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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K/A
Amendment No. 1
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE COMMISSION
Commission File Number 0-23827
PC CONNECTION, INC.
(Exact name of registrant as specified in its charter)
Delaware 02-0497006
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Rt. 101A, 730 Milford Road
Merrimack, New Hampshire 03054
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(Address of principal executive offices) (Zip Code)
(603) 423-2000
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Registrant's telephone number, including area code
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES |X| NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the voting and non-voting stock held by
non-affiliates of the Registrant, based upon the closing price of the
Registrant's Common Stock as reported on the NASDAQ National Market on March 27,
2000, was $96,008,036. Although directors and executive officers of the
registrant were assumed to be "affiliates" of the registrant for the purposes of
this calculation, this classification is not to be interpreted as an admission
of such status.
The number of outstanding shares of the Registrant's Common Stock on March 27,
2000 was 15,794,298.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 2000 Annual Meeting of
Shareholders for the fiscal year ended December 31, 1999, which is to be filed
within 120 days of the end of the Company's fiscal year, are incorporated by
reference into Part III of this Form 10-K. The incorporation by reference herein
of portions of the Proxy Statement shall not be deemed to specifically
incorporate by reference the information referred to in Item 402(a) (8) of
Regulation S-K.
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This Amendment No. 1 to the Company's annual report on Form 10-K, File Number
0-23827, filed on March 30, 2000, includes the text portion of the Form 10-K
(Items 1 through 14), which was inadvertently omitted from the March 30, 2000
filing during its electronic transmission to the Securities and Exchange
Commission. This Amendment includes the Company's consolidated financial
statements, previously filed, as well as the text inadvertently omitted from the
initial filing.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 on
Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly
authorized.
PC Connection, Inc.
Date: April 4, 2000 By: /s/ Patricia Gallup
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Patricia Gallup, Chairman
and CEO
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PC CONNECTION, INC.
FORM 10-K ANNUAL REPORT
YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
Page
----
PART I
ITEM 1. Business.....................................................1
ITEM 2. Properties..................................................10
ITEM 3. Legal Proceedings...........................................10
ITEM 4. Submission of Matters to a Vote of Security Holders.........10
PART II
ITEM 5. Market for the Registrant's Common Stock and Related
Stockholder Matters.......................................11
ITEM 6. Selected Financial and Operating Data.......................12
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................13
ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk...23
ITEM 8. Consolidated Financial Statements and Supplementary Data....23
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................23
PART III
ITEM 10. Directors and Executive Officers of the Registrant..........23
ITEM 11. Executive Compensation......................................23
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management................................................23
ITEM 13. Certain Relationships and Related Transactions..............23
PART IV
ITEM 14. Exhibits, Consolidated Financial Statements, and Reports on
Form 8-K..................................................24
SIGNATURES ............................................................27
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PART I
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Item 1. Business
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This section contains forward-looking statements based on management's current
expectations, estimates and projections about the industry in which we operate,
management's beliefs and certain assumptions made by management. All statements,
trends, analyses and other information contained in this report relative to
trends in net sales, gross margin and anticipated expense levels, as well as
other statements, including words such as "anticipate", "believe", "plan",
"estimate" and "intend" and other similar expressions, constitute
forward-looking statements. These forward-looking statements involve risks and
uncertainties, and actual results may differ materially from those anticipated
or expressed in such statements. Potential risks and uncertainties include,
among others, those set forth under the caption "Factors That May Affect Future
Results and Financial Condition" included in Item 7 "Management's Discussion and
Analysis of Financial Conditions and Results of Operations". Particular
attention should be paid to the cautionary statements involving the industry's
rapid technological change and exposure to inventory obsolescence, availability
and allocations of goods, reliance on vendor support and relationships,
competitive risks, pricing risks and economic risks. Except as required by law,
the Company undertakes no obligation to update any forward-looking statement,
whether as a result of new information, future events or otherwise. Readers,
however, should carefully review the factors set forth in other reports or
documents that the Company files from time to time with the Securities and
Exchange Commission.
GENERAL
PC Connection, Inc. and its subsidiaries (together, referred to below as "PC
Connection", or "the Company") is a direct marketer of brand-name personal
computers and related peripherals, software, accessories and networking products
- - principally to small and medium-sized businesses, which are referred to as
SMBs, comprised of 20 to 1,000 employees. The Company sells its products through
a combination of targeted direct mail catalogs, outbound telemarketing, its
Internet Web site and advertisements on the Internet and in selected computer
magazines. The Company offers a broad selection of approximately 100,000
products targeted for business use at competitive prices, including products
from Compaq, Hewlett-Packard, Toshiba, IBM, Microsoft, Sony, Acer, Canon, Iomega
and Apple. Net sales of Microsoft Windows or MS-DOS based personal computers, or
PCs, and compatible products were approximately 85% of net sales in 1999. The
Company's most frequently ordered products are carried in inventory and are
typically shipped to customers the same day that the order is received.
Since its founding in 1982, the Company has served its customers' needs by
providing innovative, reliable and timely service and technical support, and
offering an extensive assortment of branded products, through knowledgeable,
well-trained sales and support teams. The effectiveness of this strategy is
reflected in the recognition the Company has received, including the PC World
"World Class Award for Best Mail-Order Company" in 1998 and 1997, as voted by
its readers, for the eighth time in the past ten years, including a 1999 award
for "Best Online/Mail Order Catalog Company", and the highest ranking of only
two direct resellers included in the "100 Most Influential Companies in the
Computer Industry" by PC Magazine in 1998 and 1997, and the only direct reseller
included in the "100 Most Influential Companies in the Computer Industry" by PC
Magazine in 1999. In 1999, PC Connection was listed as one of the top "100
Hottest Companies on the Internet" by Business 2.0 Magazine.
The Company believes that its consistent customer focus has also resulted in the
development of strong brand name recognition and a broad and loyal customer
base. At December 31, 1999, the Company's mailing list consisted of
approximately 2,800,000 customers and potential customers, of which
approximately 732,000 had purchased products from the Company within the last
twelve months. Approximately 68% of its net sales in the year ended December 31,
1999 were made to customers who had previously purchased products from the
Company. Management believes that the Company also has strong relationships with
vendors, resulting in favorable product allocations and marketing assistance.
The Company's fastest growing customer segments include: early stage Internet or
Web-based businesses, mainstream businesses which are now investing aggressively
in Web-based marketing programs to more effectively compete with the so-called
"dot com" companies, and other high growth organizations which are increasingly
dependent on distributed data and communication networks. Management believes
that the Company's pioneering Everything Overnight(R) program has set it apart
as the premier rapid response supplier of information technology products and
solutions to the middle market.
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Network infrastructure products, such as PC servers, routers and switches, were
among the Company's fastest growing product categories in 1999, increasing by
more than 150% in the fourth quarter of 1999 compared to the fourth quarter of
1998. Over the next few years, the Company anticipates that an increasing share
of its revenues will come from the sale of network infrastructure products and
services, including network-based storage solutions, versus the current sales
concentration in desktop and portable computers.
During 1999, the Company invested heavily in training, technical certification
and other programs to support the rapidly growing demand from its customers for
networking and related products. During the fourth quarter of 1999, the Company
began offering its customers network integration and installation services
through third-party providers. The Company also launched its proprietary
Networking Sales Specialist program in January 2000.
Beginning in late 1995, the Company significantly increased its
business-to-business marketing efforts, targeting SMBs, a rapidly growing sector
of the personal computer market that the Company believes is particularly
receptive to purchases from direct marketers. In order to service this growing
part of its business more effectively, the Company increased the number of its
outbound telemarketing account managers from 200 at December 31, 1998 to 345 at
December 31, 1999. This growth includes 143 new account managers with less than
12 months of outbound telemarketing experience with the Company.
The Company's two major catalogs are PC Connection(R), focused on PCs and
compatible products, and MacConnection(R), focused on Apple Macintosh personal
computers, known as "Macs", and compatible products. With colorful
illustrations, concise product descriptions, relevant technical information, and
toll-free telephone numbers for ordering, the Company's catalogs are recognized
as a leading source for personal computer hardware, software and other related
products. The Company distributed approximately 47 million catalogs during the
year ended December 31, 1999.
The Company also markets its products and services through its Internet Web
sites, www.pcconnection.com and www.macconnection.com. The Company's Web sites
provide customers and prospective customers with product information and enable
customers to place electronic orders for products. Internet sales processed
directly online during the fourth quarter of 1999 were $18.9 million, or 6% of
that quarter's net sales, representing a 27.4% sequential increase over the
third quarter of 1999. Online sales in the fourth quarter of 1999 increased 78%
over the comparable quarter in 1998. For the full year 1999, these sales were
$58.1 million, or 5.5% of net sales, compared to 4.0% in 1998. These results
represent a 99% increase in annual Internet sales over 1998.
The Company believes that the reason its e-commerce business is growing so
rapidly is that it offers customers the advanced tools they need to quickly make
educated purchase decisions. Working closely with vendors, the Company believes
that it is able to provide one of the broadest, leading-edge technology
selections in the industry. By using its merchandising expertise, catalog
mailings and established infrastructure, the Company has built a profitable
Internet business and one that complements all its other sales channels.
For the Company the Web fundamentally supports three key business initiatives:
o Customer choice - The Company has built its business on the premise that
its customers should be able to choose how they interact with the Company,
be it by mail, telephone, fax, e-mail or over the Web.
o Lowering transactions costs - The Company's Web site tools, including
robust product search features, Smart Selectors(R), Internet Business
Accounts(R) and special interest pages, allow customers to quickly and
easily find information about products of interest to them. If they still
have questions, the Company's Telesales Representatives and Outbound
Account Managers are just a phone call away. Such phone calls are
typically shorter and have higher close rates than calls from customers
who have not first visited our Web sites.
o Leveraging the time of experienced Account Managers - The Company's
investments in technology-based sales and service programs demonstrate the
power of technology at its best - leveraging its Account Managers to do
what they do best: building and maintaining relationships with our
customers and helping them to solve their business problems.
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FORMATION OF THE HOLDING COMPANY
On January 1, 2000, the Company announced a new holding company structure to
support PC Connection's future growth and plans to expand its current business
lines through internal growth and potential acquisitions.
Outstanding shares of common stock representing interests in PC Connection prior
to the holding company formation were converted into shares of the new holding
company on a one-for-one basis through a non-taxable transaction. Common stock
shares of the new holding company trade on the Nasdaq National Market under the
symbol, "PCCC", the same exchange and symbol used by the predecessor company.
The new shares hold the same voting power that shares of the predecessor held.
No additional capital stock was issued as part of the transaction. The directors
and officers of the predecessor company serve as the directors and officers of
the new holding company.
INDUSTRY BACKGROUND
International Data Corporation (IDC) reported that the 1999 worldwide PC market
grew 23.3% and U.S. volume increased 25% over 1998. In addition to PC demand,
overall Information Technology (IT) spending is expected to grow by as much as
20% in 2000. The continued strength in the economy has provided a solid
foundation for continued expansion and upgrading of IT systems. Computer
Reseller News (CRN) projects small businesses will increase IT spending by 15 -
20% in 2000 as they race to implement e-commerce solutions. Midsize companies
boosted IT spending by 8% in 1999 and CRN expects spending growth of 12% in
2000.
The Company believes that sales of personal computers and related products have
increased principally as a result of:
o technological advances leading to significant improvements in performance,
functionality and ease of use;
o lower prices and improved price/performance driven by intense competition
among manufacturers, retailers and resellers;
o increased dependence upon PCs by businesses, educational institutions and
governments;
o the emergence of industry standards and component commonality;
o upgrade of e-commerce capabilities; and
o presence of year 2000 concerns.
The Company believes that the direct marketing channel will continue to grow
faster than the overall industry due primarily to increased user familiarity
with PCs, coupled with the emergence of industry standards and component
commonality, broader product offerings, lower prices and greater purchasing
convenience that direct marketers generally provide over traditional retail
stores and local dealers.
Users of personal computers range from large corporate entities focused on
business applications to individual consumers focused primarily on personal
productivity, education and entertainment applications. Historically, large
corporate resellers have served the needs of FORTUNE 1000 companies, and
retailers have competed to serve the consumer market. SMBs, the Company's core
target customers, are being served by a wide range of suppliers, including
direct marketers, large retailers, small, independent, value-added resellers
("VARs"), and local dealerships. The Company believes that the direct field
sales model used by large resellers is not an efficient method of reaching SMBs,
and that VARs, local dealerships and retailers are unable to match the high
level of customer service, extensive selection of products and low prices
afforded to SMBs by direct marketers. Intense competition for market share has
led manufacturers of PCs and related products to use all available channels to
distribute products, including direct marketers. Although certain manufacturers
that have traditionally used resellers to distribute their products have
established or attempted to establish their own direct marketing operations,
including sales through the Internet, to the Company's knowledge, only one has
replaced its traditional indirect selling channels as the principal means of
distribution. Accordingly, the Company believes these
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manufacturers will continue to provide the Company and other third-party direct
marketers favorable product allocations and marketing support.
The Company believes new entrants to the direct marketing channel must overcome
a number of obstacles, including:
o the time and resources required to build a meaningful customer base,
quality and responsiveness for cost-effective circulation;
o costs of developing the information and operating infrastructure required
by direct marketers;
o the advantages enjoyed by larger and more established competitors in terms
of purchasing and operating efficiencies;
o the difficulty of building relationships with manufacturers to achieve
favorable product allocations and attractive pricing terms, and
o the difficulty of identifying and recruiting management personnel with
significant direct marketing experience in the industry.
BUSINESS STRATEGIES
The Company's objective is to become the leading rapid response supplier of
information technology products and solutions, including personal computers and
related products and services, to the Company's customers. The key elements of
the Company's business strategies include:
o The Company provides award-winning customer service before, during and
after the sale. The Company believes that it has earned a reputation for
providing superior customer service by consistently focusing on its
customer needs. The Company has won PC World's "World Class Award for Best
Mail Order Company" in eight out of the last ten years, including a 1999
award for "Best Online/Mail Order Catalog Company". The Company delivers
value to its customers through high quality service and technical support
provided by its knowledgeable, well-trained personnel. The Company has
efficient and innovative delivery programs. It also offers its customers
competitive prices and reasonable return policies.
o The Company maintains a strong brand name and customer awareness. Since
its founding in 1982, the Company has built a strong brand name and
customer awareness. In July 1999, the Company was the only direct reseller
included in the "100 Most Influential Companies in the Computer Industry"
by PC Magazine. In 1998 and 1997, the Company was one of only two direct
resellers included in the listing. The Company's mailing list includes
approximately 2,800,000 names, of which approximately 732,000 have
purchased products from the Company during the last 12 months. In 1999, PC
Connection ranked among the "Top 100 Hottest Companies on the Internet" by
Business 2.0 Magazine.
o The Company offers a broad product selection at competitive prices. The
Company offers its customers a wide assortment of personal computers and
related products at competitive prices. The Company's merchandising
programs feature products that provide customers with aggressive price and
performance and the convenience of one-stop shopping for their personal
computer and related needs.
o The Company has long-standing vendor relationships. The Company has a
history of strong relationships with vendors, and it was among the first
direct marketers qualified by manufacturers to market systems to end-
users. The Company provides its vendors with both information concerning
customer preferences and an efficient channel for the advertising and
distribution of their products.
GROWTH STRATEGIES
The Company's growth strategies are to expand and increase penetration of its
existing customer base and to broaden its product offerings. The key elements
of the Company's growth strategies include the following:
o Increase outbound telemarketing. The Company plans to continue to increase
the number of corporate outbound account managers and assign them to a
greater number of customers. Outbound account managers focus exclusively
on serving specifically assigned customers and seek to develop a close
relationship with those customers by identifying and responding to their
needs for personal computers and related products.
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o Expand product offerings. The Company continually evaluates information
technology products focused on business users, adding new products as they
become available or in response to customer demand. The Company works
closely with vendors to identify and source first-to-market product
offerings at aggressive prices and believes that the expansion of its
corporate outbound marketing program will enhance its access to such
product offerings.
o Target specific customer populations. Through targeted mailings, the
Company seeks to expand the number of active customers and generate
additional sales from its existing customers. The Company has developed
specialty catalogs, as well as standard catalogs with special cover pages,
featuring product offerings designed to address the needs of specific
customer populations, including new product inserts targeted to purchasers
of graphics, server and networking products.
o Expand electronic commerce channel. The Company's Internet Web-based
catalog provides detailed product descriptions, product search
capabilities and on-line order processing. The Company has seen a rapid
increase in on-line sales and believes that an increasing number of
customers and potential new customers will shop electronically in the
future. Therefore, the Company plans to further improve on-line sales
capabilities, customer service and product information and customer
support available on its Internet Web site.
o Pursue strategic acquisitions and alliances. The Company completed its
first acquisition in June 1999 of ComTeq Federal, Inc. ("ComTeq"). ComTeq,
based in Rockville, Maryland, is a specialty reseller focused on agencies
of the federal government. Through its acquisition program, the Company
seeks to acquire new customers, strengthen its product offerings, add
management talent and produce operating results which are accretive to its
core business earnings.
SERVICE AND SUPPORT
Since the Company's founding in 1982, its primary objective has been to provide
products that meet the demands and needs of customers and to supplement those
products with up-to-date product information and excellent customer service and
support. The Company believes that offering its customers superior value,
through a combination of product knowledge, consistent and reliable service and
leading products at competitive prices, differentiates it from other direct
marketers and establishes the foundation for developing a broad and loyal
customer base. The Company has introduced programs such as Toll-Free Technical
Support in 1982, the Everything Overnight(R) delivery program in 1988, Money
Back Guarantees in 1989, One-Minute Mail Order(R) in 1991, On-line Superstore in
1997, and Your Brands, Your Way, Next Day(R) in 1998.
The Company invests in training programs for its service and support personnel,
with an emphasis on putting customer needs and service first. Customer service
representatives are available 24 hours a day, seven days a week to handle
orders, product information, general inquiries and technical support questions.
The Company provides toll-free technical support from 9 a.m. through 5 p.m.,
Eastern Time, Monday through Friday. Product support technicians assist callers
with questions concerning compatibility, installation, determination of defects
and more difficult questions relating to product use. The product support
technicians authorize customers to return defective or incompatible products to
either the manufacturer or to the Company for warranty service. In-house
technicians perform both warranty and non-warranty repair on most major systems
and hardware products.
Using its customized information system, the Company sends its customer orders
to its distribution center for processing immediately after a customer receives
credit approval. Through its Everything Overnight(R) service, it guarantees that
all orders for in-stock merchandise accepted up until 2:00 a.m. (until midnight
on most custom-configured systems) can be shipped for overnight delivery via
Airborne Express. The Company also configures approximately 20% of the computer
systems it sells. Configuration typically consists of the installation of
memory, accessories and/or software.
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MARKETING AND SALES
The Company sells its products through its direct marketing channel, primarily
to SMBs. The Company seeks to be the primary supplier of personal computers and
related products to its existing customers and to expand its customer base. The
Company uses multiple marketing approaches to reach existing and prospective
customers, including:
o outbound telemarketing;
o catalogs and inbound telesales;
o Web and print media advertising; and
o marketing programs targeted to specific customer populations.
All of its marketing approaches emphasize its broad product offerings, fast
delivery, customer support, competitive pricing and multiple payment options.
The Company believes that its ability to establish and maintain long-term
customer relationships and to encourage repeat purchases is largely dependent on
the strength of its telemarketing personnel and programs. Because customers'
primary contact with the Company is through its telemarketers, the Company is
committed to maintaining a qualified, knowledgeable and motivated sales staff
with its principal focus on customer service.
The following table sets forth the Company's percentage of net sales by
sales channel:
Year Ended December 31,
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1999 1998 1997
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Sales Channel
Corporate Outbound 66% 53% 47%
Inbound Telesales 29 43 52
On-Line Internet 5 4 1
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Total 100% 100% 100%
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Outbound Telemarketing. The Company seeks to build loyal relationships with its
potential high-volume customers by assigning them to individual account
managers. The Company believes that customers respond favorably to a one-on-one
relationship with personalized, well-trained account managers. Once established,
these one-on-one relationships are maintained and enhanced through frequent
telecommunications, targeted catalogs and other marketing materials designed
to meet each customer's specific computing needs.
Account Managers focus exclusively on their managed accounts and on outbound
sales calls to prospective customers. The Company generally recruits account
managers from other sales organizations and from its inbound telemarketing
staff. All account managers must successfully complete a one-month training
program, which includes instruction in the Company's product offerings and order
management systems, as well as selling skills and account management.
Thereafter, new account managers are assigned to sales teams where they receive
intensive coaching and supervision by experienced supervisors, and periodic
refresher training from the sales training staff. Additional training and
product education programs are provided continuously through programs supported
by the Company's vendors. The Company pays its account managers a base annual
salary plus incentive compensation. Incentive compensation is tied to sales
volume and gross profit dollar goals by the individual account manager. Account
managers historically have significantly increased productivity after
approximately 12 months of training and experience. At December 31, 1999, the
Company employed 345 account managers, including 143 with less than 12 months of
outbound telemarketing experience with the Company.
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Catalogs and Inbound Telesales. The Company's two principal catalogs are PC
Connection(R) for the PC market and MacConnection(R) for the Mac market. The
Company publishes twelve editions of each of these catalogs annually. The
Company distributes catalogs to purchasers on its in-house mailing list as well
as to other prospective customers. The Company sends its two principal catalogs
to its best customers twice each month. The initial mailing each month, labeled
an "early edition," is sent simultaneously to the best customers throughout the
United States and features special offers, such as first-to-market product
offerings, highlighted on the cover. The Company also includes a catalog with
each order shipped.
In addition, the Company mails specialty catalogs or customized versions of its
catalogs to selected customers. The Company distributes specialty catalogs to
educational and governmental customers and prospects on a periodic basis. The
Company also distributes its monthly catalogs customized with special covers and
inserts, offering a wider assortment of special offers on products in specific
areas, such as graphics, server/netcom and mobile computing, or for specific
customers, such as developers. These customized catalogs are distributed to
targeted customers included in the Company's customer database using past
identification or purchase history, as well as to outside mailing lists.
Each catalog is printed with full-color photographs, detailed product
descriptions and manufacturer specifications. The catalogs are primarily created
by in-house designers and production artists on a computer-based desktop
publishing system. The in-house preparation of most portions of the catalog
expedites the Company's production process and provides it with greater
flexibility and creativity in catalog production by allowing for last-minute
changes in pricing and format. Overall, such in-house preparation results in
significant cost savings to the Company. After completion of the design and
preparation, the Company outsources the catalogs to commercial printers for
printing.
The Company's inbound sales representatives answer customer telephone calls
generated by its catalog, magazine and other advertising programs. These
representatives also assist customers in making purchasing decisions, process
product orders and respond to customer inquiries on order status, product
pricing and availability. The Company provides training to its inbound
telemarketing personnel and provides incentive compensation based upon sales
productivity. The Company has a flexible staffing model which allows it to
maintain excellent customer service during periods of peak demand while
maintaining an efficient cost structure. The Company regularly monitors calls
for quality assurance purposes and has been a pioneer in using caller
identification for the instant retrieval of customer records. Using proprietary
information systems, sales representatives can quickly access customer records
which detail purchase history and billing and shipping information, expediting
the ordering process. In addition to receiving orders through its toll-free
numbers, orders are also received via fax, mail and electronic mail.
Advertising. The Company has historically advertised in selected personal
computer and trade magazines, such as PC Magazine, PC World and Macworld. These
advertisements provide potential customers with product descriptions,
manufacturers' specifications and pricing information, while emphasizing the
Company's service and support features. Additionally, the PC Connection(R) logo
and telephone numbers are included in promotions by selected manufacturers.
www.pcconnection.com. In November 1996, the Company launched an Internet Web
site, which includes a complete product catalog. In July 1997, the Company began
accepting electronic orders through its Internet Web site. The Company also
provides updated information for over 16,000 items and on screen images
available for over 7,000 items. The Company offers, and continuously updates,
selected product offerings and other special buys. The Company believes that in
the future its Internet Web site will be an important sales source and
communication tool for improving customer service.
Specialty Marketing. The Company's specialty marketing activities include direct
mail, other inbound and outbound telemarketing services, bulletin board
services, "fax on demand" services, package inserts, fax broadcasts and
electronic mail. The Company also marketed call-answering and fulfillment
services to certain of its product vendors.
Customers. The Company currently maintains an extensive database of customers
and prospects aggregating approximately 2,800,000 names. During the year ended
December 31, 1999, the Company received orders from approximately 732,000
customers. Approximately 68% of its net sales in the year ended December 31,
1999 were made to customers who had previously purchased products from the
Company.
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PRODUCTS AND MERCHANDISING
The Company continuously focuses on expanding the breadth of its product
offerings. The Company currently offers approximately 100,000 personal computer
products designed for business applications from over 1,000 manufacturers,
including hardware and peripherals, accessories, networking products and
software. The Company offers both PCs and Macs and related products. In 1999,
sales of PCs and related products were approximately 85% of its net sales. The
Company selects the products that it sells based upon their technology and
effectiveness, market demand, product features, quality, price, margins and
warranties. As part of its merchandising strategy, the Company also offers new
types of products related to PCs, such as digital cameras.
Computer systems/memory is the fastest growing product category, representing
47.6% of net sales in the year ended December 31, 1999, up from 43.7% and 42.2%
of net sales in the years ended December 31, 1998 and 1997, respectively. The
growth in system sales has been driven primarily by increased outbound sales
efforts to business customers and the aggressive sourcing and merchandising of
new computer systems lines and products.
The following table sets forth the Company's percentage of net sales (in
dollars) of computer systems/memory, peripherals, software, and networking and
communications products during the years ended December 31, 1999, 1998 and 1997.
PERCENTAGE OF NET SALES
----------------------------------
Year Ended December 31,
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1999 1998 1997
---- ---- ----
Computer Systems/Memory............ 47.6% 43.7% 42.2%
Peripherals........................ 33.7 34.5 34.3
Software........................... 12.3 14.0 15.8
Networking and Communications...... 6.4 7.8 7.7
---------- ------------ --------
TOTAL.......................... 100.0% 100.0% 100.0%
========== ============ ========
The Company offers a limited 30-day money back guarantee for most unopened
products and selected opened products, although selected products are subject to
restocking fees. Substantially all of the products marketed by the Company are
warranted by the manufacturer. The Company generally accepts returns directly
from the customer and then either credits the customer's account or ships the
customer a similar product from its inventory.
PURCHASING AND VENDOR RELATIONS
For the year ended December 31, 1999, the Company purchased approximately 54% of
its products directly from manufacturers and the balance from distributors and
aggregators. The majority of products are shipped directly to the Company's
distribution facility in Wilmington, Ohio. During the years ended December 31,
1999 and 1998, product purchases from Ingram Micro, the Company's largest
vendor, accounted for approximately 22% and 20%, respectively, of its total
product purchases. No other vendor accounted for more than 10% of the Company's
total product purchases. The Company believes that alternative sources for
products obtained from Ingram Micro are available.
Many product suppliers reimburse the Company for advertisements or other
cooperative marketing programs in the Company's catalogs or advertisements in
personal computer magazines that feature a manufacturer's product.
Reimbursements may be in the form of discounts, advertising allowances and/or
rebates. The Company also receives reimbursements from certain vendors based
upon the volume of purchases or sales of the vendors' products. Historically,
the Company received price consideration and support including price protection
and rebates from its vendors on a majority of the products it sold.
Price protection takes the form of rebates or credits against future purchases.
The Company may participate in end-of-life-cycle and other special purchases
which may not be eligible for price protection.
The Company believes that it has excellent relationships with vendors. The
Company generally pays vendors within stated terms and takes advantage of all
appropriate discounts. The Company believes that because of its volume purchases
it is able to obtain product pricing and terms that are competitive with those
available to other major direct marketers. Although brand names and individual
product offerings are important to its business, the Company believes that
competitive sources of supply are available in substantially all of the
merchandise categories offered.
8
<PAGE>
DISTRIBUTION
At the Company's approximately 205,000 square foot distribution and fulfillment
complex in Wilmington, Ohio, the Company receives and ships inventory,
configures computer systems and processes returned products. Orders are
transmitted electronically from the Company's New Hampshire sales facilities to
the Wilmington distribution center after credit approval, where packing
documentation is printed automatically and order fulfillment takes place.
Through its Everything Overnight(R) service, the Company guarantees that all
orders for in-stock merchandise accepted up until 2:00 a.m. (until midnight on
custom-configured systems) can be shipped for overnight delivery via Airborne
Express. The Company ships approximately 65% of its orders through Airborne
Express. Upon request, orders may also be shipped by other common carriers.
ComTeq Federal places product orders directly with manufacturers and/or
distribution companies for drop shipment by those manufacturers and/or suppliers
directly to ComTeq's customers. Order status with distributors is tracked on
line and in all circumstances, a confirmation of shipment from manufacturers
and/or distribution companies is received prior to recording revenue.
MANAGEMENT INFORMATION SYSTEMS
The Company uses management information systems, principally comprised of
applications software running on IBM AS/400 and RS6000 computers and Microsoft
NT-based servers, which the Company has customized for its use. These systems
permit centralized management of key functions, including order taking and
processing, inventory and accounts receivable management, purchasing, sales and
distribution, and the preparation of daily operating control reports on key
aspects of the business. The Company also operates advanced telecommunications
equipment to support its sales and customer service operations. Key elements of
the Company's telecommunications systems are integrated with the Company's
computer systems to provide timely customer information to sales and service
representatives, and to facilitate the preparation of operating and performance
data. The Company believes that its customized information systems enable it to
improve productivity, ship customer orders on a same-day basis, respond quickly
to changes in the Company's industry and provide high levels of customer
service.
The Company's success is dependent in large part on the accuracy and proper use
of its information systems, including its telephone systems, to manage its
inventory and accounts receivable collections, to purchase, sell and ship the
Company's products efficiently and on a timely basis, and to maintain
cost-efficient operations. The Company expects to continually upgrade its
information systems to more effectively manage its operations and customer
database. In 1998, the Company replaced its order management and fulfillment
software with new software and converted its principal computer equipment to new
IBM AS400 platform systems, both of which are better suited to its expected
scale of operations and were designed to be Year 2000 compliant.
COMPETITION
The direct marketing and sale of personal computers and related products is
highly competitive. PC Connection competes with other direct marketers of
personal computers and related products, including CDW Computer Centers, Inc.,
Insight Enterprises, Inc. and Micro Warehouse, Inc. The Company also competes
with:
o certain product manufacturers that sell directly to customers, such as
Dell Computer Corporation and Gateway, Inc. and, more recently, Compaq,
IBM and Apple;
o distributors that sell directly to certain customers, such as MicroAge,
Inc.;
o various cost-plus aggregators, franchisers and national computer
retailers, such as CompUSA, Inc.; and
o companies with more extensive Internet Web sites and commercial on-line
networks.
Additional competition may arise if other new methods of distribution, such as
broadband electronic software distribution, emerge in the future.
The Company competes not only for customers, but also for favorable product
allocations and cooperative advertising support from product manufacturers.
Several of the Company's competitors are larger and have substantially greater
financial resources.
The Company believes that price, product selection and availability, and service
and support are the most important competitive factors in its industry.
9
<PAGE>
INTELLECTUAL PROPERTY RIGHTS
The Company's trademarks include PC Connection(R) and MacConnection(R) and their
related logos: Everything Overnight(R), One-Minute Mail Order(R), PC & Mac
Connection(R), Systems Connection(R), The Connection(R), Raccoon Character(R),
Service Connection(TM), Graphics Connection(TM), Memory Connection(TM), and Your
Brands, Your Way, Next Day(R). The Company intends to use and protect these and
its other marks, as its deems necessary. The Company believes its trademarks and
service marks have significant value and are an important factor in the
marketing of its products. The Company does not maintain a traditional research
and development group, but it works closely with computer product manufacturers
and other technology developers to stay abreast of the latest developments in
computer technology, both with respect to the products it sells and uses.
EMPLOYEES
As of December 31, 1999, the Company employed 1,296 persons, of whom 559 were
engaged in sales related activities, 96 were engaged in providing customer
service and support, 396 were engaged in purchasing, marketing and distribution
related activities, 74 were engaged in the operation and development of
management information systems, and 171 were engaged in administrative and
accounting functions. The Company considers its employee relations to be good.
The Company's employees are not represented by a labor union and the Company
has never experienced a work stoppage since its inception.
- --------------------------------------------------------------------------------
Item 2. Properties
- --------------------------------------------------------------------------------
In November 1997, the Company entered into a fifteen year lease for a new
corporate headquarters and telemarketing center located at Route 101A, 730
Milford Road, Merrimack, New Hampshire 03054-4631, with an affiliated entity,
related to the Company through common ownership. The Company occupied this
facility upon completion of construction in late November 1998 and the lease
payments commenced in December 1998. The Company also leases 205,000 square feet
in two facilities in Wilmington, Ohio, which houses its distribution and order
fulfillment operations. The Company also operates telemarketing centers in
Dover, Hudson and Keene, New Hampshire, as well as in Maryland. While the
Company believes that its existing distribution facilities in Wilmington, Ohio
will be sufficient to support the Company's anticipated needs through the next
twelve months, it is evaluating additional and/or alternative facilities for
distribution to support future growth.
- --------------------------------------------------------------------------------
Item 3. Legal Proceedings
- --------------------------------------------------------------------------------
The Company currently is not a party to any material legal proceedings, other
than ordinary routine litigation incidental to the business.
- --------------------------------------------------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders
- --------------------------------------------------------------------------------
There were no matters submitted during the fourth quarter of 1999 to a vote of
security holders.
Executive Officers
The executive officers of the Company and their ages as of March 27, 2000 are
as follows:
Name Age Position
- ---- --- --------
Patricia Gallup 46 Chairman of the Board and Chief Executive Officer
David Hall 50 Vice Chairman of the Board
Wayne L. Wilson 51 President and Chief Operating Officer
Robert F. Wilkins 38 Senior Vice President of Sales and Marketing
John L. Bomba, Jr. 46 Vice President of Information Services and Chief
Information Officer
Mark A. Gavin 38 Vice President of Finance and Chief Financial
Officer
10
<PAGE>
Patricia Gallup is a co-founder of the company and has served as Chairman of the
Board and Chief Executive Officer of the Company since January 1998. From
September 1995 to January 1998, Ms. Gallup served as the Chairman of the Board,
President and Chief Executive Officer of the Company. From September 1994 to
September 1995, she served as Chairman of the Board and Chief Executive Officer
of the Company. From August 1990 to September 1994, Ms. Gallup served as the
Company's President and Chief Executive Officer.
David Hall is a co-founder of the Company and has served as Vice Chairman of the
Board since November 1997. From June 1997 to November 1997, Mr. Hall served as
the Vice Chairman of the Board, Executive Vice President and Treasurer of the
Company. From February 1995 to June 1997, Mr. Hall served as the Company's Vice
Chairman of the Board and Executive Vice President. From March 1991 to February
1995, he served as the Executive Vice President of the Company.
Wayne L. Wilson has served as President and Chief Operating Officer of the
Company since January 1998 and Chief Financial Officer from January 1998 to
March 1998. From January 1996 to January 1998, Mr. Wilson served as Senior Vice
President, Chief Operating Officer and Chief Financial Officer of the Company.
From August 1995 to January 1996, he served as Senior Vice President of Finance
and Chief Financial Officer of the Company. Prior to joining the Company, Mr.
Wilson was a partner in the accounting and consulting firm of Deloitte & Touche
LLP from June 1986 to August 1995.
Robert F. Wilkins has served as Senior Vice President of Sales and Marketing
since January 1999 and Senior Vice President of Merchandising and Product
Management of the Company from January 1998 to January 1999. From December 1995
to January 1998, Mr. Wilkins served as Vice President of Merchandising and
Product Management of the Company. From September 1994 to December 1995 he was a
consultant to the Company and certain of its affiliates. From February 1990 to
September 1994, Mr. Wilkins served as President of Mac's Place.
John L. Bomba, Jr. has served as Vice President of Information Services and
Chief Information Officer of the Company since May 1997. From May 1994 to April
1997, Mr. Bomba served as Director of Worldwide Information Systems for Micro
Warehouse, Inc. Prior to May 1994 he served as Director of Professional Services
for Innovative Information Systems, Inc.
Mark A. Gavin has served as Vice President of Finance and Chief Financial
Officer of the Company since March 1998. Prior to joining PC Connection, Mr.
Gavin held the position of Executive Vice President and Chief Operating Officer
at CFX Corporation, a bank holding company in Keene, New Hampshire. Prior to
CFX, Mr. Gavin worked as a Manager for Ernst & Young, LLP.
PART II
- --------------------------------------------------------------------------------
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
- --------------------------------------------------------------------------------
Market Information
- ------------------
The Company's Common Stock commenced trading on March 3, 1998 on the Nasdaq
National Market under the symbol "PCCC". As of March 27, 2000, there were
15,794,298 shares outstanding of the Common Stock of the Company held by
approximately 70 stockholders of record.
The following table sets forth for the fiscal periods indicated the range of
high and low closing prices for the Company's Common Stock on the Nasdaq
National Market.
1999 High Low
---- ---- ---
Quarter Ended:
December 31 $34 7/8 $13 2/3
September 30 17 3/8 12
June 30 19 12
March 31 27 1/8 11 1/8
1998
----
Quarter Ended:
December 31 $40 $ 6
September 30 25 3/4 9 3/4
June 30 22 1/4 12
March 31 22 1/8 18 5/8
The Company has never declared or paid cash dividends on its capital stock. The
Company currently anticipates that it will retain all future earnings, if any,
to fund the development and growth of its business and does not anticipate
paying any cash dividends on its Common Stock in the foreseeable future.
11
<PAGE>
- --------------------------------------------------------------------------------
Item 6. Selected Financial and Operating Data
- --------------------------------------------------------------------------------
The following selected financial and operating data should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere herein. The selected data presented
below under the captions "Statement of Operations Data" and "Balance Sheet Data"
for each of the years in the five-year period ended December 31, 1999 are
derived from the audited financial statements of the Company. The Company's
consolidated financial statements as of December 31, 1999 and 1998 and for each
of the years in the three-year period ended December 31, 1999 and the
independent auditors' report thereon, are included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------------------
(dollars in thousands, except per share and selected operating data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $ 1,056,704 $ 732,370 $ 550,575 $ 333,322 $ 252,217
Cost of sales 927,358 639,096 474,609 282,117 211,299
----------- ----------- ----------- ----------- -----------
Gross profit 129,346 93,274 75,966 51,205 40,918
Selling, general and administrative expenses 91,405 68,521 56,596 43,739 38,373
Additional stockholder/officer compensation(1) -- 2,354 12,130 1,259 --
----------- ----------- ----------- ----------- -----------
Income from operations 37,941 22,399 7,240 6,207 2,545
Interest expense (1,392) (415) (1,355) (1,269) (1,296)
Other, net 116 565 (42) 70 62
----------- ----------- ----------- ----------- -----------
Income before income taxes 36,665 22,549 5,843 5,008 1,311
Income tax provision(2) (13,935) (3,905) (639) (252) (38)
----------- ----------- ----------- ----------- -----------
Net income $ 22,730 $ 18,644 $ 5,204 $ 4,756 $ 1,273
=========== =========== =========== =========== ===========
<CAPTION>
Pro Forma Data(3)
<S> <C> <C> <C> <C> <C>
Net income $ 22,730 $ 15,272 $ 10,890
=========== =========== ===========
Basic net income per share $ 1.45 $ 1.01 $ .79
=========== =========== ===========
Diluted net income per share $ 1.41 $ .98 $ .76
=========== =========== ===========
Selected Operating Data:
Active customers(4) 732,000 684,000 510,000 424,000 353,000
Catalogs distributed 47,325,000 42,150,000 33,800,000 18,600,000 16,800,000
Orders entered(5) 1,622,000 1,510,000 1,252,000 910,000 854,000
Average order size(5) $781 $580 $524 $453 $346
<CAPTION>
December 31,
------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 72,250 $ 53,768 $ 18,907 $ 14,622 $ 10,994
Total assets 223,537 164,510 105,442 77,358 49,661
Short-term debt 1,137 123 29,568 13,057 4,933
Long-term debt (less current maturities):
Capital lease obligations 6,945 7,081 -- -- --
Term loan -- -- 3,250 4,250 5,000
Note payable 2,000 -- -- -- --
Total stockholders' equity 94,223 69,676 24,120 18,043 13,057
</TABLE>
(1) Represents amounts accrued or distributed in excess of aggregate annual
base salaries approved by the Board of Directors and generally represents
Company-related federal income tax obligations payable by the
stockholders.
(2) For all periods prior to March 6, 1998, the Company had been an S
Corporation and, accordingly, had not been subject to federal income
taxes.
(3) The following pro forma adjustments have been made to the historical
results of operations to make the pro forma presentation comparable to
what would have been reported had the Company operated as a C Corporation
for 1998 and 1997:
(i) Elimination of stockholder/officer compensation in excess of
aggregate annual base salaries of $600 in effect during 1998 in
accordance with employment agreements; and
(ii) Computation of income tax expense assuming an effective tax rate of
approximately 39% (see Note 9 to the financial statements) and after
adjusting stockholder/officer compensation expense described in (i)
above.
(4) Represents estimates of all customers included in the Company's mailing
list who have made a purchase within the last twelve month period.
(5) Does not reflect cancellations or returns.
12
<PAGE>
- --------------------------------------------------------------------------------
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the Company's
consolidated financial statements.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements based on management's
current expectations, estimates and projections about the industry in which the
Company operates, management's beliefs and certain assumptions made by
management. All statements, trends, analyses and other information contained in
this report relative to trends in net sales, gross margin and anticipated
expense levels, as well as other statements, including words such as
"anticipate", "believe", "plan", "estimate" and "intend" and other similar
expressions, constitute forward-looking statements. These forward-looking
statements involve risks and uncertainties, and actual results may differ
materially from those anticipated or expressed in such statements. Potential
risks and uncertainties include, among others, those set forth under the caption
"Factors That May Affect Future Results and Financial Condition" included within
this section. Particular attention should be paid to the cautionary statements
involving the industry's rapid technological change and exposure to inventory
obsolescence, availability and allocations of goods, reliance on vendor support
and relationships, competitive risks, pricing risks, and economic risks. Except
as required by law, the Company undertakes no obligation to update any forward-
looking statement, whether as a result of new information, future events or
otherwise. Readers, however, should carefully review the factors set forth in
other reports or documents that the Company files from time to time with the
SEC.
General
The Company was founded in 1982 as a mail-order business offering a broad range
of software and accessories for IBM and IBM-compatible personal computers. The
founders' goal was to provide consumers with superior service and high quality
branded products at competitive prices. The Company initially sought customers
through advertising in selected computer industry publications and the use of
inbound toll-free telemarketing. Currently, the Company seeks to generate sales
through (i) outbound telemarketing by account managers focused on the business,
education and government markets, (ii) inbound calls from customers responding
to the Company's catalogs and other advertising and (iii) the Company's
Internet Web site.
The Company offers both PC compatible products and Mac compatible products.
Reliance on Mac product sales has decreased over the last three years, from
23.0% of net sales in 1996 to 15.3% of net sales for the year ended December 31,
1999. The Company believes that sales attributable to Mac products will continue
to decrease as a percentage of net sales and may decline in dollar volume in
2000 and future years.
All of the Company's product categories experienced strong growth in the year
ended December 31, 1999 with sales of computer systems representing the fastest
growing category. Sales of computer systems result in a relatively high dollar
sales order, as reflected in the increase in the Company's average order size
from $453 in the year ended December 31, 1996 to $781 in the year ended December
31, 1999. Computer system sales generally provide the largest gross profit
dollar contribution per order of all of the Company's products, although they
generally yield the lowest gross margin percentage. Partially as a result of
higher system sales, the Company's gross margin percentage has declined over the
last few years while the operating income margin has increased due to the
leveraging of selling, general and administrative expenses over a larger sales
base.
The Company's profit margins are also influenced by, among other things,
industry pricing and the relative mix of inbound versus outbound sales.
Generally, pricing in the computer and related products market is very
aggressive, and the Company intends to maintain prices at competitive levels.
Since outbound sales are typically to corporate accounts that purchase at volume
discounts, the gross margin on such sales is generally lower than inbound sales.
However, the gross profit dollar contribution per order is generally higher as
average order sizes of orders to corporate accounts are usually larger. The
Company believes that outbound sales will continue to represent a larger portion
of its business mix in future periods.
The direct marketing of personal computers and related products is highly
competitive. In addition to other direct marketers and manufacturers who sell
direct, such as Dell Computer Corporation ("Dell") and Gateway, Inc.
("Gateway"), manufacturers of PCs sold by the Company, such as Apple, Compaq and
IBM, have also announced varying plans to sell PCs directly to end users. The
Company currently believes that direct sales by Compaq and IBM will not have a
significant adverse effect upon the Company's net sales.
13
<PAGE>
Most product manufacturers provide the Company with co-op advertising support in
exchange for product coverage in the Company's catalogs. Although the level of
co-op advertising support available to the Company from certain manufacturers
has declined, and may decline further in the future, the overall level of co-op
advertising revenues has continued to increase consistent with the Company's
increased levels of spending for catalog and other advertising programs. The
Company believes that the overall levels of co-op advertising revenues available
over the next twelve months will be consistent with the Company's planned
advertising programs.
Results of Operations
The following table sets forth for the periods indicated information derived
from the Company's statements of income expressed as a percentage of net sales.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1999 1998 1997
----------------------------------
<S> <C> <C> <C>
Net sales (in millions) $ 1,056.7 $ 732.4 $ 550.6
========== ======== ========
Net sales 100.0% 100.0% 100.0%
Gross profit 12.2 12.7 13.8
Selling, general and administrative expenses 8.6 9.4 10.3
Additional stockholder/officer compensation 0.0 0.3 2.2
Income from operations 3.6 3.1 1.3
Interest expense (0.1) (0.0) (0.2)
Income before income taxes 3.5 3.1 1.0
Income taxes 1.3 (0.5) (0.1)
Net income 2.2 2.6 0.9
Pro forma net income 2.1 2.0
</TABLE>
The following table sets forth the Company's percentage of net sales by
platform, sales channel, and product mix:
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Platform
PC and Multi Platform 85% 80% 80%
Mac 15 20 20
--- --- ---
Total 100% 100% 100%
=== === ===
Sales Channel
Corporate Outbound 66% 53% 47%
Inbound Telesales 29 43 52
On-Line Internet 5 4 1
--- --- ---
Total 100% 100% 100%
=== === ===
Product Mix
Computer Systems and Memory 48% 44% 42%
Peripherals 34 35 34
Software 12 14 16
Networking and Communications 6 7 8
--- --- ---
Total 100% 100% 100%
=== === ===
14
<PAGE>
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net sales increased $324.3 million, or 44.3%, to $1,056.7 million in 1999 from
$732.4 million in 1998. The growth in net sales, which included a 34.6% increase
in average order size, was primarily attributable to (i) continued improvements
in merchandising and product mix, including the stocking and sale of computer
systems; (ii) continued expansion and increased productivity of the Company's
outbound telemarketing group; (iii) an increase in the number of catalog
mailings; and (iv) sales attributed to the acquisition of ComTeq in June 1999.
System/memory sales increased to 47.6% of net sales in 1999 from 43.7% in 1998.
Outbound sales increased $304 million, or 77.8%, to $694.9 million in 1999 from
$390.9 million in 1998. The number of catalogs mailed increased by 12.1%, from
42.2 million catalogs in 1998 to 47.3 million catalogs in 1999.
Gross profit increased $36.1 million, or 38.7%, to $129.3 million in 1999 from
$93.3 million in 1998. The increase in gross profit dollars was primarily
attributable to the increase in net sales described above. Gross profit margin
decreased from 12.7% in 1998 to 12.2% in 1999 due primarily to a higher rate of
growth in sales of lower margin computer systems, increased price competition,
decreases in average unit selling prices and an increase in the rate of outbound
sales which generally carry a lower gross margin percentage. However, the
Company continued to generate higher gross profit dollars per order, enabling it
to leverage its operating expenses, as described below. The Company's gross
profit margin may vary based upon vendor support programs, product mix, pricing
strategies, market conditions and other factors.
Selling, general and administrative expenses increased $22.9 million, or 33.4%,
to $91.4 million in 1999 from $68.5 million in 1998, but decreased as a
percentage of sales to 8.6% in 1999 from 9.4% in 1998. The increase in expense
was attributable to increases in volume-sensitive costs such as sales personnel
and credit card fees. The decrease as a percentage of net sales was primarily
attributable to the continued leveraging of selling, general and administrative
expenses over a larger sales base.
Selling, general and administrative expenses, excluding the one-time charge for
stock option compensation expense in 1998, increased by $23.7 million, or 35.1%,
to $91.4 million for the year ended December 31, 1999 from $67.7 million for the
comparable period in 1998, but decreased as a percentage of sales from 9.2% in
1998 to 8.6% in 1999.
Additional stockholder/officer compensation paid to the Company's two principal
stockholders in 1998, who also serve as officers and directors, represented
amounts accrued or distributed in excess of aggregate annual base salaries
($600,000 aggregate base salaries for 1998) approved by the Board of Directors
of the Company and generally represent Company-related federal income tax
obligations payable by the stockholders. There were no such charges in 1999 as
the Company was a C Corporation for the entire year.
Income from operations increased by $15.5 million, or 69%, to $37.9 million for
the year ended December 31, 1999 from $22.4 million for the comparable period in
1998. Income from operations as a percentage of net sales increased from 3.1% in
1998 to 3.6% in 1999 for the reasons discussed above.
Interest expense increased by $977,000, or 235.4%, to $1,392,000 in 1999 from
$415,000 in 1998, primarily due to the capital lease obligation for the
Merrimack facility which began in December 1998 and increased borrowings under
the Company's line of credit.
The tax provision for 1999 reflects a full year of the Company being taxed as a
C Corporation. In 1998, the Company's effective tax rate was 17.3% as a result
of both its taxation as an S Corporation for a part of the year as well as the
recognition of certain deferred tax assets upon conversion to a C Corporation.
Net income increased by $4.1 million, or 22%, to $22.7 million in 1999 from
$18.6 million in 1998, principally as a result of the increase in income from
operations. As described above, 1998 net income was also favorably impacted by
the Company's previous S Corporation status and its conversion to a C
Corporation.
15
<PAGE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net sales increased $181.8 million, or 33.0%, to $732.4 million in 1998 from
$550.6 million in 1997. The growth in net sales, which included a 10.7% increase
in average order size, was primarily attributable to (i) continued improvements
in merchandising and product mix, including the stocking and sale of computer
systems; (ii) continued expansion and increased productivity of the Company's
outbound telemarketing group; and (iii) an increase in the number of catalog
mailings. System/memory sales increased to 43.7% of net sales in 1998 from 42.2%
in 1997. Outbound sales increased $133.7 million, or 52.0%, to $390.9 million in
1998 from $257.2 million in 1997. The number of catalogs mailed increased by
24.9%, from 33.8 million catalogs in 1997 to 42.2 million catalogs in 1998.
Gross profit increased $17.3 million, or 22.8%, to $93.3 million in 1998 from
$76.0 million in 1997. The increase in gross profit dollars was primarily
attributable to the increase in net sales described above. Gross profit margin
decreased from 13.8% in 1997 to 12.7% in 1998 due primarily to a higher rate of
growth in sales of lower margin computer systems, increased price competition,
decreases in average unit selling prices and an increase in the rate of charges
to cost of sales for slow-moving and obsolete inventory. However, the Company
continued to generate higher gross profit dollars per order, enabling it to
leverage its operating expenses, as described below. The Company's gross profit
margin may vary based upon vendor support programs, product mix, pricing
strategies, market conditions and other factors.
Selling, general and administrative expenses increased $11.9 million, or 21.1%,
to $68.5 million in 1998 from $56.6 million in 1997, but decreased as a
percentage of sales to 9.4% in 1998 from 10.3% in 1997. The increase in expense
was attributable to increases in volume-sensitive costs such as sales personnel
and credit card fees. The decrease as a percentage of net sales was primarily
attributable to the continued leveraging of selling, general and administrative
expenses over a larger sales base.
Selling, general and administrative expenses, excluding the one-time charge for
stock option compensation expense, increased by $11.1 million, or 19.5%, to
$67.7 million for the year ended December 31, 1998 from $56.6 million for the
comparable period in 1997, but decreased as a percentage of sales from 10.3% in
1997 to 9.2% in 1998.
Additional stockholder/officer compensation paid to the Company's two principal
stockholders, who also serve as officers and directors, represents amounts
accrued or distributed in excess of aggregate annual base salaries ($600,000
aggregate base salaries for 1998 and $480,000 for 1997) approved by the Board of
Directors of the Company and generally represent Company-related federal income
tax obligations payable by the stockholders. Effective upon the closing of the
Offering, these stockholder/officers were paid annual base salaries aggregating
$600,000. Selling, general and administrative expenses on a pro forma basis were
$56.7 million, or 10.3% of net sales, for 1997, as adjusted to give effect to
$600,000 of aggregate base salaries payable to the Company's two
stockholder/officers. Additional stockholder/officer compensation decreased by
$9.8 million, or 80.6%, to $2.4 million in 1998 from $12.1 million in 1997. This
decrease is attributable to the Company's termination of its S Corporation
status upon consummation of the Company's initial public offering
("the Offering"), which eliminated the need to make further distributions to the
stockholder/officers for payment of Company-related federal income tax
obligations.
Income from operations increased by $15.2 million, or 209.4%, to $22.4 million
for the year ended December 31, 1998 from $7.2 million for the comparable period
in 1997. Income from operations as a percentage of net sales increased from 1.3%
in 1997 to 3.1% in 1998 for the reasons discussed above. Income from operations,
excluding additional stockholder/officer compensation, for the year ended
December 31, 1998 was $24.8 million, an increase of $5.4 million, or 27.8%, over
the prior year income of $19.4 million. Income from operations as a percentage
of net sales, excluding additional stockholder/officer compensation, decreased
from 3.5% in 1997 to 3.4% in 1998.
Income from operations, excluding both the one-time charge for stock option
compensation expense in 1998 ($870,000) and the additional stockholder/officer
compensation in excess of their aggregate annual base salaries of $600,000 ($2.4
million and $12.0 million for the year ended December 31, 1998 and 1997,
respectively), increased by $6.3 million, or 33.1%, to $25.6 million for the
year ended December 31, 1998 from $19.3 million for the comparable period in
1997. Such income from operations as a percentage of net sales was 3.5% for 1998
and 1997.
Interest expense decreased by $940,000, or 69.4%, to $400,000 in 1998 from $1.4
million in 1997, primarily due to the repayment of all outstanding borrowings
under the Company's line of credit in March 1998 upon the closing of the
Offering.
16
<PAGE>
Net income increased by $13.4 million, or 258.3%, to $18.6 million in 1998 from
$5.2 million in 1997, principally as a result of the increase in income from
operations.
Pro forma net income for 1998 and 1997 is determined by (i) eliminating
stockholder/officer compensation in excess of the aggregate base salaries
($600,000) described above under "selling, general and administrative expenses"
and (ii) adding a provision for federal income taxes that would have been
payable by the Company if taxed under Subchapter C of the Internal Revenue Code.
Net income on a pro forma basis as described above would have been $15.3 million
for 1998, compared to $10.9 million for 1997. The difference in pro forma net
income compared to historical net income represents the elimination of $2.4
million and $12.0 million in stockholder/officer compensation in 1998 and 1997,
respectively, offset by higher provisions for federal income taxes of $5.7
million and $6.3 million, respectively.
Excluding a one-time charge for the acceleration of certain stock option
compensation expense (described above), the Company would have reported pro
forma net income of $15.8 million, or $1.02 per share, for the year ended
December 31, 1998, compared to pro forma net income of $10.9 million, or $.76
per share, for the comparable period in 1997, an increase of $.26 per share, or
34%.
Liquidity and Capital Resources
The Company has historically financed its operations and capital expenditures
through cash flow from operations and bank borrowings. The Company believes that
funds generated from operations, together with the net proceeds from the
Company's 1998 initial public offering and available credit under its bank line
of credit, will be sufficient to finance its working capital and capital
expenditure requirements at least through 2000. The Company's ability to
continue funding its planned growth, both internally and externally, is
dependent upon its ability to generate sufficient cash flow from operations or
to obtain additional funds through equity or debt financing, or from other
sources of financing, as may be required.
At December 31, 1999, the Company had cash and cash equivalents of $20.4 million
and working capital of $72.3 million.
Net cash provided by operating activities was $16.0 million in the year ended
December 1999, compared to $29.4 million provided and $10.4 million used in the
years ended December 31, 1998, and 1997, respectively. The primary factors
historically affecting cash flows from operations are the Company's net income
and changes in the levels of accounts receivable, inventories and accounts
payable. Historically, inventories and accounts payable have increased as a
result of the sales growth of the Company. Accounts receivable have increased
primarily due to an increase in open account sales to commercial customers
resulting from the Company's continued efforts to increase its sales to such
customers offset in part by a higher rate of increase in accounts receivable
allowances for sales returns and doubtful accounts related to the growth in
sales.
At December 31, 1999, the Company had $105.5 million in outstanding accounts
payable. Such accounts are generally paid within 30 days of incurrence and will
be financed by cash flows from operations or short-term borrowings under the
line of credit. This amount includes $31.0 million payable to two financial
institutions under security agreements to facilitate the purchase of inventory.
Capital expenditures were $7.7 million, $9.9 million and $4.5 million in the
years ended December 31, 1999, 1998 and 1997, respectively. The Company expects
capital expenditures, primarily for the purchase of computer hardware and
software and other fixed assets, to be approximately $16.6 million for the year
ending December 31, 2000.
The Company has an unsecured credit agreement with a bank providing for
short-term borrowings up to $50 million, which bears interest at various rates
ranging from the prime rate (8.50% at December 31, 1999) to prime less 1%,
depending on the ratio of senior debt to EBITDA (earnings before interest,
taxes, depreciation and amortization). The credit agreement includes
various customary financial and operating covenants, including restrictions on
the payment of dividends, none of which the Company believes significantly
restricts its operations. No borrowings were outstanding at December 31, 1999.
The Company has primarily relied upon debt to finance not only ongoing
operations, but acquisitions. In 1999, it used available cash and sellers notes
to acquire ComTeq Federal, Inc., a Maryland company which provides specialty
resale products to agencies of the federal government. Management could, in the
future, use debt, cash, or stock to effect additional acquisitions.
17
<PAGE>
Recently Issued Financial Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", adjusted to be effective for fiscal years
beginning after June 15, 2000. The new standard requires that all companies
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. Management is currently assessing the
impact of SFAS No. 133 on the financial statements of the Company. The Company
will adopt this accounting standard on January 1, 2001, as required.
Inflation
The Company has historically offset any inflation in operating costs by a
combination of increased productivity and price increases, where appropriate.
The Company does not expect inflation to have a significant impact on its
business in the future.
Factors That May Affect Future Results and Financial Condition
The Company's future results and financial condition are dependent on its
ability to continue to successfully market, sell and distribute computers,
hardware and software. Inherent in this process are a number of factors that the
Company must successfully manage in order to achieve favorable operating results
and financial condition. Potential risks and uncertainties that could affect the
Company's future operating results and financial condition include, without
limitation, the factors discussed below:
The Company has experienced rapid growth in recent years and there is no
assurance that it will be able to manage or sustain such growth.
The Company's net sales have grown from $252.2 million for the year ended
December 31, 1995 to $1.1 billion for the year ended December 31, 1999. This
growth has placed, and any future growth will place, increasing demands on the
Company's administrative, operational, financial and other resources. The
Company's staffing levels and operating expenses have increased and are expected
to increase substantially in the future. The Company also expects that any
future growth will continue to challenge its ability to hire, train, motivate
and manage employees. If the Company's net sales do not increase in proportion
to its operating expenses or if the Company experiences a decrease in net
sales, its information systems do not expand to meet increasing demands, or the
Company fails to attract, assimilate and retain qualified personnel or otherwise
fail to manage its growth effectively, there would be a material adverse effect
on the Company's results of operations.
The Company may not have sufficient distribution facilities to support future
growth.
The Company's current distribution facilities may be inadequate to support any
significant growth in the future. The Company currently occupies two buildings
aggregating 205,000 square feet in Wilmington, Ohio under leases which expire in
2000 and 2003. There is no assurance that the Company can renew these leases on
favorable terms or at all. The Company is continually assessing its needs for
additional warehouse facilities. There can be no assurance that suitable
commercial facilities will be available, or if available, that such facilities
would be available at commercially reasonable rates.
The Company could experience system failures which would interfere with its
ability to process orders.
The Company depends on the accuracy and proper use of its management information
systems including its telephone system. Many of the Company's key functions
depend on the quality and effective utilization of the information generated by
its management information systems, including:
o the Company's ability to manage inventory and accounts receivable
collections;
o the Company's ability to purchase, sell and ship products efficiently and
on a timely basis; and
o the Company's ability to maintain operations.
Interruptions could result from natural disasters as well as power loss,
telecommunications failure and similar events.
The Company's management information systems require continual upgrades to most
effectively manage its operations and customer database. Although the Company
maintains some redundant systems, with full data backup, a substantial
interruption in management information systems or in telephone communication
systems would substantially hinder its ability to process customer orders and
thus could have a material adverse effect on the Company's business, results of
operations and financial condition.
18
<PAGE>
The Company is exposed to inventory obsolescence due to the rapid technological
changes occurring in the personal computer industry.
The market for personal computer products is characterized by rapid
technological change and the frequent introduction of new products and product
enhancements. The Company's success depends in large part on its ability to
identify and market products that meet the needs of customers in that
marketplace. In order to satisfy customer demand and to obtain favorable
purchasing discounts, the Company has and may continue to carry increased
inventory levels of certain products. By so doing, it is subject to the
increased risk of inventory obsolescence. Also, in order to implement its
business strategy, the Company intends, among other things, to place larger than
typical inventory stocking orders, and increase participation in first-to-market
purchase opportunities. In the future, the Company may also participate in
end-of-life-cycle purchase opportunities and market products on a private-label
basis, which would increase the risk of inventory obsolescence. In addition, the
Company sometimes acquires special purchase products without return privileges.
There can be no assurance that the Company will be able to avoid losses related
to obsolete inventory. In addition, manufacturers are limiting return rights and
are also taking steps to reduce their inventory exposure by supporting "build to
order" programs authorizing distributors and resellers to assemble computer
hardware under the manufacturers' brands. These trends reduce the costs to
manufacturers and shift the burden of inventory risk to resellers like the
Company which could negatively impact the Company's business, financial
condition and results of operations.
The Company acquires products for resale from a limited number of vendors; the
loss of any one of these vendors could have a material adverse effect on its
business.
The Company acquires products for resale both directly from manufacturers and
indirectly through distributors and other sources. The five vendors supplying
the greatest amount of goods to the Company constituted 50.7% and 44.5% of the
Company's total product purchases in the years ended December 31, 1999 and 1998,
respectively. Among these five vendors, purchases from Ingram Micro, Inc.
represented 21.7% and 20.3% of the Company's total product purchases in the
years ended December 31, 1999 and 1998, respectively. No other vendor supplied
more than 10% of the Company's total product purchases in the year ended
December 31, 1999. If the Company were unable to acquire products from Ingram
Micro, the Company could experience a short-term disruption in the availability
of products and such disruption could have a material adverse effect on the
Company's results of operations and cash flows.
Substantially all of the Company's contracts and arrangements with its vendors
that supply significant quantities of products are terminable by such vendors or
the Company without notice or upon short notice. Most of the Company's product
vendors provide it with trade credit, of which the net amount outstanding at
December 31, 1999 was $83.2 million. Termination, interruption or contraction of
relationships with the Company's vendors, including a reduction in the level of
trade credit provided to the Company, could have a material adverse effect on
the Company's financial position.
Some product manufacturers either do not permit the Company to sell the full
line of their products or limit the number of product units available to direct
marketers such as the Company. An element of the Company's business strategy is
to increase its participation in first-to-market purchase opportunities. The
availability of certain desired products, especially in the direct marketing
channel, has been constrained in the past. The Company could experience a
material adverse effect to its business if the Company is unable to source
first-to-market purchase or similar opportunities, or if the Company faces the
reemergence of significant availability constraints.
The Company may experience a reduction in the incentive programs offered to it
by vendors.
Some product manufacturers and distributors provide the Company with incentives
such as supplier reimbursements, payment discounts, price protection, rebates
and other similar arrangements. The increasingly competitive computer hardware
market has already resulted in the following:
o reduction or elimination of some of these incentive programs,
o more restrictive price protection and other terms; and
o in some cases, reduced advertising allowances and incentives.
Most product manufacturers provide the Company with co-op advertising support
and in exchange the Company covers their products in the Company's catalogs.
This support significantly defrays the Company's catalog production expense. In
the past, the Company has experienced a decrease in the level of co-op
advertising support available to it from certain manufacturers. The level of
co-op advertising support the Company receives from some manufacturers may
further decline in the future. Such a decline could increase the Company's
selling, general and administrative expenses as a percentage of sales and have a
material adverse effect on the Company's cash flows.
19
<PAGE>
The Company faces many competitive risks.
The direct marketing industry and the computer products retail business, in
particular, are highly competitive. The Company competes with consumer
electronics and computer retail stores, including superstores. The Company also
competes with other direct marketers of hardware and software and computer
related products, including an increasing number of Internet retailers, some of
which sell products at or below cost. Certain hardware and software vendors are
selling their products directly through their own catalogs and over the
Internet. The Company competes not only for customers, but also for co-op
advertising support from personal computer product manufacturers. Some of the
Company's competitors have greater financial, marketing and larger catalog
circulations and customer bases and other resources than does the Company. In
addition, many of the Company's competitors offer a wider range of products and
services than it does and may be able to respond more quickly to new or changing
opportunities, technologies and customer requirements. Many current and
potential competitors also have greater name recognition, engage in more
extensive promotional activities and adopt more aggressive pricing policies than
the Company. The Company expects competition to increase as retailers and direct
marketers who have not traditionally sold computers and related products enter
the industry.
The Company cannot assure that it can continue to compete effectively against
its current or future competitors. In addition, price is an important
competitive factor in the personal computer hardware and software market and the
Company cannot assure that the Company will not face increased price
competition. If the Company encounters new competition or fails to compete
effectively against competitors, its business, financial condition and results
of operations could be adversely affected.
In addition, product resellers and direct marketers are combining operations or
acquiring or merging with other resellers and direct marketers to increase
efficiency. Moreover, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
enhance their products and services. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and acquire significant
market share.
The Company faces and will continue to face significant and intense price
competition.
Generally, pricing is very aggressive in the personal computer industry and the
Company expects pricing pressures to continue. An increase in price competition
could result in a reduction of the Company's profit margins. There can be no
assurance that the Company will be able to offset the effects of price
reductions with an increase in the number of customers, higher sales, cost
reductions or otherwise. Also, the Company's recent increase in sales of
personal computer hardware products are generally producing lower profit margins
than those associated with software products. Such pricing pressures could
result in an erosion of the Company's market share, reduced sales and reduced
operating margins, any of which could have a material adverse effect on the
Company's business.
Privacy concerns with respect to list development and maintenance may materially
adversely affect the Company's business.
The Company mails catalogs and sends electronic messages to names in its
proprietary customer database and to potential customers whose names the Company
obtains from rented or exchanged mailing lists. Worldwide public concern
regarding personal privacy has subjected the rental and use of customer mailing
lists and other customer information to increased scrutiny. Any domestic or
foreign legislation enacted limiting or prohibiting these practices could
negatively affect the Company's business, financial condition and results of
operations.
The Company relies on the continued development of electronic commerce and
Internet infrastructure development.
The Company's level of sales made over the Internet has increased in part
because of the growing use and acceptance of the Internet by end-users. This
growth is a recent development. No one can be certain that acceptance and use of
the Internet will continue to develop or that a sufficiently broad base of
consumers will adopt and continue to use the Internet and other online services
as a medium of commerce. Sales of computer products over the Internet do not
currently represent a significant portion of overall computer product sales.
Growth of the Company's Internet sales is dependent on potential customers using
the Internet in addition to traditional means of commerce to purchase products.
The Company cannot accurately predict the rate at which they will do so.
The Company's success in growing its Internet business will depend in large part
upon the development of an infrastructure for providing Internet access and
services. If the number of Internet users or their use of Internet resources
continues to grow rapidly, such growth may overwhelm the existing Internet
infrastructure. The Company's
20
<PAGE>
ability to increase the speed with which it provides services to customers and
to increase the scope of such services ultimately is limited by and reliant upon
the speed and reliability of the networks operated by third parties. The Company
cannot assure that networks and infrastructure providing sufficient capacity and
reliability will continue to be developed.
The Company depends heavily on third-party shippers to deliver its products to
customers.
The Company ships approximately 65% of its products to customers by Airborne
Freight Corporation D/B/A "Airborne Express", with the remainder being shipped
by United Parcel Service of America, Inc. and other overnight delivery and
surface services. A strike or other interruption in service by these shippers
could adversely affect the Company's ability to market or deliver products to
customers on a timely basis.
The Company may experience potential increases in shipping, paper and postage
costs, which may adversely effect its business if the Company were not able to
pass such increases on to its customers.
Shipping costs are a significant expense in the operation of the Company's
business. Increases in postal or shipping rates and paper costs could
significantly impact the cost of producing and mailing the Company's catalogs
and shipping customer orders. Postage prices and shipping rates increase
periodically and the Company has no control over future increases. The Company
has a long-term contract with Airborne Express whereby it ships products to the
Company's customers. The Company believes that it has negotiated favorable
shipping rates with Airborne. The Company generally invoices customers for
shipping and handling charges. There can be no assurance that the Company will
be able to pass on to its customers the full cost, including any future
increases in the cost, of commercial delivery services such as Airborne Express.
The Company also incurs substantial paper and postage costs related to its
marketing activities, including producing and mailing its catalogs. Paper prices
historically have been cyclical and the Company has experienced substantial
increases in the past. Significant increases in postal or shipping rates and
paper costs could adversely impact the Company's business, financial condition
and results of operations, particularly if the Company cannot pass on such
increases to its customers or offset such increases by reducing other costs.
The Company may also experience quarterly fluctuations and seasonality which
could impact its business.
Several factors have caused the Company's sales and results of operations to
fluctuate, and the Company expects these fluctuations to continue on a quarterly
basis. Causes of these fluctuations include:
o the condition of the personal computer industry in general;
o shifts in demand for hardware and software products;
o industry shipments of new products or upgrades;
o the timing of new merchandise and catalog offerings;
o fluctuations in response rates;
o fluctuations in postage, paper, shipping and printing costs and in
merchandise returns;
o adverse weather conditions that affect response, distribution or shipping;
o shifts in the timing of holidays; and
o changes in the Company's product offerings.
The Company bases its operating expenditures on sales forecasts. If revenues do
not meet expectations in any given quarter, the Company's operating results
could suffer.
In addition, customer response rates to the Company's catalog mailings are
subject to variations. The first and last quarters of the year generally have
higher response rates while the two middle quarters typically have lower
response rates.
21
<PAGE>
The methods of distributing personal computers and related products are changing
and such changes may negatively impact the Company and its business.
The manner in which personal computers and related products are distributed and
sold is changing, and new methods of distribution and sale, such as on-line
shopping services, have emerged. Hardware and software manufacturers have sold,
and may intensify their efforts to sell, their products directly to end-users.
From time to time, certain manufacturers have instituted programs for the direct
sales of large order quantities of hardware and software to certain major
corporate accounts. These types of programs may continue to be developed and
used by various manufacturers. Some of the Company's vendors, including Apple,
Compaq and IBM, currently sell some of their products directly to end users and
have stated their intentions to increase the level of such direct sales. In
addition, manufacturers may attempt to increase the volume of software products
distributed electronically to end users. An increase in the volume of products
sold through or used by consumers of any of these competitive programs or
distributed electronically to end-users could have a material adverse effect on
the Company's results of operations.
The Company faces many uncertainties relating to the collection of state sales
or use tax.
The Company presently collects sales tax only on sales of products to residents
of Ohio, Tennessee, Maryland and the District of Columbia. The Company began
collecting sales tax in Massachusetts in January 2000. Sales to customers
located within Ohio, Tennessee, Maryland and the District of Columbia were less
than 2% of the Company's net sales during the year ended December 31, 1999.
Various states have sought to impose on direct marketers the burden of
collecting state sales taxes on the sales of products shipped to their
residents. In 1992, the United States Supreme Court affirmed its position that
it is unconstitutional for a state to impose sales or use tax collection
obligations on an out-of-state mail order company whose only contacts with the
state are limited to the distribution of catalogs and other advertising
materials through the mail and the subsequent delivery of purchased goods by
United States mail or by interstate common carrier. However, legislation that
would expand the ability of states to impose sales tax collection obligations on
direct marketers has been introduced in Congress on many occasions. Due to its
presence on various forms of electronic media and other factors, the Company's
contact with many states may exceed the contact involved in the Supreme Court
case. The Company cannot predict the level of contact that is sufficient to
permit a state to impose on us a sales tax collection obligation. If the Supreme
Court changes its position or if legislation is passed to overturn the Supreme
Court's decision, the imposition of a sales or use tax collection obligation on
the Company in states to which the Company ships products would result in
additional administrative expenses to the Company, could result in price
increases to its customers, and could reduce demand for its product.
The Company is dependent on key personnel.
The Company's future performance will depend to a significant extent upon the
efforts and abilities of its senior executives. The competition for qualified
management personnel in the personal computer products industry is very intense,
and the loss of service of one or more of these persons could have an adverse
effect on the Company's business. The Company's success and plans for future
growth will also depend on its ability to hire, train and retain skilled
personnel in all areas of its business, including sales account managers and
technical support personnel. There can be no assurance that the Company will be
able to attract, train and retain sufficient qualified personnel to achieve the
Company's business objectives.
The Company is controlled by two principal stockholders.
Patricia Gallup and David Hall, the Company's two principal stockholders,
beneficially own or control, in the aggregate, approximately 75% of the
outstanding shares of the Company's common stock. Because of their beneficial
stock ownership, these stockholders can continue to elect the members of the
Board of Directors and decide all matters requiring stockholder approval at a
meeting or by a written consent in lieu of a meeting. Similarly, such
stockholders can control decisions to adopt, amend or repeal the Company's
charter and bylaws, or take other actions requiring the vote or consent of the
Company's stockholders and prevent a takeover of the Company by one or more
third parties, or sell or otherwise transfer their stock to a third party, which
could deprive the Company's stockholders of a control premium that might
otherwise be realized by them in connection with an acquisition of the Company.
Such control may result in decisions that are not in the best interest of the
Company's public stockholders. In connection with the Company's initial public
offering, the principal stockholders placed all except 30,000 of the shares of
common stock beneficially owned by them into a voting trust, pursuant to which
they are required to agree as to the manner of voting such shares in order for
the shares to be voted. Such provisions could discourage bids for the Company's
common stock at a premium as well as have a negative impact on the market price
of the Company's common stock.
22
<PAGE>
- --------------------------------------------------------------------------------
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
- --------------------------------------------------------------------------------
The Company invests cash balances in excess of operating requirements in
short-term securities, generally with maturities of 90 days or less. In
addition, the Company's Credit Agreement provides for borrowings which bear
interest at variable rates based on the prime rate. The Company had no
borrowings outstanding pursuant to the Credit Agreement as of December 31, 1999.
The Company believes that the effect, if any, of reasonably possible near-term
changes in interest rates on the Company's financial position, results of
operations and cash flows should not be material.
- --------------------------------------------------------------------------------
Item 8. Consolidated Financial Statements and Supplementary Data
- --------------------------------------------------------------------------------
The information required by this Item is included in this Report beginning at
page F-1.
- --------------------------------------------------------------------------------
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
- --------------------------------------------------------------------------------
Not applicable.
PART III
- --------------------------------------------------------------------------------
Item 10. Directors and Executive Officers of the Registrant
- --------------------------------------------------------------------------------
The information included under the captions "Information Concerning Directors,
Nominees and Executive Officers" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's definitive Proxy Statement for its 2000
Annual Meeting of Stockholders to be held May 25, 2000 (the "Proxy Statement")
is incorporated herein by reference. The Company anticipates filing the Proxy
Statement within 120 days after December 31, 1999. With the exception of the
foregoing information and other information specifically incorporated by
reference into this Form 10-K, the Proxy Statement is not being filed as a part
hereof.
- --------------------------------------------------------------------------------
Item 11. Executive Compensation
- --------------------------------------------------------------------------------
The information under the caption "Executive Compensation" in the Proxy
Statement is incorporated herein by reference.
- --------------------------------------------------------------------------------
Item 12. Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------------------------
The information under the heading "Security Ownership of Certain Beneficial
Owners and Management" in the Proxy Statement is incorporated herein by
reference.
- --------------------------------------------------------------------------------
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------------------------------
The information under the heading "Certain Transactions and Relationships" in
the Proxy Statement is incorporated herein by reference.
23
<PAGE>
PART IV
- --------------------------------------------------------------------------------
Item 14. Exhibits, Consolidated Financial Statements, Schedule, and Reports on
Form 8-K
- --------------------------------------------------------------------------------
(a) List of Documents Filed as Part of This Report:
(1) Consolidated Financial Statements
The consolidated financial statements listed below are included in
this document.
Consolidated Financial Statements Page References
--------------------------------- ---------------
Report of Management..........................................F-2
Independent Auditors' Report..................................F-3
Consolidated Balance Sheets...................................F-4
Consolidated Statements of Income.............................F-5
Consolidated Statement of Changes in Stockholders' Equity.....F-6
Consolidated Statements of Cash Flows.........................F-7
Notes to Consolidated Financial Statements....................F-8
(2) Consolidated Financial Statement Schedule:
The following Consolidated Financial Statement Schedule of the
Company as set forth below is filed with this report:
Schedule Page Reference
-------- --------------
Schedule II - Valuation and Qualifying Accounts...............S-1
(3) Supplementary Data
Not applicable.
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K on January 3, 2000, due to
the reorganization of the Company.
(c) Exhibits
The exhibits listed below are filed herewith or are incorporated herein by
reference to other filings.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits Page Reference
-------- --------------
<S> <C> <C>
*3.2 Amended and Restated Certificate of Incorporation of
Registrant.
*3.4 Bylaws of Registrant.
</TABLE>
24
<PAGE>
*4.1 Form of specimen certificate for shares of Common Stock,
$0.01 par value per share, of the Registrant.
*9.1 Form of 1998 PC Connection Voting Trust Agreement among the
Registrant, Patricia Gallup individually and as a trustee,
and David Hall individually and as trustee.
*10.1 1993 Incentive and Non-Statutory Stock Option Plan, as
amended.
*10.2 1997 Stock Incentive Plan.
*10.3 Lease between the Registrant and Miller-Valentine Partners,
dated September 24, 1990, as amended, for property located
at 2870 Old State Route 73, Wilmington, Ohio.
*10.4 Lease between the Registrant and Lower Bellbrook Company,
dated September 26, 1997, for property located at 643-651
Lower Bellbrook Avenue, Xenia, Ohio.
*10.5 Lease between the Registrant and Gallup & Hall partnership,
dated May 1, 1997, for property located at 442 Marlboro
Street, Keene, New Hampshire.
*10.6 Lease between the Registrant and Gallup & Hall partnership,
dated June 1, 1987, as amended, for property located in
Marlow, New Hampshire.
*10.7 Lease between the Registrant and Gallup & Hall partnership,
dated July 22, 1998, for property located at 450 Marlboro
Street, Keene, New Hampshire.
*10.9 Lease between the Registrant and Century Park, LLC, dated
October 1, 1997 for property located at Route 111, Hudson,
New Hampshire.
*10.10 Amended and Restated Lease between the Registrant and G&H
Post, LLC, dated December 29, 1997 for property located at
Route 101A, Merrimack, New Hampshire.
*10.11 Sublease between the Registrant and ABX Air Inc., dated June
7, 1995, for property located at 2870 Old State Route 73,
Wilmington, Ohio.
*10.12 Employment Agreement between the Registrant and Wayne L.
Wilson, dated August 16, 1995.
*10.13 Employment Agreement between the Registrant and Robert F.
Wilkins, dated December 23, 1995.
*10.15 Letter Agreement between the Registrant and Airborne Freight
Corporation D/B/A "Airborne Express," dated April 30, 1990,
as amended.
*10.16 Agreement between the Registrant and Ingram Micro, Inc.,
dated October 30, 1997, as amended.
*10.18 Employment Agreement, dated as of January 1, 1998, between
the Registrant and Patricia Gallup.
*10.19 Employment Agreement, dated as of January 1, 1998, between
the Registrant and David Hall.
*10.20 Form of Registration Rights Agreement among the Registrant,
Patricia Gallup, David Hall and the 1998 PC Connection
Voting Trust.
**10.21 Amendment No. 1 to Amended and Restated Lease between the
Registrant and G&H Post, LLC, dated December 29, 1998 for
property located at Route 101A, Merrimack, New Hampshire.
**10.22 Lease between Registrant and Dover Mills, LLC, dated August
1, 1998 for property located at Cocheco Falls Millworks,
Dover, New Hampshire.
**10.23 Amended Lease Agreement between the Registrant and Dover
Mills, LLC, dated August 1, 1998.
**10.24 Employment Agreement between the Registrant and John L.
Bomba, dated March 28, 1997.
**10.25 Employment Agreement between the Registrant and Mark A.
Gavin, dated February 5, 1998.
25
<PAGE>
10.26 Agreement for Wholesale Financing, dated as of March 25,
1998, between the Registrant and Deutsche Financial Services
Corporation.
10.27 Amendment to Agreement for Wholesale Financing, dated as
of March 25, 1998, between the Registrant and Deutsche
Financial Services Corporation.
10.28 Amendment to Agreement for Wholesale Financing, dated
as of November 5, 1999, between the Registrant and
Deutsche Financial Services Corporation.
10.29 Amendment to Agreement for Wholesale Financing, dated as
of February 25, 2000, between the Registrant and Deutsche
Financial Services Corporation.
10.30 Guaranty, dated as of February 25, 2000, entered into by
PC Connection, Inc. in connection with the Amendment to
Agreement for Wholesale Financing, dated as of
February 25, 2000, between the Registrant and Deutsche
Financial Services Corporation.
10.31 Agreement for Inventory Financing, dated as of August 17,
1999, between the Registrant and IBM Credit Corporation.
10.32 Amendment to Agreement for Inventory Financing, dated as of
February 25, 2000, between the Registrant and IBM Credit
Corporation.
10.33 Guaranty, dated as of February 25, 2000, entered into by
PC Connection, Inc., PC Connection Sales of Massachusetts,
Inc., Merrimack Services Corp. and ComTeq Federal, Inc.,
in connection with the Amendment to Agreement for
Inventory Financing, dated as of February 25, 2000,
between the Registrant and IBM Credit Corporation.
10.34 Agreement for Wholesale Financing, dated as of October 12,
1993, between ComTeq Federal, Inc. and IBM Credit
Corporation.
10.35 Amendment to Agreement for Wholesale Financing, dated
as of December 23, 1999, between ComTeq Federal, Inc.
and IBM Credit Corporation.
10.36 Amendment to Addendum to Agreement for Wholesale Financing,
dated as of December 23, 1999, between ComTeq Federal, Inc.
and IBM Credit Corporation.
10.37 Amendment to Agreement for Wholesale Financing, dated
as of February 25, 2000, between ComTeq Federal, Inc. and
IBM Credit Corporation.
10.38 Guaranty, dated as of February 25, 2000, entered into
by the Registrant, PC Connection, Inc., PC Connection
Sales of Massachusetts, Inc. and Merrimack Services Corp.,
in connection with the Amendment to Agreement for
Wholesale Financing, dated as of February 25, 2000,
between ComTeq Federal, Inc. and IBM Credit Corporation.
10.39 Agreement for Wholesale Financing, dated as of February 25,
2000, between ComTeq Federal, Inc. and Deutsche Financial
Services Corporation.
10.40 Guaranty, dated as of February 25, 2000, entered into by
PC Connection, Inc. in connection with the Agreement
for Wholesale Financing, dated as of February 25, 2000,
between ComTeq Federal, Inc. and Deutsche Financial
Services Corporation.
10.41 Assignment of Lease Agreements, dated as of December 13,
1999, between Micro Warehouse, Inc. (assignor) and the
Registrant (assignee).
10.42 Amended and Restated Credit Agreement, dated February 25,
2000, between PC Connection, Inc. the Lenders Party hereto
and Citizens Bank of Massachusetts.
***23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule.
- ------------------------
* Incorporated by reference from the exhibits filed with the Company's
registration statement (333-41171) on Form S-1 filed under the Securities
Act of 1933.
** Incorporated by reference from exhibits filed with the Company's annual
report on Form 10-K, File Number 0-23827, filed on March 31, 1999.
*** Incorporated by reference from exhibits filed with the Company's annual
report on Form 10-K, File Number 0-23827, filed on March 30, 2000.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PC Connection, Inc.
