<PAGE>
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994.
-------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ___________
Commission File Number
0-17156
MERISEL, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4172359
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Continental Boulevard
El Segundo, CA 90245-0984
(Address and zip code of principal executive offices)
(310) 615-3080
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Number of Shares Outstanding
Class November 10, 1994
----- ----------------------------
Common Stock, $.01 par value 29,715,574
<PAGE>
MERISEL, INC.
-------------
INDEX
-----
<TABLE>
<CAPTION>
Page Reference
--------------
PART I FINANCIAL INFORMATION
<C> <S> <C>
Consolidated Balance Sheets
September 30, 1994 (unaudited) and
December 31, 1993 1-2
Consolidated Statements of Income
Three Months and Nine Months Ended
September 30, 1994 and 1993 (unaudited) 3
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1994
and 1993 (unaudited) 4
Notes to Consolidated Financial Statements 5-9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-17
PART II OTHER INFORMATION 18
SIGNATURES 19
</TABLE>
ii
<PAGE>
PART 1. FINANCIAL INFORMATION
-----------------------------
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 61 $ 14
Accounts receivable (net of allowance
for doubtful accounts of $15,996
and $16,543 for 1994 and 1993) 368,371 393,252
Inventories 498,458 442,392
Prepaid expenses and other current assets 9,853 15,443
Deferred income tax benefit 8,934 8,942
------------- ------------
Total current assets 885,677 860,043
PROPERTY AND EQUIPMENT - NET 56,877 39,858
COST IN EXCESS OF NET ASSETS ACQUIRED - NET 114,152 32,832
OTHER ASSETS 3,672 3,550
------------- ------------
TOTAL ASSETS $1,060,378 $936,283
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, Except Share Data)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 431,900 $414,841
Accrued liabilities 48,826 26,811
Short-term bank debt 92,072 50,929
Income taxes payable 1,553 7,697
-------------- ------------
Total current liabilities 574,351 500,278
Deferred income tax liability 1,534 1,787
Long-term debt 220,450 186,500
Subordinated debt 22,000 22,000
-------------- ------------
TOTAL LIABILITIES 818,335 710,565
-------------- ------------
MINORITY INTEREST 1,861
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, authorized
1,000,000 shares; none issued or outstanding
Common stock, $.01 par value, authorized
50,000,000 shares; outstanding 29,683,300
and 29,604,300 for 1994 and 1993,
respectively 297 296
Additional paid-in capital 141,164 140,775
Retained earnings 105,620 91,512
Cumulative translation adjustment (5,038) (8,726)
-------------- ------------
Total stockholders' equity 242,043 223,857
-------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,060,378 $936,283
============== ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ----------------------
1994 1993 1994 1993
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $1,230,562 $731,442 $3,595,683 $2,137,323
COST OF SALES 1,146,836 669,886 3,347,886 1,957,211
---------- -------- ---------- ----------
GROSS PROFIT 83,726 61,556 247,797 180,112
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 68,211 45,785 196,867 133,565
---------- -------- ---------- ----------
OPERATING INCOME 15,515 15,771 50,930 46,547
INTEREST EXPENSE 7,410 4,307 19,968 13,222
OTHER EXPENSE 3,171 486 8,084 1,064
---------- -------- ---------- ----------
INCOME BEFORE INCOME TAXES 4,934 10,978 22,878 32,261
PROVISION FOR INCOME TAXES 2,141 4,870 8,769 13,728
---------- -------- ---------- ----------
NET INCOME $ 2,793 $ 6,108 $ 14,109 $ 18,533
========== ======== ========== ==========
NET INCOME PER SHARE $0.09 $0.20 $0.46 $0.61
========== ======== ========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 30,353 30,478 30,645 30,362
========== ======== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months ended September 30,
1994 1993
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $14,109 $18,533
Adjustments to reconcile net income to
net cash provided by (used for)
operating activities:
Depreciation and amortization 11,895 7,435
Provision for bad debts 12,505 11,128
Deferred income taxes (245) (2,478)
Changes in assets and liabilities:
Accounts receivable (61,529) (61,828)
Inventories (56,066) (63,254)
Prepaid expenses and other assets 4,490 (10,330)
Accounts payable 17,059 70,374
Accrued liabilities 21,129 3,150
Income taxes payable (6,144) (3,005)
------------ ------------
Net cash used for operating activities (42,797) (30,275)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (23,910) (16,605)
Payments for acquisitions (87,424)
------------ ------------
Net cash used for investing activities (111,334) (16,605)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving line of credit 1,250,550 757,800
Repayments under revolving line of credit (1,246,600) (736,750)
Borrowings (repayments) under bank
facilities 6,143 (7,753)
Borrowings in connection with acquisition 65,000
Proceeds from sale of accounts receivable 75,000 37,500
Proceeds from exercise of common stock
options 390 1,066
------------ ------------
Net cash provided by financing activities 150,483 51,863
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 3,695 (5,034)
------------ ------------
NET INCREASE (DECREASE) IN CASH &
CASH EQUIVALENTS 47 (51)
CASH & CASH EQUIVALENTS, BEGINNING
OF PERIOD 14 133
------------ ------------
CASH & CASH EQUIVALENTS, END OF PERIOD $61 $82
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. General
Merisel, Inc. ("Merisel" or the "Company") is a worldwide wholesale distributor
of microcomputer hardware and software products. In addition, as a result of the
ComputerLand Acquisition (see Note 2), the Company is a leading aggregator, or
master reseller, of computer systems and related products from major
microcomputer manufacturers to ComputerLand franchises and Datago affiliates.
The consolidated financial statements include the accounts of Merisel and its
consolidated subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
The information for the three and nine month periods ended September 30, 1994
and 1993 has not been audited by independent accountants, but includes all
adjustments (consisting of normal recurring accruals) which are, in the opinion
of management, necessary for a fair presentation of the results for such
periods.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to the requirements of the Securities and
Exchange Commission, although the Company believes that the disclosures included
in these financial statements are adequate to make the information not
misleading. The consolidated financial statements as presented herein should be
read in conjunction with the consolidated financial statements and notes thereto
included in Merisel's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993. The results of operations for the three and nine month
periods ended September 30, 1994 are not necessarily indicative of results that
may be expected for future periods.
2. Acquisitions
On January 31, 1994, the Company, through its wholly-owned subsidiary, Merisel
FAB, Inc. ("Merisel FAB"), acquired certain assets of the United States
Franchise and Distribution Division (the "F&D Division") of Vanstar Corporation
(formerly ComputerLand Corporation) (the "ComputerLand Acquisition"). The
Company paid $80.2 million in cash at closing for the acquired assets and $2.5
million of direct acquisition costs. In addition, the Company has agreed to make
an additional payment in 1996 of up to $30 million. The amount of such payment
will be based upon the growth of the Company's and Merisel FAB's sales of
products of designated vendors to specified customers over the two-year period
ending January 31, 1996. The acquisition has been accounted for as a purchase.
Under the purchase method of accounting, an allocation of the purchase price to
the Merisel FAB assets and liabilities is required to reflect fair values.
Based on a preliminary allocation, $82 million of the purchase price has been
allocated to intangible assets with an estimated aggregate life of 25 years. A
final allocation of the purchase price has not yet been performed.
5
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
Merisel FAB has also entered into a Distribution and Services Agreement (the
"Agreement") with Vanstar Corporation ("Vanstar") whereby Vanstar will provide
products and distribution and other support services to Merisel FAB for two
years following the ComputerLand Acquisition. Under the Agreement, Merisel has
been granted $20 million in extended credit terms on its product purchases from
Vanstar (the "Vanstar Payable"). The Vanstar Payable accrues interest at prime
less 2%, per annum (5.75% at September 30, 1994), payable monthly, with the
principal balance due on February 1, 1996.
Following is summarized pro forma operating results assuming that the Company
had acquired the F&D Division on January 1, 1993.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1993 1994 1993
------------------ ---------- ----------
<S> <C> <C> <C>
(in thousands)
Net sales $999,990 $3,697,415 $2,929,629
Income before taxes 12,786 23,043 37,478
Net income 7,193 14,208 21,663
Net income per share $ 0.24 $ 0.46 $ 0.71
Weighted average shares
outstanding 30,478 30,645 30,362
</TABLE>
Prior to its acquisition, the ComputerLand Business was not an incorporated
entity and separate historical financial statements were not prepared.
Accordingly, no such financial statements are readily available. The summarized
pro forma operating results are based, in part, on historical income statement
information obtained from the F&D Division's unaudited statement of revenues and
operating expenses for the month ended January 31, 1994 and the three month and
nine month periods ended September 30, 1993. Such historical statements present
the revenues, direct expenses and general and administrative expenses allocated
from Vanstar. The pro forma information for 1994 includes the historical
operating results of the ComputerLand Business for the period from February 1,
1994 to September 30, 1994 which, during such period, were consolidated with
those of the Company.
6
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
In addition, the summarized pro forma information for the F&D Division, prior to
its acquisition by the Company, includes adjustments to reflect the allocation
of general and administrative expenses, such as the costs of the distribution
centers and general corporate functions and expenses and administrative
personnel. Such expenses have been allocated based upon such factors as the
ratio of shipments by the F&D Division to total shipments by Vanstar and
Vanstar's management's estimate of the time spent by shared employees of
Vanstar. The pro forma results also include adjustments for interest expense on
debt incurred in connection with the acquisition, amortization of intangible
assets and provision for income taxes assuming a 40% marginal income tax rate.
The summarized pro forma information may not be indicative of the results that
would have occurred if the acquisition had been consummated on January 1, 1994
or 1993 or that may be achieved in the future.
In addition, effective August, 1994, the Company acquired the remaining 40%
minority interest in the Company's Mexico subsidiary for approximately $5.0
million. Pro forma income statement information for this acquisition has not
been provided as the financial statement impact is not significant.
3. Sale of Accounts Receivable
Pursuant to a trade accounts receivable securitization agreement with a
securitization company, as amended in March 1994, the securitization company may
purchase on an ongoing basis up to $150 million of an undivided interest in
designated accounts receivable. The receivables are sold at face value and fees
paid in connection with such sales are recorded as other expense. This facility
expires in November 1994, but has been extended through October 1995, subject to
the Company meeting certain specified conditions. At September 30, 1994, $150
million of net accounts receivable were sold under this agreement.
4. Net Income Per Share
Net income per share is computed by dividing net income by the weighted average
number of shares of common stock outstanding during the related period,
including common stock options when dilutive.
5. Fiscal Periods
The Company's fiscal year is the 52 or 53 week period ending on the Saturday
nearest to December 31. The three month and nine month periods ended
September 30, 1994 and 1993 were 13 and 39 week periods, respectively. For
simplicity of presentation, the Company has described the interim periods and
year-end period as of September 30, and December 31, respectively.
7
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
6. Debt
At September 30, 1994, the Company's subsidiaries Merisel Americas, Inc.
("Merisel Americas") and Merisel Europe, Inc. ("Merisel Europe") had unsecured
senior borrowing commitments of $250 million, which consisted of $100 million of
8.58% senior notes ("Senior Notes") by Merisel Americas, and a $150 million
revolving credit agreement ("Revolver") by Merisel Americas and Merisel Europe.
The Senior Notes are due on June 30, 1997, and the Revolver is due on May 31,
1997.
At September 30, 1994, there was $100 million outstanding under the Senior
Notes, and $90.5 million outstanding under the Revolver. Advances under the
Revolver bear interest at specific rates based upon market reference rates and
the Company's performance relative to specific levels of debt to total
capitalization. The combined average interest rate at September 30, 1994 was
approximately 6.2%. The Company is also required to pay a commitment fee on the
unused available funds on the Revolver.
The Senior Notes and Revolver agreements both contain various covenants,
including those which prohibit the payment of cash dividends, require a minimum
amount of tangible net worth and place limitations on the acquisition of assets.
The agreements also require the Company to maintain certain specified financial
ratios, including interest coverage, total debt to total capitalization and
inventory turnover.
In addition, the Company and its subsidiaries have various unsecured lines of
credit denominated in their local currencies. The Company had borrowings under
these lines of credit of $57.1 million, at September 30, 1994.
To finance the ComputerLand Acquisition, the Company borrowed $65 million under
an unsecured credit agreement with a bank. Such amount was repaid in October,
1994 upon the issuance of $125 million of debt (see Note 10).
7. Long-Term Subordinated Debt
The Company has outstanding an aggregate of $22,000,000 of privately placed
subordinated notes. The notes provide for interest at the rate of 11.28% per
annum and are repayable in five equal annual installments beginning March 1996.
These notes were assigned to the Company's subsidiary Merisel Americas in
December 1993. The subordinated debt agreement contains certain restrictive
covenants, including those that limit the ability of Merisel Americas to incur
debt, acquire the stock of or merge with other corporations, or sell certain
assets, and prohibits the payment of dividends. The subordinated debt agreement
also requires Merisel Americas to maintain specified financial ratios similar in
nature, but generally less restrictive, than those described in Note 6.
8
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
8. Litigation
In June 1994, the Company and certain of its officers and/or directors were
named in putative securities class actions filed in the United States District
Court for the Central District of California, consolidated as In re Merisel,
--------------
Inc. Securities Litigation. Plaintiffs, who are seeking damages in an
- - --------------------------
unspecified amount, purport to represent a class of all persons who purchased
Merisel common stock between February 1, 1994 and June 7, 1994 (the "class
period"). The complaint, as amended and consolidated, alleges that the
defendants inflated the market price of Merisel's common stock with material
misrepresentations and omissions during the class period. Plaintiffs contend
that such alleged misrepresentations are actionable under Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder. Merisel believes that it has meritorious defenses to this lawsuit
and intends to defend the action vigorously. Management believes that the
outcome of this matter will not have a material adverse effect on the
consolidated financial position or the results of operations of the Company, and
accordingly, no provision for loss has been made in the accompanying financial
statements.
9. Supplemental Disclosure of Cash Flow Information
Cash paid for interest and income taxes for the nine month periods ended
September 30, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
(in thousands)
Interest $15,276 $15,332
Income Taxes $10,717 $18,109
</TABLE>
10. Subsequent Event
Effective October 24, 1994, the Company issued $125 million principal amount of
senior notes (the "Notes"), which will mature on December 31, 2004. The Notes
provide for an interest rate of 12.5% payable semiannually commencing December
31, 1994. These Notes will be effectively subordinated to all liabilities of
the Company's subsidiaries, including trade payables. The Indenture relating to
the Notes contains certain covenants that, among other things, limit the type
and amount of additional indebtedness that may be incurred by the Company or any
of its subsidiaries and impose limitations on investments, loans, advances,
sales or transfers of assets, the making of dividends and other payments, the
creation of liens, sale-leaseback transactions, certain transactions with
affiliates and certain mergers.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
GENERAL
- - -------
Merisel, Inc. ("Merisel" or the "Company") is a worldwide wholesale distributor
of microcomputer hardware and software products. In addition, as a result of the
ComputerLand Acquisition, as defined below, the Company is a leading aggregator,
or master reseller, of computer systems and related products from major
microcomputer manufacturers to ComputerLand franchises and Datago affiliates.
On January 31, 1994, the Company acquired, through its wholly-owned subsidiary
Merisel FAB, Inc., ("Merisel FAB") certain assets of the United States Franchise
and Distribution Division of Vanstar Corporation (formerly ComputerLand
Corporation) (the "ComputerLand Acquisition"). The operating results for the
three month and nine month periods ended September 30, 1994 include the
historical results of operations for Merisel FAB since its acquisition on
January 31, 1994. The results of operations for the three and nine month
periods ended September 30, 1994 are not necessarily indicative of results that
may be expected for future periods.
The following table sets forth the percentage relationship that certain income
and expense items bear to net sales and is derived from the consolidated
statements of income for the Company for the three and nine month periods ended
September 30, 1994 and 1993:
PERCENTAGE OF NET SALES
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 93.2 91.6 93.1 91.6
------- ------- ------- -------
Gross profit 6.8 8.4 6.9 8.4
Selling, gen'l & admin. expenses 5.5 6.3 5.5 6.2
------- ------- ------- -------
Operating income 1.3 2.1 1.4 2.2
Interest expense 0.6 0.6 0.6 0.6
Other expense 0.3 0.2 0.1
------- ------- ------- -------
Income before income taxes 0.4 1.5 0.6 1.5
Provision for income taxes 0.2 0.7 0.2 0.6
------- ------- ------- -------
Net income 0.2% 0.8% 0.4% 0.9%
======= ======= ======= =======
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
RESULTS OF OPERATIONS
- - ---------------------
Three Months Ended September 30, 1994 as Compared to the Three Months Ended
- - ---------------------------------------------------------------------------
September 30, 1993
- - ------------------
Net sales increased 68.2% from $731.4 million in 1993 to $1,230.6 million in
1994. The increase in net sales was due to the impact of the ComputerLand
Acquisition, as well as an increase in the number of vendors and products the
Company is authorized to sell in various geographic markets. The Company also
increased its market share of certain vendor products in various geographic
markets. Net sales for Merisel FAB were $286.9 million or 23.3% of consolidated
net sales for the quarter ended September 30, 1994.
Geographically, the Company's net sales for the three months ended September 30,
1994 were as follows: United States, $862 million, or 70.0% ($575 million, or
46.7% excluding FAB); Canada, $108 million, or 8.8%; Europe, $182 million, or
14.8%; and other international markets, $79 million, or 6.4%. From 1993 to
1994, these geographic regions experienced sales growth rates as follows:
United States, 82.7% (21.9% excluding Merisel FAB), Canada, 20.0%, Europe, 50.8%
and other international markets, 60.9%. The Company's higher sales growth rates
were due to the same factors described in the preceding paragraph.
In the United States, including Merisel FAB, hardware and accessories accounted
for 77% of net sales, and software accounted for 23% of net sales in 1994, as
compared to 65% and 35%, respectively, in 1993. In the United States, excluding
Merisel FAB, hardware and accessories accounted for 67% of net sales, and
software accounted for 33% of net sales. The increase in hardware sales is due
to the fact that Merisel FAB's revenues are predominantly hardware related and
to the fact that the Company has obtained additional rights to distribute
hardware products from various vendors.
Gross profit increased 36.0% from $61.6 million in 1993 to $83.7 million in
1994. Gross profit as a percentage of sales, or gross margin, decreased from
8.4% in 1993 to 6.8% in 1994. The decrease in gross margin is principally
attributable to competitive pressures on pricing worldwide and the effect of the
ComputerLand Acquisition. Merisel FAB has lower gross margins than those of the
Company's wholesale distribution business. Merisel FAB's operating expenses as a
percentage of sales, however, are generally lower than the Company's wholesale
distribution business, which helps offset the lower gross margins. The Company
anticipates that it will continue to experience downward pressure on gross
margin due to industry price competition.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
Selling, general and administrative expenses ("SG&A") increased 49.0% from $45.8
million in 1993 to $68.2 million in 1994. SG&A decreased as a percentage of net
sales from 6.3% in 1993 to 5.5% in 1994. The absolute dollar increase in SG&A
is primarily due to costs associated with the Company's 68.2% increase in net
sales. The decrease in SG&A as a percentage of sales is principally due to
Merisel FAB's lower operating expenses as a percentage of sales compared to
Merisel's wholesale distribution business.
Operating income decreased 1.6% from $15.8 million in 1993 to $15.5 million in
1994. Operating income as a percentage of net sales was 2.1% in 1993 and 1.3% in
1994. Operating income as a percentage of net sales for the Company's U.S.
distribution business declined as a result of lower gross margins, which more
than offset the small decline in operating expenses as a percentage of sales.
The Company's European operations continued to experience net operating losses
as a result of continued competitive pressure on margins, combined with a
leveling off of operating expenses as a percentage of sales, which is the result
of the Company's implementation of its long-term strategy to centralize its
European operations. In addition, Merisel FAB generates lower operating income
as a percentage of net sales than the Company's wholesale distribution business,
which has the effect of lowering overall consolidated operating income as a
percentage of net sales.
Interest expense increased 72.1% from $4.3 million in 1993 to $7.4 million in
1994, and remained level as a percentage of net sales in 1993 compared to 1994.
The dollar increase in interest expense is primarily attributable to the
Company's higher average borrowings in 1994, reflecting the need to finance the
ComputerLand Acquisition, property and equipment additions and to finance higher
levels of working capital to support increased sales.
Other expenses increased from $0.5 million in 1993 to $3.2 million in 1994,
primarily due to fees of $2.2 million incurred in connection with accounts
receivable securitizations, and the amortization of financing fees of $0.3
million related to the acquisition of the ComputerLand Business.
The Company's provision for income taxes decreased 56.0% from $4.9 million in
1993 to $2.1 million in 1994, reflecting the Company's decreased income before
income taxes. The Company's effective tax rate declined from 44.4% in 1993 to
43.4% in 1994.
