Protection of Secured Creditor's Lien dated September
___, 2001 (the "CASH COLLATERAL AGREEMENT") in which the Debtors confirmed the
validity of Lender's security interest securing the Canopy Agreements, and
granted to Lender a first position security interest in the accounts receivable
of the Debtors, if any, generated post-petition, and in all inventory acquired
by the Debtors post-petition and in the proceeds of same, to secure the Canopy
Agreements owing by the Debtors to Lender to the extent of the cash collateral
advanced by Lender to the Debtors pursuant to the Cash Collateral Agreement and
not repaid by the Debtors, and any additional post-petition advances by Lender.
F. Debtors have entered into an agreement with Textron Financial
Corporation ("TEXTRON"), pursuant to which Textron has agreed to provide a floor
financing facility to Debtors (the "TEXTRON FINANCING FACILITY") which will
allow Debtors to purchase required materials from various vendors on favorable
terms. The Textron Financing Facility is conditioned upon the posting of a
letter of credit in the amount of $500,000.00 in favor of Textron (the "LETTER
OF CREDIT") and approval by the Bankruptcy Court of that facility and this
Agreement. Debtors have no ability to obtain such a letter of credit except
through and from Lender. Obtaining the Letter of Credit in favor of Textron and
other financial accommodations from Lender is critical to the ability of Debtors
to continue their business operations, and without such financing Debtors
believe they would likely not be able to operate successfully as a going
concern. Entering into this Agreement is in the exercise of Debtors' best
business judgment and in the best interest of Debtors.
G. Lender, as a shareholder of EBIZ and creditor of the Debtors, believes
it is in Lender's best interest to issue the Letter of Credit in favor of
Textron so that the Debtors may continue operations.
In consideration of the above recitals, the following representations,
warranties, covenants and conditions, and other good and valuable consideration,
the receipt and sufficiency of which is acknowledged, the parties agree as
follows:
SECTION ONE
REPRESENTATIONS, WARRANTIES AND AFFIRMATIVE COVENANTS
Debtors represent, warrant, and covenant that:
(1) Debtors have been duly incorporated and organized and are existing
as corporations in good standing under the laws of their jurisdiction of
incorporation; Debtors have the power and authority to own the property that
serves as collateral for all of the advances and loans previously made by Lender
to Debtors (the "COLLATERAL") and to enter into and perform this Agreement, and
any other document or instrument delivered in connection herewith;
(2) Debtors have good title to the Collateral and are the legal and
beneficial owners thereof; and
(3) Debtors shall execute, acknowledge, deliver, record and file such
further instruments and do such further acts (including delivery of financing
statements) as Lender in its sole and absolute judgment deems necessary,
desirable or proper to carry out the purposes of this Agreement and to subject
to the security interest created hereby any property intended to be covered
hereby.
SECTION TWO
LETTER OF CREDIT
AND FINANCIAL ACCOMMODATIONS
Until further notice, and on the condition that Debtors not be in default
with respect to any of the terms of this Agreement or any of the terms of the
Textron Financing Facility, Lender will arrange to make available to Debtors the
Letter of Credit issued by a financial institution in favor of Textron in the
amount of Five Hundred Thousand Dollars ($500,000.00), provided, however, that
the Debtors will pay any and all costs and expenses associated with the issuance
of the Letter of Credit, including, but not limited to the annual letter of
credit fee charged by the financial institution, and Lender will provide such
further financial accommodations as are reasonably requested by the Debtors
without additional cost or expense to Lender to maintain such Letter of Credit
until the termination of the Textron Financing Facility. The initial term of the
Letter of Credit will be one year, and the Letter of Credit will be
automatically renewed upon payment by the Debtors of the required costs and
fees; provided, however, that Lender may give notice to the financial
institution that has issued the Letter of Credit at least sixty (60) days prior
to the expiration of the Letter of Credit, or any renewal thereof, not to
further renew the Letter of Credit, if this Agreement has terminated, as
provided in Section Four below.