Date: March 30, 2000 By: /s/ Patricia Gallup
-------------------
Patricia Gallup, Chairman and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ PETER J. BAXTER Director March 30, 2000
- ---------------------------
Peter J. Baxter
/s/ DAVID BEFFA-NEGRINI Director March 30, 2000
- ---------------------------
David Beffa-Negrini
/s/ PATRICIA GALLUP CEO and Director March 30, 2000
- --------------------------- (Principal Executive Officer)
Patricia Gallup
/s/ DAVID HALL Vice Chairman and Director March 30, 2000
- ---------------------------
David Hall
/s/ MARK A. GAVIN Chief Financial Officer March 30, 2000
- --------------------------- (Principal Financial and
Mark A. Gavin Accounting Officer)
/s/ MARTIN C. MURRER Director March 30, 2000
- ---------------------------
Martin C. Murrer
/s/ WAYNE L. WILSON President and COO March 30, 2000
- --------------------------- (Principal Operating Officer)
Wayne L. Wilson
27
<PAGE>
PC CONNECTION, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Management........................................................................................F-2
Independent Auditors' Report................................................................................F-3
Consolidated Balance Sheets as of December 31, 1999 and 1998................................................F-4
Consolidated Statements of Income for the years ended December 31, 1999, 1998, and 1997.....................F-5
Consolidated Statement of Changes in Stockholders' Equity for the years ended December 31, 1999,
1998, and 1997......................................................................................F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998, and 1997.................F-7
Notes to Consolidated Financial Statements..................................................................F-8
</TABLE>
F-1
<PAGE>
REPORT OF MANAGEMENT
Responsibility for the integrity and objectivity of the financial information
presented in this Annual Report on Form 10-K rests with PC Connection, Inc. and
subsidiary ("the Company") management. The accompanying financial statements
have been prepared in conformity with generally accepted accounting principles,
applying certain estimates and judgments as required.
The Company maintains an effective internal control structure. It consists, in
part, of an organization with clearly defined lines of responsibility and
delegation of authority, comprehensive systems and control procedures. We
believe this structure provides reasonable assurance that transactions are
executed in accordance with management authorization and generally accepted
accounting principles.
To assure the effective administration of internal control, we carefully select
and train our employees, develop and disseminate written policies and
procedures, provide appropriate communication channels and foster an environment
conducive to the effective functioning of controls. We believe that it is
essential for the Company to conduct its business affairs in accordance with the
highest ethical standards.
Deloitte & Touche LLP, independent auditors, is retained to audit the Company's
consolidated financial statements. Its accompanying report is based on an audit
conducted in accordance with auditing standards generally accepted in the United
States of America.
The Audit Committee of the Board of Directors is composed solely of outside
directors and is responsible for recommending to the Board of Directors the
independent accounting firm to be retained for the coming year. The Audit
Committee meets periodically and privately with the independent auditors, as
well as with Company management, to review accounting, auditing, internal
control structure and financial reporting matters.
Patricia Gallup Wayne L. Wilson Mark A. Gavin
Chairman and President and Chief Chief Financial Officer
Chief Executive Officer Operating Officer
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
PC Connection, Inc. and Subsidiary
Merrimack, New Hampshire
We have audited the accompanying consolidated balance sheets of PC Connection,
Inc. and subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. Our
audits also included the financial statement schedule listed in Item 14(a)(2).
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of PC Connection, Inc. and subsidiary
as of December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
Deloitte & Touche LLP
Boston, Massachusetts
January 26, 2000
F-3
<PAGE>
PC CONNECTION, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998
-------- --------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents .................................................... $ 20,416 $ 11,910
Accounts receivable, net ..................................................... 99,405 58,890
Inventories - merchandise .................................................... 64,348 63,425
Deferred income taxes ........................................................ 1,991 3,181
Prepaid expenses and other current assets .................................... 4,651 4,115
-------- --------
Total current assets ............................................... 190,811 141,521
Property and equipment, net ...................................................... 23,126 22,675
Deferred income taxes ............................................................ -- 314
Other assets ..................................................................... 169 --
Goodwill ......................................................................... 9,431 --
-------- --------
Total Assets ....................................................... $223,537 $164,510
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital lease obligation
to affiliate .............................................................. $ 137 $ 123
Current maturities of long-term debt ......................................... 1,000 --
Accounts payable ............................................................. 105,547 77,561
Accrued expenses and other liabilities ....................................... 11,877 10,069
-------- --------
Total current liabilities .......................................... 118,561 87,753
Notes payable, less current maturities ........................................... 2,000 --
Capital lease obligation to affiliate, less current maturities ................... 6,945 7,081
Deferred taxes ................................................................... 1,579 --
Other liabilities ................................................................ 229 --
-------- --------
Total Liabilities .................................................. 129,314 94,834
-------- --------
Commitments and Contingencies (Note 11)
Stockholders' Equity:
Preferred Stock, $.01 par value, 7,500 shares authorized, 0 outstanding
at December 31, 1999 and December 31, 1998 ............................. -- --
Common Stock, $.01 par value, 30,000 shares authorized, 15,767
and 15,605 issued and outstanding at December 31, 1999
and December 31, 1998, respectively .................................... 158 156
Additional paid-in capital ................................................... 58,627 56,812
Retained earnings ............................................................ 35,438 12,708
-------- --------
Total Stockholders' Equity ............................................ 94,223 69,676
-------- --------
Total Liabilities and Stockholders' Equity ............................ $223,537 $164,510
======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
PC CONNECTION, INC.
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales ...................................... $ 1,056,704 $ 732,370 $ 550,575
Cost of sales .................................. 927,358 639,096 474,609
----------- ----------- -----------
Gross Profit ............................... 129,346 93,274 75,966
Selling, general and administrative expenses ... 91,405 68,521 56,596
Additional stockholder/officer compensation .... -- 2,354 12,130
----------- ----------- -----------
Income from operations .................... 37,941 22,399 7,240
Interest expense ............................... (1,392) (415) (1,355)
Other, net ..................................... 116 565 (42)
----------- ----------- -----------
Income before taxes ............................ 36,665 22,549 5,843
Income taxes ................................... (13,935) (3,905) (639)
----------- ----------- -----------
Net income ................................ $ 22,730 $ 18,644 $ 5,204
=========== =========== ===========
Earnings per common share:
Basic ..................................... $ 1.45
===========
Diluted ................................... $ 1.41
===========
Pro forma data:
Historical income before income taxes ....... $ 22,549 $ 5,843
Pro forma other adjustments ................. 2,354 12,010
----------- -----------
Pro forma income before income taxes ........ 24,903 17,853
Pro forma income taxes ...................... 9,631 6,963
----------- -----------
Pro forma net income ........................ $ 15,272 $ 10,890
=========== ===========
Pro forma basic net income per share ........ $ 1.01 $ .79
=========== ===========
Pro forma diluted net income per share ...... $ .98 $ .76
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
PC CONNECTION, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(amounts in thousands)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 .................... 11,799 $ 118 $ 3,224 $ 14,701 $ 18,043
Compensation under nonstatutory stock
option agreements ....................... -- -- 873 -- 873
Net Income .................................. -- -- -- 5,204 5,204
-------- -------- -------- -------- --------
Balance, December 31, 1997 .................. 11,799 118 4,097 19,905 24,120
-------- -------- -------- -------- --------
Net proceeds from initial public offering ... 3,594 36 57,217 -- 57,253
Dividend .................................... -- -- (7,196) (25,841) (33,037)
Exercise of stock options, including
income tax benefits ..................... 212 2 1,397 -- 1,399
Compensation under nonstatutory
stock option agreements ................. -- -- 1,297 -- 1,297
Net income .................................. -- -- -- 18,644 18,644
-------- -------- -------- -------- --------
Balance, December 31, 1998 .................. 15,605 156 56,812 12,708 69,676
-------- -------- -------- -------- --------
Exercise of stock options, including
income tax benefits ..................... 117 1 1,183 -- 1,184
Issuance of stock under employee
stock purchase plan ..................... 45 1 470 -- 471
Compensation under nonstatutory
stock option agreements ................. -- -- 162 -- 162
Net income .................................. -- -- -- 22,730 22,730
-------- -------- -------- -------- --------
Balance, December 31, 1999 .................. 15,767 $ 158 $ 58,627 $ 35,438 $ 94,223
======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
PC CONNECTION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income .................................................... $ 22,730 $ 18,644 $ 5,204
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Depreciation and amortization ............................. 5,334 2,866 3,660
Deferred income taxes ..................................... 2,523 (1,945) (154)
Compensation under nonstatutory stock option agreements ... 162 1,297 873
Provision for doubtful accounts ........................... 6,821 6,296 3,339
Loss on disposal of fixed assets .......................... 159 -- 54
Changes in assets and liabilities:
Accounts receivable ....................................... (42,795) (35,265) (10,097)
Inventories ............................................... (305) 295 (19,301)
Prepaid expenses and other current assets ................. (504) (1,910) (483)
Accounts payable .......................................... 19,945 39,387 1,269
Amounts payable to stockholders ........................... -- (1,185) 1,185
Accrued expenses and other liabilities .................... 1,969 926 4,042
--------- --------- ---------
Net cash provided by (used for) operating activities .......... 16,039 29,406 (10,409)
--------- --------- ---------
Cash Flows from Investing Activities:
Purchases of property and equipment ........................... (7,653) (9,922) (4,528)
Proceeds from sale of property and equipment .................. 2,155 58 22
Payment for purchase of ComTeq, net of cash acquired .......... (3,198) -- --
--------- --------- ---------
Net cash used for investing activities ........................ (8,696) (9,864) (4,506)
--------- --------- ---------
Cash Flows from Financing Activities:
Proceeds from short-term borrowings ........................... 442,731 160,098 178,362
Repayment of short-term borrowings ............................ (442,731) (188,416) (162,351)
Repayment of term loan ........................................ -- (4,500) (500)
Repayment of capital lease obligation to affiliate ............ (122) (11) --
Issuance of stock upon exercise of stock options .............. 814 223 --
Issuance of stock under Employee Stock Purchase Plan .......... 471 -- --
Net proceeds from initial public offering ..................... -- 57,253 --
Payment of dividend ........................................... -- (33,037) --
--------- --------- ---------
Net cash provided by (used for) financing activities .......... 1,163 (8,390) 15,511
--------- --------- ---------
Increase in cash and cash equivalents ......................... 8,506 11,152 596
Cash and cash equivalents, beginning of period ................ 11,910 758 162
--------- --------- ---------
Cash and cash equivalents, end of period ...................... $ 20,416 $ 11,910 $ 758
========= ========= =========
Supplemental Cash Flow Information:
Interest paid ................................................. $ 1,398 $ 497 $ 1,334
Income taxes paid ............................................. 9,374 7,275 550
Non-Cash Activities:
Issuance of notes payable in connection with
acquisition of subsidiary .................................. $ 3,000 $ -- $ --
Assets acquired under capital lease ........................... -- 7,215 --
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
PC CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PC Connection, Inc. and its subsidiary (the "Company") is a direct marketer of
brand-name personal computers and related peripherals, software, and networking
products to business, education, government, and consumer end users located
primarily in the United States. The following is a summary of significant
accounting policies.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of PC Connection,
Inc. and its wholly-owned subsidiary. Intercompany transactions and balances are
eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the amounts reported in the accompanying
financial statements. Actual results could differ from those estimates.
Revenue Recognition
Revenue on product sales is recognized at the point of shipment. A reserve for
sales returns is recorded at the time of sale and has been established based
upon historical trends.
Cash and Cash Equivalents
The Company considers all highly liquid short-term investments with original
maturities of 90 days or less to be cash equivalents. The carrying value of the
Company's cash equivalents approximates fair value.
Inventories - Merchandise
Inventories (all finished goods) consisting of software packages, computer
systems and peripheral equipment, are stated at cost (determined under the
first-in, first-out method) or market, whichever is lower.
Advertising Costs and Revenues
Costs of producing and distributing catalogs are deferred and charged to expense
over the period that each catalog remains the most current selling vehicle
(generally one to two months). Other advertising costs are expensed as incurred.
Vendors have the ability to place advertisements in the catalogs for which the
Company receives advertising allowances and incentives. These revenues are
recognized on the same basis as the catalog costs.
Advertising costs charged to expense were $31,487, $32,498 and $27,859 for the
years ended December 31, 1999, 1998 and 1997, respectively. Deferred advertising
revenues at December 31, 1999 and 1998 exceeded deferred advertising costs of
$423 and $325 at those respective dates, and, accordingly, such net deferred
amounts are included in accrued expenses and other liabilities.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization is
provided for both financial and income tax reporting purposes over the estimated
useful lives of the assets ranging from three to seven years, computer software,
including licenses and internally developed software is capitalized and
amortized over lives ranging from three to five years. Depreciation is and has
been provided using accelerated methods for property acquired prior to 1996 and
on the straight-line method for property acquired thereafter. Leasehold
improvements and facilities under capital leases are amortized over the terms of
the related leases or their useful lives, whichever is shorter, whereas for
income tax reporting purposes, they are amortized over the applicable tax lives.
The Company periodically evaluates the carrying value of property and equipment
based upon current and anticipated undiscounted cash flows, and recognizes an
impairment when it is probable that such estimated future cash flows will be
less than the asset carrying value.
F-8
<PAGE>
Goodwill
Goodwill arises from certain purchase transactions and is amortized using the
straight-line method over appropriate periods not exceeding 15 years. The amount
charged to expense during 1999 was $324.
Tax Status and Income Taxes
For periods prior to March 6, 1998, the Company elected to be treated as an S
Corporation under Subchapter S of the Internal Revenue Code (the "Code"), and
applicable state laws. Effective with the consummation of the Company's initial
public offering of its common stock on March 6, 1998 (the "Offering"), the
Company's S Corporation election was automatically terminated and the Company
became subject to federal and state income taxes as a C Corporation from that
date forward.
Deferred income tax assets and liabilities are computed for differences between
the financial statement and tax basis of assets and liabilities that will result
in taxable or deductible amounts in the future, based on enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount that is more likely than not to be realized.
"Income taxes" as presented on the Consolidated Statements of Income comprise
the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
Additional Stockholder/Officer Compensation
Additional stockholder/officer compensation represents amounts accrued or
distributed in excess of aggregate annual base salaries approved by the Board of
Directors (the "Board") and generally represents Company-related federal income
tax obligations payable by the stockholders for periods during which the Company
was an S Corporation.
Concentration of Credit Risk
Concentrations of credit risk with respect to trade account receivables are
limited due to the large number of customers comprising the Company's customer
base. Ongoing credit evaluations of customers' financial condition are
performed.
Earnings Per Share
Basic earnings per common share is computed using the weighted average number of
shares outstanding. Diluted earnings per share is computed using the weighted
average number of shares outstanding adjusted, when dilutive, for the
incremental shares attributed to outstanding options to purchase common stock.
The denominator pro forma basic earnings per share for all periods prior to
March 6, 1998 includes the weighted average shares required to pay the S
Corporation dividend (assuming a price per share of $17.50 for the year ended
December 31, 1998 and $16.00 for the year ended December 31, 1997).
The following table sets forth the computation of basis and diluted earnings per
share:
<TABLE>
<CAPTION>
Pro Forma
---------
(amounts in thousands, except per share data) 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Numerator:
Net income ........................................................ $22,730 $15,272 $10,890
Denominator:
Denominator for basic earnings per share:
Weighted average shares ........................................ 15,650 14,849 11,799
Weighted average shares required to pay stockholder dividend ... -- 316 2,062
------- ------- -------
Denominator for basic earnings per share .......................... 15,650 15,165 13,861
------- ------- -------
Effect of dilutive securities:
Employee stock options ......................................... 461 504 383
------- ------- -------
Denominator for diluted earnings per share ........................... 16,111 15,669 14,244
======= ======= =======
Earnings per share:
Basic .............................................................. $ 1.45 $ 1.01 $ .79
======= ======= =======
Diluted ............................................................ $ 1.41 $ .98 $ .76
======= ======= =======
</TABLE>
The above pro forma adjustments have been made to the historical results of
operations for the period from January 1 through March 5, 1998 and the year
ended December 31, 1997 to make the pro forma presentation comparable to what
would have been reported had the Company operated as a C Corporation.
(i) Elimination of stockholder/officer compensation in excess of
aggregate annual base salaries of $600 that were in effect during
1998 in accordance with employment agreements; and
(ii) Computation of income tax expense assuming an effective tax rate of
approximately 39% (see Note9) and after adjusting
stockholder/officer compensation expense described in (i) above.
F-9
<PAGE>
The following stock options to purchase Common Stock were excluded from the
computation of diluted earnings per share for years ended December 31, 1999,
1998, and 1997 because the effect of the options on the calculation would have
been anti-dilutive:
1999 1998 1997
---- ---- ----
Anti-dilutive stock options -- 78 --
Stock-Based Compensation
Compensation expense associated with awards of stock or options to employees is
measured using the intrinsic value method in accordance with APB Opinion No. 25.
The Board estimated the fair value of the Company's stock for awards made prior
to the Offering using market valuations of comparable publicly traded companies,
among other factors.
Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which requires businesses to disclose comprehensive
income and its components in their general-purpose financial statements. The
Company has no other comprehensive income in any of the periods presented.
Accordingly, a separate statement of comprehensive income is not presented.
Recently Issued Financial Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", effective for fiscal years beginning after
June 15, 1999. The new standard requires that all companies record derivatives
on the balance sheet as assets or liabilities, measured at fair value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. Management is currently assessing the impact of SFAS No.
133 on the financial statements of the Company. The Company will adopt this
accounting standard on January 1, 2001, as required.
Reclassifications
Certain amounts in the 1998 and 1997 financial statements have been reclassified
to conform to the 1999 presentation.
2. ACQUISITION OF SUBSIDIARY
On June 29, 1999, the Company acquired all of the outstanding stock of ComTeq
Federal, Inc., a supplier of computer equipment and services to federal
government agencies. The purchase price was $8.3 million, including acquisition
costs and consisted of cash of $5.3 million and promissory notes aggregating $3
million. Total cash paid for ComTeq Federal Inc., net of cash acquired, was $3.2
million. The transaction has been accounted for by the purchase method, and
accordingly, the results of operations for the period from June 29, 1999 to
December 31, 1999 are included in the accompanying financial statements. The
assets purchased and liabilities assumed have been recorded at their fair value
at the date of acquisition. The excess of the purchase price, including
acquisition costs, over the fair value of the net liabilities assumed has been
recorded as goodwill (approximately $9.7 million). Such amount recorded at
December 31, 1999 is subject to change pending final valuation of the net assets
acquired. Goodwill will be amortized over a period of 15 years. The promissory
notes are unsecured, bear interest at the prime rate less 0.5% and are scheduled
to be repaid over a three year period. As of December 31, 1999, the short-term
portion of the promissory notes was $1 million and the long-term portion was $2
million.
Pro Forma Information
The following unaudited pro forma information presents the consolidated results
of operations of the Company as if the acquisition of ComTeq Federal, Inc. had
taken place as of the beginning of each of the periods presented.
Year Ended December 31,
(in thousands except per share data) 1999 1998
---- ----
Revenues $1,081,533 $769,567
Net income 23,350 14,647
Diluted earnings per share 1.45 .93
F-10
<PAGE>
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
December 31,
-----------------------
1999 1998
--------- ---------
Trade ............................................ $ 96,981 $ 47,667
Co-op advertising ................................ 2,965 6,131
Vendor returns, rebates and other ................ 7,109 14,243
--------- ---------
Total ................................... 107,055 68,041
Less allowances for:
Sales returns ........................... (3,717) (4,030)
Doubtful accounts ....................... (3,933) (5,121)
--------- ---------
Accounts receivable, net ......................... $ 99,405 $ 58,890
========= =========
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
-------- --------
<S> <C> <C>
Facilities under capital lease ................................... $ 7,215 $ 7,215
Leasehold improvements ........................................... 5,337 5,225
Furniture and equipment .......................................... 22,923 22,484
Computer software, including licenses and internally-developed
software ..................................................... 10,749 7,873
Automobiles ...................................................... 224 192
-------- --------
Total ................................................... 46,448 42,989
Less accumulated depreciation and amortization ................... (23,322) (20,314)
-------- --------
Property and equipment, net ...................................... $ 23,126 $ 22,675
======== ========
</TABLE>
5. BANK BORROWINGS
At December 31, 1999, the Company has an unsecured credit agreement with a bank
providing for short-term borrowing up to $50 million which bears interest at
various rates ranging from the prime rate (8.50% at December 31, 1999) to prime
rate less 1% depending on the ratio of senior debt to EBITDA. The credit
agreement includes various customary financial and operating covenants,
including minimum net worth requirements, minimum net income requirements and
restrictions on the payment of dividends, none of which, in the opinion of
management, significantly restricts the Company's operations. No amounts were
outstanding under this facility at December 31, 1999. The credit agreement
matures on May 31, 2002.
Certain information with respect to short-term borrowings were as follows:
<TABLE>
<CAPTION>
Weighted Average Maximum Amount Average Amount
Interest Rate Outstanding Outstanding
------------- ----------- -----------
<S> <C> <C> <C>
Year ended December 31,
1999................................ 7.4% $ 29,543 $ 4,497
1998................................ 8.2 28,307 4,145
1997................................ 8.6 31,890 9,458
</TABLE>
6. TRADE CREDIT ARRANGEMENTS
At December 31, 1999 and 1998, the Company had security agreements with two
financial institutions to facilitate the purchase of inventory from various
suppliers under certain terms and conditions. The agreements allow a
collateralized position in inventory financed by the financial institutions up
to an aggregated amount of $54.5 million. The cost of such financing under these
agreements is borne by the suppliers. At December 31, 1999 and 1998, accounts
payable included $31,064 and $21,820, respectively owed to these financial
institutions.
F-11
<PAGE>
7. CAPITAL LEASE
In November 1997, the Company entered into a fifteen-year lease for a new
corporate headquarters with an affiliated company related to the Company through
common ownership. The Company occupied the facility upon completion of
construction in late November 1998, and the lease payments commenced in December
1998. Annual lease payments under the terms of the lease, as amended, will be
approximately $911 for the first five years of the lease, increasing to $1,025
for years six through ten and $1,139 for years eleven through fifteen. The lease
requires the Company to pay its proportionate share of real estate taxes and
common area maintenance charges as additional rent and also to pay insurance
premiums for the leased property. The Company has the option to renew the lease
for two additional terms of five years each.
In December 1998, the Company recorded the lease as a capital lease. The
recorded value of the asset (facilities under capital lease) and the related
liability (capital lease obligation to affiliate) was $7.2 million, and during
1999 and 1998, the Company made principal and interest payments under this lease
aggregating $911 thousand and $76 thousand, respectively.
Future aggregate minimum annual lease payments under this lease at December 31,
1999 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31 Payments
----------------------- ---------
<S> <C>
2000...................................................................... $ 911
2001...................................................................... 911
2002...................................................................... 911
2003...................................................................... 921
2004...................................................................... 1,025
2005 and thereafter....................................................... 9,714
---------
Total minimum payments (excluding taxes, maintenance and insurance)....... 14,393
Less amount representing interest......................................... (7,311)
---------
Present value of minimum lease payments................................... 7,082
Less current maturities................................................... (137)
---------
Long-term portion......................................................... $ 6,945
=========
</TABLE>
8. STOCKHOLDERS' EQUITY
Recapitalization and Reincorporation
On February 4, 1998, the Company amended its Articles of Incorporation to
increase the authorized shares of the Company's Series A Non-Voting Common
Stock, $.01 par value per share, and Series B Voting Common Stock, $.01 par
value per share to 22,500,000 and 7,500,000 shares, respectively. The Company
also, through a 1.310977-for-one stock split, increased the total number of
Series A Non-Voting and Series B Voting shares issued and outstanding to
8,849,095 shares and 2,949,698 shares, respectively.
Reincorporation of the Company
Contemporaneous with the consummation of the Company's initial public offering,
the Company was reincorporated in Delaware. All of the issued and outstanding
shares of Series A Non-Voting Common Stock, $0.1 par value per share, and Series
B Voting Common Stock, $.01 par value per share, of the New Hampshire
corporation were converted into 11,798,793 shares of Common Stock, $.01 par
value, of the Delaware corporation on a one-for-one basis, and the Series A and
Series B shares were canceled. The effect of the conversion has been reflected
in the Consolidated Statement of Changes in Stockholders' Equity for all periods
presented.
Preferred Stock
The Amended and Restated Certificate of Incorporation of the Delaware
Corporation (the "Restated Certificate") authorized the issuance of up to
7,500,000 shares of preferred stock, $.01 par value per share (the "Preferred
Stock"). Under the terms of the Restated Certificate, the Board is authorized,
subject to any limitations prescribed by law, without stockholder approval, to
issue by a unanimous vote such shares of Preferred Stock in one or more series.
Each such series of Preferred Stock shall have such rights, preferences,
privileges and restrictions, including voting rights, dividend rights,
redemption privileges and liquidation preferences, as shall be determined by the
Board. There were no preferred shares outstanding at 1999 and 1998.
F-12
<PAGE>
Incentive and Non-Statutory Stock Option Plans
In December 1993, the Board adopted and the stockholders approved the 1993
Incentive and Non-Statutory Stock Option Plan (the "1993 Plan"). Under the terms
of the 1993 Plan, the Company is authorized to make awards of restricted stock
and to grant incentive and non-statutory options to employees of, and
consultants and advisors to, the Company to purchase shares of the Company's
stock. A total of 1,124,163 shares of the Company's Common Stock was authorized
for issuance upon exercise of options granted or awards made under the 1993
Plan. Options vest over varying periods up to four years and have contractual
lives up to ten years.
In November 1997, the Board adopted and the stockholders approved the 1997 Stock
Incentive Plan (the "1997 Plan"), which became effective on the closing of the
Offering, and 800,000 shares were reserved for issuance under the Plan. The
1997 Plan provides for the grant of incentive stock options, non-statutory stock
options, stock appreciation rights, performance shares and awards of restricted
stock and unrestricted stock. In April 1999, the Board adopted, and in May 1999
the stockholders approved, an additional 800,000 shares of Common Stock for
issuance under the 1997 Plan.
Information regarding the 1993 and 1997 Plans is as follows:
<TABLE>
<CAPTION>
Weighted
Average Weighted
Option Exercise Average
Shares Price Fair Value
------ ----- ----------
<S> <C> <C> <C>
Outstanding, January 1, 1997................................. 589,940 1.89 4.22
Granted............................................. 504,070 4.97
Outstanding, December 31, 1997............................... 1,094,010 3.31
Granted............................................. 780,363 17.77 8.11
Exercised........................................... (212,648) 1.05
Forfeited........................................... (56,155) 7.66
-----------
Outstanding, December 31, 1998............................... 1,605,570 10.53
-----------
Granted............................................. 476,555 15.54 6.44
Exercised........................................... (117,269) 6.93
Forfeited........................................... (83,116) 13.53
-----------
Outstanding, December 31, 1999............................... 1,881,740 11.89
===========
</TABLE>
The weighted average exercise price and weighted average fair value of options
granted in 1999 whose exercise price is equal to the market price on the date of
grant is $14.61 and $6.68, respectively.
The weighted average exercise price and weighted average fair value of options
granted in 1999 whose exercise price is greater than the market price on the
date of grant is $17.50 and $5.92, respectively.
The following table summarizes the status of outstanding stock options as of
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- ----------------------------
Weighted
Average Weighted Weighted
Exercise No. of Remaining Average No. of Average
Price Range Shares Life (Years) Exercise Price Shares Exercise Price
----------- ------ ------------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
$.76 278,798 4.64 $ .76 272,244 $ .76
$.76 - $3.81 177,485 6.61 3.12 170,931 3.10
$5.72 222,994 6.53 5.72 167,930 5.72
$13.38 275,525 9.73 13.38 0 0
$17.50 804,188 7.34 17.50 240,042 17.50
$17.75 - $19.38 65,250 8.47 18.68 11,375 18.47
$19.75 5,000 8.61 19.75 1,250 19.75
$22.00 27,500 9.03 22.00 0 0
$24.75 20,000 8.63 24.75 5,000 24.75
$30.50 5,000 9.98 30.50 0 0
----------- ---------- --------- ----------- ------------ -------
$.76 - $30.50 1,881,740 7.21 $ 11.89 868,772 $ 7.20
=============== ========== ========= =========== ============ =======
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation". Accordingly, compensation expense for
options awarded under the Plans in 1999, 1998 and 1997, has been recognized
using the intrinsic value method.
The fair value of options granted prior to the consummation of the Offering was
estimated using the minimum value method and risk-free interest rates and
expected option lives of 6% and seven years, respectively. The minimum value
pricing method was designed to value stock options of non-public companies;
accordingly, the minimum value method assumed zero volatility.
F-13
<PAGE>
The Black-Scholes model was used to value options granted subsequent to the
Offering using a volatility factor of 50%, estimated option lives of four years,
and a risk-free interest rate of 6% for 1999 and 1998. Management believes that
the assumptions used and the models applied to value the awards yield a
reasonable estimate of the fair value of the grants made under the
circumstances, given the alternatives under SFAS No. 123.
Effective upon the consummation of the Offering, certain restrictions as to the
exercise of options granted under the Company's 1993 Plan expired. Prior to the
consummation of the Offering, the Company recorded compensation expense for
certain options granted at prices less than their fair market value ratably over
seven years from the dates granted, because such options were not exercisable
except upon the occurrence of certain events, including a public offering of the
Company's Common Stock. Effective upon the consummation of the Offering, the
Company recorded a one-time charge for stock-option compensation expense of
approximately $870, relating to the acceleration of the vesting period of
certain of the Company's stock options from seven to four years.
Compensation expense charged to operations using the intrinsic value method
totaled $162, $1,297 (including the one-time charge of $870 referred to above),
and $873 for the years ended December 31, 1999, 1998, and 1997, respectively.
Had the Company recorded compensation expense using the fair value method under
SFAS No. 123, pro forma net income and diluted net income per share for the
years ended December 31 would have been as follows:
<TABLE>
<CAPTION>
Pro Forma
---------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income, as reported $ 22,730 $ 15,272 $ 10,890
Net income, under SFAS No. 123 21,511 14,423 10,824
Diluted net income per share, as reported 1.41 .98 .76
Diluted net income, under SFAS No. 123 1.33 .93 .76
</TABLE>
1997 Employee Stock Purchase Plan
In November 1997, the Board adopted and the stockholders approved the 1997
Employee Stock Purchase Plan (the "Purchase Plan"), which became effective on
February 1, 1999. The Purchase Plan authorizes the issuance of Common Stock to
participating employees. Under the terms of the Purchase Plan, the purchase
price is an amount equal to 85% of the fair market value per share of the Common
Stock on either the first day or the last day of the offering period, whichever
is lower. An aggregate of 225,000 shares of Common Stock has been reserved for
issuance under the Purchase Plan.
9. INCOME TAXES
The provision for income taxes prior to March 6, 1998 was based on the state
income tax obligations of the Company as an S Corporation and was $639 for the
year ended December 31, 1997. Effective with the consummation of the Offering,
the Company's S Corporation election was terminated and the Company began to
account for income taxes as a C Corporation.
The 1999 and 1998 provision for income taxes and unaudited 1998 and 1997 pro
forma provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
(Pro Forma) (Pro Forma)
1999 1998 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Paid or currently payable:
Federal ................................................. $ 10,373 $ 6,390 $ 7,706 $ 9,214
State ................................................... 1,409 842 766 793
-------- -------- -------- --------
Total current ........................................ 11,782 7,232 8,472 10,007
-------- -------- -------- --------
Deferred:
Recognition of deferred tax asset upon termination of
S Corporation election ............................... -- (4,200) -- --
Federal ................................................. 1,983 795 1,054 (2,890)
State ................................................... 170 78 105 (154)
-------- -------- -------- --------
Net deferred ......................................... 2,153 (3,327) 1,159 (3,044)
-------- -------- -------- --------
Net provision ........................................ $ 13,935 $ 3,905 $ 9,631 $ 6,963
======== ======== ======== ========
</TABLE>
F-14
<PAGE>
The components of the deferred taxes at December 31, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Current:
Provisions for doubtful accounts ........................... $ 1,456 $ 2,197
Inventory costs capitalized for tax purposes ............... 519 517
Inventory and sales returns reserves ....................... 1,221 1,365
Deductible expenses, primarily employee-benefit related .... 114 421
Other liabilities .......................................... (1,319) (1,319)
------- -------
Net deferred tax assets ................................. 1,991 3,181
------- -------
Non-Current:
Compensation under non-statutory stock option agreements ... 670 709
Accumulated depreciation ................................... (2,249) (395)
------- -------
Net deferred tax asset (liability) ...................... (1,579) 314
------- -------
Net deferred tax asset ..................................... $ 412 $ 3,495
======= =======
</TABLE>
The reconciliation of the Company's 1999 and 1998 income tax provision and its
1998 and 1997 unaudited pro forma income tax provision to the statutory federal
tax rate is as follows:
<TABLE>
<CAPTION>
(Pro Forma) (Pro Forma)
1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statutory tax rate .............................................. 35.0% 35.0% 35.0% 35.0%
Recognition of deferred tax asset upon termination of
S Corporation election ...................................... -- (18.6) -- --
1998 S Corporation income not subject to federal income taxes ... -- (2.8) -- --
State income taxes, net of federal benefit ...................... 2.6 2.6 2.6 2.6
Nondeductible expenses .......................................... 0.2 0.2 0.2 0.2
Other - net ..................................................... 0.2 0.9 0.9 1.2
---- ---- ---- ----
Effective income tax rate .................................... 38.0% 17.3% 38.7% 39.0%
==== ==== ==== ====
</TABLE>
10. EMPLOYEE BENEFIT PLAN
The Company has a contributory profit-sharing and employee savings plan covering
all qualified employees. No contributions to the profit-sharing element of the
plan were made by the Company in 1999, 1998 or 1997. The Company made matching
contributions to the employee savings element of the plan of approximately $317
thousand, $361 thousand, and $171 thousand in 1999, 1998 and 1997, respectively.
11. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain office facilities from its principal stockholders
under 20-year noncancelable operating leases. The lease agreement for one
facility requires the Company to pay all real estate taxes and insurance
premiums related thereto. The Company also leases several other buildings from
its principal stockholders on a month-to-month basis.
In addition, the Company leases office, warehouse facilities and equipment from
unrelated parties with remaining terms of one to four years.
Future aggregate minimum annual lease payments under these leases at December
31, 1999 are as follows:
Year Ending December 31 Related Parties Others Total
----------------------- --------------- ------ -----
2000.......................... $ 151 $ 2,490 $ 2,641
2001.......................... 151 1,700 1,851
2002.......................... 121 1,471 1,592
2003.......................... 106 155 261
2004.......................... 106 -- 106
2004 and thereafter........... 371 -- 371
Total rent expense aggregated $1,470, $1,521 and $1,398 for the years ended
December 31, 1999, 1998 and 1997, respectively, under the terms of the leases
described above. Such amounts included $189, $327 and $311 in 1999, 1998 and
1997, respectively, paid to related parties.
F-15
<PAGE>
Contingencies
The Company is subject to various legal proceedings and claims which have arisen
during the ordinary course of business. In the opinion of management, the
outcome of such matters is not expected to have a material effect on the
Company's financial position, results of operations and cash flows.
12. OTHER RELATED PARTY TRANSACTIONS
Other related-party transactions include the transactions summarized below.
Related parties consist primarily of affiliated companies related to the Company
through common ownership.
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Revenue:
Sales of various products ........................ $ 1 $ 13 $ 38
Sales of services to affiliated companies ........ 332 -- --
Sales of property and equipment:
Net book value ................................ -- -- (14)
Proceeds ...................................... -- -- 16
Costs:
Purchase of services from affiliated companies ... 6 2 1,280
</TABLE>
13. SEGMENT AND RELATED DISCLOSURES
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information", requires that public companies report profits and losses and
certain other information on its "reportable operating segments" in its annual
and interim financial statements.
Management has determined that the Company has only one "reportable operating
segment", given the financial information provided to and used by the "chief
decision maker" of the Company to allocate resources and assess the Company's
performance. However, senior management does monitor revenue by platform (PC vs
Mac), sales channel (Inbound Telesales, Corporate Outbound, On-line Internet),
and product mix, (Computer Systems and Memory, Peripherals, Software, and
Networking and Communications).
Net sales by platform, sales channel, and product mix are presented below:
Year Ended December 31,
-----------------------
1999 1998 1997
---------- ---------- ----------
Platform
PC and Multi Platform $ 895,412 $ 587,100 $ 439,286
Mac 161,292 145,270 111,289
---------- ---------- ----------
Total $1,056,704 $ 732,370 $ 550,575
========== ========== ==========
Sales Channel
Corporate Outbound $ 694,924 $ 390,922 $ 257,215
Inbound Telesales 303,707 312,356 288,113
On-Line Internet 58,073 29,092 5,247
---------- ---------- ----------
Total $1,056,704 $ 732,370 $ 550,575
========== ========== ==========
Product Mix
Computer Systems and Memory $ 502,530 $ 319,759 $ 232,343
Peripherals 356,216 252,966 188,847
Software 129,944 102,451 86,991
Networking and Communications 68,014 57,194 42,394
---------- ---------- ----------
Total $1,056,704 $ 732,370 $ 550,575
========== ========== ==========
Substantially, all of the Company's net sales in 1999, 1998 and 1997 were made
to customers located in the United States. Shipments to customers located in
foreign countries aggregated less than 2% in 1999, 1998 and 1997. All of the
Company's assets at December 31, 1999 and 1998 were located in the United
States. The Company's primary target customers are small- to medium-size
businesses ("SMBs") comprised of 20 to 1,000 employees, although its customers
also include individual consumers, larger companies, federal, state and local
governmental agencies and educational institutions. No single customer other
than the federal government accounted for more than 1% of total net sales in
1999. Net sales to the federal government in 1999 were $81.4 million or 7.7% of
total net sales. No single customer (including the federal government) accounted
for more than 1% of total net sales in 1998 and 1997.
F-16
<PAGE>
14. SELECTED UNAUDITED QUARTERLY FINANCIAL RESULTS
The following table sets forth certain unaudited quarterly data of the Company
for each of the quarters since January 1998. This information has been prepared
on the same basis as the annual financial statements and all necessary
adjustments, consisting only of normal recurring adjustments, have been included
in the amounts stated below to present fairly the selected quarterly information
when read in conjunction with the annual financial statements and the notes
thereto included elsewhere in this document. The quarterly operating results are
not necessarily indicative of future results of operations. See "Factors That
May Affect Future Results and Financial Condition - Historical Net Losses;
Variability of Quarterly Results."
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
1999 1999 1999 1999
---------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 224,979 $ 231,833 $ 282,103 $ 317,789
Cost of sales 197,913 204,034 247,651 277,760
--------- ---------- ---------- ----------
Gross profit 27,066 27,799 34,452 40,029
Selling, general and administrative expenses 19,763 20,040 24,333 27,269
--------- ---------- ---------- ----------
Income from operations 7,303 7,759 10,119 12,760
Interest expense (266) (276) (449) (401)
Other, net 94 47 32 (57)
--------- ---------- ---------- ----------
Income before income taxes 7,131 7,530 9,702 12,302
Income tax provision (1) (2,710) (2,862) (3,687) (4,676)
--------- ---------- ---------- ----------
Net Income $ 4,421 $ 4,668 $ 6,015 $ 7,626
========= ========== ========== ==========
Weighted average common shares outstanding:
Basic $ 15,622 15,627 15,651 15,697
========= ========== ========== ==========
Diluted $ 16,068 16,061 16,078 16,455
========= ========== ========== ==========
Earnings per common share:
Basic $ .28 $ .30 $ .39 $ .48
========= ========== ========== ==========
Diluted $ .28 $ .29 $ .37 $ .47
========= ========== ========== ==========
</TABLE>
F-17
<PAGE>
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998
---------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 168,643 $ 174,349 $ 169,089 $ 220,289
Cost of sales 146,694 151,768 147,837 192,797
--------- ---------- ---------- ----------
Gross profit 21,949 22,581 21,252 27,492
Selling, general and administrative expenses 16,858 16,042 16,317 19,304
Additional stockholder/officer compensation 2,354 -- -- --
--------- ---------- --------- ---------
Income from operations 2,737 6,539 4,935 8,188
Interest expense (206) (51) (10) (148)
Other, net 86 213 233 33
--------- ---------- ---------- ----------
Income before income taxes 2,617 6,701 5,158 8,073
Income tax benefit (provision) (1) 3,788 (2,613) (2,012) (3,068)
--------- ---------- ---------- -----------
Net Income $ 6,405 $ 4,088 $ 3,146 $ 5,005
========= ========== ========== ==========
Weighted average common shares outstanding:
Basic 15,414 15,443 15,548
========== ========== ==========
Diluted 15,938 16,000 15,963
========== ========== ==========
Earnings per common share:
Basic $ .27 $ .20 $ .33
========== ========== ==========
Diluted $ .26 $ .20 $ .32
========== ========== ==========
Pro forma data:
Historical income before income taxes $ 2,617
Pro forma adjustment--stockholder/officer
compensation in excess of the aggregate
base salaries 2,354
---------
Pro forma income before taxes 4,971
Pro forma income taxes 1,938
---------
Pro forma net income (2) $ 3,033
=========
Pro forma weighted average shares outstanding:
Basic 14,236
=========
Diluted 14,835
=========
Pro forma earnings per share:
Basic $ .21
=========
Diluted $ .20
=========
</TABLE>
(1) For all periods prior to March 6, 1998 described herein, the Company
elected to be treated as an S Corporation under Subchapter S of the Code,
and applicable state laws. Effective March 6, 1998, the closing of the
Company's initial public offering, the Company's S Corporation election
was automatically terminated, and the Company became subject to federal
and state income taxes as a C Corporation from that date forward. For the
quarter ended March 31, 1998, the income tax provision includes a $4.2
million tax benefit related to the establishment of additional deferred
tax assets for future tax deductions resulting from the termination of the
Company's Subchapter S Corporation status.
(2) Pro forma net income is determined by (i) eliminating stockholder/officer
compensation in excess of the aggregate base salaries ($600,000) per year
and (ii) by eliminating the actual income tax provision and adding a
provision for Federal and state income taxes that would have been payable
by the Company if taxed under Subchapter C of the Code for all periods
prior to March 6, 1998.
F-18
<PAGE>
15. SUBSEQUENT EVENTS
On January 1, 2000, the Company announced a new holding company structure to
support PC Connection's future growth and plans to expand its current business
lines through internal growth and potential acquisitions.
Outstanding shares of common stock representing interests in PC Connection prior
to the holding company formation were converted into shares of the new holding
company on a one-for-one basis through a non-taxable transaction. Common stock
shares of the new holding company were listed on the Nasdaq National Market
under the symbol, "PCCC", the same exchange and symbol used by the predecessor
company. The new shares hold the same voting power that shares of the
predecessor company held. No additional capital stock was issued as part of the
transaction. The directors and officers of the predecessor company serve as the
directors and officers of the new holding company.
On January 4, 2000, the Company acquired Merisel Americas, Inc. call center
operation in Marlborough, Massachusetts for approximately $2.2 million. PC
Connection offered employment opportunities to more than 100 of Merisel's
highly-trained telesales account managers and support staff to join PC
Connection's corporate outbound sales organization. Substantially, all such
employees accepted employment with PC Connection.
F-19
<PAGE>
PC CONNECTION, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and Deductions- End of
Description of Period Expenses Write-Offs Period
----------- --------- -------- ---------- ------
<S> <C> <C> <C> <C>
Allowance for Sales Returns
Year Ended December 31, 1997...................... $ 867 $ 1,834 $ -- $ 2,701
Year Ended December 31, 1998...................... 2,701 1,329 -- 4,030
Year Ended December 31, 1999...................... 4,030 (313) -- 3,717
Allowance for Doubtful Accounts
Year Ended December 31, 1997...................... 1,284 3,339 (1,964) 2,659
Year Ended December 31, 1998...................... 2,659 6,296 (3,834) 5,121
Year Ended December 31, 1999...................... 5,121 6,821 (8,009) 3,933
Inventory Valuation Reserve
Year Ended December 31, 1997...................... 1,705 3,315 (3,124) 1,896
Year Ended December 31, 1998...................... 1,896 6,017 (5,323) 2,590
Year Ended December 31, 1999...................... 2,590 5,350 (6,099) 1,841
</TABLE>
S-1
<PAGE>
Exhibit 10.26
AGREEMENT FOR WHOLE SALE FINANCING
This Agreement for Wholesale Financing ("Agreement") is made as of March 25,
1998, between Deutsche Financial Services Corporation ("DFS") and PC Connection,
Inc., a Delaware corporation ("Dealer"), having a principal place of business
located at 6 Mill Street, Marlow, NH 03456.
1. Extension of Credit. Subject to the terms of this Agreement, DFS may
extend credit to Dealer from time to time to purchase inventory from DFS
approved vendors ("Vendors") and for other purposes. If DFS advances funds
to Dealer following Dealer's execution of this Agreement, DFS will be
deemed to have entered into this Agreement with Dealer, whether or not
executed by DFS. DFS' decision to advance funds will not be binding until
the funds are actually advanced. DFS may combine all of DFS' advances to
Dealer or on Dealer's behalf, whether under this Agreement or any other
agreement, and whether provided by one or more of DFS' branch offices,
together with all finance charges, fees and expenses related thereto, to
make one debt owed by Dealer. DFS may, at any time and without notice to
Dealer, elect not to finance any inventory sold by particular Vendors who
are in default of their obligations to DFS, or with respect to which DFS
reasonably feels insecure. This is an agreement regarding the extension of
credit, and not the provision of goods or services.
2. Financing Terms and Statements of Transaction. Dealer and DFS agree that
certain financial terms of any advance made by DFS under this Agreement,
whether regarding finance charges, other fees, maturities, curtailments or
other financial terms, are not set forth herein because such terms depend,
in part, upon the availability of Vendor discounts, payment terms or other
incentives, prevailing economic conditions, DFS' floorplanning volume with
Dealer and with Dealer's Vendors, and other economic factors which may
vary over time. Dealer and DFS further agree that it is therefore in their
mutual best interest to set forth in this Agreement only the general
terms of Dealer's financing arrangement with DFS. Upon agreeing to finance
a particular item of inventory for Dealer, DFS will send Dealer a
Statement of Transaction identifying such inventory and the applicable
financial terms. Unless Dealer notifies DFS in writing of any objection
within fifteen (15) days after a Statement of Transaction is mailed to
Dealer: (a) the amount shown on such Statement of Transaction will be an
account stated; (b) Dealer will have agreed to all rates, charges and
other terms shown on such Statement of Transaction; (c) Dealer will have
agreed that DFS is financing the items of inventory referenced in such
Statement of Transaction at Dealer's request; and (d) such Statement of
Transaction will be incorporated herein by reference, will be made a part
hereof as if originally set forth herein, and will constitute an addendum
hereto.
3. Grant of Security Interest. To secure payment of all of Dealer's current
and future debts to DFS, whether under this Agreement or any current or
future guaranty or other agreement; Dealer grants DFS a security interest
in all of Dealer's inventory, equipment, fixtures, accounts, contract
rights, chattel paper, security agreements, instruments, deposit accounts,
reserves, documents, and general intangibles; end all judgments, claims,
insurance policies, and payments owed or made to Dealer thereon; all
whether now owned or hereafter acquired, all attachments, accessories,
accessions, returns, repossessions, exchanges, substitutions and
replacements thereto, and all proceeds thereof. All such assets are
collectively referred to herein as the "Collateral." All of such terms for
which meanings are provided in the Uniform Commercial Code of the
applicable state are used herein with such meanings. All Collateral
financed by DFS, and all proceeds thereof, will be held in trust by Dealer
for DFS, with such proceeds being payable in accordance with Section 9.
4. Affirmative Warranties and Representations. Dealer warrants and represents
to DFS that: (a) Dealer has good title to all Collateral; (b) DFS'
security interest in the Collateral financed by DFS is not now and will
not become subordinate to the security interest, lien, encumbrance or
claim of any person: (c) Dealer will execute all documents DFS requests to
perfect and maintain DFS' security interest in the collateral; (d) Dealer
will deliver to DFS immediately upon each request, and DFS way retain,
each Certificate of Title or Statement of Origin issued for Collateral
financed by DFS; (e) Dealer will at all times be duly organized,
<PAGE>
existing, in good standing, qualified and licensed to do business in each
state, county, or parish, in which the nature of its business or property
so requires; (f) Dealer has the right and is duly authorized to enter into
this Agreement; (g) Dealer's execution of this Agreement does not
constitute a breach of any agreement to which Dealer is now or hereafter
becomes bound; (h) there are and will be no actions or proceedings pending
or threatened against Dealer which might result in any material adverse
change in Dealer's financial or business condition or which might in any
way materially adversely affect any of Dealer's assets, except as set
forth on Exhibit B, attached hereto; (i) Dealer will maintain the
Collateral in good condition and repair; (j) Dealer has duly filed and
will duly file all tax returns required by law; (k) Dealer has paid and
will pay when due all taxes, levies, assessments and governmental charges
of any nature; (l) Dealer will keep and maintain all of its books and
records pertaining to the Collateral at its principal place of business
designated in this Agreement; (m) Dealer will promptly supply DFS with
such information concerning it or any guarantor as DFS hereafter may
reasonably request; (n) all Collateral will be kept at Dealer's principal
place of business listed above, and such other locations, if any, of which
Dealer has notified DFS in writing or as listed on any current or future
Exhibit "A" attached hereto which written notice(s) to DFS and Exhibit
A(s) are incorporated herein by reference; (o) Dealer will give DFS thirty
(30) days prior written notice of any change in Dealer's identity, name,
form of business organization, ownership, management, principal place of
business, Collateral locations or other business locations, and before
moving any books and records to any other location, unless due to
circumstances (e.g. termination of a manager) under which such notice
would be impractical, in which case Dealer shall, provide DFS with notice
as soon as possible; (p) Dealer will observe and perform all matters
required by any lease, license, concession or franchise forming part of
the Collateral in order to maintain all the rights of DFS thereunder; (q)
Dealer will advise DFS of the commencement of material legal proceedings
against Dealer or any guarantor; and (r) Dealer will comply with all
applicable laws and will conduct its business in a manner which preserves
and protects the Collateral and the earnings and incomes thereof.
5. Negative Covenants. Dealer will not at any time (without DFS' prior
written consent): (a) other than in the ordinary course of its business,
sell, lease or otherwise dispose of or transfer any of its assets; (b)
rent, lease, demonstrate, consign, or use any Collateral financed by DFS;
or (c) merge or consolidate with another entity.
6. Insurance. Dealer will immediately notify DFS of any loss, theft or damage
to any Collateral. Dealer will keep the Collateral insured for its full
insurable value under an "all risk" property insurance policy with a
company acceptable to DFS, naming DFS as a lender loss-payee or mortgagee
and containing standard lender's loss payable and termination provisions.
Dealer will provide DFS with written evidence of such property insurance
coverage and lender's loss-payee or mortgagee endorsement.
7. Financial Statements. Dealer will deliver to DFS: (a) within ninety (90)
days after the end of each of Dealer's fiscal years, a reasonably detailed
balance sheet as of the last day of such fiscal year and a reasonably
detailed income statement covering Dealer's operations for such fiscal
year, in a form satisfactory to DFS; (b) within forty-five (45) days after
the end of each of Dealer's fiscal quarters, a reasonably detailed balance
sheet as of the last day of such quarter and an income statement covering
Dealer's operations for such quarter, in a form satisfactory to DFS; and
(c) within ten (10) days after request therefor by DFS, any other report
requested by DFS relating to the Collateral or the financial condition or
Dealer. Dealer warrants and represents to DFS that all financial
statements and information relating to Dealer or any guarantor which have
been or may hereafter be delivered by Dealer or any guarantor are true and
correct and have been and will be prepared in accordance with generally
accepted accounting principles consistently applied and, with respect to
such previously delivered statements or information, there has been no
material adverse change in the financial or business condition of Dealer
or any guarantor since the submission to DFS, either as of the date of
delivery, or, if different, the date specified therein, and Dealer
acknowledges DFS' reliance thereon.
8. Reviews. Dealer grants DFS an irrevocable license to enter Dealer's
business locations, with accompaniment by Dealer, during normal business
hours without
<PAGE>
notice to Dealer to: (a) account for and inspect all Collateral; (b)
verify Dealer's compliance with this Agreement; and (c) examine and copy
Dealer's books and records related to the Collateral.
9. Payment Terms. Dealer will immediately pay DFS the principal indebtedness
owed DFS on each item of Collateral financed by DFS (as shown on the
Statement of Transaction identifying such Collateral) on the earliest
occurrence of any of the following events: (a) when such Collateral is
lost, stolen or damaged; (b) for Collateral financed under Pay-As-Sold
("PAS") terms (as shown on the Statement of Transaction identifying such
Collateral), when such Collateral is sold, transferred, rented, leased,
otherwise disposed of or matured; (c) in strict accordance with any
curtailment schedule for such Collateral (as shown on the Statement of
Transaction identifying such Collateral); (d) for Collateral financed
under Scheduled Payment Program ("SPP") terms (as shown on the Statement
of Transaction identifying such Collateral), in strict accordance with the
installment payment schedule; and (e) when otherwise required under the
terms of any financing program agreed to in writing by the parties.
Regardless of the SPP terms pertaining to any Collateral financed by DFS,
if DFS determines that the current outstanding debt which Dealer owes to
DFS exceeds the aggregate wholesale invoice price of such Collateral in
Dealer's possession, Dealer will immediately upon demand pay DFS the
difference between such outstanding debt and the aggregate wholesale
invoice price of such Collateral. If Dealer from time to time is required
to make immediate payment to DFS of any past due obligation discovered
during any Collateral audit, or at any other time, Dealer agrees that
acceptance of such payment by DFS shall not be construed to have waived or
amended the terms of its financing program. The proceeds of any Collateral
received by Dealer will be held by Dealer in trust for DFS' benefit, for
application as provided in this Agreement. Dealer will send all payments
to DFS' branch office(s) responsible for Dealer's account. DFS may apply:
(i) payments to reduce finance charges first and then principal,
regardless of Dealer's instructions: and (ii) principal payments to the
oldest (earliest) invoice for Collateral financed by DFS, but, in any
event, all principal payments will first be applied to such Collateral
which is sold, lost, stolen, damaged, rented, leased, or otherwise
disposed of or unaccounted for. Any third party discount, rebate, bonus or
credit granted to Dealer for any Collateral will not reduce the debt
Dealer owes DFS until DFS has received payment therefor in cash. Dealer
will: (1) pay DFS even if any Collateral is defective or fails to conform
to any warranties extended by any third party; (2) not assert against DFS
any claim or defense Dealer has against any third party; and (3) indemnify
and hold DFS harmless against all claims and defenses asserted by any
buyer of the Collateral relating to the condition of, or any
representations regarding, any of the Collateral. Dealer waives all rights
of offset Dealer may have against DFS.
10. Calculation of Charges. Dealer will pay finance charges to DFS on the
outstanding principal debt which Dealer owes DFS for each item of
Collateral financed by DFS at the rate(s) shown on the Statement of
Transaction identifying such Collateral, unless Dealer objects thereto as
provided in Section 2. The finance charges attributable to the rate shown
on the Statement of Transaction will: (a) be computed based on a 360 day
year; (b) be calculated by multiplying the Daily Charge (as defined
below) by the actual number of days in the applicable billing period; and
(c) accrue from the invoice date of the Collateral identified on such
Statement of Transaction until DFS receives full payment in good funds of
the principal debt Dealer owes DFS for each item of such Collateral in
accordance with DFS' payment recognition policy and DFS applies such
payment to Dealer's principal debt in accordance with the terms of this
Agreement. The "Daily Charge" is the product of the Daily Rate (as defined
below) multiplied by the Average Daily Balance (as defined below). The
"Daily Rate" is the quotient of the annual rate shown on the Statement of
Transaction divided by 360, or the monthly rate shown on the Statement of
Transaction divided by 30. The "Average Daily Balance" is the quotient of
(i) the sum of the outstanding principal debt owed DFS on each day of a
billing period for each item of Collateral identified on a Statement of
Transaction, divided by (ii) the actual number of days in such billing
period. Dealer will also pay DFS $100 for each check returned unpaid for
insufficient funds (an "NSF check") (such $100 payment repays DFS'
estimated administrative costs; it does not waive the default caused by
the NSF check). The annual percentage rate of the finance charges relating
to any item of Collateral financed by DFS will be calculated from the
invoice date of such Collateral, regardless of any period during which any
finance charge subsidy shall be paid or payable by any third party. Dealer
<PAGE>
acknowledges that DFS intends to strictly conform to the applicable usury
laws governing this Agreement. Regardless of any provision contained
herein or in any other document executed or delivered in connection
herewith or therewith, DFS shall never be deemed to have contracted for,
charged or be entitled to receive, collect or apply as interest on this
Agreement (whether termed interest herein or deemed to be interest by
judicial determination or operation of law), any amount in excess of the
maximum amount allowed by applicable law, and, if DFS ever receives,
collects or applies as interest any such excess, such amount which would
be excessive interest will be applied first to the reduction of the unpaid
principal balances of advances under this Agreement, and, second, any
remaining excess will be paid to Dealer. In determining whether or not the
interest paid or payable under any specific contingency exceeds the
highest lawful rate, Dealer and DFS shall, to the maximum extent permitted
under applicable law: (A) characterize any non-principal payment (other
than payments which are expressly designated as interest payments
hereunder) as an expense or fee rather than as interest; (B) exclude
voluntary prepayments and the effect thereof; and (C) spread the total
amount of interest throughout the entire term of this Agreement so that
the interest rate is uniform throughout such term.
11. Billing Statement. DFS will send Dealer a monthly billing statement
identifying all charges due on Dealer's account with DFS. The charges
specified on each billing statement will be: (a) due and payable in full
immediately on receipt; and (b) an account stated, unless DFS receives
Dealer's written objection thereto within 15 days after it is mailed to
Dealer. If DFS does not receive, by the 25th day of any given month,
payment of all charges accrued to Dealer's account with DFS during the
immediately preceding month, Dealer will (to the extent allowed by law)
pay DFS a late fee ("Late Fee") equal to the greater of $5 or 5% of the
amount of such finance charges (payment of the Late Fee does not waive the
default caused by the late payment). DFS may adjust the billing statement
at any time to conform to applicable law and this Agreement.
12. Default. Dealer will be in default under this Agreement if: (a) Dealer
breaches any terms, warranties or representations contained herein, in any
Statement of Transaction to which Dealer has not objected as provided in
Section 2, or in any other agreement between DFS and Dealer; (b) any
guarantor of Dealer's debts to DFS breaches any terms, warranties or
representations contained in any guaranty or other agreement between the
guarantor and DFS; (c) any representation, statement, report or
certificate made or delivered by Dealer or any guarantor to DFS is not
accurate when made; (d) Dealer fails to pay any portion of Dealer's debts
to DFS when due and payable hereunder or under any other agreement between
DFS and Dealer; (e) Dealer abandons any Collateral; (f) Dealer or any
guarantor is or becomes in default in the payment of any debt owed to any
third party; (g) a money judgment issues against Dealer or any guarantor
that materially affects Dealer or guarantor, as applicable; (h) an
attachment, sale or seizure issues or is executed against any assets of
Dealer or of any guarantor; (i) the undersigned dies while Dealer's
business is operated as a sole proprietorship, any general partner dies
while Dealer's business is operated as a general or limited partnership,
or any member dies while Dealer's business is operated as a limited
liability company, as applicable; (j) any guarantor dies; (k) Dealer or
any guarantor shall cease existence as a corporation, partnership, limited
liability company or trust, as applicable; (l) Dealer or any guarantor
ceases or suspends business; (m) Dealer, any guarantor or any member while
Dealer's business is operated as a limited liability company, as
applicable, makes a general assignment for the benefit of creditors; (n)
Dealer, any guarantor or any member while Dealer's business is operated as
a limited liability company, as applicable, becomes insolvent or
voluntarily or involuntarily becomes subject to the Federal Bankruptcy
Code, any state insolvency law or any similar law; (o) any receiver is
appointed for any assets of Dealer, any guarantor or any member while
Dealer's business is operated as a limited liability company, as
applicable; (p) any guaranty of Dealer's debts to DFS is terminated; (q)
Dealer loses any franchise, permission, license or right to sell or deal
in any Collateral which DFS finances; (r) Dealer or any guarantor
misrepresents Dealer's or such guarantor's financial condition or
organizational structure; or (s) DFS determines in good faith that it is
insecure with respect to any of the Collateral or the payment of any part
of Dealer's obligation to DFS.
13. Rights of DFS Upon Default. In the event of a default:
(a) DFS may at any time at DFS' election, without notice or demand to
Dealer, do any one or more of the following: declare all or any part
of the debt
<PAGE>
Dealer owes DFS immediately due and payable, together with all costs
and expenses of DFS' collection activity, including, without
limitation, all reasonable attorneys' fees; exercise any or all
rights under applicable law (including, without limitation, the
right to possess, transfer and dispose of the Collateral); and/or
cease extending any additional credit to Dealer (DFS' right to cease
extending credit shall not be construed to limit the discretionary
nature of this credit facility).
(b) Dealer will segregate and keep the Collateral in trust for DFS, and
in good order and repair, and will not sell, rent, lease, consign,
otherwise dispose of or use any Collateral, nor further encumber any
Collateral.
(c) Upon DFS' oral or written demand, Dealer will immediately deliver
the Collateral to DFS, in good order and repair, at a place
specified by DFS, together with all related documents; or DFS may,
in DFS' sole discretion and without notice or demand to Dealer, take
immediate possession of the Collateral together with all related
documents.
(d) DFS may, without notice, apply a default finance charge to Dealer's
outstanding principal indebtedness equal to the default rate
specified in Dealer's financing program with DFS, if any, or if
there is none so specified, at the lesser of 3% per annum above the
rate in effect immediately prior to the default, or the highest
lawful contract rate of interest permitted under applicable law.
All of DFS' rights and remedies are cumulative. DFS' failure to
exercise any of DFS' rights or remedies hereunder will not waive any
of DFS' rights or remedies as to any past, current or future
default.
14. Sale of Collateral. Dealer agrees that if DFS conducts a private sale of
any Collateral by requesting bids from 10 or more dealers or distributors
in that type of Collateral, any sale by DFS of such Collateral in bulk or
in parcels within 120 days of: (a) DFS' taking possession and control of
such Collateral; or (b) when DFS is otherwise authorized to sell such
Collateral; whichever occurs last, to the bidder submitting the highest
cash bid therefor, is a commercially reasonable sale of such Collateral
under the Uniform Commercial Code. Dealer agrees that the purchase of any
Collateral by a Vendor, as provided in any agreement between DFS and the
Vendor, is a commercially reasonable disposition and private sale of such
Collateral under the Uniform Commercial Code, and no request for bids
shall be required. Dealer further agrees that 7 or more days prior written
notice will be commercially reasonable notice of any public or private
sale (including any sale to a Vendor). Dealer irrevocably waives any
requirement that DFS retain possession and not dispose of any Collateral
until after an arbitration hearing, arbitration award, confirmation, trial
or final judgment. If DFS disposes of any such Collateral other than as
herein contemplated, the commercial reasonableness of such disposition
will be determined in accordance with the laws of the state governing this
Agreement.
15. Power of Attorney. Dealer grants DFS an irrevocable power of attorney: (a)
upon the occurrence of a default to: (i) execute or endorse on Dealer's
behalf any checks pertaining to the Collateral, or (ii) initiate and
settle any insurance claim pertaining to the Collateral; and (b) at any
time to: (i) supply any omitted information and correct errors in any
documents between DFS and Dealer, (ii) execute or endorse on Dealer's
behalf any financing statements or instruments pertaining to the
Collateral; and (iii) do anything to preserve and protect the Collateral
and DFS' rights and interest therein.
16. Information. DFS may provide to any third party any credit information on
Dealer that DFS may from time to time possess. DFS may obtain from any
Vendor any credit, financial or other information regarding Dealer that
such Vendor may from time to time possess.
17. Termination. Either party may terminate this Agreement at any time by
written notice received by the other party. If DFS terminates this
Agreement, Dealer agrees that if Dealer: (a) is not in default hereunder,
30 days prior notice of termination is reasonable and sufficient (although
this provision shall not be construed to mean that shorter periods may
not, in particular circumstances, also be reasonable and sufficient); or
(b) is in default hereunder, no prior notice of termination is required.
Dealer will not be relieved from any obligation to DFS arising out of DFS'
advances or commitments made before the effective termination date of this
Agreement. DFS will retain all of its rights, interests and remedies
<PAGE>
hereunder until Dealer has paid all of Dealer's debts to DFS. All waivers
set forth within this Agreement will survive any termination of this
Agreement.
18. Binding Effect. Dealer cannot assign its interest in this Agreement
without DFS' prior written consent, although DFS may assign or participate
DFS' interest, in whole or in part, without Dealer's consent. This
Agreement will protect and bind DFS' and Dealer's respective heirs,
representatives, successors and assigns.
19. Notices. Except as otherwise stated herein, all notices, arbitration
claims, responses, requests and documents will be sufficiently given or
served if mailed or delivered: (a) to Dealer at Dealer's principal place
of business specified above; and (b) to DFS at 655 Maryville Centre Drive,
St. Louis, Missouri 63141--5832, Attention: General Counsel, or such other
address as the parties may hereafter specify in writing.
20. NO ORAL AGREEMENTS. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND
CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES
TO EXTEND OR RENEW SUCH DEBTS ARE NOT ENFORCEABLE. TO PROTECT DEALER AND
DFS FROM MISUNDERSTANDING OR DISAPPOINTMENT, ALL AGREEMENTS COVERING SUCH
MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE
STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES, EXCEPT AS SPECIFICALLY
PROVIDED HEREIN OR AS THE PARTIES MAY LATER AGREE IN WRITING TO MODIFY IT.
THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
21. Other Waivers. Dealer irrevocably waives notice of: DFS' acceptance of
this Agreement, presentment, demand, protest, nonpayment, nonperformance,
and dishonor. Dealer and DFS irrevocably waive all rights to claim any
punitive and/or exemplary damages.
22. Severability. If any provision of this Agreement or its application is
invalid or unenforceable, the remainder of this Agreement will not be
impaired or affected and will remain binding and enforceable.
23. Supplement. If Dealer and DFS have heretofore executed other agreements in
connection with all or any part of the Collateral, this Agreement shall
supplement each and every other agreement previously executed by and
between Dealer and DFS, and in that event this Agreement shall neither be
deemed a novation nor a termination of such previously executed agreement
nor shall execution of this Agreement be deemed a satisfaction of any
obligation secured by such previously executed agreement.
24. Receipt of Agreement. Dealer acknowledges that it has received a true and
complete copy of this Agreement. Dealer acknowledges that it has read and
understood this Agreement. Notwithstanding anything herein to the
contrary: (a) DFS may rely on any facsimile copy, electronic data
transmission or electronic data storage of this Agreement, any Statement
of Transaction, billing statement, invoice from a Vendor, financial
statements or other reports, and (b) such facsimile copy, electronic data
transmission or electronic data storage will be deemed an original, and
the best evidence thereof for all purposes, including, without limitation,
under this Agreement or any other agreement between DFS and Dealer, and
for all evidentiary purposes before any arbitrator, court or other
adjudicatory authority.
25. Miscellaneous. Time is of the essence regarding Dealer's performance of
its obligations to DFS notwithstanding any course of dealing or custom on
DFS' part to grant extensions of time. Dealer's liability under this
Agreement is direct and unconditional and will not be affected by the
release or nonperfection of any security interest granted hereunder. DFS
will have the right to refrain from or postpone enforcement of this
Agreement or any other agreements between DFS and Dealer without prejudice
and the failure to strictly enforce these agreements will not be construed
as having created a course of dealing between DFS and Dealer contrary to
the specific terms of the agreements or as having modified, released or
waived the same. The express terms of this Agreement will not be modified
by any course of dealing, usage of trade, or custom of trade which may
deviate from the terms hereof. If Dealer fails to pay any taxes, fees or
other obligations which may impair DFS' interest in the Collateral, or
fails to keep the Collateral insured, DFS may, but shall not be required
to, pay such taxes, fees or obligations and pay the cost to insure the
Collateral, and the amounts paid will be: (a) an additional debt owed by
Dealer to DFS, which shall be subject to finance charges as
<PAGE>
provided herein; and (b) due and payable immediately in full. Dealer
agrees to pay all of DFS' reasonable attorneys' fees and expenses incurred
by DFS in enforcing DFS' rights hereunder. The Section titles used in this
Agreement are for convenience only and do not define or limit the contents
of any Section.
26. BINDING ARBITRATION.
26.1 Arbitrable Claims. Except as otherwise specified below, all actions,
disputes, claims and controversies under common law, statutory law
or in equity of any type or nature whatsoever (including, without
limitation, all torts, whether regarding negligence, breach of
fiduciary duty, restraint of trade, fraud, conversion, duress,
interference, wrongful replevin, wrongful sequestration, fraud in
the inducement, usury or any other tort, all contract actions,
whether regarding express or implied terms, such as implied
covenants of good faith, fair dealing, and the commercial
reasonableness of any Collateral disposition, or any other contract
claim, all claims of deceptive trade practices or lender liability,
and all claims questioning the reasonableness or lawfulness of any
act), whether arising before or after the date of this Agreement,
and whether directly or indirectly relating to: (a) this Agreement
and/or any amendments and addenda hereto, or the breach, invalidity
or termination hereof; (b) any previous or subsequent agreement
between DFS and Dealer; (c) any act committed by DFS or by any
parent company, subsidiary or affiliated company of DFS (the "DFS
Companies"), or by any employee, agent, officer or director of a DFS
Company whether or not arising within the scope and course of
employment or other contractual representation of the DFS Companies
provided that such act arises under a relationship, transaction or
dealing between DFS and Dealer; and/or (d) any other relationship,
transaction or dealing between DFS and Dealer (collectively the
"Disputes"), will be subject to and resolved by binding arbitration.
26.2 Administrative Body. All arbitration hereunder will be conducted in
accordance with the Commercial Arbitration Rules of The American
Arbitration Association ("AAA"). If the AAA is dissolved, disbanded
or becomes subject to any state or federal bankruptcy or insolvency
proceeding, the parties will remain subject to binding arbitration
which will be conducted by a mutually agreeable arbitral forum. The
parties agree that all arbitrator(s) selected will be attorneys with
at least five (5) years secured transactions experience. The
arbitrator(s) will decide if any inconsistency exists between the
rules of any applicable arbitral forum and the arbitration
provisions contained herein. If such inconsistency exists, the
arbitration provisions contained herein will control and supersede
such rules. The site of all arbitration proceedings will be in the
Division of the Federal Judicial District in which AA maintains a
regional office that is closest to Dealer.
26.3 Discovery. Discovery permitted in any arbitration proceeding
commenced hereunder is limited as follows. No later than thirty (30)
days after the filing of a claim for arbitration, the parties will
exchange detailed statements setting forth the facts supporting the
claim(s) and all defenses to be raised during the arbitration, and a
list of all exhibits and witnesses. No later than twenty-one (21)
days prior to the arbitration hearing, the parties will exchange a
final list of all exhibits and all witnesses, including any
designation of any expert witness(es) together with a summary of
their testimony; a copy of all documents and a detailed description
of any property to be introduced at the hearing. Under no
circumstances will the use of interrogatories, requests for
admission, requests for the production of documents or the taking of
depositions be permitted. However, in the event of the designation
of any expert witness(es), the following will occur: (a) all
information and documents relied upon by the expert witness(es) will
be delivered to the opposing party, (b) the opposing party will be
permitted to depose the expert witness(es), (c) the opposing party
will be permitted to designate rebuttal expert witness(es), and (d)
the arbitration hearing will be continued to the earliest possible
date that enables the foregoing limited discovery to be
accomplished.
26.4 Exemplary or Punitive Damages. The Arbitrator(s) will not have the
authority to award exemplary or punitive damages.
26.5 Confidentiality of Awards. All arbitration proceedings, including
testimony or evidence at hearings, will be kept confidential,
although any award or order rendered by the arbitrator(s) pursuant
to the terms of this Agreement
<PAGE>
may be entered as a judgment or order in any state or federal court
and may be confirmed within the federal judicial district which
includes the residence of the party against whom such award or order
was entered. This Agreement concerns transactions involving commerce
among the several states. The Federal Arbitration Act, Title 9
U.S.C. Sections 1 et seq., as amended ("FAA") will govern all
arbitration(s) and confirmation proceedings hereunder.
26.6 Prejudgment and Provisional Remedies. Nothing herein will be
construed to prevent DFS' or Dealer's use of bankruptcy,
receivership, injunction, repossession, replevin, claim and
delivery, sequestration, seizure, attachment, foreclosure, dation
and/or any other prejudgment or provisional action or remedy
relating to any Collateral for any current or future debt owed by
either party to the other. Any such action or remedy will not waive
DFS' or Dealer's right to compel arbitration of any Dispute.
26.7 Attorneys' Fees. If either Dealer or DFS brings any other action for
judicial relief with respect to any Dispute (other than those set
forth in Section 26.6), the party bringing such action will be
liable for and immediately pay all of the other party's costs and
expenses (including attorneys' fees) incurred to stay or dismiss
such action and remove or refer such Dispute to arbitration. If
either Dealer or DFS brings or appeals an action to vacate or modify
an arbitration award and such party does not prevail, such party
will pay all costs and expenses, including attorneys' fees, incurred
by the other party in defending such action. Additionally, if one
party sues the other party or institutes any arbitration claim or
counterclaim against such other party in which such other party is
the prevailing party, the party instituting such claim will pay all
costs and expenses (including attorneys' fees) incurred by the
prevailing party in the course of defending such action or
proceeding.
26.8 Limitations. Any arbitration proceeding must be instituted: (a) with
respect to any Dispute for the collection of any debt owed by either
party to the other, within two (2) years after the date the last
payment was received by the instituting party; and (b) with respect
to any other Dispute, within two (2) years after the date the
incident giving rise thereto occurred, whether or not any damage was
sustained or capable of ascertainment or either party knew of such
incident. Failure to institute an arbitration proceeding within such
period will constitute an absolute bar and waiver to the institution
of any proceeding, whether arbitration or a court proceeding, with
respect to such Dispute.
26.9 Survival After Termination. The agreement to arbitrate will survive
the termination of this Agreement.
27. INVALIDITY/UNENFORCEABILITY OF BINDING ARBITRATION. IF THIS AGREEMENT IS
FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY LEGAL PROCEEDING WITH RESPECT
TO ANY DISPUTE WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A
JUDGE WITHOUT A JURY. DEALER AND DFS WAIVE ANY RIGHT TO A JURY TRIAL IN
ANY SUCH PROCEEDING.
28. Governing Law. Dealer acknowledges and agrees that this and all other
agreements between Dealer and DFS have been substantially negotiated, and
will be substantially performed, in the state of Massachusetts.
Accordingly, Dealer agrees that all Disputes will be governed by, and
construed in accordance with, the laws of such state, except to the extent
inconsistent with the provisions of the FAA which shall control and govern
all arbitration proceedings hereunder.
IN WITNESS WHEREOF, Dealer and DFS have executed this Agreement as of the
date first set forth hereinabove.
<PAGE>
THIS CONTRACT CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGE
WAIVER PROVISIONS.
DEUTSCHE FINANCIAL SERVICES PC CONNECTION, INC.,
CORPORATION a Delaware corporation
By: By: /s/ Jack L. Ferguson
--------------------------- --------------------------------
Print Name: Print Name: Jack L. Ferguson
------------------- ------------------------
Title: Title: Treasurer
------------------------ -----------------------------
ATTEST:
/s/ Steve Markiewicz
------------------------------------
(Assistant) Secretary
Print Name: Steve Markiewicz
------------------------
<PAGE>
SECRETARY'S CERTIFICATE OF RESOLUTION
I certify that I am the Secretary or Assistant Secretary of the
corporation named below, and that the following completely and accurately sets
forth certain resolutions of the Board of Directors of the corporation adopted
at a special meeting thereof held on due notice (and with shareholder approval,
if required by law), at which meeting there was present a quorum authorized to
transact the business described below, and that the proceedings of the meeting
were in accordance with the certificate of incorporation, charter and by-laws of
the corporation, and that they have not been revoked, annulled or amended in any
manner whatsoever.
Upon motion duly made and seconded, the following resolution was
unanimously adopted after full discussion:
"RESOLVED, That the several officers, directors, and agents of this
corporation, or any one or more of them, are hereby authorized and empowered on
behalf of this corporation: to obtain financing from Deutsche Financial Services
Corporation ("DFS") in such amounts and on such terms as such officers,
directors or agents deem proper; to enter into financing, security, pledge and
other agreements with DFS relating to the terms upon which such financing may be
obtained and security and/or other credit support is to be furnished by this
corporation therefor; from time to time to supplement or amend any such
agreements; and from time to time to pledge, assign, mortgage, grant security
interests, and otherwise transfer, to DFS as collateral security for any
obligations of this corporation to DFS, whenever and however arising, any assets
of this corporation, whether now owned or hereafter acquired; the Board of
Directors hereby ratifying, approving and confirming all that any of said
officers, directors or agents have done or may do with respect to the
foregoing."
IN WITNESS WHEREOF, I have executed and affixed the seal of the
corporation on the date stated below.
Dated: 3/27, 1998 /s/ Steve Markiewicz
-------------------------------------------
(Assistant) Secretary
PC Connection, Inc., a Delaware Corporation
Corporate Name
(SEAL)
<PAGE>
EXHIBIT A
COLLATERAL LOCATIONS
<PAGE>
EXHIBIT B
<PAGE>
EXHIBIT B
<PAGE>
Exhibit 10.27
AMENDMENT TO AGREEMENT FOR WHOLESALE FINANCING
This Amendment to Agreement for Wholesale Financing is made to that
certain Agreement for Wholesale Financing entered into by and between PC
Connection, Inc., a Delaware corporation ("Dealer") and Deutsche Financial
Services Corporation ("DFS") on March 25, 1998, as amended ("Agreement").
FOR VALUE RECEIVED, Dealer and DFS agree to amend the Agreement as
follows:
1. Dealer and DFS agree to amend paragraph 3 of the Agreement to provide
as follows:
"3. To secure payment of all of Dealer's current and future debts to
DFS, whether under this Agreement or any current or future guaranty
or other agreement, Dealer grants DFS a security interest in all
Dealer's:
(a) inventory and equipment, manufactured or sold by or bearing any
trademark or trade name of Compaq Computer Corporation, Acer America
Corporation, Apple Computer, Inc., Digital Equipment Corporation,
Hewlett-Packard Company, Hitachi Sales Corporation of America, Power
Computing, Texas Instruments Incorporated, Toshiba America
Information Systems, Inc., NEC Technologies, Inc., Oki America, Inc.
(Okidata division), Canon U.S.A., Inc., Packard Bell Electronics,
Inc., Epson America, Inc., Xerox Corporation, Tektronix, Inc., and
Toshiba America Information Systems, Inc. or any of their
subsidiaries or affiliated companies, whether now owned or hereafter
acquired, and all attachments, accessories, accessions, returns,
repossessions, exchanges, substitutions and replacements thereto,
and all proceeds thereof; and
(b) rebates, discounts, credits and incentive payments, now or
hereafter due Dealer, relating to any of the above described
inventory and equipment, and all proceeds thereof.
All such assets are collectively referred to herein as the
'Collateral.' All of such terms for which meanings are provided in
the Uniform Commercial Code are used herein with such meanings. All
Collateral financed by DFS, and all proceeds thereof, will be held
in trust by Dealer for DFS, with such proceeds being payable in
accordance with this Agreement."
2. Dealer and DFS agree to amend paragraph number 9 of the Agreement to
provide as follows:
"9. Payment Terms/Paydown. Dealer will immediately pay DFS the principal
indebtedness owed DFS on each item of Collateral financed by DFS (as
shown on the Statement of Transaction identifying such Collateral)
on the earliest occurrence of any of the following events: (a) when
such Collateral is lost. stolen or damaged; (b) for Collateral
financed under Pay-As-Sold (PAS") terms (as shown on the Statement
of Transaction identifying such Collateral), when such Collateral is
sold,
<PAGE>
any warranties extended by any third party; (2) not assert against
DFS any claim or defense Dealer has against any third party; and (3)
indemnify and hold DFS harmless against all claims and defenses
asserted by any buyer of the Collateral relating to the condition
of, or any representations regarding, any of the Collateral. Dealer
waives all rights of offset Dealer may have against DFS."
3. DFS and Dealer agree that the following paragraph is incorporated into
the Agreement as if fully and originally set forth therein:
"7.1 Financial Covenants. Dealer will at all times maintain:
(a) a Tangible Net Worth and Subordinated Debt in the combined
amount of not less than Eleven Million Dollars ($11,000,000.00); and
(b) a ratio of Debt minus Subordinated Debt to Tangible Net Worth
and Subordinated Debt, measured quarterly, of not more than the
ratio shown below during the period corresponding thereto:
Period Ratio
------ -----
First quarter of
each fiscal year 3.25 to 1.0
Second quarter of
each fiscal year 3.25 to 1.0
Third quarter of
each fiscal year 3.25 to 1.0
Fourth quarter of
each fiscal year 4.00 to 1.0
For purposes of this paragraph: (i) 'Tangible Net Worth' means the
book value of Dealer's assets less liabilities, excluding from such
assets all Intangibles; (ii) 'Intangibles' means and includes
general intangibles (as that term is defined in the Uniform
Commercial Code); accounts receivable and advances due from
officers, directors, employees, stockholders and affiliates; good
will; covenants not to compete; the excess of cost over book value
of acquired assets; franchise fees; organizational costs; finance
reserves held for recourse obligations; capitalized research and
development costs; and such other similar items as DFS may from time
to time determine in DFS' sole discretion; (iii) 'Debt' means all of
Dealers liabilities and indebtedness for borrowed money of any kind
and nature whatsoever, whether direct or indirect, absolute or
contingent, and including obligations under capitalized leases,
guaranties, or with respect to which Dealer has pledged assets to
secure performance, whether or not direct recourse liability has
been assumed by Dealer except that accounts payable corresponding to
intransit inventory shall not be included in the definition of Debt;
and (iv) 'Subordinated Debt' means all of Dealer's Debt which is
subordinated to the payment of Dealer's liabilities to DFS by an
agreement in form and substance satisfactory to DFS. The foregoing
terms shall be
<PAGE>
transferred, rented, leased, otherwise disposed of or matured; (c)
in strict accordance with any curtailment schedule for such
Collateral (as shown on the Statement of Transaction identifying
such Collateral); (d) for Collateral financed under Scheduled Parent
Program ("SPP") terms (as shown on the Statement of Transaction
identifying such Collateral), in strict accordance with the
installment payment schedule; and (e) when otherwise required under
the terms of any financing program agreed to in writing by the
parties. Dealer will forward to DFS by the 15th day of each month a
Collateral Summary Report (as defined below) dated as of the last
day of the prior month. Regardless of the SPP terms pertaining to
any Collateral financed by DFS, and notwithstanding any scheduled
payments made by Dealer after the Determination Date (as defined
below), if DFS determines, after reviewing the Collateral Summary
Report, after conducting an inspection of the Collateral or
otherwise, that (i) the total current outstanding indebtedness owed
by Dealer to DFS as of the date of the Collateral Summary Report,
inspection or any other date on which a paydown is otherwise
required hereunder, as applicable (the 'Determination Date'),
exceeds (ii) the Collateral Liquidation Value (as defined below) as
of the Determination Date, Dealer will immediately upon demand pay
DFS the difference between (i) Dealer's total current outstanding
indebtedness owed to DFS as of the Determination Date, and (ii) the
Collateral Liquidation Value as of the Determination Date.
The term 'Collateral Summary Report' is defined herein to mean a
report compiled by Dealer specifying the total aggregate wholesale
invoice price of all of Dealer's inventory financed by DFS that is
unsold and in Dealer's possession and control as of the date of such
Report to the extent DFS has a first priority, fully perfected
security interest therein.
The term 'Collateral Liquidation Value' is defined herein to mean
one hundred percent (100%) of the total aggregate wholesale invoice
price of all of Dealer's inventory financed by DFS that is unsold
and in Dealer's possession and control as of the date of the
Collateral Summary Report and to the extent DFS has a first
priority, fully perfected security interest therein. If Dealer from
time to time is required to make immediate payment to DFS of any
past due obligation discovered during any Collateral audit, upon
review of a Collateral Summary Report or at any other time, Dealer
agrees that acceptance of such payment by DFS shall not be construed
to have waived or amended the terms of its financing program. The
proceeds of any Collateral received by Dealer will be held by Dealer
in trust for DFS' benefit, for application as provided in this
Agreement. Dealer will send all payments to DFS' branch office(s)
responsible for Dealer's account. DFS may apply: (i) payments to
reduce finance charges first and then principal, regardless of
Dealer's instructions; and (ii) principal payments to the oldest
(earliest) invoice for Collateral financed by DFS, but, in any
event, all principal payments will first be applied to such
Collateral which is sold, lost, stolen, damaged, rented, leased, or
otherwise disposed of or unaccounted for. Any third party discount,
rebate, bonus or credit granted to Dealer for any Collateral will
not reduce the debt Dealer owes DFS until DFS has received payment
therefor in cash. Dealer will (1) pay DFS even if any Collateral is
defective or fails to conform to
<PAGE>
determined in accordance with generally accepted accounting
principles consistently applied, and, if applicable, on a
consolidated basis."