Net income decreased 54.3% from $6.1 million in 1993 to $2.8 million in 1994.
Net income per share decreased from $0.20 in 1993 to $0.09 in 1994. The
Company's weighted average number of shares decreased from 30.5 million shares
in 1993 to 30.4 million shares in 1994.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
RESULTS OF OPERATIONS
- - ---------------------
Nine Months Ended September 30, 1994 as Compared to the Nine Months Ended
- - -------------------------------------------------------------------------
September 30, 1993
- - ------------------
Net sales increased 68.2% from $2.1 billion in 1993 to $3.6 billion in 1994.
The increase in net sales was due to the same factors summarized in the
discussion of net sales for the Three Months Ended September 30, 1994 and 1993.
Net sales for Merisel FAB were $759.4 million or 21.1% of consolidated net sales
for the nine months ended September 30, 1994.
Geographically, the Company's net sales for the nine months ended September 30,
1994 were as follows: United States, $2,458 million, or 68.4% ($1,698 million
or 47.2% excluding FAB); Canada, $368 million, or 10.2%; Europe, $548 million,
or 15.2%; and other international markets, $222 million, or 6.2%. From 1993 to
1994, these geographic regions experienced sales growth rates as follows; United
States, 82.8% (26.3% excluding Merisel FAB), Canada, 36.8%, Europe, 47.1% and
other international markets, 46.5%.
In the United States, including Merisel FAB, hardware and accessories accounted
for 77% of net sales, and software accounted for 23% of net sales in 1994,
as compared to 61% and 39%, respectively, in 1993 in the United States,
excluding Merisel FAB, hardware and accessories accounted for 67% of net sales,
and software accounted for 33% of net sales. The increase in hardware sales was
due to the same factors summarized in the discussion of hardware and accessories
and software sales for the Three Months Ended September 30, 1994 and 1993.
Gross profit increased 37.6% from $180.1 million in 1993 to $247.8 million in
1994. Gross profit as a percentage of sales, or gross margin, decreased from
8.4% in 1993 to 6.9% in 1994. The decrease in gross margin is due to the
same factors summarized in the discussion of gross profit for the Three Months
Ended September 30, 1994 and 1993.
SG&A increased 47.4% from $133.6 million in 1993 to $196.9 million in 1994.
SG&A decreased as a percentage of net sales from 6.2% in 1993 to 5.5% in 1994.
The absolute dollar increase in SG&A is primarily due to costs associated with
the Company's 68.2% increase in net sales. The decrease in SG&A as a percentage
of sales is due to the same factors summarized in the discussion of SG&A for the
Three Months Ended September 30, 1994 and 1993.
Operating income increased 9.4% from $46.5 million in 1993 to $50.9 million in
1994. Operating income as a percentage of net sales was 2.2% in 1993 and 1.4% in
1994. The decrease in operating income as a percentage of net sales is due to
the same factors summarized in the discussion of operating income for the Three
Months Ended September 30, 1994 and 1993.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
Interest expense increased 51.0% from $13.2 million in 1993 to $20.0 million in
1994, but remained level at 0.6% as a percentage of net sales in 1993 compared
to 1994. The increase in interest expense was due primarily to the same factors
summarized in the discussion of interest expense for the Three Months Ended
September 30, 1994 and 1993.
Other expenses increased from $1.1 million in 1993 to $8.1 million in 1994,
primarily due to fees of $4.9 million incurred in connection with accounts
receivable securitizations, an increase in the amortization of financing fees of
$0.9 primarily related to the acquisition of the ComputerLand Business, write-
off of offering costs of $0.5 million incurred in connection with the Company's
withdrawal of its common stock offering in May 1994, and an increase in foreign
currency transaction losses of $0.7 million primarily the result of losses
incurred by the Company's Mexican subsidiary.
The Company's provision for income taxes decreased 36.1% from $13.7 million in
1993 to $8.8 million in 1994, reflecting the Company's decreased income before
income taxes. The Company's effective tax rate decreased from 42.6% in 1993 to
38.3% in 1994. The lower effective tax rate reflects the increased utilization
of tax loss carry- forwards by certain of the Company's foreign subsidiaries in
1994.
Net income decreased 23.9% from $18.5 million in 1993 to $14.1 million in 1994.
Net income per share decreased from $0.61 in 1993 to $0.46 in 1994. The
Company's weighted average number of shares increased from 30.4 million shares
in 1993 to 30.6 million shares in 1994.
VARIABILITY OF QUARTERLY RESULTS AND SEASONALITY
- - -------------------------------------------------
Historically, the Company has experienced variability in its net sales and
operating margins on a quarterly basis and expects these patterns to continue in
the future. Management believes that the factors influencing quarterly
variability include: (i) the overall rate of growth in the microcomputer
industry; (ii) shifts in short-term demand for the Company's products resulting,
in part, from the introduction of new products or updates of existing products;
and (iii) the fact that virtually all sales in a given quarter result from
orders booked in that quarter. Due to the factors noted above, as well as the
fact that the Company participates in a highly dynamic industry, the Company's
revenues and earnings may be subject to material volatility, particularly on a
quarterly basis.
Additionally, the Company's net sales in the fourth quarter traditionally have
been higher than in its other three quarters. Management believes that the
pattern of higher fourth quarter sales is partially explained by customer buying
patterns relating to calendar year-end business purchases and holiday purchases.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The Company has historically financed its growth and cash needs primarily
through borrowings, income from operations, public and private sales of its
securities and securitization of its accounts receivable.
Net cash used in operating activities during the nine months ended September 30,
1994 was $42.8 million. Sources of cash from operating activities include net
income and adjustments for non-cash charges of $38.3 million and an increase in
accounts payable and accrued liabilities of $38.2 million. The primary uses of
cash during the period were a $61.5 million increase in accounts receivable and
a $56.1 million increase in inventories. The increase in accounts receivable
was due primarily to the increase in sales volume and the increase in inventory
was due to the current and anticipated sales growth as well as the addition of
new product lines.
Net cash used for investing activities during the nine months ended September
30, 1994 was $111.3 million, principally relating to the ComputerLand
Acquisition, the acquisition of the remaining 40% minority interest in the
Company's Mexico subsidiary and property and equipment expenditures. The
expenditures for property and equipment were primarily for the upgrading of
existing facilities, leasehold improvements, the upgrading of the Company's
computer systems and expenditures for a new warehouse management system.
Net cash provided by financing activities was $150.5 million, composed of
borrowings of $65 million in connection with the ComputerLand Acquisition,
proceeds from the sale of an interest in the Company's trade accounts receivable
of $75.0 million pursuant to a receivables securitization program and a $10.1
million increase in net borrowings under the Company's revolving line of credit
and under domestic revolving lines of credit and various local lines of credit
maintained by the Company and its subsidiaries.
To provide capital for the Company's operating and investing activities, the
Company and its subsidiaries, including Merisel Americas, Merisel Europe and
Merisel FAB maintain a number of credit facilities. Merisel Americas and
Merisel Europe are co-borrowers under a $150 million unsecured revolving bank
credit facility expiring on May 31, 1997. At September 30, 1994, approximately
$90.5 million was outstanding under this facility. To provide for its
anticipated working capital needs, on December 23, 1993, Merisel FAB entered
into a $10 million unsecured revolving credit agreement. This agreement expires
on January 29, 1995. At September 30, 1994, no amount was outstanding under
this agreement. The Company and its subsidiaries also maintain various local
lines of credit, primarily to facilitate overnight and other short-term
borrowings. The total amount of outstanding borrowings under these lines as of
September 30, 1994 was $57.1 million.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
The Company has also entered into a $150 million trade accounts receivable
securitization agreement pursuant to which it may sell on an ongoing basis an
undivided interest of up to $150 million in designated trade receivables to a
syndicate of purchasers. At September 30, 1994, $150 million of net accounts
receivable were sold under this agreement. The receivables are sold at face
value and fees paid in connection with such sales are recorded as other expense.
This facility expires in November 1994, but has been extended through October
1995, subject to borrower meeting certain specified conditions.
To finance the ComputerLand Acquisition, the Company borrowed $65 million under
an unsecured credit agreement with a bank lender. Merisel FAB also borrowed $16
million, the balance of the ComputerLand acquisition price, under a separate
credit agreement, which was paid in full on February 15, 1994.
Effective October 24, 1994, the Company issued $125 million principal amount of
senior notes (the "Notes") due December 31, 2004. The Company used the proceeds
from the Notes to repay in full the $65 million in bank financing used for the
ComputerLand Acquisition and to repay approximately $55.8 million of
indebtedness under the $150 million revolving credit facility. The Notes
provide for an interest rate of 12.5% payable semiannually commencing December
31, 1994. The Notes are effectively subordinated to all liabilities of the
Company's subsidiaries, including trade payables. The Indenture relating to the
Notes contains certain covenants that, among other things, limit the type and
amount of additional indebtedness that may be incurred by the Company or any of
its subsidiaries and impose limitations on investments, loans, advances, sales
or transfers of assets, the making of dividends and other payments, the creation
of liens, sale-leaseback transactions, certain transactions with affiliates and
certain mergers.
Merisel Americas also has outstanding $100 million of 8.58% senior notes, due
June 30, 1997 and $22 million of 11.28% senior subordinated notes repayable in
five equal annual installments beginning in March 1996.
In connection with the ComputerLand Acquisition, Merisel FAB and Vanstar entered
into a Distribution and Service Agreement (the "Agreement") pursuant to which
Vanstar will provide significant distribution and other support services to
Merisel FAB for up to two years for a contractually agreed upon fee. Under the
Agreement, Merisel FAB has been granted $20 million in extended credit terms on
its product purchases from Vanstar. The Vanstar Payable currently accrues
interest at prime, less 2% per annum (5.75% at September 30, 1994), with the
principal balance due on February 1, 1996.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
Merisel continues to monitor its working capital requirements. The Company
believes that its existing cash balances, cash generated from operations,
proceeds from receivable securitization, borrowings under existing lines of
credit and its ability to obtain additional credit will be sufficient to meets
its working capital and capital investment needs through the next twelve months.
ASSET MANAGEMENT
- - ----------------
Merisel attempts to manage its inventory position to maintain levels sufficient
to achieve high product availability and same day order fill rates. Inventory
levels may vary from period to period, due in part to increases or decreases in
sales levels, Merisel's practice of making large purchases when it deems the
terms of such purchases to be attractive and the addition of new manufacturers
and products. The Company has negotiated agreements with many of its
manufacturers which contain stock balancing and price protection provisions
intended to reduce, in part, Merisel's risk of loss due to slow moving or
obsolete inventory or manufacturer price reductions. The Company is not assured
that these agreements will succeed in reducing this risk. In the event of a
manufacturer price reduction, the Company generally receives a credit for
products in inventory. In addition, the Company has the right to return a
certain percentage of purchases, subject to certain limitations. Historically,
price protection and stock return privileges as well as the Company's inventory
management procedures have helped to reduce the risk of loss of carrying
inventory. The Company offers credit terms to qualifying customers and also
sells on a prepay, credit card and cash-on-delivery basis. With respect to
credit sales, the Company attempts to control its bad debt exposure through
monitoring of customers' creditworthiness and, where practicable, through
participation in credit associations that provide credit rating information
about its customers. In certain foreign markets, the Company may elect to
purchase credit insurance for certain accounts.
17
<PAGE>
PART II - OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings
-----------------
In June 1994, the Company and certain of its officers and/or directors
were named in putative securities class actions filed in the United States
District Court for the Central District of California, consolidated as In
--
re Merisel, Inc. Securities Litigation. Plaintiffs, who are seeking
--------------------------------------
damages in an unspecified amount, purport to represent a class of all
persons who purchased Merisel common stock between February 1, 1994 and
June 7, 1994 (the "class period"). The complaint, as amended and
consolidated, alleges that the defendants inflated the market price of
Merisel's common stock with material misrepresentations and omissions
during the class period. Plaintiffs contend that such alleged
misrepresentations are actionable under Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
Merisel believes that it has meritorious defenses to this lawsuit and
intends to defend the action vigorously. Management believes that the
outcome of this matter will not have a material adverse effect on the
consolidated financial position or the results of operations of the
Company, and accordingly, no provision for loss has been made in the
accompanying financial statements.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
4.1 Indenture Agreement dated October 15, 1994, between the Company
and NationsBank of Texas, N.A., as Trustee, relating to the
Company's 12.5% Senior Notes Due 2004.
(b) Report on Form 8-K
Amendment to Current Report on Form 8-K/A, filed on October 4,
1994, regarding the filing of certain agreements as exhibits.
18
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 14, 1994
Merisel, Inc.
By /s/ James L. Brill
--------------------------------
James L. Brill
Senior Vice President, Finance,
(Duly Authorized Officer and
Chief Financial Officer)
19
<PAGE>
================================================================================
MERISEL, INC.,
as Issuer,
and
NATIONSBANK OF TEXAS, N.A.,
as Trustee
_______________________
INDENTURE
Dated as of October 15, 1994
_______________________
$125,000,000
12 1/2% SENIOR NOTES, DUE 2004
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
---------------------
<TABLE>
<CAPTION>
TIA Section Indenture Section
- - ----------- -----------------
<S> <C>
(S) 310(a)(1)................................... 7.10
(a)(2)..................................... 7.10
(a)(3)..................................... N.A.
(a)(4)..................................... N.A.
(a)(5)..................................... 7.10
(b)........................................ 7.8; 7.10; 10.2
(c)........................................ N.A.
(S) 311(a)...................................... 7.11
(b)........................................ 7.11
(c)........................................ N.A.
(S) 312(a)...................................... 2.5
(b)........................................ 10.3
(c)........................................ 10.3
(S) 313(a)...................................... 7.6
(b)(1)..................................... N.A.
(b)(2)..................................... N.A.
(c)........................................ 7.6; 10.2
(d)........................................ 7.6
(S) 314(a)...................................... 4.7; 10.2
(b)........................................ N.A.
(c)(1)..................................... 10.4
(c)(2)..................................... 10.4
(c)(3)..................................... N.A.
(d)........................................ N.A.
(e)........................................ 10.5
(f)........................................ N.A.
(S) 315(a)...................................... 7.1(b)
(b)........................................ 7.5; 10.2
(c)........................................ 7.1(a)
(d)........................................ 7.1(c)
(e)........................................ 6.11
(S) 316(a) (last sentence)...................... 2.9
(a)(1)(A).................................. 6.5
(a)(1)(B).................................. 6.4
(a)(2)..................................... N.A.
(b)........................................ 6.7
(c)........................................ 9.4
(S) 317(a)(1)................................... 6.8
(a)(2)..................................... 6.9
(b)........................................ 2.4
(S) 318(a)...................................... 10.1
- - --------------------
</TABLE>
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be
a part of this Indenture.
-i-
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I
DEFINITIONS AND
INCORPORATION BY REFERENCE
<TABLE>
<CAPTION>
Section Page
- - ------- ----
<C> <S>............................................................ <C>
1.1 Definitions.................................................... 1
1.2 Incorporation by Reference of Trust
Indenture Act................................................ 16
1.3 Rules of Construction.......................................... 16
ARTICLE II
THE SECURITIES
2.1 Form and Dating................................................ 17
2.2 Execution and Authentication................................... 17
2.3 Registrar and Paying Agent..................................... 18
2.4 Paying Agent To Hold Money in Trust............................ 18
2.5 Securityholder Lists........................................... 19
2.6 Transfer and Exchange.......................................... 19
2.7 Replacement Securities......................................... 20
2.8 Outstanding Securities......................................... 20
2.9 Treasury Securities............................................ 21
2.10 Temporary Securities........................................... 21
2.11 Cancellation................................................... 22
2.12 Defaulted Interest............................................. 22
2.13 CUSIP Number................................................... 22
2.14 Deposit of Moneys.............................................. 23
ARTICLE III
REDEMPTION
3.1 Notices to Trustee............................................. 23
3.2 Selection of Securities To Be
Redeemed..................................................... 23
3.3 Notice of Redemption........................................... 24
3.4 Effect of Notice of Redemption................................. 25
3.5 Deposit of Redemption Price; Unclaimed
Monies....................................................... 25
3.6 Securities Redeemed in Part.................................... 26
ARTICLE IV
COVENANTS
4.1 Payment of Securities.......................................... 26
4.2 Maintenance of Office or Agency................................ 26
4.3 Corporate Existence............................................ 27
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Section Page
- - ------- ----
<C> <S> <C>
4.4 Payment of Taxes and Other Claims............................... 27
4.5 Maintenance of Properties; Insurance;
Books and Records; Compliance with
Law........................................................... 28
4.6 Compliance Certificates......................................... 29
4.7 Provision for Financial Information............................. 30
4.8 Further Assurance to the Trustee................................ 30
4.9 Limitation on Additional Indebtedness........................... 30
4.10 Limitation on Liens............................................. 33
4.11 Limitation on Restricted Payments............................... 35
4.12 Limitation on Investments, Loans and
Advances...................................................... 36
4.13 Disposition of Proceeds of Asset
Sales......................................................... 37
4.14 Limitation on Transactions with Affiliates...................... 40
4.15 Change of Control............................................... 41
4.16 Limitation on Dividends and Other Payment
Restrictions Affecting Subsidiaries........................... 43
4.17 Limitation on Sale-Leaseback Transactions....................... 44
4.18 Ownership of Stock of Wholly-Owned
Subsidiaries.................................................. 45
4.19 Waiver of Stay, Extension or Usury Laws......................... 45
4.20 Securities Owned by the Company or an
Affiliate of the Company...................................... 46
4.21 Restriction on Sale or Transfer of Assets....................... 46
ARTICLE V
SUCCESSOR CORPORATION
5.1 When Company May Merge, Etc..................................... 46
5.2 Successor Entity Substituted.................................... 47
ARTICLE VI
DEFAULT AND REMEDIES
6.1 Events of Default............................................... 48
6.2 Acceleration.................................................... 50
6.3 Other Remedies.................................................. 51
6.4 Waiver of Past Default.......................................... 51
6.5 Control by Majority............................................. 51
6.6 Limitation on Suits............................................. 52
6.7 Rights of Holders To Receive Payment............................ 53
6.8 Collection Suit by Trustee...................................... 53
6.9 Trustee May File Proofs of Claim................................ 53
6.10 Priorities...................................................... 54
6.11 Undertaking for Costs........................................... 54
</TABLE>
-iii-
<PAGE>
ARTICLE VII
TRUSTEE
<TABLE>
<CAPTION>
Section Page
- - ------- ----
<C> <S> <C>
7.1 Duties of Trustee............................................... 55
7.2 Rights of Trustee............................................... 56
7.3 Individual Rights of Trustee.................................... 57
7.4 Trustee's Disclaimer............................................ 58
7.5 Notice of Defaults.............................................. 58
7.6 Reports by Trustee to Holders................................... 58
7.7 Compensation and Indemnity...................................... 58
7.8 Replacement of Trustee.......................................... 59
7.9 Successor Trustee by Merger, Etc................................ 61
7.10 Eligibility; Disqualification................................... 61
7.11 Preferential Collection of Claims Against
Company....................................................... 61
ARTICLE VIII
DISCHARGE OF INDENTURE; DEFEASANCE
8.1 Termination of Company's Obligations............................ 62
8.2 Legal Defeasance and Covenant Defeasance........................ 63
8.3 Application of Trust Money...................................... 67
8.4 Repayment to Company............................................ 68
8.5 Reinstatement................................................... 68
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
9.1 Without Consent of Holders...................................... 69
9.2 With Consent of Holders......................................... 69
9.3 Compliance with Trust Indenture Act............................. 71
9.4 Revocation and Effect of Consents............................... 71
9.5 Notation on or Exchange of Securities........................... 72
9.6 Trustee To Sign Amendments, Etc................................. 72
ARTICLE X
MISCELLANEOUS
10.1 Trust Indenture Act Controls.................................... 72
10.2 Notices......................................................... 73
10.3 Communications by Holders with Other Holders.................... 74
10.4 Certificate and Opinion of Counsel as to
Conditions Precedent.......................................... 74
10.5 Statements Required in Certificate and
Opinion of Counsel............................................ 74
10.6 Rules by Trustee, Paying Agent, Registrar....................... 75
10.7 Legal Holidays.................................................. 75
10.8 GOVERNING LAW................................................... 75
10.9 No Recourse Against Others...................................... 75
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
Section Page
- - ------- ----
<C> <S> <C>
10.10 Successors...................................................... 75
10.11 Duplicate Originals............................................. 76
10.12 Separability.................................................... 76
10.13 Table of Contents, Headings, Etc................................ 76
</TABLE>
SIGNATURES............................................................. 77
EXHIBIT A - Form of Security
-v-
<PAGE>
INDENTURE dated as of October 15, 1994, between MERISEL, INC., a
Delaware corporation, as Issuer (the "Company") and NATIONSBANK OF TEXAS, N.A.,
as Trustee (the "Trustee").