SECTION THREE
TERMS OF LOAN
(1) Upon a default by Debtors under the terms of the Textron Financing
Facility and any draw by Textron upon the Letter of Credit (a "LOC DRAW"), the
amount of any such LOC Draw shall constitute a further advance by Lender to
Debtors and an additional debt due and owing by Debtors to Lender. The amount of
each advance resulting from an LOC Draw shall bear interest from the date of
that LOC Draw until paid at the rate of twelve percent (12%) per annum (the
"INTEREST RATE"). Any advance resulting from an LOC Draw is due and payable to
Lender immediately on the date of the LOC Draw. All amounts are payable in
lawful money of the United States.
SECTION FOUR
TERMINATION OF AGREEMENT
Lender shall have the option of terminating this Agreement and the rights
and obligations of each of the parties hereunder on the occurrence of any of the
following: (i) the close of business on the tenth (10th) day following receipt
by Counsel for the Debtors of a Notice of Default and Termination from Lender
describing with particularity the nature of the Debtors' breach of the terms of
this Agreement, if the Debtors fail to cure that breach prior to that date and
time; (ii) further order of the United States Bankruptcy Court for the District
of Arizona presiding over the pending bankruptcy cases of the Debtors (the
"Bankruptcy Court"); (iii) confirmation of a plan of reorganization in both of
the Debtors' pending bankruptcy cases; (iv) the date of the entry of an order by
the Bankruptcy Court converting either of the Debtors' pending bankruptcy cases
to a case under Chapter 7 of the Bankruptcy Code; (v) dismissal of either of the
Debtors' pending bankruptcy cases; (vi) failure of the Debtors to obtain from
the Bankruptcy Court confirmation of a plan of reorganization proposed by the
Debtors in either of the Debtors' pending bankruptcy cases within the period in
which the Debtors have the exclusive right to file a plan of reorganization as
provided in Section 1121(c)(2) and (3) and any period of extension as ordered by
the Bankruptcy Court; or (vii) termination of the Textron Financing Facility.
Notwithstanding the foregoing, the Debtors' obligation to repay any advance
resulting from an LOC Draw on the terms provided herein and the Debtors'
agreement not to make any additional purchases or pay any additional expenses
utilizing credit extended pursuant to the Textron Financing Facility in the
event of termination of this Agreement as provided below will survive any
termination of this Agreement. In the event that this Agreement is terminated at
the option of Lender pursuant to this Section, the Debtors agree that they will
make no further purchase and they will pay no further expenses utilizing credit
extended pursuant to the Textron Financing Facility.
SECTION FIVE
SECURITY FOR LOANS
The Debtors hereby grant to Lender a security interest in the accounts
receivable of the Debtors, if any, generated post-petition, and in all inventory
acquired by the Debtors post-petition and in the proceeds of same, and all other
personal property of the Debtors acquired post-petition (including, but not
limited to goods, general intangibles, and fixtures) to secure any advance
resulting from an LOC Draw.
SECTION SIX
OPTION TO CONVERT TO EQUITY
The Debtors and Lender hereby agree that Lender shall have the right, at
Lender's option, at any time prior to or on the effective date of the plan of
reorganization to be proposed by the Debtors (the "Effective Date"), to convert
$1,500,000 of the indebtedness owing from the Debtors to Lender pursuant to the
Canopy Agreements ("Canopy Pre-Petition Debt") into equity of the reorganized
Debtors as of the Effective Date. $500,000 of the Canopy Pre-Petition Debt may
be converted at the price per share at which other parties advancing
post-petition and pre-confirmation debt may convert such debt into equity of the
reorganized Debtors (Textron will not be given that option). The remaining
$1,000,000 of the Canopy Pre-Petition Debt may be converted into equity in the
reorganized Debtors pursuant to the confirmed plan of reorganization of the
Debtors at the lowest price per share provided in any such plan of
reorganization for any shares of stock or warrants to be issued to any holders
of prepetition claims or equity security interests. The Debtors agree to include
Lender's option as provided in this Section Six in any plan of reorganization
they may propose.