All other terms as they appear in the Agreement, to the extent consistent
with the foregoing, are ratified and remain unchanged and in full force and
effect.
IN WITNESS WHEREOF, Dealer and DFS have executed this Amendment to
Agreement for Wholesale Financing this 25th day of March, 1998.
PC CONNECTION, INC.,
a Delaware corporation
ATTEST: By: /s/ Jack L. Ferguson
/s/ [ILLEGIBLE] ------------------------------
- ---------------------- Title: Treasurer
(Assistant) Secretary ---------------------------
DEUTSCHE FINANCIAL SERVICES CORPORATION
By:
------------------------------
Title:
---------------------------
<PAGE>
Exhibit 10.28
AMENDMENT TO AGREEMENT FOR WHOLESALE FINANCING
This Amendment to Agreement for Wholesale Financing is made to that
certain Agreement for Wholesale Financing entered into by and between PC
Connection, Inc., a Delaware corporation ("Dealer") and Deutsche Financial
Services Corporation (DFS) on March 25. 1998. as amended ("Agreement").
FOR VALUE RECEIVED, Dealer and DFS agree to amend the Agreement as
follows:
1. Dealer and DFS agree to amend paragraph 3 of the Agreement to provide
as follows:
"3. To secure payment of all of Dealer's current and future debts to
DFS, whether under this Agreement or any current or future guaranty
or other agreement, Dealer grants DFS a security interest in all
Dealer's:
(a) inventory and equipment, manufactured or sold by or bearing any
trademark or trade name of Compaq Computer Corporation, Acer America
Corporation, Apple Computer, Inc., Digital Equipment Corporation,
Hewlett-Packard Company, Hitachi Sales Corporation of America, Power
Computing, Texas Instruments Incorporated, Toshiba America
Information Systems, Inc., NEC Technologies, Inc., Old America, Inc.
(Okidata division), Canon U.S.A., Inc., Packard Bell Electronics,
Inc., Epson America, Inc., Xerox Corporation, Tektronix, Inc., and
Toshiba America Information Systems, Inc. or any of their
subsidiaries or affiliated companies, whether now owned or hereafter
acquired, and all attachments, accessories, accessions, returns,
repossessions, exchanges, substitutions and replacements thereto,
and all proceeds thereof; and
(b) rebates, discounts, credits and incentive payments, now or
hereafter due Dealer, relating to any of the above described
inventory and equipment, and all proceeds thereof.
All such assets are collectively referred to herein as the
'Collateral'. All of such terms for which meanings are provided in
the Uniform Commercial Code are used herein with such meanings. All
Collateral financed by DFS, and all proceeds thereof, will be held
in trust by Dealer for DFS, with such proceeds being payable in
accordance with this Agreement."
2. DFS and Dealer agree that the following paragraph is incorporated into
the Agreement as if fully and originally set forth therein;
"7.1 Financial Covenants. Dealer will
1
<PAGE>
(a) At all times maintain a Consolidated Net Worth of not less than
the amounts specified below at the end of each of Dealer's fiscal
quarters as indicated:
Required Net Worth
Fiscal Quarter(s)Ending on Quarter-end Date
-------------------------- ----------------
06/30/99 $ 60,000,000
09/30/99 $ 60,000,000
12/31/99 $ 76,000,000
03/31/00 $ 76,000,000
06/30/00 $ 76,000,000
09/30/00 $ 76,000,000
12/31/00 $ 96,000,000
03/31/01 $ 96,000,000
06/30/01 $ 96,000,000
09/30/01 $ 96,000,000
12/31/01 and each fiscal
quarter thereafter $ 120,000.000
(b) As of each date indicated below, for the twelve months ending on
that date, Dealer shall maintain the Consolidated Net Income
indicated:
Fiscal Quarter(s)Ending Required Net Income for Previous
Four Quarters on Quarter-end Date
---------------------------------
06/30/99 $ 12,000,000
09/30/99 $ 12,000,000
12/31/99 $ 16,000,000
03/31/00 $ 16,000,000
06/30/00 5 16,000,000
09/30/00 $ 16,000,000
12/31/00 S 20,000,000
03/31/01 5 20.000,000
06/30/01 $ 20,000,000
09/30/01 $ 20,000,000
12/31/01 and each fiscal
quarter thereafter $ 24,000,000
For purposes of this paragraph: (i) 'Consolidated Net Worth' means,
at any date as of which the amount thereof shall be determined, the
consolidated total assets of the Dealer and its affiliates, less the
consolidated total liabilities of the Dealer and its affiliates; and
(ii ) (ii) 'Consolidated Net Income' means the net income (or
deficit) from operations of the Dealer and its affiliates, after
taxes. The foregoing terms shall be determined in accordance with
generally accepted accounting principles consistently applied"
All other terms as they appear in the Agreement to the extent consistent
with the foregoing, are ratified and remain unchanged and in full force and
effect.
2
<PAGE>
IN WITNESS WHEREOF, Dealer and DFS have executed this Amendment to
Agreement for Wholesale Financing this 5th day of November, 1999.
PC CONNECTION, INC.,
ATTEST: By: /s/ Jack L. Ferguson
------------------------------
- ---------------------- Title: Treasurer
(Assistant) Secretary ---------------------------
DEUTSCHE FINANCIAL SERVICES CORPORATION
By:
------------------------------
Title:
---------------------------
3
<PAGE>
IN WITNESS WHEREOF, Dealer and DFS have executed this Amendment to
Agreement for Wholesale Financing this 5th day of November, 1999.
PC CONNECTION, INC.,
ATTEST: By: /s/ Jack L. Ferguson
/s/ [ILLEGIBLE] ------------------------------
- ---------------------- Title: Treasurer
(Assistant) Secretary ---------------------------
DEUTSCHE FINANCIAL SERVICES CORPORATION
By:
------------------------------
Title:
---------------------------
<PAGE>
[LETTERHEAD OF PC CONNECTION INC.]
November 15, 1999
Mr. Christopher M. Renzi
Business Development Manager
Deutsche Financial Services Corporation
100 River Ridge Drive, Suite 202
Norwood, MA 02062
Dear Chris:
I enclose the following:
1. Copy of Amendment to Agreement for Wholesale Financing with my original
signature.
2. Fax copy of Steve Markiewicz's attest signature (he is in a different
locations, and he faxed the last page with his signature).
3. Copy of Agreement with Steve Markiewicz's original signature thereon.
I was out of the office all last week due to the death of my mother and was
unable to send this out earlier.
Yours truly,
/s/ Jack
Jack L. Ferguson.
Treasurer, Director of Finance
JLF:eg
Enclosures
5
<PAGE>
Exhibit 10.29
AMENDMENT TO AGREEMENT FOR WHOLESALE FINANCING
(PC Connection Sales Corp. fka PC Connection, Inc.)
This Amendment to Agreement for Wholesale Financing is entered into as of
February 25, 2000 by and between PC Connection Sales Corp. fka PC Connection,
Inc., a Delaware corporation ("Dealer") and Deutsche Financial Services
Corporation ("DFS").
WHEREAS, the Dealer and DFS are parties to a certain Agreement for
Wholesale Financing dated March 25, 1998, as amended from time to time (the
"Agreement"); and
WHEREAS, the Dealer has engaged in a corporate reorganization which was
consummated on or about December 31, 1999, in which, among other things, (i) the
Dealer formed PC Holdco, Inc. ("Holdco") as its subsidiary, (ii) Holdco formed a
transitory subsidiary which merged into the Dealer, which resulted in the Dealer
being a wholly-owned subsidiary of Holdco, (iii) the Dealer formed two new
subsidiaries, PC Connection Sales of Massachusetts, Inc. ("Sales-MA") and
Merrimack Services Corp. ("Merrimack"), each a Delaware corporation and
contributed certain assets to such entities, (iv) Dealer then distributed its
stock in Merrimack and its other subsidiary. Comteq Federal, Inc. ("Comteq") to
Holdco, and (v) the Dealer changed its name to "PC Connection Sales Corp." and
Holdco changed its name to "PC Connection, Inc." (the "Restructuring"); and
WHEREAS, the Dealer and DFS desire to amend the Agreement on the terms and
conditions set forth herein;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Dealer and DFS hereby agree as
follows:
1. Section 3 of the Agreement is hereby deleted in its entirety and
replaced in its entirety with the following:
"3. To secure payment of all of Dealer's current and future debts to DFS,
whether under this Agreement or any current or future guaranty or other
agreement, excluding any and all debts to DFS under any and all guarantees by
Dealer of any obligations of any of its affiliates or subsidiaries to DFS,
Dealer grants DFS a security interest in all of Dealer's:
(i) All of Debtor's inventory, which is manufactured or sold by or bearing
any trademark or tradename of Compaq Computer Corporation, Acer America
Corporation. Apple Computer, Inc., Digital Equipment Corporation,
Hewlett-Packard Company. Hitachi Sales Corporation of America, Power Computing,
Texas Instruments Incorporated. Toshiba America Information Systems, Inc., NEC
Technologies, Inc., Oki America, Inc. (Okidata division). Canon U.S.A., Inc.,
Packard Bell Electronics, Inc., Epson America, Inc., Xerox Corporation,
Tektronix, Inc. and Toshiba Information
1
<PAGE>
Systems, Inc. or any of their subsidiaries or affiliated companies, whether now
owned or hereafter acquired;
(ii) All parts, attachments, accessories, accessions, repossessions,
exchanges, substitutions and replacements thereto or thereof;
(iii) All rebates, discounts, credits, refunds and incentive payments, now
or hereafter due Debtor, relating and limited to any of the items described in
clauses (i) or (ii) above; and
(iv) All cash proceeds of and insurance payable by loss of or damage to
any of the items described in clauses (i), (ii) or (iii) above.
The foregoing clauses (i), (ii), (iii) and (iv) shall not include, and
specifically exclude, any and all accounts, promissory notes, installment
contracts, contract rights, chattel paper, instruments or other rights to
payment, except for claims arising specifically from clauses (iii) or (iv)
above. "Proceeds" as defined in the Uniform Commercial Code are specifically
excluded, except to the extent specifically included in clauses (i) through (iv)
above.
All such assets being referred to collectively as the "Collateral". All of
such terms for which meanings are provided in the Uniform Commercial Code are
used herein with such meanings. All Collateral financed by DFS will be held in
trust by Dealer for DFS, with any cash amounts received therefrom being payable
in accordance with Section 9 hereof."
2. Effective as of the date of the Restructuring, DFS hereby consents to
the Restructuring and waives any notice thereof which may be required under the
Agreement. DFS further consents to (a) the issuance by Dealer or any of its
affiliates of any indebtedness to or guarantees to (i) IBM Credit Corporation or
(ii) lenders under any working capital facility of Dealer or any of its
affiliates, or (b) the granting of any liens to IBM Credit Corporation.
3. Except as specifically amended hereby, all of the provisions of the
Agreement shall remain unamended and in full force and effect. Dealer hereby
ratifies and confirms the Agreement as amended hereby and agrees that the
Agreement as amended hereby represents a valid and enforceable obligation of
Dealer.
4. This Amendment shall be governed by and interpreted in accordance with
the laws of the Commonwealth of Massachusetts.
5. This Amendment may be executed in any number of counterparts, each of
shall be an original and all of which shall constitute one agreement.
2
<PAGE>
IN WITNESS WHEREOF, Dealer and DFS have executed this Amendment to
Agreement for Wholesale Financing as of the date first set forth above.
ATTEST: PC CONNECTION SALES CORP.
fka PC Connection, Inc.
By: /s/ [ILLEGIBLE]
--------------------------------
Its: President and Treasurer
- ------------------------ --------------------------------
Name:
Title:
DEUTSCHE FINANCIAL SERVICES
CORPORATION
By: /s/ [ILLEGIBLE]
--------------------------------
Its: Vice President - Operations
--------------------------------
3
<PAGE>
Exhibit 10.30
GUARANTY
TO: DEUTSCHE FINANCIAL SERVICES CORPORATION
In consideration of financing provided or to be provided by you to PC
Connection Sales Corp. ("Dealer"), and for other good and valuable consideration
received, we jointly, severally, unconditionally and absolutely guaranty to you,
from property held separately, jointly or in community, the immediate payment
when due of all current and future liabilities owed by Dealer to you, whether
such liabilities are direct, indirect or owed by Dealer to a third party and
acquired by you (and, with respect to such liabilities owed by Dealer to a third
party and acquired by you, to the extent the guaranty by the undersigned is
reaffirmed in writing) ("Liabilities"). We will pay you on demand the full
amount of all sums owed by Dealer to you, together with all reasonable costs and
expenses (including, without limitation, reasonable attorneys' fees). We also
indemnify and hold you harmless from and against all (a) losses, costs and
expenses you incur and/or are liable for (including, without limitation,
reasonable attorneys' fees) and (b) claims, actions and demands made by Dealer
or any third party against you, which in any way relate to any relationship or
transaction between you and Dealer.
Our guaranty will not be released, discharged or affected by, and we
hereby irrevocably consent to, any: (a) change in the manner, place, interest
rate, finance or other charges, or terms of payment or performance in any
current or future agreement between you and Dealer, the release, settlement or
compromise of or with any party liable for the payment or performance thereof or
the substitution, release, non-perfection, impairment, sale or other disposition
of any collateral thereunder; (b) change in Dealer's financial condition; (c)
interruption of relations between Dealer and you or us; (d) claim or action by
Dealer against you; and/or (e) increases or decreases in any credit you may
provide to Dealer. We will pay you even if you have not exercised any of your
rights or remedies against Dealer, any other person or any current or future
collateral. This Guaranty is assignable by you and will inure to the benefit of
your assignee. If Dealer hereafter undergoes any change in its ownership,
identity or organizational structure, this Guaranty will extend to all current
and future obligations which such new or changed legal entity owes to you.
We irrevocably waive (to the extent permitted by law): notice of your
acceptance of this Guaranty, presentment, demand, protest, nonpayment,
nonperformance, notice of breach or default, notice of intent to accelerate and
notice of acceleration of any indebtedness of Dealer, any right of contribution
from other guarantors, dishonor, the amount of indebtedness of Dealer
outstanding at any time, the number and amount of advances made by you to Dealer
in reliance on this Guaranty and any claim or action against Dealer; all other
demands and notices required by law; all rights of offset and counterclaims
against you or Dealer; all defenses to the enforceability of this Guaranty
(including, without limitation, fraudulent inducement). We further waive (to the
extent permitted by law) all defenses based on suretyship or impairment of
collateral, and defenses which the Dealer may assert on the underlying debt,
including but not limited to, failure of consideration, breach of warranty,
fraud, statute of frauds, bankruptcy, lack of legal capacity, lender liability,
deceptive trade practices and usury. We also waive all rights to claim,
arbitrate for or sue for any punitive or exemplary damages. In addition, we
hereby irrevocably subordinate to you any and all of our present and future
rights and remedies: (a) of subrogation against Dealer to any of your rights or
remedies against Dealer, (b) of contribution, reimbursement, indemnification and
restoration from Dealer; and (c) to assert any other claim or action against
Dealer directly or indirectly relating to this Guaranty, such subordination to
last until you have been paid in full for all Liabilities. All of our waivers
and subordinations herein will survive any termination of this Guaranty.
We have made an independent investigation of the financial condition of
Dealer and give this Guaranty based on that investigation and not upon any
representation made by you. We have access to current and future Dealer
financial information which enables us to remain continuously informed of
Dealer's financial condition. We represent and warrant to you that we have
received and will receive substantial direct or indirect
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benefit by making this Guaranty and incurring the Liabilities. We will provide
you with consolidated financial statements on us and our subsidiaries each year
within ninety (90) days after the end of our fiscal year end. We warrant and
represent to you that all financial statements and information relating to us or
Dealer which have been or may hereafter be delivered by us or Dealer to you are
true and correct and have been and will be prepared in accordance with generally
accepted accounting principles consistently applied and, with respect to
previously delivered statements and information, there has been no material
adverse change in the financial or business condition of us or Dealer since the
submission to you, either as of the date of delivery, or if different, the date
specified therein, and we acknowledge your reliance thereon. This Guaranty will
survive any federal and/or state bankruptcy or insolvency action involving
Dealer. We are solvent and our execution of this Guaranty will not make us
insolvent. If you are required in any action involving Dealer to return or
rescind any payment made to or value received by you from or for the account of
Dealer, this Guaranty sill remain in full force and effect and will be
automatically reinstated without any further action by you and notwithstanding
any termination of this Guaranty or your release of us. Any delay or failure by
you, or your successors or assigns, in exercising any of your rights or remedies
hereunder will not waive any such rights or remedies. Oral agreements or
commitments to loan money, extend credit or to forbear from enforcing repayment
of a debt including promises to extend or renew such debt are not enforceable.
To protect us and you from misunderstanding or disappointment, any agreements we
reach covering such matters are contained in this writing, which is the complete
and exclusive statement of the agreement between us, except as specifically
provided herein or as we may later agree in writing to modify it.
Notwithstanding anything herein to the contrary: (a) you may rely on any
facsimile copy, electronic data transmission or electronic data storage of this
Guaranty, any agreement between you and Dealer, any Statement of Transaction,
billing statement, invoice from a vendor, financial statements or other report,
and (b) such facsimile copy, electronic data transmission or electronic data
storage will be deemed an original, and the best evidence thereof for all
purposes, including, without limitation, under this Guaranty or any other
agreement between you and us, and for all evidentiary purposes before any
arbitrator, court or other adjudicatory authority. We may terminate this
Guaranty by a written notice to you, the termination to be effective forty-five
(45) days after you receive and acknowledge it, but the termination will not
terminate our obligations hereunder for Liabilities arising prior to the
effective termination date. We have read and understood all terms and provisions
of this Guaranty. We acknowledge receipt of a true copy of this Guaranty and of
all agreements between you and Dealer. The meanings of all terms herein are
equally applicable to both the singular and plural forms of such terms.
BINDING ARBITRATION. Except as otherwise specified below, all actions,
disputes, claims and controversies under common law, statutory law or in equity
of any type or nature whatsoever (including, without limitation, all torts,
whether regarding negligence, breach of fiduciary duty, restraint of trade,
fraud, conversion, duress, interference, wrongful replevin, wrongful
sequestration, fraud in the inducement, usury or any other tort, all contract
actions, whether regarding express or implied terms, such as implied covenants
of good faith, fair dealing, and the commercial reasonableness of any collateral
disposition, or any other contract claim, all claims of deceptive trade
practices or lender liability, and all claims questioning the reasonableness or
lawfulness of any act), whether arising before or after the date of this
Guaranty, and whether directly or indirectly relating to: (a) this Guaranty
and/or any amendments and addenda hereto, or the breach, invalidity or
termination hereof; (b) any previous or subsequent agreement between you and us;
(c) any act committed by you or by any parent company, subsidiary or affiliated
company of you (the "DFS Companies"), or by an employee, agent, officer or
director of a DFS Company, whether or not arising within the scope and course of
employment or other contractual representation of the DFS Companies provided
that such act arises under a relationship, transaction or dealing between you
and Dealer or you and us; and/or (d) any other relationship, transaction,
dealing or agreement between you and Dealer or you and us (collectively the
"Disputes"), will be subject to and resolved by binding arbitration.
All arbitration hereunder will be conducted in accordance with The
Commercial Arbitration Rules of The American Arbitration Association ("AAA"). If
the AAA is dissolved, disbanded or becomes subject to any state or federal
bankruptcy or insolvency proceeding, the parties will remain subject to binding
arbitration which will be
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conducted by a mutually agreeable arbitral forum. The parties agree that all
arbitrator(s) selected will be attorneys with at least five (5) years secured
transactions experience. The arbitrator(s) will decide if any inconsistency
exists between the rules of any applicable arbitral forum and the arbitration
provisions contained herein. If such inconsistency exists, the arbitration
provisions contained herein will control and supersede such rules. The site of
all arbitrations will be in the Division of the Federal Judicial District in
which AAA maintains a regional office that is closest to Dealer.
Discovery permitted in any arbitration proceeding commenced hereunder is
limited as follows: No later than sixty (60) days after the filing of a claim
for arbitration, the parties will exchange detailed statements setting forth the
facts supporting the claim(s) and all defenses to be raised during the
arbitration, and a list of all exhibits and witnesses. No later than twenty-one
(21) days prior to the arbitration hearing, the parties will exchange a final
list of all exhibits and all witnesses, including any designation of any expert
witness(es) together with a summary of their testimony; a copy of all documents
and a detailed description of any property to be introduced at the hearing.
However, in the event of the designation of any expert witness(es), the
following will occur: (a) all information and documents relied upon by the
expert witness(es) will be delivered to the opposing party, (b) the opposing
party will be permitted to depose the expert witness(es), (c) the opposing party
will be permitted to designate rebuttal expert witness(es), and (d) the
arbitration hearing will be continued to the earliest possible date that enables
the foregoing limited discovery to be accomplished.
The Arbitrator(s) will not have the authority to award exemplary or
punitive damages.
x
All arbitration proceedings, including testimony or evidence at hearings,
will be kept confidential, although any award or order rendered by the
arbitrator(s) pursuant to the terms of this Guaranty may be entered as a
judgment or order in any state or federal court and may be entered as a judgment
or order within the federal judicial district which includes the residence of
the party against whom such award or order was entered. This Guaranty concerns
transactions involving commerce among the several states. The Federal
Arbitration Act ("FAA") will govern all arbitration(s) and confirmation
proceedings hereunder.
Nothing herein will be construed to prevent your or our use of bankruptcy,
receivership, injunction, repossession, replevin, claim and delivery,
sequestration, seizure, attachment, foreclosure, dation and/or any other
prejudgment or provisional action or remedy relating to any collateral for any
current or future debt owed by either party to the other. Any such action or
remedy will not waive your or our right to compel arbitration of any Dispute.
If either we or you bring any other action for judicial relief with
respect to any Dispute (other than those set forth in the immediately preceding
paragraph), the party bringing such action will be liable for and immediately
pay all of the other party's reasonable costs and expenses (including attorneys'
fees) incurred to stay or dismiss such action and remove or refer such Dispute
to arbitration. If either we or you bring or appeal an action to vacate or
modify an arbitration award and such party does not prevail, such party will pay
all reasonable costs and expenses, including reasonable attorneys' fees,
incurred by the other party in defending such action.
Any arbitration proceeding must be instituted: (a) with respect to any
Dispute for the collection of any debt owed by either party to the other, within
two (2) years after the date the last payment was received by the instituting
party; and (b) with respect to any other Dispute, within two (2) years after the
date the incident giving rise thereto occurred. Failure to institute an
arbitration proceeding within such period will constitute an absolute bar and
waiver to the institution of any proceeding with respect to such Dispute. Except
as otherwise stated herein, all notices, arbitration claims, responses, requests
and documents will be sufficiently given or served if mailed or delivered: (i)
to us at our address below; (ii) to you at 655 Maryville Centre Drive,
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St. Louis, Missouri 63141-5832. Attention: General Counsel; or such other
address as the parties may specify from time to time in writing.
The agreement to arbitrate will survive the termination of this Guaranty.
IF THIS GUARANTY IS FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY LEGAL
PROCEEDING WITH RESPECT TO ANY DISPUTE WILL BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE WITHOUT A JURY. WE WAIVE ANY RIGHT TO A JURY TRIAL IN
ANY SUCH PROCEEDING.
We acknowledge and agree that this Guaranty and all agreements between
Dealer and you have been substantially negotiated, and will be performed, in the
state of Massachusetts. Accordingly, we agree that all Disputes will be governed
by, and construed in accordance with, the laws of such state, except to the
extent inconsistent with the provisions of the FAA which will control and govern
all arbitration proceedings hereunder.
THIS GUARANTY CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGES
WAIVER PROVISIONS.
Date: 2/25, 2000
CORPORATE, PARTNERSHIP OR
LIMITED LIABILITY COMPANY
GUARANTOR:
PC Connection, Inc.
By: /s/ Mark Gavin
-----------------------------------
Print Name: Mark Gavin
---------------------------
Title: CFO
--------------------------------
By:
-----------------------------------
Print Name:
---------------------------
Title:
--------------------------------
Address of Guarantor(s):
<PAGE>
Exhibit 10.31
PC CONNECTIONS, INC.
AGREEMENT FOR INVENTORY FINANCING
Table of Contents
Section 1. DEFINITIONS; ATTACHMENTS ......................................... 1
1.1. Special Definitions .................................................... 1
1.2. Other Defined Terms .................................................... 5
1.3. Attachments ............................................................ 5
Section 2. CREDIT LINE; FINANCE CHARGES: OTHER CHARGES ...................... 5
2.1. Credit Line ............................................................ 5
2.2. Product Advances ....................................................... 6
2.3. Finance and Other Charges .............................................. 7
2.4. Customer Account Statements ............................................ 7
2.5. Shortfall .............................................................. 7
2.6. Application of Payments ................................................ 7
2.7. Prepayment and Reborrowing By Customer ................................. 7
Section 3. CREDIT LINE ADDITIONAL PROVISIONS ................................ 8
3.1. Power of Attorney ...................................................... 8
Section 4. SECURITY -- COLLATERAL ........................................... 8
4.1. Grant .................................................................. 8
4.2. Further Assurances ..................................................... 9
Section 5. CONDITIONS PRECEDENT ............................................. 9
5.1. Conditions Precedent to the Effectiveness of this Agreement ............ 9
5.2. Conditions Precedent to Each Advance ................................... 9
Section 6. REPRESENTATIONS AND WARRANTIES ................................... 10
6.1. Organization and Qualifications ........................................ 10
6.2. Rights in Collateral; Priority of Liens ................................ 10
6.3. No Conflicts ........................................................... 10
6.4. Enforceability ......................................................... 10
6.5. Locations of Offices, Records and Inventory ............................ 10
6.6. Fictitious Business Names .............................................. 11
6.8. No Judgments or Litigation ............................................. 11
6.9. No Defaults ............................................................ 11
6.10. Labor Matters ......................................................... 11
6.19. Accuracy and Completeness of Information .............................. 11
6.20. Recording Taxes ....................................................... 11
Section 7. AFFIRMATIVE COVENANTS ............................................ 11
7.1. Financial and Other Information ........................................ 11
7.2 Location of Collateral ................................................. 12
7.3. Changes in Customer .................................................... 12
7.4. Corporate Existence .................................................... 12
7.5. ERISA .................................................................. 13
7.8. Insurance; Casualty Loss ............................................... 13
7.9. Taxes .................................................................. 14
7.10. Compliance With Laws .................................................. 14
7.11. Fiscal Year ........................................................... 14
7.12. Intellectual Property ................................................. 14
7.14. Collateral ............................................................ 14
7.15. Subsidiaries .......................................................... 14
7.16. Financial Covenants; Additional Covenants ............................. 14
Section 8. NEGATIVE COVENANTS ............................................... 14
8.1. Liens .................................................................. 15
8.2. Disposition of Assets .................................................. 15
8.3. Corporate Changes ...................................................... 15
8.4. Guaranties ............................................................. 15
8.10. Storage of Collateral with Bailees and Warehousemen ................... 15
Section 9. DEFAULT .......................................................... 15
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9.1. Event of Default ....................................................... 15
9.2. Acceleration ........................................................... 16
9.3. Remedies ............................................................... 16
9.4. Waiver ................................................................. 17
Section 10. MISCELLANEOUS ................................................... 17
10.1. Term; Termination ..................................................... 17
10.2. Indemnification ....................................................... 17
10.3. Additional Obligations ................................................ 18
10.4. LIMITATION OF LIABILITY ............................................... 18
10.5. Alteration/Waiver ..................................................... 18
10.6. Severability .......................................................... 18
10.7. One Loan .............................................................. 18
10.8. Additional Collateral ................................................. 19
10.9. No Merger or Novations ................................................ 19
10.10. Paragraph Titles ..................................................... 19
10.11. Binding Effect; Assignment ........................................... 19
10.12. Notices .............................................................. 19
10.13. Counterparts ......................................................... 20
10.15. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW ............. 20
10.16. JURY TRIAL WAIVER .................................................... 21
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AGREEMENT FOR INVENTORY FINANCING
This AGREEMENT FOR INVENTORY FINANCING (as amended, supplemented or
otherwise modified from time to time, this "Agreement") amends and restates that
Agreement for Wholesale Financing dated June 4, 1994 (as amended from time to
time, the "AWF") and is hereby made this 17th day of August, 1999, by and
between IBM Credit Corporation, a Delaware corporation with a place of business
at 1500 RiverEdge Parkway, Atlanta, GA 30328 ("IBM Credit"), and PC Connection,
Inc., a Delaware corporation with a place of business at 101A 730 Milford Road,
Merrimack, NH 03054 ("Customer").
WITNESSETH
WHEREAS, IBM Credit and Customer are parties to that certain AWF pursuant
to which IBM Credit finances Customer's acquisition of Inventory and equipment;
WHEREAS, in the course of Customer's operations, Customer intends to
purchase from Persons approved in writing by IBM Credit for the purposes of this
Agreement (the "Authorized Suppliers") computer hardware and software products
manufactured or distributed by or bearing any trademark or trade name of such
Authorized Suppliers (the "Products") (as of the date hereof the Authorized
Suppliers are as set forth on Attachment E hereto);
WHEREAS, Customer has requested that IBM Credit finance its purchase of
Products from such Authorized Suppliers and IBM Credit Is willing to provide
such financing to Customer subject to the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and far other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree that the AWF is hereby amended and
restated in its entirety as follows:
Section 1. DEFINITIONS; ATTACHMENTS
1.1.Special Definitions. The following terms shall have the following respective
meaning in this Agreement:
"Advance": any loan or other extension of credit by IBM Credit to, or on behalf
of, Customer pursuant to this Agreement including, without limitation, Product
Advances.
"Affiliate": with respect to the Customer, any Person meeting one of the
following: (i) at least 10% of such Person's equity is owned, directly or
indirectly, by Customer; (ii) at least 10% of Customer's equity is owned,
directly or indirectly, by such Person; or (iii) at least 10% of Customer's
equity and at least 10% of such Person's equity is owned, directly or
indirectly, by the same Person or Persons. All of Customer's officers,
directors, joint venturers, and partners shall also be deemed to be Affiliates
of Customer for purposes of this Agreement.
"Agreement": as defined in the caption.
"Auditors": Deloitte & Touche LLP or a nationally recognized firm of independent
certified public accountants selected by Customer and satisfactory to IBM
Credit.
"Available Credit": at any time, (1) the Maximum Advance Amount less (2) the
Outstanding Advances at such time.
"Average Daily Balance": for each Advance for a given period of time, the sum of
the unpaid principal of such Advance as of each day during such period of time,
divided by the number of days in such period of time.
Page 1 of 21
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"Borrowing Base": as defined in Attachment A.
"Business Day": any day other than a Saturday, Sunday or other day on which
commercial banks in New York, New York are generally closed or on which IBM
Credit is closed.
"Closing Date": the date on which the conditions precedent to the effectiveness
of this Agreement set forth in Section 5.1 hereof are satisfied or waived in
writing by IBM Credit.
"Collateral": as defined In Section 4.1.
"Collateral Management Report": a report to be delivered by Customer to IBM
Credit from time to time, as provided herein, signed by the chief executive
officer or chief financial officer of Customer, substantially in the form and
detail of Attachment F hereto, detailing and certifying, among other items: a
summary of Customer's inventory on hand financed by IBM Credit, Customer's
Inventory on hand financed by IBM Credit by quantity, type, model, Authorized
Supplier's invoice price to Customer and the total of the line item values for
all inventory listed on the report, the amounts and aging of Customers accounts
payable as of a specified date, all of the Customer's IBM Credit borrowing
activity during a specified period and the total amount of Customer's Borrowing
Base as well as Customers Outstanding Product Advances, Available Credit and any
Shortfall Amount as of a specified date.
"Common Due Date": (1) the fifth day of a calendar month if the Product
Financing Period expires on the first through tenth of such calendar month; (2)
the fifteenth day of a calendar month if the Product Financing Period expires on
the eleventh through twentieth of such calendar month; and (3) the twenty-fifth
day of a calendar month if the Product Financing Period expires on the
twenty-first through the last day of such calendar month.
"Compliance Certificate": a certificate as set forth in Attachment C.
"Credit Line": as defined in Section 2.1.
"Customer": as defined in the caption.
"Default": either (1) an Event of Default or (2) any event or condition which,
but for the requirement that notice be given or time lapse or both, would be an
Event of Default.
"Delinquency Fee Rate": as defined on Attachment A.
"Event of Default": as defined In Section 9.1.
"Financial Statements": the consolidated and consolidating balance sheets
(including, without limitation, securities such as stocks and investment bonds),
statements of operations, statements of cash flows and statements of changes in
shareholder's equity of Customer and its Subsidiaries for the period specified,
prepared in accordance with GAAP and consistent with prior practices.
"Floor Plan Lender: any Person who now or hereinafter provides inventory
financing to Customer, provided that such Person executes an Intercreditor
Agreement (as defined in Section 5.1 of this Agreement) or a subordination
agreement with IBM Credit in form and substance satisfactory to IBM Credit.
"Free Financing Period": for each Product Advance, the period, if any, in which
IBM Credit does not charge Customer a financing charge. IBM Credit shall
calculate the Customer's Free Financing Period utilizing a methodology that is
consistent with the methodologies used for similarly situated customers of IBM
Credit. The Customer understands that IBM Credit may not offer, may change or
may cease to offer a Free Financing Period for the Customer's purchases of
Products.
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"Free Financing Period Exclusion Fee": as defined In Attachment A.
"GAAP": generally accepted accounting principles in the United States as in
effect from time to time.
"Governmental Authority": any nation or government, any state or other political
subdivision thereof, and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled (through stock or capital
ownership or otherwise) by any of the foregoing.
"IBM Credit": as defined in the caption.
"Indebtedness": with respect to any Person, (1) all obligations of such Person
for borrowed money or for the deferred purchase price of property or services
(other than trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices) or which is evidenced by a note,
bond, debenture or similar instrument, (2) all obligations of such Person under
capital leases (including obligations under any leases Customer may enter into,
now or in the future, with IBM Credit), (3) all obligations of such Person in
respect of letters of credit, banker's acceptances or similar obligations issued
or created for the account of such Person, (4) liabilities arising under any
interest rate protection, future, option swap, cap or hedge agreement or
arrangement under which such Person is a party or beneficiary, (5) all
obligations under guaranties of such Person and (6) all liabilities secured by
any lien on any property owned by such Person even though such Person has not
assumed or otherwise become liable for the payment thereof.
"Lien(s)": any lien, claim, charge, pledge, security interest, deed of trust,
mortgage, other encumbrance or other arrangement having the practical effect of
the foregoing, including the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.
"Material Adverse Effect": a material adverse effect (1) on the business,
operations, results of operations, assets, or financial condition of the
Customer, (2) on the aggregate value of the Collateral or the aggregate amount
which IBM Credit would be likely to receive (after giving consideration to
reasonably likely delays in payment and reasonable costs of enforcement) in the
liquidation of such Collateral to recover the Obligations in full, or (3) on the
rights and remedies of IBM Credit under this Agreement.
"Maximum Advance Amount": at any time, the lesser of (1) the Credit Line and (2)
the Borrowing Base at such time.
"Obligations": all covenants, agreements, warranties, duties, representations,
loans, advances, interest (including interest accruing on or after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to Customer, whether or not a claim
for post-filing or post-petition interest is allowed in such proceeding), fees,
reasonable expenses, indemnities, liabilities and indebtedness of any kind and
nature whatsoever now or hereafter arising, owing, due or payable from Customer
to IBM Credit.
"Other Documents": all security agreements, mortgages, leases, instruments,
documents, guarantees, schedules of assignment, contracts and similar agreements
executed by customer and delivered to IBM Credit, pursuant to this Agreement or
otherwise, and all amendments, supplements and other modifications to the
foregoing from time to time.
"Other Charges": as set forth in Attachment A.
"Outstanding Advances": at any time of determination, the sum of (1) the unpaid
principal amount of all Advances made by IBM Credit under this Agreement; and
(2) any finance charge, fee, expense or other amount related to Advances charged
to Customers account with IBM Credit.
Page 3 of 21
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"Outstanding Product Advances": at any time of determination, the sum of (1) the
unpaid principal amount of all Product Advances made by IBM Credit under this
Agreement; and (2) any finance charge, fee, expense or other amount related to
Product Advances charged to Customer's account with IBM Credit.
"Permitted Liens": any of the following:
(1) Liens which are the subject of an Intercreditor Agreement, in effect from
time to time between IBM Credit and any other secured creditor;
(2) Purchase Money Security Interests;
(3) Liens described in Section I of Attachment B;
(4) Liens of warehousemen, mechanics, materialmen, workers, repairmen, common
carriers, landlords and other similar Liens arising by operation of law or
otherwise, not waived in connection herewith, for amounts that are not yet due
and payable or being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted if an adequate reserve or other appropriate
provisions shall have been made therefor as required to be in conformity with
GAAP and an adverse determination in such proceedings could not reasonably be
expected to have a Material Adverse Effect;
(5) attachment or judgment Liens individually or in the aggregate not in excess
of $1,000,000 (exclusive of (A) any amounts that are duly bonded to the
satisfaction Of IBM Credit or (B) any amount fully covered by insurance as to
which the insurance company has acknowledged its obligation to pay such judgment
in full);
(6) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are not
substantial in amount and which do not materially detract from the value of the
property subject thereto or materially interfere with the ordinary conduct of
the business of Customer;
(7) extensions and renewals of the foregoing Permitted Liens: provided that (A)
the aggregate amount of such extended or renewed Liens do not exceed the
original principal amount of the Indebtedness which it secures, (B) such Liens
do not extend to any property other than property already previously subject to
the Lien and (C) such extended or renewed Liens are on terms and conditions no
more restrictive than the terms and conditions of the Liens being extended or
renewed;
(8) Liens arising from deposits or pledges to secure bids, tenders, contracts,
leases, surety and appeal bonds and other obligations of like nature arising in
the ordinary course of the Customers business;
(9) Liens for taxes, assessments or governmental charges not delinquent or being
contested, in good faith, by appropriate proceedings promptly instituted and
diligently conducted if an adequate reserve or other appropriate provisions
shall have been made therefor as required in order to be in conformity with GAAP
and an adverse determination in such proceedings could not reasonably be
expected to have a Material Adverse Effect;
(10) Liens arising out of deposits in connection with workers' compensation,
Unemployment Insurance or other social security or similar legislation;
(11) Liens arising pursuant to this Agreement; and
(12) other Liens consented to by IBM Credit in writing prior to incurring such
Lien.
"Person": any individual, association, firm, corporation, partnership, trust,
unincorporated organization or other entity whatsoever.
Page 4 of 21
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"Policies": all policies of insurance required to be maintained by Customer
under this Agreement or any of the Other Documents.
"Prime Rate": as of the date of determination, the average of the rates of
interest announced by Citibank, NA. Chase Manhattan Bank and Bank of America
National Trust & Savings Association (or any other bank which IBM Credit uses in
its normal course of business of determining Prime Rate) as their prime or base
rate, as of the last Business Day of the calendar month immediately preceding
the date of determination, whether or not such announced rates are the actual
rates charged by such banking institutions to their most creditworthy borrowers.
"Product Advance": any advance of funds made or committed to be made by IBM
Credit for the account of Customer to an Authorized Supplier in respect of an
invoice delivered or to be delivered by such Authorized Supplier to IBM Credit
describing Products purchased by Customer, including any such advance made or
committed to be made as of the date hereof pursuant to the AWF.
"Product Financing Charge": as specified in a billing statement.
"Product Financing Period": for each Product Advance, equal to the Free
Financing Period for such Product Advance or if there is no Free Financing
Period, such period as IBM Credit may determine from time to time.
"Purchase Money Security Interest": any security interest securing Purchase
Money Indebtedness, which security interest applies solely to the particular
asset acquired with the Purchase Money Indebtedness.
"Requirement of Law": as to any Person, the articles of incorporation and
by-laws of such Person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other governmental authority, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.
"Shortfall Amount": as defined in Section 2.5.
"Shortfall Transaction Fee": as defined in Attachment A.
"Subsidiary": with respect to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other Persons performing similar
functions are at the time directly or indirectly owned by such Person.
"Termination Date": shall mean the first anniversary of the date of this
Agreement or such other date as IBM Credit and Customer may agree to from time
to time.
"Voting Stock": securities, the holders of which are ordinarily, in the absence
of contingencies, entitled to elect the corporate directors (or persons
performing similar functions).
1.2. Other Defined Terms. Terms not otherwise defined in this Agreement which
are defined in the Uniform Commercial Code as in effect in the State of New York
(the "U.C.C.") shall have the meanings assigned to them therein.
1.3. Attachments. All attachments, exhibits, schedules and other addenda hereto,
including, but not limited to. Attachment A and Attachment B, are specifically
incorporated herein by reference and made a part of this Agreement.
Section 2. CREDIT LINE; FINANCE CHARGES; OTHER CHARGES
2.1. Credit Line. Subject to the terms and conditions set forth in this
Agreement, on and after the Closing Date to but not including the date that is
the earlier of (i) the date on which this Agreement is
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terminated pursuant to Section 10.1 and (ii) the date on which IBM Credit
terminates the Credit Line pursuant to Section 9.2, IBM Credit agrees to extend
to the Customer a credit line ("Credit Line") in the amount set forth in
Attachment A pursuant to which IBM Credit will make to the Customer, from time
to time, Advances in an aggregate amount at any one time outstanding not to
exceed the Credit Line. Notwithstanding any other term or provision of this
Agreement, IBM Credit may, at any time and from time to time, in its reasonable
discretion (x) temporarily increase the amount of the Credit Line set forth in
Attachment A and decrease the amount of the Credit Line to the amount of the
Credit Line set forth in Attachment A, in each case upon written notice to the
Customer, and (y) make Advances pursuant to this Agreement upon the request of
Customer in an aggregate amount at any one time outstanding in excess of the
Credit Line.
2.2. Product Advances. (A) Subject to the terms and conditions of this
Agreement, IBM Credit shall make Product Advances in connection with Customer's
purchase of Products from Authorized Suppliers (as defined under WITNESSETH).
Customer hereby authorizes and directs IBM Credit to pay the proceeds of Product
Advances directly to the applicable Authorized Supplier in respect of invoices
delivered to IBM Credit for such Products by such Authorized Supplier and
acknowledges that each such Product Advance constitutes a loan by IBM Credit to
Customer pursuant to this Agreement as if the Customer received the proceeds of
the Product Advance directly from IBM Credit. IBM Credit may, upon written
notice to Customer, cease to include a supplier as an Authorized Supplier.
(B) No finance charge shall accrue on any Product Advance during the Free
Financing Period, if any, applicable to such Product Advance. Each Product
Advance shall be due and payable on the Common Due Date for such Product
Advance. Each Product Advance shall accrue a finance charge on the Average Daily
Balance thereof from and including the first (1st) day following the end of the
Free Financing Period, if any, for such Product Advance, or if no such Free
Financing Period shall be in effect, from and including the date of invoice for
such Product Advance, in each case, to and including the date such Product
Advance shall become due and payable in accordance with the terms of this
Agreement. In addition, for any Product Advance with respect to which a Free
Financing Period shall not be in effect, Customer shall pay a Free Financing
Period Exclusion Fee. Such fee shall be due and payable on the Common Due Date
for such Product Advance. If it is determined that amounts received from
Customer were in excess of the highest rate permitted by law, then the amount
representing such excess shall be considered reductions to principal of
Advances.
(C) Customer acknowledges that IBM Credit does not warrant the
Collateral. Customer shall be obligated to pay IBM Credit in full even if the
Collateral is defective or fails to conform to the warranties extended by the
Authorized Supplier. The Obligations of Customer shall not be affected by any
dispute Customer may have with any manufacturer, distributor or Authorized
Supplier. Customer will not assert any claim or defense which it may have
against any manufacturer, distributor or Authorized Supplier against IBM Credit.
(D) Customer hereby authorizes IBM Credit to collect directly from any
Authorized Supplier any credits, rebates, bonuses or discounts owed by such
Authorized Supplier to Customer ("Supplier Credits"). Any Supplier Credits
received by IBM Credit may be applied by IBM Credit to the Outstanding Advances.
Any Supplier Credits collected by IBM Credit shall in no way reduce Customer's
debt to IBM Credit in respect of the Outstanding Advances until such Supplier
Credits are applied by IBM Credit.
(E) IBM Credit may apply any payments and Supplier Credits received by
IBM Credit to reduce finance charges first and then to principal amounts of
Advances owed by Customer. IBM Credit may apply principal payments to the oldest
(earliest) invoices (and related Product Advances) first, but, in any case, all
principal payments will be applied in respect of the Outstanding Product
Advances made for Products which have been sold, lost, stolen, destroyed,
damaged or otherwise disposed of prior to any other application thereof.
(F) Customer will Indemnify and hold IBM Credit harmless from and against
any claims or demands asserted by any Person relating to or arising from the
Collateral for any reason whatsoever, including, without limitation, the
condition of the Collateral, any misrepresentation made about the
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Collateral by any representative of Customer, or any act or failure to act by
Customer except to the extent such claims or demands are directly attributable
to IBM Credit's negligence or willful misconduct. Nothing contained in the
foregoing shall impair any rights or claims which the Customer may have against
any manufacturer, distributor or Authorized Supplier.
2.3. Finance and Other Charges. (A) Finance charges shall be calculated by
multiplying the applicable Delinquency Fee Rate or Product Financing Charge
provided for in this Agreement by Customer's applicable Average Daily Balance.
The Delinquency Fee Rate or the Product Financing Charge provided for in this
Agreement are each computed on the basis of an actual day, 360 day year.
(B) The Customer hereby agrees to pay to IBM Credit the charges set forth
as "Other Charges" in Attachment A. The Customer also agrees to pay IBM Credit
additional charges for any returned items of payment received by IBM Credit. The
Customer hereby acknowledges that any such charges are not interest but that
such charges, if unpaid, will constitute part of the Outstanding Product
Advances.
(C) The finance charges and Other Charges owed under this Agreement, and
any charges hereafter agreed to in writing by the parties, are payable monthly
on receipt of IBM Credit's bill or statement therefor or IBM Credit may, in its
sole discretion, add unpaid finance charges and Other Charges to the Customer's
Outstanding Product Advances.
(D) if any amount owed under this Agreement, including, without
limitation, any Advance, is not paid when due (whether at maturity, by
acceleration or otherwise), the unpaid amount thereof will bear a late charge
from and including the day after it was due and payable to and including the
date IBM Credit receives payment thereof, at a per annum rate equal to the
lesser of (a) the amount set forth in Attachment A to this Agreement as the
"Delinquency Fee Rate" and (b) the highest rate from time to time permitted by
applicable law. In addition, if any Shortfall Amount shall not be paid when due
pursuant to Section 2.5 hereof, Customer shall pay IBM Credit a Shortfall
Transaction Fee. If it is determined that amounts received from Customer were in
excess of such highest rate, then the amount representing such excess, shall be
considered reductions to principal of Advances.
2.4. Customer Account Statements. IBM Credit will send statements of each
transaction hereunder as well as monthly billing statements to Customer with
respect to Advances and other charges due on Customer's account with IBM Credit.
Each statement of transaction and monthly billing statement shall be deemed,
absent manifest error, to be correct and shall constitute an account stated with
respect to each transaction or amount described therein unless within fifteen
(15) Business Days after such statement of transaction or billing statement is
received by Customer, Customer provides IBM Credit written notice objecting that
such amount or transaction is incorrectly described therein and specifying the
error(s), if any, contained therein. IBM Credit may at any time adjust such
statements of transaction or billing statements to comply with applicable law
and this Agreement.
2.5. Shortfall. If on any date the Outstanding Advances owed by Customer to IBM
Credit exceeds the Maximum Advance Amount (such excess, the "Shortfall Amount"),
Customer shall immediately pay to IBM Credit an amount equal to such Shortfall
Amount.
2.6. Application of Payments. The Customer hereby agrees that all checks and
other instruments delivered to IBM Credit on account of Customer's Obligations
shall constitute conditional payment until such items are actually collected by
IBM Credit. The Customer waives the right to direct the application of any and
all payments at any time or times hereafter received by IBM Credit on account of
the Customer's Obligations. Customer agrees that IBM Credit shall have the
continuing exclusive right to apply and reapply any and all such payments to
Customer's Obligations in such manner as IBM Credit may deem advisable
notwithstanding any entry by IBM Credit upon any of its books and records.
2.7. Prepayment and Reborrowing By Customer. (A) Customer may at any time
prepay, without notice or penalty, in whole or in part amounts owed under this
Agreement. IBM Credit may apply
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payments made to it (whether by the Customer or otherwise) to pay finance
charges and other amounts owing under this Agreement first and then to the
principal amount owed by the Customer.
(B) Subject to the terms and conditions of this Agreement, any amount
prepaid or repaid to IBM Credit in respect to the Outstanding Advances may be
reborrowed by Customer in accordance with the provisions of this Agreement.
Section 3. CREDIT LINE ADDITIONAL PROVISIONS
3.1. Power of Attorney. Customer hereby irrevocably appoints IBM Credit, with
full power of substitution, as its true and lawful attorney-in-fact with full
power, in good faith and in compliance with commercially reasonable standards,
in the discretion of IBM Credit, to:
(A) sign the name of Customer on any document or instrument that IBM
Credit shall deem necessary or appropriate to perfect and maintain perfected the
security interest in the Collateral contemplated under this Agreement and the
Other Documents;
(B) endorse the name of Customer upon any of the items of payment of
proceeds and deposit the same in the account of IBM Credit for application to
the Obligations; and
upon the occurrence and during the continuance of an Event of Default as defined
in Section 9.1 hereof:
(C) sign the name of Customer on any document or instrument that IBM
Credit shall deem necessary or appropriate to enforce any and all remedies it
may have under this Agreement, at law or otherwise; and
(D) make, settle and adjust claims under the Policies with respect to the
Collateral and endorse Customer's name on any check, draft, instrument or other
item of payment of the proceeds of the Policies with respect to the Collateral.
The power of attorney granted by this Section is for value and coupled with an
interest and is irrevocable so long as this Agreement is in effect or any
Obligations remain outstanding. Nothing done by IBM Credit pursuant to such
power of attorney will reduce any of Customer's Obligations other than
Customer's payment Obligations to the extent IBM Credit has received monies.
Section 4. SECURITY -- COLLATERAL
4.1. Grant. To secure Customer's full and punctual payment and performance of
the Obligations (including obligations under any leases Customer may enter into,
now or in the future, with IBM Credit) when due (whether at the stated maturity,
by acceleration or otherwise), Customer hereby grants IBM Credit a security
interest in all of Customers right, title and interest in and to the following
property, whether now owned or hereafter acquired or existing and wherever
located:
(A) all inventory and equipment manufactured or sold by or bearing the
trademark or trade name of the International Business Machines Corporation
("IBM") or Lexmark International, Inc. (including inventory used by Customer for
demonstration and equipment in use by Customer) and all parts thereof,
attachments, accessories and accessions thereto, products thereof and documents
therefor excluding, however, Customer's equipment designated by IBM as model
"AS400" and model "RS6000";
(B) all substitutions and replacements for all of the foregoing, all
proceeds of all of the foregoing and, to the extent not otherwise included, all
payments under insurance or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing.
All of the above assets shall be collectively defined herein as the
"Collateral".
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Customer covenants and agrees with IBM Credit that: (a) the security constituted
to by this Agreement is in addition to any other security from time to time held
by IBM Credit and (b) the security hereby created is a continuing security
interest and will cover and secure the payment of all Obligations both present
and future of Customer to IBM Credit.
4.2. Further Assurances. Customer shall, from time to time upon the request of
IBM Credit, execute and deliver to IBM Credit, or cause to be executed and
delivered, at such time or times as IBM Credit may request such other and
further documents, certificates and instruments that IBM Credit may deem
necessary to perfect and maintain perfected IBM Credit's security interests in
the Collateral and in order to fully consummate all of the transactions
contemplated under this Agreement and the Other Documents. Customer shall make
appropriate entries on its books and records disclosing IBM Credit's security
interests in the Collateral.
Section 5. CONDITIONS PRECEDENT
5.1. Conditions Precedent to the Effectiveness of this Agreement. The
effectiveness of this Agreement is subject to the receipt by IBM Credit of, or
waiver in writing by IBM Credit of compliance with, the following conditions
precedent:
(A) this Agreement executed and delivered by Customer and IBM Credit;
(B) a certificate of the secretary or an assistant secretary of Customer,
substantially in the form and substance acceptable to IBM Credit, certifying
that, among other items, (i) Customer is a corporation organized under the laws
of the State of its incorporation and has its principal place of business as
stated therein, (ii) Customer is registered to conduct business in specified
states and localities, and (iii) the names and true signatures of the officers
of Customer authorized to sign this Agreement and the Other Documents;
(C) certificates dated as of a recent date from the Secretary of State or
other appropriate authority evidencing the good standing of Customer in the
jurisdiction of its organization and in each other jurisdiction where the
ownership or lease of its property or the conduct of its business requires it to
qualify to do business;
(D) intercreditor agreements ("Intercreditor Agreement"), in form and
substance satisfactory to IBM Credit, executed by each other secured creditor of
Customer as set forth in Attachment A;
(E) UCC-1 financing statements for each jurisdiction reasonably requested
by IBM Credit executed by Customer and each guarantor whose guaranty to IBM
Credit is intended to be secured by a pledge of its assets;
(F) the statements, certificates, documents, instruments, financing
statements, agreements and information set forth in Attachment A and Attachment
B; and
(G) all such other statements, certificates, documents, instruments,
financing statements, agreements and other information with respect to the
matters contemplated by this Agreement as IBM Credit shall have reasonably
requested.
5.2. Conditions Precedent to Each Advance. No Advance will be required to be
made or renewed by IBM Credit under this Agreement unless, on and as of the date
of such Advance, the following statements shall be true to the satisfaction of
IBM Credit:
(A) The representations and warranties contained in this Agreement or in
any document, instrument or agreement executed in connection herewith are true
and correct in all material respects on and as of the date of such Advance as
though made on and as of such date;
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(B) No event has occurred and is continuing or after giving effect to
such Advance or the application of the proceeds thereof would result in or would
constitute a Default;
(C) No event has occurred and is continuing which could reasonably be
expected to have a Material Adverse Effect;
(D) Both before and after giving effect to the making of such Advance, no
Shortfall Amount exists.
Except as Customer has otherwise disclosed to IBM Credit in writing prior to
each request, each request for an Advance hereunder shall be deemed to be a
representation and warranty by Customer that, as of and on the date of such
Advance, the statements set forth in (A) through (D) above are true statements.
No such disclosures by Customer to IBM Credit shall in any manner be deemed to
satisfy the conditions precedent to each Advance that are set forth in this
Section 5.2.
Section 6. REPRESENTATIONS
To induce IBM Credit to enter into this Agreement, Customer represents to IBM
Credit as follows:
6.1. Organization and Qualifications. Customer and each of its Subsidiaries (i)
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, (ii) has the power and authority
to own its properties and assets and to transact the businesses in which it
presently is engaged and (iii) is duly qualified and is authorized to do
business and is in good standing in each jurisdiction where it presently is
engaged in business and is required to be so qualified.
6.2. Rights in Collateral; Priority of Liens. Customer and each of its
Subsidiaries owns the property granted by it respectively as Collateral to IBM
Credit, free and clear of any and all Liens in favor of third parties except for
the Liens otherwise permitted pursuant to Section 8.1. The Liens granted by the
Customer and each of its Subsidiaries pursuant to this Agreement, the Guaranties
and the Other Documents in the Collateral constitute the valid and enforceable
first, prior and perfected Liens on the Collateral, except to the extent any
Liens that are prior to IBM Credit's Liens are (i) the subject of an
Intercreditor Agreement or (ii) Purchase Money Security Interests in product of
a brand that is not financed by IBM Credit.
6.3. No Conflicts. The execution, delivery and performance by Customer of this
Agreement and each of the Other Documents (i) are within its corporate power;
(ii) are duly authorized by all necessary corporate action; (iii) are not in
contravention in any respect of any Requirement of Law or any indenture,
contract, lease, agreement, instrument or other commitment to which it is a
party or by which it or any of its properties are bound; (iv) do not require the
consent, registration or approval of any Governmental Authority or any other
Person (except such as have been duly obtained, made or given, and are in full
force and effect); and (v) will not, except as contemplated herein, result in
the imposition of any Liens upon any of its properties.
6.4. Enforceability. This Agreement and all of the other documents executed and
delivered by the Customer in connection herewith are the legal, valid and
binding obligations of Customer, and are enforceable in accordance with their
terms, except as such enforceability may be limited by the effect of any
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting creditors' rights generally or the general
equitable principles relating thereto.
6.5. Locations of Offices, Records and Inventory. The address of the principal
place of business and chief executive office of Customer is as set forth on
Attachment B or on any notice provided by Customer to IBM Credit pursuant to
Section 7.7(C) of this Agreement. The books and records of Customer are
maintained exclusively at such location.
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There is no jurisdiction in which Customer has any Collateral other than those
jurisdictions identified on Attachment B or on any notice provided by Customer
to IBM Credit pursuant to Section 7.7(C) of this Agreement. Attachment B, as
amended from time to time by any notice provided by Customer to IBM Credit in
accordance with Section 7.7(C) of this Agreement, also contains a complete list
of the legal names and addresses of each warehouse at which the Customer's
inventory is stored. None of the receipts received by Customer from any
warehouseman states that the goods covered thereby are to be delivered to bearer
or to the order of a named person or to a named person and such named person's
assigns.
6.6. Organization. All of the outstanding capital stock of Customer has been
validly issued, is fully paid and nonassessable.
6.7. No Judgments or Litigation. Except as set forth on Attachment B, no
judgments, orders, writs or decrees are outstanding against Customer nor is
there now pending or, to the best of Customer's knowledge after due inquiry,
threatened, any litigation, contested claim, investigation, arbitration, or
governmental proceeding by or against Customer all of which in aggregate exceed
$5,000,000.
6.8. No Defaults. The Customer is not in default under any term of any
indenture, contract, lease, agreement, instrument or other commitment (in
amounts which taken together exceed $5,000,000) to which it is a party or by
which it, or any of its properties are bound. Customer has no knowledge of any
dispute regarding any such indenture, contract, lease, agreement, instrument or
other commitment. No Default or Event of Default has occurred and is continuing.
6.9. Labor Matters. Except as set forth on any notice provided by Customer to
IBM Credit pursuant to Section 7.1(H) of this Agreement, the Customer is not a
patty to one or more labor disputes which in aggregate exceed $5,000,000. There
are no strikes or walkouts or labor controversies pending or threatened against
the Customer which could reasonably be expected to have a Material Adverse
Effect.
6.10. Accuracy and Completeness of Information. All factual information
furnished by or on behalf of the Customer to IBM Credit or the Auditors for
purposes of or in connection with this Agreement or any of the Other Documents,
or any transaction contemplated hereby or thereby is or will be true and
accurate in all material respects on the date as of which such information is
dated or certified and not incomplete by omitting to state any material fact
necessary to make such information not misleading at such time.
6.11. Recording Taxes. All recording taxes, recording fees, filing fees and
other charges payable in connection with the filing and recording of this
Agreement have either been paid in full by Customer or arrangements for the
payment of such amounts by Customer have been made to the satisfaction of IBM
Credit.
Section 7. AFFIRMATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations:
7.1. Financial and Other Information. Customer shall cause to be furnished to
IBM Credit the following information within the following time periods:
(A) as soon as available and in any event within ninety (90) days after
the end of each fiscal year of Customer (i) audited Financial Statements
(provided that, to the extent not otherwise audited by the Auditors, the
consolidating Financial Statements may be unaudited) as of the close or the
fiscal year and for the fiscal year, together with a comparison to the Financial
Statements for the prior year, in each case accompanied by (a) either an opinion
of the Auditors without a "going concern" or like qualification or exception, or
qualification arising out of the scope of the audit or, if so qualified, an
opinion which shall be in scope and substance reasonably satisfactory to IBM
Credit, (b) a written statement signed by the Auditors stating that in the
course of the regular audit of the business of Customer and its consolidated
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Subsidiaries, which audit was conducted by the Auditors in accordance with
generally accepted auditing standards, the Auditors have not obtained any
knowledge of the existence of any Default under any provision of this Agreement,
or, if such Auditors shall have obtained from such examination any such
knowledge, they shall disclose in such written statement the existence of the
Default and the nature thereof, it being understood that such Auditors shall
have no liability, directly or indirectly, to anyone for failure to obtain
knowledge of any such Default; and (ii) a Compliance Certificate along with a
schedule, in substantially the form of Attachment C hereto, of the calculations
used in determining, as of the end of such fiscal year, whether Customer is in
compliance with the financial covenants set forth in Attachment A;
(B) as soon as available and in any event within forty-five (45) days
after the end of each fiscal quarter of Customer (i) Financial Statements as of
the end of such period and for the fiscal year to date, together with a
comparison to the Financial Statements for the same periods in the prior year,
all in reasonable detail and duly certified (subject to normal year-end audit
adjustments and except for the absence of footnotes) by the chief executive
officer or chief financial officer of Customer as having been prepared in
accordance with GAAP; and (ii) a Compliance Certificate along with a schedule,
in substantially the form of Attachment C hereto, of the calculations used in
determining, as of the end of such fiscal quarter, whether Customer is in
compliance with the financial covenants set forth in Attachment A;
(C) promptly after Customer obtains knowledge of (i) any proceeding(s)
being instituted or threatened to be instituted by or against Customer in any
federal, state, local or foreign court or before any commission or other
regulatory body (federal, state, local or foreign), or (ii) any actual or
prospective change, development or event which, in any such case, has had or
could reasonably be expected to have a Material Adverse Effect, a certificate of
the chief executive officer or chief financial officer of Customer specifying
the nature thereof and the Customer's proposed response thereto, each in
reasonable detail;
(D) by the tenth (10th) day of each month, or as otherwise agreed in
writing, a Collateral Management Report as of a date no earlier than the last
day of the immediately preceding month;
(E) within ten (10) days after the same are sent, copies of all Financial
Statements and reports which Customer sends to its stockholders, and within ten
(10) days after the same are filed, copies of all Financial Statements and
reports which Customer may make to, or file with, the Securities and Exchange
Commission or any successor or analogous governmental authority.
Each certificate, schedule and report provided by Customer to IBM Credit shall
be signed by an authorized officer of Customer, which signature shall be deemed
a representation and warranty that the information contained in such
certificate, schedule or report is true and accurate in all material respects on
the date as of which such certificate, schedule or report is made and does not
omit to state a material fact necessary in order to make the statements
contained therein not misleading at such time. Each financial statement
delivered pursuant to this Section 7.1 shall be prepared in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods.
7.2. Location of Collateral. The inventory, equipment and other tangible
Collateral shall be kept or sold at the addresses as set forth on Attachment B
or on any notice provided by Customer to IBM Credit in accordance with Section
7.7(C). Such locations shall be certified quarterly to IBM Credit substantially
in the form of Attachment G.
7.3. Changes in Customer. Customer shall provide thirty (30) days prior written
notice to IBM Credit of any change in Customer's name, chief executive office
and principal place of business, organization, form of ownership or corporate
structure; provided, however, that Customer's compliance with this covenant
shall not relieve it of any of its other obligations or any other provisions
under this Agreement or any of the Other Documents limiting actions of the type
described in this Section.
7.4. Corporate Existence. Customer shall (A) maintain its corporate existence,
maintain in full force and effect all licenses, bonds, franchises, leases and
qualifications to do business, and all contracts
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and other rights necessary to the profitable conduct of its business, (B)
continue in, and limit its operations to, the same general lines or business as
presently conducted by it unless otherwise permitted in writing by IBM Credit
and (C) comply with all Requirements of Law.
7.5. Collateral Books and Records/Collateral Audit. (A) Customer agrees to
maintain books and records pertaining to the Collateral in such detail, form and
scope as is consistent with good business practice, and agrees that such books
and records will reflect IBM Credit's interest in the Collateral.
(B) Customer agrees that IBM Credit or its agents may enter upon the
premises of Customer at any time and from time to time, during normal business
hours and upon reasonable notice under the circumstances, and at any time at all
on and after the occurrence and during the continuance of an Event of Default
for the purposes of (i) inspecting the Collateral, (ii) inspecting and/or
copying (at Customer's expense) any and all records pertaining thereto, and
(iii) discussing the affairs, finances and business of Customer with any
officers, employees and directors of Customer or with the Auditors. Customer
also agrees to provide IBM Credit with such reasonable information and
documentation that IBM Credit deems necessary to conduct the foregoing
activities.
Upon the occurrence and during the continuance of an Event of Default which has
not been waived by IBM Credit in writing. IBM Credit may conduct any of the
foregoing activities in any manner that IBM Credit deems reasonably necessary.
(C) Customer shall give IBM Credit thirty (30) days prior written notice
of any change in the location of any Collateral, the location of its books and
records or in the location of its chief executive office or place of business
from the locations specified in Attachment B, and will execute in advance of
such change and cause to be filed and/or delivered to IBM Credit any financing
statements, landlord or other lien waivers, or other documents reasonably
required by IBM Credit, all in form and substance reasonably satisfactory to IBM
Credit.
(D) Customer agrees to advise IBM Credit promptly, in reasonably
sufficient detail, of any substantial change relating to the type, quantity or
quality of the Collateral, or any event which could reasonably be expected to
have a Material Adverse Effect on the value of the Collateral or on the security
interests granted to IBM Credit herein.
7.6. Insurance; Casualty Loss. (A) Customer agrees to maintain with financially
sound and reputable insurance companies: (i) insurance on its properties, (ii)
public liability insurance against claims for personal injury or death as a
result of the use of any products sold by it and (iii) insurance coverage
against other business risks, in each case, in at least such amounts and against
at least such risks as are usually and prudently insured against in the same
general geographical area by companies of established repute engaged in the same
or a similar business. Customer will furnish to IBM Credit, upon its written
request, the insurance certificates with respect to such insurance. In addition,
all Policies so maintained are to name IBM Credit as an additional insured as
its interest may appear.
(B) Without limiting the generality of the foregoing, Customer shall keep
and maintain, at its sole expense, the Collateral insured for an amount not less
than the amount set forth on Attachment A from time to time opposite the caption
"Collateral Insurance Amount" against all loss or damage under an "all risk"
Policy with companies mutually acceptable to IBM Credit and Customer, with a
lender's loss payable endorsement or mortgagee clause in form and substance
reasonably satisfactory to IBM Credit designating that any loss payable
thereunder with respect to such Collateral shall be payable to IBM Credit. Upon
receipt of proceeds by IBM Credit the same shall be applied on account of the
Customer's Outstanding Advances. Customer agrees to instruct each insurer to
give IBM Credit, by endorsement upon the Policy issued by it or by independent
instruments furnished to IBM Credit, at least ten (10) days written notice
before any Policy shall be altered or cancelled and that no act or default of
Customer or any other person shall affect the right of IBM Credit to recover
under the Policies. Customer hereby agrees to direct all insurers under the
Policies to pay all proceeds with respect to the Collateral directly to IBM
Credit. If Customer fails to pay any cost, charges or premiums, or if Customer
fails to insure the
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Collateral, IBM Credit may pay such costs, charges or premiums. Any amounts paid
by IBM Credit hereunder shall be considered an additional debt owed by Customer
to IBM Credit and are due and payable immediately upon receipt of an invoice by
IBM Credit.
7.7. Taxes. Customer agrees to pay, when due, all taxes lawfully levied or
assessed against Customer or any of the Collateral before any penalty or
interest accrues thereon unless such taxes are being contested, in good faith,
by appropriate proceedings promptly instituted and diligently conducted and an
adequate reserve or other appropriate provisions have been made therefor as
required in order to be in conformity with GAAP and an adverse determination in
such proceedings could not reasonably be expected to have a Material Adverse
Effect.
7.8. Compliance With Laws. Customer agrees to comply with all Requirements of
Law applicable to the Collateral or any part thereof, or to the operation of its
business.
7.9. Fiscal Year. Customer agrees to maintain its fiscal year as a year ending
December 31 unless Customer provides IBM Credit at least thirty (30) days prior
written notice of any change thereof.
7.12. Maintenance of Property. Customer shall maintain all of its material
properties (business and otherwise) in good condition and repair (ordinary wear
and tear excepted) and pay and discharge all costs of repair and maintenance
thereof and all rental and mortgage payments and related charges pertaining
thereto and not commit or permit any waste with respect to any of its material
properties.
7.13. Collateral. Customer shall:
(A) promptly notify IBM Credit of any loss, theft or destruction of or
damage to any of the Collateral. Customer shall diligently file and prosecute
its claim for any award or payment in connection with any such loss, theft,
destruction of or damage to Collateral. Customer shall, upon demand of IBM
Credit, make, execute and deliver any assignments and other instruments
sufficient for the purpose of assigning any such award or payment to IBM Credit,
free of encumbrances of any kind whatsoever;
(B) consistent with reasonable commercial practice, observe and perform
all matters and things necessary or expedient to be observed or performed under
or by virtue of any lease, license, concession or franchise forming part of the
Collateral in order to preserve, protect and maintain all the rights of IBM
Credit thereunder;
(C) consistent with reasonable commercial practice, maintain, use and
operate the Collateral and carry on and conduct its business in a proper and
efficient manner so as to preserve and protect the Collateral and the earnings,
incomes, rents, issues and profits thereof; and
(D) at any time and from time to time, upon the request of IBM Credit,
and at the sole expense of Customer, Customer will promptly and duly execute and
deliver such further instruments and documents and take such further action as
IBM Credit may reasonably request for the purpose of obtaining or preserving the
full benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code in effect in any jurisdiction with
respect to the security interests granted herein and the payment of any and all
recording taxes and filing fees in connection therewith.
7.14. Subsidiaries. IBM Credit may require that any Subsidiaries of Customer
become parties to this Agreement or any other agreement executed in connection
with this Agreement as guarantors or sureties. Customer will comply, and cause
all Subsidiaries of Customer to comply with Sections 7 and 8 of this Agreement,
as if such sections applied directly to such Subsidiaries.
7.15. Financial Covenants; Additional Covenants. Customer acknowledges and
agrees that Customer shall comply with the financial covenants and other
covenants set forth in the attachments, exhibits and other addenda incorporated
herein and made a part of this Agreement.
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<PAGE>
Section 8. NEGATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations hereunder.
8.1. Liens. The Customer will not, directly or indirectly mortgage, assign,
pledge, transfer, create, incur, assume, permit to exist or otherwise permit any
Lien or judgment to exist on any of its Collateral, whether now owned or
hereafter acquired, except for Permitted Liens.
8.2. Disposition of Collateral. The Customer will not, directly or indirectly,
sell, lease, assign, transfer or otherwise dispose of any Collateral other than
(i) sales of inventory in the ordinary course of business and short term rental
of inventory as demonstrations in amounts not material to Customer; and (ii)
voluntary dispositions of Collateral in the ordinary course of business,
provided, that the aggregate book value of all such Collateral so sold or
disposed of under this section 8.2 (ii) in any fiscal year shall not exceed 5%
of the consolidated assets of the Customer as of the beginning of such fiscal
year.
8.3. Corporate Changes. The Customer will not, without the prior written notice
to IBM Credit, directly or indirectly, merge, consolidate, liquidate, dissolve
or enter into or engage in any operation or activity materially different from
that presently being conducted by Customer.
8.4. Additional Negative Pledges. Customer will not, directly or indirectly,
create or otherwise cause or permit to exist or become effective any contractual
obligation which may restrict or inhibit IBM Credit's rights or ability to sell
or otherwise dispose of the Collateral or any part thereof after the occurrence
and during the continuance of an Event of Default.
8.5. Storage of Collateral with Bailees and Warehousemen. Collateral shall not
be stored with a bailee, warehouseman or similar party without the prior written
consent of IBM Credit unless Customer will, concurrently with the delivery of
such Collateral to such party, cause such party to issue and deliver to IBM
Credit, warehouse receipts in the name of IBM Credit evidencing the storage of
such Collateral.
Section 9. DEFAULT
9.1. Event of Default. Any one or more of the following events shall constitute
an Event of Default by the Customer under this Agreement and the Other
Documents:
(A) The failure to make timely payment of the Obligations or any part
thereof when due and payable;
(B) Customer fails to comply with or observe any term, covenant or
agreement contained in this Agreement or any of the Other Documents;
(C) Any representation, warranty, statement, report or certificate made
or delivered by or on behalf of Customer or any of its officers, employees or
agents or by or on behalf of any guarantor to IBM Credit was false in any
material respect at the time when made or deemed made;
(D) The occurrence of any event or circumstance which could reasonably be
expected to have a Material Adverse Effect on the Collateral;
(E) Customer, any Subsidiary or any guarantor shall generally not pay its
debts as such debts become due, become or otherwise declare itself insolvent,
file a voluntary petition for bankruptcy protection, have filed against it any
involuntary bankruptcy petition, cease to do business as a going concern, make
any assignment for the benefit of creditors, or a custodian, receiver, trustee,
liquidator, administrator or person with similar powers shall be appointed for
Customer, any Subsidiary or any
Page 15 of 21
<PAGE>
guarantor or any of its respective properties or have any of its respective
properties seized or attached, or take any action to authorize, or for the
purpose of effectuating, the foregoing, provided, however, that Customer, any
Subsidiary or any guarantor shall have a period of forty-five (45) days within
which to discharge any involuntary petition for bankruptcy or similar
proceeding;
(F) The use of any funds borrowed from IBM Credit under this Agreement
for any purpose other than as provided in this Agreement;
(G) The entry of any judgment against Customer or any guarantor in an
amount in excess of $5,000,000 and such judgment is not satisfied, dismissed,
stayed or superseded by bond within thirty (30) days after the day of entry
thereof (and in the event of a stay or supersedeas bond, such judgment is not
discharged within thirty (30) days after termination of any such stay or bond)
or such judgment is not fully covered by insurance as to which the insurance
company has acknowledged its obligation to pay such judgment in full;
(H) The dissolution or liquidation of Customer, any Subsidiary or any
guarantor, or Customer or any guarantor or its directors or stockholders shall
take any action to dissolve or liquidate Customer or any guarantor;
(I) Any "going" concern or like qualification or exception, or
qualification arising out of the scope of an audit by an Auditor of its opinion
relative to any Financial Statement delivered to IBM Credit under this
Agreement;
(J) There issues a warrant of distress for any rent or taxes with respect
to any premises occupied by Customer in or upon which the Collateral, or any
part thereof, may at any time be situated and such warrant shall continue for a
period of ten (10) Business Days from the date such warrant is issued;
(K) Customer suspends business;
(L) The occurrence of any event or condition that permits the holder of
any Indebtedness arising in one or more related or unrelated transactions to
accelerate the maturity thereof or the failure of Customer to pay when due any
such indebtedness;
(M) Customer is in default under the material terms of any of the Other
Documents after the expiration of any applicable cure periods;
(N) Any "persons" (as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended) acquires a beneficial interest in 50% or more
of the Voting Stock of Customer.
9.2. Acceleration. Upon the occurrence and during the continuance of an Event of
Default which has not been waived in writing by IBM Credit, IBM Credit may, in
its sole discretion, take any or all of the following actions, without prejudice
to any other rights it may have at law or under this Agreement to enforce its
claims against the Customer: (a) declare all Obligations to be immediately due
and payable (except with respect to any Event of Default set forth in Section
9.1(E) hereof, in which case all Obligations shall automatically become
immediately due and payable without the necessity of any notice or other demand)
without presentment, demand, protest or any other action or obligation of IBM
Credit; and (b) immediately terminate the Credit Line hereunder.
9.3. Remedies. (A) Upon the occurrence and during the continuance of any Event
of Default which has not been waived in writing by IBM Credit, IBM Credit may
exercise all rights and remedies of a secured party under the U.C.C. Without
limiting the generality of the foregoing, IBM Credit may foreclose the security
interests created pursuant to this Agreement by any available judicial
procedure, or to take possession of any or all of the Collateral without
judicial process and to enter any premises where any Collateral may be located
for the purpose of taking possession of or removing the same.
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<PAGE>
(B) Upon the occurrence and during the continuance of an Event of Default
which has not been waived in writing by IBM Credit, IBM Credit shall have the
right to sell, lease, or otherwise dispose of all or any part of the Collateral,
whether in its then condition or after further preparation or processing, in the
name of Customer or IBM Credit, or in the name of such other party as IBM Credit
may designate, either at public or private sale or at any broker's board, in
lots or in bulk, for cash or for credit, with or without warranties or
representations, and upon such other terms and conditions as IBM Credit in its
sole discretion may deem advisable, and IBM Credit shall have the right to
purchase at any such sale. If IBM Credit, in its sole discretion determines that
any of the Collateral requires rebuilding, repairing, maintenance or
preparation, IBM Credit shall have the right, at its option, to do such of the
aforesaid as it deems necessary for the purpose of putting such Collateral in
such saleable form as IBM Credit shall deem appropriate. The Customer hereby
agrees that any disposition by IBM Credit of any Collateral pursuant to and in
accordance with the terms of a repurchase agreement between IBM Credit and the
manufacturer or any supplier (including any Authorized Supplier) of such
Collateral constitutes a commercially reasonable sale. The Customer agrees, at
the request of IBM Credit, to assemble the Collateral and to make it available
to IBM Credit at places which IBM Credit shall select, whether at the premises
of the Customer or elsewhere, and to make available to IBM Credit the premises
and facilities of the Customer for the purpose of IBM Credit's taking possession
of, removing or putting such Collateral in saleable form. If notice of Intended
disposition of any Collateral is required by law, it is agreed that ten (10)
Business Days notice shall constitute reasonable notification.
(C) The net cash proceeds resulting from IBM Credit's exercise of any of
the foregoing rights (after deducting all charges, costs and expenses, including
reasonable attorneys' fees) shall be applied by IBM Credit to the payment of
Customer's Obligations, whether due or to become due, in such order as IBM
Credit may in it sole discretion elect. Customer shall remain liable to IBM
Credit for any deficiencies, and IBM Credit in turn agrees to remit to Customer
or its successors or assigns, any surplus resulting therefrom.
(D) The enumeration of the foregoing rights is not intended to be
exhaustive and the exercise of any right shall not preclude the exercise of any
other rights, all of which shall be cumulative.
9.4. Waiver. If IBM Credit seeks to take possession of any of the Collateral by
any court process Customer hereby irrevocably waives to the extent permitted by
applicable law any bonds, surety and security relating thereto required by any
statute, court rule or otherwise as an incident to such possession and any
demand for possession of the Collateral prior to the commencement of any suit or
action to recover possession thereof. In addition, Customer waives to the extent
permitted by applicable law all rights of set-off it may have against IBM
Credit. Customer further waives to the extent permitted by applicable law
presentment, demand and protest, and notices of non-payment, non-performance,
any right of contribution, dishonor, and any other demands, and notices required
by law.
Section 10. MISCELLANEOUS
10.1. Term; Termination. (A) This Agreement shall remain in force until the
earlier of (i) the Termination Date, (ii) the date specified in a written notice
by the Customer that they intend to terminate this Agreement which date shall be
no less than ninety (90) days following the receipt by IBM Credit of such
written notice, and (iii) termination by IBM Credit after the occurrence and
during the continuance of an Event of Default. Upon the date that this Agreement
is terminated, all of Customer's Obligations shall be immediately due and
payable in their entirety, even if they are not yet due under their terms.
(B) Until the indefeasible payment in full of all of Customer's
Obligations, no termination of this Agreement or any of the Other Documents
shall in any way affect or impair (i) Customer's Obligations to IBM Credit
including, without limitation, any transaction or event occurring prior to and
after such termination, or (ii) IBM Credit's rights hereunder, including,
without limitation, IBM Credit's security interest in the Collateral. On and
after a Termination Date IBM Credit may, but shall not be obligated to, upon the
request of Customer, continue to provide Advances hereunder.
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<PAGE>
10.2. Indemnification. The Customer hereby agrees to indemnify and hold harmless
IBM Credit and each of its officers, directors, agents and assigns
(collectively, the "Indemnified Persons") against all losses, claims, damages,
liabilities or other expenses (including reasonable attorneys' fees and court
costs now or hereinafter arising from the enforcement of this Agreement, the
"Losses") to which any of them may become subject insofar as such Losses arise
out of or are based upon any event, circumstance or condition (a) occurring or
existing on or before the date of this Agreement relating to any financing
arrangements IBM Credit may from time to time have with (i) Customer, (ii) any
Person that shall be acquired by Customer or (iii) any Person that Customer may
acquire all or substantially all of the assets of, or (b) directly or
indirectly, relating to the execution, delivery or performance of this Agreement
or the consummation of the transactions contemplated hereby or thereby or to any
of the Collateral or to any act or omission of the Customer in connection
therewith. Notwithstanding the foregoing, the Customer shall not be obligated to
indemnify IBM Credit for any Losses incurred by IBM Credit which are a result of
IBM Credit's gross negligence or willful misconduct. The indemnity provided
herein shall survive the termination of this Agreement.
10.3. Additional Obligations. IBM Credit, without waiving or releasing any
Obligation or Default of the Customer, may perform any Obligations of the
Customer that the Customer shall fail or refuse to perform and IBM Credit may,
at any time or times hereafter, but shall be under no obligation to do so, pay,
acquire or accept any assignment of any security interest, lien, encumbrance or
claim against the Collateral asserted by any person. All sums paid by IBM Credit
in performing in satisfaction or on account of the foregoing and any expenses,
including reasonable attorney's fees, court costs, and other charges relating
thereto, shall be a part of the Obligations, payable on demand and secured by
the Collateral.
10.4. LIMITATION OF LIABILITY. NEITHER IBM CREDIT NOR ANY OTHER INDEMNIFIED
PERSON SHALL HAVE ANY LIABILITY WITH RESPECT TO ANY SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES SUFFERED BY CUSTOMER IN CONNECTION WITH THIS AGREEMENT,
ANY OTHER AGREEMENT OR ANY CLAIMS IN ANY MANNER RELATED THERETO. NOR SHALL IBM
CREDIT OR ANY OTHER INDEMNIFIED PERSON HAVE ANY LIABILITY TO CUSTOMER OR ANY
OTHER PERSON FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT OR THEM
HEREUNDER, EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
10.5. Alteration/Waiver. This Agreement and the Other Documents may not be
altered or amended except by an agreement in writing signed by the Customer and
by IBM Credit. No delay or omission of IBM Credit to exercise any right or
remedy hereunder, whether before or after the occurrence of any Event of
Default, shall impair any such right or remedy or shall operate as a waiver
thereof or as a waiver of any such Event of Default. In the event that IBM
Credit at any time or from time to time dispenses with any one or more of the
requirements specified in this Agreement or any of the Other Documents, such
dispensation may be revoked by IBM Credit at any time and shall not be deemed to
constitute a waiver of any such requirement subsequent thereto. IBM Credit's
failure at any time or times to require strict compliance and performance by the
Customer of any undertakings, agreements, covenants, warranties and
representations of this Agreement or any of the Other Documents shall not waive,
affect or diminish any right of IBM Credit thereafter to demand strict
compliance and performance thereof. Any waiver by IBM Credit of any Default by
the Customer under this Agreement or any of the Other Documents shall not waive
or affect any other Default by the Customer under this Agreement or any of the
Other Documents, whether such Default is prior or subsequent to such other
Default and whether of the same or a different type. None of the undertakings,
agreements, warranties, covenants, and representations of the Customer contained
in this Agreement or the Other Documents and no Default by the Customer shall be
deemed waived by IBM Credit unless such waiver is in writing signed by an
authorized representative of IBM Credit.
10.6. Severability. If any provision of this Agreement or the Other Documents or
the application thereof to any Person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the Other Documents and the
application of such provision to other Persons or circumstances will
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<PAGE>
not be affected thereby, the provisions of this Agreement and the Other
Documents being severable in any such instance.
10.7. One Loan. All Advances heretofore, now or at any time or times hereafter
made by IBM Credit to the Customer under this Agreement or the Other Documents
shall constitute one loan secured by IBM Credit's security interests in the
Collateral and by all other security interests, liens and encumbrances
heretofore, now or from time to time hereafter granted by the Customer to IBM
Credit or any assignor of IBM Credit.
10.8. Additional Collateral. All monies, reserves and proceeds received or
collected by IBM Credit with respect to other property of the Customer in
possession of IBM Credit at any time or times hereafter are hereby pledged by
Customer to IBM Credit as security for the payment of Customer's Obligations and
shall be applied promptly by IBM Credit on account of the Customer's
Obligations; provided, however, IBM Credit may release to the Customer such
portions of such monies, reserves and proceeds as IBM Credit may from time to
time determine, in its sole discretion.