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of the 12 1/2% Senior Notes Due 2004 of
the Company (the "Securities") to be issued as provided for in this Indenture.
The parties hereto agree as follows for the benefit of each other and
for the equal and ratable benefit of the Holders of the Securities:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
------------------------------------------
SECTION 1.1 Definitions.
-----------
"Acquired Indebtedness" means Indebtedness of a Person existing at the
time such Person becomes a Subsidiary of the Company or assumed in connection
with an Asset Acquisition of such Person, including, without limitation,
Indebtedness incurred in connection with, or in anticipation of, such Person's
becoming a Subsidiary of the Company.
"Affiliate" of any specified Person means any other Person which,
directly or indirectly, controls, is controlled by or is under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Affiliate Transaction" has the meaning provided in Section 4.14.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Acquisition" means (i) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others or otherwise) or purchase or
acquisition of Capital Stock by the Company or any of its Subsidiaries to or in
any other Person, in either case as a result of which such Person shall become a
<PAGE>
-2-
Subsidiary of the Company or any of its Subsidiaries or shall be merged with or
into the Company or any of its Subsidiaries or (ii) any acquisition by the
Company or any of its Subsidiaries of the assets of any Person which constitute
substantially all of an operating unit or business of such Person.
"Asset Sale" means any direct or indirect sale, conveyance, transfer,
lease (including by means of sale-leaseback) or other disposition to any Person
other than the Company or a Subsidiary of the Company, in one transaction or a
series of related transactions, of (i) any Capital Stock of any Subsidiary of
the Company (including by way of issuance by such Subsidiary) or (ii) any other
property or asset of the Company or any Subsidiary of the Company, in each case,
other than inventory or obsolete or excess equipment sold in the ordinary course
of business, inventory sold to vendors or flooring companies whether or not in
the ordinary course of business and other than such isolated transactions which
do not exceed $1,000,000 individually. For the purposes of this definition, the
term "Asset Sale" shall not include (i) any sale, transfer or securitization of
receivables or interests therein (and of property securing or otherwise
supporting such receivables) not a part of a sale or transfer of the business
from which such receivables arose, (ii) any disposition of properties and assets
of the Company or any Subsidiary that is governed by and complies with Section
5.1 hereof or clause (iii) of Section 4.17 hereof, (iii) rights granted to
franchisees pursuant to franchise agreements entered into in the ordinary course
of business or (iv) any sale of the Company's Capital Stock.
"Asset Sale Offer" has the meaning provided in Section 4.13(i)(c).
"Asset Sale Payment Date" means, with respect to any Available Amount
from an Asset Sale, the earlier of (x) the 360th day following receipt of such
Available Amount or (y) such earlier date on which an Asset Sale Offer shall
expire.
"Attributable Indebtedness" means in respect of a Sale-Leaseback
Transaction, as at the time of determination, the greater of (i) the fair value
of the property subject to such Sale-Leaseback Transaction or (ii) the present
value (discounted at the interest rate borne by the Securities, compounded
annually) of the total obligations of the lessee for rental payments during the
remaining term of the lease included in such Sale Lease-Back Transaction
(including any period for which such lease has been extended).
"Available Amount" has the meaning provided in Section 4.13(i)(c).
<PAGE>
-3-
"Bankruptcy Law" means Title 11 of the U.S. Code or any similar
federal or state law for the relief of debtors.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or, except as used in the definition of "Change of
Control," any committee of such Board of Directors authorized to act for it
hereunder.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification and delivered to the
Trustee.
"Business Day" means any day except a Saturday, a Sunday or any day on
which banking institutions in New York, New York, Los Angeles, California or
Dallas, Texas are required or authorized by law or other governmental action to
be closed.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or nonvoting) of, such Person's capital stock, whether
outstanding on the Issue Date or issued after the Issue Date, and any and all
rights, warrants or options exchangeable for or convertible into such capital
stock.
"Capitalized Lease Obligation" means any obligation to pay rent or
other amounts under a lease of (or other agreement conveying the right to use)
any property (whether real, personal or mixed) that is required to be classified
and accounted for as a capital lease obligation under GAAP, and, for the
purposes of this Indenture, the amount of such obligation at any date shall be
the capitalized amount thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means, at any time, (i) commercial paper, bankers
acceptances, time deposits, and certificates of deposit with final maturities of
one year or less issued by banks, trust companies, and savings and loan
institutions organized under the laws of a jurisdiction within the United States
of America or, with respect to a Subsidiary of the Company, under the laws of
the country in which such Subsidiary operates having (x) capital and surplus at
the end of its most recently ended fiscal year in excess of U.S. $100,000,000
and (y) in the case of any United States entities, a commercial paper rating of
"A-1" or better by Standard & Poor's Corporation or "P-1" or better by Moody's
Investors Service, Inc.; (ii) direct obligations of the United States of
<PAGE>
-4-
America or obligations of any instrumentality or agency thereof, with respect to
which the payment of principal and interest is unconditionally guaranteed by the
United States of America; provided however, that any such obligation shall be
-------- -------
payable in U.S. dollars and shall have a final maturity date no more than one
year after the acquisition thereof; (iii) repurchase agreements of banks or
brokerage institutions organized under the laws of a jurisdiction within the
United States of America or, with respect to a Subsidiary of the Company, under
the laws of the country in which such Subsidiary operates having capital and
surplus at the end of its most recently ended fiscal year in excess of U.S.
$100,000,000; provided however, that any such agreement shall be payable in U.S.
-------- -------
dollars or, with respect to a Subsidiary of the Company, the applicable local
currency, shall have a final maturity date no more than one year after the
acquisition thereof, and shall be fully collaterized; (iv) time deposits,
eurodollar certificates of deposit of foreign branches of the institutions
described in clause (iii) above and obligations of money market funds which
invest in any such time deposits and eurodollar certificates of deposit;
provided however, that any such deposit or obligation shall be payable in U.S.
- - -------- -------
dollars or, with respect to a Subsidiary of the Company, the applicable local
currency, and shall have a final maturity date no more than one year after the
acquisition thereof.
"Change of Control" means (a) all or substantially all of the assets
of the Company are sold, leased, exchanged or otherwise transferred to any
Person or entity or group of Persons or entities acting in concert as a
partnership or other group (a "Group of Persons") other than an Affiliate of the
Company, (b) the Company is merged or consolidated with or into another
corporation with the effect that the then-existing equity holders of the Company
hold less than 50% of the combined voting power of the then-outstanding
securities of the surviving corporation of such merger or the corporation
resulting from such consolidation ordinarily (and apart from rights arising
under special circumstances) having the right to vote in the election of
directors, (c) a majority of the Board of Directors of the Company shall be
replaced, over a two-year period, from the directors who constituted the Board
of Directors of the Company at the beginning of such period, and such
replacement shall not have been approved by a vote of at least a majority of the
Board of Directors then still in office who were either members of such Board of
Directors at the beginning of such period or whose election as a member of such
Board of Directors was previously so approved, or (d) a Person or Group of
Persons shall, as a result of a tender or exchange offer, open market purchases,
privately negotiated purchases or otherwise, have become the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of the
<PAGE>
-5-
securities of the Company representing 50% or more of the combined voting power
of the then outstanding securities of the Company ordinarily (and apart from
rights arising under special circumstances) having the right to vote in the
election of directors.
"Change of Control Date" has the meaning provided in Section 4.15.
"Change of Control Offer" has the meaning provided in Section 4.15.
"Change of Control Payment Date" has the meaning provided in Section
4.15.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such Person's common stock, whether
outstanding on the Issue Date or issued after the Issue Date and includes,
without limitation, all series and classes of such common stock.
"Company" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and,
thereafter, means the successor.
"Consolidated EBITDA" means, with respect to any Person, for any
period, the Consolidated Net Income of such Person for such period increased (to
the extent deducted in determining Consolidated Net Income) by the sum of the
following items for such Person and its Subsidiaries for such period, determined
on a consolidated basis in accordance with GAAP: (i) depreciation; (ii)
amortization, including, without limitation, amortization of capitalized debt
issuance costs; (iii) Consolidated Interest Expense; (iv) all United States
Federal, state and foreign income taxes paid or accrued (other than income taxes
attributable to extraordinary, unusual or non-recurring gains or losses); and
(v) any other non-cash charges to the extent deducted from Consolidated Net
Income.
"Consolidated Interest Expense" means, with respect to any Person, for
any period, all cash and noncash interest expense (including capitalized
interest, amortization of original issue discount and the interest portion of
deferred payment obligations) of such Person and its Subsidiaries determined in
accordance with
<PAGE>
-6-
GAAP (exclusive of deferred financing fees of such Person and its Subsidiaries)
and the aggregate amount of cash dividends or other distributions accrued,
declared or paid on Capital Stock (other than Common Stock) of such Person and
its Subsidiaries.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (a) the Net Income of any Person (the "Other Person") in
- - -------- -------
which the Person in question or any of its Subsidiaries has a joint interest
with a third party (which interest does not allow the Net Income of such Other
Person to be consolidated into the Net Income of the Person in question in
accordance with GAAP) shall be included only to the extent of the amount of
dividends or distributions actually paid to the Person in question or to the
Subsidiary, (b) other than with respect to the calculation of the EBITDA
Coverage Ratio, the Net Income (or loss) of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (c) any net gain (but not net loss) resulting from an Asset Sale by
the Person in question or any of its Subsidiaries other than in the ordinary
course of business shall be excluded, and (d) extraordinary gains and losses and
any one-time increase or decrease in Net Income that is required to be recorded
because of the adoption of new accounting policies, practices or standards
required by GAAP shall be excluded.
"Consolidated Net Worth" means, with respect to any Person at any date
of determination, the consolidated stockholders' equity represented by the
shares of such Person's Capital Stock (other than Disqualified Stock)
outstanding at such date, as determined on a consolidated basis in accordance
with GAAP.
"Custodian" has the meaning provided in Section 6.1(b).
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock that, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is exchangeable for Indebtedness, or is redeemable
at the option of the holder thereof, in whole or in part, in each case on or
prior to the maturity date of the Securities.
<PAGE>
-7-
"EBITDA Coverage Ratio" means, with respect to any Person, the ratio
of (i) Consolidated EBITDA of such Person for the four full fiscal quarters for
which financial statements are available that immediately precede the date of
the transaction or other circumstances giving rise to the need to calculate the
EBITDA Coverage Ratio (the "Transaction Date") to (ii) Consolidated Interest
Expense of such Person for such four full fiscal quarter period. For purposes
of this definition, if the Transaction Date occurs prior to the date on which
the Company's consolidated financial statements for the four full fiscal
quarters subsequent to the Issue Date are first available, then "Consolidated
EBITDA" and "Consolidated Interest Expense" shall be calculated, in the case of
the Company, after giving effect on a pro forma basis as if the Securities
outstanding on the Transaction Date were issued and as if any Indebtedness
repaid with the proceeds of the Securities was repaid on the first day of such
four-full-fiscal-quarter period. In addition to and without limitation of the
foregoing two sentences, for purposes of this definition, "Consolidated EBITDA"
and "Consolidated Interest Expense" shall be calculated after giving effect on a
pro forma basis for the period of such calculation to (i) the incurrence of or
permanent redemption or repayment of any Indebtedness of such Person or any of
its Subsidiaries at any time during the period (the "Reference Period") (A)
commencing on the first day of the four-full-fiscal-quarter period for which
financial statements are available that precedes the Transaction Date and (B)
ending on and including the Transaction Date, as if the incurrence of any
Indebtedness giving rise to the need to make such calculation, as well as the
incurrence of any other Indebtedness or the permanent redemption or repayment of
any Indebtedness occurred on the first day of the Reference Period; provided,
that if such Person or any of its Subsidiaries directly or indirectly guarantees
Indebtedness of a third Person, the above clause shall give effect to the
incurrence of such guaranteed Indebtedness as if such Person or Subsidiary had
directly incurred such guaranteed Indebtedness and (ii) any Asset Sales or Asset
Acquisitions (including, without limitation, any Asset Acquisition giving rise
to the need to make such calculation as a result of the Company or any of its
Subsidiaries (including any Person who becomes a Subsidiary as a result of the
Asset Acquisition) incurring Acquired Indebtedness) occurring during the
Reference Period and any retirement of Indebtedness in connection therewith as
if such Asset Sale or Asset Acquisition and/or retirement occurred on the first
day of the Reference Period. Furthermore, in calculating the denominator (but
not the numerator) of this "EBITDA Coverage Ratio," (1) subject to the next
succeeding clause (2), interest on Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to accrue
<PAGE>
-8-
at a fixed rate per annum equal to the rate of interest on such Indebtedness in
effect on the Transaction Date; and (2) notwithstanding clause (1) above,
interest on Indebtedness determined on a fluctuating basis, to the extent such
interest is covered by agreements relating to interest rate protection
obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Equity Offering" means any public or private offering of Capital
Stock (other than Disqualified Stock) of the Company.
"Event of Default" has the meaning provided in Section 6.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" or "fair value" means, with respect to any asset
or property, the price which could be negotiated in an arms' length free market
transaction, for cash, between a willing seller and a willing buyer, neither of
whom is under undue pressure or compulsion to complete the transaction. Fair
Market Value shall be determined by the Board of Directors of the Company acting
in good faith and shall be evidenced by a Board Resolution delivered to the
Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, as of the Issue Date.
"Holder" or "Securityholder" means the Person in whose name a Security
is registered on the Registrar's books.
"incur" means, with respect to any Indebtedness, to directly or
indirectly create, incur, assume, issue, guarantee or in any manner become
liable for or with respect to the payment of any such Indebtedness, and the
terms "incurred," "incurrence" and "incurring" shall have meanings correlative
to the foregoing.
"Indebtedness" means, with respect to any Person, without duplication,
(i) any liability, contingent or otherwise, of such Person (A) for borrowed
money (whether or not the recourse of the lender is to the whole of the assets
of such Person or only to a
<PAGE>
-9-
portion thereof) or (B) evidenced by a note, debenture or similar instrument or
letters of credit (excluding undrawn documentary letters of credit for trade
payables arising in the ordinary course of business), including a purchase money
obligation or other obligation relating to the deferred purchase price of
property (other than trade payables incurred in the ordinary course of business
but including any liability for the payment of money relating to a Capitalized
Lease Obligation); (ii) any liability of others of the kind described in the
preceding clause (i) which the Person has guaranteed or which is otherwise its
legal liability (excluding accounts payable of the Company or any of its
Subsidiaries incurred in the ordinary course of business); (iii) any obligation
secured by a lien to which the property or assets of such Person are subject,
whether or not the obligations secured thereby shall have been assumed by or
shall otherwise be such Person's legal liability (excluding Liens on inventory
sold pursuant to flooring arrangements or assets sold pursuant to any
securitization transaction); and (iv) any and all deferrals, renewals,
extensions, replacements, refinancing and refundings of, or amendments,
modifications or supplements to, any liability of the kind described in any of
the preceding clauses (i), (ii) or (iii). In addition, Indebtedness shall
include, with respect to the Company, any Disqualified Stock of the Company and
with respect to a Subsidiary of the Company, any Preferred Stock of such
Subsidiary. Indebtedness shall not include any obligations under interest rate
protection agreements entered into to protect against changes in interest rates
or currency hedging agreements entered into to protect against changes or
fluctuations in currencies.
"Indenture" means this Indenture as amended or supplemented from time
to time pursuant to the terms hereof.
"interest," when used with respect to any Security, means the amount
of all interest accruing on such Security, including all interest accruing
subsequent to the occurrence of any events specified in Sections 6.1(a)(vi) and
(vii) or which would have accrued but for any such event.
"Interest Payment Date," when used with respect to any Security, means
the stated maturity of an installment of interest specified in such Security.
"Interest Rate," when used with respect to any Security, means the
rate per annum specified in such Security as the rate of interest accruing on
the principal amount of such Security.
"Investment" has the meaning provided in Section 4.12.
<PAGE>
-10-
"Issue Date" means October 24, 1994.
"Legal Holiday" means any day other than a Business Day.
"Lien" means any mortgage, lien (statutory or other), pledge, security
interest, encumbrance, hypothecation, assignment for security or other security
agreement of any kind or nature whatsoever. For purposes of this Indenture, a
Person shall be deemed to own subject to a Lien any property that it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such Person.
"Material Subsidiary" means a Subsidiary of the Company which would
constitute a "significant subsidiary" of the Company within the meaning of
Regulation S-X of the Commission. In any event, for purposes of this Indenture,
Merisel Europe, Inc., Merisel Americas, Inc. and Merisel FAB, Inc. shall be
deemed to be Material Subsidiaries of the Company.
"Maturity Date," when used with respect to any Security, means the
date specified in such Security as the fixed date on which the principal of such
Security is due and payable.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds thereof received by the Company or any Subsidiary of the Company in the
form of cash or Cash Equivalents, including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
(except to the extent that such obligations with respect to Indebtedness are
financed or sold with recourse to the Company or any of its Subsidiaries) net of
(i) brokerage commissions and other reasonable fees and expenses (including
reasonable fees and expenses of counsel and investment bankers) related to such
Asset Sale; (ii) provisions for all taxes payable as a result of such Asset
Sale; (iii) payments made to retire Indebtedness secured by the assets subject
to such Asset Sale to the extent required pursuant to the terms of such
Indebtedness; and (iv) appropriate amounts to be provided by the Company or any
of its Subsidiaries, as the case may be, as a reserve, in accordance with GAAP,
against any liabilities associated with such Asset Sale and retained by the
Company or any of its Subsidiaries, as the case may be, after such Asset Sale,
including, without limitation, pension and other postemployment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale.
<PAGE>
-11-
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means (a) in the case of any sale of Capital Stock
(other than Disqualified Stock) by the Company, the aggregate net proceeds
received by the Company, after payment of expenses (including legal and
accounting fees), commissions and the like incurred in connection therewith,
whether such proceeds are in cash or in property (valued at the Fair Market
Value thereof, as determined in good faith by the Board of Directors of the
Company, at the time of receipt), (b) in the case of any exchange, exercise or
conversion of outstanding securities of any kind of the Company for or into
shares of Capital Stock of the Company that is not Disqualified Stock, the net
book value of such outstanding securities on the date of such exchange,
exercise, conversion or surrender (plus any additional amount required to be
paid by the holder to the Company upon such exchange, exercise, conversion or
surrender, less any and all payments made to the holders, e.g., on account of
---
fractional shares, and less all expenses incurred by the Company in connection
therewith), and (c) in the case of the issuance of any subordinated Indebtedness
by the Company, the aggregate net cash proceeds received by the Company, after
payment of expenses (including legal and accounting fees), commissions and the
like incurred in connection therewith.
"Officer" means, with respect to any Person, the Chairman, the
President, any Vice President, the Chief Financial Officer, the Treasurer, the
Secretary or the Controller of such Person.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two Officers or by an Officer and an Assistant Treasurer
or Assistant Secretary of such Person.
"Opinion of Counsel" means, with respect to any Person, a written
opinion from legal counsel who is acceptable to the Trustee, which may include
counsel to such Person.
"Paying Agent" has the meaning provided in Section 2.3.
"Permitted Liens" means, with respect to any Person, any Lien arising
by reason of (a) any attachment, judgment, decree or order of any court, so long
as such Lien is being contested in good faith and is either adequately bonded or
execution thereon has been stayed pending appeal or review, and any appropriate
legal proceedings which may have been duly initiated for the review of such
attachment, judgment, decree or order shall not have been
<PAGE>
-12-
finally terminated, or the period within which such proceedings may be initiated
shall not have expired; (b) taxes, assessments or governmental charges not yet
delinquent or which are being contested in good faith; (c) security for payment
of workers' compensation or other insurance; (d) security for the performance of
tenders, bids, leases and contracts (other than contracts for the payment of
money); (e) deposits to secure public or statutory obligations or in lieu of
surety or appeal bonds or to secure permitted contracts for the purchase or sale
of any currency entered into in the ordinary course of business; (f) operation
of law in favor of carriers, warehousemen, landlords, mechanics, materialmen,
laborers, employees or suppliers, incurred in the ordinary course of business
for sums that are not yet delinquent or are being contested in good faith by
negotiations or by appropriate proceedings which suspend the collection thereof;
(g) security for surety or appeal bonds; and (h) easements, rights-of-way,
zoning and similar covenants and restrictions and other similar encumbrances or
title defects which, in the aggregate, are not substantial in amount, and which
do not in any case materially interfere with the ordinary conduct of the
business of the Company or any of its Subsidiaries.
"Person" means any individual, corporation, partnership, joint
venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred or preference stock whether now outstanding or issued
after the Issue Date, and including, without limitation, all classes and series
of preferred or preference stock of such person.