SECTION SEVEN
AMENDMENT AND MODIFICATION
This Agreement may not be amended, modified or changed, nor shall any
waiver of any provision hereof be effective, except only by an instrument in
writing and signed by the party against whom enforcement of any waiver,
amendment, change, modification or discharge is sought; provided, however, that
this paragraph shall in no way be a limitation on the provisions of the consents
and waivers set forth above.
SECTION EIGHT
SEVERABILITY, ENFORCEABILITY AND CONSTRUCTION
Each provision of this Agreement is intended to be severable. Debtors and
Lender further intend and believe that each provision in this Agreement complies
with all applicable local, state and federal laws and court decisions. However,
if any provision or provisions in this Agreement is or are found by a court of
law to be in violation of an applicable local, state or federal ordinance,
statute, law, administrative or judicial decision, or public policy, and if such
court should declare such portion or provision(s) of this Agreement to be
illegal, invalid, unlawful, void or unenforceable as written, then it is the
intent of Debtors and Lender that such portion, provision(s) shall be given full
force and effect to the fullest possible extent that they are legal, valid and
enforceable, that the remainder of this Agreement shall be construed as if such
illegal, invalid, unlawful, void or unenforceable portion, provision(s) are not
contained herein, and that the rights, obligations and interests of Debtors and
Lender under the remainder of this Agreement shall continue in full force and
effect.
SECTION NINE
TIME OF THE ESSENCE
Time is of the essence of this Agreement.
SECTION TEN
GOVERNING LAW, JURISDICTION AND VENUE
The enforcement, performance, discharge, lack of performance and formation
of this Agreement shall be governed by, and construed and enforced in accordance
with, the law of the State of Utah, regardless of any applicable conflict-of-law
rules to the contrary.
Debtors and Lender also hereby:
(A) irrevocably submit to the jurisdiction of the Third Judicial
District Court in and for Salt Lake County, State of Utah, or any successor to
said court, and to the jurisdiction of the United States District Court for the
District of Utah, or any successor to said court (hereinafter referred to as the
"UTAH COURTS") for purposes of any suit, action or other proceeding which
relates to the transactions contemplated in this Agreement;
(B) to the extent permitted by applicable law, waive and agree not to
assert by way of motion, as a defense or otherwise in any such suit, action or
proceeding, any claim that they are not personally subject to the jurisdiction
of the Utah Courts; that the suit, action or proceeding is brought in an
inconvenient forum; that the venue of the suit, action or proceeding is
improper; or that this Agreement or any transaction provided for herein may not
be enforced in or by the Utah Courts; and
(C) agree not to seek, and hereby waive, any collateral review by any
other court with the exception of any timely filed appeal, which may be called
upon to enforce the judgment or any of the Utah Courts, of the merits of any
such suit, action or proceeding or the jurisdiction of said Utah Court.
SECTION ELEVEN
ADDITIONAL ACTIONS
Each party hereto agrees to do all acts and things and to make, execute,
and deliver such written instruments and documents as shall from time to time be
reasonably required to carry out the terms and provisions of this Agreement.
SECTION TWELVE
ATTORNEYS' FEES
In the event of any claim, controversy or dispute arising out of or
relating to this Agreement, or the breach thereof, the prevailing party shall be
entitled to recover reasonable attorneys' fees incurred in connection with any
arbitration or court proceeding set by the court sitting without a jury.
SECTION THIRTEEN
REMEDIES CUMULATIVE
The remedies of the parties hereto under this Agreement are cumulative and
shall not exclude any other remedies to which any party may be lawfully
entitled.
SECTION FOURTEEN
COMPUTATION OF TIME
Whenever the last day for the exercise of any privilege or discharge of any
duty hereunder shall fall upon Saturday, Sunday or any public or legal holiday,
whether under federal or state law, the party having such privilege or duty
shall have until 5:00 p.m. (Mountain time) on the next succeeding regular
business day to exercise such right or to discharge such duty.
SECTION FIFTEEN
AUTHORITY
Any individual signing below on behalf of a corporation, partnership or
other entity hereby personally represents that he or she has full authority to
bind the party or parties on whose behalf he or she is signing subject only to
Bankruptcy Court approval.