10.9. No Merger or Novations. (A) Notwithstanding anything contained in any
document to the contrary, it is understood and agreed by the Customer and IBM
Credit that the claims of IBM Credit arising hereunder and existing as of the
date hereof constitute continuing claims arising out of the Obligations of
Customer under the AWF. Customer acknowledges and agrees that such Obligations
outstanding as of the date hereof have not been satisfied or discharged and that
this Agreement is not intended to effect a novation of the Customer's
Obligations under the AWF.
(B) Neither the obtaining of any judgment nor the exercise of any power
of seizure or sale shall operate to extinguish the Obligations of the Customer
to IBM Credit secured by this Agreement and shall not operate as a merger of any
covenant in this Agreement, and the acceptance of any payment or alternate
security shall not constitute or create a novation and the obtaining of a
judgment or judgments under a covenant herein contained shall not operate as a
merger of that covenant or affect IBM Credit's rights under this Agreement.
10.10. Paragraph Titles. The Section titles used in this Agreement and the Other
Documents are for convenience only and do not define or limit the contents of
any Section.
10.11. Binding Effect; Assignment. This Agreement and the Other Documents shall
be binding upon and inure to the benefit of IBM Credit and the Customer and
their respective successors and assigns; provided, that the Customer shall have
no right to assign this Agreement or any of the Other Documents without the
prior written consent of IBM Credit.
10.12. Notices; E-Business Acknowledgment. (A) Except as otherwise expressly
provided in this Agreement, any notice required or desired to be served, given
or delivered hereunder shall be in writing, and shall be deemed to have been
validly served, given or delivered (i) upon receipt if deposited in the United
States mails, first class mail, with proper postage prepaid, (ii) upon receipt
of confirmation or answerback if sent by telecopy or other similar facsimile
transmission, (iii) one Business Day after deposit with a reputable overnight
courier with all charges prepaid, or (iv) when delivered, if hand-delivered by
messenger, all of which shall be properly addressed to the party to be notified
and sent to the address or number indicated as follows:
(i) If to IBM Credit at: (ii) If to Customer at:
IBM Credit Corporation PC Connection, Inc.
1500 RiverEdge Parkway Rt 101A 730 Milford Road
Atlanta, GA 30328 Merrimack, NH 03054
Attention: Region Manager, North Attention: Mr. Jack Ferguson
Facsimile: 770 / 644 - 4825 Facsimile: 603 / 423 - 2283
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<PAGE>
or to such other address or number as each party designates to the other in the
manner prescribed herein.
(B) (i) Each party may electronically transmit to or receive from the other
party certain documents set forth in Attachment H ("E-Documents") via the
Internet or electronic data Interchange ("EDI"). Any transmission of data which
is not an E-Document shall have no force or effect between the parties. EDI
transmissions may be sent directly or through any third party service provider
("Provider") with which either party may contract. Each party shall be liable
for the acts or omissions of its Provider while handling E-Documents for such
party, provided, that if both parties use the same Provider, the originating
party shall be liable for the acts or omissions of such Provider as to such
E-Document. Some information to be made available to Customer will be specific
to Customer and will require Customer's registration with IBM Credit before
access is provided. After IBM Credit has approved the registration submitted by
Customer, IBM Credit shall provide an ID and password(s) to an individual
designated by Customer ("Customer Recipient"). Customer accepts responsibility
for the designated individual's distribution of the ID and password(s) within
its organization and Customer will take reasonable measures to ensure that
passwords are not shared or disclosed to unauthorized individuals. Customer will
conduct an annual review of all IDs and passwords to ensure they are accurate
and properly authorized. IBM CREDIT MAY CHANGE OR DISCONTINUE USE OF AN ID OR
PASSWORD AT ITS DISCRETION AT ANY TIME. E-Documents shall not be deemed to have
been properly received and no E-Document shall give rise to any obligation,
until accessible to the receiving party at such party's receipt computer at the
address specified herein. Upon proper receipt of an E-Document, the receiving
party shall promptly transmit a functional acknowledgment in return. A
functional acknowledgment shall constitute conclusive evidence that an
E-Document has been properly received. If any transmitted E-Document is received
in an unintelligible or garbled form, the receiving party shall promptly notify
the originating party in a reasonable manner. In the absence of such a notice,
the originating party's records of the contents of such E-Document shall
control.
(ii) Each party shall use those security procedures which are reasonably
sufficient to ensure that all transmissions of E-Documents are authorized and to
protect its business records and data from improper access. Any E-Document
received pursuant to this Section 10.12 shall have the same effect as if the
contents of the E-Document had been sent in paper rather than electronic form.
The conduct of the parties pursuant to this Section 10.12 shall, for all legal
purposes, evidence a course of dealing and a course of performance accepted by
the parties. The parties agree not to contest the validity or enforceability of
E-Documents under the provisions of any applicable law relating to whether
certain agreements are to be in writing or signed by the party to be bound
thereby. The parties agree, as to any E-Document accompanied by the Customer's
ID, that IBM Credit can reasonably rely on the fact that such E-Document is
properly authorized by Customer. E-Documents, if introduced as evidence on paper
in any judicial, arbitration, mediation or administrative proceedings, will be
admissible as between the parties to the same extent and under the same
conditions as other business records originated and maintained in documentary
form. Neither party shall contest the admissibility of copies of E-Documents
under either the business records exception to the hearsay rule or the best
evidence rule on the basis that the E-Documents were not originated or
maintained in documentary form.
CUSTOMER RECIPIENT INFORMATION for Internet transmissions:
(PLEASE PRINT)
Name of Customer's Designated Central Contact Authorized to Receive IDs and
Passwords:
- --------------------------------------------------------------------------------
e-mail Address:
-----------------------------------------------------------------
Phone Number
--------------------------------------------------------------------
10.13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto were upon the same instrument.
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10.14. ATTACHMENT A MODIFICATIONS. IBM Credit may modify the Collateral
Insurance Amount set forth in Attachment A from time to time by providing
Customer with a new Attachment A. Any such new Attachment A shall be effective
as of the date specified In the new Attachment A.
10.15. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW, TO INDUCE IBM
CREDIT TO ACCEPT THIS AGREEMENT AND THE OTHER DOCUMENTS, THE CUSTOMER HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT AND ANY OTHER AGREEMENT, OR FOR THE RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL
JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS AND ANY FEDERAL
DISTRICT COURT IN MASSACHUSETTS.
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH
COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREINAFTER HAVE TO THE VENUE
OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM
THE SAME.
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY
BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY
SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO CUSTOMER AT ITS ADDRESS
SET FORTH IN SECTION 10.12 OR AT SUCH OTHER ADDRESS OF WHICH IBM CREDIT SHALL
HAVE BEEN NOTIFIED PURSUANT THERETO.
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE
OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE
IN ANY OTHER JURISDICTION.
(E) AGREES THAT THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AGREEMENT AND THE OTHER DOCUMENTS SHALL BE GOVERNED BY THE LAWS (WITHOUT GIVING
EFFECT TO CONFLICT OF LAW PROVISIONS) OF THE COMMONWEALTH OF MASSACHUSETTS.
10.16. JURY TRIAL WAIVER. EACH OF IBM CREDIT AND THE CUSTOMER HEREBY IRREVOCABLY
WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (INCLUDING ANY
COUNTERCLAIM) OF ANY TYPE IN WHICH IBM CREDIT AND THE CUSTOMER ARE PARTIES AS TO
ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT OR ANY
DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION HEREWITH.
IN WITNESS WHEREOF, the Customer has read this entire Agreement, and has
caused its authorized representatives to execute this Agreement and has caused
its corporate seal to be affixed hereto as of the date first written above.
IBM CREDIT CORPORATION PC CONNECTION, INC.
By: /s/ Stephen A. Nichols By: /s/ Jack L. Ferguson
----------------------------------- -----------------------------------
Print Name: STEPHEN A. NICHOLS Print Name: Jack L. Ferguson
--------------------------- ---------------------------
Title: REGION CREDIT MANAGER Title: Treasurer, Director of Finance
-------------------------------- --------------------------------
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ATTACHMENT A, EFFECTIVE DATE August, 1999 ("AIF ATTACHMENT A")
TO AGREEMENT FOR INVENTORY FINANCING ("AIF AGREEMENT")
DATED August, 1999
Customer: PC Connection, Inc.
I. Fees, Rates and Repayment Terms:
(A) Credit Line: Fifteen Million Dollars ($15,000,000.00);
(B) Borrowing Base;
100% of the Customer's inventory in the Customer's possession as of
the date of determination as reflected in the Customer's most recent
Collateral Management Report constituting Products (other than
service parts) financed through a Product Advance by IBM Credit,
provided, however, IBM Credit has a first priority security interest
in such Products and such Products are in new and in un-opened
boxes. The value to be assigned to such inventory shall be based
upon the Authorized Supplier's invoice price to Customer for
Financed Products net of all applicable price reduction credits.
(C) Collateral Insurance Amount: Fifty Million Dollars ($50,000,000.00)
(D) Delinquency Fee Rate: Prime Rate plus 6.500%
(E) Free Financing Period Exclusion Fee: For each Product Advance made
by IBM Credit pursuant to Customer's financing plan where there is
no Free Financing Period associated with such Product Advance there
will be a fee equal to the Free Financing Period Exclusion Fee. For
a 30 day payment plan when Prime Rate is 8% the Free Financing
Period Exclusion Fee is 1.08% of the invoice amount. This fee will
vary by .0125% with each .25% change in Prime Rate (e.g. Prime Rate
of 7.25%, the charge is 1.0425% of the invoice amount). The fee
accrues as of the Date of the Note and is payable as stated in the
billing Statement.
(F) Shortfall Transaction Fee: Shortfall Amount multiplied by 0.30%
II. Financial Covenants:
Customer must be in compliance with the Minimum Net Income and
Minimum Net Worth covenants as set forth and defined in that certain
Credit Agreement dated May 29, 1999 by and between Customer and
State Street Bank and Trust Company.
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<PAGE>
AIF ATTACHMENT A TO
AGREEMENT FOR INVENTORY FINANCING ("AIF AGREEMENT")
III. Additional Conditions Precedent Pursuant to Section 5.1 (I) of the
Agreement (continued):
o A Compliance Certificate as to Customer's compliance with the
financial covenants set forth in Attachment A as of the last fiscal
month of Customer for which financial statements have been
published;
o A Corporate Secretary's Certificate substantially in the form and
substance of Attachment I certifying to, among other items, the
resolutions of Customer's Board of Directors authorizing borrowing
by Customer.
o Termination or release of Uniform Commercial Code filing by another
creditor as required by IBM Credit;
o A copy of an all-risk insurance certificate pursuant to Section 7.8
(B) of the Agreement.
Page 2 of 10
<PAGE>
AIF ATTACHMENT B TO
AGREEMENT FOR INVENTORY FINANCING ("AIF AGREEMENT")
Customer: PC Connections, Inc.
I. Liens.
II. Locations of Offices, Records and Inventory.
(A) Principal Place of Business and Chief Executive Office
(B) Locations of Assets, Inventory and Equipment (including warehouses)
Location Leased (Y/N)
III. Fictitious Names.
IV. Organization.
(A) Subsidiaries
Name Jurisdiction Owner Percent
Owned
Page 3 of 10
<PAGE>
AIF ATTACHMENT B TO
AGREEMENT FOR INVENTORY FINANCING ("AIF AGREEMENT")
(B) Affiliates
Name Capacity
V. Judgments or Litigation.
VI. Environmental Matters.
VII. Indebtedness.
Page 4 of 10
<PAGE>
AIF ATTACHMENT C TO
AGREEMENT FOR INVENTORY FINANCING ("AIF AGREEMENT")
COMPLIANCE CERTIFICATE
(SEE ATTACHED)
Customer must submit to IBM Credit, Compliance Certificates, as required
pursuant to that certain Credit Agreement dated May 29, 1999 by and between
Customer and State Street Bank and Trust Company.
Page 5 of 10
<PAGE>
AIF ATTACHMENT D TO
AGREEMENT FOR INVENTORY FINANCING ("AIF AGREEMENT")
Customer: PC Connections, Inc.
(This page intentionally left blank)
Page 6 of 10
<PAGE>
AIF ATTACHMENT E TO
AGREEMENT FOR INVENTORY FINANCING ("AIF AGREEMENT")
Customer: PC Connections, Inc.
AUTHORIZED SUPPLIERS
Page 7 of 10
<PAGE>
AIF ATTACHMENT F TO
AGREEMENT FOR INVENTORY FINANCING ("AIF AGREEMENT")
Customer: PC Connections, Inc.
(This page intentionally left blank)
Page 8 of 10
<PAGE>
AIF ATTACHMENT G TO
AGREEMENT FOR INVENTORY FINANCING ("AIF AGREEMENT")
CERTIFICATE OF LOCATION OF COLLATERAL
The undersigned, the (insert title of office held) of (insert Customer's
Name) ("insert abbreviated name"), hereby certifies with reference to the
Agreement for Inventory Financing, dated (insert date Agreement signed), between
(insert Customer's abbreviated name) and IBM Credit Corporation as follows:
(a) The following are all the locations where (insert abbreviated name)
presently keeps or sells inventory, equipment or other tangible Collateral:
LOCATION LEASE (YES/NO)
IN WITNESS WHEREOF, I have hereunto set my hand this day of_________
______________, 19__.
_________________________
(Customer Name)
By:______________________
Title:___________________
Page 9 of 10
<PAGE>
AIF ATTACMENT H TO
AGREEMENT FOR INVENTORY FINANCING ("AIF AGREEMENT")
E-BUSINESS SCHEDULE A ("SCHEDULE A")
CUSTOMER NAME: PC Connections, Inc.
EFFECTIVE DATE OF THIS SCHEDULE A: __________________________
E-DOCUMENTS AVAILABLE TO SUPPLIERS:
Invoices
Payment Report/Remittance Advisor
E-DOCUMENTS AVAILABLE TO CUSTOMER:
Invoices
Remittance Advisor
Transaction Approval
Billing Statement
Payment Planner
Auto Cash
Statements of Transaction
Common Dispute Form
Page 10 of 10
<PAGE>
Exhibit 10.32
AMENDMENT TO AGREEMENT FOR INVENTORY FINANCING
(PC Connection Sales Corp. fka PC Connection, Inc.)
This Amendment to Agreement for Inventory Financing is entered into as of
February 25, 2000 by and between PC Connection Sales Corp. fka PC Connection,
Inc., a Delaware corporation ("Customer") and IBM Credit Corporation ("IBM
Credit").
WHEREAS, the Customer and IBM Credit are parties to a certain Agreement
for Inventory Financing dated August 17, 1999. as amended from time to time (the
"Agreement"); and
WHEREAS, the Customer has engaged in a corporate reorganization which was
consummated on or about December 31, 1999, in which, among other things, (i) the
Customer formed PC Holdco, Inc. ("Holdco") as its subsidiary, (ii) Holdco formed
a transitory subsidiary into which the Customer was merged, which resulted in
the Customer being a wholly-owned subsidiary of Holdco, (iii) the Customer
formed two new subsidiaries, PC Connection Sales of Massachusetts, Inc.
("Sales-MA") and Merrimack Services Corp. ("Merrimack"), each a Delaware
corporation and contributed certain assets to such entities, (iv) the Customer
then distributed its stock in Merrimack and its other subsidiary, Comteq
Federal, Inc. ("Comteq") to Holdco, and (v) the Customer changed its name to "PC
Connection Sales Corp" and Holdco changed its name to "PC Connection, Inc." (the
"Restructuring"); and
WHEREAS, the Customer and IBM Credit desire to amend the Agreement on the
terms and conditions set forth herein;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Customer and IBM Credit hereby
agree as follows:
1. (a) The definitions of "Obligations" and "Purchase Money Security
Interest" in Section 1.1 of the Agreement are hereby deleted in their entirety
and replaced in their entirety with the following:
"'Obligations': all covenants, agreements, warranties, duties,
representations. loans, advances, interest (including interest accruing on or
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to Customer, whether or
not a claim for post-filing or post-petition interest is allowed in such
proceeding), fees, reasonable expenses, indemnities, liabilities and
Indebtedness of any kind and nature whatsoever now or hereafter arising, owing,
due or payable from Customer to IBM Credit; provided however, that
notwithstanding the foregoing, the term Obligations shall not include and shall
specifically exclude any and all debts to IBM Credit under any and all
guarantees by Customer of any obligations of any of Customer's affiliates or
subsidiaries to IBM Credit, including, without limitation, those arising under
or pursuant to a certain [Guaranty of even date herewith by Customer, PC
Connection Sales or Massachusetts. Inc. Merrimack Services Corp. and PC
1
<PAGE>
Connection. Inc. (fka PC Holdco, Inc.)] in favor of you with respect to
obligations of Comteq Federal, Inc.
"'Purchase Money Security Interest': any security interest securing
Purchase Money Indebtedness, which security interest applies solely to the
particular asset acquired with the Purchase Money indebtedness and the proceeds
thereof."
(b) Section 1.1 of the Agreement is hereby amended by inserting the
following in alphabetical order:
"'Purchase Money Indebtedness': Indebtedness in respect of equipment
financing pursuant to purchase money obligations or capitalized leases"
(c) Section 4.1 of the Agreement is hereby deleted in its entirety
and replaced in its entirety with the following:
"4.1. Grant To secure Customer's full and punctual payment and performance
of the Obligations (including obligations under any leases Customer may enter
into, now or in the future, with IBM Credit) when due (whether at the stated
maturity, by acceleration or otherwise), Customer hereby grants IBM Credit a
security interest in all of Customer's right, title and interest in and to the
following property, whether now owned or hereafter acquired or existing and
wherever located:
(i) All of Debtor's inventory, which is manufactured or sold by or bearing
any trademark or tradename of International Business Machines Corporation or
Lexmark International, Inc. or any of their subsidiaries or affiliated
companies, whether now owned or hereafter acquired;
(ii) All parts, attachments, accessories, accessions, repossessions,
exchanges, substitutions and replacements thereto or thereof;
(iii) All rebates, discounts, credits, refunds and incentive payments, now
or hereafter due Debtor, relating and limited to any of the items described in
clauses (i) or (ii) above; and
(iv) All cash proceeds of and insurance payable by loss of or damage to
any of the items described in clauses (i), (ii) or (iii) above.
The foregoing clauses (i), (ii), (iii) and (iv) shall not include, and
specifically exclude, any and all accounts, promissory notes, installment
contracts, contract rights, chattel paper, instruments or other rights to
payment, except for claims arising specifically from clauses (iii) or (iv)
above. "Proceeds" as defined in the Uniform Commercial Code arc specifically
excluded, except to the extent specifically included in clauses (i) through (iv)
above.
2
<PAGE>
All of the above assets shall be collectively defined herein as the
"Collateral". Customer covenants and agrees with IBM Credit that: (a) the
security constituted to by this Agreement is in addition to any other security
from time to time held by IBM Credit and (b) the security hereby created is a
continuing security interest and will cover and secure the payment of the
Obligations both present and future of Customer to IBM Credit."
(d) Section 6.2 of the Agreement is hereby amended by deleting the
second sentence thereof.
(e) Section 7.5 of the Agreement is hereby amended by deleting
clauses (C) and (D) thereof in their entirety.
(f) Section 7.6 of the Agreement hereby amended by deleting clause
(B) thereof in its entirety.
(g) Section 7.13 of the Agreement is hereby deleted in its entirety.
(h) Clause (B) of Section 9.1 of the Agreement is hereby amended by
inserting the word "material" after the word "any" and before the word "term".
(i) Clause (L) of Section 9.1 of the Agreement is hereby amended
by inserting the phrase "in excess of $ 1,000,000" after the word "indebtedness"
in the first line thereof.
(j) Section 9.3 of the Agreement is hereby deleted in its entirety
and replaced with the following: "9.3 Remedies. Upon the occurrence and during
the continuance of any Event of Default which has not been waived in writing by
IBM Credit, IBM Credit may exercise any and all rights and remedies to which it
is entitled hereunder or under applicable law."
(k) Section 10.8 of the Agreement is hereby deleted in its entirety.
2. Effective as of the date of the Restructuring, IBM Credit hereby
consents to the Restructuring and waives any notice thereof which may be
required under the Agreement. IBM Credit further consents to (a) the issuance by
Customer or any of its affiliates of any indebtedness to or guarantees to (i)
IBM Credit, (ii) lenders under any working capital facility of Customer or any
of its affiliates, or (iii) Deutsche Financial Services Corporation, or (b) the
granting of any liens to IBM Credit or Deutsche Financial Services Corporation.
3. Except as specifically amended hereby, all of the provisions of the
Agreement shall remain unamended and in full force and effect. Customer hereby
ratifies and confirms the Agreement as amended hereby and agrees that the
Agreement as amended hereby represents a valid and enforceable obligation of
Customer.
3
<PAGE>
4. This Amendment shall be governed by and interpreted in accordance with
the laws of the Commonwealth of Massachusetts.
5. This Amendment may be executed in any number of counterparts, each of
shall be an original and all of which shall constitute one agreement.
4
<PAGE>
IN WITNESS WHEREOF, Customer and IBM Credit have executed this Amendment
to Agreement for Wholesale Financing as of the date first set forth above.
PC CONNECTION SALES CORP.
fka PC Connection, Inc.
By: /s/ Jensen McDougal
---------------------------
Name: Jensen McDougal
---------------------------
Its: Vice President
---------------------------
IBM CREDIT CORPORATION
By:
---------------------------
Name:
---------------------------
Its:
---------------------------
5
<PAGE>
IN WITNESS WHEREOF, Customer and IBM Credit have executed this Amendment
to Agreement for Wholesale Financing as of the date first set forth above.
PC CONNECTION SALES CORP.
fka PC Connection, Inc.
By:
---------------------------
Name:
---------------------------
Its:
---------------------------
IBM CREDIT CORPORATION
By: /s/ Stephen A. Nichou
---------------------------
Name: STEPHEN A. NICHOU
---------------------------
Its: REGION CREDIT MGR
---------------------------
<PAGE>
Exhibit 10.33
IBM Credit Corporation
GUARANTY
(For PC Connection Sales Corp.)
TO: IBM CREDIT CORPORATION DATE: February 25, 2000
1500 RiverEdge Parkway
Atlanta, GA 30328
Gentlemen:
In consideration of credit and financing accommodations granted or to be
granted by you to PC Connection Sales Corp. (fka PC Connection, Inc.)
("Dealer"), which is in the best interest of the undersigned, and for other good
and valuable consideration received, the undersigned guaranties to you, jointly
and severally, the prompt and unconditional payment by Dealer of any and all
obligations, liabilities, contracts, mortgages, notes, trust receipts, secured
transactions, inventory financing and security agreements, and commercial paper
on which Dealer is obligated to you in connection with that certain Agreement
for Inventory Financing dated August 17, 1999, as amended and in effect from
time to time, heretofore, now, or hereafter owed or arising ("Liabilities"),
whether the Liabilities are individual, joint, several, primary, secondary,
direct, contingent or otherwise. The undersigned also agrees to indemnify you
and hold you harmless against any losses you may sustain and expenses you may
incur, suffer or be liable for as a result of or in any way arising out of,
following, or consequential to any transactions with or for the benefit of
Dealer, except those arising out of your own gross negligence or willful
misconduct.
If Dealer fails to pay any Liabilities to you when due, all Liabilities to
you shall then be deemed to have become immediately due and payable, and the
undersigned shall then pay upon demand the full amount of all sums owed to you
by Dealer, together with all reasonable expenses, including reasonable
attorney's fees.
The liability of the undersigned is direct and unconditional and shall not
be affected by any extension, renewal or other change in the terms of payment of
any security agreement or any other agreement between you and Dealer, or any
change in the manner, place or terms of payment or performance thereof, or the
release, settlement or compromise of or with any party liable for the payment or
performance thereof, the release or non-perfection of any security thereunder,
any change in Dealer's financial condition, or the interruption of business
relations between you and Dealer. This Guaranty shall continue for so long as
any sums owing to you by Dealer remain outstanding and unpaid, unless terminated
in the manner provided below. The undersigned acknowledges that its obligations
hereunder are in addition to and independent of any agreement or transaction
between you and Dealer or any other person creating or reserving any lien,
encumbrance or security interest in any property of Dealer or any other person
as security for any obligation of Dealer. You need not exhaust your rights or
recourse against Dealer or any other person or any security you may have at any
time before being entitled to payment from the undersigned.
This Guaranty is assignable, and shall inure to the benefit of and bind
your and our respective successors and assigns.
If Dealer hereafter is incorporated, acquired by a corporation, dissolved,
or otherwise undergoes any change in its management, ownership, identity or
organizational structure, this Guaranty shall continue to extend to any
Liabilities of the Dealer or such resulting corporation, dissolved corporation,
or new or changed legal entity or identity to you.
The undersigned waives: notice of the acceptance of this Guaranty, and of
presentment, demand and protest: notices of nonpayment, nonperformance, and
dishonor; notices of amount of indebtedness of Dealer outstanding at any time;
notices of the number and amount of advances made by you to Dealer in reliance
on this Guaranty; notices of any legal proceedings against Dealer; notice and
hearing as to any
Page 1 of 3
<PAGE>
prejudgment remedies; and any other demands and notices required by law. The
undersigned also waives any and all rights in and notices or demands relating to
any collateral now or hereafter securing any of the Liabilities, including, but
not limited to, all rights, notices or demands relating, whether directly or
indirectly, to the sale or other disposition of any or all of such collateral or
the manner of such sale or other disposition. All waivers by the undersigned
herein shall survive any termination or revocation of this Guaranty.
The undersigned has made an independent investigation of the financial
condition of Dealer and gives this Guaranty based on that investigation and not
upon any representations made by you. The undersigned acknowledges that it has
access to current and future Dealer financial information which will enable the
undersigned to continuously remain informed of Dealer's financial condition. The
undersigned also consents to and agrees that the obligations under this Guaranty
shall not be affected by your, subsequent increases or decreases in the credit
line that you may grant to Dealer: substitutions, exchanges or releases of all
or any part of the collateral now or hereafter securing any of the Liabilities;
sales or other dispositions of any or all of the collateral now or hereafter
securing any of the Liabilities without demands, advertisement or notice of the
time or place of the sales or other dispositions; realizing on the collateral;
or purchases of all or any part of the collateral for your own account.
This Guaranty and any and all obligations, liabilities, terms and
provisions herein shall survive any and all bankruptcy or insolvency
proceedings, actions and/or claims brought by or against Dealer, whether such
proceedings, actions and/or claims are federal and/or state.
This Guaranty is submitted by the undersigned to you (for your acceptance
or rejection thereof) at your above specified office: as an offer by the
undersigned to guaranty the credit and financial accommodations provided by you
to Dealer. If accepted, this Guaranty shall be deemed to have been made at your
above specified office. This Guaranty and all obligations pursuant thereto,
shall be governed and controlled as to interpretation, enforcement, validity,
construction, effect and in all other respects by the laws of the state of your
above specified office. The undersigned, to induce you to accept this Guaranty,
agrees that all actions or proceedings arising directly or indirectly in
connection with, out of, related to or from this Guaranty may be litigated, at
your sole discretion and election, in courts within the state of your above
specified office. The undersigned consents and submits to the jurisdiction of
any local, state or federal court located within that state. The undersigned
waives any right to transfer or change the venue of any litigation brought
against the undersigned by you in accordance with this paragraph.
Any delay by you, or your successors or assigns in exercising any or all
rights granted you under this Guaranty shall not operate as a waiver of those
rights. Furthermore, any failure by you, your successors or assigns, to exercise
any or all rights granted you under this Guaranty shall not operate as a waiver
of your right to exercise any or all of them later.
This document contains the full agreement of the parties concerning the
guaranty of Dealer's Liabilities and can be varied only by a document signed by
all the parties hereto. The undersigned may terminate this Guaranty by notice to
you in writing, the termination to be effective thirty (30) days after receipt
and acknowledgment thereof by you, but the termination shall in no manner
terminate the undersigned guaranty of Liabilities arising prior to the effective
date of termination.
Page 2 of 3
<PAGE>
WE AGREE THAT ANY ACTION, SUIT OR PROCEEDING RELATING DIRECTLY OR
INDIRECTLY TO THIS GUARANTY OR THE RELATIONSHIP BETWEEN YOU AND US, WILL BE
TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE WITHOUT A JURY. THUS, WE
HEREBY WAIVE ANY RIGHT TO A JURY TRIAL IN ANY SUCH ACTION, SUIT OR PROCEEDING.
WITNESS (as to all except Comteq):
/s/ Jack L Ferguson
- ---------------------------------- PC CONNECTION, INC.(f/k/a PC Holdco, Inc.)
(Print Name Jack L Ferguson ) By: /s/ Mark Garin
----------------------- ------------------------------------
Address: Rte 101A, 730 Milford Rd (Print Name Mark Garin )
- ---------------------------------- ---------------------------
Merrimack, NH 03054 Title: Chief Financial Officer
- ---------------------------------- ---------------------------------
- ---------------------------------- PC CONNECTION SALES OF
MASSACHUSETTS, INC.
By: /s/ Peter Cannone
------------------------------------
(Print Name Peter Cannone )
---------------------------
Title: Vice President
---------------------------------
MERRIMACK SERVICES CORP.
By: /s/ Mark Garin
------------------------------------
(Print Name Mark Garin )
---------------------------
Title: Chief Financial Officer
---------------------------------
Guarantor's Address (as to all the
foregoing):
Rte 101A, 730 Milford Rd
---------------------------------------
Merrimack, NH 03054
---------------------------------------
WITNESS (as to Comteq):
- ---------------------------------- COMTEQ FEDERAL, INC.
(Print Name ) By:
--------------------- ------------------------------------
Address: (Print Name )
- -------------------------------- ---------------------------
Title:
- -------------------------------- ---------------------------------
- -------------------------------- Guarantor's Address (as to Comteq only):
---------------------------------------
---------------------------------------
---------------------------------------
Page 3 of 3
<PAGE>
WE AGREE THAT ANY ACTION, SUIT OR PROCEEDING RELATING DIRECTLY OR
INDIRECTLY TO THIS GUARANTY OR THE RELATIONSHIP BETWEEN YOU AND US, WILL BE
TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE WITHOUT A JURY. THUS, WE
HEREBY WAIVE ANY RIGHT TO A JURY TRIAL IN ANY SUCH ACTION, SUIT OR PROCEEDING.
WITNESS (as to all except Comteq):
WITNESS (as to all except Comteq):
- ---------------------------------- PC CONNECTION, INC.(f/k/a PC Holdco, Inc.)
(Print Name ) By:
--------------------- ------------------------------------
Address: (Print Name )
- -------------------------------- ---------------------------
Title:
- -------------------------------- ---------------------------------
- -------------------------------- PC CONNECTION SALES OF
MASSACHUSETTS, INC.
By:
------------------------------------
(Print Name )
---------------------------
Title:
---------------------------------
MERRIMACK SERVICES CORP.
By:
------------------------------------
(Print Name )
---------------------------
Title:
---------------------------------
Guarantor's Address (as to all the
foregoing):
---------------------------------------
---------------------------------------
WITNESS (as to Comteq)
Dawn M Cranford
- ---------------------------------- COMTEQ FEDERAL, INC.
(Print Name Dawn M Cranford ) By: /s/ Gary Sorkin
--------------------- ------------------------------------
Address 7503 Standish Pl. (Print Name Gary Sorkin )
- -------------------------------- ---------------------------
Rockville, MD 20855 Title: President
- -------------------------------- ---------------------------------
- -------------------------------- Guarantor's Address (as to Comteq only):
---------------------------------------
7503 Standish Pl.
---------------------------------------
Rockville, MD 20855
---------------------------------------
Page 3 of 3
<PAGE>
EXHIBIT 10.34
AGREEMENT FOR WHOLESALE FINANCING
(SECURITY AGREEMENT)
TO IBM CREDIT CORPORATION DATE: October 12, 1993
In the course of our business, we acquire inventory and want you to
finance our purchase of such inventory under the following terms and conditions:
1. You may in your sole discretion from time to time decide the amount of
credit you extend to us, notwithstanding any prior course of conduct between us.
You may combine all of your advances to make one debt owed by us.
2. You may in your sole discretion decide the amount of funds, if any, you
will advance on any inventory we may seek to acquire. We agree that any decision
to advance funds on any inventory will not be binding on you until such time as
the funds are actually advanced.
3. All financing provided by you to us will be used exclusively for the
acquisition of inventory bearing certain trademarks or tradenames for which you
have approved us to receive financing pursuant to the terms of this Agreement
(the "Approved Inventory"). From time to time, you will identify such trademarks
and tradenames to us in writing. When you advance funds, you may send us a
Statement of Transaction or other statement if you choose. If you do, we will
have acknowledged the debt to be an account stated and we will have agreed to
the terms of the financing programs identified on such statement, unless we
notify you in writing of any question or objection within seven (7) days after
it is mailed to us.
4. To secure payment of all of our current and future debts to you whether
under this Agreement, any guaranty that we now or hereafter execute, or any
other agreement between us, whether direct or contingent, we grant you a
security interest in all of our inventory, equipment, fixtures, accounts,
contract rights, chattel paper, instruments, reserves, documents of title,
deposit accounts and general intangibles, whether now owned or hereafter
acquired, and all attachments, accessories, accessions, substitutions and/or
replacements thereto and all proceeds thereof. All of the above assets are
defined pursuant to the provisions of Article 9 of the Uniform Commercial Code
and are hereinafter collectively referred to as the "Goods". This security
interest is also granted to secure our debts to all of your affiliates. We will
hold all of the Goods financed by you, and the proceeds thereof, in trust for
you and we will immediately account for and remit directly to you all such
proceeds when payment is required under the terms of our financing program with
you. You may directly collect any amount owed to us with respect to the Goods
and credit us with all sums received by you. Your title, lien or security
interest will not be impaired by any payments we make to the seller or anyone
else or by our failure or refusal to account to you for proceeds.
5. Our principle place of business is located at: 7915 West Park Drive,
McLean, VA 22102 and we represent that our business is conducted as a [ ] SOLE
PROPRIETORSHIP, [ ] PARTNERSHIP, [X] CORPORATION (check applicable term). We
will notify you immediately of any change in our identity, name, form of
ownership or management, and of any change in our principal place of business,
or any additions or discontinuances of other business locations. The Goods will
be kept at our principal place of business. We will immediately notify you if
any of the Goods are kept at any other address. We and our predecessors have
done business during the last six (6) months only under the following name:
CompuCom Federal Systems Group. This paragraph is for informational purposes
only, and is not in any manner intended to limit the extent of your security
interest in the Goods.
6. We promise that the Goods are and will remain free from all claims and
liens superior to yours and that we will defend the Goods against all other
claims and demands. We will not rent, lease, lend, demonstrate, pledge, transfer
or secrete any of the Goods or use any of the Goods for any purpose other than
exhibition and sale to buyers in the ordinary course of business, without your
prior written consent. We will execute all documents you may request to confirm
or perfect your security interest in the Goods. We warrant and represent that we
are not in default in the payment of any principal interest or other charges
relating to any indebtedness owed to any third party, and no event has occurred
under the terms of any agreement, document, promissory note or other instrument,
which with or without the passage of time and/or the giving of notice
constitutes or would constitute an event of default thereunder. Each financial
statement that we submit to you is and will be correct and will accurately
represent our financial condition. We further acknowledge your reliance on the
truthfulness and accuracy of each financial statement that we submit to you in
your extension of various financial accommodations to us.
<PAGE>
7. We will pay all taxes, license fees, assessments and charges for the
Goods when due. We will immediately notify you of any loss, theft, or
destruction of or damage to any of the Goods. We will be responsible for any
loss, theft or destruction of Goods. We will keep the Goods insured for their
full insurable value against loss or damage under an "all risk" insurance
policy. We will obtain insurance under such terms and in amounts as you may
specify, from time to time, with companies acceptable to you, with a loss-payee
or mortgagee clause payable to you to the extent of any loss to the Goods and
containing a waiver of all defenses against us that is acceptable to you. We
agree to provide you with written evidence of the required insurance coverage
and loss-payee or mortgagee clause. We assign to you all amounts owed to us
under any insurance policy, and we direct any insurance company to make payment
directly to you to be applied to the unpaid debt owed you. We further grant you
an irrevocable power of attorney to endorse any checks or drafts and sign and
file all of the necessary papers, forms and documents to initiate and settle any
insurance claims with respect to the Goods. If we fail to pay any of the above-
referenced costs, charges, or insurance premiums, or if we fail to insure the
Goods, you may pay such costs, charges and insurance premiums, and the amounts
paid will be considered an additional debt owed by us to you.
8. You have the right to enter upon our premises from time to time, as you
in your sole discretion may determine for your sole benefit, and all without any
advance notice to us, to: examine the Goods, appraise them as security; verify
their condition and non-use; verify that all Goods have been properly accounted
for; verify that we have complied with all terms and provisions of this
Agreement; and assess, examine, and make copies of our books and records. Any
collection by you of any amounts we owe under our financing programs with you at
or during your examination of the Goods does not relieve us of our continuing
obligation to pay our indebtedness owed to you in accordance with the terms of
such financing programs.
9. We agree to immediately pay you the full amount of the principal
balance owed you on each item of inventory financed by you at the time such
inventory is sold, lost, stolen, destroyed, or damaged, whichever occurs first,
unless you have agreed in writing to provide financing to us on other terms. We
also agree to provide you, upon your request, an inventory report which
describes all the Approved Inventory in our possession (excluding any inventory
financed by you under the Demonstration and Training Equipment Financing Option
and the Rental Equipment Financing Option). Regardless of the terms of any
scheduled payment financing program with you, if you determine, after conducting
an inspection of all of our inventory, that the current outstanding indebtedness
owed by us to you exceeds the aggregate wholesale invoice price of the Approved
Inventory in our possession, we agree to immediately pay to you an amount equal
to the difference between such outstanding indebtedness and the aggregate
wholesale invoice price of such inventory. We will make all payments to you at
your appropriate branch office. Any checks or other instruments delivered to you
to be applied against our outstanding obligations will constitute conditional
payment until the funds represented by such instruments are actually received by
you. You may apply payments to reduce finance charges first and then principal,
irrespective of our instructions. Further, you may apply principal payments to
the oldest (earliest) invoice for the inventory financed by you, but, in any
case, all principal payments will first be applied to such inventory which is
sold, lost, stolen, destroyed, damaged, or otherwise disposed of. If we sign any
instrument for the amount of credit extended, it will be evidence of our
obligation to pay and will not be payment. Any discount, rebate, bonus, or
credit for the inventory granted to us by any third party will not, in any way,
reduce the debt we owe you, until you have received payment in cash.
10. During each year or part of a year in which you have extended credit
to us, we will pay you finance charges on the total amount of credit extended to
us in the amount agreed to between us from time to time. The period, during
which any third party provides a finance charge subsidy for us, will be included
in the calculation of the annual percentage rate of the finance charges. Such
finance charges may be applied by you to cover any amounts expended for your:
appraisal and examination of the Goods; maintenance of facilities for payment;
assistance in support of our retail sales; your commitments to manufacturers or
distributors to finance shipments of Goods to us; recording and filing fees;
expenses incurred in obtaining additional collateral or security; and any costs
and expenses incurred by you arising out of the financing you extend to us. We
also agree to pay you additional charges which will include: late payment fees;
flat charges; charges for receiving NSF checks from us; renewal charges; and any
other charges applicable to our financing program with you. Unless we hereafter
otherwise agree in writing, the finance charge and additional charges agreed
upon will be your applicable finance charge and additional charges for the class
of Goods involved, prevailing from time to time at your principal place of
business. You will send us, at monthly or other intervals, a statement of all
charges due on our account with you. We will have acknowledged the charges due,
as indicated on the statement, to be an account stated, unless we object in
writing to you within seven (7) days after it is mailed to us. This statement
may be adjusted by you at any time to conform to applicable law and this
Agreement. If any manufacturer or distributor fails to provide a finance charge
subsidy for us, as agreed, we will be responsible for and pay to you all finance
charges billed to our account.
<PAGE>
11. Any of the following events will constitute a default by us under this
Agreement: we breach any of the terms, warranties or representations contained
in this Agreement or in any other agreements between us or between us and any of
your affiliates; any guarantor of our indebtedness to you under this Agreement
or any other agreements breaches any of the terms, warranties or representations
contained in any guaranty or other agreements between any guarantor and you; any
representation, statement, report or certificate made or delivered by us or any
of our representatives, employees or agents or by any guarantor to you is not
true and correct; we fail to pay any of the liabilities or indebtedness owed to
you or any of your affiliates when due and payable under this Agreement or under
any other agreements between us or between us and any of your affiliates; you
determine that you are insecure with respect to any of the Goods or the payment
of our debt owed to you; we abandon the Goods or any part thereof; we or any
guarantor become in default in the payment of any indebtedness owed to any third
party; a judgement issues on any money demand against us or any guarantor; an
attachment, sale or seizure is issued against us or any of the Goods; any part
of the Goods are seized or taken in execution; the death of the undersigned if
the business is operated as a sole proprietorship or partnership, or the death
of any guarantor; we cease or suspend our business; we or any guarantor make a
general assignment for the benefit of creditors; we or any guarantor become
insolvent or voluntarily or involuntarily become subject to the Federal
Bankruptcy Code, state insolvency laws or any act for the benefit of creditors;
any receiver is appointed for any of our or any guarantor's assets, or any
guaranty pertaining to our indebtedness to you is terminated for any reason
whatsoever; we lose any franchise, permission, license or right to sell or deal
in any Goods which you finance; we or any guarantor misrepresent our respective
financial condition or organizational structure; or you determine, in your sole
discretion, that the Goods, any other collateral given to you to secure our
indebtedness to you, or our or any guarantor's net worth has decreased in value,
and we have been unable, within the time period prescribed by you, to either
provide you with additional collateral in a form and substance satisfactory to
you or reduce our total indebtedness by an amount sufficient to satisfy you. In
the event of a default:
(a) You may, at any time at your election, without notice or demand to us
do any one or more of the following: declare all or any part of the indebtedness
we owe you immediately due and payable, together with all court costs and all
costs and expenses of your repossession and collection activity, including, but
not limited to, all attorney's fees; exercise any or all rights of a secured
party under applicable law; and/or cease making any further financial
accommodations or extending any additional credit to us. All of your rights and
remedies are cumulative .
(b) We will segregate, hold and keep the Goods in trust, in good order and
repair, only for your benefit, and we will not exhibit, transfer, sell, further
encumber, otherwise dispose of or use for any other purpose whatsoever any of
the Goods.
(c) Upon your oral or written demand, we will immediately deliver the
Goods to you, in good order and repair, at a place specified by you, together
with all related documents; or you may, in your sole discretion and without
notice or demand to us, take immediate possession of the Goods, together with
all related documents.
(d) We waive and release: any claims and causes of action which we may now
or ever have against you as a direct or indirect result of any possession,
repossession, collection or sale by you of any of the Goods and the benefit of
all valuation, appraisal and exemption laws. If you seek to take possession of
any of the Goods by court process, we irrevocably waive any notice, bonds,
surety and security relating thereto required by any statute, court rule or
otherwise.
(e) We appoint you or any person you may delegate as our duly authorized
Attorney-In-Fact to do, in your sole discretion, any of the following: endorse
our name on any notes, checks, drafts or other forms of exchange received as
payment on any Goods for deposit in your account; sell, assign, transfer,
negotiate, demand, collect, receive, settle, extend or renew any amounts due on
any of the Goods; and exercise any rights we have in the Goods.
If we bring any action or assert any claim against you which arises out of this
Agreement, any other agreement or any of our business dealings, in which we do
not prevail, we agree to pay you all costs and expenses of your defense of such
action or claim including, but not limited to, all attorney's fees. If you fail
to exercise any of your rights or remedies under this Agreement, such failure
will in no way or manner waive any of your rights or remedies as to any past,
current or future default.
12. We agree that if you conduct a private sale of any Goods by soliciting
bids from ten (10) or more other dealers or distributors in the type of Goods
repossessed by or returned to you hereunder, any sale by you of such property in
bulk or in parcels within 120 days of (a) your taking physical possession and
control of such Goods or (b) when you are otherwise authorized to sell such
Goods, whichever occurs last, to the bidder submitting the highest cash bid
therefor, will be deemed to be a commercially reasonable means of disposing of
the same. We agree that commercially reasonable notice of any public or private
sale will be deemed given to us if you send us a notice of sale at least seven
(7) days prior to the date of any public sale or the time after which a private
sale will be made. If you dispose of any such Goods other than as herein
contemplated, the commercial reasonableness of such sale will be determined in
accordance with the provisions of the Uniform Commercial Code as adopted by the
state whose laws govern this Agreement.
<PAGE>
We agree that you do not warrant the Goods. We will pay you in full even if the
Goods are defective or fail to conform to any warranties extended by any third
party. Our obligations to you will not be affected by any dispute we may have
with any third party. We will not assert against you any claim or defense we may
have against any third party. We will indemnify and hold you harmless against
any claims or defenses asserted by any buyer of the Goods by reason of: the
condition of any Goods; any representations made about the Goods; or for any and
all other reasons whatsoever.
13. We grant to you a power of attorney authorizing any of your
representatives to: execute or endorse on our behalf any documents, financing
statements and instruments evidencing our obligations to you; supply any omitted
information and correct errors in any documents or other instruments executed by
or for us; do any and every act which we are obligated to perform under this
Agreement; and do any other things necessary to preserve and protect the Goods
and your rights and security interest in the Goods. We further authorize you to
provide to any third party any credit, financial or other information on us that
is in your possessio n.
14. Time is of the essence in this Agreement. This Agreement will be
effective from the date of its acceptance at your branch office. We acknowledge
receipt of a true copy and waive notice of your acceptance of it. If you commit
to advance funds under this Agreement, you will have accepted it. This Agreement
will remain in force until one of us gives notice to the other that it is
terminated. If we terminate this Agreement, you may declare all or any part of
the indebtedness we owe you due and payable immediately. If this Agreement is
terminated, we will not be relieved from any obligation to you arising out of
your advances or commitments made before the effective date of termination. Your
rights under this Agreement and your security interest in present and future
Goods will remain valid and enforceable until all our debts to you are paid in
full. We agree that we cannot assign this Agreement without your prior written
consent. This Agreement will protect and bind your and our respective heirs,
representatives, successors and assigns. It can be varied only by a document
signed by your and our authorized representatives. If any provision of this
Agreement or its application is invalid or unenforceable, the remainder of this
Agreement will not be impaired or affected and will remain binding and
enforceable. If we are a corporation, this Agreement is executed with the
authority of our Board of Directors, and with shareholder approval, if required
by the law. All notices you sent to us will be sufficiently given if mailed or
delivered to us at our address shown in paragraph 5.
15. The laws of the State of Illinois will govern this Agreement. We agree
that venue for any lawsuit will be in the State or Federal Court within the
county, parish, or district where your branch office, who provides the financial
accommodations, is located. We hereby waive any right to change the venue of any
action brought against us by you.
16. If we have previously executed any security agreements relating to the
Goods with you, we agree that this Agreement is intended only to amend and
supplement such written agreements, and will not be deemed to be a novation or
termination of such written agreements. In the event the terms of this Agreement
conflict with the terms of any prior security agreement that we previously
executed with you, the terms of this Agreement will control in determining the
agreement between us. We further agree that the terms of this Agreement will be
read liberally in your favor.
17. We waive all exemptions and homestead laws to the maximum extent
permitted by law. We waive any statutory right to notice or hearing prior to
your attachment, repossession or seizure of the Goods. We further waive any and
all rights of set-off we may have against you. We agree that any proceeding in
which we, or you or any of your affiliates, or our assigns are parties, as to
all matters and things arising directly or indirectly out of this Agreement, or
the relations among the parties listed in this paragraph will be tried in a
court of competent jurisdiction by a judge without a jury. We hereby waive any
right to a jury trial in any such proceeding.
ATTEST: Stanley P. Weintraub ComTeq Federal, Inc.
- -------------------------------------- -----------------------------------
Secretary Customer
Print Name: Stanley P. Weintraub By: Gary Sorkin
--------------------------- -------------------------------
Print Name: Gary Sorkin
------------------------
(CORPORATE SEAL) Title: President
----------------------------
<PAGE>
SECRETARY'S CERTIFICATE OF RESOLUTION
I certify that I am the Secretary and the official custodian of certain
records, including the certificate of incorporation, charter, by-laws and
minutes of the meeting of the Board of Directors of the corporation named below,
and the following is a true, accurate and compared extract from the minutes
of the Board of Directors of the corporation adopted at a special meeting
thereof held on due notice, at which meeting there was present a quorum
authorized to transact the business described below, and that the proceedings of
the meeting were in accordance with the certificate of incorporation, charter
and by-laws of the corporation, and that they have not been revoked, annulled or
amended in any manner whatsoever.
Upon motion duly made and seconded, the following resolution was
unanimously adopted after full discussion: "RESOLVED, That the several officers,
directors and agents of this corporation, or any one or more of them, are hereby
authorized and empowered on behalf of this corporation: to obtain financing from
IBM Credit Corporation ("IBM Credit") in such amounts and on such terms as such
officers, directors or agents deem proper; to enter into security and other
agreements with IBM Credit relating to the terms upon which financing may be
obtained and security to be furnished by this corporation therefor; from time to
time to supplement or amend any such agreements; and from time to time to
pledge, assign, guaranty, mortgage, grant security interest in and, otherwise
transfer to IBM Credit as collateral security for any obligations of this
corporation to IBM Credit and its affiliated companies, whenever and however
arising, any assets of this corporation, whether now owned or hereafter
acquired; hereby ratifying, approving and confirming all that any of said
officers, directors or agents have done or may do in the premises."
IN WITNESS WHEREOF, I have executed and affixed the seal of the corporation
on the date stated below.
Dated: October 12, 1993 Stanley P. Weintraub
--------------------------
Secretary
COMTEQ FEDERAL, INC.
--------------------------
Corporate Name
10-12-93
<PAGE>
Exhibit 10.35
AMENDMENT
TO
AGREEMENT FOR WHOLESALE FINANCING
This Amendment ("Amendment") to Agreement for Wholesale Financing is made
as of December ___, 1999 by and between Comteq Federal, Inc., a Maryland
corporation ("Customer") and IBM Credit Corporation, a Delaware corporation
("IBM Credit").
RECITALS:
WHEREAS, Customer and IBM Credit have entered into that certain Agreement
for Wholesale Financing ("Agreement") dated as of October 10, 1993; and
WHEREAS, Customer and IBM Credit have agreed to modify the Agreement as
more specifically set forth below, upon and subject to the terms and conditions
set forth herein.
AGREEMENT
NOW THEREFORE, In consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Customer and IBM Credit hereby agree as follows:
Section 1. Definitions. All capitalized terms not otherwise defined herein shall
have the respective meanings set forth in the Agreement.
Section 2. Amendment. The Agreement is hereby amended by deleting the first
paragraph of Section 11 of the Agreement in its entirety and substituting in
lieu thereof is the following:
"11. Any of the following events will constitute an event of default by us under
this Agreement: we breache any of the terms, warranties or representations
contained in this Agreement or in any other agreements between us and you or
between us and any of your affiliates; any guarantor of our obligations to you
under this Agreement or any other agreements breaches any of the terms,
warranties or representations contained in such guaranty or other agreements
between such guarantor and you; any representation, statement, report or
certificate made or delivered by us or any of our owners, representatives,
employees or agents or by any guarantor to you is not true and correct; we fail
to pay any of the liabilities or obligations owed to you or any of your
affiliates when due and payable under this Agreement or under any other
agreements between us and you or between us and any of your affiliates; you
determine that you are insecure with respect to any of the Goods or the payment
of our obligations owed to you; we abandon the Goods or any part thereof; we or
any guarantor becomes in default in the payment of any indebtedness owed to any
third party; there shall occur an Event of Default pursuant to and as defined in
any financing agreement between PC Connection, Inc., a Delaware corporation and
guarantor and State Street Bank dated as of May 29, 1999 or any successor
financing agreement thereto, a judgment issues on any money demand against us or
any guarantor; an attachment, sale or seizure is issued against us or any of the
Goods; any part of the Goods is seized or taken in execution; the death of the
undersigned if the business is operated as a sole proprietorship, or the death
of a partner if the business is operated as a partnership, or the death of any
guarantor; we cease or suspend our business; we or any guarantor makes a general
assignment for the benefit of creditors; we or any guarantor becomes insolvent
or voluntarily or involuntarily becomes subject to the Federal Bankruptcy Code,
state insolvency laws or any act for the benefit of creditors; any receiver is
appointed for any of our or any guarantor's assets, or any guaranty pertaining
to our obligations to you is terminated for any reason whatsoever, any guarantor
disclaims any obligations under any guaranty; we lose any franchise, permission,
license or right to sell or deal in any Goods which you finance; we or any
guarantor misrepresents its respective financial condition or organizational
structure; or you determine, in your sole discretion, that the Goods, any other
collateral given to you to secure our obligations to you, any guarantor's
guaranty, or our or any guarantor's net worth has decreased in value, and we
have been unable, within the time period prescribed by you, to either provide
you with additional collateral in a form
Page 1 of 2 December 14, 1999
<PAGE>
and substance satisfactory to you or reduce our total obligations by an amount
sufficient to satisfy you. Following an event of a default."
Section 3. Ratification of Agreement. Except as specifically amended hereby, all
of the provisions of the Agreement shall remain unamended and in full force and
effect.
Section 4. Governing Law. This Amendment shall be governed by and interpreted in
accordance with the laws which govern the Agreement.
Section 5. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original and all of which shall
constitute one agreement.
IN WITNESS WHEREOF, this Amendment has been executed by duly authorized
officers of the undersigned as of the day and year first above written.
IBM CREDIT CORPORATION COMTEQ FEDERAL, INC.
By: ___________________________ By: _________________________________
Print Name: ___________________ Print Name: _________________________
Title: ________________________ Title: ______________________________
ATTEST: ATTEST:
_______________________________ _____________________________________
Print Name: ___________________ Print Name: _________________________
Page 2 of 2 December 14, 1999
<PAGE>
EXHIBIT A, EFFECTIVE DATE December 2, 1999 "FPP EXHIBIT A"),
TO ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING - FLEXIBLE PAYMENT PLAN
("FPP ADDENDUM") DATED December 22, 1993
Customer's Name ComTeq Federal, Inc.
1. FPP Credit Line Fees, Rates and Repayment Terms:
(a) FPP Application Processing Fee: $2,500.00;
(b) FPP Credit Line: Nine Million Five Hundred Thousand Dollars
($9,500,000.00);
(c) Valuation Percentage:
(i) 85% of the amount of Customer's Eligible Accounts as of the date
of determination as reflected in the Customer's most recent
Collateral Report;
** Government receivables will be eligible up to and including 120
days.
(d) Payment Due Dates will be the 5th, 15th, and 25th of each calendar
month;
(e) Monthly Service Fee: $500.00;
(f) Financing Period: 100 days from the date of each invoice;
(g) No-Charge Financing Days: For products subsidized by a manufacturer
there will be no charge for a certain period of time from the date
of the invoice; or
Basis Points: Unless informed otherwise, for products not subsidized
by a manufacturer there will be a one-time charge of 25 basis points
for each invoice which is in addition to the Finance Charge Rate
beginning on day 1;
(h) FPP Financing Charge: Prime Rate plus 1.50%;
<PAGE>
EXHIBIT A TO ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING
FLEXIBLE PAYMENT PLAN ("FPP EXHIBIT A") (continued)
1. FPP Credit Line Fees, Rates and Repayment Terms (cont):
(i) FPP Working Capital Option ("WCO"): Outstanding advances authorized
up to the amount of eligible collateral. Total Outstanding
Indebtedness not to exceed the FPP credit line amount;
(j) WCO Term: 180 days;
(k) FPP WCO Financing Charge: Prime Rate plus 1.50%;
(l) Maximum Payment Reschedule Option ("PRO") Term: 30 days;
(m) FPP PRO Financing Charge: Prime Rate plus 1.50%
(n) Delinquency Fee: Prime Rate plus 6.50%;
(o) ** Shortfall Transaction Fee: Shortfall Amount multiplied by 0.30%.
Financing Charges will be based on the Average Daily Balance ("ADB") and will be
billed monthly. WCO and PRO Advances will become part of Customer's Outstanding
Indebtedness to IBM Credit.
<PAGE>
EXHIBIT A TO ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING
FLEXIBLE PAYMENT PLAN ("FPP EXHIBIT A") (continued)
2. Documentation Requirements: ("Other Documents")
o Executed Contingent Blocked Account Amendment to a Lockbox
Agreement;
o Subordination or Intercreditor Agreements from all creditors
having a lien which is superior to IBM Credit's in any First
Assets;
o Executed Waiver of Landlord Lien for all premises in which a
landlord has the right of levy for rent;
o Any and all other documents and/or agreements IBM Credit, in
its sole discretion, deems necessary.
o Fiscal year-end financial statements of Customer as of
December 31, 1999 and delivered to IBM Credit no later than 90
days after fiscal year end.
<PAGE>
EXHIBIT A TO ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING
FLEXIBLE PAYMENT PLAN ("FPP EXHIBIT A") (continued)
2. Documentation Requirements (continued):
Customer must submit the following within sixty (60) days after the
end of Customer's fiscal year, and as requested by IBM Credit from
time to time:
o A pro forma income statement, balance sheet and cash flow
statement for the next 12 months or through the current fiscal
year and the following fiscal year; and
o business narrative that at a minimum should include an
explanation on how Customer plans to accomplish significant
changes in revenue, gross profit margin, expenses, operating
profit margin and net profit. The Customer's business
strategy, anticipated business climate, and the headcount that
will produce the projected financial results should also be
included.
<PAGE>
EXHIBIT A TO ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING
FLEXIBLE PAYMENT PLAN ("FPP EXHIBIT A") (continued)
3. Financial Covenants:
Definitions: The following terms shall have the following respective meanings in
this Exhibit. All amounts shall be determined in accordance with generally
accepted accounting principles (GAAP).
Consolidated Net Income shall mean, for any period, the net income (or
loss), after taxes, of Customer on a consolidated basis for such period
determined in accordance with GAAP.
Current shall mean within the on-going twelve month period.
Current Assets shall mean assets that are cash or expected to become cash
within the on-going twelve months.
Current Liabilities shall mean payment obligations resulting from past or
current transactions that require settlement within the on-going twelve
month period. All indebtedness to IBM Credit shall be considered a Current
Liability for purposes of determining compliance with the Financial
Covenants.
EBITDA shall mean, for any period (determined on a consolidated basis in
accordance with GAAP), (a) the Consolidated Net Income of Customer for
such period, plus (b) each of the following to the extent reflected as an
expense in the determination of such Consolidated Net Income: (i) the
Customer's provisions for taxes based on income for such period; (ii)
Interest Expense for such period; and (iii) depreciation and amortization
of tangible and intangible assets of Customer for such period.
Fixed Charges shall mean, for any period, an amount equal to the sum,
without duplication, of the amounts for such as determined for the
Customer on a consolidated basis, of (i) scheduled repayments of principal
of all Indebtedness (as reduced by repayments thereon previously made),
(ii) Interest Expense, (iii) capital expenditures (iv) dividends, (v)
leasehold improvement expenditures and (vi) all provisions for U.S. and
non U.S. Federal, state and local taxes.
Fixed Charge Coverage Ratio shall mean the ratio as of the last day of any
fiscal period of (i) EBITDA as of the last day of such fiscal period to
(ii) Fixed Charges.
<PAGE>
EXHIBIT A TO ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING
FLEXIBLE PAYMENT PLAN ("FPP EXHIBIT A") (continued)
3. Financial Covenants (continued):
Interest Expense shall mean, for any period, the aggregate consolidated
interest expense of Customer during such period in respect of Indebtedness
determined on a consolidated basis in accordance with GAAP, including,
without limitation, amortization of original issue discount on any
Indebtedness and of all fees payable in connection with the incidence of
such Indebtedness (to the extent included in interest expense), the
interest portion of any deferred payment obligation and the interest
component of any capital lease obligations.
Long Term shall mean beyond the on-going twelve month period.
Long Term Assets shall mean assets that take longer than a year to be
converted to cash. They are divided into four categories: tangible assets,
investments, intangibles and other.
Long Term Debt shall mean payment obligations of indebtedness which mature
more than twelve months from the date of determination, or mature within
twelve months from such date but are renewable or extendible at the option
of the debtor to a date more than twelve months from the date of
determination.
Net Profit after Tax shall mean Revenue plus all other income, minus all
costs, including applicable taxes.
Revenue shall mean the monetary expression of the aggregate of products or
services transferred by an enterprise to its customers for which said
customers have paid or are obligated to pay, plus other income as allowed.
Subordinated Debt shall mean Customer's indebtedness to third parties as
evidenced by an executed Notes Payable Subordination Agreement in favor of
IBM Credit.
<PAGE>
EXHIBIT A TO ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING
FLEXIBLE PAYMENT PLAN ("FPP EXHIBIT A") (continued)
3. Financial Covenants (continued):
Tangible Net Worth shall mean:
Total Net Worth minus;
(a) goodwill, organizational expenses, pre-paid
expenses, deferred charges, research and
development expenses, software development costs,
leasehold expenses, trademarks, trade names,
copyrights, patents, patent applications,
privileges, franchises, licenses and rights in any
thereof, and other similar intangibles (but not
including contract rights) and other current and
non-current assets as identified in Customer's
financial statements;
(b) all accounts receivable from employees, officers,
directors, stockholders and affiliates; and
(c) all callable/redeemable preferred stock.
Total Assets shall mean the total of Current Assets and Long Term
Assets.
Total Liabilities shall mean the Current Liabilities and Long Term
Debt less Subordinated Debt, resulting from past or current
transactions, that require settlement in the future.
Total Net Worth (the amount of owner's or stockholder's ownership in
an enterprise) is equal to Total Assets minus Total Liabilities.
Working Capital shall mean Current Assets minus Current Liabilities.
<PAGE>
EXHIBIT A TO ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING
FLEXIBLE PAYMENT PLAN ("FPP EXHIBIT A") (continued)
3. Non-Financial Covenants:
Customer agrees to maintain standard all-risk insurance coverage on all
locations in the amount of at least Five Hundred Thousand Dollars
($500,000.00) and provide IBM Credit with a copy of the insurance policy.
IBM Credit Corporation must be named as a lender loss payee.
<PAGE>
EXHIBIT A TO ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING
FLEXIBLE PAYMENT PLAN ("FPP EXHIBIT A") (continued)
4. Financial Report Preparation Requirements:
Reports due under the terms of the FPP Addendum shall be prepared as
follows:
Annual Reports shall be submitted no later than ninety (90) days after the
close of the fiscal year.
Quarterly Reports shall be prepared internally by the Customer and
delivered to IBM Credit no later than forty-five (45) days after the close
of the quarter.
Customer must submit the following within sixty (60) days after the end of
Customer's fiscal year, and as requested by IBM Credit from time to time:
o A pro forma income statement, balance sheet and cash flow
statement for the next 12 months or through the current fiscal
year and the following fiscal year; and
o business narrative that at a minimum should include an
explanation on how Customer plans to accomplish significant
changes in revenue, gross profit margin, expenses, operating
profit margin and net profit. The Customer's business
strategy, anticipated business climate, and the headcount that
will produce the projected financial results should also be
included.
<PAGE>
Exhibit 10.36
AMENDMENT TO
ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING
- FLEXIBLE PAYMENT PLAN
This AMENDMENT TO THE ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING -
FLEXIBLE PAYMENT PLAN (this "Amendment") is made as of December ___, 1999 by and
between Comteq Federal, Inc., a Maryland corporation ("Customer") and IBM Credit
Corporation, a Delaware corporation ("IBM Credit").
RECITALS:
WHEREAS, Customer and IBM Credit have entered into that certain Agreement
for Wholesale Financing ("AWF") dated as of October 10, 1993, and the Addendum
to Agreement for Wholesale Financing - Flexible Payment Plan ("FPP") dated as of
December 2, 1993 (both as amended, supplemented or otherwise modified from time
to time, the "Agreement");
WHEREAS, Customer and IBM Credit have agreed to modify the Agreement as
more specifically set forth below, upon and subject to the terms and conditions
set forth herein.
AGREEMENT
NOW THEREFORE, in consideration of the premises set forth herein, and for
other good and valuable consideration, the value and sufficiency of which is
hereby acknowledged, the parties hereto agree that the Agreement is amended as
follows:
Section 1. Definitions. All capitalized terms not otherwise defined herein shall
have the respective meanings set forth in the Agreement.
Section 2. Amendment. The Agreement is hereby amended by deleting Exhibit A to
the Agreement in its entirety and substituting, in lieu thereof, the Exhibit A
attached hereto. Such new Exhibit A shall be effective as of the date specified
in the new Exhibit A. The changes contained in the new Exhibit A include,
without limitation, that the Valuation Percentage as set forth in the Agreement
shall be reduced by an amount that is equal to One Million Dollars ($1,000,000).
Section 3. Representations and Warranties. Customer makes to IBM Credit the
following representations and warranties, all of which are material and are made
to induce IBM Credit to enter into this Amendment.
A. All representations made by Customer in the Financing Agreement were true,
accurate and complete in every respect as of the date made, and after giving
effect to this Amendment, all representations made by Customer in the Financing
Agreement are true, accurate and complete in every material respect as of the
date hereof, and do not fail to disclose any material fact necessary to make the
representations not misleading.
B. The execution and delivery of this Amendment do not violate or cause Customer
not to be in compliance with the terms of any agreement to which Customer is a
party.
Section 4. Ratification of Agreement. Except as specifically amended hereby, all
of the provisions of the Agreement shall remain unamended and in full force and
effect. Customer hereby, ratifies, confirms and agrees that the Agreement, as
amended hereby, represents a valid and enforceable obligation of Customer, and
is not subject to any claims, offsets or defenses.
Section 5. Governing Law. This Amendment shall be governed by and interpreted in
accordance with the laws of the State of New York.
Page 1 of 2 December 17, 1999
<PAGE>
Section 6. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original and all of which shall
constitute one agreement.
IN WITNESS WHEREOF, this Amendment has been executed by duly authorized
representatives of the undersigned as of the day and year first above written.
IBM CREDIT CORPORATION COMTEQ FEDERAL, INC.
By: _____________________________ By: ______________________________
Print Name: _____________________ Print Name: ______________________
Title: __________________________ Title: ___________________________
Page 2 of 2 December 17, 1999
<PAGE>
EXHIBIT A, EFFECTIVE DATE December 14, 1999 ("FPP EXHIBIT A"),
TO ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING - FLEXIBLE PAYMENT PLAN
("FPP ADDENDUM") DATED December 22, 1993
Customer's Name: ComTeq Federal, Inc.
1. FPP Credit Line Fees, Rates and Repayment Terms:
(a) FPP Application Processing Fee: $2,500.00;
(b) FPP Credit Line: Nine Million Five Hundred Thousand Dollars
($9,500,000.00);
(c) Valuation Percentage:
(i) 85% of the amount of Customer's Eligible Accounts as of the date
of determination as reflected in the Customer's most recent
Collateral Report;
(ii) 100% of the Customer's inventory in the Customer's possession
as of the date of determination as reflected in the Customer's most
recent Collateral Management Report constituting Products (other
than service parts) financed through a Product Advance by IBM
Credit, provided, however, IBM Credit has a first priority security
interest in such Products and such Products are in new and in
un-opened boxes. The value to be assigned to such inventory shall be
based upon the Authorized Supplier's invoice price to Customer for
Products net of all applicable price reduction credits;
(iii) less an amount equal to One million Dollars ($1,000,000.00).
(d) Payment Due Dates will be the 5th, 15th, and 25th of each calendar
month;
(e) Monthly Service Fee: $500.00;
(f) Financing Period: 100 days from the date of each invoice;
(g) No-Charge Financing Days: For products subsidized by a manufacturer
there will be no charge for a certain period of time from the date
of the invoice; or
Basis Points: Unless informed otherwise, for products not subsidized
by a manufacturer there will be a one-time charge of 25 basis points
for each invoice which is in addition to the Finance Charge Rate
beginning on day 1;
(h) FPP Financing Charge: Prime Rate plus 1.50%;
Page 1 of 9
<PAGE>
EXHIBIT A TO ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING
FLEXIBLE PAYMENT PLAN ("FPP EXHIBIT A") (continued)
1. FPP Credit Line Fees, Rates and Repayment Terms (cont):
(i) FPP Working Capital Option ("WCO"): Outstanding advances authorized
up to the amount of eligible collateral. Total Outstanding
Indebtedness not to exceed the FPP credit line amount;
(j) WCO Term: 180 days;
(k) FPP WCO Financing Charge: Prime Rate plus 1.50%;
(l) Maximum Payment Reschedule Option ("PRO") Term: 30 days;
(m) FPP PRO Financing Charge: Prime Rate plus 1.50%
(n) Delinquency Fee: Prime Rate plus 6.50%;
(o) ** Shortfall Transaction Fee: Shortfall Amount multiplied by 0.30%.
Financing Charges will be based on the Average Daily Balance ("ADB") and will be
billed monthly. WCO and PRO Advances will become part of Customer's Outstanding
Indebtedness to IBM Credit.
Page 2 of 9
<PAGE>
EXHIBIT A TO ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING
FLEXIBLE PAYMENT PLAN ("FPP EXHIBIT A") (continued)
2. Documentation Requirements: ("Other Documents")
o Executed Contingent Blocked Account Amendment to a Lockbox
Agreement;
o Subordination or Intercreditor Agreements from all creditors
having a lien which is superior to IBM Credit's in any First
Assets;
o Executed Waiver of Landlord Lien for all premises in which a
landlord has the right of levy for rent;
o Any and all other documents and/or agreements IBM Credit, in
its sole discretion, deems necessary.
o Fiscal year-end financial statements of Customer as of
December 31, 1999 and delivered to IBM Credit no later than 90
days after fiscal year end.
Page 3 of 9
<PAGE>
EXHIBIT A TO ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING
FLEXIBLE PAYMENT PLAN ("FPP EXHIBIT A") (continued)
2. Documentation Requirements (continued):
Customer must submit the following within sixty (60) days after the
end of Customer's fiscal year, and as requested by IBM Credit from
time to time:
o A pro forma income statement, balance sheet and cash flow
statement for the next 12 months or through the current fiscal
year and the following fiscal year; and
o business narrative that at a minimum should include an
explanation on how Customer plans to accomplish significant
changes in revenue, gross profit margin, expenses, operating
profit margin and net profit. The Customer's business
strategy, anticipated business climate, and the headcount that
will produce the projected financial results should also be
included.
Page 4 of 9
<PAGE>
EXHIBIT A TO ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING
FLEXIBLE PAYMENT PLAN ("FPP EXHIBIT A") (continued)
3. Financial Covenants:
Definitions: The following terms shall have the following respective meanings in
this Exhibit. All amounts shall be determined in accordance with generally
accepted accounting principles (GAAP).
Consolidated Net Income shall mean, for any period, the net income (or
loss), after taxes, of Customer on a consolidated basis for such period
determined in accordance with GAAP.
Current shall mean within the on-going twelve month period.
Current Assets shall mean assets that are cash or expected to become cash
within the on-going twelve months.
Current Liabilities shall mean payment obligations resulting from past or
current transactions that require settlement within the on-going twelve
month period. All indebtedness to IBM Credit shall be considered a Current
Liability for purposes of determining compliance with the Financial
Covenants.
EBITDA shall mean, for any period (determined on a consolidated basis in
accordance with GAAP), (a) the Consolidated Net Income of Customer for
such period, plus (b) each of the following to the extent reflected as an
expense in the determination of such Consolidated Net Income: (i) the
Customer's provisions for taxes based on income for such period; (ii)
Interest Expense for such period; and (iii) depreciation and amortization
of tangible and intangible assets of Customer for such period.
Fixed Charges shall mean, for any period, an amount equal to the sum,
without duplication, of the amounts for such as determined for the
Customer on a consolidated basis, of (i) scheduled repayments of principal
of all Indebtedness (as reduced by repayments thereon previously made),
(ii) Interest Expense, (iii) capital expenditures, (iv) dividends, (v)
leasehold improvement expenditures and (vi) all provisions for U.S. and
non U.S. Federal, state and local taxes.
Fixed Charge Coverage Ratio shall mean the ratio as of the last day of any
fiscal period of (i) EBITDA as of the last day of such fiscal period to
(ii) Fixed Charges.
Page 5 of 9
<PAGE>
EXHIBIT A TO ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING
FLEXIBLE PAYMENT PLAN ("FPP EXHIBIT A") (continued)
3. Financial Covenants (continued):
Interest Expense shall mean, for any period, the aggregate
consolidated interest expense of Customer during such period in
respect of Indebtedness determined on a consolidated basis in
accordance with GAAP, including, without limitation, amortization of
original issue discount on any Indebtedness and of all fees payable
in connection with the incurrence of such Indebtedness (to the
extent included in interest expense), the interest portion of any
deferred payment obligation and the interest component of any
capital lease obligations.
Long Term shall mean beyond the on-going twelve month period.
Long Term Assets shall mean assets that take longer than a year to
be converted to cash. They are divided into four categories:
tangible assets, investments, intangibles and other.
Long Term Debt shall mean payment obligations of indebtedness which
mature more than twelve months from the date of determination, or
mature within twelve months from such date but are renewable or
extendible at the option of the debtor to a date more than twelve
months from the date of determination.
Net Profit after Tax shall mean Revenue plus all other income, minus
all costs, including applicable taxes.
Revenue shall mean the monetary expression of the aggregate of
products or services transferred by an enterprise to its customers
for which said customers have paid or are obligated to pay, plus
other income as allowed.
Subordinated Debt shall mean Customer's indebtedness to third
parties as evidenced by an executed Notes Payable Subordination
Agreement in favor of IBM Credit.
Page 6 of 9
<PAGE>
EXHIBIT A TO ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING
FLEXIBLE PAYMENT PLAN ("FPP EXHIBIT A") (continued)
3. Financial Covenants (continued):
Tangible Net Worth shall mean:
Total Net Worth minus;
(a) goodwill, organizational expenses, pre-paid
expenses, deferred charges, research and
development expenses, software development costs,
leasehold expenses, trademarks, trade names,
copyrights, patents, patent applications,
privileges, franchises, licenses and rights in any
thereof, and other similar intangibles (but not
including contract rights) and other current and
non-current assets as identified in Customer's
financial statements;
(b) all accounts receivable from employees, officers,
directors, stockholders and affiliates; and
(c) all callable/redeemable preferred stock.
Total Assets shall mean the total of Current Assets and Long Term
Assets.
Total Liabilities shall mean the Current Liabilities and Long Term
Debt less Subordinated Debt, resulting from past or current
transactions, that require settlement in the future.
Total Net Worth (the amount of owner's or stockholder's ownership in
an enterprise) is equal to Total Assets minus Total Liabilities.
Working Capital shall mean Current Assets minus Current Liabilities.
Page 7 of 9
<PAGE>
EXHIBIT A TO ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING
FLEXIBLE PAYMENT PLAN ("FPP EXHIBIT A") (continued)
3. Non-Financial Covenants:
Customer agrees to maintain standard all-risk insurance coverage on all
locations in the amount of at least Five Hundred Thousand Dollars
($500,000.00) and provide IBM Credit with a copy of the insurance policy.
IBM Credit Corporation must be named as a lender loss payee.
Page 8 of 9
<PAGE>
EXHIBIT A TO ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING
FLEXIBLE PAYMENT PLAN ("FPP EXHIBIT A") (continued)
4. Financial Report Preparation Requirements:
Reports due under the terms of the FPP Addendum shall be prepared as
follows:
Annual Reports shall be submitted no later than ninety (90) days after the
close of the fiscal year.
Quarterly Reports shall be prepared internally by the Customer and
delivered to IBM Credit no later than forty-five (45) days after the close
of the quarter.
Customer must submit the following within sixty (60) days after the end of
Customer's fiscal year, and as requested by IBM Credit from time to time:
o A pro forma income statement, balance sheet and cash flow
statement for the next 12 months or through the current fiscal
year and the following fiscal year; and
o business narrative that at a minimum should include an
explanation on how Customer plans to accomplish significant
changes in revenue, gross profit margin, expenses, operating
profit margin and net profit. The Customer's business
strategy, anticipated business climate, and the headcount that
will produce the projected financial results should also be
included.
Page 9 of 9
<PAGE>
Exhibit 10.37
AMENDMENT TO AGREEMENT FOR WHOLESALE FINANCING
(Comteq Federal, Inc.)
This Amendment to Agreement for Wholesale Financing is entered into as of
February 25, 2000 by and between Comteq Federal, Inc., a Maryland corporation
("Customer") and IBM Credit Corporation ("IBM Credit").
WHEREAS, the Customer and IBM Credit are parties to a certain Agreement
for Wholesale Financing (Security Agreement) dated as of October 12, 1993, as
amended from time to time (the "Agreement"), including, without limitation,
pursuant to a certain Amendment to Agreement for Wholesale Financing made as of
December 23, 1999 (the "Agreement Amendment"), and a certain Addendum to
Agreement for Wholesale Financing -- Flexible Payment Plan dated December 22,
1993, as amended from time to time (the "Addendum") (the Agreement, the
Agreement Amendment and the Addendum are hereafter referred to collectively as
the "IBM Documents"); and
WHEREAS, PC Connections Sales Corp. (fka PC Connection, Inc. ("Sales") has
engaged in a corporate reorganization which was consummated on or about December
31, 1999, in which, among other things, (i) Sales formed PC Holdco, Inc.
("Holdco") as its subsidiary, (ii) Holdco formed a transitory subsidiary into
which Sales was merged, which resulted in Sales being a wholly-owned subsidiary
of Holdco, (iii) Sales formed two new subsidiaries, PC Connection Sales of
Massachusetts, Inc. ("Sales-MA") and Merrimack Services Corp. ("Merrimack"),
each a Delaware corporation and contributed certain assets to such entities,
(iv) Sales then distributed its stock in Merrimack and its other subsidiary, the
Customer to Holdco, and (v) Sales changed its name to "PC Connection Sales
Corp." and Holdco changed its name to "PC Connection, Inc." (the
"Restructuring"); and
WHEREAS, the Customer and IBM Credit desire to amend the IBM Documents on
the terms and conditions set forth herein;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Customer and IBM Credit hereby
agree as follows:
1. (a) Sections 4, 11(b), 11(c), 11(d), 11(e), 12 and 13 of the Agreement
are hereby deleted in their entirety.
(b) The fourth sentence of Section 6 of the Agreement is hereby
amended by inserting (1) after the words "relating to any indebtedness" the
phrase "in excess of $1,000,000", and (2) after the words "or other instrument"
the phrase "in excess of $1,000,000".
(c) The phrase "appraise them as security;" appearing in the second
and third lines of Section 8 of the Agreement is hereby deleted in its entirety.
1
<PAGE>
(d) Section II of the Agreement (as modified by the Agreement
Amendment) is hereby deleted in its entirety and replaced with the following:
"11. Any of the following events will constitute an event of default by us
under this Agreement: we breach any of the material terms, warranties or
representations contained in this Agreement or in any other agreements between
us and you or between us and any of your affiliates; any guarantor of our
obligations to you under this Agreement or any other agreements breaches any of
the material terms, warranties or representations contained in such guaranty or
other agreements between such guarantor and you; any representation, statement,
report or certificate made or delivered by us or any of our owners,
representatives, employees or agents or by any guarantor to you is not true and
correct in any material respect; we fail to pay any of the liabilities or
obligations owed to you or any of your affiliates when due and payable under
this Agreement or under any other agreements between us and you or between us
and any of your affiliates; we abandon the Goods or any part thereof; we or any
guarantor becomes in default in the payment of any indebtedness owed to any
third party in excess of $1,000,000; there shall occur an Event of Default
pursuant to and as defined in any financing agreement between PC Connection,
Inc., a Delaware corporation and Citizens Bank of Massachusetts, as agent, and
the lenders party thereto, dated February __, 2000 or any successor financing
agreement thereto; a judgment issues on any money demand against us or any
guarantor which judgment exceeds available insurance by at least $1,000,000; an
attachment or seizure is issued against us or any material portion of the Goods;
any material part of the Goods is seized or taken in execution; we cease or
suspend our business; we or any guarantor makes a general assignment for the
benefit of creditors; we or any guarantor becomes insolvent or voluntarily or
involuntarily becomes subject to the Federal Bankruptcy Code, state insolvency
laws or any act for the benefit of creditors (in the case of an involuntary
proceeding, such proceeding is not stayed or vacated within 30 days); any
receiver is appointed for any of our or any material portion of guarantor's
assets, or any guaranty pertaining to our obligations to you is terminated for
any reason whatsoever; any guarantor disclaims any obligations under any
guaranty; we lose any franchise, permission, license or right necessary for the
operation of our business; we or any guarantors misrepresents its respective
financial condition or organizational structure in any material respect.
Following an event of a default:"
(e) Sections 5, 8 and 9 of the Addendum are each hereby deleted in
its entirety.
(f) In Section 12.2(a) of the Addendum, the phrase "nature of its
business or property requires it to be qualified or licensed" is hereby deleted
in its entirety and replaced with the phrase "failure to so qualify would have
a material adverse effect on the Customer or its business".
(g) Clause (d) of Section 12.2 of the Addendum is hereby deleted in
its entirety and replaced with "(d) Customer shall advise IBM Credit of the
commencement or institution of legal proceedings against Customer before any
court, administrative board or tribunal which involves claims, which if
determined against the Customer, could
2
<PAGE>
reasonably be expected to result in the Customer having to pay in excess of
$1,000,000 above any available insurance in satisfaction thereof."
(h) Clause (e) of Section 12.3 of the Addendum is hereby deleted in
its entirety and replaced in its entirety with the following:
"(e) guaranty or indemnify or in any way become liable with respect to the
obligations of any Person, except (1) by endorsement or instruments or items of
payment for deposit to the general account of Customer in the ordinary course of
business or which are transmitted or turned over to IBM Credit on account of
Customer's Obligations or (2) by guaranty or similar agreement of the
obligations of any affiliate of the Customer issued to or for the benefit of (x)
any agent and/or lender under a working capital loan facility for such affiliate
(and any amendment, modification, or replacement thereof) (the "Working Capital
Facility"), (y) Deutsche Financial Services Corporation (or any successor or
assign thereof) or (z) any capitalized lease or purchase money obligation of the
Customer or any affiliate which is secured by the assets relating thereto and
any proceeds thereof (and any amendment, modification, or replacement thereof)
(the "Capitalized Lease Obligations");".
(i) Clause (i) of Section 12.3 of the Addendum is hereby deleted in
its entirety and replaced in its entirety with the following:
"(i) incur any debts outside the ordinary course of Customer's business
except (1) debts in connection with the guarantees permitted under Section
12.3(e)(2), (2) debts to Deutsche Financial Services Corporation (or any
successor or assign thereof), (3) debts in connection with the Working Capital
Facility and all Capitalized Lease Obligations and (4) renewals, extensions,
modifications or replacements of any of the foregoing;"
(j) Clause (j) of Section 12.3 of the Addendum is hereby deleted in
its entirety and replaced in its entirety with the following:
"(j) intentionally omitted; and".
2. IBM Credit hereby consents to the Restructuring and waives any notice
thereof which may be required under the Agreement. IBM Credit further consents
to (a) the issuance by Customer or any of its affiliates of any indebtedness to
or guarantees to (i) IBM Credit, (ii) lenders under any working capital facility
of Customer or any of its affiliates, or (iii) Deutsche Financial Services
Corporation and (b) the granting of any liens to IBM Credit or Deutsche
Financial Services Corporation.
3. Except as specifically amended hereby, all of the provisions of the
Agreement shall remain unamended and in full force and effect. Customer hereby
ratifies and confirms the Agreement as amended hereby and agrees that the
Agreement as amended hereby represents a valid and enforceable obligation of
Customer.
3
<PAGE>
4. This Amendment shall be governed by and interpreted in accordance with
the Laws of the State of [Illinois].
5. This Amendment may be executed in any number of counterparts, each of
which shall be an original and all of which shall constitute one agreement.
4
<PAGE>
IN WITNESS WHEREOF, Customer and IBM Credit have executed this Amendment
to Agreement for Wholesale Financing as of the date first set forth above.
COMTEQ FEDERAL, INC.
By: /s/ Gary Sorkin
-----------------------------
Name: Gary Sorkin
----------------------------
Its: President
----------------------------
IBM CREDIT CORPORATION
By:
-----------------------------
Name:
----------------------------
Its:
----------------------------
5
<PAGE>
IN WITNESS WHEREOF, Customer and IBM Credit have executed this Amendment
to Agreement for Wholesale Financing as of the date first set forth above.
COMTEQ FEDERAL, INC.