"principal" of a debt security means the principal amount of the
security plus, when appropriate, the premium, if any, on the security.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the cost
of construction) of an item of property, the principal amount and/or liquidation
preference of which does not exceed the sum of (i) 100% of such cost and (ii)
the reasonable fees and expenses of such Person (including any sales taxes)
incurred in connection therewith.
"Redemption Date" means, with respect to any Security, the Maturity
Date of such Security or the date on which such
<PAGE>
-13-
Security is to be redeemed by the Company pursuant to the terms of the
Securities.
"Registrar" has the meaning provided in Section 2.3.
"Restricted Investment" means an Investment other than an Investment
permitted by clauses (i)-(vii) of Section 4.12 hereof.
"Restricted Payment" means any of the following: (i) the declaration
or payment of any dividend or any other distribution on Capital Stock of the
Company or any Subsidiary of the Company or any payment made to the direct or
indirect holders (in their capacities as such) of Capital Stock of the Company
or any Subsidiary of the Company (other than (x) dividends or distributions
payable solely in Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to purchase Capital Stock (other than Disqualified
Stock) and (y) in the case of Subsidiaries of the Company, dividends or
distributions payable to the Company or to a Subsidiary of the Company), (ii)
the purchase, redemption or other acquisition or retirement for value of any
Capital Stock of the Company or any of its Subsidiaries (other than any such
Capital Stock owned by the Company or any of its Wholly-Owned Subdidiaries),
(iii) the making of any principal payment on, or the purchase, defeasance,
repurchase, redemption or other acquisition or retirement for value, prior to
any scheduled maturity, scheduled repayment or scheduled sinking fund payment,
of any Indebtedness that is subordinated in right of payment to the Securities
(other than Indebtedness acquired in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of acquisition), and (iv) the making of any Restricted
Investment.
"Revolving Credit Agreement" means, collectively, the credit
agreements to which the Company or any of its Subsidiaries is or becomes a party
(irrespective of the term of any such credit agreement), in each case providing
for short-term working capital financing, as any such credit agreement may at
any time be amended, amended and restated, supplemented or otherwise modified,
including any refinancing, refunding, renewal, deferral, replacement or
extension thereof by the same or any other lender or group of lenders.
"Sale-Leaseback Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Subsidiary of the Company of any
real or tangible personal property owned by the Company or a Subsidiary of the
Company as of the Issue Date or thereafter acquired, which property has been or
is to be
<PAGE>
-14-
sold or transferred by the Company or such Subsidiary to a Person and leased
back from such Person.
"Securities" means the 12 1/2% Senior Notes Due 2004 issued,
authenticated and delivered under this Indenture, as amended or supplemented
from time to time pursuant to the terms of this Indenture.
"Subsidiary" means, with respect to any Person, (i) any corporation of
which the outstanding Capital Stock having more than 50% of the votes entitled
to be cast in the election of directors under ordinary circumstances shall at
the time be owned, directly or indirectly, by such Person, by a Subsidiary of
such Person or by such Person and a Subsidiary of such Person, or (ii) any other
Person (other than a corporation) of which more than 50% of the voting interest
is at the time, directly or indirectly, owned by such Person, by a Subsidiary of
such Person or by such Person and a Subsidiary of such Person.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S)
77aaa-77bbbb) as in effect on the date of this Indenture, except as required by
Section 9.3 hereof.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Trust Officer" means an officer or assistant officer of the Trustee
assigned to the Corporate Trust Department, or any successor to such department
or, in the case of a successor trustee, an officer assigned to the department,
division or group performing the corporate trust work of such successor.
"U.S. Government Obligations" has the meaning provided in Section
8.1(b).
"Wholly-Owned Subsidiary" means any Subsidiary of the Company, 100% of
the Capital Stock of which (other than shares of Capital Stock representing any
director's qualifying shares or investments by foreign nationals mandated by
applicable law) is owned by the Company, by a Wholly-Owned Subsidiary of the
Company or by the Company and a Wholly-Owned Subsidiary of the Company.
SECTION 1.2 Incorporation by Reference
of Trust Indenture Act.
--------------------------
Whenever this Indenture refers to a provision of the TIA, the
provision shall be deemed incorporated by reference in and made
<PAGE>
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a part of this Indenture. The following TIA terms used in this Indenture have
the following meanings:
(a) "indenture securities" means the Securities;
(b) "indenture security holder" means a Securityholder;
(c) "indenture to be qualified" means this Indenture;
(d) "indenture trustee" or "institutional trustee" means the Trustee;
and
(e) "obligor" on the indenture securities means the Company or any
other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
and not otherwise defined herein have the meanings so assigned to them therein.
SECTION 1.3 Rules of Construction.
---------------------
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) words in the singular include the plural, and words in the plural
include the singular;
(c) "herein," "hereof" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
Subdivision; and
(d) unless otherwise specified herein, all accounting terms used
herein shall be interpreted, all accounting determinations hereunder shall
be made, and all financial statements required to be delivered hereunder
shall be prepared in accordance with GAAP as in effect on the Issue Date.
<PAGE>
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ARTICLE II
THE SECURITIES
--------------
SECTION 2.1 Form and Dating.
---------------
The Securities and the Trustee's certificates of authentication with
respect thereto shall be substantially in the form set forth in Exhibit A
---------
annexed hereto, which is hereby incorporated in and expressly made a part of
this Indenture. The Securities may have notations, legends or endorsements
required by law, rule, usage or agreement to which the Company is subject. Each
Security shall be dated the date of its authentication. The terms and
provisions contained in the Securities shall constitute, and are expressly made,
a part of this Indenture.
SECTION 2.2 Execution and Authentication.
----------------------------
Two Officers shall execute the Securities on behalf of the Company by
either manual or facsimile signature. The Company's seal shall be impressed,
affixed, imprinted or reproduced on the Securities.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security or at any time
thereafter, the Security shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. Such
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate Securities for original issue in an
aggregate principal amount not to exceed $125,000,000, upon receipt of an
Officers' Certificate signed by two Officers directing the Trustee to
authenticate the Securities and certifying that all conditions precedent to the
issuance of the Securities contained herein have been complied with. The
aggregate principal amount of Securities outstanding at any time may not exceed
$125,000,000 except as provided in Section 2.7.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee
<PAGE>
-17-
includes authentication by such agent. Such authenticating agent shall have the
same rights as the Trustee with respect to authentication of Securities in any
dealings hereunder with the Company or with any of the Company's Affiliates.
SECTION 2.3 Registrar and Paying Agent.
--------------------------
The Company shall maintain an office or agency (which shall be located
in the Borough of Manhattan in the City of New York, State of New York) where
Securities may be presented for registration of transfer or for exchange (the
"Registrar"), an office or agency (which shall be located in the Borough of
Manhattan, City of New York, State of New York) where Securities may be
presented for payment (the "Paying Agent") and an office or agency where notices
and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Registrar shall keep a register of the Securities
and of their transfer and exchange. The Company may have one or more co-
registrars and one or more additional paying agents. The term "Paying Agent"
includes any additional paying agent. Neither the Company nor any Affiliate
thereof may act as Paying Agent.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which shall incorporate the provisions of
the TIA. The agreement shall implement the provisions of this Indenture that
relate to such Agent. The Company shall notify the Trustee of the name and
address of any such Agent. If the Company fails to maintain a Registrar or
Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such and shall be entitled to appropriate compensation in accordance with
Section 7.7.
The Company initially appoints the Trustee as Registrar, Paying Agent
and agent for service of notices and demands to or upon the Company in
connection with the Securities.
SECTION 2.4 Paying Agent To Hold Money in Trust.
------------------------------------
Each Paying Agent shall hold in trust for the benefit of the
Securityholders or the Trustee all money held by the Paying Agent for the
payment of principal of, or interest on, the Securities, and the Company and the
Paying Agent shall notify the Trustee of any default by the Company in making
any such payment. Money held in trust by the Paying Agent need not be
segregated except as required by law and unless the Paying Agent otherwise
agrees in writing the Paying Agent shall not be liable for any interest on any
money received by it hereunder. The Company at any time may require the Paying
Agent to pay all money held by it to the Trustee and account for any funds
disbursed and the Trustee may
<PAGE>
-18-
at any time during the continuance of any Event of Default specified in Section
6.1(a)(i) or (ii), upon written request to the Paying Agent, require such Paying
Agent to pay forthwith all money so held by it to the Trustee and to account for
any funds disbursed. Upon making such payment, the Paying Agent shall have no
further liability for the money delivered to the Trustee.
SECTION 2.5 Securityholder Lists.
--------------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
the Securityholders. If the Trustee is not the Registrar, the Company shall
furnish to the Trustee at least five Business Days before each Interest Payment
Date, and at such other times as the Trustee may request in writing, a list in
such form and as of such date as the Trustee may reasonably require of the names
and addresses of the Securityholders.
SECTION 2.6 Transfer and Exchange.
---------------------
When Securities are presented to the Registrar or a co-Registrar with
a request from the Holder of such Securities to register the transfer or to
exchange them for an equal aggregate principal amount of Securities of other
authorized denominations, the Registrar shall register the transfer or make the
exchange as requested; provided, that every Security presented or surrendered
--------
for registration of transfer or exchange shall be duly endorsed or be
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar, duly executed by the Holder thereof or his attorneys
duly authorized in writing. To permit registrations of transfers and exchanges,
the Company shall issue and execute and the Trustee shall authenticate new
Securities evidencing such transfer or exchange at the Registrar's request. No
service charge shall be made to the Securityholder for any registration of
transfer or exchange. The Company or Registrar may require from the
Securityholder payment of a sum sufficient to cover any transfer taxes or other
governmental charge that may be imposed in relation to a transfer or exchange,
but this provision shall not apply to any exchange pursuant to Section 2.10,
3.6, 4.13, 4.15 or 9.5 (in which events the Company will be responsible for the
payment of such taxes). The Trustee shall not be required to exchange or
register a transfer of any Security for a period of 15 days immediately
preceding the first mailing of notice of redemption of Securities to be redeemed
or of any Security selected, called or being called for redemption except the
unredeemed portion of any Security being redeemed in part.
<PAGE>
-19-
SECTION 2.7 Replacement Securities.
----------------------
If a mutilated Security is surrendered to the Registrar or the Trustee
or if the Holder of a Security claims that the Security has been lost, destroyed
or wrongfully taken, in the absence of notice to the Company and the Trustee
that such lost, destroyed or wrongfully taken Security has been acquired for
value in good faith by a bona fide purchaser, the Company shall issue and the
Trustee shall authenticate a replacement Security if the Holder of such Security
furnishes to the Company and to the Trustee evidence reasonably acceptable to
them of the ownership and the destruction, loss or theft of such Security. If
required by the Trustee or the Company, an indemnity bond shall be posted by the
Holder, sufficient in the judgment of both to protect the Company, the Trustee
or any Paying Agent from any loss that any of them may suffer if such Security
is replaced. The Company and the Trustee each may charge such Holder for its
expenses in replacing such Security. Every replacement Security shall constitute
an additional obligation of the Company. To the extent lawful, the provisions of
this Section 2.7 are exclusive and shall preclude all other rights and remedies
with respect to the replacement or payment of mutilated, destroyed, lost or
wrongfully taken Securities.
SECTION 2.8 Outstanding Securities.
----------------------
The Securities outstanding at any time are all Securities that have
been authenticated by the Trustee except for (a) those cancelled by it, (b)
those delivered to it for cancellation, (c) to the extent set forth in Sections
8.1 and 8.2, on or after the date on which the conditions set forth in Section
8.1 or 8.2 have been satisfied, those Securities theretofore authenticated and
delivered by the Trustee hereunder and (d) those described in this Section 2.8
as not outstanding. A Security does not cease to be outstanding because the
Company or one of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.7, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser in whose hands such Security
is a legal, valid and binding obligation of the Company.
If the Paying Agent holds, in its capacity as such, on any Maturity
Date or on any optional redemption date, money sufficient to pay all accrued
interest and principal with respect to such Securities payable on that date and
is not prohibited from paying such money to the Holders thereof pursuant to the
terms of
<PAGE>
-20-
this Indenture, then on and after that date such Securities cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.9 Treasury Securities.
-------------------
In determining whether the Holders of the required aggregate principal
amount of Securities have concurred in any declaration of acceleration or notice
of default or direction, waiver or consent or any amendment, modification or
other change to this Indenture, Securities owned by the Company or an Affiliate
of the Company shall be disregarded as though they were not outstanding, except
that for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent or any amendment, modification
or other change to this Indenture, only Securities with respect to which the
Company has informed the Trustee are so owned as provided in Section 4.20 hereof
or that the Trustee otherwise actually knows are so owned shall be so
disregarded.
SECTION 2.10 Temporary Securities.
--------------------
Until definitive Securities are prepared and ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Securities.
Temporary Securities shall be substantially in the form of definitive Securities
but may have variations that the Company considers appropriate for temporary
Securities. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate definitive Securities in exchange for temporary
Securities. Until such exchange, temporary Securities shall be entitled to the
same rights, benefits and privileges as definitive Securities.
SECTION 2.11 Cancellation.
------------
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Securities surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall (subject to
the record-retention requirements of the Exchange Act) deliver a certificate of
disposition thereof to the Company. The Company may not reissue or resell, or
issue new Securities to replace, Securities that the Company has redeemed or
paid, or that have been delivered to the Trustee for cancellation.
<PAGE>
-21-
SECTION 2.12 Defaulted Interest.
------------------
If the Company defaults on a payment of interest on the Securities, it
shall pay the defaulted interest, plus (to the extent permitted by law) any
interest payable on the defaulted interest, in accordance with the terms hereof,
to the Persons who are Securityholders on a subsequent special record date,
which date shall be not less than 10 days prior to the payment date for such
defaulted interest. The Trustee shall fix such special record date and payment
date in a manner satisfactory to the Trustee. The Company shall notify the
Trustee in writing of the amount of defaulted interest proposed to be paid on
each Security and the date of the proposed payment and shall make arrangements
satisfactory to the Trustee for the deposit of an amount of money equal to the
aggregate amount proposed to be paid in respect of such defaulted interest prior
to the date of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such defaulted interest as
provided in this Section 2.12. At least 15 days before such special record date,
the Company shall mail to each Securityholder a notice that states the special
record date, the payment date and the amount of defaulted interest, and interest
payable on such defaulted interest, if any, to be paid.
SECTION 2.13 CUSIP Number.
------------
The Company in issuing the Securities may use a "CUSIP" number, and if
so, such CUSIP number shall be included in notices of redemption, purchase or
exchange as a convenience to Holders; provided, however, that any such notice
-------- -------
may state that no representation is made as to the correctness or accuracy of
the CUSIP number printed in the notice or on the Securities, and that reliance
may be placed only on the other identification numbers printed on the
Securities. The Company will promptly notify the Trustee of any change in the
CUSIP number.
SECTION 2.14 Deposit of Moneys.
-----------------
On or before 10:00 a.m. New York time each Interest Payment Date and
Maturity Date,the Company shall have deposited with the Paying Agent in
immediately available funds money sufficient to make cash payments, if any, due
on such Interest Payment Date or Maturity Date, as the case may be, in a timely
manner which permits the Paying Agent to remit payment to the Holders on such
Interest Payment Date or Maturity Date, as the case may be.
<PAGE>
-22-
ARTICLE III
REDEMPTION
----------
SECTION 3.1 Notices to Trustee.
------------------
If the Company elects to redeem Securities pursuant to Paragraph 5 of
the Securities, it shall notify the Trustee and the Paying Agent in writing of
the Redemption Date and the aggregate principal amount of Securities to be
redeemed.
The Company shall give each notice provided for in this Section 3.1 at
least 45 days before the Redemption Date (unless a shorter notice shall be
agreed to by the Trustee in writing), together with an Officers' Certificate
stating that such redemption will comply with the conditions contained herein
and in the Securities.
SECTION 3.2 Selection of Securities
To Be Redeemed.
-----------------------
In the event that less than all of the Securities are to be redeemed
at any time, selection of Securities for redemption will be made by the Trustee
in compliance with the requirements of the principal national securities
exchange, if any, on which the Securities are listed or, if the Securities are
not listed on a national securities exchange by lot or by such method as the
Trustee shall deem fair and appropriate. The Trustee shall make the selection
from the Securities outstanding and not previously called for redemption. The
Trustee shall promptly notify the Company in writing of such Securities selected
for redemption and, in the case of Securities selected for partial redemption,
the principal amount to be redeemed. The Trustee may select for redemption
portions of the principal amount of Securities that have denominations larger
than $1,000. Securities and portions of them the Trustee selects shall be in
amounts of $1,000 or integral multiples of $1,000. Provisions of this Indenture
that apply to Securities called for redemption also apply to portions of
Securities called for redemption.
SECTION 3.3 Notice of Redemption.
--------------------
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail or cause the mailing of a notice of redemption by first-
class mail to each Holder of Securities to be redeemed and to the Trustee and
any Paying Agent.
<PAGE>
-23-
The notice shall identify the Securities to be redeemed and shall
state:
(a) the Redemption Date;
(b) the redemption price and the amount of accrued interest, if any,
to be paid;
(c) the name and address of the Paying Agent;
(d) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price and accrued interest, if any,
which may be made in a single payment therefor;
(e) that, unless the Company defaults in making the redemption
payment, interest on the portion of the Securities called for redemption
ceases to accrue on and after the Redemption Date and the only remaining
right of the Holders of such Securities is to receive payment of the
redemption price upon surrender to the Paying Agent of the Securities
redeemed and, in the case of a partial redemption, any new Security or
Securities described in Section 3.3(f);
(f) if any Security is to be redeemed in part, the portion of the
principal amount (equal to $1,000 or any integral multiple thereof) of such
Security to be redeemed and that, on or after the Redemption Date, upon
surrender of such Security, a new Security or Securities in aggregate
principal amount equal to the unredeemed portion thereof will be issued
without charge to the Securityholder;
(g) if less than all of the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Securities to be
redeemed and the aggregate principal amount of Securities estimated to be
outstanding after such partial redemption; and
(h) the CUSIP number, if any, pursuant to Section 2.13.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense.
SECTION 3.4 Effect of Notice of Redemption.
------------------------------
Once notice of redemption is mailed, Securities called for redemption
become due and payable on the Redemption Date and at the redemption price. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price plus accrued
<PAGE>
-24-
interest to the Redemption Date, but interest installments whose maturity is on
or prior to such Redemption Date will be payable on the relevant Interest
Payment Dates to the Holders of record at the close of business on the relevant
record dates referred to in the Securities.
SECTION 3.5 Deposit of Redemption Price;
Unclaimed Monies.
----------------------------
Not later than 10:00 A.M. New York time on the Redemption Date, the
Company shall deposit with the Paying Agent in immediately available funds money
sufficient to pay the redemption price of and accrued interest on all Securities
or portions thereof to be redeemed on that date.
If any Security surrendered for redemption in the manner provided in
the Securities shall not be so paid on the Redemption Date due to the failure of
the Company to deposit sufficient funds with the Paying Agent, interest will
continue to accrue from the Redemption Date until such payment is made on the
unpaid principal and, to the extent lawful, on any interest not paid on such
Redemption Date, in each case at the date and in the manner provided in the
Securities.
If money on deposit with the Trustee or the Paying Agent, as the case
may be, for the payment of principal or interest remains unclaimed for two years
after the date of deposit, the Trustee and the Paying Agent will pay the money
back to the Company at its request. Thereafter, Securityholders entitled to the
money must look to the Company for payment unless an abandoned property law
designates another Person and all liability of the Trustee and such Paying Agent
with respect to such money shall cease.
SECTION 3.6 Securities Redeemed in Part.
---------------------------
Upon surrender to the Paying Agent of a Security that is redeemed in
part, the Company shall execute and the Trustee shall authenticate for the
Holder a new Security equal in principal amount to the unredeemed portion of the
Security surrendered.
<PAGE>
-25-
ARTICLE IV
COVENANTS
---------
SECTION 4.1 Payment of Securities.
---------------------
The Company shall pay the principal of, and interest on, the
Securities on the dates and in the manner provided in the Securities and this
Indenture.
An installment of principal or interest shall be considered paid on
the date due if the Trustee or the Paying Agent holds on such date immediately
available funds designated for and sufficient to pay such installment and is not
prohibited by law from paying such installment on such date.
The Company shall pay interest on overdue principal and (to the extent
permitted by law) on overdue installments of interest at a rate equal to the
same rate borne by the Securities.
SECTION 4.2 Maintenance of Office or Agency.
-------------------------------
The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency, where Securities may be surrendered for
registration of transfer or exchange or for presentation for payment and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 10.2.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
- - -------- -------
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York, for such purposes. The Company will
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
<PAGE>
-26-
The Company hereby initially designates 40 Broad Street, 22nd Floor,
New York, New York 10004 as an agency of the Company in accordance with this
Section 4.2 and Section 2.3.