SECTION SIXTEEN
ENTIRE AGREEMENT
This Agreement, including the exhibits and schedules hereto, contains the
entire understanding and agreement among the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings,
express or implied, oral or written, among the parties with respect to such
subject matter. The express terms of this Agreement shall control and supersede
any course of performance or usage of the trade inconsistent with any of the
terms hereof. Each of the exhibits and schedules hereto is incorporated herein
by this reference and constitutes a part of this Agreement.
SECTION SEVENTEEN
TERMINOLOGY
All captions, headings or titles in the paragraphs or sections of this
Agreement are inserted for convenience of reference only and shall not
constitute a part of this Agreement or a limitation of the scope of the
particular paragraph or section to which they apply. All personal pronouns used
in this Agreement, whether used in the masculine, feminine, or neuter gender,
shall, where appropriate, include all other genders and the singular shall
include the plural and vice versa.
SECTION EIGHTEEN
NOTICES
All communications or notices required or permitted to be given or served
under this Agreement shall be in writing and shall be deemed to have been duly
given or made if: (a) delivered in person or by courier (e.g., Federal Express);
(b) deposited in the United States mail, postage prepaid, for mailing by
certified or registered mail, return receipt requested; or (c) sent by facsimile
and addressed to the intended recipient at the address and/or the facsimile
number set forth below such party's signature at the end of this Agreement. All
communications and notices shall be effective upon delivery in person or by
courier three (3) days after being deposited in the United States mail or two
(2) business hours after being sent by facsimile. Any party may change his or
her address and/or facsimile number by giving notice, in writing, stating his or
her new address and/or facsimile number, to all of the other parties in the
foregoing manner. Copies of all notices to Debtors shall also be sent to
Xxxxxxxxxxx X. Xxxx, Esq., Xxxxxxx & Bosco, P.A., 0000 Xxxxx Xxxxxxx, Xxxxx
Xxxxx, Xxxxxxx, Xxxxxxx 00000, facsimile: 602-255-0103. Copies of all notices to
Lender shall also be sent to R. Xxxxx Xxxxx, Esq., Xxxxxxx Xxxxx & Xxxxxxx, 000
Xxxxx Xxxx Xxxxxx, Xxxxx 0000, X.X. Xxx 00000, Xxxx Xxxx Xxxx, Xxxx 00000-0000,
facsimile: 801-536-6111.
SECTION NINETEEN
SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective assigns, legal representatives, executors,
heirs and successors, provided, however, that no party hereto shall have the
right to assign any right hereunder or delegate any obligation hereunder, in
whole or in part, without the prior written consent of the other parties hereto,
and any attempt to do so shall be void.
SECTION TWENTY
COUNTERPARTS
This Agreement may be executed in two (2) or more counterparts, each of
which shall be deemed to be an original as against any party whose signature
appears thereon, and all of which together shall constitute one and the same
agreement. This Agreement shall become binding when one or more counterparts
have been signed by each of the parties hereto and delivered to the other
parties hereto.
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
written above.
LENDER:
THE CANOPY GROUP, INC.
By: /s/ Xxxxx Xxxxx
-----------------------------------------
Its President
-----------------------------------------
-----------------------------------------
(Address)
STATE OF UTAH )
) ss.
COUNTY OF UTAH )
The foregoing instrument was acknowledged before me this ____ day of
September, 2001, by __________________________, President of The Canopy Group
Inc.
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Notary Public
My Commission Expires:
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DEBTORS:
EBIZ ENTERPRISES, INC.
XXXXX BUSINESS SYSTEMS, INC.
By: /s/ Xxxxx X. Xxxxxxx
-----------------------------------------
Xxxxx Xxxxxxx
President of JBSI
CEO of EBIZ
00000 Xxxx Xxx Xxxxx, Xxxxx 000
Scottsdale, Arizona 85258-5314
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
The foregoing instrument was acknowledged before me this ____ day of
September, 2001 by Xxxxx Xxxxxxx, CEO of EBIZ Enterprises, Inc., and President
of Xxxxx Business Systems, Inc.
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Notary Public
My Commission Expires:
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