By:
-----------------------------
Name:
----------------------------
Its:
----------------------------
IBM CREDIT CORPORATION
By: /s/ Stephen A. Nichols
-----------------------------
Name: Stephen A. Nichols
----------------------------
Its: Region Credit Mgr
----------------------------
6
<PAGE>
Exhibit 10.38
IBM Credit Corporation
GUARANTY
(For Comteq Federal, Inc.)
TO: IBM CREDIT CORPORATION DATE: February 25, 2000
1500 RiverEdge Parkway
Atlanta, GA 30328
Gentlemen:
In consideration of credit and financing accommodations granted or to
be granted by you to Comteq Federal, Inc. ("Dealer"), which is in the best
interest of the undersigned, and for other good and valuable consideration
received, the undersigned guaranties to you, jointly and severally, the prompt
and unconditional payment by Dealer of any and all obligations, liabilities,
contracts, mortgages, notes, trust receipts, secured transactions, inventory
financing and security agreements, and commercial paper on which Dealer is
obligated to you in connection with that certain Agreement for Wholesale
Financing dated as of October 10, 1993, as amended and in effect from time to
time, heretofore, now, or hereafter owed or arising ("Liabilities"), whether the
Liabilities are individual, joint, several, primary, secondary, direct,
contingent or otherwise. The undersigned also agrees to indemnify you and hold
you harmless against any losses you may sustain and expenses you may incur,
suffer or be liable for as a result of or in any way arising out of, following,
or consequential to any transactions with or for the benefit of Dealer, except
those arising out of your own gross negligence or willful misconduct.
If Dealer fails to pay any Liabilities to you when due, all Liabilities
to you shall then be deemed to have become immediately due and payable, and the
undersigned shall then pay upon demand the full amount of all sums owed to you
by Dealer, together with all reasonable expenses, including reasonable
attorney's fees.
The liability of the undersigned is direct and unconditional and shall
not be affected by any extension, renewal or other change In the terms of
payment of any security agreement or any other agreement between you and Dealer,
or any change in the manner, place or terms of payment or performance thereof,
or the release, settlement or compromise of or with any party liable for the
payment or performance thereof, the release or non-perfection of any security
thereunder, any change in Dealer's financial condition, or the interruption of
business relations between you and Dealer. This Guaranty shall continue for so
long as any sums owing to you by Dealer remain outstanding and unpaid, unless
terminated in the manner provided below. The undersigned acknowledges that its
obligations hereunder are in addition to and independent of any agreement or
transaction between you and Dealer or any other person creating or reserving any
lien, encumbrance or security interest in any property of Dealer or any other
person as security for any obligation of Dealer. You need not exhaust your
rights or recourse against Dealer or any other person or any security you may
have at any time before being entitled to payment from the undersigned.
This Guaranty is assignable, and shall inure to the benefit of and bind
your and our respective successors and assigns.
If Dealer hereafter is incorporated, acquired by a corporation,
dissolved, or otherwise undergoes any change in its management, ownership,
identity or organizational structure, this Guaranty shall continue to extend to
any Liabilities of the Dealer or such resulting corporation, dissolved
corporation, or new or changed legal entity or identity to you.
The undersigned waives: notice of the acceptance of this Guaranty, and
of presentment, demand and protest; notices of nonpayment, nonperformance, and
dishonor; notices of amount of indebtedness of Dealer outstanding at any time;
notices of the number and amount of advances made by you to Dealer in
Page 1 of 3
<PAGE>
reliance on this Guaranty; notices of any legal proceedings against Dealer;
notice and hearing as to any prejudgment remedies; and any other demands and
notices required by law. The undersigned also waives any and all rights in and
notices or demands relating to any collateral now or hereafter securing any of
the Liabilities, including, but not limited to, all rights, notices or demands
relating, whether directly or indirectly, to the sale or other disposition of
any or all of such collateral or the manner of such sale or other disposition.
All waivers by the undersigned herein shall survive any termination or
revocation of this Guaranty.
The undersigned has made an independent investigation of the financial
condition of Dealer and gives this Guaranty based on that investigation and not
upon any representations made by you. The undersigned acknowledges that it has
access to current and future Dealer financial information which will enable the
undersigned to continuously remain informed of Dealer's financial condition. The
undersigned also consents to and agrees that the obligations under this Guaranty
shall not be affected by your: subsequent increases or decreases in the credit
line that you may grant to Dealer; substitutions, exchanges or releases of all
or any part of the collateral now or hereafter securing any of the Liabilities;
sales or other dispositions of any or all of the collateral now or hereafter
securing any of the Liabilities without demands, advertisement or notice of the
time or place of the sales or other dispositions; realizing on the collateral;
or purchases of all or any part of the collateral for your own account.
This Guaranty and any and all obligations, liabilities, terms and
provisions herein shall survive any and all bankruptcy or insolvency
proceedings, actions and/or claims brought by or against Dealer, whether such
proceedings, actions and/or claims are federal and/or state.
This Guaranty is submitted by the undersigned to you (for your
acceptance or rejection thereof) at your above specified office; as an offer by
the undersigned to guaranty the credit and financial accommodations provided by
you to Dealer. If accepted, this Guaranty shall be deemed to have been made at
your above specified office. This Guaranty and all obligations pursuant thereto,
shall be governed and controlled as to interpretation, enforcement, validity,
construction, effect and in all other respects by the laws of the state of your
above specified office. The undersigned, to induce you to accept this Guaranty,
agrees that all actions or proceedings arising directly or indirectly in
connection with, out of, related to or from this Guaranty may be litigated, at
your sole discretion and election, in courts within the state of your above
specified office. The undersigned consents and submits to the jurisdiction of
any local, state or federal court located within that state. The undersigned
waives any right to transfer or change the venue of any litigation brought
against the undersigned by you in accordance with this paragraph.
Any delay by you, or your successors or assigns in exercising any or
all rights granted you under this Guaranty shall not operate as a waiver of
those rights. Furthermore, any failure by you, your successors or assigns, to
exercise any or all rights granted you under this Guaranty shall not operate as
a waiver of your right to exercise any or all of them later.
This document contains the full agreement of the parties concerning
the guaranty of Dealer's Liabilities and can be varied only by a document signed
by all the parties hereto. The undersigned may terminate this Guaranty by notice
to you in writing, the termination to be effective thirty (30) days after
receipt and acknowledgment thereof by you, but the termination shall in no
manner terminate the undersigned guaranty of Liabilities arising prior to the
effective date of termination.
Page 2 of 3
<PAGE>
WE AGREE THAT ANY ACTION, SUIT OR PROCEEDING RELATING DIRECTLY OR
INDIRECTLY TO THIS GUARANTY OR THE RELATIONSHIP BETWEEN YOU AND US, WILL BE
TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE WITHOUT A JURY. THUS, WE
HEREBY WAIVE ANY RIGHT TO A JURY TRIAL IN ANY SUCH ACTION, SUIT OR PROCEEDING.
WITNESS (as to all) PC CONNECTION SALES CORP.
(f/k/a PC Connection, Inc.)
/s/ Jack L. Ferguson
- ------------------------------------ By: /s/ Jerry McDougal
--------------------------------------
(Print Name: Jack L. Ferguson )
------------------------ (Print Name: Jerry McDougal )
-----------------------------
Address: Rte 101A, 730 Milford Rd.
---------------------------- Title: Vice President
Merrimack, NH 03054 --------------------------------------
- ------------------------------------
PC CONNECTION SALES OF
- ------------------------------------ MASSACHUSETTS, INC.
By: /s/ Peter Cannure
--------------------------------------
(Print Name: Peter Cannure )
-----------------------------
Title: Vice President
--------------------------------------
MERRIMACK SERVICES CORP.
By: /s/ Mark Gavin
--------------------------------------
(Print Name: Mark Gavin )
-----------------------------
Title: Chief Financial Officer
--------------------------------------
PC CONNECTION, INC. (fka PC Holdco, Inc.)
By: /s/ Mark Gavin
--------------------------------------
(Print Name: Mark Gavin )
-----------------------------
Title: Chief Financial Officer)
--------------------------------------
Guarantor's Address (as to all):
Rte 101A, 730 Milford Road
-----------------------------------------
Merrimack, NH 03054
-----------------------------------------
-----------------------------------------
Page 3 of 3
<PAGE>
Exhibit 10.39
AGREEMENT FOR WHOLESALE FINANCING
(Unsecured -- Negative Covenant)
This Agreement for Wholesale Financing ("Agreement") is made as of February 25,
2000 between Deutsche Financial Services Corporation ("DFS") and Comteq Federal,
Inc., ______________a |_| SOLE PROPRIETORSHIP, |_| PARTNERSHIP, |xx|
CORPORATION, |_| LIMITED LIABILITY COMPANY (check applicable term) ("Dealer"),
having a principal Place of business located at 7503 Standish Place, Rockville,
MD 20855.
WHEREAS, Dealer and DFS heretofore entered into that certain Agreement for
Wholesale Financing dated July 17, 1997, as amended (the "Prior Agreement"), and
WHEREAS, Dealer has requested an unsecured credit facility from DFS; and
WHEREAS, Dealer and DFS desire to amend and restate the Prior Agreement to,
among other things, allow DFS to extend unsecured credit to Dealer.
NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby mutually amend and restate the Prior Agreement so that in its
entirety it reads as follows:
1. Extension of Credit. Subject to the terms of this Agreement, DFS may
extend credit to Dealer from time to time to purchase inventory from DFS
approved vendors ("Vendors") and for other purposes. Upon DFS's advance
of funds to Dealer following Dealer's execution of this Agreement, DFS
will be deemed to have entered into this Agreement with Dealer, whether
or not executed by DFS. DFS' decision to advance funds will not be
binding until the funds are actually advanced. DFS may combine all of
DFS' advances to Dealer or on Dealer's behalf, whether under this
Agreement or any other agreement, and whether provided by one or more of
DFS' branch offices, together with all finance charges, fees and expenses
related thereto, to make one debt owed by Dealer. DFS may, at any time
and without notice to Dealer, elect not to finance any inventory sold by
particular Vendors who are in default of their obligations to DFS, or
with respect to which DFS reasonably feels insecure. This is an agreement
regarding the extension of credit, and not the provision of goods or
services.
2. Financing Terms and Statements of Transaction. Dealer and DFS agree that
certain financial terms of any advance made by DFS under this Agreement,
whether regarding finance charges, other fees, maturities, curtailments
or other financial terms, are not set forth herein because such terms
depend, in part, upon the availability of Vendor discounts, payment terms
or other incentives, prevailing economic conditions, DFS' floorplanning
volume with Dealer and with Dealer's Vendors, and other economic factors
which may vary over time. Dealer and DFS further agree that it is
therefore in their mutual best interest to set forth in this Agreement
only the genera1 terms of Dealer's financing arrangement with DFS. Upon
agreeing to finance a particular item of inventory for Dealer, DFS will
send Dealer a Statement of Transaction identifying such inventory and the
applicable financial terms. Unless Dealer notifies DFS in writing of any
objection within fifteen (15) days after a Statement of Transaction is
mailed to Dealer: (a) the amount shown on such Statement of Transaction
will be an account stated; (b) Dealer will have agreed to all rates,
charges and other terms shown on such Statement of Transaction; (c)
Dealer will have agreed that DFS is financing the items of inventory
referenced in such Statement of Transaction at Dealer's request; and (d)
such Statement of Transaction will be incorporated herein by reference,
will be made a part hereof as if originally set forth herein, and will
constitute an addendum hereto. If Dealer objects to the terms of any
Statement of Transaction, Dealer agrees to pay DFS for such inventory in
accordance with the most recent terms for similar inventory to which
Dealer has not objected (or, if there are no prior terms, at the lesser
of 16% per annum or at the maximum lawful contract rate of interest
permitted under applicable law), but Dealer acknowledges that DFS may
then elect to terminate Dealer's financing program pursuant to Section
16, and cease making additional advances to Dealer. However, such
termination will not accelerate the maturities of advances previously
made, unless Dealer shall otherwise be in default of this Agreement.
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3. No Security Interest. Dealer has not granted, and will not in the future
grant, a security interest to any third party in any of Dealer's assets
including, but not limited to, Dealer's inventory financed by DFS (other
than as may arise by operation of law, or which are being terminated in
connection herewith, or liens on equipment which is the subject of
capital leases or purchase money indebtedness ("Permitted
Encumbrances")). Dealer has not executed, and will not execute, any
financing statements or authorize the execution of any financing
statements on Dealer's behalf.
4. Affirmative Warranties and Representations. Dealer warrants and
represents to DFS that: (a) Dealer's assets are not now and will not
become subject to the security interest, lien, encumbrance or claim of
any person, other than the Permitted Encumbrances; (b) Dealer will at all
times be duly organized, existing, in good standing, qualified and
licensed to do business in each state, county, or parish in which the
failure to so qualify or be licensed could reasonably be expected to have
a material adverse effect on Dealer's financial or business condition or
could reasonably be expected to adversely affect a material portion of
Dealer's assets (collectively, a "Material Adverse Effect"); (c) Dealer
has the right and is duly authorized to enter into this Agreement; (d)
Dealer's execution of this Agreement does not constitute a breach of any
agreement to which Dealer is now or hereafter becomes bound which could
cause a Material Adverse Effect; (e) there are and will be no actions or
proceedings pending or threatened against Dealer which could have a
Material Adverse Effect; (f) Dealer has paid and will pay when due all
taxes, levies, assessments and governmental charges of any nature except
those being contested by Dealer in good faith; (g) Dealer will promptly
supply DFS with such information concerning it or any guarantor as DFS
hereafter may reasonably request; (h) Dealer will give DFS thirty (30)
days prior written notice of any change in Dealer's identity, name, form
of business organization, ownership or principal place of business; (i)
Dealer will observe and perform all matters required by any lease,
license, concession or franchise necessary to the maintenance and
operation of its business; (j) Dealer will advise DFS of the commencement
of material legal proceedings against Dealer or any guarantor and (k)
Dealer will comply with all applicable laws and will conduct its business
in a manner which preserves and protects Dealer's assets.
5. Negative Covenants. Dealer will not at any time (without DFS' prior
written consent): (a) other than in the ordinary course of its business,
sell, lease or otherwise dispose of or transfer any of its assets; or (b)
merge or consolidate with another entity.
6. Insurance. Dealer will keep the inventory insured for its full insurable
value under an "all risk" property insurance policy with a company
acceptable to DFS. Dealer will provide DFS with written evidence of such
property insurance coverage upon request.
7. Financial Statements. Dealer will deliver to DFS: (a) within ninety (90)
days after the end of each of Dealer's fiscal years, a reasonably
detailed balance sheet as of the last day of such fiscal year and a
reasonably detailed income statement covering the consolidated operations
of PC Connection, Inc. and its subsidiaries (including Dealer) for such
fiscal year, in a form reasonably satisfactory to DFS; (b) within
forty-five (45) days after the end of each of Dealer's fiscal quarters, a
reasonably detailed balance sheet as of the last day of such quarter and
an income statement covering the consolidated operations of PC
Connection, Inc. and its subsidiaries (including Dealer) for such
quarter, in a form reasonably satisfactory to DFS; and (c) within ten
(10) days after request therefor by DFS, any other report reasonably
requested by DFS relating to the inventory or the financial condition of
Dealer. Dealer warrants and represents to DFS that all financial
statements and information relating to Dealer or any guarantor which have
been or may hereafter be delivered by Dealer or any guarantor are true
and correct in all material respects and have been and will be prepared
in accordance with generally accepted accounting principles consistently
applied and, with respect to such previously delivered statements or
information, there has been no material adverse change in the financial
or business condition of Dealer or any guarantor since the submission to
DFS, either as of the date of delivery, or, if different, the date
specified therein, and Dealer acknowledges DFS' reliance thereon, other
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than the corporate restructuring which occurred on or about December 31,
1999 pursuant to which Dealer became a wholly-owned subsidiary of PC
Connection, Inc.
8. Reviews. Dealer grants DFS an irrevocable license to enter Dealer's
business locations during normal business hours upon 24 hours notice to
Dealer, unless Dealer is in default hereunder in which case no prior
notice to Dealer shall be required, to (a) verify Dealer's compliance
with this Agreement; (b) account for and inspect all inventory; and (c)
examine and copy Dealer's books and records related to the inventory.
9. Payment Terms. Dealer will immediately pay DFS the principal indebtedness
owed DFS on each item of inventory financed by DFS (as shown on the
Statement of Transaction identifying such inventory) on the earliest
occurrence of any of the following events: (a) for inventory financed
under Pay-As-Sold ("PAS") terms (as shown on the Statement of Transaction
identifying such inventory), when such inventory is sold, transferred,
rented, leased, otherwise disposed of or matured; (b) in strict
accordance with any curtailment schedule for such inventory (as shown on
the Statement of Transaction identifying such inventory); (c) for
inventory financed under Scheduled Payment Program ("SPP") terms (as
shown on the Statement of Transaction identifying such inventory), in
strict accordance with the installment payment schedule; and (d) when
otherwise required under the terms of any financing program agreed to in
writing by the parties. If Dealer from time to time is required to make
immediate payment to DFS of any past due obligation, Dealer agrees that
acceptance of such payment by DFS shall not be construed to have waived
or amended the terms of its financing program. Dealer will send all
payments to DFS' branch office(s) responsible for Dealer's account. DFS
may apply: (i) payments to reduce finance charges first and then
principal, regardless of Dealer's instructions; and (ii) principal
payments to the oldest (earliest) invoice for inventory financed by DFS,
but, in any event, all principal payments will first be applied to such
inventory which is sold, lost, stolen, damaged, rented, leased, or
otherwise disposed of or unaccounted for. Any third party discount,
rebate, bonus or credit granted to Dealer for any inventory will not
reduce the debt Dealer owes DFS until DFS has received payment therefor
in cash. Dealer will: (1) pay DFS even if any inventory is defective or
fails to conform to any warranties extended by any third party; (2) not
assert against DFS any claim or defense Dealer has against any third
party; and (3) indemnify and hold DFS harmless against all claims and
defenses asserted by any buyer of the inventory relating to the condition
of, or any representations regarding, any of the inventory. Dealer waives
all rights of offset and counterclaims Dealer may have against DFS.
10. Calculation of Charges. Dealer will pay finance charges to DFS on the
outstanding principal debt which Dealer owes DFS for each item of
inventory financed by DFS at the rate(s) shown on the Statement of
Transaction identifying such inventory, unless Dealer objects thereto as
provided in Section 2. The finance charges attributable to the rate shown
on the Statement of Transaction will: (a) be computed based on a 360 day
year; (b) be calculated by multiplying the Daily Charge (as defined
below) by the actual number of days in the applicable billing period; and
(c) accrue from the invoice date of the inventory identified on such
Statement of Transaction until DFS receives full payment of the principal
debt Dealer owes DFS for each item of such inventory in good funds in
accordance with DFS' payment recognition policy and DFS applies such
payment to Dealer's principal debt in accordance with the terms of this
Agreement. The "Daily Charge" is the product of the Daily Rate (as
defined below) multiplied by the Average Daily Balance (as defined
below). The "Daily Rate" is the quotient of the annual rate shown on the
Statement of Transaction divided by 360, or the monthly rate shown on the
Statement of Transaction divided by 30. The "Average Daily Balance" is
the quotient of (i) the sum of the outstanding principal debt owed DFS on
each day of a billing period for each item of inventory identified on a
Statement of Transaction, divided by (ii) the actual number of days in
such billing period. Dealer will also pay DFS $100 for each check
returned unpaid for insufficient funds (an "NSF check") (such $100
payment repays DFS' estimated administrative costs; it does not waive the
default caused by the NSF check). The annual percentage rate of the
finance charges relating to any item of inventory financed by DFS will be
calculated from the invoice date of such inventory, regardless of any
period during which any finance charge subsidy shall be paid or payable
by any third party. Dealer acknowledges that DFS intends to strictly
conform to the applicable usury laws
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governing this Agreement. Regardless of any provision contained herein or
in any other document executed or delivered in connection herewith or
therewith, DFS shall never be deemed to have contracted for, charged or
be entitled to receive, collect or apply as interest on this Agreement
(whether termed interest herein or deemed to be interest by judicial
determination or operation of law), any amount in excess of the maximum
amount allowed by applicable law, and, if DFS ever receives, collects or
applies as interest any such excess, such amount which would be excessive
interest will be applied first to the reduction of the unpaid principal
balances of advances under this Agreement, and, second, any remaining
excess will be paid to Dealer. In determining whether or not the interest
paid or payable under any specific contingency exceeds the highest lawful
rate, Dealer and DFS shall, to the maximum extent permitted under
applicable law: (A) characterize any non-principal payment other than
payments which are expressly designated as interest payments hereunder)
as an expense or fee rather than as interest; (B) exclude voluntary
pre-payments and the effect thereof; and (C) spread the total amount of
interest throughout the entire term of this Agreement so that the
interest rate is uniform throughout such term.
11. Billing Statement. DFS will send Dealer a monthly billing statement
identifying all charges due on Dealer's account with DFS. The charges
specified on each billing statement will be: (a) due and payable in full
immediately on receipt; and (b) an account stated, unless DFS receives
Dealer's written objection thereto within 15 days after it is mailed to
Dealer. If DFS does not receive, by the 25th day of any given month,
payment of all charges accrued to Dealer's account with DFS during the
immediately preceding month, Dealer will (to the extent allowed by law)
pay DFS a late fee ("Late Fee") equal to the greater of $5 or 5% of the
amount of such finance charges (payment of the Late Fee does not waive
the default caused by the late payment). DFS may adjust the billing
statement at any time to conform to applicable law and this Agreement.
12. Default. Dealer will be in default under this Agreement if: (a) Dealer
breaches any terms, warranties or representations contained herein, in
any Statement of Transaction to which Dealer has not objected as provided
in Section 2, or in any other agreement between DFS and Dealer; (b) any
guarantor of Dealer's debts to DFS breaches any terms, warranties or
representations contained in any guaranty or other agreement between the
guarantor and DFS; (c) any representation, statement, report or
certificate made or delivered by Dealer or any guarantor to DFS is not
accurate when made; (d) Dealer fails to pay any portion of Dealer's debts
to DFS when due and payable hereunder or under any other agreement
between DFS and Dealer; (e) Dealer or any guarantor is or becomes in
default in the payment of any debt owed to any third party in an amount
over $1,000,000; (f) a money judgment issues against Dealer or any
guarantor over $l,0000,000 in excess of insurance; (g) an attachment,
sale or seizure issues or is executed against any assets of Dealer or of
any guarantor; (h) Dealer or any guarantor shall cease existence as a
corporation, partnership, limited liability company or trust, as
applicable; (i) Dealer or any guarantor ceases or suspends business; (j)
Dealer, any guarantor or any member while Dealer's business is operated
as a limited liability company, as applicable, makes a general assignment
for the benefit of creditors; (k) Dealer, any guarantor or any member
while Dealer's business is operated as a limited liability company, as
applicable, becomes insolvent or voluntarily or involuntarily becomes
subject to the Federal Bankruptcy Code, any state insolvency law or any
similar law; (l) any receiver is appointed for any assets of Dealer, any
guarantor or any member while Dealer's business is operated as a limited
liability company, as applicable; (m) any guaranty of Dealer's debts to
DFS is terminated; (n) Dealer loses any franchise, permission, license or
right necessary for the operation of its business; (q) Dealer or any
guarantor misrepresents Dealer's or such guarantor's financial condition
or organizational structure in any material respect; (o) DFS determines
in good faith that it is insecure with respect to the payment of any part
of Dealer's obligation to DFS; or (p) there shall occur a material
adverse change in the financial or other condition or business prospects
of Dealer or any guarantor.
13. Rights of DFS Upon Default. In the event of a default:
(a) DFS may at any time at DFS' election, without notice or demand to
Dealer, do any one or more of the following: declare all or any
part of the debt Dealer owes DFS immediately due and payable,
together with all costs and
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expenses of DFS' collection activity, including, without
limitation, all reasonable attorneys' fees; exercise any or all
rights under applicable law; and/or cease extending any additional
credit to Dealer (DFS' right to cease extending credit shall not
be construed to limit the discretionary nature of this credit
facility).
(b) DFS may, without notice, apply a default finance charge to
Dealer's outstanding principal indebtedness equal to the default
rate specified in Dealer's financing program with DFS, if any, or
if there is none so specified, at the lesser of 3% per annum above
the rate in effect immediately prior to the default, or the
highest lawful contract rate of interest permitted under
applicable law. All of DFS' rights and remedies are cumulative.
DFS' failure to exercise any of DFS' rights or remedies hereunder
will not waive any of DFS' rights or remedies as to any past,
current or future default.
14. Power of Attorney. Dealer grants DFS an irrevocable power of attorney to
supply any omitted information and correct errors in any documents
between DFS and Dealer; and to initiate and settle any insurance claim
pertaining to the inventory.
15. Information. DFS may provide to any third party upon request any credit
information on Dealer that DFS may from time to time possess or any
financial or other information on Dealer that DFS may from time to time
possess as required by law. DFS may obtain from any Vendor any credit,
financial or other information regarding Dealer that such Vendor may from
time to time possess.
16. Termination. Either party may terminate this Agreement at any time by
written notice received by the other party. If DFS terminates this
Agreement, Dealer agrees that if Dealer: (a) is not in default hereunder,
30 days prior notice of termination is reasonable and sufficient
(although this provision shall not be construed to mean that shorter
periods may not, in particular circumstances, also be reasonable and
sufficient); or (b) is in default hereunder, no prior notice of
termination is required. Dealer will not be relieved from any obligation
to DFS arising out of DFS' advances or commitments made before the
effective termination date of this Agreement. DFS will retain all of its
rights, interests and remedies hereunder until Dealer has paid all of
Dealer's debts to DFS. All waivers set forth within this Agreement will
survive any termination of this Agreement.
17. Binding Effect. Dealer cannot assign its interest in this Agreement
without DFS' prior written consent, although DFS may assign or
participate DFS' interest, in whole or in part, without Dealer's consent.
This Agreement will protect and bind DFS' and Dealer's respective heirs,
representatives, successors and assigns.
18. Notices. except as otherwise stated herein, all notices, arbitration
claims, responses, requests and documents will be sufficiently given or
served if mailed or delivered: (a) to Dealer at Dealer's principal place
of business specified above; and (b) to DFS at 655 Maryville Centre
Drive, St. Louis, Missouri 63141-5832, Attention: General Counsel, or
such other address as the parties may hereafter specify in writing.
19. NO ORAL AGREEMENTS. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND
CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING
PROMISES TO EXTEND OR RENEW SUCH DEBTS ARE NOT ENFORCEABLE. TO PROTECT
DEALER AND DFS FROM MISUNDERSTANDING OR DISAPPOINTMENT, ALL AGREEMENTS
COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE
COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES,
EXCEPT AS SPECIFICALLY PROVIDED HEREIN OR AS THE PARTIES MAY LATER AGREE
IN WRITING TO MODIFY IT. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE
PARTIES.
20. Other Waivers. Dealer irrevocably waives notice of: DFS' acceptance of
this Agreement, presentment, demand, protest, nonpayment, nonperformance,
and dishonor. Dealer and DFS irrevocably waive all rights to claim any
punitive and/or exemplary damages.
21. Severability. If any provision of this Agreement or its application is
invalid or unenforceable, the remainder of this Agreement will not be
impaired or affected and will remain binding and enforceable.
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22. Supplement. If Dealer and DFS have heretofore executed other agreements
in connection with all or any part of the inventory and/or Collateral,
this Agreement shall supplement each and every other agreement previously
executed by and between Dealer and DFS, and in that event this Agreement
shall neither be deemed a novation nor a termination of such previously
executed agreement nor shall execution of this Agreement be deemed a
satisfaction of any obligation secured by such previously executed
agreement.
23. Receipt of Agreement. Dealer acknowledges that it has received a true and
complete copy of this Agreement. Dealer acknowledges that it has read and
understood this Agreement. Notwithstanding anything herein to the
contrary: (a) DFS may rely on any facsimile copy, electronic data
transmission or electronic data storage of this Agreement, any Statement
of Transaction (unless rejected by Dealer in accordance with Section 2
hereof), billing statement, invoice from a Vendor, financial statements
or other reports, and (b) such facsimile copy, electronic data
transmission or electronic data storage will be deemed an original, and
the best evidence thereof for all purposes, including, without
limitation, under this Agreement or any other agreement between DFS and
Dealer, and for all evidentiary purposes before any arbitrator, court or
other adjudicatory authority.
24. Miscellaneous. Time is of the essence regarding Dealer's performance of
its obligations to DFS notwithstanding any course of dealing or custom on
DFS' part to grant extensions of time. Dealer's liability under this
Agreement is direct and unconditional and will not be affected by the
release or nonperfection of any security interest granted hereunder. DFS
will have the right to refrain from or postpone enforcement of this
Agreement or any other agreements between DFS and Dealer without
prejudice and the failure to strictly enforce these agreements will not
be construed as having created a course of dealing between DFS and Dealer
contrary to the specific terms of the agreements or as having modified,
released or waived the same. The express terms of this Agreement will not
be modified by any course of dealing, usage of trade, or custom of trade
which may deviate from the terms hereof. If Dealer fails to pay any
taxes, fees or other obligations which may impair DFS' interest in the
inventory, or fails to keep the inventory insured, DFS may, but shall not
be required to, pay such taxes, fees or obligations and pay the cost to
insure the inventory, and the amounts paid will be: (a) an additional
debt owed by Dealer to DFS, which shall be subject to finance charges as
provided herein; and (b) due and payable immediately in full. Dealer
agrees to pay all of DFS' reasonable attorneys' fees and expenses
incurred by DFS in enforcing DFS' rights hereunder. The Section titles
used in this Agreement are for convenience only and. do not define or
limit the contents of any Section.
25. BINDING ARBITRATION.
25.1 Arbitrable Claims. Except as otherwise specified below, all
actions, disputes, claims and controversies under common law,
statutory law or in equity of any type or nature whatsoever
(including, without limitation, all torts, whether regarding
negligence, breach of fiduciary duty, restraint of trade, fraud,
conversion, duress, interference, wrongful replevin, wrongful
sequestration, fraud in the inducement, usury or any other tort,
all contract actions, whether regarding express or implied terms,
such as implied covenants of good faith, fair dealing, and the
commercial reasonableness of any inventory disposition, or any
other contract claim, all claims of deceptive trade practices or
lender liability, and all claims questioning the reasonableness or
lawfulness of any act), whether arising before or after the date
of this Agreement, and whether directly or indirectly relating to:
(a) this Agreement and/or any amendments and addenda hereto, or
the breach, invalidity or termination hereof; (b) any previous or
subsequent agreement between DFS and Dealer: (c) any act committed
by DFS or by any parent company, subsidiary or affiliated company
of DFS (the "DFS Companies"), or by any employee, agent, officer
or director of an DFS company whether or not arising within the
scope and course of employment or other contractual representation
of the DFS Companies provided that such act arises under a
relationship, transaction or dealing between DFS and Dealer;
and/or (d) any other relationship, transaction or dealing between
DFS and Dealer (collectively the "Disputes"), will be subject to
and resolved by binding arbitration.
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25.2 Administrative Body. All arbitration hereunder will be conducted
in accordance with the Commercial Arbitration Rules of The
American Arbitration Association ("AAA"). If the AAA is dissolved,
disbanded or becomes subject to any state or federal bankruptcy or
insolvency proceeding, the parties will remain subject to binding
arbitration which will be conducted by a mutually agreeable
arbitral forum. The parties agree that all arbitrator(s) selected
will be attorneys with at least five (5) years secured
transactions experience. The arbitrator(s) will decide if any
inconsistency exists between the rules of any applicable arbitral
forum and the arbitration provisions contained herein. If such
inconsistency exists, the arbitration provisions contained herein
will control and supersede such rules. The site of all arbitration
proceedings will be in the Division of the Federal Judicial
District in which AAA maintains a regional office that is closest
to Dealer.
25.3 Discovery. Discovery permitted in any arbitration proceeding
commenced hereunder is limited as follows. No later than sixty
(60) days after the filing of a claim for arbitration, the parties
will exchange detailed statements setting forth the facts
supporting the claim(s) and all defenses to be raised during the
arbitration, and a list of all exhibits and witnesses. No later
than twenty-one (21) days prior to the arbitration hearing, the
parties will exchange a final list of all exhibits and all
witnesses, including any designation of any expert witness(es)
together with a summary of their testimony; a copy of all
documents and a detailed description of any property to be
introduced at the hearing. However, in the event of the
designation of any expert witness(es), the following will occur:
(a) all information and documents relied upon by the expert
witness(es) will be delivered to the opposing party, (b) the
opposing party will be permitted to depose the expert witness(es),
(c) the opposing party will be permitted to designate rebuttal
expert witness(es), and (d) the arbitration hearing will be
continued to the earliest possible date that enables the foregoing
limited discovery to be accomplished.
25.4 Exemplary or Punitive Damages. The Arbitrator(s) will not have the
authority to award exemplary or punitive damages.
25.5 Confidentiality of Awards. All arbitration proceedings, including
testimony of evidence at hearings, will be kept confidential,
although any award or order rendered by the arbitrator(s) pursuant
to the terms of this Agreement may be entered as a judgment or
order in any state or federal court and may be confirmed within
the federal judicial district which includes the residence of the
party against whom such award or order was entered. This Agreement
concerns transactions involving commerce among the several states.
The Federal Arbitration Act, Title 9 U.S.C. Sections 1 et seq., as
amended ("FAA") will govern all arbitration(s) and confirmation
proceedings hereunder.
25.6 Prejudgment and Provisional Remedies. Nothing herein will be
construed to prevent DFS' or Dealer's use of bankruptcy,
receivership, injunction, repossession, replevin, claim and
delivery, sequestration, seizure, attachment, foreclosure, dation
and/or any other prejudgment or provisional action or remedy
relating to any inventory and/or Collateral for any current or
future debt owed by either party to the other. Any such action or
remedy will not waive DFS' or Dealer's right to compel arbitration
of any Dispute.
25.7 Attorneys' Fees. If either Dealer or DFS brings any other action
for judicial relief with respect to any Dispute (other than those
set forth in Section 25.6), the party bringing such action will be
liable for and immediately pay all of the other party's reasonable
costs and expenses including attorneys' fees) incurred to stay or
dismiss such action and remove or refer such Dispute to
arbitration. If either Dealer or DFS brings or appeals an action
to vacate or modify an arbitration award and such party DFS not
prevail, such party will pay all reasonable costs and expenses,
including reasonable attorneys' fees, incurred by the other party
in defending such action.
25.8 Limitations. Any arbitration proceeding must be instituted: (a)
with respect to any Dispute for the collection of any debt owed by
either party to the other, within two (2) years after the date the
last payment was received by the instituting party; and (b) with
respect to any other Dispute, within two (2) years after the date
the incident giving rise
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thereto occurred. Failure to institute an arbitration proceeding
within such period will constitute an absolute bar and waiver to
the institution of any proceeding, whether arbitration or a court
proceedings, with respect to such Dispute.
25.9 Survival After Termination. The agreement to arbitrate will
survive the termination of this Agreement.
26. INVALIDITY/UNENFORCEABILITY OF BINDING ARBITRATION. IF THIS AGREEMENT IS
FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY LEGAL PROCEEDING WITH RESPECT
TO ANY DISPUTE WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A
JUDGE WITHOUT A JURY. DEALER AND DFS WAIVE ANY RIGHT TO A JURY TRIAL IN
ANY SUCH PROCEEDING.
27. Governing Law. Dealer acknowledges and agrees that this and all other
agreements between dealer and DFS have been substantially negotiated, and
will be substantially performed, in the Commonwealth of Massachusetts.
Accordingly, Dealer agrees that all Disputes will be governed by, and
construed in accordance with, the laws of such state except to the extent
inconsistent with the provisions of the FAA which shall control and
govern all arbitration proceedings hereunder.
IN WITNESS WHEREOF, Dealer and DFS have executed this Agreement as of the
date first set forth hereinabove.
THIS CONTRACT CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGE
WAIVER PROVISIONS.
DEUTSCHE FINANCIAL SERVICES CORPORATION Comteq Federal, Inc.
-----------------------------------
Dealer's Name
By: /s/ Mark B. Schafer
-------------------------------- By: /s/ Gary Sorkin
Print Name: Mark B. Schafer --------------------------------
------------------------- Print Name: Gary Sorkin
Title: Vice President - Operations ------------------------
----------------------------- Title: President
-----------------------------
By:
--------------------------------
Print Name:
------------------------
Title:
-----------------------------
ATTEST:
/s/ Dawn M. Cranford
-----------------------------------
(Assistant) Secretary
Print Name: DAWN M. CRANFORD
------------------------
8
<PAGE>
Exhibit 10.40
GUARANTY
TO: DEUTSCHE FINANCIAL SERVICES CORPORATION
In consideration of financing provided or to be provided by you to Comteq
Federal, Inc. ("Dealer"), and for other good and valuable consideration
received, we jointly, severally, unconditionally and absolutely guaranty to you,
from property held separately, jointly or in community, the immediate payment
when due of all current and future liabilities owed by Dealer to you, whether
such liabilities are direct, indirect or owed by Dealer to a third party and
acquired by you (and, with respect to such liabilities owed by Dealer to a third
party and acquired by you, to the extent the guaranty by the undersigned is
reaffirmed in writing) ("Liabilities"). We will pay you on demand the full
amount of all sums owed by Dealer to you, together with all reasonable costs and
expenses (including, without limitation, reasonable attorneys' fees). We also
indemnify and hold you harmless from and against all (a) losses, costs and
expenses you incur and/or are liable for (including, without limitation,
reasonable attorneys' fees) and (b) claims, actions and demands made by Dealer
or any third party against you, which in any way relate to any relationship or
transaction between you and Dealer.
Our guaranty will not be released, discharged or affected by, and we
hereby irrevocably consent to, any: (a) change in the manner, place, interest
rate, finance or other charges, or terms of payment or performance in any
current or future agreement between you and Dealer, the release, settlement or
compromise of or with any party liable for the payment or performance thereof or
the substitution, release, non-perfection, impairment, sale or other disposition
of any collateral thereunder; (b) change in Dealer's financial condition; (c)
interruption of relations between Dealer and you or us; (d) claim or action by
Dealer against you; and/or (e) increases or decreases in any credit you may
provide to Dealer. We will pay you even if you have not exercised any of your
rights or remedies against Dealer, any other person or any current or future
collateral. This Guaranty is assignable by you and will inure to the benefit of
your assignee. If Dealer hereafter undergoes any change in its ownership,
identity or organizational structure, this Guaranty will extend to all current
and future obligations which such new or changed legal entity owes to you.
We irrevocably waive (to the extent permitted by law): notice of your
acceptance of this Guaranty, presentment, demand, protest, nonpayment,
nonperformance, notice of breach or default, notice of intent to accelerate and
notice of acceleration of any indebtedness of Dealer, any right of contribution
from other guarantors, dishonor, the amount of indebtedness of Dealer
outstanding at any time, the number and amount of advances made by you to Dealer
in reliance on this Guaranty and any claim or action against Dealer; all other
demands and notices required by law; all rights of offset and counterclaims
against you or Dealer; all defenses to the enforceability of this Guaranty
(including, without limitation, fraudulent inducement). We further waive (to the
extent permitted by law) all defenses based on suretyship or impairment of
collateral, and defenses which the Dealer may assert on the underlying debt,
including but not limited to, failure of consideration, breach of warranty,
fraud, statute of frauds, bankruptcy, lack of legal capacity, lender liability,
deceptive trade practices and usury. We also waive all rights to claim,
arbitrate for or sue for any punitive or exemplary damages. In addition, we
hereby irrevocably subordinate to you any and all of our present and future
rights and remedies: (a) of subrogation against Dealer to any of your rights or
remedies against Dealer; (b) of contribution, reimbursement, indemnification and
restoration from Dealer; and (c) to assert any other claim or action against
Dealer directly or indirectly relating to this Guaranty, such subordinations to
last until you have been paid in full for all Liabilities. All of our waivers
and subordinations herein will survive any termination of this Guaranty.
We have made an independent investigation of the financial condition of
Dealer and give this Guaranty based on that investigation and not upon any
representation made by you. We have access to current and future Dealer
financial information which enables us to remain continuously informed of
Dealer's financial condition. We represent and warrant to you that we have
received and will receive substantial direct or indirect benefit by making this
Guaranty and incurring the Liabilities. We will provide you with
<PAGE>
consolidated financial statements on us and our subsidiaries each year within
ninety (90) days after the end of our fiscal year end. We warrant and represent
to you that all financial statements and information relating to us or Dealer
which have been or may hereafter be delivered by us or Dealer to you are true
and correct and have been and will be prepared in accordance with generally
accepted accounting principles consistently applied and, with respect to
previously delivered statements and information, there has been no material
adverse change in the financial or business condition of us or Dealer since the
submission to you, either as of the date of delivery, or if different, the date
specified therein, and we acknowledge your reliance thereon. This Guaranty will
survive any federal and/or state bankruptcy or insolvency action involving
Dealer. We are solvent and our execution of this Guaranty will not make us
insolvent. If you are required in any action involving Dealer to return or
rescind any payment made to or value received by you from or for the account of
Dealer, this Guaranty will remain in full force and effect and will be
automatically reinstated without any further action by you and notwithstanding
any termination of this Guaranty or your release of us. Any delay or failure by
you, or your successors or assigns, in exercising any of your rights or remedies
hereunder will not waive any such rights or remedies. Oral agreements or
commitments to loan money, extend credit or to forbear from enforcing repayment
of a debt including promises to extend or renew such debt are not enforceable.
To protect us and you from misunderstanding or disappointment, any agreements we
reach covering such matters are contained in this writing, which is the complete
and exclusive statement of the agreement between us, except as specifically
provided herein or as we may later agree in writing to modify it.
Notwithstanding anything herein to the contrary: (a) you may rely on any
facsimile copy, electronic data transmission or electronic data storage of this
Guaranty, any agreement between you and Dealer, any Statement of Transaction,
billing statement, invoice from a vendor, financial statements or other report,
and (b) such facsimile copy, electronic data transmission or electronic data
storage will be deemed an original, and the best evidence thereof for all
purposes, including, without limitation, under this Guaranty or any other
agreement between you and us, and for all evidentiary purposes before any
arbitrator, court or other adjudicatory authority. We may terminate this
Guaranty by a written notice to you, the termination to be effective forty-five
(45) days after you receive and acknowledge it, but the termination will not
terminate our obligations hereunder for Liabilities arising prior to the
effective termination date. We have read and understood all terms and provisions
of this Guaranty. We acknowledge receipt of a true copy of this Guaranty and of
all agreements between you and Dealer. The meanings of all terms herein are
equally applicable to both the singular and plural forms of such terms.
BINDING ARBITRATION. Except as otherwise specified below, all actions,
disputes, claims and controversies under common law, statutory law or in equity
of any type or nature whatsoever (including, without limitation, all torts,
whether regarding negligence, breach of fiduciary duty, restraint of trade,
fraud, conversion, duress, interference, wrongful replevin, wrongful
sequestration, fraud in the inducement, usury or any other tort, all contract
actions, whether regarding express or implied terms, such as implied covenants
of good faith, fair dealing, and the commercial reasonableness of any collateral
disposition, or any other contract claim, all claims of deceptive trade
practices or lender liability, and all claims questioning the reasonableness or
lawfulness of any act), whether arising before or after the date of this
Guaranty, and whether directly or indirectly relating to: (a) this Guaranty
and/or any amendments and addenda hereto or the breach, invalidity or
termination hereof; (b) any previous or subsequent agreement between you and us;
(c) any act committed by you or by any parent company, subsidiary or affiliated
company of you (the "DFS Companies"), or by an employee, agent, officer or
director of a DFS Company, whether or not arising within the scope and course of
employment or other contractual representation of the DFS Companies provided
that such act arises under a relationship, transaction or dealing between you
and Dealer or you and us; and/or (d) any other relationship, transaction,
dealing or agreement between you and Dealer or you and us (collectively the
"Disputes"), will be subject to and resolved by binding arbitration.
All arbitration hereunder will be conducted in accordance with The
Commercial Arbitration Rules of The American Arbitration Association ("AAA"). If
the AAA is dissolved, disbanded or becomes subject to any state or federal
bankruptcy or insolvency proceeding, the parties will remain subject to binding
arbitration which will be conducted by a mutually agreeable arbitral forum. The
parties agree that all
<PAGE>
arbitrator(s) selected will be attorneys with at least five (5) years secured
transactions experience. The arbitrator(s) will decide if any inconsistency
exists between the rules of any applicable arbitral forum and the arbitration
provisions contained herein. If such inconsistency exists, the arbitration
provisions contained herein will control and supersede such rules. The site of
all arbitrations will be in the Division of the Federal Judicial District in
which AAA maintains a regional office that is closest to Dealer.
Discovery permitted in any arbitration proceeding commenced hereunder is
limited as follows: No later than sixty (60) days after the filing of a claim
for arbitration, the parties will exchange detailed statements setting forth the
facts supporting the claim(s) and all defenses to be raised during the
arbitration, and a list of all exhibits and witnesses. No later than twenty-one
(21) days prior to the arbitration hearing, the parties will exchange a final
list of all exhibits and all witnesses, including any designation of any expert
witness(es) together with a summary of their testimony; a copy of all documents
and a detailed description of any property to be introduced at the hearing.
However, in the event of the designation of any expert witness(es), the
following will occur: (a) all information and documents relied upon by the
expert witness(es) will be delivered to the opposing party, (b) the opposing
party will be permitted to depose the expert witness(es), (c) the opposing party
will be permitted to designate rebuttal expert witness(es), and (d) the
arbitration hearing will be continued to the earliest possible date that enables
the foregoing limited discovery to be accomplished.
The Arbitrator(s) will not have the authority to award exemplary or
punitive damages.
All arbitration proceedings, including testimony or evidence at hearings,
will be kept confidential, although any award or order rendered by the
arbitrator(s) pursuant to the terms of this Guaranty may be entered as a
judgment or order in any state or federal court and may be entered as a judgment
or order within the federal judicial district which includes the residence of
the party against whom such award or order was entered. This Guaranty concerns
transactions involving commerce among the several states. The Federal
Arbitration Act ("FAA") will govern all arbitration(s) and confirmation
proceedings hereunder.
Nothing herein will be construed to prevent your or our use of bankruptcy,
receivership, injunction, repossession, replevin, claim and delivery,
sequestration, seizure, attachment, foreclosure, dation and/or any other
prejudgment or provisional action or remedy relating to any collateral for any
current or future debt owed by either party to the other. Any such action or
remedy will not waive your or our right to compel arbitration of any Dispute.
If either we or you bring any other action for judicial relief with
respect to any Dispute (other than those set forth in the immediately preceding
paragraph), the party bringing such action will be liable for and immediately
pay all of the other party's reasonable costs and expenses (including attorneys'
fees) incurred to stay or dismiss such action and remove or refer such Dispute
to arbitration. If either we or you bring or appeal an action to vacate or
modify an arbitration award and such party does not prevail, such party will pay
all reasonable costs and expenses, including reasonable attorneys' fees,
incurred by the other party in defending such action.
Any arbitration proceeding must be instituted: (a) with respect to any
Dispute for the collection of any debt owed by either party to the other, within
two (2) years after the date the last payment was received by the instituting
party; and (b) with respect to any other Dispute, within two (2) years after the
date the incident giving rise thereto occurred. Failure to institute an
arbitration proceeding within such period will constitute an absolute bar and
waiver to the institution or any proceeding with respect to such Dispute. Except
as otherwise stated herein, all notices, arbitration claims, responses, requests
and documents will be sufficiently given or served if mailed or delivered: (i)
to us at our address below; (ii) to you at 655 Maryville Centre Drive, St.
Louis, Missouri 63141-5832. Attention: General Counsel; or such other address as
the parties may specify from time to time in writing.
<PAGE>
The agreement to arbitrate will survive the termination of this Guaranty.
IF THIS GUARANTY IS FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY LEGAL
PROCEEDING WITH RESPECT TO ANY DISPUTE WILL BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE WITHOUT A JURY. WE WAIVE ANY RIGHT TO A JURY TRIAL IN
ANY SUCH PROCEEDING.
We acknowledge and agree that this Guaranty and all agreements between
Dealer and you have been substantially negotiated, and will be performed, in the
state of Massachusetts. Accordingly, we agree that all Disputes will be governed
by, and construed in accordance with, the laws of such state, except to the
extent inconsistent with the provisions of the FAA which will control and govern
all arbitration proceedings hereunder.
THIS GUARANTY CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGES
WAIVER PROVISIONS.
Date: 2/25, 2000
CORPORATE, PARTNERSHIP OR
LIMITED LIABILITY COMPANY
GUARANTOR:
PC Connection, Inc.
By: /s/ Mark Gavin
-----------------------------
Print Name: Mark Gavin
---------------------
Title: CFO
--------------------------
By:
-----------------------------
Print Name:
---------------------
Title:
--------------------------
Address of Guarantor(s):
Route 101A
730 Milford Road
Merrimack, NH 03054-4631
<PAGE>
The agreement to arbitrate will survive the termination of this Guaranty.
IF THIS GUARANTY IS FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY LEGAL
PROCEEDING WITH RESPECT TO ANY DISPUTE WILL BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE WITHOUT A JURY. WE WAIVE ANY RIGHT TO A JURY TRIAL IN
ANY SUCH PROCEEDING.
We acknowledge and agree that this Guaranty and all agreements between
Dealer and you have been substantially negotiated, and will be performed, in the
state of Massachusetts. Accordingly, we agree that all Disputes will be governed
by, and construed in accordance with, the laws of such state, except to the
extent inconsistent with the provisions of the FAA which will control and govern
all arbitration proceedings hereunder.
THIS GUARANTY CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGES
WAIVER PROVISIONS.
Date: 2/25, 2000
CORPORATE, PARTNERSHIP OR
LIMITED LIABILITY COMPANY
GUARANTOR:
PC Connection, Inc.
By: /s/ Mark Gavin
-----------------------------
Print Name: Mark Gavin
---------------------
Title: CFO
--------------------------
By:
-----------------------------
Print Name:
---------------------
Title:
--------------------------
Address of Guarantor(s):
<PAGE>
Exhibit 10.41
ASSIGNMENT AGREEMENT
and
LESSOR CONSENT
This Assignment Agreement ("this Agreement") is dated as of the 13th day of
December, 1999, by and between Micro Warehouse, Inc. ("Assignor") and PC
Connection, Inc. ("Assignee").
RECITALS:
A. Assignor is the Lessee under the following Agreements of Lease:
1. Agreement of Lease dated August 12, 1991, by and between Lessee and EWE
Warehouse Investment V, Ltd., a Florida limited partnership ("Lessor"),
successor-in-interest to Miller-Valentine Partners, as amended (i) by that
certain Amendment No. 1 to Lease dated May 1, 1992 and (ii) by that
certain Amendment No. 2 to Lease dated October 18, 1992 (collectively, the
"First Lease") for a term expiring September 30, 2001. Pursuant to the
First Lease, Assignor leases the premises located at 2841-2901 Old State
Route 73, Wilmington, Ohio (the "First Premises").
2. Agreement of Lease dated May 13, 1993, by and between Lessee and Lessor
(the "Second Lease" and, collectively with the First Lease, the "Leases")
for a term expiring September 30, 2003. Pursuant to the Second Lease,
Assignor leases the premises located at 2907-2931 Old State Route 73,
Wilmington, Ohio (collectively with the First Premises, the "Premises").
B. Pursuant to the Leases, Lessor leases to Assignor a building known as
"Building 4" located at 2841-2907 Old State Route 73 South, Wilmington,
Ohio 45177 containing approximately 102,400 sq. ft. of
warehouse/distribution and office space and Lessee desires to assign the
Leases to Assignee and obtain Lessor's consent to such assignment in
accordance with the provisions of this Agreement.
C. Concurrently herewith and as a condition to the effectiveness of this
Agreement, Lessor is executing and delivering to Assignee and Assignor the
Lessor's Consent to Assignment attached hereto and Assignor shall execute
and deliver to Assignee an estoppel certificate in the form attached
hereto as Exhibit A (the "Estoppel Certificate") as of the Effective Date.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Assignor and Assignee agree as
follows:
1. Effective Date. The effective date of this Agreement (the "Effective
Date") shall be the later of (i) the date each and every of the conditions in
Paragraph 6 below have been satisfied,
Page 1
<PAGE>
and (ii) the date upon which Assignor delivers possession of the Premises to
Assignee. The Parties expect the Effective Date to be December 20, 1999. If the
Effective Date does not occur prior to January 31, 2000, either Assignor or
Assignee shall have the right to terminate this Agreement by written notice to
the other party and to Lessor. Subject to the satisfaction of such conditions,
Assignee agrees to accept possession of the Premises on the Effective Date.
2. Assignment and Assumption of Lease. As of the Effective Date, Assignor hereby
assigns, delegates and transfers to Assignee all of Assignor's rights, benefits,
interests, obligations and duties under the Leases and Assignee hereby accepts
and assumes from Assignor all of Assignor's rights, benefits, interests,
obligations and duties under the Leases, arising from and after the Effective
Date.
3. Condition of Premises. Assignor shall deliver the Premises to Assignee having
been power scrubbed and in broom clean condition.
4. Apportionment of Additional Rent. Assignor shall be liable and accountable
for its pro rata share of Basic Annual Rent, utilities, heating and air
conditioning, real estate taxes, exterior lighting, ice and snow removal,
maintenance of mechanical equipment, common area expenses, and any other amount
of "additional rent" under the Leases (collectively, "Additional Rent") with
respect to the periods prior to the Effective Date, as such expenses relate to
the Premises. If it is later determined that Assignor has not fully paid its pro
rata share of Additional Rent due under the Leases for the period prior to the
Effective Date ("Underpayment"), Assignor shall pay to Assignee such amount of
Underpayment upon receipt of written demand from Assignee and concurrence by
Lessor. If it is later determined that Assignor overpaid its pro rata share of
Additional Rent due under the Leases for the period prior to the Effective Date
("Overpayment"), Assignee shall pay to Assignor such amount of Overpayment upon
receipt of written demand from Assignor and concurrence by Lessor. Assignor and
Assignee shall make available to one another such information in their
respective possession from time to time for the purpose of establishing the
rights and obligations of the parties under this paragraph.
5. Indemnification. (a) By Assignor. Assignor shall indemnify Assignee and its
shareholders, parent corporations, officers, directors, employees and agents
(collectively, "Assignee Indemnities") and hold harmless Assignee Indemnities
from and against all claims, losses, damages, costs and expenses, including
reasonable attorney's fees and disbursements, incurred by Assignee Indemnities
arising from (i) any and all obligations and liabilities arising under the
Leases based on any act or omission by Assignor with respect to the period prior
to the Effective Date, (ii) any and all actions relating to the Premises
(including, without limitation claims for damage to any property or injury,
illness or death of any person upon the Premises) based on any act or omission
by Assignor which shall accrue prior to the Effective Date, and/or (iii) the
breach by Assignor of any term, condition, representation or warranty, covenant
or obligation contained herein.
(b) By Assignee. Assignee shall indemnify Assignor and its shareholders,
parent
Page 2
<PAGE>
corporations, officers, directors, employees and agents (collectively, "Assignor
Indemnitees") and hold harmless Assignor Indemnitees from and against all
claims, losses, damages, costs and expenses, including reasonable attorney's
fees and disbursements, incurred by Assignor Indemnitees arising from (i) any
and all obligations and liabilities arising under the Leases with respect to the
period on and after the Effective Date, (ii) any and all actions relating to the
Premises (including, without limitation claims for damage to any property or
injury, illness or death of any person upon the Premises) which shall accrue on
and after the Effective Date, and (iii) the breach by Assignee of any term,
condition or obligation contained herein and/or, with respect to the period on
or after the Effective Date in the Leases, based on any act or omission by
Assignee.
6. Conditions Precedent. (a) Condition to Assignor's Performance. The
obligations of Assignor to consummate the transactions contemplated hereunder
are subject to the condition that on or before December 31, 1999, Lessor shall
have consented in writing as set forth herein to the assignment of the Leases to
Assignee.
(b) Conditions to Assignee's Performance. The obligations of Assignee to
consummate the transactions contemplated hereunder are subject to the conditions
that on or before December 31, 1999 (i) Assignor shall have executed and
delivered to Assignee the Estoppel Certificate in the form as attached hereto as
Exhibit A and (ii) Lessor shall have consented in writing as set forth herein to
the assignment of the Leases to Assignee.
7. Time of Essence. Time is of the essence with respect to each provision of
this Agreement of which time is an element.
8. Brokers' Commissions. Each party hereto represents and warrants to the other
party that neither party is aware of any fee, commission or any other form of
compensation which is or may become payable to any broker, individual or other
entity arising from or earned in connection with the transactions contemplated
under this Agreement. Assignor and Assignee shall each hold the other harmless
from and against all claims by any real estate broker claiming a commission
through the other with respect to the transactions contemplated by this
Agreement.
9. Miscellaneous.
(a) Construction of Agreement. Each party hereto acknowledges that (i)
each party hereto is of equal bargaining strength; (ii) each such party has
actively participated in the drafting, preparation, and negotiation of this
Agreement; (iii) each such party has had the opportunity to consult with such
party's attorneys and advisors relative to entering into this Agreement; and
(iv) any rule of construction to the effect that ambiguities are to be resolved
against the drafting party shall not apply in the interpretation of this
Agreement, any portion hereof or any amendments hereto.
(b) Successors and Assigns. This Agreement shall inure to the benefit of
and shall
Page 3
<PAGE>
bind the parties hereto and their respective personal representatives,
successors and assigns.
(c) Entire Agreement. This Agreement contains the entire understanding
between the parties hereto with respect to the subject matter hereof and
supersedes any and all prior or other contemporaneous understandings,
correspondence, negotiations, or agreements between them respecting the within
subject matter. No alterations, modifications, or interpretations hereof shall
be binding unless in writing and signed by all the parties hereto.
(d) Attorneys' Fees. If any litigation is commenced between the parties
hereto or their representatives concerning any provision of this Agreement or
the Estoppel Certificate or the rights and duties of any person or entity in
relation thereto, the party prevailing in such litigation, whether by
out-of-court settlement or final judgment, shall be entitled, in addition to
such other relief as may be granted, to a reasonable sum as and for attorneys'
fees incurred in such litigation and any appeals in connection therewith.
(e) Notices. All notices, requests which are required or may be given
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon receipt, if personally delivered or if sent by certified mail, return
receipt requested, or (ii) the day after being sent, if sent for next day
delivery to a domestic address by recognized overnight delivery service (e.g.,
Federal Express) or if sent by telecopy, provided that any notice sent by
telecopy shall be accompanied by a copy thereof sent by regular United States
mail. In each case, such notice, etc. shall be addressed:
If to Assignee, to:
PC Connection, Inc.
730 Milford Road
Merrimack, New Hampshire 03054
Attn: Robert Pratt, Director of Facilities
with copies to:
PC Connection, Inc.
730 Milford Road
Merrimack; New Hampshire 03054
Attn: Steven Markiewicz, Legal Counsel
If to Assignor, to:
Micro Warehouse, Inc.
535 Connecticut Ave.
Norwalk, CT 06854
Page 4
<PAGE>
Attn: Bruce L. Lev, Executive VP
and General Counsel
with copies to:
Micro Warehouse, Inc. of Ohio
3336 State Route 73, South
Wilmington, OH 45177
Attn: Chris Black, Vice President
(f) Governing Law; Jurisdiction. This agreement, and the parties
performance hereunder, shall be governed and construed in accordance with the
laws of the State of Ohio, excluding the principles of conflicts of laws
thereof, applicable to agreements made and to be performed within Ohio. The
parties hereto agree, and do hereby, irrevocably submit to the exclusive
jurisdiction of the United States District Court or the courts of the State of
Ohio located in the County in which the Premises are located. In addition, the
parties hereto agree that the service of any complaint, summons or other legal
paper or document relating to, or arising out of this Agreement, which service
is in accordance with the notice provision set forth above, shall be deemed to
be good and sufficient notice of service of such complaint, summons and/or other
legal papers or documents.
IN WITNESS WHEREOF, Assignee and Assignor have executed this Agreement as
of the date first written above.
PC CONNECTION, INC. (Assignee)
By: /s/ Wayne L. Wilson
------------------------------
Name: Wayne L. Wilson
Title: President
MICRO WAREHOUSE, INC. (Assignor)
By: [Illegible]
------------------------------
Name: [Illegible]
Title: Exec V.P.
Page 5
<PAGE>
EXHIBIT A
ESTOPPEL CERTIFICATE
This Estoppel Certificate is made effective as of the 13th day of December
1999 by the undersigned, Micro Warehouse, Inc. (the "Lessee"), which hereby
certifies as follows for the benefit of PC Connection, Inc. ("Assignee"), as an
inducement to Assignee, as assignee, accepting an assignment of the "Leases" (as
defined below) from Lessee pursuant to the Assignment Agreement dated December
13, 1999 (the "Agreement"). All capitalized terms not defined herein shall have
the meanings set forth in the Agreement:
1. The Leases are the only instruments and agreements in effect between EWE
Warehouse Investment V, Ltd. (the "Lessor") and Lessee respecting the
Premises, the Leases containing the entire agreement of the parties in
that respect and there are no amendments, modifications, or supplements
thereto except the Amendment.
2. Lessor is now the lessor, Lessee is now the lessee, under the Leases, and
such Leases are in full force and effect.
3. Lessor has not sent any notice of default under the Leases to Lessee, nor
has Lessor received from Lessee any notice that Lessor is in default under
said Leases, and Lessor has no present knowledge of any facts which would
give rise to a breach or default by either party under said Leases.
4. Lessor knows of no counterclaim or offset presently existing in favor of
Lessor against Lessee arising out of the Leases or any act or omission by
Lessee with respect to the Premises.
5. The Leases are for the terms set forth in the Agreement.
6. Basic Monthly Rent under the Leases have been paid to Lessor to December
1, 1999. No rent, whether Basic Monthly Rent or "additional rent," is
delinquent under the Leases at the date hereof.
7. Assignor hereby agrees that, within fifteen (15) days after it acquires
knowledge of the occurrence of any default or breach under the Leases (or
of any event which, with notice or lapse of time, or both would constitute
a default or breach) and in any event, simultaneously with its sending to
Lessee any notice of default or breach under the Leases, to serve written
notice thereof to Assignee as follows:
Exhibit A
Page A-1
<PAGE>
PC Connection, Inc.
730 Milford Road
Merrimack; New Hampshire 03054
Attn: Robert Pratt, Director of Facilities
with copies to:
PC Connection, Inc.
730 Mllford Road
Merrimack; New Hampshire 03054
Attn: Steven Markiewicz, Legal Counsel
8. Lessee hereby certifies that it has no knowledge of any violation of any
law, ordinance, or governmental rule or regulation relating to the
Premises and has not received any notification from any federal, state, or
municipal authority having jurisdiction over the Premises alleging that
any such violation exists.
9. This Certificate shall inure to the benefit of the successors and assigns
of Assignee.
10. Lessee confirms that all tenant modifications that exist in the Premises
are in accordance with the Lease, and, to the extent Lessor's approval is
necessary, such approval has been given. Lessee agrees to indemnify and
hold Assignee harmless from any claims, damages or liabilities (including
reasonable attorney's fees) relating to the failure by Lessee to have
obtained requisite approval for any such modification.
IN WITNESS WHEREOF, the undersigned has executed this Estoppel Certificate
effective as of the date first written above.
MICRO WAREHOUSE, INC.
("Lessee")
By /s/ Bruce L. Lev
Name Bruce L. Lev
Title Executive Vice President
Exhibit A
Page A-2
<PAGE>
[Letterhead of Micro Warehouse]
March 19, 1998
Via Airborne Express
Mr. Chuck McCosh
Senior Sales Vice President
Miller Valentine Group
4000 Miller-Valentine Court
Dayton, OH 454O1-0744
Re: Option to Renew
32,000 Square Feet
2907-2931 Old State Route 73
Wilmington, OH 45177
Account No. 00-1112-05
Dear Chuck:
Per your letter of March 6, delivered herewith exercise of our
Option to Renew for five (5) years per our lease dated May 13,1993
commencing October 1, 1998 through September 30,2003 of the above
referenced premises.
Best regards.
Very truly yours,
/s/ Bruce L. Lev
Bruce L. Lev
Executive Vice President of
Legal and Corporate Affairs
BLL/efc
Enclosure
<PAGE>
[Miller-Valentine Group Letterhead]
Miller-Valentine Group
4000 Miller-Valentine Court
Dayton, Ohio 45439-1480
P.O. Box 744
Dayton, Ohio 45401-0744
937-293-0900
937-299-1564 FAX
March 6, 1998
CERTIFIED MAIL/RETURN RECEIPT REQUESTED
Micro Warehouse, Inc.
Attn: Bruce L. Lev. Esq.
Vice President, General Counsel
535 Connecticut Avenue
Norwalk, Connecticut 06854
RE: Option to Renew
32.000 Square Feet of Space
2907-2931 Old State Route 73, Wilmington, Ohio 45177
Acct. #00-1112-05
Dear Mr. Lev:
In accordance with Article 32 of your Lease dated May 13, 1993, there is an
option to renew for an additional term of five (5) years (October 1, 1998
through September 30, 2003) which may be exercised by giving written notice by
March 31, 1998. The rent will be adjusted according to the June Consumer Price
Index and we will notify you of the new rate in August 1998.
This exercise of option may be done by signing below and returning to me no
later than March 31, 1998. Miller-Valentine looks forward to having you at
2907-2931 Old State Route 73 for an additional five years.
Should you need any additional information, please feel free to contact me at
293-0900.
/s/ Chuck McCosh
Chuck McCosh
Senior Sales Vice President
CM:kw
<PAGE>
Option to Renew
Micro Warehouse, Inc.
March 6, 1998
Page 2
The undersigned exercises its option to renew for a term of five (5) years as
per Article 32 of the Lease dated May 13. 1993.
MICRO WAREHOUSE, INC.
BY: [Illegible]
----------------------------
ITS: Executive Vice-President
---------------------------
DATE: 3/18/98
--------------------------
<PAGE>
MILLER-VALENTINE PARTNERS
WAREHOUSE/DISTRIBUTION
AGREEMENT OF LEASE
TABLE OF CONTENTS
LEASE FOR MICRO WAREHOUSE, INC.
PROPERTY LOCATED AT 2907-2931 OLD STATE ROUTE 73, Wilmington, Ohio 45177
ARTICLE PAGE
1 TERM ................................................... 1
2 ACCEPTANCE OF LEASED PREMISES .......................... 1
3 RENT ................................................... 1
4 COMMON AREA ............................................ 2
5 USE OF LEASE PREMISES .................................. 3
6 REPAIRS ................................................ 3
7 INSTALLATIONS AND ALTERATIONS .......................... 4
8 INDEMNIFICATION ........................................ 4
9 INSURANCE .............................................. 4
10 DAMAGE BY FIRE OR OTHER CASUALTY ....................... 5
11 EMINENT DOMAIN ......................................... 5
12 ASSIGNMENT OR SUBLETTING ............................... 6
13 ACCESS TO LEASED PREMISES .............................. 6
14 ATTORNMENT ............................................. 6
15 LIMITATION UPON LIABILITY .............................. 6
16 LESSOR'S SUCCESSORS .................................... 7
17 LESSEE'S DEFAULT ....................................... 7
18 SURRENDER OF LEASED PREMISES ........................... 7
19 SUBORDINATION .......................................... 8
20 NOTICE ................................................. 8
21 WAIVER OF SUBROGATION .................................. 8
22 ESTOPPEL CERTICATE ..................................... 8
23 RENT DEMAND ............................................ 8
24 NO REPRESENTATION BY LESSOR ............................ 8
25 WAIVER OF BREACH ....................................... 9
26 QUIET ENJOYMENT ........................................ 9
27 ENVIRONMENTAL PROVISIONS ............................... 9
28 INTERPRETATION ......................................... 9
29 FINANCIAL STATEMENTS ................................... 10
30 AMERICANS WITH DISABILITIES ACT COMPLIANCE ............. 10
31 MEMORANDUM OF LEASE .................................... 10
32 OPTION TO RENEW ........................................ 10
33 ENTIRE AGREEMENT ....................................... 11
<PAGE>
This LEASE made this 13th day of May, 1993, by and between
MILLER-VALENTINE PARTNERS, hereinafter referred to as the Lessor, and MICRO
WAREHOUSE, INC., A DELAWARE CORPORATION, hereinafter referred to as Lessee. The
Lessee's business enterprise is organized as a corporation and is admitted to do
business in the State of Ohio. THIS LEASE SHALL BE CONTINGENT UPON LESSOR'S
RELOCATION OF RENTRAK CORPORATION AND THE TERMINATION OF RENTRAK CORPORATION'S
LEASE FOR 32,000 SQUARE FEET AT 2907-2931 OLD STATE ROUTE 73, WILMINGTON, OHIO
45177.
WITNESSETH:
The Lessor does hereby lease and let to the Lessee and the Lessee
accepts from the Lessor under the terms and conditions of this Lease, the
following described Premises:
32,000 square feet of building (Exhibit A) which contains 102,400
square feet more or less at 2907-2931 Old State Route 73, Wilmington, Ohio 45177
hereinafter referred to as the Leased Premises.
ARTICLE 1. TERM.
TO HAVE AND TO HOLD unto the Lessee for a term of five (5) years
commencing on the 1st day of October 1993, and ending on the 30th day of
September 1988, both dates inclusive.
ARTICLE 2. ACCEPTANCE OF LEASED PREMISES.
The office/warehouse/distribution space shall be delivered to the
Lessee in its existing condition which the Lessee has examined and finds in a
condition suitable for its use and purpose. THE EXISTING DEMISING WALL SHALL BE
REMOVED BY THE LESSOR AT LESSOR'S EXPENSE.
ARTICLE 3. RENT
Section 1. Lessee shall pay to the Lessor as Basic Annual Rent for
the Leased Premises the sum of ONE HUNDRED TWENTY NINE THOUSAND TWO HUNDRED
SEVENTY NINE AND 96/100 DOLLARS ($129,279.96) which shall be paid in equal
monthly installments of TEN THOUSAND SEVEN HUNDRED SEVENTY THREE AND 33/100
DOLLARS ($10,733.33), due and payable on the first day of each month, in
advance, without demand. Said rent shall be paid to the Lessor, or to the duly
authorized agent of the Lessor, at its office during business hours. If the
commencement date of this Lease is other than the first day of the month, any
rental adjustment or additional rents hereinafter provided for shall be prorated
accordingly. The Lessee will pay the rent as herein provided, without deduction
whatsoever, and without any obligation of the Lessor to make demand for it. Any
installment of rent accruing hereunder and any other sum payable hereunder, if
not paid when due, shall bear interest at the rate of eighteen percent (18%) per
annum until paid. The Basic Annual Rent of $129,279.96 shall be adjusted
annually based on any increases in the Consumer Price Index beginning one year
after the commencement date of this Lease and at the end of each year
thereafter, whether during the term of this Lease or any renewal or extension
thereof. Increases in the Annual Rent shall be made in accordance with the
following procedure:
a. The index to be used for this adjustment shall be the Consumer
Price Index (NORTH CENTRAL REGION, All Urban Consumers, All Items, 1982-1984
equaling a base of 100, from the U.S. Department of Labor, Bureau of Labor
Statistics, Washington, D.C.).
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b. The Consumer Price Index of 1993 for the month of June shall be
the "Base Period Consumer Price Index." The Consumer Price Index for the month
of June in each adjustment year shall be the "Adjustment Period Consumer Price
Index."
c. The Base Period Consumer Price Index shall be subtracted from the
Adjustment Period Consumer Price Index; the difference shall be divided by the
Base Period Consumer Price Index. This quotient shall then be multiplied by the
$129,279.96, and the result shall then be added to the $129,279.96. The
resulting sum shall be the adjusted Annual Rent for such immediately succeeding
leasehold period which shall be paid in equal monthly installments.
d. If the said Consumer Price Index is, at any time during the term
of this Lease, discontinued by the Government, then the most nearly comparable
index shall be substituted for the purpose of the aforesaid calculations.
Section 2. The Lessee shall reimburse the Lessor for the costs of
water, gas, electricity, including electricity costs for exterior lighting, or
such other utilities and heating and air conditioning maintenance in the event
that such services are furnished by Lessor and not separately metered to the
Lessee. Said reimbursement shall be additional rent due on the first day of the
calendar month next following rendition of a bill therefore. If any services are
separately metered, the cost shall be paid directly by the Lessee to the utility
service. The heating and other utilities, except water, not separately metered
will be prorated on the basis of the square footage serviced by a given meter
and paid to Lessor as billed. The total costs of water shall be paid by the
Lessees currently in occupancy and the costs thereof shall be prorated on the
basis of square footage occupied by each Lessee. LESSEE SHALL PAY FOR
ELECTRICITY DIRECTLY TO THE UTILITY SERVICE; WATER AND GAS SHALL BE PRORATED AS
DESCRIBED ABOVE. A 10% handling fee for these billable services will be charged
by the Lessor.
Section 3. The Lessee agrees to pay any increased real estate taxes
over and above the real estate taxes paid by the Lessor during the first year of
the term of this Lease. The Lessee's proportionate share of any such increase
shall be a fraction thereof, the numerator of which is the number of square feet
of floor area in the Leased Premises and the denominator of which is the total
square feet of the floor area in the building both as specified aforesaid in the
Lease. Said amount shall be deemed to be additional rent and shall be due and
payable on the first of the month following delivery to Lessee of a receipt for
Lessor's payment of said real estate taxes. The Lessee shall pay its prorated
share of expenses that the Lessor shall incur by reason of compliance with new
laws, orders, special rent/use taxes, ordinances and new regulations of Federal,
State, County and Municipal authorities, and with any lawful direction of any
public officer or officers, which lawful direction shall be imposed upon the
Lessor for the common good of the occupants of the building. LESSEE SHALL NOT BE
CHARGED WITH ANY EXPENSES ATTRIBUTABLE TO LESSOR'S COMPLIANCE WITH NEW
ENVIRONMENTAL STATUTES, ORDERS, ETC.
ARTICLE 4. COMMON AREA.
For the purpose of this Lease, common area shall be defined as all
of the property described herein that is not actually occupied by the building.
The Lessee shall have the use in common with other Lessees to the parking areas
and driveways for ingress and egress to the Leased Premises. PARKING IS FOR THE
EXCLUSIVE USE OF THE LESSEES OCCUPYING THE BUILDING. The Lessee shall have no
right to use the common area for storage purposes and trash shall be stored only
in approved containers in the common area. The Lessor shall maintain the common
area and keep the same in good order and repair including lighting and
landscaping. The cost of exterior lighting and ice and snow removal will be
prorated among the Lessees in accordance with the percentage that the Leased
Premises bear to the entire building. The pro rata share of such cost will be
deemed to be additional rent and shall be due the first of the month following
the invoice thereof by Lessor to Lessee of the amount due.
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<PAGE>
ARTICLE 5. USE OF LEASED PREMISES.
Section 1. The Leased Premises shall be used and occupied only for
DIRECT MAIL AND TELEMARKETING ACTIVITIES, WAREHOUSING AND DISTRIBUTION OF
PRODUCTS AND RELATED ACTIVITIES and for no other purpose or purposes without the
written consent of the Lessor.
Section 2. The Lessee shall operate its business in a safe and
proper manner as is normal, considering the uses of the Leased Premises above
provided; and shall not manufacture, store, display or maintain any products or
materials that will endanger the Leased Premises; shall do nothing that would
increase the cost of insurance on the building or invalidate existing policies;
shall not obstruct the sidewalks; shall not use the plumbing for any other
purpose than for which it was constructed; shall not make or permit any noise
and/or odor objectionable to the public or adjacent occupants; shall not create
a nuisance on the Leased Premises; and shall commit no waste.
Section 3. The Lessee shall abide by all police and fire regulations
concerning the operation of its business; shall store all trash, rubbish, and
debris in closed containers; and shall practice all proper procedures and
methods that are common to its business enterprise. The Lessee shall maintain a
minimum temperature in the Leased Premises of 55 degrees F.
ARTICLE 6. REPAIRS.
Section 1. Lessor shall keep the foundations, exterior walls (except plate
glass or glass or other breakable materials used in structural portions) and
roof in good repair.
Section 2. Lessor shall contract for the maintenance of the mechanical
equipment and the Lessee will reimburse its pro rata share thereof. The Lessee
shall replace any hot water heater as the need should arise with the same type
and quality servicing the Leased Premises. The Lessor shall replace, as needed,
the heating and air conditioning equipment, provided the unit has been serviced
annually, and the cost of replacement shall be prorated over the warranty period
for such equipment, and further prorated among the Lessee benefiting from such
equipment; the result of such proration to be an annual share of cost to Lessee,
and the Lessee will pay one-twelfth thereof for each month during the remaining
term and renewals of this Lease.
Section 3. Lessor shall not be liable for any damage occasioned by
reason of the construction of the Leased Premises, that occurs after occupancy
or for failure to keep the Leased Premises in repair, unless notice of the need
for repairs has been given Lessor AFTER THE SAME HAS COME TO THE EXPLICIT
ATTENTION OF LESSEE, a reasonable time has elapsed and Lessor has failed to make
such repairs. Lessor shall not be liable for any damage done or occasioned by or
from the electrical system, the heating and/or air condition system, the
plumbing and sewer system in, above, upon or about the Leased Premises nor for
damage occasioned by water, snow or ice being upon or coming through the roof,
trapdoor, walls, windows, doors or otherwise, except as above provided. The
Lessee shall reimburse the Lessor the cost of all repairs to the Leased
Premises, fixtures and appurtenances necessitated by the fault of the Lessee,
its agents, employees or guests and shall reimburse the Lessor for the cost of
repair, at or before the end of the term or sooner if so requested by Lessor,
all injury done by the installation or removal of furniture or other property.
Section 4. Except as provided in Sections 1, 2, and 3 of this
Article, Lessor shall not be obligated to make repairs, replacements or
improvements of any kind upon said Leased Premises, or any equipment facilities
or fixtures therein contained, which shall at all times be kept in good order,
and in accordance with all applicable laws, ordinances and regulations of any
governmental authority having jurisdiction. Lessee shall permit no waste,
damage, or injury to the Leased Premises.
Section 5. Lessee shall forthwith at its own cost and expense
replace with glass of the same kind and quality and cracked or broken glass,
including plate glass or glass or other breakable materials used in structural
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<PAGE>
portions, and any interior and exterior windows and doors in the Leased
Premises.
ARTICLE 7. INSTALLATION AND ALTERATIONS.
Section 1. Lessee shall not make any alterations or additions to the
Leased Premises without first procuring Lessor's written consent and delivering
to Lessor the plans and specifications and copies of the proposed contracts and
necessary permits, and shall furnish indemnification against liens, costs,
damages and expenses as may be reasonably required by Lessor. All alterations,
additions, improvements and fixtures, other than trade fixtures, which may be
made or installed by either of the parties hereto upon the Leased Premises and
which in any manner are attached to the floors, walls or ceilings, at the
termination of this Lease shall become the property of the Lessor, unless Lessor
requests their removal and shall remain upon and be surrendered with the Leased
Premises as a part thereof, without damage or injury; and linoleum or other
floor covering of similar character which may be cemented or otherwise
adhesively affixed to the floor shall likewise become the property of the
Lessor, all without compensation or credit to Lessee.
Section 2. The Lessee shall not erect or install any signage without
first procuring Lessor's written consent.
Section 3. The Lessee shall have no rights to use and shall not use
the roof of the Leased Premises for any purpose without the written consent of
the Lessor. The Lessee shall not use the roof for storage, for any activity
that will result in traffic on the roof, for anything that will penetrate the
roof, use the roof as an anchor or otherwise damage the roof. The consent of the
Lessor must be in writing for each specific use and must also approve the method
of installation of the permitted use. Should the Lessee break this covenant, the
Lessee shall be responsible for any damages caused to the roof or other parts of
the building and shall assume the cost of maintaining and repairing the roof
during the term of the Lease, including any renewals.
ARTICLE 8. INDEMNIFICATION.
Except to the extent of the negligence or misconduct of Lessor,
Lessee agrees to indemnify and hold Lessor harmless against and from any and all
claims, damages, costs, and expenses, including reasonable attorney's fees,
arising out of Lessee's use or occupancy of the Leased premises. Except to the
extent of the Lessee's negligence or misconduct, Lessor agrees to indemnify and
hold Lessee harmless against and from any and all claims, damages, costs and
expenses, including reasonable attorney's fees, arising out of Lessor's failure
to perform its duties and obligations as owner or agent of the owner of the
property of which the Leased Premises is a part.
ARTICLE 9. INSURANCE.
Section 1. Lessee shall not carry any stock of goods or do anything
in or about said Leased Premises which will in any way tend to increase
insurance rates on said Leased Premises or the building in which the same are
located. If Lessor shall consent to such use, Lessee agrees to reimburse Lessor
on a pro rata basis for any increase in premiums for insurance against loss by
fire or extended coverage risks resulting from the business carried on in the
Leased Premises by Lessee. If Lessee installs any electrical equipment that
overloads the power lines to the building, Lessee shall at its own expense make
whatever changes are necessary to comply with the requirements of insurance
underwriters and insurance rating bureaus and governmental authorities having
jurisdiction.
Section 2. Lessee agrees to procure and maintain a policy or
policies of insurance, at its own costs and expense, insuring from all claims,
demands or actions for injury to or death of more than one person in any one
accident and for damages to property in an aggregate amount of not less than
$2,000,000.00 made by or on behalf of any person or persons, firm or
corporation, arising from, related to, or connected with the conduct and
operation of Lessee's business in the Leased Premises. Lessor shall be named an
Additional Insured Party in said policy. Such insurance shall be primary
relative to any other valid and collectible insurance. Said insurance shall
4
<PAGE>
not be subject to cancellation except after at least thirty (30) days prior
written notice to Lessor, and the policy or policies, or duly executed
certificate or certificates for the same, together with satisfactory evidence of
the payment of the premium thereon, shall be deposited with Lessor at the
commencement of the term and renewals of such coverage. If Lessee fails to
comply with such requirement, Lessor may obtain such insurance and keep the same
in effect, and Lessee shall pay Lessor the premium cost thereof upon demand.
Section 3. All property which may be upon said Leased Premises
during the term hereof or any renewal thereof shall be at and upon the sole risk
and responsibility of Lessee.
ARTICLE 10. DAMAGE BY FIRE OR OTHER CASUALTY.
Section 1. If the Leased Premises shall be destroyed or so injured
by any cause as to be unfit, in whole or in part, for occupancy, LESSOR SHALL
USE ITS BEST EFFORTS TO PROVIDE OCCUPANCY IN COMPARABLE SPACE WITHIN SIXTY (60)
MILES OF THE LEASED PREMISES AND IF LESSOR CANNOT PROVIDE SUCH SPACE, LESSEE MAY
TERMINATE THIS LEASE. IF THE LESSOR HAS PROVIDED SUCH TEMPORARY SPACE and such
destruction or injury could reasonably be repaired within three (3) months from
the happening of such destruction or injury, then Lessee shall not be entitled
to surrender possession of the Leased Premises nor shall Lessee's liability to
pay rent under this Lease cease without mutual consent of the parties hereto,
but in case of any such destruction or injury Lessor shall repair the same with
all reasonable speed and shall complete such repairs within three (3) months
from the happening of such injury, and if during such period Lessee shall be
unable to use all or any portion of the Leased Premises, a proportionate
allowance shall be made to Lessee from the rent corresponding to the time during
which and to the portion of the Leased Premises of which Lessee shall be so
deprived of the use on account thereof.
Section 2. If such destruction or injury cannot reasonably be
repaired within three (3) months from the happening thereof, Lessor shall notify
Lessee within ten (10) days after the happening of such destruction or injury
whether or not Lessor will repair or rebuild. If Lessor elects not to repair or
rebuild, this Lease shall be terminated. If Lessor shall elect to repair or
rebuild, Lessor shall specify the time within which such repairs or
reconstruction will be complete, and Lessee shall have the option, within ten
(10) days after the receipt of such notice, to elect either to terminate this
Lease and further liability hereunder, or to extend the term of the Lease by a
period of time equivalent to the time from the happening of such destruction or
injury until the Leased Premises are restored to their former condition. In the
event Lessee elects to extend the term of the Lease, Lessor shall restore the
Leased Premises to their former condition within the specified time in the
notice, and Lessee shall not be liable to pay rent for the period from the time
of such destruction or injury until the Leased Premises are so restored to their
former condition.
ARTICLE 11. EMINENT DOMAIN.
Section 1. If the whole or substantially all of the Leased Premises
hereby leased shall be taken by a public authority under the power of eminent
domain, then the term of this Lease shall cease as of the day possession shall
be taken by such public authority, and the rent shall be paid up to that date
with a proportionate refund by Lessor of such rent as shall have been paid in
advance.
Section 2. If less than substantially all of the floor area of the
Leased Premises shall be so taken, the term of this Lease shall cease only on
the parts so taken as of the day possession shall be taken by such public
authority, and the rent shall be paid up to that day with a proportionate refund
by Lessor of such rent as may have been paid in advance, and thereafter the
minimum rent shall be equitably abated, and Lessor shall at its own cost and
expense make all necessary repairs or alterations as to constitute the remaining
Leased Premises a complete architectural unit.