SECTION 4.3 Corporate Existence.
-------------------
Subject to Article V, the Company shall do or cause to be done, at its
own cost and expense, all things necessary to and will cause each of its
Subsidiaries to, preserve and keep in full force and effect the corporate or
partnership existence and rights (charter and statutory) of the Company and each
of its Subsidiaries; provided, however, that the Company or any of its
-------- -------
Subsidiaries shall not be required to preserve any such rights if the Board of
Directors of the Company shall reasonably determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company or
such Subsidiary and the loss thereof is not adverse in any material respect to
the Holders.
SECTION 4.4 Payment of Taxes and Other Claims.
---------------------------------
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon its or its Subsidiaries' income,
profits or property and (b) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a Lien upon its property; provided,
--------
however, that the Company shall not be required to pay or discharge or cause to
- - -------
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
negotiations or proceedings and for which disputed amounts adequate reserves
have been made.
SECTION 4.5 Maintenance of Properties; Insurance;
Books and Records; Compliance with Law.
--------------------------------------
(a) The Company shall, and shall cause each of its Subsidiaries to, at
all times cause all properties used or useful in the conduct of its business to
be maintained and kept in good condition, repair and working order (ordinary
wear and tear excepted) and supplied with all necessary equipment, and shall
cause to be made all reasonable and necessary repairs, renewals, replacements,
betterments and improvements thereto.
(b) The Company shall, and shall cause each of its Subsidiaries to,
maintain insurance in respect of its respective properties and its respective
businesses in such amounts and covering such risks as are usually and
customarily carried with
<PAGE>
-27-
respect to similar facilities according to their respective locations.
(c) The Company shall, and shall cause each of its Subsidiaries to,
keep proper books of record and account, in which full and correct entries shall
be made of all financial transactions and the assets and business of the Company
and each Subsidiary of the Company, in accordance with GAAP consistently applied
to the Company and its Subsidiaries taken as a whole.
(d) The Company shall, and shall cause each of its Subsidiaries to,
comply with all statutes, laws, ordinances, or government rules and regulations
to which it is subject, non-compliance with which would materially adversely
affect the business, prospects, earnings, properties, assets or condition
(financial or otherwise) of the Company and its Subsidiaries taken as a whole.
SECTION 4.6 Compliance Certificates.
-----------------------
(a) The Company shall deliver to the Trustee, within 50 days after the
end of each of the first three quarters of the Company's fiscal year, and within
100 days after the end of such fiscal year, an Officers' Certificate of the
Company stating (i) that a review of the activities of the Company and its
Subsidiaries during the preceding fiscal quarter or year, as the case may be,
has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and (ii) that, to the best knowledge of each
Officer signing such certificate, the Company has kept, observed, performed and
fulfilled each and every covenant contained in this Indenture and is not in
default in the performance or observance of any of the terms, provisions and
conditions hereof (or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which such Officers may
have knowledge, their status and what action the Company is taking or proposes
to take with respect thereto). The Officers' Certificate shall also include all
calculations necessary to show covenant compliance.
(b) So long as (and to the extent) not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
annual financial statements delivered pursuant to Section 4.7 shall be
accompanied by a written statement of the Company's independent public
accountants that in making the examination necessary for certification of such
annual financial statements nothing has come to their attention that would lead
them to believe that the Company has violated any provisions of this
<PAGE>
-28-
Indenture or, if any such violation has occurred, specifying the nature and
period of existence thereof, it being understood that such accountants shall not
be liable directly or indirectly to any Person for any failure to obtain
knowledge of any such violation.
(c) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee, promptly upon any Officer becoming aware of
any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes to
take with respect thereto.
SECTION 4.7 Provision for Financial Information.
------------------------------------
So long as any of the Securities are outstanding, whether or not the
Company is subject to Section 13(a) or 15(d) of the Exchange Act, the Company
shall file with the Commission the annual reports, quarterly reports and other
documents which the Company would have been required to file with the Commission
pursuant to such Sections 13(a) and 15(d) if the Company were so subject, such
documents to be filed with the Commission on or prior to the respective dates
(the "Required Filing Dates") by which the Company would have been required so
to file such documents if the Company were so subject. The Company shall also
in any event (x) within 15 days of each Required Filing Date (i) transmit by
mail to all Holders, as their names and addresses appear in the register of
Securities maintained by the Registrar, without cost to such Holders and (ii)
file with the Trustee, copies of the annual reports, quarterly reports and other
documents which the Company would have been required to file with the Commission
pursuant to Sections 13(a) and 15(d) of the Exchange Act if the Company were
subject to such Sections and (y) if filing such documents by the Company with
the Commission is not permitted under the Exchange Act, promptly upon written
request supply copies of such documents to any prospective Holder. The Company
shall also comply with the other provisions of TIA Section 314(a).
SECTION 4.8 Further Assurance to the Trustee.
--------------------------------
The Company shall, upon request of the Trustee, execute and deliver
such further instruments and do such further acts as may reasonably be necessary
or proper to carry out more effectively the provisions of this Indenture.
<PAGE>
-29-
SECTION 4.9 Limitation on Additional
Indebtedness.
------------------------
The Company shall not, and shall not permit any of its Subsidiaries
to, incur any Indebtedness (including any Acquired Indebtedness), except for the
following (each of which shall be given independent effect):
(a) Indebtedness of the Company if, at the time of incurrence and
after giving pro forma effect to the incurrence thereof, the EBITDA
Coverage Ratio of the Company would be greater than or equal to 2.50:1;
(b) Indebtedness of the Company or its Subsidiaries outstanding from
time to time pursuant to the Revolving Credit Agreement (including
Indebtedness in the nature of obligations with respect to overdraft
protection) in a principal amount not to exceed in the aggregate (x) 75% of
the net book value of the accounts receivable of the Company and its
Subsidiaries at the time of the incurrence of such Indebtedness, calculated
on a consolidated basis in accordance with GAAP, minus (y) $100,000,000;
(c) Indebtedness under the Securities and this Indenture;
(d) Indebtedness not otherwise referred to in this Section 4.9 and
outstanding on the Issue Date;
(e) Indebtedness of a Wholly-Owned Subsidiary issued to and held by
the Company or another Wholly-Owned Subsidiary of the Company or
Indebtedness of the Company issued to and held by a Wholly-Owned Subsidiary
of the Company;
(f) Indebtedness in the nature of or in connection with any Sale-
Leaseback Transaction permitted under Section 4.17 hereof;
(g) Purchase Money Indebtedness of the Company or its Subsidiaries or
Indebtedness of the Company or its Subsidiaries incurred in connection with
or arising out of Capitalized Lease Obligations provided that the aggregate
principal amount and/or liquidation preference of Indebtedness incurred
pursuant to this clause (g) shall not exceed, in the aggregate, 10% of the
Company's Consolidated Net Worth;
(h) the guarantee by the Company or by any Subsidiary of the Company
of Indebtedness of any Subsidiary of the Company,
<PAGE>
-30-
which Indebtedness is otherwise permitted to be incurred pursuant to this
Section 4.9;
(i) Indebtedness of a Subsidiary of the Company (which is not a
Wholly-Owned Subsidiary of the Company) issued to and held by the Company
or a Subsidiary of the Company; provided that such Indebtedness constitutes
an Investment made pursuant to and in compliance with clause (v) of
Section 4.12;
(j) any deferrals, renewals, extensions, replacements, refinancings or
refundings of, or amendments, modifications or supplements to, Indebtedness
incurred under clauses (a), (c), (d) and (l) of this Section 4.9, whether
involving the same or any other lender or creditor or group of lenders or
creditors; provided that any such deferrals, renewals, extensions,
replacements, refinancings, refundings, amendments, modifications or
supplements (i) shall not provide for any mandatory redemption,
amortization or sinking fund requirement in an amount greater than, or at a
time prior to, the amounts and times specified in the Indebtedness being
deferred, renewed, extended, replaced, refinanced, refunded, amended,
modified or supplemented, (ii) shall not exceed the principal amount and/or
liquidation preference (plus accrued dividends and interest) and repayment
premium, if any, of the Indebtedness being deferred, renewed, extended,
replaced, refinanced, refunded, amended, modified or supplemented, and
(iii) shall be contractually subordinated in right of payment to the
Securities at least to the same extent as the Indebtedness being deferred,
renewed, extended, replaced, refinanced, refunded, amended, modified or
supplemented; provided that any Indebtedness of the Company that is
deferred, renewed, extended, replaced, refinanced, refunded, amended,
modified or supplemented ("Refinanced Company Indebtedness") shall
subsequent to any such deferral, renewal, extension, replacement,
refinancing, refunding, amendment, modification or supplement be solely the
obligation of the Company (provided that to the extent that any such
Refinanced Company Indebtedness was previously guaranteed by a Subsidiary
of the Company, the Indebtedness represented by such guarantee may also be
refinanced pursuant to and subject to the other terms and provisions of
this clause (j));
(k) Acquired Indebtedness of a Subsidiary of the Company or the
Company (other than any such Acquired Indebtedness incurred in connection
with or in anticipation of any Asset Acquisition) if, at the time of
incurrence and after giving pro forma effect to the incurrence thereof, the
EBITDA Coverage Ratio of the Company would be greater than or equal to
2.50:1;
<PAGE>
-31-
(l) Indebtedness of the Company or a Subsidiary of the Company
incurred pursuant to any overnight or other short-term line of credit as in
existence on the Issue Date; and
(m) other Indebtedness of the Company that does not exceed $20,000,000
in aggregate principal amount and/or liquidation preference at any one time
outstanding.
SECTION 4.10 Limitation on Liens.
-------------------
The Company shall not, and shall not permit, cause or suffer any
Subsidiary of the Company to, create, incur, assume or, other than with respect
to Liens created, incurred or assumed pursuant to clause (k) below, suffer to
exist any Lien of any kind upon any of its property or assets now owned or
hereafter acquired by it, unless the Securities also are equally and ratably
secured by such Lien, except for:
(a) Permitted Liens;
(b) Liens existing as of the Issue Date;
(c) Liens securing Purchase Money Indebtedness, provided that (i) the
--------
Indebtedness secured by such Liens shall have otherwise been permitted to
be incurred under this Indenture and (ii) such Liens shall not encumber any
other assets or property of the Company and its Subsidiaries (other than
the assets or property purchased or constructed with the proceeds of such
Purchase Money Indebtedness), and shall attach to such assets or property
within 60 days of the acquisition or construction of such assets or
property;
(d) Liens on the assets or property of a Subsidiary of the Company
existing at the time such Subsidiary became a Subsidiary of the Company and
not incurred as a result of (or in connection with or in anticipation of)
such Subsidiary becoming a Subsidiary of the Company, provided that such
Liens do not extend to or cover any property or assets of the Company or
any of its other Subsidiaries (other than the property or assets so
acquired);
(e) Liens on accounts receivable and inventory of the Company and its
Subsidiaries securing Indebtedness under the Revolving Credit Agreement;
(f) Liens to secure Capitalized Lease Obligations, provided (i) such
Liens do not extend to or cover any property or assets of the Company or
any of its Subsidiaries (other
<PAGE>
-32-
than the property or assets subject to such Capitalized Lease Obligations)
and (ii) the Capitalized Lease Obligations secured by such Liens shall have
otherwise been permitted to be incurred under this Indenture;
(g) Liens arising under leases and subleases of real property by the
Company or any of its Subsidiaries as tenants which Liens do not interfere
with the ordinary conduct of the business of the Company or any of its
Subsidiaries, and which are made on customary and usual terms applicable to
similar properties;
(h) Liens securing Indebtedness which is incurred to refinance
Indebtedness which has been secured by a Lien permitted under this
Indenture and is permitted to be refinanced under this Indenture, provided
that such Liens do not extend to or cover any property or assets of the
Company or any of its Subsidiaries not securing the Indebtedness so
refinanced;
(i) Liens in favor of customs and revenue authorities arising by
operation of law to secure payment of customs duties in connection with the
importation of goods, which custom duties are not overdue for a period of
more than 60 days;
(j) Liens in favor of the Company or any Subsidiary of the Company on
the assets of any Subsidiary of the Company;
(k) Liens securing Indebtedness of the Company and its Subsidiaries,
provided that the aggregate amount of outstanding Indebtedness secured by
such Liens plus the aggregate amount of outstanding Attributable
Indebtedness of the Company and its Subsidiaries shall not exceed at any
one time 10% of the Consolidated Net Worth of the Company and its
Subsidiaries;
(l) Liens in the form of cash collateral pledged by Subsidiaries of
the Company to support their reimbursement obligations under letters of
credit entered into in the ordinary course of business in connection with
the purchase of inventory and Liens securing reimbursement obligations
under letters of credit but only to the extent such Liens are in or upon
inventory the purchase of which was financed by such letters of credit;
(m) Liens on inventory granted pursuant to "flooring arrangements"
entered into in the ordinary course of business and consistent with past
business practices;
<PAGE>
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(n) Liens on accounts receivable (or interests therein) and on
property securing or otherwise supporting accounts receivable granted
pursuant to any accounts receivable securitization transaction or other
sale or transfer of accounts receivable (or interests therein) that is not
a part of a transfer of the business from which such accounts receivable
arose; and
(o) Liens on property or assets, other than accounts receivable, and
on property securing or otherwise supporting such property or assets,
granted pursuant to any asset securitization transaction; provided that any
such asset securitization transaction complies with the applicable
provisions of Section 4.13.
SECTION 4.11 Limitation on Restricted Payments.
---------------------------------
The Company shall not make, and shall not cause, suffer or permit any
of its Subsidiaries to make, directly or indirectly, any Restricted Payment,
unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Restricted
Payment;
(b) at the time of and after giving effect to any such Restricted
Payment, the Company could incur at least $1 of Indebtedness pursuant to
clause (a) of Section 4.9 hereof; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
through and including the date of such Restricted Payment (the "Base
Period") does not exceed the sum of (a) 50% of the Company's cumulative
Consolidated Net Income during the Base Period (or in the event such
Consolidated Net Income shall be a deficit, minus 100% of such deficit)
plus (b) 100% of the aggregate Net Proceeds and the Fair Market Value of
marketable securities and property received by the Company from the issue
or sale, after the Issue Date, of Capital Stock (other than Disqualified
Stock) of the Company, or any Indebtedness or other securities of the
Company convertible into or exercisable or exchangeable for Capital Stock
(other than Disqualified Stock) of the Company which have been so
converted, exercised or exchanged, as the case may be. For purposes of
determining under this clause (c) the amount expended for Restricted
Payments, cash distributed shall be valued at the face amount thereof and
property other than cash shall be valued at its Fair Market Value.
The provisions of this Section 4.11 shall not prohibit:
<PAGE>
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(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would
comply with the provisions of this Indenture;
(ii) the retirement of any shares of Capital Stock of the Company or
subordinated Indebtedness of the Company in exchange for, by conversion
into or out of the Net Proceeds of the substantially concurrent sale (other
than to a Subsidiary of the Company) of other shares of Capital Stock of
the Company (other than Disqualified Stock); and
(iii) the redemption or retirement of subordinated Indebtedness of the
Company in exchange for, by conversion into or out of the Net Proceeds of
the substantially concurrent incurrence of subordinated Indebtedness of the
Company (other than any such subordinated Indebtedness owing to a
Subsidiary of the Company) that is contractually subordinated in right of
payment to the Securities and that is permitted to be incurred under
Section 4.9.
In determining the amount of Restricted Payments permissible under
clause (c) above, the amounts expended pursuant to clauses (i) and (ii) above
shall be included as Restricted Payments.
SECTION 4.12 Limitation on Investments,
Loans and Advances.
--------------------------
The Company shall not make and shall not permit any of its
Subsidiaries to make any capital contributions, advances or loans to (including,
without duplication, any guarantees of loans to), or investments in, or
purchases of Capital Stock, bonds, notes, debentures or other securities or
evidences of Indebtedness issued by, any Person (collectively, "Investments"),
except: (i) Investments by the Company in any Wholly-Owned Subsidiary of the
Company and Investments in the Company or a Wholly-Owned Subsidiary of the
Company by any Subsidiary of the Company; (ii) Investments represented by either
Capital Stock received in connection with a settlement of debts owing to the
Company or any of its Subsidiaries or accounts receivable created or acquired in
the ordinary course of business; (iii) advances or loans to employees in the
ordinary course of business; (iv) Investments under or pursuant to interest rate
protection agreements; (v) Investments made after the Issue Date in joint
ventures, partnerships or Persons that are not Wholly-Owned Subsidiaries that
are made solely for the purpose of acquiring interests in businesses related to
the Company's or its Subsidiaries' businesses
<PAGE>
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in an aggregate amount not to exceed, when made, 10% of the Company's
Consolidated Net Worth; (vi) loans or advances to franchisees and Datago
Affiliates made in the ordinary course of business; (vii) Cash Equivalents; and
(viii) Investments permitted to be made under Section 4.11 hereof.
SECTION 4.13 Disposition of Proceeds of Asset Sales.
--------------------------------------
(i) The Company shall not, and shall not permit any of its
Subsidiaries to, make any Asset Sale unless (a) such Asset Sale is for Fair
Market Value, (b) the consideration received therefor consists of at least 85%
cash or Cash Equivalents (with Indebtedness of the Company or its Subsidiaries
assumed by the purchaser being counted as cash for such purposes if the Company
and its Subsidiaries are released from all liability therefor) and (c) the
Company shall commit to apply or shall cause its Subsidiary to commit to apply
the Net Cash Proceeds of such Asset Sale within 270 days of such Asset Sale and
shall apply such Net Cash Proceeds within 360 days of such Asset Sale as
follows:
(a) to prepay any Indebtedness of a Subsidiary of the Company;
provided that the Net Cash Proceeds of any Asset Sale involving any
property or asset of Merisel FAB, Inc. shall be used to prepay Indebtedness
of Merisel FAB, Inc. only;
(b) to acquire or construct property or assets in lines of business
related to the Company's and its Subsidiaries' business on the Issue Date;
or
(c) to make an offer to purchase (the "Asset Sale Offer") on the Asset
Sale Payment Date from all Holders of Securities up to a maximum principal
amount (expressed as a multiple of $1,000) of Securities equal to, to the
extent the Company elects not to apply Net Cash Proceeds pursuant to the
preceding clauses (a) and (b), 100% of such Net Cash Proceeds or, to the
extent the Company elects to apply Net Cash Proceeds pursuant to the
preceding clauses (a) and (b), the amount of any Net Cash Proceeds
remaining after such application (the "Available Amount"). Any Asset Sale
Offer shall be at a purchase price per Security equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon, if any,
to the date of purchase, provided that the Company may defer any Asset Sale
Offer until there is an aggregate unutilized Available Amount equal to or
in excess of $5,000,000 resulting from one or more Asset Sales (at which
time the entire unutilized Available Amount, and not just the amount in
excess of $5,000,000, shall be applied as required pursuant to this
paragraph).
<PAGE>
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(ii) The Company shall provide the Trustee with notice of the Asset
Sale Offer at least 30 days before any notice of any Asset Sale Offer is mailed
to Holders of the Securities (unless shorter notice is acceptable to the
Trustee). Notice of an Asset Sale Offer shall be mailed by the Company to all
Holders of Securities not less than 30 days nor more than 60 days before the
Asset Sale Payment Date at their last registered address with a copy to the
Trustee and the Paying Agent. The Asset Sale Offer shall remain open from the
time of mailing for at least 20 Business Days and until at least 5:00 p.m., New
York City time, on the Business Day next preceding the Asset Sale Payment Date.
The notice, which shall govern the terms of the Asset Sale Offer, shall include
such disclosures as are required by law and shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
4.13;
(b) the purchase price (including the amount of accrued interest, if
any) for each Security and the Asset Sale Payment Date;
(c) that any portion of the Security not tendered or accepted for
payment will continue to accrue interest in accordance with the terms
thereof;
(d) that, unless the Company defaults on making the payment, any
portion of the Security accepted for payment pursuant to the Asset Sale
Offer shall cease to accrue interest after the Asset Sale Payment Date;
(e) that Holders electing to have Securities or portions thereof
purchased pursuant to an Asset Sale Offer will be required to surrender
their Securities to the Paying Agent at the address specified in the notice
prior to 5:00 p.m., New York City time, on the Business Day next preceding
the Asset Sale Payment Date and must complete any form letter of
transmittal proposed by the Company and acceptable to the Trustee and the
Paying Agent;
(f) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than 5:00 p.m., New York City time, on the
Business Day next preceding the Asset Sale Payment Date, a tested telex,
facsimile transmission or letter setting forth the name of the Holder, the
aggregate principal amount of Securities the Holder delivered for purchase,
the Security certificate number (if any) and a statement that such Holder
is withdrawing his election to have such Securities or portions thereof
purchased;
<PAGE>
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(g) that if Securities in an aggregate principal amount in excess of
the Available Amount are tendered pursuant to the Asset Sale Offer, the
Company shall purchase Securities on a pro rata basis among the Securities
--- ----
tendered (with such adjustments as may be deemed appropriate by the Company
so that only Securities in denominations of $1,000 or integral multiples of
$1,000 shall be acquired);
(h) that Holders whose Securities are purchased only in part will be
issued new Securities equal in aggregate principal amount to the
unpurchased portion of the Securities surrendered; and
(i) the instructions that Holders must follow in order to tender their
Securities.