Section 3. All damages awarded for such taking under the power of
eminent domain, whether for the whole or a part of the Leased Premises,
5
<PAGE>
shall be the property of Lessor whether such damages shall be awarded as
compensation for diminution in value of the leasehold or to the fee of the
Leased Premises; provided, however, that the Lessor shall not be entitled to any
separate award made to Lessee for loss of business, depreciation to and cost of
removal of stock and fixtures.
ARTICLE 12. ASSIGNMENT OR SUBLETTING.
Section 1. Lessee shall not assign or in any manner transfer this
Lease or any interest therein, NOR SUBLET SAID leased Premises or any part or
parts thereof, nor permit occupancy by anyone with, through, or under it,
without the previous written consent of Lessor which consent shall not be
unreasonably withheld. Consent by Lessor to one or more assignments of this
Lease or to one or more sublettings of the Leased Premises shall not operate as
a waiver of Lessor's rights under this Article to any subsequent assignment or
subletting. No assignment shall release Lessee of any of its obligations under
this Lease or be construed or taken as a waiver of any of Lessor's rights or
remedies hereunder.
Section 2. Neither this Lease nor any interest therein, nor any
estate thereby created, shall pass to any trustee or receiver in bankruptcy or
any assignee for the benefit of creditors or by operation of law.
Section 3. provided that the Lessee with Lessor's consent assigns or
sublets part or all of the Leased premises at a rental that exceeds the current
rental herein reserved, the Lessor shall be entitled to receive as additional
rental one-half of such excess of the current rental. The Lessee shall remit
one-half of such excess within five (5) days after receipt by it.
ARTICLE 13. ACCESS TO LEASED PREMISES.
The Lessor shall retain duplicate keys to all of the doors of the
Leased Premises. The Lessor or its agents shall have the right to enter upon the
Leased Premises at all reasonable hours for the purpose of inspecting the same
or of making repairs, additions or alterations thereto or to the building in
which the same are located. The Lessor shall have the right, upon reasonable
notice, to show the Leased Premises to prospective Lessees, purchasers or
others. Lessor shall not be liable to Lessee in any manner for any expense, loss
or damage by reason thereof, nor shall the exercise of such right be deemed an
eviction or disturbance of Lessee's use or possession. LESSOR SHALL PROVIDE
LESSEE WITH A LIST OF ALL PERSONNEL WHO WILL HAVE ACCESS TO DUPLICATE KEYS AND
TO THE PREMISES. ONLY THOSE PREAPPROVED LESSOR PERSONNEL MAY ENTER THE PREMISES.
ARTICLE 14. ATTORNMENT.
In the event the herein Leased Premises are sold due to any
foreclosure sale or sales, by virtue of judicial proceedings or otherwise, this
Lease shall continue in full force and effect, and Lessee agrees, upon request,
to attorn to and acknowledge the foreclosure purchaser or purchasers at such
sale as Lessors hereunder; provided such purchaser will recognize this Lease,
unless and until it is in default.
ARTICLE 15. LIMITATION UPON LIABILITY.
Notwithstanding any other provision of this Lease, Lessee agrees to
look solely to Lessor's interest in the Building (subject to any mortgage on the
Building) for the recovery of any judgment requiring the payment of money by
Lessor; it being agreed that Lessor, and if Lessor is a partnership, its
partners whether general or limited or if Lessor is a corporation, its
directors, officers, or shareholders, shall never be personally liable for any
such judgment, and no other assets of the Lessor shall be subject to levy,
execution or other procedures for the satisfaction of Lessee's judgment. The
provision contained in the foregoing sentence is not intended to, and shall not,
limit any right that Lessee might otherwise have to obtain injunctive relief
against Lessor or Lessor's successors in interest, or to maintain any other
action not involving the personal liability of Lessor, or to maintain any
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<PAGE>
suit or action in connection with enforcement or collection of amounts which may
become owing or payable under or on account of insurance maintained by Lessor.
ARTICLE 16. LESSOR'S SUCCESSORS.
The term "Lessor" as used in this Lease shall be limited to mean and
include only the owner or owners, at the time, of the fee of the Building, their
successors and assigns, so that in the event of any sale or sales of the
Building, the previous Lessor shall be entirely released with respect to the
performance of all subsequently accruing covenants and obligations on the part
of Lessor. The retention of fee ownership by a lessor of the Building or of the
land on which it is located under an underlying lease which is now or hereafter
in effect, shall not be deemed to impose on such underlying lessor any
liability, initial or continuing, for the performance of the covenants and
obligations of Lessor.
ARTICLE 17. LESSEE'S DEFAULT.
Section 1. The Lessee, ten (10) days after receipt of written
notice, shall be considered in default of this Lease upon failure to pay when
due the rent or any other sum required by the terms of the Lease; failure to
perform any term, covenant or condition of this Lease; the commencement of any
action or proceeding for the dissolution, liquidation or reorganization under
the Bankruptcy Act, of Lessee, or for the appointment of a receiver or trustee
of the Lessee's property; the making of any assignment for the benefit of
creditors by Lessee; the suspension of business; or the abandonment of the
Leased Premises by the Lessee. ANY DEFAULTS OTHER THAN NONPAYMENT DEFAULTS SHALL
HAVE A THIRTY (30) DAY CURE PERIOD.
Section 2. In the event of default of this Lease by Lessee, then
Lessor MAY PURSUE ANY AND ALL REMEDIES AND RIGHTS AVAILABLE TO THE LESSOR UNDER
APPLICABLE OHIO LAW. Should Lessor elect to reenter, or should it take
possession pursuant to legal proceedings or pursuant to any notice provided for
by law, it may either terminate this Lease, or it may without terminating this
Lease relet said Leased Premises or any part thereof for such term or terms and
at such rental or rentals and upon such other terms and conditions as Lessor may
deed advisable, with the right to make alterations and repairs to said Leased
Premises for the purpose of rerental. Should such rentals received from such
reletting during any month be less than required to be paid by Lessee as defined
above, then Lessee shall immediately pay such deficiency to Lessor. Should
Lessor at any time terminate this Lease for any breach or act of default, in
addition to any other remedy it may have, it may recover from Lessee all damages
it may incur by reason of such breach or act of default.
ARTICLE 18. SURRENDER OF LEASED PREMISES.
Section 1. If Lessee holds possession of the Leased Premises after
the termination of this Lease for any reason, Lessee shall pay Lessor double the
rent provided for herein for such period that Lessee holds over, but such
payment of rent shall not create any Lease arrangement whatsoever between Lessor
and Lessee, unless expressly agreed to in writing by Lessor. It is further
understood that during such period that Lessee holds over, the Lessor retains
all of Lessor's rights under this Lease, including damages as a result of the
termination of this Lease and the right to immediate possession of the Leased
Premises. This paragraph shall not be construed to grant Lessee permission to
hold over.
Section 2. At the expiration of the tenancy created hereunder,
whether by lapse of time or otherwise, Lessee shall surrender the Leased
Premises broom clean, free of tire marks, free of all debris and in good
condition and repair, reasonable wear and loss by fire or other unavoidable
casualty excepted.
Section 3. Prior to surrender of the Leased Premises, the Leased
Premises will be reviewed by a representative of the Lessor and Lessee to
determine if there is any deferred maintenance or unrepaired damage, Lessor may
effect such maintenance and repairs, and Lessee will pay the cost thereof.
7
<PAGE>
Section 4. Upon the expiration of the tenancy hereby created, if
Lessor so requests in writing, Lessee shall promptly remove any additions,
fixtures and installations placed in the Leased Premises by Lessee that is
designated in said request, and repair any damage occasioned by such removals at
its own expense, and in default thereof, Lessor may effect such removals and
repairs, and Lessee shall pay Lessor the cost thereof, with interest at the rate
of eight (8) percent per annum from the date of payment by Lessor.
ARTICLE 19. SUBORDINATION.
This Lease shall be subject to and subordinate at all times to the
lien of any mortgages, now or hereafter made on the Leased Premises, and to all
advances made or hereafter to be made thereunder. The Lessee agrees to execute a
subordination agreement should Lessor's lender request same.
ARTICLE 20. NOTICE.
All notices under this Lease may be personally delivered; sent by
courier service, with receipt; or mailed to the address shown by certified mail,
return receipt requested. The effective date of any mailed notice shall be one
(1) day after delivery of the same to the United States Postal Service.
Lessor: Miller-Valentine Partners
Mail: P.O. Box 744
Dayton, Ohio 45401-0744
Lessee: Micro Warehouse, Inc.
Mail: ATTN: Mr. Peter Godfrey, President
47 Water Street
South Norwalk, Connecticut 06854
cc: Lev, Spalter & Berlin, P.C.
ATTN: Mr. Bruce L. Lev
P.O. Box 5318, 105 Rowayton Avenue
Rowayton, Connecticut 06853
Either party may from time to time designate in writing other addresses.
ARTICLE 21. WAIVER OF SUBROGRATION.
The Lessor and Lessee waive all rights, each against the other, for
damages caused by fire or other perils covered by insurance where such damages
are sustained in connection with the occupancy of the Leased Premises.
ARTICLE 22. ESTOPPEL CERTIFICATE.
The Lessee agrees to execute an Estoppel Certificate within ten (10)
days of receipt of a written request by Lessor for the benefit of any purchaser
and/or prospective Lender designated by Lessor as well as Lessor's present
Lender; that wherein the Lessee acknowledges the terms and conditions of this
Lease.
ARTICLE 23. RENT DEMAND.
Every demand for rent due wherever and whenever made shall have the
same effect as if made at the time it falls due and at the place of payment, and
after the service of any notice or commencement of any suit, or final judgment
therein, Lessor may receive and collect any rent due, and such collection or
receipt shall not operate as a waiver of nor affect such notice, suit or
judgment.
ARTICLE 24. NO REPRESENTATION BY LESSOR.
Lessor and its agent have made no representations or promises with
respect to the Leased Premises or the building of which the same form a part
except as herein expressly set forth. LESSOR REPRESENTS THAT ALL SYSTEMS AND
DEMISED PREMISES WILL BE IN GOOD WORKING ORDER AND IN FULL COMPLIANCE WITH LAW
8
<PAGE>
AND THE PROVISIONS OF THE CERTIFICATE OF OCCUPANCY UPON COMMENCEMENT OF THE
LEASE.
ARTICLE 25. WAIVER OF BREACH.
No waiver of any breach of the covenants, provisions or conditions
contained in this Lease shall be construed as a waiver of the covenant itself or
any subsequent breach itself, and if any breach shall occur and afterwards be
compromised, settled or adjusted, this Lease shall continue in full force and
effect as if no breach had occurred, unless otherwise agreed. The acceptance of
rent hereunder shall neither be or construed to be a waiver of any breach of any
term, covenant or condition of this Lease.
ARTICLE 26. QUIET ENJOYMENT.
Lessor hereby covenants and agrees that if Lessee shall perform all
the covenants and agreements herein stipulated to be performed on Lessee's part,
Lessee shall at all times during the continuance hereof have the peaceable and
quiet enjoyment and possession of the Leased Premises without any manner of let
or hindrance from Lessor or any person or persons lawfully claiming the Leased
Premises except as otherwise provided for herein.
ARTICLE 27. ENVIRONMENTAL PROVISIONS
Section 1. The Lessor, to the best of its knowledge, represents to
the Lessee that no toxic, explosive or other dangerous materials or hazardous
substances have been concealed within, buried beneath, released on or form, or
removed from and stored off-site of the Property upon which the Leased Premises
is constructed.
Section 2. Lessee shall at all items during the term of this Lease
comply with all applicable federal, state, and local laws, regulations,
administrative rulings, orders, ordinances, and the like, pertaining to the
protection of the environment, including but not limited to, those regulating
the handling and disposal of waste materials. Further, during the term of this
Lease, neither Lessee nor any agent or party acting at the direction or with the
consent of Lessee shall treat, store or dispose of any "hazardous substance," as
defined in Section 101 (14) of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA") or petroleum (including crude
oil or any fraction thereof) on or from the Property.
Section 3. Lessee shall fully and promptly pay, perform, discharge,
defend, indemnify and hold harmless Lessor from any and all claims, orders
demands, causes of action, proceedings, judgments, or suits and all liabilities,
losses, costs or expenses (including, without limitation, technical consultant
fees, court costs, expenses paid to third parties and reasonable legal fees) and
damages arising out of, or as a result of, (i) any "release" as defined in
Section 101 (22) of CERCLA, of any "hazardous substance," as defined in Section
101 (14) of CERCLA, or petroleum, (including crude oil or any fraction thereof)
or placed into, on or from the Property at any time after the date of this Lease
by Lessee, its agents, or employees; (ii) any contamination of the Property's
soil or groundwater or damage to the environment and natural resources of the
Property the result of actions occurring after the date of this Lease, whether
arising under CERCLA or other statutes and regulations, or common law by Lessee,
its agents, or employees; and (iii) any toxic, explosive or otherwise dangerous
materials or hazardous substances which have been buried beneath, concealed
within or released on or from the Property after the date of this Lease by
Lessee, its agents, or employees. LESSOR INDEMNIFIES THE LESSEE FROM ANY OF THE
CLAIMS OUTLINED ABOVE ATTRIBUTABLE TO ACTS AND CIRCUMSTANCES PRIOR TO THE DATE
OF LESSEE'S OCCUPANCY OR SUBSEQUENT TO LESSEE'S OCCUPANCY IF NOT SPECIFICALLY
ATTRIBUTABLE TO THE CONDUCT OF THE LESSEE, ITS AGENTS OR EMPLOYEES.
ARTICLE 28. INTERPRETATION.
Section 1. Wherever either the word "Lessor" or "Lessee" is used in
the Lease, it shall be considered as meaning the singular and/or neuter pronouns
as used herein, and the same shall be construed as including all
9
<PAGE>
persons and corporations designated respectively as Lessor or Lessee in the
heading of this instrument wherever the context requires.
Section 2. If any clause, sentence, paragraph, or part of this Lease
shall for any reason be adjudged by any court of competent jurisdiction to be
invalid, such judgment shall not effect, impair, or invalidate the remainder of
this Lease, but be confined in its operation to the clause, sentence, paragraph,
or part thereof directly involved in the controversy in which such judgment
shall have been rendered, and in all other respects said Lease shall continue in
full force and effect.
ARTICLE 29. FINANCIAL STATEMENTS.
At Lessor's request, AND BECAUSE OF MORTGAGING REQUIREMENTS, the
Lessee, within thirty (30) days of Lessor's request, shall furnish the Lessor
with Lessee's most current financial statements including the Lessee's balance
sheet, a consolidated statement of earnings and retained earnings, and changes
in Lessee's financial position for such year. All such statements shall be
certified by an independent certified public accountant. All such financial
statements shall be prepared in accordance with generally accepted accounting
principles which shall be consistently applied. ALL SUCH FINANCIAL STATEMENTS
SHALL BE DELIVERED TO THE LENDER ON A FULLY CONFIDENTIAL BASIS.
ARTICLE 30. AMERICANS WITH DISABILITIES ACT COMPLIANCE.
Notwithstanding anything set forth herein to the contrary, Lessor
shall be solely responsible and liable for making any modifications to the
exterior of the Premises (including the doors and entrances leading to the
Leased Premises) that may be required to comply with the Americans with
Disabilities Act of 1990 as it may be amended from time to time ("ADA"). Lessee
shall pay its pro rata share of any and all costs and expenses associated with
any modifications required under the ADA for the common areas of the building in
which the Premises are located. Lessee, at its sole cost and expense, shall
remove any barriers or provide such accommodations as may be necessary for the
interior of the Leased Premises to comply with the ADA. Any structural
alterations or renovations that the Lessee may make to the Premises, as
permitted under this Lease, shall comply with the accessibility standards and
regulations of the ADA. If the Lessee fails to fulfill its obligations under
this Article, the Lessor may elect to provide the modifications and renovations
required pursuant to the ADA and seek reimbursement from the Lessee. Should the
Lessor incur any such expenses for the obligations of the Lessee, the amount of
such expenses may, at the Lessor's option, be added to the rent due from the
Lessee under the terms of this Lease. Lessor and Lessee hereby mutually
indemnify and hold each other harmless against any and all liability, losses,
fines or other penalties that may be incurred or assessed against the other,
including reasonable attorney fees, due to the failure of the other to adhere to
their respective obligations under this Article of the Lease.
ARTICLE 31. MEMORANDUM OF LEASE.
It is agreed by both parties that this instrument is not recordable
and if either party should record the same in the Office of the Recorder of
Clinton County, Ohio, the recording shall have no effect. When possession of the
Leased Premises has been delivered to Lessee, the parties hereto may execute,
acknowledge and deliver a Memorandum of Lease in recordable form specifying the
terms of this Lease and renewal periods of this Lease. In the event they differ
from the dates wherein, the date in the Memorandum shall control.
ARTICLE 32. OPTION TO RENEW
Lessee is hereby granted an option to renew this Lease for an
additional term of five (5) years on the same terms and conditions contained
herein except for the rental and the length of the term, upon the conditions
that:
10
<PAGE>
a. written notice of the exercise of such option shall be given by
Lessee to Lessor not less than one hundred eighty (180) days prior to the end of
the term of this Lease; and
b. at the time of the giving of such notice and at the expiration of
the term of this Lease, there are no defaults in the covenants, agreements,
terms and conditions on the part of Lessee to be kept and performed, and all
rents are and have been fully paid. Provided also, that the rent to be paid
during each year of the said renewal period shall be as determined in
accordance with the following procedure:
(1) The index to be used for this adjustment shall be the Consumer
Price Index ([ILLEGIBLE], All Urban Consumers, All Items, 1982-1984 equaling a
base of 100, from the U.S. Department of Labor, Bureau of Labor Statistics,
Washington, D.C.).
(2) The Consumer Price Index of 1993 for the month of June shall be
the "Base Period Consumer Price Index."
(3) The Consumer Price Index for the month of June each succeeding
year shall be determined from the published figures and shall be the "Adjustment
Period Consumer Price Index."
(4) The Base Period Consumer Price Index shall be subtracted from
the Adjustment Period Consumer Price Index; the difference shall be divided by
the Base Period Consumer Price Index. This quotient shall then be multiplied by
$129,279.96 and the result shall then be added to $129,279.96. This arithmetical
sum shall then be the adjusted Basic Annual Rent for such immediately succeeding
leasehold year which shall be paid in equal monthly payments.
(5) If the said Consumer Price Index is, at any time during the term
of this Lease, discontinued by the Government, then the most nearly comparable
index shall be substituted for the purpose of the aforesaid calculations.
ARTICLE 33. ENTIRE AGREEMENT.
This Lease contains the entire agreement between the parties; it
supersedes all previous understandings and agreements between the parties, if
any, and no oral or implied representation or understandings shall vary its
terms; and it may not be amended except by a written instrument executed by both
parties hereto.
IN WITNESS WHEREOF, the parties hereto set their hands to
triplicates hereof, this 13th day of May, 1993, as to Lessor, and this 6th day
of May, 1993 as to Lessee.
Signed and acknowledged LESSOR: MILLER-VALENTINE PARTNERS
in the presence of:
/s/ [Illegible] By: /s/ James M. Miller
- ---------------------------------- ----------------------------------
James M. Miller
/s/ [Illegible] Its: Senior Partner
- ---------------------------------- ----------------------------------
LESSEE: MICRO WAREHOUSE, INC.
/s/ [Illegible] By: Peter Godfrey
- ---------------------------------- ----------------------------------
Peter Godfrey
/s/ [Illegible] Its: President
- ---------------------------------- ----------------------------------
11
<PAGE>
STATE OF OHIO, COUNTY OF MONTGOMERY, SS:
The foregoing instrument was acknowledged before me this 13th day of
May, 1993, by James M. Miller, Senior Partner on behalf of MILLER-VALENTINE
PARTNERS, an Ohio general partnership.
/s/ Sharon L. Rislund
-----------------------------
Notary Public
SHARON L. RISLUND, Notary Public
In and for the State of Ohio
My Commission Expires Oct. 31, 1996
[SEAL]
STATE OF CONNECTICUT, COUNTY OF FAIRFIELD, SS:
The foregoing instrument was acknowledged before me this 6th day of
May, 1993, by peter Godfrey the President of MICRO WAREHOUSE, INC., a
corporation, on behalf of said corporation.
/s/ Melinda R. Levins
-----------------------------
Notary Public
My Commission Exp. June 30, 1998
12
<PAGE>
(MILLER VALENTINE GROUP LOGO)
MILLER-VALENTINE Group
4000 Miller-Valentine Court
Dayton, Ohio 45439-1467
P.O. Box 744
Dayton, Ohio 45401-0744
513-293-0900
513-299-1564 (FAX)
March 18, 1996
CERTIFIED MAIL - RETURN RECEIPT REQUESTED
Micro Warehouse, Inc.
ATTN: Mr. Peter Godfrey
President
535 Connecticut Avenue
South Norwalk, Connecticut 06854
RE: Option to Renew
70,400 Square Feet of Space
2841-2901 Old State Route 73
Wilmington, Ohio 45177
Dear Peter:
In accordance with Item No. 4, Article 32 of your Lease Amendment No. 2 dated
October 18, 1992, there is an option to renew for an additional five (5) years
(October 1, 1996 through September 30, 2001) which may be exercised by giving
written notice by March 31, 1996. The rent will be adjusted as per the June
Consumer Price Index and we will notify you of the new rate in July 1996.
This exercise of option may be done by signing below and returning to me no
later than March 31, 1996. We look forward to having your continued tenancy in
our Wilmington park.
Should you require any additional information, please feel free to contact me at
(513) 293-0900.
MILLER-VALENTINE REALTY, INC.
/s/ Chuck McCosh
Chuck McCosh
Sales Vice President
:ma
cc: Bruce Lev
Mel Seiler
<PAGE>
Miller
Valentine
Group
Mr. Peter Godfrey
March 18, 1996
Page 2
The undersigned exercises its option to new for a five year term as per Article
32 of Lease, as amended.
ACCEPTED BY: /s/ Bruce L. Lev
---------------------------
TITLE: Vice President, General Counsel
---------------------------------
DATE: 3/29/96
----------------------------------
<PAGE>
AMENDMENT NO. 2 TO LEASE
THIS AGREEMENT made this 18th day of October, 1992, by and between
MILLER-VALENTINE PARTNERS, as Lessor and MICRO WAREHOUSE, INC., as Lessee
located at 2841-2883 Old State Route 73, Wilmington, Ohio 45177.
WITNESSETH:
WHEREAS, Lessor and Lessee entered into a Lease dated August 12,
1991, as amended May 1, 1992, and
WHEREAS, the Lessor and Lessee desire to amend the Lease to increase
the square footage and revise the CPI increase.
NOW THEREFORE, the Lease is amended as follows.
1. Effective November 1, 1992 Lessee shall lease from Lessor an
additional 19,200 square feet at 2889-2895 Old State Route 73, Wilmington, Ohio
45177 for a total of 70,400 square feet which includes 1,225 square feet of
office of a building which contains 102,400 square feet.
2. ARTICLE 2. LEASED PREMISES. Shall be revised as follows.
"Effective November 1, 1992, Lessee accepts the additional
19,200 square footage in its existing condition which the Lessee has examined
and finds in a condition suitable for its use and purpose."
3. ARTICLE 4. RENT. SECTION 1. shall be revised as follows.
"Effective November 1, 1992, Lessee shall pay to Lessor as
Rent for the period November 1, 1992 through September 30, 1993 the sum of TWO
HUNDRED FORTY FOUR THOUSAND FORTY EIGHT AND 58/100 DOLLARS ($244,048.53) which
shall be paid in equal monthly installments of TWENTY TWO THOUSAND ONE HUNDRED
EIGHTY SIX AND 23/100 DOLLARS ($22,186.23) due and payable on the first day of
each month, in advance, without demand... The Basic Annual Rent of $266,234.76
shall be adjusted annually based on any increases in the Consumer Price Index
beginning October 1, 1993 and at the end of each year thereafter, whether during
the term of this Lease or any renewal or extension thereof. Increases in the
Annual Rent shall be made in accordance with the following procedure:
a. The index to be used for this adjustment shall be the Consumer
Price Index (NORTH CENTRAL REGION, All Urban Customers, All Items, 1982-1984
equaling a base of 100 from the U.S. Department of Labor, Bureau of Labor
Statistics, Washington, D.C.).
b. The Consumer Price Index of 1992 for the month of June shall be
the ""Base Period Consumer Price Index." The Consumer Price Index for the month
of June in each adjustment year shall be the "Adjustment Period Consumer Price
Index."
c. The Base Period Consumer Price Index shall be subcontracted from
the Adjustment Period Consumer Price Index; the difference shall be divided by
the Base Period Consumer Price Index. This quotient shall then be multiplied by
$266,234.76, and the result shall then be added to the $266,234.76. The
resulting sum shall be the adjusted Annual Rent for such immediately succeeding
leasehold period which shall be paid in equal monthly installments.
d. If the said Consumer Price Index is, at any time during the term
of this Lease, discontinued by the Government, then the most nearly comparable
index shall be substituted for the purpose of the aforesaid calculations.
4. ARTICLE 32. OPTION TO RENEW. (4) shall be revised as follows.
"(1) The index to be used for this adjustment shall be the Consumer
Price Index (NORTH CENTRAL REGION, All Urban Consumers, All Items, 1982-1984
equaling a base of 100, from the U.S. Department of Labor, Bureau of Labor
Statistics, Washington, D.C.).
(2) The Consumer Price Index of 1992 for the month of June shall be
the "Base Period Consumer Price Index."
EXHIBIT "A"
<PAGE>
(3) The Consumer Price Index for the month of June each succeeding
year shall be determined from the published figures and shall be the "Adjustment
Period Consumer Price Index."
(4) The Base Period Consumer Price Index shall be subcontracted from
the Adjustment Period Consumer Price Index; the difference shall be divided by
the Base Period Consumer Price Index. This quotient shall then be multiplied by
$266,234.76, and the result shall then be added to $266,234.76. This
arithmetical sum shall then be the adjusted Basic Annual Rent for such
immediately succeeding leasehold year which shall be paid in equal monthly
payments.
(5) If the said Consumer Price Index is, at any time during the term
of this Lease, discontinued by the Government, then the most nearly comparable
index shall be substituted for the purpose of the aforesaid calculations."
5. Except as expressly amended herein, all other terms and
conditions of the Lease remain in full force and effect.
IN WITNESS WHEREOF, the Lessor and Lessee have affixed their
signatures to triplicates of this Amendment, this 18th day of October, 1992, as
to Lessee and this 27th day of October, 1992, as to the Lessor.
Signed and acknowledged LESSOR: MILLER-VALENTINE PARTNERS
in the presence of:
/s/ [Illegible] By: /s/ James M. Miller
- ---------------------------------- ----------------------------------
James M. Miller
/s/ [Illegible] Title: Senior Partner
- ---------------------------------- ----------------------------------
LESSEE: MICRO WAREHOUSE, INC.
/s/ [Illegible] By: /s/ Peter Godfrey
- ---------------------------------- ----------------------------------
Peter Godfrey
/s/ [Illegible] Title: President
- ---------------------------------- ----------------------------------
STATE OF OHIO, COUNTY OF MONTGOMERY, SS:
The foregoing instrument was acknowledged before me this 27th day of
October 1992, by James M. Miller, Senior Partner, on behalf of MILLER-VALENTINE
PARTNERS.
/s/ Sharon L. Rislund
-----------------------------
NOTARY PUBLIC
SHARON L. RISLUND, Notary Public
In and for the State of Ohio
My Commission Expires Oct. 31, 1996
[SEAL]
STATE OF CONNECTICUT, COUNTY OF FAIRFIELD, SS: ROWAYTON
The foregoing instrument was acknowledged before me this 18th day of
October, 1992, by PETER GODFREY, the PRESIDENT OF MICRO WAREHOUSE, INC., a
corporation on behalf of said corporation.
/s/ Melinda R. LeVino
-----------------------------
NOTARY PUBLIC
My Commission Exp. Mar. 31, 1993
MELINDA R. LeVINO
Notary Public
My Commission Expires Mar. 31, 1993
<PAGE>
[GRAPHIC: BLDG #4 DIAGRAM; 2835 OLD STATE ROUTE 73; INDUSTRIAL BUILDING]
<PAGE>
AMENDMENT NO. 1 TO LEASE
THIS AGREEMENT made this 1st day of May, 1992, by and between
MILLER-VALENTINE PARTNERS, as Lessor and MICRO WAREHOUSE, INC., as Lessee
located at 2841-2883 Old State Route 73, Wilmington, Ohio 45177.
WITNESSETH:
WHEREAS, Lessor and Lessee entered into a Lease dated August 12,
1991, and
WHEREAS, the Lessor and Lessee desire to amend the Lease to add
office space.
NOW THEREFORE, the Lease is amended as follows.
1. Effective May 1, 1992 Lessee shall lease 51,200 square feet
including 1,225 square feet of office of a building which contains 102,400
square feet.
2. Article 4. Rent. Section 1. shall be revised as follows.
"Effective May 1, 1992, Lessee shall pay to Lessor as Rent for the
period May 1, 1992 through September 30, 1992 the sum of SEVENTY SEVEN THOUSAND
THREE HUNDRED TWENTY AND 80/100 DOLLARS ($77,320,80) which shall be paid in
equal monthly installments of FIFTEEN THOUSAND FOUR HUNDRED SIXTY FOUR AND
16/100 DOLLARS $15,464.16), due and payable on the first day of each month, in
advance, without demand. ...The Basic Annual Rent of $185,569.92 shall be
adjusted annually..."
3. Article 32. Option to Renew. (4) shall be revised as follows.
"...The quotient shall then be multiplied by $185,569.92 and the
result shall then be added to $185,569.92. ..."
4. Except as expressly amended herein, all other terms and
conditions of the Lease remain in full force and effect.
In witness whereof, THE Lessor an Lessee have affixed their
signatures to triplicates of this Amendment, this 1st day of May, 1992, as to
Lessee and this 4th day of June, 1992, as to Lessor.
/s/ [Illegible] By: /s/ James M. Miller
- ---------------------------------- ----------------------------------
James M. Miller
/s/ [Illegible] Title: Senior Partner
- ---------------------------------- ----------------------------------
LESSEE: MICRO WAREHOUSE, INC.
/s/ Marie Gagstetter By: Peter Godfrey
- ---------------------------------- ----------------------------------
Marie Gagstetter Peter Godfrey
/s/ Bruce L. Lev Title: President
- ---------------------------------- ----------------------------------
Bruce L. Lev
STATE OF OHIO, COUNTY OF MONTGOMERY, SS:
The foregoing instrument was acknowledged before me this 4th day of
June, 1992, by James M. Miller, Senior Partner, on behalf of MILLER-VALENTINE
PARTNERS.
/s/ Shirley J. Kidd
----------------------------
NOTARY PUBLIC
[SEAL]
SHIRLEY J. KIDD, NOTARY PUBLIC
IN AND FOR THE STATE OF OHIO
MY COMMISSION EXPIRES AUGUST 24, 1992
<PAGE>
STATE OF CONNECTICUT, COUNTY OF FAIRFIELD, SS:
The foregoing instrument was acknowledged before me this _____ day
of ________, 1992, by Peter Godfrey, the President of MICRO WAREHOUSE, INC., a
corporation on behalf of said corporation.
/s/ Marie Gagstetter
------------------------
NOTARY PUBLIC
MARIE GAGSTETTER
MY COMMISSION EXPIRES SEPT. 30, 1997
<PAGE>
EXHIBIT A
Outline Specification
June 25, 1991
Prepared For
MICRO WAREHOUSE, INC.
Area: 51,200 Square Feet (360'x160') See
Exhibit B
Clear Height: 19' under bar joist.
Type of Construction: Tilt-up concrete and steel.
Doors: 8 dock-high doors (8'x9') with
levelers per bay and one drive-in door
(12'x14')
1 decorative glass office entry door
with side lite
Additional mandoors and steps as
required by fire code
Insulation: .1 U factor both roof and walls
Sprinkler: Wet pipe system to meet requirements
of Insurance Services of Ohio
Electrical Entrance Service: 400 amp. 220/480 V. 3 Phase
Lighting: 20 foot candles measured at three feet
off the floor
Heating: Gas fired unit heaters designed to
maintain 60 degrees inside at 0
degrees outside
Restrooms: One set of restrooms designed to meet
the code requirements for Micro
Warehouse's operation. To include
drinking fountain and janitor sink.
Office: Office space will be specifically
designed to meet your requirements.
Costs are not included in the base
lease rate.
Additional Features: Entire structure painted inside and
out, 6" floor slabs, quality
landscaping, and plenty of parking
spaces.
The above specifications reflect the "base standard" for warehouse/distribution.
Any item may be upgraded at Lessee's expense to meet individual requirements.
<PAGE>
MILLER-VALENTINE PARTNERS
WAREHOUSE/DISTRIBUTION
AGREEMENT OF LEASE
TABLE OF CONTENTS
LEASE FOR MICRO WAREHOUSE, INC.
PROPERTY LOCATED AT 2841-2883 Old State Route 73, Wilmington, Ohio 45177
ARTICLE PAGE
1 TERM ..................................................... 1
2 LEASED PREMISES .......................................... 1
3 POSSESSION ............................................... 1
4 RENT ..................................................... 1
5 COMMON AREA .............................................. 2
6 USE OF LEASED PREMISES ................................... 3
7 REPAIRS .................................................. 3
8 INSTALLATIONS AND ALTERATIONS ............................ 4
9 INDEMNIFICATION .......................................... 4
10 INSURANCE ................................................ 4
11 DAMAGE BY FIRE OR OTHER CASUALTY ......................... 5
12 EMINENT DOMAIN ........................................... 5
13 ASSIGNMENT OR SUBLETTING ................................. 6
14 ACCESS TO LEASED PREMISES ................................ 6
15 ATTORNMENT ............................................... 6
16 LIMITATION UPON LIABILITY ................................ 7
17 LESSOR'S SUCCESSORS ...................................... 7
18 LESSEE'S DEFAULT ......................................... 7
19 SURRENDER OF LEASED PREMISES ............................. 7
20 SUBORDINATION ............................................ 8
21 NOTICE ................................................... 8
22 WAIVER OF SUBROGATION .................................... 8
23 ESTOPPEL CERTIFICATE ..................................... 8
24 RENT DEMAND .............................................. 9
25 NO REPRESENTATION BY LESSOR .............................. 9
26 WAIVER OF BREACH ......................................... 9
27 QUIET ENJOYMENT .......................................... 9
28 ENVIRONMENTAL PROVISIONS ................................. 9
29 INTERPRETATION ........................................... 10
30 FINANCIAL STATEMENTS ..................................... 10
31 MEMORANDUM OF LEASE ...................................... 10
32 OPTION TO RENEW .......................................... 10
33 RIGHT OF FIRST OFFERING ON CURRENTLY OCCUPIED SPACE ...... 11
34 RIGHT TO ASSIGN .......................................... 11
35 ENTIRE AGREEMENT ......................................... 11
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MILLER-VALENTINE PARTNERS
WAREHOUSE/DISTRIBUTION
AGREEMENT OF LEASE
THIS LEASE made this [Illegible] day of August, 1991, by and between
MILLER-VALENTINE PARTNERS, hereinafter referred to as the Lessor, and MICRO
WAREHOUSE, INC., a Connecticut corporation, hereinafter referred to as Lessee.
The Lessee's business enterprise is organized as a corporation and is admitted
to do business in the State of Ohio.
WITNESSETH:
The Lessor does hereby lease and let to the Lessee and the Lessee
accepts from the Lessor under the terms and conditions of this Lease, the
following described Premises:
51,200 square feet of a building which contains 102,400 square feet
more or less at 2841-2889 Old State Route 73, Wilmington, Ohio 45177 hereinafter
referred to as the Leased Premises.
ARTICLE 1. TERM.
TO HAVE AND TO HOLD unto the Lessee for a term of FIVE (5) years
commencing on the 1st day of October 1991, and ending on the 30th day of
September 1996, both dates inclusive.
ARTICLE 2. LEASED PREMISES.
The office/warehouse/distribution space shall be delivered to the
Lessee as per Exhibit A. Outline Specification dated June 25, 1991. This
Specification will be revised once the office facilities have been finalized and
will be attached as Exhibit A-1.
ARTICLE 3. POSSESSION.
THE LESSOR SHALL PROVIDE THE LESSEE WITH A CERTIFICATE OF OCCUPANCY
AT TIME OF OCCUPANCY WHICH SHALL BE NO LATER THAN OCTOBER 1, 1991. If Lessor is
unable to give occupancy of the Leased Premises on the above date because
construction has not been completed, the term shall commence on the first of the
month following completion and continue thereafter for the full term granted.
Lessor shall not be liable for damages because of such delay in occupancy.
Provided, however, if the Lessee's occupancy is delayed by fault of Lessor more
than sixty (60) days after the commencement date, the Lessee may after thirty
(30) days written notice elect to terminate this Lease if Lessor is not able to
deliver occupancy before such termination date. If the delay in completion is
caused by the Lessee, the term shall commence and rent will start irrespective
of the Leased Premises not being ready for occupancy.
ARTICLE 4. RENT.
Section 1. Lessee shall pay to the Lessor as Basic Annual Rent for
the Leased Premises the sum of ONE HUNDRED SEVENTY NINE THOUSAND ONE HUNDRED
NINETY NINE AND 96/100 DOLLARS ($179,199.96) which shall be paid in equal
monthly installments of FOURTEEN THOUSAND NINE HUNDRED THIRTY THREE AND 33/100
DOLLARS ($14,933.33), due and payable on the first day of each month, in
advance, without demand EXCEPT THAT NO RENT SHALL BE DUE DURING THE FIRST TWO
(2) MONTHS OF OCCUPANCY. Said rent shall be paid to the Lessor, or to the duly
authorized agent of the Lessor, at its office during business hours. If the
commencement date of this Lease is other than the first day of the month, any
rental adjustment or additional rents hereinafter provided for shall be prorated
accordingly. The Lessee will pay the rent as herein provided, without deduction
whatsoever, and without any obligation of the Lessor to make demand for it. Any
installment of rent accruing hereunder and any other sum payable hereunder, if
not paid when due, shall bear interest at the rate of eighteen
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percent (18%) per annum until paid. The Basic Annual Rent of $179,199.96 shall
be adjusted annually based on any increases in the Consumer Price Index
beginning one year after the commencement date of this Lease and at the end of
each year thereafter, whether during the term of this Lease or any renewal or
extension thereof. Increases in the Annual Rent shall be made in accordance with
the following procedure:
a. The index to be used for this adjustment shall be the Consumer
Price Index (NORTH CENTRAL REGION, All Urban Consumers, All Items, 1982-1984
equaling a base of 100, from the U.S. Department of Labor, Bureau of Labor
Statistics, Washington, D.C.).
b. The Consumer Price Index of 1991 for the month of June shall be
the "Base Period Consumer Price Index." The Consumer Price Index for the month
of June in each adjustment year shall be the "Adjustment Period Consumer Price
Index."
c. The Base Period Consumer Price Index shall be subtracted from the
Adjustment Period Consumer Price Index; the difference shall be divided by the
Base Period Consumer Price Index. This quotient shall then be multiplied by the
Basic Annual Rent, and the result shall then be added to the Basic Annual Rent.
The resulting sum shall be the adjusted Annual Rent for such immediately
succeeding leasehold period which shall be paid in equal monthly installments.
d. If the said Consumer Price Index is, at any time during the term
of this Lease, discontinued by the Government, then the most nearly comparable
index shall be substituted for the purpose of the aforesaid calculations.
Section 2. The Lessee shall reimburse the Lessor for the costs of
water, gas, and electricity, including electricity costs for exterior lighting,
or such other utilities and heating and air conditioning maintenance in the
event that such services are furnished by Lessor and not separately metered to
the Lessee. Said reimbursement shall be additional rent due on the first day of
the calendar month next following rendition of a bill therefor. If any services
are separately metered, the cost shall be paid directly by the Lessee to the
utility service. The heating and other utilities, except water, not separately
metered will be prorated on the basis of the square footage serviced by a given
meter and paid to Lessor as billed. The total costs of water shall be paid by
the Lessees currently in occupancy and the costs thereof shall be prorated on
the basis of square footage occupied by each Lessee. ANY HEAVY USER OF ANY
PRORATED UTILITY SHALL HAVE SUCH SERVICE SUBMETERED. LESSEE SHALL PAY FOR
ELECTRICITY DIRECTLY TO THE UTILITY SERVICE; WATER AND GAS SHALL BE PRORATED AS
DESCRIBED ABOVE. A 10% handling fee for these billable services will be charged
by the Lessor.
Section 3. The Lessee agrees to pay any increased real estate taxes
over and above the real estate taxes paid by the Lessor during the first year of
the term of this Lease. The Lessee's proportionate share of any such increase
shall be a fraction thereof, the numerator of which is the number of square feet
of floor area in the Leased Premises and the denominator of which is the total
square feet of the floor area in the building both as specified aforesaid in the
Lease. Said amount shall be deemed to be additional rent and shall be due and
payable on the first of the month following delivery to Lessee of a receipt for
Lessor's payment of said real estate taxes. The Lessee shall pay its prorated
share of expenses that the Lessor shall incur by reason of compliance with new
laws, orders, special rent/use taxes, ordinances and new regulations of Federal,
State, County and Municipal authorities, and with any lawful direction of any
public officer or officers, which lawful direction shall be imposed upon the
Lessor for the common good of the occupants of the building. LESSEE SHALL NOT BE
CHARGED WITH ANY EXPENSES ATTRIBUTABLE TO LESSOR'S COMPLIANCE WITH NEW
ENVIRONMENTAL STATUTES, ORDERS, ETC.
ARTICLE 5. COMMON AREA.
For the purpose of this Lease, common area shall be defined as all
of the property described herein that is not actually occupied by the building.
The Lessee shall have the use in common with other Lessees to the parking areas.
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Section 4. Except as provided in Sections 1, 2, and 3 of this
Article, Lessor shall not be obligated to make repairs, replacements or
improvements of any kind upon said Leased Premises, or any equipment facilities
or fixtures therein contained, which shall at all times be kept in good order,
conditions and repair by Lessee, and in a clean, sanitary and safe condition and
in accordance with all applicable laws, ordinances and regulations of any
governmental authority having jurisdiction. Lessee shall permit no waste,
damage, or injury to the Leased Premises.
Section 5. Lessee shall forthwith at its own cost and expense
replace with glass of the same kind and quality any cracked or broken glass,
including plate glass or glass or other breakable materials used in structural
portions, and any interior and exterior windows and doors in the Leased
Premises.
ARTICLE 8. INSTALLATIONS AND ALTERATIONS.
Section 1. Lessee shall not make any alterations or additions to the
Leased Premises without first procuring Lessor's written consent and delivering
to Lessor the plans and specifications and copies of the proposed contracts and
necessary permits, and shall furnish indemnification against liens, costs,
damages and expenses as may be reasonably required by Lessor. All alterations,
additions, improvements and fixtures, other than trade fixtures, which may be
made or installed by either of the parties hereto upon the Leased Premises and
which in any manner are attached to the floors, walls or ceilings, at the
termination of this Lease shall become the property of Lessor, unless Lessor
requests their removal, and shall remain upon and be surrendered with the Leased
Premises as a part thereof, without damage or injury; any linoleum or other
floor covering of similar character which may be cemented or otherwise
adhesively affixed to the floor shall likewise become the property of Lessor,
all without compensation or credit to Lessee.
Section 2. The Lessee shall not erect or install any signage without
first procuring Lessor's written consent.
Section 3. The Lessee shall have no rights to use and shall not use
the roof of the Leased Premises for any purpose without the written consent of
the Lessor. The Lessee shall not use the roof for storage, for any activity that
will result in traffic on the roof, for anything that will penetrate the roof,
use the roof as an anchor or otherwise damage the roof. The consent of the
Lessor must be in writing for each specific use and must also approve the method
of installation of the permitted use. Should the Lessee break this covenant, the
Lessee shall be responsible for any damages caused to the roof or other parts of
the building and shall assume the cost of maintaining and repairing the roof
during the term of the Lease, including any renewals.
ARTICLE 9. INDEMNIFICATION.
Except to the extent of the negligence or misconduct of Lessor,
Lessee agrees to indemnify and hold Lessor harmless against and from any and all
claims, damages, costs, and expenses, including reasonable attorney's fees,
arising out of Lessee's use or occupancy of the Leased Premises. Except to the
extent of Lessee's negligence or misconduct, Lessor agrees to indemnify and hold
Lessee harmless against and from any and all claims, damages, costs, and
expenses, including reasonable attorney's fees, arising out of Lessor's failure
to perform its duties and obligations as owner or agent of the owner of the
property of which the Leased Premises is a part.
ARTICLE 10. INSURANCE.
Section 1. Lessee shall not carry any stock of goods or do anything
in or about said Leased Premises which will in any way tend to increase
insurance rates on said Leased Premises or the building in which the same are
located. If Lessor shall consent to such use, Lessee agrees to reimburse Lessor
on a pro rata basis for any increase in premiums for insurance against loss by
fire or extended coverage risks resulting from the business carried on in the
Leased Premises by Lessee. If Lessee installs any electrical equipment that
overloads the power lines to the building, Lessee shall at its
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own expense make whatever changes are necessary to comply with the requirements
of insurance underwriters and insurance rating bureaus and governmental
authorities having jurisdiction.
Section 2. Lessee agrees to procure and maintain a policy or
policies of insurance, at its own costs and expense, insuring from all claims,
demands or actions for injury to or death of more than one person in any one
accident and for damages to property in any aggregate amount of not less than
$1,000,000.00 made by or on behalf of any person or persons, firm or
corporation, arising from, related to, or connected with the conduct and
operation of Lessee's business in the Leased Premises. Lessor shall be named an
Additional Insured Party in said policy. Such insurance shall be primary
relative to any other valid and collectible insurance. Said insurance shall not
be subject to cancellation except after at least thirty (30) days prior written
notice to Lessor, and the policy or policies, or duly executed certificate or
certificates for the same, together with satisfactory evidence of the payment of
the premium thereon, shall be deposited with Lessor at the commencement of the
term and renewals of such coverage. If Lessee fails to comply with such
requirement, Lessor may obtain such insurance and keep the same in effect, and
Lessee shall pay Lessor the premium cost thereof upon demand.
Section 3. All property which may be upon said Leased Premises
during the term hereof or any renewal thereof shall be at any upon the sole risk
and responsibility of Lessee.
ARTICLE 11. DAMAGE BY FIRE OR OTHER CASUALTY.
Section 1. IF THE LEASED PREMISES SHALL BE DESTROYED OR SO INJURING
BY ANY CAUSE AS TO BE UNFIT, IN WHOLE OR IN PART, FOR OCCUPANCY, LESSOR SHALL
USE ITS BEST EFFORTS TO PROVIDE OCCUPANCY IN COMPARABLE SPACE WITHIN SIXTY (60)
MILES OF THE LEASED PREMISES AND IF LESSOR CANNOT PROVIDE SUCH SPACE, LESSEE MAY
TERMINATE THIS LEASE. IF THE LESSOR HAS PROVIDED SUCH TEMPORARY SPACE and such
destruction or injury could reasonably be repaired within three (3) months from
the happening of such destruction or injury, then Lessee shall not be entitled
to surrender possession of the Leased Premises nor shall Lessee's liability to
pay rent under this Lease cease without mutual consent of the parties hereto,
but in case of any such destruction or injury Lessor shall repair the same with
all reasonable speed and shall complete such repairs within three (3) months
from the happening of such injury, and if during such period Lessee shall be
unable to use all or any portion of the Leased Premises, a proportionate
allowance shall be made to Lessee from the rent corresponding to the time during
which and to the portion of the Leased premises of which Lessee shall be so
deprived of the use on account thereof.
Section 2. If such destruction or injury cannot reasonably be
repaired within three (3) months from the happening thereof, Lessor shall notify
Lessee within ten (10) days after the happening of such destruction or injury
whether or not Lessor will repair or rebuild. If Lessor elects not to repair or
rebuild, this Lease shall be terminated. If Lessor shall elect to repair or
rebuild, Lessor shall specify the time within which such repairs or
reconstruction will be complete, and Lessee shall have the option, within ten
(10) days after the receipt of such notice, to elect either to terminate this
Lease and further liability hereunder, or to extend the term of the Lease by a
period of time equivalent to the time from the happening of such destruction or
injury until the Leased Premises are restored to their former condition. In the
event Lessee elects to extend the term of the Lease, Lessor shall restore the
Leased Premises to their former condition within the specified time in the
notice and Lessee shall not be liable to pay rent for the period from the time
of such destruction or injury until the Leased Premises are so restored to their
former condition.
ARTICLE 12. EMINENT DOMAIN.
Section 1. If the whole or substantially all of the Leased Premises
hereby leased shall be taken by a public authority under the power of eminent
domain, then the term of this Lease shall cease as of the day
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possession shall be taken by such public authority, and the rent shall be paid
up to that date with a proportionate refund by Lessor of such rent as shall have
been paid in advance.
Section 2. If less than substantially all of the floor area of the
Leased Premises shall be so taken, the term of this Lease shall cease only on
the parts so taken as of the day possession shall be taken by such public
authority, and the rent shall be paid up to that day with a proportionate refund
by Lessor of such rent as may have been paid in advance, and thereafter the
minimum rent shall be equitably abated, and Lessor shall at its own cost and
expense make all necessary repairs or alterations as to constitute the remaining
Leased Premises a complete architectural unit.
Section 3. All damages awarded for such taking under the power of
eminent domain, whether for the whole or a part of the Leased Premises, shall be
the property of Lessor whether such damages shall be awarded as compensation for
diminution in value of the leasehold or to the fee of the Leased Premises;
provided, however, that the Lessor shall not be entitled to any separate award
made to Lessee for loss of business, depreciation to and cost of removal of
stock and fixtures.
ARTICLE 13. ASSIGNMENT OR SUBLETTING.
Section 1. Lessee shall not assign or in any manner transfer this
Lease or any interest therein, nor sublet said Leased Premises or any part or
parts thereof, nor permit occupancy by anyone with, through, or under it,
without the previous written consent of Lessor which consent shall not be
unreasonably withheld. Consent by Lessor to one or more assignments of this
Lease or to one or more sublettings of the Leased Premises shall not operate as
a waiver of Lessor's rights under this Article to any subsequent assignment or
subletting. No assignment shall release Lessee of any of its obligations under
this Lease or be construed or taken as a waiver of any of Lessor's rights or
remedies hereunder.
Section 2. Neither this Lease nor any interest therein, nor any
estate thereby created, shall pass to any trustee or receiver in bankruptcy or
any assignee for the benefit of creditors or by operation of law.
Section 3. Provided that the Lessee with Lessor's consent assigns or
sublets part or all of the Leased Premises at a rental that exceeds the current
rental herein reserved, the Lessor shall be entitled to receive as additional
rental one-half of such excess of the current rental. The Lessee shall remit
one-half of such excess within five (5) days after receipt by it.
ARTICLE 14. ACCESS TO LEASED PREMISES.
The Lessor shall retain duplicate keys to all of the doors of the Leased
Premises. The Lessor or its agents shall have the right to enter upon the Leased
Premises at all reasonable hours for the purpose of inspecting the same or of
making repairs, additions or alterations thereto or to the building in which the
same are located. The Lessor shall have the right, upon reasonable notice, to
show the Leased Premises to prospective Lessees, purchasers or others. Lessor
shall not be liable to Lessee in any manner for any expense, loss or damage by
reason thereof, nor shall the exercise of such right be deemed an eviction or
disturbance of Lessee's use or possession. LESSOR SHALL PROVIDE LESSEE WITH A
LIST OF ALL PERSONNEL WHO WILL HAVE ACCESS TO DUPLICATE KEYS AND TO THE
PREMISES. ONLY THOSE PREAPPROVED LESSOR PERSONNEL MAY ENTER THE PREMISES.
ARTICLE 15. ATTORNMENT.
In the event the herein Leased Premises are sold due to any
foreclosure sale or sales, by virtue of judicial proceedings or otherwise, this
Lease shall continue in full force and effect, and Lessee agrees, upon request,
to attorn to and acknowledge the foreclosure purchaser or purchasers at such
sale as Lessors hereunder; provided such purchaser will recognize this Lease,
unless and until it is in default.
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ARTICLE 16. LIMITATION UPON LIABILITY.
Notwithstanding any other provision of this Lease, Lessee agrees to
look solely to Lessor's interest in the Building (subject to any mortgage on the
Building) for the recovery of any judgment requiring the payment of money by
Lessor; it being agreed that Lessor, and if Lessor is a partnership, its
partners whether general or limited, or if Lessor is a corporation, its
directors, officers, or shareholders, shall never be personally liable for any
such judgment, and no other assets of the Lessor shall be subject to levy,
execution or other procedures for the satisfaction of Lessee's judgment. The
provision contained in the foregoing sentence is not intended to, and shall not,
limit any right that Lessee might otherwise have to obtain injunctive relief
against Lessor or Lessor's successors in interest, or to maintain any other
action not involving the personal liability of Lessor, or to maintain any suit
or action in connection with enforcement or collection of amounts which may
become owing or payable under or on account of insurance maintained by Lessor.
ARTICLE 17. LESSOR'S SUCCESSORS.
The term "Lessor" as used in this Lease shall be limited to mean and
include only the owner or owners, at the time, of the fee of the Building, their
successors and assigns, so that in the event of any sale or sales of the
Building, the previous Lessor shall be entirely released with respect to the
performance of all subsequently accruing covenants and obligations on the part
of Lessor. The retention of fee ownership by a lessor of the Building or of the
land on which it is located under an underlying lease which is now or hereafter
in effect, shall not be deemed to impose on such underlying lessor any
liability, initial or continuing, for the performance of the covenants and
obligations of Lessor.
ARTICLE 18. LESSEE'S DEFAULT.
Section 1. The Lessee, ten (10) days after receipt of written notice
shall be considered in default of this Lease upon failure to pay when due the
rent or any other sum required by the terms of the Lease; failure to perform any
term, covenant or condition of this Lease; the commencement of any action or
proceeding for the dissolution, liquidation or reorganization under the
Bankruptcy Act, of Lessee, or for the appointment of a receiver or trustee of
the Lessee's property; the making of any assignment for the benefit of creditors
by Lessee; the suspension of business; or the abandonment of the Leased Premises
by the Lessee. ANY DEFAULTS OTHER THAN NONPAYMENT DEFAULTS SHALL HAVE A THIRTY
(30) DAY CURE PERIOD.
Section 2. In the event of default of this Lease by Lessee, than
Lessor MAY PURSUE ANY AND ALL REMEDIES AND RIGHTS AVAILABLE TO THE LESSOR UNDER
APPLICABLE OHIO LAW. Should Lessor elect to reenter or should it take possession
pursuant to legal proceedings or pursuant to any notice provided for by law, it
may either terminate this Lease, or it may without terminating this Lease relet
said Leased Premises or any part thereof for such term or terms and at such
rental or rentals and upon such other terms and conditions as Lessor may deem
advisable, with the right to make alterations and repairs to said Leased
Premises for the purpose of rerental. Should such rentals received from such
reletting during any month be less than required to be paid by Lessee as defined
above, then Lessee shall immediately pay such deficiency to Lessor. Should
Lessor at any time terminate this Lease for any breach or act of default, in
addition to any other remedy it may have, it may recover from Lessee all damages
it may incur by reason of such breach or act of default.
ARTICLE 19. SURRENDER OF LEASED PREMISES.
Section 1. If Lessee holds possession of the Leased Premises after
the termination of this Lease for any reason, Lessee shall pay Lessor double the
rent provided for herein for such period that Lessee holds over, but such
payment of rent shall not create any Lease arrangement whatsoever between Lessor
and Lessee, unless expressly agreed to in writing by Lessor. It is further
understood that during such period that Lessee holds over, the Lessor retains
all of Lessor's rights under this Lease, including damages as a result
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of the termination of this Lease and the right to immediate possession of the
Leased Premises. This paragraph shall not be construed to grant Lessee
permission to hold over.
Section 2. At the expiration of the tenancy created hereunder,
whether by lapse of time or otherwise, Lessee shall surrender the Leased
Premises broom clean, free of all debris and in good condition and repair,
reasonable wear and loss by fire or other unavoidable casualty excepted.
Section 3. Prior to surrender of the Leased Premises, the Leased
Premises will be reviewed by a representative of the Lessor and Lessee to
determine if there is any deferred maintenance or unrepaired damage. In the
event that there is deferred maintenance and/or unrepaired damage, Lessor may
effect such maintenance and repairs, and Lessee will pay the cost thereof.
Section 4. Upon the expiration of the tenancy hereby created, if
Lessor so requests in writing, Lessee shall promptly remove any additions,
fixtures and installations placed in the Leased Premises by Lessee that is
designated in said request, and repair any damage occasioned by such removals at
its own expense, and in default thereof, Lessor may effect such removals and
repairs, and Lessee shall pay Lessor the cost thereof, with interest at the rate
of eight (8) percent per annum from the date of the payment by Lessor.
ARTICLE 20. SUBORDINATION.
This Lease shall be subject to and subordinate at all times to the
lien of any mortgages, now or hereafter made on the Leased Premises, and to all
advances made or hereafter to be made thereunder. The Lessee agrees to execute a
subordination agreement should Lessor's lender request same.
ARTICLE 21. NOTICE
All notices under this Lease may be personally delivered or mailed
to the address shown by certified mail.
Lessor: Miller-Valentine Partners
Mail: P.O. Box 744
Dayton, Ohio 45401-0744
Lessee: Micro Warehouse, Inc.
Mail: ATTN: Mr. Peter Godfrey, President
29 Haviland Street
South Norwalk, Connecticut 06854
cc: Lev, Spalter, Berlin & Certilman, P.C.
ATTN: Mr. Bruce L. Lev
105 Rowayton Avenue
P.O. Box 5318
Rowayton, Connecticut 06853
Either party may from time to time designate in writing other addresses.
ARTICLE 22. WAIVER OF SUBROGATION.
The Lessor and Lessee waive all rights, each against the other, for
damages caused by fire or other perils covered by insurance where such damages
are sustained in connection with the occupancy of the Leased Premises.
ARTICLE 23. ESTOPPEL CERTIFICATE.
The Lessee agrees to execute an Estoppel Certificate within ten (10)
days of receipt of a written request by Lessor for the benefit of any purchaser
and/or prospective Lender designated by Lessor as well as Lessor's present
Lender; that wherein the Lessee acknowledges the terms and conditions of this
Lease.
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ARTICLE 24. RENT DEMAND.
Every demand for rent due wherever and whenever made shall have the
same effect as if made at the time it falls due and at the place of payment, and
after the service of any notice or commencement of any suit, or final judgment
therein, Lessor may receive and collect any rent due, and such collection or
receipt shall not operate as a waiver of nor affect such notice, suit or
judgment.
ARTICLE 25. NO REPRESENTATION BY LESSOR.
Lessor and its agent have made no representations or promises with
respect to the Leased Premises or the building of which the same form a part
except as herein expressly set forth. LESSOR REPRESENTS THAT ALL SYSTEMS AND
DEMISED PREMISES WILL BE IN GOOD WORKING ORDER AND IN FULL COMPLIANCE WITH LAW
AND THE PROVISIONS OF THE CERTIFICATE OF OCCUPANCY UPON COMMENCEMENT OF THE
LEASE.
ARTICLE 26. WAIVER OF BREACH.
No waiver of any breach of the covenants, provisions or conditions
contained in this Lease shall be construed as a waiver of the covenant itself or
any subsequent breach itself, and if any breach shall occur and afterwards be
compromised, settled or adjusted, this Lease shall continue in full force and
effect as if no breach had occurred, unless otherwise agreed. The acceptance of
rent hereunder shall neither be or construed to be a waiver of any breach of any
term, covenant or condition of this Lease.
ARTICLE 27. QUIET ENJOYMENT.
Lessor hereby covenants and agrees that if Lessee shall perform all
the covenants and agreements herein stipulated to be performed on Lessee's part,
Lessee shall at all times during the continuance hereof have the peaceable and
quiet enjoyment and possession of the Leased Premises without any manner of let
or hindrance from Lessor or any person or persons lawfully claiming the Leased
Premises except as otherwise provided for herein.
ARTICLE 28. ENVIRONMENTAL PROVISIONS.
Section 1. The Lessor, to the best of its knowledge, represents to
the Lessee that no toxic, explosive or other dangerous materials or hazardous
substances have been concealed within, buried beneath, released on or from, or
removed from and stored off-site of the Property upon which the Leased Premises
is constructed.
Section 2. Lessee shall at all times during the term of this Lease
comply with all applicable federal, state, and local laws, regulations,
administrative rulings, orders, ordinances, and the like, pertaining to the
protection of the environment, including but not limited to, those regulating
the handling and disposal of waste materials. Further, during the term of this
Lease, neither Lessee nor any agent or party acting at the direction or with the
consent of Lessee shall treat, store, or dispose of any "hazardous substance,"
as defined in Section 101 (14) of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), or petroleum (including crude
oil or any fraction thereof) on or from the Property.
Section 3. Lessee shall fully and promptly pay, perform, discharge,
defend, indemnify and hold harmless Lessor from any and all claims, orders,
demands, causes of action, proceedings, judgments, or suits and all liabilities,
losses, costs or expenses (including, without limitation, technical consultant
fees, court costs, expenses paid to third parties and reasonable legal fees) and
damages arising out of, or as a result of, (i) any "release" as defined in
Section 101 (22) of CERCLA, of any "hazardous substance," as defined in Section
101 (14) of CERCLA, or petroleum, (including crude oil or any fraction thereof)
or placed into, on or from the Property at any time after the date of this Lease
by Lessee, its agents, or employees; (ii) any contamination of the Property's
soil or groundwater or damage to the environment and natural resources of the
Property the result of actions occurring after the date of this Lease, whether
arising under CERCLA or other
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statutes and regulations, or common law by Lessee, its agents, or employees; and
(iii) any toxic, explosive or otherwise dangerous materials or hazardous
substances which have been buried beneath, concealed within or released on or
from the Property after the date of this Lease by Lessee, its agents, or
employees. LESSOR INDEMNIFIES THE LESSEE FROM ANY OF THE CLAIMS OUTLINED ABOVE
ATTRIBUTABLE TO ACTS AND CIRCUMSTANCES PRIOR TO THE DATE OF LESSEE'S OCCUPANCY
OR SUBSEQUENT TO LESSEE'S OCCUPANCY IF NOT SPECIFICALLY ATTRIBUTABLE TO
THE CONDUCT OF THE LESSEE, ITS AGENTS OR EMPLOYEES.
ARTICLES 29. INTERPRETATION.
Section 1. Wherever either the word "Lessor" or "Lessee" is used in
the Lease, it shall be considered as meaning the singular and/or neuter pronouns
as used herein, and the same shall be construed as including all persons and
corporations designated respectively as Lessor or Lessee in the heading of this
instrument wherever the context requires.
Section 2. If any clause, sentence, paragraph, or part of this Lease
shall for any reason be adjudged by any court of competent jurisdiction to be
invalid, such judgment shall not effect, impair, or invalidate the remainder of
this Lease, but be confined in its operation to the clause, sentence,
paragraphs, or part thereof directly involved in the controversy in which such
judgment shall have been rendered, and in all other respects said Lease shall
continue in full force and effect.
ARTICLE 30. FINANCIAL STATEMENTS.
At Lessor's request, AND BECAUSE OF MORTGAGING REQUIREMENTS, the
Lessee, within thirty (30) days of Lessor's request, shall furnish the Lessor
with Lessee's most current financial statements including the Lessee's balance
sheet, a consolidated statement of earnings and retained earnings, and changes
in Lessee's financial position for such year. All such statements shall be
certified by an independent certified public accountant. All such financial
statements shall be prepared in accordance with generally accepted accounting
principles which shall be consistently applied. ALL SUCH FINANCIAL STATEMENTS
SHALL BE DELIVERED TO THE LENDER ON A FULLY CONFIDENTIAL BASIS.
ARTICLE 31. MEMORANDUM OF LEASE.
It is agreed by both parties that this instrument is not recordable
and if either party should record the same in the Office of the Recorder of
Clinton County, Ohio, the recording shall have no effect. When possession of the
Leased Premises has been delivered to Lessee, the parties hereto may execute,
acknowledge and deliver a Memorandum of Lease in recordable form specifying the
terms of this Lease and renewal periods of this Lease. In the event they differ
from the dates herein, the date in the Memorandum shall control.
ARTICLE 32. OPTION TO RENEW.
Lessee is hereby granted an option to renew this Lease for an
additional term of five (5) years on the same terms and conditions contained
herein except for the rental and the length of the term, upon the conditions
that:
a. written notice of the exercise of such option shall be given by
Lessee to Lessor not less than one hundred eighty (180) days prior to the end of
the term of this Lease; and
b. at the time of the giving of such notice and at the expiration of
the term of this Lease, there are no defaults in the covenants, agreements,
terms and conditions on the part of Lessee to be kept and performed, and all
rents are and have been fully paid. Provided also, that the rent to be paid
during each year of the said renewal period shall be as determined in accordance
with the following procedure:
10
<PAGE>
(1) The index to be used for this adjustment shall be the Consumer
Price Index (NORTH CENTRAL REGION, All Urban Consumers, All Items, 1982-1984
equaling a base of 100, from the U.S. Department of Labor, Bureau of Labor
Statistics, Washington, D.C.).
(2) The Consumer Price Index of 1991 for the month of June shall be
the "Base Period Consumer Price Index."
(3) The Consumer Price Index for the month of June each succeeding
year shall be determined from the published figures and shall be the "Adjustment
Period Consumer Price Index."
(4) The Base Period Consumer Price Index shall be subtracted from
the Adjustment Period Consumer Price Index; the difference shall be divided by
the Base Period Consumer Price Index. This quotient shall then be multiplied by
$179,199.96 and the result shall then be added to $179,199.96. This arithmetical
sum shall then be the adjusted Basic Annual Rent for such immediately succeeding
leasehold year which shall be paid in equal monthly payments.
(5) If the said Consumer Price Index is, at any time during the term
of this Lease, discontinued by the Government, then the most nearly comparable
index shall be substituted for the purpose of the aforesaid calculations.
ARTICLE 33. RIGHT OF FIRST OFFERING ON CURRENTLY OCCUPIED SPACE.
IF CURRENTLY OCCUPIED SPACE ADJACENT OR ADJOINING LESSEE'S LEASED
PREMISES (19,200 SQUARE FEET AT 2895, 2901 AND 2907 OLD STATE ROUTE 73) BECOMES
AVAILABLE DURING THIS LEASE TERM OR OPTIONS HEREOF, LESSOR SHALL NOTIFY LESSEE
OF ITS AVAILABILITY IN WRITING AND LESSEE SHALL HAVE FIFTEEN (15) BUSINESS DAYS
FROM THE DATE OF LESSOR'S NOTICE TO LESSEE TO ADVISE LESSOR IN WRITING THAT
LESSEE ACCEPTS SUCH SPACE OFFERED IN ITS PRESENT CONDITION AND AGREES THAT IT
SHALL BECOME A PART OF THE LEASED PREMISES. THE BASE RENT FOR THE SPACE OFFERED
AND THE APPROXIMATE DATE POSSESSION IS TO BE DELIVERED SHALL BE INCLUDED IN
LESSOR'S NOTICE TO LESSEE. SHOULD LESSEE NOT ACCEPT THE OFFERING, THEN THE
PROVISIONS OF THIS PARAGRAPH SHALL BE VOID.
ARTICLE 34. RIGHT TO ASSIGN.
LESSOR SHALL GRANT TO LESSEE A UNILATERAL RIGHT TO ASSIGN THIS LEASE
TO ABX AIR, INC.
ARTICLE 35. ENTIRE AGREEMENT
This Lease contains the entire agreement between the parties; it
supersedes all previous understandings and agreements between the parties, if
any, and no oral or implied representation or understandings shall vary its
terms; and it may not be amended except by a written instrument executed by both
parties hereto.
IN WITNESS WHEREOF, the parties hereto set their hands to
triplicates hereof, this 20th day of August, 1991, as to Lessor, and this 12th
day of August, 1991, as to Lessee.
Signed and acknowledged LESSOR: MILLER-VALENTINE PARTNERS
in the presence of:
/s/ [Illegible] By: /s/ James M. Miller
- ---------------------------------- ----------------------------------
James M. Miller
/s/ [Illegible] Its: Senior Partner
- ---------------------------------- ----------------------------------
LESSEE: MICRO WAREHOUSE, INC.
/s/ [Illegible] By: /s/ [Illegible]
- ---------------------------------- ----------------------------------
/s/ [Illegible] Its: President
- ---------------------------------- ----------------------------------
11
<PAGE>
STATE OF OHIO, COUNTY OF MONTGOMERY, SS:
The foregoing instrument was acknowledged before me this 20th day of
August, 1991, by James M. Miller, Senior Partner on behalf of MILLER-VALENTINE
PARTNERS, an Ohio general partnership.
/s/ Shirley J. Kidd
----------------------------
Notary Public
[SEAL]
SHIRLEY J. KIDD, NOTARY PUBLIC
IN AND FOR THE STATE OF OHIO
MY COMMISSION EXPIRES AUGUST 24, 1992
STATE OF CONNECTICUT, COUNTY OF FAIRFIELD, SS; NORWALK
The foregoing instrument was acknowledged before me this 12th day of August,
1991, by Peter Godfrey, the President of MICRO WAREHOUSE, INC., a corporation,
on behalf of said corporation.
/s/ [Illegible]
----------------------------
Notary Public
12
<PAGE>
EXHIBIT A
Outline Specification
June 25, 1991
Prepared For
MICRO WAREHOUSE, INC.
Area: 51,200 Square Feet (360'x160') See
Exhibit B
Clear Height: 19' under bar joist.
Type of Construction: Tilt-up concrete and steel.
Doors: 8 dock-high doors (8'x9') with
levelers per bay and one drive-in door
(12'x14')
1 decorative glass office entry door
with side lite
Additional mandoors and steps as
required by fire code
Insulation: .1 U factor both roof and walls
Sprinkler: Wet pipe system to meet requirements
of Insurance Services of Ohio
Electrical Entrance Service: 400 amp. 220/480 V, 3 Phase
Lighting: 20 foot candles measured at three feet
off the floor
Heating: Gas fired unit heaters designed to
maintain 60 degrees inside at 0
degrees outside
Restrooms: One set of restrooms designed to meet
the code requirements for Micro
Warehouse's operation. To include
drinking fountain and janitor sink.
Office: Office space will be specifically
designed to meet your requirements.
Costs are not included in the base
lease rate.
Additional Features: Entire structure pained inside and
out, 6" floor slabs, quality
landscaping, and plenty of parking
spaces.
The above specifications reflect the "base standard" for warehouse/distribution.
Any item may be upgraded at Lessee's expense to meet individual requirements.
<PAGE>
EXHIBIT 10.42
================================================================================
AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of February 25, 2000
Among
PC CONNECTION, INC.,
as Borrower,
THE LENDERS PARTY HERETO,
and
CITIZENS BANK OF MASSACHUSETTS,
as Agent for the Lenders
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS AND ACCOUNTING TERMS............................... 2
Section 1.1. Definitions...............................................2
Section 1.2. Accounting Terms.........................................10
ARTICLE 2. THE REVOLVING CREDITS..........................................10
Section 2.1. The Revolving Credit.....................................10
Section 2.2. Making of Advances.......................................11
Section 2.3. Interest on Advances.....................................12
Section 2.4. Election of LIBOR Pricing Options........................12
Section 2.5. Additional Payments......................................13
Section 2.6. Computation of Interest, Etc.............................13
Section 2.7. Fees.....................................................14
Section 2.8. Set-Off..................................................14
Section 2.9. Sharing of Payments......................................14
Section 2.10. Reduction of Commitment by the Borrower..................15
Section 2.11. Increased Costs, Etc.....................................15
Section 2.12. Changed Circumstances....................................16
Section 2.13. Use of Proceeds..........................................17
Section 2.14. Letters of Credit........................................17
ARTICLE 3. CONDITIONS TO LOANS AND ADVANCES...............................21
Section 3.1. Conditions to First Advance..............................21
Section 3.2. Conditions to All Advances...............................24
ARTICLE 4. PAYMENT AND REPAYMENT..........................................24
Section 4.1. Mandatory Prepayment.....................................25
Section 4.2. Voluntary Prepayments....................................25
Section 4.3. Payment and Interest Cutoff..............................25
Section 4.4. Payment or Other Actions on Non-Business Days............25
Section 4.5. Method and Timing of Payments............................25
Section 4.6. Payments Not at End of Interest Period...................26
Section 4.7. Currency.................................................26
ARTICLE 5. REPRESENTATIONS AND WARRANTIES.................................27
Section 5.1. Corporate Existence, Charter Documents, Etc..............27
Section 5.2. Principal Place of Business; Location of Records.........27
Section 5.3. Qualification............................................27
Section 5.4. Subsidiaries.............................................27
Section 5.5. Corporate Power..........................................27
Section 5.6. Valid and Binding Obligations............................28
(i)
<PAGE>
Page
Section 5.7. Other Agreements.........................................28
Section 5.8. Payment of Taxes.........................................28
Section 5.9. Financial Statements.....................................29
Section 5.10. Other Materials Furnished................................29
Section 5.11. Stock....................................................29
Section 5.12. Changes in Condition.....................................29
Section 5.13. Assets, Licenses, Patents, Trademarks, Etc...............29
Section 5.14. Litigation...............................................30
Section 5.15. Pension Plans............................................30
Section 5.16. Outstanding Indebtedness.................................30
Section 5.17. Environmental Matters....................................31
Section 5.18. Foreign Trade Regulations................................32
Section 5.19. Governmental Regulations.................................32
Section 5.20. Margin Stock.............................................32
ARTICLE 6. REPORTS AND INFORMATION........................................32
Section 6.1. Quarterly Financial Statements and Reports...............32
Section 6.2. Annual Financial Statements..............................33
Section 6.3. Notice of Defaults.......................................33
Section 6.4. Notice of Litigation.....................................33
Section 6.5. Communications with Others...............................33
Section 6.6. Reportable Events........................................33
Section 6.7. Annual Pension Reports...................................34
Section 6.8. Reports to other Creditors...............................34
Section 6.9. Communications with Independent Public Accountants.......34
Section 6.10. Environmental Reports....................................34
Section 6.11. Miscellaneous............................................35
ARTICLE 7. FINANCIAL COVENANTS............................................35
Section 7.1. Consolidated Net Worth...................................35
Section 7.2. Minimum Consolidated Net Income..........................35
ARTICLE 8. AFFIRMATIVE COVENANTS..........................................36
Section 8.1. Existence and Business...................................36
Section 8.2. Taxes and Other Obligations..............................36
Section 8.3. Maintenance of Properties and Leases.....................37
Section 8.4. Insurance................................................37
Section 8.5. Records, Accounts and Places of Business.................37
Section 8.6. Inspection...............................................37
Section 8.7. Maintenance of Accounts..................................37
Section 8.8 Year 2000 Compatibility..................................37
ARTICLE 9. NEGATIVE COVENANTS.............................................38
Section 9.1. Restrictions on Indebtedness.............................38
Section 9.2. Restriction on Liens.....................................39
(ii)
<PAGE>
Page
Section 9.3. Investments..............................................40
Section 9.4. Dispositions of Assets...................................40
Section 9.5. Assumptions, Guaranties, Etc. of Indebtedness of Other
Persons................................................. 41
Section 9.6. Mergers, Etc.............................................41
Section 9.7. ERISA....................................................41
Section 9.8. Distributions............................................41
Section 9.9. Sale and Leaseback.......................................41
Section 9.10. Transactions with Affiliates.............................42
Section 9.11. Creation of Subsidiaries.................................42
Section 9.12. Voluntary Payment........................................42
ARTICLE 10. EVENTS OF DEFAULT AND REMEDIES................................42
Section 10.1. Events of Default........................................42
Section 10.2. Remedies.................................................44
Section 10.3. Distribution of Proceeds.................................44
ARTICLE 11. CONSENTS; AMENDMENTS; WAIVERS; REMEDIES.......................45
Section 11.1. Actions by Lenders.......................................45
Section 11.2. Actions by Borrower......................................45
ARTICLE 12. SUCCESSORS AND ASSIGNS........................................46
Section 12.1. General..................................................46
Section 12.2. Assignments..............................................46
Section 12.3. Participations...........................................47
ARTICLE 13. THE AGENT.....................................................48
Section 13.1. Authorization and Action.................................48
Section 13.2. Agent's Reliance, Etc....................................49
Section 13.3. Agent as a Lender........................................49
Section 13.4. Lender Credit Decision...................................50
Section 13.5. Indemnification of Agent.................................50
Section 13.6. Successor Agent..........................................50
Section 13.7. Amendment of Article 13..................................51
Section 13.8. Replacement of Agent Upon Assignment of Majority of
Commitment Percentage................................... 51
ARTICLE 14. MISCELLANEOUS................................................51
Section 14.1. Notices..................................................51
Section 14.2. Merger...................................................52
Section 14.3. Governing Law; Consent to Jurisdiction...................52
Section 14.4. Counterparts.............................................52
Section 14.5. Expenses and Indemnification.............................52
Section 14.6. Confidentiality..........................................53
Section 14.7. WAIVER OF JURY TRIAL.....................................54
(iii)
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
Exhibit A Form of Revolving Credit Note
Exhibit B Form of Notice of Borrowing
Exhibit C Form of Certificate of Permitted Acquisition
Exhibit D Form of Compliance Certificate
Exhibit E Form of Pricing Notice
Exhibit F Form of Opinion of Borrower's Counsel
Exhibit G Form of Opinion of Guarantor's Counsel
Exhibit H Form of Assignment and Acceptance Agreement
Exhibit I Form of Letter of Credit Request
Schedule 1 Schedule of Commitment Percentages
Schedule 2 Pricing Schedule
Schedule 5.2 Schedule of Locations
Schedule 5.4 Schedule of Subsidiaries
Schedule 5.7 Schedule of Agreements
Schedule 5.8 Schedule of Unaudited Tax Returns
Schedule 5.9 Schedule of Financial Statements
Schedule 5.11 Schedule of Issued and Outstanding Stock
Schedule 5.13 Schedule of Licenses, Patents, Copyrights and
Trademarks
Schedule 5.15 Schedule of Pension Plans
Schedule 5.16 Schedule of Indebtedness, Liens, Charges and
Encumbrances
Schedule 5.17 Environmental Matters
Schedule 8.4 Schedule of Insurance
(iv)
<PAGE>
AMENDED AND RESTATED
CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of February
25, 2000 by and among PC CONNECTION, INC. (fka PC Holdco, Inc.) ("Borrower"), a
Delaware corporation, the lenders from time to time party hereto, and CITIZENS
BANK OF MASSACHUSETTS (the "Agent"), as agent for the lenders from time to time
party hereto.
RECITALS
WHEREAS, PC CONNECTION SALES CORP. (fka PC Connection, Inc.) ("Sales), a
Delaware corporation and wholly-owned subsidiary of Borrower, is the borrower
under that certain Credit Agreement dated as of May 29, 1999 (the "May 99 Credit
Agreement"), by and among Sales, the lenders from time to time party thereto,
and Citizens Bank of Massachusetts, as successor in interest to State Street
Bank and Trust Company, as agent;
WHEREAS, pursuant to a corporate reorganization (the "Corporate
Restructuring") consummated on or about December 31, 1999, (i) Sales formed
Borrower as its subsidiary, (ii) Sales merged into a transitory subsidiary
formed by Borrower which resulted in Sales being a wholly-owned subsidiary of
Borrower, (iii) Sales formed two-wholly owned subsidiaries, PC Connection Sales
of Massachusetts, Inc. ("Sales-MA"), a Delaware corporation, and Merrimack
Services Corp. ("Merrimack"), a Delaware corporation, and contributed certain
assets to such entities, and (iv) Sales then distributed its stock in Merrimack
and Comteq Federal, Inc. ("Comteq"), a Maryland corporation;
WHEREAS, Borrower desires to succeed Sales as Borrower under the May 99
Credit Agreement to support Borrower's ongoing working capital requirements as
well as potential acquisitions and the Lenders (as hereinafter defined) have
agreed to such succession subject to the terms and conditions set forth herein;
WHEREAS, to induce Lenders and the Agent to enter into and make advances
under this Agreement, Sales, Sales-MA, Comteq and Merrimack (Sales, Sales-MA,
Comteq and Merrimack each a "Guarantor" and collectively the "Guarantors") have
entered into a Guaranty Agreement dates as of even date herewith, for the
benefit of the Lenders, guaranteeing the obligations of Borrower arising under
this Agreement and the Lender Agreements.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto enter into this
Amended and Restate Credit Agreement and do hereby agree as follows:
<PAGE>
ARTICLE 1. DEFINITIONS AND ACCOUNTING TERMS
Section 1.1. Definitions. In addition to the terms defined elsewhere in
this Agreement, unless otherwise specifically provided herein, the following
terms shall have the following meanings for all purposes when used in this
Agreement, and in any note, agreement, certificate, report or other document
made or delivered in connection with this Agreement:
"Advance or Advances" shall mean any loan or advance, including Letter
of Credit Outstandings, from any Lender to the Borrower under the Revolving
Credit Facility pursuant to Section 2.1 of this Agreement.
"Additional Guarantor" shall have the meaning set forth in Section
9.11 hereof.
"Affiliate" shall mean (a) any director or officer of the Borrower and
(b) any Person that controls, is controlled by or is under common control
with the Borrower. For purposes of this definition, "control" of a Person
shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of its management or policies, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" shall mean Citizens Bank of Massachusetts, in its capacity as
agent for the Lenders, and its successors in that capacity.
"Agreement" shall mean this Credit Agreement, as amended or
supplemented from time to time. References to Articles, Sections, Exhibits,
Schedules and the like refer to the Articles, Sections, Exhibits, Schedules
and the like of this Agreement unless otherwise indicated, as amended and
supplemented from time to time.
"Applicable Prime Rate" shall mean the sum of (i) the Prime Rate as is
in effect from time to time plus (ii) the Prime Rate Margin determined in
accordance with the Pricing Schedule.
"Applicable LIBOR Rate" shall mean the sum of (i) the LIBOR Rate plus
(ii) the LIBOR Rate Margin determined in accordance with the Pricing
Schedule.
"Assignment and Acceptance Agreement" shall have the meaning set forth
in Section 12.2(a) hereof.
"Borrower" shall mean PC Connection, Inc. (fka PC HoldCo, Inc.) a
Delaware corporation.
"Business Day" shall mean (i) for all purposes other than as covered
by clause (ii) below, any day other than a Saturday, Sunday or legal
holiday on which banks in Boston, Massachusetts and Manchester, New
Hampshire are open for the conduct of a substantial part of their
commercial banking business, and (ii) with respect to all notices and
determinations in connection with, and payments of principal and interest
on, LIBOR
<PAGE>
Rate Loans any day that is a Business Day described in clause (i) and that
is also a day for trading by and between banks in U.S. Dollar deposits in
the London interbank Eurodollar market.
"Capitalized Lease" shall mean any lease which is or should be
capitalized on the balance sheet of the lessee in accordance with generally
accepted accounting principles and Statement of Financial Accounting
Standards No. 13.
"Capitalized Lease Obligations" shall mean the amount of the liability
reflecting the aggregate discounted amount of future payments under all
Capitalized Leases calculated in accordance with generally accepted
accounting principles and Statement of Financial Accounting Standards No.
13.
"Closing Date" shall mean the date on which all of the conditions set
forth in Section 3.1 have been satisfied.
"Commitment Amount" shall mean each Lender's Commitment Percentage
multiplied by the Maximum Credit Amount.
"Commitment Fee" shall have the meaning set forth in Section 2.7(b).
"Commitment Percentage" shall mean as to each Lender its percentage
interest in the Maximum Credit Amount as set forth on Schedule 1 hereto.
"Compliance Certificate" shall mean a certificate in the form of
Exhibit D hereto and executed by the chief executive officer or chief
financial officer of the Borrower.
"Consolidated" and "Consolidating," and "consolidated" and
"consolidating" when used with reference to any term, mean that term (or
the terms "combined" and "combining", as the case may be, in the case of
partnerships, joint ventures and Affiliates that are not Subsidiaries) as
applied to the accounts of the Borrower (or other specified Person) and all
of its Subsidiaries (or other specified Persons), or such of its
Subsidiaries as may be specified, consolidated (or combined) in accordance
with generally accepted accounting principles and with appropriate
deductions for minority interests in Subsidiaries, as required by generally
accepted accounting principles.
"Consolidated Current Liabilities" shall mean, at any date as of which
the amount thereof shall be determined, all liabilities of the Borrower and
its Subsidiaries which should properly be classified as current in
accordance with generally accepted accounting principles consistently
applied, including, without limitation, all fixed prepayments of, and
sinking fund payments with respect to, Indebtedness and all estimated taxes
of the Borrower and its Subsidiaries required to be made within one year
from the date of determination, including all Indebtedness of the Borrower
hereunder.
<PAGE>
"Consolidated EBIT" shall mean for any period the sum of (a)
Consolidated Net Income and (b) all amounts deducted in computing
Consolidated Net Income in respect of (i) interest expense on Indebtedness
and (ii) taxes based on or measured by income, in each case for the period
under review.
"Consolidated EBITDA" shall mean the sum of (a) Consolidated EBIT,
plus (b) the aggregate amount of consolidated depreciation and amortization
expense plus (c) non-cash extraordinary or non-recurring losses less (d)
extraordinary or non-recurring gains.
"Consolidated Net Income" shall mean the net income (or deficit) from
operations of the Borrower and its Subsidiaries, after taxes, determined in
accordance with generally accepted accounting principles consistently
applied.
"Consolidated Net Worth" shall mean, at any date as of which the
amount thereof shall be determined, the consolidated total assets of the
Borrower and its Subsidiaries, less the consolidated total liabilities of
the Borrower and its Subsidiaries.
"Consolidated Senior Debt" shall mean all Indebtedness of the Borrower
and its Subsidiaries (including, without limitation, Capitalized Lease
Obligations) for borrowed money (excluding Subordinated Indebtedness).
"Credit Termination Date" shall mean May 31, 2002.
"Credit Participants" shall have the meaning set forth in Section 12.3
hereof.
"Default" shall mean an Event of Default or an event or condition
which with the passage of time or giving of notice, or both, would become
such an Event of Default.
"Default Rate" shall mean the interest rate otherwise in effect plus
three percent (3%) effective immediately in the event of an Event of
Default under Section 10.1(a) hereof and within thirty (30) days notice
from the Agent for any other Event of Default.
"Distribution" shall mean as to any Person: (a) the declaration or
payment of any dividend on or in respect of any shares of any class of
capital stock of such Person, other than dividends payable solely in shares
of common stock of such Person, (b) the purchase, redemption, or other
acquisition or retirement of any shares of any class of capital stock of
such Person directly or indirectly, (c) any other distribution on or in
respect of any shares of any class of capital stock of such Person, (d) any
setting apart or allocating any sum for the payment of any dividend or
distribution, or for the purchase, redemption or retirement of any shares
of capital stock of such Person and (e) any payment of, principal of,
interest on, or fees or any other amounts with respect to Subordinated
Indebtedness.
<PAGE>
"Environmental Law" means any judgment, decree, order, law, license,
rule or regulation pertaining to environmental matters, or any federal,
state, county or local statute, regulation, ordinance, order or decree
relating to public health, welfare, the environment, or to the storage,
handling, use or generation of hazardous substances in or at the workplace,
worker health or safety, whether now existing or hereafter enacted.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Event of Default" shall have the meaning set forth in Section 10.1
hereof.
"Facility Fee" shall have the meaning set forth in Section 2.7(a)
hereof.
"Facing Fee" shall have the meaning set forth in Section 2.7(d)
hereof.
"Generally accepted accounting principles" shall mean generally
accepted accounting principles as defined by controlling pronouncements of
the Financial Accounting Standards Board, as from time to time supplemented
and amended.
"Guarantor" and "Guarantors" shall have the meaning set forth in the
preamble hereof.
"Guaranty Agreement" shall mean the Guaranty dated as of even date
herewith from the Guarantors in favor of Agent and the Lenders in form and
substance satisfactory to Agent and the Lenders.
"Guaranty" or "Guarantee" or "Guaranties" shall include any
arrangement whereby a Person is or becomes liable in respect of any
Indebtedness or other obligation of another and any other arrangement
whereby credit is extended to another obligor on the basis of any promise
of a guarantor, whether that promise is expressed in terms of an obligation
to pay the Indebtedness of such obligor, or to purchase or lease assets
under circumstances that would enable such obligor to discharge one or more
of its obligations, or to maintain the capital, the working capital,
solvency or general financial condition of such obligor, whether or not
such arrangement is listed in the balance sheet of the guarantor or
referred to in a footnote thereto.
"Indebtedness" shall mean, as to any Person, all obligations,
contingent and otherwise, which in accordance with generally accepted
accounting principles consistently applied should be classified upon such
Person's balance sheet as liabilities, but in any event including
liabilities secured by any mortgage, pledge, security interest, lien,
charge or other encumbrance existing on property owned or acquired by such
Person whether or not the liability secured thereby shall have been
assumed, letters of credit open for account, obligations under acceptance
facilities, Capitalized Lease Obligations and all obligations on account of
Guaranties, endorsements and any other contingent obligations
<PAGE>
in respect of the Indebtedness of others whether or not reflected on such
balance sheet or in a footnote thereto.
"Interest Period" shall mean with respect to each LIBOR Rate Loan, the
period commencing on the date of such LIBOR Rate Loan and ending one, two,
three, four or six months (if available), as the Borrower may request as
provided in Section 2.4 hereof, provided, that:
(a) any Interest Period (other than an Interest Period determined
pursuant to clause (c) below) that would otherwise end on a day that
is not a Business Day shall be extended to the next succeeding
Business Day unless such Business Day falls in the next calendar
month, in which case such Interest Period shall end on the immediately
preceding Business Day;
(b) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (c) below, end on the last Business
Day of a calendar month;
(c) any Interest Period in connection with an Advance that would
otherwise end after the Credit Termination Date shall end on the
Credit Termination Date; and
(d) notwithstanding clause (c) above, no Interest Period shall
have a duration of less than one month, and if any Interest Period
applicable to any LIBOR Rate Loan would be for a shorter period, such
Interest Period shall not be available hereunder.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986
as amended from time to time.
"Investment" shall mean (a) any stock, evidence of Indebtedness or
other security of another Person, (b) any loan, advance, contribution to
capital, extension of credit (except for current trade and customer
accounts receivable for inventory sold or services rendered in the ordinary
course of business and payable in accordance with customary trade terms) to
another Person, and (c) any purchase of (i) stock or other securities of
another Person or (ii) any business or undertaking of another Person
(whether by purchase of assets or securities), any commitment or option to
make any such purchase if, in the case of an option, the aggregate
consideration paid for such option was in excess of $100, or (d) any other
investment, in all cases whether existing on the date of this Agreement or
thereafter made.
"Issuing Lender" shall mean a Lender issuing to Borrower a letter of
credit pursuant to Section 2.14 hereof.
<PAGE>
"L/C Supportable Obligations" shall have the meaning set forth in
Section 2.14 hereof.
"Lender Agreements" shall mean this Agreement, the LMCS Agreement, the
Notes, the Guaranty Agreement and any other present or future agreement
from time to time entered into between the Borrower or any Subsidiary and
the Agent or the Lenders, each as from time to time amended or
supplemented, and all statements, reports and certificates delivered by the
Borrower to the Agent or the Lenders in connection therewith.
"Lender Obligations" shall mean all present and future obligations and
Indebtedness of the Borrower or any Subsidiary owing to the Agent or the
Lenders under this Agreement or any other Lender Agreement, including,
without limitation, the obligations to pay the Indebtedness from time to
time evidenced by the Notes, and obligations to pay interest, commitment
fees, balance deficiency fees, charges, expenses and indemnification from
time to time owed under any Lender Agreement.
"Lenders" shall mean (i) initially, each Lender listed on the
signature pages hereof, (ii) any other Person who becomes a Successor
Lender hereunder in accordance with the terms of Section 12.2 hereof, and
(iii) their respective successors and their assigns.
"Letter of Credit Limit" shall mean $5,000,000.
"Letter of Credit Outstandings" shall mean, at any time, the sum of,
without duplication, (i) the aggregate Stated Amount of all outstanding
Letters of Credit and (ii) the aggregate amount of all Unpaid Drawings in
respect of all Letters of Credit.
"Letter of Credit Request" shall mean a request by Borrower to an
Issuing Lender substantially in the form of Exhibit H hereto.
"LIBOR Pricing Option" shall mean the option granted to the Borrower
pursuant to Section 2.4 hereof to have interest on all or a portion of the
Loans computed on the basis of the Applicable LIBOR Rate for an applicable
Interest Period.
"LIBOR Rate" shall mean for any Interest Period for any LIBOR Rate
Loan, the quotient of (i) the rate of interest determined by the Agent, at
about 10:00 a.m. (Boston time) on the LIBOR Rate Fixing Day as being the
rate at which deposits in U.S. dollars are offered to it by first-class
banks in the London interbank market for deposit for such Interest Period
in amounts comparable to the aggregate principal amount of LIBOR Rate Loans
to which such Interest Period relates, divided by (ii) the difference
between one (1) minus the Reserve Requirement (expressed as a decimal)
applicable to that Interest Period. The LIBOR Rate shall be adjusted
automatically as of the effective date of any change in the Reserve
Requirement.
<PAGE>
"LIBOR Rate Fixing Day" shall mean, in the case of any LIBOR Rate
Loan, the second Business Day preceding the Business Day on which an
Interest Period begins.
"LIBOR Rate Loan" shall mean any Loan hereunder upon which interest
will accrue on the basis of a formula including as a component thereof the
LIBOR Rate. The expiration date of any LIBOR Rate Loan shall be the last
day of the Interest Period applicable to such LIBOR Rate Loan.
"LIBOR Rate Margin" shall mean a rate per annum determined in
accordance with the Pricing Schedule.
"LMCS Agreement" shall mean an agreement entered into between the
Agent and the Borrower governing the cash management of the Borrower on
terms satisfactory to the Agent and Borrower.
"Loan" shall mean all or a portion of the Advances outstanding
hereunder or made to the Borrower by the Lenders pursuant to Article 2 of
this Agreement, and "Loans" means all of such loans, collectively.
"Material Adverse Effect" shall mean a material adverse effect on the
business, properties, prospects, assets or condition, financial or
otherwise, of the Borrower or any of its Subsidiaries.
"Maximum Credit Amount" shall mean $50,000,000; provided that if the
obligations of the Lenders to make further Advances is terminated upon the
occurrence of a Default, the Maximum Credit Amount as of any date of
determination thereafter shall be deemed to be $0.
"1998 Financial Statements" shall mean the Consolidated Balance Sheet
of the Borrower and its Subsidiaries as of December 31, 1998 and the
related Consolidated Statements of Income, Shareholders' Equity and Cash
Flow for the year then ended and notes to such financial statements.
"Note or Notes" shall mean the Notes issued by the Borrower to
Lender's in accordance with the provisions of Section 2.1(a) hereof.
"Notice of Borrowing" shall have the meaning set forth in Section
2.2(a).
"Pension Plan" shall mean an employee benefit plan or other plan
maintained for the employees of the Borrower or any Subsidiary as described
in Section 4021(a) of ERISA.
"Permitted Acquisition Advance or Advances" shall mean any loan or
advance from any Lender to the Borrower for Permitted Acquisitions.
<PAGE>
"Permitted Acquisitions" shall mean the acquisition of all or
substantially all of the assets, shares or partnership interests of a
Person by the Borrower, provided that (a) any such Person must be in a
substantially similar or related line of business as the Borrower, (b) the
ratio of total consideration paid for such property to the fair market
value of such property must be comparable to recent industry transactions,
(c) such Person must have positive EBITDA for at least the twelve months of
operations prior to the proposed acquisition, (d) immediately subsequent to
the acquisition, the Borrower must be in compliance with all terms of the
Lender Agreements, and (e) after giving effect to the acquisition, the
ratio of Consolidated Senior Debt to EBITDA must not exceed 2.5 to 1.
"Person" shall mean an individual, corporation, partnership, joint
venture, association, estate, joint stock company, trust, organization,
business, or a government or agency or political subdivision thereof.
"Pricing Notice" shall have the meaning set forth in Section 2.4
hereof.
"Pricing Schedule" shall mean the schedule attached hereto as Schedule
2.
"Prime Rate" shall mean the greater of (i) the rate of interest
announced from time to time by the Agent at its head office located at 100
Summer Street, Boston, Massachusetts as its "Prime Rate" and (ii) the
Federal Funds Effective Rate plus 1/2 of 1% per annum (rounded upwards, if
necessary, to the next 1/8 of 1%).
"Prime Rate Loan" shall mean any Advance on the Loan bearing interest
at a fluctuating rate determined by reference to the Applicable Prime Rate.
"Prime Rate Margin" shall mean a rate per annum determined in
accordance with the Pricing Schedule.
"Reportable Event" shall mean an event reportable to the Pension
Benefit Guaranty Corporation under Section 4043 of Title IV of ERISA.
"Required Lenders" shall mean, at any time, any two or more of the
Lenders having made not less than 66.7% of the outstanding principal amount
of the Loans and the unused Commitment Amounts of the Lenders hereunder.
"Reserve Requirement" shall mean the maximum aggregate reserve
requirement (including all basic, supplemental, marginal and other
reserves) which is imposed under Regulation D on the Lenders against
"Euro-currency Liabilities" as defined in said Regulation D.
"Revolving Credit Facility" shall have the meaning set forth in
Section 2.1.
<PAGE>
"Stated Amount" of each Letter of Credit shall mean the maximum
available to be drawn thereunder (regardless of whether any conditions for
drawing could then be met.
"Subordinated Indebtedness" shall mean Indebtedness of the Borrower
which is subordinated to (i) the Indebtedness of the Borrower hereunder,
(ii) the Notes and (iii) to all other Lender Obligations, on terms and
conditions approved in writing by the Agent.
"Subsidiary" shall mean any Person of which the Borrower or other
specified parent shall now or hereafter at the time own, directly or
indirectly through one or more Subsidiaries or otherwise, sufficient voting
stock (or other beneficial interest) to entitle it to elect at least a
majority of the board of directors or trustees or similar managing body.
"UCC" shall mean the Massachusetts Uniform Commercial Code,
Massachusetts General Laws c. 106, as amended from time to time.
"Unpaid Drawings" shall have the meaning set forth in Section 2.14(d).
Section 1.2. Accounting Terms. All accounting terms used and not defined in
this Agreement shall be construed in accordance with generally accepted
accounting principles consistently applied, and all financial data required to
be delivered hereunder shall be prepared in accordance with such principles.
ARTICLE 2. THE REVOLVING CREDITS
Section 2.1. The Revolving Credit.
(a Except as otherwise provided for in the LMCS Agreement, subject to
the terms and conditions of this Agreement and so long as there exists no
Default, at any time prior to the Credit Termination Date, each Lender,
severally and not jointly, shall make such Advances to the Borrower as the
Borrower may from time to time request, by notice to the Agent in
accordance with Section 2.2(a), in an aggregate amount for all outstanding
Advances (i) as to each Lender, not to exceed at any time such Lender's
Commitment Percentage of the Maximum Credit Amount, and (ii) as to all
Lenders, not to exceed the Maximum Credit Amount (the "Revolving Credit
Facility"). The outstanding principal amount of the Advances, together with
all accrued interest and other fees and charges related thereto, shall be
repaid in full on the Credit Termination Date. On the Closing Date the
Borrower shall execute and deliver to each Lender a Note to evidence the
Advances from time to time made by such Lender to the Borrower hereunder.
Upon receipt of an affidavit of an officer of any Lender as to the loss,
theft, destruction or mutilation of a Note and, in the case of any such
loss, theft, destruction or mutilation, upon cancellation of such Note,
Borrower will issue, in lieu thereof, a replacement Note in the same
principal amount thereof and otherwise of like tenor.
(b Subject to the foregoing limitations and the provisions of Section
4.2, the Borrower shall have the right to make prepayments reducing the
outstanding balance of
<PAGE>
Advances and to request further Advances, all in accordance with Section
2.2, without other restrictions hereunder; provided that the Lenders shall
have the absolute right to refuse to make any Advances for so long as there
exists any Default or any other condition which would constitute a Default
upon the making of such an Advance.
Section 2.2. Making of Advances.
(a Except as otherwise provided for in the LMCS Agreement, each
Advance other than a Letter of Credit Request which shall be submitted in
accordance with the provisions of Section 2.14 hereof, shall be made on
notice given by the Borrower to the Agent not later than 12:00 noon (Boston
time) one Business Day prior to the date of the proposed Borrowing (a
"Notice of Borrowing") substantially in the form of Exhibit B hereto;
provided, however, that (i) if the Borrower elects a LIBOR Rate Pricing
Option with respect to any Advance in accordance with Section 2.4 hereof,
such Notice of Borrowing shall be given by the Borrower contemporaneously
with a Pricing Notice in the manner and within the time specified in
Section 2.4, (ii) if such Advance is a Permitted Acquisition Advance, such
Notice of Borrowing shall be given by the Borrower contemporaneously with a
Certificate of Permitted Acquisition substantially in the form of Exhibit C
hereto and (iii) no Notice of Borrowing requesting a Permitted Acquisition
Advance equal to or in excess of $20,000,000 shall be effective (and no
Advance from the Lenders required) without the prior consent of the Agent.
The Agent shall give the Lenders notice of each Notice of Borrowing in
accordance with the Agent's customary practice. Each such Notice of
Borrowing shall be by telephone or telecopy, in each case confirmed
immediately in writing by the Borrower in substantially the form of Exhibit
B hereto, specifying therein (i) the requested date of such Advance, and
(ii) the amount of such Advance (which must be a minimum of $100,000). The
Borrower agrees to indemnify and hold the Lenders harmless for any action,
including the making of any Advances hereunder, or loss or expense, taken
or incurred by the Agent and the Lenders in good faith reliance upon such
telephone request. At the time of the initial request for an Advance made
under this Section 2.2(a), the Borrower shall have provided the Agent with
a Compliance Certificate. The Borrower hereby agrees (i) that the Lenders
shall be entitled to rely upon the Compliance Certificate most recently
delivered to the Agent until it is superseded by a more recent Compliance
Certificate, and (ii) that each request for an Advance, whether by
telephone or in writing or otherwise, shall constitute a confirmation of
the representations and warranties contained in the most recent Compliance
Certificate then in the Agent's possession.
(b Subject to the terms and conditions of this Agreement, each Lender
shall make available on or before 2:00 p.m. on the date of each proposed
Advance, to the Agent at the Agent's address and in immediately available
funds, such Lender's Commitment Percentage of such Advance. After the
Agent's receipt of such funds and upon fulfillment of the applicable
conditions set forth in Article 3, the Agent will credit such funds to the
Borrower's account on the date of the proposed Advance.
(c Unless the Agent shall have received notice from a Lender prior to
the date of any Advance that such Lender will not make available to the
Agent such Lender's Commitment Percentage of such Advance, the Agent may
assume that such Lender has made
<PAGE>
such amount available to the Agent on the date of such Advance in
accordance with and as provided in this Section 2.2 and the Agent may, in
reliance upon such assumption, make available on such date a corresponding
amount to the Borrower. If and to the extent such Lender shall not have so
made its Commitment Percentage of such Advance available to the Agent and
the Agent shall have made available such corresponding amount to the
Borrower, such Lender agrees to pay to the Agent forthwith on demand, and
the Borrower agrees to repay to the Agent within two Business Days after
demand (but only after demand for payment has first been made to such
Lender and such Lender has failed to make such payment), an amount equal to
such corresponding amount together with interest thereon for each day from
the date the Agent shall make such amount available to the Borrower until
the date such amount is paid or repaid to the Agent, at an interest rate
equal to the interest rate applicable at the time to such Advances. If such
Lender shall pay to the Agent such corresponding amount, such amount so
paid shall constitute such Lender's Advance for purposes of this Agreement.
If the Borrower makes a repayment required by the foregoing provisions of
this Section 2.2(c) and thereafter the applicable Lender or Lenders make
the payments to the Agent required by this Section 2.2(c), the Agent shall
promptly refund the amount of the Borrower's payment.
(d The failure of any Lender to make the Advance to be made by it on
any date shall not relieve any other Lender of its obligation, if any,
hereunder to make its Advance on such date, but no Lender shall be
responsible for the failure of any other Lender to make the Advance to be
made by such other Lender.
Section 2.3. Interest on Advances.
(a Subject to the terms of Section 2.4 relating to LIBOR Pricing
Options, the Borrower shall pay interest on the unpaid balance of the
Advances from time to time outstanding at a per annum rate equal to the
Applicable Prime Rate. Interest on the Advances shall be payable monthly in
arrears on the first day of the month commencing March 1, 2000, and
continuing until all of the Indebtedness of the Borrower to the Lenders
under the Notes shall have been paid in full.
<PAGE>
Section 2.4. Election of LIBOR Pricing Options.
(a Subject to all the terms and conditions hereof and so long as there
exists no Default, the Borrower may, by delivering a pricing notice (the
"Pricing Notice") to the Agent received at or before 10:00 a.m. Boston time
on the date two Business Days prior to the commencement of the Interest
Period selected in such Pricing Notice, elect to have all or a portion of
the outstanding Advances, as the Borrower may specify in such Pricing
Notice, accrue and bear daily interest during the Interest Period so
selected at a per annum rate equal to the Applicable LIBOR Rate for such
Interest Period; provided, however, that any such election made with
respect to the Advances shall be in an amount not less than $1,000,000 and
in increments of $1,000,000; and provided further that no such election
will be made if it would result in there being more than four (4) LIBOR
Pricing Options in the aggregate outstanding at any one time. Interest on
Loans bearing interest at the Applicable LIBOR Rate shall be paid for the
applicable Interest Period on the last day thereof and when such Loan is
due (whether at maturity, by reason of acceleration or otherwise).
(b Each Pricing Notice shall be substantially in the form of Exhibit E
attached hereto and shall specify: (i) the selection of a LIBOR Pricing
Option; (ii) the effective date and amount of Advances or a portion thereof
subject to such LIBOR Pricing Option, subject to the limitations set forth
herein; and (iii) the duration of the applicable Interest Period. Each
Pricing Notice shall be irrevocable.
(c The Agent will promptly inform each Lender of a Pricing Notice and
the Interest Period specified by the Borrower therein. Upon determination
by the Agent of the Applicable LIBOR Rate for any Interest Period selected
by the Borrower, the Agent will promptly inform the Borrower and each
Lender of such Applicable LIBOR Rate so determined or, if applicable, the
reason why the Borrower's election will not become effective.
Section 2.5. Additional Payments.
(a During the continuance of any Default, the Borrower shall, on
demand, pay to the Agent for the account of the Lenders interest on the
unpaid principal balance of the Advances and, to the extent permitted by
law, on any overdue installments of interest, at a rate per annum equal to
the lesser of (i) the stated interest rate(s) applicable thereto plus 3%
per annum, and (ii) the maximum rate of interest permitted to be charged
under applicable law.
(b In addition to any amounts payable under Section 2.5(a) above, if
any payment of principal or interest due hereunder is not made within ten
(10) days of its due date, the Borrower will pay to the Agent for the
account of the Lenders, on demand, a late payment charge equal to 5% of the
amount of such payment; provided, however, that the provisions of this
Section 2.5(b) shall not limit the Agent's and the Lenders' rights to
exercise any of their rights or remedies, including those provided in
Section 10.2, if an Event of Default has occurred.
Section 2.6. Computation of Interest, Etc. Interest hereunder and under the
Advances shall be computed on the basis of a 360-day year for the number of days
actually elapsed. Any
<PAGE>
increase or decrease in the interest rate on the Advances resulting from a
change in the Prime Rate shall be effective immediately from the date of such
change. No interest payment or interest rate charged hereunder shall exceed the
maximum rate authorized from time to time by applicable law. The outstanding
balance of the Notes as reflected on the Agent's records from time to time shall
be considered correct and binding on the Borrower and the Lenders (absent
manifest error) unless within thirty (30) days after receipt of any notice by
the Agent or any Lender of such outstanding amount, the Borrower or a Lender
notifies the Agent to the contrary.
Section 2.7. Fees
(a The Borrower shall pay to the Agent, for the accounts of the
Lenders in accordance with their respective Commitment Percentages, a
facility fee (the "Facility Fee") computed at a rate of one quarter percent
(1/4%) per annum on the average daily unused amount of the Maximum Credit
Amount from time to time in effect from the date hereof to and including
the Credit Termination Date. The Commitment Fee shall be payable quarterly
in arrears on the first day of each of the quarter, e.g. July 1, October 1,
January 1 and April 1, commencing April 1, 2000.
(b The Borrower shall pay to the Agent, for the Agent's own account,
such agency fees as are provided in a letter agreement between the Borrower
and the Agent.
(c The Borrower agrees to pay to the Issuing Lender a fee in respect
of each Letter of Credit issued by it (the "Facing Fee") computed for each
day at the rate of one quarter percent (1/4%) per annum on the Stated
Amount of all Letters of Credit outstanding on such day. Accrued Facing
Fees shall be due and payable quarterly in arrears on the first day of each
of the quarterly payment dates, e.g. July 1, October 1, January 1, and
April 1, commencing April 1, 2000, and payable on the date upon which the
Revolving Credit Facility is terminated.
Section 2.8. Set-Off. To the extent not prohibited by applicable law, the
Borrower hereby authorizes the Agent and each Lender, without notice to the
Borrower, if and to the extent payment is not promptly made when due pursuant to
the Notes or pursuant to any provision hereof or of any other Lender Agreement,
to charge against any account of the Borrower with the Agent or such Lender, an
amount equal to the accrued interest and principal and other amounts from time
to time then due and payable to the Agent and the Lenders hereunder and under
all other Lender Agreements.
Section 2.9. Sharing of Payments. If any Lender shall obtain any payment
(whether voluntary, involuntary, through the exercise of any right of set-off,
or otherwise) on account of the Loans made by it in excess of its ratable share
(according to the then outstanding principal amount of the Loans) of payments on
account of the Loans obtained by all the Lenders, such Lender shall purchase
from the other Lenders such participations in the Loans held by such other
Lenders as shall cause such purchasing Lender to share such payment ratably
according to the then outstanding principal amount of the Loans with each of
such other Lenders; provided, however, that if all or any portion of such
payment is thereafter recovered from such purchasing Lender, the purchase shall
be rescinded and the purchase price restored to the extent of such
<PAGE>
recovery, with interest at an interest rate per annum equal to the Applicable
Prime Rate. The Borrower agrees that any Lender so purchasing a participation in
the Loans from another Lender pursuant to this Section 2.9 may, to the fullest
extent permitted by law, exercise all its rights of payment with respect to such
participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.
Section 2.10. Reduction of Commitment by the Borrower. The Borrower at its
option may, at any time and from time to time, irrevocably reduce in part (in
integral multiples of $1,000,000) the unused portion of the Maximum Credit
Amount on not less than five (5) Business Days' prior written notice to the
Agent. No such reduction may be reinstated by the Borrower.
Section 2.11. Increased Costs, Etc.
<PAGE>
(a Anything herein to the contrary notwithstanding, if any changes in
present or future applicable law (which term "applicable law", as used in
this Agreement, includes statutes and rules and regulations thereunder and
interpretations thereof by any competent court or by any governmental or
other regulatory body or official charged with the administration or the
interpretation thereof and requests, directives, instructions and notices
at any time or from time to time heretofore or hereafter made upon or
otherwise issued to any Lender by any central bank or other fiscal,
monetary or other authority, whether or not having the force of law),
including without limitation any change according to a prescribed schedule
of increasing requirements, whether or not known or in effect as of the
date hereof, shall (i) subject such Lender to any tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature with respect to this
Agreement or the payment to such Lender of any amounts due to it hereunder,
or (ii) materially change the basis of taxation of payments to such Lender
of the principal of or the interest on the Advances or any other amounts
payable to such Lender hereunder, or (iii) impose or increase or render
applicable any special or supplemental deposit or reserve or similar
requirements or assessment against assets held by, or deposits in or for
the account of, or any liabilities of, or loans by an office of such Lender
in respect of the transactions contemplated herein, or (iv) impose on such
Lender any other condition or requirement with respect to this Agreement or
any Advance, and the result of any of the foregoing is (A) to increase the
cost to such Lender of making, funding or maintaining all or any part of
the Advances or its commitment hereunder, or (B) to reduce the amount of
principal, interest or other amount payable to such Lender hereunder, or
(C) to require such Lender to make any payment or to forego any interest or
other sum payable hereunder, the amount of which payment or foregone
interest or other sum is calculated by reference to the gross amount of any
sum receivable or deemed received by such Lender from the Borrower
hereunder, then, and in each such case not otherwise provided for
hereunder, the Borrower will upon demand made by such Lender promptly
following such Lender's receipt of notice pertaining to such matters
accompanied by calculations thereof in reasonable detail, pay to such
Lender such additional amounts as will be sufficient to compensate such
Lender for such additional cost, reduction, payment or foregone interest or
other sum; provided that the foregoing provisions of this sentence shall
not apply in the case of any additional cost, reduction, payment or
foregone interest or other sum resulting from any taxes charged upon or by
reference to the overall net income, profits or gains of any Lender. In
determining the additional amounts payable hereunder, the Lenders may use
any reasonable method of averaging, allocating or attributing such
additional costs, reductions, payments, foregone interest or other sums
among their respective customers.
(b Anything herein to the contrary notwithstanding, if, after the date
hereof, any Lender shall have determined that any present or future
applicable law, rule, regulation, guideline, directive or request (whether
or not having force of law), including without limitation any change
according to a prescribed schedule of increasing requirements, whether or
not known or in effect as of the date hereof, regarding capital
requirements for banks or bank holding companies generally, or any change
therein or in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by such Lender with
any of the foregoing, either imposes a requirement upon such Lender to
allocate additional capital resources or increases such Lender's
requirement to allocate capital resources or such Lender's commitment to
make, or to such
<PAGE>
Lender's maintenance of, the Advances hereunder, which has or would have
the effect of reducing the return on such Lender's capital to a level below
that which such Lender could have achieved (taking into consideration such
Lender's then existing policies with respect to capital adequacy and
assuming full utilization of such Lender's capital) but for such
applicability, change, interpretation, administration or compliance, by any
amount deemed by such Lender to be material, such Lender shall promptly
after its determination of such occurrence give notice thereof to the
Borrower. In such event, commencing on the date of such notice (but not
earlier than the effective date of any such applicability, change,
interpretation, administration or compliance), the fees payable hereunder
shall increase by an amount which will, in such Lender's reasonable
determination, evidenced by calculations in reasonable detail furnished to
the Borrower, compensate such Lender for such reduction, such Lender's
determination of such amount to be conclusive and binding upon the
Borrower, absent manifest error. In determining such amount, such Lender
may use any reasonable methods of averaging, allocating or attributing such
reduction among its customers.
Section 2.12. Changed Circumstances. In the event that:
(a on any date on which the Applicable LIBOR Rate would otherwise be
set the Agent shall have determined in good faith (which determination
shall be final and conclusive) that adequate and fair means do not exist
for ascertaining the LIBOR Rate, as applicable; or
(b at any time the Agent shall have determined in good faith (which
determination shall be final and conclusive) that
(i the implementation of LIBOR Pricing Option has been made
impracticable or unlawful by (A) the occurrence of a contingency that
materially and adversely affects the London interbank market, or (B)
compliance by any Lender in good faith with any applicable law or
governmental regulation, guideline or order or interpretation or
change thereof by any governmental authority charged with the
interpretation or administration thereof or with any request or
directive of any such governmental authority (whether or not having
the force of law); or
(ii the LIBOR Rate shall no longer represent the effective cost
to the Lenders for U.S. dollar deposits in the London interbank
market, as applicable for deposits in which they regularly
participate;
then, and in such event, the Agent shall forthwith so notify the Borrower
thereof. Until the Agent notifies the Borrower that the circumstances
giving rise to such notice no longer apply, the obligation of the Lenders
and the Agent to allow election by the Borrower of a LIBOR Pricing Option
shall be suspended. If at the time the Agent so notifies the Borrower, the
Borrower has previously given the Agent a Pricing Notice with respect to a
LIBOR Pricing Option, but the LIBOR Pricing Option requested therein has
not yet gone into effect, such Pricing Notice shall automatically be deemed
to be withdrawn and be of no force or effect. Upon such date as shall be
specified in such notice (which shall not be earlier than the date such
notice is given), the
<PAGE>
LIBOR Pricing Option with respect to all LIBOR Rate Loans shall be
terminated and the Borrower shall pay all interest due on such LIBOR Rate
Loans and any amounts required to be paid pursuant to Section 4.6.
Section 2.13. Use of Proceeds. The proceeds of all Advances shall be used
by the Borrower for corporate and general working capital purposes, repurchases
or redemptions by Borrower of Borrower's capital stock in an aggregate amount
not to exceed $5,000,000 and for Permitted Acquisitions. The Borrower will not,
directly or indirectly, use any part of such proceeds for the purpose of
purchasing or carrying any margin stock within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System or to extend credit to any
Person for the purpose of purchasing or carrying any such margin stock.
Section 2.14. Letters of Credit.
(a Letters of Credit.
(i Subject to and upon the terms and conditions herein set forth,
the Borrower may request that any Issuing Lender issue, at any time
and from time to time on and after the Closing Date and prior to the
Credit Termination Date, for the account of the Borrower an
irrevocable standby letter of credit, in a form customarily used by
such Issuing Lender or in such other form as has been approved by such
Issuing Lender, such approval not to be unreasonably withheld or
delayed (each such standby letter of credit, a "Letter of Credit") in
support of standby obligations of the Borrower incurred in the
ordinary course of business and acceptable to the Agent (the "L/C
Supportable Obligations").
(ii Subject to the terms and conditions contained herein, the
Agent hereby agrees that it will (and at the Borrower's request each
other Issuing Lender may, at its option, agree that it will), at any
time and from time to time on or after the Closing Date and prior to
the Credit Termination Date, following its receipt of the respective
Letter of Credit Request, issue for the account of the Borrower one or
more Letters of Credit in support of such L/C Supportable Obligations
of the Borrower or any of its Subsidiaries as is permitted to remain
outstanding without giving rise to a Default or Event of Default
hereunder, provided that the respective Issuing Lender shall be under
no obligation to issue any Letter of Credit if at the time of such
issuance:
(A any order, judgment or decree of any governmental
authority or arbitrator shall purport by its terms to enjoin or
restrain such Issuing Lender from issuing such Letter of Credit
or any requirement of law applicable to such Issuing Lender or
any request or directive (whether or not having the force of law)
from any governmental authority with jurisdiction over such
Issuing Lender shall prohibit, or request that such Issuing
Lender refrain from, the issuance of letters of credit generally
or such Letter of Credit in particular or shall impose upon such
Issuing Lender with respect to such Letter of Credit any
restriction or reserve or capital requirement (for which such
Issuing Lender is not otherwise
<PAGE>
compensated) not in effect on the date hereof, or any
unreimbursed loss, cost or expense which was not applicable, in
effect or known to such Issuing Lender as of the date hereof and
which such Issuing Lender in good faith deems material to it; or
(B such Issuing Lender shall have received notice from any
Lender prior to the issuance of such Letter of Credit of the type
described in the second sentence of Section 2.14(b)(ii), i.e.
that another Lender has issued a Letter of Credit based on the
same Letter of Credit Request.
(iii Notwithstanding the foregoing, (A) no Letter of Credit shall
be issued the Stated Amount of which, when added to the Letter of
Credit Outstandings (exclusive of Unpaid Drawings which are repaid on
the date of, and prior to the issuance of, the respective Letter of
Credit) and the aggregate principal amount of all Advances made by the
Lenders and then outstanding, would exceed the Maximum Credit Amount
at such time, (B) each Letter of Credit shall be denominated in
Dollars, (C) each Letter of Credit shall by its terms terminate on or
before the earlier of (x) the date which occurs 12 months after the
date of the issuance thereof (although any such Letter of Credit may
be automatically extendable for successive periods of up to 12 months,
but not beyond the tenth Business Day prior to the Credit Termination
Date, on terms acceptable to the Issuing Lender thereof) and (y) the
tenth Business Day prior to the Credit Termination Date, (D) the
Stated Amount of each Letter of Credit upon issuance shall be not less
than $100,000 or such lesser amount as is acceptable to the respective
Issuing Lender and (E) no Letter of Credit shall be issued the Stated
Amount of which, when added to the Letter of Credit Outstandings
(exclusive of Unpaid Drawings which are repaid on the date of, and
prior to the issuance of, the respective Letter of Credit) would
exceed the Letter of Credit Limit.
(b Letter of Credit Requests.
(i Whenever the Borrower desires that a Letter of Credit be
issued for its account, the Borrower shall give the Agent and the
respective Issuing Lender at least three Business Days' (or such
shorter period as is acceptable to the respective Issuing Lender)
written notice thereof. Each notice shall be in the form of Exhibit I
(each a "Letter of Credit Request").
(ii The making of each Letter of Credit Request shall be deemed
to be a representation and warranty by the Borrower that such Letter
of Credit may be issued in accordance with, and will not violate the
requirements of, Section 2.14(a)(iii). Upon the issuance of any Letter
of Credit, such Issuing Lender shall promptly notify each Lender of
such issuance and such notice shall be accompanied by a copy of the
issued Letter of Credit.
<PAGE>
(c Letter of Credit Participations.
(i Immediately upon the issuance by any Issuing Lender of any
Letter of Credit, such Issuing Lender shall be deemed to have sold and
transferred to each Lender, other than such Issuing Lender (each such
Lender, in its capacity under this Section 2.14(c), a "Participant"),
and each such Participant shall be deemed irrevocably and
unconditionally to have purchased and received from such Issuing
Lender, without recourse or warranty, an undivided interest and
participation, to the extent of such Participant's Commitment
Percentage, in such Letter of Credit, each drawing made thereunder and
the obligations of the Borrower under this Agreement with respect
thereto (excluding the Facing Fee), and any security therefor or
guaranty pertaining thereto. Upon any change in the Commitment
Percentages of the Lenders pursuant hereto, it is hereby agreed that,
with respect to all outstanding Letters of Credit and Unpaid Drawings,
there shall be an automatic adjustment to the participations pursuant
to this Section 2.14(c) to reflect the new Commitment Percentages of
the assignor and assignee Lender or of all Lenders, as the case may
be.
(ii In determining whether to pay under any Letter of Credit, the
respective Issuing Lender shall have no obligation relative to the
other Lenders other than to confirm that any documents required to be
delivered under such Letter of Credit appear to have been delivered
and that they appear to comply on their face with the requirements of
such Letter of Credit. Any action taken or omitted to be taken by any
Issuing Lender under or in connection with any Letter of Credit, if
taken or omitted in the absence of gross negligence or willful
misconduct, shall not create for such Issuing Lender any resulting
liability to the Borrower or any Lender.
(iii In the event that any Issuing Lender makes any payment under
any Letter of Credit and the Borrower shall not have reimbursed such
amount in full to such Issuing Lender pursuant to Section 2.14(d)(i),
such Issuing Lender shall promptly notify the Agent, which shall
promptly notify each Participant, of such failure, and each
Participant shall promptly and unconditionally pay to such Issuing
Lender the amount of such Participant's Commitment Percentage of such
unreimbursed payment in Dollars and same day funds. If the Agent so
notifies any Participant prior to 11:00 A.M. (Boston time) on any
Business Day, such Participant shall make available such funds to such
Issuing Lender on such Business Day. If and to the extent such
Participant shall not have so made its Commitment Percentage of the
amount of such payment available to such Issuing Lender, such
Participant agrees to pay to such Issuing Lender, forthwith on demand
such amount, together with interest thereon, for each day from such
date until the date such amount is paid to such Issuing Lender at the
overnight federal funds rate. The failure of any Participant to make
available to such Issuing Lender its Commitment Percentage of any
payment under any Letter of Credit shall not relieve any other
Participant of its obligation hereunder to make available to such
Issuing Lender its Commitment Percentage of any payment under any
Letter of Credit on the date required, as specified above, but no
Participant shall be responsible for the failure of any other
<PAGE>
Participant to make available to such Issuing Lender such other
Participant's Commitment Percentage of any such payment.
(iv Whenever any Issuing Lender receives a payment of a
reimbursement obligation as to which it has received any payments from
the Participants pursuant to clause (c) above, such Issuing Lender
shall forward such payment to the Agent, which in turn shall
distribute to each Participant which has paid its Commitment
Percentage thereof, in United States dollars and in same day funds, an
amount equal to such Participant's share (based upon the proportionate
aggregate amount originally funded by such Participant to the
aggregate amount funded by all Participants) of the principal amount
of such reimbursement obligation and interest thereon accruing after
the purchase of the respective participations.
(v Upon the request of any Participant, each Issuing Lender shall
furnish to such Participant copies of any Letter of Credit issued by
it and such other documentation as may reasonably be requested by such
Participant.
(vi The obligations of the Participants to make payments to each
Issuing Lender with respect to Letters of Credit issued by it shall be
irrevocable and, except as provided in Section 2.14(c)(ii), not
subject to any qualification or exception whatsoever and shall be made
in accordance with the terms and conditions of this Agreement under
all circumstances, including, without limitation, any of the following
circumstances:
(A any lack of validity or enforceability of this Agreement
or any of the other Lender Agreement;
(B the existence of any claim, setoff, defense or other
right which the Borrower or any of its Subsidiaries may have at
any time against a beneficiary named in a Letter of Credit, any
transferee of any Letter of Credit (or any Person for whom any
such transferee may be acting), the Agent, any Issuing Lender,
any Participant, or any other Person, whether in connection with
this Agreement, any Letter of Credit, the transactions
contemplated herein or any unrelated transactions (including any
underlying transaction between the Borrower and the beneficiary
named in any such Letter of Credit);
(C any draft, certificate or any other document presented
under any Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect;
(D the surrender or impairment of any security for the
performance or observance of any of the terms of any of the
Lender Agreements; or
(E the occurrence of any Default or Event of Default.
<PAGE>
(d Agreement to Repay Letter of Credit Drawings.
(i The Borrower hereby agrees to reimburse the respective Issuing
Lender, by making payment to the Agent in immediately available funds,
for any drawing (each, a "Drawing") made by it under any Letter of
Credit (each such Drawing until reimbursed, an "Unpaid Drawing"), no
later than four Business Days after the date of such Drawing, with
interest on the amount of such Drawing, to the extent not reimbursed
prior to 12:00 Noon (Boston time) on the date of such Drawing, from
and including the date of such Drawing to but excluding the date such
Issuing Lender was reimbursed by the Borrower therefor at a rate per
annum which shall be the Applicable Prime Rate; provided, however, to
the extent such amounts are not reimbursed prior to 12:00 Noon (Boston
time) on the seventh Business Day following such Drawing, interest
shall thereafter accrue on the amount (and until reimbursed by the
Borrower) at a rate per annum which shall be the Prime Rate in effect
from time to time plus 4%, in each such case, with interest to be
payable on demand. The respective Issuing Lender shall give the
Borrower prompt written notice of each Drawing under any Letter of
Credit, provided that the failure to give any such notice shall in no
way affect, impair or diminish the Borrower's obligations hereunder.
(ii The obligations of the Borrower under this Section 2.14(d) to
reimburse the respective Issuing Lender with respect to Drawings
(including interest thereon) shall be absolute and unconditional under
any and all circumstances and irrespective of any setoff, counterclaim
or defense to payment which the Borrower may have or have had against
any Lender (including in its capacity as an Issuing Lender or as a
Participant), or any nonapplication or misapplication by the
beneficiary of the proceeds of such Drawing, the respective Issuing
Lender's only obligation to the Borrower being to confirm that any
documents required to be delivered under such Letter of Credit appear
to have been delivered and that they appear to comply on their face
with the requirements of such Letter of Credit. Any action taken or
omitted to be taken by any Issuing Lender under or in connection with
any Letter of Credit if taken or omitted in the absence of gross
negligence or willful misconduct, shall not create for such Issuing
Lender any resulting liability to the Borrower.
ARTICLE 3. CONDITIONS TO LOANS AND ADVANCES
Section 3.1. Conditions to First Advance. The Lenders' obligations to make
the first Advance shall be subject to compliance by the Borrower with its
agreements contained in this Agreement, and to the condition precedent that the
Lenders shall have received each of the following, in form and substance
satisfactory to the Agent, Lenders and their counsel or in the form attached
hereto as an Exhibit, as the case may be:
(a The Lender Agreements, including but not limited to the Guaranty
Agreement and the Notes, duly executed by the Borrower.
<PAGE>
(b Copies of the resolutions of the Board of Directors of the Borrower
authorizing the execution, delivery and performance of this Agreement, the
Notes and the other Lender Agreements to which the Borrower is a party,
certified by the Secretary or an Assistant Secretary (or Clerk or Assistant
Clerk) of the Borrower (which certificate shall state that such resolutions
are in full force and effect).
(c A certificate of the Secretary or an Assistant Secretary (or Clerk
or Assistant Clerk) of the Borrower certifying the name and signatures of
the officers of the Borrower authorized to sign this Agreement, the Notes,
the other Lender Agreements to which the Borrower is a party and the other
documents to be delivered by the Borrower hereunder.
(d Certificates of legal existence and corporate good standing for the
Borrower of recent date issued by the appropriate governmental authorities.
(e Certificate of tax good standing for the Borrower of recent date
issued by the appropriate governmental authorities.
(f Certified copies of the Certificate of Incorporation of Borrower.
(g Copies of By-laws of the Borrower certified by the Secretary or
Assistant Secretary (or Clerk or Assistant Clerk) to be a true and correct
copy thereof.
(h The opinions of counsel to the Borrower, dated the date of
execution of this Agreement, in substantially the form of Exhibit F hereto.
(i A certificate of a duly authorized officer of the Borrower, dated
the date of the first Advance, to the effect that (i) all conditions
precedent on the part of the Borrower to the execution and delivery hereof
and the making of the first Advance has been satisfied, (ii) the
representations and warranties of the Borrower herewith and in all other
Lender Agreements are true and correct as of the date hereof, (iii) no
material litigation affecting the Borrower or its Subsidiaries exists, (iv)
the absence of any material adverse change in the business, operations,
assets, financial condition or prospects of the Borrower and its
Subsidiaries, as specified in Section 5.12 thereto, (v) the Borrower has
received all necessary governmental and third party approvals and is in
compliance with all applicable laws, and (vi) upon execution and delivery
of this Agreement and all other Lender Agreements no Default will exist
hereunder and thereunder.
(j A Compliance Certificate dated the date of the first Advance if
requested by Agent.
(k) A Certificate of the President or Chief Executive Officer of
Borrower to the effect that all necessary governmental and third-party
approvals have been obtained, and that Borrower is, and will be after
giving effect to the transactions contemplated by this Agreement, in
compliance with all applicable laws.
<PAGE>
(l) A Certificate of the Chief Financial Officer of Borrower, in form
satisfactory to Agent, dated the date of the first Advance, regarding (i)
payment of all taxes by Borrower, (ii) filing of all required tax returns,
and (iii) solvency of Borrower.
(m) If requested by the Agent, certificates of insurance issued to the
Agent from an independent insurance broker dated the Closing Date, in form
and substance satisfactory to the Agent, certifying as to the insurance on
the assets of the Borrower and its Subsidiaries as required by the Agent
and naming the Agent as loss payee.
(n) Copies of the resolutions of the Board of Directors of each of the
Guarantors authorizing the execution, delivery and performance of the
Lender Agreements to which such Guarantor is a party, certified by the
Secretary or an Assistant Secretary (or Clerk or Assistant Clerk) of the
Guarantor (which certificate shall state that such resolutions are in full
force and effect).
(o) A certificate of the Secretary or an Assistant Secretary (or Clerk
or Assistant Clerk) of each of the Guarantors certifying the name and
signatures of the officers of such Guarantor authorized to sign the Lender
Agreements to which such Guarantor is a party and the other documents to be
delivered by such Guarantor hereunder.
(p) Certificates of legal existence and corporate good standing for
each of the Guarantors of recent date issued by the appropriate
governmental authorities.
(q) If requested by the Agent, certificates of tax good standing for
each of the Guarantors of recent date issued by the appropriate
governmental authorities.
(r) Certified copies of the Certificates of Incorporation of each of
the Guarantors.
(s) Copies of By-laws of each of the Guarantors certified by the
Secretary or Assistant Secretary (or Clerk or Assistant Clerk) to be a true
and correct copy thereof.
(t) The opinions of counsel to the each of the Guarantors, dated the
date of execution of this Agreement, in substantially the form of Exhibit G
hereto.
(u) A certificate of a duly authorized officer of each of the
Guarantors, dated the date of the first Advance, to the effect that (i) the
representations and warranties of the Borrower as they relate to such
Guarantor herewith and in all other Lender Agreements are true and correct
as of the date hereof, (ii) no material litigation affecting such Guarantor
or its Subsidiaries exists, (iii) the absence of any material adverse
change in the business, operations, assets, financial condition or
prospects of such Guarantor and its Subsidiaries, as specified in Section
5.12 thereto, (iv) such Guarantor has received all necessary governmental
and third party approvals and is in compliance with all applicable laws,
and (v) upon execution and delivery of this Agreement and all other Lender
Agreements no Default will exist hereunder and thereunder.
<PAGE>
(v) A Certificate of the Chief Financial Officer of each of the
Guarantors, in form satisfactory to Agent, dated the date of the first
Advance, regarding (i) payment of all taxes by such Guarantor, (ii) filing
of all required tax returns by such Guarantor, and (iii) solvency of
Guarantor.
(w) Evidence of the completion of the Corporate Restructuring.
(x) Evidence of restructuring and/or amendment of indebtedness of
Borrower and Guarantors to IBM Credit Corp. and Deutsche Financial Services
and their affiliates satisfactory to Agent, including, without limitation,
evidence of the filing or delivery to Agent of all necessary Uniform
Commercial Code amendments or termination statements.
(y) Such other documents, certificates and opinions as the Agent or
the Lenders may reasonably request.
Section 3.2. Conditions to All Advances. The Lenders' obligations to make
any Advances pursuant to this Agreement shall be subject to compliance by the
Borrower with its agreements contained in this Agreement and each other Lender
Agreement, and to the satisfaction, at or before the making of each Advance, of
all of the following conditions precedent:
(a) The representations and warranties herein and those made by or on
behalf of the Borrower in any other Lender Agreement shall be correct as of
the date on which any Advance is made, with the same effect as if made at
and as of such time (except as to transactions permitted hereunder and
described in a Compliance Certificate previously delivered to the Agent and
except that the references in Article 5 to the 1998 Financial Statements
shall be deemed to refer to the most recent annual audited consolidated
financial statements of the Borrower and its Subsidiaries furnished to the
Agent.)
(b) On the date of any Advances hereunder, there shall exist no
Default.
(c) The making of the requested Advances shall not be prohibited by
any law or governmental order or regulation applicable to the Lenders or to
the Borrower, and all necessary consents, approvals and authorizations of
any Person for any such Advances shall have been obtained.
ARTICLE 4. PAYMENT AND REPAYMENT
Section 4.1. Mandatory Prepayment. If at any time the aggregate outstanding
principal balance of all Advances made hereunder exceeds the Maximum Credit
Amount, the Borrower shall immediately repay to the Agent for the ratable
accounts of the Lenders an amount equal to such excess.
<PAGE>
Section 4.2. Voluntary Prepayments.
(a) Except as otherwise provided for in the LMCS Agreement, the
Borrower may make prepayments to the Agent for the ratable accounts of the
Lenders of any outstanding principal amount of the Advances equal to
$500,000 or an integral multiple thereof which are Prime Rate Loans in
accordance with Section 4.3 at any time prior to 12:00 noon (Boston time)
on any Business Day without premium or penalty.
(b) The Borrower may make prepayments to the Agent for the ratable
accounts of the Lenders of any Advances equal to $500,000 or an integral
multiple thereof which are LIBOR Rate Loans in accordance with Section 4.3
at any time prior to 12:00 noon (Boston time) on any Business Day subject,
however, to the premiums and penalties set forth in Section 4.6.
Section 4.3. Payment and Interest Cutoff. Notice of each prepayment
pursuant to Section 4.2 shall be given to the Agent (a) in the case of
prepayment of Prime Rate Loans, not later than 12:00 noon (Boston time) on the
Business Day immediately prior to the date of payment, and (b) in the case of
prepayment of LIBOR Rate Loans on any day other than the last day of the
Interest Period applicable thereto, not later than 12:00 noon (Boston time) two
(2) Business Days prior to the proposed date of payment, and, in each case,
shall specify the total principal amount of the Advances to be paid on such
date. Notice of prepayment having been given in compliance with this Section
4.3, the amount specified to be prepaid shall become due and payable on the date
specified for prepayment and from and after said date (unless the Borrower shall
default in the payment thereof) interest thereon shall cease to accrue. Unpaid
interest on the principal amount of any Advances so prepaid accrued to the date
of prepayment shall be due on the date of prepayment.
Section 4.4. Payment or Other Actions on Non-Business Days. Whenever any
payment to be made hereunder shall be stated to be due on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation of
payment of interest or fees, as the case may be. In the case of any other action
the last day for performance of which shall be a day other than a Business Day,
the date for performance shall be extended to the next succeeding Business Day.
Section 4.5. Method and Timing of Payments.
(a) All payments required to be made pursuant to the provisions of
this Agreement and any other Lender Agreement, and all prepayments pursuant
to Section 4.1, may be charged by the Agent against the Borrower's accounts
with the Agent. The Borrower hereby authorizes the Agent and the Lenders,
without notice to the Borrower, to charge against any account of the
Borrower with the Agent or such Lender an amount equal to the accrued
interest, principal and other amounts from time to time due and payable to
the Agent and the Lenders hereunder and under all other Lender Agreements.
<PAGE>
(b) The Borrower shall make each payment to be made by it hereunder
not later than 12:00 noon (Boston time) on the day when due in lawful money
of the United States to the Agent at its address set forth in Section 14.1
in immediately available funds. The Agent will, after its receipt thereof,
distribute like funds relating to the payment of principal, interest or any
other amounts payable hereunder ratably to the Lenders in accordance with
their respective Commitment Percentages. Any payment made by the Borrower
to the Agent under this Agreement or under the Notes in the manner provided
in this Agreement shall be deemed to be a payment to each of the respective
Lenders, unless the provisions of this Agreement expressly provide that any
such payment shall be solely for the account of the Agent or any specific
Lender.
Section 4.6. Payments Not at End of Interest Period. If the Borrower for
any reason makes any payment of principal with respect to any LIBOR Rate Loan on
any day other than the last day of the Interest Period applicable to such LIBOR
Rate Loan, including without limitation by reason of acceleration, or fails to
borrow a LIBOR Rate Loan after electing a LIBOR Pricing Option with respect
thereto pursuant to Section 2.4, the Borrower shall pay to the Agent, for the
ratable account of the Lenders, any amounts required to compensate the Lenders
for any additional losses, costs or expenses which they may reasonably incur as
a result of such payment or failure to borrow, including without limitation, any
loss, including lost profits, costs or expenses incurred by reason of the
liquidation, reutilization or reemployment of deposits or other funds acquired
by the Lenders to fund or maintain such Advances. Such compensation may include,
without limitation, an amount equal to (a) the amount of interest which would
have accrued on the amount so paid or not borrowed, for the period from the date
of such payment or failure to borrow, to the last day of the then current
Interest Period for such Advance (or, in the case of a failure to borrow, to the
last day of the Interest Period for the Advance which would have commenced on
the date of such failure to borrow), at the applicable rate of interest for such
Advance provided for herein minus (b) the amount of interest (as reasonably
determined by the Agent), which would accrue and become payable to the Lenders
during such period on the principal repaid or not borrowed if the Lenders,
following such repayment or failure to borrow, were to reinvest such principal
in U.S. Treasury securities selected by the Agent in an amount equal (as nearly
as may be) to the principal so repaid or not borrowed and having a term equal
(as near as may be) to such period. The Borrower shall pay such amount upon
presentation by the Agent of a statement setting forth the amount and the
Agent's calculation thereof pursuant hereto, which statement shall be deemed
true and correct absent manifest error.
Section 4.7. Currency. All payments and prepayments provided for under this
Agreement shall be made in lawful currency of the United States of America in
immediately available funds.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and the Lenders to enter into this Agreement
and to induce the Lenders to make the Advances as contemplated hereby, the
Borrower hereby makes the following representations and warranties:
<PAGE>
Section 5.1. Corporate Existence, Charter Documents, Etc. The Borrower and
each Subsidiary is a corporation or limited liability company validly organized,
legally existing and in good standing under the laws of the jurisdiction in
which it is organized and has corporate or limited liability company power, as
applicable, to own its properties and conduct its business as now conducted and
as proposed to be conducted by it. Certified copies of the charter documents,
By-Laws and limited liability company agreements, as applicable, of the Borrower
and each Subsidiary have been delivered to the Lenders and are true, accurate
and complete as of the date hereof.
Section 5.2. Principal Place of Business; Location of Records. The
Borrower's and each Subsidiary's principal place of business is located at Route
101A (730 Milford Road), Merrimack, NH 03054, and the Borrower and each
Subsidiary has had no other principal place of business during the last six
months except as listed on Schedule 5.2 hereto. All of the books and records or
true and complete copies thereof relating to the accounts and contracts of the
Borrower and each Subsidiary are and will be kept at such location except as
listed on Schedule 5.2 hereto.
Section 5.3. Qualification. The Borrower and each Subsidiary is duly
qualified, licensed and authorized to do business and is in good standing as a
foreign corporation in each jurisdiction where its ownership or leasing of
properties or the conduct of its business requires it to be qualified.
Section 5.4. Subsidiaries. The Borrower has no Subsidiaries except for
those listed in Schedule 5.4. All of the issued and outstanding capital stock of
each Subsidiary listed on Schedule 5.4 is owned of record and beneficially by
the Borrower or by one of the Subsidiaries.
Section 5.5. Corporate Power. The execution, delivery and performance of
this Agreement, the Notes and all other Lender Agreements and other documents
delivered or to be delivered by the Borrower or any Subsidiary to the Agent or
the Lenders, and the incurrence of Indebtedness to the Lenders hereunder or
thereunder, now or hereafter owing:
(a) are within the corporate or limited liability company powers, as
applicable, of the Borrower and each Subsidiary, as the case may be, having
been duly authorized by its Board of Directors or other similar governing
body, and, if required by law, by its charter documents or by its By-Laws,
by its stockholders;
(b) do not require any approval or consent of, or filing with, any
governmental agency or other Person (or such approvals and consents have
been obtained and delivered to the Lenders) and are not in contravention of
law or the terms of the charter documents or By-Laws of the Borrower and
each Subsidiary or any amendment thereof;
<PAGE>
(c) do not and will not
(i) result in a breach of or constitute a default under any
indenture or loan or credit agreement or any other agreement, lease or
instrument to which the Borrower or any Subsidiary is a party or by
which the Borrower, any Subsidiary or any of their respective
properties are bound or affected,
(ii) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other
charge or encumbrance of any nature on any property now owned or
hereafter acquired by the Borrower or any Subsidiary, except as
provided in the Lender Agreements, or
(iii) result in a violation of or default under any law, rule,
regulation, order, writ, judgment, injunction, decree, determination
or award having applicability to the Borrower or any Subsidiary, or to
any of their respective properties.
Section 5.6. Valid and Binding Obligations. This Agreement, the Notes and
all the other Lender Agreements executed in connection herewith and therewith
constitute, or will constitute when delivered, the valid and binding obligations
of the Borrower and its Subsidiaries, as the case may be, enforceable in
accordance with their respective terms, except as the enforceability thereof may
be subject to bankruptcy, insolvency, moratorium and other laws affecting the
rights and remedies of creditors and secured parties and to the exercise of
judicial discretion in accordance with general equitable principles.
Section 5.7. Other Agreements. Except as set forth in Schedule 5.7 hereto,
neither the Borrower nor any Subsidiary is a party to any indenture, loan or
credit agreement, or any lease or other agreement or instrument, or subject to
any charter or corporate restriction, which is likely to have a Material Adverse
Effect, or which restricts the ability of the Borrower or any Subsidiary to
carry out any of the provisions of this Agreement, the Notes or any of the
Lender Agreements executed in connection herewith and therewith.
Section 5.8. Payment of Taxes. The Borrower and its Subsidiaries have filed
all tax returns which are required to be filed by them and have paid, or made
adequate provision for the payment of, all taxes which have or may become due
pursuant to said returns or to assessments received. Except as set forth on
Schedule 5.8 hereto, all federal tax returns of the Borrower and its
Subsidiaries through their fiscal year ended in 1998 have been audited by the
Internal Revenue Service or are not subject to such audit by virtue of the
expiration of the applicable statute of limitation, and the results of such
audits are fully reflected in the balance sheet contained in the 1998 Financial
Statements. The Borrower knows of no material additional assessments since such
date for which adequate reserves appearing in the balance sheet contained in the
1998 Financial Statements have not been established. The Borrower and its
Subsidiaries have made adequate provision for all current taxes, and to the best
of the Borrower's knowledge there will not be any additional assessments for any
fiscal periods prior to and including that which ended on the date of said
balance sheet in excess of the amounts reserved therefor.
<PAGE>
Section 5.9. Financial Statements. All balance sheets, statements and other
financial information furnished to the Lenders in connection with this Agreement
and the transactions contemplated hereby (each of which is listed on Schedule
5.9), including, without limitation, the 1998 Financial Statements, have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved (except for normal year-end
adjustments and for the absence of footnotes with interim statements) and
present fairly the consolidated financial condition of the Borrower and its
Subsidiaries and all such information so furnished was true, correct and
complete as of the date thereof.
Section 5.10. Other Materials Furnished. No written information, exhibits,
memoranda or reports furnished to the Lenders by or on behalf of the Borrower or
any Subsidiary in connection with the negotiation of this Agreement contains any
material misstatement of fact or omits to state a material fact necessary to
make the statements contained therein not misleading.
Section 5.11. Stock. There are presently issued by the Borrower and its
Subsidiaries and outstanding the shares of capital stock indicated on Schedule
5.11. The Borrower and its Subsidiaries have received the consideration for
which such stock was authorized to be issued and have otherwise complied with
all legal requirements relating to the authorization and issuance of shares of
stock and all such shares are validly issued, fully paid and non-assessable. The
Borrower and its Subsidiaries have no other capital stock or other equity
interest of any class outstanding.
Section 5.12. Changes in Condition. Since the date of the balance sheet
contained in the 1998 Financial Statements, there has been no material adverse
change in the business or assets or in the condition, financial or otherwise, of
the Borrower or any Subsidiary, and neither the Borrower nor any Subsidiary has
entered into any transaction outside of the ordinary course of business which is
material to the Borrower or any Subsidiary. Neither the Borrower nor any
Subsidiary has any contingent liabilities of any material amount which are not
referred to in the 1998 Financial Statements.
Section 5.13. Assets, Licenses, Patents, Trademarks, Etc.
(a) The Borrower and its Subsidiaries have good and marketable
title to, or valid leasehold interests in, all of their assets, real
and personal, including the assets carried on their books and
reflected in the 1998 Financial Statements, subject to no liens,
charges or encumbrances, except for (i) liens, charges and
encumbrances described in Schedule 5.16 and permitted by Section 9.2
hereof, and (ii) assets sold, abandoned or otherwise disposed of in
the ordinary course of business.
(b) The Borrower and its Subsidiaries own all material licenses,
patents, patent applications, copyrights, service marks, trademarks,
trademark applications, and trade names necessary to continue to
conduct their business as heretofore conducted by them, now conducted
by them and proposed to be conducted by them, each of which is listed,
together with Patent and Trademark Office application or registration
numbers, where applicable, on Schedule 5.13 hereto. The Borrower and
its Subsidiaries conduct their respective businesses without
<PAGE>
infringement or claim of infringement of any license, patent,
copyright, service mark, trademark, trade name, trade secret or other
intellectual property right of others, except where such claim or
infringement would have no Material Adverse Effect. To the best
knowledge of the Borrower, there is no infringement or claim of
infringement by others of any material license, patent, copyright,
service mark, trademark, trade name, trade secret or other
intellectual property right of Borrower and its Subsidiaries.
Section 5.14. Litigation. There is no litigation, at law or in equity, or
any proceeding before any federal, state, provincial or municipal board or other
governmental or administrative agency pending or, to the knowledge of the
Borrower, threatened, or any basis therefor, which involves a material risk of
any judgment or liability which could result in any material adverse change in
the business or assets or in the condition, financial or otherwise, of the
Borrower or any Subsidiary, and no judgment, decree, or order of any federal,
state, provincial or municipal court, board or other governmental or
administrative agency has been issued against the Borrower or any Subsidiary
which has or may have a Material Adverse Effect.
Section 5.15. Pension Plans. No employee benefit plan established or
maintained by the Borrower or any Subsidiary or any other Person a member of the
same "control group," as the Borrower (a "Pension Affiliate"), within the
meaning of Section 302(f)(6)(b) of ERISA, (including any multi-employer plan to
which the Borrower or any Subsidiary contributes) which is subject to Part 3 of
Subtitle B of Title I of the ERISA, had a material accumulated funding
deficiency (as such term is defined in Section 302 of ERISA) as of the last day
of the most recent fiscal year of such plan ended prior to the date hereof, or
would have had an accumulated funding deficiency (as so defined) on such day if
such year were the first year of such plan to which Part 3 of Subtitle B of
Title I of ERISA applied, and no material liability under Title IV of ERISA has
been, or is expected by the Borrower or any Subsidiary to be, incurred with
respect to any such plan by the Borrower or any Subsidiary or any Pension
Affiliate. The execution, delivery and performance by the Borrower of this
Agreement and the other Lender Agreements executed on the date hereof will not
involve any prohibited transaction within the meaning of ERISA or Section 4975
of the Internal Revenue Code. The Borrower and its Subsidiaries have no Pension
Plan other than those described on Schedule 5.15.
Section 5.16. Outstanding Indebtedness. The outstanding amount of
Indebtedness for borrowed money, including Capitalized Lease Obligations and
Guaranties of borrowed money, of the Borrower and its Subsidiaries as of the
date hereof, in excess of $250,000 is correctly set forth in Schedule 5.16
hereto, and said schedule correctly describes the credit agreements, guaranties,
leases and other instruments pursuant to which such Indebtedness has been
incurred and all liens, charges and encumbrances securing such Indebtedness.
Said schedule also describes all agreements and other arrangements pursuant to
which the Borrower or any Subsidiary may borrow any money.
<PAGE>
Section 5.17. Environmental Matters. Except as set forth in Schedule 5.17:
(a) None of the Borrower, any Subsidiary or any operator of any
of their respective properties is in violation, or to the Borrower's
knowledge is in alleged violation, of any Environmental Law, which
violation would have a Material Adverse Effect.
(b) None of the Borrower, any Subsidiary or any operator of any
of their respective properties has received notice from any third
party, including without limitation any federal, state, county, or
local governmental authority, (i) that it has been identified as a
potentially responsible party under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 as amended ("CERCLA")
or any equivalent state law, with respect to any site or location;
(ii) that any hazardous waste, as defined in 42 U.S.C. ss. 6903(5),
any hazardous substances, as defined in 42 U.S.C. ss. 9601(14), any
pollutant or contaminant, as defined in 42 U.S.C. ss. 9601(33), or any
toxic substance, oil or hazardous materials or other chemicals or
substances regulated by any Environmental Laws ("Hazardous
Substances") which it has generated, transported or disposed of, has
been found at any site at which a federal, state, county, or local
agency or other third party has conducted or has ordered the Borrower,
any Subsidiary or another third party or parties (e.g. a committee of
potentially responsible parties) to conduct a remedial investigation,
removal or other response action pursuant to any Environmental Law; or
(iii) that it is or shall be a named party to any claim, action, cause
of action, complaint (contingent or otherwise) or legal or
administrative proceeding arising out of any actual or alleged release
or threatened release of Hazardous Substances. For purposes of this
Agreement, "release" means any past or present releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, disposing or dumping of Hazardous Substances into the
environment.
(c) (i) The Borrower, each Subsidiary and each operator of any
real property owned or operated by the Borrower is in compliance, in
all material respects, with all provisions of the Environmental Laws
relating to the handling, manufacturing, processing, generation,
storage or disposal of any Hazardous Substances; (ii) to the best of
the Borrower's knowledge, no portion of property owned, operated or
controlled by the Borrower or any Subsidiary has been used for the
handling, manufacturing, processing, generation, storage or disposal
of Hazardous Substances except in accordance with applicable
Environmental Laws; (iii) to the best of the Borrower's knowledge,
there have been no releases or threatened releases of Hazardous
Substances on, upon, into or from any property owned, operated or
controlled by the Borrower or any Subsidiary, which releases could
have a Material Adverse Effect; (iv) to the best of the Borrower's
knowledge, there have been no releases of Hazardous Substances on,
upon, from or into any real property in the vicinity of the real
properties owned, operated or controlled by the Borrower or any
Subsidiary which, through soil or groundwater contamination, may have
come to be located on the properties of the Borrower or any
Subsidiary; (v) to the best of the Borrower's knowledge, there have
been no releases of Hazardous Substances on, upon, from or into any
real property formerly but no longer owned, operated or controlled by
the Borrower or any Subsidiary.
<PAGE>
(d) None of the properties of the Borrower or any Subsidiary is
or, to their knowledge, shall be subject to any applicable
environmental cleanup responsibility law or environmental restrictive
transfer law or regulation by virtue of the transactions set forth
herein and contemplated hereby.
Section 5.18. Foreign Trade Regulations. Neither the Borrower nor any
Subsidiary is (a) a person included within the definition of "designated foreign
country" or "national" of a "designated foreign country" in Executive Order No.
8389, as amended, in Executive Order No. 9193, as amended, in the Foreign Assets
Control Regulations (31 C.F.R., Chapter V, Part 500, as amended), in the Cuban
Assets Control Regulations of the United States Treasury Department (31 C.F.R.,
Chapter V, Part 515, as amended) or in the Regulations of the Office of Alien
Property, Department of Justice (8 C.F.R., Chapter II, Part 507, as amended) or
within the meanings of any of the said Orders or Regulations, or of any
regulations, interpretations, or rulings issued thereunder, or in violation of
said Orders or Regulations or of any regulations, interpretations or rulings
issued thereunder; or (b) an entity listed in Section 520.101 of the Foreign
Funds Control Regulations (31 C.F.R., Chapter V, Part 520, as amended).
Section 5.19. Governmental Regulations. Except for Chapter 399-B of the New
Hampshire Revised Statutes Annotated, none of the Borrower, any Subsidiary or
any Affiliate of the Borrower is subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the Investment Company Act
of 1940, or is a common carrier under the Interstate Commerce Act, or is engaged
in a business or activity subject to any statute or regulation which regulates
the incurring by the Borrower of Indebtedness for borrowed money, including
statutes or regulations relating to common or contract carriers or to the sale
of electricity, gas, steam, water, telephone or telegraph or other public
utility services.
Section 5.20. Margin Stock. Neither the Borrower nor any Subsidiary owns
any "margin stock" within the meaning of Regulation U of the Board of Governors
of the Federal Reserve System, or any regulations, interpretations or rulings
thereunder, nor is the Borrower or any Subsidiary engaged principally or as one
of its important activities in extending credit which is used for the purpose of
purchasing or carrying margin stock.
ARTICLE 6. REPORTS AND INFORMATION
Section 6.1. Quarterly Financial Statements and Reports. As soon as
available, and in any event within forty-five (45) days after the end of each of
the first three quarters of each fiscal year of the Borrower, the Borrower shall
furnish to the Agent and each Lender: (i) consolidated and consolidating balance
sheets of the Borrower and its Subsidiaries as of the end of such quarter and
consolidated and consolidating statements of income, shareholders' equity and
cash flow of the Borrower and its Subsidiaries for such quarter and for the
period commencing at the end of the previous fiscal year and ending with the end
of such quarter, setting forth in each case in comparative form the
corresponding figures for the corresponding period of the preceding fiscal year,
all in reasonable detail; and (ii) a Compliance Certificate.
<PAGE>
Section 6.2. Annual Financial Statements. As soon as available, but in any
event within ninety (90) days after the end of each fiscal year of the Borrower,
the Borrower shall furnish to the Agent and each Lender: (a) consolidated and
consolidating balance sheets of the Borrower and its Subsidiaries as of the end
of such fiscal year and consolidated and consolidating statements of income,
shareholders' equity and cash flow of the Borrower and its Subsidiaries for such
fiscal year, in each case (other than the consolidating statements) reported on
by Deloitte & Touche LLP, or other independent certified public accountants of
recognized national standing acceptable to the Lenders, which report shall
express, without reliance upon others, a positive opinion regarding the fairness
of the presentation of such financial statements in accordance with generally
accepted accounting principles consistently applied, except in cases of
unresolved litigation and accounting changes with which such accountants concur,
together with the statement of such accountants that they have caused the
provisions of this Agreement to be reviewed and that nothing has come to their
attention to lead them to believe that any Default exists hereunder or
specifying any Default and the nature thereof; (b) copies of a budget and
strategic plan for the Borrower for the current fiscal year together with
management's written discussion and analysis of such budget and strategic plan
and shall promptly advise the Agent of any changes therein and all material
deviations therefrom; and (c) a Compliance Certificate.
Section 6.3. Notice of Defaults. As soon as possible, and in any event
within five (5) days after the occurrence of each Default, the Borrower shall
furnish to the Agent and each Lender the statement of its chief executive
officer or chief financial officer setting forth details of such Default and the
action which the Borrower has taken or proposes to take with respect thereto.
Section 6.4. Notice of Litigation. Promptly after the commencement thereof,
the Borrower shall furnish to the Agent and each Lender written notice of all
actions, suits and proceedings before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
affecting the Borrower or any Subsidiary, which, if adversely determined, would
have a Material Adverse Effect.
Section 6.5. Communications with Others. If and when the stock of the
Borrower is or is proposed to be traded publicly, the Borrower shall furnish to
the Agent and each Lender copies of all regular, periodic and special reports
and all registration statements which the Borrower files with the Securities and
Exchange Commission or any governmental authority which may be substituted
therefor, or with any national or regional securities exchange.
Section 6.6. Reportable Events. At any time that the Borrower or any
Subsidiary has a Pension Plan, the Borrower shall furnish to the Agent and each
Lender, as soon as possible, but in any event within thirty (30) days after the
Borrower knows or has reason to know that any Reportable Event with respect to
any Pension Plan has occurred, the statement of its chief executive officer or
chief financial officer setting forth the details of such Reportable Event and
the action which the Borrower or any Subsidiary has taken or proposes to take
with respect thereto, together with a copy of the notice of such Reportable
Event to the Pension Benefit Guaranty Corporation.
<PAGE>
Section 6.7. Annual Pension Reports. At any time that the Borrower or any
Subsidiary has a Pension Plan, the Borrower shall furnish to the Agent and each
Lender, promptly after the filing thereof with the Secretary of Labor or the
Pension Benefit Guaranty Corporation, copies of each annual report which is
filed with respect to each Pension Plan for each plan year, including:
(a) a statement of assets and liabilities of such Pension Plan as of
the end of such plan year and statements of changes in fund balance and in
financial position, or a statement of changes in net assets available for
plan benefits, for such plan year;
(b) an opinion of Deloitte & Touche LLP (or other independent
certified public accountants of recognized standing acceptable to the
Lender) relating to such Pension Plan to the extent that any such opinion
for the Pension Plan is required by law; and
(c) an actuarial statement of such Pension Plan applicable to such
plan year, together with an opinion of an enrolled actuary of recognized
standing acceptable to the Lenders, to the extent that any such statement
and/or opinion for the Pension Plan is required by law.
Section 6.8. Reports to other Creditors. Promptly after filing the same,
the Borrower shall furnish to the Agent and each Lender copies of any compliance
certificate and other information furnished to any other holder of the
securities (including debt obligations) of the Borrower or any Subsidiary
pursuant to the terms of any indenture, loan or credit or similar agreement and
not otherwise required to be furnished to the Agent or the Lenders pursuant to
any other provision of this Agreement.
Section 6.9. Communications with Independent Public Accountants. At any
reasonable time and from time to time, the Borrower shall provide the Agent and
the Lenders and any agents or representatives of the Lenders access to the
independent public accountants of the Borrower to discuss the Borrower's and its
Subsidiaries' financial condition, including, without limitation any
recommendations of such independent public accountants concerning the
management, finances, financial controls or operations of the Borrower and its
Subsidiaries. Promptly after the receipt thereof, the Borrower shall furnish to
the Agent and each Lender copies of any written recommendations concerning the
management, finances, financial controls, or operations of the Borrower or any
Subsidiary received from the Borrower's independent public accountants.
Section 6.10. Environmental Reports. The Borrower shall furnish to the
Agent and each Lender: (a) not later than seven (7) days after notice thereof,
notice of any enforcement actions, or, to the knowledge of the Borrower,
threatened enforcement actions affecting the Borrower or any Subsidiary by any
Governmental Agency related to Environmental Laws; (b) copies, promptly after
they are received, of all orders, notices of responsibility, notices of
violation, notices of enforcement actions, and assessments, and other written
communications pertaining to any such orders, notices, claims and assessments
received by the Borrower or any Subsidiary from any Governmental Agency; (c) not
later than seven (7) days after notice thereof, notice of any civil claims or
threatened civil claims affecting the Borrower or any Subsidiary by any third
party alleging any violation of Environmental Laws or harm to human health or
the environment; (d) copies of all cleanup plans, site assessment reports,
response plans, remedial proposals, or
<PAGE>
other submissions of the Borrower or any Subsidiary, other third party (e.g.,
committee of potentially responsible parties at a Superfund site), or any
combination of same, submitted to a Governmental Agency in response to any
communication referenced in subsections (a) and (b) herein simultaneously with
their submission to such Governmental Agency; and (e) from time to time, on
request of the Agent, evidence satisfactory to the Agent of the Borrower's and
its Subsidiaries' insurance coverage, if any, for any environmental liabilities.
Section 6.11. Miscellaneous. The Borrower shall provide the Agent and the
Lenders with such other information as the Agent or the Lenders may from time to
time reasonably request respecting the business, properties, prospects,
condition or operations, financial or otherwise, of the Borrower and its
Subsidiaries.
ARTICLE 7. FINANCIAL COVENANTS
On and after the date hereof, until all of the Lender Obligations shall
have been paid in full and the Lenders shall have no commitment hereunder, the
Borrower and its Subsidiaries shall observe the following covenants:
Section 7.1. Consolidated Net Worth. At the end of each period indicated
below, the Borrower and its Subsidiaries shall maintain a Consolidated Net Worth
of not less than the sums indicated.
Period: Minimum Net Worth
------ -----------------
Closing Date through March 31, 2000 $ 76,000,000
April 1, 2000 through June 30, 2000 $ 76,000,000
July 1, 2000 through September 30, 2000 $ 76,000,000
October 1, 2000 through December 31, 2000 $ 96,000,000
January 1, 2001 through March 31, 2001 $ 96,000,000
April 1, 2001 through June 30, 2001 $ 96,000,000
July 1, 2001 through September 30, 2001 $ 96,000,000
Each Fiscal Quarter Thereafter $120,000,000
Section 7.2. Minimum Consolidated Net Income. As of each date indicated
below, for the twelve months ending on that date, the Borrower and its
Subsidiaries shall maintain the Consolidated Net Income indicated:
<PAGE>
Date: Minimum Net Income
---- ------------------
March 31, 2000 $16,000,000
June 30, 2000 $16,000,000
September 30, 2000 $16,000,000
December 31, 2000 $20,000,000
March 31, 2001 $20,000,000
June 30, 2001 $20,000,000
September 30, 2001 $20,000,000
On the last day of each Fiscal Quarter Thereafter $24,000,000
ARTICLE 8. AFFIRMATIVE COVENANTS
On and after the date hereof, until all of the Lender Obligations shall
have been paid in full and the Lenders shall have no commitment hereunder, the
Borrower covenants that it will, and will cause each of its Subsidiaries to,
comply with the following covenants and provisions:
Section 8.1. Existence and Business. The Borrower and each Subsidiary will
(a) subject to Section 9.6, preserve and maintain its corporate or limited
liability company existence, as the case may be, and qualify and remain
qualified as a foreign corporation in each jurisdiction in which such
qualification is required, (b) preserve and maintain in full force and effect
all material rights, licenses, patents and franchises, (c) comply in all
material respects with all valid and applicable statutes, rules and regulations
necessary for the conduct of business, and (d) engage only in the businesses
which it is conducting on the date of this Agreement and substantially related
businesses.
Section 8.2. Taxes and Other Obligations. The Borrower and each Subsidiary
(a) will duly pay and discharge, or cause to be paid and discharged, before the
same shall become in arrears, all material taxes, assessments and other
governmental charges, imposed upon it and its properties, sales and activities,
or upon the income or profits therefrom, as well as the claims for labor,
materials, or supplies which if unpaid might by law result in a lien or charge
upon any of its properties; provided, however, that the Borrower and any
Subsidiary may contest any such charges or claims in good faith so long as (i)
an adequate reserve therefor has been established and is maintained if and as
required by generally accepted accounting principles and (ii) no action to
foreclose any such lien has been commenced, and (b) will promptly pay or cause
to be paid when due, or in conformance with customary trade terms (but, unless
contested in good faith, not later than 60 days from the due date in the case of
trade debt), all lease obligations, trade debt and all other Indebtedness
incident to its operations. The Borrower and each Subsidiary shall cause all
applicable tax returns and all amounts due thereunder to be filed and paid, as
the case may be, in order to maintain its good standing with the Internal
Revenue Service and state, local and foreign tax authorities.
<PAGE>
Section 8.3. Maintenance of Properties and Leases. The Borrower and each
Subsidiary shall maintain, keep and preserve all of its properties (tangible and
intangible) in good repair and working order, ordinary wear and tear excepted.
The Borrower and each Subsidiary shall replace and improve its properties as
necessary for the conduct of its business. The Borrower and each Subsidiary
shall comply in all material respects with all leases naming it as lessee.
Section 8.4. Insurance. The Borrower and each Subsidiary (a) will keep its
principal assets which are of an insurable character insured by financially
sound and reputable insurers against loss or damage by fire, explosion or
hazards, by extended coverage in an amount sufficient to avoid co-insurance
liability, and (b) will maintain with financially sound and reputable insurers
insurance against other hazards and risks and liability to persons and property
to the extent and in a manner satisfactory to the Lenders, and in any event as
customary for companies in similar businesses similarly situated; provided,
however, that on prior notice to the Agent and the Lenders it may effect
workmen's compensation insurance through an insurance fund operated by such
state or jurisdiction and may also be a self-insurer with respect to workmen's
compensation and with respect to group medical benefits under any medical
benefit plan. On request of the Agent from time to time, the Borrower will
render to the Agent and the Lenders a statement in reasonable detail as to all
insurance coverage required by this Section 8.4. A description of the material
elements of insurance coverage of the Borrower and its Subsidiaries as of the
date hereof is set forth on Schedule 8.4.
Section 8.5. Records, Accounts and Places of Business. The Borrower and
each Subsidiary shall maintain comprehensive and accurate records and accounts
in accordance with generally accepted accounting principles consistently
applied. The Borrower and each Subsidiary shall maintain adequate and proper
reserves. The Borrower and each Subsidiary shall promptly notify the Agent of
(a) any changes in the places of business of the Borrower and its Subsidiaries
and (b) any additional places of business which may arise hereafter.
Section 8.6. Inspection. At any reasonable time and from time to time, the
Borrower shall permit the Agent and the Lenders and any of the Lenders' agents
or representatives to examine and make copies of and abstracts from the records
and books of account of, and visit the properties of, the Borrower and its
Subsidiaries and to discuss the affairs, finances and accounts of the Borrower
and its Subsidiaries with any of their officers or directors and with the
Borrower's independent accountants.
Section 8.7. Maintenance of Accounts. The Borrower and its Subsidiaries
shall maintain all of their depository, operating, concentration and
disbursement accounts with the Agent, provided that an amount not to exceed
$1,000,000 may be on deposit at certain depository and operating accounts of
Comteq which are maintained at Bank of America (or one if its affiliates).
Section 8.8 Year 2000 Compatibility. Take all reasonable action necessary
to assure that its computer based systems, hardware and software used in each of
the Borrower's and its Subsidiaries' business and operations are able to operate
and effectively receive transmit, process, store, retrieve or retransmit data
including dates on and after January 1, 2000, and, at the
<PAGE>
request of the Agent, the Borrower shall provide evidence to the reasonable
satisfaction of the Agent of such year 2000 compatibility.
ARTICLE 9. NEGATIVE COVENANTS
On and after the date hereof, until all of the Lender Obligations shall
have been paid in full and the Lenders shall have no commitments to make any
loans or advances to the Borrower hereunder, the Borrower covenants that neither
the Borrower nor any of its Subsidiaries will:
Section 9.1. Restrictions on Indebtedness. Create, incur, suffer or permit
to exist, or assume or guarantee, either directly or indirectly, or otherwise
become or remain liable with respect to, any Indebtedness, except the following:
(a) Indebtedness outstanding at the date of this Agreement as set
forth on Schedule 5.16 but no refinancings thereof.
(b) Indebtedness on account of Consolidated Current Liabilities (other
than for money borrowed) incurred in the normal and ordinary course of
business.