On or before the Asset Sale Payment Date, the Company shall (i) accept
for payment, on a pro rata basis among the Securities (subject to adjustment as
--------
contemplated by clause (g) above) or portions thereof tendered pursuant to the
Asset Sale Offer, (ii) deposit with the Paying Agent on the Asset Sale Payment
Date money, in immediately available funds, in an amount sufficient to pay the
purchase price of all Securities or portions thereof so tendered and accepted
and (iii) deliver to the Paying Agent the Securities so accepted together with
an Officers' Certificate setting forth the Securities or portions thereof
tendered to and accepted for payment by the Company. The Paying Agent shall
promptly mail or deliver to Holders of Securities so accepted payment in an
amount equal to the purchase price, and the Trustee shall promptly mail or
deliver to such Holders a new Security executed by the Company and authenticated
by the Trustee equal in principal amount to any unpurchased portion of the
Security surrendered. Any Securities not so accepted shall be promptly mailed or
delivered by the Paying Agent to the Holder thereof. To the extent an Asset Sale
Offer is not fully subscribed to by the Holders, the Company may retain, subject
to the other provisions contained in this Indenture, any unutilized portion of
the Available Amount.
The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to the
Asset Sale Offer. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 4.13, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Section 4.13 by virtue
thereof.
<PAGE>
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SECTION 4.14 Limitation on Transactions with
Affiliates.
-------------------------------
The Company shall not, and shall not permit, cause or suffer any of
its Subsidiaries to, conduct any business or enter into any transaction or
series of transactions with or for the benefit of any Affiliate of the Company
or any of its Subsidiaries (each an "Affiliate Transaction"), except in good
faith and on terms that are no less favorable to the Company or such Subsidiary,
as the case may be, than those that could have been obtained in a comparable
transaction on an arm's length basis from a Person not an Affiliate of the
Company or such Subsidiary. All Affiliate Transactions (and each series of
related Affiliate Transactions which are similar or part of a common plan)
involving aggregate payments or other market value in excess of $1,000,000 shall
be approved by the Board of Directors of the Company, such approval to be
evidenced by a Board Resolution stating that the Board of Directors of the
Company has, in good faith, determined that such transaction complies with the
provisions of this Section 4.14. Notwithstanding the foregoing, the restrictions
set forth in this Section 4.14 shall not apply to (i) customary directors' fees
and consulting fees; (ii) transactions between or among the Company and one or
more Wholly-Owned Subsidiaries of the Company; or (iii) transactions between or
among one or more Wholly-Owned Subsidiaries of the Company.
SECTION 4.15 Change of Control.
-----------------
In the event of a Change of Control (the date of such occurrence, the
"Change of Control Date"), the Company shall notify the holders of Securities in
writing of such occurrence and shall make an offer to purchase (the "Change of
Control Offer") on a Business Day (the "Change of Control Payment Date") not
later than 60 days following the Change of Control Date, all Securities then
outstanding at a purchase price equal to 101% of the principal amount thereof
plus accrued and unpaid interest, if any, to the Change of Control Payment Date.
Notice of a Change of Control Offer shall be mailed by the Company not
less than 30 days nor more than 60 days before the Change of Control Payment
Date to the Holders of Securities at their last registered addresses with a copy
to the Trustee and the Paying Agent. The Change of Control Offer shall remain
open from the time of mailing for at least 20 Business Days and until 5:00 p.m.,
New York City time, on the Business Day next preceding the Change of Control
Payment Date. The notice, which shall govern the terms of the Change of Control
Offer, shall include such disclosures as are required by law and shall state:
<PAGE>
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(a) that a Change of Control Offer is being made pursuant to this
Section 4.15 and that all Securities will be accepted for payment;
(b) the purchase price (including the amount of accrued interest, if
any) for each Security and the Change of Control Payment Date;
(c) that any Security or portion thereof not tendered for payment will
continue to accrue interest in accordance with the terms thereof;
(d) that, unless the Company defaults on making the payment, any
portion of a Security tendered for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control
Payment Date;
(e) that Holders electing to have Securities or any portion thereof
purchased pursuant to a Change of Control Offer will be required to
surrender their Securities to the Paying Agent at the address specified in
the notice prior to 5:00 p.m., New York City time, on the Business Day next
preceding the Change of Control Payment Date and must complete any form
letter of transmittal proposed by the Company and acceptable to the Trustee
and the Paying Agent;
(f) that Holders of Securities will be entitled to withdraw their
election if the Paying Agent receives, not later than 5:00 p.m., New York
City time, on the Business Day next preceding the Change of Control Payment
Date, a tested telex, facsimile transmission or letter setting forth the
name of the Holder, the aggregate principal amount of Securities the Holder
delivered for purchase, the Security certificate number (if any) and a
statement that such Holder is withdrawing his election to have such
Securities or any portion thereof purchased;
(g) that Holders whose Securities are tendered only in part will be
issued Securities equal in aggregate principal amount to the untendered
portion of the Securities surrendered;
(h) the instructions that Holders must follow in order to tender their
Securities; and
(i) the circumstances and relevant facts regarding such Change of
Control (including, but not limited to, information with respect to pro
forma historical financial information after giving effect to such Change
of Control, information
<PAGE>
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regarding the Persons acquiring control and such Persons' business plans
going forward).
On the Change of Control Payment Date, the Company shall (i) accept
for payment Securities or portions thereof tendered pursuant to the Change of
Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Securities or portions thereof so tendered and accepted
and (iii) deliver to the Trustee the Securities so accepted together with an
Officers' Certificate setting forth the Securities or portions thereof tendered
to and accepted for payment by the Company. The Paying Agent shall promptly
mail or deliver to the Holders of Securities so accepted payment in an amount
equal to the purchase price, and the Trustee shall promptly authenticate and
mail or deliver to such Holders a new Security equal in principal amount to any
untendered portion of the Security surrendered. Any Securities withdrawn from
tender shall be promptly mailed or delivered by the Company to the Holder
thereof.
The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act, and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to a
Change of Control Offer. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this Section 4.15, the Company
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under this Section 4.15 by virtue
thereof.
SECTION 4.16 Limitation on Dividends and Other
Payment Restrictions Affecting
Subsidiaries.
---------------------------------
The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective or enter into any agreement with any Person that would cause or
create, any consensual encumbrance or restriction of any kind on the ability of
any Subsidiary of the Company to (a) pay dividends, in cash or otherwise, or
make any other distributions on its Capital Stock or any other interest or
participation in, or measured by, its profits owned by the Company or a
Subsidiary of the Company, (b) make any loans or advances to, or pay any
Indebtedness owed to, the Company or any Subsidiary of the Company or (c)
transfer any of its properties or assets to the Company or to any Subsidiary of
the Company, except, in each case, for such encumbrances or restrictions
existing under or contemplated by or by reason of (i) any agreements in effect
on the Issue Date (including the Securities and this Indenture); (ii) any Person
or
<PAGE>
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the property or assets of such Person acquired by the Company or any Subsidiary
of the Company and existing at the time of such acquisition (but not created in
contemplation of such acquisition), which encumbrances or restrictions are not
applicable to any Person or the property or assets of any Person other than such
Person (or any Subsidiary of such Person) or the property or assets of such
Person so acquired; (iii) any restrictions existing under any agreement that
renews, refinances, defers, extends, amends, modifies, supplements, or replaces
an agreement containing a restriction permitted by clause (i) or (ii) above,
provided that the terms and conditions of any such restriction are not
materially less favorable in the aggregate to the Holders of the Securities than
those under or pursuant to the agreement being renewed, refinanced, deferred,
extended, amended, modified, supplemented or replaced; and (iv) restrictions
contained in agreements evidencing Indebtedness of a Subsidiary of the Company
issued to and held by the Company or a Subsidiary of the Company, provided that
the terms and conditions of any such restrictions are not materially less
favorable in the aggregate to the Holders of the Securities than those contained
in that certain Promissory Note of Merisel Americas, Inc. in favor of the
Company, as in effect on the Issue Date.
SECTION 4.17 Limitation on Sale-Leaseback
Transactions.
----------------------------
The Company will not, and will not permit any of its Subsidiaries to,
enter into any Sale-Leaseback Transaction, unless at least one of the following
conditions is satisfied:
(i) the lease with respect to such Sale-Leaseback Transaction is
between the Company and a Wholly-Owned Subsidiary of the Company or between
Wholly-Owned Subsidiaries of the Company;
(ii) the Company or a Subsidiary of the Company could create a Lien
to secure Indebtedness in an amount at least equal to the Attributable
Indebtedness in connection with such Sale-Leaseback Transaction; or
(iii) the Company or a Subsidiary of the Company within 90 days of
the effective date of such Sale-Leaseback Transaction makes an optional
prepayment of principal with respect to any Indebtedness which, to the
extent such Indebtedness is Indebtedness of the Company, ranks pari passu
----------
with the Securities, and in any event is in an amount at least equal to the
Attributable Indebtedness in connection with such Sale-Leaseback
Transaction (less any transaction costs
<PAGE>
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actually incurred in connection with such Sale-Leaseback Transaction).
SECTION 4.18 Ownership of Stock of Wholly-
Owned Subsidiaries.
-----------------------------
The Company will at all times maintain ownership, directly or
indirectly through one or more other Wholly-Owned Subsidiaries, of 100% of each
class of voting securities of, and all other equity securities in, each Wholly-
Owned Subsidiary of the Company existing on the Issue Date (other than any such
securities representing any director's qualifying shares or investments by
foreign nationals mandated by applicable law), except any Wholly-Owned
Subsidiary that shall be disposed of in its entirety or consolidated or merged
with or into the Company or another Wholly-Owned Subsidiary of the Company, in
each case in accordance with the applicable provisions of Sections 4.13 and 5.1
hereof.
SECTION 4.19 Waiver of Stay, Extension
or Usury Laws.
-------------------------
The Company covenants (to the extent permitted by law) that it will
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay or extension law or any usury law or other
law that would prohibit or forgive the Company from paying all or any portion of
the principal of, or interest on the Securities as contemplated herein, wherever
enacted, now or at any time hereafter in force, or that may affect the covenants
or the performance of this Indenture; and (to the extent permitted by law) the
Company hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Trustee or the Holders, but will suffer and permit the
execution of every such power as though no such law had been enacted.
SECTION 4.20 Securities Owned by the Company
or an Affiliate of the Company.
-------------------------------
The Company shall promptly as reasonably practicable notify the
Trustee of any Securities owned by the Company or any Affiliate of the Company.
The Trustee shall provide to each Holder upon the request of such Holder all
information furnished to the Trustee pursuant to this Section 4.20.
SECTION 4.21 Restriction on Sale or Transfer
of Assets.
-------------------------------
The Company shall not, directly or indirectly, convey, transfer,
lease (including by means of sale-leaseback) or otherwise dispose of, to any
Person, any of its assets or property owned as of the Issue Date or with respect
to any corporate management information systems assets only, any improvements or
additions thereto, other than dispositions of any Capital Stock of any Person
or of any obsolete equipment in the ordinary course of business.
ARTICLE V
SUCCESSOR CORPORATION
---------------------
SECTION 5.1 When Company May Merge, Etc.
---------------------------
The Company shall not consolidate with or merge with or into or sell,
assign, convey, lease or transfer all or substantially all of its properties
and assets as an entirety to any Person or group of affiliated Persons, in a
single transaction or through a series of transactions, and the Company shall
not permit any of its Subsidiaries to enter into any such transaction
<PAGE>
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or series of transactions, if such transaction or series of transactions would
result in a sale, assignment, conveyance, lease or transfer of all or
substantially all of the properties and assets of the Company and its
Subsidiaries taken as a whole, unless after giving effect thereto:
(a) the Company shall be the continuing Person, or the resulting,
surviving or transferee Person (the "surviving entity") shall be a
corporation organized and existing under the laws of the United States, any
State thereof or the District of Columbia;
(b) the surviving entity shall expressly assume, by a supplemental
indenture executed and delivered to the Trustee in form and substance
reasonably satisfactory to the Trustee, all of the obligations of the
Company under the Securities and this Indenture;
(c) immediately before and immediately after giving effect to such
transaction or series of transactions (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or
in respect of such transaction or series of transactions), no Default or
Event of Default shall have occurred and be continuing;
(d) the Company or the surviving entity shall, immediately after
giving effect to such transaction or series of transactions, have a
Consolidated Net Worth (including, without limitation, any Indebtedness
incurred or anticipated to be incurred in connection with or in respect of
such transaction or series of transactions), equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction
or series of transactions;
(e) immediately after giving effect to such transaction or series of
transactions on a pro forma basis, the Company or the surviving entity
could incur $1.00 of Indebtedness pursuant to clause (a) of Section 4.9;
and
(f) the Company or the surviving entity shall have delivered to the
Trustee an Officers' Certificate stating that such consolidation, merger,
sale, assignment, conveyance, transfer or lease and, if a supplemental
indenture is required in connection with such transaction or series of
transactions, such supplemental indenture, complies with this Section 5.1,
and that all conditions precedent provided for in this Indenture relating
to such transaction or series of transactions have been satisfied.
<PAGE>
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SECTION 5.2 Successor Entity Substituted.
----------------------------
Upon any consolidation, merger or any transfer of all or substantially
all of the assets of the Company in accordance with Section 5.1, the surviving
entity formed by such consolidation or into which the Company is merged or to
which such transfer is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such surviving entity had been named as the Company herein.
ARTICLE VI
DEFAULT AND REMEDIES
--------------------
SECTION 6.1 Events of Default.
-----------------
(a) An "Event of Default" occurs if:
(i) the Company defaults in the payment of any interest on the
Securities when it becomes due and payable and the continuance of any such
default for a period of 30 days; or
(ii) the Company defaults in the payment of the principal of any
Security when due and payable at maturity, upon redemption, pursuant to an
offer to purchase required under this Indenture, by acceleration or
otherwise; or
(iii) the Company defaults in the performance of, or breaches, any
covenant in this Indenture (other than defaults specified in clause (i) or
(ii) above), and the continuance of such default or breach for a period of
30 days after written notice to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in aggregate
principal amount of the outstanding Securities; or
(iv) the Company or any Subsidiary fails (a) to make any payment
when due, after giving effect to any applicable periods of grace, with
respect to any other Indebtedness under one or more classes or issues of
Indebtedness in an aggregate principal amount of $10,000,000 or more; or
(b) to perform any term, covenant, condition or provision of one or more
classes or issues of Indebtedness in an aggregate principal amount of
$10,000,000 or more, which failure, in the case of this clause (b), results
in an acceleration of the maturity thereof; or
<PAGE>
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(v) one or more judgments, orders or decrees for the payment of
money in excess of $10,000,000, either individually or in an aggregate
amount, shall be entered against the Company or any of its Subsidiaries or
any of their respective properties and shall not be satisfied or discharged
and there shall have been a period of 60 days during which a stay of
enforcement of such judgment or order, by reason of pending appeal or
otherwise, shall not be in effect; or
(vi) the Company or any Material Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding,
(B) consents to the entry of an order for relief against it in an
involuntary case or proceeding,
(C) consents to the appointment of a Custodian of it or for all
or substantially all of its property,
(D) makes a general assignment for the benefit of its creditors
or
(E) shall generally not pay its debts when such debts become due
or shall admit in writing its inability to pay its debts generally;
or
(vii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Material Subsidiary
in an involuntary case or proceeding,
(B) appoints a Custodian of the Company or any Material
Subsidiary for all or substantially all of its properties, or
(C) orders the liquidation of the Company or any Material
Subsidiary,
and in each case the order or decree remains unstayed and in effect for 60 days;
provided, however, that if the entry of such order or decree is appealed and
- - -------- -------
dismissed on appeal then the Event of Default hereunder by reason of the entry
of such order or decree shall be deemed to have been cured.
(b) For purposes of this Section 6.1, the term "Custodian" means any
receiver, trustee, assignee, liquidator,
<PAGE>
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sequestrator or similar official charged with maintaining possession or control
over property for one or more creditors.
(c) Subject to the provisions of Sections 7.1 and 7.2, the Trustee
shall not be charged with knowledge of any Event of Default unless written
notice thereof shall have been given to a Trust Officer at the corporate trust
office of the Trustee by the Company or any other Person.
SECTION 6.2 Acceleration.
------------
If an Event of Default (other than an Event of Default specified in
Section 6.1(a)(vi) or (vii) with respect to the Company) occurs and is
continuing, the Holders of at least 25% in aggregate principal amount of the
outstanding Securities may, by written notice to the Company and the Trustee,
the Trustee may, and upon the request of the Holders of not less than 25% in
aggregate principal amount of the outstanding Securities shall, declare the
principal of and accrued interest on all the Securities to be due and payable
immediately. Upon any such declaration such principal and accrued interest
shall become due and payable immediately. If an Event of Default specified in
Section 6.1(a)(vi) or (vii) occurs with respect to the Company, then the
principal of and accrued interest on all the Securities shall ipso facto become
---- -----
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any Holder. The Holders of a majority in aggregate
principal amount of outstanding Securities may, by notice to the Trustee,
rescind such declaration of acceleration if all existing Events of Default have
been cured or waived, other than the non-payment of principal of and accrued
interest on the Securities that has become due solely as a result of such
acceleration and if the rescission of acceleration would not conflict with any
judgment or decree. No such rescission shall affect any subsequent default or
impair any right consequent thereto.
SECTION 6.3 Other Remedies.
--------------
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
All rights of action and claims under this Indenture or the Securities
may be enforced by the Trustee even if the Trustee does not possess any of the
Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any
<PAGE>
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Securityholder in exercising any right or remedy accruing upon an Event of
Default shall not impair the right or remedy or constitute a waiver of or
acquiescence in the Event of Default. No remedy is exclusive of any other
remedy. All available remedies are cumulative to the extent permitted by law.
SECTION 6.4 Waiver of Past Default.
----------------------
Subject to Sections 6.7 and 9.2, the Holders of, in the aggregate, at
least a majority in aggregate principal amount of the outstanding Securities by
notice to the Trustee may waive an existing Default or Event of Default and its
consequences, except a Default specified in Section 6.1(a)(i) or (ii) or in
respect of any covenant or a provision hereof which cannot be modified or
amended without the consent of the Holder so affected pursuant to Section 9.2.
When a Default or Event of Default is so waived, it shall be deemed cured and
ceases in accordance with the waiver.
SECTION 6.5 Control by Majority.
-------------------
The Holders of at least a majority in aggregate principal amount of
the outstanding Securities may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on it; provided, however, that the Trustee may refuse to
-------- -------
follow any direction that (i) conflicts with law or this Indenture, (ii) the
Trustee determines may be unduly prejudicial to the rights of another
Securityholder, or (iii) may involve the Trustee in personal liability unless
the Trustee has indemnification satisfactory to it (it being understood that the
Trustee will not unreasonably withhold such satisfaction) against any loss or
expense caused by its following such direction; and provided, further, that
-------- -------
the Trustee may take any other action deemed proper by the Trustee that is not
inconsistent with such direction.
SECTION 6.6 Limitation on Suits.
-------------------
A Securityholder may not pursue any remedy with respect to this
Indenture or the Securities unless:
(a) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(b) the Holders of at least 25% in aggregate principal amount of the
outstanding Securities make a written request to the Trustee to pursue a
remedy;
<PAGE>
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(c) such Holder or Holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense (it being understood that the Trustee will not
unreasonably withhold such satisfaction);
(d) the Trustee does not comply with the request within 30 days after
receipt of the request and the offer and, if requested, provision of
indemnity; and
(e) during such 30-day period the Holders of a majority in aggregate
principal amount of the outstanding Securities do not give the Trustee a
direction inconsistent with the request.
The foregoing limitations shall not apply to a suit instituted by a
Holder for the enforcement of the payment of principal of, premium, if any, or
accrued interest on such Security on or after the respective due dates set forth
in such Security (including acceleration thereof) or the institution of any
proceeding with respect to this Indenture or any remedy hereunder, including
acceleration, by the Holders of a majority in principal amount of outstanding
Securities with respect to such Holders' Securities, provided that upon
institution of any proceeding or exercise of any remedy such Holders provide the
Trustee with prompt notice thereof.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over such other
Securityholder.
SECTION 6.7 Rights of Holders To Receive Payment.
------------------------------------
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of and interest on a Security, on or
after the respective due dates expressed in the Security, or to bring suit for
the enforcement of any such payment on or after such respective dates, is
absolute and unconditional and shall not be impaired or affected without the
consent of such Holder.
SECTION 6.8 Collection Suit by Trustee.
--------------------------
If an Event of Default specified in Section 6.1(a)(i) or (ii) occurs
and is continuing, the Trustee may recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount of
principal and accrued interest remaining unpaid, together with interest overdue
on principal and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the Interest Rate
and such further amount as shall be sufficient to cover the costs and expenses
of collection, including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel.
<PAGE>
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SECTION 6.9 Trustee May File Proofs of Claim.
--------------------------------
The Trustee shall be entitled and empowered to file such proofs of
claim and other papers or documents as may be necessary or advisable in order to
have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and the Securityholders allowed in any judicial proceedings
relative to the Company or the Subsidiaries of the Company, its creditors or its
property and shall be entitled and empowered to collect and receive any monies,
securities or other property payable or deliverable upon the conversion or
exchange of the Securities or upon any such claims and to distribute the same,
and any Custodian in any such judicial proceedings is hereby authorized by each
Securityholder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the
Securityholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel, and any other amounts due the Trustee under Section 7.7. Nothing
herein contained shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Securityholder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Securityholder in any such proceeding.
SECTION 6.10 Priorities.
----------
If the Trustee collects any money pursuant to this Article VI, it
shall pay out such money in the following order:
First: to the Trustee for amounts due under Section 7.7 or elsewhere in
this Indenture;
Second: to Holders for interest accrued on the Securities, ratably,
without preference or priority of any kind, according to the amounts due
and payable on the Securities for interest;
Third: to Holders for principal amounts owing under the Securities,
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Securities for principal; and
Fourth: to the Company.
<PAGE>
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The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Securityholders pursuant to this
Section 6.10.
SECTION 6.11 Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.7, or a suit by Holders of more than 10% in aggregate
principal amount of the outstanding Securities.
ARTICLE VII
TRUSTEE
-------
SECTION 7.1 Duties of Trustee.
-----------------
(a) If an Event of Default actually known to the Trustee has occurred
and is continuing, the Trustee shall, other than with respect to any action
taken by the Trustee as directed by a majority in aggregate principal amount of
the outstanding Securities in accordance with Section 6.5 hereof, exercise such
of the rights and powers vested in it by this Indenture and use the same degree
of care and skill in their exercise as a prudent person would exercise or use
under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default actually
known to the Trustee:
(i) The Trustee need perform only those duties as are specifically
set forth in this Indenture and no others.
(ii) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
in the case of any such certificates or opinions which by any provision
hereof are specifically required to be furnished to the Trustee, the
Trustee shall examine such certificates and opinions to determine whether
or not they conform to the requirements of this Indenture.
<PAGE>
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(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:
(i) This paragraph does not limit the effect of paragraph (b) of
this Section 7.1.
(ii) The Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
(iii) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.2, 6.4 or 6.5.
(iv) No provision of this Indenture or the Securities shall require
the Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder or in
the exercise of any of its rights or powers if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it.
(d) Every provision of this Indenture or the Securities that in any
way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this
Section 7.1.
(e) The Trustee shall not be liable for interest on any money received
by it under this Indenture or the Securities except as the Trustee may agree in
writing with the Company. Except as otherwise provided herein money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
(f) Notwithstanding any provision of this Indenture or the Securities
to the contrary, the Trustee may refuse to perform any duty or exercise any
right or power unless it is provided adequate funds to enable it to do so and it
receives indemnity satisfactory to it against any loss, liability, fee or
expense (it being understood that the Trustee will not unreasonably withhold
such satisfaction).
<PAGE>
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SECTION 7.2 Rights of Trustee.
-----------------
Subject to Section 7.1:
(a) The Trustee may rely and shall be protected in acting or
refraining from acting upon any document believed by it to be genuine and
to have been signed or presented by the proper Person. The Trustee shall
not be bound to make any investigation into the facts or matters stated in
any resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the Trustee, in
its discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine
the books, records and premises of the Company, personally or by agent or
attorney.
(b) Before the Trustee acts or refrains from acting with respect to
any matter contemplated by this Indenture or the Securities, it may require
an Officers' Certificate or an Opinion of Counsel, which shall conform to
the provisions of Section 10.5. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such
certificate or opinion.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any attorney or agent
(other than the negligence or willful misconduct of an agent who is an
employee of the Trustee) appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized or
within its rights or powers, provided that the Trustee's conduct does not
constitute negligence or bad faith.
(e) The Trustee may consult with counsel and the advice or opinion of
such counsel as to matters of law shall be full and complete authorization
and protection from liability in respect of any action taken, omitted or
suffered by it hereunder or under the Securities in good faith and in
accordance with the advice or opinion of such counsel.
<PAGE>
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SECTION 7.3 Individual Rights of Trustee.
----------------------------
The Trustee in its individual capacity or any other capacity may
become the owner or pledgee of Securities and may otherwise deal with the
Company or its Subsidiaries and Affiliates with the same rights it would have if
it were not Trustee. Any Agent may do the same with like rights. However, the
Trustee is subject to Sections 7.10 and 7.11.
SECTION 7.4 Trustee's Disclaimer.
--------------------
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Securities, or any
rights or remedies of any party purported to be created or granted thereby, and
it shall not be accountable for the Company's use of the proceeds from the
issuance of the Securities, and it shall not be responsible for any statement of
the Company in this Indenture or any document issued in connection with the sale
of Securities or any statement in the Securities other than the Trustee's
certificate of authentication.
SECTION 7.5 Notice of Defaults.
------------------
If a Default or an Event of Default with respect to the Securities
occurs and is continuing and is actually known to the Trustee, the Trustee shall
mail to each Securityholder notice of the Default or Event of Default within 45
days after the occurrence thereof. Except in the case of a Default or an Event
of Default in payment of principal of, or interest on, any Security, the Trustee
may withhold the notice to the Securityholders if a committee of its Trust
Officers in good faith determines that withholding the notice is in the interest
of Securityholders.
SECTION 7.6 Reports by Trustee to Holders.
-----------------------------
To the extent required by TIA (S) 313(a), within 60 days after
May 15 of each year commencing with 1995 and for as long as there are
Securities outstanding hereunder, the Trustee shall mail to each Securityholder
the Company's brief report dated as of such date that complies with TIA (S)
313(a). The Trustee also shall comply with TIA (S) 313(c) and (d). A copy of
such report at the time of its mailing to Securityholders shall be filed with
the Commission, if required, and each stock exchange, if any, on which the
Securities are listed.
The Company shall promptly notify the Trustee if the Securities become
listed on any stock exchange, and the Trustee shall comply with TIA (S) 313(d).
<PAGE>
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SECTION 7.7 Compensation and Indemnity.
--------------------------
The Company shall pay to the Trustee, the Paying Agent and the
Registrar from time to time reasonable compensation for their respective
services rendered hereunder. The Trustee's, the Paying Agent's and the
Registrar's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee, the
Paying Agent and the Registrar upon request for all reasonable out-of-pocket
disbursements, expenses and advances (including fees and expenses of counsel)
incurred or made by each of them in addition to the compensation for their
respective services. Such expenses shall include the reasonable compensation,
out-of-pocket disbursements and expenses of the Trustee's, the Paying Agent's
and the Registrar's agents and counsel.
The Company shall indemnify the Trustee, the Paying Agent and the
Registrar for, and hold each of them harmless against, any claim, demand,
expense (including but not limited to reasonable attorneys' fees and expenses),
loss or liability incurred by each of them arising out of or in connection with
the administration of this Indenture and their respective duties hereunder.
Each of the Trustee, the Paying Agent and the Registrar shall notify the Company
promptly of any claim asserted against it for which it may seek indemnity.
However, failure by the Trustee, the Paying Agent or the Registrar to so notify
the Company shall not relieve the Company of its obligations hereunder.
However, the Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee, the Paying Agent or the Registrar
through the Trustee's, the Paying Agent's or the Registrar's, as the case may
be, own willful misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section 7.7, each
of the Trustee, the Paying Agent and the Registrar shall have a Lien prior to
the Securities on all money or property held or collected by it, in its capacity
as Trustee, Paying Agent or Registrar, as the case may be, except money or
property held in trust to pay principal of, or interest on, particular
Securities.
When any of the Trustee, the Paying Agent and the Registrar incurs
expenses or renders services after an Event of Default specified in Section
6.1(a)(vi) or (vii) occurs with respect to the Company, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
<PAGE>
-55-
SECTION 7.8 Replacement of Trustee.
----------------------
The Trustee may resign at any time by so notifying the Company in
writing, such resignation to be effective upon the appointment of a successor
Trustee. The Holders of a majority in aggregate principal amount of the
outstanding Securities may remove the Trustee by so notifying the Trustee in
writing and may appoint a successor Trustee with the Company's consent, which
consent shall not be unreasonably withheld. The Company may remove the Trustee
if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent;
(c) a receiver or other public officer takes charge of the Trustee or
its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of the Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in aggregate principal amount of the Securities may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee (subject to the lien provided in Section 7.7), the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Securityholder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 25% in aggregate principal amount of the outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for
<PAGE>
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the removal of the Trustee and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.8, the Company's obligations under Section 7.7 shall continue for the benefit
of the retiring Trustee.
SECTION 7.9 Successor Trustee by Merger, Etc.
--------------------------------
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation or national banking association, the resulting, surviving or
transferee corporation or national banking association without any further act
shall be the successor Trustee, provided such corporation shall be otherwise
qualified and eligible under this Article VII.
SECTION 7.10 Eligibility; Disqualification.
-----------------------------
This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S) 310(a)(1), (2) and (5). The Trustee shall have, or in
the case the Trustee is a corporation included in a bank holding company system,
the related bank holding company system shall have, a combined capital and
surplus of at least $50,000,000 as set forth in its most recent published annual
report of condition. The Trustee shall comply with TIA (S) 310(b); provided,
--------
however, that there shall be excluded from the operation of TIA (S) 310(b)(1)
- - -------
any indenture or indentures under which other securities, or certificates of
interest or participation in other securities, of the Company are outstanding if
the requirements for such exclusion set forth in TIA (S) 310(b)(1) are met. The
provisions of TIA (S) 310 shall apply to the Company, as obligor of the
Securities.
SECTION 7.11 Preferential Collection of
Claims Against Company.
--------------------------
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein. The
provisions of TIA (S) 311 shall apply to the Company, as an obligor on the
Securities.
<PAGE>
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ARTICLE VIII
DISCHARGE OF INDENTURE; DEFEASANCE
----------------------------------
SECTION 8.1 Termination of Company's Obligations.
-------------------------------------
The Company may terminate its obligations under the Securities and
this Indenture, except those obligations referred to in the penultimate
paragraph of this Section 8.1, if all Securities previously authenticated and
delivered (other than destroyed, lost or stolen Securities which have been
replaced or paid) have been delivered to the Trustee for cancellation and the
Company has paid all sums payable by it hereunder, or if:
(a) pursuant to Article III, the Company shall have given notice to
the Trustee and mailed a notice of redemption to each Holder of the
redemption of all of the Securities under arrangements satisfactory to the
Trustee for the giving of such notice;
(b) the Company shall have irrevocably deposited or caused to be
deposited with the Trustee or a trustee satisfactory to the Trustee, under
the terms of an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds in trust solely for the benefit
of the Holders for that purpose, money or direct non-callable obligations
of, or non-callable obligations guaranteed by, the United States of America
for the payment of which guarantee or obligation the full faith and credit
of the United States is pledged ("U.S. Government Obligations") maturing as
to principal and interest in such amounts and at such times as are
sufficient without consideration of any reinvestment of such interest, to
pay principal of and interest on the outstanding Securities to maturity or
redemption, as the case may be, provided that the Trustee shall have been
irrevocably instructed to apply such money or the proceeds of such U.S.
Government Obligations to the payment of said principal and interest with
respect to the Securities; and
(c) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent providing for the termination of the Company's obligation under
the Securities and this Indenture have been complied with.
Notwithstanding the foregoing paragraph, the Company's obligations in
Sections 2.5, 2.6, 2.7, 2.8, 4.1, 4.2, 7.7, 7.8, 8.4 and 8.5 shall survive until
the Securities are no longer
<PAGE>
-58-
outstanding. After the Securities are no longer outstanding, the Company's
obligations in Sections 7.7, 8.4 and 8.5 shall survive.
After such delivery or irrevocable deposit the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
the Securities and this Indenture except for those surviving obligations
specified above.
SECTION 8.2 Legal Defeasance and Covenant
Defeasance.
-----------------------------
(a) The Company may, at its option by Board Resolution, at any time,
with respect to the Securities, elect to have either paragraph (b) or paragraph
(c) below be applied to the outstanding Securities upon compliance with the
conditions set forth in paragraph (d).
(b) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (b), the Company shall be deemed to have been
released and discharged from its obligations with respect to the outstanding
Securities on the date the conditions set forth below are satisfied
(hereinafter, "legal defeasance"). For this purpose, such legal defeasance
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Securities, which shall thereafter
be deemed to be "outstanding" only for the purposes of paragraph (e) below and
the other Sections of and matters under this Indenture referred to in (i), (ii)
and (iv) below, and to have satisfied all its other obligations under such
Securities and this Indenture insofar as such Securities are concerned (and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (i) the rights of Holders of
outstanding Securities to receive solely from the trust fund described in
paragraph (d) below and as more fully set forth in such paragraph, payments in
respect of the principal of, and interest on such Securities when such payments
are due, (ii) the Company's obligations with respect to such Securities under
Sections 2.6, 2.7 and 4.2, and, with respect to the Trustee, under Section 7.7,
(iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder
and (iv) this Section 8.2. Subject to compliance with this Section 8.2, the
Company may exercise its option under this paragraph (b) notwithstanding the
prior exercise of its option under paragraph (c) below with respect to the
Securities.
(c) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (c), the Company shall be
<PAGE>
-59-
released and discharged from its obligations under any covenant contained in
Article V and in Sections 4.6 through 4.18 with respect to the outstanding
Securities on and after the date the conditions set forth below are satisfied
(hereinafter, "covenant defeasance"), and the Securities shall thereafter be
deemed to be not "outstanding" for the purpose of any direction, waiver, consent
or declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder. For this purpose, such covenant defeasance
means that, with respect to the outstanding Securities, the Company may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an Event
of Default under Section 6.1, but, except as specified above, the remainder of
this Indenture and such Securities shall be unaffected thereby.
(d) The following shall be the conditions to application of either
paragraph (b) or paragraph (c) above to the outstanding Securities:
(i) the Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 7.10 who shall agree to comply with the provisions of this
Section 8.2 applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities, (A)
money in an amount, or (B) U.S. Government Obligations which through the
scheduled payment of principal of and interest in respect thereof in
accordance with their terms will provide, not later than one day before the
due date of any payment, money in an amount, or (C) a combination thereof,
sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered
to the Trustee, to pay and discharge and which shall be applied by the
Trustee (or other qualifying trustee) to pay and discharge principal of and
interest on the outstanding Securities on the Maturity Date of such
principal or installment of principal or interest in accordance with the
terms of this Indenture and of such Securities; provided, however, that the
-------- -------
Trustee (or other qualifying trustee) shall have received
<PAGE>
-60-
an irrevocable written order from the Company instructing the Trustee (or
other qualifying trustee) to apply such money or the proceeds of such U.S.
Government Obligations to said payments with respect to the Securities;
(ii) no Default or Event of Default or event which with notice or
lapse of time or both would become a Default or an Event of Default with
respect to the Securities shall have occurred and be continuing on the date
of such deposit;
(iii) such legal defeasance or covenant defeasance shall not
result in a breach or violation of, or constitute a Default or Event of
Default under, this Indenture or any other agreement or instrument to which
the Company is a party or by which it is bound;
(iv) in the case of an election under paragraph (b) above, the
Company shall have delivered to the Trustee an Opinion of Counsel stating
that (x) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (y) since the date of this Indenture,
there has been a change in the applicable Federal income tax law, in either
case to the effect that, and based thereon such opinion shall confirm that,
the Holders of the outstanding Securities will not recognize income, gain
or loss for Federal income tax purposes as a result of such legal
defeasance and will be subject to Federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such legal defeasance had not occurred;
(v) in the case of an election under paragraph (c) above, the
Company shall have delivered to the Trustee an Opinion of Counsel to the
effect that the Holders of the outstanding Securities will not recognize
income, gain or loss for Federal income tax purposes as a result of such
covenant defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such covenant defeasance had not occurred;
(vi) in the case of an election under either paragraph (b) or (c)
above, an Opinion of Counsel to the effect that, (x) the trust funds will
not be subject to any rights of any other holders of Indebtedness of the
Company, and (y) after the 91st day following the deposit, the trust funds
will not be subject to the
<PAGE>
-61-
effect of any applicable Bankruptcy Law; provided, however, that if a court
-------- -------
were to rule under any such law in any case or proceeding that the trust
funds remained property of the Company, no opinion needs to be given as to
the effect of such laws on the trust funds except the following: (A)
assuming such trust funds remained in the Trustee's possession prior to
such court ruling to the extent not paid to Holders of Securities, the
Trustee will hold, for the benefit of the Holders of Securities, a valid
and enforceable security interest in such trust funds that is not avoidable
in bankruptcy or otherwise, subject only to principles of equitable
subordination, (B) the Holders of Securities will be entitled to receive
adequate protection of their interests in such trust funds if such trust
funds are used, and (C) no property, rights in property or other interests
granted to the Trustee or the Holders of Securities in exchange for or with
respect to any of such funds will be subject to any prior rights of any
other Person, subject only to prior Liens granted under Section 364 of
Title 11 of the U.S. Bankruptcy Code (or any section of any other
Bankruptcy Law having the same effect), but still subject to the foregoing
clause (B); and
(vii) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that (A) all conditions
precedent provided for relating to either the legal defeasance under
paragraph (b) above or the covenant defeasance under paragraph (c) above,
as the case may be, have been complied with and (B) if any other
Indebtedness of the Company shall then be outstanding or committed, such
legal defeasance or covenant defeasance will not violate the provisions of
the agreements or instruments evidencing such Indebtedness.
(e) All money and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee (or other qualifying trustee, collectively
for purposes of this paragraph (e), the "Trustee") pursuant to paragraph (d)
above in respect of the outstanding Securities shall be held in trust and
applied by the Trustee, in accordance with the provisions of such Securities and
this Indenture, to the payment, either directly or through any Paying Agent
(other than the Company) as the Trustee may determine, to the Holders of such
Securities of all sums due and to become due thereon in respect of principal and
interest, but such money need not be segregated from other funds except to the
extent required by law.
<PAGE>
-62-
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to paragraph (d) above or the principal and interest received
in respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of the outstanding Securities.
Anything in this Section 8.2 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request,
in writing, by the Company any money or U.S. Government Obligations held by it
as provided in paragraph (d) above which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, are in excess of the amount
thereof which would then be required to be deposited to effect an equivalent
legal defeasance or covenant defeasance.
SECTION 8.3 Application of Trust Money.
--------------------------
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Sections 8.1 and 8.2, and shall apply the
deposited money and the money from U.S. Government Obligations in accordance
with this Indenture to the payment of principal of, and interest on the
Securities.
SECTION 8.4 Repayment to Company.
--------------------
Subject to Sections 7.7, 8.1 and 8.2, the Trustee shall promptly pay
to the Company, upon receipt by the Trustee of an Officers' Certificate, any
excess money, determined in accordance with Sections 8.2(d)(i) and (e), held by
it at any time. The Trustee and the Paying Agent shall pay to the Company, upon
receipt by the Trustee or the Paying Agent, as the case may be, of an Officers'
Certificate, any money held by it for the payment of principal or interest that
remains unclaimed for two years; provided, however, that the Trustee and the
-------- -------
Paying Agent before being required to make any payment may, but need not, at the
expense of the Company cause to be published once in a newspaper of general
circulation in The City of New York or mail to each Holder entitled to such
money notice that such money remains unclaimed and that after a date specified
therein, which shall be at least 30 days from the date of such publication or
mailing, any unclaimed balance of such money then remaining will be repaid to
the Company. After payment to the Company, Securityholders entitled to money
must look solely to the Company for payment as general creditors unless an
applicable abandoned property law designates another
<PAGE>
-63-
Person, and all liability of the Trustee or Paying Agent with respect to such
money shall thereupon cease.
SECTION 8.5 Reinstatement.