(c) Indebtedness in respect of (i) taxes, assessments, governmental
charges or levies and claims for labor, materials and supplies to the
extent that payment thereof shall not at the time be required to be made in
accordance with the provisions of Section 8.2 hereof, (ii) judgments or
awards which have been in force for less than the applicable appeal period
so long as execution is not levied thereunder or in respect of which the
Borrower or any Subsidiary shall at the time in good faith be prosecuting
an appeal or proceedings for review in a manner satisfactory to the Lenders
and in respect of which a stay of execution shall have been obtained
pending such appeal or review and for which adequate reserves have been
established in accordance with generally accepted accounting principles,
and (iii) endorsements made in connection with the deposit of items for
credit or collection in the ordinary course of business.
(d) Indebtedness in an amount not to exceed $1,000,000 in respect of
purchase money security interests under Section 9.2(b) hereof.
(e) Indebtedness in an amount not to exceed $10,000,000 in the
aggregate with respect to equipment financing and Capitalized Leases, or as
otherwise approved by the Agent.
(f) Indebtedness to the Lenders.
(g) Indebtedness on account of inventory financed by IBM Credit Corp.
and Deutsche Financial Services Corporation not to exceed $60,000,000
without the written consent of the Agent.
(h) Guarantees permitted under Section 9.5 hereof.
<PAGE>
(i) Indebtedness between the Borrower and any Subsidiaries or between
Subsidiaries.
Section 9.2. Restriction on Liens. Create or incur or suffer to be created
or incurred or to exist any encumbrance, mortgage, pledge, lien, charge or other
security interest of any kind upon any of its property or assets of any
character, whether now owned or hereafter acquired, or transfer any of such
property or assets for the purposes of subjecting the same to the payment of
Indebtedness or performance of any other obligation in priority to payment of
its general creditors, or acquire or agree or have an option to acquire any
property or assets upon conditional sale or other title retention agreement,
device or arrangement (including Capitalized Leases) or suffer to exist for a
period of more than 30 days after the same shall have been incurred any
Indebtedness against it which if unpaid might by law or upon bankruptcy or
insolvency, or otherwise, be given any priority whatsoever over the claims of
its general creditors, or sell, assign, pledge or otherwise transfer for
security any of its accounts, contract rights, general intangibles, or chattel
paper (as those terms are defined in the UCC) with or without recourse;
provided, however, that the Borrower or any Subsidiary may create or incur or
suffer to be created or incurred or to exist:
(a) Existing liens and security interests described in Schedule 5.13
securing presently outstanding Indebtedness permitted by Section 9.1(a).
(b) Purchase money security interests (which term shall include
mortgages, conditional sale contracts, Capitalized Leases in accordance
with Section 9.1(e) hereof, and all other title retention or deferred
purchase devices) to secure the purchase price of property acquired
hereafter by the Borrower or a Subsidiary, or to secure Indebtedness
incurred solely for the purpose of financing such acquisitions; provided,
however, that no such purchase money security interests shall extend to or
cover any property other than the property the purchase price of which is
secured by it, and that the principal amount of Indebtedness (whether or
not assumed) with respect to each item of property subject to such a
security interest shall not exceed the fair value of such item on the date
of its acquisition.
(c) Deposits or pledges made in connection with, or to secure payment
of, workmen's compensation, unemployment insurance, old age pensions or
other social security; liens in respect of judgments or awards to the
extent such judgments or awards are permitted as Indebtedness by the
provisions of Section 9.1(c); and liens for taxes, assessments or
governmental charges or levies and liens to secure claims for labor,
material or supplies to the extent that payment thereof shall not at the
time be required to be made in accordance with Section 8.2.
(d) Encumbrances in the nature of zoning restrictions, easements, and
rights or restrictions of record on the use of real property which do not
materially detract from the value of such property or impair its use in the
business of the owner or lessee.
<PAGE>
(e) Liens (other than judgments and awards) created by or resulting
from any litigation or legal proceeding, provided the execution or other
enforcement thereof is effectively stayed and the claims secured thereby
are being actively contested in good faith by appropriate proceedings
satisfactory to the Agent.
(f) Liens arising by operation of law to secure landlords, lessors or
renters under leases or rental agreements made in the ordinary course of
business and confined to the premises or property rented.
(g) Liens in favor of the Agent for the benefit of the Lenders.
(h) Liens on inventory in accordance with Section 9.1(g) hereof.
Nothing contained in this Section 9.2 shall permit the Borrower to incur any
Indebtedness or take any other action or permit to exist any other condition
which would be in contravention of any other provision of this Agreement.
Section 9.3. Investments. Have outstanding or hold or acquire or make or
commit itself to acquire or make any Investment except the following:
(a) Investments having a maturity of less than one year from the date
thereof by the Borrower in: (i) obligations of the Agent or any of the
Lenders; (ii) obligations of the United States of America or any agency or
instrumentality thereof; (iii) repurchase agreements involving securities
described in clauses (i) and (ii) with the Agent or any of the Lenders; and
(iv) commercial paper which is rated not less than prime-one or A-1 or
their equivalents by Moody's Investor Service, Inc. or Standard & Poor's
Corporation, respectively, or their successors.
(b) Investments between the Borrower and any of its Subsidiaries and
between any Subsidiaries.
(c) Investments consisting of normal travel and similar advances to
employees of the Borrower and its Subsidiaries and advances with respect to
a computer purchase program to employees of the Borrower and its
Subsidiaries not exceeding $750,000 in the aggregate at any one time
outstanding.
(d) Investments resulting from mergers permitted under Section 9.6
hereto.
(e) Permitted Acquisitions financed with Permitted Acquisition
Advances.
(f) Investments in Subsidiaries permitted under Sections 9.8(i) and
9.11 hereto.
Section 9.4. Dispositions of Assets. Sell, lease or otherwise dispose of
any assets except for (i) the sale, lease or other disposition of inventory or
other property (not including receivables) in the ordinary course of business or
(ii) the sale or other disposition of any assets as permitted under Section 9.9
hereof.
<PAGE>
Section 9.5. Assumptions, Guaranties, Etc. of Indebtedness of Other
Persons. Assume, guarantee, endorse or otherwise be or become directly or
contingently liable (including, without limitation, by way of agreement,
contingent or otherwise, to purchase, provide funds for payment, supply funds to
or otherwise invest in any Person or otherwise assure the creditors of any such
Person against loss) in connection with any Indebtedness of any other Person,
except (i) for Guaranties by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business and
(ii) Guarantees to IBM or DFS in connection with Indebtedness permitted under
9.1(g).
Section 9.6. Mergers, Etc. Enter into any merger or consolidation with or
acquire all or substantially all of the assets of any Person, or sell, assign,
lease or otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its assets (whether now owned or
hereafter acquired) to any Person, except that (a) any Subsidiary may merge into
the Borrower or any other Subsidiary, (b) the Borrower and any Subsidiary may
enter into a merger with or acquire all or substantially all of the assets of
another entity, provided that immediately after and giving effect thereto, no
event shall occur and be continuing which constitutes or which, upon the passage
of time or giving of notice or both would constitute, a Default (including under
Section 8.1 and including under Article 7, assuming that the financial
restrictions set forth in Article 7 are applied immediately after and giving
effect to such merger or acquisition) and provided further that the Borrower or
such Subsidiary is the surviving corporation to any such merger and (c) the
Borrower may enter into Permitted Acquisitions.
Section 9.7. ERISA. At any time while the Borrower or any Subsidiary has a
Pension Plan, permit any accumulated funding deficiency to occur with respect to
any Pension Plan or other employee benefit plans established or maintained by
the Borrower or any Subsidiary or to which contributions are made by the
Borrower or any Subsidiary (the "Plans"), and which are subject to the "Pension
Reform Act" and the rules and regulations thereunder or to Section 412 of the
Internal Revenue Code, and at all times comply in all material respects with the
provisions of the Act and Code which are applicable to the Plans. The Borrower
will not permit the Pension Benefit Guaranty Corporation to cause the
termination of any Pension Plan under circumstances which would cause the lien
provided for in Section 4068 of the Pension Reform Act to attach to the assets
of the Borrower or any Subsidiary.
Section 9.8. Distributions. Make any Distribution or make any other payment
on account of the purchase, acquisition, redemption, or other retirement of any
shares of stock, whether now or hereafter outstanding, other than (i) repurchase
or redemption of Borrower's capital stock not to exceed $5,000,000 and (ii) any
Subsidiary may make a Distribution to the Borrower.
Section 9.9. Sale and Leaseback. Sell or transfer any of its properties
with the intention of taking back a lease of the same property or leasing other
property for substantially the same use as the property being sold or
transferred, except in connection with financings permitted under Section 9.1(d)
and (e).
<PAGE>
Section 9.10. Transactions with Affiliates. Enter into any transaction,
including, without limitation, the purchase, sale or exchange of property or the
rendering of any service, with any Affiliate, except that the Borrower and its
Subsidiaries (a) may pay salaries, fees and bonuses to its directors, officers
and employees as are usual and customary in the Borrower's or its Subsidiaries'
business and (b) may, in the ordinary course of business, enter into other
transactions with Affiliates on terms that are no less favorable to the Borrower
or any Subsidiary than those which could be obtained at the time from Persons
who are not Affiliates.
Section 9.11. Creation of Subsidiaries. Borrower shall not, without prior
written consent by Agent, create or cause the creation of any Subsidiary other
than those in existence at the Closing, unless such Subsidiary becomes an
additional guarantor ("Additional Guarantor") under the Guaranty Agreement.
Section 9.12. Voluntary Payment. While any amount remains outstanding under
the Notes, Borrower shall not make any voluntary prepayments on any
Indebtedness, except under a Lender Agreement or Indebtedness permitted under
Section 9.1(g) hereof.
ARTICLE 10. EVENTS OF DEFAULT AND REMEDIES
Section 10.1. Events of Default. Each of the following events shall be
deemed to be Events of Default hereunder:
(a) The Borrower shall fail to make any payment in respect of (i) the
principal of any of the Lender Obligations as the same shall become due,
whether at the stated payment dates, required prepayment or by
acceleration, demand or otherwise, or (ii) interest or commitment fees on
or in respect of any of the Lender Obligations as the same shall become
due.
(b) The Borrower or any Subsidiary shall fail to perform or observe
any of the terms, covenants, conditions or provisions of Articles 6, 7, 8
or 9 hereof.
(c) The Borrower or any Subsidiary shall fail to perform or observe
any other term, covenant, condition or provision to be performed or
observed by the Borrower under this Agreement or any other Lender
Agreement, and such failure shall not be rectified or cured to the Agent's
satisfaction within thirty (30) days after the occurrence thereof.
(d) Any representation or warranty of the Borrower herein or in any
other Lender Agreement or any amendment to any thereof shall have been
materially false or misleading at the time made or intended to be
effective.
(e) The Borrower shall fail to make any payment of principal of or
interest on Indebtedness for money borrowed by the Borrower or any Guaranty
of money borrowed, in either case an outstanding principal amount of not
less than $1,000,000, when such payment is due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) or
<PAGE>
shall fail to perform or observe any provision of any agreement or
instrument relating to such Indebtedness, and such failure shall permit the
holder thereof to accelerate such Indebtedness.
(f) The Borrower or any Subsidiary shall be involved in financial
difficulties as evidenced:
(i) by its commencement of a voluntary case under Title 11 of the
United States Code as from time to time in effect, or by its
authorizing, by appropriate proceedings of its board of directors or
other governing body, the commencement of such a voluntary case;
(ii) by its filing an answer or other pleading admitting or
failing to deny the material allegations of a petition filed against
it commencing an involuntary case under said Title 11, or seeking,
consenting to or acquiescing in the relief therein provided, or by its
failing to controvert timely the material allegations of any such
petition;
(iii) by the entry of an order for relief in any involuntary case
commenced under said Title 11;
(iv) by its seeking relief as a debtor under any applicable law,
other than said Title 11, of any jurisdiction relating to the
liquidation or reorganization of debtors or to the modification or
alteration of the rights of creditors, or by its consenting to or
acquiescing in such relief;
(v) by the entry of an order by a court of competent jurisdiction
(1) by finding it to be bankrupt or insolvent, (2) ordering or
approving its liquidation, reorganization or any modification or
alteration of the rights of its creditors, or (3) assuming custody of,
or appointing a receiver or other custodian for all or a substantial
part of its property and such order shall not be vacated or stayed on
appeal or otherwise stayed within 30 days;
(vi) by the filing of a petition against the Borrower or any
Subsidiary under said Title 11 which shall not be vacated within 30
days; or
(vii) by its making an assignment for the benefit of, or entering
into a composition with, its creditors, or appointing or consenting to
the appointment of a receiver or other custodian for all or a
substantial part of its property.
(g) There shall have occurred a judgment against the Borrower or any
Subsidiary in any court (i) for an amount in excess of $1,000,000, and from
which no appeal has been taken or with respect to which all appeal periods
have expired, unless such judgment is, to the Agent's satisfaction, insured
against in full, or (ii) which shall have a materially adverse effect upon
the assets, properties or condition, financial or otherwise, of the
Borrower.
<PAGE>
(h) Any "Event of Default" under any other Lender Agreement shall have
occurred.
Section 10.2. Remedies. Upon the occurrence of an Event of Default, in each
and every case, the Agent may, and upon the request of the Required Lenders,
shall proceed to protect and enforce the rights of the Agent and the Lenders by
suit in equity, action at law and/or other appropriate proceeding either for
specific performance of any covenant or condition contained in this Agreement or
any other Lender Agreement or in any instrument delivered to the Agent or the
Lenders pursuant hereto or thereto, or in aid of the exercise of any power
granted in this Agreement, any Lender Agreement or any such instrument, and
(unless there shall have occurred an Event of Default under Section 10.1(f), in
which case the unpaid balance of Lender Obligations shall automatically become
due and payable without notice or demand) by notice in writing to the Borrower
declare (a) the obligations of the Lenders to make Advances to be terminated,
whereupon such obligations shall be terminated, and (b) all or any part of the
unpaid balance of the Lender Obligations then outstanding to be forthwith due
and payable, whereupon such unpaid balance or part thereof shall become so due
and payable without presentation, protest or further demand or notice of any
kind, all of which are hereby expressly waived, and the Agent may proceed to
enforce payment of such balance or part thereof in such manner as the Agent may
elect, and the Agent and each Lender may offset and apply toward the payment of
such balance or part thereof any Indebtedness of the Agent or any Lender to the
Borrower or to any Subsidiary, or to any obligor of the Lender Obligations,
including any Indebtedness represented by deposits in any general or special
account maintained with the Agent or any Lender or with any other Person
controlling, controlled by or under common control with the Agent or any Lender.
Section 10.3. Distribution of Proceeds. Notwithstanding anything to the
contrary contained herein, in the event that following the occurrence or during
the continuance of any Event of Default, the Agent or any Lender receives any
monies on account of the Lender Obligations from the Borrower or otherwise, such
monies shall be distributed for application as follows:
(a) First, to the payment of or the reimbursement of, the Agent for or
in respect of all costs, expenses, disbursements and losses which shall
have been incurred or sustained by the Agent in connection with the
collection of such monies by the Agent, or in connection with the exercise,
protection or enforcement by the Agent of all or any of the rights,
remedies, powers and privileges of the Agent or the Lenders under this
Agreement or any other Lender Agreement;
(b) Second, to the payment of all interest, including interest on
overdue amounts, and late charges, then due and payable with respect to the
Loans, allocated among the Lenders in proportion to their respective
Commitment Percentages;
(c) Third, to the payment of the outstanding principal balance of the
Loans, allocated among the Lenders in proportion to their respective
Commitment Percentages;
<PAGE>
(d) Fourth, to any other outstanding Lender Obligations, allocated
among the Lenders in proportion to their respective Commitment Percentages;
and
(e) Fifth, the excess, if any, shall be returned to the Borrower or to
such other Persons as are entitled thereto.
ARTICLE 11. CONSENTS; AMENDMENTS; WAIVERS; REMEDIES
Section 11.1. Actions by Lenders. Except as otherwise expressly set forth
in any particular provision of this Agreement, any consent or approval required
or permitted by this Agreement to be given by the Lenders, including without
limitation under Section 11.2, may be given, and any term of this Agreement or
of any other instrument related hereto or mentioned herein may be amended, and
the performance or observance by the Borrower of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively) with, but only with, the written consent of the Borrower and
the Required Lenders; provided, however, that without the written consent of all
Lenders:
(a) no reduction in the interest rates on or any fees relating to the
Advances shall be made;
(b) no extension or postponement shall be made of the stated time of
payment of the principal amount of, interest on, or fees payable to the
Lenders relating to the Advances;
(c) no increase in the Maximum Credit Amount, or extension of the
Credit Termination Date shall be made;
(d) no release of all or substantially all of the collateral security
for the Lender Obligations or of the obligations of any Guarantor under the
Guaranty Agreement shall be made;
(e) no change in the definition of the term "Required Lenders" shall
be made; and
(f) no change in the provisions of this Section 11.1 shall be made.
Section 11.2. Actions by Borrower. No delay or omission on the Agent's or
the Lenders' part in exercising their rights and remedies against the Borrower
or any other interested party shall constitute a waiver. A breach by the
Borrower of its obligations under this Agreement may be waived only by a written
waiver executed by the Agent and the Lenders in accordance with Section 11.1.
The Agent's and the Lenders' waiver of the Borrower's breach in one or more
instances shall not constitute or otherwise be an implicit waiver of subsequent
breaches. To the extent permitted by applicable law, the Borrower hereby agrees
to waive, and does hereby absolutely and irrevocably waive (a) all presentments,
demands for performance, notices of protest and notices of dishonor in
connection with any of the Indebtedness evidenced by the Term Notes, (b) any
requirement of diligence or promptness on the Agent's or the Lenders' part in
the enforcement of its rights under the provisions of this Agreement or any
Lender Agreement,
<PAGE>
and (c) any and all notices of every kind and description which may be required
to be given by any statute or rule of law with respect to its liability (i)
under this Agreement or in respect of the Indebtedness evidenced by the Notes or
any other Lender Obligation or (ii) under any other Lender Agreement. No course
of dealing between the Borrower and the Agent or the Lenders shall operate as a
waiver of any of the Agent's or the Lenders' rights under this Agreement or any
Lender Agreement or with respect to any of the Lender Obligations. This
Agreement shall be amended only by a written instrument executed by the
Borrower, the Agent and the Lenders in accordance with Section 11.1 making
explicit reference to this Agreement. The Agent's and the Lenders' rights and
remedies under this Agreement and under all subsequent agreements between the
Agent, the Lenders and the Borrower shall be cumulative and any rights and
remedies expressly set forth herein shall be in addition to, and not in
limitation of, any other rights and remedies which may be applicable to the
Agent and the Lenders in law or at equity.
ARTICLE 12. SUCCESSORS AND ASSIGNS
Section 12.1. General. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors (which
shall include in the case of the Agent or any Lender any entity resulting from a
merger or consolidation) and assigns, except that (a) the Borrower may not
assign its rights or obligations under this Agreement, and (b) each Lender may
assign its rights in this Agreement only as set forth below in this Article 12.
Section 12.2. Assignments.
(a) Assignments. In compliance with applicable laws with respect to
such assignment and with the consent of the Borrower (provided that if
there shall exist a Default, the Borrower's consent shall not be required
for any such assignment) and the Agent (which consents in all cases shall
not be unreasonably withheld), a Lender may assign to one or more financial
institutions (each a "Successor Lender") a proportionate part of its rights
and obligations in connection with this Agreement, its Note, and the
related Lender Agreements and each such Successor Lender shall assume such
rights and obligations pursuant to an Assignment and Acceptance Agreement
("Assignment and Acceptance Agreement") duly executed by such Successor
Lender and such assigning Lender and acknowledged and consented to by the
Agent, substantially in the form of Exhibit H attached hereto; provided;
however, if Agent assigns more than fifty percent of the Agent's Commitment
Percentage listed on Schedule 1 as of the Closing Date, the Required
Lenders may request replacement of the Agent in accordance with Section
13.8 hereunder. Any assignment under this Section (a) shall be in a minimum
amount of $5,000,000. In connection with any assignment under this Section
12.2(a) there shall be paid to the Agent by the assigning Lender or the
Successor Lender an administrative processing fee in the amount of $5,000;
provided, however, that no such administrative processing fee shall be paid
if the Lender or Successor Lender makes an assignment to an affiliate of
such Lender or Successor Lender.
(b) Assignment Procedures. In the event of an assignment in accordance
with Section 12.2(a), upon execution and delivery of such an assignment at
least five (5) Business
<PAGE>
Days prior to the proposed assignment date, and payment by such Successor
Lender to the assigning Lender of an amount equal to the purchase price
agreed between such assigning Lender and such Successor Lender, such
Successor Lender shall become party to this Agreement as a signatory hereto
and shall have all the rights and obligations of a Lender under this
Agreement and the other Lender Agreements with an interest therein as set
forth in such assignment, and such assignor making such assignment shall be
released from its obligations hereunder to a corresponding extent, and no
further consent or action by any party shall be required. Upon the
consummation of any such assignment, the assigning Lender, the Successor
Lender and the Borrower shall make appropriate arrangements so that, if
required, a new Note is issued to the Successor Lender and a replacement
Note is issued to the assigning Lender in principal amounts reflecting
their respective revised interests.
(c) Register. The Agent shall maintain a register (the "Register") for
the recordation of (i) the names and addresses of all Successor Lenders
that enter into Assignment and Acceptance Agreements, (ii) the interests of
each Lender, and (iii) the amounts of the Advances owing to each Lender
from time to time. The entries in the Register shall be conclusive, in the
absence of manifest error, and the Borrower, the Agent and the Lenders may
treat each Person whose name is registered therein for all purposes as a
party to this Agreement. The Register shall be available for inspection by
the Borrower or any Lender at any reasonable time and from time to time
upon reasonable prior notice.
(d) Further Assurances. The Borrower shall sign such documents and
take such other actions from time to time reasonably requested by the Agent
or a Lender to enable any Successor Lender to share in the benefits and
rights created by the Lender Agreements.
(e) Assignments to Federal Reserve Bank. Any Lender at any time may
assign all or any portion of its rights under this Agreement and its Notes
to a Federal Reserve Bank. No such assignment shall release the transferor
Lender from its obligations hereunder.
Section 12.3. Participations. Any Lender may, with the consent of Agent and
without the consent of the Borrower, at any time grant or offer to grant to one
or more financial institutions ("Credit Participants") participating interests
in such Lender's rights and obligations in this Agreement, its Notes and the
related Lender Agreements, and each such Credit Participant shall acquire such
participation subject to the terms set forth below.
(a) Amount. Each such participation shall be in a minimum amount of at
least $5,000,000.
(b) Procedure. Each Lender granting such participation shall comply
with all applicable laws with respect to such transfer and shall remain
responsible for the performance of its obligations hereunder and under the
other Lender Agreements and shall retain the sole right and responsibility
to exercise its rights and to enforce the obligations of the Borrower
hereunder and under the other Lender Agreements, including the right to
consent to any amendment, modification or waiver of any provision of any
Lender Agreement, except for those matters
<PAGE>
referred to in Section 11.1 which require the consent of all Lenders and
which may also require the consent of each Credit Participant.
(c) Dealing with Lenders. The Borrower shall continue to deal solely
and directly with the Lenders in connection with their rights and
obligations under this Agreement and the other Lender Agreements.
(d) Rights of Credit Participants. The Borrower agrees that each
Credit Participant shall, to the extent provided in its participation
instrument, be entitled to the benefits of Sections 2.7, 2.8, 2.9, 2.11,
2.12, and 14.5, and the setoff rights in Section 10.2 with respect to its
participating interest; provided, however, that no Credit Participant shall
be entitled to receive any greater payment under such Sections than the
Lender granting such participation would have been entitled to receive with
respect to the interests transferred.
(e) Notice. At the time of granting any participation, the Lender
granting such participation shall notify the Agent and the Borrower.
(f) New Hampshire and Massachusetts Law. The Agent shall execute all
certificates as it may deem reasonably necessary for the granting of the
participation under the laws of the State of New Hampshire and The
Commonwealth of Massachusetts.
<PAGE>
ARTICLE 13. THE AGENT
Section 13.1. Authorization and Action. Each Lender hereby appoints and
authorizes the Agent to take such action on its behalf and to exercise such
powers under this Agreement and the other Lender Agreements as are delegated to
the Agent by the terms hereof and thereof, together with such powers as are
reasonably incidental thereto. As to any matters not expressly provided for by
this Agreement and the other Lender Agreements (including, without limitation,
enforcement or collection of the Notes), the Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Required Lenders, and such
instructions shall be binding upon all Lenders; provided, however, that the
Agent shall not be required to take any action which exposes the Agent to
liability or which is contrary to this Agreement or the other Lender Agreements
or applicable law. Subject to the foregoing provisions and to the other
provisions of this Article 13, the Agent shall, on behalf of the Lenders: (a)
execute any documents on behalf of the Lenders providing collateral for or
guarantees of the Lender Obligations; (b) hold and apply any collateral for the
Lender Obligations, and the proceeds thereof, at any time received by it, in
accordance with the provisions of this Agreement and the other Lender
Agreements; (c) exercise any and all rights, powers and remedies of the Lenders
under this Agreement or any of the other Lender Agreements, including the giving
of any consent or waiver or the entering into of any amendment, subject to the
provisions of Section 11.1; (d) at the direction of the Lenders, execute,
deliver and file UCC financing statements, mortgages, deeds of trust, lease
assignments and such other agreements in respect of any collateral for the
Lender Obligations, and possess instruments included in the collateral on behalf
of the Lenders; and (e) in the event of acceleration of the Borrower's
Indebtedness hereunder, act at the direction of the Required Lenders to exercise
the rights of the Lenders hereunder and under the other Lender Agreements.
Section 13.2. Agent's Reliance, Etc. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable to the Lenders for any
action taken or omitted to be taken by it or them under or in connection with
this Agreement or the other Lender Agreements, except for its or their own gross
negligence or willful misconduct. Without limitation of the generality of the
foregoing, the Agent: (a) may treat the payee of any Note as the holder thereof
until the Agent receives written notice of the assignment or transfer thereof
signed by such payee and in form required under Article 12 hereof; (b) may
consult with legal counsel, independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (c) makes no warranty or representations to any Lender
and shall not be responsible to any Lender for any statements, warranties or
representations made in or in connection with this Agreement or the other Lender
Agreements; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement or the other Lender Agreements on the part of the Borrower or any
other Person or to inspect the property (including the books and records) of the
Borrower or any other Person; (e) shall not be responsible to any Lender for the
due execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or the other Lender Agreements or any other instrument
or document furnished pursuant hereto or thereto; and (f) shall incur no
liability under
<PAGE>
or in respect of this Agreement or the other Lender Agreements by acting upon
any notice, consent, certificate or other instrument or writing (which may be by
telecopy or telegram) believed by the Agent to be genuine and signed or sent by
the proper party or parties.
Section 13.3. Agent as a Lender. With respect to its interest in the
Commitment Percentage of the Advances hereunder, Citizens Bank of Massachusetts
shall have the same rights and powers under this Agreement and the other Lender
Agreements as any other Lender and may exercise the same as though it were not
the Agent; and the term "Lender" or "Lender(s)" shall, unless otherwise
expressly indicated, include Citizens Bank of Massachusetts in its individual
capacity. Citizens Bank of Massachusetts and its affiliates may lend money to,
and generally engage in any kind of business with, the Borrower, any of the
Borrower's Affiliates and any Person who may do business with or own securities
of the Borrower or any such Affiliate of the Borrower, all as if Citizens Bank
of Massachusetts were not the Agent and without any duty to account therefor to
the Lenders.
Section 13.4. Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements referred to in Section 5.9 and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Agent or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement.
Section 13.5. Indemnification of Agent. Each Lender agrees to indemnify the
Agent and its directors, officers, employees and agents (to the extent that the
Agent is not reimbursed by the Borrower), ratably according to each Lender's
Commitment Percentage, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by, or asserted against the Agent or its directors, officers, employees or
agents in any way relating to or arising out of this Agreement or any other
Lender Agreement or any action taken or omitted by the Agent in such capacity
under this Agreement; provided that no Lender shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the Agent's gross
negligence or wilful misconduct. Without limitation of the foregoing, each
Lender agrees to reimburse the Agent promptly upon demand for its ratable share
of any out-of-pocket expenses (including counsel fees) incurred by the Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement and each other Lender Agreement, to the
extent that the Agent is not reimbursed for such expenses by the Borrower.
Section 13.6. Successor Agent. Except as provided below, the Agent may
resign at any time by giving written notice thereof to the Lenders and the
Borrower. Upon any such resignation, the Lenders shall have the right to appoint
a successor Agent (the "Successor Agent") which, absent the existence of a
default, shall be reasonably acceptable to the Borrower.
<PAGE>
If no Successor Agent shall have been so appointed by the Lenders (other than
the resigning Agent), and shall have accepted such appointment, within thirty
(30) days after the retiring Agent's giving notice of resignation, then the
retiring Agent may, on behalf of the Lenders, appoint a Successor Agent which,
absent the existence of a default, shall be reasonably acceptable to Borrower,
which shall be a commercial bank or financial institution organized under the
laws of the United States of America or of any state thereof and having a
combined capital and surplus of at least $50,000,000. Upon the acceptance of any
appointment as Agent hereunder by a Successor Agent, such Successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations under this Agreement and the other Lender
Agreements. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article 13 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Agreement and the
other Lender Agreements.
Section 13.7. Amendment of Article 13. The Borrower hereby agrees that the
foregoing provisions of this Article 13 constitute an agreement among the Agent
and the Lenders (and the Agent and the Lenders acknowledge that except for the
provisions of Section 13.6, the Borrower is not a party to or bound by such
foregoing provisions) and that any and all of the provisions of this Article 13,
with the exception of the reasonable approval of Borrower as may be required
under Section 13.6 hereto, may be amended at any time by the Lenders without the
consent or approval of, or notice to, the Borrower (other than the requirement
of notice to the Borrower of the resignation of the Agent and the appointment of
a successor Agent).
Section 13.8. Replacement of Agent Upon Assignment of Majority of
Commitment Percentage. If Agent assigns more than fifty percent of Agent's
Commitment Percentage Interest listed on Schedule 1 as of the Closing Date (in
accordance with the provisions of Section 12.2 hereunder) the Lenders can
request the appointment of a Successor Agent, with the consent of the Borrower.
If such Successor Agent is to be appointed under this Section 13.8, such
Successor Agent and the process of electing it shall be governed by Section 13.6
regarding Successor Agents.
ARTICLE 14. MISCELLANEOUS
Section 14.1. Notices. All notices and other communications made or
required to be given pursuant to this Agreement shall be in writing and shall be
mailed by United States mail, postage prepaid, or sent by hand, by telecopy or
by nationally-recognized overnight carrier service, addressed as follows:
(a) If to the Agent, at __________, with a copy to: Goodwin, Procter &
Hoar LLP, Exchange Place, Boston, MA 02109, Telecopier No. 617-523-1231,
Attention: Steven M. Ellis, P.C. or at such other address(es) or to the
attention of such other Person(s) as the Agent shall from time to time
designate in writing to the Borrower and the Lenders.
(b) If to the Borrower, at Route 101A (730 Milford Road), Merrimack,
NH 03054, Telecopier No. 603-423-2192, Attention: Mark Gavin, with a copy
to Hale and Dorr LLP,
<PAGE>
60 State Street, Boston, MA 02109. Telecopier No. 617-526-5000, Attn: Jay
Bothwick, Esquire, or at such other address(es) or to the attention of such
other Person(s) as the Borrower shall from time to time designate in
writing to the Agent and the Lenders.
(c) If to any Lender, at the address(es) and to the attention of the
Person(s) specified below such Lender's name on the execution page of this
Agreement (or in the case of a Successor Lender, at the address(es) and to
the attention of the Person(s) specified in the Assignment and Acceptance
Agreement executed by such Successor Lender), or at such other address(es)
and to the attention of such other Person(s) as any Lender shall from time
to time designate in writing to the Agent and the Borrower.
Any notice so addressed and mailed by registered or certified mail shall be
deemed to have been given when mailed. Any notice so addressed and sent by hand,
by telecopy or by overnight carrier service shall be deemed to have been given
when received.
A notice from the Agent stating that it has been given on behalf of the
Lenders shall be relied upon by the Borrower as having been given by the
Lenders.
Section 14.2. Merger. This Agreement and the other Lender Agreements and
documents contemplated hereby constitute the entire agreement of the Borrower
and the Agent and the Lenders and express their entire understanding with
respect to credit advanced or to be advanced by the Lenders to the Borrower.
Section 14.3. Governing Law; Consent to Jurisdiction. This Agreement shall
be governed by and construed and enforced under the laws of The Commonwealth of
Massachusetts. The Borrower and each Subsidiary hereby irrevocably submits
itself to the non-exclusive jurisdiction of the courts of The Commonwealth of
Massachusetts and to the non-exclusive jurisdiction of any Federal court of the
United States located in the District of Massachusetts for the purpose of any
suit, action or other proceeding arising out of this Agreement or any other
Lender Agreement or any of the transactions contemplated hereby or thereby.
Section 14.4. Counterparts. This Agreement and all amendments to this
Agreement may be executed in several counterparts, each of which shall be an
original. The several counterparts shall constitute a single Agreement.
<PAGE>
Section 14.5. Expenses and Indemnification.
(a) The Borrower agrees to pay, on demand, all of the Agent's
reasonable expenses in preparing, executing, delivering and administering
this Agreement, the Lender Agreements and all related instruments and
documents, including, without limitation, the reasonable fees and
out-of-pocket expenses of the Agent's special counsel, Goodwin, Procter &
Hoar LLP, and, absent the existence of a default, up to an amount of $1,500
annually, the Agent's and Lenders' expenses in connection with periodic
audits of the Borrower. The Borrower also agrees to pay, on demand, all
reasonable out-of-pocket expenses incurred by the Agent and the Lenders,
including, without limitation, reasonable legal and accounting fees, in
connection with the collection of amounts due hereunder and under all other
Lender Agreements upon the occurrence of an Event of Default hereunder, the
revision, protection or enforcement of any of the Agent's or the Lenders'
rights against the Borrower under this Agreement, the Notes and all other
Lender Agreements and the administration of special problems that may arise
under this Agreement or any other Lender Agreement. The Borrower also
agrees to pay all stamp and other taxes in connection with the execution
and delivery of this Agreement and related instruments and documents.
(b) Without limitation of any other obligation or liability of the
Borrower or right or remedy of the Agent or the Lenders contained herein,
the Borrower hereby covenants and agrees to indemnify and hold the Agent,
the Lenders, and the directors, officers, subsidiaries, shareholders,
agents, affiliates and Persons controlling the Agent and the Lenders,
harmless from and against any and all damages, losses, settlement payments,
obligations, liabilities, claims, including, without limitation, claims for
finder's or broker's fees, actions or causes of action, and reasonable
costs and expenses incurred, suffered, sustained or required to be paid by
any such indemnified party in each case by reason of or resulting from any
claim relating to the transactions contemplated hereby, other than any such
claims which are determined by a final, non-appealable judgment or order of
a court of competent jurisdiction to be the result of the gross negligence
or willful misconduct of such indemnified party. Promptly upon receipt by
any indemnified party hereunder of notice of the commencement of any action
against such indemnified party for which a claim is to be made against the
Borrower hereunder, such indemnified party shall notify the Borrower in
writing of the commencement thereof, although the failure to provide such
notice shall not affect the indemnification rights of any such indemnified
party hereunder. The Borrower shall have the right, at its option upon
notice to the indemnified parties, to defend any such matter at its own
expense and with its own counsel, except as provided below, which counsel
must be reasonably acceptable to the indemnified parties. The indemnified
party shall cooperate with the Borrower in the defense of such matter. The
indemnified party shall have the right to employ separate counsel and to
participate in the defense of such matter at its own expense. In the event
that (a) the employment of separate counsel by an indemnified party has
been authorized in writing by the Borrower, (b) the Borrower has failed to
assume the defense of such matter within fifteen (15) days of notice
thereof from the indemnified party, or (c) the named parties to any such
action (including impleaded parties) include any indemnified party who has
been advised by counsel that there may be one or more legal defenses
available to it or prospective bases for liability against it, which are
different from those available to or against the Borrower, then the
Borrower shall not
<PAGE>
have the right to assume the defense of such matter with respect to such
indemnified party. The Borrower shall not compromise or settle any such
matter against an indemnified party without the written consent of the
indemnified party, which consent may not be unreasonably withheld or
delayed.
Section 14.6. Confidentiality. The Agent and the Lenders agree to use
commercially reasonable efforts to keep in confidence all financial data and
other information relative to the affairs of the Borrower and its Subsidiaries
heretofore furnished or which may hereafter be furnished to them pursuant to the
provisions of this Agreement; provided, however, that this Section 14.6 shall
not be applicable to information otherwise disseminated to the public by the
Borrower or any of its Affiliates; and provided further, however, that such
obligation of the Agent and the Lenders shall be subject to the Agent's or the
Lenders', as the case may be, (a) obligation to disclose such information
pursuant to a request or order under applicable laws and regulations or pursuant
to a subpoena or other legal process, (b) right to disclose any such information
to bank examiners, affiliates, auditors, accountants and counsel who agree to
keep such information confidential, and (c) right to disclose any such
information (i) in connection with the transactions set forth herein including
assignments or the sale of participation interests pursuant to Article 12, so
long as such potential assignees or participants shall agree in writing to be
bound by the terms of this Section 14.6, or (ii) in connection with any
litigation or dispute involving the Agent or any transfer or other disposition
by the Agent or the Lenders, as the case may be, of any of the Lender
Obligations; provided that information disclosed pursuant to this provision
shall be so disclosed subject to such procedures as are reasonably calculated to
maintain the confidentiality thereof.
Section 14.7. WAIVER OF JURY TRIAL. THE AGENT, THE LENDERS AND THE BORROWER
AGREE THAT NONE OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY
TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON OR
ARISING OUT OF, THIS AGREEMENT, NOTES, ANY LENDER AGREEMENT, ANY RELATED
INSTRUMENTS, ANY COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG
ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN
WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS
PARAGRAPH HAVE BEEN FULLY DISCUSSED BY EACH OF THE AGENT, THE LENDERS AND THE
BORROWER WITH THEIR RESPECTIVE COUNSEL, AND THESE PROVISIONS SHALL BE SUBJECT TO
NO EXCEPTIONS. NONE OF THE AGENT, THE LENDERS OR THE BORROWER HAS AGREED WITH OR
REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE
FULLY ENFORCED IN ALL INSTANCES.
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders have caused
this Credit Agreement to be executed by their duly authorized officers as of the
date set forth above.
PC CONNECTION, INC. (fka PC HoldCo, Inc.)
By:
---------------------------------
Name:
Title:
CITIZENS BANK OF MASSACHUSETTS, as Agent
By:
---------------------------------
Name:
Title:
CITIZENS BANK OF MASSACHUSETTS, as Lender
By:
---------------------------------
Name:
Title:
100 Summer Street
13th Floor
Boston, MA 02110
Telecopier No:
Attention:
CITIZENS BANK NEW HAMPSHIRE
By:
---------------------------------
Name:
Title:
875 Elm Street
Manchester, NH 03101
Telecopier No:
Attention:
<PAGE>
FLEET BANK - NH
By:
---------------------------------
Name:
Title:
1155 Elm Street
Manchester, NH 03101
Telecopier No:
Attention:
<PAGE>
SCHEDULE 1
Commitment Percentages
<TABLE>
<CAPTION>
Commitment Commitment
Lender Percentage Amount
------------------- -----------
<S> <C> <C>
Citizens Bank of
Massachusetts 50.00% $25,000,000
Citizens Bank New Hampshire 20.00% $10,000,000
Fleet Bank - NH 30.00% $15,000,000
TOTALS 100.00% $50,000,000
</TABLE>
<PAGE>
SCHEDULE 2
<TABLE>
<CAPTION>
Ratio of Consolidated Applicable Applicable LIBOR
Senior Debt to Prime Rate Rate
Consolidated EBITDA Margin Margin
---------- ----------------
<S> <C> <C>
Greater than or equal to 2.0x 0% 2.00%
Greater than or equal to 1.5x
but less than 2.0x (0.25%) 1.75%
Greater than or equal to 1.0x
but less than 1.5x (0.50%) 1.50%
Greater than or equal to 0.5x
but less than 1.0x (0.75%) 1.25%
Less than 0.5x (1.00%) 1.00%
</TABLE>
The ratio of Consolidated Senior Debt to Consolidated EBITDA shall be
determined by taking the daily average Consolidated Senior Debt at the end of
each fiscal quarter and dividing it by historical rolling twelve-month
Consolidated EBITDA. The initial ratio of Consolidated Senior Debt to
Consolidated EBITDA (the "Ratio") shall be deemed to be less than 0.5x;
thereafter the Ratio shall be determined three (3) Business Days after the date
on which the Agent receives financial statements pursuant to Sections 6.1(b) and
6.2 and a certificate from the Chief Financial Officer of the Borrower
demonstrating the Ratio. If the Borrower has not submitted to the Agent the
information described above as and when required under Sections 6.1(b) and 6.2,
as the case may be, the Applicable Margin shall be determined by the Agent in
its discretion for so long as such information has not been received by the
Agent. The Applicable Margin shall be adjusted, if applicable, as of the first
day of the month following the date of determination described in the two
preceding sentences. In all circumstance, with respect to determination of the
Applicable Margin, the Applicable Margin will be adjusted retroactively to the
beginning of the applicable quarter.
<PAGE>
EXHIBIT A
FORM OF REVOLVING CREDIT NOTE
$______________ February 25, 2000
Boston, Massachusetts
FOR VALUE RECEIVED, the undersigned, PC CONNECTION, INC., a Delaware
corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of _______
(the "Lender") the principal sum of _______________________________ DOLLARS
($____________) (or, if less, the aggregate unpaid principal amount of all
Advances made by the Lender to the Borrower pursuant to the Credit Agreement as
hereinafter defined), together with interest on the unpaid principal from time
to time outstanding at the rate or rates and computed and payable at the times
as described in the Credit Agreement. The entire balance of outstanding
principal and accrued and unpaid interest shall be paid in full on the Credit
Termination Date (as defined in the Credit Agreement).
This note represents indebtedness for one or more Advances made by the
Lender to the Borrower under the Credit Agreement dated as of February 25, 2000
(as the same may be amended, modified or supplemented from time to time, the
"Credit Agreement") by and among the Borrower, the Lenders from time to time
parties thereto, and Citizens Bank of Massachusetts, as Agent for the Lenders
(the "Agent"). Capitalized terms used herein and not otherwise defined shall
have the meaning set forth in the Credit Agreement.
The Borrower shall have the right, at any time, to voluntarily prepay all
or any part of the outstanding principal amount of this note subject to the
provisions of the Credit Agreement. In addition to the payment of interest as
provided above, the Borrower shall, on demand, pay interest on any overdue
installments of principal and, to the extent permitted by applicable law, on
overdue installments of interest at the rate set forth in the Credit Agreement.
If any payment of principal or interest due hereunder is not made within
ten (10) days of its due date, the Borrower will pay to the Agent for the
account of the Lender, on demand, a late payment charge equal to the amount set
forth in the Credit Agreement.
The holder of this note is entitled to all the benefits and rights of a
Lender under the Credit Agreement to which reference is hereby made for a
statement of the terms and conditions under which the entire unpaid balance of
this note, or any portion hereof, shall become immediately due and payable. Any
capitalized term used in this note which is not otherwise expressly defined
herein shall have the meaning ascribed thereto in the Credit Agreement.
The Borrower hereby waives presentment, demand, notice, protest and other
demands and notices in connection with the delivery, acceptance or enforcement
of this note.
<PAGE>
No delay or omission on the part of the holder of this note in exercising
any right hereunder shall operate as a waiver of such right or of any other
right under this note, and a waiver, delay or omission on any one occasion shall
not be construed as a bar to or waiver of any such right on any future occasion.
The Borrower hereby agrees to pay on demand all reasonable costs and
expenses, including, without limitation, reasonable attorneys' fees and legal
expenses, incurred or paid by the holder of this note in enforcing this note on
default.
THE LENDER AND THE BORROWER AGREE THAT NEITHER OF THEM NOR ANY OF THEIR
ASSIGNEES OR SUCCESSORS SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING,
COUNTERCLAIM OR ANY OTHER ACTION BASED UPON OR ARISING OUT OF, THIS NOTE, THE
CREDIT AGREEMENT, ANY LENDER AGREEMENT, ANY DOCUMENT, INSTRUMENT OR AGREEMENT
EXECUTED IN CONNECTION WITH ANY OF THE FOREGOING, ANY COLLATERAL SECURING ALL OR
ANY PART OF THE LENDER OBLIGATIONS OR THE DEALINGS OR THE RELATIONSHIP BETWEEN
OR AMONG ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER
ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF
THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY EACH OF THE LENDER AND THE BORROWER
WITH THEIR RESPECTIVE COUNSEL, AND THESE PROVISIONS SHALL BE SUBJECT TO NO
EXCEPTIONS. NEITHER THE LENDER NOR THE BORROWER HAS AGREED WITH OR REPRESENTED
TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN
ALL INSTANCES.
This note shall be deemed to be under seal, and all rights and obligations
hereunder shall be governed by the laws of The Commonwealth of Massachusetts
(without giving effect to any conflicts of law provisions contained therein).
PC CONNECTION, INC.
By:
--------------------------------
Name:
Title:
<PAGE>
EXHIBIT B
FORM OF NOTICE OF BORROWING
PC CONNECTION, INC.
------------- ---
Citizens Bank of Massachusetts, as Agent
_______________, Boston, MA 02101
Attention: ________________
Re: Credit Agreement Dated as of February 25, 2000 by and among PC
Connection, Inc., the Lenders parties thereto, and Citizens Bank of
Massachusetts, as Agent (the "Credit Agreement")
Ladies and Gentlemen:
Pursuant to Section 2.2(a) of the Credit Agreement, the undersigned hereby
requests that the Lenders make Advances to the Borrower in the aggregate amount
of $________ on ____________, ____.
The representations and warranties contained or referred to in Article 5 of
the Credit Agreement are true and accurate on and as of the effective date of
the requested Advances as though made at and as of such date (except as to
representations and warranties made as of a certain date, which shall be true
and correct as of such date, and except that the references in the Agreement to
the 1998 Financial Statements are deemed to refer to the most recent annual
financial statements furnished to the Agent and the Lenders pursuant to Section
6.2 of the Credit Agreement); and no Default has occurred and is continuing or
will result from the requested Advances.
PC CONNECTION, INC.
By:
--------------------------------
Name:
Title:
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE OF PERMITTED ACQUISITION
PC CONNECTION, INC.
------------- ---
Citizens Bank of Massachusetts, as Agent
_______________, Boston, MA 02101
Attention: ________________
Re: Credit Agreement Dated as of February 25, 2000 by and among PC
Connection, Inc., the Lenders parties thereto, and Citizens Bank of
Massachusetts, as Agent (the "Credit Agreement)"
Ladies and Gentlemen:
The undersigned intends to request, pursuant to Section 2.2(a) of the
Credit Agreement, that the Lenders make Permitted Acquisition Advances to the
Borrower in the aggregate amount of $________ on ____________, ____ and hereby
represents and warrants that the requested Permitted Acquisition Advance will be
used for the acquisition described in Schedule 1 hereto (including but not
limited to name and location of company to be acquired) (the "Permitted
Acquisition"). The Borrower hereby certifies that the Permitted Acquisition
provides for (a) the acquisition of substantially all of the assets, shares or
partnership interests of a Person, (b) such Person is in a substantially similar
or related line of business as the Borrower, (c) the ratio of total
consideration paid for such property to the fair market value of such property
is comparable to recent industry transactions, and such determination has been
confirmed by the Agent, (d) such Person has positive EBITDA for the twelve
months of operations prior to this acquisition, (e) immediately subsequent to
the acquisition, the Borrower will be in compliance with all terms of the Lender
Agreements, and (f) after giving effect to the acquisition, the ratio of
Consolidated Senior Debt to EBITDA will not exceed 2.5 to 1. Capitalized terms
used herein and not otherwise defined shall have the meaning set forth in the
Credit Agreement.
PC CONNECTION, INC.
By:
--------------------------------
Name:
Title:
<PAGE>
Schedule 1 to the Certificate of Permitted Acquisition
<PAGE>
EXHIBIT D
FORM OF COMPLIANCE CERTIFICATE
PC CONNECTION, INC.
------------- ----
Citizens Bank of Massachusetts, as Agent
_______________, Boston, MA 02101
Attention: ________________
Re: Credit Agreement Dated as of February 25, 2000 by and among PC
Connection, Inc., the Lenders parties thereto, and Citizens Bank of
Massachusetts, as Agent (the "Credit Agreement")
Ladies and Gentlemen:
Pursuant to the provisions of Section 6.1 or 6.2 of the Credit Agreement,
the undersigned hereby certifies on behalf of the Borrower as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
<S>
(A) Advances........................... $_________
(B) Letter of Credit Outstandings...... $_________
(C) Maximum Credit Amount.............. $_________
(D) Amount available for Advances under
the Credit Agreement
(line C minus the sum of line A plus line B)........................ $_________
(E) Letter of Credit Limit............. $5,000,000
(F) Amount available for Letter of Credit Requests
(lesser of line D or sum of line E minus line B)....................... $_________
</TABLE>
(G) (1) The representations and warranties made by or on behalf of the
Borrower in the Credit Agreement and in all other Lender
Agreements are true and correct in all material respects on and
as of the date hereof, with the same effect as if made at and as
of the date hereof (except as to representations and warranties
made as of a certain date, which shall be true and correct only
as of such date, except as to transactions permitted under the
terms of the Credit Agreement, and except that the references in
the Agreement to the 1998 Financial Statements are deemed to
refer to the most recent annual financial statements furnished to
the Agent and the Lenders pursuant to Section 6.2 of the Credit
Agreement);
<PAGE>
(2)since the end of the last fiscal year, neither the business nor
assets, nor the condition, financial or otherwise, of the
Borrower has been subject to any Material Adverse Effect;
(3)except as set forth in the certificates attached hereto and
except as heretofore disclosed to the Agent in a previous
Compliance Certificate, there has been no change (i) in the
charter documents or By-Laws of the Borrower heretofore certified
to the Agent or (ii) in the incumbency of the officers of the
Borrower whose signatures have heretofore been certified to the
Agent;
(4)the financial statements attached hereto as Schedule 1 are in
compliance with the applicable provisions of Section 6.1 or 6.2
of the Credit Agreement, as the case may be;
(5)the undersigned has caused the provisions of the Credit Agreement
to be reviewed and, as of the date hereof, there is no Default
thereunder, and no condition which, with the passage of time or
giving of notice or both, would constitute a Default thereunder,
other than as set forth on Schedule 2 attached hereto.
(I) Attached hereto as Schedule 3 are calculations demonstrating that,
based upon the consolidated financial statements of the Borrower
attached hereto as Schedule 1, the Borrower is in compliance with all
financial restrictions set forth in the Credit Agreement.
Terms defined in the Credit Agreement and not otherwise expressly defined
herein are used herein with the meanings so defined in the Credit Agreement.
In witness whereof, the undersigned has caused an authorized officer to
execute this Certificate on this _____ day of ____________, ____.
PC CONNECTION, INC.
By:
--------------------------------
Name:
Title:*
- ----------
* Must be signed by the chief executive officer or chief financial officer of
the Borrower.
<PAGE>
SCHEDULE 1
to Compliance Certificate
The financial statements attached to this Schedule are submitted in
compliance with the following section of the Credit Agreement (check one):
[ ] Section 6.1
[ ] Section 6.2
<PAGE>
SCHEDULE 2
to Compliance Certificate
Defaults - Action Being Taken
<PAGE>
SCHEDULE 3
to Compliance Certificate
For purposes of computing the ratios and limitations comprising the financial
restrictions that follow, terms that are capitalized and not defined herein will
be given the meanings ascribed to such terms in the Credit Agreement.
<TABLE>
<CAPTION>
<S> <C> <C>
A. Consolidated Net Worth
(a) Consolidated total assets $_______
(b) Consolidated total liabilities $_______
(c) line (a) - line (b) $_______
(d) Minimum Consolidated Net Worth required in
</TABLE>
Credit Agreement $_______
B. Minimum Consolidated Net Income $_______
(a) Consolidated Net Income for last four consecutive
quarters $_______
(b) Minimum Consolidated Net Income required in
Credit Agreement $_______
C. Amount of Inventory Financing
(a) Reported amount of inventory and equipment financed under
inventory and equipment finance agreements in prior
Compliance Certificate $_______
(b) Amount of inventory and equipment financed under finance
agreements as of the date of the financing statements
attached to Schedule 1 hereto $_______
<PAGE>
EXHIBIT E
FORM OF LIBOR PRICING NOTICE
PC CONNECTION, INC.
---------------- ----
Citizens Bank of Massachusetts, as Agent
_______________, Boston, MA 02101
Attention: ________________
Re: Credit Agreement Dated as of February 25, 2000 by and among PC Connection,
Inc., the Lenders parties thereto, and Citizens Bank of Massachusetts, as
Agent (the "Credit Agreement")
Ladies and Gentlemen:
Pursuant to Section 2.4 of the Agreement, the undersigned hereby confirms
its request made on _______________, for a LIBOR Rate Loan in the amount of
$__________ comprising [all or a portion] of the outstanding Advances, effective
__________.
The Interest Period applicable to said LIBOR Rate Loan will be
[one][two][three][four][six] months.
Said LIBOR Rate Loan represents a [conversion/continuation] of the [Prime]
[LIBOR] Rate Loan in the same amount made on __________.
PC CONNECTION, INC.
By:
--------------------------------
Name:
Title:
<PAGE>
HALE AND DORR LLP
COUNSELLORS AT LAW
www.haledorr.com
60 STATE STREETo BOSTON, MASSACHUSETTS 02109
617-526-6000o FAX 617-526-5000
EXHIBIT F
FORM OF OPINION OF BORROWER'S COUNSEL
February 25, 2000
To the Banks party to the Credit
Agreement referred to below,
Citizens Bank of Massachusetts, as
Administrative Agent for such
Banks
PC Connection, Inc.
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 3.1 of the Amended and
Restated Credit Agreement dated as of February 25, 2000 (the "Credit
Agreement"), among PC Connection, Inc. (fka PC Holdco, Inc.) a Delaware
corporation ( the "Borrower"), the lenders party thereto (the "Banks"), and
Citizens Bank of Massachusetts, as Administrative Agent for such Banks (the
"Agent"). Capitalized terms used but not otherwise defined herein shall have the
respective meanings ascribed to them in the Credit Agreement.
We have acted as counsel to (i) the Borrower, and (ii) PC Connection Sales
Corp., a Delaware corporation, Merrimack Services Corp., a Delaware corporation,
ComTeq Federal, Inc., a Maryland corporation ("ComTeq"), each a wholly owned
subsidiary of the Borrower and for PC Connection Sales of Massachusetts, Inc., a
wholly owned subsidiary of PC Connection Sales Corp. (collectively, the
"Subsidiaries") in connection with the preparation, execution and delivery of
the Credit Agreement and the other Credit Documents (as defined below).
In rendering the opinions expressed below, we have examined:
(a) the Credit Agreement;
(b) the Notes in favor of each of the Banks;
Hale and Dorr LLP Includes Professional Corporations
* an independent joint venture law firm
BOSTON WASHINGTON, DC NEW YORK
<PAGE>
(c) the Guaranty executed by each of the Subsidiaries in favor of the
Agent on behalf of the Banks (the "Subsidiary Guaranty");
(d) the respective Certificate of Incorporation or Articles of
Incorporation of each of the Borrower and the Subsidiaries (as the case may
be), as in effect on the date hereof (collectively, the "Certificates of
Incorporation");
(e) the By-laws of each of the Borrower and the Subsidiaries (as the
case may be) each as in effect on the date hereof, provided to us by the
Borrower and the Subsidiaries (together, the "By-Laws");
(f) certified copies of resolutions of the boards of directors of each
of the Borrower and the Subsidiaries (as the case may be) approving the
transactions contemplated by such entities in connection with the Credit
Agreement (the "Authorizing Resolutions");
(g) authorization, incumbency and signature certificates as to the
officers of each of the Borrower and the Subsidiaries;
(h) certificates of legal existence and corporate good standing for
each of the Borrower and the Subsidiaries, as listed on Schedule I;
(i) certificates of authorization to transact business as a foreign
corporation of each of the Borrower and the Subsidiaries, as listed on
Schedule I;
(j) an Officers' Certificate of the President and Chief Operating
Officer of the Borrower, and the President and chief accounting officer of
each of the Subsidiaries of even date herewith (the "Officers'
Certificate"), a copy of which is attached hereto as Exhibit B; and
(k) such other documents, instruments and certificates (including, but
not limited to, certificates of public officials and officers of the
Borrower) as we have considered necessary for purposes of this opinion.
The documents listed in lettered clauses (a)-(c) are referred to collectively
herein as the "Credit Documents".
In our examination of the documents described above, we have assumed the
genuineness of all signatures, the capacity, power and authority of all parties
(other than the Borrower and the Subsidiaries) to execute and deliver all
applicable documents, the legal capacity of all individual signatories, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all copies of document submitted to us , and the
authenticity of the originals of such latter documents.
Insofar as this opinion relates to factual information which is in the
possession of the Borrower or the Subsidiaries, we have relied exclusively upon
the representations of the Borrower and the Subsidiaries contained in the Credit
Documents and the Officers' Certificate. Although we have not conducted any
independent investigation of the factual matters, nothing has come to our
attention leading us to question the accuracy of such matters.
<PAGE>
Any reference to "our knowledge" or "knowledge" or any variation thereof
shall mean the conscious awareness of the attorneys in this firm who have
rendered substantive attention to this transaction of the existence or absence
of any facts which would contradict our opinions and statements set forth
herein. We have not undertaken any independent investigation to determine the
existence or absence of the factual information referred to in the first
sentence hereof, and no inference as to our knowledge of the existence or
absence of such facts should be drawn from the fact of our representation of the
Borrower and the Subsidiaries. Without limiting the foregoing, with respect to
our opinions in paragraphs 5(c) and 7 below, we have not conducted a search of
the dockets of any court or administrative or other regulatory agency.
We have assumed that the Agent and each Bank and each of the other parties
to the Credit Documents (other than the Borrower and the Subsidiaries) has the
power and authority and has taken the corporate action necessary to execute and
deliver the Credit Documents to which it is a party, and that no consent,
approval, authorization, declaration or filing by or with any governmental
commission, board or agency is required for the valid execution and delivery of
such documents by such parties (other than the Borrower and the Subsidiaries).
We have assumed the due execution and delivery by each Bank and each of the
other parties to the Credit Documents (other than the Borrower and the
Subsidiaries) of each of the Credit Documents to which it is a party, and that
such Credit Documents constitute their valid and binding obligations enforceable
against it in accordance with their terms.
We express no opinion herein with respect to the laws of any state or
jurisdiction other than the Commonwealth of Massachusetts, the General
Corporation Law of the State of Delaware, the federal laws of the United States
of America and (solely with respect to the opinions in (i) paragraph 2 below to
the extent of our statements regarding ComTeq Federal, Inc.'s corporate power
and authority to own, operate and lease its properties and assets and to carry
on its business as it is now being conducted and (ii) paragraph 3 below to the
extent applicable to ComTeq Federal, Inc.) the Corporations and Associations
Article of the Annotated Code of Maryland. To the extent that the laws of any
other jurisdiction govern any of the matters as to which we are opining herein,
we have assumed that such laws are identical to the state laws of the
Commonwealth of Massachusetts, and we are expressing no opinion herein as to
whether such assumption is reasonable or correct.
For purposes of our opinions in paragraph 4 insofar as they relate to the
enforceability of the Subsidiary Guaranty executed and delivered by the
Subsidiaries, we have assumed that each Subsidiary has received reasonably
equivalent value and fair consideration in exchange for their respective
undertakings under the Subsidiary Guaranty. With respect to the opinions
expressed in paragraph 4 below for each of the Subsidiaries, we have assumed
that the execution and delivery of such Subsidiary Guaranty by such entity is
necessary or convenient to the conduct, promotion or attainment of the business
of such Subsidiary under Delaware Corporation Law ss. 122(13).
The opinions expressed in paragraphs 1 and 2 below, insofar as they relate
to the due organization, valid existence and corporate good standing of each of
the Borrower and the Subsidiaries in Delaware, are based solely upon the
certificates referred to in clause (h) above, are rendered as of the respective
dates of such certificates and are limited accordingly. Our opinions expressed
in paragraphs 1 and 2 below, insofar as they relate to the qualification to
transact business as a foreign corporation of the Borrower and the Subsidiaries
are based solely upon the certificates referred to in clause (i) above, are
rendered as of the respective dates of such certificates and are limited
accordingly.
<PAGE>
We express no opinion as to the enforceability of any right to set-off
against any deposit account of the Borrower or any Subsidiary to the extent that
(a) the funds on deposit in said accounts have been accepted by the Agent or any
Bank with an intent to apply such funds to a preexisting claim rather than to
hold such funds subject to withdrawals in the ordinary course, (b) the set-off
is directed against checks held by the Agent or any Bank for collection only and
not for deposit, (c) the funds on deposit in said accounts are in any manner
special accounts which, by the express terms on which they are created are made
subject to the rights of a third party, or (d) the obligations against which any
deposit account is set-off are not due and payable.
Our opinions below are qualified to the extent that the validity or
enforceability of the documents referred to or of any of the rights granted to
any party pursuant thereto may be subject to or affected by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or
similar laws affecting the rights of creditors generally, (ii) statutory or
decisional law concerning recourse by creditors to security in the absence of
notice or hearing, and (iii) duties and standards imposed generally on creditors
and parties to contracts, including, without limitation, requirements of good
faith, reasonableness and fair dealing. Furthermore, we express no opinion as to
the availability of any equitable or specific remedy upon any breach of any of
the agreements as to which we are opining herein or any of the agreements,
documents or obligations referred to therein, as the availability of such
remedies may be subject to the discretion of a court. We express no opinion as
to the enforceability of a waiver of rights granted by the Constitution of the
United States of America, or any state thereof, or the vesting of jurisdiction
in, or the consent to the exercise of jurisdiction by, any court. We have
assumed for the purposes of our opinions that the Agent and each Bank is subject
to control, regulation or examination by a state or federal regulatory agency.
Based upon and subject to the foregoing, and further subject to the
qualifications set forth below, it is our opinion that:
The Borrower is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware, with all requisite corporate
power and authority to own, operate or lease its properties and assets (as such
property and assets are known to us) and to carry on its business as, to our
knowledge, it is now being conducted. The Borrower is qualified to transact
business as a foreign corporation in New Hampshire and Ohio.
Each of the Subsidiaries (other than ComTeq Federal, Inc.) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with all requisite corporate power and authority to own, operate or
lease its properties and assets (as such property and assets are known to us)
and to carry on its business as, to our knowledge, it is now being conducted. PC
Connection Sales Corp. is qualified to transact business as a foreign
corporation in the Commonwealth of Massachusetts. ComTeq Federal, Inc. is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Maryland, with all requisite corporate power and authority to
own, operate or lease its properties and assets (as such property and assets are
known to us) and to carry on its business as, to our knowledge, it is now being
conducted.
Each of the Borrower and the Subsidiaries has full corporate power and authority
to execute, deliver and perform each of the Credit Documents to which it is a
party. All necessary corporate action on the part of each of the Borrower and
<PAGE>
the Subsidiaries required to be taken by law and by their respective
Certificates of Incorporation or Articles of Incorporation and By-laws to
authorize the execution and delivery by each of them of each of the Credit
Documents to which it is a party and the performance of its obligations
thereunder, has been taken.
Each of the Credit Documents to which the Borrower or the Subsidiaries is a
party has been duly executed and delivered by the Borrower or the Subsidiaries
party thereto, as the case may be, constitutes a valid and binding obligation of
the Borrower or the Subsidiaries party thereto, as the case may be, and is
enforceable against the Borrower or the Subsidiaries party thereto, as the case
may be, in accordance with its respective terms.
The execution and delivery by the Borrower and the Subsidiaries of each of the
Credit Documents to which it is a party, the performance by each of the Borrower
and the Subsidiaries of the respective terms and provisions thereof, and the
consummation of the transactions contemplated by the Credit Documents will not
violate, conflict with, result in a breach or termination of, or a default under
(or an event which, with or without due notice or lapse of time, or both, would
constitute a default under) or accelerate the performance required by, or result
in the creation of any lien, security interest, charge or other encumbrance upon
any of the properties or assets of any of the Borrower or the Subsidiaries under
any of the terms, conditions or provisions of: (a) their respective Certificates
of Incorporation or Articles of Incorporation or By-laws; (b) any laws
applicable to any of the Borrower or the Subsidiaries; (c) to our knowledge, any
judgment, order, decree, ruling or injunction issued in the United States of
America specifically naming any of the Borrower or the Subsidiaries of any court
or governmental authority; or (d) any agreement, contract, instrument or other
document listed on Exhibit A hereto.
No authorization, approval or consent of, and no filing or registration with,
any governmental or regulatory authority or agency of the United States of
America, the Commonwealth of Massachusetts, is required on the part of the
Borrower or Subsidiaries for the execution, delivery or performance by any of
the Borrower or the Subsidiaries of the Credit Documents.
To our knowledge there are no private or governmental litigation matters or
proceedings or investigations pending against the Borrower or any Subsidiary.
The foregoing opinions are subject to the following comments and
qualifications:
A. The enforceability of provisions in the Credit Documents, to the
effect that terms may not be waived or modified except in writing, may be
limited under certain circumstances.
B. We express no opinion as to the enforceability of sections of the
Credit Documents concerning evidentiary standards applicable to your notes
and records.
This opinion is based upon currently existing statutes, rules, regulations
and judicial decisions, and we disclaim any obligation to advise you of any
change in any of these sources of law
<PAGE>
or subsequent legal or factual developments which might affect any matters or
opinions set forth herein.
Please note that we are opining only as to the matters expressly set forth
herein, and no opinion should be inferred as to any other matters. A copy of
this opinion may be delivered to each Person that may become a Bank under the
Credit Agreement, and each such Person may rely on this opinion as if it were
addressed to it and had been delivered to it on the date hereof. Subject to the
foregoing, this opinion is solely for your benefit, and the benefit of your
counsel, in connection with the consummation of the transactions contemplated by
the Credit Agreement, and may not be quoted or relied upon by any other person
for any purpose or used by you or your counsel for any other purpose, without
our prior written consent.
Very truly yours,
HALE AND DORR LLP
<PAGE>
SCHEDULE I [to Borrower's Counsel's Opinion]
(Good Standing/Foreign Qualification Certificates)
A. PC Connection, Inc. (fka PC Holdco, Inc.) ("Parent")
1) Certificate of Legal Existence and Good Standing of Parent dated
February 18, 2000 issued by the Secretary of State of the State of Delaware.
2) Certificate of Qualification As A Foreign Corporation Doing Business of
Parent dated February 18, 2000 issued by the Secretary of State of the State of
New Hampshire.
3) Certificate of Qualification As A Foreign Corporation Doing Business of
Parent dated February 18, 2000 issued by the Secretary of State of the State of
Ohio.
B. PC Connection Sales Corp. (fka PC Connection, Inc.) ("Sales")
1) Certificate of Legal Existence and Good Standing of Sales dated February
18, 2000 issued by the Secretary of State of the State of Delaware.
2) Certificate of Qualification As A Foreign Corporation Doing Business of
Sales dated February 18, 2000 issued by the Secretary of State of the
Commonwealth of Massachusetts.
C. PC Connection Sales of Massachusetts, Inc. ("Massachusetts")
1) Certificate of Legal Existence and Good Standing of Massachusetts dated
February 18, 2000 issued by the Secretary of State of the Sate of Delaware.
D. Merrimack Services Corp. ("Merrimack")
1) Certificate of Legal Existence and Good Standing of Merrimack dated
February 18, 2000 issued by the Secretary of State of the State of Delaware.
E. ComTeq Federal, Inc. ("Comteq")
1) Certificate of Legal Existence and Good Standing of Comteq dated
February 18, 2000 issued by the Secretary of State of the State of Maryland.
2) Certificate of Qualification As A Foreign Corporation Doing Business of
Comteq dated February 18, 2000 issued by the Superintendent of Corporations for
the Government of the District of Columbia.
3) Certificate of Qualification As A Foreign Corporation Doing Business of
Comteq dated February 17, 2000 issued by the Secretary of State of the
Commonwealth of Virginia.
<PAGE>
EXHIBIT A [to Borrower's Counsel's Opinion]
1. Lease between PC Connection, Inc. and Miller-Valentine Partners, dated
September 24, 1990, as amended, for property located at 2870 Old State Route 73,
Wilmington, Ohio. Miller-Valentine Partners assigned this lease to EWE Warehouse
Investments V Ltd. on August 6, 1999.
2. Lease between PC Connection, Inc. and Gallup & Hall partnership, dated May 1,
1997, for property located at 442 Marlboro Street, Keene, New Hampshire.
3. Lease between PC Connection, Inc. and Gallup & Hall partnership, dated June
1, 1987, as amended, for property located in Marlow, New Hampshire.
4. Lease between PC Connection, Inc. and Gallup & Hall partnership, dated July
22, 1998, for property located at 450 Marlboro Street, Keene, New Hampshire.
5. Lease between PC Connection, Inc. and Century Park, LLC, dated October 1,
1997 for property located at Route 111, Hudson, New Hampshire.
6. Amended and Restated Lease between PC Connection, Inc. and G&H Post, LLC,
dated December 29, 1997 for property located at Route 101A, Merrimack, New
Hampshire.
7. Sublease between PC Connection, Inc. and ABX Air Inc., dated June 7, 1995,
for property located at 2870 Old State Route 73, Wilmington, Ohio.
8. Letter Agreement between PC Connection, Inc. and Airborne Freight Corporation
D/B/A "Airborne Express," dated April 30, 1990, as amended.
9. Agreement between PC Connection, Inc. and Ingram Micro, Inc., dated October
30, 1997, as amended.
10. Form of Registration Rights Agreement among PC Connection, Inc., Patricia
Gallup, David Hall and the 1998 PC Connection Voting Trust.
11. Amendment No. 1 to Amended and Restated Lease between PC Connection, Inc.
and G&H Post, LLC, dated December 29, 1998 for property located at Route 101A,
Merrimack, New Hampshire.
12. Lease between PC Connection, Inc. and Dover Mills, LLC, dated August 1, 1998
for property located at Cocheco Falls Millworks, Dover, New Hampshire.
13. Amended Lease Agreement between PC Connection, Inc. and Dover Mills, LLC
dated August 1, 1998.
14. Lease Assignment between to PC Connection, Inc., MicroWarehouse, Inc.
(leasee) and EWE Warehouse Investments V, Ltd. (leasor), dated December 13,
1999, for property located at 2935 Old State Road, Route 73, Wilmington, Ohio.
<PAGE>
15. Lease between PC Connection, Inc. and The Hillsborough Group, dated January
5, 2000, for property located at 706 Route 101A, Merrimack, New Hampshire.
16. Lease Assignment between PC Connection, Inc. and Merisel Americas, Inc.
(leasee) and Bronx II, LLC (leasor), dated January 4, 2000, for property located
at 293 Boston Post Road, Marlborough, Massachusetts.
17. Lease Assignment between PC Connection, Inc. and PC Connection Sales of
Massachusetts, Inc., dated January 5, 2000, for property located at 293 Boston
Post Road, Marlborough, Massachusetts.
18. Agreement for Inventory Financing, dated August 17, 1999, as amended
(including an Amendment to Agreement for Inventory Financing, dated February 25,
2000), between PC Connection Sales Corp. and IBM Credit Corporation.
19. Agreement for Wholesale Financing (Security Interest), dated October 12,
1993, as amended (including an Amendment to Agreement for Wholesale Financing,
dated February 25, 2000), between ComTeq Federal, Inc. and IBM Credit
Corporation.
20. Guaranty by the Subsidiaries (other than ComTeq Federal, Inc.), dated
February 25, 2000, in favor of IBM Credit Corporation.
21. Guaranty by the Subsidiaries (other than PC Connection Sales Corp.), dated
February 25, 2000, in favor of IBM Credit Corporation.
22. Agreement for Wholesale Financing, dated March 25, 1998, as amended
(including an Amendment to Agreement for Wholesale Financing, dated February 25,
2000), between PC Connection Sales Corp. and Duetsche Financial Services
Corporation.
23. Agreement for Wholesale Financing (Unsecured - Negative Covenant), dated
February 25, 2000, between ComTeq Federal, Inc. and Duetsche Financial Services
Corporation.
24. Guaranties, dated February 25, by PC Connection, Inc. in favor of Duetsche
Financial Services Corporation.
<PAGE>
EXHIBIT B [to Borrower's Counsel's Opinion]
PC CONNECTION, INC.
Officers' Certificate
Each of Wayne L. Wilson, in his capacity as President and Chief Operating
Officer of PC Connection, Inc., a Delaware corporation (the "Company") and
President of Merrimack Services Corp., a Delaware corporation ("Merrimack");
Mark A. Gavin, Vice President and Chief Financial Officer of the Company and
Chief Financial Officer of Merrimack; Robert F. Wilkins, President and Treasurer
of PC Connection Sales Corp., a Delaware corporation ("Sales") and President and
Treasurer of PC Connection Sales of Massachusetts, Inc. ("Massachusetts"); and
Gary Sorkin, President and Treasurer of ComTeq Federal, Inc., a Maryland
corporation ("ComTeq", and together with Merrimack, Sales and Massachusetts, the
"Subsidiaries"), hereby certifies to Hale and Dorr LLP ("Hale and Dorr") on
behalf of the Company and the Subsidiaries that:
1. All shares of capital stock of the Company issued by the Company to date were
issued originally for consideration of money paid or tangible or intangible
property received or services rendered or a combination thereof, as approved or
ratified by the Board of Directors of the Company in authorizing such issuances,
and such authorized consideration was in each case received by the Company.
2. All shares of capital stock of the Subsidiaries issued by the Subsidiaries to
date were issued originally for consideration of money paid or tangible or
intangible property received or services rendered or a combination thereof, as
approved or ratified by the Board of Directors of the Subsidiaries in
authorizing such issuances, and such authorized consideration was in each case
received by the Subsidiaries.
3. The Company owns of record and beneficially all of the outstanding shares of
capital stock of the Subsidiaries.
4. The outstanding shares of capital stock of the Subsidiaries are owned free
and clear of all liens, encumbrances, equities and claims, and no options,
warrants or other rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into any shares of capital stock of
or ownership interests in the Subsidiaries are outstanding.
5. He does not know of any private or governmental litigation matters or
proceedings or investigations pending against the Company or any of the
Subsidiaries.
6. Other than Ms. Patricia Gallup and Mr. David Hall, the Company is not aware
of any entity or person which beneficially owns 25% or more of the Company's
outstanding voting securities.
7. The execution and delivery by the Company and its Subsidiaries of each of the
Credit Documents to which it is a party, the performance by each of the Company
and its Subsidiaries of the respective terms and provisions thereof, and the
consummation of the transactions contemplated by the Credit Documents will not
violate, conflict with, result in a breach or termination of, or a default under
(or an event which, with or without due notice or lapse of time, or both, would
constitute a default under) or accelerate the performance required by, or result
in the creation of any lien, security interest, charge or other encumbrance upon
any of the properties or assets of any of the Company or
<PAGE>
its Subsidiaries under any of the terms, conditions or provisions of: (a) their
respective Certificates of Incorporation or Articles of Incorporation or
By-laws; (b) any laws applicable to any of the Company or its Subsidiaries; (c)
to our knowledge, any judgment, order, decree, ruling or injunction issued in
the United States of America specifically naming any of the Company or its
Subsidiaries of any court or governmental authority; or (d) any agreement,
contract, instrument or other document listed on Exhibit A to Hale and Dorr's
legal opinion dated the date hereof.
8. The Exhibit A attached to Hale and Dorr's legal opinion is a list of all of
the material contracts, agreements, instruments or other documents of the
Company and its Subsidiaries (other than the Credit Documents).
This certificate is given to Hale and Dorr in connection with Hale and
Dorr's delivery of certain legal opinions dated as of the date hereof in
connection with the transactions described in the Amended and Restated Credit
Agreement dated as of February ___, 2000 among the Company, the lenders party
thereto and Citizens Bank of Massachusetts, as Administrative Agent (the "Credit
Agreement"). This certificate may be relied upon by Hale and Dorr for purposes
of such opinions. All capitalized terms used and not otherwise defined in this
certificate shall have the meanings ascribed to them in the Credit Agreement.
<PAGE>
EXHIBIT H
FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT
Assignment and Acceptance Agreement dated as of _______, _____, by and
between __________ (the "Assignor") and __________ (the "Successor Lender").
WHEREAS, the Assignor is one of the Lenders party to the Credit Agreement
referred to below; and
WHEREAS, the Assignor desires to sell and the Successor Lender desires to
purchase, all or a portion of the outstanding loans, advances of credit and
commitments of Assignor under the Credit Agreement and the other documents,
instruments and agreements related thereto.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties agree as follows:
Reference is made to the Credit Agreement dated as of February 25, 2000 (as
amended or supplemented and as from time to time in effect, the "Credit
Agreement"), among PC CONNECTION, INC. (the "Borrower"), the lenders party
thereto (the "Lenders"), and CITIZENS BANK OF MASSACHUSETTS, as agent for the
Lenders (the "Agent"). Terms defined in the Credit Agreement and not otherwise
defined herein are used herein with the meanings so defined.
1. Assignment and Acceptance. Pursuant to Section 12.2 of the
Agreement, as of the close of business on __________________ (the
"Assignment Date"), the Assignor hereby assigns to the Successor Lender
$________ of its $________ outstanding Term Loan, $________ of its
$____________ current interest in the outstanding Advances and a ____%
interest in its Commitment Percentage.
The foregoing assignment which constitutes a ___% Commitment Percentage
under the Credit Agreement, is made together with the concomitant proportionate
amount of the undersigned's other rights and obligations under the Credit
Agreement and the other Lender Agreements, and the Successor Lender hereby
accepts and assumes such rights and obligations completely. After giving effect
to this assignment, the Assignor and the Successor Lender shall have the
interests in the Notes and the Commitment Percentages set forth on Schedule 1
attached hereto, and the Commitment Percentages of all of the Lenders under the
Credit Agreement shall be as set forth on Schedule 2 attached hereto.
2. Representations and Warranties.
<PAGE>
(a) Other than the representation and warranty that it is the
legal and beneficial owner of the interest being assigned hereby free
and clear of any adverse claim, the Assignor makes no representation
or warranty and assumes no responsibility with respect to (i) the
execution, delivery, effectiveness, enforceability, genuineness,
validity or adequacy of the Credit Agreement, the Notes or any other
Lender Agreement, (ii) any recital, representation, warranty,
document, certificate, report or statement in, provided for in,
received under or in connection with, the Credit Agreement or any
other Lender Agreement, or (iii) the existence, validity,
enforceability, perfection, recordation, priority, adequacy or value,
now or hereafter, of any lien or other direct or indirect security
afforded or purported to be afforded by any of the Lender Agreements
or otherwise from time to time.
(b) The Assignor makes no representation or warranty and assumes
no responsibility with respect to (i) the performance or observance of
any of the terms or conditions of the Credit Agreement or any other
Lender Agreement on the part of the Borrower, (ii) the business,
operations, condition (financial or otherwise) or prospects of the
Borrower or any other Person, or (iii) the existence of any Default.
(c) The Successor Lender confirms that it has received a copy of
the Credit Agreement and each of the other Lender Agreements, together
with copies of the most recent financial statements delivered pursuant
to Sections 6.1 and 6.2 of the Credit Agreement, and such other
documents and information as it has deemed appropriate to make its own
credit and legal analysis and decision to enter into this Assignment
and Acceptance Agreement. The Successor Lender confirms that it has
made such analysis and decision independently and without reliance
upon the Agent, the Assignor or any other Lender.
(d) The Successor Lender, independently and without reliance upon
the Agent, the Assignor or any other Lender, and based on such
documents and information as it shall be deem appropriate at the time,
will make its own decisions to take or not take action under or in
connection with the Credit Agreement or any other Lender Agreement.
(e) The Successor Lender irrevocably appoints the Agent to act as
Agent for the Successor Lender under the Credit Agreement and the
other Lender Agreements, all in accordance with Article 13 of the
Agreement and the other provisions of the Credit Agreement and each
other Lender Agreement.
(f) The Successor Lender agrees that it will perform in
accordance with their terms all of the obligations which by the terms
of the Credit Agreement and the other Lender Agreements are required
to be performed by it as a Lender.
(g) Except as to paragraph (a) above, the foregoing assignment is
made without any representation, warranty or recourse of any kind by
the Assignor.
3. Party to the Agreement, etc. Upon (a) the execution and delivery hereof
by the parties hereto at least 5 Business Days prior to the Assignment Date, and
(b) the payment by the Successor Lender to Assignor of an amount equal to the
purchase price agreed between the Successor Lender and the Assignor, and (c)
payment to the Agent of the fee required to be paid pursuant to Section 12.2(a)
of the Agreement, the Successor Lender shall automatically become party to the
Credit Agreement as a signatory thereto. As of the Assignment Date, the
Successor Lender shall have all the rights and obligations of a Lender under the
Credit Agreement and the other Lender Agreements as and to the extent set forth
on Schedule 1 and Schedule 2 attached hereto. Copies of all notices and
<PAGE>
other information required to be delivered to the Lenders under the Credit
Agreement shall be delivered to the Successor Lender at the address(es) and to
attention of the Person(s) specified below the Successor Lender's name on the
execution page of this Assignment and Acceptance Agreement. As of the Assignment
Date, the Assignor shall be released from its obligations under the Credit
Agreement to a corresponding extent, and no further consent or action by any
party shall be required.
4. Miscellaneous. This Assignment and Acceptance Agreement may be executed
in any number of counterparts, which together shall constitute one instrument,
shall be governed by and construed in accordance with the laws of The
Commonwealth of Massachusetts (without giving effect to the conflict of laws
rules of any jurisdiction) and shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns.
<PAGE>
IN WITNESS WHEREOF, the Assignor and the Successor Lender have executed
this Assignment and Acceptance Agreement as of the date first above written.
[ASSIGNOR]
By:
--------------------------------
Name:
Title:
[SUCCESSOR LENDER]
By:
--------------------------------
Name:
Title:
[Address for Notices]
Telecopier No.:
Attention:
The foregoing is hereby acknowledged and approved:
PC CONNECTION, INC.*
By:
--------------------------------
Name:
Title:
CITIZENS BANK OF MASSACHUSETTS, as Agent
By:
--------------------------------
Name:
Title:
- ---------------
* Include unless Borrower is in Default, at which point Borrower's consent is
not required.
<PAGE>
Schedule 1
Successor Lender's and Assignor's Interest
The Successor Lender's interest under the Credit Agreement on and after the
Assignment Date shall be as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Commitment Percentage %
-------
Principal Amount of Note $
</TABLE>
The Assignor's interest under the Credit Agreement on and after the Assignment
Date shall be as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Commitment Percentage %
-------
Principal Amount of Note $
</TABLE>
<PAGE>
Schedule 2
Lenders' Commitment Percentages
After giving effect to the assignment on the Assignment Date, the
Lenders' respective Commitment Percentages under the Credit Agreement shall be
as follows:
<TABLE>
<CAPTION>
Commitment Maximum Credit
Lender Percentage Amount
---------- --------------
<S> <C> <C>
_____________________ ____.__% $____________
_____________________ ____.__% $____________
_____________________ ____.__% $____________
TOTALS 100.00% _________.00
</TABLE>
<PAGE>
EXHIBIT I
FORM OF LETTER OF CREDIT REQUEST
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the Registration Statements Nos.
333-69981, 333-50847, 333-50847, 333-50845, and 333-83943 of PC Connection, Inc.
on Form S-8 of our report dated January 26, 2000, appearing in the Annual Report
on Form 10-K of PC Connection, Inc. for the year ended December 31, 1999.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 27, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Company's annual
financial statements on Form 10-K and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 20,416
<SECURITIES> 0
<RECEIVABLES> 107,055
<ALLOWANCES> 7,650
<INVENTORY> 64,348
<CURRENT-ASSETS> 190,811
<PP&E> 46,448
<DEPRECIATION> 23,322
<TOTAL-ASSETS> 223,537
<CURRENT-LIABILITIES> 118,561
<BONDS> 0
0
0
<COMMON> 158
<OTHER-SE> 94,065
<TOTAL-LIABILITY-AND-EQUITY> 223,537
<SALES> 1,056,704
<TOTAL-REVENUES> 1,056,704
<CGS> 927,358
<TOTAL-COSTS> 927,358
<OTHER-EXPENSES> (116)
<LOSS-PROVISION> 6,821
<INTEREST-EXPENSE> 1,392
<INCOME-PRETAX> 36,665
<INCOME-TAX> 13,935
<INCOME-CONTINUING> 22,730
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,730
<EPS-BASIC> 1.45
<EPS-DILUTED> 1.41
</TABLE>