-------------
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with this Indenture by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
and only then the Company's obligations under this Indenture and the Securities
shall be revived and reinstated as though no deposit had been made pursuant to
this Indenture until such time as the Trustee is permitted to apply all such
money or U.S. Government Obligations in accordance with this Indenture;
provided, however, that if the Company has made any payment of interest on or
- - -------- -------
principal of any Securities because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the holders of such Securities to
receive such payment from the money or U.S. Government Obligations held by the
Trustee or Paying Agent.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
-----------------------------------
SECTION 9.1 Without Consent of Holders.
--------------------------
The Company, when authorized by a Board Resolution, and the Trustee
may amend, waive or supplement this Indenture or the Securities without notice
to or consent of any Securityholder:
(a) to cure any ambiguity, defect or inconsistency, provided that such
amendment or supplement does not adversely affect the rights of any Holder;
(b) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(c) to comply with any requirements of the Commission under the TIA;
(d) to evidence the succession in accordance with Article V hereof of
another Person to the Company and the assumption by any such successor of
the covenants of the Company herein and in the Securities;
<PAGE>
-64-
(e) to evidence and provide for the acceptance of appointment
hereunder by a separate or successor Trustee with respect to the
Securities; or
(f) to make any change that does not adversely affect the rights of
any Holder.
SECTION 9.2 With Consent of Holders.
-----------------------
Subject to Section 6.7 and the provisions of this Section 9.2, the
Company and the Trustee may amend or supplement this Indenture or the Securities
with the written consent of the Holders of at least a majority in aggregate
principal amount of the Securities then outstanding. Subject to Section 6.7 and
the provisions of this Section 9.2, the Holders of, in the aggregate, at least
a majority in aggregate principal amount of the outstanding Securities affected
may waive compliance by the Company with any provision of this Indenture or the
Securities without notice to any other Securityholder. However, without the
consent of each Securityholder affected, an amendment, supplement or waiver,
including a waiver pursuant to Section 6.4, may not:
(a) reduce the amount of Securities the Holders of which must consent
to an amendment, supplement or waiver or consent of any provision of this
Indenture or the Securities;
(b) reduce the rate of, change the method of calculation of, or extend
the time for, payment of interest on any Security;
(c) reduce the principal amount outstanding of or extend the fixed
maturity of any Security or alter the redemption provisions with respect
thereto;
(d) waive a default in the payment of the principal of or interest on,
or redemption payment or an offer to purchase required hereunder with
respect to, any Security;
(e) change the currency in which any Security or any premium or the
accrued interest thereon is payable;
(f) affect the ranking of the Securities;
(g) impair the right to institute suit for the enforcement of any
payment on or with respect to the Securities;
<PAGE>
-65-
(h) amend, change or modify the obligation of the Company to make and
consummate a Change of Control Offer or Asset Sale Offer or modify any of
the provisions or definitions hereof with respect thereto; or
(i) modify this Section 9.2 or Section 6.4.
It shall not be necessary for the consent of the Holders under this
Section 9.2 to approve the particular form of any proposed amendment, supplement
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.2
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement or
waiver.
SECTION 9.3 Compliance with Trust Indenture Act.
-----------------------------------
Every amendment to or supplement of this Indenture or the Securities
shall comply with the TIA as then in effect.
SECTION 9.4 Revocation and Effect of Consents.
---------------------------------
Until an amendment or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and every subsequent Holder of that
Security or portion of that Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not made on any
Security. However, any such Holder or subsequent Holder may revoke the consent
as to his Security or portion of a Security. Such revocation shall be effective
only if the Trustee receives the notice of revocation before the date the
amendment, supplement or waiver becomes effective. Notwithstanding the above,
nothing in this paragraph shall impair the right of any Securityholder under (S)
316(b) of the TIA.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then notwithstanding the
second and third sentences of the immediately preceding paragraph, those Persons
who were Holders at such record date (or their duly designated proxies), and
only those Persons, shall be entitled to consent to such amendment, supplement
or waiver or to revoke any consent previously given,
<PAGE>
-66-
whether or not such Persons continue to be Holders after such record date. Such
consent shall be effective only for actions taken within 90 days after such
record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(a) through (i) of Section 9.2; if it makes such a change, the amendment,
supplement or waiver shall bind every subsequent Holder of a Security or
portion of a Security that evidences the same debt as the consenting Holder's
Security.
SECTION 9.5 Notation on or Exchange of Securities.
-------------------------------------
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may (in accordance with the specific direction of the Company)
request the Holder of the Security to deliver it to the Trustee. The Trustee
may (in accordance with the specific direction of the Company) place an
appropriate notation on the Security about the changed terms and return it to
the Holder. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for the Security shall issue and the Trustee shall
authenticate a new Security that reflects the changed terms. Failure to make
the appropriate notation or issue a new Security shall not affect the validity
and effect of such amendment, supplement or waiver.
SECTION 9.6 Trustee To Sign Amendments, Etc.
-------------------------------
The Trustee shall sign any amendment, supplement or waiver authorized
pursuant to this Article IX if the amendment, supplement or waiver does not
adversely affect the rights, duties or immunities of the Trustee. If it does,
the Trustee may, but need not, sign it. In signing any amendment, supplement or
waiver, the Trustee shall be entitled to receive, if requested, an indemnity
satisfactory to it in its sole discretion and to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article IX is
authorized or permitted by this Indenture. The Company may not sign an
amendment until its Board of Directors approves it.
<PAGE>
-67-
ARTICLE X
MISCELLANEOUS
-------------
SECTION 10.1 Trust Indenture Act Controls.
----------------------------
If any provision of this Indenture limits, qualifies, or conflicts
with another provision which is required to be included in this Indenture by the
TIA, the required provision shall control.
SECTION 10.2 Notices.
-------
Any notice or communication shall be sufficiently given if in writing
and delivered in Person or mailed by first-class mail addressed as follows:
(a) if to the Company:
MERISEL, INC.
200 Continental Boulevard
El Segundo, California 90245
Attention: Treasurer
with a copy to
MERISEL, INC.
200 Continental Boulevard
El Segundo, California 90245
Attention: General Counsel
(b) if to the Trustee:
NATIONSBANK OF TEXAS, N.A.
901 Main Street, 18th Floor
Dallas, Texas 75202
Attention: Corporate Trust Department
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder, including any
notice delivered in connection with TIA (S) 310(b), TIA (S) 313(c), TIA (S)
314(a) and TIA (S) 315(b), shall be mailed to him or her, first-class postage
prepaid, at his or her address as it
<PAGE>
-68-
appears on the registration books of the Registrar and shall be sufficiently
given to him or her if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. Except for a notice to the Trustee, which is deemed given only
when received, if a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 10.3 Communications by Holders with Other
Holders.
------------------------------------
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other Person shall
have the protection of TIA (S) 312(c).
SECTION 10.4 Certificate and Opinion of Counsel
as to Conditions Precedent.
----------------------------------
Upon any request or application by the Company to the Trustee to take
any action under this Indenture or the Securities, the Company shall furnish to
the Trustee at the request of the Trustee (a) an Officers' Certificate in form
and substance satisfactory to the Trustee stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture or the
Securities, as the case may be, relating to the proposed action have been
complied with, (b) an Opinion of Counsel in form and substance satisfactory to
the Trustee stating that, in the opinion of counsel, all such conditions have
been complied with and (c) where applicable, a certificate or opinion by an
independent certified public accountant satisfactory to the Trustee that
complies with TIA (S) 314(c).
SECTION 10.5 Statements Required in Certificate
and Opinion of Counsel.
----------------------------------
Each certificate and Opinion of Counsel with respect to compliance
with a condition or covenant provided for in this Indenture shall include:
(a) a statement that the Person making such certificate has read such
covenant or condition;
<PAGE>
-69-
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements contained in such certificate are
based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him or her
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been complied with.
SECTION 10.6 Rules by Trustee, Paying Agent,
Registrar.
-------------------------------
The Trustee may make reasonable rules in accordance with the Trustee's
customary practices for action by or at a meeting of Securityholders. The
Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 10.7 Legal Holidays.
--------------
If a payment date is a Legal Holiday at a place of payment, payment
may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
SECTION 10.8 GOVERNING LAW.
-------------
THE INTERNAL LAWS OF THE STATE OF CALIFORNIA SHALL GOVERN THIS
INDENTURE AND THE SECURITIES WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
SECTION 10.9 No Recourse Against Others.
--------------------------
A trustee, director, officer, employee, stockholder or beneficiary, as
such, of the Company shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. Each
Securityholder by accepting a Security waives and releases all such liability.
<PAGE>
-70-
SECTION 10.10 Successors.
----------
All agreements of the Company in this Indenture and the Securities
shall bind its successors. All agreements of the Trustee in this Indenture
shall bind its successor.
SECTION 10.11 Duplicate Originals.
-------------------
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 10.12 Separability.
------------
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby,
and a Holder shall have no claim therefor against any party hereto.
SECTION 10.13 Table of Contents, Headings, Etc.
--------------------------------
The table of contents, cross-reference sheet and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, and are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
MERISEL, INC., Issuer
By /s/ JAMES L. BRILL
----------------------------------------------
Title: Senior Vice President--Finance,
Chief Financial Officer and Secretary
NATIONSBANK OF TEXAS, N.A.
as Trustee
By /s/ DAVID MOORE
----------------------------------------------
Title: Vice President
<PAGE>
Exhibit A
---------
MERISEL, INC.
No. $
12 1/2% SENIOR NOTE DUE 2004
MERISEL, INC. promises to pay to or
registered assigns the principal sum of Dollars on
December 31, 2004.
Interest Payment Dates: June 30, December 31, and at maturity
Record Dates: June 15, December 15 and 15 days prior to maturity
MERISEL, INC.
By:
----------------------------------------------
[SEAL]
By:
----------------------------------------------
Dated:
--------------------
Certificate of Authentication
This is one of the 12 1/2% Senior Notes Due 2004 referred to in the
within-mentioned Indenture.
NATIONSBANK OF TEXAS, N.A.
as Trustee
By:
----------------------------------------------
Authorized Signatory
<PAGE>
-2-
(REVERSE OF SECURITY)
MERISEL, INC.
12 1/2% SENIOR NOTE DUE 2004
1. Interest. MERISEL, INC., a Delaware corporation (the "Company"),
--------
promises to pay, until the principal hereof is paid or made available for
payment, interest on the principal amount set forth on the reverse side hereof
at a rate of 12 1/2% per annum. Interest on the Senior Notes will accrue from
--- -----
and including the most recent date to which interest has been paid or, if no
interest has been paid, from and including October 24, 1994 to but excluding the
date on which interest is paid. Interest shall be payable in arrears on June 30,
December 31, and at the stated maturity, commencing December 31, 1994. Interest
will be computed on the basis of a 360-day year of twelve 30-day months. The
Company shall pay interest on overdue principal and on overdue interest (to the
full extent permitted by law) at a rate of 12 1/2% per annum.
2. Method of Payment. The Company will pay interest on the Senior
-----------------
Notes (except defaulted interest) to the Persons who are registered Holders of
Senior Notes at the close of business on the June 15 or December 15 next
preceding the Interest Payment Date and on the 15th day next preceding the
Maturity Date. Holders must surrender Senior Notes to a Paying Agent to collect
principal payments. The Company will pay principal and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts. Interest may be paid by check mailed to the person entitled
thereto as shown on the Registrar for the Senior Notes.
3. Paying Agent and Registrar. Initially, NationsBank of Texas,
--------------------------
N.A. (the "Trustee") will act as Paying Agent and Registrar. The Company may
change any Paying Agent, Registrar or co-Registrar without notice. Neither the
Company nor any of its Subsidiaries may act as Paying Agent, Registrar or co-
Registrar.
4. Indenture. The Company issued the Senior Notes under an
---------
Indenture dated as of October 15, 1994 (the "Indenture") between the Company and
the Trustee. This Senior Note is one of an issue of Senior Notes of the Company
issued under the Indenture. The terms of the Senior Notes include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb), as amended from time
to time. The Senior Notes are subject to all such terms, and Holders are
referred to the Indenture and such Act
<PAGE>
-3-
for a statement of them. Capitalized and certain other terms used herein and
not otherwise defined have the meanings set forth in the Indenture. The Senior
Notes are general unsecured obligations of the Company limited in aggregate
principal amount to $125,000,000. The Indenture limits, among other things, the
incurrence of Indebtedness by the Company and its Subsidiaries; the creation of
Liens by the Company and its Subsidiaries; purchases, redemptions, and other
acquisitions or retirements of Capital Stock of the Company and its
Subsidiaries; transactions by the Company and its Subsidiaries with their
respective Affiliates; Sale-Leaseback Transactions; the making of dividends and
other payments; Asset Sales; the making of Investments; and the ability of the
Company or any of its Subsidiaries to merge with or into another entity. The
limitations are subject to a number of important qualifications and exceptions.
The Company must report to the Trustee quarterly on compliance with the
limitations contained in the Indenture.
5. Optional Redemption. The Company, at its option, may redeem all
-------------------
or any of the Senior Notes, in whole or in part, at any time on or after
December 31, 1999 at the redemption prices (expressed in percentages of
principal amount) set forth below plus accrued and unpaid interest to the
Redemption Date, if redeemed during the 12-month period beginning December 31 of
the years indicated below:
Year Percentage
---- ----------
1999 ........................ 106.25
2000 ........................ 104.17
2001 ........................ 102.08
2002 and thereafter.......... 100.00%
In addition to the optional redemption of the Senior Notes in
accordance with the provisions of the preceding paragraph, prior to December 31,
1997, the Company may use the net proceeds of an Equity Offering to redeem up to
35% of the originally issued aggregate principal amount of Senior Notes at a
redemption price of 110% of the principal amount thereof plus accrued and unpaid
interest to the Redemption Date.
"Equity Offering" means any public or private offering of Capital
Stock (other than Disqualified Stock) of the Company.
6. Notice of Redemption. Notice of redemption will be mailed at
--------------------
least 30 days but not more than 60 days before the Redemption Date to each
Holder of Senior Notes to be redeemed at his or her registered address. On and
after the Redemption Date, unless the Company defaults in making the redemption
payment, interest ceases to accrue on Senior Notes or portions thereof called
for redemption.
<PAGE>
-4-
7. Offers To Purchase. Sections 4.13 and 4.15 of the Indenture
------------------
provide that after an Asset Sale or upon the occurrence of a Change of Control,
and subject to further limitations contained therein, the Company shall make an
offer to purchase a certain amount of Senior Notes with respect to any such
offer after an Asset Sale and all outstanding Senior Notes with respect to any
such offer after a Change of Control, all in accordance with the procedures set
forth in the Indenture.
8. Denominations, Transfer, Exchange. The Senior Notes are in
---------------------------------
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. A Holder may transfer or exchange Senior Notes in
accordance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay to
it any taxes and fees required by law or permitted by the Indenture. The
Registrar need not transfer or exchange any Senior Notes or portion of a Senior
Note selected for redemption, or transfer or exchange any Senior Notes for a
period of 15 days before a selection of Senior Notes to be redeemed.
9. Persons Deemed Owners. The registered Holder of a Senior Note
---------------------
shall be treated as the owner of it for all purposes.
10. Unclaimed Money. If money for the payment of principal, premium,
---------------
if any, or interest remains unclaimed for two years, the Trustee or Paying Agent
will pay the money back to the Company at its request. After that, Persons
entitled to the money must look to the Company for payment as general creditors
unless an "abandoned property" law designates another Person.
11. Amendment, Supplement, Waiver. The Company and the Trustee (if a
-----------------------------
party thereto) may, without the consent of the Holders of any outstanding Senior
Notes, amend, waive or supplement the Indenture or the Senior Notes for certain
specified purposes, including, among other things, curing ambiguities, defects
or inconsistencies, maintaining the qualification of the Indenture under the
Trust Indenture Act of 1939, as amended, or making any change that does not
adversely affect the rights of any Holder. Other amendments and modifications
of the Indenture or the Senior Notes may be made by the Company and the Trustee
with the consent of the Holders of not less than a majority of the aggregate
principal amount of the outstanding Senior Notes, subject to certain exceptions
requiring the consent of the Holders of the particular Senior Notes to be
affected.
12. Successor Corporation. When a successor corporation assumes all
---------------------
the obligations of its predecessor under the Senior
<PAGE>
-5-
Notes and the Indenture and the transaction complies with the terms of Article V
of the Indenture, the predecessor corporation will be released from those
obligations.
13. Defaults and Remedies. Events of Default are set forth in the
---------------------
Indenture. Subject to certain limitations in the Indenture, if an Event of
Default (other than an Event of Default specified in Section 6.1(a)(vi) or (vii)
of the Indenture (with respect to the Company)) occurs and is continuing, then
the Holders of not less than 25% in aggregate principal amount of the
outstanding Senior Notes may, or the Trustee may, and upon the request of the
Holders of not less than 25% in aggregate principal amount of the outstanding
Senior Notes shall, declare the principal of and interest on all of the Senior
Notes to be due and payable immediately. If an Event of Default specified in
Section 6.1(a)(vi) or (vii) of the Indenture (with respect to the Company)
occurs, the principal of, premium, if any, and interest on all of the Senior
Notes shall ipso facto become and be immediately due and payable without any
---- -----
declaration or other act on the part of the Trustee or any Holder. Holders may
not enforce the Indenture or the Senior Notes except as provided in the
Indenture. Except asset form in the Indenture, the Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Senior Notes (it
being understood that the Trustee will not unreasonably withhold such
satisfaction). Subject to certain limitations, Holders of a majority in
aggregate principal amount of the then outstanding Senior Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders notice of any continuing default (except a default in payment of
principal, premium, if any, or interest) if it determines that withholding
notice is in their interests. The Company must furnish a quarterly compliance
certificate to the Trustee.
14. Trustee Dealings with Company. The Trustee, in its individual or
-----------------------------
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not Trustee.
15. No Recourse Against Others. No director, officer, employee or
--------------------------
stockholder, as such, of the Company shall have any liability for any
obligations of the Company under the Senior Notes or the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Senior Note waives and releases all such
liability. The waiver and release are part of the consideration for the issue
of the Senior Notes.
<PAGE>
-6-
16. Discharge. The Company's obligations pursuant to the Indenture
---------
will be discharged, except for obligations pursuant to certain sections thereof,
subject to the terms of the Indenture, upon the payment of all the Senior Notes
or upon the irrevocable deposit with the Trustee of money or U.S. Government
Obligations sufficient to pay when due principal of, premium, if any, and
interest on the Senior Notes to maturity or redemption, as the case may be.
17. Authentication. This Senior Note shall not be valid until the
--------------
Trustee signs the certificate of authentication on the other side of this Senior
Note.
18. Abbreviations. Customary abbreviations may be used in the name
-------------
of a Holder or an assignee, such as: TEN COM (= tenants in common), TENANT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:
MERISEL, INC.
200 Continental Boulevard
El Segundo, California 90245
Attention: Treasurer
with a copy to
MERISEL, INC.
200 Continental Boulevard
El Segundo, California 90245
Attention: General Counsel
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Senior Note, fill in the form below and
have your signature guaranteed:
I or we assign and transfer this Senior Note to
_______________________________________________________________________________
(Insert assignee's social security or tax ID number) __________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type assignee's name, address and zip code) and irrevocably appoint
_______________________________________________________________________________
agent to transfer this Senior Note on the books of the Company. The agent may
substitute another to act for him.
_______________________________________________________________________________
Date:__________________ Your signature:________________________________________
(Sign exactly as your name appears on the other side of this Senior Note)
Signature Guarantee:___________________________________________________________
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Senior Note purchased by the Company pursuant
to Section 4.13 or 4.15 of the Indenture, check the Box: [ ]
If you wish to have a portion of this Senior Note purchased by the
Company pursuant to Section 4.13 or 4.15 of the Indenture, state the amount:
$__________________
Date: _____________________ Your Signature: ________________________________
(Sign exactly as your name appears on the other side of this Senior Note)
Signature Guarantee: __________________________________________________________
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS FOR MERISEL, INC. FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1994.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 61
<SECURITIES> 0
<RECEIVABLES> 384,367
<ALLOWANCES> 15,996
<INVENTORY> 498,458
<CURRENT-ASSETS> 885,677
<PP&E> 93,329
<DEPRECIATION> 36,452
<TOTAL-ASSETS> 1,060,378
<CURRENT-LIABILITIES> 574,351
<BONDS> 242,450
<COMMON> 297
0
0
<OTHER-SE> 241,746
<TOTAL-LIABILITY-AND-EQUITY> 1,060,378
<SALES> 3,595,683
<TOTAL-REVENUES> 3,595,683
<CGS> 3,347,886
<TOTAL-COSTS> 3,347,886
<OTHER-EXPENSES> 184,362
<LOSS-PROVISION> 12,505
<INTEREST-EXPENSE> 19,968
<INCOME-PRETAX> 22,878
<INCOME-TAX> 8,769
<INCOME-CONTINUING> 14,109
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,109
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
</TABLE>
